2010 (9) TMI 219 - HC - Companies Law

Whether the requests under the various provisions were made by the original defendants following the plaintiffs refusal to give in to the extortionist demands of the original defendants that the plaintiffs book advertisements in the first defendant s periodical? Held that - The principal purpose for the plaintiffs launching the present proceedings is to cast some doubt over the criminal proceedings that have been instituted by the first defendant. Those criminal proceedings have to be contested and decided on merits without the pendency of the present action having any bearing thereon. If it is ultimately found that the first defendant had instituted the criminal proceedings with malice, the plaintiffs will be free to take appropriate steps, but this Court or the present proceedings cannot be used for the oblique purpose of gaining some undue benefit in the pending criminal proceedings. Appeal dismissed.

Issues Involved:
1. Allegation of improper motive by defendants in seeking inspection of records.
2. Leave under Order I Rule 8 of the Code of Civil Procedure.
3. Allegation of extortion by defendants.
4. Requests made under sections 163, 196, 301, and 372A of the Companies Act, 1956.
5. Interim orders and their status.
6. Defendants' justification for their requests.
7. Plaintiffs' argument on the principle of equitable considerations.
8. Relevant case law and judicial precedents.
9. Discretionary power under section 163(6) of the Companies Act.
10. Criminal proceedings instituted by the defendants.

Detailed Analysis:

1. Allegation of Improper Motive by Defendants:
The plaintiffs impute improper motive to the original defendants in their seeking to obtain copies or inspection of records that the Companies Act, 1956 permits them to ask for. The plaintiffs suggest that the requests made by the original defendants are mala fide, made with ulterior motive, and there is no legal compulsion on the plaintiff companies to accede thereto.

2. Leave Under Order I Rule 8 of the Code of Civil Procedure:
The suit has been instituted with leave under Order I Rule 8 of the Code of Civil Procedure. The leave under Order I Rule 8 of the Code was sought on the basis of the averment in the plaint as to the commonality of interest of the named plaintiffs with other unnamed companies. The original defendants have not applied for revoking such leave, though their application for rejection of the plaint on the ground that it does not disclose any cause of action has recently been dismissed.

3. Allegation of Extortion by Defendants:
The plaintiffs claim that the request made by the original defendants was a form of extortion to pressurize the original plaintiffs and other companies similarly situated to give in to the unjust and exorbitant demands of the original defendants. It is an admitted position that the original defendants made requests to the plaintiff companies to issue advertisements in a financial periodical published by the first defendant.

4. Requests Made Under Sections 163, 196, 301, and 372A of the Companies Act, 1956:
The original defendants made requests under sections 163, 196, 301, and 372A for obtaining copies or inspecting records relating to the register of members and annual returns of the plaintiff companies. The plaintiffs argue that the manner in which the original defendants have gone about making the requests and filing the criminal proceedings would substantiate the plaintiffs' charge that the entire exercise is mala fide and undertaken to wreak vengeance on the plaintiff companies upon their refusal to release advertisements in the first defendant's publication.

5. Interim Orders and Their Status:
The ad interim order on GA No. 938 of 2010, which is the original plaintiffs' principal application, stood vacated on 18-8-2010 when the application was dismissed for the petition relating thereto not being verified at all. On the original plaintiffs' subsequent application being GA No. 2768 of 2010, the order of injunction originally passed was substantially revived and GA No. 938 of 2010 was restored to the file on 27-8-2010.

6. Defendants' Justification for Their Requests:
The first defendant insists that if the statute confers him a right to make copies of certain records and inspect others, it would be foolhardy of a company to deny him the exercise of such right. He says that he needs the information that he has sought for his business purpose and that the subsisting order of injunction prejudices his publication.

7. Plaintiffs' Argument on the Principle of Equitable Considerations:
The plaintiffs found their cause of action on the principle that the legal rights exercisable by a shareholder are subject to equitable considerations. They argue that the mandatory "shall" used in section 163(3) is diluted by the discretionary "may" in section 163(6). They contend that upon the present challenge being made it was incumbent on the original defendants to justify the necessity for the information sought against the backdrop of the charge of extortion leveled by the plaintiff companies.

8. Relevant Case Law and Judicial Precedents:
The plaintiffs rely on several judgments, including Pelling v. Families Need Fathers Ltd., Dreyfuss & Son v. Benson, and Guaranty Old Line Life Co. v. MeCallum, to support their argument that the right of a shareholder to obtain copies or inspect records is not absolute and can be subject to equitable considerations. The first defendant relies on Davies v. Gas Light & Coke Co. to argue that the right does not depend upon the motives the shareholder may have for exercising it.

9. Discretionary Power Under Section 163(6) of the Companies Act:
Section 163(6) of the Act confers an element of discretion to the authority specified therein. The word "may" in sub-section (6) of section 163 of the Act may have been used to cover several unusual situations. However, the strength of the authorities would show that there is an element of discretion, however narrow, still available to the authority receiving an application for compelling a company to comply with the request.

10. Criminal Proceedings Instituted by the Defendants:
The principal purpose for the plaintiffs' launching the present proceedings is to cast some doubt over the criminal proceedings that have been instituted by the first defendant. Those criminal proceedings have to be contested and decided on merits without the pendency of the present action having any bearing thereon.

Judgment:
GA No. 938 of 2010 and GA No. 2768 of 2010 are dismissed. All interim orders stand vacated. There will be no order as to costs.

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