2015 (11) TMI 1075 - HC - Companies Law

Permanent Injunction - plaintiffs have sought inter alia an interim order restraining the defendants from proceeding any further with the Rights Issue under the impugned Letter of Offer dated 14th September, 2015 in any manner during the pendency of the suit - whether on the date of filing of the suit, the plaintiffs were entitled for injunction or not? - Held that - There is no force in the submission of the plaintiff that they cannot go to the Company Law Board as the shareholding is less than 10% as the appealable remedy lies before SEBI where no shareholding limit is needed to seek redressal of the alleged grievances raised by the plaintiff. The allegation of false misrepresentation and fraud as alleged if any ought to have come in the picture after 31st March, 2015 when the process was started first time. The grievance of the plaintiffs still can be raised by the plaintiffs. But it is doubtful that at this stage the said claim is decided when the shares have already been allotted once the plaintiffs either were not interested since the year 2011 and from September, 2013 when their names were not shown and still they did not take any steps. There is no force in the submissions. Learned Senior Counsel has argued that most of the issues/objections raised by the plaintiffs are of technical in nature which could have been taken by the plaintiffs before SEBI, if they had. The same cannot be determined after completion of entire process particularly in the interim application. The plaintiffs had enough time to raise the same before appropriate authority and not before this Court at this stage. The plaintiff was at least aware from September 2013 about its non inclusion as part of Promoter & Promoter Company of defendant No.1 in the shareholding pattern filed by Defendant No.1 with the stock exchange. The defendant No.1 then in every quarterly shareholding pattern filed the Plaintiff has not been shown as part of Promoter or Promoter Company of defendant No.1. The aforesaid shareholding pattern has been available on the website of Stock Exchanges since 2013 but no objection was raised. The Resolution approving the rights issue was passed on 31st March, 2015. Thereafter, the said resolution was put up for vote to the shareholders by a postal ballet and the plaintiff chose not to cast its vote. The plaintiff was aware as far back as June 2015 about the terms of the offer when the same was put on the website of SEBI. Even as per plaintiff s own averment it was aware of the offer in the second or third week of September but despite the same chose to file the Suit only in second week of October, 2015 knowing fully well that the closing date of the rights issue is 14th October, 2015. With regard to objection raised on behalf of the plaintiff that the object for which the rights issue is being made is not justifiable i.e. repayment of loans of Promoter and Promoter Companies and it was argued that some of these loans are not even due till 2017, it was submitted that the object of the letter of offer was set out in the Board Resolution dated 31st March, 2015. The said Resolution was put up for voting by postal ballot to the shareholders. In the postal ballot form sent to shareholders the object of the letter of offer is clearly disclosed at page 175 of the documents filed with the reply. The postal ballot form was sent to the plaintiff at page 181 of documents filed with reply. The plaintiff chose not to vote. 99.97% of the valid votes cast on the resolution by the shareholders voted in favour of the said resolution. Report of postal ballots is filed. SEBI raised a query on the object of the issue vide its interim observations dated 23rd June, 2015. The same was duly replied to by defendant No.1 vide its reply dated 6th July, 2015. Subsequently, SEBI noted compliance vide its letter dated 7th September, 2015. The plaintiff has also not disclosed that an application had been filed on 5th October, 2015 before the High Court of Calcutta in the Testamentary proceedings pending there with regards to the estate of Late Smt. Priyamvada Devi Birla. The said application is listed for 27th November, 2015. Letter of offer was issued and dispatched to the shareholders by defendant No.2 from Mumbai and submitted with SEBI by defendant No.4 in Mumbai and submitted by defendant No.1 to the stock exchanges from Satna, Madhya Pradesh. Thus, no part of cause of action to file the present suit arose within the territorial jurisdiction of this Court. Assuming though denying that any part of cause of action arose in Delhi, even then in view of the categorical jurisdiction clause, only the Courts in Madhya Pradesh would have jurisdiction to entertain the suit, assuming the same is maintainable. The present case does not fall in any of the exceptions carved out in the case of Whirlpool Corporation v. Registrar of Trade Marks, Mumbai & Ors., (1998 (10) TMI 510 - SUPREME COURT) namely enforcement of any fundamental rights or violation of principles of natural justice or where proceedings are without jurisdiction or vires of an act is challenged. No prima facie case is made out by the plaintiffs. The balance of convenience also lies in favour of the defendants. If any order is passed, the defendants would suffer irreparable loss and injury. Third parties right has already been created. The plaintiffs are not entitled to an injunction as prayed for. However, the plaintiffs are at liberty to take appropriate remedy by amending the plaint by seeking the declaration to become promoter or part of promoters group of the company and to seek damages as per law. The same would be decided as per its merit.

Summary

Issues Involved:
1. Validity of the Letter of Offer/Abridged Letter of Offer dated 14th September 2015.
2. Exclusion of certain shareholders from the "Promoter and Promoter Group".
3. Jurisdiction of the Delhi High Court.
4. Delay and laches in filing the suit.
5. Maintainability of the suit in light of SEBI regulations.
6. Interim injunction and status quo order.

Detailed Analysis:

1. Validity of the Letter of Offer/Abridged Letter of Offer dated 14th September 2015:
The plaintiffs sought a decree declaring the Letter of Offer/Abridged Letter of Offer dated 14th September 2015 as unlawful, null, and void ab-initio. They also sought a permanent injunction to prevent the defendants from proceeding with the Rights Issue under the said Letter of Offer. The plaintiffs argued that the Letter of Offer did not disclose all material facts, which would enable a shareholder to make an informed decision. They contended that the non-inclusion of the plaintiff in the "promoter and promoter group of companies" was deliberate, aimed at denying the plaintiff the special rights enjoyed by a promoter. The court noted that the plaintiffs had not raised objections when the draft Letter of Offer was available for public comments and had not approached SEBI, which is the appropriate forum for such grievances.

2. Exclusion of certain shareholders from the "Promoter and Promoter Group":
The plaintiffs alleged that their exclusion from the "promoter and promoter group" was with malafide intent to deny them special rights. They argued that the exclusion was contrary to the Companies Act, SEBI Regulations, and the definitions of "promoter" and "promoter group" under the SEBI regulations. The court observed that the plaintiffs had stopped making the required disclosures as promoters since 2011 and had not been shown as part of the promoter group since September 2013. The plaintiffs had not sought a declaration in their plaint that they were part of the promoter group, which weakened their case.

3. Jurisdiction of the Delhi High Court:
The defendants raised an objection regarding the lack of territorial jurisdiction, citing a disclaimer in the Letter of Offer that any dispute arising out of the Issue would be subject to the jurisdiction of the appropriate court(s) in Madhya Pradesh only. The court noted that even if multiple courts have jurisdiction, an exclusive jurisdiction clause would prevail. The court found that the primary jurisdiction lay with the courts in Madhya Pradesh, where the registered office of the defendant company is located.

4. Delay and Laches in Filing the Suit:
The defendants argued that the plaintiffs had approached the court belatedly, knowing well the closing date of the rights issue. The court noted that the plaintiffs were aware of their exclusion from the promoter group since September 2013 and had not taken timely action. The court referred to the Supreme Court's decision in Morgan Stanley Mutual Fund vs. Kartik Das, which deprecated the practice of approaching the court at the last minute in case of rights issues.

5. Maintainability of the Suit in Light of SEBI Regulations:
The defendants contended that the challenge to the validity of the Letter of Offer should lie before SEBI, as the draft Letter of Offer was submitted to SEBI and issued only after SEBI's observations and necessary compliances. The court agreed, noting that SEBI is the appropriate forum for such grievances, and the plaintiffs had not even made SEBI a party to the suit. The court highlighted that SEBI has the power to regulate or prohibit the issue of prospectus, offer documents, etc., and that the jurisdiction of civil courts is barred in matters falling within SEBI's domain.

6. Interim Injunction and Status Quo Order:
The plaintiffs sought an interim order restraining the defendants from proceeding with the Rights Issue. The court noted that the process of allotment of shares had already been completed, and any interim order at this stage would cause irreparable loss and injury to the defendants. The court found that the plaintiffs had not made out a prima facie case for an injunction and that the balance of convenience lay in favor of the defendants. The court vacated the status quo order and dismissed the interim applications.

Conclusion:
The court dismissed the interim applications, vacated the status quo order, and held that the plaintiffs were not entitled to an injunction. The court noted that the plaintiffs could seek appropriate remedies by amending the plaint to seek a declaration of their status as promoters and claim damages as per law. The observations made in the order were tentative and would not affect the final decision after trial.