1957 (1) TMI 51 - HC - Companies Law

Summary

Issues Involved:
1. Validity and applicability of Rule 9 of the Stock Exchange Rules.
2. Authority of the Stock Exchange to inquire into the complaint.
3. Allegations of bias and malice by the Board of Directors.
4. Plaintiffs' entitlement to perpetual injunction.
5. Effect of the admission of the claim by the second defendant.

Detailed Analysis:

1. Validity and Applicability of Rule 9 of the Stock Exchange Rules:
The plaintiffs argued that Rule 9 of the Stock Exchange Rules was void and ultra vires. The court, however, held that since the Rules had been assented to by the Nizam and published in the Official Gazette, their validity could not be challenged. The court found no merit in the plaintiffs' argument, thus upholding the validity of Rule 9.

2. Authority of the Stock Exchange to Inquire into the Complaint:
The plaintiffs contended that the Stock Exchange had no authority to inquire into the complaint as the act complained of was not between members of the Exchange and therefore could not be investigated under Rule 9. The court disagreed, noting that Rule 9(f) allowed the Directors to expel, suspend, or fine a member for dishonorable or disgraceful conduct. However, the court held that since the act imputed to the plaintiff was a criminal offense, it could only be tried by a criminal court. Therefore, the inquiry proposed by the Directors was premature and beyond their competence.

3. Allegations of Bias and Malice by the Board of Directors:
The plaintiffs alleged that the Board of Directors was biased against them due to existing disputes and previous legal proceedings. The court noted that the plaintiffs did not challenge the impartiality of the Directors until they came to court, suggesting that the allegation of bias was an afterthought. The court also pointed out that new Directors were now in charge, reducing the significance of the bias claim.

4. Plaintiffs' Entitlement to Perpetual Injunction:
The court examined whether the plaintiffs were entitled to a perpetual injunction to prevent the Stock Exchange from inquiring into the complaint. The court emphasized that a perpetual injunction could only be granted to prevent the breach of a legal obligation. The court found that there was no legal obligation on the part of the Exchange not to inquire into the complaint. The court also noted that the plaintiffs' conduct was not fair and honest, as they refused to respond to the complaint and sought to avoid the inquiry. Consequently, the court held that this was not a fit case for granting a perpetual injunction.

5. Effect of the Admission of the Claim by the Second Defendant:
The second defendant admitted that he was not a member of the Stock Exchange and had no interest in the complaint. The court held that the admission of one party would not bind the other parties. Therefore, the admission by the second defendant did not affect the case against the plaintiffs.

Conclusion:
The court concluded that the plaintiffs had no cause of action and were not entitled to the discretionary relief of a permanent injunction. The appeal was allowed, the judgment and decree of the lower court were set aside, and the suit was dismissed. The appellant was awarded costs from the respondent and its partners.