2017 (7) TMI 504 - HC - Companies Law

Revocation of the leave granted to the Plaintiffs under Order 1 Rule 8 of the Code of Civil Procedure, 1908 - Held that - The answer must, in turn, depend on the very position of the others who are claimed to be represented insofar as their interest in the suit is concerned. If by its very nature, their interest in the suit is not the same as the plaintiff, the application for leave must fail. If it is the same, the application must succeed. As we have noted above, by its very nature the interest in this suit of others of the alleged class is not the same as the Plaintiffs. If that is so, it does not matter that some others of that class have actually come forward in support of the Plaintiffs. That only means that there are, as it turns out, some others who claim the same right to relief in respect of, or arising out of, the same act or transaction, or series of acts or transactions. If that is so and if common questions of law or fact would arise if separate suits were to be brought by them, there is a case for joinder of those others under Order 1 Rule 1. If not originally joined, they may seek joinder under Order 1 Rule 10. But it is still not a case for leave under Order 1 Rule 8. Apart from impleadment of parties under Order 1 Rule 10, the law also envisages several other ways of dealing with such situations. There could be clubbing of several suits for trial (if several individual suits are filed) or there could even be a test case (if other suits could later follow). The rationale behind this statement of law is not far to seek. If the suit is truly a representative suit, any decree passed therein would bind every other person who is represented in the suit. A number of such other persons whom the Plaintiffs claim to represent, but who actually oppose the suit, will be forced to join the suit with a view to contest it, for if they do not, the decree, which they perceive to be to their detriment, will bind them. That would be clearly unjust, if, in the first place, there was no warrant in allowing the Plaintiff to represent them. In the present case, the non-promoter shareholders, who do not want reinstatement of Mistry, would be bound to accept his reinstatement if the Plaintiffs were to succeed and on top of it, suffer such reinstatement as something which was prayed for on their behalf or for their benefit. To avoid such predicament, they would be forced to join the suit and defend it, when they really had no intention or obligation to do so. Nothing could be more unjust. The present suit does not satisfy the requirements of Order 1 Rule 8. The Chamber Summons is, in the premises, allowed by revoking the leave granted on 9 December 2016 in Judges Order No. 215 of 2016.

Summary

Issues Involved:
1. Revocation of leave granted under Order 1 Rule 8 of the Code of Civil Procedure, 1908.
2. Commonality of interest among plaintiffs and non-promoter shareholders.
3. Legality of plaintiffs representing non-promoter shareholders.
4. Impact of ouster of Cyrus Mistry on share prices and corporate governance.
5. Applicability of precedents and legal principles.

Detailed Analysis:

1. Revocation of Leave Granted Under Order 1 Rule 8:
The primary issue was whether the leave granted to the plaintiffs under Order 1 Rule 8 of the Code of Civil Procedure, 1908, allowing them to sue on behalf of non-promoter shareholders, should be revoked. The defendants argued that there was no commonality of interest among the plaintiffs and the other non-promoter shareholders, thus invalidating the representative suit. The court examined whether the plaintiffs had the same interest as the other shareholders in the suit, which is a prerequisite for maintaining a representative action under Order 1 Rule 8.

2. Commonality of Interest Among Plaintiffs and Non-Promoter Shareholders:
The court scrutinized the claim of commonality of interest among the plaintiffs and other non-promoter shareholders. The plaintiffs contended that the ouster of Cyrus Mistry as Executive Chairman of Tata Sons Ltd. and the subsequent actions by Tata companies led to a significant drop in share prices, affecting all non-promoter shareholders similarly. However, the court noted that the grievances and perceptions of the plaintiffs might not be shared by all non-promoter shareholders. Some shareholders might view the board's actions favorably, while others might not perceive the alleged financial loss or the reasons behind it in the same way as the plaintiffs.

3. Legality of Plaintiffs Representing Non-Promoter Shareholders:
The court emphasized the necessity of a common grievance and beneficial relief for all represented parties in a representative suit. The plaintiffs sought to represent non-promoter shareholders of multiple Tata companies, but the court found that these shareholders did not form a distinct class with a common interest in the suit. The court highlighted that the individual circumstances and perceptions of non-promoter shareholders varied, and thus, the plaintiffs could not validly represent them. The court also pointed out that the relief sought by the plaintiffs, including the reinstatement of Cyrus Mistry and monetary compensation, might not be beneficial or desired by all non-promoter shareholders.

4. Impact of Ouster of Cyrus Mistry on Share Prices and Corporate Governance:
The plaintiffs argued that the ouster of Cyrus Mistry and the subsequent actions by Tata companies led to a crash in share prices, causing significant financial loss to non-promoter shareholders. The court examined whether this alleged financial loss and the claimed breach of corporate governance norms constituted a common grievance among all non-promoter shareholders. The court concluded that the perceptions of financial loss and the reasons behind it could differ among shareholders, and the plaintiffs' grievance might not be universally shared.

5. Applicability of Precedents and Legal Principles:
The court referred to several precedents, including the Supreme Court's decision in Chairman, Tamil Nadu Housing Board v. T.N. Ganapathy, and other High Court decisions, to elucidate the principles governing representative suits under Order 1 Rule 8. The court noted that these precedents emphasized the need for a common interest and grievance among the represented parties. The court found that the facts of the present case did not align with the principles established in these precedents, as the non-promoter shareholders did not have a common interest or grievance justifying a representative suit.

Conclusion:
The court concluded that the plaintiffs did not satisfy the requirements of Order 1 Rule 8 for maintaining a representative suit. The leave granted to the plaintiffs to sue on behalf of non-promoter shareholders was revoked, and the Chamber Summons was allowed. The court emphasized that the plaintiffs could not validly represent a class of shareholders with divergent interests and perceptions regarding the ouster of Cyrus Mistry and its impact on share prices.