2018 (10) TMI 774 - HC - Companies Law

Scheme of demerger - plaintiff/petitioner s sufficient prima facie case to go for trial to entitle the petitioner to the interlocutory reliefs as sought for - Held that - In the event the plaintiff as a shareholder of the defendant no. 11 company, was to participate in the voting for demerger, which is under challenge, the plaintiff would wield little or no power to exercise an option worth the name, in view of the shareholding of the plaintiff in defendant no. 11 company being only 0.06%. As such, the effect of the interlocutory orders prayed for, if granted, would confer upon the plaintiff a benefit with the blessings of the Court, which the plaintiff could not otherwise get in accordance with law. Consequently, in order to be elevated to the claim of derivative action, a mis-management and/or oppression of a higher plane ought to have been exhibited by the plaintiff. In the present case, the prayers sought in the interlocutory application are in apprehension of a particular way in which the shareholders of defendant no. 1 company might vote, which would, in turn, allegedly affect the interest of the defendant no. 1 company. Such cause of action, even if existent, would in the opinion of the Court be far too remote to entitle the plaintiff to get an injunction as sought for, more so in the nature of a derivative claim. Moreover, the present attempt borders on forum-shopping, since having failed to obtain a relief in a previous proceeding which went up to the Supreme Court where it was held that the plaintiff did not have qualifying shareholding in the defendant no. 11 company and other companies, the present attempt of the plaintiff at obtaining a related relief is improper, to say the least. Although the Supreme Court added a rider, while dismissing the appeals of the plaintiff previously, that the dismissal of those appeals would not stand in way of the present plaintiff (appellant therein) taking steps in appropriate proceeding in accordance with law, the present interlocutory application cannot be termed exactly as an appropriate proceeding in accordance with law , sufficient to entitle the plaintiff to the reliefs prayed for. Moreover, there is substance in the contention of the respondent no. 1 that the scope of the suit itself, from which the interlocutory application arises, is entirely different from the reliefs claimed in the said application. The primary reliefs claimed in the plaint relate to a cause of action previous to the notice and consequent meeting for demerger, impugned in the interlocutory application. In such view of the matter, this Court finds that the plaintiff/petitioner has not made out a sufficient prima facie case to go for trial to entitle the petitioner to the interlocutory reliefs as sought for. This apart, the petitioner has not come with clean hands in the present application, since what could not be achieved directly by participating in the voting to be held in the impugned proposed meeting, the petitioner has sought to get by way of an order of the Court. Accordingly, GA 2966 of 2018 is dismissed on contest without any order as to costs. It is made clear that, since the defendants/respondents were not invited to use any affidavit-in-opposition, the allegations made in the interlocutory application are deemed to be denied by the respondents.

Summary

Issues:
Derivative action, Jurisdiction of civil court, Scheme of demerger, Shareholder rights, Specific Relief Act.

Derivative Action:
The petitioner, a shareholder of defendant companies, sought an injunction against a proposed demerger shifting the Cement Division to a third company, alleging adverse effects on defendant No. 11. The petitioner argued for a derivative action due to controlling shareholders' interests conflicting with the company's welfare. However, the respondent contended that the civil court lacked jurisdiction under Sections 230 and 232 of the Companies Act, 2013. The court noted the petitioner's minimal shareholding and dismissed the claim of mismanagement or oppression, ruling the interlocutory application lacked merit for a derivative claim.

Jurisdiction of Civil Court:
The respondent argued that the civil court lacked jurisdiction as per the Companies Act, 2013, and previous legal proceedings where the petitioner's appeals were dismissed. The court considered the scope of the suit and the relief sought in the interlocutory application, finding them distinct. Citing a Division Bench judgment, the petitioner contended that the civil court's jurisdiction was not ousted in this case. Ultimately, the court dismissed the application, noting the petitioner's attempt at forum-shopping after previous legal setbacks.

Scheme of Demerger:
The petitioner challenged a proposed demerger affecting defendant No. 11's interests, alleging adverse effects on share values. The respondent argued that the demerger scheme provided safeguards for majority shareholders, and the petitioner's claims were barred under the Specific Relief Act. The court considered the petitioner's lack of direct influence due to minimal shareholding and ruled against granting the interlocutory reliefs sought, finding the claims insufficient for trial.

Shareholder Rights:
The petitioner, with a minimal shareholding, sought to prevent a demerger scheme affecting defendant No. 11's interests. The court noted the petitioner's lack of significant voting power and dismissed the application, finding the claims of potential adverse effects on defendant No. 11 insufficient to warrant the interlocutory reliefs sought.

Specific Relief Act:
The respondent argued that the petitioner's claims were barred under Sections 34 and 39 of the Specific Relief Act, citing the absence of a breach of obligation for mandatory injunctions. The court found the petitioner's attempt to obtain relief through court orders, where voting influence was lacking, as improper and dismissed the application without costs, noting the lack of a prima facie case for trial.

The court's decision highlighted the dismissal of the application without delving into the merits of the matter, emphasizing the lack of a sufficient case for trial and the petitioner's attempt to seek relief through court orders after failed legal proceedings. The observations made were solely for the purpose of adjudicating the interlocutory application, with no binding effect on the parties in further proceedings.