1951 (3) TMI 12 - HC - Companies Law

Issues Involved:
1. Transfer of Suit No. 56 of 1951 to the High Court.
2. Issuance of a temporary injunction against the defendants.
3. Allegations of fraud and conspiracy by the defendants.
4. Legality and validity of the proposed scheme under company law.
5. Bona fide nature of the plaintiff's litigation.
6. Impact of the proposed scheme on depositors and shareholders.
7. Internal management and jurisdiction of the Court.

Issue-wise Detailed Analysis:

1. Transfer of Suit No. 56 of 1951 to the High Court:
The plaintiff petitioned for the transfer of Suit No. 56 of 1951 from the Subordinate Judge's Court to the High Court. Both parties agreed that this was appropriate, and thus the Court ordered the transfer. The record was already present in the High Court, so it did not need to be sent back.

2. Issuance of a Temporary Injunction:
The plaintiff sought a temporary injunction to prevent the defendants from proceeding with the scheme pending the decision of the suit. The Court initially issued an ad interim injunction but later discharged it after hearing arguments. The Court imposed conditions on the discharge, including the requirement that the scheme be approved by the shareholders and the Reserve Bank, and that depositors should not be coerced.

3. Allegations of Fraud and Conspiracy:
The plaintiff alleged that Seth Ramkrishen Dalmia, in conspiracy with Mr. Yodh Raj, acquired control of the Punjab National Bank and planned to transfer valuable assets from the Bharat Bank to the Punjab National Bank at undervalued rates, thereby defrauding minority shareholders. However, the Court found no satisfactory evidence to prove that Dalmia had control over the Punjab National Bank or that the scheme was fraudulent. Affidavits from Dalmia and Yodh Raj denied these allegations, and the plaintiff's evidence was deemed insufficient.

4. Legality and Validity of the Proposed Scheme:
The plaintiff argued that the proposed scheme was ultra vires of the company and violated the memorandum and articles of association. The Court examined relevant clauses and sections, including Clause 3(r) of the memorandum of association, Article 135(19) of the articles of association, and Section 86H of the Indian Companies Act. The Court concluded that the scheme was not ultra vires and could be ratified by the shareholders. The Court cited precedents, including Dominion Cotton Mills Co. Ltd. v. George E. Amyot and Burland v. Earle, to support its decision.

5. Bona Fide Nature of the Plaintiff's Litigation:
The Court questioned the bona fide nature of the plaintiff's litigation, noting that the plaintiff was a resident of West Bengal with only twenty fully paid-up preference shares in the Bharat Bank. The litigation was being conducted by his attorney, Harbhagwan, and another brother, Shadi Lal, who was an ex-employee of the Bharat Bank. The Court suggested that the litigation might be motivated by personal vengeance or the interests of the Employees' Association, rather than genuine concern for the shareholders.

6. Impact of the Proposed Scheme on Depositors and Shareholders:
The Court considered the impact of the proposed scheme on depositors and shareholders. It noted that the relationship between a banker and a customer is that of debtor and creditor, not fiduciary. The Court found that the scheme, which involved transferring assets to the Punjab National Bank in exchange for assuming deposit liabilities, was not harmful to depositors and might benefit them. The Court also noted that the Bharat Bank was suffering losses and that the scheme was the best solution under the circumstances.

7. Internal Management and Jurisdiction of the Court:
The defendants argued that the matter was one of internal management and beyond the Court's jurisdiction. The Court acknowledged the principle that it should not interfere with the internal management of companies acting within their powers. However, it did not give a final opinion on this point, as it found that the intended scheme was not ultra vires or fraudulent and could be ratified by the shareholders.

Conclusion:
The Court discharged the temporary injunction subject to specific conditions, including shareholder approval and compliance with the Reserve Bank's directives. The case was transferred to the High Court for trial. The Court found no evidence of fraud, ruled that the scheme was not ultra vires, and questioned the bona fide nature of the plaintiff's litigation. The decision emphasized the importance of shareholder approval and the potential benefits of the scheme for depositors and shareholders.

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