1968 (12) TMI 74 - SC - Companies Law

Whether the plaintiff, to entitle it to get an order of interim injunction, has prima facie established that the defendant did not have the necessary share qualification on August 31, 1964, to make him eligible for directorship and that the defendant, in law, had no right to function as a director? Whether Sunil Kumar Ganguli ceased to be a director on August 31, 1964, because it is the claim of the defendant that it was in the place of Sunil Kumar Ganguli that he was elected as a director? Held that - When once from the records produced by the company it is evident prima facie at this stage that the defendant is not shown as a shareholder and that he has not been appointed a director, as claimed by him, and that Sunil Kumar Ganguli did not cease to be a director from August 31, 1964, in our opinion, the appellate court was perfectly justified in granting the injunction restraining the defendant from functioning as a director. The appellate court was also perfectly justified in drawing an adverse inference against the defendant about his having become a shareholder, having due regard to the fact that he had instituted a suit for rectification of the share register only as late as November 21, 1966, though he claimed to have obtained a transfer of shares as early as October 30, 1963. His plea that he delivered the transfer deed to Kishorilal Goenka and that the latter assured him that the necessary changes had been effected in the registers of the company, are all matters to be investigated in the trial of the suit. We are in entire agreement with the conclusions arrived at, at this stage, by the appellate Bench as we are satisfied that a correct approach has been made by it for considering the matters arising at the interlocutory stage of the proceedings. The result is Civil Appeal fails, and is dismissed.

Issues Involved:
1. Competency of the suit filed by the plaintiff.
2. Validity of the defendant's claim to be a shareholder.
3. Validity of the defendant's appointment as a director.
4. Prima facie case for granting an interim injunction against the defendant.
5. Relevance and impact of the order dated June 27, 1966, by Mitra J.

Detailed Analysis:

1. Competency of the Suit Filed by the Plaintiff
The defendant argued that Basudev Jhajharia, who verified the plaint, was neither the manager nor the principal officer of the company, and thus not entitled to institute the suit. The learned trial judge did not accept this contention at this stage, noting that the question of competency would be decided at trial. The judge also pointed out that no application had been filed by the defendant to strike out the suit on these grounds.

2. Validity of the Defendant's Claim to be a Shareholder
The plaintiff argued that the defendant did not hold any shares in the company and thus did not meet the qualification to be a director as per Article 104 of the Articles of Association. The defendant claimed to have 1,000 shares transferred to him by Bhagwati Debi on October 30, 1963, and lodged with the company for necessary changes. However, the plaintiff produced the company's registers showing that the defendant was not listed as a shareholder. The appellate court, after examining the evidence, concluded that the defendant was not a shareholder, noting the delay in the defendant's suit for rectification of the share register filed only in November 1966.

3. Validity of the Defendant's Appointment as a Director
The defendant claimed to have been appointed as a director in place of Sunil Kumar Ganguli at a board meeting on August 31, 1964. The plaintiff, however, produced minutes and returns filed with the Registrar of Joint Stock Companies showing that Ganguli continued to be a director even as late as June 30, 1965. The appellate court found that the plaintiff had made a prima facie case that the defendant was not validly appointed as a director, relying on the minutes of the board meeting and other documents.

4. Prima Facie Case for Granting an Interim Injunction Against the Defendant
The learned trial judge initially dismissed the plaintiff's application for an injunction, emphasizing the de facto functioning of the defendant as a director and the potential conflict with the order of Mitra J. dated June 27, 1966. The appellate court, however, disagreed, focusing on whether the plaintiff had prima facie established that the defendant was not entitled to function as a director. The appellate court concluded that the plaintiff had made out a prima facie case and granted the injunction, restraining the defendant from acting as a director while allowing him to operate the bank account as per the order of June 27, 1966.

5. Relevance and Impact of the Order Dated June 27, 1966, by Mitra J.
The learned trial judge gave significant weight to the order of Mitra J., which allowed the defendant to operate the bank account. However, the appellate court noted that this order was passed without prejudice to the rights of the parties and did not necessarily recognize the defendant as a director. The appellate court thus found it appropriate to grant an injunction against the defendant's functioning as a director while respecting the order regarding the operation of the bank account.

Conclusion
The appellate court reversed the trial judge's decision, granting an interim injunction restraining the defendant from acting as a director based on a prima facie case established by the plaintiff. The court emphasized the importance of the company's records and the delay in the defendant's actions regarding the share transfer. The appeals, Civil Appeal No. 1412 of 1968 and Civil Appeal No. 1413 of 1968, were dismissed, with costs awarded in the former and no order as to costs in the latter.

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