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TMI Blog1989 (11) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferring any shares of the second respondent-company from the existing shareholders to any other person, which transfer is sought to be effected subsequent to September 25, 1989, by deposit of the share certificates along with the transfer applications with the second respondent-company on or after September 25, 1989". The petitioners in both the writ petitions are shareholders/directors in the second respondent company, viz ., Sree Ayyanar Spinning and Weaving Mills Ltd. It is not necessary to refer in detail to the various facts set out in the affidavits filed in support of the petitions. The facts which are relevant can be stated in a very short compass. The second respondent-company has obtained a loan of about Rs. 81 lakhs from the first respondent, besides other loans with which these writ petitions are not concerned. While taking the loan of Rs. 81,000,00 odd, the directors of the second respondent-company gave an undertaking to the first respondent that they shall not transfer, assign, dispose of, pledge, charge or create any lien or, in any way, encumber their existing or future shareholdings in the company in favour of any person so long as any money remained due ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent would be affected and if so how. When the writ petitions were taken up for hearing, a preliminary objection was raised on behalf of the first respondent that the prayers as against the first respondent are not sustainable in the form in which they have been made. The objection is really two-fold. The first objection is that even when the writ petitions came up for admission, transfers had already been effected and, at any rate, the approval of the first respondent for such transfers had been given and, therefore, there could not be a prayer for issue of a mandamus to the first respondent to prevent the transfers from being effected. In other words, the contention is that the writ petitions had become infructuous on the dates when they came up for admission. The second objection is that there cannot be a mandamus directing the first respondent to prevent the transfer of shares held by certain directors and shareholders in the second respondent-company. In other words, the contention is that the first respondent-company cannot have any say with regard to the legality or validity of transfer of shares, if effected by the second respondent-company without the prior approval of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the matter of recovery of the loan advanced to the second respondent-company. If the first respondent is satisfied that the recovery of loan will not, in any manner, be prejudiced by the substitution of certain shareholders with third parties, then it is not for the petitioners in the writ petitions or this court to say that the first respondent ought not to have given approval for the transfer of such shares. Learned counsel persists by saying that, if the action of the first respondent is vitiated by mala fides , this court can certainly give its directions to the first respondent as the first respondent happens to be an instrumentality of the State. In this connection, learned counsel placed reliance on certain observations made by the Supreme Court of India in LIC of India v. Escorts Ltd. [1986] 59 Comp Cas 548 . Learned counsel invites my attention to paragraphs 101 and 102 which read thus (p. 636) : "It was, however, urged by learned counsel for the company that the Life Insurance Corporation was an instrumentality of the State and was, therefore, debarred by article 14 from acting arbitrarily. It was, therefore, under an obligation to state to the court its rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or concern itself with the intricacies of trade and commerce. If the action of the State is related to a contractual obligation or obligations arising out of tort, the court may not, ordinarily, examine it unless the action has some public law character attached to it. Broadly speaking, the court will examine actions of State if they pertain to the public law domain and refrain from examining them if they pertain to the private law field. The difficulty will lie in demarcating the frontier between the public law domain and the private law field. It is impossible to draw the line with precision and we do not want to attempt it. The question must be decided in each case with reference to the particular action, the acitivity in which the State or the instrumentality of the State is engaged when performing the action, the public law or private law character of the action, and a host of other relevant circumstances. When the State or an instrumentality of the State ventures into the corporate world and purchases the shares of a company, it assumes to itself the ordinary role of a shareholder, and dons the robes of a shareholder, with all the rights available to such a shareholder. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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