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TMI Blog1994 (5) TMI 168X X X X Extracts X X X X X X X X Extracts X X X X ..... sset management company of the appellant. Morgan Stanley Asset Management India Private Limited is a subsidiary of the Morgan Stanley Group Inc. which holds 75 per cent, of the equity, the balance being held by Indian shareholders such as Housing Development Finance Corporation (HDFC), Stock Holding Corporation of India, etc. Morgan Stanley Asset Management India Private Limited was granted a certificate of incorporation on October 18, 1993, by the Registrar of Companies, Bombay. Its memorandum and articles of association have also been approved by the SEBI as per the provisions of the said Regulations. The draft scheme of the appellant was approved by the Board of Trustees by circular resolution dated November 8,1993. This was forwarded to the SEBI for its approval on November 10, 1993. The scheme was duly scrutinised and examined by the SEBI and the SEBI gave its approval and certain amendments were suggested. Upon receipt of such approval for the scheme, the appellant and the investment manager took necessary steps to begin marketing the scheme by issue of advertisements. All advertisements and publicity material were approved by the SEBI in writing before publication as requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orum. OPs are at liberty to apply for vacation/variation of this order. Next date fixed on January 19, 1994". Aggrieved by this order, civil appeal arising out of SLP(C) No. 272 of 1994 has come to be preferred. Against the dismissal of Writ Petition No. 14 of 1994 by the High Court of Delhi, civil appeal arising out of SLP No. 321 of 1994 has come to be preferred. Mr. Ashok Desai, learned counsel for the appellant (Morgan Stanley Mutual Fund), urges the following: (a)A prospective investor is not a consumer to prefer a complaint under the Consumer Protection Act, 1986 (hereinafter referred to as "the Act"). If that be so, a voluntary consumer association cannot complain about the issue of shares. The shares are not goods as defined under section 2(i) of the Act. Even otherwise, there can be no consumer association of prospective applicants for future properties. The issue of shares was to open on April 27, 1993. The so-called consumer has yet to apply for allotment of final shares and make payments in respect thereof. Therefore, it is submitted that no member of this association could be held to be a consumer of future shares within the meaning of the definition. (b)In law, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecember 13, 1993, the petition was filed on January 4, 1994, and the orders were passed on the following day. The Calcutta District Consumer Disputes Redressal Forum was approached on the last day, obviously with unclean motives. There is also suppression of material facts on the part of the respondent. In matters of this kind, there must be an undertaking as to the damages on the part of the party seeking the injunction. For these reasons, it is prayed that the impugned order may be set aside. In this case, since the appellant has suffered very much in that not even the copy of the injunction was served on the appellant," which copy came to be obtained only through the bankers, it is a fit case in which the appellant should be compensated with exemplary costs. Mr. K.G. Vishwanathan, learned counsel for the respondent, urges that there are well-known principles for the grant of ex parte injunction. Should the court be satisfied that there is a prima facie case, on balance of convenience, it can always grant an injunction. Where the issue of public shares is nothing but an attempt to gain an undue advantage, the court is not powerless. This is a case to which the Regulations would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one, that the allotment of units will be based on firm allotment basis and with a changed sponsor in the advertisement is, it is contended, illegal in law, apart from its being violative of the norms and practices in the capital market. In such a case, the impending disaster could be avoided only by a quia timet interference of the court. It is also urged that by piercing the corporate veil, it could be easily seen that the real sponsor is none other than the Morgan Stanley Group, New York. Therefore, the SEBI should have acted in accordance with section 11(2)(e) of the SEBI Act, 1992, for prohibiting fraudulent and unfair trade practices relating to the securities market. It is also urged that the writ petition came to be filed and dismissed without consideration of these aspects. So, it requires interference of this court. We have already extracted the impugned order. The correctness of the same can be determined with reference to the following questions: (i)Whether the prospective investor could be a consumer within the meaning of the Consumer Protection Act, 1986? (ii)Whether the appellant-company "trades" in shares? (iii)Does the Consumer Protection Forum have jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exchange Board of India Act, 1992 (15 of 1992), read with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1993, made thereunder the Board hereby grants a certificate of registration to Morgan Stanley Mutual Fund as a mutual fund. (ii) Registration code for the mutual fund is MF/005/93/1. By order". The appellant-company is managed by a board of trustees. In accordance with the said Regulations, the investment management company of the appellant, Morgan Stanley Asset Management India Pvt. Ltd., is also registered with the SEBI. The certificate to this effect is as under: "Securities and Exchange Board of India Little and Co., Central Bank Building, Bombay 400 023. II MARP/22996/93, November 5, 1993. Dear Sir, Re: Morgan Stanley Mutual Fund This has reference to the application made by Morgan and Stanley Group, Inc., to sponsor a mutual fund. In terms of regulation 20 of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1993, we hereby grant our approval to 'Morgan Stanley Asset Management India Pvt. Ltd.', to act as the asset management company for Morgan Stanley Mutual Fund. We also grant registration to 'Morgan Stanley Mutu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovember 22, 1993, we advise that the enclosed revised set of advertisements of the proposed advertising campaign of Morgan Stanley Inc., are in order. Yours faithfully, K. Ravikanth". "Mr. Ronan Basu, Fortune Communication Ltd.,December 20, 1993. Bombay. Sub: Morgan Stanley Growth Fund Dear Sir, I enclose a copy of letter received from the SEBI, in regard to the changes suggested in the 'Scheme Campaign'. Please carry out the changes as required by the SEBI and get the approval of Morgan Stanley Asset Management before its release. Thanking you, Yours faithfully, for Enam Financial Consultants Pvt. Ltd. N.G.N. Puranik". It has to be carefully noted that the disclaimer clause required to be incorporated at the beginning of the offering circular by the SEBI while approving the scheme is a standard requirement and nothing peculiar to the present case. The object of this is to bring to the notice of the investors that they should take a firm decision on the basis of the disclosures made in the documents. It is meant for the investors' protection. In fact, by such a course the SEBI informs the investors that they have approved the scheme but they did not recommend to the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be made within ten weeks after the closure of the date of the issue. The above clauses indicate the following: (i)the petitioners clearly have a desire to retain over subscription and the offering circular (and the SEBI guidelines) empower them to do so; (ii) there is a minimum period for which the issue will be kept open, namely, three days; (iii)that those who apply for the units before the closure of the issue would have the same priority and would be allotted units to the extent applied for; (iv)that there is a provision for a closure notice, which provision has been discussed with and examined by the SEBI. This particular method of closure of the scheme and allotment was chosen to break away from the system followed by other mutual funds. (v)by encouraging prospective investors to apply early the scheme can be closed quickly, allotments can be finalised earlier (thereby blocking the money of the first applicants for a shorter period of time) and most important of all the proceeds can be invested quickly to benefit from the market opportunities. This reduces the cost of collection that the investor has to bear. In this manner by adopting the 'first come first served ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion so as to include anyone who consumes goods or services at the end of the chain of production. The comprehensive definition aims at covering every man who pays money as the price or cost of goods and services. The consumer deserves to get what he pays for in real quantity and true quality. In every society, the consumer remains the centre of gravity of all business and industrial activity. He needs protection from the manufacturer, producer, supplier, wholesaler and retailer. In the light of this, we will have to examine whether the "shares" for which an application is made for allotment would be "goods". Till the allotment of shares takes place, "the shares do not exist". Therefore, they can never be called goods. Under the Sale of Goods Act, all actionable claims and money are excluded from the definition of goods since section 2(7) of the Sale of Goods Act, 1930, is as under: "'goods' means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale". It will be useful to refer to clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidenced by the articles of association of the company". Therefore, it is after allotment, rights may arise as per the contract (articles of association of company). But certainly not before allotment. At that stage, he is only a prospective investor of future goods. The issue was yet to open on April 27, 1993. There is no purchase of goods for a consideration, nor again could he be called the hirer of the services of the company for a consideration. In order to satisfy the requirement of the above definition of consumer, it is clear that there must be a transaction of buying goods for consideration under clause 2(i) of the said Act. The definition contemplates the pre-existence of a completed transaction of a sale and purchase. If regard is had to the definition of complaint under the Act, it will be clear that no prospective investor could fall under the Act. What is it that he could complain of under the Consumer Protection Act? This takes us to the definition of complaint under section 2(c) which reads as follows: "2(c) 'complaint' means any allegation in writing made by a complainant that- (i)as a result of any unfair trade practice adopted by any trader, the complainant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the refusal of ex parte injunction would involve greater injustice than the grant of it would involve; (c)the court will also consider the time at which the plaintiff first had notice of the act complained of so that the making of improper order against a party in his absence is prevented; (d)the court will consider whether the plaintiff had acquiesced for some time and in such circumstances it will not grant ex parte injunction; (e)the court would expect a party applying for ex parte injunction to show utmost good faith in making the application; (f)even if granted, the ex parte injunction would be for a limited period of time; and (g)general principles like prima facie case, balance of convenience and irreparable loss would also be considered by the court". In United Commercial Bank v. Bank of India [1981] 2 SCC 766; [1982] 52 Comp. Cas. 186, 210 this court observed: "No injunction could be granted under Order 39, rules 1 and 2 of the Code unless the plaintiffs establish that they had a prima facie case, meaning thereby that there was a bona fide contention between the parties or a serious question to be tried. The question that must necessarily arise is whether, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a party, without affording an opportunity to him of being heard, must satisfy the court about the gravity of the situation and the court has to consider briefly these factors in the ex parte order. We are quite conscious of the fact that there are other statutes which contain similar provisions requiring the court or the authority concerned to record reasons before exercising power vested in them. In respect of some of such provisions it has been held that they are required to be complied with but non-compliance therewith will not vitiate the order so passed. But same cannot be said in respect of the proviso to rule 3 of Order 39. Parliament has prescribed a particular procedure for the passing of an order of injunction without notice to the other side, under exceptional circumstances. Such ex parte orders have a far-reaching effect, as such a condition has been imposed that the court must record reasons before passing such order. If it is held that the compliance with the proviso aforesaid is optional and not obligatory, then the introduction of the proviso by Parliament shall be a futile exercise and that part of rule 3 will be a surplusage for all practical purposes. The provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany is of great importance in revenue law, and the place of incorporation is not conclusive on this question. In general, residence depends upon the place where the central control and management of the company is located. It follows that if such central control is divided, the company may have more than one residence. The locality of the shares of a company is that of the register of shares. The head office of a company is not, however, necessarily the registered office of the company, but is the place where the substantial business of the company is carried on and its negotiations conducted. Like an individual or a firm, a company can, for the purposes of the rules of the Supreme Court, carry on business in more places than one". As far as India is concerned, the residence of the company is where the registered office is located. Normally, cases should be filed only where the registered office of the company is situate. Courts outside the place where the registered office is located, if approached, must have regard to the following: Invariably, suits are filed seeking to injunct either the allotment of shares or the meetings of the board of directors or again the meeting of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asses our comprehension as to how an interim injunction could ever be granted disregarding even the balance of convenience. We have dealt in the preceding paragraphs with the approval of the SEBI and the compliance with the regulation 27 of the Regulations, 1993. We have also explained what exactly is the concept of "first come first served" basis. On these two aspects, the respondent is suffering under a labyrinth of confusion. Therefore, we hold that the grounds urged by the respondent seeking to support the impugned order, are untenable. The appellant has suffered immensely because it has not even been served with a copy of the order of injunction. The application of the respondent is clearly actuated by mala fides. The Forum should have examined whether ex parte injunction without notice to the opposite side could ever be granted at all. The grounds urged in the injunction application were insufficient for the grant of such a relief. There is an increasing tendency on the part of litigants to indulge in speculative and vexatious litigation and adventurism which the for a seem readily to oblige. We think such a tendency should be curbed. Having regard to the frivolous nature ..... X X X X Extracts X X X X X X X X Extracts X X X X
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