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TMI Blog2009 (12) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... itors' dues, statutory levies as well as demands from the financial institutions. The electricity supply to the said tea estate stands disconnected since the year 2007 and the appellant's-bank has also declared the appellant-company as a non-performing asset and has accordingly initiated proceedings against the appellant-company in the Debts Recovery Tribunal, Guwahati. 2. On the ground that the financial condition of the appellant-company did not make it feasible for the appellant-company to run its business, an extraordinary general meeting of the shareholders of the appellant-company was convened on December 15, 2006. In this extraordinary general meeting, a resolution was adopted that the appellant's tea estate along with its assets and liabilities would be sold so that the dues of the appellant-company could be liquidated. The resolution also empowered the board of directors to negotiate with the highest bidder and sell the shares of the appellant-company without calling for any general meeting of the appellant-company. By another extraordinary general meeting held on March 19, 2007, the shareholders of the appellant-company ratified and confirmed the minutes of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r had been found, who was willing to purchase the shares, the plaintiff, vide his communication dated October 26, 2007, informed the managing director that the plaintiff proposed to retain Radhabari Tea Estate and also the appellant-company by having all shares of the company at the same price, which had been offered by the highest bidder, who is an outsider and not a member of the family, inasmuch as he (the plaintiff), being grandson of the person, who had been involved in bringing into existence the appellant- company, intended to retain the company within the family. By his said communication dated October 26, 2007, the plaintiff, thus, sought to exercise his pre-emptive or preferential right of purchase of the shares of the other shareholders and requested the managing director of the appellant-company to place the plaintiff's proposal to the board of directors for final approval. 7. As the plaintiff expressed his desire to purchase the share of the appellant-company, one of the directors (i.e., proforma respondent No. 3 in the present appeal, who was defendant No. 5 in the suit) issued a communication dated November 26, 2007, to the then managing director of the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares of the appellant-company, but was only putting his pre-emptive right of purchase of shares at the price, which might be offered by the highest confirmed bidder from outside the family. 9. The appellants allege that it was due to delaying tactics adopted by the plaintiff-respondent that the highest bidder lost interest and became noncommittal. The appellant-company also alleges that the plaintiff-respondent did not really have any intention to purchase the shares ; otherwise, he could have purchased the shares at the rate, which had been offered by the person, who had, as mentioned above, came forward to buy the shares along with all the assets and liabilities of the appellant-company. The plaintiff-respondent, however, denies that it was due to his fault that the highest bidder withdrew yet the fact remains that the plaintiff-respondent was, admittedly, informed about the highest bid, but the plaintiff-respondent had not, promptly and positively, responded to the highest bid, which was available from the bidder, who had come forward to buy the shares. 10. Be that as it may, the appellants' case is that responding to the plaintiff-respondent's communication dated N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent impleaded the appellant-company and four of its directors as parties. The share holders, who are owners of the shares and who are persons, who have the authority to sell or transfer their respective shares in terms of the articles of association of the appellant-company, have not been made parties nor any reliefs has been sought for against the shareholders. The reliefs, which the plaintiff-respondent sought for, in the suit, read as under : "(a)a decree declaring that the plaintiff has the preferential right and/or right of pre-emption to purchase the shares of defendant No. 1 from the selling members ; (b)a decree declaring that the defendants have no right to sell or transfer the shares of defendant No. 1 to any outside third party depriving a willing and desirous shareholder from purchasing the shares from selling members ; (c)a decree declaring that the communication/letter dated February 9, 2008, with annexures therewith, issued by the then managing director of defendant No. 1 addressed to the shareholders, including the plaintiff, is illegal, in-operative, not binding, contrary to the articles of association and without jurisdiction ; (d)a decree of permanent injun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttorneys, assigns and employees from selling, transferring and giving possession of the shares of the appellant-company to any outsider and/or from leasing out Radhabari Tes Estate and delivering possession thereof to any outsider/third party pursuant to any sale, transfer or lease. 14. Aggrieved by the order of injunction, so passed, the appellants are before this court. 15. Before I deal with this appeal, on merit, some events, which the appellants have brought on record, as having been taken place subsequent to passing of the impugned order dated May 14, 2009, may be taken note of. 16. Following the impugned order dated May 14, 2009, the proposed buyer of the shares of the appellant-company became disinterested. In the mean while, 37 (thirty seven) shareholders of the appellant-company informed the managing director that they wanted to sell their shares at a price not less than Rs. 800 per share and requested the managing director to find suitable shareholder, who was willing to buy their shares at a price not less than Rs. 800 per share, or else they (the said 37 shareholders) sought for authorisation to find an outsider to buy their shares. Pursuant thereto, the board of di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed order dated May 14, 2009, aforementioned. 18. I have heard Dr. A. K. Saraf, learned senior counsel, appearing on behalf of the appellants and Mr. S. Ali, learned counsel, appearing for the plaintiff-respondent. Submissions : 19. Appearing on behalf of the appellants, Dr. A. K. Saraf, learned senior counsel, submits that in the case at hand, the shares are owned by the shareholders and in their absence, no effective decree for specific performance of contract to sell the shares in preference to an outsider can be passed in the suit and, hence, the shareholders, being necessary parties, the suit was prima facie not maintainable in law in their absence. Injunction could not have, according to Dr. Saraf, been granted in the present case, when the suit was prima facie not maintainable due to the plaintiff's omission to implead the shareholders as parties. 20. Dr. Saraf contends that according to the plaintiff-respondent, the articles of association, in the present case, give a shareholder pre-emptive right to buy shares in preference to an outsider ; hence, in the case of the refusal of a shareholder to stick to the condition, so embodied in the articles of association, an ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... warranted under the terms of a trust deed created by the share holder with any such object. In such circumstances, contends Dr. Saraf, a shareholder's pre-emptive right, in the present case, cannot be said to be absolute and unqualified. This vital aspect, contends Dr. Saraf, has been completely lost sight of by the learned trial court. When a trial court, submits Dr. Saraf, misconstrues a document or a provision of a deed, while reaching a decision, such a decision can be interfered with by the appellate court. In support of this submission, Dr. Saraf places reliance on Ramdev Food Products P. Ltd. v. Arvindbhai Rambhai Patel reported in [2006] 8 SCC 726. 23. Dr. Saraf submits that the decision to sell shares to an outsider, who would agree to take all the assets and liabilities of the company, was beneficial and in public interest and this decision was a decision of the company, as a whole, inasmuch as the company had run into losses. Dr. Saraf also submits that the statutory dues have not been paid by the company, financial institutions have instituted proceedings for recovery of dues of the appellant-company, there is labour unrest and risk of threat to human life and prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making purchase of such a share. In the present case, points out Dr. Saraf, it is the admitted case of the plaintiff that the plaintiff had known all along about the resolutions adopted in the extraordinary general meeting held on December 15, 2006 and March 19, 2007, to which he (the plaintiff) was a party and he (plaintiff), having also come to know that the board of directors had found a purchaser, who was willing to purchase the appellant-company along with its assets and liabilities, sent a communication dated October 26, 2007, expressing his willingness to purchase the shares at the rate at which the shares were offered to be purchased by the outsider. Thus, points out Dr. Saraf, while the plaintiff, having known on October 26, 2007, that a purchaser for shares had already been found, offered to buy the shares, but he did not deposit the requisite money within the prescribed period of 14 days. In such circumstances too, the plaintiff's preemptive rights, if any, stood, according to Dr. Saraf, extinguished, but this aspect too has not been taken note of by the learned trial court. The rights, given under the articles of association, is, according to Dr. Saraf, enforceable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties, and, in the case at hand, when the shareholders are owners of the shares, their decision to sell the shares cannot be disturbed without impleading them as necessary parties. The observation, made by the learned trial court, in its order granting injunction that the provisions of section 397 of the Companies Act are not attracted, is not supported by any reasoning. Such an order, according to Dr. Saraf, has no legal sanction and needs to be interfered within the interest of justice. 29. In the present case, contends Dr. Saraf, no shareholder has an absolute or unqualified right to demand that the shares must be sold to him inasmuch as the board of directors has the discretion to allow transfer of shares in terms of the articles of association and when the provisions of the articles of association are not under challenge, the discretion of the board of directors, to allow transfer of shares to an outsider without the offer of sale of such, shares having made to the other shareholders of the appellant-company, could not nave been taken away as has been done in the present case. 30. Dr. Saraf submits that the development, subsequent to institution of a proceeding, is an aspect, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and circumstances of the present case, interfere with the impugned order. 32. In support of his submission that the appellate court's power, against the exercise of discretion of granting injunction by the trial court, is circum scribed and that an appellate court must be slow in interfering with the discretionary exercise of jurisdiction of granting injunction, Mr. Ali places reliance on Wander Ltd. v. Antox India P. Ltd. reported in [1990] (Supp) SCC 727 and Smt. Kausalya Barua v. Brahmaputra Construction Ltd. reported in [2005] 2 GLT 190 ; AIR 2005 Gauhati 149. 33. Mr. Ali points out that the articles of association of the present company contain terms and conditions of a contract between the company and the shareholders and also the shareholders inter se. In such circumstances, the terms and conditions, embodied in the articles of association, as regards transfer of the shares, can be, according to Mr. Ali, specifically enforced by an aggrieved shareholder. In the present case, the learned trial court has correctly pointed out, contends Mr. Ali, that under the articles of association, the plaintiff has a pre-emptive right to purchase the shares and, in such circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholders were necessary parties. If the shareholders were necessary parties in the suit, in their absence the suit was not maintainable and when the suit is not maintainable, even any interlocutory order of injunction cannot, according to Dr. Saraf, be passed. Support for this submission is sought to be derived by Dr. Saraf from the cases of Shiv Kumar Chadha v. Municipal Corporation of Delhi reported in [1993] 3 SCC 161 and Pranab Kumar Banerjee v. Momin Ali alias Mukib Ali reported in [2006] 2 GLR 26. 37. Dr. Saraf points out that the learned trial court, in the present case, has also brushed aside the fact that the plaintiff has specifically alleged, in his pleadings, that the board of directors has mismanaged the affairs of the company and has caused loss to the company. According to Dr. Saraf, these allegations are tantamount to saying that the plaintiff's voice of protest against the mismanagement of the company and against the extraordinary resolution of the general meeting of the shareholders were ignored and suppressed ; hence, the decision of the majority of the shareholders was, according to the plaintiff, in the light of the pleadings of the plaint, harsh and op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f relies on clauses 7(b), 7(c) and 7(d ) of the articles of association, which the plaintiff contends confer a pre-emptive right on the plaintiff, as a shareholder, to purchase the shares of the appellant-company. In other words, according to the plaintiff, he, in terms of the articles of association, has, in the facts and attending circumstances of the present case, preferential right of purchase of shares. In the facts and circumstances of the present case, therefore, whether the learned trial court have, legally and justifiably, granted injunction in the manner, as indicated above, by its order dated May 14, 2009 ? This is the moot question, which this appeal has raised for determination. 40. The answer to the moot question framed above needs to be determined on the basis of the answers to some other relevant questions. Broadly speaking, the questions are : (i) What is the appellate court's power and role in dealing with an order of injunction passed by a trial court ? (ii) What do the articles of association of a company mean and what their legal significance is ? (iii) When is a suit barred by the Companies Act, 1956? (iv) What is a necessary party ? (v) Is the question, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... junction, are nothing, but conditions, which are required to be satisfied by a party in order to enable it to obtain an interlocutory order of injunction. 42. Consequently, in such appeals, while the appellate court will not, ordinarily, substitute its own discretion in place of that of the trial court, yet where discretion is shown to have been exercised arbitrarily, capriciously or by ignoring settled principles of law regulating grant or refusal of interlocutory injunction, the appellate court is bound to interfere, for, non-interference with such exercise of powers by the trial court will, if allowed to remain good on record, cause serious miscarriage of justice. It is also important to bear in mind that the appellate court may not be, normally, justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage, it would have come to a contrary conclusion. While granting injunction, if discretion has been exercised by a trial court reasonably and by adhering to all judicial norms and principles, the fact that the appellate court would have taken a different view may not justify interference with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ali is, therefore, not incorrect in referring to the case of Smt. Kausalya Bania v. Brahmaputra Construction Ltd. reported in [2005] 2 GLT 190 ; AIR 2005 Gauhati 149, wherein the court has held that the power of interference by the appellate court in matters of injunction is circumscribed and that the appellate court would be slow to interfere with the exercise of jurisdiction and would not, normally, be justified in interfering with the exercise of discretion under appeal on the sole ground that if it had considered the matter at the trial stage, it might have come to a contrary conclusion. 44. What is, however, of immense importance to note is that neither the Wander Ltd. (supra ) nor Smt. Kausalya Barua ( supra) lays down that the appellate court shall not interfere with an interlocutory order of injunction if exercise of jurisdiction by trial court, in the matter of granting or refusing to grant injunction, is against the settled principles, which govern exercise of power of granting injunction on interlocutory applications for injunction. 45. Thus, an appeal against exercise of discretionary jurisdiction is really an appeal in principle and that is why, unlike a regular appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning whether a person is a necessary party to certain proceedings ..." (emphasis supplied) 47. Thus, in Rama Krishna Narain (supra), two tests have really been laid down for determining the question as to who can be regarded as necessary party in a civil suit, the tests being (1) that there must be a right to some relief against such a party in respect of the matter involved in the proceedings, in question, and (2) that it should not be possible to pass an effective decree in the absence of such a party. 48. What follows from the above discussion is that in order to treat a person as a necessary party to a suit, such a person must be one against whom the right to relief can be claimed and in whose absence, it is not possible to pass an effective decree. Whether maintainability of a suit is an aspect, which needs to be examined by the court, before acceding to a prayer for granting an interlocutory order of injunction and, if so, what can be the extent of such examination? In the absence of a necessary party to a suit, whether interlocutory order of injunction can be passed? 49. It is trite, as already discussed above, a person, seeking an interlocutory order of injunction, must ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court must be satisfied that strong prima facie case has been made out against the plaintiff including, amongst others, on the question of maintainability of the suit. The relevant observations, made in this regard, in Shiv Kumar Chadha ( supra), read (page 175): "30. It need not be said that primary object of filing a suit challenging the validity of the order of demolition is to restrain such demolition with the intervention of the court. In such a suit the plaintiff is more interested in getting an order of interim injunction. It has been pointed out repeatedly that a party is not entitled to an order of injunction as a matter of right or course. Grant of injunction is within the discretion of the court and such discretion is to be exercised in favour of the plaintiff only if it is proved to the satisfaction of the court that unless the defendant is restrained by an order of injunction, an irreparable loss or damage will be caused to the plaintiff during the pendency of the suit. The purpose of temporary injunction is, thus, to maintain the status quo. The court grants such relief according to the legal principles - ex debito justitiae. Before any such order is passed the court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts of each case. While granting or refusing the injunction, the court is also required, to see the conduct of the parties." 53. In fact, even before the decision in Shiv Kumar Chadha ( supra), A three-Judge Bench in Municipal Corporation of Delhi v. Suresh Chandra Jaipuria reported in [1976] 4 SCC 719, had the occasion to consider the question as to whether a court can grant interim injunction, when a prima facie case has not been made out in the sense that the suit is barred in law. The apex court in Suresh Chandra Jaipuria ( supra), while abstaining from deciding the question as to whether the suit is or is not barred, pointed out that the question as to whether a suit is or is not barred is a question, which will have a bearing upon the question whether a prima facie case existed for granting any interim injunction or not. The relevant observations, made by the apex court at paragraph 10 reads (page 722): "However, we abstain from deciding the question whether the suit is barred or not on this ground. All we need say is that this consideration also has a bearing upon the question whether a prima facie case exists for the grant of an interim injunction." 54. From the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company by the board of directors and when a shareholder makes such an allegation, his remedy lies in making appropriate application under section 397 and/or 398 of the Companies Act inasmuch as a case, which is covered by the provisions of sections 397 and 398, falls within the exclusive domain of the Company Law Board, and the court of ordinary civil jurisdiction cannot try such a suit; (ii) even if the civil court had jurisdiction in the present case, the nature of reliefs, which the plaintiffs had sought for, required the shareholders (who had decided to sell their shares), to be necessarily made parties to the suit and, in their absence, neither the suit was maintainable nor the injunction, as sought for, could have been legally granted by the learned trial court; and (iii) and even, on merit, no prima facie case for granting of any injunction could be said to have been made out and, hence, prohibitory injunction, as granted by the impugned order, is not sustainable. 59. As against the submissions noted above, it is contended, on behalf of the plaintiff-respondents, that the suit is maintainable inasmuch as the pre-emptive right, given, under the articles of associati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e all the company's powers except such as the general law expressly provides must be exercised in general meeting. Of course, powers, which are strictly legislative, are not affected by the conferment of powers on the directors as section 31 of the Companies Act provides that an alteration of an article would require a special resolution of the company in general meeting. But a perusal of the provisions of the Companies Act itself makes it clear that in many ways, the position of the directorate vis-a-vis the company is more powerful than that of the Government vis-a-vis Parliament. The strict theory of Parliamentary sovereignty would not apply by analogy to a company since under the Companies Act, there are many powers exercisable by the directors with which the members in general meeting cannot interfere. The most they can do is to dismiss the directorate and appoint others in their place, or alter the articles so as to restrict the powers of the directors for the future. Gower himself recognises that the analogy of the Legislature and the executive in relation to the members in general meeting and the directors of a company is an oversimplification and states "to some extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hers alleging against the defendants fraudulent and illegal transactions, whereby property of the company was misapplied, alienated and wasted, but at the general meeting, the majority resolved that no action should be taken against the directors. Dissatisfied with the majority decision of their company, two of the minority shareholders initiated legal proceedings against the directors and others to compel them to make good the losses to the company. The court dismissed the action on the ground that, as the acts of the directors were capable of confirmation by the majority of members, the court should not interfere ; it was, thus, left to the majority to decide what was for the benefit of the company. This principle has been applied in several later cases (see Macdougall v. Gardiner [1875] 1 Ch. D 13, 14). 65. Palmer, in his Company Law, 21st edition (1968), points out that in English company law, while the substantive aspects of the rule of the majority are not neglected, the emphasis is on the procedural character of the rule. The reasoning on which the rule is founded is that in these cases, it is for the company to complain by suing the alleged wrongdoer. The company is, thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ires or illegal or is a fraud on the minority or is not bona fide or for the benefits of the company as a whole or is intended to discriminate between the majority shareholders and the minority shareholders is illegal and can be questioned by a separate action by the aggrieved shareholder. The reason is that if the minority were denied their right, their grievance could never reach the court, because the wrongdoers, being themselves in control, do not allow the company to sue. 67. The question, however, remains as to when a director or a company's act can be regarded as ultra vires. Let me, before proceeding further, point out the development and application of the doctrine of ultra vires in the field of Company Law. An action, taken by the board of directors of a company or the company itself beyond the powers conferred on the company and/or its directors by the memorandum of association of the company, is ultra vires. The legality of such transaction was judged by the doctrine of ultra vires, which was developed in the realm of company law, in the year 1875, in Ashbury Railway Carriage and Iron Co. v. Riche reported in [1875] L. R. 7 HL 653, when, during the course of judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii)Power to do such other things as are authorised to be done by the Companies Act or by any other statute." 73. Thus, such transactions, which do not fall under any of the three categories mentioned above, are regarded as ultra vires. 74. The doctrine of ultra vires, I may point out, was developed to safeguard essentially the interest of the shareholders. By means of this doctrine, as already indicated above, there is judicial control on the affairs of the company, because the shareholders may not be able to control the affairs of the company inasmuch as the affairs of the company are, ordinarily, carried out by its directors. It is, therefore, said that in theory, the shareholders, scattered over large geographical area, are the masters of the company, but, in actual practice, they have often been only in the position of sleeping partners. 75. The question, now, is what is the remedy under the law for a shareholder, who considers himself aggrieved by the decision of the majority on the ground that it is because of their dominant position that the majority has taken a decision, though it is against the interest of the aggrieved shareholder ? 76. The answer to the question, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol of the company. Those considerations, according to the court, were sufficient, in equity, to prevent the aunt using her votes as she had and the resolutions were accordingly set aside by the court. In reaching the said decision, the court applied the dicta of Sir Richard Baggallay, in North-West Transportation Co. Ltd. v. Henry Beatty [1887] 12 AC 589 at 593 (PC), of Lindley M. R., in Allen v. Gold Reefs of West Africa Ltd. [1900] 1 Ch 656 at 671, of Evershed M. R., in Greenhalgh v. Arderne Cinemas Ltd. [1950] 2 All ER 1120 at 1126 (CA), of the Lord President (Lord Cooper) in Scottish Co-operative Wholesale Society Ltd. v. Meyer [1958] 3 All ER 66 ; [1959] 29 Comp. Cas. 1 (HL) and of Lord Wilberforce in Ebrahimi v. Westbourne Galleries Ltd. [1972] 2 All ER 492 at 500 (HL). 78. The fallout of the decision in the case of Clemens ( supra), is this : Even when the act of the majority of the shareholders is perfectly legal, it can nevertheless be interfered with by the court provided that the court finds that exercise of legal right defeats equitable consideration. This principle is based on the reasoning that though it is the majority view, which becomes the decision of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the company should be wound up ; the Company Law Board may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 398. Application to Company Law Board for relief, in cases of mis management.-(1) Any members of a company who complain- (a)that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company ; or (b)that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its board of directors, or manager, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company ; may apply to the Company Law Board for an order under this section, provided such members have a right so to appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard shall give notice of every application made to it under section 397 or 398 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing a final order under that section. 401. Right of Central Government to apply under sections 397 and 398.-The Central Government may itself apply to the Tribunal for an order under section 397 or 398, or cause an application to be made to the Tribunal for such an order by any person authorised by it in this behalf. 402. Powers of Tribunal on application under section 397 or 398.- Without prejudice to the generality of the powers of the Tribunal under section 397 or 398, any order under either section may provide for- (a)the regulation of the conduct of the company's affairs in future ; (b)the purchase of the shares or interests of any members of the company by other members thereof or by the company ; (c)in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital ; (d)the termination, setting aside or modification of any agreement, howsoever arrived at, between the company on the one hand, and any of the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to section 397, the affairs of the company, public or private, must be conducted in a manner, which is not prejudicial to public interest and not oppressive to any of its member or members. Section 398, similarly, indicates that the affairs of every company, public or private, must be conducted in a manner, which is neither prejudicial to public interest nor prejudicial to the interest of the company. If the affairs of the company are being conducted in a manner prejudicial to public interest or, in a manner oppressive to any member or members, an application, under section 397, may be made to the Company Law Board. Though, in such circumstances, the company may be decided to be wound up, yet, the Company Law Board, if it is of the opinion that winding up the company would be unfair, may pass such order as it thinks fit. Similarly, section 398 provides that any member of a company can complain that the affairs of the company are being conducted in a manner prejudicial to public interest or, in a manner prejudicial to the interest of the company, and the Company Law Board may, in such a case, instead of winding up the company, make such order as it thinks fit. 82. What is, now, nec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to any member or members. 86. I may pause here to point out the provisions, which we find contained in Chapter VI, are provisions, which were introduced, for the first time, in the Indian Companies Act, 1913, in the form of section 153-C, section 153-C being based, in turn, on section 210 of the English Companies Act, 1948 which had introduced, for the first time, in England, the scheme, which we, now, find incorporated in sections 397 and 398. The purpose of introducing section 210, in the English Companies Act, was to provide an alternative remedy to the process of winding up if there was mismanagement of the company or management of the company was carried out in such a manner, which was oppressive to the minority shareholders. Law has always provided for winding up, whenever it was found that it was just and equitable to wind up a company. With the growth of commercial activities and taking into account the interest of the public at large, the law-makers felt that in a given case, though it may be just and equitable to wind up the company, because of the manner in which the affairs of the company were being conducted, it was at times, unfair to wind up the company, particularl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y were being conducted in a manner oppressive to him and similarly situated other members provided that such member(s) had the requisite qualification to apply by virtue of section 399. Similarly, an application could have been made under section 398 if the affairs of the company were being conducted in a manner prejudicial to the interest of the company. By the Act 53 of 1963, a member of a company can, now, also apply to the Company Law Board if the affairs of the company are being conducted in a manner prejudicial to "public interest" provided he is competent, in terms of the provisions of section 399, to make such an application. If the Company Law Board finds the complaint to be correct and genuine, it may pass such order as it thinks fit. 89. What is also required to be noted, at this stage, at the cost of repetition, is that unless a member of a company has the support of statutorily specified number of members, or holds specified number of shares, he cannot apply to the Company Law Board under section 397 or 398 even if the affairs of the company are being conducted in a manner, which is oppressive to him, or in a manner prejudicial to "public interest" or prejudicial to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mber of members or must hold requisite number of shares. The reason is very simple and the reason is that merely because of the fact that a shareholder thinks otherwise than what the majority thinks, he cannot create obstacles in the way of management of the company. Notwithstanding the fact that there is no right to make an application under section 397 or section 398 if a shareholder does not have support of requisite number of members or does not hold the requisite number of shares, a shareholder has the right to apply to the Central Government for leave and if authorised by the Central Government,, such a shareholder can still make an application under section 397 or 398. This shows that the minority shareholder is not without a remedy. However, the anxiety of the lawmakers is too glaring in the scheme of Part VI and the scheme clearly is that the decision of the majority of the shareholders is not to be disturbed merely because a shareholder does not agree or a shareholder feels dissatisfied. What, eventually, is the concern of the Legislature, as reflected from the provisions of the Companies Act, 1956, is that a company shall, ordinarily, be allowed to function in terms of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular suit brought before the civil court and, in an appropriate case, the civil court may decline to exercise its jurisdiction if it finds that its jurisdiction stands ousted by the Companies Act. 96. The conclusion, reached in Dwarka Prasad Agarwal (supra), that the jurisdiction of the civil court is not "completely" ousted by the Companies Act, 1956, has been taken note of and impliedly relied upon in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad reported in [2005] 123 Comp. Cas. 566 ; [2005] 11 SCC 314. 97. What is, however, important to note is that in Sangramsinh P. Gaekwad (supra), while referring to Dwarka Prasad Agarwal ( supra), the apex court has reiterated that it is, now, well-settled that the jurisdiction of the civil court is not "completely" ousted by the provisions of the Companies Act, 1956, meaning thereby that ouster of jurisdiction of the civil court is a question for determination in each given case. 98. The question, now, is as to whether the subject-matters of sections 397 and 398 fall outside the purview of the court of ordinary civil jurisdiction. In other words, the question is this : when the facts of a given case fall within the four corners of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncil that the ouster of jurisdiction of a civil court is not to be lightly inferred and can only be established if there is an express provision of law or is clearly implied. 102. The dicta of Wills, J ., in Wolverhamtos New Waterworks Co. (supra), has been quoted, and relied upon, in Dhulabhai v. State of M. P., AIR 1969 SC 78. The relevant observations, made by the apex court, in Dhulabhai (supra), are quoted below (page 18) : "8. . . . jurisdiction of the civil courts is all embracing except to the extent it is excluded by an express provision of law or by clear intendment arising from such law. This is the purport of section 9 of the Code of Civil Procedure. How section 9 operates is perhaps best illustrated by referring to the categories of cases, mentioned by Willes, J., in Wolverhamtos New Waterworks Co. v. Hawkesford [1859] 6 CB (NS) 336." 103. From the above observations, made by Wills, J., what, clearly transpires is that if there was a liability existing at common law and that liability is affirmed by a statute and such statute does not, expressly or by necessary implication, exclude the jurisdiction of the ordinary civil court, the affected party can approach the civ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtakings by means of contributions from a number of small capitalist ready and willing to co-operate, and that of minimizing the risk by spreading the liability. The difficulty was how to secure these advantages. A charter of private Act of Parliament was often too costly or impracticable. Business operators had to devise for themselves a new form of partnership which would possess the advantages as nearly as might be of a chartered corporation, and in particular would have shares of a fixed amount freely transferable by the holders. The outcome of these commercial needs was the unincorporated company, the lineal ancestor of the ordinary company under the Companies Act. The deed of settlement by which such an unincorporated company was formed was made between the various shareholders and the trustee or trustees with whom the shareholders covenanted to observe the provisions of the deed. The deed commonly declared that the several persons for the time being holding shares in the capital of the company should constitute and be a company with a specified name, and with a specified capital, and subject to specified regulations (set out in the deed) until dissolved in a specified manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... largely regulates, by way of statutory provisions, the contractual rights of the parties. The general law of contract is, thus, the basis of the rights of the parries even in the affairs of the company, though, as we would note shortly, the Companies Act does give to the shareholders some rights, which never existed in common law. Unless, therefore, there is exclusion of jurisdiction of the civil court by words, express or implied, in a given case, a suit will be maintainable for enforcement of such rights of the shareholders, which are contractual in nature. Same situation prevails in India. 107. A narration of the history of the provisions, contained in sections 397 and 398, clearly shows that no right had existed with a minority share holder to apply, instead of opting for winding up, for suitable orders as are, now, provided under sections 397 and 398. To the extent, therefore, that sections 397 and 398 deal with, civil court's jurisdiction would stand impliedly barred. 108. Coupled with the above, and as already discussed above, sections 397 and 398 contain a complete body of the Code as regards enforcement of the rights of the minority shareholder. The special procedure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholder lies, unless his rights and liabilities are founded on common law, in applying under section 397 or 398, as the case may be, if he considers such a decision to be oppressive or against the interest of the company or against the interest of the public and, further, if he holds adequate number of shares or has the support of adequate number of shareholders as are statutorily required by section 399 or else, if he is authorised by the Central Government. 110. What logically follows from the above discussion is that if the grievances of the plaintiff-respondent herein are founded on his rights under the common law, he can file a suit, in the civil court of ordinary jurisdiction, for remedy of his grievances ; but if his grievances are founded on statutory rights, which are created, for the first time, under sections 397 and 398, his remedy will lie in making appropriate application if he has the support of the requisite number of shareholders or if he holds the requisite number of shares and if he has no such qualification, he has to apply to the Central Government and it is only when the Central Government authorises him that he would be able to apply under section 397 or 398 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contributories amongst themselves and to distribute the surplus among the persons entitled thereto. 117. It may be noted that section 3(iii) of the Companies Act, 1956, defines private company to mean a company, which, by its articles, restricts the right to transfer its shares, if any, and limits the number of its shares to 50 (excepting employees and ex-employees, who were and are members of the company) and prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company. 118. Section 82 defines the nature of shares and states that the shares or other interests of any member, in a company, shall be movable property transferable in the manner provided by the articles of association of the company. Thus, section 82 itself recognises share as movable property transferable in the manner as may have been prescribed by the articles of the company. 119. Section 26 of the Act provides that in the case of a private company limited by shares, there shall be registered with the memorandum, articles of association signed by the subscribers of the memorandum prescribing regulations for the company. Section 28 provides that the articles of association ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has to be further borne in mind that a pre-emptive right to buy shares of his company is granted in favour of a member of a private company under the articles of association so that his right of control is not taken away. Exercise of such pre-emptive rights is, particularly, needed in relation to those private companies, which are essentially incorporated partner ships. (See Gower and Davies' Principles of Modern Company Law, 7th edition, page 635.) 123. The question, therefore, is : whether transfer of a share by a shareholder, in violation of another shareholder's pre-emptive right to buy such share, as provided for in the articles of association, is a valid transaction ? The question, so posed, brings me to the case of Hunter v. Hunter reported in [1936] AC 222; [1937] 7 Comp. Cas. 36 (HL), wherein the shareholders, in a private company, challenged the transfer of shares by another shareholder to third parties without compliance with the provisions of articles of association. In Hunter ( supra), a member could not have transferred, in terms of the articles, his shares until he had given notice to the secretary offering to sell the shares at a price to be fixed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchased by him on a ground other than what is stated in the articles of association. 127. In V. B. Rangraj (supra), what fell for determination of the court was when the shareholders, amongst themselves, had entered into an agreement, imposing on themselves restrictions to transfer shares, which were contrary to, and inconsistent with, the articles of association of their company, as regards transfer of share, whether such agreement can prevail upon the articles of association. 128. On finding, in V. B. Rangraj (supra), that the articles of association do not impose any such restrictions, which the shareholders had, by a separate agreement entered into, the apex court took the view that no restriction, on the transfer of shares, can be imposed by private agreement. In other words, no restriction, on the transfer of shares, is permissible except to the extent as the articles of association of the company concerned may have imposed. 129. Referring to certain authorities on the question as to what restrictions can be imposed on a shareholder's right to transfer shares, the apex court, in V. B. Rangraj (supra ), further observed : "12. In Chapter 16 of Gore-Browne on Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e restrictions on the right of transfer. A restriction on the right to transfer shares is not repugnant to the absolute Ownership of the shares, but is one of the original incidents of the shares attached to them by the contract contained in the articles. Restrictive provisions are strictly construed because shares, being personal property, are prima facie transferable. Where the scheme and intent of the restrictions are to accord rights of pre-emption to the other members of the company, if there is no substantial compliance with the procedure laid down, the shareholder denied such rights is entitled to an appropriate injunction to protect his position." 131. Thus, a restriction, on the right to transfer shares, is not repugnant to the absolute, ownership of the shares, but is one of the original incidents of the shares attached to them by the contract contained in the articles. The restrictive provisions, contained in the articles of association of a company, are to be strictly construed, because the shares, being personal property, are prima facie transferable. Unless, therefore, the articles of association, in a given case, impose any restriction on the transfer of shares, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be legally enforced. 134. What is, now, necessary to point out is that section 10 of the Specific Relief Act, 1963, makes, a contract specifically enforceable if there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done, or when the act agreed to be done, is such that compensation, in money, for its non-performance, would not afford adequate relief. Normally, in the case of a contract to transfer movable property, specific performance is not granted except in circumstances specified in the explanation to section 10 of the specific Relief Act, 1963. One of the exceptions is where the property is "of special value or interest to the plaintiff, or consists of goods, which are not easily obtainable in the market". It has been held, by a long line of authority, that shares, in a private limited company, would come within the, phrase "not easily obtainable in the market" (see Jainarain Ram Lundia v. Surajmull Sagarmull, AIR 1949 SC 211). 135. The Privy Council, in Bank of India Ltd. v. Jamsetji A. H. Chinoy, AIR 1950 PC 90, held (page 96) : "It is also the opinion of the Board that, having regard to the nature of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. reported in [2003] 117 Comp. Cas. 19 ; [2004] 9 SCC 204, which read as under (page 62 of 117 Comp Cas) : "141. Subject to this restriction, a holder of shares in a private company may agree to sell his shares to a person of his choice. Such agreements are specifically enforceable under section 10 of the Specific Relief Act, 1963, which corresponds to section 12 of the Specific Relief Act, 1877. The section provides that specific performance of such contracts may be enforced when there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done ; or when the act agreed to be done is such that compensation in money for its non-performance would not afford adequate relief. In the case of a contract to transfer movable property, normally specific performance is not granted except in circumstances specified in the Explanation to section 10. One of the exceptions is where the property is 'of special value or interest to the plaintiff, or consists of goods which are not easily obtainable in the market'. It has been held by a long line of authority that shares in a private limited company would come within the phrase 'n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the share holder and the company, but also the shareholders inter se. In a suit for specific performance of such a contract, not only the shareholder, against whom pre-emptive right is sought to be exercised, but even the company would be necessary parties. 144. What logically follows from the above discussion is that when there is a contract for sale of shares between two shareholders of the same company or between a shareholder and an outsider, the shareholder or the outsider, whoever was to purchase share, may institute a suit for specific performance of contract against the shareholder, who was to sell share. To such a suit, the company is not, unless the company was also a party to the agreement, a necessary party. Extended logically, what it means is that the shareholder, who was to sell share, is, at any rate, necessary party to such a suit for specific performance of contract. No wonder, therefore, that Halsbury's Laws of England (fourth edition), at paragraph 378, states : "378. Contract between members inter se.-While the articles regulate the rights of the members inter se, the older authorities support the view that they do not constitute a contract between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ster the transfer of any shares of the company and section 111(3) provides for an appeal to the Central Government against such refusal to register. Section 206 obliges a company not to pay the dividend in respect of any share except to the registered holder of such share or to his order or to his bankers or where a share warrant has been issued, in respect of the share, to the bearer of such warrant or to his banker. 148. Let me pause, at this stage, to consider the question as to what will happen if transfer of share by one shareholder to another or by a share holder to an outsider is refused to be recognised by the directors in exercise of their powers under section 111 of the Companies Act, 1956. It may be noted, in this regard, that the directors do not have any inherent power or right to refuse to recognise transfer of shares unless the articles of association so indicate (see Luxmi Tea Co. Ltd. v. Pradip Kumar Sarkar reported in [1989] (2) Supp SCC 656 ; [1990] 67 Comp. Cas. 518). 149. With regard to the above the apex court has clarified the position of law in Bajaj Auto Ltd. v. N. K. Firodia [1971] 41 Comp. Cas. 1 ; AIR 1971 SC 321, by pointing out that even if the artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interrogated and asked to disclose the reasons. If they failed to disclose that reason, adverse presumption could be drawn against them." 150. Broadly in tune with the above position of law, as I have already pointed out, can also safely hold that notwithstanding the pre-emptive right, which a shareholder may have under the articles of association and can specifically enforce such pre-emptive right to buy shares, the shareholders' freedom to sell shares to an outsider, or the board of directors' power to allow such transfer of share to an outsider, must be liberally construed ; whereas restrictions on such a freedom, imposed by the articles of association, have to be strictly construed. Consequently, the right to specifically enforce the pre-emptive right to buy shares has to be strictly, and not liberally, construed. 151. In Manilal Brijlal Shad v. Gordon Spinning and Manufacturing Co. Ltd., AIR 1916 Bom 147, the purchaser of a share, in an auction sale, held by the court, sought to get his transfer of share registered by the company, whose share he had purchased. The director refused to register the share. The purchaser brought a suit for enforcement of his right to ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fessed object might be to wreck or damage the company could nevertheless oust the director's discretion, and compel them to register him, by the simple process of purchasing through the court after a collusive decree. On these grounds, I am of opinion, that notwithstanding that the appellant's purchase was made through the court, the directors' powers, under the memorandum of association, for refusing to accept the appellant as a shareholder, are unaffected. 2. The issue in this case raises two questions, one of law, and the other of fact. The question of law is whether the purchaser of certain shares of a limited company at a court-sale in execution of a decree against the shareholder is entitled as of right to have the shares transferred by the company to his name. It is contended on behalf of the appellant that the company has no discretion in the matter and has no power to refuse to transfer the shares to the name of the auction-purchaser. It is common ground that a private purchaser from a shareholder must submit his application for transfer to the company and the application is liable to be dealt with by the directors as provided by articles 22 and 23 of the arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this : when right to sell 1 shares has to be liberally construed, a restriction on such a right has to be strictly construed. Consequently, the directors may, in a given case, not be incorrect in allowing transfer of share to an outsider by rejecting the preemptive right of another shareholder to buy such share if such a decision is not contrary to the conditions embodied in the articles of association or if such a decision of the directors subserves the public interest, for even a private company, in the light of the provisions of sections 397 and 398, is required to adhere to the requirements of public interest irrespective of the fact as to whether the articles of association specifically mention or not the freedom to allow sale of shares to an outsider as an act, which can be done in the public interest by the board of directors. 154. In R. Mathalone v. Bombay Life Assurance Co. Ltd. AIR 1953 SC 385 ; [1954] 24 Comp. Cas. 1, the question of relationship between the transferor and transferee of shares before registration of the transfer in the books of the company, came to be considered. The Supreme Court held that on the transfer of shares, the transferee becomes the owner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in denial of the pre-emptive right of any other shareholder to buy such share, is not void ab initio ; rather, such a violation would make the transaction voidable and can be interfered with by the court at the option of the aggrieved shareholder. If an individual shareholder can have the right to waive his pre-emptive right to buy shares, it logically and as a corollary, follows that the shareholders, in general too, can take a collective decision to sell shares outside the company. Such a decision cannot be said to be ultra vires, for, when the shareholders can waive their right to buy shares, the logical effect would be that such a decision is within the competence of the company and such a decision cannot be said to be ultra vires. When a decision is not ultra vires or mala fide or fraudulent, the decision cannot be interfered with unless the decision is, as embodied in sections 397 and 398, against the interest of the company, or against public interest, or oppressive to minority shareholders. Since the decision of a company has to rest on the views of the majority, the minority, even if aggrieved, cannot question it, for, minority shareholders too, being shareholders, canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholders have, as already indicated above, inherent right to waive their pre-emptive right to buy shares and the pre-emptive right is enforceable only at the option of the person, who may have such pre-emptive right. Thus, the shareholder's decision to sell their shares, which forms the subject-matter of the suit, is prima facie a valid decision and such a decision is binding on the appellant-company and also on all its shareholders including the plaintiff-respondent. If a minority shareholder, such as, the plaintiff-respondent, feels that the decision, so taken, is oppressive or not in public interest, his remedy lies in invoking the provisions of sections 397 and 398 and the present suit would be prima facie barred. I may hasten to add that it has not been the case of the plaintiff-respondent that the decision to sell shares to an outsider is not in public interest. 159. In short, the present suit cannot prima facie be held to be maintainable and no injunction, as reflected by the impugned order, could have been granted unless the plaintiff-respondent can show that he is prima facie entitled to the reliefs, which he had sought for in his plaint. This apart, as I would be sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or her father, mother, wife or husband, children, grandchildren or any male agnatic relation within three degrees or daughter-in-law, sister, sister's son or to anyone of the existing shareholders of the company without previous sanction of the directors, provided that the transferee is not an insolvent or otherwise incapable of discharging his or her obligations as a shareholder. (c) In case a shareholder desires to transfer his/her share or shares to a person other than the persons mentioned in the last proceeding clause, he/she (hereinafter called the selling member) shall give a notice of his/her intention in writing to the managing director of the company specifying the number of shares he/she proposes to transfer and the value he/she puts on each share. Upon receipt of such notice, the directors shall, within 2 months from the receipt of such notice, find a purchaser from among the shareholders for the share notified for sale, at a price not less than the value of the share so put and as soon as they are able to secure a desirable purchaser at the price, they shall notify the fact to the selling member, who shall be bound, upon payment of the price within 14 days of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon receipt of the notice, the director shall, within two months from the date of receipt of such notice, find the purchaser from amongst the share holders for the share notified for sale, at a price not less than the value of the share so put, and as soon as they are able to secure a desirable purchaser at the price, as assessed by the shareholder, who desires to sell share, the directors shall notify the fact to the selling member, who shall be bound, upon payment of the price within 14 days of the date of the notice, issued by the directors, to the selling member, to transfer the share to such purchaser, and complete the transaction. If, however, the director fails to find a purchaser within the period of two months aforementioned, the selling member shall be competent to transfer the share to any one at his opinion at any price within a period of four months from the date of the notice of sale ; provided that before such transfer is effected, the selling member shall intimate the price, so obtained, to the managing director, who shall circulate the said price to all shareholders and, if within 14 days of the date of the circular/letter, any shareholder is willing to offer the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -emption. 168. What is curious to note is that in the plaint and in the application for injunction, the respondent relied upon sub-clauses (b), (c) and (d ) of clause (7) of the articles of association of the appellant-company, but has not referred to sub- clause (i) of clause (7). 169. What is all the more curious to note is that it is not even contended that the board of directors have decided to act upon the decision of the share holders as expressed by them in the extraordinary general meeting of the appellant-company mala fide or only to defeat the purported pre-emptive right of the appellant to purchase shares. 170. Coupled with the above, the learned trial court, as the impugned order reveals, did not take notice of the existence of sub-clause (i) of clause (7) of the articles. In fact, whether existence of sub-clause (i) was ignored or escaped complete attention of the learned trial court is not very clear. The fact, however, remains that the learned trial court has not made even an incidental reference to sub-clause (i). 171. Let me, therefore, determine as to when the discretion given to the board of directors under sub-clause (i) is exercisable ? 172. Under sub-clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "any other sufficient reason", mean the Privy Council pointed out that the words must be taken as meaning "a reason sufficient on grounds at least analogous to those specified immediately previously". Thus, the expression, ejusdem generis, as observed by the Supreme Court in Siddheshwari Cotton Mills P. Ltd. v. Union of India, AIR 1989 SC 1019, signifies a principle of construction, whereby words in a statute, which are otherwise wide but are associated in the text with more limited words are, by implication, given a restricted operation and are limited to matters of the same class or genus as preceding them. If a list or string or family of genus, describing terms are followed by wider or residuary or sweeping-up words, then, the verbal context and the linguistic implications of the preceding words limit the scope of such words. Observed Lord Campbell in R. v. Edmundson [1959] 28 LJMC 213 : "I accede to the principle laid down in all the cases which have been cited, that, where there are general words following particular and specific words, the general words must be confined to things of the same kind as those specified" (see Craigs on Statute Law-7th edition, 2002). 176. If th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that a tea estate, unlike other industries, provides employment not only to the individual workers, but employment is almost hereditary in nature inasmuch as it is the legal representative of a labour, who, ordinarily, succeeds and takes over the job as a legal representative of a retired or deceased labour. Whole of the family, in one way or other of a labour, survives on the employment in the tea estate itself. Thus, the situation of the labourers, in a tea estate, is substantially different from other industries, where employment is not at all hereditary in nature ; whereas in the tea estate, the employment is almost hereditary in nature as far as labourers, working in the tea estates, are concerned. 180. As rightly pointed out by Dr. Saraf, learned senior counsel, appearing for the appellant, that in a case of present nature, the element of public interest is a factor, which ought to have been kept in view by the learned trial court at the time of considering the application for injunction. The observations made by the apex court in Ramniklal N. Bhutta v. State of Maharashtra reported in [1997] 1 SCC 134, cannot be said to be misplaced. The relevant observations made in Ramni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alculated at a certain percentage of compensation payable. There are many ways of affording appropriate relief and redressing a wrong ; quashing the acquisition proceedings is not the only mode of redress. To wit, it is ultimately a matter of balancing the competing interests. Beyond this, it is neither possible nor advisable to say. We hope and trust that these considerations will be duly borne in mind by the courts while dealing with challenges to acquisition proceedings." 181. In the present case, there is no denial of the fact that the appellant-company has sustained huge loss and the losses are mounting by leaps and bounds. Recovery proceeding for realisation of debts of the appellant-company have already been initiated. There is labour unrest as wages and other statutory dues have not been made available to the labourers. In such circumstances, deaths, arising out of starvation of the labourers of the appellant-company, cannot be ruled out. The labour unrest threatens lives of the shareholders and office-bearers and employees of the appellant-company. In such circumstances, when the shareholders took a decision, in their meeting, as mentioned above, to look for a buyer, outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Hence, they have requested us to produce the original share certificates with the individual transfer forms signed by the shareholders of our company to enable them to complete the transaction without loss of time. They have also agreed to reimburse our running expenses of the tea estate for the month of February, 2008, You are, therefore, requested to submit your original share certificates along with the share transfer form signed by you in favour of the proposed buyer whose name will be disclosed by the managing director at the time of submission of the share certificates. The managing director will issue a receipt of share certificates to you accordingly. Kindly treat this a most urgent Thanking you Yours faithfully, For Radhabari Tea Co. P. Ltd. (A. K. Goswami) Managing Director. STRICTLY CONFIDENTIAL Estimated net consideration money to be received from the proposed purchaser Rate-Rs. 170 per kg. of made tea on 2,52,505 kgs-offered by the party Crop-2,52,505 kgs of made tea. i.e., 4 years average crop - Calender years-2004, 2005, 2006 and 2007 (from January to December) Rs. 170 x 2,52,505 kgs = Rs. 4,29,25,850 Rounded of Rs. 4,29,26,000 Less : Liabilities in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to each shareholder by individual A/C payee D. D. subject to the production of original share certificates with transfer forms signed by individual shareholder. Rs. 2,24,29,45 :- 23,760 Nos of shares = Rs. 944.00 per share (Approx. net consideration money per share) The above estimated net consideration money may slightly differ since confirmation of the outstanding dues of the Tea Board is awaited and the same is expected within a short time. Rate per kg of made tea on 2,52,505 kgs. on gross amount of Rs. 4,55,39,451.00 = Rs. 180.35 per kg of made tea. Note : To be deducted from the following shareholders individual share money at the time of releasing the shares money to them by the purchaser and the total amount will be added to our total net share money. 1. Smt. Arpana Goswami Rs. 10,340.00 2. Sri Dipak Kr. Bhattacharayya Rs. 60,000.00 (B) Brokers invoice advance of Rs. 13,00,000.00 (thirteen lakhs) approx will be paid by our company from sale proceeds lying in our bank account at the time of conclusion of the above deal with the proposed buyer." 182. In the circumstances, as discernible from the pleadings of the parties and from the materials on r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also to deliver possession of Radhabari Tea Estate unto the plaintiff. Is the plaintiff entitled to a decree of mandatory injunction, as has been sought for by him, without seeking specific performance of his alleged pre-emptive right, if any, to buy shares? The answer to this question can be found in section 39 of the Specific Relief Act, 1963, section 39 reads : "39. Mandatory injunctions.-When, to prevent the breach of an obligation, it is necessary to compel the performance of certain acts, which the court is capable of enforcing, the court may, in its discretion, grant an injunction to prevent the breach complained of, and also to compel performance of the requisite acts." 186. From a bare reading of section 39, what becomes transparent is that mandatory injunction can be granted by a court only when the court is required to prevent breach of an obligation, which is cast on the defendant to perform certain act, the court considers that the defendant needs to be compelled to perform such acts and the obligator)' act is such, which the court is capable of specifically enforcing. Thus, the two essential elements, whose existence is necessary for obtaining a decree of manda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much as the right to buy share would arise only when a shareholder's decision to sell his share falls outside clause 7(i) and/or when the board of directors does not permit a selling member to sell his share outside the company without offering an option to buy share to a shareholder, who may be interested in buying such share. Such a contract, being a contingent contract, is inherently determinable in nature inasmuch as the right of pre-emption is conditional and exercisable only when the transfer of share is not covered by clause 7(i) or, when, though covered by clause 7(i), the board of directors does not permit sale of share to an outsider without giving an option to buy share to another willing shareholder. Such a contingent contract, in the light of clause (c) of sub-section (1) of section 14 of the Specific Relief Act, is not specifically enforceable. 192. Thus, when the plaintiff's right, if any, to buy share, under the articles of association of the appellant-company, is a conditional and not an absolute right, such a right, being determinable in nature, is not specifically enforceable unless the conditions precedent, as indicated above, are fulfilled. Consequentl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is dependant on fulfilment of the conditions precedent embodied in clause 7(i), it cannot, merely on the basis of the provisions contained in clause 7(b) of the articles of association of the appellant-company, be contended that in each and every case, a shareholder, such as, the plaintiff, has an absolute right to buy shares in preference to an outsider. No decree of declarations, in the present case, can, therefore, be prima facie granted as has been sought for by the plaintiff-respondent, particularly, when the plaintiff has not pleaded any such fact to show that in the facts and attending circumstances of the present case, the provisions of clause 7(i) are not attracted or that the decision of the board of directors to act upon the resolution, adopted in the extraordinary general meeting of the shareholders of the appellant-company, is beyond their competence even in the face of the provisions of clause 7(1). 196. In the facts of the present case, one is also required to bear in mind the provisions of section 34 of the Specific Relief Act, 1963. Section 34 reads : "34. Discretion of court as to declaration of status or right.-Any person entitled to any legal character ; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise, particularly, when the injunction, in the present case, is only a consequential relief. This apart, when (as already held above) no specific performance of the alleged pre-emptive right of the plaintiff-respondent is, in the facts and attending circumstances of the case, possible, the preventive injunction which the plaintiff-respondent had sought for, could not have been granted. 199. Coupled with the above, what also needs to be noted is that though a court's satisfaction that a suit is prima facie maintainable is a pre-requisite for granting of injunction, the maintainability of the suit is, somewhat, a variable concept. 200. "Maintainability", according to Advanced Law Lexicon, quoting Corpus Juris Secundum, has three meanings. The first meaning is "to commence, to begin, to bring, to institute". The second meaning is "to continue, to carry on, to support, as contradistinguished from to institute". The third meaning of the term is to commence and prosecute to a conclusion that which has already been begun. 201. The impact of non-joinder of a necessary party on the above three facets of maintainability will not be the same. A statute may provide that a suit cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrect when they point out that the learned trial court has assigned no reasons for coming to the conclusion that there is a prima facie case for trial or that the balance of convenience is in favour of the plaintiff or irreparable loss would be caused if injunction was not granted. Having set out the facts of the case, the learned trial court concluded and directed as follows : "After considering the above facts and circumstances, I find that petitioner-plaintiff has established a prima facie case in his favour and if the prayer of the petitioner-plaintiff is not allowed, then it will cause irreparable loss to the petitioner-plaintiff which cannot be compensated by money and the balance of convenience is also in favour of the petitioner-plaintiff. Considering the claim and counter claim of the parties, I find that is a fit case for granting temporary injunction in favour of the petitioner-plaintiff and it is also found that if the injunction is not granted in favour of the petitioner-plaintiff, then very purpose of instituting the suit will be defeated and it will be infructous. After hearing both sides, it appears that the disputes between the parties likely to go for trial." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We feel the submissions devoid of substance. First about the jurisdiction and propriety vis-a-vis circumstances which come into being subsequent to the commencement of the proceedings. It is basic to our processual jurisprudence that the right to relief must be judged to exist as on the date a suitor institutes the legal proceeding. Equally clear is the principle that procedure is the handmaid and not the mistress of the judicial process. If a fact, arising after the lis has come to court and has a fundamental impact on the right to relief or the manner of moulding it is brought diligently to the notice of the tribunal, it cannot blink at it or be blind to events which stultify or render inept the decretal remedy. Equity justifies bending the rules of procedure, where no specific provision or fair play is violated, with a view to promote substantial justice-subject, of course, to the absence of other disentitling factors or just circumstances. Nor can we contemplate any limitation on this power to take note of updated facts to confine it to the trial court. If the litigation pends, the power exists, absent other special circumstances repelling resort to that course in law or just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding the relief to be granted in a case on appeal, the court of appeal is entitled to take into account even facts and events which have come into existence after the decree appealed against'." 207. Even in Laxmi and Co. v. Dr. Anant R. Deshpande reported in [1973] 1 SCC : 37, on the question of subsequent development, the apex court has observed as under (page 45) : "27. It is true that the court can take notice of subsequent events. These cases are where the court finds that because of altered circumstances like devolution of interest it is necessary to shorten litigation. Where the original relief has become inappropriate by subsequent events, the court can take notice of such changes. If the court finds that the judgment of the court cannot be carried into effect because of change of circumstances of the court takes notice of the same. If the court finds that the matter is no longer in controversy the court also takes notice of such event. If the property which is the subject-matter of suit is no longer available the court will take notice of such event. The court takes notice of subsequent events to shorten litigations, to preserve rights of both the parties and to subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany, but the public at large, for, a large number of lives are depending on the outcome of this appeal. 210. The discussions, held above, as a whole, may be summarised thus : The decision of the shareholders of the appellant-company to sell shares outside the company is a decision of the company itself, particularly, when the board of directors of the appellant-company has acted upon the decision so taken by the shareholders. The plaintiff-respondent is as much bound by this decision as any other shareholder. It is not the case of the plaintiff-respondent that the shareholders' decision to sell shares outside the company is not in public interest or prejudicial to the interest of the company. If the plaintiff-respondent is aggrieved by the said decision as a minority shareholder, his remedy lies in invoking jurisdiction under sections 397 and 398. Viewed thus, the present suit is not prima facie maintainable. This apart, the reliefs of various declarations, which the plaintiff-respondent has sought for, cannot, in the background of the discussions already held above, be prima facie made available to the plaintiff-respondent. Situated thus, it is made clear that the plaintiff ..... X X X X Extracts X X X X X X X X Extracts X X X X
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