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TMI Blog2016 (7) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... suit. 2. In the Defendant's Written Statement, the Defendant challenged the maintainability of the suit, inter alia, on the ground that Plaintiff No.2 had no authority to file the suit on behalf of Plaintiff No.1 and further that under the Articles of Association of Plaintiff No.1, any resolution for commencement or discontinuance of any litigation as set out therein required the consent of at least one Director nominated by the VC Investor (i.e. ICICI Trusteeship Services Ltd.) or the VC Investor itself. It was further submitted that there was no board resolution authorizing Plaintiff No.2 to file the present suit on behalf of Plaintiff No.1. In view thereof, by an order dated 14th March 2014, this Court (Mrs. R.S. Dalvi, J. as she then was) framed issues in the suit , including Issue No.3, which reads as under:- "3. Whether the plaintiff No.2 has authority to file suit on behalf plaintiff No.1." 3. In response to the Defendant's contention in the Written Statement and the issue framed in that regard, Plaintiff No.2 filed an Affidavit of Evidence notarized on 9th April 2014 claiming to be authorized to deal with all legal matters in respect of the company pursuant to a resolu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p by the 1st Plaintiff company without approval of Investors viz. ICICI Venture Funds Management Company Ltd. and that these covenants are in force presently. iii. That there is no approval to the filing of the suit by the said VC Investor. 6. The Hon'ble Court has, based on an erroneous understanding of the documents and facts on record in the Suit based on the submissions of the Defendant's counsel across the bar, proceeded to hold issue No.3, as to whether the suit could be validly filed for Plaintiff No.1, by Plaintiff No.2, a mere issue of law. The Hon'ble Court has passed the impugned Order having been led to believe, erroneously, that what is stated in paragraphs 5 (i) to 5 (iii) above are admitted facts and admitted documents on records in Suit, which in fact, they are not. 7. The Hon'ble High Court not having had the benefit of any pleading and relying solely on the oral arguments, in support of the request to consider hearing if issue no 3 as a preliminary issue, erred in not appreciating that, none of the claims of the Defendant Counsel set out in 5(i) to (iii) above and taken by the Court to be matters on record were admitted by the Plaintiff's in the Suit. The Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required at all, from the investor is not available, nor is any document on record of the proceedings which indicates the investor has not given consent to the filing of the suit. This aspect as to whether the consent is required or not, assuming that such consent is at all required under the Articles can itself only be decided by way of evidence based on the Articles and the covenants therein The question of whether such consent is available or not is also to be proved only a matter of evidence and as such a question of fact. The order dated 5th May, 2015 is passed by this Hon'ble Court holding as though as per record not required to be proved that not only is investor consent necessary but also that the investor has not given consent to the initiation of the suit and the same can all be considered as admitted fact without being proved. In this circumstances, this Hon'ble Court has erred in holding issue no 3 be decided as a preliminary issue as a issue of law without the parties needing to lead evidence and be cross examined. c. The resolution of the Board of Directors of the 1st Plaintiff dated 9th April 2010, is not the only basis on which the present suit has been filed. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment for the VC Investor's consent and the fulfillment of the conditions relating to Article 17A were matters which required evidence. 6. The issues urged in the Review Petition on behalf of the Plaintiffs were considered and by an order dated 28th July, 2015, this Court (Coram: S.C. Gupte, J.) rejected the Review Petition. The order dated 28th July, 2015 is reproduced hereunder: "Heard learned Counsel for the Review Petitioner. The Review Petition is on the footing that any decision on issue no.3, which is referred to in the order passed by this Court on 5 May 2015, requires leading of evidence. Having regard to the pleadings filed by the parties neither is there any dispute as to the identity of the Articles of Association of Plaintiff No.1 nor the contents of the Articles. In fact, when it was pointed out to the Court at the hearing on 5 May 2015 that , the Articles of Association produced by the Defendant at the hearing, contain a bar in respect of any suit being filed for and on behalf of Plaintiff No.1 unless the commencement of such legal action is preceded or supported by a resolution duly passed in accordance with the Articles, no objection was raised to the authenticit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the present suit being material in the context of the company's business, it is the express case of the Plaintiffs (which is disputed by the Defendant), inter alia, in paragraphs 24 to 27 of the Plaint, that the alleged defamatory averments made by the Defendant had caused a considerable adverse impact on Plaintiff No.1, inter alia, as bankers have allegedly been reluctant to support the revival of the Plaintiffs' businesses, and the businesses has suffered a serious setback in respect of which substantial damages to the tune of Rs. 500 crores has been claimed by the Plaintiffs. It is therefore submitted that the suit filed on behalf of Plaintiff No. 1, by Plaintiff No.2, is ex facie without authority and in breach of binding provisions of Plaintiff No. 1's Articles of Association and therefore ought to be dismissed qua Plaintiff No.1. 9. The Learned Advocate appearing for the Official Liquidator appointed by the Madras High Court submitted that the Plaintiff No.1 was ordered to be wound up by an order 29th February 2012, passed by the Madras High Court and the Official Liquidator came to be appointed as Liquidator for the Company. The Appeal from the order of winding up was di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made applicable, existed. 10.3 That the Articles are void to the extent that they restrain the filing of a suit without the consent of the VC Investor, in light of Section 28 of the Indian Contract Act, 1872. 10.4 That the Company's business has no nexus with the litigation herein as it cannot be even the case of the Defendant that the suit for defamation is in any manner in the context of the Company's business let alone being material to it. The Plaintiff No. 1 was India's largest food, grocery, mobile phone retailer and was in the business of retailing and the suit herein relating to tort of defamation is in no manner a matter related to the Company's business. The suit is only to remedy the effect of the Defendant's malicious and slanderous libel and is in no manner a proceeding in respect of the business of the Plaintiff No. 1 Company. It is submitted that suits or legal proceedings relating to the business of the Company alone, such as its premises, licenses, employees, trademarks and copyrights, supply arrangements, employees and contractors and vendors and the like, would if at all get attracted by the provisions of the claimed Article 17A (t) subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat evidence would be required to ascertain whether the consent had been obtained from the VC Investor and whether the conditions of Article 17A to be made applicable, existed, which contention was not accepted by the Learned Judge and therefore the said issue stood foreclosed by the orders dated 5th May,2015 and 28th July,2015. Raising the above said issue therefore amounts to asking this Court to sit in Appeal over the orders passed by S.C. Gupte, J. on 5th May, 2015 and 28th July, 2015, which ought not to be countenanced. 12.3 That the submission of Plaintiff No. 2 that the Articles of Association are void to the extent that they purportedly restrain the filing of the suit without the consent of the VC Investor, in light of Section 28 of the Indian Contract Act, 1872, is misconceived. 12.4 That it is clear from paragraphs 24 to 27 of the Plaint that it is the Plaintiffs' own case that the alleged defamatory statements are extremely material in the context of Plaintiff No.1's business. 13. I have perused the pleadings and the orders passed by S.C. Gupte, J. dated 5th May, 2015 and 28th July, 2015. I have considered the oral as well as the written submissions and the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. As the only factual dispute was in relation to the existence of the Resolution dated 9th April, 2000, on a concession by the Defendant, the same was taken on record and marked in evidence as Exhibit P-8. 16. Being aggrieved by the order dated 5th May, 2015, the Plaintiff filed a Review Petition (L) No. 25 of 2015 before this Court on 12th June, 2015. The points and grounds urged by the Plaintiff No. 2 in his Review Petition are already set out in Paragraph 5 hereinabove. From a perusal of the said points/grounds, it is clear that the Plaintiffs had expressly raised a contention that the existence of a requirement for the VC Investors consent and the fulfilment of the conditions relating to Article 17A were matters which require evidence. After considering the submissions made on behalf of the Plaintiffs, the Review Petition was rejected and the Articles of Association tendered on that day on behalf of the Plaintiffs were taken on record and marked "X" for identification. It was clarified that the issue at hand was a pure point of law. 17. Article 17A and in particular clause (t) thereof read as under: "17A CONSENT OF THE VC INVESTOR: Until the listing of the shares of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Gupte, J. which cannot be allowed. It is pertinent to note that at no point was it ever sought to be urged in the pleadings of the parties or the affidavit of evidence or in the arguments on two occasions before S.C. Gupte, J. that the shareholding of the VC Investor had fallen below 2% or that the Company was listed. Even in the present hearing, in answer to an express question put by this Court, as also in response to a suggestion made on behalf of the Defendant that Plaintiff No.2 be directed to state on oath whether the shareholding of the VC Investor had fallen below 2% and whether the company had been listed, Plaintiff No.2 failed/avoided to provide an answer, stating only that the issues required evidence. The Plaintiff No.2 cannot be allowed to avoid/refuse stating the true and correct position which is to his knowledge as the Promoter and Managing Director of the Company but to insist that the same has to be established only by leading evidence, obviously with a view to keep the suit pending and to delay its disposal. 19. In fact, as pointed out by the Defendant, the Plaintiff has himself placed on record a judgment of the Madras High Court, which is marked as Exhibit- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the conflict resolution mechanism contained in these Agreements." 21. The Plaintiff No. 2 admittedly being the Promoter and Managing Director of the Company has not only not produced the Investment Agreement and/or Investment Agreement-I and/or the Subscription Agreement but has also not asserted before this Court that there is any inconsistency between the provisions of Articles 1 to 36 and the provisions of the Investment Agreement and/or the Investment Agreement-1 and/or the Subscription Agreement. It is therefore once again established that the Plaintiff No. 2 is trying to raise issues only with a view to keep the suit pending and delay the determination of the preliminary issue. 22. It is next contended on behalf of Plaintiff No. 2 that the Articles of Association are void to the extent that they purportedly restrain the filing of a suit without the consent of the VC Investor, in light of Section 28 of the Indian Contract Act, 1872. Section 28 of the Indian Contract Act, 1872 is reproduced hereunder: "28. Agreements in restraint of legal proceedings, void : (Every agreement, - (a) by which any party thereto is restricted absolutely from enforcing his rights under or in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess leading to "substantial damages to the tune of Rs. 500 crores". Paragraphs 24 to 27 of the Plaint are material and are reproduced hereunder: "24. As a consequence of the defamatory statements made by the Defendant, various bankers have been reluctant to support the revival of the Plaintiffs and entities promoted by Plaintiff No.2 or offer concessions which otherwise would be made in normal course so as to enable the Plaintiffs to revive their businesses. The defamatory statements were deliberately made at a crucial juncture when the Plaintiff 2's Company was proposing to open a large number of Subhiksha stores through Franchisees and the Plaintiffs were working on the restructuring of the debts of the Plaintiff No.1. On the publication of the averments pertaining to an 'out-an-out fraud' etc. as stated by Defendant prevented the bankers from rendering support to the Plaintiff considering the fact that Defendant is a member of the Central Board of the Reserve Bank of India, which regulates the Banks. For reasons stated in the forgoing paragraphs, it is imperative that the Defendant be compelled to pay damages for loss suffered by each of the Plaintiffs for reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve Rs. 138,00,00,000 (Rupees one hundred thirty eight crores) per annum as license fees from the said Blue Green Construction and Investment Limited for allowing the use of the brand Subhiksha and the facilities and infrastructure and licenses of the Plaintiff No. 1. The arrangement was entered into in July 2008 for a period of 3 years. The Plaintiff craves leave to refer to and rely upon the said agreement as and when produced. The said company is presently controlled and managed by Plaintiff No. 2. For reason of the defamatory statements of Defendant, the said Blue Green Construction and Investment Limited is unable to rope in adequate franchisees. The goodwill and reputation of the Plaintiffs have been severely damaged and the Plaintiffs have suffered a serious setback in their ability to resume and revive business. The Plaintiffs therefore state and submit that they have been grossly defamed by the Defendant and are therefore entitled to claim apart from normal damages by way of compensation exemplary and / or aggravated damages against the Defendant quantified at Rs. 500,00,00,000 (Rupees five hundred crores only) as more particularly prayed for in the Particulars of Claim, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to the winding up order. Furthermore, the contention that the Official Liquidator can ratify the failure to obtain consent as required under Article 17A cannot be accepted, as it would amount to an opportunistic misuse of the provisions of law. The suit being infirm on the date it was filed, it cannot be sought to be rendered proper merely by the happen chance of the company having subsequently been ordered to be wound up. In any event, the bar arises under Article 17A on account of failure to obtain the consent of the VC Investor, that is to say a third party. There can be no ratification by the Official Liquidator of such a failure, as the entire object of ratification would be to cure a defect which was capable of being complied with by the company in the first instance. As the defect in the present case is failure to obtain a third party's consent, there is no question of the Official Liquidator ratifying the filing of the suit without the said consent being obtained, which admittedly has not been obtained in the present case. Section 9 of the Companies Act, 1956 does not authorize the Official Liquidator to continue proceedings which were initiated illegally and without aut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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