GHCL Limited vs Arun Goenka

Rajesh H. Shukla, J.—Rule. Service of rule is waived by learned advocate Mr. Bijal Chhatripati for M/s. Singhvi & Company, who appears on caveat, for the Respondent.

In view of the request for urgent circulation granted, the present civil application has been moved which has been permitted by the Hon''ble the chief Justice and the matter has been taken up.

Heard learned Sr. Counsel Mr. S.N. Soparkar appearing with learned advocate Mr. A.S. Vakil for the applicant-original Defendant and learned Sr. Counsel Mr. M.J. Thakore appearing with learned advocate Mr. Bijal Chhatrapati for M/s. Singhvi & Company, who appears on caveat, for the Respondent.

The facts of the case giving rise to the present Appeal from Order and the civil Application are that the Respondent caveator, original Plaintiff, filed Civil Suit No. 1986 of 2011 for injunction and prayer that at the AGM of the Appellant-company scheduled to be held on 2.9.2011 the Resolution with regard to removal of two Joint Managing Directors, Mr. P. Sampath and Mr. R.S. Jalan, may be placed and had also asked for the prayer that the company may be restrained by injunction from holding the AGM scheduled to be held on 2.9.2011 without complying with the provisions of the Companies Act, 1956.

The Suit has been filed for the aforesaid prayer on the grounds stated in Para 10 regarding the cause of action that Mr. R.S. Jalan, Jt. Managing Director of the company has not acted in the interest of the company and has not carried out his responsibilities towards the company and has been guilty of malpractices, malfunctioning, mismanagement and manipulations. The notice has been given on 4.8.2011 regarding removal of Mr. Jalan as Jt. Managing Director of the company, which is produced at Annexure-B. The same has been replied vide letter dated 18.8.2011 making it clear that out of the two Jt. Managing Directors, Mr. Sampath has resigned from the company way back in October, 2007. In response to this communication, the Respondent-original Plaintiff again wrote a letter dated 27.8.2011 and insisted for the resolution for removal of Mr. Jalan as Jt. Managing Director of the company at the AGM. The learned Chamber Judge, City Civil & Sessions Court, Ahmedabad, passed an ex-parte order directing the company to place the Plaintiff''s proposal to remove Mr. Jalan, Jt. Managing Director of the company, before the AGM scheduled to be held on 2.9.2011 or any other adjourned meeting. It is this order which has given rise to the present Appeal from Order and the Civil Application.

Learned Sr. Counsel Mr. Soparkar submitted that in fact by passing such mandatory order, the suit has been decreed even without affording any opportunity of hearing to the company or to Mr. Jalan who is sought to be removed by such proposal. He has pointedly referred to the details and also the provisions of Section 188 of the Companies Act, as well as Section 190 and Section 284. Learned Sr. Counsel Mr. Soparkar has referred to and relied upon the judgment of the Hon''ble Delhi High Court reported in 1993 Company Cases 469 76 in the case of Amar Nath Malhotra v. MCS Limited, and submitted that though it refers to removal of the auditor, the provisions of Section 225 is pari materia with Section 284 which has been interpreted and submitted that it has been specifically observed referring to the procedure and it has been made clear that such litigation could be filed by way of abuse of the process of the court and in fact observations have been made in this judgment in such situations. There is also a reference to the matter for removal of the director that a single member could cause damage and therefore unless the member who is seeking to remove the director is not complying with other provisions including Section 188 of the Companies Act with supporting strength as provided or the number of shares as required, it may not be permitted.

Further, he has referred to Section 188(5) of the Companies Act and submitted that the procedure as required is required to be followed. Further, Learned Sr. Counsel Mr. Soparkar submitted that assuming everything, still, the direction which is given to place the resolution is contrary to the procedure to be followed as required under the company law inasmuch as the other members are not aware as there was No. time for publication of the notice before the resolution could be moved or placed for consideration. He, therefore, submitted that in any case such direction cannot be complied with and therefore the present civil application may be granted.

Learned Sr. Counsel Mr. Soparkar further emphasised and submitted that a prima facie case, balance of convenience and comparative hardship are required to be considered. He submitted that there was No. emergency and as there is inbuilt contradictions in the order and the Notice of Motion is required to be heard by affording an opportunity of hearing, it may not be placed before the AGM. He strenuously urged that if the interim relief is not granted, it would amount to decreeing the suit ex-parte without affording any opportunity to the applicant copany as once the AGM is held, the purpose is served regarding the publicity and causing damage to the prestige and therefore it may not be granted.

Learned Sr. Counsel Mr. Soparkar has also referred to the judgment of the Hon''ble Apex Court reported in Bank of Maharashtra Vs. Race Shiping and Transport Co. Pvt. Ltd. and another, and Anr. in support of his submission that normally mandatory injunction is not required to be granted unless there is a grave emergency. He also submitted that for moving such a resolution, No. material is produced long with the plaint except bare allegations regarding malpractices which is not supported by any document or any material and therefore even while passing such an order the court below ought to have appreciated this aspect. He further submitted that there is No. reasoned order passed which is required inasmuch as while granting the order of such a nature by which practically the suit is allowed, No. reasons are given and therefore also the order may be stayed.

Learned Sr. Counsel Mr. M.J. Thakore appearing with learned advocate Mr. Chhatrapati for the Respondent on caveat has referred to the details and submitted that the Plaintiff, Respondent herein, is not at fault as he has filed the suit immediately and the interim relief is granted inasmuch as if the relief as prayed for is not granted and the meeting is scheduled to be held, it would amount to rejecting the suit as thereafter the Plaintiff will have to wait till the next AGM which is to be held next year. He therefore submitted that the court, therefore, considering this has rightly considered the balance and passed the order. He submitted that the provisions of Section 284 of the Companies Act and Section 188 are two independent and self-contained provisions and has also submitted that removal of the director of the company is involving a democratic process which is a matter of right of each individual shareholder which cannot be breached. He has referred to and relied upon the judgment of the Hon''ble Karnataka High Court in the case of Prakash Roadlines Ltd. and Anr. v. Vijaya Kumar Narang, reported in 1995 Company Cass 569 Vol. 83, and has pointedly referred to the observations made therein. He also referred to another judgment of the Hon''ble Karnataka High Court reported in 1994 Company Cases 417 Vol. 79 stating that the provisions are independent and he emphasised the observations made therein with regard to the fact that the members at the general meeting have the right to exercise in a democratic manner. He has also referred to and relied upon the judgment reported in Gopal Vyas Vs. Sinclair Hotels and Transportation Ltd., In support of his submissions.

Learned Sr. Counsel Mr. Thakore again submitted that the court is required to consider the rival claims of both the sides and has to decide the application for injunction after considering the well accepted criteria for grant of injunction. In support of his submission, he has referred to and relied upon the judgment in the case of Deoraj Vs. State of Maharashtra and Others, and pointedly emphasised the observations made in para 12. He therefore submitted that the court may mould the relief and may postpone the hearing for consideration of the resolution after it is placed in the AGM and till then the Notice of Motion may be directed to be heard.

In rejoinder, Learned Sr. Counsel Mr. Soparkar responded to the submissions and emphasised the observations made in the judgment in the case of Deoraj v. State of Maharashtra and ors (supra) and submitted that, on the contrary, it suggests a strong prima facie case for grant of such prayer which is not there. He therefore submitted that the present civil application may be granted.

In view of rival submissions, it is required to be considered whether the present civil application can be entertained or not.

As it could be seen from the facts narrated hereinabove, admittedly, the person who is sought to be removed is not joined as a party Respondent in the suit. Submissions are made with regard to whether the provisions of Section 188 and 184 are independent or are interconnected. Further, the submissions have been made by both the sides with regard to the interim relief. It is in these circumstances, the court is required to consider the interim relief passed by the court in background of the well accepted criteria/guidelines laid down by the Hon''ble Apex Court in catena of judicial pronouncments regarding grant of interim relief/injunction.

It is well accepted that while considering such an application, the court has to consider the prima facie case, balance of convenience and also comparative hardship. The reference made by learned Sr. Counsel Mr. Thakore referring to the judgment reported in the case of Deoraj v. State of Maharashtra and ors (supra), on the contrary, clearly suggests that not only prim a facie case, but it requires a strong prima facie case and the balance of convenience has to be totally in favour of the applicant, then only it will justify the grant of mandatory injunction of such a nature. It has been observed,

In such cases the availability of a very strong prima facie case - of a standard much higher than just prima facie case, the considerations of balance of convenience and irreparable injury forcefully tilting the balance of case totally in favour of the applicant may persuade the Court to grant an interim relief though it amounts to granting the final relief itself.

In the facts of the present case, it will have to be considered whether such injunction of a mandatory nature was justified. Admittedly, the person who is affected is not joined as a party. There is No. notice issued providing an opportunity of hearing to the other side including the Appellant company. There is a debatable issue involved with regard to the interpretation of the provisions of the Companies Act. The main basis or foundation for the suit is removal of the Jt. Managing Directors on the ground of misfeasance, malpractices etc. Again, initially it is for two persons. Thereafter, when it is stated that one person has already resigned way back in October, 2007, it is sought to be modified, which again will have a different procedure to be followed for the purpose of resolution to be moved in that manner.

Be that as it may, even assuming that it is for removal of Mr. Jalan only, the conduct of the Respondent-Plaintiff is also required to be considered that though he files such an application with such allegations, No. material is produced or at least it was not being reflected. Learned Sr. Counsel Mr. Thakore has stated that without any material suggesting even a prima facie case regarding malpractices or misfeasance, the resolution could be moved as a matter of right which cannot be accepted in absolute terms as suggested. Further, when he was aware he has not produced nor submitted any detail to the company and he would also be aware how the meeting is required to be convened when he is so vigilant. The company is left with No. time even to comply with the requirements of publication of notice which is required even assuming that he has an absolute right and still if the publication cannot be made as required under the law, others may raise objection that they are not aware as to whether to support or oppose the proposed resolution. In this situation because of the inunction the company is saddled with such a situation which would call for inference in exercise of the discretion.

Moreover, it is not that he will be non-suited inasmuch as appropriate direction could be given at the time of finally concluding the hearing of the Notice of Motion and passing the order. Further, the Respondent-Plaintiff has a remedy under the Companies Act for making an appropriate application for misfeasance of the director or the Managing Director but in that case he is required to come with a strong case with material and the burden is on him which is required to be decided and therefore in the guise of such suit along with the application for injunction the Notion of Motion/Application for Injunction has been moved and the aforesaid order of the mandatory nature is passed. As there is prima facie No. material produced in support of the allegations about the misfeasance or malpractices, there is No. justification for the impugned order.

Therefore, considering the aforesaid aspects as well as the observations made by the Hon''ble Delhi High Court in the case of Amar Nath Malhotra (supra) that there might be a situation where such proposal could be moved by the members with oblique motive and it may not be possible for the company to tackle the situation and circulate the resolution requiring special notice and it may have adverse effect on the functioning of the company and therefore having regard to the aforesaid aspects the Civil Application deserved to be allowed and accordingly stands allowed. Prayer in terms of Para 3(A) is granted.

Rule is made absolute.

D.S. Permitted.

(Rajesh H. Shukla, J.)

(hn)

FURTHER ORDER

After the order was pronounced, learned Sr. Counsel Mr. Thakore appearing with learned advocate Mr. Chhatrapati for the applicant has requested for stay of the operation of the order to enable his client-original Plaintiff to approach higher forum. In the facts and circumstances, the request is rejected.