Companies Act Case Law Bloom Dekor Limited Vs Subhash Himatlal Desai

PETITIONER:
BLOOM DEKOR LIMITED

Vs.

RESPONDENT:
SUBHASH HIMATLAL DESAI

DATE OF JUDGMENT09/09/1994

BENCH:
MOHAN, S. (J)
BENCH:
MOHAN, S. (J)
VENKATACHALLIAH, M.N.(CJ)
SAWANT, P.B.

CITATION:
1994 SCC (6) 322 JT 1994 (6) 89
1994 SCALE (4)60
ACT:

 

HEADNOTE:

 

JUDGMENT:
The Judgment of the Court was delivered by
S. MOHAN, J.- Leave granted.
2. All these matters can be dealt with under a common
judgment since the issue involved is one and the same.
3. The appellant-Company was incorporated as a public
limited company on 23-3-1992 in the name of “Bloom
Decoratives Limited”. Subsequently, its name was changed as
“Bloom Dekor Limited”. The registered office was formerly
located at 1/F, Dhanlaxmi Chambers, Ashram Road, Ahmedabad.
It was shifted to No. 8, National Highway, Oran, District
Sabarkantha, North Gujarat with effect from 10-11-1993.
However, it continues to have its corporate office in
Ahmedabad.
4. The Company received industrial licence on 21-6-1993 from
the Government of India for the manufacture of decorative
industrial laminates. The company went for public issue
of 23,65,000 equity shares of which 4 lakh equity shares
have been reserved for the NRIs of Rs IO each for cash at
par aggregating to Rs 236.50 lakhs. The company made
applications to the Ahmedabad Stock Exchange and the Bombay
Stock Exchange for permission to deal in and for an
official quotation of the equity shares being offered in
terms of its prospectus dated 10-8-1993. The company has
filed a copy of its prospectus under Section 60 of the
Companies Act, 1956 (for short ‘the Act’) with Registrar of
Companies, Gujarat for registration. The issue opened on
9-9-1993. It was oversubscribed. Therefore, it was closed on
14-9-1993 being the earliest closing date. The latest
closing date announced in the prospectus was 20-9-1993.
5. Hereafter strange happenings take place. A group of
persons, Viren Thakkar and his associates seem to have
entered into large scale out-of-the-ring transactions in the
sale and purchase of company shares. On that
324
account, they would be required to make good their
speculative losses once the company shares are listed and
traded in the market. To delay this the first suit CS No.
90 of 1993, was filed at Morvi. This place was chosen
because Viren Thakkar’s sister’s husband (brother-in-law)
Ramniklal Thakkar resides there. The same Ramniklal Thakkar
appears to be familiar with the court proceedings. In the
said suit CS No. 90 of 1993 the plaintiff Bharat Kherajbhai
Chandrana through his advocate Mr Tarun V. Shah of Ahmedabad
obtained late in the evening an ex parte order dated 20-11-
1993 restraining the company from making allotment of the
shares of the public issue or to take any further
proceedings in relation thereto including issue and despatch
of share certificates.
6. The appellant moved the High Court. This order of 30-
11-1993 was stayed on 8-12-1993.
7. Viren Thakkar’s wife’s brother Ramesh Thakkar filed a
Civil Suit No. 6630 of 1993 before the City Civil Court at
Ahmedabad. He also obtained therein an ex parte ad interim
order in terms similar to the ad interim order of Morvi
Court dated 30-11-1993. The same advocate Mr Tarun V. Shah
appeared for the plaintiff. The said order was served upon
the appellant–Company after 6.30 p.m. on 9-12-1993.
Thereupon the company filed an Appeal A.0. No. 527 of 1993
before the Gujarat High Court. This was filed on 10-12-
1993. 11-12-1993 and 12-12-1993 were holidays. Hence, the
appeal was circulated on 13-12-1993 for orders. On that
very date the same advocate Mr Tarun V. Shah filed Special
Civil Application No. 13891 of 1993 on behalf of Grahak
Suraksha Samiti before the Gujarat High Court. Inter alia,
an injunction restraining the Ahmedabad and Bombay Stock
Exchanges from granting any permission for trading/dealing
the equity shares of the. company in other stock exchanges
in any manner and to restrain the company and its Directors
from issuing transferring or dealing in any manner the
equity shares of the company, was sought.
8. On 14-12-1993, A.0. No. 527 of 1993 was admitted and
the ex parte ad interim order was stayed.
9. On the same day, other associates Arvind B. Sheth and
Kirtibhai Ghadiya filed Civil Suit No. 6683 of 1993 before
the City Civil Court at Ahmedabad at about 7.45 p.m. on 14-
12-1993. An ex parte ad interim order came to be passed.
The same advocate Mr Tarun V Shah appeared. A notice of the
said order was made returnable on 20-12-1993.
10. On 15-12-1993, the High Court took up Special Civil
Application No. 13891 of 1993. Notice was ordered to the
respondent returnable on 20-12-1993. The application for
interim relief was directed to be posted on 18-12-1993.
11. After midnight of 17/18-12-1993 Rashmin Ghadiya, who is
stated to be a relative of the said Viren Thakkar filed a
plaint through the advocate Mr Tarun V. Shah before the
Civil Judge (J.D.) at Prantij for a declaration that the
company’s issue was void since the requisite permission of
stock exchange under Section 73 of the Act was not obtained.
An application for
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interim injunction restraining the company, the stock
exchanges at Ahmedabad, Jaipur, Bombay, Rajkot Shareholders’
Association and Rajkot Share Dealers’ Association from
issuing, transferring, selling or dealing in any manner
equity shares of the company and restraining the company
from utilising the funds of the public issue in any manner
till the disposal of the suit.
12. On this day (18-12-1993) the Morvi Court dismissed the
application for interim relief for default. However, Mr
Tarun V Shah applied for restoration on the ground that he
was delayed in reaching the court on account of the farmers’
agitation. That application stood adjourned to 20-1-1994.
13. On 20-12-1994 it appears that the learned Judge of the
High Court who was dealing with Special Civil Application
No. 13891 of 1993 specifically asked Mr Tarun V Shah whether
any suit had been filed. The answer was given in the
negative. This was countered by the appellant’s advocate
that three suits had been filed, one at Morvi and two in
Ahmedabad. Thereupon Tarun V Shah had stated that he had
nothing to do with those suits nor was he concerned in any
manner.
14. It requires to be mentioned that Mr Tarun V Shah
appeared in the City Civil Court in Civil Suit No. 6683 of
1993 during the second sitting when the question of
extension of ad interim ex parte order came up for
consideration.
15. Notwithstanding all the above, another suit Special
Civil Suit No. 25 of 1994 came to be filed before learned
Civil Judge (Senior Division) Baroda on 2-1-1994. An ex
parte order was obtained.
16. The Ahmedabad City Civil Court adjourned the hearing of
the application for interim relief in CS No. 6683 of 1993 to
12-1-1994 till the date the ex parte order came to be
extended notwithstanding the opposition of the appellant-
Company. On 12-1-1994 the application could not be taken up
for hearing for want of time and the matter was adjourned to
19-1-1994.
17. On 13-1-1994 the company filed its counter to the
application for interim relief in Baroda Suit No. 25 of
1993. Here again, Mr Tarun V. Shah appeared before the
Baroda Court and sought time for publication of notice under
Order 1 Rule 8 of CPC. On this score, the court was
disinclined to adjourn the matter. Therefore, time was
sought for a rejoinder whereupon the court adjourned the
matter to 17-1-1994.
18. The ground on which the various suits and the writ
petition came to be filed was that the appellant-Company did
not obtain the necessary permission from the Ahmedabad and
Bombay Stock Exchanges to deal in shares or debentures as
contemplated under Section 73 of the Act. In support of
this averment reliance was placed on certain letters
addressed by the Stock Exchanges of Ahmedabad and Bombay to
share broker that the shares of the company had not been
listed on the exchange for dealing. It was also alleged
that the Registrar to the issue had not made allotments in
accordance with SEBI guidelines. There were irregularities
both in the matter of applications
326
for shares and making allotments. Further, there was
violation of Section 33 of the Act. It is under these
circumstances questioning the propriety and the correctness
of these interim orders civil appeal arising out of SLP (C)
No. 878 of 1994 against the judgment dated 9-1-1994 by the
City Civil Judge (Senior Division) Baroda in Special Civil
Suit No. 25 of 1984 and civil appeal arising out of SLP (C)
No. 874 of 1994 passed by the City Civil Judge, Ahmedabad in
CS No. 6683 of 1993 have come to be preferred.
19. TP Nos. 26 to 30 of 1994 have been filed for
transferring Special Civil Suit No. 90 of 1993, Civil Suit
Nos. 6630 and 6683 of 1993, Civil Suit No. 85 of 1993 and
Special Civil Suit No. 25 of 1994 to the High Court of
Gujarat at Ahmedabad or in the alternative for an order for
transferring the said suits pending at Morvi, Prantij and
Baroda to the City Civil Court at Ahmedabad.
20. Learned counsel for the appellant vehemently argues
that all the suits and the writ petition are frivolous and
vexatious in nature. They have been resorted to by a caucus
of individuals with a view to defeat or delay their
liability in illegal speculative transactions in the shares
of the company. They are determined to see the company
shares are not dealt in Ahmedabad and Bombay exchanges or no
quotations for them are available with a view to see that
the prices of company shares go down in the transaction at
the stock exchanges.
21. What is surprising in this case is suits were filed
before courts which have no jurisdiction whatever, namely,
Morvi and Varodara, though in the name of different persons
all backed up by Ramlal Thakkar. No part of cause of action
has arisen within the jurisdiction of either of these
courts. Then again, the courts are approached at the last
minute. Yet an order of ad interim injunction came to be
passed without even notice to the appellant. The principles
governing the grant of ad interim injunction in matters of
this kind have been completely ignored. As a matter of
fact, this Court in Morgan Stanley Mutual Fund v. Kartick
Das1 has clearly indicated such principles. Tested on those
principles, the impugned orders are unsupportable.
22. The main grievance of the respondent was that the
requisite permission to deal in debentures and shares had
not been obtained from Ahmedabad and Bombay Stock Exchanges.
Firstly, the statements of the respondent are clearly false
in Civil Suit No. 6683 of 1993. The Ahmedabad Stock
Exchange filed a statement that it had approved the list of
this appellant for dealing in the exchange on 22-11-1993.
The Company Secretary of Ahmedabad Stock Exchange by his
letter dated 24-11-1993 informed the company that basis of
allotment of the public issue of equity shares of the
company was approved by the Ahmedabad Stock Exchange. It
also conveyed to the appellant its no objection of the Stock
Exchange for utilisation of the issue funds. Again, on 7-1-
1994 the Ahmedabad Stock Exchange approved the appellant’s
application seeking permission for the listing of the equity
shares and to deal in the exchange and granted the
1 (1994) 4 SCC 225 : JT 1994 (3) SC 654
327
necessary permission under Section 73 of the Act with effect
from 22-11-1993. The Ahmedabad Exchange by its circular
dated 7-1-1994 notified the new enlistment for information
of the members of the Stock Exchange.
23. Likewise, Bombay Stock Exchange by its letter dated 23-
11-1993 informed the appellant-Company that the Exchange was
pleased to approve the Company’s listing application seeking
permission for equity shares of the company to be dealt in
on the exchange and that in order to facilitate commencing
of normal and regular trading in the Company’s equity shares
on the exchange the company should complete without any
further delay the formalities mentioned in the enclosure to
their earlier letter dated 27-9-1993. An affidavit Exh. 48
dated 8-1-1994 has been filed in the said Civil Suit No.
6683 of 1993 of J.J. Bhat, Joint General Manager of the
Bombay Stock Exchange stating inter alia that the stock
exchange took a decision to approve the listing application
seeking permission for the equity shares of the company to
be dealt with on the stock exchange and that the stock
exchange accordingly wrote a letter dated 23-11-1993 to the
company informing the latter of the said decision, that
earlier the stock exchange had written a letter dated 27-9-
1993 to the company enclosing therewith the list of
formalities to be completed by the appellant.
24. Even as a question of law in order to comply with the
requirements of Section 73 of the Act the annual listing is
not required.
25. By resorting to successive suits and obtaining the
impugned interim orders the respondents have caused immense
damage to the appellant and thereby prevented the appellant-
Company’s recovery of further call money which comes to
about Rs 63 lakhs. Therefore, this is a clear case in which
this Court should award heavy costs to the appellant.
26. In meeting these submissions the learned counsel for
the respondents submits where the respondents had genuine
grievance about the noncompliance with the provisions of the
Act certainly they are entitled to approach the court.
Their case is Section 73 of the Act has been violated. The
court while granting interim orders was satisfied that there
was a prima facie case. The fact the same advocate
appeared is of little consequence. It cannot be said that
the Morvi and Baroda courts did not have jurisdiction since
the applicants for the shares were residing in those
respective places. In any event, these are interim orders.
This Court normally does not interfere under Article 136 of
the Constitution of India with the interim orders since the
final adjudication can be had from the courts below.
27. From the above narration it is clear that the
respondents have been clearly indulging in judicial
adventurism. A string of suits comes to be filed one after
the other. Late orders are obtained that too on
applications filed without notice to the appellant.
Unfortunately, the courts below wittingly or otherwise have
aided this judicial adventurism without even determining
whether they had Jurisdiction. Take for instance the suit
in Morvi court. How does the said court get
jurisdiction? What is the cause of action?
328
28. By “cause of action” it is meant every fact, which, if
traversed, it would be necessary for the plaintiff to prove
in order to support his right to a judgment of the Court,
(Cooke v. Gill2). In other words, a bundle of facts which
it is necessary for the plaintiff to prove in order to
succeed in the suit. This Court had occasion to refer to
the case of Cooke2 in A.K. Gupta and Sons Ltd. v. Damodar
Valley Corpn.3 At page 98 it is stated thus:
“The expression ’cause of action’ in the
present context does not mean ‘every fact
which it is material to be proved to entitle
the plaintiff to succeed’ as was said in Cooke
v. Gill2 in a different context, for if it
were so, no material fact could ever be
amended or added and, of course, no one would
want to change or add an immaterial allegation
by amendment. That expression for the present
purpose only means, a new claim made on a new
basis constituted by new facts. Such a view
was taken in Robinson v. Unicos Property
Corporation Ltd.4 and it seems to us to be the
only possible view to take. Any other view
would make the rule futile. The words ‘new
case’ have understood to mean ‘new set of
ideas’: Doman v. J. W. Ellis and Co. Ltd.5
This also seems to us to be a reasonable view
to take. No amendment will be allowed to
introduce a new set of ideas to the prejudice
of any right acquired by any party by lapse of
time.”
29. If the matter is viewed as a contract no part of cause
of action has arisen within the jurisdiction of Morvi court.
The same principle will be applicable to the suit before the
Civil Court (Senior Division), Baroda; more so, in the light
of Explanation to Section 20 the appellant-Company having
its registered office in Ahmedabad. Therefore, we could
expect the court to examine these aspects before granting an
interim order. So much for cause of action.
30. The gravamen of charge by the plaintiffs in various
suits and the writ petition before the High Court was that
Ahmedabad and Bombay Stock Exchanges mentioned in the
prospectus of the appellant-Company have not granted
permission for the shares or debentures to be dealt with in
Stock Exchange as contemplated under Section 73 of the Act.
For making this statement reliance is placed on three
letters written to a stock broker dated 13-12-1993, 9-12-
1993 and 24-12-1993 by the Ahmedabad and Bombay Stock
Exchanges respectively. Barring the statement that such
information obtained from reliable sources, the source of
information is not specified. Leave alone that, the court
had not even cared to examine the aspect whether the actual
listing under Section 73 of the Act is necessary.
31. A factual examination reveals that on 24-11-1993 the
Ahmedabad Stock Exchange wrote the following letter to the
appellant:
2 1873 LR 8 CP 107 : 42 LJCP 98
3 AIR 1967 SC 96: (1966) 1 SCR 796
4 (1962) 2 All ER 24: (1962) 1 WLR 520
5 (1962) 1 All ER 303 :(1962) 2 WLR 250: (1962) 1 QB 583
329
“We refer the Basis of allotment of your
company, approved by our Stock Exchange.
As desired, we wish to convey the No Objection
of the Stock Exchange for utilization of issue
funds.”
The counter-affidavit of the Executive Director (M.L.
Soneji) of the Ahmedabad Stock Exchange inter alia states:
“Since defendant No. 3 has already approved
the Listing Application for defendant No. 5
seeking permission for its equity shares to be
dealt with on Stock Exchange, Ahmedabad on 22-
11-1993. The prayer for ad interim injunction
to that extent cannot be and may not be
granted. defendant No. 3 has also received by
FAX a letter No. List/HVD/5238/93 dated 23-11-
1993 addressed by the Stock Exchange, Bombay
to defendant No. 5 informing the latter that
the Stock Exchange, Bombay was pleased to
approve the Listing Application of defendant
No. 5 seeking permission for its equity shares
to be dealt with on the said Exchange.”
Again, in paragraph 4 it is stated thus:
“On 22-11-1993, the Governing Board of
defendant No. 3 resolved to approve the
Listing Application of defendant No. 5 seeking
permission for its equity shares to be dealt
with on the Stock Exchange, Ahmedabad. It is
the practice of defendant No. 3 that after the
grant of such permission under Section 73 of
the Companies Act, 1956, members of the Stock
Exchange are informed by a notice for allowing
them to deal in the said equity shares in the
market with effect from a date specified in
such notice. Such notice is given after a
company complies within a reasonable time with
the general listing requirements. As per the
FAX message received by defendant No. 3,
defendant No. 4 has also approved the listing
application of defendant No. 5 seekin
g
permission for their equity shares to be dealt
in the Bombay Stock Exchange. On 24-11-1993,
defendant No. 3 wrote to defendant No. 5 and
informed them that the basis of allotment was
approved by the Ahmedabad Stock Exchange and
conveyed no objection of the Ahmedabad Stock
Exchange for utilisation of issue funds.”
This is besides the following letter dated 7-1-1994:
“The Director,
Bloom Dekor Limited,
I /F, Dhanlaxmi Chambers,
Ashram Road,
Ahmedabad 380009.
Sub: Listing of Equity shares of your Company on
our Stock Exchange.
Dear Sir,
We are in receipt of your letter dated 31-12-1993 along with
the enclosures and wish to inform you that the Stock
Exchange is pleased to approve your application seeking
permission for the above referred
330
equity shares to be dealt in on the exchange and to grant
such permission under Section 73 of the Companies Act, 1956
with effect from 22-11-1993 and that members of our Stock
Exchange have been allowed to deal in equity shares of your
company with effect from 10-1-1994 in the market unit of
trading of 100 shares.
Kindly acknowledge the receipt.
Thank you.
Yours faithfully,
For the Stock Exchange,
sd/-
(K.K. Mishra)
Company Secretary”
32. Similarly, Jagdish Jayashankar Bhatt, Joint General
Manager of the Stock Exchange, Bombay states:
“I say that as per the practice followed by
defendant No. 4, the Stock Exchange has
already granted permission under Section 73 of
the Companies Act, 1956 to the Equity Shares
of defendant No. 5 to be dealt with on the
Stock Exchange, Bombay. The actual trading in
the said shares has yet not commenced. As per
the practice adopted by the Stock Exchange, a
notice permitting the actual trading in the
said shares is given thereafter and members
are intimated accordingly. I say that in
reply to a letter dated 2-12-1993 that the
shares of defendant No. 5 were not yet listed
on the Exchange for dealings.”
Therefore, an analysis of facts on this aspect was
warranted.
33. This Court had occasion to lay down the principles
governing the grant of injunction in such matters in Morgan
Stanley Mutual Fund1. At para 44 (of JT) it is stated thus:
(SCC pp. 241-42, para 36)
“As a principle, ex parte injunction could be
granted only under exceptional circumstances.
The facts which should weigh with the court in
the grant of ex parte injunction are-
“(a) whether irreparable or serious mischief
will ensue to the plaintiff;
(b) whether the refusal of ex parte
injunction would involve greater injustice
than the grant of it would involve;
(c) the court will also consider the time at
which the plaintiff first had notice of the
act complained so that the making of improper
order against a party in his absence is
prevented;
(d) the court will consider whether the
plaintiff had acquiesced for sometime and in
such circumstances it will not grant ex parte
injunction;
(e) the court would expect a party applying
for ex parte injunction to show utmost good
faith in making the application.
331
(f) even if granted, the ex parte injunction
would be for a limited period of time.
(g) General principles like prima facie
case, balance of convenience and irreparable
loss would also be considered by the court.”
In this connection reference was made to United Commercial
Bank v. Bank of India6 and Shiv Kumar Chadha v. Municipal
Corpn. of Delhi7.
34. As to venue restrictions, the observations of this
Court Morgan Stanley Mutual Fund1 at page 669 are apposite.
Paragraph 50 reads thus: (SCC pp. 244-45, para 42)
“As far as India is concerned, the residence
of the company is where the registered office
is located. Normally, cases should be filed
only where the registered office of the
company is situate. Courts outside the place
where the registered office is located, if
approached, must have regard to the following.
Invariably, suits are filed seeking to injunct
either the allotment of shares or the meetings
of the Board of Directors or again the meeting
of general body. The court is approached at
the last minute. Could injunction be grante
d
even without notice to the respondent which
will cause immense hardship and administrative
inconvenience. It may be sometimes difficult
even to undo the damage by such an interim
order. Therefore, the court must ensure that
the plaintiff comes to court well in time so
that notice may be served on the defendant and
he may have his say before any interim order
is passed. The reasons set out in the
preceding paragraphs of our judgment in
relation to the fact which should weigh with
the court in the grant of ex parte injunction
and the rulings of this Court must be borne in
mind.”
35. It is not difficult to perceive that all these actions
are nothing but attempts by one caucus of persons to baulk
the appellant-Company from issuing or dealing with shares or
debentures; the plaintiffs or the petitioner in the writ
petition having little stake. It is also evident from the
orders of this Court dated 28-1-1994 and 31-1-1994 and the
cross-examination of Mr Kirti T. Gadhia by this Court. It
is not a matter of coincidence that the same advocate had
appeared in all the cases at some stage or other. The
statement before the High Court during the hearing of the
writ petition that the civil court had not been moved for
the same relief was false and was clearly intended to
mislead the court. In the circumstances, we maintain the
order dated 19-1-1994 which is to the following effect:
36. We direct the courts below to examine the case on all
the relevant aspects stated above.
6 (1981) 2 SCC 766
7 (1993) 3 SCC 161
332
37. The action of the respondents calculated to harm the
interests of the appellant-Company must be viewed with
serious concern and must be totally disapproved.
38. All the said suits mentioned in TP (C) Nos. 26 to 30 of
1994 will stand transferred to the file of seniormost Civil
Judge at City Civil Court, Ahmedabad and be tried along with
Ahmedabad suit, CS No. 6630 of 1993. The transfer petitions
are ordered accordingly.
9. As a token of our disapproval we direct the payment of
Rs 10,000 by each of the contesting respondents, Subhash
Himatlal Desai (Respondent 1 in Civil Appeal No. 1751 of
1994 arising out of SLP (C) 878 of 1994), Arvind B. Sheth
and Kirti Tulshibhai Ghadhiya (Respondents 1 and 2 in Civil
Appeal No. 1750 of 1994 arising out of SLP (C) No. 874 of
1994 respectively) to the appellant Bloom Dekor Limited.
40. The civil appeals are disposed of accordingly.
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