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Judgment
Srinivasan, J.—Both the writ petitions are taken up for hearing by consent of parties.
The prayer in W.P. No. 13883 of 1989 reads as follows :
... to issue a writ of mandamus or other appropriate writ, direction or order directing the first and second respondents and respondents Nos. 3 to
46, 72 and 90 being the directors of the company to forbear from transferring the shares held by the proposed transferors being respondents Nos.
4, 7, 10, 11, 12, 14, 18, 21, 22, 24, 25, 35, 36, 37, 38, 41, 44 to 121 held by them in the second respondent company to any other person who
is not a shareholder of the second respondent-company.
The prayer in W.P. No. 14134 of 1989 reads as follows :
... to issue a writ of mandamus or other appropriate writ, direction or order directing the first respondent to forbear from transferring any shares of
the second respondent-company from the existing shareholders to any other person, which transfer is sought to be effected subsequent to
September 25, 1989, by deposit of the share certificates along with the transfer applications with the second respondent-company on or after
September 25, 1989.
The petitioners in both the writ petitions are shareholder/directors in the second respondent company, viz., Sree Ayyanar Spinning and Weaving
Mills Ltd. It is not necessary to refer in detail to the various facts set out in the affidavits filed in support of the petitions. The facts which are
relevant can be stated in a very short compass.
The second respondent-company has obtained a loan of about Rs. 81 lakhs from the first respondent, besides other loans of Rs. 81,000,00
odd, the directors of the second respondent-company gave an undertaking to the first respondent that they shall not transfer, assign, dispose of,
pledge, charge or create any lien or, in any way, encumber their existing or future shareholdings in the company in favour of any person so long as
any money remained due by the company to the first respondent or till the project was duly completed, whichever was later, without the first
respondent''s prior written approval.
Some of the directors as well as shareholders wanted to transfer their shares to third parties and applied to the first respondent for permission to
effect such transfers, by a letter dated October 10, 1989. All the letters of request for transfer of shares were enclosed. The first respondent sent a
communication on October 18, 1989, to the second respondent-company approving the disposal of shares by 19 of the present ordinary directors
and also 6 of the extraordinary directors of the second respondent company subject to certain conditions. The second respondent, accordingly,
effected transfers, but such registration of transfers commenced on October 14, 1989, and concluded on October 20, 1989.
In the meanwhile, the petitioners in these two writ petitions filed the writ petitions for the prayers already extracted. The main ground on which
the prayers are made, as found in the affidavits, is that, by a convention obtaining in the company, transfer of shares belonging to the directors
should be effected only to other members of the families of such directors and not to strangers and that such convention is being broken by the
proposed transfers. It is alleged that the first respondent owes a duty to all the directors who gave an undertaking to the first respondent at the time
of taking the loan not to transfer their shares as referred to earlier, to prevent the effecting of transfers until the loans are discharged. The contention
of the writ petitioners is that the first respondent being State within the meaning of article 12 of the Constitution of India and it being State
instrumentality, it is amenable to the jurisdiction of this court with regard to every action of the first respondent and, in this particular case, the first
respondent has failed to prevent the transfers sought to be made by some of the directors and shareholders. No doubt an allegation has been made
in the affidavits that the proposed transfers affect the interests of the company substantially but no particulars have been given in either of the
affidavits as to how the interest of the company would be affected by the proposed transfers; nor have any details been given in the affidavits as to
whether the interests of the first respondent would be affected and if so how.
When the writ petitions were taken up for hearing, a preliminary objection was raised on behalf of the first respondent that the prayers as against
the first respondent are not sustainable in the form in which they have been made. The objection is really two-fold. The first objection is that even
when the writ petitions came up for admission, transfers had already been effected and, at any rate, the approval of the first respondent for such
transfers had been given and, therefore, there could not be a prayer for issue of a mandamus to the first respondent to prevent the transfers from
being effected. In other words, the contention is that the writ petitions had become infructuous on the dates when they came up for admission. The
second objection is that there cannot be a mandamus directing the first respondent to prevent the transfer of shares held by certain directors and
shareholders in the second respondent-company. In other words, the contention is that the first respondent-company cannot have any say with
regard to the legality or validity of transfer of shares, if effected by the second respondent-company without the prior approval of the first
respondent.
It is seen from the undertaking given by the directors that they agreed with the first respondent not to transfer their shares until either of the
events mentioned therein took place. That will not, in any way, give jurisdiction to the first respondent to say that a particular transfer of shares is
invalid in law. If a transfer is effected without the prior approval of the first respondent, it is certainly open to the first respondent to say that the
agreement between respondents Nos. 1 and 2 has been violated and the second respondent is not entitled to get the benefits of the agreement
thereafter. In those circumstances, this court cannot issue a mandamus to the first respondent to stop the transfer of shares to be effected by the
second respondent-company. Hence, I am inclined to uphold the preliminary objection.
On the facts, it is already seen that the transfer has been effected with the approval of the first respondent. It is contended by the petitioners
that the approval given by the first respondent is vitiated by mala fides. Learned counsel for the petitioners referred to the fact that the loan was
advanced in July, 1989, and the undertaking was taken by the first respondent at that time and within a period of three months, they approved all
the proposed transfers by some of the directors to strangers. It is also stated that the approval of the first respondent was obtained by the third
respondent with his influence over the first respondent. This averment found in the affidavit is not sufficient to accept the contention that there are
mala fides on the part of the first respondent. As pointed out already, unless it is made out in the affidavit that the interests of the first respondent or
the interests of the second respondent company were prejudiced by the approval of the proposed transfers, there cannot be any inference of mala
fides in the action of the first respondent. According to learned counsel, the undertaking given by 54 directors would mean that the first respondent
would hold all the 54 directors jointly liable and responsible for the discharge of the loan and the first respondent is not entitled to release some of
them by substituting third parties in their place. I cannot agree with this contention, as the right of the first respondent is only to take such steps as
are necessary to safeguard its interests in the matter of recovery of the loan advanced to the second respondent-company. If the first respondent is
satisfied that the recovery of loan will not, in any manner, be prejudiced by the substitution of certain shareholders with third parties, then it is not
for the petitioners in the writ petitions or this court to say that the first respondent ought not to have given approval for the transfer of such shares.
Learned counsel persists by saying that, if the action of the first respondent is vitiated by mala fides, this court can certainly give its directions to
the first respondent as the first respondent happens to the an instrumentality of the State. In this connection, learned counsel placed reliance on
certain observations made by the Supreme Court of India in LIC of India v. Escorts Ltd. [1986] 59 Comp Cas 548. Learned counsel invites my
attention to paragraphs 101 and 102 which read thus (p. 636) :
It was, however, urged by learned counsel for the company that the Life Insurance Corporation was an instrumentality of the State and was,
therefore, debarred by article 14 from acting arbitrarily. It was, therefore, under an obligation to state to the court its reasons for the resolution
once a rule nisi was issued to it. If it failed to disclose its reasons to the court, the court would presume that it had no valid reasons to give and its
action was, therefore, arbitrary. Learned counsel relied on the decisions of this court in Sukhdev Singh, Oil and Natural Gas Commission, Life
Insurance Corporation, Industrial Finance Corporation Employees Associations Vs. Bhagat Ram, Association of Clause II. Officers, Shyam Lal,
Industrial Finance Corporation, , Mrs. Maneka Gandhi Vs. Union of India (UOI) and Another, , Ramana Dayaram Shetty Vs. International
Airport Authority of India and Others, and Ajay Hasia and Others Vs. Khalid Mujib Sehravardi and Others, . The leaned Attorney-General, on
the other hand, contended that actions of the State or an instrumentality of the State which do not properly belong to the field of public law but
belong to the field of private law are not liable to be subjected to judicial review. He relied on O''Reilly v. Mackman [1982] 3 ALL ER 1124
(HL), Davy v. Spelthorne Borough Council [1983] 3 ALL ER 278 (HL), I Congreso del Partido [1981] 2 All ER 1064 HL, Reg v. East
Berkshire Health Authority : Ex parte Walsh [1984] 3 All ER 425 CA and Radhakrishna Agarwal and Others Vs. State of Bihar and Others, .
While we do find considerable force in the contention of the learned Attorney-General, it may not be necessary for us to enter into any lengthy
discussion of the topic, as we shall presently see. We also desire to warn ourselves against readily referring to English cases on questions of
constitutional law, administrative law and public law as the law in India in these branches has forged ahead of the law in England, guided as we are
by our Constitution and uninhibited as we are by the technical rules which have hampered the development of the English law. While we do not, for
a moment, doubt that every action of the State or an instrumentality of the State must be informed by reason and that, in appropriate cases, actions
uninformed by reason may be questioned as arbitrary in proceedings under article 226 or article 32 of the Constitution, we do not construe article
14 as a charter for judicial review of State actions and to call upon the State to account for its actions in its manifold activities by stating reasons for
such actions.
For example, if the action of the State is political or sovereign in character, the court will keep away from it. The Court will not debate academic
matters or concern itself with the intricacies of trade and commerce. If the action of the State is related to a contractual obligation or obligations
arising out of tort, the court may not, ordinarily, examine it unless the action has some public law character attached to it. Broadly speaking, the
court will examine actions of State if they pertain to the public law domain and refrain from examining them if they pertain to the private law field.
The difficulty will lie in demarcating the frontier between the public law domain and the private law field. It is impossible to draw the line with
precision and we do not want to attempt it. The question must be decided in each case with reference to the particular action, the activity in which
the State or the instrumentality of the State is engaged when performing the action, the public law or private law character of the action, and a host
of other relevant circumstances. When the State or an instrumentality of the State ventures into the corporate world and purchases the shares of a
company, it assumes to itself the ordinary role of a shareholder, and dons the robes of a shareholder, with all the rights available to such a
shareholder. There is no reason why the State as a shareholder should be expected to state its reasons when it seeks to change management by a
resolution of the company, like any other shareholder.
In my opinion, the observations made by the Supreme Court of India as extracted above are really against the contention put forward by the
writ petitioners. The Supreme Court has clearly laid down that even a State instrumentality is entitled to enter into ventures just as a private
individual or a businessman and, when it dons the robes of a shareholder, it will have all the rights available to a shareholder. The last sentence in
the passage extracted above puts the matter beyond any doubt. In view of this dictum, there can be no doubt that the first respondent, having
exercised its power to grant or refuse approval and, in this case, granted the approval for transfer of shares, this court will not have any jurisdiction
to say that the first respondent has acted erroneously. As pointed out by the Supreme Court, if the matter falls within the private law field, then the
court will have no jurisdiction. In this case, this is a matter which falls within the private law field, as it is a right accruing to the first respondent out
of a contract between the first respondent and the second respondent and, in those circumstances, the writ petitions are not sustainable.
I should point out before parting with these cases that these writ petitions are really a camouflage for enforcing the alleged rights of the
petitioners as against another group of shareholders of the same company. Article 226 will not provide an arena for a fight between two private
parties. In this case, the first respondent has been added as a party only to bring it within the scope of article 226 apparently. But, if the corporate
veil is pierced and the real dispute is looked into, it is only between the writ petitioners on the one hand and the persons who seek to transfer their
shares to strangers on the other. The basis of the claim of the petitioners is a right of pre-emption available to the members of he family which has
to be established only before the appropriate forum in appropriate proceedings. That cannot be done in these writ petitions as it is a question of
fact which requires evidence to be adduced before any finding is given thereon.
In view of the above reasons, these two writ petitions are dismissed with costs. Counsel''s fee Rs. 2,000 one set.