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Judgment
Qamar Hasan, J.—This appeal by the first defendant i.e. The Hyderabad Stock Exchange Ltd., is directed against the judgment and decree dated 20th Ardibihist 1358F, of Sialat Ali Khan, J. in O.S. No 43 of 1356F. perpetually restraining the appellant from holding an enquiry into the complaint made by the respondents 2 and 3.
Shorn of all verbiage, the material facts for the disposal of this appeal lie in a short compass and may be briefly stated. The plaintiffs 2 and 3 Rangnath Rathi and D.L. Agarwal are partners of plaintiff No. 1, a firm carrying on business in shares and stocks of various limited companies under the name and style of Messrs. Rangnath Rathi & Co. The firm or more properly its partners are also members of the Hyderabad Stock Exchange Ltd., which is a company registered under the Hyderabad Companies Act (IV of 1320 P.). In this latter capacity they carry on business in stocks and shares of the approved companies according to the rules regulating such business.
The Hyderabad Stock Exchange, hereinafter to be referred to as the Exchange, received a complaint dated 7th July 1947 from the defendants 2 and 3 N.S. Sardeshmukh and Chunilal D. Agarwal charging the plaintiff with serious misconduct. A verbatim quotation of the complaint read as follows.
It is no secret now that Mr. Ranganath Rathi partner of Messrs. Ranganath Rathi & Co., members of the Hyderabad Exchange Ltd., had taken duplicate shares from the Mahboob Shahi Mills Ltd., on the plea that the transfer receipts in respect of the original shares were lost some time in November 1945.
It is very strange that Mr. Ranganath Rathi should mortgage both these very original and duplicate shares with two different bankers. The matter subsequently came to the notice of the Company some time in April and August 1946. The listed Bank and the listed Company also doing banking business with whom the said original and duplicate shares were mortgaged must have informed about such fraudulent action on the part of Mr. R. Rathi to the Exchange who should have taken up the matter long before, as such offences are likely to bring the constituents into trouble any moment, and, therefore, should not be allowed to pass off lightly.
As such action on the part of M/s. Rathi & Co., apart from the forgery involved, is likely to belittle the prestige of an important Semi-Government Institution like this Exchange in the eyes of the public, it is proper that a confidential and independent inquiry should be conducted forthwith. Further on the findings of this inquiry, suitable action should be taken against the member concerned.
Trusting that an inquest (inquiry) will immediately be held so that the confidence of the public in this financial institution and the Brokers and the listed companies comprising it, is kept intact.
It is needless to add that proof of what is said above will come to light when the inquiry is undertaken.
Sd/- Sirdeshmukh N.S.
Enclosing a copy of tine above complaint, the Ex. change by its letter No. 1158 dated 21st July 1947, called upon the plaintiffs to submit what they had to say in the matter. The Exchange in continuation of the above letter addressed another letter to the plaintiffs on 17th August 1947 expressing regret at not having received a reply. As in their opinion there was a prima facie case, the complaint, they said, would be inquired into by the Board of Directors. The plaintiffs were there fore requested to be present at the Board''s meeting to be held on Saturday the 23rd August 1947 at 10 a.m. sharp at the Stock Exchange premises.
The plaintiffs were to be ready with their explanation, if any, and all papers and evidence in support thereof, and also to show cause which action should not be taken against them under (sic) 9(2) of the Rules of the Stock Exchange. The were warned that in case they do not attend to give a satisfactory explanation, the matter would be decided ex parte.
On the date fixed for hearing, Rangnat Rathi addressed a letter to the Board of Directors of the Exchange. The relevant portion of the letter is worth quoting in extenso :
The complaint made by Messrs. Sirdeshmuk and Chunnilal is vague and as such no specific reply can be given. The complaint does not mention the date on which the alleged mortgages had taken place; it does not mention the name of the Banners with whom and the amount for which they are mortgaged. As long as these and other details with regard to the matter complained of is (are) not made definitely clear, it is impossible to prepare a reply or keep the evidence etc.. ready to meet the charges.
Your notice of the said date says that a prima facie case has been made out to you. I don''t know what material was placed before the Board on which this prima facie case was made out. Kindly let me know that or allow me to inspect the same and obtain the copies of the same so that I can defend the case in my reply.
It is also not clear from the complaint that what disreputable or fraudulent act is alleged to have (been) committed by me in my dealings with or (in) relation to either the Exchange or any member or members of the Exchange. Evidently, Mr. Deshmukh is not a member and Mr. Chunnilal has not revealed his relation with the alleged conduct.
The section mentioned in your notice appears to be incorrect as there is no No. 9(2) in the Rules and Regulations of the Stock Exchange". Kindly correct and let me know the exact section and the clause under which you propose to assume the jurisdiction to investigate into the alleged matter. Kindly let me also know what safeguards are made in case the complaints (are) found out to be untrue.
After receiving these details, I shall be in a position to give my reply. Without that you also will agree that I cannot place my case before the Board... I am sure an adjournment shall be granted and in the meanwhile the complainants shall be ordered to give me the required details.
This letter was placed before the Board at their meeting of 23rd August 1947 and a reply of the same date was sent to Ranganath Rathi intimating him that due to a typographical error the number of the rule had wrongly been given as 9(2) instead of 9(f). The letter also intimated him that his request for adjournment had been granted and that Tuesday the 2nd September 1947 had been fixed to conduct the inquiry into the complaint.
To this letter, the plaintiff 2 replied on 26th August 1947 complaining that the detain which he had demanded had not been furnished and as long as those details which he had demanded were not furnished it was practically impossible for him to reply to a vague complaint. He therefore, asked the Board either to furnish the required details within 24 hours or to say that it could not be furnished. He stated that if the details were not furnished as required by him he would not be liable for the consequences thereof.
On 1st of September 1947 i.e., one day, before the date fixed by the Directors for holding inquiry into the truth or otherwise of the complaint, the plaintiffs institute the suit giving rise to this appeal against the Exchange and the complainants on the Original Side of the defunct High Court of Judicature at Hyderabad and prayed for (1) a declaration that the notice issued by the defendant 1 dated 21st July 1947 and 17th August 1947 was contrary to law and ultra vires and that the Board of Directors of the first defendant was not competent to inquire into the petition of the complaint preferred by the defendants 2 and 3, and (2) a perpetual injunction restraining the defendant 1 from inquiring into the complaint against the plaintiffs and deciding the same.
In order to achieve these prayers the case set up by the plaintiffs in a prolix plaint was that they had entered into a transaction with one Kapurchand Shrimal and Badrinarayan Rathi with respect to the shares of the Azam Jahi Mills which resulted in a dispute between the parties to the transaction. The Board of Directors of the Exchange took cognizance of the dispute and disposed it off not in conformity with the rules but in contravention of law. The plaintiffs thereupon filed a suit, being O. S. No. 15/1 of 1356 F., on the file of the Original Side of the High Court of Hyderabad.
In the suit they prayed that the resolution passed by the Exchange be declared null and ultra vires, and that that body be restrained from enforcing its decision by compelling the plaintiffs to comply with the terms thereof. During the initial stages of the said suit, they applied for an interlocutory injunction which was on appeal granted by the then Judicial Committee of Hyderabad in the month of August, 1947.
The plaintiffs also made a reference to another suit being O. S. 8/1 of 1355 F,- on the file of the Nazim, Sadar Adalat, Secunderabad, in which Rangnath Rathi by his plaint dated 13th April 1946 had prayed against the Hyderabad Bullion Exchange, an incorporated company, for a declaration that the resolution passed on 23rd Jan. 1946 and the two notices issued to the plaintiff by the Secretary by order of the Board were incompetent invalid and of no force or effect, and for a mandatory injunction along with damages directing the defendant in that suit to withdraw the notices and to desist from interfering with the plaintiffs'' right to enter the trading hall and transact business therein.
After making a further reference to a certain pending contempt proceeding arising out of alleged disobedience of the interlocutory injunction referred to above the plaintiffs alleged that the Board of Directors of the Exchange consists of ten persons comprising amongst others Kapurchand, Pannalal Petti, R.S. Sangi and P.B. Afzulpurkar, who were interested in the result of O.S. 8/1 of 1355 P., and the contempt proceeding and therefore had a biassed mind gainst the plaintiffs.
Being baulked at every turn by the prompt legal proceedings taken by the plaintiffs, the Exchange through its interested Director thought of another method. They, it was said, made the first and second defendants prefer an unfounded and collusive complaint and took upon themselves the inquiry thereof.
The contention on the part of the plaintiffs was that the whole proceeding was started in malice. It was beyond the powers of the Board of Directors inasmuch as the act complained of was not one between member and member of the Exchange and therefore could not be investigated under R. 9 of the Rules of Stock Exchange, which according to them was ultra vires.
The third defendant remained ex parte throughout. The printed record does not show that any written statement was filed by the 2nd defendant but there is an application by him asking for setting aside the ex parte proceeding against him. In that application he alleged that he was not a member of the Stock Exchange nor was he interested in its affairs. It was at the instance of P. B. Afzulpurkar, he had put his signature to an application. He had no concern with the complaint made therein nor did he desire that the complaint be inquired into since he possessed no detailed knowledge of the subject-matter of the complaint.
The Exchange filed a detailed written statement denying the charge of collusion or interestedness as against the plaintiffs. They claimed that whatever steps they took were intended to keep up the good name and purity of the institution. Further they maintained that they had power to hold the inquiry and that R. 9 was not ultra vires.
On these pleadings, the condensed version of which has been given in the foregoing lines, the following issues were adjusted on 27th June 1948 :
Whether the facts mentioned in para 11 of the plaint are true in part or whole.
Whether R. 9 of the Stock Exchange Rules is void and not according to law,
Whether the Stock Exchange has no authority to inquire into the complaint dated 7th July, 1947 made by the defendants 2 and 3,
Whether is view of bad relations alleged to be existing between the plaintiffs and the Directors of the defendant 1, is it proper to restrain the latter from inquiry into the complaint of 7th July, 1947,
What is the effect of the admission of claim made by the defendant 2.
of these issues the learned Trial Judge took up for decision issues Nos. 2. 3 and 5 on 5th December, 1948. The advocate for the plaintiff did not advance any argument in support of the second issue. The learned Judge held that as the Rules had been assented to by the H.E.H. The Nizam on 9th Meher 1355 F., and were published in the Official Gazette No. 2 dated 14th Meher 1355 P., the validity of the Rules could not be challenged as being ultra vires. On, issue No. 5 he held that the admission of one of the parties to the suit would not hind the other parties. In dealing with the third issue, the learned Judge took into consideration the provision of Cls. (a) and (f) of R. 9. That rule inter alia provided that
The Directors may by a resolution expel, suspend and/or fine a Member for any of the following acts or Emissions :
(a) If he is convicted of a criminal offence which in the opinion of the Directors renders him unfit to be a Member:
(f) If he is guilty of any dishonourable or disgraceful conduct or wilfully obstructs the business of the Exchange;...
He held that CI. (f) was inapplicable inasmuch as the Act imputed to plaintiff 2 was a criminal offence. Being an offence it can only be tried by a criminal court as was required by S. 5 of the Hyderabad Criminal Procedure Code. Unless and until the criminal court found him guilty it would not be open to the Directors to take disciplinary action under CI. (a) of R. 9. The inquiry proposed to be held by the Directors was therefore prematura and not within the competence of the Directors.
This finding, as a matter of fact, was sufficient to dispose of the suit but the learned Judge fixed a date for evidence on issues 1 and 4, and at the same time on application by the Exchange, raised ah additional issue as to whether the plaintiffs were entitled to sue the defendant 1. On 13th Feb, 1948 the additional issue came up for consideration as a preliminary issue. The learned Judge felt that in view of the decision of issue No. 3, the locus standi of the plaintiff''s cannot logically be challenged, and decided the said issue in favour of the plaintiffs.
Having succeeded on the two crucial issues, the advocate for the plaintiffs submitted that though he was not abjuring his right of adduction of evidence on issues of fact yet the court might take into consideration the fact that the suit was ripe enough to be decreed forthwith. The learned Judge suggested that it would not be improper if evidence with respect to malice were also brought on record. Therefore, he adjourned the case for production of evidence regarding the rest of the issues.
On the adjourned date it was again insisted on behalf of the plaintiffs that no evidence was necessary in view of the findings on issues 3 and 7. This time the learned Judge found force in this contention and awarded a decree, perpetually restraining the Exchange from inquiring into the complaint, contained in the letter dated 7th July, 1947.
Lengthy arguments were addressed to us on behalf of the contestants on different questions of law and fact involved in this appeal. But before I advert to all of them, if necessary, I would like to be clear in my mind as to the provisions under which the decree for perpetual injunction has been granted. At the time of the institution of the instant suit and on the date of the delivery of the judgment appealed against, the Hyderabad Specific Relief Act was in force. The provisions of this Act are practically in pari materia with the provisions of the Indian Specific Relief Act.
I would therefore refer in my judgment to the provisions of the Indian Act. Now part II of S. 53 provides that a perpetual injunction can only be granted by the decree made at the hearing and upon the merits of the suit: the defendant is thereby perpetually enjoined to refrain from the assertion of a right or from the commission of an act which would be contrary to the rights of the plaintiffs. Section 54 lays down that subject to the other provisions contained in, or referred to by chapter X, a perpetual injunction may be granted to prevent the breach of an obligation twisting in favour of the applicant, whether expressly or by implication.
When such obligation arises from the contract, the court shall be guided by the rules and provisions contained in Chapter II of the Act. When the defendant invades or threatens to invade the plaintiff''s right to, or enjoyment of property, the court may grant perpetual injunction in certain cases which need not be detailed.
It has been held in the case of Ram Kissen Joydeval v. Pooran Mull, ILR 47 Cal 733 : (AIR 1920 Cal 239) (A), that Section 54 and S. 56 must be read together as supplementary to each other. The former defines the circumstances under which perpetual injunction may be granted; the latter enumerates the cases where an injunction must not be granted. It would be an erroneous construction of the statute to hold that the right to an injunction should be determined independently of the provisions of Ss. 54 and 56 by reference to the terms of S. 53.
Another point to be borne in mind is that the mere prospect or apprehension of injury or the mere belief that the act complained of may or will be done is not sufficient. A man seeking an injunction must show that the act complained of is in fact a violation of his right and which if carried into effect will necessarily result in a violation of his right.
It must also be borne in mind that as the relief is purely of equitable character the plaintiff must satisfy the court that his own conduct and dealings in the matter had been fair and honest.
Let me first see the conduct of the plaintiffs. The Exchange has done no more than asking the plaintiffs as to how far the complaint lodged by the defendants 2 and 3 was correct. As an honest and straight-forward man it was not difficult for him to reply in the negative, or if the reply was to be in the affirmative, he might have given the reason in justification of it. Adopting what I may say a recalcitrant attitude with a show of legality, he entered into a controversy with the Directors and called upon them to furbish the required details as if they were themselves the complainants.
Despite the adjournments granted to him he persisted in his refusal to appear before them but did not in any way challenge their impartiality until he came to the Court which fact prima facie smacks of being an after-thought.
Let me for the present ignore this aspect of the case. Can it then be said that there was a certainty or high probability that the Directors would deprive the plaintiff concerned of the membership of the Exchange by adopting a high-handed, capricious or partial attitude towards the plaintiff. Merely by reason of the fact that the Directors called upon them to answer the complaint it cannot be inferred that they would of necessity give an adverse finding.
On the other hand, there was an equal chance of the Directors, absolving them of every liability on being furnished with a cogent explanation. The charge of want of impartiality on the part of the Directors who issued the initial notice to the plaintiff has lost its importance in view of the admitted fact that with the exception of P.B. Afzalpurkar new Directors are now in charge of the Exchange.
The next question to be determined is whether there exists an obligation in favour of the plaintiffs as against the Exchange not to be called upon to answer the complaint or avoid answering the complaint lodged against them. The expression Obligation'' has been defined in S. 3 of the said Act as including every duty enforceable by law. It is held in Bhudeb Mookerjee and Others Vs. Kalachand Mallik and Another, that the word obligation in S. 54 of the Specific Relief Act may be taken to be a tie or bond which constrains a person to do or suffer something.
It implies a right in another person to which it is correlated and it restricts the freedom of the obliged with respect to definite acts and forbearances but in order that it may be enforced by a court. it must be a legal obligation and not merely moral social or religous.
Neither authority nor principle has been invoked in support of the alleged legal obligation which the plaintiffs seek to prevent its breach by in injunction. so far as I know there is nothing in law which can be said to impose an obligation in the part of the Exchange not to inquire into, (sic)nd corresponding right vested in the plaintiffs not to be troubled with an interrogation as to the truth of the complaint. On the contrary, the Board of Directors are under an obligation to be vigilant to see that the members of the Stock Exchange are honest and continue to be so in maintaining a high standard or probity in their dealings with the general public and that is why R. 9 finds place in the Rules of the Stock Exchange.
Then it was argued that not only R. 9 (f) but the whole set of rules do not have the force of law since the conditions laid down in the Hyderabad Securities. Control Act have not been complied with. If this argument holds good then the plaintiffs or any one of them cannot claim to be the member of the Exchange because their membership and the concomitant rights and liabilities arise under the Rules. If the membership goes they have nothing to safeguard and protect. In the result the present action would be a mere superfluity.
The question as to there being a cause of action available to the plaintiffs has not correctly been decided by the Court below. In this connection, I may refer to a judgment of the Privy Council in the case of Osumanyawa Yaw Ewue v. Nana Sir Ofori Atta, AIR 1930 PC 260 (C). In that case the President of the Native Tribunal of gold Coast Colony issued a summons against the plaintiff alleging that he had contravened Sec. 28 of the Native Administration Ordinance by attempting to undermine the authority of the paramount chief. The plaintiff instead of appearing and pleading that he had not contravened Sec. 28 raised an action in the Divisional Court in which he craved a declaration that the issue of the summons was ultra vires and oppressive and asked for an injunction against the President from proceeding further with the case in the Native Court.
The suit was dismissed on the ground that there was no cause of action. In the appeal filed by the plaintiff their Lordships of the Judicial Committee held that the plaintiff was not entitled to have the case against him stopped by raising a case in another court and eraving by means of a declaration to make'' good what was really the defence to the original action simply by saying that the bringing of the case was malicious. It was further held that what could be ultra vires was not the action of the president but the clause of the ordinance and that point, if it were to be taken, must be taken in the Native Court.
The ratio of this authority pre-eminently applies to the facts of this case and I am of opinion that the Board of Directors have done nothing to provide the plaintiffs with a good cause of action.
The Court below was also wrong in holding that the complaint fell within the purview of R. 9(a) and therefore there must have been a conviction before action could be taken under that clause. That clause however provides for a case where any member is convicted of an offence and not that if any complaint discloses any offence the Board of Directors is powerless to take disciplinary action until the member is convicted of the offence charged by a criminal court i.e.. the erring member is free to persist with immunity in his undesirable course of conduct until some one thinks of prosecuting him and securing his conviction.
In my view, this is not a fit or proper case in which the discretionary relief of permanent injunction can be granted to the plaintiffs.
The result is that the appeal succeeds and is hereby allowed. The judgment and decree appealed against are set aside and the suit is dismissed. The appellant win recover costs of this court and of the court below from the respondent No. 1 and its partners Rangnath Rathi and D.L. Agarwal.