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Judgment
Harish Tandon, J.—Leave was granted to the petitioner to file the Revisional Application without the certified copy as the order was passed by the Trial Court on the last date of its working before the long Puja Vacation. By the impugned order the Trial Court dismissed the application for temporary injunction and fixed the next date on 10th December, 2015 for hearing an application of Order 7 Rule 11 of the Code of Civil Procedure. Though the order assailed in the Revisional Application is amenable to be challenged by way of an appeal under Order 43 Rule 1(r) of the Code of Civil Procedure but this Revisional Application was entertained as there is no Vacation Bench sitting in the Court below for receiving the appeal and entertaining thereof. Since the litigant cannot be rendered remediless this Court proposes to entertain the instant application filed under Article 227 of the Constitution of India.
At the very outset this Court must record that the gist of the order enclosed with this Revisional Application appears to have been passed by the Trial Court is cryptic and does not reflect the clear state of affairs. Both the parties have not disputed the gist of the impugned order and proceeded to address this Court treating the same to have been passed by the Trial Court.
Bereft of unnecessary details, the Petitioners as promoters of the Opposite Party No. 2 Company claimed to have owned approximately 37% of shares. The Opposite Party No. 2 Company is engaged in the manufacture of the cotton, polyester and blended yarns and for smooth running of such business took a loan from various banks. Having faced difficulty in liquidating the loans obtained from the different banks, one time settlement was arrived and to fulfill such obligations, entered into tripartite share subscriptions and shareholder''s agreement with the Opposite Party No. 1. In course of implementing the terms of the said agreement disputes were raised which constrained the Petitioners to invoke the provisions contained under Section 9 of the Arbitration and Conciliation Act, 1996 before the Principal Civil Court in the District. It is not in dispute that the said proceeding ended before the Supreme Court. Subsequently, the Opposite Party No. 2 Company filed an application before the Board for Industrial and Financial Reconstruction (BIFR) and was declared sick. The BIFR while entertaining the proceeding passed an order directing the parties in the proceedings to maintain status-quo on 24.03.2014. An approach was made before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) by filing an appeal which was disposed of without modifying the order dated 24.03.2014. The present suit is filed alleging that a communication through electronic mail dated September 26, 2015 was made by the Opposite Party No. 2 Bank intimating that the Opposite Party No. 3 has acquired the shares held by the Opposite Party No. 1 and therefore stepped into its shoes. It was further communicated that a Deed of Adherence has also been executed as required under the relevant clause of Share Subscription and Shareholders'' Agreement which further provides the nomination of five persons as Directors in the Board of Directors of the Opposite Party No. 2 Company.
The action of the Opposite Party No. 1 is challenged in the instant suit on a multiple grounds, firstly that the appointment and/or nomination of five persons as Directors in the Board of Directors of the Opposite Party No. 2 Company is illegal, invalid being in violation of an order of status-quo passed in a proceeding before the BIFR; secondly, the Share Subscription Agreement provides the transfer of shares by the Opposite Party No. 1 only to any of its affiliates and not to the third party; thirdly, it invades the rights of the Petitioners to enjoy their assets and the properties as promoters of the Opposite Party No. 2. Several relief''s are claimed in the suit in the form of declaration which are essentially to declare the entire transaction held between the Opposite Party No. 1 and Opposite Party No. 3 to be unlawful and void and perpetual junction as it appears from the plaint is prayed for restraining the Opposite Parties from taking any action in pursuance of the aforesaid transaction, more particularly the nomination of the Directors in the Board of Directors on the basis of the Share Subscription Agreement.
Mr. Pratap Chatterjee, learned Senior Advocate, appearing for the Petitioner, submits that Clause 28.3.3 of the Share Subscription and Shareholders'' Agreement put a fetter on the part of the Opposite Party No. 1 being the investor to assign its right under the said agreement to any of its affiliates provided such affiliate shall sign the Deed of Adherence in the prescribed form and manner stated in Annexure 13.2 thereof. He put much stress upon the said clause and would contend that the Opposite Party No. 3 being not the affiliates of the Opposite Party No. 1 cannot assert any right under the said agreement. He would further contend that the act of nominating five persons as Directors in the Board of Directors under the said agreement is unlawful and void and in clear contravention thereto. He further refers the termination clause to support his contention that the agreement shall stand terminated automatically vis-�-vis the investor or the promoters if the investor ceases to hold directly or indirectly any equity shares of the company. According to him the divestation of the shares held by the Opposite Party (Investor) attracts termination of the said agreement automatically and therefore the Opposite Party No. 3 cannot claim any rights under the said agreement being not the affiliates. Attacking the impugned order Mr. Chatterjee submits that the Trial Court misconstrued the provisions contained under Section 26 of The Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as SICA) to apply a bar in entertaining a suit instituted before the Civil Court. Lastly, he submits that the judgment of the Supreme Court relied upon by the Trial Court in case of Tata Motors Ltd. Vs. Pharmaceutical Products of India Ltd. and Another, has no manner of applicability in the present context and therefore the Trial Court misdirected himself in applying the ratio laid down therein in rejecting an application for temporary injunction.
Mr. Abhrajit Mitra, learned Advocate representing the Opposite Party No. 2, on the contrary submits that there is no fetter on the Opposite Party No. 1 (Investor) in the said agreement to sale the shares held by them of the Opposite Party No. 2 Company. He would further submit that the Opposite Party No. 1 was entitled to nominate five persons as Directors in the Board of Directors of the Opposite Party No. 2. In terms of the said agreement and in fact those persons have already been appointed as Directors w.e.f. 23rd September, 2015 which would be apparent from Form DIR-12 submitted with the register of companies. He strenuously submits that the declaration as sought for in the plaint cannot be adjudicated by the Civil Court in view of an embargo created under Section 26 of the SICA which is a self contained code. He would further submit that if the special statute excludes the jurisdiction of a Civil Court, the order refusing to pass temporary injunction cannot be termed as illegal. In other words, it is contended that the Court can refuse to pass an order of injunction if it lacks jurisdiction. By referring Clause 13.4 of the agreement Mr. Mitra submits that there is no restrictions in selling and/or transferring an equity shares to any person by way of Block Deal or a negotiated trade or otherwise. He further submits that the SICA being a special statute and self contained code has a overriding effect on a general Act as held in case of Tata Motors (Supra).
He further placed reliance upon a judgment of the Supreme Court delivered in case of Vodafone International Holdings B.V. Vs. Union of India (UOI) and Another, in support of his contention that the Shareholders'' Agreement is a private contract which should not be contrary to the provisions of the Articles of Association. It is further stated that the control of the company vested in the voting powers of the majority shareholders and therefore the Petitioners can agitate their grievance in a domestic forum at the general meeting which is scheduled to be held in the month of December, 2015. According to him disputes allegedly raised in the instant suit are capable of being determined by BIFR exercising the jurisdiction under SICA and therefore the Civil Court has no jurisdiction to pass any injunction and placed reliance upon a judgment of the Supreme Court in case of Ghanshyam Sarda Vs. Shiv Shankar Trading Company, . He thus submits that there is no infirmity and/or illegality in the order passed by the Trial Court rejecting an application for temporary injunction.
Mr. Dhruba Ghosh, the learned Advocate appearing for the Opposite Party No. 3 adopts the submissions of Mr. Mitra and additionally submits that after the appointment of the Directors nominated by his client the prayer for temporary injunction has virtually become infructuous. He further submits that the agreement does not prohibit the transfer of shares held by the Opposite Party No. 1 to any person and therefore it is apparent that the reliefs claimed in the suit cannot be granted in favour of the Petitioner.
Having heard and considered the respective submissions, undisputedly none of the parties are ad idem on the factual position that there is no restriction on transferability of the equity shares holding by the Opposite Party No. 1 under the said agreement. The dispute raised by the Petitioner is on the interpretation of a Clause 28.3.3 which provides the transfer of shares by the Opposite Party No. 1 to its affiliates which according to the Petitioners has been contravened as the Opposite Party No. 3 is not the affiliates of the Opposite Party No. 1. The "affiliates" is defined in the said agreement to mean in case of a person other than a natural person, any other person that controls, is controlled by or is under common control with such person. It is further provided that for the purpose the aforesaid definition of the affiliates, "control" shall mean the power to direct the management or policies of a person whether through the ownership of over 50% of the voting power of such person, through the power to appoint over half of the members of the Board of Directors or similar governing body of such person or by virtue of articles or other Constitutional documents of such person or through contractual arrangements or otherwise. It is not in dispute that in terms of the said agreement the Opposite Party No. 1 was authorized to nominate five persons as Director in the Board of Directors of the Opposite Party No. 2. Clause 13.4 of the agreement is explicit and clear that the investors and promoters and or any of their representatives or affiliates shall at all times be free and fully entitled to sale or encumber or otherwise transfer any or all of its equity shares or other securities held in the company to any person whether by way of a block deal or a negotiated trade or otherwise. The reasonable interpretation which can be assigned to a different sub Clauses under the assignment Clause is that the right to assign the rights under the agreement can be exercised by the investor subject, however, to signing the Deed of Adherence in the prescribed form. Sub Clause 28.3.1 of the assignment Clause put a fetter on the part of the company and the promoter to assign any right or obligation under the agreement without prior consent of the investor. Sub Clause 28.3.2, from its meaningful reading does not put any restrictions on the investor to assign any of their rights under the agreement to a third party but such assignment should be followed by a Deed of Adherence strictly in terms of Annexure 13.2 thereof. Sub Clause 28.3.3 is an additional Clause which permits the investor to assign its right under the said agreement to any of its affiliates in the same manner as indicated in a proceeding Clause. On harmonious reading of the different Clauses including 13.4, there is no hesitation that the equity shares are freely transferable or assignable.
The Article of Association of the Opposite Party No. 2 Company permits the transfer of shares by the investor and the Shareholders'' Agreement being a private contract cannot contain a provision contrary to the Article of Association it would be apt to quote:--
"261. Shareholders'' Agreement (for short "SHA") is essentially a contract between some or all other shareholders in a company, the purpose of which is to confer rights and impose obligations over and above those provided by the company law. SHA is a private contract between the shareholders compared to the articles of association of the company, which is a public document. Being a private document it binds parties thereof and not the other remaining shareholders in the company. Advantage of SHA is that it gives greater flexibility, unlike the articles of association. It also makes provisions for resolution of any dispute between the shareholders and also how the future capital contributions have to be made. Provisions of the SHA may also go contrary to the provisions of the articles of association, in that event, naturally provisions of the articles of association would govern and not the provisions made in SHA.
The nature of SHA was considered by a two-Judge Bench of this Court in V.B. Rangaraj v. V.B. Gopalakrishnan. In that case, an agreement was entered into between shareholders of a private company wherein a restriction was imposed on a living member of the company to transfer his shares only to a member of his own branch of the family, such restrictions were, however, not envisaged or provided for within the articles of association. This Court has taken the view that provisions of the shareholders'' agreement imposing restrictions even when consistent with company legislation, are to be authorized only when they are incorporated in the articles of association, a view we do not subscribe to.
This Court in Gherulal Parekh v. Mahadeoda Maiya held that freedom of contract can be restricted by law only in cases where it is for some good of the community. The Companies Act, 1956 or the FERA, 1973, RBI Regulation or the IT Act do not explicitly or impliedly forbid shareholders of a company to enter into agreements as to how they should exercise voting rights attached to their shares.
Shareholders can enter into any agreement in the best interest of the company, but the only thing is that the provisions in SHA shall not go contrary to the articles of association. The essential purpose of SHA is to make provisions for proper and effective internal management of the company. It can visualize the best interest of the company on diverse issues and can also find different ways not only for the best interest of the shareholders, but also for the company as a whole."
Furthermore, the person nominated by the Opposite Party No. 3 has already been appointed as a Director of the Opposite Party No. 2 Company before the institution of the suit. Form DIR-12 annexured to the Revisional Application corroborates the aforesaid facts and it is evident therefrom that such appointment was made w.e.f. 23rd September, 2015.
There is no quarrel to the proposition of law that the temporary injunction is passed in aid of the final relief. An application for injunction is considered and decided on a well recognized three parameters, namely, existence of prima-facie case, plans of convenience and inconvenience and irreparable loss and injury. It admits no ambiguity to say that if the Court lacks inherent jurisdiction the prayer for injunction can be refused as the said order shall be a nullity. Though several provisions of SICA is placed before this Court to demonstrate that the allegations contained in the plaint can very well be agitated before the BIFR and therefore the provisions contained under Section 26 of the SICA bars the jurisdiction of the Civil Court to determine such dispute it would be too early to accept such proposition and can be said with certainty that the Civil Court''s jurisdiction is completely ousted under the said provision.
In case of Tata Motors Ltd. (Supra) one of the points which felt for consideration was whether the SICA excludes the provisions of the Companies Act in the above perspective it is held that SICA being a special statute and a self contained court it would prevail over the Companies Act in case of inconsistency it is relevant to quote the following:--
"21. It was conceded by Mr. Sundaram SICA being a special law vis-Elvis the 1956 Act, it shall prevail over the latter. The learned counsel, however, qualifies his submission by contending that SICA only excludes the provisions of the Companies Act when they are inconsistent with each other.
The provisions of a special Act will override the provisions of a general Act. The latter of it (sic Act) will override an earlier Act. The 1956 Act is a general Act. It consolidates and restates the law relating to companies and certain other associations. It is prior in point of time to SICA.
Wherever any inconsistency (sic inconsistency) is seen in the provisions of the two Acts, SICA would prevail. SICA furthermore is a complete code. It contains a non obstante clause in Section 32 .
SICA is special statute. It is a self-contained code. The jurisdiction of the Company Judge in a case where reference had been made to BIFR would be subject to the provisions of SICA.
We may, at this stage, notice the effect of SICA vis-�-vis the other Acts, as has been noticed by this Court in some of its judgments."
In a reasoned decision rendered in case of Ghanshyam Sarda (Supra) the Apex Court held that if the dispute is covered under the provision of SICA and the BIFR is vested with jurisdiction to determine and adjudicate the same it would be proper for the Civil Court to issue injunction.
It is a settled law that the Court should read the plaint a whole and not in isolated manner. This Court, therefore, cannot accept the contention of the Opposite Party at this stage that the issues involved in the suit is squarely comes when the purview of SICA so as to apply the embargo created therein.
Since this Court does not find the existence of a prima facie case having made out in application for temporary injunction in view of the findings recorded hereinabove, there is no infirmity and/or illegality in the impugned order by which an application for temporary injunction is rejected by this Trial Court.
The Revisional Application is thus dismissed.
There shall, however, be no order as to costs.