High Court · 2009

6. While, according to the plaintiff, he had expressed the desire to buy th e shares of the other shareholders of the appellant-company at the maximum price , which might be offered by an outsider, and the appellant-company denies the sa me, the admitted position is this: Based upon the resolutions, dated 15.12.2006 and 19.03.2007, of the shareholders and the resolution, dated 14.08.2007, of the Board of Directors, the Board could find a purchaser, who was willing to purcha se the appellant-company along with all its assets and liabilities. On coming to know of the fact that a purchaser had been found, who was willing to purchase t he shares, the plaintiff, vide his communication, dated 26.10.2007, informed the Managing Director that the plaintiff proposed to retain Radhabari Tea Estate an d also the appellant-company by having all shares of the company at the same pri ce, which had been offered by the highest bidder, who is an outsider and not a m ember of the family, inasmuch as he (the plaintiff), being grandson of the perso n, who had been involved in bringing into existence the appellant-company, inten ded to retain the company within the family. By his said communication, dated 26 .10.2007, the plaintiff, thus, sought to exercise his pre-emptive or preferentia l right of purchase of the shares of the other shareholders and requested the Ma naging Director of the appellant-company to place the plaintiff’s proposal to th e Board of Directors for final approval. As the plaintiff expressed his desire to purchase the share of the appel 7. lant-company, one of the Directors (i.e., proforma respondent No.3 in the presen t appeal, who was defendant No.5 in the suit) issued a communication, dated 26.1 1.2007, to the then Managing Director of the appellant-company with the opinion that the plaintiff be given a chance to purchase all the shares of the appellant -company along with its assets and liabilities. While the plaintiff claims that the Managing Directors and others, constituting the Board of Directors, did not pay any heed to the plaintiff’s claim to purchase the shares at the rate, which had been offered by an outsider, the appellants claim that acting upon the commu nication, dated 26.11.2007, aforementioned, the plaintiff-respondent was given t he offer by the Directors of the appellant-company to purchase the shares of the appellant-company along with the assets and liabilities and, for this purpose, the plaintiff, on 27.11.2007, was asked to come to the registered office of the appellant-company to discuss the issue of sale of the shares as aforesaid. On th e ground that on 27.11.2007, a bandh call had been given in Assam, the plaintiff did not, according to the appellants, attend the meeting. Even the plaintiff-re spondent agrees that due to bandh, he could not attend the said meeting. The pla intiff-respondent accordingly, on 28.11.2007, issued a communication informing t he Managing Director that he could not attend the meeting, on 27.11.2007, due to bandh call. Notwithstanding, therefore, the plaintiff-respondent’s claim that his of 8. fer to purchase shares at the same rate, which had been offered by an outsider h ad not been heeded to by the Board of Directors, the materials on record, in the face of the communication, dated 27.11.2007, aforementioned, reveal otherwise. Be that as it may, by his said communication, dated 28.11.2007, the plaintiff-re spondent also expressed his inability to attend any discussion on the subject on 29.11.2007 and 30.11.2007. This apart, the plaintiff-respondent also communicat ed, vide his letter, dated 28.11.2007, aforementioned, that he (plaintiff-respon dent) had been informed that the proposed buyer had become non-committal and, he nce, the Board of Directors were to sort out two issues, namely, to ascertain th e highest bidder along with other conditions of the transfer of shares and, ther eafter, he (plaintiff-respondent) be given an opportunity to retain the shares a t the highest bid. The plaintiff-respondent, in his said communication, also mad e it clear that the plaintiff was not a bidder for the shares of the appellant-c ompany, but was only putting his pre-emptive right of purchase of shares at the price, which might be offered by the highest confirmed bidder from outside the f amily.

9. The appellants allege that it was due to delaying tactics adopted by the plaintiff-respondent that the highest bidder lost interest and became non-commi ttal. The appellant-company also alleges that the plaintiff-respondent did not r eally have any intention to purchase the shares; otherwise, he could have purcha sed the shares at the rate, which had been offered by the person, who had, as me ntioned above, come forward to buy the shares along with all the assets and liab ilities of the appellant-company. The plaintiff-respondent, however, denies that it was due to his fault that the highest bidder withdrew; yet the fact remains that the plaintiff-respondent was, admittedly, informed about the highest bid, b ut the plaintiff-respondent had not, promptly and positively, responded to the h ighest bid, which was available from the bidder, who had come forward to buy the shares.

10. Be that as it may, the appellants’ case is that responding to the plaint iff-respondent’s communication, dated 28.11.2007, the then Managing Director, ag ain sent, a communication, dated 03.12.2007, to the plaintiff-respondent request ing the plaintiff-respondent to visit the registered office of the appellant-com pany to discuss the matter of purchase of shares of the appellant-company by the plaintiff-respondent, but the plaintiff-respondent, during his conversation wit h the then Managing Director, informed the latter that he was not interested in purchasing the shares of the appellant-company and its assets and liabilities. I t is the further case of the appellant that following the non-committal attitude of the plaintiff and the increasing financial losses being incurred by the appe llant-company, the Board of Directors held, on 14.12.2007, a meeting to discuss the conduct of the plaintiff-respondent and it was resolved that the plaintiff-r espondent be informed that he had no pre-emptive right to purchase the shares an d, accordingly, on 15.12.2007, the then Managing Director of the appellant-compa ny informed the plaintiff-respondent that his claim for exercise of pre-emptive right, i.e., preferential right of purchase, was not applicable. The plaintiff-r espondent, on receiving the communication, dated 15.12.2007, aforementioned did not react. By another communication, dated 09.12.2007, the then Managing Directo r, requested the plaintiff-respondent and other shareholders to submit their ori ginal share certificates for the purpose of transferring the shares. In the said communication, all the shareholders, including the plaintiff, were informed tha t the proposed purchaser had given an estimated consideration as regards the tra nsfer of the shares. The plaintiff-respondent received the said communication on 09.02.2008. Having remained silent for sometime, the plaintiff-respondent, on 2 3.02.2008, issued another communication, whereby he reconfirmed that he was read y to offer the highest price along with the terms and conditions offered by the unnamed proposed buyer, which had been enclosed along with the communication, da ted 09.02.2008. Shortly thereafter, the plaintiff-respondent, on 29.02.2008, wit hout receiving any response to the communication, dated 23.02.2008, instituted a suit, namely, Title Suit No.1/2008, seeking various declarations and also perma nent injunction. In his suit, the plaintiff-respondent impleaded the appellant-c ompany and four of its Directors as parties. The shareholders, who are owners of the shares and who are persons, who have the authority to sell or transfer thei r respective shares in terms of the Articles of Association of the appellant-com pany, have not been made parties nor any reliefs has been sought for against the shareholders. The reliefs, which the plaintiff-respondent sought for, in the su it, read as under: (cid:28)(a) a decree declaring that the plaintiff has the preferential right and/or rig ht of pre-emption to purchase the shares of the defendant No. 1 from the selling members; (b) a decree declaring that the defendants have no right to sell or transfer the shares of the defendant No. 1 to any outside third party depriving a willing an d desirous shareholder from purchasing the shares from selling members; (c) a decree declaring that the communication/letter dated 09-02-2008 with a nnexures therewith, issued by the then Managing Director of defendant No. 1 addr essed to the shareholders, including the plaintiff, is illegal, in-operative, no t binding, contrary to the Articles of Association and without jurisdiction; (d) a decree of permanent injunction restraining the defendants, their agent s, attorneys, assigns and employees from selling, transferring and giving posses sion of the shares of defendant No. 1 and leasing out the Radhabari Tea Estate t o any outside third party; (e) a decree of permanent injunction restraining the defendants, their agent s, attorneys, assigns and employees from delivering possession of the Radhabari Tea Estate to any outside third party in pursuance to any sale, transfer and lea sing out transaction completed or to be completed in a surreptitious, fraudulent and concealed manner and behind the back of the plaintiff; (f) a decree of mandatory injunction directing the defendants to sell and tr ansfer the shares of defendant No. 1 in favour of the plaintiff from the intendi ng selling members and also to deliver possession of the Radhabari Tea Estate un to the plaintiff; (g) (h) cost of the suit; any other relief or reliefs to which the plaintiff is entitled to in law and equity. (cid:29)

11. The plaintiff also filed, in the suit, an application under Order XXXIX Rules 1 and 2 read with Section 151 of the Code of Civil Procedure, 1908, prayin g, inter-alia, for an ad-interim temporary injunction restraining the appellant company and its Directors, their agents, attorneys, assigns and employees from s elling, transferring and giving possession of the shares of the appellant-compan y to any outsider and/or from leasing out Radhabari Tea Estate and delivering po ssession thereof to any outsider/ third party pursuant to any sale, transfer or leasing out transaction, completed or to be completed, in a surreptitious and fr audulent manner behind the back of the plaintiff-respondent. This application ga ve rise to Misc. (J) Case No. 1/2008. The learned Civil Judge, Golaghat, on 29.02.2008, passed, in Misc. (J) C 12. ase No.1/2008, an ex parte ad-interim injunction order, which was impugned, in a ppeal, before this Court, in F.A.O. No. 7/2008. This Court, by order, dated 24. 02.2009, directed the learned trial Court to dispose of the said application for injunction within a period of one month from the date of receipt of the records .

13. Upon hearing the learned counsel for both the parties, the learned trial Court passed an order, on 14.05.2009, allowing the injunction application, file d by the plaintiff-respondent, thereby restraining the appellants herein, their agents, attorneys, assigns and employees from selling, transferring and giving p ossession of the shares of the appellant-company to any outsider and/or from lea sing out Radhabari Tea Estate and delivering possession thereof to any outsider/ third party pursuant to any sale, transfer or lease.

14. re this Court. Aggrieved by the order of injunction, so passed, the appellants are befo

15. Before I deal with this appeal, on merit, some events, which the appella nts have brought on record, as having been taken place subsequent to passing of the impugned order, dated 14.05.2009, may be taken note of.

16. Following the impugned order, dated 14.05.2009, the proposed buyer of th e shares of the appellant-company became disinterested. In the meanwhile, 37 (th irty seven) shareholders of the appellant-company informed the Managing Director that they wanted to sell their shares at a price not less than Rs.800/- per sha re and requested the Managing Director to find suitable shareholder, who was wil ling to buy their shares at a price not less than Rs.800/- per share, or else th ey (the said 37 shareholders) sought for authorization to find an outsider to bu y their shares. Pursuant thereto, the Board of Directors held a meeting on 01.07 .2009 and resolved that the Managing Director be authorized to intimate all the 46 numbers of existing shareholders about the intention of the sale of shares fr om 37 numbers of shareholders at a value of Rs.800/- per share as per the provis ions of Clause 7 (c) of the Articles of Association of the company. In terms of the resolution, so adopted on 01.07.2009, by the Board of Directors, all the 46 shareholders of the appellant-company were duly informed to intimate their inten tion to buy the shares in a lot, at the price quoted, within seven days from the date of receipt of the said communication and also to deposit the entire consid eration by A/C payee cheque in favour of the shareholders within 14 days from th e date of receipt of the said communication. In this communication, the appellan t-company also made it clear to their shareholders that whoever, amongst the sha reholders, proposed to purchase the shares would also have to agree to settle al l the liabilities simultaneously.

17. By various communications made by them, as many as 36 (thirty six) share holders denounced to exercise their pre-emptive right to buy shares in favour of the Board of Directors and authorized the Board of Directors to take a decision as regards sale of shares in a manner, which would be beneficial to the company . To the offer, so made by the shareholders as mentioned hereinbefore, the plain tiff-respondent did not, vide his communication, dated 09.07.2009, give any posi tive response or offered to purchase the shares; rather, the plaintiff-responden t threatened that any attempt to sell/transfer the shares or lease Radhabari Tea Estate would amount to contempt of Court and the consequences would ensue. The Board of Directors, having not received any positive response from its sharehold ers as regards purchase of the shares, passed a resolution to institute appropri ate proceedings to get set aside the impugned order, dated 14.05.2009, and autho rized, in this regard, the Managing Director of the appellant-company to initiat e appropriate steps. Pursuant to this decision, the present appeal under Order X LIII Rule 1(r) read with Order XLIII Rule 2 of the Code of Civil Procedure has b een preferred. The appellants have also filed an application under Order XLI Ru le 5 read with Section 151 of the Code of Civil Procedure seeking stay of the im pugned order, dated 14.05.2009, aforementioned.

18. I have heard Dr. A.K. Saraf, learned Senior counsel, appearing on behalf of the appellants, and Mr. S. Ali, learned counsel, appearing for the plaintiff -respondent. Submissions:

19. Appearing on behalf of the appellants, Dr. AK Saraf, learned Senior coun sel, submits that in the case at hand, the shares are owned by the shareholders and in their absence, no effective decree for specific performance of contract t o sell the shares in preference to an outsider can be passed in the suit and, he nce, the shareholders, being necessary parties, the suit was prima facie not ma intainable in law in their absence. Injunction could not have, according to Dr. Saraf, been granted in the present case, when the suit was prima facie not maint ainable due to the plaintiff’s omission to implead the shareholders as parties.

20. Dr. Saraf contends that according to the plaintiff-respondent, the artic les of association, in the present case, give a share holder pre-emptive right t o buy shares in preference to an outsider; hence, in the case of the refusal of a shareholder to stick to the condition, so embodied in the Articles of Associat ion, an aggrieved shareholder, such as, the present petitioner, would have a rig ht to sue for specific performance of the contract and, in such a suit for speci fic performance, the shareholder, who seeks to sell his share(s) to an outsider, would, naturally, be, submits Dr. Saraf, a necessary party, for, in his absence , no suit for specific performance of contract would lie. Viewed from any angle, therefore, contends Dr. Saraf, the shareholders, in the case at hand, are neces sary parties to the suit, when the plaintiff has instituted a suit for specific performance of the contract of sale of shares in exercise of the plaintiff’s pre -emptive rights, as available to him, under the Articles of Association, against the shareholders and the appellant company.

21. Dr. Saraf submits that in the present suit, since the shareholders are not made parties either in their individual or representative capacity, the suit was not entertainable and, in such a suit, no injunction could have been grante d in terms of the prayer made by the plaintiff-respondent. Conversely, submits D r. Saraf, if the decision to sell the shares, in question, is taken to be the de cision of the company, the remedy of the aggrieved shareholders, such as, the pl aintiff, would lie in applying to the Central Government in terms of the provisi ons of Section 399 of the Companies Act, 1956, for, the decision to sell shares by majority of the share-holders by allegedly denying the plaintiff’s pre-emptiv e right to purchase shares is, in the light of the pleadings of the plaintiff, a n oppressive act and squarely covered by the provisions of Section 397 read with Section 399 of the Companies Act. Viewed from this angle too, contends Dr. Sara f, the suit not being maintainable, the question of granting injunction, as has been done, in the present case, did not really arise. Dr. Saraf points out that for the purpose of granting injunction, the le 22. arned trial Court has relied solely on the right of the plaintiff to purchase sh ares in terms of sub-Clauses (c) and (d) of Clause 7 of the Articles of Associat ion. Dr. Saraf further points out that even under the Articles of Association, p articularly, sub-Clause (i) of Clause 7, the Board of Directors has the power to recognize transfer of shares to an outsider if such transfer is in fulfillment of any object considered as charitable or beneficial or for public purpose or wa rranted under the terms of a trust deed created by the shareholder with any such object. In such circumstances, contends Dr. Saraf, a shareholder’s pre-emptive right, in the present case, cannot be said to be absolute and unqualified. This vital aspect, contends Dr. Saraf, has been completely lost sight of by the learn ed trial Court. When a trial Court, submits Dr. Saraf, misconstrues a document o r a provision of a deed, while reaching a decision, such a decision can be inter fered with by the appellate Court. In support of this submission, Dr. Saraf plac es reliance on Ramdev Food Products (P) Ltd. v. Arvindbhai Rambhai Patel, report ed in (2006) 8 SCC 726.

23. Dr. Saraf submits that the decision to sell shares to an outsider, who w ould agree to take all the assets and liabilities of the company, was beneficial and in public interest and this decision was a decision of the company, as a wh ole, inasmuch as the company had run into losses. Dr. Saraf also submits that th e statutory dues have not been paid by the company, financial institutions have instituted proceedings for recovery of dues of the appellant-Company, there is l abour unrest and risk of threat to human life and property if wages and other du es of the labourers are not paid. The liability of the company, points out Dr. S araf, stood at Rs.2,31,10,000/- lakhs, as on 01.07.1009; whereas, in the month o f February 2008, the liability has soared to Rs.4,15,96,000/- lakhs. In such a c ase, when the Board of Directors decided to act on the resolution of the shareho lders to sell the share of the company to an outsider, who would agree to take a ll the assets of the appellant-company along with its liabilities, the decision, being in public interest and in tune with the provisions of Sub-Clause (i) of C lause (7) of the articles of association, ought to have been allowed to take its course. This aspect too, contends Dr. Saraf, has been lost sight of by the lear ned trial Court.

24. While granting an interim order of injunction, a Court is also required to bear in mind, contends Dr. Saraf, the element of public interest, but the tri al Court, while passing the impugned order, in the present case, does not appear to have taken note of the public interest involved in the decision of the major ity of the share holders. In support of his contention that while granting an i nterlocutory order too, such as, an order of injunction, a Court is required to keep in view the element of public interest, if any, Dr. Saraf relies on Ramnikl al N. Bhutia Vs. State of Maharashtra, reported in (1997) 1 SCC 134.

25. Dr. Saraf submits that granting of injunction being a discretionary reli ef, the conduct of a person, who applies for injunction, is a relevant considera tion and if the conduct of a person is not appropriate or iniquitous, he cannot seek relief of injunction.

26. In support of his above submission, Dr. Saraf relies on Gujarat Bottling Co. Limited & Anr. Vs. Coca Cola Co. & Ors, reported in (1995) 5 SCC 545, and r elying upon the decision, in Gujarat Bottling Co. Limited (supra), Dr. Saraf poi nts out that according to the Articles of Association, the shareholder, who is i nterested in buying a share, which has been offered by another shareholder to be sold to an outsider, has to not only make his offer to purchase share at the ra te at which an outsider is willing to purchase, but shall also deposit the value of the share within a period of 14 days from the date, when the decision of th e shareholder to sell the shares to an outsider becomes known to the shareholder , who is interested in making purchase of such a share. In the present case, poi nts out Dr. Saraf, it is the admitted case of the plaintiff that the plaintiff h ad known all along about the resolutions adopted in the Extra-ordinary General M eeting, held on 15.12.2006 and 19.03.2007, to which he (the plaintiff) was a pa rty and he (plaintiff), having also come to know that the Board of Directors had found a purchaser, who was willing to purchase the appellant-Company along with its assets and liabilities, sent a communication, dated 26.10.2007, expressing his willingness to purchase the shares at the rate at which the shares were offe red to be purchased by the outsider. Thus, points out Dr. Saraf, while the plain tiff, having known, on 26.10.2007, that a purchaser for shares had already been found, offered to buy the shares, but he did not deposit the requisite money wit hin the prescribed period of 14 days. In such circumstances too, the plaintiff’s pre-emptive rights, if any, stood, according to Dr. Saraf, extinguished, but th is aspect too has not been taken note of by the learned trial Court. The rights, given under the Articles of Association, is, according to Dr. Saraf, enforceabl e at the option of the shareholders and, consequently, the rights, under the Art icles of Association, can be waived by the shareholders unless the provisions, c ontained in Section 9 of the Companies Act, 1956, show that such waiver is again st the provisions contained in the Companies Act. In the present case, nothing h as been brought on record to show that the pre-emptive right of purchase could n ot have been waived by the shareholders in the interest of the company and in th e interest of the public at large. Situated thus, in a case, as the one at hand, contends Dr. Saraf, no injunction ought to have been granted by the learned tri al Court.

27. Drawing attention of this Court to the impugned order, dated 14.05.2009, Dr. Saraf submits that the learned trial Court has assigned no reasons for reac hing its conclusion that there is prima facie case in favour of the plaintiff, t he balance of convenience is in favour of granting injunction and that refusal t o grant injunction would cause irreparable loss inasmuch as the learned trial Co urt, after setting out the facts of the plaintiff’s case, has, suddenly, come to the conclusion that there is a prima facie case, the balance of convenience is in favour of the plaintiff and that irreparable loss would be caused if injuncti on is not granted. An order of injunction, though temporary, which assigns no re ason, as in the case at hand, cannot, but be regarded, contends Dr. Saraf, illeg al and deserves to be interfered with. An appellate Court, points out Dr. Saraf, needs to know the reason for passing an order of injunction and an order of inj unction, which assigns no reason whatsoever, cannot be sustained. Reference, in support of his submissions, is made by Dr. Saraf to the case of Star India Ltd. Vs. Siti Cable Network Ltd. and others, reported in (2003) 8 SCC 304.

28. In the case at hand, the learned trial Court has merely observed, points out Dr. Saraf, that the suit is not barred inasmuch as Order XXXIX Rule 5 of th e Code lays down that injunction directed to a corporation is binding not only o n the corporation, but also on all the members and office bearers of the corpora tion, whose personal action it seeks to restrain. However, contends Dr. Saraf, t he learned trial Court has not noticed the fact as to whether an order of injunc tion can be passed without bringing on record the necessary parties, and, in the case at hand, when the shareholders are owners of the shares, their decision to sell the shares cannot be disturbed without impleading them as necessary partie s. The observation, made by the learned trial Court, in its order granting injun ction that the provisions of Section 397 of the Companies Act are not attracted, is not supported by any reasoning. Such an order, according to Dr. Saraf, has n o legal sanction and needs to be interfered with in the interest of justice.

29. In the present case, contends Dr. Saraf, no shareholder has an absolute or unqualified right to demand that the shares must be sold to him inasmuch as t he Board of Directors has the discretion to allow transfer of shares in terms of the Articles of Association and when the provisions of the Articles of Associat ion are not under challenge, the discretion of the Board of Directors, to allow transfer of shares to an outsider without the offer of sale of such shares havin g made to the other shareholders of the appellant-company, could not have been t aken away as has been done in the present case.

30. Dr. Saraf submits that the development, subsequent to institution of a p roceeding, is an aspect, which an appellate Court must take into account for the purpose of deciding the maintainability of an order, which may stand impugned b efore it. In the light of this position of law, this Court may take note of the fact that it has clearly surfaced on record that the shareholders have offered to sell the shares to anyone at a rate of Rs.800/- per share and the fact that such a decision has been taken by the shareholders, other than the plaintiff-res pondent, is not in dispute. In such circumstances, contends Dr. Saraf, the omiss ion of the plaintiff-respondent to accept the offer to purchase share at Rs.800/ - per share is not to affect the order of injunction inasmuch as the plaintiff-r espondent cannot force the shareholders to sell their shares at a rate lower tha n Rs.800/- per share and if the shareholders receive special price as they are a sking for, they would be entitled to sell the shares, but the impugned order of injunction restrains the shareholders from doing so. Hence, in the light of the subsequent decision of the shareholders in the matter, the impugned order of inj unction, according to Dr. Saraf, needs to be set aside. In support of his conten tion that the developments, subsequent to institution of a proceeding, should be taken into account by an appellate Court, Dr. Saraf refers to Pashupati Venkate swarlu Vs. Motor and General Traders, reported in (1975) 1 SCC 770, and M/s. La xmi and Co. Vs. Dr. Anant R. Despande and another, reported in (1973) 1 SCC 37.

31. Controverting the submissions made on behalf of the appellant, Mr. M. Al i, learned counsel for the plaintiff-respondent, submits that when a trial Court grants injunction, such exercise of jurisdiction being discretionary, the appel late Court’s power to interfere with such an order of injunction is circumscribe d. An appellate Court, contends Mr. Ali, should be slow in interfering with an o rder of injunction. In the present case, the learned trial Court, according to M r. Ali, has assigned cogent reasons for coming to the conclusion that the plaint iff has made out a prima facie case for trial, the balance of convenience is in favour of granting injunction and irreparable loss would ensue if injunction is refused. Thus, according to Mr. Ali, all the three golden principles, in respec t of granting of injunction, having been well satisfied in the present case, thi s Court, as an appellate Court, may not, in the facts and circumstances of the p resent case, interfere with the impugned order. In support of his submission that the appellate Court’s power, against t 32. he exercise of discretion of granting injunction by the trial Court, is circumsc ribed and that an appellate court must be slow in interfering with the discretio nary exercise of jurisdiction of granting injunction, Mr. Ali places reliance on Wanders Ltd. and another Vs. Antox India (P) Ltd, reported in 1990 (Supp) SCC 7 27, and Kausalya Barua and others Vs. Brahmaputra Construction Ltd. and others, reported in 2005 (2) GLT 190.

33. Mr. Ali points out that the Articles of Association of the present compa ny contain terms and conditions of a contract between the company and the shareh olders and also the share holders inter se. In such circumstances, the terms and conditions, embodied in the Articles of Association, as regards transfer of the shares, can be, according to Mr. Ali, specifically enforced by an aggrieved sha reholder. In the present case, the learned trial Court has correctly pointed out , contends Mr. Ali, that under the Articles of Association, the plaintiff has a pre-emptive right to purchase the shares and, in such circumstances, his right c an be specifically enforced. In the context of the facts of the present case, th e decision to sell the share has become, according to Mr. Ali, the decision of t he company and, in such circumstances, it is only the company, in question, and the members of the Board of Directors, who are necessary parties to the suit. Co nsequently, in the present case, the shareholders are, according to Mr. Ali, not necessary parties and the suit is not bad in their absence. It is further contended by Mr. Ali that at the time of granting of inju 34. nction, a Court cannot determine whether the suit is maintainable or not inasmuc h as the issue, with regard to maintainability of a suit, can be decided, at the earliest, by way of preliminary issue, when the defendant appears pursuant to t he summons issued. In effect, what Mr. Ali submits is that at the time of granti ng injunction, the Court is not required to even prima facie determine if the su it, wherein injunction has been sought for, is maintainable or not and/or whethe r the Court, wherein a prayer for granting injunction has been made, is or is no t the competent court to grant such an injunction.

35. In order to sustain his submission that the Articles of Association are equivalent to the terms and conditions of contract between the company and the s hareholders and the share holders inter se and that the pre-emptive right of a s hareholder to purchase shares, in preference to an outsider, can be specifically enforced by an aggrieved shareholder, Mr. Ali refers to Claude-Lila Parulekar V . Sakal Papers (P) Ltd., reported in (2005) 11 SCC 73, and Sangramsinh P. Gaekwa d and others Vs. Shantadevi P. Gaekwad (dead) through Lrs and others, reported i n (2005) 11 SCC 314.

36. Reacting to the submissions made on behalf of the plaintiff-respondent, Dr. Saraf submits that there can be little doubt that an appellate Court’s juris diction to interfere in matters of discretionary exercise of jurisdiction, such as injunction, is circumscribed, but there can also be no doubt, points out Dr. Saraf, that when a trial Court takes a decision ignoring a relevant fact or a ma terial aspect of law, non-interference would not only be unjustified, but would amount to refusal to exercise jurisdiction by the appellate court. In the prese nt case, submits Dr. Saraf, the learned trial Court has not considered at all if the shareholders were necessary parties. If the shareholders were necessary par ties in the suit, in their absence the suit was not maintainable and when the su it is not maintainable, even any interlocutory order of injunction cannot, accor ding to Dr. Saraf, be passed. Support for this submission is sought to be derive d by Dr. Saraf from the cases of Shiv Kumar Chadha Vs. Municipal Corporation of Delhi & Another, reported in (1993) 3 SCC 161, and Pranab Kumar Banerjee & Anr. Vs. Momin Ali @ Mukib Ali, reported in (2006) 2 GLR 26.

37. Dr. Saraf points out that the learned trial Court, in the present case, has also brushed aside the fact that the plaintiff has specifically alleged, in his pleadings, that the Board of Directors has mismanaged the affairs of the com pany and has caused loss to the company. According to Dr. Saraf, these allegatio ns are tantamount to saying that the plaintiff’s voice of protest against the m ismanagement of the company and against the extra-ordinary resolution of the Gen eral Meeting of the shareholders were ignored and suppressed; hence, the decisio n of the majority of the shareholders was, according to the plaintiff, in the li ght of the pleadings of the plaint, harsh and oppressive. The remedy, in such a case, contends Dr. Saraf, lies in not knocking at the doors of the Civil Court, but in approaching the Central Government in terms of the provisions of Section 399 of the Companies Act, 1956, so as to enforce the plaintiff-respondent’s righ ts, if any, by taking resort to Sections 397 and 398 of the Companies Act, 1956.

38. Dr. Saraf further points out that even the decision, relied upon by Mr. Ali, namely, Sangramsinh P. Gaekwad (supra), clearly holds that the conditions, contained in the Articles of Association, can be waived or modified by the share holders. Hence, the shareholders as well as the appellant-company, according to Dr. Saraf, had the right to waive the conditions of the Articles of Association so long as such waiver was not in contravention of law. In the present case, sub mits Dr. Saraf, the shareholders and the Board of Directors decided, in the inte rest of the company and in the public interest too, to look for a person outside the company, who would be willing to take the assets and liabilities of the app ellant-company. Unless such a decision is found or held to be bad in law or agai nst the interest of the appellant-company or against public interest, such a dec ision, contends Dr. Saraf, ought not to have been interfered with by an order of injunction. According to Dr. Saraf, when maintainability of the suit, in the pr esent case, is a crucial question and the trial Court has not determined if the suit is prima facie maintainable in the absence of the shareholders, such a deci sion can be interfered with in appeal. Questions to be determined:

39. The limited grievance of the plaintiff, as reflected from the plaint and the application seeking injunction, has been that the defendants, in the suit, are trying to sell the shares of the appellant-company to an outsider without gi ving the plaintiff an opportunity, as warranted by the Articles of Association o f the appellant-company to purchase the shares of the appellant-company at the h ighest rate, which may be offered by an outsider. The plaintiff’s allegation is that the process initiated by the appellant-company to sell the shares of the ap pellant-company is in violation of the Articles of Association, though the Artic les of Association are binding upon the appellant-company, its Directors and all the shareholders. In support of his case, the plaintiff relies on Clauses 7(b), 7(c) and 7(d) of the Articles of Association, which the plaintiff contends conf er a pre-emptive right on the plaintiff, as a shareholder, to purchase the share s of the appellant-company. In other words, according to the plaintiff, he, in terms of the Articles of Association, has, in the facts and attending circumstan ces of the present case, preferential right of purchase of shares. In the facts and circumstances of the present case, therefore, whether the learned trial Cou rt have, legally and justifiably, granted injunction in the manner, as indicated above, by its order, dated 14.05.2009? This is the moot question, which this a ppeal has raised for determination.

40. The answer to the moot question framed above needs to be determined on t he basis of the answers to some other relevant questions. Broadly speaking, the questions are: (i) What is the appellate Court’s power and role in dealing with an order of injunction passed by a trial Court? (ii) What do the Articles of Ass ociation of a company mean and what their legal significance is? (iii) When is a suit barred by the Companies Act, 1956? (iv) What is a necessary party? (v) Is the question, as to whether a party is a necessary party to a given suit, a ques tion, which is required to be looked into by a trial Court, at the time of consi dering an application for injunction or not? (vi) Whether it is legally permissi ble to grant injunction, without impleading a necessary party to a suit, when om ission to implead may have a bearing on the rights, if any, of such a party? Whe ther the Court is not required to arrive at a prima facie satisfaction that the suit, wherein any interlocutory order, such as, an order of injunction has been sought for, is or is not maintainable? Is prima facie satisfaction, as regards m aintainability of a suit, a factor, which falls outside the purview of the Court ’s power at the time, when the Court considers if a relief shall or shall not be granted on an interlocutory application, such as, an application for injunction ? (i) What is the appellate Court’s power and role in dealing with an order of inj unction passed by a trial Court ? While considering the scope of an appellate Court’s power to interfere w 41. ith exercise of discretionary jurisdiction of a trial Court in matters of injunc tion, it needs to be borne in mind that an appeal against exercise of discretion is really an appeal in principle. The appellate Court will, therefore, not re-a ssess the materials and seek to reach a conclusion different from the one, which has been reached by the trial Court if the conclusion, which the trial Court ha d reached, was a reasonably possible conclusion on the materials on record. Lest exercise of discretion in interlocutory applications, such as, injunction, beco mes wild, unwieldy, unpredictable or arbitrary, the Courts have evolved certain principles, which govern exercise of such discretionary powers. The principle, t hat in order to obtain an interlocutory order of injunction, a party must satisf y the Court that there is a prima facie case to go in for trial, that the balanc e of convenience is in favour of granting injunction and that there would be irr eparable loss if injunction is not granted are the principles, which have been c onsistently followed by the Courts so that some judicially determinable paramete rs remain available for the purpose of deciding if discretionary exercise of pow er of granting injunction has or has not been justifiably granted. The three gol den principles, which govern the grant of injunction, are nothing, but condition s, which are required to be satisfied by a party in order to enable it to obtain an interlocutory order of injunction. Consequently, in such appeals, while the appellate Court will not, ordin 42. arily, substitute its own discretion in place of that of the trial Court, yet wh ere discretion is shown to have been exercised arbitrarily, capriciously or by i gnoring settled principles of law regulating grant or refusal of interlocutory i njunction, the appellate Court is bound to interfere, for, non-interference with such exercise of powers by the trial Court will, if allowed to remain good on r ecord, cause serious miscarriage of justice. It is also important to bear in min d that the appellate Court may not be, normally, justified in interfering with t he exercise of discretion under appeal solely on the ground that if it had consi dered the matter at the trial stage, it would have come to a contrary conclusion . While granting injunction, if discretion has been exercised by a trial Court r easonably and by adhering to all judicial norms and principles, the fact that th e appellate Court would have taken a different view may not justify interference with the trial Court’s exercise of jurisdiction. When, however, the trial Court is found to have exercised its discretion arbitrarily, capriciously or by ignor ing the settled principles of law, governing grant or refusal of interlocutory a pplication, the appellate Court must step in and correct the wrong. In Wanders L td. and another Vs. Antox India (P) Ltd, reported in 1990 (Supp) SCC 727, the Ap ex Court, while dealing with the appellate Court’s power to interfere with the e xercise of jurisdiction by a trial Court, observed and held as follows: (cid:28)The appeals before the Division Bench were against the exercise of discretion b y the Single Judge. In such appeals, the appellant court will not interfere with the exercise of discretion of the court of the first instance and substitute it s own discretion except where the discretion has been shown to have been exercis ed arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law regulating grant or refusal of interlocutory injuncti ons. An appeal against exercise of discretion is said to be an appeal on princip le. Appellate court will not reassess the material and seek to reach a conclusio n different from the one reached by the court below if the one reached by that c ourt was reasonably possible on the material. The appellate court would normally not be justified in interfering with the exercise of discretion under appeal so lely on the ground that if it had considered the matter at the trial stage it wo uld have come to a contrary conclusion. If the discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the tr ial court’s exercise of discretion. After referring to these principles Gajendra gadkar J. in Printers (Mysore) Ltd. Vs. Pothan Joseph. (cid:28)These principles are well settled, but as has been observed by Viscount Simon i n Charles Ostenton and Co. Vs. Jhanaton ’ & &the law as to the reversal by a court of appeal of an order by a Judge below in the exercise of his discretion is wel l established, and any difficulty that arises is due only to the application of the well settled principles in an individual case’. The Appellant Judgment does not seem deferred to this principle. (cid:29)

43. Mr. Ali is, therefore, not incorrect in referring to the case of Kausaly a Barua and others Vs. Brahmaputra Construction Ltd. and others, reported in 200 5 (2) GLT 190, wherein the Court has held that the power of interference by the appellate Court in matters of injunction is circumscribed and that the appellate Court would be slow to interfere with the exercise of jurisdiction and would no t, normally, be justified in interfering with the exercise of discretion under a ppeal on the sole ground that if it had considered the matter at the trial stage , it might have come to a contrary conclusion.

44. What is, however, of immense importance to note is that neither the Wand ers Ltd. (supra) nor Kausalya Barua (supra) lays down that the appellate Court s hall not interfere with an interlocutory order of injunction if exercise of juri sdiction by trial Court, in the matter of granting or refusing to grant injuncti on, is against the settled principles, which govern exercise of power of grantin g injunction on interlocutory applications for injunction.

45. Thus, an appeal against exercise of discretionary jurisdiction is really an appeal in principle and that is why, unlike a regular appeal, in ordinary se nse, where whole evidence on record is examined anew by the appellate Court, wha t is really examined, in an appeal against exercise of discretionary jurisdictio n, is the legality and validity of the order and it can be set aside and should be set aside only when there is a patent error on the face of the record or the order is against the established or settled principles of law. If two views are possible and a view, which is reasonable and logical, has been adopted by a tria l Court, the other view, howsoever appealing, would not be allowed to be substit uted in place of the trial Court’s views, which are, otherwise, reasonable and l ogical. What is a necessary party?

46. It is Order 1 of the Code of Civil Procedure, which deals with parties, in general, as well as necessary parties. In a civil suit or proceeding, the Cou rt considers the question of necessary party keeping in view the litigation befo re it and the litigants available on record. In order to determine if a person i s or is not a necessary party, one has to ascertain whether there is a right to obtain relief against such a party and whether it would be possible to pass an e ffective decree in the absence of such a party. If the answer to these two quest ions are found in affirmative, such a party would be treated as a necessary part y. This position of law clearly emerges from the case of Deputy Commissioner Har doi, in-charge Court of Wards, Bhavawan Estate Vs. Rama Krishna Narain (AIR 1953 SC 521), wherein the Apex Court has observed, (cid:28). . . . The majority judgment wa s delivered by Pathak J. He enunciated two tests for deciding whether certain pe rson was a necessary party in a proceeding. (1) that there must be a right to so me relief against such a party in respect of the matter involved in the proceedi ngs, in question, and (2) that it should not be possible to pass an effective de cree in the absence of such a party and proceed to observed that the creditors o f a landlord who have claimed relief under the Encumbered estates Act are necess ary parties to the object of the Act is to compel the landlord to surrender his entire property for the benefit of his creditors and to liquidate the debts of a ll the creditors in accordance with and to the extent permitted by the Act. Ther e can be no question that these are the true tests for determining whether a per son is a necessary party to certain proceeding.\ (Emphasis is supplied)

47. Thus, in Rama Krishna Narain (supra), two tests have really been laid do wn for determining the question as to who can be regarded as necessary party in a civil suit, the tests being (1) that there must be a right to some relief agai nst such a party in respect of the matter involved in the proceedings, in questi on, and (2) that it should not be possible to pass an effective decree in the ab sence of such a party.

48. What follows from the above discussion is that in order to treat a perso n as a necessary party to a suit, such a person must be one against whom the rig ht to relief can be claimed and in whose absence, it is not possible to pass an effective decree. Whether maintainability of a suit is an aspect, which needs to be examined by th e Court, before acceding to a prayer for granting an interlocutory order of inju nction and, if so, what can be the extent of such examination? In the absence of a necessary party to a suit, whether interlocutory order of injunction can be p assed? It is trite, as already discussed above, a person, seeking an interlocut 49. ory order of injunction, must satisfy the Court that there is a prima facie case to go in for trial, the balance of convenience is in favour of granting injunct ion and that refusal to grant injunction would entail irreparable loss.

50. Let me, now, determine as to what the meaning of the expression ’prima f acie case’ is. A prima facie case means that the plaintiff has raised triable is sues. The question, therefore, is as to what is the meaning of a triable issue. It needs to be borne in mind that a triable issue does not merely mean an issue raised for adjudication; rather, it would mean an issue, which is raised for adj udication and is also within the competence of the Court (where the issue has be en raised) to adjudicate upon and decide the issue. As a corollary, when a suit is ex facie or prima facie not maintainable, triable issue cannot be said to hav e been arisen. If a person, seeking injunction, fails to show that he has a prim a facie case, the Court is not required to determine if balance of convenience i s in favour of granting injunction or that irreparable loss would or would not b e caused if injunction is not granted. To put it a little differently, prima fac ie satisfaction is required to be reached by a Court that it has the jurisdictio n to try the suit, wherein interlocutory order of injunction is sought for. Unle ss the Court is prima facie satisfied that it has the jurisdiction to try a give n suit, it cannot pass an interlocutory order of injunction.

51. The prima facie satisfaction, that a suit is maintainable, is, thus, an aspect, which is different from determination of an issue of maintainability of a suit as a preliminary issue. At the stage of granting ex parte order of injunc tion, no triable issue is framed. The Court has to, nevertheless, satisfy itself , before it grants temporary injunction, that the suit, in the state or manner i n which it has been brought before the Court, is a suit, which falls within the jurisdiction of the Court, (which has been approached) for the purpose of adjudi cation of the issue. If such a prima facie satisfaction is not reached or could not have been reached, interlocutory order of injunction, in either case, would be an order, which cannot be sustained. In Shiv Kumar Chadha Vs. Municipal Corpo ration of Delhi and another, reported in (1993) 3 SCC 161, the Apex Court has, i n no uncertain words, held that before any order of injunction is passed, the Co urt must be satisfied that strong prima facie case has been made out against the plaintiff including, amongst others, on the question of maintainability of the suit. The relevant observations, made in this regard, in Shiv Kumar Chadha (supr a), read: (cid:28)30. It need not be said that primary object of filing a suit challenging the va lidity of the order of demolition is to restrain such demolition with the interv ention of the court. In such a suit the plaintiff is more interested in getting an order of interim injunction. It has been pointed out repeatedly that a party is not entitled to an order of injunction as a matter of right or course. Grant of injunction is within the discretion of the court and such discretion is to be exercised in favour of the plaintiff only if it is proved to the satisfaction o f the court that unless the defendant is restrained by an order of injunction, a n irreparable loss or damage will be caused to the plaintiff during the pendency of the suit. The purpose of temporary injunction is, thus, to maintain the stat us quo. The court grants such relief according to the legal principles - ex debi to justitiae. Before any such order is passed the court must be satisfied that a strong prima facie case has been made out by the plaintiff including on the que stion of maintainability of the suit and the balance of convenience is in his fa vour and refusal of injunction would cause irreparable injury to him. (cid:29) (Emphasis is supplied)

52. Following the decision, in Shiv Kumar Chadha (supra), a Division Bench o f this Court, in Pranab Kumar Banerjee & Anr. Vs. Momin Ali @ Mukib Ali, reporte d in (2006) 2 GLR 26, has held that while exercising its discretion on an applic ation made under Order XXXIX Rules 1 and 2 of the Code of Civil Procedure, the C ourt has to see whether the plaintiff has a strong prima facie case, whether the balance of convenience is in favour of the plaintiff and whether the plaintiff would suffer irreparable loss or injury if the prayer for injunction is disallow ed. Having so observed, the Division Bench further observed, in Pranab Kumar Ban erjee (supra), held the Court is also required to see, in such a case, whether t he suit is prima facie maintainable or not. The observations, made in this regar d, in Pranab Kumar Banerjee (supra), read as under: (cid:28)7. The law relating to grant of temporary injunction under order 39, Rules 1 an d 2 CPC is by now settled. The grant of temporary injunction during the pendency of a suit, in exercise of the power conferred by Order 39, Rule 1 and 2 CPC is a discretionary relief. While exercising such discretion, the Court has to see w hether the plaintiff has a strong prima-facie case, whether the balance of conve nience is in favour of the plaintiff, whether the plaintiff would suffer irrepar able loss or injury if the prayer for temporary injunction is disallowed. The co urt is also required to see whether the suit filed by the plaintiff is prima-fac ie maintainable. The relief by way of temporary injunction is granted to mitigat e the risk of injustice to the plaintiff during the pendency of the suit. Such i njustice that may be caused to the plaintiff is to be weighed against the corres ponding need of the defendant to be protected against the injury resulting from preventing him from exercising his legal rights. Therefore, the Court is to weig h the plaintiffs need against the defendant and determine where the balance of c onvenience lies. It is being an equitable relief it rests on the sound judicial discretion of the court, to be exercised in the backdrop of the facts of each ca se. While granting or refusing the injunction, the Court is also required to see the conduct of the parties. (cid:29) In fact, even before the decision, in Shiv Kumar Chadha (supra), A thre 53. e-Judge Bench, in Municipal Corporation of Delhi Vs. Shri Suresh Chandra Jaipuri a and another, reported in (1976) 4 SCC 719, had the occasion to consider the qu estion as to whether a Court can grant interim injunction, when a prima facie ca se has not been made out in the sense that the suit is barred in law. The Apex C ourt, in Suresh Chandra Jaipuria (supra), while abstaining from deciding the que stion as to whether the suit is or is not barred, pointed out that the question as to whether a suit is or is not barred is a question, which will have a bearin g upon the question whether a prima facie case existed for granting any interim injunction or not. The relevant observations, made by the Apex Court, at para 10 , reads: (cid:28) & & & & & &.However, we abstain from deciding the question whether the suit is barre d or not on this ground. All we need say is that this consideration also has a b earing upon the question whether a prima facie case exists for the grant of an i nterim injunction. (cid:29)

54. From the decisions, in Shri Suresh Chandra Jaipuria (supra), Shiv Kumar Chadha (supra) and Pranab Kumar Banerjee (supra), it clearly follows, as already indicated above, that unless a Court, where an application seeking an interlocu tory order of injunction has been made, is satisfied that it has the jurisdictio n to try the suit and/or that the suit is maintainable, it cannot grant any inte rlocutory order of injunction.

55. Viewed in the above perspective, it becomes abundantly clear that in the absence of necessary party, since an effective decree cannot be passed, no ques tion of granting an interlocutory order of injunction arises. In other words, un less necessary party is brought on record or is impleaded in a given suit, no in terlocutory order of injunction can, against the interest of such a necessary pa rty, be passed.

56. In the present case, therefore, it was incumbent, on the part of the lea rned trial Court, to reach prima facie satisfaction if the shareholders were or were not necessary parties. Consequently, if the shareholders are, now, prima fa cie necessary parties to the suit, then, the suit cannot be said to be maintaina ble and no triable issue can be said to have been raised. Similarly, if the suit is found to be prima facie barred under the law, the Court would have had no ju risdiction to try the suit; then, also, in the light of the decisions, in Shiv K umar Chadha (supra) and followed in Pranab Kumar Banerjee (supra), no question o f granting any interlocutory order of injunction could have arisen.

57. It is, therefore, necessary, even in the present appeal, that this Court reaches a prima facie satisfaction as to whether the shareholders were or were not necessary parties and/or whether the suit, as presented, was prima facie mai ntainable or not.

58. Having pointed out above that a Court, before it grants injunction, even temporarily, must reach a prima facie satisfaction that the suit, laid before i t, is maintainable, it may, now, be noted that there are, broadly speaking, thre e grounds on which it is, on behalf of the appellants, contended, that the suit, in the form in which it was laid before the Court, was even prima facie not mai ntainable and the learned trial Court ought not to have granted injunction. The three grounds are : (i) that the plaintiff, as share holder of the applicant com pany, alleges oppressiveness and mismanagement in the affairs of the company by the Board of Directors and when a share holder makes such an allegation, his rem edy lies in making appropriate application under Section 397 and/or 398 of the C ompanies Act inasmuch as a case, which is covered by the provisions of Sections 397 and 398, falls within the exclusive domain of the Company Law Board, and the court of ordinary civil jurisdiction cannot try such a suit; (ii) even if the c ivil court had jurisdiction in the present case, the nature of reliefs, which th e plaintiffs had sought for, required the shareholders, (who had decided to sell their shares), to be necessarily made parties to the suit and, in their absence , neither the suit was maintainable nor the injunction, as sought for, could hav e been legally granted by the learned trial Court; and (iii) and even, on merit, no prima facie case for granting of any injunction could be said to have been m ade out and, hence, prohibitory injunction, as granted by the impugned order, is not sustainable .

59. As against the submissions noted above, it is contended, on behalf of th e plaintiff-respondents, that the suit is maintainable inasmuch as the pre-empti ve right, given, under the articles of association, to the plaintiff-respondent, is a contractual right, which can be specifically enforced, and that the shareh olders, in such a suit, are not necessary parties. Support for this submission i s sought to be derived from the provisions of Order XXXIX Rule 5 inasmuch as Ord er XXXIX Rule 5, as contended on behalf of the plaintiff-respondent, shows that an injunction granted as against the corporation is binding not only on the corp oration itself, but also on all the members and office-bearers of the corporatio n, whose personal action the injunction seeks to restrain. At any rate, in the l ight of the reliefs, which the plaintiff-respondent has claimed, the shareholder s were not necessary parties, the suit is wholly maintainable and, in the facts of the pleaded case of the plaintiff-respondent, it cannot be said that no case for granting of injunction had been made out.

60. te to clearly understand the functioning of a company under the law. In order to resolve the above aspect of the controversy, it is appropria

61. A company, as observed in Life Insurance Corporation of India Vs. Escor ts Ltd. and ors, reported in (1986) 1 SCC 264, is, in some respects, an institut ion like a State functioning under its (cid:28)basic Constitution (cid:29) consisting of the Co mpanies Act and the Memorandum of Association. Carrying the analogy of constitut ional law a little further, Gower describes (cid:28)the members in general meeting (cid:29) and the directorate as the two primary organs of a company and compares them with t he legislative and the executive organs of a Parliamentary democracy, where legi slative sovereignty rests with Parliament, while admin