M/S.CATHOLIC SYRIAN BANK LTD. v. NONE

M.N. KRISHNAN, J.= = = = = = = = = = = = = = W.P.C. NO. 27183 OF 2007= = = = = = = = = = = = = = = Dated this the 29th day of September, 2008. J U D G M E N TThis writ petition is preferred to declare that theMunsiff, Thrissur has no jurisdiction to adjudicate the disputeinvolved and also to set aside Ext.P9 order as illegal andwithout jurisdiction. Ext.P9 is the order passed inI.A.7769/07 in O.S.2147/07 of the Principal Munsiff,Thrissur. The plaintiff in the suit is a share holder of thefirst defendant bank holding 200 shares having face value ofRs.100/- each. The Bank is a scheduled commercial Bankhaving 344 branches and is under the regulatory andsupervisory control of the Reserve Bank of India. There wasa move according to the plaintiff from the side of certaingroup of persons who are financially affluent to purchaseshares in large scale so as to have control of themanagement keeping away the individual share holders. It isfurther averred that with the intention to achieve it,publication was done in Malayala Manorama daily stating that W.P.C. 27183 OF 2007-:2:-Bank intends to offer Rights issue of 15735028 equity shareshaving face value of Rs.10/- for actual cash premium ofRs.110/- per share to the existing share holders of the Bank.The offer is to the existing share holder in the ratio of onenew share for every existing share. It is to open on 16.8.07and close on 29.8.07. The said offer is violative of themandatory provision in Sec. 81 of the Companies Act. Asper Section 81(1)(b) of the Act the same shall not be lessthan 15 days. The period from 16.8.07 to 29.8.07 will beonly 14 days instead of 15 days. Of this, 4 days are Bankholidays. The selection of the particular time is with malafideintention to keep away the ordinary share holders from this.According to the plaintiff the notice offer also should includethe right exercised by persons concerned to renounce theshare offered to. It is contended that the act of therespondent bank is fraudulent, illegal and improper. Thenotice issued without minimum time limit is incorrect andtherefore pray for injunction to restrain the bank from W.P.C. 27183 OF 2007-:3:-proceeding further. The Bank has filed a counter raising thecontention that the petition as well as the suit is notmaintainable. The respondent in the writ petition along with100 others filed petition before the Company Law Board asCLB 36/2006 u/s 397 and 398 of the Companies Act. TheCompany Law Board as per order dated 4.8.06 permitted thebank to allot shares. The remedy for the petitioner is toproceed u/s 10(f) of the Act. The defendant bank has beendirected by the Reserve Bank of India to raise the asset to300 Crores on or before 30.9.07. The Annual General Bodyon 30.6.06 had passed a resolution to do so. The Bank hadsent individual letters of offer dated 21.7.07 to sharers on7.8.07. The share holders thus will get clear 20 days. Theshares renounced shall be given the existing share holders asper unanimous resolution passed under Sec.81(1A).2.The Court below found there is violation of right ofindividual share holder and that the jurisdiction of the civilCourt is not barred. It also held that there is violation of 81 W.P.C. 27183 OF 2007-:4:-(1)(c) of the Companies Act and granted an order ofinjunction. It is against this decision the writ petition ispreferred. The respondent has challenged the verymaintainability of the writ petition on the ground that theremedy is to file an appeal under order 43 CPC.3.It is settled law that if there is fundamentalmistake committed with respect to jurisdiction and violationof law writ petition is maintainable. In order to find out thesame an analysis with reference to the relevant provisions oflaw is necessary. If it is there certainly the supervisoryjurisdiction under Article 227 of the constitution can beinvoked. 4.The learned counsel for the petitioner referring toExt.P2 communication by Reserve Bank of India points outthe necessity to raise the capital requirement to Rs.300Crores. Ext.P3 is the special resolution passed by the AnnualGeneral meeting on 30.6.06. By the said resolution theBoard of Directors is authorised and empowered to offer W.P.C. 27183 OF 2007-:5:-issue and allot. It empowers the Board to issue by one ormore modes whether on the same terms and conditions andwhether at one time or from time to time or in such mannerand on such terms and conditions, what so ever, as may bedeemed appropriate by the Board of Directors. From theabove resolution it is clear that the Annual General Body hasauthorised the Board of directors to deal with the matter insuch manner on such terms and conditions as deemedappropriate by them. Accordingly the Board of directorsissued a letter of offer. As per clause 11 of the letter of offerwhich deals with renunciation restriction is imposed torenounce only in favour of a share holder. It is this pointthat had given raise to the suit. The said clause speciallyrefers to the decision taken by the Board which reads asfollows.“The Board of Directors afterconsidering the legal opinion received by thebank on the scope of the first proviso toSec.67(3) of the Companies Act, 1956 W.P.C. 27183 OF 2007-:6:-getting attracted to the present Rights issue,have decided to restrict the option to forrenunciation exercisable only in favour ofthe existing share holders of the bank sothat the rights offer, even remotely, doesnot become and cannot be treated as anoffer made to the public.” 5.Now a reference to Sec.81(1)(a) would reveal thatoffer shall be made to the holder of the equity shares.Sec.81(1)(c) provides that unless the Articles of theCompany otherwise provides renunciation may be made toany person and not necessarily sharers. Sec.81(1)(c) doesnot give any absolute right. The argument canvassed by thecounsel for the respondent in the writ petition is that clause11 of Letter of offer is against 81(1)(c) in particular andtherefore it cannot be enforced.6.On the other hand, the learned counsel for thewrit petitioner would submit that the Court below has failedto consider Sec.81(1A). Under that section the Companymay, by a special resolution passed at its General Body W.P.C. 27183 OF 2007-:7:-Meeting may take a decision to offer the shares to anypersons including existing share holders.7.It is desirable to consider Sec.81(1) and 81(1A)together. Even Sec.81(1)(c) refers to Articles of Association.81(1A) refers to special resolution. As mentioned above itcan be seen from Ext.P3 that the AGM has authorised theBoard of Directors to take a decision. Articles 37 and 38 ofmemorandum and Articles of Association would show thatthe company has the power to increase share capital anddirection can be given by Annual General Meeting. So underthe Articles of Association power is given to the general bodyand it at a special meeting has authorised the Board ofDirectors. This special resolution was challenged before theCompany Law Board and though it gave an order initially infavour of the applicants therein later vacated the said orderand permitted the Company to proceed in terms of thespecial resolution. The respondent in the writ petition is aparty before the CLB. Though he would contend that he had W.P.C. 27183 OF 2007-:8:-withdrawn from it, nothing is produced to show it. Whateverit may be a competent statutory Authority is considering thequestion and it has permitted implementation of theresolution. A combined reading of Sec.81(1) and 81(1A)would show that if there is a clause in the Articles ofAssociation and further there is a special resolution passedby the AGM one cannot hold that the act of the company isillegal or against the provisions of the Companies Act. Thelearned Munsiff did not consider the impact of theseprovisions jointly and hence committed an error which is of afundamental character.8.The learned counsel for the writ petitionerchallenges the very jurisdiction of the civil Court to entertainthe suit. It is true that scope of Sec.9 CPC is very wide.There can be express or implied bar of jurisdiction of civilCourt. The Company Law Board in its order dated 4.8.06 inC.P.36/06 has permitted the Bank to implement theresolution. The respondent is a party. Though he would W.P.C. 27183 OF 2007-:9:-submit that he had withdrawn nothing is there to show it.The petitioner knowing fully well regarding the competencyof the CLB had challenged the special resolution before it. Ifthat special resolution is valid then as discussed above theCompany is entitled to restrict renunciation when such aresolution is challenged and the respondent has submitted tothe jurisdiction of that authority he cannot escape later bywithdrawal unless it is in accordance with law. When it is soit has to be held that prima facie the civil Court has nojurisdiction. If better materials are supplied the question ofjurisdiction can be considered at appropriate time by thelearned Munsiff.9.So far as the question of sufficiency of time isconcerned it may not arise at this stage as it requiresrefixation of dates on any event. Even factually the learnedMunsiff had held against the respondent in the writ petition.10.Since this Court is prima facie convinced of lack ofjurisdiction as well as non consideration of a material W.P.C. 27183 OF 2007-:10:-provision of law which goes to the root of the matterjurisdiction is invoked under Article 227 of the Constitution ofIndia to set aside Ext.P9 order.In the result, the writ petition is allowed and Ext.P9order, i.e, the order in I.A.7769/07 in O.S.2147/2007 is setaside and the said application is dismissed and the injunctionorder is vacated.M.N. KRISHNAN, JUDGE.ul/-