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Brooke Bond India Ltd. Vs. D.M.Gandhi and Others - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Judge
Reported in1984(1)BomCR300; [1984]56CompCas9(Bom)
Acts Companies Act, 1956
AppellantBrooke Bond India Ltd.
RespondentD.M.Gandhi and Others
Excerpt:
.....moreover, delay in a matter like this can only aggravate the great hardship and continuing loss to brooke bond and its over 22,000 shareholders and devalue the process of justice. hearing and considering their rival submissions, i am more than satisfied that the impugned order of december 20, 1983 is unwarranted and unsustainable and one which should never have been made. that, however, is immaterial if a case is otherwise well made out. one would have thereat that with even half the anxiety shown therein, the plaintiff would not have failed to move the calcutta high court where sanction proceedings are pending. by its letter dated september 14, 1982, as amended by subsequent letter of november 27, 1982, and june 8, 1982. moreover, on each of these matters, the brooke bond management has..........becomes necessary. the applicant - defendant no. 1 - is a public limited company (hereinafter brooke bond). between brooke bond and another company - centron industrial alliance limited (hereinafter 'centron'), a scheme of arrangement was entered into for amalgamation of centron with brooke bond. the said scheme has been approved by the majority of shareholders of both these companies. brooke bond and centron have moved the high court at calcutta and this high court respectively for sanction thereto. proceedings in that respect are pending in both these high court.3. one dinkar v. landge, a shareholder of centron, filed in the city civil courts, suit no. 6778 of 1983, against brooke bond and took notice of motion for interim relief. on december 1, 1983, he obtained an expert ad.....
Judgment:

Pratap, J.

1. These two appeals by defendant no. 1 arise out of interim injunction proceedings. Appeal from Order No. 3 of 1984, challenges the injunction order of December 20, 1983, passed by the city Civil court in Notice Motion no. 6494 of 1983, in Suit no. 7239 of 1983, while the other appeal arises out of an order of December 30, 1983, passed by the said court in vacation declining to interfere in vacation with the aforesaid order of December 20, 1983.

2. To appreciate the dispute, a reference briefly to certain facts and circumstances becomes necessary. The applicant - defendant no. 1 - is a public limited company (hereinafter Brooke Bond). Between brooke Bond and another company - Centron industrial Alliance Limited (hereinafter 'Centron'), a scheme of arrangement was entered into for amalgamation of Centron with Brooke Bond. The said scheme has been approved by the majority of shareholders of both these companies. Brooke Bond and Centron have moved the High Court at Calcutta and this High Court respectively for sanction thereto. Proceedings in that respect are pending in both these High Court.

3. One Dinkar V. Landge, a shareholder of Centron, filed in the city Civil Courts, Suit No. 6778 of 1983, against Brooke Bond and took notice of motion for interim relief. On December 1, 1983, he obtained an expert ad interim injuction which in effect sought to restrain Brooke Bond and its shareholders from transacting any business whatever at the company's 71st annual general meeting scheduled to be held at Calcutta at 10.30 a.m. the next day, December 2, 1983. However, this order reached Brooke Bond at Calcutta in the afternoon of December 2, 1983, after the annual general meeting was held. Immediately on receipt thereof, Brooke Bond stayed implementation of the resolutions earlier passed at the said meeting. It then field in this high Court an appeal against the aforesaid order and moved for urgent reliefs. This appeal was admitted on december 6, 1983, and simultaneously the impugned order was stayed. The appeal was peremptorily heard on December 20, 1983, by Gadgil j. by judgment of December 21, 1983, Brooke Bond India Ltd. v. Dinkar Landge [1984] 56 Com Cas. 1, the said appeal was allowed, the trial courts; the position in Landge's matter his same learned advocate moved the same trial court in another suit (which, in the meanwhile, was filed by the present plaintiff No. 1) for an ex parte ad interim injuction in term virtually similar to those in Landge's matter. And significantly enough, the same trial court passed another order of ex parte ad interim injunction notwithstanding the high Court stay of the earlier similar order. Efforts in the vacations to have the same vacated were in vain. hence, these appeals.

4. Though normally one would have relegated the parties to the hearing of the notice of motion by the trial court, I have in the exceptional facts and circumstances of this case, declined to do so. Sending back this matter to the trial court would be akin to playing into the hands of those who are responsible for this extraordinary litigation. Moreover, delay in a matter like this can only aggravate the great hardship and continuing loss to Brooke Bond and its over 22,000 shareholders and devalue the process of justice.

5. I have, therefore, heard the respective counsel in extenso on the merits of the dispute. Hearing and considering their rival submissions, I am more than satisfied that the impugned order of December 20, 1983 is unwarranted and unsustainable and one which should never have been made. Indeed, counsel for the plaintiffs was unable to set forth a single convincing reason in support thereof. A careful perusal of the plaint and its substratum the scheme of amalgamation together with some applications of judicial mind would have brought home to the trial court that there was no case for granting the rather extraordinary interim order. This was all the more so because the High Court had already stayed as earlier similar order of the same learned trial judge. It is also unfortunate that the trial court has virtually ignored the amended (in 1976) O.39 of the CPC. Though under it reasons are mandatory, the original record sent for in this case does not disclose reason in support of the impugned order of December 20, 1983. As will Presently be seen, the notice of motion was for more than one reason liable to be dismissed.

6. At the very threshold, one finds that the suit itself is beyond the pecuniary jurisdiction of the trial court. The plaintiff seeks relief, permanent as also interim, in respect of Rs. 688 lakhs as also in respect of the distribution of the dividends, the quantum whereof was more than rupees three crores. In the face of these disclosures in the plaint itself, patently untenable averments has been made in te valuation clause, para. 42, that the reliefs were not capable of monetary valuation. This should have struck the trial court at the forefront and at once put in on guard. On this short ground, viz., patent want of jurisdiction, the plaint and the notice were liable to be returned for presentation to the proper court.

7. There is also another significant feature of this litigation. When the suit was filed in December, 1983 the plaintiff was not ever a shareholder of Brooke Bond. Undisputedly, his name did not stand in the register of members of the company. Once upon a time he held two hundred equity shares of which 150 shares were transferred in favour of the Bank of India almost five years back in February, 1979, under a transfer form duly signed by him in December, 1979, and the remaining 50 shares were transferred in favour of the Oriental fire and General Insurance Co. Ltd. more than one year back in October, 1982, under transfer duly singed in September, 1982. Thus, when this suit was filed, he was not a shareholder. Even so a false averments has more than once been made in the plaint that he is a shareholder thus dishonestly seeking to invest himself with locus for this suit. In the context it is significant to note that to the plaint what is annexed is notice of the 1981 (71th) annual general meeting and not the 1982 (71st) annual general meeting, the holding of which was sought to be prevented by an injunction. contention that the plaintiff bona fide believed that he was a shareholder cannot be accepted. The plaintiff, who was shown considerable ingenuity and knowledge of the working of companies and who is himself a share-broker, could by no stretch be under such belief. On this ground also, therefore, the suit was not maintainable.

8. Learned counsel for the plaintiffs contended that the situation changed after leave under O. 1, r. 8 of the CPC, was granted and after one Ratanlal Dalal was joined as plaintiff No. 2. In the present proceedings it is not necessary to consider the effect of such leave. But it must be noted that till this date, Dalal has not obtained any order of interim injunction. Besides, on the facts and circumstances and the averments in the present plaint which have been adopted by him. I have my own grave doubts whether Dalal would be entitled to such an injunction.

9. Assuming, however, that the trial court had jurisdiction to entertain and try this suit and further assuming that the original plaintiff was entitled to sue (both difficult assumptions, indeed,), let us initially turn to the foundation of this suit, viz., the plaint. It is a long winding documents running into nearly 200 pages. That, however, is immaterial if a case is otherwise well made out. but going through this plaint, one is reminded of the phrase 'Sound and fury signifying nothing'. It is an omnibus document of an overbearing nature. It is a conglomeration of sorts and an admixture of elements and features irrelevant as also of a nature oppressive. There is a reference to the scheme of arrangement relating to the amalgamation of Centron with Brooke Bond. A number of pages have been devoted thereto. One would have thereat that with even half the anxiety shown therein, the plaintiff would not have failed to move the Calcutta High Court where sanction proceedings are pending. One then finds reference to a scooter project as also to certain excise liability which has already stood discharged, vide affidavit on behalf of Brooke Bond. There is also a reference to one R.J.Ballaster in respect of whom an ordinary resolution was moved at the 71st annual general meeting approving the remuneration paid/payable to him as a wholetime director for the period October 1, 1982, to April 2, 1983, as already approved by the Central Govt. by its letter dated September 14, 1982, as amended by subsequent letter of November 27, 1982, and June 8, 1982. Moreover, on each of these matters, the Brooke Bond management has been acting in the best interest of the company and its shareholders. Also interesting is the fact that several pages of the plaint stand devoted to an altogether unconnected litigation, viz. Suit no. 2303 of 1979. It is difficult to see the relevance of all these averments. Prolix and oppressive as there are, none of these debar or can prevent the holding of the statutory annual general meeting or the consideration of the ordinary and special business thereat. None of these matters deprive Brooke Bond or its shareholders of any advantage or benefit of which they would otherwise be entitled to. no. of these matter affect the legality and validity of the said meeting. The heat and dust sought to be raised is not better than a storm in a tea cup. The whole exercise partakes the character of much ado about nothing. There also appears to be a deliberate attempt to confuse and confound and in the process subvert the interests of Broke Bond and its entire body of shareholders or in any event an overwhelming majority thereof.

10. Even of the question of dividends one fails to see any loss or prejudice. One would have thought that shareholders would welcome a dividend. Indeed, if a company, despite large profits, rouses to declare and disburse dividend on hypothetical grounds or future uncertain contingencies, its shareholders would have a legitimate grievance to make. Here is a case where Brooke Bond is acting in the best interests of the company and its shareholders while the plaintiffs have been acting just to the contrary. Their action is per se very strange and difficult to appreciate. It is strange that a shareholder should obtain an interim injunction against his own company not to pay him dividend. It is also strange that a shareholder should have at his heart not the interests of his own company but that of a hopelessly sick unit, Centron. These aspects and elements lead to a considerable doubt on the bona fides of the plaintiffs. There is considerable substance in the contention on behalf of Brooke Bond that it is not the original plaintiff, who is not even a shareholder none the added plaintiff who holds only a hundred equity shares who is or are interested in this litigation, but it is a known third party, one Malhotra, who has been setting up such persons and proceedings with ulterior motives and exploiting to the full the the judicial machinery in that behalf.

11. It is needles to enumerate in this order statements in the plaint which, according to Brooke Bond's learned counsel, are false statements but which, according to the plaintiff's learned counsel, are statements which may ultimately turn out to be not correct even when made bona Fide. Suffice it to note that going through the plaint and the annexures and the affidavits, I have gathered a strong impression that the statement in question were made not bona fide but deliberately with ulterior motives and consciously misquoting authentic documents with a free recourse to the pernicious modus of suggestion fails and suppression verb.

12. It was submitted by the plaintiffs' learned counsel that the scheme of amalgamation is in fact being implemented by Brooke Bond. There is nothing on the record to support this contention. Indeed, the record is just to te contrary. the scheme itself states that its implementation is conditional upon various approvals in question and that the amalgamation shall be deemed to be effected on the date on which the last such approval is obtained. The scheme is under challenge in two High Courts. sanction of the high Court at calcutta as also of this high Courts to the said scheme is still being a waited. The scheme itself also categorically states, that 'the transfer date' means the close of business on June 30, 1980, or such other date as the High Courts at Bombay and Calcutta may direct. Under the Circumstances, there is a long distance yet to be traveled before the scheme becomes, if at all, ripe for implementation. Indeed, any attempt to implement it before sanction would be illegal and bad.

13. Coming then to the question irreparable damage and balance of convenience which had to be made out by the plaintiffs before becoming entitled to an order of interim relief, there is not a single circumstances making out a prima facie case in that behalf. the plaintiff's learned conceal was unable to set forth a single convincing ground. Neither transfer of substantial surplus to reserves nor payment of reasonable dividends to shareholders can cause any irreparable damage. The financial position of Brooke Bond is extremely sound. Even if the scheme is sanctioned and even if shareholders of Centron were to receive dividend from the transfer dated of 1980 onwards with the ratio of equity shares as proposed, the total quantum of dividend payable would not exceed rupees thirteen lakhs. This figure constitutes but a few drips in Brooke Bond's below of reserves.

14. It was, however, contended that since Brooke Bond must make provision for all contingent liabilities, it should have provided for the liability which it may have to fulfill in the event of the scheme of amalgamation coming through hereafter. It is not possible to agree. Indeed, making provision for such a hypothetical or potential liability would not be legal and valid. Learned course for Brooke Bond invited my attention to Sch. VI, Part III of the Companies Act, 1956, and in particular to the following :

' 7(1)(a) : The expression `provision' shall, subject to sub-cl. 920 of this clause, means any amount written off or retained by way of providing for depreciation, renewals or diminution in value of assets, or retained by way of providing for any known liability of which the amount cannot be determined with substantial accuracy.'

15. Thus, a company has to make provision for 'known liability'. My attention was also invited to Spicer & Pegler's book-Keeping and Accounts (Seventeenth Edition), P 277, wherein, while dealing with a similar provision in the Companies Act, it is observed :

'It will be recognised from the above definitions that the meaning given to the expression `provision' is much narrower than that usually attributed to it in framing accounts. For the purpose of the Companies Act, the word `provision' must not be used, as it commonly is used in practice, to describe amounts set aside to provide for prospective or even potential losses or liabilities; it must only be employed to indicate known depreciation or diminution in the value of assets, and known liabilities, the amount of which, however, cannot be estimated with reasonable accuracy.'

16. Such being then the statutory as also the legal position, any attempt on the part of Brooke Bond to make any provision for liability, which may arise in the future in the event of the scheme of amalgamation goings through, would not be legal and valid. Indeed, liability arising out of the scheme of amalgamation, if it goes through, cannot today be said to be even a contingent liability. Thus, the Brooke Bond management must be held to have acted prudently and wisely by following and adhering to the correct principles of accounting as also by following and adhering to the statutory provisions of the Companies Act, 1956, and in the process also acting in the best interests of the company and its shareholders.

17. The plaintiffs have thus failed to make out a prima facie case on irreparable damage and balance of convenience. Indeed, just the reverse would be the effect of the plaintiff's suit and reliefs, interim and permanent, sought for therein causing considerable damage to Brooke Bond and its shareholders of whom the plaintiffs themselves claim to be some. Qua the plaintiffs, there is no injury threatened at all. The purported injury is a figment of their imagination invented to initiate and bolster up this litigation at the instance of one prominently behind the curtain. I am more than satisfied that the plaintiffs have miserable failed to make out any case. reference in this context may be made to a Division bench ruling of this court in Narayandas S. kanuga v. Sarasuvatibai D. Joshi : AIR1968Bom280 to the effect :

'Order XXXIX, r.2 of the Civil Procedure Code, 1908 which deals with granting of temporary injunctions, requires that some injury must be threatened. In jury must be legal injury and not any fanciful injury. In all cases where injury is alleged, the court is put on an inquiry as to what are the contents of the rights claimed by the plaintiff. Assuming that some such right is shown, the second element to be considered is whether irreparable injury or inconvenience may result to the plaintiff if the same is refused..... It is the duty of the judge to be careful in the exercise of the powers of granting temporary injections and he must by carefully questioning the applicant ascertain whether a real case exists for the grant of the same. He must be satisfied that the law permits it and the emergency demands it. It should not be granted lightly or unadvisedly. Even if granted, the absent party ought to be sufficiently protected.'

18. In the context of the different and variety of disputes including interim relief proceedings coming up before it, the trial court surely could not have been unaware of this ruling. If only the tests laid down therein, and which tests were binding on the trial courts as also on this court, had been followed and applied, the impugned order would not have been made. Under the amended provision of o. 39 of the CPC., the position is still more stringent. One is constrained to observe that the impugned order of December 20, 1983, is made lightly and without application of judicial mind. The plaintiffs have failed to make out any real case. The notice of motion fails to fulfill the requisite tests for an order sought therein. The same is liable to be dismissed.

19. One cannot help observing that this suit reflects a frivolous and vexatious litigation constituting a clear abuse of the process courts and the instruments of justice. It is precisely to meet situations, inter alia, as the one here that the Legislature amended O.39 of the CPC, highlighting the duty of the litigant and the responsibility of the court. But to subserve ulterior motives and collateral purposes the plaintiffs have deliberately acted in breach thereof. Their action and conduct is bereft of bona fides and their motives are suspect. With full knowledge of an almost exactly similar proceedings by Landge, the same learned advocate of Landge obtained yet another ex parte interim order under virtually the same averments as in Landge's suit. Indeed, major part of the plaint in the present cases is almost verbatim the same as in Landge's. And as Landge, the original plaintiff here also is not even a shareholder. Also unfortunate is the conduct of obtaining adverse orders having serious consequence with- out notice or Brooke bond though it has its office in Bombay and when it was, to the knowledge of all, very much present in the court itself contesting landge's proceedings buy the same advocate. A sinister modes operand is resorted to throughout. Equally unfortunate is the fact that press notice are issued and letters written to bankers apparently seeking to keep all concerned posted with different developments but without a full, faithful and honest disclosure. A situation virtually paralysing Brooke Bond management and administration is sought to be brought about. another company in its place would he well suffered considerably in its name and reputation and, for aught one knows, ultimately succumbed to the machinations of the plaintiffs and their like. Indeed, that strongly seems to be the object of this litigation.

20. Such then being the facts an circumstance, the impugned order of December 30, 1983, is liable to be set aside. Gadgil J. hearing appeal from a similar interim order in Ladge's matter. allowed the same and dismissed the motion. I see no good reason for any different course in the present case which, is yet another round or fruitless and frivolous litigation. Moreover, once the court finds that there has been utter lack of bona fides, that there has also been blatant abuse of the processes of courts and that there has been resort to a vexatious litigation, it should then become its duty to nip it in the bud and put an end thereto - the earlier the better for people's confidence in courts and administration of justice. As in Landge's matter, the situation here also demands that the notice of motion be dismissed.

21. In the result, Appeal From Order no. 3 of 1984, is allowed. The impugned order dated December 20, 1983, is set aside and the notice of motion is dismissed. In view thereof, no separate order is necessary in Appeal from Order no. 4 of 1984, save and except that the said appeal does not survive.

22. This is a fit case for an order of compensatory costs and the same should be quantified. I would, therefore, direct respondents nos. 1 and 3 (plaintiffs) to pay to the appellant (defendant no. 10 costs of the present proceedings, viz., Appeal from Order No. 3 of 1984, Appeal from Order no. 4 of 1984, Civil Application No. 6 of 1984, and Civil Application no. 7 of 1984, altogether quantified at Rs. 2,500.


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