Gujarat High Court
Judgename :A.P.RAVANI
KAUSHIKLAL NANALAL PARIKH - Appellant
Versus
MAFATLAL INDUSTRIES LIMITED - Respondent
Civil Revision 553 of 1989
Decided On : 04/11/1994
Corporate Law – Companies Act, 1956 – Sections 397 or 398 – Shareholders – Equity shares of NOCIL – Non-convertible debentures – Petitioners-Original plaintiffs are shareholders of defendant No. 1-Company. As it appears from the order of the learned trial Court Judge case of plaintiffs in both the suits is described in para 2 of order –Challenging purchase of certain equity shares of NOCIL in 1983-84, 1984-85 and 1985-86, purchase of certain non-convertible debentures of NOCIL in 1982-83, resolutions purported to have been passed at the Annual General Meeting of defendant no. 1 -Company held on 23rd August, 1986, resolution of Board of Directors of defendant No. 1 - Company in accepting the proposal of Standard Mills Company limited for the sale of 2,25,000 equity shares of NOCIL at a price of Rs. 550. 00 per share plus transfer fee and incidental charges (hereinafter referred to as the nocil deal for the sake of convenience), resolution of the Board of Disrectors of defendant No. 1 - Company stated to have ben passed on 13th November, 1986 making a rights issue of 8,10,000 equity shares of the face value of Rs. 100. 00 each for cash at a premium of Rs. 200. 00 per share to the existing shareholders on the rights basis (hereinafter referred to as the rights issue for the sake of convenience), the proposed investment of Rs. 7,29,46,400. 00 of defendant No. 1-Company in subscribing for certain equity shares of Mafatlal Fine Spining and Manufacturing Co. Ltd. , at a premium of Rs. 100. 00 per share, proposed investment in the purchase of debentures of Mafatlal Engineering Industires Ltd. , and of giving loans to it – Held, Court do not subscribe to the proposition that every action of Directors which is in contravention of a provision of law must necessarily be prejudicial to the interests of the Company – These two represent different angles of view and one may exist without other as to whether such a situation as envisaged by this Court in the aforesaid decision exists in the present proceedings or not and as to whether the case put forth by the petitioner-plaintiff may be even out of purview of Sec. 397 or 398 of the companies Act, 1956 would require recording of evidence. Without recording evidence this question could not have been decided. The trial Court has committed a jurisdictional error in not following the binding decision of this Court – Number of years would lapse and ultimately when the highest Court which is approached in heirarchy decides the matter one way or other, a stage may be reached where the suit has to be tried further and that would involve lot of delay and the parties would get completely exhausted and exasperated by passage of time underlying such piecemeal trial of suits. With a view to avoiding such delay and exasperation to the litigating public, this provision of O. 14, R. 2 in amended form has been brought in the statute book. Consequently, underlying principle of this provision is laudable and beneficial one. As per this provision, it is indicated by the legislature that suit must be tried as a whole in all issues. " in view of this settled legal position, order passed by trial Court is required to be quashed and set aside – Applications are allowed.
( 1 ) BOTH these civil revision applications arise out of common order dated 9th September, 1988 passed by learned City Civil Court Judge in Civil Suit no. 3181 of 1987 and Civil Suit No. 3182 of 1987. By this order the learned judge directed to frame the following issue : "does this court have jurisdiction to try this suit ?" the trial Court also directed that the preliminary issue be heard first.
( 2 ) PETITIONERS-ORIGINAL plaintiffs are shareholders of defendant No. 1-Company. As it appears from the order of the learned trial Court Judge, the case of plaintiffs in both the suits is described in para 2 of the order. As regards this description, there is no dispute. Hence the relevant part is reproduced hereinbelow :"the plaintiffs have filed Civil Suit No. 3181 of 1987 challenging purchase of certain equity shares of NOCIL in 1983-84, 1984-85 and 1985-86, the purchase of certain non-convertible debentures of NOCIL in 1982-83, resolutions Nos. 11, 12 and 13 purported to have been passed at the Annual General Meeting of defendant no. 1 -Company held on 23rd August, 1986, the resolution of the Board of Directors of defendant No. 1 - Company in accepting the proposal of Standard Mills Company limited for the sale of 2,25,000 equity shares of NOCIL at a price of Rs. 550. 00 per share plus the transfer fee and incidental charges (hereinafter referred to as the nocil deal for the sake of convenience), the resolution of the Board of Disrectors of defendant No. 1 - Company stated to have ben passed on 13th November, 1986 making a rights issue of 8,10,000 equity shares of the face value of Rs. 100. 00 each for cash at a premium of Rs. 200. 00 per share to the existing shareholders on the rights basis (hereinafter referred to as the rights issue for the sake of convenience), the proposed investment of Rs. 7,29,46,400. 00 of defendant No. 1-Company in subscribing for certain equity shares of Mafatlal Fine Spining and Manufacturing Co. Ltd. , at a premium of Rs. 100. 00 per share, the proposed investment in the purchase of debentures of Mafatlal Engineering Industires Ltd. , and of giving loans to it, and the notice dated 23rd April 1987 calling the Extraordinary General Meeting of defendant No. 1 on 24th June, 1987 and for a permanent injunction restraining the defendants to inter alia from allotting any shares from the rights issue and from proceeding further with the NOCIL Deal. The plaintiff in Civil Suit No. 3182 of 1987 has filed this suit against the same defendants challenging the legality and validity of the rights issue as also that of NOCIL Deal. "
( 3 ) THE defendants appeared in the suit and resisted the suit on facts as well as on law points. It was inter alia contended that the Court had no jurisdiction to try the suit. The defendants took out chamber summons Exhs. 47 and 48 in Civil suit No. 3181 of 1987 and chamber summons Exhs. 40 and 41 in Civil Suit No. 3182 of 1987. The defendants prayed that preliminary issue as to jurisdiction be raised and be ordered to be decided as preliminary issue. By order dated February 17, 1988 the learned trial Court Judge rejected the applications by detailed order.
( 4 ) THE order passed by the trial Court rejecting the applications filed by the defendant-Company was challenged by way of Civil Revision Applications Nos. 251 and 253 of 1988 before this High Court. Learned single Judge who heard the revision applications found that the trial Court had discussed the merits of the suit and hence the decision was required to be quashed and set aside, and ordered to remand the matter to the trial Court. The relevant part of the judgment and order passed by this Court on April 15, 1988 in the aforesaid revision applications reads as follows :"the grievance made by Mr. Vakil, learned Counsel for the petitioners at the outset, is that while deciding the question in both these suits, whether the concerned issues should be heard as preliminary issues under Order 14 (2) or not, the learned
SupremeToday
Login now and unlock free premium legal research
Login to SupremeToday AI and access free legal analysis, AI highlights, and smart tools.
Login
now!
India’s Legal research and Law Firm App, Download now!
Copyright © 2023 Vikas Info Solution Pvt Ltd. All Rights Reserved.