Venkatachalaiah, J.:— Applicants are the petitioners in Company Petition No. 20 of 1977 and by this application seek certain interlocutory-orders.
2. Company Petition No. 20 of 1977 has been instituted by the applicants under Section 397 and 398 of the Companies Act alleging that the affairs of the company Southern Steelmelt and Alloys Limited, are conducted in a manner so prejudicial to the interests of the company and its members as to call for and justify the interference of the company court and the exercise of the powers of the court under Sections 397, 398 and 402 of the Companies Act.
3. The grievances ventilated in the petition stem from disputes amongst brothers, the eldest Mohanlal Mittal and his group being on the one side and his younger brothers Indrasen Mittal and others on the other. The main allegations in the said petition brought under Sections 397 and 398 of the Companies Act are that the Board of Directors of the company purportedly passed a resolution on 31st March 1977 deciding to raise the equity capital of the company by authorising the issue of 1,14,000 equity shares of Rs. 10 each amounting to Rs. 11,40,000 which according to the applicants represents 60 per cent of the existing equity capital; that the exercise of the powers of the Board of Directors in this behalf is not informed by considerations relevant to the matter and is not in the interests of the company, but is actuated by collateral and oblique motive of acquiring a controlling interest in the Indrasen group. There are also certain allegations of financial irregularities, discrepancies in the accounts and the further allegations that the Indrasen group is making fraudulent and secret profits.
4. When the said Company Petition 20/77 came up before me on the 17th of May 1977, Sri S.G Sundaraswamy took notice on behalf of the Company and wanted a short adjournment till today to file his counter to the interlocutory application and argue the matter. Accordingly, the matter stood adjourned to this date.
5. I have heard Sri Sidhartha Shankar Ray, learned counsel for the applicants and Sri S.G Sundaraswamy, learned counsel for the 1st respondent-company.
6. There are several reliefs sought for in this application. The prayer at clause (n) of the application pertains to the Annual General Mealing scheduled to be held on 23rd March 1977 respecting which an order of temporary injunction in its restraint is sough. This part of the interim prayer having been considered to be of some urgency is taken up for consideration. Prayer clause (o) also pertains to he extraordinary general meeting scheduled for 24th June 1977 in respect of which also an order of injunction restraining the holding of that meeting is sought. In this order the two reliefs at clauses (n) and (o) of the application are, by consent of parties, disposed of. The other reliefs in the application will be disposed of separately after hearing the parties.
7. The prayer a clauses (n) and (o) are in the following terms:
“(n) Injunction restraining the respondents 2 to 7 and each of them whether by themselves or by their servants, agents, or otherwise howsoever from holding the said proposed annual general meeting to be held on 23rd June 1977;
(o) Injunction restrain the respondents and each of them whether by themselves or by their servants and agents or otherwise however from holding the said proposed extraordinary general meeting to be held on 24th June, 1977”.
8. Sri Sidhartha Shankar Ray, learned counsel for the applicants, contended that the purported decision to raise the capital of the company was demonstrably malafide, done not in the interests of the company but solely to achieve the collateral and oblique motive of furthering the interests of the Indrasen group and the said decision, coming as it did, in the wake of a notice issued by the applicants requisitioning an extraordinary general meeting at which resolutions touching want of confidence in the Board of Directors were proposed to be moved, was clearly an attempts to pre-empt the out come of that extra-ordinary general meeting which would otherwise have been inevitable. Sri Ray further urged that the circumstances that the company had not declared any dividends so far; that its shares were admittedly quoted in the stock-market at Rs. 5.75 each; and that the present offer pursuant to the resolution dated 31st March 1977 was at the face value of Rs. 10 would clearly go to show that there was no intent or expectation on the part of the directors that there was any possibility of raising any additional capital by the issue of shares. Sri Ray contended that the undue and unbecoming haste in which the allotments to the allottees who according to him, are merely the nominees of the Indsasen gorup were made and the fact that applications for the shares by non-members were entertained even before the last day i.e, 27th May 1977 fixd for renunciation of the offer by the shareholders, in themselves amount to conclusive evidence of the malafides on the part of the Board of Directors in making the impugned resolution and the allotments made pursuant thereto. Sri Ray strongly urged that the allotment of the said 1,14,000 shares made pursuant to the impugned resolution of the Board of Directors being wholly malafide and having been demonstrably for a collateral purpose, the exertion of the voting power stemming from the said allotment at the ensuing annual general meeting of the company, if permitted, would result in irreversible illegalities and put the applicants under an uncompensatable disadvantages.
9. Sri S.G Sundaraswamy, learned counsel for the company, however, stated at the out set that no uncompensatable disadvantage or irreversible detriment is likely to be occasioned to the applicants if the meeting is allowed to be held on 23rd June 1977, as, according to him, sufficient protection for the apprehension of the applicants could be afforded by imposing a condition that the proceedings of the meeting should be submitted to this court for such further orders in that behalf as this court, may deem fit including orders whether the operation of any of the resolution passed at the meeting should be stayed or not. Secondly, while maintaining that the allotments of shares was valid and that the allottees should not be prevented from exercising their legitimate voting rights, he stated that if it, turns out that apart altogether from the voting power stemming from the impugned allotments of shares and even on the basis of the pattern of voting rights obtaining prior to the impugned allotment, the resolutions of the Annual general meeting become supportable, then that would a matter which the court could take into consideration when the proceedings of the meeting are brought up before this court for further orders.
10. The principles guiding the grant of interlocutory injunctions are fairly well settled. The relief is both, temporary and discretionary. In cases of interlocutory injunctions in aid of the rights of the party seeking it, the Court wall first consider whether the applicant has established a ‘prima facie’ case, the expression ‘Prima facie’ in this context being understood in the sense that it is not frivolous or vexatious claim but involves a serious matter to be investigated. The rules guiding the administration of this form of discretionary relief admit of being formulated in the following three sequential proposition:
(1) Discover whether the plaintiff's case is frivolous or vexatious;
(2) If it is not, decide in whose favour the balance of convenience lies;
(3) If the balance is fairly even, then it may not be improper to take into account in tipping the balance the relative strength of each party's case as revealed by the affidavit evidence adduced on the hearing of the application.
In the present case, the petition has been admitted and I proceed on the assumption that the applicant have made, out, what according to their learned counsel, is “a very strong prima facie case”. The question that arises is as to the balance of convenience between the parties and the imminent and uncompensable disadvantages or some irreversible detriment that may result to the applicants by the denial of the relief. In this context, it is not necessary for the court to find a case for the applicants which would entitle them to relief at all events; but it is quite sufficient if the court finds that the case shows that there are substantial questions to be investigated and that the matter has to be preserved in status-quo until the question can finally be disposed of. The consequences resulting from allowing annual general meeting to be held as urged and envisaged by Sri Ray, learned counsel for the applicants, proceeds on the assumption that the allotment of the shares in question is void. To hold so, at this stage and proceed on that assumption would, in my opinion, amount to pre-judging the matter. The House of Lords in American Cynamid Co. v. Ethicon Ltd.(1), observed:
“16. It is no part of the court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations. These are matters to be dealt with at the trial. One of the reasons for the introduction of the practice of requiring an undertaking as to damages upon the grant of an interlocutory injunction was that it aided the court in doing that which was its great object viz., abstaining from expressing any opinion upon the merits of the case until the hearing”.
In the said case, the House of Lords also emphatically negatived the existence of the supposed rule that the court is not entitled to take any account of the balance of convenience unless it has been satisfied that if the case went to trial upon no other evidence than is before the court at the hearing of the application, the plaintiff would be entitled to judgment for a permanent injunction in the same terms as the interlocutary injunction sought. It was also pointed out in the said case that the use of the expressions such as ‘a probability’, ‘a prima facie case’ or ‘a strong prima facie case’ in the context of in the exercise of a discretionary power to grant an interlocutary injunction leads to confusion as to the object sought to be achieved by this form of temporary relief. The Court, no doubt, must be satisfied that the claim is not frivolous or vexatious, in other words, that there is a serious question to be tried. When once the court comes to the conclusion that there is a serious question to be tried, what is of materiality is the consideration of the balance of convenience and if the balance is fairly even, then it may not be improper to take into account, in tipping the scales, the relative strength of each party's, case. In assessing the balance of convenience the nature of injury which the applicants would suffer if the injunction is not granted and they turn out to be right at the trial on the one hand should be juxta-posed with the hardship that the respondents would suffer if the injunction is granted and if they turn out to be right at the trial. Again the words of Lord Diplock in the American Cynamid Case are worth recalling:
“…The object of the interlocutory injunction is to protect the plaintiff against injury by violation of his right for which he could not be adequately compensated in damages recoverable in the action if uncertainty were resolved in his favour at the trial; but the plaintiff need for such protection must be weighed against the corresponding need of the defendant to be protected against injury resulting from his having been prevented from exercising his own legal rights for which he could not be adequately compensated under the plaintiff's undertaking in damages if the uncertainly were resolved in the defendant's favour at the trial. The court must weigh one need against another and determine where “the balance of convenience” lies”.
The burden of establishing, that the inconvenience which the applicants will suffer by refusal of the injunction is greater than that the respondents will suffer, if it is granted lies clearly on the applicants. It is seen that the allottees who are alleged to be nominees of the Indrasen group are not impleaded in this action. It is not also averred that the intrinsic or break-up value of the share is not any where near about Rs. 10. After a careful and anxious consideration of the matter and subject to the conditions which I propose to impose, I must hold that this burden has not been discharged by the applicants. The applicants have not shown as to how and in what manner the species of injury known to law as irreperable would be occasioned to them if the holding of the annual general meeting is not restricted. They are also unable to establish that the injury and hardship resulting to the respondents by the issue of an order of injunction would not be greater than the injury that may result to the applicants by the denial of the order.
11. Sri Ray drew my attention to two decisions in support of his contention that notwithstanding the conditions suggested by Sri Sundaraswamy, the meeting should not be allowed to be held. First was in Punt v. Symons & Co., Limited (1903 (2) Ch. D. 506) where it was held that where shares had been issued by, the directors, not for the general benefit of the company, but for the purpose of controlling the holders of the greater number of shares by obtaining a majority of voting power, the principle in Fraser v. Whally, applied and that the directors ought to be restrained from holding the meeting at which the votes of the new shareholders were to have been used. In the said case the finding that the allotment of shares impugned therein was in violation of fiduciary obligation of the Board of Directors and was in fact, for collateral purpose was arrived at on evidence. In the presents case, we are at the stage of interlocutory orders and trial is yet to commence. Findings on matters such as malafides, fraud and bad faith cannot, generally, be arrived at on mere affidavits. The matter has to go for trial and I am therefore reluctant to take into account the merits of the case at this stage to come to a conclusion which detracts from what an assessment of the balance of convenience in the case suggests.
12. The next decision cited was the decision of the Supreme Court in Nanalal Zaver v. The Bombay Life Assurance Co. Ltd.(2) where it was held that the object of the provision in 105C in the 1913 Act was to prevent discrimination amongst shareholders and to prevent the directors from offering shares etc., before they offered to the shareholders. It has pointed out that so long as these two requirements were complied with, the action of the directors in selecting the time when they will issue the shares as also shares as also the proportion in which they should issue is a matter left entirely to their discretion and it is not the province of the court to interfere with the exercise of that discretion. This power of the directors, it was however made clear, was subject to the general exception that the directors were not to act against the interests of the company or malafide. In pressing this ruling into service, the learned counsel would virtually ask me to hold that the allotment in the present case is, in fact, malafide. That is precisely the matter to be gone into at the trial and as stated earlier what is of materiality at this stage is the consideration as to the balance of convenience or inconvenience and hardship. I, therefore, hold that applicants have not made out a case for an order of stay of the annual general meeting to be held on 23rd June 1977.
13. However, Sri Ray submitted that in the event of the annual general meeting is to be held, it should not be held under the Chairmanship of any of the present respondents and that a member of the Bar may be appointed to act as Chairman, to preside over and conduct the deliberations of the said meeting and submit a report of the proceedings to this court. Sri S.G Sundaraswamy, fairly, accepted this suggestion. By consent of the learned counsel on both sides, Sri M.P Chandrakantaraj Urs, learned High Court Government Advocate, is appointed to act as Chairman of the Annual General Meeting of the company to be held tomorrow. Sri Urs who is present in court signified his consent, to act as such Chairman. It is directed that the officers-in-charge of the affairs of the company will provide all the necessary assistance to Sri Urs in discharge of his function as Chairman of the meeting. Sri Urs shall be entitled and at liberty to appoint such persons as scrutineers, as may, in his opinion, be necessary. The voting shall be by taking poll; it shall not be by show of hands. The Chairman shall submit a report of the proceedings of the said meeting before 27th June, 1977.
14. It was next urged by Sri Ray that having regard to the protracted litigation between the parties pertaining to the ensuing meeting and having regard further to the fact that between 2nd June 1977 and 18th June 1977 there was an order of injunction issued by the Calcutta High Court staying the holding of the meeting; it was only fair to the shareholders that there be a direction of the court affording an opportunity to them, to exercise their votes by proxy and that time for deposit of the proxies, not already so deposited, be extended till 1-30 p.m on 23rd June 1977. I consider this submission reasonable and order accordingly. The proxies, not already deposited, shall however be deposited with the Chairman-designate of the meeting at his Chambers in the High Court premises before 1.30 p.m on 23rd June 1977.
14. So far as the extra-ordinary general meeting scheduled for 24th June 1977 which is the subject matter of the prayer at clause (o) is concerned, by consent of both the parties, there will be an order staying the said meeting.
15. In the result, this application is so far as interim reliefs prayed for in clauses (n) and (o) are concerned, is disposed of in the light of the directions contained in this order. There will be no order as to costs.
16. In respect of other interim-prayers contained in the application, first respondent-company will file its counter on or before 4th July 1977. Let the application be posted for further order oil 8th July 1977. In the meanwhile applicants will take out emergent notices to the other respondents.
17. Copies of this order be made available to Sri M.P Chandrakantraj Urs and to the learned counsel for the applicants and of the Company before 2 p.m on 23rd June 1977.