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CASE NO.: Appeal (civil)  4796 of 1997

PETITIONER: National Organic Chemical Industries Limited  

RESPONDENT: Miheer H. Mafatlal & Anr.

DATE OF JUDGMENT: 21/07/2004

BENCH: N. Santosh Hegde, S.B. Sinha & A.K. Mathur.

JUDGMENT: J U D G M E N T

(With C.A. No. 4797/1997 and C.A. No. 4798/1997)

SANTOSH HEGDE, J.

CA No.4796/97 :

       This appeal with permission of this Court has been filed  by the  appellant against a judgment of the High Court of Gujarat at  Ahmedabad whereby a cross objection filed in O.J. Appeal No. 16 of  1994 in Company Petition  No. 22 of 1994 by Mafatlal Industries   Limited (MIL) the appellant  in the connected appeal herein was  dismissed, confirming  certain finding  given by the Learned Company  Judge in Company Petition No. 22 of 1994  in a petition seeking   sanction  of Amalgamation  Petition under Section 391 of the  Companies Act.

       Brief facts necessary for the disposal of this appeal are as  follows :-

       The appellant herein is a  Public Limited Company having its  registered office  in Mumbai. Certain shares of M.I.L  were allotted  to  the appellant.  The allotment  of the said shares was challenged by 3  members of the M.I.L. in 2 suits  in City Civil Court, Ahmedabad being  Suit No. 3181 of 1987 and Suit No. 3182 of 1987. The appellant herein    was not a party  in that suit. The plaintiff in that suit  obtained  an  order of interim injunction from the City Civil Court, Ahmedabad, inter  alia directing  MIL to maintain status-quo in respect of the allotment  of shares,  said order was made on 27-6-1987.  During the currency of  the said interim order the MIL made a Rights Issue which doubled the  holding  of the appellant herein  bringing the title holding of the  appellant in MIL to about 3% of the total shareholding.   MIL made an  application for approving a Scheme  of  Amalgamation  before the  Company Court  of the Gujarat High Court under Section 391  of the  Companies Act in the month of November, 1994.  It is seen  from the  record that the said Scheme  had received  approval of more than 94%  of shareholders of the MIL which is much beyond  the statutory  requirement under the Companies Act.  In the said petition for  approving the Amalgamation  Scheme,  the first respondent  herein  questioned  the allotment of shares by MIL to the appellant herein.   Though, such allotment  was made very  much earlier to the proposed  Amalgamation  Scheme. The contention  of the 1st respondent  before  the Company Court was that the shares allotted  to the appellant   were, inter alia, in contravention  of the injunction  issued by the City  Civil  Court.  It is to be  noted at this stage  that the appellant  was  not a party to the proceedings  before the Company Judge,  in the  proceedings for approval of the Scheme under Section 391 of   Companies Act. The Learned Company Judge  whose jurisdiction under

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Sections 391 to 394 was limited to either approving  or not approving  the Scheme filed before  him for amalgamation, by his order dated   14-11-1994 sanctioned  the said Scheme  on Amalgamation, he also  came to the conclusion  that even if the  votes cast  by the appellant  were to be  excluded  from consideration the proposed Scheme  had  the support  of the requisite majority in the General Body of the MIL.  Hence, the objection of the 1st respondent  in regard to the proposed  Scheme of Amalgamation  was not sustainable. However, the Learned  Single Judge  gave  a finding that the allotment of shares in favour of  the appellant was in breach  of the injunction  order of the City Civil  Court.

       Against the said order, the 1st respondent  herein and MIL filed  original appeal (OJ No. 16 of 1994) and cross appeal before the  Division Bench of the said High Court. Even in the said appeal the  appellant  was not made a party.  The Appellate  Bench dismissed the   challenge  of the 1st respondent  for the grant of approval to the  Amalgamation Scheme  but confirmed the findings  of the Trial Court  that the allotment of the shares in favour of appellant  by the MIL  was in contravention of the injunction  order. The approval of the  scheme of amalgamation has since become final.  

       In this appeal the appellant who is directly affected  by the  findings  of the Learned Company Judge as well as the Appellate Court  after obtaining  permission to file S.L.P. and leave to appeal is  challenging  the said finding before us.  

       Learned Senior Counsel appearing for the appellant herein raised   the following contentions  for our consideration :-

1.      In a Section 391-394 petition, the Company Court could have  only decided  the question as to grant of sanction  or reject   the Scheme  of Amalgamation placed before it.

2.  The Company Court could not have gone into the question of        title  of individual   shareholders   in  a  proceedings  under         Sections 391-394.

3.   In any event, in the present case, as a Scheme  was approved        by   well    over   75%    in  value  of  the  shareholders in the             General      Body     Meeting    even    after    excluding    the         Shareholding   of  the  Appellant  the  issue  of   validity  of         allotment of shares to the  Appellant   did  not  arise. Hence,        the Company Court could not have gone into the question of         title of appellant’s share in MIL.

4.      Under the Companies Act a person could assail the  allotment of shares only by a petition for rectification  under Section 155 of the Companies Act as it stood at the  relevant time and no such petition having been filed  at  that time, a challenge  to the allotment  of share in favour   of the appellant  had become time barred by December,  1990.  Hence, it was not open to the Company Court to go  into the validity of the issuance of the shares  by the MIL  in favour of the appellant.   At this stage,  we must  notice in spite of service of notice  through publication in newspapers, the respondent  has not chosen  to  appear and contest  the case.  We are also told that so far as the  allegation of violation of the injunction  granted by the City Civil Court  is concerned, the same  is being adjudicated in the said Court by  initiating  contempt proceedings by the concerned  parties and it is  still pending.

Learned Counsel  for the appellant in this appeal apart from the  above recorded arguments, contends that the appellant will be

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seriously affected by the findings recorded by the Company Court as  well as by the Appellate Court in regard to the violation  of the  injunction order which in turn affects the title of the appellant  over  the shares held by it in MIL. He submitted that the appellant  has not  been made a party either  to the suit, the Company Petition  or in  appeal and in spite of  the same,  adverse order has been passed  affecting its right. He also contends that the Company Court had no  jurisdiction  whatsoever to have  gone into the question of validity of  the transaction  between the appellant MIL in an Amalgamation   Proceedings where the scope of enquiry is only to  examine whether   the  statutorily required members of the Company  have approved the  Scheme or not.  It was pointed out from the findings of the courts  below that the Scheme has been approved by more than 75% of the  members of the MIL even excluding the voting strength of the  appellant.  

Having heard the learned Counsel for the appellant  in this  appeal and the connected appeals  we are satisfied  that the courts  below in the impugned order  have gone far beyond  their jurisdiction   by giving findings  as to the validity  of shares acquired by the  appellant.  Before the Company Court this issue  did not arise at all    consequently,  even before  the Appellate Court this question did not  arise. The question whether the transfer  of shares by the MIL to the  appellant was in contravention  of the interim order of injunction   granted by the City Civil Court or not,  is a matter  to be  decided by  the City Civil Court in the pending proceedings  before it and it could  not have been decided in an alien proceedings   before the Company  Court. There was no  statutory  need to have decided  this issue while  dealing with the application  for approval of the Scheme under Section  391 of the Companies Act, indeed, that issue did not arise  before the   Company Court.  That apart   basic principles  of natural justice are  violated  by the courts below in deciding an issue against the appellant  in proceedings to which the appellant  was not even party. By this  finding, the appellant’s right  to hold shares in the MIL  gets affected  and even the question of violation of the terms of injunction on facts  of this case, was not a matter before these forums.  Therefore, we  are of the considered opinion that the findings  given by the Company  Court as affirmed by the Appellate Court as to the violation of the  injunction order  also as to the validity  of the transfer  and the title   of the appellant over the shares held by  it  in the MIL being findings  which are  made beyond the jurisdiction of the courts below, we have  no hesitation in setting aside  these findings.  This issue  as to the  violation  of  injunction order or any other issue pertaining to the  validity  of title of the shares transferred in favour of the  appellant  by MIL is a matter  if at all, to be decided by the City Civil Court in  the pending suits if it arises for consideration.  Therefore, we allow   this appeal, set aside the findings impugned in this appeal.   

Civil Appeal Nos. 4797  and 4798 of 1997 :-   In view of the judgment  rendered  in C.A. No. 4796 of 1997,  these appeals are also allowed.