Case: Victor Fernandes & Others Vs. Raghav Bahl of Noida & Others

AnoopV. Mohta, J.The Appellants (original Plaintiffs) appealed against an order dated 8 August 2008 passed by the learned Single Judge in Notice of Motion No.3232 of 2006 in Suit No.2709/2006, whereby no ad-interim reliefs as prayed in the Notice of Motion dated 18 September 2006 is granted in a Suit filed on 25 August 2006 by invoking a doctrine of derivative action.2. The derivative action/Suit by the minority is permissible and/or available mode if it is in the interest of the company and its shareholders. The welfare and interest of the company is the main purpose of such derivative action, but it should be in good faith and bonafide as it affects the interest of all shareholders. There is no specific statutory provisions for such derivative action in India. But it is a permissible mode for the minority directors or shareholders to check and control unfair, influential, malafide action for personal gain by the others which is not in the interest of company. The majority decision that itself is not sufficient to retain the company action in every matter, but an unfair action, inefficient management and self-dealing though by the majority directors, supported by material evidence and documents, the interim order or protection can be granted by the Court, in the interest of the company. The basic principles of law of grant of interim relief or injunction are also applicable including prima facie case, bonafide action, without latches or delay apart from the balance of convenience and injury to the parties. In the present case, the same are missing. Therefore, we are dismissing this Appeal on the following facts and reasons.3. The learned Single Judge has recorded the basic facts and the prayers in the following words:"The Plaintiffs have filed this Suit as a derivative action on behalf of defendant No.3, e-Eighteen.com Limited. It is not necessary for the purpose of the present notice of motion to set out the precise shareholding of the parties herein in Defendant no.3. Suffice it to state that Defendant Nos.1 and 2 together control 92.83% of the equity shares of Defendant No.3. The plaintiffs together control about 6.38% of the equity of Defendant No.3. Defendant Nos.4 to 10 are all companies directly and/or indirectly controlled, managed and owned by Defendant Nos.1 and/or 2.""The Plaintiff has sought a permanent injunction restraining the first defendant from undertaking or pursuing or taking up any expansion, development or evolution of the activities or exploiting any opportunity offered to defendant Nos.1 to 3 after 12.9.2000 to any entity other than defendant no.3 or its wholly owned subsidiary; a permanent injunction restraining defendant Nos.1 and 2 from in any manner carrying on the businesses in respect of the activities listed in paragraph 11 of the plaint or utilising any of the domain name or names listed in paragraph 11 and exhibit "D" to the plaint except to Defendant n.3 or its wholly-owned subsidiary.""The Plaintiffs have also sought a decree directing defendant Nos.1 and 2 to disclose the businesses started after 12.9.2000 by them directly or through any other entity controlled by them other than defendant no.3 and to transfer to defendant no.3 all such businesses along with all the assets and properties belonging to such businesses, activities and ventures as so disclosed and to render accounts of all the profits and to such businesses ventures or activities commenced after 12.9.2000 in violation of an agreement dated 12.9.2000 whether directly or through any other company or entity owned or controlled by Defendant Nos.1 and 2. Upon such accounts being rendered a decree is sought for paying over to defendant no.3 the amounts of such profits together with interest. Finally, the Plaintiffs have sought an order directing defendant Nos.1 and 2 to get the shares of defendant no.3 listed on a stock exchange. The Notice of Motion is filed for interim reliefs in terms of some of the above reliefs."4. We have gone through the pleadings and the documents on record and heard the respective submissions of the learned Senior Counsel appearing for the parties. Mere allegations of fraud or conspiracy or misrepresentation are not sufficient. Apart from above prayer clauses, the basic averments with regard to the allegations though made in paragraph 11 but there are no particulars/ materials /details provided. Mere allegations and/or averments are not sufficient to grant any interim or ad-interim relief, as sought, in the present case, by the Plaintiffs. The alleged defaults, misrepresentations and/or loss or damages caused to the company if any, need to be stated in a clear terms with supporting documents and the particulars. The vague allegations or averments made in the Petition, therefore, in our view, cannot be a basis to grant interim relief as sought in the present matter at this stage.5. The learned Single Judge has considered the basic agreements and documents placed on record along with the averments made in the plaint/affidavit in support of the Notice of Motion and by detailed reason in paragraph 7 to 11 dealt with the aspect of understanding or reason for such undertakings to be furnished by the majority of shareholders to the minority shareholders, by giving proper interpretation to the clauses/Articles of the agreement/documents as relied and referred by the Plaintiffs. It is also observed that Article 6.6.1 read with the form and the letter was not intended to create any rights of the existing shareholders but to protect for the benefit of this VC Investors. The Plaintiffs did not step into the shoes of the VC Investors under Clause 7 of the Shareholders as investors. The Share purchase agreement was terminated in March 2003. On 7 March 2003 the VC Investors sold their shares to Defendant No.1. Defendant No.3 purchased the said shares for consideration. The agreement dated 12 September 2000 was terminated in view of the subsequent agreements and letter.6. The learned Single Judge has rightly rejected the submission that the agreement dated 12 September 2000 could not have been terminated without preferring reference to them. There is nothing to indicate that any Plaintiffs or any of them steps into the shoes of VC Investors. The termination order was never challenged. Even otherwise, the personal rights of the Plaintiffs cannot be the subject matter of a derivative action, which needs to be for the benefit of the company. There is nothing, except bare averments, to show that Defendant No.1 was acting contrary in the interests of Defendant No.3. Even otherwise, there is nothing that prevents Defendant Nos.1 and 2 from carrying on other businesses, either individually or otherwise. The learned Single Judge has also observed that mere carrying on the businesses or ventures is not and cannot be detrimental to the interests of Defendant No.3. Therefore, in view of above reasonings and also for the reason that there were no particulars provided and all the allegations so made are vague, the learned Single Judge is right in rejecting the Notice of Motion.7. The learned Senior Counsel appearing for the Defendants has also pointed out that the Plaintiffs in fact by notice dated 3 May 2006, specifically reserved the rights to claim appropriate damages for the loss and damages if caused by the concerned Defendants, as a result of various acts of commission and/or omission, this itself means the Plaintiffs are not entitled for any interim relief, by invoking doctrine of derivative action.

Decision:
0[ds]Mere allegations of fraud or conspiracy or misrepresentation are not sufficient. Apart from above prayer clauses, the basic averments with regard to the allegations though made in paragraph 11 but there are no particulars/ materials /details provided. Mere allegations and/or averments are not sufficient to grant any interim orrelief, as sought, in the present case, by the Plaintiffs. The alleged defaults, misrepresentations and/or loss or damages caused to the company if any, need to be stated in a clear terms with supporting documents and the particulars. The vague allegations or averments made in the Petition, therefore, in our view, cannot be a basis to grant interim relief as sought in the present matter at this stage.5. The learned Single Judge has considered the basic agreements and documents placed on record along with the averments made in the plaint/affidavit in support of the Notice of Motion and by detailed reason in paragraph 7 to 11 dealt with the aspect of understanding or reason for such undertakings to be furnished by the majority of shareholders to the minority shareholders, by giving proper interpretation to the clauses/Articles of the agreement/documents as relied and referred by the Plaintiffs. It is also observed that Article 6.6.1 read with the form and the letter was not intended to create any rights of the existing shareholders but to protect for the benefit of this VC Investors. The Plaintiffs did not step into the shoes of the VC Investors under Clause 7 of the Shareholders as investors. The Share purchase agreement was terminated in March 2003. On 7 March 2003 the VC Investors sold their shares to Defendant No.1. Defendant No.3 purchased the said shares for consideration. The agreement dated 12 September 2000 was terminated in view of the subsequent agreements and letter.6. The learned Single Judge has rightly rejected the submission that the agreement dated 12 September 2000 could not have been terminated without preferring reference to them. There is nothing to indicate that any Plaintiffs or any of them steps into the shoes of VC Investors. The termination order was never challenged. Even otherwise, the personal rights of the Plaintiffs cannot be the subject matter of a derivative action, which needs to be for the benefit of the company. There is nothing, except bare averments, to show that Defendant No.1 was acting contrary in the interests of Defendant No.3. Even otherwise, there is nothing that prevents Defendant Nos.1 and 2 from carrying on other businesses, either individually or otherwise. The learned Single Judge has also observed that mere carrying on the businesses or ventures is not and cannot be detrimental to the interests of Defendant No.3. Therefore, in view of above reasonings and also for the reason that there were no particulars provided and all the allegations so made are vague, the learned Single Judge is right in rejecting the Notice of Motion.7. The learned Senior Counsel appearing for the Defendants has also pointed out that the Plaintiffs in fact by notice dated 3 May 2006, specifically reserved the rights to claim appropriate damages for the loss and damages if caused by the concerned Defendants, as a result of various acts of commission and/or omission, this itself means the Plaintiffs are not entitled for any interim relief, by invoking doctrine of derivative action.