IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HON'BLE THE ACTING CHIEF JUSTICE MR.J.B.KOSHY & THE HONOURABLE MR. JUSTICE THOMAS P.JOSEPH FRIDAY, THE 2ND JANUARY 2009 / 12TH POUSHA 1930 WA.No. 2086 of 2008 --------------------- AGAINST THE JUDGEMENT IN WPC.27183/2007 Dated 29/09/2008 .................... APPELLANT/RESPONDENT: ------------------- V.O.JOHN, S/O.V.K.OUSEPH, AGED 49, VAZHAPARAMBAN HOUSE, KONIKKARA P.O, THRIKKUR VILLAGE, THRISSUR DISTRICT. BY ADV. SRI.K.P.DANDAPANI (SR.), ADV. SRI. MILLU DANDAPANI RESPONDENTS/PETITIONERS: ----------------------- 1. M/S.CATHOLIC SYRIAN BANK LTD,THRISSUR, REP.BY ITS CHAIRMAN, R.VENKITARAMAN, CATHOLIC SYRIAN BANK LTD, ST.MARYS COLLEGE ROAD,THRISSUR. 2. R.VENKITARAMAN,CHAIRMAN, CATHOLIC SYRIAN BANK LTD, ST.MARYS COLLEGE ROAD,THRISSUR. 3. K.P.MOHANKUMAR, CATHOLIC SYRIAN BANK LTD, ST.MARYS COLLEGE ROAD,THRISSUR. R1 TO R3 BY ADV. SRI.P.SANTHALINGAM (SR.) & SRI.S.SHARAN THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 18.12.2008, THE COURT ON 02/01/2009 DELIVERED THE FOLLOWING: J.B.Koshy, Ag. C.J. & Thomas P. Joseph, J. -------------------------------------- W.A. No.2086 of 2008 -------------------------------------- Dated this, the 2nd January, 2009 JUDGMENT Koshy, Ag. C.J.: The first respondent bank is registered as a Banking Company with an authorised share capital of Rs.100 Crores. Now the bank is having 344 branches throughout India with 9 Zonal Offices. The appellant is a shareholder of two hundred shares with a face value of Rs.10/- each. At present, there are 10,87,79,655 equity shares of Rs.10/- each, held by about 28,000 share holders. The Reserve Bank of India has issued directions to the bank to fulfil the requirement of attaining a minimum net worth of Rs.300 Crores on or before 30.9.2007. Ext.P1 is the communication of the Reserve Bank of India to that effect. Even before issuance of the above communication, the Reserve Bank has also formulated guidelines on ownership and governance in private sector Banks as can be seen from Ext.P2. Being a mandatory requirement, the Bank decided to increase the Subscribed Capital by further issue of shares by offering right shares to the existing share holders. Ext.P3 special resolution was passed unanimously at the Annual General Meeting held on 30.6.2006 to achieve the above purpose. Accordingly Ext.P4, letter of offer, offering 1,02,26,307 equity shares of Rs.10/- each at a premium of Rs.110/- per share, but adding a rider that the option for renunciation could be exercised only in favour of existing W.A.No.2086 of 2008 - 2- shareholders of the bank was issued. Ext.P3 would show that Resolution No.10(i) authorised and empowered the Board of Directors of the Bank to issue further shares of the Bank by way of Right Issue, Private Placement, Preferential or Firm allotment, Public Issue or by anyone or more of the above methods. Resolution No.10(ii) shows that the Board of Directors was also authorised as per Section 81 (1A) of the Companies Act (for short, “the Act”) to issue shares through private placement on preferential basis as per Rule 4 of the Unlisted Public Companies (Preferential Allotment) Rules, 2003. The above rule provides for issue of shares on preferential basis on specific conditions only - (i) There should be an authorisation under Articles of Association (ii) There should be a special resolution passed by the members in the General Body Meeting. Here the special resolution was passed authorising the Board of Directors to raise additional capital by issue of equity shares on preferential basis and/or through private placement. Resolution 10(i) reads as follows: “RESOLVED pursuant to Section 81(1-A) and other applicable provisions, if any, of the Companies Act, 1956 or any statutory amendment/modification or reenactment thereof from time to time in force and the relevant provisions of the Articles of Association of the Bank, that the Board of Directors of the Bank be and is hereby authorised and empowered to offer, issue and W.A.No.2086 of 2008 - 3 - ` allot all or any of the remaining unissued 6,59,04,921 equity shares of Rs.10/- each and 20,00,000 preference shares of Rs.100/- each in the capital of the bank at par or at such premium, at such time and on such terms and conditions as the Board may determine including by way of conversion of Debt into Equity, to any person or persons who may include Non-Resident Indians, Foreign Institutional Investors, Overseas Corporate Bodies, Financial/Investment Institutions, Qualified Institutional Buyers, Banks, Mutual Funds, other Bodies Corporate, Other Entities, whether domestic or Foreign, Employees and/or any other persons/individuals whether or not those persons/individuals/institutions include the holders of equity shares in the Bank, by way of Rights Issue, Private Placement, Preferential or Firm allotment, Public Issue or by any one or more of the above methods, whether on the same terms and conditions or with varying terms and conditions and whether at one time or from time to time or in such manner and on such terms and conditions, whatsoever as may be deemed appropriate by the Board of Directors”. (emphasis supplied) Thereafter Resolution 10(ii) was passed in pursuance of Rule 4 of the Unlisted Public Companies (Preferential Allotment) Rules, 2003 read with Section 81(1A) of the Act and subject to the approval of the Reserve Bank of India to authorise the Board of Directors to issue such number of equity shares on such terms and conditions as may be deemed appropriate. This is evident from Ext.P3. Ext.P4, W.A.No.2086 of 2008 - 4- letter of offer was issued as soon as the stay issued by the Company Law Board was vacated and the Reserve Bank of India gave permission. Articles 37 and 38 (1) of the Articles of Association also provide for increase in share capital subject to the directions issued by the Company in the General Meeting in a special resolution effecting increase of capital. In Ext.P4, letter of offer with regard to the renunciation of shares, the following restriction was imposed: “..the Board of Directors after considering the legal opinion received by the Bank on the scope of the first proviso to Section 67 (3) of the Companies Act, 1956, getting attracted to the present Rights Issue, have decided to restrict the option for renunciation exercisable only in favour of the existing shareholders of the Bank so that the rights offer, even remotely, does not become and cannot be treated as an offer made to the public.”. 2. The appellant along with 103 other share holders filed an application (C.P. 36/2006) under Section 397 and 398 of the Act before the Company Law Board, alleging oppression and mismanagement by imposing such restrictions on the basis of Resolution No.10(ii) under Section 81(1A) of the Act. An interim order was passed on 29.6.2006 by the Company Law Board restraining the issue of shares but it was vacated on 30.6.2006 itself by Ext.P5 order and the Company Law Board also held that the bank W.A.No.2086 of 2008 - 5 - ` is at liberty to implement the resolution passed at the Annual General Meeting held on 30.6.2006 pursuant to item No.10 of the notice dated 31.5.2006 and posted the case for further hearing. C.P.36 of 2006 filed alleging oppression and mismanagement was dismissed as withdrawn by order dated 15.2.2008. Immediately after vacation of the interim order and passing of Ext.P5 order, petitioner-Bank approached the Reserve Bank of India for permission to issue the right shares in implementation of the resolution passed in the Annual General Meeting and though there was some delay, immediately on getting the consent, the offer of Rights Share was issued by Ext.P4, letter of offer dated 27.7.2007. As per the above offer, Issue of Share was to open on 15th August, 2007 and the Issue was to close on 29th August, 2007. Appellant filed a suit (O.S.No.2141/2007) before the Munsiff's Court, Thrissur to restrain the Bank from proceeding further with Rights Issue in pursuance of Ext.P4, letter of offer and for other incidental reliefs. It is stated in Ext.P6, plaint that the cause of action for that suit arose on 23.7.2007 when the offer was published in the Malayala Manorama Daily and on 11.8.2007 on which day, appellant (plaintiff in the suit) obtained letter of offer received by another shareholder. According to the appellant, the above Rights Shares were issued in violation of Sections 67 and 89(1) of the Act. In the suit, the court W.A.No.2086 of 2008 - 6- fee paid is only Rs.20/- showing the valuation for the prayer as Rs.500/-. Appellant also prayed for temporary injunction vide I.A.No.77669 of 2007. 3. The bank, opposing that application inter alia contended that offer of Rights Shares is issued perfectly in accordance with the law. It was issued on the basis of the Special Resolution in the Annual General Meeting unanimously. The Board of Directors was given the power to restrict the sale of shares to the existing share holders as per the above resolution and therefore, there is no violation of the provisions of the Act. It was also contended that the suit is not maintainable, that after filing a petition for alleged oppression and mismanagement of the company under Sections 397 and 398 of the Act before the Company Law Board and obtaining an interim order against it, it cannot approach the civil court for the same relief merely because the petition filed before the Company Law Board was withdrawn. It was further contended that only the Company Law Board can interfere in the matter, the matter is within the exclusive jurisdiction of the Company Law Board and hence the suit is not maintainable and the civil court had no jurisdiction over the matter. It is also pointed out that the suit was filed by paying court fee of Rs.20/- with a valuation of Rs.500/- by which the issuance of shares worth more W.A.No.2086 of 2008 - 7 - ` than Rs.2 crores, if got stayed would cause irreparable loss and hardship, as no other shareholder out of 28000 shareholders challenged the above offer. It is also contended that when there is an effective remedy of approaching the Company Law Board, approaching the Civil Court is not at all justified and, if the Reserve Bank's direction to increase the share capital is not allowed, the Bank's future also will be affected. Learned Munsiff found that the petition before the Company Law Board was not maintainable and that the suit is maintainable. It was further held that there is violation of Section 81(1)(c) of the Act, and therefore by Ext.P9 order, the injunction order already passed was affirmed. Ext.P9 order was challenged by the Bank in a writ petition on the very same contentions raised in the civil suit. According to the appellant, if the order of the civil court is anyway illegal, it could have availed the appellate remedy instead of filing a writ petition under Articles 226 and 227 of the Constitution of India (for short, “the Constitution”). It is contended that if there is any vitiating factor in Ext.P9 injunction order passed by the civil court, the remedy of the Bank was to approach the appellate court as provided under Order XLIII, Rule 1 of Code of Civil Procedure (for short, ”the Code”). Since efficacious remedy is available, the writ petition is not maintainable. W.A.No.2086 of 2008 - 8- 4. By the impugned judgment, learned Single Judge found that prima facie the civil court has no jurisdiction. It is stated that, there is no violation of the mandatory provisions of the Act in the issue of Rights shares. Learned Single Judge observed that: “If better materials are supplied, the question of jurisdiction can be considered at appropriate time by the learned Munsiff”. Learned Single Judge also noticed that the Company Law Board in its order dated 4.8.2006 in CP No.36 of 2006 has permitted the Bank to implement the resolution and allowed the bank to issue shares, the remedy of the appellant was to challenge that order as per the provisions of the Companies Act and not by filing a civil suit. In any event, while issuing the shares, prima facie there is no violation of the provisions of law and while passing Ext.P9 order, material provisions of law were not considered. Learned Single Judge by invoking the jurisdiction under Article 227 of the Constitution, set aside Ext.P9 order. It is stated at paragraph 10 of the impugned judgment as under:- “Since this Court is prima facie convinced of lack of jurisdiction as well as non consideration of a material provision of law which goes to the root of the matter jurisdiction is invoked under Article 227 of the Constitution of India to set aside Ext.P9 order.”. W.A.No.2086 of 2008 - 9 - ` This judgment is challenged by the appellant before this court by contending that the view of the learned Single Judge that civil court has no jurisdiction to entertain the matter is not correct, that there was violation of mandatory provisions of law while issuing the Rights Shares, that writ petition ought not have been entertained as it is not maintainable, etc.. Apart from the contentions raised earlier, the respondent Bank contended that by the impugned judgment, learned Judge exercised the jurisdiction under Article 227 of the Constitution, which is a supervisory jurisdiction, no writ appeal will lie against the impugned judgment and hence, the writ appeal is liable to be dismissed at the threshold itself. It is further contended that civil suit itself was dismissed subsequently as without jurisdiction based on the impugned judgment and therefore, Ext.P9 order has become invalid and the appeal is infructuous. 5. The first question to be considered is, whether the Writ Appeal is maintainable. The second question to be considered is, whether the view of the learned Single Judge that the suit is not maintainable is correct or not. Thirdly, if the suit is maintainable, whether against the injunction order(Ext.P9, a writ petition can be filed bypassing the remedy provided under the Code. The next question to be considered is, if the suit as well as the writ petition are maintainable, whether there is any violation of the mandatory W.A.No.2086 of 2008 - 10- provisions of the Act in issuing the shares, and whether any prejudice is caused so as to warrant interference under Article 227 of the Constitution. We shall consider these questions in seriatum. 6. The preliminary question for our consideration is, whether the Writ Appeal is maintainable when relief is granted by the learned Single Judge exercising supervisory jurisdiction under Article 227 of the Constitution. Section 5 of the Kerala High Court Act, 1958 provides as follows: “5. Appeal from judgment or order of Single Judge.-- An appeal shall lie to a Bench of two Judges from -- (i) a judgment or order of a Single Judge in the exercise of original jurisdiction; or (ii) a judgment of a Single Judge in the exercise of appellate jurisdiction in respect of a decree or order made in the exercise of original jurisdiction by Subordinate Court.” After considering the above provision, this question was considered by a Division Bench of this Court and it was held that supervisory jurisdiction under Article 227 is not an original jurisdiction and therefore, no writ appeal is maintainable. (See, Arumugham Chettiar v. Joseph, 1961 KLT 823; Union of India vs. Vijaya Mohini Mills, 1992 (1) KLT 404). Section 5 of the Kerala High Court Act provides for intra court appeal only against orders passed by a learned Single Judge under the original jurisdiction. The order W.A.No.2086 of 2008 - 11 - ` passed under Article 227 is under supervisory jurisdiction. After considering Clause 15 of the Letters Patent of the Bombay High Court, the Honourable Supreme Court in Umaji Keshao Meshram and Others vs. Radhikabai, AIR 1986 SC 1272, held that no appeal would lie against a Single Judge's order or judgment passed in exercise of the supervisory jurisdiction under Article 227 of the Constitution. The Full Bench of the Karnataka High Court (Bench consisting of Five Judges) in Gurushanth Pattedar v. Mahaboob Shahi Kulburga Mills, [AIR 2005 Kar. 377(FB)] also has taken the same view, after considering all the decisions and after considering an identical provision for appeal, i.e. Section 4 of the Karnataka High Court Act,1962. It was held that Article 227 of the Constitution confers power of superintendence over all courts and tribunals throughout the territory in relation to which the High Court exercise jurisdiction and such power of superintendence is administrative as well as judicial and is capable of being invoked at the instance of any person aggrieved or may even be exercised suo motu. It is equally needless to point out that there is difference between the writ of certiorari under Article 226 and the supervisory jurisdiction under Article 227 of the Constitution. The proceedings under Article 226 are in exercise of original jurisdiction of the High Court while proceedings under Article 227 are not original but only W.A.No.2086 of 2008 - 12- supervisory. By virtue of powers under Article 227, the High Court can keep subordinate courts and tribunals within the bound of their authority and not correcting mere errors. If the errors committed by the lower court or Tribunal are manifest and apparent on the face of the record based on clear ignorance and in utter disregard of the provisions of law causing grave injustice, the supervisory jurisdiction can be exercised under Article 227 to prevent injustice even when alternate remedies are available, though such actions are done very sparingly. Section 4 provides for an appeal to the Division Bench from the judgment of learned Single Judge if the judgment is passed in exercise of original jurisdiction and not in exercise of supervisory jurisdiction. The right of appeal is a statutory right and where the statute has provided for a right of appeal against the order passed by the learned Single Judge in exercise of its original jurisdiction, it has to be held that no appeal will lie against the order passed under Article 227 of the Constitution. In this case, even though the writ petition was filed under Articles 226 and 227 of the Constitution of India, the learned Judge while disposing of the writ petition expressly stated that he has interfered with the impugned order by exercising power under Article 227 of the Constitution of India. Since the impugned judgment is passed under Article 227 of the Constitution, a writ appeal is not maintainable. Therefore, we are W.A.No.2086 of 2008 - 13 - ` of the view that the writ appeal is not maintainable and is liable to be dismissed. 7. However, learned counsel for appellant argued that even though learned Judge has exercised jurisdiction under Article 227 of the Constitution, since the writ petition was filed under Articles 226 and 227 and many of the pleadings in the writ petition will attract the jurisdiction under Article 226, the writ appeal is maintainable. Learned counsel placed reliance on the decision of the Apex Court in Shahu Shikshan Prasarak Mandal and Another vs. Lata P.Kore and others [2008 (12) SCALE 792], wherein the Supreme Court has remanded the matter to the Division Bench of the High Court for deciding the question of maintainability of the writ appeal filed against a judgment passed by a learned Single Judge in a writ petition under Article 226 and 227 of the Constitution. In Umaji Keshao Meshram and Others vs. Radhikabai, 1986 (Supp) SCC 401, the Apex Court held as follows, at paragraph 107: “Petitions are at times filed both under Articles 226 and 227 of the Constitution. The case of Hari Vishnu Kamath v. Syed Ahmad Ishaque [AIR 1955 SC 233] before this Court was of such a type. Rule 18 provides that where such petitions are filed against orders of the Tribunals or authorities specified in Rule W.A.No.2086 of 2008 - 14- 18 of Chapter XVII of the Appellate Side Rules or against decrees or orders of courts specified in that rule, they shall be heard and finally disposed of by a Single Judge. The question is whether an appeal would lie from the decision of the Single Judge in such a case. In our opinion, where the facts justify a party in filing an application either under Article 226 or 227 of the Constitution, and the party chooses to file his application under both these articles, in fairness and justice to such party and in order not to deprive him of the valuable right of appeal the court ought to treat the application as being made under Article 226 and, if in deciding the matter, in the final order the court gives ancillary directions which may pertain to Article 227, this ought not to be held to deprive a party of the right of appeal under Clause 15 of the Letters Patent where the substantial part of the order sought to be appealed against is under Article 226. Such was the view taken by the Allahabad High Court in Aidal Singh v. Karan Singh (AIR 1957 All. 414) and by the Punjab High Court in Raj Kishan Jain vs. Tulsi Dass (AIR 1959 Punj. 291) and Barham Dutt v. Peoples' Cooperative Transport Society Ltd., New Delhi (AIR 1961 Punj. 24) and we are in agreement with it.” In Sushilabai Laxminarayan Mudliyar and Ors. v. Nihalchand Waghajibhai Shaha and Ors. 1993 Supp. (1) SCC 11, at paragraph 4, it was held by the Apex Court as follows: W.A.No.2086 of 2008 - 15 - ` “The Full Bench of the Bombay High Court wrongly understood the above Umaji Kesho Meshram case (supra). In Umaji case (supra) it was clearly held that where the facts justify a party in filing an application either under Article 226 or 227 of the Constitution of India and the party chooses to file his application under both these articles in fairness to justice to party and in order not to deprive him of valuable right of appeal the Court ought to treat the application as being made under Article 226 and if in deciding the matter, in the final order the Court gives ancillary directions which may pertain to Article 227, this ought not to be held to deprive a party of the right of appeal under Clause 15 of the Letters Patent where the substantial part of the order sought to be appealed against is under Article 226. Rule 18 of the Bombay High Court Appellate Side Rules read with Clause 15 of the Letters Patent provides for appeal to the Division Bench of the High Court from the judgment of the learned Single Judge passed on a writ petition under Article 226 of the Constitution. In the present case, the Division Bench was clearly wrong in holding that the appeal was not maintainable against the order of the learned Single Judge. In these circumstances we set aside the order of the Division Bench and direct that the Letter Patent Appeal filed against the judgment of the learned Single Judge would now be heard and decided on merits.”. W.A.No.2086 of 2008 - 16- Therefore, it was argued vehemently that the writ appeal is maintainable. 8. In this case, in the impugned judgment in the writ appeal, learned Single Judge has exercised jurisdiction under Article 227 and in view of the express statement regarding the same in the judgment, there is no doubt for the same. The earlier view that Article 226 will not lie against the orders passed by the Civil court and writ of certiorari cannot be issued against a civil court's order has undergone a significant change. After considering the decision of the nine member Bench of the Apex Court in Naresh Shridhar Mirajkar and others v. State of Maharashtra and another, AIR 1967 SC 1, wherein it was held that a writ of certiorari will not lie to quash the order of inferior court of civil jurisdiction and considering the decision of the Constitution Bench in T.C.Basappa v. T.Nagappa, AIR 1954 SC 440, and Naresh Shridhar Mirajkar's case (supra), the Supreme Court in Surya Dev Rai vs. Ram Chander Rai, 2003) 6 SCC 675, has held that, “19. Thus, there is no manner of doubt that the orders and proceedings of a judicial court subordinate to the High Court are amenable to writ jurisdiction of the High Court