spb/- 1 nma2619-06.sxw IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION NOTICE OF MOTION NO. 2619 OF 2006 IN COMPANY APPEAL NO. 11 OF 2010 (Lodg.no.2 of 2006) IN COMPANY PETITION NO. 106 OF 2005 1. Mr. Shobhit Rajan & Others ... Appellants/Applicants. V/s. 1. Akkadian Housing and Infrastructure Pvt. Ltd., and others. ... Respondents. --- Mr. M.S.Doctor a/with Ankita Singhania i/by M/s. Bachubhai Munim & Co. for the Appellants/Applicants. Ms. Fereshte Sethna a/with Mr. Shardul Singh i/by Duttmenon Dunmorr Sett for the Respondent Nos. 1 and 2. Mr. J.J.Bhat, Senior counsel a/with Mr. Shyam Mehta, Ms. Naira Variava i/by M/s. Federal & Rashmikant for Respondent Nos. 5,8 and 9. ----- CORAM : D. G. KARNIK, J. DATE : 16th MARCH, 2011. P.C. 1 Heard Mr. Doctor, learned counsel for the Applicants; Mr. Bhat, Senior Counsel for the Respondent Nos. 5, 8 & 9, supporting to the Applicants and Ms. F. Sethna for the Respondent Nos. 1 & 2. None appears for the other Respondents though served. spb/- 2 nma2619-06.sxw 2 This Notice of Motion is taken out by the Applicants under Rule 148 of the Bombay High Court (Original Side) Rules, (hereinafter referred to as “the Rules”) claiming compensation for the alleged loss suffered by the Respondent No.3 Company on account of an interlocutory order dated 4th May, 2006 passed by a Division Bench of this Court. 3 Applicant No.1 (Shobhit Rajan) and Respondent No.2 (Alnoor H. Jamal) promoted and formed a company by name Pantheon Infrastructure Pvt. Ltd., (Respondent No.3). The Applicant Nos. 2 to 5 and the Respondent Nos. 4 to 11 are the other shareholders of the Respondent No.3 Company. Disputes arose between the Applicant No.1 and the Respondent No.2 regarding management of the Respondent No.3 Company. It was the case of the Respondent No.2 that the Applicant No. 1, who was Managing Director of the Respondent No.3 Company, was disposing of the properties of the company either by way of sale or lease at the under valuation and siphoning of the moneys. The Respondent No.2 therefore, filed an Application under section 397/398 of the Companies Act, alleging oppression and mis-management, before the Company Law Board on 7th December, 2005. The Applicant No.1 as well as Respondent No.3 appeared before the Company Law Board (for short “the CLB) and filed separate applications for stay of the proceedings spb/- 3 nma2619-06.sxw before it under section 8 of the Arbitration and Conciliation Act, 1996 (for short “the Arbitration Act”). It was their contention that there was arbitration agreement between the parties and therefore, the proceedings before the CLB should be stayed. Before the said Application for stay could be taken up by the CLB for hearing, on an Application made by the Respondent No.2 the CLB passed an order dated 27th December, 2005, directing that any transfer of properties of the Respondent No.3 Company can be made only after placing such transfers for approval of the Board of Directors of the Respondent No.3. The CLB also directed that the Respondent No.2 shall be invited to the meetings of the Board of the Respondent No.3 Company. Aggrieved by the order, the Applicant No.1 alongwith others filed an Appeal, bearing Company Appeal No. 11 of 2010, challenging the order of dated 27th December, 2005 passed by the CLB. In the Appeal, by an Order dated 24th January, 2006, the High Court requested the CLB to dispose of the Application under section 8 of the Arbitration Act and further directed that till disposal of the said Application further proceedings pending before the CLB be stayed. It appears that the Respondent No.2 wanted to apply to the CLB for seeking an order of injunction but in view of the interim order passed by this court on 24th January, 2006, the CLB was not able to consider any other Application till the disposal of the Application under section 8 of the spb/- 4 nma2619-06.sxw Arbitration Act. The Respondent No.2 therefore, filed Company Application (Lodging) No. 410 of 2006 in this court for modification of its order dated 21st January, 2006. In the alternative, the Applicant prayed for an order of injunction, restraining the Respondent No.3 Company from disposing of its properties, pending the decision of the Appeal. By an order dated 4th of May, 2006 this court disposed of the application for modification (and in the alternative for injunction) filed by the Applicant but directed the parties to maintain status-quo till the CLB decided the Application under section 8 of the Arbitration Act. Ultimately, on 3rd July, 2006, the CLB dismissed the Application under section 8 of the Arbitration Act and with that the order of status -quo passed by this court came to an end. 4 It is the case of the Applicants that on account of the order of status -quo granted by this court on 4th May, 2006, the Respondent No.3 company could not lease out its properties till 3rd July, 2006 and consequently it suffered a loss of rent for the period between 4th May, 2006 and 3rd July, 2006. The present Application is made by the Applicants for a direction that the Respondent No.3 be compensated for the loss suffered by it on account of the order of status-quo obtained by the Respondent No.2 and on account of which the Respondent No.3 had spb/- 5 nma2619-06.sxw suffered a loss. 5 In the light of these undisputed facts it is necessary to consider whether the present Applicants are entitled for an order directing the Respondent No.2 to pay compensation to the Respondent No.3 under Rule 148 of the Rules. Rule 148 of the Rules reads as follows : R.148. Undertaking to pay damages to be given by party applying for interim reliefs :-- A party to whom interim relief has been granted shall, before the order is issued, unless the Court otherwise directs, give an undertaking in writing or through his Advocate to pay such sum by way of damages as the Court may award as compensation in the event of a party affected sustaining prejudice by such order. Rule 148 provides that where a party to a suit or proceedings on the original side of this court had obtained an interim relief from the Court, the order of interim relief shall not be issued unless the party gives an undertaking in writing or through his Advocate to pay such sum by way of damages as the Court may award as compensation in the event of a party affected sustains prejudice by such order of interim relief except where the court dispenses of giving an undertaking. In the spb/- 6 nma2619-06.sxw present case, it is to be noted that though interim order of status-quo was passed by this court on 4th May, 2006, the Respondent No.2 did not give any undertaking to the court to pay compensation to any party sustaining any loss by reasons of the order of status quo. As per Rule 148, the order of status -quo could not have been issued unless the undertaking was given. Since, the undertaking was not given, in my view, there is no question of enforcing on the undertaking which was not given under Rule 148. Ordinarily, if a party obtains an order of any interim relief wrongfully and thereby other party suffers a loss, the party who suffers from the interim order would be entitled to file a suit for damages on account tortuous action of the party in obtaining interim relief unlawfully and by suppressing material facts. In such a suit, the court would ordinarily be required to consider whether the order of injunction was obtained illegally or by mentioning wrong facts or by suppressing material facts and whether at all that amount to a tort. Rule 148 of the Rules appears to be an exception to the general rule in the sense that the court requires an undertaking to be given to it before grant of an interim relief. This is to avoid further litigation of a suit for recovery of damages for wrongfully obtaining interim relief in false grounds. In the present case, admittedly, the undertaking was not given and in the circumstance in my opinion, Rule 148 would not come to an aid of the spb/- 7 nma2619-06.sxw applicant. The remedy of the applicants, if at all there be any, would lie in a suit for damages. 6 Even otherwise, in my view, present application is not maintainable. It is the case of the applicant that because of an injunction, the Respondent No.3 Company was not able to let out its properties during the period between 4th May, 2006 to 7th July, 2006 and consequently, the Respondent No.3 Company suffered the losses. Under Rule 148 of the Rules, it is the Respondent No.3 who, being a party to the application and who is alleged to have suffered a loss, could have made the application under Rule 148. The present applicants, who are shareholders and some of whom are directors and one of whom is the managing director are not entitled to make an application for compensation. Nearly two centuries ago, in Foss vs. Harbottle (1843) 2 HARE 461 : 67 E R 189, the Court ruled that a distinct person the company can own property, have rights and be subject to liabilities, and it does not hold its property merely as an agent or transferee for its members and they cannot sue individually or collectively to enforce rights which the company has against third persons otherwise than in exceptional circumstances (see page 36, Perningtons Company Law, Eighth Edition). For a loss or damage caused to the company or a wrong spb/- 8 nma2619-06.sxw done to it only the company can sue and the shareholders cannot bring an action in their name of and/or for the company. A few exceptions have since been recognized to the rule in Foss vs. Horbottle (supra). One of the well recognized exception to the Rule in Foss vs. Hobottle is where a wrong is done to the company and the wrongdoers themselves are in control of the company and the company is therefore, not likely to sue for the wrongdoers, the minority shareholders may initiate an action in the name of the company. The present applicants hold the controlling shares in the company and are in charge of the management of the company. The Applicant No.1 is the Managing Director of the Company and is presently in overall control of the affairs of the Respondent No.3 Company. As such it was easily possible for the Respondent No.3 Company, if at all it has suffered any loss on account of the alleged illegal injunction obtained by the Respondent No.2, to apply under Rule 148 of the Rules. The Applicant No.3 has not applied nor even appeared in the present motion though it had been served. The present motion does not fall in any of the exceptions to the Rule in Foss vs. Harbottle. In my view, the present applicants cannot take out a Motion for compensation for the loss which is not suffered by them but it is alleged to have been suffered by the Respondent No.3 Company. spb/- 9 nma2619-06.sxw 7 Mr. Bhatt, learned senior counsel for the Respondent Nos. 5,8 and 9 submitted that since the Company is a party to the Notice of Motion, a relief in its favour can be granted. This cannot be done because it is the company who must make an application for compensation. At this stage, a request was made by Mr.Doctor & Mr. Bhatt that the Respondent No.3 may be transposed as Applicant in the Motion. Such a request must come from the Respondent No.3. As the Respondent No.3 has not appeared and has not made any request, the request made by the present applicants cannot be considered. Even otherwise, in my view, it would not be appropriate to grant permission for transposition in the facts and circumstances of this case. 8 For these reasons, the present Notice of Motion is not maintainable. No relief cannot be granted to the applicants in the present motion. The Notice of Motion is accordingly dismissed. [D.G. KARNIK, J.]