IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE M.N.KRISHNAN MONDAY, THE 29TH SEPTEMBER 2008 / 7TH ASWINA 1930 WP(C).No. 27183 of 2007(J) -------------------------- AGAINST THE ORDER DATED 20/08/2007 IN IA 7769/2007 IN OS.2141/2007 of PRL.MUNSIFF COURT,THRISSUR .................... PETITIONER(S): --------------- 1. M/S.CATHOLIC SYRIAN BANK LTD., THRISSUR REP. BY ITS CHAIRMAN, R.VENKATARAMAN, CATHOLIC SYRIAN BANK LTD., ST.MARY'S COLLEGE ROAD, THRISSUR. 2. R.VENKATARAMAN, CHAIRMAN, CATHOLIC SYRIAN BANK LTD., ST.MARY'S COLLEGE ROAD, THRISSUR. 3. K.P.MOHANA KUMAR, COMPANY SECRETARY, CATHOLIC SYRIAN BANK LTD., ST.MARY'S COLLEGE ROAD, THRISSUR. BY ADV. SRI.P.SANTHALINGAM (SR.) SRI.S.SHARAN SRI.DIPANKAR GUPTA (SR) SR.ADV. SRI. DIPANKAR GUPAT APPEARED FOR PETITIONER. RESPONDENT(S): --------------- V.O.JOHN, AGED 49, S/O.V.K.OUSEPH, VAZHAPARAMBAN HOUSE, KONIKKARA P.O. THRIKKUR VILLAGE, THRISSUR DISTRICT. ADV. SMT.K.K.MANJU FOR R1 SRI.K.P.DANDAPANI(SR) THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 29/09/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: M.N. KRISHNAN, J. = = = = = = = = = = = = = = W.P.C. NO. 27183 OF 2007 = = = = = = = = = = = = = = = Dated this the 29th day of September, 2008. J U D G M E N T This writ petition is preferred to declare that the Munsiff, Thrissur has no jurisdiction to adjudicate the dispute involved and also to set aside Ext.P9 order as illegal and without jurisdiction. Ext.P9 is the order passed in I.A.7769/07 in O.S.2147/07 of the Principal Munsiff, Thrissur. The plaintiff in the suit is a share holder of the first defendant bank holding 200 shares having face value of Rs.100/- each. The Bank is a scheduled commercial Bank having 344 branches and is under the regulatory and supervisory control of the Reserve Bank of India. There was a move according to the plaintiff from the side of certain group of persons who are financially affluent to purchase shares in large scale so as to have control of the management keeping away the individual share holders. It is further averred that with the intention to achieve it, publication was done in Malayala Manorama daily stating that W.P.C. 27183 OF 2007 -:2:- Bank intends to offer Rights issue of 15735028 equity shares having face value of Rs.10/- for actual cash premium of Rs.110/- per share to the existing share holders of the Bank. The offer is to the existing share holder in the ratio of one new share for every existing share. It is to open on 16.8.07 and close on 29.8.07. The said offer is violative of the mandatory provision in Sec. 81 of the Companies Act. As per Section 81(1)(b) of the Act the same shall not be less than 15 days. The period from 16.8.07 to 29.8.07 will be only 14 days instead of 15 days. Of this, 4 days are Bank holidays. The selection of the particular time is with malafide intention to keep away the ordinary share holders from this. According to the plaintiff the notice offer also should include the right exercised by persons concerned to renounce the share offered to. It is contended that the act of the respondent bank is fraudulent, illegal and improper. The notice issued without minimum time limit is incorrect and therefore pray for injunction to restrain the bank from W.P.C. 27183 OF 2007 -:3:- proceeding further. The Bank has filed a counter raising the contention that the petition as well as the suit is not maintainable. The respondent in the writ petition along with 100 others filed petition before the Company Law Board as CLB 36/2006 u/s 397 and 398 of the Companies Act. The Company Law Board as per order dated 4.8.06 permitted the bank to allot shares. The remedy for the petitioner is to proceed u/s 10(f) of the Act. The defendant bank has been directed by the Reserve Bank of India to raise the asset to 300 Crores on or before 30.9.07. The Annual General Body on 30.6.06 had passed a resolution to do so. The Bank had sent individual letters of offer dated 21.7.07 to sharers on 7.8.07. The share holders thus will get clear 20 days. The shares renounced shall be given the existing share holders as per unanimous resolution passed under Sec.81(1A). 2. The Court below found there is violation of right of individual share holder and that the jurisdiction of the civil Court is not barred. It also held that there is violation of 81 W.P.C. 27183 OF 2007 -:4:- (1)(c) of the Companies Act and granted an order of injunction. It is against this decision the writ petition is preferred. The respondent has challenged the very maintainability of the writ petition on the ground that the remedy is to file an appeal under order 43 CPC. 3. It is settled law that if there is fundamental mistake committed with respect to jurisdiction and violation of law writ petition is maintainable. In order to find out the same an analysis with reference to the relevant provisions of law is necessary. If it is there certainly the supervisory jurisdiction under Article 227 of the constitution can be invoked. 4. The learned counsel for the petitioner referring to Ext.P2 communication by Reserve Bank of India points out the necessity to raise the capital requirement to Rs.300 Crores. Ext.P3 is the special resolution passed by the Annual General meeting on 30.6.06. By the said resolution the Board of Directors is authorised and empowered to offer W.P.C. 27183 OF 2007 -:5:- issue and allot. It empowers the Board to issue by one or more modes whether on the same terms and conditions and whether at one time or from time to time or in such manner and on such terms and conditions, what so ever, as may be deemed appropriate by the Board of Directors. From the above resolution it is clear that the Annual General Body has authorised the Board of directors to deal with the matter in such manner on such terms and conditions as deemed appropriate by them. Accordingly the Board of directors issued a letter of offer. As per clause 11 of the letter of offer which deals with renunciation restriction is imposed to renounce only in favour of a share holder. It is this point that had given raise to the suit. The said clause specially refers to the decision taken by the Board which reads as follows. “The Board of Directors after considering the legal opinion received by the bank on the scope of the first proviso to Sec.67(3) of the Companies Act, 1956 W.P.C. 27183 OF 2007 -:6:- getting attracted to the present Rights issue, have decided to restrict the option to for renunciation exercisable only in favour of the existing share holders of the bank so that the rights offer, even remotely, does not become and cannot be treated as an offer made to the public.” 5. Now a reference to Sec.81(1)(a) would reveal that offer shall be made to the holder of the equity shares. Sec.81(1)(c) provides that unless the Articles of the Company otherwise provides renunciation may be made to any person and not necessarily sharers. Sec.81(1)(c) does not give any absolute right. The argument canvassed by the counsel for the respondent in the writ petition is that clause 11 of Letter of offer is against 81(1)(c) in particular and therefore it cannot be enforced. 6. On the other hand, the learned counsel for the writ petitioner would submit that the Court below has failed to consider Sec.81(1A). Under that section the Company may, by a special resolution passed at its General Body W.P.C. 27183 OF 2007 -:7:- Meeting may take a decision to offer the shares to any persons including existing share holders. 7. It is desirable to consider Sec.81(1) and 81(1A) together. Even Sec.81(1)(c) refers to Articles of Association. 81(1A) refers to special resolution. As mentioned above it can be seen from Ext.P3 that the AGM has authorised the Board of Directors to take a decision. Articles 37 and 38 of memorandum and Articles of Association would show that the company has the power to increase share capital and direction can be given by Annual General Meeting. So under the Articles of Association power is given to the general body and it at a special meeting has authorised the Board of Directors. This special resolution was challenged before the Company Law Board and though it gave an order initially in favour of the applicants therein later vacated the said order and permitted the Company to proceed in terms of the special resolution. The respondent in the writ petition is a party before the CLB. Though he would contend that he had W.P.C. 27183 OF 2007 -:8:- withdrawn from it, nothing is produced to show it. Whatever it may be a competent statutory Authority is considering the question and it has permitted implementation of the resolution. A combined reading of Sec.81(1) and 81(1A) would show that if there is a clause in the Articles of Association and further there is a special resolution passed by the AGM one cannot hold that the act of the company is illegal or against the provisions of the Companies Act. The learned Munsiff did not consider the impact of these provisions jointly and hence committed an error which is of a fundamental character. 8. The learned counsel for the writ petitioner challenges the very jurisdiction of the civil Court to entertain the suit. It is true that scope of Sec.9 CPC is very wide. There can be express or implied bar of jurisdiction of civil Court. The Company Law Board in its order dated 4.8.06 in C.P.36/06 has permitted the Bank to implement the resolution. The respondent is a party. Though he would W.P.C. 27183 OF 2007 -:9:- submit that he had withdrawn nothing is there to show it. The petitioner knowing fully well regarding the competency of the CLB had challenged the special resolution before it. If that special resolution is valid then as discussed above the Company is entitled to restrict renunciation when such a resolution is challenged and the respondent has submitted to the jurisdiction of that authority he cannot escape later by withdrawal unless it is in accordance with law. When it is so it has to be held that prima facie the civil Court has no jurisdiction. If better materials are supplied the question of jurisdiction can be considered at appropriate time by the learned Munsiff. 9. So far as the question of sufficiency of time is concerned it may not arise at this stage as it requires refixation of dates on any event. Even factually the learned Munsiff had held against the respondent in the writ petition. 10. Since this Court is prima facie convinced of lack of jurisdiction as well as non consideration of a material W.P.C. 27183 OF 2007 -:10:- 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. In the result, the writ petition is allowed and Ext.P9 order, i.e, the order in I.A.7769/07 in O.S.2147/2007 is set aside and the said application is dismissed and the injunction order is vacated. M.N. KRISHNAN, JUDGE. ul/-