FAO 15/2009 BEFORE HON’BLE MR JUSTICE I A ANSARI JUDGMENT & ORDER The appellant, a private limited company, was, originally, incorporated, under t he Companies Act, 1930, and is, therefore, an ’existing company’ within the mean ing of the provisions of the Companies Act, 1956. The appellant-company is in th e business of manufacture and sale of tea and owns a Tea Estate, which is run un der the name and style of Radhabari Tea Estate, situated in the district of Gola ghat, Assam (hereinafter referred to as the ’appellant’s Tea Estate’). For the l ast few years, the appellant’s Tea Estate ran into losses. Consequently, the app ellant’s Tea Estate has not been able to make payment of its various dues, such as, electricity dues, creditors’ dues, statutory levies as well as demands from the financial institutions. The electricity supply to the said Tea Estate stands disconnected since the year 2007 and the appellant’s bank has also declared the appellant-company as a non-performing asset and has accordingly initiated proce edings against the appellant-company in the Debts Recovery Tribunal, Guwahati. 2. On the ground that the financial condition of the appellant-company did not make it feasible for the appellant-company to run its business, an Extra-Ord inary General Meeting of the shareholders of the appellant-company was convened on 15.12.2006. In this Extra-Ordinary General Meeting, a resolution was adopted that the appellant’s Tea Estate along with its assets and liabilities would be sold so that the dues of the appellant-company could be liquidated. The resoluti on also empowered the Board of Directors to negotiate with the highest bidder an d sell the shares of the appellant-company without calling for any General Meeti ng of the appellant-company. By another Extra-Ordinary General Meeting held on 1 9.03.2007, the share holders of the appellant-company ratified and confirmed the minutes of the earlier meeting, which had been held on 15.12.2006. The plaintif f, who holds 192 shares of the appellant-company, was also a party to the resolu tions, dated 15.12.2006 and 19.03.2007. 3. However, while it is the case of the appellant-company that all the shar eholders of the company, including the plaintiff, had, in the beneficial as well as public interest, empowered the Board of Directors of the appellant-company, by their two resolutions aforementioned, to transfer the shares to any person of fering the highest bid so that the liabilities of the appellant-company could be liquidated, the plaintiff-respondent contends that he had objected to the decis ion to sell the shares to outsiders and had opted to exercise his pre-emptive ri ght to purchase shares at the highest value, which may be offered, in this regar d, by any outsider. 4. Notwithstanding the resistance, which the plaintiff claims to have so of fered to the sale of shares to outsiders, the fact that the plaintiff had, event ually, become a party to the two resolutions aforementioned is not in dispute. W hat is in dispute is as to whether the plaintiff had raised his objection to the resolutions, which, according to the plaintiff, were sought to be adopted by th e said extra-ordinary general meeting. Be that as it may, the total paid up shar es of the appellant-company are as many as 23,700 and the appellant holds, admit tedly, barely 192 shares. 5. On the strength of the resolutions, dated 15.12.2006 and 19.03.2007, ado pted by the shareholders as mentioned hereinabove, the Board of Directors, in it s meeting held, on 14.08.2007, resolved, inter alia, to transfer the equity shar es of the appellant-company (held by the shareholders) to the prospective buyers offering highest price. 6. While, according to the plaintiff, he had expressed the desire to buy th e shares of the other shareholders of the appellant-company at the maximum price , which might be offered by an outsider, and the appellant-company denies the sa me, the admitted position is this: Based upon the resolutions, dated 15.12.2006 and 19.03.2007, of the shareholders and the resolution, dated 14.08.2007, of the Board of Directors, the Board could find a purchaser, who was willing to purcha se the appellant-company along with all its assets and liabilities. On coming to know of the fact that a purchaser had been found, who was willing to purchase t he shares, the plaintiff, vide his communication, dated 26.10.2007, informed the Managing Director that the plaintiff proposed to retain Radhabari Tea Estate an d also the appellant-company by having all shares of the company at the same pri ce, which had been offered by the highest bidder, who is an outsider and not a m ember of the family, inasmuch as he (the plaintiff), being grandson of the perso n, who had been involved in bringing into existence the appellant-company, inten ded to retain the company within the family. By his said communication, dated 26 .10.2007, the plaintiff, thus, sought to exercise his pre-emptive or preferentia l right of purchase of the shares of the other shareholders and requested the Ma naging Director of the appellant-company to place the plaintiff’s proposal to th e Board of Directors for final approval. 7. As the plaintiff expressed his desire to purchase the share of the appel lant-company, one of the Directors (i.e., proforma respondent No.3 in the presen t appeal, who was defendant No.5 in the suit) issued a communication, dated 26.1 1.2007, to the then Managing Director of the appellant-company with the opinion that the plaintiff be given a chance to purchase all the shares of the appellant -company along with its assets and liabilities. While the plaintiff claims that the Managing Directors and others, constituting the Board of Directors, did not pay any heed to the plaintiff’s claim to purchase the shares at the rate, which had been offered by an outsider, the appellants claim that acting upon the commu nication, dated 26.11.2007, aforementioned, the plaintiff-respondent was given t he offer by the Directors of the appellant-company to purchase the shares of the appellant-company along with the assets and liabilities and, for this purpose, the plaintiff, on 27.11.2007, was asked to come to the registered office of the appellant-company to discuss the issue of sale of the shares as aforesaid. On th e ground that on 27.11.2007, a bandh call had been given in Assam, the plaintiff did not, according to the appellants, attend the meeting. Even the plaintiff-re spondent agrees that due to bandh, he could not attend the said meeting. The pla intiff-respondent accordingly, on 28.11.2007, issued a communication informing t he Managing Director that he could not attend the meeting, on 27.11.2007, due to bandh call. 8. Notwithstanding, therefore, the plaintiff-respondent’s claim that his of fer to purchase shares at the same rate, which had been offered by an outsider h ad not been heeded to by the Board of Directors, the materials on record, in the face of the communication, dated 27.11.2007, aforementioned, reveal otherwise. Be that as it may, by his said communication, dated 28.11.2007, the plaintiff-re spondent also expressed his inability to attend any discussion on the subject on 29.11.2007 and 30.11.2007. This apart, the plaintiff-respondent also communicat ed, vide his letter, dated 28.11.2007, aforementioned, that he (plaintiff-respon dent) had been informed that the proposed buyer had become non-committal and, he nce, the Board of Directors were to sort out two issues, namely, to ascertain th e highest bidder along with other conditions of the transfer of shares and, ther eafter, he (plaintiff-respondent) be given an opportunity to retain the shares a t the highest bid. The plaintiff-respondent, in his said communication, also mad e it clear that the plaintiff was not a bidder for the shares of the appellant-c ompany, but was only putting his pre-emptive right of purchase of shares at the price, which might be offered by the highest confirmed bidder from outside the f amily. 9. The appellants allege that it was due to delaying tactics adopted by the plaintiff-respondent that the highest bidder lost interest and became non-commi ttal. The appellant-company also alleges that the plaintiff-respondent did not r eally have any intention to purchase the shares; otherwise, he could have purcha sed the shares at the rate, which had been offered by the person, who had, as me ntioned above, come forward to buy the shares along with all the assets and liab ilities of the appellant-company. The plaintiff-respondent, however, denies that it was due to his fault that the highest bidder withdrew; yet the fact remains that the plaintiff-respondent was, admittedly, informed about the highest bid, b ut the plaintiff-respondent had not, promptly and positively, responded to the h ighest bid, which was available from the bidder, who had come forward to buy the shares. 10. Be that as it may, the appellants’ case is that responding to the plaint iff-respondent’s communication, dated 28.11.2007, the then Managing Director, ag ain sent, a communication, dated 03.12.2007, to the plaintiff-respondent request ing the plaintiff-respondent to visit the registered office of the appellant-com pany to discuss the matter of purchase of shares of the appellant-company by the plaintiff-respondent, but the plaintiff-respondent, during his conversation wit h the then Managing Director, informed the latter that he was not interested in purchasing the shares of the appellant-company and its assets and liabilities. I t is the further case of the appellant that following the non-committal attitude of the plaintiff and the increasing financial losses being incurred by the appe llant-company, the Board of Directors held, on 14.12.2007, a meeting to discuss the conduct of the plaintiff-respondent and it was resolved that the plaintiff-r espondent be informed that he had no pre-emptive right to purchase the shares an d, accordingly, on 15.12.2007, the then Managing Director of the appellant-compa ny informed the plaintiff-respondent that his claim for exercise of pre-emptive right, i.e., preferential right of purchase, was not applicable. The plaintiff-r espondent, on receiving the communication, dated 15.12.2007, aforementioned did not react. By another communication, dated 09.12.2007, the then Managing Directo r, requested the plaintiff-respondent and other shareholders to submit their ori ginal share certificates for the purpose of transferring the shares. In the said communication, all the shareholders, including the plaintiff, were informed tha t the proposed purchaser had given an estimated consideration as regards the tra nsfer of the shares. The plaintiff-respondent received the said communication on 09.02.2008. Having remained silent for sometime, the plaintiff-respondent, on 2 3.02.2008, issued another communication, whereby he reconfirmed that he was read y to offer the highest price along with the terms and conditions offered by the unnamed proposed buyer, which had been enclosed along with the communication, da ted 09.02.2008. Shortly thereafter, the plaintiff-respondent, on 29.02.2008, wit hout receiving any response to the communication, dated 23.02.2008, instituted a suit, namely, Title Suit No.1/2008, seeking various declarations and also perma nent injunction. In his suit, the plaintiff-respondent impleaded the appellant-c ompany and four of its Directors as parties. The shareholders, who are owners of the shares and who are persons, who have the authority to sell or transfer thei r respective shares in terms of the Articles of Association of the appellant-com pany, have not been made parties nor any reliefs has been sought for against the shareholders. The reliefs, which the plaintiff-respondent sought for, in the su it, read as under: (a) a decree declaring that the plaintiff has the preferential right and/or rig ht of pre-emption to purchase the shares of the defendant No. 1 from the selling members; (b) a decree declaring that the defendants have no right to sell or transfer the shares of the defendant No. 1 to any outside third party depriving a willing an d desirous shareholder from purchasing the shares from selling members; (c) a decree declaring that the communication/letter dated 09-02-2008 with a nnexures therewith, issued by the then Managing Director of defendant No. 1 addr essed to the shareholders, including the plaintiff, is illegal, in-operative, no t binding, contrary to the Articles of Association and without jurisdiction; (d) a decree of permanent injunction restraining the defendants, their agent s, attorneys, assigns and employees from selling, transferring and giving posses sion of the shares of defendant No. 1 and leasing out the Radhabari Tea Estate t o any outside third party; (e) a decree of permanent injunction restraining the defendants, their agent s, attorneys, assigns and employees from delivering possession of the Radhabari Tea Estate to any outside third party in pursuance to any sale, transfer and lea sing out transaction completed or to be completed in a surreptitious, fraudulent and concealed manner and behind the back of the plaintiff; (f) a decree of mandatory injunction directing the defendants to sell and tr ansfer the shares of defendant No. 1 in favour of the plaintiff from the intendi ng selling members and also to deliver possession of the Radhabari Tea Estate un to the plaintiff; (g) cost of the suit; (h) any other relief or reliefs to which the plaintiff is entitled to in law and equity. 11. The plaintiff also filed, in the suit, an application under Order XXXIX Rules 1 and 2 read with Section 151 of the Code of Civil Procedure, 1908, prayin g, inter-alia, for an ad-interim temporary injunction restraining the appellant company and its Directors, their agents, attorneys, assigns and employees from s elling, transferring and giving possession of the shares of the appellant-compan y to any outsider and/or from leasing out Radhabari Tea Estate and delivering po ssession thereof to any outsider/ third party pursuant to any sale, transfer or leasing out transaction, completed or to be completed, in a surreptitious and fr audulent manner behind the back of the plaintiff-respondent. This application ga ve rise to Misc. (J) Case No. 1/2008. 12. The learned Civil Judge, Golaghat, on 29.02.2008, passed, in Misc. (J) C ase No.1/2008, an ex parte ad-interim injunction order, which was impugned, in a ppeal, before this Court, in F.A.O. No. 7/2008. This Court, by order, dated 24. 02.2009, directed the learned trial Court to dispose of the said application for injunction within a period of one month from the date of receipt of the records . 13. Upon hearing the learned counsel for both the parties, the learned trial Court passed an order, on 14.05.2009, allowing the injunction application, file d by the plaintiff-respondent, thereby restraining the appellants herein, their agents, attorneys, assigns and employees from selling, transferring and giving p ossession of the shares of the appellant-company to any outsider and/or from lea sing out Radhabari Tea Estate and delivering possession thereof to any outsider/ third party pursuant to any sale, transfer or lease. 14. Aggrieved by the order of injunction, so passed, the appellants are befo re this Court. 15. Before I deal with this appeal, on merit, some events, which the appella nts have brought on record, as having been taken place subsequent to passing of the impugned order, dated 14.05.2009, may be taken note of. 16. Following the impugned order, dated 14.05.2009, the proposed buyer of th e shares of the appellant-company became disinterested. In the meanwhile, 37 (th irty seven) shareholders of the appellant-company informed the Managing Director that they wanted to sell their shares at a price not less than Rs.800/- per sha re and requested the Managing Director to find suitable shareholder, who was wil ling to buy their shares at a price not less than Rs.800/- per share, or else th ey (the said 37 shareholders) sought for authorization to find an outsider to bu y their shares. Pursuant thereto, the Board of Directors held a meeting on 01.07 .2009 and resolved that the Managing Director be authorized to intimate all the 46 numbers of existing shareholders about the intention of the sale of shares fr om 37 numbers of shareholders at a value of Rs.800/- per share as per the provis ions of Clause 7 (c) of the Articles of Association of the company. In terms of the resolution, so adopted on 01.07.2009, by the Board of Directors, all the 46 shareholders of the appellant-company were duly informed to intimate their inten tion to buy the shares in a lot, at the price quoted, within seven days from the date of receipt of the said communication and also to deposit the entire consid eration by A/C payee cheque in favour of the shareholders within 14 days from th e date of receipt of the said communication. In this communication, the appellan t-company also made it clear to their shareholders that whoever, amongst the sha reholders, proposed to purchase the shares would also have to agree to settle al l the liabilities simultaneously. 17. By various communications made by them, as many as 36 (thirty six) share holders denounced to exercise their pre-emptive right to buy shares in favour of the Board of Directors and authorized the Board of Directors to take a decision as regards sale of shares in a manner, which would be beneficial to the company . To the offer, so made by the shareholders as mentioned hereinbefore, the plain tiff-respondent did not, vide his communication, dated 09.07.2009, give any posi tive response or offered to purchase the shares; rather, the plaintiff-responden t threatened that any attempt to sell/transfer the shares or lease Radhabari Tea Estate would amount to contempt of Court and the consequences would ensue. The Board of Directors, having not received any positive response from its sharehold ers as regards purchase of the shares, passed a resolution to institute appropri ate proceedings to get set aside the impugned order, dated 14.05.2009, and autho rized, in this regard, the Managing Director of the appellant-company to initiat e appropriate steps. Pursuant to this decision, the present appeal under Order X LIII Rule 1(r) read with Order XLIII Rule 2 of the Code of Civil Procedure has b een preferred. The appellants have also filed an application under Order XLI Ru le 5 read with Section 151 of the Code of Civil Procedure seeking stay of the im pugned order, dated 14.05.2009, aforementioned. 18. I have heard Dr. A.K. Saraf, learned Senior counsel, appearing on behalf of the appellants, and Mr. S. Ali, learned counsel, appearing for the plaintiff -respondent. Submissions: 19. Appearing on behalf of the appellants, Dr. AK Saraf, learned Senior coun sel, submits that in the case at hand, the shares are owned by the shareholders and in their absence, no effective decree for specific performance of contract t o sell the shares in preference to an outsider can be passed in the suit and, he nce, the shareholders, being necessary parties, the suit was prima facie not ma intainable in law in their absence. Injunction could not have, according to Dr. Saraf, been granted in the present case, when the suit was prima facie not maint ainable due to the plaintiff’s omission to implead the shareholders as parties. 20. Dr. Saraf contends that according to the plaintiff-respondent, the artic les of association, in the present case, give a share holder pre-emptive right t o buy shares in preference to an outsider; hence, in the case of the refusal of a shareholder to stick to the condition, so embodied in the Articles of Associat ion, an aggrieved shareholder, such as, the present petitioner, would have a rig ht to sue for specific performance of the contract and, in such a suit for speci fic performance, the shareholder, who seeks to sell his share(s) to an outsider, would, naturally, be, submits Dr. Saraf, a necessary party, for, in his absence , no suit for specific performance of contract would lie. Viewed from any angle, therefore, contends Dr. Saraf, the shareholders, in the case at hand, are neces sary parties to the suit, when the plaintiff has instituted a suit for specific performance of the contract of sale of shares in exercise of the plaintiff’s pre -emptive rights, as available to him, under the Articles of Association, against the shareholders and the appellant company. 21. Dr. Saraf submits that in the present suit, since the shareholders are not made parties either in their individual or representative capacity, the suit was not entertainable and, in such a suit, no injunction could have been grante d in terms of the prayer made by the plaintiff-respondent. Conversely, submits D r. Saraf, if the decision to sell the shares, in question, is taken to be the de cision of the company, the remedy of the aggrieved shareholders, such as, the pl aintiff, would lie in applying to the Central Government in terms of the provisi ons of Section 399 of the Companies Act, 1956, for, the decision to sell shares by majority of the share-holders by allegedly denying the plaintiff’s pre-emptiv e right to purchase shares is, in the light of the pleadings of the plaintiff, a n oppressive act and squarely covered by the provisions of Section 397 read with Section 399 of the Companies Act. Viewed from this angle too, contends Dr. Sara f, the suit not being maintainable, the question of granting injunction, as has been done, in the present case, did not really arise. 22. Dr. Saraf points out that for the purpose of granting injunction, the le arned trial Court has relied solely on the right of the plaintiff to purchase sh ares in terms of sub-Clauses (c) and (d) of Clause 7 of the Articles of Associat ion. Dr. Saraf further points out that even under the Articles of Association, p articularly, sub-Clause (i) of Clause 7, the Board of Directors has the power to recognize transfer of shares to an outsider if such transfer is in fulfillment of any object considered as charitable or beneficial or for public purpose or wa rranted under the terms of a trust deed created by the shareholder with any such object. In such circumstances, contends Dr. Saraf, a shareholder’s pre-emptive right, in the present case, cannot be said to be absolute and unqualified. This vital aspect, contends Dr. Saraf, has been completely lost sight of by the learn ed trial Court. When a trial Court, submits Dr. Saraf, misconstrues a document o r a provision of a deed, while reaching a decision, such a decision can be inter fered with by the appellate Court. In support of this submission, Dr. Saraf plac es reliance on Ramdev Food Products (P) Ltd. v. Arvindbhai Rambhai Patel, report ed in (2006) 8 SCC 726. 23. Dr. Saraf submits that the decision to sell shares to an outsider, who w ould agree to take all the assets and liabilities of the company, was beneficial and in public interest and this decision was a decision of the company, as a wh ole, inasmuch as the company had run into losses. Dr. Saraf also submits that th e statutory dues have not been paid by the company, financial institutions have instituted proceedings for recovery of dues of the appellant-Company, there is l abour unrest and risk of threat to human life and property if wages and other du es of the labourers are not paid. The liability of the company, points out Dr. S araf, stood at Rs.2,31,10,000/- lakhs, as on 01.07.1009; whereas, in the month o f February 2008, the liability has soared to Rs.4,15,96,000/- lakhs. In such a c ase, when the Board of Directors decided to act on the resolution of the shareho lders to sell the share of the company to an outsider, who would agree to take a ll the assets of the appellant-company along with its liabilities, the decision, being in public interest and in tune with the provisions of Sub-Clause (i) of C lause (7) of the articles of association, ought to have been allowed to take its course. This aspect too, contends Dr. Saraf, has been lost sight of by the lear ned trial Court. 24. While granting an interim order of injunction, a Court is also required to bear in mind, contends Dr. Saraf, the element of public interest, but the tri al Court, while passing the impugned order, in the present