IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD PRESENT : : THE HON’BLE SRI JUSTICE N.V.RAMANA AND THE HON’BLE SRI JUSTICE P. DURGA PRASAD C.M.A No.776 of 2011 Dated:06-09-2011 Between: M/S Proddatur Oils Private Limited and others. ….Appellants. And S.Murali and others. ….Respondents. The Court made the following: THE HON’BLE SRI JUSTICE N.V.RAMANA AND THE HON’BLE SRI JUSTICE P. DURGA PRASAD C.M.ANo.776 of 2011 ORDER: (per the Hon’ble Sri Justice P.Durga Prasad) This appeal is directed against the Orders passed by the I Additional Chief Judge, City Civil Court, Secunderabad in I.A.No.3304 of 2010 in O.S.No.196 of 2010 on 30.06.2011. The appellants herein are the respondents in the said petition and the respondents herein, who are the petitioners have filed the said petition under Order 39 Rules 1 and 2 read with Section 151 CPC for grant of interim injunction restraining the respondents from alienating the schedule property of 1st respondent company pending disposal of the suit. The parties in the appeal are being referred to as mentioned in the petition before the lower Court. As per the affidavit filed by the 1st petitioner, he is the 1st director of 1st respondent company and other petitioners are shareholders of the said company and the petitioners are holding 48.74% stake. The 1st respondent company was incorporated as a private limited company on 23.06.1998 under Companies Act to carry on business of manufacture of oil from cotton seed, castor, linseed, sunflower, groundnut and other types of edible and non- edible seeds etc. The 1st petitioner was the subscriber to the Memorandum and Articles of Association of the Company and also the first director of the Company. As per Article 12 of the Articles of Association of the Company, he shall not be liable to retire by rotation. The 2nd respondent is looking after day to day affairs of the company and the petitioners came to know on 12.11.2010 that the respondent Nos.2 and 3 unilaterally passed a resolution dated 10.11.2010 to sell, mortgage or change all or any of the immovable or moveable properties of the Company. Then they applied for the relevant documents from the Registrar of Companies. On verification, they came to know that a false resolution was passed showing that he has resigned as a director of the Company on 02.09.2008. The respondent Nos.2 and 3 with mala fide intention to gain control over the company, have fraudulently created his resignation letter alleged to have been addressed to the managing director of the Company and they have tampered the minutes book and purportedly held a meeting on 02.09.2008 wherein it was falsely recorded that the managing director placed his resignation letter before the Board and they accepted his resignation and expressed their gratitude for the services rendered by him as a director during his tenure. Subsequently, the respondent Nos.2 and 3 without his knowledge filed the required Form No.32 on 06.10.2008 before the Registrar of Companies even though he has not resigned from the Board of Directors of respondent No.1 Company. The alleged resignation letter discloses that it was fabricated for the purpose of removing the 1st petitioner. The acts of the respondent Nos.2 and 3 are contrary to the provisions of Companies Act and detrimental to the progress of the Company and its shareholders. Therefore, the resolution passed on 02.09.2008 in respect of his resignation is illegal, void and against to law. The minutes book of the Company reveals that 1st petitioner attended the Board meeting on 08.01.2009. The 1st respondent company is having an immovable property of 7377.49 sq. mts (Ac.1.85) situated at Industrial Estate, Proddatur, Kadapa District and if the respondents are allowed to dispose of the said property by way of sale, mortgage or change, it affects the rights of the shareholders including the petitioners. Therefore, prima-facie case, balance of convenience are in favour of the petitioners and they are entitled for interim injunction against the respondents. The 2nd respondent has filed counter and the same was adopted by the respondent Nos.1 and 3. According to them, they are having majority commanding shares while the petitioners are the minority shareholders. The rule of majority prevails in managing the company. The suit and the interlocutory application are misconceived as a declaratory relief sought is no way connected to the dispute with regard to the property. The relief of injunction with regard to the schedule property is not a consequential relief to the main relief sought for by the petitioners for declaration with regard to the directorship of 1st petitioner. The Court has no jurisdiction to entertain the suit as the schedule property is situated at Proddatur, which is outside the jurisdiction of the Court. The petitioners have knowledge about the resolution passed by the company to sell part of the properties to liquidate the liabilities of the company. If the properties are not disposed of, the company cannot discharge its liabilities. The liability of shareholders is coextensive that of their shareholding in the company and there is no personal liability. As managing director of the company, the respondent No.2 offered his personal properties as security for the loans contacted by the company. The suit is deliberately designed to have illegal gain at the cost of the respondent Nos.2 and 3 who are acting for the benefit of the company and to safeguard its interest. The 1st petitioner went to the Company Secretary and got his resignation letter prepared basing on which a resolution was passed accepting the same. The 1st petitioner addressed a letter dated 02.04.2010 thanking the Board of Directors for inviting him again to join in the company as a director. Therefore, the ex parte interim order of status quo with regard to the alienation of the properties and it causes hardship to the company, as such the same is liable to be vacated. On behalf of the petitioners, Exs.A.1 to A.5 were marked. On behalf of the respondents, Exs.B.1 to B.18 were marked. The lower Court by taking into consideration of the said documentary evidence held that the resolution dated 10.11.2010 is illegal as no notice was sent to the petitioners, who are the shareholder of the company and if the respondents are allowed to sell away the property of the company, it certainly cause an irreparable loss to the petitioners and other shareholders and thereby restraining the respondents from alienating the schedule property of 1st respondent pending disposal of suit. Aggrieved by the said Order, the present appeal is filed. Learned counsel for the appellants has pleaded that the relief granted by the lower Court is beyond the relief sought for in the suit itself, as such the same is liable to be set aside. He further pleaded that the respondents/petitioners are questioning the resolution passed on 10.11.2010 and sought for restraining the respondents from acting upon the said resolution, but the lower Court has granted injunction restraining them from alienating the suit schedule property of 1st respondent company, which is contrary to the relief sought for by the petitioners. Learned counsel for respondents, on the other hand, has pleaded that they have filed the suit questioning the acceptance of the resignation of the 1st petitioner and also sought for injunction restraining the respondents from alienating, mortgaging or charging the schedule property and as it is not a consequential relief for the main relief of declaration, they have prayed two reliefs and paid separate court fee. Therefore, the lower Court has rightly granted the injunction and the same does not warrant interference by this Court. The petitioners have filed the suit seeking for relief (a) declaring that the action of the defendant No.1 company in filling Form No.32 to the effect that the plaintiff No.1 ceased to be a Director of the Defendant No.1 company with effect from 09.09.2008 due to his resignation as illegal and void. (b) Grant permanent injunction restraining the defendants 1 to 3, their agents and any other person claiming through from selling, mortgage or charge all or any part of Schedule A immovable and Schedule B movable properties of the 1st defendant Company in pursuance of alleged resolution dated 10.11.2010 passed by the 1st defendant company. For both the said reliefs, the plaintiffs have paid separate court fee. Therefore, the contention of the appellants’ counsel that the relief sought for by the petitioners in the interlocutory application is not the relief sought for in the main suit and it is not a consequential relief for the main relief of declaration, cannot be accepted as the petitioners sought for two reliefs i.e. one for declaration and another one for permanent injunction by paying separate court fee. Since the petitioners seeking for injunction restraining the respondents from selling, mortgaging or charging the suit schedule property in pursuance of the resolution passed on 10.11.2010, the lower Court has considered the validity of the said resolution. According to the appellants’ counsel, the said resolution is passed as per the provisions of the Companies Act and the finding of the lower Court is liable to be set aside. Admittedly, the appellants/respondents have passed a resolution on 10.11.2010 to sell away the properties of the 1st respondent company. Admittedly, the petitioners are the shareholders of the 1st respondent company. Even though the contention of the appellants that the 1st petitioner has resigned as a director of the company is accepted, he is still continues to be the shareholder of the said company and whenever a Annual General Meeting of the company may be convened, ‘21’ days notice must be given in writing and for all other General Meetings, ‘7’ days notice in writing has to be given as per the articles of association of the 1st respondent company. In the present case, the respondents have filed the copyof the notice dated 11.10.2010 signed by the Managing Director about the Extraordinary General Meeting of the members of 1st respondent company on 10.11.2010 by annexing explanatory statement and also about the appointment of a proxy even though Sections 173 and 176 (2) of Companies Act are not applicable to the 1st respondent Company as per the Articles of Association. On the complaint given by the petitioners, the Registrar of Companies has called for the explanation of 1st respondent under Ex.B.8 and Exs.B9 to B.18 are the correspondence between the parties with regard to subsequent events that took place after passing of the resolution Ex.B.6. Since the 2nd respondent is pleading that Extraordinary General Meeting was conducted as per the provisions of the Companies Act, the burden is on him to establish the same by producing necessary documents. In the present case, except Ex.B.5 the Xerox copy of the notice, the respondents have not filed any other document with regard to holding of Extraordinary General Meeting on 10.11.2010 and passing of the impugned resolution. Therefore, the lower Court has rightly came to the conclusion that the said resolution is prima-facie illegal. Moreover, the 2nd respondent could not establish that the notices were served on the petitioners, who are the shareholders of the company and admittedly the petitioners are holding 48.74% of shares in the 1st respondent company. Since the 2nd respondent has failed to establish the passing of the resolution on 10.11.2010 by following the procedure contemplated under law, it is not proper to permit him t o act upon said resolution for selling away movable and immovable properties of the 1st respondent Company. Therefore, the respondents/petitioners established prima-facie case and also balance of convenience in their favour. If the respondents are permitted to sell away the said properties, the petitioners being the shareholders of the company will be put to irreparable loss and hardship. As such the lower Court has taken into consideration of the interest of the parties, rightly injected the respondents. Thus, there is no error or illegality in the Order passed by the lower Court. Therefore, we do not find any reason to interfere with the said findings recorded by the lower Court. Hence, the appeal fails. In the result, the Civil Miscellaneous Appeal is dismissed without costs. _______________________ JUSTICE N.V.RAMANA. _____________________________ JUSTICE P. DURGA PRASAD Dated:06 -09 -2011 Ksp Note: Issue C.C. by tomorrow. B/O Ksp