Case: Morgan Stanley Mutual Fund Vs. Kartick Das

2. The appellant is a domestic mutual fund registered with Securities and Exchange Board of India (hereinafter referred to as SEBI) under Registration No. MF/005/93/1 dated1993. T he appellant is managed by a Board of Trustees. Pursuant to the SEBI (Mutual Fund) Regulations, the investment management company of the appellant, Morgan Stanley Asset Management India Private Limited was registered with SEBI onUnder such registration Morgan Stanley Asset Management India Private Limited is constituted as the asset management company of the appellant. Morgan Stanley Asset Management India Private Limited is it subsidiary of Morgan Stanley Group Inc. which holds 75% of equity, the balance being held by Indian shareholders such as Housing Development Finance Corporation (HDFC), Stock Holding Corporation of India etc. Morgan Stanley AssetIndia Private Limit ed was ranted certificate of incorporation onby the Registrar of Companies, Bombay. Its Memorandum and Article of Association have also been approved by the SEBI as per the provisions of the said Regulations.3. The draft scheme of the appellant was approved by the Board of Trustees by Circular Resolution dated. This was forwarded to SEBI for its approval on 101993. The scheme was duly scrutinised and examined by the SEBI and SEBI gave its approval and certain amendments were suggested. Upon receipt of such approval for the scheme, the appellant and the Investment Manager took necessary steps to begin marketing the scheme by issue of advertisements. All advertisements and publicity material were approved by SEBI in writing before publication as required by the Regulations. Pursuant to such approval tile appellant commenced advertising the public issue.4. Onthe advertisements and hoardings were released. One Piyush Aggarwal filed a suit before the learnedTees Hazari Courts, Delhi for injunction restraining the public issue from being floated by the appellant. Onan interim order was passed. Aggrieved by the same , the appellant moved the High Court in CM(M) No. 543 of 1993. Onthe said order passed by the learnedwas stayed. That was subsequently confirmed onOne Dr Arvind Gupta filed Writ Petition No. 14 of 1994 against S EBI. In effect, he sought to stay the public issue from being floated. That writ petition was rejected.5. On the same rounds, as were urged in the writ petition, the respondent moved the Calcutta District Consumer Disputes Redressal Forum seeking to restrain the public issue from being floated. The principal grounds taken were that the appellants Offering Circular was not approved by the SEBI. There are several irregularities in the same. The basis of allotment is arbitrary, unfair and Unfair. The appellant was seeking to collect money by misleading the public.6. The following order was passed onby the Calcutta District Consumer Disputes Redressal Forum:"Petitioner files the complaint today. Register. Issue notice of show cause against OPs. Considering the utmost urgency of the case as cited by the learned lawyer for the petitioner we are inclined to pass an interim order otherwise the application would be frustrated. Accordingly we direct OP 1 and OP 2 and its men, agents, collecting banks not to proceed any further with the issue of 30 crores Morgan Stanley Growth Fund Units due to be opened ontill proper clarification is made in its prospectus and with the leave of this le arned Forum. OP 3 i.e. SEBI is also directed not to issue clearances until Regulation 28 of Schedule V of SEBI Regulations is complied with by the OP 1 and OP 2. OP 4 and OP 5 i.e. the bankers to the offer are specifically restrained from accepting any application form of Morgan Stanley Growth Fund from anybody until further orders from this learned Forum. OPs are at liberty to apply for vacation/variation of this order. Next date fixed on*7. Aggrieved by this order, civil appeal arising out of SLP (C) No. 272 of 1994 has come to be preferred. 8. Against the dismissal of Writ Petition No. 14 of 1994 by the High Court of Delhi, civil appeal arising out of SLP (C) No. 321 of 1994 has come to be preferred.

Reasoning: To hold out, as the appellant has done, that the allotment of units will be based on firm allotment basis and with a changed sponsor in the advertisement, it is contended, is illegal in law, apart from it being violative of the norms and practices in the capital market. In such a case, the impending disaster could be avoided only by a quiatimet interference of the court. It is also urged that by piercing the corporate veil, it could be easily seen that the real sponsor is no other than the Morgan Stanley Group, New York. Therefore, SEBI should have acted in accordance with Section 11(2)(e) of the SEBI Act, 1992 for prohibiting fraudulent and unfair trade practices relating to securities market. It is also urged that the writ petition came to be filed and dismissed without consideration of these aspects. So, it requires interference of this Court.It has to be carefully noted that the disclaimer clause required to be incorporated at the beginning of offering circular by SEBI while approving the scheme is a standard requirement and nothing peculiar to the present case. The object of this is to bring to the notice of the investors that they should take the firm decision on the basis of the disclosures made in the documents. It is meant for the investors protection. In fact by such a course the SEBI informs the investors that they have approved the scheme but they did not recommend to the investors whether such investment is good or not and leave it to their discretion. In view of this, it will b e clear that the allegations of respondents that the SEBI has not approved the other documents is totallyappellants have made it very clear that those who applied during the opening period of scheme would be given full allotment. This was clarified by the appellant at a press conference held at Calcutta onRegular clarifications were issued in this regard by the appellant. The scheme came to be advertised by the appellant on1993. The respondents chose to make an application to the Consumer Forum on the eve of opening of the scheme. It was on that application, the impugned order came to be passed. In this factual background, we will take up the questions set out for determination.As far as India is concerned, the residence of the company is where the registered office is located. Normally, cases should be filed only where the registered office of the company is situate. Courts outside the place where the registered office is located, if approached, must have regard to the following. Invariably, suits are filed seeking to injured either the allotment of shares or the meetings of the Board of Directors or again the meeting of general body. The Court is approached at the last minute. Could injunction be granted even without notice to the respondent which will cause immense hardship and administrative inconvenience. It may be sometimes difficult even to undo the damage by such an interim order.Therefore, the court must ensure that the plaintiff comes to court well in time so that notice may be served on the defendant and he may have his say before any interim order is passed. The reasons set out in the preceding paragraphs of our judgment in relation to the fact which should weigh with the court in the grant of ex parte injunction and the rulings of this Court must be borne in mind.A careful reading of the above discloses that there is no power under the Act to grant any interim relief of (sic or) even an ad interim relief. Only a final relief could be granted. If the jurisdiction of the Forum to grant relief is confined to the four clauses+ mentioned under Section 14, it passes our comprehension as to how an interim injunction could ever be granted disregarding even the balance of convenience.45. We have dealt with in the preceding paragraphs as to the approval of SEBI and the compliance with the Regulation 27 of the Regulations, 1993. We have also explained what exactly is a concept of first come first served basis. On these two aspects , the respondent is suffering under a labyrinth of confusion. Therefore, we hold that the grounds urged by the respondent seeking to support the impugned order, are untenable.46. The appellant has suffered immensely because it has not even bee n served with copy of order of injunction. The application of the respondent is clearly actuated by mala fides. The Forum should have examined whether ex parte injunction without notice to the opposite side could ever be granted at + Ed.: Increased to nine clauses by Amendment Act 50 of 1993 (w.e.f.all. The grounds urged in the injunction application were insufficient for the grant of such ais an increasing tendency on the part of litigants to indulge in speculative and vexatious litigation and adventurism which the for a seem readily to oblige. We think such a tendency should be curbed. Having regard to the frivolous nature of the complaint, we think it is a fit case for award of costs, more so, when the appellant has suffered heavily.