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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 16th DAY OF MAY 2017
BEFORE
THE HON’BLE MR.JUSTICE RAGHVENDRA S. CHAUHAN
MFA No.6200/2016
BETWEEN
1) Madhukar G. Angur
Managing Director
Alliance Business School Co.
# 48/A, 1st Cross,
27th Main, BTM 1st Stge,
Bengaluru- 560 068.
2) B.S. Priyanka
Director,
Alliance Business School Co.
# 48/A, 1st Cross,
27th Main, BTM 1st Stge,
Bengaluru- 560 068.
.. Appellants
(By Sri. V. Lakshminarayana, Senior Advocate, Sri. Vivek S. Reddy, Senior Advocate, Sri. Ashok Haranahalli, Senior Advocate for Mr. Shaik Ismail Zabiulla a/w Sri. K.N. Subba Reddy, Sri. A.P. Pulakeshi and Mr. Mudit Kundlia )
AND
1) Shreya Sanjeev
Aged about 25 years,
D/o Suajatha Sanjeev
R-1004, HM Tambourine apts,
Kanakapura Main Road,
J.P.Nagar VI Phase,
Bengalooru- 560 078.
2) Alliance Business School Co.
A Company registered under
the Indian Companies Act, 1956
Having address at
#100, II Cross,
34th Main, Dollars Scheme,
BTM 1st Stage,
Bengalooru- 560 068.
3) Alliance University
Sponsored, Run and Managed by
Alliance Business School Co.
Anekal-Chandapura Road,
Chikka Hagade, Anekal Taluk,
Bengalooru Rural District.
Rep. by the Registrar
4) Shivappa Mantur
Age: Major,
S/o Ramappa,
Venkateshwara House,
19th Cross, VII Main, II Stage,
BTM Layout, N.S. Palya,
Bengalooru- 560 078.
5) Shaila Chebbi Govind
Self Proclaimed Director,
Alliance Business School Co.
#100, II Cross,
34th Main, Dollars Scheme,
BTM 1st Stage,
Bengalooru- 560 068.
6) Mala Srinivasa Gowda
Self Proclaimed Director,
Alliance Business School Co.
#100, II Cross,
34th Main, Dollars Scheme,
BTM 1st Stage,
Bengalooru- 560 068.
7) Abhay Chebbi
Self Proclaimed Director,
Alliance Business School Co.
#100, II Cross,
34th Main, Dollars Scheme,
BTM 1st Stage,
Bengalooru- 560 068.
8) Prakash Budoor
Self Proclaimed Director,
Alliance Business School Co.
#100, II Cross,
34th Main, Dollars Scheme,
BTM 1st Stage,
Bengalooru- 560 068.
9) Krishnamohan Ramineni
Former Director
Alliance Business School Co.
# 48A, 1st Cross, 27th Main,
BTM 1st Stage,
Bengalooru- 560 068.
10) Richard Glenn Rockman III
Director,
Alliance Business School Co.
# 48A, 1st Cross, 27th Main,
BTM 1st Stage,
Bengalooru- 560 068.
11) Satchidananda Rao Machineni
Director,
Alliance Business School Co.
# 48A, 1st Cross, 27th Main,
BTM 1st Stage,
Bengalooru- 560 068.
.. Respondents
(By Sri. Sajan Poovayya, Senior Advocate, Sri. Jayakumar S. Patil, Senior Advocate for Mr. Shyam Sundar a/w Mr. Prasanna Kumar, Mr. Priyadarshi Banerjee, Mr. Pratibhanu Singh Kharola, Mr. R. Manjunath & Mr. Arun Srikumar )
This appeal is filed under Order 43 Rule 1 (r) of the Code of Civil Procedure, praying to set aside the impugned order dated
4 30.08.2016, passed by the XXVII Additional City Civil Judge at Bangalore (CCH-9), allowing the interlocutory application filed by the first respondent-plaintiff under Order 39 Rules 1 and 2 of CPC, in O.S.No.2911/2016, thereby restraining the appellants by a temporary injunction from interfering with the management and affairs of the second respondent-Company and the third respondent University and etc.
This Miscellaneous First Appeal having been heard and reserved for judgment on 05.04.2017, and coming on for pronouncement this day, the court made the following:
J U D G M E N T
The appellants have challenged the legality of the Order dated 30-8-2016, passed by the XXVII Additional City Civil Judge, Bangalore City (CCH-9), whereby the learned Civil Judge has granted a temporary injunction in favour of the respondent No. 1, Ms. Shreya Sanjeev. By the said order, the learned Civil Judge has barred the appellants from interfering with the management and affairs of the Alliance Business School Company ('the Company', for short), and of the Alliance University ('the University', for short). In this order, the respondent No. 1 shall be referred to as "the plaintiff".
Briefly the facts of the case are that Ms. Shreya Sanjeev, the plaintiff, has filed a civil suit for declaration and
5 permanent injunction against the Company, the University, and against other persons, including the appellants.
The plaintiff claims that originally, Mrs. Priyanka B. S., the appellant No. 2., owned 51,500 shares of the Company. However, subsequently, on 4-3-2015, she transferred her shares to Mr. shivappa Mantur. The plaintiff further claims that she bought the said shares from Mr. Mantur for a consideration of Rs. 5,50,000/-. Thus, she has acquired 20.60 % of the total shareholding of the Company. She further claims that in its Board Meeting dated 11-2- 2016, the Board has approved the transfer of shares to her. Hence, she is a substantial shareholder of the Company.
The plaintiff further claims that the Company, as the Sponsoring Body of the University, runs the University. Since the University is the sole asset of the Company, since she has a substantial holding of the Company, therefore, she is equally interested in the welfare of the University.
Furthermore, according to the plaintiff, after 5-3-2015 a rift has developed within the management of the
6 Company. For, after the shares were transferred by Mrs. Priyanka B. S. to Mr. Shivappa Mantur on 5-3-2015, the appellant No. 1, Mr. Madhukar Angur, and the appellant No. 2, Mrs. Priyanka B. S. lodged a criminal complaint, against Mrs. Shaila Chebbi Govind, respondent No.5, Mrs. Mala Gouda, the respondent No.6, Mr. Abhay Chebbi, the respondent No.7, and Mr. Prakash Budoor, the respondent No.8 before the police. The appellants claimed that they were forced to transfer the shares on 5-3-2015. Subsequently, the Board of Management has split into two warring factions; one faction is lead by Mr. Madhukar Angur and Mrs. Priyanka Angur who claim that they never transferred their shares on 5-3-2015, and have never resigned from the directorship of the Company; the other faction is led by Mr. Sudhir Angur, the younger brother of Mr. Madhukar Angur, and by Mrs. Shaila Chabbi Govind, Mrs. Mala Gouda, and Mr. Abhay Chebbi, who claim that Mr. Madhukar Angur and Mrs. Priyanka B. S. have not only transferred their shares, but have also resigned from the Board of Management of the Company.
Furthermore, according to the Plaintiff, Mr. Madhukar Angur and his faction is constantly, interfering with the management of the Company and with the daily affairs of the University. Hence, the suit for declaration and permanent injunction against the Company, the University, and against the appellants and others.
The appellants, as the defendant Nos. 8 and 9, filed their written statements; they denied the averments made in the plaint. According to them, the plaintiff is falsely claiming to be a substantial shareholder of the Company. For Mrs. Priyanka B. S. had never transferred her shares to Mr. Shivappa Mantur. Moreover, even if it were admitted for the sake of arguments. that Mrs. Priyanka had transferred her shares to Mr. Mantur, even then all the formalities for transfer of shares from Mr. Shivappa Mantur to the plaintiff were yet to be completed. Therefore, the plaintiff was unjustified in claiming to be the substantial shareholder of the Company. Thus, according to them, the plaintiff has no locus standi to approach the learned Civil Court. Moreover, the plaintiff lacks the locus standi, the suit is not even
8 maintainable before the court. The other averments were equally and emphatically denied.
Along with the plaint, the plaintiff also filed an application for temporary injunction under Order XXXIX, Rules 1 and 2 of the CPC. The appellants filed their objections to the same. However, by order dated 30-8-2016, the learned Civil Judge has granted the temporary injunction in favour of the plaintiff in the terms mentioned hereinabove. Hence, the present appeal before this Court.
Mr. Laxminarayana, the learned Senior Counsel for the appellants, has raised the following contentions before this court: firstly, relying on the case of Maria Margarida Sequeira Fernandes and Others v. Erasmo Jack De Sequeira (Dead) through LR's. [ (2012) 5 SCC 370] the learned Senior Counsel has pleaded that the learned Civil Judge is supposed to have carefully examined the pleadings of the parties. However, the learned Civil Judge has failed to do so. Thus, the learned Civil Judge has fallen short of performing his judicial duty.
Secondly, the appellants had specifically raised the issues with regard to the locus standi of the plaintiff, and with regard to the maintainability of the suit. Although the learned Civil Judge has noticed the said contentions in the impugned order, but the learned Civil Judge has ignored the said pleas. Thus, a grave injustice has been caused to the appellants.
Thirdly, the appellants had pleaded that Section 56 of the Companies Act prescribes a complete procedure for transfer of shares. Even if, for the sake of arguments, it is accepted that Mr. Shivappa Mantur had transferred his shares to the plaintiff, even then the procedure for transferring of shares was not completed. For, according to Section 56 of the Companies Act, a person buying the shares has to pay the requisite stamp duty, and has to be registered as a shareholder in the register maintained by the Company. However, so far, there is no evidence to show that the plaintiff has paid the requisite stamp duty, and has been registered, as a shareholder, in the Company's register. Till the said process is complete, the plaintiff cannot claim to be
10 a shareholder of the Company. Thus, the plaintiff continues to be a stranger to the Company.
Fourthly, the learned Civil Judge has not examined the resolution dated 11-2-2016 passed by the Board of Directors of the Company. The said resolution merely directs the plaintiff to take the necessary steps for paying the requisite stamp duty, and that the matter with regard to registering her as a shareholder in the Company's register would be taken up on a future date. According to the learned Senior Counsel, the resolution dated 11-2-2016 clearly proves that neither the requisite stamp duty has been paid, nor the plaintiff has been taken on the register of the Company. Thus, she is not justified in claiming herself to be "a substantial shareholder" of the Company.
Fifthly, since the learned Civil Judge has not closely examined the pleadings and the documents, specially the resolution dated 11-2-2016, the learned Civil Judge has erred in concluding that the plaintiff is "a shareholder of the Company".
Sixthly, since the plaintiff is not a shareholder, she has no locus standi to file a suit concerning the working of the Company, or of the affairs of the University. After all, she is an alien to both the entities. Thus, the suit is not even maintainable. But the learned Civil Judge has ignored the issues of locus standi, and of maintainability. Hence, the learned Civil Judge has grossly erred in granting the temporary injunction in favour of the plaintiff.
Seventhly, the issue of maintainability of the suit was essential for deciding the existence of prima facie case in favour of the plaintiff. However, as the said issue has not even been touched by the learned Civil Judge, the learned Civil Judge has erred in concluding that the plaintiff has a prima facie case in her favour.
Eighthly, since the plaintiff is a stranger both to the Company and to the University, there is no cause of action that she can plead before the learned trial court. Moreover, the plaintiff is not entitled to the main reliefs prayed by her in the plaint. Therefore, the question of granting the temporary injunction in favour of the plaintiff would not even
12 arise. Yet, the learned Civil Judge has granted the temporary injunction. Hence, the learned Civil Judge has not only grossly erred, but has also caused a grave injustice to the appellants.
Ninthly, in order to buttress his plea with regard to the non-maintainability of the suit, the learned Senior Counsel has elaborately argued that since the plaintiff has not been registered on the Company's register, since there was a delay, in registering her as a shareholder, the plaintiff could have filed either a suit for specific performance against Mr. Shivappa Mantur, or could have approached the Company Law Board for rectification of the Company Register. But, in either case, the present suit for declaration and permanent injunction is neither maintainable against the University or Company, nor certainly against the appellants. Therefore, the impugned order deserves to be set aside by this Court.
On the other hand, Mr. Sajan Poovayya, the learned counsel for the respondents, has raised the following counter-contentions:-
Firstly, once a person has invested money in a Company, by buying its shares, the person has a legitimate interest both in the smooth functioning of the Company, and in the assets of the Company. Admittedly, the plaintiff had invested Rs.5,50,000/- while buying the shares from Mr. Shivappa Mantur. Undoubtedly, she was holding 20.60% of the total share holdings subscribed/held by all the share holders of the Company. Therefore, obviously, she has deep rooted interest in the functioning of both the Company, and its sole asset, namely the University.
Secondly, once all the formalities for transfer of shares are completed, then under Section 56 of the Companies Act, the Company has no other option, but to register the shareholder as a member of the Company. Therefore, the Company has no option but to register the plaintiff as its shareholder.
Thirdly, while relying on the case M/s. Howrah Trading Co. Ltd., v. Commissioner of Income-Tax, Central, Calcutta [ AIR 1959 SC 775] and on the case of Life Insurance Corporation of India v. Escorts Limited
14 and Others [ (1986) 1 SCC 264] the learned Senior Counsel has pleaded that once the shares have been transferred from the transferor to the transferee, even if the shareholder has not been registered with the Company, even then, the transferee has certain equitable rights in his/her favour. Therefore, even if the plaintiff has not been registered with the Company, for the sake of argument, even then, she has certain equitable rights in her favour. Therefore, she is entitled to file a suit for declaration and for permanent injunction against the Company, the University, and the appellants who are needlessly interfering with the functioning of the Company and the University.
Fourthly, the plaintiff has sufficient cause of action for filing the suit. Relying on the cases of Ponnala Lakshmmaiah v. Kommuri Pratap Reddy and Others [ (2012) 7 SCC 788] and Raptakos Brett & Co. Ltd. v. Ganesh Property [ (1998) 7 SCC 184] the learned counsel has pleaded that the pleadings will have to be taken as a whole in order to see if a cause of action arises or not. A holistic reading of the pleading would reveal that the
15 plaintiff had purchased the shares, and the Board had resolved that the shares were legitimately transferred. However, Mr. Madhukar Angur, and Mrs. Priyanka B.S., were questioning the legality of the said transfer. Thus, a cloud of suspicion was placed on the validity of the transfer of shares. Moreover, as the appellants were interfering with the functioning of the Company, and the University, and since the plaintiff has vital interests in the smooth functioning of both the entities, she has ample cause of action before the learned trial court.
Lastly, having considered the relevant documents, the learned Civil Judge was justified in concluding that the plaintiff has a prima-facie case and has balance of convenience in her favour. And in case, temporary injunction were not granted to the plaintiff, an irreparable loss would be caused to her. Since, the three essential ingredients for grant of an injunction were fully established, the learned Civil Judge has validly and legally granted the temporary injunction. Thus, the learned Senior Counsel has supported the impugned order.
Heard the learned Senior Counsel for the parties, perused the impugned order, and considered the case law cited at the Bar.
Needless to say, injunction springs from equity. Being an equitable relief, the court must not only be alive to the requirements of law, but also should be aware of the principles of equity while granting an interim injunction. In the case of Lakshminarasimhiah and Others v. Yalakki Gowda [AIR 1965 Mys 310] it was observed as under:
The extraordinary character of the Injunctive remedy and the danger that its use in improper cases may result in serious loss or inconvenience to an innocent party require that the power to issue it should not be lightly indulged in, but should be exercised sparingly and cautiously only after thoughtful deliberation, and with a full conviction on the part of the court of its urgent necessity. In other words, the relief should be awarded only in clear cases, reasonably free from doubt, and, when necessary, to prevent great and irreparable injury. The Court should therefore, be guided by the fact that the burden of proof rests upon the complainant to establish the material allegations entitling him to relief.
Undoubtedly, while considering the grant or refusal of a temporary injunction, the court needs to examine three factors, namely the existence of a prima facie case, the balance of convenience, and the irreparable loss. In turn, while considering the existence of prima facie case, the court should examine the question of locus standi, the issue of maintainability of the suit, the existence of a cause of action, and the existence of a triable case.
Of course, in the case of Wander Ltd. v Antox India [1990 (Supp) SCC 727]), the Hon'ble Supreme Court has defined the limits of the appellate court while dealing with exercise of discretionary power either by the subordinate Judge or by a Single Judge. The Apex Court observed as under:
In such appeals, the appellate court will not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law regulating grant or refusal of interlocutory injunction. An appeal against exercise of discretion is said to be an appeal on principle. Appellate court will not reassess the material and seek to reach a
18 conclusion different from the one reached by the court below if the one reached by that court was reasonably possible on the material. The appellate court would normally not be justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage it would have come to a contrary conclusion. If the discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court's exercise of discretion.
Thus, the ultimate issue before this court is whether the learned trial court has exercised its discretion reasonably or arbitrarily, judiciously or capriciously, in accordance with settled principles of law regulating grant of interlocutory injunction or de hors the said principles or not? But before this ultimate issue can be decided, this court would have to consider whether the learned trial court has performed its judicial duty while dealing with the application of temporary injunction or not?
In the case of Maria Margarida Sequeira Fernandes and Others v. Erasmko Jack De Sequeira
19 (Dead) through LR's. [ (2012) 5 SCC 370] the Apex Court has opined as under:
A Judge in the Indian system has to be regarded as failing to exercise its jurisdiction and thereby discharging its judicial duty, if in the guise of remaining neutral, he opts to remain passive to the proceedings before him. He has to always keep in mind that 'every trial is a voyage of discovery in which truth is the quest'. In order to bring on record the relevant fact, he has to play an active role; no doubt within the bounds of the statutorily defined procedural law.
The Hon'ble Supreme Court further held as follows:
In a suit for mandatory injunction, then it is the bounden duty and obligation of the court to critically examine the pleadings and documents and pass an order of injunction while taking pragmatic realities…in (sic) consideration. The Court's primary concern has to be to do substantial justice.
While deciding the present case, this court would have to bear in mind the aforementioned principles.
Section 56 of the Companies Act deals with transfer and transmission of securities. The relevant portion of Section 56 of the Companies Act is as under:
S. 56. Transfer and transmission of Securities: (1) - A company shall not register a transfer of securities of the company, or the interest of a member in the company in the case of a company having no share capital, other than the transfer between persons both of whose names are entered as holders of beneficial interest in the records of a depository, unless a proper instrument of transfer, in such form as may be prescribed, duly stamped, dated and executed by or on behalf of the transferor and the transferee and specifying the name, address and occupation, if any, of the transferee has been delivered to the company by the transferor or the transferee within a period of sixty days from the date of execution, along with the certificate relating to the securities, or if no such certificate is in existence, along with the letter of allotment of securities.
Provided that where the instrument of transfer has been lost or the instrument of transfer has not been delivered within the prescribed period, the company may register the transfer on such terms as to indemnity as the Board may think fit.
(2) Nothing in sub-section (1) shall prejudice the power of the company to register, on receipt of an intimation of transmission of any right to securities by operation of law from any person to whom such right has been transmitted.
A bare perusal of the above provision clearly reveals that a Company is prevented from registering transfer of shares until and unless the conditions mentioned therein are fulfilled. According to sub-section 1, the instrument of
21 transfer should be in proper form as prescribed by the Rules; it must be duly stamped, dated and executed by or on behalf of the transferor, and the transferee; it should be delivered to the Company by the transferor within a period of sixty days from the date of execution; it must be accompanied with the certificates relating to the shares; and if no such certificate is in existence, then it must also be accompanied with letter of allotment of shares.
Secondly, according to sub-section 2, sub-section 1 does not curtail the power of the company to register shares. Thus, even if the conditions of sub-section 1 were fulfilled, even then, the Company shall have the discretionary power to register, or not to register the share holder. It is in the light of Section 56 (2) of the Companies Act, that it has been observed that registration of a shareholder by a Company shall be subject to Articles of Association of the Company.
Therefore, in order to see if the plaintiff has been registered as a shareholder with the Company or not, it is imperative to consider the provision with regard to registration of a shareholder by the Company as contained in
22 its Articles of Association, and to see if the requirements of Section 56 of the Companies Act have been fulfilled or not.
According to the Articles of Association of the Company, the Company has the absolute discretionary power to register, or not to register a shareholder. Therefore, Mr. Sajan Poovayya, the learned Senior Counsel, is unjustified in claiming that merely because the requirements of Section 56 (1) of the Companies Act has been fulfilled, the Company is legally bound to register the shareholder. For, such an argument is both against the Articles of Association of the Company, and against Section 56 (2) of the Companies Act.
The resolution dated 11.02.2016, dealing with the plaintiff 's transfer of shares reads as under:
" Transfer of Shares
The Chairman informed the Board that the Company has received Share Transfer application from the existing shareholder, namely Shri.Shivappa Mantur requesting the company to complete the formalities of Share Transfer to Ms. Shreya Sanjeev for a total of 51500 shares (Fifty One thousand Five Hundred); Shares bearing Distinctive Nos. From: A178501 To: A230000 (Both inclusive). The Chairman also told the
23 Board that Shri. Shivappa Mantur confirms that he had received the full consideration for the Transfer of Shares from the Transferee, namely Ms. Shreya Sanjeev.
The Chairman placed the requisite documents for approval of the Board and thereafter it was unanimously:
RESOLVED THAT the Board be and hereby accorded to complete all formalities with respect to the transfer of shares from Shri. Shivappa Mantur to Ms. Shreya Sanjeev after receiving duly executed and duty stamped share transfer application in the next Board Meeting."
Mr. Abhay G. Chebbi
Director- Alliance Business School
DIN : 03193689 "
(Emphasis Added)
A bare perusal of the resolution clearly reveals that the Board has merely "accorded (accorded what is unclear) to complete all the formalities with respect to the transfer of shares, after receiving duly executed, and duly stamped share transfer application. (Further), the case would be considered in the next Board Meeting." Thus, it is amply clear that till 11.02.2016, all the formalities with regard to the transfer of shares were not completed. Moreover, the instrument of transfer was not duly stamped. Thus, the requirements of Section 56 (1) of the Companies
24 Act were not even fulfilled as the transfer application was neither duly executed, nor duly stamped. Most importantly, the resolution did not grant the permission to register the transfer of shares on the Company register. In fact, the resolution merely deferred the consideration of the case to a future date. Hence, the plaintiff has not even been registered as a shareholder on the Company's register. Therefore, the conclusion drawn by the learned Civil Judge that the plaintiff is a shareholder of the Company is clearly belied by the resolution dated 11.02.2016, and by the requirement of law as contained in Section 56 (1) of the Companies Act.
A bare perusal of the plaint clearly reveals that in Para 2 of the plaint, the plaintiff had clearly pointed out that "the transfer of share has been done in her favour by the transferor Mr. Shivappa Mantoor, the defendant No.3 herein, in the Board Meeting of the defendant Company held on 11.02.2016 pending the completion of formalities of registration of share transfer with the Sub-registrar, endorsing the share certificates in the next Board Meeting of the first defendant Company." (emphasis added). Thus, even the
25 plaintiff admits that all the formalities for completing the transfer of shares were not completed by 11.02.2016. Furthermore, even the appellants had raised the contention before the learned Civil Judge that the plaintiff was not the shareholder of the Company, and the suit was not maintainable. But, notwithstanding the said pleas, the learned Civil Judge has failed to examine the plaint and to consider the resolution dated 11.02.2016 filed by the plaintiff. Thus, the learned Civil Judge has failed to perform his judicial duty. Hence, the learned Civil Judge has erred in concluding that the plaintiff is a shareholder of the Company.
Mr. Sajan Poovayya has relied on the cases of M/s. Howrah Trading Co. Ltd. (supra) and Life Insurance Corporation of India (supra) to vehemently argue that even if a transferee of shares has not been registered as a shareholder in the Company's Register, even then such a transferee of shares has equitable rights in his/her favour. Though the plea is partly correct, but it fails to support the case of the plaintiff. For, in the case of M/s. Howrah
26 Trading Co. Ltd. (supra) the Hon'ble Supreme Court has observed as under: But transfer of shares are common and they take place either by a full executed document such as was contemplated by Regulation 18 of Table A of the Indian Companies Act, 1913, or by what are known as "blank transfers''. In such blank transfers, the name of the transferor is entered, and the transfer deed signed by the transferor is handed over with the share script to the transferee, who, if he so chooses, completes the transfer by entering his name and then applying to the company to register his name in place of the previous holder of the share. The company recognises no person except one whose name is on the register of members, upon whom alone calls for unpaid capital can be made and to whom only the dividend declared by the company is legally payable. Of course, between the transferor and the transferee, certain equities arise even on the execution and handing over of a 'blank transfer'', and among these equities is the right of the transferee to claim the dividend declared and paid to the transferor who is treated as a trustee on behalf of the transferee. These equities, however, do not touch the company, and no claim by the transferee whose name is not in the register of members can be made against the company, if the transferor retains the money in his own hands and failed to pay it to him.
During the period that the transfer exists between the transferor and the transferee without emerging as a binding document upon the company, equities exist between them, but not between the transferee and the company. The transferee can call upon the transferor to attend the meeting, vote according to his directions, sign
27 documents in relation to the issuance of fresh capital, call for emergent meetings and interalia, also compel the transferor to pay such dividend as he may have received. See. E.D. Sassoon and Co., Ltd. v. K.A. Patch, 45 Bom.LR 46 approved in Mathalone v. Bombay Life Assurance Co.Ltd., 1954 SCRF 117; (AIR 1953 SC 385). But these rights though they no doubt, clothe the transferee with an equitable ownership, are not sufficient to make the transferee a full owner, since the legal interest vis-à-vis the company still outstands in the transferor; so much so, that the company credits the dividends only to the transferor and also calls upon him to make payment of any unpaid capital which may be needed.
Thus, the equities exist only between the transferor and the transferee, and not between the transferee and the Company. Most importantly, since the equities do not exist between the transferee and the Company, the transferee, whose name is not on the company's register, cannot file a claim against the Company.
Similar view was also expressed by the Hon'ble Supreme Court in the case of Life Insurance Corporation of India (supra). In the said case, the Apex Court opined that "while a transfer may be effective between transferor and transferee from the date of transfer, the transfer is truly complete and the transferee becomes a share holder in the
28 true and full sense of the term, with all the rights of a shareholder, only when the transfer is registered in the Company's Register. A transfer effective between the transferor and the transferee is not effective as against the Company and persons without notice of the transfer until the transfer is registered in the Company's Register."
Therefore, till the plaintiff's transfer of shares is registered in the Company's Register, she merely has certain equitable rights against the transferor, namely Mr. Shivappa Mantoor. But she does not have any right against the Company. Thus, she cannot file any claim or suit against the Company. Since, she is alien to the Company, prior to her transfer of shares being registered by the Company, the plaintiff cannot claim that she has a right to question the functioning of the Company, or the right to question the working of the University, which is the asset of the Company. For, during the interim period between the transfer of shares, and the shareholder being registered with the Company, only a transfusion has begun, but the transplantation is not complete.
Therefore,
Mr.
29 Lakshminarayana, the learned Senior Counsel, is well justified in claiming that since the plaintiff has not been registered as a shareholder of the Company, as the complete formalities still need to be finished, therefore, the suit is not even maintainable in the eyes of the law.
Mr. Sajan Poovayya, the learned Senior Counsel is unjustified in claiming that merely because a person has invested in the Company, by buying its shares, ipso-facto the person gains the right to question the functioning of the Company, and the right to protect its assets. The said plea is belied by the principles laid down by the Hon'ble Supreme Court in the case of case M/s. Howrah Trading Co. Ltd., (supra), and in the case of Life Insurance Corporation of India (supra).
The plaintiff has sought the following reliefs from the learned Trial Court:- firstly, to declare "the rights of defendant Nos. 3 to 7 as the share holders/Directors and present Board of Management of the Defendant No.1 Company as valid. Secondly, "that defendant No.8 to 12 have no manner of interest in the first defendant Company
30 with effect from 04.03.2015, consequent to the transfer of shares and resignation tendered by them." Thirdly, to declare the acquisition of share interest from the transferor as has been approved in the Board Meeting dated 11.02.2016 is legal and valid. Fourthly, to restrain defendant Nos.8 to 12 or anyone on their behalf from interfering with the affairs and management of the first defendant Company. Lastly, to issue a permanent prohibitory injunction against defendant Nos. 4 to 7 from acting in any manner detrimental to the rights and interest of the plaintiff.
As discussed and observed above, since the plaintiff is a stranger to the Company the main relief prayed by her cannot even be granted. Even the relief sought for declaring transfer of shares as valid cannot be granted until and unless the formalities for transfer of shares are completed in accordance with Section 56 (1) of the Companies Act, and until and unless, the Company abuses its discretionary power and denies the right to be registered as a shareholder. There is not an iota of evidence to show
31 that the requirements of Section 56 (1) of the Companies Act have been fulfilled by the plaintiff. Thus, prima-facie the trial court would not be in a position to grant the main relief prayed by the plaintiff. Hence, the learned trial court has erred in granting the temporary injunction in favour of the plaintiff.
Lastly, since the plaintiff is alien to the functioning of the Company and to its assets, the plaintiff has no prima-facie case in her favour qua the management of the Company and qua its assets. Since the suit is prima- facie not maintainable against the Company, the University and against the appellants, the learned Civil Judge is unjustified in concluding that the plaintiff has a prima-facie case in her favour. Moreover, she does not have any balance of convenience in her favour. Furthermore, since the formalities for transfer of shares are still incomplete, the question of irreparable loss to the plaintiff does not even arise. Hence, Mr. Lakshminarayan, the learned Senior Counsel is justified in claiming that the three essential
32 ingredients for grant of injunction are not present in the instant case.
Undoubtedly, the power to grant injunction should not be invoked as a knee jerk reaction. The power has to be exercised after due deliberation, care and caution. But in the present case, it seems that the learned Civil Judge was overwhelmed by the documentary evidence produced by the plaintiff to support her case. Therefore, learned Civil Judge failed to critically examine the pleadings of the parties, and to objectively deal with the contentions raised by the parties. Thus, the learned Civil Judge has failed to perform his essential judicial duties. Swayed by the documentary evidence produced by the plaintiff, the learned Civil Judge has forgotten to ask the fundamental questions as to what is the locus of the plaintiff, and if the suit is even maintainable or not? Surprisingly, despite the appellant having raised these two issues, the learned Civil Judge has brushed them under the carpet, and conveniently ignored the pleas. Thus, the approach of the learned Civil Judge is not in accordance with law. Moreover, since the findings are
33 belied both by the documentary evidence and by the requirements of law, the conclusions drawn are arbitrary, unreasonable and perverse.
Since this court is of prima facie opinion that the plaintiff has no locus standi, that the suit is not maintainable against the Company, the University, and against the appellants and others, therefore, this court need not go into the other pleas raised by Mr. Laxminarayana, the learned Senior Counsel: the plaintiff should have filed a suit for specific relief against Mr. Shivappa Mantur, or that the plaintiff should have approached the Company Law Board for rectification of the Company's register.
But by way of abundant caution, it is hereby clarified that the learned trial court shall not be influenced by any observations made by this court while finally deciding the suit. For, naturally the suit has to be decided on the basis of evidence produced by both the sides, and on the basis of independent, and objective assessment of the evidence so produced.
For the reasons stated above, the order dated 30.08.2016 is set aside. Consequently, the appeal is hereby allowed.
Sd/-
JUDGE
Np/-