Gujarat High Court
Industrial Investment Bank Of India ... vs Persis Areez Khambatta & on 1 May, 2015
Author: C.L. Soni
Bench: C.L. Soni
C/CRA/94/2015 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
CIVIL REVISION APPLICATION NO. 94 of 2015
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE C.L. SONI Sd/-
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1 Whether Reporters of Local Papers may be allowed No
to see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy of No
the judgment ?
4 Whether this case involves a substantial question of No
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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INDUSTRIAL INVESTMENT BANK OF INDIA LIMITED
Versus
PERSIS AREEZ KHAMBATTA & 1
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Appearance:
MR MIHIR JOSHI, SR ADVOCATE for SINGHI & CO, ADVOCATE for the
Applicant
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CORAM: HONOURABLE MR.JUSTICE C.L. SONI
Date : 01/05/2015
ORAL JUDGMENT
1. By present revision application filed under Section 115 of the Code of Civil Procedure, 1908 ('the Code), the applicant- original defendant has challenged order dated 18.3.2015 passed below applications Exhs.59-60 by learned Chamber Judge, Court No.16, City Civil Court, Ahmedabad in Summary Suit No.23 of 2007 whereby the application preferred by the applicant under Section 151 of the Code for dismissing the suit on the ground that it has become infructuous Page 1 of 8 C/CRA/94/2015 JUDGMENT is rejected.
2. The plaintiffs have filed Summary Suit (to be referred as 'Present Suit') for recovery of Rs.1,42,76,347/- being the value of maturity amount of 1,00,000 Redeemable Cumulative Non- Convertible Preference Shares of Rs.100/- each held by them plus Rs.8,12,027/- being the preference dividend due and payable as on the date on maturity, i.e. 3.1.2004 plus Rs.34,63,320/- being the interest accrued thereon at the rate of 10.7% per annum from the date of maturity till the date of filing of the suit with interest at the rate of 18% per annum from the date of the suit till payment is made. As per the averments in the plaint, the plaintiffs were allotted 1,00,000 preference shares of Rs.100/- each carrying 10.70% cumulative dividend and having maturity period of 61 months from the date of allotment which was mentioned as 4.12.1998. However, the defendant sought willingness of the plaintiffs for redemption of the preference shares held by them prior to the date of maturity and requested them to surrender share certificates. But, the plaintiffs requested the bank not to proceed for early redemption of the preference shares held by them till necessary instructions were given by them to the bank, however to their surprise, they received letter dated 11.12.2003 from the bank, stating that in view of the financial position of the bank, the bank was not in a position to redeem the preference shares held by the plaintiffs on their due date of redemption, i.e. 3.1.2004, or to pay preference dividend due on the date of redemption. By the said letter, it was requested to the plaintiffs to rollover the investment of Rs.1,00,00,000/- in the defendant's preference shares for a further period of 20 years carrying a dividend of 0.1% per annum. However, the plaintiffs vide their letter dated 23.12.2003 rejected the suggestion and called upon the bank to redeem the Redeemable Cumulative Non-Convertible Page 2 of 8 C/CRA/94/2015 JUDGMENT Preference Shares held by the plaintiffs on their due date and to pay the preference dividend due on the date of redemption, i.e. 3.1.2004. However, since the defendant deliberately did not comply with the contents of the plaintiffs' letter dated 23.12.2003, the plaintiffs issued legal notice dated 18.3.2014 and then filed the present suit.
3. It appears that pending the present suit, the defendant decided with the consent of 75% preference shareholders for redemption of the preference shares at 20% of the principal amount of the total paid-up preference capital in full and final settlement, and passed special resolution on 13th Annual General Meeting of the defendant held on 20.9.2010. The plaintiffs however challenged the said decision by filing Civil Suit No.324 of 2013 before the Calcutta High Court.
4. But, as per the petitioner- defendant, in view of the special resolution passed in the meeting with requisite majority under Section 106 of the Companies Act, since rights of the preference shareholders are crystallized, the plaintiffs are now not entitled to get relief as prayed for in the present suit and therefore, by subsequent events, the present suit has lost cause of action and has become infructuous. The petitioner therefore, prayed to dismiss the suit by moving chamber summons at Exh.59 with application at Exh.60 under Section 151 of the Code by taking into consideration the above-said subsequent events.
5. Learned senior advocate Mr. Mihir Joshi appearing with learned advocates M/s. Sindhi & Company for the applicant submitted that in view of the decision taken and the special resolution passed by the company with approval of the members of the company and Government of India, since the rights of the preference shareholders are crystallized and preference shareholders are now entitled to the Page 3 of 8 C/CRA/94/2015 JUDGMENT extent of only 20% of their principal amount and such being the subsequent events having taken place during the pendency of the present suit, the present suit claiming full amount with dividend and interest is rendered infructuous. Mr. Joshi submitted that since the Court is entitled to take cognizance of such subsequent events having straight bearing on the relief claimed in the present suit, if the Court finds that by subsequent events, the suit has become infructuous and the relief prayed for in the suit cannot be granted, it will be the duty of the Court to take such action as necessary in the interest of justice which would include disposal of the infructuous litigation. Mr. Joshi submitted that Section 106 of the Companies Act, recognizes alteration of rights of holders of special classes of shares and if decision is taken to alter the rights of the preference shareholders in accordance with law with consent of more than 75% of the preference shareholders and also with approval of the Government of India, the plaintiffs shall be entitled to get redemption value of their preference shares in accordance with the special resolution passed by the company and therefore, it is of no use to continue with the infructuous litigation. Mr. Joshi submitted that the plaintiffs have even filed subsequent suit, being Suit No.324 of 2013, before the High Court at Calcutta seeking to declare that 13th Annual General Meeting held was void ab initio and for permanent injunction restraining the defendant from enforcing special resolution adopted in the said meeting and also for a decree of mandatory injunction for redemption of the preference shares held by the plaintiff at its full value along with outstanding arrears of dividend payable to the plaintiff and in view of filing of second suit with above-said prayers, the present suit was required to be dismissed by the Court below as not surviving by exercising its powers under Order 7 Rule 11 read with Section 151 of the Code. Mr. Joshi submitted that learned Judge committed serious error in rejecting the application of the petitioner simply on the Page 4 of 8 C/CRA/94/2015 JUDGMENT ground of pendency of the second suit before Calcutta High Court and without considering the effect of subsequent events on the present suit. In support of his submissions, Mr. Joshi has relied on the decision of Hon'ble Supreme Court in the case of Shipping Corporation of India Ltd. Vs. Machado Brothers and others reported in (2004)11 SCC 168.
6. Having heard learned senior advocate Mr. Joshi for the applicant and having perused the copy of the plaint of the present suit, it appears that the claim in the suit is to get full redemption value of the preference shares held by the plaintiffs with benefit of dividend and interest on the ground that the preference shares reached their maturity for due payment of their redeemable value with dividend and interest accrued thereon on 3.1.2004. Therefore, in the present suit, the Court is called upon to decide as to whether the plaintiffs became entitled to full redeemable value of their preference shares with dividend and interest as on 3.1.2004 by accepting the same as date of maturity of the preference shares. If the Court is to hold in favour of the plaintiffs, it may grant relief prayed for in the suit. In such circumstances, the subsequent events of passing the special resolution in the year 2010 by the company may lose its significance so far as the plaintiffs are concerned. Mr. Joshi, however, submitted that when special resolution is passed with approval of 75% of the preference shareholders and with the approval of Government of India and in accordance with the provisions of the Companies Act and since the rights of the preference shareholders are crystallized under the said resolution, the preference shareholders will be entitled to only what is provided in the special resolution and therefore, present suit for all purposes has become infructuous especially when in the second suit, not only the decision of the defendant of restricting entitlement of preference shareholders to 20% of the principal amount is under challenge but even the prayer is made to pay full redeemable value with dividend and other Page 5 of 8 C/CRA/94/2015 JUDGMENT consequential benefits. Mr. Joshi drew attention of the Court to the copy of the special resolution, especially Annexure-I, to point out that even for preference shareholders where the maturity of their shares was of the year 2004, the decision would bind them to accept redeemable value of the shares to the extent of 20% of the principal amount and submitted that when special resolution covering even the case of such preference shareholders is under challenge in a subsequent suit with specific prayers for redemption of the preference shares, at their full value along with outstanding arrears of dividend, the present suit lost its cause of action on account of subsequent events having taken place and consequently has become infructuous.
7. The Court finds that the subsequent events are not such which would require the Court to hold that the present suit has become infructuous. One of the many questions which may be required to be dealt with in the present suit is that whether the plaintiffs have become entitled to have full redemption value on the date of maturity in the year 2004 as claimed in the suit with other claims as regards arrears of dividend and interest. If such question is answered in affirmative in the present suit, the question which may be required to be considered whether the challenge against the resolution in the second suit insofar as the plaintiffs are concerned, would be required to be accepted or will not survive. In such facts situation and when such questions are required to be answered at a future stage, the subsequent events as regards passing of the special resolution by the company and filing of the second suit by the plaintiffs challenging the decision of the company to pay 20% of the full value of the preference shares could not be said to have made the present suit infructuous and not surviving so as to warrant exercise of powers by the Court under Section 151 read with Order 7 Rule 11 of the Code. Learned Judge, therefore, has committed no error in rejecting the Page 6 of 8 C/CRA/94/2015 JUDGMENT applications at Exhs.59 and 60 by the impugned order.
8. Reliance placed by Mr. Joshi on the decision in the case of Shipping Corporation of India (supra) will be of no help to the applicant in the facts of the present case. It appears from the facts of the said case that contract was given to the respondent to handle tankers, bulk carriers etc. at the port of Tuticorin. However, since the appellant of the said case was not satisfied with the conduct of the respondent, the contract was terminated, which was challenged by the respondent by filing suit. During pendency of the said suit, interim injunction was granted in favour of the respondent against interfering with the agency which became final till the High Court. During such continuation of agency, the appellant allegedly noticed certain irregularities and was contemplating to take fresh steps to terminate the agency once again. In anticipation of the subsequent termination, the respondent filed another suit before the Court praying for production of accounts of the plaintiff and appointment of an Advocate Commissioner to scrutinize the accounts of the parties. During pendency of two suits, the appellant therein by another notice terminated the agency of the respondent on the ground of charging excess amount and charge of tampering with invoices and bills. In such facts situation, Hon'ble Supreme Court found that original termination notice based on which first suit being O.S. No.4212 of 1995 was filed, ceased to exist because of subsequent termination notice, validity of which was challenged by the respondent in third suit and taking subsequent events, Hon'ble Supreme Court not only found that the first suit had become infructuous but dismissal of the suit would not cause any prejudice to the plaintiff.
9. As stated earlier, in the facts of the present case, subsequent events on which applications at Exhs.59 and 60 were filed, are not such which would render the first suit infructuous and if the first suit Page 7 of 8 C/CRA/94/2015 JUDGMENT is held to be infructuous, it might prejudice the rights of the plaintiffs to get their claim accepted that they became entitled to have full redemption value on the date of maturity in the year 2004. In such view of the matter, relying on the above-said judgment in the case of Shipping Corporation of India (supra), present suit of the plaintiffs cannot be dismissed on the ground that it has become infructuous.
10. For the reasons stated above, the revision application stands rejected.
Sd/-
(C.L. SONI, J.) omkar Page 8 of 8