Madras High Court
T.R. Sriram vs K.M. Duraibabu And Ors. on 22 June, 1993
Equivalent citations: (1993)2MLJ574
JUDGMENT Srinivasan, J.
1. C.M.A. No. 449 of 1993 arises out of the suit in O.S. No. 317 of 1993 filed in the City Civil Court, Madras, on 7.1.1993 by one S. Balan, who is carrying on the profession of Advocate and who is a shareholder in the Bank of Madura Limited. The prayer in the plaint is to declare that the election held on 28.12.1992 to the Board of Directors for nine vacancies is void and to direct the defendant to hold a special annual meeting at the earliest and conduct election for the vacancies of the Board of Directors. Bank of Madura is the only defendant in the suit. We will refer to the grounds on which the election is attacked at a later stage. The plaintiff filed I.A. No. 523 of 1993 for an injunction restraining the Bank from acting upon the election held on 28.12.1992 in the annual general meeting for the vacancies of the Directors in item Nos. 3 and 5 to 12 in the agenda until further orders. The application was ordered on 2.2.1993 by the I Assistant Judge, City Civil Court, Madras. Against the said order, Bank of Madura (hereinafter referred to as 'the Bank') preferred C.M.A. No. 9 of 1993 in the Court of the Principal Judge, City Civil Court, Madras and applied for an interim stay of the order of the trial court.
2. On 13.1.1993 another shareholder by name Duraibabu filed a suit on the Original Side of this Court which was numbered as C.S. No. 71 of 1993 for declaration that the election held at the 49th Annual General Meeting of the Bank for all nine vacancies of Directorship is null and void, to direct defendants 3 to 9 to vacate the Office of Directorship in the Bank and for an injunction restraining them from exercising their functions besides a direction to the Bank to hold a fresh general meeting for election of Directors. An application was filed for an injunction which was numbered as C.A. No. 42 of 1993 restraining the Directors from functioning as such. The application was dismissed on 5.2.1993 by a learned single Judge of this Court. Against the said order, another shareholder who was not a party to the suit filed an appeal and prayed for leave to file appeal. On 17.2.1993, a Division Bench of this Court granted leave to file appeal and also ordered status quo as regards the functioning of the elected Directors of the Bank. Against the said order, the Bank preferred a special leave petition before the Supreme Court of India. On 19.2.1993, the Supreme Court granted interim stay of the order of the Division Bench of this Court. On 5.3.1993 the Supreme Court passed an order directing this Court to deal with the transfer petitions filed in this Court for transferring the suits filed in the City Civil Court, Madras and dispose of the same before 17.3.1993.
3. There were two transfer petitions pending in this Court. Transfer Petition No. 813 of 1993 was to transfer O.S. No. 317 of 1993 from the City Civil Court to this Court. Transfer Petition No. 734 of 1993 was to transfer another suit O.S. No. 1058 of 1993 filed by another shareholder by name Umayal for similar reliefs in the City Civil Court. Both the petitions were ordered on 9.3.1993 and the two suits were transferred to this Court.
4. There was another Transfer Petition No. 735 of 1993 to transfer CM. A. No. 9 of 1993 to this Court. That petition was pending. The Supreme Court passed a final order on 19.4.1993. The relevant part of the order is in the following terms:
On a consideration of the matter and taking into account all the facts and circumstances pointed out by the two sides, we are of the opinion that Bank of Madura Limited v. S. Balan, C.M.A. No. 9 of 1993, as well as T.R. Sriram v, K.M. Duraibabu and others, O.S.A. No. 22 of 1993, should both be heard by a common Division Bench of the High Court constituted afresh for this purpose by the learned Chief Justice of the High Court. The interim orders made by this Court on 19th and 22nd February, 1993 shall continue till the Division Bench of the High Court so constituted by the learned Chief Justice takes up for consideration these two matters along with the applications, if any, filed by any party for grant of any interim relief. It is directed accordingly. The learned Chief Justice of the High Court is requested to constitute a fresh Division Bench for the above purpose, at an early date.
Thereafter, the Acting Chief Justice constituted this Bench for hearing these two appeals. Thus, the appeals have come before us.
5. Before we consider the grounds of attack against the election, we must mention that though documents were filed in both the suits, they were not given exhibit numbers either by the City Civil Court or by the single Judge on the Original Side of this Court. Hence, it is necessary for us to give exhibit numbers to all the documents so that they can be referred to conveniently in this judgment. In so far as the suit filed in the City Civil Court (O.S. No. 317 of 1993) we give the numbers to the documents filed on the side of the plaintiff as Exs.A-1 to A-14 and the documents filed by the defendants as Exs.B-1 to B-8. With reference to the suit filed on the Original Side of this Court (C.S. No. 71 of 1993), the documents filed by the plaintiffs are marked as Exs.P-1 to P-6 and the documents filed by the defendants as Exs.R-1 to R-23.
6. The grounds on which the election is attacked by the plaintiffs in the two suits are almost the same. Only one extra ground is added in the suit filed on the Original Side of this Court by the plaintiff in that suit. We will refer to it at the appropriate place. First ground is that the management collected blank proxy forms and filled up the same later and the said proxies are, therefore, invalid. It is also alleged that the proxies are all manipulated, interpolated and fraudulently created as would be seen from the proxies of the same persons on 21.12.1992 and their accompanying letters revoking the previous proxies given, if any and conspicuously the proxies given two days later do not revoke the proxy given on 21.12.1992. It is not necessary for us to refer to the averments in the counter affidavit as the only plea taken by the bank is that when the proxies were deposited with the Bank, they were duly filled up and that there was no blank. It is seen from the records that blank proxy forms have been filed by the plaintiffs in these suits as Exs.A-1 and P-1. They are only model proxy forms as prescribed by Schedule 9 to the Companies Act and they have been sent to the shareholders along with the notice of the Annual General Meeting. It is not necessary for the bank to fill up those forms at that time. The allegation that blank proxy forms have been collected by the Management has not been established by any record at this stage. As at present, there is no evidence before us that proxy forms were collected and filled up by the management itself. The allegation made in the plaint filed in the City Civil Court that proxy forms were manipulated, interpolated and fraudulently created is not supported by any evidence therefor. The plaint states that few of the proxies which were collected are attached to the plaint as document No. 2. But no document was filed by the plaintiff as document No. 2. A docket has been filed and on the docket itself, an endorsement has been made by learned Counsel for the plaintiff that document No 2 has not been filed along with the plaint. We have numbered the docket as Ex. A-2 for identification purpose. Thus, the averment made in the plaint has rot been substantiated and no attempt has been made even before us to produce those proxy forms. There is no evidence also with regard to the proxies given on 21.12.1992 and the letters said to have accompanied revoking the previous proxies or the proxies given after 21.12.1992. On the other hand we have some positive evidence to disprove the case of the plaintiffs. Ex.B-19 which corresponds to Ex.B-4 is the Register of Proxies. The appellant in O.S.A. No. 22 of 1993 has inspected the register, verified the proxies and made an endorsement on 26.12.1992 as follows:
Proxies verified. No objection subject to the condition that RDM to be verified tomorrow (27-12-1992).
On the next day i.e. 27.12.1992, he verified the register and made an endorsement that proxies were verified and found in order subject to the query raised in the page No. 12. The query relates to the rejection of a proxy issued by the Executors to the Estate of Late A. Sivakami Achi, a shareholder in S.F. Nos. 1/22,2/398,10/147 and 13/319. This is available in the third sheet of Ex.B-4 which corresponds to Ex.R-19. There is an endorsement by the Secretary that the validity of the proxy should be decided based on legal advice. The Secretary has countersigned that he has allowed the proxy and that bears the date 28.12.1992. This is the only objection of the appellant in O.S. A No. 22 of 1993 and that is considered and properly decided. There is a similar inspection by another shareholder by name Murugappa Murugappan on 26.12.1992. He has made an endorsement that the proxies have been verified and he has no objection subject to the condition that the Register, of Members to be verified on the next day. On the next day (27.12.1992) he verified the register and made an endorsement that the proxies were verified and found in order subject to the query raised in page No. 12. That is found in the second sheet of the Ex.B-4 which corresponds to Ex.R-19. Thus the Register of Proxies as well as the Register of Members have been verified before the meeting and found to be in order. There is no substance in the objection raised before the court that blank proxies were collected or that the proxies were manipulated interpolated etc.
7. Learned Counsel for the Bank draws our attention to Section 195 of the Companies Act. Under that section, there is a presumption until the contrary is proved that the general meeting is duly called and held arid all proceedings threat to have duly taken place, and in particular, all appointments of directors or liquidators made at the meeting are valid if the minutes of the proceedings of the general meeting have, been kept in accordance with the provisions of Section 193. Relying on the said section, learned Counsel draws our attention to Ex.R-4 which is the minutes of the 49th Annual General Meeting. It is recorded in the minutes as follows:
Shri. S. Kathiresen, Company Secretary, informed the members that the management was not aware of collection of proxies by any one before the date of despatch of notices. The printed proxy forms in conformity with the Companies Act were circulated to the shareholders only with the Annual Report and notice for the Annual General Meeting. All proxies lodged with the Bank were "dated. He further pointed out that all the proxies were verified and certified in writing by Shri T.K. Sriram, Director, Jats Electronics and Shri Murugappa Murugappan and Shri M.K. Bashyam on 26th and 27th December, 1992 that "all proxies verified and found in order." Based on these he concluded that no provision in the Companies Act had been vitiated. The members expressed their satisfaction over the reply.
8. Learned Counsel also contends that that if there is any defect in the proxies, the same cannot be challenged by any third party and it is only the person who issued the proxy can raise objections thereto. Reliance is placed on the judgment of Delhi High Court in Swadeshi Polytex Ltd. In re. (1980)63 C.C. 709. The relevant passage in the judgment reads thus:
The instrument appointing a proxy shall (a) be in writing and (b) be signed by the appointed or his attorney duly authorised in writing or if the appointer is a body incorporate, be under its seal or be signed by an officer or an attorney duly authorised by it. The relationship between a shareholder and his proxy is that of principal and agent. As a rule, a proxy is not revoked unless written notice of the revocation by death, insanity, transfer of shares or act of revocation has been received by the company before the meeting or adjourned meeting. A proxy signed in a blank as to the name of the appointee, or as to the date of the meeting and delivered with authority to fill up the blank, is not open to objection if, when deposited with the company, the blank has been duly filled up. It is not a deed and there is, therefore, no objection to the blank being filled up by the agent of the appointee, even though appointed by parole. The instrument in such circumstances is not complete until it is filled up, and when filled up, the only question is whether it is duly stamped.
...Further more, the grievance in this behalf can only be raised by the person who had executed a blank proxy. There is no complaint from any one of them that their proxies have wrongly been utilised. How and under what circumstances the plaintiff can come forward and champion the cause of other shareholders is not explained. Such an objection, to my mind, cannot be entertained." Having regard to the evidence on record and the abovesaid prosecution of law, we have no hesitation to hold that the objection to the election on the ground that blank proxy forms were collected and filled up and that the proxies were invalid, has to fail.
9. The next objection raised by the plaintiff is that there were two separate advertisements in two newspapers Dinakaran and Indian Express notifying the names of persons who had offered to contest for the post of Directors. It is alleged that there was no necessity whatever to give two different notices on the same day in the same newspaper regarding the same purpose and that the motive is that in case any of the candidates from Column 1 is either disqualified, restrained or withdrawn from the contest, the Management's nominee should be immediately picked up as against that candidate and that it is against fairplay and proper practice. In support of this contention, reference is made to Ex.A-3 filed in the City Civil Court and Ex.P-4 filed in this Court. Ex.A-3 is the xerox copy of a portion of the publication. It is written at the top that it is an extract from Indian Express dated 20.12.1992. A copy of the publication has not been filed in the City Civil Court. There is no explanation as to why cutting from the newspaper itself has not been filed. Ex.P-4 filed in this Court comprises of three sheets. First sheet is the xerox copy of a portion of publication in Dinakaran dated 19.12.1992. The second sheet is the xerox copy of Indian Express dated 20.12.1992. Third sheet is the xerox copy of cutting from Dina Malar dated 20.12.1992. Here again, it should be noted that cuttings from the newspapers themselves have not been filed. But that does not matter as there is no dispute with regard to the publication made in the newspapers by the Bank as stated therein. By these advertisements notices under Section 257(1) of the Companies Act are given informing the shareholders that proposals have been received from the shareholders for the candidatures of certain persons set out therein in the place of vacancies arising out of the resignation/retirement of the Directors mentioned therein. One advertisement refers to nine vacancies and the other advertisement refers to eight vaoancies. It is contended by learned Counsel for the appellant in O.S.A. No. 22 of 1993 that two advertinements have been given in the newspapers only to confuse the shareholders and nobody will be in a position to understand as to why two advertisements have been given and they will not also be able to understand the correct position with regard to the contest. Learned Counsel appearing for the plaintiff in the suit filed in City Civil Court who is the respondent in C.M.A. No. 449 of 1993 goes one step further and contends that there should have been three advertisements including the two advertisements given. According to him, the third advertisement should be to indicate that the present Directors are contesting. There is no substance in the contention of either counsel. As explained by the Bank, the advertisements published in the newspapers clearly refer to one set of proposals received by the Bank with regard to the candidature of certain shareholders as against the vacancies of certain Directors. Similarly, the other advertisement refers to another set of proposals received by the Bank. One set refers only to nine proposals as it contained nine proposals and the other set relates to eight proposals as it contained only so many proposals. There is no substance in the contention with regard to the third advertisement. These advertisements have been made only to give notice to the shareholers that certain persons are offering to contest. Under Section 257 of the Companies Act, such notice should be given. In this case Ex.A-1 corresponding to Ex.P-1 is the notice for the Annual General Meeting issued to each shareholder. That notice very clearly states that existing directors are submitting themselves for being appointed as Directors in the election. For example column No. 5 in page 1 reads as follows:
Resolved that Shri A. Arunachalam who was co-opted as a Director, in terms of Clause 67 of the Articles of Association of the Bank, and who holds office upto the date of this Annual General Meeting be and hereby appointed as a Director of the Bank.
In the explanatory statement it is shown as item No. 5 at page No. 3 of the notice. It is stated that Shri A. Arunachalam was co-opted as an Additional Director in the meeting held on February 24, 1992 and he will hold office as the Director upto the date of the ensuing Annual General Meeting. It is also stated that a notice under Section 257 of the Companies Act has been received from a member of the Bank signifying intention to propose Shri. Arunchalam as a candidate for appointment as a Director. Thus, notice has been given to every shareholder that the existing Directors are contesting the election. In addition to the same, subsequent proposals are notified by the two advertisements referred to above. In the circumstances, there is no necessity to issue a third advertisement indicating that the existing Directors are also contesting.
10. One other objection is a raised by learned Counsel for the appellant in O.S. A. No. 22 of 1993 that the notice of Annual General Meeting does not set out as to the vacancy in which Shri Arunachalam was co-opted as Director. There is no provision of law whatever that a Director already co-opted should be shown in the notice of Annual General Meeting to have been co-opted as against a particular vacancy. There is no merit in this contention. There is no dispute as regards the validity of the co-option in this case. However, as a measure of caution, learned Counsel for the Bank draws our attention to Article 67 of the Articles of Association of the Bank. Article 67 empowers the Directors to appoint any other qualified person as a Director either to fill a casual vacancy or as an addition to the Board but the total number of Directors shall not at any time exceed the maximum number fixed. It is also made clear by the Article of Association that any Director so appointed shall hold office only until the next following ordinary general meeting of the company and shall then be eligible for re-election. The Articles of Association are in terms of Section 260 of the Companies Act which states that nothing in Sections 255, 258 or 259 shall affect any power conferred on the Board of Directors by the articles to appoint additional directors. First proviso to the said section says that, additional directors shall hold office only upto the date of the next annual general meeting of the company. Thus, the notice issued by the Bank for the Annual General Meeting to the share-holders fulfills the requirements of law and there is no ambiguity whatever that the existing Directors are also contesting as their period of office will come to an end an the date of the Annual General Meeting.
11. The next contention is that the ballot papers has been printed in a peculiar way and before the date of the meeting, the Management decided to withdraw the second list of their candidates and therefore, perforated the ballot papers between the second and their columns so as to segregate easily. According to the plaintiffs, it was done as the management was anticipating that few of the Directors might have been restrained from contesting the election for the reasons best known to themselves and which are subject-matter of various cases and enquiries pending against them. Before dealing with this contention, it should be noted that applications were filed in the suit filed in the City Civil Court before the election to restrain the Directors from holding the election and contesting the election. All such applications had been dismissed. There was no order by any court restraining the holding of election and so also restraining any of the Directors from taking part in the election. In that context, if the ballot papers which have been filed as Ex.A-4 which corresponds to Ex.R-3 is seen, it is clear that the first column relates to the existing Directors who were contesting the election. The second column sets out the names of persons who were contesting against the vacancies of particular Director. The third column gives another list of persons who were also contesting. There is perforation between the second and third columns. We find the explanation of the Bank in this manner. The persons who are listed in column 3 withdrew their candidatures before the meeting was held. In order to point out that they have withdrawn their candidature and removed their names from the ballot paper, that portion was perforated. Withdrawal of the candidature was announced in the meeting and noted in the minutes. There is nothing wrong in such perforation. It is contended by the Bank that in order to remove easily that part of the ballot paper, perforation was made. There is nothing on record to show that any shareholder has complained that he was consulted and so he had not exercised his right to vote. The evidence on record docs not support the contention of the plaintiffs. Hence, it is rejected.
12. The next contention is that the guidelines issued by the Reserve Bank of India and the rules and regulations framed by them have been violated by the Directors. In particular, reference is made to the guidelines issued by the Reserve Bank of India restricting the holding of shares by any individual or group to less than 1% of the paid up capital. The circular issued by the Reserve Bank of India dated 23.8.1993 is marked as Ex.B-15 corresponding to Ex.A-5. The relevant part of the guidelines is in the following terms:
We, therefore, have to reiterate our instructions that when on the basis of information available with the bank, any transfer of shares appears to be not in the nature of genuine investment or if the bank suspects any attempt at cornering of shares with a view to acquiring controlling interest in the bank, the bank should take appropriate action. When the transfer of shares makes the holding of the proposed transferee, either singly or along with companies/concerns in the group equivalent to 1% and over of the total paid up capital of the bank, the matter should be referred to the Reserve Bank of India, within three days of the lodgment of shares and the bank should await an acknowledgment from us before effecting the transfer. More importantly, banks should in their own interest anticipate such situation whenever they make rights issues and take ail necessary measures to ensure that no individual or groups manouvere to corner large blocks of shares.
Relying on the guidelines issued by the Reserve Bank of India, it is submitted that Uday S. Kotak and Anand G. Mahindra got transfer of shares in favour of their group in violation of the guidelines to an extent of 9.38% of the paid-up-capital. In Ex.R-16, the Bank has written on April 16,1992 to the Joint Chief Officer that the Business Committee has approved in their meeting held on April 9, 1992 the transfer of shares as detailed therein subject to the approval of the Reserve Bank of India, if necessary. The details of companies and individuals who wanted transfer of shares are set out therein. In paragraph 2 of the letter it is stated that none of the individual shareholders account for more than 1% of the total paid-up capital of the Bank and that the acquisition singly or as a group will not lead to their having controlling interest in the bank. A similar letter has been sent again on April 27, 1992 under Ex.R-17 with reference to two more claims for transfers which were approved by the business committee on April 9, 1992. It is stated in paragraph 2 that the total transfers received from the group constitute 9.38% of the paid-up capital of the Company (Bank) and the transfers shall be given effect to after receiving acknowledgment from the Reserve Bank of India. The Bank has stated in the counter affidavit that the Reserve Bank of India has issued acknowledgments with reference to majority of the shares said to be transferred. But, the documents relating to such acknowledgments have not been produced before court. The exact percentage with reference to the acknowledgment issued by the Reserve Bank of India has not been mentioned in the counter. It is contended that the approval of shares accepted by the Business Committee of the Bank is in violation of the guidelines and that prevents the said persons, namely Uday S. Kotak and Anand G. Mahindra from contesting the election as Directors. It is not necessary for us to consider this objection to the election of the said two persons in view of the fact that those two persons have resigned their directorship on 3.1.1993 soon after the election. Even if those two persons were not eligible to be Directors and have been elected as such, the same will not vitiate the election of the other Directors. As those two persons have resigned their directorship, it is not necessary for us to consider the question in detail. However, we wish to point out that the guidelines issued by the Reserve Bank of India does not prohibit the transfer of shares exceeding 1% of the paid-up capital of the Bank. What all the guidelines says is that the Bank shall inform the Reserve Bank of the proposed transfer and await for the acknowledgement from the Reserve Bank. The transfer shall be effected only after such acknowledgement. Thus, the transfers are not by itself a nullity. The plaintiffs have not made any specific allegation that no portion of the transfers were acknowledged by the Reserve Bank. As the Bank has not produced the documents with regard to transfer of shares, we do not think it proper to go into that question. As pointed out earlier, those two persons resigned their Directorship and we leave that question of law open. It is also alleged by the plaintiffs that the said two persons were debarred by the Reserve Bank from being Directors. But, no record has been produced by the plaintiffs to show that there was any such debarment. In the view that we have taken, it is not necessary to refer to the provisions of Banking Regulation Act relied on by learned Counsel for the plaintiffs to show that the guidelines issued by the Reserve Bank have statutory force.
13. It is also contended that the persons have purchased shares for abnormal sum of Rs. 1,200 as against the market value of about Rs. 300 in order to acquire control over the bank. There is no evidence on record in support of the same. On the other hand, Ex.A-1 shows that shares were transferred for Rs. 101 and Rs. 400.
14. It is next contended that Shri K.M. Thiagarajan, who was co-opted in April, 1992 was not eligible to be appointed as a Director in view of the fact that the leasing company by name Messrs. Tamarai Leasing and Financing Limited belonging to himself has availed a loan of Rs. 1,00,00,000 from the Bank and in order to twist the matter, he has relinquished his office as Managing Director of the said Tamarai Leasing and Financing Company Ltd. a few days before his induction into the Board of Directors. It is alleged that the major portion of the loan still remains unpaid and in contravention of the provisions of Section 20 of the Banking Regulation Act, 1949, he has been inducted as a Director. The answer by the Bank to this contention is that the said Thiagarajan was not a Director of the Bank at the time when the loan was sanctioned and he ceased to be a Director or employee of the said Tamarai Leasing and Financing Company Ltd. when he was appointed as a Director of the Bank. It is also stated that Thiagarajan did not have substantial interest in the said leasing company. Insofar as the holding of Thiagarajan is concerned, it is alleged in the plaint filed in the City Civil Court that the group including himself had approximately 23% of the paid-up capital of the Bank. In the plaint filed in O.S.A. No. 22 of 1993 nothing has been specifically mentioned as regards the extent of the holding of Thiagarajan and his group. But only in the appeal, a ground is raised that the group is having 29% of the paid-up capital of the Bank. There is no document whatever to prove that Thiagarajan and his group had 23% or 29% of the paid-up-capital of the Bank. But, the plaintiff in the suit filed in the City Civil Court has himself filed a document in Court marked as Ex.A-9. It is a letter written by the Secretary of the Bank to the Executive Director, Madras Stock Exchange Limited. It is stated in that letter in paragraph 4 that Dr. K.M. Thiagarajan held 15,000 shares. It is also seen therefrom that Uday S. Kotak had 22,500 shares. Anand G. Mahindra had 500 shares, S.A.A. Printo had 400 shares and Suresh A. Shroff had 500 shares. There is no document to show anything contrary to this document. Hence, at this stage, we accept this document which came into existence long before these allegations were made and hold that Thiagarajan had only 15,000 shares in the Bank which is much less than 1% of the paid-up capital. Learned Counsel for the appellant in O.S.A. No. 22 of 1993 informed that the total paid-up capital of the Bank is Rs. 2,25,00,000 and the total number of shares is 22,50,000 and 1 % of the paid-up capital will be Rs. 2,25,000. Therefore, the shares hold by Thiagarajan are much below 1% of the paid-up capital. As at present the allegation that he had 23% or 29% of the paid-up capital has not been proved.
15. It is next contended that with the help of 29% of paid-up capital of Thiagarajan and his group including Uday S. Kotak and Anand G. Mahindra in whose favour he has transferred certain shares, he attempted to capture the control of the Bank and has succeeded in the election held on 28.12.1992 It is alleged that the total number of votes polled is 13,83,329 including the invalid votes. According to learned Counsel for the plaintiffs, out of the same, Thiagarajan's group had more than 7,80,000 votes. There is no evidence in support of this contention. On the other hand, we are able to see that the total votes polled exceeds 61 % of the total number of votes. Even assuming that the contention of the plaintiffs that Thiagarajan's group had 29% of the capital, they do not form the majority of the votes polled. Thus, the allegation that Thiagarajan's group had captured the control of the Bank is baseless. It should also be stated here that the Directors elected had each secured more than 12,00,000 and odd votes while the persons who were defeated had secured only 1,29,000 and odd votes. Thus, the difference in the number of votes is so vast that there is no substance in the contention that Thiagarajan's group had attempted to capture the control of the Bank. There is also no substance in the contention that Thiagarajan was not eligible to be a Director. The evidence on record shows that he ceased to be a Director of Tamarai Leasing and Financing Company Ltd. long before he was inducted into the Board of Directors of the Bank. Ex.R-21 is a letter written by Tamarai Credit and Investments (P) Ltd. to the Bank. According to the said letter, Dr. Thiagarajan ceased to be a Director of the Company on and from February, 1992. He was neither a Director nor an employee of the said company. He was co-opted as a director of the Bank only on 9.4.1992. There is also a certificate issued by the Chartered Accountant marked as Ex.R-22. As per the certificate, Thiagarajan's holding in Tamarai Credit and Investments Limited was only worth Rs. 78,310 being the value of 7,831 shares. The paid-up capital of that company was Rs. 35;01,020 on 30th March, 1992. The total shares of the family of Thiagarajan was 31,661 of the value of Rs. 3,16,610. Thus, it is proved by the documents available that Thiagarajan did not have substantial interest in the said company.
16. Under Section 20 of the Banking Regulation Act, 1949, no banking company shall enter into commitment for granting any loan or advance to or on behalf of
(i) any of its directors.
(ii) any firm in which any of its directors is interested as partner, manager, employee or guarantor, or
(iii) any company not being a subsidiary of the banking company or a company registered under Section 25 of the Companies Act, 1956 (1 of 1956), or a Government Company of which (or the subsidiary or the holding company of which) any of the directors of the banking company is a director, managing agent, manager, employee or guarantor or in which he holds substantial interest, or
(iv) any individual in respect of whom any of its directors is a partner or guarantor.
The relevant clause is Sub-clause (iii) of Clause (b) of Section 20 which refers to holding of substantial interest, "substantial interest' has been defined under Section 5(ne) of the Act as follows: "substantial interest"
(i) in relation to a company, means the holding of a beneficial interest by an individual or his spouse or minor child, whether singly or taken together, in the shares thereof, the amount paid up on which exceeds five lakhs of rupees or ten per cent of the paid-up capital of the company, whichever is less;
(ii) in relation to a firm, means the beneficial interest held therein by an individual or his spouse or minor child, whether singly or taken together, which represents more than ten per cent of the total capital subscribed of the said firm.
It is hardly necessary to point out that the definition has not been satisfied in the present case and it is not proved that Thiagarajan has substantial interest in the said leasing company.
17. Much arguments were advanced that in the counter affidavit filed by the Bank, there was no statement that the loan given to the said leasing company had already been discharged. Even assuming that the loan remains undischarged, that does not affect the eligibility of Thiagarajan to be a Director of the Bank in view of the position in law which we have stated above.
18. It is then argued by learned Counsel for the appellant in O.S.A. No. 22 of 1993 that there is no explanation on the part of the Bank as to why the Annual General Meeting which should have been held in September, 1992 was postponed and held only in December, 1992. According to him, the balance sheet was ready on 10.6.1992 and the meeting should have been held in September, 1992. He refers to the letters of the Registrar of Companies granting extention of time till 30.11.1992 in the first instance and till 31.12.1992 in the second instance. The two letters are marked as Ex.R-20. Learned Counsel submits that the Bank ought to have produced the letters written to the Registrar praying for extention of time for holding the Annual General Meeting. According to him, those letters would have disclosed the reasons and when it is alleged by the plaintiffs that there was no proper reason for postponing the meeting, it is the duty of the bank to have produced those letters and satisfied the court that there was justification for postponing the meeting. According to him, the meeting was postponded only for the purpose of collecting the proxies from the shareholders. It is argued that the Management collected blank proxies in that period and after collecting sufficient number of proxies held the meeting in December, 1992. We have already held that there is no record to show that the Management collected blank proxies. There is no substance in the contention that the Management ought to have produced the letters written to the Registrar for postponement of the meeting. The Registrar has sanctioned the postponement and there is no dispute about the same. Hence, the meeting held on 28.12.1992 is in no way affected or invalidated, joint because the Bank has not produced the letters in this Court praying for extension of time. It does not mean that the Bank has acted mala fide or that they got the meeting postponed for the purpose of collecting blank proxies. Apart from that, it is seen from the minutes of the meeting held on 28.12.1992 and marked as Ex.R.-4 that an objection was raised by the appellant, in O.S.A. No. 22 of 1993 and answered at the meeting. It is recorded in the minutes that T.R. Sriram who is the appellant in O.S.A. No. 22 of 1993 enquired the reason for holding the meeting in December, 1992 though the accounts were finalised in June, 1992 and he wanted explanation from the Management for not having printed the date of the meeting in the proxy form. The answer was given by the Chairman of the meeting. He has stated, as seen from the minutes, that there was no sinister motive in the postponement of the meeting as the Board was waiting for the result of action initiated by the Reserve Bank of India against the former Chairman Sabapathy and decided to hold the meeting after the date of his retirement in the normal course. It is stated that the date of retirement of the former Chairman in the normal course was 18.12.1992. The appellant in O.S.A. No. 22 of 1993 was satisfied with the answer and he did not pursue his objection, even though his present counsel appearing in this appeal who was also a shareholder expressed his dissatisfaction with the reply. There is no substance in the objection as the Registrar has extended the time for holding the meeting and it was lawfully held on 28.12.1992.
19. The only other objection which remains to be considered is the one raised in the suit filed on the Original Side of this Court, though it was not raised by the plaintiff in the suit filed in the City Civil Court. The objection is that there was no clear notice of 21 days before the meeting was held. The plaintiff in this suit has received the notice on 10.12.1992. According to him, the meeting was, therefore, called on a short notice and clear 21 days were not available, with the result the meeting was invalid. Though learned Counsel for the appellant in O.S.A. No. 22 of 1993 was not very serious about this objection, it having been raised in the suit, we are considering the same. It is seen from the records that notices were posted to the shareholders of the Bank on 30.11.1992. The certificate of posting is marked as Ex.B-6. Thus, the Bank had taken all steps to issue notices long prior to the meeting and the Bank did so about 29 days prior to the meeting and satisfies the requirement of 21 days' notice. There is no complaint by any other shareholder that he received the notice as the plaintiff in the suit filed in the City Civil Court has received. Section 172 of the Companies Act provides that every notice of meeting of a company shall specify the place and the day and hour of the meeting, and shall contain a statement of the business to be transacted thereat. Section 171(1) of the Companies Act provides that a general meeting of a company may be called by giving not less than twenty-one days' notice in writing. Section 172(3) is very specific and it reads thus:
The accidental omission to give notice to, or the non-receipt of notice by, any member or other person to whom it should be given shall not invalidate the proceedings of the meeting.
Thus, the fact that the plaintiff in the suit filed on the Original Side of this Court received the notice on 10.12.1992 within the period of 21 days prior to the meeting, does not invalidate the meeting in any manner.
20. The appellant in C.M.A. No. 449 of 1993 has raised a substantial objection that the suit is not maintainable and in any event, the application for injunction filed by the plaintiff is unsustainable. It is pointed out that none of the elected Directors has been impleaded as a party and the suit has been filed only against the Bank. We have already referred to the prayer in the suit. In the application for injunction it is prayed that the Bank shall be restrained from acting upon the election held on 28.12.1992. We do not propose to consider the maintainability of the suit at this stage. However, we are of the view that the application for injunction is not maintainable. The injunction is sought for against the Bank and the prayer is to restrain the bank from acting upon the election. How can a Bank be restrained unless the election is declared to be invalid? If the Directors who are elected had been impleaded as parties and if an injunction has been sought for against them restraining them from functioning, that would have been a different matter. But without impleading them, an injunction cannot be obtained against the Bank not to act upon the election. Moreover, the election was held on 28.12.1992 and given effect to immediately. The application for injunction has been filed only on 17.1.1993 and even on that date, the application was infructuous and it should not have been received by the court.
21. It is pointed out by learned Counsel for the Directors who is appearing in O.S.A. No. 22 of 1993, as they have been impleaded as parties to the suit on the Original Side, that the suit filed in the City Civil Court is a sheer abuse of process of court and no equitable relief could have been granted in that suit to the plaintiff therein. He submits rightly that plaintiff in that suit is an advocate who appeared as counsel for the former Chairman by name Sabapathy in the earlier proceeding instituted by the said person for declaration that the transfer of shares made by the parties marked so document No. 4 in that case was illegal and void, and for a declaration that the co-option of defendants 2 to 6 as Directors of the Bank was illegal and they ceased to be Directors, for an injunction restraining defendants 2 to 6 from exercising their right to vote as Directors of the Bank and for an injunction restraining defendants 2 to 6 from exercising their right to vote as shareholders and also their firms where they are so connected as office bearers to exercise their right to vote as shareholders. That suit is pending as O.S. No. 9514 of 1992 on the file of the City Civil Court, Madras. The plaint in that suit has been marked as Ex.B-6. The plaintiff therein is Sabapathy, the former Chairman of the Bank. The counsel who is appearing for that plaintiff is S. Balan, who is the plaintiff in the present suit. (O.S. No. 317 of 1993 on the file of the City Civil Court). Allegations have been made in the plaint to the effect that the defendants therein who are co-opted as Directors had played fraud and become Directors in violation of the guidelines issued by the Reserve Bank of India. In that suit, an application was filed for injunction pending suit in I.A. No. 19853 of 1992 restraining the defendants therein from exercising their right to vote. The affidavit and application are marked as Ex.B-7. The application was dismissed and an appeal was filed by the plaintiff therein numbered as C.M.A. No. 158 of 1992. The memorandum of grounds of appeal has been marked as Ex.B-8. The appellant therein filed C.M.P. No. 121 of 1992 for injunction restraining the respondents therein from exercising their right to vote and that petition was argued by S. Balan, who is the plaintiff in the present suit. That petition was dismissed on 7.12.1992 by the II Additional Judge, City Civil Court, Madras . The learned Judge has given a finding that there was no material at that stage to hold that the co-option of the Directors was in any way illegal or invalid. He also considered the question of transfer of shares and held that on the materials then placed before him that they were valid. After that finding was given, without challenging that finding, the present plaintiff has filed the present suit in his individual capacity as a share-holder against the Bank. It is rather distressing to note that the plaintiff has made series of allegations against his client in the other suit namely Sabapathy. He has stated in paragraph 19 of the plaint that the then Chairman was fully aware of the fact that the above persons (referring to the co-opted Directors of the Bank) were operating as a group that the acquisition of shares by this group was done with the connivance and help of himself (Sabapathy) and Dr. K.M. Thiyagarajan. He has further averred as follows:
In the issue of India Today on page 120 under the special survey it is reported as follows: "under some already fighting buyouts last month where four Kotak nominees have joined the bank's board, S.P. Sabapathy says that this strategic alliance was the best defence to fight take over bid. As far as Sabapathy is concerned the bank stays with him and he is still Chairman of the Board and for Udaykotak a high flying finance man and Managing Director of Mahendra whose family has close ties with the Chettiar family that runs the Bank of Madura an entry into areas which he may have found difficult to start from the scratch. Document No. 10".
"In a press statement issued by S.P. Sabapathy appearing in the Express Investment week of April, 1992 he is reported to have stated "and as the promoters family and the Kotak family have been close we decided to induct four new Directors to the Bank's Board" filed as document No. 11.
Again in paragraph 20, it is stated that the induction of Dr. K.M. Thiyagarajan suppressing these facts and with the connivance of the then Chairman Sabapathy was therefore, illegal and in violation of the provisions of the Banking Regulation Act. Thus, the plaintiff (S. Balan) has made allegations against his client in the other proceeding directly contrary to what has been stated in the other proceeding. We are not now concerned with the professional ethics of the plaintiff. The question before us is whether an equitable relief should be granted in a case like this where the plaintiff has made allegations against his own client. It is possible to infer that the plaintiff and the former Chairman Sabapathy are colluding together and bringing out the present suit. It is also possible to infer that the present suit is filed in order to get some order or other as against the Bank in view of the fact that the said Sabapathy has failed already in his proceedings to get an interim order. We see no reason to reject the contention of learned Counsel for the Directors that the present suit is only an abuse of process of court.
22. It is also significant to note that there is no allegation whatever in the affidavit filed in support of the application which is absolutely necessary in an application for injunction pending suit. The affidavit filed in support of the application is just a repetition or replica of the plaint. After re-producing whatever has been stated in the plaint, the prayer is made in the affidavit that the election for the nine vacancies be declared as void as if the said relief could be granted even at the interlocutory stage. The second prayer is to direct the defendants to hold a special Annual Meeting at the earliest and conduct the election of Directors. Thus, the prayers set out in the affidavit are the same as the prayers in the plaint and they cannot be granted in an interlocutory application. Inspite of the fact that the affidavit being inconsistent with the petition, the court below has allowed the application to be taken on file.
23. It is rightly pointed out by learned Counsel for the Bank and the Directors that unless the balance of convenience is shown to be in favour of the grant of injunction, the court should not grant the relief in an interlocutory application even if a strong prima facie case is made out. We have already held on the facts that none of the allegations has been substantiated by any record produced before court. For the sake of balance of convenience we will only refer to the cases cited by learned Counsel in this connection. We are not going to consider the point in detail. In view of the findings based on facts. Learned Counsel refers to the decisions in Proctor & Gamble Company, The v. Christian Hoden (India) Pvt. Ltd. (19891 L.W. 54 and Kasturi, G. v. N. Murali (1990)2 L.W. 177 and the judgment in K. Manikyaraja Balal v. K. Krishnanmoorthy and others, O.S.A. Nos. 149 and 150 of 1981, dated 11.1.1982, (unreported). In Dalpat Kumar v. Prahad Singh , the Supreme Court pointed out that the satisfaction of the court that there is a prima facie case by itself is not sufficient to grant injunction and the Court has further to satisfy that non-interference of the court would result in irreparable injury to the parties seeking relief and that there is no remedy available to the party except one to grant injunction and he needs protection from the consequences of apprehended injury. In the present case it goes without saying that the test prescribed by the Supreme Court is not satisfied. We hold that the balance of convenience is only in favour of the Bank. If the elected Directors are restrained from functioning as such, the affairs of the Bank will come to a stand still and as a consequence thereof, members of the public who are having dealings with the Bank will suffer. We will not be a party to an order which will have such drastic consequences, particularly when nothing has been made out to substantiate the wild allegations made in the plaints and affidavits. We are not inclined to grant any interim relief in favour of the plaintiffs.
24. We must also place on record that the I Assistant Judge, City Civil Court, Madras, who has disposed of I.A. No. 523 of 1993 has not chosen to look into the records filed before court. We has not even given exhibit numbers to the documents and inspite of documents having been filed on both sides, at the end of the order, it is noted that there is no witness or document on the side of the plaintiff and on the side of the defendants. The learned Judge has signed below that. It is rather strange that a Judge who has referred to some documents in the body of the order, stated at the bottom of order that there is no documentary or oral evidence. Rule 84 of the Civil Rules of Practice is mandatory. Under that rule, the judgment shall be headed and drawn up in the manner prescribed and a list of exhibits filed and witnesses examined shall be annexed thereto. Inspite of this Court having pointed out on earlier occasion that Rule 84 of Civil Rules of Practice is mandatory, learned I Assistant Judge has chosen to ignore the rulings and proceeded to state that no document has been filed or oral evidence let in. We have considerable doubt as to whether the learned Judge has applied his mind to the case. We are not making that inference merely on the basis of the failure to make reference to the exhibits at the and of the order, but a reading of the order itself shows that he has not applied his mind to the documents referred to by him. For example, he says in paragraph 20 that document No. 12 is a portion of the report of Janakiraman Committee. But, we find that Ex.A-12 is only a xerox copy of the letter purporting to have been written by one S. Thirupurasundari to the Finance Express. It is not necessary for us to point out the various surmises and conjectures made by the learned Judge with regard to the arguments advanced by both sides. The entire order is wholly unsustainable as it is not based on materials on record.
25. No other point is argued before us.
26. In the result, O.S.A. No. 12 of 1993 is dismissed and C.M.A. No. 449 of 1993 is allowed. The order in I.A. No. 523 of 1993 is set aside and the said application is dismissed. The interlocutory order passed by this Court earlier in O.S.A. No. 22 of 1993 is vacated. The appellant in O.S.A. No. 22 of 1993 shall pay costs to the second respondent-Bank. The appellant in C.M.A. No. 449 of 1993 will have its costs from the respondent.