Narendra Kumar Raj v. Brooke Bond India Ltd. — 1989 DIGILAW 440 (CAL)

ORDER The concept of prima facie case and a serious question to be gone into at the time of trial being the guiding principles in the matter of grant of an order of interlocutory injunction have had its due recognition. But that by itself cannot be said to be only governing principle since balance of convenience is also a relevant and necessary consideration in matter of grant of injunction. 2. Lord Diplock's speech in American Cyanamid's case (1975) 1 All ER 504) seem to be apposite in this context, Lord Diplock stated: "It is where there is doubt as to the adequacy of the respective remedies in damages available to either party or to both, that the question of balance of convenience arises, it would be unwise to attempt even to list all the various matters which may need to be taken into consideration in deciding where the balance lies, let alone to suggest the relative weight to be attached to them. This will vary from case to case." 3. The House of Lords in the case of Dimbleby & Sons Ltd. v. National Union of Journalists (1984) 1 All ER 751) has also expressed the similar view. The Supreme Court in the decision of United Commercial Bank v. Bank of India ( AIR 1981 SC 1426 ) also laid down that even if there was a serious question to be tried, the balance of convenience has to be considered in the matter of a grant of an injunction. This Court in the case of Preeti Singh Roy v. Calcutta Tramways Co. (1978) Ltd. ( AIR 1986 Cal. 305 : 1986 (1) CHN 366 ) also expressed the view that the balance of convenience has to be considered in the matter of a grant of an interlocutory injunction in particular cases. This Court however observed that the issue is to be considered from the point of view as to whether on refusal of the injunction, the plaintiff would suffer an irreparable loss and injury as opposed to a mere affectation of right. 4. In Sitaram v. Banwarilal ( AIR 1972 Cal. 105 ) P. B. Mukherjee, C. J. also expressed that balance of convenience is one of the two main considerations in an application for injunction––the other being a question of prima facie case. 5. 4. In Sitaram v. Banwarilal ( AIR 1972 Cal. 105 ) P. B. Mukherjee, C. J. also expressed that balance of convenience is one of the two main considerations in an application for injunction––the other being a question of prima facie case. 5. The decision in American Cyanamid's case, therefore, has not in any denounced the age-old principles in the matter of grant of an equitable remedy of injunctions, On the contrary, accepted the same as one of the guiding principles in the matter of grant of an order of injunction. The concept of balance of convenience has neither been ignored not been stated to be of trifling value. In this context the other decision of this Court in the case of Damodar Valley Corporation v. Haripada Das ( AIR 1978 Cal. 489 ) ought also to be noticed wherein it has been held that being satisfied that here is a serious question to be tried, the Court also ought to consider the issue of balance of convenience in the matter of a grant of an interlocutory order of injunction. In fine, therefore, state of law seem to be well-settled as regards the applicability of the concept of balance of convenience in the matter of grant of order of injunction. 6. On this state of law as above, it is now to be considered as to whether the plaintiff is entitled to obtain an order of injunction as prayed for in this application. 7. The Respondent no. 1 Brooke Bond India Ltd. is a company engaged in the manufacture and sale of tea, coffee, spices and paper. On the factual score it appears that the petitioner is a shareholder of 80 fully paid up equity share in the company. The petitioner stated before this Court that on 3rd May, 1989 the petitioner came to learn that pursuant to an agreement for sale, the paper mill at Bilaspur within the State of Madhya Pradesh has been sold to Kanois for value of Rs. 7.7 crores. 8. On this factual backdrop the petitioner instituted the instant suit for a declaration that the agreement for sale or sale is illegal, null and void and also prayed for a decree for delivery up and cancellation of the agreement as also with a prayer that the same to be adjudged void. 7.7 crores. 8. On this factual backdrop the petitioner instituted the instant suit for a declaration that the agreement for sale or sale is illegal, null and void and also prayed for a decree for delivery up and cancellation of the agreement as also with a prayer that the same to be adjudged void. The petitioner further prayed before this Court for perpetual injunction restraining the members of the Board of Directors from giving any effect to the agreement for sale or sale, if any, in the suit. 9. The challenge to the agreement for sale or the sale, if any as being illegal and null and void is however on two counts: (a) The action on the part of the Board of Directors is violative of s. 293(1)(a) more so by reason of the fact that no notice of any general meeting was given to or received by the plaintiff for the purpose of transacting any business relating to the sale of the paper mill being one of the undertakings of the company and (b) The action of the Board of Directors in effect violated the provisions of s. 17(1)(e) since it seeks to abandon one of the objects of the company without altering the Memorandum of Association of the company and which can only be had upon due sanction from the Company Law Board on a prior special resolution authorising abandonment of its object clause. It has been stated by the petitioner that the Board of Directors have conducted such sale without any authority of law at a gross undervalue and in a manner to deceive the general body of the shareholders of the company. 10. The other factual aspect ought also to be noted here, since the same, in my view, is a relevant factor to be taken note of in the matter of grant of an interlocutory order of injunction. During the pendency of this application, notice for the general meeting for 19th June, 1989 was sent to all concerned and in fact, such general meeting did take place. At the meeting, however, it appears that 90% of the shareholders present, accepted the proposals of the Board of Directors. 11. During the pendency of this application, notice for the general meeting for 19th June, 1989 was sent to all concerned and in fact, such general meeting did take place. At the meeting, however, it appears that 90% of the shareholders present, accepted the proposals of the Board of Directors. 11. In the counter affidavit, however, it has been stated that by reason of continuous sufferance of loss by Brooke Bond Company on the paper mill undertaking, the company considered question of disposal of the paper mill and in order to obtain the highest price possible the Board of Directors appointed a Special Committee consisting of some of the members of Board for the same. The Special Committee, however, thought it fit to hold an auction on 2nd May 1919 and in the auction Buxa Dooars Tea Company India Ltd. was the highest bidder at Rs. 7.67 crores for the fixed assets of the paper mill. The next highest bidder was Karamchand Thappar Coal Sales Ltd. who did bid, participate and went upto Rs. 7.66 crores. It is pertinent to note that the auction was in regard to the fixed assets only and the actual price would obviously be more than Rs. 7.67 crores. In the counter affidavit it has further been stated that there was neither any sale nor any agreement for sale but the auction had taken place only for the purpose of ascertainment of price at which the paper mill may be sold as the company is not prepared to suffer any further loss on that account. 12. At this juncture, however, it will be convenient to deal with s. 293 of the Companies Act 1956 since the powers of the Board of Directors are circumscribed under the provisions of Companies Act 1956. 12. At this juncture, however, it will be convenient to deal with s. 293 of the Companies Act 1956 since the powers of the Board of Directors are circumscribed under the provisions of Companies Act 1956. For convenience sake s. 293 is quoted hereinbelow : "293(1) : The Board of Directors of a public company, or of a private company which is a subsidiary of a public company, shall not, except with the consent of such public company or subsidiary in general meeting–– (a) sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole, or substantially the whole, of any such undertaking; (2) Nothing contained in clause (a) of sub-so (1) shall affect ;–– (a) the title of a buyer or other person who buys or takes a lease of any such undertaking as is referred to in that clause, in good faith and after exercising due care and camion; or (b) the selling or leasing any property of the company where the ordinary business of the company consist of, or comprises such selling or leasing. (3) Any resolution passed by the company permitting any transaction such as is referred to in clause (a) of sub-s. (1) may attach such conditions to the permission as may be specified in resolution, including conditions regarding the use disposal or investment of the sale proceeds which may result from the transaction : Provided that this sub-section shall not be deemed to authorise the company to effect any resolution in its capital except in accordance with the provisions contained in that behalf in this Act. 13. Section 293(1)(a) read with S. 349(5)(d) makes the position clear as regards the meaning of the expression, "Undertaking". The term "undertaking" mean and imply the business unit or enterprises in which a company may engage in a gainful occupation and as such each factory or manufacturing unit of a company can be ascribed to be an undertaking within the meaning of s. 293 of the Companies Act and in that view, the paper mill can be termed to be an undertaking within the meaning of s. 293 of the Companies Act and in that perspective as such petitioner contended the restrictions on the part of the Board as envisaged under the statute as above has its full play. On this aspect Mr. Mukherjee appearing in support of the application submitted that ex post facto sanction is neither envisaged nor possible on a plain reading of the language of s. 293 of the Companies Act. The language used, it was contended, expressly prohibits the Board of Directors to sell, lease or otherwise dispose of the whole of the undertaking or substantially the whole of the undertaking except on the happening of a certain contingency. It cannot be termed to be mere directory but considering the language it is a mandatory in nature. In this context strong reliance has been placed on the decision of the Supreme Court in the case of Mannalal v. Kedar Nath reported in AIR 1977 SC 536 . In that decision Supreme Court while dealing with the provisions of s. 108 of the Companies Act observed: "The provision contained in s. 108 of the Act states that a company shall not register a transfer of shares..................unless duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee...............has been delivered to the company along with the certificate relating to the shares or debentures.....................or if no such certificate is in existence along with the letter of allotment of the shares. There are two provisos to s. 108 of the Act. We are not concerned with the first proviso in these appeals. The second proviso states that nothing in this section shall prejudice any power of the company to register as shareholder or debenture holder any person to whom the right to any shares in, or debentures of, the company has been transmitted by operation of law. The words, 'shall not register', are mandatory in character. The mandatory character is strengthened by the negative form of the language. The prohibition against transfer without complying with the provisions of the Act is emphasised by the negative language. Negative language is worded to emphasise the insistence of compliance with the provisions of the Act. (See State of Bihar v. Sir Kameshwar Singh of Dharbhanga, 1952 SCR 889 at pp. 988-89 ( AIR 1952 SC 252 at pp. 287, 288) K. Pentiah v. Muddala Veeramallapa, (1961) 2 SCR 295 at p. 308 (= AIR 1961 SC 1107 at p. 1113) and unreported decision D/- 18.4.1976 in Criminal Appeal No. 279 of 1975 (SC) etc. Additional District Magistrate, Jabalpur v. Shivkanta Sukla). 988-89 ( AIR 1952 SC 252 at pp. 287, 288) K. Pentiah v. Muddala Veeramallapa, (1961) 2 SCR 295 at p. 308 (= AIR 1961 SC 1107 at p. 1113) and unreported decision D/- 18.4.1976 in Criminal Appeal No. 279 of 1975 (SC) etc. Additional District Magistrate, Jabalpur v. Shivkanta Sukla). Negative words are clearly prohibitory and are ordinarily used as a legislative device to make a statutory provision imperative". The Supreme Court in the last-noted decision further observed: "Where a contract, express or implied, is expressly or by implication forbidden by statute, no Court will lend its assistance to give it effect. (See Melliss v. Shirley Local Board, (1885) 16 QBD 446). A contract is void if prohibited by a statute under a penalty, even without express declaration that the contract is void, because such a penalty implies a prohibition. The penalty may be imposed with intent merely to deter persons from entering into the contract or for the purposes of revenue or that the contract shall not be entered into so as to be valid at law. A distinction is sometimes made between contracts entered into with the object of committing an illegal act and contracts expressly or impliedly prohibited by statute. The distinction is that in the former class one has only to look and see what acts the statute prohibits; it does not matter whether or not it prohibits a contract, if a contract is made to do a prohibited act, that contract will be unenforceable. In the latter class, one has to consider what act the statute prohibits, but what contracts it prohibits. One is not concerned at all with the intent of the parties, if the parties enter into a prohibited contract, that contract is unenforceable. (See St. John Shipping Corporation v. Joseph Bank, (1957) 1 QB 267). (See also Halsbury's Laws of England Third Edition Vol. 8 P. 141)," 14. It is well established that a contract which involves in its fulfilment the doing of an act prohibited by statute is void. The legal maxim a pactis privatorum publico juri non darogatur means that private agreements cannot alter the general law. Where a contract, express or implied, is expressly or by implication forbidden by statute, no Court can lend its assistance to give it effect. (See Melliss v. Shirley Local Board, (1885) 16 QBD 446). The legal maxim a pactis privatorum publico juri non darogatur means that private agreements cannot alter the general law. Where a contract, express or implied, is expressly or by implication forbidden by statute, no Court can lend its assistance to give it effect. (See Melliss v. Shirley Local Board, (1885) 16 QBD 446). What is done in contravention of the provisions of an Act of the Legislature cannot be made the subject of an action. 15. If anything is against law, though it is not prohibited in the statute but only a penalty is annexed the agreement is void. In every case where a statute inflicts a penalty for doing an act, though the act be not prohibited, yet the thing is unlawful, because it is not intended that a statute would inflict a penalty for a lawful act. 16. While it is true and there cannot possibly be any doubt as regards the requirement of statute but in order to bring home the charge as in the petition, it must be within the four-corners of the statute. The statute provides that the Board of Directors shall not sell, or otherwise dispose of the undertaking. The intent of the statute, therefore, is clear enough that no sale shall take place. On a plain reading of the language of the statute, there is no prohibition as such to get offers for the sale of the undertaking or even entering into an agreement for sale. What is prohibited is sale and nothing short of sale. On the factual score Mr. Sarkar appearing for the company drew the attention of the Court that by reason of consistent losses year after year. The company decided to sell the factory in question and the Board of Directors pursuant to such a decision nominated a Committee to go into the issue and ascertain the price therefore––in pursuance of the said decision there was an auction held by the abovenamed Committee and in which Buxa Dooars Tea Company India Ltd. was the highest bidder for the purpose of fixed assets only. The acceptance of the offer of Buxa Dooars Tea Co. India Ltd. was only provisional. The price for the paper mill in its entirety will have to be fixed and the sale will be completed only thereafter. At best Mr. Sarkar contended that it is a provisional acceptance of the offer and no final acceptance. The acceptance of the offer of Buxa Dooars Tea Co. India Ltd. was only provisional. The price for the paper mill in its entirety will have to be fixed and the sale will be completed only thereafter. At best Mr. Sarkar contended that it is a provisional acceptance of the offer and no final acceptance. From the counter affidavit, it appears also that immediately upon completion of the auction as regards the fixed assets of the mill, Brooke Bond India Ltd. convened a general meeting for the purpose therefor. In the counter affidavit it has been stated: "The company never had any intention to dispose of the said paper mill without the approval of the shareholders at a general meeting in accordance with s. 293(1)(a) of the said Act and the respondents had already decided on May 3, 1989 to convenue a general meeting for the said purpose. Notice of the said general meeting has been duly sent to the plaintiff and the plaintiff must have already received the notice of the meeting and annual general meeting of the company was held on May 3, 1989. The plaintiff/petitioner did not attend the said annual general meeting, the question of disposal of the said paper mill was extensively discussed on questions raised by the shareholders at the said meeting, and it was publicly declared that a general meeting would be held in due course to obtain the approval of the shareholders." 17. On the factual score further it appears that the meeting had duly taken place and it had the required approval of the shareholders. 18. It is this approval which Mr. Mukherjee ascribes to be an ex post facto sanction which is not permissible under the law, and in my view, rightly so on a consideration of the language of s. 293 of the Companies Act. But the issue arises as to whet her there was a sale effected prior to obtaining the approval of the general body of shareholders? In my view, on the state of facts as discussed above, the auction and the declaration of highest bidder cannot be termed to be a sale within the meaning of s. 293 of the Companies Act. The prohibition to sell as contained in s. 293 is in regard to a completed transaction, but not a stage prior thereto. In my view, on the state of facts as discussed above, the auction and the declaration of highest bidder cannot be termed to be a sale within the meaning of s. 293 of the Companies Act. The prohibition to sell as contained in s. 293 is in regard to a completed transaction, but not a stage prior thereto. The statutory bar has been engrafted in the statute book for the purpose of avoiding a clandestine sale of the assets of the company without the knowledge of the shareholders. But in the event a sale is not finalised and complete question of having the bar applicable does not and cannot arise. The sale must be complete in all its aspects, viz. the offer and the acceptance. In the facts and circumstances of the matter under consideration, it appears that even the valuation of the other assets have not been effected, neither the price being fixed, it is only the determination of the value of the fixed assets and the offer received therefor. Some other overt act is required for the purpose of completion of the sale––no purchase money has yet been paid, neither any title transferred. In that view of the matter, in my view, s. 293 of the Act does not have any manner of application in the facts and circumstances of the instant matter. This view of mine, is however only prima facie for the purpose of disposal of this application for injunction and it is clarified that this will not have any effect at the final adjudication of the disputes between the parties. 19. The other aspect of the matter in regard to the concept of balance of convenience as noted above. The company has been suffering losses. Original offer as appears from the newspaper reports was only 3.5 crores for the fixed assets. Subsequently the offer has been received to be more than double. The Board of Directors decided to sell the unit and as such held an auction. It is also to be noted that this proposal for sale has been in the commercial sphere of the country for sufficiently long period of time––even newspaper have come out with news items on 23rd April 1989. The petitioner has allowed a state of affairs to continue for sufficiently long time. It is also to be noted that this proposal for sale has been in the commercial sphere of the country for sufficiently long period of time––even newspaper have come out with news items on 23rd April 1989. The petitioner has allowed a state of affairs to continue for sufficiently long time. Would it be fair or reasonable to pass an order of injunction to sub-serve the ends of justice at this juncture? In my view, the answer is in the negative. The balance of convenience lies in favour of the decision of the Board of Directors rather than putting an embargo thereat. I need not dilate much on this score. However, by reason of the views as expressed above excepting recording in fine that balance of convenience also does not warrant an order of injunction in the matter under consideration. Reference to the provisions of the Sale of Goods Act or Transfer of Property Act need not also be gone into in the view as above. In the premises this application fails and is dismissed. All interim orders are vacated. Costs be cost in the cause. Application dismissed.