V O JOHAN Vs. CATHOLIC SYRIAN BANK LTD

JUDGEMENT

(1.) THE first respondent bank is registered as a Banking Company with an authorised share capital of Rs. 100 Crores. Now the bank is having 344 branches throughout India with 9 Zonal Offices. The appellant is a shareholder of two hundred shares with a face value of Rs. 10 each. At present, there are 10,87,79,655 equity shares of Rs. 10 each, held by about 28,000 shareholders. The Reserve Bank of India has issued directions to the bank to fulfil the requirement of attaining a minimum net worth of rs. 300 Crores on or before 30-9-2007. Ext. P-1 is the communication of the reserve Bank of India to that effect. Even before issuance of the above communication, the Reserve Bank has also formulated guidelines on ownership and governance in private sector Banks as can be seen from Ext. P-2. Being a mandatory requirement, the Bank decided to increase the Subscribed Capital by further issue of shares by offering right shares to the existing shareholders. Ext. P-3 special resolution was passed unanimously at the Annual General Meeting held on 30-6-2006 to achieve the above purpose. Accordingly Ext. P-4, letter of offer, offering 1,02,26,307 equity shares of Rs. 10 each at a premium of Rs. 110 per share, but adding a rider that the option for renunciation could be exercised only in favour of existing shareholders of the bank was issued. Ext. P-3 would show that resolution No. 10 (i) authorised and empowered the Board of Directors of the Bank to issue further shares of the Bank by way of Right Issue, Private Placement, preferential or Firm allotment, Public Issue or by anyone or more of the above methods. Resolution No. 10 (ii) shows that the Board of Directors was also authorised as per Section 81 (1 A) of the Companies Act (for short, "the Act") to issue shares through private placement on preferential basis as per Rule 4 of the Unlisted Public companies (Preferential Allotment) Rules, 2003. The above rule provides for issue of shares on preferential basis on specific conditions only- (i) There should be an authorisation under Articles of Association (ii) There should be a special resolution passed by the members in the General Body Meeting. Here the special resolution was passed authorising the Board of Directors to raise additional capital by issue of equity shares on preferential basis and/or through private placement. Resolution 10 (i) reads as follows:

(2.) THE appellant along with 103 other shareholders filed an application (C. P. 36/2006) under Sections 397 and 398 of the Act before the Company Law board, alleging oppression and mismanagement by imposing such restrictions on the basis of Resolution No. 10 (ii) under Section 81 (1 A) of the Act. An interim order was passed on 29-6-2006 by the Company Law Board restraining the issue of shares but it was vacated on 30-6-2006 itself by Ext. P-5 order and the Company law Board also held that the bank is at liberty to implement the resolution passed at the Annual General Meeting held on 30-6-2006 pursuant to item No. 10 of the notice dated 31-5-2006 and posted the case for further hearing. C. P. 36 of 2006 filed alleging oppression and mismanagement was dismissed as withdrawn by order dated 15-2-2008. Immediately after vacation of the interim order and passing of Ext. P-5 order, petitioner-Bank approached the Reserve Bank of India for permission to issue the right shares in implementation of the resolution passed in the Annual General Meeting and though there was some delay, immediately on getting the consent, the offer of Rights Share was issued by Ext. P-4, letter of offer dated 27-7-2007. As per the above offer, Issue of Share was to open on 15th August, 2007 and the Issue was to close on 29th August, 2007. Appellant filed a suit (O. S. No. 2141/2007) before the Munsiff's Court, Thrissur to restrain the Bank from proceeding further with Rights Issue in pursuance of Ext. P-4, letter of offer and for other incidental reliefs. It is stated in Ext. P-6, plaint that the cause of action for that suit arose on 23-7-2007 when the offer was published in the Malayala manorama Daily and on 11-8-2007 on which day, appellant (plaintiff in the suit)obtained letter of offer received by another shareholder. According to the appellant, the above Rights Shares were issued in violation of Sections 67 and 89 (1) of the act. In the suit, the court fee paid is only Rs. 20 showing the valuation for the prayer as Rs. 500. Appellant also prayed for temporary injunction vide i. A. No. 77669 of 2007.

(3.) THE Bank, opposing that application inter alia contended that offer of rights Shares is issued perfectly in accordance with the law. It was issued on the basis of the Special Resolution in the Annual General Meeting unanimously. The board of Directors was given the power to restrict the sale of shares to the existing shareholders as per the above resolution and therefore, there is no violation of the provisions of the Act. It was also contended that the suit is not maintainable, that after filing a petition for alleged oppression and mismanagement of the company under Sections 397 and 398 of the Act before the Company Law Board and obtaining an interim order against it, it cannot approach the civil court for the same relief merely because the petition filed before the Company Law Board was withdrawn. It was further contended that only the Company Law Board can interfere in the matter, the matter is within the exclusive jurisdiction of the company Law Board and hence the suit is not maintainable and the civil court had no jurisdiction over the matter. It is also pointed out that the suit was filed by paying court fee of Rs. 20 with a valuation of Rs. 500 by which the issuance of shares worth more than Rs. 2 crores, if got stayed would cause irreparable loss and hardship, as no other shareholder out of 28,000 shareholders challenged the above offer. It is also contended that when there is an effective remedy of approaching the Company Law Board, approaching the Civil Court is not at all justified and, if the Reserve Bank's direction to increase the share capital is not allowed, the Bank's future also will be affected. Learned Munsiff found that the petition before the Company Law Board was not maintainable and that the suit is maintainable. It was further held that there is violation of Section 81 (1) (c) of the Act, and therefore by Ext. P-9 order, the injunction order already passed was affirmed. Ext. P-9 order was challenged by the Bank in a writ petition on the very same contentions raised in the civil suit. According to the appellant, if the order of the civil court is anyway illegal, it could have availed the appellate remedy instead of filing a writ petition under Articles 226 and 227 of the Constitution of India (for short, "the Constitution" ). It is contended that if there is any vitiating factor in Ext. P-9 injunction order passed by the civil court, the remedy of the Bank was to approach the appellate court as provided under Order XLIII, Rule 1 of Code of Civil procedure (for short, "the Code" ). Since efficacious remedy is available, the writ petition is not maintainable.