defamation by the Defendant. Plaintiff No. 1 is a Company named Subhiksha
Trading Services Ltd. and Plaintiff No.2 Mr. R. Subramanian is the Promoter and
Managing Director of Plaintiff No.1. The Plaint was verified by Plaintiff No.2. In
paragraph 38 of the Plaint, Plaintiff No.2 has stated that he has signed and verified
the Plaint as the Promoter and Managing Director of Plaintiff No.1. However, there
is no reference to Plaintiff No.2 being authorized on behalf of Plaintiff No.1 to file the
suit.
. In the Defendant’s Written Statement, the Defendant challenged the
maintainability of the suit, inter alia, on the ground that Plaintiff No.2 had no
authority to file the suit on behalf of Plaintiff No.1 and further that under the Articles
of Association of Plaintiff No.1, any resolution for commencement or discontinuance
of any litigation as set out therein required the consent of at least one Director
nominated by the VC Investor (i.e. ICICI Trusteeship Services Ltd.) or the VC
Investor itself. It was further submitted that there was no board resolution
authorizing Plaintiff No.2 to file the present suit on behalf of Plaintiff No.1.
The Plaintiffs state that due to this act of the Defendant, the
Plaintiffs have suffered a serious setback in reviving its operations as
also in society and to their standing and credibility in business and
trade which setback is not fully quantifiable in monetary terms.
27. The Plaintiffs state that the Defendant is aware of the fact
they have received security deposit of Rs.2300,00,00,000/- Rupees
two thousand three hundred crores) from Blue Green Construction
and Investment Limited for in respect of a license for business granted
by it to the said company and that the Plaintiff is entitled to receive
Rs.138,00,00,000 (Rupees one hundred thirty eight crores) per
annum as license fees from the said Blue Green Construction and
Investment Limited for allowing the use of the brand Subhiksha and
the facilities and infrastructure and licenses of the Plaintiff No. 1. The
arrangement was entered into in July 2008 for a period of 3 years.
The Plaintiff craves leave to refer to and rely upon the said agreement
as and when produced. The said company is presently controlled and
managed by Plaintiff No. 2. For reason of the defamatory statements
of Defendant, the said Blue Green Construction and Investment
Limited is unable to rope in adequate franchisees. The goodwill and
reputation of the Plaintiffs have been severely damaged and the
Plaintiffs have suffered a serious setback in their ability to resume and
revive business. The Plaintiffs therefore state and submit that they
have been grossly defamed by the Defendant and are therefore entitled
to claim apart from normal damages by way of compensation
exemplary and / or aggravated damages against the Defendant
quantified at Rs.500,00,00,000 (Rupees five hundred crores only) as
more particularly prayed for in the Particulars of Claim, not only for
the purpose of compensating the Plaintiffs but also for the purpose of
punishing and deterring the Defendant by himself, his servants,
agents, officers and subordinates from in any manner publishing /
telecasting and / or causing to be published / telecast and / or
permitting to be published / telecast any articles defamatory of the
Plaintiffs, similar to the article as stated above or any such similar
articles. Hereto annexed and marked as Exhibit-E is the Particulars of
Claim mentioned hereinabove."
Sub-clause (t) of Article 17A makes it clear that the litigation must be "material in the
context of the Company's business" and need not actually relate to its business. A
defamatory allegation concerning the Company's business, which had caused a
considerable adverse impact on the Company's business leading to "substantial
damages to the tune of Rs. 500 crores" can only be described as "material in the
context of the Company's business". In the circumstances it is clear that as per the
Plaintiffs' own case, the alleged defamatory statements are extremely material in the
context of Plaintiff No.1's business and the Plaintiffs cannot be heard to say that the
present suit is not in the context of the Company's business , let alone not being
material to it.
24. As regards the submission advanced on behalf of the Official Liquidator
attached to the Madras High Court that under Section 441 read with Section 457 of
the Companies Act, 1956, the Official Liquidator was entitled to prosecute the suit on
behalf of Plaintiff No. 1 and in light of Section 9 of the Companies Act, 1956, as the
Official Liquidator was now appointed, the Official Liquidator was entitled to step
into the shoes of Plaintiff No.1 and could ratify the filing of the suit, thereby
overcoming the defect of non-compliance with Article 17A, I agree with the
submission advanced by the learned Senior Advocate appearing for the Defendant
that the said argument is completely fallacious on various counts. Firstly, under
Sections 441 r/w 457 the fiction whereby the winding up of the company is deemed to
commence at the time of presentation of the Petition for winding up is extended to
apply only in certain specific situations such as under Section 536, and cannot be
applied to cure a bar or a defect in the filing of the suit, which suit was filed prior in
point in time to the winding up order. Furthermore, the contention that the Official
Liquidator can ratify the failure to obtain consent as required under Article 17A
cannot be accepted, as it would amount to an opportunistic misuse of the provisions
of law. The suit being infirm on the date it was filed, it cannot be sought to be
rendered proper merely by the happen chance of the company having subsequently
been ordered to be wound up. In any event, the bar arises under Article 17A on
account of failure to obtain the consent of the VC Investor, that is to say a third party.
There can be no ratification by the Official Liquidator of such a failure, as the entire
object of ratification would be to cure a defect which was capable of being complied
with by the company in the first instance. As the defect in the present case is failure
to obtain a third party’s consent, there is no question of the Official Liquidator
ratifying the filing of the suit without the said consent being obtained, which
admittedly has not been obtained in the present case. Section 9 of the Companies Act,
1956 does not authorize the Official Liquidator to continue proceedings which were
initiated illegally and without authority and which were non-est. The judgment of All
India Reporter Ltd. v. Ramchandra Dhondo Datar (supra) relied upon by the learned
Counsel for the Official Liquidator has no application in the present case as the same
pertains to a defect in the verification and presentation of the Plaint and a failure to
comply with certain procedural requirements, which is very different from the facts of
the present case where the defect is not procedural at all, but one which goes to the
root of jurisdiction as held by this Court in the order dated 5th May 2015. As correctly
submitted by Mr. Sen, the present case is not merely a case of a defect in verification
as a procedural requirement but one wherein there is a pre-condition in the Articles of
Association to the filing of the suit without the consent of the VC Investor. The suit
filed in non-compliance of such a precondition is non-est and cannot be legitimized
merely because of an appointment of the Official Liquidator or by the Official
Liquidator purporting to rectify the same.
25. In the circumstances I hold that the present suit qua Plaintiff No. 1 is not
maintainable for want of authority of Plaintiff No. 2 to file the suit on behalf of
Plaintiff No.1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
SUIT NO. 965 OF 2011
Subhiksha Trading Services Ltd.
versus
Mr. Azim Premji,
CORAM: S. J. KATHAWALLA, J.
Judgment pronounced on: 12th May, 2016
Citation: 2016 (5) ALLMR125
1. The present suit has been filed by the Plaintiffs against the Defendant alleging
defamation by the Defendant. Plaintiff No. 1 is a Company named Subhiksha
Trading Services Ltd. and Plaintiff No.2 Mr. R. Subramanian is the Promoter and
Managing Director of Plaintiff No.1. The Plaint was verified by Plaintiff No.2. In
paragraph 38 of the Plaint, Plaintiff No.2 has stated that he has signed and verified
the Plaint as the Promoter and Managing Director of Plaintiff No.1. However, there
is no reference to Plaintiff No.2 being authorized on behalf of Plaintiff No.1 to file the
suit.
2. In the Defendant’s Written Statement, the Defendant challenged the
maintainability of the suit, inter alia, on the ground that Plaintiff No.2 had no
authority to file the suit on behalf of Plaintiff No.1 and further that under the Articles
of Association of Plaintiff No.1, any resolution for commencement or discontinuance
of any litigation as set out therein required the consent of at least one Director
nominated by the VC Investor (i.e. ICICI Trusteeship Services Ltd.) or the VC
Investor itself. It was further submitted that there was no board resolution
authorizing Plaintiff No.2 to file the present suit on behalf of Plaintiff No.1. In view
thereof, by an order dated 14th March 2014, this Court (Mrs. R.S. Dalvi, J. as she
then was) framed issues in the suit , including Issue No.3, which reads as under:-
“3. Whether the plaintiff No.2 has authority to file suit on behalf
plaintiff No.1.”
3. In response to the Defendant’s contention in the Written Statement and the
issue framed in that regard, Plaintiff No.2 filed an Affidavit of Evidence notarized on
9th April 2014 claiming to be authorized to deal with all legal matters in respect of
the company pursuant to a resolution passed in a board meeting held on 9th April
2000.
4. At the hearing of the present suit, the Advocates for the Defendant prayed
before the Court that Issue No.3, viz. the issue of maintainability based on the lack of
authorization of Plaintiff No.2 to file the present suit on behalf of Plaintiff No.1, be
tried first as a preliminary issue as it involved a pure point of law. After hearing the
parties, by an order dated 5th May 2015, this Court (S. C. Gupte. J.) was pleased to
inter alia observe/order as under:
"...In the present case, the issue before the Court, which is
sought to be tried first, is, whether, in the face of the resolution
passed by Plaintiff No.1 on 9th April 2000 and the Articles of
Association of Plaintiff no. 1 as amended, both of which are not
matters of dispute, Plaintiff No. 2 has the requisite authority in
law to file the present suit on behalf of Plaintiff No.1. This issue
is a pure issue of law. It relates to the bar of law in filing the suit
and also jurisdiction of the Court to try the suit. In that view of
the matter, the issue satisfies the requirements of Order 14 Rule
2 of the CPC. It is an issue purely of law; it relates to jurisdiction
of the Court or bar to the suit by any law for the time being in
force; and it disposes of a part of a case."
As the only factual dispute was in relation to the existence of the resolution dated 9th
April 2000 on a concession by the Defendant the same was taken on record and
marked in evidence as Exhibit P-8.
5. Being aggrieved by the order dated 5th May 2015, the Plaintiffs filed Review
Petition (L) No.25 of 2015 before this Court on 12th June 2015. In the said Review
Petition, the following points/grounds were raised:
“5. The Hon’ble Court has passed the above-mentioned Order in
error of fact, relying the Defendant’s oral submissions as though the
matters set out hereunder were all admitted facts based on documents
on record in the suit and were not matters /required to be led in by
evidence and cross examined:-
i. That the suit was instituted on behalf of 1st
Plaintiff on behalf of the 1st Plaintiff by the 2nd Plaintiff
relying on powers vested on him under the 9th April 2000,
resolution of the board of directors of the 1st Plaintiff
Company.
ii. That the Articles of the 1st Plaintiff Company were
amended thereafter setting out inter alia that, no litigation
could be taken up by the 1st Plaintiff company without
approval of Investors viz. ICICI Venture Funds
Management Company Ltd. and that these covenants are
in force presently.
iii. That there is no approval to the filing of the suit by
the said VC Investor.
6. The Hon’ble Court has, based on an erroneous understanding of
the documents and facts on record in the Suit based on the
submissions of the Defendant’s counsel across the bar, proceeded to
hold issue No.3, as to whether the suit could be validly filed for
Plaintiff No.1, by Plaintiff No.2, a mere issue of law. The Hon’ble
Court has passed the impugned Order having been led to believe,
erroneously, that what is stated in paragraphs 5 (i) to 5 (iii) above are
admitted facts and admitted documents on records in Suit, which in
fact, they are not.
7. The Hon’ble High Court not having had the benefit of any
pleading and relying solely on the oral arguments, in support of the
request to consider hearing if issue no 3 as a preliminary issue, erred in
not appreciating that, none of the claims of the Defendant Counsel set
out in 5(i) to (iii) above and taken by the Court to be matters on record
were admitted by the Plaintiff’s in the Suit. The Court had
erroneously therefore assumed that the same were matters of record
not requiring to be proved as matters of fact. The said order having
been passed by this Hon’ble Court had passed this order in error of
fact apparent on record believing as tough they were facts on record
not requiring to be proved. The actual material on record and the
admitted position of the parties on the record of the Suit were not at
all considered by the Hon’ble Court while passing the order and as
such the order is in error apparent on record. Hereto annexed and
marked as Exhibit ‘A’ is a copy of the order dated 5th May 2015.
8. The actual facts from the pleadings of the parties and the
material and documents on record of the Suit are as set out hereunder
and are wholly contrary to the claims of the Defendant’s Counsel
based on which the Court passed the impugned order:-
a. Neither the original Articles as formulated in 1997 at the time of
incorporation of the said Plaintiff no.1 company as a private limited
company nor any of the various amendments made to the same from
time to time over the last 18 years of the company’s existence are on
record before the Court marked as evidence. Such material if relevant
can be brought on record only by way of evidence of the witnesses of
the Parties.
In such circumstance, the claimed existence of any clause barring
initiation of litigation de-hors the consent of investor, as claimed by
the Defendant and as relied upon by the Court as being a matter of
record, is in fact not a matter on record of the Court nor is the same a
matter of record in the suit and as such cannot be considered by the
Court as a mere issue of law, and evidence is required to be led on the
same and proved by the party seeking to rely on same.
In the absence of the Articles being brought on record by being
tendered in evidence as stated above, a claim made by the Defendant
as though based on such articles that some covenant exists cannot be
considered by this Hon’ble court as a matter of law and therefore the
issue no.3 cannot be decided as a preliminary issue under Order 14
Rule 2(2) at this stage.
b. There is no admission by the Plaintiffs at any stage of the
proceedings by the Plaintiffs that consent of the investor for filing the
suit is necessary and further, there is also no admission by the
Plaintiffs, that such consent to the filing of the suit, if required at all,
from the investor is not available, nor is any document on record of
the proceedings which indicates the investor has not given consent to
the filing of the suit. This aspect as to whether the consent is required
or not, assuming that such consent is at all required under the Articles
can itself only be decided by way of evidence based on the Articles and
the covenants therein The question of whether such consent is
available or not is also to be proved only a matter of evidence and as
such a question of fact. The order dated 5th May, 2015 is passed by
this Hon’ble Court holding as though as per record not required to be
proved that not only is investor consent necessary but also that the
investor has not given consent to the initiation of the suit and the same
can all be considered as admitted fact without being proved. In this
circumstances, this Hon’ble Court has erred in holding issue no 3 be
decided as a preliminary issue as a issue of law without the parties
needing to lead evidence and be cross examined.
c. The resolution of the Board of Directors of the 1st Plaintiff
dated 9th April 2010, is not the only basis on which the present suit
has been filed. The resolution dated 9th April, 2000 was itself
tendered in evidence the Plaintiffs on 3rd December, 2014. The
provisions of Order 14 Rule 2(2) Code of Civil Procedure prohibits
considering any issue of fact and not merely a disputed questions of
fact. Merely because the reliefs of seeking a issue to be decided as a
preliminary issue is sought by the Defendant after the evidence of the
Plaintiffs 1st witness is tendered and trial has commenced, the
documents tendered in evidence do not become material available for
deciding a issue as a preliminary issue under Order 14 Rule 2(2), as
there is a bar in Order 14 Rule 2(2) in considering any matter of fact.
The High Court has wrongly assumed the resolution dated 9th April
2000 was the sole authority on which the suit was instituted by the
2nd Plaintiff on behalf of the 1st Plaintiff and further erred in not
noting that the said resolution itself having been only tendered in
evidence the same was a matter of fact and was not capable of being
considered in proceedings under Order 14 Rule 2(2) CPC merely
because the Defendant seeks determination of issue after trial has
commenced.
d. The Petitioner’s also submit that the Order dated 5th May, 2015
is further bound to be reviewed as the said order, apart from being in
error and such error apparent on record, is also incapable of being
performed de hors evidence and any further proceeding in the mater
as per the said order would therefore only be infructuous since no facts
or evidence can be considered under Order 14 Rule 2(2). There is
nothing on record to prove the existence of such a covenant requiring
investor’s consent for filing of the suit as herein nor of conditions
attaching thereto even assuming such covenants exists, nor is there
any document of the investor in relation to the consent for filing of
suit, assuming such document is required at all and de hors these no
finding can be rendered on enquiry on the said issue without evident
without evidence. The order is bound to be recalled and set aside for
this sufficient reasons as well as there would be no purpose in
embarking on proceedings which can never lead to any determination
de hors evidence being tendered”
From a perusal of the above points/grounds raised by the Plaintiffs in the Review
Petition, it is clear that the Plaintiffs had expressly contended that the existence of a
requirement for the VC Investor’s consent and the fulfillment of the conditions
relating to Article 17A were matters which required evidence.
6. The issues urged in the Review Petition on behalf of the Plaintiffs were
considered and by an order dated 28th July, 2015, this Court (Coram: S.C. Gupte, J.)
rejected the Review Petition. The order dated 28th July, 2015 is reproduced
hereunder:
“Heard learned Counsel for the Review Petitioner. The Review
Petition is on the footing that any decision on issue no.3, which is
referred to in the order passed by this Court on 5 May 2015,
requires leading of evidence. Having regard to the pleadings filed
by the parties neither is there any dispute as to the identity of the
Articles of Association of Plaintiff No.1 nor the contents of the
Articles. In fact, when it was pointed out to the Court at the
hearing on 5 May 2015 that , the Articles of Association produced
by the Defendant at the hearing, contain a bar in respect of any
suit being filed for and on behalf of Plaintiff No.1 unless the
commencement of such legal action is preceded or supported by a
resolution duly passed in accordance with the Articles, no
objection was raised to the authenticity or the text of the Articles
of Association produced by the Defendant. The only question
was, what was the effect of the relevant Articles of Association
and that is certainly a pure question of law. This question will be
decided at the trial of Issue No.3 in accordance with the order of 5
May 2015. There is no ground for review of that order under
Order 47 Rule 1 of the Code of Civil Procedure. The Review
Petition is, accordingly dismissed. The Articles of Association
tendered by learned Counsel for the Plaintiff in support of his
application today are marked “X” for identification.”
7. Accordingly, the hearing on issue No.3 viz. whether Plaintiff No. 2 has
authority to file Suit on behalf of Plaintiff No. 1, has now commenced before me.
8. The Learned Senior Advocate appearing for the Defendant has submitted that
the Articles of Association prevailing on the date of the filing of the Suit have been
tendered by the Plaintiff No. 2 before this Court (Coram: S.C. Gupte, J.) on 28th
July, 2015. The same was taken on record and marked "X" for identification. The
Defendant is not disputing the contents of the said Articles. However, from Article
17A and in particular clause (t) thereof, it is clear that to commence or discontinue
any litigation or arbitration which is material in the context of the Company's
business, there would have to be a resolution of the Board of Directors or
shareholders of Plaintiff No. 1 to which at least one Director nominated by the VC
Investor [as defined in Article 2 (k)] or the VC Investor consents or votes in favour of.
It is submitted that in the present case, no such resolution has been passed by the
Board of Directors or the shareholders of Plaintiff No.1 to which consent as required
under Article 17A has been accorded. Thus, no authority is given to Plaintiff No. 2 to
institute the present Suit. Even the resolution dated 9th April, 2000 relied upon by
the Plaintiff No. 2 was not consented to in the manner contemplated in Article 17A
prior to filing of the present Suit, and hence on the date of filing of the present Suit,
there existed no authority for Plaintiff No. 2 to file the same on behalf of Plaintiff
No.1. This is exemplified by the fact that neither in the affidavit of evidence nor in
any pleading before this Court has Plaintiff No. 2 ever contended that any such
consent existed. It is further submitted that as to the present suit being material in
the context of the company’s business, it is the express case of the Plaintiffs (which is
disputed by the Defendant), inter alia, in paragraphs 24 to 27 of the Plaint, that the
alleged defamatory averments made by the Defendant had caused a considerable
adverse impact on Plaintiff No.1, inter alia, as bankers have allegedly been reluctant
to support the revival of the Plaintiffs’ businesses, and the businesses has suffered a
serious setback in respect of which substantial damages to the tune of Rs. 500 crores
has been claimed by the Plaintiffs. It is therefore submitted that the suit filed on
behalf of Plaintiff No. 1, by Plaintiff No.2, is ex facie without authority and in breach
of binding provisions of Plaintiff No. 1’s Articles of Association and therefore ought
to be dismissed qua Plaintiff No.1.
9. The Learned Advocate appearing for the Official Liquidator appointed by the
Madras High Court submitted that the Plaintiff No.1 was ordered to be wound up by
an order 29th February 2012, passed by the Madras High Court and the Official
Liquidator came to be appointed as Liquidator for the Company. The Appeal from
the order of winding up was dismissed on 5th August 2015. It is submitted that under
Sections 441 r/w 457 of the Companies Act, 1956, the Official Liquidator was
entitled to prosecute the suit on behalf of Plaintiff No.1. It was further argued that in
light of Section 9 of the Companies Act, 1956 as the Official Liquidator was now
appointed, the Official Liquidator was entitled to step into the shoes of Plaintiff No.1
and could ratify the filing of the suit, thereby overcoming the defect of noncompliance
with Article 17A. In support of his contention, the Learned Counsel
relied on the judgment of this Court in the case of All India Reporter Ltd. vs.
Ramchandra Dhondo Datar
1
.
1 AIR 1961 Bom 292
10. The Plaintiff No. 2 appearing in person has made the following submissions:
10.1 That the Articles of Association produced on record by the Defendant is an
incomplete and inchoate document and cannot be relied upon by the Defendant.
Article 37 of the document relied upon by the Defendant as the Articles of the
Company holds that the contents and terms of three agreements mentioned therein
namely (i) Investment Agreement; (ii) Investment Agreement - I; and (iii)
Subscription Agreement, would form part of the Articles and further that the clauses
in the said Agreements would supersede the covenants of the other Articles if the
terms therein were to be in conflict with the other Articles. In such circumstances
the document sought to be placed before this Court by the Defendant as the Articles,
suppressing the three documents referred to in Article 37 and held thereunder to be
part of the Articles, cannot be relied upon by this Court as evidence that clause 17A
(t) is in force either presently or as on the date of the filing of the suit as the effect of
the covenants of these 3 Agreements on the impugned Article 17A (t) cannot be
inferred in the absence of these documents. Any decision on whether the claim under
Article 17A (t) operates at all despite the provisions of the three agreements referred
to in Article 37 can be determined only if the said agreements are produced by the
Defendant before this Court and if on examination of the same the Court finds that
they do not override Article 17A (t) relied upon by the Defendants.
10.2 That in the present matter evidence would be required to ascertain whether
consent had been obtained from the VC Investor and whether the conditions of
Article 17A be made applicable, existed.
10.3 That the Articles are void to the extent that they restrain the filing of a suit
without the consent of the VC Investor, in light of Section 28 of the Indian Contract
Act, 1872.
10.4 That the Company's business has no nexus with the litigation herein as it
cannot be even the case of the Defendant that the suit for defamation is in any
manner in the context of the Company's business let alone being material to it. The
Plaintiff No. 1 was India's largest food, grocery, mobile phone retailer and was in the
business of retailing and the suit herein relating to tort of defamation is in no manner
a matter related to the Company's business. The suit is only to remedy the effect of
the Defendant's malicious and slanderous libel and is in no manner a proceeding in
respect of the business of the Plaintiff No. 1 Company. It is submitted that suits or
legal proceedings relating to the business of the Company alone, such as its premises,
licenses, employees, trademarks and copyrights, supply arrangements, employees
and contractors and vendors and the like, would if at all get attracted by the
provisions of the claimed Article 17A (t) subject to such litigation being material in
the context of the said Company's business.
11. The Learned Senior Advocate appearing for the Plaintiff has, in rejoinder to
the submission advanced on behalf of the Official Liquidator attached to the Madras
High Court, submitted as follows:
12.1 That the argument advanced on behalf of the Official Liquidator attached to
the Madras High Court is, with respect, completely fallacious. The submission of
the Official Liquidator that his appointment can ratify the failure to obtain consent as
required under Article 17A cannot be accepted as it would amount to an
opportunistic misuse of the provisions of law. The judgment in the case of All India
Reporter Ltd. (supra) relied upon by the Learned Counsel for the Official Liquidator
has no application in the present case.
12. In response to the submissions advanced on behalf of Plaintiff No.2 appearing
in person, the Learned Senior Advocate appearing for the Defendant has submitted
as follows:
12.1 that the submission of Plaintiff No. 2 that the Articles of Association produced
by the Defendant were incomplete and inchoate is baseless and untenable since the
Defendant himself has tendered a copy of the Articles of Association of the Plaintiff
Company before this Court (Coram: S.C. Gupte, J.) on 28th July, 2015 which the
Learned Judge has taken on record and marked "X" for identification. The Defendant
has not disputed the contents of the document tendered by Plaintiff No.2 and have
proceeded to make their submissions on the basis of the said document produced by
Plaintiff No.2. The question of suppressing any documents referred to in Article 37
of the Articles of Association by the Defendant does not arise and in any event at no
point of time Plaintiff No. 2 was prevented by the Defendant and/or the Court from
producing the documents mentioned in Article 37 of the Articles of Association
and/or pointing out that there was any inconsistency between the provisions of
Articles 1 to 36 and the provisions of the Investment Agreement and/or the
Investment Agreement-I and/or the Subscription Agreement. In fact, the Plaintiff
No. 2 has not even made an assertion to that effect.
12.2 That Plaintiff No. 2 had submitted before this Court (Coram: S.C. Gupte, J.)
on 5th May, 2015 as well as in the Review Petition No. 52 of 2015 seeking review of
the said order dated 5th May, 2015 that evidence would be required to ascertain
whether the consent had been obtained from the VC Investor and whether the
conditions of Article 17A to be made applicable, existed, which contention was not
accepted by the Learned Judge and therefore the said issue stood foreclosed by the
orders dated 5th May,2015 and 28th July,2015. Raising the above said issue therefore
amounts to asking this Court to sit in Appeal over the orders passed by S.C. Gupte, J.
on 5th May, 2015 and 28th July, 2015, which ought not to be countenanced.
12.3 That the submission of Plaintiff No. 2 that the Articles of Association are void
to the extent that they purportedly restrain the filing of the suit without the consent
of the VC Investor, in light of Section 28 of the Indian Contract Act, 1872, is
misconceived.
12.4 That it is clear from paragraphs 24 to 27 of the Plaint that it is the Plaintiffs'
own case that the alleged defamatory statements are extremely material in the context
of Plaintiff No.1's business.
13. I have perused the pleadings and the orders passed by S.C. Gupte, J. dated 5th
May, 2015 and 28th July, 2015. I have considered the oral as well as the written
submissions and the case law cited by the Learned Advocate appearing for the
Official Liquidator.
14. As stated earlier, the present suit has been filed by the Plaintiffs against the
Defendant alleging defamation by the Defendant. Plaintiff No.1 is Subhiksha Trading
Services Limited and Plaintiff No. 2 is the Promoter and Managing Director of the
Plaintiff No.1. Though in paragraph 38 of the Plaint, the Plaintiff No. 2 has stated
that he has signed and verified the plaint as the Promoter and Managing Director of
Plaintiff No.1, there is no reference to Plaintiff No.2 being authorised on behalf of
Plaintiff No. 1 to file the suit. The Defendant in his written statement challenged the
maintainability of the suit on the ground that the Plaintiff No. 2 has no authority to
file the Suit on behalf of Plaintiff No.1 and further that under the Articles of
Association of Plaintiff No. 1, any resolution for commencement or discontinuance of
any litigation as set out therein requires the consent of one Director nominated by the
VC Investor i.e. ICICI Trusteeship Services Ltd. or the VC Investor itself. It was
further submitted that there was no Board Resolution authorising Plaintiff No. 2 to
file the present suit on behalf of Plaintiff No.1. Accordingly, this Court (Mrs. R.S.
Dalvi, J. as she then was) framed issues in the suit including issue No.3 “Whether
the plaintiff No. 2 has authority to file suit on behalf of plaintiff No.1?" Plaintiff No.
2 filed an affidavit of evidence notarized on 9th April, 2014 claiming to be authorized
to deal with all legal matters in respect of the Company pursuant to a resolution
passed in a Board Meeting held on 9th April, 2000.
15. The Articles of Association of the first Plaintiff Company have been amended
after the Resolution relied upon by the Plaintiff No. 2 dated 9th April, 2000. At the
hearing of the present suit, the Advocates for the Defendant prayed before this Court
(Coram: S.C. Gupte, J.) that issue No. 3 viz. the issue of maintainability based on the
lack of authorisation of Plaintiff No. 2 to file the present suit on behalf of Plaintiff No.
1 be tried as a preliminary issue as it involved a pure point of law. After hearing the
parties, by an order dated 5th May, 2015, S.C. Gupte, J. inter alia, observed that the
said issue No. 3 is an issue purely of law, and ordered the same to be tried first, before
the other issues are taken up for hearing. As the only factual dispute was in relation
to the existence of the Resolution dated 9th April, 2000, on a concession by the
Defendant, the same was taken on record and marked in evidence as Exhibit P-8.
16. Being aggrieved by the order dated 5th May, 2015, the Plaintiff filed a Review
Petition (L) No. 25 of 2015 before this Court on 12th June, 2015. The points and
grounds urged by the Plaintiff No. 2 in his Review Petition are already set out in
Paragraph 5 hereinabove. From a perusal of the said points/grounds, it is clear that
the Plaintiffs had expressly raised a contention that the existence of a requirement for
the VC Investors consent and the fulfilment of the conditions relating to Article 17A
were matters which require evidence. After considering the submissions made on
behalf of the Plaintiffs, the Review Petition was rejected and the Articles of
Association tendered on that day on behalf of the Plaintiffs were taken on record and
marked "X" for identification. It was clarified that the issue at hand was a pure point
of law.
17. Article 17A and in particular clause (t) thereof read as under:
“17A CONSENT OF THE VC INVESTOR: Until the listing of
the shares of the company or till such time the VC Investor’s share
holding falls below 2% of the equity share capital of the Company,
whichever is earlier the company shall not act upon any resolution
of its Board or its Shareholders in relation to or affecting any of the
following matters unless at least on VC Director nominated by the
VC Investor or the VC Investor consents or votes in favour of such
a resolution:
…..
(t) the commencement or discontinuance of any litigation or
arbitration which is material in the context of the company’s
business”
From the aforesaid Article, which forms part of the Articles of Association, tendered
in Court by Plaintiff No. 2 on 28th July, 2015 which prevailed on the date of the filing
of the suit, it is clear that to commence or discontinue any litigation or arbitration
which is material in the context of the Company's business, there would have to be a
resolution of the Board of Directors or shareholders of Plaintiff No.1 to which at least
one Director nominated by the VC Investor consents or votes in favour of.
Admittedly, in the present case, no such resolution has been passed by the Board of
Directors or Shareholders of Plaintiff No. 1 to which consent as required under
Article 17A has been accorded. Thus, ex facie no authority is given to any person
including Plaintiff no. 2 to institute the present suit. The Resolution dated 9th April,
2000 relied upon by Plaintiff No. 2 was admittedly not consented to in the manner
contemplated in Article 17A and hence on the date of filing of the present Suit there
existed no authority for Plaintiff No. 2 to file the same on behalf of Plaintiff No.1.
The Plaintiff No. 2 has neither in his affidavit of evidence nor in any pleading before
this Court contended that any such consent existed.
18. As regards the contention advanced by Plaintiff No. 2 that in the present
matter evidence would be required to ascertain whether consent had been obtained
from the VC investor and whether the conditions for Article 17A to be made
applicable, existed, in my view, this issue is foreclosed by the order dated 5th May,
2015 and 28th July, 2015 passed by S.C. Gupte, J. wherein it is clearly held that the
issue at hand is a pure point of law. It is therefore not open to the Plaintiffs to reagitate
the very same issue since the same would amount to asking this Court to sit in
Appeal over the orders passed by S.C. Gupte, J. which cannot be allowed. It is
pertinent to note that at no point was it ever sought to be urged in the pleadings of
the parties or the affidavit of evidence or in the arguments on two occasions before
S.C. Gupte, J. that the shareholding of the VC Investor had fallen below 2% or that
the Company was listed. Even in the present hearing, in answer to an express
question put by this Court, as also in response to a suggestion made on behalf of the
Defendant that Plaintiff No.2 be directed to state on oath whether the shareholding
of the VC Investor had fallen below 2% and whether the company had been listed,
Plaintiff No.2 failed/avoided to provide an answer, stating only that the issues
required evidence. The Plaintiff No.2 cannot be allowed to avoid/refuse stating the
true and correct position which is to his knowledge as the Promoter and Managing
Director of the Company but to insist that the same has to be established only by
leading evidence, obviously with a view to keep the suit pending and to delay its
disposal.
19. In fact, as pointed out by the Defendant, the Plaintiff has himself placed on
record a judgment of the Madras High Court, which is marked as Exhibit- P5, in
which at paragraph 91 (page 64 of the Plaint) the Madras High Court expressly
records that “...The transferor company is not a listed company…”; the transferor
company admittedly being Plaintiff No.1 herein. The judgment was in the context of
a proposed Scheme of Arrangement which was a prelude to the shares of Plaintiff
No.1 being listed. The Scheme was rejected by the said judgment, and the Appeal
therefrom was eventually rejected on 5th August 2015. Thus, it is clear that there has
been no such Scheme sanctioned by the Madras High Court, and there is no question
of the shares of the company being listed in this manner. The judgment of the
Madras High Court being a document relied upon by the Plaintiffs themselves,
cannot be disputed. Even otherwise, it is not the case of the Promoter and Managing
Director of the Plaintiff No.1 i.e. Plaintiff No.2 that the position has changed from
the date of the above order till the filing of the Suit i.e. the company was thereafter
listed on a Stock Exchange.
20. As regards the Plaintiffs' contention that the Articles of Association submitted
by the Defendant is an incomplete and inchoate document and the documents set out
in Article 37 are intentionally suppressed by the Defendant by not producing the
same before this Court along with the said Articles, it is pertinent to note that the
copy of the Articles of Association containing Article 17A (t) as well as Article 37 is
tendered in Court by the Plaintiff No.2 which the Court has taken on record and
marked "X" for identification and the identity and contents of which are not disputed
by the Defendant. Article 37 of the Articles of Association is reproduced hereunder:
"37. The provisions of the Investment Agreement, the
Investment Agreement-I and the Subscription Agreement shall be
deemed to form part of these Articles. In the event of any
inconsistency between (i) the provisions of Articles 1 to 36; and (ii)
the provisions of the Investment Agreement and/or the
Investment Agreement-I and/or the Subscription Agreement, the
provisions of the Investment Agreement, the Investment
Agreement- I and the Subscription Agreement shall prevail.
Further, it is clarified that in the event of any conflict between
the provisions of the (i) Investment Agreement; (ii) Investment
Agreement - I; and (iii) Subscription Agreement, the same shall be
resolved in accordance with the conflict resolution mechanism
contained in these Agreements."
21. The Plaintiff No. 2 admittedly being the Promoter and Managing Director of
the Company has not only not produced the Investment Agreement and/or
Investment Agreement-I and/or the Subscription Agreement but has also not asserted
before this Court that there is any inconsistency between the provisions of Articles 1
to 36 and the provisions of the Investment Agreement and/or the Investment
Agreement-1 and/or the Subscription Agreement. It is therefore once again
established that the Plaintiff No. 2 is trying to raise issues only with a view to keep the
suit pending and delay the determination of the preliminary issue.
22. It is next contended on behalf of Plaintiff No. 2 that the Articles of Association
are void to the extent that they purportedly restrain the filing of a suit without the
consent of the VC Investor, in light of Section 28 of the Indian Contract Act, 1872.
Section 28 of the Indian Contract Act, 1872 is reproduced hereunder:
"28. Agreements in restraint of legal proceedings, void : (Every
agreement, -
(a) by which any party thereto is restricted absolutely from enforcing
his rights under or in respect of any contract, by the usual legal
proceedings in the ordinary tribunals, or which limits the time within
which he may thus enforce his rights ; or
(b) which extinguishes the rights of any party thereto, or discharges
any party thereto from any liability, under or in respect of any
contract on the expiry of a specified period so as to restrict any party
from enforcing his rights, is void to that extent.
Exception 1 : Saving of contract to refer to arbitration dispute that
may arise. - This section shall not render illegal a contract, by which
two or more persons agree that any dispute which may arise between
them in respect of any subject or class of subjects shall be referred to
arbitration, and that only the amount awarded in such arbitration shall
be recoverable in respect of the dispute so referred.
Exception 2 : Saving of contract to refer questions that have already
arisen. - Nor shall this section render illegal any contract in writing,
by which two or more persons agree to refer to arbitration any
question between them which has already arising, or affect any
provisions of any law in force for the time being as to references to
arbitration."
Firstly Article 17A does not contain a bar to the filing of a suit, it simply prescribes a
condition precedent for filing the same. There is nothing in law to prevent a
company’s Articles of Association having such a provision. Again, as can be seen from
the said Section reproduced above, the same refers to an agreement by which a party
is restricted “absolutely”, which is clearly not the case as Article 17A only provides a
pre-condition for filing of the suit, as stated above. Furthermore, Section 28 relates to
restricting a party enforcing his rights “under or in respect of any contract”
(emphasis supplied); the present suit is in respect of the tort of defamation and not to
enforce a right in respect of any contract. Hence, ex facie Section 28 will have no
application to the present case.
23. As regards the submission advanced on behalf of Plaintiff No.2 that the
present suit is for defamation and is not in the context of the Company's business let
alone being material to it, it is the Plaintiffs’ own case in paragraphs 24 to 27 of the
Plaint that defamatory allegations concerning the Company's business have been
made, which had caused a considerable adverse impact on the Company's business
leading to "substantial damages to the tune of Rs. 500 crores". Paragraphs 24 to 27 of
the Plaint are material and are reproduced hereunder:
"24. As a consequence of the defamatory statements made by the
Defendant, various bankers have been reluctant to support the revival
of the Plaintiffs and entities promoted by Plaintiff No.2 or offer
concessions which otherwise would be made in normal course so as to
enable the Plaintiffs to revive their businesses. The defamatory
statements were deliberately made at a crucial juncture when the
Plaintiff 2's Company was proposing to open a large number of
Subhiksha stores through Franchisees and the Plaintiffs were working
on the restructuring of the debts of the Plaintiff No.1. On the
publication of the averments pertaining to an 'out-an-out fraud' etc. as
stated by Defendant prevented the bankers from rendering support to
the Plaintiff considering the fact that Defendant is a member of the
Central Board of the Reserve Bank of India, which regulates the
Banks.
For reasons stated in the forgoing paragraphs, it is imperative that the
Defendant be compelled to pay damages for loss suffered by each of
the Plaintiffs for reason that the remarks were made out of malice and
the Defendant should be liable to make payments to the Plaintiff for
aggravated damages as well. Considering that the Defendant has
brazenly used his position of influence and credibility to malign the
image of the Plaintiffs in the eyes of all, this case also merits that this
Hon'ble Court be pleased to award exemplary damages as it is
necessary that persons who enjoy repute the social standing should be
prudent in exercising their views, especially when such views can have
catastrophic consequences against whom there are directed against
and are driven by malice. In addition to the foregoing, it is evident
that at the time when the views were published, the Plaintiffs were in
the process of reviving and restructuring their businesses on the basis
of the goodwill, which was established over a period of time. As a
result of the views expressed by Defendant the goodwill which was
created by the Plaintiffs was tarnished so much so that the business
associates and bankers of Plaintiff No. 1 were reluctant to support the
Plaintiffs during the process of restructuring of Plaintiff No. 1. The
published statements of Defendant also seriously impaired the
Plaintiff 2's ability to get franchisees as also support from the creditors
and vendors of goods and services for the resumption of business
being worked upon by his company Blue Green Construction and
Investments Limited.
25. The Plaintiff states that considering the credibility that
Defendant enjoys in society that such defamatory averments have
been published in a widely circulated newspaper publication as The
Economic Times there can be no doubt that the Plaintiffs are severely
impaired by the willful and wanton defamatory remarks of the
Defendant.
26. The Plaintiffs state that due to this act of the Defendant, the
Plaintiffs have suffered a serious setback in reviving its operations as
also in society and to their standing and credibility in business and
trade which setback is not fully quantifiable in monetary terms.
27. The Plaintiffs state that the Defendant is aware of the fact
they have received security deposit of Rs.2300,00,00,000/- Rupees
two thousand three hundred crores) from Blue Green Construction
and Investment Limited for in respect of a license for business granted
by it to the said company and that the Plaintiff is entitled to receive
Rs.138,00,00,000 (Rupees one hundred thirty eight crores) per
annum as license fees from the said Blue Green Construction and
Investment Limited for allowing the use of the brand Subhiksha and
the facilities and infrastructure and licenses of the Plaintiff No. 1. The
arrangement was entered into in July 2008 for a period of 3 years.
The Plaintiff craves leave to refer to and rely upon the said agreement
as and when produced. The said company is presently controlled and
managed by Plaintiff No. 2. For reason of the defamatory statements
of Defendant, the said Blue Green Construction and Investment
Limited is unable to rope in adequate franchisees. The goodwill and
reputation of the Plaintiffs have been severely damaged and the
Plaintiffs have suffered a serious setback in their ability to resume and
revive business. The Plaintiffs therefore state and submit that they
have been grossly defamed by the Defendant and are therefore entitled
to claim apart from normal damages by way of compensation
exemplary and / or aggravated damages against the Defendant
quantified at Rs.500,00,00,000 (Rupees five hundred crores only) as
more particularly prayed for in the Particulars of Claim, not only for
the purpose of compensating the Plaintiffs but also for the purpose of
punishing and deterring the Defendant by himself, his servants,
agents, officers and subordinates from in any manner publishing /
telecasting and / or causing to be published / telecast and / or
permitting to be published / telecast any articles defamatory of the
Plaintiffs, similar to the article as stated above or any such similar
articles. Hereto annexed and marked as Exhibit-E is the Particulars of
Claim mentioned hereinabove."
Sub-clause (t) of Article 17A makes it clear that the litigation must be "material in the
context of the Company's business" and need not actually relate to its business. A
defamatory allegation concerning the Company's business, which had caused a
considerable adverse impact on the Company's business leading to "substantial
damages to the tune of Rs. 500 crores" can only be described as "material in the
context of the Company's business". In the circumstances it is clear that as per the
Plaintiffs' own case, the alleged defamatory statements are extremely material in the
context of Plaintiff No.1's business and the Plaintiffs cannot be heard to say that the
present suit is not in the context of the Company's business , let alone not being
material to it.
24. As regards the submission advanced on behalf of the Official Liquidator
attached to the Madras High Court that under Section 441 read with Section 457 of
the Companies Act, 1956, the Official Liquidator was entitled to prosecute the suit on
behalf of Plaintiff No. 1 and in light of Section 9 of the Companies Act, 1956, as the
Official Liquidator was now appointed, the Official Liquidator was entitled to step
into the shoes of Plaintiff No.1 and could ratify the filing of the suit, thereby
overcoming the defect of non-compliance with Article 17A, I agree with the
submission advanced by the learned Senior Advocate appearing for the Defendant
that the said argument is completely fallacious on various counts. Firstly, under
Sections 441 r/w 457 the fiction whereby the winding up of the company is deemed to
commence at the time of presentation of the Petition for winding up is extended to
apply only in certain specific situations such as under Section 536, and cannot be
applied to cure a bar or a defect in the filing of the suit, which suit was filed prior in
point in time to the winding up order. Furthermore, the contention that the Official
Liquidator can ratify the failure to obtain consent as required under Article 17A
cannot be accepted, as it would amount to an opportunistic misuse of the provisions
of law. The suit being infirm on the date it was filed, it cannot be sought to be
rendered proper merely by the happen chance of the company having subsequently
been ordered to be wound up. In any event, the bar arises under Article 17A on
account of failure to obtain the consent of the VC Investor, that is to say a third party.
There can be no ratification by the Official Liquidator of such a failure, as the entire
object of ratification would be to cure a defect which was capable of being complied
with by the company in the first instance. As the defect in the present case is failure
to obtain a third party’s consent, there is no question of the Official Liquidator
ratifying the filing of the suit without the said consent being obtained, which
admittedly has not been obtained in the present case. Section 9 of the Companies Act,
1956 does not authorize the Official Liquidator to continue proceedings which were
initiated illegally and without authority and which were non-est. The judgment of All
India Reporter Ltd. v. Ramchandra Dhondo Datar (supra) relied upon by the learned
Counsel for the Official Liquidator has no application in the present case as the same
pertains to a defect in the verification and presentation of the Plaint and a failure to
comply with certain procedural requirements, which is very different from the facts of
the present case where the defect is not procedural at all, but one which goes to the
root of jurisdiction as held by this Court in the order dated 5th May 2015. As correctly
submitted by Mr. Sen, the present case is not merely a case of a defect in verification
as a procedural requirement but one wherein there is a pre-condition in the Articles of
Association to the filing of the suit without the consent of the VC Investor. The suit
filed in non-compliance of such a precondition is non-est and cannot be legitimized
merely because of an appointment of the Official Liquidator or by the Official
Liquidator purporting to rectify the same.
25. In the circumstances I hold that the present suit qua Plaintiff No. 1 is not
maintainable for want of authority of Plaintiff No. 2 to file the suit on behalf of
Plaintiff No.1 and the Suit is accordingly dismissed qua Plaintiff No.1. Issue No. 3 is
accordingly answered in the negative.
(S. J. KATHAWALLA, J.)
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