Case Note & Summary
The appellants, minority shareholders of Bachharaj & Company Pvt Ltd, filed a derivative suit challenging the proposed sale of 3,46,96,250 shares of Bajaj Hindustan Ltd held by the company. They alleged that the sale was unnecessary, at a wrong time, and part of a Bajaj family settlement without their consent. The trial court had directed defendant nos.3 and 6 to deposit the market value of 12.5% of the suit schedule shares. The present appeal arose from Chamber Summons No.366 of 2016 and Notice of Motion No.305 of 2009. The court found that the shares were held by the company for over 70 years and constituted about 55% of its investments. The appellants contended that the sale was behind their back and that the family settlement agreement was unstamped and unregistered. However, the court noted that inspection of the agreement was allowed and that the sale was already executed. The court held that the appellants failed to make out a prima facie case for interim relief, as there was no evidence of fraud or mismanagement. The balance of convenience was not in their favor, and no irreparable loss was demonstrated. Consequently, the appeal was dismissed.
Headnote
A) Company Law - Derivative Action - Minority Shareholders - Prima Facie Case - The court considered whether minority shareholders could maintain a derivative suit challenging the sale of shares by the company's management without their consent. Held that the appellants failed to establish a prima facie case of fraud or mismanagement, as the sale was part of a family settlement and the shares were held by the company for over 70 years. (Paras 1-3)
B) Civil Procedure - Interim Relief - Balance of Convenience - The court examined the balance of convenience in granting interim relief. Held that the balance of convenience was not in favor of the appellants, as the sale was already completed and the shares were transferred, and no irreparable loss was shown. (Paras 2-3)
Issue of Consideration
Whether the appellants (minority shareholders) made out a prima facie case for interim relief restraining the sale of shares by the company management, and whether the balance of convenience lies in their favor.
Final Decision
Appeal dismissed. The court held that the appellants failed to establish a prima facie case or balance of convenience in their favor.
Law Points
- Derivative action
- minority shareholders
- prima facie case
- balance of convenience
- interim relief
- sale of shares
- family settlement agreement
Case Details
2016 LawText (BOM) (12) 24
APPEAL (L) NO.423 OF 2016 IN CHAMBER SUMMONS NO.366 of 2016 IN SUIT NO.77 OF 2009
Dr. Manjula Chellur, CJ, M.S. Sonak, J
Mr. Zal Andhyarujina with Mr. Ashish Kamath, Mr. Abhay Jadeja and Mr. Pradeep Mane i/b M/s. Crawford Bayley & Co. for the appellants; Mr. Janak Dwarkadas, Sr. Advocate with Mr. Sharan Jagtiani and Mr. S.V. Mehta i/b M/s. Malvi Ranchhoddas & Co. for respondent nos.1, 3, 4 and 6; Ms. Sneha Phene with Mr. Vishesh Malviya i/b M/s. Federal & Rashmikant for respondent no.2; Mr. Kalpesh Joshi i/b M/s. Kalpesh Joshi & Associates for respondent no.5; Ms Tejal Pandya i/b. M/s. Ashwin Pandya & Associates for respondent no.7
Shri Madhavlal Narayanlal Pittie and others
Bachharaj & Company Pvt Ltd and others
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Nature of Litigation
Appeal against order in Chamber Summons in a derivative suit challenging sale of shares by company management.
Remedy Sought
Appellants sought interim relief restraining the sale of shares of Bajaj Hindustan Ltd held by the first respondent company.
Filing Reason
Appellants alleged that the sale of shares was unnecessary, at a wrong time, and part of a family settlement without their consent as minority shareholders.
Previous Decisions
Trial court directed defendant nos.3 and 6 to deposit market value of 12.5% of suit schedule shares as on 1st March 2008.
Issues
Whether the appellants made out a prima facie case for interim relief?
Whether the balance of convenience lies in favor of the appellants?
Submissions/Arguments
Appellants argued that the sale of shares was without necessity and at a wrong time, and that the family settlement agreement was unstamped and unregistered.
Respondents contended that the sale was part of a family settlement and that the appellants failed to show any fraud or mismanagement.
Ratio Decidendi
Minority shareholders in a derivative suit must establish a prima facie case of fraud or mismanagement to obtain interim relief; mere allegations of unnecessary sale or timing are insufficient.
Judgment Excerpts
The appellants have filed the above suit against the respondents challenging the proposed sale of shares mentioned in the Schedule to the plaint numbering 3,46,96,250 of Bajaj Hindustan Limited.
According to the appellants – plaintiffs, the shares were sold by defendant no.1 to defendant no.6 for the purpose of Bajaj family settlement behind the back of the appellants – plaintiffs.
Procedural History
Suit filed in 2008; interim order passed by trial judge directing deposit of market value of 12.5% shares; present appeal from Chamber Summons No.366 of 2016 and Notice of Motion No.305 of 2009.
