aakashi lodha <aashilodha25@gmail.

com>

SEBI was Right

Diwakar Kishore <kshdiwakar@gmail.com> Reply-To: when-relatives-moot@googlegroups.com To: when-relatives-moot <when-relatives-moot@googlegroups.com> 13 October 2011 02:57

MANU/KE/0051/2009 Equivalent Citation: [2009]148CompCas411(Ker), [2009]90SCL351(Ker) IN THE HIGH COURT OF KERALA W.A. No. 2086 of 2008 Decided On: 02.01.2009 Appellants: V.O. John Vs. Respondent: Catholic Syrian Bank Ltd. and Ors. Hon'ble J.B. Koshy, Actg. C.J. and Thomas P. Josiph, J. Judges: ILR2009(1)Kerala596,

Counsels: For Appellant/Petitioner/Plaintiff: K.P. Dandapani and Mullu Dandapani, Advs. For Respondents/Defendant: P. Santhalingam and S. Sharan, Advs. Subject: Company Catch Words Mentioned IN Acts/Rules/Orders: Companies Act, 1956 - Sections 10F, 67, 67(3), 81, 81(1), 81(1A), 85, 89(1), 111 and 397 to 405; Kerala High Court Act, 1958 - Section 5;Karnataka High Court Act,

1962 - Section 4; High Courts Act, 1861 - Section 15; Government of India Act, 1915 - Section 107; Government of India Act, 1935 - Section 224 and 224(2); Madhya Pradesh Municipal Corporation Act, 1956 - Section 138; Rent Control Act; Unlisted Public Companies (Preferential Allotment) Rules, 2003 - Rule 4; Bombay High Court Appellate Side Rules - Rule 18; Constitution of India - Articles 37, 38(1), 226 and 227; Civil Procedure Code (CPC) - Section 9 and 115 - Order 43, Rule 1 Cases Referred: Arumugham Chettiar v. Joseph [1961] KLT 823; India v. Vijaya Mohini Mills [1992] 1 KLT 404; Umaji Keshao Meshram v. Radhikabai AIR 1986 SC 1272 : [1986] Suppl. SCC 401; Gurushanth Pattedar v. Mahaboob Shahi Kulburga Mills AIR 2005 Karn 377; Shahu Shikshan Prasarak Mandal v. Lata P. Kore [2008] 12 Scale 792; Hari Vishnu Kamath v. Ahmad Ishaque AIR 1955 SC 233; Aidal Singh v. Karan Singh AIR 1957 All 414 [FB]; Raj Kishan Jain v. Tulsi Dass AIR 1959 Punj 291; Barham Dutt v. Peoples' Co-operative Transport Society Ltd. AIR 1961 Punj 24; Sushilabai Laxminarayan Mudliyar v. Nihalchand Waghajibhai Shaha [1993] Suppl. (1) SCC 11; Naresh Shridhar Mirajkar v. State of Maharashtra AIR 1967 SC 1; T.C. Basappa v. T. Nagappa AIR 1954 SC 440; Surya Dev Rai v. Ram Chander Rai [2003] 6 SCC 675; Dr. T.M. Paul v. City Hospital P. Ltd. [1999] 97 Comp Cas 216; Ammonia Supplies Corporation P. Ltd. v. Modern Plastic Containers P. Ltd. [1998] 94 Comp Cas 310 : [1998] 7 SCC 105; Waryam Singh v. Amarnath AIR 1954 SC 215; State v. Navjot Sandhu alias Afshan Guru [2003] 6 SCC 641; Nanalal Zaver v. Bombay Life Assurance Co. Ltd. [1949] 19 Comp Cas 26 : AIR 1949 Bom 56; Sebastian M. Hongray v. Union of India AIR 1984 SC 1026; Union of India v. G. M. Kokil AIR 1984 SC 1022;Chandavarkar Sita Ratna Rao v. Ashalata S. Guram [1986] 4 SCC 447; Pannalal Bansilal Patil v. State of Andhra Pradesh AIR 1996 SC 1023;Municipal Corporation, Indore v. Smt. Ratnaprabha AIR 1977 SC 308 Disposition: Appeal dismissed *Case Note: Constitution of India - Article 227--Writ Appeal is not maintainable against the judgment rendered by a Single Judge in exercise of supervisory jurisdiction vested in the Court under Article 227 of the Constitution of India. The Writ Appeal was filed challenging the judgment of the Single Judge, who set aside the temporary injunction order passed by the Munsiff's Court, restraining the Respondent-bank from proceeding further with its rights issue, on the ground that the Civil Court did not have jurisdiction in the matter. The Respondent-bank is registered as Banking Company with an authorised share capital of Rs. 100 crores. 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 fulfill the requirement of attaining a minimum net worth of Rs. 300 crores on or before 30-9-2007. 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. The special resolution was passed unanimously at the Annual General Meeting to achieve the above purpose. Accordingly, letter of offer was issued by the Respondent-bank 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. The resolution authorized 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. The resolution also authorised the Board of Directors as per Section 81 (1A) of the Companies Act to issue shares through private placement on preferential basis as per Rules. The Appellant along with 103 other shareholders filed an application 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 the resolution under Section 81(1A) 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 and the Company Law Board also held that the bank is at liberty to implement the resolution passed at the Annual General Meeting and posted the case for further hearing. The case filed before the Company Law Board was dismissed as withdrawn. Immediately after vacation of the interim order by the Company Law Board, the Bank approached the Reserve Bank of India for permission to issue the right shafts 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 Right Share was issued as per letter of offer. 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 before the Munsiff's Court, Thrissur to restrain the Bank from proceeding further with rights issue in pursuance of the letter of the offer and for other incidental reliefs. According to the Appellant, the above rights shares were issued in violation of Sections 67 and 89(1) of the Act. The Appellant also prayed for temporary injunction restraining the Bank from proceeding further with the rights issue. The bank, opposed that application contending that the offer of right shares is issued perfectly in accordance with the law and it was issued on the basis of the Special Resolution in the Annual General Meeting. As per the above resolution, the Board of Directors was given the power to restrict the sale of shares to the existing shareholders and therefore, there is no violation of the provisions of the Act. It was also contended that the suit is no maintainable and 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, the Appellant 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. The Munsiff Court found that the petition before the Company Law Board was not maintainable and that the suit is maintainable. The Munsiff Court further held that there is violation of Section 81(1)(c) of the Act, and therefore granted the temporary injunction as prayed for by the Appellant. The said order was challenged by the Respondent--bank in the Writ Petition. The Single Bench of the High Court, invoking the powers under Article 227, set aside the injunction order, observing that the Civil Court did not have jurisdiction in the matter and the suit was not maintainable. The Single

Judge also observed that while issuing the shares, prima facie there is no violation of the provisions of law. The said judgment of the Single Judge was challenged in Writ Appeal by the Appellant contending that, if the order of the Civil Court is illegal, the Bank could have availed the appellate remedy instead of filing a Writ Petition under Articles 226 and 227 of the Constitution of India. The Respondent-bank contended that by the impugned judgment, learned Single Judge exercised the jurisdiction under Article 227 of the Constitution, which is a supervisory jurisdiction and therefore no Writ Appeal will lie against the impugned judgment. It was further contended that civil suit itself was dismissed subsequently as without jurisdiction based on the impugned judgment and therefore the interim order of injunction has become invalid and the appeal is infructuous. The Division Bench of the High Court, after a detailed consideration of the entire contentions proceeded to dismiss the appeal, holding the same to be not maintainable. The High Court; Held: The proceedings under Article 226 are in exercise of original jurisdiction of the High Court while proceedings under Article 227 are not original but only supervisory. By virtue of powers under Article 227, the High Court can keep subordinate courts and tribunals within the bound of their authority and not correcting mere errors. If the errors committed by the lower court or tribunal are manifest and apparent on the face of the record based on clear ignorance and in utter disregard of the provisions of law causing grave injustice, the supervisory jurisdiction can be exercised under Article 227 to prevent injustice even when alternate remedies are available, though such actions are done very sparingly. Section 4 provides for an appeal to the Division Bench from the judgment of the learned Single Judge if the judgment is passed in exercise of original jurisdiction and not in exercise of supervisory jurisdiction. The right of appeal is a statutory right and where the statute has provided for a right of appeal against the order passed by the learned Single Judge in exercise of its original jurisdiction, it has to be held that no appeal will lie against the order passed under Article 227 of the Constitution. In this case, even though the Writ Petition was filed under Articles 226 and 227 of the Constitution of India, the learned Judge while disposing of the Writ Petition expressly stated that he has interfered with the impugned order by exercising power under Article 227 of the Constitution of India. Since the impugned judgment is passed under Article 227 of the Constitution, a Writ Appeal is not maintainable. Companies Act, 1956 (Central Act 1 of 1956)--Sections 81,81(1A) and 111-The Company Law Board has no jurisdiction to decide whether resolution taken to issue rights shares is correct or not--Civil Court has jurisdiction to deal with the matter. Held: It is true that if the rights shares are issued and for any reason, the company refuses to register the shares of a party, aggrieved party can approach the Company Law Board and only the Company Law Board has exclusive

jurisdiction to deal with the same and civil court cannot interfere. But, whether the resolution taken to issue rights shares is correct or not, is not a matter vested with Company Law Board for decision and Company Law Board has no jurisdiction to interfere with the resolution passed to issue rights shares. Therefore, we are of the opinion that the civil court has jurisdiction to deal with the matter. Constitution of India--Article 227--The High Court, notwithstanding the appellate remedy, will be justified in interfering under supervisory jurisdiction if the error is manifest or apparent on the face of the record, or the order passed is in utter disregard of the provisions of law. Held: When an efficacious remedy is provided under the Code, a Writ Petition under Article 227 ought not to have been filed in the cloak of an appeal in disguise. But at the same time, jurisdiction under Article 227 cannot be limited or fettered even by any Act of the Legislature. The supervisory jurisdiction is very wide and can be used to meet the ends of justice and interlocutory orders also can be set aside. Curtailment of revisional jurisdiction of the High Court by amendment of Section 115 Code does not take away or whittle down the power of superintendence, a constitutional power, conferred on the High Court under Article 227 of the Constitution. As held by the Hon'ble Supreme Court in State v. Navjot Sandhu [(2003) 6 S.C.C. 641], the power must be exercised sparingly, only to keep subordinate courts and tribunals within the bounds of their authority to see that they obey the law. The power is not available to be exercised to correct mere errors. But if the error is manifest or apparent on the face of the record, or the order was passed in utter disregard of the provisions of law, or grave injustice or gross failure of justice has occasioned, High Court will be justified in interfering under supervisory jurisdiction even with an appealable interlocutory order to prevent grave injustice. Companies Act, 1956 (Central Act 1 of 1956)--Sections 81(1A), 81(1)(C)-The non obstante clause used in Section 81(1A) is with respect to a specific provision under Section 81(1)(C) of the Act. Held: Section 81(1A) starts with a non obstante clause to the effect that notwithstanding anything contained in Sub-section (1), further shares can be offered to any persons whether or not those persons are included in clause (c) of Sub-section (1) provided, a special resolution is passed to that effect by the company in the general meeting. A non obstante clause is a device which is employed to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other enactment, that is to say, to avoid the operation and defects of all contrary provisions, as held by the Supreme Court in Sebastian M. Hongrary v. Union of India (A.I.R. 1984 S.C. 1022). It is well-settled law that by a non obstante clause, the legislature wants to give overriding effect to a section. The words, 'notwithstanding anything contained' is appended to a particular

provision in the Act in the beginning with a view to give the enacting part of the section in case of conflict, an overriding effect over the provisions mentioned in the non obstante clause. Here, the non obstante clause is used in Section 81 (1A) of the Act with respect to a specific provision under Section 81(1)(C) of the Act. It is true that under Section 81(1)(C), the offer of shares shall include the right to renounce the shares offered to him or any of them in favour of any other person, but that clause is not applicable because as provided under Section 81(1A) a special resolution was passed unanimously in the Annual General Meeting allowing curtailment of the right to renounce the shares offered to any other person. In view of the above resolution, the Directors were entitled to decide that renunciation is exercisable only in favour of existing shareholders of the Bank and this was specifically mentioned in the notice of offer and therefore, there is no violation of Section 81(1)(C) and there is no illegality. JUDGMENT J.B. Koshy, Actg. C.J. 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 September 30, 2007. Exhibit P1 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 exhibit P2. 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. Exhibit P3 special resolution was passed unanimously at the annual general meeting held on June 30, 2006, to achieve the above purpose. Accordingly exhibit P4, 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. Exhibit P3 would show that resolution No. 10(1) 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(1A) of the Companies Act, 1956 (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 See [2004] 118 Comp Cas (St.) 3. 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; and (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 No. 10(i) reads as follows: Resolved pursuant to Section 81(1A) and other applicable provisions, if any, of

the Companies Act, 1956, or any statutory amendment/modification or reenactment thereof from time to time in force and the relevant provisions of the articles of association of the bank, that the board of directors of the bank be and is hereby authorised and empowered to offer, issue and allot all or any of the remaining unissued 6,59,04,921 equity shares of Rs. 10 each and 20,00,000 preference shares of Rs. 100 each in the capital of the bank at par or at such premium, at such time and on such terms and conditions as the board may determine including by way of conversion of debt into equity, to any person or persons who may include non-resident Indians, foreign institutional investors, overseas corporate bodies, financial/investment institutions, qualified institutional buyers, banks, mutual funds, other bodies corporate, other entities, whether domestic or foreign, employees and/or any other persons/individuals whether or not those persons/individuals/ institutions include the holders of equity shares in the bank, by way of rights issue. Private placement, preferential or firm allotment. Public issue or by any one or more of the above methods, whether on the same terms and conditions or with varying terms and conditions and whether at one time or from time to time or in such manner and on such terms and conditions, whatsoever as may be deemed appropriate by the board of directors. (emphasis here printed in italics supplied) 2. Thereafter, resolution No. 10(ii) was passed in pursuance of Rule 4 of the Unlisted Public Companies (Preferential Allotment) Rules, 2003 See [2004] 118 Comp Cas (St.) 3, read with Section 81(1A) of the Act and subject to the approval of the Reserve Bank of India to authorise the board of directors to issue such number of equity shares on such terms and conditions as may be deemed appropriate. This is evident from exhibit P3. Exhibit P4, letter of offer was issued as soon as the stay issued by the Company Law Board was vacated and the Reserve Bank of India gave permission. Articles 37 and 38(1) of the articles of association also provide for increase in share capital subject to the directions issued by the company in the general meeting in a special resolution effecting increase of capital. In exhibit P4, letter of offer with regard to the renunciation of shares, the following restriction was imposed: ...the board of directors after considering the legal opinion received by the bank on the scope of the first proviso to Section 67(3) of the Companies Act, 1956, getting attracted to the present rights issue, have decided to restrict the option for renunciation exercisable only in favour of the existing shareholders of the bank so that the rights offer, even remotely, does not become and cannot be treated as an offer made to the public. 3. The appellant along with 103 other shareholders filed an application (C.P. No. 36 of 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(1A)of the Act. An interim order was passed on June 29, 2006, by the Company Law Board restraining the issue of shares but it was vacated on June 30, 2006 itself by exhibit P5 order and the Company Law Board also held that the bank is at liberty to implement the resolution passe4 at the annual general meeting held on June 30, 2006, pursuant to item No. 10 of the notice dated May 3l, 2006 and posted the case for further hearing. C.P. No. 36 of 2006 filed

alleging oppression and mismanagement was dismissed as withdrawn by order dated February 15, 2008. Immediately, after vacation of the interim order and passing of exhibit P5 order, the petitioner-bank approached the Reserve Bank of India for permission to issue the rights 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 shares was issued by exhibit P4, letter of offer dated July 27, 2007. As per the above offer, issue of shares was to open on August 15, 2007 and was to close on August 29, 2007. The appellant filed a suit (O.S. No. 2141 of 2007) before the Munsiff s Court, Thrissur, to restrain the bank from proceeding further with rights issue in pursuance of exhibit P4, letter of offer and for other incidental reliefs. It is stated in exhibit P6, plaint that the cause of action for that suit arose on July 23, 2007, when the offer was published in the Malayala Manorama daily and on August 11, 2007, on which day, the 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 81(1) of the Act. In the suit, the court fee paid is only Rs. 20 showing the valuation for the prayer as Rs. 500. The appellant also prayed for temporary injunction vide I. A. No. 77669 of 2007. 4. 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 Sections397 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 a 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 exhibit P9 order, the injunction order already passed was affirmed. Exhibit P9 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 in 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 exhibit P9 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 the Code of Civil Procedure (for short, "the Code"). Since efficacious remedy is available, the writ petition is not maintainable.

5. By the impugned judgment, learned single judge found that prima facie the civil court has no jurisdiction. It is stated that, there is no violation of the mandatory provisions of the Act in the issue of rights shares. Learned single judge observed that: If better materials are supplied, the question of jurisdiction can be considered at appropriate time by the learned munsiff. 6. The learned single judge also noticed that the Company Law Board in its order dated August 4, 2006 in C.P. No. 36 of 2006 has permitted the bank to implement the resolution and allowed the bank to issue shares, the remedy of the appellant was to challenge that order as per the provisions of the Companies Act and not by filing a civil suit. In any event, while issuing the shares, prima facie there is no violation of the provisions of law and while passing exhibit P9 order, the material provisions of law were not considered. Learned single judge by invoking the jurisdiction under Article 227 of the Constitution, set aside exhibit P9 order. It is stated at paragraph 10 of the impugned judgment as under: Since this Court is prima facie convinced of lack of jurisdiction as well as non consideration of a material provision of law which goes to the root of the matter, jurisdiction is invoked under Article 227 of the Constitution of India to set aside exhibit P9 order. 7. This judgment is challenged by the appellant before this Court by contending that the view of the learned single judge that civil court has no jurisdiction to entertain the matter is not correct, that there was violation of mandatory provisions of law while issuing the rights shares, that writ petition ought not to have been entertained as it is not maintainable, etc. Apart from the contentions raised earlier, the respondent-bank contended that by the impugned judgment, learned judge exercised the jurisdiction under Article 227 of the Constitution, which is a supervisory jurisdiction, no writ appeal will lie against the impugned judgment and hence, the writ appeal is liable to be dismissed at the threshold itself. It is further contended that civil suit itself was dismissed subsequently as without jurisdiction based on the impugned judgment and therefore, exhibit P9 order has become invalid and the appeal is infructuous. 8. The first question to be considered is, whether the writ appeal is maintainable. The second question to be considered is, whether the view of the learned single judge that the suit is not maintainable is correct or not. Thirdly, if the suit is maintainable, whether against the injunction order exhibit P9, a writ petition can be filed bypassing the remedy provided under the Code. The next question to be considered is, if the suit as well as the writ petition are maintainable, whether there is any violation of the mandatory provisions of the Act in issuing the shares, and whether any prejudice is caused so as to warrant interference under Article 227 of the Constitution. We shall consider these questions in seriatum. 9. The preliminary question for our consideration is, whether the writ appeal is maintainable when relief is granted by the learned single judge exercising supervisory jurisdiction under Article 227 of the Constitution. Section 5 of the Kerala High Court Act, 1958, provides as follows: 5. Appeal from judgment or order of single judge.--An appeal shall lie to a

Bench of two judges from(i) a judgment or order of a single judge in the exercise of original jurisdiction; or (ii) a judgment of a single judge in the exercise of appellate jurisdiction in respect of a decree or order made in the exercise of original jurisdiction by subordinate court. 10. After considering the above provision, this question was considered by a Division Bench of this Court and it was held that supervisory jurisdiction under Article 227 is not an original jurisdiction and therefore, no writ appeal is maintainable (see Arumugham Chettiar v. Joseph [1961] KLT 823 and Union of India v. Vijaya Mohini Mills [1992] 1 KLT 404). Section 5 of the Kerala High Court Act provides for intra court appeal only against the orders passed by a learned single judge under the original jurisdiction. The order passed under Article 227 is under supervisory jurisdiction. After considering Clause 15 of the Letters Patent of the Bombay High Court, the Hon'ble Supreme Court in Umaji Keshao Meshram v.Radhikabai MANU/SC/0132/1986 : [1986]1SCR731 , held that no appeal would lie against a single judge's order or judgment passed in exercise of the supervisory jurisdiction under Article 227 of the Constitution. The Full Bench of the Karnataka High Court (Bench consisting of five judges) in Gurushanth Pattedar v. Mahaboob Shahi Kulburga Mills AIR 2005 Kar 377, also has taken the same view, after considering all the decisions and after considering an identical provision for appeal, i.e., Section 4 of the Karnataka High Court Act, 1962. It was held that Article 227 of the Constitution confers power of superintendence over all courts and tribunals throughout the territory in relation to which the High Court exercises jurisdiction and such power of superintendence is administrative as well as judicial and is capable of being invoked at the instance of any person aggrieved or may even be exercised suo motu. It is equally needless to point out that there is difference between the writ of certiorari under Article 227 and the supervisory jurisdiction under Article 227 of the Constitution. The proceedings under Article 226 are in exercise of the original jurisdiction of the High Court while proceedings under Article 227 are not original but only supervisory. By virtue of powers under Article 227, the High Court can keep subordinate courts and tribunals within the bound of their authority and not correcting mere errors. If the errors committed by the lower court or tribunal are manifest and apparent on the face of the record based on clear ignorance and in utter disregard of the provisions of law causing grave injustice, the supervisory jurisdiction can be exercised under Article 227 to prevent injustice even when alternate remedies are available, though such actions are done very sparingly. Section 4 provides for an appeal to the Division Bench from the judgment of learned single judge if the judgment is passed in exercise of original jurisdiction and not in exercise of supervisory jurisdiction. The right of appeal is a statutory right and where the statute has provided for a right of appeal against the order passed by the learned single judge in exercise of its original jurisdiction, it has to be held that no appeal will lie against the order passed under Article 227 of the Constitution. In this case, even though the writ petition was filed under Articles 226 and 227 of the Constitution of India, the learned judge while disposing of the writ petition expressly stated that he has interfered with the impugned order by exercising power under Article 227 of the Constitution of India. Since the impugned judgment is passed under Article227 of the Constitution, a writ appeal is not maintainable. Therefore, we are of the view that the

writ appeal is not maintainable and is liable to be dismissed. 11. However, learned Counsel for the appellant argued that even though learned judge has exercised jurisdiction under Article 227 of the Constitution, since the writ petition was filed under Articles 226 and 227 and many of the pleadings in the writ petition will attract the jurisdiction under Article 226, the writ appeal is maintainable. Learned Counsel placed reliance on the decision, of the apex court in Shahu Shikshan Prasarak Mandal v. Lata P. Kore MANU/SC/4178/2008 : (2009)ILLJ247SC , wherein the Supreme Court has remanded the matter to the Division Bench of the High Court for deciding the question of maintainability of the writ appeal filed against a judgment passed by a learned single judge in a writ petition under Articles 226 and 227 of the Constitution. In Umaji Keshao Meshram v. Radhikabai MANU/SC/0132/1986 : [1986]1SCR731 , the apex court held as follows, at paragraph 107 (page 473): Petitions are at times filed both under Articles 226 and 227 of the Constitution. The case of Hari Vishnu Kamath v. Ahmad Ishaque MANU/SC/0095/1954 : [1955]1SCR1104 , before this Court was of such a type. Rule 18 provides that where such petitions are filed against orders of the tribunals or authorities specified in Rule 18 of Chapter XVII of the Appellate Side Rules or against decrees or orders of courts specified in that rule, they shall be heard and finally disposed of by a single judge. The question is whether an appeal would lie from the decision of the single judge in such a case. In our opinion, where the facts justify a party in filing an application either under Article 226 or 227 of the Constitution, and the party chooses to file his application under both these articles, in fairness and justice to such party and in order not to deprive him of the valuable right of appeal the court ought to treat the application as being made under Article 226 and, if in deciding the matter, in the final order the court gives ancillary directions which may pertain to Article 227, this ought not to be held to deprive a party of the right of appeal under Clause 15 of the Letters Patent where the substantial part of the order sought to be appealed against is under Article 226. Such was the view taken by the Allahabad High Court in Aidal Singh v. Karan Singh MANU/UP/0134/1957 : AIR1957All414 and by the Punjab High Court in Raj Kishan Jain v. Tulsi Dass MANU/PH/0088/1959 and Barham Dutt v. Peoples' Co-operative Transport Society Ltd. MANU/PH/0011/1961 and we are in agreement with it. 12. In Sushilabai Laxminarayan Mudliyar v. Nihalchand Waghajibhai Shaha MANU/SC/0042/1992 : AIR1992SC185 , at paragraph 4, it was held by the apex court as follows (page 14): The Full Bench of the Bombay High Court wrongly understood the above Umaji Kesho Meshram case. In Umaji case, it was clearly held that where the facts justify a party in filing an application either under Article 226 or 227 of the Constitution of India and the party chooses to file his application under both these articles in fairness to justice to party and in order not to deprive him of valuable right of appeal the court ought to treat the application as being made under Article 226 and if in deciding the matter, in the final order the court gives ancillary directions which may pertain to Article 227, this ought not to be held to deprive a party of the right of appeal under Clause 15 of the Letters Patent where the substantial part of the order sought to be appealed against is under Article 226. Rule 18 of the Bombay High Court Appellate Side Rules read with Clause 15 of the Letters Patent provides for appeal to the Division Bench of the High Court from the judgment of the learned single judge passed on a writ petition under Article 226 of the Constitution. In the present case, the Division Bench was clearly wrong in holding

that the appeal was not maintainable against the order of the learned single judge. In these circumstances we set aside the order of the Division Bench and direct that the Letters Patent appeal filed against the judgment of the learned single judge would now be heard and decided on merits. 13. Therefore, it was argued vehemently that the writ appeal is maintainable. 14. In this case, in the impugned judgment in the writ appeal, learned single judge has exercised jurisdiction under Article 227 and in view of the express statement regarding the same in the judgment, there is no doubt for the same. The earlier view that Article 226 will not lie against the orders passed by the civil court and writ of certiorari cannot be issued against a civil court's order has undergone a significant change. After considering the decision of the nine member Bench of the apex court in Naresh Shridhar Mirajkar v. State of Maharashtra MANU/SC/0044/1966 : [1966]3SCR744 , wherein it was held that a writ of certiorari will not lie to quash the order of inferior court of civil jurisdiction and considering the decision of the Constitution Bench in T.C. Basappa v. T. Nagappa MANU/SC/0098/1954 : [1955]1SCR250 and Naresh Shridhar Mirajkar's caseMANU/SC/0044/1966 : [1966]3SCR744 , the Supreme Court in Surya Dev Rai v. Ram Chander Rai MANU/SC/0559/2003 : AIR2003SC3044 , has held that (page 688): 19. Thus, there is no manner of doubt that the orders and proceedings of a judicial court subordinate to the High Court are amenable to writ jurisdiction of the High Court under Article 226 of the Constitution. 15. But here, the question whether a writ under Article 226 can be issued or not is not an issue to be considered as the learned judge has set aside exhibit P9 order of the civil court exercising supervisory jurisdiction under Article 227 of the Constitution. Considering the wording of Section 5 of the Kerala High Court Act, we are of the view that an appeal against an order under Article 227 is not maintainable. Assuming that the writ appeal is maintainable against such order, we consider the other aspects of the case argued by the appellant, as both sides raised contentions on all points. 16. The second question raised for our consideration is whether a suit can be filed against a special resolution passed by the bank for issuing rights shares. It is argued by the appellant that learned single judge exercised jurisdiction under Article 227 of the Constitution on the assumption that suit was not maintainable. There is no express provision in the Act barring jurisdiction of the civil court. Under Section 9 of the Code, the civil court has jurisdiction to try all suits of a civil nature except those of which cognisance by the civil court is either expressly or impliedly barred. Such exclusion cannot be readily inferred and the presumption should be made in favour of existence of jurisdiction rather than exclusion of jurisdiction of the civil courts. In this connection, we shall refer to the Division Bench decision of this Court in Dr. T.M. Paul v. City Hospital P. Ltd. [1999] 97 Comp Cas 216. The Hon'ble Supreme Court in Ammonia Supplies Corporation P. Ltd. v. Modern Plastic Containers P. Ltd. MANU/SC/0585/1998 : AIR1998SC3153 has held as follows (page 328 of 94 Comp Cas): Unless jurisdiction is expressly or implicitly barred under a statute, for violation or redress of any such right, the civil court would have jurisdiction. There is nothing under

the Companies Act expressly barring the jurisdiction of the civil court, but the jurisdiction of the 'court' as defined under the Act exercising its powers under various sections where it has been invested with exclusive jurisdiction, the jurisdiction of the civil court is impliedly barred. 17. It is true that certain provisions are specifically stated in the Act to be dealt with by the company court ("court" as defined in that Act) and certain provisions by the Company Law Board (or Tribunal). The Company Law Board is not vested with the power to hear appeals or applications alleging violation of Sections 81 and 81(1A) of the Act. It can exercise and discharge the powers and functions specifically conferred on it as provided under Section 10F of the Act. It is also not a matter to be dealt with by the company court. If it is within the powers and functions conferred on the Company Law Board, the aggrieved party can approach the Company Law Board and not by filing a suit before the civil court. From the decisions of the Company Law Board, an appeal is provided to the High Court (section 10F). With regard to matters provided to be redressed by the "court" as defined under the Act, one can approach only the company court and no civil suit can be filed. An appeal from the decision of the company court is also provided to the Division Bench of the High Court. It is submitted by learned Counsel for the appellant that Sections 81 and 81(1A) deals with further issue of capital and if rights shares are issued on the basis of the resolution passed by virtue of the powers conferred under Section 81, finally the company has to register those shares. The appeal against refusal to register the transfer of shares is specifically vested with the Company Law Board. Section 111 of the Companies Act provides that if a company refuses to register the transfer of shares or refuses to rectify the register of shares, the Company Law Board (now, Tribunal) can interfere in the matter. Hence suit is not maintainable. Registration of transfer of shares is entirely different from the power to issue rights shares. It is true that if the rights shares are issued and for any reason, the company refuses to register the shares of a party, aggrieved party can approach the Company Law Board and only the Company Law Board has exclusive jurisdiction to deal with the same and civil court cannot interfere. But, whether the resolution taken to issue rights shares is correct or not, is not a matter vested with the Company Law Board for decision and the Company Law Board has no jurisdiction to interfere with the resolution passed to issue rights shares. Therefore, we are of the opinion that the civil court has jurisdiction to deal with the matter. 18. It is contended by the respondent that earlier, writ appellant along with others approached the Company Law Board questioning; the resolution passed under Section 81(1A) contending that the clause that rights shares can be renounced only in favour of an existing shareholder is an act of oppression and mismanagement, but the appellant withdrew from the above case and finally that application itself was withdrawn. Since the application was withdrawn, the interim stay was vacated and the bank was permitted to issue rights shares in implementation of the special resolution. It is true that Company Law Board (Tribunal) is vested with powers regarding relief in case of oppression and mismanagement as provided under Sections 397 - 405 of the Act. What is contended in the suit is that the special resolution under Section 81(1) of the Act itself is illegal as sufficient notice was not given to the shareholders as provided under the section and also because of the restriction in the right to renounce the rights shares offered, in favour of a nonshareholder. Since C.P. No. 36 of 2006 was finally withdrawn, and that petition was originally filed alleging oppression and mismanagement, we are of the view that

merely because appellant was a party along with others in the petition filed under Sections 397 and 398 and later appellant withdrew from the matter, that will not be a bar in challenging the illegality in the resolution passed under Section 81(1A) of the Act before the civil court, if the appellant is alleging violation of statutory provisions. Therefore, we are of the view that the suit was maintainable. Even the learned single judge did not say that suit is not completely maintainable. Learned single judge has taken the view that prima facie, the civil court has no jurisdiction and if better materials are supplied, the question of jurisdiction can be considered at the appropriate time by the learned munsiff. 19. The next question is, whether the writ petition is maintainable challenging the impugned order passed by the civil court. It is contended that if the suit is maintainable, the exhibit P9 order impugned in the writ petition is not passed without jurisdiction and therefore, writ petition cannot be filed against the above order and the remedy of the petitioner-bank was to file appeal before the civil court as provided under Order XLIII of the Code and not a writ petition. When an efficacious remedy is provided under the Code, a writ petition under Article 227 ought not to have been filed in the cloak of an appeal in disguise. But at the same time, jurisdiction under Article 227 cannot be limited or fettered even by any Act of the Legislature. The supervisory jurisdiction is very wide and can be used to meet the ends of justice and interlocutory orders also can be set aside. Curtailment of revisional jurisdiction of the High Court by amendment of Section 115 of the Code does not take away or whittle down the power of superintendence, a constitutional power, conferred on the High Court under Article 227 of the Constitution. The supervisory jurisdiction of the High Court is explained by the Supreme Court in Surya Dev Rai v. Ram Chander Rai MANU/SC/0559/2003 : AIR2003SC3044 , as follows (page 688): 22. Article 227 of the Constitution confers on every High Court the power of superintendence over all courts and tribunals throughout the territories in relation to which it exercises jurisdiction excepting any court or tribunal constituted by or under any law relating to the armed forces. Without prejudice to the generality of such power the High Court has been conferred with certain specific powers by Clauses (2) and (3) of Article 227 with which we are not concerned hereat. It is well-settled that the power of superintendence so conferred on the High Court is administrative as well as judicial, and is capable of being invoked at the instance of any person aggrieved or may even be exercised suo motu. The paramount consideration behind vesting such wide power of superintendence in the High Court is paving the path of justice and removing any obstacles therein. The power under Article 227 is wider than the one conferred on the High Court by Article 226 in the sense that the power of superintendence is not subject to those technicalities of procedure or traditional fetters which are to be found in certiorari jurisdiction. Else the parameters invoking the exercise of power are almost similar. 23. The history of supervisory jurisdiction exercised by the High Court, and how the jurisdiction has culminated into its present shape under Article 227 of the Constitution, was traced in Waryam Singh v. Amarnath MANU/SC/0121/1954 : [1954]1SCR565 . The jurisdiction can be traced back to Section 15 of the High Courts Act, 1861, which gave a power of judicial superintendence to the High Court apart from and independently of the provisions of other laws conferring revisional jurisdiction on the High Court.

Section 107 of the Government of India Act, 1915 and then Section 224 of the Government of India Act, 1935, were similarly worded and reproduced the predecessor provision. However, Sub-section (2) was added in Section 224 which confined the jurisdiction of the High Court to such judgments of the inferior courts which were not otherwise subject to appeal or revision. That restriction has not been carried forward in Article 227 of the Constitution. In that sense Article 227 of the Constitution has width and vigour unprecedented. (emphasis here printed in italics supplied) 20. As held by the Hon'ble Supreme Court in State v. Navjot Sandhu alias Afshan Guru MANU/SC/0396/2003 : (2003)6SCC641 , the power must be exercised sparingly, only to keep subordinate courts and tribunals within the bounds of their authority to see that they obey the law. The power is not available to be exercised to correct mere errors. But if the error is manifest or apparent on the face of the record, or the order was passed in utter disregard of the provisions of law, or grave injustice or gross failure of justice has occasioned, the High Court will be justified in interfering under supervisory jurisdiction even with an appealable interlocutory order to prevent grave injustice. 21. The next question to be considered is, whether the impugned judgment passed by the learned judge exercising jurisdiction is justifiable. According to the bank, exhibit P9 order is patently illegal and passed in utter disregard to the provisions of law causing irreparable hardship or grave injustice to the writ petitioner warranting interference under the supervisory jurisdiction. According to the appellant, passing of the special resolution is violative of Section 67(3). Section 67(3) is admittedly not applicable as that is applicable only with regard to offer of shares made to the public. No arguments were placed before us by the appellant regarding this. With regard to violation of Section 81(1), we quote the relevant portion of Section 81, which reads as follows: 81. Further issue of capital.--(1) Where at any time after the expiry of two years from the formation of a company or at any time after the expiry of one year from the allotment of shares in that company made for the first time after its formation, whichever is earlier, it is proposed to increase the subscribed capital of the company by allotment of further shares, then,(a) such further shares shall be offered to the persons who, at the date of the offer, are holders of the equity shares of the company, in proportion, as nearly as circumstances admit, to the capital paid-up on those shares at that date; (b) the offer aforesaid shall be made by notice specifying the number of shares offered and limiting a time not being less than fifteen days from the date of the offer within which the offer, if not accepted, will be deemed to have been declined; (c) unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person

concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in Clause (b) shall contain a statement of this right; (d) after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the board of directors may dispose of them in such inanner as they think most beneficial to the company. Explanation.--In this sub-section 'equity share capital' and 'equity shares' have the same meaning as in Section 85. (1A) Notwithstanding anything contained in Sub-section (1), the further shares aforesaid may be offered to any persons whether or not those persons include the person referred to in Clause (c) of Sub-section (1) in any manner whatsoever(a) if a special resolution to that effect is passed by the company in general meeting, or (b) where no such special resolution is passed, if the votes cast (whether on a show of hands, or on a poll, as the case may be) in favour of the proposal contained in the resolution moved in that general meeting (including the casting vote, if any of the chairman) by members who, being entitled so to do, vote in person, or where proxies are allowed, by proxy, exceed the votes, if any, cast against the proposal by members so entitled and voting and the Central Government is satisfied, on an application made by the board of directors in this behalf, that the proposal is most beneficial to the company. (2) Nothing in Clause (c) of Sub-section (1) shall be deemed(a) to extend the time within which the offer should be accepted; or (b) to authorise any person to exercise the right of renunciation for a second time on the ground that the person in whose favour the renunciation was first made has declined to take the shares comprised in the renunciation.... 22. Section 81 comes into play whenever it is proposed to increase the subscribed share capital of the company by allotment of further shares. The new shares must be offered to the existing holders of equity shares in the proportion of the shares held by them as provided under Section 81(1)(a). That is done here. The object of the section as held by the Bombay High Court in Nanalal Zaver v. Bombay Life Assurance Co. Ltd. [1949] 19 Comp Cas 26 : AIR 1949 Bom 56, is that there should be an equitable distribution of shares and the ratio of the holding shall not be affected by the issue of new shares. Section 81(1)(b) provides that notice should fix a time which should not

be less than 15 days from the date of offer within which the offer must be accepted. Section 81(1)(c) provides that the notice shall inform the shareholders that they have the right to renounce all or any of the shares offered to them in favour of their nominees. But the operation of Section 81(1)(a) to (c) can be excluded and new shares can be offered to outsiders to the total exclusion of the shareholders if the company passes a special resolution to allot the new shares in a different manner than what is provided in the section. Here a special resolution was also passed in accordance with the provisions of Section 81(1A) of the Act authorising the board of directors to make deviation from the provisions of Section 81 of the Act. 23. It is the contention of the appellant that there is violation of Section 81(1)(b) of the Act as 15 days time was not given from the date of offer. Exhibit P4 is the offer for issue of rights shares. It is dated July 21, 2007. The issue was open on August 16, 2007 and the closing date was on August 29, 2007. The date of offer and the date of opening of issue of shares are different. The contention of the appellant is that issue opens on August 16, 2007 and before its closing, 15 days is not there and hence it is violative of Section 81(1)(b). The wording of Section 81(1)(b) is very clear that there should be 15 days time from the date of offer so that the person offered with rights shares has sufficient time to mobilise money to accept the offer. In the suit, it was pleaded by the appellant that the offer was published in Malayala Manorama daily on July 23, 2007. Exhibit P4 is dated July 21, 2007. That shows that date of offer was on July 21, 2007 and sufficient advance notice was there and more than 15 days time was given from the date of offer even before the opening of the issue. The second contention is regarding violation of Section 81(1)(c). Section 81(1A)is an exception to Section 81(1) inclusive of Section 81(1)(c). Section 81(1A) starts with a non obstante clause to the effect that notwithstanding anything contained in Sub-section (1), further shares can be offered to any persons whether or not those persons are included in Clause (c) of Sub-section (1) provided, a special resolution is passed to that effect by the company in the general meeting. A non obstante clause is a device which is employed to give overriding effect to certain provisions over some contrary provisions that may be found either in the same enactment or some other enactment, that is to say, to avoid the operation and defects of all contrary provisions, as held by the Supreme Court in Sebastian M. Hongray v. Union of India AIR 1984 SC 1026. It is well-settled law that by a non obstante clause, the Legislature wants to give an overriding effect to a section. The words, "notwithstanding anything contained" is appended to a particular provision in the Act in the beginning with a view to give the enacting part of the section in case of conflict, an overriding effect over the provisions mentioned in the non obstante clause, as held by the Supreme Court in Union of India v. G. M. Kokil MANU/SC/0210/1984 : (1984)IILLJ20SC and Chandavarkar Sita Ratna Rao v. Ashalata S. Guram MANU/SC/0531/1986 : [1986]3SCR866 . A non obstante clause is a legislative device to modify the ambit of the provision or law mentioned in the non obstante clause, as held by the Supreme Court in Pannalal Bansilal Patil v. State of Andhra Pradesh MANU/SC/0276/1996 : [1996]1SCR603 . In Municipal Corporation, Indore v. Smt. Ratnaprabha AIR 1977 SC 308, the hon'ble Supreme Court considered Section 138(b) of the Madhya Pradesh Municipal Corporation Act, 1956, which enacts that the annual value of any building shall notwithstanding anything contained in any other law for the time being in force be deemed to be the gross annual rent at which such building might reasonably at the time of assessment be expected to be let from year to year. In view of the non obstante clause, the Supreme Court held that annual letting value determined under Section 138(b) need not in every case be limited to the standard rent which might be fixed for the building

under the Rent Control Act. Here, the non obstante clause is used in Section 81(1A) of the Act with respect to a specific provision under Section 81(1)(c) of the Act. It is true that under Section 81(1)(c), the offer of shares shall include the right to renounce the shares offered to him or any of them in favour of any other person, but that clause is not applicable because as provided under Section 81(1A) a special resolution was passed unanimously in the annual general meeting allowing curtailment of the right to renounce the shares offered to any other person. In view of the above resolution, the directors were entitled to decide that renunciation is exercisable only in favour of existing shareholders of the bank and this was specifically mentioned in the notice of offer and therefore, there is no violation of Section 81(1)(c) and there is no illegality and exhibit P9 order is patently illegal as it was passed in disregard to the provisions of law. We have already stated that in view of the Reserve Bank of India's circular, the bank has to increase the share capital and the bank would have obtained by way of rights shares an amount of Rs. 122,71,56,840 in August, 2007 and interest on the above amount itself is very huge. When there are more than 28,000 shareholders, appellant who paid Rs. 20 as court fee and who is having only 200 shares filed the suit and caused this situation. The appellant has no right to represent other shareholders. Only two or three shareholders came forward and supported the appellant pursuant to the notice issued. The special resolution was passed unanimously in the annual general meeting and considering the grave injustice caused by the stay order based on a patently illegal interpretation of law, we are of the view that the learned single judge was right in interfering with exhibit P9 by exercising supervisory jurisdiction to prevent failure of justice. 24. A patent illegality causing grave injustice is prevented by the impugned judgment. In any event, we have already stated that learned judge passed the impugned judgment only under Article 227 of the Constitution as expressly stated in the judgment and the writ appeal is not maintainable and even if it is maintainable, no relief can be granted in an intra court appeal as learned judge has correctly exercised the supervisory jurisdiction. The writ appeal is dismissed with costs. *A reproduction from ILR (Kerala Series)

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