PETITIONER:
MORGAN STANLEY MUTUAL FUND
Vs.
RESPONDENT:
KARTICK DAS
DATE OF JUDGMENT20/05/1994
BENCH:
MOHAN, S. (J)
BENCH:
MOHAN, S. (J)
VENKATACHALLIAH, M.N.(CJ)
ANAND, A.S. (J)
CITATION:
1994 SCC (4) 225 JT 1994 (3) 654
1994 SCALE (2)1121
ACT:
HEADNOTE:
JUDGMENT:
The Judgment of the Court was delivered by
MOHAN, J.- Leave granted.
2. The appellant is a domestic mutual fund registered with
Securities and Exchange Board of India (hereinafter referred
to as ‘SEBI’) under Registration No. MF/005/93/1 dated 5-11-
1993. The appellant is managed by a Board of Trustees.
Pursuant to the SEBI (Mutual Fund) Regulations, the
investment management company of the appellant, Morgan
Stanley Asset Management India Private Limited was
registered with SEBI on 5-11-1993. Under such registration
Morgan Stanley Asset Management India Private Limited is
constituted as the asset management company of the
appellant. Morgan Stanley Asset Management India Private
Limited is it subsidiary of Morgan Stanley Group Inc. which
holds 75% of equity, the balance being held by Indian
shareholders such as Housing Development Finance Corporation
(HDFC), Stock Holding Corporation of India etc. Morgan
Stanley Asset Mana-enient India Private Limited was ranted
certificate of incorporation on 18-10-1993 by the Registrar
of Companies, Bombay. Its Memorandum and Article of
Association have also been approved by the SEBI as per the
provisions of the said Regulations.
3. The draft scheme of the appellant was approved by the
Board of Trustees by Circular Resolution dated 8-1 1-1993.
This was forwarded to SEBI for its approval on 10- 11- 1993.
The scheme was duly scrutinised and examined by the SEBI and
SEBI gave its approval and certain amendments were
suggested. Upon receipt of such approval for the scheme,
the appellant and the Investment Manager took necessary
steps to begin marketing the scheme by issue of
advertisements. All advertisements and publicity material
were approved by SEBI in writing before publication as
required by the Regulations. Pursuant to such approval tile
appellant commenced advertising the public issue.
4. On 13-12-1993 the advertisements and hoardings were
released. One Piyush Aggarwal filed a suit before the
learned Sub-Judge, Tees Hazari Courts, Delhi for injunction
restraining the public issue from being floated by the
appellant. On 24-12-1993 an interim order was passed.
Aggrieved by the same, the appellant moved the High Court in
CM(M) No. 543 of 1993. On 3-1-1994 the said order passed by
the learned Sub-Judge was stayed. That was subsequently
confirmed on 4-1-1994. One Dr Arvind Gupta filed Writ
Petition No. 14 of 1994 against SEBI. In effect, he sought
to stay the public issue from being floated. That writ
petition was rejected.
5. On the same rounds, as were urged in the writ
petition, the respondent moved the Calcutta District
Consumer Disputes Redressal Forum seeking to restrain the
public issue from being floated. The principal grounds
taken were that the appellant’s Offering Circular was not
approved by the SEBI. There are several irregularities in
the same. The basis of allotment is arbitrary, unfair and
Unfair. The appellant was seeking to collect money by
misleading the public.
231
6. The following order was passed on 4-1-1994 by the
Calcutta District Consumer Disputes Redressal Forum :
“Petitioner files the complaint today.
Register. Issue notice of show cause against
OPs.
Considering the utmost urgency of the case as
cited by the learned lawyer for the petitioner
we are inclined to pass an interim order
otherwise the application would be frustrated.
Accordingly we direct OP 1 and OP 2 and its
men, agents, collecting banks not to proceed
any further with the issue of 30 crores Morgan
Stanley Growth Fund Units due to be opened on
6-1-1994 till proper clarification is made in
its prospectus and with the leave of this
learned Forum. OP 3 i.e. SEBI is also
directed not to issue clearances until
Regulation 28 of Schedule V of SEBI
Regulations is complied with by the OP 1 and
OP 2.
OP 4 and OP 5 i.e. the bankers to the offer
are specifically restrained from accepting any
application form of Morgan Stanley Growth Fund
from anybody until further orders from this
learned Forum.
OPs are at liberty to apply for
vacation/variation of this order. Next date
fixed on 19-1-1994.”
7. Aggrieved by this order, civil appeal arising out of
SLP (C) No. 272 of 1994 has come to be preferred.
8. Against the dismissal of Writ Petition No. 14 of 1994
by the High Court of Delhi, civil appeal arising out of SLP
(C) No. 321 of 1994 has come to be preferred.
9. Mr Ashok Desal learned counsel for the appellant
(Morgan Stanley\ Mutual Fund) urges the following :
(a) A prospective investor is not a consumer
to prefer a complaint under the Consumer
Protection Act, 1986 (hereinafter referred to
as ‘the Act’). If that be so, a voluntary
consumer association cannot complain about the
issue of shares. The shares are not ‘goods’
as defined under Section 2(1)(1) of the Act.
Even otherwise, there can be no consumer
association of prospective applicants for
future properties, The issue of shares was to
open on 27-4-1993. The so-called consumer has
yet to apply for allotment of final shares and
make payments in respect thereof. Therefore,
it is submitted that no member of this
association could be held to be a consumer of
future shares within the meaning of the
definition (supra).
(b) In law, a prospective investor does not
become a consumer as defined under the Act.
Even assuming that shares could be goods
before allotment, the so-called consumer has
neither purchased the goods for a
consideration nor hired the services of the
company for consideration. Hence, he is not
entitled to make any complaint.
(c) There being no transaction of buying
goods for consideration the requirement of
Section 2(1)(d)(i) of the Act defining
‘consumer’ is not satisfied.
232
(d) No member of the public has a right or
entitlement to a share of the company making
an issue of capital for the first time. A
prospective investor has no say in the
valuation of shares issued. That is
determined by the general body of
shareholders. Should a prospective investor
have any legal right and if the issue of
capital is not to his desire, he may not opt
to subscribe. He cannot intentionally, with
the objection of which he is personally aware,
subscribe to the issue and challenge its very
terms.
(e) Under the scheme of the Consumer
Protection Act, a consumer forum is competent
to deal with the complaint if it relates to
goods bought or services rendered. Thus the
District Consumer Forum has no jurisdiction
whatsoever to deal with this case.
(f) Section 2(1)(c) of the Act defines a
‘complaint’ and lists four cases where
investigation, inquiry and relief could be
granted. The complaint in relation to public
issue of shares namely future goods does not
fall within any one of four categories of
which a complaint can be filed under the
provisions of the Act.
(g) Section 14 of the Act deals with the
nature of relief that can be granted. This
section does not envisage grant of any interim
relief or an ad interim relief. The section
contemplates only a final relief. In the
instant case, the grant of injunction against
the public issue of the appellant company is a
relief not provided for under the statute.
(h) The principles relating to grant of
injunction including the balance of
convenience have not been borne in mind. Even
assuming that the Forum is conferred with
the power to grant injunction it has not
examined whether there were overwhelming
reasons for urgency and why the grievance
could not have been made earlier. In this
case, the party had gone to the Forum on the
last date when the issue was about to open
after the issue had been advertised. The
public advertisement was issued on 13-12-1993;
the petition was filed on 4-1-1994, the orders
were passed on the following day. The
Calcutta District Consumer Disputes Redressal
Forum was approached on the last day,
obviously with unclean motives. There is also
suppression of material facts on the part of
the respondent. In matters of this kind there
must be an undertaking as to the damages on
the part of the party seeking the injunction.
For these reasons, it is prayed that the impugned order may
be set aside. In this case, since the appellant has
suffered very much in that not even the copy of the
injunction was served on the appellant which copy came to be
obtained only through the bankers, it is a fit case in which
the appellant should be compensated with exemplary costs.
10. Mr K.G. Vishwanathan, learned counsel for the
respondent urges that there are well-known principles for
the grant of ex parte injunction. Should the court be
satisfied that there is a prima facie case, on balance of
convenience, it can always grant. Where the issue of public
share is nothing but an attempt to gain an undue advantage,
the court is not powerless. This is
233
a case to which the Regulations would apply. Therefore, if
those Regulations are not conformed to, a prospective
applicant would be entitled to seek an injunction. There
has been a violation of Regulation 27 and that the appellant
did not have any approval as is clear from their own
document. Only a letter from SEBI seeking the clarification
from the appellant is produced. This does not, it is urged,
amount to an approval in law.
11. It is further urged by Mr Vishwanathan that the bankers
to the issue at Calcutta were really non-existent. The
brochure indicates that the application forms could be
received in Calcutta at the Bank of Baroda, Old Court House
Street and Corporation Bank, Cappling Street. Both these
branches, it is urged, are non-existent while there is no
branch of Bank of Baroda at Old Court House Street. There
is no street called Cappling Street in Calcutta.
12. The basis of allotment what is styled “first come,
first served” was, it is urged, intended to confuse and
designed to deceive the innocent investors. The
applications were received in 45 centres simultaneously. No
priority number was given. Hence, the appellant would be in
a position to deny to each one of the investors on the
ground that he had not come or approached the appellant
first. As a result, the appellant will be able to amass
enormous sums of money by way of interest and thereafter
return the amount to the respective investors.
13. The failure to stipulate the period before which the
refund would be effective is, it is further urged, a serious
irregularity violating Regulation 23.
14. The Calcutta District Forum has, it is claimed, power
to issue the restraint order under the Act. Such
injunctions are not unknown to law as seen from the
Financial Services Act, 1986 of the United Kingdom.
Therefore, no interference is called for.
15. In SLP (C) No. 321 of 1994, the appellant would urge
that the High Court has dismissed the writ petition without
a speaking order. There were important points raised in the
writ petition. The announcement of the impugned scheme of
public issue of units by the appellant is, it is contended,
without the approval of SEBI and is illegal and that by
proposing the allotment of units based on first come first
served basis, fair treatment is not meted out to small
investors. There is contravention of Sections 55, 63 and 68
of the Companies Act, 1956. To hold out, as the appellant
has done, that the allotment of units will be based on firm
allotment basis and with a changed sponsor in the
advertisement, it is contended, is illegal in law, apart
from it being violative of the norms and practices in the
capital market. In such a case, the impending disaster
could be avoided only by a quia timet interference of the
court. It is also urged that by piercing the corporate
veil, it could be easily seen that the real sponsor is no
other than the Morgan Stanley Group, New York. Therefore,
SEBI should have acted in accordance with Section 11(2)(e)
of the SEBI Act, 1992 for prohibiting fraudulent and unfair
trade practices relating to securities market. It is also
urged that the writ petition came to be filed and dismissed
without consideration of these aspects. So, it requires
interference of this Court.
234
16. We have already extracted the impugned order. The
correctness the same can be determined with reference to the
following questions:
(1) Whether the prospective investor could
be a ‘consumer’ within the meaning of Consumer
Protection Act, 1986 ?
(2) Whether the appellant company ‘trades’
in shares ?
(3) Does the Consumer Disputes Redressal
Forum have jurisdiction in matters of this
kind ?
(4) What are the guiding principles in
relation to the grant of an a interim
injunction in such areas of the functioning of
the capital market and public issues of the
corporate sectors and whether certain ‘venu
restriction clauses’ would require to be
evolved judicially as has bee done in cases
such as State of’ W.B- v. Swapan Kumar Guha an
Sanchaita Investments’ ?
(5) What is the scope of Section 14 of the Act
?
The answers to these questions will decide not only the fate
of this civil appeal but also the appeal arising Out of SLP
(C) No. 321 of 1994.
17. In order to decide these questions, it will be
necessary to set out the factual matrix. On 11-4-1988,
Government of India by an administrative circular
constituted the Securities and Exchange Board of India
(SEBI) for investors’ protection. On 30-1-1992, an
ordinance known as SEBI Ordinance was promulgated. On 21-2-
1992, a bill was introduced namely the SEBI Bill of 1992
which became the Act on 4-4-1992. It came into force on 30-
1-1992 as stated in Section 1(3) of the SEBI Act. On 29-5-
1992, the Capital Issues Control Act, 1947 was repealed.
18. Mutual funds in India are regulated by SEBI pursuant to
the Securities and Exchange Board of India (Mutual Funds)
Regulations, 1993 Under the said Regulations, all mutual
funds in India as also the asset management companies and
the custodians of the mutual funds assets are required to be
registered with the SEBI. No mutual fund in India can
approach the market with a scheme unless scheme has been
fully approved by SEBI which is the sole authority for
granting approval to such funds. The SEBI examines the
scheme and suggests modifications, if any, and allows the
scheme to be advertised and published.
19. The appellant is a domestic Mutual fund registered with
SEBI. Its registration number is MF/005/93/1 dated 5-11-
1993. The certificate of registration is as under:
“SECURITIES AND EXCHANGE BOARD OF INDIA
(MUTUAL FUND) REGULATIONS, 1993
(Regulation 9)
CERTIFICATE OF REGISTRATION
1. In exercise of the powers conferred by Section 30 of
the Securities and Exchange Board of India Act, 1992 (15 of
1992) read with
1 (1982) 1 SCC 561: 1982 SCC (Cri) 283
235
Securities and Exchange Board of India (Mutual
Fund) Regulations, 1993 made thereunder the
Board hereby grants a certificate of
registration to MORGAN STANLEY MUTUAL FUND as
a Mutual Fund.
2. Registration code for the Mutual Fund is MF/005/93/1.
By order”
The appellant company is managed by a Board of Trustees. In
accordance with the said Regulations, the investment
management company of the appellant Morgan Stanley Asset
Management India Pvt. Ltd. is also registered with SEBI.
The certificate to this effect is as under:
“SECURITIES AND EXCHANGE BOARD OF INDIA
Little & Co.,
Central Bank Building,
Bombay 400023 11
MARP/22996/93
November 5,
1993.
Dear Sir,
Re: Morgan Stanley Mutual Fund
This has reference to the application made by
Morgan & Stanley Group Inc., to sponsor a
Mutual Fund.
In terms of Regulation 20 of the Securities
and Exchange Board of India (Mutual Funds)
Regulations, 1993, we hereby grant our
approval to ‘Morgan Stanley Asset Management
India Pvt. Ltd.’, to act as the Asset
Management Company for Morgan Stanley Mutual
Fund.
We also grant registration to ‘Morgan Stanley
Mutual Fund’ ill terms of Regulation 9 of the
Regulations subject to the execution of the
Custodian Agreement between the Board of
Trustees and Stock Holding Corporation of
India Ltd. The certificate of registration in
Form B is enclosed. Please quote the
registration number in your future
correspondence with us.
Yours faithfully,
Sd/–
J.B. Ram”
20. Morgan Stainley Asset Management India Pvt. Ltd. is a
subsidiary of Morgan Stanley Group incorporated which holds
75% of the equity, the balance being held by Indian
shareholders such as HDFC, Stock holding Corporation of
India etc. Morgan Stanley Asset Management India Pvt. Ltd.
was granted the certificate of incorporation on 12-10-1993
by the Registran of Companies, Bombay and its Memorandum and
Articles of Association has also been approved by the SEBI
as per the provisions of the said Regulations.
21. Regulation 27 of the said Regulations provides that no
mutual fund shall announce the scheme unless such scheme has
been approved by the Trustees of the Mutual Fund and by
SEBI. On 8-11-1993, the Board of Trustees by a circular
Resolution approved the draft scheme, the same was
236
forwarded to SEBI on 10-11-1993. The scheme was duly
scrutinised and examined by the SEBI. By its letter dated
23-11-1993, addressed to Enam Financial Consultants Pvt.
Ltd., one of the joint Lead Managers, SEBI gave its
approval. It is stated that the scheme has been examined by
them in terms of the provisions of the Regulations. It
suggested certain amendments as detailed in enclosures
thereto. SEBI also advised the said Enam Financial
Consultants Pvt. Ltd. to submit three copies of the printed
Offering Circular and the abridged Offering Circular of the
scheme and the new schemes return in the prescribed format.
This requirement of SEBI was complies with. It is after
this the appellant took the necessary steps and began
marketing the scheme by issuing advertisements in the press,
holding presentations with brokers etc. All advertisements
and publicity material have been approved by SEBI as under:
“SECURITIES AND EXCHANGE
BOARD OF INDIA
Enam Financial Consultants Pvt. Ltd.
24 BD Rajabahadur Compound,
Ambalal Doshi Marg,
Bombay – 400001
11 MARP/24655/9
November 25, 1993
Dear Sir,
Re : Advertisement campaign of Morgan Stanley
Group Inc.
With reference to your letter dated 22-11-
1993, we advise that the enclosed revised set
of advertisement of the proposed advertising
campaign of Morgan Stanley Inc., are in order.
Yours faithfully
K. Ravikanth’
“December 20th, 1993
Mr Ronan Basu,
Fortune Communication Ltd.,
Bombay.
Dear Sir,
Sub: MORGAN STANLEY GROWTH FUND
I enclose a copy of letter received from SEBI,
in regard to the changes suggested in the
‘Scheme Campaign’. Please carry out the
changes as required by SEBI and get the
approval of Morgan Stanley Asset Management
before its release.
Thanking you,
Yours faithfully
for Enam Financial Consultant Pvt. Ltd N.G.N.
Puranik”
237
22. It has to be carefully noted that the disclaimer clause
required to be incorporated at the beginning of offering
circular by SEBI while approving the scheme is a standard
requirement and nothing peculiar to the present case. The
object of this is to bring to the notice of the investors
that they should take the firm decision on the basis of the
disclosures made in the documents. It is meant for the
investors’ protection. In fact by such a course the SEBI
informs the investors that they have approved the scheme but
they did not recommend to the investors whether such
investment is good or not and leave it to their discretion.
In view of this, it will be clear that the allegations of
respondents that the SEBI has not approved the other
documents is totally baseless.
23. There is also a challenge to the method of allotment.
The relevant clause pertaining to the method of allotment is
as under:
“The offer: The targeted amount to be issued
is Rs 300 crores. Units are to be issued at a
price of Rs 10 per unit, payable in full upon
application. The offer will be open for
subscription commencing 6-1-1994 and will
remain open until one day after notice of the
date of closure is given through advertisement
in major national daily newspapers, with the
latest date of closure being twelve working
days after the opening date. If subscriptions
for at least 18 crores units have not been
received by the closure date, the offering
will be terminated and all subscriptions will
be returned within 78 days from the closure
date. In the event that the issue is
oversubscribed, allotments will be made on a
‘first come first served’ basis. However,
MSMF reserves the right to accept or reject
any subscriptions, including subscriptions in
excess of the targeted amount. See ‘Terms of
the issue.’
Date of closure: The issue will be kept open
for a minimum of three working days and a
maximum of twelve working days. The Board
will proceed to close the issue by giving one
day’s notice of the date of closure through
advertisements in the major national daily
newspapers when approximately 75% of the
targeted amount is collected. Only those
subscriptions which are received before the
expiry of the notice period will be retained.
If subscriptions for at least 18 crore units
have not been received by the closure date of
the issue, the offering will terminate and the
board will return the entire amount received
within 78 days from such closure date.
‘Basis of Allotment & Despatch of Unit
Certificate’: The arrangements for closure of
the issue and allotment have been designed
with the objective of making allotments on a
‘first come first served’ basis. It is hoped,
however, that all applicants will receive
their full allotment. Accordingly, MSMF
reserves the right to accept or reject any
subscription, including accepting subscription
in excess of the targeted amount. Allotment
of MSGF units and despatch of certificate will
be made within ten weeks after the closure of
the date of the issue.
238
The above clauses indicate the following-
(i) the petitioners clearly have a desire to
retain oversubscription and the Offering
Circular (and the SEBI guidelines) empowers
them to do so.
(ii) that there is a minimum period for which
the issue will be kept open namely 3 days;
(iii) that those who apply for the units
before the closure of the issue would have the
same priority and would be allotted units to
the extent applied for;
(iv) that there is a provision for a closure
notice, which provision has been discussed
with and examined by SEBI. This particular
method of closure of the scheme and allotment
was chosen to break away from the system
followed by other mutual funds.
(v) By encouraging prospective investors to
apply early the scheme can be closed quickly,
allotments can be finalised earlier (thereby
blocking the money of the first applicants for
a shorter period of time) and most important
of all the proceeds can be invested quickly to
benefit from the market opportunities. This
reduces the cost of collection that the
investor has to bear. In this manner by
adopting the ‘First come first served basis’
the scheme becomes more investor friendly.
24. The respondent entertained a misconception whether
honestly or confused the concept of the “first come first
served” scheme. As stated, it is an invitation to the
subscribers to apply early and the scheme be closed quickly.
The appellants have made it very clear that those who
applied during the opening period of scheme would be given
full allotment. This was clarified by the appellant at a
press conference held at Calcutta on 16-12-1993. Regular
clarifications were issued in this regard by the appellant.
The scheme came to be advertised by the appellant on 13-12-
1993. The respondents chose to make an application to the
Consumer Forum on the eve of opening of the scheme. It was
on that application, the impugned order came to be passed.
In this factual background, we will take up the questions
set out for determination.
Q. 1: Whether a prospective investor could be a consumer
within the meaning of Consumer Protection Act, 1986?
25. The definition of consumer is contained under Section
2(1)( of the Act which reads as under:
“(d) ‘consumer’ means any person who
(i) buys any goods for a consideration which
has been paid or promised or partly paid and
partly promised, or under any system of
deferred payment and includes any user of such
goods other than the person who buys such
goods for consideration paid or promised or
partly paid or partly promised, or under any
system of deferred payment when such use is
made with the approval of such person, but
does
239
not include a person who obtains such goods
for resale or for any commercial purpose; or
(ii) hires any services for a consideration
which has been paid or promised or partly paid
and partly promised, or under any system of
deferred payment and includes any beneficiary
of such services other than the person who
hires the services for consideration paid or
promised, or partly paid and partly promised,
or under any system of deferred payment, when
such services are availed of with the approval
of the first mentioned person;”.
The meaning of goods is same as defined under Sale of Goods
Act, 1930. It is so stated in Section 2(1)(i) of the said
Act.
26. The consumer as the term implies is one who consumes.
As per the definition, consumer is tile one who purchases
goods for private use or Consumption. The meaning of the
word ‘consumer’ is broadly stated in the above definition so
as to include anyone who consumes goods or services at the
end of the chain of production. The comprehensive
definition aims at covering every man who pays money as the
price or cost of goods and services. The consumer deserves
to get what he pays for in real quantity and true quality.
In every society, consumer remains the centre of gravity of
all business and industrial activity. He needs protection
from the manufacturer, producer, supplier, wholesaler and
retailer.
27. In the light of this, we will have to examine whether
the ‘shares’ for which an application is made for allotment
would be ‘goods’. Till the allotment of shares takes place,
“the shares do not exist”. Therefore, they can never be
called goods. Under the Sale of Goods Act, all actionable
claims and money are excluded from the definition of goods
since Section 2(7) of the Sale of Goods Act, 1930 is as
under:
“(7) ‘goods’ means every kind of movable
property other than actionable claims and
money; and includes stock and shares, growing
crops, grass, and things attached to or
forming part of the land which are agreed to
be severed before sale or under the contract
of sale.”
It will be useful to refer to clause (6) of Section 2 of the
Sale of Goods Act,
1930. That reads:
“(6) ‘future goods’ means goods to be manufactured or
produced or acquired by the seller after the making of the
contract of sale.”
28. As to the scope of this clause, reference may be made
to Maneckji Pestonji Bharuclia v. Wadilal Sarabhai & Co.2 It
was observed thus:
“The Company is entitled to deal with the shareholder who is
on the register, and only a person who is on the register is
in the full sense of the word owner of the share. But the
title to get on the register consists in the possession of a
certificate together with a transfer signed by the
registered holder. This-is what Bharucha had. He had the
certificates and
2 AIR 1926 PC 38, 40: 53 IA 92: 28 Bom LR 777
240
blank transfers, signed by the registered holders. It would
be an upset of all Stock Exchange transactions if it were
suggested that a broker who sold shares by general
description did not implement his bargain by supplying the
buyer with the certificate and blank transfers, signed by
the registered holders of the shares described. Bharucha
sold what he had got. He could sell no more. He sold what
in England would have been choses in action, and he
delivered choses in action. But in India, by the terms of
the Contract Act, these choses in action are goods. By the
definition of goods as every kind of moveable property it is
clear that not only registered shares, but also this class
of choses in action, are goods. Hence equitable
considerations not applicable to goods do not apply to
shares in India.”
29. Again in Madholal Sindhu of Bombay v. Official Assignee
of Bombay3 it was held thus:
“A sale according to the Sale of Goods Act (and in India
goods include shares of joint stock companies) takes place
when the property passes from the seller to the buyer.”
Therefore, at the stage of application it will not be goods.
After allotment different considerations may prevail.
30. A fortiori, an application for allotment of shares
cannot constitute goods. In other words, before allotment
of shares whether the applicant for such shares could be
called a consumer? In CIT v. Standard Vacuum Oil Co.4 while
defining shares, this Court observed:
“A share is not a sum of money; it represents an interest
measured by a sum of money and made up of diverse rights
contained in the contract evidenced by the articles of
association of the Company.”
31. Therefore, it is after allotment, rights may arise as
per the contract (Article of Association of Company). But
certainly not before allotment. At that stage, he is only a
prospective investor (sic in) future goods. The issue was
yet to open on 27-4-1993. There is no purchase of goods for
a consideration nor again could he be called the hirer of
the services of the company for a consideration. In order
to satisfy the requirement of above definition of consumer,
it is clear that there must be a transaction of buying goods
for consideration under Section 2(1)(d)(i) of the said Act.
The definition contemplates the pre-existence of a completed
transaction of a sale and purchase. If regard is had to the
definition of complaint under the Act, it will be clear that
no prospective investor could fall under the Act.
32. What is that he could complain of under the Act? This
takes us to the definition of complaint under Section
2(1)(c) which reads as follows:
“2. (1)(c) ‘complaint’ means any allegation in
writing made by a complainant that-
3 AIR 1950 FC 21,26: 1949 FCR 441:51 Bom LR
906,912
4 AIR 1966 SC 1393, 1397: (1966) 2 SCR 367:
(1966) 59 ITR 685
241
(i) as a result of any unfair trade practice
adopted by any trader, the complainant has
suffered loss or damage;
(ii) the goods mentioned in the complaint
suffer from one or more defects;
(iii) the services mentioned in the complaint
suffer from deficiency in any respect;
(iv) a trader has charged for the goods
mentioned in the complaint a price in excess
of the price fixed by or under any law for the
time being in force or displayed on the goods
or any package containing such goods, with a
view to obtaining any relief provided by or
under this Act.”
33. Certainly, clauses (iii) and (iv) of Section 2(1)(c) of
the Act do not arise in this case. Therefore, what requires
to be examined is, whether any unfair trade practice has
been adopted. The expression ‘unfair trade practice’ as per
rules shall have the same meaning as defined under Section
36-A of Monopolies and Restrictive Trade Practices Act,
1969.+ That again cannot apply because the company is not
trading in shares. The share means a share in the capital.
The object of issuing the same is for building up capital.
To raise capital, means making arrangements for carrying on
the trade. It is not a practice relating to the carrying of
any trade. Creation of share capital without allotment of
shares does not bring shares into existence. Therefore, our
answer is that a prospective investor like the respondent or
the association is not a consumer under the Act.
Q. 2: Whether the appellant company trades in shares?
34. From the above discussion, it is clear that the
question of the appellant company trading in shares does not
arise.
Q. 3: Does the Consumer Disputes Redressal Forum have
jurisdiction in matters of this kind ?
35. In view of our answers to Questions 1 and 2, it follows
that the Consumer Disputes Redressal Forum has no
jurisdiction whatsoever.
Q. 4: What are the guiding principles in relation to the
grant of an ad interim injunction in such areas of the
functioning of the capital market and public issues of the
corporate sector and whether certain ‘venue restriction
clauses’ would require to be evolved.judicially as has been
done in cases such as Sanchaita case I etc. ?
36. As a principle, ex parte injunction could be granted
only under exceptional circumstances. The factors which
should weigh with the court in the grant of ex parte
injunction are-
(a) whether irreparable or serious mischief will ensue to
the plaintiff;
(b) whether the refusal of ex parte injunction would
involve greater injustice than the grant of it would
involve;
+ Ed.: After amendment by Act 50 of 1993 (w.e.f. 18-6-
1993), S. 2(1)(r) of the Consumer Protection Act, 1986
provides its own definition of ‘unfair trade practice’.
242
(c) the court will also consider the time at
which the plaintiff first had notice of the
act complained so that the making of improper
order against a party in his absence is
prevented;
(d) the court will consider whether the
plaintiff had acquiesced for sometime and in
such circumstances it will not grant ex parte
injunction;
(e) the court would expect a party applying
for ex parte injunction to show utmost good
faith in making the application.
(f) even if granted, the ex parte injunction
would be for a limited period of time.
(g) General principles like prima facie case
balance of convenience and irreparable loss
would also be considered by the court.
37. In United Commercial Bank v. Batik of
India5, this Court observed: (SCC pp. 787-88,
paras 52-53)
“No injunction could be granted under Order
39, Rules 1 and 2 of the Code unless the
plaintiffs establish that they had a prima
facie case, meaning thereby that there was a
bona fide contention between the parties or a
serious question to be tried. The question
that must necessarily arise is whether in the
facts and circumstances of the case, there is
a prima facie case and, if so, as between
whom? In view of the legal principles
applicable, it is difficult for us to say on
tile material on record that the plaintiffs
have a prima facie case. It cannot be
disputed that if the suit were to be brought
by the Bank of India, the High Court would not
have granted any injunction as it was bound by
the terms of the contract. What could not be
done directly cannot be achieved indirectly in
a suit brought by the plaintiffs.
Even if there was a serious question to be
tiled, the High Court had to consider the
balance of convenience. We have no doubt that
there is no reason to prevent the appellant
from recalling the amount of Rs 85,84,456.
The fact remains that the payment of Rs
36,52,960 against the first lot of 20
documents made by the appellant to the Bank of
India was a payment under reserve while that
of Rs 49,31,496 was also made under reserve as
well as against the letter of guarantee or
indemnity executed by it. A payment ‘under
reserve’ is understood in banking transactions
to mean that the recipient of money may not
deem it as his own but must be prepared to
return it on demand. The balance of
convenience clearly lies in allowing the
normal banking transactions to go forward.
Furthermore, the plaintiffs have failed to
establish that they would be put to an
irreparable loss unless an interim injunction
was granted.”
38. This Court had occasion to emphasise the
need to give reasons before passing ex parte
orders of injunction. In Shiv Kumar Chadha v.
5 (1981) 2 SCC 766
243
Municipal Corpn. of Delhi6, it is stated as
under: (SCC pp. 176-77, paras 34-35)
“… the court shall ‘record the reasons’ why
an ex parte order of injunction was being
passed in the facts and circumstances of a
particular case. In this background, the
requirement for recording the reasons for
grant of ex parte injunction, cannot be held
to be a mere formality. This requirement is
consistent with the principle, that a party to
a suit, who is being restrained from
exercising a right which such party claims to
exercise either under a statute or under the
common law, must be informed why instead of
following the requirement of Rule ’1, the
procedure prescribed under the proviso has
been followed. The party which invokes the
Jurisdiction of the court for grant of an
order of restrain against a party, without
affording an opportunity to him of being
heard, must satisfy the court about the
gravity of the situation and court has to
consider briefly these factors in the ex parte
order. We are quite conscious of the fact
that there are other statutes which contain
similar provisions requiring the court or the
authority concerned to record reasons before
exercising power vested in them. In respect
of some of such provisions it has been held
that they are required to be complied with but
non-compliance therewith will not vitiate the
order so passed. But same cannot be said in
respect of the proviso to Rule 3 of Order 39.
The Parliament has prescribed a particular
procedure for passing of an order of
injunction without notice to the other side,
under exceptional circumstances. Such ex
parte orders have far-reaching effect, as such
a condition has been imposed that court must
record reasons before passing such order. If
it is held that the compliance with the
proviso aforesaid is optional and no
t
obligatory, then the introduction of the
proviso by the Parliament shall be a futile
exercise and that part of Rule 3 will be a
surplusage for all practical purposes.
Proviso to Rule 3 of Order 39 of the Code,
attracts the principle, that if a statute
requires a thing to be done in a particular
manner, it should be done in that manner or
not all. This principle was approved and
accepted in well-known cases of Taylor v.
Taylor’, and Nazir Ahmed v. Emperor8. This
Court has also expressed the same view in
respect of procedural requirement of the
Bombay Tenancy and Agricultural Lands Act in
the case of Ramchandra Keshav Adke v. Govind
Joti Chavare9.
As such whenever a court considers it
necessary in the facts and circumstances of a
particular case to pass an order of injunction
without notice to other side, it must record
the reasons for doing so and should take into
consideration, while passing an order of
injunction, all relevant factors, including as
to how the object of granting injunction
itself shall be defeated if an ex parte order
is not passed.”
6 (1993) 3 SCC 161, 176
7 (1875) 1 Ch D 426: 45 LJ Ch 373
8 AIR 1936 PC 253(2): 63 IA 372: 37 Cri LJ 897
9 (1975) 1 SCC 915
244
39. In this case, the public advertisement was given as
seen above, on 13-12-1993; the petition was filed on 4-1-
1994 and the impugned order of Consumer Forum came to be
passed on the following day. As to why the respondent chose
to come at the eleventh hour and where was the need to pass
an urgent order of injunction, are matters which are not
discernible. Besides tested in the light of the case law
set out above, the impugned order which is bereft of reason
and laconic cannot stand a moment’s scrutiny.
40. Today the corporate sector is expanding. The
disgruntled litigants indulge in adventurism. Though, in
this case we have come to the conclusion that the District
Consumer Forum will have no power to grant injunction yet in
general cases it becomes necessary to evolve certain venue
restrictions.
41. As to the effect of incorporation it is stated in
Halsbury’s Laws of’ England (4th Edn., Vol. 7, p. 55, para
83) as under:
“When incorporated, the company is a legal
entity or persona
distinct from its members, and its property
is not the property of the members. The
nationality and domicile of a company is
determined by its place of registration. A
company incorporated in the United Kingdom
will normally have both British nationality
and English or Scottish domicile, depending
upon its place of registration, and it will be
unable to change that domicile….
The residence of a company is of great
importance in revenue law, and the place of
incorporation is not conclusive on this
question. In general, residence depends upon
the place where the central control and
management of the company is located. It
follows that if such central control is
divided, the company may have more than one
residence. The locality of the shares of a
company is that of the register of shares.
The head office of a company is not, however,
necessarily the registered office of the
company, but is the place where the
substantial business of the company is carried
on and its negotiations conducted. Like an
individual or a firm, a company can, for the
purposes of the Rules of the Supreme Court,
carry on business in more places than one.”
42. As far as India is concerned, the residence of the
company is where the registered office is located.
Normally, cases should be filed only where the registered
office of the company is situate. Courts outside the place
where the registered office is located, if approached, must
have regard to the following. Invariably, suits are filed
seeking to injured either the allotment of shares or the
meetings of the Board of Directors or again the meeting of
general body. The Court is approached at the last minute.
Could injunction be granted even without notice to the
respondent which will cause immense hardship and
administrative inconvenience. It may be sometimes difficult
even to undo the damage by such an interim order.
Therefore, the court must ensure that the plaintiff comes to
court well in time so that notice may be served on the
defendant and he may have his say before any interim order
is passed. The reasons set out in the preceding paragraphs
of our judgment in
245
relation to the fact which should weigh with the court in
the grant of ex parte injunction and the rulings of this
Court must be borne in mind.
5: What is the scope of Section 14 of the Act?
43. The said section reads as under:
“(1) If, after the proceeding conducted under
Section 13, the District Forum is satisfied
that the goods complained against suffer from
any of the defects specified in the complaint
or that any of the allegations contained in
the complaint about the services are proved,
it shall issue an order to the opposite party
directing him to take one or more of the
following things, namely :
(a) to remove the defect pointed out by the
appropriate laboratory from the goods in
question;
(b) to replace the goods with new goods of
similar description which shall be free from
any defect;
(c) to return to the complainant the price,
or, as the case may be, the charges paid by
the complainant;
(d) to pay such amount as may be awarded by
it as compensation to the consumer for any
loss or injury suffered by the consumer due to
the negligence of the opposite party.
(2) Every order made by the District Forum
under sub-section (1) shall be signed by all
the members constituting it and, if there is
any difference of opinion, the order of the
majority of the members constituting it shall
be the order of the District Forum.
(3) Subject to the foregoing provisions, the
procedure relating to the conduct of the
meetings of the District Forum, its sittings
and other matters shall be such as may be
prescribed by the State Government.”
44. A careful reading of the above discloses that there is
no power under the Act to grant any interim relief of (sic
or) even an ad interim relief. Only a final relief could be
granted. If the jurisdiction of the Forum to grant relief
is confined to the four clauses+ mentioned under Section 14,
it passes our comprehension as to how an interim injunction
could ever be granted disregarding even the balance of
convenience.
45. We have dealt with in the preceding paragraphs as to
the approval of SEBI and the compliance with the Regulation
27 of the Regulations, 1993. We have also explained what
exactly is a concept of ‘first come first served’ basis. On
these two aspects, the respondent is suffering under a
labyrinth of confusion. Therefore, we hold that the grounds
urged by the respondent seeking to support the impugned
order, are untenable.
46. The appellant has suffered immensely because it has not
even been served with copy of order of injunction. The
application of the respondent is clearly actuated by mala
fides. The Forum should have examined whether ex parte
injunction without notice to the opposite side could ever be
granted at
+ Ed.: Increased to nine clauses by Amendment Act 50 of
1993 (w.e.f. 18-6-1993).
246
all. The grounds urged in the injunction application were
insufficient for the grant of such a relief.
47.There is an increasing tendency on the part of litigants
to indulge in speculative and vexatious litigation and
adventurism which the for a seem readily to oblige. We
think such a tendency should be curbed. Having regard to
the frivolous nature of the complaint, we think it is a fit
case for award of costs, more so, when the appellant has
suffered heavily. Therefore, we award costs of Rs 25,000 in
favour of the appellant. It shall be recovered from the
first respondent. C.A. No. 4584 of 1994 arising out of SLP
(C) No. 272 of 1994 is allowed accordingly.
Civil Appeal No. 4587 of 1994 (arising out of SIP (C) No.
321 of 1994)
48. In view of what we have observed above, the writ
petition has rightly come to be rejected though in our view,
it would have been better had tile High Court given reasons
instead of dismissing it summarily. Hence, C.A. No. 4587 of
1994 arising out of SLP (C) No. 321 of 1994 is dismissed.
No
247