Case Note & Summary
The appellants, Victor Fernandes and others, were minority shareholders in eEighteen.com Limited (defendant No.3), holding about 6.38% equity, while defendants No.1 and 2 (Raghav Bahl and others) controlled 92.83%. The appellants filed a derivative action suit on behalf of the company, alleging unfair actions by the majority for personal gain. They sought interim relief, but the learned Single Judge refused to grant ad interim relief. The appellants appealed. The Division Bench of the Bombay High Court upheld the Single Judge's order, holding that the basic principles for grant of interim relief were missing: there was no prima facie case, the action was not bonafide, and there was delay and laches. The court noted that derivative action is permissible in India despite no specific statutory provision, but it must be in the interest of the company and in good faith. The appeal was dismissed.
Headnote
A) Company Law - Derivative Action - Interim Relief - No specific statutory provision for derivative action in India, but it is a permissible mode for minority to check unfair actions by majority - The welfare and interest of the company is the main purpose, and the action must be bonafide and in good faith - Basic principles of interim injunction apply including prima facie case, balance of convenience, and no delay - In the present case, the same are missing (Paras 2-3).
Issue of Consideration
Whether the appellants (minority shareholders) are entitled to interim relief in a derivative action suit against the majority shareholders for alleged unfair actions.
Final Decision
Appeal dismissed. The order of the learned Single Judge refusing ad interim relief is upheld.
Law Points
- Derivative action permissible in India despite no specific statutory provision
- but requires bonafide action
- good faith
- and interest of company
- principles of interim injunction apply including prima facie case
- balance of convenience
- and no delay.
Case Details
2011 LawText (BOM) (09) 44
Appeal No. 442 of 2008 in From Order on Notice of Motion No.3232 of 2006 in Suit No.2709 of 2006
D.K. Deshmukh, Anoop V. Mohta
Mr. D.D. Madon, Senior Advocate i/by M/s. Kanga & Co. for the Appellants; Mr. Janak Dwarkadas, Senior Advocate with Mr. A.S. Doctor and Ms. Falguni Thakkar i/by M/s. Doijode and Associates for the respondents.
Victor Fernandes and ors.
Raghav Bahl of Noida & ors.
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Nature of Litigation
Appeal against order refusing ad interim relief in a derivative action suit filed by minority shareholders.
Remedy Sought
Appellants sought interim relief restraining the majority shareholders from certain actions.
Filing Reason
Appellants alleged unfair actions by majority shareholders for personal gain, not in the interest of the company.
Previous Decisions
Learned Single Judge refused to grant ad interim relief on 8 August 2008.
Issues
Whether the appellants are entitled to interim relief in a derivative action suit.
Whether the principles for grant of interim injunction are satisfied.
Submissions/Arguments
Appellants argued that derivative action is permissible and they have a prima facie case.
Respondents argued that there is no prima facie case, delay, and lack of bonafide.
Ratio Decidendi
Derivative action is permissible in India but requires bonafide action, good faith, and interest of the company; interim relief principles including prima facie case, balance of convenience, and no delay must be satisfied.
Judgment Excerpts
The derivative action/Suit by the minority is permissible and/or available mode if it is in the interest of the company and its shareholders.
The basic principles of law of grant of interim relief or injunction are also applicable including prima facie case, bonafide action, without latches or delay apart from the balance of convenience and injury to the parties. In the present case, the same are missing.
Procedural History
Suit No.2709 of 2006 filed on 25 August 2006; Notice of Motion No.3232 of 2006 filed on 18 September 2006; Learned Single Judge refused ad interim relief on 8 August 2008; Appeal No.442 of 2008 filed against that order; Heard and dismissed on 21 September 2011.
