Stanley Mutual Fund Vs. Kartick Das  INSC 341 (20 May 1994)
S. (J) Mohan, S. (J) Venkatachalliah, M.N.(Cj) Anand, A.S. (J)
1994 SCC (4) 225 JT 1994 (3) 654 1994 SCALE (2)1121
Judgment of the Court was delivered by MOHAN, J.- Leave granted.
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.
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
draft scheme of the appellant was approved by the Board of Trustees by Circular
Resolution dated 8-1 1-1993.
was forwarded to SEBI for its approval on 10- 11- 1993.
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.
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.
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.
following order was passed on 4-1-1994 by the
Calcutta District Consumer Disputes Redressal Forum :
files the complaint today.
Issue notice of show cause against OPs.
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.
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.
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.
are at liberty to apply for vacation/variation of this order. Next date fixed
Aggrieved by this order, civil appeal arising out of SLP (C) No. 272 of 1994
has come to be preferred.
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
9. Mr Ashok
Desal learned counsel for the appellant (Morgan Stanley\ Mutual Fund) urges the
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.
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).
law, a prospective investor does not become a consumer as defined under the
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.
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.
(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.
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
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
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.
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;
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.
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.
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.
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.
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
The failure to stipulate the period before which the refund would be effective is,
it is further urged, a serious irregularity violating Regulation 23.
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.
no interference is called for.
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.
have already extracted the impugned order. The correctness the same can be
determined with reference to the following questions:
Whether the prospective investor could be a 'consumer' within the meaning of
Consumer Protection Act, 1986 ?
Whether the appellant company 'trades' in shares ?
Does the Consumer Disputes Redressal Forum have jurisdiction in matters of this
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' ?
What is the scope of Section 14 of the Act ?
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.
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
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.
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
AND EXCHANGE BOARD OF INDIA (MUTUAL FUND) REGULATIONS, 1993 (Regulation 9)
CERTIFICATE OF REGISTRATION
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.
Registration code for the Mutual Fund is MF/005/93/1.
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
certificate to this effect is as under:
AND EXCHANGE BOARD OF INDIA Little & Co., Central Bank Building, Bombay
400023 11 MARP/22996/93 November 5, 1993.
Sir, Re: Morgan Stanley Mutual Fund This has reference to the application made
by Morgan & Stanley Group Inc., to sponsor a Mutual Fund.
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.
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.
faithfully, Sd/-- J.B. Ram"
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.
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.
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
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:
AND EXCHANGE BOARD OF INDIA Enam Financial Consultants Pvt.
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.
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.
faithfully K. Ravikanth' "December 20th, 1993 Mr Ronan Basu, Fortune Communication Ltd., Bombay.
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.
you, Yours faithfully for Enam Financial Consultant Pvt. Ltd N.G.N. Puranik"
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
view of this, it will be clear that the allegations of respondents that the
SEBI has not approved the other documents is totally baseless.
There is also a challenge to the method of allotment.
relevant clause pertaining to the method of allotment is as under:
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.
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.
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
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.
there is a minimum period for which the issue will be kept open namely 3 days;
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;
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
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
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.
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.
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.
this factual background, we will take up the questions set out for
Whether a prospective investor could be a consumer within the meaning of
Consumer Protection Act, 1986?
The definition of consumer is contained under Section 2(1)( of the Act which
reads as under:
'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;".
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.
The consumer as the term implies is one who consumes.
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.
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.
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:
'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:
'future goods' means goods to be manufactured or produced or acquired by the
seller after the making of the contract of sale."
to the scope of this clause, reference may be made to Maneckji Pestonji Bharuclia
v. Wadilal Sarabhai & Co.2 It was observed thus:
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."
Again in Madholal Sindhu of Bombay v. Official Assignee of Bombay3 it was held
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.
allotment different considerations may prevail.
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:
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."
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.
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.
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:
(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
a result of any unfair trade practice adopted by any trader, the complainant
has suffered loss or damage;
goods mentioned in the complaint suffer from one or more defects;
services mentioned in the complaint suffer from deficiency in any respect;
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."
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.
object of issuing the same is for building up capital.
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.
Whether the appellant company trades in shares?
From the above discussion, it is clear that the question of the appellant
company trading in shares does not arise.
Does the Consumer Disputes Redressal Forum have jurisdiction in matters of this
view of our answers to Questions 1 and 2, it follows that the Consumer Disputes
Redressal Forum has no jurisdiction whatsoever.
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. ?
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 refusal of ex parte injunction would involve greater injustice than the
grant of it would involve;
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
(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;
court will consider whether the plaintiff had acquiesced for sometime and in
such circumstances it will not grant ex parte injunction;
court would expect a party applying for ex parte injunction to show utmost good
faith in making the application.
if granted, the ex parte injunction would be for a limited period of time.
General principles like prima facie case balance of convenience and irreparable
loss would also be considered by the court.
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.
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.
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.
the plaintiffs have failed to establish that they would be put to an
irreparable loss unless an interim injunction was granted."
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.
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.
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
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
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.
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.
to the effect of incorporation it is stated in Halsbury's Laws of' England (4th Edn., Vol. 7, p. 55, para 83)
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....
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.
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."
far as India is concerned, the residence of the
company is where the registered office is located.
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.
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.
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
What is the scope of Section 14 of the Act? 43. The said section reads as
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
remove the defect pointed out by the appropriate laboratory from the goods in
replace the goods with new goods of similar description which shall be free
from any defect;
return to the complainant the price, or, as the case may be, the charges paid
by the complainant;
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
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
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."
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.
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.
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).
all. The grounds urged in the injunction application were insufficient for the
grant of such a relief.
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.
Appeal No. 4587 of 1994 (arising out of SIP (C) No. 321 of 1994)
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.