RICHARD PERERA and 4 others, Appellants, and K. A. ALBERT PERERA, Respondent

053-NLR-NLR-V-67-RICHARD-PERERA-and-4-others-Appellants-and-K.-A.-ALBERT-PERERA-Respondent.pdf


Present:H. if. G. Fernando, J., and G. P. A. Silva, J.RICHARD PERERA and 4 others, Appellants, andK. A. ALBERT PERERA, Respondent
jS.C. 48J62 {Inly.) with Application 196—D. C. Colombo, 960JZ
Injunction—Prima facie case against applicant's claim for substantive relief—Effecton claim for interim injunction—Courts Ordinance, s. 86 (b)—Director ofCompany—Contract of loan with the Company—Inference of vacation of office—Companies Ordinance, Schedule I, Table A, Article 72 (g).
Where, in an application for an interim injunction, in terms of section 86 (6)of the Courts Ordinance, the material placed before the Court at the inquiryreveals information which justifies the prima facie view that the plaintiff is notentitled to the substantive relief claimed in the plaint, it would be wrong forthe Court to ignore such information and issue the injunction.
Plaintiff sued for a declaration that he was the life Managing Director ofthe 5th defendant Company, of which the first three defendants were ordinaryDirectors and the 4th defendant Company functioned as the Agents andSecretaries of the Company. He sued also for an interim injunction restrainingthe defendants from removing him from the office of Managing Director andfrom interfering with his duties and functions in that capacity. The defendantsaverred that the plaintiff had obtained loans from the Company and hadthereby vacated his office of Managing Director by virtue of the provisions ofArticle 72 (g) of Table “ A ” of Schedule I of the Companies Ordinance. Atthe inquiry the plaintiff admitted that he borrowed money from the Company,but the District Judge, thinking that the priviso to Article 72 operated toprevent vacation of office by the plaintiff, made order allowing the interiminjunction.
At the hearing of the appeal filed by the defendants it was agreed thatthe power of tbe District Court to issue the interim injunction flowed onlyfrom paragraph (6) of section 86 of the Courts Ordinance.
Held, that although the trial Judge should not decide the substantive questionin considering an application for an injunction, some consideration of thesubstantive question at this early stage is not irrelevant. In the present case,the form of the plaint and the admission that the plaintiff had in fact borrowedmoney from the Company operated against the plaintiff. Reference to themain provisions of Article 72 (g) of Table “A ” of the Companies Ordinanceshould have sufficed to lead the Court to the prima facie opinion that theplaintiff had probably vacated office by reason of the contracts of loan.Accordingly, the plaintiff was not entitled to an interim injunction.
jVpPEAL, with application in revision, from an order of the DistrictCourt, Colombo.
H. V. Perera, Q.C., with N. Nadarasa and K. Kandasamy, for theDefendants-Appellants in the appeal and Defendants-Petitioners in theapplication.
Cur. adv. vult.
H. W. Jayewardene, Q.C., with C. D. S. Siriwardene, Bala Nadarajahand M. Underwood, for the Plaintiff-Respondent in the appeal andapplication.
December 4, 1963. H. N. G. Fernando, J.—
Plaintiff in this action sued for a declaration that he is the lifeManaging Director of the 5th Defendant Company, and also for an interimInjunction restraining the defendants from removing him from that officeand from interfering with the duties and functionings of the plaintiff asthe managing director. He stated in his plaint that he is the lifemanaging director appointed as such by the Articles of Association of theCompany and that the first three defendants are ordinary directorsappointed by the shareholders.
In paragraph 6 of the plaint, it is alleged that the first three defendantsby letter dated 3rd February, 1962, “ purported to remove the plaintifffrom membership of the Board of Directors and from office as lifemanaging director A copy of the letter was attached to the plaint.In paragraph 9 plaintiff states that the defendants are acting in collusionto prevent the plaintiff from attending to his duties and functions asmanaging director and from attending meetings of the Board of Directors.
The letter of 3rd February 1962 referred to in the plaint is one writtento the plaintiff by the 4th defendant, a Company functioning t,s theAgents and Secretaries of the 5th defendant Company and is in thefollowing terms :—
“ We have been instructed by the Board of Directors of Perera & SonsLtd., to inform you that under Article 7 of the Articles of the Companyand 72g of Table ‘A’ of the Companies Ordinance, you have vacated youroffice as Managing Director of the Company in terms of amendingregulation 7(6) of the Company’s Articles.”
The notice of the application for the interim injunction was served onthe defendants who filed a statement of objections in which it wasaverred that the plaintiff had obtained loans from the Company, and thatupto date a sum of over Rupees 67,000 was due from the plaintiff to theCompany on that account; and that in consequence the plaintiff wasdirectly or indirectly interested in contracts of the Company and has thusvacated the office of Life Managing Director. The matter was fixed forinquiry on the 9th of February 1962, and before evidence was recorded onthat date, the Counsel for the plaintiff admitted that the plaintiff didborrow money from the Company free of interest. The plaintiff there-after gave evidence (he was the only witness called on either side) in thecourse of which he admitted several times that he had taken loans fromthe Company.
The learned District Judge held upon the evidence that the plaintiffhad in fact borrowed money from the Company upon an agreement torepay the money and that the plaintiff was accordingly interested incontracts with the Company within the meaning of paragraph (g) ofArticle 72 in Table ‘A’ in the Schedule to the Companies Ordinance. Hethought accordingly that in terms of Article 72 the plaintiff would vacatehis office as a Director, but he thought nevertheless that the Proviso to
Article 72 operated to prevent vacation of office by the plaintiff. Itwould be unwise for us at this stage to pronounce upon the correctness ofthe construction placed upon the Proviso by the learned Judge. Buthaving regard to that construction, he made order allowing the interiminjunction and this appeal is from that order. Counsel for both partiesat the hearing of the appeal are agreed that the power of the DistrictCourt to issue the injunction prayed for in this case can flow only fromparagraph (6) of section 86 of the Courts Ordinance. It is relevant toreproduce here the whole of the first part of section 86 :—
4‘ In any action instituted in any District Court or Court of Requests—
where it appears from the plaint that the plaintiff demands and is
entitled to a judgment against the defendant restraining thecommission or continuance of an act or nuisance the commissionor continuance of which would produce injury to the plaintiff ; or
where it appears that the defendant during the pendency of the
action is doing or committing, or procuring or suffering to bedone or committed, an act or nuisance in violation of the plain-tiff’s rights respecting the subject matter of the action andtending to render the judgment ineffectual; or
where it appears that the defendant during the pendency of the
action threatens or is about to remove or dispose of his propertywith intent to defraud the plaintiff,
it shall be lawful for such court, on its appearing by the affidavit of theplaintiff or any other person that sufficient grounds exist therefor, togrant an injunction”
What the District Judge has done in the present case is in effect todecide the substantial dispute between the parties, i.e., the questionwhether or not the plaintiff was in law the Managing Director at the timewhen he instituted this action, and Mr. Jayewarder.e for the plaintiff,relying upon the judgment in 64 New Law Reports, p. 283, has arguedthat the judge should not have taken that course but should have res-tricted himself to considering whether there was a serious matter fordecision and if so whether prejudice would be caused to the plaintiff if thedefendants were not restrained by injunction. While adhering to theview that the trial judge should not decide the substantive question inconsidering an application for an injunction, I do not agree that someconsideration of the substantive question at this early stage is necessarilyIrrelevant.
Although paragraph (a) of section 86 does not apply in the presentcircumstances, it is useful to examine it before considering paragraph (6).Under paragraph (a) the Court will consider the question of granting aninjunction, where it appears from the plaint that “the plaintiff demandsand ie> entitled to a judgment against the defendant restraining the com-mission or continuance, etc. . A basic condition therefore is that itmust appear from the plaint that the plaintiff is entitled to the judgment
he seeks. Turning to paragraph (6) it must appear that the defendant is
doing or committingan act or nuisance in violation of the
plaintiff's rights respecting the subject matter and tending to render thejudgment ineffectual. It seems to me that in this context (as in the caseof paragraph (a) ) there must be some apparent violation of rights towhich the plaintiff appears to be entitled and not merely of rights whichhe claims. Mr. Perera has also stressed the further point that theconduct of the defendant must be such as would tend to render theultimate judgment ineffectual.
I have now to examine the circumstances of the present case in thelight of the provisions of section 86. Although the plaintiff claimed inhis plaint to be the managing director, he appended to his plaint theletters already quoted in which was set out the position of the defendants,that the plaintiff had vacated his office, under Article 72 (g) ofTable * A ’ i.e. by reason of his interest in contracts with the Company.The affidavit filed by the plaintiff contains in paragraph 7 a statementof his knowledge and belief that there was no ground of disqualification,but after the defendants had in their objections informed the Court ofthe precise details of the contracts, plaintiff’s Counsel (it seems to mequite properly) admitted to the Court that the plaintiff had in factborrowed money from the Company.
The form of the plaint and the ultimate admission as to the loan inmy opinion, operate against the plaintiff in two ways. Firstly, theCourt was made aware by the plaint and the defendants’ letter attachedthereto of the defendants’ position that the plaintiff had vacated hisoffice. That being so, it was incorrect and even absurd for the plaintiffto ask for an injunction restraining the defendants from removing theplaintiff from his office. There was never any question of the defendantshaving removed, or proposing to remove, the plaintiff, and accordinglythere was no justification for the interim injunction actually sought inthe plaint. Secondly, the learned judge became aware before he recordedany evidence that the plaintiff had taken loans from the Company andthat the defendants relied on Articles 72 (g) of Table ‘ A ’. The admissionof Counselin my opinion was, for the purpose in hand at the time, sufficientproof of the fact admitted, and reference to Article 72 of Table ' A * shouldin my opinion, have sufficed to lead the learned Judge to the primafacie opinion that the plaintiff had probably vacated office by reason ofthe contracts of loan. Where the plaintiff through his Counsel and hisevidence reveals information which justifies the prima facie view thathe is not entitled to the substantive relief claimed in his plaint, it wouldin my opinion be wrong for a Judge to ignore such information and issuethe injunction. If the material actually placed before the Court revealsthat there is probably no right of the plaintiff which can be violated,it would be unreasonable to issue the injunction.
In regard to the question whether an ultimate judgment in favour ofthe plaintiff would be rendered ineffectual if no injunction is granted inthe interim period, it is not clear that such an ultimate judgment wouldbe rendered thus ineffectual. For in the event of the judgment declaringthe plaintiff to be the managing director, for the future at any rate thejudgment will be effectual. Moreover, this is not a case where the grantof an injunction would ensure the maintenance of the status quo at thetime of the institution of the plaint. At that time according to theplaintiff himself, he was not the de facto Managing Director because hisvery complaint was that he was not being permitted to function as such.
Before parting with this case, I must take this opportunity to considerthe decision in Murgesu v. Northern Divisional Agriculture Producers'Union*, which was not referred to in my recent judgment in Dissanayake v.Agricultural and Industrial Credit Corporation *. In the former decision,
M. D. de Silva J. was of opinion that “ the material upon which thecase rested was all relevant to the hearing of the application for an interiminjunction ”, and that “ the parties had invited the Court not merely tohear an interim application but to try the case itself In those circum-stances, he held that the District Judge must be presumed to have helda trial to which the parties were submitting. Despite the omission ofthe District Judge to record formally that he was trying the case, thisCourt upheld the order ultimately made, i.e., the dismissal of the plain-tiff’s action. With respect, I agree that the fact that a plaintiff appliesfor an interim injunction does not compel the Court to make a separatepreliminary order upon such an application ; if the material relevant tothe substantial dispute is also wholly or mainly relevant to the applicationfor interim relief, it would be a waste of time for the Court to hold twosets of proceedings involving substantially the same facts and the samequestions of law. Indeed, I indicated during the argument of the presentappeal that the case before us appeared to be one in which the DistrictJudge should have decided the substantive dispute and not merely theinterim application.
Dissanayake's Case, however, was different in that the evidence relevantto the substantive dispute was not relevant to the interim application,although the Judge and the Counsel acquiesced in its reception. Thatcase differs also from the case now before us, in that in Dissanayake'sCase the material in the proceedings and affidavits was sufficient toestablish that an ultimate judgment in favour of the plaintiff would berendered ineffectual if interim relief was not granted, but was not sufficientto lead the Court to the prima facie opinion that the plaintiff was notentitled to the substantial rights which he claimed in the action. Thepresent case is one, perhaps an unusual one, in which such an opinioncould and should have been formed on the material actually placed beforethe Court by both parties before the preliminary inquiry commenced.In that situation, the most convenient and expeditious course wouldhave been to proceed forthwith to trial of the substantive case, andthereby to avoid delays and duplication. The judgment of de Silva J.indicates that the same course should be adopted when it appears thatthe preliminary application cannot be decided except after considerationof the material relevant to the substantial case. The maxim interestrexpublicae ut sit finis litium must be heeded if it appears that a preliminary1 (1952) 54 N. L. R. 517.* (1952) 64 N. L. R. 283.
hearing of an interim application will involve much the same proceedingsas would a full-scale trial of the major issues in an action.
I would allow the appeal with costs and set aside the order for the issueof the injunction. In view of this order no order is necessary in theApplication in revision.
G. P. A. Silva, J.—I agree.Appeal allowed.