/ /V Satlhieam r ,ii/A'.i
SADHWANI AND OTHERS
SADHWANI AND OTHERS
C OURT OF APPEAL
TAMBIAH. J. AND HAG DE SILVA. J.
C.A. L A. 55/81.
D C. COLOMBO 1982/SPL.
JULY 29, AND 30. 1982
Appeal – Application for leave to appeal – Who are necessary parties to application?- Civil Procedure Code, chapter 24 and sections 666 and 670.
Where leave to appeal was sought from an oriler reluming to discharge aninjunction and the relief being sought affected onlv particular parties it was notnecessary to make the other parties respondents if thev will not be prejudiciallyaffected by the result of the appeal. They were not necessary parties.
Cases referred to:
Talavaratne v. Talavaratne (195 7) 61 <V I. H 112.
Ibrahim v. Babee et al (1916) 19 bl.L.K. 269.
Francin Fernando v. Kaiya Fernando and others 7 C.L.W. 1.13.
Seelanahda Thero v. Rajapakse (1936) 39 S.l. R 361.
Tambiah v. Seugarajah (1937) 39 N.l. h 262
Arichchcy Chettiar v Perera (1937) 40 N.I..R. 63
H.L Bolton (Engineering) Co. Ltd. i T J. Craham and Sons Ltd. (195613 A F R 624, 630.
APPEAL from order of District Judge of Colombo – preliminary objections.
K.N. Choksy, S.A., with S. A. Paralhalingam and Miss Rajepakse for thedefendants-petitioners-appellants
H.W. Jayewardene, Q.C.. with K Kanag-Iswaram for the plaintiffs-respondents-resppndents
( ur.adv A ult.
Sri Lanka Law Reports
(im> 2 S L R.
September 24, 1982
Esquire (Garments) Industry Limited was incorporated on 27thSeptember, 1978. It is a private Company formed by a family. The1st and 4th plaintiffs-respondents, the 3rd defendant-petitioner-appel-lant, and the Sth defendant are brothers. The 2nd plaintiff-respondentis the son of the 1st plaintiff-respondent; the 3rd plaintiff-respondentis the wife of the 1st plaintiffrrespondent, and the mother of the2nd – plaintiff-respondent. The 2nd defendant-petitioner-appellant isthe wife of the 1st defendant-petitioner-appellant and the latter is .the son of the 3rd defendant-petitioner-appellant. The 3rd defendant.is the wife of the 3rd defendant-petitioner-appellant.
The nominal capital of the Company was Rs. 1,000,000 shares ofRs. 10/- each. The issued capital of the Company was 400,000 sharesof Rs. 10/- each. The 1st plaintiff-respondent had 26,082 shares; the2nd plaintiff-respondent had 80,000 shares; the 3rd plaintiff-respondenthad 53,918 shares and Sadhwanis (Hongkong) Limited, 240,000 shares.
The original Directors of the Company were the 1st, 2nd, and 4thplaintiffs-respondents. the 1st and 3rd defendants-petitioners-appellantsand the 5th defendant. The 4th plaintiff-respondent and the 5thdefendant represented Sadhwanis (Hongkong) Limited on the Boardof Directors of the Company. The 3rd defendant-petitioner-appellantwas the Chairman and the-2nd plaintiff-respondent was the ManagingDirector.
At a meeting of the Board of Directors, held on 18.8.80, the 2nd.plaintiff-respondent was removed from the post of Managing Directorand the 1st defendant-petitioner-appellant was appointed Joint ManagingDirector with his father the 3rd defendant-petitioner-appellant. Atthis meeting, the 2nd defendant-petitioner-appeliant and the 3rddefendant were appointed Directors of the Company. The 1st defen-dant-petitioner-appellant was also appointed Deputy Chairman, the3rd defendant-petitioner-appellant being Chairman at the time. Theplaintiffs-respondents allege that this meeting was an illegally convenedmeeting; the defendants-petitioners-appellants, on the other hand,say that that it was a lawfully convened,.meeting.
At a later meeting of the Board of -Directors of the Companyheld on 13.2.81, the unissued 600,000 shares of Rs. 10/- each wereissued to the 3rd defendant-petitioner-appellant on the condition thathe need pay Rs. 1/- per share and the balance was to be paid only
L.N. Sadhwani v. Sadhwani iTumbiah. J.)
as and when called for. According to the plaintiffs-respondents, itwas an illegally constituted meeting and the shares were unlawfullyand wrongfully allotted; the defendants-petitioners-appellants howevercontend that it was a lawfully convened meeting and that the saidshares were issued to the 3rd defendant-petitioner-appellant for thepurpose of providing additional capital to the Company.
On 27.2.81, the 1st to the 3rd plaintiffs-respondents filed actionin the District Court of Negombo against the three defendant$-peti-tioners-appellants, and the 3rd, -5th and 6th defendants and obtainedan interim order, inter alia, restraining, the 1st and 3rd defendants—petitioners-appellants from acting as Joint Managing Directors, the1st defendant-petitioner-appellant from acting as Deputy Chairmanof the Board of Directors and as Secretary of the Company, the2nd defendant-petitioner-appellant and the 3rd defendant from functio-ning as Directors of the Company, the three defendants-petitioners-ap-pellants and the 3rd defendant from interfering with the lawfulexercise by the 1st plaintiff-respondent and other Directors of therights, duties and obligations as Directors of the Company andrestraining the 3rd defendant-petitioner-appellant from exercising anyrights in respect of the 600,000 shares purported to have been allottedto him. Though an interim order was issued, later, on a preliminaryobjection raised by the 1st and 2nd defendants-petitioners-appellants,on 25.3.81, the action was dismissed and the interim order wasrevoked on the ground that the Court had no jurisdiction to hearthe matter. Notice of appeal was filed on 26.3.81.
On 17.3.81, an emergency meeting of the Board of Directors washeld at which the 1st, 2nd and 4th plaintiffs-respondents were presentalong with the 1st and 3rd defendants-petitioners-appellants and the5th defendant. Decisions were taken that the 1st plaintiff-respondentbe elected Chairman, that the 2nd plaintiff-respondent be electedManaging Director and acting Secretary, that the 3rd defendant-pe-titioner-appellant be removed from the office of Chairman and the1st defendant-petitioner-appellant from the office of Deputy Chairman,that the 1st and 3rd defendants-petitioners-appellants be removedfrom the office of Joint Managing Directors and the 3rd plaintiff-res-pondent be elected Director of the Company.
An extraordinary general meeting of the shareholders was held on21.3.81 and it was resolved to remove the 1st and 2nd defendants-pe-titioners-appellants and the 3rd defendant from the office of Directorsand to cancel the allotment of 600,000 shares issued to the 3rd
Sri Lanka Law Reports
(1982) 2 S L R.
defendant-petitioner-appellant. According to .the defendants-petitioner-s-appellants, this meeting was invalid as the plaintiffs-respondentsprevented the 3rd defendant-petitioner-appellant from attending themeeting and excercising his rights in respect of the 600,000 sharesissued to him on 13.2.81.
According to the plaintiffs-respondents, an emergency meeting ofthe Board of Directors was held on 26.3.81 to consider the Orderdelivered by the District Judge of Negombo and the 1st to the 3rddefendants-petitioners-appeilants unlawfully attempted to participateas Directors and they were refused participation. The next day, the1st, 2nd and 4th plaintiffs-respondents, visited the premises of theCompany to notify the employees, inter alia, of the ^rejnoval of the1st and 2nd defendants-petitioners-appellants and the 3rd defendantfrom the office of Directors and tfiey were informed by the ExecutiveManager Jhat he had been instructed by the 3rd defendant-petitione-r-appellant not to permit the plaintiffs-respondents to have access tothe books and documents of the company, not to give informationconcerning the affairs of the Company in writing and to permit theplaintiffs-respondents only to go round the premises.
. It was in this setting that the present action was filed by theplaintiffs-respondents. They named six persons as defendants – thethree defendants-petitioners-appellants, as 1st, 2nd and 4th defendants;the wife of the 4th. defendant-petitioner-appellant as 3rd defendant,and the Company as the. 6th defendant. They averred in paragraph25 of' the plaint as follows:-
“The 5th defendant, a Director, though he supports theaction of the plaintiffs, is made a defendant as he is nowin Hongkong and could not subscribe to the proxy. The6th defendant is made a party for purposes of notice onlyand in order that it may be bound by the Orders made.Likewise the 3rd defendant. No relief is claimed againsther in these proceedings as she has in no way, up todate hereof, interfered in the affairs of the 6th defendantCompany or obstructed or interfered with the rights ofthe plaintiffs, or asserted any rights as a Director of theCompany.”;'
They sought the following reliefs
“(a) for a declaration that the 1st and 2nd defendantshave ceased to be and are not directors of the 6th
L.N. Sadhwani v. Siulhwani (Tamhmh. J.j
defendant Company by reason of their removal fromthe Office of Directors by the Company at the generalmeeting held on the 21st of March, 1982:
for an interim injunction restraining the 1st. 2nd and4th defendants by themselves, their servants, workmenand agents or otherwise howsoever from obstructingand or interfering in any manner whatsoever withrights duties and obligations of the plaintiffs as Directorsof the 6th defendant Company until the final deter-
" mination of this action;
for an interim injunction restraining the 1st, 2nd and4th defendants by themselves, their servants, workmenand agents or otherwise howsoever from obstructingand/or interfering with the rights duties and obligationsof the 1st plaintiff as the Chairman of the 6thdefendant Company until the final determination ofthis action;
for an interim injunction restraining the 1st, 2nd and4th defendants by themselves, their servants, workmenand agents or otherwise howsoever from obstructingand/or interfering with the rights, duties and obligationsof the 2nd plaintiff as the Managing Director andActing Secretary of the 6th defendant Company, untilthe final determination of this action.”
and for a permanent injunction in terms of paragraphs (b), (c) and (d) .
The District Court of Colombo, on 30.3.81, issued .an interiminjunction in terms of paragraphs (b) to (d) of the prayer, returnableon 3.4.81 and ordered the plaintiffs-respondents to deposit a sum ofRs. 5000/- as security. The interim injunctions were to remain inforce until the final determination of the action. In the course ofhis order, the learned District Judge stated:
“The 5th defendant a Director of the 6th defendantCompany has been made a defendant as he is now livingin Hong Kong and could not subscribe to the proxytendered by the plaintiffs. No relief is claimed against the3rd defendant as according to the plaintiffs she is in noway up to date interfered with the affairs of the 6thdefendant Company or obstructed or interfered with therights of the plaintiffs or asserted any rights as a Directorof the Company."
Sri Lanka Law Reports! ■
(1982) 2 S.L.R.
It would appear from the proceedings that "Mr. Eric Amerasinghe,"Senior Attomey-at-Law, who was present in 'Court on the same day,asked the Court that “the interim injunction proposed to be issuedby Court be suspended for a period of"24 hours – at least tilltttmorrow”, and the Court requested him to make a formal application.
The.next day, 31.3.81, the 1st, 2nd and 4th defendants, the presentdefendant s.-petitioners-appellants, filed petition and affidavit and movedfor^the discharge and or setting aside of the interim injunctions issuedon 30.3.81. The Court heard submissions and on the same day madeorder suspending the operation of the interim injunction until theinquiry was concluded, and entered interlocutory order in terms ofs. 377 (b) of the Civil Procedure Code, and fixed 3-4.81 as the dateof inquiry. In the course of his order, the learned District Judge said –
“Mr. Amerasinghe points out to Court section 54 (1) (c)of the Judicature Act and . stresses that no property isinvolved in this application of. the plaintiffs. He also statesthis is only a declaration sought for by the plaintiffs andthat the Company, the 0th defendant, is in no way directlyinvolved.”
The inquiry was taken up on 3.4.81. In the course of his submissions,learned Queen’s.Counsel appearing for.the plaintiffs-respondents toldCourt that the validity or otherwise.,of ..the allotment of the 600,000shares has npthijig .to do with the interim injunctions that weregranted and that the plaintiffs’ claim for interim injunctions relatesto the office' of -Managing Director, the office of Chairman and theoffice of Directors, based ort the decisions taken at the meeting, of17.3.81; the 1st, 2nd and"4th plaintiffs; are only asking that they bepermitted to exercise their'rights as-Directors; the prayers of the 1stand 2nd plaintiffs are that they be permitted to function as Chairmanand Managing Director, and that the defendants be restrained frominterfering with their rights as Chairman and as Managing Director.
– He further stated that the application is not made on the basis that.there is mismanagement or loss .to the Company; the application ismade on the basis that the plaintiffs as Directors and Chairman havecertain rights which are being interfered with.
Learned Senior Attorney, in the course of his submissions, statedthat there is not a word in-the affidavits of the plaintiffs that theCompany was affected, that its interests are in jeopardy, or that itsbusiness is in peril.
CAL.N. Sadhwani r. Sadhwani (Tambiah. J.)653
After inquiry, on 10.4.81. the learned District Judge by his Orderdated 10.4.81, refused to discharge the interim injunctions and directedthat interim injunctions in terms of prayers (b) to (d) of the plaintbe served on the three defendants-petitioners-appellants. who werethe 1st, 2nd and 4th defendants and further ordered that the injunctionswill be in force, until the. determination of the action. The applicationfor leave to appeal is against this Order issuing the interim injunctionsprayed for.
, (rWhen the matter came up for the purpose of obtaining leqye, apreliminary objection was taken by learned Queen's Counsel for theplaintiffs-respondents that the appellants have failed to make the 3rd,5th, and 6th defendants, respondents to the application and that theapplication was not properly constituted, inasmuch as the aforesaiddefendants'were also necessary parties to the .application. He furthersubmitted that this was a matter in which no relief could be givento the three defendants-petitioners-appellants under s. 770 of theCivil Procedure Code, as the very words of s. 770 excludes itsapplicability to leave' to appeal proceedings; s. 770 applies only tofinal appeals against judgments and decrees.
Learned Senior Attorney for the appellants, contended that the3rd, 5th and 6th defendants are not necessary parties and need notbe made respondents. Alternatively he submitted,, that s. 770 appliesand this Court has power to issue notice on them under s. 770 ofthe Code.
It is common ground that the 3rd, 5th and 6th defendants whowere .defendants, to the action have not been made respondents tothe present application for leave to appeal.
The procedure for setting aside an order for an injunction isexpressly laid down in s.666 of the Civil Procedure Code, read withChapter 24. S.666 states that any party dissatisfied with such ordermay make an application on petition by way of summary procedure.S.374 sets out the form of petition. The petition must contain, inter.alia, the name, description, and place of abode of the petitioner orpetitioners, of the respondent or respondents, a short statementconstituting the ground of the application and the relief which thepetitioner seeks. The relief the defendants-petitioners-appellants prayedfor, was that the Court discharge and set aside, the interim injunctionsobtained by the plaintiffs. They made all the plaintiffs, respondentsto their application, jhey obtained an interlocutory order in .termsof s.377 (b), fixing a day for inquiry into.their application and
Sri Lanka Law Reports
U9R2) 2 S.I..R
intimating the plaintiffs-respondents that they will be heard in oppositionto their application. The defendants-petitioners-appellants have comp-lied with the provisions of s. 666 read with Chapter 24 of the Code.
Interim injunction proceedings are .incidental proceedings and theapplication for leave to appeal is from an incidental order, made inthe course of incidental proceedings, refusing a discharge .of theinterim injunctions issued. It appears to me that the defendants-pe-titioners-appellants need only make the four plaintiffs-respondents,as respondents to their application for leave to appeal, as they arethe only persons who would be affected, if the interim injunctionsare discharged or set aside by this Court.
“The Civil Procedure Code does not require a party appellantto name as respondent to an appeal every party to theproceedings in the lower Court. A party against whom noorder is sought by the appellant need not be named asrespondent”.
(Basnayake, G. J. in Talavaratne v. Talavaratne. (1)).
Let me apply the test laid down by Basnayake, J. in the abovecase – that only those persons against whom an order is sought bythe: appellants need be made respondents. In the instant case, thedefendants-petitioners-appellants are only seeking to set aside theorder issuing the interim injunctions, obtained by the plaintiffs-respon-dents. They are asking for relief against, the plaintiffs-respondentsonly. They are not seeking an order against the 3rd, 5th and 6thdefendants. Judged by this test, the 3rd, 5th and 6th defendants arenot necessary parties to the present application.
Let me apply another test which one can discern from the judgmentsin Ibrahim v. Beebee et al (2), Francina Fernando v. Kaiya Fernando& others (3), Seelananda Thero v. Rajapakse (4), Tambiah v. Sengarajah
, and Avichchy Chettiar v. Perera (6). In these cases,, a necessaryparty has been equated to a party who may be prejudicially affectedby the result of the appeal.
This Court can make one of two orders at the hearing of theappeal – either to revoke the order issuing the interim injunctionsor uphold the order. The question therefore to be asked is, whetherthe interests of 3rd, 5th and 6th defendants are likely to be prejudiciallyaffected by the result of the .appeal. Judged by this test also, itseems to me, that the 3rd, 5th and 6th defendants are not necessaryparties to the application before us.
C AL.N. Smlhwani r. Sudhwuni (Tumbiaii. J.t655
I shall consider each of the defendants separately. The 3rd defendantis the wife of the 4th defendant who is now the 3rd defendant-peti-. tioner-appellant. She has not joined the three defendants-petitioner-s-appellants in the petition filed by them to have the interim injunctionsdischarged or set aside. She has not participated in the interiminjunction proceedings. The plaintiffs-respondents themselves say,intheir plaint that no relief is claimed against her as she has in noway, up to date, interfered in the affairs of the Company or obstructedor interfered with the rights of the plaintiffs-respondents or assertedany rights as a Director of the Company. The relief claimed by theplaintiffs-respondents and which was granted is against the 1st, 2ndand 4th defandants only, restraining them from interfering with theplaintiffs-respondents’ rights as Directors, with the rights of the 1stplaintiff-respondent as Chairman, and with the rights of the 2ndplaintiff-respondent as Managing Director and Acting Secretary ofthe Company. They did not seek to restrain the 3rd defendant alsofrom doing such acts nor was such an order made. The result ofthe' appeal either way, will not prejudicially affect her interests.
As regards the' 5th defendant, the plaintiffs-respondents in theirplaint say that he supports their action and has been made a defendantas he is now in Honk Kong and could not subscribe to the proxy.The 5th defendant is a Director of the Company. The relief claimedby the plaintiffs-respondents, and which has been granted, is torestrain the three defendants-petitioners-appellants from interferingwith the rights of the plaintiffs-respondents as Directors and not alsoof the 5th respondent as Director. Whether the interim injunctionsissued are discharged or upheld in appeal, the rights of the 5thdefendant will not be affected.
The 6th defendant is the Company itself. The plaintiffs-respondentsdo not claim any relief in regard to the 600,000 shares which theysay were wrongly issued to the 3rd defendant-petitioner-appellant. Inthe District Court, during the interim injunction proceedings, bothlearned Counsel stated that the interests of the Company are in noway affected and the proceedings were conducted on that basis.Neither side considered it necessary that the Company should berepresented in these incidental proceedings. To the Company then,it matters not, whether the interim injunctions stand or are set aside.
This is a private family Company. The plaintiffs-respondents say,that they have on their side, the duly elected Chairman, ManagingDirector and the Secretary. On the other hand, the defendants-peti-tioners-appellants say, that the duly elected Chairman, Deputy Chairman
Sri Lanka Law Reports
f1982) 2 S L R.
and Managing Director, come from their side. A Company must actthrough living persons, and in the words of Denning, L. J., in H.L. Bolton (Engineering) Co., Ltd. v T. J. Graham & Sons Ltd. (7)-the Directors and Managers “represent the directing mind and will*of the. Company; and control what they do”. In this view of thematter, the 6th defendant Company, if not actually present, at least- was adequately represented in the District Court and in this Court.
Let me assume that the Company is a necessary party to theproceedings befbre this Court and has to be joined. There is in-fightingamong the Directors Of the Company. Each side claims that theirside has the right to' control and; 'manage the affairs of the Company.Who is Chairman, who is Managing Director, who is Secretary, andwho are the Directors, are all matters in dispute.'Then;'who willtake steps to bring the Company into the proceedings before us?Who is to represent the Company? Who is to affix the. Seal of theCompany? Who will subscribe the papers to be filed? Who will giveinstructions to lawyers? and so on. There are numerous difficultieswhich stand in the way of the 6th defendant being joined as a party.If a party is to be joined, it must be in a position to effectivelyparticipate in the proceedings.
I take the view that the 3rd, Sth and 6th defendants are notnecessary parties to the application before us. It is therefore unnecessaryfor me to decide the further question, whether their non-joinder iscurable or not, under s. 770' of the Civil Procedure Code.
The preliminary objection is overruled. The application will nowbe set down for hearing, in order to decide the question whetherleave to appeal should be granted to the defendants-petitioners-appel-lants or not, from the order of the learned District Judge, dated10.4.81. The plaintiffs-respohdents will pay costs fixed at Rs. 525/-to the defendants-petitioners-appellants.
A.G. DE SILVA, J. – 1 agree.
Preliminary objections overruled.