Hon'ble Rajan Roy, J.
(Per:- Tarun Agarwala, J.) (Delivered on 9th April, 2014) The petitioner has filed the present writ petition praying for a writ of mandamus prohibiting respondent nos.2, 3 and 4 from executing the award, which has emanated from a void subscription-cum-share holder agreement dated 28th February, 2001. The petitioner has further prayed that respondent nos.2, 3 and 4 should be restrained from taking further proceedings for attachment of the bank account of the company M/s Prime Tele Systems Ltd. or against any immovable property of the company. The petitioner has also prayed that criminal proceedings should be initiated against respondent nos.2, 3 and 4 for committing fraud against the company.
The facts leading to the filing of the writ petition is, that the petitioner claims himself to be the Additional Director of Prime Tele Systems Ltd, which is a Company incorporated under the Companies Act, 1956 and has a unit at Noida Export Promotion Zone in District Gautam Budh Nagar and is looking after the affairs of the company for the last 22 years. The petitioner also claims to be a share holder of the company.
The petitioner contends that the company is engaged in the manufacture of wireless equipments and in the year 2000, the company under the guidance Satish Mehta a Director of the company decided to initiate an expansion programme for which purposes necessary funds were required. Accordingly, the company issued an advertisement in April, 2000 inviting investors. Respondent nos.2, 3 and 4 responded to the said advertisement and desired to make an investment. The petitioner contended that respondent no.2 is a foreign company and, through its Indian unit, purchased shares of the company to the tune of Rs.4.60 crores. In the same fashion, respondent no.3, which is another company purchased the shares of the company to the tune of Rs.2.40 crores and respondent no.4 purchased shares to the tune of Rs.4.80 crores. On the basis of the investment made by respondent nos.2, 3 and 4, a subscription-cum-share holder agreement dated 28th February, 2001 was entered between the company and respondent nos.2, 3 and 4. The petitioner contends that this subscription-cum-share holder agreement is a void agreement and is not binding upon the company or its share holders, inasmuch as the said agreement was never signed by respondent no.2 nor Satish Mehta could have signed the agreement as he was not the Director at that relevant moment of time nor was authorized to sign such agreement by the Board of Directors of the company. The petitioner further alleges that respondent nos.2, 3 and 4 forced the company and Satish Mehta to hand over the drawings and technical know how of the products in the garb of getting it patented outside India.
It transpires that respondent no.2 raised a dispute alleging that the money invested by it was required to be spent by the company for its expansion and that the money has been transferred in the personal accounts of the Directors and was being used for other purposes. Respondent no.2 accordingly, issued a notice to the company to appoint an Arbitrator under the arbitration clause. Since the company refused to appoint an Arbitrator, respondent no.2 filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act of 1996) before the Supreme Court of India for appointment of an Arbitrator. The Supreme Court by an order dated 21st May, 2003 appointed an Arbitrator, who gave an award dated 3rd September, 2007 directing the company to refund the amount of Rs.4.60 crores invested by respondent no.2 along with interest. Since the amount was not paid, an execution application was filed before the Delhi High Court, in which an objection under Section 34 of the Act of 1996 was filed by the company and another share holder, which has been dismissed and the award has become final.
In the pleadings filed by respondent no.3, the Court finds that Satish Mehta, Director of the company filed an application under Section 34 of the Act of 1996 before the District Magistrate, Gautam Budh Nagar, which was dismissed by an order dated 30th April, 2010, against which FAFO No.840 of 2010 was filed before this Court, which was dismissed by a judgment dated 9th March, 2011. In addition to the aforesaid, one share holder filed Writ Petition No.19748 of 2010, which was dismissed by an order dated 15th April, 2010.
In the light of the aforesaid facts, the Court has heard Sri Ravi Kant, the learned Senior Counsel assisted by Sri R.K. Srivastava, the learned counsel for the petitioner and Sri Navin Sinha, the learned Senior Counsel assisted by Sri Rajarshi Gupta, the learned counsel for respondent nos.2, 3 and 4.
Sri Ravi Kant, the learned Senior Counsel appearing for the petitioner submitted that the entire proceedings starting from the appointment of an Arbitrator to the culmination of the award and the execution proceedings initiated thereon before the Delhi High Court is a nullity based on fraud and, therefore, this Court should interfere and quash the entire proceedings and restrain the respondents from executing the award or attaching the accounts of the company or immovable property of the company. The learned Senior Counsel submitted that no valid agreement was executed by the company with respondent nos.2, 3 and 4 and, therefore, the entire proceedings was a nullity. The learned Senior Counsel submitted that writ petition was maintainable. In support of his submission, the learned Senior Counsel placed reliance upon a decision of the Supreme Court in Rustam Cavasjee Cooper Vs. Union of India, 1970 (1) SCC 248 and Bennet Coleman and Co. Ltd. and others Vs. Union of India and others, AIR 1973 SC 106.
The learned Senior Counsel submitted that in order to proceed under the Act of 1996 there must be a valid agreement, failing which the entire proceedings would be void and a nullity. In support of his submission, the learned Senior Counsel placed reliance upon the decision of the Supreme Court in Indowind Energy Ltd. Vs. Wescare (India) Ltd. & Anr., 2010 (5) SCC 306 and M.P. Rural Road Development Authority and another Vs. L.G. Choudhary Engineers and Contractors, 2012 (3) SCC 495.
The learned Senior Counsel further submitted that since the properties of the company, which was located in the State of Uttar Pradesh were being attached, this Court had the territorial jurisdiction to entertain the writ petition and decide the matter. In support of his submission, the learned Senior Counsel placed reliance upon the decision of the Supreme in M/S. Kusum Ingots & Alloys Ltd Vs Union Of India And Anr, 2004 (6) SCC 254 and Aligarh Muslim University and Another Vs. Vinay Engineering Enterprises (P) Ltd. and Another, 1994 (4) SCC 710.
On the other hand, Sri Navin Sinha, the learned Senior Counsel appearing for respondent nos.2, 3 and 4 contended that the petitioner had no locus standi to file the writ petition questioning the validity of the award or the proceedings initiated pursuant to the application filed by the respondents before the Supreme Court for appointment of the Arbitrator under the agreement. The learned Senior Counsel submitted that nothing has been indicated as to what is the share holding of the petitioner and that the petitioner claiming himself to be an Additional Director could only continue till the holding of the Annual General Meeting as per Section 260 of the Companies Act. The learned Senior Counsel submitted that nothing has been indicated as to whether he was appointed as a Director of the company in the Annual General Meeting and, consequently, the petitioner had no locus to file the writ petition. The learned Senior Counsel submitted that the writ petition was not maintainable at the instance of a share holder, inasmuch as the company had filed objections under Section 34 of the Act of 1996 before the Delhi High Court, which has been dismissed and the award has become final.
The learned Senior Counsel submitted that no proceedings for execution of the award is pending in any court, which is located in the State of Uttar Pradesh and, consequently, the Court had no territorial jurisdiction to interfere at this stage.
Having heard the learned counsel for the parties, the Court finds that the present writ petition is a sheer abuse of the process of the Court, quite apart from the fact that the writ petition under Article 226 of the Constitution is not maintainable against respondent nos.2, 3 and 4. The corporate sector is expanding. The petitioner, who alleges himself to be a share holder and an Additional Director is a disgruntled litigant indulging in speculative and vexatious litigation.
In Halsbury's Laws of England (4th Edition, Volume 7, page 55, paragraph 83) it was held:-
" When incorporated, the company is a legal entity or persona distinct from its members, and its property is not the property of the members.
In R.C. Cooper Vs. Union of India, AIR 1970 SC 564 better known as the "Bank Nationalization case", the Supreme Court dealt with the contention raised about the maintainability of the petition. The petitioner in the said case was a share holder, a Director and a holder of deposit of current accounts in the bank. The locus standi of the petitioner was challenged on the ground that no fundamental right of the petitioner was directly impaired by the enactment of the ordinance and the Act or any action taken thereunder. The petitioner in the said case claimed that the rights guaranteed to him under Article 14, 19 and 31 of the Constitution of India were impaired, inasmuch as the Act and the ordinance were without legislation competence and that the said Act and ordinance interfered with the guarantee of freedom of trade contending that it was not made in public interest and that the President had no power to promulgate the ordinance.
The Supreme Court in the aforesaid decision found that the company registered under the Companies Act was a legal person, which was separate and distinct from its individual members. Property of the company was not the property of the share holders and that a share holder merely had an interest in the company arising under its Articles of Association, measured by a sum of money for the purpose of liability, and by a share in the profit. The Supreme Court held that a director of a company is merely its agent for the purpose of management. A share holder, or a director may not therefore be entitled to move a petition for infringement of the rights of the company, unless by the action impugned by him his rights are also infringed.
The Supreme Court further held:-
"The share holder of a company is not the owner of the assets of the company. The shareholder only has a right to participate in the profits of the company subject to the contract contained in the Articles of Association. But on that account the petitions will not fail. A measure executive or legislative may impair the rights of the company alone, and not of its share holders; it may impair the rights of the share holders and not of the company: it may impair the rights of the share holders as well as of the company. Jurisdiction of the Court to grant relief cannot be denied, when by State action the rights of the individual shareholder are impaired, if that action impairs the rights of the company as well. The test in determining whether the share holder's right is impaired is not formal; it is essentially qualitative; if the State action impairs the right of the share holders as well as of the company, the Court will not, concentrating merely upon the technical operation of the action, deny itself jurisdiction to grant relief."
In view of the above, a share holder is entitled to the protection of Article 19 of the Constitution. That individual right is not lost by reason of the fact that he is a share holder of the company. The Supreme Court in R.C. Cooper's case (supra) has established the view that the fundamental right of a share holder is not lost when they associate to form a company and when their fundamental rights as share holders are impaired by State action, their rights as their holders are protected. The reason is, that the share holders rights are equally and necessarily affected if the rights of the company are affected.
In the instant case, the Court finds that the petitioner's fundamental rights are not being violated and, consequently, does not give a right to invoke the writ jurisdiction under Article 226 of the Constitution of India.
The Court finds that an agreement was entered between the parties and respondent nos.2, 3 and 4. The company in which the petitioner is a share holder as well as an Additional Director and the respondents are private entities and are not "State" within the meaning of Article 12 of the Constitution of India. A writ by a share holder against private respondent nos.2, 3 and 4 is not maintainable since no fundamental rights of the petitioner is involved nor has been spelt out in the writ petition.
The petitioner only contends that a fraud had been played by respondent no.2 with the company. This is a question of fact, which cannot be adjudicated in a writ jurisdiction and, in any case, the Court finds that the company had contested the award by filing an objection under Section 34 of the Act of 1996 before the Delhi High Court. Such objection was dismissed by the Delhi High Court. The petitioner being the Additional Director and a share holder was aware of this fact, inspite of which, chose to file the present writ petition for vested interest.
The Court is of the opinion that a speculative and vexatious litigation venturing it into adventurism was filed to scuttle the execution proceedings initiated by the respondents before the Delhi High Court in some fashion or the other. It is not the case that the petitioner was not aware of the proceedings before the Delhi High Court. The petitioner being aware of these proceedings deliberately chose to file the present writ petition for vested interest.
In the instant case, the Court finds that there is no State action by which the rights of the petitioner as a share holder is impaired. The present dispute arises out of an agreement entered between the company and private respondents. The writ petition is not maintainable nor does the petitioner has any locus standi to file the present writ petition. The writ petition fails and is dismissed.
Since the petitioner has indulged in speculative and vexatious litigation and having regard to the frivolous nature of the writ petition we dismiss the writ petition directing the petitioner to pay cost of Rs.25,000/- before the High Court Legal Services Committee within four weeks from today, failing which the Registrar General will initiate proceedings for recovery of the cost as arrears of land revenue. A copy of this order shall be sent by the Registry to the Member Secretary, High Court Legal Services Committee as well as to the Registrar General for necessary information and action.