The legal system of India is a powerful tool that aids the process of indemnifying one’s grievance that may arise because of personal or professional relations among people. The aforesaid being mentioned, it is important to note that our country provides numerous legal statutes and provisions that aid the process of seeking redressal of such grievances by providing its people to engage in a seamless modus operandi established by provisions like those mentioned in the Civil Procedure Code, 1908[1] (“the code”).
This analysis particularly relates to the procedural mechanism set by Order 1 Rule 8 of the code which constitutes the first integral part of parties to a suit. Alongside this, it is also equipped with allowances for joinders, deletion, substitution of parties and others[2]. With consideration to the problem of overflooding of litigations among various others, the code also specifies “Representative Suits” in Rule 8 of Order 1[3]. We know that the general rule for the institution of a suit is that if one or more persons have colliding interests relating to a suit, they come together to file the litigation proceeding against the offending person(s). Rule 8, however, provides an exception to this narrative of the general rule by mentioning that one or more similarly interested persons may carry forth the proceedings on behalf of another so aggrieved at the direction/discretion of the court which shall, on taking into cognizance the aspect of “similar interest” allows or deny the proceedings accordingly.
Digging deeper into the provision one can seek various objectives achieved by the provision which shall be mentioned as we go forward into this case analysis.
In light of this, we hereby link this integral provision to the case of Pramod P. Shah v Ratan N Tata[4] whose judgement propounds upon several necessities that have to be taken note of while filing the proceeding to maintain the fairness of a trial for all parties and hence strengthens the foundation basis of our judicial system.
Facts of Pramod P. Shah v Ratan N Tata
The facts of this landmark case relate to the domain of corporate governance and the rights of shareholders. A representative suit was filed in the Bombay High Court in lieu of an ex-parte decree dated December 9, 2016 , by Justice S.J. Kathawalla of the Hon’ble Court which allowed the Plaintiff to sue the Defendants and others related in lieu of the same interest in the suit. The procedural history prescribes that the defendants argued by filing in-chamber summons to dismiss the case alongside the decree because it didn’t satisfy the requisites for a representative action to be pursued.
However, the defendant’s claim was dismissed and an exhaustive petition of around 400 pages was filed keeping in mind the interests of all minority and non—promoting shareholders of Tata Group Companies wherein others who were aggrieved were welcome in pursuit of litigation in this suit making up for plaintiffs in this case. The plaintiffs, i.e., Pramod Premchand Shah (representator), his wife, brothers, and others filed a suit against the defendants in this case, i.e., Tata Sons Ltd. And others who were Mr. Ratan N. Tata and other directors of the board in the Tata groups of companies.
To incorporate all parties as per procedure, a representative suit was filed under Order I Rule 8 of CPC, 1908. The principal grievance was regarding the alleged illegal dismissal Mr. Cyrus Mistry, who at that time was the Chief Executive Officer of Tata Sons Ltd. (appointed in 2012) The conspicuous act of Mr. Ratan Tata being appointed as Interim Chairman is what led to pursual of this suit because due to these transactions, a series of challenges alleging oppressive misconduct on company flooded the offices their offices and thus ended up in court to protect the rights of all shareholders as prescribed under Companies Act, 2013[5]. The Articles of Association (AoA) of Tata Sons Ltd. were drafted as such that Mr. Mistry’s dismissal from his position was perhaps in violation. The ouster of his position was in contravention of the norms of corporate governance which weakened the share prices of various companies under Tata Sons Ltd contributing to a notorious loss of Rs. 41,832 Crore. Furthering the same the aggrieved plaintiffs sought for a formal declaration of discharge of Mr. Mistry’s duties on the grounds of illegality as well as nullification of resolutions with context to the same.
Issues in Pramod P. Shah v Ratan N Tata
Broadly, there were four main arising issues in this suit. The primordial issue was regarding the maintainability of a representative suit provided under Order I Rule 8 of Civil Procedure Code, 1908 because of the lack of commonality of interest of parties. Second came the issue of mala fide corporate governance and oppression under Sections 241 and 242 of the Companies Act, 2013 wherein the former prescribes a remedy against the oppression any member of the company while the latter gives court the power to pass orders if it opines with the company’s actions to have been conducted in a prejudicial manner to public interest and interests of any of the company’s member or members.
It also raised an important issue regarding the extent to which courts can interfere in the internal management of the company and its board room decisions. Lastly, there was reasonable suspicion about the uprooting of Mr. Mistry’s position being replaced by Mr. Tata which was highlighted as the vantage point for the present case.
Contentions of Parties
Plaintiffs
The preliminary issue contended under this representative action was to prove the maintainability of this suit under Order 1 rule 8 of CPC, 1908. This was essentially because all the non-promoting shareholders were allegedly “similarly offended” by the revocation of the position of Cyrus Mistry as the CEO. The consequence of this was the stark plunge in the share prices of the Tata Group Companies causing hefty financial losses to the concerned shareholders.
The justification for the drop in share values as presented by the Plaintiffs was a collective legal response against the alleged actions. Due to this unexpected obsolescence, monetary compensation was demanded for these losses which were stapled as a repercussion of the company’s decisions which were remarked to be oppressive and conflicting in nature. Even if the cause of action as well as the circumstances differed for every individual, the interest of the group was considered similar and was insisted to be sufficiently aligned to invoke this representative suit on behalf of everyone affected.
Additionally, an option was given to dissenting shareholders in the form of a call for notification by means of a section pursued in the widely read daily The Times of India to join the suits against them as defendants in the present suit which wouldn’t necessarily invalidate the representative nature of the suit.
Defendants
The objection to the preliminary contention of the Plaintiffs was that the suit under the Order I rule 8 of CPC, 1908 was not maintainable in any course on the grounds of lack of commonality of interests within the shareholders i.e. non-promoting and minority shareholders. The suit as per them was not universally beneficial making its representative nature against its very own principles and interests of laws which it is prescribed.
The dichotomy resented within the shareholders was that their grievances were distinct and individualistic in nature due to contradictory opinions on Mr. Mistry’s dismissal and its impact on the companies so suffered. In furtherance, the Defendants contested that the financial losses as claimed by the Plaintiffs were not uniform across all shareholders and the experience of each loss or gain differed on the basis of their individual investment strategies and timelines due to the volatile nature of the stock market.
They furthered their contentions by suggesting that each company had its own AoA, and its corporate form suggested that each of the companies be a distinct “person” which is also the general principle as prescribed by the law in India. This would lead to subjectivity in the dichotomy of the stances held by various shareholders as the companies’ intentions were in coherence with good governance. An individual assessment of losses so concerned was required as they could not be collectively determined. Thus, in this case, a representative action was improper since it coerced every distinct shareholder to pursue a collective litigation proceeding that binds all of them uniformly to a judgement which might not comprehend their objections and dissatisfactions so alleged.
Pramod P. Shah v Ratan N Tata Judgement
The Hon’ble High Court of Judicature at Bombay presided that Justice S.C. Gupte ruled in favour of the Defendants and provided a comprehensive analysis of the lack of maintainability of this suit by giving an accurate interpretation of the provision alleged which heavily focused on the lack of “similar interest” as given in Order I Rule 8 of the code. The chamber summons sought by Defendants seeking the revocation of the leave granted to the Plaintiffs under the provision which was allowed formerly revoking the right to seek collective litigation that had been initially granted to the Plaintiffs. It was upheld that no genuine communal interest in fact existed amongst the non-promoting and minority shareholders.
Additionally, the judgement also looked into the issue of lack of common interest in-depth to analyze the proposition of a representative suit arising out of the dismissal of Mr. Cyrus Mistry. This was further deliberated due to the varied views on the financial losses caused arising out of this ouster being detrimental. The court also viewed that the judgement would coerce the shareholders who were against Mr. Mistry’s reinstatement to be bound by the decision given by the bench in this contentious suit[6]. This would lead not only to the coercion of pursuing litigation to those who were not in favour of this suit, to begin with, but also to violate their rights and interests.
Concurring with the defendant’s arguments on individualistic losses, the court noted that a representative suit would not rightfully calculate the damages suffered by each shareholder in its correct determination. Finally, guidance was provided on the idea of filing a representative suit which re-affirmed the principle of genuine common grievance and a shared interest in relief for a distinct class of persons to join hands in such particular kind of suits. Having the same type of proprietary interest (here, shareholding) was not adequate to bring about a claim for a representative suit that does not provide a lucid perception of grievances suffered.
Finally, there was no imposition of costs so no further financial penalties were ascribed to the plaintiffs by allowing the Defendants’ application. This was held in the interest of disallowing claims so that no group of people are forced to be bound by legal outcomes against their will.
Analysis and Opinion
The present case highlights some distinct characteristics thereby making it a landmark in our judicial history. In my opinion, the case holds an integral importance not only because of its vast and inexhaustive parties but also because the provision in question comes out in the open to its true essence, laying the foundation for upcoming matters to be correctly abled for pursual of justice. The categorical boundaries between “on behalf of” and “for the benefit of” can’t be blurred by an interpretation that suits the parties so as to achieve an order in their favor. I would consider this judgment by be Hon’ble High Court of Judicature at Bombay to be good, not only in law but also in sociological context because the corporate form forms an integral part of our country’s population because of being classified as a “juristic person”.
There are various precedents that are corresponding as well as posing a question in this case accruing to the ruling. Mr. Madon appearing for the Plaintiffs mentions the ruling of Chairman, Tamil Nadu Housing Board, Madras v. T.N. Ganapathy[7] which dealt with the issue to serve a proper notice to the parties. The Hon’ble Supreme Court here ruled, as per the provision in the code, the notice should properly be served with due obligations either personally or through a public announcement to provide an equal opportunity to all “similarly interested parties” and form a representative suit.
In my opinion, here the notice by the Plaintiffs was perhaps a coercive one because it focused more on attracting the parties to reap benefits out of the litigation than on facilitating legal proceedings. Similarly, while the Plaintiff’s counsel has cited the case of Kodia Goundar v. Velandi Goundar[8] for its judgement, it seems to me that the parties lost out on forming a consensus with the interpretation of the court that the joinder of parties has to be carefully determined by considering the cause of action relating to the suit. This particular suit related to a property dispute among members of a joint family i.e. coparceners of the family who as per law have a “designated interest” in a joint family property. Ignoring the rights of coparceners here would have caused a legal defect due in proceedings and therefore the joinder was allowed. I fail to draw a connection between this case and the case related to the Plaintiffs because numerous shareholders faced individual repercussions to the company’s actions and as previously mentioned, stock trading and analysis hold a very personalised component.
The rights as provided by the concerned statute may be common in nature to all shareholders but at the same time, it cannot be considered a part of the same transaction altogether. Alongside this, while supporting his arguments the learned counsel for Plaintiffs has also mentioned the case of Kaira District Co-op. Milk Producers Union Ltd. v. Kishore Shantilal Shah[9] whose subject matter relates to a contractual breach. Here, the contention was confused on properly identifying the primary party to issue notice for proceedings which was properly implemented.
Corresponding this to our case, I suggest that the notification to shareholders was, as previously mentioned, a true source of rampage because a shareholder with any and every interest was promoted to become a party to the case in lieu of representation. Having noted all these aspects of concern pursuant to the Plaintiffs, I feel that the contentions failed to align and form an indication towards “similarity”. The leave may have been granted if only we could trace the same transaction as the source of this frantic.
Additionally, I would like to appreciate the law and its principles with respect to the Principles of Res Judicata (S.11 of CPC, 1908[10]) and the Principle of Absolute Privilege that form accessories to this case. The former upholds the binding nature of the court’s discretion and finality of judgements to all parties and ensures a definite end of suits prohibiting flooding of suits relating to the same parties of matters so perceived. The latter grants freedom of communication during legal proceedings limiting the scope for a liability that may be attracted during the due course for statements made in certain contexts[11]. These tools prevent future mishaps that may arise as a result of the proceeding against one another. Alongside this are also benefits arising out of Order I Rule 8 of CPC, 1908 that run concurrently, for example, avoiding multiplicity of suits, cost-effective proceeding, uniformity in decisions, simplification of legal process, and various others. To support this, our case along with various others today, lays out recurrent practical evidence for the same.
Moving on to the analysis of the judgement and opinion of the court, I would like to highlight three major components laid down that for intrinsic value in the determination of “same class having a common interest” to file a representative suit – (i) the right or liability in the alleged suit (ii) the grievance or injury complained of and (iii) the relief sought.
Here, we see that factual consideration of the first and second components is questionable (due to the aforementioned reasons); the third component alleged here is altogether faulty due to the clubbing of shareholders of seven distinct companies who have faced numerous losses which are personal and would be traced only in a specific way if taken up one at a time. The Hon’ble Court cites the very important cases of Duke of Bedford v. Ellis (1901)[12] and Smith v. Cardiff Corporation[13] which are both leading English cases that are believed to have originally laid down the principle of representative suits in common law. This case was brought in the light of a “common cause” the aftereffects of which hampered a lot of people similarly and hence justifying the interpretation of “common interest”. The flexibility of suits can certainly be questioned in various ways but if the characteristics of a suit and its parties align with the precedential rules it paves the way for a smooth trial without scope for questioning.
Conclusion
In light of the entire content mentioned above, I would like to conclude that the Pramod Premchand Case is truly one of a kind and leaves no chance to be considered a landmark in the legal journey of Indian Cases. It is truly remarkable that our courts put in the effort to serve such clarification on genuine concerns that may arise during the litigation process.
The provisions aiding the process have been made not to discourage the motivation of pleaders but to provide various benefits that comprise the very spirit of maintaining the principle of a free and fair trial guaranteed by the law. I hold utmost respect and appreciation for the Hon’ble Court to have provided the much-needed clarification.
In my opinion, the dynamics of Tata Sons Ltd. and their shareholders needed internal clarifications first, and for the Plaintiffs to become a party to the suit, all shareholders who had invested in the company while Mr. Cyrus Mistry held his office were the truly aggrieved parties but even then, needed corroboration to their claims as the process of stock trading will be incomplete without individuality. I hereby conclude my analysis remarking that our statute(s) at most times support the aggrieved who act in good faith and aren’t solely attracted to feed on the benefits off of the rewards declared by the courts.
Author: This article was contributed by Aadhya Chadha, O.P. Jindal Global University (JGLS).
[1]The Code of Civil Procedure (1908).
[2] ‘CPC by C. K Takwani 7th Edition 2013 : Free Download, Borrow, and Streaming’ (Internet Archive)
<https://archive.org/details/cpc-by-c.-k-takwani-7th-edition-2013> accessed 11 September 2024.
[3]The Code of Civil Procedure (1908) Order 1, Rule 8.
[4] (2017) SCC OnLine Bom 5269
[5]Ibid.
[6] Amarchand S, ‘Tata Shareholders’ Suit: Bombay High Court Revokes Leave to Proceed in a Representative
Capacity’ (Tata Shareholders’ Suit: Bombay High Court Revokes Leave To Proceed In A Representative
Capacity – Trusts – Corporate/Commercial Law – India, 13 July 2017)
<https://www.mondaq.com/india/trusts/610274/tata-shareholders-suit-bombay-high-court-revokes-leave-to
proceed-in-a-representative-capacity> accessed 11 September 2024
[7]Pramod P. Shah v. Ratan N Tata, (2017) SCC OnLine Bom 5269
[8]Pramod P. Shah v. Ratan N Tata, (2017) SCC OnLine Bom 5269
[9]Ibid.
[10] The Code of Civil Procedure (1908) Section 11.
[11] ‘Absolute Privilege Definition & Meaning’ (RSS) <https://legal.com/glossary/a/absolute-privilege> accessed 11 September 2024
[12]Pramod P. Shah (n 7)
[13] Ibid.
