Choudhary & Ors v Rakecha & Ors

Where competing parties claim control of a company and the disputed shareholdings and board composition cannot be resolved before trial, the court may regulate the company’s affairs on an interim basis. The appropriate approach is ordinarily to hold the ring, restraining either side from altering the board or shareholding while preserving necessary business management.

Questions concerning the composition of a company’s board and shareholders fall within Article 22(2) of Council Regulation (EC) No.44/2001 where the company has its seat in England. Jurisdiction conferred by the Regulation must be exercised, and the court cannot stay proceedings in favour of a non-member-state forum on forum conveniens grounds.

The claimants sought interim relief concerning the board, shareholding and management of an English company operating a jute mill in India. They alleged that purported meetings, appointments, resignations, share forfeiture and share allotments involved forged documents and unlawful conduct. The defendants disputed those allegations and asserted competing control.

The substantive proceedings had not yet been tried. The immediate issues were whether the claim was arguably barred by the rule in Foss v Harbottle, whether England was an appropriate forum, whether service outside the jurisdiction required permission, and what interim arrangements should govern the company pending trial.

1. Interim relief. The claimants had established a seriously arguable case, but the substantial factual disputes could not properly be determined on the application. Damages would be inadequate for either side. Since both sides claimed majority ownership and board control, the court should hold the ring. Neither side should be permitted to alter the board or shareholding by convening a general meeting or procuring directors’ decisions pending trial.
2. The rule in Foss v Harbottle, and the principle discussed in Macdougall v Gardiner, did not prevent relief. A general meeting could not resolve the dispute because the composition of the body of shareholders was itself in issue. That materially distinguished Macdougall v Gardiner. Further, Pulbrook v Richmond Consolidated Mining Company established that a director wrongfully excluded from office could sue in his own name and seek an injunction.
3. Jurisdiction. The proceedings were not excluded by Article 1(2)(b) of Council Regulation (EC) No.44/2001. They concerned the validity of the company’s organs and the composition of its board and shareholders. Article 22(2) therefore conferred exclusive jurisdiction on the courts of the Member State where the company had its seat. The company’s seat was in England. The reasoning in Grupo Torras SA v Al-Sabah and Speed Investments Ltd v Formula One Holdings Ltd (No 2) supported that conclusion.
4. The jurisdiction conferred by the Regulation applied regardless of domicile. Under Owusu v Jackson, the English court could not decline jurisdiction on forum conveniens grounds, even where the alternative forum was India. Re Harrods (Buenos Aires) Ltd was no longer good law. Permission to serve the second and third defendants in India was unnecessary under CPR 6.33(2)(a)(ii).
5. Comity and management. The Indian court had appointed the first and second claimants as the Committee of Management for the company’s Indian business, subject to supervision by Joint Special Officers. It would be a serious breach of comity for the English court to proceed on a basis conflicting with that order. The first defendant was therefore to act in managing the business only as directed or authorised by the first and second claimants, or as later ordered by the Indian courts. The parties remained free to apply to the Indian court for a change in management. Directions were to be considered for a speedy trial.