TANZANIA KNITWEAR LTD v SHAMSHU ESMAIL 1989 TLR 48 (HC)

 

TANZANIA KNITWEAR LTD v SHAMSHU ESMAIL 1989 TLR 48 (HC)

Court High Court of Tanzania- Dar Es Salaam

Judge Mapingano J

15 April, 1989

Flynote

Civil Practice and Procedure - Applications - Whether an application which unites

two B distinct applications in one application, namely an application for setting aside

a temporary injunction and an application for injunction is bad at law - 0.2 r. 3(1) of

the Civil Procedure Code.

Civil Practice and Procedure - Injunction - Notice requirement - Circumstances

where court C can grant injunction without issuing notice to the opposite party -

0.37 r. 3 of the C.P.C.

Limitation - Temporary injunction - Whether the Law of Limitation Act, 1971 does

apply to an application for temporary injunction.

Company Law - Company - Power to increase capital - The Companies Ordinance,

Cap. D 212 Section 51(2).

-Headnote

This application was made under 0.37 rr. 1 and 4 and section 68 of the Civil

Procedure Code. The applicant wanted an order for temporary injunction issued and

the E respondent be restrained from floating 800 shares. Counsel for the applicant

submitted ex-parte injunctions could only be granted in special circumstances and

that there were no such circumstances in this case. The learned counsel submitted

that the floating of 800 F shares was illegal as it contravened section 51(2) of the

Companies Ordinance. He added that the floating of 800 shares was invalid as it was

designed to oppress the applicant. Counsel for the respondent attacked the applicant's

application. Though he cited no authority in support of his contention, he said that it

was bad at law. The learned counsel added that the application which sought the

discharge to the injunction was G time-barred. As regards the floating of 800 shares,

Counsel for the respondent submitted that it was done in good faith.

In reply counsel for the applicant submitted that the joinder of two applications was

not prohibited by law. Against the proposition that the application for discharge of H

temporary injunction order was time barred he submitted that the provisions of the

law of limitation were not applicable to the matter.

Held: (i) The combination of two applications in one is not bad in law since courts of

I law abhor multiplicity of proceedings;

1989 TLR p49

MAPIGANO J

(ii) the law of Limitation Act, 1971 does not apply to an application for A

discharge of temporary injunction;

(iii) under 0.37 r. 3 of the Civil Procedure Code the requirement of giving

notice to the opposite party is mandatory. Where it appears that the delay in the

issuance of notice will defeat the object of the injunction, the notice could be

dispensed with; B

(iv) where all shareholders are offered purchase of new shares on a pro-rata

basis, the applicant cannot be heard to complain that the resolution was oppressive to

him;

(v) by section 51(2) of Cap. 212 the power to increase capital must be C

exercised by the company by passing a resolution in its general meeting and this

means that directors have no similar powers.

Case Information

Order accordingly.

Kesaria, for the applicant D

Ismail, for the respondent.

[zJDz]Judgment

Mapigano, J.: Let me state the background first. The plaint says that the applicant's

employment as manager of the respondent company was terminated by a resolution

E passed by an extraordinary meeting of the directors held on 23/l2/86, on account of

gross mismanagement; that the applicant has not abided by that resolution and

continues to manage the business of the company to the detriment of the company;

and that unless he is restrained from managing the business of the company the

company will continue to F suffer considerable loss. Wherefore the respondent prays

that the termination be affirmed and the applicant be restrained, permanently, from

managing the business of the company. It is to be noted that the applicant is not only

a shareholder in the company but a director as well. G

On 22/1/87 the respondent made an ex-parte chamber application, seeking an order

for temporary injunction against the applicant to restrain him from entering the

business premises of the company pending the determination of the suit. On the same

day the learned J.K. granted the application, observing that the applicant's

employment had H already been terminated.

The applicant filed his W.S.D. on 23/6/87. It is evident from that pleading and the

materials now before this court that the applicant was aware, at the time of filing the

W.S.D., of the existence of the ex-parte injunction and that the injunction was

granted I when he had already resigned from the management of the company.

1989 TLR p50

MAPIGANO J

On 3/l2/87 a resolution was passed by the directors of the company to issue 800

shares. A It was also resolved that "each shareholder be offered to purchase the said

shares according to individual shareholding".

The present application was brought on 3/2/88. The application is made under 0.37 rr.

l B and 4 and section 68 of the C.P.C. The applicant wants the order for temporary

injunction dissolved and the respondent be restrained from floating the 800 shares.

The reasons are stated in his affidavit, particularly in paras 3, 4 and 5. He has deposed

that the management of the company is now in the hands of Messrs Thakrar and

Lakhani and C alleged that the company's business does not receive proper attention

because one "is in London since the last six weeks" and the other "is always engaged

in his other business." He has contended that the proposed issue and allotment of 800

shares is invalid because the meeting that passed the resolution in that respect was not

called in D accordance with the rules of the Articles of Association and because the

said issue was meant to oppress him.

The respondent has opposed the application and Mr. Thakrar who is one of the

directors has sworn and filed a counter-affidavit. In paras 3, 7, 8 and 9 he repeats the

E charge of gross-mismanagement against the applicant and illustrates the same. In

para 4 he alleges that the applicant has made some efforts to close down the business

of the company, which allegation is not disputed. In para 10 he asserts that the issue

of 800 shares is not ill-motivated but is an action the directors believe to be in the best

interests F of the company. And in para 12 he points out that the company is now

managed by one Mr. Edwini and not Messrs Thakrar and Lakhani.

Mr. Kesaria, learned counsel for the applicant, has submitted in regard to the ex-parte

temporary injunction, that such injunctions are granted only in exceptional

circumstances. G He has cited the case of Janmohamed v Madhani (l953) 20 EACA 8.

In his opinion there was no such circumstance in this case. With regard to the

floating of the 800 shares, Mr. Kesaria has put forward two propositions. The first

proposition is that it was illegal because it contravened the provision of section 51 (2)

of the Companies H Ordinance. The second is that it is invalid because it was

designed to oppress the applicant, and the learned advocate has cited Clemens v

Clemens Bros. Ltd. [l976] 2 All E.R. 268 in support.

Mr. Ismail who represents the respondent has attached the application for being

duplex I in that the applicant has united two distinct applications in one application,

namely an application for

1989 TLR p51

MAPIGANO J

setting aside the temporary injunction and an application for injunction order to stop

the A floating of the 800 shares. Mr. Ismail has submitted that the application is bad

at law on that score, but has not backed up his contention with any authority. Next,

learned counsel has submitted that the application, to the extent that it seeks the

discharge of the injunction order is time barred. He has relied on the provision of

Article 21, Part B III, First Schedule to the Law of Limitation Act, 1971. And as

regards the application, to the extent that it relates to the floating of the 800 new

shares, he has pointed out that the shares have already been floated and remarked

that the applicant should have been advised to apply for a revocation of the issue

rather than an injunction. In any case, he C contended, the creation and the floating

of those shares was done in good faith and that neither the company nor the applicant

has been hereby prejudiced. Lastly Mr. Ismail has informed this court that the

applicant has already instituted legal proceedings D in a bid to have the company

liquidated.

In reply Mr. Kesaria has contended that the joinder of two applications is not

prohibited by law. In his opinion it is inferable from 0.2 r. 3(1) of the C.P.C. that such

joinder is, on the contrary, countenanced. Against the proposition that the application

E for discharge of the temporary injunction order is time barred, Mr. Kesaria has

replied, if I understand him correctly, that the provisions of the Law of Limitation Act

were not applicable to the matter.

I now proceed to decide the various points that have been raised in this application.

In my opinion the combination of the two applications is not bad at law. I know of no

law F that forbids such a course. Courts of law abhor multiplicity of proceedings.

Courts of law encourage the opposite.

I am also disposed to share Mr. Kesaria's view that the Law of Limitation Act, 1971,

does not apply to an application for discharge of temporary injunction. For very G

obvious reason. An order for temporary injunction is essentially an interim order. But

it may last several years and circumstances may change and the order may become

unduly harsh or unnecessary or unworkable. It would thus be improper and unwise

to make such an order the subject of any law of limitation. H

On the question whether the learned J.K. was justified to dispense with service of

notice to the applicant, I have to refer to the wording of 0.37 r. 3 of the C.P.C. It

seems to me that the requirement of giving notice to the opposite party is mandatory.

I The exception is where it appears that the delay involved in the

1989 TLR p52

MAPIGANO J

issue of notice will defeat the object of the injunction. As mentioned above, the

reason A given by the J.K. for dispensing with the issue notice was that the services

of the applicant had been terminated. However, the materials deposed by Mr. Thakrar

in his affidavit of 20/1/87, which depositions stand uncontroverted to-date, I think

that the application satisfied the requirement of 0.37 r.3 of the C.P.C. and I am

satisfied that B the injunction was not irregular.

I turn to the issue of the 800 new shares. The first point to consider and decide is

whether the resolution of the directors in that respect was ill-motivated i.e. whether

it C was framed and passed in order to divest the applicant of his rights as a

shareholder holding 300 shares in the respondent company. In Clemens v Clemens

Bros. Ltd. to which Mr. Kesaria has made reference and which is about the leading

case on the point, certain resolutions to increase the capital and issue of new shares in

such a way D as to deprive the plaintiff, a shareholder, of her "negative control" in

the defendant company were set aside as having been passed by an inequitable use of

the defendant's voting rights. These were the facts of the case: The plaintiff owned

45% of the issued share capital of the defendant company and her aunt hold the

remaining 55%. Although E at one time both the plaintiff and her aunt had been

directors of the company, at the relevant time the plaintiff was no longer a director.

The aunt and her fellow directors proposed to increase the company's share capital by

the creation and issue of further shares. The proposal was to issue them as 200 to the

directors and as to the remaining F 850 to a trust for long-serving employees.

Resolutions to give effect to these proposals were passed at an extraordinary general

meeting notwithstanding the plaintiff's proxy voting against them. The plaintiff was

concerned that the proposed share issue would dilute her own holding and voting

power from 45% to marginal less G than 25%, in other words, she would lose

"negative control". She commenced proceedings against the company and the aunt

seeking a declaration that the resolutions were oppressive, and an order setting them

aside. Forster, J. acceded and made the order asked for having formed the view that

the resolutions were "specifically and H carefully designed to ensure not only that

the plaintiff can never get control of the company but deprive her of what has been

called her negative control" i.e. the power to prevent the passage of any special

resolutions of which she disapproved.

It seems to me that the analogy between Clemens case and the present case fails on a

I vital point. Here it has not been established that the alteration of capital by the

creation of the new shares and

1989 TLR p53

floating the same was meant to delete the applicant's holding and voting power. As

we A have seen, all the shareholders including the applicant were offered to

purchase the new shares on a pro-rata basis and in the circumstances I fail to

understand how the applicant can be heard to complain that the resolution was

oppressive to him. I accept the version of the respondent that the increase of the

capital and the issue of the new B shares was solely done in order to strengthen the

company's capital base and that it suited the requirements of the company.

With regard to the allegation that the company is being mismanaged, I am not

satisfied C that is actually the case. In any case I do not think that the discharging of

the injunction order would be the solution of the problem.

Finally, I come to the question whether the passing of the resolution contravened the

provision of the Companies Ordinance. It is not in dispute that the resolution was D

passed by the directors at their meeting held on 3/l2/87. By section 51(2) of the

Companies Ordinance the power to increase capital must be exercised by the

company by passing a resolution in a general meeting and directors have no power to

exercise it. The resolution was, therefore, illegal and should not be allowed to stand. I

set it aside. No order for costs. E

Order accordingly.

1989 TLR p53

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