Calcutta High Court
Bajrang Prasad Jalan & Ors vs Madhuri Jalan & Ors on 31 October, 2014
Author: Patherya
Bench: Patherya
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
PRESENT :
THE HON'BLE JUSTICE PATHERYA
E. C. No.127 of 2008
C. P. No.494 of 1989
BAJRANG PRASAD JALAN & ORS.
VERSUS
MADHURI JALAN & ORS.
AND
E. C. No.128 of 2008
C. P. No.494 of 1989
NIRVAN COMMERCIAL COMPANY LIMITED
VERSUS
MADHURI JALAN & ORS.
For the Petitioner : Mr. Abhijit Chatterjee, Sr. Adv.,
Mr. G. Khaitan, Adv.
For the Respondent : Mr. S. N. Mitra, Sr. Adv.,
Mr. A. Mukherjee, Adv.
Heard on : 21-06-10, 29-06-10, 01-07-10, 06-07-10, 08-07-10,16-07-10, 23-07-10 and 26-07-10.
Judgement on : 31st October, 2014. PATHERYA J. :
This is an application filed for execution of order dated 18th September, 1998 by Bajrang Prasad Jalan (BPJ).
The case of BPJ is that in proceedings initiated under Sections 397 and 398 of the Companies Act, 1956, an order was passed on 3rd June, 1996.
By the said decree BPJ or his nominees were given the first option to purchase the shares of the respondent no.4. Price Waterhouse Chartered Accountants was appointed valuer to determine the value of the shares and option was to be exercised within two months from the date of communication of the valuation. In default of BPJ exercising option, the respondent nos.4 and 5 were given the option to buy the shares held by BPJ. From the said decree an appeal was filed and such appeal by decree dated 18th September, 1998 was allowed in part. The option given by the Trial Court was varied and the minority shareholders, namely, BPJ Group was directed to sell its shares to the Mahabir Prasad Jalan (MPJ) Group on the same terms and conditions. As the MPJ Group has not expressed its willingness to buy the shares of the BPJ Group as directed by the modified decree, the instant execution application has been filed and orders sought.
The case of the MPJ Group is that 397 and 398 proceedings are initiated in case of a deadlock in management and the majority must buy out the minority. In the notes of arguments filed before the Trial Court by the BPJ Group, it has been specifically stated that the MPJ Group should have been given the option to purchase the shares as it is the majority group. By issuance of such direction all disputes between the parties would have been resolved.
In the Memorandum of Appeal filed, the MPJ Group had proceeded as majority shareholders and being aggrieved for failure of the Trial Court to consider this aspect while directing the BPJ Group to exercise the option, MPJ Group sought a direction for purchase of the shares. In appeals filed before the Supreme Court of India by the MPJ Group and in the Affidavits-in-Opposition filed to the SLP of the BPJ Group, it has been accepted by the MPJ Group that the direction for sale of shares held by BPJ Group to them as directed by the decree dated 18th September, 1998 is correct, as it was the majority shareholder and could never have been ousted. It was also pleaded that the decree dated 18th September, 1998 was in its favour.
The directions contained in the order dated 18th September, 1998 upon the MPJ Group to purchase the shares was well understood by the MPJ Group as the BPJ Group was never called upon to exercise its option to purchase by the MPJ Group. The valuation process was never sought to be expedited and no challenge to the valuation report evidences the desire of the MPJ Group to buy out the BPJ Group. Reliance is placed on 2001 (6) SCC 534 for the proposition that an executing Court cannot go behind the decree. As held in AIR 2003 SC 3789, in the event, the decree is not a nullity the same must be carried out. For all the said reasons, orders be passed on this execution application.
Counsel for the MPJ Group while opposing the said application submits that the Division Bench by order dated 18th September, 1998 modified the earlier decree. Although the decree was modified the parties were directed to carry out the modified decree on the same terms and conditions. As one of the conditions was the exercise of option the same has been continued by the Division Bench. As held in AIR 1972 SC 1371 (19) and AIR 1960 SC 388, pleadings can be looked into by the executing Court to remove any ambiguity. Ground XXI of the Memorandum of Appeal makes it amply clear, so also Ground XLIX of the SLP that the option continued and the said was understood by the parties. The valuation has not been filed in Court, therefore, no exception has been taken thereto. In this proceeding, for the first time, the valuation report has been annexed. Therefore, grounds have been taken for setting aside the same. Out of the four methods for valuation of shares the net asset value method was adopted. This renders the valuation report erroneous and the question of exercising option does not arise.
From the notes of arguments filed before the Trial Court, the Memorandum of Appeal and Grounds of Appeal before the Supreme Court including the pleadings before the Supreme Court the parties, namely, both the BPJ Group and MPJ Group proceeded on the basis of exercising option. Therefore, the contentions of the BPJ Group that by the modified decree of 18th September, 1998 the MPJ Group was directed to purchase shares is totally unfounded and the application is liable to be rejected.
In reply, Counsel for the BPJ Group submits that as the proceedings were under Section 397 and 398 of the Companies Act, 1956, the main intention of the parties was to remove the deadlock. As the decree is not ambiguous the pleadings need not be looked into. The valuation report has not been challenged in detail and the only bald allegation made is that the value is excessive. The valuation report has not been challenged by a suit. In fact the Company had at no stage cooperated in the valuation process.
Having considered the submissions of the parties by this application the decree-holder seeks execution of the modified decree dated 18th September, 1998. By the decree dated 3rd June, 1996 BPJ Group was to purchase the shares of the MPJ Group upon valuation of each share by the valuer, Price Water House and payment was to be made within the time specified. An appeal was filed by the MPJ Group.
In the said appeal a ground was specifically taken that the BPJ Group could not have been given the 1st option to purchase the shares of the MPJ Group as the MPJ Group was the majority share-holder. The relevant grounds are set-out below :-
i) "For that the learned Judge erred by giving the first option to the respondent Nos.1 to 3 and/or their nominees to purchase the shares standing in the name of the appellant No.1 in his individual capacity and as karta of his Hindu Undivided Family as well as the shares standing in the name of wife of the appellant No.2 as well as the share standing in the name of Phool Holdings Limited and Arkay Mercantile Limited in the respondent No.4.
ii) For that the Learned Judge failed to appreciate that admittedly the appellants are the majority shareholders of the respondent No.4.
iii) For that the Learned Judge failed to appreciate that it is well settled that the oppressor should be directed to buy out the oppressed."
In appeal the decree dated 3rd June, 1996 was modified by directing the MPJ Group to exercise option and purchase the shares. An SLP was filed by the BPJ Group. Before the Supreme Court of India an affidavit was filed by the MPJ Group wherein the MPJ Group has sought for upholding the modified decree dated 18th September, 1998 and the group to be given the right to buyout the BPJ Group. The relevant paragraph is set-out below :-
a) "It has been consistently held by different Courts of this Country as well as by the English Courts that the oppressor should be directed buy out the shares of the oppressed and the majority shareholders in the company should never be ousted from the management and should be given the first option to buy out the shareholding of the majority.
b) Under the circumstances, the Division Bench of the Hon'ble High Court at Calcutta in its judgment and order dated 18th September 1998 rightly directed sale of shares held by B P Jalan and his group in the said company in favour of myself and my group.
c) Under the circumstance, the equity also lied and lies in favour of myself and my group for being given the first option to buy out the shares held by B P Jalan and his group in Debonair Agencies Ltd. and the Division Bench of the Hon'ble High Court at Calcutta comprising of Their Lordships the Hon'ble Satya Brata Sinha and the Hon'ble Justice D.B. Dutta rightly gave such direction."
The appointment of the valuer was never challenged in any proceedings, and a valuation report was submitted by Ernst & Young Pvt. Ltd. appointed by order dated 12th March, 2004 by the Supreme Court of India. No exception has been taken to the Valuation Report filed by the valuer nor any proceedings filed challenging the same. Therefore, the Valuation Report cannot be challenged in execution proceedings unless it can be demonstrated that the said is a nullity.
By the order dated 3rd July, 1996 BPJ Group was given the 1st option to purchase the shares of the MPJ Group and if such option was not exercised then the MPJ Group could have exercised the option and purchased the shares. In appeal the order was modified and the MPJ Group was directed to purchase the shares of the BPJ Group. The said order was passed on the premise that the MPJ Group was the majority share-holder. There is no default clause in the order dated 18th September, 1998 and on a reading of the order the reason for modifying the order of the Trial Court dated 3rd July, 1996 is that the MPJ Group held 52.2% shares while the BPJ Group held 47.50% shares and the discretion exercised by the Trial Court was on a wrong legal principle in not directing the majority, to purchase the shares of the minority and although the relief granted in the order dated 3rd July, 1996 is not unknown in law but an exceptional case ought to have been made out for granting such relief. Therefore, in the light of the discussions contained in the said judgment the order dated 18th September, 1998 was passed and it cannot be contended by the MPJ Group that the default clause exists. The letter of 1st July, 2008 from the MPJ Group is nothing but an attempt to act contrary to its stand before the Appeal Court and recorded in the order dated 18th September, 1998.
The said decree was passed in proceedings filed under Section 397 and 398 of the Companies Act, 1956. The said proceedings are filed to remove the deadlock which has occurred in the management of the company and it is always the majority share-holders who buys the shares of the minority share-holders. This is directed as the majority share-holders are in control and management of the company and it is against them that oppression and mismanagement is alleged. In the instant case too the MPJ Group which was in management was to purchase the shares of the BPJ Group as will appear from the decree dated 18th September, 1998, and there was no scope for exercise of option by the BPJ Group. This will be evident from the modified decree itself which mandates sale of the shares by the BPJ Group to the MPJ Group by user of the phrase "shall sell". It was on the basis of the aforesaid that the appeal of MPJ Group was allowed. By virtue of the aforesaid the requirement of exercise of option was rendered otiose.
The expression "on same terms and conditions" will not denote default or exercise of option in view of the stand taken by the MPJ Group before the Appeal Court in its pleadings, and can only relate to the handing over of transfer deeds and share certificates so also appointment of Joint Administrators who were to constitute a committee of management and other directions contained in the order dated 3rd June, 1996 but would in no manner whatsoever include exercise of option or default clause. The Special Leave Petitions filed were withdrawn, and the order dated 18th September, 1998 has reached finality.
The aforesaid will, therefore, entitle the decree-holder to execute the decree dated 18th September, 1998, accordingly, there will be an order in terms of prayer (g) of Column 10 of the Tabular Statement, after advertisement in leading newspapers for which purpose Ms. Ipsita Banerjee Advocate is appointed Special Officer at an initial remuneration of 300 Gms. Let such advertisement be published within six weeks from the date of receipt of the order. The sale will be subject to confirmation by this Court.
In the event the sale-proceed is insufficient steps be taken by the Special officer appointed to sell the moveables in terms of prayer (h) of Column 10 of the Tabular Statement.
There will also be an order in terms of prayers (e) and (f) of Column 10 of the Tabular Statement. Let the said affidavits be filed within four weeks from the date of receipt of this order. Reply, if any, within two weeks thereafter. Matter to appear in the list eight weeks hence.
(Patherya J.) Later :-
Stay sought by Counsel for MPJ Group is considered and rejected (Patherya J.)