Delhi High Court
Mr. Arun Mehra & Ors. vs Mr. Ravinder Kumar Nanda & Anr. on 22 February, 2010
Author: Shiv Narayan Dhingra
Bench: Shiv Narayan Dhingra
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Reserve: 26th November, 2009
Date of Order: February 22, 2010
IA No. 2454/09, IA No. 4490/09, IA No. 7581/09 & IA No. 8296/09 in
CS(OS) No. 354/2009
% 22.02.2010
Mr. Arun Mehra & Ors. ... Plaintiff
Through: Mr. Amit Sibal, Mr. Rakesh Makhija
& Mr. Jafar, Advocates.
Versus
Mr. Ravinder Kumar Nanda & Anr. ... Defendants
Through: Ms. R. Veena, Mr. Aditya Garg &
Mr. Srigadha Sharma for Dr. Sarbjit Sharma, Advs.
Mr. Ashish Dholakia & Mr. Adarsh Priyadarshi,
Advocates for the applicant in IA 4490/2009.
JUSTICE SHIV NARAYAN DHINGRA
1. Whether reporters of local papers may be allowed to see the judgment? Yes.
2. To be referred to the reporter or not? Yes.
3. Whether judgment should be reported in Digest? Yes.
ORDER
An IA No. 2454/09 under Order 39 Rule 1&2 CPC was made by the plaintiffs for grant of an interim injunction that defendants be restrained from functioning or dealing or transacting in any manner for or on behalf of M/s Durga Builders during the pendency of the suit and the defendants be restrained from transacting or transferring any movable or immovable property of M/s Durga Builders Ltd. An ad interim ex parte injunction was granted by this Court on the first hearing. Thereafter, two applications being IA No. 7581/09 & IA No. 8296/09 were filed by the defendants under Order 39 Rule 4 CPC and Order 7 Rule 11 CPC for vacating the ex parte stay granted by this Court and rejection of the suit respectively.
2. Brief facts relevant for the purpose of deciding these applications are that the plaintiffs entered into a share purchase agreement dated 19th May, 1997 whereby the plaintiffs purchased 100% shares of M/s Durga Builders from erstwhile shareholders i.e. defendants. The original share certificates were handed over to the IA No. 2454/09, IA No. 4490/09, IA No. 7581/09 & IA No. 8296/09 in CS(OS) No. 354/2009 Page 1 of 10 plaintiffs bearing endorsements of defendants with their signatures on the back side of each share certificate. A Board Resolution dated 19th May, 1997 of the company was also passed regarding withdrawal of authorities/power of attorneys given to defendants by the company. The plaintiffs alleged that plaintiffs and their group companies made substantial investments in M/s Durga Builders (P) Ltd. to the tune of Rs.10 crore in the form of work executed, lending and arranging finances. The shares were transferred by defendants since they were not able to run the company and the plaintiffs had taken over the company in order to secure the investments made by the plaintiffs in the company. Under the agreement of share transfer, the company was entitled to all assets described in the balance sheet as available on the date of agreement. A detail of plots available was attached as annexure 1 to the agreement which showed that there were 2408 plots, mostly smaller plots, which had been allotted to third parties, while the larger plots of the area 502 Sq.yards, 418 Sq. yards and 289 Sq. yards had not been allotted to third parties and were lying vacant. Apart from that, the company also had ownership of over 6000 Sq. Yards of vacant land. Thus, 55% of the land of the company was un-allotted and owned by the company at the time of purchase by the plaintiffs. The land of company was situated in Okhla Enclave Faridabad as mentioned in para 8(d) of the agreement. The major assets of the company were only pieces of land and company was not doing any other business. The agreement provided that defendants will not make any commitments or incur any liability or remove or encumber any assets without the prior approval of the plaintiffs in writing, after signing the agreement. The defendants also represented to the plaintiffs that they were not engaged in any litigation.
3. It is submitted by the plaintiffs that the plaintiffs later on learnt that the defendants had created unwarranted liabilities by making illegal bookings of plots much in excess of the number of plots available and misappropriated the sale proceeds by diverting the funds away from the company to their personal accounts. As a result, large number of litigations was initiated against the company including IA No. 2454/09, IA No. 4490/09, IA No. 7581/09 & IA No. 8296/09 in CS(OS) No. 354/2009 Page 2 of 10 criminal proceedings against the defendants and the same were pending. After the plaintiffs learnt of these litigations, they confronted the defendants. The defendants undertook to clear all the liabilities. However, for a substantial period the defendants did not hand over the management and control of the company to the plaintiffs and thereafter the defendants filed a suit being CS(OS) No. 961/2004 in this Court seeking a declaration that agreement dated 19.5.1997 was null and void. The plaintiffs then approached Company Law Board with a petition No.54/2005 bringing it to the notice of the Company Law Board about the shares transfer agreement, with a prayer that the transfer of shares be effected in the name of the plaintiffs with Registrar of Companies. The Company Law Board dismissed the plaintiffs' petition on the ground that plaintiffs had not come with clean hands as it had not disclosed filing of the suit titled as Vishesh Jain v. Arun Mehra & Ors. being CS(OS) No. 1136/2005 and because the defendants' suit was pending before the High Court wherein validity of agreement had been challenged and that the company had assets worth more than Rs.100 crore and company was "turning a corner" and the company ought not be taken over by the plaintiffs at that stage. It is submitted by the plaintiffs that defendants had filed a false suit titled as Vishesh Jain v. Arun Mehra, which became the basis of observations made by Company Law Board that the plaintiffs had concealed the facts. The defendants had also filed the said suit with malafide intentions and had wrongly pleaded before the Company Law Board that the company was highly profitable and was turning a corner. The defendants also colluded with advocate Mr. Sharad Agarwal to file a fraudulent and fictitious winding up petition before the Company Court being Company Petition No. 238/2005 titled as Manjit Kaur v. Durga Builders Pvt. Ltd. When the Company Court discovered about this collusion between defendants and lawyer, the Company Court made an observation about this on 3rd October, 2008 and also directed for registration of a case against the defendants and their lawyer. It is submitted that an appeal against IA No. 2454/09, IA No. 4490/09, IA No. 7581/09 & IA No. 8296/09 in CS(OS) No. 354/2009 Page 3 of 10 the said order was dismissed on the ground that common issues were raised by the defendants in CS(OS) No. 961/2004 and the petition before Company Law Board.
4. The plaintiffs had preferred an SLP against the order of Company Law Board in the Supreme Court. It is also submitted that plaintiffs had duly disclosed all the proceedings before the Company Law Board except those about which the plaintiffs were not aware or which had been filed by strangers in collusion with the defendants. The suit filed by the defendants being CS(OS) No. 961/2004 was dismissed by this Court on 30.1.2009 and the restraint order passed by the Court in Suit No. 961/2004 came to end and the present suit was filed by the plaintiffs thereafter. It is submitted that even after selling all their shares by the defendants to the plaintiffs on receiving consideration and resigning from the Directorship of company, the defendants continued to execute sale deeds in respect of properties belonging to the company. The defendants were not entitled to sell the land belonging to the company. In suit CS(OS) No. 961/04, this Court vide order dated 10th November, 2006 granted an interim injunction restraining defendants from selling, alienating or creating third party interests in the immovable assets of the company except in respect of plots in Faridabad covered by the orders of the Supreme Court and Punjab & Haryana High Court. Thus, defendants could execute sale deeds only in respect of such plots provided that a week before executing the sale deed an affidavit was to be filed with advance copy to counsel for the plaintiffs informing the name of person in whose favour sale deed was proposed to be executed, with full particulars of the plot to be sold and sale consideration received. It is submitted that in direct violation of this injunction order, defendants executed sale deeds in respect of the company's land in Faridabad without filing affidavit as required. The plaintiff then filed a contempt petition against the defendants in view of this violation. It is stated that defendants were acting mala fidely and in order to play fraud upon the plaintiffs, were disposing of the property of the company. It is further submitted that the defendants had been taking false plea in order to deny IA No. 2454/09, IA No. 4490/09, IA No. 7581/09 & IA No. 8296/09 in CS(OS) No. 354/2009 Page 4 of 10 access to the plaintiffs to the records of the company. In reply to the contempt petition the defendant pleaded inability to give details of the sale deeds executed by them on the ground that High Court had passed orders for winding up and the defendants had sent the record to Official Liquidator. However, the High Court in its order dated 3rd October, 2008 recorded submission of the Official Liquidator that no records were sent to it by the defendants. The High Court in view of this submission, again gave directions to defendants to furnish complete statements of affairs of the company and to hand over the records to the Official Liquidator. It is further stated that status report dated 9th September, 2008 given by District Town Planner, Headquarters, Haryana showed that sale and purchase of plots was still going on and sale deeds were being executed in favour of various individuals by Mr. R.K.Nanda (defendant no.1). It is further stated that on 28th February, 2009 before the Executing Court at Farbidabad, the defendants made a statement that they were willing and ready to execute and register sale deed in favour of a third party. This statement was made without disclosing to the Executing Court that a restraint order was passed by this Court on 20th February, 2009 (in the present suit) restraining defendants from functioning or dealing with any movable or immovable properties of M/s Durga Builders. Thus, the defendants were out to commit illegalities and play fraud in connivance with their advocate Sharad Agarwal and third parties. Defendants may succeed in transferring or alienating the properties of the plaintiff, if the defendants were not restrained from acting on behalf of the company.
5. The plaintiffs have extensively relied upon the order of the Company Judge wherein Company Judge held that the winding up petition was got filed in collusion with the defendants and no lady in the name of Manjeet Kaur (winding-up petitioner) was in existence. It is also submitted that a charge-sheet had been filed against the defendants as a result of the order of the Company Court. The defendants had also filed an appeal for recalling the order. This appeal was allowed to be withdrawn after imposing heavy costs upon the defendants. It is submitted by IA No. 2454/09, IA No. 4490/09, IA No. 7581/09 & IA No. 8296/09 in CS(OS) No. 354/2009 Page 5 of 10 the plaintiffs that the plaintiffs have a strong prima facie case and given the conduct of the defendants, the plaintiff and the company were going to suffer an irreparable loss.
6. The defendants in their written submissions have submitted that company was an independent entity and its shares could be sold by shareholders of the company. Even if the shares of the company were sold, by virtue of the alleged agreement, no rights would vest in the person claiming to be transferee of the shares, unless the shares were produced for registration under Section 108 of the Companies Act, 1956. It is submitted that the plaintiff, after the agreement dated 19th May, 1997 never came forward for transfer of shares in his name. On the other hand, the plaintiffs had been claiming in all prior litigation that they had acquired the shares from the defendant only to secure the amounts advanced as loan to the company. It is pleaded by the defendants that the agreement dated 19th May, 1997 cannot be enforced after such a long time. The period of limitation for enforcing the agreement was three years and the present suit was filed much after the period of limitation. It is further submitted that plaintiffs were appointed as Directors of the company after 19th May, 1997 but they never came forward either to function as Directors or even informed this to the Registrar of Companies, nor the requisite form No.32 was submitted with Registrar of Companies. The plaintiffs just did not act. Thus, defendants had no option but to continue with the company as Directors and keep facing various criminal cases against the Company and Directors regarding dishnoured cheques. The plaintiffs also did not perform their part of promise as stipulated in the agreement dated 19th May, 1997 and rather denied their liability on behalf of the Company under the agreement on the ground that the agreement had become time barred. This was the stand taken by the plaintiffs in the WS filed in CS(OS) No.961/05. It is further submitted that after dismissal of plaintiffs' Company Petition before Company Law Board, an SLP was preferred by the plaintiffs before the Supreme Court and Supreme Court declined granting interim directions in IA No. 2454/09, IA No. 4490/09, IA No. 7581/09 & IA No. 8296/09 in CS(OS) No. 354/2009 Page 6 of 10 respect of the prayer, made herein. It is submitted that until and unless the issue of registration and transfer of shares in the name of plaintiffs was heard and adjudicated upon, by the Supreme Court in favour of the plaintiffs, the plaintiffs had no rights vis- à-vis the company and were not entitled to seek the relief claimed. On the one hand the stand of the plaintiffs had been that they were never interested in acquiring the company and for this reason they did not file Form 32, on the other hand, they are now claiming to be the owners of company seeking that defendants be restrained from dealing with the properties of the company. Both the stands taken by the plaintiffs were self-contradictory.
7. It is urged that issuance of an injunction against the defendants would result into a situation that plaintiffs and defendants both would not be able to act on behalf of the company. The plaintiffs cannot act since the shares had not been transferred and registered in their favour and defendants would not be able to act in case the injunction was granted by the Court. This would result into injustice not only to the defendants but to all creditors and plot holders. It is submitted that company had sold plots to various plot holders after submission of plans with HUDA and it was Director, Town and Country Planning, who earmarked a part of the land for small plots in the category of "no loss no profit". Later on the number of plots got reduced because of Public Utilities and Civic Maintenance plan approved by the HUDA in view of the density norms per acre fixed by HUDA, and this resulted into litigation with plot holders. An FIR was lodged against the defendants under HUDA Act. When the matter regarding plot holders came up before the Supreme Court, the Supreme Court directed that the matter should be looked into a broader perspective and Mr. Harish Salve Advocate, Counsel for the company, was appointed as Amicus Curiae to look into the matter. Supreme Court however, allowed allotment of land to plot holders of "no profit no loss" category. The Supreme Court and Punjab & Haryana High Court issued directions for registration of sale deeds in favour of such plot holders. Remaining plot holders (those not in the IA No. 2454/09, IA No. 4490/09, IA No. 7581/09 & IA No. 8296/09 in CS(OS) No. 354/2009 Page 7 of 10 category of "no profit no loss") also approached High Court of Punjab & Haryana and the Supreme Court the High Court of Punjab & Haryana issued directions that remaining plot holders be also treated similar to the category of "no profit no loss". Since no plots were available in this category, the company preferred an SLP in the Supreme Court and this SLP was dismissed as time barred. It is submitted that this was situation in 1994 when plaintiff Mr. Arun Mehra, a Contractor engaged for internal developmental works, offered to take over the company in the year 1997 and he brought finances to the company. The agreement dated 19th May, 1997 specifically provided that the plaintiffs shall pay all liabilities, demands; statutory, contractual or otherwise of the company out of the resources of the company by liquidating assets or obtaining loans, and shall acquire all liability towards PDCs issued by the sellers list, attached with the agreement. The plaintiffs however failed to honour the said cheques and did not come forward to meet the liabilities of the company with the result that litigation against the company kept on increasing. Since the name of defendants appeared in Registrar of Companies' office as Directors of the company, all proceedings were initiated against defendants and the plaintiffs never came forward to take up the responsibility of Directors neither filed Form 32 nor got the shares transferred in their names. During the period 1997-2000 the plaintiffs withdrew around Rs.50 lac from the bank accounts of the company, after submitting a copy of resolution to the bank allowing him to operate the bank accounts, but did not pay money to the plot holders who were claiming refunds. The defendants, who wanted to buy peace with the plot holders and had issued cheques on behalf of the company, faced the entire music and per force had to act on behalf of the company.
8. The defendants filed suits on behalf of the company and in suit CS(OS) No. 961/2004, the plaintiff were parties. In that suit in the WS plaintiffs herein specifically stated that the agreement was only for securing the payments made to company and not for purchase of the company. The company petition later IA No. 2454/09, IA No. 4490/09, IA No. 7581/09 & IA No. 8296/09 in CS(OS) No. 354/2009 Page 8 of 10 on filed by the plaintiffs was also dismissed by the Company Law Board on 22nd February, 2006 and it was observed by Company Law Board that Mr. Mehra slipped away from the company during the period 1997 till 2004, when the company was facing lot of Civil and Criminal litigation. The Company Law Board also observed that it were the defendants who had been carrying and managing the affairs of the company in respect of various proceedings against the company. While the plaintiffs had claimed that they were holding 96% shares in the company, they did nothing right from 1997 onwards as per their own admission. The Company Law Board therefore dismissed the Company Petition filed by the plaintiffs. The appeal filed before this Court against Company Law Board's decision was also dismissed. Mr. Mehra preferred two SLPs before Supreme Court and the Supreme Court refused to grant an interim order in favour of the plaintiffs.
9. There is no dispute about the fact that the share purchase agreement was executed on 19th May, 1997. It is also not disputed that the company was in precarious situation and had lot of liabilities to the knowledge of plaintiffs. Despite entering into agreement dated 19th May, 1997 plaintiffs took no steps either to get their shares registered, nor forwarded their names to Registrar of Companies in Form No. 32 as Directors, nor started functioning as Directors nor took control of Company. Plaintiffs seemed to be happy that defendants were facing music of criminal prosecution and had to face the ire of plot holders. For seven long years plaintiffs kept watching and did not act. In the suit filed by defendants they pleaded that agreement dated 19th May, 1997 was executed to secure their financial interests. Considering these undisputed facts and that from 1997 to 2004, the plaintiffs took no steps to enforce their rights. They did not take control of the company, did not call any board meeting, did not send their names as Directors to the Registrar of Companies, did not get the shares transferred in their names in the record of Registrar of Companies, I consider that the relief, which is now being sought by the plaintiffs against the defendants from restraining the defendants from acting on IA No. 2454/09, IA No. 4490/09, IA No. 7581/09 & IA No. 8296/09 in CS(OS) No. 354/2009 Page 9 of 10 behalf of the Company on the face of it cannot be granted. The defendants have been holding themselves as Directors of the company right from 1997 till date to the knowledge of the plaintiffs. If the plaintiffs were aggrieved by the act of the defendants, they should have approached the Court immediately. The entire action of the plaintiffs only shows that the plaintiffs were not bothered about the company or its activities. The plot holders of the company were crying and making efforts to get the plots in their names but the plaintiffs were not concerned. For the first time they woke up in 2004 and all litigations have been filed by the plaintiff only after 2004 i.e. after 07 years of entering into the agreement. The present suit has been filed by the plaintiffs after about more than 10 years of the execution of the agreement.
10. The relief which is being sought by the plaintiffs against the defendants on the basis of the agreement cannot be granted since plaintiffs chose to sleep over their rights for a long time and allowed the agreement to remain inoperative and action barred by limitation. I, therefore consider that the application under Order 39 Rule 1&2 CPC and the suit are liable to be dismissed and application under Order 7 Rule 11 CPC is liable to be allowed in view section 3 of the Limitation Act which provides, that a Court where a suit is instituted after the period of limitation, shall dismiss the suit even if no defence of limitation has been set up. I, therefore hereby dismiss the suit.
February 22, 2010 SHIV NARAYAN DHINGRA, J.
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