Calcutta High Court
Beltas Merchants Private Limited vs Indian Fibres Limited And Ors on 18 January, 2019
Equivalent citations: AIRONLINE 2019 CAL 131
Author: I.P. Mukerji
Bench: I.P. Mukerji
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Jurisdiction
Original Side
Present :- Hon'ble Mr. Justice I. P. Mukerji
ACO 159 of 2013
ACO 52 of 2016
ACO 66 of 2016
ACO 155 of 2016
APO 278 of 2013
Beltas Merchants Private Limited
VS.
Indian Fibres Limited and Ors.
ACO 160 of 2013
APO 279 of 2013
Yashdeep Trexim Pvt. Ltd.
VS.
Indian Fibres Limited and Ors.
ACO 161 of 2013
APO 280 of 2013
Millennium Securities Private Limited
VS.
Indian Fibres Limited and Ors.
For the Appellants:
For ACO 159 of 2013 :- Mr. S. K. Kapur. Sr. Adv.
Mr. Ravi Krishan Kapur,
Mr. Sankarshan Sarkar,
Mr. Aditya Kanodia.
For ACO 160 of 2013 :- Mr. Amitabha Shukla
ACO 161 of 2013 :- Mr. Triptimoy Talukdar
For the Respondent No.1 :- Mr. Abhrajit Mitra, Sr. Adv.
(IFL) Mr. Sarvapriya Mukherjee,
Mr. Shatadeep Bhattacharya,
Mr. Sanjeev Trivedi.
For the Respondent No.23 :- Mr. S. N. Mookherjee, Sr. Adv.
(Sears Bilt) Mr. Suman Kr. Dutt,
Ms. Swapna Choubey,
Mr. Soumabho Ghose,
Mr. Kumarjit Banerjee,
Mr. Prasanta Naskar.
For added Respondent :- Mr. Anindya Mitra, Sr. Adv.
Adarsh Builtstate Mr. Suddhasatva Banerjee,
Mr. Ratul Dasm
L. P. Agarwala & Co.
Contempt Application
CC 23 of 2014
with
G. A. 3362 of 2014
Beltas Merchants Private Limited
VS.
Indian Fibres Limited and Ors.
For the Petitioner :- Mr. S. K. Kapur, Sr. Adv,
Mr. Ravi Krishan Kapur,
Mr. Aditya Kanodia,
Mr. S. Sarkar,
Mr. Debasish Das.
For the Contemnor Nos. :- Mr. Abhrajit Mitra, Sr. Adv.
1&2 Mr. Shatadeep Bhattacharya,
Mr. Sanjeev Trivedi.
For the Contemnor Nos. :- Mr. J. K. Mitra, Sr. Adv
12 to 20 Mr. S. S. Banerjee,
Mr. A. Dutta.
For the Contemnor No.21 :- Mr. Utpal Bose, Sr. Adv
Mr. D. N. Misra
Mr. A. Dasadhikari
Mr. A. Dey
Ms. T Laha
For the Contemnor No. 23 :- Mr. S. N. Mookherjee, Sr. Adv.
Mr. Suman Kr. Dutt,
Ms. Swapna Choubey,
Mr. Soumabho Ghose,
Mr. Kumarjit Banerjee,
Mr. Prasanta Naskar.
Judgment On :- 18.01.2019
I. P. MUKERJI, J.:-
FACTS IN BRIEF & ARGUMENTS
The Sardas are a business family of Kolkata. Three brothers and their family
members constitute this family. The brothers are Govind, Ghanshyam Das and
Jagdish. Aditya is the son of Govind. He is the second respondent in this
appeal. Amit is Govind's other son, the third respondent. As will appear from
the facts narrated below, the sons had a large part to play in the family
business dispute.
There is a large tract of land of about 20,235 sq. metres on Jaipur Road,
Durgapara in Rajasthan. At one point of time it was considered to be on the
periphery of the city and not of as much value as it is today. It was owned by
Indian Fibres Limited, the first respondent, which was promoted by one J.P.
Goenka and incorporated on 13th April, 1962. This land was the only asset of
the company.
The Sardas took over the company in 1995. In it, each of the three brothers had
exactly 1/3rd shareholding. In other words each had 33 and 1/3 per cent of the
allotted share capital, held by himself and/or companies controlled by him.
Govind and Jagdish with their family and associates constitute and I will refer
to them as the Govind Sarda group. Ghanshyam Das and his family and
associates constitute the other group.
The first respondent company acquired on 26th December, 1974 a 99 years'
lease of the said land from the government of Rajasthan to be used for
industrial purposes.
By the year 2006, this company had fallen into considerable debt with its
secured creditor, Bank of Baroda. On 13th December, 2006 in an Extraordinary
General meeting of the company it was resolved that this parcel of land would
be "sold" (there could only be "sublease" of the unexpired term of a lease). The
Board of Directors was authorized by the share holders to effect the "sale". As
the lease was from the government of Rajasthan, "the sale" could only be
effected with its permission.
On 7th march, 2007, a memorandum of understanding was executed by the
first respondent company with the respondent No.20 (Royal Ascot), Respondent
No.21 (Upasana) and Respondent No.22 (Kajaria) for a consideration of
Rs.43,80,20,000/- for "sale" of this tract of land. Out of these transferee
companies, Royal Ascot was controlled by the Sardas. The other two transferees
were independent companies.
Under this Memorandum of Understanding, a sum of Rs.2.5 crores was to be
given as advance by each of the three companies. Upasana and Kajaria paid
Rs.2.5 crores each but Royal Ascot did not make any payment. The appellants
allege that this sum of Rs. 5 crores was transferred to another Sarda family
company controlled by the Govind Sarda family, Jupiter Finvest (Private)
Limited. Further fund was requisitioned from Upasana and Kajaria with which
the dues of the bank were liquidated.
An important event took place on 25th March, 2008. The government of
Rajasthan granted permission to the company to construct a hotel cum service
apartment on the property.
Mr. Ghanshyam Das, the brother who controls the appellants says that this
grant of permission was concealed from him by his brothers and their group till
May, 2013.
Mr. Kapur, learned Senior Counsel for the appellants submitted that by a
devious method the two brothers of the Govind Sarda group, with Aditya and
Amit convened meetings of shareholders without serving any notice on his
clients. In those meetings the shares of the Govind Sarda group were increased
by allotment of the newly issued shares.
As a result, the percentage holding of Ghanshyam Das Sarda which was 331/3
% was reduced to less than 10%, to about 6%.
This is how it started.
On 2nd January, 2009 a Board meeting of the respondent company was
allegedly held where a decision was taken to hold its Extraordinary General
Meeting on 20th February, 2009 for allotment of 100 shares each aggregating to
300 shares to the respondent Nos. 4 (Sanjay Rathi), 6 (Gobind Sharma) and 9
(Sobhanand Jha). According to the appellants, they did not receive any notice of
this meeting. On 31st March, 2009 the Board of Directors consisted of
Chainroop Pugalia, the seventh respondent, Sanjay Rathi, the fourth
respondent and Sanjay Gupta. On 5th April, 2009 a Form 32 was filed by the
company showing the appointments of the fifth, sixth and seventh respondents
as its Directors, with retrospective effect from 12th September, 2008. On 6th
April, 2009 the second and third respondents, the sons of Govind Sarda were
appointed as Directors. On 22nd April, 2009 the eighth and ninth respondents
were appointed as Directors.
From 2009 forms 32 were filed to show that certain old Directors of the
company like Chainroop Giya had vacated office as Directors for not attending
three consecutive Board meetings, under Section 283(1)(g) of the Companies
Act, 1956. Annual General Meetings were purportedly held showing the fourth,
sixth and ninth respondents to be present therein to form the quorum.
Resolutions were taken to increase the share capital and alter the
Memorandum of Association and Articles of Association of the first respondent
company.
Another significant event occurred on 5th June, 2009. In a purported Board
meeting a proposal was made to convene and hold the Extraordinary General
meeting of the company on 6th July, 2009 to increase its authorized share
capital from Rs.65 lakhs to Rs.1 crore. The reason advanced in the explanatory
statement was the requirement of this fund as "Working Capital requirement."
On 6th July, 2009 another Board meeting was held to issue shares of
Rs.35,97,000/- to persons other than the shareholders.
On 17th July, 2009 the Board allegedly resolved to convene an Extraordinary
General Meeting to raise the authorized capital from Rs.1 crore to Rs.3.5 crores
which resolution was adopted on 12th August, 2009. The shares were issued in
favour of the Govind Sarda group.
Take a look at the minutes of the meetings of the Board of Directors allegedly
held on 2nd January, 2009 at Page 1717 of the paper book. It bears the
signature of C. Pugalia as Chairman. Now come to Page 1822 which purports to
be the minutes of the self same proceeding. It does not bear the signature of Mr.
Pugalia. Then go to page 1806 which contains the minutes of the meeting of the
general body held on 20th February, 2009. You will notice that another
document at page 1718 contains the minutes of the same proceedings held on
20th February, 2009. The first document at Page 1718 does not record the
presence of Om Prakash Thard as the representative of Yashdeep Trexim Pvt.
Ltd. whereas the document at Pg. 1806 records his presence. Now Mr. Thard,
now deceased is described as the representative of the Ghanshyam Das Sarda
group in the meeting by his adversaries. This is hotly contested by Mr. Kapur.
He says that on the contrary Mr. Thard was an associate of Govind Sarda.
The minutes of the meeting of the Board held on 5th June, 2009 at page 1791 of
the paper book reveal that there was a proposal to increase the authorized
capital of the company to Rs.1 crore by issue of 35,000 equity shares of Rs.10/-
each.
The reason assigned was requirement of funds for expansion of the business of
the company.
Compare it with the minutes of the same meeting produced later by the
respondent company at page 1832 of the paper book. The purpose disclosed is
entirely different : for repayment of loans. Comparison of the two sets of
minutes both for the purported Extraordinary General meeting of the first
respondent company held on 12th August, 2009 is very interesting. One is at
page 1770 of the paper book while the other at page 1810. In the first minutes,
one Mr. Anil Sharma is said to have represented Namokar Vinimay Pvt. Ltd.
whereas in the second the representative was one Ms. Jyoti Mundhra. One Mr.
Abhishek Sharma was said to have represented Mooldhan Advisory Systems
Pvt. Ltd. in the first minutes whereas Ms. Tripti Dadhich was said to have
represented them in the second minutes. In the first minutes no explanation
was given for increase in the authorized share capital of the company whereas
in the second it was stated that funds were needed to make repayment of loans
of the creditors. These discrepancies were pointed out by Mr. Kapur. The
resolution of the Board of Directors or the body of shareholders as brought on
record with the company law petition and as produced before the Tribunal at a
later point of time pursuant to directions by it showed discrepancies in the
copies of self same documents with regard to the presence of the Directors, the
explanatory note to the resolution proposed to be taken, the presence of the
shareholders etc. some of which have been pointed out above. All this pointed
to the fact that these documents were fabricated to achieve the intention of the
Govind Sarda group to gain control of the company, Mr. Kapur emphasized.
Based on these discrepancies, the alternative allegation of the appellants was
that the notices calling meetings of the Board of Directors and the convening of
the Extraordinary General meetings were concocted. They were fabricated
documents. No meeting was ever convened or held on the basis of the alleged
notices. They were brought into existence without any proposed meeting to try
to show as evidence that the shareholding of the appellants was reduced in
valid resolutions taken in those alleged meetings.
Mr. Kapur also submitted that if one lifted the veil of SEARS and Sarda one
would find that these two entities were creatures of Govind Sarda and his
group. In support of this submission, he said that some legal documents in this
case were sent to Aditya Sarda, the son of Govind Sarda for vetting. Amal Dey,
the authorized signatory of the bank account of SEARS was an employee of
Govind Sarda. So was Mritunjay Singh who was acting as the constituted
attorney for SEARS.
On 28th May, 2013 an application was made before the Jaipur Development
Authority by the respondent company seeking conversion of the said land to
residential use. The appellants allege that this application was signed on behalf
of the company by one Manish Chaudhary, a Director of Adarsh Bilt Estate Ltd.
On or about 30th May, 2013 this permission was granted. On 25th July, 2013
Rs.6,24,54,118/- was paid to the authority as conversion fee.
If the shareholding of SEARS and Adarsh was investigated it would be found
that Govind Sarda and his group were in control of both of them, Mr. Kapur
emphasized.
The design was to take the property away from Ghanshyam Das Sarda and his
group by devious methods to themselves. The affairs of the first respondent
company were being managed secretly so as to benefit the Govind Sarda group
completely and to cause maximum loss to the Ghanshyam Das Sarda group.
The latter group which was having 1/3rd share in the company was reduced to
a non-entity, learned counsel submitted.
Another most significant event in point of time happened on 5th April, 2010
when a Memorandum of Understanding was purported to be executed between
the first respondent company and Sears Bilt Pvt. Ltd., the twenty third
respondent. It was in the nature of an agreement to sub lease. Allegedly, on 8th
April, 2010 possession of the property at Jaipur was granted to this
respondent.
To point out the involvement of the Govind Sarda group which is based in
Kolkata, Mr. Kapur pointed out that the stamp papers for this memorandum
were bought in Kolkata and the agreement executed in New Delhi. It was signed
by Chain Roop Pugalia, the seventh respondent for the first respondent
company and the twenty fourth respondent, Mritunjay Singh, as constituted
attorney for SEARS. Mr. Kapur alleged he was an employee of Govind Sarda.
The total consideration for the agreement with Sears Bilt Pvt. Ltd. was
Rs.31,46,00,000/-. The reason advanced by the Govind Sarda group by then, in
control of the company, for abandoning the agreement dated 7th March, 2007
was that during its existence, the first respondent company failed to obtain the
said permission from the Rajasthan Authority for conversion, of user of the land
from industrial to residential purposes. On inter alia, the occurrence of this
event, under the 2007 agreement, the company was required to return to
Upasana colonizers and Kajaria Housing the sum advanced by them with
interest @ 12% per annum. According to Sears Bilt Pvt. Ltd. they had paid
Rs.11,13,80,741/- to Upasana colonizers and Rs.3 crores out of a settled
amount of Rs.12,76,91,111/- to Kajaria Housing. An alleged Memorandum of
Understanding dated 27th December, 2010 was made by the first respondent
company with Upasana recording the above settlement.
Thereafter, Mr. Kapur refers to the principle of lis pendis. He relies on Section
52 of the Transfer of Property Act. He says and rightly so, that the section refers
to suit or any other proceeding which covers proceedings in the Company Law
Board. He says that there is enough foundation in the Company law petition to
suggest that the dispute directly or indirectly relates to the right to immovable
property, that is to say, the Jaipur property. Therefore, any transfer could not
affect the right to the property ultimately declared by the decree or order to be
passed in the proceeding. It could be so transferred under the authority of the
Court. The transfer in favour of SEARS was an eye wash. It was no real
transfer. It only transferred the property from the first respondent Company to
Govind Sarda and his group, represented by SEARS and thereafter to another
manifestation of that group by the name of Adarsh during the pendency of the
appeal. These transfers are discussed below. Therefore, the transfer in favour of
Adarsh was squarely covered by the doctrine of lis pendis.
The Supreme Court has consistently held that transfer of a property lis pendis
is not valid, could not be acted upon, did not transfer good title to the
purchaser and that the parties are bound by the final decree passed by the
Court.
[See Guruswamy Nadar Vs. P. Lakshmi Ammal (Dead) through LRS. and
Ors. reported in (2008) 5 SCC 796, K.N. Aswathnarayana Setty (Dead)
through Legal Representative and Ors. Vs. State of Karnataka and Ors.
reported in (2014) 15 SCC 394, Kirpal Kaur Vs. Jitender Pal Singh and
Ors. reported in (2015) 9 SCC 356]
Even in a brief interlude between pendency of proceedings say, end of the trial
court proceedings and commencement of the appeal, a property is not freed of
the doctrine of lis pendis if transferred, as held by the Supreme Court in Jagan
Singh (Dead) Through LRS. Vs. Dhanwanti and Anr. reported in (2012) 2
SCC 628. The document of lis pendis is based on justice, equity and good
conscious. The purchaser of a property from the judgment debtor is presumed
to be aware of the relevant proceedings and is covered by the doctrine as held
by the Supreme Court in Usha Sinha Vs. Dina Ram and Ors. reported in
(2008) 7 SCC 144.
[See also Sunita Jugalkishore Gilda Vs. Ramanlal Udhoji Tanna (Dead)
Through LRS. and Ors. reported in (2013) 10 SCC 258]
Therefore, on the ground of lis pendis the change in hands of the property in
favour of SEARS or Adarsh was invalid.
Furthermore, Mr. Kapur contends and rightly so, that if the applicant in the
Section 397, 398 read with Section 402 and 403 proceeding succeeds in
establishing that a group of shareholders was causing prejudice to another
group or was damaging the interest of the first respondent company, the Court
while passing its orders could extend its hands to undo any transaction made
or wrong committed by these wrongdoers, and pass any order to put the
company back in the same position it was before it fell into the clutches of the
wrongdoers.
The respondents contested these arguments.
Mr. Abhrajit Mitra, learned Senior Advocate for the first respondent says that
inadvertently the minutes that were first produced by the company were draft
minutes which were different from the second set which were final minutes filed
with the Registrar of Companies, West Bengal.
It is also said on their behalf that much of the case which was being run in
Court was not run before the Company Law Board. There the complaint of the
appellants is that the 7th March, 2007 agreement had been wrongfully
abandoned by the Govind Sarda group representing the company and that they
should be compelled to perform it. For inability on the part of the company to
obtain conversion of the said property to residential purposes, the other parties
to the 2007 agreement were not willing to continue with it. They wanted return
of their investment. On 26th July, 2013 a fresh lease of the said land for
residential use was granted by the Jaipur Development authority. According to
the respondents, there is no relationship between the Sarda family and SEARS
or Adarsh Bilt Estate Ltd., let alone control of their shareholding by the Govind
Sarda group. SEARS proposed to repay to Upasana and Kajaria the investments
made by them under the 7th March, 2007 agreement. After such repayment
Rs.31 crores would still come to the till of the company. It could never be said
that this transaction caused any loss to the respondent company. In fact, it was
gainful for the company. The company had been saved from its liability to
Upasana and Kajaria by the entry of SEARS Bilt Estate into the field.
In fact, the three groups within the company had always wanted to dispose of
the said property as would appear from the resolution of the Board of Directors
of the company taken on 20th November, 2006 which was approved by the
Extraordinary General meeting of the company on 13th December, 2006. The
dispute between the parties is not with regard to whether the property should
be sold but to whom it should be sold. Therefore, it is a dispute concerning sale
of a particular property in which the ingredients of Sections 397 and 398 of the
Companies Act, 1956 are not involved, it is submitted.
According to the respondents, SEARS, Adarsh and the first respondent
company are independent entities with which the other respondents have no
connection. There is no common shareholding. The Directors are also not
common. There was no subterfuge by the Govind Sarda group. The property
changed hands in favour of the transferee. The property was not retained within
one branch of the family working through a corporate network, as alleged by
the rival group, it was argued by the learned Counsel.
In Purnima Manthena and Anr. Vs. Renuka Datla and Ors. reported in
(2016) 1 SCC 237, the Supreme Court held that an appeal lay from an order of
the Company Law Board whether interlocutory or final on a question of law only
and not against any finding of facts unless those findings of facts were perverse
and based on no evidence. I quote Paragraph 50 of that judgment:
"Section 10-F of the Act engrafts the requirement of the
existence of a question of law arising from the decision of
CLB as an essential precondition for the maintainability of an
appeal thereunder. While the language applied therein
evinces that all orders, whether final or interlocutory, can be
the subject-matter of appeal, if it occasions a question of law,
in our comprehension, the Section per se defines the
perimeters of inquisition by the appellate forum conditioned
by the type of the order under scrutiny. The nature and
purport of the order i.e. interlocutory or final, would thus
logically present varying canvases to traverse and analyse.
These too would define the limits of adjudication qua the
appellate forum. Whereas in an appeal under Section 10-F
from an order granting or refusing interim relief, being
essentially in the exercise of judicial discretion and based on
equity is an appeal on principle and no interference is
merited unless the same suffers from the vice of perversity
and arbitrariness, such constrictions may not necessarily
regulate and/or restrict the domain of examination in a
regular appeal on facts and law. Section 10-F, thus,
statutorily demarcates the contours of the jurisdictional
exercise by an appellate forum depending on the nature of
the order impugned i.e. interlocutory or final and both cannot
be equated, lest the pending proceeding before the lower
forum, if the order impugned is purely of interlocutory nature,
and does not decide any issue on a consideration of the rival
assertions on merits, stands aborted and is rendered
superfluous for all intents and purposes."
Mr. Abhrajit Mitra, learned Senior Advocate appearing for the respondent
company relying on the above decision of the Supreme Court argued that the
Company Law Board had only gone into questions of fact and come to its own
findings. No question of law was involved. Hence, this appeal under Section 10-
F of the Companies Act, 1956 was not maintainable. He strengthened his
argument by citing the Andhra Pradesh decision in D. Ramkishore and Ors.
Vs. Vijayawada Share Brokers Ltd. and Ors. reported in (2008) 144 Comp
Cas 326 (AP). Mr. S.N. Mookherjee took the same point citing V.S. Krishnan
and Ors. Vs. Westfort Hi-Tech Hospital Ltd. and Ors. reported in (2008) 3
SCC 363 which said that the Board was the final authority on facts, except
when the findings were perverse or based on no evidence.
Mr. Abhrajit Mitra cited Mahaliram Santhalia Vs. Fort Gloster Jute
Manufacturing Co. Ltd. and Ors. reported in AIR 1955 Calcutta 132. He
asserted the proposition that the contents of the minutes of the meeting of the
Board of Directors or shareholders had to be prima facie taken to be correct,
unless disproved.
Learned Counsel Mr. S.N. Mookerjee showed me V.S. Krishnan and Ors. Vs.
Westfort Hi-Tech Hospital Ltd. and Ors. reported in (2008) 3 SCC 363
where the following legal principles were articulated:
1. On a Certificate of Posting a presumption can be made that notices of
Board meeting and Extraordinary General meeting have been properly
posted and received, under Section 53(1)(2) and Section 172 of the
Companies Act, 1956.
2. Smallness of Annual General Meeting was irrelevant.
3. Oppressive Act is against probity, good conduct or is burdensome, harsh or
wrong or is malafide or for a collateral purpose.
Mr. Mitra citing Bachhaj Nahar Vs. Nilima Mandal and Anr. reported in
(2008) 17 SCC 491 and Union of India Vs. Ibrahim Uddin and Anr. reported
in (2012) 8 SCC 148 submitted that the appellants were obliged to confine
their case to the pleadings but had gone much beyond them. Therefore, no
notice should be taken of their case which was dehors the pleadings in the
Company Law Board.
Mr. S. N. Mookerjee, learned Senior Advocate appearing for SEARS cited several
cases to drive home the various points that he took. He relied on Modern
Insulators Ltd. Vs. Oriental Insurance Co. Ltd. reported in (2000) 2 SCC
734 to argue that in appeal the case could not be changed. The cause of action
according to him should be on the date of the petition. He made this
submission on the basis of Asoka Betelnut Co. Pvt. Ltd. & Ors. Vs. M. K.
Chandrakanth reported in (1997) 1 LW 616 and Mohta Bros. (P) Ltd. and
Ors. Vs. Calcutta Landing and Shipping Co. Ltd. and Ors. reported in
(1970) 40 Comp Cas 119 (Cal). Learned Counsel contended that a new point
should always be argued at the first stage. Otherwise, the other party was
deprived of a forum, relying on an unreported Division Bench judgment of this
Court in Mahamaya Paul Vs. Dipak Kumar Mukherjee decided on 3rd
October, 2012.
The Supreme Court in Om Prakash Gupta Vs. Ranbir B. Goyal reported in
(2002) 2 SCC 256 has said that the Court has the power to take note of
subsequent events and mould reliefs when:
(i) the relief as originally claimed had become impossible or inappropriate to
grant.
(ii) taking note of subsequent events or changed circumstances would result
in an early end to the litigation.
Mr. Anindya Kr. Mitra, learned Senior Advocate appearing for Adarsh submitted
that neither the agreement in favour of Sears Bilt Pvt. Ltd. nor the agreement
executed by SEARS in favour of Adarsh was the subject matter of the appeal.
He added that Adarsh, Sears Bilt Pvt. Ltd. (respondent no. 23) and Indian
Fibers Ltd. (respondent no. 1) did not have any common directors or
shareholders. There was no evidence even to remotely suggest any connection
between these three companies. Relying on Varanaseya Sanskrit
Vishwavidyalaya and Anr. Vs. Dr. Rajkishore Tripathi and Anr. reported
in (1977) 1 SCC 279, he said that when fraud and collusion were alleged, it
was the duty of the appellants to give details or particulars thereof under Order
VI rule IV of the Civil Procedure Code. Short of that, the Court ought not to
believe them. In this connection he also referred to National Insurance
Company Limited Vs. Boghara Polyfab Private Limited reported in (2009) 1
SCC 267, where the Supreme Court discussed the circumstances in which a
contract is discharged. Paragraph 25 of the judgment was quoted below:
"25. We may next examine some related and incidental issues.
Firstly, we may refer to the consequences of discharge of a
contract. When a contract has been fully performed, there is a
discharge of the contract by performance, and the contract comes
to an end. In regard to such a discharged contract, nothing
remains - neither any right to seek performance nor any
obligation to perform. In short, there cannot be any dispute.
Consequently, there cannot obviously be reference to arbitration
of any dispute arising from a discharged contract. Whether the
contract has been discharged by performance or not is a mixed
question of fact and law, and if there is a dispute in regard to
that question, that is arbitrable. But there is an exception. Where
both the parties to a contract confirm in writing that the contract
has been fully and finally discharged by performance of all
obligations and there are no outstanding claims or disputes,
courts will not refer any subsequent claim or dispute to
arbitration. Similarly, where one of the parties to the contract
issues a full and final discharge voucher (or no-dues certificate,
as the case may be) confirming that he has received the payment
in full and final satisfaction of all claims, and he has no
outstanding claim, that amounts to discharge of the contract by
acceptance of performance and the party issuing the discharge
voucher/certificate cannot thereafter make any fresh claim or
revive any settled claim nor can it seek reference to arbitration in
respect of any claim."
Mr. Mitra submitted that the 31st March, 2007 agreement had been discharged
by complete performance. When it was so discharged, it had come to an end
and could no longer be specifically performed. Therefore, according to him, the
appellants had no case in the company petition.
A petition under Sections 397, 398, 402 and 403 of the Companies Act, 1956
was filed before the Company Law Board on 11th May, 2010 (CP No. 361 of
2010) by the appellants (the Ghanshyam Das group).
COMPANY LAW BOARD PROCEEDINGS
The case made out in these company petitions was as follows.
The appellants apprehended that the Govind Sarda group was most likely to
cancel the Memorandum of Understanding dated 7th March, 2007 and sell the
said property at an undervalue causing loss to the company and gain to
themselves.
This group was trying to make "material changes in the management and
control of the company so as to deprive the appellants of their right of
participation in the management and control of the enterprise."
It was trying to reduce the appellants' shareholding in the company wrongfully
and increase their shareholding, thereby taking wrongful control of it.
The company was a family company in the nature of a partnership, each of the
three Sarda brothers having an equal stake. The acts complained of were
materially changing this state of affairs.
The appellants had a very legitimate expectation of participation in the business
of the company.
The following important reliefs were sought from the Board:
"a) The Board of the company be superseded forthwith.
b) A scheme of management be formed for managing and
administering the company on such terms and conditions as to
this Hon'ble Board may deem fit and proper.
c) .................
d) An order be passed directing removal of the respondent nos.2,
3 & 7 as directors of the company.
e) Declaration that all purported Board Meetings and all
purported resolutions of the Board of Directors of the company
held subsequent to September 12, 2008 are null and void and not
binding upon the company and its shareholders, including the
petitioner.
g) Declaration that the purported Board Meetings and a
purported general meeting of the company purporting to show
issue and allotment of 2860000 equity shares of and in the
company in favour of the respondent nos. 4, 6, 9, 13 to 19
morefully described in Z, Z1 & Z2 are illegal, null and void and not
binding upon the company, its shareholders, including the
petitioner as restore the shareholders position as on the date of
MOU.
h) Alternatively, it be declared that the petitioner is entitled to
10.94% of the total paid up equity share capital of the company
and the share register of the company be directed to be altered to
reflect such position.
k) Permanent injunction restraining the respondents and/or
each of them and/or by themselves or by their servants, agents or
assigns or otherwise howsoever from selling and/or transferring
and/or alienating and/or encumbering and/or creating third party
right and/or parting with possession of the station Road,
Durgapura, Jaipur being premises in any manner whatsoever.
l) Permanent injunction restraining the respondent no.1 from
cancelling the Memorandum of Understanding dated March 7,
2007, unilaterally, without consent of the petitioners group.
m) Permanent injunction restraining the respondent no.1 from
distributing the sale proceeds upon performance of MOU dated
March 7, 2007, to any persons, except the Shareholders as on
March 7, 2007.
o) Mandatory injunction directing the respondents to keep the
entire consideration money received from the purchasers under the
Memorandum of Understanding dated March 7, 2007 in a
separate account."
Interim reliefs were sought.
The Company Law Board, on 25th May, 2010, passed an interim order
restraining the first respondent company from creating any third party interest.
The main issues before it, as perceived by the tribunal were tabulated by it in
Paragraph No. 7 of its impugned judgment and order dated 1st August, 2013 as
follows:-
"7. Thus, the main challenges in the amended petition
may be classified as under:
(a) Wrongful issue and allotment of share capital on 08.04.2009,
04.08.2009 and 08.09.2009.
(b) Wrongful increase in authorized share capital of the
respondent no.1 company on 06.07.2009 from Rs.65 lakhs to
Rs.1 crore and on 12.08.2009 from Rs.1 crore to Rs.3.50 crore.
(c) Wrongful alteration in the Board of Directors by
removal/appointment of directors.
(d) Change in location of the registered office of the respondent
no.1 company.
(e) Wrongful cancellation of the MoU dated 07.03.2007 entered
into between the respondent no.1 company and R-20, R-21 & R-
22 followed by entering into an agreement of sale dated
05.04.2010 with SEARS."
In adjudging the merits of the appeal which only lies on a substantial question
of law arising out of the impugned order of the tribunal the findings of the
Board in this case with regard to the questions of fact have to be very carefully
analyzed.
On 1st August, 2013 the company law petition was dismissed by the Board.
In Paragraph No. 20 of the judgment and order, the learned Judge recounts
how the agreement dated 7th March, 2007 failed for want of permission from
the Rajasthan state authorities to convert the leasehold into freehold land and
to convert its user from industrial to residential purposes. In terms of the
relevant clauses of the contract the first respondent company was obliged to
refund the advance received by it from the intending purchasers. Since it did
not have the funds to do so, it entered into an agreement, on 5th April, 2010
with Sears Bilt Pvt. Ltd. for a consideration of Rs.31,46,00,000/- delivering
possession of the property to them on 8th April, 2010. The learned member of
the tribunal says that it was recorded in that agreement that at the time of
execution of the instrument Sears Bilt Pvt. Ltd. had already repaid
Rs.12,21,60,304/- and Rs.11,13,80,740/- to Upasana and Kajaria. Therefore,
the Board felt that the agreement dated 7th March, 2007 had been discharged
by agreement and performance between the parties.
Then comes the part of the order which this Court is unable to fully
comprehend and understand.
The Board interprets the objection of the appellants to the proposed sale of the
property in favour of Sears Bilt Pvt. Ltd. as an issue with regard to specific
performance of the agreement. Citing three cases, all out of their context the
learned Judge comes to the conclusion that specific performance of an
agreement has to be properly challenged in a suit and not in a Section 397 and
398 of the Companies Act, 1956 proceeding.
See the reasons in Paragraph No. 23 of the judgment:-
"23. Taking the same analogy, the specific performance of
the contractual obligations as per MoU dated 07.03.2007 or
Agreement to sell dated 05.04.2010 cannot be agitated in a
petition under Section 397/398 of the Act on grounds of
oppression against the minority shareholders by the majority
and the grievance if at all can be agitated in a civil suit for
specific performance. The loss or gain arising out of execution of
such agreements are proportionately to be shared amongst all
stakeholders as per their quantum of shareholdings and this act
by itself cannot partake of any character of oppression against a
particular group of shareholders by the respondent company in
consequence of a decision taken by the majority shareholders in
AGM authorizing the Board of Directors to carry out the sale of
any property as per the terms and conditions agreed upon
towards the best interest of the company."
Then the learned Judge comes to his final conclusions in Paragraph Nos. 26
and 28 which are as follows:-
"26. After careful consideration of the above facts of the case
and the ratio of the judgments relied upon by the Ld. Counsel of
the respondents, I am not agreeable to entertain the claim of the
petitioner for cancellation of agreement dated 05.04.2010 entered
into by the respondent no.1 Company with Sears and the petition
fails on this issue also. However, no interference is called for
against cancellation of agreement dated 27.12.2010 entered into
between respondent no.1 company and M/s. Upasana Colonizers
vide order dated 08.02.2013 of this Bench in CA No.316/2012.
28. Having regard to the above facts and circumstances of the
case and the pleadings made by the rival parties supported by the
relevant evidence on record, I am unable to allow the petition and
the reliefs prayed for therein and accordingly, the said petition is
hereby dismissed."
EVENTS POST CLB.
Now let us take a look at the several developments post filing of the Company
Law Board application.
On 28th March, 2013 an application was made by the first respondent company
to the Jaipur Development Authority seeking conversion of the land to
residential use. On 30th May, 2013 this authority approved the conversion and
called upon one Manish Choudhary to make payment of the conversion fees.
Now, Manish Choudhary is alleged by the appellants to be a Director of Adarsh
Bilt Estate Ltd. whose role in the transaction will be known shortly. He signed
the application. On 25th July, 2013 the conversion fee amounting to
Rs.6,24,54,118/- was paid by the first respondent company allegedly through
Manish Choudhary. On 26th July, 2013 a new lease of the said land to be used
for residential purposes was granted by the Jaipur Development Authority in
favour of the first respondent company.
On 1st August, 2013 the Company Law Board pronounced its judgment and
order dismissing the company Law petition. On 2nd August, 2013 a Deed of Sale
was executed between the company and SEARS. On 5th August, 2013 it was
registered. It was made public only on 18th December, 2013 in Court.
On 18th December, 2013 it was submitted by learned counsel on behalf of
SEARS that the organization had acquired the property on 2nd August, 2013.
On that day (18th December, 2013) an assurance of all appearing counsel was
recorded by this court that the subject matter of controversy in the appeals
would not be disturbed by any party till the Court was in a position to hear out
the appeals. The appellants allege that on 3rd January, 2014 an application for
environment clearance was made by SEARS. That no litigation was pending
against the project or land and that no orders of any Court had been passed
were the false representations made by them, the appellants allege.
Now we come to the next chapter involving Adarsh Builders.
After the disclosure made by SEARS on 18th December, 2013 in Court that the
property was sold to them, on 20th December, 2013 the appellants asked them
to produce the Deed of Sale. On 8th January, 2014 the Deed of Sale was made
available to them. It appeared that the Conveyance was executed on 2nd August,
2013 and registered on 5th August, 2013. It is claimed by Adarsh that on 6th
December, 2010 SEARS entered into a Development Agreement in respect of the
said property with one Riddhi Siddhi Infra Projects Private Limited and that on
18th November, 2013 such agreement was assigned in favour of Adarsh Bilt
Estate Ltd. as a sort of continuation of the agreement dated 6th December,
2010. The respondent no. 24, Mrityunjay Singh, the Director of SEARS Bilt Pvt.
Ltd. was an employee of Govind Sarda and was acting at the behest of Govind
Sarda and his family specially Aditya Sarda.
Amal Dey, the authorized signatory of the Bank account of Sears Bilt Pvt. Ltd.
is an employee of Govind Sarda and his son, Aditya Sarda.
The appellants have also made the following assertion of facts, without
contradiction to show the complicity of Govind Sarda and his group in wresting
control of the Company from Ghanshyam Das and his group. There is a
corporate entity by the name of Jupiter Finvest Pvt. Ltd. The money for
allotment of shares was apparently advanced by this Company by cheque in
favour of the first respondent. The appellants say that soon after allotment of
the shares, the money received on account of issue and allotment of shares was
quickly recycled to the account of Jupiter Finvest Pvt. Ltd. Thus, they
maintained that the transaction for allotment of shares was followed so as to
deprive the appellants and his group. Furthermore, the first respondent
Company was not in need of any funds. By these acts the appellants has been
reduced to an absolute minority.
It was sought to be contended by the Govind Sarda group that one Om Prakash
Tharad, now deceased was representing Yashdeep Trexim Private Limited on
behalf of the appellants group and that the appellants had full knowledge of the
meetings. This is very seriously denied by the appellants which says that
Yashdeep Trexim Private Limited was never represented and that Om Prakash
Tharad was an employee of Govind Sarda. The appellants says that SEARS can
never claim title to the property. It is leasehold where the lease is granted by the
State of Rajasthan in favour of SEARS Bilt Pvt. Ltd. There cannot be sale of a
leasehold property in favour of SEARS, as they claim.
DISCUSSION
First of all, it is important to know the breadth of Sections 397 and 398 read
with Section 402 of the Companies Act, 1956.
A shareholder or a group of shareholders with a stipulated minimum capital
holding in a company can bring either a representative or a derivative action. It
is like this. If it is a representative action the shareholder or a group of them
complains that the affairs of the company are in the control of another group
which is acting in a manner which is prejudicial to their interest or the
shareholders as a whole as provided in the Constitution of the company. In this
type of case (Section 397) the emphasis is more towards the loss caused to the
applicant shareholder or a group of applicants as shareholders of the company.
The second type of action (Section 398), the derivative action, is one taken by
the shareholders on behalf of the company on the footing that it is in the
control of wrongdoers who are obviously unable to take action against the
perpetrators of the wrong. Here also, usually the allegation is that the company
is in the complete control of wrongdoers who are causing loss to the
organisation in their endeavour to make profit for themselves. For example, if a
group of shareholders forms another rival and competing company and diverts
the business of the company to it. This causes loss to the company but since it
is in the control of the wrongdoers it cannot take any action to protect itself.
The only remedy available to the corporate body is an action by a stipulated
minimum number of shareholders in the name of the company to protect the
interest of the company. Section 402, specially sub-sections (e), (f) and (g)
thereof give a very wide range of powers to the Court to pass restitutionary
orders to resurrect the company after wrong doing by a group of shareholders.
Sections 397, 398, 402 (e), (f) and (g) of the Companies Act, 1956 are set out
below:-
397. Application to Tribunal for relief in cases of
oppression.- (1) Any member of a company who complain that
the affairs of the company are being conducted in a manner
prejudicial to public interest or in a manner oppressive to any
member or members (including any one or more of themselves)
may apply to the Tribunal for an order under this section,
provided such members have a right so to apply in virtue of
section 399.
(2) If, on any application under sub-section (1), the Court is of
opinion-
(a) that the company's affairs are being conducted in a manner
prejudicial to public interest or in a manner oppressive to any
member or members ; and
(b) that to wind up the company would unfairly prejudice such
member or members, but that otherwise the facts would justify
the making of a winding-up order on the ground that it was just
and equitable that the company should be wound up,
the Tribunal may, with a view to bringing to an end the matters
complained of, make such order as it thinks fit.
398. Application to Tribunal for relief in cases of
mismanagement.- (1) Any members of a company who complain
-
(a) that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or
(b) that a material change not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company has taken place in the management or control of the company, whether by an alteration in its Board of directors, or manager, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company, may apply to the Tribunal for an order under this section, provided such members have a right so to apply in virtue of section 399.
(2) If, on any application under sub-section (1), the Tribunal is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Tribunal may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.
402. Powers of Tribunal on application under section 397 or 398.- Without prejudice to the generality of the powers of the Tribunal under section 397 or 398, any order under either section may provide for -
(e) the termination, setting aside or modification of any agreement between the company and any person not referred to in clause
(d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned;
(f) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under section 397 or 398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference;
(g) any other matter for which in the opinion of the Tribunal it is just and equitable that provision should be made."
An action which a shareholder could bring for the benefit of all the shareholders or for the benefit of the company is divided into two types: Representative and derivative actions. Pennington in his treatise on Company Law describes these two actions in the following manner:
"In certain circumstances an individual member may bring an action to remedy a wrong done to his company or to compel his company to conduct in affairs in accordance with its constitution and the rules of law governing it, even though no wrong has been done to him personally, and even though the majority of his fellow members do not wish the action to be brought. The form of his action in these exceptional cases is peculiar, because the plaintiff does not sue in his own right alone, but on behalf of himself and all his fellow members other than those, if any, against whom relief is sought. If the members sues for relief against the company, it must, of course, be made a defendant; if he seeks to enforce a corporate claim against other persons, the company must still be joined as a co-defendant so that it may be bound by the judgment, and so that it may enforce any order giving relief against the substantive defendants. The individual member's action in these exceptional cases may be described as representative, because it is brought on behalf of himself and persons other than himself. When relief is sought against third parties for the company's benefit, the action may also be described as derivative, because the individual member sues to enforce a claim which belongs to the company, and his right to sue is derived from it......................."
It has to be seen whether the appellants could have maintained a case under Sections 397, 398 and 402 of the Companies Act, 1956 before the Board. Or to put it in another way was it proper on the part of the Board to throw out the petition on the ground that the appellants could not invoke Sections 397, 398 and 402 to redress their grievances.
The question is not about the decision of the first respondent company to transfer the Jaipur property. It had taken this decision long ago on 13th December, 2006 in its Extraordinary General meeting to repay its debts to the Bank of Baroda. The issue was more with regard to the sublease of the property, the person to whom the lease could be assigned and the consideration for it. On 7th March, 2007, this company took a policy decision to sell this property for Rs.43,80,20,000/-. This policy decision has not been questioned. In my opinion, it is not within the province of a court hearing an appeal under Section 10F of the Companies Act, 1956 to go into this question. The more fundamental issue is that on 13th December, 2006 each of the appellants had 1/3rd shareholding or control over the company. Or, in other words, Ghanshyam Das Sarda himself or through his instrumentalities exercised this control.
It seems to me that the grant of government permission to this company on 25th March, 2008 to construct a hotel cum service apartment on the premises stirred up the ambition of the Govind Sarda group to take control of the company. It most probably manifested itself from 2nd January, 2009. The Board decided in a dubiously convened meeting to allot 300 shares to the fourth, sixth and ninth respondents. From 2nd January, 2009, the authorized, issued and allotted shares of this respondent company underwent a continuous increase. The increase was made in favour of such persons who were not in the group of Ghanshyam Das Sarda group and in such a manner that the percentage holding of shares of the Ghanshyam Das Sarda group progressively declined. The shareholding of the Govind Sarda group increased. To my mind there is some substance in the allegation that notices of the meetings of the Board of Directors and of the Extraordinary General meeting of the company were not sent to the appellants. The respondents have not been able to prove receipt of the notices by the appellants. If they had been duly sent and received by them, they would have surely come forward and participated therein to oppose the proposed resolutions. It is hard to believe that a group of shareholders having 1/3rd share in the company, would with their eyes open allow their percentage holding in the company to be diminished, without any participation. It may also be true that the said meetings were neither convened nor held. Fabricated minutes were brought into existence to justify the conduct of the Govind Sarda group.
Before the Company Law Board and before me two sets of documents for each meeting of the board or the general body, were presented. This was occasioned because initially one set was produced before the tribunal. In the course of proceedings before it, the respondent company was asked to produce the original documents filed before the Registrar of Companies. The discrepancies are galore in the minutes, as noticed in this judgment. These discrepancies, amongst other factors are indicative of the fact that these so- called meetings of the Board of Directors of the general body of shareholders were very dubious, prima facie. If certain decisions or resolutions had been taken in a properly convened meeting of the board or the general body, this Court was bound to respect it as an internal affair of the company. The end result was that without the consent of the appellants their presence in the board had been reduced to nil or sheer presence only. But when the meetings are doubtful in the mind of the court and resulted in substantial shareholding changes, the Court is to take those decisions as oppressive and burdensome on the complaining group of shareholders and not to take any notice of them. It follows that any subsequent decision taken by the general body on the basis of its purported changed shareholding is also dubious in the eye of the Court. A substantial sum of the consideration realized from SEARS went to Jupiter Finvest Pvt. Ltd., admittedly a company controlled by the Govind Sarda group. In other words, Govind Sarda and his group had appropriated a part of the consideration. The whole consideration could have gone into the exchequer of the company which did not happen.
In Dale & Carrington Invt. (P) Ltd. and Anr. Vs. P.K. Prathapan and Ors. reported in (2005) 1 SCC 212 cited by Mr. Kapur, the Supreme Court opined that there was a much stricter duty cast on directors of private limited company to act in utmost good faith towards the shareholders to make a full disclosure to them about the issue of new shares. This was so because private limited companies are generally closely held ones.
In Needle Industries (India) Ltd. and Ors. Vs. Needle Industries Newey (India) Holdings Ltd. and Ors. reported in AIR 1981 SC 1298 also cited by Mr. Kapur, the Supreme Court very lucidly articulated the law that an action or actions of a shareholder or a group of shareholders may be burdensome, harsh and wrongful on the others. This could be said to be an act of oppression. The Directors no doubt have the power to issue shares. But they are under a fiduciary duty towards the company and for this reason their exercise of this discretion should be in good faith and without mala fides. In Manoj Kumar Kanunga and Ors. Vs. Marudhar Power P. Ltd. and Ors. reported in (2013) 179 Comp Cas 504 (AP) the Andhra Pradesh High Court laid down that a purported Annual General meeting convened without notice to the shareholders, where new shares were allotted to nominees of some of the shareholders constituted oppression.
In cable Net (Andhra) Limited and Ors. Vs. AP AKSH Broadband Limited and Ors. reported in (2010) 6 SCC 719 cited by Mr. Abhrajit Mitra related to a finding of fact that breach of contract by a majority shareholder with the company would not amount to oppression of the minority. Plainly, that is not the case here.
In M.S.D.C. Radharamanan Vs. M.S.D. Chandrasekara Raja and Anr. reported in (2008) 6 SCC 750 it was held that no doubt oppression would ordinarily be ground on which the jurisdiction of the Company Law Board could be invoked. In the interest of the company the Board had the power to pass any order for the welfare of the company. It also had the duty to protect the interest of the shareholders as a whole apart from the duty to remove oppression and mismanagement.
The Madras High Court in K. R. S. Narayana Iyengar and Ors. Vs. T. A. Mani and Ors. reported in AIR 1960 Madras 338 said that the Court had the power to pass any just and equitable order and in this regard its discretion was unfettered.
In Ghanshyam Sarda Vs. Sashikant Jha, Director, M/S J.K. Jute Mills Co. Ltd. and Ors. reported in (2017) 1 SCC 599 it was said that a property against which an order of injunction has been made could not be conveyed. If its conveyance has been done in violation of that injunction the transaction may be annulled by a court of law.
Now, the altered shareholding of the first respondent Company was used by the shareholders and Board of Directors to take a decision of the Company to resile from the agreement dated 7th March, 2007 with Upasana and Kajaria and to enter into an agreement with SEARS.
Yet, the Company Law Board could not perceive this to be an act prejudicial to the shareholders and to the company. It kept on viewing the case of the appellants as a suit for specific performance of the contract by the company for enforcement of the agreement dated 7th March, 2007 and that they could not maintain such an application under Sections 397/398. It is very sad to note that the learned member of the Company Law Board could not view the law in its proper perspective. Suppose a company has two options of entering into a contract with either A or B. B is the nominee of some of the Directors of the Company and those Directors are likely to gain by virtue of the contract in favour of B. The contract with A is more beneficial for the company while B would be highly detrimental. In my opinion, a Section 397/398 application can be made before the Company Law Board to compel the company to enter into a contract with A and an order of injunction restraining the company from entering into any contract with B. This kind of a situation is opposed to a plain and simple contract by the company. Where specific performance of an ordinary contract is necessary, the company has to take an action and such action is not invited from a shareholder or a group of shareholders but is taken by the company through the board, usually. The appellants say that the control of the company had been changed over their head. Its only asset was being tossed around several purchasers without consultation with the appellants. Now, the allegation is that in the name of entering into a compromise with the intending purchasers, money is now diverted to corporate entities controlled by the Govind Sarda and his group. Again SEARS, according to the appellants, is not a bonafide purchaser. It is controlled by Govind and his group through a maze of private limited companies and that the transfer in favour of SEARS was only a theoretical exercise, the actual ownership of the Company's property was transferred in favour of Govind Sarda and his group.
Now, if it is alleged that one group of shareholders was divesting the only asset of the Company for their personal gain, could an action under Section 397 or Section 398 of the Companies Act, 1956, not be maintainable? Surely it is. Yet, the Company Law Board has come to the opinion that no case under Sections 397 or 398 of the Companies Act had been made out. With regard to the submission made by Mr. S. N. Mookherjee, there is no dispute with the proposition that rights and liabilities of the parties crystalise on the day of filing of the litigation. Thereafter, one has to see whether the law permits change of those rights and liabilities in future during the progress of the litigation. Usually, these rights and liabilities cannot be altered post filing of litigation, by law or unilaterally, by a party to it. One exception is express legislation or agreement. One example of this is the law regarding lis pendis. To the contrary is the law relating to succession which in the event of death of a party keeps on changing the rights and liabilities of the parties during continuance of litigation.
Where change of circumstances become material, a particular litigant is entitled to bring on record subsequent events post filing of the litigation by amendment of the pleadings so that there is full and complete adjudication of the disputes between the parties. It is quite possible as it has happened in our case that even after filing of the litigation between the parties the cause of action is continually made larger, wider and more complex by events. In this case, there was entry of SEARS, thereafter, the order of status quo, then negotiation between SEARS, Upasana and Kajaria for return of the investments of the last two parties by SEARS, the entry of Adarsh, the false representation before the Court on 18th December, 2013 and so on. It was within the rights of the parties to include the subsequent events in the cause of action and to ask for reliefs compatible with the changed cause of action by moulding, if necessary, the original reliefs, without causing prejudice to any party. The Supreme Court in Purnima Manthena and Anr. had only formulated the broad principles on which an order by the Company Law Board whether interlocutory or final could be challenged on appeal on a question of law. The Andhra Pradesh case with due respect to Mr. Mitra was concerned with a specific allegation against the Board of Directors of a Company with regard to sale of a piece of land belonging to the company. The Court held with cogent reasons that the action of the Board of Directors "could not be faulted". This was a finding of fact.
The Company Law Board did not come to any finding that the agreement for sale dated 7th March, 2007 was not beneficial for the Company and that the transaction in favour of SEARS was beneficial which could have been construed as a finding of fact. It simply brushed aside the Company Law Board petition on the ground that it was asking for specific performance of the agreement dated 7th March, 2007, which action was not maintainable before it. It completely misconstrued the purpose, scope and breadth of the Company petition and of its own jurisdiction and came to this extraordinary finding. On the basis of this extraordinary finding it came to the final conclusion that the Company Law Board petition was not maintainable which certainly went to the root of the Board's jurisdiction and gave rise to a question of law. The appellants make a strong case that there is a very close connection between the Govind Sarda group, SEARS and Adarsh. The stamp papers for the transaction between the first respondent company and SEARS were purchased in West Bengal. The agreement was executed in New Delhi. The 5th April, 2010 Memorandum of Understanding between the first respondent company and SEARS Bilt was signed by Mritunjay Kumar Singh, the respondent no. 24 on behalf of SEARS Bilt describing himself as its authorized signatory. The cancellation agreement dated 27th December, 2010 between the first respondent and Upasana was signed by Mritunjay Kumar Singh, the respondent no. 24 who is also one of the Directors of SEARS Bilt. One Manish Chaudhary, a Director of Adarsh Bilt Estate signed the application on behalf of the first respondent to Jaipur Development Authority seeking the conversion of the property.
When the matters appeared before this Court on 18th December, 2013 SEARS made a statement in this Court through Counsel that it had purchased the property on 2nd August, 2014. As there was a lot of apprehension in the appellants that the property would again change hands during the Christmas vacation, the Court after hearing the submission of learned Counsel for the parties passed an order recording an assurance that the subject matter of the controversy in the appeals would not be disturbed by any party till the Court was in a position to hear out the appeals.
This Court rejects outright any argument by counsel making a fine distinction between an assurance to Court and an undertaking to Court. If only breach of an undertaking amounts to contempt of Court, the Court took this assurance as an undertaking. It did not for a moment record an empty statement, without truth.
It was clear as daylight to anybody that the only asset the first respondent company had was the Jaipur property and that through this company petition the Ghanshyam Das group was fighting to regain control of the company and the property. The undertaking which the Court understood, learned Counsel to be making related to that property only. No other interpretation of the undertaking is possible. But it soon transpired that Adarsh Bilt Estate was working on this property. Then both SEARS and Adarsh declared that in November, 2013 by a registered agreement Adarsh had been inducted into the property by SEARS to develop and sell the same.
The appellants have argued that the property virtually stood transferred to Adarsh upon payment of a hefty consideration which would be entirely appropriated by the Govind Sarda group to the exclusion of the Ghanshyam Das Sarda group.
Now, if this is the prima facie case being run by a group of shareholders, does it not fall into the scheme of things conceptualized in Section 398 of the Companies Act, 1956? Does it not point to the fact that prima facie a group of persons have gained control of the company and that they are operating it so as to cause personal gain to themselves out of sale of the said asset of the first respondent and thereby cause ruin to the company?
The above acts of the Govind Sarda group are clearly prejudicial to the Ghanshyam Das Sarda group. They were plainly oppressive and totally against their interest.
Furthermore, the above acts are totally against the interests of the first respondent company and absolutely prejudicial to it. I emphasize there is enough evidence to suggest that SEARS was another face of the Govind Sarda group and entirely controlled by it. Therefore, I have no hesitation to declare the transfer in favour of SEARS as detrimental to the company. There is also sufficient evidence to prove the collusion of the Govind Sarda group with Adarsh. I also have no hesitation to declare the transaction between SEARS and Adarsh as detrimental to the company. This Court has enough powers under Section 397, 398 read with Section 402, 403 of the Companies Act, 1956 to undo any act or declare it as void and not binding on the company or its shareholders.
Applying the principle of lis pendis the property could not be divested from the first respondent company pending this appeal. So on both grounds, it remains with the first respondent company. I order accordingly. On these facts the Company Law Board ought to have heard the petition on merits instead of throwing it out. To my mind, there is no point in remanding the matter to the tribunal for fresh adjudication because that would delay the matters further and result in complication. Since the appeal is a continuation of the trial Court proceeding this Court has now to ascertain how on the above available facts and evidence which are prima facie, Court can do justice to the case.
I pass the following order:-
a) All meetings of the Board of Directors of the first respondent from 2nd January, 2009 are declared non-est.
b) All resolutions taken at those Board meetings are declared null and void.
c) All General meetings of the first respondent company convened on 20th February, 2009 and thereafter are declared non-est.
d) All resolutions taken at these General meetings are declared null and void.
e) The shareholding of the first respondent company would be the same as per the company's records as on 1st January, 2009 and to be altered by the company accordingly. The names of all other shareholders should be deleted.
The payments made by them in respect of their shares shall be refunded. If there is no fund available with the company to do so this amount will be stated as a liability of the company towards these persons, in its books of account.
f) The first respondent company shall issue statements and certificates within four weeks from date declaring its authorized capital, issued and paid up capital, the number of shares, their description and holders, on the basis of this order.
g) The Board of Directors of the first respondent is superseded. It shall be reconstituted comprising of members who constituted it on 1st January, 2009.
h) The grant of sub-lease of the Jaipur property of the first respondent in favour of SEARS is set aside in the special facts and circumstances of the case. This Court declares that the property is deemed to remain with the first respondent company as part of its assets. The agreement dated 6th December, 2010 of SEARS with Riddhi Siddhi Infra Projects Pvt. Ltd. and its assignment on 18th November, 2013 in favour of Adarsh Bilt Estate Ltd. is retained.
i) Mr. Krishna Renu Das (Mr. K.R. Das, Advocate) of 20B, British India Street, Suite 3F, Kolkata - 700069, Capt. Pallav Banerjee, Advocate of Bar Library Club, High Court at Calcutta and Mr. Ajay Kumar Banerjee, former Joint Registrar, Protocol Department of this High Court, are appointed as Joint administrators at a remuneration of Rs.34,000/- (2000 gms) per month each to be shared equally by Govind, Ghanshyam Das and Jagdish Sarda. The Joint Administrators shall be allowed to appoint such staff as they think fit and proper, with the concurrence of the Committee of Management. The three Sarda brothers are also appointed as Joint Administrators without remuneration to strengthen the hands of the above appointed Joint Administrators. All the six Joint Administrators will comprise the Committee of management of the first respondent. This committee will take decisions by 2/3rd majority only.
j) The Committee shall immediately take possession of the Jaipur Property. It shall also be the sole operator of the funds of the first respondent in any bank account. It shall also take possession and control of the company and its assets.
k) The Committee shall immediately take possession of bank accounts, cash and securities of Sears Bilt Pvt. Ltd. as on date, prepare accounts and keep the same separately. The committee will investigate the source of these funds. If they find that any part legitimately belongs to the first respondent, it shall transfer the same to the first respondent.
I make it clear that Sears may deal with its current and future income and assets, and carry on its business without hindrance.
l) This committee of management shall immediately upon starting to function cause a balance sheet and profit and loss account of the first respondent to be prepared for the last five years.
m) This committee of management will ensure that the contract with Adarsh is executed in the best interests of the first respondent company and that the moneys paid by them are put into the fund of the company.
n) The committee of management will ensure that the contract with Adarsh Bilt Estate Ltd. is executed in the best interests of the first respondent company and that the consideration received by it is at market value.
o) The committee of management will convene at an appropriate time during execution of the project with Adarsh Bilt Estate Ltd. an Annual General meeting of the first respondent company where first of all a Board of Directors will be elected. The management of the company will then be handed over by the committee to the Board. The newly constituted Board shall not authorise expenses of the first respondent more than 20% of the consideration for sale of the Jaipur property received from Adarsh.
p) After the Board of Directors has functioned smoothly for atleast one year the committee of management shall hand over the control of the company to the Board. The remuneration of the committee and their incidental expenses may also be incurred from this fund.
q) Liberty to apply for implementation of this order.
r) Liberty to the Board of Directors and to the Committee of management to apply for winding up of the first respondent company before a competent Court of law or tribunal and for distribution of the sale proceeds amongst the three Sarda brothers according to their shareholding and to other shareholders of the company proportionate to their shareholding, after satisfaction of claims of all creditors.
All the above appeals/applications (ACO 159 of 2013, ACO 52 of 2016, ACO 66 of 2016, ACO 155 of 2016, ACO 160 of 2013, ACO 161 of 2013, APO 278 of 2013, APO 279 of 2013 & APO 280 of 2013) are accordingly disposed of by this judgment.
CONTEMPT APPLICATION This contempt application arises out of the order dated 18th December, 2013 of this Court in the above appeals. The records say that on this day the appeals were fixed for hearing at 3.00 p.m. Learned Senior Advocate appearing for Sears Bilt (P) Ltd. prayed for adjournment till after the Christmas vacation on the personal ground of his advocate-on-record. Learned Counsel for the parties were heard on adjournment. The appeals were adjourned till 9th January, 2014 on the above personal ground. It was also recorded in the said order "All learned counsel appearing have made a joint statement that the subject matter of controversy in the appeals will not be disturbed by any party till this Court is in a position to hear out the appeals." The main acts of contempt are alleged to have been committed by the alleged contemnor Nos. 1 to 10. It is alleged that they had appointed a company Adarsh Buildestate Limited, the alleged contemnor No.11 as their agent to construct on the said property and develop it. A brochure was published by the first, second, third, fourth and fifth respondents for sale of the flats. The twenty first contemnor Indiabulls Distribution Service Ltd. was appointed as the sub-agent to facilitate this exercise. The sale in favour of the Sears Bilt (P) Ltd., the alleged contemnor No. 7 was suppressed from the court, it was alleged by the petitioners. It was sought to be impliedly suggested to the Court that the property remained in the hands of Govind Sarda and his group. In fact, a month before in November, 2013 an agreement had been entered into between the Sears and Adarsh under which the latter would develop and construct on the property. Thereafter, the property would be transferred to third parties. Now, the petitioners' case is that making a statement to the Court on behalf of Sears that the subject-matter of controversy "in the appeals will not be disturbed by any party" was absolutely meaningless if the property was not under their ownership and control. It was made in a planned manner by the said respondents, conniving and colluding with one another so as to mislead the Court and induce it to refrain from passing a formal order of injunction restraining the parties from changing the status quo of the property. In fact, if the argument of learned counsel for the parties is to be accepted, then Adarsh was in-complete possession of the property from November, 2013. The respondents 7 to 10 had acted further to their design by making an application on 3rd January, 2014 before the environment department to seek the necessary permission regarding the said property, it was argued.
To strengthen the alleged acts of contempt the petitioners asserted that SEARS was directly or indirectly controlled by the same body of persons as the Govind Sarda group. In the name of SEARS, the property had only been transferred to Govind Sarda and his group. Such transfer was fraudulent. No real transfer of property took place from the respondent company to SEARS. Adarsh was also similarly controlled by the Govind Sarda group and that any activity on the property or for sale thereof was by that group in the name of Adarsh, in violation of the said order dated 18th December, 2013 passed by this Court. Mr. Kapur drew the attention of this Court to a [writ application 5670(W) of 2016] to support his argument. He showed me Page 3069 where the Solicitor for Adarsh was asking Aditya for instructions. He also showed me Pages 364, 365, 416, 428, 431 and 439 as evidence that Aditya Sarda regularly gave instructions to Adarsh.
Learned Counsel for the alleged contemnors started their arguments by trying to make a construction or interpretation of the order dated 18th December, 2013. They said that the joint statement of counsel as recorded in that order could not be termed as an "undertaking given to a Court" under Section 2(b) of the Contempt of Court Act, 1971. Only willful breach of an undertaking given to a Court can constitute contempt.
The definition of "undertaking" in the Concise Oxford English Dictionary, is this: an undertaking is a formal promise to the court to do something or to abstain from doing anything. The Supreme Court in Noorali Babul Thanewala Vs. K.M.M. Shetty and Ors. reported in (1990) 1 SCC 259 equated an undertaking to an order of injunction and said that breach of an undertaking amounted to contempt. The alleged contemnor may be asked to purge himself of the contempt. [See also Rama Narang (5) Vs. Ramesh Narang and Anr. reported in (2009) 16 SCC 126].
In Rita Markandey Vs. Surjit Singh Arora reported in (1996) 6 SCC 14, the Supreme Court through the judgment of Mr. Justice M.K. Mukherjee ruled that if instead of an undertaking a party made a representation before the Court which was acted upon by it and later the representation turned out to be untrue he was guilty of contempt in the same manner as if there was a breach of undertaking. The Supreme Court has gone to the extent of stating that an undertaking given to the Court on facts which the maker knows to be false or which he knows shall not be carried out amounts to contempt as held in Dr. (Mrs.) Roshan Sam Joyce Vs. S. R. Cotton Mills Ltd. and Ors. reported in AIR 1990 SC 1881.
In order to ascertain whether a party has given an undertaking to the Court, the words of the party as recorded by the Court in its order or in the depositions or in any other documents are to be interpreted. If by the plain and ordinary grammatical meaning of the words, it is seen that a promise is made to the court, then no matter how the words are spoken or written, no matter whether the exact word "undertaking" is mentioned by the party, the Court must construe those words as a promise or pledge made to the court and consider it as an undertaking.
In Babu Ram Gupta Vs. Sudhir Bhasin and Anr. reported in AIR 1979 SC 1528, the Supreme Court opined that an undertaking must be express and in clear terms, free from any kind of ambiguity.
The undertaking given to the Court must be unqualified as laid down by a Division Bench of our Court in Suretennessa Bibi Vs. Chintaharan Das reported in AIR 1955 Calcutta 182.
That there is no particular form or language in which an undertaking is given or recorded was emphasized by a full Bench of the Delhi High Court in Sardari Lal Vs. Ram Rakha reported in 1984 Cri L.J. 1098. In M. Vs. Home Office reported in (1992) 4 A11 ER 97, the expression "undertaking" has been defined in the following manner:"
"[I]f a party, or solicitors or counsel on his behalf, so act as to convey to the court the firm conviction that an undertaking is being given, that party will be bound and it will be no answer that he did not think that he was giving it or that he was misunderstood."
In this case on interpretation of the language of learned Counsel quoted in the order dated 18th September, 2013, it is absolutely plain that there was an intention expressed by all parties, in ordinary simple language to maintain status quo of the property. Therefore, there is no substance in the argument that no undertaking was given to the Court.
Another point which is rather amazing, taken by the respondents is that the subject matter of the proceedings is not the property at Jaipur. The subject matter of the proceedings relate to the change in the authorized share capital of the respondent company, the alteration in the composition of the Board of Directors, the contracting power of those who are in the manangement of the company and so on. Therefore, even if the statement given by learned Counsel was taken to be an undertaking it did not relate to the Jaipur property but related to the above other issues.
It is plain from the above authorities that there is no compulsory form in which an undertaking to the Court can be given. It may be according to a prescribed form by the Court or recorded in the Court order or may be found in any other records of the Court. The undertaking may be spoken or written but in sufficiently clear language which according to the ordinary meaning of the words is a solemn promise by the maker to the Court, based on which the Court does or refrains from doing an act it ordinarily would have done. The circumstances in which the order dated 18th December, 2013 was passed were that the Court was left with a choice whether to make an order of injunction asking the parties to maintain status quo with regard to the subject matter of the dispute. Now, at the outset, I say that this defence taken with regard to the subject matter not being the property but something else is absolutely ridiculous to say the least. There is not even an iota of substance in it. Everybody in the Sarda family knew, all their lawyers were aware and this Court was also fully conscious that the only thing the parties were fighting for was the Jaipur property. Any other stand is most dishonest and I reject the same. Therefore, on that point of time when the court was seriously considering passing an order of status quo, learned counsel for the parties or rather learned counsel for SEARS made the submission, on instruction that the "subject matter of the dispute would not be disturbed." In other words, the Jaipur property would not be dealt with. No construction work would be carried out there. This was the plain and ordinary meaning of the oral submission made and faithfully recorded by the officers of the Court. As a result of this submission, an order of injunction was not passed. Now, this submission being express, clear and without ambiguity was nothing short of an undertaking to the Court. Connected with this undertaking was an implied declaration that SEARS had full control over this property. It has subsequently transpired that on 2nd August, 2013 they sold the property to SEARS which conveyance was registered on 5th August, 2013. Subsequently, in November, 2013 a Development agreement was entered into by SEARS with Adarsh Bilt Estate Ltd. Adarsh in turn had engaged Indian Bulls to do the advertising and publicity work for this property. Therefore, the respondent Nos. 1 to 10 pretended to give an undertaking in respect of something over which they had legally lost control. By this undertaking, the Court was mislead to believe that they still had control over the property and refrained from passing an order of injunction. This is clearly contempt according to Dr. (Mrs.) Roshan Sam Boyce Vs. S. R. Cotton Mills Ltd. and Ors. reported in AIR 1990 SC 1881 and Rita Markandey Vs. Surjit Singh Arora reported in (1996) 6 SCC 14.
In State of Bihar Vs. Rani Sonabati Kumari reported in AIR 1961 SC 221 laid down through Mr. Justice Ayyanjar that an order of injunction is binding and enforceable not only against the persons of nomine impleaded as a party to the proceeding against whom the order was passed but against "the agents and servants etc." of such a party. These agents, servants etc. need not be added as parties to the proceeding. All that has to be proved is that the agents or servants had a formal notice of the order. In my opinion, Sears Bilt Pvt. Ltd. and all the persons in control of this company, Indian Fibres Ltd. and all the persons in control thereof, Adarsh Bilt Estate Ltd. were so to say the least the agent of Govind Sarda and his group, had notice of the order dated 18th December, 2013 and were bound by it.
The Court is satisfied that all the alleged contemnors were sufficiently aware of the charges against them and were represented by learned counsel to defend them, whether they were formally impleaded as party or not. Therefore this Court holds each of the alleged contemnors 1 to 10 guilty of court contempt for disobeying the order dated 18th December, 2013. This Court does not find any substantial evidence against the alleged contemnors 11 to 30 and acquits them.
Taking everything as a whole no real damage could be done to the property by the alleged acts of contempt. The record shows that only an application was made before the environmental authority for clearance. Nothing else is shown to have been done by the respondents on the property after 18th December, 2013. The appellants have been able to take timely steps to obtain an order of injunction restraining any further act by the alleged contemnors 1 to 10. Considering all the circumstances and particularly the fact that no damage was done, I direct that an affidavit by each of the respondent Nos. 1 to 10 in the contempt application be filed with the Registrar, Original Side, High Court by 31st January, 2019 tendering an unqualified apology to this Court for the breach of the undertaking recorded in the order of this Court dated 18th December, 2013.
This contempt application (CC 23 of 2014 with G.A. 3362 of 2014) is accordingly disposed of.
Certified photocopy of this order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
(I.P. MUKERJI, J.)