Bombay High Court
K C Agro Pvt. Ltd. And Another vs Chetan Dalal And 10 Others on 29 April, 2024
Author: Abhay Ahuja
Bench: Abhay Ahuja
2024:BHC-OS:7322
902.IAL 4393-24 in CA102-15.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INTERIM APPLICATION (L) NO. 4393 OF 2024
IN
COMPANY APPEAL NO. 102 OF 2015
K. C. Agro Private Limited and Anr. ...Applicants
V/s.
Chetan Dalal and Ors. ...Respondents
Mr. Kevic Setalvad, Senior Advocate with Mr. Malcolm Siganporia and
Mr. Hormuz Mehta i/b M/s J. Sagar Associates for Applicants.
Mr. Haresh Jagtiani, Senior Advocate with Ms. Vandana Mehta i/b Mr.
Yashpal Jain for Respondent No.1.
CORAM :ABHAY AHUJA, J.
DATE :29th APRIL, 2024
P.C. :
1. This Interim Application has been filed on behalf of the Applicant-Company as well as its director seeking permission of this Court to allow the company to let out / lease its movable property admeasuring 9800 square yards at Plot No.1, Phase-III, Badli Industrial Estate, Samepur, Badli, Delhi-42 (the "Badli Property") on the ground that such letting out is for the benefit of and in the interest of the company.
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2. The Interim Application has been filed in the Company Appeal which challenges the order dated 29 th April, 2015, passed by the Company Law Board, Mumbai (the "CLB") in Company Petition No. 121 of 2013. The Appeal was admitted on 13 th August, 2015 and the impugned judgment of the CLB was stayed during the pendency of the Appeal. The said order is usefully quoted as under:-
" The Company Appeal impugns an order passed by the Company Law Board on the Respondents' Company Petition filed under Sections 397 and 398 of the Companies Act, 1956. By this order, whilst disposing of the Company Petition, the Company Law Board inter alia declined two EGMs of the 1st Respondent Company held on 15 February 2010 and 15 June 2010 as illegal null and void and cancelled the resolutions passed in the EGMs and also cancelled allotment of shares made in pursuance of the resolutions passed at EGMs. One of the main contentions of the Appellants is that the relief in respect of EGMs was not even prayed for in the original Company Petition. So also it is submitted that the resolutions were passed and allotments were made in pursuance thereof more than 3 years prior to the filing of the Company Petition. There are also issues raised as to maintainability of the petition. All these issues gave rise to questions of law which need to be decided at the hearing of the present Company Appeal. The Appeal is, therefore, admitted and the impugned order is stayed during the pendency of the appeal. Learned Counsel for the Appellants states that during the pendency of the appeal his clients shall not transfer, encumber or create and third party rights, deal with or dispose of the badli property of the 1 st Respondent Company. The statement is accepted. Stand over to 10 September 2015, for hearing."Nikita Gadgil 2/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
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3. As can be seen from the above order, this Court has accepted the statement on behalf of the original Appellants including the Applicant No. 2 that during the pendency of the Appeal the Appellants shall not transfer, encumber or create any third party rights or deal with or dispose of the Badli Property.
4. Mr. Setalvad, learned Senior Counsel for the Applicant-company has submitted that the company has time and again expended monies toward the safety as well as upkeep of the Badli Property without generating any revenue and that the company has been suffering losses. Learned Senior Counsel draws the attention of this Court to copies of the company's balance sheets and profit and loss statements for the years ending 31st March, 2021, 2022 and 2023 at Exhibit D to the Application and submits that as on 31 st March, 2023, the company had losses aggregating to Rs 18,75,000/-.
5. Learned Senior Counsel would submit that since the inception of proceedings before the CLB and subsequent to the order of the CLB, the Badli Property has remained unoccupied and unused, thereby causing a deterioration and loss of revenue to the company. However, learned Senior Counsel submits that now the company has received inquiries Nikita Gadgil 3/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc from interested parties seeking to occupy or set up facilities, without transfer of title or interest of the company in the Badli Property.
6. Drawing the attention of this Court to Exhibit E to the Application, learned Senior Counsel would submit that one such offer had been received on 23rd August, 2023, which inter alia has inquired for lease of an area of 40,000 square feet in order to set up a service centre for automobiles. Learned Senior Counsel has also submitted that another inquiry in respect of the Badli Property was also received on 8 th December, 2023 by an entity, who wishes to explore the possibility of renting/leasing the Badli Property to set up a service centre for automobiles and draws the attention of this Court to Exhibit F to the Application. Learned Senior Counsel would submit that these are genuine offers which have been received by the Applicant-company and the first offer from Toyota is still alive.
7. Learned Senior Counsel would submit that the Applicant No.2 had commissioned a survey on the potential market value of the Badli Property and Jones Lang LaSalle Property Consultants (India) Pvt. Ltd. ("Consultant") has reported that the Badli Property is one of the important industrial areas of Amritsar, Delhi, Kolkata Industrial Nikita Gadgil 4/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc Corridor of North Delhi and was amongst a massive ecosystem of manufacturing players and other industries. That as on date the Badli Property is in a dilapidated state and requires urgent renovation being unused for a prolonged period. Learned Senior Counsel submits that the Consultant's Report inter alia records (i) that Industrial plots with new construction have rentals earmarked between Rs. 48/- to Rs. 50/- per square foot, (ii) the Badli Property requires renovation and upgrades to its infrastructure and (iii) that despite the present condition, the Badli Property can demand a rental amount of Rs. 25/- to Rs. 30/- per square foot per month. That after analysing the current market trends and property factors, the survey recommended constructing a new building or investing in repairs and renovations so as to achieve maximum leasing probability in the range of Rs. 35/ to Rs. 70/- per square foot per month.
8. Learned Senior Counsel would submit that the Consultant's Report also provides a summary of sample options in the market. It also records that the estimated renovation cost for the Badli Property as Rs. 600/- to Rs. 700/- per square feet, which aggregates to a sum of approximately Rs. 2,60,00,000/- to Rs. 3,00,00,000/-. That if the Badli Property is rented out or let out, the company shall receive income Nikita Gadgil 5/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc which can then be applied toward the renovation and upgrade/s to the Badli Property which is only beneficial to the company. The company shall at the same time, at all times, hold the right, title and interest of the Badli Property.
9. Learned Senior Counsel submits that the Applicants are conscious of the fact that the Badli Property is the sole asset of the company and must be protected as it has been for decades and therefore, this Court allow the Application, so that the company's attempt to revive and to take steps to monetise the sole asset of the company is fruitful. Learned Senior Counsel submits that therefore, this Application has been filed in view of the concrete and genuine offers received which is in the benefit of the company, which will generate income for the company and uplift itself from the loss making business to a profitable entity.
10. Mr. Setalvad, learned Senior Counsel would submit that therefore, in view of the inquiries received for the leasing or letting out or licensing of the Badli property in September-2023 and December- 2023 and the location of the Badli property and its accessibility, even if assessed on an as is where is basis the Badli property will generate a Nikita Gadgil 6/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc minimum of Rs.10,96,750/- per month as license fees or lease rental for the company. Learned Senior Counsel would submit that, this figure is arrived at bearing in mind the minimum amount of Rs.25 per square feet x 43870 square feet of the total built up area and that would reduce or eliminate the losses that have amassed over time.
11. Learned Senior Counsel submits that the Application has been filed bona fide and for the benefit of the company which should be of paramount importance to all concerned parties and therefore, this Court allow the Application, subject to any terms that this Court may impose including filing of accounts by the Applicant- company in this Court during the subsistence of the rental arrangement.
12. Mr. Setalvad, learned Senior Counsel has relied upon the following decisions in support of his contentions:-
i) Needle Industries (India) Ltd and Ors Vs. Needle Industries Newly (India) Holding Ltd and Ors.1
ii) Nanalal Zaver Vs. Bombay Life Assurance Co. Ltd.2
iii) Bacha F. Guzdar Vs. Commissioner of Income Tax, Bombay3 1 (1981) 3 SCC 333 2 1950 SCC 137 3 (1954) 2 SCC 563 Nikita Gadgil 7/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
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13. On the other hand, Mr. Haresh Jagtiani, learned Senior Counsel for the Respondent No.1 has opposed the Application submitting that the original Respondent No.1 was deprived of his legitimate share in the Applicant No.1-company as can be seen from the order of the CLB, which has been appealed against. That the original Respondent No.1 as mentioned in the Company Petition was ousted from all the businesses and assets and properties since 2004.
14. Learned Senior Counsel refers to the reply and submits that the original Respondent No. 1 viz. deceased Girdharlal Nathubhai Dalal was a shareholder of the Applicant No. 1 - company, holding 50% in the Applicant No. 1 till his shareholding was illegally reduced by the original Appellant No. 2 viz. Bharat Kantilal Dalal. Learned Senior Counsel submits that the original Respondent No. 1 was not only side lined from the business of the Applicant No. 1 - company but also his shareholding was illegally reduced in a systematic and pre-planned manner by clandestinely increasing the share capital of the Applicant No.1 - company and allotting the same to inter alia the Applicant No. 2 and also by bringing in Respondents No. 2 to 11 as additional shareholders thereby diluting the shareholding of original Respondent No. 1 from 50% to a minuscule Nikita Gadgil 8/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc shareholding of 5.08%. Learned Senior Counsel would therefore submit that the CLB found merit and substance in the Petition that highlighted the illegal activities of the Respondents in the Petition filed before it for oppression and mismanagement and allowed the Petition and restored the shareholding of the original Respondent No. 1 to 50%. Learned Senior Counsel refers to some of the findings of the CLB which are quoted as under:-
" a. The Hon'ble CLB has observed that the non-service of notices to said Girdharlal Dalal and reducing his original shareholding from 50% to 5.085% and correspondingly increasing the share capital of the Respondents from 50% to more than 99% behind his back with a mala fide intent to grab the company and its assets is a clear act of oppression.
b. The Hon'ble CLB observed that the removal of the said Girdharlal Dalal from directorship was not in accordance with the provisions of law.
c. That the appointment of the Original Respondent nos.3 and 4 was also held to be illegal and the Hon'ble CLB stated that such appointment was bad in law for such induction as Directors was only done with a view to gain control of the Company and oust said Girdharlal Dalal from the Company. It was also observed that neither any statutory notices or documents were served upon Girdharlal Dalal nor inspection of documents was provided, which acts were nothing but acts of oppression.
d. The Hon'ble CLB held that the transfer of 12 equity shares by the Original Appellant no.2 in favour of Respondent nos. 5 to 11 therein were bad in law for they were in violation of the Articles of Association of the Company and that the same was done with a malafide intent to raise the number of members to more than 10 in the Company so as to deprive said Nikita Gadgil 9/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc Girdharlal Dalal of his eligibility to file a petition in terms of Section 399 of the Companies Act, 2013.
e. The Hon'ble CLB also held that the acts of not issuing notices of meetings to said Girdharlal Dalal, failing to make compliance as required in law within the statutory period, fabricating documents, denying inspection of documents, all amounted to mismanagement under the relevant provisions of the Companies act, 2013."
15. Mr. Jagtiani, learned Senior Counsel would further submit that the CLB had in other proceedings, with respect to other companies also restored the shareholding of Girdharlal Dalal and also directed a forensic audit of the other companies, where there were allegations of siphoning off funds and special audit was also directed where after reimbursement of losses suffered was also directed. That the original Respondent No.1 had also initiated criminal proceedings for such siphoning off, for criminal breach of trust, conspiracy and cheating.
16. Learned Senior Counsel would submit that Girdharlal Dalal being an equal share holder had equal right to participate and take decision in respect of the Applicant No. 1-company, however, at no point of time, either Girdharlal Dalal or the present Respondent No. 1 was consulted with respect to the dealing with Badli Property nor any communication has been addressed to the present Respondent No.1. Nikita Gadgil 10/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc
17. Mr. Jagtiani, would submit that the application is filed with intent to modify the statement recorded on 13 th August, 2015, on the strength of which the Appeal was admitted and the impugned order stayed. Learned Senior Counsel submits that considering the estranged relationship and complete loss of trust between the parties and the legal proceedings pending between the parties, the Respondent No. 1 is apprehensive that the Application has been filed with a ulterior motive of either setting aside the earlier statement and /or to create hurdles in claiming the rightful stake in the estate of the original Respondent No. 1 and / or to make discreet profits / incomes at the cost of the estate of the original Respondent No.1.
18. Mr. Jagtiani, learned Senior Counsel would submit that the company is a family company and the deceased Girdharlal Dalal and the second Applicant's father Bharat Dalal were real uncle and nephew. That it is settled law that private limited companies in which the shares are held within the members of the family, the principles of partnership apply. Learned Senior Counsel draws the attention of this Court to paragraphs 57 to 62 of the judgment of the CLB.
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19. Relying on the aforesaid paragraphs, learned Senior Counsel would submit that the CLB has observed that the non service of the notice to Girdharlal Dalal and behind his back reducing his shareholding from 50% to 5.08% and correspondingly increasing the share capital of the Applicant's father from 50 % to more than 99% with a mala fide intent to grab the company and its assets clearly proves the acts of oppression. Learned Senior Counsel would submit that the CLB has also found that the Applicant's father had even failed to establish by producing even an iota of evidence that they have exercised their power bona fide and in the interest of the company. That there is a finding that the same was mala fide and in their own interest for the purposes of maintaining their control over the affairs of the company and for the purposes of reducing the shareholding of Girdharlal, the Extra Ordinary General Meetings ("EOGMs"), were held and decisions were taken for increasing further allotments. Learned Senior Counsel would submit that, therefore, the CLB has held the EOGMs and the further allotments of the shares made by the second Applicant's father and the transfer of the shares in favour of the Respondents which includes the Applicant No. 2, was a clear act of gross oppression. That there is a finding that removal of Girdharlal Dalal was not in accordance with law and the minutes of the EOGM Nikita Gadgil 12/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc dated 2nd May, 2008 and the board meeting dated 6 th May, 2008, Form 61 and 62 showing his removal as director were fabricated documents; that the said meetings were invalid for want of valid service of notice to Girdharlal Dalal.
20. Learned Senior Counsel would further submit that despite holding that the appointment of the second Applicant was bad in law, however, he along his brother were not removed as directors in view of the peculiar facts of the case. That the CLB has clearly recorded that Girdharlal Dalal and other Respondent No. 2 held 50:50 % share in the company and if they were allowed to be on the board of directors of the company, a situation of dead lock would arise. Learned Senior Counsel submits that the CLB has also recorded that admittedly the company only has one immovable property i.e. Badli Plot and it is not carrying on any business activities for the last several years and that looking at the peculiar facts of the case, the appointment of an independent Chairman would also not be warranted nor it would serve any purpose as the company was defunct. Mr. Jagtiani, submits that the CLB opined that the induction of Girdharlal Dalal as director of the company would be sufficient to protect his interest. Nikita Gadgil 13/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
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21. Mr. Jagtiani, learned Senior Counsel has also submitted that the CLB considered that no notices of the meetings had been issued to Girdharlal Dalal as required by law and that there was failure to make compliance within the statutory period and it was also proved that they had fabricated the documents thereby holding that there was mismanagement of the affairs of the company.
22. Mr. Jagtiani, would submit that in view of the aforesaid observations in the judgment, the CLB in the operative part inter alia declared that the allotment of 1500 equity shares of Rs. 100/- in favour of the second Applicant was illegal, null and void and the said allotment was cancelled. Mr. Jagtiani, refers to the paragraph 4.8 of the sur-rejoinder at page 130 and submits that the Applicant No. 2 is not a shareholder and has no locus to file the application and therefore, this application is not maintainable and be dismissed. Learned Senior Counsel submits that moreover the second applicant's appointment as director has also been held to be bad in law and illegal.
23. Learned Senior Counsel has relied upon the decision of the Hon'ble Supreme Court in the case of Shree Chamundi Mopeds Ltd Vs. Church Nikita Gadgil 14/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc of South India Trust Association CSI Cinod Secretariat, Madras 4 and submits that even though the CLB order has been stayed by this Court, the stay is only with respect to the operation of the operative part of the order and does not mean that the said order has been wiped out from existence. Learned Senior Counsel would further submit that when a Court of Appeal stays the operation of the judgment, it stays the further implementation as between the parties of the operative portion and when a question is decided, its ratio cannot be said to be wiped out merely because the operation of the order is stayed.
24. Mr. Jagtiani, learned Senior Counsel has also relied upon the decision of the Kerala High Court in the case of Raveendran Vs. Lalitha and Ors.5 to submit that when an Appellate Court stays the proceedings under a decree or order appeal from, under Order XLI rule 5, it provides for only a stay of the proceedings under a decree or stay of execution of decree. The provisions do not empower the Appellate Court to stay the operation of the judgment. Stay of operation of the judgment is not the same as staying the operation of the proceedings under a decree or staying the execution of the decree. An order staying the operation of the judgment will amount to staying the finding of the 4 (1992) 3 SCC 5 OP(C) 963 of 2021 dated 1st November, 2021 Nikita Gadgil 15/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc judgment which cannot be done at the state of admission and also that staying the operation does not mean that the order has been set aside. Mr. Jagtiani, would therefore, submit that the stay of the CLB order would not amount to staying the judgment. Learned Senior Counsel further submits that only the operative part of the CLB order has been stayed and not the findings of the judgment, which have not only found that non service of notice to Girdharlal Dalal and behind his back reducing his shareholding from 50% to 5.08% and correspondingly increasing the share capital of the Respondents therein from 50% to more than 99% with mala fide intent to grab the company proving to be acts of oppression but also observed that the Respondents including the Applicant No.2 to have failed to establish that the exercise of their powers were bona fide and in the interest of the company but proved that the exercise of such power was mala fide and in their own interest for the purposes of maintaining their control over the affairs of the company and for the purposes of reducing the shareholding of Girdharlal in the company, holding that the EOGMs purportedly held on 15th February, 2010 and 15th June, 2010 and further allotment and transfer of shares in favour of the Respondents including the second Applicant were acts of gross oppression and that the documents of the minutes of the meetings showing removal of Girdharlal Dalal as Nikita Gadgil 16/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc director were fabricated documents and the said meetings were invalid for want of valid service and the finding that appointment of the second Applicant was bad in law and that Girdharlal Dalal and Respondent No.2 held 50:50% share, that the company held only immovable property at Badli and was not carrying on business for several years and that Girdharlal be inducted as director of the company, that there was mismanagement in the affairs of the company as admittedly notices had not been issued for the meetings nor statutory compliances had been made and there was proof that the documents were fabricated, were all findings in the judgment which have not been stayed. All that has been stayed is the operative part of cancellation of 1500 shares issued to Applicant No.2, but which has not be set aside.
25. Mr. Jagtiani, further submits that the company appeal has been admitted and the order of the CLB has been stayed subject to an undertaking by the Appellants that during the pendency of the Appeal, the Appellants including Applicant No.2 shall not encumber or create any third party right, deal with or dispose of the Badli property of the company and submits that, therefore, the said order cannot be modified by way of this application in as much as when a party secures Nikita Gadgil 17/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc an order from the Court on giving an undertaking to the Court, that he will take a particular course of action or inaction such undertaking itself operates as an injunction made by the Court because the Court has made its order on the faith of the undertaking. Learned Senior Counsel relies upon the decision of the Hon'ble Supreme Court in the case of Balwantbhai Somabhai Bhandari Vs. Hiralal Somabhai Contractor (deceased) Rep by Lrs and Ors. 6, and particularly refers to paragraph 67 where in another decision of the Hon'ble Supreme Court in the case of Govind Kaur Vs. Hardev7 the Hon'ble Supreme Court has emphasized the said principle.
26. Learned Senior Counsel would further submit that the main objects of the company to be pursued by the company is to carry on business of cultivators, growers, manufacturers, millers, grinders, rollers, packers, indenters, processors, preservers, traders, importers, exporters, agents and dealers of all kind of food grains, cereals, seeds and spices, pulses, rice and other agricultural produce etc. and not leasing of properties and it is only as incidental or ancillary to the attainment of the main objects that the company can for the purposes of its business, lease out all or any part of the property of the company.
6. 2023 SCC OnLine SC 1139.
7. 1982 (1) RCR 323(13 Nikita Gadgil 18/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc Mr. Jagtiani, would submit that since the company has not been doing any business from last several years, the leasing proscribed by the CLB order and cannot be wished away.
27. Learned Senior Counsel would submit that filing of this application after a long period of time, more so, at the time when the appeal has ripened for final hearing raises serious doubt with respect to the alleged steps to generate income and uplift the company from loss making business. Mr. Jagtiani would submit that the offers and the application were only to make personal profits by the Applicant No. 2 and to deprive the estate of the deceased-original Respondent No.1 to claim rightful and legitimate share in the company. That, therefore, this Court dismiss the application and expedite the hearing of the Appeal.
28. I have heard learned Senior Counsel at length over a period of time and also explored with them the possibility of filing a consent minutes of order whereby the said Badli Property could be leased/licensed to the interested lessees/licensee on terms and conditions as may be agreed between the parties. However, the said suggestion did not lead to fruition and therefore this matter has been argued and heard. The pleadings have been completed ending with Sur Nikita Gadgil 19/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc Rejoinder dated 8th April, 2024 on behalf of the Respondents in this Application.
29. It is not in dispute that the Applicant No.1 is a Company which has only one immovable property i.e. Badli Property. Admittedly, the company is not carrying on any business activities for the last several years and it is running into losses and the losses as per the Applicants for the year ending 31st March, 2023 is Rs.18,75,000/-.
30. The Applicant No.2, Mr. Darshan Dalal, was appointed as the Additional Director of the Company, although the CLB has clearly found that the appointment of the Applicant No.2 as Director in the Company is bad in law but he was not removed as Director in view of the peculiar facts of the case. However, the allotment of 1500 equity shares of Rs.100/- in his favour was cancelled thereby meaning that in view of the order dated 29th April, 2015 of the CLB although the Applicant No.2 was allowed to remain Director of the Company, the shares allotted to him were cancelled.
31. It has been submitted that the Applicant No. 2 as director of the company has been looking after the affairs of the company and that as Nikita Gadgil 20/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc on 23rd August, 2022 he holds 2,79,995 shares in the company, which includes the 1500 shares, allotment in respect whereof had been cancelled by the CLB. The Director's Report of the company also bears the Second Applicant's signature as director.
32. In an application filed by Mr. Girdharlal Dalal, the original Respondent No. 1 in the Company Appeal, who was the shareholder and director of the Respondent No. 1 company seeking relief under Sections 397, 398 read with Section 402 of the Companies Act, 1956, the CLB by a judgment and order dated 29 th April, 2015 held that there was oppression and mismanagement at the hands of the Respondents (being the Appellants in the Company Appeal including Applicant No.2) in the Applicant No. 1 company and inter alia cancelled the allotment of 1500 equity shares of Rs. 100/- in favour of the Applicant No.2, however, preferring not to remove the Applicant No. 2 and his brother as directors in the peculiar facts of the case although their appointment was held to be bad in law. It was also observed that Girdharlal Dalal had been illegally removed as director without following due course of law and that Girdharlal's induction as director of the company would be sufficient to protect his interests. Nikita Gadgil 21/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
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33. The CLB had clearly observed that the company was a family company and relying upon law settled by the Hon'ble Supreme Court held that private limited companies in which shares are held within the members of the family, the principles of partnership apply. Finding that there was no notice of the EOGMs purportedly held on 15 th February, 2010 and 15th June, 2010 whereby Girdharlal Dalal's shareholding was reduced from 50% to 5.08% and correspondingly the share of Respondents including the Applicant No. 2 herein having been increased from 50% to more than 99% was with mala fide intent to grab the company and its assets, which included the only immovable property at Badli and that the removal of Girdharlal Dalal as director was by way of fabricated documents, there was oppression and mismanagement at the hands of the Respondents including the Applicant No. 2 in the Applicant No. 1 company, the following operative order came to be passed:-
"a. It is declared that the EOGMs held on 15/2/2010 and 15/6/2010 whereat the authorized Share Capital was increased from Rs.25 lakhs to Rs.1.50 crores and then from Rs.1.50 crores to Rs.3.00 crores respectively are declared illegal, null and void and the resolutions passed in the meeting are also declared illegal and void.
b. It is declared that the allotment made on 30/3/2010 of 1,15,000 equity shares of Rs.100/- each in favour of the Respondent No.2 and on 12/8/2010 of 1,47,000 equity shares of Rs.100/- each in favour of the Respondent No.2 Nikita Gadgil 22/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc and 1,500 equity share of Rs.100 in favour of the Respondent No.3 and 4 respectively is illegal, null and void. The said allotments are hereby cancelled.
c. It is declared that the transfer of 100 equity shares of Rs.100/- each made by the Respondent No.2 in favour of Respondent No.3 is illegal bad in law, null and void. The said transfer is hereby cancelled.
d. It is declared that the transfer of 12 equity shares of Rs.100/- each of the Respondent No.2 in favour of Respondent No.5 to 12 vide resolution dated 2/8/2012 is illegal, null and void. The said transfer is hereby cancelled.
e. The company is directed to make compliance of the directions made above within 45 days of time. The necessary statutory forms shall also be filed by the Company with the ROC concerned in this regard.
f. It is declared that the Petitioner holds 50% paidup share capital of the Respondent No.1 Company.
g. It is ordered that the Register of Members of the Respondent No.1 Company be rectified by deleting the names of Respondent Nos.2 to the extent of Rs.2,61,888 equity shares and deleting the names of Respondent Nos.3 to 12 therefrom.
h. The removal of the Petitioner as a director of the Respondent No.1 Company is hereby set aside and the petitioner is reinstated as a director of the Company. The Form 32 showing removal of the Petitioner as a director shall be removed from the MCA Portal and a fresh form shall be filed showing the reinstatement of the Petitioner as as a director."
34. The judgment and order was challenged by the company and the Respondents including Applicant No. 2 by way of an Appeal filed in this Nikita Gadgil 23/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc Court. The said Appeal came up for admission on 13 th August, 2015 and this Court (Coram: S.C.Gupte, J. as His Lordship then was) after inter alia noting that there were issues as to maintainability of the petition giving rise to question of law which needed to be decided at the hearing of the company appeal admitted the appeal and stayed the impugned order, during the pendency of the appeal recording an undertaking on behalf of the Appellants that during the pendency of the Appeal the Appellants would not transfer, encumber or create any third party right, deal with or dispose of the Badli property of the company.
35. As noted above this application has been filed on behalf of the company as well as one of the directors of the company, seeking a modification of the afore-quoted order dated 13 th August, 2015, whereby the Appeal has been admitted submitting that until the Appeal is finally disposed, this Court allow the company to let out / lease out the Badli property, without any transfer of title or interest, for the benefit of the company to interested parties seeking to occupy or set up facilities, so that the deterioration and loss of revenue to the company can be arrested.
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36. As has been recorded above, two enquiries, one in August/September 2023 and the other in December 2023 have been received. A perusal of the said offers on Exhibit E and F indicate that one is to set up a service and body shop facility for Totoya cars and the other is by a business house in the field of stainless steel manufacturing and automobiles. Both the offers appear to be for renting / leasing of the Badli property. However, neither of those inquiries have furnished any details of the offers. The Applicants have relied upon their consultant's report on Exhibit G to come up with the per square feet area calculation as well as the built up area to arrive at the prospective earning of Rs. 10,96,750/-. No further particulars or specific details have been furnished.
37. Mr. Setalvad, has relied upon Needle Industries (India) Ltd and Ors Vs. Needle Industries Newly (India) Holding Ltd. and Ors. (supra) which in turn has relied upon the decision of this Court in the case of Nanalal Zaver Vs. Bombay Life Assurance Co. Ltd.(supra) where it has been held that the directors of the company are in a fiduciary position vis-a-vis a company and must exercise their power for the benefit of the company. That if the power to issue further shares is exercised by the directors not for the benefit of the company but simply and solely for Nikita Gadgil 25/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc their personal aggrandizement and to the detriment of the company, the Court will interfere and prevent the directors from doing so. The very basis of the Court's interference in such a case is the existence of the relationship of a trustee and of Cestui que trust as between the directors and the company. Mr. Setalvad has submitted that in the facts of this case, the proposed renting out is only and solely for the benefit of the company and there is no question of personal aggrandizement of the directors and therefore, this Court allow the application.
38. On the basis of the above, Mr. Setalvad would submit that, therefore, even though the company appeal is pending and even though the Badli property belongs to the company unless anything is shown by the Respondents that the proposed lease is not for the benefit of the company and solely for the personal aggrandizement of the directors and to the detriment of the company, this Court should allow the application as it is for the benefit of the company.
39. Mr. Setalvad also relies upon the decision of the Hon'ble Supreme Court in the case of Bacha F. Guzdar Vs. Commissioner of Income Tax, Bombay (supra) to submit a company is a juristic person and is distinct from the share holders and it is the company which owns the property Nikita Gadgil 26/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc and not the shareholders. That there is nothing in Indian law to warrant the assumption that the shareholders who buy shares buy any interest in the property of the company, which is a juristic person entirely distinct from the shareholders. That a shareholder has no interest in the property of the company even though he has undoubtedly the right to participate in the profits if and when the company decides to divide them. Learned Senior Counsel would submit that therefore Mr. Jagtiani's client, whose right as an executor of Girdharlal Dalal's will is under a cloud, would have no say in the company and its affairs even if he was a shareholder.
40. There is no doubt and there cannot be any doubt about the principles that have been laid down in the decisions cited above.
41. Mr. Setalvad, has also vehemently argued that this Court while admitting the appeal against the order of the CLB has stayed the said order and therefore, as on date the Applicant No. 2 is to be considered as the owner of not only the 1500 shares that were allotted to him but also 2,79,995 shares that have been transferred to him, which include the 1500 shares.
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42. Mr. Setalvad, may have been right, however, what comes in his way is the decision of the Hon'ble Supreme Court in the case of Shree Chamundi Mopeds Ltd Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras (supra) as well as the decision of the Kerala High Court in the case of Raveendran Vs. Lalitha and Ors. (supra) which clearly hold that under Order XLI Rule 5 the Appellate court can do nothing other than staying the proceeding under the decree or staying the execution of the decree. The provision does not empower the Appellate court to stay the operation of the judgment but only the execution of the judgment is stayed. And a stay does not mean setting aside. Therefore, although the cancellation of allotment of 1500 shares to the Applicant No. 2 may have been stayed but the observation of the CLB in its judgment that the appointment of the Applicant No. 2 as director is bad in law and that the reduction of Girdharlal's shareholding in the company and the increase in the shareholding of the Appellants including the Applicant No.2 was illegal, with mala fide intent to grab the company and an act of oppression, cannot be ignored as also the other findings of the CLB in paragraphs 57 to 62 as summarized above. It also cannot be ignored that the stay to the execution of the order dated 29 th April, 2015 of the CLB is pursuant to the statement made on behalf of the Appellants which includes the Nikita Gadgil 28/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc Applicant No.2 herein that during the pendency of the Appeal the Appellants would not transfer, encumber or create any third party rights or deal with or dispose of the Badli property of the company. Merely on the basis of a stay to the operative part of the order of the CLB in a pending appeal and that too on the basis of an undertaking that the Appellants would not transfer, encumber or create any third party rights or deal with or dispose of the Badli property of the company, the Applicant No. 2, in my view, cannot be permitted to deal with the only asset of the Applicant No.1 company.
43. It also cannot be ignored that the Directors Report of the company dated 23rd August, 2022, which is much after the date of the order of admission and stay of the order of the CLB indicates the number of shareholding of the Applicant No. 2 at the beginning of the year to be 1500 and at the end of the year to be 2,79,995 despite the fact that the operative part of the order dated 29 th April, 2015 of the CLB has been stayed but not set aside. Moreover, upon a query from the Court as to how during the stay of the CLB order and pending the executorship/inheritance litigaiton, 2,79,995 shares have been transferred to the Applicant No. 2 this Court did not receive any Nikita Gadgil 29/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc satisfactory reply except a reference to a note in the Director's report with respect to the pending litigation.
44. Ergo, considering that: (i) the Applicant No.1 Company is a family company of the Applicant No.2 as well as the Respondents, (ii) the Badli property is the only asset of the Applicant No.1 company, which is sought to be leased / let out and that the company was not carrying business for several years (iii) the CLB has in its judgment found the appointment of the Applicant No.2 as director to be bad in law but preferred not to remove him as director in view of the peculiar facts of the case, (iv) the CLB has observed that the reduction of Girdharlal's shareholding in the company and the increase in the shareholding of the Appellants including the Applicant No.2 was illegal, with mala fide intent to grab the company and an act of oppression, the Appellants including the Applicant No. 2 having failed to establish that exercise of powers was bona fide, and inter alia cancelled the allotment of shares to Applicant No.2 in the operative part of the order and as noted above the same has not been set aside but only its implementation has been stayed, (v) there was mismanagement in the affairs of the company as admittedly notices had not been issued for meetings and statutory compliances and a clear finding by the CLB in Nikita Gadgil 30/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc its order that Form 61 and 62 showing the removal of Girdharlal Dalal as director, were fabricated documents, (vi) there was no satisfactory explanation given as to how during the stay of the CLB order 2,79,995 shares have been transferred to the Applicant No. 2, (vii) the appeal has been admitted and the operative part stayed subject to an undertaking by the Appellants (including Applicant No.2) that they would not transfer, encumber or create any third party rights or deal with or dispose of the only Badli property of the company and (viii) the Appeal having been admitted on 13th August, 2015 and in my view, also ripe for hearing, I am not inclined to allow this Application even though the same may ostensibly appear to be for the benefit of the company which aspect is also questionable as the enquiries are bereft of any specific details or particulars as noted above, but inclined to expedite the hearing of the Company Appeal. Consequently, it would not be necessary to deal with the other submissions/judgments cited on behalf of the parties.
45. This Court also notes that there is an issue of executorship to the will of Girdharlal Dalal of Respondent No.1, Mr. Chetan Dalal which is pending and also that no material has been brought to my notice to demonstrate the second Applicant's claim to his father, Late Shri Bharat Nikita Gadgil 31/32 ::: Uploaded on - 06/05/2024 ::: Downloaded on - 14/05/2024 19:05:05 :::
902.IAL 4393-24 in CA102-15.doc Dalal's shares, which aspects are not necessary to be gone into at this stage considering that the Company Appeal as well as the executorship/inheritance litigation are still pending.
46. In view of the above, the Application is rejected. The Company Appeal stands expedited. List the Company Appeal under the caption "For Directions" on 21st June, 2024.
47. It is made clear that the observations herein are only to decide this Application and shall not influence the outcome of the Appeal or the executorship / inheritance litigation.
(ABHAY AHUJA, J) Digitally signed by NIKITA NIKITA YOGESH YOGESH GADGIL GADGIL Date:
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