Madras High Court
Sri K. Pranesh Rao 1/6 Brindavan Palace ... vs Srik. Lakshminarayana Rao on 30 October, 2012
Author: K.Chandru
Bench: K.Chandru
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 30.10.2012 CORAM THE HON'BLE MR.JUSTICE K.CHANDRU O.A.Nos.143 and 144 of 2011 and A.Nos.3413, 3460 & 3876 of 2011 and A.No.941 of 2011 in C.S.No.108 of 2011 O.A. No.143 of 2011 ------------------- SRI K. VASUDEVA RAO 1/6 BRINDAVAN PALACE ROAD BENGALURU 560 001 KARNATAKA SMT. K.V. GEETHA RAO 1/6 BRINDAVAN PALACE ROAD BENGALURU 560 001 KARNATAKA SRI K. RAMAKRISHNA RAO 1/6 BRINDAVAN PALACE ROAD BENGALURU 560 001 KARNATAKA SRI K. PRANESH RAO 1/6 BRINDAVAN PALACE ROAD BENGALURU 560 001 KARNATAKA VS SRIK. LAKSHMINARAYANA RAO . SMT. USHA RAO . KUMARI K. SUCHITRA RAO . KUMARI. K. NANDINI RAO 1 TO 4 RESIDING AT NO.5, 4TH LANE NUNGAMBAKKAM HIGH ROAD CHENNAI 34 SRI K. MURALI RAO . SMT. RAJALAKSHMI RAO . SRI ACHUTHA RAO 5,6, 7 AND RESIDING AT 3, GEORGE AVENUE ALWARPET CHENNAI18 SMT. SARITHA RAO . SMT RATHI RAO . SMT K. RAJESH RAO 9 & 10 ARE RESIDING AT 5, 4TH LANE, NUNGAMBAKKAM HIGH ROAD CHENNAI 34 SMT. DEEPKIA RAO . M/S. NEW WOODLANDS HOTEL PRIVATE LTD CHENNAI 4 M/S. WOODLANDS HOTEL PRIVATE LTD ORDER
O.A.Nos.143 and 144 of 2011 were filed by the applicants / plaintiffs seeking for the grant of an interim injunction restraining the respondents / defendants from preventing the participation of the first applicant in the business and affairs of the 12th respondent company and also for the grant of an interim injunction restraining the respondents 1 to 11 from in any manner dealing with the shares, properties of the 12th respondent more fully set out in the schedule to the petition, including but not limited to sale, transfer, merger, de-merger, mortgaging or otherwise encumbering of the said shares / properties.
2.The applicants are the plaintiffs in the main suit. The suit is for the grant of various reliefs including declaration that the transfer of 12000 shares of the first applicant in the 12th defendant company, the details of which were mentioned in Schedule 'E', to the defendants 1 and 5 as null and void and for a direction to 1st and 5th defendants jointly and severally to pay the 1st plaintiff a sum of Rs.2 crores together with interest at 18% per annum towards refund of advance computed till the date of realization and also for a declaration that the 12th and 13th defendants are quasi partnerships and that their assets and businesses mentioned in Schedules A,B and D will be subject to dessolution and distribution equally between the first plaintiff, first and fifth defendants and legal heirs of late K.Shankar Rao, i.e., defendants 9 to 11 and for partition of the schedule mentioned properties and put the first plaintiff in exclusive possession of his 25% shares in the schedule mentioned properties.
3.The suit was admitted on 07.02.2011. Pending the suit, in the applications for interim injunction, this court on 15.02.2011 had directed the parties not to do anything which would jeopardize the compromise already entered into between the parties. Subsequently on 9.6.2011, it was stated that the plaintiffs were served with a notice of termination of lease on 30.05.2011. As the said notice may go contrary to the interim order, it was directed that the parties shall not precipitate the matter any further. On 14.07.2011, this court held that the interim orders passed on 15.2.2011 and 9.6.2011 will continue.
4.In the meanwhile, the defendants 3,4,7 and 8 have filed an application in A.No.3413 of 2011 to reject the plaint in terms of Order 7 Rule 11 CPC. Defendants 1,2, 5 and 6 have also filed an application in A.No.3460 of 2011 for the very same purpose. Defendants 9 to 11 have also filed an application in A.No.3876 of 2011 for the very same purpose. The plaintiffs have filed a common counter affidavit. Further, an application in A.No.941 of 2011 was also filed by the applicants / plaintiffs to appoint an independent chartered account to value the assets and properties of the 12th and 13th respondent companies as well as Schedule D properties mentioned in the plaint.
5.Heard both sides. In the applications for interim injunction, the applicants/ plaintiffs have stated that the first plaintiff was a partner and stake holder in the Woodlands Group of Hotels in Chennai and Bangaluru. The group was founded by his late father K.Krishna Rao, originally as a proprietorship. The business was gradually converted into a partnership and all his 6 sons including the first plaintiff were inducted as partners into the business. During the life time, their father had purchased various properties, both in his individual name and in the name of partnership. The hotel business was conducted from and out of the premises so purchased by him at Radhakrishnan Road in Chennai and Raja Ram Mohan Roy Road in Bangaluru. He had also purchased a property at Nungambakkam where his family continues to reside. Their father had inherited some properties at Mangalore. All the properties left behind by their father are more fully set out in the schedule to the judges summons. After retiring from the partnership in the year 1963, he continued to supervise the business. Two of his brother Srinivasa Rao and Gopal Rao went out of the partnership and four brothers, i.e., 1st respondent, 5th respondent, first applicant and another brother Shankar Rao (who is no more) were having equal shares in the business.
6.The partnership firm "Woodlands Hotel" gave on lease the entire business operating under the name and style of "Madras Woodlands Hotel) in Bangaluru, including the immovable properties to M/s.Nandi Hotels Private Limited, a company incorporation in the year 1972 by the family members specifically for the purpose of taking over the Bangaluru business. The lease was for a period of 25 years on a fixed monthly rent of Rs.25,000/-. During the year 1972, the first plaintiff was asked to shift to Bengaluru with his family to manage the business there. M/s.Nandi Hotels Private Limited underwent change of name to Woodlands Hotels Private Limited, Bengaluru with effect from 27.09.1976. His father late K.Krishna Rao and other brothers were looking after the business in Chennai. He also remained in touch with the business at Chennai. Around 1979, all the partners were advised that there were compelling reasons to transfer all the businesses and assets to a private limited company which would be able to more effectively deal with financial institutions, vendors, labour etc., under a corporate identity. The partners were advised that this move will prevent any individual partner from creating liabilities without the knowledge of the other partners as had occurred in the past leading to some bitterness. Therefore, "New Woodlands Hotel Private Limited", the 12th respondent was incorporated on 05.11.1979 with a share capital of Rs.25 lakhs, which was split up into 25000 shares having par value of Rs.100/-. There were five subscribers to the memorandum of Articles, i.e., late K.krishna Rao, the first respondent, the 5th respondent, late Shankar Rao and the first applicant. The other brothers had already separated.
7.By a deed of partnership dated 01.12.1979, the New Woodlands Hotel Private Limited was inducted as a partner in the firm "Woodlands Hotel". By a deed of dissolution dated 29.02.1980, the firm Woodlands Hotels was dissolved leaving all the assets of Woodlands Hotel including the properties at No.72-75, Dr.Radhakrishnan Salai, Chennai-4 and Madras Woodlands Hotel at Sampangi Tank Road, Bengaluru along with the businesses to New Woodlands Hotel Private Ltd. In the said deed of dissolution, the first applicant and his three brothers were left with other businesses as going concerns together with all assets and liabilities. Thus the available immovable properties in Chennai and Bengaluru together with the businesses were transferred to the 12th respondent in which all four brothers and their late father K.Krishna Rao were having equal shares. Their father late K.Krishna Rao died on 28.6.1990 leaving behind a Will under which his shares and rights in various properties, assets and businesses were all bequeathed on his four sons who remained in the business. The Will was probated before this court by an order dated 16.12.2006. At all times, the business was managed as a family affair both during and after the life time of late Krishna Rao. Even after the incorporation of the two companies, the business was run by the members of the family as a family partnership and the companies were in reality quasi partnership. Even during the life time of their father, there were talks of dividing the assets between the four brothers who were managing the businesses. Since the first applicant had spent considerable time and energy in developing the business at Bengaluru, all felt that it would be best to allow him to take over the Bengaluru business and property while releasing his share in the Chennai business and properties in favour of his three brothers. The valuation of the properties was such that the arrangement as set out above would also bring about an equal distribution of assets among all brothers. In the meanwhile, one brother late K.Shankar Rao passed away on 19.11.2000. He was survived by his wife Rathi Rao, son Rajesh Rao and daughter Deepika (respondents 9,10 and 11). After the demise of Shankar Rao, his son Rajesh Rao gradually took over the role played by his father in the management and business at Chennai.
8.Recording the arrangement between them, a memorandum of agreement on 18.8.2001 was prepared. This memorandum had recorded that New Woodlands Hotel at No.72-75, Dr.Radhakrishnan Salai, Chennai-4 would be in the complete management ownership and control of the respondents 1,5 and 10. To facilitate the same, the first application was to execute the share transfer documents in favour of respondents 1,5 and 10 transferring his 25% share in New Woodlands Hotel (P) Ltd. in their favour. As against the said transfer, the said respondents in turn were to transfer the property at Bengaluru in his favour. This was agreed upon as the release of his shares in the 12th respondent company will result in release of his 1/4th share in the properties at Chennai and Bengaluru, which was the major assets owned by the company. This could be balanced only by transferring the Bengaluru property and businesses owned by the said company in his favour. The agreement recorded that the respondents 1,5 and 10 for themselves and as representatives of the 12th respondent shall execute all necessary documents to transfer the properties at Bengaluru in his favour. The memorandum of agreement was prepared by the 5th respondent at Chennai. Only one copy was made ready. The first applicant and his wife (second applicant) had executed the same. The other relatives were arrayed as witnesses and before all witnesses could sign the same, a photocopy of the same was delivered to the first applicant. The original document was retained with the families at Chennai and he has only the photocopy of the agreement. This family arrangement and understanding was being gradually acted upon by all the parties as an understanding within the family. One Dinakaran of Singapore Woodlands, who is close to the family and brought about the execution of the memorandum, was present when the document was executed.
9.Further, during 2004, the 1st and 5th respondents started claiming that the division of assets as planned earlier was not an equitable division. After discussions, it was agreed that the first applicant will pay Rs.1 crore to each of the 1st, 5th and 10th respondents in addition to transferring the shares held by him in the 11th respondent and release his share in the property at Deivasigamani Road. As against the landed property on which the business was run at Bengaluru was to be entirely transferred to him along with the shares in the 13th respondent. In principle, the 10th respondent had agreed for this arrangement, but wanted to take his mother's blessings before executing the document. At that time, his mother was out of Country. At the time of recording the understanding, the memorandum of understanding dated 15.12.2004 was prepared. The sale agreement for the properties at Bengaluru was executed on 15.12.2004 between the 12th respondent represented by 1st and 5th respondents as vendors on the one hand and 13th respondent represented by him as purchaser on the other hand. A deed of release in respect of the Bengaluru property was also executed on 15.12.2004 by the respondents 1 and 5 as releasors. The memorandum of understanding dated 15.12.2004 recorded that it was mutually agreed between them for the share transfer. Upon execution of the document, the first applicant had delivered blank transfer deeds to the first and fifth respondents. He believed that the transfer of his shares in the 12th respondent would happen simultaneous to the transfer of the assets and business in his favour. Being his own siblings, there was no cause for distrust and that he had handed over the signed deeds then and there. His balance 1/12th share in the property at Deivasigamani Road as well as the 6000 shares left with him in the 12th respondent company were meant for the 10th respondent and his family members, i.e., respondents 9 and 11. He was also expected to pay a sum of Rs.1 crore to the 10th respondent and his family members. The sale agreement as referred to in the memorandum of understanding dated 15.12.2004 was also executed and approval by the general body and the board for sale within 30 days of the agreement was to be obtained by the 1st and 5th respondents. This sale agreement was executed to ensure that notwithstanding the corporate veil of the 12th respondent, the terms of the family arrangement already agreed would be implemented. The third document which was executed on 15.12.2004 was a deed of release by the first and fifth respondents as releasors in his favour. But no right was per se transferred under the said release deed, whivch was a record of their intentions.
10.With an intention of leaving a clear division, the documents were prepared by H.A.K.Rao, a Charted Accountant, who used to advise their father. It was expected by all the three brothers that respondents 9 to 11 would be joining the plan to effect the division. It was never his intention or even the respondents 1 and 5 to proceed with the transfer of the immovable properties without the participation of respondents 9 to 11. On account of the transfer of shares in the 13th respondent to the first applicant, the 13th respondent had stopped paying rents to the 12th respondent since December, 2004. The release deed though was unregistered would form a vital link in the chain of events which clearly establishes the reason why he had handed over the signed share transfer forms along with the share certificates for 12000 shares in the 12th respondent to the respondents 1 and 5. It was not against the mere transfer of 12000 shares in the 13th respondent by respondents 1 and 5 in his favour. Payment of a sum of Rs.1 crore each to respondents 1 and 5 and the fact of further sum of Rs.1 crore was held back till the date of actual transfer of the 3/4th share in Bengaluru property to him shows substantial performance of the family arrangement. What remained was for the heirs of late K.Shankar Rao join in the division so that he would have taken the property at Bengaluru along with running business, movables and assets and liabilities in exchange for his 1/4th share in the properties and business at Chennai. The share certificates of 12th respondent were therefore handed over by him to respondents 1 and 5 in trust that they would in turn perform their obligation to transfer their interests in the landed property at Bengaluru. The Woodlands Hotel Private Limited, Bengaluru was a quasi partnership and part and parcel of the family partnership business. The part implementation of the family arrangement in the above manner was agreed by the first applicant and respondents 1 and 5 only upon mutual promises. He never had any suspicion about respondents 1 to 5 that they will act against his interest and go to an extent of abusing the trust and faith. He was also in full faith that they will not go against his trust, because these documents executed on 15.12.2004 were placed before their family deity in the Pooja in his Bengaluru residence. His sister Mrs.Prema Bhat and her husband S.P.Bhat, the family Astrologer Mr.Vasudeva Bhat were also present. All of them had offered prayers and took the blessings of the Lord by placing gold sovereigns as offerings. However, 1st and 5th respondents had utilized the share transfer deeds signed by him and effected transfer of 6000 shares in each of their favour. The further transfers were effected in favour of their respective wives and children. Thus, respondents 3,4 and 7 came to hold shares in the 12th respondent. Respondents 1 and 5 through various members of the family, had effected transfer of shares in 13th respondent favouring the first applicant and his family members. But the transfer of Bengaluru property was not effected.
11.The first applicant and respondents 1 and 5 were side by side discussing with the 10th respondent for effecting partition which was agreed earlier. The efforts of respondents 1 and 5 in convincing the 10th respondent to agree for a clear division appeared to dwindle. He was told by respondents 1 and 5 and their family members that the transfer of the Bengaluru property in favour of the first applicant had not taken place as planned only due to the stubborn attitude of the 10th respondent who wanted to continue to hold a share in both establishments. The applicant attempted to convince the 10th respondent. However, on 27.052008, the 10th respondent had addressed a letter seeking participation in the Bengaluru business. The first applicant was certainly not expecting any such request from the 10th respondent as it was contrary to the earlier arrangement. The first applicant wrote a letter to the 10th respondent and pointed out that even during the life time of his father, the division was agreed. He also wrote a letter to the respondents 1 and 5 to act in furtherance of the arrangement between them. A reply was requested from respondents 1 and 5 whether they would adhere to the family settlement with a modification that 1/4th right of the 10th respondent and his family being excluded from the arrangement. This would have satisfied the 10th respondent and his family who would have continued with their shares in both Bengaluru and Chennai. But no reply was received. The non payment of rents by the 13th respondent to the 12th respondent in respect of lease of the Bengaluru property and business was being shown as an outstanding in the balance sheet of the 12th respondent. The first applicant was signing the balance sheet under protest and had expressed the same in several board meetings.
12.The first applicant was continuing to have confidence on respondents 1 and 5 at least to the extent that if the settlement did not come through, they would not rely on 12000 shares in the 12th respondent given to them in trust by the first applicant in December, 2004 towards part performance. The first applicant used to receive various proposals for reduction of capital gains tax, merger and de-merger of companies, exchange of house property at Nungambakkam High road by respondents 1 and 5. The first applicant came to know that the first and 5th respondents had authorized one E.Merge Solution (P) Limited having office at Triplicane, Chennai to give options for dividing the proeperties with lease impact of Income Tax and capital gains tax on a consultancy basis during November, 2009. The said E.Merge Solution Private Limited had prepared some proposal for de-merger of the 12th respondent. A presentation was made to the first applicant and his family members by one Ramachandran at Bengaluru during November and December, 2009. To his shock, he was shown as holdling only 8.33% shares in 12th respondent. Ultimately, he was to get 3/4th share in the 13th respondent and the 10th respondent was to retain his 25% share in the 13th respondent. This was a wrong representation as the first applicant continued to have 25% share in the business and assets. The first applicant called the 5th respondent and enquired as to how he could prepare such a plan and send it. The 5th respondent had apologized and said it was a wrong presentation. The presentation also made a reference to a valuation report for the Chennai property which had been prepared by one Sivaraman. When he asked for the valuation report, the 5th respondent has been avoiding his request. The first applicant continued to remain a 25% co-sharer in the business and properties of the firm Woodlands Hotel which was transformed into 12th and 13th respondents. He continued to remain a partner in the continuing business of firm, business, hotel which included Mathura Restaurant at Tarapore Towers, Drive-in-Woodlands and Woodlands at Tirumala Tirupati. There were very many discussions between various members of the family. After presentation by e-merge Solutions, he came to know that the division was already contemplated and agreed by defendants 1 to 11 concerning the property at Chennai which gave him exactly 4.55 grounds out of the total extent of more than 73 grounds. On further enquiry by is son Pranesh, the first applicant was allotted only 8.34% share and a map was produced showing a 4 ground plot in the middle of the property at Dr.Radhakrishnan Salai with 34 feet frontage to the main road and 282.7 depth. Immediately, his son had rushed back to Bengaluru and informed him. There was also string of rumors circulating in Chennai at the Woodlands Hotel was up for sale. He felt that developments were going out of control when respondents 1 and 5 were avoiding him whenever the topic of division was brought up. But on all other issues, they were willing to discuss. But when the topic of division or re-transfer of his shares back to him was discussed, they would once again go back to the old excuse that the 10th respondent was the cause of all the problems. All the respondents and all applicants were participating in various family functions and get togethers and exchanged gifts.
13.He had issued a notice on 30.10.2010 to respondents 1,5 and 10. But respondents 1,5 and 10 had taken a stand that he would not be entitled for the return of 12000 shares given in trust since at the Board meeting of the 12th respondent on 01.11.2010, the letter addressed by him on 27.09.2010 that there was no requirement to pay the rent from 13th respondent to 12th respondent was discussed. In his presence, it was recorded that there was no legal interest in the company property with him or any other person and that the company has every right to claim rent and in case, the current tenant was unwilling to meet the demands of the company for fair rent, the eviction should be carried out. The first applicant always wanted a fair division of assets. Therefore he demanded his rightful 1/4th share in the assets and businesses of late Krishna Rao, the 12th and 13th respondents. It is under these circumstances, the suit was filed and an injunction was sought for.
14.In the counter affidavit filed by the 12th respondent company, it was stated that the memorandum of understanding dated 15.12.2004 was not accomplished and not enforced at the instance of parties and that the first plaintiff had abandoned the same. The claim arising out of the memorandum of understanding dated 15.12.2004 is hopelessly barred by limitation and none of the parties to the transaction can claim any right as it has become stale by efflux of time. An agreement of sale was entered on 15.12.2004 by the Directors of the company. But the company did not approve the transaction and it was not enforced. The release deed which was brought about in December 2004 has also been made as individual shareholders as parties to the contract. Hence it cannot affect the right of the 12th defendant. Insofar as the 12th defendant was concerned, it is a private limited company and it is the owner of the property at Bangaluru and is also having leasehold rights over Schedule B of the property. The 12th respondent is the owner of Schedule A mentioned property and holder of leasehold rights in respect of Schedule B property. The first applicant was only happened to be the Director of the 13th respondent and cannot challenge the terms of the lease between 12th and 13th respondents in these proceedings. In the absence of any challenge by the 13th respondent to the terms of the lease, the relief claimed in the applications is beyond the scope of the suit. There was a valid transfer of shares by the applicants in favour of 1st and 5th respondents. There was no legal impediment for effecting transfer of those shares in the names of 1st and 5th respondents. The transfer has been effected in the registers of the 12th respondent maintained in the normal course of business. It has been filed with the Registrar of companies. Till such time the validity of transfers are set aside as illegal, the relief sought for by the applicants cannot be granted at the interlocutory stage. At no point of time, the applicants were prevented from participating in the affairs of the company. If at all any cause of action, the applicants were at liberty to invoke the jurisdiction of the Company Law Board. The respondents 1 to 11 are the absolute owners of the shares held in their respective names and there cannot be an injunction from dealing with the shares. Insofar as the assets of the company was concerned, the first applicant or any other person cannot contend that the 12th respondent is not entitled to deal with the property.
15.In respect of the relief claimed in the suit, i.e for declaration that the 12th and 13th respondents were partnership firms and the applicants are entitled to 25% share in the property cannot be granted for mere asking for it. The 12th respondent by mere operation of law had acquired assets and also leasehold rights in respect of Schedule B property. The 13th defendant had paid the lease amount upto 30.12.2004. At the instance of the fist defendant, it had suspended the payment of lease amount thereafter and the lessee had incurred legal disability to continue its occupation over the said property. There cannot be any fetter on 12th respondent to proceed against th3 13th defendant.
16.The respondents 3,4,7 and 8 have filed a common counter affidavit alleging that the suit was an abuse of the process of the court. A consideration of Rs.1,25,000/- was received by the first applicant towards relinquishment of his interest in the erstwhile partnership from the separate legal entity, i.e., New Woodlands Hotel Private Limited, (R-12). This was also reflected in the deed of dissolution itself. The very same amount of Rs.1,25,000/- each was paid to his brothers, defendants 1 and 5 and late K.Shankar Rao. All of them had subscribed to the share capital of the 12th respondent company by paying Rs.10000/- being the value of 100 equity shares that each of them subscribed initially. A separate amount of Rs.1,25,000/- was received by each of them for relinquishing their interest in the erstwhile partnership firm and transferring it to the 12th defendant. After receipt of the consideration, it was not possible to contend that any of the brothers have any stake in the assets of the company by relying on the quasi partnership doctrine. The applicants had deliberately suppressed the receipt of the said payment. Apart from the parties herein and the 10th respondent, there were some other shareholders in the 13th respondent company who would be entitled to a share of the assets, assuming the aplicants' prayer for dissolution and partition of the 13th respondent's assets were to be upheld. The applicants had not mentioned this fact and that they have transferred the shares of Mrs.Seethalakshmi and Ms.K.Ranjeetha. The applicants have not disclosed that there was a shareholding of 500 shares with Mrs.Mohini Rao, the sister of the first applicant. The present suit has been filed with a clear intention of validating the applicants' act of exclusion of other members in the 13th respondent company by suppressing material details. They have not come with clean hands. Many number of transactions were done against the express disapproval by respondents 1 and 5 and by late K.Shankar Rao.
17.The applicants were also wrong in stating that Mathura Restaurant mentioned in Schedule D was separately run as a partnership and was the only restaurant being run as a partnership. This go against the applicants' statement that all the entire hotels are run as a quasi partnership. It is not a case where the companies and the erstwhile partnerships were one and the same, but a case where the companies were run as companies and some other businesses were run as a partnership. The Board of Directors of both 12th and 13th respondents have been composed of different directors right from incorporation. One Gopal Rao was a director in the 13th respondent and not even a shareholder in the 12th respondent. After the death of Shankar Rao, who was the Chairman of the 13th respondent company, his heirs who were 9th, 10th and 11th respondents were not made as Directors in the 13th respondent company despite repeated request of 10th respondent. It was only because the first applicant being the major shareholder, the 13th respondent company had refused to do so stating that it was a limited company and not a partnership. The third and fourth applicants are directors in the 13th respondent company and they are not the members of the 12th respondent company. Whereas respondents 1,3,4,5 and 7 were directors of the 12th respondent company and not members in the 13th respondent company. The relief claimed by the applicants is barred by limitation as well as by the specific operation of the Companies Act. The transfer of 12000 shares took place on 15.12.2004 and after a long gap of six years, the applicants are seeking for refund of the amount paid and a setting aside of the share transfer. The agreement dated 15.12.2004 cannot be sought to invalidated as more than three years have lapsed since the agreement was entered into. If there is any dispute, the aggrieved person has to move an application for rectification under Section 111 of the Companies Act.
18.Even assuming without admitting that the suit was within time and even the applicants are entitled for refund of money, it does not stand to reason as they have no locus standi to claim any such amount. Further, even assuming that the principle of quasi-partnership can be applied, the procedure for dissolution and winding up of a company is specifically provided for under the Companies Act. The applicants have sought to achieve the object through a civil suit but it is impermissible in law. The only method of dissolution of such companies is by filing winding up petition. Even if the principles of quasi partnership are applied to companies and their management and administration in appropriate factual circumstances, such application of these principles do not permit derogation from the provisions of the Companies Act. Section 10 of the Companies Act is a direct express bar on a District Court entertaining such a suit as only the Company court can entertain winding up petitions. The assets and businesses would be subject to dissolution and distribution and no relief can be given by the civil court. The certificate of incorporation given by the Registrar in respect of any association shall be final in terms of Section 35 of the Companies Act and it cannot be treated as a firm and it dissolves them under the Partnership Act. There was no Woodlands Group of Hotels in the eye of law. There is separate company that run separate businesses. A property purchased through individual funds can late be made as a part of the common pool. The applicants have withheld the memorandum and articles of association of Nandi Hotels Pvt. Ltd., wherein it was clearly stated that the company was set up to run the business of carrying on hotels generally and not specifically for the purpose of taking over the Bengaluru business. The immovalb properties were transferred to 12th respondent after receipt of considertaion of Rs.1.25 lakhs Once transfer has been made for a valid consideration, it cannot be cancelled. The applicants themselves admitted that dissolution of the partnership was voluntary and consciously agreed upon by all family members. The applicants had not sought setting aside the deed of dissolution dated 29.02.1980 in the plaint. The business was not run as a family concern or as a partnerhip, but as a company. The first applicant regularly received dividend from the 12th respondent and that the 13th respondent was shown to be loss making company and no dividend was being paid. The rent was being paid from the 13th respondent to the 12th respondent for lease of the property and that the property tax and income tax for the last 30 years were paid on the basis of separate legal entity. If 12th and 13th respondents were really partners, all profits of both entites would have been equally distributed and no rent would be payable. The tax would have been computed on a totally different basis. Even the memorandum of agreement dated 15.12.2004 relied on by the applicants to set up a case of quasi partnership reinforces the fact that the 12th and 13th respondents were treated as separate entities. The first applicant has constantly tried to embezzle the funds of the 13th respondent company and that the defendants have made constant objections to the actions of the applicants.
19.The respondents 12 and 13 are companies and that their structures were not sham. There was no valuation of the assets of the companies to ensure equal distribution. The consideration for the transfer of shares by the applicants in the 12th respondent company was not the transfer of property of the 12th respondent company to the applicants, but the transfer of shares by the respondents in the 13th respondent company. The compromise dated 18.8.2001 was not agreed by various parties and it fell through. The relief claimed cannot be asked for by the applicants and it is only the 13th respondent could have filed a suit within a period of three years. The 13th respondent was not in a position to execute a sale deed as he could not meet expenses towards registration and stamp duty and other expenses. The applicant cannot seek for setting aside the transfer of 12000 shares as it was performed as a part of mutual obligation under the MoU dated 15.12.2004. Hence there was no failure of consideration. Insofar as the transfer of shares by the first applicant in the 12th respondent company was concerned, the 1st and 5th respodents have relinquished their shareholdings in the 13th respondent company in favour of the 1st applicant. There was no partition sought to be effected and it is only a case of share transfer. The 10th respondent did not transfer his shares in the 13th respondent in favour of the applicants and that the applicants also did not transfer their shares in the 12th respondent company to that extent. Hence they prayed for dismissal of the injunction applications.
20.The 10th respondent also has filed a counter affidavit, dated 17.8.2011 taking similar stand. When the 10th respondent questioned the first applicant with regard to the management of 13th respondent company, he decided to eliminate the 10th respondent by seeking division of assets of the company as if they are quasi partnership. Therefore, no relief of injunction can be sought against the company. Further, the relier to appoint an independent Chartered Accountant to value the assets and properties of the 12th and 13th respondents companies is sought for only to cause inconvenience to the 12th respondent company as well as to its other Directors. The 12th respondent company is regularly audited by a qualfied chartered accountant. The 13th respondent company is under the complete control, management and administration of the first applicant. Hence that relief cannot be granted.
21.In the applications for rejection of plaint filed by the respondents/ defendants, two principle contentions were raised, i.e., if it is a suit for specific performance to enforce a sale or even the suit for rescinding the MoU and invalidate the share transfer which should be initiated before 31.3.2008. From 1.4.2005, even as per the admission of the first applicant there was no intention to complete the sale. Hence there cannot be any extension of limitation from the period from which limitation will originally run. The second objection was that under Section 481 of the Companies Act, the dissolution can be done only as per the provisions of the companies Act insofar as the company is concerned and there is no scope for deviation from it. The winding up of companies can be done by the court only if the case is made out in accordance with the provisions of the companies Act and there must be specific pleadings for the same. Therefore, seeking for declaration from the court that the two companies are subject to dissolution is clearly barred by operation of Companies Act and company Rules. Once there is legal bar, then the provisions of Section 9 of the CPC will not arise as Section 10 of the Companies Act bars the maintenance of any such suit.
22.Though both sides relied upon number of decisions, it is unnecessary to refer to them as the factual finding referred above are sufficient to decide the rights of parties. Insofar as the application for injunction was concerned, the applicants have not made out any prima facie case for the grant of such injunction and balance of convenience is also not for the grant of any such order. The first applicant is also a Director of the 12th respondent company and has been participating in the board meetings. If he is not permitted for the same, he has an opportunity to make a complaint before the appropriate forum under the companies Act. Further for transfer of shares, he had also received consideration which he has not disclosed in the plaint. In view of the above, O.A.Nos.143 and 144 of 2011 will stand dismissed.
23.The relief in A.No.941 of 2011 for appointment of an independent Chartered Accountant also cannot be granted as rightly objected by the 10th respondent referred to above. Hence this court is not inclined to grant relief. Hence A.No.941 of 2011 will stand dismissed.
24.A.Nos.3460, 3876 and 3413 of 2011 is concerned, on the question of limitation issue, it is a question of both facts and law. Therefore, at this juncture, this court while entertaining applications under Order 7 Rule 11, cannot reject the plaint. Hence all must fail. It is necessary to refer to a decision of the Supreme Court in Popat and Kotecha Property v. State Bank of India Staff Assn., reported in (2005) 7 SCC 510 and in paragraphs 19 and 25 it was observed as follows :
19. There cannot be any compartmentalisation, dissection, segregation and inversions of the language of various paragraphs in the plaint. If such a course is adopted it would run counter to the cardinal canon of interpretation according to which a pleading has to be read as a whole to ascertain its true import. It is not permissible to cull out a sentence or a passage and to read it out of the context in isolation. Although it is the substance and not merely the form that has to be looked into, the pleading has to be construed as it stands without addition or subtraction of words or change of its apparent grammatical sense. The intention of the party concerned is to be gathered primarily from the tenor and terms of his pleadings taken as a whole. At the same time it should be borne in mind that no pedantic approach should be adopted to defeat justice on hair-splitting technicalities.
..........
25. When the averments in the plaint are considered in the background of the principles set out in Sopan Sukhdeo case10 the inevitable conclusion is that the Division Bench was not right in holding that Order 7 Rule 11 CPC was applicable to the facts of the case. Diverse claims were made and the Division Bench was wrong in proceeding with the assumption that only the non-execution of lease deed was the basic issue. Even if it is accepted that the other claims were relatable to it they have independent existence. Whether the collection of amounts by the respondent was for a period beyond 51 years needs evidence to be adduced. It is not a case where the suit from statement in the plaint can be said to be barred by law. The statement in the plaint without addition or subtraction must show that it is barred by any law to attract application of Order 7 Rule 11. This is not so in the present case.
25.The second contention regarding dissolving the two companies, the provisions of the companies Act will apply is concerned, it must be noted that in the present case, the applicants have set out a quasi partnership theory. The court will have to go to the said issue. Therefore, at this stage, the plaint cannot be rejected on the basis of the provisions of the companies Act. On the other hand, nothing prevented this court to grant declaratory relief to the applicants regarding family arrangement between the parties and how far it will affect the function of the company is an issue which will have to be decided after the suit is tried. Hence both on the ground of limitation as well as on the ground of application of companies Act, this court is not inclined to reject the plaint. Hence all three applications in A.Nos.3413, 3460 and 3876 of 2011 will stand dismissed. No costs.
vvk