1993 (7) TMI 280 - HC - Companies Law

Appellate Court Vacates Orders, Restores Control to Defendants. Plaintiffs to Pay Costs, Possible Compensation.

BDA Breweries and Distilleries Ltd. Versus Cruickshank & Co. Ltd.

The appellate court allowed the appeal, vacated the interim orders passed by the trial court, and directed the restoration of management and control of ... Amalgamation Issues Involved:1. Validity of the transfer of shares of BDA.2. Validity of the assignment of the three brands.3. Allegations of breach of fiduciary duty by defendant No. 3.4. Management and control of BDA.5. Validity of the interim orders passed by the trial court.Detailed Analysis:1. Validity of the Transfer of Shares of BDA:The transfer of shares from Arunava Investments Ltd. to Intrust Securities and Investments Pvt. Ltd. was executed following a resolution by the board of Arunava Investments on May 4, 1990. The Central Government approved the transfer on July 18, 1990. The transfer was for a lawful consideration and was documented correctly. The plaintiffs' challenge to the transfer on grounds of fraud, breach of fiduciary duty, and inadequacy of consideration was found to be without merit. The court noted that the plaintiffs had not challenged the transaction promptly and had accepted it for two years before raising objections.2. Validity of the Assignment of the Three Brands:The assignment of the three brands (Officer's Choice, 1000-Guiness, and Calypso Rum) was executed by an agreement dated August 30, 1990, and a deed of assignment on February 26, 1991, for a consideration of Rs. 15,00,000. The plaintiffs' contention that the assignment was a sham transaction to overcome excise difficulties was unsupported by evidence. The court found that the assignment was a valid and binding transaction, and the brands legally belonged to BDA.3. Allegations of Breach of Fiduciary Duty by Defendant No. 3:Defendant No. 3, who was the managing director of Shaw Wallace, was accused of manipulating the transfer of BDA shares and the assignment of the brands for personal gain. The court found no evidence to support these allegations. The transactions were collective corporate decisions, documented and approved by the relevant authorities, including the Central Government. The court concluded that defendant No. 3 had not breached his fiduciary duties.4. Management and Control of BDA:The court found that after the transfer of shares, BDA became an independent entity and was no longer under the control of Shaw Wallace. The plaintiffs' claim that BDA was still managed and controlled by Shaw Wallace was unsupported by evidence. The court noted that the management structure of BDA had changed, and it was functioning independently.5. Validity of the Interim Orders Passed by the Trial Court:The trial court had granted an ex parte injunction order on April 16, 1992, and confirmed it on May 5, 1992, which effectively handed over the management and control of BDA to the plaintiffs. The appellate court found that the interim orders were unjustified and based on incomplete and misleading information provided by the plaintiffs. The court noted that the plaintiffs had suppressed crucial facts and documents from the trial court. The appellate court vacated the interim orders and directed that the management and control of BDA be restored to the defendants.Conclusion:The appeal was allowed, and the interim orders passed by the trial court were vacated. The court directed the trial court to take immediate steps to restore the management and control of BDA to the defendants. The plaintiffs were found to have acted in bad faith by suppressing material facts and documents, and the court awarded costs of Rs. 5,00,000 to the defendants. The court also noted that the plaintiffs might be liable to compensate the defendants for the losses incurred due to the interim orders.