2009 (11) TMI 515 - HC - Companies Law

Court rules in favor of appellants in Capital Land Builders control dispute

The court found in favor of the appellants in a dispute over control of Capital Land Builders (P.) Ltd. The court upheld the validity of share transfers ... Injuction relief claimed - Held that:- The appellants, in our considered view, have undoubtedly been able to establish a prima facie case that they are in-charge of the company having shareholding and the society does not figure in the list of shareholders. Once the company is controlled by the appellants group, its functioning cannot be brought to a standstill by the nature of the impugned order passed whereby both the parties have been restrained from dealing with the assets of the company. We are, thus, of the considered view that the impugned judgment cannot be sustained and we hold that the appellants have made out a case for interim relief having satisfied the triple test for grant of interim injunction and no order can operate against them or in favour of the respondents. The respondents, their agents and employees are, thus, restrained from representing themselves as shareholders or directors of the said company and consequent thereto are restrained from acting on behalf of the company by using any letterhead, bank accounts or dealing with the assets of the company in any manners whatsoever and cannot be permitted to file any statutory forms or returns on behalf of the company. This injunction would operate during the pendency of the suit. Issues Involved:1. Dispute over control of Capital Land Builders (P.) Ltd.2. Validity of share transfers and ownership.3. Proceedings before the Company Law Board (CLB).4. Alleged fraudulent activities and contempt of court.5. Interim relief and injunctions.Issue-wise Detailed Analysis:1. Dispute over control of Capital Land Builders (P.) Ltd.:The dispute arose between two family groups over the control of Capital Land Builders (P.) Ltd., a company incorporated in 1959. The primary contention was the ownership and control of the company's valuable land. The original shareholders included Shrimati Satya Chowdhry and Mr. Kishor Lal Sachdeva. The company's shares underwent several transfers, leading to a conflict over rightful ownership post the demise of Chowdhry Brahm Prakash in 1989.2. Validity of share transfers and ownership:The appellants claimed that the Shaheed Memorial Society, originally holding 500 shares, had transferred these shares to various parties between 1968 and 1989, leaving the society with no shares by the end of 1989. The respondents contested this, claiming the society still had an interest in the company. The appellants provided detailed records of share transfers, including original documents, transfer deeds, and annual returns, to substantiate their claim. The respondents failed to produce the original share certificate they claimed to possess.3. Proceedings before the Company Law Board (CLB):In 1997, the society filed a petition under sections 100 and 111 of the Companies Act, 1956, seeking rectification of the register of members. The CLB proceedings were contentious, with the society alleging improper removal of its name from the register. However, the original share certificate was never produced. In 2006, a letter purportedly from the company suggested re-entering the society's name in the register, leading to the withdrawal and subsequent restoration of the petition. Ultimately, the society's petition before the CLB was dismissed as withdrawn, leaving the issue unresolved.4. Alleged fraudulent activities and contempt of court:The respondents were accused of fraudulent activities, including filing false forms with the Registrar of Companies (RoC) and attempting to change the company's directorship and registered office without proper authority. The court found that Mr. Ajay Yadav had violated an injunction order by representing the company without lawful authority, leading to a finding of civil contempt. The respondents' actions were deemed an attempt to prejudice judicial proceedings.5. Interim relief and injunctions:The appellants sought an injunction to prevent the respondents from representing themselves as shareholders or directors and from dealing with the company's assets. The court found that the appellants had established a prima facie case, supported by original documents, and that the respondents had no standing in the company. The court vacated the ex parte injunction order but restrained both parties from disposing of the company's assets during the pendency of the suit.Conclusion:The court concluded that the appellants had established a prima facie case for interim relief, satisfying the triple test of prima facie case, balance of convenience, and irreparable loss. The respondents were restrained from acting on behalf of the company or dealing with its assets. The appeals were decided accordingly, with costs awarded to the appellants. The observations made were deemed prima facie and not prejudicial to the final trial.