TaxTMI 
TaxTMI 
2009 (2) TMI 471
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....he Lodha family who in turn control respondent Nos. 6 to 9 companies. I will for convenience refer to the first Respondent as the Petitioner, the Appellant as the Appellant, the second Respondent as the company and the other parties as the other Respondents. 3. By the impugned interim order the Board of Directors of the company has been restrained from allotting shares to the Appellant on the basis of the conversion of debentures held by the Appellant and issued by the company in respect of an investment of Rs. 1,640 crores. The Petitioner seeks to assert his alleged right in respect of 200 shares held by his father by filing this petition on 15-12-2009, four years after his father's death. The records of the company show the shares as having been transferred to Respondent Nos. 3 and 4 on 26-3-2003. The Appellant is an innocent third party who in the year 2007 invested an amount of Rs. 1,640 crores in the company inter alia against debentures convertible in the event of any default in payment. Although the petition is based on alleged grievances against the other Respondents curiously, the only interim reliefs sought and obtained, in fact, benefit the company and the ot....
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....as further argued that the High Court has recorded its own finding on certain issues which the High Court could not go into and, therefore, the judgment of the High Court is liable to be set aside. We do not agree with the submission made by the learned counsel for the appellants. It is settled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on the question of law. The perversity of the finding itself becomes a question of law. In the present case we have demonstrated that the judgment of the Company Law Board was given in a very cursory and cavalier manner. The Board has not gone into real issues which were germane for the decision of the controversy involved in the case. The High Court has rightly gone into the depth of the matter...." [Emphasis supplied] (p. 236) In United Commercial Bank v. Bank of India [1981] 2 SCC 766, the Supreme Court held :- "52. No injunction could be granted under Order 39, rules 1 and 2 of the Code unless the plaintiffs establish that they had a prima facie case, meaning thereby that there was a bona fide contention between the parties or a serious que....
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.... of his contention on facts that he had any right, title or interest in respect of the said 200 shares originally held by his deceased father. This crucial aspect of the matter has not even been examined by the Company Law Board despite the fact that the said 200 shares is the only basis on which the Petitioner claims the right to maintain this Petition and indeed any right in the company. 8. There is no documentary record of any attempt on the Petitioner's part to have the 200 shares registered in his name till the filing of this Petition. Except for an alleged letter dated 20-11-2007, there is no documentary evidence even of an assertion of the Petitioner's right in respect of these 200 shares. He has attempted to furnish an explanation as to what transpired between 26-3-2003 and 15-12-2008 on which date he filed the petition. Thus, the verasity of the Petitioner's explanation of what transpired between 26-3-2003 and 15-12-2008 is most relevant. I will deal with the Petitioner's explanation/case of what transpired during this period stage by stage. The explanation for each stage considered independently is not believable. The explanation for all the stages viewed together i....
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....d in November 2005. The Petitioner filed the petition claiming to be the owner of these 200 shares by reason of his being the son of the said Madhukar Samant. It is merely stated that on the death of his father the Petitioner became entitled to the said 200 shares. 14. Firstly the Petitioner does not even state how he became entitled to the 200 shares which belonged to his father. Merely by virtue of being his son, the Petitioner does not succeed to the shares even assuming that they belonged to his father at the material time. It must be noted that the Petitioner does not state that his father died intestate and that he is the sole heir of his father. Nor does he state that his father died leaving behind a will naming him as the sole beneficiary in respect of the said 200 shares. From the petition therefore, it is not at all clear as to how the Petitioner claims to be the undisputed sole owner of the said 200 shares. 15. The Petitioner did not raise or make any claim in respect of the said 200 shares held by his father even after his father's death and up to the filing of the petition except by an alleged letter dated 20-11-2007 which I will refer to later. Nor did he make a....
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.... such transfer in the books of the company. The Petitioner further alleged that he made "repeated" requests to Respondent Nos. 3 to 5 to transfer the said shares to his name and to record the transfer in the records of the company and that Respondent Nos. 3 to 5 "repeatedly" assured him that they would record the transfer, but that they failed to do the same. 19. (a) Once again, there is no evidence whatsoever either in writing or otherwise to evidence the allegations. Surely if he actually had made "repeated" requests that the shares be transferred to his name and the Respondents "repeatedly" assured him that they would do so but did not, he would have recorded the same at some stage, in some form. 19. (b) Despite the other Respondents and the company having allegedly failed to transfer 200 shares in the Petitioner's name, the Petitioner admittedly took no steps under section 111 of the Companies Act or otherwise to compel the company to do so. Apart from the legal effect of the Petitioner having failed to do so, this conduct would at least prima facie, establish that the Petitioner made no application for the registration of the transmission of the shares in his name as he ....
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....03 on which date the Petitioner himself admittedly sold his entire 1800 shares. 24. The fourth stage of the Petitioner's explanation is with respect to his complete silence between 20-11-2007 and 15-12-2008, the date on which he filed the petition. The Petitioner even after the alleged requests did nothing for over one year. The Petitioner allegedly addressed a letter dated 20-11-2007 to the company inter alia requesting the company to transfer the said 200 shares to his name. The Petitioner stated that he would deliver up to the company the share certificates in respect of the said 200 shares as and when the same were required. According to him the company did not respond to the said letter. 25. There is no explanation why the Petitioner did nothing even thereafter for over a year. I am not inclined to let the companies conduct of not replying to the alleged letter dated 20-11-2007 prejudice the Appellant. The Company has been the real beneficiary of the Petitioner's applications and the orders of the Company Law Board. 26. The petition was filed on 15-12-2008 i.e., more than one year after the alleged letter dated the 20-11-2007. The Petitioner thus had to explain the de....
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....hing a prima facie case as pleaded by him in respect of his entitlement to the said 200 shares. 29. (a) In the year 2007 the Appellant and the company entered into a transaction which involved an investment of Rs. 1,640 crores by the Appellant in the company. The Appellant did so by subscribing to deben- tures which carried interest at 13.65 per cent payable quarterly. A subscription agreement was executed between the other Respondents, the Appellant and D.B. Trustees (Hongkong) Ltd. in relation to the subscription of the debentures along with a trust deed executed between the same parties. Pursuant thereto, the Appellant was issued and allotted 223 equity shares. 29. (b) Pursuant to these agreements, four interest payments aggregating to Rs. 185,74,99,558 were made by the company to the Appellant. 30. At no stage were any proceedings adopted by the Petitioner. It is significant to note the timing of this petition. The next instalment of quarterly interest was due on 31-12-2008. The petition was filed on 15-12-2008 and an ex parte application without notice to any of the parties, including the Appellant, was made before the Company Law Board. 31. On 16-12-2008, the C....
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.... that the facts were not brought to the notice of the Hon'ble Company Law Board. The reasons for holding that these instructions were false, are contained in the said order dated 22-1-2009. Paragraph 8 of the order reads as under:- "8. Firstly, Mr. Madon's interpretation of the order is incorrect. A plain reading of prayer 11.3(a)(vi ) shows that it is not limited only to an injunction restraining shares being allotted to the Appellant by converting the debentures. Mr. Madon was unable to explain how this prayer could be so read. Secondly, the falsity of the above contentions is ex facie apparent from prayer paragraph 11.3(a)(ii ) which reads thus :- '11.3 In such circumstances, the Petitioner prays that pending the hearing and final disposal of the captioned Petition, the following interim reliefs be granted:- (a)**** ** (i)**** ** (ii )Diluting the Petitioner's shareholding, whether by issuing further shares or by converting the debentures or in any other manner.' If indeed Respondent No. 1 intended to limit his application before the CLB, as contended by Mr. Madon, the application would have been made in terms of prayer paragraph 11.3(a)( ii) and not 11.3....
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....ween the Appellant and the company, whereunder the Appellant has invested a sum of Rs. 1,640 crores. The impugned order as well as the earlier ad interim order which was passed without hearing the Appellants, operated not against but entirely in favour of the company and prejudiced only the Appellant. The earlier ad interim order dated 16-12-2008 had the effect of even preventing the company from making payment of the Appellant's dues. As recorded in detail, in the order dated 22-1-2009, in the earlier Company Appeal on behalf of the Petitioner, it was in fact contended that that was not the purport of that order. It was contended that the effect of the order was only to restrain the company from issuing shares to the Appellant and not to prevent the company from making the payment to the Appellant under the transactions. As I noted in the said order this construction was incorrect and the submission was not only unfounded but false and even unfair to the learned Member of the Company Law Board. 36. It is important to note that there were no allegations whatsoever against the Appellant. It was so recorded in the order and judgment dated 22-1-2009 in paragraph 5 which reads as....
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....t it is "probably" the moneys of the other Respondents which are sought to be legalized by such arrangements between the other Respondents and the Appellant and that therefore the Petitioner has "reasons to believe" that the transactions are violative of the Companies Act and the FERA. The Petitioner further states that it is crucial to understand the money laundering involved in the present case. There is no evidence whatsoever in this regard. There is in any event nothing which even remotely links the Appellant to these unsubstantiated allegations. 39. Mr. Kamdar fairly conceded that there was no evidence. Mr. Kamdar only submitted that "all this will be seen at the final hearing". 40. Indeed "all this" and everything else will be seen at the final hearing. That however does not absolve the Petitioner from establishing a prima facie case in regard to "all this". The Appellant's contention that this affidavit was filed only to overcome the observation in paragraph 5 of the order and judgment dated 22-1-2009 is well-founded. Indeed, had the Petitioner been serious about these allegations they would have not only found place in the petition but constituted an important part....
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....lied upon prayer 11.3(a)( ii) which reads as under :- "Diluting the Petitioner's shareholding whether by issuing further shares or by converting the debentures or in any other manner." He stated that this was the limited injunction sought by the Petitioner but that the Company Law Board however erroneously passed an injunction in wider terms. The argument based on prayer 11.3(a)( ii) misses the fact that the other prayers for interim reliefs included a restraint of the conversion altogether. (b)Mr. Kamdar submitted that the fact that the Petitioner only sought protection of his right to 10 per cent of the equity shares is clear from the following observation in the impugned order :- "Originally Mr. Madhukar Samant holds 10 per cent of the paid up capital of the Company. That means on voluntary winding up of the Respondent No. 1-Company, he is entitled to 10 per cent of the Company's assets. The Bank namely Deutsche Bank found the Company to be worthy of advancing Rs. 1,640 crores as debenture loan. If the present actions as decided by Bank and Lodhas are allowed Mr. Madhukar Samant will not get anything from Respondent No. 1-Company. This, his son Mr. Vilas Samant in hi....
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....s not sustainable even to the extent of the limited protection now sought. On the other hand, the grant of the injunction has the most severe and drastic consequences. Firstly, it frustrates a banking transaction disabling the Appellant from protecting its investment of Rs. 1,640 crores. Secondly, there is no security or safeguard of the Appellant's rights if the petition is ultimately dismissed. If such petitions are encouraged it would shake the confidence of investors not merely in the company but generally. 52. This appeal must therefore be allowed on the basis of what is held above alone. The appeal must be allowed on the basis of what is not considered by the Company Law Board viz., the issue of whether the Petitioner has made out a prima facie case, whether the Petitioner had established that the balance of convenience was in his favour and whether the refusal of the interim relief would have caused greater harm to the Petitioner than the grant thereof has caused to the Appellant. The Company Law Board has also not considered the Petitioner's dishonest conduct throughout. 53. The appeal must also be allowed on the basis of what is held in the impugned order. In the fac....
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....nst the other Respondents and stated that they did not argue it except to say that the Petitioner is not a member of the company and that they did not produce the transfer forms of the shares claimed by the Petitioner through his father, the minutes of the meeting where transfer of shares were approved under the chairmanship of the Petitioner and therefore kept the matter to be argued at the final stage. 59. That the other Respondents "did not argue much" as observed in the impugned order, cannot possibly prejudice the Appellant's case. I am not inclined to draw any adverse inference or to hold anything against the Appellant based on the conduct of the other Respondents who are the real beneficiaries of the orders of the Company Law Board. In fact, it is obvious that the real beneficiary of the ad interim order and the impugned order is the company. Being the beneficiary of the orders it is not surprising that the company and the other Respondents may have done little to challenge the Petitioner's case. 60. Mr. Sancheti, the learned counsel appearing on behalf of the company, submitted that the Appellant is not entitled to exercise its right of conversion even though the comp....
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....y conversion even on one instalment failure the Respondent No. 1-Company will become almost 100 per cent subsidiary (to say 99 per cent shareholding will be held by the Deutsche Bank). The funds diverted are safe for they will be recovered and also the Bank will get hold of Respondent No. 1-Company which is found to be worth enough to advance and invest funds to the tune of Rs. 1,640 crores. None of the Respondents nor the Deutsche Bank has disclosed what are the asset value of Respondent No. 1-Company. It is surprising that the Lodhas have gifted the Respondent No. 1-Company to Deutsche Bank for no consideration or for unknown consideration which is not disclosed to anybody. Therefore it requires an indepth inquiry as prayed for by the petitioner in the petition under sections 397-398." 64. I would not interfere with a finding of fact. This finding however, is entirely without any basis. The finding is based purely on conjuncture. There is nothing on record which even remotely justifies this finding. It does not require any involved process of reasoning to realise that there is no guarantee whatsoever of the Appellant's dues being secured, as suggested in the impugned order. Th....