TaxTMI 
TaxTMI 
2014 (3) TMI 1100
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....p the business as initially agreed, that the petitioner has come to know that R-7 is likely to create third party rights over the valuable assets of it, that the Respondents 2-6 denied to allow external audit by any one of the big four Accounting Firms to ascertain true state of affairs of R-1, R-7, R-S a R-9, that the respondents wrongfully and wilfully delaying transfer of ownership rights of the company land lying in the name of R-10 to R-20, therefore the petitioner has sought interim reliefs for audit of R-1, R-7, R-8 and R-9 by any one of the big four Accounting Firms and to maintain status quo over the shareholding/stake/control and fixed assets of R-1, R-7, R-8 & R-9 & R-10 to R-20, pending disposal of the company petition. 2. The petitioner company (CPI India Real Estate Venture (P.) Limited), a foreign company by way of a FDI, has invested around Rs. 123.5 Crores as 50% shareholding in R-1 company (called Perpetual), brought into existence as SE2 for setting up Information Technology/Information Technology Enabled Services (STOR), wherein R2, Five Star Promoters (P.) Ltd. (called as Five Star) and R3, Ocean Buildmart (P.) Ltd. (called as Ocean Buildmart) agreed to bring ....
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....epriving R-1 of these funds and indulging in financial investments which could be described as round-tripping funds for providing illegal benefits to R-2 to R-6. They have indulged in related party transactions with various parties not at arm's length basis. Despite repeated requests from the petitioner, they have not produced any documentary proof relating to utilization of the said money, which appears to be a subterfuge to siphon off the money from the company. The respondents, to cover up their opaqueness, refused to appoint any one of the big four auditing firms as the external auditors to audit the companies involved in siphoning the funds of R-1 Company. 6. The petitioner counsel further submits Kabul Chawla and Thripati (R 5 & 6) have used the company as their alter ego and private property and have tried to destroy the value of R-1 Company and its assets so that R-1 could be used for Exclusive profit of R-2 to R-6. The respondents held meetings to propagate and justify the actions of R-2 to R-6 but not to take decision how to make the project take off. R-2 to R-6 have continuously denied basic shareholder rights to the petitioner relating to information regarding busi....
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....he business as mandated in the Articles of Association, for having eroded the company substratum, for having indulged in financial irregularities, for having denied shareholders' right to the petitioner, the petitioner prays this Bench to pass interim reliefs to seek an audit into the affairs of R-1 company, to seek an audit of Triangle, Vital and Native (R-7, R-8 & R-9) by any one of the big four accounting firms and also a restraint order not to create any third party rights over the company land lying in the name of R-10 to R-20, and also not to create any encumbrance whatsoever or create third party rights in any manner whatsoever, on any immovable property possessed/owned by R-7, until the pendency of the petition. 12. To which, the respondents side has stated it has no objection for inspection and audit of R-1 company by any one of the big four accounting firms and also to pass a restrain order over the company land lying in the name of R-10 to R-20 but not to create any third party rights over the fixed assets of Triangle, Vital and Native (R-7, R-8 & R-9) or for inspection of R-7, R-8 & R-9 because R-7 is a separate company wherein petitioner has no shareholding, there....
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....mentioned as the object of the company, the management in company corresponded with the petitioner saying it is feasible for development rather than going for a business mentioned in the objects of the company. 14. Senior Counsel Shri S.N. Mookherjee, appearing on behalf of R-5 & R-6 argued since there being an explicit agreement from the petitioner allowing R-l company to create or invest total subscription amount either in R-4 or in its subsidiaries, as specified by the promoters or BPTP Ltd. the Board Resolution passed in pursuance of that Article of Association will not become a major decision, therefore, the Board Resolution passed investing this money in R-7 company, subsidiary of R-4 company, will not become diversion of funds or a major decision causing potential deadlock in the company. Hence, the petitioner has no right now to give an impression that investment in R-7 is diversion of funds of R-1 Company to the subsidiary of R-4 Company. 15. Senior Counsel Dr. Abhishek Singhvi, appearing on behalf of R-7, stated that the petitioner not being a shareholder in R-7 company, R-1 not being a company holding more than 10% equity in R-7, the petitioner has no right to ask for ....
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....e petitioner remain forever in R-7 without any information or clue to the petitioner, especially when no progress is likely to take place in near future to the project relating to Information Technology. If the project really comes up as agreed, it will generate employment to the citizens of this country, perhaps for that reason alone, state is providing incentives like stamp duty exemption and other exemptions, but now the promoters have come up with a new idea for development on the ground the project initially thought of is not viable and feasible. When it is in the mind of the respondents that they could not go ahead with project of R-1, then they should have placed all the information in relation to the petitioner's investment, a new decision should have been taken making efforts either for change of objects and articles suitable to new thought, instead of doing the same, the respondents simply explained it away by saying since there is an agreement in between them to let this money be used by BPTP or its subsidiaries, they will not provide any information to the petitioner relating its investment. For having the respondents admittedly not willing to disclose the true pict....
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....95 (1) SCC pg 478] to say that for the fulfilment of modem commerce and concept of joint venture partnership, the covenant of good faith is implied as a matter of law. It was held that when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defined crime, the law would regard the corporation as an association of persons, not as a company. This concept is obviously applicable to the facts of the present case. 22. The petitioner counsel also relied upon Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. [AIR 1965 (Guj.) 96] to say that it is imperative to look into the business realities of the situation and does not confine them to narrow legalistic view, meaning thereby though any resolution or any act done by way of parties, may be perfectly legal, yet oppressive, if it is burdensome, harsh and wrongful. 23. The petitioner counsel also relied upon Sangramsinh P. Gaikwad and Ors. v. Shanti Devi P. Gaikwad through LRs and Ors. [2005 (11) SCC 314] to say that if the conduct complained of reflects slightest departure from the standards of fair dealing and violation of the conditions of fair-play on which every shar....
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....ompany, but money of the petitioner has gone into R7 and enjoying it without any accountability for the last five years. It is pertinent to note R7 is the company indirectly controlled by Mr. Kabul Chawla. Hence, the ratio decided above is not applicable to the present case, because in the above cases the aggrieved is admittedly not a member in the company where he is required to be a shareholder as laid under section 399 of the Companies Act. 30. He also relied upon Shanker Sundaram v. Amalgamations Ltd. [2001 (104) Comp Cas 638] to say that a shareholder of a holding company cannot, by arraying subsidiaries as parties, seek relief against the subsidiaries in terms of Sec. 402. Here this ratio is not applicable because this Bench holds Triangle (R7) is alter ego of Mr. Kabul Chawla (R5). 31. The counsel for R-7 relied upon Incable Net (Andhra) Limited & Ors. v. A.P. Aksh Broadband Limited & Ors. [2010 (6) SCC 719] to say that petitioner cannot raise contractual dispute before CLB u/s. 397 & 398 of the Companies Act. 32. In the case supra, R1 Company gave a turnkey contract to R5 controlling 60% shareholding in R1 Company. The petitioner 2 was instrumental in entering into contr....
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....tal either in the form of money or in the form of land has come into R1 company from the promoters, but these promoters lifted the entire paid up capital contributed by the petitioner to Triangle (R7) and milking it for the last 5 years, therefore this act of R-7 cannot be seen as separate from the affairs of the R-1 company. The Respondent counsel argued investment in Triangle is not a siphoning, because money went into Triangle to the knowledge of the petitioner, right, it may not fall within the meaning of siphoning when it came into the company, but thereafter, if that money is retained beyond reasonable time and beyond legitimate expectation of the petitioner, particularly when R1 company project has become a dead story, and R7 making money on somebody's money saying since there is an agreement the petitioner shall shut his eyes from Triangle business, then I honestly believe it is grave prejudice and oppression against the petitioner. Therefore, the ratio decided in Incable is not applicable to the present case. 33. He also relied upon Sangramsingh P. Gaekwad & Ors. V. Shanta Devi P. Gaekwad (Dead) through LRs. & Anr. [2005 (11) SCC 314] to say that the proceedings u/s. ....
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....gement is unfair to the other shareholders. In fact, the directors in management have fiduciary duty to provide information to the shareholders, and the onus will be heavy when it is joint venture. This case is also a dispute in relation to fiscal matter, therefore the ratio in it is not applicable to the present case. 36. R-7 counsel also relied upon In Re : Bengal Luxmi Cotton Mills Ltd. [1965 (35) Comp Cas 187 @ para 136] to say that if delay in seeking the remedy discloses acquiescence or condonation of wrongful acts, the discretionary relief u/s. 397 & 398 of the Act will not be granted. This acquiescence is applicable when the petitioner has not raised any issue for considerable period over the acts completed, here the petitioner agreed to let the money used by the promoters in the belief that R1 company project would take off once the petitioner invested subscription money, but nothing happened till date, it appears it is sure nothing will happen in R1 company, then is it justifying on the part of R5 to keep this money for his benefit through his alter ego R7 company? In Bangaru Laxman, Supra, it is in relation to acts happened in past, but in the present case, it is not pa....
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....ne to R-4 or its subsidiaries, would come back for the use of R-1 company. Since nothing has happened for the last five years in R1 Company, it is prejudicial to the petitioner and unreasonable to keep the petitioner in dark about its investment on the ground R-7 is not a subsidiary company to R-1 Company. 38. By seeing it, it is evident Kabul Chawla (R5) is the person directly or indirectly having almost 100% shareholding in R2 & 3 holding 50% shareholding in Perpetual (R-1) through R2 & 3. This Kabul Chawla has around 90% shareholding in BPTP (R-4); which in turn has 100% shareholding in another company called Triangle. Therefore, it is clear; Mr. Kabul Chawla pops up in different masks as BPTP, Triangle and other companies. Not only is this, the land shown as company land in companies R10-20 are belonging to Kabul Chawla. The outsider in this cobweb is the petitioner, its money has come to Triangle through BPTP in the year 2009, ever since, and it has been doing business without any clue to the petitioner. When the petitioner tells that these respondents not even making it know to it as to what is happening to its money, when it has asked for external audit of the books of Tria....
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....nd remedies upon the parties to the agreement. Right of exercising these rights will travel along with substratum of the agreement, rights will travel as the substratum travels, for this reason alone, sometimes rights will be exhausted, sometimes obligations gets discharged, sometimes right of remedy gets accrued, sometimes right of remedy gets exhausted, it all depends on the movement of the substratum. If we see possessory rights, they stay with the man possessed of the substratum. Likewise, when money goes from A to B, A will have a right of recovery, B has an obligation to return it, as long as it is not returned, B is accountable to it and A's right of remedy will run side by side wherever A's money goes. If the substratum has gone out, even if a decree/order is obtained against debtor simplicitor after the value attached to him has gone out, it will become a paper decree without any enforcement in it. For this reason alone, attachment before judgment has come into existence, so that decree could be executed after judgment by proceeding against attached property in respect of unsecured debts. When an unsecured creditor could realise his debt from the borrower by obtain....
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.... going by the ratio decided by the constitutional courts. As and when a dispute decided by the courts in relation to oppression, it is only held that the definition of oppression will be construed from the facts available in the given case. Here, the petitioner put in its money five years ago, nothing has happened in R-1 Company. It has virtually remained a shell company, but whereas the money invested by the petitioner - about Rs. 123.50 Crores, has gone into R-7 company and R-7 company has been carrying its business which is nothing but alter ego of Chawla, who is managing R-1 company. When the petitioner asked for the inspection and audit of the accounts financials of R-7 Company, it has virtually refused to provide any clue as to what has been happening to the investment made by the petitioner. 43. Since it is abundantly clear that R-4, R-7, R-8 & R-9 and other companies are alter egos of R-5 who is managing R-l Company, he is under obligation to explain to the petitioner as to what is happening with the money the petitioner invested in R-l Company. The conduct of R-5 and R-6 continuing as directors in R1 Company, clearly discloses that they are not inclined to disclose the in....