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2019 (2) TMI 969
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....jee, Mr. Ratul Dasm L. P. Agarwala & Co. For the Petitioner : Mr. S. K. Kapur, Sr. Adv, Mr. Ravi Krishan Kapur, Mr. Aditya Kanodia, Mr. S. Sarkar, Mr. Debasish Das. For the Contemnor Nos. 1 & 2 : Mr. Abhrajit Mitra, Sr. Adv., Mr. Shatadeep Bhattacharya, Mr. Sanjeev Trivedi. For the Contemnor Nos. 12 to 20 : Mr. J. K. Mitra, Sr. Adv, Mr. S. S. Banerjee, Mr. A. Dutta. For the Contemnor No.21 : Mr. Utpal Bose, Sr. Adv, Mr. D. N. Misra, Mr. A. Dasadhikari, Mr. A. Dey, Ms. T Laha For the Contemnor No. 23 : Mr. S. N. Mookherjee, Sr. Adv., Mr. Suman Kr. Dutt, Ms. Swapna Choubey, Mr. Soumabho Ghose, Mr. Kumarjit Banerjee, Mr. Prasanta Naskar. JUDGMENT I. P. MUKERJI, J.:- FACTS IN BRIEF & ARGUMENTS The Sardas are a business family of Kolkata. Three brothers and their family members constitute this family. The brothers are Govind, Ghanshyam Das and Jagdish. Aditya is the son of Govind. He is the second respondent in this appeal. Amit is Govind's other son, the third respondent. As will appear from the facts narrated below, the sons had a large part to play in the family business dispute. There is a large tract of land of about 20,235 sq. metres on Jaipur Road, D....
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....rmission to the company to construct a hotel cum service apartment on the property. Mr. Ghanshyam Das, the brother who controls the appellants says that this grant of permission was concealed from him by his brothers and their group till May, 2013. Mr. Kapur, learned Senior Counsel for the appellants submitted that by a devious method the two brothers of the Govind Sarda group, with Aditya and Amit convened meetings of shareholders without serving any notice on his clients. In those meetings the shares of the Govind Sarda group were increased by allotment of the newly issued shares. As a result, the percentage holding of Ghanshyam Das Sarda which was 331/3 % was reduced to less than 10%, to about 6%. This is how it started. On 2nd January, 2009 a Board meeting of the respondent company was allegedly held where a decision was taken to hold its Extraordinary General Meeting on 20th February, 2009 for allotment of 100 shares each aggregating to 300 shares to the respondent Nos. 4 (Sanjay Rathi), 6 (Gobind Sharma) and 9 (Sobhanand Jha). According to the appellants, they did not receive any notice of this meeting. On 31st March, 2009 the Board of Directors consisted of Ch....
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....the presence of Om Prakash Thard as the representative of Yashdeep Trexim Pvt. Ltd. whereas the document at Pg. 1806 records his presence. Now Mr. Thard, now deceased is described as the representative of the Ghanshyam Das Sarda group in the meeting by his adversaries. This is hotly contested by Mr. Kapur. He says that on the contrary Mr. Thard was an associate of Govind Sarda. The minutes of the meeting of the Board held on 5th June, 2009 at page 1791 of the paper book reveal that there was a proposal to increase the authorized capital of the company to Rs. 1 crore by issue of 35,000 equity shares of Rs. 10/- each. The reason assigned was requirement of funds for expansion of the business of the company. Compare it with the minutes of the same meeting produced later by the respondent company at page 1832 of the paper book. The purpose disclosed is entirely different : for repayment of loans. Comparison of the two sets of minutes both for the purported Extraordinary General meeting of the first respondent company held on 12th August, 2009 is very interesting. One is at page 1770 of the paper book while the other at page 1810. In the first minutes, one Mr. Anil Sharma is....
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....cation was signed on behalf of the company by one Manish Chaudhary, a Director of Adarsh Bilt Estate Ltd. On or about 30th May, 2013 this permission was granted. On 25th July, 2013 Rs. 6,24,54,118/- was paid to the authority as conversion fee. If the shareholding of SEARS and Adarsh was investigated it would be found that Govind Sarda and his group were in control of both of them, Mr. Kapur emphasized. The design was to take the property away from Ghanshyam Das Sarda and his group by devious methods to themselves. The affairs of the first respondent company were being managed secretly so as to benefit the Govind Sarda group completely and to cause maximum loss to the Ghanshyam Das Sarda group. The latter group which was having 1/3rd share in the company was reduced to a non-entity, learned counsel submitted. Another most significant event in point of time happened on 5th April, 2010 when a Memorandum of Understanding was purported to be executed between the first respondent company and Sears Bilt Pvt. Ltd., the twenty third respondent. It was in the nature of an agreement to sub lease. Allegedly, on 8th April, 2010 possession of the property at Jaipur was granted to ....
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....discussed below. Therefore, the transfer in favour of Adarsh was squarely covered by the doctrine of lis pendis. The Supreme Court has consistently held that transfer of a property lis pendis is not valid, could not be acted upon, did not transfer good title to the purchaser and that the parties are bound by the final decree passed by the Court. [See Guruswamy Nadar Vs. P. Lakshmi Ammal (Dead) through LRS. and Ors. reported in (2008) 5 SCC 796, K.N. Aswathnarayana Setty (Dead) through Legal Representative and Ors. Vs. State of Karnataka and Ors. reported in (2014) 15 SCC 394, Kirpal Kaur Vs. Jitender Pal Singh and Ors. reported in (2015) 9 SCC 356] Even in a brief interlude between pendency of proceedings say, end of the trial court proceedings and commencement of the appeal, a property is not freed of the doctrine of lis pendis if transferred, as held by the Supreme Court in Jagan Singh (Dead) Through LRS. Vs. Dhanwanti and Anr. reported in (2012) 2 SCC 628. The document of lis pendis is based on justice, equity and good conscious. The purchaser of a property from the judgment debtor is presumed to be aware of the relevant proceedings and is covered by the doctrine as hel....
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....mpany had been saved from its liability to Upasana and Kajaria by the entry of SEARS Bilt Estate into the field. In fact, the three groups within the company had always wanted to dispose of the said property as would appear from the resolution of the Board of Directors of the company taken on 20th November, 2006 which was approved by the Extraordinary General meeting of the company on 13th December, 2006. The dispute between the parties is not with regard to whether the property should be sold but to whom it should be sold. Therefore, it is a dispute concerning sale of a particular property in which the ingredients of Sections 397 and 398 of the Companies Act, 1956 are not involved, it is submitted. According to the respondents, SEARS, Adarsh and the first respondent company are independent entities with which the other respondents have no connection. There is no common shareholding. The Directors are also not common. There was no subterfuge by the Govind Sarda group. The property changed hands in favour of the transferee. The property was not retained within one branch of the family working through a corporate network, as alleged by the rival group, it was argued by the lear....
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....thened his argument by citing the Andhra Pradesh decision in D. Ramkishore and Ors. Vs. Vijayawada Share Brokers Ltd. and Ors. reported in (2008) 144 Comp Cas 326 (AP). Mr. S.N. Mookherjee took the same point citing V.S. Krishnan and Ors. Vs. Westfort Hi-Tech Hospital Ltd. and Ors. reported in (2008) 3 SCC 363 which said that the Board was the final authority on facts, except when the findings were perverse or based on no evidence. Mr. Abhrajit Mitra cited Mahaliram Santhalia Vs. Fort Gloster Jute Manufacturing Co. Ltd. and Ors. reported in AIR 1955 Calcutta 132. He asserted the proposition that the contents of the minutes of the meeting of the Board of Directors or shareholders had to be prima facie taken to be correct, unless disproved. Learned Counsel Mr. S.N. Mookerjee showed me V.S. Krishnan and Ors. Vs. Westfort Hi-Tech Hospital Ltd. and Ors. reported in (2008) 3 SCC 363 where the following legal principles were articulated: 1. On a Certificate of Posting a presumption can be made that notices of Board meeting and Extraordinary General meeting have been properly posted and received, under Section 53(1)(2) and Section 172 of the Companies Act, 1956. 2. ....
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..... Vs. Dr. Rajkishore Tripathi and Anr. reported in (1977) 1 SCC 279, he said that when fraud and collusion were alleged, it was the duty of the appellants to give details or particulars thereof under Order VI rule IV of the Civil Procedure Code. Short of that, the Court ought not to believe them. In this connection he also referred to National Insurance Company Limited Vs. Boghara Polyfab Private Limited reported in (2009) 1 SCC 267, where the Supreme Court discussed the circumstances in which a contract is discharged. Paragraph 25 of the judgment was quoted below: "25. We may next examine some related and incidental issues. Firstly, we may refer to the consequences of discharge of a contract. When a contract has been fully performed, there is a discharge of the contract by performance, and the contract comes to an end. In regard to such a discharged contract, nothing remains - neither any right to seek performance nor any obligation to perform. In short, there cannot be any dispute. Consequently, there cannot obviously be reference to arbitration of any dispute arising from a discharged contract. Whether the contract has been discharged by performance or....
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....ny. The following important reliefs were sought from the Board: "a) The Board of the company be superseded forthwith. b) A scheme of management be formed for managing and administering the company on such terms and conditions as to this Hon'ble Board may deem fit and proper. c) ................. d) An order be passed directing removal of the respondent nos.2, 3 & 7 as directors of the company. e) Declaration that all purported Board Meetings and all purported resolutions of the Board of Directors of the company held subsequent to September 12, 2008 are null and void and not binding upon the company and its shareholders, including the petitioner. g) Declaration that the purported Board Meetings and a purported general meeting of the company purporting to show issue and allotment of 2860000 equity shares of and in the company in favour of the respondent nos. 4, 6, 9, 13 to 19 morefully described in Z, Z1 & Z2 are illegal, null and void and not binding upon the company, its shareholders, including the petitioner as restore the shareholders position as on the date of MOU. h) Alternatively, it be declared that the petitio....
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....pugned order of the tribunal the findings of the Board in this case with regard to the questions of fact have to be very carefully analyzed. On 1st August, 2013 the company law petition was dismissed by the Board. In Paragraph No. 20 of the judgment and order, the learned Judge recounts how the agreement dated 7th March, 2007 failed for want of permission from the Rajasthan state authorities to convert the leasehold into freehold land and to convert its user from industrial to residential purposes. In terms of the relevant clauses of the contract the first respondent company was obliged to refund the advance received by it from the intending purchasers. Since it did not have the funds to do so, it entered into an agreement, on 5th April, 2010 with Sears Bilt Pvt. Ltd. for a consideration of Rs. 31,46,00,000/- delivering possession of the property to them on 8th April, 2010. The learned member of the tribunal says that it was recorded in that agreement that at the time of execution of the instrument Sears Bilt Pvt. Ltd. had already repaid Rs. 12,21,60,304/- and Rs. 11,13,80,740/- to Upasana and Kajaria. Therefore, the Board felt that the agreement dated 7th March, 2007 had bee....
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....vant evidence on record, I am unable to allow the petition and the reliefs prayed for therein and accordingly, the said petition is hereby dismissed." EVENTS POST CLB. Now let us take a look at the several developments post filing of the Company Law Board application. On 28th March, 2013 an application was made by the first respondent company to the Jaipur Development Authority seeking conversion of the land to residential use. On 30th May, 2013 this authority approved the conversion and called upon one Manish Choudhary to make payment of the conversion fees. Now, Manish Choudhary is alleged by the appellants to be a Director of Adarsh Bilt Estate Ltd. whose role in the transaction will be known shortly. He signed the application. On 25th July, 2013 the conversion fee amounting to Rs. 6,24,54,118/- was paid by the first respondent company allegedly through Manish Choudhary. On 26th July, 2013 a new lease of the said land to be used for residential purposes was granted by the Jaipur Development Authority in favour of the first respondent company. On 1st August, 2013 the Company Law Board pronounced its judgment and order dismissing the company Law petition. On 2nd Aug....
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....the money received on account of issue and allotment of shares was quickly recycled to the account of Jupiter Finvest Pvt. Ltd. Thus, they maintained that the transaction for allotment of shares was followed so as to deprive the appellants and his group. Furthermore, the first respondent Company was not in need of any funds. By these acts the appellants has been reduced to an absolute minority. It was sought to be contended by the Govind Sarda group that one Om Prakash Tharad, now deceased was representing Yashdeep Trexim Private Limited on behalf of the appellants group and that the appellants had full knowledge of the meetings. This is very seriously denied by the appellants which says that Yashdeep Trexim Private Limited was never represented and that Om Prakash Tharad was an employee of Govind Sarda. The appellants says that SEARS can never claim title to the property. It is leasehold where the lease is granted by the State of Rajasthan in favour of SEARS Bilt Pvt. Ltd. There cannot be sale of a leasehold property in favour of SEARS, as they claim. DISCUSSION First of all, it is important to know the breadth of Sections 397 and 398 read with Section 402 of the Companie....
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....ted in a manner prejudicial to public interest or in a manner oppressive to any member or members ; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 398. Application to Tribunal for relief in cases of mismanagement.- (1) Any members of a company who complain - (a) that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or (b) that a material change not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company has taken place in the management or control of the company, whether by an alteration in its Board of directors, or manager, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such....
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....been done to him personally, and even though the majority of his fellow members do not wish the action to be brought. The form of his action in these exceptional cases is peculiar, because the plaintiff does not sue in his own right alone, but on behalf of himself and all his fellow members other than those, if any, against whom relief is sought. If the members sues for relief against the company, it must, of course, be made a defendant; if he seeks to enforce a corporate claim against other persons, the company must still be joined as a co-defendant so that it may be bound by the judgment, and so that it may enforce any order giving relief against the substantive defendants. The individual member's action in these exceptional cases may be described as representative, because it is brought on behalf of himself and persons other than himself. When relief is sought against third parties for the company's benefit, the action may also be described as derivative, because the individual member sues to enforce a claim which belongs to the company, and his right to sue is derived from it......................." It has to be seen whether the appellants could have maintained a ca....
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....ted therein to oppose the proposed resolutions. It is hard to believe that a group of shareholders having 1/3rd share in the company, would with their eyes open allow their percentage holding in the company to be diminished, without any participation. It may also be true that the said meetings were neither convened nor held. Fabricated minutes were brought into existence to justify the conduct of the Govind Sarda group. Before the Company Law Board and before me two sets of documents for each meeting of the board or the general body, were presented. This was occasioned because initially one set was produced before the tribunal. In the course of proceedings before it, the respondent company was asked to produce the original documents filed before the Registrar of Companies. The discrepancies are galore in the minutes, as noticed in this judgment. These discrepancies, amongst other factors are indicative of the fact that these socalled meetings of the Board of Directors of the general body of shareholders were very dubious, prima facie. If certain decisions or resolutions had been taken in a properly convened meeting of the board or the general body, this Court was bound to res....
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.... 719 cited by Mr. Abhrajit Mitra related to a finding of fact that breach of contract by a majority shareholder with the company would not amount to oppression of the minority. Plainly, that is not the case here. In M.S.D.C. Radharamanan Vs. M.S.D. Chandrasekara Raja and Anr. reported in (2008) 6 SCC 750 it was held that no doubt oppression would ordinarily be ground on which the jurisdiction of the Company Law Board could be invoked. In the interest of the company the Board had the power to pass any order for the welfare of the company. It also had the duty to protect the interest of the shareholders as a whole apart from the duty to remove oppression and mismanagement. The Madras High Court in K. R. S. Narayana Iyengar and Ors. Vs. T. A. Mani and Ors. reported in AIR 1960 Madras 338 said that the Court had the power to pass any just and equitable order and in this regard its discretion was unfettered. In Ghanshyam Sarda Vs. Sashikant Jha, Director, M/S J.K. Jute Mills Co. Ltd. and Ors. reported in (2017) 1 SCC 599 it was said that a property against which an order of injunction has been made could not be conveyed. If its conveyance has been done in violation of that inju....
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.... is alleged that one group of shareholders was divesting the only asset of the Company for their personal gain, could an action under Section 397 or Section 398 of the Companies Act, 1956, not be maintainable? Surely it is. Yet, the Company Law Board has come to the opinion that no case under Sections 397 or 398 of the Companies Act had been made out. With regard to the submission made by Mr. S. N. Mookherjee, there is no dispute with the proposition that rights and liabilities of the parties crystalise on the day of filing of the litigation. Thereafter, one has to see whether the law permits change of those rights and liabilities in future during the progress of the litigation. Usually, these rights and liabilities cannot be altered post filing of litigation, by law or unilaterally, by a party to it. One exception is express legislation or agreement. One example of this is the law regarding lis pendis. To the contrary is the law relating to succession which in the event of death of a party keeps on changing the rights and liabilities of the parties during continuance of litigation. Where change of circumstances become material, a particular litigant is entitled to bring o....
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....and Adarsh. The stamp papers for the transaction between the first respondent company and SEARS were purchased in West Bengal. The agreement was executed in New Delhi. The 5th April, 2010 Memorandum of Understanding between the first respondent company and SEARS Bilt was signed by Mritunjay Kumar Singh, the respondent no. 24 on behalf of SEARS Bilt describing himself as its authorized signatory. The cancellation agreement dated 27th December, 2010 between the first respondent and Upasana was signed by Mritunjay Kumar Singh, the respondent no. 24 who is also one of the Directors of SEARS Bilt. One Manish Chaudhary, a Director of Adarsh Bilt Estate signed the application on behalf of the first respondent to Jaipur Development Authority seeking the conversion of the property. When the matters appeared before this Court on 18th December, 2013 SEARS made a statement in this Court through Counsel that it had purchased the property on 2nd August, 2014. As there was a lot of apprehension in the appellants that the property would again change hands during the Christmas vacation, the Court after hearing the submission of learned Counsel for the parties passed an order recording an assuran....
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....n of the Govind Sarda group with Adarsh. I also have no hesitation to declare the transaction between SEARS and Adarsh as detrimental to the company. This Court has enough powers under Section 397, 398 read with Section 402, 403 of the Companies Act, 1956 to undo any act or declare it as void and not binding on the company or its shareholders. Applying the principle of lis pendis the property could not be divested from the first respondent company pending this appeal. So on both grounds, it remains with the first respondent company. I order accordingly. On these facts the Company Law Board ought to have heard the petition on merits instead of throwing it out. To my mind, there is no point in remanding the matter to the tribunal for fresh adjudication because that would delay the matters further and result in complication. Since the appeal is a continuation of the trial Court proceeding this Court has now to ascertain how on the above available facts and evidence which are prima facie, Court can do justice to the case. I pass the following order:- a) All meetings of the Board of Directors of the first respondent from 2nd January, 2009 are declared non-est. ....
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....istrators. All the six Joint Administrators will comprise the Committee of management of the first respondent. This committee will take decisions by 2/3rd majority only. j) The Committee shall immediately take possession of the Jaipur Property. It shall also be the sole operator of the funds of the first respondent in any bank account. It shall also take possession and control of the company and its assets. k) The Committee shall immediately take possession of bank accounts, cash and securities of Sears Bilt Pvt. Ltd. as on date, prepare accounts and keep the same separately. The committee will investigate the source of these funds. If they find that any part legitimately belongs to the first respondent, it shall transfer the same to the first respondent. I make it clear that Sears may deal with its current and future income and assets, and carry on its business without hindrance. l) This committee of management shall immediately upon starting to function cause a balance sheet and profit and loss account of the first respondent to be prepared for the last five years. m) This committee of management will ensure that the contract ....
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....as also recorded in the said order "All learned counsel appearing have made a joint statement that the subject matter of controversy in the appeals will not be disturbed by any party till this Court is in a position to hear out the appeals." The main acts of contempt are alleged to have been committed by the alleged contemnor Nos. 1 to 10. It is alleged that they had appointed a company Adarsh Buildestate Limited, the alleged contemnor No.11 as their agent to construct on the said property and develop it. A brochure was published by the first, second, third, fourth and fifth respondents for sale of the flats. The twenty first contemnor Indiabulls Distribution Service Ltd. was appointed as the sub-agent to facilitate this exercise. The sale in favour of the Sears Bilt (P) Ltd., the alleged contemnor No. 7 was suppressed from the court, it was alleged by the petitioners. It was sought to be impliedly suggested to the Court that the property remained in the hands of Govind Sarda and his group. In fact, a month before in November, 2013 an agreement had been entered into between the Sears and Adarsh under which the latter would develop and construct on the property. Thereafter, the p....
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....dertaking is a formal promise to the court to do something or to abstain from doing anything. The Supreme Court in Noorali Babul Thanewala Vs. K.M.M. Shetty and Ors. reported in (1990) 1 SCC 259 equated an undertaking to an order of injunction and said that breach of an undertaking amounted to contempt. The alleged contemnor may be asked to purge himself of the contempt. [See also Rama Narang (5) Vs. Ramesh Narang and Anr. reported in (2009) 16 SCC 126]. In Rita Markandey Vs. Surjit Singh Arora reported in (1996) 6 SCC 14, the Supreme Court through the judgment of Mr. Justice M.K. Mukherjee ruled that if instead of an undertaking a party made a representation before the Court which was acted upon by it and later the representation turned out to be untrue he was guilty of contempt in the same manner as if there was a breach of undertaking. The Supreme Court has gone to the extent of stating that an undertaking given to the Court on facts which the maker knows to be false or which he knows shall not be carried out amounts to contempt as held in Dr. (Mrs.) Roshan Sam Joyce Vs. S. R. Cotton Mills Ltd. and Ors. reported in AIR 1990 SC 1881. In order to ascertain whether a party ha....
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....t related to the above other issues. It is plain from the above authorities that there is no compulsory form in which an undertaking to the Court can be given. It may be according to a prescribed form by the Court or recorded in the Court order or may be found in any other records of the Court. The undertaking may be spoken or written but in sufficiently clear language which according to the ordinary meaning of the words is a solemn promise by the maker to the Court, based on which the Court does or refrains from doing an act it ordinarily would have done. The circumstances in which the order dated 18th December, 2013 was passed were that the Court was left with a choice whether to make an order of injunction asking the parties to maintain status quo with regard to the subject matter of the dispute. Now, at the outset, I say that this defence taken with regard to the subject matter not being the property but something else is absolutely ridiculous to say the least. There is not even an iota of substance in it. Everybody in the Sarda family knew, all their lawyers were aware and this Court was also fully conscious that the only thing the parties were fighting for was the Jaipu....