TaxTMI 
TaxTMI 
2014 (7) TMI 1337
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....s resulted in the suppression which goes to the route of the matter resulting in the Petition being not maintainable. It has also been mentioned in the instant Company Application that the Petitioner has claimed in the Petition that he was holding 6260 equity shares in the company and on that basis, he has filed the present Petition claiming that till the year 2003, he had 18.82% of the total number of paid up shares which was 33,260. In addition, the Petitioner has also claimed that in the year 2004, because of increase of the total paid up shares to 65,000 his holding had remained at 6260 shares and thus reduced to 9.63%. Again, it has been alleged that in the year 2005, because of further increase of total paid up shares to 1,90,000, his shareholding had become 3.29% since his share holding remained at 6260 shares. In this regard, the Respondents/Applicants Advocate has pointed out that the Petitioner has been holding 3000 shares of the company as the Karta of the HUF and there is serious dispute which has resulted in Suit No. 870/1986 which is pending as on date in the Delhi High Court and the Receiver has been appointed in the matter. Accordingly, the Receiver is the custodian....
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....itled to maintain the present Petition. The company before the increase of the shares had 33,260 paid up shares out of which 3260 shares were being held by the Petitioner and thus, the Petitioner even till 2003 held less than 10% of the total paid up shares. Even these 3260 shares have been attached by the Income Tax Department. In respect of the 3000 shares held by the HUF, the Petitioner as Karta could not club the same to the shares held by him in his personal capacity. Moreover, all 3000 shares are under the custody and control of the Receiver and the disputes relating to the same are pending before the Delhi High Court and hence, these shares cannot be taken into account in the Petitioner's entitlement to file the present Petition. As a matter of fact, the Petitioner is required mandatorily to remit all dividends in respect of these shares to the Receiver. Therefore, it has been contended that the Petition deserves to be dismissed in view of the non-fulfillment of provisions of Section 399 of the Companies Act, 1956 and in any event, the Petition deserves to be stayed till such time that the disputes relating to the HUF is decided by the Delhi High Court and the attachment....
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....old equal shareholding or parity in the shareholding in Respondent Company and this fact is confirmed from the fact that the other three brothers were holding equal number of 9000 shares each prior to fraudulent increase in the shareholding pattern by the Respondent and Petitioner. In addition, it has been pointed out that there is no material on record to substantiate the allegation that 3000 equity shares of the Respondent Company are held by the HUF, as alleged and legally no shares could be held in the name of HUF. It has also been submitted that the Petitioner is known by both the names and is one member and therefore, it has been denied that Lt. Col. Sawai Bhawani Singh is another separate member, as alleged. It has been denied that the 3260 shares held by the Petitioner in his personal capacity have been attached by the Income Tax Department, as alleged. In this connection, it has been underlined that even from the documents filed by the Applicant, it is clear that the Department has attached only dividend payable on such shares and therefore, the rights of Petitioner as shareholder/member is not defeated/curtailed in any manner by the Order attaching dividend under Section ....
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....ted out that in the Board Meeting dated 17.3.1976, 3000 shares were allotted separately in the name of H.H. Maharaja Sawai Bhawani Singh of Jaipur and 3260 shares in the name of Lt. Col. Bhawani Singh. Furthermore, as and when notices of meetings of the Shareholders' are issued, they are issued separately to two members namely, Lt. Col. Bhawani Singh and H.H. Maharaja Sawai Bhawani Singh and as and when dividends are declared, the amount of dividends are sent separately. 3.1 It has also been emphatically stated that there is Partition Suit No. 870/1986 pending in the Hon'ble High Court for partition of properties of HUF of Late Maharaja Sawai Man Singh of Jaipur in which these 3000 shares of Rambagh Palace are involved and in the said matter, the Hon'ble Supreme Court on appeal of the Delhi High Court Order has appointed Receiver on all the properties of HUF of Late Maharaja Sawai Man Singhji of Jaipur and thereby, the Receiver appointed by the Hon'ble Supreme Court is the custodian of the above 3000 shares of Rambagh Palace issued in the name of H.H. Maharaja Sawai Bhawani Singh. To further clarify the matter, the Assessment Orders of the Wealth Tax Officer for ....
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....tain the present Petition and the Petitioner even till 2003 held less than 10% of the total paid up shares and even 3260 shares have been attached by the Income Tax Department. Besides, in respect of 3000 shares held by the HUF, the Petitioner as Karta could not club the same to the shares held by him in his personal capacity. In any event, all these 3000 shares are under the custody and control of the Receiver and the disputes relating to the same are pending before the Delhi High Court. As a matter of fact, a Receiver has been appointed in the matter and the Receiver is the custodian of 3000 shares till the entitlement of these 3000 shares are decided by the Hon'ble Delhi High Court. 4. The Petitioner/Non-Applicant Advocate argued that the total paid up share capital of Respondent Company was 33,260 shares of Rs. 100/- each fully paid up as on 31.3.2003 and somewhere in the year 2003, 2004 and 2005, the Respondents made illegal and fraudulent allotment and/or issued additional shares in favour of Shir Vijit Singh (S/o Maharaja Prithvi Raj) and Maharaja Jai Singh. While doing so, the authorized share capital of the company was increased illegally and by illegal unauthorized....
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....Rajkumar Deveraj & Anr. v. M/s. Jai Mahal Hotels (Private) Limited [2006] 134 Comp.Cas 405(CLB) wherein the Respondent has challenged the maintainability of the Petition and this Hon'ble Board while dismissing the Application in terms of Order dated 25.8.2006 held that it is not permissible to look in the pleas raised in the Application or any piece of evidence filed by the Respondents and the relevant portion of the judgment is reproduced below:- "12 Therefore, to decide whether the Petitioners have fulfilled the requirements of Section 399, I have to only examine the averments in the Petition............Thus, without any additions or subtractions, the pleadings reveal that the Petitioners are entitled to 2/3rd of the shares held by the deceased which is in excess of 10% of the then existing issued and paid up share capital. Even after the allotment of shares impugned in the Petition, the Petitioners constitute more than 1/10th of the total membership. Thus, in the pleadings, the Petitioners have established that they are qualified in terms of Section 399 of the Act to file this Petition. In view of this, I need not have to consider any of the objections raised ....
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....7 and 398 of the Companies Act, Counsel for the Respondents had taken an objection that the company Petition was not maintainable and should be dismissed under Order 7 Rule 11 (a) of the Code of Civil Procedure, 1908 as disclosing no cause of action. It must also be noted that in the days before the establishment of the CLB, Petitions complaining of oppression and mismanagement were being filed before and dealt with by the High Court. Under Rule 6 of the Companies (Court) Rules, 1959, the provisions of CPC, so far as they are applicable, applied to all proceedings under the Companies Act. Even so, the objection of the Respondents in that case that the Company Petition should be dismissed in limine on the ground that it did not disclose any cause of action was rejected. The reasoning of the Bombay High Court runs as under:- "I am of the considered opinion that the judgment in Khimji M. Shah V. Ratilal Damodardas Modi, [1988] ML 38: [1990] 67 Comp Cas 185 (Bom) has correctly interpreted the law laid down by the Supreme Court. Even the Supreme Court in the case of Kalhiga Tubes Ltd.: (1965) 35 Com Cas 351; AIR 1965 SC 1535, has held that facts and events leading up to t....
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.... Therefore, merely because the Petitioner has used two different titles, does not give liberty to the Respondent Company to allege that the shares are held in different capacities i.e. in individual capacity and as Karta of HUF. Moreover, the plea that shares are held as HUF cannot be entertained at the stage while deciding the maintainability, demurrer in nature, as only the allegations in Petition or documents filed along with Petition could be looked into and they are to be taken as true and correct and no new fact or defense can be entertained at this state. Not only this, it is also settled proposition of law that shares cannot be held in the name of HUF which is not a legal entity. In this context, the judgment in the case of Radhey Shyam Gupta & Anr. v. Kamal Oil and Allied Industries Ltd. & Ors. 2001 (103) Company Cases 337 and the relevant para is pleaded below:- ".......Section 164, inter alia, stipulates that the Register of Members, and the Annual Returns. Certificates and statements referred to in Sections 159, 160 and 161 shall be prima facie evidence of any matters directed or authorized to be inserted therein by the Act.... ......Beside....
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....s amount due to the shareholder from the Company and hence, the Company is debtor to shareholder for the amount of dividend. It has also been submitted that the notice makes it clear that dividend on shares, if declared, is sought to be attached by the Income Tax Authorities and by no stretch of imagination dividend/income declared on shares of Petitioner by Company could be termed as 'amount due on the shares of Petitioner to the Company' rather it is an amount due to the Petitioner/shareholders from Respondent Company and hence, it is the liability of company to pay the amount of dividend to Income Tax Authority. The Petitioner Advocate has pleaded that the attachment of income by declaration of dividend could not be termed as 'other sum due on the shares' held by Petitioner and therefore, by attachment of dividend the right of Petitioner is not curtailed to file Petition. Over and above, it has been emphasized that even the attachment though there is no attachment of shares, does effect title/ownership of Petitioner to the shares. Actually, the company is legally bound to treat the shareholder as members hence, he remains owner and his name is registered in the m....
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....attachment. Until the property is actually sold, the judgment-debtor retains title in the property attached. Under Rule 76 of Order 21 of the Code of Civil Procedure 1908, the shares in a Corporation which are attached may sold through a broker. In the alternative such shares may be sold in public auction under Rule 77 thereof. On such sale either under Rules 76 or under Rule 77. the purchaser acquires title. Until such sale is effected, all other rights of the judgment-debtor remain unaffected even if the shares may have been seized by the officer of the Court under Rule 43 of Order 21 of the Code of Civil Procedure, 1908 for the purpose of effecting the attachment or through a Receiver or though an Order in terms of Rule 46 of Order 21 of Code of Civil Procedure may have been served on the judgment-debtor or on the company concerned. 32. An Order of attachment cannot, therefore, have the effect of depriving the holder of the shares of his title to the shares. We are of the view that the attachment of the shares in the Polytex Company held by the Cotton Mills Company had not deprived the Cotton Mills Company of its right to vote at the meeting or to issue the notice....
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....operty does not vest in him. The privileges of a member can be exercised by only that person whose name is entered in the Register of Members. A Receiver whose name is not entered in the Register of Members cannot exercise any of those rights unless in a proceeding to which the company concerned is a party and an Order is made therein. In Mahathalone V. Bombay Life Assurance Co. Ltd. 1954 SCR 117: (AIR 1953 SC 385), it has been laid down clearly that Receiver appointed by a Court in respect of certain shares which had not been duly entered in the Register of Members of the company concerned as belonging to him could not acquire certain newly issued shares which could be obtained by the members of the company." In view of the above, the Petitioner Advocate has argued that neither the attachment nor the appointment of Receiver curtail the right of the Petitioner to file the present Petition. The Petitioner Advocate has further pleaded that the judgment relied by the Respondent Advocate in support of its argument that in case of appointment of Receiver permission is required of the Court are not applicable to the facts of present case. In fact, the proceedings are initiated against....
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.... "(i) In respect of 3000 shares, the Hon'ble Supreme Court of India has appointed a Receiver vide Orders dated 20.10.1992, 06.11.1992 and 13.11.1992 in Civil Appeal No. 4492 of 1992. (ii) In respect of 3260 shares, the Deputy Commissioner of Income Tax, Special Range, New Delhi vide Order dated 28.9.1994 has informed the Respondent No. 1 Company about the income tax arrears due to the extent of Rs. 8.50 crores against Brig. Bhawani Singh and in this regard a notice under Section 226(3) of the Income Tax 1961 dated 28.9.1994 has been served on the Company informing therein that the shares are attached and dividend in respect thereto be paid to the Deputy Commissioner, Special Range, New Delhi. Thereafter, another notice under Section 226(3) of the Income Tax dated 14.7.1995 is also served on the company to the same effect. Since then, the company under intimation to the Petitioner in his individual capacity being the owner of 3260 shares only is remitting the dividend to Income Tax Department and the process was in place even on the date of filing of the Petition and even as on date. (iii) In view of the notice u/s. 226(3) of the Inco....
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.... and payable on the shares and hence, the Petitioner cannot transfer the shares. The legal consequence of not paying dividend to the Income Tax Department would be that the Department in accordance with Section 226(x) would be entitled to sell the shares attached in the market. In regard to the Petitioner's arguments that the amount due on the shares must only be 'due to the company' and not to any third party, the Respondents Advocate has pointed out that such an interpretation is absurd in view of explicit provisions which nowhere states that the amount due on the shares must be due or payable only to the company. If this interpretation is sustained, it will amount to adding words to the section which is not permissible in law as tool for the interpretation of the statue. Therefore, the words 'any other sum due on their shares' must be given a full and wider meaning and cannot be restricted to the amount or the sum due only to the company in respect of the said shares. In this connection, the judgment in Kedar Nath Khetan and Ors. v. Lakshmi Devi Sugar Mills (P) Ltd. and Ors., AIR 1966 ALL 119, the Hon'ble High Court of Allahabad has been quoted as under- ....
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....tter, the Petitioner has stated that he has authorized the Receiver to collect all dividends directly to the Receiver. In this context, the Respondents/Applicants Advocate has relied on the judgment in the case of Everest Coal Company (P) Ltd. v. State of Bihar & Ors. (1978) 1 SCC 12 wherein it was held - "4. .....When a Court puts a Receiver in possession of property, the property comes under Court custody, the Receiver being merely an officer or agent of the Court. Any obstruction or interference with the Court's possession sounds in contempt of that Court. Any legal action in respect of that property is in a sense such as interference and invites the contempt penalty of likely invalidation of the suit or other proceedings. But, if either before starting the action or during its continuance, the party takes the leave of the Court, the sin is absolved and the proceeding may continue to a conclusion on the merits. In the ordinary course, no Court is so prestige-conscious that it will stand in the way of a legitimate legal proceeding for redressal or relief against is Receiver unless the action is totally meritless, frivolous or vexatious or otherwise vitiated by ....
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....eceived and controlled by him alone. If the suit has to be nominally prosecuted in the name of the true owners of the property. It is an inconvenient as well as useless form- inconvenient, because in many cases, the title of the owners may be the subject-matter of the litigation in which the Receiver has been appointed-useless, because the true owners have no discretion as to the institution of the suit, no control over its management, and no right to the possession of the proceeds." In the case of Collector of Tiruchirapalli v. Trinity Bank Ltd. Trichirapalli & Anr. AIR 1962 MAD 59, it was held that - "39. ....What is the legal effect of the appointment of a Receiver by a Court in a pending action? The Receiver in a suit is nothing more than the hand of the Court so to speak, for the purpose of holding the property of the litigants whenever it is necessary that it should be kept in the grasp of the Court in order to preserve the subject matter of the suit pendent lite; and the possession of the Receiver is simply the possession of the Court (Wilkingson V. Gangadhar, 6 Beng LR 486). A Receiver appointed by the Court is in no sense an agent or truste....
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.... accounts etc. were all entrusted to the Receiver. This in substance amounted to investing the Receiver with the management of the property. It is true that Order 40, Rule 1 C.P.C. indicates the various functions and powers which may be conferred on a Receiver and Clause (d) of Order 40, Rule 1 C.P.C. is to the following effect: "1.(1) Where it appears to the Court to be just and convenient, the Court may by Order (d) confer upon the Receiver all such powers, as to bringing and defending suits and for the realization, management, protection, preservation and improvement of the property, the collection of the rents and profits thereof, the application and disposal of such rents and profits, and the execution of documents as the owner himself has, or such of those powers as the Court thinks fit." "12. ....The contention of Sri Varma was that each of the items enumerated in Clause(d) of Order 40, Rule 1 CPC is self-contained and if the Court in its Order of appointment refers only to some of them, it cannot be inferred that any other kind of power or function was conferred on the Receiver. In other words, the Court could not be justified in assuming confe....
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....ume control over the said properties. The Administrator, except to the extent set out herein, will be in the same position as a Receiver of the said properties and shall have the same powers and duties. The Administrator shall take charge of all the suit properties and make a complete inventory thereof." It has also been pointed out by the Respondents/Applicants Advocate that the Petitioner has deliberately and intentionally made the misleading statements by not explaining the correct factual position. Though the Petitioner holds 3000 shares in the capacity as Karta of HUF and these shares have been recorded in Folio No. 20547-23546 in the register of members of the company in the name of His Highness Bhawani Singh, Maharaja of Jaipur. However, the balance 3260 shares are held by him in his individual capacity and are so recorded in Folio No. 17297-20546 in the Register of Members in his individual name as Lt. Col. Sawai Bhawani Singh of Jaipur. This position has also been reflected in the Annual Returns of the company made upto 19.9.1997 onwards upto 21.9.2005 bearing the shareholding pattern specified as Folio No. 1 relating to 3260 shares in the name of Lt. Col. Sawai Bhawani....
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....n his capacity as individual has admitted to hold only 3260 shares of the Respondent Company and in the Wealth Tax Assessment Order bearing No. 11-B, HUF Lt. Col. Bhawani Singh in his capacity as Karta of HUF of City Palace, Jaipur is holding 3000 shares as part of the HUF. Further, admittedly, 3260 shares have been attached by the Income Tax Department and a notice has been served u/s. 226(3) of the Income Tax Act, 1961 vide notice dated 28.9.1994 and also another notice dated 14.7.1995 due to the income tax arrears to the tune of Rs. 8.50 crores against Brig. Bhawani Singh in his individual capacity. This implies that Brig. Bhawani Singh was not owning the remaining 3000 shares in his individual capacity as the same were not attached by the Department of Income Tax. Further, as a corollary, had these 3000 shares were held by Lt. Col. Bhawani Singh in his individual capacity, the Department of Income Tax would have attached them also u/s. 226(3) of the Income Tax Act, 1961. On the other hand, it is only in respect of these 3000 shares, there is pending litigation in Suit No. 870/1986 wherein a Receiver has been appointed by the Hon'ble Supreme Court of India. This clearly demo....
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....ioner does not fulfill the mandatory provisions of Section 399 of the Companies Act, 1956 to entitle the Petitioner to file the Petition. However, the Petitioner Advocate argued that it is settled proposition of law that while deciding such plea on maintainability, only averments made in the Petition and documents filed by the Petitioner are to be looked into and the same are assumed to be correct and no defense or new facts not alleged in Petition or documents could be looked into. In support of his contention, the Petitioner Advocate has cited the judgment in the case of "Rajkumar Deveraj & Anr. v. M/s. Jai Mahal Hotels (Private) Limited [2006] 134 Comp.Cas 405(CLB) wherein the Respondent has challenged the maintainability of the Petition and this Hon'ble Board while dismissing the Application in terms of Order dated 25.8.2006 held that it is not permissible to look in the pleas raised in the Application or any piece of evidence filed by the Respondents and the relevant portion of the judgment is reproduced below:- "12 Therefore, to decide whether the Petitioners have fulfilled the requirements of Section 399, I have to only examine the averments in the Petitio....
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....gh and the notice dated 28.9.1994 u/s. 226(3) of the Income Tax Act, 1961 was served on the company informing therein that the shares are attached and dividend in respect thereto be paid to the Deputy Commissioner, Special Range, New Delhi. Since then, the company under intimation to the Petitioner in his individual capacity being the owner of 3260 shares only is remitting the dividend to Income Tax Department and the process was in place even on the date of filing of the Petition." In view of the above, the Respondents/Applicants Advocate has pleaded that the Petitioner has suppressed the aforesaid material facts from the Hon'ble Board and therefore, a fraud was played with the Board. In this regard, reliance has been laid on the judgment in the case of S.P. Chengalvaraya Naidu (dead) by LRs. v. Jagannath (dead) by LRs and Others, AIR 1994 SC 853 wherein it was held that - "7. .....The Courts of Law are meant for imparting Justice between the parties. One who comes to the Court, must come with clean-hands. We are constrained to say that more often than not, process of the Court is being abused. Property-grabbers, tax-evaders, bank-loan-dodgers and other unscr....
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.... the Hon'ble Supreme Court of India, these 3000 shares cannot be disposed of by the Petitioner as Karta of HUF and dividend on these shares is also deposited with the Receiver resulting in the situation that the name of the Petitioner as Karta of HUF is only appearing in the Register of Members, however no financial benefit in the form of dividend etc. can be taken by him. In this context, the Petitioner Advocate has relied upon the judgment in the case of Balakrishan Gupta & Ors. v. Swadeshi Polytex Ltd. (AIR 1985 SC 520) wherein it has been observed that a Receiver appointed under Order XL of the Code of Civil Procedure only holds the property committed to his control under the Order of the Court but the property does not vest in him and the privileges of a member can be exercised by only that person whose name is entered in the Register of Members. Here, it is relevant to highlight that this legal position has been adhered to in the present case as the Petitioner in the capacity of Karta of HUF continues to be the shareholder in the Register of Members and all legal rights in the form of a notice of General Meeting, dividend etc. are being given to him. But, at the same time....
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....termine the entitlement thereto. Under these circumstances, the Petitioner cannot claim that he is entitled to all the 3000 shares of the Respondent Company till the Partition Suit is so decided by the Competent Court in his favour. At the same time, there is no consent/no objection from the Co-parceners of HUF to initiate the present legal proceedings u/s. 397 and 398 of the Companies Act, 1956. At the most, the Petitioner may be entitled to his share in these 3000 shares presently in the name of His Highness Maharaja Bhawani Singh as Karta of HUF only when the Partition Suit is finally disposed of in his favour and based on the said Order, the shares are recorded in the Register of Members in his individual capacity. As these actions have not yet been completed, the Petitioner is not legally entitled to club these 3000 shares in the name of His Highness Maharaja Bhawani Singh as Karta of HUF without the consent of all the co-parceners to fulfill the mandatory requirements u/s. 399 of the Companies Act, 1956. Over and above, the Hon'ble Supreme Court has appointed Receiver and these shares are in the custody of the Apex Court and consequently, the qualification is attached to ....
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....ed to be correct and it is not permissible in law, to make plea or defense filed by the Respondents at this stage. The Petitioner Advocate has also averred that in terms of Section 159 of the Companies Act, 1956, the Annual Returns are prima facie evidence of any matter stated therein and the Annual Returns clearly show that the Petitioner is the owner/member holding 6260 fully paid shares of Respondent Company under two folios. In this regard, the judgment in the case of Radhey Shyam Gupta & Anr. v. Kamal Oil and Allied Industries Ltd. & Ors. 2001 (103) Company Cases 337 has been relied wherein Section 164 of the Companies Act, 1956 has been quoted stating that the Members and Annual Returns, Certificates and statements referred to in Sections 159, 160 and 161 shall be prima facie evidence of any matters directed or authorized to be inserted therein by the Respondent. Lastly, it has been argued by the Petitioner Advocate that proviso to Section 399(1)(a) of the Act is to be interpreted in such a manner that right of shareholder to apply under Sections 397 and 398 of the Act is protected and shareholder may not take advantage of its default qua the company in case of call money or ....
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....f the Petitioner has been entered as the shareholder in the Register of Members and notices of General Meetings are given to him as a shareholder together with financial benefits. However, the Respondents/Applicants Advocate has pleaded that the Petitioner has suppressed the material fact from the Hon'ble Board to the extent that 3260 shares have been attached by the Income Tax Department vide Notice dated 28.9.1994 u/s. 226(3) of the Income Tax Act and thereby the Respondent Company under intimation of the Petitioner being the owner of 3260 shares is remitting the dividend to the Income Tax Department. Therefore, the Respondent Advocate has contended that a fraud has been played with this Board and reliance has been laid on the judgment in the case of S.P. Chengalvaraya Naidu (dead) by LRs. v. Jagannath (dead) by LRs and Others, AIR 1994 SC 853 wherein it was held that one who comes to the Court must come with clean-hands and hence a person who's case is based on falsehood, has no right to approach the Court. Further to this, it has been averred that in respect of money recoverable from the Petitioner, the 3260 shares stand encumbered to the Income Tax Department and there....
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....ax Act, 1961 and thereby, the said 3260 shares stands encumbered to the Income Tax Department in view of the determination of the sum due and payable to the Income Tax Department. It is also true that the Petitioner continues to be the shareholder in the Register of Members and is entitled to get notice of meeting as well as financial benefit like dividend. But, at the same time, after the attachment of these shares by the Department of Income Tax u/s. 226(3) of the Income Tax Act, the Petitioner cannot sell these shares as per Section 226(ix) and (x) and Section 281 of the Income Tax Act as these shares stand encumbered to the Income Tax Department. On the contrary, the legal consequence of not paying dividend to the Income Tax Department would be that in accordance with Section 226(x), the Department would be entitled to sell the shares attached in the market. It is also correct that the words 'any other sum due' on the shares should be given full and wider view and should not be restricted to the amount or the sum due only to the Company in respect of the said shares. Therefore, I relied on the judgment in the case of Kedar Nath Khetan and Ors. v. Lakshmi Devi Sugar Mill....