TMI Blog2018 (11) TMI 1536X X X X Extracts X X X X X X X X Extracts X X X X ..... he subject matter of the Company Petition and Company Appl. was the violation of the Code, 1997, the subject matter of the present suit is the breach of the Inter Se Agreement. Consequently, the reliefs in both the proceedings were not the same. Further, plaintiff nos. 2 to 5 were not parties to the CLB proceedings and plaintiff no. 1 is not a party to the Inter Se Agreement. The CLB also did not dismiss the Company Petition due to defect of jurisdiction or other causes of the like nature. Consequently, plaintiffs are not entitled to benefit of Section 14(1) of the Act, 1963 and the present suit is barred by limitation. - CS (OS) 2476/2015 And I.A.Nos.17148/2015, 18714-18715/2015, 24462-24463/2015, 11795/2017 - - - Dated:- 15-10-2018 - MR MANMOHAN, J. For The Plaintiffs : Mr. Parag P. Tripathi and Mr. Harish Malhotra, Senior Advocates with Mr. Jayant Mehta, Mr. Pawan Sharma, Mr. Siddharth Aggarwal, Ms. Divya Bhalla, Mr. Anuj Shah, Mr. Srinivasan Ramashwamy And Mr. Rishabh Sharma, Advocates For The Defendants : Mr. Gaurav Varma and Mr. Sujoy Datta, Advocates, Mr. Darpan Wadhwa, Sr. Advocate with Mr. Ajay Bhargava, Mr. Aseem Chaturvedi, Mr. Saurabh Seth And Mr. Sharngan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said three groups would hold an aggregate of 59.27% of the shares in the proposed three 'resultant' companies. Clause F of the inter se agreement reads as under: F. The Parties are desirous of undertaking an inter-se transfer of equity shares amongst them in AHL Residual, Transferee Company-I and Transferee Company-II post the effectiveness of the Scheme in compliance with the provisions of applicable Laws. The Parties intend to record in this Agreement, the modalities of effecting trifurcation enabling each of the Jatia Group, the Gupta Group and the Saraf Group to hold in the aggregate 67,57,702 equity shares (i.e. 59.269%) out of the total issued and paid-up capital of AHL Residual, Transferee Company-I, and Transferee Company-II respectively, which modalities will be affected and implemented in accordance with the provisions of this Agreement. It was also agreed that there would not be cross-holding of either of them in the other's company. This was specifically stipulated in Clause 7.4 of the agreement which reads as under: 7.4. Each of the Promoter Groups undertake not to acquire further equity shares in AHL and post effectiveness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghts arising from the said shares. Apropos the shares held by defendant No.7, the learned Senior Advocate for the plaintiffs states that he would pursue the matter in the post-notice proceedings. Compliance under Order XXXIX, Rule 3 of the CPC shall be done by the plaintiffs within one week.' (emphasis supplied) Arguments on behalf of the plaintiffs 4. Mr. Parag P. Tripathi, learned senior counsel for the plaintiffs stated that Asian Hotels Ltd. (hereinafter referred to as AHL ) was a public limited company incorporated on 13th November, 1980 wherein substantial shareholding was owned by three promoter groups, viz. Jatia Group (24.59%), Gupta Group [the plaintiff] (24.59%) and Saraf Group (15.17%). He pointed out that AHL was managing three hotels, namely Hotel Hyatt at Delhi, Hotel Hyatt at Mumbai and Hotel Hyatt at Kolkata. 5. According to Mr. Tripathi, in or about 2004-05, AHL learnt that Jindal Group (defendant nos. 1 to 4), acting in concert with Saraf Group, had acquired 9.65% shares of AHL in violation of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (for short Code, 1997 ) during the period 2003-2005 and, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 as amended subsequently which states that where the holding of any person in the Company exceeds the limit of 5% of the voting capital, the said person is required to disclose to the Company find the Stock exchanges concerned the fact of such acquisition within 2 days of the date of the acquisition shares. Xxx xxx xxx The Board after due deliberation authorized the Share Transfer and Shareholders Grievances Committee of the Board consisting of Mr. SK Chibber, Chairman of the Committee and Mr. RK Bhargava, Mr. Sushil Gupta, Mr. Shiv Jatia and Mr. Arun Saraf, Members of the Committee, to study the opinions and recommendations received from the said legal counsel and decide as soon as possible on the final course of action to be taken in all respects to ensure that the Company's interests as well as the promoter Group's interests are safeguarded as per law and no violation of SEBI guidelines have taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the aforesaid CLB petition (2003-09), defendant nos. 1 to 4 acquired further shareholding in AHL and thereby increased their combined shareholding to 14.46%. 7. Mr. Tripathi stated that in or about 2008, while the CLB petition was still pending, the three promoter groups realising that they had independent competing interests in the hospitality sector, decided to demerge AHL into three different entities to be managed individually by the three promoter groups. According to him, the three hotels at Delhi, Mumbai and Kolkata were to be managed individually by the three demerged entities and exclusively owned by each group, i.e. Jatia Group [Asian Hotels (North) Ltd.], Gupta Group [Asian Hotels (West) Ltd.] and Saraf Group [Asian Hotels (East) Ltd.] respectively and in which there would not be any cross holdings of the other groups. He stated that to achieve the aforesaid objective, a Scheme of Demerger was got approved from this Court on 13th January, 2010 and shares were transferred between the three groups in accordance with Inter Se Agreement on 23rd August, 2010. 8. Mr. Tripathi submitted that the only object and purpose of the Scheme of Demerger and Inter Se Agreement w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the plaintiff argued by reference to S. 10, and the well known proposition that a company cannot by its articles or otherwise deprive itself of the power by special resolution to alter its articles or any of them. But the point is the same one. An article purporting to do this is ineffective. But a provision as to voting rights which has the effect of making a special resolution incapable of being passed, if a particular shareholder or group of shareholders exercises his or their voting rights against a proposed alteration, is not such a provision. An article in terms providing that no alteration shall be made without the consent of X is contrary to section 10 and ineffective. But the provision as to voting rights that I have mentioned is wholly different, and it does not serve to say that it can have the same result.' Both parties sought to derive comfort from this dictum. Mr. McCartney relied on it as demonstrating that a provision as to the exercise of voting rights, even although it had the effect of preventing a resolution being passed, was nevertheless valid. Mr. Girvan argued that the effect of clause 3 was the same as that of an article containing a provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the Jindal Group. He contended that the Jindal Group and the Saraf Group had cross holdings in various companies and balance sheet of defendant no. 5 revealed that it was used only for the purpose of investing money in AHL. Mr. Tripathi handed over tables/charts, which according to him, showed that Jindal Group and Saraf Group had been, from the beginning (i.e. 2003), acting in concert with common intent of acquiring shares in AHL, which fact had been suppressed and concealed by Saraf Group from Gupta Group. One such chart handed over by Mr. Tripathi is reproduced hereinbelow:- a) Defendant no. 5 is a Jindal Group Company as over 90% shares of defendant no. 5 are held by defendant no. 3 which is admittedly a Jindal Group Company. b) In defendant no. 5, which was represented to be owned, controlled and promoted by Jindal Group, defendant No. 7, belonging to Saraf Group, was also a shareholder. c) Defendant No. 7 is a member of Saraf Group as she is the daughter of defendant no. 6 and is acting in concert with defendant nos. 6 and 8, a Saraf Group Company. d) As defendant No. 7 is a member of Saraf Group, who has contributed to capital of defendant no. 5 who, in turn, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ateral proceedings. xxx xxx xxx .The principle of finality of litigation cannot be pressed to the extent of such an absurdity that it becomes an engine of fraud in the hands of dishonest litigants. 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 unscrupulous persons from all walks of life find the court-process a convenient lever to retain the illegal-gains indefinitely. We have no hesitation to say that a person, who's case is based on falsehood, has no right to approach the court. He can be summarily thrown out at any stage of the litigation. Arguments on behalf of the defendants 14. On the other hand, Mr. Darpan Wadhwa, learned senior counsel for defendant nos. 6 to 9 and Mr.Gaurav Varma, learned counsel for defendant nos.1 to 3 5, submitted that the present suit was barred by limitation and it needed to be dismissed at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This view is reiterated in Tett v. Phoenix Property and Investment Co. Ltd.(1986) 2 BCC 99, 140. 12. In Chapter 16 of Gore-Browne on Companies (43rd edn.) while dealing with transfer of shares it is stated that subject to certain limited restrictions imposed by law, a shareholder has prima facie the right to transfer his shares when and to whom he pleases. This freedom to transfer may, however, be significantly curtailed by provisions in the Articles. In determining the extent of any restriction on transfer contained in the Articles, a strict construction is adopted. The restriction must be set out expressly or must arise by necessary implication and any ambiguous provision is construed in favour of the shareholder wishing to transfer. 13 In Palmer's Company Law (24th edn.) dealing with the 'transfer of shares' it is stated at pages 608-09 that it is well settled that unless the Articles otherwise provide the shareholder has a free right to transfer to whom he will. It is not necessary to seek in the Articles for a power to transfer, for the Act (the English Act of 1980) itself gives such a power. It is only necessary to look to the Articles to ascertain the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as, firstly, the said transaction could only be challenged by AHL and not by the companies created pursuant to the Scheme of Demerger 2010. 20. Secondly, he stated, that the plaint and documents showed that the issue of illegality of acquisition of shares in AHL by the defendant nos. 1 to 4 was the subject matter of adjudication in the Company Petition No.2/111/2005. The relevant portion of the Company Petition No.2/111/2005 filed by erstwhile AHL before the CLB under Section 111A of the Companies Act and relied upon by him is reproduced hereinbelow:- 8. It is submitted that keeping in view the acquisition pattern adopted by the Four Companies (which is evident from Annexure-A) and the fact that the entire block of 940000 shares of the Company standing in the name of Societe Generale France was sold by the said Seller during the same settlement period to Respondent No.3 (who bought 490000 shares) and Respondent No.4 (who bought 450000 shares), the denials made by Respondent Nos.1-4 in their respective replies to the Petitioner Company did not seem to be acceptable and accordingly the Petitioner Company continued its enquiry and has learnt that Respondent Nos.1-3 Companies a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncert because seller will have no intention in acquisition. Therefore, the doctrine of acting in concert is applicable to acquisition, but not against the person offloads his shareholding. Moreover, since section 111(A)(3) of the Act is limited to rectification, this bench is under obligation to see any necessity is there for rectification, since the shareholding held by R-6 has already been transferred to R7 8, which is admittedly not hit by Regulation 7, the cause of action against R-6 is not subsisting as on the date of filing the CA. 22. He contended that the aforesaid specific finding in favour of defendant nos. 1 to 5 had attained finality. 23. Thirdly, he stated that the plaintiff nowhere made the case that the defendant nos.1 to 4 had failed to make any disclosure, required under the law, to the regulatory authorities upon acquisition/disposal of shares. He pointed out that the finding of proper disclosure to SEBI had been duly recorded in the order of CLB. Thus, according to him, as it is not the acquisition or even acting in concert that gives rise to an offence, but rather the non-disclosure of such activities and that no such allegation had been made in the pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, learned senior counsel for the plaintiffs (who supplemented the submissions of Mr. Parag Tripathi) submitted that Section 14(1) of the 1963 Act has to be construed liberally and the expression 'defect of jurisdiction or other cause of a like nature' is wide enough to cover defects which are not merely jurisdictional strictly so called but others which are more or less neighbours to such deficiencies . In support of his submissions, he relied upon Anil Bhasin v. Telecommunications Consultants India Ltd. RFA No. 487/2012, dated 6th January, 2016 and Shakti Tubes Ltd. v. State of Bihar [2009] 1 SCC 786. COURT'S REASONING Averments in the plaint will have to be believed at this stage and the defence of the defendants cannot be considered at this stage. 28. Undoubtedly, in view of the judgments of the Supreme Court in Saleem Bhai and Others Vs. State of Maharashtra and Others, AIR 2003 SC 759 and Kamala and Others Vs. K.T. Eshwara SA and Others, (2008) 12 SCC 661 the averments in the plaint will have to be believed at this stage and the defence of the defendants cannot be considered at this stage. 29. In the present case, the share purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Vodafone International Holdings BV v. Union of India [2012] 17 taxmann.com 202/204 Taxman 408/341 ITR 1 has held as under:- 269. Shares of any member in a company is a movable property and can be transferred in the manner provided by the articles of association of the company. Stocks and shares are specifically included in the definition of the Sale of Goods Act, 1930. A share represents a bundle of rights like right to (1) elect Directors, (2) vote on resolution of the company, (3) enjoy the profits of the company if and when dividend is declared or distributed, (4) share in the surplus, if any, on liquidation. 270. Share is a right to a specified amount of the share capital of a company carrying out certain rights and liabilities. In other words, shares are bundles of intangible rights against the company. Shares are to be regarded as situate in the country in which it is incorporated and register is kept. Shares are transferable like any other movable property under the Companies Act and the Transfer of Property Act. Restriction of transfer of shares is valid, if contained in the articles of association of the company. Shares are, therefore, presumed to be fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to under serial numbers 5 to 7 above shall hereinafter be collectively referred to as the Jatia Group; 8. Forex Finance Limited, a company incorporated under the Act and having its registered office at 15, India Exchange Place, 1st Floor, Kolkata - 700001 ( Forex Finance ); and 9. Saraf Industries Limited, a company incorporated under the laws of Mauritius, having its registered office at c/o International Financial Services Limited, IFS Court, Twenty Eight Cyber City, Ebene, Mauritius ( SIL ). The Parties referred to under serial numbers 8 to 9 above shall hereinafter collectively referred to as the Saraf Group. The aforementioned members of the Gupta Group, Jatia Group and the Saraf Group shall be individually referred to as such or as a Party and collectively as the Parties . The Gupta Group, Jatia Group and Saraf Group are hereinafter individually referred to as such and collectively as the Promoters or Promoter Groups . F. The Parties are desirous of undertaking an inter-se transfer of equity shares amongst them in AHL Residual, Transferee Company-I and Transferee Company-II post the effectiveness of the Scheme in compliance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said clauses, this Court is of the opinion that the Inter Se Agreement was executed for a specific purpose of freezing the share holdings for a limited time so that the swap of shares could take place to ensure each group had 59.269% shareholding and the complicated payment structure was effected. The intent of the Inter Se Agreement was to ensure that each promoter group post de-merger gets control and management of one of the three resultant companies along with a hotel. For this purpose, the Inter Se Agreement stipulated that the ownership of 59.269% shares would be transferred to one of the three promoter groups, that was to control and manage that particular hotel. However, after the inter se transfer of promoters' shares was effected, each of the promoter groups was at liberty to acquire shares in each other's companies/hotels. 34. In fact, Clause 7.4 of the Inter Se Agreement clearly stipulates that the restriction on purchase was to remain valid till the swap took place and not thereafter. Even as per the plaint, the swap had taken place in August, 2010 and the shares were purchased by defendants 6 to 9 in December 2010 and January, 2011. Hence, there was no viol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... handed over during the course of arguments, yet the only allegation in the plaint to show that the Jindal and Saraf were acting in concert was that Miss Anita Rajgariha-defendant no.7, alleged member of the Saraf Group, held 95,00,000 equity shares in defendant no.5 (Jesmin Investments Ltd.) from 27th August, 2010 for a period of 121 days. It is not possible for this Court to hold on the basis of shares purchased by a relative of one of the Saraf family members in 2010 that Saraf and Jindal Groups were acting in concert between 2003 and 2009 - the period during which defendant nos. 1 to 4 had purchased shareholding of 14.46% in AHL. The allegation that non-disclosure of shareholding by Saraf Group, prior to the execution of Inter Se Agreement and the de-merger scheme was a material misrepresentation, does not stand to reason inasmuch as each promoter group was admittedly handed over management and control of a hotel with 59.269% shareholding and the balance shareholding of 40.731% was to be held by third parties/outsiders. 40. The allegation of the plaintiffs that a fraud had been perpetrated by Saraf Group by acquiring shareholding in pre-demerged AHL between 2003 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-disclosure would not make the acquisition invalid. At the highest SEBI could have imposed a penalty. The relevant portion of the CLB order dated 25th July, 2014 in C.A. 3/2011 is reproduced hereinbelow:- 16. This disclosure is not a condition precedent to acquisition, it is not said anywhere if disclosure is not made, the acquisition is invalid, but whereas under regulation 11 of the Code, it starts with that no acquirer shall acquire shares unless such acquirer makes a public announcement to acquire shares in accordance with the regulations . Reg.11 starts with negative language, making Public announcement condition precedent to acquisition, but it is not the case under Regulation 7 covered under the chapter of disclosures of shareholding and control in a listed company , but whereas Regulation 11 is brought under the head of substantial acquisition , meaning thereby that mere non-disclosure will not make acquisition invalid under Regulation 7 of the Code, at the most, SEBI might impose penalty if proved that acquisition is not in compliance of the regulation 7 of the Takeover Code ... 45. Moreover, in view of the CP 2/111/2005 filed by AHL having been dismissed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the demerger of AHL, the only course of action, if any, available to the plaintiff nos. 2 to 5 was to move for recall of the sanction of the scheme of demerger, Inter Se Agreement and for restoration of AHL. 49. It is pertinent to mention that the said Board minutes have not even been mentioned in the suit or annexed with the original plaint. The said minutes have been annexed to the plaintiffs' reply to the application under Order XXXIX Rule 4 CPC filed on behalf of defendant nos.6 to 9. Consequently, the said minutes cannot be relied upon by the plaintiffs. Plaintiff No. 1 should not be concerned as to who manages and controls it. 50. It is not understood as to how the plaintiff no.1 is in any way concerned with who manages and controls it. Moreover, there was no agreement/understanding that plaintiff nos. 2 to 5 would control and manage plaintiff no. 1 hotel in perpetuity. The present suit filed on 10th December, 2015 is barred by limitation. The plaintiffs are not entitled under section 14(1) of the limitation act for exclusion of time during the period the matter had been pending before company law board as the reliefs sought in the company petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en prosecuted with due diligence and in good faith; (3) The failure of the prior proceeding was due to defect of jurisdiction or other cause of like nature; (4) The earlier proceeding and the latter proceeding must relate to the same matter in issue and; (5) Both the proceedings are in a court. 55. Undoubtedly, there has to be a liberal interpretation of Section 14(1) to advance the cause of justice. However, in accordance with Section 14(1) of Act, 1963, the earlier proceeding and the latter proceeding must relate to the same matter in issue, i.e. a matter which is directly and substantially in issue. Also, the previous proceeding should have failed on account of defect of jurisdiction or other causes of a like nature. The Supreme Court in Madhavrao Narayanrao Patwardhan v. Ram Krishna Govind Bhanu AIR 1958 SC 767 has further held that the burden to prove good faith and due diligence to avail benefit of Section 14(1), is on the plaintiff. 56. In the present case, the reliefs sought in the Company Petition and Company Appl. filed before the CLB were absolutely distinct and different based on different cause of action from the reliefs which plaintiffs seek in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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