9911796707
TMI Blog1998 (12) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... habria, Madan Dwarakadas Chhabria and Rajararri Dwarakadas Chhabria, the respondents 4 to 6 in C.P. No. 16 of 1994 are the appellants. In C.M.A. No. 1208 of 1998, Tracstar Investments (P.) Ltd., the second respondent in C.P. No. 16 of 1994 is the appellant. In C.M.A. No. 1210 of 1998, Shoe Specialities (P.) Ltd., the third respondent in C.P. No. 16 of 1994 is the appellant. In C.M.A. No. 1072 of 1998, Shaw Wallace & Co. Ltd., the second respondent in C.P. No. 45 of 1993 is the appellant. In C.M.A. No. 1073 of 1998, Gordon Woodroffe Ltd., the first respondent in C.P. No. 45 of 1993 is the appellant. In C.M.A. No. 1149 of 1998, Tracstar Investments (P.) Ltd., the petitioner in C.P. No. 45 of 1993 is the appellant. In C.M.A. No. 1209 of 1998, Shoe Specialities (P.) Ltd., the ninth respondent in C.P. No. 45 of 1993 is the appellant. 3. The peculiar feature of these appeals is that the appeals have been preferred both by the petitioners as well as the respondents in both C.P. No. 45 of 1993 and 16 of 1994. Two groups of companies and individuals are the parties in these appeals and they are both appellants as well as respondents. The seven petitioners in C.P. No. 45 of 1993, headed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar Rajaram Chhabria consistently defied BIFR scheme for rehabilitation. In the hearing before the BIFR on 31-3-1993 Hongkong Bank explicitly stated that it has lost confidence in the present management of GW1. There was an attempt in a meeting held on 30-6-1993 by the Board to alienate the First Line Beach property to SWC. This resulted in the resignation of Mr. M.S. Ram from the board of directors. On account of the various acts of mis-management, the BIFR chose to lay an embargo on the alienation of assets by the present management. Despite the fact that Tracstar Investment (P.) Ltd. and Shoe Specialities (P.) Ltd. (SSPL) have ceased to be controlled by SWC or M.R. Chhabria group, M.R. Chhabria and SWC continued to claim that these two companies are in their control. Mr. M.R. Chhabria fell out with his father, uncle and brother, namely, Rajaram Dwarakdas Chhabria, Madan Dwarakdas Chhabria and Kishore Rajaram Chhabria. When the family consisting of brothers, father and the uncle held 62.54 per cent of shares in Tracstar Investment (P.) Ltd. and SSPL, after split, K.R. Chhabria got control of 37.67 per cent while M.R. Chhabria group had only 24.9 per cent of shares. This took place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 to remove the name Stridewell, who is the complainant in C.P. No. 29 of 1992. This was dismissed by the CLB. In the said petition, the CLB held that M.R. Chhabria group employees pretending to be the directors of Stridewell, have no right to represent the Stridewell, which was properly represented by the nominees of K.R. Chhabria group. After failing in their attempt to get the control of 12.73 per cent shares held by SSPL in GWL; the next attempt was to hold the control of 6.84 per cent of shares held by Trident and GWL. This attempt was made because of refusal to register 6.84 per cent of shares in the name of Trident. When the application was made by Trident to register the aforesaid 6.84 per cent shares in their name, disclosing that the beneficial owner was refused on 28-5-1992 by GWL. The reasons given for refusal are mala fide and fictitious. The continuous and persistent efforts of the respondents to prevent the petitioners from exercising their voting rights in 12.73 per cent shares in SSPL and 6.34 per cent shares pending in registration in the name of Trident are with the sole object of perpetuating control of GW1 by the respondents and these acts clearly constitute ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving properties of the company, respondents have denied the same. 8. After hearing the parties on 13-8-1993, the CLB recorded an agreement between the parties, agreeing to postpone the meeting of the company scheduled to be held on 24-8-1993 till further orders. On 22-9-1993 the existing directors of the Board were allowed to continue to hold the office till the annual general meeting. 9. When the petition was pending before the CLB, one of the companies in the respondents group, namely GWL, UK filed C.P. No. 16 of 1994 under section 398(1)(b) read with sections 402 and 403 of the Act. In the said petition Tracstar Investments (P.) Ltd., Shoe Specialities (P.) Ltd., Kishore Rajaram Chhabria, Madan Dwarakdas Chhabria, Rajaram Dwarakdas Chhabria are respondents 2 to 6, while Gordon Woodroffe Ltd., India and Shaw Wallace & Co. Ltd. are respondents 1 and 7. 10. After setting out the history of the GWL, India, it is stated that in 1973 the majority shareholding of GWL, UK, in Gordon Woodroffe, India, was reduced to just below 40 per cent consequent upon the coming into force of the Foreign Exchange Regulations Act, 1973. It is stated that GWL, UK, had no other business except the inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pportunities of GWL, UK and Shaw Wallace for his personal gain and for the benefit of his family and relatives. This amounts to breach of trust and fiduciary obligations as well as fraud perpetuated by him on Gordon Woodroffe (UK) and Shaw Wallace. Only in April, 1992, this was brought to light when M.R. Chhabria sent a circular dated 5-3-1992. After the letter was issued by M.R. Chhabria, Kishore Chhabria attempted to take away the assets of the various companies. He began to take several steps with groups and acted adverse to the interest of the companies and in a pre judicial manner to the public interest. This includes his attempt to take away the control of GWL, India. This he did by taking away Tracstar which held 24.91 per cent equity shares in GWL, India, and claiming hostile title to shoe specialities (P.) Limited, which held 12.73% of equity shares in GWL. India, and by acquiring 6.84% in GWL India in the name of Trident Portfolio and Investment Services (P.) Ltd. for the benefit of Tracstar. Thus, he eventu-ally made a claim for voting rights in GWL, India, to the extent of 44.84 per cent and thereby arranged to oust the existing management of the company. By acquiring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in GWL, India. On 31-5-1991 Orson Investment also transferred 2,700 shares held by it in GWL, India, to Tracstar. On 11-7-1991, the group investment committee of Shaw Wallace decided to allot the right issue held by GWL, UK, in GWL, India, to Tracstar. Kishore Chhabria attended the meeting. Similarly, Chhabria Investment and Jaguar Investment sold the shares to Tracstar at the same rate. Again when Tracstar requested for additional 13,45,420 shares, it was accepted for the same reason required by Tracstar as the above invest- ment was arranged by Shaw Wallace group. This aspect is dealt with in C.P. No. 19 of 1992 on 25-2-1993. Out of 14,30,000 shares allotted to Tracstar, as it would hold in excess of 25 per cent of shares of GWL, India, 5 lakhs equity shares were allotted to SSPL and the balance 8,30,000 were allotted to Tracstar. When the rights issue of GWL, India was finalised in September, 1991, GWL, UK, did not subscribe for the issue of shares in view of the allotment to Tracstar and SSPL as mentioned above. On account of the arrangement under which the rights issue shares which the GWL, UK would have secured, but allowed to be secured to the Tracstar and SSPL, the holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Shoe Specialities (P.) Ltd., to transfer their respective holdings to Gordon Woodroffe (UK) or its nominees; to restrain Tracstar Investments (P.) Ltd., and Shoe Specialities (P.) Ltd., from exercising any voting rights in respect of shares held by them in Gordon Woodroffe (India) or interfering with the affairs of Gordon Woodroffe (India). 13. Not satisfied with the elaborate statement of facts contained in the petition, the petitioner has also filed a petition requesting the Board that some more facts be taken into account in the said petition. 14. A detailed reply has been filed on behalf of the 2nd, 5th and 6th respondents. In the said reply, number of defences are taken. The first one is that though the reliefs claimed relate to Chhabria Investment (P.) Ltd., Jaguar Investment (P.) Ltd. and Orson Investment (P.) Ltd., these three companies are not parties to the proceedings. They have not made any complaint. Hence, no relief can be granted in their absence. Further, the petitioner seeks re-transfer of shares held by Tracstar and SSPL in GWL, India. In the absence of the aforesaid companies such a relief cannot also be granted. These companies have never filed any declar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. After elaborated enquiry, the CLB negatived the claim of the petitioner. On this ground as well as the petition is not maintainable. Delay and laches are also set out in the said defence. Then the respondents explained how M.R. Chhabria was helped by the family of Chhabria by providing funds for building up his business in Dubai and London. It is also stated that K.R. Chhabria was in Dubai for some time and then in London. In 1986, he was sent by M.R. Chhabria to India to look after the Shaw Wallace and GWL, India. These respondents deny that Shaw Wallace has any connection with Tracstar and SSPL. They have been under the control of M.D. Chhabria and R.D. Chhabria, the 5th and 6th respondents. They reply upon the findings of the CLB in C.P. No. 19 of 1992. Wherein, it has been held that from the facts available the true identity of persons in control of Tracstar and SSPL and they are under the control of M.D. Chhabria and R.D. Chhabria. They refer to the findings rendered in C.P. No. 19 of 1992 with reference to Tracstar and C.P. No. 29 of 1992 and C.P. No. 44 of 1993 with reference to SSPL. 17. It is also stated that after the aforesaid orders passed by the CLB, Shaw Walla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourth respondent himself has also filed a reply. In the said reply he has stated how he has helped for the growth of Chhabria group and how he assisted Mr. R. Chhabria in the business at Dubai and London. According to him, he was the Managing Director of Shaw Wallace & Co. from 23-6-1987 to 25-4-1992. Only on account of some immoral act of M.R. Chhabria, the family of Chhabria got divided into two groups. This respondent is supporting the fathers and the uncle group, hence, he had to vacate the office of the Managing Director and Director of Shaw Wallace. It is also stated that he was able to hold the said office by virtue of the Chhabria's family holding the shares. He has stated that the management was always conducted by group committee. He has denied the allegation that he was able to command the affairs of the number of other companies in which M.R. Chhabria had interest. On the other hand, it is M.R. Chhabria, who had actually in control. It is also stated that group management committee was always conducted by the approval of M.R. Chhabria. He has denied that he committed breach of fiduciary duty either to Shaw Wallace or other group companies. He has also found fault with M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny/ public. The CLB has held that the decision under section 398(1)(b) and apprehended mis-management would depend on the extraneous matter. Hence, they refrained from expressing their opinion. 23. The CLB also considered the arguments of Mr. P. Nagesh that M.R. Chhabria, Shaw Wallace should continue to have the management of GWL. According to him, Tracstar had only paid up capital of Rs. 5 lakhs and there was a stricture passed by the Karnataka High Court against Tracstar. They have also considered the allegation against K.R. Chhabria that he misused his position as director of Shaw Wallace relating to the acquisition of shares by SSPL and Tracstar. The CLB found that K.R. Chhabria had no fiduciary duty to Shaw Wallace. The breach of fiduciary duty in one company cannot be the basis for claiming the in another group company. Hence, they refrained from taking cognisance of the alleged breach of fiduciary duty. They have given another reason for refraining to consider the said issue. According to them, the petitioner along with M.R. Chhabria companies who have transferred their shares to Tracstar have already filed a suit in C.S. No. 1503 of 1993 in the High Court (now transferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.P. No. 45 of 1993 and nothing that K.R. Chhabria was group holding 37.64 per cent shares and MR. Chhabria group holding 24.9 per cent shares ordered that within three months from 31-12-1998, the company could hold the annual general meeting. They have also added that the direction was without prejudice to the proceedings before the BIFR which has already appointed a committee of management to manage the day-to-day affairs of the company and the order that without the approval of the BIFR the Board could dispose of any of the assets of the company. 28. As against the orders passed by the CLB in both the C.P. Nos. 45 of 1993 and 16 of 1994, we find that the first petitioner in C.P. No. 45 of 1993 has filed C.M.A. No. 1149 of 1998 against the order in C.P. No. 45 of 1993 and C.M.A. No. 1208of 1998againsttheorderinC.P.No. 16 of 1994. The second and third petitioners in C.P. No. 45 of 1993 Mr. M.D. Chhabria and R.D. Chhabria along with K.R. Chhabria, who are respondents 5, 6 and 4 in C.P. No. 16 of 1994 have filed C.M.A No. 1207 of 1998. SSPL, the 9th respondent in C.P. No. 45 of 1993, the third respondent in C.P. No. 16 of 1994 has filed C.M.A. No. 1209 and 1210 of 1998 against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... star, another Chhabria group company, in May, 1991. 31. Mr. M.R. Chhabria was holding the single largest share in SWC and GWL. M.R. Chhabria became a Director of Shaw Wallace on 27-3-1997. Thereafter Kishore Chhabria was appointed as the Managing Director of Shaw Wallace for a period of five years from 23-6-1987 to 22-6-1992. He continued in the said position when he ceased to be the Managing Director and Directorship of Shaw Wallace. On 25-8-1987 GWL, India made a reference to the Board for Industrial and Financial Reconstruction under section 15 of the Sick Industrial Companies (Special Provisions) Act, as it became a sick company by that time. On 17-3-1998 BIFR declared GWL as a sick industrial company. BIFR appointed Industrial Reconstruction Bank of India as the operating agency for preparing a scheme for revival of the company. The Industrial Reconstruction bank of India drafted a scheme for rehabilitation of GWL and submitted the same to BIFR. It was considered by the BIFR on 21-9-1998. On 12-12-1998 the Board of Directors of Shaw Wallace made a proposal to the BIFR, agreeing to invest Rs. 250 lakhs by way of subscription or purchase equity shares of the company. But it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... habria Investment, Jaguar Investments and Orson Investment transferred their shares. 33. While the position was thus, on 11-7-1991 the group management committee of Shaw Wallace decided that the shares pertaining to the rights issue of GWL, India, to GWL, UK would be allotted to Tracstar. Further, on 29-8-1991, in view of the investment of the rights issue in the Tracstar, Kishore Chhabria was appointed as Director. By allowing the rights issue pertaining to the GWL, UK to be allotted to Tracstar, GWL, UK shares in GWL, India are reduced to 24.91 per cent from 39. 23 per cent. On 30-7-1991 Tracstar applied for allotment of equity shares on rights basis to the extent of 84,580 shares. Again Tracstar applied for additional 13,45,420 shares, i.e., more than 15 times of its rights. However, Tracstar by a letter dated 24-8-1991 requested that out of 14,30,000 shares applied by Tracstar, 5,00,000 equity shares shall be allotted to SSPL and the balance 8,30,000 be allotted to Tracstar. In September, 1991 the allot- ments of rights issue of GWL completed as requested by Tracstar and SSPL. Hence as on 20-2-1992 Tracstar and SSPL came to hold 24.91 per cent and 12.73 per cent make a total o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wherever the words 'respondent' or 'respondent' used in this judgment it will refer to Tracstar Investments (P.) Ltd., Kishore Chhabria (K.R. Chhabria)/4th respondent and M.D. Chhabria/5th respondent). 36. Mr. Anil B. Divan, the senior counsel appearing for the appellants in C.M.A. Nos. 1071 of 1998 has raised the following contentions. The failure of the CLB to go into the validity of the transfer of shares in favour of Tracstar and SSPL is failure to exercise the jurisdiction vested in the CLB. elaborating this point, he also contended that acquiring of shares by Tracstar was in violation of section 372. Further Kishore Chhabria has committed breach of his fiduciary duty. Secondly be contended that after having found in favour of the petitioner in C.P. No. 16 of 1994 about the change of administration when the revival schemes are pending before the BIFR, and when SWL has taken active part in submitting a scheme and contributing about Rs. 240 lakhs, the CLB ought not to have permitted the convening and conducting of the annual general meeting of the company after 31-12-1998 and within three months thereafter. 37. Mr. R. Krishnamoorthy, the senior counsel appearing for the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended that there is no violation of section 372 in the purchase of Tracstar and SSPL rights issue from GWL, India. He also denied that there was any breach of fiduciary duty by Kishore Chhabria. 40. Mr. Vedantham Srinivasan, another senior counsel appearing for the appellants in C.M.A. No. 1207 of 1998 contended that section 398(1)(b) will be attracted only when the persons are holding the shares in company legally and legitimately. Since M.R. Chhabria group is not owning any share in GWL, India, is not entitled to file a petition under section 398(1)(b). He also contended that the reliefs claimed in C.P. No. 16 of 1994 are hit by the principle of estoppel by election. The allotment of shares to Tracstar and SSPL was made by persons incharge of the company, i.e., M.R. Chhabria group, hence they cannot complain of transfer of shares. The learned counsel also contended that there was no breach of fiduciary duty involved in this case. The learned counsel argued the question of main-tainability of C.P. No. 16 of 1994 under section 398(1)(b). 41. The contention of Mr. A.L. Somayaji, the learned senior counsel on the question of maintainability is that the requirements of section 398( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, Tracstar and SSPL acquired 37.64 per cent shares; in addition to Trident's 6.84 per cent shares. Trident, another company belonging to Kishore Chhabria acquired the aforesaid 6.84 per cent shares in the open market. As on 31-8-1991 Tracstar was under the control of K.R. Chhabria group; B.D.A. Ltd., holding 40 per cent and BIO FOODS (P.) Ltd. and Standard Distilleries adding 30 per cent and 30 per cent respectively. As regards 40 per cent held by B.D.A. it was controlled by M.D. Chhabria. In C.P. No. 19 of 1992 Shaw Wallace Co. and another filed on 5-5-1992 before the CLB for investigation into the acquisition of 44.48 per cent shares by Tracstar, SSPL and Trident Investments & Portfolio Service (P.) Ltd., no interim order was granted by CLB. On 25-2-1993 C.P. No. 19 of 1992 was dismissed. Even though attempts were made to increase the shares in SSPL and transfer it to Bhankepur Simbholi Beverages (P.) Ltd., with a pledge to Malleswara Finance & Investments Co. (P.) Ltd., the CLB did not approve the same. Against the order in C.P. No. 29 of 1992 dated 28-5-1993, C.M.A. No. 473 of 1995 was filed on 25-5-1995, but no interim orders was granted. There- after Malleswara Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alities are liable to be declared as illegal and void. The said shares in Gordon Woodroffe (India) are liable to be vested in favour of Shaw Wallace and/or its nominees or in the alternative restored back to the said three private limited companies..." As regards the shares allotted to Trident Investments & Portfolio Services (P.) Ltd., the board of directors refused to register the same. On 26-5-1992 when there was a challenge in C.P. No. 19 of 1992 before the CLB the decision of the board of directors was confirmed on 28-2-1993. Further in the petition itself, the prayer in paragraph 126 is as follows : "(a )Direct that notwithstanding anything contained in the Memoran- dum and Articles of Association of Gordon Woodroffe (India) and notwithstanding any resolution which may be proposed to be passed at in the annual general meeting or in the Extraordinary General Meeting of Gordon Woodroffe (India), there shall be no change in the present management of Gordon Woodroffe (India) at the instance of Tracstar and/or Shoe Specialities and that the Board of Directors of Gordon Woodroffe (India) shall continue to be by such nominees as may from time to time be designated by Shaw Wallace ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n [1977] 47 Comp. Cas. 185 (SC) and contended that if anything is done in violation of the condition in an enactment, the thing lone is void. The provisions of the enactment must be construed to be mandatory. The transfers were also challenged on the ground of breach of fiduciary duty owned by Kishore Chhabria of GWL, India. Here again, the learned senior counsel cited a number of decisions. 49. The another contention by the learned senior counsel is that K.R. Chhabira committed breach of fiduciary duty by purchase of the shares for Tracstar from the three companies. Therefore, in the company is allowed to be in his control, it will not be in the interest of the company or the public. The decisions cited in support of the above contention are; 1.Scottish Co-operative Wholesale Society Ltd. v. Mezer [1958] 3 WLR 404; 2.Cranleigh Engg. v. Bryant 1964 All ER 289; 3.Industrial Development Consultants v. Cooley [1972] 2 All ER 162; and 4.D.D.A v. Skipper Construction Co. (P.) Ltd. [1996] 4 SCC 622. I will consider this argument at a later stage. But, however, I may add that the decision in Scottish Co-operative Wholesale Society Ltd.'s case (supra) is not directly on the point. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside the same in the company petition and after having specifically prayed for such reliefs in the suit, probably, the idea of the petitioners is that the issue of transfer of shares can be properly and fully adjudicated only in the suit and not in the company petition. That is why they have moved the CLB half-heartedly with a prayer as contained in the petition. 51. he prayer claimed in the petition C.P. No. 16 of 1994 can be granted only when the main issue relating to transfer is decided. Without a specific prayer for avoiding or challenging the transfer or shares in the petition, they have chosen to advance their arguments on the validity of transfer. 52. Their contention that even though there is no specific prayer in the petition under section 111 of the Act and it is also not quoted in the petition, the Court can take note of facts and grant the relief with reference to the transfer of shares treating the petition as a composite one. Of course, section 111(1) and 111(4) enables the aggrieved person or any member of the company or the company to apply to the CLB for rectification of the register. As stated above, there is no relief claimed by the petitioner under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically stating that the issue should be decided. I am not in a position to appreciate the request of the counsel for the petitioner. What prevented the petitioner from agreeing to withdraw the suit and inform the Board to decide the same. Some excuses are given in this Court, relying upon the preliminary objection on the maintainabil- ity of the petition under section 398(1)(b). But, however, the Board advised the counsel for the parties to argue both on the preliminary objection as well as the merits to pass a composite order on merits and only for that purpose they wanted to withdraw the suit. But the counsel wanted a categorical decision and an assurance that the issue could be decided by the Board. When the Board was ready to decide the issue and advised the counsel on both sides, it is beyond even an ordinary man's comprehension as to why the advocate demanded an assurance from the CLB. As I have already indicated, the petitioner has not chosen to move the Board with a definite case. It has moved the Board without prejudice to its rights to have a decision in the suit before the Civil Court. That is why, the learned counsel appeared before the CLB was evasive. Therefore, as ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. The Act by itself has not provided legal qualifications or judicial experience for the members to be appointed. But, however, under the CLB (Qualifications, Experience and other Conditions of Service of Members) Rules, 1993, legal qualifications of judicial experience are prescribed for judicial members. Nine members can be appointed to the CLB, but the Board is empowered to constitute Benches from out of the nine members to discharge the functions of the Board. When such constitution takes place, whether it is mandatory to have a judicial member in the Bench or not, is not stated either in the provisions of the Act or in the Rules mentioned above. It is possible that technical members themselves can constitute a Bench. The Bench constituted shall have powers of a Court under the Code of Civil Procedure, 1908, in respect of discretionary and in respect of documents, enforcing attendance of witnesses, compelling production of documents, examining the witnesses on oath, granting adjournments and receiving evidence on affidavits. The Board while discharging its powers, shall be guided by principles of natural justice and shall also act at its discretion. As per section 10E(4), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g legal proceedings, should not generally in my view be adjudicated in this summary proceeding under section 397 of the Companies Act. Section 397 is in the nature of a summary proceeding by way of an application. Serious questions have been raised in the controversies between the parties, for instance, (i) question, whether certain shares are forged or not, (ii) different judgments in pending suits from which appeals are going on and (iii) the 707 shares whether rightly or wrongly withheld which is the subject of criminal proceeding as well as lien suit proceedings." 62. In the third cited decision, Justice S.A. Kader, has taken the view that the Civil Court will have no jurisdiction, only in respect of matters falling exclusively within the jurisdiction of the Court (Company Court) having jurisdiction under the Act. Further, the learned Judge has also held as follows : "It is well-settled that every presumption should be made in favour of the jurisdiction of the Civil Court. In other words, the exclusion of jurisdiction of the Civil Court is not to be readily inferred. Such exclusion must be either explicitly expressed or clearly implied. A provision of law ousting the jurisdic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch matters has been transferred to the CLB formed under the newly inserted section 10F from this, it cannot be inferred that the powers of the High Court is vested with the CLB. 65. In the decision sixth cited above, the Apex Court, has held that it was equally settled that when jurisdiction was conferred on a Tribunal, the Courts examine whether the essential principles of jurisdiction had been followed and decided by the Tribunals leaving the decision on merits to the Tribunal. It was also equally settled legal position that where a statute gives finality to the orders on the special Tribunal, the Civil Court's jurisdiction must be held to be excluded, if there was adequate remedy to do what the civil court would normally do in a suit. Such a provision, however, does not exclude those cases where the provisions of the particular Act have not been complied with or the statutory Tribunal had not acted in conformity with the fundamental principles of judicial procedure. Where there was an express bar of jurisdiction of the Court, and examination of the scheme of the particular Act to find the adequacy or the sufficiency of the remedies provided may be relevant but was not decisive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdiction of the Civil Court unless the statute expressly prohibits the jurisdiction of the Civil Court in relation to all matters arising under the statute or the scheme of the statute is such that such prohibition is necessarily to be implied. There is no provision in the Act expressly barring the jurisdiction of the Civil Court with respect to all matters arising under the Act. The bar of jurisdiction is implied and is in respect of some matters only." In this case, the learned Judge was concerned with the scope of section 283 of the Act. The question involved was whether the director of the company was validly removed or not? The applicant in that case moved the Company Court for declaration that he has not vacated the office. The question was whether the petitioner ought to have moved the CLB or the Company Court? After considering the provisions, the learned Judge took the view that the Company Court had jurisdiction to maintain the company petition. The question in the said case was not whether a Civil Suit can be maintained with reference to a matter which has to be adjudicated by the CLB. 68. We have already seen that in paragraph 55 in Hungerford Divestment Trust Ltd.' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assistant Judge, City Civil Court, Madras, orders in C.P. No. 16 of 1994 are not binding on them. Chhabria Investments Ltd., Jaguvar Investments and Orson Investment (P.) Ltd., are parties in the above suit as plaintiffs 2 to 5. They have produced 47 documents along with the plaint. The prayer in the plaint is that the transfer of 1,62,710 equity shares of Rs. 10 each bearing distinctive Nos. 2331316 to 2494025 held by Chhabria Investment (P.) Ltd., in Gordon Woodroffe Ltd., India, on 25-5-1991 to Tracstar Investment (P.) Ltd., is illegal and void and the benefit of the said shares shall continue to vest in Chhabria Investment (P.) Ltd. Similarly, with reference to the shares transferred by Jaguvar Investment (P.) Ltd., with reference to 6450 equity shares of Rs. 10 each, they are sought to be declared as illegal and void. Similar relief is claimed with reference to the 2,700 equity shares of Rs. 10 each transferred to Tracstar Investment (Pvt.) Ltd., by Orson Investment (Pvt.) Ltd., is null and void. Apart from the prayer it is further prayed that the shares mentioned above continued to be vested with those three companies. Injunction is also prayed for in the suit against the Tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31-12-1998. Therefore, according to the learned counsel, the CLB has committed serious error of law. He also cited Tracstar Investments (P.) Ltd. v. Dy. Commissioner, Commercial Taxes ILR 1994 Kar. 1181 to show that in the said decision the Tracstar was commented upon about its financial position by the Karnataka High Court. As regards this aspect I have to only say that from the records placed before me. I do not think that BIFR proceedings will reach a finality in near future. 74. Already the BIFR has passed an order directing the Board not to dispose of the assets of the company. Further with reference to the schemes proposed by SWC and Kishore Chhabria group have been considered and passed orders by BIFR. Before the BIFR, Tracstar group proposed stand alone basis scheme, while SWC group proposed merger scheme for rehabilitation. On 10-6-1994 BIFR passed on order accepting the scheme known as Stand Alone Scheme proposed by Tracstar Group, but on appeal AAFIR has set aside that order on 10-10-1995, and remand-ed the matter to BIFR. It also directed to give opportunity to Tracstar Investment (P.) Ltd., to formulate their scheme also. Again on 1-1-1996 BIFR passed an order to fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... convening of the annual general meeting for which a direction has been issued by the CLB. Further, the proceedings before the BIFR has not reached the stage of section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985. No scheme has been approved, only when BIFR sanctioned scheme it shall be binding on the company and the shareholders etc. Further, the BIFR can fix a date for the enforcement of the scheme. As per section 17(2) of the Sick Industrial Companies (Special Provisions) Act, an opportunity should be given to the board of directors to make its net worth of the company exceed the accumulated losses. All along the company has been under the control of the present management. It cannot be ruled out that if by virtue of convening of the annual general meeting a new set of board of directors is elected, it is possible that new Board is likely to make a request to the BIFR to give them an opportunity to make net worth of the company exceed, the accumulated losses. It is worthwhile to mention here that as per section 18(3)(e), the scheme was prepared by the operating agency and the board has to consider the objections of the company before the scheme is sanctione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of shares. They are not holding 51 per cent. Only when such is the position, it can be asserted that Tracstar and SSPL are in a position to control the company. No authority was cited before me to show that simply because one minority group is having larger shares than the other minority group, it can be assumed that the minority group having larger shares to be in control. Such a presumption is possible if the group is owing somewhere near 50 per cent, or so. Similarly no authority was also cited before me to show in all cases invariably the minority group having more shares than the other minority group will be above to succeed in getting its members alone elected to the board of directors. It all depends upon how the minority groups are able to canvass and gain support of other large number of shareholders. In this case, itself there is an example that when Kishore Chhabria contested for the post of Director, he could not succeed. This is admitted in the petition itself. In paragraph 83 of the petition C.P. No. 16 of 1994, the following statement is found : "The term of Kishore Chhabria as Additional Director of Gordon Woodroffe (India) came to an end on 14-8-1992 i.e., on w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or fiduciary duty cannot be established without examination of the parties alleging and denying such allegations. What is mainly stated is that when the shares of GWL were transferred to Tracstar and SPL, Kishore Chhabria acquired control over these two companies and they were removed from the control of SWL. SWL in turn was in control of GWL. It is no doubt true that Kishore Chhabria was the Managing Director of SWL till 25-4-1992. It is also stated in the petition that from 25-4-1992, he ceased to be the Managing Director of SWL by virtue of the application of section 299, read with section 293 i.e., on account of failure to disclose his conflicting interest. 80. The allegation of breach of fiduciary duty is made only after M.R. Chhabria went out of the family of Chhabrias, on account of a dispute in April, 1992. At that time M.R. Chhabria parted the company with his father, uncle and brother, viz., M.D. Chhabria, R.D. Chhabria and KR. Chhabria. He went to the press regarding the family dispute. Thereafter, notice came to be issued on 25-4-1992 by the father and uncle against M.R. Chhabria. If M.R. Chhabria had continued to be with the father, uncle and brother, the question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to lift the veil and until recently there were perhaps signs of a greater willingness to do so." Again at Page 126 it is stated as follows : "The House of Lords had no hesitation in rejecting this argument since 'every step taken by (the subsidiary) was determined by the policy of (the parent) and the section warrants the Courts in looking at the business realities of the situation and does not confine them to a narrow legalistic view'." No doubt, the aforesaid statements indicate that a group of companies controlled by a controlling company can be treated as a single economic unit for the purpose of business of the company and every action taken by the controlling company must be in the interest of all the shareholders of the group of companies. 83. Cran leigh Engg.'s case (supra); is a case where one Bryant, an engineer and an inventor of above-ground swimming pool, with the knowledge of the right type of the clamping strip to use, how to define to a plastic manufacturer what was, required and which manufacturer would readily supply the strip; the method, purpose and particular size and shape etc., was the managing director of the plaintiff company. When the plaintiff comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was of concern to the plaintiffs and was relevant for the plaintiffs to know, was information which it was his duty to pass on to the plaintiffs because between himself and the plaintiffs a fiduciary relationship existed as defined in the passage I have quoted from Buckley and, indeed, in the speech of Lord Cranworth in Aeerdekn Railway Co. v. Blaikie Bros. [1854] 2 Eq. Rep. at 1286." (p. 173) 85. In Skipper Construction Co. (P.) Ltd.'s case (supra ) at paragraph 28, the Apex Court has ruled as follows : "The concept of corporate entity was involved to encourage and promote trade and commerce but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the Court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned." 86. The English cases cited above show that a person who was in control of a company must not gain an advantage for himself by securing a benefit for himself without making the benefit available to the company, which he is contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar case. 91. In this case, one V. Subramanian has sworn to the affidavit of verification. He has been authorised to do so as it is mentioned in the affidavit. He had no direct knowledge as to why or how M.D. Chhabria and others gained the impression that Kishore Chhabria failed to disclose that he got control of Tracstar and SSPL before the two companies acquire share in GWL. Further, the statements, in C.P.No. 16 of 1994 are argumen-tative; and do not appear to be a pleading as contemplated under the Code of Civil Procedure. No person has been examined in this case show that Kishore Chhabria failed to disclose the position of Tracstar and SSPL deliberately, wilfully and with any mala fide intention. Therefore, it is very difficult to infer that Kishore Chhabria acted with any intention of defrauding the other members of the board of directors of GWL or the shareholders of that company. Therefore, I am not in a position to hold that Kishore Chhabria committed any breach of fiduciary duty in this case and on that account, his continuing in control and management of GWL through Tracstar is not in the interest of the company. 92. On a consideration of the relevant facts and circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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