TMI Blog1998 (12) TMI 451X X X X Extracts X X X X X X X X Extracts X X X X ..... aram Chhabria, 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-8-1992. Manohar 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .R. Chhabria group filed an application No. 92 of 1992 in C.P. of 1992 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... WC has not acted in any way against the scheme proposed by BIFR. In regard to having 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 Exch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e profitable businesses, monies, interests, companies, assets and properties and business opportunities 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wallace. The transfer was registered on 25-5-1991. Tracstar came to own 6.78 per cent of shares 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace Co. Ltd. and Gordon Woodroffe (UK) or its nominees; to restrain Tracstar Investments (P.) Ltd., 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce/seventh respondent. The petitioner itself has filed C.P. No. 19 of 1992 before the CLB under section 247/250 of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the allegations of the 7th respondent. They have denied the various allegations of the seventh respondent. K.R. Chhabria - Fourth 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iring satisfaction that the management and control of the company was likely to be conducted in a manner prejudicial to the interest of the company/ 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. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -1998. 27. Based on the judgment in C.P. No. 16 of 1994, the CLB passes orders in C.P. No. 45 of 1993, also. Referring to the grievances of the petitioner in 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 N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developments in Chhabria family, Chhabria Investment (P.) Ltd., Jaguar Investment (P.) Ltd., and Orson Investment (P.) Ltd., transferred 6.78 per cent shares in GWL to Tracstar, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came to hold 6.89 per cent shares in GWL, India. However, as on 16-5-1991, the shares held by Tracstar in GWL, India was not registered because only on 25-5-1991 and 31-5-1991 Chhabria 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver the words 'appellant' or 'appellants' used in this judgment it will refer to Gordon Woodroffe Ltd., Shaw Wallace Co. Ltd. Manohar Rajaram Chhabria (3rd respondent) and group. Similarly 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to the learned counsel, section 398 is available for preventive relief while the suit is a comprehensive one and declatory relief and consequential reliefs can be obtained. Further, the learned counsel contended 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 quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncreased to 6.98 per cent shares. As on 31-8-1991 after the addition of shares, Tracstar percentage of shares increased to 24.91 per cent and the SSPL share increased to 12.73. In addition to that Trident also acquired 6.84 per cent shares. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s : "The petitioner states that the entire transaction relating to the transfer of shares by Chhabria Investment, Jaguar Investment and Orson Investment to Tracstar and the allotment of shares by Gordon Woodroffe (India) to Tracstar and Shoe Specialities 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so contended that as Tracstar was not a member of GWL, India, before the record date namely, 16-5-1991, the acquisition was not valid. While elaborating the argument on this point Mr. Anil B. Divan, senior counsel cited the decision in Mannalal Khetan v. Kedar Nath Khetan [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 Consulta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titled to seek relief of this Hon'ble Board under section 398(1)( b ) read with other applicable provisions of the companies Act, 1956 to protect the interest of Gordon Woodroffe (India) and the public interest." Therefore, after having carefully avoided the relief of declaration that the transfer is void or to set 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present petition." Even after making such a statement in the rejoinder, the learned counsel, who appeared before the CLB advanced arguments on the validity of transfer of shares. Even though the CLB was ready to decide the issue, the advocate maintained that he would not withdraw the suit and wanted assurance by the CLB categorically 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 advo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments at length that the CLB and this Court as an appellate Court, have wider powers than the Civil Court. The learned senior counsel for the respondents Mr. A.L. Samayaji, Mr. C. Harikrishnan and Mr. Vedantham Srinivasan, on the other hand cited the decisions taking contrary view. 58. The constitution of the CLB is governed by section 10E of the 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 discre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the appellants have specifically reserved their right to have an adjudication before the Civil Court. Further, the said decision does not stated anywhere the powers of the CLB is wider. 61. In the second cited decision, a learned single Judge of the Calcutta High Court has observed in paragraph 55 as follows : "Serious and disputed questions of title and controversies, already the subject of pending 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of this order will be reasonable and proper." Pursuant to this only, we find that the new rules of the year 1993 have been framed. Even after the framing of the Rules, in 1993, as indicated above, there is no mandatory provision to include the judicial member in the Bench to be constituted by the CLB." 64. In the decision fifth cited above, it is stated that the original jurisdiction of the High Court in respect of such 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, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 67. In the decision seventh cited, a learned single Judge of this Court has held that Companies Act does not bar jurisdiction of the Civil Courts in respect of matters which are expressly made subject to the jurisdiction of the Company Court. The learned Judge has considered a number of decisions and has held in paragraph 11 as follows : "The enactment of a special statute like the Companies Act does not have the effect of barring the jurisdiction 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 que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 372. All these contentions, I am not able to appreciate at all, as I have already indicated as above. The three companies, from which the shares were purchased were not before the CLB or before this Court. In their absence if a finding is given by the CLB or this Court, can it be said that it will be binding on those companies. Is it not open to those companies to contend that inasmuch as they are parties in the Suit O.S. No. 10803 of 1996 pending on the file of the XII 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 Investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d counsel. 73. The learned senior counsel Mr. Anil B. Divan, contended that BIFR has to decide which of the group of management is to be entrusted and, therefore, the CLB felt that they should not decide such issue at that stage and allowed the respondent to disturb the present management especially when Mr. Chhabria/SWC have funded the company with substantial amount of nearly Rs. 4 crores. After having found so at the end the CLB has permitted to convene the annual general meeting after 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il Court and the relief claimed in the petition C.P. No. 16 of 1994 is temporary. 76. If the Civil Court finally decides the issue with reference to the shares and the petitioner succeeds in the suit. It will be automatically entitled to have the relief granted. Even if annual general meeting is convened and there is a change of management of the company as result of the decision taken in the annual general meeting, that will be subject to the result of the suit. Therefore, there is nothing wrong in the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ship of shares by Kishore Chhabria group, the finding is based on the fact that Tracstar and SSPL are under the control of 39 per cent of shares in GWL. One group as per the figures after the transfer as on 31-5-1995 the position is that GWL, UK is holding 39.23 per cent of shares. As on 31-8-1998, the share holding pattern of the company is as follows : GWL, UK 24.90 per cent, Tracstar 24.91 per cent, SSPL 12.73 per cent, Trident 6.84 per cent others 6.84 per cent. Tracstar and SSPL are holding only 37.64 per cent 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... haw Wallace and the companies in the group and the opportunities available to the said companies in their best interests. 79. Similarly, paragraphs 37 and 38 of the petition contain statements about fiduciary duty. But the specific instances are not mentioned, i.e., how he committed the breach of trust or the fiduciary duty reposed in him by the other group of companies of GWL. That apart, the breach of fiduciary duty is a question of fact that has to be established both by documentary and oral evidence. Breach of trust 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 intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... propriate circumstances, ignore the distinction between them, treating them as one. For this proposition a number of authorities were cited." After considering a number of judgments, at page 129, it is stated as follows : "It seems therefore that in aid of interpretation the Court may (and indeed should) have regard to the economic realities in relation to the companies concerned." To find out whether the group is a single economic unit or not it is stated at page 125 as follows: "Never the less, there have been exceptional cases in which the Courts have felt able 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 busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board in respect of depots to defendant in private capacity as architect. The defendant failed to inform the Company about the offer. The defendent secured release from the company's service by misrepresenting state of health. Then he secured the contract from the Board for himself. In this case also the very same learned Judge Rosekill, J., held as follows : "The defendant had one capacity and one capacity only in which he was carrying on business at that time. That capacity was as managing director of the plaintiffs. Information which came to him while he was managing director and which 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olation on the part of the person to gain advantage for himself and to deprive that advantage to other shareholders or members of other group of compa- nies. To my knowledge there is no allegation that the failure on the part of Kishore Chhabria to disclose that Tracstar and SSPL came to be under his control was deliberate or wilful. 90. Unless the act by itself conveys the element of mala fide on the part of the person who acted in a particular circumstance mala fide cannot inferred, some time mala fide will be reflected from the conduct or from the records available relating to the conduct of the person in a particular 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provi- sions of the Act, however, excepting to this extent the other prayers contained in C.P. No. 45 of 1993 cannot be granted. If the annual general meeting is conducted and the board of directors are elected, it is for them to seek appropriate relief in expropriate forums. Since, the petitioners in C.P. No. 45 of 1993 have apprehend that the annual general meeting cannot be conducted in a fair and proper manner, they are given the liberty to obtain suitable direction from the CLB for appointment of same official to convene and conduct the annual general meeting. The petition is allowed to this extent. The relief No. 3 cannot be granted because the matter is pending adjudication in Civil Court. As regards the relief No. 2, when the board of directors is constituted in the annual general meeting to be conducted, it would be open to them to take appropriate steps for recovery of properties by initiating appropriate proceedings. The other reliefs claimed are not granted. In the result, C.P. No. 45 of 1993 is allowed partly. 94. In the result, C.M.A. Nos. 1207 to 1210 and 1149 of 1998 are allowed in part as indicated above. CM.A. Nos. 1071 to 1073 of 1998 are dismissed. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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