TMI Blog2009 (7) TMI 768X X X X Extracts X X X X X X X X Extracts X X X X ..... BIR AND CYRIAC JOSEPH JJ. Soli J. Sorabjee for the Petitioner. Jayant Bhushan, Shyam Diwan and P.S. Patwalia for the Respondent. JUDGMENT Altamas Kabir, J. - These Special Leave Petitions have been taken up for final disposal at the admission stage itself. SLP(C) Nos. 1069-1071 of 2009 have been filed by Ram Parshotam Mittal and Mrs. Sarla Mittal, who were the Respondent Nos. 2 and 3 in FAO (OS) No. 282 of 2005 and Appellant Nos. 2 and 3 in FAO (OS) Nos. 426 and 440 of 2008, against the common judgment dated 14-1-2009 passed by the Division Bench of the Delhi High Court in the above-mentioned appeals. SLP(C) Nos. 9212-9214 of 2009 have been filed by M/s. Hillcrest Realty Sdn. Bhd., which was the appellant in FAO (OS) No. 282 of 2005 and the Respondent No. 1 in FAO (OS) Nos. 426 and 440 of 2008, against the same judgment. 2. Although, the Special Leave Petitions mainly involve the interpretation and application of section 87(2)( b ) and section 90(2) and other connected provisions of the Companies Act, 1956, to the facts of this case, it is necessary to briefly set out the said facts to appreciate the background in which the said questions have arisen. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilar terms. 5. For a period of 2 years from the date of purchase of the preference shares by Hillcrest Realty, no dividend was declared or paid by the Company. In June, 2005, Hillcrest Realty served a notice on Hotel Queen Road (P.) Ltd., asking the Company to convene an Extraordinary General Meeting (EGM) to remove Mr. Ram Parshotam Mittal and Mrs. Sarla Mittal as Directors of Hotel Queen Road (P.) Ltd., and to appoint the nominees of Hillcrest Realty in their place. Inasmuch as, Hotel Queen Road (P.) Ltd., declined to hold such a meeting, Hillcrest Realty issued another notice for holding an EGM on 4-8-2005 for the same purpose. Hotel Queen Road (P.) Ltd., thereupon filed Suit No. 992 of 2005 before the Delhi High Court in its original jurisdiction for an injunction to restrain Hillcrest Realty from going ahead with the proposed meeting and from exercising voting rights therein. Holding that the requisition for an EGM by Hillcrest Realty was illegal, the learned Single Judge, by his order dated 12-8-2005, further held that any Resolution passed in the said meeting was ineffective and that Hotel Queen Road being a private company, Hillcrest Realty had no voting rights which it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the shareholders of Hotel Queen Road (P.) Ltd., on 30-9-2002, was the core issue, the Division Bench of the High Court decided not to go into the aforesaid question since the very same issue was the subject matter of Suit No. 1832 of 2002 filed by Hillcrest Realty Sdn. Bhd. The Division Bench set aside the order dated 12-8-2005, passed by the learned Single Judge in I.A. No. 5505 of 2005 and dismissed the same, while holding further that the Suit itself could not be dismissed outright on such score. Having held as above, the Division Bench kept the question of conversion of Hotel Queen Road (P.) Ltd., into a public company and acquisition of voting rights by Hillcrest Realty in the Company, for decision in the two other appeals. 10. On the question of denial of natural justice to the appellants in the two remaining appeals, the Division Bench held that such denial was curable even at the appellate stage and that instead of remanding the said appeals to the learned Single Judge for fresh consideration, the appeals could be taken up for decision by the Division Bench itself. In that context, the Division Bench held that as a cumulative preference shareholder in Hotel Qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case made out by Hillcrest Realty rested on the two resolutions which had been passed by Hotel Queen Road (P.) Ltd., on 30-9-2002, in the following terms : "Resolved that the company be converted into Public Limited Company and that such consequential amendments as may be necessary, in such a manner that no longer the provisions of section 3(1)( iii ) of the Companies Act, 1956 are required to be included in the Memorandum and Articles of Association of the Company. Further the Board of Directors of the Company be and is hereby authorised to do such acts, deeds, things that may necessary to effect the above resolutions. Resolved that the authorised share capital of the company be and is hereby increased from Rs. 1,00,000 divided into 10,000 equity shares of Rs. 10 each, to Rs. 90,00,000 divided into 9,00,000 equity shares of Rs. 10. Resolved further that the Memorandum and Articles of Association of the Company be and is hereby altered to reflect the above increased authorised share capital of the company. Further resolved that the Board of Directors of the Company be and is hereby authorised to do such acts, deeds, things that may necessary to effect the above reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned that the Company s application for conversion into a public company was pending with the Registrar of Companies and had not attained finality. Accordingly, with the passing of the resolutions on 30-9-2002, Hotel Queen Road (P.) Ltd., did not automatically become a public company and the Division Bench had erred in assuming it to be so in giving voting rights to Hilicrest Realty which was only a preference shareholder without voting rights, particularly when the Company was ready and willing to pay the dividend for the two years in question to Hilicrest Realty out of funds arranged by it for such purpose. Learned counsel also urged that along with Form No. 23, copies of the resolutions adopted on 30-9-2002, had also been forwarded to the Registrar of Companies and certified copies thereof could have been obtained by Hilicrest Realty from the office of the Registrar of Companies. Mr. Sorabjee urged that the very basis on which the Division Bench vacated the injunction order dated 12-8-2005, passed by the learned Single Judge, was non est , as no fraud had been perpetrated by Hotel Queen Road (P.) Ltd., since the conversion resolution of 30-9-2002, was not a final decision which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for injunction, Hotel Queen Road had perpetrated a fraud by misleading the Court into believing that Hotel Queen Road was a private limited company, which disentitled Hillcrest Realty from having voting rights at the company s meetings. 18. In addition to the above, learned counsel submitted that the reference made in the Directors Report regarding the pendency of the application for conversion of the company from a private limited company into a public limited company, was a complete misnomer, since the conversion of a company from a private company to a public company did not require the sanction or permission, of the Registrar of Companies. Such a conversion can only be made upon a decision being taken by the shareholders and only an intimation of such decision is required to be given to the Registrar of Companies who is required to act thereupon for alteration of the records of the company maintained in his office. 19. Mr. Jayant Bhushan also pointed out that the Form 23 which had been submitted to the Registrar of Companies makes reference to section 31 of the aforesaid Act which relates to the alteration of the Articles of the Company, which lent strength to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral meeting and the passing of a resolution on the said agreement was effective. Drawing a parallel, Mr. Jayant Bhushan submitted that the first resolution adopted by Hotel Queen Road (P.) Ltd., at its meeting held on 30-9-2002, was a clear meeting of minds of the Directors of the Company and would have effect eo instanti whereupon the provisions of section 44(1)( b ) simultaneously came into play. Learned counsel submitted that simultaneously with the passing of the conversion resolution Hotel Queen Road (P.) Ltd., ceased to be a private limited company and was converted into a public company by operation of law. 21. Regarding non-disclosure of the resolutions passed on 30-9-2002, Mr. Jayant Bhushan urged that even if the said resolutions were available with the Registrar of Companies, it did not absolve Hotel Queen Road from disclosing the same before the learned Single Judge. It was submitted that it was all the more so because it was the case of Hotel Queen Road that the said company was a private company and that as a result, the provisions of section 87(2)( b ) of the Companies Act were not applicable to the company, being barred under section 90(2) thereof. It was su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i ) of the Companies Act, Hillcrest Realty as a preference shareholder became entitled after 5-5-2005, to vote on every resolution placed before the Company at any meeting, as provided under section 87(2)( b ) of the said Act. It was submitted that even if the Company had not made profits and no dividend had been declared for more than two years, dividend would be deemed to be due for the purpose of section 87(2)( b ), as indicated in the Explanation thereof, which reads as follows : " Explanation : For the purposes of this clause dividend shall be deemed to be due on preference shares in respect of any period, whether a dividend has been declared by the company on such shares for such period or not." It was urged that the aforesaid Explanation created a legal fiction that dividend would be deemed to be due for the purpose of clause ( b ) of section 87(2) of the Companies Act, whether a dividend is declared by the Company on such shares or not. It was submitted that the rationale for the legal fiction was that if the company is managed in such a manner that no profits are being made and no dividend is, therefore, declared or paid to preference shareholders, such preferenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the aforesaid point been pleaded, but the same had also been argued before the Division Bench, as would be evident from the impugned judgment itself. 28. It was lastly submitted by Mr. Bhushan that the company ought not to have been saddled with the costs directed to be paid by the Division Bench of the High Court since all decisions to commence and pursue the litigation on behalf of the company had been taken almost single-handedly by Shri R.P. Mittal, particularly, when the management of the company had changed hands. Mr. Bhushan urged that while the Special Leave Petitions filed by Ram Parshotam Mittal were liable to be dismissed, those filed by Hillcrest Realty should be allowed. 29. Mr. Shyam Diwan, learned Senior Counsel and Mr. P.S. Patwalia, learned Senior Counsel, appearing for the Respondent Nos. 2 and 3, adopted Mr. Jayant Bhushan s submissions. In addition, Mr. Shyam Diwan submitted that the discretionary and equitable exercise of jurisdiction by the High Court was not liable to be disturbed in a proceeding under Article 136 of the Constitution. He urged that the suppression resorted to by Hotel Queen Road was sufficient for the Division Bench of the High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iefs sought for in the two suits are dependent on the question as to whether by the resolutions adopted on 30-9-2002, Hotel Queen Road had lost its private character and had been converted into a Public Company. While the issues are the same in the two suits, the interim orders passed therein operate in contradictory fields. On the one hand, the learned Single Judge has passed an order on the basis that Hotel Queen Road was a Private Limited Company in which Hillcrest Realty, as a preference shareholder, had no voting rights and, on the other, an interim order has been passed on the basis that the said company was, a Public Company and by operation of section 87(2)( b ) of the Companies Act, 1956, Hillcrest Realty, as a preference shareholder, was entitled to vote at all the meetings of the company. In an attempt to reconcile the two contradictory positions, the Division Bench of the High Court, without deciding the core issue, proceeded to dispose of the appeals before it by treating Hotel Queen Road to be a Public Company, and based upon such presumption proceeded further to hold that on account of non-payment of dividend on its cumulative preference shares for two years, Hillcre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree with the contention canvassed on behalf of Hotel Queen Road that till such time as the records of the Registrar of Companies were not altered to show that Hotel Queen Road had become a public company, it could not be treated as such. It is not the records of the Registrar of Companies which determines the status of a company but whether it falls within .the definition of a "private company" or "public company" as defined in section 3(1)( iii ) and 3(1)( iv ) of the Companies Act. On the other hand, the records of the Registrar of Companies reflect the status of the Company as per the information received from the company in accordance with the provisions of the aforesaid Act. Having regard to the definition of "private company" in section 3(1)( iii ), as soon as the number of its members exceeds 50, it loses its character as a private company. Since in the instant case shares were said to have been allotted to 134 persons on 30-9-2002, on which date the resolutions were passed by Hotel Queen Road (P.) Ltd., the company lost its private character requiring the subsequent resolutions to be passed regarding alteration of the share capital. 36. Whichever way we look at the thr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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