TMI Blog2012 (6) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... C.P. NO. 298 OF 2002 C.A. NOS. 167 OF 2002 & 592 OF 2009 A.C.O. NO. 99 OF 2010 A.P.O. NO. 17 OF 2011 (Arising from order of Single Judge dated 9-6-2010.) - - - Dated:- 22-9-2011 - KALYAN JYOTI SENGUPTA AND SYAMAL KANTI CHAKRABARTI, JJ. Debangshu Basak, Sunil Singhania and P. Paul for the Petitioner. S.K. Kapoor, Jishnu Saha and Ritabrata Mitra for the Respondent. JUDGMENT Kalyan Jyoti Sengupta, J - This is an appeal against the judgment and order of the learned trial judge of the company court dated June 9, 2010 ( Suresh Kumar Rungta v. Roadco (India) (P.) Ltd. [2011] 165 Comp Cas 1 (Cal.)) by which the appellants' application for recalling the order dated January 16, 2003, sanctioning the scheme of amalgamation between the respondents and also for cancellation of the scheme of amalgamation between the respondents and for reversal of the respondent-companies to their original position as prevailing prior to the sanction of the scheme and consequential direction upon the Registrar of Companies and the official liquidators has been rejected. While rejecting the said application the learned trial judge recorded certain findings which had gone against th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority of the shareholder. The shareholders purporting to accept the scheme of amalgamation do not form a requisite majority. No individual notice was served upon the shareholders. Notices were said to have been received by the alleged proxy-holder of the shareholders. There is no justification to issue notices to the alleged proxies. For the companies, i.e., respondents Nos. 2 to 7 no evidence has been adduced to prove service of notice under certificate of posting. ( e ) No notice of the said meetings has been received by the applicants, although applicant No. 1 was a director in respondent No. 1, i.e., Rungta Chemical Ltd., now Roadco (India) P. Ltd., and applicant No. 4 was director in respondent No. 1 and respondent No. 5, i.e., Hadoti Cements Ltd., at the relevant time. ( f ) Applicants Nos. 1 and 4 did not receive any notice nor attended any board meeting of any of the respondents held for the purpose of considering the scheme of amalgamation. ( g ) Therefore, in the above manner a fraud has been practised on the shareholders and upon the court reporting that directions have been complied with on the strength of which sanction has been obtained for the amalgamatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies, namely, RMC Med Ltd., petitioner No. 9 Active Traders P. Ltd., petitioner No. 10 Choon Moon Trading and Finance P. Ltd., Amber Commercial P. Ltd., petitioner No. 7 Camaro Marketing P. Ltd., Camaro Projects P. Ltd., petitioner No. 8 Raja Trade and Credit P. Ltd., and Dharni Pharma P. Ltd., were at all material times held by petitioner No. 4 Vinod Kumar Rungta, Rajendra Prasad Rungta and petitioner No. 1 Suresh Kumar Rungta and by their respective family members, friends and associates. ( f ) In terms of the scheme, the shares of Roadco (India) Ltd., were also allotted to the shareholders of respondents Nos. 2 to 7. In essence the scheme which was framed in terms of the order of the court has not only been sanctioned but the same has been acted upon. Thus despite being well and fully aware of the sanctioning of the scheme of amalgamation by the hon'ble High Court at Calcutta on January 16, 2003, throughout the entire course of 2003 no challenge whatsoever to the sanctioning of the scheme of amalgamation of respondents Nos. 2 to 7 by the petitioners or by anyone else was made. In fact, with the sanctioning of the scheme of amalgamation by the hon'ble High Court at Jodhpur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to approve the scheme was held without proper notice to the shareholders which includes publication of advertisement of the meeting in the obscure newspapers. The meeting was said to have been attended by persons not authorised to attend it or also two shareholders who had died. It was not appreciated by learned trial judge as argued by learned counsel for the appellants that resolution adopted in the meeting and order sanctioning the scheme are not lawful. The court cannot allow any defeat of mandatory provision of the law as regards service of notice. Learned counsel for the appellant also urges that case of fraud made out in the application was not properly adverted to by the learned trial judge. The notice of meeting had to be advertised in the newspaper or notified in the gazette as ordered by the court. Moreover the notice had to be served upon each and every shareholders under certificate of posting quoting therein the date of such meeting. These are the fundamental requirements under the Companies Act, 1956 and also rules framed thereunder. 7. It is submitted that service of notice is not recorded in the report of the chairperson. The learned trial judge ignored the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Ambika Prasad Modi the learned trial judge, Banerjee J., came to the specific findings that the present appellants/applicants had knowledge about the passing of order of winding up. They had knowledge or have had occasion to come before this court earlier, and did not come because they have accepted the legality and validity of amalgamation. In the finding of Banerjee J., it would appear that there were at least five general meetings of two financial years namely April 1, 2003 to March 31, 2004 and April 1, 2004 to March 31, 2005. There is no explanation in the application as to why it did not occur to the applicant for not receiving notices convening the annual general meetings of Roadco for these two financial years that something was amiss. It was absolutely silent as to whether the annual accounts for the two financial years have been forwarded to the applicant or whether the applicant had made any attempt to receive the same. Banerjee J., found further as follows : "There appears to be some basis to such charge for the apparent supporters have not applied for setting aside the order of sanction, but have merely chosen to support the applicant." 12. The aforesaid ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicants have their respective shareholdings in respondent-company Nos. 2 to 7 as mentioned in paragraph 13 of the affidavit-in-support of the Judge's Summons. From a chart inserted there, it is plain that these applicants have majority shareholding in respondent Nos. 5 and 6. 2. The respondent No. 5 has majority shareholding in respondent Nos. 2 and 3 and significant shares in the respondent Nos. 4 and 7. Hadoti is controlled by the applicant Nos. 1 to 6. These applicants, thus, have controlling interest in respondent Nos. 2, 3, 5, 6 and 7, i.e., all the respondent-companies except respondent No. 4. 3. These applicants challenge the scheme of amalgamation between these respondents and the respondent No. 1 sanctioned by this court on 16th January, 2003. They seek setting aside of that order on the ground of fraud. 4. One Ambika Prasad Modi, a shareholder of the respondent No. 4, filed an application in this court for setting aside of the said order dated 16th January, 2003 ('the earlier application'). That was nearly three years after sanction of the scheme. The order was assailed on the ground that no notice of the meeting to consider the scheme was received by h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson. In the said report these notices were said to be served on individual shareholders by certificate of posting. The receipts disclosed in the report show receipt by "alleged proxy holders". The applicants had not authorised these alleged "proxy holders" to accept any such notice. 10. According to the report the meeting was said to have been attended by shareholders and/or their proxies according to the requirements of the said Act and Rules. The meeting had been attended by the alleged proxies who had no such authority to attend the meeting. From the records of the report of the chairman, the meeting is said to have been attended by one Dinesh Rungta and one Purusottam. Lal Rungta, both dead. 11. The authorisation given by the shareholder companies was not proper under section 187 of the Act. 12. It is stated that there is no effective denial of the above allegations in the affidavit-in-opposition. 13. On behalf of the respondents the following submissions were made by Mr. S K Kapur, senior advocate : ( a )The application for setting aside the scheme in 2005 was supported by these self-same applicants or their privies by filing affidavits. ( b )The self-sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the scheme cannot be made by affidavits of supporting parties, when the sole applicant before the court was a very small shareholder and had no likelihood of success on his own. There had been acceptance or acquiescence of the scheme in question by the supporters. It was said in that judgment as follows : "The application has to be considered not on the strength of what the apparent supporters allege from the wings in the supporting affidavits but on the strength of what the applicant puts forward. The applicant can make no grievance as to the meetings of the transferor-companies other than Roadco. Even if the applicant had due notice of the meeting under section 391(1) convened in respect of Roadco and had attended the same, the applicant would not have had the numbers to upset the resolution in support of the scheme. The chairman of the meeting has, both in his affidavit and in the report, asserted that at the statutory meeting of Roadco the resolution approving the scheme had been unanimously passed. It is not necessary to go into the charges of fraud levelled by the applicant as even if it were to be assumed that the applicant was deliberately and fraudulently kept out of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransferor-companies on the ground of non-service of notice to the members thereof, was pending before this court." 17. An identical challenge was made before the Rajasthan High Court in respect of the company which was located in Rajasthan but it was dismissed. Discussion and findings 18. In this application there are eleven applicants. Out of them five are private limited companies being applicant Nos. 7 to 11. Six shareholders are living persons being applicant Nos. 1 to 6. Now, these living shareholders or "the supporters" have controlling interest in the other five applicant-companies as I have mentioned earlier. Out of these eleven applicants, the supporters filed affidavits supporting the applicant in the earlier application. Now, if these individual shareholders were before the court in the earlier application, holding controlling interest in the five applicant-companies herein, could it be said that all the applicants herein were before the court when the earlier application was heard and decided? Technically speaking, the companies are different entities from their shareholders and were not before the court. The actual fact is that the persons controlling those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting will be ascertained only by taking a roll. The chairman of the meeting is required to file a report before the court. These rules are to be read as supplemental to section 393 of the Act. After ensuring that the above requirements have been complied with and after examining the scheme, the court is empowered under section 394 of the Act to sanction the scheme, after obtaining a report from the Registrar of Companies ('RoC'). 23. Technically speaking if one issue is decided between two parties that issue becomes final and conclusive between them. No other party is bound by that decision. But sometimes although a person is not a party to a proceeding his interest has been represented in a litigation and such interest decided. Such person is said to be represented through a privy. In the second edition of Jowitt published in 1977 a privy is said to be "having a participation in some act so as to be bound thereby" relying on an ancient English decision in Wood House v. Jenkins 1832 Bing p. 441 (Cited by Mr. Kapur). This reference to privy is in the expression "or between parties under whom they or any of them claim litigating under the same title" in section 11 of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the earlier application. But their living shareholders were (the supporters). And they controlled these private limited companies. Although a company is a separate legal entity from its shareholders, nevertheless, the supporters can be said to be their alter ego. Therefore, when they had participated in the earlier application, it can be properly said that these companies had also participated through their alter ego. Moreover, the interests of the applicants were properly represented by these persons by filing their supporting affidavits in that application. So, the supporters were the privies of these applicant-companies or could be said to be representing their interests according to the above principles of res judicata . The court of appeal by its judgment and order dated 19th March, 2009 affirmed the said findings of the learned company Judge. 26. On the principles of law discussed by me above, the parties to this particular proceeding are bound by the findings of the learned company Judges as affirmed by the court of appeal. 27. Now, the issue of fraud. 28. Fraud vitiates any act when it is alleged. An action to set aside fraud alleged must also be brought w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h regarding the issue of illegality or irregularity in the convening and conduct of the meetings, the taking of poll and adopting of resolution and obtaining sanction of the scheme from the court. There is also no determination of non-service of the notices personally on the shareholders, advertisement in inconspicuous newspapers to prevent shareholders from attending the meetings, attendance by unauthorised persons, voting by unauthorised persons and the attendance register showing attendance by dead persons. Neither is there any determination whether fraud has been perpetuated. The finding in the said judgments has proceeded on the assumption that even if fraud had been practised the result would have been the same. Therefore, there is no determination of the issue of fraud. The court was able to dispose of the matter without deciding the said issue. When such issues remain unresolved, the respondents cannot take shelter behind Explanations IV and V to section 11 of the Code. Under section 11 an issue has to be "heard and finally decided" to constitute res judicata constructive. Res judicata principles would apply, if, while granting relief, out of prayers (a) - (e), (a) - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not occurred to the appellant upon not receiving notices convening the annual general meetings of the respondent No. 4 for these two financial years that something was amiss. The appellant's application was silent as to whether the annual accounts for the two financial years had been forwarded to the appellant or as to whether the appellant had made any attempt to receive the same.... ....Further, the appellant's apparent supporters had due notice and knowledge of the meetings and of the scheme propounded and had as such not applied for setting aside the order of sanction but merely chosen to support the appellant. This in itself fastened knowledge of the sanctioning of the scheme on the appellant.".... "The vicarious grievance of the appellant's supporters could not ride on the appellant's shoulder without such supporters coming to the fore.... It further appears that by the scheme of amalgamation in question the respondent Nos. 2 to 7 having their registered offices at Kolkata were amalgamated with the respondent No. 1 having its registered office at Jaipur in Rajasthan. While the order sanctioning the scheme of amalgamation was passed by this hon'ble court on 16th January, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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