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H.K. CHADHA Versus BASTI SUGAR MILLS CO. LTD. AND ORS.

2015 (9) TMI 1451 - DELHI HIGH COURT

Scheme of merger challenged - Held that:- We find that other than the eight shares held by the appellant - Shri H.K. Chadha, 99.99% shareholders are in agreement with the merger. All creditors, bankers etc. of the respondent company have also approved the merger and there is no objection at all by them till date to the functioning of the merged company. The appellant holding merely eight shares is litigating as he is clearly peeved at his removal as statutory auditor and that the petition as wel .....

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. - From the above narration of facts, we find substance in the contention of Mr. Alok Agarwal, learned counsel for the respondent that the objections of the appellant were motivated and malafide and stem out of malice because of his removal as a statutory auditor. A Chartered Accountant by profession, such actions on the part of the appellant are in utmost bad faith. For this reason, apart from the appeal being devoid of legal merit, the appellant deserves to be burdened with heavy costs at .....

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Pramanshi, Advs. GITA MITTAL, J. 1. The instant case manifests the difficulties which a peeved statutory auditor can create for a company, if he is removed from his office. Having knowledge of all intricate details about the working of the company, he can misuse the same and make distortions thereon by virtue of his position and resort to exploitative complaints to statutory government authorities and initiate malicious litigation as in the present case to prevent the company from functioning o .....

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e filed the written submissions and exchanged the same. 4. We had also called for the record of Co.Pet.No.275/2011 which has been received. 5. Dr. Manmohan Sharma, learned counsel for the appellant as well as Mr. Alok Agarwal, learned counsel for the respondent no.1 have been heard at length. They have carefully taken us through the paper book of this appeal as well as the records of Co.Pet.No.275/2011. We have given our considered thought to this matter. 6. We note hereunder certain undisputed .....

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came a shareholder as well. 8. It appears that the appellant was a statutory auditor to another company - M/s Gangeshwar Ltd. Aggrieved by his removal from the statutory auditorship of M/s Gangeshwar Ltd., Sh. H.K. Chadha filed a W.P.(C)No.3141/1999. This writ petition was dismissed by an order passed on 25th August, 2000 against the appellant. 9. An amendment came to be incorporated in the Companies Act, 1956, bringing Section 226 sub-section 3(e) on the statute book w.e.f. 13th December, 2000 .....

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his father on the 9th of April 2001. Mr. Raman Chadha claimed that he had sent a transfer deed on the 9th of April 2001 along with the eight shares of the company held in the name of his father Shri H.K. Chadha, allegedly seeking transfer thereof in his name in the share register. The respondent no. 1 company staunchly refuted this contention. 11. It appears that premised on this claim of having sought transfer of the eight shares into his name, Shri Raman Chadha, son of the appellant, filed a p .....

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pellant being appointed to the statutory auditorship of the respondent no. 1 for the reason that he was a shareholder. We extract para 12 of this order from the record of the Company Law Board which reads as under : 12. Considering the facts of this case it is noted that no case has been made out under Section 112 of the Act, the Petitioner‟s claim is untenable, as the Managing Director, who is said to have colluded with the Petitioner and his father (Sh. H.K. Chadha who also was the Statu .....

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onfirmed by the fact that the normal procedure for transfer has not been followed by the petitioner and his father, the statutory auditor of the company. There is no answer to the respondents contention that the reverse side of the share certificate does not have valid transfer endorsement, there is no seal as well. There is no question of the respondent company replying to the petition allowing or refusing of transfer when the proper documents have not been filed with the company, the receipt i .....

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own facts. In the present case in law and on facts the petitioner‟s case fails, the respondents contentions including the list of shareholders in the Annual Returns filed with the ROC which is a prima facie evidence remains unrebutted, uncontroverted. (Emphasis by us) 12. It is contended by Mr. Alok Agarwal, learned counsel for respondent no.1, that the claim through his son Shri Raman Chadha and the petition was really a desperate attempt on the part of the appellant to continue to funct .....

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the original Share Transfer Register, the respondent company has given a legally valid explanation. Moreover, this Court has also perused the annual returns filed contemporaneously in accordance with the statutory provisions by the previous management of the respondent company with the Registrar of Companies for the year 2002, 2003, 2004 and 2005. The certified copies of the said records clearly show that it is the appellant-petitioner s father who is the shareholder of the respondent company an .....

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eing appointed as a statutory auditor of the respondent company. 15. The record of the case reflects that on the 31st of October 2005, 99% of the ownership, management and control of the company came into the hands of M/s Phenil Sugars Pvt. Ltd. (hereinafter referred to as transferee company ). 16. So far as the appointment of a statutory auditor to replace the appellant is concerned, the annual general meeting of the Basti Sugar Mills Co. Ltd. was held on 30th December, 2006 when the shareholde .....

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fairs of the company are concerned, the applications being Co.App.(M)No.71/2011 and Co.App.(M)No.67/2011, as the first motion applications, were filed under Sections 391 to 394 of the Companies Act, 1956 by Basti Sugar Mills Co. Ltd. and M/s Phenil Sugars Pvt. Ltd. respectively, proposing a scheme of merger of Basti Sugar Mills Co. Ltd. (transferor company) with M/s Phenil Sugars Pvt. Ltd. (transferee company). By way of these applications, directions were sought from the learned Company Judge f .....

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No.909/2011 was filed in the first motion petition by Shri H.K. Chadha, the appellant seeking impleadment as well as stay or the cancellation of the meetings of the shareholders. This application was disposed of by the court by an order dated 18th May, 2011 noting that the meeting of the shareholders had already been held on the 12th of May 2011. The appellant was given opportunity to raise objections at the second motion stage to the proposed merger as well as to forward his objections to the R .....

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feror and M/s Phenil Sugars Pvt. Ltd. as a transferee being Co.Pet.Nos.275-76/2011 respectively. 23. Shri H.K. Chadha (the appellant herein) filed CA No.2168/2011 in Co.Pet.No.276/2011, an application again seeking to be impleaded as a respondent, as well as objections to the merger. 24. The record of the case shows that the Regional Director filed an affidavit/representation on the 18th of August 2011 stating that it had not received any objection from Mr. H.K. Chadha in terms of the order date .....

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since filed E-Form 21 along with the orders under Section 621A of the Companies Act. 25. Keeping in view the submissions of the appellant, by an order passed on 23rd November, 2011, the learned Company Judge directed the Regional Director to file a supplementary affidavit within four weeks clearly dealing with the objections raised by the appellant in CA.No.2168/2011. The record of the learned Company Judge shows that on 4th January, 2012, the Regional Director filed a further affidavit after e .....

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mitting the scheme of merger and allowing Co.Pet.Nos.275-76/2011. 27. In answer to our query, we are informed that ever since, Basti Sugar Mills Co. Ltd. has ceased to exist and its management, properties and control stand vested in M/s Phenil Sugars Pvt. Ltd. which is carrying on its business in accordance with the statutory compliance. Shri H.K. Chadha, the appellant does not dispute this position. No complaint or objection is pointed out to the working of the company. 28. Dr. Manmohan Sharma, .....

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ted by the shareholders of Respondent No.4 its AGM held on 30th July, 2007. 3. direct the Respondents No.2 to get the profit and loss accounts and balances sheets duly audited from the petitioner for its financial year 2005, 2006 and onwards till the conclusion of the AGMs of the Respondents No.4 held on 29.09.2004 and 30.09.2005. 4. declare the AGM of Respondents No.4 held on 30th July, 2007 and all its decisions as null and void for not serving the mandatory notice to the Petitioner as statuto .....

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(Emphasis by us) 30. Mr. Alok Agarwal, learned counsel for respondent no.1 submits that in fact, the prayers made in the writ petition are identical to the prayers which were made before the learned Company Judge and have been rejected. It is submitted that the learned Single Judge, seized of with the writ petition, would be bound by the adjudication of the learned Company Judge and now by the orders in the present appeal. We refrain from commenting thereon. It shall be open for learned counsel .....

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he respondent has placed before us a tabulation of the objections raised by the appellant before the learned Single Judge as well as in the grounds of appeal before us. The tabulation contains the response of the company as well as details of the para numbers in which they have been dealt with in the impugned order. 34. We have carefully examined the impugned order. For the sake of expediency, we extract in a tabulation the objections of the appellant, response of the company and the considerati .....

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y with the change and hence the malicious report. Considered in paragraph 17 to 20 at page 27. B Respondents have not complied with mandatory proviso of Section 391(2) which requires depiction of their latest financial position before the Court. Ground is extremely vague and general in nature. In any case all updated balance sheets were filed before the Company Court. Ground general. Yet the impugned order in its entire body deals specifically about accounts and returns. C Complaints were made t .....

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graph 20 D RD had taken note of allegations of HK Chadha and called it very serious and not free from doubt. RD had also requested the court to deal with these allegations as court may deem fit and proper The company court did not deal with the allegations. Each of the objections/allegations of H K Chadha have been dealt in our concise written submissions dated 28.01.2013 at pages 284 to 289 of Vol I of Co.Pet.276 of 2011 These allegations pertain to : i. Civil Lines property ii. Some shareholde .....

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d vague Considered in paragraphs 18, 19 and 20 H NOC not obtained from DSE NOC requirement is only directory. Also Basti Sugar Ltd. Had taken all steps, but DSE being defunct did nothing. Considered in paragraphs 28 and 29 I J&K Matter should have been investigated U/s 237 and by police Farfetched perverse allegations and demands Considered in paragraphs 24 and 25 35. Reliance was placed in the proceedings in the Company Court on the judgment reported at (2005) 125 Company Cases 289 (AP), Co .....

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pellant does not challenge the findings returned by the learned Single Judge. 37. So far as the exercise of jurisdiction by the Company Board under Sections 391 and 394 of the Act is concerned, we also rely upon the enunciation of the applicable principles by the Supreme Court of India in the judgment reported at (1997) 1 SCC 579, Miheer H. Mafatlal v. Mafatlal Industries Ltd. wherein the court held as follows : 29. ... In view of the aforesaid settled legal position, therefore, the scope and am .....

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That the meetings concerned of the creditors or members or any class of them had the relevant material to enable the voters to arrive at an informed decision for approving the scheme in question. That the majority decision of the concerned class of voters is just and fair to the class as a whole so as to legitimately bind even the dissenting members of that class. 4. That all necessary material indicated by Section 393(1)(a) is placed before the voters at the meetings concerned as contemplated .....

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isfied on this aspect, the Court, if necessary, can pierce the veil of apparent corporate purpose underlying the scheme and can judiciously X-ray the same. 7. That the Company Court has also to satisfy itself that members or class of members or creditors or class of creditors, as the case may be, were acting bona fide and in good faith and were not coercing the minority in order to promote any interest adverse to that of the latter comprising the same class whom they purported to represent. 8. T .....

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eir open eyes have given their approval to the scheme even if in the view of the Court there would be a better scheme for the company and its members or creditors for whom the scheme is framed. The Court cannot refuse to sanction such a scheme on that ground as it would otherwise amount to the Court exercising appellate jurisdiction over the scheme rather than its supervisory jurisdiction. The aforesaid parameters of the scope and ambit of the jurisdiction of the Company Court which is called up .....

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asti Sugar Mills Ltd. stand compounded in accordance with law. Despite opportunity by court order, Shri H.K. Chadha submitted no further objections to the Regional Director or to the Official Liquidator. These offices appear to have examined the merger proposal and not objected to the same. They do not assail the order dated 20th February, 2013 of the learned Company Judge approving the same. No illegality in the impugned order is pointed out by any authority. No objection in the functioning of .....

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l as statutory auditor and that the petition as well as appeal against the merger has been filed maliciously and malafide. 41. The appellant found that by statutory operation, he being a shareholder, could not continue as the statutory auditor of the respondent no.1. He then dishonestly tried to perpetuate this appointment by setting up a false claim of transfer of his shareholding to his son Shri Raman Chadha. Much litigation, as extracted above, was generated, clearly at the instance of the ap .....

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