TMI Blog2019 (2) TMI 969X X X X Extracts X X X X X X X X Extracts X X X X ..... This kind of a situation is opposed to a plain and simple contract by the company. Where specific performance of an ordinary contract is necessary, the company has to take an action and such action is not invited from a shareholder or a group of shareholders but is taken by the company through the board, usually. The appellants say that the control of the company had been changed over their head. Its only asset was being tossed around several purchasers without consultation with the appellants. Now, the allegation is that in the name of entering into a compromise with the intending purchasers, money is now diverted to corporate entities controlled by the Govind Sarda and his group - if it is alleged that one group of shareholders was divesting the only asset of the Company for their personal gain, could an action under Section 397 or Section 398 of the Companies Act, 1956, not be maintainable? - Surely it is. Yet, the Company Law Board has come to the opinion that no case under Sections 397 or 398 of the Companies Act had been made out. Where change of circumstances become material, a particular litigant is entitled to bring on record subsequent events post filing of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking which the Court understood, learned Counsel to be making related to that property only. No other interpretation of the undertaking is possible. But it soon transpired that Adarsh Bilt Estate was working on this property. Then both SEARS and Adarsh declared that in November, 2013 by a registered agreement Adarsh had been inducted into the property by SEARS to develop and sell the same. I emphasize there is enough evidence to suggest that SEARS was another face of the Govind Sarda group and entirely controlled by it. Therefore, I have no hesitation to declare the transfer in favour of SEARS as detrimental to the company. There is also sufficient evidence to prove the collusion of the Govind Sarda group with Adarsh. I also have no hesitation to declare the transaction between SEARS and Adarsh as detrimental to the company - This Court has enough powers under Section 397, 398 read with Section 402, 403 of the Companies Act, 1956 to undo any act or declare it as void and not binding on the company or its shareholders. Applying the principle of lis pendis the property could not be divested from the first respondent company pending this appeal. So on both grounds, it re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in this appeal. Amit is Govind s other son, the third respondent. As will appear from the facts narrated below, the sons had a large part to play in the family business dispute. There is a large tract of land of about 20,235 sq. metres on Jaipur Road, Durgapara in Rajasthan. At one point of time it was considered to be on the periphery of the city and not of as much value as it is today. It was owned by Indian Fibres Limited, the first respondent, which was promoted by one J.P. Goenka and incorporated on 13th April, 1962. This land was the only asset of the company. The Sardas took over the company in 1995. In it, each of the three brothers had exactly 1/3rd shareholding. In other words each had 33 and 1/3 per cent of the allotted share capital, held by himself and/or companies controlled by him. Govind and Jagdish with their family and associates constitute and I will refer to them as the Govind Sarda group. Ghanshyam Das and his family and associates constitute the other group. The first respondent company acquired on 26th December, 1974 a 99 years lease of the said land from the government of Rajasthan to be used for industrial purposes. By the year 2006, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allotment of 100 shares each aggregating to 300 shares to the respondent Nos. 4 (Sanjay Rathi), 6 (Gobind Sharma) and 9 (Sobhanand Jha). According to the appellants, they did not receive any notice of this meeting. On 31st March, 2009 the Board of Directors consisted of Chainroop Pugalia, the seventh respondent, Sanjay Rathi, the fourth respondent and Sanjay Gupta. On 5th April, 2009 a Form 32 was filed by the company showing the appointments of the fifth, sixth and seventh respondents as its Directors, with retrospective effect from 12th September, 2008. On 6th April, 2009 the second and third respondents, the sons of Govind Sarda were appointed as Directors. On 22nd April, 2009 the eighth and ninth respondents were appointed as Directors. From 2009 forms 32 were filed to show that certain old Directors of the company like Chainroop Giya had vacated office as Directors for not attending three consecutive Board meetings, under Section 283(1)(g) of the Companies Act, 1956. Annual General Meetings were purportedly held showing the fourth, sixth and ninth respondents to be present therein to form the quorum. Resolutions were taken to increase the share capital and alter the Mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... repayment of loans. Comparison of the two sets of minutes both for the purported Extraordinary General meeting of the first respondent company held on 12th August, 2009 is very interesting. One is at page 1770 of the paper book while the other at page 1810. In the first minutes, one Mr. Anil Sharma is said to have represented Namokar Vinimay Pvt. Ltd. whereas in the second the representative was one Ms. Jyoti Mundhra. One Mr. Abhishek Sharma was said to have represented Mooldhan Advisory Systems Pvt. Ltd. in the first minutes whereas Ms. Tripti Dadhich was said to have represented them in the second minutes. In the first minutes no explanation was given for increase in the authorized share capital of the company whereas in the second it was stated that funds were needed to make repayment of loans of the creditors. These discrepancies were pointed out by Mr. Kapur. The resolution of the Board of Directors or the body of shareholders as brought on record with the company law petition and as produced before the Tribunal at a later point of time pursuant to directions by it showed discrepancies in the copies of self same documents with regard to the presence of the Directors, the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5th April, 2010 when a Memorandum of Understanding was purported to be executed between the first respondent company and Sears Bilt Pvt. Ltd., the twenty third respondent. It was in the nature of an agreement to sub lease. Allegedly, on 8th April, 2010 possession of the property at Jaipur was granted to this respondent. To point out the involvement of the Govind Sarda group which is based in Kolkata, Mr. Kapur pointed out that the stamp papers for this memorandum were bought in Kolkata and the agreement executed in New Delhi. It was signed by Chain Roop Pugalia, the seventh respondent for the first respondent company and the twenty fourth respondent, Mritunjay Singh, as constituted attorney for SEARS. Mr. Kapur alleged he was an employee of Govind Sarda. The total consideration for the agreement with Sears Bilt Pvt. Ltd. was ₹ 31,46,00,000/-. The reason advanced by the Govind Sarda group by then, in control of the company, for abandoning the agreement dated 7th March, 2007 was that during its existence, the first respondent company failed to obtain the said permission from the Rajasthan Authority for conversion, of user of the land from industrial to residential purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred, as held by the Supreme Court in Jagan Singh (Dead) Through LRS. Vs. Dhanwanti and Anr. reported in (2012) 2 SCC 628 . The document of lis pendis is based on justice, equity and good conscious. The purchaser of a property from the judgment debtor is presumed to be aware of the relevant proceedings and is covered by the doctrine as held by the Supreme Court in Usha Sinha Vs. Dina Ram and Ors. reported in (2008) 7 SCC 144 . [See also Sunita Jugalkishore Gilda Vs. Ramanlal Udhoji Tanna (Dead) Through LRS. and Ors. reported in (2013) 10 SCC 258 ] Therefore, on the ground of lis pendis the change in hands of the property in favour of SEARS or Adarsh was invalid. Furthermore, Mr. Kapur contends and rightly so, that if the applicant in the Section 397, 398 read with Section 402 and 403 proceeding succeeds in establishing that a group of shareholders was causing prejudice to another group or was damaging the interest of the first respondent company, the Court while passing its orders could extend its hands to undo any transaction made or wrong committed by these wrongdoers, and pass any order to put the company back in the same position it was before it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e other respondents have no connection. There is no common shareholding. The Directors are also not common. There was no subterfuge by the Govind Sarda group. The property changed hands in favour of the transferee. The property was not retained within one branch of the family working through a corporate network, as alleged by the rival group, it was argued by the learned Counsel. In Purnima Manthena and Anr. Vs. Renuka Datla and Ors. reported in (2016) 1 SCC 237 , the Supreme Court held that an appeal lay from an order of the Company Law Board whether interlocutory or final on a question of law only and not against any finding of facts unless those findings of facts were perverse and based on no evidence. I quote Paragraph 50 of that judgment: Section 10-F of the Act engrafts the requirement of the existence of a question of law arising from the decision of CLB as an essential precondition for the maintainability of an appeal thereunder. While the language applied therein evinces that all orders, whether final or interlocutory, can be the subject-matter of appeal, if it occasions a question of law, in our comprehension, the Section per se defines the perimeters of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Krishnan and Ors. Vs. Westfort Hi-Tech Hospital Ltd. and Ors. reported in (2008) 3 SCC 363 where the following legal principles were articulated: 1. On a Certificate of Posting a presumption can be made that notices of Board meeting and Extraordinary General meeting have been properly posted and received, under Section 53(1)(2) and Section 172 of the Companies Act, 1956. 2. Smallness of Annual General Meeting was irrelevant. 3. Oppressive Act is against probity, good conduct or is burdensome, harsh or wrong or is malafide or for a collateral purpose. Mr. Mitra citing Bachhaj Nahar Vs. Nilima Mandal and Anr. reported in (2008) 17 SCC 491 and Union of India Vs. Ibrahim Uddin and Anr. reported in (2012) 8 SCC 148 submitted that the appellants were obliged to confine their case to the pleadings but had gone much beyond them. Therefore, no notice should be taken of their case which was dehors the pleadings in the Company Law Board. Mr. S. N. Mookerjee, learned Senior Advocate appearing for SEARS cited several cases to drive home the various points that he took. He relied on Modern Insulators Ltd. Vs. Oriental Insurance Co. Ltd. reported in (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formed, there is a discharge of the contract by performance, and the contract comes to an end. In regard to such a discharged contract, nothing remains - neither any right to seek performance nor any obligation to perform. In short, there cannot be any dispute. Consequently, there cannot obviously be reference to arbitration of any dispute arising from a discharged contract. Whether the contract has been discharged by performance or not is a mixed question of fact and law, and if there is a dispute in regard to that question, that is arbitrable. But there is an exception. Where both the parties to a contract confirm in writing that the contract has been fully and finally discharged by performance of all obligations and there are no outstanding claims or disputes, courts will not refer any subsequent claim or dispute to arbitration. Similarly, where one of the parties to the contract issues a full and final discharge voucher (or no-dues certificate, as the case may be) confirming that he has received the payment in full and final satisfaction of all claims, and he has no outstanding claim, that amounts to discharge of the contract by acceptance of performance and the party issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the company purporting to show issue and allotment of 2860000 equity shares of and in the company in favour of the respondent nos. 4, 6, 9, 13 to 19 morefully described in Z, Z1 Z2 are illegal, null and void and not binding upon the company, its shareholders, including the petitioner as restore the shareholders position as on the date of MOU. h) Alternatively, it be declared that the petitioner is entitled to 10.94% of the total paid up equity share capital of the company and the share register of the company be directed to be altered to reflect such position. k) Permanent injunction restraining the respondents and/or each of them and/or by themselves or by their servants, agents or assigns or otherwise howsoever from selling and/or transferring and/or alienating and/or encumbering and/or creating third party right and/or parting with possession of the station Road, Durgapura, Jaipur being premises in any manner whatsoever. l) Permanent injunction restraining the respondent no.1 from cancelling the Memorandum of Understanding dated March 7, 2007, unilaterally, without consent of the petitioners group. m) Permanent injunction restraining the respondent no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31,46,00,000/- delivering possession of the property to them on 8th April, 2010. The learned member of the tribunal says that it was recorded in that agreement that at the time of execution of the instrument Sears Bilt Pvt. Ltd. had already repaid ₹ 12,21,60,304/- and ₹ 11,13,80,740/- to Upasana and Kajaria. Therefore, the Board felt that the agreement dated 7th March, 2007 had been discharged by agreement and performance between the parties. Then comes the part of the order which this Court is unable to fully comprehend and understand. The Board interprets the objection of the appellants to the proposed sale of the property in favour of Sears Bilt Pvt. Ltd. as an issue with regard to specific performance of the agreement. Citing three cases, all out of their context the learned Judge comes to the conclusion that specific performance of an agreement has to be properly challenged in a suit and not in a Section 397 and 398 of the Companies Act, 1956 proceeding. See the reasons in Paragraph No. 23 of the judgment:- 23. Taking the same analogy, the specific performance of the contractual obligations as per MoU dated 07.03.2007 or Agreement to sell dated 05.04. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,24,54,118/- was paid by the first respondent company allegedly through Manish Choudhary. On 26th July, 2013 a new lease of the said land to be used for residential purposes was granted by the Jaipur Development Authority in favour of the first respondent company. On 1st August, 2013 the Company Law Board pronounced its judgment and order dismissing the company Law petition. On 2nd August, 2013 a Deed of Sale was executed between the company and SEARS. On 5th August, 2013 it was registered. It was made public only on 18th December, 2013 in Court. On 18th December, 2013 it was submitted by learned counsel on behalf of SEARS that the organization had acquired the property on 2nd August, 2013. On that day (18th December, 2013) an assurance of all appearing counsel was recorded by this court that the subject matter of controversy in the appeals would not be disturbed by any party till the Court was in a position to hear out the appeals. The appellants allege that on 3rd January, 2014 an application for environment clearance was made by SEARS. That no litigation was pending against the project or land and that no orders of any Court had been passed were the false representatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind Sarda. The appellants says that SEARS can never claim title to the property. It is leasehold where the lease is granted by the State of Rajasthan in favour of SEARS Bilt Pvt. Ltd. There cannot be sale of a leasehold property in favour of SEARS, as they claim. DISCUSSION First of all, it is important to know the breadth of Sections 397 and 398 read with Section 402 of the Companies Act, 1956. A shareholder or a group of shareholders with a stipulated minimum capital holding in a company can bring either a representative or a derivative action. It is like this. If it is a representative action the shareholder or a group of them complains that the affairs of the company are in the control of another group which is acting in a manner which is prejudicial to their interest or the shareholders as a whole as provided in the Constitution of the company. In this type of case (Section 397) the emphasis is more towards the loss caused to the applicant shareholder or a group of applicants as shareholders of the company. The second type of action (Section 398), the derivative action, is one taken by the shareholders on behalf of the company on the footing that it is in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interests of, any creditors including debenture holders, or any class of shareholders, of the company has taken place in the management or control of the company, whether by an alteration in its Board of directors, or manager, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company, may apply to the Tribunal for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the Tribunal is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the Tribunal may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. 402. Powers of Tribunal on applic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons other than himself. When relief is sought against third parties for the company s benefit, the action may also be described as derivative, because the individual member sues to enforce a claim which belongs to the company, and his right to sue is derived from it .. It has to be seen whether the appellants could have maintained a case under Sections 397, 398 and 402 of the Companies Act, 1956 before the Board. Or to put it in another way was it proper on the part of the Board to throw out the petition on the ground that the appellants could not invoke Sections 397, 398 and 402 to redress their grievances. The question is not about the decision of the first respondent company to transfer the Jaipur property. It had taken this decision long ago on 13th December, 2006 in its Extraordinary General meeting to repay its debts to the Bank of Baroda. The issue was more with regard to the sublease of the property, the person to whom the lease could be assigned and the consideration for it. On 7th March, 2007, this company took a policy decision to sell this property for ₹ 43,80,20,000/-. This policy decision has not been questioned. In my opinion, it is not wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in this judgment. These discrepancies, amongst other factors are indicative of the fact that these socalled meetings of the Board of Directors of the general body of shareholders were very dubious, prima facie. If certain decisions or resolutions had been taken in a properly convened meeting of the board or the general body, this Court was bound to respect it as an internal affair of the company. The end result was that without the consent of the appellants their presence in the board had been reduced to nil or sheer presence only. But when the meetings are doubtful in the mind of the court and resulted in substantial shareholding changes, the Court is to take those decisions as oppressive and burdensome on the complaining group of shareholders and not to take any notice of them. It follows that any subsequent decision taken by the general body on the basis of its purported changed shareholding is also dubious in the eye of the Court. A substantial sum of the consideration realized from SEARS went to Jupiter Finvest Pvt. Ltd., admittedly a company controlled by the Govind Sarda group. In other words, Govind Sarda and his group had appropriated a part of the consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 338 said that the Court had the power to pass any just and equitable order and in this regard its discretion was unfettered. In Ghanshyam Sarda Vs. Sashikant Jha, Director, M/S J.K. Jute Mills Co. Ltd. and Ors. reported in (2017) 1 SCC 599 it was said that a property against which an order of injunction has been made could not be conveyed. If its conveyance has been done in violation of that injunction the transaction may be annulled by a court of law. Now, the altered shareholding of the first respondent Company was used by the shareholders and Board of Directors to take a decision of the Company to resile from the agreement dated 7th March, 2007 with Upasana and Kajaria and to enter into an agreement with SEARS. Yet, the Company Law Board could not perceive this to be an act prejudicial to the shareholders and to the company. It kept on viewing the case of the appellants as a suit for specific performance of the contract by the company for enforcement of the agreement dated 7th March, 2007 and that they could not maintain such an application under Sections 397/398. It is very sad to note that the learned member of the Company Law Board could not view the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nilaterally, by a party to it. One exception is express legislation or agreement. One example of this is the law regarding lis pendis. To the contrary is the law relating to succession which in the event of death of a party keeps on changing the rights and liabilities of the parties during continuance of litigation. Where change of circumstances become material, a particular litigant is entitled to bring on record subsequent events post filing of the litigation by amendment of the pleadings so that there is full and complete adjudication of the disputes between the parties. It is quite possible as it has happened in our case that even after filing of the litigation between the parties the cause of action is continually made larger, wider and more complex by events. In this case, there was entry of SEARS, thereafter, the order of status quo, then negotiation between SEARS, Upasana and Kajaria for return of the investments of the last two parties by SEARS, the entry of Adarsh, the false representation before the Court on 18th December, 2013 and so on. It was within the rights of the parties to include the subsequent events in the cause of action and to ask for reliefs compatible w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... When the matters appeared before this Court on 18th December, 2013 SEARS made a statement in this Court through Counsel that it had purchased the property on 2nd August, 2014. As there was a lot of apprehension in the appellants that the property would again change hands during the Christmas vacation, the Court after hearing the submission of learned Counsel for the parties passed an order recording an assurance that the subject matter of the controversy in the appeals would not be disturbed by any party till the Court was in a position to hear out the appeals. This Court rejects outright any argument by counsel making a fine distinction between an assurance to Court and an undertaking to Court. If only breach of an undertaking amounts to contempt of Court, the Court took this assurance as an undertaking. It did not for a moment record an empty statement, without truth. It was clear as daylight to anybody that the only asset the first respondent company had was the Jaipur property and that through this company petition the Ghanshyam Das group was fighting to regain control of the company and the property. The undertaking which the Court understood, learned Counsel to be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould delay the matters further and result in complication. Since the appeal is a continuation of the trial Court proceeding this Court has now to ascertain how on the above available facts and evidence which are prima facie, Court can do justice to the case. I pass the following order:- a) All meetings of the Board of Directors of the first respondent from 2nd January, 2009 are declared non-est. b) All resolutions taken at those Board meetings are declared null and void. c) All General meetings of the first respondent company convened on 20th February, 2009 and thereafter are declared non-est. d) All resolutions taken at these General meetings are declared null and void. e) The shareholding of the first respondent company would be the same as per the company s records as on 1st January, 2009 and to be altered by the company accordingly. The names of all other shareholders should be deleted. The payments made by them in respect of their shares shall be refunded. If there is no fund available with the company to do so this amount will be stated as a liability of the company towards these persons, in its books of account. f) The first respondent com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its current and future income and assets, and carry on its business without hindrance. l) This committee of management shall immediately upon starting to function cause a balance sheet and profit and loss account of the first respondent to be prepared for the last five years. m) This committee of management will ensure that the contract with Adarsh is executed in the best interests of the first respondent company and that the moneys paid by them are put into the fund of the company. n) The committee of management will ensure that the contract with Adarsh Bilt Estate Ltd. is executed in the best interests of the first respondent company and that the consideration received by it is at market value. o) The committee of management will convene at an appropriate time during execution of the project with Adarsh Bilt Estate Ltd. an Annual General meeting of the first respondent company where first of all a Board of Directors will be elected. The management of the company will then be handed over by the committee to the Board. The newly constituted Board shall not authorise expenses of the first respondent more than 20% of the consideration for sale of the Jaipur prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the petitioners. It was sought to be impliedly suggested to the Court that the property remained in the hands of Govind Sarda and his group. In fact, a month before in November, 2013 an agreement had been entered into between the Sears and Adarsh under which the latter would develop and construct on the property. Thereafter, the property would be transferred to third parties. Now, the petitioners case is that making a statement to the Court on behalf of Sears that the subject-matter of controversy in the appeals will not be disturbed by any party was absolutely meaningless if the property was not under their ownership and control. It was made in a planned manner by the said respondents, conniving and colluding with one another so as to mislead the Court and induce it to refrain from passing a formal order of injunction restraining the parties from changing the status quo of the property. In fact, if the argument of learned counsel for the parties is to be accepted, then Adarsh was in-complete possession of the property from November, 2013. The respondents 7 to 10 had acted further to their design by making an application on 3rd January, 2014 before the environment depart ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of undertaking. The Supreme Court has gone to the extent of stating that an undertaking given to the Court on facts which the maker knows to be false or which he knows shall not be carried out amounts to contempt as held in Dr. (Mrs.) Roshan Sam Joyce Vs. S. R. Cotton Mills Ltd. and Ors. reported in AIR 1990 SC 1881 . In order to ascertain whether a party has given an undertaking to the Court, the words of the party as recorded by the Court in its order or in the depositions or in any other documents are to be interpreted. If by the plain and ordinary grammatical meaning of the words, it is seen that a promise is made to the court, then no matter how the words are spoken or written, no matter whether the exact word undertaking is mentioned by the party, the Court must construe those words as a promise or pledge made to the court and consider it as an undertaking. In Babu Ram Gupta Vs. Sudhir Bhasin and Anr. reported in AIR 1979 SC 1528 , the Supreme Court opined that an undertaking must be express and in clear terms, free from any kind of ambiguity. The undertaking given to the Court must be unqualified as laid down by a Division Bench of our Court in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the dispute. Now, at the outset, I say that this defence taken with regard to the subject matter not being the property but something else is absolutely ridiculous to say the least. There is not even an iota of substance in it. Everybody in the Sarda family knew, all their lawyers were aware and this Court was also fully conscious that the only thing the parties were fighting for was the Jaipur property. Any other stand is most dishonest and I reject the same. Therefore, on that point of time when the court was seriously considering passing an order of status quo, learned counsel for the parties or rather learned counsel for SEARS made the submission, on instruction that the subject matter of the dispute would not be disturbed. In other words, the Jaipur property would not be dealt with. No construction work would be carried out there. This was the plain and ordinary meaning of the oral submission made and faithfully recorded by the officers of the Court. As a result of this submission, an order of injunction was not passed. Now, this submission being express, clear and without ambiguity was nothing short of an undertaking to the Court. Connected with this undertaking was an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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