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TMI Blog2013 (4) TMI 1010X X X X Extracts X X X X X X X X Extracts X X X X ..... Works P. Ltd., and M/s. Western India Glass Works Ltd., respectively, which are private companies incorporated in the State of Maharashtra. Aggrieved by this common order dated October 29, 2007, the petitioners in C. P. Nos. 84 of 2006 and 38 of 2007 filed these company appeals under section 10F of the Act of 1956. C.A. No. 9 of 2008 arises out of C. P. No. 38 of 2007 relating to M/s. Commercial and Industrial Finance P. Ltd., Hyderabad, while C. A. No. 5 of 2009 arises out of C. P. No. 84 of 2006 pertaining to M/s. Kohinoor Glass Factory P. Ltd., Hyderabad. 2. This court admitted C. A. No. 9 of 2008 on November 25, 2008 and directed the parties to maintain status quo with regard to the immovable properties at Hyderabad and not to take any steps to alienate or alter the nature or characteristics of the lands. 3. Insofar as C. A. No. 5 of 2009 is concerned, Company Application No.481 of 2008 was filed by the appellants seeking condonation of the delay of 112 days in its filing. Notice was ordered on this application on July 22, 2009. However, pursuant to the order dated November 25, 2008, passed by this court, the appeal was numbered as C. A. No. 5 of 2009. No counter was filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Chand group of companies controlled by three brothers, viz., Sri Naresh Chand, Sri Mahesh Chand and late Sri Ramesh Chand, who held equal shareholding in the companies, firms and associations of persons of the group. The Chand group of companies belonged to the family of Professor Kishan Chand, who died on May 13, 1961. Sri Mahesh Chand was his eldest son while Dr. Naresh Chand and late Sri Ramesh Chand were the second and third sons respectively. Their shareholding was detailed in the annexure to the arbitration agreement dated January 3, 1989. Sri Ramesh Chand was the husband of the first appellant herein and the father of the second and third appellants. He died in a car crash on December 18, 1986. As certain disputes arose after his death, the appellants, being his legal heirs, sought winding up of M/s. Mahalaxmi Glass Works P. Ltd., Mumbai, before the Bombay High Court. During the pendency thereof, arbitration agreement dated January 3, 1989, was entered into by and between the parties. Pursuant thereto, two arbitrators, Mr. Justice P. N. Bhagwati and Mr. Justice V. D. Tulzapurkar, retired Judges of the Supreme Court, were asked to resolve the disputes. 9. In the arbitr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he value of their one-third share in the said businesses including the said Hyderabad properties and the value of the interest to the extent of 28 per cent. of the Ramesh Chand group in the business of WIG as provided herein, with interest, if awarded. 4. The parties hereto agree to refer and hereby refer to the summary arbitration of Mr. Justice P. N. Bhagwati (Retired) and Mr. Justice V. D. Tulzapurkar (Retired), the following issues and all other connected and incidental issues :- (a) The determination of the value of the one-third share of the Ramesh Chand group in the aforesaid businesses, including the Hyderabad properties and the value of the interest to the extent of 28 per cent. of the Ramesh Chand group in the business of WIG. (b) The aforesaid valuation shall be made as on the relevant date. The parties shall be at liberty to urge their respective contentions in regard to the mode and manner of such valuation, including the question as to how, in what manner and to what extent the claims, liabilities and demands in respect of the aforesaid businesses including the Hyderabad properties pertaining to the period prior to the relevant date which may be crystallised or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first of such payments shall be made on or before December 15, 1989 and the subsequent payments on or before the 15th of every succeeding month thereafter to the Ramesh Chand group in the manner more particularly set out hereinafter until the date of the final award. As from the date of the final award a sum of Rs. 50,000 per month shall be paid on or before the 15th of every month to the Ramesh Chand group until the value of the one-third share in the said business including the Hyderabad properties and the interest to the extent of 28 per cent. of the Ramesh Chand group in the business of WIG with interest thereon that may be awarded by the arbitrators is paid in full and the question as to which of the parties shall be liable to pay the same shall be decided by the arbitrators. Provided that the arbitrators shall decide as to whether and in what manner and to what extent the liability to pay Rs. 50,000 salary, perquisites and dividends shall be reduced on part payments from time to time towards the amount of the final award together with interest, if any, awarded. The said monthly sums of Rs. 50,000 shall be paid to M/s. Bachubhai Munim and Co., on behalf of the Ramesh Chand gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h failure when a Division Bench of the Bombay High Court dismissed it by order dated April 2, 1998. Their further appeal before the Supreme Court of India in Civil Appeal No.4060 of 1998 was disposed of by order dated August 18, 1998, with certain consensual modifications of the award-while agreeing with the Bombay High Court that the award did not call for any interference, the Supreme Court took note of the appellants' grievance that they were denied interest for the pre-award period and as counsel for the contesting parties agreed before it that the respondents would pay Rs. 5,00,000 to each of the three appellants in lump-sum by way of pre-award interest, the Supreme Court recorded the same and directed that the award should stand modified to that extent. The parties were also directed to bear their own costs. The appellants were permitted to withdraw the amounts deposited by the respondents before the Bombay High Court with accrued interest, if any. These were the limited changes made by the Supreme Court. In effect, the final award also attained finality. 12. The first interim award dated April 2, 1994, pertained to the Serilingampally property, being an extent of Ac. 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act that part of the Baquer Khan land was sold by M/s. Commercial and Industrial Finance P. Ltd., the appellants were allotted one-third undivided and undemarcated share out of the remaining Ac. 282.17 guntas. However, as Ac. 100.00 guntas forming part of Survey No. 45 and being part of the Ac. 130.17 guntas, agreed to be sold under agreement of sale dated May 8, 1995, was also allotted to the appellants, subject to the terms and conditions of the said agreement of sale, certain terms and conditions were imposed. The remaining Ac. 182.00 guntas of land, which was not the subject-matter of the agreement of sale dated May 8, 1995, was to be sold by the appellants as per the terms and conditions stipulated. One-third of the sale proceeds from the sale of this land, after deduction of costs, charges and expenses, was to be paid to the appellants. The award also noted that Rs. 12,20,000 was lying in deposit in the Bombay High Court, pursuant to the order dated December 7, 1995, in Arbitration Petition No. 212 of 1995, and one-third share thereof was permitted to be withdrawn by the appellants in respect of their undivided and undemarcated one-third share and the balance was to be withdr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in blank by the registered shareholders at nil value. Such handing over shall be against full payment to the claimants of the amount hereby awarded." 18. As per paragraph 42 of the final award, the respondents were required to continue to make monthly payments in terms of the arbitration agreement which included salary, perquisites, etc., until the expiration of the period of twelve months from the date of the award as on which date, the liability for payment of interest would commence in the case of non-payment of the compensation amount. Such payments were directed to be in addition to the amount of compensation awarded and were to be retained by the appellants without adjustment. Upon expiration of the period of twelve months from the date of the award or upon full payment of the compensation amount awarded, whichever was earlier, the appellants ceased to have entitlement to any sum by way of monthly payments, salaries, perquisites, from the respondents. 19. As regards the firm, M/s. Kemenar Enterprises, the learned arbitrators determined its value at Rs. 4,50,000 and Rs. 1,50,000 thereof, representing one-third share, was directed to be paid to the appellants in addi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chand groups should include not merely preference shares but also equity shares in M/s. Mahalaxmi Glass Works P. Ltd., M/s. Kohinoor Glass Factory P. Ltd., and M/s. Western India Glass Works Ltd. As regards paragraph 45, the learned arbitrator stated that in the sixth line after "Fontainbleau Investment and Trading Company" the names of two other companies were inadvertently omitted and that Commercial and Industrial Finance P. Ltd., and New Delhi Glass Industries P. Ltd., had been added. In paragraph 46, the learned arbitrator stated that the name "Encee" had been corrected as "Emcee". 22. However, another letter dated May 16, 2011, was placed on record by Sri S. Ravi, learned senior counsel for the appellants, wherein Mr. Justice P. N. Bhagwati, the other learned arbitrator, stated to the effect that the alterations made in paragraphs 38, 45 and 46 were not initialed by him. More about this aspect later. 23. The prayers of the appellants herein before the Company Law Board in the four company petitions were similar. They sought restoration of their shareholding and the shareholding of late Sri Ramesh Chand in the four companies, cancellation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 and 398 of the Act of 1956. They further asserted that the appellants were not shareholders at all, let alone minority shareholders. They pointed out that the appellants were only heirs of late Sri Ramesh Chand who held shares jointly in the companies with his two brothers. They averred that the appellants never held any equity shares in any of the organisations of the Chand group and that they only held preference shares in the companies, which had to be compulsorily redeemed and were so redeemed on June 11, 1998. As per the final award, there was no question of allotting equity shares to the appellants, who were paid off in terms thereof. Details were furnished as to the restructuring of the share capital of the companies pursuant to the final award. 26. The respondents referred to the earlier attempt by the appellants to intervene in the proceedings filed before the Bombay High Court for sanction of a scheme of arrangement between M/s. Kohinoor Glass Factory P. Ltd., and M/s. Mahalaxmi Glass Works P. Ltd., which they unsuccessfully pursued up to the Supreme Court. They pointed out that the amounts, payable as per the final award dated September 14, 1996, had been withdrawn by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any Law Board which was that their shareholding was illegally taken away by the respondents. They pointed out that the jurisdiction of the Bombay High Court under sections 391 and 394 of the Act of 1956 did not extend to touching upon this aspect of the matter which rested solely with the Company Law Board. According to the appellants, they had deposited the original shares held by them in respect of the following companies along with transfer forms, duly signed : (1) Mahalaxmi Glass Works P. Ltd. . . . 7,863 preference shares (2) Kohinoor Glass Factory P. Ltd. . . . 6,012 preference shares (3) Western India Glass Works P. Ltd. . . . 100 equity shares (4) Commercial and Industrial Finance P. Ltd. . . . 1,300 equity shares (5) New Delhi Glass Industry P. Ltd. . . . 1,904 equity shares 30. Arguments advanced having been set out at length, the actual consideration by the Company Law Board commences from paragraph 41 of its order. The Company Law Board observed that the petitioners in the company petitions, the appellants herein, were the legal heirs of late Sri Ramesh Chand, who had held one-third share in the companies jointly with his brothers. However, as he did not hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missible as the same was not within its competence. The petitions were accordingly dismissed as not maintainable. 32. Perusal of the pleadings in C. P. No. 84 of 2006 reflects that the Prothonotary and Senior Master, Bombay High Court, was stated to have passed order dated December 1, 1999, directing the appellants to deposit their shares in the group companies without prejudice to their rights and also execute all deeds and documents to give effect to the award. As per paragraph 10.2 of the petition, the appellants deposited the shares as directed by the order dated December 1, 1999. The petition further reflects that though the appellants received a sum of Rs. 4,41,00,000 the sale of properties at Hyderabad was being continuously delayed and obstructed by the respondents. According to the appellants, late Sri Ramesh Chand held 360 equity shares representing one-third of the entire equity share capital of the company. The original certificates in respect of the shares were stated to have been deposited with the court receiver, Bombay High Court, under the directions of the said court. A copy of the receipt from the court receiver's office was stated to have been attached to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led, which involved reduction of capital and it was not the case of the companies or the existing shareholders that any transfer deeds were executed. He therefore contended that the equity shareholding of the appellants did not stand divested. 34. According to learned senior counsel, in so far as M/s. Kohinoor Glass Factory P. Ltd., is concerned, late Sri Ramesh Chand had held 360 equity shares while in M/s. Commercial and Industrial Finance P. Ltd., he held 1,300 equity shares. Reference was made to the counter filed by the respondents before the Company Law Board, wherein it was stated that instead of handing over the share certificates with the duly signed share transfer forms, the appellants were dilly dallying, hence the companies in question took a policy decision to cancel the shares which stood in the names of the members of the Ramesh Chand group and issued duplicate equity shares with the same distinctive numbers while the preference share were redeemed in accordance with law. 35. Learned senior counsel, pointed out that the order of the Company Law Board under challenge did not even refer to the arguments advanced before it with regard to the violation of sections 108, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court. He pointed out that the shares required to be deposited by the appellants were in fact deposited by them with the Bombay High Court even as per their own case. He further asserted that no "question of law" as required by section 10F of the Act of 1956 arose out of the issues raised by the appellants. 37. In his reply, Sri S. Ravi, learned senior counsel, pointed out that though an application under sections 397 and 398 of the Act of 1956 could only be maintained by members, no such requirement was there under section 111 of the Act of 1956. He reiterated that the procedure under section 108 of the Act of 1956 was mandatory and no violence could be done to the statutory procedure basing on the award. The award by itself, according to learned senior counsel, did not contemplate automatic ouster of the appellants from the shareholding of the companies. That being so, if necessary steps that were to be taken by the appellants were not so taken, the only remedy was to seek execution of the award. Learned senior counsel pointed out that the award itself made it clear that the interim awards and the directions given therein with regard to the Hyderabad properties were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the earlier round of litigation. The learned judge observed that it would not be proper on his part to brush aside the earlier orders on the specious plea that the orders were passed on the basis of incomplete facts. The learned judge observed that the argument that compliance with the obligations under the awards remained incomplete was urged earlier and was again being urged by seeking to distinguish between the orders passed earlier on the ground that the intervener had sufficient material to establish that she continued to be a shareholder of the company and opined that nothing was pointed out to enable him to hold that the intervener continued as a shareholder of the company. The learned judge observed that it would be open to the parties to raise appropriate pleas in the pending execution petitions arising out of the interim awards relating to the Hyderabad properties. 40. The learned judge held that severance had already taken place and that the intervener could not be permitted to go beyond the original agreement. Referring to the disagreement between the two learned arbitrators as to the corrections made in the award, the learned judge stated that it was too late in the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid order has not attained finality and is under challenge before the Supreme Court. Though Sri S. Ravi, learned senior counsel, assailed the order of the Bombay High Court relying upon the decisions in Municipal Corpn. of Delhi v. Gurnam Kaur AIR 1989 SC 38 and N. Sreekantaiah alias M.N. Sreekantaiah v. M.N. Mallikarjunaiah AIR 1996 Karn 193, this court is not inclined to delve into this issue as the Supreme Court is seized thereof. 44. The questions of law framed in these company appeals revolve around the interpretation of the awards passed by the learned arbitrators and the provisions of the Act of 1956. Well-settled is the proposition that construction of documents which form the basis of property claims raises a substantial question of law. (See Guran Ditta v. T. Ram Ditta AIR 1928 PC 172, Sree Meenakshi Mills Ltd. v. CIT [1957] 31 ITR 28 (SC), Kochukakkada Aboobacker v. Attah Kasim [1996] 7 SCC 389, Neelu Narayani v. Lakshmanan [1999] 9 SCC 237 and Santakumari v. Lakshmi Amma Janaki Amma [2000] 7 SCC 60). Further, the appellants also raised purely legal issues relating to statutory provisions and their application. The appeals therefore raise questions of law as required by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on full payment of the compensation amount awarded to them by the learned arbitrator's, paragraph 46 stipulated that upon full payment being made to them under the award, the claimants ceased to be members in Emcee Investments and Arcee Associates, associations of persons, and their right, title and interest would vest in the Naresh Chand and Mahesh Chand groups in equal shares. Paragraph 48 which is crucial for the purposes of this case and has already been extracted supra, puts it beyond doubt that it was only upon full payment of the compensation amount and other amounts awarded by the learned arbitrators that there would be complete severance of connection of the Ramesh Chand group and the members of his family from the companies, firms, AoPs and WIG. 48. The issue presently is whether the reference to "other amounts awarded" in paragraph 48 of the final award would take into its ambit the amounts payable to the appellants under the interim awards also. The learned arbitrators specifically stated that the interim awards passed by them earlier as well as the directions issued therein, which had been accepted by the parties, stood confirmed. Significantly, the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises upon payment of their one-third share of its value on the ground that their separation from the companies, firms, AoPs and WIG was to be effective only upon receipt in full value of their one-third share in all the businesses and the Hyderabad properties. Dealing with this aspect, the learned Judge of the Bombay High Court pointed out that at the end of paragraph 45 of the award, it was clearly stated that handing over of the shares held by the claimants in Kaycee Investments P. Ltd., etc., to the Mahesh Chand and Naresh Chand groups was to be against full payment of the amount of compensation awarded to them by the arbitrators. The learned judge observed that dissolution of M/s. Kemenar Enterprises on payment of Rs.1,50,000 to the claimants would not bring to an end their right in M/s. Kemenar Enterprises and that only the payment in full of the entire amount awarded to them would bring to an end the share of the Ramesh Chand group in the companies, firms, etc. The learned judge therefore concluded that the mere direction to dissolve M/s. Kemenar Enterprises on payment of Rs. 1,50,000 would not have the effect of extinguishing the right of the claimants in the said dissolved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r registering such a transfer of shares. 54. As pointed out by the Supreme Court in Mannalal Khetan (supra), the prohibition against transfer without complying with the provisions of the Act is emphasised by the negative language used in the provision. In that case, the Bombay High Court had held that section 108 of the Act of 1956 was directory in nature on the ground that when the law did not prescribe the consequence or lay down a penalty for non-compliance, the provision had to be considered directory. Disagreeing with this reasoning, the Supreme Court pointed out that section 629A of the Act of 1956 prescribed a penalty when no specific penalty was provided elsewhere in the Act and observed that in every case where a statute inflicted a penalty for doing an act, though the act be not prohibited, yet the thing is unlawful because it is not intended that a statute would inflict a penalty for a lawful act. Section 108 of the Act of 1956 was therefore held to be mandatory. 55. In the present case, the respondent-companies seem to have issued duplicate shares and cancelled existing shares without following the statutory procedure. There was no instrument of transfer whereby the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;shares" need not trouble this court. Irrespective of the liability of the appellants to deposit their preference shares or their equity shares or both, the necessity to comply with the procedure prescribed by the Act of 1956 remained immutable. The finding of the Company Law Board that upon the death of Sri Ramesh Chand his shareholding did not devolve upon the appellants but upon the co-owners cannot be sustained. It is no doubt true that in Ram Govind Misra v. Allahabad Theaters (P.) Ltd. [1989] 66 Comp Cas 358, a learned judge of the Allahabad High Court held that where shares are owned jointly, no title in respect of those shares would pass on to the heir of the deceased joint-holder and that the other joint owner would alone be entitled to the entire shareholding. The learned judge was of the opinion that the question of a legal representative of a shareholder becoming entitled to the shares arises only in the case of a sole shareholder. Reliance was placed in this regard on regulation 25 of Table "A" to Schedule-I to the Act of 1956. On facts, the learned judge found that there was nothing in the articles of the company in that case which excluded or modified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Court in Mannalal Khetan (supra). The Company Law Board, therefore, ought to have looked into the question as to whether the issue of delay would arise at all in the circumstances of the case. 61. The Company Law Board, having held that the appellants had no locus or qualification under section 399 of the Act of 1956, observed (page 535 of 148 Comp Cas): "The points of the alleged non-compliance in the fourth award or in any award for that matter do not empower the Company Law Board to undo the effects of arbitration/or get the compliance made. Only the competent court can do that. Besides, there is uncondonable delay and laches in the matter. The petitioners cannot approbate and reprobate. They cannot take advantage and benefits of the awards which merged into the judgment and orders of the High Court and the Supreme Court, and then challenge the awards, directly or indirectly . . . The petitioners are seeking a review or enforcement or execution of the awards which is not permissible, it is not within the competence of the Company Law Board." 62. Holding so, the Company Law Board dismissed the petitions as not maintainable. The aforestated observations however re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mi Glass Works P. Ltd. 64. This order was subjected to appeal in Appeal No. 104 of 2001 before the Division Bench of the Bombay High Court. By order dated April 23, 2001, the Division Bench dismissed the appeal. Perusal of the said order shows that no material was placed on record by the appellants as to why the scheme was bad or should not be approved. The Bench further observed that it was not satisfied that the appellants continued to hold rights in the companies as shareholders nor was it satisfied that there was any bona fide objection to the scheme. The Bench left it open to the appellants to execute the arbitration award in whatever manner possible and dismissed the appeal. Review Petition No. 34 of 2002 filed by the appellants was also rejected by a Division Bench of the Bombay High Court on October 7, 2003. Perusal of this order reflects that the Division Bench found no substance in the review petition. Thereupon, the order dated April 23, 2001, in the appeal and the order dated October 7, 2003, passed in the review petition were subjected to challenge before the Supreme Court in petition(s) for Special Leave to Appeal (Civil) C. C. No. 1906 of 2004. By order dated March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court which could consider them. The Bombay High Court further opined that it could not be called upon to consider the challenge to the award or the issue of its enforceability and executability. The only mode of enforcement was held to be by approaching the competent executing court. On facts, the Bombay High Court was also of the opinion that no ground was made out to interfere with the scheme of amalgamation. The Bombay High Court therefore dismissed the company appeals on the ground that the order of the Company Law Board could not be said to be perverse. 67. Having acknowledged that the interim awards had merged with the final award but were not implemented, the Bombay High Court failed to give effect to the inevitable consequence thereof in terms of the observations made by it in the context of M/s. Kemenar Enterprises while confirming the final award. It is no doubt true that the appellants' execution proceedings are pending before the Civil Courts in Ranga Reddy District. Execution Petition No. 24 of 2005 pertaining to the Miyapur lands (Baquer Khan and Jeelani Begum lands) is pending before the Principal District Judge, Ranga Reddy District. E. P. No. 25 of 2005 is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondents in these companies unilaterally on the basis of a so-called policy decision and in violation of the statutory procedures and the directions of the learned arbitrators ; the impact thereof upon their status as members of the companies in the backdrop of the awards ; and consequently, its effect on their locus to maintain applications alleging oppression and mismanagement, were therefore issues that needed to be considered independently by the Company Law Board. Losing sight of its jurisdiction as to these issues, the Company Law Board assumed that the appellants were seeking review or execution of the awards. That was not the import or object of the petitions filed before the Company Law Board. 70. The common order dated October 29, 2007, passed by the Principal Bench of the Company Law Board at New Delhi, in so far as it pertains to Company Petitions Nos. 84 of 2006 and 38 of 2007, is accordingly set aside and the matters are remitted to it for consideration afresh on the various issues which have been set out supra. The Company Law Board shall decide the matters independently but taking heed of the observations made hereinabove on the issues that it specifically needs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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