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Sh. Arun Mehra and anr. Vs. Durga Builders Pvt. Ltd. and ors. - Court Judgment

SooperKanoon Citation

Subject

Company

Court

Delhi High Court

Decided On

Case Number

CO. Appeal No. 7/2006

Judge

Reported in

[2007]138CompCas935(Delhi); (2007)6CompLJ465(Del); [2007]75SCL1(Delhi)

Acts

Company Act, 1956 - Sections 111, 235, 237, 397, 398, 402 and 403; Negotiable Instruments Act - Sections 138; Code of Civil Procedure (CPC) - Order 37

Appellant

Sh. Arun Mehra and anr.

Respondent

Durga Builders Pvt. Ltd. and ors.

Appellant Advocate

Aman Lekhi, Sr. Adv. and; Jayant Mehta, Adv. in Co. Appeal No. 7/2006 and Parag Tripathi, Sr. Adv in Co

Respondent Advocate

Sharad K. Aggarwal ; Purnima Aggrawal and Sangeeta Grover, Advs.

Cases Referred

Hungerford Investment Trust Ltd. v. Turner Morrison and Co. Ltd.

Excerpt:


.....26. counsel urged that the order of the company law board failed to note investment of 10 crores made by mehras in the companies, as a consequence, counsel urged that equities were not fairly considered by the company law board. the share certificates, duly endorsed were handed over to the mehras, but the transfer was not recorded in the register of members of the companies. 41. having chosen not to adopt either course of action, a strong presumption arises in favor of nandas that the agreements were intended to secure the investments made by mehras in the on-going project of the 2 companies. 45. conduct of the parties shows that having got the share certificates, duly endorsed in their favor, by not taking any steps to control the 2 companies, mehras intended to retain lien over the shares to secure their investments made in the 2 companies......divided into 5000 equity shares of rs.100/-. out of 5000 shares, the 2nd respondent held 2500 shares and the 3rd respondent 2300 shares, balance shares were held by 8 other shareholders at 25 shares each. the petitioners and the 2nd and 3rd respondents entered into an agreement on 19.5.1997 by which the 1st petitioner acquired 2500 shares from the 2nd respondent for a consideration of rs.2.5 lacs and the 2nd petitioner acquired 2300 shares from the 3rd respondent for a sum of rs.2.3 lacs. in terms of the agreement, a board meeting was called on 19.5.1997 in which the 1st and 2nd petitioners were appointed as directors and the 2nd and 3rd respondents resigned as directors. the share certificates in respect of 4800 shares were handed over to the petitioners after duly registering the transfers. thus, the petitioners came to hold 96% shares in the company. the reason for the agreement was that petitioners, through various companies controlled by them, had given substantial financial help to the 6th respondent which is a company controlled by the 2nd and 3rd respondents. in addition, the petitioners had also done substantial work for the colony being promoted by the 6th.....

Judgment:


Pradeep Nandrajog, J.

1. The two appeals are directed against a common order dated 2.2.2006 passed by the Company Law Board disposing of CP No.54/2005 and CP No. 59/2005.

2. Vide the CP No. 54/2005, Arun Mehra and his wife Ms. Seema Mehra invoked Sections 111, 235, 237, 397, 398, 402 and 403 of the Company Act, 1956. Their grievance related to M/s Durga Builders Pvt. Ltd. and the manner in which respondents 2 to 5 of the said petition were alleged to be conducting affairs of M/s Durga Builders Pvt. Ltd.

3. Arun Mehra and his wife Seema Mehra were the petitioners in CP No. 59/2005. They invoked Sections 397 and 398 of the Companies Act 1956. Grievance related to the affairs of Rajdhani Housing Syndicate Pvt. Ltd. It was alleged that respondents 2 to 5 were conducting business in a manner which was oppressive to the petitioners. M/s Durga Builders Pvt. Ltd. was imp leaded as respondent no. 6 in said Company Petition.

4. R.K. Nanda, his wife Promila Nanda, their friends Ram Gopal Sharma and his wife Ms. Shakuntala Devi Sharma are the common respondents in the two petitions.

5. Rival versions of the parties as per pleadings in CP 54/2005 and CP 59/2005 have been pithily culled out by the Company Law Board in the order impugned. I note the said rival versions as extracted by the Company Law Board. Following has been noted by the Company Law Board:

2. In so far as CP 59 of 2005 (Rajdhani Builders) is concerned, the allegations of the petitioners are: The company is engaged in the business of development of land for building purposes. In June, 1992, Haryana Government granted a license to the company for setting up a residential colony in district Faridabad in respect of 84.54 acres. The authorized and paid up capital of the company is Rs.5 lacs divided into 5000 equity shares of Rs.100/-. Out of 5000 shares, the 2nd respondent held 2500 shares and the 3rd respondent 2300 shares, balance shares were held by 8 other shareholders at 25 shares each. The petitioners and the 2nd and 3rd respondents entered into an agreement on 19.5.1997 by which the 1st petitioner acquired 2500 shares from the 2nd respondent for a consideration of Rs.2.5 lacs and the 2nd petitioner acquired 2300 shares from the 3rd respondent for a sum of Rs.2.3 lacs. In terms of the agreement, a board meeting was called on 19.5.1997 in which the 1st and 2nd petitioners were appointed as directors and the 2nd and 3rd respondents resigned as directors. The share certificates in respect of 4800 shares were handed over to the petitioners after duly registering the transfers. Thus, the petitioners came to hold 96% shares in the company. The reason for the agreement was that petitioners, through various companies controlled by them, had given substantial financial help to the 6th respondent which is a company controlled by the 2nd and 3rd respondents. In addition, the petitioners had also done substantial work for the colony being promoted by the 6th respondent. Even though the petitioners became majority shareholders and directors of the company, since the since the 1st respondent company could not develop the said colony due to paucity of funds, the petitioners did not take much interest in the affairs of the company. Only in the month of September, 2005, the petitioners came to know from the proceedings in a writ petition filed by the 6th respondent before the High Court of Punjab and Haryana that the 6th respondent had obtained license for development of 235 acres of land from the 2nd respondent. Since the petitioners were aware that the 6th respondent had a license for 150 acres of land, the 85 acres of land belonged to the 1st respondent company should have been transferred to the 6th respondent. In addition, the petitioners also came to know that the 1st respondent company had entered into an agreement with one Aditya Cable Company Ltd. for transfer of 100% equity shares in the company. Thereafter, the petitioners took inspection of the books of records in the office of ROC and found that the 2nd and 3rd respondent are being shown as shareholders in respect of 4800 shares and they are also shown as directors notwithstanding the fact that these shares had been transferred to the petitioner in 1997 and both the 2nd and 3rd respondents had resigned as directors and the 1st and 2nd petitioners have been appointed as directors. This would indicate that the substantial manipulation of the records of the company. With these allegations, the petitioners have sought for rectification of the register of members of the company by inserting the name of the 1st petitioner as shareholder in respect of the impugned 2500 shares and also the name of the 2nd petitioner in respect of 2300 shares impugned in the petition. They have also sought for removing 2nd and 3rd respondent and appointment of 1st and 2nd petitioners of their nominees as directors. They have also sought for a declaration that the purported transfer of the license in favor of the 6th respondent be declared as null and void.

3. In so far as CP No. 54 of 2005 (Durga Builders) is concerned the allegations of the petitioners are: This company, is engaged in the business of development of land for purposes of building colonies. The authorized capital of the company is Rs.10 lacs divided into 1 lac equity shares of Rs.10/- each and the issued and paid up capital consists of 28500 equity shares of Rs.10/- each. The 2nd respondent held 145000 equity shares and the 3rd respondent held 14000 shares. :By and agreement dated 19.5.1997, the 1st petitioner acquired the shares held by the 2nd respondent for a consideration of Rs.4.35 lacs and the 2nd petitioner acquired shares held by the 3rd respondent for valuable consideration. On the same day - 19.5.1997, in a board meeting of the company, the registration of transfers was approved and the share certificates were handed over to the petitioners. The 2nd and 3rd respondents resigned as directors and the 1st and 2nd petitioners were appointed as directors and the 1st petitioner was also authorized to operate the bank accounts of the company. In view of this, the 2nd and 3rd respondents ceased to have any right or title or interest in the company. After the implementation of the agreement, the petitioners came to know that the company was faced to criminal litigations due to its failure to discharge its obligations to the plot holders. The petitioners also came to know that they have not been shown as directors in the records of the company. Since the respondents assured the petitioners that after the conclusion of criminal litigations, the petitioners could take over the control of the company they did not protest. However, criminal cases are still pending and in exclusion of the petitioners, the respondents are enjoying the properties and benefits of the company. The petitioners have learnt that the respondents are proposing to sell the company which would be in complete breach of the agreement dated 19.5.1997. In the Returns filed with the Registrar of Companies, the respondents are shown to hold the impugned shares even though they had been transferred to the petitioners. With these allegations, the petitioners have sought for directions to the 2nd and 3rd respondents to act strictly in accordance with the agreement dated 19.5.1997 and the board resolution of that date and also for directions that the continuance of these respondents as directors after 19.5.1997 as illegal, null and void and also for a direction to induct the petitioners as directors of the company.

4. In the reply to CP 59 of 2005 (Rajdhani) the respondents have submitted: The petitioners are not shareholders of the company. The 1st petitioner was a contractor to develop the the colony for the company and he has manipulated the accounts of the company and as such respondents have filed a suit for recovery of dues and rendition of accounts. The petitioners are trying to grab the company after the respondents have paid over Rs.25 crores through the Deputy Commissioner of Police, Economic Offences Wing to various investors. As a matter of fact, the petitioners themselves have moved an application before Delhi High Court stating that the agreement is time barred. The petitioners were never interested in the company and as such it is wrong on their part to contend that because the company was in bad shape, they did not take over the control of the company. The agreement dated 19.5.1997 was purportedly entered into among the 1st and 2nd petitioners, on Class Sales Private Ltd., respondents 2 and 3 admittedly the said agreement was not signed by the 2nd petitioner and anyone on behalf of Ms Class Sales Pvt. Ltd. thereforee, the said agreement is no agreement in the eyes of law. Originally, the petitioners were interested in purchasing 50 plots of 505 sq. yds for a total consideration of Rs.2.5 crores to be funded through their various sister concerns. With a view to grab the company through the 2nd respondent for taking over the entire assets and liabilities of the company. Thereafter, the 1st petitioner as a director of the company started issuing various cheques on behalf of the company. M/s Class Sales Private Ltd. also booked various plots in various schemes of the company and issued bogus receipts and misappropriated the amount collected. This has caused a number of investors to file criminal cases against the company. There is nothing on record of the office of ROC that the petitioners had become directors of the company even though they had acted as such in issuing various cheques on behalf of the company. Only when criminal cases started, the petitioners ran away from the company to avoid any penal action. Because of that the 2nd respondent was forced to take over the company and has been facing all the criminal cases. Further, since the entire petition has been filed on the basis of the agreement dated 19.5.1997, the same has been barred by limitation. If the petitioners are desirous of taking over the control of the company, they should also assume the responsibility of dealing with all criminal cases by substituting their names in those cases in place of the 2nd and 3rd respondents. The efforts put in by the 2nd and 3rd respondents as directors of the company is evident from the fact that so far they have paid more than Rs.25 crores to the investors, they have settled around 28 cases under Section 138 of Negotiable Instruments Act by paying full amount, around 12 cases under order 37 of CPC have been settled out of court, the company has sold all vital properties and only registration is pending, the respondents are also prosecuting 52 civil cases which are pending before various civil and criminal courts.

5. In so far as CP 54 of 2005 (Durga Builders) is concerned, the respondents have filed a reply which is more or less similar to the reply to CP 59 of 2005.

6. Noting that prior to filing of the two company petitions Civil Suit bearing No. 961/2004 was filed in this Court by Durga Builders Pvt. Ltd. and R.K.Nanda in which Arun Mehra, his wife Seema Mehra and Deutsch Bank were imp leaded as defendants, the Company Law Board held that in view of pleadings of Mehras in written statement filed by them in Suit No. 961/2004, the two could not blow hot and cold and thereforee were held entitled to no relief. Additionally, learned Company Law Board has noted that the Nanda as directors of Durga Builders Pvt. Ltd. faced the brunt of criminal prosecution, Mehras could not claim any right in the two companies.

7. Unfortunately, order of the Company Law Board is a little cryptic (as I read it), thereforee a few more fact need to be noted.

8. Foundation of the dispute projected under both petitions were two agreements dated 19.05.1997.

9. Pertaining to Durga Builders Pvt. Ltd., agreement dated 19.05.97 executed between R.K.Nanda and his wife (sellers) and the Mehras, including their Company M/s Class Sales Pvt. Ltd. and M/s True Value Trade Link Pvt. Ltd. (buyers) records that the sellers hold 28,500 fully paid up equity shares of Rs.10/- in Durga Builders Pvt. Ltd. That for a total sale consideration of Rs.8.55 lacs, said shares were being sold to the buyers. Thus, price per share came to Rs.30/-. The sale consideration is recorded as having been received. It is recorded that the sellers shall resign as directors of the company and henceforth would have no right title or interest in the company.

10. Simultaneously, on 19.05.97, a Board Resolution was passed by the Nandas in which Mehras joined as special invitees. The resolution passed is as under:

Resolved that Smt. Seema Mehra w/o Sh. Arun Mehra r/o A-74, New Friends Colony, New Delhi, be and is hereby appointed as Director on the Board of the Company with immediate effect.

Resolved that Mr. Arun Mehra r/o A-74, New Friends Colony, New Delhi, be and is hereby appointed as Director on the Board of the Company with immediate effect.

It was further resolved that the above changes be notified to the Registrar of Companies by filing suitable forms.

It was further resolved that Sh. Arun Mehra be and is hereby appointed unanimously to be the Chairperson of all the Board meetings of the company in future.

Sh. R.K.Nanda informed the Board that in order to consolidate and expand the activities of the company, an Executive Director be taken on the board. Hence it was unanimously decided that, Sh. S.K.Gauba G.M. of the Co. be taken on the Board as E.D.

Sh. S.K.Gauba be appointed E.D. Of the Co. and be authorized to deal with the banks, and sign cheques up to limit of Rs.10,000/- (Rupees Ten Thousand Only).

It was further resolved to intimate the Registrar of Companies about the above changes on the Board within the statutory period. It was also resolved that all the records, books of accounts, vouchers, files, movable assets, Bank passbooks, cheque books, Incometax files, Housetax files, Property ownership Document files, Assets files etc. should be handed over to the new E.D. Of the Co. with immediate effect.

11. Regarding Rajdhani Housing Syndicate Ltd., agreement dated 19.05.97 recorded similar seller and similar buyer. 4800 fully paid up equity shares of Rs.100/- each were sold to the buyers at the face value. Sale consideration of Rs.4.8 lacs was received. Other terms of the agreement are pari materia with the terms recorded in the agreement pertaining to M/s Durga Builders Pvt. Ltd. Simultaneously, on 19.05.97, Board Meeting of Rajdhani Housing Syndicate Pvt. Ltd. was held in which Mehras joined as special invitees. Following resolution was passed:

Resolved that Smt. Seema Mehra w/o Sh. Arun Mehra r/o A-74, New Friends Colony, New Delhi, be and is hereby appointed as Director on the Board of the Company with immediate effect.

Resolved that Mr. Arun Mehra r/o A-74, New Friends Colony, New Delhi, be and is hereby appointed as Director on the Board of the Company with immediate effect.

It was further resolved that the above changes by notified to the Registrar of Companies by filing suitable forms.

It was further resolved that Sh. Arun Mehra be and is hereby appointed unanimously to be Chairperson of all the Board meetings of the company in future.

It was further discussed and resolved that the Bank operations of the company be henceforth conducted by the new Directors only and the bankers be informed of the same forthwith.

The Bankers should be supplied with the copies of the following resolutions, canceling the earlier authorization of signatories for the operations of the Bank accounts, except the post dated refund issued for which a list is to be submitted to the concerned banks and empowering henceforth Mr. Arun Mehra, Director and to operate the same.

Sh. R.K.Nanda informed the Board that in order to consolidate and expand the activities of the company, an Executive Director be taken on the board. Hence it was unanimously decided that, Sh. S.K.Gauba G.M. Of the Co. be taken on the Board as E.D.

Sh. S.K.Gauba be appointed E.D. Of the Co. and be authorized to deal with the banks, and sign cheques up to limit of Rs. Ten Thousand Only.

Sh. R.K.Nanda placed before the Board, certain share certificates and duly stamped completed and signed transfer deeds, for transfer of the same in the name of transferee mentioned therein. He further informed the Board that the consideration agreed to by the Buyer and the Sellers of the shares had been fully paid. He also informed the Board that all the existing shareholders had been informed of the same, and that there was no objection to the sale nor was there any offer from any existing shareholder for the purchase of any part of the said shares. After due discussion, the Board of Directors unanimously approved the transfer and the following resolution was adopted.

Resolved that the following shares transfers be and hereby approved unanimously.

S.No. Transferor Transferee Distinctive No. From To No. of shares of shares 1 R.K.Nanda. Arun Mehra. 2500 2 Promila Nanda. Seema Mehra. 2300 Sh. R.K.Nanda informed the Board that he has received resignation letters form Smt. Promila Nanda Sh. R.K.Nanda, from the Directorship of the company. The matter was duly discussed and it was decided by the Board that the same be accepted with immediate effect. The Board of Directors unanimously adopted the following resolutions in this regard.

Resolved that the resignation of Sh. R.K.Nanda and Smt. Promila Nanda from the Directorship of the company and from the Board of Directors, be and is hereby accepted with immediate effect.

It was further resolved by the Board to place on record appreciation of their services to the company from time to time.

It was further resolved to intimate the Registrar of Companies about the above changes on the Board within the statutory period.

It was further resolved that all power of attorneys thereto before given to Sh. R.K.Nanda, or to Smt. Promila Nanda, or to any other person whosoever, be and are hereby invoked, nullified and cancelled.

It was also resolved that all the records, books of accounts, vouchers, files, movable assets, Bank passbooks, revenue books, Incometax files, Housetax files, Property ownership Document files, Assets files etc. should be handed over to the new E.D. Of the Co. with immediate effect.

12. Notwithstanding recitals in the two agreements and seller's warranty to the effect that there were no adverse claims against the two companies, fact of the matter remains that large number of FIRs were registered by various buyers to whom representations were made by Nanda's that they had a license to develop a residential colony in Faridabad (Haryana). Over booking was done. Cases of cheating were registered against the Nandas.

13. Admitted position between the parties is that Mehras did not function as directors of the two companies. No intimation was furnished to the Registrar of Companies regarding change in the Constitution of the Board of Directors of the two companies. Pursuant to the two agreements and the Board Resolutions, information as per Form 32 was not submitted.

14. What happened till the year 2004 is not known. But, in the year 2004 a civil suit registered as Suit No.961/2004 was filed by the Nandas seeking declaration, permanent injunction and damages. Mehras were the defendants.

15. In the suit, Nandas stated that somewhere in the year 1995, Mehras approached them holding that they were directors of M/s Class Sales Pvt. Ltd. They wanted to purchase 50 plots in the colony being developed by Durga Builders Pvt. Ltd. Colony being called Edenburg City. That Mehras stated that they would make payment through two companies M/s Hindustan Commercial Investment Trust Ltd. and MGF Ltd., stated to be sister concerns of M/s Class Sales Pvt. Ltd. That on 19.05.97, Mehras and Nanda entered into an agreement dated 19.05.97. It was pleaded that the agreement was a game plan of Mehras to grab the companies of Nanda. Stating that after agreement dated 19.05.97 was entered into, Arun Mehra opened an account in the name of M/s Durga Builders Pvt. Ltd. with Deutsch Bank, Nandas pleaded that Arun Mehra started operating the said account and employees of M/s Class Sales Pvt. Ltd. started booking various plots. Money received from buyers was credited into the account of Deutsch Bank. Money was mis-appropriated. It was pleaded that notwithstanding the Board Resolution of 19.5.97, Form 32 was never submitted to the Registrar of Companies. Stating that acts of Mehras were to the prejudice of Durga Builders Pvt. Ltd., it was pleaded that Nandas were constrain to file the suit seeking the following prayers:

(i) Pass a decree of declaration in favor of the plaintiffs and against the defendants thereby declaring that, as of today, the defendant no. 1 and 2 are neither the directors of the plaintiff company nor have any roll to play in the day-to-day affairs of the plaintiff company and pass a decree of declaration thereby declaring agreement dated 19/5/1997 in-between plaintiffs and defendant no. 1 and 2 as NULL and VOID;

(ii) Pass a decree of permanent injunction in favor of the plaintiffs and against the defendants thereby restraining the defendant no. 1 and 2, their agents, servants and representatives from acting as the directors of the plaintiff company.

(iii) Pass a decree of declaration in favor of the plaintiffs and against the defendants thereby declaring that the defendant no. 3 passed/honoured cheques issued by the defendant no. 1 and 2 on behalf of plaintiff company as directors of plaintiff company in the year 1997 to 2001 towards running account with defendant no. 3.

(iv) Pass a decree of recovery of damages and compensation and interest @24% pa for 2 days to the tune of Rs.30,05,000/- in favor of the plaintiffs and against the defendants.

(v) Make the defendants jointly and severally liable for the above said decree.

(vi) Award interest from the date of filing of this suit till the realisation of decree at the rate of 24% per annum (pendent-lite and future interest)

(vii) Award the costs of the proceedings.

(viii) pass any other order deemed fit and proper.

16. Since the Company Law Board has non-suited the Mehras on their pleadings in the written statement filed in Suit No. 961/2004, it would be important to reproduce relevant parts of the written statement in verbatim.

17. Stating facts as a prelude to the agreement dated 19.05.97, Mehras pleaded as under:

2--4 That the contents of paragraph Nos. 2, 3 and 4 of the suit are wrong and denied. In the present case the plaintiff company in the year 1992-93 had awarded the works of development of Satellite Town Phase - I, Okhla Enclave, Faridabad for a value of approximately Rs.12.22 crores to CE Construction Ltd. Company of Defendant No. 1. The correspondence in this regard annexed along with the list of documents so as to certify that initially the dealings between the plaintiff company and the answering defendants executed the works in respect of the development of the Satellite Township at Faridabad. As such the dealings between the plaintiff company and the answering defendants started in the year 1992-93 and not in 1995 as alleged in the corresponding paragraph of the plaint. It is denied that M/s Class Sales Pvt. Ltd. were ever interested in purchasing any lots from the Plaintiff much less in the Edenburg City Colony. The Defendants through their group company which also included M/s Class Sales had only advanced directly or indirectly substantial sum to the Plaintiff as loan, for the purpose of the present project. It was under this transaction that the Plaintiff had given securities and created charge in favor of the Defendant and his group company inter alias by depositing title deeds of various plots and other properties.

In so far as MGF is concerned, the Defendants have no interest of stakes or for that matter any control in the said Company. The Defendants as a business proposition had requested the said MGF Limited on the request of Mr. R.K.Nanda, Director of the Company to arrange Finances for the Plaintiff company.

5. That the contents of paragraph No. are wrong and denied. It is denied that there was any correspondence exchanged between the plaintiff no. 1 and 2 which even remotely suggested of any interest on part of the Defendant's in purchasing any plot from the Plaintiff. On the contrary, the relationship between the Plaintiff and the answering Defendant was that of lender and a creditor, under which the Defendants through their group companies had arranged for substantial loan in favor of the Plaintiff Company for the development of Edenburg City, Faridabad, and as intentioned in the foregoing para, the Plaintiff, against the said loans and payments due towards execution of works had provided diverse securities and created charges in favor of the Defendant and their group companies.

18. Pertaining to agreement dated 19.05.97, Mehras pleaded as under:

6. That in reference to para 6 of the plaint, it is submitted that the agreement dated 19.05.1997 was entered between the Plaintiff and Defendant No. 1 with the sole intention of securing the substantial loan which the Defendant through his group companies had advanced to the Plaintiff. It is submitted that the plaintiff did not in fact fulfill substantial part of their obligation, under the said agreement. The only thing they did under the said agreement was the sale of shares of the Plaintiff Company in favor of the Defendants and their group Companies. The Defendants were never put on the Board of the Plaintiff Company. Moreover, the Plaintiff also failed to clear all their liabilities and obligations under the said project. Despite, the said failures on part of the Plaintiff, the Defendants did not take any premeditative action as the real intention behind executing the said agreement was to safeguard/protect the various pending payments towards execution of works and loans which had been advanced by the Defendants and its group companies in favor of the Plaintiff. It is thereforee submitted that the entire contention raised by the Plaintiff in the present para under reply dealing with the agreement dated 19.05.1997 are incorrect, after thought, mischievous and contrary to the provisions of the said agreement itself and contemporaneous understanding between the parties. In so far as the averments made in the present para under reply dealing with MGF Limited is concerned, the Defendants are aware that loans were advanced by the said Company in favor of the Plaintiff Company. Apart from that the Defendants are only aware that a suit has been filed by the said MGF Limited seeking for closure and sale of the properties of the Plaintiff duly mortgaged by the Plaintiff with the said MGF Limited as the Plaintiff had failed to repay the loan granted to them by MGF Limited. To the best knowledge of the Defendants, the said suit is pending before this Hon'ble Court as on date. But what is curious is that the Plaintiff has chosen to make certain averments regarding the said transaction with MGF Limited in the present para under reply despite themselves admitting that the same has no relevance with the present dispute. Hence, the contents dealing with the transaction with MGF Limited in any even deserves to be struck off.

19. Further pleading made in the written statement are as under:

With reference to the present para under reply, it is submitted that the Defendants through its group companies arranged for substantial sum of money in order to enable the Plaintiffs to pay to the Haryana Government the necessary amount in order to have the guarantee released thus resulting in 100% release of the margin money. It is against this particular financial help, that the Plaintiffs made a deposit of Rs. 2 crores with Defendant No. 3 as a security and authorized Defendant No. 1 to operate the said account. Under the said arrangement, Defendant No. 1 was authorized to issue cheques of the Plaintiff Company to make the necessary withdrawals of the interest amount which were getting accrued in the said account against the said deposit of Rs.2 crores. It was only on the completion of the works and payments of External Development Charges which would have released there funds on which the right was given to the Defendant to take monthly interest accrued on the FRD till such time of release of BG. This was the limited role which the Defendant No. 1 had in connection with the Plaintiffs account: which under no circumstances can amount to the Defendant No. 1 taking over the financial control of the Plaintiff Company.

x x x x x11. That the contents of paragraph No. 11 of the suit are wrong and denied. With reference to the present para under reply it is submitted that the question of filling From 32 or any other form did not arise as Defendants 1 and 2 had never become the Directors in the Plaintiff Company. In fact, the Defendants never functioned as a Director of the Company even otherwise. It is rather incomprehensible to even suggest that the Defendants were allowed to function as a director by Plaintiff No. 2 i.e. Managing Director of Plaintiff No. 1 without there being a valid appointment. In fact, the present attempt on part of the Plaintiffs shows the ulterior motive on part of the Plaintiffs to use the present suit for some collateral purpose: which cannot be permitted. Significantly Mr. R.K.Nanda is permanent Director of M/s Durga Builders as per Article and Memorandum of Association.

20. Arguing Company Appeal 8/2006 which pertains to Rajdhani Housing Syndicate Pvt. Ltd., Sh. Parag Tripathi, learned senior counsel urged that pleadings in the Suit No. 961/2004 related to M/s Durga Builders Pvt. Ltd. and thereforee, the Company Law Board gravely erred in disposing of CP 59/2005 by placing reliance on the pleadings in the said suit.

21. In addition to the aforesaid plea, other pleas raised were common to the pleas raised by Sh. Aman Lekhi, learned senior counsel who appeared in Company Appeal No. 7/2006 pertaining to M/s Durga Builders Pvt. Ltd.

22. Learned senior counsel, Shri Parag Tripathi and Shri Aman Lekhi urged that factum of the agreements dated 19.5.1997 was not in dispute. That board resolutions were passed on 19.5.1997 was also not in dispute. It was urged that as held in the report published as : [1981]3SCR698 Needle Industries (India) Limited and Ors. v. Needle Industries Newey (India) Holding Ltd. and Ors., a conduct which lacks in probity and is unfair or causes prejudice to the exercise of proprietary rights as a shareholder constitutes an act of oppression. Elaborating further, placing reliance upon the report published as (1966) 36 Com. Cas 745 Gajarabai Patny and Ors. v. Patny Transport (P) Ltd. counsel urged that refusal by the Nandas to register Mehras as shareholders despite agreeing to transfer their shareholding and accepting consideration, lacks in probity and has been judicially recognized as unreasonable, amounting to acts of oppression. learned Counsel urged that the said decision held that conduct of the directors in refusing to transfer shares after receiving money amounts to oppression, in as much as it involves violation of the conditions of fair play on which every shareholder who entrusts his money to the company is entitled to rely.

23. Relying upon the report published as : AIR1992SC453 V.B.Rangaraj v. V.B.Gopalakrishnan and Ors., counsel urged that a vendee cannot be denied registration of shares purchased by him. Counsel urged that refusal to register the shares in favor of Mehras by Nandas was intended to retain control over the affairs of the 2 companies and hence interfered with the democratic rights of the majority of members to manage the affairs of the companies. It was urged that the effect of the illegal acts committed by Nandas was deprivation for all times to come of the rights and privileges which Mehras could have enjoyed as members of the 2 companies. Counsels relied upon the reports published as 1986 (60) Comp. Cas 984, Kumar Exporters Pvt. Ltd. and Ors. v. Naini Oxygen and Acetylene Gas Ltd. 1978 (48) Comp. Cas 536 B.R.Kumdra and Ors. v. Motion Pictures Association Delhi and Ors. and (1998) 5 Crl.J. 463 Tea Brokers Pvt. Ltd. and Or. v. Hemendra Prosad Barooah to support the said contention.

24. To overcome the observations made by the Company Law Board while denying relief to the appellants that there was inordinate delay in bringing the action for the reason agreements and board resolutions were dated 19.5.1997 and the company petitions were filed in the year 2004, learned Counsel relied upon the decision reported as : AIR1990Delhi32 Surender Singh Bindra and Ors. v. Hindustan Fasteners Pvt. Ltd. and Ors. to urge that where acts of oppression and mis-management continued, it being a continuing cause of action, limitation, if any, would not run as long as oppression continued. Counsel urged that each day gave rise to a fresh cause of action as long as shares were not transferred in the name of Mehras and Mehras were not put in control of the 2 companies.

25. Questioning the finding of the Company Law Board that Nandas have incurred expenses of nearly 25 crores in settling claims of third parties post 1997, learned senior counsel stated that the finding was an ipsi dixit finding of the Company Law Board. Counsel urged that best evidence was the books of account of the 2 companies, which were not produced. Citing : [1953]4SCR758 , Hiralal and Ors. v. Baduklal and Ors. counsel urged that where a party in possession of documentary evidence withholds the same, adverse presumption needs to be drawn against the party that had documentary evidence been produced, contents would have gone against the said party.

26. Counsel urged that the order of the Company Law Board failed to note investment of 10 crores made by Mehras in the companies, as a consequence, counsel urged that equities were not fairly considered by the Company Law Board.

27. Citing the decisions reported as 1997 (1) CLJ 268, Vijay Krishan Jaidka and Ors. v. Jaidka Motor Co.Ltd. 1990 (69) Comp.Cas 256 R.R.Rajendra Menon v. Cochin Stock Exchange Ltd. and Ors. and 2003 (117) Comp. Cas 206 Dwarka Prasad Agarwal and Anr. v. Ramesh Chandra Agrawal and Ors., counsel urged that pendency of Suit No.961/2004 was no bar for the Company Law Board to grant the relief prayed for.

28. Citing the report published as : AIR2004SC3504 Pukhraj D. Jain v. G.Gopalakrishna, counsel urged that where a proceeding can be disposed of purely on legal points without taking evidence, it is open to the court to decide relevant issues and not keep the proceeding pending merely because a previously instituted proceeding was pending in a court of competent jurisdiction.

29. Citing the report published as : [1976]2SCR246 Udhav Singh v. Madhav Rao Scindia, counsel urged that case of the Nandas that the agreement dated 19.5.1997 was a bogus agreement was liable to be ignored in as much as material particulars to support how agreement was bogus was not pleaded.

30. Lastly, Counsel urged that the Company Law Board has gravely erred in doubting sale consideration passing from Mehra's to Nanda's when shares were sold, ignoring that payments were paid by cheque. Plea by Nanda's that share scripts were stolen was an after thought as it surfaced much after litigation commenced between the parties.

31. I am eschewing a few minor contentions urged which in my opinion are wholly irrelevant for decision of the 2 appeals as the Company Law board has not predicated its findings on said issues, though has noted the same as submissions made by Nandas. But, for sake of record I note that it was submitted by learned senior counsel that absence of signatures on the 2 agreements by M/s. Class Sales Pvt. Ltd. and M/s. True Value Trade Link Pvt. Limited as also Mrs. Uma Mehra was neither here nor there for the reason as held in the report published as : AIR1999SC37 Rajendra Pratap Singh v. Rameshwar Prasad, mere absence of signatures of a party on a document is not conclusive of no agreement. It was held in the said decision that signatures of a party on an instrument raises a presumption of fact that agreement was entered into.

32. Counsel also urged that Nandas had got a false suit filed, purportedly through one Vishesh Jain, the suit filed was ultimately dismissed for non- prosecution.

33. Since Company Law Board, save and except, noting the aforesaid 2 aspects has not based its finding on said facts, I leave the issue pertaining to the suit filed by Vishesh Jain and no signatures of 3 parties on the agreement, at that, noting that nothing turns thereon.

34. Shri Sharad Aggarwal, learned Counsel for the Nandas urged that complete averments were made as to why agreement dated 19.5.1997 were bogus agreements. Counsel urged that the Company Law Board rightly opined that in view of the civil suit filed, i.e. Suit No.961/2004, where issue raised was whether the agreements dated 19.5.1997 are void, no relief ought to be granted. Counsel further urged that as pleaded by Mehras in their written statement, Mehras themselves pleaded that the 2 agreements were to secure investments made by Mehras through their companies in the project of M/s. Durga Builders Pvt. Ltd. and M/s. Rajdhani Housing Syndicate Ltd. Rs.10 crores, stated to have been invested by Mehras was disputed by Shri Sharad Aggarwal. Alternatively, counsel stated that the said investment was a business investment by the companies of Mehras in the project of Durga Builders and Rajdhani Housing Syndicate Ltd. Counsel urged that the investment was not post 1995-97 Counsel urged that the project Edenburg City was a composite project where land of Durga Builders, Rajdhani Builders and 2 other entities of Nandas was pooled and it was not possible to segregate the lands of the 2 companies.

35. Though various questions of law have been framed by the appellants in the 2 appeals, the only question which arises for consideration is whether in view of the stand taken by Mehras in Suit No.961/2004, finding returned by the Company Law Board is legal and valid'

36. From the facts noted above it is apparent that the agreement dated 19.5.1997 and the board resolutions of even date were admittedly not given effect to in relation to the affairs of the 2 companies. Mehras never came on the board of directors of the 2 companies. No information as per Form-32 was furnished to the Registrar of Companies pertaining to the changes effected in the board of the 2 companies. The share certificates, duly endorsed were handed over to the Mehras, but the transfer was not recorded in the register of members of the companies.

37. Under the 2 agreements, Nandas had to walk out of the 2 companies. The agreements record that the entire records of the 2 companies has been taken over by the buyers. As a matter of fact, this has not happened.

38. No worthwhile Explanationn has been given by Mehras as to why, having purchased the entire equity of the 2 companies they did not take steps to file Form-32 and as 100% shareholders take control of the company.

39. A faint Explanationn was furnished that after agreements were entered into, Mehras realised that the warranties held out to them that there was no major litigation faced by the companies, was found to be incorrect as Nandas had cheated investors by over-booking plots and FIRs were registered. thereforee, Mehras did not take control of the companies till Nandas cleared the dues of the duped investors.

40. The argument, though attractive, has to be noted and rejected for the reason if this was so, agreement between the parties became voidable at the instance of Mehras. It was open to the Mehras to avoid the agreements. It was equally open to them to enforce the agreements while reserving right to seek damages from Nandas.

41. Having chosen not to adopt either course of action, a strong presumption arises in favor of Nandas that the agreements were intended to secure the investments made by Mehras in the on-going project of the 2 companies.

42. It is true that while pleading that the agreements dated 19.5.1997 are bogus, Nandas have not elaborated with clarity as to what facts are relied upon to establish that the 2 agreements are bogus, but pleadings have to be read meaningfully and with an intention to find whether the opposite party has meaningfully understood the case pleaded.

43. I need not elaborate further for the reason in the written statement filed in Suit No.961/2004, Mehras themselves have pleaded that the agreements were to secure the investments by them in the project of the 2 companies.

44. It is a careless use of words by the counsel who drafted the pleadings on behalf of the Nandas. What is intended to be conveyed is that there was a distinct oral understanding between the parties that the 2 agreements would not be given effect to and were actually intended to secure investments by Mehras in the project of the 2 companies.

45. Conduct of the parties shows that having got the share certificates, duly endorsed in their favor, by not taking any steps to control the 2 companies, Mehras intended to retain lien over the shares to secure their investments made in the 2 companies.

46. Acquiescence by a party in the conduct of which he complains disentitles the party to obtain relief (see R.A.Noble and Sons (Clothing) Ltd. , Re: 1983 BCLC 273.

47. Though, delay in seeking relief under Sections 397 and 398 of the Companies Act will not by itself bar the remedy, but where delay is evidence of acquiescence or condensation of a wrongful act, the court may not exercise its discretion in granting relief. (1972) 1 Cal 286 Hungerford Investment Trust Ltd. v. Turner Morrison and Co. Ltd.)

48. Assuming that Mehras are right, the delay, in the instant case evidences acquiescence on part of Mehras and amounts to condensation of the wrongful acts (if any) of Nandas.

49. Though, pendency of a civil suit between the same parties over the same subject matter would not be a bar to grant relief under Sections 397 and 398 of the Companies Act but the issue would have to be considered in the context of the cause of action pleaded in a civil suit, if filed, and a company petition.

50. Where the issue in the 2 proceedings is common and as in the instant case centers on the issue whether the 2 agreements dated 19.5.1997 were serving a collateral purpose or not and whether parties intended to sell the shareholding by one group to the other or whether intention was to secure the investment made by the so called buyers in the 2 companies, additionally, complicated questions of fact arising out for consideration, pendency of a civil suit would be a relevant circumstance to deny relief. Though the suit does not relate to Rajdhani Developers but it cannot be ignored that land assets of Rajdhani Developers and Durga Builders have been pooled. That is why appellants imp leaded Durga Builders as a respondent in petition relating to Rajdhani Developers.

51. Principal reason given by the Company Law Board in denying relief is the pleadings of the parties in Suit No.961/2004 where Mehras have taken a stand that the 2 agreements were intended to secure their investment in the 2 companies.

52. All other observations which were questioned by learned Counsel for the appellants are stray observations and to my mind are not the signature tune of the order impugned.

53. I dismiss the 2 appeals holding that the Company Law Board has arrived at correct findings taking into consideration pleadings made by Mehras in Suit No.961/2004

54. The usual mantra. Nothing in this order would be construed as an expression on the merits of the rival version qua the agreements dated 19.05.1997. Issue would be decided in Suit No. 961/04 after evidence is led. Observations made in the present order are only prima facie finding for disposal of the appeals.

55. No costs.


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