2003 (8) TMI 407 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the Board Meeting held on 20th October 1989.
2. Dispute over the transfer of 1650 shares from Dankha Devi to Bhagirath.
3. Legal implications of Dankha Devi's withdrawal of her suit against Bhagirath.
4. The effect of interlocutory orders on the final judgment.

Detailed Analysis:

1. Validity of the Board Meeting Held on 20th October 1989:
The meeting held on 20th October 1989, where Bhagirath's directorship was purportedly cancelled and 1960 shares were issued to Tarachand and Chandra Prakash, was found to be invalid. The Court agreed with the first Court's opinion that the meeting was held contrary to the provisions of the Companies Act due to the lack of written notice. The Court emphasized that oral notice was not acceptable, especially when Bhagirath's interests were significantly affected. Thus, the effect of the meeting was nullified.

2. Dispute Over the Transfer of 1650 Shares from Dankha Devi to Bhagirath:
Bhagirath claimed that the 1650 shares were transferred to him for consideration, but Dankha Devi filed a suit against him alleging that she had never signed any transfer deed. This suit was dismissed for non-prosecution on Dankha Devi's own prayer. The Court noted that the withdrawal of Dankha's suit was significant in determining the validity of the share transfer. The Court found that the withdrawal of the suit indicated a withdrawal of Dankha's allegations against Bhagirath regarding the transfer of the shares.

3. Legal Implications of Dankha Devi's Withdrawal of Her Suit Against Bhagirath:
The withdrawal of Dankha's suit did not preclude Chandra Prakash and his group from challenging Bhagirath's ownership of the 1650 shares. The Court cited several cases to support the proposition that withdrawal or dismissal of a suit does not bar defences in subsequent proceedings. The Court noted that the withdrawal of the suit only prevented Dankha from filing another suit for the same reliefs but did not extinguish the defence available to Chandra Prakash in the ongoing company petition.

4. The Effect of Interlocutory Orders on the Final Judgment:
The Court discussed the binding nature of interlocutory orders, emphasizing that such orders are generally subject to final adjustment at the time of the decree. The Court clarified that the interlocutory order dated 4-8-1998, which allowed Bhagirath to vote on the disputed shares, was not a final determination of his rights to the 1650 shares. The Court held that the interlocutory order was subject to final adjustment and did not preclude a different decision at the final hearing.

Conclusion:
The Court dismissed the appeal, upholding the first Court's decision. The Court found that the withdrawal of Dankha's suit did not bar Chandra Prakash and his group from challenging Bhagirath's ownership of the 1650 shares in the company petition. The interlocutory orders were deemed not to have a final binding effect on the main issues, and the final determination of the share ownership was left to be decided at the final disposal of the company petition. All interim orders were vacated, but actions taken based on those orders were not invalidated.