2012 (8) TMI 213 - HC - Companies Law

Mr. Kishore Rajaram Chhabria as the Managing Director of SWC had misused his fiduciary relationship by causing the take over of BDA which was always considered as a subsidiary of SWC - Held that - There is only one person behind the corporate bodies constituting Mr. Kishore Rajaram Chhabria s group of companies - The distillery of BDA at Aurangabad was divested from SWC and its network of subsidiaries and group companies. However in the suit the then plaintiffs were unable to obtain any interim order with regard to this distillery even up to the stage of Supreme Court - that if Mr. Kishore Rajaram Chhabria and his group of companies thought that by the schemes of merger and demerger the original cause of action of SWC was being given up they were sadly mistaken as settlement between two individuals cannot bind any body corporate. On examination of the schemes of merger and demerger it can be concluded they were schemes between body corporates and no clause suggests that the cause of action of the original plaintiffs was extinguished. If the shares of BDA or its distillery were to be transferred to another company or group of companies that transfer was subject to the original cause of action which the original plaintiffs had against Mr. Kishore Rajaram Chhabria and BDA. That had to be expressly given up at the time of transfer of undertakings and other assets under the schemes - there is devolution of interest of the original plaintiffs upon the applicant United Spirits Ltd granting them leave to prosecute the suit in place of the original plaintiffs.

Summary

Issues Involved:
1. Substitution of United Spirits Ltd. as the plaintiff.
2. Abatement of the suit due to dissolution of the original plaintiffs.
3. Survival of the cause of action.
4. Interim reliefs sought by United Spirits Ltd.

Issue-wise Detailed Analysis:

1. Substitution of United Spirits Ltd. as the Plaintiff:
United Spirits Ltd. sought to be substituted as the plaintiff in place of SWC and SWDL, arguing that the rights to proceed with the suit had vested in them due to sanctioned schemes of merger and demerger by the Calcutta, Karnataka, and Bombay High Courts. The court agreed, stating that the right of this suit in SWC and SWDL had vested in United Spirits Ltd. by devolution of interest. The court granted leave under Order XXII Rule 10 of the Code of Civil Procedure, allowing United Spirits Ltd. to continue the action.

2. Abatement of the Suit Due to Dissolution of the Original Plaintiffs:
The defendants argued that the suit had abated as both plaintiffs were dissolved and their corporate entities ceased to exist. The court rejected this argument, clarifying that the rules concerning the death of a natural person (Rules 1 to 5 of Order XXII) do not apply to body corporates. Instead, Rule 10 of Order XXII, which deals with devolution of interest, applies. The court held that there was no abatement of the suit as the interest had devolved upon United Spirits Ltd.

3. Survival of the Cause of Action:
United Spirits Ltd. contended that the cause of action against Mr. Kishore Rajaram Chhabria and BDA still survived. The court agreed, stating that the cause of action was not extinguished by the schemes of merger and demerger. The court emphasized that the settlement between Mr. Vijay Mallya and Mr. Kishore Rajaram Chhabria did not bind the corporate entities involved. Therefore, United Spirits Ltd. retained the right to pursue the claim.

4. Interim Reliefs Sought by United Spirits Ltd.:
United Spirits Ltd. sought various interim reliefs, including injunctions to prevent the defendants from issuing or transferring shares and altering the share capital of Allied Blenders And Distillers Pvt. Ltd. The court refused to grant further interim orders but modified the existing interim order dated 25th November 2011. The court allowed the first and sixth defendants to continue their business activities but restrained them from losing control of Allied and its distillery at Aurangabad without the court's leave until the suit's disposal.

Conclusion:
The court declared that there was devolution of interest of the original plaintiffs upon United Spirits Ltd. and granted them leave to prosecute the suit. The court ordered amendments to the plaint and disposed of the applications for dismissal of the suit by the seventh, eighth, and sixth defendants. The interim order was modified to ensure that the first defendant retained control of the company and its distillery until the suit's resolution.