2018 (11) TMI 1536 - HC - Companies Law

Benefit of Section 14(1) of the Limitation Act, 1963 - burden to prove good faith and due diligence to avail benefit of Section 14(1) - Held that - Undoubtedly, there has to be a liberal interpretation of Section 14(1) to advance the cause of justice. However, in accordance with Section 14(1) of Act, 1963, the earlier proceeding and the latter proceeding must relate to the same matter in issue, i.e. a matter which is directly and substantially in issue. Also, the previous proceeding should have failed on account of defect of jurisdiction or other causes of a like nature. The Supreme Court in Madhavrao Narayanrao Patwardhan v. Ram Krishna Govind Bhanu AIR 1958 (4) TMI 125 - SUPREME COURT has further held that the burden to prove good faith and due diligence to avail benefit of Section 14(1), is on the plaintiff. In the present case, the reliefs sought in the Company Petition and Company Appl. filed before the CLB were absolutely distinct and different based on different cause of action from the reliefs which plaintiffs seek in the present suit. While the subject matter of the Company Petition and Company Appl. was the violation of the Code, 1997, the subject matter of the present suit is the breach of the Inter Se Agreement. Consequently, the reliefs in both the proceedings were not the same. Further, plaintiff nos. 2 to 5 were not parties to the CLB proceedings and plaintiff no. 1 is not a party to the Inter Se Agreement. The CLB also did not dismiss the Company Petition due to defect of jurisdiction or other causes of the like nature. Consequently, plaintiffs are not entitled to benefit of Section 14(1) of the Act, 1963 and the present suit is barred by limitation.

Issues Involved:
1. Declaration and mandatory injunction regarding shareholding.
2. Interim injunction and vacation of ex parte order.
3. Alleged violation of SEBI regulations and inter se agreement.
4. Alleged fraud and misrepresentation.
5. Limitation and applicability of Section 14(1) of the Limitation Act, 1963.

Issue-Wise Detailed Analysis:

1. Declaration and Mandatory Injunction Regarding Shareholding:
The plaintiffs sought a declaration that the shareholding of certain defendants in Plaintiff No. 1 was illegal and void, and a mandatory injunction directing the defendants to transfer their shareholdings to Plaintiff No. 1 at face value. The Court noted that shares of a company are freely transferable and any restraint or prohibition on the purchase or inter-se transfer of shares must be explicit and specifically provided, especially in the case of a public listed company. The Court held that the Inter Se Agreement was executed for a specific purpose and was time-bound, thus the restriction on share purchase was not perpetual.

2. Interim Injunction and Vacation of Ex Parte Order:
The plaintiffs sought an interim injunction to restrain the defendants from exercising voting rights and transferring shares. The Court initially granted an ex parte ad interim injunction but later vacated it, noting that the restriction on share purchase in the Inter Se Agreement was contextual and time-bound. The Court found that the shares were purchased after the swap of shares had taken place, and there was no violation of the restriction on share purchase.

3. Alleged Violation of SEBI Regulations and Inter Se Agreement:
The plaintiffs alleged that the defendants acted in concert and violated SEBI regulations. The Court observed that the alleged purchase of shares by the Jindal Group (defendant nos. 1 to 4) took place between 2003 to 2009, prior to the execution of the Inter Se Agreement. The subsequent purchase by defendant nos. 5 to 8 in December 2010 and January 2011 was post the termination of the Inter Se Agreement. The Court held that the restriction on share purchase was to remain valid till the swap took place and not thereafter.

4. Alleged Fraud and Misrepresentation:
The plaintiffs alleged that the defendants perpetrated a fraud by acquiring shareholding in pre-demerged AHL and concealed the fact that they were acting in concert. The Court found that the allegation was irrelevant and immaterial as each promoter group was given majority shareholding in their individual capacity in one of the three hotels/resultant companies. The Court also noted that the plaintiffs' argument was contrary to the explicit terms of the Inter Se Agreement and Sections 91 and 92 of the Indian Evidence Act, 1872.

5. Limitation and Applicability of Section 14(1) of the Limitation Act, 1963:
The defendants argued that the suit was barred by limitation as the plaintiffs had knowledge of the shares being acquired by the Saraf Group in January 2011, but the suit was filed on 10th August 2015. The Court held that the plaintiffs were not entitled to the benefit of Section 14(1) of the Limitation Act, 1963, as the reliefs sought in the Company Petition and the present suit were distinct and different. The Court concluded that the present suit was barred by limitation.

Conclusion:
The Court allowed the applications filed under Order 39 Rule 4 CPC and Order 7 Rule 11 CPC, and dismissed the present suit as well as the application for injunction with actual costs.

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