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TMI Blog2009 (2) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... asis for granting the injunction against the Appellant is unsustainable in law and on facts. Appeal allowed. - COMPANY APPEAL NO. 6 OF 2009 IN COMPANY PETITION NO. 117/397-398/CLB/MB/2008 - - - Dated:- 25-2-2009 - S.J. VAZIFDAR, J. Janak Dwarkadas, Virag Tulzapurkar, Sharan Jagtiani, Ms. Sowmya, Srikrishna, H. Jayesh and Ms. Vandana Sekhri for the Appellant. S.U. Kamdar, Rahul Chitnis, Ms. Deepali Deshmukh, Ravi Gandhi and Pradeep Sancheti for the Respondent. JUDGMENT 1. This appeal under section 10F of the Companies Act, 1956 challenges an interim order passed by the Company Law Board dated 21-1-2009 in a petition filed by the first respondent inter alia under sections 111, 397 and 398 of the said Act. 2. The first respondent is the petitioner. The appellant is respondent No. 5 in the petition. Respondent Nos. 2 to 9 in the appeal are respondent Nos. 1 to 4 and 6 to 9 in the petition. Respondent No. 2, Cowtown Land Development Private Limited, is the company in respect of which the petition has been filed. Respondent Nos. 3, 4 and 5 are individuals belonging to the Lodha family who in turn control respondent Nos. 6 to 9 companies. I will for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder is based on presumptions which even the Petitioner not only admits are totally incorrect but states that such facts were not pleaded even orally on his behalf. The inferences from admitted facts are also perverse. Even more important is the fact that even the Petitioner admits that the extent of the order was not justified and in fact now contends that he never sought reliefs to that extent. Nor has the impugned order considered the dishonest conduct of the Petitioner which in the facts of this interlocutory application, assumes importance. 4. ( c ) The judgment of the Company Law Board falls squarely within the ratio of the judgment of the Supreme Court in Dale Carrington Invt. (P.) Ltd. v. P.K. Prathapan [2005] 1 SCC 212, where it was held : "35. We have now to deal with the question of scope of appeal filed under section 10F of the Companies Act by Prathapan in the High Court. 36. Section 10F refers to an appeal being filed on a question of law. The learned counsel for the appellant argued that the High Court could not disturb the findings of fact arrived at by the Company Law Board. It was further argued that the High Court has recorded its own finding on ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transfer of the said 2000 shares which included the 200 shares held by the Petitioner s father. Some of the shares were subsequently transferred to the other Respondents inter se. ( ii ) The Petitioner admits the transfer of his 1800 shares. He denies only the transfer of the 200 shares held by his father. 5. ( c ) It is of vital importance to note that till October 2004 the Petitioner remained a Director of the company. 5. ( d ) The Petitioner s father expired in November 2005. He had never raised any dispute regarding the transfer of his 200 shares. The Petitioner himself made a claim in writing in respect of them only five years later in this Petition and at the earliest allegedly by a letter dated 20-11-2007 i.e., four years after the transfer and two years after his father s death. 6. The entire Petition is based solely on the Petitioner s claim to his father s 200 shares. The Petitioner denies that the shares were transferred on 26-3-2003 by his father to Respondent Nos. 3 and 4. 7. Thus, the first important and obvious question to be considered, is whether the Petitioner has made out a prima facie case in support of his contention on facts that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed right in respect of his father s 200 shares. Nor is there any evidence to indicated that the Petitioner s father exercised any rights whatsoever in respect of the said 200 shares after 26-3-2003. 11. The second stage is the Petitioner s contention in the petition that in or around October 2004 he resigned from the Board of the company as he could not spend enough time to attend to the affairs of the company. He however submitted that he resigned with the understanding that he would be entitled to be reinstated on the Board as and when desired by him. 12. Here again, there is nothing in writing either in the form of a letter or otherwise which even remotely refers to any such oral understanding. Prima facie at least, if there was a reservation, as important as this it would be recorded in some form or the other. It is important to note that even as regards this alleged arrangement there is nothing on the record of the company which would indicate the existence of any such understanding to a third-party such as the Appellant. 13. This brings me to the third stage in the Petitioner s explanation. As stated above, the Petitioner s father expired in November 2005. The P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the custody of the Company until destroyed by order of the Board. 56. All the limitations, restrictions and conditions contained in these Articles relating to the right to transfer and the registration of transfer of shares shall be applicable in case of transfer of shares on a member s death, lunacy, bankruptcy, insolvency, liquidation, marriage or the happening of a like event resulting in transmission of shares as if such an event had not occurred and the transfer be signed by the Member himself." 16. Apart from the legal effect of the Petitioner having failed to take steps to have the shares registered in his name for over five years, it indicates that the Petitioner did not do so as he knew that the same had been transferred on 26-3-2003. 17. To get over this difficulty, the Petitioner has made various allegations in the petition which, prima facie at least, are not believable. While the Petitioner s conduct belies his case his explanation destroys it. 18. The Petitioner has alleged that in or around October 2006 i.e., almost a year after his father s death he requested Respondent Nos. 3 to 5 to transfer the said shares to him and to record such transfer in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of misleading and snatching an order from the Company Law Board. As stated earlier, the ex parte application was made without notice to the Respondents. The existence of such correspondence would naturally weigh with any Tribunal or Court in believing the Petitioner s allegations explaining the absence of any record between the date of his father s death i.e., November, 2005 and 20-11-2007, i.e., the date of the alleged letter requesting a transfer of the shares in his name. 23. There is no correspondence or any other record for two years between the death of his father in November, 2005 and the alleged letter dated 20-11-2007. The fact that there is nothing in writing to establish one aspect may not be conclusive against the Petitioner s assertion. However, this fact added to all the other facts assumes enormous significance and belies the Petitioner s allegations. It is difficult to believe the Petitioner s case that he requested the company and its Directors to transfer the 200 shares to him and to record the transfer in the books of the company. It is quite obvious therefore that the Petitioner was fully aware of the transfer of the shares by his father on 26-3-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how the Petitioner took inspection of the records of the company. There is no letter from the Petitioner requesting the company for inspection. Apart from the truth of these allegations, these facts are important while judging the conduct of the Petitioner from the beginning i.e. in making the application for ad interim reliefs. They are also important while considering the timing of the filing of the petition and the making of the first application for interim reliefs without notice to the Respondents, especially to Respondent No. 5 i.e., the Appellant. The petition was filed on 15-12-2008 and the next instalment of interest of about Rs. 54,00,00,000 was due initially on 31-12-2008. The first order of the Company Law Board dated 16-12-2008 restrained the company from even making payment under the transactions. This was varied by the order of this Court dated 13-1-2009 in the appeal. Even thereafter the company failed to make payment but in view of the order impugned in the appeal the company is safeguarded as the Appellant cannot enforce its rights under the transaction. 28. In these circumstances, prima facie at least, and at this stage, the Petitioner has complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal No. 4 of 2009. 32. ( b ) By an order and judgment dated 13-1-2009, as corrected by an order dated 22-1-2009, I held that there was absolutely no justification for the application to have made without notice. I further observed that the order had far reaching consequences, virtually freezing all the rights of the Appellant under the transaction, whereunder the Appellant had invested 1,640 crores. It even prohibited the company from making any payments under the said transaction. 32. ( c ) Realising how utterly unsustainable the application was, specially insofar as it prohibited the company from even making payment to the Appellant under the said transactions, it was contended before me that the Petitioner intended only making a limited application restraining the company from issuing shares to the Appellant by converting the deben- tures and that the ambit of the above order was limited to that extent. For the reasons recorded in the said order, it was held that the instructions for this submission were not only unfounded but were false, and even unfair to the learned Member of the Company Law Board. It was observed that, prima facie, it appears that the ex parte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an application in the widest terms successfully before the Company Law Board, and on it being pointed out that the order in such terms is unsustainable even on the Petitioner s case, it contended that such an order was never sought but that the Company Law Board passed the order on its own. ( iv )This conduct has been repeated even in respect of the interim order presently under challenge. I will deal with the same later. The Petitioner is guilty of having made an ex parte application on 16-12-2008 without notice to any of the parties on the basis of at least one crucial fact, which today, is admitted to be false, and on the basis thereof, persuading the Company Law Board to pass an order with far reaching consequences, and then instructing his counsel to the effect that he never intended to make an application of such far reaching consequences, involving inter alia a restraint over the company from making payment under the transactions and that the order does not even so provide. 35. It is important to note that despite the alleged disputes between the Petitioner and the Respondents other than the Appellant, the entire thrust of the ad interim application and the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affidavit also dated 21-1-2009 was tendered. That affidavit also was therefore not considered by the Company Law Board. By a letter dated 21-1-2009 addressed to the Petitioner s Advocates, the Appellant s Advocates inquired whether the affidavit dated 15-1-2009 had been filed before the Company Law Board and requested for a copy of the affirmed affidavit, if any. There admittedly was no reply to this letter. When the matter reached hearing in this Court, on 29-1-2009 a grievance was made on behalf of the Petitioner that the said affidavit had not been included in the compilation. By a letter dated 29-1-2009 the Appellant s Advocates recorded the above facts and what according to them, trans-pired before the Company Law Board. The contents of this letter were not denied in the Petitioner s Advocate s reply dated 29-1-2009 except to state that the affidavit had been tendered and filed before the Company Law Board at the hearing on 16-1-2009. 38. Be that as it may, it was admitted before me that this affidavit was not relied upon before the Company Law Board by the Petitioner at the hearing on 16-1-2009. The affidavit contains statements to the effect that the Petitioner finds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrangement between the Appellant, the company and the other Respondents so long as it does not affect the Petitioner s rights as the shareholder of the said 200 shares. He stated that this was so stated by the Petitioner in paragraph 8 of the said affidavit dated 15-1-2009. 43. I inquired therefore as to why then had the Petitioner applied for an injunction restraining the conversion to the extent of 100 per cent under the transactions between the Appellant and the company if the Petitioner was concerned only with the said 200 shares and any accretions in respect thereof. The impugned order restrains the conversion altogether. He submitted that the Petitioner was not seeking and is not seeking even today, an injunction against the conversion under the transaction between the bank and the Appellant in its entirety so long as the Petitioner s alleged right in respect of 10 per cent of the shareholding is safeguarded. Mr. Kamdar submitted that the order was passed by the Company Law Board restraining conversion altogether despite the Petitioner s application being limited only to his 10 per cent. 44. To absolve the Petitioner of any responsibility for the blanket injunction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the Petitioner has made out any case, hardly warranted an ex parte application, without notice. Nor did it warrant even an interim application in the facts of this case. There admittedly was no apprehension whatsoever of the company being wound up. There is no allegation to this effect in the petition. There is no allegation to this effect in any correspondence. There is nothing to suggest that there is any move on the part of the shareholders or the creditors or any other person or authority for winding up the company. 49. Further, the shareholders and the company could have been ordered and directed to give notice in the event of any possibility of an application for winding up the company. In the event of the company actually being wound up and its assets sought to be sold, protective orders could have been passed regarding the Petitioner s alleged right at that stage. At the cost of repetition, this is even assuming that the Petitioner has made out a case which he has not. 50. What then is the justification for interfering with a banking/financial transaction? None. 51. The aspect of balance of convenience and irreparable harm and injury must also be answered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner but became a subsidiary of Deutsche Bank AG because by this fresh allotment the Bank has obtained more than 51 per cent of voting right and is also outsider. This change of status is not acceptable to the petitioner. However, same will be considered while disposing of the petition after pleadings and final arguments." 56. The finding is incorrect. The Appellant would be entitled to more than 51 per cent of the issued share capital of the company only upon conversion of the debentures which, admittedly, had not occurred when the impugned order was passed. It is admitted by Mr. Kamdar that the 223 shares held by the Appellant, constitute merely 10 per cent of the issued equity capital of the company and not 51 per cent. Mr. Kamdar stated that the counsel for the Company did not contend that the Appellant held 51 per cent shares and that this was a mistake of the Company Law Board. 57. Be that is may once this is conceded and section 81 is held not to apply, then, by simple arithmetic, it is obvious that the Petitioner does not hold 10 per cent of the equity shares of the company even assuming he has made out a case qua the 200 shares. The Petitioner therefore would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... innocent third party has irreversibly altered its position to its detriment. Admittedly, the records of the company did not even remotely indicate any subsisting right of the Petitioner in respect of the said 200 shares. Nor was there anything on the record of the company which ought to have put the Appellant to Notice of any such right. 63. It was rightly contended on behalf of the Appellants before the Company Law Board that it had advanced a sum of Rs. 1,640 crores to the company under a valid and legal transaction. The Company Law Board in this regard came to a conclusion which I would rather quote. It reads as under : "Meanwhile Sr. Counsel appearing for the Bank namely Deutsche Bank has argued that his Bank has advanced Rs. 1,640 crores to Respondent No. 1-Company in the form of convertible debentures and if the Company fails to repay even one instalment they can convert their debentures into equity and he further stated that the funds have been re-loaned to various companies of the Lodhas especially Lodha Hi-Rise Builders Private Limited with 2 per cent more than the interest payable to the Bank. By this process the Deutsche Bank is getting double benefit one its fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese findings/observations. Surely, an investment of Rs. 1,640 crores cannot be stated to be no consideration for the issuance of the convertible debentures. Nor can an investment of Rs. 1,640 crores be stated to be "unknown consideration". 66. I am constrained to state that the impugned order is entirely without basis. 67. The impugned order found the transaction/arrangement "strange". This finding was on the basis that the other Respondents had no freedom to decide about the affairs of the company because as per the agreement positive confirmation of the Appellant was required. This it was held constituted a surrender of the management of the company to the Appellant. It was further held that in the event of a single default, the Appellant would be entitled to 99 per cent of the shares of the company. 68. Obviously if the company fails to pay the amounts due, it would be entitled under the transaction to convert the debentures. That is the Appellant s security for its investment of Rs. 1,640 crores. It is difficult to understand the observation that "nowhere it is either stated or put on record what is the benefit accrued to the erstwhile shareholders of Respondent No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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