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TMI Blog2015 (1) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of the remittance was towards invoices - It has not affirmatively stated what, if any, purpose was stated on that remittance when it originated from NatWest Bank in the UK - It defies credulity that such a substantial amount would have been remitted, without specifying or identifying a purpose, especially given the fact that the transactions and the correspondence between the parties pertained to a large number of interlocking issues. There does not seem to be any indication in the prior correspondence to explain how this figure of £92,500 is actually derived - what that figure actually does achieve is a complete and an explicable match with the reconciliation statement of outstanding invoices - Thus, on the one side, as postulated by Mr. Chinoy, on behalf of Advansys, there is entirely plausible explanation for the remittance - There is the endorsement of the FIRC certificate - The amount can be traced and exactly matched to the invoices in a reconciliation statement sent by Hunjan himself - on the other hand, the case propounded by Ponds, remains in a shadowy, grey area absent all specifics. No concluded agreement, no consideration – Held that:- It could not be comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttorney. This general power of attorney however shows that Mathuradas is merely a "friend" of Hunjan and Rana; that, between them, Hunjan and Rana hold 75% and 25% respectively, i.e., the entirety of the equity in Ponds - They are also the only two directors of the Respondent No.1. In an affidavit in rejoinder, it is admitted that Mathuradas is neither a shareholder nor a director - Hunjan filed an affidavit in rejoinder on 4th October 2012 - He dealt with the issue of delay - He said that 2012 was the first time since 2009, when he had a stroke, that he visited India to attend to this litigation. He then filed an affidavit in sur-sur-rejoinder on 30th October 2012 - In this he attempted to explain several discrepancies as "typographical errors", including the description of Mathuradas as a director and shareholder of Ponds, but now admitting that between 2009 and 2012, he visited India several times - He claimed that the date of 2009 in his affidavit in rejoinder was a typographical error for 2011 - He admitted to having visited India more than once - He was here on five occasions in 2010 and also again in 2012 - this makes matters even worse on the question of delay and laches - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' own books of account - the relentless audit that followed forced Hunjan and Rana into an intractable position, one from which there was no escape except by badgering and pressuring Balwani into issuing a share certificate to assuage increasingly perturbed auditors - That is the only plausible explanation for Hunjan's repeated assurances that these documents were needed for internal use - Ponds' entire case is bogus - It is an edifice built of straw on a foundation of half-truths, deceit and wholly improper financial duress - Decided in favour of appellant. - CO. APPEAL NO. 14 OF 2013 CROSS OBJECTIONS (L) NO. 8 OF 2013 - - - Dated:- 9-5-2014 - G.S. PATEL, J. Aspi Chinoy, Zal Andhyarujina, Manvendra Kane, Rahul Lamba and Ms. Shalini Sitaraman for the Appellant. E.P. Bharucha, F.E. Bharucha, A.M. Bhalerao and S.A. Bhalwal for the Respondent. JUDGMENT 1 Originally, respondent nos.1 to 4 in CLB C.P. No. 23 of 2012 2 Originally the petitioner and the 5th respondent in CLB C.P. No.23 of 2012 I : Summary of the Dispute 1. When considering a petition under Section 111(4)(b) of the Companies Act, 1956, does the Company Law Board have the power and auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting Section 111 by incorporating in it the provisions of Section 155. This conferred power on the High Court to order rectification of the register of members. The purpose and intent the amendment was to provide sufficient protection to investors against an unlawful refusal to register a transfer of shares. Therefore, the amended section also requires the companies to give reasons before refusing any such transfer. Rights were conferred on the aggrieved investor to apply for relief to the Company Law Board (instead of the High Court), on specified grounds. 4. Section 111 of the Companies Act, as amended, reads thus: 111. Power to Refuse Registration and Appeal Against Refusal. (1) If a company refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any shares or interest of a member in, or debentures of the company, it shall, within two months from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferee and the transferor or to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) may decide any question relating to the title of any person who is a party to the application to have his name entered in, or omitted from, the register; (b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification. (8) The provisions of sub-sections (4) to (7) shall apply in relation to the rectification of the register of debenture holders as they apply in relation to the rectification of the register of members. (9) If default is made in giving effect to the orders of the Company Law Board under this section, the company and every officer of the company who is in default shall be punishable with fine which may extend to ten thousand rupees, and with a further fine which may extend to one thousand rupees for every day after the first day after which the default continues. (10) Every appeal or application to the Company Law Board under sub-section (2) or sub-section (4) shall be made by a petition in writing and shall be accompanied by such fee as may be prescribed. (11) In the case of a private company which is not a subsidiary of a public company, where the right to any shares or intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt company, and that this so-called certificate was duly signed by the Managing Director and another Director of the Company. This assertion is repeated in paragraph 12 of the petition. The prayers, especially prayer (b) of the petition before the Company Law Board, proceeded on the footing that the 1st respondent was indeed a shareholder, or, to use the words of the petition a registered shareholder . However, the documents in question, Exhibits C and D to the petition, are not share certificates at all. At best they are a confirmation that shares were to be issued. I will presently consider the circumstances in which these documents came to be executed. 7. What the Company Law Board directed by its impugned order of 14th January 2013 was this: 1. Subject to the direction No.2, the Respondent No.2 to 4 are directed to issue the original 7,50,000 share certificates of ₹ 10/- each duly stamped and sealed to the petitioner Company as per law. They are further directed to rectify the register of the members of the Company by inserting the name of the petitioner and will inform the Competent Authorities. However, this direction will come into force w.e.f. 15th April ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of law arises is, I believe, some what academic now. 10. For the reasons that follow, I have allowed the appeal in its entirety and set aside the order of the Company Law Board. I have also dismissed the respondents' Cross Appeal. II. Background 11. The 1st appellant, Advansys (India) Private Limited ( Advansys ) is a private limited company promoted by the 2nd and 3rd appellants, Pankaj Inder Balwani ( Balwani ) and the 3rd appellant, Pankaj Balwani's spouse, one Shakuntala Balwani ( Shakuntala Balwani ; together, the Balwanis ). Since about 20o0/2001, the Balwanis, through entities they owned, began a trading relationship with on Tansun Limited ( Tansun ). Tansun is a company registered in the United Kingdom, where it carries on business. The relationship was for export of products and components for heaters and other engineering components. At the relevant time, Tansun was wholly owned by one Piara Singh Rana ( Rana ) and his two brothers, Gurmeet Singh Rana and Amrik Singh Rana. One Harcharan Kamal Singh Hunjan ( Hunjan ) was a director of Tansun. 12. Advansys was incorporated on 14th January 2002. Balwani held 8,000 shares; Shakuntala 2000. Balwani has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orwarded this email from Copex to Hunjan, seeking his views and advice since, till then, there were no concluded agreement between the parties for any equity subscription by Hunjan, Rana or Ponds in Advansys. According to the appellants, Hunjan told Balwani that no response was necessary since there was no agreement between the parties in relation to any subscription to an equity shareholding in Advansys. On 23rd September 2004, Hunjan confirmed the execution of the buy-back agreement. 18. From 2001 onwards, Tansun's orders on Advansys declined considerably. This adversely affected Advansys's operations and cash flow. Also, Tansun began withholding or delaying payments to Advansys against the latter's invoices for supplies and exports. This in turn has a cascade effect, and Advansys began to default on payments to its own suppliers. This situation continued to deteriorate for the next two years. From 2006 onward, the pressure on Advansys was so considerable that Balwani repeatedly requested Hunjan and Rana to release payments for pending invoices raised by Advansys. These requests were denied or paid only in part. 19. From 2006 onward, i.e., at about the time that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y . By this time, Hunjan was clearly agitated. The email is threatening in its tone and indicates that unless such a certificate was issued, there would be no further remittance to Advansys. 22. On 13th September 2006, Advansys wrote to Hunjan and Rana. Advansys said that it would be illegal to attempt any such share issue without intimation to the Reserve Bank of India and the Registrar of Companies. Advansys operated under an industrial licence. The terms of that licence required the Licensing Authorities to be kept informed of any issue relating to shares. Further, any share issue that was or could be construed as violation of the Foreign Exchange Regulation Act, 1997 ( FERA ) and Foreign Exchange Management Act, 2000 ( FEMA ) attracted penal consequences. Since the share issue was demanded against a foreign investment, this foreign remittance would need to be declared on a Foreign Inward Remittance Certificate ( FIRC ). 23. Three months latter, on 15th December 2006, Hunjan asked Balwani about the share certificates again. It seemed that Johnstone was still following the issue with Hunjan. On 30th January 2007, Balwani circulated a draft of the Shareholding Agreement to H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... draft be executed at the earliest. Rana maintained and reaffirmed, according to Balwani, that these were required by Ponds for its internal use. Balwani claims that, given the circumstances, he had little option but to agree. He then filled in the draft documents forwarded by Rana and Hunjan and forwarded these to Hunjan, while also circulating them by email to Johnstone for approval. Johnstone replied on the very same day by email confirming that these documents seemed to be in order. It is, according to the appellants, in these circumstances that the two documents, Exhibits C and D to the petition, were signed and issued. The minutes are signed by both Balwanis; the certificate by Pankaj Balwani alone. 27. On that very day, i.e., 29th June 2007, an amount of 92,500 (approximately equal to ₹ 75,36,900/-) was remitted to Advansys's bank account by Johnstone's firm, CK Chartered Accountants. On 30th June 2007 HSBC Bank issued a FIRC for these remittances of 92500. The FIRC categorically states that the purpose of the remittance as disclosed by the remitter, i.e., CK Chartered Accountants, was toward invoices. 28. On 5th October 2007 Hunjan sent an email ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompleteness of records. Balwani claims that given the dire financial straits in which Advansys then found itself and its by now almost complete dependence on Tansun for financial support, he was compelled to respond saying that the change process had been initiated and that Ponds' name would be included shortly. On 24th October 2007, Hunjan wrote to Balwani saying that further funds could be released only after the issues relating to the email of 9th October 2007 were resolved. Again, attributing these to the circumstances in which Advansys and the Balwanis found themselves, Balwani sent an email to Hunjan with a draft letter saying that the shareholders of Advansys included Ponds. On 31st October 2007, Hunjan again demanded from Balwani that a letter of shareholding as approved by Hunjan and the accounts of Advansys be sent to Johnstone. A further reminder followed on 2nd November 2007. 31. Several months later, on 30th July 2008, Hunjan emailed Advansys reconfirming the reconciliation statement sent previously and also reconfirming that the remittance of 92,500 made in June 2007 through CK Chartered Accountants was to be applied toward payment of the invoices raised by Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in June 2009. In an email of 26th June 2009, Balwani made it clear that he was attempting to resolve the long pending issue but without a binding commitment at that stage. 37. On 13th February 2010, Rana sent an email to Ponds saying that discussions had been going on for some time and this now needed to be resolved. One of the three matters pending resolution, according to Rana, was about the share holding. 38. On 14th June 2012, a legal notice was issued to Advansys by the advocates for Ponds calling on Advansys to issue a share certificate to Ponds for 7,50,000 shares of ₹ 10/- each. On 14th June 2012, Ponds filed a complaint against the Balwanis with the Registrar of Companies. The reliefs sought in that complaint are similar to the ones sought by Ponds in its petition before the Company Law Board. Ponds also filed a criminal complaint against the appellants with the Economic Offences Wing. On 7th September 2012, Ponds filed Company Petition No. 23 of 2012 before the Company Law Board. The impugned order was passed on 14th January 2013. 39. Before I proceed to outline the rival submissions made by Mr. Chinoy and Mr. Bharucha, I must note that the Company Petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterial facts in the petition and Ponds had approached the Company Law Board with unclean hands disentitling itself to any equitable or other relief. 41. In response, Mr. Bharucha, learned senior counsel for Ponds placed his submissions thus: (a) Ponds was entitled, in the factual matrix outlined above, to be recorded and registered as a 75% equity shareholder of Advansys. It was to hold 7,50,000 equity shares of ₹ 10/- each, and it had fully paid the consideration for these shares. According to Mr. Bharucha, the shares were paid for twice, first by the remittance of 4,000 in 2003 and then subsequently by the remittance of 92,500 in June 2007. There is no dispute till June 2007 of Ponds' entitlement to 75% shares of Advansys. (b) Ponds is entitled to rely on the minutes of 29th June 2007 signed by Balwani, following the doctrine of indoor management and the doctrine set out in the reported English judgment of the Chancery Division, Duomatic Ltd. 3 (1969) 2 WLR 114. This principle has been applied and followed by various High Courts in this country as also by the Supreme Court. (c) Ponds' assertion of its rights as a shareholder has never been objected t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be denied in this fashion. (h) According to Mr. Bharucha, all allegations of so-called violations under FEMA/FERA and the FDI Policy are a smokescreen and without any substance. These, like the submissions made that Foreign Direct Investment is permissible through an automatic route only if an export oriented unit is physically situated in a special economic zone, are merely diversions and should not be allowed to defeat Ponds' legitimate rights. IV : Maintainability of the petition; scope of Section 111 of the Companies Act. 42. Mr. Chinoy's first submission is that under Section 111(4) of the Companies Act, the Company Law Board's powers do not extend in an omnibus fashion to a question of determining whether the petitioner before the Company Law Board is entitled to the shares or whether the petitioner has established his right to become a member of the Company. The scope of the enquiry before the Company Law Board is limited to ordering a rectification of the register or a transfer or transmission to be registered, and awarding damages for improper conduct, but only where it is found that that right or entitlement of the petitioner has already been establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Act along with the Companies (Issue of Share Certificate) Rules, 1960 (the Share Certificate Rules ) do not contemplate this kind of document being treated as a share certificate. There is no common seal of Advansys on the document. It does not contain the signatures of two directors of the appellant Company and a third person. There are no distinctive share numbers or folio numbers. The document is on a letterhead and not in the prescribed form. Most importantly, nowhere in the document Exhibit D is any consideration stated to have been paid. At best this is only a letter addressed to a person or persons unknown, purportedly stating that certain shares have been issued. The express provisions of Sections 83 and 84(1) of the Companies Act, and Rules 5, 6 and 8 of the Share Certificate Rules are all left non compliant. The lacunae are many, and they are fatal. 44. What is not in doubt, therefore, is that there was no share certificate issued at all. Absent a share certificate, is it possible for the Company Law Board to direct rectification of the register? There is also no valid share transfer form or any instrument by which these shares could be said to have been transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bly and indisputably be a member of the Company. That question of membership of the Company is not one that can be directed or ordered by the Company Law Board under Section 111 of the Companies Act. No shares of Advansys were ever issued or allotted to Ponds. 48. In these circumstances, it is difficult to see how it could ever have been said that Ponds had become a member or shareholder of Advansys. In order to be a member and shareholder and one holding alleged 7.5 lakh shares, those shares would have had first to have been issued to Ponds, making Ponds a member of Advansys. Absent any such share issue, no rectification of the register of members could have been permitted. If, as it does indeed appear in the present case, all that Ponds could at highest lay claim to, was an agreement for purchase of shares (and even this is extremely doubtful and not established), Ponds would nonetheless first have to file a civil suit for specific performance of such an agreement. It could not bundle that claim for specific performance with an application for rectification of the register. The suit for specific performance was a necessary precursor to a rectification application. Only by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e burden is on the applicant, and to this extent any matter or dispute between persons raised in such court it may generally decide any matter which is necessary or expedient to decide in connection with the rectification. 29. Both under the 1913 Act and the 1960 Act, a procedure is prescribed for admitting a person as a member by purchase or transfer of shares of that company. With reference to the 1913 Act under Section 29, a certificate of shares or stock shall be prima facie evidence of the title of the number of the shares or stock therein. Section 30 defines member to be one who agrees to become a member of a company and whose name is entered in its Register. Section 31 is to keep a Register of its members. Section 34 deals with transfer of shares and application for the registration of the transfer of shares is to be made either by the transferor or the transferee. Where such application is made by the transferor for registration of his share, a registered notice is to be sent to the transferee. Section 34(3) restricts to register a transfer share until the instrument of transfer duly stamped and executed by the transferor and transferee has been delivered to the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re it has been invested with exclusive jurisdiction, the jurisdiction of the civil court is impliedly barred. We have already held above the jurisdiction of the court under Section 155, to the extent it has is exclusive, the jurisdiction of the civil court is impliedly barred. For what is not covered as aforesaid the civil court would have jurisdiction. Similarly we find even under Section 446(1), its words itself indicate the jurisdiction of the civil court is not excluded. This sub-section states, ... no suit or legal proceedings shall be commenced ... or proceeded with ... except by leave of the court. The words except by leave of the court itself indicate on leave being given the civil court would have jurisdiction to adjudicate one's right. Of course discretion to exercise such power is with the court. Similarly under Section 446(2), court is vested with powers to entertain or dispose of any suit or proceedings by or against the company. Once this discretion is exercised to have it decided by it, it by virtue of the language therein excludes the jurisdiction of the civil court. So we conclude that the principle of law as decided by the High Court that the jurisdiction of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e register of members of a company in three situations (a) when the name of a person is wrongly entered in such register, (b) when the name of a person, whose name having been entered in the register is omitted therefrom, and (c) when default is made in entering the name of any person who has already become or who has ceased to be a member. None of the three situations envisaged under sub-section (1) of Section 155 would allow the person whose right as a member qua the disputed shares is yet to be established to apply for rectification by inclusion of such person's name. The appellants could not, therefore have applied for transfer of the disputed shares in their favour under Section 155 of the Companies Act. They would have to establish that right by way of a separate suit or otherwise. The appellants in para 26 of the company petition correctly reserved their right to file appropriate action for transfer of the 3417 shares to themselves. (Emphasis supplied) 51. Finally, there is a decision of the Division Bench of this Court in Shirish Finance Investment (P.) Ltd. v. M. Sreenivasulu Reddy 6 (2002) 1 Bom.C.R.419 : (2002) 109 Comp Cas 913. Paragraphs 203 and 205 reads th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t raise any complicated questions of law or disputed question of title or any other such complicated issue which require determination by a Court of law, the applicant cannot seek relief by filing a civil suit because the questions that arise can be conveniently and appropriately dealt with by a Court exercising summary jurisdiction. Thus, in every case, the Court has to consider the facts and the issues involved and, thereafter exercise its discretion to grant relief or to relegate the parties to a suit in exercise of jurisdiction under section 155 of the Companies Act. We are, therefore, of the considered view that the decision in Ammonia Supplies Corporation Ltd., does not overrule the law as laid down in Public Passenger Service Ltd., and cannot be cited as an authority for the proposition that the jurisdiction of the Civil Court is completely barred. 205. In the instant case, the application for rectification proceeds on the basis that the acquisition of shares by defendants No. 3 and 4 were illegal and void being in breach of the mandatory provisions of the SEBI Regulations of 1994. This was not a case where rectification was sought on the ground that the application for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tle of any person who is a party before it to have his name enter upon the Company's register. On this basis, Mr. Bharucha submits that the decisions of the Supreme Court Ammonia Supplies Corpn. (P.) Ltd.'s case (supra) and Smt.Claude-Lila Parulekar's case (supra) are per incuriam, since the Supreme Court did not consider Canara Bank's case (supra) in either of those two cases. 53. It is not possible to accept this submission. The question before the Supreme Court in Canara Bank's case (supra) is whether the Company Law Board was a Court for the purposes of Section 9-A of the Special Courts Act and not whether it had the authority or right to decide complex questions of fact in relation to a petitioner's title under Section 111. In any case, that decision of the Supreme Court Canara Bank's case (supra) was explained by the Supreme Court itself in Ammonia Supplies Corpn. (P.) Ltd. case (supra). In paragraphs 8, 17 and 18 of Ammonia Supplies Corpn. (P.) Ltd. (supra) the Supreme Court specifically considered its earlier decision in Canara Bank's case (supra). It is, therefore, incorrect to say that Canara Bank's case (supra) was not considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is also no manner of doubt that the question of the remittance of 92,500 and its application - Advansys claiming that it was toward pending invoices, and Ponds claiming it was towards share subscription - only further muddies already turbid waters. There seems to have been no approval at a shareholders' meeting or a board meeting for an issue of shares to Ponds. Then, there are, also the other issues of coercion, undue influence, fraud, misrepresentation and economic duress set up by Balwani and Advansys. These are not merely matters of whistling in the wind; for both Advansys and Balwani referred to a considerable amount of material to demonstrate the dire financial position in which the Advansys found itself at the relevant time. Finally there remains the inexplicable endorsement on FIRC by HSBC Bank. I am unable to understand how any bank could have made an endorsement of the purpose of that remittance unless it was specifically so stated by the remitter and the originating bank. On the face of it, the explanation set up by Ponds is no explanation at all. Ponds merely says that it had not indicated that the purpose of the remittance was towards invoices. It has not aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At this stage, it seems clear that Ponds' approach has been one of constantly changing stands. Originally, the claim was that the equity share contribution was in the remittance of 4,000 transferred by Copex Management Service Limited, Ponds' auditors on 13th February 2003. This amount, in its entirety, was adjusted in the books of account of Advansys toward invoices raised on Tansun. Mr. Bharucha now contends that on 29th March 2003 Balwani and Shakuntala clandestinely issued additional shares to themselves; and that they did so again on 30th March 2003. This is no explanation at all. There is no indication of Ponds having been unaware of the deployment or application of the 4000 that it remitted. If, in 2012, before the Company Law Board it now contends that the additional share of issue of 2003 was clandestine , then it is for Ponds to explain why for a period of nine years it did absolutely nothing in that regard. What seems to have happened is that the error, if one wants to be generous, or the mischief, which is probably closer to the truth, is that between Tansun, Rana, Hunjan and Ponds, there was some sort of internal discord. Ponds seems to have recorded in i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares. Indeed, it is on this basis that Mr. Bharucha founds his entire argument of the doctrine of indoor management. He is, he submits, entitled to presume that whatever needed to be done is properly done. He is not concerned with any lacunae in statutory compliances on the part of Advansys. Here again, I must disagree with this submission. Balwani's email 9th October 2007 does not establish a concluded agreement for any share issue. That email cannot be read in isolation. It is a response to Johnstone's email of the same date asking for a list of share holders of Advansys. This, in the context in which all his correspondence was exchanged, was, therefore, also for the internal purpose/use of Ponds and Hunjan/Rana. What seems to have happened is that confronted with an audit query they could not answer, one occasioned by their own internal incorrect entry in their books and in the books of Ponds, Hunjan and Rana attempted to pressure Balwani into issuing a document that would satisfy or sate their auditors' appetite. 59. In any case, the documents at Exhibits C and D to the petition before the Company Law Board were of 2007. There is a considerable amount of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese documents were required for internal purposes, indicate beyond any manner of doubt that there was in fact no concluded agreement for the issue of any shares to Ponds. 61. I am unable to comprehend as to how and on what basis, given these factual background, the Company Law Board could have possibly have concluded that there existed such an agreement or that it had been acted upon and fully effected. In order to arrive at that conclusion, the Company Law Board would have had to find as a matter of incontrovertible fact, capable of no other interpretation, that there was such an agreement and that it had been implemented. It is impossible to sustain the finding of the Company Law Board. 62. It is equally impossible to sustain the Company Law Board's second finding, implicit in the first, and also explicitly stated, that valid consideration flowed from Ponds to Advansys for the issue of these shares. As I have already noted, this is unsupported either by the FIRC or the reconciliation statement. The FIRC must also be read not only in isolation but in the context of the email from Hunjan, specifically those of 5th October 2007 and 30th July 2008, where Hunjan said that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side India) Regulations, 2000 ( FEMA Regulations ) prohibit an Indian Company from issuing any shares to a non-resident except as provided under the FEMA Act, or the FEMA Regulations. An exception to this general prohibition is under the Foreign Direct Investment ( FDI ) Scheme, Schedule I to the FEMA Regulations. This FDI Scheme contemplates two routes by which shares can be acquired in an Indian Company by a foreign resident. The first is an automatic route where no prior Government approval is needed. The second is the approval route. The automatic route is unavailable where the Indian company in question is licensed under the Industries (Development Regulation) Act, 1951 ( IDRA ). This is explicitly stated in the proviso to sub-clause (1) of Clause (2) of Schedule I of the FEMA Regulations. Clause 3 of Schedule I also clarifies that where an automatic route is unavailable, the approved route has to be followed and prior approval is required of the Secretariat for Industrial Assistance or the Foreign Investment Promotion Board ( FIPB ). There is no dispute that Advansys is governed by IDRA. Mr. Bharucha contends that the automatic route was available. But this ignores the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... struct, the automatic route was never available for investment in Advansys. 68. Mr. Bharucha also relied on a letter from the Reserve Bank of India dated 9th April 2013. Of this, the less said the better. This was a letter written by the RBI following the impugned order of the Company Law Board, which, inter alia directed that a copy of the order be sent to, among others, the RBI. At the time when the petition was admitted, on 18th March 2013, this Court also stayed the operation of the impugned order of the Company Law Board. Despite this, the Reserve Bank of India responded to the letter dated 16th January 2013 from the Bench Officer of the Company Law Board forwarding a copy of the impugned order. The RBI in its letter dated 9th April 2013, set out its response. By an order dated 2nd May 2013, this Court observed that the RBI's letter was in breach of the stay order of this Court passed on 18th March 2013. A contempt notice was issued to the Manager of the Reserve Bank of India in this regard. Further, the Ministries of Finance, Corporate Affairs and Commerce Foreign Trade were restrained from acting on the impugned order of the Company Law Board. In these circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I think, be viewed in a certain context. The petition almost wholly elides the quite considerable correspondence between Tansun, Hunjan, Rana and the Balwanis. This came to light only in the Balwanis' reply. Had it been disclosed in the petition, very likely matters would have taken a different turn: the petition would, on its own showing of that correspondence, have met only with a dismissal. There is also no mention in the petition of the critical FIRC of 30th June 2007. Matters that are fundamental were carefully occluded from the petition. 72. What is even more peculiar is that the petition was filed by one Chatrabhuj Mathuradas, a gentleman who surfaced only at the time of affirmation of the petition. He claimed to be a director and shareholder of Ponds. He claimed to have a general power of attorney. This general power of attorney however shows that Mathuradas is merely a friend of Hunjan and Rana; that, between them, Hunjan and Rana hold 75% and 25% respectively, i.e., the entirety of the equity in Ponds. They are also the only two directors of the Respondent No.1. In an affidavit in rejoinder, it is admitted that Mathuradas is neither a shareholder nor a director. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led minutes of which Mr. Bharucha speaks is the document at Exhibit C . It has been signed by Balwani and Shakuntala. However, there is no common seal to it. This is the very document that was in the format required by Johnstone, Hunjan and Rana for their internal purposes. On the face of it, the document that is annexed is incomplete, the last sentence especially. I do not think either the Duomatic principle or the decision of the Andhra Pradesh High Court in Brilliant Bio Pharma Limited v Brilliant Industries Ltd. 10 [2013] 180 Comp Cas 168 (AP) can be said to have application to a case such as this. Similarly, Mr. Bharucha's reliance on the decision of the Supreme Court in MRF Ltd. v. Manohar Paricker [2010] 11 SCC 374 is entirely misplaced. The Supreme Court dealt with the interpretation of this doctrine to say that it imposes a limitation on the doctrine of constructive notice. Persons dealing with a Company are entitled to presume that internal requirements prescribed in the Memorandum of Articles have been properly observed. 76. Mr. Bharucha relies on these decisions to say that it is not open to the Balwanis to assail the minutes of 29th June 2007. I disagree. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for specific performance and also simultaneously ordering a rectification of the register. 79. The two documents at Exhibits C and D are not share certificates and do not confer any rights on Ponds. At no point did Ponds make any payment for the shares it claims. The only basis for the claim is of Hunjan's and Rana's own contrivance in incorrectly, or perhaps for other, murkier reasons, showing the initial remittance of 4000 as being toward share subscription in Ponds' own books of account. The relentless audit that followed forced Hunjan and Rana into an intractable position, one from which there was no escape except by badgering and pressuring Balwani into issuing a share certificate to assuage increasingly perturbed auditors. That is the only plausible explanation for Hunjan's repeated assurances that these documents were needed for internal use. 80. Ponds' entire case is bogus. It is an edifice built of straw on a foundation of half-truths, deceit and wholly improper financial duress. 81. The appeal is allowed. The impugned order dated 14th January 2013 is quashed and set aside. The Company Petition and filed by the present respondents is dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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