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TMI Blog2018 (11) TMI 1536X X X X Extracts X X X X X X X X Extracts X X X X ..... shares, Forex Finance Pvt. Ltd. (Defendant No. 8) holding 458377 equity shares and Jesmin Investment Ltd. (Defendant No. 5) holding 7526 equity shares aggregating to 1609035 equity shares in the Plaintiff No. 1 is illegal and void; (B) A decree of mandatory injunction or a decree in favour of Plaintiffs and against the Defendants, their agents, nominees, administrators, legal heirs, assignees etc. directing the Defendant Nos. 5 to 8 to transfer their shareholdings to the Plaintiff No. 1 at their face value; (C) Award Cost in favour of the Plaintiffs and against the Defendants; (D) Pass an order(s)/direction(s) as this Hon'ble Court may deem fit and proper in the facts and circumstances of the case." 2. While I.A. No. 17148/2015 has been filed by the plaintiffs for grant of injunction, I.A. Nos. 18714 & 18715 of 2015 have been filed under Order 39 Rule 4 by defendant nos. 8 and 6 respectively for vacation of interim order dated 19th August, 2015, I.A. Nos. 24462 & 24463 of 2015 have been filed under Order 7 Rule 11 read with Order 1 Rule 10 on behalf of defendant nos. 5 and 1 to 3 respectively. 3. On 19th August, 2015, the learned predecessor of this Court passed an ad i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In December, 2010, the plaintiffs discovered that 14.1% shares held by defendant Nos. 4 and 5 which are owned by the Jindal Groups were transferred to defendant Nos. 6 to 9 i.e. the Saraf Group. It has been discovered that the said defendants have required cross-holdings in the plaintiff's company in contravention of Clause 7.4 of the inter se agreement. The plaintiffs seek restraint upon further transfer of the said shares to third parties and a restraint against the exercise of voting rights that go with these shares. Dr. Abhishek Manu Singhvi, the learned Senior Advocate for the plaintiffs would contend that if the interim injunction is not granted it would severely hamper the management and prejudice the rights of the plaintiffs. It appears prima facie that the shares held by defendant nos. 6, 8 & 9 are in contravention of the inter se agreement dated 23.09.2009 since the parties explicitly agreed that there would be no cross holdings in each others' company. This Court is of the view that the plaintiffs have made out a prima facie case for an ex parte ad interim injunction against exercising of voter rights and against further transfer of the shows to third par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the acquisition of shares as aforesaid has been collected from the Stock Exchanges etc. A statement highlighting the acquisition of 2200616 equity shares amounting to 9.65% of the share capital of the Company by a group of 4 Companies viz. Jindal Photo Investment Limited, Delhi, Consolidated Photo Finvest Limited, Delhi, Consolidated Finvest and Holdings Limited, Uttaranchal, UP and White Pin Tie Up Limited, Kolkata, West Bengal was tabled in the Board Meeting for information of Board members. A copy of the said statement is annexed hereto as Annexure 1 and forms an integral part of these Minutes. The following preliminary conclusions and observations were made: 1. That all the said Companies formed part of the Jindal Group of Companies, 2. That 3 of the said Companies viz. Jindal Photo Investment Limited, Delhi, Consolidated Photo Finvest Limited Delhi and Consolidated Finvest and Holdings Limited, Uttaranchal, UP appear to be closely interconnected by virtue of common shareholdings, directorships etc. as emanated from a study of their Annual Reports and Annual Returns. 3. That Consolidated Finvest and Holdings Limited, Uttaranchal and UP White Pin Tie Up Limited, Kolk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dations received from the said legal counsel and decide as soon as possible on the final course of action to be taken in all respects to ensure that the Company's interests as well as the promoter Group's interests are safeguarded as per law and no violation of SEBI guidelines have taken place to the Company's detriment. Xxx xxx &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t nos. 1 to 4 acquired further shareholding in AHL and thereby increased their combined shareholding to 14.46%. 7. Mr. Tripathi stated that in or about 2008, while the CLB petition was still pending, the three promoter groups realising that they had independent competing interests in the hospitality sector, decided to demerge AHL into three different entities to be managed individually by the three promoter groups. According to him, the three hotels at Delhi, Mumbai and Kolkata were to be managed individually by the three demerged entities and exclusively owned by each group, i.e. Jatia Group [Asian Hotels (North) Ltd.], Gupta Group [Asian Hotels (West) Ltd.] and Saraf Group [Asian Hotels (East) Ltd.] respectively and in which there would not be any cross holdings of the other groups. He stated that to achieve the aforesaid objective, a Scheme of Demerger was got approved from this Court on 13th January, 2010 and shares were transferred between the three groups in accordance with Inter Se Agreement on 23rd August, 2010. 8. Mr. Tripathi submitted that the only object and purpose of the Scheme of Demerger and Inter Se Agreement was to ensure that none of the groups, which had their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... known proposition that a company cannot by its articles or otherwise deprive itself of the power by special resolution to alter its articles or any of them. But the point is the same one. An article purporting to do this is ineffective. But a provision as to voting rights which has the effect of making a special resolution incapable of being passed, if a particular shareholder or group of shareholders exercises his or their voting rights against a proposed alteration, is not such a provision. An article in terms providing that no alteration shall be made without the consent of X is contrary to section 10 and ineffective. But the provision as to voting rights that I have mentioned is wholly different, and it does not serve to say that it can have the same result.' Both parties sought to derive comfort from this dictum. Mr. McCartney relied on it as demonstrating that a provision as to the exercise of voting rights, even although it had the effect of preventing a resolution being passed, was nevertheless valid. Mr. Girvan argued that the effect of clause 3 was the same as that of an article containing a provision that "no alteration should be made without the consent of X." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had cross holdings in various companies and balance sheet of defendant no. 5 revealed that it was used only for the purpose of investing money in AHL. Mr. Tripathi handed over tables/charts, which according to him, showed that Jindal Group and Saraf Group had been, from the beginning (i.e. 2003), acting in concert with common intent of acquiring shares in AHL, which fact had been suppressed and concealed by Saraf Group from Gupta Group. One such chart handed over by Mr. Tripathi is reproduced hereinbelow:- a) Defendant no. 5 is a Jindal Group Company as over 90% shares of defendant no. 5 are held by defendant no. 3 which is admittedly a Jindal Group Company. b) In defendant no. 5, which was represented to be owned, controlled and promoted by Jindal Group, defendant No. 7, belonging to Saraf Group, was also a shareholder. c) Defendant No. 7 is a member of Saraf Group as she is the daughter of defendant no. 6 and is acting in concert with defendant nos. 6 and 8, a Saraf Group Company. d) As defendant No. 7 is a member of Saraf Group, who has contributed to capital of defendant no. 5 who, in turn, acquired shares of AHL, Saraf Group has partly funded the acquisition of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; xxx xxx ....The principle of "finality of litigation" cannot be pressed to the extent of such an absurdity that it becomes an engine of fraud in the hands of dishonest litigants. The courts of law are meant for imparting justice between the parties. One who comes to the court, must come with clean hands. We are constrained to say that more often than not, process of the court is being abused. Property-grabbers, tax-evaders, bank-loan-dodgers and other unscrupulous persons from all walks of life find the court-process a convenient lever to retain the illegal-gains indefinitely. We have no hesitation to say that a person, who's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round other than that stated in the Articles. xxx xxx xxx 11. In Swaledale Cleaners Ltd., Re (1968) 1 All ER 1132: (1968) 1 WLR 432 it was held that it is well established that a share in a company is an item of property freely alienable in the absence of express restrictions under the Articles. This view is reiterated in Tett v. Phoenix Property and Investment Co. Ltd.(1986) 2 BCC 99, 140. 12. In Chapter 16 of Gore-Browne on Companies (43rd edn.) while dealing with transfer of shares it is stated that subject to certain limited restrictions imposed by law, a sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also stated that the Inter Se Agreement cannot give rise to any cause of action to any of the promoter groups of the erstwhile AHL prior to 2010. He stated that the swap had taken place in August 2010 and the shares were purchased in December 2010 and January 2011. Therefore, according to him, the restrictions in the Inter Se Agreement could not be enforced at this stage. 18. He also stated that the plaintiffs had misled this Court as they did not mention in the plaint that the defendant no. 7 was not a signatory to the Inter Se Agreement. He contended that the fact that defendant no. 9 had no shareholding in plaintiff no. 1 was also concealed from this Court. 19. Mr. Gaurav Varma, learned counsel for the defendant nos. 1 to 3 and 5, stated that the plaintiffs are not entitled to challenge the original acquisition of shares in AHL as being violative of Code 1997 by the defendant nos. 1 to 4 as, firstly, the said transaction could only be challenged by AHL and not by the companies created pursuant to the Scheme of Demerger 2010. 20. Secondly, he stated, that the plaint and documents showed that the issue of illegality of acquisition of shares in AHL by the defendant nos. 1 to 4 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Asian Hotels (West) Ltd showing as if seller and acquirer acted in concert, therefore all the respondents except R-5 violated the regulation hence acquisitions in these two companies shall be rectified, but I don't find any merit in this argument because R1-3 are managed by SS Jindal and R-4 is managed by DP Jindal. Just because they are real brothers, it cannot be assumed that they acted in concert in acquiring shareholding in the petitioner company, unless the evidence on record clearly establishes that they have common objective or purpose of substantial acquisition of shares or voting rights for gaining control over the target company. Of course it is an issue raised in the CP, thereby it would be decided when main petition is decided. The persons involved in acquiring shareholding alone will be considered as persons acting in concert; sellers cannot be inducted as acting in concert because seller will have no intention in acquisition. Therefore, the doctrine of acting in concert is applicable to acquisition, but not against the person offloads his shareholding. Moreover, since section 111(A)(3) of the Act is limited to rectification, this bench is under obligation to see a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntered into the agreement regarding the transfer of their parents shares are therefore obliged to act in terms of the Karar. The defence of Ravi and Srinivasan based on Ex.R-59 and R-60 should not, in the circumstances, have been accepted by the Division Bench. Having regard to the nature of the shareholding, on the basis of the law as enunciated by the Federal Court and Privy Council in the decisions noted above, it must be held that the Karar was specifically performable." 26. Mr. Tripathi further submitted that in the case of an active misrepresentation knowing the fact to be false, it is not incumbent upon the party defrauded to establish that he had no means of discovering the truth with ordinary diligence. In support of his submission, he relied upon the judgment in Niaz Ahmad Khan v. Parshotam Chandra 1930 SCC OnLine All 252. 27. Mr. Harish Malhotra, learned senior counsel for the plaintiffs (who supplemented the submissions of Mr. Parag Tripathi) submitted that Section 14(1) of the 1963 Act has to be construed liberally and the expression 'defect of jurisdiction or other cause of a like nature' is wide enough to cover defects which are "not merely jurisdictional s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to a variety of tenable or untenable reasons, the seller may be in breach of the contract but that by itself does not permit a plaintiff to use the word "fraud" in the plaint and get over any objections that may be raised by way of filing an application under Order 7 Rule 11 CPC." (emphasis supplied) Shares of a company are freely transferable and a restraint or prohibition on purchase or inter-se transfer of shares cannot be implied but has to be explicit and specifically provided, especially in the case of a public listed company 31. It is settled law that shares of a company are freely transferable and a restraint or prohibition on purchase or inter-se transfer of shares cannot be implied but has to be explicit and specifically provided, especially in the case of a public listed company. The Supreme Court in Vodafone International Holdings BV v. Union of India [2012] 17 taxmann.com 202/204 Taxman 408/341 ITR 1 has held as under:- "269. Shares of any member in a company is a movable property and can be transferred in the manner provided by the articles of association of the company. Stocks and shares are specifically included in the definition of the Sale of Goods Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder serial numbers 1 to 4 above shall hereinafter be collectively referred to as the Gupta Group; 5. Asian Holdings Private Limited, a private company incorporated under the Companies Act, 1956 ("Act") and having its registered office at c/o Asian Hotels Limited, Bhikaji Cama Place, M.G. Marg, New Delhi-110 607 ("Asian Holdings"); 6. Mr. Shiv Kumar Jatia, son of Mr. (Late) Subhkaran Jatia, currently residing at B-50 Gulmohar Park, New Delhi-110049; 7. Yans Enterprises (H.K.) Limited, a company incorporated under the laws of Guernsey, having its registered office at Level 4 North, Town Mills, Rue Du Pre, St. Peter Port, Guernsey and having its branch office at Manor House, 1st Floor, St. George/Chazal Streets, Port Louis, Mauritius ("Yans"); Parties referred to under serial numbers 5 to 7 above shall hereinafter be collectively referred to as the Jatia Group; 8. Forex Finance Limited, a company incorporated under the Act and having its registered office at 15, India Exchange Place, 1st Floor, Kolkata - 700001 ("Forex Finance"); and 9. Saraf Industries Limited, a company incorporated under the laws of Mauritius, having its registered office at c/o International Financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; xxx xxx 10.1.1 For the purpose of this Agreement, Closing Date shall be the 5th Business Day reckoned from the later of: (a) the date of receipt or rejection of Listing Approval for Transferee Company - I, and (b) the date of receipt or rejection of Listing Approval for Transferee Company-II or (ii) The 121st Business Days from the date of the Scheme becoming effective (The Promoters with the co-operation of the Escrow Agent will for purposes get the equity shares unfreezed so that Closing can take place). whichever is earlier. xxx &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement was contextual, time bound and consequently, the judgement of the Supreme Court in M.S. Madhusoodhanan's case (supra) has no application to the facts of the present case. 35. Admittedly, neither any other alleged agreement between the three promoter groups nor the Articles of Association of AHL or Asian Hotels (West) Ltd. restrict or restrain or curtail or prohibit the said groups from having cross holding or purchasing or inter-se transferring shares of AHL or Asian Hotels (West) Ltd. at any time. Accordingly, the judgement in Russel's case (supra) has no application to facts of the present case. 36. The plaintiffs' argument that there was an understanding amongst the three promoters that none of them will ever hold any shares in the company of any other promoter is contrary to the Inter Se Agreement as well as Sections 91 and 92 of the Indian Evidence Act, 1872. This Court is of the view that no oral evidence can be admitted contrary to the written document, i.e., Inter Se Agreement. 37. Consequently, even if the averments in the plaint are believed to be true and correct, then also the admitted position that emerges is that at least prior to 2010 [i.e. when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the malafide intent of holding shares in the plaintiff no. 1, contrary to the understanding of all the three promoters in the Inter Se Agreement, that none of them will hold any shares in company of any other promoter as aforesaid, is untenable in law. 41. This Court is of the opinion that the said allegation is irrelevant and immaterial as each of the three factions/promoter groups were given majority shareholding in their individual capacity in one of the three hotels/resultant companies. In fact, the allegation that non-disclosure of shareholding by Saraf Group, prior to the execution of Inter Se Agreement and the de-merger scheme was a material misrepresentation, does not stand to reason inasmuch as each promoter group was admittedly handed over management and control of a hotel with 59.269% shareholding. Whether the remaining shares were held by Jindal Group or Saraf Group or a third party would make no difference, as to the knowledge of the plaintiffs, the balance shareholding of 40.731% was to be held by third parties/outsiders. 42. Also, if the allegations levelled by the plaintiffs were true and correct, then Asian Hotels (North) Ltd. should have been complaining too! ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present proceeding on the ground that the said defendants had actually purchased the shares for defendant Nos. 6 to 8. The defendant nos. 1 to 5 were not 'clairvoyant' and could not have 'known' in 2003 that three new legal entities would be created in 2010 and Gupta Group would get the Bombay hotel and purchase of said shares would result in destabilising the management and control of plaintiff nos. 2 to 5 in plaintiff no. 1 in 2011. 46. Also, the plaintiffs' allegation that defendant nos. 1 to 5 purchased the shares in conspiracy with defendant nos.6 to 9 during the period 2003-2009 with intent to destabilise the management of the plaintiff no. 1 is astounding as certainly the defendant nos. 1 to 5 are not 'clairvoyant' and could not have 'known' in 2003 that three new legal entities would be created in 2010 and Gupta Group would get the Bombay hotel and purchase of said shares would result in destabilising the management and control of plaintiff nos. 2 to 5 in plaintiff no. 1 in 2011. 47. In any event, the rights, obligations and understanding of the three promoter groups, having been arrived at in the De-merger Scheme and Inter Se A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. Also the CLB did not dismiss the company petition due to defect of jurisdiction or other causes of like nature. 51. AHL had filed a company petition being CP No.2/111/2005 under Section 111A of the Companies Act on 28th March, 2005 contending that the acquisition of 2200616 equity shares amounting to 9.65% of the share capital by a group of four Jindal Companies allegedly interconnected by virtue of common shareholdings, directorships etc. were 'acting in concert' (as emanating from a study of their annual reports, balance-sheets and annual returns) in violation of Regulation 7(1) of the Code 1997. 52. Since the allegation that the Jindal Group had purchased and always held the shares on behalf of defendant nos. 6 to 9 is based on the same annual report and balance sheet of Jindal and Saraf Groups on the basis of which CP No. 2/111/2005 had been filed, this Court is of the view that the plaintiff nos. 2 to 5 should be deemed to have knowledge of the said fact prior to 2005. In other words, in the present case, as the challenge of purchase of shares by Jindal Group since 2003 was based on the same documents, the plaintiff nos. 2 to 5 cannot take the plea that they ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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