Full Judgment Text
2024:BHC-OS:8474
Neeta Sawant S-924-2001-FC
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
SUIT NO. 924 OF 2001
Digitally
signed by
NEETA
SHAILESH
SAWANT
Date:
2024.06.11
21:51:59
+0530
NEETA
SHAILESH
SAWANT
1.
Dharmil A. Bodani
of Mumbai, Adult Indian Inhabitant,
th
residing at 152, 15 Floor,
N.C.P.A. Apartments,
N.C.P.A. Complex, 1-92,
D. Tata Road, Nariman Point,
Mumbai – 400 021.
Shyamal A. Bodani
of Mumbai, Adult Indian Inhabitant,
residing at 51, El-Cid, B.G.Kher Marg,
Mumbai – 400 006.
2.
} …Plaintiffs
: Versus :
1.
Manju Meadows Pvt. Ltd.
A Company registered under the
Provisions of the Companies Act 1956
And having its registered office at
nd
Metro House, 2 Floor,
Mahatma Gandhi Road,
Mumbai – 400 020.
2.
3.
4.
5.
6.
Govind Gupta
Manju Gupta
Radhika Gupta
Meera Gupta
Akshat Gupta
Defendant Nos. 2 to 6, having their
nd
address at Metro House, 2 Floor,
Mahatma Gandhi Road,
Mumbai – 400 020.
7.
Vikram Gupta having his address at Metro
nd
House, 2 Floor, Mahatma Gandhi Road,
Mumbai – 400 020 (and if a minor Through
his father and natural guardian Mr. Govind
Gupta)
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Neeta Sawant S-924-2001-FC
8.
Mr. Ashwin B. Mehta
residing at 27/A, Shangnla,
Charmichael Road,
Mumbai – 400 020.
Mr. Rajesh R. Khandelwal
Residing at B-1201,
Bhawani Complex,
62, Bhawani Shankar Road,
Dadar (West), Mumbai – 400 028.
9.
Ajit Investments
a partnership firm having its
registered office at Metro House,
nd
2 Floor, M.G. Road,
Mumbai – 400 020.
10.
Somerville Farms Pvt. Ltd.
a company registered under the
provisions of the Companies Act, 1956
and having its registered office at
nd
Metro House, 2 Floor, M.G.Road,
Mumbai – 400 020.
11.
Vinod Haritwal
having its address at Nandanam,
A-2, Tilak Marg, C-Scheme, Jaipur.
12.
Nestor D’Souza
having his address at 11,
rd
Tulip, 3 Pasta Lane, Colaba,
Mumbai – 400 050.
13.
Ravikumar D. Naicker
having his address at Room No.17,
Atlas House, Dr. E.Moses Road,
Jacob Circle, Mumbai – 400 001.
14.
M.S.M. Shrirangam
residing at 5-B/1, New Sion
Co-operative Housing Society,
Scheme-6, Sion (West),
Mumbai – 400 022.
15.
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17.
Ashwin J. Ahya, having his address at F/44,
Maitri Park, Sion Trombay Road, Chembur,
Mumbai – 400 075.
18.
Bharat J. Ahya having his address at 4/16,
Borla Co-operative Housing
Society, Dr. Gidwani Road,
Chembur, Mumbai – 400 075.
Bhaven H. Soonderji
having his address at 1502,
th
Ben Hur, 15 Floor, 32,
Narayan Dhabolkar Road,
Mumbai – 400 006.
19.
The Stud Book Authority of India
having its address at 6, Arjun Marg,
Pune – 411 001.
21.
The Registrar of Companies,
Maharashtra having its address
nd
at 2 Floor, Hakoba Mills
Compound, Dattaram Ld Marg,
Kala Chowkie, Mumbai.
22.
} …Defendants
Appearances
Mr. Venkatesh R. Dhond, Senior Advocate and Mr. Snehal Shah , Senior
Advocate with Mr. Kunal Mehta, Ms. Akanksha Saxena and Ms. Jigisha
Vadodaria and Mr. Darshan Upadhyay i/b M/s Negandhi Shah & Himayatullah
for the Plaintiffs.
Mr. Pradeep Sancheti,
Senior Advocate with Mr. Darshit Jain i/b Juris Consillis,
for Defendant No.2.
Mr. Janak Dwarkadas, Senior Advocate with Mr. Vikram Trivedi, Mr. Yashesh
Kamdar, Mr. Anant Mallya, Mr. Mayur Bhojwani & Ms. Dhamini Nagpal i/b
Manilal Kher Ambalal & Co., for Defendant No. 11.
Ms. Forum Prajapati i/b Mr. Jayesh Vyas , for Defendant No.1.
Mr. Y.K. Tiwari with Mr. Ankit Tiwari, Mr. Pulkit Tyagi & Mr. Manee
Vishwakarma i/b Mr. K.A. Patel, for Respondent No. 1 to 7 in IAL/2525/2024 .
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Neeta Sawant S-924-2001-FC
CORAM : SANDEEP V. MARNE, J.
Reserved On : 10 April 2024.
Pronounced On : 11 June 2024.
JUDGMENT:-
1.
The suit involves the issue of ownership of shares as well as control and
management of the Company ‘Manju Meadows Private Limited’, which owns
101.7 Acre Stud Farm on old Mumbai-Pune Road.
2. Plaintiffs have filed this Suit aggrieved by actions of the contesting
Defendants in decreasing the stake of original Plaintiffs in the first Defendant
Company from 99.96% to 24.99% by increasing the authorised share capital of the
first Defendant Company from Rs. 25 Lakhs to Rs. 150 Lakhs and by allotting
75000 shares to Defendant No. 11. Plaintiffs have accordingly sought various
declaratory reliefs in the Suit inter alia including a declaration that the authorised
share capital of the first Defendant Company is Rs. 25 Lakh comprising of 25000
shares of Rs. 100 each and that original Plaintiffs own 24,990 shares i.e. 99.96%
th
stake in it. Plaintiffs have also sought declaration that 24 Annual General
Meeting shown to be held on 30 September 2000 and resolutions passed therein
increasing the authorised share capital of the first Defendant Company is illegal,
null and void. Plaintiffs have also challenged meeting of the Board of Directors of
the first Defendant Company shown to have been held on 18 October 2000 and
resolutions adopted therein allotting 75000 shares to Defendant No. 11 and
appointing Defendant No. 12 (director of Defendant No. 11) as director of the
first Defendant company. Plaintiffs also seek declaration that Defendant No.11 is
not a shareholder of Defendant No.1-Company. Plaintiffs are also aggrieved by
defeat of resolutions proposed by them in the Extraordinary General Meeting of
th
the first Defendant Company held on 9 January 2001 by which Defendant Nos.
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2, 8 and 9 were proposed to be removed as Directors and original Defendant Nos.
16 to 20 were proposed to be appointed as Directors of the first Defendant
Company. Plaintiffs have sought declaration that resolutions for appointment of
original Plaintiff No. 2, original Defendant Nos. 16 and 20 (later transposed as
Plaintiffs) and Defendant Nos. 17 to 19 be treated as adopted in the said meeting
th
dated 9 January 2001. They have also challenged holding of Board meeting of 10
January 2001 and resolution adopted therein for appointment of Defendant Nos.
13 to 15 as Directors. Plaintiffs have sought specific performance of Share
Purchase Agreement ( SPA ) dated 27 October 1998 and in the alternative, they
have prayed for damages of Rs.10 crores. Plaintiffs have also sought
consequential permanent and mandatory injunctions against Defendants Nos. 2
to 15.
3. The suit was originally filed by Mr. Anil K. Bodani and Mrs. Chandrika
A. Bodani. During the course of trial, both Plaintiffs have passed away and the
Suit is now being prosecuted by their legal representatives, who were originally
impleaded as Defendant Nos. 16 and 20 and who are now transposed as Plaintiffs.
For the sake of brevity, late Anil K. Bodani and late Chandrika A. Bodani are
referred as ‘original Plaintiffs’ and Late Anil K. Bodani is referred to as ‘original
Plaintiff No.1’ and Late Chandrika A. Bodani is referred as ‘original Plaintiff
No.2’. Defendant Nos. 2 to 15 are collectively referred to as ‘contesting
Defendants’.
4. Before stating facts of the case, a quick reference to description of the
parties would be necessary. Original Plaintiffs were husband and wife and original
Defendant Nos. 16 and 20 are their children. Manju Meadows Pvt Ltd.
(Defendant No.1) is a private limited company registered under the provisions of
Companies Act, 1956 and is inter alia engaged in the business of livestock farming
and breeding. Defendant No. 2 (Mr. Govind Gupta) and Defendant No. 3 (Mrs.
Manju Gupta) are husband and wife. Defendants No. 3 to 7 are members of
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family of Defendant Nos. 2 and 3, who were the erstwhile owners of shares of
first Defendant company. Defendant Nos. 8 and 9 are Directors of the first
Defendant Company. Defendant Nos. 10 and 11 are group concerns of Defendant
No. 2. Defendant No. 10 is partnership firm, in which Defendant No.2 is a
partner. Defendant No. 11 is a private limited company and Defendant No.12 is
its director. Plaintiffs believe that Defendant No. 10 held one share of first
Defendant Company, whereas it is the case of contesting Defendants that
Defendant No. 11 held that particular one share. Defendant Nos. 13 to 15 are
shown to have been appointed as directors of the first Defendant company on 10
January 2001. Defendant Nos. 17 to 19 were nominees of original Plaintiffs for
being appointed as directors of first Defendant company. Defendant No. 21 is the
Stud Book Authority of India, who is responsible inter alia for registration of
horses as well as their transfers. Defendant No. 22 is the Registrar of Companies,
Maharashtra.
ACTS
A. F
5. Briefly stated, facts of the case, as pleaded by Plaintiffs, are as follows :
a. Defendant No.1-Company, incorporated on 16 July 1977 formerly under the
name ‘Clover Agricultural and Farming Company Pvt. Ltd.’ was owned and
controlled by erstwhile owners-Tapia Family. After taking over of the entire
shareholding of the Company by Defendant Nos. 2 to 7, its name was
changed to ‘Manju Meadows Pvt. Ltd.’ on 12 October 1993. The first
Defendant Company had total issued subscribed share capital of Rs. 25
Lakhs comprising of 25,000 shares of Rs. 100/- each. The main asset of
Defendant No.1 is a Stud Farm admeasuring 101.7 acres situated at Village
Shirgaon, Taluka Maval, District Pune.
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b. Original Plaintiffs and Defendant Nos. 2 and 3 were friends since 1988 and
according to Plaintiffs, akin to family. According to Plaintiffs, Defendant No.
3-Manju Gupta was treated as Rakhi sister of original Plaintiff No. 1. Original
Plaintiff No. 1 and Defendant No. 2 were interested in horse racing and were
part of racing circuit. In the year 1998, Defendant No.2 approached Original
Plaintiff No.1 requesting for help in selling second Defendant’s family’s
share in the first Defendant Company due to financial constraints. Original
Plaintiff No.1 offered to purchase the stake of Defendant No.2 and his family
in the first Defendant Company. Accordingly, negotiations ensued between
original Plaintiff No.1 and Defendant No.2. Independently, negotiations were
also transpired between Defendant No.2 and Original Plaintiff No.1 in
relation to separate arrangements for borrowing substantial amounts from
original Plaintiff No.1.
c. In consonance with the ongoing negotiations, Board of Directors of the first
Defendant Company held meeting on 23 October 1998 wherein a resolution
was adopted for proposed sale of 24,990 shares by all shareholders in favour
of original Plaintiffs and for issuance of Share Certificates to them.
Accordingly, a Share Purchase Agreement dated 27 October 1998 was
executed between Defendant Nos. 2 to 7 and original Plaintiffs, wherein the
original Plaintiffs purchased 24,990 shares amounting to 99.96% of paid-up
equity share capital of Defendant No.1-Company for consideration of Rs.
29,98,000/- on the terms and conditions set out in the agreement. Defendant
Nos. 2, 8 and 9 were Confirming Parties to the Agreement. Accordingly,
Defendant No.1-Company transferred 17,990 shares in the name of original
Plaintiff No. 1 and 7,000 shares in the name of original Plaintiff No.2.
Independent of the Share Purchase Agreement, an Agreement of Debt was
also executed between Defendant No.1-Company and Original Plaintiffs on
27 October 1998, whereby the original Plaintiffs loaned and advanced
amounts of Rs. 12 Lakhs and Rs. 13 Lakhs to the Defendant No.1-Company,
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receipt of which was acknowledged by Defendant No.2 on behalf of
Defendant No.1-Company. The said amounts were secured by Deed of
Simple Mortgage dated 27 October 1998, two Promissory Notes dated 27
October 1998 payable on demand for amounts of Rs. 12 Lakhs and Rs.13
Lakhs and Specific Power of Attorney dated 27 October 1998 by Defendant
No.1-Company to original Plaintiffs to sell the mortgaged lands. By way of
Agreement of Debt dated 27 October 1998, original Plaintiffs also loaned sum
of Rs. 16 Lakhs in favour of Defendant No.3 which was secured by
Memorandum of Agreement of Equitable Mortgage dated 27 October 1998.
Over and above the sums aforestated, original Plaintiffs also advanced short
term loan of Rs. 45 Lakhs to Defendant No.3-Manju Gupta, which was
repaid in April 1999 and another short term loan of Rs. 4 Lakhs to Gupta
Livestock Breeding and Research Farm (D2’s Group Concern) which was
repaid in April 1999. By two letters dated 23 November 1998, Defendant
No.10-M/s. Ajit Investment and Defendant No.11-Somerville Farms Pvt.
Ltd. absolved Defendant No.1-Company from repaying amounts of Rs.
1,27,08,069/- and Rs. 67,97,470/- respectively and stated in the letters that
Defendant Nos.2 and 3 would be personally liable to repay the said amounts.
In the Board Meeting held on 1 December 1998, the Directors of Defendant
No.1-Company approved transfer of shares in favour of original Plaintiffs.
d. On 30 March 1999, original Plaintiff No.1 was appointed as Director of
Defendant No.1-Company. Accordingly, Defendant No.1-Company filed
Form No.32 with Defendant No.22-Registrar of Companies giving
particulars of appointment of original Plaintiff No.1 on the Board of
Directors. By letter dated 2 April 1999, Defendant No.1-Company forwarded
photocopies of extracts of various documents and registers including register
of members, the register of share transfers, etc. to original Plaintiff No.1.
Defendant No.1-Company filed Annual Return dated 30 September 1999
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with Defendant No.22-Registrar of Companies which reflected shareholding
of original Plaintiffs.
e. On 4 September 2000, a notice of Annual General Meeting to be held on 30
September 2000 was purportedly sent to all shareholders of the Company.
By special resolution passed in Annual General Meeting of Defendant No.1-
Company held on 30 September 2000, the authorised share capital of the
Defendant No.1-Company was shown to be increased from Rs. 25 Lakhs to
Rs. 1,50,00,000/- (divided into 1,50,000 equity share of Rs. 100/- each) for
conversion of part of Eleventh Defendant’s outstanding loan of Rs.
2,02,63,302/- into equity shares of the Defendant No.1-Company. The
Minutes of the AGM allegedly held on 30 September 2000 recorded
presence of only two members- Defendant No.2 and Defendant No.11
(represented through Defendant No.12) who unanimously passed resolution
for proposed increase in the Authorized Share Capital. In September 2000,
original Plaintiff No.1 requested for balance sheet of Defendant No.1-
Company and accordingly Defendant No.2 furnished unaudited Balance
st st
Sheet for the period 1 April 2000 to 31 August 2000. From the accounts
furnished, original Plaintiff No.1 noticed precarious financial condition of
Defendant No.1-Company and upon enquiry, Defendant No.2 assured that
they were his personal liabilities and nothing was due and payable from
Defendant No.1-Company. Purportedly, a meeting of Directors was held on
4 October 2000 for discussing dire financial condition and financial re-
structuring of the Defendant No.1-Company. On 7 October 2000, Board
passed Resolution approving increase in equity share capital of Defendant
No.1-Company and authorising Defendant No.12 (on behalf of Defendant
No.11) to sign Share Application Form. In the meeting of Board held on 8
October 2000, financial restructuring scheme was set in motion to convert
debts of certain alleged creditors (Defendant No.11) into equity. Defendant
No.11 addressed letter dated 9 October 2000 to Defendant No.1-Company
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allegedly enclosing Share Application Form for 75,000 equity shares of Rs.
100/- at premium of Rs.50/- per share. On 10 October 2000, three letters
were addressed by Defendant No.2 to Defendant No.1-Company confirming
personal liability of Defendant No.2 to repay debts of Rs. 1,02,61,000/- to
M/s. Gupta Livestock Breeding and Research Farm, Rs. 89,54,126/- to
Gupta Emerald Mines Pvt. Ltd. and Rs. 2,02,63,302/- to Defendant No.11.
In the purported Meeting held on 18 October 2000, the Board resolved
allotment and issuance of Share Certificate No. 94 consisting of 75,000
shares to Defendant No.11 and appointment of Defendant No.12 as
Additional Director. On 14 November 2000, Defendant No.1-Company filed
Form No.5 (intimating increase in the share capital) and Form No.23
(registering resolution in respect of increase in the Authorized Share Capital)
with Defendant No.22-Registrar of Companies.
f. In the first week of November 2000, Original Plaintiff No.1 owing to his ill-
health requested Defendant No.2 to meet Plaintiff No.1 (his son) and in the
said meeting, Plaintiff No.1 on behalf of Original Plaintiffs requested
Defendant No. 2 and his nominees (Defendant No.8 and Defendant No.9) to
resign from the post of Director of the Company. Defendant No.2 apparently
agreed and assured to tender resignation letters within 2 days. By letter dated
16 November 2000, Original Plaintiffs called upon Defendant Nos. 2, 8 and 9
to submit their resignation letters and relinquish their management control
and hand over all documents in their possession. Defendant Nos.2, 8 and 9
replied by letter dated 17 November 2000 refusing to handover resignation
letters alleging that original Plaintiffs were not 100% shareholders and were
‘party to the re-organisation of Manju Meadows Pvt. Ltd. and its working’.
By separate letters dated 16 November 2000, the original Plaintiffs wrote to
Manager, Shamrao Vithal Co-operative Bank Ltd. and Managing
Committee, Royal Western Turf Club Ltd. stating that First Defendant’s
management was under their control and Defendant Nos.2, 8 and 9 did not
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have authority to represent Defendant No.1-Company and no cheques shall
be honoured unless signed by original Plaintiffs. By letter dated 20
November 2000, Defendant No.2 purportedly on behalf of Defendant No.1-
Company replied to Shamrao Vithal Co-operative Bank Ltd. disputing the
authority of original Plaintiff No.1. On 20 November 2000, in purported
meeting it was resolved that all documents, letters, POAs executed in favour
of original Plaintiff No.1 shall stand revoked. Original Plaintiffs asked the
Company Secretary-Mr. Bharat V. Pathak to conduct a search of documents
and records with Defendant No.22 in respect of Defendant No.1-Company.
Accordingly, he submitted report dated 21 November 2000 containing
particulars about directors and share holding pattern of the Defendant No.1-
Company, change of auditors, etc.
g. Defendant Nos.1 to 3 wrote letter dated 21 November 2000 making several
allegations against the original Plaintiffs about sending of ‘undesirous
persons’ at First Defendant Company’s Stud Farm, original Plaintiffs
agreeing to lend amount of Rs. 1.2 crores and loan being structured as Share
Purchase Agreement, obtaining signature of Defendant Nos.2 and 3 on blank
papers, transfer of shares as ‘merely security for due repayment’ towards
loan advanced, premature recalling of loan amount of Rs. 45 Lakhs in April,
1999, cancelling and revoking documents executed by them and offering to
deposit balance loan amount alongwith interest. Original Plaintiffs replied by
letter dated 28 November 2000 denying the contents of letter dated 21
November 2000 stating Defendant Nos.2 and 3 to set out correct facts which
led to execution of Share Purchase Agreement and other subsequent
documents. By letter dated 30 November 2000 and 1 December 2000, the
Defendant No.2 reiterated the contents of the earlier letter dated 21
November 2000 and invoked the arbitration clause and appointed arbitrator.
The Original Plaintiffs replied to letter dated 1 December 2000 reiterating
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the contents of letter dated 28 November 2000, not acceding to arbitration
and not concurring with appointment of the said Arbitrator.
h. By notice dated 7 December 2000, original Plaintiffs through their
constituted attorney requestioned meeting under Section 169 of the
Companies Act for removing Defendant Nos.2, 8 and 9 as Directors and
instead appointing Plaintiff No. 1, Defendant No.17 and Original Plaintiff
No.2. Accordingly, a Meeting of Board was held on 8 December 2000
resolving to take proper legal advice on original Plaintiff No.1’s requisition.
i. Original Plaintiffs also issued public notices in Times of India (17 December
2000) and Mumbai Samachar (18 December 2000) stating that they have
99.96% stakeholding in Defendant No.1-Company and requestioning of
Extra-Ordinary General Meeting ( EOGM ) for removal of Defendant Nos.2,
8 and 9 as Directors. Defendant No.2 also issued public notice in Times of
India (24 December 2000) contending that Original Plaintiffs’ Notices were
misleading. On 26 December 2000 an intimation was sent by Defendant
No.1-Company to Defendant No.22-Registrar of Companies about cessation
of original Plaintiff No.1 as Director of the Company. Also, a Notice dated 26
December 2000 convening the requisitioned meeting on 9 January 2001 by
Defendant No.1-Company was received by Original Plaintiffs on 27
December 2000. By letter dated 4 January 2001, original Plaintiffs forwarded
proxy forms appointing Plaintiff No.1 and Defendant No.17 as their proxies
to vote in the AGM.
j. On 9 January 2001, EOGM as requisitioned by original Plaintiffs was
convened which was attended by Plaintiff No.1 and Defendant No.17 (as
proxies) alongwith their Advocate and Company Secretary, Mr. Pathak,
Defendant No.2, Defendant No.8, Defendant No.9 and Defendant No.12
alongwith Mr. K. C. Todarwal (C.A.) and a Partner of M/s. Kanga & Co.,
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Advocates. Defendant No.8 claiming himself as the Chairman did not permit
Plaintiff’s Advocate and Company Secretary to attend the meeting. Requests
were made by original Plaintiffs’ proxy holders to appoint Plaintiff No.1 as
Chairman, conduct of poll for appointing Chairman, furnishing of details of
all share-holders of Company and allowing appointment of Scrutineer, which
were turned down by Defendant No.8. Separate ballots were given to each of
the proxy-holders for voting on each of the 9 resolutions on Agenda. All 9
resolutions were defeated with 75.01% votes cast against each resolution and
24.99% votes were cast in favour of each resolution. By letter dated 10
January 2001, the original Plaintiffs called upon Defendant No.1-Company
explain how the resolutions were defeated despite original Plaintiffs holding
99.96% stake and about any purported increase in share capital. Original
Plaintiffs addressed letter dated 11 January 2001 calling upon Defendant
No.22-Registrar of Companies not to register any application or return of
allotment showing enhancement of capital and allotment of additional
shares, without their consent or approval and stating facts pertaining to
manipulation of records and illegal action to purportedly enhancing share
capital of Defendant No.1-Company. The original Plaintiffs have pleaded in
their plaint that from 10 January 2001 till the filing of the suit (20 February
2001) they have made further enquiries with Defendant No.22-Registrar of
Companies and had also inspected certain documents on 5 February 2001
provided by M/s. Kanga & Co., Advocates. On the basis of these enquiries
and documents, original Plaintiffs claim that fraud was perpetrated by the
concerned Defendants and that Defendant No.2 and his nominees had taken
series of steps clandestinely and behind the original Plaintiffs’ back to reduce
them to minority shareholders. The original Plaintiffs plead that they neither
received any Notice of any Board Meeting nor had any knowledge of the
purported increase in the authorised share capital of the Defendant No.1-
Company until after Extra-Ordinary General Meeting held on 9 January 2001
and subsequent inquires conducted thereafter.
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k.
Subsequently, after noticing that contesting Defendants had put 11 horses for
auction sale held by Defendant No.21-RWITC on 9 February 2001 and other
21 horses were taken to Pune for private sale, Original Plaintiffs addressed
letter dated 8 February 2001 calling upon RWITC not to permit auction,
private sale and/or transfer of horses of Defendant No.1-Company.
In the above factual background, the Original Plaintiffs have filed the present suit.
6. The Suit is contested essentially by Defendant Nos. 1, 2, 3, 10 and 11
who have filed their written statements disputing the pleadings in the plaint.
Defendant No.1 has filled Written Statement disputing Plaintiff’s claim of
ownership of 99.96% stake in the company and stating that the shareholding of
Plaintiffs is only 24.99%. The first Defendant has justified the resolutions adopted
for increasing its authorised share capital and allotting 75000 shares to Defendant
No. 11. Defendant No.2 has filed Written Statement contesting the claim of
Plaintiffs and stating that SPA dated 27 October 1998 was executed merely as
security/comfort document and was not meant to be acted upon. However
second Defendant has also pleaded that as on the date of filing of the Suit,
Plaintiffs held only 24.99% shares of the first Defendant Company. He has
contended that Plaintiffs merely advanced loan of Rs. 1.20 crores to Defendant
Nos, 1 to 7 and towards security for that loan, various documents including the
SPA was executed on 27 October 1998. That the SPA was never intended to be
acted upon nor was acted upon as original Plaintiff No. 1 did not participate in
management of the first Defendant company or its stud farm after execution of
SPA and particularly after his appointment as Director on 30 March 1999. That
he did not attend even a single meeting of the Board nor enquired about affairs of
the company. That despite service of notice, original Plaintiffs did not attend
AGM of 30 September 2000 in which decision was taken for increasing the
authorised share capital of the first Defendant Company for conversion of debt of
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Defendant No. 11 into equity. He has justified the decision taken in the Board
meeting for allotting 75000 shares to Defendant No. 11. He has also contended
that he is in control and management of Defendant No.1-Company without any
interference from Plaintiff.
7. Defendant No.3 has also filed Written Statement denying 99.96%
shareholding of Plaintiffs and justifying the other documents of Debt executed in
her favour. In her Written Statement, she has stated that she has adopted
contents of Written Statement of Defendant No.2.
8. Defendant No.10 has also filed Written Statement contending that it has 9
shares in Defendant No.1-Company and that the said 9 shares are held by
Defendant No.2 on behalf of Defendant No.10.
9. Defendant No.11 has filed Written Statement inter alia stating that it
owned 1 share of the first Defendant Company since 15 June 1992. That
Defendant No. 11 started investing in Defendant No. 1 company since 1996-97
and that as on 31 March 2000, an amount of Rs. 2,02,63,302 was owed by
Defendant No. 1 company to Eleventh Defendant. That in July 2000, a proposal
was made for converting part of debt of Eleventh Defendant into equity as
Defendant No. 1 was not in position to repay the debt. That to facilitate the
decision, authorised share capital of first Defendant was increased from Rs.
25,00,000 to Rs. 1,50,00,000 in the AGM held on 30 September 2000. That
accordingly Defendant No. 11 made application for allotment of 75000 shares by
paying premium of Rs. 37,50,000/- and 75,000 shares were allotted to Defendant
No. 11 in the Board Meeting dated 18 October 2000. That Defendant No. 12 was
appointed as Additional Director of first Defendant Company. That Defendant
No. 11 received Share Certificate No. 94 consisting of 75000 shares. That
Defendant No. 11, through Defendant No. 12, exercised voting rights in capacity
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as owner of 75,001 shares in the EOGM dated 9 January 2001. That after
converting debt of Rs. 1,12,50,000 by allotting 75000 shares, debt of Rs.
90,13,202 is still due and payable by Defendant No. 1 to it.
10. Defendant No.21 has also filed Written Statement stating that it is only
added as formal party as plaint does not disclose any cause of action against them
except relief of permanent injunction from selling, transferring and alienating or
creating third party interest in respect of horses registered with Defendant No.1-
Company.
B. E VENTS D URING PENDENCY OF S UIT
11.
The Original Plaintiffs had filed Notice of Motion No. 683 of 2001 for
interim relief in the form of appointment of Court Receiver and for their
appointment as Agents of Court Receiver for running the Stud Farm. By order
dated 5 March 2004, this Court granted Notice of Motion No. 683 of 2001 in
terms of prayer clause (a), Court Receiver was appointed and Plaintiffs were
appointed as the agent of Court Receiver on usual terms and conditions, except
the condition for payment of royalty and furnishing security. Appointment of
Original Plaintiffs (as Agents) was subject to condition of Plaintiffs immediately
negotiating with the Shamrao Vitthal Bank to settle its dues, making payment to
the Bank and producing documents showing payment to the Court Receiver, who
was directed to proceed to take possession of the Stud Farm. Further Plaintiffs
were directed to settle the dues of M.S.E.B and Village Panchayat within 6
weeks. The Order dated 6 March 2004 passed in Notice of Motion No. 683 of
2001 was challenged before Division Bench of this Court in Appeal (LD) No. 168
of 2004. This Court passed Order dated 15 April 2004 modifying the Order dated
6 March 2001 only to the extent that royalty charges will be paid by the Original
Plaintiffs. In pursuance of the Order passed by Division Bench, the Court
Receiver fixed royalty at Rs. 20,000/- per month.
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12.
Defendant No.1 had taken out Notice of Motion No. 1334 of 2006
seeking termination of agency of Plaintiffs on account of breach of agreement of
agency. The Court Receiver also filed Court Receiver’s Report No. 44 of 2006
seeking directions to Plaintiffs to submit detailed accounts of Stud Farm. This
Court passed Order dated 21 December 2006 issuing directions (i) to Court
Receiver to refix the royalty to be paid by Plaintiffs which was to take effect from
the date on which the Plaintiffs assumed charge as agents of the Court Receiver,
(ii) to Plaintiffs to file accounts quarterly with the Receiver since the date on
which they took over possession (iii) Court Receiver to cause the stud farm to be
inspected periodically once in every four months alongwith Registrar of the Stud
Book Authority of India, (iv) for undertakings on behalf of Original Plaintiffs that
they shall discontinue the arrangement with Five Star Shipping Company Pvt.
Ltd. by giving three months' notice of termination under Clause 5 of the licence
agreement dated 15 March 2005 and amount of Rs. 5,20,000/- that was realized
on account of the sale of horses which belonged to the Stud farm prior to the date
on which the Plaintiffs acquired agency as reflected in the accounts and the
amount shall be deposited with the Receiver within two weeks without prejudice
to the rights and contentions of the Plaintiffs in the suit and (v) Plaintiffs to
manage the property of which they have acquired agency as a Stud farm.
13. The Original Plaintiffs filed Chamber Summons No. 168 of 2008 for
setting aside the Order dated 6 October 2007 passed by First Assistant to the
Court Receiver, High Court, Bombay fixing royalty at Rs. 3,85,000/-. By Order
dated 29 April 2008, this Court appointed M/s. AT & TS Associates as Valuer
for fixing royalty, deposit of Rs. 1,25,000/- by Plaintiffs towards fees of Valuer
with the Court Receiver and paying royalty of Rs. 1,80,000/- per month from
April 2004 till disposal of the Chamber Summons. By consent of the parties,
Order was passed in Chamber Summons Nos. 168 and 228 of 2008 wherein
royalty to be paid by Plaintiffs was fixed at Rs. 6,81,600/- per month starting from
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January 2012, arrears of royalty to be paid calculated at rate of Rs. 6,81,600/- per
month for period from 21 December 2006 to December 2011. Royalty for the
period 15 April 2004 to 21 December 2006 was also fixed at Rs.6,81,600/- in view
of dismissal of SLP(C) No. 30403 of 2008.
14. Defendant No.11 filed Notice of Motion No. 2959 of 2008 seeking
termination of agency of Plaintiffs on account of contravention of agreement of
agency and Orders passed by this Court. The Court Receiver also filed Court
Receiver’s Report No. 171 of 2009 seeking directions as to what action be taken
against Original Plaintiffs for violating clause 11 (not allowing entry to
representative of Court Receiver on 12 January 2009) of agency agreement dated
1 September 2004. Both the Notice of Motion and Court Receiver’s Report were
taken for hearing together. The Notice of Motion No. 2959 of 2008 was
dismissed by this Court holding that no case was made out by Defendant No.11
for termination of agency of Plaintiffs. The Court Receiver’s Report was
disposed of accepting apology tendered by Plaintiffs and directing Plaintiffs not to
prevent the entry of Court Receiver in the Stud Farm at any time in future.
15.
Original Plaintiff No. 1 Anil K. Bodani passed away on 20 December 2014,
leaving behind original Plaintiff No. 2 (wife), Dharmil Bodani (original Defendant
No. 16), Shri. Shyamal Bodani (Original Defendant No. 20) and Smt. Kinnari
Arun Punjabi as his legal heirs. According to Plaintiffs, original Plaintiff No. 1 left
behind his late will bequeathing all his properties in favour of his wife (original
Plaintiff No. 2). Smt. Chandrika Anil Bodani (original Plaintiff No.2) passed away
on 14 July 2017. According to Plaintiffs 24,900 shares have been bequeathed to
them by original Plaintiff No. 2 under the Will. This is how two sons of original
Plaintiffs, who were original Defendant Nos. 16 and 20 filed Chamber Summons
No. 794 of 2017 seeking their transposition as Plaintiffs [prayer clause (a)] and
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their appointment as Agents of Court Receiver [prayer clause (b)]. By Order
dated 11 August 2017, this Court recorded no objection on part of Defendant
No.2 in allowing prayer clause (a). This Court continued the arrangement i.e.
same staff of deceased Plaintiff be allowed to take care of the interest of property.
By Order dated 13 February 2018, this Court made absolute prayer clause (a).
Further, Order dated 20 June 2018 was passed with the consent of Defendant
No.2 and the Plaintiffs in continuing the arrangement contemplated in Order
dated 11 August 2017 till the disposal of the suit.
16. This is how Plaintiffs continue to be in possession of the Stud Farm.
By conclusion of hearing of Suit, Plaintiffs have deposited in this Court Royalty
of Rs. 14,85,02,106/-. Additionally, according to Plaintiffs an amount of Rs.
29,03,17,667/- is spent towards costs of running the Stud Farm, quarterly
accounts whereof are filed by Plaintiffs with the Court Receiver.
SSUES
C. I
17. By Order dated 12 September 2011, this Court has framed the
following issues:
(1) Whether the Plaintiffs prove that the Plaintiffs acquired 24,999
shares, i.e. a 99.96% equity stake in the Defendant No.1 company under
the Share Purchase Agreement dated 27.10.1998 ?
nd rd
(2) Whether the 2 and 3 Defendants prove that the said Share
Purchase Agreement was only by way of security for an underlying loan
transaction as alleged in parara 4.7, 4.8, 4.9, 29 and 32 of the 3rd
Defendant’s Written Statement and in para 11 of the 2nd Defendant’s
Written Statement ?
(3) Whether the Plaintiffs prove that Defendant Nos. 2, 8 and 9 ceased to
th
be Directors of Defendant No.1 Company with effect from 9 January
2011 as alleged in para 2(b) of the Plaint ?
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st st
(4) Whether the 1 Plaintiffs ceased to be a Director of the 1 Defendant
Company in September 1999 ?
nd
(5) Whether the Plaintiffs prove that the 2 Defendant agreed in the
meeting alleged by the Plaintiffs to have been held in November 2000 that
nd st
the 2 Defendant and his nominees would resign as Directors of the 1
Defendant ?
nd
(6) Whether the 2 Defendant proves that the Share Purchase Agreement
th
and other documents dated 27 October 1998 were validly
st
cancelled/terminated on 21 November 2000 as alleged in para 34 of the
nd
2 Defendant’s Written Statement ?
th
(7) Whether the Plaintiffs prove that the resolutions passed at the 24
st
Annual General Meeting of the 1 Defendant Company held on 30th
September 2000 are illegal, null and void ?
(8) Whether the Plaintiffs prove that Defendant Nos. 16 to 20 are validly
appointed Directors of Defendant No.1 Company as alleged in para 2(h) of
the Plaint ?
th
(9) Whether the Defendant Nos. 2 and 12 prove that the 12 Defendant
was entitled to attend, participate in or vote at the Annual General
st
Meeting of the 1 Defendant held on 30th September 2000 either on his
th
own, or on behalf of the 11 Defendant ?
th
(10) Whether the Plaintiffs prove that the Minutes of the 24 Annual
st
General Meeting of the 1 Defendant Company held on 30.09.2000 are
fabricated and got up documents and are illegal, null and void ?
(11) Whether the Plaintiffs prove that resolutions were validly
st
passed/carried at the Extraordinary General Meeting of the 1 Defendant
held on 9th January 2001 removing Defendant Nos. 2, 8 and 9 as
st
Directors of the 1 Defendant Company and whether the said Directors
st
thereupon ceased to be Directors of the 1 Defendant Company and, if so,
from what date ?
(12) Whether the Plaintiffs prove that the meetings of the Board of
st th
Directors of the 1 Defendant Company purportedly held on 18 October
th
2000 and 10 January 2001 were illegally/invalidly convened and that the
resolutions passed at the said meetings are illegal, null and void and of no
legal effect ?
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th
(13) Whether the Plaintiffs prove that the Board Resolution dated 18
October 2000 to allot, and the allotment of 75,000 equity shares of Rs.
th
100/ each of the 1st Defendant Company to the 11 Defendant are illegal,
null and void and of no legal effect ?
nd
(14) Whether the 2 Defendant proves the allotment of 75,000 equity
st th
shares of the 1 Defendant Company to the 11 Defendant was with the
knowledge and consent of the Plaintiffs as alleged in para 45 to 47, 58 and
106 of its Written Statement ?
st
(15) Whether the Defendants prove that on equity share of the 1
th
Defendant Company was legally and lawfully transferred from the 10
th
Defendant to the 11 Defendant on 15th June 1992 as alleged in para 9 of
th
the Written Statement of the 10 Defendant and para 2 of the Written
th
Statement of the 11 Defendant ?
(16) Whether the Plaintiffs prove that they are entitled to a decree of
th
specific performance of the Share Purchase Agreement dated 27 October
1998 against Defendant Nos. 2 to 9 ?
(17) If the answer to Issue 16 above is in the negative, whether the
Plaintiffs prove that they are, in the alternative, entitled to a decree in
damages jointly and/or severally against Defendant Nos. 2 to 15 and if so,
in what amount ?
(18) Whether the Plaintiffs prove that the following documents are liable
to be delivered up for cancellation and cancelled
th st
(a) The minutes of the 24 Annual General Meeting of the 1 Defendant
th
Company held on 30 September 2000 ?
st
(b) The minutes of the Extraordinary General Meeting of the 1
th
Defendant Company held on 9 January 2001 ?
st
(c) The minutes of the meetings of the Board of Directors of the 1
th th
Defendant Company held on 18 October 2000 and 10 January 2001 ?
(19) What reliefs ?
D. E VIDENCE LED BY P ARTIES
18. Original Plaintiff No.1-Mr. Anil K. Bodani has examined himself as
witness (PW1). Original Plaintiff No. 1 passed away on 20 December 2014 before
his cross-examination could be completed. Plaintiffs have also examined Kamlesh
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S. Shah as PW2, Doctor who was attending Original Plaintiff No.1. Defendant
No.2 has examined himself as DW1. Order dated 7 January 2016 records
statement of Advocate for Defendant No.1 that Defendant No.2 is Director of
Defendant No.1 and Defendant No.1 shall not lead any separate evidence. The
Order also records and accepts statement of Advocates for Defendant Nos. 3, 10
and 12 that they are not desirous of leading any evidence in the suit. The Order
also records that Defendant Nos. 13 and 15 neither appeared in the Court nor
represented by any Advocate/s and that though Defendant Nos. 6 and 7 appeared
in the Suit but they no longer were appearing in person nor represented by an
Advocates. Order dated 11 January 2016, this Court has recorded and accepted
statement of Defendant No.8 who was personally present in the Court that he is
not desirous of leading any evidence in the suit.
E. S UBMISSIONS
19. Extensive submissions have been canvassed by the learned counsel
appearing for rival parties. Mr. Venkatesh Dhond and Mr. Snehal Shah, the
learned senior advocates have canvassed submissions on behalf of Plaintiffs. Mr.
Pradeep Sancheti and Mr. Janak Dwarakadas have canvassed submissions on
behalf of the contesting Defendants. The learned counsel have also filed written
notes of arguments on several topics argued as well as final abridged version of
written submissions. It would be necessary to briefly record their submissions.
E.1 S UBMISSIONS ON BEHALF OF P LAINTIFFS :
20.
Mr. Dhond, the learned Senior Advocate appearing for Plaintiffs
would submit that the contesting Defendants have fraudulently decreased
Plaintiffs’ stake in the first Defendant company from 99.96% to 24. 99% by
unauthorisedly showing increase of its share capital from Rs. 25,00,000 to Rs.
1,50,00,000 and by allotting 75,000 shares to Defendant No. 11. That the series
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of steps shown to have been taken by the contesting Defendants are not only
bogus and fraudulent but are aimed at reducing Plaintiffs’ stake from majority to
minority. That there is apparent contradictions in the defences taken by
contesting Defendants where in one breath they contend that SPA was executed
only as a comfort document as security for loan advanced and that the same was
never meant to be acted upon, whereas in another breath they contend that the
stake of Plaintiffs in the first Defendant Company is only 24.99% and not 99.96%.
That assertion about 24.99% stake of Plaintiffs contains an implied admission that
SPA effected sale of 24,900 share of first Defendant Company in original
Plaintiffs’ favour.
21. Mr. Dhond would further submit that original Plaintiffs and Defendant
Rakhi
Nos. 2 and 3 had friendly family relations where Defendant No.3 was the
sister of Original Plaintiff No. 1. That Defendant No.2 who was facing financial
constraints and at his request, original Plaintiffs agreed to purchase 99.96% stake
in the first Defendant company. That in addition to Rs. 29,98,800 paid for
purchase of 24900 shares, original Plaintiffs also lent various other sums to
Defendant Nos. 1 to 3. That distinct documents were executed for sale of shares
and as debt agreement. That though during negotiations it was agreed between
the parties owing to ill-health of Original Plaintiff No.1 and his trust and
confidence in Defendant No.2 that Defendant No.2 and his nominees would
continue on the Board of Directors of Defendant No.1-Company, a separate
mechanism was to be created by which Original Plaintiff No.1 was to retain
management control, in tune with his rights as 99.96% shareholder.
22. Mr. Dhond would submit that SPA was not a loan transaction and was
subsequently acted upon, which is established by Share Certificates, extract of
Register of Members, Transfer Forms, Form 32, Annual Return for the year
1999, etc. That contesting Defendants have, at all material times, including after
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alleged letter dated 21 November 2000 admitted original Plaintiffs as
shareholders of Defendant No.1-Company. That the act of Defendant No.1-
Company convening EOGM requisitioned by original Plaintiffs, acknowledging
their proxies to attend and vote at the EOGM would further buttress the case
that SPA was acted upon. That Resolutions in the EOGM have been defeated by
75,010 votes cast by contesting Defendants as against 24,990 votes of Plaintiffs.
Plaintiffs have thus established that they hold 24,990 shares pursuant to the SPA.
Relying on Mathrubhumi Printing & Publishing Co Vs. Vardhaman Publishers
1
Ltd. & Ors. , he would submit that once names of original Plaintiffs were
recorded in register of members, they can no longer be treated as ‘namesake
shareholders’, which concept is otherwise unknown to law. Mr. Dhond would
take me through Resolution dated 23 October 1998 passed in Board Meeting and
various articles of SPA to demonstrate that SPA was not a loan transaction and
that the same has to be read in its plain language. Mr. Dhond would submit that
the terms of SPA are reduced to the form of written agreement. That as per the
provisions of Section 91 of the Indian Evidence Act, 1882 (Evidence Act) the
SPA can be proved only by document itself or by secondary evidence of its
contents where it is admissible. That the terms of SPA stands proved as per
Section 91 of the Evidence Act as there is no dispute as to its execution. That law
in this regard is well settled that if the oral agreement is inconsistent with the
terms of the written agreement, then law favours exclusion of evidence of oral
agreement which is contrary to the terms of the written agreement. That it
applies with even greater vigour where the parties have included ‘Entire
Agreement Clause’ in the SPA. The law is well settled that when entire
agreement clause is found in the contract, parole evidence stands excluded and
reliance is this regard is placed on judgment of this Court in BVM Finance
2
Private Limited Vs. Vistra ITCL (India) Ltd. Ors. , of Delhi High Court in
3
Thyssen Krupp Materials AG Vs. The Steel Authority of India and of the Court
1
1991 SCCOnLine Kerala 453.
2
MANU/MH/1720/2020.
3
2017 SCC OnLine Del 7977.
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4
of Appeal in North Eastern Properties Ltd Vs. Coleman and another . That once
the terms of SPA are proved, any assertion as to its nature is squarely contrary to
the provisions to the plain terms of SPA and barred by Section 92 of the Evidence
Act. That Section 92 of the Evidence Act excludes evidence of oral agreement
where the terms of the agreement are reduced in form of Agreement. Reliance in
this regard in placed on judgment of Apex Court in Vimal Chand Ghevarchand
5
Jain Vs. Ramkant Eknath Jadoo , of the Calcutta High Court in Halima
6
Khatun Vs. Shashi Kumar Banik and of this Court in Keshavrao Bhagvant Vs.
7
Raya Pandu . Mr. Dhond has placed reliance on the judgment of this Court in
8
Jry Investments Private Limited Vs. Deccan Leafine Services Ltd. to draw a
distinction between transfer of share and pledge of share. Mr. Dhond has invited
my attention to para 11(4) of Written Statement of Defendant No. 2 and Clause
10.9 of SPA to illustrate that the SPA has to be read in its plain language and not
as a document of loan.
23. Mr. Dhond would further submit that on the very same day, separate
and distinct documents were executed for different amounts and different
purposes. That documents themselves speak about the nature and intention of
the parties. That if the intention of the parties was to treat entire amount of
Rs.1.20 crores as advanced towards loan, the SPA would not be executed and
acted upon. That if shares of Defendant No.1-Company were to be given as
security, simple document of Pledge would have been executed. Without
prejudice, the amount of Rs.25 Lakhs was advanced to meet working capital
requirements of Defendant No.1-Company. The other amounts of Rs. 16 Lakhs
and Rs. 45 Lakhs were loaned to Defendant No.3 and evidence of PW-1 is relied
for highlighting the gambling habit of Defendant No.2. There is no dispute about
4
[2010] 1 WLR 2715.
5
(2009) 5 SCC 713.
6
AIR (34) 1947 Cal 453.
7
MANU/MH/0042/1906.
8
MANU/MH/1427/2003.
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the SPA and Loan Agreements being prepared by the same Solicitor. That what
would be abnormal and incongruous is that if the sum of Rs. 29,98,000/- is
treated as loan portion of transaction or that it was secured by transfer of
ownership of shares, which would confer upon original Plaintiffs the status of
owners of Defendant No.1-Company.
24. Mr. Dhond would further submit that as shareholders of Defendant
No.1-Company, original Plaintiffs are in no manner precluded from infusing
capital into the Company or from accepting security to secure that finance. That
apart from making bald averments that Plaintiffs only invested Rs. 26 Lakhs post
SPA and that Defendant No.2 and/or his companies have invested approximately
Rs. 5,25,00,000/-, Defendants have not produced any documentary evidence in
tune with the averments. Mr. Dhond has highlighted the stark difference between
infusing funds and lending stating that infusing funds into Company by
subscribing to equity is irreversible akin to ownership but lending is temporary
measure in contemplation of it being repaid. Thus, what is allegedly injected by
Defendant No.2 is lending. That factum of lending has not been proved and it is
settled law that where factum of loan is disputed, the same must be established by
primary evidence such as Bank Statement, which has not been done. As per
Section 34 of the Evidence Act, entries made by party in his books of account
though relevant are not evidence of the fact of a loan actually have been advanced
or received by the party and further fortified by Section 3 of the Commercial
Documents Evidence Act, 1939 read with Item 21 of Part 2 of the Schedule. That
case of lending is belied by accounts of Defendant No.1-Company. In the Balance
Sheet for the period ending on 31 August 2000 reflect a loan amount of Rs. 1.74
crore to Gyan Impex. That Defendant No.1 who was in need of funds and
borrowed Rs. 60 Lakhs from Shamrao Vithal Bank by mortgaging its property
would lend Rs. 1.74 crores to Gyan Impex speaks volume for itself. That if the
Balance Sheets are examined it would show that Defendant No. 2 was using
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Defendant No.1-Company to route funds for its own use. That debts reflected in
Balance Sheets are personal liability of Defendant No.2.
25. Mr. Dhond would further submit that the terms of SPA itself reflect
transfer of shares/ownership of Defendant No.1-Company and management
control of Defendant Nos.2, 8 and 9 subject to creation of safeguards in Original
Plaintiffs’ favour and thus the Defendants are barred by Section 92 of the
Evidence Act to raise defence of Defendant Nos.2, 8 and 9 remaining in
management subsequent to purchase by original Plaintiffs. That it proved that
Original Plaintiff No.1 was appointed as Director of Defendant No.1-Company
with effect from 30 March 1999 and Defendants have failed to prove that he
ceased to be Director from 30 September 1999. That Defendants have not placed
on record any evidence that Original Plaintiff No.1 received Notice of any Board
Meetings after he was appointed as Director. That letter dated 17 November
2000 addressed by Defendant Nos.2, 8 and 9 to original Plaintiffs contains a
categorial admission that Original Plaintiff No.1 remained as a Director till that
date. That Plaintiffs’ relationship with Defendant Nos.2 and 3 has to be
considered while analysing conduct of original Plaintiffs post execution of SPA.
Mr. Dhond has relied on Affidavit of Evidence of PW-1, Affidavit of Evidence of
PW-2 and cross examination of PW-1 to establish that original Plaintiff No.1 had
more successful business and because of his ill-health and his trust and
confidence in Defendant No.2 as his family friend, he allowed Defendant No. 2 to
run and manage Defendant No.1-Company and Stud Farm subject to SPA. That
the Companies Act recognises bifurcation of ownership and management in a
Company and the same is reiterated in SPA by way of safeguards. That
Defendant No. 2 was allowed to be in management of the Company as he wanted
to avoid social stigma of selling the stud farm and also because his daughter was
getting married.
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26. Mr. Dhond would submit that Defendants, to establish their case of
dilution, which they failed to establish, had to prove (i) an existing and
established debt in favour of Defendant No.11, (ii) need of improving debt to
equity ratio and (iii) process leading to ultimate dilution. For this process,
Defendants held purported Board Meetings dated 10 August 2000 and 4
September 2000. That Notice of the Board Meetings was not given to Original
Plaintiffs and there is not even an attempt to show that Notice was sent to
Original Plaintiffs. Neither notice was sent by Defendants even by UCP nor
received by Original Plaintiffs. Although, Defendants have changed their stance
that Notice dated 4 September 2000 of purported Annual General Meeting
(AGM) dated 30 September 2000 was issued by Under Certificate of Posting
(UCP) , the Original Certificate of Posting is not produced. What has been
produced is purported photocopy and Defendants have not led secondary
evidence thereof. That the theory of original UCP with the Economic Offences
Wing is discredited by Defendant’s own Affidavit of Evidence. That Defendants
have led evidence of only Defendant No. 2, who admitted in his cross-
examination that he did not carry out the process of dispatching UCP. He also
admitted that this process was allegedly carried out by Defendant No. 9, who is
not examined as witness. That Defendants have miserably failed to discharge the
burden by not examining concerned Chief Post Master. That observations made
in Judgment passed by this Court in Dharmil Anil Bodani V/s. State of
9
Maharahstra and others while setting aside the Magistrate Order accepting ‘C’
Summary report are to be taken into consideration. The law regarding probative
value of UCP is settled by Apex Court in its judgments in Shiv Kumar and
10
others V/s. State of Haryana and others and M.S.Madhusoodhanan and
11
another V/s. Kerala Kaunudi (P) Ltd. and others . That the decisions relied
upon by Defendants are distinguishable and reliance therefore is misplaced.
Presumption of service under Section 53(2)(a) of the Companies Act is
9
Writ Petition No. 1491 of 2009 decided on 27 October 2016.
10
(1994) 4 SCC 445.
11
(2004) 9 SCC 204.
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rebuttable presumption. Also, the Minutes of the Board Meeting dated 4
September 2000 are not placed on record. That the AGM dated 30 September
2000 was purportedly attended by Defendant No.2 (in his individual name) and
Defendant No. 12 (Director of Defendant No.11). That evidence on record
clearly establishes that Defendant No.11 was never a shareholder before 30
September 2000 and therefore there was no valid quorum to convene the AGM.
Original Plaintiffs were once again not informed/ given notice of Board Meeting
held on 18 October 2000 purportedly allotting 75,000 shares to Defendant No.11.
Thus, the entire case of debt to equity conversion is sham as within few days of
the purported AGM, Defendant No.2 addressed letter to Plaintiffs declaring that
loan of Rs. 2,02,63,202/- payable to Defendant No.11 was personal liability of
Defendant No.2. Further, purported copy of Annual Returns forwarded by
Defendants’ Advocates during pre-suit inspection clearly records that as on 30
September 2000, 75,001 shares stood allotted to Defendant No.11 whereas it is
Defendants’ case that purported allotment was made on 18 October 2000. When
Defendants realised that the cat is out of the bag, subsequently by letter dated 7
January 2001 they claimed that the said document was on an ‘unsigned draft
format’. It is thus established that documents relating to purported meetings
were ante-dated and are not credible and thus the argument of decision to
increase shares to be in interest of the Company and incidental reduction of
majority to minority shareholding does not hold ground.
27. Mr. Dhond would submit that the Original Plaintiffs have pleaded a
specific case that ‘very recently’ i.e. before filing of the suit, Defendant No.10
had illegally transferred its 1 share in favour of Defendant No.11. That a lot
hinges on the issue whether Defendant No.11 was shareholder prior to 30
September 2000 and thus status of Defendant No.11 during the period 1992-1998
is thus very relevant. Mr. Dhond has placed reliance on cover letter dated 2 April
1999 (Exhibit P-25), Annual Returns of Defendant No.1 for the year ending 31
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March 1999 (Exhibit P-14), Balance Sheet of Defendant No.1 for the year ending
31 March 1999 (Exhibit D-46 and D-46: subject to proof documents), Balance
Sheet of Defendant No.1-Company for the year ending 31 March 2000 (Exhibit
D-38: subject to proof documents), Balance Sheet of Defendant No.11 for the
year ending 31 March 1995 and Balance Sheet of Defendant No.11 for the year
ending 31 March 1998 and Company Secretary Mr. Pathak’s letter dated 21
November 2000 (Exhibit P-36) to demonstrate that name of Defendant No.11 is
not reflected as shareholder in official records. Mr. Dhond has also taken me
through various others documents on which reliance is placed by Defendants to
demonstrate failure on part of Defendants to lead primary/best evidence,
fabrication and forgery of documents to corroborate their defence of Defendant
No.11 being shareholder prior 30 September 2000. Mr. Dhond, by relying on
Sections 76 and 77 of the Evidence Act, has strongly objected to copies of Annual
Returns of Defendant No.1-Company for the years 1994 to 1998 being read in
evidence by contending that Defendants have not produced the ROC certified
copies on record. He would rely on judgment of this Court in Om Prakash Berlia
12
Vs. Unit Trust of India . That it should also be appreciated that Defendant No.2
has deliberately not produced Annual Returns and Balance Sheet for the years
1992 to 1999. That Defendants cannot be permitted to rely upon admissions
made by Plaintiffs, when they themselves have failed to discharge their burden by
leading positive evidence. That Plaintiffs have maintained consistent stance in
the plaint that according to them, Defendant No.2 and Defendant No.10 held
remaining 10 shares of the Company. That Defendant No.2 cannot be allowed to
rely upon Balance Sheet of Defendant No.11 for year ending 31 March 2001 as for
the first time it notes that 1 share was purchased by Defendant No.11 from
Defendant No.3 on 11 August 1992 and the consideration was paid by Tapia
Livestock Breeding and Research Farm, where Defendant No.11 is a partner.
Thus, it can be established that no consideration flowed from Defendant No.11 to
Defendant No.1 and in light of this, Defendant No.11 cannot assert its title to that
12
AIR 1983 Bom 1.
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1 share as it is directly hit by Section 4 of the Benami Transactions (Prohibition
Act), 1988. That belated entry has only been recorded to correct previous years’
records. That even if the defence raised by Defendants is to be believed, the 1
share shall form part of asset of Tapia Livestock as per Section 14 of the Indian
Partnership Act. That according to Defendants, AGM was attended by only two
shareholders Defendant No.2 and Defendant No.11 and since Defendants have
failed to prove that Defendant No.11 was shareholder prior to 30 September
2000 there was no valid quorum for convening AGM as per Section 174 (1) of the
Companies Act, 1956 (Companies Act) . On these counts, Resolution passed in
AGM dated 30 September 2000 and all consequential actions of Defendants to
portray Defendant No.11 as shareholder of Defendant No.1-Company be set
aside. Defendants contention that Plaintiffs were aware on the date of execution
of SPA that Defendant No.11 was shareholder, although reference thereto has
been removed by white ink, are only surmises and conjectures and this does not
prove factum of shareholding of Defendant No.11. Even if any surmise is to be
drawn, the plausible one would be that reference to Defendant No.11 was effaced
by white ink because Defendant No.11 was not shareholder and could not have
sold any shares. Mr. Dhond would rely on judgment in Dale & Carrington
13
Investment (P) Ltd. Vs. P. K. Prathapan in support of his contention that
directors of even a private limited company are expected to make disclosure to
the shareholders of the Company when further shares are being issued.
28. Mr. Dhond relying on Affidavit of Evidence of PW-1 would submit
that PW-1 has led sufficient evidence. That he was cross-examined extensively on
crucial points in various sessions. That the law is well settled in regards where
the witness dies before his cross-examination and what weightage should be
attached to such witness’s statement. In support of his contentions, Mr. Dhond
would rely upon the judgments of Delhi High Court in Krishan Dayal Vs.
13
(2005) 1 SCC 212
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14
Chandu Ram , of this Court in Banganga Co-operative Housing Society Ltd.
15
Vs. Vasanti Gajanan Nerukar Food Inspector
and of the Kerela High Court in
16
Vs. James . Alternatively, he would submit that Plaintiffs’ entire case is based on
documentary evidence, existence of which is also admitted by Defendants.
29. Mr. Dhond would submit that the argument of alleged undervaluation
does not stand in view of Explanation 2 to Section 25 of the Indian Contract Act.
Relying on the judgments of Madras High Court in Santhappa Rai Vs.
17 18
Santhiraju alias Kanchu Shetty , P Saraswathi Ammal Vs. Lakshmi Ammal
19
and Delhi High Court in Trilok Nath Vs. Khem Chand law in this regard is well
settled that inadequacy of consideration can only be looked at for determining
whether party’s consent was freely given. That Explanation I to Section 20 (prior
to 2018 amendment) of the Specific Relief Act that mere undervaluation or
inadequacy of consideration for transaction shall not deem to constitute an unfair
advantage or hardship. In support of his contention, Mr. Dhond has relied upon
the judgment of Apex Court in Jai Narain Parasrampuria Vs. Puspa Devi
20
Saraf , and Calcutta High Court in Vijaya Minerals Pvt. Ltd. Vs. Bikash
21
Chandra Deb . That Defendants have sought to raise defence of alleged of
consideration/undervaluation, neither Defendants have sought to establish
alleged “true value” of shares independently nor any positive evidence is led as
to correct valuation.
30. Mr. Dhond would submit that present case warrants grant of relief of
specific performance of SPA and granting damages, as sought to be suggested by
14
ILR 1969 Del 1090.
15
2015(5) Bom. C.R. 813.
16
1997 SCCOnLine Ker 255.
17
(1938) 47 LW 714.
18
1997 SCC OnLine Mad 33.
19
2017 SCC OnLine Del 8958.
20
(2006) 7 SCC 756.
21
AIR 1996 Cal 67.
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Defendants,, would not be appropriate relief, which would cause serious injustice
to the Plaintiffs. That the shares in Defendant No.1-Company and Stud Farm are
not ordinary articles of commerce but hold substantial value and monetary
compensation will nowhere be adequate. That almost entirety of suit transaction
has been performed and the specific performance is sought only against direction
to Defendant Nos.2, 8, 9, 12 and 15 to resign as Directors and before doing so,
appoint Original Plaintiffs’ nominees as Directors. That Plaintiffs conduct
throughout, including post-filing of the suit, demonstrate readiness and
willingness as well as bonafides.
31. Mr. Dhond would submit contenting Defendants have failed to
produce original documents and that merely because they are marked, the same
did not absolve them of their responsibility of producing the originals. That
Defendants had four opportunities to mention existence of and/ or produce,
originals and/or ROC certified copies but they consciously and advisedly did not
do so. The first opportunity was at the time of filing of Affidavit of
Documents( AOD ). That AOD is not merely for the purpose of identifying the
documents a party is relying upon but for “Discovery”. That it is obligatory for a
party to disclose all the documents (originals or photocopy) in their possession so
as to enable the other party to decide its action, including Production of such
documents. That party is required to set out in the Second Schedule, original
documents which are not in their possession or power stating when they were in
last possession or power of the party and name of present possessor or power.
That in the AOD filed by Defendant No.1 and Defendant No.2 both dated 7
October 2011 they have only mentioned copies and not original documents. That
the Defendant Nos. 1 and 2 are now precluded from relying on documents other
than those disclosed in their respective AOD and manner in which they were
disclosed as they did not file any supplementary Affidavit of Documents as
provided in Rule 172 of the High Court (Original Side) Rules prior to or
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alongwith the Affidavits in lieu of Examination in Chief of Defendant No.2. That
if Defendants submission that AOD can be substituted by an averment made in
Affidavit in lieu of Examination in Chief, then the provisions of Rule 172 of the
High Court (Original Side) Rules will be rendered otiose and meaningless. The
second opportunity was at the time of giving inspection. That letter dated 1
November 2022 from M/s. Kanga & Co., Advocates clearly records inspection of
copies/ true copies/ notarized copies. That at no time, Defendant Nos. 1 and 2
called upon Plaintiffs to take inspection of any alleged original documents. Third
opportunity was when Defendants filed their Affidavit in lieu of Examination in
Chief. The AOE affirmed by Defendant No.1 on 7 October 2011 does not tender
the originals. Every single paragraph of AOE which introduces or produces
documents expressly state that “ I am producing a certified/true copy .” Defendants
filed second AOE on 22 April 2016 and in paras 11 and 12 it is stated that original
documents are received from EOW in November 2015. Relying on the cross-
examination of Defendant No.2, Mr. Dhond would submit that original
documents where in his custody on the date on which AOE was affirmed, thus,
belying the theory that Defendants were handicapped as the original documents
were with EOW. That despite having custody of the original documents,
Defendants for the reason best known to them did not produce it at this stage.
The fourth opportunity was at the stage of marking of documents by this Court.
Even at this stage, the original documents were not shown to the Court and
Plaintiffs. Defendants have undertaken in paragraph 63 of AOE to produce
original documents at the stage of cross examination, without prejudice, even this
requirement is not complied with. Paragraph 63 of AOE is cleverly drafted as it
uses two distinct expressions “produced at the time of examination” and “as and
when called upon”. That merely stating that original documents were always
kept available in the Court does not meet the rule of fair play and it was
Defendants burden to produce and inform Plaintiffs. Relying on judgments of
22
Apex Court in Bipin Shantilal Panchal V/s. State of Gujarat and another and
22
(2001) 3 SCC 1.
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23
Full Bench of this Court Hemendra Rasiklal Ghia V/s. Subodh Mody , Mr.
Dhond would submit that objections to documents which are so marked
(tentatively), must be raised at or before the stage of marking of documents to
enable that party to argue its objection at the stage of final hearing. It is settled
law that mere marking of documents does not indicate that it stands proved. He
24
would also rely on Apex Court judgment in Vijay Vs. Union of India and
Shalimar Chemical Works Pvt. Ltd. Vs. Surendra Oil and Dal Mills (Refiners)
25
and Ors and of this Court in Rohit Vanmalidas Mehta Vs. Smt. Vimla H.
26
Mehta . The effect of procedure adopted by Defendants is to deprive Plaintiffs
the benefit of examining the documents. Relying on M/s. Micromeritics
27
Engineers Pvt. Ltd. Vs. S. Munusamy and Ashish S. Shah Vs. Seth Developers
28
Pct Ltd. & Ors , Mr. Dhond would contend that presumption under Section 195
of the Companies Act would not apply to photocopies of Minutes Book,
Resolutions, Returns, Forms, etc produced by contesting Defendants.
UBMISSIONS ON BEHALF OF EFENDANT O
E.2 S D N .2:
32. Mr. Sancheti, the learned senior advocate appearing on behalf of
Defendant No.2 would submit that SPA was a sham document executed only for
security. That Plaintiff No.1, who allegedly intended to acquire the entire
shareholding of Defendant No.1-Company including movable and immovable
assets, did not undertake valuation exercise at all. That Original Plaintiff No.1 is
his cross-examination admitted he had not undertaken any exercise to value the
land independently. That consideration mentioned in SPA, if it were to be acted
upon, is clearly illusory and unconscionable and thereby shows that SPA was a
sham document executed only for security. Inviting my attention to Affidavit of
23
(2008) SCC OnLine Bom 1017.
24
2023 SCCOnline SC 1585
25
(2010) 8 SCC 423
26
2018 SCC Online Bom 4765
27
2002(3) CTC 661
28
2011 (4) MhLJ 288
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Examination in Chief and cross-examination of Original Plaintiff No.1 (P.W.1),
Mr. Sancheti would submit that Original Plaintiff No.1 sought to justify
consideration of Rs. 29,98,800/- by referring to two factors i.e. (i) operational
expenses of Rs. 4.5 crores and (ii) liability of Rs. 3 crores which stand is clearly
disproved by his own admissions in his cross-examination. Further, Plaintiff in
his evidence has indicated that in 1993, the value of his half share of 6 mares
imported jointly with Defendant No. 1 was about Rs. 25 Lakh. That the audited
balance sheet as on 31 March 1998, annexed to SPA, reflected the value of
Defendant No.1-Company at Rs. 2.16 crores. On the other hand, Defendant No.2
has positively stated in his Written Statement as reaffirmed in his evidence that
assets of Defendant No.1-Company were worth Rs. 8 to 10 crores. That
Plaintiffs’ prayer for damages of Rs. 10 Crores in lieu of specific performance
itself is indicative of value of the company/stud farm in Plaintiff’s own
perception. In his rejoinder, Mr. Sancheti has further submitted that Plaintiffs are
trying to mislead this Court as if the value of Stud Farm is Rs. 29.9 Lakhs, which
is contrary to the table of assets set out in the Balance Sheet. That the contention
of Plaintiffs that value of shares allotted in 2000 is not much different compared
to value of shares sold in 1998 is totally baseless. Mr. Sancheti would submit that
Plaintiffs’ attempt to justify sale consideration of Rs. 29,98,000/- has not only
been disproved but based on Plaintiffs’ own evidence, it is positively shown that
value of Defendant No.1-Company ran in excess of Rs. 8 to 10 crores as on the
date of execution of SPA .
33. Mr. Sancheti would further submit that admittedly there is sheer
absence of possession, control and management by the Original Plaintiffs of the
Defendant No.1-Company from October 1998 to November 2000. This position
is tacitly confirmed in the Plaint and further by ad interim order passed by this
Court on 30 March 2001, which clearly records that Defendant No.2 was in
control and management of the Stud Farm. That DW1, in his evidence, has listed
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30 distinct items depicting custody, control, possession and management of Stud
Farm/Company on which aspect there is no cross-examination. That the position
thus remains undisputed and runs contrary to the common course of business
conduct wherein owner of the Company does not take charge and control. To
buttress the case of Defendants that SPA was a security document and not be
acted upon, Mr. Sancheti has relied upon Examination in Chief of DW1 and
Cross examination of PW-1 to show Original Plaintiffs’ conduct contrary to being
shareholders of the Company. That the DW-1 has specifically deposed in his
Examination in Chief that stud farm was the sole business of Defendant No.1-
Company and Original Plaintiffs did not visit the same over the entire period of 2
years since the execution of SPA. Mr. Sancheti has invited my attention to
Examination in Chief of PW1 to show admissions on Original Plaintiff No.1’s
part. To belie the theory of ill health of Original Plaintiff No.1, Mr. Sancheti has
relied upon examination-in-chief of DW-1, wherein he has deposed that Original
Plaintiff No.1 personally managed his Company-Oriental Aromatics Ltd., visited
his Chembur office everyday, periodically attended Mahalaxmi Race Course and
that during the Pune racing season, he attended live race meetings but did not
visit the stud farm which was on the way and touching the Mumbai-Pune
highway. That Plaintiffs have not cross examined the DW1 on these aspects and
it is settled law when no cross examination is conducted on certain facts, that part
of the testimony is deemed to be admitted. To further solidify that Original
Plaintiff No.1 was mobile, active and looking after his affairs routinely, Mr.
Sancheti has taken me through various admissions by PW1 in his Examination in
Chief. Another excuse set up Plaintiff about on account of impending marriage of
second Defendant’s daughter, he was allowed to retain directorship in the
Company is half-baked as the marriage took place in January 1999 and admittedly
thereafter, no steps were taken by the Plaintiffs to exert control and management
of the Company. Curiously, after being appointed as Director in March 1999,
Plaintiff did not even attend a single board meeting. In rejoinder, Mr. Sancheti
would submit that Plaintiff’s contention that every step contemplated and which
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the Companies Act mandated to give effect to SPA as sale and purchase
agreement was carried out is misconceived in light of prayer clause (b) seeking
specific performance of SPA. That right to possess and actual possession is an
important facet of ownership of property and in support he would rely on
Judgment of Calcutta High Court in Jiban Roy Choudhary Vs. Sm. Taramoyee
29
Debi .
34. Mr. Sancheti would further submit that it is Defendants’ case that
SPA was merely executed as comfort/security. That the security was in the form
of registration of shares in the name of Plaintiffs and that such registration was
only to facilitate the security. According to him, a security in a private limited
company can only be effected by transfer of shares. That mere execution of SPA
is meaningless, without transfer of shares. Mr. Sancheti would rely upon the
judgment of the Apex Court in Vistra ITCL (India) Limited and others V/s.
30
Dinkar Venkata Subramanian and another in support of his contention that it
is settled law that between the persons creating the security interest, beneficial
ownership continues to remain with the pawnor and the pawnee only holds the
shares as security.
35. Mr. Sancheti would further contend that it is admitted position that
Plaintiffs did not infuse any funds from October 1998 till the filing of the suit.
That contrary to original Plaintiffs’ conduct, Defendant No.2 actually acted as
owner of Defendant No.1-Company and was actually in its control and
management. In support, he has relied upon Examination in Chief of DW1. That
the Original Plaintiff No.1 also admitted during the course of evidence that need
for infusion of capital in Defendant No.1-Company, but Original Plaintiff No.1
29
1979 SCCOnline Cal 83
30
(2023) 7 SCC 324.
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neither introduced any funds nor enquired about working capital requirements.
That Defendant No.2 has infused Rs. 2,71,00,000/- during the years 1998 to
2000 to meet the working capital requirement of Defendant No.1-Company.
That the Original Plaintiffs instead of questioning Defendant No.2 as to why he
was investing funds in the Company, they happily accepted comfort letters dated
10 October 2000 for the funds introduced. In the above background, Mr.
Sancheti would submit that on 27 October 1998, series of documents were
executed which clearly indicate that it was a composite loan transaction. That if
Original Plaintiffs were owners of the Company, they never called for any
documents. That Plaintiffs’ case as pleaded in the plaint does not stand scrutiny.
36.
Mr. Sancheti would further submit that on 27 October 1998 alongwith
the SPA, series of other loan documents were also executed. Since, the
documents were executed on the same day, they form part of the same
transaction. That the said loans were advanced by executing various documents
by Original Plaintiffs in favour of Defendant No.1. That the Plaintiffs obtained
various documents such as Promissory Note, Mortgage Deed etc. as
security/collateral for the loans advanced. That it is inconceivable that, to
recover loan advanced by Plaintiffs to Defendant No.1, Plaintiffs would sell their
own wholly owned company. To buttress the case, Mr. Sancheti would submit
that it is admitted in the plaint that registration of shares in the name of Plaintiff
took place on 27 October 1998. Thus, it is rather perplexing and not in
consonance with normal business conduct that person owing entire shareholding
of Company would insist or require execution of such documents. That Plaintiffs
have not assigned any reason in plaint or in evidence for exclusion of 10 shares
whereas on the other hand Defendant No.2 has given positive explanation that
the 10 shares were retained by him to retain control and management of the
Company. It is thus evident that SPA was merely a part of series of documents
intended for comfort and security and thus was not to be acted upon. Further,
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Mr. Sancheti would contend that there is no bar under Sections 91 and 92 of the
Evidence Act to show that a document which was never intended to operate as an
agreement but bought into existence solely for the purpose of creating evidence,
then oral evidence is permissible in law. Reliance is placed on the judgment in
31
Tyagaraja Mudaliyar and another V/s. Vedathanni and of the Apex Court in
32
Gangabai w/o Rambilas Gilda V/s. Chhabubai w/o Pukharajji Gandhi and V.
33
Anantha Raju Vs. T. M. Narasimhan & Ors to contend that oral evidence is
admissible when there is different document altogether and what is recorded in
the document was intended to be of no consequence thereof. That the ratio of the
abovementioned judgments apply equally applies to entire agreement clause in
SPA. Mr. Sancheti as also relied upon the judgement of this Court in Lonkaran
34
Kishorilal Paliwal V/s. Bhaskar Rambhau Ghive and others wherein evidence
contrary to document was read and considered by the Court.
37. Mr. Sancheti would further submit that without prejudice, if the SPA
was to be treated as an agreement for sale and transfer of ownership,
management and control of Defendant No.1-Company, then the decree of
specific performance as sought by Plaintiffs is a discretionary relief as mandated
under Section 20 of the Specific Relief Act. In support of his contentions, he has
relied upon the judgments of this Court in Lonkaran Kishorilal Paliwal (supra)
and of the Calcutta High Court in Sen Mukherjee and Co. V/s. Smt. Chhaya
35
Banerjee .
38. Mr. Sancheti would further submit that issue whether Defendant No.
11 is shareholder of Defendant No.1-Company is desperate attempt to somehow
31
1935 Indian Appeals L.R. 126.
32
(1982) 1 SCC 4.
33
(2021) 17 SCC 165
34
1992 Mh.L.J. 1365.
35
AIR 1998 Cal 252.
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dispute the AGM held on 30 September 2000. The allegation of forgery and
fabrication raised by Plaintiffs is of serious nature in light of deposition of
Defendant No.2, who was personally present and participated in the AGM and
copy of the resolution being filed with the ROC alongwith Form No. 5 on 14
November 2000. That it is not disputed that 10 shares were not part of the SPA
and were retained by Defendant No.2 and/or associated entities, thus there is no
reason to indulge in any forgery or fabrication as the shareholders could always
attend the meetings. Without prejudice, Mr. Sancheti would submit that there is
overwhelming evidence to show shareholding of Defendant No.11. In the plaint,
the Original Plaintiffs have pleaded that Defendant No.10 holds 1 share and
Defendant No.11 holds 9 shares in the Defendant No.1-Company. Whether
Defendant No.11 holds 1 share or 9 shares does not make any difference. That
bare reading of Clause 1.1 (c) alongwith first recital of SPA, would further
buttress the fact that Defendant No.11 was always the shareholder in Defendant
No.1-Company. That the SPA was drafted by M/s. Hariyani & Co. and they had
knowledge about Defendant No.11 being shareholder of the Company. That
Defendant No.11 had attended AGM/EGM’s from the year 1992 to 2000 and
that name of Defendant No.11 is reflected in the Annual Returns from 1992 to
2000. Further, the principle of caveat emptor is clearly applicable and Plaintiffs
cannot feign ignorance of this fact.
39. Mr. Sancheti would further submit that plea of fraud or forgery or
fabrication has to be specifically raised and that too with requisite particulars. In
support, he has relied upon judgment of Constitution Bench of the Apex Court in
36
Bishundeo Narain and Another V/s. Seogeni Rai and another . Without
prejudice, Mr. Sancheti would submit that Defendant No.2 admittedly being
Director and in control of Defendant No.1-Company, his capacity to prove
existence and contents of the documents cannot be doubted. That Defendant
36
1951 SCC 447.
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No.2 had taken all requisite steps to retrieve original documents from EOW
before evidence was received and documents were marked. That the same were
made available in the Court on 25 July 2016 when evidence was received and
documents were marked. That this Court passed an Order in terms of Minutes of
the Order prepared and signed by the parties, which in turn was based on
Affidavit of Evidence filed by Defendant No.2 wherein handwritten paragraph 63
states that originals are available and request is made to take on record
documents truly certified by the Advocate and thus true copies of the same were
taken on record. At this stage, the only objection raised by the Plaintiffs to the
Minutes of the Order was related to the proof of the document and hence they
were not exhibited and were merely identified. The contention of the Plaintiff
that the Defendants are holding back the Original records is not correct in light of
requisite steps to retake possession as well as Orders passed by this Court and
Magistrate’s Court and documents were returned by EOW is also proved by
Additional Affidavit filed by Defendant No.2. Reliance is placed on the judgment
37
of the Full Bench of this Court in Hamendra Rasiklal Ghia V/s. Subodh Mody
in support of his contention that objection as to existence or proof of documents
must be raised at appropriate stage to enable the party tendering evidence to cure
the defect and tender the documents accordingly. That the objection at this stage
is raised in an attempt to prejudice Defendant No. 2 and gain an unfair
advantage. He would rely on judgment of Supreme Court in Union of India Vs.
38
Imbrahim Uddin & Anr in support of his contention that mere withholding of
document is not sufficient for drawl of adverse inference and that it is necessary
that the opposite party must ask for its production. That the Plaintiff is trying to
mislead this Hon’ble Court by mixing up two different aspect of proof of
existence of documents versus proof of correctness of content. That under
Sections 159 and 164 of the Companies Act a deeming rebuttable presumption is
created to prove the truth of the contents of original records of the Company.
37
(2008) 6 Mh.L.J. 886.
38
(2012) 8 SCC 148
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Mr. Sancheti would further submit that the contention of Plaintiffs that only
original documents can be tendered in evidence is a misnomer. Section 61 of the
Evidence Act permits evidence being tendered in the form of either primary or
secondary evidence. Photocopies as well as copies certified as true clearly fall in
the category of secondary evidence and thus can be received as secondary
evidence under Section 63 of the Evidence Act. That Plaintiffs’ submissions
proceed on an erroneous footing that public documents can be proved only
through certified copies. However in the present case, these documents are filed
by Defendant No.1-Company with ROC and there are various modes prescribed
under Section 63 of the Evidence Act, one of them being by way of certified
copies under Section 74. That Section 74 does not override Section 63 and does
not facilitate other forms of secondary evidence but facilitates the process of
secondary evidence. The aforementioned circumstances is indicative of
Plaintiff’s attempt to render judgment with considering/glossing over the
relevant documents and evidence.
40. Mr. Sancheti would further submit that Plaintiffs had no beneficial
interest in the shares and therefore there is no question of dilution of their
shareholding. Without prejudice, he would submit that it is admitted position
that Defendant No.1-Company was is need of funds and that Defendant No.2
infused further funds. It was therefore necessary to improve debt to equity ratio
of Defendant No.1-Company in order to facilitate further funding. That Plaintiffs
have admittedly neither exercised any ownership rights nor offered to infuse any
funds in the Defendant No.1-Company.
41. Mr. Sancheti has placed reliance on admission given by Original
Plaintiffs that they did not attend any Board Meetings held after execution of
SPA till the filing of the suit, albeit that he was not given any notice. PW-1 in his
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cross examination has admitted that he did not write any letter to Defendant
No.1-Company lamenting not receiving of any notice of board meetings or
suggesting/objecting any course of action of Board of Directors. That Original
Plaintiff No.1 had knowledge about all meetings including notice for AGM in the
year 1999 and 2000, which is clear from his own admissions in Affidavit in
examination in chief. That Defendant No.2 in his Affidavit of examination in
chief has given positive evidence that Notice dated 4 September 2000 about
AGM on 30 September 2000 alongwith relevant enclosures was sent by UCP
dated 5 September 2000. That UCP is a mode of service recognised under
Section 53(2) of the Companies Act. Relying on judgment of Supreme Court in
39
Mohd. Asif Naseer Vs. West Watch Company and V. S. Krishnan Vs.
40
Westfront HiTech Hospital Ltd Mr Sancheti would submit that UCP has been
recognised as proper mode of service.
42. Mr. Sancheti would further submit that Plaintiff No.1 (Original
Defendant No. 16) and Plaintiff No. 20 (Original Defendant No. 20) have not
come forward and led evidence despite being arrayed as parties to the suit since
the institution of the suit. That Plaintiff No.1 despite claiming personal
knowledge of various events narrated in the plaint did not step in the witness box.
That Section 114(g) of the Indian Evidence Act requires the Court to draw
adverse inference against party who does not enter witness box. In support, he
has relied on the judgment of the Apex Court in Iswar Bhai C. Patel alias Bachu
41
Bhai Patel V/s. Harihar Behera and another .
43. Mr. Sancheti would further submit that cross-examination of PW1
(Original Plaintiff No. 1) could not be completed due to his demise. Cross-
39
(2020) 17 SCC 136
40
(2008) 3 SCC 363
41
(1999) 3 SCC 457.
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examination of PW1 is therefore incomplete on vital aspects. In support of his
contention on Court ascertaining the probative or evidentiary value of incomplete
testimony of witness by reason of death or incapacity, Mr. Sancheti has relied
upon the judgments of Full Bench of Allahabad High Court in Narsingh Das
42
V/s. Gokul Prasad which is followed by Single Judge of Allahabad High Court
43
in Varun Agrawal V/s. Jamuna Devi and others . Thus, PW1’s evidence should
wholly and totally be disregarded and cannot be relied for any purpose
whatsoever.
44. Mr. Sancheti would submit that the observations made by this Court while
deciding Criminal Writ Petition No. 1491 of 2009 are wholly irrelevant and
cannot be considered by Civil Court while deciding the suit. That it is settled law
that even a judgment rendered in criminal case cannot be relied upon in civil
cases and in support he would rely on Apex Court judgment in Seth Ramdayal
44
Jat Vs. Laxmi Prasad .
E.3 S UBMISSIONS ON BEHALF OF D EFENDANT N O .11
45. Mr. Dwarkadas, the learned senior advocate appearing on behalf of
Defendant No.11-Sommerville would adopt the submissions of Mr. Sancheti.
Additionally, he would submit that Plaintiffs have filed the present suit seeking
specific performance of SPA and particularly covenants contained in Article V
thereof. That Plaintiffs could have enforced their rights under SPA subsequent to
its execution. Admittedly, the Original Plaintiffs have not exercised their rights
under SPA till the filing of the present suit. That it is pleaded case of the Original
Plaintiffs that Defendant No.2 held 9 shares and Defendant No. 10 held 1 share in
the Defendant No.1-Company. That “very recently” before filing of the suit,
42 .
AIR 1928 All 140
43
2016 SCC OnLine All 4039.
44
(2009) 11 SCC 545
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Defendant No.10 illegally transferred its 1 share to Defendant No.11. Contrary to
this pleaded case, Mr. Dwarkadas would submit that there are various admissions
in the plaint that Defendant No.11 was shareholder prior to execution of SPA.
Mr. Dwarkadas would contend that neither it is the case of Original Plaintiffs that
they were receiving any notices for holding either Board of Directors meeting or
the General Body Meeting between 1998 to August 2000 nor that they attended
any of the Board Meetings or General Body Meetings. Relying on Answers to
Questions 218 and 237 put forth to Original Plaintiff No.1 in his cross-
examination, Mr. Dwarkadas would contend that any person having 99.96%
shareholding in the Company would not blindly trust friends (Defendant No.2-
Govind Gupta) and family. This conduct of the Original Plaintiffs is contrary to
the common course of human conduct.
46. Mr. Dwarkadas would further counter the case of the Original
Plaintiffs that allotment of 75,000 shares to Defendant No.11 was to allow
Defendant No.2 to reduce them to minority shareholders by submitting that
neither Original Plaintiffs conducted themselves as owners of 99.96%
shareholding of Defendant No.1-Company nor asserted any rights in accordance
with Articles 5.1 to 5.4 of SPA. That the said conduct of the Original Plaintiffs
itself speaks volumes that SPA was not intended to be an agreement for sale of
shares and any in any event, Original Plaintiffs have not shown readiness or
willingness to assert their rights under SPA.
47. Mr. Dwarkadas would submit that Original Plaintiffs have neither
sought any relief seeking cancellation of allotment of 75,000 shares to Defendant
No.11 nor rectification of the Register of Members as per Section 111(4) of the
Companies Act. That under Order II Rule 2 of the Code of Civil Procedure,
1908, Plaintiff is obliged to include whole claim in respect of the cause of action
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but in the present case, the Original Plaintiffs have not sought all the reliefs they
are entitled to claim.
48. Reliance in placed on the judgment of the Apex Court in Nagindas
45
Ramdas V/s. Dalpatram Ichharam alias Brijram and others in support of his
contention that admissions in pleadings or judicial admissions admissible under
Section 58 of the Evidence Act, if true and clear, stand on a higher footing than
evidentiary admissions. Such admissions are binding on a party making them and
constitute waiver of proof. Mr. Dwarkadas has taken me through relevant
admissions in plaint, more particularly in paragraphs 2(j), 9(a), 19 and 54(a) that
the Original Plaintiffs had knowledge that Defendant No.11 was already
shareholder of Defendant No.1-Company prior to entering into the SPA. Mr.
Dwarkadas has further invited my attention to relevant clauses in the SPA and
cross-examination of PW-1 to show the Defendant No.11 was party to the SPA.
That, it is admitted that some portions of the SPA were blanked out using white
ink, the Original Plaintiffs who were signatories to the same have not offered any
explanation for the same. That this is not a case of bonafide purchase but gross
abuse of process of law. That, relying on Answer to Question No. 1092, Mr.
Dwarkadas would submit that the Original Plaintiffs have admitted that name of
Defendant No.11 appears in records of Defendant No.1-Company. That, the
admission on part of Original Plaintiffs is all that matters and not the capacity or
purpose for which the admission is made. That once there is an admission,
burden shifted on the Original Plaintiffs to disprove the same. Reliance is also
placed on Section 3(iii) of the Companies Act which defines the term “private
company” and clauses (a), (b), (c) and (d) which provides for restriction on
transfer of shares of private limited company. In support of his contention that a
closely held company or private limited company is in nature of glorified
partnership, Mr. Dwarkadas has relied upon judgment of this Court in
45
(1974) 1 SCC 242.
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46
Re : Severn Trent Water Purification . That it is impossible to believe that
Original Plaintiffs would not have satisfied themselves as to who are the other
shareholders of the Defendant No.1-Company. That this conduct on part of
Original Plaintiffs is contrary to presumption that is to be drawn under Section
114 of the Evidence Act. Mr. Dwarkadas has further relied upon Section 153 of
the Companies Act which provides for keeping of one or more books a register of
its members and penalty for non-maintenance of Register of Members and
Section 163 which provides that registers, indexes, returns, copies of certificates
and other documents are open during business hours for inspection by any
member, debenture holder or any other person. That “member” is defined under
Section 41 of the Companies Act. Thus, Register of Members being a public
document available for inspection for every member of public, it is difficult to
believe that Original Plaintiffs did not carry out due diligence to know who were
the existing shareholders of Defendant No.1-Company prior to execution of SPA.
That the Original Plaintiffs cannot challenge veracity of Register of Members.
Relying on definition of the term “proved” in Section 3 of the Evidence Act, to
contend that the test is to cross the line of probability and therefore the question
whether Register of Members of Defendant No.1-Company or its contents to
establish Defendant No.11 was shareholder of Defendant No.1-Company
becomes wholly irrelevant.
49. Mr. Dwarkadas would further submit that allotment of 75,000 shares
to Defendant No.11 was towards financial restructuring of Defendant No.1-
Company to enable the Company to raise funds from banks and financial
institutions. In support, he has placed reliance on relevant pleadings in the
Second Defendant’s Written Statement, Affidavit of Evidence and the
documents produced therewith (subject to proof documents). That, the Original
Plaintiffs have placed reliance on letters dated 23 November 1998 and 10 October
46
2005 SCC OnLine Bom 1766.
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2000, addressed by Defendant No. 11 to Defendant No.1-Company confirming
personal liability of Defendant Nos.2 and 3 to repay loan amount of Rs.
67,97,470/-. The said letter was handed over to Original Plaintiffs. Perusal of the
cross examination of PW-1 emanates that original letter dated 23 November 1998
was in custody of Original Plaintiffs and is subsequently produced in the present
proceedings, Defendant No.1 was never forwarded the letter and thus not acted
upon and liability of Defendant No.11 continued to reflect till October 2000, in
fact progressively increased over the years. That letter dated 10 October 2000
was also handed over to Original Plaintiffs wherein Defendant No.2 confirmed
that as on 31 August 2001, the outstanding loan amount due to Defendant No.11
was Rs. 2,02,63,302/- which will be repaid by Defendant No.2. It has come in
cross examination of Defendant No.2 that the said letters were given to Plaintiff
for his comfort and security and never to be acted upon as liability of Defendant
No.11 continued to reflect in the books of Defendant No.1-Company. That such
conduct on part of Original Plaintiffs, who claim to be 99.96% shareholder of the
Company about non inquiry or not concerning about rising liability of Defendant
No.11 in books of Defendant No.1-Company, gives impression that SPA was loan
document.
50. Mr. Dwarkadas has relied upon Constitution Bench Judgment of Apex
Court in Nanalal Zaver and another V/s. Bombay Life Assurance Company
47
Limited and others , 3 Judge Bench decision of Apex Court in Needle Industries
(India) Ltd. and others V/s. Needle Industries Newey (India) Holding Ltd. and
48
others and judgment of Apex Court in Hasmukhlal Madhavlal Patel and
49
another V/s. Ambika Food Products Private Limited and others in support of
his contention that if shares are issued in larger interest of the Company, the
47
AIR 1950 SC 172.
48
(1981) 3 SCC 333.
49
(2023) 7 SCC 580.
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decision to issue the shares cannot be struck down on the ground that it has
incidentally reduced majority shareholder to a minority shareholder.
51. To counter Original Plaintiffs’ case that allotment of 75,000 shares to
Defendant No.11 was in contravention of Section 81(1)(a) of the Companies Act,
Mr. Dwarkadas has submitted that once Defendant No.11 is held to be
shareholder of the Defendant No.1-Company, the only question that arises is
whether allotment of 75,000 shares fulfilled requirement of further issue of
capital. The judgment of Apex Court in Dale & Carrington Investment Pvt. Ltd.
relied upon by Plaintiffs is sought to be distinguished by Mr. Dwarkadas by
submitting that principle laid down is subject to exception recognised in para 11
(d) of the judgment viz. if issue of further capital is construed to be bonafide act
in the interest of the Company, then in such case neither provisions of Section 81
apply nor the higher standard set in the judgment restrict or prohibit the board of
directors from issuing further capital.
52. Alternatively and without prejudice, Mr. Dwarakadas would contend
that if Plaintiffs’ prayer of allotment of 75,000 shares to Defendant No.11 as
illegal, null and void is upheld, Plaintiffs’ cannot invalidate such transfer as title
of movable property i.e. 75,000 shares nevertheless stands transferred to the
purchaser (Defendant No.11) as the transaction is completed. In support, he has
relied upon 3 Judge Bench decision of the Apex Court in B.O.I Finance Ltd. V/s.
50
Custodian and others . Mr. Dwarkadas would further submit that since
allotment of 75,000 shares cannot be invalidated, the only relief which Plaintiff
can seek is claim for damages subject to satisfying conditions of Section 21(2) of
the Specific Relief Act.
50
(1997) 10 SCC 488.
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F. R EASONING , A NALYSIS A ND F INDINGS
53. The suit involves the issue of the ownership of shares and control and
management of Defendant No.1 Company-Manju Meadows Pvt. Ltd. While
Plaintiffs claim that they hold 99.96% stake in the equity share capital of the first
Defendant Company, Defendants claim that either Plaintiffs do not hold any
shares or, at the highest, hold 24.99 % stake in the Company. The first defence of
the Defendants about Plaintiffs not owning any shares of the Company is
premised on the assertion that the Share Purchase Agreement dated 27 October
1998 did not effect sale of 24,990 shares in favour of original Plaintiffs and that it
was executed merely as a comfort document and as security for loan advanced by
original Plaintiffs to Defendant Nos. 1 to 3. As against this, the second and the
alternative defence of the Defendants about Plaintiffs owning only 24.99% stake
in the Company is premised on an assertion that in the Annual General Body
Meeting of Defendant No.1 held on 30 September 2000, read with meeting of
Board of Directors held on 18 October 2000, the share capital of the First
Defendant Company was increased from Rs. 25,00,000/- to Rs.1,50,00,000/-
and that 75,000 shares of the First Defendant company have been allotted to
Defendant No.11-Somerville. According to the contesting Defendants, though
the authorized share capital of the first Defendant Company is Rs. 1,50,00,000/-,
the subscribed and paid-up share capital at the moment is Rs. 1,00,00,000
divided into 1,00,000 shares of Rs. 100 each, out of which 75,010 shares are
owned by the contesting Defendants whereas only 24,990 shares are owned by
original Plaintiffs. This is how original Plaintiffs’ stake in the company is alleged
to be only 24.99% by the contesting Defendants.
54. Plaintiffs have accordingly filed the present suit essentially for a
declaration that they own 24,990 equity shares of the first Defendant Company
and that its share capital is Rs.25,00,000/- comprising of 25,000 equity shares of
Rs.100/-. By seeking these declarations, Plaintiffs seek to control the first
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Defendant Company by owning 99.96% of its equity shares with only 10 shares
being left for Defendant No.2 (9 shares) and either Defendant No.10 or
Defendant No.11 (1 share). With a view to defeat the actions of defendants in
increasing the authorised share capital of the first Defendant Company from
Rs.25,00,000/- to Rs.1,50,00,000/- and allotment of 75,000 shares in favour of
Defendant No.11, Plaintiffs have sought declarations that the Annual General
Meeting of the first Defendant Company shown to have been held on 30
September 2000, as well as the meeting of the Board of Directors shown to have
been held on 18 October 2000 together with Minutes of both the meetings are
illegal and void. On the strength of their assertion that Plaintiffs own 99.96% stake
in the First Defendant Company, Plaintiffs had proposed various Resolutions in
the Extra-Ordinary General Meeting of the first Defendant Company held on 9
January 2001 for removal of Defendant Nos.2, 8 and 9 as Directors and for
appointment of original Plaintiff No. 2 and original Defendant Nos. 16 to 20 as
Directors, which Resolutions were defeated by Defendant Nos.1 to 11 on account
of purported owning of 75,000 shares by Defendant No.11. Plaintiffs therefore
seek a declaration that the said Resolutions of EOGM held on 9 January 2001 are
validly adopted. Additionally, Plaintiffs have also sought specific performance of
Share Purchase Agreement dated 27 October 1998.
55. The prayers sought in the plaint are rather lengthy. For the sake of
brevity, only substantive prayers of the Plaint in prayer clauses (a) to (g) are
reproduced below:
The Plaintiffs, pray:
(a) This Hon'ble Court be pleased to declare :
st
(i) That the Original 1 Plaintiff owned 17,990 equity shares of face value of
st nd
Rs.100/- each of the 1 Defendant company and that the Original 2 Plaintiff owned
st
7,000 shares of the face value of Rs.100/- each of the 1 Defendant company, as per
the particulars set out at Exhibit “A” to the plaint.
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st
(ii) That the Authorised Share Capital of the 1 Defendant company is
Rs.25,00,000/- comprised of 25,000 equity shares of Rs. 100/- each.
th st
(iii) That the 24 Annual General Meeting of the 1 Defendant company
purportedly held on 30.9.2000 was illegally / invalidly convened and that the
alleged resolutions passed thereat are illegal, null and void and of no legal effect.
(iv) That the special resolution purporting to increase the Authorised Share Capital
st
of the 1 Defendant from Rs.25,00,000/- to Rs. 1,50,00,000/- allegedly passed at
the Annual General Meeting held on 30.9.2000 is illegal, null and void and of no
legal effect.
th
That the 12 Defendant had no authority to attend, participate in or vote at the
(v)
st
Annual General Meeting of the 1 Defendant held on 30.9.2000 either on his own
th th th
behalf or on behalf of the 11 Defendant and that neither the 11 nor the 12
st
Defendant were shareholders of the 1 Defendant company on 30.9.2000.
th st
(vi) That the Minutes of the 24 Annual General Meeting of the 1 Defendant
company held on 30.9.2000 (Exhibit 'VV") are fabricated or got up documents and
are illegal, null and void.
(vii) That the following resolutions were carried at the Extra Ordinary
st
General Meeting of the 1 Defendant held on 9.1.2001:
(A) 'RESOLVED Mr. Govind Gupta, Director of the company, be and is
hereby removed from the office of the director of the company.’
(B) ‘RESOLVED Mr. Ashwin Mehta, Director of the company, be and is
hereby removed from the office of the director of the company.’
(C) ‘RESOLVED Mr. Rajesh Khandelwal, Director of the company, be and
is hereby removed from the office of the director of the company.’
(D) ‘RESOLVED that Mr. Dharmil A. Bodani be and is hereby appointed
as a director of the company.’
(E) ‘RESOLVED that Mrs. Chandrika A. Bodani be and is hereby
appointed as a director of the company.’
(F) ‘RESOLVED that Mr Ashwin J. Ahya be and is hereby appointed as a
director of the company.’
(G) ‘RESOLVED that Mr. Bharat J. Ahya be and is hereby appointed as a
director of the company.’
(H) ‘RESOLVED that Mr. Bhaven H. Soonderji be and is hereby appointed
as a director of the company.’
‘RESOLVED that Mr. Shyamal A. Bodas be and is hereby appointed as
(I)
a director of the company.’
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nd th th
(viii) That the 2 Defendant, the 8 Defendant and the 9 Defendant ceased to be
st
directors of the 1 Defendant company with effect from 9.1 2001 or such other date as
st
this Hon'ble Court may be pleased to hold, and that they are not directors of the 1
Defendant company.
st
(ix) That the appointment of Defendant Nos. 12 to 15 as directors of the 1
Defendant is illegal, null and void and that the said Defendants are not directors of the
st
1 Defendant company.
st
(x) That the purported transfer of one share of the 1 Defendant company from the
th th
10 Defendant to the 11 Defendant is illegal, null and void.
st
That the purported allotment of 75,000 equity shares of Rs.100/- each of the 1
(xi)
th
Defendant company to the 11 Defendant is illegal, null and void.
(xii) That the Board of Directors Meeting purportedly held on 18.10.2000 was
illegally/ invalidly convened and the alleged resolutions passed thereat are illegal, null
and void and of no legal effect.
th
(xiii) That the resolution purporting to allot 75,000 equity shares to the 11
th
Defendant allegedly passed at the Board of Directors Meeting of the 11 Defendant
held on 18.10.2000 is illegal, null and void and of no legal effect.
(xiv) That the resolution purportedly passed at the Board of Directors Meeting of the
st th st
1 Defendant held on 18.10.2000 appointing the 12 Defendant as a director of the 1
Defendant company is illegal, null and void.
(xv) That the Board of Directors Meeting purportedly held on 10.1.2001 was
illegally / invalidly convened and that the resolutions passed thereat are illegal, null
and void and of no legal effect.
(xvi) That the resolutions purporting to appoint Defendant Nos. 13 to 15 as directors
st st
of the 1 Defendant passed at the Board of Directors Meeting of the 1 Defendant held
on 10.1.2001 are illegal, null and void.
That Defendant Nos. 2 to 9 be ordered and decreed to specifically perform their
(b)
obligations under the said share purchase agreement dated 27. 10. 1998 (Exhibit "C"
hereto);
In the alternative to prayer (b) hereinabove, Defendant Nos. 2 to 15 be ordered
(c)
and decreed, jointly and severally, to pay to the Plaintiffs a sum of Rs.10 crores as and
by way of damages together with interest on the said amount at the rate of 18% per
annum from the date of the filing of the suit until payment and/ or realisation;
st nd th th
(d) That this Hon'ble Court be pleased to order and decree the 1 , 2 , 8 and 9
Defendants to deliver up for cancellation the following documents and be pleased to
cancel the same:
th st
(i) The Minutes of the 24 Annual General Meeting of the 1 Defendant
held on 30.9.2000, a copy whereof is hereto annexed and marked as Exhibit
"VV".
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st
(ii) The Minutes of the Extra-Ordinary General Meeting of the 1
Defendant held on 9.1.2001, a copy whereof is hereto annexed and marked as
Exhıbıt "UU".
st
(iii) The minutes of the Meetings of the Board of Directors of the 1
Defendant company held on 18.10.2000 and 10.1.2001.
(e) That the Defendant No.22 be ordered and decreed by a permanent injunction
st
not to act upon Form No. 5 (intimating increase in the share capital) filed by the 1
Defendant company on or about 14.11.2000 with the Defendant no 22, a copy whereof
is hereto annexed and marked as Exhibit "LL"., Form No. 23 (registering the
st
resolution in respect of the increase in Authorised Share Capital) filed by the 1
Defendant company on or about 14.11.2000 with the Defendant No 22, a copy whereof
is hereto annexed and marked as Exhibit "MM", Form No. 2 being a return of
st
allotment filed by the 1 Defendant company on or about 14.11.2000 with the
Defendant No.22, a copy whereof is hereto annexed and marked as Exhibit 00, Form
st
No. 32 (furnishing the particulars of new directors) filed by the 1 Defendant company
on or about 11.1 2001 with the Defendant No.22, a copy whereof is hereto annexed and
marked as Exhibit "PP", Form No. 32 (furnishing the particulars of appointment of
st
Defendant No. 12 a director) filed by the 1 Defendant company on or about
14.11.2000 with the Defendant No.22, a copy whereof is hereto annexed and marked as
Exhibit "PP-1" respectively and if acted upon be ordered and decreed by a mandatory
injunction to cancel entries passed in his records and registers on the basis of the
forms;
(f) That this Hon'ble Court may be pleased to order and decree a permanent
injunction restraining:
nd th th th th
(i) The 2 , 8 , 9 and 12 to 15 Defendants from holding themselves out as
st st
directors of the 1 Defendant or from acting as directors of the 1 Defendant;
nd th th th th
(ii) The 2 , 8 , 9 and 12 to 15 Defendants, their officers, agents and employees
from in any manner dealing with or disposing off any of the immovable or movable
st
properties of the 1 Defendant company (including livestock and horses);
nd th th th th
(iii) The 2 , 8 , 9 and 12 to 15 Defendants, their officers, agents and employees
st
from in any manner acting on behalf of or making representations on behalf of the 1
Defendant company;
th
(iv) The 11 Defendant from exercising any rights as a shareholder or member of
st
the 1 Defendant company in respect of said 75,001 shares (or any part thereof) of
st
the 1 Defendant;
The Defendant No 21 from transferring or acting upon any request relating to
(v)
the sale, transfer, alienation, or creation of any third party rights whatsoever in
st
respect of the horses registered in the name of the 1 Defendant company without
the express sanction and consent of the Plaintiffs.
st nd th th th th
(vi) The 1 , 2 , 8 , 9 , 11 to 15 Defendants from acting pursuant to or in
implementation of:
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(A) The resolution dated 30.9.2000 purporting to increase the share capital
st
of the 1 Defendant from Rs.25,00,000/- to Rs 1,50,00,000/-.
th
(B) The allotment/transfer of 75,001 shares to the 11 Defendant;
(C) The decisions/resolutions appointing Defendant Nos. 12 to 15 as
st
directors of the 1 Defendant.
nd th
(vii) The 2 to the 15 Defendants, their employees, officers or agents from
st
entering upon the property of 1 Defendant company including but not limited to
st
the 1 Defendant's Stud Farm situate at village Shirgaon, near Somatne Phata,
Mumbai Pune Highway, Maval, District Pune and from in any manner
st
intermeddling or interfering in the affairs of the 1 Defendant company.
(g) That this Hon'ble Court may be pleased to order and decree a mandatory
injunction requiring:
nd th
(i) The 2 to 15 Defendants to hand over all documents, papers, registers, records
st
and property of the 1 Defendant in their possession or control to the Plaintiffs or
their nominees,
nd th th th th
(ii) The 2 , 8 , 9 , 12 to 15 Defendants to disclose on affidavit the full particulars
st
of each and every transaction relating to the livestock / horses of the 1 Defendant
entered into on or after 1.9.2000 with details in respect of the dates of the
transaction, the names and addresses of the counter party, the consideration
received and / or receivable, or the supporting documents executed, the particulars
in of possession, etc. and to disclose all the related documents in the affidavit.
52) The learned senior advocates appearing for Plaintiffs on one side
and for Defendant Nos. 2 and 11 on the other, have canvassed extensive
submissions on various issues framed. In my view, though there are as many as
19 issues framed by Order dated 12 September 2011, answering the following
three broad questions will provide answer to most of the issues framed by this
Court:
(I) What is the exact nature of Share Purchase Agreement
dated 27 October 1998? - Does it amount to sale of 24,990
shares of first Defendant Company in favour of Original
Plaintiffs or was it executed only as comfort document and/or
as a security for the securing loan extended by Original
Plaintiffs to the some of the contesting Defendants and that it
was never meant to be acted upon?
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(II) Whether Defendant No.11 owned one share of the first
Defendant Company as on 30 September 2000 when Annual
General Meeting of the Company was held increasing the
authorised share capital of the Company from Rs.25,00,000/-
to Rs.1,50,00,000/-, and as on 18 October 2000 when decision
was taken to convert part of the alleged debt of Defendant
No.11 to Defendant No.1 into equity by allotting 75,000 shares
of the First Defendant Company to Defendant No.11 ?
(III) Whether the Annual General Meeting of 30 September
2000 and the meeting of Board of Directors dated 18 October
2000 are validly held and whether the Resolutions adopted
therein for increase of authorized share capital of the first
Defendant Company and for allotment of 75,000 shares to
Defendant No. 11, are valid?
53) In my view, either during the process of answering the above three
broad questions or once they are answered, various related and consequential
questions such as validity of transfer of shares in favour of Defendant No. 11,
validity of EOGM dated 9 January 2001, validity of Board Meeting dated 10
January 2001 etc also get answered.
54) Before proceeding to answer the issues framed in the Suit, it would be
necessary to first deal with three points raised by contesting parties about (i) non-
production of original documents by contesting Defendants, (ii) incomplete
evidence of PW-1 due to his death during currency of his cross-examination and
(iii) failure to lead evidence of Mr. Dharmil Bodani, who was original Defendant
No. 16 and is now transposed as Plaintiff No.1.
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F.1 N ON -P RODUCTION OF O RIGINAL D OCUMENTS
55) In the present case, Plaintiffs tendered either original documents
or, ROC certified copies, which have been marked in evidence and there is no
dispute about Plaintiffs’ marked documents. However Defendant Nos. 1, 2 and
11, who filed separate Affidavits of Documents have tendered copies of various
documents about which Plaintiffs have serious dispute about their admissibility in
evidence. Most of the documents relied upon by the contesting Defendants are
vital for the purpose of deciding the issues involved in the present case. One of
the main issues involved in the present case is about correctness of defence of
contesting Defendants about holding Board Meetings dated 10 August 2000, 4
September 2000 and 18 October 2000 and AGM of 30 September 2000. The
authenticity of the Minutes of the said Meetings is also doubted by Plaintiffs.
Notice dated 4 September 2000 about AGM of 30 September 2000 as well as the
purported UCP, by which notice of the meeting was purportedly dispatched, is
also doubted by Plaintiffs. Furthermore contesting Defendants have claimed
filing of various documents and forms with the ROC and according to Plaintiffs,
only certified copies of such documents and forms, which are certified by ROC,
could be read in evidence. According to Plaintiffs, contesting Defendants could
have either produced originals or atleast ROC certified copies of those
documents, forms etc. However, what is produced alongwith the Affidavits of
Documents by the contesting Defendants are the photocopies of various
documents. As observed above, in the Evidence Affidavit dated 7 December
2015, DW1 has stated in paragraph 63 as under :
“I say and submit and undertake that all the original documents shall be
produced at the time of examination and as and when called by the
Hon’ble Court. In the list of documents the xerox copy duly certified by
the Advocate be taken on record.”
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56) Relying on the above statement in the Affidavit, Mr. Sancheti has
submitted that Defendant No.2 did not produce voluminous original documents
alongwith the Affidavit of Evidence as well as Affidavit of Documents and made
it clear that the originals were available with the witness, which were to be
produced at the time of examination or as and when called by the Court.
According to Mr. Sancheti, most of the disputed documents are already marked
in evidence by this Court. He has relied upon judgment of the Full Bench of this
Court in Hemendra Rasiklal Ghia (supra) in which this Court has held that party
objecting to marking of documents must raise the objection at the relevant time,
which enables the other side to produce original documents. According to Mr.
Sancheti, once a document is marked without raising any objection, the opposite
party cannot be permitted to subsequently raise any objection about non-
Hemendra Rasiklal Ghia,
production of original documents. In Full Bench of
this Court held in paragraphs 74 and 77 as under :
74. In the second category of the case, the objection should be taken when the
evidence is tendered. Once the document has been admitted in evidence and
marked as an exhibit, the objection that it should not be admitted in evidence or
that the mode adopted for proving the document is irregular cannot be allowed
to be raised at any stage subsequent to the marking of the document as an
exhibit. This proposition is rule of fair play. The crucial test is whether an
objection, if taken at the appropriate point of time, would enable the party
tendering the evidence to cure the defect and resort to such mode of proof as
would be regular. The omission to object become fatal because by his failure the
party entitled to object allows the party tendering the evidence to act on an
assumption that the opposite party is not serious about the mode of proof. On
the other hand, a prompt objection does not prejudice the party tendering the
evidence, for two reasons; firstly, it enables the Court to apply its mind and
pronounce its decision on the question of admissibility there and then; and
secondly, in the event of finding of the Court on the mode of proof sought to be
adopted going against the party tendering the evidence, the opportunity of
seeking indulgence of the court for permitting a regular mode or method of
proof and thereby removing the objection raised by the opposite party, is
available to the party leading the evidence. Failure to raise a prompt and timely
objection amounts to waiver of the necessity for insisting on formal proof of a
document, the document itself which is sought to be proved being admissible in
evidence.
77. Thus, we hold and rule that ordinarily an objection to the admissibility of
the document in first and second categories of cases (excluding third type of
case) has to be taken before the document is exhibited which, necessarily,
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postulates decision on the objection then and there. In other words, whether
document is admissible or inadmissible is matter which should always be ruled
upon at the time when the document is being proved or put in or the question
asked to the witness. Such practice and procedure is fair to both parties.
57) On the contrary, Mr. Dhond has submitted that mere marking of
documents as Exhibit does not mean that the document is admissible in evidence.
Referring to paragraph 87 of the judgment in Hemendra Rasiklal Ghia , Mr.
Dhond has contended that Full Bench of this Court had made it clear as under:
“We may make it clear that omission to object a document, which in
itself is inadmissible in evidence, would not constitute such document in
evidence. It is also duty of the Court to exclude all irrelevant evidence
even if no objection is taken to its admissibility by the parties. The
question of relevancy of the document being a question of law can be
raised and decided at any stage of the proceedings.”
58) In Bipin Shantilal Panchal , the Apex Court has held in paras- 13
and 14 as under:
13. It is an archaic practice that during the evidence-collecting stage, whenever
any objection is raised regarding admissibility of any material in evidence the
court does not proceed further without passing order on such objection. But the
fallout of the above practice is this: Suppose the trial court, in a case, upholds a
particular objection and excludes the material from being admitted in evidence
and then proceeds with the trial and disposes of the case finally. If the appellate
or the revisional court, when the same question is recanvassed, could take a
different view on the admissibility of that material in such cases the appellate
court would be deprived of the benefit of that evidence, because that was not
put on record by the trial court. In such a situation the higher court may have to
send the case back to the trial court for recording that evidence and then to
dispose of the case afresh. Why should the trial prolong like that unnecessarily
on account of practices created by ourselves. Such practices, when realised
through the course of long period to be hindrances which impede steady and
swift progress of trial proceedings, must be recast or remoulded to give way for
better substitutes which would help acceleration of trial proceedings.
14. When so recast, the practice which can be a better substitute is this:
Whenever an objection is raised during evidence-taking stage regarding the
admissibility of any material or item of oral evidence the trial court can
make a note of such objection and mark the objected document tentatively
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as an exhibit in the case (or record the objected part of the oral evidence)
subject to such objections to be decided at the last stage in the final
judgment. If the court finds at the final stage that the objection so raised is
sustainable the Judge or Magistrate can keep such evidence excluded from
consideration. In our view there is no illegality in adopting such a course.
(However, we make it clear that if the objection relates to deficiency of stamp
duty of a document the court has to decide the objection before proceeding
further. For all other objections the procedure suggested above can be
followed.)
(emphasis supplied)
59) In Rohit Vanmalidas Mehta (supra), single Judge of this Court has made
following observations:
Marking of a document does not imply that its authenticity or genuineness is
proved. It is merely a piece of evidence, the assessment of which is to be
considered in the course of the trial.
60) In recent decision of the Apex Court in Vijay (supra), following
principles are deduced about admissibility of secondary evidence:
33. After perusing various judgments of this Court, we can deduce the following
principles relevant for examining the admissibility of secondary evidence:
33.1 Law requires the best evidence to be given first, that is, primary
evidence.
33.2 Section 63 of the Evidence Act provides a list of the kinds of documents
that can be produced as secondary evidence, which is admissible only in the
absence of primary evidence.
33.3 If the original document is available, it has to be produced and proved
in the manner prescribed for primary evidence. So long as the best
evidence is within the possession or can be produced or can be reached, no
inferior proof could be given.
33.4 A party must endeavor to adduce primary evidence of the contents, and
only in exceptional cases will secondary evidence be admissible. The exceptions
are designed to provide relief when a party is genuinely unable to produce the
original through no fault of that party.
33.5 When the non-availability of a document is sufficiently and properly
explained, then the secondary evidence can be allowed.
33.6 Secondary evidence could be given when the party cannot produce the
original document for any reason not arising from his default or neglect.
33.7 When the copies are produced in the absence of the original document,
they become good secondary evidence. Still, there must be foundational
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evidence that the alleged copy is a true copy of the original.
33.8 Before producing secondary evidence of the contents of a document, the
non-production of the original must be accounted for in a manner that can bring
it within one or other of the cases provided for in the section.
33.9 Mere production and marking of a document as an exhibit by the
Court cannot be held to be due proof of its contents. It has to be proved in
accordance with the law.
(emphasis and underlining supplied)
61)
In my view, mere marking of exhibit numbers to the documents in
question by Order of this Court dated 25 July 2016 on photocopies of some of the
documents produced by the contesting Defendants would not make the said
documents ipso facto admissible in evidence. This particularly applies to crucial
documents such as original Register of Members of Defendant No.1, the entire
Minutes Book of the Board and General Body Meetings of the Defendant No.1,
audited Balance Sheets of Defendant No.1 certified to be true by ROC, UCP
dated 4 September 2000 etc. Mr. Dhond has relied upon judgment of Single
Judge of this Court in Om Prakash Berlia (supra), in which this Court has
referred to the provisions of sections 65, 74, 75, 76 and 77 of the Evidence Act
and has held as under:
“Under S. 65(e), secondary evidence may be given when original is a
public document within the meaning of section 74 and only a certified
copy of the public document is admissible.”
62) In the present case, wherever ROC filed documents are relied upon
by contesting Defendants, it was incumbent for them to produce ROC certified
copies. However what is filed are only copies certified by the Advocate.
63) When it comes to original documents such as the entire Minute
Book, UCP, etc., Plaintiffs raised serious doubts of their authenticity. It was
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therefore incumbent for the contesting Defendants to produce originals of those
documents. Mr. Sancheti has strenuously submitted that Defendants kept on
carrying the originals of voluminous documents with them and were always ready
and willing to offer them for inspection to Plaintiffs. In fact, Mr. Sancheti showed
some of the original documents such as Minutes Book, UCP etc. to me during
the course of his submissions. However, showing those original documents
directly to the Court at the time of final arguments becomes irrelevant as the
originals ought to have been shown to Plaintiffs during the course of evidence, so
that Plaintiffs could have effectively cross-examined Defendants’ witnesses
relating to their doubts about authenticity of those documents. Once a party
relies on a particular document and produces only photocopy thereof alongwith
Affidavit of Evidence, it is a duty cast on its part to produce original of that
document during the course of Trial. Such party cannot take a chance by
expecting the other side to call upon the witness to produce original document.
The other side, who is not relying on that document, would obviously never call
upon the witness to produce the original and in the event of failure on the part of
the witness to produce original, the opposite party would urge the Court not to
take cognisance of photocopy while deciding the suit. Thus the party who takes
the risk of filing photocopy (by submitting an undertaking to produce original),
must accept the consequences of non-production of original document during the
course of trial. Such party cannot later contend that the other side never called
for production of original, which was always kept in pocket by the party relying
on. In the present case, DW1 ought to have produced originals of all documents
which are relied upon by him in his evidence. Plaintiffs are not relying on those
documents such as original Minute Book, UCP, etc. and they would obviously
not call for production of originals. DW1 has taken the risk of filing only
photocopies alongwith Affidavit of Evidence. It was his duty to produce originals
during the course of his examination. His statement in Affidavit of Evidence that
originals would be produced either during examination or as and when called for
by the Court is not sufficient. Inspection of original is not only for the Court but
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is also for the opposite party for conduct of effective cross-examination. Also the
Court may not always require production of any particular document. It is for
party concerned, who relies upon a particular document, to produce original of
that document. Therefore failure by opposite party to call for original or by Court
to direct production of original document, would not mean that photocopy would
substitute original.
64) Mr. Sancheti has relied upon Section 63 of the Evidence Act, which
according to him, permits leading of secondary evidence to prove contents of a
document. According to him, Section 74 does not override provisions of Section
63. However under Section 65 if the original is a public document, a certified
copy of the document alone is admissible and no other secondary evidence is
admissible. Section 65 provides thus:
65. Cases in which secondary evidence relating to documents may be given:
Secondary evidence may be given of the existence, condition, or contents of a
document in the following cases—
a) When the original is shown or appears to be in the possession or
power—
of the person against whom the document is sought to be proved, or
of any person out of reach of, or not subject to, the process of the
Court, or
of any person legally bound to produce it, and when, after the
notice mentioned in section 66, such person does not produce it;
b) when the existence, condition or contents of the original have been
proved to be admitted in writing by the person against whom it is
proved or by his representative in interest;
c) when the original has been destroyed or lost, or when the party offering
evidence of its contents cannot, for any other reason not arising from
his own default or neglect, produce it in reasonable time;
when the original is of such a nature as not to be easily movable;
d)
e) when the original is a public document within the meaning of
section 74;
f) when the original is a document of which a certified copy is permitted
by this Act, or by any other law in force in India to be given in evidence;
when the original consists of numerous accounts or other documents
g)
which cannot conveniently be examined in Court and the fact to be
proved is the general result of the whole collection.
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In cases (a), (c) and (d), any secondary evidence of the contents of the
document is admissible.
In case (b), the written admission is admissible.
In case (e) or (f), a certified copy of the document, but no other
kind of secondary evidence, is admissible.
In case (g), evidence may be given as to the general result of the
documents by any person who has examined them, and who is skilled in
the examination of such documents.
(emphasis supplied)
65)
Thus when it comes to ROC filed documents, only its certified copies
become admissible in evidence. So far as entire minute book, UCP, etc are
concerned, the originals are in custody of contesting Defendants and therefore
secondary evidence thereof could not have been led.
66) Mr. Sancheti has relied on Supreme Court judgment in Union of India
Vs. Imbrahim Uddin (supra) in support of his contention that mere withholding
of a document is not sufficient to draw adverse inference and that the other party
must ask the party in possession of document to produce the same and its only
after such demand, if the party refuses to produce the document, adverse
inference can be drawn. In para 15 to 17 of the Judgment, it is held as under:
15. In Municipal Corpn., Faridabad v. Siri Niwas [(2004) 8 SCC 195 : 2004
SCC (L&S) 1062] this Court has taken the view that the law laid down by this
Court in Gopal Krishnaji Ketkar [AIR 1968 SC 1413] did not lay down any law,
that in all situations the presumption in terms of Illustration (g) to Section 114
of the Evidence Act must be drawn.
16. In Srinivas Ramanuj Das v. Surjanarayan Das [AIR 1967 SC 256] this Court
held that mere withholding of documentary evidence by a party is not
enough to draw adverse inference against him. The other party must ask
the party in possession of such evidence to produce the same, and in case
the party in possession does not produce it, adverse inference may be
drawn : (AIR p. 263, para 28)
“28. … It is true that the defendant-respondent also did not call upon the
plaintiff-appellant to produce the documents whose existence was admitted by
one or the other witness of the plaintiff and that, therefore, strictly speaking, no
inference adverse to the plaintiff can be drawn from his non-producing the list
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of documents. The court may not be in a position to conclude from such
omission that those documents would have directly established the case for the
respondent. But it can take into consideration in weighing the evidence or any
direct inferences from established facts that the documents might have
favoured the respondent's case.”
(emphasis supplied)
17. In Ramrati Kuer v. Dwarika Prasad Singh [AIR 1967 SC 1134] this Court
held : (AIR p. 1137, para 9)
“9. … It is true that Dwarika Prasad Singh said that his father used to keep
accounts. But no attempt was made on behalf of the appellant to ask the court to
order Dwarika Prasad Singh to produce the accounts. An adverse inference
could only have been drawn against the plaintiff-respondents if the
appellant had asked the court to order them to produce accounts and they
had failed to produce them after admitting that Basekhi Singh used to keep
accounts. But no such prayer was made to the court, and in the
circumstances no adverse inference could be drawn from the non-
production of accounts .”
(emphasis supplied)
67) The judgment in Union of India Vs. Imbrahim Uddin would not
assist the case of contesting Defendants as Plaintiffs are not suggesting that
adverse inference should be drawn against them for failure to produce the
original documents. In fact, Plaintiffs do not desire to rely on the documents of
which photocopies are produced by the contesting Defendants. It is contesting
Defendants who are relying on those documents in support of their defence.
Therefore it was incumbent for them to produce originals of those documents.
Since Plaintiffs do not want this Court to draw any adverse inference against
contesting Defendants, failure by Plaintiffs to ask Defendants’ witness to
produce originals would not mean that photocopies of those documents, in
absence of production of originals, would be admissible in evidence.
68) In my view therefore, even though photocopies of various
documents are marked by this Court as exhibits, the same cannot be relied upon
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or treated as admissible in evidence in the light of failure on the part of the
contesting Defendants to produce either originals or certified ROC copies.
69) One thing however must be clarified here. Though I have held that
various documents marked as exhibits cannot be read in evidence on account of
failure to produce original or ROC certified copies, it must also be clarified here
that even if those documents are to be read in evidence, the same would not have
any effect on the ultimate decision of the suit. It must also be clarified here that
this Court has taken note of contents of some of those documents such as
Minutes of the Meetings, resolution passed therein, etc. Therefore, it is not that
the result of the suit is dependent only on admissibility of those documents in
evidence. Even if those documents are read in evidence, the ultimate conclusions
reached on various issues by this Court would still remain unaffected.
F.2 I NCOMPLETE E VIDENCE OF PW1
70) Original Plaintiff No.1-Mr. Anil K. Bodani filed his Affidavit of
Evidence dated 15 November 2011. His cross-examination commenced on 22
April 2014. By 30 October 2014, 10 sessions of cross-examination of PW1 were
nd rd th th th th th nd
conducted on 22 ,23 ,28 April, 7 May, 19 June, 8 , 25 July, 22
th th
September, 7 October and 30 October 2014. In those 10 sessions of cross
examination, he was put to as many as 478 questions. According to the contesting
Defendants, the cross-examination of PW1 remained incomplete. On 20
December 2014, PW1 passed away. According to contesting Defendants, since
cross-examination of PW1 was not complete as on 20 December 2014, his
evidence is required to be discarded on account of non-grant of full and complete
opportunity to them to cross-examine PW1. On the other hand, it is the
contention of Plaintiffs that PW1 has been extensively cross-examined on all
crucial points of dispute and that therefore the evidence led by PW1 is entirely
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admissible. Both sides have relied upon various judgments on this issue. Plaintiffs
Krishan Dayal
have relied upon judgment of the Delhi High Court in (supra) in
which DW2 therein died before he could be subjected to cross-examination. The
issue before Delhi High Court was whether the statement of DW2 therein was
admissible and if so, what weight could be attached to a statement in case the
witness dies before cross-examination. After considering various decisions on the
subject, Single Judge of the Delhi High Court held as under :
I have given the matter my consideration and am of the view that the statement
of a witness in examination-in-chief, which was admissible at the time it was
recorded, cannot become inadmissible by reason of the subsequent death of the
witness before cross-examination. The absence of cross-examination would
undoubtedly affect the value and weight to be attached to the statement of the
witness, but it would not render the statement inadmissible, or result in its
effacement. So far as the question is concerned as to what weight should be
attached to such statement made in examination-in-chief the Court has to keep
in view the facts and circumstances of each individual case. Some of the factors,
which may be borne in mind are the nature of the testimony, its probative value,
the status of the witness, his relationship or connection with the parties to the
case, a likely anumus which may colour his statement and any other factor
touching the credibility of the witness which may emerge on the record. Regard
must also be had to the fact that the witness has not been subjected to cross-
examination. The Court should see whether there are indications on the record
that as a result of cross-examination his testimony was likely to be seriously
shaken or his good faith or credit to be successfully impeached. The Court may
also adopt a rule not to act upon such testimony unless it is materially
corroborated or is supported by the surrounding circumstances. If after
applying that rule of caution, the Court decides to rely upon the statement of a
witness who was examined in chief, but who died before cross- examination, the
decision of the Court in this respect would not suffer from any infirmity.
71) Mr. Sancheti is quick enough to highlight the observation of Delhi
High Court in Krishan Dayal that absence of cross-examination affects value and
weight to the statement of the witnesses. He has further submitted that in the
present case, testimony of PW1 is not corroborated, which could have been done
by Plaintiff No.1-Dharmil Bodani (son of PW1) who failed to step into witness
box despite being aware of facts of the present case.
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72) Mr. Dhond has also relied upon judgment of the Single Judge of
Banganga Co-operative Housing Society Ltd.
this Court in (supra) in which this
Court has held that mere incomplete testimony by reason of death or incapacity
of the witness before cross-examination does not render the evidence
inadmissible. This Court has further held that what probative or evidentiary
value is to be attached to such evidence would depend on facts of each case.
73) Mr. Dhond has also relied upon judgment of Single Judge of Kerala
Food Inspector
High Court in (supra) where PW1 had expired before he could be
cross-examined. It is held in paragraph 12 of the judgment as under :
12. The general proposition that the evidence of a witness who is not subjected
to cross-examination cannot be looked into, cannot be disputed. But the
question to be considered in this case is whether the evidence of PW 1 who was
examined in chief and was not available for cross-examination due to his death
in the meanwhile, is admissible in evidence or not. The principles laid down in
the decisions relied upon by the counsel for the appellant referred to above
clearly establish that the evidence of a witness who could not be subjected to
cross-examination due to his death before he could be cross-examined, is
admissible in evidence, though the evidentiary value will depend upon the facts
and circumstances of the case. Therefore, the lower court is not at all justified
in discarding the evidence of PW 1 on the ground that he was not available for
cross-examination and therefore, great prejudice will be caused to the
respondents if his evidence is accepted.
74) On the other hand Mr. Sancheti has relied upon judgment of
Allahabad High Court in Narsingh Das (supra), in which it is held as under :
In that state of affairs Musammat Chandrawal died on the 19th of February,
1922- it is said she died of plague. The plaintiff naturally wished that evidence
to be used in the lower court and here. It was excluded in the lower court and
we have been obliged to exclude it here, being guided by the decision which is
reported in Boisagomoff v. The Nahapiet Jute Company and on a consideration of
the terms of section 33 of the Evidence Act, and we have had to decide that the
evidence cannot be received because the evidence was not concluded. That is to
say, although her examination-in-chief was concluded, it was open to the
defendants to argue that a subsequent cross-examination would have destroyed
to a great extent the effect of the evidence-in-chief, and therefore one could not
take an incomplete deposition of the lady and pay any attention to it. We have
no doubt that the argument put forward by the defendants was a good
argument, and we did decide to exclude her incomplete statement, and it has
not been presented to us.
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75) The judgment in Narsingh Das (supra) has been followed by Single
Judge of Allahabad High Court in Varun Agarwal (supra). To distinguish the
judgment in Narsingh Das , Mr. Dhond in Rejoinder has relied upon judgment in
51
Ahmad Ali and others V/s. Joti Prasad and another wherein the judgment of
Narsingh Das has been noted and it is held that there is a difference between
rejecting evidence on the ground of inadmissibility and ignoring it on the ground
of it being not believable. Mr. Dhond has also relied upon judgment of
Dever Park Builders Pvt. Ltd. and others V/s. Smt.
Calcutta High Court in
52
Madhuri Jalan and others which has taken note of both the judgments in
Narsingh Das (supra) and Ahmad Ali (supra) and has followed the latter.
According to Mr. Dhond the view in Ahmad Ali (supra) is further followed by
Andhra Pradesh High Court in Somagutta Erapa Reddy and another V/s.
53
Palapandla Chinna Gangappa and others . Mr. Dhond has also relied upon
54
judgment of the Apex Court in Satnam Singh V/s. Sadhu Singh in which it is
held in paragraph 6 as under :
"6. So far as the question whether the plaintiffs failed to prove the agreement
for sale is concerned, the first appellate court as well as the High Court rejected
the evidence of the plaintiffs on irrelevant ground. It has come on evidence on
record that Teja Singh, one of the attesting witnesses, after his examination-in-
chief died and, therefore, he could not put up for cross-examination. Under
such circumstances, the evidence of Teja Singh could not have been excluded.
Similarly, the evidence of Jagdish Singh Uppal, the scribe, ought not to have
been rejected on the ground that he did not know the parties personally. We
are, therefore, of the opinion that the view taken by the High Court in rejecting
the plaintiffs' evidence was erroneous.
76) After taking stock of various decisions cited by both the sides, it is
seen that there is no hard and fast rule that in every case wherever witnesses dies
51
AIR 1944 ALL 188.
52
AIR 2002 Cal 281.
53
2001 SCC OnLine AP 1322.
54
(2010) 15 SCC 335.
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before completion of cross-examination, his evidence is required to be discarded
altogether. It is for the Court to decide what weight and value is to be attached to
the statements made in the evidence. In the present case, as observed above,
PW1 has been extensively cross-examined on behalf of Defendant No.2 in 10
sessions held during 22 April 2014 to 30 October 2014 by asking him as many as
478 questions. His cross-examination runs into 118 pages. In my view therefore,
PW1 has been substantially cross-examined at the behest of the contesting
Defendants. Though it is sought to be urged that Defendant No.11 could not
cross-examine PW1, considering the main issue involved in the present suit about
validity of conduct of three Board Meetings and one AGM (in which Defendant
No.11 did not have much role to play), denial of opportunity of cross-examination
to Defendant No.11 would not render the testimony of PW1 inadmissible in
evidence. It is also required to be noted that most of the case of the Plaintiffs is
based on documentary evidence particularly the SPA dated 27 October 1998. The
nature of SPA is disputed by contesting Defendants and they sought to lead
evidence to prove that the same does not amount to sale of shares and was
executed merely as security for loan. Similarly it is the case of the contesting
Defendants that authorised share capital of the First Defendant Company was
increased to Rs.1.50 crores and that 75,000 shares were allotted to Defendant
No.11 towards conversion of debt into equity. All the documents in this regard
are relied upon by Defendants. In that view of the matter, even if cross-
examination of PW1 is treated as incomplete, the same would not be a ground for
discarding his evidence altogether.
77) It must also be noted that in the present case, both the parties seem
to have adopted the course of subjecting witnesses to unending cross-
examinations. While PW1 was subjected to 478 questions before his death,
Plaintiffs can also be accused of similar conduct as they subjected DW1 to long
and unending cross-examination running into 1153 questions, running into 206
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pages. Such practice of subjecting witnesses to unending cross-examination is
required to be deprecated, as the same results in wastage of Court’s valuable
judicial time as well as delay in decision of proceedings. Though in the present
case, most of the cross-examinations are conducted before a Court
Commissioner, mere appointment of Court Commissioner for conduct of cross-
examination does not mean that parties can go on asking unending questions to
witnesses making the task of Court difficult to locate the relevant portion in the
evidence. In the present case, the incomplete cross-examination of PW1 runs into
118 pages, whereas the cross-examination of DW1 has been extended to as many
as 206 pages. Both the parties have thus expected this Court to run through
hundreds of pages of cross-examination to locate the relevant part thereof. This
is the reason why this Court is of the view that the course of action adopted by
the parties to the present suit in conducting unduly long cross-examination of
witnesses is required is to be deprecated.
78) Be that as it may. After having considered the cross-examination of
PW1, I am not inclined to discard his testimony altogether.
F.3 F AILURE T O E XAMINE M R . D HARMIL B ODANI A S W ITNESS
79) Mr. Sancheti has contended that after evidence of PW1 remained
incomplete due to his demise, it was possible for Mr. Dharmil Bodani, his son
and who got himself transposed as Plaintiff No.1, to enter the witness box to fill
up the gap in evidence. However Mr. Dharmil Bodani did not come forward as
witness despite he claiming to have personal knowledge of various events
narrated in the Plaint as well as in the evidence of PW1. According to Mr.
Sancheti, Mr. Dharmil Bodani was always a party to the suit (earlier as
Defendant No.16 and now as Plaintiff No.1). It is contended that in the Plaint, it
is averred that (i) Mr. Dharmil Bodani held alleged meeting in November 2000
with Defendant No.2 and a specific Issue No.6 has been framed in this regard, (ii)
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that Original Plaintiff No.1 had given Power of Attorney to Mr. Dharmil Bodani
to take various steps on his behalf, (iii) that Mr. Dharmil Bodani signed notice
dated 7 December 2000 requisitioning EOGM, (iv) that he gave public notices on
17 and 18 December 2000, (v) that report of 21 November 2000 was sent by Mr.
Bharat Pathak to Mr. Dharmil Bodani, (vi) that he lodged police complaints etc.
According to Mr. Sancheti, adverse inference needs to be drawn against Plaintiffs
for having withheld evidence of Mr. Dharmil Bodani. Reliance in this regard is
placed on judgment of the Apex Court in Iswar Bhai C. Patel (supra), in which
the Apex Court has held in paragraphs 22 to 28 as under :
22. This decision has since been relied upon practically by all the High Courts.
The Lahore High Court in Kirpa Singh v. Ajaipal Singh observed as under:-
"It is significant that while the plaintiffs put the defendant in the
witness-box they themselves had not the courage to go into the witness-
box. Plaintiffs were the best persons to give evidence as to the "interest"
possessed by them in the institution and their failure to go into the
witness-box must in the circumstances go strongly against them."
23. This decision was also relied upon by the Bombay High Court in Martand
Pandharinath Chaudhari v. Radhabai Krishnarao Deshmukh which observed as
under:-
"It is the bounden duty of a party personally knowing the facts and
circumstances, to give evidence on his own behalf and to submit to
cross-examination and his non-appearance as a witness would be the
strongest possible circumstance which will go to discredit the truth of
his case."
24. The Lahore High Court in two other cases in 1934, namely, Bishan Das v.
Gurbakhsh Singh and Puran Das Chela v. Kartar Singh took the same view.
25. A Division Bench of the Patna High Court in Devji Shivji v. Karsandas
Ramji relying upon the decision of the Privy Council in Sardar Gurbakhsh Singh
v. Gurdial Singh and the Madhya Pradesh High Court in Gulla Kharagjit
Carpenter v. Narsingh Nandkishore Rawat have also taken the same view. The
Madhya Pradesh High Court also relied upon the following observation of the
Calcutta High Court in Pranballav Saha v. Tulsibala Dassi :
"The very fact that the defendant neither came to the box herself
nor called any witness to contradict evidence given on oath against her
shows that these facts cannot be denied. What was prima facie against
her became conclusive proof by her failure to deny.
26. The Allahabad High Court in Arjun Singh v. Virendra Nath held that :
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"The explanation of any admission or conduct on the part of a party
must, if the party is alive and capable of giving evidence, come from
him and the court would not imagine an explanation which a party
himself has not chosen to give."
27. It was further observed that:
"If such a party abstains from entering the witness-box it must give
rise to an inference adverse against him.”
28. A Division Bench of the Punjab & Haryana High Court also in Bhagwan
Dass v. Bhishan Chand drew a presumption under Section 114 of the Evidence
Act that if a party does not enter into the witness box, an adverse presumption
has to be drawn against that party.
80) On the contrary, Mr. Dhond has contended that the entire case of
the Plaintiffs is based on the nature of transaction in the SPA and the validity of
Board and AGM meetings of Defendant No.1-Company to which Mr. Dharmil
Bodani was not a party. Perusal of various findings recorded above would indicate
that the whole controversy between the parties revolve around two important
aspects viz. (i) the nature of the transaction that took place between the parties
on 27 October 1998, and (ii) validity of meetings conducted on 10 August 2000, 4
September 2000, 30 September 2000 and 18 October 2000. It is not the case of
the Defendants that Mr. Dharmil Bodani had any role to play with regard to
either of the two controversies. He is not party to the SPA nor he had any
capacity to attend any of the four Board Meetings. Merely because Original
Plaintiff No.1 executed Power of Attorney in favour of Mr. Dharmil Bodani, the
same did not mean that it was incumbent for him to depose before this Court
with regard to above two controversies. The subsequent actions taken by Mr.
Dharmil Bodani after discovery of the actions taken by the contesting Defendants
of unauthorizedly increasing share capital of First Defendant Company,
allotment of 75,000 shares to Defendant No.11, reduction of stake of Original
Plaintiffs from 99.96% to 24.99%, etc does not mean that evidence of Mr. Dharmal
Bodani was either relevant or vital for deciding the issue of validity of the
aforesaid actions. Reliance of Mr. Sancheti on illustration in clause (g) of Section
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114 of Evidence Act is misplaced as presumption of evidence of Mr. Dharmil
Bodani being unfavourable to Plaintiffs cannot be drawn in the facts and
circumstances of the present case. In my view therefore, failure on the part of the
Plaintiffs to lead evidence of Mr. Dharmil Bodani is inconsequential.
F.4 N ATURE OF THE S HARE P URCHASE A GREEMENT D ATED 27
O CTOBER 1998.
(I SSUE N OS . 1 & 2)
81) As observed above, the first Defendant Company was originally
incorporated in the name of ‘ Clover Agricultural and Farming Company Pvt. Ltd. ’,
whose name was changed on 12 October 1993 to ‘ Manju Meadows Pvt. Ltd. ’. It is
common ground that the main, and possibly the only, asset of the first Defendant
Company is ‘ Manju Meadows Stud Farm ’ spread over 101.07 acres at Village-
Shirgaon, Taluka-Maval, District-Pune. At the relevant time, shares of first
Defendant Company were owned by Gupta Family comprising Defendant Nos.2
to 7. Mr. Ashwin Mehta-(Defendant No.8) and Rajesh Khandelwal (Defendant
No.9), in addition to Defendant No. 2, were directors of the Company. It is also
common ground that Defendant No.10-Ajit Investments (partnership firm), as
well as Defendant No.11-Somerville Farm Pvt. Ltd. (private limited company)
are also group concerns of Gupta Family. There is a dispute about ownership of
shares by Defendant No.11-Somerville, which is being dealt with separately.
82) Family friendship between original Plaintiffs and Defendant Nos. 2
and 3 as well as common horse racing interests of original Plaintiff No. 1 and
Defendant No. 2 appear to be the main reason why the transaction in question
has taken place. According to Plaintiffs, third Defendant-Manju Gupta was
considered as Rakhi sister of original Plaintiff No.1-Anil Bodani. It is Plaintiff’s
case that Mr. Govind Gupta had approached Mr. Anil Bodani seeking his help to
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sell his and his family’s stake in the first Defendant Company in order to take
care of financial constraints and at that stage, Mr. Anil Bodani suggested that he
himself would purchase the stake of Gupta Family in the first Defendant
Company. Accordingly, a resolution was adopted by the Board of Directors of the
first Defendant Company on 23 October 1998 resolving to sell 24,990 shares by
all shareholders of the Company in favour of the original Plaintiffs.
83) There is great deal of debate between the parties about the assets of
the first Defendant Company as on the date of execution of the Share Purchase
Agreement. While Plaintiffs contend that the land admeasuring 101.07 acres at
Village-Shirgaon, Taluka-Maval, District-Pune was the only asset of the
Company, Defendant Nos.1 to 11 contend that what the first Defendant
Company owned was a well-developed and landscaped stud farm comprising of
thousands of trees, various kind of horses, equipment etc. This factual
controversy is being dealt with in latter portion of the judgment while dealing
with the issue of undervaluation of sale. There is no dispute to the position that
by Resolution dated 23 October 1998 (Exhibit P-6), the first Defendant Company
resolved to sell 24,990 shares to the Original Plaintiffs.
F.4.1 C OVENANTS OF SPA
84) On 27 October 1998, Share Purchase Agreement was executed which
was signed by Defendant Nos. 2 to 7 in their capacity as shareholders of the first
Defendant Company in favour of the Original Plaintiffs (Anil K. Bodani and
Chandrika A. Bodani). Defendant Nos. 2, 8 and 9 are confirming parties to the
SPA, in their capacity as directors. By SPA executed on 27 October 1998, the
‘First Party’ sold in favour of the ‘Second Party’, equity stake representing
99.96% of paid-up equity share capital of the first Defendant Company for sum of
Rs.29,98,800/-. Clause-2.5 of the SPA gives the details of 24,990 shares owned
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by the First Party which are shown to have been sold in favour of the Second
Party. It would be relevant to reproduce some of the important clauses of the
SPA.
THIS SHARE PURCHASE AGREEMENT (hereinafter referred to as the
“SPA” of the “Agreement”) is made on this 27th day of October 1998.
BY AND BETWEEN:
Mr. Govind Gupta, Mrs. Manju Gupta, Miss Radhika Gupta, Miss
Meera Gupta, Mr. Akshat Gupta, Mr. Vikram Gupta, all e xisting
Shareholders of Manju Meadows Pvt. Ltd. a company incorporated under the
Companies Act, 1956 having its registered office at Metro House, 2nd floor,
Mahatma Gandhi Road, Bombay 400 020 hereinafter collectively referred to as
“the First Party” (which expression shall, unless repugnant to the context or
meaning hereof, be deemed to include their respective heirs, legal
representatives, executors and administrators) of the One Part.
AND
Mr. Anil K. Bodani & Mrs. Chandrika A. Bodani both of Mumbai Indian
Inhabitant, residing at 51 Elcid, B.G.Kher Marg, Bombay 400 006 hereinafter
referred to as "the Second Party" (which expression shall unless repugnant to
the context or meaning hereof, be deemed to include their respective legal
representatives, executors, administrators and permitted assigns) of the Other
Part.
AND
Mr. Anil K. Bodani, residing at 51 Elcid, B.G.Kher Marg, Bombay 400 006,
hereinafter referred to as "the Third Party" (which expression shall, unless
repugnant to the context or meaning hereof, be deemed to include his legal
representatives, executors, administrators and assigns) of the Third Part.
AND
Mr. Govind Gupta, residing at 11/2, Mont Blanc Apts., Dadyseth Hill, August
Kranti Marg, Bombay 400 036, Mr. Ashwin B. Mehta, residing at 27/A,
Shangrila, Carmichael Road, Bombay 400 026, Mr.Rajesh R. Khandelwal
residing at B-1201, Bhavani Complex, 62 Bhavani Shankar Road, Dadar (W),
Bombay 400 028 all Directors of Manju Meadows Pvt. Ltd. having its
Registered office at Metro House, 2nd floor, Mahatma Gandhi Road, Bombay
400 020 hereinafter collectively referred to as "Confirming Parties" (which
expression shall, unless repugnant to the context or meaning hereof, be deemed
to include their heirs, legal representatives, executors, administrators and
permitted assigns);
WHEREAS, the First Party are holding 100% equity share in Manju Meadows
Pvt. Ltd. a company incorporated under the Companies Act, 1956, having
Registered office Metro House, 2nd floor, Mahatma Gandhi Road, Bombay 400
020 (hereinafter referred to as "MMPL");
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WHEREAS, MMPL is engaged in business of farming and breeding of live
stock;
WHEREAS, the Second Party is desirous to purchase the paid up and
subscribed capital of MMPL owned by the First Party and the First Party herein
has agreed to sell the said shares being the paid up capital and subscribed capital
of MMPL owned by the First Party.
WHEREAS, the Second Party is desirous of appointing the Third Party as a
Director of MMPL after the said purchase of shares with the Confirming Parties
to continue as Directors of MMPL for the time being.
WHEREAS, the parties hereto, upon the basis of the representations and
warranties, in consideration of the mutual covenants set forth herein and subject
to the terms and conditions set forth in this Agreement agree as follows:
NOW THIS AGREEMENT WITNESSETH AS UNDER:
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Definitions.
In this Agreement, unless the context otherwise requires, the following
expressions enumerated herein shall have the following meaning:
a) "Agreement" or "SPA" means this Share Purchase Agreement entered into
between the parties hereto on this 27th day of October 1998:
b) "Equity Stake" shall mean the entire share holding of the First Party
i.e.99.96% of the existing paid up and subscribed share capital of MMPL;
c) "First Party" shall mean Mr. Govind Gupta, Mrs. Manju Gupta, Miss.
Radhika Gupta, Miss. Meera Gupta, Mr. Akshat Gupta and Mr. Vikram Gupta
and Ajit Investments, a Partnership firm under the Indian Partnership Act,
1932, and Somerville Farms Pvt. Ltd, a company incorporated under the
Companies Act, 1956, both having their registered office address at Metro
House, 2nd Floor, M.G.Road, Bombay - 400 020.
--
--
ARTICLE II
PURCHASE AND SALE OF EQUITY STAKE
2.1 The First Party hereby sell and the Second Party hereby purchases the
equity stake representing 99.96% of the paid up equity share capital of MMPL in
the manner and on such terms and conditions as hereinafter contained.
2.2 In consideration of sale of the entire equity stake by the First Party a sum of
Rs.29,99,800/- (Rupees Twenty Nine Lakhs Ninety Eight Thousand Eight
Hundred only) has been paid by the Second Party to the First Party (receipt
whereof the First Party doth hereby admit and acknowledge).
2.3 After the acquisition of the Equity Stake, the Second Party shall be entitled
to and shall receive all rights and privileges, of any nature whatsoever, declared,
issued or delivered in respect of the Equity Stake and any and all other rights
attaching thereto.
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2.4 After the acquisition of the Equity Stake, the Second Party shall, as
incidental to the ownership of the shares, be entitled to full use, right, title and
interest in 101.7 acres of land situate at Village Shirgaon, Taluka Maval, District
Pune more particularly described in Schedule "A" hereunder written
(hereinafter referred to as "the said lands"), approximately 55.975 acres of
which are mortgaged with the Shamrao Vithal Co- operative Bank Ltd.
2.5 The First Party have represented that the Equity Stake is currently held
jointly by them in MMPL as follows :
S.No. Name of Share
Shareholder Certificate
No.
Distinctive No. of
Nos. Shares
1. Mr. Govind Gupta 54 to 69 15001-19000 4000
2. Mrs. Manju Gupta 1 1 13490
2 2
3 3-152
4 153-252
5 253-377
6 378-502
19 1003-1500
20 1501-2990
23 3251-4750
26 5001-6000
27 6001-7000
28 7001-8000
29 8001-9000
34 to 43 10001-12500
70 to 81 19001-22000
3. Miss Radhika Gupta 12 3241-3250 1250
22 3111-3230
25 4871-4990
30 9001-9250
44 12501-12750
82 & 83 22001-22500
4. Miss Meera Gupta 14 4991-5000 1250
21 2991-3110
24 4751-4870
31 9251-9500
44 12751-13000
84 & 85 22501-23000
5. Mr. Akshat Gupta 18 753-1002 2500
33 9751-10000
46 to 49 13001-14000
86 to 89 23001-24000
6. Mr. Vikram Gupta 17 503-752 2500
32 9501-9750
50 to 53 14001-15000
90 to 93 24001-25000
24990
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2.7 Annexed hereto as Annexure “1” is a copy of the audited Balance Sheet of
MMPL dated 31st March, 1998. The First Party doth hereby confirm that the
said audited Balance Sheet of MMPL dated 31st March 1998 gives a true and
fair view of the state of affairs of MMPL as at 31st March, 1998 and the results
of MMPL for the financial year ended on 31st March, 1998.
ARTICLE III
PAYMENT FOR EQUITY STAKE
3.1 The First Party hereby admits and acknowledges payment for the shares
being transferred by the First Party to the Second Party in full and final
settlement of the account under which a sum of Rs 29,98,800/- (Rupees
Twenty Nine Lakhs Ninety Eight Thousand and Eight Hundred only) has been
paid by the First Party to the Second Party.
ARTICLE V
MANAGEMENT OF MMPL-BOARD OF DIRECTORS
5.1 On the date of execution and delivery hereof, the boards of MMPL shall be
reconstituted as follows:
1) The board of directors of MMPL shall meet and approve the following items:
a) Re-confirm the transfer of Equity Stake;
b) Appoint the Third Party, Mr. Anil K. Bodani as Director of MMPL;
5.2 All decisions in respect of the management and running of MMPL shall be
taken by the Board of Directors of MMPL with the concurrence of the Third
Party.
5.3 The Confirming Parties shall appoint such further persons as Directors of
MMPL as the Second Party shall so direct.
5.4 The Confirming Parties shall forthwith submit their resignation from the
Board of Directors of MMPL as and when the Second Party shall so direct.
10.9 Entire Agreement.
This Agreement and the agreements expressly contemplated hereby constitute
the entire agreement and understanding between the parties, and supersede all
prior agreements, whether oral or written, between the parties with respect to
the subject matter hereof and thereof. No rights are created by this Agreement
and any of the documents contemplated hereby that are not expressly set forth
herein or therein.
85) Bare perusal of the SPA dated 27 October 1998 shows that what it
effected was ‘sale’ of 99.96% of paid-up equity share capital of the first Defendant
Company representing 24,990 shares with distinctive numbers indicated in the
SPA by the ‘First Party’ in favour of the ‘Second Party’. However, the
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contesting Defendants have raised a defence that the SPA was executed only by
way of security and that the same was never meant to be acted upon. It is the case
of the contesting Defendants that the loan of Rs.1.20 crores was advanced by the
original Plaintiffs to Defendant Nos. l to 3 and the SPA was therefore executed
only for the purpose of comfort and security for such loan. This defence was
raised by contesting Defendant Nos.1 to 3 in letter dated 21 November 2000 in
which details of alleged loan of Rs.1.20 crores, split into various parts, were given
contending that various documents executed on 27 October 1998 including SPA
were handed over to Original Plaintiffs for the limited purpose of giving them a
sense of security and to satisfy their advisors that they were fully secured about
repayment of such loan. It is on account of this defence taken by the contesting
Defendants that the whole dispute about the nature of transaction effected by
SPA dated 27 October 1998 has erupted.
86) If contesting Defendants succeed in proving that SPA was never
meant to be for sale of any shares of the first Defendant Company to the Original
Plaintiffs, Plaintiffs would have no shareholding in the first Defendant Company
and the entire suit will have to be dismissed. On the contrary, if the said defence
of the contesting Defendants gets demolished, SPA will have to be read to mean
what it records viz. ‘sale’ of 24,990 shares of the first Defendant Company in
favour of the original Plaintiffs. In that event, Plaintiffs would become owners of
the first Defendant Company leaving only 10 shares as on 27 October 1998 to be
owned by Defendant Nos. 2 and 10/11. Therefore, Plaintiffs’ case of gaining
virtually total control over the first Defendant Company on the strength of
ownership of 99.96% stake in its equity share capital hinges on demolition of
defence of the contesting Defendants about SPA being a mere document
executed towards security.
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87) As observed above, various covenants of Share Purchase
Agreement undoubtedly show the nature of transaction to be ‘sale’ of 24,990
shares, which is sought to be disproved by contesting Defendants by leading
parole evidence. The issue is therefore whether such parole evidence can be led
to disprove what is stated in a written contract.
88) It would be first necessary to refer to pleadings of contesting Defendants
about the nature of SPA. Contesting Defendants have claimed that SPA was
executed only as security for repayment of loan and was never intended to mean
actual sale of shares to original Plaintiffs. In paragraph 44 of his Written
Statement Defendant No.2 has averred that ‘ the Share Purchase Agreement dated
27 October 1998 was entered into only as and by way of comfort and as one of the
various security document for the repayment of amounts loaned by Plaintiffs to
Defendant Nos.1 to 7 ’. However this defence goes completely against admission
given by Defendant No.2 in paragraph 10 of the Written Statement wherein it is
averred that " the Defendants says that the aforesaid is totally erroneous inasmuch on
the date of filing of the suit Plaintiffs hold only 24.99% shares of the 1st Defendant
Company ’. Similar admission is given by Defendant No.1 in its Written
Statement wherein it is averred in paragraph 1 that " This Defendant says that the
current shareholding of the Plaintiffs in this Defendant is 24.99% and not 99.96% as
alleged ". The admission given by Defendant Nos.1 and 2 about Plaintiffs owning
24.99% shares of the first Defendant Company clearly belies their contention that
SPA was executed only as a comfort document and towards security for
repayment of loan.
89) Plaintiffs have relied upon Section 92 of the Evidence Act and
‘ Entire Agreement Clause ’ of SPA in support of their contention that no extrinsic
evidence can be led to disprove what is documented in the form of the SPA. It
would therefore be necessary to consider effect of Section 92 of Evidence Act and
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of ‘ Entire Agreement Clause ’ for deciding the issue of nature of transaction
effected between the parties on 27 October 1998.
ERMISSIBILITY TO EAD AROLE VIDENCE NCONSISTENT
F.4.2 P L P E I
WITH RITTEN ONTRACT
W C
90) It is Mr. Dhond’s contention that since the transaction of sale of
shares is reduced in the form of writing, contesting Defendants are precluded
from leading oral or parole evidence which is inconsistent with SPA. He has
relied on provisions of Sections 91 and 92 of the Indian Evidence Act, 1872,
which provide thus:
91. Evidence of terms of contracts, grants and other dispositions of
property reduced to form of document.
When the terms of a contract, or of a grant, or of any other disposition of
property, have been reduced to the form of a document, and in all cases in
which any matter is required by law to be reduced to the form of a document, no
evidence shall be given in proof of the terms of such contract, grant or other
disposition of property or of such matter, except the document itself, or
secondary evidence of its contents in cases in which secondary evidence is
admissible under the provisions hereinbefore contained.
Exception 1.- When a public officer is required by law to be appointed in writing,
and when it is shown that any particular person has acted as such officer, the
writing by which he is appointed need not be proved.
Exception 2.- Wills admitted to probate in India may be proved by the probate.
Explanation 1.- This section applies equally to cases in which the contracts,
grants or dispositions of property referred to are contained in one document and
to cases in which they are contained in more documents than one.
Explanation 2.- Where there are more originals than one, one original only need
be proved.
Explanation 3.- The statement, in any document whatever, or a fact other than
the facts referred to in this section, shall not preclude the admission of oral
evidence as to the same fact.
92. Exclusion of evidence of oral agreement.
When the terms of any such contract, grant or other disposition of property, or
any matter required by law to be reduced to the form of a document, have been
proved according to the last section, no evidence of any oral agreement or
statement shall be admitted, as between the parties to any such instrument or
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their representatives in interest, for the purpose of contradicting, varying,
adding to or subtracting from, its terms :
Proviso (1). - Any fact may be proved which would invalidate any document, or
which would entitle any person to any decree or order relating thereto; such as
fraud, intimidation, illegality, want of due execution, want of capacity in any
contracting party, want or failure of consideration, or mistake in fact or law.
Proviso (2). - The existence of any separate oral agreement as to any matter on
which a document is silent, and which is not inconsistent with its terms, may be
proved. In considering whether or not this proviso applies, the Court shall have
regard to the degree of formality of the document.
Proviso (3). - The existence of any separate oral agreement, constituting a
condition precedent to the attaching of any obligation under any such contract,
grant or disposition of property, may be proved.
Proviso (4). - The existence of any distinct subsequent oral agreement to
rescind or modify any such contract, grant or disposition of property, may be
proved except in cases in which such contract, grant or disposition of property
is by law required to be in writing, or has been registered according to the law in
force for the time being as to the registration of documents.
Proviso (5). - Any usage or custom by which incidents not expressly mentioned
in any contract are usually annexed to contracts of that description, may be
proved :
Provided that the annexing of such incident would not be repugnant to, or
inconsistent with, the express terms of the contract.
Proviso (6). - Any fact may be proved which shows in what manner the language
of a document is related to existing facts.
91) Thus, under Section 91, if terms of a contract are reduced to a form
of a document, no evidence can be given in proof of the terms of such contract,
except the document itself. Section 92 provides that once the terms of contract
are proved by proving the document under Section 91, no evidence of any oral
agreement or statement is admissible with regard to such document for the
purpose of contradicting, varying, adding or subtracting from its terms.
92)
In the present case, execution of SPA dated 27 October 1998 has
been proved. Contesting Defendants do not dispute execution of SPA. Thus, on
plain reading of provisions of Sections 91 and 92 of the Evidence Act, upon
execution of SPA being proved, no oral evidence can be led for the purpose of
contradicting the covenants of the said SPA. As against this, it is the contention
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of the contesting Defendants that law permits leading of oral evidence to prove
that executed documents were not for the purpose of which it is shown to have
been effected, as well as for the purpose of proving that the exact nature of
transaction executed between the parties. Both the sides have relied upon various
judgments in support of their respective contentions.
93) In Vimal Chand Ghevarchand Jain (supra), the Apex Court has
held in paras-22, 31, 32, 33, 36 and 37 as under:
22. The deed of sale being a registered one and apparently containing
stipulations of transfer of right, title and interest by the vendor in favour of the
vendee, the onus of proof was upon the defendant to show that the said deed
was, in fact, not executed or otherwise does not reflect the true nature of
transaction. Evidently, with a view to avoid confrontation in regard to his
signature as an attesting witness as also that of his father as vendor in the said
sale deed, he did not examine himself. An adverse inference, thus, should have
Kamakshi Builders v.
been drawn against him by the learned Trial Court. (See
Ambedkar Educational Society. )
31. Indisputably when a true character of a document is questioned,
extrinsic evidence by way of oral evidence is admissible. (See R.
Janakiraman v. State , SCC para 24; Roop Kumar v. Mohan Thedani , SCC para
19; and SBI v. Mula Sahakari Sakhar Karkhana Ltd. , SCC paras 23 to 32.) We
would, therefore, proceed on the premise that it was open to the respondent to
adduce oral evidence in regard to the nature of the document. But, in our
opinion, he did not discharge the burden of proof in respect thereof which was
on him. The document in question was not only a registered one but also the
title deeds in respect of the properties have also been handed over. Symbolical
possession if not actual physical possession, thus, must be held to have been
handed over. It was acted upon. Appellants started paying rent in respect of the
said property. No objection thereto has been raised by the respondent.
32. The Respondent paid certain amount by cheque towards the licence fee. It
was for him to show on what account the money was paid. Only because the
parties had other transactions by itself was not sufficient to hold that the
defendant has discharged his onus. If the sum of Rs.50,000/- was the amount of
loan wherefor the deed of sale was executed by way of security, having regard to
his admission that the firm is an income-tax payee and maintains books of
account in regular course of business, failure on his part to produce any
documentary evidence merited drawing of an adverse inference. Why he did not
examine himself before the trial court or before the appellate court? He should
have furnished an explanation in this regard to prove his plea. Why he failed to
produce documentary evidence had also not been explained.
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33. The approach of the first appellate court in relying upon certain
circumstantial evidence was also of no use. Why the plaintiffs have purchased
the properties at Village Saikheda or why they had allowed another tenant to
continue were not decisive far less relevant for construction of a document. The
first appellate court had arrived at a conclusion first and then started to assign
reasons in support thereof. It, as indicated hereinbefore, did not pose unto itself
the correct questions. Apart from wrongly placing the burden of proof on the
plaintiff, even adverse inference against the defendant had not been drawn. The
pleadings were required to be considered provided any evidence in support
thereof had been adduced. No cogent evidence had been adduced by the
respondent to show that the deed of sale was a sham transaction and/or the
same was executed by way of a security.
36. If the appellants were able to prove that the deed of sale was duly executed
and it was neither a sham transaction nor represented a transaction of different
character, a suit for recovery of possession was maintainable. A heavy onus lay
on the respondent to show that apparent state of affairs was not the real state of
affairs. It was for the defendant in a case of this nature to prove his defence. The
first appellate court, therefore, in our opinion, misdirected itself in passing the
impugned judgment insofar as it failed to take into consideration the relevant
facts and based its decision on wholly irrelevant consideration.
37. A heavy burden of proof lay upon the defendant to show that the
transaction was a sham one. It was not a case where the parties did not
intend to enter into any transaction at all. Admittedly, a transaction had
taken place. Only the nature of transaction was in issue. A distinction must
be borne in mind in regard to the nominal nature of a transaction which is
no transaction in the eye of law at all and the nature and character of a
transaction as reflected in a deed of conveyance. The construction of the
deed clearly shows that it was a deed of sale. The stipulation with regard to
payment of compensation in the event appellants are dispossessed was by way
of an indemnity and did not affect the real nature of transaction. In any event,
the said stipulation could not have been read in isolation. The judgment of the
first appellate court was, therefore, perverse. The High Court, thus, failed to
consider the real dispute between the parties.
(emphasis and underlining supplied)
94) Thus, in Vimal Chand Ghevarchand Jain, the Apex Court has
held that if the Defendant asserts that the document is not for sale and that the
true nature of transaction was that of loan, the onus of proof to prove such
defence is on Defendant and that the burden of proof on Defendant was heavy.
Mr. Sancheti has sought to rely upon observations of the Apex Court in para-31
of the judgment in support of his contention that when the true character of a
document is questioned, extrinsic evidence by way of oral evidence is admissible.
Though the Apex Court has held so in para-31, in latter portion of the judgment
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in para-37, the Apex Court has held that the case did not involve a situation
where parties did not intend to enter into any transaction at all and the dispute
was about its nature. The Apex Court has further held that a distinction must be
borne in mind in regard to nominal nature of transaction which is not a
transaction in the eyes of law at all and the nature and character of transaction as
reflected in the Deed of Conveyance. The Apex Court therefore held that the
construction of the Deed clearly showed that it was a deed of sale and not a
transaction of loan. Thus, in my view, extrinsic evidence in the form of oral
evidence is admissible essentially to prove the factum of parties entering into the
transaction or not. This aspect is more particularly discussed by the Apex Court
in its judgment in Gangabai (supra), wherein the Apex Court, by referring to the
judgment of Court of Appeals in Thagaraja Mudaliyar (supra), has held in para-
11 as under :
11. The next contention on behalf of the appellant is that sub-section (1) of
Section 92 of the Evidence Act bars the respondent from contending that
there was no sale and, it is submitted, the respondent should not have been
permitted to lead parole evidence in support of the contention. Section 91 of
the Evidence Act provides that when the terms of contract, or of a grant, or of
any other disposition of property, have been reduced to the form of a document,
and in all cases in which any matter is required by law to be reduced to the form
of a document, no evidence shall be given in proof of the terms of such contract,
grant or other disposition of property, or of such matter, except the document
itself. Sub-section (1) of Section 92 declares that when the terms of any
contract, grant or other disposition of property, or any matter required by law to
be reduced to the form of a document, have been proved according to the last
section, no evidence of any oral agreement or statement shall be admitted, as
between the parties to any such instrument or their representatives in interest,
for the purpose of contradicting, varying, adding to, or subtracting from, its
terms. And the first proviso to Section 92 says that any fact may be proved
which would invalidate any document, or which would entitle any person to any
decree or order relating thereto; such as fraud, intimidation, illegality, want of
due execution, want of capacity in any contradicting party, want or failure of
consideration, or mistake in fact or law. It is clear to us that the bar imposed
by sub-section (1) of Section 92 applies only when a party seeks to rely
upon the document embodying the terms of the transaction. In that event,
the law declares that the nature and intent of the transaction must be
gathered from the terms of the document itself and no evidence of any oral
agreement or statement can be admitted as between the parties to such
document for the purpose of contradicting or modifying its terms. The sub-
section is not attracted when the case of a party is that the transaction
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recorded in the document was never intended to be acted upon at all
between the parties and that the document is a sham. Such a question
arises when the party asserts that there was a different transaction
altogether and what is recorded in the document was intended to be of no
consequence whatever. For that purpose oral evidence is admissible to
show that the document executed was never intended to operate as an
agreement but that some other agreement altogether not recorded in the
document, was entered into between the parties ( Tyagaraja Mudaliyar V.
Vedathanni ). The Trial Court was right in permitting the respondent to lead
parole evidence in support of her plea that the sale deed dated January 7, 1953
was a sham document and never intended to be acted upon. It is not disputed
that if the parole evidence is admissible, the finding of the court below in favour
of the respondent must be accepted. The second contention on behalf of the
appellant must also fail.
(emphasis supplied)
95) In Thagaraja Mudaliyar, which is referred to in Gangabai , Privy
Council has dealt with case of a Hindu widow who, after death of her husband,
signed a document evidencing the undivided status of her husband and his
brother and making provision for her maintenance. She later alleged that she was
induced to sign the document on verbal assurance by the brother that the
document was only intended to create evidence of undivided status of family and
that provision for maintenance was not part of the contract. After having received
nothing in maintenance, she brought action for arrears of maintenance. The
factual background is set out in the judgment as follows:
On his death in December, 1912, his elder brother, Somasundara, took control,
had the body removed to his own house for funeral rites, and locked up the
other house in which there was a box containing jewels of which the widow had
the key. The widow, who went to live with him, disclaimed any intention of
setting up a case of separation; but there was always the possibility that her
relations might persuade her to change her mind; and at his request she agreed
to sign a document evidencing the undivided status of the family. He proceeded
at once to have a deed of settlement drawn up by which, from that day onwards,
she was to have the jewels in her possession, as set out in the schedule A, with
full powers of alienation; and as soon as she decided to live apart from him, she
was to enjoy for her life the income of the lands and to live in the house
mentioned in schedule B. In consideration of this provision she relinquished her
claims for maintenance. The annual income of the lands set apart for her was
between Rs. 2000 and Rs. 2500, only Rs 200 a month; and, as regards the house
in Bazaar Street, Tiruvarur, the plaintiff stated in her evidence that people of
her status and condition of life could not live there at all.
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There are concurrent findings of the Courts below that, when this document
was presented to her three days after her husband's death, she refused to sign it,
and was only induced to do so two days later by representations that it would
not be acted on, and was only intended to provide evidence of the undivided
status of the family. It was held by both Courts on these facts that there was no
agreement and therefore no contract.
96) The main question before the Privy Council in Thagaraja Mudaliyar was
whether oral evidence was admissible in view of Section 92 of Evidence Act to
prove facts inconsistent with the terms of the document in question. The Privy
Council held as under:
When a contract has been reduced to the form of a document, s. 91 excludes
oral evidence of the terms of the document by requiring those terms to be
proved by the document itself, unless otherwise expressly provided in the Act,
and s. 92 excludes oral evidence for the purpose of contradicting, varying,
adding to, or subtracting from such terms. Sect. 92 only excludes oral evidence
to vary the terms of the written contract, and has no reference to the question
whether the parties had agreed to contract on the terms set forth in the
document. The objection must therefore be based on s. 91, which only excludes
oral evidence as to the terms of a written contract. Clearly, under that section,
a defendant sued, as in the present case, upon a written contract purporting
to be signed by him, could not be precluded in disproof of such agreement
from giving oral evidence that his signature was a forgery. In their
Lordships' opinion oral evidence in disproof of the agreement (1.) that, as
in Pym v. Campbell , the signed document was not to operate as an agreement
until a specified
condition was fulfilled, or (2.) that as in the present case, the document was
never intended to operate as an agreement, but was brought into existence
solely for the purpose of creating evidence of some other matter, stands
exactly on the same footing as evidence that the defendant's signature was
forged .
In Pym v. Campbell the defendants were sued upon a written contract to
purchase an invention, and Lord Campbell had ruled at the trial that on the plea
denying the agreement oral evidence was admissible that it had been agreed
between the parties before they signed that there was to be no agreement until
the invention was approved by A. In his judgment discharging the rule nisi for a
new trial, Lord Campbell said (1):“It was proved in the most satisfactory
manner that before the paper was signed it was explained to the plaintiff that the
defendants did not intend the paper to be an agreement till Abernethie had been
consulted, and found to approve of the invention; and that the paper was signed
before he was seen only because it was not convenient to the defendants to
remain. The plaintiff assented to this, and received the writing on those terms.
That being proved, there was no agreement.” Erle J. who gave judgment first
had dealt more fully with this question (1):“the point made is that this is a
written agreement, absolute on the face of it, and that evidence was admitted to
show it was conditional : and if that had been so it would have been wrong. But
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I am of the opinion that the evidence showed that in fact there was never
any agreement at all . The production of a paper purporting to be an agreement
by a party, with his signature attached, affords a strong presumption that it is
his written agreement; and, if in fact he did sign the paper animo contrahendi,
the terms contained in it are conclusive, and cannot be varied by parol evidence:
…. but, if it be proved that in fact the paper was signed with the express
intention that it should not be an agreement, the other party cannot fix it as an
agreement upon those so signing. The distinction in point of law is that
evidence to vary the terms of an agreement in writing is not admissible, but
evidence to show that there is not an agreement at all is admissible .”
(emphasis supplied)
97) Both, Gangabai and Thagaraja Mudaliyar are relied upon by Mr.
Sancheti. On careful reading of the judgments in Vimal Chand Ghevarchand
Jain, Thagaraja Mudaliyar and Gangabai, what emerges is that the bar under
sub-section (1) of Section 92 of the Evidence Act is not attracted when the case of
a party is that transaction recorded in the document was never intended to be
acted upon at all between the parties and that the document itself is a sham.
However, any evidence to vary the terms of agreement in writing is not
admissible. What is admissible is only the evidence to show that there was no
agreement at all between the parties. In Thagaraja Mudaliyar, the Privy Council
has held that the document therein was never intended to operate as an
agreement, but was brought into existence solely for the purpose of creating
evidence of some other matter, stands exactly on the same footing as evidence
that the Defendant's signature was forged. In case before Privy Council, it is held
that the document in question was executed essentially to record joint status of
the family and this was the main and actual purpose for which the same was
executed. The Widow was never made aware that provision for maintenance was
also being incorporated therein. The Widow was not willing to sign the
document, which was presented before her 3 days’ after her husband’s death and
the evidence proved that she was induced to sign the same 2 days’ of her initial
refusal, under an express representation that the same was only for recording
joint status of the family. The findings of Privy Council for permitting leading of
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oral evidence inconsistent with the document are required to be read in the above
peculiar factual background.
98) In the present case, it is not the case of the contesting Defendants
that there was no agreement at all between the parties, as execution of agreement
is not disputed. In my view, following the law expounded in Vimal Chand
Ghevarchand Jain, Thagaraja Mudaliyar and Gangabai once the transaction is
not disputed, the contesting Defendants cannot be permitted to lead evidence to
vary the covenants of the SPA to prove that though the transfer of shares was
effected by SPA, the same was only for the purpose of security for loan. It is not
even the case of contesting Defendants that they were induced by original
Plaintiffs in signing the SPA or that there was any misrepresentation or
suppression by them while executing the same as was the case in Thagaraja
Mudaliyar. In my view therefore, reliance by Mr. Sancheti on judgments in
Thagaraja Mudaliyar and Gangabai does not assist his case.
99) Mr. Dhond has relied upon judgment of Division Bench of Calcutta
High Court in Halima Khatun (supra) in which it has held in paras-13, 14 and 15
as under :
13. In these circumstances we asked the learned Advocate to state clearly on
behalf of his client, what was the exact agreement between the parties, i.e., to
say, definitely whether any money was advanced under the mortgage by
conditional sale, whether that money was to be repaid, and what was the exact
agreement for sale. The learned Advocate thereupon (after taking some time for
consideration) gave us the following statement:
“The plaintiff's case, in brief, is that there was a contract for sale of the
property for Rs. 1800. The execution of the conveyance was deferred to a
certain date. The mortgage bond in question was taken in substance as security
for the performance of the contract, though in form it was a security for the
payment of money, which could be enforced as such only in the event of the
contract failing.”
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14. It seems to us that the Courts below were clearly wrong in holding that
proviso 2 to Section 92, Evidence Act applied. This proviso refers to a separate
oral agreement not inconsistent with the terms of the written agreement.
15. In the present case, the written agreement recites that Rs. 1800 is advanced
as a loan to be repaid within 15 years and that on that sum being paid, the land is
to be returned to the transferor; the alleged oral agreement is to the effect that
Rs. 1800 is paid not as a loan, but as the purchase price of the property that it is
not be repaid, and that the property is not to be returned to the original owner.
In other words the alleged oral agreement is entirely inconsistent with the
terms of the written agreement. In fact the learned Advocate was
constrained to admit that the written agreement did not represent the real
agreement between the parties at all.
(emphasis supplied)
100) Thus, in Halima Khatun, Calcutta High Court has held that the
alleged oral agreement which is entirely inconsistent with the terms of the written
agreement, cannot be proved by leading oral evidence.
101) In Keshavrao Bhagvant (supra), the Division Bench of this Court
has held in para-8 as under:
8. Then with regard to want or failure of consideration under Proviso 1 of
Section 92, it is also to be noted that no consequence invalidating the document
could follow save from a complete want or failure of consideration. For Section
25 of the Contract Act renders an agreement void in respect of consideration
only when it is made without consideration, which necessarily means the entire
absence of all consideration. The only other proviso that was mentioned in
argument was Proviso 6 and it was suggested that the facts to which the lower
Courts have referred as showing the document now in question to have meant
something different to what it purports to be, are facts shopping in what manner
the language of the document is related to the existing facts. It would be a
manifest strain of language to contend that facts intended to show that the
language of the document meant the exact opposite of what it purports to
mean, could be brought within the category of facts showing how the
language related to existing facts. There is no necessity for the explanation of
the language used in relation to existing facts. The only object or use of such
evidence, if admitted, would be to show that the language was intended to mean
something which is utterly incapable of being expressed by that language.
(emphasis supplied)
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102) Thus, an attempt to contend that facts intended to show that the
language of the document mean the exact opposite of what it purported to mean
was not countenanced by Division Bench of this Court in Keshavrao Bhagvant.
103) In addition to Thagaraja Mudaliyar and Gangabai, Mr. Sancheti
has relied upon judgment of this Court in Lonkaran Kishorilal Paliwal, in which
this Court held in para-18 as under :
18. Considering the evidence on record together with the other circumstances
discussed in the preceding paras, I am of the opinion that the findings of the
learned lower Court are unsound and unreasonable as he has not considered the
evidence and specific admissions in true and correct perspective. There is
specific admissions of Dinkar that the appellant was not in need to dispose of his
property as well as he had no other land than the land in suit. The appellant has
admitted that he was in need of money because of loss of crops and, therefore,
he approached the plaintiff No. 1 who took him to Mahadeo, a money lender.
From the facts it is crystal clear that the appellant was in need of money to the
tune of Rs. 5,000/- and he executed a deed of agreement as a security for the
loan amount. He being in need of money, he had to succumb to the desire of the
respondents and Mahadeo, to execute a deed of a agreement for Rs. 10,000/-. It
is also in the evidence that the appellant had been to the plaintiff No. 1 with an
amount of Rs. 7,500/-. i.e. Rs. 5,000/- as the principal amount and Rs. 2,500/-
as an interest as agreed upon, but the plaintiff refused to accept the amount and
demanded Rs. 10,000/-. To this also the appellant agreed and sought time. But,
the respondents issued notice directing him to attend the office of the Sub-
Registrar to execute the sale deed in respect of the suit filed. As the appellant
was and is ready to pay Rs. 10,000/- to the respondents, he is directed to pay
Rs. 10,000/- to the respondents alongwith interest @ 9% p.a. from the date of
the judgement and order of the lower Court dated 31st July, 1982 till its
realisation. In the result the appeal is allowed and the judgement and order
passed by the learned lower Court on 31-7-1982 is set aside. No order as to
costs.
104) In Lonkaran Kishorilal Paliwal, this Court has not discussed
provisions of Sections 91 and 92 of the Evidence Act, but in facts of that case, it is
held that the nature of transaction was of loan though the same was shown to be
an agreement for sale. The unique and distinct feature of that case was that the
Defendant therein had approached Plaintiff for repayment of principal amount
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with some interest, but Plaintiff had refused to accept the said amount and had
demanded higher amount. The demand of Plaintiff therein for higher amount
towards repayment clearly proved that it was a transaction of loan. In the present
case, there is nothing on record that Plaintiffs ever agreed to accept the
repayment of any amount. Thus, Lonkaran Kishorilal Pailwal is decided in the
light of facts of that case and does not throw any light on the issue involved in the
present case.
105) Mr. Sancheti has also relied upon judgment of the Apex Court in
V. Anantha Raju (supra), which has followed the judgment in Gangabai in para-
35 of its judgment and has held in para-36 as under :
36. It could thus be seen that once the plaintiffs had specifically contended that
the terms of the 1992 Deed were amended/modified by the 1995 Deed, and the
defendants admitted about the execution of the said document, i.e., the 1995
Deed, if it was the case of the defendants that the terms mentioned in the 1995
Deed were inadvertent or a mistake in fact, then the burden to prove the same
shifted upon the defendants. In view of Section 92 of the Evidence Act, any
evidence with regard to oral agreement for the purpose of contradicting,
varying, adding to, or subtracting from the terms of the written contract,
would be excluded unless the case falls within any of the provisos provided
in Section 92 . The defendants have attempted to bring their case within the
first proviso to Section 92 of the Evidence Act, by contending that mentioning
of 25% share to each of the plaintiffs in the profits and losses of the partnership
firm was a mistake in fact.
(emphasis supplied)
106) In fact, the ratio of the judgment in V. Anantha Raju can be quoted
against the contesting Defendants as the Apex Court in para-36 has specifically
held that in view of Section 92 of the Evidence Act, any evidence with regard to
oral agreement for the purpose of contradicting, varying, adding to or subtracting
from the terms of written contract would be excluded unless the case falls within
any of the provisos of Section 92.
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F.4.3 E NTIRE A GREEMENT C LAUSE
107) In addition to provisions of Section 92 of the Evidence Act, there is
yet another reason why the Defendants cannot be permitted to lead evidence to
prove existence of different agreement than the one recorded in the SPA. SPA
contains ‘Entire Agreement’ clause quoted above. The same is reproduced once
again at the cost of repetition:
10.9 Entire Agreement.
This Agreement and the agreements expressly contemplated hereby
constitute the entire agreement and understanding between the parties,
and supersede all prior agreements, whether oral or written, between the
parties with respect to the subject matter hereof and thereof. No rights
are created by this Agreement and any of the documents contemplated
hereby that are not expressly set forth herein or therein.
108) The parties have thus specifically agreed that the agreement expressly
contemplated in the SPA constitutes the entire agreement and understanding
between the parties and that no different or separate rights were created except
the one which are expressly set forth in the SPA. The ‘Entire Agreement’ clause
is inserted with a view to quell any attempt on the part of the parties to prove any
collateral agreement different than the one set forth in the SPA. In the light of the
Entire Agreement clause, the contesting Defendants cannot be permitted to
contend that what is set forth in the SPA was actually agreed upon by the parties.
109) Mr. Dhond has relied upon few judgments in support of his
contention with regard to the effect of ‘Entire Agreement’ clause. It would be
necessary to make a quick reference to the said judgments. In Thyssen Krrup
Materials AG (supra), the Division Bench of Calcutta High Court has held in
paras- 70, 71 and 72 as under :
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70. In relation to the second lot, the question that arises is whether there was an
existing contract enforceable between the parties. In this context, Clause 9 of
the main agreement (Agreement for Sale and Purchase of Prime Cold Rolled
Mild Steel Sheets in Coils) between the parties is relevant. Clause 9 is
reproduced below:
“Clause 9: Modification of the Contract
This Agreement cancels all previous negotiations/agreements between the
parties hereto. There are no understandings or agreement between the Buyer
and the Seller which are not fully expressed herein and no statement or
agreement, oral or written, made prior to or at the signing hereof shall effect
or modify the terms hereof or otherwise be binding on the parties hereto. No
change in respect of the contract covered by this Agreement shall be valid
unless the same is agreed to in writing by both the parties hereto specifically
stating the same to be an amendment to this Agreement.”
71. With respect to the second lot, admittedly, no such formal modification or
amendment to the agreement was made by the parties. The learned arbitrator
found that Clause 9 of the agreement had been waived by conduct of the parties
and in any event, it would not have any impact on the existence of a concluded
contract between the parties in relation to the second lot. He relied on the
negotiations between the parties and exchange of letters to find that there was in
existence a concluded contract between the parties in relation to the second lot.
Such kind of clauses in commercial contracts are known as “entire agreement”
clauses, the intention of which is to preclude parties from adducing evidence of
a collateral contract or agreement between the parties governing the same issue.
The English law in relation to such kind of clauses has been aptly laid down in
the case of Inntrepreneur Pub Co. Ltd. v. East Crown Ltd . [2000] 2 Lloyd’s
Rep. 611:
“The purpose of an entire agreement clause is to preclude a party to a
written agreement from threshing through the undergrowth and finding
in the course of negotiations some (chance) remark or statement (often
long forgotten or difficult to recall or explain) on which to found a claim
such as the present to the existence of a collateral warranty. The entire
agreement clause obviates the occasion for any such search and the peril
to the contracting parties posed by the need which may arise in its
absence to conduct such a search. For such a clause constitutes a
binding agreement between the parties that the full contractual terms
are to be found in the document containing the clause and not
elsewhere, and that accordingly any promises or assurances made in the
course of the negotiations (which in the absence of such a clause might
have effect as a collateral warranty) shall have no contractual force,
save insofar as they are reflected and given effect in that document.
Entire agreement clauses come in different forms. In the leading case of
Deepak v. ICI [1998] 2 Lloyds Rep 140, 138, affirmed [1999] 1 Lloyds Rep
387 the clause read as follows:
“10.16 Entirety of Agreement
This contract comprises the entire agreement between the PARTIES
… and there are not any agreements, understandings, promises or
conditions, oral or written, express or implied, concerning the subject
matter which are not merged into this CONTRACT and superseded
thereby …”
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Rix J and the Court of Appeal held in that case (in particular focusing on the
words “promises or conditions”) that this language was apt to exclude all
liability for a collateral warranty. In Alman & Benson v. Associated
Newspapers Group Ltd 20 June 1980 (cited by Rix J at p.168), Browne-
Wilkinson J reached the same conclusion where the clause provided that the
written contract “constituted the entire agreement and understanding
between the parties with respect to all matters therein referred to” focusing on
the word “understanding”. In neither case was it necessary to decide whether
the clause would have been sufficient if it had been worded merely to state that
the agreement containing it comprised or constituted the entire agreement
between the parties. That is the question raised in this case, where the
formula of words used in the clause is abbreviated to an acknowledgement by
the parties that the Agreement constitutes the entire agreement between them.
In my judgment that formula is sufficient, for it constitutes an agreement that
the full contractual terms to which the parties agree to bind themselves are to
be found in the Agreement and nowhere else and that what might otherwise
constitute a side agreement or collateral warranty shall be void of legal
effect.”
72. While there is hardly any case law or jurisprudence by Indian courts on such
concepts, this court is of the opinion that the above ruling in the context of
English law, would apply with equal force to the Indian context. The object of
insertion of such a clause is the parties ‟ resolve to prevent either of them
from raising any claim based on a collateral contract, entered into by the
parties during negotiations or after conclusion of the contract. The very
purpose of such a stipulation would be defeated in case parties were
allowed to raise a claim based on a collateral agreement, entered between
them during negotiations. In the present case, Clause 9 of the agreement
between the parties is of such nature; it would necessarily preclude the parties
from raising any claims based on collateral agreements that are not
encompassed within the present contract or are not expressly stated as being
amendments to the main agreement. That being the case, we are of the view
that the learned arbitrator fell into error by not giving Clause 9 its full intended
effect. Indeed by finding that the parties through their conduct had impliedly
waived Clause 9, the arbitrator in effect defeated the very purpose of inserting
Clause 9- that to prevent parties from raising such claims based on collateral
agreements entered into between the parties, not specifically encompassed by
the contract nor specifically stated to be amendments to the agreement.
Therefore, we set aside the arbitrator’s award in relation to the second lot of
CRC and find that there was no concluded contract entered into between the
parties in relation to the second lot.
(emphasis supplied)
110) In B.V.M. Finance (supra) the Division Bench of this Court has
held in para-41 to 45 as under:
41. Thus, the core issue is whether the Debenture Trust Deed should be treated
as a final document governing the rights of the parties.
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42. The agreements executed between the parties can be placed in two
categories. One, the documents executed between BVM Finance and its group
with Aditya Birla Finance. Second, the documents to which Vistra is party.
These are: Share Pledge Agreement, Guarantee documents, Debenture Trustee
Appointment Agreement and Debenture Trust Deed. There is a reference to
arbitration law in CAL and Information Memorandum executed between BVM
Finance and Aditya Birla Finance. There is no reference to Arbitration Act in
the agreements to which Vistra is a party. Reference is only to governing laws in
India.
43. Vistra has placed heavy reliance on clause 59.1 of the Debenture Trust Deed
named: Entire Agreement. The Clause states that the Trust Deed constitutes
the entire understanding amongst the Parties as to the subject matter thereof
and notwithstanding anything to the contrary in any prior arrangements,
agreements, representations or undertakings between the Parties regarding the
subject matter of Trust Deed, Trust Deed shall prevail. Entire Agreement
clause is a commonly used clause in commercial agreements where there are
multiple agreements between the parties. This clause is used with different
nomenclatures and different combinations of phrases. The object of the Entire
Agreement clause is to ensure that all the terms and conditions are incorporated
one document. The intention is to prevent confusion by refereeing to other
instruments and correspondence.
44. The effect of Entire Agreement has come up for consideration of the before
the Supreme Court in the case of Joshi Technologies, the Ministry of Petroleum
had issued a notice inviting tenders. The appellant before the Supreme Court
had entered into product sharing contracts. The Income Tax Department had
allowed the special deductions for first three production years, but declined the
same for fourth year and thereafter reopened the assessment for all years and
issued notices. Out of various issues raised before the Supreme Court, one was
the interpretation of a clause in the agreement under the heading “Entire
Agreement”. After analysis, the Supreme Court held that intention behind
such clauses is not to look into any other document or correspondence
which takes place between the parties before signing the agreement.
45. The ambit of Entire Agreement clause is considered in the case of
Entrepreneur Pub Co. Ltd. v. East Crown Ltd. (2000) 2 Lloyd’s Rep. 611
(Chancery Division) which decision has been relied upon by the Delhi High
Court in the case of Thyssen Krupp Materials AG v. Steel Authority of India.
The observations in the case of Interpreter Club are reproduced in the case of
Thyssen Krupp Materials AG. The Court held that the purpose of an entire
agreement clause constitutes a binding agreement between the parties that
the full contractual terms are in the document containing the clause and not
elsewhere. It observed that the Entire agreement clauses come in different
forms. Once the formula used is sufficient and constitutes an agreement that the
parties agree to bind themselves are in the Agreement and nowhere else. This
concept is applied to the Indian context. The purpose of final agreement will
be defeated if parties keep arguing referring to other documents.
(emphasis supplied)
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111) In North Eastern Properties Ltd. (supra) the Court of Appeal has
held in paras-55 and 57 as under:
55 An obvious way of providing expressly that performance of the terms of
a separate contract are not to operate as condition for the performance of
the land contract where they form parts of a composite transaction, is for
the parties to insert an appropriately worded entire agreement clause in the
land contract . In Inntrepreneur Pub Co (GL) v East Crown Ltd [2000] 2 Lloyd's
Rep 611, para 7, Lightman J said:
---
---
57 While I agree with Lightman J that the normal reason for the inclusion of
an entire agreement clause is to dispose of the risk that some collateral
contract or additional terms may be discovered in the undergrowth of the
parties’ negotiations, I see no reason why such a clause should not also
serve the valuable purpose (in a composite transaction which includes, but
does not entirely consist of, a land contract) of ensuring that the land
contract will not accidentally be construed as conditional upon the other
expressly agreed terms, so as to render the land contract void under section
2. In the context of a case such as the present, where it was acknowledged on all
sides that the 2% finder's fee was intended to be contractually binding, the entire
agreement clauses in each of the I I land contracts cannot be construed so as to
produce the contrary result. It must yield, like any written provision in a
contract, to the dictates of commercial common sense. But there is nothing
contrary to common sense in construing such a clause as having the alternative
meaning that the parties have agreed that the terms of some other part of the
composite transaction are not to be conditions for the performance of the land
contract.
(emphasis supplied)
112) Thus, the objective of inserting the ‘Entire Agreement’ clause in a
contract is to ensure that full contractual terms are incorporated in the document
and not elsewhere. The entire purpose of incorporation of ‘Entire Agreement’
clause would be defeated if the parties are permitted to contend that there was a
separate oral agreement between the parties, which is different than the one
incorporated in the written contract.
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113) In my view, after considering the combined effect of provisions of
Section 92 of the Evidence Act read with the effect of the ‘Entire Agreement’
clause, the contesting Defendants cannot be permitted to contend that the
transaction intended between the parties was not for sale of any equity in the first
Defendant Company in favour of the Original Plaintiffs and that the same was
merely for the purpose of security for loan. If the contention of the contesting
Defendants is accepted, the same would amount to violation of the express terms
of the SPA, which are reproduced above.
114) The express terms of SPA specifically provide for sale of 99.96%
equity stake upon acceptance of consideration of Rs.29,98,800/-. If the
contention of the contesting Defendants is accepted, the same will have to be
interpreted to mean that Rs.29,98,800/- was a loan advanced by original
Plaintiffs to the first Defendant Company and that the shares were transferred
only for the purpose of Plaintiffs’ comfort and for creation of security. In view of
provisions of Section 92 of the Evidence Act read with effect of ‘Entire
Agreement’ clause, it is impermissible for this Court to vary the terms of SPA as
sought to be canvassed by the contesting Defendants.
115)
It is also relevant to note that once execution of SPA is admitted, its
contents get proved in view of provisions of Sections 61, 62 and 64 of the
Evidence Act. Therefore, upon plain reading of the terms of contract embodied
in the SPA, sale and purchase of 24,990 shares of the first Defendant Company
from Defendant Nos. 2 to 7 to the Original Plaintiffs is clearly proved.
F.4.4 SPA A CTED U PON A ND S UBSEQUENTLY G IVEN E FFECT T O
116) Apart from bar under Section 92 of the Evidence Act to lead oral
evidence contrary to the terms of SPA, coupled with the effect of the ‘Entire
Agreement’ clause, what is relevant to note in the present case is the fact that the
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SPA has been acted upon and is fully given effect to. This is clear from two things
viz. actual transfer of 24,990 shares from Defendant Nos.2 to 7 to original
Plaintiffs and appointment of original Plaintiff No.1 on the Board of Directors of
the first Defendant Company.
117) So far as the aspect of actual transfer of shares is concerned, it is
seen that Share Transfer Forms and Share Certificates are proved, marked in
evidence and admitted by Defendants. Under Section 108 of the Companies Act,
1956 registration and transfer of shares require production of instrument of
transfer and an application in writing made to the Company by the transferee
(Share Transfer Form). The Share Certificate issued under the provisions of
Section 82 of the Companies Act constitute prima-facie evidence of title of the
member of such shares. Thus Share Transfer Forms (Exhibit P-46) alongwith
endorsement made on the Share Certificates in the name of the original Plaintiffs
evidencing such transfer clearly proves that the SPA was indeed acted upon by
the parties.
118) Apart from Share Transfer Forms and Share Certificates, the
extract of Register of Members has been marked in evidence at Exhibit P-25
which appears to have been issued to the original Plaintiffs by the letter of
Defendant No.1 dated 22 April 1999. The said extract of Register of Members
reflected shareholding of Original Plaintiffs of 24,990 shares.
119) Plaintiffs have also produced Annual Return of the first Defendant
Company for the year 1999, which is marked in evidence at Exhibit P-14. Perusal
of the said Annual Return dated 30 September 1999 would indicate the Original
Plaintiffs as shareholders of the First Defendant Company together holding
24,990 shares.
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120) In my view, the aforesaid four documents in the form of Share
Transfer Forms, Share Certificates, Extract of Register of Members and Annual
Return for the year 1999 prove beyond any doubt that the SPA was acted upon by
the parties and 24,990 shares were actually transferred in the name of the original
Plaintiffs.
121) Another factor to infer the real nature of SPA, is appointment of
original Plaintiff No.1-Anil K. Bodani as the Director of the first Defendant
Company. His appointment is proved by the letter of Defendant No.1 dated 2
April 1999 (Exhibit P-25) by which Form No.32 dated 30 March 1999 was
forwarded reflecting appointment of Original Plaintiff No.1 as Director of
Defendant No.1 from 30 March 1999. This position is borne out by the Annual
Return of Defendant No.1 for the year 1999 (Exhibit P-14).
122) Furthermore, the Annual Return for financial year ending on 31
March 2000 shows that purported AGM of 30 September 2000 was conducted
on the footing that original Plaintiffs owned 24,990 shares of the first Defendant
Company. This completely falsifies the defence taken by the contesting
Defendants that SPA was merely a comfort document and that the same was
executed only for security towards loan.
123) Considering the conduct of the contesting Defendants, in actually
transferring the shares in the names of original Plaintiffs and in appointing the
original Plaintiff No.1 as the Director of the first Defendant Company, it is
difficult to infer that SPA was intended merely as a security for loan transaction
and the same was never intended to effect actual sale of shares in favour of the
original Plaintiffs. It is well settled position of law that when a person voluntarily
acts on a contract which he claims is not to be acted upon, his conduct would
clearly disentitle him from raising a plea that the contract was never meant to be
acted upon. Having clearly acted upon the SPA by actually transferring the shares
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in the names of the Original Plaintiffs and by appointing Original Plaintiff No.1 as
Director, it does not lie in the mouth of the contesting Defendants that the SPA
was never meant to be acted upon.
124) The contesting Defendants have raised a defence that Plaintiffs
were only ‘ namesake shareholders ’ and that the transfer of shares was only
towards security for transaction of loan and that the transaction was never
intended to be acted upon and reversed upon repayment of loan. It becomes
difficult to accept this defence of the contesting Defendants for variety of
reasons. Firstly, there is no concept of ‘ namesake shareholder ’ under the
provisions of the Companies Act, the concept being alien to law. Secondly, the
names of the original Plaintiffs were entered into the Register of Members and
the combined effect of provision of Sections 150 and 164 of the Companies Act is
that the Register of Members constitute prima-facie evidence of owning of shares
by the persons concerned. Sections 150 and 164 of the Companies Act read thus :
150. Register of members.-
(1) Every company shall keep in one or more books a register of its members,
and enter therein following particulars:-
(a) the name and address and the occupation, if any, of each member;
in the case of the company having a share capital, the shares held by
(b)
each member, distinguishing each share by its number except where
such shares are held with a depository and the amount paid or
agreed to be considered as paid on those shares;
(c) the date at which each person was entered in the register as a
member; and
(d) the date at which any person ceased to be a member.
Provided that where the company has converted any of its shares into
stock and given notice of conversion to the Registrar, the register shall show the
amount of stock held by each of the members concerned instead of the shares so
converted which were previously held by him.
(2) If default is made in complying with sub-section (1), the company and every
officer of the company who is in default, shall be punishable with fine which may
extend to five hundred rupees for every day during which the default continues.
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164. Registers, etc., to be evidence.-
The register of members, the register of debenture-holders, and the annual
returns, certificates and statements referred to in sections 159, 160 and 161 shall
be prima facie evidence of any matters directed or authorised to be inserted
therein by this Act.
125) In Mathrubhumi Printing & Publishing Co. (supra), the Kerala
High Court has decided the effect of entry into register of members and has held
in para-36 as under :
36. It, therefore, follows that the equitable right of the transferee gets
metamorphosed into the absolute right of a shareholder only when the names of
the transferees after the recognition of the transfer, are entered on the register.
This can be viewed from another angle and it is this : when once the transferee
does everything that he is required to do under law, to get his name entered
on the register by proper lodgment of the instruments of transfer and no
other obstacles remain in enforcement of the said right, the transfer
becomes effective as against the company also. Thereafter, the company
cannot unilaterally alter its articles affecting the aforesaid right of the
transferee. Mere delay in the actual registration of the name of the
transferee on the register provided there is a proper lodgment of the
instrument of transfer cannot affect the above right of the transferee. If that
be the position, the right of the transferee to get his name entered on the
register gets crystallised when proper lodgment is effected and the transfer
from the date of the proper lodgment becomes effective as against the
company also, and such rights cannot be affected by subsequent actions of
the company like amendment of articles, etc. Subject to what is stated above,
the transfer, once the company after recognising the transfer enters the name on
the register, relates back to the time when the transfer was first made (see
Howrah Trading Co.Ltd. v. CIT, [1959] 29 Comp Cas 282 ; AIR 1959 SC 775).
(emphasis supplied)
126) Thus once the name of the transferee is entered on the Register of
Members, the transfer becomes effective as against the Company. The effect of
provisions of Sections 150 and 164 coupled with absence of any concept of
‘ namesake shareholder ’ makes it abundantly clear that original Plaintiffs became
full and absolute shareholders of the first Defendant Company upon entry of
their names in the Register of Members.
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127) In J.R.Y. Investment Pvt. Ltd. (supra), the Plaintiff therein had
entered into Agreement for Sale with Defendants and transferred shares in
favour of the Defendant as security for loan to be advanced. Plaintiff apparently
failed to receive the loan or seek its disbursal and challenged transfer of shares.
This Court held that transfer of shares was absolute and did not suffer from any
irregularity on account of Plaintiff’s failure to create a pledge. Justice S. A.
Bobade (as he then was) held in para-23 as under:
23. It is, therefore, evident that the plaintiffs conveyed their property in the
shares to defendant No. 1 and defendant No, 1 has been shown as a beneficial
owner in the depository participant account. If the plaintiffs intended to transfer
the shares in favour of defendant No. 1 on account of the pledge they could
have done so in the manner provided by regulation 58, i.e., by making an
application to the depository through defendant No. 2 depository participant,
whereupon the depository participant would have made a note that the
securities are available in the pledge in accordance with Section 58(2). The
important thing is that the security would have been accepted by the depository
as a pledger and the record would have shown the plaintiffs as the pledger, and
defendant No. 1 as pledgee. This has an important bearing on the question
whether the plaintiffs intended to convey title in the shares in favour of
defendant No. 1, or merely intended to create a pledge, In view of the fact
that the plaintiffs did not follow the procedure provided by regulations for
creating pledge, I am of the view, prima facie, that the plaintiffs had not
intended to create a pledge but intended to transfer and that in any case has
been the effect. In any case, in fact they did not create a pledge, but
transferred the shares.
(emphasis supplied)
128) Mr. Sancheti has relied on Apex Court judgment in Vistra ITCL
(India) Ltd. & Ors . (supra) in support of his contention of transaction being akin
to a pledge. The Apex Court has discussed the concept of Pledge in para 29, 30
and 31 of the Judgment as under:
29. It is accepted and admitted that Appellant 1-Vistra has security interest in
the pledged shares. In order to examine the nature of the said interest, we must
first understand what constitutes “pledge” in law.
30. The concept of “pledge” has been elucidated by this Bench in PTC (India)
Financial Services Ltd. v. Venkateswarlu Kari [PTC (India) Financial Services
Ltd. v. Venkateswarlu Kari, (2022) 9 SCC 704 : (2023) 1 SCC (Civ) 490] , with
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reference to the provisions of contract of bailment and specific provisions
concerning the pledge, a subset of bailments, in the following manner : (SCC
pp. 724-26, paras 18-20 & 22-23)
“18. As per Section 151, a bailee is bound to take as much care of the
goods bailed to him as a man of ordinary prudence would, under similar
circumstances, take of his goods of the same bulk, quality and value as
the goods bailed. Section 152 states that a bailee, in the absence of a
special contract, will not be liable for any loss, destruction, or
deterioration of the bailed goods if he acts in conformity with Section
151. As per Section 153, a contract for bailment is voidable at the option
of the bailor if the bailee does any act with regard to the goods bailed,
inconsistent with the conditions of the bailment. Section 154 lays down
that the bailee shall be liable for damage arising from unauthorised use
of the bailed goods. The bailee, with the consent of the bailor, can mix
the goods bailed with his own goods, in which event, the bailor and the
bailee will have interest in proportion to their respective shares in the
mixture. [ Section 155 of the Contract Act, 1872.] However, if the
bailee, without the bailor's consent, mixes the bailed goods with his
own, and the goods can be separated or divided, the property in the
goods remain with the parties respectively. [ Section 156 of the
Contract Act, 1872.] Further, the bailee is bound to bear the expense of
separation or division of the goods, as well as any damage arising from
the mixture. Section 157 provides that when the goods are so mixed
without the bailor's consent and cannot be separated, the bailor is liable
to be compensated, and the bailee is liable for the loss.
19. Under Section 160, the bailee has to return or deliver, as per the
bailor's directions, the goods, without demand, as soon as the time for
which they were bailed has expired or the purpose for which they were
bailed has been accomplished. Section 161 states that if there is a
default by the bailee and the goods are not returned, delivered, or
tendered at the proper time, the bailee is responsible to the bailor for
any loss, destruction, or deterioration of the goods from that time. As
per Section 163, in the absence of any contract to the contrary, the
bailee is bound to deliver to the bailor, or in accordance with his
directions, any increase or profit that may accrue from the goods bailed.
20. Section 172 of the Contract Act is reproduced as under:
‘172. “Pledge”, “pawnor” and “pawnee” defined.—The bailment of
goods as security for payment of a debt or the performance of the
promise, is called a “pledge”. The bailor is in this case called the
“pawnor”. The bailee is called the “pawnee”.’
As per Section 172, creating a valid pledge requires delivery of the
possession of goods by the pawnor to the pawnee by way of security upon
the promise of repayment of a debt or the performance of a promise,
thereby, creating an estate that vests with the pawnee.
*
22. As per Section 176, when a pawnor makes a default in payment of
debt or performance of a promise, the pawnee may bring a suit against the
pawnor upon such debt or promise and retain the goods pledged as
collateral security, or he may sell the goods pledged upon giving the pawnor
reasonable notice of the sale. If the pledged goods are sold, and the
proceeds of such sale are less than the amount due in respect of the debt or
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promise, the pawnor is still liable to pay the balance amount to the pawnee.
If the proceeds of such sale exceed the amount due, the pawnee will be
liable to pay the surplus to the pawnor.
23. Section 177 gives statutory right to the pawnor, who is at default in
payment of the debt or performance of the promise, to redeem the pledged
goods at any time before “actual sale” by the pawnee. However, in such
cases, the pawnor must pay in addition the expenses that have arisen from
his default. Section 179 states that the limited interest that a pawnor has in
the goods can be validly pledged.”
31. The law of pledge contemplates special rights for the pawnee in the
goods pledged i.e. the right to possession of the security, and in case of
default, the right to bring a suit against the pawnor, as well as the right
to sell the goods after giving reasonable notice to the pawnor. The
general rights or ownership rights in the property remain with the
pawnor, and wholly reverts to him on discharge of the debt or
performance of the promise. In other words, the right to property vests
in the pawnee only as far as it is necessary to secure the debt. We need
not refer to other portions of the said judgment which relate to right of
redemption till “actual sale”, etc.
(emphasis supplied)
129) The judgment in Vistra ITCL (India) Ltd. & Ors appears to have
been relied upon to deal with the factum of actual transfer of shares in the name
of original Plaintiffs. Relying on para-31 of the Judgment, it is sought to be
contended that a pledge contemplates physical transfer of property and that mere
registration of shares in the name of original Plaintiffs does not ipso facto make
SPA as ‘sale’ of shares. I do not see how the judgment of the Apex Court assist
the case of contesting Defendants. Firstly, SPA is not a document of ‘Pledge’,
but the same is one of absolute sale. Secondly, transfer of shares is not the only
factor on which the transaction is inferred as that of sale. There are several other
factors such as express covenants of SPA, Board Resolution for sale of shares of
23 October 1998, appointment of original Plaintiff No. 1 as director, admission of
ownership of shares in various board meetings, AGM and EOGM, etc. The
judgment in Vistra ITCL (India) Ltd. & Ors therefore is not useful for deciding
the question of nature of transaction between the parties.
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130) Contesting Defendants have also taken a defence that Notice dated 4
September 2000 in respect of AGM of 30 September 2000 was dispatched to
original Plaintiffs under certificate of posting. If Plaintiffs were only namesake
shareholders as sought to be contended by them, no explanation is forthcoming
as to why contesting Defendants considered it necessary to invite original
Plaintiffs for AGM of the first Defendant Company.
131) There is yet another factor which completely demolishes the
defence of contesting Defendants of original Plaintiffs being only ‘ namesake
shareholders ’. Original Plaintiffs called EOGM of the first Defendant Company by
letter dated 7 December 2000. The requisition was acted upon by the contesting
Defendants and an EOGM was held on 9 January 2001. If original Plaintiffs were
actually ‘ namesake shareholders ’, there was no necessity for the contesting
Defendants to act upon the requisition made by so called ‘ namesake shareholders ’
and hold EOGM on 9 January 2001. More pertinently, in the EOGM dated 9
January 2001, the said ‘ namesake shareholders ’ were permitted to propose
Resolutions and vote in support thereof. I am therefore unable to agree with the
baseless defence sought to be raised by the contesting Defendants that Original
Plaintiffs became only ‘ namesake shareholders ’ of the first Defendant Company.
132) Also of relevance is the fact that the contradiction in the defence of
the contesting Defendants about lack of ownership of shares on one hand and
ownership of 24.99% shares (which has been dealt with more elaborately in latter
portion of the judgment) once again make the theory of ‘ namesake shareholders ’
unbelievable. In different paras of the Written Statement (quoted above),
Defendant Nos.1 and 2 have repeatedly admitted that shareholding of the
Plaintiffs is 24.99%. Therefore, on this count again, it is difficult to hold that
original Plaintiffs did not become full or absolute shareholders of the first
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Defendant Company in pursuance of actions taken by the contesting Defendants
pursuant to execution of the SPA.
133) More pertinently, the contesting Defendants have not even filed a
counterclaim challenging the SPA. In action initiated by Plaintiffs, they seek to
raise a defence that SPA did not effect transfer of shares. However independent
of that defence, contesting Defendants did not file any independent action or
filed a counterclaim to seek a declaration that SPA is void and did not have the
effect of sale of shares. Though 24,900 shares are actually transferred in original
Plaintiffs’ names, no counterclaim is filed to negate the effect of such transfer or
for seeking any declaration that original Plaintiffs do not own any shares in the
first Defendant Company. This once again shows that even if Plaintiffs suit is to
be dismissed, their ownership of 24.99% shares would still remain valid.
134) I am therefore of the view that the SPA has been fully acted upon
by the contesting Defendants demolishing their defence that the same was not
meant to be acted upon.
F.4.5 E MERGENCE OF D EFENCE OF ‘N O R EAL S ALE OF S HARES ’ FOR
THE F IRST T IME
135) The defence of SPA being executed only for the purpose of security
for loan was raised by Defendant Nos. 2 and 3 by letter dated 21 November 2000.
Between execution of the SPA on 27 October 1998 till addressing of letter dated
21 November 2000, it appears that the contesting Defendants never really
questioned the nature of SPA. In fact, three meetings (Board of Directors dated
10 August 2000, Annual General Meeting dated 30 September 2000 and Board
of Directors dated 18 October 2000) proceeded on a footing that Plaintiffs owned
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shares in the Company and that after allotment of 75,000 shares to Defendant
No.11, Plaintiff remained minority stakeholders to the extent of 24.99%. For the
first time on 21 November 2000, Defendant Nos.2 and 3 raised a defence that the
SPA was executed for the limited purpose of giving sense of security to the
Original Plaintiffs and to satisfy their advisors that they were fully secured about
repayment of loan to them. Letter dated 21 November 2000 makes an interesting
reading and it is this letter, which later became the base for raising of defence by
the contesting Defendants that SPA was executed only to comfort Original
Plaintiffs for repayment of loan. The letter dated 21 November 2000 reads thus:
November 21, 2000.
To:
1. Anil K. Bodani
2. Mrs. Chandrika A. Bodani
51, El-Cid, 5th floor, Ridge Road,
Malabar Hill,
Mumbai 400 006.
Sir/Madam,
We are shocked and pained to see your conduct and behaviour starting with
th
your letter of 16 November to Govind Gupta and others, making false and
bogus allegations, thereafter your sending undesirable persons disguised as
th
Singh Security to our Stud Farm at village Shirgaon on 18 November, 2000 to
dispossess Manju Meadows Pvt. Ltd./us and which attempt was foiled by our
staff and thereafter your addressing malicious and mischievous letters making
false and bogus and defamatory allegations against us to Shamrao Vithal Co-
operative Bank Ltd. and also to RWITC Ltd.
You are aware that in or about October, 1998 you agreed to lend and advance
upto Rs.1.20 crores to us and proposed that we must secure your loan to your
satisfaction and to the satisfaction of your legal advisor Mr. Amit Hariani and
that your legal advisor had proposed that the loan be structured as follows:
(i) Rs.12 lacs plus Rs.13 lacs totaling to Rs.25 lacs will be advanced by you,
Mr. A.K. Bodani/Mrs. Chandrika A. Bodani, to Manju Meadows Pvt. Ltd.
(MMPL) against second charge on 55.975 acres and first charge on 45.730 acres
of land of MMPL situate at Village Shirgaon, Taluka Maval, Dist. Pune.
(ii) Rs.16 lacs will be advanced by Mrs. Chandrika A. Bodani to Mrs.
Manju Gupta, against first charge on her 17.775 acres of land situate at Village
Shirgaon, Taluka Maval, Dist. Pune.
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(iii) Rs.25 lacs plus Rs.20 lacs totaling to Rs.45 lacs will be advanced by
Miss Kinnari Bodani to Mrs. Manju Gupta against blank promissory notes and
some other blank papers signed by Mrs. Manju Gupta/Mr. Govind Gupta.
(iv) Rs.29,98,800 will be advanced by you, Mr. Anil K. Bodani and Mrs.
Chandrika A. Bodani to Govind Gupta/Mrs. Manju Gupta/Radhika
Gupta/Meera Gupta/Akshat Vikram Gupta against security of 24.990 shares of
face value of Rs.100 each of MMPL held by them constituting 99.96% shares of
MMPL to be transferred in your name as merely security for due repayment of
amount by us.
(v) Rs.4 lacs to be advanced to Gupta Livestock Breeding and Research
Farm.
As part of the above arrangement, you got documents prepared by M/s. Hariani
& Co. your advocates and solicitors and which comprised of purported share
transfer Agreement, Agreement of debt, declarations, Powers of Attorney,
charge documents, promissory notes, several blank papers, etc. The documents
th
were executed on 27 October 1998 by us and handed over to you expressly on
the basis that the same was for the limited purpose of giving you sense of
security and satisfy your advisor that you were fully secured about repayment of
the loan to you. The duration of loan was 2 years and extendable by further six
months at our option with interest at the rate of 18% per annum.
You insisted that document/s will provide period of loan of only one year
though it was in fact two years and extendable for six months at our option and
you also insisted that you should be inducted as co-director in addition to the
three other existing directors and assured us that you will not enforce any of the
terms of the purported document/s and they were to give comfort to your
advisors. You also assured us that you will not interfere with management,
control, working and operations of MMPL which will continue with us as usual.
You also insisted that none of you will give any personal guarantee to the
bankers for loan advanced by Shamrao Vithal Bank to MMPL. We relied upon
your assurances and executed the documents and handed over the same to you
along with original document/s and you did not furnish us copies of some of the
documents executed by us.
You acted upon your assurances for some time, however in or about April 1999
you suddenly, contrary to the understanding between us, you demanded refund
of Rs.45 lacs though not due to be repaid by us. Much to our dislike we
refunded Rs. 45 lacs to Miss Kinnari Bodani (Rs.25 lacs on 24.4.1999 and Rs.20
lacs on 28.4.1999). You agreed that in view of the said unauthorised and
premature recall of loan, the balance principal amount of Rs.70,98,800 and
interest accruing at the rate of 18% per anum will be paid by us to you at the end
of 30 months, i.e. March/April 2001. You again assured us that you will not do
any act which may interfere with our management, control, working and
operation of MMPL.
In or about January, 2000, again contrary to the understanding between us, you
demanded the refund of Rs.4 lacs that was advanced to Gupta Livestock
Breeding and Research Farm. This amount, again to our dislike, was refunded
by us on 1.2.2000.
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You are aware about the restructuring of MMPL in Sept/Oct 2000 and the
various decisions taken by MMPL to revamp its affairs including appointing
additional directors.
It is disturbing and distressing now to see your defamatory conduct and the
sudden spate of nasty actions started by you. You are aware that there was no
real sale of shares of MMPL to you and the second charge by MMPL and first
charge by Mrs. Manju Gupta of their lands was as desired by you for the sake of
"giving comfort to your legal advisor" and that too advance of total Rs.1.20
crores from which Rs.49 lacs was prematurely recalled by you and repaid to
you.
Your acts are amounting to breach of trust and playing fraud upon us and
cheating us and we are constrained to seek legal advice in that behalf. We
reserve our rights to take appropriate steps against you at your costs, risks and
consequences, as we may be advised.
However, in view of your dishonest behaviour we do not intend to avail of the
loan facility upto March/April 2001 and hereby inform you that we desire to
return the balance amount of Rs.70,98,800 together with interest forthwith to
you against your returning our original document/s, share certificates and all
writings taken by you from us in good faith and held by you in trust. You are
requested to immediately appoint time for the aforesaid purpose and we are
willing to deposit in advance the loan amount with interest with our legal
advisors to show our bonafides, if you so desire.
In the meantime, we hereby cancel and revoke all the documents executed by us
and particularly the powers of attorney in your favour and you are hereby called
upon not to abuse the said documents, make any representations on the basis of
the said documents to any person or party, failing which we shall be constrained
to adopt appropriate proceedings and/or criminal against you at your entire risk
as to costs and consequences as we may be advised.
Yours truly,
Sd/-
1. Govind Gupta
Sd/-
2. Mrs. Manju Gupta
3. For Manju Meadows Pvt. Ltd.
Sd/-
Govind Gupta
Director
136) Thus, by letter dated 21 November 2000, Second and Third
Defendants contended that there was no ‘ real sale of shares ’ to the Original
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Plaintiffs and that SPA was executed for ‘ giving comfort to your legal advisor ’
against the advance of total amount of Rs.1.20 crores lent by the Original
Plaintiffs. Defendant Nos.2 and 3 offered to repay the balance amount of
Rs.70,98,800/- to the Original Plaintiffs by letter dated 21 November 2000 and
cancelled and revoked all documents executed by them. The letter dated 21
November 2000 was sent in response to Original Plaintiffs’ letter dated 16
November 2000, by which Original Plaintiffs sought resignation of Defendant
Nos.2, 8 and 9 as per the covenants of the SPA. In my view, the defence taken by
Defendant Nos.2 and 3 in the letter dated 21 November 2009 about ‘ no real sale
of shares ’ and execution of SPA for ‘ giving comfort to legal advisor ’ cannot be
accepted in view of the contradictory conduct of the contesting Defendants in
recognising Plaintiffs’ stake of 24.99% in the first Defendant Company. It is this
apparent that Defendant Nos.2 and 3 adopted false defence in letter dated 21
November 2000.
FFECT OF IMULTANEOUS XECUTION OF OCUMENTS OF
F.4.6 E S E D
EBT ORTGAGE AND
D /M SPA
137) The contesting Defendants have relied upon two Agreements of
Debt dated 27 October 1998 in support of their claim that SPA was executed only
as a security for loan. The first Agreement for Debt is between Defendant No. 1
and original Plaintiffs and the same in respect of lending two loans of
Rs.12,00,000/- and Rs.13,00,000/- to the first Defendant for its business, which
was repayable alongwith interest @ 18% per annum as agreed in the Agreement.
Further documents of (i) Deed of Simple Mortgage dated 27 October 1998, by
which the First Defendant created second mortgage of land admeasuring 55.975
acres of the stud farm towards security for repayment of loan of Rs.25,00,000/-
and (ii) two Promissory Notes for Rs.12,00,000/- and Rs.13,00,000/- are also
executed on 27 October 1998. Another Agreement of Debt dated 27 October
1998 was executed by Defendant No.3 (Manju Gupta) in respect of the term loan
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of Rs.16,00,000/- advanced by Original Plaintiffs which was secured by Deed of
Equitable Mortgage in respect of land admeasuring 17.775 acres of the stud farm
and Special Power of Attorney. It appears that another short-term loan of
Rs.45,00,000/- was advanced by Plaintiffs family to Defendant No.3 and to the
group concern of the contesting Defendants, M/s. Gupta Livestock Breeding and
Research Farm of Rs.4,00,000/-. Thus, in addition to the SPA executed on 27
October 1998, the above documents were executed by the contesting Defendants
on the same day.
138) The contesting Defendants are not illiterate persons. They are seasoned
players in the business. They knew exactly what they were executing. It has
come on record that all the documents are drafted by the same Advocate. Thus, a
conscious distinction is made between instruments relating to debt and the
instrument relating to sale of shares. The contesting Defendants thus knew very
well that instruments of debt were separately and distinctly executed for a
different purpose than execution of SPA for transfer of shares. If SPA was to be
executed only for comforting original Plaintiffs in respect of the loans advanced
by them, the said documents should also have been termed as ‘ Agreement for
Debt ’ or in any case, a pledge of shares for loans advanced. However, all the
instruments are drafted by a reputed Solicitor firm in Mumbai with the consent
of both the parties. This is not a case where an agriculturist is cheated by a
purchaser by misleading him that agreement for loan was being executed under
the guise of execution of sale-deed. Conscious execution of Share Purchase
Agreement as contra-distinct from execution of various sale
documents/instruments relating to debt, leaves no manner of doubt that
contesting Defendants always intended to sell their stake in the first Defendant
Company to the original Plaintiffs. The sale of stake is also backed by resolution
adopted in the meeting of Board of Directors of first Defendant Company of 23
October 1998. In my view, therefore, reliance of the contesting Defendants on
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various instruments of debt, far from assisting their case, actually militates
against them.
139) Mr. Sancheti has sought to contend that the nature of SPA as being
security for loan is required to be inferred from mortgages created in respect of
stud farm land in favour of the original Plaintiffs. It is sought to be contended that
if original Plaintiffs were to become 99.96% stakeholders in the first Defendant
Company, there was no question of Defendant Nos.2 and 3 mortgaging any
portion of the farm land in favour of the original Plaintiffs, after being divested of
their ownership rights. I do not see any difficulty if a shareholder of a company
lends funds for operation of business of the company. Also, what is sought to be
contended by Mr. Sancheti might have been true in a case involving transfer of
only land from one individual to another. If Defendant Nos.2 and 3 were sole
owners of the land in question and had executed a Sale-Deed in favour of the
original Plaintiffs on the same day of execution of Mortgage Deeds, what Mr.
Sancheti contends could have been correct. However, in the present case, the
ownership of the farm land is with the first Defendant Company and on the day
of execution of various instruments dated 27 October 1998, Gupta Family
controlled the entire stake in the first Defendant Company. Though SPA was
executed on 27 October 1999, further actions in the form of transfer of shares and
entry in the Register of Members relating to names of Original Plaintiffs was yet
to occur. It was only after occurrence of those actions, original Plaintiffs were to
become shareholders of the First Defendant Company and to take decisions
relating to its management. As on 27 October 1999, the parties felt that
Defendant Nos.2 and 3 were still the decision makers in respect of assets of the
first Defendant Company and this is possibly why the mortgages were created by
them in favour of the original Plaintiffs. Whether such mortgages were legally
enforceable or not in the light of execution of SPA on the same day is an
altogether different aspect. What is material in the present case is the fact that
the contesting Defendants knew very well that they were executing distinct
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nature of documents drafted by the same Solicitor on same day. If parties
intended that SPA was to be used only as a comforting document, the contesting
Defendants could have insisted on the amount of Rs.29,98,800/- be also treated
as loan by executing of Debt Agreement and a Mortgage/Pledge to be created in
respect of 24,900 shares. As observed above, apart from specific covenants of the
SPA, the actions of the contesting Defendants in acting upon the same, leaves no
manner of doubt that the transaction was always meant to be the one of transfer
and not of security for loan. In my view, therefore execution of instruments of
debt and mortgage on 27 October 1998 by contesting Defendants in favour of the
original Plaintiffs do not assist the case of the contesting Defendants to prove that
SPA was executed as security for loan.
RIGINAL LAINTIFFS OT AKING VER ANAGEMENT ND
F.4.7 O P N T O M A
C ONTROL OF F IRST D EFENDANT C OMPANY
140) The contesting Defendants have contended that the factum of
original Plaintiffs not taking over management and control of the first Defendant
Company is yet another indicator of the true nature of the transaction in
question. The contesting Defendants have contended that after execution of the
SPA, original Plaintiffs did not take even a single action, which a true and
absolute owner would take in ordinary course of business after acquiring 99.96%
of stake in a company. According to the contesting Defendants, original Plaintiffs
did not appoint their nominal Directors, did not attend any AGMs, did not infuse
funds, did not issue intimation to the bankers of the Company regarding change
of signatures, did not change of name of authorised persons with Stud Authority
of India, did not intimate the racing clubs in India about change of ownership, did
not change registered address of the Company, did not take possession or control
of statutory records of the Company, did not appoint any personnel to oversee
the stud farm operations, did not attend their appoint their own auditors or
Company Secretaries etc. According to the contesting Defendants, for the entire
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period of two years after execution of SPA, original Plaintiffs did not bother to
visit either the registered office of the Company or the Stud farm, which is an
unnatural action for an owner holding 99.96% stake in a Company. These factual
assertions of the contesting Defendants are not really disputed by Plaintiffs and
therefore the original Plaintiffs not taking active part in management of the first
Defendant Company after execution of SPA is more or less proved.
141) Having not disputed that original Plaintiffs did not take active part
in management and control of the first Defendant Company, in response the
Plaintiffs have given reasons why the original Plaintiffs could not participate in
active management of the Company and have contended that law does not
require active participation by owner in the management of a company and that
non-participation in management does not divest owner of ownership rights.
142) So far as Defendant Nos.2, 8 and 9 remaining as Directors of the
first Defendant Company post execution of SPA is concerned, the answer is to be
found in the relevant covenants of the SPA itself. The fourth recital to the SPA
provided that the Confirming Parties were to continue as Directors of the
Company for time being. Furthermore, under Article V of the SPA, the Board of
the first Defendant Company was to be reconstituted, under which original
Plaintiff No.1 was to be appointed as Director and all decisions in respect of the
management and control of the Company was to be taken by the Directors of the
Company with ‘ concurrence of the third party ’ i.e. original Plaintiff No.1. The
existing Directors were to appoint such persons as Directors as directed by the
original Plaintiffs. The existing Directors were to tender their resignations from
the Board of Directors ‘ as and when the second party shall so direct ’. Thus, the SPA
itself contemplated that ‘ for time being ’ Defendant Nos. 2, 8 and 9 were to
continue as Directors of the Company. Thus, continuation of Defendant Nos.2, 8
and 9 as Directors, despite sale of 99.96% stake, is in tune with the covenants of
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the SPA and this factor cannot be considered for the purpose of inferring that the
nature of transaction was that of security for loan.
143) It is undisputed position that in pursuance of the SPA, original
Plaintiff No.1 was appointed as Director of the Company on 30 March 1999. He
continued to remain as such even after the AGM dated 30 September 1999
(contesting Defendants contend that he ceased to be a director after 30
September 2000 on account of non-confirmation of his appointment by the
AGM, which aspect is being dealt with separately). It is Plaintiffs’ contention
that original Plaintiff No.1 was never given a single notice for attending any of the
Board Meetings or AGMs and that therefore absence of Original Plaintiff No.1 in
such meetings cannot be cited as reason by the contesting Defendants for the
purpose of taking benefit of their own wrong. Furthermore, according to the
Plaintiffs, the relationship between the parties at the relevant time is required to
be taken into consideration where Defendant No.3 was being considered as Rakhi
sister of original Plaintiff No.1. It is undisputed position that original Plaintiff
No.1 attended the wedding of daughter of Defendant Nos.2 and 3 at Jaipur for 5
days in January 1999. Original Plaintiff No.1 has given evidence that in his
capacity as maternal uncle, he gave ‘ Mameru ’ to Defendant No.4 during her
wedding. It is Plaintiffs’ contention that since the daughter of Defendant Nos. 2
and 3 was getting married, they did not want a social stigma of loss of ownership
of stud farm being made known to public. Apart from specific covenants of the
SPA, these are some of the other reasons cited by the Plaintiffs to suggest as to
why Defendant No.2 continued to manage and control the affairs of the stud farm
even after execution of the SPA.
144) Additionally, it is contended by Plaintiffs that original Plaintiff No.1
had other successful businesses to look after and that the was not keeping good
health, which prevented him from taking active participation in the management
and control of the Stud Farm of the first Defendant Company. The contesting
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Defendants have not only disputed the claim of ill-health of original Plaintiff
No.1, but have attempted to use his ‘more successful business’ as a factor against
original Plaintiff No.1. According to the contesting Defendants, original Plaintiff
No.1 continued to be in-charge of his company named, ‘Oriental Aromatics Ltd.’
with a factory at Daman and office premises at Govandi to demonstrate his ability
to actively look after business. They contend that original Plaintiff No.1 was
incharge of Finance and Marketing of Oriental Aromatics Ltd. till the year 2014
and was its Managing Director till 1 April 2004. That he acquired shares of
Camphor Allied Products Limited in 2008. According to the contesting
Defendants, if original Plaintiff No.1 was able to actively participate in the affairs
of his companies, it is difficult to believe that his alleged ill-health came in his way
of not participating in the management and control of the first Defendant
Company after execution of the SPA. The contesting Defendants have also
seriously contested the claim of ill-health of original Plaintiff No.1 by contending
that he was fully mobile and active and used to participate in the racing circuits
by attending not just races but also live racecourse meetings at Mahalaxmi Race
Course, as well as at Pune Race Course. That he was regularly attending
Willingdon Sports Club and Breach Candy Swimming Sports Club. That he
attended wedding of daughter of Defendant Nos.2 and 3 for five days in January
1999.
145) Plaintiffs examined P.W.2, who was Doctor of original Plaintiff
No.1, to prove various ailments suffered by him. P.W.2 has given evidence about
the status of health of original Plaintiff No.1 during 1995 to 2014. It is not
necessary to discuss each and every medical treatment availed by original Plaintiff
No.1 during this long period of time. Suffice it to note that during 11 July 1999 to
27 July 1999, he was hospitalised for infection of heart valve. He was once again
hospitalised in October 2000. He underwent three angiographies, one
angioplasty and heart replacement after undergoing open heart surgery in
December in USA. Thus hospitalization and medical treatment for heart value
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infection during July 1999 is proved. Also, it appears that both pre and post
hospitalization for treatment in July 1999, original Plaintiff No. 1 was required to
undergo various diagnostic procedures. He was appointed as Director on 30
March 1999 and the medical treatment underwent by him after his appointment
as director does indicate that such medical treatment could be one of the reasons,
why original Plaintiff No. 1 did not show interest in active management of the
Company and its stud farm. After discovering series of actions taken by the
contesting Defendants, most of the correspondence towards the end of the year
2000 was made by his son (original Defendant No. 16). Even the EOGM of 9
January 2001 was attended by proxies of original Plaintiff No. 1.
146)
After considering the evidence led by both the sides on the issue of
ill-health of original Plaintiff No.1, it is difficult to draw a definitive conclusion
whether his ill-health prevented him from participating in the day-to-day
activities of the Stud Farm of the first Defendant Company. Some evidence is led
to show that during 1999 and 2000, original Plaintiff No.1 did suffer ailments and
underwent open heart surgery at USA. It is possible that he may have been
slightly incapacitated from during the years 1999 to 2000, but whether his health
condition was such that he was prevented from visiting the stud farm is
something which is difficult to infer on the basis of evidence produced by both
the sides. Be that as it may. In my view, it is not necessary to delve deeper into
this aspect. As observed above, Defendant Nos.2, 8 and 9 were expressly
permitted under SPA to continue to act as a Directors and look after the affairs of
the Stud farm.
147)
The SPA was executed on 27 October 1998 and original Plaintiff
No. 1 was appointed as Director on 30 March 1999. SPA permitted Defendant
Nos. 2, 8 and 9 to remain as directors until replaced by original Plaintiff No. 1.
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Even at the time of his appointment as Additional Director on 30 Match 1999,
Defendant Nos. 2, 8 and 9 were again permitted to remain as directors by original
Plaintiff No. 1 as per the covenants of SPA. On 16 November 2000, original
Plaintiff No. 1 called upon Defendant Nos. 2, 8 and 9 to resign as directors and
not to take any decision about the first Defendant Company. Thus, continuation
of Defendant Nos. 2, 8 and 9 in management of the company was with express
consent of original Plaintiff No. 1 and not as owners of entire share capital by
treating the SPA as loan transaction.
148) Even otherwise, there is nothing in law which divests an owner of
ownership of property on account of his failure to exercise full rights relating to
such ownership. In the present case, we are concerned with the issue of
ownership of shares in a company by one person vis-à-vis management thereof by
another person. Ownership and management of the Company are two different
things, and it cannot be stated that if an owner fails to take part in management of
the Company, he gets divested of his ownership rights. Therefore, reliance by
Mr. Sancheti on judgment of Calcutta High Court in Jiban Roy Choudahry
(supra) in support of contention that right to possess property is an important
facet of ownership right, is misplaced. The Calcutta High Court has dealt with
the issue of ownership of immovable tenanted property in the context of tenancy
dispute. In the present case, there was conscious continuation of Defendant Nos.
2, 8 and 9 to remain as directors coupled with reasons why original Plaintiff No. 1
could not participate in management of the company for about one and half years
after his appointment as director.
149) It is also required to be noted that the Second Defendant was
apparently deeply involved in horse racing and horse breeding activities. It is
possible that on account of his interest in those activities, the Second Defendant
possibly retained 10 shares of the company with a view to remain in management
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of the stud farm for some more time despite the original Plaintiffs purchasing
99.96% stake in the first Defendant Company. Mr. Dhond has repeatedly
highlighted the aspect of Defendant No. 2 not wanting a social stigma of loosing
stud farm to be made known to public in view of his daughter’s impending
wedding and therefore requesting original Plaintiff No. 1 to permit him to remain
in charge of activities of the stud farm for some time. Whatever might be the
actual reason, the said arrangement was recognised in the SPA and therefore
Defendant No. 2 remaining in management or original Plaintiff No. 1 not taking
part in management of the company or its stud farm cannot be a ground for
divesting original Plaintiffs of their ownership rights in 24,900 shares by treating
the transaction as security for loan.
F.4.8 N ON -I NFUSION OF F UNDS B Y O RIGINAL P LAINTIFFS A ND
I NFUSION O F F UNDS B Y S ECOND D EFENDANT
150) Another factor strenuously highlighted by the contesting
Defendants is failure on the part of the original Plaintiffs to infuse funds into the
first Defendant Company for managing day-to-day expenses of the stud farm
after execution of SPA and corresponding infusion of funds by the Second
Defendant for the same purpose. Non-infusion of funds by the original Plaintiffs
into the First Defendant Company after 27 October 1998 (except lending of funds
on 17 October 1998) is not disputed and therefore evidence in this regard need
not be discussed. However, what is contended by Plaintiffs is that funds were
already lent by them to first Defendant Company for managing its affairs.
Defendant No. 2 on the other hand has contended that he infused Rs.
2,71,00,000 in the first Defendant Company for managing the expenditure of the
Stud Farm. No doubt, running of the stud farm would obviously require some
expenditure to take care of horses, equipment, plantation, personnel employed
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etc. As on the date of execution of the SPA on 27 October 1998, Rs. 25 Lakh were
lent by original Plaintiffs to the first Defendant Company. Admittedly the
outstanding loan of Shamrao Vithal Bank on first Defendant Company was not
repaid after receipt of funds of Rs. 25 lakh on 27 October 1998. Thus Rs. 25 Lakh
remained available with Defendant Nos. 2, 8 and 9 for incurring of expenditure
on management of the stud farm and this funding came from original Plaintiffs.
Whether expenditure in excess of Rs. 25,00,000/- was incurred till September
2000 when steps were taken for dilution of stake of original Plaintiffs? Though
figure of Rs. 2,71,00,000/- is quoted by the Second Defendant, no concrete
evidence of incurring of such expenditure is produced. In my view, primary
evidence to show infusion of external funds into Defendant No.1 would be
production of bank statements after execution of SPA. However, the Second
Defendant has failed to produce even a single bank entry to show any funds were
actually infused by Defendant No.2 into accounts of Defendant No.1. In absence
of any bank entries, it is difficult to infer infusion of funds only on the basis of
Balance Sheets relied upon by Defendant No.2. It is also of relevance that original
Plaintiffs repaid the entire outstanding loan of Shamrao Vithal Co-operative Bank
of Rs. 66,88,116/- to save the Stud Farm being attached and sold in pursuance of
notice issued under Section 13(2) of the SARFAESI Act. Plaintiffs have also
relied upon the report of the Court Receiver dated 2 April 2004 which does not
indicate healthy state of affairs at the Stud Farm. It is therefore difficult to believe
that after execution of the SPA, Second Defendant continued to maintain the
Stud Farm in the same condition as it stood earlier. If Defendant No.2 indeed
spent any money from his own pockets for running day-to-day affairs of the Stud
Farm, it was for him to file a counterclaim against the Plaintiffs to seek recovery
of the said amount. However, Defendant No. 2 has neither filed any counterclaim
nor has produced details of expenditure incurred and amount has been spent by
him for managing the day-to-day affairs of the Stud Farm. In my view, therefore
failure on the part of original Plaintiffs to infuse funds or contesting Defendants
incurring any expenditure towards management of the Stud Farm again cannot
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be a factor for inferring that the true nature of SPA was that of security for loan
and not transfer or sale.
151) The theory of the contesting Defendants about infusion of funds of Rs.
2,71,00,000/- in the first Defendant Company after execution of SPA appears to
be doubtful on account of yet another factor. According to contesting
Defendants, SPA was executed only as a security for loan and if this defence is to
be accepted, the amount of Rs.29,98,800/- would also become loan advanced by
original Plaintiffs to the contesting Defendants. In fact, this is the stand taken by
the contesting Defendants in correspondence as well as in the Written Statement
that total amount of Rs.1.20 crores was lent by original Plaintiffs, which included
Rs.29,98,800/-lent to Defendant Nos. 2 to 7. As contended in the letter dated 21
November 2000, the contesting Defendants had refunded loan of Rs.45,00,000/-
by 28 April 1999 and only Rs.70,98,800/- remained to be repaid to original
Plaintiffs. If Defendant Nos. 2 to 7 indeed had Rs. 2,71,00,000/- to be infused for
operation of the stud farm after execution of SPA, any prudent person would
have first repaid much lesser amount of Rs. 29,98,800/- to the original Plaintiffs
and got the SPA cancelled. It is impossible to believe that the contesting
Defendants took the risk of keeping the SPA subsisting by not repaying the
alleged loan of Rs.29,98,800/- and kept on investing the money which they
allegedly possessed, allegedly for maintenance of the stud farm.
152) The theory of infusion of funds in excess of Rs. 2 crores by contesting
Defendants is also belied by the condition of the stud farm at the time of
appointment of Court Receiver. At that time, the electricity connection of the
farm was disconnected owing to non-payment of electricity charges. Shamrao
Vithal Bank had issued Notice for attachment and sale of the mortgaged land due
to non-payment of its dues. Plaint alleges attempts on the part of the contesting
Defendants in selling several horses when suit was filed. What was left at the stud
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farm as on 1 April 2004 were only 8 mares, 1 stallion, 1 four year old, 3 two year
old and four yearlings and none of them were in healthy condition.
153) All the above aspects clearly make the defence of contesting
Defendants of having invested amount of Rs. 2,71,00,000/- for operation of the
stud farm post execution of the SPA unbelievable.
F.4.9 I NADEQUACY OF C ONSIDERATION
154) One of the defences raised by the contesting Defendants is that the
consideration amount of Rs.29,98,800/- for purchase of 99.96% stake in first
Defendant Company is grossly inadequate and unconscionable. Contesting
Defendants’ defence is premised on the assertion that as on the date of execution
of the SPA, the Stud Farm owned by the first Defendant Company had a
valuation in excess of Rs. 8 to 10 Crores as against the paltry sum of
Rs.29,98,800/- paid by original Plaintiffs for acquisition of almost the entire stake
in the Company. According to contesting Defendants, at the relevant time, the
Company owned a well-developed farm spreading over 101.7 acres on land
situated at Mumbai-Pune highway. That it was not merely a barren piece of land
but was fully developed stud farm with extensive facilities and amenities with
thousands of trees and landscaping. That there were around 40 well maintained
paddocks for horses for grazing and well maintained race course for training of
horses. The farm had barns for stock of hay. There were 150 thoroughbred horses
at the farm at the relevant time consisting of (i) two imported stallions
(championed male horses) (ii) 60 mares (female horses) (iii) 42 foals (young
horses) (iv) 40 yearlings (one year old horses) (v) 40 foals at foot (new borns).
Contesting Defendants claim that 140 well developed stables were provided at
the farm. There was imported exercise machine, one trade mill for the horses
costing Rs.12 lakhs. That there were state of the art diagnostic and pathological
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laboratory for the horses, equipment for sonography, breeding, etc. That there
was large residential villa for directors /owners. That there were staff quarters for
about 60 persons. That there was well developed internal network of roads with
overhead lighting. That the farm had its own electricity generating set, borewells,
tractors, sprinkler system, etc. Based on the above, the contesting Defendants
have valued the farm at Rs. 8 to10 crores at the time when the SPA was executed.
155) As against the above contentions of the contesting Defendants,
Plaintiffs have contended that contesting Defendants have not placed any
valuation report on record to suggest valuation of the farm at Rs.10 crores as
alleged. Plaintiffs have also relied upon Balance Sheet of Defendant No.1 in
which the book value of the Stud Farm and stables was indicated at Rs. 29.9
lakhs. Additionally, Plaintiffs have relied upon outstanding loan liability of
Defendant No.1 towards Shamrao Vithal Co-operative Bank of Rs.67,88,116/-.
156) Before discussing whether the consideration of Rs. 29,98,800/-
paid by original Plaintiffs for purchase of 99.96% stake in the first Defendant-
Company is adequate or not, it would be first necessary to consider whether
inadequacy of consideration, by itself, would vitiate a contract . Mr. Dhond has
placed reliance on provisions of Sections 15, 16, 17 and 18 of the Indian Contract
Act, under which a contract can be set aside only when it is executed under
coercion and /or undue influence and/or fraud and /or misrepresentation. On
the issue of adequacy of consideration, reliance is placed on Section 25 of the
Contract Act, which reads thus:-
25. Agreement without consideration, void, unless it is in writing and
registered or is a promise to compensate for something done or is a promise
to pay a debt barred by limitation law.—
An agreement made without consideration is void, unless—
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(1) it is expressed in writing and registered under the law for the time being in
force for the registration of documents, and is made on account of natural love
and affection between parties standing in a near relation to each other; or unless
(2) it is a promise to compensate, wholly or in part, a person who has already
voluntarily done something for the promisor, or something which the promisor
was legally compellable to do; or unless
(3) it is a promise, made in writing and signed by the person to be charged
therewith, or by his agent generally or specially authorized in that behalf, to pay
wholly or in part a debt of which the creditor might have enforced payment but
for the law for the limitation of suits.
In any of these cases, such an agreement is a contract.
Explanation 1.— Nothing in this section shall affect the validity, as between the
donor and donee, of any gift actually made.
Explanation 2.— An Agreement to which the consent of the promisor is
freely given is not void merely because the consideration is inadequate; but
the inadequacy of the consideration may be taken into account by the Court
in determining the question whether the consent of the promisor was freely
given.
(emphasis supplied)
157) Mr. Dhond has particularly relied upon Explanation 2 to Section
25, under which an agreement to which consent of promisor is freely given, is not
void merely because the consideration is inadequate. At the same time,
Explanation 2 to Section 25 further provides that the inadequacy of consideration
can be taken into consideration by Court in determining the question whether the
consent of the promisor was freely given or not. Thus, under provisions of
Section 25 of the Contract Act, mere inadequacy of consideration ipso facto is not
a factor for declaring a validly executed contract, out of free consent of the
promisor, to be void. Thus, what is important is “free consent by promisor” and
not “inadequacy of consideration”. Inadequacy of consideration is a factor only
for determining whether the contract is an outcome of free consent of the
promisor or not. So what is required to be pleaded and proved is that the contract
was not executed out of free consent of the promisor.
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158) Reliance is also placed by Mr. Dhond on Section 20 of the Specific
Relief Act, 1963, as it read prior to its amendment in the year 2018, and which
provided thus:-
20. Discretion as to decreeing specific performance.-
(1) The jurisdiction to decree specific performance is discretionary, and the
court is not bound to grant such relief merely because it is lawful to do so; but
the discretion of the court is not arbitrary but sound and reasonable, guided by
judicial principles and capable of correction by a court of appeal.
(2) The following are cases in which the court may properly exercise discretion
not to decree specific performance :-
(a) where the terms of contract or the conduct of the parties at the time
of entering into the contract or the other circumstances under which the
contract was entered into are such that the contract, though not
voidable, gives the plaintiff an unfair advantage over the defendant; or
(b) where the performance of the contract would involve some hardship
on the defendant which he did not forsee, whereas its non-performance
would involve no such hardship on the plaintiff; or
(c) where the defendant entered into the contract under circumstances
which though not rendering the contract voidable, makes it inequitable
to enforce specific performance.
Explanation 1.- Mere inadequacy of consideration, or the mere fact that the
contract is onerous to the defendant or improvident in its nature, shall not
be deemed to constitute an unfair advantage within the meaning of clause
(a) or hardship within the meaning of clause (b).
Explanation 2.- The question whether the performance of contract would
involve hardship on the defendant within the meaning of clause (b) shall, except
in cases where the hardship has resulted from any act of the plaintiff subsequent
to the contract, be determined with reference to the circumstances existing at
the time of the contract.
(3) The court may properly exercise discretion to decree specific performance
in any case where the plaintiff has done substantial acts or suffered losses in
consequence of a contract capable of specific performance.
(4) The court shall not refuse to any party specific performance of a contract
merely on the ground that the contract is not enforceable at the instance of the
party.
(emphasis supplied)
159) Reliance is particularly placed on Explanation 1 to Section 20 of
Specific Relief Act, under which mere inadequacy of consideration shall not be
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deemed to constitute an unfair advantage within the meaning of clause (a) or
hardship within the meaning of clause (b). Under sub-section 2 of Section 20,
Court can refuse to grant specific performance by exercising its discretion where
the promise of contract gave Plaintiff an unfair advantage over the Defendant or
where performance of contract involves hardship on the Defendant. What
Explanation 1 to Section 20(2) provides is that mere inadequacy of consideration
is not a factor for inferring unfair advantage or hardship.
160) On the contrary, it is Mr. Sancheti’s contention that inadequacy of
consideration is a factor recognised under Explanation 2 to Section 25 of the
Contract Act as a relevant factor in the context of specific performance especially
while exercising discretion under Section 20 of the Specific Relief Act. According
to him, the relationship between the parties and the circumstances were such that
an inference needs to be drawn that Plaintiffs had an unfair advantage over the
contesting Defendants. It is further submitted that circumstances of the case are
such that it is inequitable to enforce specific performance of the contract on
contesting Defendants.
161) Jai
Mr. Dhond has relied upon judgment of the Apex Court in
Naraian Parasrampuria (supra) in paragraph 63 of which, the Apex Court has
held as under:-
63. In any view of the matter inadequate consideration by itself would not lead
to the conclusion that the same was an agreement of loan. Inadequate
consideration, it is trite, is also not a ground for refusing to grant a decree for
specific performance of contract.
162) The judgment is sought to be distinguished by Mr. Sancheti
submitting that the defence of the contesting Defendants is not based only on the
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ground of inadequate consideration. He has also sought to distinguish the facts of
Jai Naraian Parasrampuria Jai Naraian
the case in (supra). The facts in
Parasrampuria involved execution of Agreement for Sale of the property by the
Company in favour of the Appellant for consideration of Rs.11 lakhs, out of which
10 lakhs was paid by the Appellant and the remaining amount of Rs.1 lakh was to
be paid at the time of execution and registration of the Sale Deed. One of the
defences raised by the Defendant in the suit for specific performance was that the
valuation of the property was Rs. 25 lakhs on the basis of a property agreement
executed by the Defendants Company in favour of their son-in-law. It is in the
light of these facts that the Apex Court has held in paragraph 63 of the judgment
that inadequate consideration by itself does not lead to a conclusion that the
transaction was that of a loan nor inadequate consideration is a ground for refusal
to grant a decree for specific performance of contract.
163) Mr. Dhond, has also relied upon judgment of the Madras High
Court in Santhappa Rai ( supra) in which the Madras High Court has held as
under:-
…. It seems to me that that is directly in conflict with the warning given by Lord
Wallis v. Smith
Jessel, M. R. in which is that where contracts are clearly
expressed, the Judges should resist the temptation of interfering with them
on the ground that they know the business of the people making the
contract better than the people know it themselves. It has been held with
utmost clearness that inadequacy of consideration alone is not a ground for
holding that a contract was induced by fraud or undue influence . In Tennant
v. Tennant Lord Westbury stated the law as follows:
“The transaction having been clearly a real one, it is impugned by the appellant
on the ground that he parted with valuable property for a most inadequate
consideration. My Lords, it is true that there is an equity which may be
founded upon gross inadequacy of consideration, but it can only be where
the inadequacy is such as to involve the conclusion that the party either did
not understand what he was about, or was the victim of some imposition ."
That dictum of Lord Westbury's was approved and applied by the Judicial
Committee in Administrator General of Bengal v. Juggeswar Roy . In this case it
cannot be said that the considerations for Exs. E and F were themselves so
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grossly inadequate as to raise a presumption that the first plaintiff did not know
what he was doing or that he was the victim of some imposition.
…..
Lord Shaw goes on to state that it had got to be shown that the influence was
undue. I mention this to show the very high degree of evidence that is required
because in the case now under appeal there is no evidence of any relationship at
all between the parties except the slight relationship by marriage. There is no
evidence that the one was able to dominate the will of the other.
(emphasis supplied)
164) Mr. Sancheti has sought to distinguish the judgment in Santhappa
Rai by contending that the judgment itself indicates that in certain
circumstances, inadequacy of consideration can be a ground for setting aside sale
where the party either did not understand what the transaction was about or that
the party was a victim of some imposition. He has further contended that
judgment required pleading and evidence, which has not been done in the
present case.
165) In my view the judgment in Shantappa Rai fully applies to the
present case. In the case before Madras High Court, there was no allegation of
undue influence, the document was read over and thereafter signed. In such
circumstances, the Madras High Court did not accept the finding of the lower
Court that the transaction was entered into in a hurry and for inadequate
consideration. The High Court also did not accept the theory of stupidity of
Plaintiff in entering into the transaction in question. In the present case as well,
contesting Defendants are seasoned players in the business, they knew what they
were transacting. They are not illiterate persons or novices, incapable of
comprehending the nature of transaction that was being executed. There is
nothing on record to indicate any undue influence by original Plaintiffs on the
contesting Defendants for execute the transaction in question. The transaction,
to my mind, stems out of free will of the contesting Defendants. It therefore has
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to be held that the transaction was executed out of the free will of the contesting
Defendants. In such circumstances, it is not for this Court to determine as to
what would have been the adequate consideration for sale of 24,990 shares of the
first Defendant Company.
166) On the issue of undue influence, Mr. Dhond has relied upon
judgment of the Madras High Court in P. Saraswathi Ammal (supra) in which it
is held that the allegation of undue influence must be well supported by pleadings
and evidence. In the present case, there are no supportive pleadings, much less
evidence, to infer that Plaintiffs were in position of exercising or that they indeed
exercised any undue influence on the contesting Defendants for execution of
SPA. Sale of stake by family of Defendant No. 2 is a well a considered decision,
backed by Board resolution dated 23 October 1998. As on 23 October 1998, none
of the contesting Defendants owned any sum to original Plaintiffs. SPA has been
drafted by a well known solicitor firm in Mumbai along with various other
documents of debt and mortgage. Contesting Defendants were able to deduct 10
shares from the previously drafted SPA by putting white ink on some portions of
the draft. In his written statement, Defendant No. 2 has denied that he was under
any financial constraints. It therefore cannot be stated that original Plaintiffs were
either in a position to exercise any undue influence on contesting Defendants or
that the contesting Defendants were hoodwinked into execution of the SPA.
167) Vijaya Minerals Pvt.
Plaintiffs have also relied upon judgment in
Ltd. (supra) and Triloknath ( supra ) which also seem to suggest that inadequacy
of consideration by itself does not lead to an inference that the contract was not
executed out of free consent by the promisor.
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168) Mr. Sancheti, on the other hand has relied upon the judgment of
Lonkaran Kishorilal Paliwal
this Court in (supra) to which reference has
already been made hereinabove. The case before this Court involved a pure case
of loan transaction where the Defendants therein had approached Plaintiff for
repayment of loan amount with interest and the Plaintiff had demanded higher
amount of interest. It is in the light of these peculiar facts that this Court inferred
that the transaction in question was of loan.
169)
After considering the conspectus of provisions of the Indian
Contract Act and Specific Relief Act as well as various decisions relied upon by
the parties, I am of the view that inadequacy of consideration, by itself, is neither
a ground for declaring a contract to be void nor a reason for denying the relief of
specific performance of an agreement. It is necessary for parties to prove that the
consent was obtained either on account of undue influence or was not given
freely, for declaration of contract as void or to prove that party seeking specific
performance had an unfair advantage or that specific performance involves
hardship for the purpose of avoiding a decree of specific performance. In the
present case, the contesting Defendants have failed to prove that their consent
for execution of SPA was not freely obtained. They have further failed to prove
that the Plaintiffs were in a position to secure unfair advantage over them or that
purpose of the contract involves any hardship for the Defendants which they did
not foresee or that non-performance of SPA would involve any hardship on
Defendants. In my view therefore, even if it was to be assumed that the
consideration of SPA is inadequate, the same cannot be a ground ipso facto for
holding SPA to be void or to deny the decree of specific performance to Plaintiffs.
It must also be borne in mind herein that decree for specific performance in the
present case is restricted only to performance of few acts in pursuance of the
SPA. It however does not mean that the SPA had not fructified. SPA in the
present case has fructified into complete transaction by transfer of shares and by
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entry of names of original Plaintiffs in the Register of Members. So this is not a
usual case of specific performance of a contract of sale for the purpose of
attracting provisions of Sections 20 of the Specific Relief Act.
170) Having held that inadequacy of consideration by itself is not a
ground for holding SPA to be a sham or for denial of decree of specific
performance, it is not really necessary to go into the next issue as to whether the
consideration for the transaction in question was really adequate or not.
However, since both the parties have led evidence and canvassed submission, in
this regard it would be necessary to decide this issue in paragraphs to follow.
171) As observed above, there was outstanding loan liability of
Rs.67,88,116/- of Shamrao Vithal Co-operative Bank on Defendant No.1. First
charge of land admeasuring 55.975 acres of Stud Farm land was already created
by Defendant No.1 in favour of Shamrao Vithal Co-operative Bank on 10
February 1994. Thus, more than half of the land of the Stud Farm was already
mortgaged with Shamrao Vithal Co-operative Bank and there was substantial
outstanding of loan of the said Bank from Defendant No.1. It appears that even
after receiving various loans from Plaintiffs as well as sale consideration of
Rs.29,98,800/- in pursuance of SPA, contesting Defendants did not clear the said
loan liability and the same was ultimately cleared by Plaintiffs when the Bank
initiated proceedings under Section 13 (2) of the SARFAESI Act. Thus, the
amount of consideration of Rs.29,98,800/- is required to be considered alongwith
the outstanding loan liability of Shamrao Vithal Bank.
172) Though contesting Defendants have painted a rosy picture of
livestock as well as the facilities at the Stud Farm, there is no denial to the fact
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that at the time when SPA was executed, contesting Defendants needed funds.
The contesting Defendants have repeatedly highlighted purchase transaction of
acquisition of 50% stake in six mares for Rs. 25 lakhs in the year 1993 with a view
to present the predicted valuation of the stud farm with 150 odd horses at the
farm, including 60 mares. However, when a veterinary doctor paid visit at the
st
stud farm alongwith Receiver of this Court on 1 April 2004, he took notice of
following livestock at the stud farm:-
(i) 8 mares,
(ii) 1 stallion,
(iii) 1 four year old,
(iv) 3 two year old and
(v) four yearlings.
173) This was the only livestock left at the farm when the veterinary
doctor paid a visit on 1 April 2004. The condition of most of the horses was
found to “poor”. Of course this was the situation five and half years after the
SPA was executed. None of the parties undertook the exercise of valuation at the
time of execution of the SPA. Therefore there is no documentation of the exact
number of horses at the stud farm at the time of execution of SPA.
174) While Mr. Dhond has relied on the report of the veterinarian of 1
April 2004, Plaintiffs seem to have admitted in the Plaint that the livestock at the
farm was ‘valuable’ as on the date of filing of the suit. In paragraph 52D(b),
Plaintiffs have averred that the contesting Defendants were attempting to dispose
of "valuable livestock" of the first Defendant Company and were seeking to
generate monies with a view to siphon off the funds. In paragraph 52D(a)
Plaintiffs have averred that the contesting Defendants had put 11 horses for being
auctioned at the auction sale held by RWITC on 9 February 2001 and another 21
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horses were taken to Pune by the second Defendant and his nominee Director for
the purpose of private sale. These averments in the Plaint do indicate that the
livestock present at the form at the time of execution of SPA was not totally
without any value. Plaintiffs themselves have described the same as "valuable
livestock".
175) Though it is difficult for this Court at this juncture to arrive at the
exact valuation of the Stud Farm at the relevant time, at the same time, it is not
possible to accept the tall claims made by the contesting Defendants about
presence of well-groomed 150 horses at the farm at the time of execution of the
SPA. If contesting Defendants desired to prove that the actual valuation of the
Stud Farm was way higher than Rs.29,98,800/- they ought to have produced the
valuation report and led evidence of such valuer. They could have examined an
employee of the farm or witness from Defendant No. 11 to prove the exact
number of horses present at the farm on the date of execution of SPA. However
this is not done. Therefore in absence of any concrete evidence before this Court,
valuation sought to be suggested by contesting Defendants of Rs.10 Crores
cannot be accepted on the basis of mere surmises and conjectures.
176) A great deal of debate has taken place between the parties on the
issue of valuation on the basis of acquisition of 75,000 shares of Defendant No.11
for conversion of alleged debt of Rs.1,12,50,000/- into equity. According to
Plaintiffs, the value of each share for consideration of Rs. 29,98,800/- comes to
Rs.120 per share. This is compared by Plaintiffs with the amount of
Rs.1,12,50,000/- for purchase of 75,000 shares by Defendant No.11, which comes
to Rs.150/- per share. On this basis it is sought to be inferred that the alleged
undervaluation is only to the extent of Rs. 30 per share (difference between Rs.
150 and Rs. 120), which comes to paltry sum of Rs.7,49,700/-. This is countered
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by Mr. Sancheti by submitting that if the value per share is taken at Rs.150/- (on
the basis of conversion of 75,000 shares for Rs.1,12,50,000/-) the value of the
Company becomes Rs. 1.50 crores for 1,50,000 shares and the value of Rs.24,990
shares purchased by Plaintiffs would be Rs.600/- per share. Mr. Sancheti’s
contention that purchase of company worth Rs. 1.50 crores (as per Plaintiffs’
calculations) at Rs. 29,98,800/- is clearly unconscionable.
177) I do not wish to delve deeper into the calculations presented by the
parties before me. What is relevant to be noted is that allotment of 75,000 shares
to Defendant No. 11 for consideration of Rs. 1,12,50,000/- in October 2000,
completely demolishes the theory of contenting Defendants that the first
Defendant Company was valued at Rs. 10 crores, as falsely contended by them.
178) As observed above, contesting Defendants are seasoned players in
the field and they knew exactly as to what was the correct valuation at which the
stake in the first Defendant Company could be sold at the relevant time. As
observed earlier, the SPA has been fully acted upon by transferring the shares in
the name of Original Plaintiffs and by entering their names in the Register of
Members and by appointing Original Plaintiff No.1 as Director. Nature of SPA as
a transaction of sale is further acknowledged by contesting Defendants by
admitting Plaintiffs’ stake of 24.99% in the company while holding EOGM dated
9 January 2001. Thus this is not a case of contesting Defendants being
hoodwinked by original Plaintiffs into a transaction, which no sound person could
ever enter into. Why the contesting Defendants agreed to sell 99.96% stake in the
first Defendant Company for consideration of Rs.29,98,800/- is something which
is in the knowledge of the Defendants themselves.
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179) As observed above, the only asset of the First Defendant is the Stud
Farm. It measures 101.7 acres. Plaintiffs have placed on record all the Sale
Deeds, by which the land of the Stud Farm was purchased from time to time.
While it is not necessary to make reference to all the said Sale Deeds, in absence
of any dispute about purchase of lands, for the purpose of getting some idea about
the possible value of the land at the relevant time, it would be necessary to make
reference to Sale Deed dated 26 March 1998 executed between Defendant No.1-
Company and Shri Bandu H. Gopale and Shri Popat B. Gopale, by which land
admeasuring 14.2 Ares in Gat No.71, Village-Shirgaon, Taluka -Maval, District -
Pune, is shown to have been purchased for consideration of Rs. 26,000/-.
Similarly, by a Sale Deed executed on 17 October 1997 executed between
Defendant No.1-Company and Dhanaji Namdeo Gopale, land admeasuring 64
Ares in Gat No.75 Village-Shirgaon, Taluka-Maval, District –Pune is shown to
have been purchased for Rs.88,000/-. In the Sale Deed dated 17 October 1997
the Ready Reckoner value is shown at Rs.1,14,000/-. If the Ready Reckoner
value of Rs.1,14,000/- for land admeasuring 64 Ares is taken into consideration,
the approximate rate per acre would be Rs. 71,250/- in the year 1997. If price at
which the land is sold at Rs.88,000/- is taken into consideration the rate would be
Rs.55,000/- per acre. If the above rates of the land are taken into consideration,
the value of the land of Stud Farm of 101.7 Acres would Rs.76,73,625/- going by
Ready Reckoner value and Rs.55,93,500/- going by value at which the land is
actually purchased. While it is not for this Court to enter into guess work for
finding out the true value of the land at the relevant time, the purchase
transactions placed on record give some idea about the actual value of the land at
the relevant time. Thus, after taking into consideration the amount of
Rs.29,98,800/- paid under SPA coupled with the outstanding loan liability of
Shamrao Vithal Co-operative Bank, it is otherwise difficult to hold that the
consideration is so inadequate or is unconscionable that the entire contract must
be treated as void. It must also be borne in mind that contesting Defendants did
not sell the entire stake in the Company and for the some reason decided to keep
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10 shares of the Company with themselves, possibly to assert their rights in
respect of management of the first Defendant Company. They also got included
covenant in the SPA which permitted them to remain in management even after
sale of 99.96% stake in the first Defendant Company. They were also possibly
aware of the disinterest of the original Plaintiffs in taking part in the management
of the Stud Farm. Thus, this is not a case of absolute sale of the Stud Farm and
contesting Defendants continued to be in possession and management of the
farm after execution of the SPA at least for some time. Considering all these
circumstances, it is difficult to hold that the consideration paid for execution of
the SPA is grossly inadequate that this Court must draw an adverse inference
that the SPA is not executed by contesting Defendants out of their free consent.
180) It may be that the price of Rs.29,98,800/- paid by original Plaintiffs
for purchase of 99.96% stake in the first Defendant Company may not exactly
match the value of the stud farm as on 27 October 1998. However the issue is
whether such under valuation alone can be a ground for the purpose of holding
that SPA did not effect sale of shares and that the same was merely a document
executed towards security for loan? The answer to the question, to my mind,
appears to be in the negative. It must also be borne in mind that contesting
Defendants, on their own, did not file any proceedings for declaring the SPA to
be void or not binding on them. They have failed to file any counterclaim in the
present suit. Therefore on this count as well, the defence of inadequacy of
consideration raised by the Defendants deserves to be repelled.
F.4.10 A NSWER TO I SSUE N OS . 1 & 2
181) On the basis of the findings recorded above, I am unable to hold that
SPA was executed merely as a comfort document or towards security for loan.
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SPA has effected transfer of 24,990 shares in favour of original Plaintiffs. Issue
Nos. 1 and 2 are accordingly answered as follows:
No. Issue Answer
1 Whether the Plaintiffs prove that the Plaintiffs acquired
24,999 shares, i.e. a 99.96% equity stake in the Defendant
No.1 company under the Share Purchase Agreement dated
27.10.1998 ?
Yes
nd rd
2 Whether the 2 and 3 Defendants prove that the said Share
Purchase Agreement was only by way of security for an
underlying loan transaction as alleged in para 4.7, 4.8, 4.9, 29
and 32 of the 3rd Defendant’s Written Statement and in para
11 of the 2nd Defendant’s Written Statement ?
No
F.5 W HETHER E LEVENTH D EFENDANT W AS A S HAREHOLDER A S
O N T HE D ATE O F E XECUTION T HE SPA.
(I SSUE N OS . 9 & 15)
182) The Plaintiffs have alleged that Defendant No.11-Somerville was not a
shareholder of the first Defendant Company as on 30 September 2000 when
resolution was allegedly adopted for increase of share capital of the Company
from Rs.25 lakhs to Rs.1.50 crores and also as on 18 October 2000 when decision
was taken for allotment of 75,000 shares of the Company to Defendant No.11.
Plaintiffs have averred in paragraph 2(e) of the plaint as under :-
th
(e) The 10 Defendant is a partnership firm and holds one share in the
st th
1 Defendant company. The 10 Defendant is owned and controlled by
nd
the 2 Defendant and members of his family. It appears that as part of
nd
the series of illegal and fraudulent steps taken by the 2 Defendant and
th
his co-defendants, the 10 Defendant has very recently transferred
th
its share to the 11 Defendant, without the knowledge or
concurrence of the Original Plaintiffs. The transfer is illegal, null and
void as stated more particularly hereinafter.
(emphasis supplied)
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183) Plaintiffs further contend that under Articles of Association, there was a
right of pre-emption for Plaintiffs to purchase the share allegedly sold by
Defendant No.10 to Defendant No.11.
184) It is Plaintiffs’ case that “very recently” before filing of the suit,
Defendant No.10-Ajit Investments clandestinely transferred 1 share of the first
Defendant Company to Defendant No.11 and that the same was done not only to
prove valid conduct of AGM dated 30 September 2000 but also to prove valid
allotment of 75,000 shares to Defendant No.11. Plaintiffs’ case is thus that when
Defendant No.11 did not own even a single share in the first Defendant
Company, it could have neither remained present for AGM conducted on 30
September 2000 nor any shares could have been allotted in its favour. Thus,
absence of ownership of 1 share by Defendant No.11 is essentially raised by
Plaintiffs to demolish the entire theory of Defendant No.11 owing any debt to
Defendant No.1 or increasing the share capital of Defendant No1-Company to
reduce such alleged debt or entitlement of Defendant No.11 towards allotment of
any shares by converting debt into equity.
185)
Before proceeding to decide the issue of ownership of 1 share by
Defendant No.11 in the First Defendant Company, it must be observed at the
very outset that the entire case of the Plaintiffs in this regard is based on surmises
and conjectures. Plaintiffs have not produced any primary evidence to show that
the one share, in respect of which ownership is claimed by Defendant No.11,
is/was actually and factually owned by some other person or entity. Though it is
vaguely contended that ‘very recently’ Defendant No. 10 transferred the share to
Defendant No. 11, no evidence is produced to show that Defendant 10 owned
that particular share before alleged transfer. Secondly, Plaintiffs themselves do
not appear to be very sure about the exact date on which the alleged transfer of
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one share took place between Defendant No.10 and 11. In fact no document of
transfer in this regard is placed on record by Plaintiffs. Thus, Plaintiffs’
averments in the plaint about Defendant No. 10 ‘very recently’ transferring 1
share of first Defendant Company to Defendant No.11 is purely based on
surmises in absence of any specific knowledge about the alleged transaction.
186) This Court while framing Issue No. 15 has cast burden on
Defendants to prove that one equity share of the first Defendant Company was
legally and lawfully transferred from the Third Defendant to Eleventh Defendant
on 15 June 1992. This issue is framed on account of following averments in
paragraph 2(i) of the written statement filed by Defendant No.11 :
2. Without prejudice to the aforesaid, this Defendant further states as
follows:
th
(i) On 15 June 1992, this Defendant became the holder of One Equity
st
Share of Rs. 100/- in the 1 Defendant Company. The said share
bearing distinctive No.3240 was transferred to this Defendant by Mrs.
Manju Gupta (Defendant No.3) and a Share Certificate No.16 was
st
received by this Defendant from the 1 Defendant Company after duly
recording the transfer therein. Hereto annexed and marked Exhibit ‘1'
is a copy of the said Share Certificate No.16. The said Share transfer
st
was duly entered in the Register of share Transfers of the 1 Defendant
company under Serial No.7 on 15th June 1992. Hereto annexed and
marked Exhibit '2' is a copy of the extract from the said Register of
Share Transfers.
187) As a matter of fact, it is the assertion of Plaintiffs that Defendant
No.11 was never a shareholder of the first Defendant Company and in that sense,
this assertion is required to be proved by Plaintiffs. However, on account of the
averment raised by Eleventh Defendant in the Written Statement about transfer
of share by Third Defendant to it on 15 June 1992, the burden appears to be cast
on the Defendants. Be that as it may. I proceed to examine whether Defendant
was a shareholder at the relevant time. In this regard the primary assistance is to
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be found in the averments made by Plaintiffs in their plaint itself. The following
relevant averments are made by the Plaintiffs in paragraph 2(j), 9(a), 19 and
54(a) of the plaint, which read thus:-
nd
2.(j) Defendant Nos. 2 to 11 (either by themselves or through 2
Defendant) are all parties to the share purchase agreement dated
27.10.1998 …
9.(a) … Article 1.1(c) denies the expression ‘First party’ to mean
members of the Defendant No.2’s family (Defendant Nos 2-7) and the
nd th
2 Defendant’s family concerns, namely, the 10 Defendant and the
th
11 Defendant.
th th
19. The 10 Defendant firm and 11 Defendant company are entities
nd
owned and controlled by the 2 Defendant. As stated above, they fall
within the ambit of the expression ‘First party’ used in the share
purchase agreement dated 27.10.1998, Certain amounts were shown as
st th th
being due from the 1 Defendant to the 10 and the 11 Defendant in
st
the books of account of the 1 Defendant company.
54.(a) … the Original Plaintiffs were shareholders and members of the
st
1 Defendant company and 24,990 shares constituting 99.96% of the
total issued, subscribed and paid up share capital of the 1wt Defendant
company. These shares were purchased by the Original Plaintiffs under
a share purchase agreement dated 27.10.2998 to which Defendant Nos.
2 to 11 were parties either as ‘First party’ or ‘the Confirming Parties’
…
188) Thus, in their Plaint itself, Plaintiffs have averred that Defendant
No.11 was party to the SPA. The above admissions given by Plaintiffs are not
stray and stem out of the covenants of the SPA. In the SPA, “ First Party ” is
defined to include “ Mr. Govind Gupta, Manju Gupta, Radhika Gupta, Meera
Gupta, Akshat Gupta, Vikram Gupta and M/s. Ajit investments, a partnership firm
under the Indian Partnership Act, 1932 and Somerville Farms Pvt. Ltd., a company
incorporated under the Companies Act, 1956 having their registered office address at
nd
Metro House, 2 floor, M.G. Road, Mumbai 400 020 ”.
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189) After inclusion of Defendant No.11-Somervile within the definition
First Party the first party
of the term “ ”, the first recital to the SPA provides that “
are holding 100% equity share in Manju Meadows Pvt. Ltd. ” Thus, the SPA
proceeds on an assumption that Defendant No.11-Somervile, together with other
persons and entities included in the definition of the term “ First Party ”, held
100% equity shares in the first Defendant Company. The original Plaintiffs were
thus given a clear idea at the time of execution of the SPA that Defendant No.11-
Somervile was also equity shareholder in the first Defendant Company. This is
the reason why Plaintiffs appear to have given admissions in the plaint that even
Defendant No.11, in its capacity as entity forming part of the First Party,
executed the SPA.
190) Mr. Dwarkadas, appearing for Defendant No.11 has relied upon
judgment of Nagin Das (supra) in which it is held that admissions, if true and
clear, are by far the best proof of the facts admitted and stand on a higher footing
than evidentiary admissions. That such admissions are binding on a party that
makes them and constitute a waiver of proof. The Apex Court has held in
paragraph 27 of the judgment as under :
27. From a conspectus of the cases cited at the bar, the principle that
emerges is, that if at the time of the passing of the decree, there was
some material before the Court, on the basis of which, the Court could
be prima facie satisfied, about the existence of a statutory ground for
eviction, it will be presumed that the Court was so satisfied and the
decree for eviction, though apparently passed on the basis of a
compromise, would be valid. Such material may take the shape either of
evidence recorded or produced in the case, or, it may partly or wholly
be in the shape of an express or implied admission made in the
compromise agreement, itself. Admissions, if true and clear, are by far
the best proof of the facts admitted. Admissions in pleadings or
judicial admissions, admissible under Section 58 of the Evidence
Act, made by the parties or their agents at or before the hearing of
the case, stand on a higher footing than evidentiary admissions.
The former class of admissions are fully binding on the party that
makes them and constitute a waiver of proof. They by themselves
can be made the foundation of the rights of the parties. On the other
hand, evidentiary admissions which are receivable at the trial as
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evidence, are by themselves, not conclusive. They can be shown to be
wrong.
(emphasis supplied)
191)
In my view, once Plaintiffs have given admissions in the plaint
about Defendant No.11 forming part of “ First Party ” coupled with specific
covenants in the SPA that ‘First Party’ held 100% equity shares in the first
Defendant Company, it was not even required to be proved by any of the
contesting Defendants that Defendant No.11-Somervile was actually a
shareholder of the first Defendant Company as on the date of holding the AGM
of 30 September 2000.
192) During the course of submissions, I was shown original SPA by Mr.
Dhond. Some of the portions of the SPA have been blanked out by use of white
ink. However, after holding the said blanked out portion by white ink against the
light, it is clear that serial Nos.7 and 8 of the table, showing shares held by
Defendant Nos.10 and 11, are covered in white ink. It appears that initially entire
25,000 shares were incorporated for sale in the typed SPA. However, at the time
of execution of the SPA, parties apparently agreed to sell only 24,990 shares,
which appears to be the reason why one share owned by Defendant No.11 was
covered by white ink in the original SPA. Furthermore, the SPA was apparently
supposed to be signed by Defendant No.11 (when all 25,000 shares were agreed
to be transferred). However, since share of Somerville was apparently deleted
from the scope of transfer, name and place for signature of Defendant No.11
appears to have been covered in white ink on the last page of the SPA. It is
Plaintiffs’ own case that the SPA was drafted by their Solicitor. The same must
have been drafted as per the instructions given by the original Plaintiffs. Thus,
inference of knowledge of shareholding by Defendant No.11 by the original
Plaintiffs can easily be gathered from Plaintiffs’ own evidence. In my view, this is
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sufficient to hold that Defendant No.11 actually held one share in the first
Defendant Company at least on the day of execution of the SPA. Whether
Defendant No.11 held such share prior to 27 October 1998 is inconsequential and
therefore enquiry into the manner of acquisition of such share of Defendant
No.11, in my view, is unnecessary for the purpose of determining of the
controversy at hand.
193) Mr. Dhond’s reliance on column VIII under the heading “Equity
Share Capital break up” (percentage of total equity) and sub-column (viii) under
heading “Bodies Corporate (not mentioned above)” reflecting ‘Nil’ in the
annual returns to show that Somerville did not own any share, does not cut any
ice in view of the fact that in the Annual Return for financial year ending on 31
March 2000, Somerville was shown to have been owning 75,001 shares and
therefore mere reflection of the word ‘Nil’ in column VIII (viii) of the return
cannot be a ground to presume that Somerville did not own one share prior to 30
September 2000.
194)
Both the parties have led evidence and have advanced detailed
submissions in support of their rival contentions about factual controversy of
ownership of one share by Defendant No.11. While it is not necessary to go into
detailed enquiry in this regard in view of the above findings recorded, it would be
sufficient to make reference to just one question put in by Plaintiffs to D.W.1 with
regard to one share of Defendant No.11. Following question No.1092 is asked to
D.W.1 in his cross-examination :
Q. 1092. I put it to you that the name of Defendant No.11 appeared in the
records of Defendant No.1 in its capacity as a partner of Tapia Livestock
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Breeding and Research Farm/Gupta Livestock Breeding and Research Farm
and not in the individual capacity of Defendant No.11.
Ans. That is not correct.
195) Thus, Plaintiffs themselves asked question to D.W.1 in cross-
examination suggesting that name of Defendant No.11 appeared in the records of
Defendant No.1. That the capacity in which such name appeared is disputed by
Plaintiffs. Once again what is admitted is the fact that the name of Defendant
No.11 did appear in the record of Defendant No.1. On this, further case is built by
Mr. Dwarkadas by relying upon judgment of this Court in Re: Severn Trent
Water Purification (supra) by contending that when company is closely held
company or private limited company, it is in the nature of a glorified partnership.
He has further contended that since first Defendant Company is in the nature of
a glorified partnership, human conduct demanded an enquiry on the part of
Plaintiffs to enquire as to why the name of Defendant No.11 was appearing in the
Register of Members. Reliance in this regard is placed on definition of the term
“ member ” under Section 41 of the Companies Act as well as provisions of
Sections 153 and 163 of the Companies Act relating to maintenance of Register of
Members. Mr. Dwarkadas also relied upon provisions of Section 114 of the
Evidence Act in support of his argument of human conduct. He has also taken
me through the relevant portions of cross-examination of P.W.1 in which
admissions are given about Original Plaintiff No.1 not bothering to inspect the
Register of Members at the time of signing the SPA. In my view a person
acquiring 99.96% stake in a Company (24,990 shares) would naturally enquire as
to who continued to hold the balance 10 shares in the Company. The factum of
Defendant No.11 being included in the definition of “ First Party ” with clear
understanding given to original Plaintiffs that First Party was 100% equity
shareholder in the Company, it is safe to assume that original Plaintiffs had full
knowledge of the fact that Defendant No.11 held one share in the Company at the
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time of execution of the SPA. Issue No.15 is accordingly answered in favour of
Defendants and against Plaintiffs.
196) Since Defendant No. 11 held one share of the first Defendant
Company, its director-Defendant No. 12 was entitled to attend the AGM held on
30 September 2000. Issue No. 9 is also answered against Plaintiffs and in favour
of contesting Defendants.
197) Issue Nos. 15 and 9 are accordingly answered as follows:
No. Issue Answer
15 Whether the Defendants prove that on equity share of the 1st
Defendant Company was legally and lawfully transferred
from the 10th Defendant to the 11th Defendant on 15th June
1992 as alleged in para 9 of the Written Statement of the 10th
Defendant and para 2 of the Written Statement of the 11th
Defendant ?
Yes
9 Whether the Defendant Nos. 2 and 12 prove that the 12th
Defendant was entitled to attend, participate in or vote at the
Annual General Meeting of the 1st Defendant held on 30th
September 2000 either on his own, or on behalf of the 11th
Defendant ?
Yes
F. 6 V ALIDITY OF D ECISIONS T O I NCREASE S HARE C APITAL A ND TO
A LLOT 75,000 S HARES T O 11
TH
D EFENDANT
I SSUE N OS . 7,10, 12 ,13, 14 & 18
198) As observed above, the contesting Defendants have contended that even
if it is assumed that original Plaintiffs did purchase 24,990 shares of the first
Defendant Company vide SPA dated 27 October 1998, their stake in the
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Company is only 24.99% and not 99.96%. This contention of the contesting
th
Defendants is premised on their assertion that in the 24 AGM held on 30
September 2000, the authorised share capital of the first Defendant Company
was increased from Rs. 25,00,000 to Rs. 1,50,00,000/- (comprising of 1,50,000
equity shares of Rs. 100 each) and that 75,000 shares were allotted to Defendant
No. 11 by converting its debt of Rs. 1,12,50,000/- into equity in the Board
Meeting dated 18 October 2000. Plaintiffs have disputed the theory of alleged
debt of Defendant No. 11 as well as validity of AGM and Board Meetings, its
minutes as well as the resolutions adopted therein
F. 6.1 D EBT BY D EFENDANT N O . 11 OF R S . 2,02,63,302/- TO F IRST
D EFENDANT C OMPANY
199) As observed above, allotment of 75,000 shares of the first
Defendant Company to Defendant No.11 is shown to have been effected for the
purpose of reduction of the debt of Rs. 2,02,63,302/- of Defendant No.11 to
Defendant No.1. In the AGM held on 30 September 2000, it is recorded that
there was outstanding loan of Rs. 2,02,63,302/- from Defendant No.11 and that
decision was taken to convert part of the said outstanding loan into equity shares
of the Company for the purpose of reduction of the said loan. Thus, alleged loan
of Rs. 1,12,50,000/- is shown to have been converted into equity by allotting
75,000 shares to Defendant No.11.
200) It is contended by Mr. Dwarkadas that if the shares are issued in
the larger interest of the Company, the decision to issue shares cannot be struck
down on the ground that it has incidentally reduced a majority shareholding to
minority. Thus, contention of the contesting Defendants is that once necessity of
converting debt into equity is proved, this Court cannot interfere with the
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decision to allot 75,000 shares to Defendant No.11. Plaintiffs have disputed that
such debt of Rs. 2,02,63,302 was due from Defendant No. 1 to Defendant No. 11.
In the light of this position, the factual controversy about existence of debt of Rs.
2,02,63,302/- is required to be resolved, before determining the issue of validity
of various meetings held and decisions taken therein.
201) Before proceeding further to decide whether Defendant No.11 actually
owed debt of Rs. 2,02,63,302/- to Defendant No.1, it would be necessary to make
Nanalal
a quick reference to three decisions relied upon by Mr. Dwarkadas. In
Zaver (supra) the Apex Court while interpreting the provisions under Section
105 (c) of the Companies Act, 1939 which corresponds with Section 81 of the
Companies Act, 1956 has held in paragraphs 62, 63 and 64 as under:-
62. It will be noticed that in each of the abovereferred three cases the act of the
Directors was not only not of advantage to the company but was in essence to its
detriment in that it was calculated to reduce the existing majority into minority
and to prevent the majority of the existing shareholders from exercising their
discretion with respect to what they conceived to be in the best interests of the
company. Those cases were not cases of mixed motives at all. The only motive
operating in those cases in the minds of the Directors was detrimental to the
interests of existing shareholders and, therefore, to the company itself. Our
attention was drawn to Palmer's Company Law , 18th Edn., p. 183, where it is
stated that "in exercising their powers, whether general or special, Directors
must always bear in mind that they are in a fiduciary position, and must exercise
their powers for the benefit of the company, and for that alone." Relying on the
words "and for that alone," it is urged that the power to issue shares must be
exercised wholly and solely for the benefit of the company, that there must not be
any other motive whether or not that other motive is injurious to the company
and that if that power is exercised for that purpose and also for some other
purpose then irrespective of the nature of that other purpose the Directors
would be guilty of an abuse of their power. I am not prepared to read the passage
in the way urged by learned counsel for the plaintiffs. None of the cases cited on
that point in Palmer's Company Law was concerned with mixed motives at all. In
none of them was there any motive beneficial to the company or to the existing
shareholders. In my view what that passage means is that the power must be
exercised for the benefit of the company and that as between the Directors and
the company there must be no other motive which may operate to the detriment
of the company. If the Directors exercise the power for the benefit of the
company and at the same time they have a subsidiary motive which in no way
affects the company or its interests or the existing shareholders then the very
basis of interference of the Court is absent, for, as I have pointed out, the Court
of equity only intervenes in order to prevent a breach of trust on the part of the
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Directors and to protect the cestui que trust , namely the company and possibly
the existing shareholders. If as between the Directors and the company and the
existing shareholders there is no breach of trust or bad faith there can be no
occasion for the exercise of the equitable jurisdiction of the court.
63. I find support for my views in the following observations of Their Lordships
of the Judicial Committee in Hirsche v. Sims : (AC pp.660-61)
"If the true effect of the whole evidence is, that the defendants truly and
reasonably believed at the time that what they did was for the interest of the
company, they are not chargeable with dolus malus or breach of trust merely
because in promoting the interest of the company they were also promoting
their own, or because they afterwards sold shares at prices which gave them
large profits."
64. On the facts of this case the concurrent finding is that the company was in
need of funds and, therefore, the issue of further shares was clearly necessary
and is referable to such need. The further motive of keeping out the Singhania
group, who are not yet shareholders but are strangers, does not prejudicially
affect the company or the existing shareholders and the presence of such further
motive cannot vitiate the good motive of finding the necessary funds for the
company. In my judgment it is impossible to hold that the issue of fresh shares
was, in the circumstances, illegal or void.
202) The decision in Nanalal Zaver (supra) has been followed by the
Apex Court in subsequent decision in Needle Industries (India) Ltd. (supra) in
which the Apex Court in paragraph 111 has held as under :
111. Whether one looks at the matter from the point of view expressed by this
Court in Nanalal Zaver or from the point of view expressed by the Privy Council
in Howard Smith , the test is the same, namely, whether the issue of shares is
simply or solely for the benefit of the Directors. If the shares are issued in the
larger interest of the Company, the decision to issue shares cannot be struck
down on the ground that it has incidentally benefited the Directors in their
capacity as shareholders. We must, therefore, reject Shri Seervai’s argument
that in the instant case, the Board of Directors abused its fiduciary power in
deciding upon the issue of rights shares.
203)
The decisions in Nanalal Zaver and Needle Industries (India) Ltd.
(supra) have been further followed in by the Apex Court in Hasmukhlal
Madhavlal Patel in which Apex Court has held in paragraph 38 as under :
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38. The fact that the Directors may also benefit from a decision takes primarily
with the intention to promote the interests of the Company, cannot vitiate the
decision. In other words, if in the implementation of the decision taken
primarily with a view to safeguard the interest of the Company, the appellants
have made a gain, it cannot by itself render the decision vulnerable.
204) Thus, the law as settled by the Apex Court in Nanalal Zaver ,
Needle Industries (India) Ltd. and Hasmukhlal Madhavlal Patel (supra), is that
promotion of interest of the company is paramount and the decision taken for
issuance of shares of company cannot be invalidated only for the reason that
other shareholders are reduced to minority. Mr. Dhond does not seriously
dispute this proposition. What he however disputes is that sum of Rs.
2,02,63,302/- was due from Defendant No.11 to Defendant No.1 as well as the
validity of decisions to increase share capital and allotment shares to Defendant
No.11. At this juncture, only the first argument of Mr. Dhond about correctness
of assertion of Rs. 2,02,63,302/- being due by Defendant No.11 to Defendant
No.1 is taken up for consideration.
205) Mr. Dhond has relied upon letter dated 23 November 1998 issued
by Defendant No.11 to Defendant No.1, which reads thus :
23 November, 1998
To:
Manju Meadows Pvt. Ltd.,
nd
Metro House, 2 . Floor,
M.G. Road,
Mumbai 400 020.
Dear Sirs,
Re: Sum of Rs,67,97,470/- due to us.
The abovementioned sum of Rs. 67,97,470/- is due to us from you. We hereby
confirm that we do not and shall not hold you responsible for payment of the
said sum. Mr. Govind Gupta and Mrs. Manju Gupta shall be held personally
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liable for the said amount of Rs. 67,97,470/- due and payable to us, which please
note.
Yours sincerely,
We confirm that we are Sd/-
Responsible for repayment. (Sommerville Farms)
Sd/-
(Govind Gupta)
Sd/-
(Manju Gupta)
206) Thus, as on 23 November 1998, Defendant No.11 stated that sum
of Rs. 67,97,470/- was due from first Defendant Company to Defendant No.11.
The issue is how this figure of Rs. 67,97,470/- escalated to Rs.2,02,63,302/- on
the day when AGM was held on 30 September 2000 ? Thus, increased lending of
additional sum of Rs. 1,34, 65,832/- is shown by the contesting Defendants for
the purpose of justifying the allotment of 75,000 shares to Defendant No.11.
Contesting Defendants have admittedly not led any direct evidence to prove that
additional sum of Rs. 1,34,65,832/- was actually and factually disbursed by
Defendant No.11 to Defendant No.1. No bank statements are placed on record to
prove transmission of funds of Rs. 1,34,65,832/- from accounts of Defendant
No.11 to Defendant No.1. Thus, contesting Defendants have failed to lead
primary evidence of actual disbursement of amount of Rs.1,34,65,832/- during
the period of 23 November 1998 to 30 September 2000.
207) Having failed to produce the best evidence in the form of bank
entries, contesting Defendants have sought to rely upon audited Balance Sheets.
Plaintiffs have serious objections to reading of Balance Sheet for the year 1999-
2000 in evidence on account of failure to produce certified copies of ROC. Even
if this objection is momentarily ignored, even the said Balance Sheets for the year
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1999-2000 do not reflect a specific entry to prove that Defendant No.1 owed an
outstanding amount of Rs. 2,02,63,302/- to Defendant No.11. The only
document, which is produced on record by the Plaintiffs in his examination-in-
chief is ‘unaudited’ balance sheet for the period from 1 April 2000 to 31 August
2000, which appears to have been produced for a different purpose of
demonstrating as to what was given by second Defendant to original Plaintiff
No.1 at the relevant time. Mr. Sancheti has contended that since document is
produced by Plaintiffs, it has to be read in evidence. Even if this contention is
accepted, the said document is merely an unaudited Balance Sheet and no
inference can be drawn on the basis of the said unaudited Balance Sheet that
amount of Rs. 2,02,63,302/- was indeed due by Defendant No.11 to Plaintiffs.
Another document is in the form of letter dated 10 October 2000 (after AGM of
30 September 2000) issued by Defendant No. 2 to Defendant No. 1 confirming
amount of Rs. 2,02,63,302/- to be paid to Somerville forming part of personal
liability and responsibility of Defendant No. 2. Thus, except unaudited Balance
Sheet and the Letter of Defendant No. 2 dated 10 October 2000, there is
absolutely no document on record to indicate as to how the alleged dues of
Defendant No. 11 to Defendant No. 1 skyrocketed from Rs. 67,97,470/- to Rs.
2,02,63,302/-. I am therefore not inclined to believe that Defendant No.1 actually
owed sum of Rs. 2,02,63,302/- to Defendant No. 11. To prove that the said
amount was actually owed by Defendant No.1 to Defendant No.11, concrete
evidence of transmission of funds ought to have been produced. It must be noted
here that both the parties have filed several documents on record in proof of their
respective contentions and it is quite unlikely that contesting Defendants would
inadvertently omit to produce Bank Statements in this regard.
208) Also of relevance is the fact that contesting Defendants have not
produced any resolution passed by the Board of Directors of Defendant No.11-
Company authorizing Defendant No.11 either to provide any loan to Defendant
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No.1 or to convert the alleged debt for purchase of shares of Defendant No.1-
Company. In this regard following cross-examination of DW1 is relevant :
Q.979 Is it correct that you have not produced a single resolution passed by
the Board of Directors of Defendant No.11 authorizing Defendant No.11 to
make any loan to Defendant No.1?
Ans: Yes.
Q.980 I put it to you no such resolution has ever been passed by the Board of
Directors of Defendant No.11 and that is why you are not in a position to
produce it? Do you agree?.
Ans: I will check and revert.
209) Furthermore, in the Balance Sheet of the first Defendant Company for
the period ending on 31 August 2000, a loan amount of Rs. 1.74 crore to M/s
Gyan Impex is shown. It is inconceivable that the first Defendant Company, who
itself had borrowed loan from Shamrao Vithal Bank and from original Plaintiffs,
would lend Rs. 1.74 crores to another company. Therefore it would be unsafe to
place reliance only on balance sheets for inferring that Defendant No.1 had
borrowed Rs. 2,02,63,302/- from Defendant No. 11. Also, the plea raised by Mr.
Dhond that Defendant No. 2 was using his various companies to route funds for
his own use is not entirely unbelievable. Therefore lending of sum of Rs.
2,02,63,302/- by Defendant No. 11-Company to the first Defendant Company, in
absence of any concrete evidence of actual transmission of money cannot be
believed.
210) After considering the oral and documentary evidence on record, I am
of the view that contesting Defendants have failed to prove that a sum of Rs.
2,02,63,302/- was actually lent by Defendant No. 11 to Defendant No. 1 or that
the same was due or payable by Defendant No. 1 to Defendant No. 11.
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F.6.2 I NCREASE IN AUTHORISED SHARE CAPITAL OF D EFENDANT N O .
WHETHER BONAFIDE
1,
211) It is contended by Plaintiffs that decision to increase share capital of
first Defendant Company from Rs.25 lakhs to Rs.1.50 crores is malafidely taken
with a view to decrease the stake of Plaintiffs in such a manner that Plaintiffs
would not be in a position to manage and control the Company. On the contrary,
it is the contention of the contesting Defendants that the decision has been taken
in larger interest of the Company. I have already made reference to the decision
of the Apex Court in Nanalal Zaver, Needle Industries (India) Ltd. and
Hasmukhlal Madhavalal Patel (supra) relied upon by Mr. Dwarkadas in which it
is held that decision taken in larger interest of Company to increase share capital
or to allot shares cannot be questioned in Court of Law only on the ground of
rejection of stake of majority to minority. At the same time in Hasmukhlal
Madhavlal Patel (supra) the Apex Court has made reference to its decision in
Dale & Carrington Investment (P) Ltd. (supra) in which the Apex Court, while
referring to provisions of Section 81 of the Companies Act, has held that
Directors of Private Limited Company are expected to make disclosure to the
shareholders of the Company when further shares are being issued. The Apex
Court has held that this requirement flows from their duty to act in good faith
and to make full disclosure to the shareholders regarding the affairs of the
Company. Thus, though a private limited company could be treated as a glorified
partnership firm, as sought to be suggested by Mr. Dwarkadas, the ratio of the
Apex Court in Dale & Carrington Investment (P) Ltd. would clearly suggest
that the Directors of a Private Limited Company will owe responsibility to act in
good faith by making the full disclosure to the shareholders regarding affairs of a
Company. Dale & Carrington Investment (P) Ltd. involved issue of validity of
equity shares of a Private Limited Company where the Managing Director
thereof got allotted 6865 equity shares to himself in first meeting and further
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9800 equity shares to himself in the second meeting. Doubts were raised about
validity of the Meetings in which the additional equity shares were allotted to the
Managing Director. Before the Apex Court, one of the defences raised was about
applicability of provision of Section 81 of the Companies Act, which do not apply
to Private Limited Companies. In the light of above factual position, the Apex
Court has held in paragraph 11(d) of the judgment as under :
11(d) …. It follows that in the matter of issue of additional shares, the directors
owe a fiduciary duty to issue shares for a proper purpose. This duty is owed by
them to the shareholders of the company. Therefore, even though Section 81 of
the Companies Act which contains certain requirements in the matter of issue
of further share capital by a company does not apply to private limited
companies, the Directors in a private limited company are expected to make a
disclosure to the shareholders of such a company when further shares are being
issued. This requirement flows from their duty to act in good faith and make full
disclosure to the shareholders regarding affairs of a company. The acts of
Directors in a private limited company are required to be tested on a much finer
scale in order to rule out any misuse of power for personal gains or ulterior
motives. Non-applicability of Section 81 of the Companies Act in case of private
limited companies casts a heavier burden on its Directors. Private limited
companies are normally closely held i.e. the share capital is held within
members of a family or within a close-knit group of friends. This brings in
considerations akin to those applied in cases of partnership where the partners
owe a duty to act with utmost good faith towards each other. Non-applicability
of Section 81 of the Act to private companies does not mean that the Directors
have absolute freedom in the matter of management of affairs of the company.
212) Dale & Carrington Investment (P) Ltd.
Thus, in the Apex Court
has held that non-applicability of Section 81 of the Companies Act to private
limited companies does not mean that Directors have absolute freedom in the
matter of management of affairs of the Company. In fact, the facts involved in
Dale & Carrington Investment (P) Ltd. appear to be almost similar to the
present case, which are recorded in paragraphs 11 and 11(a) of the judgment
which reads thus :
11. This is the main issue which arises for consideration in this case. As already
noted, Ramanujam who was the Managing Director of the company got allotted
6865 equity shares to himself in a meeting of the Board of Directors of the
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company alleged to have been held on 24-10-1994. Again on 26-3-1997 he
managed to get allotted further 9800 equity share to himself. Prathapan has
challenged these allotments of shares in favour of Ramanujam as acts of
oppression on the part of Ramanujam, the Chairman and Managing Director of
the company for which he filed a petition under Sections 397 and 398 of the
Companies Act before the Company Law Board. A doubt has been cast about
whether the alleged meetings in which additional equity shares were allotted to
Ramanujam were held at all. In this behalf the following facts are noticeable:
(a) The appellants have filed a photocopy of the minutes of the alleged meeting
of the Board of Directors said to have taken place on 24-10-1994. As per the
photocopy the minutes appear to be signed by Ramanujam as Chairman. The
presence of Suresh Babu as a Director of the Company has been shown in the
minutes. However, there is no evidence of presence of Suresh Babu in the said
meeting. Article 36 of the Articles of Association of the company requires that a
notice convening the meetings of the Board of Directors shall be issued by the
Chairman or by one of the Directors duly authorized by the Board in this behalf.
Suresh Babu filed an affidavit in the proceedings before the Company Law Board
wherein he has categorically stated that at no point of time he was involved in
the affairs of the company and in running the business of the company. Further
he has stated in the said affidavit that at no point of time he was informed that he
had been appointed as Director of the company. He had never received any
notice of any Board Meetings nor had he ever attended any Board meeting. In
view of this categorical denial by Suresh Babu about attending any meetings of
the Board of Directors of the company, it was incumbent on the part of
Ramanujam who was the Chairman and Managing Director of the company and
was in possession of all the records of the Company, to place on record a copy of
a notice calling a meeting of the Board of Directors in terms of Article 36. No
copy of the notice intimating Suresh Babu about the meeting of the Board of
Directors and asking him to attend the same, has been placed on record to show
that Suresh Babu was informed about holding of the meeting in question.
Here reference is required to be made to certain other Articles of the
company which are relevant for the controversy. Article 8 provides that shares
of the company shall be under the control of the Directors who may allot the
same to such applicants as they think desirable of being admitted to membership
of the company. Article 10 provides that allotment of shares "shall exclusively be
vested in the Board of Directors, which may in its absolute discretion allot such
number of shares as it thinks proper...". Article 38 requires that the Directors
present at the Board Meeting shall write their names and sign in a book specially
kept for the purpose. Article 4(iii) prohibits any invitation to the public to
subscribe for any shares or debentures of the company. The above provisions of
the Articles of Association show that the Board of Directors have an absolute
discretion in the matter of allotment of shares. But this presupposes that such a
decision has to be taken by the Board of Directors. The decision is taken by the
Board of Directors only in meetings of the Board and not elsewhere.
Ramanujam, the Managing Director cannot take a decision on his own to allot
shares to himself. If Suresh Babu was Present in the meeting, as is the case of
Ramanujam, he must have signed a book specially kept for recording presence of
the Directors at the Board Meeting in terms of Article 38. Ramanujam should
have been the first person to produce such a book to show the presence of
Suresh Babu at the alleged Board meeting said to have been held on 24-10-1994
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specially when Suresh Babu was denying his presence at the meeting. Nothing
has been produced. Thus neither a copy of a notice convening the Board
meeting nor the logbook mean to record signatures of Directors attending the
meeting of the Board of Directors were produced. In the absence of these
documents and any other proof to show that a meeting was held as alleged, we
are unable to accept that a meeting of the Board of Directors was held on 24-10-
1994. If no meeting of the Board of Directors took place on that date, the
question of allotment of shares to Ramanujam does not arise. We are inclined to
believe that photocopy of the minutes of the alleged meeting dated 24-10-1994
produced by appellants, is sham and fabricated. The alleged allotment of
additional equity shares of the company in favour of Ramanujam is, therefore,
wholly unauthorized and invalid and has to be set aside.
Normally this Court would not have gone into these questions of fact. However,
the learned counsel for the appellant in the course of his arguments drew our
attention to the various Articles of Association of the company, which
unfortunately neither the Company Law Board nor the High Court considered.
We cannot help referring to them, particularly in view of the fact that the
Articles of a company are its constituent document and are binding on the
company and its Directors.
The facts on record show that the company was being run as one man show and
Ramanujam was maintaining the minutes book of meetings of Board of
Directors only to comply with the statutory requirement in this behalf. The
minutes were being recorded by him according to his choice and at his instance.
The minutes do not reflect the actual position. Article 38 mandated that a book
should be maintained to record presence of Directors at meetings of the Board
of Directors. If a book for recording signatures of Directors attending meetings
of the Board of Directors was not maintained, it was in clear violation of Article
38 of the Articles of Association of the company. The Company Law Board
without going into these relevant aspects, proceeded on an assumption that a
meeting of the Board of Directors did take place on 24-10-1994. This
assumption of the Company Law Board is clearly without any basis.
213) As observed above, the judgment in Dale & Carrington
Investment (P) Ltd. has been followed by the Apex Court in Hasmukhlal
Madhavlal Patel (supra). Thus, merely because Defendant No.1 is a private
limited company, its affairs could not have been managed at the whims of the
contesting Defendants and it is necessary for the contesting Defendants to
bonafide
establish that increasing the share capital was a act in the interest of the
Company. I have already held that debt of Rs. 2,02,63,302/- has not been proved
to be due to Defendant No.11 from Defendant No.1. No cogent evidence has
appeared on record to prove such debt. In that view of the matter, decision to
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increase share capital for the purpose of converting non-existent debt of
bonafide
Defendant No.11 into equity does not appear, to my mind, to be a act of
the contesting Defendants. On the contrary, the same appears to be a deliberate
design employed by the contesting Defendants to reduce shareholding of
Plaintiffs with a view to frustrate the SPA.
F.6.3 R EDUCTION O F S HAREHOLDING O F P LAINTIFFS F ROM 99.96% T O
24.99%
214) As observed above, after execution of SPA on 27 October 1998,
original Plaintiffs became owners of 24,990 shares of Defendant No.1-Company
and thus became owners of 99.96% stake in the Company. Despite execution of
SPA, Defendant Nos.2, 8 and 9 continued to remain Directors of the first
Defendant Company. Original Plaintiff No.1 was also appointed as Director of
the first Defendant Company in Resolution adopted by the Board of Directors on
30 September 1999. It is the case of contesting Defendants that despite his
appointment as Director, original Plaintiff No.1 did not bother to attend even a
single Board Meeting or Annual General Meeting held during the years 1999 and
2000. The case of the contesting Defendants is that the first Defendant
Company was indebted to Defendant No.11-Somerville in the sum of
Rs.2,02,63,302/- and the first Defendant Company was desirous of seeking
further loans from Banks and therefore desired to reduce the liability of
Defendant No.11 in its books to improve its debt to equity ratio. The total paid up
equity share capital of the first Defendant Company was Rs.25 lakhs whereas
according to the contesting Defendants, the debt due to Defendant No.11 was
Rs.2,02,63,202/- by the year 2000. To improve debt to equity ratio, Defendant
No.1 decided to convert part of the outstanding loan of Defendant No.11 into
equity by allotting shares of the first Defendant Company to Defendant No.11.
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According to the contesting Defendants, steps were by adopting resolutions in
Board Meetings and in the AGM to convert the outstanding loan of Defendant
No.11 into equity by allotting 75,000 equity shares in discharge of debt of
Rs.1,12,50,000/-. The net result of various decisions taken in the Meetings of
Board of Directors and Annual General Meeting is that the share capital of the
first Defendant Company is increased from Rs.25 lakhs to Rs.1.50 crores and
Defendant No.11 became owner of 75,000 shares whereas Plaintiffs remain owner
of only 24,990 shares. This is how the stake of Plaintiffs in the first Defendant
Company is reduced from 99.96% to 24.99%. Before deciding the issue of validity
of various decisions taken in the meetings of Defendant No.1-Company effecting
reduction of stake of Plaintiffs from 99.96% to 24.99%, it would be first necessary
to take a quick stock of various meetings held and resolutions adopted therein :
I) Meeting of Board of Directors held on 10 August 2000:
According to the contesting Defendants, the first step taken was to
convene a meeting of Board of Directors on 10 August 2000, which
was attended by Defendant Nos.2, 8 and 9. In the meeting, financial
position of the Company was discussed where the Chairman informed
the Board that in order to raise finance from Banks and Institutions, it
was necessary to improve the debt equity ratio of the Company and
that as per the advice of the financial consultants, it was necessary to
reduce the liabilities of the Company to raise institutional funds. The
Board noted that the largest creditor of the Company was Defendant
No.11 which was also Gupta Group concern, to whom " over Rupees
Two crores " were due since quite some time and that Defendant No.11
was interested in and was willing to convert substantial part of their
outstanding loan amount into equity of the Company. The Board
therefore decided that since issue of shares to Defendant No.11
required increase in the authorized capital of the Company, the matter
should be put up before Annual General Meeting. The relevant
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Minutes of the Meeting shown to have been held on 10 August 2000
read thus:
Financial Position of the Company:
The Chairman informed the Board that in order to raise finance from
Banks and institutions, it was necessary to improve the Debt Equity
Ratio of the company. The Board discussed that as per the advice of
financial consultants, if the company wanted to raise any institutional
funds it was necessary to reduce the liabilities of the company. The
Chairman explained that for this purpose the Paid up Capital of the
company needs to be increased and the loan liability needs to be
reduced.
The Board noted that the largest creditor of the company was
Sommerville Farms Private Limited which was also a Gupta Group
Concern, to whom over Rupees Two Crores were due since quite some
time. The Board was informed that in view of the above Sommerville
was also interested in and were willing to convert the substantial part of
their outstanding loan amount into Equity of the Company. This would
not only help reduce the liabilites of the Company but also at the same
time increase the Equity Capital of the Company and make it financially
more sound.
The Board decided that since the issue of shares to Sommerville
requires increase in the Authorised Capital of the company, the matter
should be put up before a General Body Meeting.
II) Board Meeting held on 4 September 2000 :
This Meeting is shown to have been attended by Defendant Nos. 2 and
9. In the meeting, the issue of increasing the authorized share capital of
the Company is shown to have been discussed and the Chairman
informed the Board that in view of understanding arrived at with
Defendant No.11 to issue 75,000 equity shares, it would be suitable to
increase the authorized capital of the Company from Rs.25 lakhs to
Rs.1.50 crores. It was further discussed that for increasing the
authorized share capital, it would be necessary to pass special
resolution by shareholders in the ensuing Annual General Meeting. It
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was decided to include the agenda in the notice of Annual General
Meeting. Following resolutions were adopted:
"RESOLVED that the subject to approval of the shareholders in the
next annual general meeting, the Authorised Share Capital of the
Company be increased from existing Capital of Rs.25,00,000 (Rupees
Twenty Five Lakhs only) divided into 25,000 Equity Shares of Rs.100/-
each to Rs.1,50,00,000/- (Rupees One Crore Fifty Lakhs only) divided
into 1,50,000 Equity Shares of Rs. 100/- each. Accordingly clause V of
the Memorandum of Association and Articles 5 of the Articles of
Association of the Company be altered".
Notice of Annual General Meeting:
The draft Notice for convening the Annual General Meeting of the
th
Company on 30 September, 2000 at the registered office of the
company at 11.00 a.m. was placed before the Board and the same was
approved.
After due deliberation, the following resolution was passed:
"RESOLVED that the Notice for calling the Annual General Meeting
of the Company as placed before the meeting be and is hereby
approved."
III) Annual General Meeting held on 30 September 2000:
th
The 24 Annual General Meeting of the first Defendant Company is
shown to have been held on 30 September 2000, which is shown to
have been attended by Defendant No.2 and Mr. Vinod Haritwal,
Director of Defendant No.11. Apart from usual business of adopting
auditor’s report, reappointment of auditors etc., special business is
shown to have been conducted in the AGM, where Defendant No.2
informed the meeting that the authorized share capital of the Company
was Rs.25 lakhs and Defendant No.11 was willing to convert part of
outstanding loan of Rs.2,02,63,302/- into equity shares and that it was
necessary to increase the authorized share capital of the Company
from Rs.25 lakhs to 1.50 crores divided into 1,50,000 equity shares of
Rs.100/- each. Following resolution is shown to have been adopted in
the AGM held on 30 September 2000:
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"RESOLVED that the Authorised Share Capital of Company of the
Company be increased from existing Capital of Rs 25,00,000/- (Rupees
Twenty five lacs only) divided into 25,000 Equity Shares of Rs.100/-
each i.e. Rs. 1,50,00,000/- (Rupees One Crore fifty lacs only) divided
into 1,50,000 Equity Shares of Rs. 100/- each. Accordingly, Clause V of
the Memorandum of Association and Articles 5 of the Articles of
Association of the Company be altered".
Proposed by Mr. Vinod Haritwal and seconded by Mr. Govind Gupta,
the resolution was passed unanimously.
IV) Meeting of Board of Directors dated 18 October 2000 :
The meeting is shown to have been attended by Defendant Nos.2, 8, 9
and Mr. Vinod Haritwal, Special Invitee. The Chairman informed the
Board that the Company had passed Special Resolution for increasing
authorized capital from Rs.25 lakhs to Rs.1.50 crores. The Board
decided that 75,000 equity shares of Rs.100/- each be allotted to
Defendant No.11 at premium of Rs.50/- per share. The consideration
against the aforesaid allotment was shown to have been already
received and credited to the share application money account.
Following resolutions are shown to have been adopted:
"RESOLVED that 75,000 equity shares of Rs. 100 each of the company
be and are hereby allotted to M/s. Sommerville Farms Pvt. Ltd. at a
premium of Rs. 50 per share in lieu of part of their loan amount already
paid to the company by M/s. Sommerville Farms Ltd., bearing
distinctive nos. 25,001 to 1,00,000, both inclusive."
"RESOLVED FURTHER that Mr. Govind Gupta and Mr. Rajesh
Khandelwal, Directors of the company are hereby authorised to sign
and issue the Equity Share Certificate No. 94 on behalf of the company
under its common seal."
"RESOLVED FURTHER that Mr. Rajesh Khandelwal, a Director of
the company, be and is hereby authorised to file the Return of
Allotment, with the Registrar of Companies, Maharashtra."
….
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"RESOLVED that Mr. Vinod Haritwal be and is hereby appointed as
an Additional Director of the Company with immediate effect."
"RESOLVED further that Mr. Rajesh Khandelwal, a Director of the
company, be and is hereby authorised to submit the Form No.32 with
the Registrar of Companies for appointment of Mr. Vinod Haritwal on
behalf of the Board of Directors."
215) This is how Defendant No.11 not only became owner of 75,000
shares of the First Defendant Company but Mr. Vinod Haritwal, Director of
Defendant No.11 also became Director of the first Defendant Company.
216) According to Plaintiffs, all the aforesaid four meetings shown to
have been held were never actually held and that the minutes thereof as well as
resolutions shown to have been adopted therein are all fabricated. As seen above,
none of the four meetings are attended by original Plaintiff No.1 who was
appointed as a Director of the first Defendant Company on 30 September 1999.
AGM of 30 September 2000 is not attended by original Plaintiff No. 2 also.
According to Plaintiffs, original Plaintiff No.1 was not given notice of either of the
three board meetings, and original Plaintiffs were not given notice of AGM of 30
September 2000 and that they were absolutely unaware about holding of such
meetings. It would be therefore necessary to consider the correctness of these
assertions of Plaintiffs.
217) So far as the first meeting of the Board of Directors dated 10
August 2000 is concerned, it is the defence of the contesting Defendants that
notice of the proposed meeting was issued but original Plaintiff No.1 did not
attend the same. However, no document is placed on record to show that any
such notice was even prepared. Since the notice itself is not placed on record, the
question of producing proof of its service on original Plaintiff No.1 does not arise.
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Thus there is neither notice nor proof of service in respect of the meeting of
Board of Directors dated 10 August 2000. It is therefore difficult to believe that
original Plaintiff No.1 was issued notice of meeting dated 10 August 2000, in
which important decision was taken for convening Annual General Meeting for
increasing authorized share capital of the first Defendant Company from Rs.25
lakhs to Rs.1.50 crores. It must be borne in mind that as on 10 August 2000,
original Plaintiffs held 99.96% stake in the company. However, the meeting dated
10 August 2000 is shown to have been attended only by Defendant Nos. 2, 8 and
9.
218) There is a great deal of debate between the parties about
production of original Minutes Book in respect of the Board Meeting of 10
August 2000. This aspect has been separately dealt with while dealing with the
issue of requirement of production of original records by the contesting
Defendants. Suffice it to observe here that Plaintiffs have taken a stand that
Defendant No.1 did not tender/produce the original Minute Book or even a copy
certified by Registrar of Companies ( ROC ). What is produced on record is a
certified copy which is certified by the Advocate for Defendant No.2.
219) Plaintiffs have relied upon Section 193 of the Companies Act in
support of their contention that the said provision requires a Company to keep
and maintain a book containing Minutes of the Proceedings of its Directors. It is
further contended that presumption under Section 195 of the Companies Act
does not apply to the Minutes of the Meeting allegedly held on 10 August 2000.
Reliance in this regard is placed on judgment of the Madras High Court in M/s.
Micromeritics Engineers Pvt. Ltd. (supra) in which it is held in paragraphs 14, 15
and 17 as under :
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14. The submission of Mr. T. V. Ramanujam, learned senior counsel is that
under the provisions of section 195 of the Companies Act, the Minutes of the
Meeting held on 14.4.1997 is presumed to be valid and since the respondents
have not produced any evidence, the Company Law Board was not correct
in holding that the presumption under section 195 of the Companies Act
cannot be drawn. As far as the presumption under section 195 of the Companies
Act is concerned, the presumption would apply where there is compliance of
the provisions of section 193 of the Companies Act. Under section 193 of the
Companies Act, the entries of minutes of the Board meeting shall be made in
the book kept for that purpose with its pages consecutively numbered, and the
same shall be kept for 30 days of the conclusion of the meeting. Section 193 also
provides that each page of the minutes book shall be initialled or signed and last
page of the minutes shall be dated and signed by the Chairman of the Board
meeting. The appellants have not produced the original minutes book and only
a copy of the minutes book was produced before the Company Law Board and a
perusal of the copy of the minutes book shows that no page numbers were given
and there are no initials as required under section 193 of the Companies Act.
Therefore the requirements of section 193 of the Companies Act have not been
complied with and hence, the presumption under section 195 of the Companies
Act cannot be drawn.
15. Mr. T. V. Ramanujam, learned senior counsel submitted that the argument
against the presumption as to the minutes book was raised only before this
Court and according to him, the original minutes book is available and pages
therein were numbered consecutively. However, the appellants have not
produced the same before the Company Law Board and hence, it is
impermissible for them to rely upon the provisions of section 195 of the
Companies Act. His submission is that had the respondents raised objection
against the presumption before the Company Law Board, the appellants would
have an opportunity to produce the same before the Company Law Board.
However, when the appellants are relying upon the entries in the minutes book
for the allotment of shares and to show that the meetings were validly held, the
onus is on them to produce the original minutes book before the Company
Law Board. I hold that since they have failed to discharge the burden, the
burden does not shift to the respondents, though they question the resolution.
(1997) 10 SCC 488. 17. Mr. T. V. Ramanujam, learned senior counsel for the
appellants submitted that the respondents have not produced any evidence
against the resolution dated 14.4.1997 and in the absence of any evidence, the
presumption under section 195 of the Companies Act would apply. The
submission is also not acceptable as the appellants have not produced the
original minutes book. First, the appellants have to make out a case for
drawing the initial presumption and only if they satisfy that the initial
presumption is available to the appellants, the respondents are required to let
in evidence to rebut the presumption. Since the initial presumption is not
available to the appellants, the failure on the part of the respondents to let in
evidence to rebut the presumption is not a vitiating factor.
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220) Reliance is also placed by Mr. Dhond on judgment of Single Judge
Ashish C. Shah
of this Court in (supra) in which it is held in paragraph 15 as
under :
15. Next comes the document No.1 - the certified true copy of the resolution
dated 16-2-2009, whereby the complainant company had allegedly resolved to
give consent of the Board of Directors to execute power of attorney in favour of
Ashwin Sheth, Managing Director and/or Sharad Doshi, Executive Assistant to
the Managing Director to institute or defend any suit or criminal proceedings.
The learned trial Court observed in the impugned order that there is no clear-
cut provision about issuance of certified copy of extract of minutes book but if
sub-sec. (2) of Section 196 of the Companies Act is read, it may be stated that
certified copy of the minutes can be given. The learned trial Court observed
that the witness Sharad Doshi in his affidavit had deposed about the said
document and thereby he has proved the genuineness of the document. Under
Section 195 of the Companies Act, where minutes of the proceedings of any
general meeting of the company have been kept in accordance with the
provisions of section 193, then, until the contrary is proved, the meeting shall be
deemed to have been duly called and held, and all proceedings thereat to have
duly taken place. Section 194 of the Companies Act provides that the minutes
of meetings kept in accordance with the provisions of section 193 shall be
evidence of the proceedings recorded therein. However, no provision in the
Companies Act is brought to my notice which provides that the certified copy
or extract of the minutes would be admissible in evidence without proof of the
original. Section 65(f) of the Evidence Act provides that secondary evidence
may be given of the existence, condition and contents of the document when
the original is the document of which a certified copy is permitted by the
Evidence Act or by any other law in force in India to be given in evidence. As no
provision from the Companies Act is brought to my notice under which the
certified copy of the minutes of the meetings of the board of directors is
admissible in evidence without proof of the original, it must be said that the
copy of the minutes cannot be admitted in evidence directly unless the original
is proved or the copy is admitted by opposite party. Therefore, even though
that document is given exhibit number, it cannot be treated to have been
proved, unless the complainant leads appropriate evidence to prove the
minutes.
221) In the present case, contesting Defendants have neither produced
certified copy which is certified by ROC nor have granted inspection to the
Plaintiffs of original entire Minutes Book for the purpose of enabling them to
cross-examine Defendants’ witness. Though repeated claims were made by the
contesting Defendants about making available original records for inspection to
Plaintiffs and failure on the part of Plaintiffs to avail an opportunity of inspection
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of original records, when DW1 was put a question about production of “entire
Minutes Book”. He gave following answers:
Q.286 Have you produced this entire Minutes Book of the meetings of
the Board of Directors?
Ans. No.
Q.287 Why did you not produced the Minutes Book of the meetings of
the Board of Directors?
Ans. Since, the record is very voluminous I referred to and produced
the minutes of those meetings which I thought were relevant and
important.
222) A quick reference here also needs to be made to the statement of Mr.
Dwarkaprasad Ramanlal Khandelwala, an employee of the first Defendant
Company recorded by the police, in which he stated that he had written the
Minutes Book for the years 1992 to 1998 in the year 2001-2002 on instructions
from Defendant No.9. Though the said statement made to police in criminal
proceedings may not strictly form an evidence for civil proceedings, the said
statement does cast a shadow of doubt on the manner in which the Minutes are
prepared and maintained by the contesting Defendants.
223) In view of bitter contest between the parties about authenticity of the
Minutes of Book and contents thereof, it was necessary for the contesting
Defendants to produce the entire original Minutes Book for inspection of
Plaintiffs for the purpose of conducting effective cross-examination of their
witnesses. Merely stating that the original Minutes Book was in their custody was
not sufficient. Apart from the original entire Minutes Book, contesting
Defendants did not even produce ROC certified copy of the Minutes of Meeting
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dated 10 August 2000. In my view, therefore, since provisions of Section 193 of
the Companies Act are not met with, presumption under Section 195 cannot be
drawn.
224) I am therefore not inclined to hold that the Meeting of Board of
Directors dated 10 August 2000 was lawfully held. The same is held behind the
back of Original Plaintiff No.1 who was also a Director of the first Defendant
Company at the relevant time. The Resolution shown to have been adopted in
the alleged Meeting dated 10 August 2000 is also not proved and cannot be relied
upon.
225) There is also nothing to suggest that the Minutes of the Meeting
dated 10 August 2000 were circulated to the original Plaintiff No.1 who allegedly
did not attend the meeting despite being served with notice.
226) So far as the Board Meeting shown to have been held on 4 September
2000 is concerned, contesting Defendants have not produced the purported
Minutes of the Meeting of 4 September 2000 either in original or any copy. Only
a “typed copy” is produced alongwith the Written Statement. Thus so far as
Minutes of the Meeting of 4 September 2000 is concerned, the same stands on
worse footing than the Minutes of purported Meeting of 10 August 2000. Again
no document is placed on record to show that a notice of meeting of 4 September
2000 was prepared or was attempted to be served on Original Plaintiff No.1.
Therefore for the same reasons as recorded above, I am not inclined to hold that
meeting of the Board dated 4 September 2000 is validly held nor its minutes or
resolutions can be held to have been validly recorded.
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227) So far as the AGM of 30 September 2000 is concerned, contesting
Defendants have relied upon two documents in support of their contentions that
the notice of the said meeting was served on original Plaintiffs. Firstly,
contesting Defendants have relied upon “Notice to all shareholders” dated 4
September 2000 and secondly they have relied upon “Under Certificate of
Posting” towards proof of addressing the said Notice to Original Plaintiff Nos.1
and 2. Plaintiffs deny that the said notice dated 4 September 2000 was ever
dispatched and that the same has not been received by them.
228) There is a great deal of contest between the parties about proof of
service of notice dated 4 September 2000. According to the contesting
Defendants, the notice has been served through UCP, which is sufficient
compliance under provisions of Section 53(2)(a) of the Companies Act. Section
53 reads thus :
53. Service of documents on members by company.—
(1) A document may be served by a company on any member thereof either
personally, or by sending it by post to him to his registered address or if he has
no registered address in India, to the address, if any, within India supplied by
him to the company for the giving of notices to him.
(2) Where a document is sent by post,-
(a) service thereof shall be deemed to be effected by properly addressing,
prepaying and posting a letter containing the document, provided that
where a member has intimated to the company in advance that
documents should be sent to him under a certificate of posting or by
registered post with or without acknowledgement due and has
deposited with the company a sum sufficient to defray the expenses of
doing so, service of the document shall not be deemed to be effected
unless it is sent in the manner intimated by the member ; and
(b) such service shall be deemed to have been effected-
(i) in the case of a notice of a meeting, at the expiration of forty-eight
hours after the letter containing the same is posted, and
(ii) in any other case, at the time at which the letter would be delivered in
the ordinary course of post.
(3) A document advertised in a newspaper circulating in the neighbourhood of
the registered office of the company shall be deemed to be duly served on the
day on which the advertisement appears, on every member of the company who
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has no registered address in India and has not supplied to the company an
address within India for the giving of notices to him.
(4) A document may be served by the company on the joint-holders of a share
by serving it on the joint-holder named first in the register in respect of the
share.
(5) A document may be served by the company on the persons entitled to a
share in consequence of the death or insolvency of a member by sending it
through the post in a prepaid letter addressed to them by name, or by the title of
representatives of the deceased, or assignees of the insolvent, or by any like
description, at the address, if any, in India supplied for the purpose by the
persons claiming to be so entitled, or until such an address has been so supplied,
by serving the document in any manner in which it might have been served if
the death or insolvency had not occurred.
229) Here the debate about UCP is of two kinds. Firstly, Plaintiffs dispute
the authenticity of copy of UCP produced on record on the ground that the
original UCP has not been tendered/produced in evidence on the pretext of the
same being seized by EOW. The contesting Defendants on the other hand have
contended that after return of the original UCP by EOW, the same was made
available for inspection of Plaintiffs and that therefore it cannot be contended that
the original UCP has not been tendered. In fact, I was shown the original UCP
during the course of submissions by Mr. Sancheti. The second debate is about
the probative value of production of such UCP in support of proof of service of
notice. According to Mr. Dhond, mere production of UCP is not sufficient to
assume service of notice on the noticee. On the contrary, according to Mr.
Sancheti, production of UCP is sufficient service within the meaning of Section
53(2)(a) of the Companies Act.
230) So far as the issue of failure to tender/make available for inspection
original UCP by contesting Defendants is concerned, I have already observed
that it was incumbent for DW1 during the course of his cross-examination to
tender the original UCP to enable the Plaintiffs to effectively cross-examine him.
Mere statement in the Affidavit of Evidence of DW1 that he undertook to
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produce all original documents at the time of examination and as and when called
by the Court was not sufficient. Also the concerned employee of post office is not
examined to prove the UCP sought to be relied upon by contesting Defendants.
Thirdly, the observations made by Single Judge of this Court in Criminal Writ
Petition No.1491 of 2009 casts serious doubt about the genuineness of the said
UCP. This Court in judgment dated 27 October 2016 has referred the statement
of Mr. Genbhau Bhinge posted at the relevant time at Kalbadevi Post Office,
Mumbai in which he stated that “ the said UCP has not been done from Kalbadevi
Office ”. The Order record that the said sentence in the statement was struck off.
This Court thereafter referred to statement of Mr. Mahendra Bajirao Gajbhiye,
Chief Post Master in which he stated that the acknowledgement receipt on the
UCP does not bear stamp and impression of his Post Office. He stated that some
of the features of the stamp are missing from the impressions on the
acknowledgement dated 5 September 2000 such as embossment, stamp code
number, signature of person accepting the same, etc. He further stated that the
UCP bears bogus stamp impression. Mr. Sancheti is at pains to submit that the
statements recorded during the course of investigations and even findings
recorded in a judgment of criminal court are of no evidentiary value in civil
proceedings and that therefore the observations made by Single Judge while
deciding Criminal Writ Petition No.1491 of 2009 are required to be ignored while
deciding the present Suit. He has relied upon judgment of the Apex Court in
Seth Ramdayal Jat (supra) in which it is held in paragraphs 10, 11, 12, 15 and 16
as under :
10. Indisputably, the law relating to the admissibility of a judgment in a criminal
proceedings vis-à-vis the civil proceedings and vice-versa is governed by the
provisions of the Indian Evidence Act. Section 43 of the Indian Evidence Act
reads thus:
Judgments, etc., other than those mentioned in Sections 40, 41 and
“43.
42, when relevant . - Judgments, orders or decrees other than those
mentioned in Sections 40, 41 and 42 are irrelevant, unless the existence
of such judgment, order or decree, is a fact in issue, or is relevant,
under some other provision of this Act.”
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11. In terms of the aforementioned provision, the judgment in a criminal case
shall be admissible provided it is a relevant fact in issue. Its admissibility
otherwise is limited. It was so held in Anil Behari Ghosh v. Smt. Latika Bala
Dassi in the following terms: (AIR p.571, para 15)
“15. … The learned counsel for the contesting respondent
suggested that it had not been found by the lower appellate court as a
fact upon the evidence adduced in this case, that Girish was the nearest
agnate of the testator or that Charu had murdered his adoptive father,
though these matters had been assumed as facts. The courts below have
referred to good and reliable evidence in support of the finding that
Girish was the nearest reversioner to the estate of the testator. If the
will is a valid and genuine will, there is intestacy in respect of the
interest created in favour of Charu if he was the murderer of the
testator. On this question the courts below have assumed on the basis of
the judgment of conviction and sentence passed by the High Court in
the sessions trial that Charu was the murderer. Though that judgment
is relevant only to show that there was such a trial resulting in the
conviction and sentence of Charu to transportation for life, it is not
evidence of the fact that Charu was the murderer. That question has to
be decided on evidence.”
12. In Perumal v. Devarajan it was held: (AIR p.15, para 2)
“2. Even at the outset, I want to state that the view of the lower
appellate court that the plaintiff has not established satisfactorily that
the first defendant or the second defendant or both were responsible for
the theft is perverse and clearly against the evidence and the legal
position. The lower appellate Court refused to rely on Exhibit A3 which
is a certified copy of the judgment in C.C. No. 1949 of 1965. It is true
that the evidence discussed in that judgment and the fact that the first
defendant had confessed his guilt in his statement is not admissible in
evidence in the suit. But it is not correct to state that even the factum
that the first and the second defendants were charged under Sections
454, and 380, I.P.C. and they were convicted on those charges could
not be admitted. The order of the Criminal Court is, in my opinion,
clearly admissible to prove the conviction of the first defendant and the
second defendant and that is the only point which the plaintiff had to
establish in this case.”
15. A civil proceeding as also a criminal proceeding may go on simultaneously.
No statute puts an embargo in relation thereto. A decision in a criminal case is
not binding on a civil court. In M.S. Sheriff v. State of Madras , a Constitution
Bench of this Court was seized with a question as to whether a civil suit or a
criminal case should be stayed in the event both are pending. It was opined that
the criminal matter should be given precedence. In regard to the possibility of
conflict in decisions, it was held that the law envisages such an eventuality when
it expressly refrains from making the decision of one Court binding on the
other, or even relevant, except for certain limited purposes, such as sentence or
damages. It was held that the only relevant consideration was the likelihood of
embarrassment.
16. If a primacy is given to a criminal proceeding, indisputably, the civil suit
must be determined on its own keeping in view the evidence which has been
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brought on record before it and not in terms of the evidence brought in the
criminal proceeding. The question came up for consideration in K.G.
Premshanker , wherein this Court inter alia held: (SCC p.97, paras 30-31)
“30. What emerges from the aforesaid discussion is — (1) the
previous judgment which is final can be relied upon as provided under
Sections 40 to 43 of the Evidence Act; (2) in civil suits between the
same parties, principle of res judicata may apply; (3) in a criminal case,
Section 300 CrPC makes provision that once a person is convicted or
acquitted, he may not be tried again for the same offence if the
conditions mentioned therein are satisfied; (4) if the criminal case and
the civil proceedings are for the same cause, judgment of the civil court
would be relevant if conditions of any of Sections 40 to 43 are satisfied,
but it cannot be said that the same would be conclusive except as
provided in Section 41. Section 41 provides which judgment would be
conclusive proof of what is stated therein.
31. Further, the judgment, order or decree passed in a previous civil
proceeding, if relevant, as provided under Sections 40 and 42 or other
provisions of the Evidence Act then in each case, the court has to
decide to what extent it is binding or conclusive with regard to the
matter(s) decided therein. Take for illustration, in a case of alleged
trespass by A on B’s property, B filed a suit for declaration of its title
and to recover possession from A and suit is decreed. Thereafter, in a
criminal prosecution by B against A for trespass, judgment passed
between the parties in civil proceedings would be relevant and the court
may hold that it conclusively establishes the title as well as possession
of B over the property. In such case, A may be convicted for trespass.
The illustration to Section 42 which is quoted above makes the position
clear. Hence, in each and every case, the first question which would
require consideration is — whether judgment, order or decree is
relevant, if relevant — its effect. It may be relevant for a limited
purpose, such as, motive or as a fact in issue. This would depend upon
the facts of each case.”
231) No doubt the law in the subject appears to be crystallized in Seth
Ramdayal Jat (supra) wherein the Apex Court has referred to provisions of
Section 43 of the Evidence Act as well as various decisions delivered by it in the
past for holding that the findings of Criminal Court or a decision given in criminal
case are not binding on Civil Court. While there can be no debate about the
proposition that finding recorded in criminal case cannot be applied in
proceedings to be decided by Civil Court, I am not relying on the findings
recorded by this Court while deciding Criminal Writ Petition No.1491 of 2009 for
holding that UCP sought to be relied upon by contesting Defendants is a bogus
document. The observations made by this Court in judgment in Criminal Writ
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Petition No.1491 of 2009 are utilized only for the limited purpose of holding that
in the light of shadow cast on genuineness of the UCP, it was necessary for the
contesting Defendants to examine the concerned official/employee from post
office for proving the UCP. In the present case, neither the original UCP was
made available for inspection by Plaintiffs nor any official/employee of post office
is examined to prove the said UCP. DW-1 has deposed that Mr. Rajesh
Khandelwal (Defendant No. 9) had instructed dispatch of notice by UCP.
However even Mr. Khandelwal is not examined as witness. The person who
actually went to post office to dispatch notice by UCP is also not examined as
witness. In that view of the matter, the UCP sought to be relied upon by
contesting Defendants cannot be treated as effective service on original Plaintiffs
in respect of AGM shown to have been held on 30 September 2000.
232) This takes me to the next issue of the probative value of the UCP as a
proof of service on the noticee. Mr. Dhond has relied upon judgment in Shiv
Kumar (supra), in which the Apex Court has held in paragraphs 5 and 6 as
under :
5.The point for examination, therefore, is whether there is material on record to
show that the workmen concerned had been served with the copies of the
application as required by Section 25-N read with Rule 76-A of the Industrial
Rules, 1957, which was the point on which notice was ordered on 21- 1-1994. In
reply to this contention advanced by the workmen, what has been stated by the
management in its counter-affidavit is that the notices had been sent to all
workmen under postal certificates and proof of service had been submitted to
the specified authority. Learned counsel appearing for the management
produces before us some certificates evincing posting of some letters to the
workmen concerned on 26-12-1992.
6.We have not felt safe to decide the controversy at hand on the basis of the
certificates produced before us, as it is not difficult to get such postal seals at
any point of time. To assure our mind that the notices had really been sent out
to the workmen concerned, we perused the application which had been filed by
the management seeking permission. We did so because Rule 76-A(2) requires
that the application shall be made in triplicate and copies of the same shall be
served by the employer on the workmen concerned and "proof to that effect
shall also be submitted by the employer along with the application". But the
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application (Annexure A) has not mentioned anything about "proof’ of service
to the workmen concerned. The statement in the counter-affidavit that proof of
service had been submitted to the specified authority has not satisfied our mind
in this regard.
233) Mr. Dhond has also relied upon judgment of the Apex Court in M.S.
Madhusoodhanan
(supra) in which it is held in paragraphs 112, 115, 116, 117, 122
and 124 as under :
112. However, the respondents have sought to rely upon the following evidence
in support of their contention that Madhusoodhanan was given an opportunity
to apply for the additional shares by service of a notice dated 1-8-86:
(a) An entry in the local delivery book of Kerala Kaumudi [Ext. R-8
(b)] which ostensibly records that on 1-8-1986, Madhusoodhanan,
Managing Director, Kerala Kaumudi, Trivandrum was "authorised to
issue notices to the existing shareholders and one letter for Board
meeting". There is an unidentified signatory who has acknowledged
receipt of this document on 1-8-86. According to Srinivasan’s oral
testimony, the signature is that of Mohan Raj.
(b) Exhibit P-93 (a) is an entry in the outward register of Kerala
Kaumudi indicating the dispatch of the notice.
(c) A Certificate of Posting dated 1-8-86 (Ext. R-25) which purports
to relate to service of the notice on Madhusoodhanan, his children and
KIPL.
115. As far as the certificate of posting is concerned, it is not explained why it
does not record the dispatch of notices to any other shareholder. When the
relationship between the parties was already so embittered, proof of service of
notice by certificate of posting must be viewed with suspicion. Judicial notice
has been taken that certificates of posting are notoriously "easily" available.
What was seen as a possible but rare occurrence in 1981 ( L.M.S. Ummu Saleema
v. B.B.Gujral ) is now seen as common. Thus in Shiv Kumar v. State of Haryana
(SCC at p.447, para 6), this Court said:
"6. We have not felt safe to decide the controversy at hand on the
basis of the certificates produced before us, as it is not difficult to get
such postal seals at any point of time".
116. Despite this ground reality and on a misinterpretation of the provisions of
Section 53,the appellate court came to the indefensible conclusion that
"evidence regarding dispatch of a communication under certificate of posting
attracts the irrebuttable statutory presumption under Section 53(2)(b) that the
notice had been duly served", that "it is not open now to project a plea of
absence of service of notice and a substantiation thereof by evidence" and that
even if it were proved that the notice did not reach the addressee, the evidence
could not be " formally accepted and formally acted upon by the court" such
contrary evidence " being necked (sic) out at the threshold".
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117. This Court in Ummu Saleema case (supra) said that a certificate of posting
might lead to a presumption if the letter was addressed and was posted, that it,
and in due course, reached the addressee:
"But, that is only a permissible and not an inevitable presumption.
Neither Section 16 nor Section 114 of the Evidence Act compels the
Court to draw a presumption. The presumption may or may not be
drawn. On the facts and circumstances of a case, the court may refuse
to draw the presumption. On the other hand the presumption may be
drawn initially but on a consideration of the evidence the court may
hold the presumption rebutted and may arrive at the conclusion that no
letter was received by the addressee or that no letter was ever
dispatched as claimed.” (SCC p.322,para 6)
122. Raising of a presumption, therefore, does not by itself amount to proof.
The result of a mandatory requirement for raising a presumption cast on Court,
as there is under Section 53 (2) of the Companies Act, is that the burden of
proof is placed on the person against whom the presumption operates for
disproving it. It is only if such person is unable to discharge the burden, that the
court will act on the presumed fact. (See Dahyabhai v. State of Gujarat .) A
presumption however is of course not always rebuttable. But the mere use of
the word "shall" before the word "presume" or other like word does not mean
that the presumption is irrebuttable or conclusive. An irrebuttable presumption
is couched in different language, normally indicating that proof of one set of
facts shall be "conclusive proof" of a second set. An example of this is Rule 3 of
the Rules framed in 1956 under section 18 of the Citizenship Act, 1955 which
was the subject matter of challenge in Izhar Ahmad case. Section 53(2) contains
no such language.
124. In the present case, the certificate of posting is suspect. Assuming that
such suspicion is unfounded, it does not in any event amount to conclusive
proof of service of the notice on Madhusoodhanan or on any of the other
addressees mentioned in the certificate as held by the Division Bench. Except
for producing the dispatch register and the certificate of posting, no one on
behalf of the respondents came forward to vouch that they had personally sent
the notice through the post to Madhusoodhanan and his group.
Madhusoodhanan had written two letters contemporaneously dated 4.8.86 and
8. 8.86 (Ext.P-24 and Ext.P-35) to Srinivasan, the General Manager of Kerala
Kaumudi and to Madhavi complaining that he was not receiving any mail at all.
These letters were admittedly received but not replied to by the respondents. It
is also apparent from a perusal of those letters that Madhusoodhanan had no
knowledge whatsoever of the notice for application for allotment of additional
shares. Had there been such notice it is improbable that Madhusoodhanan who
was fighting for retaining his control over Kerala Kaumudi, would have risked
losing such control by abstaining from applying for the additional shares. In the
circumstances we hold that Madhusoodhanan and his group were not served
with the notice dated 1.8.86. It is therefore unnecessary to decide whether the
period prescribed in the notice to apply for the shares was too short or contrary
to the Articles of Association of Kerala Kaumudi.
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234) On the other hand, Mr. Sancheti has relied upon judgment of the
V.S. Krishnan
Apex Court in (supra) in which the Apex Court has referred to
the decision in M.S. Madhusoodhanan and has held in paragraph 30 as under :
30. Sub-section (2) of Section 53 makes it clear that after expiry of 48 hours a
notice duly addressed and stamped and sent under certificate of posting is
deemed to have been duly served. In M.S. Madhusoodhanan v. Kerala Kaumudi
(P) Ltd. this Court held that the fact of posting has to be proved by the sender
and that statutory presumption is only a rebuttable presumption. In the case on
hand, dispatch of notice in time by certificate of posting was proved. In addition
to the same, the High Court has very much relied on the fact that first appellant
was party to the Board Meeting which decided the convening of AGM on 29-
09-2005. The above information pressed into service by respondent Nos. 1 and
2 cannot, lightly be ignored.
235) Mohd. Asif Naseer
Mr. Sancheti has also relied upon the judgment in
(supra) in which it is held in paragraphs 17 to 20 as under :
17. The other case of U.Sree v. U.Srinivas , relates to Hindu Marriage Act,
where also the Evidence Act is applicable. The question there was with
regard to certain document, which had been filed and not proved. The same
was filed without being accompanied by an affidavit, whereas in the case at
hand, the receipt under certificate of posting was filed along with an affidavit,
which is permissible under Section 34 of the Rent Control Act.
18. The other case of Shiv Kumar v. State of Haryana , relates to Industrial
Disputes Act. In the said case, this Court held that in the facts of that case,
where reliance was placed only on service under certificate of posting without
any other circumstances and proof, there could be no presumption of service of
notice. Reliance was placed on Rule 76 A(2) of the Industrial Rules which
provided for a specific manner of service. Such is not the position in the present
case, where the Act provides for notice to be given, without providing the
manner in which it is to be given. As such, this case will also not be of direct
relevance to the case at hand.
19. On the contrary, in the case of Samittri Devi v. Sampuran Singh , which has
been relied upon by learned Senior Counsel for the Appellant, this Court has
held that : (SCC p.565, para 29)
“29. … it will all depend on the facts of each case whether the
presumption of service of notice sent under postal certificate should be
drawn. It is true that as observed by the Privy Council in its above
referred judgment, the presumption would apply with greater force to
letters which are sent by registered post, yet, when facts so justify, such
presumption is expected to be drawn even in the case of a letter sent
under postal certificate.”
Considering the facts and circumstances of that case, this Court held the notice
sent under certificate of posting to be sufficient service.
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20.In the case of Ranju v. Rekha Ghosh , this court was considering a case where
one month’s notice was to be given to the tenant for eviction. After
considering the provisions of the relevant Tenancy Act, Transfer of Property
Act and the Bengal General Clauses Act, it was held that “clause (6) provides
mere “one month’s notice”; in such event, the said notice can be served in any
manner and it cannot be claimed that the same should be served only by
registered post with acknowledgement due.” In the facts of that case, it was
held that service of notice sent under certificate of posting was sufficient.
Similar is the case at hand, where the Act provides for that ‘the landlord has
given a notice…’, without specifying the mode of such notice, and in the facts
of the present case, notice sent under postal certificate has rightly been held to
be proper service.
236) In M.S. Madhusoodhanan , the Apex Court found that the Certificate
of Posting in that case was suspect. In the present case also, the UCP is suspect,
both on counts of non-grant of inspection of original to Plaintiffs as well as
observations made by this Court in Criminal Writ Petition No.1491 of 2009.
Thus as held by the Apex Court in M.S. Madhusoodhanan , production of UCP
does not amount to conclusive proof of service of notice on original Plaintiffs. In
fact in Shiv Kumar , the Apex Court has observed that it is not difficult to get
such postal seals at any point of time. In my view therefore, apart from the fact
that production of UCP is weak piece of evidence of service of notice, in the
present case it is highly dangerous to rely upon the UCP sought to be produced
by contesting Defendants for the purpose of recording a definitive finding that
original Plaintiffs were served with the notice of AGM allegedly held on 30
September 2000. Reliance of Mr. Sancheti on the judgment of the Apex Court in
V.S. Krishnan does not cut any ice in that in V.S. Krishnan the Apex Court has
reiterated the findings in M.S. Madhusoodhan that the fact of posting has to be
proved by the sender and that presumption of Section 53 is rebuttable.
Furthermore in V.S. Krishnan, the dispatch was held to be proved. Mr.
Sancheti’s reliance on the judgment in Mohd. Asif Naseer is again misplaced in
view of the fact that in paragraph 22 of the judgment, the Apex Court has held
that mere receipt of notice having been sent Under Certificate of Posting, in
itself, is not sufficient proof of service unless it is coupled with other facts and
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circumstances to show that party had noticed. In the facts and circumstances of
the present case, apart from reliance on UCP, which itself is a doubtful
document, no other evidence is produced by contesting Defendants for this
Court to draw an inference that Original Plaintiffs had notice of meeting
scheduled to be held on 30 September 2000. I am therefore of the view that
contesting Defendants have failed to prove that the purported notice of 4
September 2000 in respect of meeting scheduled to be held on 30 September
2000 was served on the Original Plaintiffs.
237) A vital decision of increasing share capital of the first Defendant
Company from Rs.25 lakhs to Rs.1.50 crores is shown to have been taken in the
AGM allegedly held on 30 September 2000. The meeting was attended only by
two persons viz. Mr. Govind Gupta (DW2) and Mr. Vinod Haritwal (Director of
the Defendant No.11). Defendant Nos.2 and 11 held total 10 shares out of 25,000
shares of first Defendant Company as on 30 September 2000. Thus persons
holding 10 shares (0.4%) stake in the Company took vital decision of increasing
share capital from Rs.25 lakhs to Rs.1.50 crores for the purpose of allotting
75,000 shares to Defendant No.11 in absence of other shareholders (original
Plaintiffs) owning 99.96% stake in the first Defendant Company. This is the
extent of illegality committed by Defendant Nos.2 and 11 in holding the
purported AGM of 30 September 2000. Since AGM of 30 September 2000 is
held behind the back of the Original Plaintiffs, who owned 99.96% stake in the
first Defendant Company, the resolution adopted in the said meeting are invalid.
238) So far as the meeting of Board of Directors shown to have been held
on 18 October 2000 is concerned, the same was essentially to give effect to the
decisions already taken in the alleged meetings on 10 August 2000, 4 September
2000 and 30 September 2000. In the meeting of Board of Directors, shown to
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have been held on 18 October 2000, Defendant No.11 was allotted 75,000 shares
of the first Defendant Company by converting debt of Rs. 1,12,50,000/- into
equity. No document is placed on record in the form of notice of meeting dated
18 October 2000, which could have been served on original Plaintiff No. 1.
Obviously therefore no document is produced to prove service of any such notice
on him. Thus there is nothing on record to indicate that any attempt was made to
serve notice of meeting dated 18 October 2000 on original Plaintiff No.1 who was
Director of the first Defendant Company. Thus it is difficult to hold that Board
Meeting dated 18 October 2000 is validly conducted by the contesting
Defendants.
239) The general defence of contesting Defendants is that original Plaintiff
No.1 had not participated in the management of the first Defendant Company
after execution of the SPA dated 27 October 1998 and that therefore it was not
necessary for the contesting Defendants to serve notices of the aforesaid Board
Meetings dated 10 August 2000, 4 September 2000 and 18 October 2000. This
defence is premised on assertion that not even a single Board Meeting was ever
attended by the original Plaintiff No.1 prior to 10 August 2000. Here one thing
must be noticed, which is stark contradiction in the defences taken by the
contesting Defendants. While disputing the nature of SPA and contending that
SPA was executed merely as a comfort document and towards security for loan,
the contesting Defendants have sought to suggest that Original Plaintiffs were
merely “ namesake shareholders ” of the first Defendant Company. This means
that the defence of the Defendants is that original Plaintiffs never became
shareholders of the first Defendant Company even after execution of SPA on 27
October 1998. The lame attempt made by contesting Defendants to prove service
of notices in respect of various Board Meetings and AGM on original Plaintiffs is
required to be considered in the light of this defence taken by them that the
original Plaintiffs had never become shareholders. If original Plaintiffs were not
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shareholders, what was the need to dispatch notice dated 4 September 2000
under alleged Certificate of Posting in respect of AGM of 30 September 2000 is
something which has not been explained by contesting Defendants. I have already
held that there is no concept such as “ namesake shareholder ” under the
Companies Act and that original Plaintiffs became full-fledged shareholders in
respect of 24,990 shares purchased by them under SPA dated 27 October 1998.
Therefore, the defence of original Plaintiffs not becoming shareholders of first
Defendant Company has already been repelled. However, when the conduct of
the contesting Defendants in conducting various meetings behind the back of
original Plaintiffs is taken into consideration in the light of the defence taken by
them about original Plaintiffs not becoming shareholders, an inference can easily
be drawn that original Plaintiffs were deliberately not served with notices of any
of the meetings by the contesting Defendants.
240) As on 10 August 2000, when contesting Defendants started taking
series of steps for reducing the stake of original Plaintiffs, Defendant Nos. 2 and
11 were owners of only 10 shares, representing 0.04% stake in the first Defendant
Company. Defendant Nos. 2, 8 and 9 who allegedly conducted the meeting of 10
August 2000, were under obligation to tender their resignations as per the
covenants of the SPA. They were merely permitted to remain in management for
time being, till they were asked to resign. Thus what Defendant Nos. 2 (in his
capacity as owner of only 9 shares), 8 and 9 (who did not own any shares) were
supposed to do was to just manage the activities of the stud farm of the first
Defendant company till original Plaintiffs nominated their directors. However
what has happened in the present case is that Defendant No. 2, who owned just 9
shares and was under obligation to resign as Director, decided to take vital
decision of increasing the authorised share capital of the first Defendant
Company for the purpose of allotting 75,000 shares to his own company
(Defendant No. 11). All this is done behind the back of owners of 99.96% stake.
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Thus Defendant No. 2 fraudulently increased his stake (through Defendant 11)
from 0.04% to 75% without paying a farthing. Thus a person who was under
obligation to resign from directorship of the company owing to reduction of his
stake to 0.04%, misused his position as pro tem director along with Defendant
Nos. 8 and 9 and proceeded to make second Defendant’s company (Defendant
No. 11) 75% owner of the first Defendant company by corresponding reducing the
stake of original Plaintiffs. Curiously, all this is done without a single rupee being
actually exchanged and completely behind the back of original Plaintiffs. This is
the extent of fraud committed by the contesting Defendants in the present case.
241) Also of relevance is the fact that in the letter dated 17 November 2000
addressed by Defendant Nos.2, 8 and 9 and letter dated 21 November 2000
addressed by Defendant Nos. 1 to 3 there is no reference to increase in the
authorized share capital of the first Defendant Company in pursuance of alleged
AGM dated 30 September 2000 or allotment of 75,000 shares to Defendant
No.11 in the Board Meeting of 18 October 2000. Letter dated 17 November 2000
was addressed by Defendant Nos.1, 8 and 9 in response to letter dated 16
November 2000 addressed by original Plaintiffs calling upon Defendant Nos.2, 8
and 9 to submit resignations from Board of Directors of First Defendant
Company. In response, Defendant Nos.2, 8 and 9 submitted Reply dated 17
November 2000 vaguely contending that “ you are aware that you are not 100%
shareholders of Manju Meadows Private Limited ’. While stating so Defendant
Nos.2, 8 and 9 did not state on 17 November 2000 that the stake of original
Plaintiffs got reduced 24.99% in pursuance of meetings of 30 September 2000 and
18 October 2000. They merely and vaguely stated in Reply dated 17 November
2000 that “ you No.1 are party to decisions and both of you are party to reorganization
of Manju Meadows Pvt. Ltd. and its working ”. Similarly letter dated 21 November
2000 was issued by Defendant Nos.2 and 3 for themselves and in capacity as
Director of Defendant No.1 responding to Plaintiffs’ letter dated 16 November
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2000 seeking resignations. In that letter as well, there is absolutely no reference
to conduct of the Board Meetings of 10 August 2000, 4 September 2000 and 18
October 2000 as well as the AGM of 30 September 2000. In fact absolutely
contradictory stand was taken in the letter dated 21 November 2000 that SPA
was mere security towards loan transaction and Defendant Nos.2 and 3 offered to
refund the balance loan amount of Rs.70,98,800/- to original Plaintiffs on the
ground that there was “no real sale of shares” of Defendant No.1. Thus the stand
taken by Defendant Nos.1 and 2 within few days of conduct of alleged AGM of 30
September 2000 and Board Meeting of 18 October 2000 is that original Plaintiffs
were not shareholders of Defendant No.1 at all and this stand was exactly
contrary to the annual return purportedly filed for year ending 31 March 2000
and referring to AGM of 30 September 2000, in which original Plaintiffs were
shown to be owners of 24,990 shares of Defendant No.1. Thus from stand taken
by Defendant Nos.1, 2, 3, 8 and 9 in letters dated 17 November 2000 and 21
November 2000 it appears that the Board Meetings of 10 August 2000, 4
September 2000 and 18 October 2000 as well as AGM of 30 September 2000 had
not really taken place. It appears that for the first time when EOGM was held on
9 January 2001 the contesting Defendants came out with the theory of purported
increase in authorized capital of the first Defendant Company and allotment of
75,000 shares to Defendant No.11. The contents of letters dated 17 November
2000 and 21 November 2000 lead credence the plea raised by Plaintiffs that the
minutes of the said four meetings are fabricated by the contesting Defendants.
242) There is yet another factor which creates serious doubt about the
authenticity of claim of holding Annual General Meeting on 30 September 2000
and Meeting of Board of Directors on 18 October 2000 and allotment of 75,000
shares to Defendant No.11. The Advocate of the first Defendant Company
th
supplied to the original Plaintiffs, a copy of minutes of the 24 AGM allegedly
held on 30 September 2000. During the course of inspection, copy of the
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document purported to be annual return as on 30 September 2000 filed by first
Defendant Company with ROC was furnished to the Advocate of the original
Plaintiffs. This document, being ‘Annual Return as on 30 September 2000’
reflected Defendant No.11 to be owner of 75,001 shares as on 30 September
2000. In the said Annual Return, the shareholding of the first Defendant
Company is shown as under:-
i) Govind S. Gupta (D1) - 9 shares
ii) Anil K. Bodani (Original P1) - 17,990 shares
iii) Chandrika Anil Bodani (Original P2) - 7,000 shares
iv) Somerville Farms Pvt. Ltd. (D11) - 75,001 shares.
243)
If the allotment of shares allegedly took place on 18 October 2000, it
is inconceivable as to how ownership of 75,001 shares by Defendant No.11 could
be reflected in the ‘Annual Return as on 30 September 2000’. This is
subsequently sought to be explained by the Advocate of the first Defendant
Company by claiming that the return was merely "unsigned draft format". In my
view, this is yet another factor why the genuineness of the claim of the contesting
Defendants about holding AGM on 30 September 2000 and meeting of Board of
Directors on 18 October 2000 as well as resolutions adopted therein appears to
be highly doubtful.
ETTERS ATED CTOBER
F.6.4 L D 10 O 2000
244) Plaintiffs have taken a stand that neither AGM was actually held on
30 September 2000 nor any decision was actually taken for increasing authorized
share capital to Rs.1.50 crores. Plaintiffs have relied upon three letters dated 10
October 2000 of Defendant No.2 addressed to Defendant No.1-Company. The
said three letters read thus :
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LETTER 1 :
th
10 October 2000
Manju Meadows Pvt. Ltd.,
nd
Metro House, 2 Floor
M.G. Road
Mumbai 400 020
Dear Sirs,
This is to confirm that the amount of Rs. 1,02,61,000/- (Rupees one crore two
lakhs and sixtyone thousand only) to be paid to Gupta Livestock Breeding &
st
Research Farm as on 31 August 2000 is my personal liability and responsibility.
Sincerely,
Sd/-
Govind Gupta
LETTER 2 :
th
10 October 2000
Manju Meadows Pvt. Ltd.,
nd
Metro House, 2 Floor
M.G. Road
Mumbai 400 020
Dear Sirs,
This is to confirm that the amount of Rs. 89,54,126/- (Rupees eightynine lakhs
fiftyfour thousand one hundred and twentysix only) to be paid to Gupta
st
Emerald Mines Pvt.Ltd. as on 31 August 2000 is my personal liability and
responsibility.
Sincerely,
Sd/-
Govind Gupta
LETER 3 :
th
10 October 2000
Manju Meadows Pvt. Ltd.,
nd
Metro House, 2 Floor
M.G. Road
Mumbai 400 020
Dear Sirs,
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This is to confirm that the amount of Rs. 2,02,63,302/- (Rupees two crore two
lakhs sixty three thousand three hundred and two only) to be paid to
st
Sommerwille Farms Pvt. Ltd. as on 31 August 2000 is my personal liability and
responsibility.
Sincerely,
Sd/-
Govind Gupta
245) Thus by letter dated 10 October 2000, Defendant No.2 had
confirmed that Rs.2,02,63,302/- was due to be paid to Defendant No.11-
Somerville and that the same was the responsibility of Defendant No.2. If
decision was already taken in the Board Meeting of 10 August 2000 and 4
September 2000 and in AGM of 30 September 2000 to increase authorised share
capital to Rs.1.50 crores for converting part of the alleged debt of Defendant
No.11 of Rs.2,02,63,302/- into equity, it is inconceivable that Defendant No.2
would confirm on 10 October 2000 that the said amount of Rs.2,02,63,302/- was
still due or payable to Defendant No.11-Somerville.
246) Since, letters dated 10 October 2000 in relation to Defendant No.11
becomes unexplainable for contesting Defendants for justifying theory of
conversion of debt of Defendant No.11 into equity, the contesting Defendants
have taken three defences. Firstly, they sought to contend in letter dated 30
November 2000 that “blank papers/documents” were misused by original
Plaintiffs for preparation of letters dated 10 October 2000. However, in the
Written Statement filed by Defendant No.2 genuineness of letters dated 10
October 2000 is not disputed and Defendant No.2 admits that he issued the said
three letters. Thus the first defence of misuse of blank papers taken in letter
dated 30 November 2000 is proved to be false. The second defence in respect of
letters dated 10 October 2000 is to be found in the Written Statement of
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Defendant No.2 in which he contends that the letters were issued in pursuance of
financial restructuring scheme
“ ” proposed for the benefit of Defendant No.1. The
third defence taken during the course of submissions of Mr. Sancheti is that the
said letters were issued purely with a view of comforting the original Plaintiffs. I
find all the three defences to be contradictory to each other. The first defence of
misuse of blank papers is proved wrong on account of specific admission given by
the Second Defendant in paragraph 25 of the Written Statement. The second
defence of so called financial restructuring does not go in tune the third defence
of provision of “ comfort ” to Original Plaintiffs. Also, the third defence of
“ comfort ” does not go in tune with the alleged decisions already taken in the
Board Meetings of 10 August 2000 and 4 September 2000 and AGM of 30
September 2000 to convert alleged debt of Defendant No.11 into equity. In my
view therefore, the letters dated 10 October 2000 admittedly issued by
Defendant No.2 qua the alleged debt of Defendant No.11 completely demolishes
the false theory of holding of Board Meeting dated 10 August 2000 and 4
September 2000 and AGM dated 30 September 2000.
247) I therefore hold that the Board Meetings dated 10 August 2000, 4
September 2000 and 18 October 2000 as well as the AGM shown to have been
held on 30 September 2000 were either not held at all and/or were not validly
held and therefore decisions taken therein cannot and does not affect the
stakeholding of Original Plaintiffs in the first Defendant Company. Therefore the
decisions to increase authorised share capital of first Defendant company to
Rs.1,50,00,000 and to allot 75,000 shares of the first Defendant Company to
Defendant No.11 are ab initio void . Since the decision of allotment of 75,000
shares to Defendant No.11 is ab initio void , all the subsequent consequential
actions taken by the contesting Defendants for effecting actual transfer of shares
in the name of Defendant No.11 are consequently void.
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248) On two separate occasions, various alleged creditors of the first
Defendant Company had confirmed that the liability to repay their alleged debts
was on Defendant Nos. 2 and 3 and that the first Defendant Company was not
responsible for repayment of such debts. On 23 November 1998, Defendant Nos.
10 and 11 issued letters addressed to the first Defendant Company confirming
that amounts of Rs.1,27,08,069/- and Rs.67,97,470/- respectively, though due
from first Defendant Company, was personal liability of Defendant Nos.2 and 3.
Again on 10 October 2000, Defendant No.2 personally confirmed by issuing
letters to the first Defendant Company that the amounts due to Gupta Livestock
and Breeding and Research Farm, Gupta Emerald Mines Private Limited and
Defendant No.11 was his personal liability and responsibility. Though Mr.
Sancheti has strenuously attempted to contend that the said letters were only
issued to comfort original Plaintiffs, in my view, since the contesting Defendants
admit issuance of the said two sets of letters, some meaning will have to be
ascribed to the same. The money was allegedly due were to various group
companies of Defendant No.2. The Defendant No.2 undertook the responsibility
in respect of the said amounts on to himself, both immediately after execution of
the SPA as well as after conduct of the alleged AGM dated 30 September 2000.
Once the responsibility of repaying the said sums was accepted by Defendant
Nos.2 and 3 on 23 November 1998 and by Defendant No.2 on 10 October 2000,
they cannot be permitted to wriggle out of consequences of issuance of such
letters. So far as the alleged debt due to Defendant No.11 is concerned, once
Defendant Nos.2 and 3 had taken the responsibility of repaying the said amount
(Rs.67,97,470/-) to Defendant No.11, it was highly illegal on their part to
subsequently convert the alleged debt of Defendant No.11 by allotting the equity
shares of Defendant No.1-Company to Defendant No.11. In fact the letter dated
23 November 1998 issued by Defendant Nos.2 and 3 and countersigned by
Defendant No.11 make the entire theory of conversion of alleged debt of
Defendant No.11 into equity to be highly doubtful. The subsequent letter dated
10 October 2000 issued in respect of alleged debt of Defendant No.11 confirms
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the said doubt as the said letter is issued after holding of the AGM on 30
September 2000 and after deciding to increase share capital for allotment of
75,000 shares to Defendant No.11 by converting alleged debt into equity. Thus
both letters dated 23 November 1998 and 10 October 2000 in respect of
Defendant No.11 show that the theory of allotment of 75,000 shares to Defendant
No.11 could not have been taken in the AGM dated 30 September 2000 and in
the meeting of Board of Directors dated 18 October 2000.
ECESSITY OF RAYER TO HALLENGE ITLE OF EFENDANT
F.6.5 N P C T D
N O . 11 IN RESPECT OF 75000 S HARES .
249) Mr. Dwarkadas has strenuously attempted to contend that no
specific relief is sought in the Plaint for declaration of transfer of 75,000 shares in
favour of Defendant No.11. He has contended that the title to movable property
viz. 75,000 shares stands transferred to purchaser (Defendant No. 11) since the
transaction has already been performed and completed, in absence of prayer for
setting aside the transfer, the effect of transfer cannot be negated. He has relied
upon judgment of the Apex Court in BOI Finance Ltd. (supra) in which it is held
in Para 47, 61 and 64 as under:
Position in Law if the Transactions are not Severable
47. Even if it be assumed that the agreements were not severable, and they were
composite agreements even then the ready leg having been performed, the
position in law is that the illegality of the agreements cannot affect the transfers
which had already taken place.
61. There can be little doubt that the appellants, when they paid the market
price and took delivery of the securities had become owners of the same.
According to Section 5 of the Transfer of Property Act, 1882, “transfer of
property” inter alia means an act by which a person conveys property to
another person. Section 6 of this Act deals with what property may be
transferred. What is relevant in Section 6(h) according to which no transfer can
be made (1) insofar as it is opposed to the nature of the interest affected
thereby, or (2) for an unlawful object, or consideration within the meaning of
Section 23 of the Indian Contract Act, or (3) to a person legally disqualified to
be transferee. According to Section 23 of the Contract Act the consideration or
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object of an agreement will be unlawful if it is forbidden by law; or is of such a
nature that, if permitted, it would defeat the provisions of any law, or is
fraudulent, or involves or implies injury to the person or property of another, or
the court regards it as immoral or opposed to public policy. In the instant case
the object of the contracts entered into between the banks and the notified
parties was for the transfer and, subsequently, re-transfer of the securities. The
transfer took place on delivery of securities on payment of market price as
consideration. The consideration for the transfer of the securities, in the ready
leg, was the payment of market price.
64. The following conclusions flow from the aforesaid discussion:
(A) Infringements of the instructions issued by the Reserve Bank of India
under the Banking Regulation Act prohibiting the banks from entering into
buy-back arrangements do not invalidate such contracts entered into
between the banks and its customers.
(B) The ready-forward contract is severable into two parts, namely, the
ready leg and the forward leg. The ready leg of the transaction having been
completed, the forward leg, which alone is illegal, has to be ignored.
(C) With the ready leg having been performed the illegality of the forward
leg contained in the agreements cannot affect the transfers which had
already taken place.
250) In my view, the judgment in BOI Finance Ltd. has no application to the
facts of the present case. The Apex Court has essentially dealt with the issue of
severity of valid and void parts of contract and has held that the valid part of
contract resulting in transfer of securities would not be affected because of
illegality in forward leg of contract, which was held to be separable from ready leg
of contract. The issue in the present case is altogether different. If the decision
taken in the AGM of 30 September 2000 is rendered illegal, the first Defendant
Company’s authorised share capital would continue to remain at Rs. 25,00,000
divided in 25,000 equity shares of Rs. 100 each. Therefore no additional shares
(75,000) would remain allottable to Defendant No. 11 as 24,990 shares were held
by Plaintiffs, 9 by Defendant No. 2 and 1 by Defendant No. 11. Thus non-existent
shares (75,000) cannot be treated to have been validly transferred in favour of
Defendant No. 11 by making reference to Section 5 of the Transfer of Property
Act, 1882 under a specious premise that Plaintiffs failed to seek declaration in
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respect of 75,000 shares already transferred in the name of Defendant No. 11.
When the shares were not in existence and also not allottable at all, mere effect of
transfer of such non-existent shares in the Register of Members would not save
the illegal decisions of increasing authorised share capital and allotment of shares.
In my view therefore such prayer was not necessary once it is held that decision
to allot 75,000 shares to Defendant No.11 is ab initio void as every consequential
action taken in pursuance of such void decision automatically becomes invalid.
Despite absence of a specific prayer for a declaration of transfer of shares in the
name of Defendant No.11 in the Plaint, such transfer being merely a
consequential action, the same would also be rendered void.
ALIDITY OF VARIOUS ORMS ALLEGEDLY SUBMITTED BY
F.6.6 V F
CONTESTING D EFENDANTS
251) The Plaintiffs have also raised doubts about defences raised by
contesting Defendants about filing of various forms in pursuance of the aforesaid
four meetings. According to Plaintiffs, the exact dates on which Form 2 or Form
5 were allegedly filed are not indicated (deliberately) by contesting Defendants in
Written Statement or evidence. Though Plaintiffs do not dispute filing of the said
forms with ROC, they suspect that the said forms are filed subsequently after
creating forgery in respect of Minutes of the four meetings. Plaintiffs have
referred to the letter of Solicitor of Defendant No.1 dated 7 February 2001, in
which it is stated that both Forms 2 and 5 were filed on 14 November 2000.
Plaintiffs contend that since Form 5 relate to increase in authorized share capital,
the same ought to have been filed at prior point of time before filing of Form 2
which was for reporting allotment of shares to Defendant No.11. However in the
present case, Form 5 is shown to be dated 14 November 2000 whereas Form 2
bears the date of 25 October 2000. This clearly appears to be illogical and also
contradicts the stand taken in the Advocate’s letters dated 7 February 2001. Also
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Mr. Bharat Pathak, who conducted search on behalf of the original Plaintiffs, did
not find the said two forms in the records of ROC. Though detailed submissions
are canvassed on the aspect of the date of filing of various forms, in my view it is
not necessary to delve deeper into this aspect especially when the conduct of the
four meetings as well as minutes thereof are not found to be authentic by this
Court. Filling of forms are merely consequential actions and once the decisions
taken in the purported meetings are found to be invalid, filing of forms would not
validate the invalid decisions.
F.6.7 M INUTES OF M EETING D ATED 10 J ANUARY 2001
252)
Contesting Defendants have contended that Board Meeting was
conducted of first Defendant Company on 10 January 2001 wherein it was
resolved that Defendant Nos. 13, 14 and 15 were appointed as additional directors
of the first Defendant Company and that Form 32 was filed with ROC about their
appointment as additional directors. I have gone through the Minutes of Meeting
of Board shown to have been held on 10 January 2001, in which the resolutions of
EOGM dated 9 January 2001 are shown to have been discussed and thereafter,
Defendant Nos. 13, 14 and 15 are shown to have been appointed as additional
directors. Under Clause 5.3 of Article V of the SPA, Confirming Parties
(Defendant No.2 , 8 and 9) were to appoint such further persons as directors of
the first Defendant Company as the Second Party (original Plaintiffs) were to
direct. It appears that original Plaintiffs were not present in the purported Board
Meeting of 10 January 2001. There is no contention by contesting Defendants
that even an attempt was made to serve the original Plaintiffs with notice of
Board Meeting of 10 January 2001. Furthermore, original Plaintiffs did not direct
Defendant Nos. 2, 8 and 9 to appoint Defendant Nos. 13, 14 and 15 as additional
directors. In my view therefore, holding of purported meeting of 10 January 2001
as well as resolution adopted therein are ab inito void and cannot be acted upon.
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253)
Issue Nos. 7, 10, 12, 13, 14 and 18 are answered accordingly:
No. Issue Answer
7 Whether the Plaintiffs prove that the resolutions passed at
th
the 24 Annual General Meeting of the 1st Defendant
Company held on 30th September 2000 are illegal, null and
void ?
Yes
th
10 Whether the Plaintiffs prove that the Minutes of the 24
Yes
Annual General Meeting of the 1st Defendant Company held
on 30.09.2000 are fabricated and got up documents and are
illegal, null and void ?
12 Whether the Plaintiffs prove that the meetings of the Board
st
of Directors of the 1 Defendant Company purportedly held
th th
on 18 October 2000 and 10 January 2001 were
illegally/invalidly convened and that the resolutions passed at
the said meetings are illegal, null and void and of no legal
effect?
Yes
13 Whether the Plaintiffs prove that the Board Resolution dated
18th October 2000 to allot, and the allotment of 75,000
equity shares of Rs. 100/ each of the 1st Defendant Company
th
to the 11 Defendant are illegal, null and void and of no legal
effect ?
Yes
nd
14 Whether the 2 Defendant proves the allotment of 75,000
th
equity shares of the 1st Defendant Company to the 11
No
Defendant was with the knowledge and consent of the
Plaintiffs as alleged in para 45 to 47, 58 and 106 of its Written
Statement ?
18 Whether the Plaintiffs prove that the following documents
are liable to be delivered up for cancellation and cancelled
(a) The minutes of the 24th Annual General Meeting of the
1st Defendant Company held on 30th September 2000 ?
(b) The minutes of the Extraordinary General Meeting of the
1st Defendant Company held on 9th January 2001 ?
(c) The minutes of the meetings of the Board of Directors of
the 1st Defendant Company held on 18th October 2000 and
10th January 2001 ?
Yes
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F. 7 C ONTINUATION OF D IRECTORSHIP OF O RIGINAL P LAINTIFF N O . 1
AFTER EPTEMBER
30 S 2000.
SSUE O
I N . 4
254) It is the case of contesting Defendants that though original Plaintiff
was appointed as Additional Director of the first Defendant Company w.e.f. 30
March 1999, as per Section 260 of the Companies Act, such appointment was
only till the next AGM and that the appointment automatically stood vacated by
effect of law, without taking any further action. This is how contesting
Defendants claim that the original Plaintiff No. 1 ceased to be director of the first
Defendant Company after 30 September 2000. Section 260 of the Companies
Act, provides thus:
260. Additional Directors .-
Nothing in section 255, 258 or 259 shall affect any power conferred on the
Board of Directors by the articles to appoint additional Directors:
Provided that such additional Directors shall hold office only up to the date of
the next annual general meeting of the company:
Provided further that the number of the Directors and additional Directors
together shall not exceed the maximum strength fixed for the Board by the
articles.
255) In my view, the stand taken by contesting Defendants about directorship
of original Plaintiff No. 1 coming to an end on 30 September 2000 is directly
linked to the issue of validity of the said AGM shown to have been conducted on
30 September 2000. I have already held that the purported AGM of 30
September 2000 was either not held at all or has been illegally held and that the
resolutions adopted therein are void. Therefore, minutes of AGM of 30
September 2000 cannot be relied upon for inferring that the appointment of
original Plaintiff No. 1 as director automatically came to an end on account of
non-confirmation in the illegally held AGM.
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256) Also contention of contesting Defendants about directorship of original
Plaintiff No. 1 coming to an end on 30 September 2000 is contrary to the
contents of letter dated 17 November 2000 of Defendant Nos. 2, 8 and 9, in
which it was stated that ‘ You no. 1 are director of Manju Meadows Pvt. Ltd along
with others and You No. 2 are not a Director of Manju Meadows Pvt. Ltd. ’ Thus
letter dated 17 November 2000 addressed by Defendant Nos.2, 8 and 9 to
original Plaintiffs contains a categorial admission that Original Plaintiff No.1
remained as a Director till that date.
257) Thus appointment of original Plaintiff No. 1 did not come to an end on 30
September 2000. Issue No. 4 is answered accordingly.
No. Issue Answer
4 Whether the 1st Plaintiffs ceased to be a Director of the 1st No
Defendant Company in September 1999 ?
TH
ANUARY
J 2001
I SSUE N OS . 3, 5, 8, 11
ATED
F. 8 EOGM D 9
258) By notice dated 7 December 2000, the original Plaintiffs wrote to
the first Defendant Company and requisitioned a meeting under Section 169 of
the Companies Act for the purpose of removing Defendant Nos. 2, 8 and 9 as
directors and for appointment of original Plaintiff No.2, original Defendant Nos.
16 to 19 in the place of such removed directors. By Notice dated 26 December
2000, EOGM of the first Defendant Company was convened and scheduled to be
held on 9 January 2001.
259) The minutes of the EOGM have been recorded as under:
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Minutes of the requisitioned Extra ordinary general meeting of the members of
Manju Meadows Pvt. Ltd. held on Tuesday the 9th January 2001 at 4.00 pm at
M. C. Ghia Hall, 2nd Floor, Rampart Row, Behind Museum, Mumbai - 400 001.
Present:
Mr. Ashwin Mehta Chairman
Mr. Govind Gupta Director and member
Mr. Vinod Haritwal Director and Authorized Representative of
Sommerville farms Pvt. Ltd.
Mr. Rajesh Khandelwal Director
Mr. Sailesh Vaidya By invitation (representing M/s. Kanga & Co. - Legal
Advisors of the Company.)
Mr. K. C. Todarwal By invitation (representing M/s. K.C. Todarwal &
Co., Statutory auditors of the company)
Mr. Hemant Shetye By invitation (Company Secretary in practice)
Mr. Dharmil A. Bodani Proxy of Mrs. Chandrika A. Bodani
Mr. Ashwin J. Ahya Proxy of Mr. Anil K. Bodani
Proceedings:
Mr. Ashwin Mehta, Chairman of the Board of Directors of the Company, took the chair
and proceedings of the meeting commenced under his chairmanship. The Chairman
welcomed the members and proxies to the meeting. After ensuring that the quorum was
present, i.e. two members in person, the meeting was called to order.
The chairman announced that the company had received two valid proxies aggregating
to 24,990 equity shares.
Mr. Ashwin Arya a proxy holder, proposed a motion about appointment of Mr. Dharmil
Bodani as the chairman of the meeting. This motion was seconded by Mr. Dharmil
Bodani.
However, Mr. Govind Gupta opposed the motion on the ground that a proxy cannot be
made a chairman, Mr. Vinod Haritwal, authorized representative of M/s. Sommerville
farms Pvt. Ltd. also opposed the motion on the grounds that the chairman of the Board of
Directors of the company can only take the chair, as per the Article of Association of the
company, read with the provision of table 'A' in this regard, which must be followed.
1
It was also brought to the notice of the Chairman by Mr. Vinod Haritwal that the Board
of Directors had, at their earlier meeting, duly appointed Mr. Ashwin Mehta, as the
Chairman of the Board of Directors and he is duly entitled and authorized to Chair this
meeting of the shareholders. The Chairman, after due discussion with the company's
legal advisors, Mr. Shailesh Vaidya of M/s. Kanga & Co., Advocates and Solicitors,
about the relevant provision of the companies Act, 1956 and the Articles of Association
of the company, declared the motion proposed by Mr. Ashwin Ahya as not maintainable.
The Chairman than informed the members present that since the meeting was called on
requisition and the notice of the meeting was sent to all the persons who were required
to receive it and as all the four shareholders were present in the meeting either in
person or through proxies, the notice convening the meeting could be taken as read.
Mr. Vinod Haritwal proposed the Notice to be taken as a read.
Mr. Dharnil Bodani asked for a copy of the Notice, which was given, and than
seconded the motion that the Notice be taken as read.
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The Chairman than tabled before the meeting, nine resolutions as proposed by the
requisitionists. Since the requisitionists of the resolution were represented by proxies,
he ordered a poll to be taken for all the nine resolution.
The Chairman than asked Mr. Hemant Shetye, company secretary in practice, to show
the Ballot box to the members and proxies present and than seal it. After doing the
needful, Mr. Hemant Shetye put before the Chairman a draft of Ballot paper for the
approval of the chairman. After due approval from the chairman, the ballot papers were
kept ready for distribution to the members for exercising their option. The ballot box
was locked and the key handed over to the chairman.
The Chairman than appointed two scrutineers in accordance with the provision for
section 184 of the companies Act, 1956. The two scrutineers were (1) Mr. Vinod
Haritwal and (ii) Mr. Hemant Shetye (not being officer or employee of the company)
The above scrutineers were explained the procedures and asked to submit report of the
poll, duly authenticated by both of them.
Then Mr. Hemant Shetye distributed four ballot papers duly initiated by the chairman
to the concerned members and proxies of exercising their votes on resolution No. 1 on
the poll which was read out as under:
Resolution No. 1
"Resolved that Mr. Govind Gupta Director of the company be and is hereby removed
from the office of Director of the company".
After all the four members / proxies put the ballot papers in the Ballot Box, the chairman
requested Mr. Govind Gupta to take the chair for resolution no. 2, being himself
interested in the resolution.
Then the Hemant Shetye distributed four ballot papers duly initiated by the chairman to
the concerned members and proxies for exercising their votes on resolution no. 2, on
the poll which was read out as under:
Resolution No. 2
Resolved that Mr. Ashwin Mehta, Director of the company be and is hereby removed
from the office of the Director of the Company".
After Resolution no. 2, was put to vote, all the four members / proxies put the ballot
papers in the Ballot box. Then Mr. Ashwin Mehta again accepted the chair.
Then the Hemant Shetye distributed four ballot papers duly initiated by the chairman
to the concerned members and proxies for excercising their votes or resolution no. 3 on
the poll which was read out as under:
Resolution No. 3
Resolved that Mr. Rajesh Khandelwal, Director of the Company, be and is hereby
removed from the office of the director of the Company"
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After Resolution No. 3 was put to vote, all the four members / proxies put the
ballot papers in the ballot box.
Then Mr. Hemant Shetye distributed from ballot papers duly initiated by the chairman
to the concerned members and proxies for excercising their votes on resolution no. 4
on the poll, which was read out as under:
Resolution No. 4
"Resolution that Mr. Dharnil A. Bodani be and is hereby appointed as director of the
company".
After resolution no 4, was put to vote, all the four members / proxies put the ballot
paper in the ballot box.
Then Mr. Hemant Shetye distributed from ballot paper duly initiated by the chairman
to the concerned members and proxies for excercising their votes or resolution no. 5,
on the poll which was read out as under:
Resolution No. 5
Resolved that Mrs. Chandrika A. Bodani, be and is hereby appointed as Director of the
Company"
After resolution no. 5 was put to vote, all the proxi members / proxies put the ballot
papers in the Ballot box.
Then the Hemant Shetye distributed from ballot papers duly initiated by the chairman
to the concerned members and proxies for excercising their votes on resolution no. 6
on poll which was read out as under.
Resolution No. 6
"Resolved that Mr. Ashwin J. Ahya be and is hereby appointed as director of the
company".
After Resolution No. 6 was put to vote, all the four-members/ proxies put the ballot
papers in the Ballot box.
Then Mr. Hemant Shetye distributed form ballot papers duly initiated by the chairman
to the concerned members and proxies for exercising their votes on resolution no. 7 on
the poll which was read out as under:
Resolution No. 7
Resolved that Mr. Bharat J. Arya be and is hereby appointed as Director of the
'Company'.
After resolution no.7 was put to vote, all the four members/proxies put the ballot
papers in the ballot box.
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Then Mr. Hemant Shetye, distributed four ballot papers duly initiated by the Chairman
to the concerned members and proxies for exercising their votes on resolution no.8 on
the poll which was read out as under.
Resolution no. 8
Resolved that Mr. Bhaven H. Soonderji be and is hereby appointed as director of the
'Company'.
After resolution no.8 was put to vote, all the four members/proxies put the ballot
papers in the ballot box.
Then Mr. Hemant Shetye distributed four ballot papers duly initiated by the chairman
to the concerned members and proxies for exercising their votes on resolution no.9 on
the poll which was read out as under.
Resolution no. 9
Resolved that Mr. Shyamal A. Bodani is hereby appointed as Director of the
'Company'.
After resolution no. 9 was put to vote, all the four members/proxies put the ballot
papers in the ballot box.
After the poll was over, the Chairman handed over the key of the Ballot box to the
scrutineers and asked them to count the votes and submit a detailed signed report on it.
The scrutineers then counted the votes in the meeting hall itself, by segregating nine
resolution and then separating "YES" and "NO" for each resolution. A detailed signed
report stating the number of shares "IN FAVOUR" and "AGAINST" each resolutions,
alongwith percentage was submitted to the Chairman.
The Chairman then tabled and read out the report of the scrutineers as under:
Resolution Votes in favour Votes against Carried
No. /Defeated
Nos. % Nos. %
1 24990 24.99 75010 75.01 Defeated
2 24990 24.99 75010 75.01 Defeated
3 24990 24.99 75010 75.01 Defeated
4 24990 24.99 75010 75.01 Defeated
5 24990 24.99 75010 75.01 Defeated
6 24990 24.99 75010 75.01 Defeated
7 24990 24.99 75010 75.01 Defeated
8 24990 24.99 75010 75.01 Defeated
9 24990 24.99 75010 75.01 Defeated
Total Votes: 1,00,000
The Chairman then declared that all the resolutions from 1 to 9 (both inclusive) were
defeated as vote for each resolution "IN FAVOUR" were 24,990 (Twenty four thousand
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nine hundred ninety only) constituting 24.99% of the total voting power while the votes
“AGAINST" each resolution were 75,010 (Seventy five thousand ten only) constituting
75.1% of the total voting power.
After declaration of the results by the Chairman, Mr. Vinod Haritwal thanked the chair
and then the meeting was terminated.
260) Though the authorised share capital of the first Defendant Company was
shown to have been increased in the purported AGM of 30 September 2000, the
issued, subscribed and paid up capital was shown to be Rs. 1,00,00,000/-
comprising of 1,00,000 shares. Defendant No. 11 (who is shown to be the
majority shareholder of 75001 shares) has averred in its written statement in Para
4 as under:
4. With reference to paragraph 1(a) of the Plaint, this Defendant says that the
issued, subscribed and paid up share capital of Defendant No. 1 is Rs.
1,00,00,000 comprising of 1,00,000 shares of Rs. 100 each. This Defendant
says that the current shareholding of Plaintiffs in the said Defendant No. 1 is
24.99% and not 99.96% as alleged in the paragraph under reference.
Out of 1,00,000 shares shown to have been issued, 24990 shares were shown to
have been owned by original Plaintiffs and 75010 shares were shown to be owned
together by Defendant Nos. 2 and 11. This is how 1,00,000 votes are shown to
have been cast in favour and against the 9 resolutions proposed on behalf of the
original Plaintiffs.
261) Minutes of EOGM held on 9 January 2001 shows that the meeting
has been attended by Defendant No. 11 in its capacity as owner of 75,001 shares
of the first Defendant company. While casting votes also, Defendant No. 11 was
permitted to cast 75,001 votes against the proposed resolutions. Thus the
decisions taken in the EOGM are direct consequences of decisions to increase
the authorised share capital of the first Defendant Company and to allot 75,000
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shares to Defendant No. 11. Since I have held that allotment of 75,000 shares to
Defendant No. 11 itself is void, the manner of conduct of EOGM of 9 January
2001 will have to be necessarily held to be invalid.
262) In view of findings recorded on 7, 10, 12, 13 and 14 above, EOGM
of 9 January 2001 ought to have been held on the basis of ownership of shares of
the first Defendant company as under:
Anil K. Bodani 17990 shares
Chandrika A. Bodani 7000 shares
Govind Gupta 9 Shares
Sommervile Farms 1 share
------------------------------------------------------
Total 25,000 shares
263) Thus 24990 votes constituting 99.96% ought to have been treated
‘IN FAVOUR’ of the 9 resolutions proposed in the EOGM of 9 January 2001
and only 10 votes constituting 0.04% ought to have been treated as ‘AGAINST’
the said resolutions. In my view therefore all the 9 resolutions adopted in the
EOGM of 9 January 2001 are required to have been validly adopted. Issue No. 5
is framed about alleged agreement by second Defendant for resignation as
director of the first Defendant Company in meeting held in November 2000. In
my view, whether Defendant No. 2 agreed to resign or not becomes irrelevant in
view of the findings being recorded about adoption of all the 9 resolutions in the
EOGM of 9 January 2001.
264)
Issue Nos. 3, 5, 8 and 11 are accordingly answered as under:
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No. Issue Answer
Yes
3 Whether the Plaintiffs prove that Defendant Nos. 2, 8 and 9
ceased to be Directors of Defendant No.1 Company with
th
effect from 9 January 2011 as alleged in para 2(b) of the
Plaint ?
nd
5 Whether the Plaintiffs prove that the 2 Defendant agreed
in the meeting alleged by the Plaintiffs to have been held in
nd
November 2000 that the 2 Defendant and his nominees
would resign as Directors of the 1st Defendant ?
Not
necessary
to answer
8 Whether the Plaintiffs prove that Defendant Nos. 16 to 20
are validly appointed Directors of Defendant No.1
Company as alleged in para 2(h) of the Plaint ?
Yes
11 Whether the Plaintiffs prove that resolutions were validly
passed/carried at the Extraordinary General Meeting of the
1st Defendant held on 9th January 2001 removing
Defendant Nos. 2, 8 and 9 as Directors of the 1st Defendant
Company and whether the said Directors thereupon ceased
to be Directors of the 1st Defendant Company and, if so,
from what date ?
Yes
F.9 T ERMINATION OF SPA AND O THER D OCUMENTS
SSUE O
I N . 6
265) Defendant No. 2 has contended in para 34 of his written statement
that an urgent meeting of the Board of Directors was convened on 20 November
2000 and that in the said meeting, the chairman explained to the Board the
alleged emergency situation arising from the letters of the first Plaintiff and his
attempts to take illegal possession of the company’s assets and properties,
including the bank accounts. The Board of Directors in the Meeting held on 20
November 2000, resolved that all documents, letters, agreements, power of
attorney and any other paper executed by the company or any of its directors in
favour of the plaintiffs were cancelled and revoked. The Resolution shown to
have been adopted in the Board Meeting of 20 November 2000 reads thus:
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“RESOLVED that all documents, letters, agreements, Power of Attorney and
any other paper executed by the company or any of its directors in favour of Mr
Anil K Bodani, be and are hereby cancelled and revoked.
RESOLVED further that Mr Govind Gupta be and is here by authorised to
write suitable letters to Mr Anil K Bodani and inform him of such cancellation
and revocation.”
266) Accordingly, it is the case of contesting Defendants that, by letter
dated 21 November 2000, Defendant Nos. 1 to 3 cancelled and revoked all the
documents executed by them, particularly the powers of attorney in favour of
original Plaintiff Nos. 1 and 2. Letter dated 21 November 2000 has already been
reproduced above.
267) It is contended by contesting Defendants that Plaintiffs have not
challenged the minutes/resolutions of Board meeting dated 20 November 2000
or the act of cancelation and revocation of all documents and that therefore the
same are final and binding. I am unable to agree. The so called Board Meeting is
shown to have been attended by Mr. Ashwin Mehta, Mr. Govind Gupta, Mr.
Rajeev Khandelwal and Mr. Vinod Haritwal, without any notice to original
Plaintiff No. 1. It is not even the case of contesting Defendants that notice of
Board meeting of 20 November 2000 was attempted to be given to original
Plaintiff No.1. The holding of meeting dated 20 November 2000 is this itself
illegal. Even if it is to be assumed that the Board meeting of 20 November 2000
was validly held, the Resolution passed therein did not and cannot have the effect
of terminating the SPA. Board’s resolution for cancellation or revocation of ‘ all
documents, letters, agreements, Power of Attorney and any other paper executed by the
company or any of its directors ’ did not mean that the SPA got terminated in any
manner. There is no specific cancellation or revocation of the SPA dated 27
October 1998. Furthermore, in the letter dated 21 November 2000, Defendant
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Nos. 1 to 3 particularly cancelled ‘ all power of attorney ’ executed in favour of
original Plaintiffs and again there is no specific cancellation of the SPA.
268) SPA dated 27 October 1998 effected sale and transfer of 24,990
shares in favour of original Plaintiffs. The transaction of sale of shares was acted
upon by transfer of share certificates and entry of names of original Plaintiffs in
the Register of Members. The transaction of sale of shares thus became final and
original Plaintiffs became owners of 24,990 shares of the first Defendant
Company. Such transaction of sale of shares cannot be unilaterally cancelled or
revoked by adopting resolution of Board of Directors of first Defendant company.
Therefore in my view, the resolutions shown to have been adopted in the
purported Board Meeting of 20 November 2000 did not have the effect of
cancellation, termination or revocation of the SPA dated 27 October 1998. Issue
No. 6 is accordingly answered as under:
No. Issue Answer
nd
6 Whether the 2 Defendant proves that the Share Purchase
Agreement and other documents dated 27th October 1998
were validly cancelled/terminated on 21st November 2000 as
alleged in para 34 of the 2nd Defendant’s Written Statement
?
No
F.10 P LAINTIFFS E NTITLEMENT F OR G RANT OF D ECREE O F S PECIFIC
P ERFORMANCE
I SSUE N O . 16
269) Both Mr. Sancheti and Mr. Dwarakadas have contended alternatively
that grant of decree of specific performance is not warranted in the facts and
circumstances of the present case and what could be awarded in favour of the
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Plaintiffs, at best, is compensation/damages, which is also a specific prayer in the
Plaint.
270) Before I go into the issue of permissibility to award decree of
specific performance in favour of Plaintiffs it would be necessary to take into
consideration various prayers sought for in the Plaint. The main prayer of the
Plaintiffs is to seek a declaration that the authorized share capital of the first
Defendant Company is Rs.25 lakhs comprising of 25,000 equity shares of
Rs.100/- each out of which 17,990 equity shares are owned by Original Plaintiff
No.1 and 7,000 equity shares are owned by Original Plaintiff No.2. The next
prayer sought for by the Plaintiffs are about decisions taken in the Annual
General Meeting on 30 September 2000 by which authorized share capital of first
Defendant Company is shown to have been increased from Rs. 25 lakhs to
Rs.1.50 crores. Plaintiffs have also challenged allotment of 75,000 shares to
Defendant No.11. The next set of prayers sought by the Plaintiffs are in respect of
resolution proposed by original Plaintiffs in the EOGM meeting held on 9
January 2001 for removal of Defendant Nos.2, 8 and 9 as Directors of the
Company and for appointment of original Defendant Nos.16 to 20 as its
Directors. Prayer clause (b) in the Plaint is for specific performance of obligations
by Defendant Nos.2 to 9 under Share Purchase Agreement. Prayer clause (c) is
for award of damages of Rs.10 crores as an alternative to prayer clause (b). In
prayer clause (d) Plaintiffs have sought cancellation of documents relating to
Minutes of AGM dated 30 September 2000, EGM dated 9 January 2001 and
Board of Directors of 18 October 2000. Prayer clauses (e) and (f) are for
consequential injunctions.
271) Perusal of the above prayers sought in the Plaint would indicate
that the main reliefs sought for by the Plaintiffs are in the nature of declaratory
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prayers in prayer clause (a) of the Plaint. Once prayer clause (a) is granted,
Plaintiffs’ ownership of 99.96% stake in the first Defendant Company gets
restored. Grant of prayer clause (a) (vii) ensues that Defendant Nos.2, 8 and 9
are removed from directorship of the first Defendant Company. Once they are
removed from as Directors of the Company, it is for Plaintiffs to decide whom to
be appointed as its Directors. In that sense, the prayer for specific performance of
SPA dated 27 October 1998 is made only to ensure removal of Defendant Nos. 2,
8, 9, 12 to 15 as directors and for appointment of Plaintiffs’ nominees as
directors. I have already held that all the nine resolutions proposed in the EOGM
dated 9 January 2001 are required to be treated as having been validly
passed/adopted. This ensures removal of Defendant Nos. 2, 8, 9, 12 to 15 as
directors and for appointment of Plaintiffs’ nominees as directors. In that sense,
nothing depends on specific performance of the SPA. It is therefore not really
necessary to decide the issue of grant of relief of specific performance in view of
the provisions of Section 20 of the Specific Relief Act. However since Issue
No.16 has been framed with regard to Plaintiffs’ entitlement to decree of specific
performance, it would be necessary to answer this issue as well.
272) It is the case of the contesting Defendants that since relief of
specific performance of SPA is sought, there is an implied admission on the part
of the Plaintiffs that SPA has not been acted upon. Reliance is placed by
contesting Defendants on Section 20 of the Specific Relief Act and according to
the contesting Defendants, since the relief of specific performs is discretionary in
nature and since SPA is sham, illusory and unconscionable, relief of specific is
required to be denied to Plaintiffs. According to contesting Defendants,
Plaintiffs’ conduct in attempting to take forcible physical possession from the
contesting Defendants is yet another factor to be taken into consideration for
denying equitable relief of specific performance. On the contrary it is the case of
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the Plaintiffs that facts of the present case overwhelmingly warrant grant of every
relief including that of specific performance.
273) I have already held that the nature of SPA is to effect sale of 24,990
shares of first Defendant Company to the original Plaintiffs. Contesting
Defendants in the suit have taken not just false but contradictory defence that the
SPA was executed merely as a comfort document and towards security for loan.
In the entire transaction, I have not found any of the actions of Plaintiffs to be
gross so as to deny the relief of specific performance of SPA. Even during filing of
the suit, Plaintiffs have paid off the debt of Shamrao Vithal Co-operative Bank
and have spent substantial amount of money on maintaining the Stud Farm in
addition to payment of royalty to the tune of Rs. 14,85,02,106/-. Therefore, if
decree of specific performance of SPA dated 27 October 1998 is required in the
present case, there is nothing on record which would disentitle Plaintiffs from
grant of such discretionary relief. Reliance of contesting Defendants on judgment
of the Calcutta High Court in Sen Mukherjee and Co. (supra) is therefore totally
misplaced. Even otherwise, the case before Calcutta High Court involved lady
Defendant not having independent advice. As against this the contesting
Defendants are seasoned players in the game and were fully aware about
consequences of their actions. In my view therefore, Issue No.16 deserves to be
answered in favour of Plaintiffs and against the contesting Defendants.
No. Issue Answer
16 Whether the Plaintiffs prove that they are entitled to a decree
of specific performance of the Share Purchase Agreement
dated 27th October 1998 against Defendant Nos. 2 to 9 ?
Yes
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LTERNATE ELIEF F OMPENSATION AMAGES
F.11 A R O C /D
I SSUE N O . 17
274) Issue No.17 has been framed with regard to grant of alternate relief
of compensation/damages of Rs.10 crores claimed by Plaintiffs. Since the
Plaintiffs are being granted the main relief sought for in prayer clauses (a) and (b),
in my view there is no necessity of considering the alternate relief of award of
compensation/damages to Plaintiffs.
No. Issue Answer
17 If the answer to Issue 16 above is in the negative,
whether the Plaintiffs prove that they are, in the
alternative, entitled to a decree in damages jointly
and/or severally against Defendant Nos. 2 to 15 and if
so, in what amount ?
Not necessary to
answer in view
of issue No. 16
being answered
in affirmative
G. C ONCLUSIONS
275)
After having considered the entire conspectus of the case, I am of the
view that the action of the contesting Defendants in showing authorised capital of
the first Defendant Company to have increased from Rs. 25,00,000 to Rs.
1,50,00,000 as well as 75000 shares to have been allotted to Defendant No. 11 are
wholly illegal, void and of no legal effect. It is highly objectionable for Defendant
Nos. 2 and 11, who together owned only 10 shares (0.04%) of the first Defendant
company to reduce the stake of 99.96% owner to minority (24.99%). In fact, the
series of actions taken by contesting Defendants for reduction of stake of
Plaintiffs in the first Defendant company are contrary to their defence that SPA
did not effect ‘real sale of shares’ and that the same was executed merely as a
comfort document towards security for loan. This defence of ‘no real sale of
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shares’ was invented on 21 September 2000, after stake of original Plaintiffs in
first Defendant Company was acknowledged in series of illegal actions taken for
its reduction to 24.99%. Contesting Defendants did not remain firm on their stand
of ‘no real sale of shares’ and once again admitted stake of original Plaintiffs by
permitting their proxies to cast 24.99% votes in the EOGM dated 9 January 2001.
I have therefore no hesitation in holding that the action of reduction of stake of
original Plaintiffs in the first Defendant Company is not just illegal but an
outcome of systematic fraud. Mr. Sancheti has relied upon judgment of Apex
Court in Bishnudeo Narain (supra) in support of his contention that fraud has to
be properly pleaded with material particulars and proved. In my view, Plaintiffs
have pleaded and proved commission of fraud by contesting Defendants by
taking series of actions for reduction of original Plaintiff’s stake from 99.96% to
24.99% in the first Defendant Company. Contesting Defendants deliberately kept
10 shares of the first Defendant Company with themselves and also secured right
to remain in management of the company by incorporating a covenant to that
effect in the SPA. They however misused this concession extended to them by
convening and holding meetings of Board and AGM behind the back of 99.96%
owners of the company and illegally and fraudulently increased the shareholding
of Defendant No. 11 (which is second Defendant’s group company, having no
real business) from 1 share to 75,000 shares without actually paying a farthing. It
therefore becomes imperative to reverse all the illegal and fraudulent actions
taken by the contesting Defendants in increasing the authorised share capital of
first Defendant Company, in allotting 75,000 shares to Defendant No. 11 as well
as all consequential actions by restoring its authorised share capital to 25,00,000
divided into 25,000 equity shares of Rs. 100 each with original Plaintiffs owning
24990 shares.
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H. D EPOSIT OF ROYALTY BY P LAINTIFFS AND D ISCHARGE OF C OURT
ECEIVER
R
276) By Order dated 5 March 2004, this Court appointed Court
Receiver in respect of assets of the first Defendant Company including
immovable and movable properties, including the stud farm, livestock together
with all statutory books, records, book debts, bank accounts, etc. The Court
Receiver has accordingly taken symbolic possession of the stud farm on 1 April
2004. Plaintiffs have been appointed as agent of the Court Receiver and
accordingly are possessing and operating the stud farm of the first Defendant
Company. By Order passed in Chamber Summons Nos. 168 and 228 of 2008,
royalty to be paid by Plaintiffs has been fixed at Rs. 6,81,600/- per month. By the
time of conclusion of hearing of the Suit, Plaintiffs have deposited Royalty of Rs.
14,85,02,106/- in this Court. As directed by this Court, Plaintiffs have filed
reports of income and expenditure in respect of the stud farm with the Court
Receiver. The representative of the Court Receiver has visited the stud farm
alongwith Veterinarian from time to time and has submitted reports. From
various reports of the veterinarian, it appears that the activities of the stud farm
have been kept operational by Plaintiffs. As per the last report of the Veterinary
Diagnostic Centre and Allied Services (Dr. Abhay M. Desai), 24 horses listed in
the Report were found at the stud farm. As per the reports of the Court
Receiver, Plaintiffs have paid the electricity bills, Gram Panchayat taxes as well as
irrigation charges in respect of the stud farm from time to time.
277) From various quarterly reports filed by Plaintiffs of income and
expenditure in respect of the stud farm, it appears that from 1 April 2004 till
filing of the last report upto 31 December 2023, as against total income of Rs.
21,98,36,513/-, Plaintiffs have claimed expenditure of Rs. 45,22,76,951/-, thereby
showing that Plaintiffs have spent amount of Rs. 23,24,40,437/- from their own
pockets towards maintenance of the stud farm, inclusive of royalty deposited in
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this Court. These are approximate figures gathered by the office of the Court
Receiver from quarterly reports filed with it. As against this figure, Plaintiffs have
quoted the figure of Rs. 29,03,17,667/- being incurred for the purpose of running
the stud farm. Without going into correctness of these figures, which, in my view
is unnecessary for deciding the Suit, suffice it to observe that running of the stud
farm during pendency of the present suit has proved to be more of a liability than
income generating venture for Plaintiffs.
278)
Original Plaintiffs are held to be owners of 99.96% stake in the first
Defendant Company. As per the amended plaint, upon death of original Plaintiff
No. 1, his estate was succeeded by his wife-original Plaintiff No. 2 by virtue of
Will dated 9 April 2007. It is pleaded that original Plaintiff No. 2 had secured
probate in respect of will of original Plaintiff No. 1 from this Court. After death
of original Plaintiff No. 2, it is pleaded that, the two transposed Plaintiffs have
become entitled to succeed to the estate of original Plaintiff No. 2 by virtue of her
Will dated 31 August 2015. This is how Plaintiffs have claimed ownership rights
in respect of 24,990 shares which were earlier owned by their parents-original
Plaintiffs.
279) Since the suit is being partly decreed with a declaration of ownership
of 24,990 shares by Plaintiff representing 99.96% stake in the first Defendant
Company, the Court Receiver appointed as per the order of this Court needs to
be discharged and symbolic possession of the Court Receiver in respect of
immovable and movable properties of the first Defendant Company would come
to an end and need to be handed over to Plaintiffs. Similarly, since original
Plaintiffs are held to be owners of 99.96% stake in the first Defendant Company,
the amount of royalty deposited by the Plaintiffs along with accrued interest
needs to be refunded to them.
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RDER
I. O
280) I accordingly proceed to pass the following Order :
a) Plaintiffs’ suit is partly decreed with costs.
b) It is declared that the 24th Annual General Meeting of the first Defendant
Company shown to have been held on 30 September 2000 as well as the
meeting of Board of Directors shown to have been held on 18 October
2000, minutes thereof and Resolutions passed therein as well as allotment
of 75,000 shares of the first Defendant Company to Defendant No. 11 are
illegal, null and void and do not have any legal effect.
c) Consequently, it is declared that the authorized share capital of the first
Defendant Company is Rs.25 lakhs comprising of 25,000 equity shares of
Rs.100/- each and that original Plaintiff No.1 owned 17,990 equity shares
of face value of Rs.100/- each and original Plaintiff No.2 owned 7000
shares of face value of Rs.100/- each.
d) It is declared that the resolutions passed in the Extra-ordinary General
Meeting of the first Defendant Company held on 9 January 2001 are illegal
and void and all the nine resolutions moved on behalf of original Plaintiffs
are deemed to have been passed and adopted, consequently resulting in
removal of Defendant Nos. 2, 8 and 9 as directors and appointment of
original Plaintiff No. 2 and original Defendant Nos. 16 to 20 as directors of
the first Defendant company.
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e) It is declared that the resolutions shown to have been adopted in the
Meeting of the Board of Directors of the first Defendant Company of 10
January 2001 are illegal and void and consequently appointment of
Defendant Nos. 13, 14 and 15 as directors of first Defendant company is
illegal and void.
f) It is declared that all actions shown to have been taken consequent to the
resolutions adopted in the Annual General Meeting of 30 September
2000, Meeting of Board of Directors of 18 October 2000, Extra-ordinary
General Meeting of 9 January 2001 and Meeting of Board of Directors
dated 10 January 2001 are illegal, null and void and of no legal effect.
g) If any obligation under Share Purchase Agreement still remains to be
performed, Defendant Nos.2 to 9 are directed to specifically perform their
obligations under the Share Purchase Agreement dated 27 October 1998.
h) Defendant No.22 is permanently injuncted from acting upon Form No. 5
(intimating increase in the share capital) filed on or about 14 November
2000, Form No. 23 (registering the resolution in respect of the increase in
Authorised Share Capital) filed on or about 14 November 2000, Form No.
2 being a return of allotment filed on or about 14 November 2000, Form
No. 32 (furnishing the particulars of new directors) filed on or about 11
January 2001, Form No. 32 (furnishing the particulars of appointment of
Defendant No. 12 as director) filed on or about 14 November 2000 filed by
the first Defendant Company with Defendant No. 22 and if already acted
upon, Defendant No. 22 is directed to cancel entries passed in his records
and registers on the basis of the said forms.
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i) Defendant Nos. 2, 8, 9, 12 to 15 are restrained from holding themselves
out as directors of the first Defendant Company, from acting as its
directors, dealing with or disposing off any of its immovable or movable
properties, acting on its behalf of or making representations on its behalf.
j) It is declared that Defendant No. 11 is owner of only 1 share of the first
Defendant Company and it is restrained from exercising any rights in
respect of said 75,000 shares or any part thereof.
k) Defendant Nos. 2 to 15, their employees, officers or agents are restrained
from entering upon the property of first Defendant company including but
not limited to the first Defendant's Stud Farm situated at village Shirgaon,
near Somatne Phata, Mumbai Pune Highway, Maval, District Pune.
l) Defendant Nos. 2 to 15 are directed to hand over all documents, papers,
registers, records and property of the first Defendant Company in their
possession or control to the Plaintiffs or their nominees.
m) On expiry of period for filing Appeal against the Decree, the Court
Receiver shall stand discharged without passing accounts subject to costs,
charges and expenses of Court Receiver to be borne by Plaintiffs and the
symbolic possession of the Court Receiver in respect of the assets of the
first Defendant Company including of immovable and movable properties
as well as of the stud farm and the livestock therein, shall also come to an
end and Plaintiffs are permitted to remove the signboards put by the Court
Receiver at the stud farm. Court Receiver shall hand over all records and
documents relating to first Defendant Company to Plaintiffs.
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n) On expiry of period for filing Appeal against the Decree, the royalty
amount deposited by Plaintiffs with the Court Receiver from time to time
alongwith accrued interest shall be refunded to Plaintiffs after deducting
costs and charges of the Court Receiver as per Rule 591 of the Bombay
High Court (Original Side) Rules, 1980
o) Decree be drawn up accordingly.
[ SANDEEP V. MARNE, J.]
281) After the judgment is pronounced, Mr. Sancheti, the learned
counsel appearing for Defendant No.2 requests for stay of the operative portion
of the order for a period of 8 weeks. Mr. Sancheti would submit that Plaintiffs
would hold meeting of the First Defendant and take various decisions relating to
its control and management and that therefore, the operative directions are
required to be stayed. Mr. Dhond, learned senior Advocate appearing for
Plaintiffs would oppose the request for stay on the operative directions in the
judgment. However, after taking instructions from his client, Mr. Dhond makes
a statement that for a period of 8 weeks from today, Plaintiffs shall not hold any
meeting in respect of First Defendant Company. The statement is recorded and
accepted.
[SANDEEP V. MARNE, J.]
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