Prabodh Jamnadas Kothari vs Vikram Jamnadas Kothari & Ors
2012 Latest Caselaw 291 Bom

                                              1                            NMS.775/2012(2)

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               IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                   ORDINARY ORIGINAL CIVIL JURISDICTION




                                                                 
                     NOTICE OF MOTION NO. 775 OF 2012
                                    IN
                           SUIT NO. 694 OF 2012




                                                                
    Prabodh Jamnadas Kothari                                ...Plaintiff
         Vs.
    Vikram Jamnadas Kothari & Ors.                          ...Defendants




                                                   
    Mr. D.D. Madon, Sr. Advocate a/w. Mr. Dipesh Siroya 
                                   
    a/w. Mr. A. Thakkar for Plaintiff 
    Ms.   Jyotsna  Pandhi   a/w.   Purnima   Awasthi  for  Defendant   No.11  for 
    ROC
                                  
    Mr. Darius Shroff, Sr. Advocate a/w. Mr. Satyen Vora, Mr. Kozan Shroff 
    Ms. Nupur Desai a/w. Mr. Rohan Undale i/b. M. Gandhi & Co., for 
    Defendant Nos. 1 & 2
    Mr. Nitesh R. Mishra i/b. Yogendra Kanchan for Defendant No.4
             

    Mr. Arif Bookwala, Sr. Advocate a/w. Mr. Snehal Shah a/w. Mr. P.A. 
    Jain i/b. Vigil Juris for Defendant Nos. 5 to 10
          



    Mr. Gaurav Joshi i/b. M. Gandhi & Co., for Defendant No.3

                                         CORAM : MRS. ROSHAN DALVI, J.
                                         DATED  : 30TH OCTOBER, 2012





    JUDGMENT :

1. The Plaintiff has sued for declaration of the estate of his deceased father and for his 1/2 share, right, title and interest

therein in respect of the properties set out in Exhibit-C to the plaint.

2. Properties at item Nos. 1 and 2 are the main properties with which the parties are at dispute. Item No.1 relates to 49010 shares of KNK Trading Pvt. Ltd., stated to have been

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owned by the Plaintiff's father.

3. The Plaintiff's father has executed a Will in 2003

bequeathing the shares equally to his two sons the Plaintiff and Defendant No.1. The defendants claim that the shares are transferred to Defendant No.2, the wife of Defendant No.1 in

1999 itself. The Plaintiff has challenged the transfer as fraudulent. The Plaintiff has shown the annual returns of

Defendant No.5 company which shows the transfer effected in the first year of the incorporation of the company itself. The

very first annual returns filed under Section 169 of the Companies Act shows the transfer executed in the name of

Defendant No.2 of 49000 shares (Whereas 49010 shares were actually transferred). The date of the transfer is not shown in

the returns. It is contended that transfer has not taken place

between the date of the first AGM and the date of filing of the returns. The date of the filing of the returns is not shown in the returns. All later documents follow therefrom. The Plaintiff has

challenged all the documents emanating from the initial transfer. The Defendants have sought to show that the father of the Plaintiff and Defendant No.1 who was the Director of the

company signed such returns from year to year as also his personal tax returns.

4. The Plaintiff claimed his share in that property, it being admittedly the biggest asset of the father.

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5. There have been certain email exchanges between the Plaintiff and Defendant No.3 as late as on 1st June 2008

Defendant No.3 son of Defendant No.1 has emailed the Plaintiff

not only the details about the property, but about the negotiations that he had for himself as also on behalf of the Plaintiff. That interesting email runs thus:

"As of now I met with 3 developers, they are offering me very less value as the reason given was too much

density of tenants on the property, and kindly note that the property is not 147000sq feet but little over

118000 sq feet which I had told you as the front portion of the property was acquired by the govt for road widening purpose, its just that the bmc records

are not updated of the same, people are ready to give us decent money for the property if we settle with the tenants and give them vacant plot with all required permissions to build, and kindly note too that I have

been fair to you too till date and will continue to do so

and never pressurized you to give me your share of the taxes and outgoings on the godown, though it is constantly burning a hole in my pocket, will update you of any new developments."

1. Had the shares of the father been transferred as shown in the annual returns in 1999 itself such an email would never

have been written by the defendant No.3. The admissions contained in the email is the circumstantial evidence prima facie showing that the transfer is not bonafide.

2. The very Will of the father which has been accepted by both the brothers, the Plaintiff as well as Defendant No.1,

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bequeathing to both of them the shares in Defendant No.5 company equally also shows that the father, until the date of the

Will in 2003, held those shares.

3. The Plaintiff's share in that property, therefore, would require to be protected pending the Notice of Motion.

4. The property at item No.2 in Exhibit-C to the plaint is a

flat at Marine drive which Defendants 1, 2 and 3 claim to have purchased in 2006 out of their own separate funds. The Plaintiff

claims that that flat has been purchased from the amount received by the Defendants upon the sale of the property at item

No.1 fraudulently and behind the back of the Plaintiff. Defendants 1, 2 and 3 have produced their bank statements

showing the amounts paid for the purchase of the flat being

Rs.1.90 Crores. The Defendants have also shown how the amounts came into their bank accounts. Defendant No.1 claims to have the initial investment made in 2005 from the sale of one

Janta Godown which is another property of Plaintiff, Defendant No.1 and Defendant No.3 in which the Plaintiff's share has been paid and the share of Defendant No.1 has been utilized by him

for the purchase of the flat. The initial receipt is shown to be invested in HDFC Mutual Funds on 28 th February 2005 which is redeemed on 11th April 2006. His investment is out of the cheque amount received from the sale of Janta Godown. The other amounts are contributed by Defendants 2 and 3. These are also shown from their bank accounts. They were also initially

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invested in HDFC Mutual Funds on 22 nd March 2005 which was redeemed on 11th April 2006 and 10th October 2005 which was

redeemed on 11th April 2006. The total amount has been

invested in the flat on 13th April 2006.

5. The property at item No.3 is admitted to be the estate of

the deceased. It was tenanted by the deceased. The Defendants have offered that the Plaintiff may reside in that property whilst

he is in Mumbai.

6.

The property at item No.4 which is an agricultural land which is stated to have been sold in 1968 to a Trust. The house

property which is in Kutch, Gujarat is admitted by the Defendants to be the estate of the father. The Defendants agree

to give the Plaintiff his 1/2 share therein.

7. The Defendants do not claim item No.5.

8. The Defendants also offer item No.6 to the Plaintiff which are shown to be the shares of a defunct company.

9. The property at item No.7 was tenanted by the Private Limited Company in which the deceased as well as the Plaintiff and Defendant No.1 are members. The landlord of this property is stated to be United Insurance Company and the fact that the deceased had owned the property is admitted.

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10. Half share of the Plaintiff in item No.8 is stated to have been transferred to the Plaintiff.

11. The Bank account at serial No.9 shows the balance of Rs.5880/-.

12. There is not much dispute with regard to the movables in item No.10.

13. The shares and securities of the deceased in item No.11

are shown to be transferred to the Plaintiff towards his 1/2 share.

14. The main property forming a part of the estate of the

deceased father of the parties is item No.1. The Plaintiff was

desirous of acquiring his 1/2 share therein. There have been emails between the Plaintiff and Defendant No.3. After the aforesaid email showing negotiations which were in progress

even in 2008 sent by Defendant No.3 to the Plaintiff, the Plaintiff sent his email dated 2nd June 2008 alleging that for 5 years the Defendant No.3 had not done anything and calling

upon him to take a decision. Under those circumstances, the Plaintiff has alleged that a family arrangement-cum-compromise was agreed upon between the parties. The Plaintiff and the two executors under the Will of the father are shown to have signed the family arrangement. That arrangement dated 12 th July 2008 records that items of the Will were discussed and agreed upon

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for a total value of Rs.5 Crores payable in two installments by the end of the year to the Plaintiff. That has not been paid. The

Plaintiff has accordingly sued to recover his above share from

the Defendants.

15. The Plaintiff's own case shows a crystallization of the

Plaintiff's share at Rs.5 Crores in 2008.

16. Upon the transfer of item No.1, Defendants 1, 2 and 3 are stated to have received Rs. 48 Crores in 2010. The Plaintiff's

share shown in the family arrangement at Rs.5 Crores in 2008 would have augmented commensurately. The entire amount

payable was payable by the end of the year 2008. Had that amount being paid it would have been invested by the Plaintiff.

The Plaintiff's share which is required to be protected pending

the suit upon the prima facie case made out by the Plaintiff, which is upon the admission of the execution of the Will by his father and the admitted relationship of the parties, would,

therefore, require to be protected pending the Notice of Motion. Hence the properties in Exhibit-C to the plaint must remain protected towards the Plaintiff's share. It may be clarified that

though Defendants 1, 2 and 3 have shown their independent right in the property at item No.2, since these Defendants are prima facie seen to have transferred the property at item No.1 to the other Defendants under the transaction without bonafide full title, their property at item No.2 must remain injuncted against further transfer or creation of any further rights pending the

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Notice of Motion.

17. Hence, the following ad-interim order is passed.

18. Defendants 1, 2 and 3 shall deposit Rs. 7.5 Crores in this Court towards Plaintiff's share in the estate of his deceased

father within 4 weeks from today. If the amount is not deposited Defendants shall not dispose off, alienate, encumber,

part with possession, transfer or create any 3rd party rights in the properties at item Nos. 2, 3, 4, 6, 7 & 8 in Schedule Exhibit-C to

the plaint pending the Notice of Motion.

19. Issue Regarding the Bar of Jurisdiction raised by Defendant No.5:

Defendant No.5 has sought to raise the issue of bar of this

Court's inherent jurisdiction under Section 10E(4c) r.w. Section 111(4) and (7) of the Indian Companies Act, I of 1956.

20. Hence the issue is framed and answered as follows:

Whether the inherent jurisdiction of this Court is barred - No

21. Since Item No.1 relates to the claim of the Plaintiff in the shares of Private Limited company held by the deceased as an estate of the deceased, it is contended by the defendants that this Court's jurisdiction in determination of whether item No.1 forms an estate of the deceased is barred u/s.10(E) (4C) r/w.

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Sec. 111(4) and (7) of the Companies Act, 1956 as amended in 1988 and 2003. The relevant part of the Sections which may

bar or oust the Civil Courts jurisdiction runs thus:

PART IA BOARD OF COMPANY LAW ADMINISTRATION Section10E. Constitution of Board of Company Law

Administration.

Section10E (4C) Every Bench referred to in sub-section (4B)

shall have powers which are vested in a Court under the Code of Civil Procedure, 1908 (5 of 1908), while

trying a suit, in respect of the following matters, namely:

(a) discovery and inspection of documents or other

material objects producible as evidence;

(b) enforcing the attendance of witnesses and requiring the deposit of their expenses; compelling the production of documents or other

material objects producible as evidence and

impounding the same;

examining witnesses on oath;

(e) granting adjournments;

(f) reception of evidence on affidavits.

Section 111 (4) If--

(a) the name of any person--

is, without sufficient cause, entered in the register of members of a company; or after having been entered in the register, is, without

sufficient cause, omitted therefrom; or

(b) default is made, or unnecessary delay takes place, in entering in the register the fact of any person having become, or ceased to be a member (including a refusal under sub-section (1))

the person aggrieved, or any member of the company, or the company, may apply to the (Tribunal) for rectification of the register.

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                (5)....
                (6)....




                                                                                      

111 (7) On any application under this section, the

(Tribunal)

(a) may decide any question relating to the title of any person who is a party to the application to have

his name entered in, or omitted from the register;

(b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification.

22. Mr. Madon on behalf of the Plaintiff argued that Section

10(E) has been incorporated in the Companies Act by the amending Act, 1988 which came into force on 31 st May, 1991.

Under the same Act Section 111 also came to be incorporated deleting Sec.155 which existed prior thereto in Companies Act,

1956. Consequently, since 1991 the Company Law Board (CLB)

would have the power under the Civil Procedure Code in respect of the aforesaid six matters which may be referred to as the power to record the evidence. This would be in cases where the

entries in the register of members of the companies is wrongly effected or where the title of the applicant to enter or delete his name from the register has to be decided along with other

questions in connection with such title as would be necessary to be determined.

23. This would otherwise be the Civil Court's jurisdiction. Upon the amendment of the Act for all matters where an applicant would want his name to be added or deleted in the

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register of members, he would not apply after 1995 to the Civil Court or even to Company Court under Rule 6 of the (Company

Court) rules 1959, but he would have to make an application

before CLB.

24. The Plaintiff has never been a member of the Company.

His shares have not been transferred. The Plaintiff has not sought to purchase the shares either. He has sought

transmission of 50% of the shares held by his father. The Plaintiff only claims 50% of the shares held by deceased father

and bequeathed to the Plaintiff. If the Plaintiff applied before the CLB, he would be called upon to obtain a declaration of the

Civil court that he is entitled to 50% shares which actually stood in the name of the father of the Plaintiff. The Civil Court would

have to determine the title of the deceased father and thus latter

in the estate left by the father. This the CLB cannot determine. Only the Civil Court would determine title to an estate of a deceased. Further for such determination, the Plaintiff would

have to obtain probate of the Will of his deceased father. Without such probate the Plaintiff will have no cause to apply before the CLB. Of course, the Plaintiff shall have to apply

before the CLB, but not before obtaining this Court's declaration and / or the probate.

25. In this suit there are complicated questions of fact relating to whether or not fraud has been played upon the Plaintiff before the shares of the deceased father of the Plaintiff came to

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be transferred in the name of the defendant No.2, his daughter- in-law. If the Plaintiff would apply to the CLB for addition of his

name in the register of members in respect of 50% of those

shares as a person having title to that extent and claiming such title, the Plaintiff would have to lead evidence of the fraud before the question of title is decided as also the question in

connection with the fraud which would be the evidence relating to negotiations by the correspondence by the aforesaid E-mails

or otherwise between the brothers. The defendants have sold the shares which was the property of defendant No.5 Company

in which the deceased held those shares.

26. Of course, under Sec.10(E) (4C) and Sec.111(4) and (7) the tribunal would have otherwise had jurisdiction to add the

Plaintiff's name. However, in view of the aforesaid facts the

tribunal would have to determine whether the shares were transferred fraudulently to exclude the Plaintiff or even his father.

27. Whether or not the tribunal could go to such extent in such determination was held affirmatively in the case of Public

Passenger Service Ltd. v. M.A. Khadar (1966)36 Comp. Case 1: (AIR 1966 SC 489, Full Bench). However it held that jurisdiction which was then with the company court U/s.155 of the Companies Act, 1956 prior to the aforesaid amendment was discretionary and summary in nature and that the Court could decline to entertain the petitions if they raised dispute and

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complicated questions requiring evidence.

28. In the case of Standard Chartered Bank V/s. Andhra Bank

Financial Services Ltd., 2006 (6) SCC 94 also it has been held that if several disputed questions of fact arose, the Company Court (now CLB) should relegate the parties to a suit which is a

more appropriate remedy for investigation and adjudication of such claims.

29. In the case of Ammonia Supplies Corpn. Pvt. Ltd. V.

Modern Plastic Containers Pvt. Ltd., AIR 1998 SC 3153, which was after the amendment of 1988 came into force, the

dictionary meaning of the expression "rectify" came to be seen. It was shown to be "alter" and hence it was held to imply the

correctness of an error, mistake or defect and removal of defect

or imperfections. It was held that though in matters falling within the peripheral field of rectification the Company Court (and now the CLB) would alone have jurisdiction, if the issues

were not peripheral to rectification but were the issues regarding disputed civil rights, title or denial of any transaction they would have to be decided by the Civil Court. The very style of the

judgment in para 26 makes this position clear:

" Otherwise under the garb of rectification one may lay claim to many such contentious issues for adjudication not falling under it" (Sec.155) and in Para 27 "The Court has to examine on the facts of each case whether an application is for rectification or

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something else".

"........what comes under rectification, not projected

claims under the garb of rectification".

30. Hence though recognizing that the Company Court (now

CLB) would be the Court of exclusive jurisdiction for applications for rectification of register of members, it is held

that if the issues arose whether the Plaintiff was the owner of the shares, whether there was fraud or forgery or there was dispute on the very title of the shares, those issues would be

beyond the jurisdiction of the companies Court and would have

to be decided by the Civil Court. This would be upon the issues that arise in an application. It may be mentioned that an issue

arises when a material fact is alleged and disputed. Hence mere mention of fraud may not take the matter out of the exclusive jurisdiction granted by the statute to the CLB, but when the

"very title to the shares" is challenged and the Court sees that

that is at least prima facie shown, the Civil Court's jurisdiction would not stand barred.

31. A further reading of para 26 indicates that in cases such as this the right of the applicant who claims that his name be

entered in Register of members of a Company would have to be decided first before such an application is made :

"In other words, the Court (Company Court/CLB) has discretion to find whether the dispute raised is really for rectification or is of such nature that unless decided first would not come within the perview of rectification".

32. The right of plaintiff to receive his half shares in the estate

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of the deceased is admitted. What is the entire estate is disputed. That will depend upon whether or not the deceased had himself

transferred the shares in his lifetime, so that that legacy had

adeemed or whether the deceased held the shares in his name until his death and the purported transfer is forged, antidated and fabricated by Defendant Nos.1, 2 and 3. After that it

decided, the question of rectification would arise and an application could be made.

Upon the authorities of Full Bench judgment of the Delhi High Court and Supreme Court (Supra) Justice Rebello, as the

Single Judge of this Court, in the case of National Insurance Company Ltd. Vs. Glaxo India Ltd., AIR 1999 Bombay 240,

concluded that when there were complicated questions of fact raised, the CLB cannot go into them. When there was dispute as

to the "very transaction itself", it would not be merely a matter

for rectification. Those disputes would be on account of false documents and not merely if the name of the applicant was not entered for "wrong reasons". When the ownership of the shares

is disputed, it could not be a case exclusively pertaining to rectification which can be decided by the CLB. The exclusive jurisdiction of the Company Court (and now CLB) will,

therefore, be "to that extent," which is of "summary nature" as observed in the case of Ammonia (supra). To that extent the Civil Court's jurisdiction will stand impliedly barred as no express bar is mentioned anywhere in the Companies Act.

33. This case could not be a case which could be only a matter

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for rectification simplicitor. The application for rectification would be challenged. The Plaintiff would have to meet the

challenge. The Plaintiff would have to show how the register of

members does not only show the position for wrong reasons but shows such position upon a fraud being practised upon the Plaintiff. It is only those matters which are held in the judgment

in the case of National Insurance Company to be beyond the jurisdiction of the (Company Court) and now (CLB) can be

decided by the Civil Court, this case being one such.

34.

Consequently the application for rectification cannot be filed in the CLB, for if filed it would be sent to this Court for

adjudication of title. The Plaintiff claims "something else"also other than rectification being a seriously disputed question of

title. He claims a declaration of his right to 50% of his father's

equity holding. Hence he has shown the shares as a part of his father's estate which can be adjudicated upon only by a Civil Court. Such claims must, therefore, be directly filed in the Civil

Court alone.

35. Hence the Preliminary issue of jurisdiction is answered in

the negative.

36. Defendants 1 to 3 have claimed that the suit is barred by the Law of Limitation. Hence, the issue is framed and considered as follows:

"Whether the suit is barred by the Law of Limitation."

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37. The Plaintiff has sued for the administration of the estate

of his father. His father expired on 30th July 2005 leaving behind

the Will dated 3rd July 2003. The parties were in correspondence with regard to the sale of the estate of the deceased as reflected in the aforesaid email. The email

correspondence which transpired between the parties was between 1st June 2008 to 7th September 2009. The suit has been

filed on 13th February 2012.

38.

The Defendants 1 to 3 claim that the transfer of shares in 1999 was known to the father as well as the Plaintiff himself and

hence the period of limitation runs from the date of the initial transfer from the father to Defendant No.2 dated 16th August

1999.

39. The Plaintiff has claimed that the effort relating to the transfer of shares of Defendant No.5 Company initially from the

name of the deceased to the name of Defendant No.2 and later to outsiders upon essentially the sale of the property of the father of the Plaintiff and Defendant No.1 in item No.1 of the

schedule Exhibit-C to the plaint was brought to his knowledge in January 2012.

40. Mr. Madon himself contends that oral evidence upon the issue of limitation would have to be led.

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41. The Plaintiff shall file his affidavit of evidence as also

affidavit of documents.

42. The suit is adjourned to 10th December 2012 for considering the admissibility of the documents of the Plaintiff.

43. Certain letters and photocopy of letters written by the

deceased are stated to have been sent to the Plaintiff. The Defendants dispute the genuineness of these letters. They are

stated to have been sent by the deceased by post or by hand delivery to the Plaintiff in the USA. Pending the suit these

documents shall be kept in a sealed cover in the custody of the Prothonotary and Senior Master of this Court without folding

the documents.

(MRS. ROSHAN DALVI, J.)