Ramesh Chandra Bhalla And Anr. vs Naresh Chander Bhalla And Ors.
1987 Latest Caselaw 209 Del

JUDGMENT

G.C. Jain, J.

(1) Ramesh Chandra Bhalla, Naresh Chandra Bhalla, Sudesh Chandra Bhalia, Avinash Chandra Bhalla and Prakash Chander Bhalla arebrothers. They were carrying on business as shareholders and Directors in threecompanies, namely, (i) 'M/s. H.R. Bhalla and Sons (P) Ltd. ;(ii) M/s.SelfastAir Systems (P) Ltd. and (iii) M/s. Mechanical Movement Pvt. Ltd.

(2) Certain disputes and differences arose among the brothers and by an agreement dated 7/04/1984 they appointed Sh. P.N. Khanna as a sole arbitrator to adjudicate those disputes. Learned arbitrator made an interim award on 25/12/1984. The interim award, so far as it relates toM/s. H.R. Bhalla & Sons (P) Ltd, (for short 'M/s. H.R. Bhalla'), provided asunder :-

"4.Shree Romesh Chander Bhalla and Shree Prakash Chander Bhalia (who ultimately shall be the continuing shareholders and Directors of H.R. Bhalla & Sons (P) Ltd) shall be responsible Along with the other three brothers for procuring M/s H.R. Bhalla & Sons(P) Ltd. transfer of three fifth of land & buildings at Bahadurgarh toa wholly owned subsidiary company (itself being its holdingcompany). Thereafter the shares in that subsidiary company held by H.R. Bhalla & Sons (P) Ltd. shall be transferred to Shree Naresh Chander Bhalla, Shree Sudesh Chander Bhalla and Shree Avinash Chander Bhalla and/or their nominees, at such time, as the latter may be advised to be the appropriate time for the purpose. The share transfer deeds of subsidiary company duty signed in blank shall be handed over to the Arbitrator immediately at the time of transfer to the subsidiary company. It is, however, made clear that all the five brothers shall be responsible for and shall share in equal proportion all or any liability for stamp duty, taxes or any other financial liability that may arise on account of the arrangements mentioned in this para.

5.H.R. Bhalla & Sons (P) Ltd. shall also be made to transfer3/5th of the machinery & plant and furniture to the said subsidiarycompany.Shree Romesh Chander Bhalla and Shree Prakash Chander Bhalla shall be responsible for procuring from the company H.R.Bhalla & Sons (P) Ltd. payment of gratuity that may be due to Shree Sudesh Chander Bhalla. Shree Sudesh Chander Bhalla shall also be entitled to receive four month salary as compensation.

6.As soon as the land and buildings and machinery etc is transferred as stipulated in paras 4 & 5 above .and the show room has been disposed of and its proceeds apportioned and paid as providedherein. Shree Naresh Chander Bhalla, Shree Sudesh Chander Bhalla, and Shree Avinash Chander Bhalla shall resign from the Directorship of H.R. Bhalla & Sons (P) Ltd. and shall transfer their shares to Shree Romesh Chander Bhalla and Shree Prakash Chander Bhalla or their nominees at full face value. The resignation letters and the share scrips together with transfer deeds which will be in possession of the arbitrator, shall be delivered by him to Shree Romesh Chander Bhalla for being deposited by him.

7.The share capital of H.R. Bhalla & Sons (P) Ltd. and its reserses, if any, shall be divided into five parts in proportion to the shares held by each of the five aforesaid brothers and the amount so allocated to Shree Naresh Chander Bhalla, Shree SudeshChand Bhalla and Shree Avinash Chander Bhalla, shall be payable to them in proportion to their respective holdings in that company.The parties aforesaid shall prepare an agreed scheme as to how and when it should be paid to them or otherwise adjusted. In case they fail to prepare an agreed scheme, they shall report to thearbitrator, for his decision in this matter.

8.The show room of H.R. Bhalla & Suns (P) Ltd. situated in Darya Ganj shall be sold by 31.3.1985 and the sale proceeds be utilised and divided in accordance with a scheme as envisaged in para 9 hereafter.

9.All assets and liabilities of M/s. H.R. Bhalla & Sons(P) Ltd. including both Engineering and leather divisions are to be shared by the five brothers in proportion to their respective sharesholding. Immediately after the date of this Award the parties here to shall submit to the arbitrator a mutually agreed and acceptable statement and scheme of division of the assets and liabilities including those mentioned in paras 7 & 8 above. In case no mutually acceptable scheme is furnished, complete lists of assets and liabilities of Hrb shall be furnished to the arbitrator who will then decide the manner in which and time when the division of such assets and liabilities shall take place.

IT also provided that the parties shall maintain status quo with respect to all the companies till 31/03/1985.

(3) Learned Arbitrator made his final award on 24/04/1986. As regards M/s. H.R. Bhalla it provided :-

"5.NCB, Scb & Acb shall get all assists of the Engineering Division of H.R. Bhalla & Sons (P) Ltd. including all plantsmachinery. Dies. Jigs, Spares, furniture, fixtures, telephone, allEngineering, stocks, finished, semi-finished, raw material, all of which at present are lying in the factory premises "Forward works"T-3, Industrial Area, at Bahadurgarh and telephone connection atNCB's residence. They shall also be responsible to pay or otherwise meet all the liabilities of the Engineering Division of that Company,a list of which is annexed herewith and is marked Annexure "A".They shall also be entitled to recover any recoverable outstanding sin favor of the Engineering Division of H.R. Bhalla & Sons (P) Ltd.(for details see Annexures "A-1" and "A-2"). Scb shall also get one scooter, which is already in his possession.

8.RCB & Pcb shall within two months from the date of thisaward, arrange transfer and conveyance, by M/s. H.R. Bhalla &Sons (P) Ltd. of a portion of the factory premises known as Forward Works" at T-3, Industrial Area, in Bahadurgarh enclosed within red coloured line in the plan, Annexure "B", to and infamous of Ncb, Scb & Acb (in equal shares), in consideration of adjustment as per this Award of all their remaining claims.

9.NCB, Scb & Acb, shall deliver their resignations from the Directorship of H.R. Bhalla & Sons (P) Ltd. on the announcement of this Award. They shall also deliver share scrips, together with transfer deeds, transferring the shares of H.R. Bhalla & Sons(P) Ltd. to Rcb & Pcb and or their nominees for a consideration of Re. 1.00 per share only.

11.RCB land Pcb shall continue to be the exclusive shareholders (and thus the owners of the business and assets) of M/s.H.R. Bhalla & Sons (P) Ltd. which company continues to winter aha the tenancy rights of the showroom on Netaji SubhashMarg, New Delhi and of the portion of the factory premises known as "Forward Works" at T-3, Industrial Area, Bahadurgarh, enclosed in Blue on the plan annexed herewith as Annexure "B", and all other business and assets not specifically transferred to Ncb, Scb &ACB, by this Award."

(4) On 21/05/1986 Ramesh Chandra Bhalla and Prakash Chander Bhalla filed a petition (Suit No. 1091A/86) against the remaining three brothers under Section 14 of the Indian Arbitration Act. It was prayed that the Arbitrator be directed to file the original award for necessary action inaccordance with law.

(5) Notice was issued to the learned Arbitrator for 12/08/1986 to file the award. The award was actually filed in Court on 8/10/1986.

(6) In those proceedings on 26/05/1956, i.e. beto.c the award was filed in Court, the applicants Ramesh Chander Bhalla and Prakash Chander Bhalla filed an application (IA 3551/86) under Section 41(b) and Schedule11 read with Section 18 of the Arbitration Act, 1940 real with Order 39-Rules1 and 2 and Section 151 of the Cods of Civil Proedure, for temporary injunction restraining respondents 1 to 3 from : (A)acting as Directors ofM/s. H.R. Bhaila a, ; Sons (P) Ltd.;(b) from holding any meeting of the Board of Directors or general body meeting of the shareholders of u/s. H.R. Bhalla and Sons Pvt. Ltd;(c) from passing any resolutions in respect of the conduct and.management of the affairs of M/s. H.R. Bhalla and Sons Pvt.Ltd.:(d) from giving any effect or taking any steps in pursuance ofresolutions, if any, passed by any .meeting of the Board of Directors held by them; and(e) from interfering in the management of u/s. H.R. Bhalia and Sons Pvt. Ltd.

(7) They also sought an order directing the respondents to cancel and rescind any acts, steps or actions alleged to have been taken in pursuance of any alleged Meeting of Board of Directors of H.R. Bhalla, as though the alleged meeting had never been held and also to cancel the instructions issued by respondents 1 to 3 to Canara Bank, Oriental Bank of Commerce, DaryaGanj in respect of accounts of M/s. H.R. Bhalla with further orders restraining them from issuing any further instructions.

(8) Jagdish Chandra, J. allowed this application. and granted interimreliefs claimed by the petitioners vide order dated one 5, 1986. It was observed "THE award is prima facie evidence of the largest position regarding the rights of the parties and normally there is hardly any justification for the court to deviate from the same unless and until the award is set-aside. The twin questions of balance of convenience and irreparable loss must also find favor in accordance with the award and in favor of the parties in who seafloor the award is and in this case as the dispute is only in respect ofM/s. H.R. Bhalla & Sons (P) Ltd. which has been ordered to be given in ` to the petitioners as against the respondents, these two questions stand answered in favor of the petitioners."

(9) The respondents-applicants have now filed this, application (IA 4034/86) under order 39 Rule 4 and Section 151 of the Code of Civil Procedure read with Section 41(B) of the Indian Arbitration Act For setting aside and discharging the order dated 5/06/1986. ltwa.saven.d that the order was without jurisdiction and contrary to law. The Court, by the impugned order,had granted an immediate decree in terms of the award. The prima facie validity of the award could not be accepted without prima facie deciding the validity of the objections raised by respondents. The Court, at the most, had jurisdiction to preserve the subject matter of the reference, and not to completely oust the majority shareholders and Directors from their business and assets to their detriment without preserving or safeguarding their rights and interest in any manner. It was further averred that the final award had substantially and materially altered the rights conferred upon the respondents-applicants under the Interim Award without their consent. It was also pleaded that under the final award respondents were not deprived of their shareholding in M/s. H.R. Bhalla and they could not, therefore, be deprived of their rights shareholders which has been done by the impugned order.

(10) This application was opposed by the opposite party.

(11) Mr. V.N. Kaura, learned counsel for the respondents-applicantscontended that there were 14 shareholders in M/s. H.R. Bhalla. The parties to the petition, five brothers alone, were not competent to refer the question thewinding up of the said company to the arbitrator. The agreement of referencewas illegal and invalid and consequently the award was also invalid.

(12) The question, whether the Directors or some of the shareholdersonly could refer the dispute regarding winding up of a Corporation dulyincorporated under the Indian Companies Act, is not free from difficulty.There may be lot of merit in the contention raised by Mr. Kaura. Howeverthis court is not a court of appeal and cannot go into the merits of the order dated 5/06/1986. The powers conferred on this court under Order 39 Rule 4of the Code of Civil Procedure are limited. The order dated 5/06/1986 hadbeen passed after giving the respondent-applicants an opportunity of beingheard. Under Second proviso to Rule 4 of Order 39, Code of Civil Procedure,the order could be discharged, varied or set aside when such a discharge,variation or setting aside had been necessitated by a change in circumstances orthe court was satisfied that the order has caused undue hardship to that party.

(13) In the present case, admittedly, there is no change in the circumstances after the passing of the order in question. Mr. Kaura, leanred counselfor the respondents-applicants, strenuously contended that the order in question had caused undue hardship to that party. It was pointed out that M/s.H.R. Bhalla had two distinct division i.e. Engineering Division and ExportDivision (the later being the business of manufacturing leather garments andexporting them outside India. As per clause 5 of the Award, Engineering Division has been given to the respondents-applicants. In the circumstancesin case they were not allowed to run that division under the name M/s. H.R.Bhalla, it would cause great hardship to them. They would not be able torun the Engineering Division. It was suggested that two committees of theBoard of Directors may be formed-one consisting of respondents-applicantsfor running the Engineering Division and the other of the opposite party forrunning the Export Division.

(14) M/S. H.R. Bhalla, admittedly, had two distinct divisions. It is alsoclear from the award that one of the divisions, namely Engineering Division,has been allotted to the respondents-applicants. In the circumstances The argument advanced by Mr. Kaura appears to be very attractive. The respondents-applicants would not be able to run this division under the name of M/s. H.R. Bhalla in view of order dated June 5,19S6. That may cause hardship to them. However on a careful consideration I feel that two committeesof Board of Directors could not be formed in exercise of the powers under Order 39 Rule 4 of the Code of Civil Procedure. It is mainly for the reasonthat the order dated 5/06/1986 is based on the final award which was takenas a prima facie evidence of the latest position regarding the rights of theparties. Clause 9 of the award required the respondents-applicants to delivertheir resignations from the Directorship of M/s. H.R. Bhalla on the announcement of the award. Thay were also to deliver share scrips, transfer deedstransferring the share of M/s. H.R. Bhalla to the opposite party or theirnominees for a consideration of Re.1.00 per share only. In view of the provisions contained in the award if two committees of the Board of Directorsof respondents-applicants for running the Engineering Division and the otherconsisting of the opposite party for running export division,-were formedit would amount to disturbing the order dated 5/06/1986 on merits. I amafraid, it cannot be done in exercise of the powers under Order 39 Rule 4,Code of Civil Procedure.

(15) For these reasons I find no justification for variation or dischargeof the order dated 5/06/1986 and dismiss the application.