Delhi High Court
Vinedale Distilleries Ltd. & Ors. vs S.K. Aggarwal & Ors on 18 September, 2009
Author: Rajiv Sahai Endlaw
*IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CS(OS) 1514/1994
% Date of decision: 18.09.2009
VINEDALE DISTILLERIES LTD. & ORS. ....Plaintiffs
Through: Mr. Jayant Nath, Sr Advocate with Mr
B.C. Pandey and Mr Umesh Kumar,
Advocates for Shaw Wallace and Co
Ltd.
Mr C.A. Sundram, Sr Advocate and Mr
Chetan Sharma, Sr Advocate with Mr
Arvind Nigam and Mr Sanjay S
Chhabra, Advocates for the Sanman
Group.
Mr T.K. Ganju, Sr Advocate with Mr
A.K. Thakur, Mr C.S. Gupta, Mr Bharat
Gupta and Mr R.K. Mishra, Advocates
for the A.K. Aggarwal Group.
Versus
S.K. AGGARWAL & ORS ...Defendants
Through: Mr Jayant Bhushan, Sr Advocate with
Mr Rishi Agrawala, Mr Bhagvan Swarup Shukla,
Mr Mahesh Aggarwal and Mr Akshay Ringe,
Advocates for S.K. Aggarwal Group.
CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. Whether reporters of Local papers may
be allowed to see the judgment? No
2. To be referred to the reporter or not? No
3. Whether the judgment should be reported No
in the Digest?
RAJIV SAHAI ENDLAW, J.
1. The applications for change of court commissioner appointed
vide order dated 13th February, 1995 in FAO(OS) 265/1994 by the
Division Bench of this court and the IA No.1325/2004 under Section
340 CrPC are for consideration. The suit as well as several other
suits connected therewith are inter alia with respect to the control
and management of the company M/s Vinedale Distilleries Limited
(the company) engaged in the business of manufacture and sale of
Indian made foreign liquor; the said company has its distillery at
Hyderabad; at the time of the order dated 13th February, 1995
(supra) of the Division Bench there were primarily two groups
claiming control of the said company i.e. the Sanman Distributors
Group (Sanman Group) and the Aggarwal Group. Since then the
Aggarwal Group has split into S.K. Aggarwal Group and A.K.
Aggarwal Group. As such the arguments on the application for
change of court commissioner have been addressed by the counsel
for the said three groups.
2. The facts need not be burden this order, having been set out in
detail in the 147 pages of the order (supra) of the Division Bench.
The appeal before the Division Bench was on transfer and against
the order of a Single judge of the Bombay High Court on an
application under Order 39 of the CPC. The Single Judge restrained
the then consolidated Aggarwal Group from acting or representing
or holding themselves out as directors of the said company and from
interfering in the management of the said company and from
entering into upon the registered office, administrative office,
distillery of the company or from signing any cheques on behalf of or
operating the bank accounts of the said company.
3. The Division Bench of this court in the order aforesaid found:
a) that till the year 1988 the then consolidated Aggarwal Group
held 100% shares of the company;
b) subsequently on 19th March, 1988 Aggarwal Group negotiated
with Shaw Wallace and Company Ltd (Shaw Wallace) for sale
of 51% shares of the company and the said 51% shares were
sold to M/s Arunodaya Investment Company and M/s Mahadev
Investment Company being the subsidiaries of Shaw Wallace;
c) that the company was already before the BIFR;
d) upon sale of 51% shares of the company to Shaw Wallace,
application was filed before the BIFR for appointment of new
directors and three nominees of Shaw Wallace were appointed
on the board of the company; on 5th December, 1990 Shaw
Wallace disclosed their intention to disinvest their 51% shares
holding in the company and pursuant thereto the said 51%
shares in the company were transferred to M/s Deccan
Securities Private Limited (17%), M/s Chamunda Holdings
Private Ltd (17%) and M/s Yogeshwar Holdings Private Ltd
(17%) all of which companies were also controlled by the
Aggarwal Group. The balance 49% shares in the company
which till then were held by S.K. Aggarwal "were also
transferred by him on 26th March, 1991 to M/s Deccan
Holdings Private Ltd, another company of Aggarwal Group".
Thus the 100% shares holding of the company came to be held
by the aforesaid four companies (investment companies) part
of the Aggarwal Group;
e) The Sanman Group claims that the shares of the aforesaid four
investment companies were transferred to Saman Group and
their nominees and were held by them; they thus claim that
they, through the vehicle of the said four investment
companies were in control of the company.
4. The Division Bench of this court in the order supra, while
returning a finding on the prima facie view of the respective claims
of Sanman Group and the Aggarwal Group, held that -
a. that both parties had produced conflicting
circumstances/materials against each other;
b. that it is not possible without cross examination of
witnesses and examining the original documents/
accounts whether one or the other version is correct or
who is speaking the truth.
It was held that neither side had come forward with the whole
truth and each side was unable to explain the weak points in its side
but wants to point out the loopholes in the case of the opposite side.
The Division Bench held that the only thing certain was that the
Aggarwal Group was in management on 5th January, 1993 when the
suit (out of order wherein appeal had arisen) was filed and that there
was no plea of the Sanman Group that the Aggarwal Group was
ousted by the Sanman Group from the management of the company.
The Division Bench hence held that there was no prima facie proof
that the Sanman Group ever came into management of the company
or of the four investment companies on or after 9th October, 1991.
The Division Bench held that there was enough material to show that
the Aggarwal Group were and till then in management and control of
the company but there were deficiencies in their case of title to the
100% share holding of the company; the original share certificates of
the company or of the four investment companies were however
found to be in the custody of the Sanman Group but serious
deficiencies were also found in the case of the Sanman Group with
regard to the takeover of the four investment companies by their
group.
5. The Division Bench on the aspect of the balance of convenience
held that the company had a big distillery with huge machinery and a
large number of labourers and employees at various levels; that it
was neither practicable nor feasible to disturb the management of
the Aggarwal Group who had been running the company since April,
1991 and till then were doing so; that since the Sanman Group had
not made out a prima facie case, there was no question of handing
over the management or control of the company to the Sanman
Group and the Sanman Group could not seek to stop the
management and control of the company by the Aggarwal Group at
that stage or for vesting of the management and control of the
company in a third party receiver. It was also found that it would be
very difficult for an advocate/receiver or a third party to run the
factory of the company since activities of the company were
regulated by the State Excise Laws, Factory Laws, Labour Laws,
Provident Fund, Gratuity, Minimum wages Laws and all of which
could not be handled by the third party receiver.
6. The Division Bench held that thus the only question for
consideration was whether the Aggarwal Group could be allowed to
manage and control and, if so, under what stipulations. The Division
Bench therefore appointed the Aggarwal Group of Directors of the
Company as receiver and allowed them to run the company, its
factory as representatives of the court and made them accountable
to the court as receiver. The Division Bench also noticed that while
the Sanman Group was even then agreeable to the appointment of
the Aggarwal Group as receiver subject to certain conditions and
further subject to putting a representative of Sanman Group on the
board of the company, the Aggarwal Group was not agreeable to
such course. The Division Bench also noticed that since the company
was before the BIFR, nothing contained in that order would come in
the way of the BIFR passing any order in the exercise of its powers.
7. The Division Bench directed
i. that the Aggarwal Group of Directors of the Company shall
continue in management and control of the company and the
nominees of the BIFR on the board of the company shall also
continue under the directions of BIFR;
ii. The Aggarwal Group of Directors will be the joint receiver of
the company and shall be answerable to this court for their
actions and omissions;
iii. The court shall be entitled to issue directions to the receiver
for implementation of the scheme/orders of the BIFR;
iv. The Sanman group could nominate a person on its behalf to be
present at every meeting of the company whether it be the
board meeting, AGM or EOGM or any other statutory meeting;
however the said nominee shall not be entitled to vote but
shall be entitled to receive the agenda or connected papers of
the meeting and offer his/her suggestions, if any;
v. The receivers as representatives of the court shall manage
and control the company and file quarterly reports in this
court in respect of all their actions or decisions and it shall be
open to Sanman Group to file its objections;
vi. that the Aggarwal Group shall furnish bank guarantee in the
sum of Rs 2 crores to meet any contingencies that might arise
on account of orders to be passed by this court;
vii. that the Sanman Group which was in custody of the original
share certificates of the company and the four investment
companies shall not encumber or transfer or part with
possession of the same;
viii. that it will be open to the receiver to seek appropriate orders
from the court;
ix. further orders including of modification of the said order will
be passed by the Single Judge in the suit;
x. the Aggarwal Group will not enter into agreement of sale or
transfer or encumber of any of the property of the company or
of the four investment companies without sanction of the
court;
xi. an inventory of the immovable and movable properties of the
company was also ordered to be prepared.
8. The S.K. Aggarwal Group went to the Supreme Court against
the order of the Division Bench to the extent allowing them to
continue in management as receiver and allowing the nominee of
Sanman Group in the meeting and asking them to furnish the bank
guarantee. The Supreme Court vide order dated 10th May, 1995
while maintaining the order of the Division Bench continuing the
Aggarwal Group in management of the company ordered that the
words receivers/joint receivers wherever appearing in the operative
part of the order of the Division bench shall be read as court
commissioner; the provisions of Order 40 CPC shall apply mutatis
mutandis in so far as the court commissioners are concerned and
instead of Sanman Group nominating a person at the meetings of the
company, the High Court was permitted to nominate a person
belonging to the Sanman Group to be present at the said meetings.
The condition requiring the Aggarwal Group to furnish the bank
guarantee was modified to furnishing the security in the sum of Rs
1.50 crores and bank guarantee in the sum of Rs 50 lacs. It was
further clarified that the Aggarwal Group shall not create any third
party rights in respect of the property of the company nor transfer
the shares or create any encumbrance without the sanction of this
court.
9. It is also the admitted position that upon split in the Aggarwal
Group, it is the S.K. Aggarwal Group which is now in possession and
control of the company and its affairs.
10. The Sanman Group now seeks modification/change of order
aforesaid of the Division Bench as confirmed/modified by the
Supreme Court of appointment of Aggarwal Group as court
commissioner and seek either their own appointment as court
commissioner or appointment of any other third party as court
commissioner. Ordinarily such application is entertainable by the
court appointing the receiver. However, since in the order
appointing the receiver, itself provides for application for
modification to be preferred before the Single Judge, the application
has been filed in suit. A.K. Aggarwal Group while supporting
removal of the S.K. Aggarwal Group contends that it is not possible
for the company to carry on any manufacturing or other business
activities and the main asset of the company is the valuable
immovable property comprising of land at Hyderabad and orders for
protection whereof need to be made. The S.K. Aggarwal Group of
course contests the prayer for their removal and have sought
directions against Sanman Group and A.K. Aggarwal Group from
interfering with their functioning/carrying on business of the
company.
11. The senior counsel for the Sanman Group has contended
a) that the purport of the aforesaid orders of the Division Bench
and the Supreme Court was that in the event of the Sanman
Group ultimately succeeding, they should not have merely a
shell company and the idea was to preserve the running
company;
b. that the Division Bench of this court had not issued any
direction with respect to the management and control of the
company which was left to be decided by the BIFR;
c. that since the Aggarwal Group was allowed to run the
company as receiver/court commissioner under the directions
of the court, it showed that they had no inherent rights of
running the company and had to seek directions of the court
in the same;
d. that the S.K. Aggarwal Group had utterly failed to manage
the company or to protect its assets. Attention in this regard
was invited to the observations in the order in writ petition
No. 10025/2001 of the High Court of Andhra Pradesh
preferred by S.K. Aggarwal Group against the order of BIFR
and AAIFR directing the change in management and control
of the company. It was held in the said order that the
Aggarwal Group was in management as court commissioner
and were only dragging on the proceedings so as to
perpetuate themselves in management of the company;
e. that since the Aggarwal Group comprising of S.K. Aggarwal
and A.K. Aggarwal was appointed as the court commissioner,
upon A.K. Aggarwal ceasing to be part of the Aggarwal
Group, the order appointing the Aggarwal as the court
commissioner in any case come to an end; S.K. Aggarwal had
not sought any clarification/direction from the court that he
alone was entitled to continue as the court commissioner;
f. that the company is now no longer before the BIFR because
of Dena Bank being the principal creditor of the company
issuing notice under the provisions of the Securitization Act
and owing to the amendment in Section 15 of SICA 1985;
g. That S.K. Aggarwal Group has been wrongly claiming before
the BIFR that they were in management of the company
instead of stating that they were the commissioner appointed
by the court;
h. that the Sanman Group is willing to pay off the Dena Bank
being the only secured creditor of the company and to save
the assets of the company; However, prior thereto the
accounts of the company need to be audited by an
independent auditor, for Sanman Group to make a definite
proposal before this court inasmuch as the Sanman Group
ought not to be burdened with fictitious creditors of the
company put up/cooked up by S.K. Aggarwal Group;
i. that S.K. Aggarwal Group had contrary to the directions of
this court in the orders aforesaid attempted to auction a
portion of the immovable property of the company and for
that reason alone they were liable to be removed.
12. The Senior counsel for the A.K. Aggarwal Group has
contended:
i. that the Division Bench in the order (supra) had given control
of the company to the consolidated Aggarwal Group and S.K.
Aggarwal was not the person appointed as the Commissioner.
Attention was invited to portions of the order of the Division
Bench to show that the term Aggarwal Group used therein
refers to both S.K. Aggarwal and A.K. Aggarwal;
ii. that the intention of the order of the Division Bench was to
keep the business of the company running but admittedly
since the year 2001 no trading/manufacturing activity was
being carried out by the company;
iii. that the operations of the company had come to a standstill
because of the closure order issued by the Pollution Control
Board under the guidelines of the Supreme Court. The order
of the Appellate Board Pollution was also handed over and it
is informed that the same has attained finality; thereunder
the manufacturing activity in the refinery of the company has
been closed. It is thus contended that company cannot carry
on any business irrespective of the defaults of the S.K.
Aggarwal Group and the bogey raised by S.K. Aggarwal of
applying for excise licence and interference by A.K. Aggarwal
group in the same is irrelevant;
iv. that it was not the contention of the S.K. Aggarwal Group
nor is it even now the contention of any party that it is
feasible to install an effluent treatment plant at the works of
the company or that the operation of the company can be
carried out by installation of such a plant. Therefore no
purpose would be served in trying to run the company and in
fact there is no possibility of the same and thus there is no
need to appoint receiver or the commissioner for running the
business of the company;
v. Orders ought to be made only for preservation and protection
of the assets of the company;
vi. that S.K. Aggarwal Group has not maintained any
transparency in the matter and in the affairs of the company.
No accounts/reports have been filed as directed; in the year
2000 for the first time accounts were given to the BIFR for
the period till the year 2002 and no accounts have been
produced thereafter;
vii. that S.K. Aggarwal Group has been putting fictitious losses in
the company and showing fictitious expenses of
modernization when neither were any such works required
nor carried out;
viii.that since it is the S.K. Aggarwal Group only which has been
in management of the company, clarification needs to be
issued that A.K. Aggarwal Group is not liable under the order
aforesaid of the Division Bench;
ix. that in fact S.K. Aggarwal Group is also falsely claiming that
A.K. Aggarwal Group ceased to be the director of the
company w.e.f. the year 2003 and which could not be done
also because S.K. Aggarwal and A.K. Aggarwal were jointly
appointed as the Court commissioners vide orders (supra);
x. that there is inter se litigation/suits between S.K. Aggarwal
and A.K. Aggarwal (which suits have also been transferred to
this court);
xi. that preservation of the assets of the company is possible
only under a neutral independent person and S.K. Aggarwal
Group should be directed to hand over possession of the
factory premises, plant and equipment of the company to
such independent person;
xii. that S.K. Aggarwal Group has observed each and every
direction of this court in breach and has been acting `not as a
court commissioner or receiver but as sole owner';
xiii. the submission is that an independent auditor should be
appointed to go into the accounts and the list of creditors of
the company and the expenses allegedly incurred by the
company and to identify the misappropriation, if any, and to
fix responsibility;
xiv. that S.K. Aggarwal had not even filed the statutory return of
the company and had under Section 274(G) of the Company
Act ceased to be eligible even to continue as the director of
the company;
xv. this court had at a preliminary stage of hearing observed as
to why the parties should not be called upon to give inter se
bids qua the running of the company and management be
handed over to the party giving the best bid; in response to
the same it was stated that no purpose would be served since
because of the orders of the Pollution Control Board the
company could not carry on any business.
13. The senior counsel for the S.K. Aggarwal Group has contended:
a. that Sanman and A.K. Aggarwal Group in collusion with
each other are attempting to have A.K. Aggarwal Group
thrown out of management;
b. that all the arguments made are of prejudice and without
any basis at all;
c. that no case for any modification of the order of the
Division Bench as confirmed with slight modification by
the Supreme Court has been made out;
d. that there is age difference of 20 years between S.K.
Aggarwal and A.K. Aggarwal and the business is of S.K.
Aggarwal only and A.K. Aggarwal was included in the
Board of Directors only for the reason of being the
younger brother of S.K. Aggarwal and has otherwise not
been involved in the management or control of the
company;
e. that S.K. Aggarwal only had been found as the occupier
of the company within the meaning of the Factories Act;
f. that in fact all the investments in the company were of
S.K. Aggarwal only; even the Sanman Group had no
investments whatsoever in the company and claimed an
investment of Rs 1.40 crores only and of another Rs 70
lacs which are disputed;
g. that the reference in the order of the Division Bench to
the Aggarwal group is in fact a reference to S.K.
Aggarwal only;
h. that the works of the company comprised of a brewery
and distillery where blending/bottling of liquor is carried
out. Only the business of brewery requires an effluent
treatment plant to be installed. A statement to this effect
has also been made by S.K. Aggarwal Group on affidavit;
i. that as far as the prayer for appointment of a third party
as the court commissioner/receiver is concerned, the
Division Bench in its order (supra) confirmed by the
Supreme Court has already held that the same is not
possible/feasible;
j. that the basis of the order of the Division Bench is that
Aggarwal Group has been running/managing the
business of the company earlier and should be allowed to
continue doing so; reference to Aggarwal Group therein
is the S.K. Aggarwal only who alone been running/
carrying on business of the company and who is still in
possession and no case for disturbing his
possession/control is made out;
k. that the only reason why the nomenclature receiver/court
commissioner was given to S.K. Aggarwal who had been
running the business was that in the event of the Sanman
Group ultimately succeeding, S.K. Aggarwal should not
have siphoned off the assets of the company. It was thus
contended that S.K. Aggarwal was not appointed as the
receiver as is normally understood but only for the said
purposes;
l. that S.K. Aggarwal under the order of the Division Bench
is permitted to take all decisions relating to the company
and was not required to rush to the court for the said
purposes;
m. that in compliance with the order of the Division Bench
the quarterly returns have been filed in this court;
n. that the commission for preparation of inventory ordered
by the Division Bench had been executed and no
objections to the report of the Commissioner had been
filed by any party;
o. that the real value of the company was in the land owned
by the company and if S.K. Aggarwal was permitted to
continue running the factory operation of the company,
the same would not affect the value of the said asset of
the company;
p. that since issues had already been framed and trial is
underway, no case for alternation of the arrangement
devised by the Division Bench was made out;
q. that considering the various steps which were required
to be taken for recommencing the business operation of
the company, there was no likelihood of the same being
possible before the conclusion of the evidence which has
been directed by the Supreme court to be concluded in a
time bound manner;
r. that the land belonging to the company was huge and
even without a boundary wall and under danger of
encroachment and S.K. Aggarwal till now has kept the
same free from encroachment but if some third party is
put into possession, the possibility of encroachment and
of dissipation of the valuable asset of the company
cannot be ruled out;
s. in response to the offer of the senior counsel for the
Sanman Group that the Sanman Group being already in
the business of liquor can commence bottling activity in
the premises of the company immediately and revenue
generated therefrom will also settle the dues of the
creditors Dena Bank, it was contended that in the
transfer petition before the Supreme Court, the Sanman
Group had offered to clear the dues subject to being
made a secured creditor of the company; on the contrary
S.K. Aggarwal had been spending monies from his own
pocket for securing the assets and procuring the
permissions etc for commencing the business of the
company;
t. that in fact S.K. Aggarwal group had been unable to
carry on the business of the company inspite of being
appointed as the court commissioner owing to
interference by the Sanman Group and A.K. Aggarwal
Group. It was informed that within 15 days of the order
of the Division Bench, prohibition had been imposed in
the State of Andhra Pradesh leading to the sealing of the
factory premises of the company. Though the prohibition
was lifted in April, 1997 but since there were sales tax
dues for the earlier period, the liquor licence of the
company could not be renewed; that ultimately in or
about September, 1997 a settlement with respect to the
sales tax dues was reached and upon failure of the Excise
Commissioner to renew the licence, a writ petition was
filed by S.K. Aggarwal Group in this regard; that the
licence was finally given in June, 2000; that in fact the
Sanman Group had been making complaints /
representations to the Excise Commissioner which
resulted in the Excise Commissioner delaying issuance of
the licence. The Sanman Group by making
representations before all the concerned authorities
created confusion as to the right of S.K. Aggarwal Group
to run the business of the company;
u. S.K. Aggarwal group to be able to clear the sale tax dues
of the company had entered into a bottling agreement
with the United Breweries Group but Sanman Group had
unnecessarily objected to the same and falsely alleged
the same to be in breach of the order of the Division
Bench and thus interfered with the functioning of the
company;
v. that out of the monies received from the United
Breweries Group, sales tax dues to the extent of Rs 1.72
crores were paid; but thereafter the United Breweries
Group backed out of the agreement, again under
pressure from Sanman Group;
w. that thereafter when S.K. Aggarwal Group again got the
licence renewed, Sanman Group with a view to again
interfere in the functioning won over A.K. Aggarwal who
filed a writ petition in the Andhra Pradesh High Court
leading again to stay of issuance of licence on the ground
of inter se disputes between S.K. Aggarwal and A.K.
Aggarwal; that though in the aforesaid writ proceedings,
order was made permitting them to continue the activity
of bottling but since sales were restrained, and which
order continues till date, the same was not feasible;
x. even though the aforesaid disputes were between S.K.
Aggarwal and A.K. Aggarwal but again with a view to
delay the disposal of the writ proceedings Sanman Group
applied for impleadment therein. In the circumstances
even though the S.K. Aggarwal had made payment for
liquor licence in the year 2004-2005, the same could not
be issued and benefits thereof could not be availed. The
position of the licence for the year 2005-2006 is the
same. Thereafter Sanman Group also filed a writ petition
in Andhra Pradesh High Court for cancellation of the
liquor licence ordered to be issued to the company, for
the reason of the order of the BIFR of change of
management;
y. that Sanman Group and A.K. Aggarwal had by such and
other actions scuttled all attempts of S.K. Aggarwal
Group to carry on the business as permitted by the order
aforesaid of the Division Bench;
z. to show its diligence it was contended that S.K. Aggarwal
had filed writ petition 8549/2005 against imposition of
conditions in the liquor licence but the said writ petition
was ordered to be heard alongwith the writ petition filed
by A.K. Aggarwal Group.
S.K. Aggarwal had been depositing approximately Rs 50 lacs
for licence for each year but which monies were wasted owing to
interference by Sanman and A.K. Aggarwal Group; it was clarified
that S.K. Aggarwal was showing himself as the unsecured creditor of
the company; that S.K. Aggarwal had been incurring expenses on the
company in the hope of succeeding in these proceedings - on the
contrary Sanman group had been delaying the trial and the
proceedings in the suit. It was in the aforesaid circumstances that
IA.No. 3332/2007 was filed by S.K. Aggarwal in this court for
restraining Sanman Group and A.K. Aggawal from interfering with
their attempt to carry on the business of the company. It was thus
contended that the company could not carry on business because of
the stay order obtained at the instance of the Sanman Group and
A.K. Aggarwal Group. It was contended that such persons ought not
to be heard by this court and ought not to be appointed as
receiver/court commissioner in equity. It was urged that if they had
any grievance against any action of S.K. Aggarwal they ought to have
approached this court instead of filing independent writ petitions as
aforesaid before the High Court of Andhra Pradesh;
aa) it was further urged that they subverted the orders of this
court. It was urged that when S.K. Aggarwal Group attempted
to enter into an agreement with M/s Bagga Distillery to utilize
the bottling capacity of the company, false allegations of sub-
leasing were made resulting in the said agreement also not
materializing;
bb) with respect to the allegation of S.K. Aggarwal Group falsely
issuing preference shares of the company it was contended
that preference shares have no voting rights and were issued
only to enable the net worth of the company to become positive
and for the betterment of the company. It was contended that
in the Board Meeting sanctioning issuance of preference
shares the nominee of Sanman Group as well as A.K. Aggarwal
Group were present;
cc) that S.K. Aggarwal in the representation filed before this court
had been making full disclosure of all happenings; that since
S.K. Aggarwal has been incurring expenses on behalf of the
company and he ought to be permitted to continue in
possession of the assets of the company;
dd) it was stated that ouster of any one director in the Aggarwal
Group referred to in the order of the Division Bench could not
be interpreted as breach the order;
ee) in fact the differences between S.K. Aggarwal and A.K.
Aggarwal had occurred even prior to the filing of the Special
Leave Petition against the order of the Division Bench in the
Supreme Court; the same was preferred by S.K. Aggarwal only
and A.K. Aggarwal was shown as the respondent; it was thus
contended that the Supreme Court before confirming the order
of the Division Bench was aware that the Aggarwal Group did
not comprise of A.K. Aggarwal and thus it could not be argued
that for this reason the order needs to be modified;
ff) it was argued that A.K. Aggarwal was also guilty of trespassing
on the property of the company and in which regard police
complaint had been made; various other acts detrimental to
the affairs of the company were attributed to A.K. Aggarwal
i.e., of luring workers/employees of the company whose dues
had already been settled to make further claims against the
company, colluding with Sanman Group;
gg) that writ had been filed challenging the action against the
assets of the company under the Securitization Act; that
appeal against the disposal of this writ petition was pending;
that S.K. Aggarwal was also willing to settle the dues of the
Dena Bank in terms of the RBI guidelines; however the
Sanman Group with a view to usurp the assets of the company
was offering to pay more to Dena Bank but subject to being
made a secured creditor of the company. It was argued that
Sanman Group was thereby attempting to take unfair
advantage;
hh) it was stated that S.K. Aggarwal had attempted to sell 13 acres
of the land of the company in an attempt to pay off the
sovereign debt on account of sales tax arrears. The said 13
acres was not being used and if such steps had not been taken
by S.K. Aggarwal the entire property of the company was in
jeopardy;
ii) in response to the reference to the order of BIFR/AAIFR and
Andhra High Court in writ petition qua change of management,
it was stated that BIFR proceedings terminated on 10th April,
2005 and the same were now not relevant and that the said
order in any case did not bar S.K. Aggarwal Group from
making the offer for taking over the management of the
company and S.K. Aggarwal Group also was permitted to
participate in the bids inviting new management of the
company.
14. The senior counsel for the Sanman Group in rejoinder
contended that S.K. Aggarwal Group has not met the specific
allegations of mismanagement alleged against them; that the
Sanman Group had consented to the S.K. Aggarwal Group being
appointed as the court commissioner because there were a distillery
to run and because there was a nominee of the BIFR on board - now
there is no nominee of the BIFR on board and S.K. Aggarwal has not
been able to run the distillery. Alternatively it was suggested that
S.K. Aggarwal should also be restrained from running any business
in the factory of the company, pending the decision in the suit.
15. The senior counsel for A.K. Aggarwal in rejoinder contended
that the security given pursuant to the orders of the Division Bench
and the Supreme Court is by S.K. Aggarwal as well as A.K. Aggarwal
which also demonstrates that they were jointly appointed as the
receiver/court commissioner and on this basis alone insisted a
change in the earlier order.
16. The Division Bench of this court had in appeal appointed the
Aggarwal Group as the receiver. The Supreme Court though
substituting the word "receiver" with court commissioner has
ordered that the provisions of Order 40 CPC shall apply to the said
court commissioners also.
17. The receiver appointed for certain purposes and for preserving
the available properties for the benefit of the party ultimately
succeeding, if found to be not discharging his responsibility properly
can be removed and an alternative receiver appointed to continue to
discharge the functions which had been entrusted to the earlier
receiver.
18. The first question which arises for consideration in this case is
as to whether S.K. Aggarwal and A.K. Aggarwal were joint receivers
and if so whether the order of appointment of receiver/court
commissioner is no longer in force owing to the differences which
have arisen between the two of them and whether that fact alone
necessitates any modification in the order. The contention of the
counsel for the S.K. Aaggarwal Group in this regard that at the time
of the affirmation of the order of appointment of Aggarwal Group as
receiver in the Supreme Court, the Aggarwal Group comprised of
S.K. Aggarwal only is relevant. If that be so, then A.K. Aggarwal
Group and Sanman Group at that time having not sought a change
in the order for the reason of the split in the group would not be
entitled to do so on that ground alone now. Though there is some
controversy as to the filing of the said SLP in the Supreme Court,
with the senior counsel for A.K. Aggarwal contending that S.K.
Aggarwal had filed the SLP representing the same to be on behalf of
the A.K. Aggarwal also, it is not in dispute that A.K. Aggarwal was
subsequently ordered to be impleaded as a respondent to the said
SLP.
19. I thus find that the differences between S.K. Aggarwal and A.K.
Aggarwal having accrued before the order of the Supreme Court, the
order of the Supreme Court confirming the continuance of Aggarwal
Group in management of the company is with reference to the S.K.
Aggarwal only. It may be noticed that A.K. Aggarwal immediately
thereafter also did not make any application in this court for change
in court commissioner on that ground. Though subsequently an
application has been filed. Even otherwise the finding of the Division
Bench was of the Aggarwal Group being in management and
possession and the Sanman Group having never come into the
management and possession of the company and its properties and
inter se differences in Aggarwal Group would not change the said
position or the reasoning given by the Division Bench for allowing
the Aggarwal Group to continue in management and possession. It
is not the case and is not borne out that the property with respect
whereto court commissioner were appointed, is in medio owing to
the disputes inter se Aggarwal Group.
20. I also find that it has been held in Eastern Mortgage &
Agency Co. Ltd Vs Premananda Saha AIR 1916 Calcutta 824
(overruled on another point in AIR 1950 Federal Court 140) that
where joint receivers are appointed of the property, retirement or
resignation of one of the receivers does not put an end to the order
appointing the receiver.
21. This court in application for change of receiver/court
commissioner or for modification of the order appointing the
receiver/court commissioner is not to examine the matter denovo.
The findings returned by the Division Bench and confirmed by the
Supreme Court even though on application for interim relief,
continue to hold good. The possibility of a third party receiver and
the feasibility, on the facts subject matter of the suit, of appointing
the Sanman Group as receiver/court commissioner has already been
ruled out and cannot be agitated again.
22. The ambit of the inquiry in these applications is only to the
extent to find out as to whether the receiver/court commissioner
appointed earlier is guilty of acts of commission and omission of such
nature as calling for his removal or whether the purpose sought to
be achieved by the court in appointing the receiver/court
commissioner has been vitiated.
23. As far as the first of the aforesaid is concerned, the contentions
urged by the respective parties have been noticed in detail
hereinabove to obviate a discussion with respect thereto at this
stage. It would be apparent from the said contentions that at this
stage it cannot be said that the receiver/court commissioner earlier
appointed has done any such act which would disentitle him from
continuing as the receiver/court commissioner. The senior counsel
for S.K. Aggarwal Group has contended that the valuable assets of
the company comprising of land is secure and has been kept free
from encroachment against all odds. This has not been disputed by
the senior counsel for Sanman Group or A.K. Aggarwal also. It is
also not their allegation that any of the plant, machinery or
equipment of the company has been removed. On the contrary, the
offer of the senior counsel for the Sanman Group is to commence the
operations of bottling in the said plant/equipment and which is
possible only with the same continuing in existence. Thus no case of
the receiver being guilty of any such acts is prima facie made out. I
may even otherwise notice that under Order 40 Rule 4 of the CPC
where a receiver causes to occasion any loss to the property by his
wilful default or gross negligence, the remedy is provided for by
attachment and sale of the property of the receiver. This court has
already while appointing S.K. Aggarwal as the receiver/court
commissioner taken security from him of the amount then deemed
appropriate by the court, to cover such eventualities.
24. The contentions of the attempted sale by S.K. Aggarwal Group
of 13 acres of land, is of course found to be of a serious nature and
violative of the order of his appointment as court commissioner. The
Supreme Court while allowing Aggarwal Group to continue in
management had expressly ordered that they shall not create any
third party right with respect to the property of the company. The
argument of the senior counsel for the S.K. Aggarwal Group of sale
of 13 acres being proposed to prevent the attachment / sale of the
entire property of the company for realization of the sales tax dues is
not found to be convincing. The S.K. Aggarwal Group ought to have
approached this court even if sale of a portion of the immovable
property was necessary to protect the remaining property
25. I have considered whether the aforesaid action of S.K.
Aggarwal calls for his removal. The sale has admittedly not taken
place and the possession of the entire property as aforesaid is of the
company only. I am in this regard swayed by the factum of S.K.
Aggarwal, since the inception of the company and acquisition of the
property being in management thereof. Notwithstanding the
aforesaid aberration I still consider him to be best equipped to
protect the said properties of the company. However, warning is
given to S.K. Aggarwal to in future not even attempt any sale,
alienation or encumbrance of any of the assets of the company; if
need therefor is felt, application ought to be made to the court in
that regard and S.K. Aggarwal Group under the orders aforesaid of
the Division Bench and the Supreme Court is not competent /
entitled to take said decision on their own.
26. The other action of S.K. Aggarwal Group, justifying their
removal, and urged is with respect to the issuance of preference
shares of the company. The response of S.K. Aggarwal thereto has
also been noticed hereinabove i.e., that the decision therefor was
taken in the meeting in which A.K. Aggarwal as well as Sanman
Group were represented. In view of the said response and without
returning any finding on the truth thereof and further since it was
not urged that the said preference allotment is subject matter of any
challenge, I do not consider that also to be a reason for removal of
S.K. Aggarwal. However, again it is clarified that under the orders
aforesaid, even if in future any such thing is required, an application
is to be preferred to this court for the same and S.K. Aggarwal Group
is not to take any action qua the share holding of the company also
on its own. In this regard it may be noticed that the Division Bench
has returned a finding that at this stage without trial, prima facie
case of holding the shares of the company and/or of the investment
companies cannot be returned in favour of either the Aggarwal
Group or the Sanman Group. In that situation, merely because
Aggarwal Group was allowed to continue in management of the
company/possession of its assets does not permit S.K. Aggarwal or
any other party to, acting as the holder of the shares of the
company/investment companies bring a preference share or any
other issue of the shares of the company.
27. Yet another factor to be considered is of the nominee of the
BIFR ceasing to be on the board of the Company. In my opinion that
was only noticed in the order of the Division Bench as a fact and was
not a reason for the Division Bench to appoint the Aggarwal Group
as receiver. This change also thus does not necessitate any
change/modification of the order. The nominee of the Sanman Group
has already been ordered to be present in the meetings of the
company. The only change required upon differences between S.K.
Aggarwal and A.K. Aggarwal is to permit the nominee of A.K.
Aggarwal Group also in the said meetings on the same terms as the
nominee of Sanman Group has been permitted. Upon A.K. Aggarwal
Group nominating such person, the same shall be deemed to be a
nominee of this court of the A.K. Aggarwal group for the purposes of
the said meetings.
28. This court had in the orders aforesaid sought security from the
Aggarwal Group. A part of the security is stated to have been
furnished by A.K. Aggarwal. However, since it is the admitted
position that it is S.K. Aggarwal Group which is in management of
the company and in custody of its assets, the liability for furnishing
the entire security is of S.K. Aggarwal only. S.K. Aggarwal Group is
accordingly directed to furnish the security for the amount furnished
by A.K. Aggarwal Group and the security furnished by A.K. Aggarwal
Group shall then stand discharged.
29. The contentions, of the BIFR, AAIFR and the Andhra Pradesh
High Court finding deficiencies in the management of the company
by S.K. Aggarwal and ordering the change thereof does not also in
my view call for any modification/change of the order of appointment
of receiver/court commissioner. The reasons cited in the orders of
BIFR, AAIFR and the Andhra High Court for change of management
are entirely different from that which prevailed with the Division
Bench of this court in appointing S.K. Aggarwal as the receiver. The
BIFR was concerned with rehabilitation of the company and ordered
change in management upon inability of S.K. Aggarwal to do so.
However, the Division Bench of this court had not considered S.K.
Aggarwal to be the receiver for the reason of being better equipped
than Sanman Group to rehabilitate the company. As noticed above
S.K. Aggarwal was appointed as the receiver/court commissioner
only for the reason of Sanman Group having not been prima facie
made out to be in management and possession at any time. The
rights of BIFR to order change in management were in any case
preserved by the Division Bench. I may also notice that till the time
the disputes as aforesaid are pending, it was unfair to expect S.K.
Aggarwal Group to pump in its own funds/resources for
rehabilitating the company, when their entitlement to the share
holding thereof itself was in doubt. Thus no adverse inference can
be drawn against S.K. Aggarwal Group for the said reason also.
30. Thus no ground for change of receiver / court commissioner for
the reason of any positive act of S.K. Aggarwal is made out.
31. That brings me to the second aspect of the matter i.e., whether
owing to any omissions of S.K. Aggarwal Group or for the reason of
the purpose of appointment being vitiated, any change is called for.
32. The reason which prevailed with the Division Bench of this
court for appointing receiver/court commissioner was to
maintain/preserve the company in the same position as it was then
and pending adjudication of disputes as to who is entitled to
management and control thereof. At the time of the making of the
order, the company had running business of manufacture and sale of
liquor and the said business had to continue to be run / managed.
This court then also noticed that running/operating such business
necessarily involved compliance of various statutes/regulations and
held that the could not be carried out by any third party. Today the
position is that there is no running business. I have wondered
whether the same can be attributed to S.K. Aggarwal Group. On the
basis of contentions made I am unable to find so.
33. It is the admitted position that prohibition was imposed in the
state and owing to the imposition of Pollution Control norms, the
business of brewery cannot be carried out. Thus it cannot be said
that the business of brewery has come to an end for any negligence
or omission of S.K. Aggarwal. What has been contended by the
senior counsel for Sanman Group is that the business of
distilling/bottling can still be carried out. But then S.K. Aggarwal
also made attempts to carry on the same by entering into agreement
with the United Breweries Group and subsequently with Bagga
Distillery. At this stage the authenticity of the allegations and
counter allegations of such activity being not continued/possible for
reasons attributable to Sanman Group and A.K. Aggarwal Group
cannot be gone into. All that can be said is that Sanman Group and
A.K. Aggarwal Group inspite of the court's order of appointing
Aggarwal Group as the receiver / court commissioner, continued to
make representation/complaints before various authorities qua
management of the company by the S.K. Aggarwal Group. If that is
so, then the grievance of S.K. Aggarwal would be justified. I may
also notice the stand of A.K. Aggarwal Group that no
business/operation, not even of distilling/bottling is possible at
present. Thus S.K. Aggarwal is not to be removed for the reason of
such negligence / omissions also.
34. The last limb for consideration is of the purpose/reason of the
order being vitiated. As noticed above, the reason was that the
business activities continue to be carried out. That has not
happened. Though trial of the suits is underway but it is still likely
to take some time.
35. From the submissions of Sanman Group and S.K. Aggarwal
Group it appears that operations of distilling/bottling can be carried
out. If that be so, the monies earned therefrom can be utilized for
paying of the debts of the company. Moreover, unless the
plant/equipment is used as aforesaid, the same may also be reduced
to junk till the completion of trial. I therefore feel that at least an
attempt should be made for utilizing the resources of the company to
the extent possible. The question is, how.
36. I am reluctant to allow the Sanman Group who, everybody
admits, are already in the said business and for whom it will be much
easier to commence the said operations, to do so in vacuum. The
effect of allowing them to do so without any assurances/targets is
already evident. I am therefore, inspite of lengthy arguments having
been addressed, of the same opinion as had been put to the counsel
at the beginning of the hearing, to place their respective proposals
before the court for utilization of the resources of the company
during the trial.
37. Since the Securitisation Act has already been invoked against
the company and since the said proposals would be meaningless in
the absence of the ingredients of warding of the same, the proposals
to also contain the said ingredient. The contention of the senior
counsel for Sanman Group of their being in a position to submit the
said proposal only after inspection of the premises and its plant and
equipment and all the accounts of the company is just. In fact the
Sanman Group has already been permitted in the order of the
Division Bench as well the Supreme Court to call for examine the
books of accounts and ledgers besides cash books for the purpose of
keeping information about the financial matters of the company.
Though S.K. Aggarwal Group claims to have filed reports in this
court and where against no objections are stated to have been
preferred, the Sanman Group is permitted to again call from the S.K.
Aggarwal Group all documents/information which may be required
by them for the purposes of enabling them to give such proposal to
this court. The proposal to also set the time for which Sanman
Group, irrespective of the decision in the suit, would so run the
operations of the company. The proposal to also contain the
injunctions sought against the Aggarwal Group for implementation
thereof.
38. Similar proposals to be also made by the S.K. Aggarwal Group.
In the event of such proposals being made, if this court requires the
same to be examined by an expert to decide the feasibility thereof,
appropriate orders shall be made after examining the proposals.
39. From the submissions made, I have understood that the
land/immovable property of the company is much more than the
premises where the works exists or where the activity of
bottling/distilling is to be carried out. The proposal aforesaid would
only be qua the operation of the plant and equipment of the company
and not qua the immovable property of the company. S.K. Aggarwal
is found to be best suitable for protecting the said assets of the
company and shall continue to do so.
40. No case of breach by S.K. Aggarwal Group of any of the terms
and conditions of his appointment as the receiver/court
commissioner is made out. Though it was urged that the reports as
directed have not been filed, it was the contention of S.K. Aggarwal
group that they have been filed and copies thereof were also handed
over during the course of the hearing to the Sanman Group and no
grievance thereafter with respect thereto has been made.
41. The applications in various suits for removal of Aggarwal
Group and for injunctions against Sanman Group and A.K. Aggarwal
Group are disposed of in above terms.
IA.NO.1325/2004(u/S 340 of the CrPC)
42. The S.K. Aggarwal Group has filed this application alleging
perjury by the Sanman Group. It is contended by the senior counsel
for the S.K. Aggarwal Group that the suit was originally filed in 1994.
However, the parties remained embroiled in the application for
interim relief only i.e. before the Single Judge of the Bombay High
Court, the Division Bench of this Court and before the Supreme
Court; the Sanman Group failed to file the written statement, leading
the S.K. Aggarwal Group as plaintiffs in that suit, to file the
application under Order 8 Rule 10 of the CPC. Perjury is alleged in
relation to the reply filed by the Sanman Group to this application.
The Sanman Group in reply to the application under Order 8 Rule 10
of the CPC took a stand that they had not been served with the plaint
and thus their defence was not liable to be closed. It has been
argued by the senior counsel for the S.K. Aggarwal Group that the
perusal of the record shows the said stand of Sanman Group to be
false. In fact, it is urged that filing of a false affidavit also amounts
to contempt of this court and the Sanman Group being in contempt is
also not entitled to be heard. It is further urged that the Sanman
Group even in reply to the application under Section 340 of the CrPC
have persisted with the false stand of having not been served with
the copy of the plaint in the suit. It is urged that it was not possible
for the Sanman Group to contest the application for interim relief, till
the Supreme Court, without being in possession of a copy of the
plaint. Reference is also made to the replies filed by the Sanman
Group to the application for interim relief to contend that it is
apparent therefrom that they were in possession of a copy of the
plaint. It is also contended that no grievance, at any time, was made
of the plaint having not been served. On inquiry it was informed that
though subsequently the Sanman Group was permitted to file the
written statement subject to costs, but the question of filing of false
affidavit under Section 340 of CrPC is open for consideration.
Reliance in this regard is also made on Pravin C. Shah v. K.A.
Mohd. Ali (2001) 8 SCC 650.
43. The counsel for the Sanman Group in this regard has drawn
attention to the orders dated 26th September, 2000 and 6th February,
2001 in the suit, of the Joint Registrar of this court, whereby the S.K.
Aggarwal Group was directed to serve copies of the plaint on the
Sanman Group. It is contended that the copies were never given and
in fact the written statement was filed after inspecting the court
records, after the S.K. Aggarwal Group filed application under Order
8 Rule 10 of the CPC. It is further contended that there was a
confusion owing to several suits and that unintentionally statement
has been made and no injustice has been done to the S.K. Aggarwal
group.
44. This court is of the opinion that Section 340 of the CrPC or the
powers of contempt cannot be invoked to satisfy a private grudge of
a litigant. The court would be justified in initiating a criminal
prosecution only on formation of an opinion that person charged has
intentionally given false evidence; existence of mens rea or criminal
intention behind the act complained of will have to be looked into
and considered before any action under Section 340 of the CrPC is
recommended.
45. I am further of the opinion that proceedings under Section 340
of the CrPC or under the provisions of the contempt of court should
not be allowed to be resorted to when it is intended to hamper fair
trial of issues in the civil suits. With this opinion, the counsel for
Sanman Group was directed to file an affidavit of apology in this
court and which has since been filed. I am of the opinion that in the
facts of the present case where the parties are involved in an
acrimonious litigation as to the rights to a valuable company, the
lodging of a criminal prosecution or initiation of proceedings for
contempt of court against anyone of the parties is not expedient and
in the interest of justice.
46. Thus accepting the apology tendered on behalf of the Sanman
Group the application under Section 340 of the CrPC is disposed of.
RAJIV SAHAI ENDLAW
(JUDGE)
18th September, 2009
M
