Delhi High Court
M/S Paliwal Hotels Pvt. Ltd & Ors. vs Sanjay Paliwal on 16 January, 2012
Author: Manmohan
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CO.A(SB) 17/2007
AJAY PALIWAL & ORS. ..... Appellants
Through Mr. Arun Kathpalia, Advocate
with Mr. Saurabh Kalia,
Advocate.
versus
SANJAY PALIWAL & ORS. ..... Respondents
Through Mr. Jayant K. Mehta,
Advocate for respondents.
Mr. Pankaj Batra, Advocate
for Registrar of Companies &
Regional Director.
WITH
+ CO.A(SB) 18/2007
M/S PALIWAL HOTELS
PVT. LTD & ORS. ..... Appellants
Through Mr. Arun Kathpalia, Advocate
with Mr. Saurabh Kalia,
Advocate.
versus
SANJAY PALIWAL ..... Respondent
Through Mr. Jayant K. Mehta,
Advocate for respondent.
Mr. Pankaj Batra, Advocate
for Registrar of Companies &
Regional Director.
Co.As.(SB) 17-18 of 2007 Page 1 of 30
Reserved on : 9th January, 2012
% Date of Decision: 16th January, 2012
CORAM:
HON'BLE MR. JUSTICE MANMOHAN
JUDGMENT
MANMOHAN, J :
1. Present two appeals have been filed under Section 10F of the
Companies Act, 1956 (for short 'Act') against the impugned
order/judgment dated 31st May, 2007 passed by Company Law
Board (for short 'CLB') in Co. Pet. 78/2005 filed by the
respondents-petitioners therein.
2. The relevant facts of these two cases are that on 11 th October,
1985, M/s. Paliwal Hotels Private Limited, the appellant No.1
company in Co.A(SB) 18/2007 was incorporated as a Private
Limited Company with the Registrar of Companies, Delhi and
Haryana. The Paliwal family comprising three brothers namely,
Mr. J.K. Paliwal, Mr. N.K. Paliwal and Mr. B.K. Paliwal, owned this
company. The chart showing the Paliwal family structure is
reproduced hereinbelow:-
PALIWAL HOTELS PVT. LTD.
J.K. PALIWAL
(Respondent no. 2) B.K. PALIWAL
N. K. PALIWAL (Appellant)
(Respondent Group)
PRAKASHWATI PALIWAL KAMLESH PALIWAL
(W/o. JKP; Appellant Group) (W/o. NKP; Appellant Group) KRISHNA KANTA PALIWAL
(W/o BKP; Respondent Group)
AJAY PALIWAL
REKHA PALIWAL
(S/o JKP; Appellant RASHMI BHARTI
Director)
(D/o JKP;
Appellant Group) MANISH (D/o. BKP
PALIWAL SANJAY Respondent
(S/o. NKP; PALIWAL Group)
ARCHANA RAJIV PALIWAL Appellant (S/O BKP;
VIJAYA PALIWAL SHARMA (S/o. NKP; Director) Respondent
(W/o. Ajay Paliwal; (D/o. JKP; SEEMA PANDEY
Appellant Group) Group)
Appellant Group) Appellant (D/O BKP ;
Group) RASHMI Respondent
IRA SHARMA Group)
PALIWAL ANITA PALIWAL
(D/o. NKP;
ABHISHEK PALIWAL JYOTSANA (W/O Manish (W/o. Sanjay
Appellant VIJAY PALIWAL
(S/o. Ajay Paliwal; PALIWAL (D/o. Paliwal; Paliwal;
Group) (S/O BKP
Appellant Group) JKP; Appellant Appellant Respondent
Group) Group) Respondent
Group)
Group)
3. In September, 2005, a Company Petition under Sections 397 and
398 of the Act was filed before the CLB by the respondents No.1 and 2
namely, Mr. Sanjay Paliwal, son of Mr. B.K. Paliwal and Mr. J.K.
Paliwal, father of Mr. Ajay Paliwal. The said petition was registered
as Co. Pet. 78/2005.
4. Since the Paliwal family, on the date the petition was filed
before the CLB was divided into two groups, the appellants' faction
for convenience sake is referred to as Ajay Paliwal faction. The
admitted shareholding in the appellant-Paliwal Hotel Company as on
30th September, 2004 was as under:-
APPELLANTS (MR. AJAY PALIWAL) GROUP
Particulars & Folio in the Father's/Husband's No. of
register of Members Name Shares
1. Sh. N.K. Paliwal Sh. D.S. Paliwal 5100
205, Adishwa Aptts., 34,
Feroz Shah Road
2. Smt. Kamlesh Paliwal Sh. N.K. Paliwal 2000
205, Adishwa Aptts., 34,
Feroz Shah Road
Village Badkali, Distt.
Muzaffarnagar
Flat No. 18, North Wing
Revera Apartments, Mall
Road, New Delhi
Flat No. 18, North Wing
Revera Apartments, Mall
Road, New Delhi
Flat No. 18, North Wing
Revera Apartments, Mall
Road, New Delhi
Flat No. 18, North Wing
Revera Apartments, Mall
Road, New Delhi
Paliwal,
310, Ansari Road,
Muzaffarnagar
205, Adishwar Aptts. 34,
Feroz Shah Road
TOTAL 7742
%age of total 38.71%
RESPONDENTS HEREIN
Particulars of the Members Father's/Husband's No. of
Name Shares
1. Sh. J.K. Paliwal Sh. D.S. Paliwal 5100
310, Ansari Road
Muzaffarnagar
32, Ahata Aulia
Muzaffarnagar
Total 5105
Percentage of paid-up Capital 23.53%
OTHERS SUPPORTING THE
RESPONDENTS
1. Sh. B.K. Paliwal Sh. D.S. Paliwal 5100
32, Ahata Aulia
Muzaffarnagar
2. Smt. Krishana Kanta Paliwal Sh. B.K. Paliwal 2000
32, Ahata Aulia
Muzaffarnagar
310, Ansari Road
Muzaffarnagar
32, Ahata Aulia
Muzaffarnagar
32, Ahata Aulia
Muzaffarnagar
32, Ahata Aulia
Muzaffarnagar
32, Ahata Aulia
Muzaffarnagar
32, Ahata Aulia
Muzaffarnagar
TOTAL 7145
% of total 35.72%
GRAND TOTAL 12250
%age of total 61.25%
OTHERS
Particulars & Folio in the Father's/Husband's No. of
register of Members Name Shares
jointly with
Smt. Kamlesh Paliwal
Smt. Krishna Kanta Paliwal
%age of total 0.04%
5. From the pleadings on record before the CLB and before this
Court, it is apparent that the disputes between the parties pertain to the
Board meetings dated 01st December, 2004 as well as 1st March, 2005,
AGM dated 30th May, 2005, allegation of siphoning off funds of
appellant-company, allotment of 4250 shares by the Ajay Paliwal
faction on 3rd February, 2005, alleged transfer of 5000 shares by
Mr. J.K. Paliwal to his son, Mr. Ajay Paliwal and removal of
Mr. Sanjay Paliwal from the Board of the appellant-company. It is
pertinent to mention that while it was the Ajay Paliwal faction's case
that on 01st December, 2004, 550 shares had been allocated to itself
and three additional Directors had been appointed from their faction,
the respondents' case was that in the said Board meeting, 4800 shares
were allocated to themselves and three additional Directors from their
faction had been appointed.
6. The findings rendered by the CLB in the impugned order are
reproduced hereinbelow:-
"29. Having held that the preliminary objections are not
tenable, next I come to the other allegations of the
petitioners on merit. I find that the respondents have not
been able to refute the same. As regards the petitioners
allegation of appointment of R-4,5 and 6 as Directors on
1.12.2004 without complying with the provisions of law and
whereby the respondents created a new majority of which, if
the petitioners were given due notice to attend the meeting
were unlikely to allow the appointment of directors as the
same has resulted in an oppression to the majority
shareholders, the respondents contention is that the meeting
on 1.12.2004 is admitted by the petitioners, the respondents
have produced certified copies of Form 32 filed with the
ROC whereas the socalled Form 32 produced by the
petitioners is alleged to be false and fabricated making use
of the same receipt number whereby the respondents had
filed the socalled genuine form 32, of which the petitioners
are allegedly set to be fully aware. On considering these
contentions, I find the petitioners are on a sound ground as
simply fabricating documents and filing with the ROC and
getting a certified copy cannot change chronology of events
and give a stamp of genuineness unless it is established that
the appointment was done following the due procedure and
law in accordance with the provisions of the Act, no evidence
is given to prove that the so called meeting on 1.12.2004 was
held in compliance with the provisions of the Act. The
respondents contention that the two out of the three directors
have confirmed the meeting is not acceptable as majority
cannot turn black into white. As regards the petitioners'
allegation of removal of petitioner No. 1 for the reason that
a loan of Rs. 64.50 lacs was given to the relatives in the year
2002 this action also has not been justified by the
respondents and the allegations stand unrefuted. The
respondents contentions are not borne out from the records.
The petitioners admittedly hold more than 60% shares. By
removing P-1 their representation on the Board is reduced
and this action is oppressive besides being irregular and
illegal. It has not been in compliance with the provisions of
Sections 190 and 284 of the Act. If the AGM had been held it
was unlikely that P-1 would have allowed removal. The
circumstances that the respondents themselves are not sure
of the date of AGM whether it was 13.5.2005 or 30.5.2005
only indicate falsification and fabrication of record. Besides,
the R-3 has admitted that notice was sent by ordinary post.
He is silent about sending notices to the shareholders. Other
respondents have admitted in their reply that formal notices
were not sent only oral communication was made. Thus it is
admitted position that no proper notice as per provisions of
Section 284 of the Act has been given. There is obvious
violation of Section 284 of the Act while removing P-1.
Moreover, the fact that the reason given for removal, that the
P-1 had advanced a loan of Rs. 64.50 lakhs to his relatives
does not find place in the notice for the AGM only
establishes that it is an afterthought. As regards advancing
of loan in the year 2002, as pointed out earlier by the
petitioners, the advances were given with the consent of all
the directors and the respondents have been consistently
signing the annual accounts which reflect these loans year
after year till 2003-2004. Furthermore, there is no mention
of the removal of P-1 in the Directors' Report. In these
circumstances it is difficult to rely on the respondents'
version and accept it as true. On the other hand P-1 has
established that even subsequent to the date on which he is
shown to have been removed, he has issued cheques and
signed on other documents as Director.
30. As regards the shareholding of the parties there are
serious allegations and counter allegations. The respondents
allege that P-2 had transferred 5000 shares to R-3 (his son),
the transfer is valid in the eyes of law as it was made with
due knowledge and concurrence of the petitioner in
accordance with mandatory provisions in relation of transfer
of shares. The consideration of Rs. 5 lacs for transfer of
these shares was paid by R-3 as is reflected in the bank
account of P-2. On the other hand, P-2 had taken a strong
objection to this pointing out that no shares were transferred
by him, the respondents have failed to produce any transfer
deeds in original till May 2006 despite several opportunities
provided to them. However, only certified copies of transfer
deeds, certified by notary public without any supporting
affidavit and index were produced. These certified copies of
transfer deeds suffered from various discrepancies and
defects as pointed out by the petitioners in their contentions
given above. Furthermore, the P-2 has alleged that his
signatures have been forged on Form No. 2 wherein his
shares numbering 5001 have been shown as 0100 and R-3's
shareholding of 3255 shares has been shown as 8255 by
fabrication of record. It is the respondent who have
committed forgery by changing the shareholding by
converting 5001 to 0100 and 3255 to 8255. The respondents
reliance on handwriting expert's report regarding P-2's
signatures which he has denied also cannot be accepted in
view of the several discrepancies pointed out in the expert's
report by the petitioners. There is no endorsement on the
certified share transfer deeds produced before me approving
or rejecting the share transfers. The petitioners' contention
regarding non payment of stamp duty on the alleged
transfers is also found to be correct. The respondents have
not been able to relate the sale consideration as allegedly
reflected in the bank pass book of P-2. The bank pass book
reflects several other entries as well. Further, it is not
understood as to how a letter dated 7.3.2005 of Bhagwati
Castings Pvt. Ltd. Calcutta addressed to P-2 of
Muzaffarnagar could reach him the same day making it
probable to acknowledge a receipt of cheques dated
7.3.2005 on the same day.
31. As regards allotment of 4250 shares by the respondents
for which Form No. 2 was also filed with the ROC and
certified copy obtained to claim genuineness of the
transaction, the petitioners contentions in this regard are
found to be correct and true. No further allotment of shares
could take place without increasing the authorised share
capital which stood exhausted as on that date. Besides, the
Return in Form No. 2 is patently incorrect as the date of
allotment on page 39 is 1.12.2004 whereas at page 40 it is
1.9.2004, further, the number of shares allotted to Mrs.
Kamlesh Paliwal as per para 14 (b) of R-3's reply does not
match with this certified copy of return of allotment. Besides,
the petitioners' contentions in this regard cannot be
dismissed as these point out that there are discrepancies in
the dates of the AGM, in the number of shares and even in
respect of the so called transferees of these shares.
32. Furthermore, I find that the respondents have not been
able to meet the petitioners' allegations regarding siphoning
off of funds approximately to the extent of Rs. 40 lacs. The
allegations have been met with bald denial with a stony
silence regarding specific entries. Further, the petitioners'
allegations that annual accounts, statements filed with the
ROC as on 30.6.2005 do not reflect the true state of affairs
are also found to be correct in view of the facts that the final
accounts could not be prepared in the absence of complete
account books and statutory records. Account books for the
part period were in the possession of the petitioners and
hence the Annual Returns filed with the ROC are incorrect
and null and void.
33. In this case I notice that the respondents have breached
their fiduciary duties as directors. On the role of Directors,
the law is well settled. In some respects, Directors resemble
trustees. Equity prohibits a trustee from making any profit by
his management, directly or indirectly. The power to issue
shares in this case has been exercised with an improper
motive. It is objectionable to use such power simply or solely
for the benefit of directors or merely for an extraneous
purpose like maintenance or acquisition of control over the
affairs of the company. Directors are required to act on
behalf of a company in a fiduciary capacity and their acts
and deeds have to be exercised for the benefit of the
company. The fiduciary capacity within which Directors
have to act enjoins upon them a duty to act on behalf of a
company with utmost good faith, utmost care and skill and
due diligence and in the interest of the company they
represent. They have a duty to make full and honest
disclosure to the shareholders regarding all important
matters relating to the company. And in the matter of issue of
additional shares, the directors owe a fiduciary duty to issue
shares for a proper purpose. The respondents have been
oppressive to the petitioners by appointing R-4, 5 and 6 as
directors and by removing P-1 from the directorship.
Creating new majority by way of representation on Board of
the R-1 and by way of further share allotment and remaining
P-1 illegally are acts of continuous oppression to the
petitioners. The respondents' conduct has been burdensome,
harsh and wrongful. Besides, the affairs of the company have
been mismanaged as pointed out above.
34. Keeping these circumstances in view, to do substantial
justice between the parties, I hereby order as follows:
i. Appointment of Respondent Nos. 4,5 and 6 as
directors is hereby declared null and void and status
quo ante is restored. Form No. 32 dated 1.3.2005
filed with the ROC is also declared null and void.
ii. Form No. 32 filed with the ROC regarding removal of
P-1 as director is declared null and void. The
resolution regarding his removal is hereby set aside
and P-1 is restored as director on the Board of the R-
1 company forthwith.
iii. Resolution given to Respondent Nos. 8,9 and 10
(Bankers) for change in authorised signatories is
hereby declared null and void and status quo ante is
restored.
iv. Allotment of 4250 equity shares to R-3 (3000 equity
shares) and R-8 (1250 equity shares) and Form No. 2
filed with the ROC in this regard are declared null
and void and status quo ante is restored.
v. The Annual Accounts of the R-1 company for the year
ended 31st March, 2005 including the notice,
Directors' Report, Compliance Certificate filed with
the ROC are declared null and void.
vi. The Annual Return filed with the ROC dated
30.6.2005 is hereby declared null and void.
vii. The respondents are directed to restore the amounts
siphoned off from the R-1 company's accounts
forthwith.
viii. The R-1 company is hereby directed to give
consequential effects in implementing the directions
contained in (i) to (vii) above forthwith."
(emphasis supplied)
7. Mr. Arun Kathpalia, learned counsel for the appellants
contended that the factual findings rendered by CLB in the impugned
order were contrary to record.
8. Mr. Kathpalia submitted that though there was no challenge to
the appointment of three Directors, namely, Mr. Abhishek Paliwal,
Mrs. Prakash Wati Paliwal and Mrs. Kamlesh Paliwal on 1st
December, 2004 or to the allotment of 550 shares to Mr. Ajay Paliwal
faction, yet the CLB in the impugned order had set aside not only the
appointment of the aforesaid Directors but also the allocation of said
shares.
9. Mr. Kathpalia pointed out that in the company petition filed by
the respondents herein before CLB, the first contention urged was that
the appointments of Mr. N.K. Paliwal, Mrs. Rashmi Paliwal and
Mr. Vijay Paliwal had been made on 1st December 2004 w.e.f. 1st
March, 2005. He stated that the respondents herein had also urged that
these appointments had been made with an intent to create a new
majority in the Board of Directors inasmuch as at that point of time,
Mr. B.K. Paliwal and Mr. J.K. Paliwal families held more than 60%
shares of the appellant-company and it was unlikely that they would
allow the said appointments. Mr. Kathpalia submitted that the CLB
failed to appreciate that Mr. N.K. Paliwal, Mrs. Rashmi Paliwal and
Mr. Vijay Paliwal had not been appointed on 1st December, 2004 but
on 1st March, 2005. He also submitted that the directors appointed on
1st March, 2005 had been appointed after following due process as
provided in the Act.
10. In respect of the appointments of Mr. Abhishek Paliwal,
Mrs. Prakash Wati Paliwal and Mrs. Kamlesh Paliwal as Directors on
1st December, 2004, Mr. Kathpalia pointed out that on that date
majority of the Board of Directors was that of the appellants
comprising Mr. Ajay Paliwal and Mr. Manish Paliwal. He submitted
that only certified copies of Form Nos. 2 and 32 from the record of the
ROC had been filed by the appellants and therefore their version
should be believed and accepted.
11. Mr. Kathpalia also submitted that the finding rendered by the
CLB that there was no meeting on 1st December, 2004 was contrary to
record as it was nobody's case that a Board Meeting had not been held
on 1st December, 2004. According to him, the finding in the impugned
order was also contradictory as the CLB had proceeded to accept the
alleged allotment of 4800 shares to Mr. B.K. Paliwal faction by the
Board of Directors in a meeting held on 1st December, 2004.
Mr. Kathpalia further submitted that there was no reason given by the
CLB as to how the documents filed by the appellants with the ROC
were fabricated.
12. Mr. Kathpalia submitted that without any pleadings, the CLB
had held that the appellants had siphoned off ` 40.5 lacs. He also
submitted that the aforesaid finding of CLB was in violation of
principles of natural justice inasmuch as the allegation of siphoning off
` 40 lacs approximately was for the first time taken in the written
submission filed by the respondents herein before CLB after the
conclusion of arguments.
13. Mr. Kathpalia further contended that the CLB had erroneously
set aside the allocation of 4250 shares to Mr. Ajay Paliwal and Mrs.
Kamlesh Paliwal on 3rd February, 2005 on the sole ground that the
authorised share capital of the appellant-company had been exhausted.
14. Though Mr. Kathpalia admitted that the removal of Mr. Sanjay
Paliwal was in violation of Sections 190 and 284 of the Act, he stated
that Mr. Sanjay Paliwal was removed because the loan of ` 64.50 lacs
advanced to his in-laws family had not been returned to the appellant-
company. He stated that though there was no dispute with regard to
advancement of aforesaid loan, yet CLB while holding his removal to
be wrongful, had not even considered it appropriate to direct him to
bring back the aforesaid amount.
15. Mr. Kathpalia lastly submitted that the CLB's finding with
regard to transfer deed of 5000 shares alleged to have been executed
by Mr. J.K. Paliwal in favour of his son Mr. Ajay Paliwal on
1st February, 2005 was erroneous. He stated that the aforesaid transfer
deed was neither forged nor fabricated and that the same should be
examined by CFSL. He stated that full stamp duty had been paid and
the same was reflected in the transfer deed. Mr. Kathpalia referred to
the passbook of Mr. J.K. Paliwal to show receipt of consideration of `
5 lacs by him on 1st February, 2005, i.e., the date of transfer. He
contended that the CLB's finding that the appellants had failed to
produce the transfer deed despite several opportunities, was contrary to
record as the appellant had never been asked to produce the said deed.
He referred to the original transfer deed which had been placed on
record in the present appeal.
16. Mr. Kathpalia also stated that there was no forgery in annual
return dated 30th May, 2005 as signatures on the said document were
that of Mr. Ajay Paliwal - who had not denied the same. He
contended that the CLB's finding that Form 2 had been forged, was
incorrect as there was no Form 2 in respect of said transfer. He also
stated that the finding of interpolation given by the CLB with regard to
5100 shares as 100 and 3255 shares as 8255 was ex facie incorrect and
irrelevant.
17. At the outset, Mr. Jayant Mehta, learned counsel for the
respondents submitted that the present appeals deserved to be
dismissed as they sought to raise and reopen questions of fact.
18. Mr. Mehta pointed out that while it was the respondents' case
before the CLB that the factum of appointment of three additional
directors and issuance of 4800 shares in their favour was confirmed by
Form Nos. 2 and 32 filed under receipt no. 606742, it was the
appellants' case that factum of issuance of 550 shares and appointment
of three additional directors belonging to Mr. Ajay Paliwal faction was
confirmed by Form Nos. 2 and 32 filed under receipt no. 606762. In
this connection, he placed reliance on the appellants' own pleading in
Co. A.(SB) 18/2007 wherein the appellant-company had stated as
under:-
"3(IV)(a) .........Further, it is evident from the various
forms in question that the receipt attached by the
respondents being receipt no. 606762 along with the forms
filed by them and the receipt attached by the appellants
being no. 606762 on the certified copies of the forms filed by
the appellants is the same."
19. Mr. Mehta stated that the Registrar of Companies had clarified
vide its letter dated 13th October, 2009 that there was no record of any
receipt No. 606762. The letter dated 13th October, 2009 of Registrar of
Companies is reproduced hereinbelow:-
"No.Misc/2009-10/paliwal/6913 Date 13/10/09
To,
Shri Sanjay Paliwal,
Paliwal Hotels (P) Ltd.
32, Ahata Aulia ji,
Muzaffar Nagar, Uttar Pradesh.
Sub: ROC receipt no. 606762 dated 13.12.2004
Sir,
I am directed to refer to your letter dated 10.8.2009 vide
which you have asked as to in which company name the receipt
no. 606762 dated 13.12.2004 was issued. In this connection it
is informed that it is not known that in respect of which
company, the receipt no. 606762 dated 13.12.2004 was issued.
However, as per records of this office relating to Paliwal
Hotels (P) Ltd., it has been noticed that on 13.12.2004, two
documents i.e. Form-32 and Form-2 were filed in the name of
Paliwal Hotels (P) Ltd. for which an amount of Rs. 500/- + Rs.
500/- were paid vide receipt no. 606742.
Hence, it is clear from the above that no document vide
receipt no. 606762 dated 13.12.2004 has been filed in the name
of M/s. Paliwal Hotels (P) Ltd., Delhi.
Yours faithfully
Sd/-
(ATMA SAH)
Asst. Registrar of Companies"
(emphasis supplied)
20. Mr. Mehta pointed out that the counterfoil of receipt no. 606762
had never been produced by the appellants, whereas the respondents
have not only produced the payment vouchers but also copies of Form
Nos. 2 and 32 along with the original receipt No. 606742.
Consequently, according to him the copy of Form No. 2 filed on record
by the respondents herein under receipt No. 606742 reflected the actual
decision of the Board of Directors of the appellant-company on 01st
December, 2004.
21. Mr. Mehta submitted that it was wrong for the appellants to
claim that the only ground on which the CLB had faulted with the
allotment of 4250 shares on 3rd February, 2005 was exhaustion of
authorised share capital. According to him, the CLB had faulted with
the issuance of the aforesaid shares on an additional ground that the
contentions of the respondents in this regard were true and correct.
22. Mr. Mehta vehemently denied that three additional directors had
been appointed by the appellants on 1st March, 2005. He contended
that the appellants failed to show notice of the alleged board meeting
to respondent No.1 namely, Mr. Sanjay Paliwal. He stated that as the
appellants had failed to produce on record minutes of the said Board
meeting, this Court should not sustain the appointment of the three
additional directors. Mr. Mehta further stated that as the minutes of
the AGM dated 30th May, 2005 had not been placed on record, the
three additional directors appointed by the appellants should be
deemed to have vacated their office.
23. Mr. Mehta referred to the impugned order to contend that the
appellants denial of siphoning off funds was bald and that the
appellants had maintained a 'stony silence' on the said issue.
24. Mr. Mehta specifically denied the appellants' allegation that
respondents herein had siphoned off ` 64.50 lacs from the accounts of
the appellant-company. He stated that the aforesaid amount had been
advanced in 2002 by the appellant-company to the in-laws of
Mr. Sanjay Paliwal. He pointed out that even according to the
appellants' version, there was no dispute and difference between the
parties at that stage. According to Mr. Mehta, if it were to be a case of
siphoning off, it is inconceivable that the appellants would have
remained silent for over four years.
25. Mr. Mehta submitted that the transfer of 5000 shares by Mr. J.K.
Paliwal to Mr. Ajay Paliwal was fraudulent. He pointed out
inconsistencies in the share transfer form, namely, absence of Folio
number, visible differences in the signature of Mr. J.K. Paliwal,
absence of seal/stamp of appellant-company, overwriting etc.
26. Mr. Mehta stated that the contention of Mr. Ajay Paliwal that
5000 shares had been sold to him as well as to Mrs. Rashmi Paliwal,
wife of Mrs. Manish Paliwal by Mr. J.K. Paliwal was contradicted by
the transfer form itself. Mr. Mehta referred to the extract of the
passbook of Mr. J.K. Paliwal to show that there were number of entries
between the father and the son with regard to a sum of ` 5 lacs.
Therefore, according to him, the CLB rightly concluded that appellants
had not been able to relate the entries in the passbook of Mr. J.K.
Paliwal with the alleged sale consideration. Mr. Mehta also pointed out
that in the annual report dated 30th May, 2005 there were
interpolations/over-writings in the holding of Mr. J.K. Paliwal which
was artificially reduced from 5100 to '0100' ('5' changed to '0', thus
making '5100' to '0100') and the shares of Mr. Ajay Paliwal had been
claimed to be 8255 wherein the digit '3' had been converted into '8'.
27. In rejoinder, Mr. Arun Kathpalia submitted that number of the
receipt under which Form Nos. 2 and 32 had been jointly filed on 01st
December, 2004 was unclear and therefore, the appellants had wrongly
mentioned the receipt No. as 606762 before the CLB and in the present
appeal. He reiterated that as the appellants alone had filed certified
copy of Form No.2 dated 01st December, 2004, the appellants' version
of the Board meeting dated 01st December, 2004 should be accepted.
He also stated that additional Directors appointed on 01st March, 2005
had not been interfered with by the CLB.
28. Having heard the parties at length, this Court is of the view that
it is necessary to first outline the jurisdiction of this Court in an appeal
filed under Section 10F of the Act. It is clear that Section 10F permits
an appeal to the High Court from an order of the CLB only on a
question of law i.e. the CLB is the final authority on facts unless such
findings are perverse, based on no evidence or are otherwise arbitrary.
It is settled law that this Court while exercising its appellate
jurisdiction under Section 10F of the Act does not entertain, review or
reopen questions of fact save on the ground of perversity. (See: V.S.
Krishnan & Ors. vs. Westfort Hi-tech Hospital Ltd. & Ors. (2008)
3SCC 363 and Dale and Carrington Investment P. Ltd. & Anr. vs.
P.K. Prathapan 2004 122 CC 161). Consequently, keeping in view
the aforesaid mandate of law, this Court will examine the rival
arguments of both the parties.
29. As far as the Board meeting dated 01st December, 2004 is
concerned, both the parties have given their own version as to what
transpired in the said meeting. But, none of the parties have produced
on record the agenda, notice or the resolution passed in the said Board
meeting. Though a certified copy of Form No.2 has been produced by
the appellants before this Court, yet the same does not bear any date on
which it was issued. The discrepancy with regard to the receipt No. is
sought to be explained by the appellants that they could not read the
number on the certified copy and therefore, they mentioned a wrong
receipt number in their pleadings before the CLB and this Court.
However, this Court is of the view that as it is the appellants' case that
they filed Form Nos.2 and 32 under a joint receipt, the onus is on them
to produce the original receipt - which they failed to produce.
Moreover, the first page of the certified copy of Form No.2 produced
by the appellants shows that the shares allotment has been made on 01st
December, 2004, but the second page of the same certified copy shows
allotment of shares on 01st September, 2004! It is pertinent to mention
that the Registrar of Companies had produced before this Court the
original file maintained by it with regard to the appellant company.
The said file contains only the Memorandum and Articles of
Association of the appellant company as well as its certificate of
incorporation. Consequently, this Court is of the opinion that both the
parties have failed to prove the minutes of meeting dated 1 st December,
2004. Accordingly, the allocation of additional shares and appointment
of three additional Directors by both the appellants and respondents are
set aside.
30. The Board Meetings dated 3rd February, 2005 and 1st March,
2005 wherein 4250 shares were alleged to have been allocated to
Mr. Ajay Paliwal faction and three additional directors had been
appointed are set aside on the ground that appellants have failed to
prove service of notice of the said Board Meetings upon Mr. Sanjay
Paliwal, even though admittedly, on the said dates, he was a director of
the appellant company. Non-issuance of notice to Mr. Sanjay Paliwal
constitutes a violation of Section 286 of the Act. Consequently, the
allocation of 4250 shares and appointment of three additional Directors
by the appellants in the aforesaid meetings are also set aside.
31. In any event, even if appellants' versions with regard to Board
Meetings dated 1st December, 2004, 3rd February, 2005 and 1st March,
2005 are accepted to be true and correct, then also the said decisions
are liable to be set aside as constituting oppression and
mismanagement. This Court is of the opinion that the appellants, who
constitute a minority shareholding cannot abuse their majority on the
Board by completely excluding the respondents from the affairs of the
appellant-company and further by converting the majority shareholders
into minority.
32. There is also no violation of principles of natural justice as
allegation regarding siphoning off funds of approximately ` 4.15 lacs
was made by the respondents herein in the initial company petition and
another allegation of siphoning off funds of approximately of ` 3.35
lacs was made during the course of the proceedings before the CLB.
However, except a bald denial of siphoning off funds, neither of the
appellants gave any explanation in the CLB with regard to withdrawal
of the said fund and/or their usage. Consequently, in the opinion of
this Court, the CLB rightly concluded that the denial by the appellants
of the allegation of siphoning off funds was bald, lacking in particulars
and thus constituted an admission of siphoning off funds on their part.
33. Further, this Court is of the opinion that the inconsistencies
pointed out by respondents' counsel with regard to annual return dated
30th May, 2005 are significant. The said inconsistencies, sought to be
explained by appellants' counsel as typographical errors, are not
singular. Even the appellants' stand with regard to service of notice of
AGM dated 30th May, 2005 is contradictory inasmuch as appellant nos.
2 and 4 have claimed that oral notice was given (page 285 of Co.
A.(SB) 18/2007), whereas appellant no. 3 (in Co. A.(SB) 18/2007) has
claimed that notice was sent by ordinary process (pages 361-362 of
Co. A.(SB) 18/2007).
34. Quite apart from the inconsistencies pointed out by learned
counsel for the respondents, no notice of AGM or resolution passed by
the AGM had been placed on record by the appellants despite the fact
that admittedly the appellants were in control of all statutory
documents and records of the appellant-company by the time said
AGM was held.
35. Since learned counsel for the appellants has conceded that the
removal of Mr. Sanjay Paliwal from the Board of Directors of
appellant-company was illegal, the relief granted by the CLB requires
no interference.
36. This Court is also of the opinion that as the loan of ` 64.50 lacs
advanced by the appellant-company to Mr. Sanjay Paliwal's in-laws
are reflected in the balance sheet of the appellant-company duly signed
by the appellants, it cannot be said that the said amount has been
siphoned off by the respondents. It is pertinent to mention that till date
no proceedings have been filed by the appellants for recovery of
alleged amount of ` 64.50 lacs. In the opinion of this Court, allegation
of siphoning off funds by the respondents has been raised by the
appellants only to protract the proceedings.
37. This Court is also in agreement with the finding of CLB that
alleged transfer deed with regard to transfer of 5000 shares by Mr. J.K.
Paliwal to Mr. Ajay Paliwal is a forged and fabricated document. Mr.
J.K. Paliwal in his petition filed before CLB had made a categorical
statement that he had never signed a transfer deed nor any other
document to give effect to the said transfer of 5000 shares to his son
Mr. Ajay Paliwal. The averment in company petition filed before CLB
by Mr. J.K. Paliwal is reproduced hereinbelow:-
"(c) A transfer of 5000 equity shares from Shri J.K.
Paliwal Petitioner no. 2 to Shri Ajay Paliwal Respondent no
3 dated 01.03.2005 had been shown. The Petitioner no 2
wish to state that he has never signed any transfer deed nor
any other documents to give effect to this transfer nor was
this ever discussed or contemplated."
38. In fact, Mr. J.K. Paliwal in his statement recorded under oath by
this Court in the Co. A.(SB) 17/2007 on 16th September, 2008 had
stated as under:-
"16.09.2008
Statement of Mr. J.K. Paliwal, son of late Shri Devi Sahai
Paliwal r/o. 32, Ahata Aulia, Muzaffarnagar, U.P. on SA.
I am married to Smt. Parkashwati Paliwal. From our
wedlock we have been blessed with three daughters and one
son. Our son is named Ajay Kumar Paliwal, who is present
in court today.
I had built a property known as the Paliwal House at
Civil Lines (North), Ansari Road, Muzaffarnagar (U.P.)
where I was residing with my wife, son and his family. I was
forced to leave my residence on account of disputes created
by son. My son had lastly told me that I had to do what he
dictated, otherwise I would be thrown out of the house.
Even since I am residing in my ancestral home at 32,
Ahata Aulia, Muzaffarnagar, U.P. My younger brother Shri
Bimal Kishore Paliwal and his family are residing in the
same premises. They are providing my day-to-day needs.
I am residing at my ancestral home of my own
volition. There is no pressure or force of any kind on me and
I am living there as a free person. No action on my part has
been dictated by my brother Mr. Vimal Kishore Paliwal or
any member of his family. I stand by all pleadings made by
him before the Company Law Board and courts.
I have no apprehension or thereat to my life at the
hands to my brother Shri Bimal Kishore Paliwal or his
family.
RO & AC
Sd/- Sd/-
(J.K. Paliwal) GITA MITTAL, J.
September 16, 2008"
39. Further this Court has compared the original admitted signatures
of Mr. J.K. Paliwal on the company petition filed before CLB as well
as on the aforesaid statement recorded by this Court on 16 th September,
2008 with the original form produced by the appellants and this Court
is of view that there are significant differences in signatures of Mr. J.K.
Paliwal on the transfer deed produced by the appellants.
Consequently, the finding of the CLB with regard to this issue requires
no interference.
40. Keeping in view the aforesaid discussion, the directions given
by the CLB in sub-paras (ii), (iii), (iv), (v), (vi) and (viii) of para 34 of
the impugned order are upheld. Instead of directions (i) and (vii) of
para 34 of the impugned order, the appellants are directed to restore
only the amount of ` 7.50 lacs siphoned off from the company's
account forthwith. Further, the shareholding of the appellant company
shall revert back as it stood as on 30th September, 2004 as mentioned
hereinabove. From today the Board of the company shall constitute of
two members of the appellant group and two members of the
respondent group. In case of any deadlock, the matter in issue shall be
referred to the shareholders in a General Meeting. The Board
constituted in the above terms shall continue till the next Annual
General Meeting.
41. With the aforesaid directions, present appeals stand disposed of,
but with no order as to costs.
MANMOHAN,J
JANUARY 16, 2012
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