Delhi High Court
Prashant Kapur And Anr vs Vikram Kapur And Ors on 3 August, 2015
Author: S. Muralidhar
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ OMP 30/2015
Reserved on: July 3, 2015
Date of decision: August 3, 2015
SANJAY KAPUR & ORS ..... Petitioners
Through: Mr. Sudhir Chandra,
Senior Advocate with Mr.
Sudhir K. Makkar, Ms.
Meenakshi Singh and Mr.
Karan Lamba, Advocates.
versus
VIKRAM KAPUR & ORS ..... Respondents
Through: Mr. Salman Khurshid
and Mr. U.K. Chaudhary,
Senior Advocates with Mr.
Antony, Mr. Himanshu Vij, Ms.
Gitanjai Kapur, Ms. Shrshti
Singh, Advocates for R-1.
Mr. Anil Airi with Mr. Ravi
Krishan Chandna, Ms. Sadhna
Sharma, Mr. Aman Madan, and
Mr. Ishan Khanna, Advocates
for R-2.
AND
+ OMP 31/2015
OMP Nos. 30 & 31 of 2015 Page 1 of 50
PRASHANT KAPUR & ANR ..... Petitioner
Through: Mr. Nitish Kumar,
Advocate.
versus
VIKRAM KAPUR & ORS ..... Respondents
Through: Mr. Salman Khurshid
and Mr. U.K. Chaudhary,
Senior Advocates with Mr.
Antony, Mr. Himanshu Vij, Ms.
Gitanjai Kapur, Ms. Shrshti
Singh, Advocates for R-1.
Mr. Anil Airi with Mr. Ravi
Krishan Chandna, Ms. Sadhna
Sharma, Mr. Aman Madan, and
Mr. Ishan Khanna, Advocates
for R-2.
Ms. Meenakshi Singh,
Advocate for R-6 to R-10.
CORAM: JUSTICE S. MURALIDHAR
JUDGMENT
% 03.08.2015
1. The challenge in both these petitions under Section 34 of the
Arbitration and Conciliation Act, 1996 („Act‟) is to an Award
dated 1st November 2014 passed by the learned sole Arbitrator
in the disputes between the parties.
Background facts
2. The parties are all descendants of late Rai Bahadur Janki
Dass Kapur. His three sons were Mr. Bishambar Dass Kapur,
Mr. Jaidev Kapur and Mr. Jagdish Kapur. Mr. Sanjay Kapur,
one of the sons of late Mr. Jagdish Kapur, Mr. Gautam Kapur
and Mr. Girish Kapur, sons of late Mr. Jaidev Kapur and Mr.
Rishav Kapur, son of Mr. Girish Kapur are the Petitioners in
OMP No. 30 of 2015. Another son of Mr. Jagdish Kapur,
namely, Mr. Salil Kapur is not himself a Petitioner. However,
his two sons, Mr. Prashant Kapur and Mr. Ashwin Kapur, have
filed OMP No. 31 of 2015.
3. The contesting Respondents in both petitions belong to the
family branch of late Mr. B.D Kapur. The first two respondents,
Mr. Vikram Kapur and Mr. Rajiv Kapur are the sons of late Mr.
B.D. Kapur. The eldest son of Mr. B.D. Kapur, namely, late Mr.
Arun Kapur, passed away during the pendency of the arbitration
proceedings and his wife, Mrs. Rashmi Kapur and their sons,
Mr. Akshay Kapur and Mr. Ashwath Kapur are Respondents 3,
4 and 5 respectively.
The 1999 MoU
4. After the death of late Rai Bahadur Janki Dass Kapur, his
three sons had decided to split the management, ownership and
control of the companies and assets jointly owned by the family
in three equal shares and award one share to each of the
unit/families. A Memorandum of Understanding dated 8th
January 1999 („1999 MoU‟) was entered into between them.
The relevant preamble clauses of the MoU read as under:
"Whereas the parties hereto have been carrying on
business by owning, managing and/or controlling
various assets in their individual names or in the
names of different companies, private companies,
partnership firms, charitable trusts and joint
properties, firm, other than personal assets
acquired by own savings or personal/wives
business:
And whereas with the growth of the family during
subsistence of complete amity between all the
members of the family, it is considered prudent to
split the ownership, management and/or control of
the companies and the assets in three equal share
and to allot each share to the three units of the
family which will help in the exercise of better
management controls and further augment the
business of the reconstituted units and business
enterprises."
5. It requires to be mentioned that the principal company that is
the subject matter of the 1999 MoU is Atlas Cycles (Haryana)
Limited. It had three bicycle units. One was in Sonepat,
Haryana, the second in Sahibabad (Uttar Pradesh) and the third
in Malanpur (Madhya Pradesh). There were, of course, other
firms, companies and properties, including five trusts that have
been jointly managed by the family.
6. The 1999 MoU recorded the agreement that the division of
the three lots should be made in such a manner that one bicycle
unit falls in the share of each of the three groups such that the
production facility including machinery, painting and plating
plants etc., and that of services including tool room,
maintenance, electrical, generators, research and development,
heat treatment etc. of each cycle unit is more or less equally
divided. It envisaged that the market areas for sales in India and
exports for each separate unit "shall be clearly identified,
demarcated and equated." In case any benefit was to be given
to any group/groups it could be given in the form of net
worth/assets. The valuation was to be done by Mr. K.N.
Memani of M/s. Ernst and Young, Chartered Accountants.
7. The 1999 MoU further stated that each of the three groups
would be entitled to the use of the „Atlas‟ brand as well as the
„logo‟ on products with "an additional name for identification
and differentiation as may be permissible under legal
regulations." The three names were to be chosen and placed in
three baskets before the draw of lots. Clause 3 (f) of the 1999
MoU acknowledged that "the names of the companies falling to
the shares of the parties hereto may acquire certain changes to
identify their ownership by the three reconstituted groups.
However, as may be permissible by law, each party retains the
name of „Atlas‟ as a prefix and make a distinction in the brand
name and to that of the companies concerned, which should be
decided before the draw of lots."
8. As regards the residential property situated at 3, Aurangzeb
Lane, New Delhi, Clause 3 (g) of the 1999 MoU envisaged that
equal built up area was to be given to each group which was
required to be identified and declared before the draw of lots. It
was further provided that the Dalhousie property [Clause 3 (h)],
the Rim Rolling lines [Clause 3 (i)] and the pedal making
machinery as well as manufacturing machinery of saddles
[Clause 3 (j)] were to be divided equally among the three
groups. Clause 4 of the MoU states that its essence was that "all
the assets and the companies referred to above, shall be divided
in the three equal baskets after the same has been properly
evaluated at the present market price." As regards the valuation
of all the assets, companies, trusts and firms, Mr. Memani was
to follow the accepted principles of accountancy and confer
jointly with the three groups in declaring the value. Mr.
Memani‟s valuation was to be „final and unchallengeable by the
parties or even the Arbitrator.‟
9. Clause 6 of the 1999 MoU stated that in the event of "any
dispute on any matter, the matter would be referred to the
arbitration of Justice A.M. Ahmadi, retired Chief Justice of
India who has been unanimously selected by the three groups as
the sole Arbitrator." The three parties were to prepare three
baskets on the basis of the valuation of Mr. Memani which was
to then be distributed amongst the three groups by a draw of lots
in the presence of the sole Arbitrator. A similar exercise was to
be undertaken in respect of the charitable trusts. While the
management and control was to be handed over "the same
instance after the lots are drawn", the formal ownership was to
change hands legally "as early as possible." To ensure a smooth
transition and to avoid misappropriation, a system was to be
devised for the interim period prior to the draw of lots with the
assistance of Mr. K.N. Memani. Clause 10 of the 1999 MoU
stated that the award of the Arbitrator would be given without
assigning reasons thereof and would be final and binding on all
the parties and the venue of the arbitration was to be New Delhi.
The separate MoU of the BD Kapur branch
10. Mr. Bishambar Dass Kapur died sometime in August 2000,
while Mr. Jaidev Kapur and Mr. Jagdish Kapur passed away
during the pendency of the arbitration proceedings. Soon after
the death of Mr. Bishambar Dass Kapur, disputes arose between
the family members and the three sons filed an application
before the learned Arbitrator on 27th August 2000 under Section
17 of the Arbitration and Conciliation Act, 1996. The learned
Arbitrator did not pass any order on the said application.
However, various meetings were held regarding implementation
of the MoU and the parties exchanged information regarding the
units and departments under their control as well as other
properties and assets.
11. On 10th September 2000 certain terms of settlement for an
interim arrangement were arrived at between the senior most
members of the three groups i.e., Arun Kapur, Jaidev Kapur and
Jagdish Kapur. In terms of the interim arrangement, a Joint
Management Committee comprising of these three persons was
constituted to facilitate the effective functioning of Atlas Cycles
pending implementation of the 1999 MoU. A separate MoU
was entered between the members of the B D Kapur group, i.e.,
Arun Kapur, Vikram Kapur and Rajiv Kapur on 28th August
2000. At the relevant time Arun Kapur was managing the
Malanpur unit of Atlas Cycles and he was designated as Senior
Vice President.
Arun Kapur removed by the BoD
12. As there were allegations that Mr. Arun Kapur had siphoned
off huge amounts of money, he was, in March 2001, under the
decision of Board of Directors („BoDs‟), excluded from the
management and affairs of the Malanpur unit of Atlas Cycles.
On 4th April 2001 he telephoned the learned Arbitrator stating
that he apprehended his removal by the BoDs on the following
day. He prayed that a status quo order be made under the 1999
MoU. The learned Arbitrator by a note dated 4th April 2001
recorded that he had informed both Mr. Sudhir Makkar,
representing Jaidev Kapur and Mr. Mehta representing Jagdish
Kapur of Mr. Arun Kapur‟s request. The learned Arbitrator
further noted that he had impressed upon Mr. Makkar that, as
far as possible, family peace should be maintained. He was
aware that the reference under the 1999 MoU was limited and
"it may not be possible for me to issue any directive to the
Board but since his clients are on the Board, they should
exercise restraint to avoid aggravation of the dispute unless Mr.
Arun Kapur has not been candid and is found to be acting
against the interest of the company." He recorded that Mr.
Makkar had told the Arbitrator that in case there was anything
against Mr. Arun Kapur he would be given an opportunity to
explain himself.
13. It appears that on 5th April 2001 the BoDs of Atlas removed
Mr. Arun Kapur and his sons from the management of the
affairs of the Malanpur unit. The challenge to the said decision
by Mr. Arun Kapur by an application under Section 9 of the Act
was negatived.
Challenge to Mr. Memani's valuation report
14. Mr. Memani prepared a valuation report dated 31 st March
2002 which was then circulated to the family members in
January 2003. Mr. Arun Kapur and his two sons, Akshay Kapur
and Ashwath Kapur, filed CS (OS) No. 77 of 2003 in this Court
challenging the said valuation report. On 14 th January 2003 an
interim order was passed in the said suit restraining the
Defendants, i.e., Jagdish Kapur and Jaidev Kapur as well as
Rajiv Kapur and Vikram Kapur from taking any step pursuant
to the said valuation report.
15. An application was also filed in the said suit under Section 8
of the Act by Mr. Gautam Kapur and Mr. Girish Kapur
objecting to the maintainability of the suit in view of the
arbitration clause. By an order dated 30th May 2003 in Akshay
Kapur v. Rishav Kapur 105 (2003) DLT 467 the application
was dismissed on the ground that the reliefs claimed for, i.e.,
injunction against the valuation report, "would not fall within
the subject matter of the arbitration agreement subsisting
between the parties."
The BoD resolution of 31st August 2003
16. On 31st August 2003 the BoDs of Atlas Cycle (Haryana)
Limited passed a resolution in which it was noted that in view
of the litigation initiated by Mr. Arun Kapur, the performance
of the company had suffered a setback in terms of production,
turn-over, profitability and reputation. The BoDs had a joint
meeting with the various members of the Kapur family on 30th
July 2003 to take stock of the regressing state of affairs of the
company and had decided that the management of the company
should be restructured in a manner that would be conducive to
better growth of the company.
17. The preamble of the BoD resolution stated that for the
purpose of restructuring of authority and responsibility Atlas
Steel Tube Industries, Atlas Auto Industries and Numero Uno
were treated as separate units in addition to the three bicycle
manufacturing units of Atlas. It was unanimously resolved that
"subject to general superintendence and control of the Board of
Directors, the following restructuring shall be made with effect
from 1st September 2003:
"That the overall control in relation to Sonepat unit of
Atlas shall be entrusted to Sh. Vikram Kapur jointly with
Sh. Rajiv Kapur & Sh. Angad Kapur [(Collectively
referred to as the Management Committee (Sonepat)].
That the overall control in relation to Sahibabad unit of
Atlas shall be entrusted to Sh. Jai Dev Kapur jointly with
Sh. Girish Kapur & Sh. Gautam Kapur [(Collectively
referred to as the Management Committee (Sahibabad)].
That the overall control in relation to Malanpur unit of
Atlas shall be entrusted to Sh. Salil Kapur jointly with Sh.
Sanjay Kapur [(Collectively referred to as the
Management Committee (Malanpur].
That the overall control in relation to Atlas Steel Tube
Industries shall be entrusted to Sh. Salil Kapur jointly
with Sh. Sanjay Kapur [(Collectively referred to as the
Management Committee (ASTI].
That the overall control in relation to Atlas Auto
Industries shall be entrusted to Sh. Salil Kapur jointly
with Sh. Sanjay Kapur [(Collectively referred to as the
Management Committee (Auto)].
That the overall control in relation to Numero Uno Unit
shall be entrusted to Sh. Jai Dev Kapur, Sh. Girish Kapur
and Sh. Gautam Kapur [(Collectively referred to as the
Management Committee (NUMERO)]."
18. It was further resolved by the BoD inter alia that with a
view to avoid duplication and interpolation of the work and
exercise of authority or functions "all the units shall have
complete autonomy of operations subject to the overall control
of the Board of Directors." It was further resolved that all the
bank operations in respect of each unit were to be exclusively
handled by the respective management committees singly or
jointly. The existing bank limits were apportioned over the six
units on the basis of a table set out in the BoD‟s resolution
itself. The Board also resolved on the transfer of funds inter se
the various units. It is required to be noticed that in the
resolution of the BoD dated 31st August 2003 it was resolved
that the company would have a common balance sheet and the
units‟ accounts, though prepared separately, would be merged
and consolidated and duly certified by the statutory auditors in
accordance with the applicable regulations. The company would
have a centralised company law department at Sonepat and the
Management Committee (Sonepat) was to keep the
Management Committees of the other two bicycle units fully
informed about the functioning of the company law department.
MoU dated 31st August 2003
19. The BoD‟s resolutions were followed by an MoU entered
into on the same date, i.e., 31st August 2003 ('the 2003 MoU'),
between the members of the three branches except Mr. Arun
Kapur and his two sons. Significantly, the 2003 MoU noted in
the preamble itself that:
"And whereas the parties to this agreement are of the
considered opinion that in order to have continuity of
operations the parties have agreed to jointly request the
Hon‟ble Arbitrator that the structured arrangement of
management of Atlas as reflected in resolution of Board
of Directors dated 31st August 2003 shall be endorsed in
the baskets to be prepared for the purpose of the draw."
20. The 2003 MOU noted that the valuation report of Mr.
Memani was the subject matter of a challenge by Mr. Arun
Kapur. It recorded that all the members of the family who were
senior executives of the company would exercise their powers
in consonance with the resolution dated 31st August 2003 and
would not use their voting rights in Atlas in any manner to
dislodge or disturb the restructured arrangement of management
as reflected in the terms of the said resolution. Further, the
parties agreed to jointly represent before the learned Arbitrator
that as and when the impediments to the implementation of the
1999 MoU were removed and all the parties were in a position
to proceed with the implementation of the said MoU, he should
ensure that the preparation of baskets and allocation be made in
terms of the resolution of the BoD dated 31st August 2003.
21. It was emphasised that the 2003 MoU was in continuation
of the 1999 MoU. It was further agreed that the share of Mr.
Arun Kapur and his sons who had not signed the 2003 MoU had
to be allocated out of the basket allocable to the Mr. B.D. Kapur
Group subject to the balancing of baskets. It was also agreed
that a sum of Rs. 10.43 crores was recoverable by the company
from the share of Mr. Arun Kapur in terms of the valuation
report of Mr. Memani and after the adjustment of tax liability,
the recovered amount was to be apportioned in equal shares
amongst the three baskets.
22. It is the case of the parties that pending the ultimate decision
of the Arbitrator, de facto the three branches took control of the
respective cycle units and other units in terms of the resolution
of the BoDs. It was stated that similar resolutions were passed
in respect of the other entities which included Dewan Harnam
Das Saraswati Devi Trust and the Dewan Harnam Das
Saraswati Devi Trust (Regd. Society) of which Mr. Vikram
Kapur and Mr. Rajiv Kapur were appointed as Managing
Trustees. They were to run the affairs of the Trusts, subject to
overall supervision of the Board of Trustees („BoT‟). These
MoUs were not signed by Mr. Arun Kapur and his two sons.
Excepted matters
23. There were certain specific excepted matters on which any
decision by the concerned unit was to require „prior approval‟
of the BoDs of the company. These were specified in clauses
(A) to (M) and included decisions pertaining to the availing of
loans, credit facilities from banks including enhancement, re-
scheduling or revision of any existing loan, credit facility and/or
bank limit; any decision pertaining to sale, mortgage, lease,
licence, gift or alienation of any immoveable property, plant and
machinery, movable assets as well as the written down value of
the plant and machinery or part of the movable assets that
individually did not exceed Rs. 1 lakh for an individual item
and Rs. 5 lakh in the aggregate in the same financial year;
writing off any amount/recoverable debt of the value over Rs. 1
lakh or writing off any amount/debt where the combined value
of the written off amount in any financial quarter exceeds Rs. 3
lakh; decision pertaining to the appointment of any employee(s)
or auditors, "sale, transfer, alienation or creating a third party
interest in any manner which was statutorily required to be
referred to the BoDs." In other words, the overall control of the
three units vested in the company.
24. As regards the two Trusts similar resolutions were passed
appointing Mr. Vikram Kapur and Mr. Rajiv Kapur as
Managing Trustees but retaining the overall control of the trusts
in the BoT. There were excepted matters on which prior
approval by way of resolution passed by the majority of the
BoT had to be taken, which included any decision pertaining to
sale, mortgage, lease, licence, gift or alienation of any
immovable property belonging to the trusts.
25. In the resolution of the BoT dated 31st August 2003 it was
stipulated that the clauses relating to the excepted matters would
be operative for a period of two years from the date of the
resolution and upon expiry of the said period decisions relating
to the excepted matters would be taken by the Managing
Committee comprising Mr. Vikram Kapur and Mr. Rajiv Kapur.
However, by a resolution dated 2nd April 2005 the Board
extended the aforementioned two year period.
26. This led to Vikram Kapur filing a suit being CS (OS) 941 of
2005 in the Court of the Additional Civil Judge, Sonepat
challenging the aforementioned resolution. A status quo order
was passed by in the said suit on 18th May 2005. However, this
status quo was not renewed when the case was heard on 14th
June 2005. However, it was ordered that 15 days advance notice
be given to all trustees prior to the convening of any meeting of
the Trust.
The judgment dated 2nd May 2006
27. Meanwhile, as far as CS (OS) 77 of 2003 was concerned, a
learned Single Judge of this Court passed a detailed judgment
on 2nd May 2006 vacating the interim injunction granted on 14th
January 2003. The conclusions in the said judgment are
summarized as under:
(i) The report of Mr. Memani had been accepted by the
two groups, i.e., Jaidev Kapur group and Jagdish Kapur
group. As far as the B.D. Kapur group was concerned, it
had been accepted by 2/3rd of this group, i.e., by Vikram
Kapur and Rajiv Kapur but only Arun Kapur and his sons
did not accept the said report. Prima facie the report did
not seem to be absurd so as to make it unacceptable.
(ii) Since most members of the Kapur family had acted
upon the family settlement by going through and
concluding the valuation process and thereafter by
accepting the impugned report of Mr. Memani, it should
be implemented and "some members of one group family
should not be permitted to unsettle the entire family
arrangement."
(iii) The allegation of bias against Mr. Memani for
suggesting that a sum of Rs. 10.45 crores would be
recoverable from Mr. Arun Kapur was negatived. It was
held that Mr. Memani had merely stated his opinion
without forming a view on the genuineness of the
allegations made against Mr. Arun Kapur. Mr. Memani
only suggested that at the time of basket formation, the
said amount, which was parked in the Malanpur unit then
under the management of Mr. Arun Kapur, should be
appropriately be taken into consideration.
(iv) Only the valuation given by Mr. Memani was final
and binding. Any expression of opinion by Mr. Memani
on other issues "is not final and binding.
28. The learned Single Judge by his judgment dated 2 nd May
2006 disposed of several applications filed in the suit. One of
them was an application for amending the plaint seeking to
make averments directed against the company Atlas Cycles.
While rejecting the said applications, the learned Single Judge
held that the attempt by the Plaintiffs "is to unnecessarily rope
in Atlas Cycles into the controversy". However, that entity was
a completely independent legal and juristic entity that has
nothing to do with the MoU entered into between the groups of
the Kapur family. If the attempt were to be permitted, "over a
dozen entities with which the Kapur family is concerned would
also have to be roped into the litigation."
29. The application to implead Atlas Cycles as Defendant No.
12 in the suit was also rejected. It was held that Atlas Cycles
was neither a necessary nor a proper party to the proceedings
and was being dragged in by the Plaintiffs without any valid
justification.
30. The Court then went on to the issue of balance of
convenience and observed that by halting implementation of the
impugned report, "the damage and injury that is likely to be
caused to the whole family would be far greater, long term and
more widespread than it would be if the impugned report is
allowed to be implemented. There are a vast majority of
shareholders of Atlas Cycles who must be anxiously looking for
an amicable resolution of the disputes between the Kapur
Family groups so that business can go on as usual rather than to
have it settled by a handful of disgruntled members of the
Kapur family."
31. The Court also dealt with an application under Order
XXXIX Rule 2 A of the Code of Civil Procedure, 1907 („CPC‟)
alleging violation of the interim injunction dated 14th January
2003 by the Defendants. In that context, the court observed that
the interim injunction granted was not intended to completely
paralyze the working of Atlas Cycles and all other concerns of
the Kapur family. There was no transfer of ownership in terms
of the report of Mr. Memani and there was no violation of any
order passed by the Court. It was held that the contemnors
deserved the benefit of doubt inasmuch as they appeared to
have acted in the best interests of the assets of the Kapur family.
32. With the above order, there was no impediment to the
continuation of the proceeding before the learned Arbitrator. It
may be mentioned that although an appeal FAO (OS) No. 338-
340 of 2014 was filed against the aforementioned order dated
2nd May 2006, it was dismissed as withdrawn by the Division
Bench of this Court on 15th April 2014.
33. Another round of litigation involving the Trusts commenced
with Rajiv Kapur filing CS (OS) No. 104 of 2007 in this Court
challenging the validity of Resolution dated 24th December
2005 passed by the BoT of the Dewan Harnam Das Saraswati
Devi Trust. An interim order was passed on 23rd March, 2007
by the learned Single Judge in the said suit directing the
prevailing arrangement for operation of the accounts of the
Trust to continue.
Proceedings before the Arbitrator
34. An application was filed by Mr. Rajiv Kapur before the
learned Arbitrator under Section 17 of the Act on 31st July 2007
seeking certain interim reliefs, inter alia, against Mr. Vikram
Kapur and the BoD of Atlas Cycles. Since the said application
was not being taken up, Mr. Rajiv Kapur filed OMP No. 72 of
2009 in which an order was passed by the learned Single Judge
on 20th April 2009 directing the learned Arbitrator to consider
the said application within six weeks. Pursuant thereto, the
learned Arbitrator heard submissions and passed an order on
25th July 2009 holding that the dispute raised fell outside his
jurisdiction since the appropriate forum for the Applicant was
either to go in for arbitration under the MoU which was entered
into between the members of the B.D. Kapur group dated 28 th
August, 2000 or before the Company Law Board (CLB).
35. On 16th November 2009 a hearing took place before the
learned Arbitrator on the request of Mr. Vikram Kapur on the
prayer that the parties should be directed to maintain status quo
so that the 1999 MoU may not be disturbed. The learned
Arbitrator noted that apart from filing a reply to the said
application, Mr. Arun Kapur had also filed a separate
application under Section 17 of the Act. After granting time to
the parties to file a complete pleading in the said application,
the learned Arbitrator observed that he would "expect the
parties to maintain the status quo so that the baskets prepared
pursuant to the MoUs of 1999 may not be disturbed. If any
party disturbs the status quo, he will bear the consequences
flowing therefrom."
Proceedings in the suits
36. The Civil Judge, Sonepat on 14th June 2010 dismissed CS
(OS) 941 of 2005 which challenged the resolution of the BoT
dated 2nd April 2005. Mr. Rajiv Kapur, a defendant in the suit,
joined several of the defendants in filing an application under
VII Rule 11 CPC for rejection of the plaint. The said application
was allowed by the learned Civil Judge on the ground that the
procedure under Section 92 (1) of the CPC was not followed
and the suit did not disclose any cause of action.
37. In CS (OS) No. 104 of 2007, related to the resolution passed
by the BoT, an application was filed with the prayer that the
vacancy created as a result of the passing away of Mr. B.D.
Kapur, one of the trustees, should not be filled up. On 18 th April
2012 the Court passed an order in IA No. 7008 of 2002 to the
effect that any resolution that may be passed by the BoT in the
meeting to be held on 21st April 2012 in relation to the above
issue of filling up the vacancy, would not be given effect to
before the next date of hearing. The Court dealt with the
application filed by the Defendants in the said suit viz., Mr.
Vikram Kapur, Mr. Jagdish Kapur and Mr. Jaidev Kapur
seeking vacation of the interim order. The Court by its order
dated 18th July 2014 observed that the MoU dated 31st August
2003 had not been signed by Mr. Arun Kapur. The decision as
to how the vacancy is to be filled up could be taken only in a
meeting of the BoT, and not informally. It was observed that the
2003 MoU could not be implemented in part. Either it had to be
implemented in its entirety with the induction of all the trustees,
or not at all. It was held that it was not open to Defendant No. 1
to claim that the 2003 MoU should be implemented in part by
induction of only Mr. Angad Kapur, Defendant No. 2 as a
managing trustee. Consequently, the status quo order was
vacated. By an order dated 11th July 2014, this matter was
referred to mediation.
38. On 19th June 2013 the BoD of the company passed a
resolution regarding a proposed expansion of the BoD and
inviting nominees from the different branches of the family.
Thereafter on 29th August 2013 the BoD passed a resolution by
circulation noting that induction of employee directors from all
three groups may not be possible and all the three groups for the
present were requested to forward names of independent
persons who were also employees of the company for
consideration for appointment as director. On 19th December
2013 the BoD passed a resolution inducting Mr. Kartik Roop
Rai, Mr. Vikram Khosla and Mr. Surendra Mohan Mehra as
directors of the company.
Vikram Kapur's application before the Arbitrator
39. On 12th August 2013 an application was filed by Mr.
Vikram Kapur before the learned Arbitrator which was duly
supported by Mr. Rajiv Kapur praying for a series of
declarations including that the three lots that have been created
and agreed to by the three groups are valid and subsisting and
binding on all the groups and signatories to the 1999 MoU and
that the respective lot which had been allocated to the group
shall remain in exclusive management, control and operation of
the group company.
40. A reply to the said application was filed by the Jagdish
Kapur and Jaidev Kapur groups refuting the contention of Mr.
Vikram Kapur that the assets stood divided amongst the three
branches. It was further insisted that while they did not have
any objection to the implementation of the 1999 MoU, the
current valuation of the assets should be reflected in the division
at the time of passing of the award and any other interpretation
would lead to anomalous and inequitable results. It was pointed
out that more than ten years had passed since the restructuring
of management and controls of the various entities, and "the
valuation report of Mr. Memani which was given in 2002, does
not hold good anymore." While the said application was
pending, Mr. Girish Kapur, Mr. Gautam Kapur and Mr. Rishav
Kapur filed an application along with Mr. Sanjay Kapur seeking
directions from the learned Arbitrator regarding revaluation of
the assets.
41. On 13th September, 2014 arguments were heard on the
application of Mr. Vikram Kapur and orders were reserved.
According to the Petitioners, Mr. Sanjay Kapur, Mr. Gautam
Kapur, Mr. Girish Kapur and Mr. Rishav Kapur, their
application for revaluation was not heard. Consequently, they
sent an e-mail dated 2nd October, 2014 to the learned Arbitrator
for hearing their application but the said request was turned
down by a reply e-mail dated 5th October 2014 of the learned
Arbitrator.
The resolution to shut down the Malanpur unit
42. A resolution was passed by the BoD of the company at a
meeting on 5th October 2014. It was noted that the Malanpur
unit had been running in losses and it was directed to be shut
down. Consequently, this unit is no longer relevant to the
portioning of the three baskets. Accordingly, an application was
filed by Sanjay Kapur before the learned Arbitrator praying that
the aforementioned development be taken on record for the
implementation of the 1999 MoU and opportunity be granted to
the Applicant to make submissions on the same. According to
the Petitioners, no order was passed in the said application. On
15th October 2014 an e-mail was received from the learned
Arbitrator informing the Petitioners that the said application
was dismissed. Another application filed on 14th October 2014
by Prashant Kapur seeking similar relief was also dismissed on
15th October 2014.
Other applications before the Arbitrator
43. On 24th October 2014 a resolution was passed by the BoT of
Dewan Harnam Das Saraswati Devi Trust appointing Mr.
Gautam Kapur, Mr. Sanjay Kapur and Mr. Akshay Kapur as
Managing Trustees. On the very next date, i.e. 25th October
2014 the learned Arbitrator passed an order pursuant to an
application of Mr. Vikram Kapur staying the above resolution.
44. On 30th October 2014 and 1st November 2014 applications
were filed by the three members of B.D. Kapur branch, i.e.,
wife and two sons of late Mr. Arun Kapur and by the Petitioners
in OMP No. 30 of 2015 under Section 13 (1) of the Act
challenging the learned Arbitrator on the ground of lack of
impartiality. However, these applications were not disposed of
and the final Award was passed on 1st November 2014.
The impugned Award of the Arbitrator
45. The impugned Award dated 1st November 2014 of the
learned Arbitrator began by noticing the various clauses of the
MoU dated 8th January 1999, and in particular, that "the award
of the Arbitrator will be given without assigning reasons thereof
and shall be final and binding on the parties." The learned
Arbitrator, however, preferred to give his reasons since he was
more than convinced from the bitterness manifested during the
hearings that the decision would be challenged in Court.
46. The learned Arbitrator noted that after the 2003 MoU,
which stipulated the segregation of assets in accordance with
Mr Memani‟s report, "the management and control in line with
respective MoUs have been honoured by each group." The
learned Arbitrator noted that even way back on 4th April 2001 it
was observed that Atlas Cycle Industries Limited was not a
party to the MoU and therefore, the learned Arbitrator was not
in a position to issue any directive to the BoDs. The learned
Arbitrator then referred to the proceedings in CS (OS) 77 of
2003 in this Court.
47. Next, the learned Arbitrator referred to the applications filed
by Mr. Vikram Kapur. The learned Arbitrator discussed the
precise preambles of the 1999 MoU and noted that restructuring
and control of the businesses in terms of the 1999 MoU and
agreed upon on in the 2003 was in fact in place for more than a
decade. The learned Arbitrator observed as under:
"Any slight change will upset the whole foundation of
the MoU given the number of years that have passed by
now. Further, the groups are attuned to their respective
businesses and have handled them for better or worse on
their respective merits and other conditions for a long
time."
48. The plea of the Petitioners that the valuation report of Mr
Memani could no longer be relied on as a basis for the division
of assets due to the considerable passage of time since its
preparation was rejected. The learned Arbitrator was of the
view that as it was clearly stipulated in the 1999 MoU that the
valuation report of Mr. Memani shall be final and cannot be
questioned or tinkered with even by the learned Arbitrator, it is
beyond the scope of the arbitration. The learned Arbitrator
accepted the plea of Mr. Vikram Kapur that there was no
express authorization in terms of Section 28 (2) of the Act to
decide the present aspect of preparation and allocation of lots in
accordance with the MoUs. The learned Arbitrator accepted the
plea that in terms of the law explained in Sangramsinh P.
Gaekwad v. Shantadevi P. Gaekwad (2005) 11 SCC 314 the
principles of quasi-partnership are to be applied to a family
company even if it was a public limited company. He observed
that "the true character of the company, the business realities of
the situation should not be confined to a narrow legalistic
view."
49. On the aspect of trusts, the learned Arbitrator observed as
under:
"It is also clear from several and various instances of the
MoUs that charitable trusts were part of the assets and
were to be divided. Trusts, being Trusts will be governed
by law relating to them and it is expected that they are not
used for the purposes of profiteering or making money.
The principles enshrined in the Indian Trust Act would
govern such public trusts and it would be for the parties
to work out the modus for giving effect to the parent
MoU in this behalf. Mr. Khosla was right that public
trusts are not in the nature of business entities and cannot
be divided as such since they are created to benefit the
beneficiaries, albeit the trustees can be replaced."
50. The learned Arbitrator was of the view that shares of late
Mr. Arun Kapur and his sons can be determined through a
separate exercise once the final division in terms of 1999 MoU
has been effected. The final directions issued by the learned
Arbitrator were as under:
A. The three lots though not finally divided through the
MoU(s) have been under the respective Groups-as per the
MoUs who have followed it thus far. Final division be
done without disturbing the set up in any manner.
B. The lot allocated to each group shall remain in
exclusive management, control and operation thereof and
that group shall be entitled to hold the same and no other
group will have any right or entitlement to any part of
that lot or burden It for any liability incurred by the other
group in managing its lot.
C. The profit and loss of the lot since 31st Aug 2003 shall
remain the profit and loss of that lot and that no liability
of that lot shall befall on any other lot.
D. Any loss or claim against the Assets arising because of
a particular group, shall be met and settled by the group
managing, operating and
controlling the said lot;
E. None of the groups to the MoU shall breach or cause
to breach the baskets so caused while dividing the
management and control of the assets;
F. All the groups shall jointly and severally perform their
part of obligations as per the MoU in implementing and
executing the understanding in splitting the ownership as
per law;
G. The residential building shall be used for the residence
of each group on as is basis and shall not induct any third
party in the part in its possession and shall pay the taxes
and other out goings for the area in their occupation:
repair cost will be met on as is basis.
I thus conclude the arbitration and dispose of Mr. Vikram
Kapur‟s application accordingly. The cost incurred in
prosecuting the said application shall be shared equally
by all the groups. "
51. The learned Arbitrator reiterated that the challenge to the
decision of the BoDs of Atlas Cycles fell outside his purview
and that the parties would be at liberty to approach the
appropriate forum in respect of the matters falling outside his
jurisdiction.
52. It must be mentioned at the outset that the Petitioners have
made it clear that they are not questioning the division already
effected on the residential buildings or other units other than the
company and the trusts in terms of the 1999 and 2003 MoUs.
The challenge in these petitions to the impugned Award is
confined to the extent that it pertains to management and
control of the company and the two trusts.
Suit 3510 of 2014 and proceedings in the CLB
53. To complete the narration it must be noticed that resolution
passed by the BoD on 5th October 2014 to shut down the
Malanpur unit and the company was challenged by Vikram
Kapur and Rajiv Kapur by way of CS (OS) No. 3510 of 2014.
Initially an interim order was passed on 19th November 2014
directing that the said resolution not be implemented in a
manner that adversely affects the Plaintiff. However, by a
detailed order dated 28th January 2015 the said interim
injunction was vacated after holding that the MoUs did not bind
the company as such and that whatever may have been agreed
to between the different groups of the family that could not bind
the shareholders of the company.
54. A petition, being CP No. 18 (ND)/2015 was filed by Mr.
Vikram Kapur and his son Mr. Angad Kapur before the CLB
under Sections 397, 398, 399 and 402 of the Companies Act,
1956 alleging oppression and mismanagement by the Jagdish
Kapur and Jaidev Kapur family groups in their capacities as
shareholders of the company, Atlas Cycles (Haryana) Ltd. In
particular, it was urged that the company was closely held and
in the nature of a quasi partnership wherein each family group is
"operating an independent and separate unit" pursuant to the
1999 and 2003 MoUs. Specific allegations of mismanagement
and oppression were raised, inter alia, in relation to payment of
liabilities of the Malanpur unit out of the profits obtained by the
other units. A series of reliefs were prayed for including a
declaration that the petitioners, i.e., Mr. Vikram Kapur and his
son Mr. Angad Kapur, "have independent management and
control of the Sonepat unit pursuant to memorandum of
understanding signed and executed by the members of the
Kapur family," an order dissolving the BoD and appointing
administrators in their place and an order seeking the demerger
of the Sonepat unit as a separate company with all its assets,
liabilities, obligations and rights, claims, interest, entitlements
and properties. An interim relief appointing an administrator in
place of the BoD and restraining the BoD from acting in any
way to impede the independent management of the Sonepat unit
was also prayed for.
55. By an order dated 27th March 2015, the CLB decided the
issue of interim relief and found the petition not maintainable in
view of the inadequacy of the consent letters obtained by the
petitioners from the other shareholders in terms of Section 399
of the Companies Act, 1956. On merits the CLB found that the
Sonepat unit is "not a wholly autonomous unit and acts under
the supervision and control of the company". Thus the
petitioners had failed to make a prima facie case of oppression
and mismanagement.
Submission of learned counsel for the Petitioners
56. Mr. Sudhir Chandra, learned Senior Advocate and Mr.
Sudhir Makkar, learned counsel appearing for the Petitioners
submitted that the learned Arbitrator had no jurisdiction over
the Company, i.e. Atlas Cycles (Haryana) Limited and despite
acknowledging this in the impugned Award has proceeded to
put a stamp of approval on the division of the assets of the
Kapur family into three baskets which included the
manufacturing units of the Company. It was pointed out that
there are 12,000 shareholders of the Company besides the
members of Kapur family and that the majority shareholding is
in public hands. The Company was run and managed by an
independent BoD. None of the members of the Kapur family
were Directors. The consistent stand of all groups before the
learned Arbitrator was that the Company was not a party to the
1999 MoU and, therefore, to the arbitration proceedings. In
other words, the Award could not bind the Company. Since
there was a fundamental error of jurisdiction, the Award was
against the fundamental policy of Indian Law and, therefore,
deserved to be set aside under Section 34(2)(b)(ii) of the Act.
57. It was further submitted that initially the learned Arbitrator
was inclined to accede to the request of Mr. Memani to update
the valuation as at the end of 2013 and submit an additional
valuation report "for it to remain relevant, preferably within a
month or thereabouts." After having made the above
observations in his order dated 20 th November 2013, the learned
Arbitrator erred in dismissing the application filed by the
Petitioners for revaluation. It is pointed out that in the
judgement dated 2nd May, 2006 of this Court made it clear that
the 1999 MoU would not bind the Company. The conclusion of
the learned Arbitrator that Profit & Loss of any one lot as of 31 st
August, 2003, which included the bicycle unit of the Company,
shall remain the Profit & Loss of that lot alone would have
anomalous results particularly since the three manufacturing
units, although stated to be under the control of respective
management companies, has a common balance sheet, a
common Company Secretary, a common CEO and a centralised
Company Law Department. The profits and losses of the three
units were merged in the final balance sheet.
58. It was further submitted that on the one hand the learned
Arbitrator concluded that the Trusts could not be divided and
had to be managed according to the respective Trust Deeds and
applicable laws, but on the other hand, in the operative portion,
the learned Arbitrator failed to mention that the Trusts were not
to be included in the lots referred to in the Award. To that
extent the Arbitrator‟s Award was self-contradictory. The
learned Arbitrator had no authority to direct removal or
replacement of Trustees since the Trusts in any event would be
governed by the conditions of the Trust Deed. Any observation
regarding removal of the Trustees by the learned Arbitrator was
without jurisdiction.
59. It was submitted that the learned Arbitrator misconducted
the proceedings in dismissing the application filed by Mr.
Sanjay Kapur and that filed by Mrs. Rashmi Kapur, Mr. Akshay
Kapur and Mr. Ashwath Kapur under Section 17 of the Act in a
summary casual manner without issuance of notice, much less a
hearing. These applications expressed serious doubts about the
impartiality and independence of the Arbitrator. On the one
hand, these applications were dismissed without any hearing but
thereafter on 25th October, 2014, the applications filed by Mr.
Vikram Kapur and Mr. Rajiv Kapur for a stay of the resolutions
passed by the Trust were immediately taken up and a stay order
also granted. It is submitted that the learned Arbitrator simply
endorsed the prayer in the application of Mr. Vikram Kapur
without assigning any reasons. Further, the learned Arbitrator
also dismissed an application that had been filed by Mr. Arun
Kapur under Section 16 (3) of the Act in limine, without
issuance of any notice thereon. This application was for
declaring the 1999 MoU as null and void inasmuch as it dealt
with the splitting of various public limited companies and
public trusts and that, therefore, the learned Arbitrator lacked
the jurisdiction to deal with those issues. Finally it was
submitted that the Award was incapable of being implemented.
Submission of learned counsel for the Respondents
60. On behalf of the Respondents, submissions were made by
Mr. Salman Khurshid, Mr. Raju Ramachandran and Mr. U.K.
Chaudhary, Senior Advocates and Mr. Anil Airi, Advocate. It
was submitted that even under the 1999 MoU, there was a
conscious decision taken by the three branches of Kapur family
that the entire assets including the Company and the Trusts
would be divided equally. As a first step it was decided that
there would be three baskets and it was towards that end that a
valuer was named and his report was submitted in January
2003. It was only on account of the litigation commenced by
Mr. Arun Kapur that the said report could not be given effect to
immediately. It is also on account of Mr. Arun Kapur
committing serious financial irregularities that he had to be
removed as the Vice President of the Company and, therefore,
was not a party to the 2003 MoU.
61. It was emphasised that it had been agreed to by the parties
that they would separately manage and run the three units that
fell to the respective shares and it was also agreed not to disturb
or interfere with the functioning of each other‟s separate units.
A reference was made to the application filed by Mr. Vikram
Kapur by the learned Arbitrator for directions in which it was
categorically stated in para 4 that the three groups of the Kapur
family mutually agreed that "they shall on their own prepare
three baskets based on the valuation made by Mr. Memani and
the same shall be distributed among the three groups by draw of
lots." After the said order was vacated on 2nd May, 2006 by a
learned Single Judge of this Court there was no fetter placed on
the division of the assets into three lots. This was already given
effect to under the BoD Resolution of 31st August, 2003. Para
14 of the said application specified lots A, B and C, i.e., the
Sonepat Division, Sahibabad Division and Malanpur Division
respectively. It was accordingly submitted that the three groups
would be bound by the said BoD Resolution and 2003 MoU and
should not be permitted to resile therefrom. It was submitted
that the correct way to understand the impugned Award of the
learned Arbitrator was that the MoUs were held to be binding
on the parties and they were now bound in law to take further
steps to effectuate the division brought about by the 2003 MoU
and it was too late to put the clock back.
62. It was submitted that having taken advantage of the division
brought about by the 2003 MoU, the Petitioners cannot be
permitted to palm off the liability accrued as a result of the
mismanagement of the unit that fell to the members of the B.D.
Kapur Group which had done far better. The three groups had
already performed their respective obligations and the
reciprocal promises and obligations were required to be
performed. Even in the reply filed to the application by Mr.
Vikram Kapur the above facts were not denied by the
Petitioners. They too wanted the 1999 MoU to be given effect
to. No objection was raised that the division of the assets of the
Company was outside the jurisdiction of the Arbitrator.
63. As regards the Trusts, it was submitted that at no point of
time since 31st August, 2003, had the Petitioners evinced any
interest whatsoever in the question of jurisdiction over the
Trusts and have woken up only in 2014 to deny Mr. Vikram
Kapur and Mr. Rajiv Kapur the right to continue as Managing
Trustees. This was contrary to the 2003 MoU and resolutions of
the BoT of that date which were binding on the parties. It is
pointed out that grave prejudice would be caused to the
Respondents if at this stage the 2003 MoUs were not carried to
their logical end. It is pointed out by Mr. Airi that with the
intention of de-merger and allocation of three separate units the
Company in fact incorporated three subsidiaries on 28 th May
1999, viz., Atlas Cycles (Sonepat) Limited, Atlas Cycles
(Sahibabad) Limited and Atlas Cycles (Malanpur) Limited.
Therefore, formalising the arrangement for transfer of the assets
had to take place and that would be done in terms of the
Companies Act, 1956. What the impugned Award ensures is
that it is carried out in terms of the 2003 MoU which in effect
was an implementation of the 1999 MoU. The Company had to
go along with this as it was throughout aware of both MoUs.
Rejoinder submissions of the Petitioners
64. In rejoinder it was pointed out by Mr. Makkar that there was
no answer to the principal objection that the Company was not
bound by the 1999 and 2003 MoUs or the Award. It was
pointed out that the sequence of events supported this argument
since the BoD resolution passed on 31st August, 2003 was
followed by the 2003 MoU. He pointed out that the 2003 MoU
expressly refers to the resolution passed by the BoD earlier on
the same day. Therefore, for all practical purposes the BoD
resolution would prevail. It delegated the management and
control of units being to different branches of Kapur family but
always subject to the general supervision and control of the
BoD. He also referred to the order dated 2nd May, 2006 of this
Court which acknowledged that the Company was not bound by
the MoU. He referred to the minutes of the meeting of the BoD
and in particular to the minutes of the meeting held on 31 st July
2010 where it was noted that "the Board referred to the letter
written to it by Mr. Vikram Kapur drawing its attention to the
MoU signed by the three groups." The BoD was of the view
that the reference to the said MoU was misconceived and the
BoD had to act in the larger interest of the Company "without
being governed by any such internal arrangement amongst the
shareholders or groups of shareholders." It was noted that "the
Board is not concerned with any such internal understanding
that may have been arrived at amongst groups of shareholders."
Legality of the directions concerning the units of Atlas Cycles
65. The first issue that the Court proposes to deal with is the
legality of the directions of the learned Arbitrator concerning
the division of the assets of the company into the three lots or
baskets.
66. The learned Arbitrator directed that the final division is to
be done as per the 1999 MoU "without disturbing the set up in
any manner". In para 2 of the operative directions the learned
Arbitrator held that "the lot allocated to each group shall remain
in exclusive management, control and operation thereof." The
learned Arbitrator was obviously referring to the lots mentioned
in the application filed by Mr. Vikram Kapur where in para 14
he set out the three lots. In the reply to the said application it
was pointed out by the Petitioners that the final preparation of
baskets was still to be accomplished and had to factor in the
current valuation of various assets. According to the
Petitioners, the 2003 MoU only sought to restructure the
management and control to augment the business of various
entities jointly controlled by the parties. It was contested that
there had been any final decision of the ownership in assets as
envisaged in the 1999 MoU.
67. It appears that even according to the Petitioners the three
groups were bound by the 1999 MoU and the resolutions passed
by the BoD and had also agreed that they should not use their
voting powers to dislodge or disturb the restructured
management in terms of the resolution of the BoD. However,
there is nothing in the reply which can be understood as the
Petitioners having agreed to give a go by to the legal regime
concerning the restructuring of the Company.
68. The Company is a separate entity and is governed by the
provisions of the Companies Act, 1956 (and presently by the
Companies Act, 2013). The essential legal position that the
shareholders of the Company are not the owners of its assets
and that there cannot be an agreement between the shareholders
for any group to divide the assets of the Company does not
appear to have been acknowledged by the parties at the time of
entering into either the 1999 or the 2003 MoU. The Kapurs
have a cumulative shareholding of 45% of the company Atlas
Cycles (Haryana) Limited, which is a public limited company
which has over 12,000 shareholders. It is not a private limited
company or a closely held company as was the case, for
instance, in Sangramsinh P. Gaekwad v. Shantadevi P.
Gaekwad (supra). The observations in that judgement that the
principles of quasi partnership can be applied even to a public
limited company have to be understood in the context of the
facts of that case. In the same decision in para 226 it was
observed that a clear distinction is to be made between a family
company, a private company and a public limited company.
69. In Reliance Natural Resource Limited v. Reliance
Industries Ltd. (2010) 7 SCC 1 the Supreme Court held that an
internal family arrangement and an MoU signed between family
members were not legally binding on the Company. It was
observed by the majority:
"The MoU was signed as a private family arrangement or
understanding between the two brothers, Mukesh and
Anil Ambani, and their mother. Contents of the MoU
were not made public, and even in the present
proceedings, they were revealed in parts. Clearly, the
MoU does not fall under the corporate domain - it was
neither approved by the shareholders, nor was it attached
to the scheme. Therefore, technically, the MoU is not
legally binding."
70. In the concurring opinion of Sudershan Reddy J., it was
observed:
"It is absolutely clear that the MoU was executed in the
private domain, with the help and aid of a lawyer and
then marked confidential. Further, the individuals, from
all indications have only executed it in their individual
capacity and it was not purported to be in exercise of their
positions in RIL or any other company of the Reliance
Group. It is also very clear that the MoU itself recognizes
that the reorganization that the promoters sought would
have to be routed through the Board...
In as much as the terms and conditions of gas supply, as
specified in the MoU, were not specifically informed to
all the shareholders and stakeholders, including in this
case the GoI (as a party to the PSC), we simply fail to see
how the MoU can be read into the Scheme itself. It
doesn't matter whether one calls MoU the guiding light or
a tool for interpretation or a foundation - the sheer fact
that the terms of gas supply contained in the MoU were
withheld from the shareholders implies that it cannot now
be imported into the Scheme."
71. In Vodafone International Holdings BV v. Union of India
(2012) 6 SCC 613, it was held as under:
"64. Shareholders can enter into any agreement in the
best interest of the company, but the only thing is that the
provisions in the SHA shall not go contrary to the
Articles of Association. The essential purpose of the SHA
is to make provisions for proper and effective internal
management of the company. It can visualize the best
interest of the company on diverse issues and can also
find different ways not only for the best interest of the
shareholders, but also for the company as a whole. In S.
P. Jain v. Kalinga Cables Ltd. (1965) 2 SCR 720, this
Court held that agreements between non-members and
members of the Company will not bind the company, but
there is nothing unlawful in entering into agreement for
transferring of shares. Of course, the manner in which
such agreements are to be enforced in the case of breach
is given in the general law between the company and the
shareholders. A breach of SHA which does not breach the
Articles of Association is a valid corporate action but, as
we have already indicated, the parties aggrieved can get
remedies under the general law of the land for any breach
of that agreement."
72. What is relevant for the purposes of the present case is that
any scheme of restructuring of the Company will necessarily
have to abide by the provisions of the Companies Act. Chapter
V of Part VI of the Companies Act, 1956 contained provisions
relating to compromises, arrangements and reconstructions. In
the Companies Act 2013 these provisions are in Chapter XV
which is titled „Compromises, Arrangements and
Amalgamations‟. It includes Sections 230 to 240. This
corresponds to Sections 390 to 396A of Chapter 5 of the
Companies Act, 1956.
73. The procedure involved in giving effect to any scheme of
restructuring or arrangement requires applying to the Company
Court, and under the Companies Act, 2013, to the National
Company Law Tribunal. Specific directions have to be sought
for the holding of meetings of different interested groups
including the shareholders, the financial institutions and seek
their approval to the scheme of arrangement. In other words,
any decision taken consequent to an agreement arrived at in the
form of an MoU between shareholders cannot be straightway
given effect to unless it has received the imprimatur of the
shareholders in an extraordinary general meeting apart from the
approval of other interested parties including the creditors.
74. These provisions require proposals for arrangements,
reconstruction or amalgamations to be placed before the
shareholders and creditors. The provisions mandate the
minimum percentage of such groups of interested persons to
approve the scheme of compromise, arrangement,
reconstruction etc. The Registrar of Companies or the Official
Liquidator as the case may be can object to the scheme. The
Central Government can file an application that the scheme for
amalgamation should be reconsidered. In other words, a
decision to restructure the Company which is a public limited
company and majority of shares in which are held by the public
cannot be left to be determined by a private agreement between
certain groups of shareholders.
75. There cannot be any estoppel against law. The restructuring
of a Company has to happen mandatorily in accordance with the
provisions of the Companies Act. It is not be open to any of the
parties to insist that irrespective of the above legal position, the
MoUs entered into between them must be given effect to.
76. The Court is of the view that the learned Arbitrator wholly
overlooked the above legal position. This is perhaps also the
reason the learned Arbitrator did not consider it a serious
enough issue when it was raised in one of the applications filed
by Mr. Arun Kapur questioning the very legality of the 1999
MoU. While it is true that in the reply filed by the Petitioners to
the application filed by Mr. Arun Kapur they did not
specifically urge the issue of the legality of the 1999 or the 2003
MoUs, insofar as the division of the units of the Company was
concerned, it cannot be said that only on that score they are
estopped from questioning the Award to the extent that it puts a
seal of approval on the division of lots which includes the units
of the Company.
77. The narration of facts reveals that the BoD of the company
is fully in control of its management and affairs. The BoD have
taken a consistent stand that the company is not bound by any
internal arrangement between the groups of shareholders. While
the 2003 resolution of the BoD may have brought about a
change in the structure of management by putting the three units
under the control of the respective management groups
comprising different branches of Kapur family, that by no
means resulted in the assets of the Company itself being
transferred to the respective branches. While three subsidiary
companies may have been incorporated, the transfer of the
assets to those units is yet to take place. That can happen only in
accordance with the procedure under the Companies Act, 2013.
78. It is not possible to anticipate what could be the outcome of
proceedings, as and when initiated, under the Companies Act by
any or all of the groups pursuant to the MoUs and the BoD
resolution of 31st August, 2003. That stage is yet to be reached.
The learned Arbitrator, therefore, could not have pre-empted the
decision in such proceedings by putting a seal of approval on
the division of lots as set out by Mr. Vikram Kapur in para 14 of
his application insofar as it involved the assets of Atlas Cycles
(Haryana) limited or for that matter any other company to
which the Companies Act applies. In the proceedings under the
Companies Act 2013 it would be open to any group to contend
that members of other groups are bound by the 1999 or the 2003
MoUs and cannot resile from it. Even that would not prevent
the court or the tribunal from coming to a conclusion as to
whether the arrangement or restructuring agreed upon by the
members of different groups of Kapur family is in the best
interests of the Company.
79. Viewed from any angle these were matters entirely outside
the scope and ambit of the arbitration proceedings. It was
impermissible in law for the learned Arbitrator to take upon
himself a task which could be done only in accordance with the
Companies Act and only by the authorities entrusted with such
powers. The parties to the 1999 MoU could not have conferred
a jurisdiction upon the learned Arbitrator which he did not have
to begin with. Therefore, a patent error was committed by the
learned Arbitrator in not dealing with the application of Mr.
Arun Kapur under Section 16 of the Act questioning his very
jurisdiction to examine the question of the division of the assets
of the Company into baskets or lots.
80. Consequently, the Court is satisfied that the directions
issued by the learned Arbitrator as regards the division of the
assets and management and control of Atlas Cycles (Haryana)
Ltd. is opposed to fundamental policy of Indian Law and,
therefore, cannot be sustained under Section 34 (2) (b) (ii) of
the Act.
Directions in the impugned Award concerning the two Trusts
81. As regards division of the two Trusts it is surprising that the
learned Arbitrator has, despite acknowledging that the Trusts
are governed by separate legal regime, remained silent in the
operative portion on the division of the assets of the Trusts into
three lots or baskets as set out in para 14 of the application filed
by Mr. Vikram Kapur. Admittedly, these are public charitable
trusts. One of them is a registered society.
82. The of management and control of the Trusts have to be in
accordance with the Trust Deed and in terms of the procedure
envisaged thereunder. Removal of the trustees also have to take
place accordingly and if that is not satisfactory then through
appropriate legal proceedings.
83. In the instant case, the resolution of the BoT dated 31st
August, 2003 sought to give effect to the 2003 MoU by creating
a managing committee comprising Mr. Rajiv Kapur and Mr.
Vikram Kapur to oversee the operation of the trusts. However,
there were excepted matters in relation to which no decision
could be taken without the prior approval of the majority of the
entire BoT. Although that conditionality was to operate for a
period of two years it was extended beyond two years by a
resolution of the BoT dated 21st April, 2005. The challenge to
the said resolution by Mr. Vikram Kapur failed with the
decision of Sonepat Civil Court dated 14th June 2005 which
decision has not been challenged and has, therefore, attained
finality. The procedure for giving effect to the 2003 as far as the
trusts are concerned is hedged in by the legal regime governing
public trusts. In any event the division of assets of the trusts
cannot be effected by a private agreement between certain
trustees. Here again there cannot be any estoppel against law.
84. Consequently the directions of the learned Arbitrator to the
extent it legitimises the division of the assets and properties of
the two Trusts i.e. the Dewan Harnam Das Saraswati Devi Trust
and the Dewan Harnam Das Saraswati Devi Trust (Regd.
Society) into three baskets/lots falling to the shares of three
branches of Kapur family are opposed to the fundamental policy
of Indian law, are unsustainable in law and are hereby set aside.
Concluding observations
85. It is clarified that notwithstanding this order of the Court it
would be open to the parties to seek remedies as envisaged in
law in regard to the restructuring/arrangement as far as Atlas
Cycles (Haryana) Ltd. is concerned and as far as the two Trusts
i.e. the Dewan Harnam Das Saraswati Devi Trust and the
Dewan Harnam Das Saraswati Devi Trust (Regd. Society) are
concerned. Whether the parties are bound by the 1999 and 2003
MoUs, whether the said MoUs should be given effect to and to
what extent are left open to be decided in appropriate legal
proceedings as and when initiated. The Court should not be
understood as having pronounced on the legality of the 1999 or
the 2003 MoUs in relation to the aforementioned Company and
the Trusts. The remaining portions of the impugned Award so
far as it relates to the division of the residential properties and
other assets are not being interfered as that was not pressed
before the Court.
86. The petitions are disposed of in the above terms but in the
circumstances with no order as to costs.
S. MURALIDHAR, J
AUGUST 3, 2015
Rk/bh'nesh
