Vikram Kapur & Ors vs Atlas Cycles (Haryana ) Ltd & Ors
2015 Latest Caselaw 757 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                        Judgment reserved on :19.01.2015.
                                        Judgment delivered on :28.01.2015.

+      CS(OS) 3510/2014
       VIKRAM KAPUR & ORS
                                                               ..... Plaintiffs
                               Through       Mr. A.S. Chandhiok, Sr. Adv.
                                             with Mr. Anil Airi, Mr. Ravi
                                             Kishan Chandna, Mr. Shashank
                                             Khurana and Ms. Roopa Dayal,
                                             Mr.Ritesh Kumar and Ms.Honey
                                             Kumari, Advs.
                               versus

       ATLAS CYCLES (HARYANA ) LTD & ORS
                                                               ..... Defendants
                               Through       Mr. Sudhir Chandra, Sr. Adv.
                                             with Mr.Sudhir Makkar, Adv. for
                                             D-1 to D-6.
                                             Ms. Meenakshi Singh, Adv. for
                                             D-8, D-9, D-11 to D-17.
                                             Mr. Amit Saxena, Adv. for D-7.

CORAM:
HON'BLE MS. JUSTICE INDERMEET KAUR

INDERMEET KAUR, J.

I.A. No.688/2015 (under Order XXXIX Rule 4 of the CPC)

1 This application is not pressed.

2 Disposed of accordingly.

I.A. No.22804/2014 (under Order XXXIX Rules 1 & 2 of the CPC)

(i) Present suit has been filed by the plaintiffs (Vikram Kapur group)

against the defendants of whom defendant No.1 is the company namely

Atlas Cycles (Haryana) Ltd.

(ii) Defendants No. 2 to 7 are the directors of the company.

Defendants No. 8 to 17 are other members of the Kapur group i.e. legal

representatives of deceased Jagdish Kapur and Jaidev Kapur.

(iii) The plaintiffs and defendants No. 8 to 17 are all family members

of late Rai Bhadur Janki Dass Kapur i.e. the Kapur family; their

predecessors were the promoters of the defendant company and its

management and control vested largely with the Kapur group.

(iv) This Court has been informed that Kapur group has a cumulative

shareholding of 45%. Being a limited company, balance shareholding

vests with third parties.

(vi) Defendant No.1 company was running three cycle manufacturing

units in India and was controlled and managed by the managing

committees i.e. the plaintiffs group and defendants No. 8 to 17.

(vii) Late Sh. Rai Bhadur Janki Dass Kapur had three sons namely

B.D. Kapur, Jaidev Kapur and Jagdish Kapur all of whom have died.

The Vikram Kapur group includes all the legal heirs of late Shri B.D.

Kapur except Arun Kapur who is estranged from them.

(viii) Defendants No. 2 to 17 represent the other two groups of the other

two brothers namely Jaidev Kapur and Jagdish Kapur.

(ix) Interest of all the defendants appears to be common.

(x) The three cycle manufacturing units of the company were located

at Sonepat, Sahibabad and Malanpur.

(xi) Late B.D. Kapur, Jagdish Kapur and Jaidev Kapur had entered

into a memorandum of understanding (MOU) dated 08.01.1999. In

terms of the said MOU, the ownership, control and management of the

three cycle manufacturing units was to be divided amongst the brothers.

(xii) On 31.08.2003, a further MOU in continuation of the MOU dated

08.01.1999 was entered into between the parties. Three baskets of

various assets of the company were prepared to be divided amongst the

three Kapur groups. In terms of this MOU, the Sonepat unit came under

the management of B.D. Kapur. Sahibabad unit fell to the share of

Jaidev Kapur and Malanpur unit had fallen to the share of third brother

namely Jagdish Kapur group. On the same day, i.e. on 31.08.2003, a

Board Resolution had also been passed by the Company (defendant No.

1) noting this MOU entered inter-se the brothers.

(xiii) This MOU contained an arbitration clause; in case of disputes and

differences between the parties, the matter would be referred to the sole

arbitration of Shri A.M. Ahmadi, (retired Chief Justice of the Supreme

Court of India).

(xiv) Disputes and differences arose between the three groups in

August, 2000 and the arbitration clause was invoked. It was agreed that

Mr. K.N. Memani would be appointed as the Valuer to evaluate the

assets of the company.

(xv) The proceedings which were pending before the Arbitrator

culminated on 01.11.2014. The sole Arbitrator pronounced his Award.

This Court has been informed that the objections had been filed by the

defendants group qua the said Award.

(xvi) The plaint further discloses that on 05.10.2013, a Resolution had

been passed by defendant No.1 deciding upon the closure of the

Malanpur unit; the restructuring of the other two units i.e. the Sonepat

and the Sahibabad unit; it further resolved that the losses suffered by

the Malanpur unit would be paid off equally by both the Sonepat unit (of

the plaintiffs group) and the Sahibabad unit.

(xvii) It is this resolution which has hurt the plaintiffs. Submission is

that the whole purpose of this resolution is to defeat the implementation

of MOUs dated 08.01.1999 and 31.08.2003; once these MOUs had

categorically decided that the three units were to be managed

independently by the 3 groups, the resolution dated 05.10.2014 is clearly

an attempt to impinge upon the functioning of these units which are

otherwise independent and autonomous. The Resolution further

declaring that the debts of the Malanpur unit will be borne equally by

the Sonepat and the Sahibabad unit is clearly malafide.

(xviii) In para 32 of the plaint it has also been averred that the

cause of action also arose in terms of the notice dated 11.11.2014

(issued by the company) calling for a meeting on 19.11.2014;

submission being that this was to implement the malafide contents of the

resolution dated 05.10.2014.

(xix) Accordingly, a prayer for permanent injunction has been made

restraining defendant No.1 in any manner from acting contrary to the

MOUs dated 08.01.1999, 31.08.2003 as also the Award dated

01.11.2014.

(xx) Written statement and reply to the pending application have been

filed by the defendants. As noted supra, an application under Order

XXXIX Rule 4 of the CPC had also been filed by the defendants but the

submission of the learned senior counsel for the defendants was that the

matter requires an urgent hearing and since the pleadings in the

application under Order XXXIX Rule 4 of the CPC were not yet

complete, this application has not been pressed; the reply filed to the

application under Order XXXIX Rules 1 & 2 of the CPC be treated as

the application filed under Order XXXIX Rule 4 of the CPC.

(xxi) This Court notes that on the first date of hearing (19.11.2014), the

defendants had appeared on an advance notice. An interim had been

passed in favour of the plaintiffs; defendant No.1 had been directed not

to implement or act upon any resolution passed by it in its proposed

meeting of 19.11.2014 which would adversely affect the plaintiffs in any

manner. This order continues till date.

(xxii) The defendants as noted supra are aggrieved by this order

and had requested for an urgent hearing.

(xxiii) Contention of the defendants is that although admittedly the

MOU dated 08.01.1999 was followed by a subsequent MOU dated

31.08.2003 and had been entered into between the parties and the Board

of directors had also ratified this arrangement in terms of its Resolution

dated 31.08.2003 yet there were certain exceptions contained in this

Resolution; this Resolution clearly provides that the overseeing control

of these units vested with defendant No. 1 (the Company); the

Resolution further provides that although substantial shareholding of the

company was with the Kapur family yet this being a public limited

company, the balance shares still vested with outsiders and the company

had all along even in its Resolution dated 31.08.2003 retained complete

control over the financial functioning of these three units. Further

submission being that this suit is in fact not maintainable as the prayers

made by the plaintiffs cannot be granted; a company is a distinct legal

entity and even presuming that there was an inter-se arrangement

between the three family groups of the Kapur brothers, it cannot bind

the company. Attention has also been drawn to an order of the Single

Bench of this Court dated 02.05.2006 in CS (OS) No.77/2003 wherein

the Court had reiterated the legal position that the company being a

distinct juristic entity is not bound by the inter-se arrangement of Kapur

family. Learned senior counsel for the defendants has placed reliance

upon 2010 (5) SCALE 223 Reliance Natual Resources Ltd. Vs. Reliance

Industries Ltd. to support the submission that the inter-se family

arrangement cannot bind the company.

2 Arguments have been heard. Record has been perused.

3 On 08.01.1999, an Memorandum of Understanding had been

entered into between the three Kapur groups. In terms of this

arrangement, the three cycling units of the defendant company (which

were already being managed and run by the senior executives i.e. Kapur

family) were agreed to be divided. The Sonepat plant fell to the share of

B.D. Kapur, Sahibabad had fallen to Jaidev Kapur and the Malanpur

plant and machinery fell to the share of Jagdish Kapur. This MOU is an

admitted document. It contained an arbitration clause which stated that

in case disputes between the parties, the matter would be referred to the

Arbitrator Shri A.M. Ahmadi, (retired Chief Justice of India, Supreme

Court of India).

4 In August, 2000 certain differences arose inter-se the family

groups and the matter was referred for arbitration. On 31.08.2003, a

fresh MOU was entered into between the three groups. The erstwhile

brothers B.D. Kapur, Jaidev Kapur and Jagdish Kapur had died by that

time and this MOU was entered inter-se their legal heirs. This MOU

disclosed that Kapur family had a substantial shareholding in the

company. It was agreed that a Valuation report would be prepared by

Mr.K.N. Memani to determine the value of the assets of the Company.

On the same date, another MOU was entered inter-se the brothers;

this related to a „non-competing arrangement‟ between the parties.

5 The company on 31.08.2003 by its Board Resolution had

endorsed the restructuring of the company in terms of the MOU of the 3

Kapur groups dated 31.08.2003. This Board Resolution noted that the

Sonepat unit would fall to the share of B.D.Kapur; unit No.2 i.e.

Sahibabad had fallen to the share of Jaidev Kapur and unit No.3 i.e.

Malanpur unit would fall to the share of Jagdish. The Board of directors

had noted with serious concern the decline in the growth of the company

manifested in poor financial results; the Board after detailed

deliberations noted that this restructuring of the company in the manner

as proposed by the Kapur family would be for its better growth to enable

it to remain in the position as a market leader. It was resolved that this

arrangement would deem to have come into effect w.e.f. 01.09.2003. It

was further resolved that the management committee of the respective

units shall manage and be responsible for taking all decisions with

respect to the functioning and management of the respective units either

individually or jointly; the management committee of each unit shall be

exclusively responsible for ensuring all requisite statutory and legal

compliances pertaining to the unit.... subject to the approval of the

board of directors; to avoid duplication and interpolation of work, all

the units will have complete autonomy of operations subject to the

overall control of the board of directors.

6 In terms of the aforenoted resolution, inter-se transfers of money

were also effected between the three units.

7 It was further resolved that the company will have a common

balance-sheet and all the three units shall manage independent accounts

and prepare separate balance-sheets but the unit accounts would be

merged and consolidated with the concurrent auditors as per the

approved accountancy norms and in accordance with applicable

regulations and guidelines duly certified by the statutory auditors. It was

resolved that „company shall have a centralized company law

department at Sonepat and the management committee at Sonepat will

keep the management of other bicycle units fully informed about the

functioning of the company law department. It was further resolved that

notwithstanding anything contained in the resolutions, the following

matters shall be treated as exceptions and any decision pertaining to

these matters by the concerned unit shall require prior approval from

the board of directors of the company.

A) "Obtaining any loan, banking-limit or further credit facility from any bank or Financial Institution or any other person

including enhancement, re-scheduling or revision of any existing loan, credit facility and/or bank-limit. B) So Any decision pertaining to Sale, mortgage, lease, licence, gift or alienation in any other manner of any immovable property belonging to the Company.

C) Any decision relating to Sale, mortgage, gift or alienation in any other manner of the plant and machinery or any other part thereof or other movable assets of the company except disposal of scrap or sale and/or disposal of vehicle lby the unit in regular course of business. However, such prior approval shall not be required if the written down value of the plant and machinery or part of the movable assets individually does not exceed Rupees one lac for individual item and Rupees five lacs in total in the same financial year.

D) Opening of a new bank account by any Unit of Atlas; E) Furnishing of any Bank Gurantee or other guarantee/security on behalf of Atlas whereby the financial liability of the Company would be enhanced (this would however not include furnishing of bank quarantee within the existing sanctioned bank limits).

F) Writing off any amount/recoverable debt of the value over Rs.1,00,000/- or writing off any amount/recoverable debt where the combined value of the written off amount in any financial quarter exceeds 3,00,000/- subject to statutory and other legal limitations.

G) Making a donation of the value of over Rs.1,00,000/- or where the combined value of the donation made in any financial quarter exceeds Rs.3,00,000/-. Further none of the units shall make donations in any financial year in excess of five percent of the average net profit of that particular unit for the last three years or such other statutory limitations or regulations as may be applicable from time to time.

H) Any decision relating to licensing, authorizing use of or otherwise entering into any arrangement with any other person with respect to use of the Trade Mark, designs, patents, copyrights or other intellectual property rights owned, used or enjoyed by the Company except for use in relation to components being supplied to Atlas by vendors.

I) Appointment/Recruitment of any employee(s) where the monthly salary of the employee inclusive of allowances and other benefits exceeds Rs.25,000/- per month.

J) All decisions by the Management Committee of the respective units relating to increments/promotion/revision/fixation of salaries, benefits, perks etc. of members of Management Committee or any other employee who may be directly or indirectly related to any member of the Management Committee.

K) The concurrent audit, which is presently being carried out by M/s S.R.Batliboi & Co. shall continue in all units of the company including ASTI, Auto and Numero. Designating a

common agency/consultant for concurrent audit, appointment, re-appointment, fixing of remuneration etc. of concurrent auditors shall however require prior approval of the Board.

The Board shall however take into account the recommendations made by the Management Committees of the units in this regard.

L) Any decision pertaining to sale, transfer, alienation or creating a third party interest in any manner over the shareholdings, Fixed Deposits, investments or other liquid assets owned or held by the Company.

M) Any other matter which as per statutory requirement is required to be referred to the Board of Directors."

8 A scrutiny of this Board Resolution clearly establishes the fact

that the overall and overseeing control of the 3 units continued to vest

with the Company. All decisions relating to sale, mortgage, lease,

licence, gift or alienation of any immoveable property, opening of new

bank account, furnishing of bank guarantees, writing off any debt,

money donation, licensing, appointment/recruitment of employees

whose salary exceeds Rs.25,000/- per month, increments, promotion and

fixation of salaries of employees directly or indirectly related to any

member of the managing committee, audit of accounts, decision relating

to sale, transfer, alienation or creating any third party interest in

moveable property i.e. shareholdings, fixed deposits and other

investments of three of each unit only with the prior approval of the

company. Thus as rightly pointed out by the learned senior counsel for

the defendants the company continued to retain its hold over the Kapur

family.

9 In CS (OS) No.77/2003 filed by one member of Kapur family

against another (subsequently withdrawn), an order came to be passed

on 02.05.2006. While noting that the inter-se family arrangement

between the Kapur groups, the application filed by the disgruntled

brother (estranged son of B.D. Kapur group) under Order 1 Rule 10 of

the CPC (I.A. No.10331/2005) and the second application under Order 6

Rule 17 of the CPC (I.A. No.10329/2005) seeking the addition of the

company as a party to the present proceedings and claiming certain

reliefs qua the company were both dismissed. The single Judge of this

Court had noted the legal proposition qua the company in the following

words:-

"As already noted above, the suit has arisen out of a valuation report prepared pursuant to an MOU entered into between the three groups of the Kapur family on 8th January, 1999. While the members of the Kapur family may have a large shareholding in Atlas Cycles, that entity is a completely independent legal and juristic entity that has nothing to do with the MOU entered into between the groups of the Kapur family. Under the circumstances, the attempt of the Plaintiffs is to unnecessarily rope in Atlas Cycles into the controversy and if this is permitted, over a dozen entities with which the Kapur Family is concerned would also have to be roped in to the litigation. All this is not only totally unnecessary but has no concern to MOU entered into between the groups the Kapur family."

10 In the proceedings before the learned Arbitrator, the question

which was posed was on the binding nature of the inter-se arrangement

between the Kapur brothers. The Award pronounced on 01.11.2014 in

its last but second part in this context noted as under:-

"The challenge to any decision of the board of directors in respect of Atlas Cycles falls outside my purview and therefore I have not expressed any firm view on the Board‟s decision. If the Board has taken any decision in respect of any business establishment, the matter is treated falling outside the scope of arbitration.

The parties will be at liberty to move the appropriate forum in respect of matter falling outside my purview."

11 This Court has also been informed that during the pendency of the

proceedings before the learned Arbitrator, the Malanpur unit had come

to be closed and in fact because of the huge pendency of debt owed by

the Malanpur unit to statutory bodies, the company was in the process of

declaring it as a „non-performing asset‟ (NPA). Accordingly company

had been constrained to propose the resolution dated 05.10.2014. In

terms of this Resolution dated 05.10.2014, the company resolved that

the Malanpur unit will be sold and out of the sale of the said unit, the

statutory liabilities of company will be warded off; since the liabilities

are huge and inter-se rearrangement of the structuring of Sonepat and

Sahibabad unit was also proposed; it was also resolved that the balance

debts of the Malanpur unit will be funded by the Sonepat and Sahibabad

in equal shares.

12 It is this resolution dated 05.10.2014 which has triggered the

present proceedings. The whole case of the plaintiffs is that such a

resolution could not have been passed; it amounts to a violation and

interference with the working of the Sonepat unit and the plaintiffs

group over which they had an independent and complete autonomy and

merely because the Malanpur unit was not functioning well and which

has now been riddled with debts, the plaintiffs cannot be asked to pay of

the dues of the Malanpur unit. After the passing of this resolution, the

company had proposed to have a meeting of 19.11.2014. This Court by

an order dated 19.11.2014 had directed that any resolution passed by the

defendants company in its board meeting to be held on 19.11.2014

adversely effecting the plaintiffs, will not be implemented upon.

13 There is no dispute to the legal proposition that a company is a

distinct legal entity; it is a juristic person. The inter-se family

arrangement between the Kapur brothers which had taken place on

31.08.2003 and which had been endorsed by the Board Resolution was

subject to the exceptions as noted supra. These exceptions clearly

provided that the complete overseeing control over all the units

continued to vest with the company. The Company had not lost its

control over it. As such even if the three units continued to perform

independently without interference from the year 2003 to 2014 smoothly

(as has been pointed out), it was primarily for the reason that all the

units were doing well in their respective fields. However, since the

Malanpur unit suffered a closure in 2014 and came to be debt-ridden,

the company proposed the resolution dated 05.10.2014. Nother

prevented the company from doing so. The resolution dated 31.08.2003

did not prohibit the company from passing any further resolutions which

were necessary for the overall governance of the company and which

was in the best interest of the company. In fact the arrangement dated

31.08.2003 was subject to the overall control of the company. This is

clear from the exception clauses (italized above).

14 The Supreme Court in Reliance Natural Resources Ltd. (supra)

while dealing with the binding nature of an inter-se family arrangement

of Reliance group on the Company had noted that the MOU signed

between the private family members and the arrangement of

understanding arrived at between Ambani brothers and their mother,

being a private arrangement, did not fall within the corporate domain; it

was neither approved by the shareholders and nor it was attached to the

scheme; it was held to be not legally binding. In that case, there was a

scheme which had been proposed under Sections 391 & 394 of the

Companies Act and the Apex Court had noted that the MOU entered

between the members of the family would not bind the other

shareholders before whom the scheme of arrangement had been

proposed; such an MOU was not within the corporate domain.

15 The ratio of this judgment clearly supports the proposition of the

defendants.

16 This Court has also been informed that the liabilities of the

company are becoming huge and the company is unable to repay them;

time limits have been laid down by the statutory bodies for payment to

them otherwise the company would be declared as „NPA‟. This position

is not refuted.

17 In this background, this Court is of the view that the plaintiffs

have failed to make out a prima-facie case in their favour. In fact an

irreparable loss and injury would be suffered by the company if

directors of the company are not allowed to transact the business of the

company which would be in the interest and welfare of the company.

The Resolution of the company dated 31.08.2003 containing exception

clauses which in fact evidences the authority and control of the

Company over all the three units which were allowed to function only to

the limited extent as contained in the Resolution. The overall control of

the units continued to vest with the company and this is clear from the

simple fact that a common balance-sheet of the company continued to

be filed before the Auditors. Balance of convenience is also not in

favour of the plaintiffs. Accordingly, the interim order dated 19.11.2014

is set aside.

18 This application is disposed of in the above terms.

CS(OS) 3510/2014

19     List for directions on 06.04.2015.




                                             INDERMEET KAUR, J

JANUARY 28, 2015

A