Delhi High Court
Asian Hotels (West) Ltd. & Ors. vs Jindal Photo Investment Ltd. & ... on 15 October, 2018
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CS(OS) 2476/2015 & I.A.Nos.17148/2015, 18714-18715/2015,
24462-24463/2015, 11795/2017
ASIAN HOTELS (WEST) LTD. & ORS. ..... Plaintiffs
Through Mr.Parag P.Tripathi and Mr. Harish
Malhotra, Senior Advocates with
Mr.Jayant Mehta, Mr.Pawan Sharma,
Mr.Siddharth Aggarwal, Ms. Divya
Bhalla, Mr.Anuj Shah, Mr.Srinivasan
Ramashwamy and Mr.Rishabh
Sharma, Advocates.
versus
JINDAL PHOTO INVESTMENT LTD. & ORS. ..... Defendants
Through Mr.Gaurav Varma and Mr.Sujoy
Datta, Advocates for D-1 to 3 & 5.
Mr.Darpan Wadhwa, Sr.Advocate
with Mr.Ajay Bhargava, Mr.Aseem
Chaturvedi, Mr.Saurabh Seth and
Mr.Sharngan Aravindakshan,
Advocates for D-6 to 9.
Reserved on: 27th August, 2018
% Date of Decision: 15th October, 2018
CORAM:
HON'BLE MR. JUSTICE MANMOHAN
CS(OS)2476/2015 Page 1 of 38
JUDGMENT
MANMOHAN, J:
PRAYERS IN THE SUIT AND PENDING APPLICATIONS AS WELL AS EX
PARTE ORDER DATED 19th AUGUST, 2015
1. Present suit has been filed for declaration and mandatory injunction.
The prayer clause in the present suit is reproduced hereinbelow:-
(A) A declaration to the effect that shareholding of Radhey
Shyam Saraf (Defendant No. 6) holding 572071 equity
shares, Anita Rajgaria (Defendant No. 7) holding 571061
equity shares, Forex Finance Pvt. Ltd. (Defendant No. 8)
holding 458377 equity shares and Jesmin Investment Ltd.
(Defendant No. 5) holding 7526 equity shares aggregating
to 1609035 equity shares in the Plaintiff No. 1 is illegal and
void;
(B) A decree of mandatory injunction or a decree in favour of
Plaintiffs and against the Defendants, their agents,
nominees, administrators, legal heirs, assignees etc.
directing the Defendant Nos. 5 to 8 to transfer their
shareholdings to the Plaintiff No. 1 at their face value;
(C) Award Cost in favour of the Plaintiffs and against the
Defendants;
(D) Pass an order(s)/direction(s) as this Hon'ble Court may
deem fit and proper in the facts and circumstances of the
case."
2. While I.A. No. 17148/2015 has been filed by the plaintiffs for grant of
injunction, I.A. Nos. 18714 & 18715 of 2015 have been filed under Order 39
Rule 4 by defendant nos. 8 and 6 respectively for vacation of interim order
dated 19th August, 2015, I.A. Nos. 24462 & 24463 of 2015 have been filed
under Order 7 Rule 11 read with Order 1 Rule 10 on behalf of defendant
nos. 5 and 1 to 3 respectively.
3. On 19th August, 2015, the learned predecessor of this Court passed an
ad interim ex parte order. The relevant portion of the said order is
reproduced hereinbelow:-
"It is the contention of the plaintiffs that as per the
arrangement between the parties, three groups, i.e., Gupta
Group, Saraf Group and Jatia Group were to go their separate
ways from the erstwhile ASIAN Hotels Ltd. and the three hotels
i.e. Hotel Hyatt at Mumbai (West Zone), Hotel Hyatt at Calcutta
(East Zone) and Hotel Hyatt at Delhi (North Zone), were to be
managed individually by the said groups. De-merger proceedings
to this effect were initiated before this court and were sanctioned
on 13.01.2010. In the interim, the parties had also entered into
an inter se agreement on 26.10.2009 according to which each of
the said three groups would hold an aggregate of 59.27% of the
shares in the proposed three 'resultant' companies. Clause F of
the inter se agreement reads as under:
"F. The Parties are desirous of undertaking an inter-se
transfer of equity shares amongst them in AHL Residual,
Transferee Company-I and Transferee Company-II post
the effectiveness of the Scheme in compliance with the
provisions of applicable Laws. The Parties intend to
record in this Agreement, the modalities of effecting
trifurcation enabling each of the Jatia Group, the Gupta
Group and the Saraf Group to hold in the aggregate
67,57,702 equity shares (i.e. 59.269%) out of the total
issued and paid-up capital of AHL Residual, Transferee
Company-I, and Transferee Company-II respectively,
which modalities will be affected and implemented in
accordance with the provisions of this Agreement."
It was also agreed that there would not be cross-holding of either
of them in the other's company. This was specifically stipulated in
Clause 7.4 of the agreement which reads as under:
"7.4. Each of the Promoter Groups undertake not to
acquire further equity shares in AHL and post
effectiveness of the Scheme not to acquire further equity
shares in the resultant companies and shall ensure that
the public shareholding of the resultant companies does
not fall below the threshold stipulated under clause 40A
of the listing agreement. This restriction will not apply
after the inter-se swap of equity shares as per this
Agreement."
In terms of the said agreement, the Saraf and Jatia
Groups transferred their total shareholding of 42.02% in plaintiff
No.1 in favour of the Gupta Group on 23.08.2010. In December,
2010, the plaintiffs discovered that 14.1% shares held by
defendant Nos. 4 and 5 which are owned by the Jindal Groups
were transferred to defendant Nos. 6 to 9 i.e. the Saraf Group. It
has been discovered that the said defendants have required
cross-holdings in the plaintiff's company in contravention of
Clause 7.4 of the inter se agreement. The plaintiffs seek restraint
upon further transfer of the said shares to third parties and a
restraint against the exercise of voting rights that go with these
shares.
Dr. Abhishek Manu Singhvi, the learned Senior Advocate
for the plaintiffs would contend that if the interim injunction is
not granted it would severely hamper the management and
prejudice the rights of the plaintiffs.
It appears prima facie that the shares held by defendant
nos. 6, 8 & 9 are in contravention of the inter se agreement dated
23.09.2009 since the parties explicitly agreed that there would be
no cross holdings in each others' company.
This Court is of the view that the plaintiffs have made out
a prima facie case for an ex parte ad interim injunction against
exercising of voter rights and against further transfer of the
shows to third parties, and in case such an order is not passed at
this stage, the plaintiffs' rights and interests would be irreparably
prejudiced. The balance of convenience too is in favour of the
plaintiffs.
Insofar as defendant no. 7 is concerned, no interim
injunction is warranted against her at this stage, because she
was not a signatory to the agreement dated 23.09.2009 which
was signed by D-6 her father on his own behalf as well as on
behalf of D-8 and D-9 - companies of the Saraf Group.
In the circumstances, till the next date of hearing,
defendant Nos. 6, 8 and 9 shall maintain status quo apropos the
said 14.1% of the shares and are injuncted from exercising
voting rights arising from the said shares.
Apropos the shares held by defendant No.7, the learned
Senior Advocate for the plaintiffs states that he would pursue the
matter in the post-notice proceedings.
Compliance under Order XXXIX, Rule 3 of the CPC shall
be done by the plaintiffs within one week."
(emphasis supplied)
ARGUMENTS ON BEHALF OF THE PLAINTIFFS
4. Mr. Parag P. Tripathi, learned senior counsel for the plaintiffs stated
that Asian Hotels Ltd. (hereinafter referred to as "AHL") was a public
limited company incorporated on 13th November, 1980 wherein substantial
shareholding was owned by three promoter groups, viz. Jatia Group
(24.59%), Gupta Group [the plaintiff] (24.59%) and Saraf Group (15.17%).
He pointed out that AHL was managing three hotels, namely Hotel Hyatt at
Delhi, Hotel Hyatt at Mumbai and Hotel Hyatt at Kolkata.
5. According to Mr. Tripathi, in or about 2004-05, AHL learnt that
Jindal Group (defendant nos. 1 to 4), acting in concert with Saraf Group, had
acquired 9.65% shares of AHL in violation of SEBI (Substantial Acquisition
of Shares and Takeovers) Regulations, 1997 (for short "Code, 1997") during
the period 2003-2005 and, therefore, a Board Meeting of AHL was held on
15th February, 2005, wherein Radhey Shyam Saraf (defendant no. 6)
unequivocally stated on behalf of the Saraf Group that none of their
constituent individuals and body corporate entities had acted in concert with
any of the said acquirer companies, i.e., defendant nos. 1 to 4. The relevant
portion of the Board Minutes dated 15th February, 2015 relied upon by Mr.
Tripathi is reproduced hereinbelow:-
"The Secretary thereafter informed the Board that pursuant
thereto, preliminary information in respect of the acquisition of
shares as aforesaid has been collected from the Stock
Exchanges etc. A statement highlighting the acquisition of
2200616 equity shares amounting to 9.65% of the share capital
of the Company by a group of 4 Companies viz. Jindal Photo
Investment Limited, Delhi, Consolidated Photo Finvest Limited,
Delhi, Consolidated Finvest and Holdings Limited,
Uttaranchal, UP and White Pin Tie Up Limited, Kolkata, West
Bengal was tabled in the Board Meeting for information of
Board members. A copy of the said statement is annexed hereto
as Annexure 1 and forms an integral part of these Minutes. The
following preliminary conclusions and observations were
made:
1. That all the said Companies formed part of the Jindal
Group of Companies,
2. That 3 of the said Companies viz. Jindal Photo
Investment Limited, Delhi, Consolidated Photo Finvest
Limited Delhi and Consolidated Finvest and Holdings
Limited, Uttaranchal, UP appear to be closely
interconnected by virtue of common shareholdings,
directorships etc. as emanated from a study of their
Annual Reports and Annual Returns.
3. That Consolidated Finvest and Holdings Limited,
Uttaranchal and UP White Pin Tie Up Limited, Kolkata,
West Bengal had acquired 490000 shares and 450000
shares respectively in the same settlement period viz. 28th
January to 04 February 2005 in the Mumbai Stock
Exchange from the same seller viz. Society General
Finance.
4. That the general pattern of acquisition of shares of the
Company since 07 February 2003 as distributed between
the said four Companies indicated a common intention to
acquire.
Based on the above facts as represented, the Board noted that
prima facie it appeared that the said group of four Companies
were acting in concert and if proved this would amount to
violation of Regulation 7(1) of the Securities and Exchange
Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997 as amended subsequently which
states that where the holding of any person in the Company
exceeds the limit of 5% of the voting capital, the said person is
required to disclose to the Company find the Stock exchanges
concerned the fact of such acquisition within 2 days of the date
of the acquisition shares.
xxxx xxxx xxxx xxxx
The Board after due deliberation authorized the Share Transfer
and Shareholders Grievances Committee of the Board
consisting of Mr. SK Chibber, Chairman of the Committee and
Mr. RK Bhargava, Mr. Sushil Gupta, Mr. Shiv Jatia and Mr.
Arun Saraf, Members of the Committee, to study the opinions
and recommendations received from the said legal counsel and
decide as soon as possible on the final course of action to be
taken in all respects to ensure that the Company's interests as
well as the promoter Group's interests are safeguarded as per
law and no violation of SEBI guidelines have taken place to the
Company's detriment.
xxxx xxxx xxxx xxxx
In view of the sensitivity of the matter and the implications
arising from the promulgation of the Securities and Exchange
Board of India (Substantial Acquisition of Shares And
Takeovers) (Second Amendment Regulations, 2004), the three
distinct Promoter Groups of Company represented in the
meeting by Mr. Sushil Gupta and Mr. Sudhir Gupta for the
Gupta Group, Mr. Shiv Jatia and Mr. Raj Kumar Jatia fort the
Jatia Groupo, Mr. RS Saraf and Mr. Arun Saraf for the Saraf
Group confirmed unequivocally and unanimously that none of
their respective Promoter groups including the constituent
individual and body corporate entities have acted in concert
with any of the said acquirer Companies mentioned earlier on
in these Minutes viz. Jindal Photo Investment Limited, Delhi,
Consolidated Photo Finvest Limited, Delhi, Consolidated
Finvest and Holdings Limited, Uttaranchal, UP and White Pin
Tie Up Limited, Kolkata, West Bengal in the act of these
Companies acquiring 2200616 shares of the Company at any
point of time in the past.
In this connection, the matter of the three Promoter Groups
making a formal written declaration to the Board, of the
schedule (containing all relevant details) of their respective
constituents (individual or bodies corporate) who may he
regarded as part of their respective Promoter Groups for the
purposes of being deemed to be acting in concert with them as
also the desirability of obtaining similar continuing
declarations on a regular and periodical basis at each meeting
of the Share Transfer and Shareholders Grievance Committee
Meeting was discussed and it was decided that this issue also
be referred to the legal counsel mentioned earlier in Para 3 of
these Minutes for obtaining a final opinion to enable the said
Committee decide on how to move forward on this as also the
documentation required to ensure this."
6. Mr. Tripathi stated that believing the said statements, AHL filed CP
No. 2/111/05 on 28th March, 2005, challenging the aforesaid acquisition of
9.65% shares of AHL by defendant nos. 1 to 4, on the ground that the said
acquisition was in violation of Code, 1997. He contended that during the
pendency of the aforesaid CLB petition (2003-09), defendant nos. 1 to 4
acquired further shareholding in AHL and thereby increased their combined
shareholding to 14.46%.
7. Mr. Tripathi stated that in or about 2008, while the CLB petition was
still pending, the three promoter groups realising that they had independent
competing interests in the hospitality sector, decided to demerge AHL into
three different entities to be managed individually by the three promoter
groups. According to him, the three hotels at Delhi, Mumbai and Kolkata
were to be managed individually by the three demerged entities and
exclusively owned by each group, i.e. Jatia Group [Asian Hotels (North)
Ltd.], Gupta Group [Asian Hotels (West) Ltd.] and Saraf Group [Asian
Hotels (East) Ltd.] respectively and in which there would not be any
cross holdings of the other groups. He stated that to achieve the aforesaid
objective, a Scheme of Demerger was got approved from this Court on 13th
January, 2010 and shares were transferred between the three groups in
accordance with Inter Se Agreement on 23rd August, 2010.
8. Mr. Tripathi submitted that the only object and purpose of the Scheme
of Demerger and Inter Se Agreement was to ensure that none of the groups,
which had their own competing businesses, would have any shareholding in
the companies owned exclusively by each group. According to him,
otherwise there was no need to enter into an Inter Se Agreement for transfer
of shares held by each group in the individual company of the other groups.
He submitted that Clause 7.4 of the Inter Se Agreement specifically
provided that there was a restriction on the Saraf Group to acquire shares in
plaintiff no. 1. He stated that since the shares had been acquired by Jindal
Group acting in concert with Saraf Group as aforesaid, Clause 7.4 had been
violated even before the swap of shares itself.
9. He pointed out that pursuant to the demerger, all the three demerged
companies allotted shares to defendant no. 4 and defendant no. 5 in AHL
and thereafter, in December, 2010, the defendant nos. 6 to 8 purchased
shares of the plaintiff no. 1 from defendant nos. 4 and 5, who had been
allotted shares in the plaintiff no. 1 in their capacity as shareholders of AHL
prior to demerger, in violation of said Clause 7.4.
10. Mr. Tripathi emphasised that the Inter Se Agreement restrained the
promoter groups from having cross holding in resultant companies, managed
and controlled by other groups, of erstwhile AHL, in perpetuity. In support
of this submission, he relied upon the judgment of the House of Lords in
Russell Vs. Northern Bank Development Corp Ltd and Ors; (1992) 3 All
ER 161, wherein it has been held as under:-
"However, it must be remembered that the agreement was executed
not only by the shareholders but also by T.B.L. In Bushell v. Faith
[1969] I All ER 1002, [1969] 2 Ch. 438 one of the articles of a private
company provided that in the event of a resolution being proposed at a
general meeting of the company for the removal of a director any
share held by him should carry three votes per share. The issued
capital of the company was equally divided between three persons and
an attempt by two shareholders to remove the third from the office of
director failed because his 300 votes outnumbered the 200 of the two
other shareholders. It was held that the article in question was not
invalidated by S. 184 of the Companies Act 1948 which empowered a
company by ordinary resolution to remove a director. Russell L.J.
said, ([1969] I All Er 1002 at 1006, [1969] 2 Ch 438 at. 447-448:
„Counsel for the plaintiff argued by reference to S. 10, and the
well known proposition that a company cannot by its articles or
otherwise deprive itself of the power by special resolution to alter
its articles or any of them. But the point is the same one. An article
purporting to do this is ineffective. But a provision as to voting
rights which has the effect of making a special resolution
incapable of being passed, if a particular shareholder or group of
shareholders exercises his or their voting rights against a
proposed alteration, is not such a provision. An article in terms
providing that no alteration shall be made without the consent of
X is contrary to section 10 and ineffective. But the provision as to
voting rights that I have mentioned is wholly different, and it does
not serve to say that it can have the same result.‟
Both parties sought to derive comfort from this dictum. Mr. McCartney
relied on it as demonstrating that a provision as to the exercise of
voting rights, even although it had the effect of preventing a resolution
being passed, was nevertheless valid. Mr. Girvan argued that the effect
of clause 3 was the same as that of an article containing a provision
that "no alteration should be made without the consent of X."
I do not doubt that if clause 3 had been embodied in the articles of
association so as to be binding on all persons who were or might
become shareholders in T.B.L. it would have been invalid but it was, of
course, not so embodied. To my mind the significant part of this dictum
for the purposes of this appeal is the words "articles or otherwise"
occurring in the first sentence thereof. These words appear to
recognise that it is not only fetters on the power to alter articles of
association imposed by the statutory framework of a company which
are obnoxious. Turning back to clause 3 of the agreement it appears to
me that its purpose was twofold. The shareholders agreed only to
exercise their voting powers in relation to the creation or issue of
shares in T.B.L. if they and T.B.L. agreed in writing. This agreement is
purely personal to the shareholders who executed it and as I have
already remarked does not purport to bind future shareholders. It is, in
my view, just such a private agreement as was envisaged by Lord
Davey in Welton v. Saffery. T.B.L. on the other hand agreed that its
capital would not be increased without the consent of each of the
shareholders. This was a clear undertaking by T.B.L. in a formal
agreement not to exercise its statutory powers for a period which
could, certainly on one view of construction, last for as long as any
one of the parties to the agreement remained a shareholder and long
after the control of T.B.L. had passed to shareholders who were not
party to the agreement. As such an undertaking it is, in my view, as
obnoxious as if it had been contained in the articles of association and
therefore is unenforceable as being contrary to the provisions of
article 131 of the Companies (Northern Ireland) Order 1986. T.B.L.'s
undertaking is, however, independent of and severable from that of the
shareholders and there is no reason why the latter should not be
enforceable by the shareholders inter se as a personal agreement
which in no way fetters T.B.L. in the exercise of its statutory powers. I
would therefore allow the appeal.
11. Mr. Tripathi stated that the plaintiffs on verification of records, like
balance-sheets, found that the defendant no.4 was owned by the Jindal
Group and substantial shares of the defendant no. 5 were held by Saraf
Group as well as the Jindal Group. He contended that the Jindal Group and
the Saraf Group had cross holdings in various companies and balance sheet
of defendant no. 5 revealed that it was used only for the purpose of investing
money in AHL. Mr. Tripathi handed over tables / charts, which according
to him, showed that Jindal Group and Saraf Group had been, from the
beginning (i.e. 2003), acting in concert with common intent of acquiring
shares in AHL, which fact had been suppressed and concealed by Saraf
Group from Gupta Group. One such chart handed over by Mr. Tripathi is
reproduced hereinbelow:-
a) Defendant no. 5 is a Jindal Group Company as over 90%
shares of defendant no. 5 are held by defendant no. 3
which is admittedly a Jindal Group Company.
b) In defendant no. 5, which was represented to be owned,
controlled and promoted by Jindal Group, defendant no.
7, belonging to Saraf Group, was also a shareholder.
c) Defendant no. 7 is a member of Saraf Group as she is the
daughter of defendant no. 6 and is acting in concert with
defendant nos. 6 and 8, a Saraf Group Company.
d) As defendant no. 7 is a member of Saraf Group, who has
contributed to capital of defendant no. 5 who, in turn,
acquired shares of AHL, Saraf Group has partly funded
the acquisition of shares of AHL by defendant no. 5.
e) In Jindal Poly Films Ltd., a Jindal Group Company,
acquired shares acting in concert with defendant no. 6.
f) The shares held by Jindal Group in the three companies
were purchased by Saraf Group alone in open market. It
cannot be a mere co-incidence that at the particular date
and time whenever Jindal Group made a bid to sell its
shares in all the three companies always there would be
representatives from Saraf Group sitting to buy the same.
This only showed that Jindal and Saraf Groups were
acting in concert since beginning.
12. He submitted that from the aforesaid, it was apparent that the
defendant nos. 4 and 5 had actually acquired shareholding in AHL prior to
the demerger only in order to hold the same on behalf of the Saraf Group
and deceive the plaintiffs. He contended that the Saraf Group had actually
retained shares in the demerged entities by not disclosing in the Scheme of
Demerger or the Inter Se Agreement that the shares held by defendant nos. 4
and 5 were actually for and on behalf of the Saraf Group.
13. He submitted that the present suit had been filed on the ground that
the defendant nos. 5 to 8 perpetrated a fraud and falsely misrepresented to
the Plaintiff Group regarding their true shareholding in AHL and illegally
obtained the consent of the Plaintiff Group to the Scheme of Demerger and
the resultant Inter Se Agreement. According to him, since the consent of the
Plaintiff Group had been obtained by fraud and/or misrepresentation, the
plaintiffs were entitled to relief of the defendants performing their obligation
as per the Agreement / Arrangement between the parties. In support of his
submissions, Mr. Parag Tripathi relied upon the following paragraphs of the
judgment of the Supreme Court in S.P. Chengalvaraya Naidu (dead) by
LRs Vs. Jagannath (dead) by LRs & Ors.; (1994) 1 SCC 1:-
"Fraud avoids all judicial acts, ecclesiastical or temporal"
observed Chief Justice Edward Coke of England about three
centuries ago. It is the settled proposition of law that a judgment or
decree obtained by playing fraud on the court is a nullity and non
est in the eyes of law. Such a judgment/decree - by the first court or
by the highest court - has to be treated as a nullity by every court,
whether superior or inferior. It can be challenged in any court even
in collateral proceedings.
xxx xxx xxx
...... The principle of "finality of litigation" cannot be pressed to the
extent of such an absurdity that it becomes an engine of fraud in the
hands of dishonest litigants. The courts of law are meant for
imparting justice between the parties. One who comes to the court,
must come with clean hands. We are constrained to say that more
often than not, process of the court is being abused. Property-
grabbers, tax-evaders, bank-loan-dodgers and other unscrupulous
persons from all walks of life find the court-process a convenient
lever to retain the illegal-gains indefinitely. We have no hesitation
to say that a person, who's case is based on falsehood, has no right
to approach the court. He can be summarily thrown out at any
stage of the litigation."
ARGUMENTS ON BEHALF OF THE DEFENDANTS
14. On the other hand, Mr. Darpan Wadhwa, learned senior counsel for
defendant nos. 6 to 9 and Mr.Gaurav Varma, learned counsel for defendant
nos.1 to 3 & 5, submitted that the present suit was barred by limitation and it
needed to be dismissed at the threshold. They pointed out that the plaintiffs
had themselves admitted in the plaint that the date of knowledge of the
shares having been acquired by the Saraf Group, was January, 2011. They
also stated that though the cause of action had arisen for the first time in
2011, yet the suit had been filed on 10 th August, 2015 and thus the suit was
hopelessly barred by limitation.
15. Learned senior counsel for defendant nos. 6 to 9 submitted that the
benefit of Section 14(1) of the Limitation Act, 1963 (hereinafter referred to
as "Act, 1963") was not available to the plaintiffs as neither the same matter
was in issue before the CLB as well as this Court, nor was it between the
same parties.
16. Mr. Wadhwa also contended that there was no agreement restraining /
prohibiting the three promoter groups from cross holding or from purchasing
or inter se transferring shares of AHL, prior in time to the Inter Se
Agreement in 2010. He submitted that the Supreme Court in V.B. Rangaraj
Vs. V.B. Gopalakrishnan & Ors. (1992) 1 SCC 160 has held that shares are
freely transferable until and unless a restriction is stipulated in the Articles
of Association of a company. The relevant portion of the said judgment is
reproduced hereinbelow:-
"7. These provisions of the Act make it clear that the Articles of
Association are the regulations of the company binding on the
company and its shareholders and that the shares are a movable
property and their transfer is regulated by the Articles of
Association of the company.
8. Whether under the Companies Act or Transfer of Property
Act, the shares are, therefore, transferable like any other
movable property. The only restriction on the transfer of the
shares of a company is as laid down in its Articles, if any. A
restriction which is not specified in the Articles is, therefore, not
binding either on the company or on the shareholders. The
vendee of the shares cannot be denied the registration of the
shares purchased by him on a ground other than that stated in
the Articles.
xxx xxx xxx
11. In Swaledale Cleaners Ltd., Re (1968) 1 All ER 1132:
(1968) 1 WLR 432 it was held that it is well established that a
share in a company is an item of property freely alienable in the
absence of express restrictions under the Articles. This view is
reiterated in Tett v. Phoenix Property and Investment Co.
Ltd.(1986) 2 BCC 99, 140.
12. In Chapter 16 of Gore-Browne on Companies (43rd edn.)
while dealing with transfer of shares it is stated that subject to
certain limited restrictions imposed by law, a shareholder has
prima facie the right to transfer his shares when and to whom he
pleases. This freedom to transfer may, however, be significantly
curtailed by provisions in the Articles. In determining the extent
of any restriction on transfer contained in the Articles, a strict
construction is adopted. The restriction must be set out expressly
or must arise by necessary implication and any ambiguous
provision is construed in favour of the shareholder wishing to
transfer.
13 In Palmer‟s Company Law (24th edn.) dealing with the
„transfer of shares‟ it is stated at pages 608-09 that it is well
settled that unless the Articles otherwise provide the shareholder
has a free right to transfer to whom he will. It is not necessary to
seek in the Articles for a power to transfer, for the Act (the
English Act of 1980) itself gives such a power. It is only
necessary to look to the Articles to ascertain the restrictions, if
any, upon it. Thus a member has a right to transfer his
share/shares to another person unless this right is clearly taken
away by the Articles.
14. In Halsbury‟s Laws of England (4th edn.) Vol.7, para 359
dealing with „attributes of shares‟ it is stated that „‟a share is a
right to a specified amount of the share capital of a company
carrying with it certain rights and liabilities while the company is
a going concern and in its winding up. The shares or other
interest of any member in a company are personal estate
transferable in the manner provided by its articles and are not of
the nature of real estate.
15. Dealing with „restrictions on transfer of shares‟ in
Penington‟s Company Law (6th edn.) at page 753 it is stated that
shares are presumed to be freely transferable and restrictions on
their transfer are construed strictly and so when a restriction is
capable of two meanings, the less restrictive interpretation will
be adopted by the court. It is also made clear that these
restrictions have to be embodied in the Articles of Association."
17. Mr. Wadhwa further contended that there was no restriction on
purchase of shares by defendant nos. 6 to 9 under the Inter Se Agreement in
perpetuity and the said Inter Se Agreement had worked itself out. He
pointed out that Clause 7.4 of the Inter Se Agreement provided that the
restriction was to remain in operation, only till the swap took place and not
thereafter. He also stated that the Inter Se Agreement cannot give rise to any
cause of action to any of the promoter groups of the erstwhile AHL prior to
2010. He stated that the swap had taken place in August 2010 and the
shares were purchased in December 2010 and January 2011. Therefore,
according to him, the restrictions in the Inter Se Agreement could not be
enforced at this stage.
18. He also stated that the plaintiffs had misled this Court as they did not
mention in the plaint that the defendant no. 7 was not a signatory to the Inter
Se Agreement. He contended that the fact that defendant no. 9 had no
shareholding in plaintiff no. 1 was also concealed from this Court.
19. Mr. Gaurav Varma, learned counsel for the defendant nos. 1 to 3 and
5, stated that the plaintiffs are not entitled to challenge the original
acquisition of shares in AHL as being violative of Code 1997 by the
defendant nos. 1 to 4 as, firstly, the said transaction could only be
challenged by AHL and not by the companies created pursuant to the
Scheme of Demerger 2010.
20. Secondly, he stated, that the plaint and documents showed that the
issue of illegality of acquisition of shares in AHL by the defendant nos. 1 to
4 was the subject matter of adjudication in the Company Petition
No.2/111/2005. The relevant portion of the Company Petition
No.2/111/2005 filed by erstwhile AHL before the CLB under Section 111A
of the Companies Act and relied upon by him is reproduced hereinbelow:-
"8. It is submitted that keeping in view the acquisition
pattern adopted by the Four Companies (which is evident from
Annexure-A) and the fact that the entire block of 940000 shares
of the Company standing in the name of Societe Generale
France was sold by the said Seller during the same settlement
period to Respondent No.3 (who bought 490000 shares) and
Respondent No.4 (who bought 450000 shares), the denials
made by Respondent Nos.1-4 in their respective replies to the
Petitioner Company did not seem to be acceptable and
accordingly the Petitioner Company continued its enquiry and
has learnt that Respondent Nos.1-3 Companies are owned by a
group headed by one Mr. S.S. Jindal and the Fourth
Respondent Company is owned by a group headed by one Mr.
D.P. Jindal. It is submitted that Mr. S.S. Jindal and Mr. D.P.
Jindal are real brothers and from the same family. It is
therefore apparent that the apprehension of the Petitioner
Company was correct and that the two brothers namely Mr.
S.S. Jindal and Mr. D.P. Jindal are owning the aforesaid
Respondent Nos.1-4 Companies and that the said Companies
are interconnected and have acquired the shares of the
Petitioner Company inter alia in violation of SEBI Take Over
Code in as much as the total shareholding of the said
Companies is presently 9.65% (2200616 shares) of the total
shareholding of the Petitioner Company. It is submitted that
the said Respondents No.1-4 Companies have neither informed
the concerned Stock Exchanges nor the Petitioner Company
before making such acquisition of shares which are more than
5% of the total share capital of the Petitioner Company as
required under Regulation 7(1) of the SEBI Take Over Code."
21. He stated that the Company Law Board rejected the said argument by
way of a specific finding that defendant nos. 1 to 5 cannot be treated as
"persons acting in concert". The relevant portion of the CLB Order dated
25th July, 2014 is reproduced hereinbelow:-
"30. The Petitioner tried to impress upon this Bench saying that
R-l to R-9 (Defendants herein) acted in concert to acquire the
shareholding of in the petitioner company and Asian Hotels
(West) Ltd showing as if seller and acquirer acted in concert,
therefore all the respondents except R-5 violated the regulation
hence acquisitions in these two companies shall be rectified,
but I don't find any merit in this argument because R1-3 are
managed by SS Jindal and R-4 is managed by DP Jindal. Just
because they are real brothers, it cannot be assumed that they
acted in concert in acquiring shareholding in the petitioner
company, unless the evidence on record clearly establishes that
they have common objective or purpose of substantial
acquisition of shares or voting rights for gaining control over
the target company. Of course it is an issue raised in the CP,
thereby it would be decided when main petition is decided. The
persons involved in acquiring shareholding alone will be
considered as persons acting in concert; sellers cannot be
inducted as acting in concert because seller will have no
intention in acquisition. Therefore, the doctrine of acting in
concert is applicable to acquisition, but not against the person
offloads his shareholding. Moreover, since section 111(A)(3) of
the Act is limited to rectification, this bench is under obligation
to see any necessity is there for rectification, since the
shareholding held by R-6 has already been transferred to
R7&8, which is admittedly not hit by Regulation 7, the cause of
action against R-6 is not subsisting as on the date of filing the
CA."
22. He contended that the aforesaid specific finding in favour of
defendant nos. 1 to 5 had attained finality.
23. Thirdly, he stated that the plaintiff nowhere made the case that the
defendant nos.1 to 4 had failed to make any disclosure, required under the
law, to the regulatory authorities upon acquisition/disposal of shares. He
pointed out that the finding of proper disclosure to SEBI had been duly
recorded in the order of CLB. Thus, according to him, as it is not the
acquisition or even acting in concert that gives rise to an offence, but rather
the non-disclosure of such activities and that no such allegation had been
made in the plaint, the plaint merits to be rejected.
24. Fourthly, he stated that the cause of action sought to be raised in the
plaint relating to alleged collusion and action "in concert" in disposal of
shares by defendant nos.1 to 4 nearly 6 to 12 years later was untenable. He
submitted in the alternative, a post-acquisition arrangement between several
persons or several acquirers would not attract the definition of "acting in
concert". The definition of "persons acting in concert", according to him, is
only relevant at the time of acquisition or at the time immediately prior to
the acquisition [Kishore Rajaram Chhabria v. The Chairman, Securities
and Exchange Board of India, 2003 46 SCL 385 (SAT)].
REJOINDER
25. In rejoinder, Mr. Parag Tripathi submitted that the judgement in V.B.
Rangaraj (supra) had been diluted by the subsequent judgment of the
Supreme Court in M.S. Madhusoodhanan & Anr. Vs. Kerala Kaumudi (P)
Ltd. & Ors.; (2004) 9 SCC 204, wherein it has been held as under:-
"There is no such restriction on the transferability of shares in the
Karar. It was an agreement between particular shareholders relating
to the transfer of specified shares, namely those inherited from the
late Sukumaran and Madhavi, inter se. It was unnecessary for the
company or the other shareholders to be a party to the agreement.
As provided in clause 10 of the Karar, Exhibits R-59 and R-60 did
not obviate compliance with the Karar. Both Ex. R-59 and R-60 were
executed on 15.7.85 several months prior to the Karar. The parties
who had consciously entered into the agreement regarding the
transfer of their parents shares are therefore obliged to act in terms
of the Karar. The defence of Ravi and Srinivasan based on Ex.R-59
and R-60 should not, in the circumstances, have been accepted by
the Division Bench. Having regard to the nature of the shareholding,
on the basis of the law as enunciated by the Federal Court and Privy
Council in the decisions noted above, it must be held that the Karar
was specifically performable."
26. Mr. Tripathi further submitted that in the case of an active
misrepresentation knowing the fact to be false, it is not incumbent upon the
party defrauded to establish that he had no means of discovering the truth
with ordinary diligence. In support of his submission, he relied upon the
judgment in Niaz Ahmad Khan & Anr. Vs. Parshotam Chandra & Anr.;
1930 SCC OnLine All 252.
27. Mr. Harish Malhotra, learned senior counsel for the plaintiffs (who
supplemented the submissions of Mr. Parag Tripathi) submitted that Section
14(1) of the 1963 Act has to be construed liberally and the expression
„defect of jurisdiction or other cause of a like nature‟ is wide enough to
cover defects which are "not merely jurisdictional strictly so called but
others which are more or less neighbours to such deficiencies". In support
of his submissions, he relied upon Anil Bhasin Vs. Telecommunications
Consultants India Ltd. and Ors., RFA No. 487/2012, dated 6th January,
2016 and Shakti Tubes Limited Vs. State of Bihar and Others, (2009) 1
SCC 786.
COURT‟S REASONING
AVERMENTS IN THE PLAINT WILL HAVE TO BE BELIEVED AT THIS
STAGE AND THE DEFENCE OF THE DEFENDANTS CANNOT BE
CONSIDERED AT THIS STAGE.
28. Undoubtedly, in view of the judgments of the Supreme Court in
Saleem Bhai and Others Vs. State of Maharashtra and Others, AIR 2003
SC 759 and Kamala and Others Vs. K.T. Eshwara SA and Others, (2008)
12 SCC 661 the averments in the plaint will have to be believed at this stage
and the defence of the defendants cannot be considered at this stage.
29. In the present case, the share purchase by the alleged Jindal Group
(defendant nos. 1 to 4) took place between 2003 to 2009 and this was prior
to the execution of Inter Se Agreement and the subsequent purchase by the
defendant nos. 5 to 8 in December 2010 and January 2011 from the Stock
Exchange was post the termination of Inter Se Agreement. In fact, the
subsequent purchase after intimation to the Stock Exchange has never been
challenged by the plaintiffs as being violative of either SEBI Guidelines or
Regulations or any other law but has been challenged primarily on the
ground that the initial purchase between 2003 to 2009 was actually a
purchase on behalf of and for the benefit of Saraf Group and the Inter Se
Agreement restrains the promoter groups from having cross holding in
resultant companies maintained and controlled by other groups of erstwhile
AHL in perpetuity.
HOWEVER, THE RITUAL OF REPEATING A WORD LIKE 'FRAUD' OR
'CREATION' OF AN ILLUSION IN THE PLAINT CAN CERTAINLY BE
UNRAVELLED AND EXPOSED BY THE COURT WHILE DEALING WITH
AN APPLICATION UNDER ORDER 7 RULE 11(a) CPC.
30. As pointed out by the Supreme Court in T. Arivandandam Vs. T.V.
Satyapal and Another, (1977) 4 SCC 467 and I.T.C. Limited Vs. Debts
Recovery Appellate Tribunal and Another, (1998) 2 SCC 70 the ritual of
repeating a word like 'fraud' or 'creation' of an illusion in the plaint can
certainly be unravelled and exposed by the Court while dealing with an
application under Order 7 Rule 11(a) CPC. In I.T.C. Limited (supra), the
Supreme Court held "non-movement of goods by the seller could be due to a
variety of tenable or untenable reasons, the seller may be in breach of the
contract but that by itself does not permit a plaintiff to use the word "fraud"
in the plaint and get over any objections that may be raised by way of filing
an application under Order 7 Rule 11 CPC."
(emphasis supplied)
SHARES OF A COMPANY ARE FREELY TRANSFERABLE AND A
RESTRAINT OR PROHIBITION ON PURCHASE OR INTER-SE
TRANSFER OF SHARES CANNOT BE IMPLIED BUT HAS TO BE
EXPLICIT AND SPECIFICALLY PROVIDED, ESPECIALLY IN THE CASE
OF A PUBLIC LISTED COMPANY
31. It is settled law that shares of a company are freely transferable and a
restraint or prohibition on purchase or inter-se transfer of shares cannot be
implied but has to be explicit and specifically provided, especially in the
case of a public listed company. The Supreme Court in Vodafone
International Holdings BV Vs. Union of India & Anr. (2012) 6 SCC 613
has held as under:-
"269. Shares of any member in a company is a movable property
and can be transferred in the manner provided by the articles of
association of the company. Stocks and shares are specifically
included in the definition of the Sale of Goods Act, 1930. A share
represents a bundle of rights like right to (1) elect Directors, (2)
vote on resolution of the company, (3) enjoy the profits of the
company if and when dividend is declared or distributed, (4)
share in the surplus, if any, on liquidation.
270. Share is a right to a specified amount of the share capital
of a company carrying out certain rights and liabilities. In other
words, shares are bundles of intangible rights against the
company. Shares are to be regarded as situate in the country in
which it is incorporated and register is kept. Shares are
transferable like any other movable property under the
Companies Act and the Transfer of Property Act. Restriction of
transfer of shares is valid, if contained in the articles of
association of the company. Shares are, therefore, presumed to
be freely transferable and restrictions on their transfer are to be
construed strictly. Transfer of shares may result in a host of
consequences."
(emphasis supplied)
PLAINTIFFS' CONTENTION THAT THE INTER SE AGREEMENT
RESTRAINED THE PROMOTER GROUPS FROM HAVING CROSS
HOLDING IN RESULTANT COMPANIES, MANAGED AND
CONTROLLED BY OTHER GROUPS, OF ERSTWHILE AHL, IN
PERPETUITY IS CONTRARY TO THE EXPLICIT TERMS OF THE SAID
AGREEMENT. THE RESTRICTION ON TRANSFER OF SHARES IN
CLAUSE 7.4 OF THE INTER SE AGREEMENT WAS CONTEXTUAL AND
TIME BOUND.
32. The plaintiffs' contention that the Inter Se Agreement restrained the
promoter groups from having cross holding in resultant companies, managed
and controlled by other groups, of erstwhile AHL, in perpetuity is contrary
to the explicit terms of the said Agreement. The relevant provisions of the
Inter Se Agreement are reproduced hereinbelow:-
"INTER-SE AGREEMENT
THIS INTER-SE AGREEMENT ("Agreement"), dated
October 26, 2009 is made by and among:
1. Mr. Sushil Gupta, son of (Late) Mr. Chaman Lal Gupta,
currently residing at 4/11 Shanti Niketan, New Delhi-110 021;
2. Mr. Sudhir Gupta, son of (Late) Mr. Chaman Lal Gupta,
currently residing at 1801, Tivoli, Hiranandani Gardens,
Powai, Mumbai-400 076;
3. Mr. Sushil Gupta, Karta of Chaman Lal Gupta and Sons
(HUF), a Hindu undivided family ("C L Gupta (HUF)");
4. DSO Limited, a company incorporated under the laws of
Guernsey, having its registered office at Level 4 North, Town
Mills, Trinity Square, St. Peter Port, Guernsey, Channel Island
("DSO");
Parties referred to under serial numbers 1 to 4 above shall
hereinafter be collectively referred to as the Gupta Group;
5. Asian Holdings Private Limited, a private company
incorporated under the Companies Act, 1956 ("Act") and
having its registered office at c/o Asian Hotels Limited, Bhikaji
Cama Place, M.G. Marg, New Delhi-110 607 ("Asian
Holdings");
6. Mr. Shiv Kumar Jatia, son of Mr. (Late) Subhkaran Jatia,
currently residing at B-50 Gulmohar Park, New Delhi-110 049;
7. Yans Enterprises (H.K.) Limited, a company
incorporated under the laws of Guernsey, having its registered
office at Level 4 North, Town Mills, Rue Du Pre, St. Peter Port,
Guernsey and having its branch office at Manor House, 1st
Floor, St. George/Chazal Streets, Port Louis, Mauritius
("Yans");
Parties referred to under serial numbers 5 to 7 above shall
hereinafter be collectively referred to as the Jatia Group;
8. Forex Finance Limited, a company incorporated under
the Act and having its registered office at 15, India Exchange
Place, 1st Floor, Kolkata - 700 001 ("Forex Finance"); and
9. Saraf Industries Limited, a company incorporated under
the laws of Mauritius, having its registered office at c/o
International Financial Services Limited, IFS Court, Twenty
Eight Cyber City, Ebene, Mauritius ("SIL").
The Parties referred to under serial numbers 8 to 9 above shall
hereinafter collectively referred to as the Saraf Group.
The aforementioned members of the Gupta Group, Jatia Group
and the Saraf Group shall be individually referred to as such or
as a "Party" and collectively as the "Parties".
The Gupta Group, Jatia Group and Saraf Group are
hereinafter individually referred to as such and collectively as
the "Promoters" or "Promoter Groups".
xxxx xxxx xxxx xxxx
F. The Parties are desirous of undertaking an inter-se
transfer of equity shares amongst them in AHL Residual,
Transferee Company-I and Transferee Company-II post the
effectiveness of the Scheme in compliance with the provisions of
applicable Laws. The Parties intend to record in this
Agreement, the modalities of effecting trifurcation enabling
each of the Jatia Group, the Gupta Group and the Saraf Group
to hold in the aggregate 67,57,702 equity shares (i.e. 59.269%)
out of the total issued and paid-up capital of AHL Residual,
Transferee Company-I, and Transferee Company-II
respectively, which modalities will be affected and implemented
in accordance with the provisions of this Agreement.
xxxx xxxx xxxx xxxx
7.4 Each of the Promoter Groups undertake not to acquire
further equity shares in AHL and post effectiveness of the
Scheme not to acquire further equity shares in the resultant
companies and shall ensure that the public shareholding of the
resultant companies does not fall below the threshold stipulated
under clause 40A of the listing agreement. This restriction will
not apply after the inter-se swap of equity shares as per this
Agreement.
xxxx xxxx xxxx xxxx
10.1.1 For the purpose of this Agreement, Closing Date
shall be the 5th Business Day reckoned from the later of:
(a) the date of receipt or rejection of Listing Approval for
Transferee Company - I, and
(b) the date of receipt or rejection of Listing Approval for
Transferee Company-II or
(ii) The 121st Business Days from the date of the Scheme
becoming effective (The Promoters with the co-operation of the
Escrow Agent will for purposes get the equity shares unfreezed
so that Closing can take place).
whichever is earlier.
xxxx xxxx xxxx xxxx
12. TERMINATION
12.1 This Agreement will stand terminated:
(i) upon the successful completion of Accelerated Closing or
Closing, as the case may be, which ever is earlier, or
(ii) in accordance with Clause 1.3 of this Agreement if the
FCPS Transaction is not completed by the Initial Closing Date:
or
(iii) if the Closing has not occurred on or before the expiry of
121 Business Days from the date of the Scheme becoming
effective;
whichever is earlier."
(emphasis supplied)
33. Keeping in view the aforesaid clauses, this Court is of the opinion that
the Inter Se Agreement was executed for a specific purpose of freezing the
share holdings for a limited time so that the swap of shares could take place
to ensure each group had 59.269% shareholding and the complicated
payment structure was effected. The intent of the Inter Se Agreement was to
ensure that each promoter group post de-merger gets control and
management of one of the three resultant companies along with a hotel. For
this purpose, the Inter Se Agreement stipulated that the ownership of
59.269% shares would be transferred to one of the three promoter groups,
that was to control and manage that particular hotel. However, after the
inter se transfer of promoters‟ shares was effected, each of the promoter
groups was at liberty to acquire shares in each other‟s companies/hotels.
34. In fact, Clause 7.4 of the Inter Se Agreement clearly stipulates that the
restriction on purchase was to remain valid till the swap took place and not
thereafter. Even as per the plaint, the swap had taken place in August, 2010
and the shares were purchased by defendants 6 to 9 in December 2010 and
January, 2011. Hence, there was no violation of restriction on share
purchase. In the opinion of this court, the restriction on transfer of shares in
Clause 7.4 of the Inter Se Agreement was contextual, time bound and
consequently, the judgement of the Supreme Court in M.S.
Madhusoodhanan and Another (supra) has no application to the facts of
the present case.
35. Admittedly, neither any other alleged agreement between the three
promoter groups nor the Articles of Association of AHL or Asian Hotels
(West) Ltd. restrict or restrain or curtail or prohibit the said groups from
having cross holding or purchasing or inter-se transferring shares of AHL or
Asian Hotels (West) Ltd. at any time. Accordingly, the judgement in Russel
Vs. Northern Bank Development Corp Ltd and Others, (1992) 3 All ER
161 has no application to facts of the present case.
36. The plaintiffs‟ argument that there was an understanding amongst the
three promoters that none of them will ever hold any shares in the company
of any other promoter is contrary to the Inter Se Agreement as well as
Sections 91 and 92 of the Indian Evidence Act, 1872. This Court is of the
view that no oral evidence can be admitted contrary to the written document,
i.e., Inter Se Agreement.
37. Consequently, even if the averments in the plaint are believed to be
true and correct, then also the admitted position that emerges is that at least
prior to 2010 [i.e. when defendant nos. 1 to 4 purchased the shares of AHL]
and post swap of shares between the three promoter groups [i.e. when
defendant nos. 5 to 8 purchased shares of Asian Hotels (West) Ltd.], there
was no restriction or embargo or prohibition restraining the three promoter
groups of erstwhile AHL from having cross holding or purchasing or inter se
transferring shares of AHL or Asian Hotels (West) Ltd.
38. This Court is also of the opinion that the relief sought by the plaintiffs
is barred by the statute, especially Section 111A of the Companies Act,
1956, which clearly prohibits any restriction on sale and purchase of the
shares listed on a Stock Exchange.
ON THE SOLE ALLEGATION IN THE PLAINT THAT MISS ANITA
RAJGARIHA-DEFENDANT NO.7 HELD 95,00,000 EQUITY SHARES IN
DEFENDANT NO.5 FROM 27TH AUGUST, 2010 FOR A PERIOD OF 121
DAYS, IT IS NOT POSSIBLE FOR THIS COURT TO HOLD THAT SARAF
AND JINDAL GROUPS WERE ACTING IN CONCERT BETWEEN 2003
AND 2009.
39. Further, though a number of charts/notes of Saraf Group in Jindal
companies were handed over during the course of arguments, yet the only
allegation in the plaint to show that the Jindal and Saraf were acting in
concert was that Miss Anita Rajgariha-defendant no.7, alleged member of
the Saraf Group, held 95,00,000 equity shares in defendant no.5 (Jesmin
Investments Ltd.) from 27th August, 2010 for a period of 121 days. It is not
possible for this Court to hold on the basis of shares purchased by a relative
of one of the Saraf family members in 2010 that Saraf and Jindal Groups
were acting in concert between 2003 and 2009 - the period during which
defendant nos. 1 to 4 had purchased shareholding of 14.46% in AHL.
THE ALLEGATION THAT NON-DISCLOSURE OF SHAREHOLDING BY
SARAF GROUP, PRIOR TO THE EXECUTION OF INTER SE
AGREEMENT AND THE DE-MERGER SCHEME WAS A MATERIAL
MISREPRESENTATION, DOES NOT STAND TO REASON INASMUCH AS
EACH PROMOTER GROUP WAS ADMITTEDLY HANDED OVER
MANAGEMENT AND CONTROL OF A HOTEL WITH 59.269%
SHAREHOLDING AND THE BALANCE SHAREHOLDING OF 40.731%
WAS TO BE HELD BY THIRD PARTIES/OUTSIDERS.
40. The allegation of the plaintiffs that a fraud had been perpetrated by
Saraf Group by acquiring shareholding in pre-demerged AHL between 2003
to 2009 through defendant nos. 1 to 5 and that the Saraf Group had
concealed the fact that it was „acting in concert‟ and collusion with
defendant nos. 1 to 5, with the malafide intent of holding shares in the
plaintiff no. 1, contrary to the understanding of all the three promoters in the
Inter Se Agreement, that none of them will hold any shares in company of
any other promoter as aforesaid, is untenable in law.
41. This Court is of the opinion that the said allegation is irrelevant and
immaterial as each of the three factions/ promoter groups were given
majority shareholding in their individual capacity in one of the three
hotels/resultant companies. In fact, the allegation that non-disclosure of
shareholding by Saraf Group, prior to the execution of Inter Se Agreement
and the de-merger scheme was a material misrepresentation, does not stand
to reason inasmuch as each promoter group was admittedly handed over
management and control of a hotel with 59.269% shareholding. Whether
the remaining shares were held by Jindal Group or Saraf Group or a third
party would make no difference, as to the knowledge of the plaintiffs, the
balance shareholding of 40.731% was to be held by third parties/outsiders.
42. Also, if the allegations levelled by the plaintiffs were true and correct,
then Asian Hotels (North) Ltd. should have been complaining too!
43. Further as defendant nos. 1 to 5 and 7 were not even parties to the
Inter Se Agreement, they cannot be held in breach of the said agreement or
the de-merger scheme.
EVEN IF THE CASE OF THE PLAINTIFFS IS BELIEVED IN ITS
ENTIRETY, THEN ALSO THE DEFENDANTS WOULD BE AT THE
HIGHEST GUILTY OF NOT HAVING MADE A PRIOR DISCLOSURE
DURING THE PERIOD 2003 TO 2009 AS STIPULATED IN CODE 1997.
HOWEVER, SUCH NON-DISCLOSURE WOULD NOT MAKE THE
ACQUISITION INVALID. MOREOVER, IN VIEW OF WITHDRAWAL OF
THE CP 2/111/2005, THE PLAINTIFFS IN THE PRESENT PROCEEDING
CANNOT REAGITATE THE SAME GROUND OF VIOLATION OF CODE
1997.
44. Further, even if the case of the plaintiffs is believed in its entirety,
then also the defendants would be, at the highest, guilty of not having made
a prior disclosure during the period 2003 to 2009 as stipulated in Regulation
7(1) and 11 of the Code 1997. The CLB in its order dated 25 th July, 2014 in
C.A. 3/2011 has concluded that the disclosure is not a condition precedent to
acquisition and non-disclosure would not make the acquisition invalid. At
the highest SEBI could have imposed a penalty. The relevant portion of the
CLB order dated 25th July, 2014 in C.A. 3/2011 is reproduced hereinbelow:-
"16. This disclosure is not a condition precedent to
acquisition, it is not said anywhere if disclosure is not made,
the acquisition is invalid, but whereas under regulation 11
of the Code, it starts with that "no acquirer shall acquire
shares ...........unless such acquirer makes a public
announcement to acquire shares in accordance with the
regulations". Reg.11 starts with negative language, making
Public announcement condition precedent to acquisition,
but it is not the case under Regulation 7 covered under the
chapter of "disclosures of shareholding and control in a
listed company", but whereas Regulation 11 is brought
under the head of "substantial acquisition", meaning
thereby that mere non-disclosure will not make acquisition
invalid under Regulation 7 of the Code, at the most, SEBI
might impose penalty if proved that acquisition is not in
compliance of the regulation 7 of the Takeover Code......"
45. Moreover, in view of the CP 2/111/2005 filed by AHL having been
dismissed as withdrawn on 27th April, 2015, which contained allegations of
violation of Regulation 7(1) of the Code 1997 by defendant nos. 1 to 4, the
same cannot be re-agitated by the plaintiffs in the present proceeding on the
ground that the said defendants had actually purchased the shares for
defendant nos. 6 to 8.
THE DEFENDANT NOS. 1 TO 5 WERE NOT „CLAIRVOYANT‟ AND
COULD NOT HAVE „KNOWN‟ IN 2003 THAT THREE NEW LEGAL
ENTITIES WOULD BE CREATED IN 2010 AND GUPTA GROUP WOULD
GET THE BOMBAY HOTEL AND PURCHASE OF SAID SHARES
WOULD RESULT IN DESTABILISING THE MANAGEMENT AND
CONTROL OF PLAINTIFF NOS. 2 TO 5 IN PLAINTIFF NO. 1 IN 2011.
46. Also, the plaintiffs' allegation that defendant nos. 1 to 5 purchased the
shares in conspiracy with defendant nos.6 to 9 during the period 2003-2009
with intent to destabilise the management of the plaintiff no. 1 is astounding
as certainly the defendant nos. 1 to 5 are not „clairvoyant‟ and could not
have „known‟ in 2003 that three new legal entities would be created in 2010
and Gupta Group would get the Bombay hotel and purchase of said shares
would result in destabilising the management and control of plaintiff nos. 2
to 5 in plaintiff no. 1 in 2011.
47. In any event, the rights, obligations and understanding of the three
promoter groups, having been arrived at in the De-merger Scheme and Inter
Se Agreement in 2010, the same cannot be the basis for defendants acting
against the interests of plaintiffs at any earlier point of time. Consequently,
the alleged restraint contained in Clause 7.4 of Inter Se Agreement 2010
cannot have retrospective effect.
BOARD MINUTES DATED 15TH FEBRUARY, 2005 DO NOT OFFER A
CAUSE OF ACTION TO THE PLAINTIFFS TO FILE THE PRESENT
SUIT.
48. While it is true that the three distinct promoter groups had confirmed
to AHL in the Board Meeting dated 15th February, 2005 that none of them,
including their constituent individual and body corporate entities, had „acted
in concert‟ with any of the said acquirer companies of Jindal, yet the said
statement, even if false, cannot give the plaintiffs the cause of action to file
the present suit. It is pertinent to mention that the aforesaid statement was
made to the Board of AHL and plaintiff no. 1 was not even in existence
when the shares of AHL had been purchased by defendant nos. 1 to 5. In
fact, after the demerger of AHL, the only course of action, if any, available
to the plaintiff nos. 2 to 5 was to move for recall of the sanction of the
scheme of demerger, Inter Se Agreement and for restoration of AHL.
49. It is pertinent to mention that the said Board minutes have not even
been mentioned in the suit or annexed with the original plaint. The said
minutes have been annexed to the plaintiffs‟ reply to the application under
Order XXXIX Rule 4 CPC filed on behalf of defendant nos.6 to 9.
Consequently, the said minutes cannot be relied upon by the plaintiffs.
PLAINTIFF NO. 1 SHOULD NOT BE CONCERNED AS TO WHO
MANAGES AND CONTROLS IT.
50. It is not understood as to how the plaintiff no.1 is in any way
concerned with who manages and controls it. Moreover, there was no
agreement/ understanding that plaintiff nos. 2 to 5 would control and
manage plaintiff no. 1 hotel in perpetuity.
THE PRESENT SUIT FILED ON 10TH DECEMBER, 2015 IS BARRED BY
LIMITATION. THE PLAINTIFFS ARE NOT ENTITLED UNDER SECTION
14(1) OF THE LIMITATION ACT FOR EXCLUSION OF TIME DURING
THE PERIOD THE MATTER HAD BEEN PENDING BEFORE COMPANY
LAW BOARD AS THE RELIEFS SOUGHT IN THE COMPANY PETITION
AND COMPANY APPL. WERE ABSOLUTELY DISTINCT AND
DIFFERENT BASED ON DIFFERENT CAUSE OF ACTION. FURTHER,
PLAINTIFF NOS. 2 TO 5 WERE NOT PARTIES TO THE CLB
PROCEEDINGS AND PLAINTIFF NO. 1 IS NOT A PARTY TO THE
INTER SE AGREEMENT. ALSO THE CLB DID NOT DISMISS THE
COMPANY PETITION DUE TO DEFECT OF JURISDICTION OR OTHER
CAUSES OF LIKE NATURE.
51. AHL had filed a company petition being CP No.2/111/2005 under
Section 111A of the Companies Act on 28th March, 2005 contending that the
acquisition of 2200616 equity shares amounting to 9.65% of the share
capital by a group of four Jindal Companies allegedly interconnected by
virtue of common shareholdings, directorships etc. were „acting in concert‟
(as emanating from a study of their annual reports, balance-sheets and
annual returns) in violation of Regulation 7(1) of the Code 1997.
52. Since the allegation that the Jindal Group had purchased and always
held the shares on behalf of defendant nos. 6 to 9 is based on the same
annual report and balance sheet of Jindal and Saraf Groups on the basis of
which CP No. 2/111/2005 had been filed, this Court is of the view that the
plaintiff nos. 2 to 5 should be deemed to have knowledge of the said fact
prior to 2005. In other words, in the present case, as the challenge of
purchase of shares by Jindal Group since 2003 was based on the same
documents, the plaintiff nos. 2 to 5 cannot take the plea that they came to
know in 2011 that Jindal Group had purchased „benami shares‟ for
defendant nos. 6 to 9.
53. In any event, there is an admission by the plaintiffs in the plaint that
they became aware of the Saraf Group acquiring the shares as far back as in
December 2010 and January 2011 and that the cause of action arose for the
first time in 2011. Thus, the present suit filed on 10th December, 2015 is
barred by limitation. The plaintiffs have claimed exclusion of time during
the period the matter had been pending before Company Law Board under
Section 14(1) of Act, 1963.
54. In Consolidated Engineering Enterprises Vs. Principal Secretary,
Irrigation Department and Others, (2008) 7 SCC 169, the Supreme Court
has held that the following five conditions are a pre-requisite for the
application of Section 14(1) of the Act, 1963:-
(1) Both the prior and subsequent proceedings are civil proceedings
prosecuted by and between the same party;
(2) The prior proceeding had been prosecuted with due diligence
and in good faith;
(3) The failure of the prior proceeding was due to defect of
jurisdiction or other cause of like nature;
(4) The earlier proceeding and the latter proceeding must relate to
the same matter in issue and;
(5) Both the proceedings are in a court.
55. Undoubtedly, there has to be a liberal interpretation of Section 14(1)
to advance the cause of justice. However, in accordance with Section 14(1)
of Act, 1963, the earlier proceeding and the latter proceeding must relate to
the same matter in issue, i.e. a matter which is directly and substantially in
issue. Also, the previous proceeding should have failed on account of defect
of jurisdiction or other causes of a like nature. The Supreme Court in
Madhavrao Narayanrao Patwardhan Vs. Ram Krishna Govind Bhanu
and Others, AIR 1958 SC 767 has further held that the burden to prove
good faith and due diligence to avail benefit of Section 14(1), is on the
plaintiff.
56. In the present case, the reliefs sought in the Company Petition and
Company Appl. filed before the CLB were absolutely distinct and different
based on different cause of action from the reliefs which plaintiffs seek in
the present suit. While the subject matter of the Company Petition and
Company Appl. was the violation of the Code, 1997, the subject matter of
the present suit is the breach of the Inter Se Agreement. Consequently, the
reliefs in both the proceedings were not the same. Further, plaintiff nos. 2 to
5 were not parties to the CLB proceedings and plaintiff no. 1 is not a party to
the Inter Se Agreement. The CLB also did not dismiss the Company
Petition due to defect of jurisdiction or other causes of the like nature.
Consequently, plaintiffs are not entitled to benefit of Section 14(1) of the
Act, 1963 and the present suit is barred by limitation.
CONCLUSION
57. Accordingly, for the reasons discussed above, I.A. Nos. 18714 &
18715 of 2015 filed under Order 39 Rule 4 CPC and I.A. Nos. 24462 &
24463 of 2015 filed under Order 7 Rule 11 CPC are allowed and the present
suit as well as I.A.No.17148/2015 are dismissed with actual costs.
MANMOHAN, J
OCTOBER 15, 2018
rn/KA/js
