w w w . L a w y e r S e r v i c e s . i n

CPI India Real Estate Venture Ltd. v/s Perpetual Infracon Pvt. Ltd.

Company & Directors' Information:- K N INFRACON PRIVATE LIMITED [Active] CIN = U45400DL2007PTC162008

Company & Directors' Information:- K N S INFRACON PRIVATE LIMITED [Active] CIN = U45400DL2007PTC167520

Company & Directors' Information:- A AND A INFRACON PRIVATE LIMITED [Active] CIN = U52910DL1996PTC075181

Company & Directors' Information:- H. R. INFRACON LIMITED [Active] CIN = U45400WB2008PLC124588

Company & Directors' Information:- INDIA INFRACON PRIVATE LIMITED [Active] CIN = U70200DL2009PTC196481

Company & Directors' Information:- H K INFRACON PRIVATE LIMITED [Active] CIN = U45200GJ2012PTC071301

Company & Directors' Information:- A & T INFRACON PRIVATE LIMITED [Active] CIN = U45201GJ2011PTC065598

Company & Directors' Information:- S. M. INFRACON PRIVATE LIMITED [Active] CIN = U45203AS2012PTC011007

Company & Directors' Information:- A N D INFRACON PRIVATE LIMITED [Active] CIN = U45201UP2009PTC037149

Company & Directors' Information:- J R T INFRACON PRIVATE LIMITED [Active] CIN = U45201AR2014PTC008411

Company & Directors' Information:- K S INFRACON PRIVATE LIMITED [Active] CIN = U01403DL2014PTC264646

Company & Directors' Information:- S K E INFRACON PRIVATE LIMITED [Strike Off] CIN = U45400WB2013PTC196974

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- B B VENTURE PRIVATE LIMITED [Active] CIN = U52209CT2008PTC020645

Company & Directors' Information:- K. F. INFRACON PRIVATE LIMITED [Active] CIN = U45400UP2010PTC041641

Company & Directors' Information:- PERPETUAL INFRACON PRIVATE LIMITED [Active] CIN = U45400HR2007PTC039388

Company & Directors' Information:- G M INFRACON PRIVATE LIMITED [Active] CIN = U70102UP2013PTC055729

Company & Directors' Information:- V INFRACON PRIVATE LIMITED [Active] CIN = U45200GJ2013PTC073397

Company & Directors' Information:- K P INFRACON PRIVATE LIMITED [Active] CIN = U45203DL2005PTC143945

Company & Directors' Information:- R. R. INFRACON PRIVATE LIMITED [Active] CIN = U45201MP2008PTC020305

Company & Directors' Information:- D D INFRACON PRIVATE LIMITED [Strike Off] CIN = U45400DL2011PTC218944

Company & Directors' Information:- J B INFRACON. (INDIA) PRIVATE LIMITED [Active] CIN = U74999UP2008PTC035566

Company & Directors' Information:- S. K. S. INFRACON PRIVATE LIMITED [Strike Off] CIN = U45400DL2007PTC169144

Company & Directors' Information:- A B R INFRACON PRIVATE LIMITED [Active] CIN = U45400UP2011PTC044467

Company & Directors' Information:- R. V. INFRACON PRIVATE LIMITED [Active] CIN = U70101WB2007PTC117948

Company & Directors' Information:- S A R VENTURE PRIVATE LIMITED [Active] CIN = U70102DL2015PTC275704

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- S R R INFRACON PRIVATE LIMITED [Active] CIN = U45400TG2016PTC103914

Company & Directors' Information:- K. C. INFRACON PRIVATE LIMITED [Active] CIN = U45400WB2010PTC155070

Company & Directors' Information:- INFRACON PRIVATE LIMITED [Strike Off] CIN = U45201WB1998PTC086701

Company & Directors' Information:- K M INFRACON PRIVATE LIMITED [Converted to LLP] CIN = U70109DL2009PTC193150

Company & Directors' Information:- L K INFRACON PRIVATE LIMITED [Converted to LLP and Dissolved] CIN = U70102MH2010PTC201989

Company & Directors' Information:- M. R. S. INFRACON (INDIA) PRIVATE LIMITED [Strike Off] CIN = U45400UP2010PTC039888

Company & Directors' Information:- REAL INFRACON PRIVATE LIMITED [Strike Off] CIN = U45201BR2012PTC018203

Company & Directors' Information:- R. K. INFRACON PRIVATE LIMITED [Active] CIN = U45200MP2007PTC019354

Company & Directors' Information:- M A INFRACON PRIVATE LIMITED [Strike Off] CIN = U45202MH2010PTC210673

Company & Directors' Information:- J. S. INFRACON PRIVATE LIMITED [Strike Off] CIN = U70102UP2011PTC045948

Company & Directors' Information:- D V INFRACON PRIVATE LIMITED [Active] CIN = U45400DL2013PTC257036

Company & Directors' Information:- P R INFRACON PRIVATE LIMITED [Active] CIN = U45400UP2008PTC035259

Company & Directors' Information:- R G INFRACON PRIVATE LIMITED [Strike Off] CIN = U45201DL2005PTC134525

Company & Directors' Information:- VENTURE INFRACON PRIVATE LIMITED [Active] CIN = U45400GJ2012PTC071509

Company & Directors' Information:- M. P. INFRACON PRIVATE LIMITED [Dormant under section 455] CIN = U45400MH2012PTC237624

Company & Directors' Information:- A H B INFRACON PRIVATE LIMITED [Strike Off] CIN = U45400UP2013PTC059058

Company & Directors' Information:- K G N INFRACON PRIVATE LIMITED [Strike Off] CIN = U45400DL2006PTC148535

Company & Directors' Information:- K. K. INFRACON PRIVATE LIMITED [Active] CIN = U45400DL2007PTC168470

Company & Directors' Information:- N K INFRACON PRIVATE LIMITED [Strike Off] CIN = U45400DL2009PTC188559

Company & Directors' Information:- K R INFRACON PRIVATE LIMITED [Strike Off] CIN = U45400DL2012PTC246832

Company & Directors' Information:- L S INFRACON PRIVATE LIMITED [Strike Off] CIN = U70200DL2011PTC227430

Company & Directors' Information:- S V INFRACON PRIVATE LIMITED [Active] CIN = U45200DL2010PTC199630

Company & Directors' Information:- B V INFRACON PRIVATE LIMITED [Strike Off] CIN = U70100HR2010PTC040969

Company & Directors' Information:- R. S. D. INFRACON PRIVATE LIMITED [Strike Off] CIN = U70101HR2013PTC050144

Company & Directors' Information:- J. D. INFRACON PRIVATE LIMITED [Active] CIN = U45206GJ2012PTC073151

Company & Directors' Information:- N J VENTURE PRIVATE LIMITED [Strike Off] CIN = U70101MH2008PTC186387

Company & Directors' Information:- V & N INFRACON PRIVATE LIMITED [Strike Off] CIN = U70109DL2006PTC154823

    C.P. No. 127 of 2013

    Decided On, 05 March 2014

    At, Company Law Board Principal Bench New Delhi


    For the Petitioner: C.A. Sundaram, Sr. Advocate, Sunil Gupta, Sr. Advocate, H.S. Chadroke, Prashant Mishra, Piyush Prasad, Advocates. For the Respondents: Pratap Chaterjee, Mukul Rohatagi, Gopal Mukherjee, A.M, Singhvi, U.K. Choudhary, Sr. Advocates, Shally Maheshwari, Rishi Agarwal, Megha Mehta Agrawal, Umang Gupta, Kaushik, Abhijeet Sinha, Ayush Agrawal, Advocates.

Judgment Text

1. The petitioner moved this Company Petition against the respondents, stating that the petitioner company invested about Rs. 123.5 Crams in R-1 company as equal partner along with the promoter companies (R-2 & R-3) to set up SEZ for carrying business in relation to Information Technology, in the year 2008, but till date, no business has come into existence in the company, whereas the money put in by the petitioner has gone into R-7 (Triangle) without any clue to the petitioner for the last five years about the use of these funds by R-7, despite the petitioner put it to the notice of R-2 to R-6 that it has no information over its money for the last five years, as to why R-1 company has not set up the business as initially agreed, that the petitioner has come to know that R-7 is likely to create third party rights over the valuable assets of it, that the Respondents 2-6 denied to allow external audit by any one of the big four Accounting Firms to ascertain true state of affairs of R-1, R-7, R-8 & R-9, that the respondents wrongfully and wilfully delaying transfer of ownership rights of the company land lying in the name of R-10 to R-20, therefore the petitioner has sought interim reliefs for audit of R-1, R-7, R-8 and R-9 by any one of the big four Accounting Firms and to maintain status quo over the shareholding/stake/control and fixed assets of R-1, R-7, R-8 & R-9 & R-10 to R-20, pending disposal of the company petition.

2. The petitioner company (CPI India Real Estate Venture (P) Limited), foreign company by way of a FDI, has invested around Rs. 123.5 Crores as 50% shareholding in R-1 company (called Perpetual), brought into existence as SEZ for setting up Information Technology/ Information Technology Enabled Services (STOR), wherein R2, Five Star Promoters (P) Ltd, (called as Five Star) and R3, Ocean Buildmart (P) Ltd,, (called as Ocean Buildmart) agreed to bring in Faridabad land (referred as 'company land') lying in the name of R-10 to R-20 as their 50% shareholding as per the shareholding agreement dated 7-4-2008, entered in between the petitioner and R1 to R4.

3. The Senior Counsel Shri C.A. Sundaram and Shri Sunil Gupta appearing on behalf of the petitioner submit that Five-Star is a company holding 49.9% shareholding in Perpetual, this Five Star company is 100% subsidiary of R-4, BPTP Limited (herein after referred as BPTP Company), which inturn is controlled by R-5, namely Kabul Chawla (herein after referred as Kabul Chawla). Ocean Built Company (R3) is only holding 0.10% in Perpetual, therefore Five star and Ocean Built together holding 50% in Perpetual. This Ocean Built is infact a company owned by Anjali Chawla, wife of Mr Kabul Chawla. This Kabul Chawla and one Sudhanshu Tripathi have been continuing as nominee directors in R-1 company on behalf of promoter companies namely Five Star and Ocean Built. Likewise, BPTP and Triangle together control R-8 & R-9. By seeing the shareholding in all these companies, it is clear Kabul Chawla, (R5) making BPTP as a route to control all other companies, floated the Respondent companies. Kabul Chawla and Tripati are the nominee directors on behalf of Five Star and Ocean Built companies in R1 Company.

4. The petitioner counsel submits R-2 to R-6 have deliberately not allowed and continue to disallow R-1 company to commence and carry out its business because they ensure that company remains a shell company, even after five years have gone by from the date it was mandated to commence business. R-2 to R-6 have shown no interest to set up the business in R-1 company and have frustrated the investment of the petitioner. Not only that, these R-2 to R-6 have not caused the land in Faridabad (lying in the name of R-10 to R-20 called as ‘company land’) transferred to the company, despite the promoters and the company should cause company land to be transferred by way of sale to R-1 company within 15 days from the date stamp duty exemption with respect to such transfer is obtained by the company. The respondents side have not done anything so far except stating that they sent letters to authorities for exemption of stamp duty.

5. The petitioner counsel has stated that R-2 to R-6 have used the investments made by the petitioner to create a cobweb of related party transactions, depriving R-1 of these funds and indulging in financial investments which could be described as round-tripping funds for providing illegal benefits to R-2 to R-6. They have indulged in related party transactions with various parties not at arm’s length basis. Despite repeated requests from the petitioner, they have not produced any documentary proof relating to utilization of the said money, which appears to be a subterfuge to siphon off the money from the company. The respondents, to cover up their opaqueness, refused to appoint any one of the big four auditing firms as the external auditors to audit the companies involved in siphoning the funds of R-1 Company.

6. The petitioner counsel further submits Kabul Chawla and Thripati (R5 & 6) have used the company as their after ego and private property and have tried to destroy the value of R-1 Company and its assets so that R-1 could be used for exclusive profit of R-2 to R-6, The respondents held meetings to propagate and justify the actions of R-2 to R-6 but not to take decision how to make the project take off. R-2 to R-6 have continuously denied basic shareholder rights to the petitioner relating to information regarding business plan, supporting documents regarding financial transactions and compliance with legal requirements and even failed to provide Annual Operation Business Plan, despite several requests over number of years.

7. When the petitioner has enquired of all these things, the respondents’ nominee directors gave a notice to hold AGM on 24.9.2012. When the petitioner requested for postponement of it to 27.9.2012, the petitioner was informed that it was postponed, but to the surprise of the petitioner on the following day, he received an e-mail saying that the AGM was actually held on the same day in the absence of the petitioner.

8. The petitioner counsel further submits that it is vital to secure the assets of Triangle (R-7) and necessary to restrain Triangle from creating any third party interest on fixed assets of it.

9. Since no information has been disclosed to the petitioner in relation to the investment made in Triangle, since R-2 to R-6 failed to launch the business as envisaged in the Memorandum of Association of R-1 company, the petitioner fears any depletion/dilution in the valuation of Perpetual Investments India Triangle would lead to dilution in the valuation of R-1 and, consequently, render the financing of the company project impossible.

10. The petitioner counsel submits that Rs. 123.5 Crores came from the petitioner which was invested into the Triangle without prior approval of the petitioner and contrary to the Articles of Association, the value of the investment is being diluted, R-2 to R-7 have constantly refused to open the books of Triangle (R-7) to allow the petitioner to have a full understanding of these investments, the respondents for no reason whatsoever, disallowed an audit by a Deloitte to investigate over the investment made by the petitioner.

11. The petitioner counsel submits R5 & 6, under the cover of Article 11.31, unilaterally diverted the money invested by the petitioner to R-7, thereafter, the respondents consciously evaded answering to the objections raised by the petitioner nominee director, in relation to diversion of these funds to R-7. This R-7 company, in turn, loaned some of this amount to R-8 & R-9, which has again come back as Share Application Money into R-7, diluting the CCPS (Compulsory Convertible Preferential Shares) allotted to R-1 Company in R-7 Company. For having the respondents failed to carry out the business as mandated in the Articles of Association, for having eroded the company substratum, for having indulged in financial irregularities, for having denied shareholders’ right to the petitioner, the petitioner prays this Bench to pass interim reliefs to seek an audit into the affairs of R-1 company, to seek an audit of Triangle, Vital and Native (R-7, R-8 & R-9) by any one of the big four accounting firms and also a restraint order not to create any third party rights over the company land lying in the name of R-10 to R-20, and also not to create any encumbrance whatsoever or create third party rights in any manner whatsoever, on any immovable property possessed/owned by R-7, until the pendency of the petition.

12. To which, the respondents side has stated it has no objection for inspection and audit of R-1 company by any one of the big four accounting firms and also to pass a restrain order over the company land lying in the name of R-10 to R-20 but not to create any third party rights over the fixed assets of Triangle, Vital and Native (R-7, R-8 & R-9) or for inspection of R-7, R-8 & R-9 because R-7 is a separate company wherein petitioner has no shareholding, therefore, this petition is not maintainable in respect of R-7, the affairs of R-7 cannot be a subject matter of the petition for the following reasons:

a) The petitioner is not a shareholder of R-7, there is no probity between the petitioner and R-7,

b) The affairs of R-7 cannot be the subject matter of the person concerned,

c) Without prejudice to the above, there are no pleadings in the CP to link the petitioner’s investments to the land owned by R-7,

d) Neither the petitioner nor R-1 (which is holding less than 5% CCPS in R-7) have any interest in the land owned by R-7,

e) It is also barred by limitation because this CCPS were issued to the knowledge of the petitioner on 31.3.2009, therefore, the petitioner cannot manifest any grievance in relation to the issuance of CCPS of R-7 to R-1 at this stage.

13. Senior Counsel, Shri. Mukul Rohtagi argued on behalf of R-2 and R-3, stating that the petitioner himself entered into an agreement with R-1 company to let the subscription money used by R4 or its subsidiaries and Article 11.3.1 of Articles of Association reflects that the company shall advance/loan/contribute or invest the total subscription amount (without interest or consideration) to BPTP Ltd, which are FDI compliance, as specified by the promoters upon such terms and conditions as specified by the promoters and/or BPTP Ltd. Therefore, now the petitioner has no cause of action to say that the management in R-1 Company, that is the promoters, arbitrarily invested money of the petitioner in R-7 Company because R-7 is a wholly owned subsidiary of R-4. The petitioner not being the shareholder in R-7 Company, since the petitioner himself explicitly agreed letting R-1 Company to invest in either BPTP Ltd or its subsidiaries, without any interest or consideration, the petitioner should not have alleged the act of R-1 Company investing in R-7 Company as an oppressive act, therefore, the petition is liable to be dismissed. As to R-1 company business plan is concerned, the management in R-1 company time and again wrote letters to authorities for exemption of stamp duty for transfer of company land lying in the name of R-10 to R-20 to R-1 company, since no permission has been given so far, this land could not be transferred in the name of R-1 company and, that apart, for having R-1 company felt it is no more feasible to start the business as initially mentioned as the object of the company, the management in company corresponded with the petitioner saying it is feasible for development rather than going for a business mentioned in the objects of the company.

14. Senior Counsel Shri. S.N. Mookherjee, appearing on behalf of R-5 & R-6 argued since there being an explicit agreement from the petitioner allowing R-1 company to create or invest total subscription amount either in R-4 or in its subsidiaries, as specified by the promoters or BPTP Ltd, the Board Resolution passed in pursuance of that Article of Association will not become a major decision, therefore, the Board Resolution passed investing this money in R-7 company, subsidiary of R-4 company, will not become diversion of funds or a major decision causing potential deadlock in the company, Hence, the petitioner has no right now to give an impression that investment in R-7 is diversion of funds of R-1 Company to the subsidiary of R-4 Company.

15. Senior Counsel Dr. Abhlshek Sirighvi, appearing on behalf of R-7, stated that the petitioner not being a shareholder in R-7 company, R-1 not being a company holding more than 10% equity in R-7, the petitioner has no right to ask for any relief against R-7, moreover the fixed assets upon which restraint has been asked by the petitioner, was purchased by R-7 company long before the investor money has come into R-7 company. Therefore, he sought for deletion of R-7, R-8 and R-9 from this company petition.

16. Senior Counsel Shri. U.K. Choudhary appearing on behalf of R-10 to R-20 reiterated the same version stated by all of them conceding that there is no objection for passing a restraint order against the company land lying in the name of R-10 to R-20.

17. On hearing the submissions of the petitioner and respondents, I haveobserved that the petitioner invested Rs. 123.5 Crores in R-1 Company on 19.4.2008 as 50% shareholding believing R-1 would start setting up SEZ, as stated in the Shareholders Agreement; otherwise the petitioner would be at liberty to invoke the rights envisaged under shareholders agreement. The petitioner invested money in R-1 company agreeing the said money either to be invested in R-4 Company or in its subsidiary without any interest and consideration believing R1 Company would commence setting up SEZ, as stated in the shareholders agreement, However, five years have gone by and R-1 Company or its management has not initiated any step showing its inclination For starting the business as envisaged in the shareholders agreement entered with the petitioner but the money invested by the petitioner coolly went into R-7 Company under the cover of Article 11.3.1. Since then, Triangle (R7) has been enjoying the funds of the petitioner making R-la shell Company.

18. Though the Respondents have stated that they made correspondence for exemption of stamp duty, but record available shows that they filed application for exemption only on 6.6.2011, three years after the formation of the joint venture, thereafter these respondents did not even bother to have follow-up on the letter written on 6.6.2011. They have shown another letter dated 26.12.2012 reiterating the version mentioned in the letter dated 6.6.2011. On seeing the correspondence made by R-1 management, it appears no sincere effort has come from the respondents’ side to get an exemption of stamp duty, No doubt, there is an agreement from the petitioner side allowing the petitioner’s investment to be utilised either by R-4 or by its subsidiaries, This agreement does not say anywhere that the investment mane by the petitioner remain forever in R-7 without any information or clue to the petitioner, especially when no progress is likely to take place in near future to the project relating to Information Technology. If the project really comes up as agreed, it will generate employment to the citizens of this country, perhaps for that reason alone, state is providing incentives like stamp duty exemption and other exemptions, but now the promoters have come up with a new idea for development on the ground the project initially thought of is not viable and feasible. When it is in the mind of the respondents that they could not go ahead with project of R-1, then they should have placed all the information in relation to the petitioner’s investment, a new decision should have been taken making efforts either for change of objects and articles suitable to new thought, instead of doing the same, the respondents simply explained it away by saying since there is an agreement in between them to let this money be used by BPTP or its subsidiaries, they will not provide any information to the petitioner relating its investment. For having the respondents admittedly not willing to disclose the true picture of use of petitioner investment in R7, I believe it is not fair play on the part of the Respondents for when it is obvious they could not set up the project as they agreed upon. The Respondents shall again take the petitioner into confidence and redraft the terms agreeable in between the parties; otherwise, the Respondents shall come with a proposal acceptable to the petitioner. So far, nothing happened.

19. It is evident R-5 is the person controlling BPTP Ltd. (R-4) which, in turn, controlling all other companies, therefore, all these respondent companies are nothing but alter egos of R-5. It need not be said separately now days it has become routine one man sets up several companies and make the investors money rotated in various companies controlled by him so that investors will not be able to know where their money is parked, what rights they have over the money lying in some other company in which they have no shareholding. Here, it is an admitted fact the petitioner invested about Rs. 123.5 Crores in R-1 Company, it is an admitted fact that this money has gone into R-7 Company. It is also an admitted fact R-7 is not inclined to provide any clue as to what is happening to the money invested by the petitioner and now the petitioner is put to a risk that he could not even get information relating to the use of its money. The petitioner alleges that R-7 loaned R-8 & R-9 and made them take shares in R-7 with the money given by R-7 diluting the preferential allotment made to R-1 negatively impacting the value of investment made by the petitioner in R-1 company. The petitioner counsel says R-7 indulged in round tripping the investments, to which no reply is there from the respondents.

20. The petitioner counsel relied upon Needle Industries (India) Ltd. and Ors. v. Needle Industries Newey (India) Holdings Ltd. [1981(3) SCC pg 333] to say that there should be utmost good faith between the constituent members of a company, when the company in substance, though not in law, is running on partnership lines. If any dispute arises between the partners on any transaction by which one seeks to benefit himself at the expense of the firm, he will be required to show, not only he has the law on his side, but his conduct will bear to be tried by the highest standard of honour.

21. The petitioner also relied upon New Horizon Ltd. and Anr. v. Union of India & Ors [1995(1) SCC pg 478] to say that for the fulfilment of modern commerce and concept of joint venture partnership, the covenant of good faith is implied as a matter of law. It was held that when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defined crime, the law would regard the corporation as an association of persons, not as a company, This concept is obviously applicable to the facts of the present case.

22. The petitioner counsel also relied upon Mohanlal Ganpatran, v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. [AIR 1965 (Guj) 96] to say that it is imperative to look into the business realities of the situation and does not confine them to narrow legalistic view, meaning thereby though any resolution or any act done by way of parties, may be perfectly legal, yet oppressive, if it is burdensome, harsh and wrongful.

23. The petitioner counsel also relied upon Sangramsinh P,. Gaikwad and Ors. v. Shanti Devi P. Gaikwad through LRs and Ors [2005 (11) SCC 314] to say that if the conduct complained of reflects slightest departure from the standards of fair dealing and violation of the conditions of fair-play on which every shareholder who entrusts his money to a company, it is an act triggering action u/s 397 & 398 of the Companies Act.

24. The petitioner counsel also relied by MSDCV Radha Rama v. MST Chadrasehara Raja [2006 (8) SCC pg 650] to say that the jurisdiction of CLB u/s 397 & 398 and 402 of the Companies Act is much wider and the directions can be given even contrary to the provisions of the Articles of Association, it has even right to terminate, set aside or modify contractual arrangement between the companies arid any person. Section 397 of the act specifically provides that once oppression established, the Court may, with a view to end the matter complained of, make an order as it thinks fit. Thus, the Court has ample power to pass such orders as it thinks fit to render justice and such an order to be reasonable.

25. The Respondent No, 7 counsel placed various judgments to say that R-1’s investments in R-7 will not provide any jurisdiction to the petitioner to invoke jurisdiction u/s 397 & 398 of the Companies Act for R-7 is not a wholly owned subsidiary of R-1. That apart, R-1 company itself is not holding more than 10% in the R-1 company.

26. In support of the same, R-7 counsel relied upon Ved Prakash and Ors. v. Iron Traders (Pvt). Ltd. & Ors [AIR 1960 P&H 427] to say that petition u/s 397 & 398 is maintainable only when petitioner are the members of the respective company. Here, the petitioner not being the members of R-7 Company, this petition is liable to be dismissed against R-7.

27. He relied upon Gulabrai Ka&las Naik & Ors. v. Laxmidas Lallubhai Patel of Baroda & Ors. [1977 (47) Comp Cas 151 (Guj)] to say that a complaint u/s 397 & 398 must come forth from a member and it must be a complaint to be made by a member.

28. He also relied upon Vipulkumar Dahyalai Bheda v. V.S. Cosmopharma Pvt. Ltd. [2013 (3) Comp LJ 118 (CLB)] to reiterate the same proposition of law that is mentioned above.

29. In all the cases supra, the petitioner is not a member in the company whose affairs are impugned, in the given case, the petitioner is fifty percent shareholder, since unfairness in R-1 Company is the result of unfairness in R7 company, R7 is made as party to the proceedings. Since it is a related party transaction as stated in the articles, R7 could be made as party to the proceedings. The reason for making R7 party is no business has taken off in R1 Company, but money of the petitioner has gone into R7 and enjoying it without any accountability for the last five years. It is pertinent to note R7 is the company indirectly controlled by Mr Kabul Chawla, Hence, the ratio decided above is not applicable to the present case, because in the above cases the aggrieved is admittedly not a member in the company where he is required to be a shareholder as laid under section 399 of the Companies Act.

30. He also relied upon Shanker Sundaram v. Amalgamations Ltd. [2001 (104) Comp Cas 638] to say that a shareholder of a holding company cannot, by arraying subsidiaries as parties, seek relief against the subsidiaries in terms of Sec 402. Here this ratio is not applicable because this Bench holds Triangle (R7) is alter ego of Mr Kabul Chawla (R5).

31. The counsel for R-7 relied upon Incable Net (Andhra) Limited & Ors. v. AP Aksh Broadband Limited & Ors [2010 (6) SCC 719] to say that petitioner cannot raise contractual dispute before CLB u/s 397 & 398 of the Companies Act.

32. In the case supra, R1 Company gave a turnkey contract to R5 controlling 60% shareholding in R1 Company. The petitioner 2 was instrumental in entering into contract and paying large sums of money to R5, and this petitioner was at the helm of the affairs of R1 company during the relevant period, therefore held it does not lie in the mouth of the petitioner to say R5 siphoned off the money. In Incable, it is not the case that company was not doing anything, in furtherance of carrying the functions of R1, a contract was given to R5 with active consent of the petitioner. R5, against whom allegation made, also invested 60% paid up capital in R1 company and the Contract given to R5 is in furtherance of R1 business, for this reason, the Honourable Apex Court, seeing the involvement of the petitioner in making payments to R5, and on seeing other grounds as well such as entering into separate work in relation to R1 company, and the petitioner being at the helm of the affairs of the company, held it as contractual dispute, therefore it does not amount to oppression. This ratio has been arrived not solely on the ground it is a contractual dispute, but there are other grounds to call it not oppression, Whereas in the given case, the petitioner money going into Triangle is not an act incidental to the business of R1 company, this question will not arise in this case, because R1 has remained there where it was five years ago. The investment in Triangle does not bring in anything to the petitioner or to R-1 company, though it was agreed to let the money used by BPTP or its subsidiaries, it is no where agreed this money will remain with the promoters for their enrichment when R1 project is not likely to come into reality. As I said earlier, every understanding and an act between two persons conferring rights, if it is legally valid, it is a contract, including the shareholder investing money in a company, because it happens only when the shareholder agrees with company document. Therefore, shareholders rights are also rights accrued upon the shareholder on an agreement. Of course, they are specified in the Companies Act. So, every act amounting to contract in relation to the affairs of the company will not dehors the jurisdiction under sections 397 and 398 of the Companies Act. In Incable, the contract with RS is unconnected to the articles of association, but here investment of money in Triangle is part of the articles of association, indeed the whole money come from the petitioner was bodily lifted to Triangle, till date no capital either in the form of money or in the form of land has come into R1 company from the promoters, but these promoters lifted the entire paid up capital contributed by the petitioner to Triangle (R7) and milking it for the last 5 years, therefore this act of R-7 cannot be seen as separate from the affairs of the R-1 company. The Respondent counsel argued investment in Triangle is not a siphoning, because money went into Triangle to the knowledge of the petitioner, right, it may not fall within the meaning of siphoning when it came into the company, but thereafter, if that money is retained beyond reasonable time and beyond legitimate expectation of the petitioner, particularly when R1 company project has become a dead story, and R7 making money on somebody’s money saying since there is an agreement the petitioner shall shut his eyes from Triangle business, then I honestly believe it is grave prejudice and oppression against the petitioner. Therefore, the ratio decided in Incable not applicable to the present case.

33. He also relied upon Sangramsiagh P Gaekwad & Ors. v. Shanta Devi P. Gaekwad (Dead) through LRs & Anr [2005 (11) SCC 314] to say that the proceedings u/s 397 of the Act would be maintainable only when an extraordinary situation is brought to the notice of the Court, keeping in view the right and far reaching power of the Court in relation to the affairs of the company. The situation placed before this Bench in this case is extraordinary, therefore section 397 and 398 of the Companies Act could be invoked in the present case.

34. He relied upon Chetkar Jha (Dr) v. Vishwanath Prasad Verma (Dr) [1970 (2) SCC 217] to say that minutes of a meeting are recorded to safeguard against the future disputes as to what had taken place thereat. Thereby, it has to be seen the accuracy of tree minutes and not the validity of the decision before the meeting. When a decision is taken and the Chairman signs minuted and such minutes become prima facie evidence to what has taken place at the meeting. This ratio is arrived at in applying fiscal provisions, not in a case under section 397 and 398 of the Companies Act. It is known that section 397 & 398 jurisdiction is primarily aimed at equities, an action cannot be called right just because it is valid in the eyes of a statute, an action cannot also be called wrong just because it is invalid in the eyes of a statute. Assuming for time being all minutes are correct, how long the funds of the petitioner will remain in Triangle when the business in R1 is not likely to happen. Is it not R7 is under obligation to provide information to the petitioner and R1, when R7 is doing business with the money of the petitioner? Of course it may be called as subscription money in R1 company, but the fact is, R1 company has no other money except the money come from the petitioner. Therefore, this ratio is not applicable to the given facts.

35. R-7 counsel also relied upon Bacha F. Gurdar, Bombay v. Commissioner of Income Tax, Bombay [1955 (1) SCR 876] that a shareholder does not get any proprietary interest in the assets of the company, therefore, the petitioner being shareholder of R1 company, shareholder is entitled to profits of the company and, if at all any right is there over the assets of the company, it will be accrued upon him only when anything is left over after winding up but not in the assets of the company before liquidation. This principle is there to protect the interest of the creditors, who have no stake in the risk company takes; this is not applicable in a situation when management is unfair to the other shareholders. In fact, the directors in management have fiduciary duty to provide information to the shareholders, and the onus will be heavy when it is joint venture. This case is also a dispute in relation to fiscal matter, therefore the ratio in it is not applicable to the present case.

36. R-7 counsel also relied upon In Re: Bengal Luxmi Cotton Mills Ltd. [1965 (35) Comp Cas 187 para 136] to say that if delay in seeking the remedy discloses acquiescence or condonation of wrongful acts, the discretionary relief Ws 397 & 398 of the Act will not be granted. This acquiescence is applicable when the petitioner has not raised any issue for considerable period over the acts completed, here the petitioner agreed to let the money used by the promoters in the belief that R1 company project would take off once the petitioner invested subscription money, but nothing happened till date, it appears it is sure nothing will happen in R1 company, then is it justifying on the part of R5 to keep this money for his benefit through his alter ego R7 company? In Bangaru Laxman, Supra, it is in relation to acts happened in past, but in the present case, it is not past and concluded act and the petitioner has not acquiesced to allow the respondents make merry with the funds of the petitioner forever, therefore the ratio decided in the case supra is not applicable to the present case.

37. On perusing Ved Prakash and Ors. v. Iron Traders (Pvt.) Ltd. & Ors (Supra), and Gulabrai Kalidas Naik & ors. vs. Laxmidas Lallubhai Patel of Baroda & Ors. (Supra), it is evident that a person, who is not member of the company, shall not invoke jurisdiction u/s 397 & 398 of the Companies Act. There is no dispute over the proposition of law stated in the citations. Here, it is evident R-5 (Kabul Chawla), who is shown as nominee director in R-1 Company, has full control over R-4 Company, which is in turn controlling all the remaining companies including R-7, into which the investment made by the petitioner has gone into. Therefore, it is evident that it is a ‘one-man show’ in all these companies. R-5 has taken out investment from R-1 company and put it in his own company i.e. R-7 and kept quite without taking any initiative in R-1 company, by which, R-7 company has been enjoying investment the petitioner made in R-1 company for the last five years without giving any clue to the petitioner. It appears R7 Company has been using the money of the petitioner as fund of R-1 Company for Facilitating themselves; therefore, it is not fair dealing on the part of the Respondents, Wherever unfairness and opaqueness is found, then the aggrieved party will have a right to protect his interest by proceeding against the other company where its money has gone. Since Kabul Chawla (R5) being the person caused this money go to R-7 by virtue of an agreement entered in between the petitioner and R-2 to R-4, since he is the ultimate beneficiary of all these transactions, therefore, whatever transactions that have taken place in BPTP Ltd. and its subsidiaries are to be considered as related party transactions, as mentioned in the Articles of Association. The general principle, one has to keep in mind is that anybody who invests in the company, will invest hoping there will be returns to the investments made by them, whether it is in the name of shares or otherwise. Here, the petitioner invested and agreed to let this money go into either BPTP or its subsidiaries, believing that R-1 company business will soon come into existence and the money that has gone to R-4 or its subsidiaries, would come back for the use of R-1 company. Since nothing has happened for the last five years in R1 Company, it is prejudicial to the petitioner and unreasonable to keep the petitioner in dark about its investment on the ground R-7 is not a subsidiary company to R-1 Company.

38. By seeing it, it is evident Kabul Chawla (R5) is the person directly or indirectly having almost 100% shareholding in R2&3 holding 50% shareholding in Perpetual (R-1) through R2&3. This Kabul Chawla has around 90% shareholding in BPTP (R-4); which in turn has 100% shareholding in another company called Triangle. Therefore, it is clear; Mr Kabul Chawla pops up in different masks as BPTP, Triangle and other companies. Not only is this, the land shown as company land in companies R10-20 are belonging to Kabul Chewla. The outsider in this cobweb is the petitioner, its money has come to Triangle through BPTP in the year 2009, ever since, and it has been doing business without any clue to the petitioner. When the petitioner tells that these respondents not even making it know to it as to what is happening to its money, when it has asked for external audit of the books of Triangle, they refuse to provide inspection. They say they have no objection for audit of Perpetual, but they will not provide audit in Triangle because the petitioner is not a shareholder of Triangle, nor is Triangle Subsidiary of Perpetual wherein the petitioner continuing as shareholder. I don’t agree with the respondents contention that R7 is independent corporate body, hence R7 to be deleted, because Mr Kabul Chawla is one in all and all in one.

39. Since Mr Kabul Chawla spread into several legal persons, the petitioner had no other way except making all of them as respondents in this case. Though Company is an independent legal person, it cannot act on its own, unless a natural person acts on behalf of it. Here, except the petitioner, all other respondent companies, including R1 Company, are directly or indirectly under the control of Mr Kabul Chawla, though companies are several independent entities, the human mind is only one that is Mr Kabul Chawla. The benefit in all these companies goes to one person that is Mr Kabul Chawla. As of now, since the petitioner’s money is with Triangle and it has been not disclosing anything to the petitioner, then the only inference that could be drawn is R7 transactions and dealings with its money is not clean and transparent. Now the shield (Triangle) R-7 has is, the petitioner is not a shareholder in R-7 and it is not a subsidiary of R-1 company, The Respondents say R-1 put in 123 crores in R-7, in consideration to 246, 670 Compulsorily Convertible Preferential Shares (CCPS) issued to R-1, therefore, if at all any grievance is there, it will be to R-1, but not to the petitioner, hence this petition will not lie against R-7, hence R-1 has sought for the deletion of R7 to R9 from the company petition.

40. Before going into the applicability of legal position, I wish to place laws of nature, law of the land. If we see civil law, it has been primarily growing and making this world run on two principles, one is, a person should not go back from what he has agreed, secondly he should not try to lay his hands on something that does not belong to him.

41. In Indian Contract Act, whatever consented between persons, it is an agreement, no matter whether becoming a shareholder, whether entering into a sale deed. As we know when an agreement is arrived between the parties, the agreement will confer rights, obligations and remedies upon the parties to the agreement. Right of exercising these rights will travel along with substratum of the agreement, rights will travel as the substratum travels, for this reason alone, sometimes rights will be exhausted, sometimes obligations gets discharged, sometimes right of remedy gets accrued, sometimes right of remedy gets exhausted, it all depends on the movement of the substratum. If we see possessory rights, they stay with the man possessed of the substratum. Likewise, when money goes from A to B, A will have a right of recovery, B has an obligation to return it, as long as it is not returned, B is accountable to it and A’s right of remedy will run side by side wherever As money goes. if the substratum has gone out, even if a decree/order is obtained against debtor simplicitor after the value attached to him has gone out, it will become a paper decree without any enforcement in it. For this reason alone, attachment before judgment has come into existence, so that decree could be executed after judgment by proceeding against attached property in respect of unsecured debts, When an unsecured creditor could realise his debt from the borrower by obtaining attachment against the property not given as security, can’t the same analogy be applicable to a shareholder when management wantonly keep the shareholder in dark in relation to the shareholder investment, especially in a case where it is a joint venture with two shareholders with 50:50 shareholding in the company. In a company, the guarantee and surety available to the shareholder is faith and trust, if and when the shareholder comes to know that trust and belief is fizzling out, the directors in the management arid his colleague, who he believed until then are no more fair to him, whether the shareholder is to keep quite without taking any steps despite knowing well he could not protect his interest unless timely acted. No doubt a company is an independent juristic person subsuming all the liabilities in itself, this entity is given to the company to keep the substratum intact so that creditors may realize their loans from the substratum and to safeguard the shareholders not to get exposed to unlimited liability. Does it mean the management in the company can do whatever it likes under the garb of corporate entity? I don’t believe this concept will become a shield to the management to keep off the shareholders knowing the information relating to the investment made by the aggrieved, indeed the management is eyes and ears of the shareholders, their conduct shall not create any iota of doubt over the faith and trust the shareholders keep in the management. Every transaction the management enters with third parties shall be as clear as daylight, This transaction of putting 123.5 crores in R-7 is nothing but changing hands from left to right, because R-7 is wholly owned subsidiary of R-4, this R-4 is in the absolute control and management of Kabul Chawla (R-5), the same R-4 is the holding company to R-2 which is holding 49.90% shareholding in R-1 company. The same Chawla (R-5), who is in direct control of R-4, is the nominee director of R-1 Company. Therefore, it is clear money has gone into R-7 for

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the benefit of one person that is Mr Kabul Chawla (R-5). On seeing the picture available in this case, it appears as though R1 was brought into existence and made the petitioner invest money in R1 to make business in R7 Company with the money of the petitioner. 42. It is known position that there is no definition to the word ‘oppression’ except going by the ratio decided by the constitutional courts. As and when a dispute decided by the courts in relation to oppression, it is only held that the definition of oppression will be construed from the facts available in the given case. Here, the petitioner put in its money five years ago, nothing has happened in R-1 Company. It has virtually remained a shell company, but whereas the money invested by the petitioner – about Rs. 123.50 Crores, has gone into R-7 company and R-7 company has been carrying its business which is nothing but alter ego of Chawla, who is managing R-1 company. When the petitioner asked for the inspection and audit of the accounts financials of R-7 Company, it has virtually refused to provide any clue as to what has been happening to the investment made by the petitioner. 43. Since it is abundantly clear that R-4, R-7, R-8 & R-9 and other companies are alter egos of R-5 who is managing R-1 Company, he is under obligation to explain to the petitioner as to what is happening with the money the petitioner invested in R-1 Company. The conduct of R-5 and R-6 continuing as directors in R1 Company, clearly discloses that they are not inclined to disclose the information relating to the money invested by the petitioner though it is clear that R7 has come into existence for the benefit of Chawla. 44. The conduct of R5&6, who are running all these companies, is oppressive and prejudicial to the interest of the petitioner. Had R1 Company started off its business as envisaged in the agreements and articles of association, certainly retaining this money with R7 would not become oppression, the petitioner would seek remedy if any before civil court, but when R1 Company has not moved an inch for the last five years ever since the petitioner invested money and when R7 enjoying the money of the petitioner without any fetter under the garb of the consent of the petitioner letting the promoter use it for their benefit, then it amounts oppression. In a situation like this, R1 and R7 is under obligation to redo the arrangement in between them or disclose information as to what is happening with its money. Nobody will part with more than 100 crores for more than five years without any benefit, particularly when nothing is likely to happen in R1 Company as envisaged in R1 Company. Therefore, this Bench is of the opinion that the petitioner has prima fade satisfied this Bench that investment of petitioner’s money in the form of subscription money of R1 in R-7, as per articles of association, is a related transaction. Though the petitioner agreed to let this money go into R-4 or its subsidiaries, it does not mean the respondents are not under obligation to disclose every information relating to its money, it shall also give assurance to the petitioner that its money is safe and being used for the good of R1 Company. This Bench has not passed any restraint order against the assets of R-7 company because R-10 to R-20 have around 55 acres in the name of them and I believe the value of the land today may be much higher than the investment of the petitioner, if any restraint order is passed against the fixed assets of R-7 company involved in development, it will have further ramifications over the rights of others. 45. In view of the reasons above mentioned, I hereby direct that, 1. Deloitte is hereby appointed to audit R1 and R7 Companies and complete audit within two months hereof, therefore R2-6 are hereby directed to cooperate Deloitte to audit as directed by this Bench. 2. R1 Company is directed to maintain status quo over the shareholding, board pattern and fixed assets if any, pending disposal of the case, 3. the remuneration shall be paid to the Deloitte by R1 company as agreeable to Deloitte, in default, the petitioner is at liberty to pay the remuneration and collect the same from R1 company thereafter, 4. R10 to 20 companies are hereby directed not to create any third party rights over the company land pending disposal of the company petition.