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IN THE HIGH COURT OF CALCUTTA
I.P. MUKERJI, J.
Shaw Wallace & Company Limited
Vs.
Kishore Rajaram Chhabria
G.A. No. 1678 of 2011; G.A. No. 2252 of 2006; G.A. No. 2205 of 2011; C.S. No. 373 of 1992
Decided on: June 25, 2012
COMPANY - SUIT - SUBSTITUTION - AMENDMENT - INTERIM ORDER - Devolution of interest - Order 22 Rule 10 CPC - Leave of the Court - Cause of action - Interim order - Balance of convenience.
Fact of the Case:
The original plaintiffs, Shaw Wallace and Company Ltd. (SWC) and Shaw Wallace Distilleries Ltd. (SWDL), filed a suit in 1992 against the first defendant, Kishore Rajaram Chhabria, alleging that he had taken over control of B.D.A., a subsidiary of SWC, in breach of his fiduciary duty as a director of SWC. The suit was accompanied by an interim application seeking to restrain Mr. Chhabria from diverting the liquor business of SWC by taking over its subsidiary, B.D.A. The interim application was granted by the trial court, but the order was stayed by the Division Bench of the High Court. The Supreme Court affirmed the view of the Division Bench. Subsequently, B.D.A. was acquired by Herbertsons, a company controlled by Mr. Vijay Mallya. In 2005, Mr. Mallya and Mr. Chhabria entered into a settlement agreement, pursuant to which Herbertsons was merged with Mc Dowell & Co. Ltd., a Vijay Mallya Company. Mc Dowell changed its name to United Spirits Ltd., the present applicant. The applicant sought to be substituted as the plaintiff in place of SWC and SWDL, and to amend the plaint to reflect the changes in the ownership of B.D.A. The defendants opposed the application, arguing that both the plaintiffs had been dissolved and that the suit had abated.
Finding of the Court:
The court held that the applicant was entitled to be substituted as the plaintiff in place of SWC and SWDL, as the right to sue had vested in the applicant by devolution of interest under Order 22 Rule 10 CPC. The court also held that the cause of action in the suit was not dead, as the settlement agreement between Mr. Mallya and Mr. Chhabria did not extinguish the original cause of action of SWC and SWDL against Mr. Chhabria and B.D.A. The court further held that the applicant was entitled to an interim order restraining the defendants from transferring or alienating their shareholding in B.D.A., as the applicant had a prima facie case and the balance of convenience was in favor of granting the interim order.
Issues: 1. Whether the applicant was entitled to be substituted as the plaintiff in place of SWC and SWDL. 2. Whether the cause of action in the suit was dead. 3. Whether the applicant was entitled to an interim order restraining the defendants from transferring or alienating their shareholding in B.D.A.
Ratio Decidendi: 1. The court held that the applicant was entitled to be substituted as the plaintiff in place of SWC and SWDL, as the right to sue had vested in the applicant by devolution of interest under Order 22 Rule 10 CPC. The court relied on the following principles: (a) Rules 1 to 5 of Order 22 CPC do not apply to body corporates, as the term "legal representative" in those rules does not include any successor-in-interest of a dissolved company. (b) Rule 10 of Order 22 CPC applies to devolution of interest other than by death of a natural person, including devolution of interest arising out of schemes of merger and demerger between companies. (c) A person on whom the interest devolves does not have to make any formal application for substitution, but must obtain the leave of the Court, which cannot be withheld if the Court is satisfied that there is devolution of interest. 2. The court held that the cause of action in the suit was not dead, as the settlement agreement between Mr. Mallya and Mr. Chhabria did not extinguish the original cause of action of SWC and SWDL against Mr. Chhabria and B.D.A. The court relied on the following principles: (a) The settlement agreement was between two individuals and could not bind any body corporate, unless it was shown that a particular person was its alter ego. (b) The schemes of merger and demerger did not contain any clause suggesting that the original cause of action of SWC and SWDL was extinguished. 3. The court held that the applicant was entitled to an interim order restraining the defendants from transferring or alienating their shareholding in B.D.A., as the applicant had a prima facie case and the balance of convenience was in favor of granting the interim order. The court relied on the following principles: (a) The applicant had a prima facie case, as it had shown that it had acquired the original cause of action of SWC and SWDL, and that the defendants were attempting to dispose of the assets of B.D.A., which would have the effect of defeating the applicant's claim. (b) The balance of convenience was in favor of granting the interim order, as the applicant would suffer irreparable harm if the defendants were allowed to dispose of the assets of B.D.A., while the defendants would not suffer any significant harm if the interim order was granted.
Final Decision: The court granted the applicant's application for substitution and amendment, and also granted an interim order restraining the defendants from transferring or alienating their shareholding in B.D.A.
I.P. Mukerji, J.
DEVELOPMENTS:
1. Both the plaintiffs stand dissolved by operation of law. The first plaintiff (SWC) was dissolved on 7th September, 2009 by an order of this Court. It was made in connection with a scheme application under the Companies Act, 1956. The second plaintiff(SWDL) stood similarly dissolved in September 2006 by orders of the Karnataka and Bombay High Courts. Another company, United Spirits Limited wants to continue this suit in place of the plaintiffs. They seek certain amendments to the existing plaint. They also want some interim orders in the suit. Mr. Kishore Rajaram Chhabria, the first defendant and the sixth defendant (BDA), a company BKC Enterprises Private Ltd. (BKC) and Allied Blenders and Distilleries Private Limited (Allied) unitedly opposed the prayers. They are collectively described as "the defendants".
2. At one point of time SWC was a giant company dealing in spirits. It had a long chain of subsidiaries, large undertakings, a big market, reputation and so on. Cruickshank & Company Ltd. (CCL) was a wholly owned subsidiary of SWC. A company Parganas Investments Ltd. (PIL) was a subsidiary of CCL. PIL held the controlling number of shares in another company, Arunava Investments Ltd. (AIL). Thus, AIL was or was always believed to be a subsidiary of SWC. In any event SWC, AIL, CCL and PIL were part of a chain of holding and subsidiary companies or group companies of which the flagship was SWC. The sixth defendant (BDA) was incorporated on 25th February, 1986 as a private company limited by shares. AIL acquired the entire paid up share capital of BDA. These were 25,000 equity shares of Rs. 10/- each. Therefore, BDA was also added to the chain, in or about 1988. The name of the CCL was changed to SWDL.
3. Manohar Rajaram Chhabria had taken control of SWC in 1987. His brother is Mr. Kishore Rajaram Chhabria. It is said that Manohar Rajaram Chhabria brought up Kishore. The latter was elected as a director of SWC at its general meeting held on 27th March, 1987. He was appointed the Managing Director of the Company on 24th June, 1987.
4. What happened between 1990 and 1992 is this. On or about 3rd August, 1990, a company In trust Securities and Investments (P) Ltd. (In trust) acquired the 25,000 equity shares of Rs. 10 each in BDA. This was followed, on or about 27th March 1991 by further allotments. The result was that the shares of BDA were held as follows: Intrust 49%; Mercury Breweries & Distilleries Ltd. 49% and Madan Dwarkadas Chhabria 2%. It was alleged that Mr. Kishore Rajaram Chhabria was behind all this and that as the Managing Director of SWC, he abused his position to acquire control of BDA. The above entities holding shares in BDA were in his absolute control.
5. Now, B.D.A. had a large liquor business with a distillery at Aurangabad.
6. SWC and AIL, which were the original plaintiffs filed the above suit in the year 1992, inter alia, alleging that Mr. Kishore Rajaram Chhabria was guilty of taking over control of B.D.A. and thereby divesting SWC of this subsidiary. It was said that he was in breach of his fiduciary duty as a director of SWC. Simultaneously, an interim application was filed inter alia to restrain Mr. Kishore Rajaram Chhabria from diverting the liquor business of SWC, by taking over its subsidiary BDA. This Court, on 5th May, 1992 promptly granted an injunction. Padma Khastgir J. directed maintenance of status quo of the distillery of BDA at Aurangabad regarding its managerial staff and marketing of its products. Mr. Kishore Rajaram Chhabria appealed to the Division Bench. The appeal was heard extensively before that bench. Ultimately by its judgment and order pronounced on 27th August, 1993, the Division Bench held that Chhabria was not guilty of any wrong doing. The matter was carried in appeal to the Supreme Court. The Supreme Court on 19th November, 1993 affirmed the view of the Division Bench of this High Court.
7. "Herbertsons", "East Coast", "Endavour" and "Co
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