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IN THE HIGH COURT OF CALCUTTA
I.P. MUKERJI, J.
BELTAS MERCHANTS PRIVATE LIMITED - Appellant
Versus
INDIAN FIBRES LIMITED AND ORS - Respondent
A.C.O. No. 159 of 2013, 52 of 2016, 66 of 2016, 155 of 2016, 160 of 2013, 161 of 2013; Appeal From Order No. 278 of 2013, 279 of 2013, 280 of 2013; CC No. 23 of 2014; General Application No. 3362 of 2014
Decided on : 18-01-2019
The subject matter of the dispute was the Jaipur property. The appellants alleged that the Govind Sarda group, which controlled the respondent company, had fraudulently transferred the property to SEARS and then to Adarsh, in order to deprive the Ghanshyam Das Sarda group of their rightful share in the company. The Company Law Board dismissed the appellants' petition, holding that the specific performance of the agreement for sale of the property could not be agitated in a petition under Sections 397/398 of the Companies Act, 1956. The appellants appealed to the High Court.
Fact of the Case:
The appellants, the Ghanshyam Das Sarda group, were shareholders in the respondent company, Indian Fibres Limited. The company owned a large tract of land in Jaipur, Rajasthan. In 2007, the company entered into an agreement to sell the property to Upasana and Kajaria. However, the sale fell through due to the company's failure to obtain the necessary permissions from the Rajasthan government. In 2010, the company entered into a new agreement to sell the property to SEARS Bilt Pvt. Ltd. The appellants alleged that this agreement was fraudulent and that SEARS was controlled by the Govind Sarda group. In 2013, SEARS sold the property to Adarsh Bilt Estate Ltd. The appellants filed a petition before the Company Law Board, alleging that the transfer of the property to SEARS and Adarsh was illegal and that the Govind Sarda group was mismanaging the company. The Board dismissed the petition.
Finding of the Court:
The High Court held that the Company Law Board had erred in dismissing the appellants' petition. The Court found that there was sufficient evidence to suggest that SEARS was controlled by the Govind Sarda group and that the transfer of the property to SEARS and Adarsh was fraudulent. The Court also found that the Govind Sarda group was mismanaging the company. The Court set aside the Board's order and appointed a committee of administrators to manage the company.
Issues: 1. Whether the Company Law Board erred in dismissing the appellants' petition? 2. Whether there was sufficient evidence to suggest that SEARS was controlled by the Govind Sarda group and that the transfer of the property to SEARS and Adarsh was fraudulent? 3. Whether the Govind Sarda group was mismanaging the company?
Ratio Decidendi: 1. The High Court held that the Company Law Board had erred in dismissing the appellants' petition. The Court found that the Board had failed to consider the appellants' evidence that SEARS was controlled by the Govind Sarda group and that the transfer of the property to SEARS and Adarsh was fraudulent. The Court also found that the Board had failed to consider the appellants' evidence that the Govind Sarda group was mismanaging the company. 2. The High Court found that there was sufficient evidence to suggest that SEARS was controlled by the Govind Sarda group and that the transfer of the property to SEARS and Adarsh was fraudulent. The Court noted that the stamp papers for the transaction between the company and SEARS were purchased in West Bengal, where the Govind Sarda group was based. The Court also noted that the agreement for sale was signed by a director of SEARS who was also a director of a company controlled by the Govind Sarda group. Finally, the Court noted that the property was sold to Adarsh at a price that was significantly lower than the price that SEARS had paid for it. 3. The High Court found that the Govind Sarda group was mismanaging the company. The Court noted that the group had increased the company's authorized share capital without the approval of the shareholders. The Court also noted that the group had appointed directors to the company's board who were not qualified to serve.
Final Decision: The High Court set aside the Company Law Board's order and appointed a committee of administrators to manage the company. The Court also ordered the Govind Sarda group to refund the money that they had received from the sale of the property to SEARS and Adarsh.
I. P. MUKERJI, J.
Facts IN BRIEF & ARGUMENTS
1. The Sardas are a business family of Kolkata. Three brothers and their family members constitute this family. The brothers are Govind, Ghanshyam Das and Jagdish. Aditya is the son of Govind. He is the second respondent in this appeal. Amit is Govind's other son, the third respondent. As will appear from the facts narrated below, the sons had a large part to play in the family business dispute.
2. There is a large tract of land of about 20,235 sq. metres on Jaipur Road, Durgapara in Rajasthan. At one point of time it was considered to be on the periphery of the city and not of as much value as it is today. It was owned by Indian Fibres Limited, the first respondent, which was promoted by one J.P. Goenka and incorporated on 13th April, 1962. This land was the only asset of the company.
3. The Sardas took over the company in 1995. In it, each of the three brothers had exactly 1/3rd shareholding. In other words each had 33 and 1/3 per cent of the allotted share capital, held by himself and/or companies controlled by him. Govind and Jagdish with their family and associates constitute and I will refer to them as the Govind Sarda group. Ghanshyam Das and his family and associates constitute the other group.
4. The first respondent company acquired on 26th December, 1974 a 99 years' lease of the said land from the government of Rajasthan to be used for industrial purposes.
5. By the year 2006, this company had fallen into considerable debt with its secured creditor, Bank of Baroda. On 13th December, 2006 in an Extraordinary General meeting of the company it was resolved that this parcel of land would be "sold" (there could only be "sublease" of the unexpired term of a lease). The Board of Directors was authorized by the share holders to effect the "sale". As the lease was from the government of Rajasthan, "the sale" could only be effected with its permission.
6. On 7th march, 2007, a memorandum of understanding was executed by the first respondent company with the respondent No.20 (Royal Ascot), Respondent No.21 (Upasana) and Respondent No.22 (Kajaria) for a consideration of Rs.43,80,20,000/- for "sale" of this tract of land. Out of these transferee companies, Royal Ascot was controlled by the Sardas. The other two transferees were independent companies.
7. Under this Memorandum of Understanding, a sum of Rs.2.5 crores was to be given as advance by each of the three companies. Upasana and Kajaria paid Rs.2.5 crores each but Royal Ascot did not make any payment. The appellants allege that this sum of Rs. 5 crores was transferred to another Sarda family company controlled by the Govind Sarda family, Jupiter Finvest (Private) Limited. Further fund was requisitioned from Upasana and Kajaria with which the dues of the bank were liquidated.
8. An important event took place on 25th March, 2008. The government of Rajasthan granted permission to the company to construct a hotel cum service apartment on the property.
9. Mr. Ghanshyam Das, the brother who controls the appellants says that this grant of permission was concealed from him by his brothers and their group till May, 2013.
10. Mr. Kapur, learned Senior Counsel for the appellants submitted that by a devious method the two brothers of the Govind Sarda group, with Aditya and Amit convened meetings of shareholders without serving any notice on his clients. In those meetings the shares of the Govind Sarda group were increased by allotment of the newly issued shares.
11. As a result, the percentage holding of Ghanshyam Das Sarda which was 331/3 % was reduced to less than 10%, to about 6%. This is how it started.
12. On 2nd January, 2009 a Board meeting of the respondent company was allegedly held where a decision was taken to hold its Extraordinary General Meeting on 20th February, 2009 for allotment of 100 shares each aggregating to 300 shares to the respondent Nos. 4 (Sanjay Rathi), 6 (Gobind Sharma) and 9 (Sobhanand Jha). According to the appell
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