CO.A(SB)/4/2006 of HILLCREST REALTY SDN. BHD. Vs HOTEL QUEEN ROAD PVT. LTD. & ORS.

IN THE HIGH COURT OF DELHI AT NEW DELHICO.A. (SB) 4 of 2006

Reserved on: April 30, 2013

Decision on: May 31, 2013

HILLCREST REALTY SDN BHD

..... AppellantThrough: Mr. Jayant Bhushan, Senior Advocatewith Mr. Mohit Chaudhary, Advocate.

versus

HOTEL QUEEN ROAD PVT. LTD. & ORS.

..... Respondents

Through: Mr. Harsh Sharma, Advocate for R-1.Mr. Arun Kathpalia, Mr. Jayant K. Mehta andMs. Pragya Singh, Advocates for Mr. Ashok Mittal.Ms. Tanu Priya Gupta, Advocate for SouthIndian Bank.

Mr. Aman Lekhi, Senior Advocate with Mr. AtulSharma and Mr. Nitesh Jain, Advocates for R.P.Mittal Group.

Mr. V. Kanagaraj, Senior Advocate withMr. Gautam Dhamija, Advocate for RespondentNo.3

Ms. Nidhi Mehrotra, Advocate for R-6.Mr. Mayank Bansal, Advocate for IOB with Mr.Deepak Sudan, AGM and Mr. Vivek Dixit, SeniorManager.

WITH

CO.A (SB) 5 of 2006

HOTEL QUEEN ROAD PVT. LTD. & ORS.

.....Appellants

Through: Mr. Harsh Sharma, Advocate forAppellant No.1.Mr. Arun Kathpalia, Mr. Jayant K. Mehta andMs. Pragya Singh, Advocates for Mr. Ashok Mittal.Ms. Tanu Priya Gupta, Advocate for South

Co. A. (SB) Nos. 4, 5 & 10 of 2006

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Indian Bank.

Mr. Aman Lekhi, Senior Advocate with Mr. AtulSharma and Mr. Nitesh Jain, Advocates for R.P.Mittal Group.

Mr. V. Kanagaraj, Senior Advocate withMr. Gautam Dhamija, Advocate for RespondentNo.3

Ms. Nidhi Mehrotra, Advocate for R-6.Mr. Mayank Bansal, Advocate for IOB with Mr.Deepak Sudan, AGM and Mr. Vivek Dixit, SeniorManager.

versus

HILLCREST REALTY SDN BHD

..... Respondent

Through: Mr. Jayant Bhushan, Senior Advocatewith Mr. Mohit Chaudhary, Advocate.

AND

CO.A (SB) 10 of 2006

ASHOK G. MITTAL

....Appellant

Through: Mr. Arun Kathpalia with Mr. Jayant K.Mehta and Ms. Pragya Singh, Advocates.

versus

HOTEL QUEEN ROAD P. LTD. &ORS

.....Respondents

Through: Mr. Harsh Sharma, Advocate forRespondent No.1.Mr. Jayant Bhushan, Senior AdvocateWith Mr. Mohit Chaudhary, Advocatefor Hillcrest Realty SDN BHD.Ms. Nidhi Mehrotra, Advocate for R-6.Mr. V. Kanagaraj, Senior Advocate withMr. Gautam Dhamija, Advocate for RespondentNo.3Mr. Atul Sharma and Mr. Nitesh Jain, Advocatesfor R.P. Mittal Group.

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Mr. Mayank Bansal, Advocate for IOB with Mr.Deepak Sudan, AGM and Mr. Vivek Dixit, SeniorManager.

CORAM: JUSTICE S. MURALIDHAR

JUDGMENT31.05.2013

1. These are three appeals under Section 10(F) of the Companies Act, 1956arising out of the order dated 31[st]January 2006 passed by the Company LawBoard (‘CLB’) in Company Petition No. 64 of 2005.

Background facts

2. The background facts are that the Government of India (‘GoI’) took apolicy decision on 5[th]July 2002 to disinvest its shares in the India TourismDevelopment Corporation (‘ITDC’) which owns various hotel properties.One of these hotel properties was the Indraprastha Hotel formerly known asAshok YatriNiwas. In terms of the approved Scheme of demerger, the hotelproperty was transferred to Hotel Queens Road Pvt. Ltd. (‘HQR’) which wascreated as special purpose to enable the disinvestment. The paid up capitalof HQR was Rs.90 lakhs comprising of 9 lakh equity shares of Rs.10 each.GoI held 89.97% shares, the Indian Hotels Company Ltd. (‘IHCL’) held 10%and balance shares were held by others.

3. GoI invited bids for sale of its shares in HQR. Moral Trading &Investment Ltd. (‘Moral’) public limited company was the successfulbidder. By Share Purchase Agreement (‘SPA’) dated 8[th]October 2002Moral acquired the shares of GoI and IHCL. The amount involved in the

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acquisition was Rs.45 crores. Of this Rs.33.37 crores was funded byborrowing/loans from banks. With 99.97% equity shares of HQR being heldby Moral, HQR became Moral’s subsidiary. Moral’s shares were listed on theDelhi Stock Exchange.

4. Mr. R.P. Mittal and his family members held the controlling interest inMoral. The case of Mr. Ashok Mittal, the younger brother of Mr.R.P. Mittal,was that the balance sum for the acquisition of shares came fromcontributions by both of them. Mr. Ashok Mittal claimed that while heinvested Rs.5.50 crores, Mr. R.P. Mittal brought in Rs.6.23 crores. Mr.R.P.Mittal and his wife Mrs.Sarla Mittal were appointed Additional Directors ofHQR on 8[th]October 2002.

5. On 21[st]December 2002, 13 shares of Moral in HQR were transferred to 7other members. 2 shares were transferred to Mr.R.P. Mittal,3 shares toMrs.Sarla Mittal and 1 share to Mr. Ashok Mittal.

6. Subsequently in the Annual General Meeting (‘AGM’) of HQR held on28[th]December 2002, Mr.R.P. Mittal and Mrs.Sarla Mittal were appointed aswhole-time Directors. The Memorandum of Association (‘MoA’) of HQRwas altered to increase its authorised share capital to Rs.33 crores consistingof Rs.80 lakhs share of Rs.8 each and 28 lakhs, 8.5% CumulativeRedeemable Preference Shares (‘CRPS’) of Rs.100 each (Rs.25 lakhs). On28[th]June 2003, the authorised capital was again altered by increasing theCRPS to Rs.30 crores.

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7. Hillcrest Realty SdnBhd (‘Hillcrest’), the company registered in Malaysiawas allotted 28,29,290 CRPS in HQR in two spells i.e. on 5[th]May 2003 and19[th]July 2003 against total investment of Rs.28.29 crores. To fund theredevelopment of the hotel, term loan of Rs.40 crores was raised fromIndian Overseas Bank (‘IOB’). The loan was secured by the joint personalguarantees of Mr.R.P. Mittal, Mrs.Sarla Mittal and Mr. Ashok Mittal, thecollateral security of personal assets of Mr. R.P. Mittal and Mrs.Sarla Mittaland the corporate guarantee of Moral.

8. The subject matter of the disputes between the parties concerns thefollowing allotments of equity shares. On 27[th]July 2004, 23,90,000 equityshares of HQR were allotted to Moral. On 7[th]January 2005, further41,51,648 shares were allotted to Moral. On the same day 1,10,000 shareswere allotted to Mr. R.P. Mittal and 4,50,000 shares to Mrs.Sarla Mittal. On10[th]May 2005, further 10 lakhs equity shares of HQR were allotted toPondi Metals and Restructuring Metals Pvt. Ltd. (‘Pondi’) (managed by Mr.R. P. Mittal at the relevant time). These allotments were stated to be made atpar. On 10[th]May 2005 transfer of 32,88,181 equity shares of HQR held byMoral in favour of Mr. R.P. Mittal was registered. At Board meeting heldon 4[th]July 2005, Mr.Sumaj Jain and Mr.Narinder Pal Gupta were appointedas Additional Directors of HQR.

9. Under Section 87(2)(b) of the Act the holder of any preference sharewould be entitled to vote on every resolution placed in any meeting if thedividend due on such share is remained unpaid, in case of CRPS, for anaggregate period of not less than two years preceding the date of

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commencement of the meeting. As CRPS of HQR had been allotted on 5[th]May 2003 and no dividend had been paid thereon for two continuous years,Hillcrest asserted that its right to vote had accrued on 5[th]May 2005.Accordingly it sent requisition for an Extraordinary General Meeting(‘EGM’) by notice dated 1[st]June 2005 proposing the removal ofMr.R.P.Mittal and Mrs.Sarla Mittal as Directors and appointing two otherDirectors in their place. However since the EGM as requisitioned was notconvened, Hillcrest issued another notice on 8[th]July 2005 and convened anEGM on 4[th]August 2005.

10. At that stage HQR filed suit CS (OS) No. 992 of 2005 in this Court on23[rd]July 2005 challenging the EGM notices. According to Hillcrest it wasonly on the reading of plaint and suit it was learnt of the allotments made on27[th]July 2004, 7[th]January 2005 and 10[th]May 2005 in favour of Moral, Pondiand Mr.R.P.Mittal and Mrs.Sarla Mittal and the inter se transfer of sharesfrom Moral to Mr. R.P. Mittal all of which according to Hillcrest was donefraudulently, without any notice or holding any Board meeting.

11. On 12[th]August 2005, learned Single Judge of this Court passed anorder in IA No. 5505 of 2005 in CS (OS) No. 992 of 2005 upholding thecontention of HQR that it was private limited company and not thesubsidiary of any public limited company. As result it was held thatHillcrest could not, in terms of Section 90 (2)of the Act, claim voting rightsunder Section 87(2) of the Act. Accordingly, Hillcrest was restrained fromgiving effect to the resolutions passed at the EGM held on 4[th]August 2005.

Co. A. (SB) Nos. 4, 5 & 10 of 2006

The petition in the CLB

12. Hillcrest and Mr. Ashok Mittal filed Co.Pet. No. 64 of 2005 on 22[nd]August 2005 against HQR, Mr. R.P. Mittal and Mrs.Sarla Mittal in the CLBchallenging the allotment/transfer of shares effected on 27[th]July 2004, 7[th]January 2005 and 10[th]May 2005. Hillcrest and Mr. Ashok Mittal contendedbefore the CLB that there had been financial mismanagement of HQR by Mr.R.P. Mittal and Mrs.Sarla Mittal. Secondly, it was contended that Hillcresthad invested in CRPS on the understanding that HQR would remain asubsidiary of Moral and that in the event of HQR failing to pay any dividendfor two years, Hillcrest would be entitled to exercise its voting rights on allresolutions. Thirdly, the allotments made on 27[th]July 2004, 7[th]January 2005and 10[th]May 2005 were challenged on the ground that there was no noticeunder Section 286 of the Act to Mr. Ashok Mittal, who was Director ofHQR. Fourthly, the allotments were done by the remaining Directors withoutdisclosing their obvious interest and this was in violation of Section 300 ofthe Act. Fifthly, the allotments were done without any valuation of the equityshares of HQR. Sixthly, no money was paid for transfer of shares. Seventhly,the transfer would bring about situation where HQR would no longerremain subsidiary of Moral and thus would deprive Hillcrest of any votingright under Section 87(2) (b) of the Act.

Impugned order of the CLB

13. In its judgment dated 31[st]January 2006, the CLB held as under:

(i) Mr. Ashok Mittal failed to produce any document to substantiate hiscontention that he was instrumental in Hillcrest investing in HQR.

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(ii) The petition was essentially one concerning oppression since HillcrestandMr.AshokMittaldidnotpresstheallegationsconcerningmismanagement.

(iii) Hillcrest and Mr. Ashok Mittal could not furnish any proof of any‘understanding’ that Moral would continue to be the holding company ofHQR and Hillcrest would be entitled to voting on preference shares in theevent dividend was not paid for two years. No presumption could be drawnfrom the letters dated 30[th]April 2003 and 21[st]July 2003 written by Hillcrestto Mr. R.P. Mittal that it invested in HQR on the understating that HQRwould continue to remain subsidiary of Moral. Clause 9.5 of the SPA didnot convey that Moral would continue as holding company of HQR.

(iv) The transfer of HQR shares by Moral to Mr. R.P. Mittal and Mrs. SarlaMittal was transfer “within the same group” and could not be held to be inbreach of the assignment Clause 13.4 of the SPA.

(v) There was nothing to show that Hillcrest sought payment of dividendeither in the first year or in the second year. It also declined the offer made byHQR both before the High Court and before the CLB to pay dividend duesfor the two years. Thus the sole object of Hillcrest was to gain control ofHQR by removing Mr. R.P. Mittal and Mrs. Sarla Mittal who had not onlygiven their personal guarantees but also their personal assets as collateralsecurities and by themselves carried the affairs of the HQR right from thetime of acquisition. Consequently, the lawful action taken by term holders

having overwhelming majority of equity shares to “prevent an outsider fromtaking control of the company” could not be said to be an act of oppression.

(vi) Mr. Ashok Mittal holding only one equity share was trying to takecontrol of HQR with the support of Hillcrest as was evident from the fact thathis sons and brother-in-law were proposed to be Directors on removing ofMr. R.P. Mittal and Mrs.Sarla Mittal as Directors. Thus Mr. Ashok Mittalbeing minority shareholder was trying to oppress the majority and anyaction “taken legally to prevent such an occurrence by the majority cannot beconsidered to be oppressive”.

(vii) Article 8 of the Articles of Association (‘AOA’) of HQR whichmandated notice to the Board of Directors (BoD) for any proposed sale ofshare by any member with right of first purchase by any other member hadto be reconciled with Article 11 which stated that no transfer of shares shallbe made or registered without the previous sanction of the Board “exceptwhen the transaction is made by any Member of the company to anotherMember or to Members (spouse, child or children or heirs) or the Board maydecline to give such sanction without assigning any reasons.” By adoptingsuch harmonious construction it had to be held that “Article 8 would applyonly to transfer to an outsider and not in the case of transfer from oneMember to another Member.” Since in the present case the transfer was fromMoral, member, to Mr. R.P. Mittal another member, Article 8 was notapplicable and as such the transfer was not invalid.

(viii) When Moral transferred one share of HQR to Mr. Ashok Mittal therewas nothing to show that Article 8 was complied with. No notice of Board

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meeting held by HQR from the time when Mr. Ashok Mittal became aDirector was received by him. Mr. Ashok Mittal became shareholder byregistration of one share in his favour in Board meeting held in December2002. Hillcrest was allotted preference share in two Board meetings held on12[th]May 2003 and 19[th]May 2003. Mr. Ashok Mittal did not attend any ofthe said meetings for want of notice. If the principle that meetings could notbe held without notice was to be applied uniformly to all Board meetingsthen neither Hillcrest not Mr. Ashok Mittal could claim to be shareholders ofHQR, disentitling them from prosecuting the petition. Consequently, theCLB was not inclined to apply the said principle to any of the impugnedBoard meetings and declare that the allotment of shares and registration oftransfer of shares was invalid on account of non issue of notice to Mr. AshokMittal for the Board meetings.

(ix) If Section 300 regarding the interested Directors not participating orapproving the registration of shares in favour of Mr.R.P.Mittal were to apply,then even the transfer of one share in favour of Mr. Ashok Mittal approved inthe Board meeting held in December 2002 would also have to be invalid. Thecomplaint about Moral transferring shares of HQR without consideration anddepositing it against the loan given by Mr. R.P. Mittal could not be examinedin the present case. Consequently, the registration of transfer of shares wasnot oppressive to Hillcrest or against the provisions of the AoA or the Act.

(x) The allotment of equity shares of HQR to Mr. R.P. Mittal and Mrs.SarlaMittal was with the permission of the AGM convened on 28[th]December2002. Thus in terms of the decisions of the CLB in T&K Govindraju v. Kadri

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Mills (CP Nos. 8 & 32 of 1995 CLB) and Mukkatukara Catholic Co. Ltd. v.H.B. Thomas 96 CC 864 the allotment of shares to Directors of HQR couldnot be held to be in violation of Section 300 of the Act. Although theRespondents could not justify the exclusion of Mr. Ashok Mittal from theallotment of shares, they agreed during the hearing before the CLB to allotpreferential shares to him as well.

(xi) The allotment of shares made on 27[th]July 2004 and 7[th]July 2005 werepredominantly in favour of Moral which was the largest shareholder of HQRand, therefore, the said allotments could not be said to be fraudulent or withan ulterior motive. There was nothing to show that the minutes andcommunicated records of the Board meetings held on 10[th]May 2005 werefabricated after the EGM notice was issued on 1[st]June 2005 by Hillcrest.Further, Mr. Ashok Mittal was party to confirmation of the minutes of theBoard meeting held on 12[th]May 2005. There was confirmation of theminutes and the allotments and transfers were done lawfully to protect theinterest of the investors. Consequently, the Respondents could not be heldguilty of any fraud.

(xii) The appointment of Additional Directors could not be stated to beprejudicial to the interests of the Petitioners or to HQR. The contention ofthe Respondent that the petition was filed for the sole purpose of taking overHQR and not for redressing the grievance of oppression was justified. Theprovisions of Section 397 of the Act could not be invoked for achieving anulterior motive.

(xiii) The stand of Mr. Ashok Mittal that he had given loan of Rs.5.5 croreswas not specifically denied by the Respondents nor had any documents beenproduced to rebut it. Further the balance sheet of the HQR for the year 2003-04 showed an aggregate balance of Rs.4.91 crores in the name of Mr. AshokMittal under ‘unsecured loans’. Consequently, it was just and equitable thatMr. Ashok Mittal also got the benefit in terms of allotment of transfer ofshares. Consequently, the shares allotted to Mr. R.P. Mittal and Mrs. SarlaMittal should be subject to an additional allotment to Mr. Ashok Mittal. Ofthe total loan Rs.11.73 crores given by both Mr. R.P. Mittal and Mr. AshokMittal the loan of Rs.5.5 crores given by Mr. Ashok Mittal constituted46.9%. Consequently, Mr. R.P. Mittal should transfer 46.9% of 32,88,181shares transferred to him by Moral to Mr. Ashok Mittal and this worked outto 15,42,156 shares. The consideration would be Rs.20 per share at whichMoral transferred shares to Mr. R.P. Mittal. Since the consideration for suchtransfer was deposited against loan account ofMr. R.P. Mittal, theconsideration for 15,42,156 shares to Mr. Ashok Mittal should be adjusted bydebiting Mr. Ashok Mittal’s account and crediting the personal account ofMr. R.P. Mittal.This is, however, subject to Mr. Ashok Mittal making arequest to Mr. R.P. Mittal in writing referring to the CLB’s directions andsubject to availability of credit in the account of Mr. Ashok Mittal withMoral. Within 15 days of such request being made in writing, the transfershould be registered in the register of members of HQR.

(xiv) For all future Board meetings of HQR, Mr. Ashok Mittal should begiven seven days’ notice by registered post and he should be given inspectionof statutory records in his capacity as Director and shareholder. There should

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always be an additional offer of share to all shareholders whenever futureallotments are made. However, since Respondents had themselves offered topay dividends on the CRPS, they were bound to do so if Hillcrest made arequest in writing.

The present appeals

14. Aggrieved by the above order of the CLB, Hillcrest and Mr. Ashok Mittalhave filed Co.A.(SB) No. 4 of 2006. HQR, Mr. R.P. Mittal and Mrs.SarlaMittal have filed Co.A. (SB) No. 5 of 2006 to the extent the CLB hasdirected them to transfer shares to Mr. Ashok Mittal on the strength of loanof Rs.5.5 crores given by him to Moral. Mr. Ashok Mittal has filed Co.A.(SB) No. 10 of 2006 contending that 50% of the equity in HQR should betransferred to him.

15. Co. A.(SB) No. 4 of 2006 was first listed on 7[th]February 2006 and,thereafter on 8[th]February 2006 when the Respondents therein were permittedto place on record documents necessary for disposal of the appeal. Co. A.(SB) No. 5 of 2006 was listed on 13[th]February 2006 when it was noted thatthe other appeal was listed for hearing on 7[th]February 2006. While directingnotice in Co. A. (SB) No. 5 of 2006, the Court in its order dated 13[th]February 2006 noted the submission of counsel appearing for HQR, Mr. R.P.Mittal and Mrs. Sarla Mittal that no shares would be transferred to any thirdparty. In that view of the matter, the directions issued by CLB in para 15 ofits order were directed to be stayed till varied or modified. Co. A. (SB) No.10 of 2006 was listed on 18[th]April 2006 when it was directed to be listedalong with FAO (OS) No. 282 of 2005.

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16. At the hearing of the present appeals along with FAO No. 282 of 2005 on14[th]November 2008, the Division Bench passed an order holding that FAONo. 282 of 2005 could be decided independent of the company appeals.Accordingly, the present appeals were delinked from the first appeals anddirected to be listed before the Company Court.

17. It is stated that Hillcrest came to know in August 2008 that Mr. R.P.Mittal had suppressed from the Court the fact that he had filed Form-23 withthe Registrar of Companies (‘ROC’) along with Board resolution of 30[th]September 2002 for converting HQR into public limited company.Accordingly, Hillcrest contended that Mr. R.P.Mittal had played fraud withthe Court while obtaining the interim order dated 12[th]August 2005 in CS(OS) No. 992 of 2005 whereby it was held that Hillcrest could not invokeSection 87(2) of the Act to claim voting rights. On the basis of the abovedocuments Hillcrest filed CS (OS) No. 1832 of 2008 on 30[th]August 2008 inthis Court for permanent injunction, declaration and cancellation o the Boardresolutions and the allotment of shares in favour of Moral, Mr. R.P. Mittaland Mrs. Sarla Mittal. On 3[rd]October 2008, Hillcrest filed IA No. 12638 of2008 under Order XXXIX Rule 4 CPC in CS (OS) No. 992 of 2005 seekingvacation of the interim order dated 12[th]August 2005. The said applicationwas allowed on 24[th]October 2008 and the interim order dated 12[th]August2005 was vacated. An order was passed on 15[th]October 2008 in IA No.12164 of 2008 in CS (OS) No. 1832 of 2008 by the learned Single Judgeobserving that had the true facts been placed before the Court, the fate of thecase would have been different as in the case of public limited company,

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the right could have accrued to Hillcrest to exercise voting rights underSection 87(2) of the Act in 2002 itself. While disposing IA No. 12164 of2008 by the order dated 15[th]October 2008, the learned Single Judge held thatHQR had played fraud on the Court by suppressing the material facts in CS(OS) No. 992 of 2005 by virtue of the resolution dated 30[th]September 2002and subsequent actions. The learned Single Judge ordered the appointment ofan Administrator to manage the affairs of HQR.

18. The appeal FAO (OS) No. 440 of 2008 filed by HQR and Mr. R.P. Mittaland Mrs. Sarla Mittal against the above order dated 15[th]October 2008 wasdismissed by the Division Bench on 14[th]January 2009. While not interferingwith the above findings, the Division Bench noted that HQR had not giveneffect to the resolution of 30[th]September 2002 proposing to convert itself apublic limited company. While it filed Form-23 with the ROC on 8[th]October2002 and statement in lieu of prospectus on 12[th]December 2003, it gaveeffect to another resolution passed on the same day for increase in theauthorised share capital of HQR. The Division Bench was of the view thatinstead of retired judge act as Administrator, it was appropriate to have thedemocratic process of managing the affairs of HQR continued subject to thedecision in the trial whether HQR was private or public limited company.Consequently, it was directed that Hillcrest will be permitted hence forth toexercise voting rights in all meetings of HQR subject to the decision onwhether HQR is private or public limited company. It was held that thedecision taken by the EGM held on 4[th]October 2005 should be given effectto and that the meeting proposed for 16[th]October 2008 as requested for byHillcrest should be held as soon as possible. The Division Bench rejected the

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third alternative of maintaining status quo, since that would mean that“despite Hillcrest succeeding in all counts, and having been deprived of itslegitimate rights for the past several years it gained nothing and continued tolose if the present situation continues. The balance deserves to be set rightand this is possible if Hillcrest is permitted by having say in the affairs ofHQR”.

The decision of the Supreme Court

19. The appeal by Mr. R.P. Mittal and Mrs. Sarla Mittal against the decisionof the Division Bench dated 14[th]January 2009 was dismissed by the SupremeCourt by judgment dated 20[th]July 2009 in Ram Parshotam Mittal v.Hillcrest Realty SDN. BHD. (2009) 8 SCC 709. The main plank ofsubmission of Mr. R.P. Mittal and Mrs. Sarla Mittal in their appeal was thatthere were three resolutions passed on the same date i.e. 30[th]September2002. The first converting HQR into public limited company, the secondincreasing the authorised share capital from Rs.1 lakh to Rs.90lakhs dividedinto 9 lakhs equity shares of Rs.10 each and the third altering the MoA andAoA to reflect the increased authorised share capital.It was contended thatthe language of the first resolution was different from those of the other twoin that the first was only an enabling resolution whereas the other two cameinto effect immediately. Accordingly, it was contended that the DivisionBench committed serious error in treating HQR as public limitedcompany and in giving voting rights to Hillcrest without determining the realissue on whether HQR was public limited company and leaving it open fordecision of the learned Single Judge.

20. The Supreme Court in para 69 of its judgment (SCC) negatived the abovecontention and concluded that the first resolution was final decision takenby HQR to convert itself from private limited company to public limitedcompany. Thereafter in para 71 the Supreme Court held that it was “primafacie of the view that by the said resolutions, final decision had been takenby Hotel Queen Road to convert itself into public company with immediateeffect without having to wait for the decision to be rendered by the Registrarof Companies, who, in any event, had no authority to make any decision inthat regard”. This was further strengthened by the fact that Form-23 was filedwith the ROC along with the statement in lieu of prospectus. It is furthernoted that having regard to the definition of ‘private company’ in Section3(1)(iii) of the Act as soon as the number of members exceeded 50 suchcompany lost its character as private limited company. On 30[th]September2002, on the same day when the above resolutions were passed, shares wereallotted to 134 persons and, therefore, HQR lost is private character. Thisexplained the alteration of ts authorised share capital. In para 75 (SCC) theSupreme Court concluded that “whichever way we look at the threeresolutions passed one after the other on 30[th]September 2002, it appears tohave been the intention of the company to convert itself from privatecompany to public company and that the same was effected by the threeresolutions passed on 30[th]September 2002”.

21. Reacting to the submissions made on behalf of Hillcrest that it could nothave accepted the offer of HQR to pay dividend since it was not from theprofits of HQR as required under Section 205 of the Act, the Supreme Courtin para 76 observed “then again, the offer to pay dividends from private

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source and not out of the company’s profits, is not contemplated underSection 205 of the Companies Act.” It distinguished the decisions in In ReBradford Investments Ltd. 1991 BCLC 224andIn Re Walters’ Palm ToffeeLtd. v. Walters All ER Repo 430 on facts and held that they did not help thecase of Mr. R.P. Mittal since the language of Section 205 was “clear andunambiguous”. In conclusion it was held by the Supreme Court as under:

“79. However, for the purpose of disposing of these specialleave petitions, we are prima facie of the view that by virtue ofthe resolutions dated 30[th]September 2002, Hotel Queen Roadhad become public company thereby attracting the provisionsof Section 87(2)(b) of the Companies Act, 1956, upon the barunder Section 90(2) thereof having been lifted.A naturalconsequence is that in the event dividend had not been declaredor paid for period of two years as far as Hillcrest is concerned,the Explanation to Section 87(2)(b) would come into playthereby giving Hillcrest Realty, as cumulative preferenceshareholder, the right to vote on every resolution placed beforethe company, at any meeting, in keeping with clause (i) ofSection 87(2)(b) of the aforesaid Act.

80. In keeping with the aforesaid principle, while dismissing thespecial leave petitions filed by Hotel Queen Road and HillcrestRealty, we make it clear that the observations made in thisjudgment are of prima facie nature only for disposal of thespecial leave petitions and should not influence the finaldecision in the suits, where the question relating to the status ofHotel Queen Road has been left open for decision.We,however, request the High Court, functioning as the trial court,to dispose of the suits at an early date so that the managementand affairs of Hotel Queen Road are not left in state ofuncertainty.”

Rights Issue challenge

22. On 30[th]July 2009, Hillcrest issued further letter dated 30[th]July 2009 forrights issue of 15000003 equity shares of Rs.10 each for cash at price ofRs.40 per share including premium of Rs.30 per equity share aggregating toRs.601200120 of rights to the existing equity shareholders in the ratio of1.67:1 equity shares for every one equity share held on the record date i.e.26[th]July 2009. Aggrieved by the above move Mr. R.P. Mittal, Mrs. SarlaMittal, Mr. Sumaj Jain and Moral filed IA No. 9920 of 2009 in CS (OS) No.1832 of 2008 seeking to restrain Hillcrest from going ahead with the rightsissue. It was contended before the learned Single Judge that the order dated14[th]January 2009 of the Division Bench which was upheld by the SupremeCourt had led to Mr. R.P. Mittal and Moral being ousted from themanagement of HQR and yet the reality was that they were the largestshareholders. In response, it was contended by Hillcrest that after it took overthe management it came to know that owed the banks over Rs.30 crores and,therefore, there was need for further funds. Hillcrest submitted that it hadinvested Rs.30 crores to enable Moral take over HQR. The present marketvalue of the share was Rs.145 and after the rights issue it would be aroundRs.78.

23. The learned Single Judge by judgement dated 18[th]August 2009 inHillcrest Realty v. Ram Parshotam Mittal 165 (2009) DLT 665negatived theobjection of Hillcrest to the maintainability of the application by Mr. R.P.Mittal. It was further held that there was nothing illegal or reprehensible inthe rights issue being offered at premium on the shares of HQR. As regardsthe objections raised by Mr. R.P. Mittal based on Section 78 of the Act that

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the amount raised by way of rights issue had to be only kept in the sharecapital account and could not be utilised for repaying the liabilities of theHQR, the learned Single Judge directed Hillcrest as well as HQR to file anundertaking that if the amount kept in share capital account was sought to bereduced under Section 100 and 101 of the Act approval for such reduction inshare capital would be by way of special resolution of the company.Learned Single Judge declined to grant Mr. R.P. Mittal an injunction. FAO(OS) No. 349 of 2009 filed by Mr.R.P. Mittal challenging the above orderwhich was dismissed as withdrawn on 20[th]April 2010.

24. As result of the above rights issue, the present share holding pattern ofHQR is that Hillcrest holds 28,29,00,000 shares (59.82%), Mr. R.P. Mittalholds 1,837,694 shares (3.89%), Moral holds 4,151,648 shares (8.78%), Mrs.Sarla Mittal holds 375,003 shares (0.79%), Mr. Ashok Mittal holds11,802,160 shares (24.95%) and the others holds 839,313 shares (4.41%).

25. This Court has heard the submissions of Mr. Jayant Bhushan, learnedSenior counsel and Mr. Arun Kathpalia, learned Advocate appearing forHillcrest and Mr. Ashok Mittal and Mr. Aman Lekhi and Mr.Vibhu Bakhru,learned Senior counsel for Mr. R.P. Mittal and Mrs. Sarla Mittal.

Effect of the judgment of the Supreme Court

26. The facts that have emerged after the impugned decision of the CompanyLaw Board (‘CLB’) dated 31[st]January 2006 and which have led to furtherlitigation between the parties culminating in the decision of the Supreme

Co. A. (SB) Nos. 4, 5 & 10 of 2006

Court in Ram Parshottam Mittal v. Hillcrest Realty Sdn. Bhd. hasconsiderably changed the very basis on which the CLB proceeded.

27. The additional facts were brought on record by Mr.Ashok Mittal byfiling CA No. 378 of 2009 in Co.A.(SB) 4 of 2006 in which notice wasdirected to issue by the Court on 23[rd]March 2009. Thereafter, on 30[th]November 2010, the Court had directed that the averments in the saidapplication will be read and examined at the time of arguments in the appeal.It was stated that the response thereto would also be read at the time ofarguments in the Co. Appeal. However, HQR, Mr. R.P. Mittal and Ms. SarlaMittal did not appear to have filed any reply as such to CA No. 378 of 2009.

28. Along with CA No.378 of 2009, the Appellants herein have placed onrecord Form-23 filed by Mr. R.P. Mittal with the ROC for conversion ofHQR into public limited company. This contains the stamp of receiptthereof by the ROC dated 17[th]October 2002. Enclosed with Form-23 are thetwo extracts of the resolution passed by the members of the company at theEGM on 30[th]September 2002, both in relation to the conversion of HQR intoa public limited company as well as increase in its authorized share capital.The explanatory statement pursuant to Section 173(2) of the Act enclosedwith the agenda for the EGM states that the hotel property of ITDC wasdemerged with HQR and that in accordance with the Scheme of Arrangement(‘Scheme’) as sanctioned by the Department of Company Affairs HQR wasrequired to allot equity shares to the shareholders of ITDC as per the ratioenvisaged in the Scheme. It is stated that since the company is private

limited company and has restricted the total number of shareholders to fifty,the present authorized share capital is insufficient to allot all equity shares.

29. copy of the plaint in the civil suit [CS(OS) No. 1832 of 2008] filed byHillcrest for declaration that HQR is an independent public limited companyand that the provisions of Sections 85 to 90 of the Act relating to the rights ofpreferential shareholders pledged to HQR have also been placed on record. Inthe said suit, the other prayers are for declaration of the illegality of theresolution passed by the Board of Directors (‘BoD) dated 27[th]July 2004whereby 23,90,000 shares of HQR were allotted to Moral, the resolution atthe board meeting dated 7[th]January 2005, whereby 41,51,648 equity sharesof HQR were allotted to Moral as well as 1,10,000 shares were allotted toMr. R.P. Mittal and 4,50,000 shares to Ms. Sarla Mittal as well as boardresolution passed on 10[th]May 2005 transferring 32,88,181 equity shares ofHQR held by Moral in favour ofMr. R.P. Mittal as well as registration ofsuch shares by HQR in favour of Respondent No.1 and for direction torestore the shareholding pattern of HQR as on 1[st]April 2004.

30. The above documents show that the BoD of HQR followed by its EGMhad already resolved to convert into public limited company. The fact ofthe aforementioned resolutions was suppressed by Mr. R.P. Mittal from theCourt as well as the CLB. The above developments led to the order of 15[th]October 2008 passed by the learned Single Judge in IA No. 12164 of 2008 inCS (OS) No. 1832 of 2008 followed by the further order dated 24[th]October2008 in IA No. 12638 of 2008 in CS (OS) No. 992 of 2005 vacating the

interim stay granted by the learned Single Judge on 12[th]August 2005 in IANo. 5505 of 2005 in CS (OS) No. 992 of 2005.

31. Both the learned Single Judge as well as the Division Bench (‘DB’) of theHigh Court as well as the Supreme Court have come to the primafacieconclusion that HQR had converted into public limited company andthat with the allotment of shares to 134 persons on 30[th]September 2002 HQRlost its private character requiring the special resolutions to be passed foralteration of its authorised share capital. The Supreme Court has made it clearthat its observations were of prima facie nature and “should not influence thefinal decision in the suits, where the question relating to the status of HotelQueen Road has been left open for decision.” The resultant position is that aslong as the said suits are pending even this Court cannot take final decisionon the question whether HQR is public limited company. It has to proceedon the basis of the prima facie conclusion of the Supreme Court that HQR isa public limited company “thereby attracting the provisions of Section 87(2)(b) of the Companies Act 1956 upon the bar under Section 90(2) thereofhaving been lifted.” The consequence spelt out by the Supreme Court wasthat Hillcrest as CRPS holder had the “right to vote on every resolutionplaced before the company, at any meeting, in keeping with Section87(2)(b)(i)” of the Act.

32. The aforementioned facts were admittedly not before the CLB when theimpugned judgment dated 31[st]January 2006 was passed. In the saidjudgment, CLB has proceeded on the basis that HQR is private limitedcompany. In para 26 of the impugned order dated 31[st]January 2006, CLB

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dealt with the preliminary objection raised by HQR, Mr. R.P. Mittal and Mrs.Sarla Mittal that since Mr. Ashok Mittal held only 1 share, he could notmaintain the petition under Sections 397 and 398 of the Act. The CLBpointed out that in terms of Section 399, members holding 1/10[th]of theissued capital are entitled to file petition and issued capital includes notonly equity shares but also preference shares. Thereupon, the objection “wasno pressed”. CLB also noted that it would not give any finding on the issuerelating to voting rights on the preference shares.

33. The decision of the Supreme Court changes the situation inasmuch asbased on its prima facie finding regarding the status of HQR being no longera private company, the voting rights of Hillcrest have to be recognised.Consequently, even the question whether there was any understandingbetween the parties about Hillcrest having voting rights would not survive.The argument before the CLB appears to have proceeded on the basis that byallotting the shareholding of Moral in HQR to RPM, the attempt was todeprive HQR of its status as subsidiary of Moral and thereby deprivingHillcrest of its voting rights in terms of Section 87(2) (b) read with Section90 (2) of the Act. That issue is academic as of now. If indeed, HQR primafacie public limited company, Section 90 (2) would not apply and Hillcrestwould anyway have voting rights under Section 87 (2) (b) (i) of the Act.

34. Another issue that appears to have been decided in the judgment of theSupreme Court concerns the non-payment of dividend. The Supreme Courthas negatived the plea of Mr. R.P. Mittal that the dividend could have beenpaid from other sources even when HQR was not making any profits. It was

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held that the wording of Section 205 of the Act was unambiguous and thatdividend could be paid only from the profits of HQR. Admittedly HQR wasnot making any profits for period of two years after Hillcrest was allottedCPRS of HQR. The right of Hillcrest as holder of CPRS to exercise itsvoting rights has, therefore, been recognized by the Supreme Court. Theassertion to the contrary by Mr. R.P. Mittal and Mrs. Sarla Mittal in theirwritten submissions is untenable. The CLB had drawn an adverse inferenceagainst Hillcrest and Mr. Ashok Mittal for refusing to accept the dividendoffered to them both before the High Court and the CLB. In light of theabove conclusion of the Supreme Court, the decision of the CLB on thisaspect can no longer be sustained. Consequently, the further finding of theCLB that the Appellants were unable to demonstrate acts of oppression alsodoes not hold good.

The three Board meetings

35. The central theme of the impugned order of the CLB concerned theBoard resolutions passed on three different dates approving the allotment andtransfer of shares to Moral, Mr. R.P. Mittal, Mrs.Sarla Mittal and Pondy, andthe inter se transfers. In approaching the above issue, CLB seems to haveproceeded on the basis that Mr. Ashok Mittal held only one share. It is not indispute that on 21[st]December 2002 Moral transferred thirteen shares of HQRto seven other persons, of which two shares were transferred to Mr. R.P.Mittal, three to Ms. Sarla Mittal and one to Mr. Ashok Mittal. The increase inthe shareholding took place only subsequently at the meeting of 27[th]July2004. Seen in this light, the holding of one share by Mr. Ashok Mittal cannotbe said to be very small percentage. Further the other petitioner before the

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CLB was Hillcrest which had substantial percentage of CRPS. The CLBitself recognised the right of Hillcrest to complain about oppression underSection 397 of the Act. Therefore the relatively lesser holding of shares bythe petitioners could not have made difference to the question of validity ofthe Board resolutions.

36. Having found that the mandatory provision of notice to the Director Mr.Ashok Mittal in terms of Section 286 was not complied, the CLB adopted astrange reasoning that by the same yardstick the allotment of shares to Mr.Ashok Mittal and CRPS to Hillcrest would also be invalid. The apparentinvalidity of the Board resolutions approving allotments to Mr. R.P. Mittal,Mrs. Sarla Mittal and Pondy, and the inter se transfers cannot be overcomeby the invalidity attaching to decisions taken at meetings where there was afailure to comply with Section 286. The resolutions under challenge werethose passed at the Board meetings held on 27[th]July 2004, 7[th]January 2005and 10[th]May 2005. The decisions at any of the earlier meetings were notunder challenge. In Parmeshwari Prasad v. Union of India AIR 1973 SC238, the Supreme Court emphasized on the mandatory nature of Section 286of the Act. The other principle is that no party can be allowed to takeadvantage of its own wrong [see Dale & Carrington Invt. (P) Ltd. v. P.K.Prathapan JT 2004 (&) SC 434]. Once it was found by the CLB that therewas no notice to Mr. Ashok Mittal for any of the board meetings, none of theresolutions could be held to be valid.

37. An attempt has been made by Mr. R.P. Mittal to show that Mr. AshokMittal had, in fact, ratified the minutes of the board meeting held on 10[th]May2005 because he attended the subsequent board meeting of 4[th]July 2005, the

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minutes of which he signed on 3[rd]September 2005. In the first place, theboard meeting of 10[th]May 2005 was challenged by Mr. Ashok Mittal byfiling petition in the CLB. He cannot be said to have acquiesced in thedecisions taken at that meeting. Also when admittedly Mr. Ashok Mittal wasnot present at the meeting held on 10[th]May 2005, he cannot be said to haveratified the decision taken at such meeting merely because he participated ina subsequent meeting that confirmed the minutes of the meeting of 10[th]May2005. The mere signing of the minutes of the meeting of 4[th]July 2005 cannotlend validity to what was done on 10[th]May 2005, if it was ab initio invalid.There is difference between recording what was done on 10[th]May 2005 asa fact and ratifying the decision taken on 10[th]May 2005. While confirmationof the minutes only records the fact of decision having been taken, it by nomeans amounts to ratification of the minutes of the decision taken at theearlier meeting. In Dr. ChetkarJha v. Dr. Vishwanath Prasad Verma (1970)2 SCC 217, the Supreme Court explained that “when the minutes of ameeting are placed before the next meeting the only thing that can be done isto see whether the decision taken at the earlier meeting has been properlyrecorded or not. The accuracy of the minutes and not the validity of thedecision is, therefore, before the meeting.” This was followed in Kerala State

Electricity Board v. Hindustan Construction Co. Ltd. (2006) 12 SCC 500. Itcannot be therefore said that by signing the minutes of the meeting held on4[th]July 2005, Mr. Ashok Mittal had accepted the validity of the decisionstaken at the Board meeting held on 10[th]May 2005.

38. As far as Hillcrest is concerned, it was entitled to presumethat the acts ofthe company as well as its BoD have been done in valid manner and

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consequently not affecting the validity of the allotment of the CRPSin itsfavour. The doctrine of indoor management first explained in Royal BritishBank v. Turquand (1856) 6 E&B 27 was further explicated by our SupremeCourt in MRF Ltd. v. Manohar Parrikar (2010) 11 SCC 374(SCC, p.419) as

under:

“111. The Doctrine of indoor management is in direct contrast tothe doctrine of rule of constructive notice, which is essentially apresumption operating in favour of the company against theoutsider. It prevents the outsider from alleging that he did notknow that the constitution of the company rendered particularact or particular delegation or authority ultra vires. Thedoctrine of indoor management is an exception to the rule ofconstructive notice. According to this doctrine, persons dealingwiththecompany areentitledtopresumethatinternalrequirements prescribed in the memorandum and articles havebeenproperlyobserved.Therefore,doctrineofindoormanagement protects outsiders dealing or contracting with acompany, whereas doctrine of constructive notice protects theinsiders of the company or corporation against dealing with theoutsiders. However suspicion of irregularity has been widelyrecognisedasanexceptiontothedoctrineofindoormanagement. The protection of the doctrine is not availablewhere the circumstances surrounding the contract are suspiciousand invite inquiry.”the doctrine of rule of constructive notice, which is essentially apresumption operating in favour of the company against theoutsider. It prevents the outsider from alleging that he did notknow that the constitution of the company rendered particularact or particular delegation or authority ultra vires. Thedoctrine of indoor management is an exception to the rule ofconstructive notice. According to this doctrine, persons dealingwiththecompany areentitledtopresumethatinternalrequirements prescribed in the memorandum and articles havebeenproperlyobserved.Therefore,doctrineofindoormanagement protects outsiders dealing or contracting with acompany, whereas doctrine of constructive notice protects theinsiders of the company or corporation against dealing with theoutsiders. However suspicion of irregularity has been widelyrecognisedasanexceptiontothedoctrineofindoormanagement. The protection of the doctrine is not availablewhere the circumstances surrounding the contract are suspiciousand invite inquiry.”

Section 300 and disclosure of interest

39. The manner of the CLB dealing with the objection under Section 300 ofthe Act regarding interested directors not participating in the board meeting isalso unconvincing. The application for allotment of shares and acceptancethereof is indeed contract between the company and the applicant, as wasexplained in Union of India v. Allied International Products Ltd. 1970 (3)

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SCC 594. Mr. Ashok Mittal and Mrs. Sarla Mittal were under fiduciaryduty not to participate in the decision where shares were to be transferred totheir group companies. Even if HQR were private limited company, thecompliance with the requirement of Section 300 of the Act was mandatory asexplained in the decision of the Bombay High Court in Firestone Tyre andRubber Co. v. Synthetics and Chemicals Ltd. [1971] 41 CC 377 and MadrasTube Company Ltd. v. HariKishonSomani 1985 1 Comp LJ 195 (Mad).Section 300 of the Act was not complied with when decisions were taken atthe Board meetings held on 27[th]July 2004, 7[th]January 2005 and 10[th]May2005 first to allot shares to Moral and thereafter to Mr. R.P. Mittal and Mrs.Sarla Mittal and finally to permit the transfer of shares from Moral to Mr.R.P. Mittal. The CLB appears to have overlooked the aspect of under-valuation of the HQR shares. The allotment of shares to Moral was at themeeting on 10[th]May 2005made at par and on the very same date the sharesof Moral were transferred to Mr. R.P. Mittal at Rs. 20 per share. These actswhen viewed collectively with those noticed earlier were sufficient toconclude that grounds under Section 397 had been made out.

Violation of Section 108

40. There has been fairly serious violationof Section 108 of the Act. Section108 of the Act mandates that share certificates must actually be tenderedalong with the share transfer forms duly executed by the transferor in favourof the transferee at the time of the Board approving the transfer of shares.The case of Hillcrest and Mr. Ashok Mittal is that when the transfer of sharesfrom Moral to Mr. R.P. Mittal was approved by the BoD on 10[th]May 2005the share certificates held by Moral were still with the Indian Overseas Bank

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(‘IOB’) with whom they had been pledged. Although during the argumentsand in the written submissions it has been urged by Mr. R.P. Mittal that thisground was not taken before the CLB, the fact remains that the occasion tourge such ground has arisen only because of the subsequent developments.

41. Hillcrest and Mr. Ashok Mittal contended that after they took over themanagement of HQR, pursuant to the judgment dated 23[rd]January 2009 ofthe DB they found that the share certificates had been pledged with IOB byMoral on 17[th]October 2002as security for the loan availed by it to financethe investment in HQR had been released by IOB to Mr. R.P. Mittal only on23[rd]June 2006. This was confirmed by IOB by letter dated 9[th]February 2009addressed to HQR. To overcome this, an affidavit was tendered in Court byMr. R.P. Mittal, enclosing another letter of IOB dated 22[nd]February 2013which stated that the share certificates were returned on 23[rd]June 2003 itself.This led to the Court inquiring from learned counsel for Mr. R.P. Mittal at thehearing on 5[th]March 2013 whether he was willing to stand by the statementmade by him earlier.

42. This is noted in the order dated 5[th]March 2013 of the Court which readsas under:

“1. At the beginning of his arguments in reply today, Mr. AtulSharma, learned counsel tendered an affidavit dated 5[th]March2013 sworn by Mr. R.P. Mittal. The affidavit is taken on record.A copy of the affidavit has been given to learned counsel for theother parties.

2. The affidavit encloses letter dated 22[nd]February 2013 of the

Indian Overseas Bank (‘IOB’), Parliament Street Branch, New

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Delhi, stating that the share certificates of Hotel Queen RoadPvt. Ltd. (‘HQRPL’) pledged by Moral Trading Limited(‘MTL’) were delivered back on 23[rd]June 2003. The said letteris stated to have been received by Mr. Mittal on 22[nd]February2013 itself.

3. Learned counsel for Mr. R.P. Mittal, on instructions from Mr.R.P. Mittal, confirms that the shares of HQRPL pledged byMTL were in fact delivered back to Mr. R.P. Mittal on 23[rd]June2003.

4. Mr. Jayant Bhushan, learned Senior counsel for HillcrestRealty SDN BHD (‘Hillcrest’), while commencing his rejoinderarguments, tendered an additional affidavit sworn by Mr. GirishMakhija representing HQRPL. In the said affidavit it is statedthat after reading the contents of the letter dated 22[nd]February2013 that was produced in the Court by Mr. Aman Lekhi,learned Senior Advocate appearing for Mr. R.P. Mittal, letterwas addressed to the Chief Manager, IOB by Mr. Ashok Mittalon 28[th]February 2013, seeking clarification with regard to thedichotomy between the letter issued by IOB on 9[th]February2009, [a copy of which is at page 1133 in Co. A.(SB) 4 of 2006],and the subsequent letter dated 22[nd]February 2013 issued byIOB. This was because in the letter dated 9[th]February 2009, IOBhad stated that the original share certificates of HQRPL alongwiththeblanksharetransferformswerereleasedon“23.06.2005” against acknowledgement, whereas in the letterdated 22[nd]February 2013 IOB stated that they had received thesaid share certificates “for pledge in our favour on 17.10.2002and the same were delivered to you on 23.06.2003.”

5. In response to the said letter written by HQRPL, the AssistantGeneral Manager (‘AGM’) of IOB, Parliament Street Branchhas, on 1[st]March 2013, written further letter to Mr. Ashok

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Mittal, Director, HQRPL, stating that after checking the records“it appears that the date mentioned in para 1 (of the letter dated22 .02.2013) reading ‘23.06.2003’ is incorrect, as the correctdate is 23.06.2005.” It has been reaffirmed that “the date hasbeen rightly mentioned in our earlier letter dated 09.02.2009.”According to IOB, “the date of 23.06.2005 is also borne outfrom the signatures appended upon the photocopies of sharecertificates.” The AGM, IOB, Parliament Street, New Delhi hasregretted the inconvenience caused and states that they “strictlystand by their letter dated 09.02.2009.”

6. The above contradictory stand of IOB is cause for concernparticularly since one of the main planks of the submissions ofthe Appellants Hillcrest and Ashok Mittal before the Court turnson the question whether the aforementioned share certificateswere in fact available when decision was taken at the Boardmeeting of HQRPL held on 10[th]May 2005 regarding the transferof shares. With Mr. R.P. Mittal filing an affidavit today,swearing to the truth of the contents of the letter dated 22[nd]February 2013, and further stating before this Court throughcounsel that the share certificates were delivered back to him on23[rd]June 2003, it becomes necessary for the Court to ascertainwhat the correct position is. Incorrect statements made onaffidavits before this Court by either party would have seriousconsequences.7. Notice without process fee will issue to the Manager of IOB,Parliament Street Branch, who wrote the letter dated 22[nd]February 2013 and the AGM of IOB of the same Branch, whowrote the subsequent letter dated 1[st]March 2013 to be present inCourt together with whatever original records are there in theirpossession to clarify the position. Copies of both the lettersdated 22[nd]February 2013 and 1[st]March 2013 will be enclosedwith the summons. certified copy of this order will also be

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sent to each of them to appear before this Court on 14[th]March2013 at 2:15 pm.

8. copy of this order be given dasti under signature of CourtMaster.”

43. At the subsequent hearing on 14[th]March 2013, the Court notedsubmissions of Mr. Vivek Dixit, Senior General Manager, IOB and thenpassed the following order:

“By an order dated 5[th]March 2013 this Court had directed thenotice to issue without process fee to both the Manager as wellas Assistant General Manager (‘AGM’) of the Indian OverseasBank (‘IOB’), Parliament Street Branch, New Delhi to find outwhy contradictory letters were written on 22[nd]February 2013and on 1[st]March 2013 as regards the return of share certificates.

Mr.VivekDixit,SeniorGeneralManageroftheIOB,Parliament Street Branch is present in Court. He states that hereceived summons only two days ago enclosing copies of theletters dated 22[nd]February 2013 and 1[st]March 2013 and not thecopy of the order dated 5[th]March 2013 passed by this Court.

The Court has ascertained from the Administrative Officer(Judicial), Company Branch that summons were issued only tothe Manager, IOB, Parliament Street Branch, New Delhi withoutenclosing copy of the order dated 5[th]March 2013 passed by theCourt.

The Registrar General is requested to enquire why the orderdated 5[th]March 2013 was not complied with by the Registry andsubmit report before the next date of hearing.

Mr. Vivek Dixit has produced in Court the original of the letterdated 17[th]October 2002 written by Mr. R.P. Mittal, Director onbehalf of Moral Trading & Investment Limited to the ChiefManager, IOB, Janpath, New Delhi. The said letter dated 17[th]October 2002 be placed in sealed cover by the DeputyRegistrar and produced before the Court on the next date.

Mr. Vivek Dixit admits his signature on the letter dated 22[nd]February 2013. He states that Mr. Deepak Sudan, AGM is thesignatory of the letter dated 1[st]March 2013. Both Mr. Dixit andMr. Sudan will file their individual affidavits explaining thecircumstances under which the aforementioned letters wereissued. These affidavits will also explain the procedure followedby IOB as regards the receipt and return of share certificates.The Court finds that on the original letter produced today thereis no stamp of receipt of the said documents by the IOB. Theaffidavits will also explain whether any register is maintained bythe IOB as regards the receipt and return the documents andsecurities. The affidavits be filed by Mr. Dixit and Mr. Sudan onor before 2[nd]April 2013. Both of them shall remain present inCourt on the next date of hearing, i.e., 9[th]April 2013.

certified copy of this order passed today as well as certifiedcopy of the order passed on 5[th]March 2013 will be delivered toMr. Vivek Dixit as well as Mr. Deepak Sudan by specialmessengerwithintwodaysfromtodayforcompliance.Additionally Mr. Dixit will communicate this order to Mr.Sudan forthwith. The Court will take serious view if there isany disobedience of this order.

List for hearing on 9[th]April 2013 at 2.15 pm.

Order be given dasti.”

Co. A. (SB) Nos. 4, 5 & 10 of 2006

44. Consequent upon the above order Mr. Vivek Dixit and Mr. Deepak Sudanfiled affidavits which the Court did not find satisfactory and passed thefollowing order on 9[th]April 2013:

“1. Separate affidavits have been filed by Mr. Vivek Dixit,SeniorGeneralManager,IndianOverseasBank(‘IOB’),Parliament Street Branch and Mr. Deepak Sudan, AssistantGeneral Manager, IOB in response to the order passed by theCourt on 14[th]March 2013. There was specific query which theCourt had asked these officers to address. They were asked toexplain “whether any register is maintained by the IOB asregards the receipt and return of documents and securities”. Bothofficers state in their respective affidavits that no such register ismaintained, yet both of them state that on verification of the“records” it was found that the share certificates in questionwere returned on 23[rd]June 2005. It is not clear which ‘records’are being referred to by both the deponents.

2. At this stage, learned counsel appearing for the IOB states thatboth the officers will file further explanatory affidavits placingon record the sequence of events and enclose copies of therelevant ‘records’ on the basis of which the above statementshave been made in their respective affidavits dated 2[nd]April2013.

3. The supplementary affidavits be filed by both officers on orbefore 15[th]April 2013 with copies to the counsel for the otherparties. Responses, if any, to the above affidavits be filed by thenext date. Both the officers of the IOB will remain personallypresent in Court on the next date.

4. The arguments of the counsel on the other aspects have

concluded.

Co. A. (SB) Nos. 4, 5 & 10 of 2006

5. List on 17[th]April 2013”.

45. Following the above order, further affidavits have been filed by both Mr.Vivek Dixit and Mr. Deepak Sudan on 15[th]April 2013 and response theretohas been filed by Mr. R.P. Mittal. Written submissions have been filed byboth the parties.

46. The order dated 5[th]March 2013 records in para 3 that “Learned counselfor Mr. R.P. Mittal, on instructions from Mr. R.P. Mittal, confirms that theshares of HQR pledged by MTL were in fact delivered back to Mr. R.P.Mittal on 23[rd]June 2003.” It was at that stage that learned Senior counsel forHillcrest produced an additional affidavit of Mr. Girish Makhija representingHQR which encloses another letter from IOB issued on 1[st]March 2013 againconfirming that the date mentioned in IOB’s letter dated 9[th]February 2009was correct and that the share certificates were in fact delivered to Mr. R.P.Mittal on 23[rd]June 2005. The above contradictory stands of the IOB havebeen explained by the authors of those letters and both of them have nowstated that the share certificates were delivered to Mr. R.P. Mittal on 23[rd]June 2005. Mr. R.P. Mittal has filed an affidavit in response to theaforementioned affidavits of the bank officials and stuck to his earlier standthat the shares were in fact delivered to him on 23[rd]June 2003 itself. This isbelied by the reasons explained by Hillcrest in its affidavit dated 9[th]April2013. There was no occasion for the share certificates to have been returnedby IOB on 23[rd]June 2003. From the loan account statement of Moral, whichhas been annexed to the affidavit, it appears that the loan of Rs. 15,00,00,000was disbursed by IOB on 7[th]October 2002 and transferred to the account ofHQR on 22[nd]July 2003. The mortgage deed for securing the loan of HQR

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was executed only on 20[th]September 2003. The question of release of thepledged share certificates on 23[rd]June 2003 did not arise. Mr. Lekhi tried toexplain that there was doubt as to how IOB could have issued aclarification on the same date that Hillcrest and Mr. Ashok Mittal made arequest to it, i.e., 9[th]February 2009. It is sought to be suggested that the letterdated 9[th]February 2009 is, in fact, fabricated document. This submission isbelied by the two sets of affidavits filed by Mr. Vivek Dixit and Mr. DeepakSudan the concerned officials of IOB. This Court finds no reason todisbelieve the said affidavits. The Court is satisfied with the explanationoffered that the share certificates were in fact returned to Mr. R.P. Mittal noton 23[rd]June 2003 but on 23[rd]June 2005.

47. Two conclusions can be drawn from the above discussion. The first isthat there is clear violation of Section 108 of the Act. HQR did not have theshare certificates along with the duly executed share transfer forms when adecision was taken at the Board meeting held on 10[th]May 2005 to approvethe transfer of shares from Moral to Mr. R.P. Mittal. The said decisiontherefore is invalid. The second conclusionis that Mr. R.P. Mittal has, primafacie, made false statement in his affidavit dated 5[th]March 2013 andcounter affidavit dated 30[th]April 2013before this Court that the sharecertificates pledged with IOB were returned to him on 23[rd]June 2003. ThisCourt is, therefore, inclined to institute suo moto proceedings under Section340 of the Code of Criminal Procedure, 1973 (‘CrPC’) against Mr. R.P.Mittal for making false statement before the Court on affidavit.

Conclusion and directions

48. The upshot of the above discussion is that the impugned decision of theCLB upholding the validity of the Board resolutions dated 27[th]July 2004, 7[th]January 2005 and 10[th]May 2005 cannot be sustained in law. To that extentCo. Appeal (SB) No.4 of 2006 is allowed.

49. The next question concerns the validity of the directions issued by theCLB in para 50 of the impugned order regarding allotment of shares to Mr.Ashok Mittal. Since the transfer of shares to Mr. R.P. Mittal by Moral is abinitio invalid, the question of allotting shares on the same basis to Mr. AshokMittal obviously cannot arise. Consequently there is no need to examine thefurther question whether Mr. Ashok Mittal in fact contributed Rs.5.5.croresfor the acquisition of HQR shares by Moral. The directions in para 50 of theimpugned order of the CLB are also accordingly set aside. Co. Appeal (SB)No. 5 of 2006 is allowed and Co. Appeal (SB) No. 10 of 2006 is dismissed.

50. Thus independent of the prima facie finding of the Supreme Court thatHQR is not private but public limited company, the Court finds that theimpugned order dated 31[st]January 2006 of the CLB cannot be sustained inlaw.

51. The question next is of consequential relief. Pursuant to the orders of theDB as confirmed by the Supreme Court, the management of HQR ispresently with the appellants in Co. Appeal (SB) No. 4 of 2006. They are alsopresently the majority shareholders. In light of the changed circumstances,the Court directs that status quo will be maintained as regards the BoD as

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well as the shareholding of HQR till such time the suits concerning the statusof HQR as private or public limited company are finally decided. Theparties are, however, at liberty to seek any variation or modification of thisdirection from the court in which the suits are pending.

52. Having regard to the statement made in Court on 5[th]March 2013 by Mr.R.P. Mittal thorugh his counsel and the affidavit dated 30[th]April 2013 of Mr.R.P. Mittal, this Court is prima facie satisfied that offence under Section 191IPC punishable under Section 196 IPC, has been committed by Mr. R. P.Mittal in relation to these proceedings. In terms of Section 340 CrPC readwith Section 195(1)(b)(i) thereof, this Court is of the opinion that it isexpedient in the interests of justice that an inquiry should be made into theabove offence for which written complaint should be made to theconcerned Metropolitan Magistrate against Mr. R. P. Mittal. Accordingly,The Registrar General of this Court is directed to draw up and file acomplaint against Mr. R. P. Mittal in the Court of the Magistrate ofcompetent jurisdiction within four weeks. The said complaint will beaccompanied by certified copy of the entire record of Co. A. (SB) 4 of2006.

53. The impugned order dated 31[st]January 2006 of the CLB is set aside. Co.Appeal (SB) Nos. 4 and 5 of 2006 are allowed and Co. Appeal (SB) No. 10of 2006 is dismissed but with no order as to costs.

MAY 31, 2013dn/tp

S. MURALIDHAR, J.