R.S.A.No. 3278 of 1996 (O&M) 1 In the High Court of Punjab and Haryana at Chandigarh R.S.A.No. 3278 of 1996 (O&M) Date of decision: 4.9. 2009 Kamal Kapoor ......Appellant Versus M/s Moti Mahal Hotal Pvt. Ltd. and another .......Respondents CORAM: HON'BLE MRS. JUSTICE SABINA Present: Ms.Kamna Kapoor, Advocate, for the appellant. Mr.Pritam Saini, Advocate, for the respondents. **** SABINA, J. Plaintiff-M/s Moti Mahal Hotal Pvt. Ltd. filed a suit for declaration, which was partly decreed by the Additional Civil Judge (Sr.Divn.) Jalandhar vide judgment and decree dated 5.2.1996. Aggrieved by the same, plaintiff filed an appeal, which was allowed by the Additional District Judge, Jalandhar vide judgment and decree dated 30.10.1996 and the suit of the plaintiff was decreed in toto. R.S.A.No. 3278 of 1996 (O&M) 2 Hence, the present appeal by defendant No.3. Brief facts of the case, as noticed by the lower appellate Court in para Nos. 2 to 5 of its judgment, are as under:- “2. The plaintiff-appellant is a duly incorporated company working under the name and style of M/s Moti Mahal Hotels Pvt. Ltd. With its registered office at G.T.Road, Jalandhar. The company was incorporated in the year 1975. Anil Kapoor, being the Managing Director of the said company, is the principal officer thereof and was duly authorised vide resolution passed by the Board of Directors to institute the suit. The authorised capital of the company was Rs.2 lacs, divided into 2000 equity shares of Rs.100/- each with power to increase and decrease the capital. The present paid up capital of the plaintiff/appellant company is Rs.1,10,000/-. Approximately 97% shares are held by Anil Kapoor. It was stated that Anil Kapoor had 980 shares and Mrs.Kiran Kapoor helds 100 shares. There is no other share-holder besides Smt.Madhavi Malhotra who is holding 10 symbolic shares only. After the death of Ramji Dass Kapoor on 13.11.1978, respondent No.3 sold his entire shares to Anil Kpoor. He filed an application before the Managing Director of the company that he intended to sell 145 shares of Rs.100/- each of the value of R.S.A.No. 3278 of 1996 (O&M) 3 Rs.14,500/- and requested that the same be transferred in the name of Anil Kapoor. He also filed a transfer application duly signed by him. His application was accepted vide resolution dated 23.7.1979. On the same day, he resigned from the post of Director of the plaintiff/appellant company. Smt.Madalsa Kapoor (since deceased) respondent No.2 sold her 770 shares to the tune of Rs.77,000/- to Anil Kapoor and filed a share transfer application dated 28.11.1981. A resolution dated 4.12.1981 was passed regarding the transfer of shares by Madalsa Kapoor in favour of Anil Kapoor. Mala Katyal also transferred her shares to Anil Kapoor. The Board of Directors allowed transfer of shares by Mala Katyal vide resolution dated 30.3.1982. The annual return for the year 1982-83 was filed along with Form 32 and the balance sheet which contained the details of share- holders, Directors, Managing Director etc. It was stated that to the greatest surprise of the plaintiff-appellant, it received one letter dated 30.8.1984, from respondent No.1. In order to comply with the said letter, the plaitniff- appellant along with its attorney R.K.Gupta, Chartered Accountant, appeared on 11.10.1984 and took along the desired documents. It was further stated that the aforesaid notice was issued under Section 234 of the R.S.A.No. 3278 of 1996 (O&M) 4 Companies Act. It was further stated that from the perusal of the notice, it was not evident that the ingredients of Section 234 of the Companies Act had been satisfied under which the notice had been issued. The notice did not disclose the material on the basis of which respondent No.1 has come to the conclusion that the business of the company was being carried in fraud of its creditors or persons dealing with the said company. It was further stated that in the notice only the language of Section 234 of the Companies Act had been mechanically reproduced. When Mr.R.K.Gupta, Chartered Accountant, of the plaintiff-appellant company, appeared before respondent No.1 with record, without going through the record, respondent No.1 disclosed that he had been satisfied without disclosing the basis of his satisfaction and took a decision in a highly perfunctory manner. It was further stated that the plaintiff-appellant got panicky and smelt that some clandestine plan had been played to grab the company and business being run by the company. Mr.R.K.Gupta, thus inspected the documents and the file, from which it transpired that respondent No.1 registered two documents i.e. two forms No.32, one declaring respondent No.2, as Managing Director, w.e.f. 11.7.1982, and the other filed by Kamal Kapoor, R.S.A.No. 3278 of 1996 (O&M) 5 respondent No.3 showing him as additional Director w.e.f. 2.6.1984. It was further stated that both the forms were filed on 23.8.1984 and 11.9.1984 respectively. It was further stated that the said persons on whose behalf the forms were filed and registered did not own any share in the company. It was further stated that without verifying the facts, respondent No.1, in a clandestine manner registered the forms without making thorough probe and without disclosing to the plaintiff-appellant company, the aforesaid documents. It was further stated that respondent No.1 was under a statutory duty to verify the veracity of the documents, from the plaintiff-appellant company before registering the same. It was further stated that the entire statutory and other books, since the inception of the company, were in possession of the plaintiff-appellant company. Respondent No.1 could not register the same as he was already seized of the matter, that respondents No. 2 and 3 were not the share holders of the plaintiff-appellant company. It was further stated that respondent No.1 had no authority to adjudicate upon such matters. It was further stated that under the garb of some communication addressed by respondent No.1, on 16.10.1984, an attempt was made to disturb the possession of the plaintiff-appellant, and the business of R.S.A.No. 3278 of 1996 (O&M) 6 the company. It was further stated that respondent No.2 and 3 forged the said documents, manipulated with respondent No.1 and got the documents registered with ulterior motive to grab the company and the business thereof. When all efforts on behalf of the plaintiff- appellant failed to seek lawful redressal of its grievance, from respondent No.1, a suit for declaration to the effect that respondents No.2 and 3 had got no share, right and interest in plaintiff-appellant company, and the documents filed by them in two forms no.32 and revised annual return with respondent No.1 and registered by him were illegal, wrong, ultra vires, without basis, null and void, malafide and accepted by respondent No.1 in a clandestine manner in order to help respondents No.2 and 3 and to give wrongful benefit to them and a convenient handle, to grab the property and the business of plaintiff-appellant which was being run by the company with Anil Kapoor as Director and Smt.Kiran Kapoor as Director, was failed. 3. The defendants-respondents were summoned by the trial Court. 4. Defendants-respondents No.2 and 3 put in appearance in the trial Court and filed a joint written statement, wherein they took up various objections and R.S.A.No. 3278 of 1996 (O&M) 7 contested the suit. The locus standi of Anil Kapoor, claiming himself to be the Managing Director of the plaintiff-appellant company, for filing the suit was challenged. It was further pleased that the suit was liable to be dismissed under Section 11 of the CPC because Anil Kumar had got filed a petition under Section 155 of the Companies Act, 1956, through his wife. This petition was registered as Company pettition No.4 of 1987. The matter in issue in the petition was directly and substantially the same as was in the present suit. Anil Kapoor got himself arrayed in the petition as respondent No.2 and filed a written statement, admitting the entire claim of his wife. In fact, Anil Kapoor was the one who was prosecuting the Company Petition. Ultimately, that company petition was got dismissed as withdrawn, just with a view to evade decision on merits. It was pleased that getting the company petition dismissed as withdrawn when the same was fixed for arguments, on merits, claiming the same relief as has been claimed, in the suit, created a bar of resjudicata as envisaged under Section 11 of the Code of Civil Procedure. It was further pleaded that Anil Kapoor filed a Company Petition under Section 397 and 398 of the Companies Act, before the Company R.S.A.No. 3278 of 1996 (O&M) 8 Law Board, Principal Branch, New Delhi. That petition was registered as Company Petition No.11/91. That petition was also dismissed. It was further pleaded that dismissal of that petition on merits also operated as res judicata. It was further pleaded that Anil Kapoor was estopped from filing the suit on the ground that in the Company Petition No.11/91, he made an admission that he was only holder of 210 shares of the Company and that Mrs.Madalsa Kapoor was the Managing Director of the Company and Kamal Kapoor, respondent No.3 was the Director of the company. It was further pleaded that the suit for want of service of notice under Section 80 of the CPC against defendant- respondent No.1 was liable to be dismissed. It was further pleaded that Anil Kapoor was guilty of gross misconduct and intentional suppression of material facts from the Court, in relation to the execution of the agreement dated 27.11.1981 and as such was not entitled to the relief claimed and the suit was liable to be dismissed on this ground alone. The jurisdiction of the Civil Court to adjudicate upon the matter was also challenged. It was admitted that the plaintiff is a private Limited Company and the same was incorporated in the year 1975. It was, however, denied that Anil R.S.A.No. 3278 of 1996 (O&M) 9 Kapoor is the Managing Director of the said Company and, as such, the Principal Officer thereof. It was admitted that the company had authorised capital of Rs.2 lacs and subscribed capital of Rs.1,10,000/-. It was denied that 97% of shares were held by Anil Kapoor. On the other hand, it was stated that upto 30.12.1983, late Ramji Dass was holding 10 shares whereas Anil Kapoor was holding 310 shares, Madalsa Kapoor was holding 770 shares and Madhavi Malhotra was holding 10 shares whereas Mala Katyal was not holding any share. It was further stated that a private Limited Company under the name and style of M/s Moti Mahal Hotels Pvt. Ltd. was established by late Sh.Ramji Dass Kapoor and defendants No.2 and 3 Ramji Dass Kapoor was the husband of defendant No.2 and father of defendant No.3 Anil Kapoor who is also the son of late Ramji Dass Kapoor and of defendant No.2 fell into bad ways and due to his continuos misdemeanour, he was expelled from the family and was not given any share in the Company. Ram Ji Dass, however, died in the year 1978. At that time, Anil Kapoor came back to Jalandhar from Delhi where he and his wife were doing petty service and begged for forgiveness from defendants No.2 and 3. At that time, R.S.A.No. 3278 of 1996 (O&M) 10 defendant No.2, who was under great shock, because of the death of her husband, pardoned the sins of Anil Kapoor and he was allowed to respectably settle in the business. He was allotted 145 shares and payment for the same was made by defendant No.2 from her pocket as at that time Anil Kapoor was penniless and pauper. At that time, it was the effort of defendant No.2 to settle both her sons in the family business and, therefore, 145 shares, being the equal number of shares, then held by defendant No.3 were allotted to him. Anil Kapoor was also made a Director of the plaintiff-appellant Company at that tie. For securing some position, in the family business, Anil Kapoor started picking up quarrels with his brother i.e. defendant No.3 and due to persistent misbehaviour of Anil Kapoor, it was no longer possible for defendant No.3 to go on working along with Anil Kapoor. At that time, only few months had passed after the death of Sh.Ramji Dass Kapoor and defendant No.2 was under great distress and she, therefore, prevailed upon defendant No.3 to give up his shares in the company and he transferred the same in the name of Anil Kapoor. The price of those shares was also paid by defendant No.2 from her pocket. It was further stated that a little after the leaving of company by R.S.A.No. 3278 of 1996 (O&M) 11 defendant No.3, Anil Kapoor against started misbehaving. Defendant No.2 was the Managing Director and was the owner of 760 shares. Anil Kapoor being the male member of the family would not allow defendant No.2 to supervise and look after the business of the company. He started creating trouble and also filed a false suit in the Court of Shri M.S.Chawla, the then Sub Judge, Jalandhar. In the year 1981, however, the matter came to an ugly turn and the common friends and the close relations brought about a compromise between defendant No.2 and Anil Kapoor. It was agreed that defendant No.2 shall transfer her 770 shares in the company for a consideration of Rs.5,71,000/-. The major portion of the price of the shares i.e. Rs.4,95,000/- as to be paid by Anil Kapoor in instalments of Rs.10,000/- each starting from 1.4.1982. It was also agreed that the sale and transfer of shares by defendant No.2 to Anil Kapoor was conditional and depended upon the agreed payment of instalments without any break. It was further stated that defendant No.2 agreed to relinquish all her rights in the company and severe all her relations, with the company on receipt of a sum of Rs.4,95,000/- in instalments of Rs.10,000/- each from R.S.A.No. 3278 of 1996 (O&M) 12 Anil Kapoor. It was further stated that the payment of a sum of Rs.4,95,000/- was made the condition precedent for the transfer of shares held by defendant No.2 in favour of Anil Kapoor. One of the terms of the agreement dated 27.11.1981 was that in case of even a single default of payment of an instalment, the amount already paid shall stand forfeited and the shares shall revert back to defendant No.2 and she shall regain the status of Managing Director automatically. Another salient condition which was stipulated in the agreement was to the affect that in case Anil Kapoor failed to unconditionally transfer 770 fully paid up shares in favour of defendant No.2, within a period of 30 days, from the date of default in the payment of instalment and get a formal Resolution passed from the company approving the said transfer and restoring the permanent Managing Director ship to Madalsa Kapoor, then the latter shall be entitled to secure the same through the Court by filing a suit under the Specific Relief Act, 1963. A stipulation was also made in the said agreement that Anil Kapoor shall not sell or assign or mortgage or otherwise transfer or cause to sell, assign, mortgage or otherwise transfer the shares of the company till the amount payable as R.S.A.No. 3278 of 1996 (O&M) 13 per clause (c ) of the agreement had been completely liquidated. It was further stated that as per the said agreement, Anil Kapoor did not pay the instalments, as promised, except three instalments. It was further stated that, in this manner, the sale of the shares, therefore, fell through and 770 shares of the plaintiff- appellant company stood reverted to defendant No.2 and she became the Managing Director of the company. It was further stated that Anil Kapoor divested the plaintiff-appellant company of the funds and opened his individual concern, misutilising the funds therein. It was further stated that since Anil Kapoor did not comply with the condition contained in the agreement dated 27.11.1981 executed between him and Madalsa Kapoor, defendant No.2, he was left with no right or interest in the company. It was further stated that thereafter he was also not the holder of any share in the company. It was further stated that defendant No.2 filed various Annual Returns and other documents with the Registrar of Companies and thereafter started acting as Managing Director. Respondent No.3 was appointed as Additional Director. It was further stated that the Registrar of Companies, respondent No.1, issued a notice of these allegations R.S.A.No. 3278 of 1996 (O&M) 14 and facts to Anil Kapoor on 30.8.1984 and sought the inspection of record etc. within a week's time. Anil Kapoor, however, elected not to represent his case before the Registrar of Companies as he had no plausible defence, and the Returns submitted by the lawful Managing Director, were accepted by the Department. It was further stated that the documents submitted by defendant No.2 in accordance with the provisions of law, before defendant No.1 were duly registered. It was further stated that defendant No.2 thus became the permanent Managing Director of the company. 5. Defendant No.1 did not appear, in the Court, but sent an affidavit stating therein that the documents were submitted before him, in accordance with the provisions of law, by defendants No.2 and 3 and were registered after due inquiries, and there was no malafide on his part in registering the documents. He, however, did not appear despite service and was accordingly,proceeded against ex parte. On the pleadings of the parties, following issues were framed by the trial Court on 17.4.1985:- “1. Whether defendants No.2 and 3 have got no share, right and interest in the plaintiff company? OPP R.S.A.No. 3278 of 1996 (O&M) 15 2. Whether documents filed by the said defendants and Registration thereof by defendant No.1 are illegal, wrong null and void etc. as and for reasons alleged? OPD 3. (Recasted on 20.3.1995) 4. Whether the suit is bad for want of notice u/s 80 CPC? OPD 5. Whether the suit as framed is misconceived and untenable? OPD 6. Whether Sh. Anil Kapoor has grossly misconducted himself and intentionally suppressed material facts and the suit is also to be dismissed? OPD 7. Whether the civil Court has no jurisdiction? OPD During the pendency of the suit, Madalsa Kapoor has expired and an application has been moved for bringing her legal representatives on record. Reply to the said application was filed and on the application the following issues were framed on 8.4.1994:- 1. Whether Kamal Kapoor (defendant No.3) applicant is LR of Madalsa Kapoor, deceased on the basis of the Will dated 4.12.1988? OPA Thereafter, written statement was amended and following additional issues were recasted on 20.3.1995:- 3. Whether Sh.Anil Kapoor has got no right R.S.A.No. 3278 of 1996 (O&M) 16 concern or authority and power to file the present suit being the alleged Managing Director of the plaintiff company? OPD 3-A Whether the suit is barred as alleged in paras 1-A and 1-B of the preliminary objections in the amended written statement? OPD 3-B Whether the suit is barred under Order 23 Rule 1 CPC? OPD 4. Relief. ” Learned counsel for the appellant has vehemently argued that the Courts below had failed to consider material evidence on record. As per the agreement Ex.D-3 executed on 27.11.1981, Anil Kapoor had ceased to be the Managing Director of the company as he had not complied with the mandatory conditions of the said agreement. Anil Kapoor had failed to pay Rs.10,000/- per month to Madalsa Kapoor towards relinquishment of her right in the goodwill of the company. Hence, Madalsa Kapoor again became the Managing Director of the company. The said agreement could not be described as a private agreement and the Courts below fell in error in discarding the same. Learned counsel has further submitted that the suit was not maintainable and issue No.1 had been left un-decided by the Courts below. Learned counsel for the respondents, on the other hand, has submitted that once the sale of shares of Madalsa Kapoor in R.S.A.No. 3278 of 1996 (O&M) 17 favour of Anil Kapoor was complete, the conditions mentioned in the agreement became irrelevant. The shares could not be sold by imposing any condition. Anil Kapoor had paid the shares to Madalsa Kapoor and became Managing Director of the company. After hearing learned counsel for the parties, I am of the opinion that the present appeal deserves to be dismissed. Admittedly, there was a partnership firm of the family. Ramji Dass Kapoor, Madalsa Kapoor and their sons Anil Kapoor and Kamal Kapoor were all partners of the firm. However, a dispute arose between the parties. Anil Kapoor was given his share in the property and assets. After the death of Ramji Dass Kapoor on 13.11.1978, Anil Kapoor was allotted share in the company in January 1979. In the year 1981, Anil Kapoor purchased 770 shares of Madalsa Kapoor. As per Ex.PW-6/14, a share transfer form was submitted. A perusal of the same reveals that Madalsa Kapoor had transferred her 770 shares in the name of Anil Kapoor for a consideration of Rs.77,000/-. The said document was executed on 28.11.1981 on the same day. Agreement Ex.D-3 is alleged to have been executed between the parties. Ex.PW-6/16 is the Memorandum and Articles of Association of Moti Mahal Hotels Pvt. Ltd. Clause 16 of the same is reproduced herein below:- “The instrument of transfer of any share shall be in writing in the usual prescribed form and shall be singed both by R.S.A.No. 3278 of 1996 (O&M) 18 the transferor and the transferee. Transferor shall be deemed to remain the holder of such share until the name of the transferee is entered in the Register in respect thereof.” Thus, as per the said clause, an instrument of transfer of any share shall be in writing in the usual prescribed form and shall be signed by both the transferor and the transferee. As per clause 17, in case a member intends to transfer any or all of his shares, he shall notify his intention to the directors and the latter shall offer the shares to be sold to the existing share holders at a price to be determined by the purchaser and the seller. However, in case none of the share holders is willing to buy the shares then these may be sold subject to the consent of the directors to persons other than existing shareholders. The directors, as per Clause 18, may without assigning any reason to decline to register any transfer of shares not fully paid up or upon which the company has a lien. Thus from the above facts, it is evident that Madalsa Kapoor had made her intention to sell her shares to Anil Kapoor for Rs.77,000/-. In this regard, Ex.PW-4/4 and Ex.PW-6/3 are the receipts. As per which Madalsa Kapoor had received Rs.77,000/- in all from Anil Kapoor towards the sale price of her shares on 17.11.1981. Thereafter, a resolution Ex.PW-6/1 was passed by the company on 4.12.1981. The transfer of shares of Madalsa Kapoor R.S.A.No. 3278 of 1996 (O&M) 19 against payment of Rs.77,000/- in favour of Anil Kapoor was approved. As per Ex.PW-6/2, Madalsa Kapoor also tendered her resignation as Managing Director of the company with immediate effect. The said resignation is dated 28.11.1987. As per the same she stated that she had sold all her shares and interest in the company and hence, she was tendering her resignation with immediate effect. Thus, a perusal of the above facts reveals that after the sale of her shares, Madalsa Kapoor had ceased to be the Managing Director of the company and Anil Kapoor took over as Managing Director of the company w.e.f. 4.12.1981 as he became owner of 770 fully paid up shares, which were earlier held by his mother Madalsa Kapoor. Since there was a complete transfer of 770 shares of Madalsa Kapoor in favour of Anil Kapoor, the agreement Ex. D-3 could not nullify the said sale. The sale of shares could not have been a conditional sale. The relevant clauses C to