IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. F.A.O. No. 1853 of 2008 Date of Decision: 10.12.2008 Punjab State Industrial Development Corporation Limited. ....... Appellant through Shri Salil Sagar, Senior Advocate with Ms.Lovjinder Kaur, Advocate. Versus Shri Vijay Kumar Garg and another. ....... Respondents through Shri A.K.Aggarwal, Advocate. CORAM: HON'BLE MR.JUSTICE MAHESH GROVER .... 1. Whether Reporters of Local Newspapers may be allowed to see the judgment? 2. To be referred to the Reporters or not? 3. Whether the judgment should be reported in the Digest? .... Mahesh Grover,J. This is an appeal against order dated 19.3.2008 of the Additional District Judge, Chandigarh, whereby he disposed of two applications, one preferred by respondent no.2-M/S Munak Engineers(P) Ltd. (hereinafter referred to as `respondent no.2') and the other by respondent no.1-Vijay Kumar Garg (described hereinafter as `respondent no.1'), for modification and review, respectively, of order dated 5.9.2007 passed by him earlier. Appellant-Punjab State Industrial Development Corporation Limited ( for brevity, `the P.S.I.D.C.') had entered into a financial F.A.O.No.1853 of 2008 -2- .... collaboration agreement on 9.8.1986 with respondent no.1 and had invested an amount of Rs.329.475 lacs in equity share capital of the company known by the name of M/S Alpha Drug India Ltd.(for short, `Alpha Drug'). This respondent was the main collaborator of this agreement. As per the terms of the agreement, the P.S.I.D.C. invested in the equity share holding of Alpha Drug and it was stipulated that after five years of the commencement of the commercial production, respondent no.1 was bound to buy back the equity share holding as held by it, i.e., P.S.I.D.C. However, respondent no.1 defaulted and failed to buy back the equity resulting in a dispute between the two parties. The agreement also stipulated the appointment of an Arbitrator in the eventuality of a dispute which clause was invoked by the P.S.I.D.C. by preferring a petition under Section 11 of the Arbitration and Conciliation Act,1996 (for short, `the Act'), which is still pending. During the pendency of the aforesaid petition, an application was moved by the P.S.I.D.C. to restrain respondent no.1 from disposing of his movable and immovable properties as there was an apprehension in its mind that this course would be adopted by him in order to defeat its rights. Despite notice to respondent no.1, he failed to respond within the prescribed time, as a result of which order dated 5.9.2007 came to be passed in which it was ordered that “till the pendency of the petition filed by the petitioner corporation under Section 11 of the Act and till its final adjudication, he will not alienate, create any charge by way of mortgage, lease, transfer or exchange etc. any of its movable and immovable assets. He is further restrained from alienating or creating any charge on House F.A.O.No.1853 of 2008 -3- .... No.115, Sector 9-B, Chandigarh in any manner.” Respondent no.1 did not file any appeal against order dated 5.9.2007, but chose to prefer an application for recalling thereof by inter- alia alleging that House No.115, Sector 9-B, Chandigarh is owned by respondent no.2, which is a private limited company and that he has no concern with title of the said house and he was living therein in the capacity of a tenant. He also alleged that this fact was not brought to the notice of the Court by the P.S.I.D.C. and, therefore, it was prayed that order dated 5.9.2007 be reviewed. Similarly, respondent no.2 moved an application for modification of order dated 5.9.2007. It was averred that House No.115, Sector 9-B,Chandigarh is owned by it and that respondent no.1 has no concern with the same in his individual capacity with whom the P.S.I.D.C. has a dispute. Respondent no.2 further averred that since by virtue of order dated 5.9.2007, it has been put to restraint, a great prejudice has been caused to it. By the impugned order, both the above applications have been allowed and order dated 5.9.2007 has been modified to the extent that order of restraining respondent no.1 from alienating or creating any charge on H.No.115, Sector 9-B, Chandigarh in any manner stands vacated. Learned counsel for the P.S.I.D.C. contended that for all intents and purposes, respondent no.1 could be construed to be the owner of the house in question as respondent no.2 is also the concern which is owned by him. He further contended that respondent no.2 is a private limited company F.A.O.No.1853 of 2008 -4- .... and if Annexure P7 is perused, then real status of respondent no.1, who is prime holder of equity shares, i.e., 15488 of the value of Rs.100 each, therein, to the exclusion of all its other directors, implying thereby that it is more in the nature of a private arrangement, rather than being a company with individual and separate entity. It was next contended that respondent no.2 was never a party to the previous proceedings and, therefore, it could not have moved an application either for modification or for review of order dated 5.9.2007 as it could not be considered to be an aggrieved person as per the definition contained in Order 47 Rules 1 and 2 of the C.P.C. Reliance was placed on Nookala Setharamaiah Versus Kotaiah Naidu and others, AIR 1970 S.C. 1354; Bar Council of Maharashtra Versus M.V. Dabholkar etc. etc., AIR 1975 S.C. 2092 and Balavant N.Viswamitra and others Versus Yadav Sadashiv Mule (deceased by L.Rs.) and others, AIR 2004 S.C. 4377. In Bar Council of Maharashtra's case (supra), it was held as under:- “The meaning of the words “a person aggrieved” may vary according to the context of the statute. One of the meanings is that a person will be held to be aggrieved by a decision if that decision is materially adverse to him. Normally, one is required to establish that one has been denied or deprived of something to which one is legally entitled in order to make one “a person aggrieved”. Again a person is aggrieved if a legal burden is imposed on him. The meaning of the words “a person F.A.O.No.1853 of 2008 -5- .... aggrieved” is sometimes given a restricted meaning in certain statutes which provide remedies for the protection of private legal rights. The restricted meaning requires denial or deprivation of legal rights. A more liberal approach is required in the background of statutes which do not deal with property rights but deal with professional conduct and morality. The words “persons aggrieved” in Sections 37 and 38 are of wide import and should not be subjected to a restricted interpretation of possession or denial of legal rights or burdens of financial interests.” In Balavant N.Viswamitra and others Versus Yadav Sadashiv Mule (deceased by L.Rs.) and others (supra), their Lordships observed in paragraph 9 of the judgment, which was specifically referred to, as under:- “The main question which arises for our consideration is whether the decree passed by the trial court can be said to be `null' and `void'. In our opinion, the law on the point is well settled. The distinction between a decree which is void and a decree which is wrong,incorrect, irregular or not in accordance with law cannot be overlooked or ignored. Where a court lacks inherent jurisdiction in passing a decree or making an order, a decree or order passed by such Court would be without jurisdiction, non est and void ab initio. A defect of jurisdiction of the Court goes to the root of the matter and strikes at the very authority of the Court to pass a decree or make an order. Such F.A.O.No.1853 of 2008 -6- .... defect has always been treated as basic and fundamental and a decree or order passed by a Court or an authority having no jurisdiction is nullity. Validity of such decree or order can be challenged at any stage, even in execution or collateral proceedings.” Learned counsel for the P.S.I.D.C. further argued that if respondent no.1 was aggrieved, he could have filed an appeal and the review was not a proper mode and since that was not done, even if it is assumed that an irregular decree or order has been passed, but if not challenged, it always holds good. Reliance was placed on State of Karnataka Versus S. Shivakumar and others, (2000) 10 S.C.C. 485. Exhaustive reference was made by the learned counsel for the P.S.I.D.C. to the application moved by respondent no.1 wherein in paragraph 2, he has stated as under:- “2. That in Para No.12 of the Application, while giving the detail of the properties of the respondent, in sub para vi), it has been mentioned by the Applicant that the Respondent is the owner of the immovable property describable as House No.115, Sector 9-B, Chandigarh and as such has prayed for attachment of the abovesaid property alongwith finished, unfinished goods and the building constructed thereupon etc., which is factually incorrect, as the abovesaid immovable property i.e. House No.115, Sector 9-B, Chandigarh, along with the building constructed thereupon, is owned by M/S Munak F.A.O.No.1853 of 2008 -7- .... Engineers (P) Ltd., which is a private limited company, duly incorporated under the Companies Act and is a totally independent legal entity. (Copy of Certificate of Incorporation and Copy of the Registered Sale Deed is enclosed) and the Respondent is living therein in the capacity of a tenant.” Further reference was made to the paragraph 4 of the application moved by respondent no.2, which reads as under:- “4. That due to the passing of the abovesaid order dated 5.9.2007, the abovesaid property of M/S Munak Engineers(P) Ltd./ Applicant, has been put to restraint, as a result of which the Applicant is facing lot of difficulties as the Applicant is not in a position to deal with its property, in whatever manner it likes.” Besides, learned counsel for the P.S.I.D.C. contended that a perusal of the application moved by respondent no.2 reveals that it has simply invoked the inherent power of the Court which could not have been done as once respondent no.1 had filed a review petition, there was no question of any subsequent invoking of inherent power of the Court and as such, the application of respondent no.2 was not maintainable. On the other hand, learned counsel for the respondents contended that respondent no.2 is not a party to the financial collaboration and, therefore, any fall-out of the agreement, adverse or otherwise, cannot be said to be binding on it. That apart, respondent no.2 is not a party to the arbitration agreement and as a consequence, not a party to the proceedings F.A.O.No.1853 of 2008 -8- .... as well. He further contended that if the P.S.I.D.C. had any grievance, it was either against respondent no.1 or Alpha Drug with whom it had financial collaboration, but respondent no.2 being an independent entity could not be made to suffer by an order which has the effect of jeopardising its property interests. Reliance was placed on State Trading Corporation of India Ltd. Versus The Commercial Tax Officer and others, AIR 1963 S.C. 1811, wherein the Supreme Court observed as under:- “The rights of citizens envisaged in Art.19 are not wholly appropriate to a corporate body. In other words, the right of citizenship and the rights flowing from the nationality or domicile of a corporation are not conterminous. The maker of the Constitution had altogether left out of consideration juristic persons when they enacted Part II of the Constitution relating to “citizenship” and made a clear distinction between”persons” and “citizens” in Para III of the Constitution. Part III,which proclaims fundamental rights, was very accurately drafted, delimiting those rights like freedom of speech and expressions, the right to assemble peaceably, the right to practice any profession etc., as belonging to “citizens” only and those more general rights like the right to equality before the law, as belonging to “all persons”. Reliance was also placed on Punjab State Industrial Dev.Corporation Ltd. V. P.N.F.C. Karamchari Sangh & Anr., JT 2006(4) S.C. 337, wherein it was held as under in paragraphs 7, 9 and 10:- F.A.O.No.1853 of 2008 -9- .... “7. There is no dispute that under Section 446 the Company Court can pass orders in relation to the company in liquidation. The real question in issue in the case was whether the liability with respect to money due from the company in liquidation towards its workers could be fastened on an independent corporation. The Company Court has chosen to fasten liability on a third party, i.e., the PSIDC while seized of proceedings with respect to the company in liquidation (The PNFC). Was it legally permissible? 9. After drawing our attention to the legal status of the two companies involved, the learned counsel for the appellant drew our attention to the note of the Chief Minister of Punjab. It is submitted with reference to the said Note that it can neither be said to be an order of the State Government no can it has any binding force so far as the PSIDC is concerned. The submission of the learned counsel for the appellant is that the note is in the nature of a suggestion/ request by the Chief Minister and the PSIDC has no legal liability so far as the dues of the PNFC to its workers are concerned. Both the companies were separate legal entities. Though PSIDC might have been involved in promotion and thereafter in guiding the affairs of the PNFC, that is not enough to fasten the liabilities of the PNFC to the PSIDC. 10. In reply, the learned counsel appearing for the respondent- F.A.O.No.1853 of 2008 -10- .... workers association submitted that as the affairs of PNFC are entirely managed and controlled by the PSIDC, the corporate veil has to be lifted to show that PSIDC was responsible for the acts of PNFC and liabilities of PNFC and it was therefore liable for the dues of the workers. In their application under Rule 9 of the Companies (Court) Rules the workers have pleaded that the PSIDC exercised control over financial and administrative affairs of the PNFC. It is also submitted that the fact that the PSIDC holds 46.13% shares in the PNFC shows the financial interest of the PSIDC in the PNFC. The officers of the PSIDC are also said to have been posted from time to time in the PNFC to manage its affairs. The learned counsel relied o Section 446 of the Companies act to suggest that a Company Judge has wide powers with respect to a company in liquidation. He invited reference to Sudarsan Chits (I) Ltd. v. O.Sukumaran Pillai and Ors., (1984) 4 S.C.C. 657 in support of this contention. In our view, this judgment does not help the respondent. Under Section 46 the powers of the company Judge qua company under liquidation may be wide, but that does not empower the Company Judge to pass an order making a distinct and separate corporation, a third party, liable for the liabilities of the company in liquidation. This aspect unfortunately has not been adverted to either by the learned Company Judge or by the Division Bench of the High Court.” F.A.O.No.1853 of 2008 -11- .... Lastly, it was contended by the learned counsel for the respondents that the Court could review order dated 5.9.2007 as respondent no.2 was certainly an aggrieved person as its property had been put to restraint. To support this contention, he placed reliance on Board of Control for Cricket, India and another Versus Netaji Cricket Club and others, AIR 2005 S.C. 592, wherein it was held in paragraphs 88, 89 and 90 of the judgment, as under:- “88. We are, furthermore, of the opinion that the jurisdiction of the High Court in entertaining a review application cannot be said to be ex facie bad in law. Section 114 of the Code empowers a Court to review its order if the conditions precedents laid down therein are satisfied. The substantive provision of law does not prescribe any limitation on the power of the Court except those which are expressly provided in S.114 of the Code in terms whereof it is empowered to make such order as it thinks fit. 89. Order 47, Rule 1 of the Code provides for filing an application for review such an application for review would be maintainable not only upon discovery of a new and important piece of evidence or when there exists an error apparent on the face of the record but also if the same is necessitated on account of some mistake or for any other sufficient reason. 90. Thus, a mistake on the part of the Court which would include a mistake in the nature of the undertaking may also call F.A.O.No.1853 of 2008 -12- .... for a review of the order. An application for review would also be maintainable if there exists sufficient reason therefor. What would constitute sufficient reason would depend on the facts and circumstances of the case. The words `sufficient reason' in O.47, R.1 of the Code is wide enough to include a misconception of fact or law by a Court or even an Advocate. An application for review may be necessitated by way of invoking the doctrine “actus curiae neminem gravabit.” I have thoughtfully considered the rival contentions/ submissions and have gone through the whole record. The facts which stand out and the ones which are going to form the fulcrum of the controversy are that there was a collaboration agreement with respondent no.1 and Alpha Drug. The P.S.I.D.C. being financial collaborator had explicit understanding that the equity share holding of the P.S.I.D.C. would be bought back by respondent no.1 after five years of the commencement of production by Alpha Drug. Apparently, that was not done which resulted in a dispute regarding which the P.S.I.D.C. invoked the provisions of Section 11 of the Act and during the pendency of those proceedings, an application was moved by it to secure its own interests by restraining respondent no.1 from alienating the properties which belonged to him. The said application was allowed vide order dated 5.9.2007 and respondent no.1 was restrained from alienating his movable and immovable properties. The restraint order also extended to House No.115, Sector 9-B, Chandigarh which is now the bone of contention as respondent no.1 has F.A.O.No.1853 of 2008 -13- .... stated that he is merely a tenant in the same and it actually belonged to respondent no.2. It is a case where public money is at stake. The financial body which the P.S.I.D.C. having financed the collaboration agreement is naturally keen to protect its interest. Order dated 5.9.2007 puts an embargo on the sale and alienation or creating a charge on House No. 115, Sector 9- B, Chandigarh which is said to be owned by respondent no.2. In the instant case, in my opinion, the Court is duty-bound to lift the veil and see for itself as to whether the property, in fact, belongs to respondent no.2 and and has no concern with respondent no.1 with whom a dispute is pending. If the observations of the Apex Court in Punjab State Industrial Dev.Corporation Ltd. V. P.N.F.C. Karamchari Sangh & Anr. (supra) are to be seen, which is a judgment relied upon by the learned counsel for the respondents, then it is clear that their Lordships observed while holding that PNFC & PSIDC were two separate entities and liability on account of dues of workmen of PNFC could not be fastened upon PSIDC as it was a separate company. There is no quarrel with the said proposition. In the aforementioned case, there were two statutory companies warring with each other with distinct identities. Here, it is apparent that respondent no.1 and respondent no.2 are one and the same entity, even though jurisprudentially separate much like a mythical snake with two heads joined to one body. No doubt, a third party cannot be made liable for a fall-out of the dispute between two entities, but if the identity of such third party is so F.A.O.No.1853 of 2008 -14- .... intricately merged with the identity of the disputant, then it is a case where the facts emerge from the haze and the real identity of the disputant merges in a single colour and not split in various hues. A perusal of Annexure P7 which has not been denied by the respondents clearly reveals that respondent no.1 is the prime motivator and director of respondent no.2 and his interest therein are also reflected when he moves an application for review independently. Had he been merely a tenant and holding an individual entity as distinct from respondent no.2 whose assets were of no consequence to him, then in such an eventuality he would not have moved a separate application for review of order dated 5.9.2007 and wold have left the battle to respondent no.2. In these circumstances, it is very difficult to hold that respondent no.2 would be a third party and can, at best, be viewed as a device created by an ingenious mind propelled by a dubious scheme to hoodwink and defeat the liabilities which respondent no.1 has incurred qua the P.S.I.D.C. In so far as the maintainability of the application is concerned, because of the reason that the Court is of the opinion that respondent no.2 is,in fact, a mask worn by respondent no.1 himself and is not a third party in the strict sense of the term and it does not wish to comment on the same any further except to say that had respondent no.2 been an independent entity as distinct from respondent no.1 and had its properties been put to a restraint order without there being any apparent liability, then in that eventuality the question could have been answered in the affirmative to hold that such an application could have been maintainable, but for the reasons F.A.O.No.1853 of 2008 -15- .... stated above, it is concluded that the application, though maintainable, has been answered incorrectly by virtue of the impugned order. Therefore, this appeal is accepted, the impugned order is set aside and order dated 5.9.2007 is restored. December 10,2008 ( Mahesh Grover ) “SCM” Judge