*1* ca.328.90.cp..sxw kps IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY APPLICATION NO.328 OF 1990 IN COMPANY PETITION NO.128 OF 1985 In the matter of Companies Act, 1956; AND In the matter of Sanghi Motors (Bombay) Limited, a company, registered under the provisions of the Companies Act, 1 of 1956 and having its registered office at 39/A, NS Patkar Marg, Bombay-400007. AND In the matter of Sections 397, 398, 402, 403 and 633 of the Companies Act, 1956. 1. Sanghi Oxygen (Bombay) Pvt.Ltd., Mahakali Caves Road, Andheri East, Bombay 400093. 2. Mr.R.K.Sanghi, I/3, Palacimo, 45-FC, B.Desai Road, Bombay 400026. ..APPLICANTS -Versus- 1. M/s Sanghi Motors (Bombay) P. Ltd., 39/A, N.S. Patkar Marg, Bombay-400007. 2. M/s Vitesse Trading Pvt.Ltd., Turf View, Hornby Estate, Opp.Nehru Centre, Bombay-400018. 3. Mr.Mahendra Kumar Sanghi. *2* ca.328.90.cp..sxw 4. Mrs.Manju Sanghi. 5. Mr.Vaibhav Sanghi. 6. Mr.Ashwin Sanghi. (Respondent Nos.3 to 4 all of Bombay, residing at 94, Nepean Sea Road, Bombay. 7. Mr.Shankar Shetty, of Bombay Indian Inhabitant, the Sole Proprietor of M/s Maharashtra Gas Co., a firm carrying on business at 91, Kamathipura, 3rd Lane, Bombay-400008. 8. M/s Durgapur Oxygen Private Ltd., a Company duly registered under the Indian Companies Act, having its office at 60-B, Chowringhee Road, Calcutta-700020. 9. M/s Kishanchand & Company, a firm carrying on business at 173-A, Reti Bunder, Darukhana, Bombay-10. 10. Industrial Engineers & Trade Corporation, a firm carrying on business at Dixant Bhuvan, Opp.IIT, Shri Adi Shankaracharya Marg, Powai, Bombay-400007. (DELETED). 11. M/s Anwar Gases, a firm carrying on business at 226, Kalse Bunder, Bombay 400010. (DELETED) *3* ca.328.90.cp..sxw 12. M/s Vimal Gases, a firm carrying on business at Patankar Bazar, Gwalior-474001. 13. M/s Nalwa Metals & Alloys Ltd., a Company duly registered under the Companies Act and having its office at Agra Road, Vikhroli, Bombay. (DELETED). 14. Mr.A.P.Yagnik, Receiver, residing at C-6, United Chambers, Maulana Shaukat Ali Road, Grant Road (East), Opp.Bharat Nagar, Mumbai-400007. (DELETED). ..RESPONDENTS ............. Mr.Sandeep Parikh a/w Ms.Punita Soni i/by M/s Bilawala & Company, for the Applicants. Mr.Milind Sathe, Senior Advocate a/w Ms.Ankita Singhania i/by Bacchubhai Munim & Company, for the Respondent Nos.1 to 6. Mr.Santosh Pawar, for the Respondent Nos.8 and 12. ............ CORAM : S.C.DHARMADHIKARI, J. Reserved on : 20th October, 2011. Pronounced on : 16th December, 2011. Judgment: 1 This is a Company Application moved by the Applicants seeking the following reliefs:- “(a) The Respondents be ordered and directed by this Hon’ble Court to forthwith handover to the Applicants the *4* ca.328.90.cp..sxw following assets which belong to the Applicants: (i) The Liquid Oxygen (LOX) Tank referred to in item II(2) of Schedule I to the Scheme i.e. Exhibit A to the Affidavit in support together with a rental at Rs.17,000/-. (ii) All documents including cylinder hire agreements, challans of issue of cylinders since the last cylinder account confirmation, copies of cylinder issue index since start of operations with these parties, copies of cylinder rent bills issued during 1985 to 1989, receipt and any other documents relating to the alleged issue of cylinder to the customers i.e. Maharashtra Gas Company, M/s Durgapur Oxygen and M/s Kishanchand & Company. (iii) 548 Gas cylinders collected by the Respondents on behalf of the applicants but not returned to the applicants as required by the said Court’s order dated 6th July, 1989. (iv) 451 gas cylinders collected by the Respondents on behalf of the Applicants at their Cadell Road Depot but not returned to the Applicants or challans of issue, cylinder hire agreements, annual cylinder confirmation as received from such of these customers as have not returned the cylinders to the depot yet. (v) To take all steps forthwith to recover from the aforesaid customers 4472 cylinders and on recovery to hand over to the Applicants the said cylinders. (a)(vi) in the alternate to prayer clauses (a)(i) to (a)(v), this Hon’ble Court be pleased to order and direct the Respondent Nos.1 to 6 to pay to the Applicants the sum of Rs.8,16,88,548/- as more particularly set out in the particulars of claim, being Exhibit ‘E’ to the further Affidavit of the Applicant No.2 in support of the Judges Order/ Company Application with further interest @ 18% p.a. or such other rate as may be determiend by this Hon’ble Court on the aforesaid amount of Rs. 8,16,88,548/- from 11th May 2010 till date of payment thereof. (a)(vii) That in the event this Hon’ble Court comes to a *5* ca.328.90.cp..sxw conclusion that Respondent No.14 is responsible for the loss caused to the Applicant No.1 Company as a result of Respondent Nos.1 to 6 not returning the assets of the Applicant No.1 Company and therefore, liable to make good the loss so caused, then, Respondent No.14 be ordered and directed to pay to the Applicants a sum of Rs. 8,16,88,548/- as more particularly set out in the particulars of claim, being Exhibit ‘E’ to the further Affidavit of the Applicant No.2 in support of the Judges Order/ Company Application with further interest @ 18% p.a. or such other rate as may be determined by this Hon’ble Court on the aforesaid amount of Rs. 8,16,88,548/- from 11th May 2010 till date of payment thereof.” 2 Prayer clauses a(vi) and a(vii) have been inserted by amendment which is permitted to be carried out in terms of the order of a Division Bench of this Court in Appeal No.618/2006 decided on 15.04.2010. Certain parties were added as Respondents and deletions were also carried out to the title and aforestated prayers have been added. 3 Mr.Ratan Kumar Sanghi (Applicant No.2), Managing Director of the Applicant No.1 has filed the affidavit in support in which it is stated as under:- “1. Applicant No.1 is a private limited company incorporated under the Companies Act, 1956. Respondent No.1 is a public limited company also incorporated under the Companies Act, 1956. Respondent No.2 is also a public limited company, which is under the control and management of Respondent Nos.3 to 6. Applicant No.2 and Respondent No.3 are brothers. Respondent No.4 is the wife of Respondent No.3. Respondent Nos.5 and 6 are their children. Respondent Nos.3 to 6 are the present directors and shareholders of Respondent Nos.1 and 2. *6* ca.328.90.cp..sxw Prior to 10th July, 1989, Applicant No.1 Company was a division of Respondent No.1 Company. Prior to 10th July, 1990, Respondent No.1 Company had two distinct undertakings i.e. (i) “Sanghi Oxygen” with its factory at Andheri and (ii) “Sanghi Motors” with its business of automobiles, sales and services and factory showroom at Hughes Road and at Prabhadevi in Bombay. 2. In or about 1985, Respondent No.3 filed a Company Petition in this Hon’ble Court seeking reliefs under sections 397, 398, 402 and other applicable sections of the Companies Act, 1956, inter alia, against Applicant No.2 herein in regard to the management of Respondent No.1 Company. 3(a). The said petition was finally disposed off by an order dated 6th July, 1989 whereby a learned Single Judge (S.N.Variava, J.) of this Hon’ble Court sanctioned a scheme of reconstruction of Respondent No.1 Company.” 4 It is then stated that under the said order and sanctioned Scheme of Reconstruction, the Oxygen undertaking of the Respondent No. 1 including its factory at Andheri, Mumbai consisting of plant, machinery, equipments, cylinders, land and buildings thereon etc. as more particularly set out in the scheme and all its assets, vested in and were transferred to the Applicant No.1. Under the said scheme, the “effective date” was 10.07.1989. On and from the said date, whole of the said undertaking of Sanghi Oxygen including all its assets, namely, immovable properties, plant, machinery, cylinders etc. lying at Andheri factory and more particularly set out in Annexure-I to the scheme, but excluding what has been stipulated therein, vested in and were transferred to the Applicant No.1 at their book value aggregating to Rs.14,03,384/-. 5 It is stated that it was clarified in the order passed on *7* ca.328.90.cp..sxw 06.07.1989 that some of the assets which have been purchased by Mr.A.P.Yagnik, Receiver of the Respondent No.1 appointed by interim order dated 11.09.1987, were not the assets of the said Sanghi Oxygen and were not required to be transferred to the Applicant No.1. It was also envisaged in the scheme, according to the Applicants, that the Respondent No.1 shall transfer to the Applicant No.1 a sum of Rs.6 lacs being the amount of security deposit for cylinders and that from the effective date the Applicant No.1 shall take over and liable to discharge the entire liability towards security deposit aggregating to Rs.24,74,990/- received by the Company and a list of which was set out in Annexure-II of the scheme. Then there is reference to direction to the Respondent No.2 to pay to the Applicants a sum of Rs.10,02,118/- being balance of the security deposit towards cylinders received by the Respondent No.2. In these circumstances, it is stated that the statutory compliance with regard to the cylinders and particularly payment of income tax etc. has been made. After referring to order, it is then stated that following assets stood vested in the Applicant No.1:- “(a) The V.I.T.T. (transport) tank (called Lox Tank), whose book value was Rs.34,000/- but market value is Rs.11 lacs. Its rental value is Rs.17,000/- per month or more. (b) 15,396 numbers of cylinders, of which 2467 cylinders were lying at the factory and the balance cylinders were certified by applicant No.1 to be lying with customers. The cost of each cylinder is approximately Rs.1,800/-. (c) 1,399 Medical cylinders also vested in and were agreed to be transferred to Applicant No.1. (d) the benefits of the cylinder hire agreements in respect of the said balance cylinders lying with customers.” 6 It is stated that pursuant to the order dated 06.07.1989, the Applicant No.2 received the assets, movable and immovable property etc. *8* ca.328.90.cp..sxw being at Andheri factory and the ground floor tenanted premises at Mani Mahal, Mathew Road. By a letter dated 10.07.1989, the Applicant No.2 acknowledged on behalf of the Board of Directors of the Applicant No.1, receipt of the said assets. The said letter stated that the details of assets at Andheri were as per Annexure-I to the Scheme as ordered by this Court. By the said letter dated 10.07.1989, the Applicant No.2 confirmed that he had also taken charge of the cylinders including the medical cylinders as per the Cylinder Trial Balances of 10.07.1989 duly signed which were enclosed along with the said letter. The Applicant No.2 also undertook to return 615 cylinders belonging to Sanghi Motors in exchange of the cylinders to be collected by them i.e. Sanghi Motors at Prabhadevi from the customers of the erstwhile City Depot of Sanghi Motors. These letters are annexed as Annexures B and B-1 to the affidavit in support of this Company Application. In paragraphs 6 and 7 of the affidavit in support, this is what is alleged:- “6. The said cylinder trial balances were prepared by Respondent No.2 on the basis of its records and signed by Mr.Yagnik, the Receiver and Mr.Ramavatar, Chief Executive of the Respondent No.1 in the presence of Respondent No.5 and by Applicant No.2 for identification. The said trial balance showed that 15396 industrial cylinders and 1,399 medical cylinders had been handed over by the Court Receiver to Respondent No.2 as per the inventory on 15.09.1987. The trial balance also showed that 14,997 industrial cylinders were lying with the customers as per the index (which included 1295 cylinders returned to Respondent No.1 during July, 1989). 2,467 medical cylinders were shown as physically lying on the ramp of the said factory. Hereto annexed and marked as Exhibit “B-2” is a copy of the said cylinder index. It was these 2467 cylinders of which the Applicants took physical possession on 10th July 1989, Applicant No. 1 company manufactured, at all material times industrial gases including oxygen, nitrogen and acetylene gases. The gases are sold to customers mainly filled in cylinder *9* ca.328.90.cp..sxw which are bought by the company and are its asset. The cylinders are thereafter filled with oxygen and other gases by the company and are taken by various customers of the company on hire, under cylinder hire agreements. Customers are required to pay rent for the period that these cylinders are retained by them. From time to time, the empty cylinders are returned to the company and the same may be rehired after re-filling gas to the same party or to any other customer. The customers are also required to keep deposited with the company some amounts by way of “Security Deposits” which are to be refunded to the customers when the cylinders are finally returned to the company. 7. Since July 1983, Respondent No.3 was in charge and management of the said “Sanghi Oxygen”. The said company Petition No.128 of 1985 was filed by Respondent No.3 in February 1985. During 1985 to 1987, various applications were made to the Hon’ble Court for interim reliefs, including by applicant No.2. In his said applications, applicant No.2 stated inter alia that Respondent No.3 was selling and disposing off and removing various cylinders of the said Sanghi Oxygen. Ultimately, by an interim order dated 11th September 1987, Shri A.P.Yagnik was appointed as Receiver of the entire Sanghi Motors, including all its undertakings, assets, divisions. By the said order, Respondent No.3 was directed to furnish to the Receiver an inventory of the Oxygen Division as on 15.11.1987. By the said order, the Receiver was to give to any shareholder of the company on conducting basis all the undertakings and businesses of the company, as his agent. Accordingly, an inventory was furnished by Respondent No.3 to the Court Receiver setting out the assets of Oxygen Division including cylinders.” 7 It is, thus, alleged that if the Respondent No.2 (M/s Vitesse Trading Pvt.Ltd.) was appointed as the Conducting Agent as per the order and on the terms and conditions agreed between it and the Receiver and *10* ca.328.90.cp..sxw was put in possession of all assets of Sanghi Motors including its Oxygen Division, then, the inventory as on 03.10.1987 showed total stock of 15396 cylinders and 1399 medical oxygen cylinders of the Oxygen Division and the same were handed over to the Respondent No.2 by the Receiver. In addition, an IOL Liquid Oxygen Transport Tank was also transferred to the Respondent No.2 as such Agent. The Respondent No.2 undertook to this Court to pay and discharge all liabilities in relation to this conducting business and on termination of the same or expiration thereof by efflux of time, the Respondent No.2 would return the business and all assets of the Company to the Receiver. The order of this Court passed on 06.07.1989 contemplated the termination of this conducting agreement w.e.f. 10.07.1989. The Receiver also stood discharged and he was directed inter-alia to hand over to the Applicant No.2 all assets of the undertaking of Sanghi Oxygen which under the Scheme of Reconstruction will have vested in Sanghi Oxygen (Bombay) Limited. Once again reiterating that the Applicant No.1 became entitled to the number of cylinders and tanks as indicated above, it is stated that 2467 cylinders of the Company were handed over to the Applicant No.1 and it was certified by the Respondent No.2 that remaining cylinders were lying with the customers of the Company according to the list. It is stated that after the order dated 06.07.1989, the customers of the Applicant No.1 continued to return the empty cylinders at the Depot at Cadell Road which under the said order vested with the Respondent No.1. Equally, the customers of the Respondent No.1 continued to return the empty cylinders to the factory at Andheri which under the said order vested with the Applicant No.1. As on 10.07.1989, 1295 cylinders have already been returned to the Respondent No.1. Out of balance 615 cylinders, the Applicant No.1 received 308 cylinders from the Respondent No.1’s customers and these were *11* ca.328.90.cp..sxw exchanged between the parties with the Respondent No.1 returning 308 cylinders belonging to the Applicant No.1 and collected by them. However, this issue remained outstanding and there were several claims raised by the Respondents on the Applicants. Equally, in the correspondence, the Applicants pointed out as to what amounts were payable by the Respondents to them. After referring to the amounts in that behalf and payments, what has been alleged is that the Applicants were unable to obtain the following cylinders:- “(i) 2181 from Maharashtra Gas (ii) 1100 from Durgapur Oxygen (iii) 500 from Kishanchand & Co. (iv) 332 from Anwar Gas, (83) from Vimal Gases, (49) from Indl. Engineers, (27) from Nalwa Metals and 57 from May & Baker aggregating to 548 cylinders, which have been collected by the Respondents but not returned to the Applicants. (v) 451 cylinders collected by the Respondents at the Cadell Road Depot from various other customers and not returned to the Applicants. ---------------------- TOTAL 4780 cylinders. ----------------------” Total costs of these cylinders is estimated at Rs.97,04,000/- and it is stated that the amount has not been remitted although the issue was taken up in the correspondence. It is in these circumstances, what the Applicants claim is the direction to the Respondents to handover the following:- “(i) The Liquid Oxygen (Lox) tank referred to in item II(2) of schedule I to the Scheme together with rental at Rs. 17,000/- per month from 10th July, 1989 till the date of actual return. (ii) All documents including cylinder hire agreements, challans, receipts, etc. relating to the alleged issue of *12* ca.328.90.cp..sxw cylinders to the following customers:- (a) Maharashtra Gas Company. (b) Durgapur Oxygen. (c) Kishanchand & Co.. (iii) 548 cylinders collected by the Respondents on behalf of the applicants, but not returned to the applicants as required by the said order dated 6.7.1989. (iv) 451 cylinders collected by the Respondents on behalf of the applicants at their Cadell Road depot but not returned to the applicants. (v) To take all steps to recover from the aforesaid customers the said cylinders totaling to 4,472 Nos. and on recovery, to handover to the applicants the said cylinders or alternatively to pay to the applicants the sum of Rs. 80,49,600/- being the cost and/or price of the said cylinders at the rate of Rs.1,800/- per cylinder with interest thereon at 18% per annum from 10th July, 1989 or from such date fixed by this Hon’ble Court till payment.” 8 It is also alleged in paragraph 23 as under:- “The Respondents are presently unable to locate the particular 308 cylinders alleged to be of the new stock among the cylinders now with the Applicants as all the cylinders are similar and difficult to separate. It is possible that these cylinders are among the 999 cylinders that are yet to be received from the Respondents. The Respondents are ready and willing and have been so at all material times to return 308 cylinders to the Applicant No.1.” 9 The basis on which the above directions and reliefs are claimed, according to the Applicants, is that this Court, having sanctioned the Scheme of Reconstruction, has power to supervise its working and compel the parties to abide by its terms. The Respondents have not only violated the Scheme by their conduct, but also disregarded the orders of *13* ca.328.90.cp..sxw this Court. The Applicants’ interests are not being protected and their valuable properties and assets have been lost. The Respondents, with a view to causing them further loss and damage, will attempt to tamper with and/or secrete away and/or otherwise, deal with and dispose of the 999 cylinders belonging to the Company which they have collected on behalf of the Applicants. Therefore, protective interim orders have been sought. This application and the affidavit is filed on 05.10.1990. 10 It appears from the record that an order was made on 23.04.2006 disposing of this Company Application. Being aggrieved by the said order, two appeals being Appeal No.618/2006 and Appeal No. 577/2006, first filed by the Applicants and other filed by the Respondent No.1, came to be preferred. These appeals have been disposed of on 15.04.2010. The Division Bench, while disposing of these appeals, was pleased to set aside the earlier order and remitted this Company Application for de-novo consideration and decision in accordance with law. The Division Bench was pleased to grant leave to the Applicants to amend this Company Application and to implead additional Respondents within four weeks from the date of the said order. 11 In terms of the order of the Division Bench, further affidavit has been filed on 11.05.2010 by the Applicants in which the following statements are made in paragraphs 4, 6, 7 & 8:- “4. I further say that the Applicants through their advocates letter dated 5th May 2010 called upon the advocate for Respondent Nos.1 to 6 to give inspection of certain documents as more particularly set out therein. Hereto annexed and marked as Exhibit B is a copy of the said letter. I say that till date inspection of the said document have not been given to the Applicants and/or their advocate. In the circumstances, I reserve the right to file a *14* ca.328.90.cp..sxw further affidavit if so advised. 6. It is submitted that the Applicant No.1 Company’s claim to the said cylinders and/or the LOX tank is based on the Hire Agreements which were entered into by the Respondent No.1 Company prior to the Scheme of Reconstruction with various customers of the said Company, including Respondent Nos.7 to 13 which Agreements are in the possession of Respondent Nos.1 to 6. It is further submitted that in order to recover the aforesaid assets belonging to the Applicant No.1 Company, a suit being Suit No.179 of 1993 was filed by the Applicants herein. I say that Respondent Nos.7 to 13 herein were Defendant Nos.7 to 13 therein. I say that some of the Defendants therein filed their written statements in the said suit. I crave leave to refer to and rely upon a copy of the plaint and the written statements when produced. I say that as the present Application was pending and as the title documents in respect of the said assets were in the possession of Respondent Nos.1 to 6, the Applicant No.1 Company was advised to withdraw the aforesaid suit. I say that by an order dated 29th April 2005 passed in the aforesaid suit, I was permitted to withdraw the said suit. I say that Respondent Nos.1 to 6 herein, being the Defendant Nos.1 to 6 therein, objected to withdrawal of the suit on the ground that the suit should be withdrawn unconditionally. The learned Judge rejected the aforesaid objection and clarified that the Plaintiffs therein i.e. the Applicants herein, would be entitled to pursue legal proceedings, if any, under the right available to them in law. I crave leave to refer to and rely upon a copy of the said order dated 29th April 2005. I say that as the present Application was filed before the aforesaid suits, Respondent Nos.7 to 13 were not made party Respondents. However, in view of the aforesaid order dated 29th April 2005 and the order dated 15th April 2010 passed by the Division Bench of this Hon’ble Court, I have impleaded Respondent Nos.7 to 13 as party Respondents herein. 7. In the circumstances, I submit that due to the various acts of omission and commission of Respondent Nos.1 to *15* ca.328.90.cp..sxw 6 as set out hereinabove and in the other affidavits filed by the Applicants, the Applicant No.1 Company has not been able to recover cylinders from the various customers. The Applicants had informed the Respondent and the Receiver that the Applicant No.1 Company was unable to recover a large number of cylinders and therefore, they should do what they can to recover them, but no action was taken by the Respondent Nos.1 to 6 as they were aware that in fact the cylinders had been sold and there was no possibility of recovering them. It is therefore submitted that it is the responsibility of Respondent Nos. 1 & 2 to either recover and return the cylinders