*1* ca.1107.09.cp.645.88.sxw kps IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY APPLICATION NO.1107 OF 2009 IN COMPANY PETITION NO.645 OF 1988 The Premier Automobiles Limited. A Company existing under the Companies Act, 1956 and having its Registered Office at 92/93, Maker Towers-F, Cuffe Parade, Ballard Estate, Bombay. ..Petitioner -And- Rathnam P.V.. 403, Privik Residency, St.No.4, HMT Nagar, Nacharam, Hyderabad-500076. ..Applicant -Versus- The Official Liquidator, High Court of Bombay. Liquidator of M/s Elmot Engineering Company Private Limited (in liquidation), Having his office at 05th Floor, Bank of India building, M.G.Road, Mumbai-400023. ..Respondent .......... Mr.Gaurav Joshi i/b Chaturvedi & Associates, for the Applicant. Mr.Shyam Mehta a/w Mr.Vaibhav Werekar i/b Govind Desai & Associates, for the Intervener (Mr.AVK Rao). Mr.Kirti Munshi a/w Mr.Akshay Patil i/b Govind Desai & Associates, for the Interveners/ contesting Respondents. .......... CORAM : S.C.DHARMADHIKARI, J. Reserved on : 02nd September, 2011. Pronounced on : 13th October, 2011. *2* ca.1107.09.cp.645.88.sxw JUDGMENT: 1 This is a Company Application filed by the Applicant praying for the following relief:- “(a) Confirmation/recognition of transfer to the applicant 3498 Equity Shares of Rs.100/- each fully paid up bearing distinctive Nos.2723 to 2875, 3526 to 5145, 5246 to 6955 and 6981 to 6995 in Elmot Engineering Company Private Limited (in liquidation), the Respondent Company, made before order of winding up i.e. 22.03.1990, but after filing of petition for winding up of the Respondent Company, under Section 536(2) of the Companies Act, 1956.” 2 It is the case of the Applicant that he is a Director of the Respondent-Company in liquidation, namely, Elmot Engineering Company Private Limited (in short, “Company under liquidation”). It is his case that he was elected as Director of the Company under liquidation in its extra ordinary general meeting held on 03.03.1990, in which meeting, 3498 shares of this Company were duly transferred in his favour. He states that he has also a claim of Rs.2.87 lacs on account of payment of dues to the employees of the Company under liquidation. He claims to be majority shareholder holding 3498 out of 6995 shares in the Company in liquidation. It is his case that Elmot Group of Companies comprised of the Company under liquidation along with its sister companies, namely, M/s Elmot Alternators Private Limited (in short “EAPL”), M/s Elmot Direct Current Machines Private Limited (in short, “EDCM”), M/s Elmot Electronics Private Limited (in short, “EEPL”), M/s Elmot Fabricators Private Limited (in short, “EFPL”), M/s R K Battery Charger Manufacturing Company Private Limited (in short, “RKBC”) and M/s Mechelm Engineers Private Limited (in short, “MEPL”). The Applicant states that after some *3* ca.1107.09.cp.645.88.sxw senior officers left in 1978, Mr.CVK Rao, the then Managing Director of the Company under liquidation could not manage the affairs and the Company under liquidation started incurring heavy losses and became sick by 1981. The Company under liquidation was assisted under a Nursing Programme of the Central Bank of India. It is stated that being afraid of criminal prosecution proceedings for non payment of statutory dues etc., Mr.CVK Rao reconstituted the Board of Company under liquidation in July, 1983 and resigned on 24.09.1983 from the Board of the Company under liquidation and also all other Companies in the Group. It is stated that the Company under liquidation incurred Net Losses of Rs.17.76 lacs in 1983-84 and Rs.41.31 lacs in 1984-85 and its then Share Capital of Rs.6.995 lacs was completely eroded. Losses incurred in two years were 8.5 times the paid up share capital as per audited statements of accounts. After setting off profit on sale of assets in the year 1984-85 and balance in General Reserve, accumulated loss carried forward was Rs.29.48 lacs as per audited Balance Sheet as on 03.04.1985. 3 It is stated that the Company under liquidation was closed down on 22.04.1988. By 1989, the financial position of all other companies in the Group and also of Mr.CVK Rao and his family was precarious. Although the consent terms were agreed with M/s Premier Automobiles Limited, which is the Petitioner in this Company Petition, on 29.03.1989 to pay in all Rs.1,63,000/- in monthly installments of Rs. 15,000/-, not even one installment was paid till March, 1990 resulting in the order of winding up of the Company under liquidation. All efforts made by Mr.CVK Rao and others to revive the Company under liquidation failed. *4* ca.1107.09.cp.645.88.sxw 4 It is alleged that the efforts were made by Mr.CVK Rao to sell all the companies in the Group. He re-assumed directorship on 28.01.1988 to process sale of all companies in the Group to M/s VM Finance & Leasing Company. All shares including those held by the private trusts in all companies were transferred to Mrs.V.Sharda, Proprietor of M/s VM Finance & Leasing Company and the manner in which that was done has been alleged in the affidavit in support of this Company Application. It is then alleged that there are certain legal proceedings and also dues of the workmen were not paid. It is also alleged that because of problems faced, Mr.CVK Rao decided to introduce the Applicant to accept the responsibility of revival of the companies. Accordingly, Mr.CVK Rao appealed to the Applicant to take up responsibility without informing the Applicant about the pending proceedings for winding up of the Company under liquidation. The relation between the Applicant and Mr.CVK Rao is mentioned inasmuch as it is stated that Mr.CVK Rao is a son of the only sister of the paternal grand-father of the Applicant. 5 After setting out as to how the Applicant was elected as a Director on the Board of the Company under liquidation after removal of three directors of M/s VM Finance limited, it is alleged that Mr.CVK Rao was to file the necessary forms regarding the Applicant's election and appointment. It is alleged that by a letter dated 01.10.1990, the Official Liquidator was informed that the Applicant had been elected as a Director on the Board of the Company under liquidation. It is pointed out as to how the records in relation to the meeting including minutes book etc. were retained by Mr.CVK Rao. It is pointed out that the Applicant showed willingness to furnish the statement of affairs. It is stated that the fact that *5* ca.1107.09.cp.645.88.sxw the Applicant was elected as Director has been confirmed by several documents. 6 As far as the transfer of shares is concerned, in the affidavit in support, this is what is stated:- “E. Transfer of shares:- i. Mr.CVK Rao in the circumstances set out herein before whereby all the companies under Elmot Group were either financially sick or closed down; various actions/ demands were pending against the Respondent Company including non payment of employees wages, electricity dues, water dues, suppliers dues, Government statutory dues; notices/ demands from the Income Tax authorities and Sale Tax authorities, requested the Applicant to take charge of managing and/or reviving the Respondent Company and the other companies under the Elmot Group. The Applicant agreed to take charge of the Respondent Company and the other companies under the Elmot Group upon being allotted/sold 3498 shares of the Respondent Company constituting the majority shares in the Respondent Company for consideration of Rs.34980/- Mr.CVK Rao accepted the Applicant’s offer and sold and transferred 3498 shares of the Respondent Company which they said CVK Rao was himself or through his family members or through his private family trust holding or otherwise in absolute charge and control of, for total consideration of Rs.34,980/-. ii. The transfer of said 3498 shares in the name/ favour of the Applicant was taken up and approved by the Respondent Company in its Board of Directors Meeting held on 03.03.1990. iii. The Minutes of this Board Meeting of Respondent Company held on 03.03.1990 recording transfer of 3498 shares in the name and favour of the Applicant was recorded on Loose Leaf, as all the earlier minutes for the Board Meetings held from 1985 were not written in the minutes book and some pages in between were blank. Therefore, after the Minutes of this Board Meeting of Respondent Company held on 03.03.1990 were recorded *6* ca.1107.09.cp.645.88.sxw on Loose Leaf the original Minutes Book of Meetings of Board of Directors was handed over to Mr.CVK Rao for proper updating. iv. In all an amount of Rs.174,980/- was paid in cash to Mr.CVK Rao on 03.03.1990 as consideration for acquisition of shares in all the companies of Elmot Group so as to give the Applicant 50% equity in all the Elmot Group Companies. v. As per audited Balance Sheet as at 03.04.1985 negative net worth of Respondent Company was Rs.29.48 lacs (i.e. negative book value of Rs.420 per share which 4.2 times the Nominal Value of the share). Negative Net worth as at 03.04.1990 would at least be Rs.90.23 lacs (i.e. negative book value of not less than Rs.1289/- per share which is 13 times the Nominal Value of the share, if interest and depreciation alone are considered for the five years from 1985 to 1990 at the same amount charged to Profit and Loss Account of Rs.12.15 lacs per annum on a conservative basis, undisclosed Liabilities scared all including those who entered into Agreements to buy the Companies. The shares of the Respondent Company were sold and transferred to Mrs.V. Sharada in 1988 for consideration of Rs.10/- per share. vi. The Share Transfer Forms 14 (fourteen) duly stamped along with 29 Equity Share Certificates for transfer of 3498 shares (50% of equity) to me were signed and submitted by Mr.CVK Rao and Mrs.RK Rao as trustees representing 14 (fourteen) private trusts with the Respondent Company. Mr.CVK Rao as authorised signatory of the Respondent Company duly authenticated the transfer of said 3498 shares in the name of the Applicant by entering the transfer and authenticating by putting his signature on the original 29 share certificates. The original transfer forms and the statutory register are in the custody of the Company. vii. There after Board of the Respondent Company considered and approved consolidation of the shares and to issue new share certificates for the consolidated number of shares to avoid the need to hold too many Share Certificates and authorized the Applicant and Mrs.P.S.Lakshmi, to sign the new consolidated share certificates for the consolidated number of shares. *7* ca.1107.09.cp.645.88.sxw viii. The only reason for the Applicant taking up management and/or revival of the Respondent Company and the other companies in Elmot Group in March, 1990 was holding 50% equity shares in these companies. ix. The Applicant submits that Share Certificates issued by the Respondent Company are conclusive evidence of Applicant’s title and ownership of Shares.” 7 The Applicant then gives the details of certain agreements in 1999 and 2000 confirming his shareholding and also stating that in order to avoid confusion and doubts likely to be caused in the mind of prospective lenders for the purpose of raising short term loan and other assistance, the minutes of the Board meeting held on 03.03.1990 were redrafted and re-written in line with so recorded entries. After giving some details with regard to this financial assistance and record of the Company under liquidation, it is stated that there was correspondence with the Official Liquidator on the point of filing of the statement of affairs. 8 It is not necessary to then refer to other proceedings to which reference is made in this affidavit in support, because this application is filed on the basis that no prejudice will be caused to the Company under liquidation if transfer of 3498 shares is recognized and his willingness to continue and act as Director of the Company under liquidation, according to the Applicant, is unconnected with the inter-se disputes between him and one Mr.Aakash Vishalraj Rao (in short, AVK Rao) in respect of these very shares which is pending before the District Court at Rangareddy, Hyderabad. 9 This affidavit in support has been filed on 19.09.2009 as is *8* ca.1107.09.cp.645.88.sxw stated in the affidavit in support itself. 10 This application is opposed by Mr.AVK Rao who claims to be shareholder of the Company under liquidation and the Managing Director of M/s Elmot Alternators Private Limited. It is stated in the affidavit in reply that Mr.AVK Rao holds 265 fully paid up equity shares of the Company under liquidation and that the Applicant is falsely claiming to be a shareholder. All shares of the Company under liquidation are held by the family members of Mr.AVK Rao directly or indirectly. He states that the case of the Applicant is totally false, besides arguing that this Company Application is liable to be dismissed only on the ground that it is barred by the Law of Limitation. According to Mr.AVK Rao, the alleged transfer of shares in favour of the Applicant took place on 03.03.1990. The Company was ordered to be wound up by an order dated 22.03.1990. This Company Application is filed on 25.09.2009 which is after 20 years of passing of the winding up order and it is, therefore, time barred and should be dismissed on this ground alone. 11 It is then stated that the alleged transfer in favour of the Applicant has been made after commencement of the winding up proceedings. Pursuant to the consent terms dated 29.03.1989 filed in this Company Petition, it was agreed that in the event of Company committing any two defaults in payment of monthly installments on their due dates, this Company Petition was to stand admitted. Admittedly, no monies have been paid by the Company under liquidation to the Petitioner pursuant to these consent terms and therefore, the Company under liquidation was ordered to be wound up. It is stated that the default under the consent terms was committed on 10.07.1989 and therefore, this Company Petition *9* ca.1107.09.cp.645.88.sxw must be deemed to have been admitted from that date. In these circumstances, any transfer of shares in this Company Petition which was presented on 20.06.1988 cannot be protected even if same is held to be otherwise valid. In other words, the said alleged transfer is void. 12 An explanation is then given that the parents of AVK Rao, namely, CVK Rao and Mrs.Dr.Rashmi K. Rao (in short, “RK Rao”) settled 17 trusts which hold total 4505 equity shares of the Company under liquidation. The said AVK Rao claims to be sole beneficiary of the trusts' shares. It is stated that the parents of AVK Rao are trustees of seven of these trusts while other relatives are trustees of other ten trusts. The details of the said trusts and their respective shareholding in the Company under liquidation are then referred to. It is stated that the date of vesting of the trusts' shares was 10.11.1995. There is never any alteration in the date. The copies of the trust deeds are annexed and it is urged that the Applicant claims to be owner of 3498 equity shares, however, these 3498 equity shares form a part of 4505 equity shares held by 17 trusts in the Company under liquidation. 13 It is stated that Mr.AVK Rao along with M/s Elmot Alternators Private Limited Filed the Company Application No.212/2008 for recalling/ revoking/ setting aside/ staying permanently the winding up order dated 22.03.1990 on the grounds more particularly set out in that application and the affidavit in support thereof. During the pendency of the Company Application No.212/2008, the present Applicant intervened before this Court contending that he is owner of 3498 equity shares in the Company under liquidation. That claim was disputed by Mr.AVK Rao. Mr.AVK Rao became aware of the Applicant's claim. It was stated that *10* ca.1107.09.cp.645.88.sxw there are false affidavits filed alleging that the parents of Mr.AVK Rao transferred these 3498 equity shares on 03.03.1990 and that he is now owner thereof. However, Mr.CVK Rao filed an affidavit dated 06.12.2008 in Company Application No.212/2008 explaining the true and correct facts pertaining to the shareholding. It is stated that the said Company Application No.212/2008 was disposed of on 13.03.2009. It is stated that a suit has been filed in Rangareddy District Court at L.B. Nagar, Hyderabad being Suit No.244/2009 by Mr.AVK Rao against the Applicant herein and others including the parents of Mr.AVK Rao for declaration that he is the sole and absolute owner of 3498 equity shares in the Company under liquidation. The present Applicant cannot claim this ownership falsely. It is stated that the Applicant is wrongfully in possession of the share certificate pertaining to these shares and the purported transfer of 3498 shares is without consideration, without execution of valid transfer documents/deeds and without approval of the Board of Directors and therefore, invalid. 14 Additionally, it is stated by Mr.AVK Rao in this affidavit in reply that the present Applicant executed an affidavit dated 29.07.1996 in which he deposed that Mr.AVK Rao is the sole beneficiary of the very same trusts which are named therein and which are the same trusts which hold 3498 shares in the Company under liquidation. In these circumstances and relying upon the copy of this affidavit, it is alleged that present application is filed with ulterior motive and with a view to harass the parents of Mr.AVK Rao. Further it is filed with an intention to pressurize the said group to settle the matter with the Applicant. If the story of the Applicant was genuine, then, it cannot be believed that he would wait for regularization of the purported transfer for more than 20 years from the *11* ca.1107.09.cp.645.88.sxw date of commencement of the winding up. For all these reasons and thereafter, pointing out the facts in relation to sickness and closure of all companies in Elmot Group and sale of companies in the Group and stating how the sale deal failed, it is alleged that the case of the Applicant that he is Director of the Company under liquidation is false inasmuch as the Applicant was never called upon by the Official Liquidator to file the statement of affairs. He has not produced any evidence of his having filed with the Registrar of Companies, the form No.32 relating to his appointment as Director of the Company under liquidation. In these circumstances, the Applicant is wrongfully in possession of 29 original share certificates belonging to 14 out of 17 private trusts. The transfer of shares and resolution itself is challenged and several contentions as to how the same is a got up document have been raised and therefore, it is prayed that this application be dismissed. 15 There is an affidavit in reply of Mrs.Rashmi K. Rao who is mother of Mr.AVK Rao. She adopts the contents of the affidavits that have been filed by Mr.AVK Rao and Mr.CVK Rao and raises a further contention in paragraph 8 of this affidavit, which reads thus:- “8. With particular reference to paragraph D(iii) of the Affidavit in support, whilst it is true that I have affirmed an affidavit dated 04.09.1991, I say that the aforesaid affidavit was made by me as per the information supplied by the Applicant himself in good faith. I say that my husband and I were residing primarily in Mumbai since marriage in the year 1959 up to the year 1982. After my husband established the Company in Hyderabad in the year 1974, my husband and I visited Hyderabad from time to time until the year 1982. I shifted entirely to Hyderabad for six years from 1982 upto 1988, on account of my son’s schooling in Hyderabad. In 1988, my husband and I came back to primarily reside in Mumbai, as my son Aakash had completed his schooling and was *12* ca.1107.09.cp.645.88.sxw admitted to junior college in Mumbai. My son Aakash completed his junior college in April, 1990, after which the entire family visited and stayed in Hyderabad during the summer vacations in May/ June, 1990. Sometime in June, 1990, we returned to Mumbai as my son Aakash had secured admission at IIT Powai, Mumbai. My husband Mr.CVK Rao suffered a heart attack in March, 1991, after which he underwent a bypass surgery on 15th June, 1991 at Breach Candy Hospital, Mumbai and was hospitalized for a long time thereafter. After his discharge from the hospital, he was advised complete bed rest for four to six months. I say that except for the period in May/June 1990, I have not visited Hyderabad between the years 1988 and 1992. I say that my husband Mr.CVK Rao was keen on selling the Elmot Group of Companies during the year 1988-1989 and there was an agreement in this regard which he had entered into with VM Finance and Leasing Company. However, things did not materialize and the sale of the Elmot Group of Companies did not take place. The Applicant, who is a distant relative, suggested to me and my husband sometime after the Company went into liquidation that he would revive EAPL and other group companies, in order to try and prevent EAPL and the other group companies from meeting with a similar fate. The Applicant suggested that we should represent to the Official Liquidator of the Company that the Applicant was appointed as a director of the Company. I believed that the Applicant could be trusted and the affidavit dated 04.09.1991 made by me has been made in good faith and on the instructions and the information given to me by the Applicant himself. I say that the affidavit dated 04.09.1991 has been made in the circumstances set out herein and the Applicant cannot be permitted to capitalize upon incorrect statements made therein to bind me as he himself has supplied incorrect information to me on the basis of which I made this Affidavit. I say that in this context, it would also be relevant to peruse the papers and proceedings pertaining to Company Application No.164 of 1991 in Company Petition No.645 of 1988, which will falsify the statements of the Applicant.” *13* ca.1107.09.cp.645.88.sxw 16 There is affidavit in rejoinder filed by the Applicant in which while dealing with the contents of the affidavit in reply of Mr.AVK Rao, what has been alleged is that in the suit filed in the District Court, Rangareddy at Hyderabad, an application is moved by the Applicant raising the issue of jurisdiction and limitation, which is pending. The allegations are made against Mr.CVK Rao, Mrs.Rashmi Rao and Mr.AVK Rao. The challenge is raised to the Trust Deed. It is alleged that the interveners (Rao Group) have presented a false case of revival of the Company under liquidation. They presented a false case and that is evident by the fact that the Company Applications that are made by these interveners are pursuant to the action initiated by the Official Liquidator to take possession of the properties of the Company under liquidation. Attempt is to hold on to these properties. The entire matter is being treated as if it is a personal matter, but that is incorrect because whole attempt is to retain possession of the immovable properties which are very valuable and to appropriate them to Rao Group somehow or other. In paragraph 27 of this rejoinder affidavit, this is what is stated:- “27. With reference to paragraph 18 I say that all shares in all Companies in Elmot Group were sold and transferred to VM Finance and Leasing Company and Suit OS No.357 of 1988 was filed by Intervener No.2 for realization of the value of shares. Interveners are deliberately distorting the facts and without producing copies of the Suit and Judgment thereon before this Hon’ble Court. I say that the above admitted fact that CVK Rao, Intervener No.2 filed the above suit against M/s VK Finance and Leasing Company for recovery of sale consideration on sale of the Elmot Group conclusively establishes the fact that the Elmot Group Companies were sold and the shares of the Companies including that of EECPL (in liqn) herein were transferred to M/s VM Finance and Leasing Company and/or its proprietress and/or its nominees. I further say *14* ca.1107.09.cp.645.88.sxw that the Annual Return for the financial year 1982-83 is irrelevant today after lapse of