# RAM PARSHOTAM MITTAL & ORS v. HOTEL QUEEN ROAD PVT. LTD. & ORS

- **Citation:** [2019] 7 S.C.R. 976
- **Court:** Supreme Court of India
- **Decided:** 2019-05-10
- **Case number:** Civil Appeal No. 3934 of 2017
- **Bench:** Arun Mishra, Indira Banerjee
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ram-parshotam-mittal-ors-v-hotel-queen-road-pvt-ltd-ors-34045
- **Pages:** 60

## Headnote

Companies Act, 1956 - ss. 286, 300 and 108 & ss.19(2), 85,
87(2)(b),169(4), 397 and 398 - Government of India took policy
decision on 5.7.02 to disinvest its shares in the Indian Tourism
Development Corporation (ITDC) which owns various hotel
properties; one of them being Indraprastha Hotel - In terms of an
approved scheme of Arrangement of Demerger the said hotel was
transferred to the Respondent No.1-HQRL, created as a Special
Purpose Vehicle to enable disinvestment - Government of India
invited bids for sale of shares in HQRL - Appellant No.3-Moral
Trading & Investment Ltd. was the successful bidder - Appellant
No.1-'RPM', his wife-appellant no.2 who held the controlling interest
in Moral, and the Respondent No.3-'AM', younger brother of the
Appellant No.1 were appointed regular Directors of HQRL - HQRL
approved the issuance of 23,65,000 redeemable preference shares
to the Respondent No.2-Hillcrest - HQRL filed civil suit being CS
(OS) 992 of 2005 before the High Court inter alia seeking injunction
against Hillcrest from proceeding with proposed resolutions of
EOGM - Three resolutions dtd. 27.7.04, 7.1.05 and 10.5.05 passed
allotting/transferring shares in favour of 'RPM', his wife and Moral
- Challenged by Hillcrest and 'AM' before the Company Law Board
(CLB) u/ss.397, 398 alleging oppression and mis-management of
HQRL by the RPM Group inter alia on the ground that no notice was
issued to 'AM' who was, at the material time, a Director - Petition
dismissed - Hillcrest filed suit being CS (OS) No.1832/08 in High
Court for declaration that it had voting rights in HQRL in view of
the Resolution dtd. 30.09.02- High Court allowed CoA (SB) 4/2006
of Hillcrest and cancelled the allotment and transfers made by three
resolution on the grounds that Hillcrest had voting rights and there
was breach of ss.286, 300 and 108 and set aside the order of the
CLB - High Court also recorded suo motu proceedings u/s.340,
 [2019] 7 S.C.R. 976
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Cr.PC against 'RPM' - On appeal, held: Two civil suits are pending
consideration; one being OS No.992/2005 filed by HQRL; other
Suit No.1832/2008 seeking declaration that HQRL had become a
limited company by virtue of the resolution passed on 30.9.02 -
Matter travelled to Supreme Court in the matter of grant of injunction
which was decided in Ram Parshottam Mittal v. Hillcrest Realty -
Supreme Court without meaning to decide the issue finally prima
facie observed that HQRL had altered its status and had become a
public company - It was also observed significantly as this issue
has to be decided in the two pending suits, it would not be proper
for Supreme Court to dwell into the question further - It has not
been disputed that no notice u/s.286 was given to 'AM', the Director
when impugned resolutions were passed - Impugned resolutions
are unfair to 'AM' - Even otherwise the absence of the notice is
enough to invalidate the same as mandated by s.286 - It was
improper for the Directors to allot shares to themselves and to the
exclusion of 'AM' and that too without issuance of notice to him -
s.108 operates independently of s.286 or s.300 - Invalidation of
meeting is dependent under the provisions of s.108 - There was
violation of s.108 - HQRL did not file share certificate along with
the duly executed share transfer form as on 10.5.05, the date of
Board resolution - Plea of 'RPM' was disbelieved that share
certificates were returned on 23.6.03 - High Court ordered the
proceedings u/s.340 Cr.P.C. against 'RPM' for filing an affidavit to
the contrary - In the fact and circumstances of the case, taking into
consideration the overall scenario, impugned order not interfered
with - However, direction to prosecute appellant no.1, 'RPM' in the
facts of the case, set aside.
Disposing of the appeals, the Court
HELD: 1.1 It is a common ground that two civil suits are
pending consideration; one being OS No.992/2005 filed by HQRL
for injunction to restrain Hillcrest Realty from proceeding with

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RAM PARSHOTAM MITTAL & ORS.
v.
HOTEL QUEEN ROAD PVT. LTD. & ORS.
(Civil Appeal No. 3934 of 2017)
MAY 10, 2019
[ARUN MISHRA AND INDIRA BANERJEE, JJ.]
Companies Act, 1956 - ss. 286, 300 and 108 & ss.19(2), 85,
87(2)(b),169(4), 397 and 398 - Government of India took policy
decision on 5.7.02 to disinvest its shares in the Indian Tourism
Development Corporation (ITDC) which owns various hotel
properties; one of them being Indraprastha Hotel - In terms of an
approved scheme of Arrangement of Demerger the said hotel was
transferred to the Respondent No.1-HQRL, created as a Special
Purpose Vehicle to enable disinvestment - Government of India
invited bids for sale of shares in HQRL - Appellant No.3-Moral
Trading & Investment Ltd. was the successful bidder - Appellant
No.1-'RPM', his wife-appellant no.2 who held the controlling interest
in Moral, and the Respondent No.3-'AM', younger brother of the
Appellant No.1 were appointed regular Directors of HQRL - HQRL
approved the issuance of 23,65,000 redeemable preference shares
to the Respondent No.2-Hillcrest - HQRL filed civil suit being CS
(OS) 992 of 2005 before the High Court inter alia seeking injunction
against Hillcrest from proceeding with proposed resolutions of
EOGM - Three resolutions dtd. 27.7.04, 7.1.05 and 10.5.05 passed
allotting/transferring shares in favour of 'RPM', his wife and Moral
- Challenged by Hillcrest and 'AM' before the Company Law Board
(CLB) u/ss.397, 398 alleging oppression and mis-management of
HQRL by the RPM Group inter alia on the ground that no notice was
issued to 'AM' who was, at the material time, a Director - Petition
dismissed - Hillcrest filed suit being CS (OS) No.1832/08 in High
Court for declaration that it had voting rights in HQRL in view of
the Resolution dtd. 30.09.02- High Court allowed CoA (SB) 4/2006
of Hillcrest and cancelled the allotment and transfers made by three
resolution on the grounds that Hillcrest had voting rights and there
was breach of ss.286, 300 and 108 and set aside the order of the
CLB - High Court also recorded suo motu proceedings u/s.340,
 [2019] 7 S.C.R. 976
976
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Cr.PC against 'RPM' - On appeal, held: Two civil suits are pending
consideration; one being OS No.992/2005 filed by HQRL; other
Suit No.1832/2008 seeking declaration that HQRL had become a
limited company by virtue of the resolution passed on 30.9.02 -
Matter travelled to Supreme Court in the matter of grant of injunction
which was decided in Ram Parshottam Mittal v. Hillcrest Realty -
Supreme Court without meaning to decide the issue finally prima
facie observed that HQRL had altered its status and had become a
public company - It was also observed significantly as this issue
has to be decided in the two pending suits, it would not be proper
for Supreme Court to dwell into the question further - It has not
been disputed that no notice u/s.286 was given to 'AM', the Director
when impugned resolutions were passed - Impugned resolutions
are unfair to 'AM' - Even otherwise the absence of the notice is
enough to invalidate the same as mandated by s.286 - It was
improper for the Directors to allot shares to themselves and to the
exclusion of 'AM' and that too without issuance of notice to him -
s.108 operates independently of s.286 or s.300 - Invalidation of
meeting is dependent under the provisions of s.108 - There was
violation of s.108 - HQRL did not file share certificate along with
the duly executed share transfer form as on 10.5.05, the date of
Board resolution - Plea of 'RPM' was disbelieved that share
certificates were returned on 23.6.03 - High Court ordered the
proceedings u/s.340 Cr.P.C. against 'RPM' for filing an affidavit to
the contrary - In the fact and circumstances of the case, taking into
consideration the overall scenario, impugned order not interfered
with - However, direction to prosecute appellant no.1, 'RPM' in the
facts of the case, set aside.
Disposing of the appeals, the Court
HELD: 1.1 It is a common ground that two civil suits are
pending consideration; one being OS No.992/2005 filed by HQRL
for injunction to restrain Hillcrest Realty from proceeding with
the proposed resolutions of EOGM and from exercising voting
rights therein; the other Suit No.1832/2008 seeking declaration
that HQRL had become a limited company by virtue of the
resolution passed on 30.9.2002. The matter travelled to Supreme
Court in the matter of grant of injunction which was decided in
Ram Parshottam Mittal v. Hillcrest Realty. Supreme Court
RAM PARSHOTAM MITTAL & ORS. v. HOTEL QUEEN ROAD
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observed that the decision on the aforesaid question would be
dependent upon the decision of the issue whether by resolution
adopted on 30.9.2002, HQRL had lost its private character and
had been converted into a public limited company. While the issues
are the same in the two suits, this Court observed that the interim
order dated 12.8.2005 had been obtained by suppression of
material facts and prima facie finding recorded by the Division
Bench of the High Court was that by resolution adopted on
30.9.2002, HQRL had shed its private character and had been
converted into a public limited company. Supreme Court without
meaning to decide the issue finally prima facie observed that an
application was filed before the Registrar in Form 23 along with
resolution dated 30.9.2002 is sufficient to arrive at a prima facie
conclusion that HQRL had altered its status and had become a
public company. It was further observed by Supreme Court that
since the number of members exceeded 50 as the shares were
said to have been allotted to 134 persons on 30.9.2002, prima
facie HQRL lost its private character. However, Supreme Court
also observed significantly as this issue has to be decided in the
two pending suits, it would not be proper for this Court to dwell
into the question further. Supreme Court held that considering
the explanation to section 87(2)(b) of the Companies Act, 1956
gives Hillcrest as a cumulative preference shareholder the right
to vote on every resolution. It was also made clear that the
observations were prima facie in the nature of limited only for
disposal of special leave petition and should not influence the
final decision in the suits. The question relating to HQRL whether
it is a private or public company has been left open for decision
in the suits. [Para 62] [998-C-H; 999-A-B]
1.2 The order in Ram Purshottam Mittal is not final and is
only a prima facie view in the matter of injunction. The
observations in interim order cannot be taken as binding even
for the purpose of deciding this matter. [Para 65] [999-E-F]
1.3 Section 286 of the Companies Act, 1956 deals with
requirement of notice to Director. It has not been disputed that
no notice under section 286 had been given to Mr. AM, the
Director when impugned resolutions were passed. In Needle
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Industries, it has been observed by Supreme Court that the
resolution passed by the Director may be perfectly legal and yet
oppressive and conversely a resolution which is in contravention
of the law may be in the interest of the shareholders of the
company. Every illegality will not make it oppressive. Prejudice
has to be shown. No complaint of oppression could be entertained
merely on the ground of failure to attach notice of Board meeting
was an act of illegality. It has to be shown that the action was
unfair to the person to whom notice has not been given and causes
prejudice to him in the exercise of legal and proprietary rights as
shareholders. The impugned resolutions are unfair to Mr. AM in
the facts and circumstances of the case even otherwise the
absence of the notice is enough to invalidate the same as
mandated by section 286. [Paras 74-76] [1009-H; 1010-C-F]
1.4 It was improper for the Directors to allot shares to
themselves and to the exclusion of Mr. AM in the facts and
circumstances of the case and that too without issuance of notice
to him. [Para 81] [1021-D]
1.5 Section 19(2) of the Companies Act provides that
nothing in sections 85 to 89 shall apply to a private company
unless it is a subsidiary of a public company and this question has
to be finally decided whether it is a private or public limited
company in the pending civil suit which have been stated to be
transferred to NCLT for decision in accordance with law.
Otherwise, section 87 provides that notice has to be issued to
preference shareholders also for the meeting and they have a
right to participate in the meeting. It appears prima facie even if
dividend has not been declared. In that case also, preference
shareholders shall have a right to vote in the meeting. Reliance
has also been placed on the provisions of section 169(4) of the
Companies Act regarding calling of EOGM on requisition. The
resolution with respect to EOGM is not in issue in the present
case. As such need not be dilated upon the provisions of section
169(4) and the submissions. [Paras 83, 84] [1028-A-D]
1.6 Section 108 operates independently of section 286 or
section 300. The invalidation of meeting is dependent under the
provisions of section 108. There was violation of section 108 of
RAM PARSHOTAM MITTAL & ORS. v. HOTEL QUEEN ROAD
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the Companies Act. HQRL did not file share certificate along
with the duly executed share transfer form as on 10.5.2005, the
date of Board resolution. The plea of Mr. RPM has been
disbelieved that share certificates were returned on 23.6.2003.
The High Court has also ordered the proceedings under Section
340 Cr.P.C. against Mr. RPM for filing an affidavit to the contrary.
The High Court has relied on the affidavit of the concerned officials
of the Indian Overseas Bank. The High Court has found that the
share certificates were delivered to Mr. RPM not on 23.6.2003
but on 23.6.2005. There was violation of the provisions of section.
In the fact and circumstances of the case, taking into
consideration the overall scenario, the impugned order calls for
no interference. However, direction to prosecute appellant RPM
in the facts of the case is set aside. [Paras 87, 89] [1033-H;
1034-A-C; 1035-A]
State of Assam v. Barak Upatyaka D.U. Karamchari
Sanstha (2009) 5 SCC 694 ; Needle Industries (India)
Ltd. & Ors. v. Needle Industries Newey (India) Holding
Ltd. & Ors. (1981) 3 SCC 333 : [1981] 3 SCR 698 ;
Sangramsinh P. Gaekwad & Ors. v. Shantadevi P.
Gaekwad (Dead) through LRs. & Ors. (2005) 11 SCC
314 : [2005] 1 SCR 624 ; Mannalal Khetan & Ors. v.
Kedar Nath Khetan & Ors. (1977) 2 SCC 424 : [1977]
2 SCR 190 - relied on.
V.S. Krishnan & Ors. etc. v. Westfort Hi-tech Hospital
Ltd. & Ors. (2008) 3 SCC 363 : [2008] 3 SCR 184 ;
CDS Financial Services (Mauritius) Ltd. v. BPL
Communications Ltd. & Ors. (2004) 121 Comp Case
374 ; National Textile Workers' Union & Ors. v.
P.R.Ramakrishnan & Ors. (1983) 1 SCC 228 : [1983]
1 SCR 922 ; Ram Parshotam Mittal & Anr. v. Hillcrest
Realty SDN. BHD. & Ors. (2009) 8 SCC 709 : [2009]
10 SCR 1121 ; Sri Parmeshwari Prasad Gupta v. The
Union of India (1973) 2 SCC 543 : [1974] 1 SCR
304 ; Dale & Carrington Invt. (P) Ltd. & Anr. v. P.K.
Prathapan & Ors. (2005) 1 SCC 212 : [2004] 4 Suppl.
SCR 334 ; Firestone Tyre and Rubber Co. v. Synthetics
and Chemicals Ltd. & Ors. (1971) 41 Co. Cases 377 ;
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Madras Tube Co. Ltd. & Ors. v. Hari Kishon Somani &
Ors. (1985) 1 Comp Law Journal 195 (Mad). ; M.S.
Madhusoodhanan v. Kerala Kaumudi (P) Ltd. (2004) 9
SCC 204 : [2003] 2 Suppl. SCR 107 ; Mrs.Bacha F.
Guzdar, Bombay v. Commissioner of Income Tax,
Bombay AIR 1955 SC 74 : [1955] SCR 876 ; Union
of India v. Allied International Products Ltd. & Anr.
(1970) 3 SCC 594 : [1971] 2 SCR 661 ; National Textile
Workers Union & Ors. v. P. R. Ramakrishna & Ors.
(1983) 1 SCC 228 : [1983] 1 SCR 922 ; M/s. Kothari
Textiles Ltd., Madras & Ors. v. Commissioner of Wealth
Tax, Madras AIR 1963 Mad. 274 ; Trojan Equity Ltd.
v. CMI Ltd. [2009] QSC (Supreme Court of
Queensland) 114 ; Indore Development Authority v.
Shailendra (Dead) through LRs. & Ors. (2018) 3 SCC
412 : [2018] 2 SCR 1 ; M.S.D.C. Radha Ramanan v.
M.S.D. Chandrasekara Raja & Anr. (2008) 6 SCC
750 : [2008] 5 SCR 182 - referred to.
Halsbury's Laws of England, Volume 6 (3rd Ed.), page
234 - referred to.
Case Law Reference
(2009) 5 SCC 694
relied on
Para 41
[1981] 3 SCR 698
relied on
Para 42
[2005] 1 SCR 624
relied on
Para 42
[2008] 3 SCR 184
referred to
Para 42
(2004) 121 Comp Case 374
referred to
Para 45
[1983] 1 SCR 922
referred to
Para 49
[2009] 10 SCR 1121
referred to
Para 51
[1974] 1 SCR 304
referred to
Para 53
[2004] 4 Suppl. SCR 334
referred to
Para 54
[2003] 2 Suppl. SCR 107
referred to
Para 60
[1955] SCR 876
referred to
Para 71
[1971] 2 SCR 661
referred to
Para 73
RAM PARSHOTAM MITTAL & ORS. v. HOTEL QUEEN ROAD
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[1983] 1 SCR 922
referred to
Para 82 (b)
AIR 1963 Mad. 274
referred to
Para 82 (d)
[2018] 2 SCR 1
referred to
Para 82 (f)
[1977] 2 SCR 190
relied on
Para 86
[2008] 5 SCR 182
referred to
Para 88
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3934
of 2017.
From the Judgment and Order dated 31.05.2013 of the High
Court of Delhi at New Delhi in CO.A. (SB) No. 4 of 2006.
With
Civil Appeal No. 3935 of 2017.
Pinaki Misra, Sr. Adv., S. Udaya Kumar Sagar, Ms. Bina
Madhavan, Suryanarayan Singh, Nitesh Jain, Piyush Dwivedi,
Ms. Shreyali Kunwar, Ms. Elizabeth Anthony, M/S. Lawyer S Knit &
Co., Advs. for the Appellants.
Rakesh Dwivedi, Shyam Diwan, Jaideep Gupta, Vikas Singh, Sr.
Advs., Ardhendumauli Kumar Prasad, Kumar Mihir, Jayant Mehta,
Saurabh Kalia, Sameer Choudhary, Ms. Drishti Harpalani, Ms. Anindita
Misra, Kunal Verma, Yugandhara Pawar Jha, Gopal Jha, Advs. for the
Respondents.
The Judgment of the Court was delivered by
ARUN MISHRA, J.
1. The appeal arises out of the judgment dated 31.5.2013 passed
by the High Court of Delhi, setting aside an order dated 31.1.2006 passed
by the Company Law Board in Company Petition No.64/2005.
2. The backdrop facts indicate that the Government of India took
a policy decision on 5.7.2002 to disinvest its shares in the Indian Tourism
Development Corporation (in short, 'the ITDC') which owns various
hotel properties; one of them being Indraprastha Hotel, formerly known
as Hotel Ashok Yatri Niwas, (hereinafter referred to as "the hotel").
3. In terms of an approved scheme of Arrangement of Demerger
the hotel was transferred to the Respondent No.1 - Hotel Queen Road
Pvt. Ltd. (in short, 'HQRL') which was created as a Special Purpose
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Vehicle to enable disinvestment. The paid up capital of HQRL was Rs.90
lakhs comprising 9 lakh equity shares of Rs.10 each, of which the
Government of India held 89.97% shares. Indian Hotels Co. Ltd. (IHCL)
held 10% shares and the balance shares were held by the employees of
hotels of ITDC under a Voluntary Retirement Scheme.
4. Pursuant to its decision to disinvest, the Government invited
bids for sale of shares in HQRL. The appellant No.3 - Moral Trading &
Investment Ltd., in short hereinafter referred to as 'Moral', a public
limited company, was declared the successful bidder.
5. By a share purchase agreement dated 8.10.2002 Moral acquired
the shares of Government of India and IHCL in HQRL for a sum of
Rs.45 crores. Out of this, Rs.33.37 crores was obtained by way of loans
from banks. 99.97% shares of HQRL being held by Moral, HQRL became
Moral's subsidiary.
6. Appellant No.1, Mr. R.P. Mittal, and the appellant No.2, Mrs.
Sarla Mittal, who held the controlling interest in Moral, and the Respondent
No.3, Mr. Ashok Mittal, younger brother of the Appellant No.1, Mr. R.P.
Mittal were appointed as Additional Directors of HQRL on 8.10.2002,
and later, regular Directors at the Annual General Meeting of HQRL
held on 28.12.2002.
7. On 30.9.2002 HQRL passed a resolution in its Extra Ordinary
General Meeting (EOGM) to change its status from 'private limited' to
'limited' company. The said resolution was rejected by the Registrar of
Companies on the ground of late filing and according to the appellants,
HQRL had not filed it again with the Registrar of Companies nor had
removed the defects.
8. On 21.12.2002 a Board meeting of HQRL was held. Moral
transferred 13 equity shares valued at Rs.10 per equity share of HQRL
to 7 persons, i.e. 2 shares to the appellant No.1, Mr. R.P. Mittal, 3 shares
to the appellant No.2, Mrs. Sarla Mittal, one share to the respondent
No.3, Mr. Ashok Mittal and 7 shares to 4 daughters of the appellant
Nos.1 and 2, R.P. Mittal's family thus held 99.97% equity shares, as
against one equity share held by his brother, Mr. Ashok Mittal.
9. On 28.12.2002 Annual General Meeting (AGM) of HQRL was
held in which authorised capital was increased from Rs.90 lakhs to Rs.33
crores. The AGM was attended by Mr. Ashok Mittal. There was an
increase of 71 lakh equity shares of Rs.10 each and 25 lakh preference
RAM PARSHOTAM MITTAL & ORS. v. HOTEL QUEEN ROAD
PVT. LTD. & ORS. [ARUN MISHRA, J.]
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shares of Rs.100 per share and a Special Business Resolution No.10
was passed under section 81(1A) of the Companies Act, 1956 (hereinafter
referred to as 'the Companies Act'). The appointment of Mr. R.P. Mittal,
Mrs. Sarla Mittal and Mr. Ashok Mittal to the Board of Directors was
approved by the majority of the shareholders of Moral. Mr. R.P. Mittal
and Mrs. Sarla Mittal were appointed as whole time Directors. The
Memorandum of Association of HQRL was also amended. Article IV
(4) of Articles of Association was amended to state that the preference
shares would not carry any voting rights.
10. On 19.3.2003, Mr. R.P. Mittal, Chairman of HQRL issued
letter to the Respondent No.2 - Hillcrest Realty SDN BHD Malaysia
(for short, 'Hillcrest') inviting subscription in 8.5% cumulative redeemable
preference shares of Rs.100 each up to Rs.30 crores. On 3.4.2003, the
hotel was closed for renovation and upgradation. On 30.4.2003, Hillcrest
accepted and applied for subscription requesting for allotment of 23,65,000,
8.5% redeemable preference shares in the company. On 5.5.03 HQRL
approved the issuance of 23,65,000 redeemable preference shares to
Hillcrest.
11. On 25.6.2003 in order to facilitate issue of preference shares,
HQRL increased authorised capital by Rs.5 crore comprising 5 lakh
preference shares of Rs.100 each. On 19.7.2003 HQRL approved the
issuance of 4,64,290 redeemable preference shares to Hillcrest respondent
No.2. In or about August-September, 2003, to fund the redevelopment of
the hotel, a term loan of Rs.40 crores was raised from Indian Overseas
Bank. According to the appellants the loan was secured by the joint
personal guarantees of Mr. R.P. Mittal, Mrs. Sarla Mittal and Mr. Ashok
Mittal, the corporate guarantee of Moral and the collateral security of
personal assets of Mr. R.P. Mittal and Mrs. Sarla Mittal.
12. On 27.7.2004, HQRL in compliance of resolution dated
28.12.2002 passed under section 81(1A) of the Act, issued 23.90 lacs
equity shares at par to Moral, the single shareholder holding 99.97% of
equity. On 7.1.2005 HQRL in compliance of resolution dated 28.12.2002
passed under section 81(1A) of the Act issued 41.51 lakh equity shares
to Moral, 1.10 lakh equity shares to Mr. R.P. Mittal and 4.5 lakh equity
shares to Mrs. Sarla Mittal.
13. On 14.1.2005 an Extra Ordinary General Meeting (EOGM)
was held wherein a shareholder's resolution was adopted pursuant to
which HQRL increased its authorised capital from existing Rs.38 crores
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to Rs.40 crores, with an increase of 2 lakh equity shares of Rs.10 each.
On 10.5.2005 HQRL allotted 10 lakh equity shares to the respondent
No.4 Pondy Metals and Rolling Mills Pvt. Ltd., hereinafter referred to in
short as Pondy Metals. Further, HQRL registered transfer by Moral of
32,88,181 equity shares in favour of Mr. R.P. Mittal.
14. On 26.5.2005, M/s. Ashok Mittal & Co. issued a notice to
Moral for repayment of Rs.4,91,58,762/- along with interest claiming that
the same was due since 2000 from running account for share trading for
the years prior to 2000. It is the case of the appellants that Mr. Ashok
Mittal, on realizing the bright prospects of development of the hotel,
because of its location, in the heart of capital of India, turned dishonest to
the R.P. Mittal group and hatched a conspiracy with preference
shareholder Hillcrest to control the management of HQRL, It is alleged
by the appellants that, in contravention of the provisions of the Companies
Act and terms of issue of preference shares as prescribed in Articles of
Company and correspondence exchanged, Mr. Ashok Mittal caused
Hillcrest to issue notice under section 169(4) of the Act for EOGM to
oust the duly elected board of HQRL and to appoint their nominee on the
ground of non-payment of dividend on the redeemable preference shares
as provided under section 87(2)(b) of the Companies Act. Section 87 of
the Companies Act is extracted below:
"Sec 87 - Voting rights
(1) Subject to the provisions of section 89 and sub-section (2) of
section 92 :
(a) every member of a company limited by shares and holding
any equity share capital therein shall have a right to vote, in
respect of such capital, on every resolution placed before the
company ; and
(b) his voting right on a poll shall be in proportion to his share
of the paid-up equity capital of the company.
(2)
(a) Subject as aforesaid and save as provided in clause (b) of
this sub-section, every member of a company limited by shares
and holding any preference share capital therein shall, in respect
of such capital, have a right to vote only on resolutions placed
before the company which directly affect the rights attached
to his preference shares.
RAM PARSHOTAM MITTAL & ORS. v. HOTEL QUEEN ROAD
PVT. LTD. & ORS. [ARUN MISHRA, J.]
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Explanation.: Any resolution for winding up the company or
for the repayment or reduction of its share capital shall be deemed
directly to affect the rights attached to preference shares within
the meaning of this clause.
(b) Subject as aforesaid, every member of a company limited
by shares and holding any preference share capital therein
shall, in respect of such capital, be entitled to vote on every
resolution placed before the company at any meeting, if the
dividend due on such capital or any part of such dividend has
remained unpaid:
(i) in the case of cumulative preference shares, in respect
of an aggregate period of not less than two years preceding
the date of commencement of the meeting; and
(ii) in the case of non-cumulative preference shares, either
in respect of a period of not less than two years ending
with the expiry of the financial year immediately preceding
the commencement of the meeting or in respect of an
aggregate period of not less than three years comprised in
the six years ending with the expiry of the financial year
aforesaid.
Explanation.: For the purposes of this clause, dividend shall
be deemed to be due on preference shares in respect of any
period, whether a dividend has been declared by the company
on such shares for such period or not,
(a) on the last day specified for the payment of such dividend
for such period, in the articles or other instrument executed
by the company in that behalf; or
(b) in case no day is so specified, on the day immediately
following such period.
(c) where the holder of any preference share has a right to
vote on any resolution in accordance with the provisions of
this sub-section, his voting right on a poll, as the holder of
such share, shall, subject to the provisions of section 89 and
sub-section (2) of section 92, be in the same proportion as
the capital paid up in respect of the preference share bears
to the total paid-up equity capital of the company."
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15. A Board meeting of HQRL was conducted on 4.7.2005 which
was attended by Mr. R.P. Mittal, Mrs. Sarla Mittal and Mr. Ashok Mittal.
Mr. Ashok Mittal attended the meeting for the first time. The Respondent
No.6 Mr. N.P. Gupta and the Respondent No.5, Mr. Suman Jain were
appointed as Additional Directors. On 8.7.2005 Hillcrest issued notice
under section 169(6) of the Companies Act to call for EOGM on 4.8.2005.
16. HQRL filed a civil suit being CS (OS) 992 of 2005 before the
High Court of Delhi for declaration, cancellation and mandatory injunction
against the requisition under section 169 of the Companies Act.
17. On 4.8.2005 Hillcrest proceeded to convene EOGM and passed
a resolution inter alia removing Mr. R.P. Mittal and Mrs. Sarla Mittal
from the Board of HQRL. On 12th August, 2005, Delhi High Court passed
an order in an interlocutory application being IA 5505 in the said suit
being CS (OS) No.992 of 2005 restraining Hillcrest from giving effect
to the resolution passed in the EOGM held on 12.8.2005. Delhi High
Court restrained Hillcrest from giving effect to the resolution passed in
the EOGM.
18. On 22nd August, 2005 Hillcrest and Ashok Mittal filed a petition
bearing No.64/2005 in the Principal Bench of the Company Law Board
at Delhi and under Sections 397 and 398 of the Companies Act alleging
oppression and mis-management of HQRL by the R.P. Mittal Group.
The Resolution passed in Board meetings regarding allotment/ transfer
of shares was also challenged amongst others on the ground that no
notice had been issued to Ashok Mittal who was, at the material time, a
Director.
19. The present case arises out of the said petition filed by Hillcrest
and Mr. Ashok Mittal against the appellants in the Company Law Board
in September, 2005 under Sections 397/398 of the Act, challenging the
allotment/transfer of shares effected on 27.7.2004, 7.1.2005 and
10.5.2005 on inter alia grounds of (i) financial mismanagement of HQRL
by Mr. R.P.Mittal and Mrs. Sarla Mittal; (ii) Invested in Cumulative
Redeemable Preference Share (CRPS) on the understanding that HQRL
would remain a subsidiary of Moral and that in the event of HQRL
failing to pay any dividend for two years, Hillcrest would be entitled to
exercise its voting rights in all resolutions; (iii) illegality of allotments
made on 27.7.2004, 7.1.2005 and 10.5.2005. In the absence of notice
under Section 286 of the Companies Act to Mr. Ashok Mittal, who was
a Director of HQRL; (iv) the allotments having been made by the
remaining Directors without disclosing their obvious interest in violation
RAM PARSHOTAM MITTAL & ORS. v. HOTEL QUEEN ROAD
PVT. LTD. & ORS. [ARUN MISHRA, J.]
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of section 300 of the Companies Act; (v) the allotments being made
without any valuation of equity shares of HQRL; (vi) no money being
paid for transfer of shares and (vii) the eventuality of the transfer bringing
about a situation where HQRL would no longer remain a subsidiary of
Moral and thus deprive Hillcrest of any voting right under section 87(2)(b)
of the Act.
20. It is alleged by the appellants that, in spite of various hurdles
created by Hilcrest and Mr. Ashok Mittal by sending notices to various
Government departments asking them not to grant licenses, the hotel
had become operational, with the sole efforts of Mr. R.P. Mittal and had
been granted all the requisite licenses.
21. On 31.1.2006, C.P. No.64/2005 was dismissed, inter alia, on
the ground that it was a mala fide petition by Hillcrest and Mr. Ashok
Mittal to take over the company. In 2006 three cross appeals were filed
against the order dated 31.1.2006 passed by the Company Law Board.
22. In August, 2006 Hilcrest filed a suit being CS (OS) No.1832/
2008 in Delhi High Court for a declaration that Hilcrest had voting rights
in HQRL in view of the Resolution dated 30th September, 2002 passed
by HQRL whereby HQRL had been converted from a private company
limited by shares to a public company limited by shares. Hilcrest filed an
application being IA No.12164/ 2008 in the said suit being CS (OS)
No.1832/ 2008 contending that HQRL had obtained an order of injunction
on 12th August, 2005 by fraudulently and concealing the fact that it had
acquired the status of a public company in 2002. Hilcrest also made an
application in suit being C.S. No.992/2005 for vacating of the interim
order dated 12th August whereby Hilcrest had been restrained from
giving effect to the Resolution passed at the meeting of HQRL on 4th
August, 2005.
23. Being aggrieved by the order dated 12th August, 2005 in C.S.
(OS) No.992/ 2005 Hilcrest filed an appeal therefrom being FAO (OS)
No.282/2005 before the Division Bench of Delhi High Court.
24. On or about 1st October, 2008, Hilcrest filed an application
being IA No.12164/ 2008 in C.S. (OS) No.1832/ 2008 inter alia praying
that Hilcrest be allowed to participate in the Extraordinary General
Meeting of HQRL to be held on 16th October, 2008 and further praying
for appointment of an Administrator to look after the affairs of the
company.
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25. On 15th October, 2008 the Delhi High Court passed an interim
order in the said IA No.12164 of 2008 in C.S. (OS) 1382 of 2008 allowing
Hilcrest to vote in the Extraordinary General Meeting to be held on 16th
October, 2008 and also appoint Administrator to look after the day to
day affairs of HQRL.
26. On 16th October, 2008, Mr. R.P. Mittal, Mrs Sarla Mittal and
HQRL filed an appeal against the orders dated 15th October, 2008 and
24th October, 2008 passed by the Delhi High Court in IA No.12164/
2008 in C.S. (OS) 1832 of 2008 before the Division Bench.
27. The appellants state that on or about 21st October, 2008, Mr.
R.P. Mittal filed an application under the Right to Information Act
whereupon the Registrar of Companies, by letter dated 21st October,
2008 informed the appellant that the status of HQRL had not been
changed from private company limited by shares to public company
limited by shares for the technical reasons specified in the said letter.
28. On 24th October, 2008 the interim order passed by the Delhi
High Court on 5th October, 2008 in IA No.12164/ 2008 in C.S. (OS)
No.1832 of 2008 was made absolute.
29. On 14th January, 2009, the Division Bench of Delhi High Court
by a common order disposed of FAO (OS) No.282/2005, FAO (OS)
426 of 2008 and 440 of 2008 upholding the right of Hilcrest to vote in the
meetings of HQRL. The question of whether HQRL was a private
company limited by shares of public limited company was left open for
adjudication in the suit. On 14th January, 2009, Hilcrest took over the
management of HQRL from R.P. Mittal Group through Ashok Mittal.
30. Appellant Nos.1 and 2 filed a special leave petition in this
Court being SLP (C) No.1069 of 2009 under Article 136 of the
Constitution. By a judgment and order dated 20th July, 2009, a Division
Bench of the High Court upheld the right of Hilcrest to vote on the
ground that HQRL was prima facie a public limited company.
31. On 30th July, 2009, Hilcrest and Ashok Mittal sent notice to
the existing shareholders of HQRL under Section 81 (21) of the
Companies Act to allot further equity shares.
32. On 14th August, 2009 the appellants filed an interim application
being IA No.9920/ 2009 in C.S. (OS) 1832 of 2008 seeking injunction
against Hilcrest and Mr. Ashok Mittal from going ahead with the rights
issue.
RAM PARSHOTAM MITTAL & ORS. v. HOTEL QUEEN ROAD
PVT. LTD. & ORS. [ARUN MISHRA, J.]
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33. By a judgment and order dated 18th August, 2009 a Single
Bench of Delhi High Court declined to interfere with the right issue and
the application No.9920/2009 in C.S. (OS) 1832/2009 was dismissed.
34. On 20th August, 2009, the appellant appealed against the order
dated 18th August, 2009 referred to above. The Division Bench, however,
declined to restrain the rights issue but only directed issuance of notice
to HQRL and Ashok Mittal.
35. On 31.5.2013, the High Court by the impugned order allowed
CoA (SB) 4/2006 of Hillcrest and cancelled the allotment and transfers
made on 27.7.2004, 7.1.2005 and 10.5.2005 on the grounds that Hillcrest
had voting rights and there was breach of sections 286, 300 and 108 of
the Companies Act.
36. HQRL has contended that the claim of the appellants that
they have funded HQRL at the time of acquisition of the hotel is incorrect.
Rs.33.25 crores was obtained by way of bank loans, loan of Rs.5.5
crores was advanced by Mr. Ashok Mittal, loan of Rs.6.23 crores was
advanced by Mr. R.P. Mittal. When the hotel was bought it required
extensive renovation and thus further funds were required. Hillcrest
contributed Rs.28.29 crores in preference share capital, Rs.40 crores
bank loan from IOB on personal guarantee of Mr. Ashok Mittal, Mr.
R.P. Mittal and Mrs. Sarla Mittal. HQRL has claimed that the net worth
of Mr. Ashok Mittal was much higher than others.
37. HQRL has further contended that the management changed
hands from R.P. Mittal group on 15.1.2009 vide order of Delhi High
Court. Prior to leaving the management of HQRL, Mr. R.P. Mittal and
Mrs. Sarla Mittal with the help of their accomplices, removed and did
away with the books of account and statutory records of HQRL.
Thereafter, a number of third parties, all related to Mr. R.P. Mittal started
claiming to have lent monies to HQRL. Most of these demands were
based on 'oral agreements' with Mr. R.P. Mittal. When the new
management assumed charge of HQRL, the financial position of HQRL
was weak, there being only Rs.2.82 lacs in the bank account of HQRL;
the immediate liabilities including government dues, taxes and salaries
of staff were Rs.98,62,563; HQRL had defaulted on payment of interest
to the bank amounting to Rs.4,73,98,446 along with total bank liability of
about Rs.30 crores; and its account was on the verge of becoming Non
Performing Asset (NPA), due to defaults in repayment of interest and
principal and it was already in litigation with the bank.
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38. In these circumstances, funds were brought in by Mr. Ashok
Mittal. A sum of Rs.5 crore was brought as loan by Mr. Ashok Mittal
before 31.3.2009; Rs.4.5 crore further loan by Mr. Ashok Mittal before
31.3.2009; and Rs.40 crore by Mr. Ashok Mittal through Rights Issue.
Offer was given to the appellants who refused to subscribe to rights
issue but litigated against the company. Prayer for grant of injunction
was refused by Delhi High Court on the Rights Issue in 2009.
39. According to the respondents, it is crystal clear from the above
facts, that the entire funding was on the basis of investment either by
Hillcrest or on the basis of creditworthiness of Mr. Ashok Mittal or
investment made by him. The R.P. Mittal Group's argument that they
funded the project is incorrect. They have not been able to show how
such funds have been brought in the company. Said group had neither
funds nor creditworthiness to buy the hotel of HQRL.
40. It was urged by Mr. Pinaki Misra, learned senior counsel on
behalf of the appellants that the claim of Mr. Ashok Mittal that he had
funded Rs.5.5 crores to Moral out of Rs.12.03 crores for acquisition of
HQRL was false and an afterthought. In order to mislead this Court, he
had made a false statement. The claim of Mr. Ashok Mittal that loan of
Rs.33 crores to Moral was only on his personal guarantee was also
wrong. The action of Mr. Ashok Mittal and Hillcrest was detrimental to
the interest of HQRL.
41. Mr. Misra argued that the High Court has erred in relying on
decisions of this Court in interim injunction matters which did not decide
finally the rights of parties. Suit is still pending. He urged that it is well
settled by this Court in State of Assam v. Barak Upatyaka D.U.
Karamchari Sanstha (2009) 5 SCC 694 that any interim order which
does not finally and conclusively decide an issue cannot be a precedent.
42. It was urged that admittedly, there was no financial
mismanagement in the affairs of HQRL by appellants or R.P. Mittal
group. The High Court while passing the impugned judgment has acted
as a Civil Court and not as Company Court under section 10F of the
Companies Act, 1956. The test as to whether an action is oppressive or
not is not based on whether it is legally permissible or not since even if
legally permissible, if the action is otherwise against probity, good conduct
or is burdensome, harsh or wrong or is malafide or for collateral purpose,
it would amount to oppression under section 397. Reliance has also been
placed on Needle Industries (India) Ltd. & Ors. v. Needle Industries
RAM PARSHOTAM MITTAL & ORS. v. HOTEL QUEEN ROAD
PVT. LTD. & ORS. [ARUN MISHRA, J.]
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Newey (India) Holding Ltd. & Ors. (1981) 3 SCC 333; Sangramsinh
P. Gaekwad & Ors. v. Shantadevi P. Gaekwad (Dead) through LRs.
& Ors. (2005) 11 SCC 314; and V.S. Krishnan & Ors. etc. v. Westfort
Hi-tech Hospital Ltd. & Ors. (2008) 3 SCC 363.
43. Shri Misra, learned senior counsel further urged that no
oppression was caused to Mr. Ashok Mittal by allotment of shares on
27.7.2004, 7.1.2005 and allotment/transfer of shares on 10.5.2005 to
majority shareholders having 99.97% equity. It was further submitted
that there could not be any oppression caused to Mr. Ashok Mittal by
inter se transfer of shares from Moral to Mr. R.P. Mittal as the said
transaction was between Moral and Mr. R.P. Mittal, whereby HQRL
only records the transfer. The argument on behalf of Mr. Ashok Mittal
and Hillcrest that the allotment was done at undervalue was also not
correct. The transfer of shares from Moral to Mr. R.P. Mittal on
10.5.2005 was between two separate legal entities i.e. Moral and Mr.
R.P. Mittal, whereby HQRL only had the authority to record transfer.
HQRL could not have raised any objection and also Hillcrest would
have no locus to challenge the same. The only issue qua Hillcrest is
when it was entitled to vote on every resolution placed before the
company in terms of Section 87(2)(b) of the Companies Act. It was
submitted that the first allotment made to Hillcrest was on 5.5.2003
hence as per the submissions of Hillcrest, two years period in terms of
Section 87(2)(b) of the Companies Act, came to an end on 5.5.2005 and
as per Hillcrest, if the dividend was not paid for 2 years, whether there
is profit or not, Hillcrest were entitled to vote on resolution dated
10.5.2005 effecting transfer is not correct proposition of law. Section
205 of the Companies Act provides that no dividend shall be declared or
paid by a company for any financial year except out of the profits of the
company for that year arrived at after providing for depreciation in
accordance with the provisions of sub-section.
44. It was urged that the position of shareholders in a company is
of analogous to that of partners inter se. Partnership is merely an
association of persons for carrying on the business of partnership and in
law the firm name is a compendious method of describing the partners.
Such is, however, not the case of a company which stands as a separate
juristic entity distinct from the shareholders.
45. It was submitted on behalf of appellant that on 10.5.2005
Hillcrest had no voting right under section 87(2)(b) of the Companies
Act, as there was no profit and no dividend due. Accordingly, no
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oppression can be said to have been caused to Hillcrest by inter se
transfer of shares by resolution dated 10.5.2005. Moreover, Hillcrest
had no right to requisition an EOGM under section 169(4) of the
Companies Act. Thus, action of not calling of EOGM does not amount
to oppression.