MALVIKA MADAN SEHGAL Vs. M M DEHGAL LIMITED

JUDGEMENT

(1.) This is an application (CA No. 2784/94 ) filed by the plaintiffs praying, inter alia, that R restraint order be passed against defendant Nos.l to 28 from alienating, transferring, selling, mortgaging or parting with the possession of the property situated at 3, Friends Colony, New Delhi. It seems that on 3.2.1995 an ex parte order was passed in favour of plaintiffs directing the defendants to maintain status-quo with regard to its fixed assets. The defendants have vehemently contended that suit itself is not maintainable and ex parte stay be vacated.

(2.) Mr. Rajiv Sawhney, learned Counsel appearing for the plaintiffs, has vehemently argued that a Trust was created in favour of the plaintiffs, who are the daughters of defendant Nos. 2 and 3, by defendant No. 29, Mrs. Prabha Sehgal, Sister-in-law of defendant No. 2, with defendant Nos. 2 and 3 appointed as Trustees. It has further been contended that defendant Nos. 2 and 3 transferred the entire issued share capital of the defendant No. 1 Company to the Trust. That entire issued share capital, which was transferred by the defendant Nos. 2 and 3, was two shares of Rs. 10.00 each. It has been argued that defendant No. 2 executed a Transfer Deed transferring the one share held by him in his personal capacity to himself as the Trustee under the Trust. Likewise, defendant No. 3 also transferred the one share held by her in her personal capacity to herself as the Trustee under the Trust. Plaintiffs have also contended that pursuant to the aforesaid transfer of shares, necessary entries were recorded in the relevant statutory record of the Company and the Register of Members. Mr. Sawhney has further contended that the said defendant Nos. 2 and 3, acting as Trustees, also executed separate declarations declaring that the beneficial interest in the shares in question had been transferred to the M.M. Sehgal Family Trust and the said two shares were being held in the said Trust. He has contended that the purpose and object of transferring the entire share capital to the Trust was for the benefit of the plaintiffs and defendant No. 29 with the further object of the beneficial enjoyment of the property held by the Company. He has also contended that in total breach and violation of their fiduciary duties as Directors and Trustees, defendant Nos. 2 and 3 for collateral purposes and for their personal gains entered into an arrangement and evolved a scheme to deprive the Trust of all its benefits and entered into wrongful acts regarding the property situated at 3 Friends Colony, New Delhi. Mr. Sawhney has challenged the minutes of the Board of Directors held on 24th November, 1982, whereby defendant Nos. 5,6 and 7 were co-opted as Additional Directors of defendant No. 1, on the ground that it was merely a paper transaction and no meeting of the Board of Directors took place on the said date. He has also challenged the Resolution dated 24th November, 1982 whereby defendant Nos. 5,6 and 7 Were co-opted as Additional Directors. He has argued that merely blank papers were obtained by defendant No. 5 by creating false records. Learned Counsel appearing for the plaintiff has contended that at the first instance, there could not have been any allotment of shares as it violated the Articles of Association and more over, no such meeting of the Board was held to approve the said allotment. He has also contended that the said allotment was against public policy and on the basis of the said argument, he has argued that same being a paper transaction was wholly unlawful and illegal for unlawful consideration. Mr. Sawhney has further contended that all the aforesaid irregularities and illegalities have come to the notice of the plaintiffs on 8th March, 1994 when defendant Nos. 2 and 3 transferred the shares in question as Trustees by executing and handing over the Share Transfer Deed to the plaintiffs as beneficiaries under the aforesaid Trust. He has further contended that there has been no valid meeting held since the year 1982 and no duly constituted Board exists, therefore, plaintiffs were unable to get the shares registered in their names. On the basis of these prayers, suit has been filed by the plaintiffs with the prayer for passing a decree of declaration declaring the allotment of 49,998 equity shares of the face value of Rs. 10.00 each to defendant Nos. 5 to 20, pursuant to the meeting of the Board held on 15th/28th December, 1982 or on any other date, illegal and with the further prayer that all issues and allotments of shares made over and above the said two shares be also declared illegal. Plaintiffs have sought further declaration that it should be declared that the plaintiffs are the holders of the entire shares of defendant No. 1 Company and direction be passed for rectification of the Register of Members in terms of Section 115 of the Companies Act and the plaintiffs alone are entitled to be appointed as Directors of defendant No. 1. It is further prayed by the plaintiffs in the plaint that the Deed dated 8th December, 1982 and subsequent deeds regarding the property at 3 Friends Colony, New Delhi be declared bad in law.

(3.) Mr. Sawhney has argued that in these circumstances, as the transaction was sham and bogus, this Court should lift the veil as the corporate character is employed for the purpose of committing illegality and for defrauding others and in support of his contention, he has cited the case of D.D.A. v. Skipper Construction, 1996 (4) Scale 202=62 (1996) DLT 543 (SC). He has further contended that facts of this case that when defendant Nos. 2 and 3 in connivance with others defendants have acted negligently to the detriment of the interest of the minority share-holders, the action of the plaintiffs is maintainable. In support of his contention, he has cited Daniels and Ors. v. Daniels and Ors., (1978) 2 All England Report 89. Mr. Sawhney has also contended that Section 17 of the Limitation Act prescribes no limit when the suit and application is based upon fraud of the defendants.