VIJAYKUMAR BERLIA Vs. UNION OF INDIA

JUDGEMENT

(1.) The petitioners, who are a group of shareholders of respondent No. 3-company, National Rayon Corporation Ltd., who will hereinafter be called as "the Berlias", have filed this petition under art. 226 of the Constitution challenging the order dated June 17, 1978, passed by respondent No. 1, the Union of India, under the provisions of s. 108D of the Companies Act, 1956 (1 of 1956).

(2.) Prior to July 11, 1977, the petitioners, 1 and 2 and their group, owned and were registered owners of 39, 065 shares in respondent No. 3 company. On July 11, 1977, the Board of Company Law Administration, respondent No. 2 herein, acting under the provisions of s. 408 of the Act, appointed respondents Nos. 4 to 11 as the directors of the company for a period of three years. Respondent No. 13 is the nominee-director of ICICI. Respondent No. 14 has been co-opted by the other directors as the director of the company. Respondent No. 12 was also appointed as the director of the company at its meeting held on April 3, 1978. Prior to April 3, 1978, there were three directors on the board of directors from the Kapadia group. However, on April 3, 1978, when they were to face a resolution for their removal, they resigned. The petitioners 1 and 2 were proposed to be elected in the place of two of the directors who were being removed. Prior to July 13, 1977, the petitioners had purchased additional 29,633 shares in respondent No. 3 company and these shares were lodged with the company for registration between July 13, 1977 and July 19, 1977. It appears that despite several meetings, the question of registration of these shares in the name of the petitioners was not considered and, therefore, petitions 1 and 2 filed two suits bearing Suits Nos. 6991 and 6992 of 1977 in the city civil court. It appears that while the suits were pending, the petitioners were told that the question of registration of these shares in their names will be considered. However, ultimately on September 14, 1977, the company sent letters rejecting the application with regard to the said 29, 633 shares. The ground given for rejecting the applications was that respondent No. 3 company had applied to the Central Govt. for investigation into the affairs of the company under s. 187C and s. 247 of the Act, and pending consideration of this application by the Central Govt. it was decided to reject the application. The petitioners, therefore, filed Company Petitions Nos. 607 and 737 of 1977 in this court under s. 155 of the Act for rectification of the register of members in respect of the said 29,633 shares. During the pendency of these petitions, on September 21, 1977, this court passed an interim order that the meeting to be held on September 23, 1977, should not proceed with the business of election of directors till the disposal of the petitions. Thereafter, on December 8, 1977, the matter was settled on an agreement between the parties. Respondent No. 3 company agreed to register the shares and the petitioners also agreed to withdraw the suits and the petitions filed by them. It appears that the company did not give back to the petitioners the share certificates duly transferred in their names, and, thereafter, on April 18, 1978, they, the petitioners, gave a notice to respondent No. 3, and no April 26, 1978, they were informed that the shares were ready. In the meanwhile, the adjourned meeting of September 23, 1977, was notified to be held on April 3, 1978. A notice for an extraordinary meeting to be held on the same day for the removal of the three directors of the Kapadia group was also given. As pointed out above, petitioners 1 and 2 were proposed to be elected in the place of the two directors being removed. For this meeting, the petitioners lodged proxies numbering in all 1,74,500 which included the shares of the original holding and also the shares purchased by the petitioners and various other shares. However, as the three directors resigned in the meeting itself, the elections could not take place in that meeting held on April 3, 1978. At the same time, the petitioners were also informed by the company that the transfer of the said 29,633 shares was conditional on certain donations being returned to the company by the two charitable trusts of Berlia group. On some further correspondence, however, the said shares were ultimately transferred and the petitioners were informed about it by letter dated April 26, 1978, by the company. Up to this stage, therefore, the petitioners' group became registered owners of 68,698 equity shares which corresponded to about 13 per cent. of the total holding. Thereafter, between May 9, 1978 and June 5, 1978, the petitioners lodged for registration further shares aggregating to 16,346 shares which they had purchased. It appears that respondent No, 3, the company, rejected all the applications for the transfer of these shares. After the present petition came to be filed, the petitioners have filed applications for rectifying the register of members in respect of these irregularities under s. 155 of the Act. These petitions under s. 155 are pending. It is the case of respondent No. 3 that between April to June, 1978, shares aggregating to 27,263 were purchased by the petitioners in the names of their nominees and such shares were lodged for acceptance of transfer and registration with the object of gaining control over the affairs of the company. It appears that prior to June 17, 1978, there was some correspondence between respondent No. 4, the chairman of the company, and the Board of Company Law Administration, respondent No. 2, regarding the alleged attempts made by the Berlia Group to gain the control of the affairs of the company by various means. My attention has been drawn to two of these letters dated April 28, 1978, the June 6, 1978. It was in this background that on June 17, 1978, the impugned order under s. 108D of the Act came to be passed by the control Govt.

(3.) It is necessary to set out the order in extenso which runs as under : EXHIBIT 'E' No. 11/33/78-C IVI Government of India, Ministry of Law, Justice & Company Affairs, Department of Company Affairs 'A' Wing, Shastri Bhavan, Dr. Rajendra Prasad Marg, NEW DELHI-1. dated the 17th June, 1978. Order WHEREAS the National Rayon Corporation Limited, a company within the meaning of the Companies Act. 1956 (1 of 1956), and having its registered office at Ewart House, Homi Modi Street, Bombay - 400023 (hereinafter referred to as "the said company") is a body corporate owning an undertaking to which the provisions of part A of Chapter III of the Monopolies and Restrictive Trade practices Act, 1969 (54 of 1969), apply : AND WHEREAS it has been brought to the notice of the Central Government that Sarvashri Vijaykumar Berlia, Om Prakash Berlia, both of whom are residing at Rang Mahal, Second Floor, 212/216, Samuel Street, Bombay-400003, Berlia Chemicals and Traders (Private) Limited and others belonging to the Berlia Group, who are at present holding 68,853 equity shares in the said company, are making concerted efforts to gain controlling interest in the company; AND WHEREAS it has been brought to the notice of the Central Government that certain persons alleged to belong to the aforesaid Berlia Group have lodged transfer of 27,263 shares in bulk with the said company in order to gain controlling interest in the said company; AND WHEREAS it has been brought to the notice of the Central Government that in furtherance of their bid to acquire controlling interest in the said company, the said Berlia Group have lodged proxies numbering over 1,74,500 for the extraordinary general meeting of the company held on 3rd April, 1978, for the appointment of two of their nominees as directors of the company; AND WHEREAS it has been brought to the notice of the Central Government that the said Berlia Group had been involved in a number of irregularities committed by the Kapadia Group in the affairs of the said company, prior to the appointment by the Central Government, of persons to hold office as directors of the said company under section 408 of the Companies Act, 1956 (1 of 1956); AND WHEREAS the Central Government is satisfied, on the facts enumerated hereinbefore, and on the report received from the said company that as a result of the transfer of any share or block of shares of the said company, a change in the controlling interest in of the said company is likely to take place and that such change is prejudicial to the interests of the said company; NOW, THEREFORE, in exercise of the powers conferred by subsection (1) of section 108D of the Companies Act, 1956 (1 of 1956), the Central Government hereby directs the said company not to give effect to the transfer of any such share or block of shares and -