DHARAM GODHA Vs. UNIVERSAL PAPER MILLS LTD

JUDGEMENT

(1.) The Court : Though this appeal under Section 10F of the Companies Act, 1956 appears to be only another round of skirmish between two opposing groups in a matter pertaining to the control of a company, there are certain other striking features that engage the attention beyond the theatre of conflict between the parties. But to begin with, the disputes between the parties require immediate attention before the other aspect of significant public importance may be alluded to. The appeal is against an order passed by the Principal Bench of the Company Law Board in New Delhi, dismissing proceedings instituted under, inter alia, Sections 397 and 398 of the Companies Act. The appellants were the petitioners before the Company Law Board (CLB) and are distraught at their claim for substantive reliefs failing on a demurrer some four years after the petition was lodged, particularly since the petition had been heard out before a previous chairman of the CLB who demitted office without delivering the judgment thereon. The appellants express their anguish at being debarred from urging their case on merits on the twin grounds that they did not meet the statutory qualification for maintaining the petition and that the proceedings were in abuse of process. They complain that upon the petition having previously progressed to final hearing which was completed it was no longer open to the CLB to slam the door on them for their not being able to demonstrate their collective share-holding strength in the first respondent company being in excess of the threshold mark of 10 per cent of its paidup capital. The appellants insist that even if they were to fail on such score it had to be on a more protracted assessment of their entitlement in the share-holding of the company since they had asserted in the petition that they had the statutory requisite holding. The appellants contend that once a statement was made in the petition asserting the requisite percentage of share-holding in the company, the petition could no longer be rejected out of hand on a point of demurrer in such regard without the appellants being permitted to explain the circumstances in which they claimed to meet the statutory benchmark. They submit that when the charge on merits in their petition was that the respondents had oppressed the appellants and had mismanaged the affairs of the company to deny the appellants the shares that they were entitled to in the company, the issue was elevated to one that called for an adjudication on merits and could not be decided on a stray assertion by the beneficiary of the perceived wrongdoing to non-suit the appellants. As to the other ground that has been found against the appellants, they say that the CLB erred in law in failing to appreciate the scope of the other proceedings involving some or all of the parties herein and the judgment impugned betrays complete ignorance of the principles referred to therein.

(2.) The disputes are between the appellant Godha group and the respondent Kala group. Though any reference to facts has to be kept to the barest minimum in the context of the present appeal, a summary may be culled out from the list of dates prepared by the contesting respondents. The company, Universal Paper Mills Limited, was incorporated in 1972 and it established a paper mill in Jhargram. In or about 1988-89, the first appellant, Dharam Godha, and his associates and concerns owing allegience to him came to control the company. Within a year of the first appellant coming to the helm of the company, its net-worth turned negative and a reference relating to the company was made to the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985. In June, 1997 the company s paper mill was devastated by a fire. A claim was made by the company but it was rejected by the insurance company. The insurance claim was ultimately carried to the National Consumer Disputes Redressal Commission. In 2001, a secured creditor of the company instituted proceedings before the appropriate Debts Recovery Tribunal under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 and joint receivers were appointed over the secured assets of the company, including its factory. The first appellant was one of the respondents to the DRT proceedings as a guarantor on behalf of the company. The appellants primary complaint before the CLB in the proceedings under Sections 397 and 398 of the Act was that the Kala group had wrongfully wrested control of the shares in the company, caused the illegal transfer thereof from the names of the appellants and their associates to the respondents names and engineered the ostensible alienation of the only valuable asset of the company, its paper mill. The paper mill is said to have been sold to the respondent No.25 in the CLB proceedings; such transferee was claimed to be under the exclusive control of the Kala group.

(3.) In March, 2004 the appellants or one of them or their associate or associates instituted a suit, CS No.37 of 2004, on the Original Side of this Court complaining of the Kala group having stolen some shares belonging to the Godha group and wrongfully causing the transfer thereof in the Kala group s favour for the purpose of usurping control of the company. On an interlocutory application at the initial stage of the suit, ad interim orders were refused to the plaintiffs. An appeal was filed from the relevant order but the same was ultimately not pursued and withdrawn. CS No.37 of 2004 has since been unconditionally withdrawn on March 5, 2008. But a lot transpired between the time when such suit was instituted and it was unconditionally withdrawn.