Judgment:
1. CP No. 69/2003 was dismissed by the CLB on 7.3.2005. The Hon'ble Delhi High Court vide its order dated 28.9.2006 has remanded the matter back to the Company Law Board to decide whether the appellants are shareholders of the respondent company namely, M/s V.K. Kapoor and Associates Pvt. Ltd. Besides making certain observations the Hon'ble High Court also held that in Civil Suit No. 199/2000 filed by Mr. Arun Kumar Khanna against Mr. Vinod Kumar Kapoor, M/s V.K. Kapoor and Associates P. Ltd. and Punjab and Sind Bank (wherein the petitioners' in CP No. 69/2003 were not a party) the Civil Court vide order dated 4.8.2000 had merely relegated the parties to the Company Law Board and had not decided any dispute or controversy on merit. It was held that the order of the Civil Judge did not decide the matter before the Company Law Board and cannot operate as rest-judicata. Regarding question and issue of limitation it was held by the Hon'ble Court that whether a petition is barred by limitation depends upon the date when cause of action and disputes arose between the parties with reference to the shareholding of the appellants. The Hon'ble High Court had directed the CLB to consider and examine in depth the issues regarding limitation and shareholding and pass a detailed order considering the material, evidence and documents placed on record in this regard.
Accordingly, the matter was listed for hearing and the detailed arguments of the parties were heard. In CP No. 69/2003 the petitioners have prayed that their shareholding as on 31.3.1988 in the respondent company which deals in real estate should be treated as proper shareholding; that the deposits and interests on deposits may be directed to be paid; that the guilty persons responsible for making/maintaining different records of balance sheets, profit and loss accounts and annual general meetings for the financial years 1.4.1987 to 31.3.1994 which are in accordance with law be prosecuted.
2. Shri V. Hari Pillai, counsel for the petitioner argued that a bare perusal of the Annual Accounts, including the list of shareholding (pg.
161 of Paperbook), filed on behalf of the respondent company before the Income Tax Department, firstly for the financial year 1987-88 (filed on 28.3.1989) and thereafter for the period 1987-88 to 1993-94 categorically reveals that the petitioners herein were holders of 250 shares in the respondent company. Similarly, the list of shareholding of the company as on 5.7.1988 (pg. 162 of the paperbook), when the first Annual General Meeting of the company was held, also reveals that the petitioners held 250 shares in the company. Both the lists of shareholdings are duly signed by two directors of the company, as statutorily required, including the respondent No. 2, Mr. V.K. Kapoor, which fact has not been disputed even by the respondents. My attention was invited to their rejoinder wherein the entire set of documents including the Annual Return, Balance Sheet, P&L A/C, Director's Report Auditor's Report, Notice alongwith the list of shareholding for the period 1987-88, duly signed by two directors of the company, were annexed. It was argued that Shri Vijay Sehgal, who was the second signatory in the above lists of shareholdings, in his capacity as another promoter-director of the company, filed an exhaustive affidavit dated 21.2.2005, certifying the fact that the Annual Accounts, Audit Report of M/s M.L. Khanna and Co. alongwith the list of shareholders as on 31.3.1988 and 5.7.1988 (referred to above) duly signed by two directors, were circulated amongst all the members of the company at the AGM of the company on 5.7.1988. It was pointed out that the affidavit of Mr. Vijay Sehgal is also important in as much as he has categorically stated that apart from M/s ML Khanna and Co. the company had not appointed any other firm or person as its auditor for the period 1987-88 onwards. It was argued that the fact that payments were duly made by all the petitioners towards their allotted shares is clearly reflected from the additional affidavit of petitioner No. 1 Vijay Khanna, dated August, 2006, filed in Company Appeal No. 8/2006 before the Hon'ble High Court of Delhi, a copy of which was handed over to this Hon'ble Board at the time of hearing on 19.12.2006. The self-explanatory chart contained in the Affidavit categorically reveals the amounts paid by each of the petitioners in the company, certain portion of which was retained as loan by the Board of Directors of the company and the remaining amount was adjusted against allotment of shares. Till date, the respondents while not having denied the total sum deposited by the petitioners in the company, have not given any explanation as to how they have treated the amount paid by the petitioners towards allotment of shares. The said sum does not find mention in any of the books of the company, for obvious reasons. It is noteworthy that the list of loans of the company as on 31.3.1988 (pg.40 of the Paperbook) tallies exactly with the amount claimed by the petitioners in the above referred affidavit/chart, thus making it obvious that the balance amount was actually against allotment of shares and none else. Alongwith the Chart/Affidavit, the petitioners have also annexed with the details of the payments made to the company.
It was vehemently argued that a perusal of the Annual Returns filed on behalf of the company on 1.8.2000 for the period 1987-88 onwards (pg.165 of the Paperbook), clearly reveals that the same is a fraudulent exercise, done with ulterior motives. Firstly, at page 170, it is seen that the Annual Return for 1987-88 does not contain the signatures of two directors as is statutorily required under Section 161 of the Companies Act. The said Annual Return, as is the case with the rest of the returns as well, is only signed by respondent No. 2.
The list of shareholding (pg. 168 of the Paperbook) annexed with the said annual returns, which also is signed only by the respondent No. 2 and not by any other director, materially alters the shareholdings in the company and illegally removes the names of all the petitioners from the list. Similarly, the Annual Returns and the List of shareholders for the subsequent years viz. 1988-89 (pgs. 175 and 177), 1989-90 (pgs.182 & 183), 1990-91 (pgs. 190 and 188), 1991-92 (pg. 195 and 196-A, 1992-93 (pg. 201 and 202) and 1993-94 (pg. 207 and 208) are conspicuous by the absence of the signatures of the second director (other than the respondent No. 2) as statutorily required under the Companies Act. Similarly, the balance sheets for the said period i.e.
1987-88 to 1993-94 filed before the ROC also do not contain the signatures of the second director thus making it apparently clear that the respondent No. 2 has deliberately filed false documents with the obvious aid and assistance of certain officials of the ROC and/or the named auditor (respondent No. 3) so as to deprive the petitioners of their rightful shareholding. In this context, attention of this Hon'ble Board is invited to pages 88, 99, 111, 122, 133, 144 and 155 of the Paperbook.
3. It was further argued that surprisingly, the balance sheets and even the auditors report for the said periods filed with the Registrar of Companies are devoid of the signatures of the Auditor (R-3), as is mandatorily required, thus establishing the foul-play committed by the respondents. My attention was drawn to pages 87, 98, 110, 121, 132, 143 and 154 in this regard. The conduct of the respondent No. 3 in not having apprised the Hon'ble Board as well as the Hon'ble High Court with respect to the true facts and on the contrary having done everything possible to conceal the true facts from the courts of law, it was pointed out that it is not only contrary to the ethics of the profession but in fact renders him criminally liable for his follies, under various provisions of the Companies Act as well as the Penal Code. The conduct of the respondents not only smacks of malafide but is also expressly violative and contrary to Sections 215, 220 and 229 besides Section 159 and 161 of the Companies Act. Besides, the company having admitted both the sets of Annual Accounts viz. one filed before the Income Tax Department under the audit of M/s ML Khanna and the second one filed before the Registrar of Companies for the same period (pg.88 of the Paperbook) reveals that, while the totals remain the same, the internal contents of the Balance Sheets are materially different from each other. Thus, it makes it amply clear that the respondents have perpetrated a fraud upon not only the petitioners but also the statutory authorities, solely with the motive of depriving the petitioners of their rightful shareholding. It was argued that the respondents have till date refrained from producing the original Register of Members before this Hon'ble Board or before the Hon'ble High Court. They have sought to adopt the plea that since the registered office of the company was in the office of ML Khanna and Co.
they do not have the original Register of Members with them. It is obviously a plea of convenience, in so far as under no circumstance can the company abdicate its responsibility of producing the original Register of Members. It is plain that the company is avoiding to produce the original Register as the same would establish their lies and reveal the fraud played by them. It was contended that the claim of the respondents that the petitioners have not produced any share certificate or allotment letter in support of their claim is wholly erroneous and unfounded in so far as it has all along been stated by the petitioners that no share certificates were issued by the company to any of the shareholders. The shareholding of the company was decided on the basis of the investments made by the respective members in the company. The petitioners, in fact, have time and again challenged the respondents to produce even one share certificate issued by the company to any shareholder at the time of allotment of shares. However, for obvious reasons, no share certificate has been produced since none was issued. It was argued that in the absence of share certificates/allotment letters, the corroborative piece of evidence in the form of statutory returns, annual accounts and the list of shareholding duly filed by the company before statutory authorities should be treated as biding and conclusive. The said documents and the list of shareholders having been duly signed and authenticated by the directors of the company, including the respondent No. 2, cannot be disputed with, and deserves to be treated as conclusive proof of the shareholding of the petitioners. Further, it was pointed that that the Hon'ble High Court vide its judgment dated 28.9.2006 in Company Appeal No. 8/2005 has already adjudicated upon the issue with respect to the civil suit filed by late Shri Arun Kumar Khanna, not acting as res-judicata in the context of the present petition in so far as firstly the petitioners herein were not even party to the said proceedings and secondly, the said Civil Suit was not dismissed on merits but was rejected solely on the ground that equally efficacious remedy by way of approaching the Company Law Board was available to the plaintiff therein. Besides, the appeal preferred against the said order was also withdrawn by the said plaintiff/appellant and no order on merits was passed thereon. It was further pointed out that the issue with regard to the alleged question of limitation has also more or less been adjudicated upon by the Hon'ble High Court by holding that the same depended upon the date when cause of action and disputes arose between the parties with the reference to the shareholding of the appellants (petitioners herein). A perusal of the records of the present petition reveals that the petitioners came to know about the changed shareholding only when the certified copies of the Annual Returns/other documetns filed by the Company before the Registrar of Companies on 1.8.2000, were made available to them on 27.12.2001.
However, even if it is presumed for the sake of arguments (without conceding it to be so) that the petitioners had been aware of the changed shareholding when the Annual Returns were filed on 1.8.2000 itself, yet the present petition having been filed on 17.3.2003, is well within the prescribed period of limitation. Lastly, it was argued that not only have the respondents denied the rightful shareholding of the petitioners but have also indulged in committing offences under Sections 539,540,541,542 and 628 of the Companies Act.
4. The counsel for the respondents contended that the petitioner group was never a shareholder. The petitioner group admits to the fact that no share application was ever made to the company, there was no allotment notice, no money receipt and the petitioner group never held any shares certificates of the respondent company. It was pointed out that even if, for arguments sake it is assumed that the petitioner group was a shareholder, even then this application is not maintainable Under Section 397/398 of the Companies Act, 1956 as the alleged holding of the petitioner group was 175 shares, which is less than 10% of the 2000 issued and subscribed shares of the company. The alleged 75 shares of Shri Arun Kumar Khanna group deserve to be excluded as he had settled the matter and withdrawn the appeal and consequently, the principle of res-judicata applies to his alleged holding i.e. claim of 250 shares of the petitioner group less 75 shares of late Shri Arun Kumar Khanna. The averments made before the Company Law Board by the petitioner that the holding of Shri Arun Kumar Khanna will be inherited by his legal heirs and the petitioner holds a power of attorney from the legal heirs of the deceased does not hold good as the shares are inherited either by an order of the court or by transfer in the records of the company. There is no such request for transfer of shares by the petitioners to the respondent company even after the demise of Shri Arun Kumar Khanna, the petitioner group never cared to file an application for transfer of their alleged holding to the respondent company. That on the date of filing this application before the Board, the number of shares was 4000 and not 2000. It was argued that Shri M.L. Khanna was never appointed as the auditor of the company as his brother Shri Arun Kumar was the Director of the company and thus he could not have been appointed the auditor of the company. He was appointed only for a limited purpose for obtaining tax clearance certificate and under his advice/suggestions a large number of papers were signed. There is no statutory requirement to file the list of shareholders in the Income Tax Department and the list filed is to be ignored as the signature of answering respondent was taken without his knowing the implications of the same. The audit of the company books was done by M/s S. Kumar and Associates, Chartered Accountants and all the statutory returns were filed with the ROC under amnesty scheme in the year 2000. Shri M.L. Khanna never filed the audit report in the ROC. It was emphasised that the conduct of the petitioner group all along the last 18 years needs to be looked with suspicion. They are claiming to be shareholders of the company merely on the basis of a list of shareholders filed with the income-tax department in the year 1988 and thereafter in the year 1994. Firstly there is no statutory requirement to file a list of shareholders in the Income Tax department. Then in the succeeding years from 1989 to 1994 no such list is filed by the petitioner group with the tax authorities. Again from 1994 till today no returns are filed by the petitioner group anywhere or in the ROC as well. It was argued that according to the petitioner group, they came to know that the company has filed annual returns with ROC in the year 2000 and even then they never disputed it in any forum.
The only dispute whatever with Shri Arun Kumar Khanna was settled and the appeal was withdrawn by him. This petition is filed by the petitioner group only after the demise of Shri Arun Kumar Khanna.
Further, it was argued that mere payment of money to the company and trying to tally the figures with the list of shareholding filed in the year 1988 with income tax authority without statutorily required to do so, is no evidence of shareholding in the respondent company. The proof of payment in the form of copies of bank statements of the petitioner group and a chart submitted before the Hon'ble High Court of Delhi bifurcating the payment made to the respondent company into payment made for holding shares and loan to respondent company is a self serving documents by the petitioner group and by any stretch of imagination it cannot be said that this amounts to the evidence of shareholding in a company. Moreover, it was pointed out, it is never disputed by the respondent company that it will not return the deposit and interest to the petitioner group if they ask for. In fact an undertaking was given and the same is incorporated in the Order of the Hon'ble Company Law Board that deposits will be refunded as and when asked for. It was argued that the provision of Section 69, Section 71, Section 72 and Section 113 of the Companies Act, 1956 must be taken into consideration for determining the status of shareholder in a company. Furthermore, it was argued that Section 41(2) of the Companies Act, 1956 clearly states that every other person (except the subscriber of the company) who agrees in writing to become a member of a company and whose name is entered in its register of members, shall be a member of the company. In nutshell, if there is no proposal to take shares in writing in the form of application for shares and subsequent acceptance by the company in the form of allotment notice then the contract is not complete and one cannot be called a shareholder. It was argued that the Supreme Court has held in Balkishan v. Swadeshi Polytex Ltd. AIR 195 SC 520; Lalithamba Bai v. Harrison Malayalam Ltd. (1988) 63 Com.Cases 662 (ker)., that for any person to become a member two conditions must be fulfilled (1) that there is an agreement to become a member (2) that his name is entered in the register of members. Both these conditions are cumulative. The words 'in writing' indicate, by necessary implication, that an application or allotment of shares should be made in writing. Therefore, oral agreement to apply for shares is not sufficient and hence the petition be dismissed with cost to be awarded to R-1 and R-2.
5. I have considered the pleadings and documents filed therewith as well as the arguments of the counsels for the petitioners and the respondents. On consideration of the facts and circumstances of the case, I find that the respondents have failed to refute the allegations levelled against them. Preliminary objections raised by the respondents are not tenable. Respondents' preliminary objection that the petition is barred by limitation cannot be accepted. Respondents' case is that 1988 matter has been agitated in the year 2003 after such inordinate delay. I find that the cause of action arose on 1.8.2000 when the respondents filed the Annual Returns and other documents with the ROC under the Amnesty Scheme. But the petitioners became aware of it on 27.12.2001 when certified copies were made available to them by the ROC. Even if the respondent impute knowledge to them, the earliest they could have known the change in shareholding was on 1.8.2000. The petition was filed on 17.3.2003. CLB is a court of equity. Equity does not fix a specific time limit but considers the circumstances of each case in determining whether there has been such delay as to amount to laches. The doctrine of laches is based on equitable consideration and depends upon general principles of justice and fair play. To be laches delay should be such that it could be said that the petitioner is not entitled to relief on account of gross negligence or inaction or for want of bonafide imputable to him or that he has given up (waived) his right by acquiescence or by his conduct or neglect. In the present case I find that there has been no negligence, nor inaction nor want of bonafide which could be imputed to the petitioner. There is no presumption that delay in approaching CLB is deliberate. In any case, there is no delay in the present case.
6. Respondents' next preliminary objection is that the petitioner group was never a shareholder. For this the respondents rely on the facts that no share application was even made to the company; there was no allotment notice; no money receipt; and the petitioner group never held any share certificates of the respondent company; that in absence of all these, the contract is not complete. Further, my attention was also drawn to the decided cases to point out that for any person to become a member two conditions must be fulfilled - (1) that there is an agreement to become a member (2) and that his name is entered in the register of members. Further, it was pointed out that both these conditions are cumulative, and that an application for allotment of shares should be made in writing, therefore, oral agreement to apply for shares is not sufficient. On consideration of the facts of the case I find that the contentions of the petitioners are correct. In this company no share certificates have been issued to any shareholder, not even to the respondents. When the petitioners challenged the respondents to produce even a single share certificate to rebut the petitioners' contention, the respondents chose to remain silent on the issue of issuing of share certificate to any shareholder. The shareholding of the company seems to have been decided on the basis of the investments made by the respective members in the company. No contemporaneous returns regarding the share allotments have been filed with the ROC. Only record available is the Income-tax returns for the period 1987-88 to 12993-94 with a list of shareholding filed by the respondent company first time on 28.3.1989 and the list of shareholding of the company as on 5.7.1988 when the first AGM of the company was held showing (at pages 161 and 162 of the paperbook) the shareholding of the petitioners at 250 shares. Respondents have maintained silence regarding these corroborative evidence. Respondents have not advanced any argument as to how two different sets of documents were filed -one before the Income Tax Department on 28.3.1989 and onwards and another before the ROC under Amensty scheme on 1.8.2000 for the earlier period beginning with 1987-88. Respondent company's contemporaneous statutory records could have set the controversy at rest. CLB's register of members was not complied with. Only plea given was that the records including the said register were in the office of M/s. M.L. Khanna and Co. related to the petitioner. This plea cannot be accepted. If the petitioners had the register they would derive no benefit by not producing it. Rather producing it would prove their case. On the other hand, the respondent company is under obligation to maintain its statutory records. In the absence of statutory record, more reliance can be placed on the contemporaneous record with the Income Tax Department and the list of shareholding circulated in the first AGM.Both these documents have been signed by two directors including R-2).
Signatures have not been denied. Chronological record reveals the true picture which supports the petitioners' case when compared with the Annual returns and other documents filed with the ROC on 1.8.2000 filed after more than 12 years. Moreover, the defects in the Annual Returns and documents filed with the ROC - does not bear signatures of two directors as is statutorily required under Section 161 of the Act (signed by R-2 only) and even the balance sheets and Auditor's Report do not bear signatures of the auditors which are mandatorily required make one presume that the returns and documents filed with the ROC under Amnesty Scheme are fabricated and the documents being defective have no evidentiary value. Such a state of affairs only strengthens my conclusion that the records of shareholding were materially altered illegally to remove the names of the petitioners. Petitioner's case is further strengthened by the fact that the respondents have not denied the total payments (for shares and loans) received by the respondent company. It is not their case that they have not received the money.
The documents produced reveal that certain portion of the payments made by cheques were retained as loan. The respondents have expressed their willingness to repay the total amount besides interest thereon. List of loan tallies exactly with the amount claimed by the petitioners.
Respondents have failed to explain as to where is the balance amount (other than loan) paid by the petitioners reflected. There is no explanation as to how have the respondents treated the balance amount paid by the petitioners. Payments duly made by the petitioners only point out to the state of affairs that the shareholding of the company was decided on the basis of the investments made by the respective members of the company. Shri Vijay Seagal's affidavit further supports the petitioners' case. Shri Vijay Sehgal was a promoter director. He has affirmed that M.L. Khanna and Company who had prepared the accounts filed with the Income tax Department were the only auditors of the company. Auditors might have related to the petitioner as alleged by the respondents, but this fact does not weaken the petitioners' case as the respondents have acquiesced the appointment of M.L. Khanna and Company as auditors by letting them prepare and file Income tax returns. Shri Vijay Sehgal's affidavit confirms the fact that the petitioners were shareholders of the respondent company. Further, the respondents' plea that even if, for arguments sake it is assumed that the petitioner group was a shareholder, the petition is not maintainable under Sections 397/398 of the Act as the petitioner group was holding only 175 shares if 75 shares belonging to Shri Arun Kumar Khanna group deserves to be excluded as he had settled the matter and withdrawn the appeal consequently and hence the petitioners hold less than 10% of total shares of 2000, cannot be accepted in view of the fact that the petitioners hold the authorization of the legal heirs, Shri Arun Kumar Khanna has since expired and this fact has not been controverted by the respondents. Furthermore, the Hon'ble High Court has held that in Civil Suit No. 199/2000 filed by Shri Arun Kumar Khanna against Mr. Vinod Kumar Kapoor, M/s V.K. Kapoor and Associates Pvt. Ltd. (to which the petitioner were not parties), the Civil Court vide its order dated 4^th August, 2000 had merely relegated the parties to the Company Law Board and had not decided any dispute or controversy on merit. Further, it was held that the order of the Civil Judge did not decide the subject matter before the Company Law Board and cannot operate as res-judicata.
7. The respondents have emphasized that the conduct of the petitioner group all along the last 18 years needs to be looked with suspicion - they are claiming to be shareholders of the company merely on the basis of a list of shareholders filed with the Income tax Department in the year 1988 and thereafter, etc. On consideration of the facts and circumstances of the fact a different picture is revealed. It is rather the respondents whose conduct in the present case required to be looked with suspicion. Further, I agree that it is a settled proposition of law that the conduct of the parties is a very relevant factor to be considered in the equitable proceedings under Sections 397/398. In Sri Kanta Datta Narasimharaja Wadiyar v. Venkateshwar Real Estates Private Ltd. (1991) 3 Comp. LJ 336 (Kara) : (1991)72 Comp Cas 211 (Karn), it was held that the petitioner seeking equitable relief must come with clean hands and good conduct, failing which the petitioner would constitute a gross abuse of the process of Court, and the petitioner is not entitled for any relief under Sections 397 and 398. It also held that the conduct of the parties in other proceedings could also be taken into consideration. However, it was held that the conduct of the petitioner before filing of the petition may not be a relevant factor.
Regarding the principle of equity in Shrimati Abnash Kaur v. Lord Krishna Sugar Mills Ltd. 44 CC 390 the Division Bench of Delhi High Court has held that while exercising equity jurisdiction, which clothes the Court with discretionary powers "...the discretion cannot be exercised arbitrarily or according to one's own will or whim. It has to be regulated by law, allay its rigour advance the remedy and to relieve against abuse. The court, therefore, exercising equity jurisdiction, cannot ignore the well known maxims of equity. Two such maxims are that he who seeks equity must do equity and he who comes into equity must come with clean hands. " There have been allegations and counter allegations. Considering the argument of the parties, and in view of the facts and circumstances of this case, I find that it is intact, the conduct of the respondents which has been detrimental to the intent of the company and its shareholders including the petitioners. Respondents cannot take advantage of their own wrongs.
8. In view of the foregoing, considering the inter se disputes between the parties, the two sets of Annual returns and uncontroverted averments and affidavits of the petitioners and Shri V.K. Sehgal, the only inference possible is that the petitioners are shareholders in the respondent company and that they have proved their case. Therefore, Company Petition No. 69/2003 is hereby allowed. The petitioners are entitled to relief sought at item 1 and 2 at para 8 at page 9 of the petition. No order as to cost.