petition being withdrawn or dismissed, they would not revive.

“In Kamani Metallic Oxides Ltd. V/s Kamani Tubes Ltd. ((1984) 56 Comp Cas 19 (Bom)), it has been laid down that every transactions are not void ab initio. If they were to be void ab initio, then on petition being withdrawn or dismissed, they would not revive. In case petition is withdrawn or dismissed, then transactions would never have been void. The Bombay High Court has observed that the transactions/dispositions are not void ab initio but become void on the passing of an order for winding up or on appointment of a provisional liquidator. Considering the provisions of Section 536(2) read with section 441(2), the Bombay High Court in the case of Kamani Metallic Oxides Ltd. (supra) has laid down thus:-

If they were to be void ab initio, i.e., immediately on their being entered into, then on the petition being withdrawn or dismissed, they would not revive. It is clear that if the petition is withdrawn or dismissed then the transactions would never have been void. This clearly shows that the transactions/dispositions are not void ab initio but become void on the passing of an order for winding up or on appointment of a provisional liquidator. What section 536(2) read with section 441(2) provides for is to convert what was otherwise valid into void by virtue of the legal fiction. Thus the voidness takes effect on the passing of the order of winding up or appointment of provisional liquidator. By virtue of the legal fiction, in section 441(2), it then relates back to the date of presentation of the petition for winding up.”

---

 

IN THE  HIGH COURT OF JUDICATURE FOR RAJASTHAN  AT

JAIPUR BENCH JAIPUR.

Misc.Application No.49 of 2011

In

D.B.Civil Special Appeal (Company) No.2 of 2010

Podar Finance Private Ltd. V/s Official Liquidator.

Date when the order was

reserved                                                                                                              :-              14.9.2011

Date of pronouncement of

order                                                                                                     :-             10.10.2011

PRESENT

HONBLE THE CHIEF JUSTICE MR.ARUN MISHRA

HONBLE MISS JUSTICE BELA M.TRIVEDI

 

 

Mr.J.P.Bhatt, Senior Advocate with Mr.R.C.Joshi for the applicant.

Mr.G.K.Garg, Senior Advocate with Mr.Anuroop Singhi and Mr.Kunal Jaiman for the respondent.

ORDER

BY THE COURT (Per Hon’ble Arun Mishra,CJ)

The Hon’ble Supreme Court vide order dated 11.3.2011 passed in the Petition for Special Leave to Appeal (Civil) No.3580/2011 has observed that the Division Bench of this Court while passing the order dated 25.10.2010 in D.B.C.Special Appeal No.2/2010 while dealing with the issue whether the applicant-Poddar Finance Private Limited (hereinafter referred to as the Poddar Finance) was a contributory or not, has only relied upon the balance sheet of the Company to say that the applicant-Poddar Finance was not a contributory and at the same time, the matter was disposed of in the alternative on the assumption that it may be a contributory. Hence, the Apex Court has required the High Court to record finding on the above issue after taking into consideration all the documents.

 

Pursuant to the aforesaid order of the Apex Court, the applicant-Poddar Finance has filed misc.application no.49/2011 before the Division Bench of this Court on 22.3.2011. It is averred in the application that the applicant-Poddar Finance is holding 1,65,010 equity shares of Rs.10/- each and 12,478 preference shares of Rs.100/- each of M/s Jaipur Spinning and Weaving Mills Ltd. (hereinafter referred to as Jaipur Spinning Mills) and the aforesaid shares were acquired from Shree Shakti Mills Limited, Bombay (hereinafter referred to as Shakti Mills) on 25.1.1979 and transferred on 10.5.1979. The aforesaid shares have been reflected in the balance sheets for the year ended March 1981 and March, 1983. The value of the aforesaid shares was shown Nil in the balance sheet ended March, 1984. On company being wound-up, it was advised that said shares could not be reflected as their value had become Nil for the purpose of accounting, as such, they were removed from the balance sheets of the applicant-Poddar Finance for the subsequent years. The share certificates constitute prima facie evidence of applicant’s title over the shares in question and therefore, Jaipur Spinning Mills and Official Liquidator are estopped from contending contrary. In terms of Section 428 of the Companies Act, 1956 (hereinafter referred to as the Act), the holder of fully paid up shares is deemed to be a contributory. Hence, it was prayed that applicant-Poddar Finance be held to be a contributory of Jaipur Spinning Mills in liquidation and finding to this effect may be sent to the Apex Court.

 

The application has been contested by the Official Liquidator by filing reply contending that list of contributories has not been settled so far. It was necessary for the Ex-management to cooperate the Official Liquidator in the matter of recovery of assets of the company as well as in settling the list of contributories and creditors. Winding up proceedings have already taken place by selling plant and machinery and making payment partly to the secured creditors. It is contended by the Official Liquidator in the reply that applicant-Poddar Finance never approached the Official Liquidator that it is a contributory. The share certificates stood in the name of Shakti Mills and the details of cost of purchase have not been given by the applicant. The provisions for transfer of shares are contained in Sections 108, 108A, 108B, 108C, 108D, 108E, 109, 110 of the Act. Since folio number of the shares claimed to be transferred has been changed, fresh share certificates should have been issued. The shares held by Shakti Mills could not have been transferred legally for the reason that it was under liquidation vide order dated 21.1.1981 passed by Bombay High Court in Company Petition No.308/78, which was presented on 25.4.1978. After presentation of petition, shares could not have been transferred. Transfer of shares is void by virtue of provisions of Section 536(2) of the Act. Reliance has also been placed on the provisions of Sections 531 and 531A of the Act. There is no clear mention in the balance sheet of the applicant-Poddar Finance that money was invested for acquisition of shares in question. The applicant-Poddar Finance has failed to establish that it is a contributory of the company in liquidation.

 

A rejoinder has been filed by the applicant-Poddar Finance. It is submitted that it was obligatory on the part of the Official Liquidator to finalize list of contributories. Reliance has been placed on the provisions contained in Section 428 of the Act. There was no infirmity in the shares obtained by the applicant. The creation of folio and recording thereof on the reverse of the share certificates was the common accepted legal practice that existed at the relevant time. The provisions of Sections 531, 531A and 536 of the Act are not applicable. The Official Liquidator of Shakti Mills in the Company Petition No.70/86 filed before the Bombay High Court sought to recover amount of Rs.17,08,069/- being loss suffered for the sale of the shares at alleged under-value by Shakti Mills to Poddar Finance. Whether aforesaid transfer was under valued is still pending adjudication in the Bombay High Court. Transfer of shares can be questioned only in the Bombay High Court. Every person, who is holder of fully paid up shares of the company in liquidation, is a contributory. Hence, the applicant-Poddar Finance should be treated as contributory of the company in liquidation.

 

In compliance of the order of the Apex Court dated 11.3.2011, the matter was taken up by the Division Bench of this Court for several times, but time was prayed by the applicant. On 26.5.2011, it was pointed out by the parties that list of contributories has not been settled so far in accordance with the provisions of Sections 428 and 467 of the Act and Rules 180 to 196 of the Companies (Court) Rules, 1959 (hereinafter referred to as the Rules). The Official Liquidator has to prepare provisional list of contributories under Rule 180 and notice has to be given of date of settlement of list under section 181 of the Rules. The provisions from Rules 180 to 196 pertain to settlement of the list of contributories in a winding up by the Court. Both the parties prayed that opinion of the Official Liquidator may be obtained with respect to the fact whether applicant-Poddar Finance can be treated to be a contributory and thus, Official Liquidator was asked to submit report. The Official Liquidator furnished the report before the Company Judge opining that applicant-Poddar Finance cannot be treated to be a contributory. Thereafter, on 5.7.2011, both the parties have prayed that opinion of the Company Judge may also be called for and therefore, the Company Judge was requested to send the opinion in accordance with the provisions of the Act and Rules. The Company Judge has remitted the opinion that applicant-Poddar Finance cannot be said to be a contributory.

 

The Official Liquidator in his report has submitted that applicant-Poddar Finance cannot be treated to be a contributory because of the following reasons:-

 

(i)            That 1,65,010/- equity shares of the face value of Rs.10/- each and 12,478 preference shares of the face value of Rs.100/- each were acquired by applicant-M/s Poddar Finance at a throw away price constituting 65% of the paid up capital of Jaipur Spinning Mills in liquidation.

 

(ii)           That balance sheets ending on 31.3.1980 and 31.3.1982 have not been furnished by the applicant, while copies of the balance sheets for the years 1981 and 1983 were not certified to be true copies by Registrar of Companies.

 

(iii)          That in the balance sheets of subsequent years 1984 onwards, the applicant-Poddar Finance has not shown investments made in shares of Jaipur Spinning Mills.

 

(iv)         That there is no due compliance of Section 108A, 108B and 108D of the Act and without prior approval/intimation to the Central Government, shares could not have been acquired.

 

(v)          That transfer of shares in question was void in terms of Sections 531, 531A and 536(1)(b) of the Act.

 

(vi)         That transfer of shares in question in terms of Section 536(2) after commencement of winding up proceedings of Shakti Mills is void.

 

(vii)        That applicant-Poddar Finance has failed to submit any application in any court for validation of transfer of shares in question.

 

(viii)       That transfer of shares in question is under-valued.

 

The Company Judge has assigned the following reasons while recording the finding that applicant-Poddar Finance cannot be treated to be a contributory of Jaipur Spinning Mills in liquidation:-

 

(i)            That transfer of shares in question in the same management by one company to another was made on the under valued price and therefore, transfer of shares cannot be said to be in the interest of creditors, which is paramount consideration and should not be defeated.

 

(ii)           That while examining the question whether the applicant-Poddar Finance is contributory, validity of transfer can be looked into. The Court has not validated the transaction, as such, applicant-Poddar Finance cannot be treated to be a contributory of Jaipur Spinning Mills in liquidation.

 

(iii)          That applicant-Poddar Finance cannot be held to be a contributory merely because it holds fully paid up shares of Jaipur Spinning Mills in liquidation.

 

(iv)         That transfer of shares in question is hit by the provisions of Section 536(2) of the Act.

 

(v)          That provisions of Sections 108A to 108G of the Act are not attracted as it was informed that transferor Shakti Mills was not a company registered under MRTP Act at the relevant point of time when fully paid up shares in question were transferred in favour of applicant-Poddar Finance.

 

It is not in dispute that the applicant-Poddar Finance purchased shares in question of Jaipur Spinning Mills from Shakti Mills for a total consideration of Rs.22,854.50 and the same were transferred on 10.5.1979. Shakti Mills was a holding company while Jaipur Spinning Mills was its subsidiary company. Shri G.N. Poddar is Director in Shakti Mills and also in Jaipur Spinning Mills and his son Ajay Poddar is also Director in Jaipur Spinning Mills and Poddar Finance and his another son Pawan Poddar is Director of applicant-Poddar Finance.

 

It is also not in dispute that a petition for winding-up of Shakti Mills was filed on 25.4.1978 before the Bombay High Court and shares in question were transferred thereafter on 10.5.1979. The winding-up of Shakti Mills was ordered by the Company Judge of the Bombay High Court on 21.1.1981. For winding up of Jaipur Spinning Mills, application was filed on 15.12.1980 and its winding up has been ordered on 2.12.1983.

 

Mr.J.P.Bhatt, learned Senior Advocate appearing with Mr.R.C.Joshi on behalf of the applicant submitted that in view of Section 428 of the Act, the applicant-Poddar Finance has to be treated as contributory of Jaipur Spinning Mills in liquidation. The Bombay High Court has not declared the transaction to be void. The Official Liquidator of Shakti Mills has filed application before the Bombay High Court for realization of Rs.17,08,069 on the ground that transaction was under valued, but not for declaring it to be void. It is for the Bombay High Court to record finding as to invalidity of the transaction of transfer of shares. The application regarding under valuation of the shares in question is still pending consideration. Thus, transaction cannot be said to be void. This Court cannot consider the validity of the transfer of shares in question. The learned Senior Counsel has placed reliance on the decision of the Apex Court in Pankaj Mehra and anr. V/s State of Maharashtra and ors. ((2000) 2 SCC 756) and submitted that finding be recorded that applicant-Poddar Finance is a contributory of Jaipur Spinning Mills in liquidation.

 

Per contra, Mr.G.K.Garg, learned Senior Advocate appearing with Mr.Anuroop Singhi and Mr.Kunal Jaiman on behalf of the respondent-Official Liquidator has submitted that transfer of shares in question is void in view of the provisions contained in Section 536(2) of the Act as Shakti Mills transferred the shares in 1979 in favour of applicant-Poddar Finance after commencement of the winding up proceedings in 1978. The winding up order made in the year 1981 relates back as per the provisions of Section 441 (2) of the Act to the date of commencement of the proceedings by presentation of the application for liquidation. No application has been filed for validation of transfer of shares in question before the Company Judge of either Bombay High Court or this Court. Considering the relationship of Directors of the Companies, the transaction was fraudulent and grossly under valued. It was not in the interest of creditors which is a paramount consideration. The learned Senior Counsel has relied upon the provisions of Sections 531, 531A, 536(2), 537(1)(b) of the Act. The applicant-Poddar Finance has not claimed any investment in Jaipur Spinning Mills as is evident from the balance sheets and thus, cloud is cast over the genuineness of the transaction in question. The Official Liquidator of Shakti Mills appointed by the Bombay High Court has also objected to the transfer of shares in question vide letter dated 2.8.2011. He has relied upon the decisions in Sarigam Containers Pvt. Ltd. and Videocon International Ltd. V/s Magatul Industries Ltd. (in liquidation) through the Official Liquidator, High Court ((2009) 90 SCL 321 (Bom))), Administrator, MCC Finance Ltd. V/s Ramesh Gandhi ((2005) 63 SCL 326 (Mad), In Re:Shivshakti Builders and Financial Company Limited (2011(1) PLJR 943), Ram Janam Sharma V/s JVG Finance Ltd. (2011 IIIAD (Delhi) 280) and Pankaj Mehra and anr. V/s State of Maharashtra and ors.(supra).

 

The only question for consideration is whether the applicant-Poddar Finance can be said to be a contributory under section 428 of the Act. Section 428 is quoted below:-

 

428. Definition of contributory.- The term contributory means every person liable to contribute to the assets of a company in the event of its being wound up, and includes the holder of any shares which are fully paid up; and for the purposes of all proceedings for determining, and all proceedings prior to the final determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory.

 

As per Section 428, contributory includes holder of any shares which are fully paid up. It includes any person alleged to be a contributory. Section 536(2) of the Act provides that in the case of a winding up by the Court, any transfer of shares in the company or alteration of the status of its members, made after the commencement of the winding up, shall, unless the Court otherwise orders, be void.

 

There is power given to the court to validate the transfer which has taken place after the commencement of the proceedings for winding up of the company. In the instant case, it is admitted fact that petition for winding up of Shakti Mills was presented in the Bombay High Court on 25.4.1978 and its winding up was ordered on 21.1.1981. The transfer of shares in question of Jaipur Spinning Mills was made by Shakti Mills in favour of applicant-Poddar Finance on 10.5.1979. As per provisions of Section 441(2) of the Act, winding up order relates back to the date of presentation of the petition for winding up. In the instant case, winding up of Shakti Mills has been ordered and since the transfer of shares in question was made after commencement of the winding up proceedings, the same is void under section 536(2) of the Act unless otherwise ordered by the Court. It is not the case of the applicant-Poddar Finance that any court has otherwise ordered. Thus, the expression unless otherwise ordered by the Court, any transfer made after the commencement of the winding up proceedings is void has to be given full effect. The Court is given power to validate the transaction. Thus, any disposition would not be ab initio void. The word ‘void’ is not conclusive as Court has been given power to order otherwise. However, the fact remains that in the instant case, the Court has not so far ordered otherwise.

 

In our considered opinion, under section 536 (2) of the Act transaction of transfer of share or other disposition is not required to be annuled by court. It is void unless court orders otherwise. An order to the otherwise is required to be made in order to validate transfer of share/other disposition. It was at option of the applicant to avoid it but he has not chosen that recourse. The submission to the contrary raised by Shri Bhatt cannot be accepted that it was for official liquidator to get transfer of shares declared void or court to make such declaration. It was for Poddar Finance to get transfer of shares validated. Whatever it may be, in the absence of validation, statutory expression as to voidity of transaction mandated in Section 536(2) of the Act has to be given full effect.

 

In Kamani Metallic Oxides Ltd. V/s Kamani Tubes Ltd. ((1984) 56 Comp Cas 19 (Bom)), it has been laid down that every transactions are not void ab initio. If they were to be void ab initio, then on petition being withdrawn or dismissed, they would not revive. In case petition is withdrawn or dismissed, then transactions would never have been void. The Bombay High Court has observed that the transactions/dispositions are not void ab initio but become void on the passing of an order for winding up or on appointment of a provisional liquidator. Considering the provisions of Section 536(2) read with section 441(2), the Bombay High Court in the case of Kamani Metallic Oxides Ltd. (supra) has laid down thus:-

 

If they were to be void ab initio, i.e., immediately on their being entered into, then on the petition being withdrawn or dismissed, they would not revive. It is clear that if the petition is withdrawn or dismissed then the transactions would never have been void. This clearly shows that the transactions/dispositions are not void ab initio but become void on the passing of an order for winding up or on appointment of a provisional liquidator. What section 536(2) read with section 441(2) provides for is to convert what was otherwise valid into void by virtue of the legal fiction. Thus the voidness takes effect on the passing of the order of winding up or appointment of provisional liquidator. By virtue of the legal fiction, in section 441(2), it then relates back to the date of presentation of the petition for winding up.

 

Under section 443 of the Act, the Court may dismiss the petition or make an order of winding up. Under sub-section (2) of Section 443, the Court may refuse to make order of winding up. Before appointing a provisional liquidator, the Court has to give notice to the company and reasonable opportunity to make representation. As per Section 449 of the Act, on a winding up order being made in respect of a company, the official liquidator becomes the liquidator of the company. In the instant case, the order of winding up of Shakti Mills has been passed and official liquidator has been appointed by Bombay High Court with respect to Shakti Mills and thus, transaction in question has to be treated as void unless the court otherwise orders and the court has not ordered otherwise. Consequently, the transaction is void, the applicant- Poddar Finance cannot be said to be a contributory.

 

In Tulsidas Jasraj Parekh V/s Industrial Bank of Western India (AIR 1931 Bom. 2), it has been laid down by the Bombay High Court that any bona fide transaction carried out and completed in the ordinary course of current business will be sanctioned by the Court under Section 227(2) of Companies Act, 1913. On the other hand, it will not allow the assets to be disposed of at the mere pleasure of the company and thus, cause the fundamental principles of equity amongst creditors to be violated.

 

In Sarigam Containers Pvt. Ltd. and Videocon International Limited (supra), the Bombay High Court considering the provisions of Section 536(2) of the Act, has referred to the decision in the case of J.Sen Gupta (Private) Limited ((1962) XXXII Company Cases 876) in which following principles have been laid down:-

 

It seems to me, therefore, upon considering various authorities on this subject that the following principles are doubtless applicable to Sub section (2) of Section 536 of the Companies Act 1956:-

 

1. The Court has an absolute discretion to validate a transaction.

 

2. This discretion is controlled only by the general principles which apply to every kind of judicial discretion.

 

3. The court must have regard to all the surrounding circumstances, and if from all the surrounding circumstances it comes to the conclusion that the transaction should not be void, it is within the power of the court under section 536(2) to say that the transaction is not void.

 

4. If it be found that the transaction was for the benefit of, and in the interests of, the company or for keeping the company going or keeping things going generally, it ought to be confirmed.

 

Thus, the Court has absolute discretion to validate the transaction. However, discretion is to be controlled and exercised judicially. If it is found that the transaction was for the benefit of and in the interest of the company or for keeping the company going or keeping things going generally, it ought to be confirmed.

 

The Bombay High Court in the case of Sarigam Containers Pvt. Ltd. and Videocon International Limited (supra) held that company has to plead and prove that the transaction was for the benefit of and in the interest of the company or for keeping the company going or keeping the things going generally. It is also to be shown as to what were the compelling circumstances necessitating the company in liquidation to enter into such transaction during the pendency of winding up action. In absence of such pleadings that transaction was for the benefit and in the interest of company or for keeping the company going or for keeping things going generally, the question of validating such transaction by the court does not arise. No improper transaction which is covered by Section 536(2) of the Act can be validated by the Court.

 

In Administrator, MCC Finance Ltd. V/s Ramesh Gandhi (supra), the Madras High Court has considered the provisions of Section 536(2) of the Act and has observed that the object of Section 536 seems to be to prevent improper disposition or dissipation of the property or transfer of shares of the company otherwise available for distribution among the creditors of the company in liquidation. If the transfer is not bona fide, in terms of Section 536(2), the transaction would be void. Once winding up has been ordered, the provisions of Section 536(2) are attracted.

 

In Re:Shivshakti Builders and Financial Company Limited (supra), the Patna High Court has observed that any disposition after commencement of the winding up proceedings would be void in view of Section 536(2) of the Act.

 

In the case of Navjivan Mills Ltd., In Re (1986(59) Company Cases 201), the Gujarat High Court has laid down that the Court can exercise jurisdiction under section 536(2) of the Act of giving directions validating proposed transactions pending a petition for winding up but before the winding up order is made for the obvious reason that these transactions are saved from the consequence which may ensue.

 

In Re Gray Inn Construction Company Ltd. (1980 (1) All E.R. 814), the Court of Appeal (Civil Division) has laid down that the court would be very circumspect in the matter of validating the payments and the interest of the creditors as well as the company would be kept upper most in consideration.

 

The Apex Court in NGEF Ltd. V/s Chandra Developers (P) Ltd. And anr. ((2005) 8 SCC 219) has considered the question of permissibility of delegation of power of BIFR to Company Court and held that Section 536(2) of the Act ipso facto does not confer any jurisdiction upon the Company Court to direct sale of assets of a sick company. Once the company is declared sick BIFR retains control over its assets. The Apex Court has considered the provisions of Section 536(2) and the decision in Pankaj Mehra (supra) and observed thus:-

 

53. In Pankaj Mehra V. State of Maharashtra whereupon the learned counsel appearing on behalf of the first respondent placed strong reliance, construction of sub-section (2) of Section 536 of the Companies Act came up for consideration and it was held that having regard to the phraseology used therein, the transaction shall be void unless the court otherwise orders. It is interesting to note that in para 19 thereof, this Court noticed the principles laid down in Gray’s Inn Construction Co.Ltd. Re emphasizing the point that the courts would be very circumspect in the matter of validating the payments and the interests of the creditors as well as the Company would be kept upper most in consideration. Thus, a disposition of assets during the interregnum may not be irretrievably void but the courts are required to exercise power with circumspection and caution.

 

In the case of Pankaj Mehra (supra), the Apex Court has laid down that the word ‘void’ used in Section 536(2) of the Act need not automatically indicate that any disposition would be ab initio void. The provision itself shows that the word ‘void’ is not employed peremptorily since the court has power to order otherwise. The Apex Court has considered difference between the words ‘void’ and ‘voidable’ and laid down that the word ‘void’ used in Section 536(2) of the Act is not employed peremptorily. The Apex Court has further laid down that it cannot be accepted that disposition during the interregnum between the presentation of a petition for winding up and the passing of the order for winding up would be irretrievably void. The Apex Court held thus:-

 

It is difficult to lay down that all dispositions of property made by a company during the interregnum between the presentation of a petition for winding up and the passing of the order for winding up would be null and void. If such a view is taken the business of the company would be paralysed, for, the company may have to deal with very many day-to-day transactions, make payments of salary to the staff and other employees and meet urgent contingencies. An interpretation which could lead to such a catastrophic situation should be averted. That apart, if any such view is adopted, a fraudulent company can deceive any bonafide person transacting business with the company by stage managing a petition to be presented for winding up in order to defeat such bona fide customers. This consequence has been correctly voiced by the Division Bench in the impugned judgment.

 

The Apex Court in the case of Pankaj Mehra (supra) has considered the provisions of Section 536(2) of the Act and the provisions of Section 138 of the Negotiable Instruments Act and held that every transaction is not null and void since the Court has power to order otherwise. The liability under section 138 of NI Act is penal liability. This section creates a statutory offence, which on the confluence of the various factors enumerated therein, commencing with the drawing of the cheque and ending with the failure of the drawer of the cheque to pay the amount covered by it within the time stipulated, ripens into a penal liability. Thus, Section 536(2) of the Act cannot be invoked to escape from the offence under section 138 of NI Act.

 

When we come to the facts of the present case, considering the aspect that interest of creditors is the paramount consideration, the Official Liquidator has rightly opined that transaction in question is grossly under-valued. The Official Liquidator of Shakti Mills has also preferred an application in the Bombay High Court alleging under-value of the transaction by more than Rs.17 lacs. 1,65,010 equity shares of Rs.10/- each and 12,478/- preference shares of Rs.100/- each of Jaipur Spinning Mills were transferred by Shakti Mills in favour of applicant-Poddar Finance for a paltry consideration of Rs.22,854.50. The transaction cannot in any manner be said to be for the benefit and interest of the company or for keeping the company going or keeping things going generally. It has not been shown as to what were the compelling circumstances necessitating Shakti Mills to transfer the shares in question of Jaipur Spinning Mills in favour of applicant-Poddar Finance after commencement of proceedings of winding up. Considering the surrounding circumstances and inter-se relationship of the Directors of all the three managements, the transaction in question cannot be said to be bona fide and it is to be treated as void in view of Section 536(2) of the Act. The court has not ordered otherwise under section 536(2) and even no application has been filed by the applicant for validation in court so as to order otherwise. The applicant has failed to satisfy as to bona fide nature of the transaction in question. Thus, we are of the opinion that transfer in question is to be treated as void in term of Section 536(2) of the Act. On the basis of such transaction, applicant cannot claim to be contributory.

 

No application for validation of transaction in question has been filed by the applicant-Poddar Finance for the last 30 years. In ICICI Ltd. V/s Ahmedabad Manufacturing & Calico Printing Co.Ltd. & anr. ((2004) 9 SCC 747), the Apex Court considered the question that ICICI Bank advanced loans to the Company between 23.2.1976 till 10.7.1986 and on 10.7.1986, an application for winding up was filed and thereafter, two further loans were sanctioned by ICICI to the Company. In 1990, the Company as well as ICICI made an application under section 536(2) of the Act for allowing the disposition of the company’s properties which may have to take place as a consequence of the loans advanced by the ICICI to the company from 1976. The Division Bench set aside the order of Single Bench. The Division Bench opined that what the appellant-ICICI was in fact seeking to do was to convert itself from an unsecured into a secured creditor in respect of transactions which had taken place 15 to 17 years ago. The Apex Court held that Division Bench did not err in rejecting the application of ICICI pertaining to the loan transactions prior to 10.7.1986. The Apex Court further held that the Division Bench was also correct that the grant of leave under section 536(2) would not be appropriate after this delay. Leave under section 536(2) may be granted for the benefit of the company in liquidation or the creditors of the company in general.

 

We find no force in the submission that it is for the Bombay High Court to look into the validity of transfer of shares in question as shares of Jaipur Spinning Mills were transferred in favour of applicant- Poddar Finance by Shakti Mills, Bombay. When winding up of Shakti Mills has been ordered, obviously transaction is void as per statutory mandate of Section 536(2) which cannot be ignored by us while adjudging the question whether the applicant Poddar Finance is contributory or not. The surrounding circumstances show that transaction was not to benefit creditors or to keep company going, it appears to be under-valued also. Unless and until transaction is legal and validated, the applicant-Poddar Finance cannot claim itself to be a contributory and the Company Court and Official Liquidator have rightly opined so. The applicant has as per agreement availed recourse of settlement of its claim as contributory with the Official Liquidator under the provisions of the Act and the Rules. Thereafter, finding has been recorded by the Official Liquidator that applicant cannot be treated to be a contributory and report was submitted to the Company Court and the Company Court has also expressed the same opinion that applicant cannot be held to be a contributory, which we found to be in accordance with the law. Since the transfer of shares in question is void in view of Section 536(2) of the Act, the applicant-Poddar Finance cannot be treated to be a contributory.

 

Coming to the submission of learned Senior Counsel appearing on behalf of the respondent based on Sections 531, 531A and 537(1) of the Act. We may observe that the provisions contained in Section 531 relating to fraudulent preference are not attracted. However, it provides that any transfer within six months before the commencement of winding up in the event of company being wound up shall be deemed a fraudulent preference and be invalid. In the instant case, transfer is after commencement of winding up proceedings. Similarly, provisions contained in Section 531A of the Act provide that any transfer of property by a company not being in good faith or is not in ordinary course of business if made within one year before the presentation of a petition for winding up by the Court, shall be void against the Liquidator. Section 537 of the Act provides for avoidance of certain attachments, executions etc. in winding up by Court. Sub section (1) of Section 537 provides that where any company is being wound up by the Court, any attachment, distress or execution without leave of the court after commencement of the winding up, shall be void. Though the aforesaid provisions are not attracted, but intendment is to prevent fraudulent preference, transactions which are not in good faith or are not effected in ordinary course of business and even attachment, distress or execution are avoided unless permitted by court. In the instant case, provisions of Section 536(2) of the Act are attracted.

 

In view of the discussion made above, we are of the opinion that applicant-Poddar Finance Private Limited is not a contributory of Jaipur Spinning and Weaving Mills Limited in liquidation. Thus, misc. application no.49/2011 filed by the applicant is dismissed. Let the finding recorded by this Court be sent to the Hon’ble Supreme Court in compliance of the order dated 11.3.2011 passed in the Petition for Special Leave to Appeal (Civil) No.3580/2011.

 

(BELA M.TRIVEDI)J.                            (ARUN MISHRA)C.J.

Decision of civil court is binding on Criminal court ?

In K.G. Premshanker3, the effect of the above provisions (Sections 40 to 43 of the Evidence Act) has been broadly noted thus: if the criminal case and civil proceedings are for the same cause, judgment of the civil court would be relevant if conditions of any of Sections 40 to 43 are satisfied but it cannot be said that the same would be conclusive except as provided in Section 41. Section 41 provides which judgment would be conclusive proof of what is stated therein. Moreover, the judgment, order or decree passed in previous civil proceedings, if relevant, as provided under Sections 40 and 42 or other provisions of the Evidence Act then in each case the Court has to decide to what extent it is binding or conclusive with regard to the matters decided therein. In each and every case the first question which would require consideration is, whether judgment, order or decree is relevant; if relevant, its effect. This would depend upon the facts of each case.

In light of the above legal position, it may be immediately observed that the High Court was not at all justified in staying the proceedings in the civil suit till the decision of criminal case. Firstly, because even if there is possibility of conflicting decisions in the civil and criminal courts, such an eventuality cannot be taken as a relevant consideration. Secondly, in the facts of the present case there is no likelihood of any embarrassment to the defendants (respondent nos. 1 to 4 herein) as they had already filed the written statement in the civil suit and based on the pleadings of the parties the issues have been framed. In this view of the matter, the outcome and/or findings that may be arrived at by the civil court will not at all prejudice the defence(s) of the respondent nos. 1 to 4 in the criminal proceedings.

For the above reasons, appeal is allowed. The impugned order dated 24.11.2008 passed by the Division Bench of the Madhya Pradesh High Court is set aside. The proceedings in the civil suit shall now proceed further in accordance with law.

——————————————————————————————————————————————

 

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL  APPEAL NO.   4166      OF 2013

(Arising out of SLP(C) No. 12644 of 2009)

 

Guru Granth Saheb Sthan Meerghat Vanaras               ……  Appellant

Vs.

Ved Prakash & Ors.                                        ……Respondents

JUDGMENT

R.M. LODHA, J.

Leave granted.

 

2. The short question for consideration in this appeal by special leave is whether High Court was justified in staying the proceedings in civil suit till the decision in criminal case.

 

3. It is not necessary to narrate the facts in detail. Suffice it to say that the appellant filed an FIR (P.S. Case No. 8 of 2003) at Dharampura Police Station against respondent nos. 1 to 4 for commission of the offences under Sections 420, 467, 468 and 120B, IPC alleging that they had executed a false, forged and fabricated will on 02.07.1997 in the name of late Devkinandan Sahay with the intention to grab his property. It was further alleged that based on the fabricated will, these respondents had obtained a mutation order dated 24.11.1999 from the Tehsildar, Ajaygarh. On completion of investigation in the above F.I.R., the challan has been filed against the above respondents and trial against them is going on in the Court of Judicial Magistrate, First Class, Ajaygarh, Panna (M.P.).

 

4. On 09.02.2004, the appellant brought legal action in representative capacity against the respondents nos. 1 to 4 by way of a civil suit in the Court of District Judge, Panna (M.P.) praying for a decree for declaration of title, perpetual injunction and possession in respect of disputed lands and for annulling the sale deed dated 14.08.2003 and the mutation order dated 24.11.1999. In the suit, reference of will forged by the respondent nos. 1 to 4 has been made. The said suit has been transferred to the Court of Additional District Judge, Panna and bears Civil Suit No. 10A of 2006. The respondent nos. 1 to 4, who are defendants in the suit, have filed their written statement on 19.06.2006. The trial court has framed issues on the basis of the pleadings of the parties on 21.09.2007. On 21.04.2008, the defendants (respondent nos. 1 to 4 herein) filed an application under Section 10 read with Section 151, CPC for staying the proceedings in the civil suit during the pendency of above- referred criminal case.

 

5. The Additional District Judge, Panna, by his order dated 21.04.2008 dismissed the application for staying the proceedings in the suit.

 

6. The respondent nos. 1 to 4 herein challenged the order of the Additional District Judge in the High Court in a writ petition under Article 227 of the Constitution of India. The Division Bench of the Madhya Pradesh High Court by the impugned order has set aside the order of the Additional District Judge and, as noted above, has stayed the proceedings in Civil Suit till the decision of criminal case. It is from this order that the present civil appeal, by special leave, has arisen.

 

7. We have heard Mr. Nagendra Rai, learned senior counsel for the appellant, and Mr. K.G. Bhagat, learned counsel for respondent nos. 1 to 4.

 

8. A Constitution Bench of this Court in M.S. Sheriff & Anr. v. State of Madras & Ors.[1] has considered the question of simultaneous prosecution of the criminal proceedings with the civil suit. In paragraphs 14,15 and 16 (Pg. 399) of the Report, this Court stated as follows:

 

“14. . . . . . . . It was said that the simultaneous prosecution of these matters will embarrass the accused. . . . . but we can see that the simultaneous prosecution of the present criminal proceedings out of which this appeal arises and the civil suits will embarrass the accused. We have therefore to determine which should be stayed.

15. As between the civil and the criminal proceedings we are of the opinion that the criminal matters should be given precedence. There is some difference of opinion in the High Courts of India on this point. No hard and fast rule can be laid down but we do not consider that the possibility of conflicting decisions in the civil and criminal Courts is a relevant consideration. The law envisages such an eventuality when it expressly refrains from making the decision of one Court binding on the other, or even relevant, except for certain limited purposes, such as sentence or damages. The only relevant consideration here is the likelihood of embarrassment.
16. Another factor which weighs with us is that a civil suit often drags on for years and it is undesirable that a criminal prosecution should wait till everybody concerned has forgotten all about the crime. The public interests demand that criminal justice should be swift and sure; that the guilty should be punished while the events are still fresh in the public mind and that the innocent should be absolved as early as is consistent with a fair and impartial trial. Another reason is that it is undesirable to let things slide till memories have grown too dim to trust. This, however, is not a hard and fast rule. Special considerations obtaining in any particular case might make some other course more expedient and just. For example, the civil case or the other criminal proceeding may be so near its end as to make it inexpedient to stay it in order to give precedence to a prosecution ordered under S. 476. But in this case we are of the view that the civil suits should be stayed till the criminal proceedings have finished.”
17. The ratio of the decision in M.S. Sheriff1 is that no hard and fast rule can be laid down as to which of the proceedings – civil or criminal – must be stayed. It was held that possibility of conflicting decisions in the civil and criminal courts cannot be considered as a relevant consideration for stay of the proceedings as law envisaged such an eventuality. Embarrassment was considered to be a relevant aspect and having regard to certain factors, this Court found expedient in M.S. Sheriff1 to stay the civil proceedings. The Court made it very clear that this, however, was not hard and fast rule; special considerations obtaining in any particular case might make some other course more expedient and just. M.S. Sheriff1 does not lay down an invariable rule that simultaneous prosecution of criminal proceedings and civil suit will embarrass the accused or that invariably the proceedings in the civil suit should be stayed until disposal of criminal case.

 

10. In M/s. Karam Chand Ganga Prasad and Another etc. v. Union of India and Others[2], this Court in paragraph 4 of the Report (Pg. 695) made the following general observations, “it is a well established principle of law that the decisions of the civil courts are binding on the criminal courts. The converse is not true.” This statement has been held to be confined to the facts of that case in a later decision in K.G. Premshanker v. Inspector of Police and Another[3], to which we shall refer to a little later.

 

11. In V.M. Shah v. State of Maharashtra and Another[4], while dealing with the question whether the conviction under Section 630 of the Companies Act was sustainable, this Court, while noticing the decision in M.S. Sheriff1 in para 11 (pg. 770) of the Report, held as under:

 

“11. As seen that the civil court after full-dressed trial recorded the finding that the appellant had not come into possession through the Company but had independent tenancy rights from the principal landlord and, therefore, the decree for eviction was negatived. Until that finding is duly considered by the appellate court after weighing the evidence afresh and if it so warranted reversed, the findings bind the parties. The findings, recorded by the criminal court, stand superseded by the findings recorded by the civil court. Thereby, the findings of the civil court get precedence over the findings recorded by the trial court, in particular, in summary trial for offences like Section 630. The mere pendency of the appeal does not have the effect of suspending the operation of the decree of the trial court and neither the finding of the civil court gets nor the decree becomes inoperative.”

12. The statement of law in V.M. Shah4, as quoted above, has been expressly held to be not a good law in K.G. Premshanker3 .

 

13. In State of Rajasthan v. Kalyan Sundaram Cement Industries Ltd. and Others[5], this Court made the following statement in paragraph 3 (pgs. 87-88):

 

“3. It is settled law that pendency of the criminal matters would not be an impediment to proceed with the civil suits. The criminal court would deal with the offence punishable under the Act. On the other hand, the courts rarely stay the criminal cases and only when the compelling circumstances require the exercise of their power. We have never come across stay of any civil suits by the courts so far. The High Court of Rajasthan is only an exception to pass such orders. The High Court proceeded on a wrong premise that the accused would be expected to disclose their defence in the criminal case by asking them to proceed with the trial of the suit. It is not a correct principle of law. Even otherwise, it no longer subsists, since many of them have filed their defences in the civil suit. On principle of law, we hold that the approach adopted by the High Court is not correct. But since the defence has already been filed nothing survives in this matter.”

14. We may now refer to a three-Judge Bench decision of this Court in K.G. Premshanker3. The three-Judge Bench took into consideration Sections 40, 41, 42 and 43 of the Evidence Act, 1872 and also the decision of this Court in M.S. Sheriff1 and observed in paragraph 32 of the Report that the decision rendered by the Constitution Bench in M.S. Sheriff case1 would be binding wherein it has been specifically held that no hard and fast rule can be laid down and that possibility of conflicting decision in civil and criminal courts is not a relevant consideration.

 

15. Section 40 of the Evidence Act makes it plain that the existence of any judgment, order or decree which by law prevents any Courts from taking cognizance of a suit or holding a trial is a relevant fact when the question is whether such Court ought to take cognizance of such suit, or to hold such trial.

 

16. Section 41 provides for relevancy of judgments passed in the exercise of probate, matrimonial admiralty or insolvency jurisdiction by the Competent Court. It reads as follows :

 

“S. 41. Relevancy of certain judgments in probate, etc., jurisdiction.—A final judgment, order or decree of a competent Court, in the exercise of probate, matrimonial admiralty or insolvency jurisdiction which confers upon or takes away from any person any legal character, or which declares any person to be entitled to any such character, or to be entitled to any specific thing, not as against any specified person but absolutely, is relevant when the existence of any such legal character, or the title of any such person to any such thing, is relevant.

Such judgment, order or decree is conclusive proof— that any legal character, which it confers accrued at the time when such judgment, order or decree came into operation;

that any legal character, to which it declares any such person to be entitled, accrued to that person at the time when such judgment, order or decree declares it to have accrued to that person;

that any legal character which it takes away from any such person ceased at the time from which such judgment, order or decree declared that it had ceased or should cease;

and that anything to which it declares any person to be so entitled was the property of that person at the time from which such judgment, order or decree declares that it had been or should be his property.”

17. Section 42 deals with relevancy and effect of judgments, orders or decrees, other than those mentioned in Section 41. It reads as under:

 

“S.42. Relevancy and effect of judgments, orders or decrees, other than those mentioned in section 41.—Judgments, orders or decrees other than those mentioned in section 41, are relevant if they relate to matters of a public nature relevant to the enquiry; but such judgments, orders or decrees are not conclusive proof of that which they state.”

18. Section 43 provides that the judgments, orders or decrees other than those mentioned in Sections 40, 41 and 42 are irrelevant unless the existence of such judgment, order or decree is a fact in issue or is relevant under some other provisions of the Evidence Act.

 

19. In K.G. Premshanker3, the effect of the above provisions (Sections 40 to 43 of the Evidence Act) has been broadly noted thus: if the criminal case and civil proceedings are for the same cause, judgment of the civil court would be relevant if conditions of any of Sections 40 to 43 are satisfied but it cannot be said that the same would be conclusive except as provided in Section 41. Section 41 provides which judgment would be conclusive proof of what is stated therein. Moreover, the judgment, order or decree passed in previous civil proceedings, if relevant, as provided under Sections 40 and 42 or other provisions of the Evidence Act then in each case the Court has to decide to what extent it is binding or conclusive with regard to the matters decided therein. In each and every case the first question which would require consideration is, whether judgment, order or decree is relevant; if relevant, its effect. This would depend upon the facts of each case.

 

20 In light of the above legal position, it may be immediately observed that the High Court was not at all justified in staying the proceedings in the civil suit till the decision of criminal case. Firstly, because even if there is possibility of conflicting decisions in the civil and criminal courts, such an eventuality cannot be taken as a relevant consideration. Secondly, in the facts of the present case there is no likelihood of any embarrassment to the defendants (respondent nos. 1 to 4 herein) as they had already filed the written statement in the civil suit and based on the pleadings of the parties the issues have been framed. In this view of the matter, the outcome and/or findings that may be arrived at by the civil court will not at all prejudice the defence(s) of the respondent nos. 1 to 4 in the criminal proceedings.

 

21. For the above reasons, appeal is allowed. The impugned order dated 24.11.2008 passed by the Division Bench of the Madhya Pradesh High Court is set aside. The proceedings in the civil suit shall now proceed further in accordance with law. The parties shall bear their own costs.

 

……………………….J.

 

(R.M. Lodha) ..…..…………………J.

 

(Sharad Arvind Bobde) NEW DELHI MAY 1, 2013.

 

———————–

 

[1]     AIR 1954 SC 397

[2]     1970 (3) SCC 694

[3]     (2002) 8 SCC 87

[4]     (1995) 5 SCC 767

[5]     (1996) 3 SCC 87

Personal Liability of Directors in Company Money Recovery Suit in India.

“It cannot be laid down as a general proposition that whenever the decree is against a company, its Directors/shareholders would also be liable. To hold so would be contrary to the very concept of limited liability and obliterate the distinction between a partnership and a company. Though the courts have watered down the principle in Solomon (supra), to cover the cases of fraud, improper conduct etc, as laid down in Singer India Ltd. Vs. Chander Mohan Chadha (2004) 7 SCC 1 but a case therefor has to be made out. The decree holder in the present case has not made out any case whatsoever. As aforesaid not only were the Directors not parties to the arbitration proceedings but were not impleaded in the execution petition also. There are no averments whatsoever in the execution petition or even in the application under consideration of fraud or improper conduct or of incorporation of the company to evade obligations imposed by law and in which situations the Supreme Court in Singer India Ltd. (Supra) has held that the corporate veil can be disregarded. All that the decree holder has pleaded is that one of the Directors has paid part of the decretal amount. Such voluntary payment by one of the Directors cannot entitle the decree holder to execute the decree against the other Directors also. The only other averments are that the income generated from the company was the income of the Directors. However there are no specific pleadings of fraud and as required to be made under Order 6 Rule 4 of the CPC. It is significant that the three Directors are not stated to be related to each other but are only described as friends of each other. Such faith amongst the Directors is implicit for them to come together to incorporate a company. However, the said circumstance alone is not sufficient to make out a case for lifting of the corporate veil. It has been vaguely stated that the claims of the decree holder are pending since 1996 and the assets of the company have been done away with. There are no averments whatsoever as to what were the assets of the company and as to when they were transferred. In Saurabh Exports, on the pleadings and evidence recorded, the court had found that the company was only a front for the business of its Directors and it was on such evidence that the decree was passed not only against the company but against the Directors also. In the present case no efforts whatsoever have been made out by the decree holder to even plead that the assets of the Directors against whom the decree is sought to be executed were not in existence prior to the incorporation of the company or that the business through the company was only a front for the business of the said Directors.”

*IN THE HIGH COURT OF DELHI AT NEW DELHI

+                                 Ex. App. No.516/2009 in Ex.P. No.295/2003

%                                                  Date of decision: 9th February, 2010

V.K. UPPAL                                                                    ….. Decree Holder

Through: Mr. Rajat Aneja, Advocate.

Versus

M/S AKSHAY INTERNATIONAL PVT. LTD.                                        ….. Judgment Debtor

Through: Mr. Santosh Paul & Mr. Arun Francis, Advocates for JD

No.2&3.

CORAM :-

HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1. Whether reporters of Local papers may

be allowed to see the judgment?                          Yes

2. To be referred to the reporter or not? Yes
3. Whether the judgment should be reported Yes

in the Digest?

 

RAJIV SAHAI ENDLAW, J.

1. The decree holder has applied for execution of arbitration award under the Arbitration Act, 1996, stated to be having force of a decree. The decree holder in the execution petition stated that as per the arbitration award, a sum of Rs.8,54,250/- along with costs of Rs.75,000/- and interest at 18% p.a. had been awarded to it against the judgment debtor company. The arbitration proceedings as well as the execution petition was filed only against the judgment debtor company i.e. M/s Akshay International Pvt. Ltd.

2. The judgment debtor company was sought to be served with the notice of execution through its Director Shri Prakash Baliga. On 19th May, 2005, the counsel for the judgment debtor company made a statement, recorded in the order of that the date that the judgment debtor company was in a bad shape and that Mr. Prakash Baliga was gathering resources and keen to settle the matter. Mr. Prakash Baliga was directed to remain present in the court on the next date of hearing. Mr. Prakash Baliga appeared before the court on 12th August, 2008 and again informed that the financial condition of the judgment debtor company was very poor and he will have to consult “the other partners”. However, this court finding that the execution had been pending since the year 2003 issued warrants of attachment of a bank account particulars whereof were given by the decree holder. However on the next date of hearing i.e. 28th August, 2008 the decree holder informed the court that “the judgment debtor No.3” was co-operating and had already paid Rs.50,000/- and two post dated cheques to the decree holder in part satisfaction of the decree and sought recalling of the earlier order attaching the savings bank account “of the judgment debtor No.3 Mr. Prakash Baliga” and this court ordered accordingly. It may be mentioned that the execution as aforesaid was filed only against the judgment debtor company and there is nothing in the file to show that any of the Directors of the judgment debtor company were at any time also impleaded as judgment debtors.

3. This Court on 28th August, 2008 also directed the other two Directors of the judgment debtor company namely Mr. AJS Sidhu and Mr. S.S. Velkar to present themselves in the court. Subsequently, warrants of arrest of the said Mr. S.S. Velkar and Mr. AJS Sidhu were issued and they appeared before this Court on 1st July, 2009 and informed that the judgment debtor company has ceased operations and the only assets of the judgment debtor company are certain receivables from foreign parties and the judgment debtor company has no other means to satisfy the decree. They also contended that they were not personally liable. Per contra, the counsel for the decree holder contended on that date that the third Director Mr. Prakash Baliga has already paid Rs.6 lacs out of the decretal amount and the other two Directors should pay the balance decretal amount. This Court directed the balance sheet and statement of affairs of the company to be filed and the same were filed.

4. However, the decree holder rather than responding thereto has filed this application pleading that the judgment debtor company is a closely held company of the three Directors aforesaid who were friends; that keeping in view the nature of constitution of the judgment debtor, it has become extremely imperative for the court to direct the lifting of the corporate veil to provide justice to the decree holder; that the court has already directed one of the Directors to pay part of the decretal amount to the decree holder and accordingly the other two Directors should also be directed to pay the decretal amount and upon their failing to do so the decree should be executed against their properties. No need was felt to call for a reply of the said application from the other two Directors against whom the application was directed and the counsel for the decree holder and the counsel for the other two Directors have been heard. It may be mentioned that there is no order of this Court directing Mr. Prakash Baliga, Director of Judgment Debtor company to pay any decretal debts of the company and the payment if any was a private arrangement between the Decree Holder and the said Director, who appears to have come under pressure owing to attachment of his personal bank account as aforesaid.

5. The counsel for the decree holder has relied upon (i) Ashish Polyfibres (Bihar) Ltd. Vs. State Bank of India 2009 (107) DRJ 1 (DB); (ii) Jawahar Lal Nehru Hockey Tournament Vs. Radiant Sports Management 149(2008) DLT 749; (iii) M.R. Khanna Vs. Union of India 133 (2006) DLT 114; (iv) Iyer & Son Pvt. Ltd.Vs. LIC 2007 X AD (Delhi) 643 and Saurabh Exports Vs. Blaze Finlease & Credits Pvt. Ltd. 129 (2006) DLT 429.

6. The admitted position is that the arbitration award having force of the decree is against the judgment debtor company only and not against its Directors. The question which arises is whether a money decree against a Private Limited Co. can be executed against its Directors. There is no provision therefor in the CPC. Order 21 Rule 50 does provide for execution of a money decree against a firm from the assets of the partners of the said firm mentioned in the said rule but there is no provision with respect to the Directors of a company. The executing court, as this Court is cannot go behind the decree and can execute the same as per its form only. The decree is against the company. This Court as the executing court cannot execute the decree against anyone other than the judgment debtor or against from the assets/properties of anyone other than the judgment debtor. The identity of a Director or a shareholder of a company is distinct from that of the company. That is the very genesis of a company or a corporate identity or a juristic person. The classic exposition of law in this regard is contained in Solomon Vs. Solomon & Co. Ltd. 1897 AC 22 where the House of Lords had held that in law a company is a person all together different from its shareholders and Directors and the shareholders and Directors of the company are not liable for the debts of the company except to the extent permissible by law.

7. The counsel for the decree holder has sought to, by relying upon the judgments aforesaid make out a case for invoking the principle of lifting of the corporate veil. The question which arises is, in what circumstances and in which proceedings is the corporate veil to be lifted. Whether it can be lifted in execution proceedings also or it has to be lifted in the substantial proceedings, of orders/decrees wherein execution is sought. In the judgment of the single judge in Jawahar Lal Nehru Hockey Tournament (supra) there is an observation that there could be a case where the court even in an execution proceeding lifts the veil of a closely held company, particularly a private limited company and in order to satisfy a decree, proceeds against the personal assets of its Directors and shareholders. However, I may notice that the aforesaid judgment has been overruled by the Division Bench in EFA(OS) No.17/2008 decided on 7th November, 2008 and reported as MANU/DE/1756/2008. Though the Learned Single Judge had held no case of lifting of the corporate veil in execution to be made out in that case, the Division Bench found that the Director of the company had agreed to be personally liable to satisfy the decree and held him liable. However, the Division Bench refrained from commenting authoritatively on the aspect of lifting of the corporate veil in execution. Thus the said judgment cited by the counsel for the decree holder does not come to his rescue.

8. I also do not find any of the other judgments relied upon by the decree holder to be relevant. In Ashish Polyfibres (Bihar) Ltd., in a suit by a bank for recovery of dues, decree had been passed not only against the company but also against its Directors. The said decree was under challenge before the Division Bench on the ground of the Directors being not liable. The Division Bench dismissed the appeal for the reason that in that case the money had been mistakenly credited by the bank in the account in the name of the company and it was found that the Directors of the company in spite of knowledge of such mistake misappropriated the amounts. It was in those circumstance that they were held liable and not merely for the reason of being the Directors. Moreover that was a substantive proceeding and not an execution proceeding. M.R. Khanna (supra) was a case of recovery of dues under the Employees’ State Insurance Act, 1948. The corporate veil was pierced in that case because the ESI’s contributions recovered from the salaries of the poor workers had not been deposited but had been misappropriated by the Directors for their own benefit. That was also not a case of execution of a decree but of steps taken under the Employees’ State Insurance Act, 1948. The observations relied upon in Iyer & Son Pvt. Ltd. (supra) were also made in the context of public dues. No public dues are involved in the present case; that was also not the case of a money decree. Similarly, Saurabh Exports (supra) was a suit for recovery of money against the company and its Directors and not a case of execution.

9. From the aforesaid, it would be evident that the counsel for the decree holder has been unable to show a single precedent where the money decree against a company has been executed against the Directors or against the assets of the Directors. The provisions of law as aforesaid, also do not permit the same. The Transfer of Property Act in Section 53 thereof allows a creditor to have a transfer of property made with an intent to defeat the creditor set aside. However, the decree holder has not made out/pleaded any case of transfer also.

10. It cannot be laid down as a general proposition that whenever the decree is against a company, its Directors/shareholders would also be liable. To hold so would be contrary to the very concept of limited liability and obliterate the distinction between a partnership and a company. Though the courts have watered down the principle in Solomon (supra), to cover the cases of fraud, improper conduct etc, as laid down in Singer India Ltd. Vs. Chander Mohan Chadha (2004) 7 SCC 1 but a case therefor has to be made out. The decree holder in the present case has not made out any case whatsoever. As aforesaid not only were the Directors not parties to the arbitration proceedings but were not impleaded in the execution petition also. There are no averments whatsoever in the execution petition or even in the application under consideration of fraud or improper conduct or of incorporation of the company to evade obligations imposed by law and in which situations the Supreme Court in Singer India Ltd. (Supra) has held that the corporate veil can be disregarded. All that the decree holder has pleaded is that one of the Directors has paid part of the decretal amount. Such voluntary payment by one of the Directors cannot entitle the decree holder to execute the decree against the other Directors also. The only other averments are that the income generated from the company was the income of the Directors. However there are no specific pleadings of fraud and as required to be made under Order 6 Rule 4 of the CPC. It is significant that the three Directors are not stated to be related to each other but are only described as friends of each other. Such faith amongst the Directors is implicit for them to come together to incorporate a company. However, the said circumstance alone is not sufficient to make out a case for lifting of the corporate veil. It has been vaguely stated that the claims of the decree holder are pending since 1996 and the assets of the company have been done away with. There are no averments whatsoever as to what were the assets of the company and as to when they were transferred. In Saurabh Exports, on the pleadings and evidence recorded, the court had found that the company was only a front for the business of its Directors and it was on such evidence that the decree was passed not only against the company but against the Directors also. In the present case no efforts whatsoever have been made out by the decree holder to even plead that the assets of the Directors against whom the decree is sought to be executed were not in existence prior to the incorporation of the company or that the business through the company was only a front for the business of the said Directors.

No case for attaching the properties of the Directors of the judgment debtor is, therefore, made out. There is not merit in the application, the same is dismissed.

RAJIV SAHAI ENDLAW (JUDGE)

Suit for Partition and Permanent Injunction

In the case in hand, it cannot be said that the whole of the subject matter in both the proceedings is identical. While the relief sought in the first suit is for a decree of permanentinjunction, the second suit has a much wider amplitude for the reason that the plaintiff therein, Sh.H.S. Maini has not only sought a decree of declaration of title but also of partition of the suitproperty by metes and bounds. There is force in the contention of the counsel for Sh. H.S. Maini that the issues arising for a decision would be substantially common in both the suits and almost the same set of oral and documentary evidence would be needed to be adduced for the purpose of determining the issues of facts and law arising for a decision in both the suits. No doubt there will be duplication of recording of evidence if separate trials are held and a possibility of two courts giving conflicting judgments cannot be ruled out. Thus, even if Shri P.S. Maini is held entitled to grant of a decree of permanent injunction in the first suit, the second suit instituted by Shri H.S. Maini for declaration, partition and permanent injunction has to be put to trial as the title to and the nature of the suit property is an issue which shall have to be decided in the second suit, cause of action for institution of which arose in the year 2004, on the demise of the father of the parties.

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Delhi High Court

Harjeet Singh Maini vs Paramjit Singh Maini on 31 March, 2008

Author: H Kohli

Bench: H Kohli

JUDGMENT Hima Kohli, J.

1. By this common order, the Court proposes to dispose of an application under Section 10 of the CPC, being I.A. No. 5370/2006 filed by the defendant in CS(OS) No. 664/2005, Shri Paramjit Singh Maini praying inter alia for stay of further proceedings in the suit till disposal of suit bearing No. 272/2002 entitled Ram Singh Maini (deceased) through LR v. Harjeet Singh Maini, pending before the Civil Judge, Delhi, and the transfer petition being Tr.P. (C) No. 12/2006 entitled Harjit Singh Maini v. Paramjit Singh Maini filed by the plaintiff in CS(OS) No. 664/2005, Shri Harjit Singh Maini, praying inter alia for transfer of Suit No. 272/2002 from the Court of Civil Judge, Delhi, to this Court.

2. A reference to the factual matrix of the case is necessary before proceeding to deal with the aforesaid application under Section 10 of the CPC and the Transfer Petition. In October, 2002, the father of the parties, Shri Ram Singh Maini filed a civil suit as the owner of the property bearing No.A-266, New Friends Colony, New Delhi, bearing Suit No. 272/2002 (hereinafter referred to as the first suit), praying inter alia for a decree of mandatory injunction against his elder son, Shri Harjit Singh Maini to remove all his belongings from the first floor of the property in question. The stand taken in the aforesaid suit was that Shri H.S.Maini was only a licensee in respect of the first floor of the suit property, which license was terminated by a legal notice dated 25.9.2001 and thus he was liable to remove himself from the suit property. A written statement was filed by Shri H.S. Maini in the aforementioned suit denying the right of his father, to institute the suit, whereunder, one of the pleas taken was that Shri H.S. Maini had become the owner of the first floor of the suit property by virtue of an oral settlement arrived at between the family members in the years 1983-84.

3. The following issues were framed in the first suit on 9.12.2002:

1. Whether the present suit is not maintainable in the present form? OPD

2. Whether the present suit is not properly valued for the purposes of court fees and jurisdiction? OPD

3. Whether the plaintiff is entitled to mandatory injunction, as claimed? OPP

4. Relief.

4. During the pendency of the aforesaid first suit, the father of the parties, Shri Ram Singh Maini, expired on 29.1.2004. His younger son, Shri Paramjit Singh Maini, filed an application under Order XXII Rule 3 of the CPC for impleadment in the said suit as a plaintiff, on the basis of his claim that his father had left behind a duly executed registered Will dated 7.9.2001 in his favor. The aforesaid application was allowed by the Civil Judge, vide order dated 19.3.2005 and Shri Paramjit Singh Maini was permitted to be substituted as a plaintiff in place of his deceased father.

5. Thereafter, Shri H.S. Maini filed an application under Order XIV Rule 2 of the CPC praying inter alia that an issue pertaining to the suit being actually in the nature of a suit for possession be framed and treated as a preliminary issue, along with issue No. 2 framed earlier. The aforesaid application was rejected, vide order dated 23.8.2005. Aggrieved by the said rejection order, Shri H.S. Maini filed CM(M) No. 1651/2006 in this Court, which was dismissed with costs of Rs. 7,500/-, vide order dated 17th October, 2006 with the observation that the petitioner therein had filed said proceedings with the mala fide intention of delaying the proceedings in the suit and not permitting the evidence to be recorded.

6. In the meantime, Shri H.S. Maini, instituted a suit in this Court on 7th May, 2005, against his younger brother, Shri P.S. Maini for declaration, injunction and partition in respect of the suit property No. 266, New Friends Colony, New Delhi, claiming that he was the absolute owner in possession of the first floor of the suit property, comprising of 1/3rd share therein, in terms of the oral partition/family settlement arrived at amongst the family members in the year 1983. The said suit was registered as CS(OS) No. 664/2005 (hereinafter referred to as the second suit). Summons were issued in the aforesaid suit on 13th May, 2005. The defendant, Shri P.S. Maini entered appearance and filed his written statement on 31st August, 2005. Pleadings have since been completed in the suit and admission/denial of documents has taken place. Issues are to be framed.

7. On 1.5.2006, Shri P.S. Maini, the younger brother, filed an application under Section 10 of the CPC in the second suit, being I.A. No. 5370/2006, praying inter alia for stay of further proceedings in the second suit till disposal of the first suit pending before the Civil Judge, Delhi. Notice was issued on the aforesaid application on 10th May, 2006. Vide order dated 26.9.2006, it was made clear that the first suit pending in the trial court shall proceed irrespective of the pendency of any petition in this Court. Thereafter, the suit was proceeded further and it is stated that the plaintiffs evidence has already been recorded and the suit is fixed for the evidence of Shri H.S. Maini.

8. On 19.9.2006, Shri H.S. Maini filed a transfer petition under Section 24 of the CPC, being Tr.P(C)No. 12/2006 praying inter alia for transfer of the first suit from the Court of the Civil Judge, Delhi to this Court and for both the suits to be tried and disposed of together.

9. Learned Senior Advocate appearing for Shri H.S. Maini submitted that the Transfer Petition was necessitated so as to prevent a probability of conflicting judgments being passed at different forums in respect of the same property and interse the same parties. It was submitted that the scope of the second suit was much wider as compared to that of the first suit and hence, it would be appropriate to call for the file of the first suit to this Court and try both the suits together. He further submitted that even if it is assumed that Shri P.S. Maini would ultimately succeed before the Trial Court in the first suit and would be held entitled to a decree against Shri H.S. Maini, then also, the latters claim for declaration and partition in respect of the suit property in the second suit would subsist, since his claim to 1/3rd share in the suit property, is based on his stand that the suit property was an ancestral one and an oral partition had been arrived at between the parties during the life time of their father and that the Will of the father relied on by the younger brother was forged so as to deprive him of his legal right in the first floor of the suit property. It was thus, contended that the transfer of the first suit to this Court and consolidation thereof with the second suit for the purposes of trial would set at rest all the controversies between the parties in respect of the suit property, once and for all.

10. Counsel for Shri H.S. Maini gave an assurance that it shall be his endeavor to expedite disposal of both the suits and to show his bonafides, immediately upon issues being framed in the second suit, Sh.H.S. Maini shall file a consolidated affidavit and shall submit himself to a time-bound schedule for trial of both the cases. He further submitted on behalf of Sh.H.S. Maini that no request shall be made for treating any issue as a preliminary issue so that the parties could address arguments on all the issues at one go.

11. On the other hand, counsel for Shri P.S. Maini strongly opposed the Transfer Petition on the ground that trial had already begun in the first suit and substantial evidence had been recorded, whereas the second suit was still at the stage of framing of issues. He thus submitted that allowing the Transfer Petition filed by the other side will result in unnecessarily delaying the disposal of the first suit. Much emphasis was laid on the dilatory tactics adopted by Shri H.S. Maini in the first suit. In this context, the counsel referred to the order dated 26.9.2006 passed by this Court in CS(OS) No. 664/2005, the second suit, wherein it was directed that the trial court will continue hearing of the first suit irrespective of the pendency of the Transfer Petition. Reference was also made to the order dated 17.10.2006 passed in CM (M) No. 1651/2006 filed by Shri H.S. Maini, assailing the order dated 23.8.2005 passed by the Civil Judge, Delhi on the application under Order XIV Rule 2 of the CPC, to state that the other side had been trying to stall the proceedings on one pretext or the other and that the Transfer Petition is yet another step in that direction. In support of his submissions, counsel for Shri P.S. Maini relied on the following judgments:

1. Rabindra N. Das v. Santosh Kumar Mitra and Ors. ;

2. S.C. Jain v. Bindeswari Devi 1997 (42) DRJ 239; and

3. Bhagwati Prasad Sharma v. Ram Swaroop Sharma 2002 (61) DRJ 603

12. It was further submitted on behalf of Shri P.S. Maini that the first suit pending before the Civil Judge, Delhi was instituted prior to the institution of the second suit and the question of entitlement of Shri H.S. Maini to a right in the first floor of the suit property could be validly and legally decided in the first suit as well. Counsel also referred to the order dated 19.3.2005 passed by the Civil Judge, Delhi on an application filed by Shri P.S. Maini under Order XXII Rule 3 of the CPC for his impleadment as a legal heir of late Shri Ram Singh Maini, wherein the Court in the operative para observed as below:

By applying the aforesaid analogy to the facts of the present case, it become manifestly clear that the deceased plaintiff had left behind only three legal and natural heirs i.e. two sons and one married daughter, out of which the elder son is the defendant in the present suit and the younger son is the applicant in the application under disposal. The notice of application had been duly served upon the married daughter of the deceased plaintiff namely, Smt. Amrit Kaur, however, for the reasons best known to her, she has chosen not to contest the present application, but in view of the service of the notice of application upon her, it can be safely held that she is aware of the contents of the present application which neither of which she has decided to contest nor she had disputed the same.

In view of this fact, now there remain only two legal heirs among whom the fate of the present litigation shall be determined. Since one of them is already the defendant in the present suit, therefore in my opinion the impleadment of the second son as plaintiff to the present suit being LR of the deceased plaintiff is essentially required in the interest of justice and the same would also not cause any prejudice to the defendant as well who is already contesting the case since its institution because in the event the applicant fails to prove his locus and title by way of proving the aforesaid will in accordance with law, in that event the rights and title of the defendant shall automatically be decided. Thereafter, in my opinion, this impleadment is necessary not only in the interest of justice but also for the purpose of proper adjudication of real issue in controversy between the parties on its merits as well.

In view of my aforesaid discussion, the present application of the applicant is allowed and he is directed to be placed as a plaintiff in the array of parties.

13. It was thus stated that though no separate issue was framed in the first suit with regard to the legality and validity of the Will of Shri Ram Singh Maini, in view of the aforesaid order dated 19.3.2005, and in view of the fact that the respondent has since then also examined witness to the Will in his evidence, the question of entitlement of Shri H.S. Maini to a part of the suit property can be validly and legally decided in the first suit. In this regard, reliance was placed on the judgment of the Punjab & Haryana High Court in the case of State v. Chuni Lal Vohra and Anr. .

14. Insofar as the application filed under Section 10 CPC by Shri P.S. Maini in the second suit i.e. CS(OS) No. 664/2005 for stay of the suit proceedings is concerned, his counsel submitted that the matter in issue in the second suit is directly and substantially the same as in the first suit pending between the parties i.e., whether Shri H.S. Maini has any right, title or interest in the suit property. It was, therefore, submitted that simultaneous trial of both the suits might lead to conflicting decisions and, therefore, proceedings in the second suit may be stayed till the disposal of the first suit by the Civil Judge, Delhi.

15. Per contra, counsel for Shri H.S. Maini opposed the aforesaid application and submitted that the scope of the second suit is much wider, as the same is for declaration, injunction and partition of the suit premises by metes and bounds, whereas the first suit is only for eviction on the basis of cancellation of license and thus, it would be in the interest of justice that the first suit be summoned to this Court and be tried along with the second suit to avoid any conflicting decisions. It was further stated that the primary question to be decided in the second suit is the right, title and interest of Shri H.S. Maini to a part of the suit property and the plea of the counsel for Shri P.S. Maini that the legality and validity of the Will of Shri Ram Singh Maini will clinch the issue of the title in the suit property is baseless for the reason that the stand of Sh. H.S. Maini in the second suit is that a family settlement had been arrived at between the parties during the life time of Shri Ram Singh Maini, under which Shri H.S. Maini was given 1/3rd share in the suit property comprising of the first floor thereof. Hence, it was contended that even if evidence is led in first suit with regard to the Will, the other plea taken by Shri H.S. Maini in CS(OS) No. 664/2005 pertaining to the family settlement, would have to be established in the second suit in order to decide his right, title and interest in the suit property. Counsel therefore submitted that not only was the first suit liable to be transferred to this Court, but the same ought to be tried along with the second suit so as to prevent conflicting judgments.

16. In support of his arguments, counsel for Shri H.S. Maini relied on the following judgments:

1. Maxwell Securities Pvt. Ltd. and Ors. v. National Stock Exchange of India Ltd. 2002 I AD (Delhi) 308;

2. Chitivalasa Jute Mills v. Jaypee Rewa Cement ; and

3. Nirmala Devi v. Arun Kumar Gupta and Ors. (2005) 12 SCC 505.

17. I have heard the counsels for the parties and have carefully considered the pleadings and judgments relied on by the parties. There is no doubt in the present case that not only the parties to both the suits are common, but even the subject matter of both the suits is common, namely, the suit property. Section 24 of the CPC empowers the Court to transfer and withdraw any suit, appeal or proceedings to/from any court subordinate to it and competent to try and dispose of the same and the Court can exercise the said power on an application of any of the parties or on its own motion without notice, at any stage at its discretion.

18. In the present case, the cause of action that formed the basis for the first suit arose during the life time of the father of the parties, Shri Ram Singh Maini, when he called upon his elder son Shri H.S. Maini to vacate the suit premises and subsequently issued a legal notice upon him on 25.9.2001. The first suit was filed by Shri Ram Singh Maini against his son claiming to be the owner of the suit property and treating Shri H.S. Maini as a licensee in respect of the first floor of the suit premises, which was stated to have been terminated on the issuance of the legal notice dated 25.9.2001. Thus in the first suit the relief sought was for a decree of declaration and mandatory injunction against Shri H.S. Maini. The question of right and title to the suit property was not at issue at the said stage.

19. Upon the demise of Shri Ram Singh Maini on 29.1.2004, while allowing Shri P.S. Maini to be substituted in his place as a plaintiff in the first suit, on the basis of an assertion that a Will dated 7.9.2001 was executed by the deceased in his favor, the Civil Judge, Delhi, passed an order dated 19.3.2005 observing therein that if Shri P.S. Maini failed to prove his locus standi and title by proving the Will in accordance with law, in that event, the right and title of the defendant in the first suit shall automatically be decided. However, fact remains that even after substitution of Shri P.S. Maini as a legal heir of the deceased father in the first suit, the issues framed much earlier on 9.12.2002 were not amended and thus, no specific issue was framed separately with regard to the legality or validity of the Will of the deceased.

20. Furthermore, even if it is assumed that the issue of the legality and validity of the Will would be considered and decided in the first suit on the strength of the order dated 19.3.2005 passed by the Civil Judge, Delhi, fact remains that in the second suit filed by Shri H.S. Maini, it is his allegation that cause of action arose when his younger brother, Shri P.S. Maini set up the Will of their deceased father and threatened Sh.H.S. Maini of dispossession from the first floor of the suit property, thus compelling him to institute the second suit for declaration, injunction and partition. In the second suit, not only has Shri H.S. Maini challenged the validity of the aforesaid Will, but in addition, has set up a plea of the suit property being ancestral in nature and oral partition thereof taking place in the year 1983-84, during the life time of their father. The said issue is certainly an issue which requires to be taken to trial, so as to fully, finally and effectually decide the disputes between the parties, pertaining to the title and ownership of the suit property. The same can also not be treated as an issue which directly and substantially arises as an issue in the first suit pending before the Civil Judge, Delhi.

21. While discussing the scope of Section 10 of the CPC, the ingredients thereof as elucidated in the case of C.L. Tandon v. Prem Pal Singh reported as must be kept in mind. The same are as below:

(a) The matter/matters in issue should be substantially the same in the two suits;

(b) The previously instituted suit should be pending in the same Court in which the subsequent suit is brought or in another court in India having jurisdiction to grant the relief claimed; and

(c) The two suits should be between the same parties or their representatives and these parties should be litigating in the two suits under the same title.

22. In the case of Shaw Wallace & Co. Ltd. v. Bholanath Madanlal Sherawala and Ors. reported as , a Division Bench of Calcautta High Court while discussing the terms matter in issue in the context of provisions of Section 10 of the CPC observed as below:

13. One of the most essential conditions of Section 10 is that the matter in issue in the latter suit which is sought to be stayed must be directly and substantially in issue in the earlier suit which is pending in the same or in any other court of concurrent jurisdiction. A mere identity of some of the issues in both the suits is not sufficient to attract this section in view of the law laid down by Sir Ashutosh Mookerjee. Unless the decision of the suit operates as res judicata in the other suit, it cannot be said that the matter in issue is directly and substantially the same in both the suits. In other words, the decision in one suit must non-suit the other suit before it can be said that the matter in issue in both the suits is directly and substantially the same.

23. Thus, Section 10 of the CPC mandates that the matter in issue in the earlier instituted suit and the subsequently instituted suit should be directly and substantially in issue in the previously instituted suit. If the cause of action in the subsequently instituted suit is different, in that event, the earlier instituted suit will not be a bar in continuation of the subsequently instituted suit. Therefore, the acid test is that the decision in the earlier suit should operate as res judicata in respect of the subsequently instituted suit.

24. In the case in hand, it cannot be said that the whole of the subject matter in both the proceedings is identical. While the relief sought in the first suit is for a decree of permanent injunction, the second suit has a much wider amplitude for the reason that the plaintiff therein, Sh.H.S. Maini has not only sought a decree of declaration of title but also of partition of the suit property by metes and bounds. There is force in the contention of the counsel for Sh. H.S. Maini that the issues arising for a decision would be substantially common in both the suits and almost the same set of oral and documentary evidence would be needed to be adduced for the purpose of determining the issues of facts and law arising for a decision in both the suits. No doubt there will be duplication of recording of evidence if separate trials are held and a possibility of two courts giving conflicting judgments cannot be ruled out. Thus, even if Shri P.S. Maini is held entitled to grant of a decree of permanent injunction in the first suit, the second suit instituted by Shri H.S. Maini for declaration, partition and permanent injunction has to be put to trial as the title to and the nature of the suit property is an issue which shall have to be decided in the second suit, cause of action for institution of which arose in the year 2004, on the demise of the father of the parties.

25. As this Court has held that the second suit has a much wider scope than the first suit, it cannot be said that the decision in the first suit will operate as res judicata in the second suit for the reason that the ownership and title of Shri H.S. Maini in the suit property cannot be decided comprehensively even if Shri P.S. Maini is able to successfully establish in the first suit that the termination of the license deed of Shri H.S. Maini by the deceased father of the parties was legal and valid and the Will of their deceased father as set up by Sh. P.S. Maini, was legally and validly executed, for the reason that Sh.H.S. Maini has claimed entitlement to 1/3rd share comprising of the first floor in the suit property described as ancestral by him, on the basis of an oral family settlement stated to have been arrived at during the life time of the father of the parties, in the year 1983-84, which claim shall have to be put to trial for the purposes of returning a finding one way or the other. In this view of the matter, the judgment in the case of Chuni Lal Vohra (supra), relied on by the counsel for Shri P.S. Maini, is not applicable to the present case, the same being entirely distinct on facts as also on law, from the case in hand.

26. In light of the aforesaid discussion, while rejecting the application filed by Shri P.S. Maini, in CS (OS) No. 664/2005, namely, I.A. No. 5370/2006, the Transfer Petition (C) No. 12/2006 is allowed. File of suit bearing No. 272/2002 entitled Ram Singh Maini v. Harjeet Singh Maini, pending before the Civil Judge, Delhi, is liable to be transferred to this Court for further proceedings.

27. Insofar as the plea of the petitioner in the Transfer Petition for consolidation of the first suit with CS(OS) No. 664/2005 is concerned, it will be appropriate to take a decision as to whether to consolidate both the suits or put them for trial together only after issues are framed in the second suit.

28. The anxiety expressed on behalf of Shri P.S. Maini that any order of transferring the first suit to this Court shall result in causing delay in its disposal, can be assuaged by binding Shri H.S. Maini to his offer that at the stage of recording his evidence as defendant in the first suit, after framing of issues in the second suit, he may be directed to file a consolidated affidavit for both the suits in a time-bound manner, to which he shall have no objection and further binding him to his undertaking not to press any issue for a decision as a preliminary issue, so as to avoid prolonging the suit proceedings. Shri H.S. Maini shall remain bound by the aforesaid undertakings.

29. The Transfer Petition is allowed and disposed of. IA No. 5370/2006 in CS(OS) No. 664/2005 is rejected. No orders as to costs.

What is the difference between succession and probate certificate.

 

A person who expires has either made a ‘will’ or died ‘intestate’.

In case a person has made a ‘will’, it should be submitted for Probate after his death.

A probate means a copy of the Will, certified under the seal of a competent Court with a grant of administration of the estate to the executor of the testator. It is the official evidence of an executor’s authority. A probate granted by a competent court is conclusive evidence of the validity of a Will until it is revoked and no evidence can be admitted to impeach it except in a proceeding to revoke the probate.

In case a person dies ‘intestate’, then all the legal heirs have to apply to a competent court for a ‘Succession Certificate’ so that his property can be devolved upon his successors

What is succession Certificate:

A succession certificate is issued by a civil court to the legal heirs of a deceased person. If a person dies without leaving a will, a succession certificate can be granted by the court to realise the debts and securities of the deceased. It establishes the authenticity of the heirs and gives them the authority to have securities and other assets transferred in their names as well as inherit debts. It is issued as per the applicable laws of inheritance on an application made by a beneficiary to a court of competent jurisdiction. A succession certificate is necessary, but not always sufficient, to release the assets of the deceased. For these, a death certificate, letter of administration and no-objection certificates will be needed.

Section 372 in The Indian Succession Act, 1925

372 Application for certificate. —

(1) Application for such a certificate shall be made to the District Judge by a petition signed and verified by or on behalf of the applicant in the manner prescribed by the Code of Civil Procedure, 1908 (5 of 1908) for the signing and verification of a plaint by or on behalf of a plaintiff, and setting forth the following particulars, namely:—

(a) the time of the death of the deceased;

(b) the ordinary residence of the deceased at the time of his death and, if such residence was not within the local limits of the jurisdiction of the Judge to whom the application is made, then the property of the deceased within those limits;

(c) the family or other near relatives of the deceased and their respective residences;

(d) the right in which the petitioner claims;

(e) the absence of any impediment under section 370 or under any other provision of this Act or any other enactment, to the grant of the certificate or to the validity thereof if it were granted; and

(f) the debts and securities in respect of which the certificate is applied for.

(2) If the petition contains any averment which the person verifying it knows or believes to be false, or does not believe to be true, that person shall be deemed to have committed an offence under section 198 of the Indian Penal Code, 1860 (45 of 1860).

 [(3) Application for such a certificate may be made in respect of any debt or debts due to the deceased creditor or in respect of portions thereof.]

What is the meaning of Probate of Will in India.

A Probate is a document that certifies that the copy of the Will (including Codicils, if there are any) that is attached to it, has been proved in the relevant court. A Probate is issued under a seal of the Court. A Probate can be granted by the Court only to the Executor (ie the person who will implement or execute the Will after its maker’s death). The legal effect of the grant of a Probate is that it establishes the legal character of the Executor to implement the Will and to the validity of the Will. For example if a person appointed as the Executor, transfers certain shares of a company to another person as per the Will, then the company whose shares are being transferred can ask for the status of the Executor, since on their record, the owner is another person. In such a case the Probate establishes the Executor’s right to apply for the transfer of the shares since the owner has died and that the Will is valid.

Section 276 in The Indian Succession Act, 1925

276. Petition for probate.—

(1) Application for probate or for letters of administration, with the Will annexed, shall be made by a petition distinctly written in English or in the language in ordinary use in proceedings before the Court in which the application is made, with the Will or, in the cases mentioned in sections 237, 238 and 239, a copy, draft, or statement of the contents thereof, annexed, and stating—

(a) the time of the testator’s death,

(b) that the writing annexed is his last Will and testament,

(c) that it was duly executed,

(d) the amount of assets which are likely to come to the petitioner’s hands, and

(e) when the application is for probate, that the petitioner is the executor named in the Will.

(2) In addition to these particulars, the petition shall further state,—

(a) when the application is to the District Judge, that the deceased at the time of his death had a fixed place of abode, or had some property, situate within the jurisdiction of the Judge; and

(b) when the application is to a District Delegate, that the deceased at the time of his death had a fixed place of abode within the jurisdiction of such Delegate.

(3) Where the application is to the District Judge and any portion of the assets likely to come to the petitioner’s hands is situate in another State, the petition shall further state the amount of such assets in each State and the District Judges within whose jurisdiction such assets are situate.

 

 

Difference between probate and letters of administration in india

Q :When Probate can be grant and to whom

Ans : can be granted when deceased had died appointing a executor in the will.

Q:When can  a letter of administration can be granted and  when:

Ans;1- deceased had died intestate.

2- the deceased has made a will, but has not appointed an executor.

The relevant sections of Indian succession act:

222. Probate only to appointed executor.- (1) Probate shall be granted only to an executor appointed by the will.

(2) The appointment may be expressed or by necessary implication.

Illustrations

(i) A wills that C be his executor if B will not. B is appointed executor by implication.

(ii) A gives a legacy to B and several legacies to other persons, among the rest to his daughter-in-law C, and adds “but should the within-named C be not living I do constitute and appoint B my whole and sole executrix”. C is appointed executrix by implication.

(iii) A appoints several persons executors of his will and codicils and his nephew residuary legatee, and in another codicil are these words,–“I appoint my nephew my residuary legatee to discharge all lawful demands against my will and codicils signed of different dates”. The nephew is appointed an executor by implication. 

218. To whom administration may be granted, where deceased is a Hindu, Muhammadan, Buddhist, Sikh, Jaina or exempted person.- (1) If the deceased has died intestate and was a Hindu, Muhammadan, Buddhist, Sikh or Jaina or an exempted person, administration of his estate may be granted to any person who, according to the rules for the distribution of the estate applicable in the case of such deceased, would be entitled to the whole or any part of such deceased’s estate.

(2) When several such persons apply for such administration, it shall be in the discretion of the Court to grant it to any one or more of them.

(3) When no such person applies, it may be granted to a creditor of the deceased.

232. Grant of administration to universal or residuary legatees.- When–

(a) the deceased has made a will, but has not appointed an executor, or

(b) the deceased has appointed an executor who is legally incapable or refuses to act, or who has died before the testator or before he has proved the will, or

(c) the executor dies after having proved the will, but before he has administered all the estate of the deceased, an universal or a residuary legatee may be admitted to prove the will, and letters of administration with the will annexed may be granted to him of the whole estate, or of so much thereof as may be unadministered.

Probate of Will Law & Procedure in India

The Indian Succession Act 1925.

To whom administration may be granted, where deceased is a Hindu, Muhammadan, Buddhist, Sikh, Jaina or exempted person.- (1) If the deceased has died intestate and was a Hindu, Muhammadan, Buddhist, Sikh or Jaina or an exempted person, administration of his estate may be granted to any person who, according to the rules for the distribution of the estate applicable in the case of such deceased, would be entitled to the whole or any part of such deceased’s estate.

(2) When several such persons apply for such administration, it shall be in the discretion of the Court to grant it to any one or more of them.

(3) When no such person applies, it may be granted to a creditor of the deceased.

Where deceased is not a Hindu, Muhammadan, Buddhist, Sikh, Jaina or exempted person.- If the deceased has died intestate and was not a person belonging to any of the classes referred to in section 218, those who are connected with him, either by marriage or by consanguinity, are entitled to obtain letters of administration of his estate and effects in the order and according to the rules hereinafter stated, namely:–

(a) If the deceased has left a widow, administration shall be granted to the widow, unless the Court sees cause to exclude her, either on the ground of some personal disqualification, or because she has no interest in the estate of the deceased.

Illustrations

(i) The widow is a lunatic or has committed adultery or has been barred by her marriage settlement of all interest in her husband’s estate. There is cause for excluding her from the administration.

(ii) The widow has married again since the decease of her husband. This is not good cause for her exclusion.

(b) If the Judge thinks proper, he may associate any person or persons with the widow in the administration who would be entitled solely to the administration if there were no widow.

(c) If there is no widow, or if the Court sees cause to exclude the widow, it shall commit the administration to the person or persons who would be beneficially entitled to the estate according to the rules for the distribution of an intestate’s estate:

Provided that, when the mother of the deceased is one of the class of persons so entitled, she shall be solely entitled to administration.

(d) Those who stand in equal degree of kindred to the deceased are equally entitled to administration.

(e) The husband surviving his wife has the same right of administration of her estate as the widow has in respect of the estate of her husband.

(f) When there is no person connected with the deceased by marriage or consanguinity who is entitled to letters of administration and willing to act, they may be granted to a creditor.

(g) Where the deceased has left property in India, letters of administration shall be granted according to the foregoing rules, notwithstanding that he had his domicile in a country in which the law relating to testate and intestate succession differs from the law of India.

Probate only to appointed executor.- (1) Probate shall be granted only to an executor appointed by the will.

(2) The appointment may be expressed or by necessary implication.

Illustrations

(i) A wills that C be his executor if B will not. B is appointed executor by implication.

(ii) A gives a legacy to B and several legacies to other persons, among the rest to his daughter-in-law C, and adds “but should the within-named C be not living I do constitute and appoint B my whole and sole executrix”. C is appointed executrix by implication.

(iii) A appoints several persons executors of his will and codicils and his nephew residuary legatee, and in another codicil are these words,–“I appoint my nephew my residuary legatee to discharge all lawful demands against my will and codicils signed of different dates”. The nephew is appointed an executor by implication.

Persons to whom probate cannot be granted.- Probate cannot be granted to any person who is a minor or is of unsound mind nor to any association of individuals unless it is a company which satisfies the conditions prescribed by rules to be made, by notification in the Official Gazette by the State Government in this behalf.

Administration, with copy annexed, of authenticated copy of will proved abroad.- When a will has been proved and deposited in a Court of competent jurisdiction situated beyond the limits of the State, whether within or beyond the limits of India, and a roperly authenticated copy of the will is produced, letters of dministration may be granted with a copy of such copy annexed.

Conclusiveness of application for probate or administration if properly made and verified.- The application for probate or letters of administration, if made and verified in the manner hereinafter provided, shall be conclusive for the purpose of authorising the grant of probate or administration; and no such grant shall be impeached by reason only that the testator or intestate had no fixed place of abode or no property within the district at the time of his death, unless by a proceeding to revoke the grant if obtained by a fraud upon the Court.

Petition for probate.- (1) Application for probate or for letters of administration, with the will annexed, shall be made by a petition distinctly written in English or in the language in ordinary use in proceedings before the Court in which the application is made, with the will or, in the cases mentioned in sections 237, 238 and 239, a copy, draft, or statement of the contents thereof, annexed, and stating–

(a) the time of the testator’s death.

(b) that the writing annexed is his last will and testament,

(c) that it was duly executed,

(d) the amount of assets which are likely to come to the petitioner’s hands, and

(e) when the application is for probate, that the petitioner is the executor named in the will.

(2) In addition to these particulars, the petition shall further state,–

(a) when the application is to the District Judge, that the deceased at the time of his death had a fixed place of abode, or had some property, situate within the jurisdiction of the Judge; and

(b) when the application is to a District Delegate, that the deceased at the time of his death had a fixed place of abode within the jurisdiction of such Delegate.

(3) Where the application is to the District Judge and any portion of the assets likely to come to the petitioner’s hands is situate in another State, the petition shall further state the amount of such assets in each State and the District Judges within whose jurisdiction such assets are situate.

Petition for letters of administration.- (1) Application for letters of administration shall be made by petition distinctly written as aforesaid and stating–

(a) the time and place of the destator’s death;

(b) the family or other relatives of the deceased, and their respective residences;

(c) the right in which the petitioner claims;

(d) the amount of assets which are likely to come to the petitioner’s hands;

(e) when the application is to the District Judge, that the deceased at the time of his death had a fixed place of abode, or had some property, situate within the jurisdiction of the Judge; and

(f) when the application is to a District Delegate, that the deceased at the time of his death had a fixed place of abode within the jurisdiction of such Delegate.

(2) Where the application is to the District Judge and any portion of the assets likely to come to the petitioner’s hands is situate in another State, the petition shall further state the amount of such assets in each State and the District Judges within whose jurisdiction such assets are situate.