Deutsche Bank AG vs Vilas Samant

S.J. Vazifdar, J.—This appeal u/s 10F of the Companies Act, 1956 challenges an interim order passed by the Company Law Board dated 21-1-2009 in a petition filed by the first respondent inter alia under Sections 111, 397 and 398 of the said Act.

The first respondent is the petitioner. The appellant is respondent No. 5 in the petition. Respondent Nos. 2 to 9 in the appeal are respondent Nos. 1 to 4 and 6 to 9 in the petition. Respondent No. 2, Cowtown Land Development Private Limited, is the company in respect of which the petition has been filed. Respondent Nos. 3, 4 and 5 are individuals belonging to the Lodha family who in turn control respondent Nos. 6 to 9 companies.

I will for convenience refer to the first Respondent as the Petitioner, the Appellant as the Appellant, the second Respondent as the company and the other parties as the other Respondents.

By the impugned interim order the Board of Directors of the company has been restrained from allotting shares to the Appellant on the basis of the conversion of debentures held by the Appellant and issued by the company in respect of an investment of Rs. 1,640 crores.

The Petitioner seeks to assert his alleged right in respect of 200 shares held by his father by filing this petition on 15-12-2009, four years after his father''s death. The records of the company show the shares as having been transferred to Respondent Nos. 3 and 4 on 26-3-2003. The Appellant is an innocent third party who in the year 2007 invested an amount of Rs. 1,640 crores in the company inter alia against debentures convertible in the event of any default in payment.

Although the petition is based on alleged grievances against the other Respondents curiously, the only interim reliefs sought and obtained, in fact, benefit the company and the other Respondents totally as, by virtue thereof the Appellant is prevented from enforcing its security against the company for an admitted failure to repay the amounts due under the valid transaction between the company and the Appellant.

(a) This matter raises several questions of law under the Companies Act including under Sections 84, 111 and 402 thereof pertaining to the maintainability of the petition, limitation and the scope of interference with a third party contract.

(b) For the purpose of this judgment however, it is sufficient to consider whether while dealing with interlocutory applications, the Company Law Board is bound to follow the well-established rules regarding the grant of interlocutory orders. I should have thought the answer to be quite obviously in the affirmative. However, none of these principles have been either applied or followed.

For instance, firstly, the impugned order does not even consider whether the Petitioner has a strong prima facie case even on facts. Secondly, the question of balance of convenience has been totally ignored. Thirdly, the impugned order does not even consider whether the Petitioner would suffer irreparable injury if the interim reliefs as prayed for were not granted. Moreover, the impugned order is based on presumptions which even the Petitioner not only admits are totally incorrect but states that such facts were not pleaded even orally on his behalf. The inferences from admitted facts are also perverse. Even more important is the fact that even the Petitioner admits that the extent of the order was not justified and in fact now contends that he never sought reliefs to that extent. Nor has the impugned order considered the dishonest conduct of the Petitioner which in the facts of this interlocutory application, assumes importance.

(c) The judgment of the Company Law Board falls squarely within the ratio of the judgment of the Supreme Court in Dale and Carrington Invt. (P) Ltd. and Another Vs. P.K. Prathapan and Others, , where it was held:

We have now to deal with the question of scope of appeal filed u/s 10F of the Companies Act by Prathapan in the High Court.

Section 10F refers to an appeal being filed on a question of law. The learned Counsel for the appellant argued that the High Court could not disturb the findings of fact arrived at by the Company Law Board. It was further argued that the High Court has recorded its own finding on certain issues which the High Court could not go into and, therefore, the judgment of the High Court is liable to be set aside. We do not agree with the submission made by the learned Counsel for the appellants. It is settled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on the question of law. The perversity of the finding itself becomes a question of law. In the present case we have demonstrated that the judgment of the Company Law Board was given in a very cursory and cavalier manner. The Board has not gone into real issues which were germane for the decision of the controversy involved in the case. The High Court has rightly gone into the depth of the matter.... (p. 236)

[Emphasis supplied]

In United Commercial Bank Vs. Bank of India and Others, , the Supreme Court held:

No injunction could be granted under Order 39, Rules 1 and 2 of the Code unless the plaintiffs establish that they had a prima facie case, meaning thereby that there was a bona fide contention between the parties or a serious question to be tried. The question that must necessarily arise is whether in the facts and circumstances of the case, there is a prima facie case and, if so, as between whom? In view of the legal principles applicable, it is difficult for us to say on the material on record that the plaintiffs have a prima facie case....

Even if there was a serious question to be tried, the High Court had to consider the balance of convenience....

The balance of convenience clearly lies in allowing the normal banking transactions to go forward. Furthermore, the plaintiffs have failed to establish that they would be put to an irreparable loss unless an interim injunction was granted. (p. 787)

[Emphasis supplied]

These principles apply to interlocutory applications before the Company Law Board.

(a) The Petitioner and his father, Madhukar Samant, were the promoters of the company which was incorporated in 1985. Admittedly, prior to 26-3-2003 the Petitioner and his father held 1800 and 200 equity shares of the company respectively. They were the only shareholders of the company.

(b)(i) On 26-3-2003 the Petitioner and his father sold and transferred their shares to Respondent Nos. 3 and 4. The register of members recorded the transfer of the said 2000 shares which included the 200 shares held by. the Petitioner''s father. Some of the shares were subsequently transferred to the other Respondents inter se.

(ii) The Petitioner admits the transfer of his 1800 shares. He denies only the transfer of the 200 shares held by his father.

(c) It is of vital importance to note that till October 2004 the Petitioner remained a Director of the company.

(d) The Petitioner''s father expired in November 2005. He had never raised any dispute regarding the transfer of his 200 shares. The Petitioner himself made a claim in writing in respect of them only five years later in this Petition and at the earliest allegedly by a letter dated 20-11-2007 i.e., four years after the transfer and two years after his father''s death.

The entire Petition is based solely on the Petitioner''s claim to his father''s 200 shares. The Petitioner denies that the shares were transferred on 26-3-2003 by his father to Respondent Nos. 3 and 4.

Thus, the first important and obvious question to be considered, is whether the Petitioner has made out a prima facie case in support of his contention on facts that he had any right, title or interest in respect of the said 200 shares originally held by his deceased father. This crucial aspect of the matter has not even been examined by the Company Law Board despite the fact that the said 200 shares is the only basis on which the Petitioner claims the right to maintain this Petition and indeed any right in the company.

There is no documentary record of any attempt on the Petitioner''s part to have the 200 shares registered in his name till the filing of this Petition. Except for an alleged letter dated 20-11-2007, there is no documentary evidence even of an assertion of the Petitioner''s right in respect of these 200 shares. He has attempted to furnish an explanation as to what transpired between 26-3-2003 and 15-12-2008 on which date he filed the petition. Thus, the verasity of the Petitioner''s explanation of what transpired between 26-3-2003 and 15-12-2008 is most relevant.

I will deal with the Petitioner''s explanation/ case of what transpired during this period stage by stage. The explanation for each stage considered independently is not believable. The explanation for all the stages viewed together is not only not believable but, prima jade, reflects mala fides on the Petitioner''s part.

The first stage in the Petitioner''s case in the petition regarding the 200 shares held by his father is that in January/February 2003 the Petitioner and his father were approached by the Lodha group to develop the properties owned by the company jointly; that the Petitioner and his father were sentimentally attached to the company and therefore agreed that the holding of the Petitioner in the company would not be less than 10 per cent at any given time and that therefore the Petitioner would continue to remain on the Board of the company. Accordingly, it is stated in the petition that the Petitioner agreed to sell his shares in the company to the Lodha group but retained 10 per cent shares through the shares held by his father.

There admittedly is not a single letter or any other form of writing recording or even remotely evidencing the alleged understanding between the Petitioner, his father and the Lodha group. There is admittedly no such evidence on the record of the company. In other words, there is absolutely no evidence in respect of this alleged understanding regarding the Petitioner retaining his alleged right in respect of his father''s 200 shares. Nor is there any evidence to indicated that the Petitioner''s father exercised any rights whatsoever in respect of the said 200 shares after 26-3-2003.

The second stage is the Petitioner''s contention in the petition that in or around October 2004 he resigned from the Board of the company as he could not spend enough time to attend to the affairs of the company. He however submitted that he resigned with the understanding that he would be entitled to be reinstated on the Board as and when desired by him.

Here again, there is nothing in writing either in the form of a letter or otherwise which even remotely refers to any such oral understanding. Prima facie at least, if there was a reservation, as important as this it would be recorded in some form or the other. It is important to note that even as regards this alleged arrangement there is nothing on the record of the company which would indicate the existence of any such understanding to a third-party such as the Appellant.

This brings me to the third stage in the Petitioner''s explanation. As stated above, the Petitioner''s father expired in November 2005. The Petitioner filed the petition claiming to be the owner of these 200 shares by reason of his being the son of the said Madhukar Samant. It is merely stated that on the death of his father the Petitioner became entitled to the said 200 shares.

Firstly the Petitioner does not even state how he became entitled to the 200 shares which belonged to his father. Merely by virtue of being his son, the Petitioner does not succeed to the shares even assuming that they belonged to his father at the material time. It must be noted that the Petitioner does not state that his father died intestate and that he is the sole heir of his father. Nor does he state that his father died leaving behind a will naming him as the sole beneficiary in respect of the said 200 shares. From the petition therefore, it is not at all clear as to how the Petitioner claims to be the undisputed sole owner of the said 200 shares.

The Petitioner did not raise or make any claim in respect of the said 200 shares held by his father even after his father''s death and up to the filing of the petition except by an alleged letter dated 20-11-2007 which I will refer to later. Nor did he make any application to the company for the transfer of the said shares to his name in accordance with the articles of the company. Upon his father''s death, the Petitioner did not make any application to the company in writing for transferring the shares in his name. Articles 54, 55 and 56 of the Articles of Association of the Company read as under:

In the case of the death of any one or more of the persons named in the Register of Members as the joint-holders of any shares, the survivor or survivors shall be the only persons recognised by the Company as having any title of interest in such share, but nothing herein contained shall be taken to release the estate of a deceased joint-holder from any liability on shares held by him jointly with any other person.

Every instrument of transfer shall be presented to the company duly stamped for registration, accompanied by the certificate of the shares to be transferred and such evidence as the Board may required to prove the title of the transferor, his right to transfer the shares and generally under and subject to such conditions and regulations as the Board shall from time to time prescribed and every registered instrument of transfer shall remain the custody of the Company until destroyed by order of the Board.

All the limitations, restrictions and conditions contained in these Articles relating to the right to transfer and the registration of transfer of shares shall be applicable in case of transfer of shares on a member''s death, lunacy, bankruptcy, insolvency, liquidation, marriage or the happening of a like event resulting in transmission of shares as if such an event had not occurred and the transfer be signed by the Member himself.

Apart from the legal effect of the Petitioner having failed to take steps to have the shares registered in his name for over five years, it indicates that the Petitioner did not do so as he knew that the same had been transferred on 26-3-2003.

To get over this difficulty, the Petitioner has made various allegations in the petition which, prima facie at least, are not believable. While the Petitioner''s conduct belies his case his explanation destroys it.

The Petitioner has alleged that in or around October 2006 Le., almost a year after his father''s death he requested Respondent Nos. 3 to 5 to transfer the said shares to him and to record such transfer in the books of the company. The Petitioner further alleged that he made "repeated" requests to Respondent Nos. 3 to 5 to transfer the said shares to his name and to record the transfer in the records of the company and that Respondent Nos. 3 to 5 "repeatedly" assured him that they would record the transfer, but that they failed to do the same.

(a) Once again, there is no evidence whatsoever either in writing or otherwise to evidence the allegations. Surely if he actually had made "repeated" requests that the shares be transferred to his name and the Respondents "repeatedly" assured him that they would do so but did not, he would have recorded the same at some stage, in some form.

(b) Despite the other Respondents and the company having allegedly failed to transfer 200 shares in the Petitioner''s name, the Petitioner admittedly took no steps u/s 111 of the Companies Act or otherwise to compel the company to do so. Apart from the legal effect of the Petitioner having failed to do so, this conduct would at least prima facie, establish that the Petitioner made no application for the registration of the transmission of the shares in his name as he was aware of and had throughout accepted the fact that the shares had earlier been transferred by his father.

The Petitioner however explains this by stating that he did not worry about the delay in view of the reputation of Respondent Nos. 3 to 5. What is of vital importance to note is that the petitioner obviously realizing the importance of there being some written record of these allegations specifically alleged in paragraph 6.2-3(c) that he:

carried on informal correspondence with the Respondent Nos. 2 to 4 (i.e., Respondent Nos. 3 to 5 herein) to expedite the transfer.

No such correspondence has been produced either before the Company Law Board or before me. This statement is now admitted to be false. I asked Mr. Kamdar to produce this correspondence. He stated that he would do so but he did not. Even before I pronounced the order, I asked counsel if they had this alleged correspondence. Mr. Chitnis admitted that in fact there was no such correspondence.

This was not a typographical error. This was no inadvertent mistake. The expression "informal correspondence" establishes this. This was quite plainly, a false statement, deliberately made with the object of misleading and snatching an order from the Company Law Board. As stated earlier, the ex parte application was made without notice to the Respondents. The existence of such correspondence would naturally weigh with any Tribunal or Court in believing the Petitioner''s allegations explaining the absence of any record between the date of his father''s death i.e., November, 2005 and 20-11-2007, le., the date of the alleged letter requesting a transfer of the shares in his name.

There is no correspondence or any other record for two years between the death of his father in November, 2005 and the alleged letter dated 20-11 -2007. The fact that there is nothing in writing to establish one aspect may not be conclusive against the Petitioner''s assertion. However, this fact added to all the other facts assumes enormous significance and belies the Petitioner''s allegations.

It is difficult to believe the Petitioner''s case that he requested the company and its Directors to transfer the 200 shares to him and to record the transfer in the books of the company. It is quite obvious therefore that the Petitioner was fully aware of the transfer of the shares by his father on 26-3-2003 on which date the Petitioner himself admittedly sold his entire 1800 shares.

The fourth stage of the Petitioner''s explanation is with respect to his complete silence between 20-11-2007 and 15-12-2008, the date on which he filed the petition. The Petitioner even after the alleged requests did nothing for over one year. The Petitioner allegedly addressed a letter dated 20-11-2007 to the company inter alia requesting the company to transfer the said 200 shares to his name. The Petitioner stated that he would deliver up to the company the share certificates in respect of the said 200 shares as and when the same were required. According to him the company did not respond to the said letter.

There is no explanation why the Petitioner did nothing even thereafter for over a year. I am not inclined to let the companies conduct of not replying to the alleged letter dated 20-11 -2007 prejudice the Appellant. The Company has been the real beneficiary of the Petitioner''s applications and the orders of the Company Law Board.

The petition was filed on 15-12-2008 i.e., more than one year after the alleged letter dated the 20-11 -2007. The Petitioner thus had to explain the delay between 20-11 -2007 i.e., the date of the alleged letter and 15-12-2008 i.e., the date of the filing of the petition. He admits that the letter dated 20-11-2007 was written to the company as he "grew suspicious about the intentions of respondent Nos. 2 to 4 (respondent Nos. 3 to 5 herein)". This is all what the Petitioner states he did in the meantime:

6.2-3 ** ** **

(e) Since Respondent No. 1-Company did not respond to the aforesaid letter, the Petitioner caused to take inspection of the records of Respondent No. 1-Company filed with the office of Registrar of Companies. The Petitioner was shocked to learn that in complete breach of the Arrangement, the said 200 shares were no longer standing in the name of the Petitioner''s father, Madhukar Samant. The said 200 shares were initially transferred to Respondent No. 2 and later the same changed many hands and ultimately are registered in favour of group companies of Respondent Nos. 2 to 4. The details of transfer of the said 200 shares from time to time are given in Exhibit-''E'' hereto.

There are no details as to when the Petitioner took inspection of the records of the company. There are no details as to how the Petitioner took inspection of the records of the company. There is no letter from the Petitioner requesting the company for inspection.

Apart from the truth of these allegations, these facts are important while judging the conduct of the Petitioner from the beginning le. in making the application for ad interim reliefs. They are also important while considering the timing of the filing of the petition and the making of the first application for interim reliefs without notice to the Respondents, especially to Respondent No. 5 i.e., the Appellant. The petition was filed on 15-12-2008 and the next installment of interest of about Rs. 54,00,00,000 was due initially on 31-12-2008. The first order of the Company Law Board dated 16-12-2008 restrained the company from even making payment under the transactions. This was varied by the order of this Court dated 13-1-2009 in the appeal. Even thereafter the company failed to make payment but in view of the order impugned in the appeal the company is safeguarded as the Appellant cannot enforce its rights under the transaction.

In these circumstances, prima facie at least, and at this stage, the Petitioner has completely failed in establishing a prima facie case as pleaded by him in respect of his entitlement to the said 200 shares.

(a) In the year 2007 the Appellant and the company entered into a transaction which involved an investment of Rs. 1,640 crores by the Appellant in the company. The Appellant did so by subscribing to debentures which carried interest at 13.65 per cent payable quarterly. A subscription agreement was executed between the other Respondents, the Appellant and D.B. Trustees (Hongkong) Ltd. in relation to the subscription of the debentures along with a trust deed executed between the same parties. Pursuant thereto, the Appellant was issued and allotted 223 equity shares.

(b) Pursuant to these agreements, four interest payments aggregating to Rs. 185,74,99,558 were made by the company to the Appellant.

At no stage were any proceedings adopted by the Petitioner.

It is significant to note the timing of this petition. The next installment of quarterly interest was due on 31-12-2008. The petition was filed on 15-12-2008 and an ex parte application without notice to any of the parties, including the Appellant, was made before the Company Law Board.

On 16-12-2008, the Company Law Board passed the following order:

''Order'' Heard mention matter. It is an ex parte order. The respondent No. 1 to maintain status quo of its shareholding and Board of Directors as of today. Further prayer 11.3(a)(iv) in the petition is allowed. Reply by 16-1-2009 and rejoinder by 23-1-2009 and case posted to 30-1-2009 at 11 a.m.

Prayer 11.3(a)(vi) of the Company Petition is set out below

11.3 In such circumstances, the Petitioner (Respondent No. 1 herein) prays that pending the hearing and final disposal of the captioned Petition, the following interim reliefs be granted:

(i) to (iv) ** ** **

(vt) Acting upon and/or giving effect to any transfer, allotments or agreements including the Arrangement arrived at/entered into between Respondent No. 1-Company (herein the Respondent No. 2-Company) and Respondent No. 5 in connection with and/or in relation to the convertible debentures issued to Respondent No. 5 and/or in respect of amounts received under such debentures as the same shall prejudice the rights of the Respondent No. 1-Company.

32.(a) The Appellant challenged the said order by filing Company any Appeal No. 4 of 2009.

(b) By an order and judgment dated 13-1-2009, as corrected by an order dated 22-1-2009,1 held that there was absolutely no justification for the application to have made without notice. I further observed that the order had far reaching consequences, virtually freezing all the rights of the Appellant under the transaction, whereunder the Appellant had invested 1,640 crores. It even prohibited the company from making any payments under the said transaction.

(c) Realising how utterly unsustainable the application was, specially insofar as it prohibited the company from even making payment to the Appellant under the said transactions, it was contended before me that the Petitioner intended only making a limited application restraining the company from issuing shares to the Appellant by converting the debentures and that the ambit of the above order was limited to that extent. For the reasons recorded in the said order, it was held that the instructions for this submission were not only unfounded but were false, and even unfair to the learned Member of the Company Law Board. It was observed that, prima facie, it appears that the ex parte application was made without notice with a view to ensure that the facts were not brought to the notice, of the Hon''ble Company Law Board.

The reasons for holding that these instructions were false, are contained in the said order dated 22-1-2009. Paragraph 8 of the order reads as under:

Firstly, Mr. Madon''s interpretation of the order is incorrect. A plain reading of prayer 11.3(a)(vi) shows that it is not limited only to an injunction restraining shares being allotted to the Appellant by converting the debentures. Mr. Madon was unable to explain how this prayer could be so read.

Secondly, the falsity of the above contentions is ex facie apparent from prayer paragraph 113(a)(ii) which reads thus:

11.3 In such circumstances, the Petitioner prays that pending the hearing and final disposal of the captioned Petition, the following interim reliefs be granted:

(a) ** ** **

(i) ** ** **

(ii) Diluting the Petitioner''s shareholding, whether by issuing further shares or by converting the debentures or in any other manner.

If indeed Respondent No. 1 intended to limit his application before the CLB, as contended by Mr. Madon, the application would have been made in terms of prayer paragraph 11.2(a)(ii) and not 11.2(a)(vi).

Thirdly, the submission is in fact unfair to the learned Members of the CLB. It in effect suggests that the learned Members were unable to understand the difference in the ambit of an application in terms of prayer paragraph 11.3(a)(ii)andll.3(a)(vi).

The ad interim order was therefore stayed.

Thereafter, the application was heard by the Company Law Board and the impugned order was passed.

Firstly, the above facts indicating the Petitioner''s conduct are in themselves a ground sufficient to have rejected the application for interim reliefs. Even if each act by itself does not warrant rejection of the interim application the acts considered together certainly do. The conduct that disentitles the Petitioner to interim reliefs are:

(i) The false statement about the existence of the "informal correspondence" calling upon the company to register the 200 shares in the Petitioner''s name.

(ii) The making of an interim application without notice to the Appellant, to ensure that the facts were not brought to the notice of the Company Law Board.

(iii) The making of an application in the widest terms successfully before the Company Law Board, and on it being pointed out that the order in such terms is unsustainable even on the Petitioner''s case, it contended that such an order was never sought but that the Company Law Board passed the order on its own.

(iv) This conduct has been repeated even in respect of the interim order presently under challenge. I will deal with the same later.

The Petitioner is guilty of having made an ex parte application on 16-12-2008 without notice to any of the parties on the basis of at least one crucial fact, which today, is admitted to be false, and on the basis thereof, persuading the Company Law Board to pass an order with far reaching consequences, and then instructing his counsel to the effect that he never intended to make an application of such far reaching consequences, involving inter alia a restraint over the company from making payment under the transactions and that the order does not even so provide.

It is important to note that despite the alleged disputes between the Petitioner and the Respondents other than the Appellant, the entire thrust of the ad interim application and the interlocutory application was to freeze the Appellant''s rights in respect of the transactions between the Appellant and the company, whereunder the Appellant has invested a sum of Rs. 1,640 crores. The impugned order as well as the earlier ad interim order which was passed without hearing the Appellants, operated not against but entirely in favour of the company and prejudiced only the Appellant. The earlier ad interimorder dated 16-12-2008 had the effect of even preventing the company from making payment of the Appellant''s dues. As recorded in detail, in the order dated 22-1-2009, in the earlier Company Appeal on behalf of the Petitioner, it was in fact contended that that was not the purport of that order. It was contended that the effect of the order was only to restrain the company from issuing shares to the Appellant and not to prevent the company from making the payment to the Appellant under the transactions.

As I noted in the said order this construction was incorrect and the submission was not only unfounded but false and even unfair to the learned Member of the Company Law Board.

It is important to note that there were no allegations whatsoever against the Appellant. It was so recorded in the order and judgment dated 22-1-2009 in paragraph 5 which reads as under:

It is important to note that there is not a single allegations in the entire company petition against the Appellant. It is not contended that the issuance of the debentures and the advance of Rs. 1,640 crores was made by the Appellant mala fide. It is difficult to understand in these circumstances as to how such orders could have been sought by Respondent No. 1 against the Appellant and that too without notice.

Obviously with a view to overcoming this hurdle, it appears that an affidavit dated 15-1-2009 was filed latter on, making various allegations now not only against the other Respondents but also against the Appellant. There was some dispute as to the Appellant not including that affidavit in the record of the appeal. The affidavit does not appear to have been relied upon before the Company Law Board.

An unaffirmed copy of the affidavit was served on the Appellant under cover of a letter dated 15-1-2009 at 3.40 p.m. The matter was heard by the Company Law Board at 11.00 a.m. on 16-1-2009. The impugned order was passed on 21-1-2009 on which day another affidavit, also dated 21-1-2009 was tendered. That affidavit also was therefore not considered by the Company Law Board.

By a letter dated 21-1-2009 addressed to the Petitioner''s Advocates, the Appellant''s Advocates inquired whether the affidavit dated 15-1 -2009 had been filed before the Company Law Board and requested for a copy of the affirmed affidavit, if any. There admittedly was no reply to this letter.

When the matter reached hearing in this Court, on 29-1-2009 a grievance was made on behalf of the Petitioner that the said affidavit had not been included in the compilation. By a letter dated 29-1-2009 the Appellant''s Advocates recorded the above facts and what according to them, transpired before the Company Law Board. The contents of this letter were not denied in the Petitioner''s Advocate''s reply dated 29-1-2009 except to state that the affidavit had been tendered and filed before the Company Law Board at the hearing on 16-1-2009.

Be that as it may, it was admitted before me that this affidavit was not relied upon before the Company Law Board by the Petitioner at the hearing on 16-1-2009. The affidavit contains statements to the effect that the Petitioner finds the nature of the transaction "extremely strange"; that the Petitioner "even apprehends" that that it is "probably" the moneys of the other Respondents which are sought to be legalized by such arrangements between the other Respondents and the Appellant and that therefore the Petitioner has "reasons to believe" that the transactions are violative of the Companies Act and the FERA. The Petitioner further states that it is crucial to understand the money laundering involved in the present case.

There is no evidence whatsoever in this regard. There is in any event nothing which even remotely links the Appellant to these unsubstantiated allegations.

Mr. Kamdar fairly conceded that there was no evidence. Mr. Kamdar only submitted that "all this will be seen at the final hearing".

Indeed "all this" and everything else will be seen at the final hearing. That however does not absolve the Petitioner from establishing a prima facie case in regard to "all this". The Appellant''s contention that this affidavit was filed only to overcome the observation in paragraph 5 of the order and judgment dated 22-1-2009 is well-founded. Indeed, had the Petitioner been serious about these allegations they would have not only found place in the petition but constituted an important part thereof. As it is there was not even an application for amendment of the petition. Looking to the past conduct of the Petitioner, it would not be surprising if he now makes such an application.

This brings me to the important questions relating to the balance of convenience and irreparable harm and injury which the Company Law Board has not even considered.

As I will demonstrate, even assuming that the Petitioner had a strong case in law and on facts, the impugned order ought not to have been passed as the alleged right of the Petitioner could have been adequately safeguarded without prejudicing the Appellant.

Firstly, it is now conceded and in my view rightly, that even assuming that the Petitioner has made out a case, an order restraining conversion altogether was not warranted. The order ought to have limited conversion to ensure it did not affect 10 per cent of the equity shares claimed by the Petitioner. This, I repeat, is even assuming the Petitioner has made out any case which he has not.

42.Mr. Kamdar admitted that the Petitioner is not concerned with the arrangement between the Appellant, the company and the other Respondents so long as it does not affect the Petitioner''s rights as the shareholder of the said 200 shares. He stated that this was so stated by the Petitioner in paragraph 8 of the said affidavit dated 15-1-2009.

I inquired therefore as to why then had the Petitioner applied for an injunction restraining the conversion to the extent of 100 per cent under the transactions between the Appellant and the company if the Petitioner was concerned only with the said 200 shares and any accretions in respect thereof. The impugned order restrains the conversion altogether. He submitted that the Petitioner was not seeking and is not seeking even today, an injunction against the conversion under the transaction between the bank and the Appellant in its entirety so long as the Petitioner''s alleged right in respect of 10 per cent of the shareholding is safeguarded.

Mr. Kamdar submitted that the order was passed by the Company Law Board restraining conversion altogether despite the Petitioner''s application being limited only to his 10 per cent.

To absolve the Petitioner of any responsibility for the blanket injunction restraining conversion altogether, Mr. Kamdar relied upon two references.

(a) Firstly, Mr. Kamdar relied upon prayer 11.3(a)(ii) which reads as under:

Diluting the Petitioner''s shareholding whether by issuing further shares or by converting the debentures or in any other manner.

He stated that this was the limited injunction sought by the Petitioner but that the Company Law Board however erroneously passed an injunction in wider terms. The argument based on prayer 11.3(a)(ii) misses the fact that the other prayers for interim reliefs included a restraint of the conversion altogether.

(b) Mr. Kamdar submitted that the fact that the Petitioner only sought protection of his right to 10 per cent of the equity shares is clear from the following observation in the impugned order:

Originally Mr. Madhukar Samant holds 10 per cent of the paid up capital of the Company. That means on voluntary winding up of the Respondent No. 1-Company, he is entitled to 10 per cent of the Company''s assets. The Bank namely Deutsche Bank found the Company to be worthy of advancing Rs. 1,640 crores as debenture loan. If the present actions as decided by Bank and Lodhas are allowed Mr. Madhukar Samant will not get anything from Respondent No. 1-Company. This, his son Mr. Vilas Samant in his petition described as a big fraud perpetuated by Lodhas and Bank by collusion.

Once again, the Petitioner has deliberately furnished false instructions. It is impossible to believe that the Company Law Board granted an injunction in excess of what was sought. Indeed, if this was so, surely the Petitioner would have made an application for modification of the order or at least clarification thereof, limiting it only to 10 per cent of the equity shares of the company.

The Petitioner has thus once again sought and obtained orders in excess of what was fair and reasonable (even assuming that the Petitioner had made out any case) and when confronted with the same issued false instructions blaming the Company Law Board for the mistake.

Mr. Kamdar submitted that the protection to this limited extent viz, restraining conversion to only 90 per cent was necessary because in the event of the company being wound up the Petitioner would be entitled to 10 per cent of the realisation of the assets of the company.

A protection to this extent, even assuming the Petitioner has made out any case, hardly warranted an ex parte application, without notice. Nor did it warrant even an interim application in the facts of this case. There admittedly was no apprehension whatsoever of the company being wound up. There is no allegation to this effect in the petition. There is no allegation to this effect in any correspondence. There is nothing to suggest that there is any move on the part of the shareholders or the creditors or any other person or authority for winding up the company.

Further, the shareholders and the company could have been ordered and directed to give notice in the event of any possibility of an application for winding up the company. In the event of the company actually being wound up and its assets sought to be sold, protective orders could have been passed regarding the Petitioner''s alleged right at that stage. At the cost of repetition, this is even assuming that the Petitioner has made out a case which he has not.

What then is the justification for interfering with a banking/financial transaction? None.

The aspect of balance of convenience and irreparable harm and injury must also be answered in the Appellant''s favour. I have demonstrated how even assuming the Petitioner has made out a case the impugned order is not sustainable even to the extent of the limited protection now sought. On the other hand, the grant of the injunction has the most severe and drastic consequences. Firstly, it frustrates a banking transaction disabling the Appellant from protecting its investment of Rs. 1,640 crores. Secondly, there is no security or safeguard of the Appellant''s rights if the petition is ultimately dismissed. If such petitions are encouraged it would shake the confidence of investors not merely in the company but generally.

This appeal must therefore be allowed on the basis of what is held above alone. The appeal must be allowed on the basis of what is not considered by the Company Law Board viz., the issue of whether the Petitioner has made out a prima facie case, whether the Petitioner had established that the balance of convenience was in his favour and whether the refusal of the interim relief would have caused greater harm to the Petitioner than the grant thereof has caused to the Appellant. The Company Law Board has also not considered the Petitioner''s dishonest conduct throughout.

The appeal must also be allowed on the basis of what is held in the impugned order. In the facts of this case it is necessary to examine some of the observations in the impugned order.

This brings me to certain findings which form an essential basis of the impugned order. The findings are not only not supported by the record, but are totally contrary thereto. Some of the findings are so unsustainable that Mr. Kamdar was unable to offer any explanation for the basis thereof. He in fact once again suggested that the submissions were not even made but that the Company Law Board came to the findings on its own.

An objection appears to have been raised by the Petitioner in respect of the 223 shares issued in favour of the Appellant on the ground that it was without the Petitioner''s knowledge and therefore contrary to Section 81. The impugned order after holding that Section 81 is not applicable to the present case, holds as under:

However, in this case this Section is not applicable but he (i.e., Petitioner''s counsel) is reasonable to some extent because the Company is no more under the control of Lodhas who took over from the petitioner but became a subsidiary of Deutsche Bank AG because by this fresh allotment the Bank has obtained more than 51 per cent of voting right and is also outsider. This change of status is not acceptable to the petitioner. However, same will be considered while disposing of the petition after pleadings and final arguments.

The finding is incorrect. The Appellant would be entitled to more than 51 per cent of the issued share capital of the company only upon conversion of the debentures which, admittedly, had not occurred when the impugned order was passed. It is admitted by Mr. Kamdar that the 223 shares held by the Appellant, constitute merely 10 per cent of the issued equity capital of the company and not 51 per cent. Mr. Kamdar stated that the counsel for the Company did not contend that the Appellant held 51 per cent shares and that this was a mistake of the Company Law Board.

Be that is may once this is conceded and Section 81 is held not to apply, then, by simple arithmetic, it is obvious that the Petitioner does not hold 10 per cent of the equity shares of the company even assuming he has made out a case qua the 200 shares. The Petitioner therefore would not be entitled to even maintain the petition.

The impugned order thereafter referred to allegations made by the Petitioner against the other Respondents and stated that they did not argue it except to say that the Petitioner is not a member of the company and that they did not produce the transfer forms of the shares claimed by the Petitioner through his father, the minutes of the meeting where transfer of shares were approved under the chairmanship of the Petitioner and therefore kept the matter to be argued at the final stage.

That the other Respondents "did not argue much" as observed in the impugned order, cannot possibly prejudice the Appellant''s case. I am not inclined to draw any adverse inference or to hold anything against the Appellant based on the conduct of the other Respondents who are the real beneficiaries of the orders of the Company Law Board. In fact, it is obvious that the real beneficiary of the ad interim order and the impugned order is the company. Being the beneficiary of the orders it is not surprising that the company and the other Respondents may have done little to challenge the Petitioner''s case.

Mr. Sancheti, the learned Counsel appearing on behalf of the company, submitted that the Appellant is not entitled to exercise its right of conversion even though the company has admittedly defaulted in making payment of a sum of Rs. 54,00,00,000. When asked for justification, all he did was to say that "that would be seen in appropriate proceedings and, at the appropriate stage".

Thus, on the one hand the Appellant''s dues have admittedly not been paid and, on the other, by virtue of the impugned order, the Appellant''s right under the financial transaction, involving Rs. 1,640 crores has been severely prejudiced.

Let me now assume that the Petitioner''s allegations against the other Respondents regarding the transfer of these 200 shares are true. However, there is nothing whatsoever to indicate any mala fides on the part of the Appellant or collusion between the Appellant and the other Respondents as regards the transfer of the said 200 shares. The Petitioner admittedly had done nothing since November, 2005 when his father expired, up to 15-12-2008 when he filed the petition to protect his alleged rights. As a result of his negligence and inaction in protecting his alleged right, the Appellant an innocent third party has irreversibly altered its position to its detriment. Admittedly, the records of the company did not even remotely indicate any subsisting right of the Petitioner in respect of the said 200 shares. Nor was there anything on the record of the company which ought to have put the Appellant to Notice of any such right.

It was rightly contended on behalf of the Appellants before the Company Law Board that it had advanced a sum of Rs. 1,640 crores to the company under a valid and legal transaction.

The Company Law Board in this regard came to a conclusion which I would rather quote. It reads as under:

Meanwhile Sr. Counsel appearing for the Bank namely Deutsche Bank has argued that his Bank has advanced Rs. 1,640 crores to Respondent No. 1-Company in the form of convertible debentures and if the Company fails to repay even one installment they can convert their debentures into equity and he further stated that the funds have been re-loaned to various companies of the Lodhas especially Lodha Hi-Rise Builders Private Limited with 2 per cent more than the interest payable to the Bank. By this process the Deutsche Bank is getting double benefit one its funds are safe because they are under the scrutiny from Lodha group companies and hence loan can be recovered by Respondent No. 1 -Company and by conversion even on one installment failure the Respondent No. 1-Company will become almost 100 per cent subsidiary (to say 99 per cent shareholding will be held by the Deutsche Bank). The funds diverted are safe for they will be recovered and also the Bank will get hold of Respondent No. 1-Company which is found to be worth enough to advance and invest funds to the tune of Rs. 1,640 crores. None of the Respondents nor the Deutsche Bank has disclosed what are the asset value of Respondent No. 1-Company. It is surprising that the Lodhas have gifted the Respondent No. 1-Company to Deutsche Bank for no consideration or for unknown consideration which is not disclosed to anybody. Therefore it requires an indepth inquiry as prayed for by the petitioner in the petition under Sections 397-398.

I would not interfere with a finding of fact. This finding however, is entirely without any basis. The finding is based purely on conjuncture. There is nothing on record which even remotely justifies this finding. It does not require any involved process of reasoning to realise that there is no guarantee whatsoever of the Appellant''s dues being secured, as suggested in the impugned order. The extent of the Appellant''s ability to recover the dues even upon conversion of the shares, would depend entirely upon the financial condition of Lodha High Rise Builders Pvt. Ltd. at the relevant time/at the time of recovery. There is nothing to indicate that the assets of either the company or Lodha High Rise Builders Pvt. Ltd. would always be adequate to meet the dues of the Appellant. I hasten to add that even if there was any indication in this regard, it would make no difference. The same cannot be a basis for interfering with the bona fide financial transactions of the Appellant.

Thus, the basis for granting the injunction against the Appellant is unsustainable in law and on facts.

It is difficult to understand how the other Respondents "have gifted" the company to the Appellant. It is even more difficult to understand on what basis it is held that this alleged "gift" was for "no consideration" or for "unknown consideration" which is not disclosed to anybody. Even Mr. Kamdar was unable to throw any light for the basis of these findings/observations. Surely, an investment of Rs. 1,640 crores cannot be stated to be no consideration for the issuance of the convertible debentures. Nor can an investment of Rs. 1,640 crores be stated to be "unknown consideration".

I am constrained to state that the impugned order is entirely without basis.

The impugned order found the transaction/arrangement "strange". This finding was on the basis that the other Respondents had no freedom to decide about the affairs of the company because as per the agreement positive confirmation of the Appellant was required. This it was held constituted a surrender of the management of the company to the Appellant. It was further held that in the event of a single default, the Appellant would be entitled to 99 per cent of the shares of the company.

Obviously if the company fails to pay the amounts due, it would be entitled under the transaction to convert the debentures. That is the Appellant''s security for its investment of Rs. 1,640 crores. It is difficult to understand the observation that "nowhere it is either stated or put on record what is the benefit accrued to the erstwhile shareholders of Respondent No. 1 - Company when such surrender has been executed by the Lodha Family Members". The benefit is obvious. It is the investment of Rs, 1,640 crores.

On the other hand, the impugned order does not protect the Appellant''s rights in any manner whatsoever. By freezing a financial transaction of Rs. 1,640 crores, there is no consideration as to how the rights of the Appellant can be protected in the event of it eventually being found that the injunction was wrongly obtained by the Petitioner. Who would be responsible for any market fluctuation? How are the properties of the company and Lodha Hi-Rise Builders Pvt. Ltd. to be protected to safeguard the Appellant''s security. The question of balance of convenience and irreparable injury have not even been referred to.

In view of the above, I have not dealt with some of the questions of law raised by Mr. Dwarkadas including under Sections 84, 111 and 402 of the Companies Act as well as certain questions of fact. Mr. Dwarkadas argued quite forcefully and cited several judgments inter alia, in support of his contention that the Petitioner was not entitled to maintain the petition as neither the Petitioner nor his deceased father were at the relevant time shown on the register of members of the company. I will not deal with these submissions as I am clearly of the view that the order is not sustainable for the reasons stated above.

In the circumstances, the Appeal is allowed. The impugned order is set aside.