I.P. Mukerji, J.@mdashThis is a dispute in a business family of the Rungtas. Eleven applicants have come up before this Court. Out of these eleven applicants 1 to 6 are living persons, the rest, private limited companies. These applicants have their respective share holdings in respondent companies No. 2 to 7 as mentioned in paragraph 13 of the affidavit-in-support of the Judge''s Summons. From a chart inserted there, it is plain that these applicants have majority share holding in respondent Nos. 5 and 6.
2. The respondent No. 5 has majority shareholding in respondent Nos. 2 and 3 and significant shares in the respondent Nos. 4 and 7. Hadoti is controlled by the applicant Nos. 1 to 6. These applicants thus, have controlling interest in respondent Nos. 2, 3, 5, 6 and 7 i.e. all the respondent Companies except respondent No. 4.
3. These applicants challenge the scheme of amalgamation between these respondents and the respondent No. 1 sanctioned by this Court on 16th January, 2003. They seek setting aside of that order on the ground of fraud.
4. One Ambika Prasad Modi, a share holder of the respondent No. 4 filed an application in this Court for setting aside of the said order dated 16th January, 2003 (hereafter "the earlier application") that was nearly three years after sanction of the scheme. The order was assailed on the ground that no notice of the meeting to consider the scheme was received by him. The meeting as said to have been illegally convened, conducted and further vitiated by alleged attendance by dead persons. The applicant Nos. 1 to 6 (hereafter "the supporters") had filed affidavits in that application supporting the applicant, Ambika Prasad Modi.
5. That application was dismissed by my brother Sanjib Banerjee, J. on 3rd December, 2007.
6. From the said judgment and order of Brother Banerjee, J. Ambika Prasad Modi preferred an appeal before the Division Bench of this Court. For more or less the same reasons as given by my brother Sanjib Banerjee, J. and some additional reasons which are very significant and which I will discuss later on, in this judgment, the Division Bench dismissed the appeal, on 19th March, 2009. A SLP was preferred from that judgment and order by the applicants herein, which was also dismissed as withdrawn by the Hon''ble Supreme Court on 31st July 2009.
7. Now, all the controlling shareholders of respondent Nos. 2 to 7 are together as applicants for the purpose of undoing the order sanctioning the scheme.
ARGUMENTS OF PARTIES
8. Fundamentally, three points have been raised by the applicants as argued by Mr. Basak, learned Advocate: i) the meeting to approve the scheme was held without proper to shareholders notice which includes, publication of advertisement of the meeting in obscure newspapers; ii) the meeting was said to have been attended by persons not authorised to attend it and also by two shareholders who had died; iii) therefore, the resolution adopted in the meeting and the order sanctioning the scheme should be set aside on the ground of fraud.
9. The details of fraud as made out in the application are as follows: a Chairman was appointed by an earlier order of the Court to convene and hold a meeting for consideration of the scheme, under the Companies Act, 1956; a notice of such meeting had to be advertised in the newspapers or notified in the gazette as ordered by the Court; such advertisement was published in obscure newspapers; the notice had to be served upon each and every shareholder under certificate of posting putting them to notice of such meeting, according to the requirements the Companies Act, 1956 and the Company (Court Rules 1959). Now, according to the applicants, no notice is available in the report of the Chairperson. In the said report these notices were said to be served on individual shareholders by certificate of posting. The receipts disclosed in the report show receipt by "alleged proxy holders". The applicants had not authorised these alleged "proxy holders" to accept any such notice.
10. According to the report the meeting was said to have been attended by share holders and/or their proxies according to the requirements of the said Act and Rules. The meeting had been attended by the alleged proxies, who had no such authority to attend the meeting. From the records of the report of the Chairman, the meeting is said to have been attended by one Dinesh Rungta and one Purusottam Lal Rungta, both dead.
11. The authorisation given by the share holder companies was not proper u/s 187 of the Companies Act.
12. It is stated that there is no effective denial of the above allegations in the affidavit-in-opposition.
13. On the behalf of the respondents the following submissions were made by Mr. S.K. Kapur, Sr. Advocate:
a) The application for setting aside the scheme in 2005 was supported by these self same applicants or their privies by filing affidavits.
b) The self same issues were before the Court;
c) The Court of first instance upheld the scheme and overruled the objection;
d) An appeal was preferred against that order but the Court of Appeal affirmed the order of the trial Court for the same reasons.
e) A SLP was preferred before the Supreme Court by the applicants which was dismissed as withdrawn.
f) There has been great delay in approaching the Court. There was acquiescence by the applicants.
g) All issues which have been raised in this application have been already decided by the Court in the earlier proceedings and have become res judicata;
h) The Court has no power to reopen such issues;
i) The scheme has long been implemented and it is now not open to the Court to reopen the scheme or to set aside the order sanctioned by the Court;
14. These submissions together with the authorities cited by both the parties are examined in detail under the heading "Discussion and findings".
JUDGMENT DATED 3RD DECEMBER 2007
15. I have carefully examined the judgment of my brother, Banerjee, J. and the judgment in appeal affirming it. In the judgment and order of the learned company judge what has been decided is that the applicant, Ambika Prasad Modi before the Court in the earlier application was a very small share holder of the said respondent companies. Even if that share holder had been properly noticed and participated in the meeting, he would not have been able to change the outcome of the meeting which adopted the resolution passing the scheme. Further, the supporters before the Court had constructive knowledge of the meeting. If they had no knowledge of the meeting, they should have been taken by surprise, when, after sanction of the scheme, no notice of the annual general meetings of the respondent companies came to them. This should have aroused suspicion in their minds and they should have come to Court immediately. The belated application before the Court in November 2005, after approval of the scheme on 16th of January 2003 was deprecated by the Court. It was also held that even at the belated stage of making of the earlier application, the applicant Nos. 1 to 6 herein were represented before the Court, (as "the supporters") by filing affidavits supporting Ambika Prasad Modi. However, there is a finding by the Court that a substantive challenge to the scheme cannot be made by affidavits of supporting parties, when the sole applicant before the Court was a very small share holder and had no likelihood of success on his own. There had been acceptance or acquiescence of the scheme in question by the supporters. It was said in that judgment as follows:
The application has to be considered not on the strength of what the apparent supporters allege from the wings in the supporting affidavits but on the strength of what the applicant puts forward. The applicant can make no grievance as to the meetings of the transferor companies other than Road Company Even if the applicant had due notice of the meeting u/s 391(1) convened in respect of Roadco and had attended the same, the applicant would not have had the numbers to upset the resolution in support of the scheme. The Chairman of the meeting has, both in his affidavit and the report, asserted that at the statutory meeting of Roadco the resolution approving the scheme had been unanimously passed.
It is not necessary to go into the charges of fraud leveled by the applicant as even if it were to be assumed that the applicant was deliberately and fraudulently kept out of the meeting and kept in the dark in respect of the then proposed scheme of amalgamation, the applicant could not have stopped or stalled the resolutions passed by the concerned company or the other transferor companies or by the transferee company and the applicant lacked the shareholding strength to do so. The vicarious grievance of the supporters cannot ride on the applicant in the absence of such supporters coming to the fore.
There were other points also addressed by his lordship as follows:
The applicant has also relied on the affidavits filed by various Rungta shareholders beginning page 418 of the application and ending at page 447 thereof. The summary of the contents of the affidavits appearing between pages 418 and 447 is recorded at page 448 of the application. The applicant suggests that on the strength of the affidavits filed by his supporters, it would appear that a substantial percentage of the shareholders in the six transferor companies had no knowledge of the meetings and had not been issued any notice therefor.
The applicant also indicates that a number of the shareholders of the transferor companies shown to have attended the statutory meetings pursuant to the order of the Court were, in fact, dead and the respondent have admitted the same. The applicant insists that upon fraud of such nature being discovered by the applicant in September of 2005, he rushes to Court immediately after the Pujas of 2005 and the fact that the application for recalling the order sanctioning the scheme was made nearly three years from the date of the order of sanction, should not weigh with Court, given the extent of the fraud perpetrated on Court by the respondents.
It appears that the applicant and some of the applicants supporters had instituted proceedings before the Rajasthan High Court at Jodhpur seeking recalling of the order sanctioning the scheme of amalgamation passed by the Court. The Rajasthan High Court had passed an order in October 2003 as the transferee company had its registered office in Rajasthan. The orders passed by the learned company judge of the Rajasthan High Court and the Division Bench in appeal therefrom, have been placed. It appears that the challenges to the order of sanction mades by the Rajasthan High Court had been repelled, though it has been noticed and the appellate Court order that a challenge to the meetings of the transferor companies on the ground of non-service of notice to the members thereof, was pending before this Court.
16. An identical, challenge was made before the Rajasthan High Court in respect of the company which was located in Rajasthan but it was dismissed.
DISCUSSION AND FINDINGS:
17. In this application there are eleven applicants. Out of them five are private limited companies being applicant Nos. 7 to 11. Six shareholders are living persons being applicant Nos. 1 to 6. Now, these living share holders or "the supporters" have controlling interest in the other five applicant companies as I have mentioned earlier. Out of these eleven applicants, the supporters filed affidavits supporting the applicant in the earlier application. Now, if these individual share holders were before the Court in the earlier application, holding controlling interest in the five applicant companies herein, could it be said that all the applicants herein were before the Court when the earlier application was heard and decided? Technically speaking, the companies are different entities from their share holders and were not before the Court. The actual fact is that the persons controlling those companies were before the Court. Therefore, the question is whether the interests of those companies were also represented before the Court.
18. To deal with the question of res judicata, let me first try to interpret the meaning of the phrase "between the same parties or between parties under whom they or any of them claim, litigating under the same title" in section 11 of the Code of Civil Procedure. Now, "between parties under whom they or any of them claim" means, in my opinion, servants, agents, assigns or privies of the parties, their legal representatives or predecessors-in-interest as the case may be, under the same title, representing the interests of those parties, by their authority or by authority of law. Former suit has been defined as one decided prior to the suit in question by Explanation I to that section.
19. Explanation IV of section 11 is quite important. It says that any matter which might or ought to have been made a ground of defence or attack in such former suit shall be deemed to have been a matter directly and substantially in issue in such suit. Explanation V provides that any relief claimed in the plaint which is not expressly granted by the decree is for the purpose of the section deemed to have been refused. There can also be res juticata, under explanation VI if there is a commonness of cause of action and one person espouses that cause of action for others as for example, in a representative suit, which results in a decree.
20. Now, to decide the question of res judicata some provisions of the Companies Act need to be discussed, also.
21. When a compromise is proposed between a company and its members, the Court has the power to call a meeting of those members for the purpose of consideration of the proposed scheme (See section 391 of the Companies Act, 1956). Now, the shareholders have to be given notice of such meeting by advertisement in the newspapers and by personal service. Rules 73 of the Company Court Rules says that the notice of meeting is to be given under certificate of posting to each shareholder not less than 21 days before the date of the meeting. Further, advertisement of the meeting has to be inserted in such newspapers as the Court may direct (see Rules 73 and 74). The Chairman appointed for conducting the meeting has to file an affidavit of service (Rule 76). The decision at the meeting will be ascertained only by taking a roll. The Chairman of the meeting is required to file a report before the Court. These rules are to be read as supplemental to section 393 of the Companies Act. After ensuring that the above requirements have been I complied with and after examining the scheme, the Court is empowered u/s 394 of the Companies Act to sanction the scheme, after obtaining a report from the Registrar of Companies.
22. Technically speaking if one issue is decided between two parties that issue becomes final and conclusive between them. No other party is bound by that decision. But sometimes although a person is not a party to a proceeding his interest has been represented in a litigation and such interest decided. Such person is said to be represented through a privy. In the second edition of Jowitt published in 1977 a privy is said to be "having a participation in some act so as to be bound thereby" relying on an ancient English decision in Wood House v. Jenkins 1832. Bing 441 (Cited by Mr. Kapur). This reference to privy is in the expression "or between parties under whom they or any of them claim litigating under the same title" in section 11 of the code. In
23. Therefore, on a consideration of the above authorities the Court must see whether the applicants before it in a subsequent proceeding were actually represented or deemed to have been represented in the earlier proceeding. Furthermore, whether an issue raised in a subsequent proceeding was decided in the earlier proceeding. The tenor of the affidavits of the supporters was that they had come to learn that Ambika Prasad Modi had filed an application. They said in their affidavits affirmed in the year 2006 they had not been served notices of the meeting and hence could not attend it. They supported the application of Ambika Prasad Modi. The applicant companies, it is true, were not before the Court in the earlier application. But their living shareholders were (the supporters). And they controlled these private limited companies. Although a company is a separate legal entity from its shareholders, nevertheless, the supporters can be said to be their alterego. Therefore, when they had participated in the earlier application, it can be properly said that these companies had also participated through their alterego. Moreover, the interests of the applicants were properly represented by these persons by filing their supporting affidavits in that application. So, the supporters were the privies of these applicant companies or could be said to be representing their interests according to the above principles of res judicata. The Court of appeal by its judgment and order dated 19th March 2009 affirmed the said findings of the learned company judge.
24. On the principles of law discussed by me above, the parties to this particular proceeding are bound by the findings of the learned company judges as affirmed by the Court of appeal.
25. Now, the issue of fraud.
26. Fraud vitiates any act when it is alleged. An action to set aside fraud alleged must also be brought within the period of limitation i.e. the period prescribed by the Limitation Act, after discovery of the fraud or upon it being ought to be discovered by reasonable diligence (see
27. If the facts constituting alleged fraud or any substantial part of those acts were before the Court which tried the issue in the earlier proceeding and decided expressly or by implication, the issue of fraud also become res Judicata.
28. The entire issues which are sought to be raised today including the issues of fraud were before the Court in the earlier application.
29. Other findings by the learned Company Judge in the judgment and order dated 3rd December 2007 have to be considered to decide the questions before me.
30. The learned judge has relied on the judgment in Fletcher & Anr. v. Royal Automobile Club Ltd. reported in (2000)1 BCLC 331. On the basis of the said judgment the learned Judge has held that if the effect was the same had fraud been practised and it not having been practised, the Court should not set aside a judgment on the ground of fraud. He goes on to hold, whether Ambika Prasad Modi was present or not, the result of the meeting would have been the same.
31. But, what are the findings that bind these parties have to be ascertained. Such findings are:
1. Ambika Prasad Modi was a very minority shareholder.
2. Even if Ambika Prasad Modi had been noticed the result of the meeting could not have been different as the supporters could not strengthen the above case of Ambika Prasad Modi by their support.
32. Therefore, there is no determination as such regarding the issue of illegality or irregularity in the convening and conduct of the meetings, the taking of poll and adopting of resolution and obtaining sanction of the scheme from the Court. There is also no determination of non service of the notices personally on the shareholders, advertisement in inconspicuous newspapers to prevent shareholders from attending the meetings, attendance by unauthorised persons, voting by unauthorised persons and the attendance register showing attendance by dead persons. Neither is there any determination whether fraud has been perpetuated. The finding in the said judgments has proceeded on the assumption that even if fraud had been practised the result would have been the same. Therefore, there is determination of the issue of fraud. The Court was able to dispose of matter without deciding the said issue. When such issues remain unresolved the respondents cannot take shelter behind explanation IV and V to section 11 of the said Code. u/s 11 an issue has to be "heard and final decided" to constitute res judicata constructive. Res judicata principles would apply, if, while granting relief, out of prayers (a) - (e), (a) - (d) are granted. It will be taken as refused. Or a necessary point is not taken in the pleadings or framed as an issue. It would nonetheless be deemed to have been taken under explanation IV. But there can be no res judicata of an issue when it is before the Court but not decided. (See
33. As far as the allegations in the application before me regarding advertisement, conduct of the meeting and adopting of resolution are concerned, there is no denial of them at all in the affidavit-in-opposition. Only reference is craved to the "records". There is no denial of the allegations that proper notices were not served before the meeting or that advertisements were made in obscure newspapers. Indeed, I have not heard about one of the two newspapers where the notice was published. Further, there is no denial that the meetings were attended by many unauthorised persons. Dead, persons were shown as having attended the meeting. I have examined the records, including the annexures to the Chairman''s report. Each and every allegation of the applicants is established. I have no doubt in my mind that the meeting considering the scheme was indeed illegally convened. The meeting was conducted and held in a most illegal manner.
34. Further, I have no hesitation to hold that these meetings were advertised convened held and the scheme sanctioned by practice of fraud upon the shareholders and upon the Court.
35. But there are very clear findings regarding delay and acquiescence by the Court of appeal. This is what the Court of appeal has found:
It is further evident from the facts that even if the certified copy of the order sanctioning the scheme was filed with the Registrar of the Companies only in March, 2004, there were at least general meetings for two financial years (the years ended on 31st March, 2004 and 31st March, 2005 respectively) that ought to have been held by September, 2005. There was, however, no explanation in the appellant''s application as to why it had not occurred to the appellant upon not receiving notices convening the annual general meetings of the respondent No. 4 for these two financial years that something was amiss. The appellant''s application was silent as to whether the annual accounts for the two financial years had been forwarded to the appellant or as to whether the appellant had made any attempt to receive the same.........
............Further, the appellant''s apparent supporters had due notice and knowledge of the meetings and of the scheme propounded and had as such not applied for setting aside the order of sanction but merely chosen to support the appellant. This in itself fastened knowledge of the sanctioning of the scheme on the appellant."............. "The vicarious grievance of the appellant''s supporters could not ride on the appellant''s shoulder without such supporters coming to the fore.................
It further appears that by the scheme of amalgamation in question the respondent Nos. 2 to 7 having their registered offices at Kolkata were algamated with the respondent No. 1 having its registered office at Jaipur in Rajasthan. While the order sanctioning the scheme of amalgamation was passed by this Hon''ble Court on 16th January, 2003, it was passed by the Hon''ble Court at Rajasthan on 17th October, 2003. The G.A. No. 669 of 2005 seeking the recalling and/or setting aside of the order passed by this Hon''ble Court on 16th January, 2003 was, however, filed by the appellant only on 30th September, 2005 after the expiry of more than 2 years and 8 months since the passing of the same. This in itself demonstrates that the said application was without merits and was filed by the appellant as an afterthought.............
We are also not satisfied with the explanation given by the appellant that the notices which were published in the Financial Express and Kalantar in terms of the direction given by the Court, had limited circulation and that he had no knowledge of the said meeting or it cannot be accepted that he came to learn of the amalgamation only in course of his visit to his native village place in September, 2005.
Therefore, we do not find that the appellant has been able to find any ground to explain the delay as has been stated in the petition.
36. According to my findings above, the applicants in this proceeding are bound by the above findings in the earlier proceedings. They are squarely abound by the finding that they had constructive notice if not actual of this fraud. The Court was for the first time approached nearly three years after the order dated 16th January 2003. Further, there was no impediment to filing a substantive application by the applicants herein. Some of them need not have filed affidavits supporting Ambika Prasad Modi. Therefore, this particular application has been filed some six and a half years after the order dated 16th January 2003. This goes to show that these applicants had acquiescenced in such fraud. Further, there is uncondonable delay of about seven years in approaching the Court.
37. Therefore, on this solitary ground I would dismiss this application. There will be no order as to costs.
Urgent certified photocopy of this judgment and order, if applied for, to be provided upon complying with all formalities.
