Beneficial ownership of company shares and possession of a company-owned farmhouse were claimed through share-transfer and settlement agreements. The Court held the claimed rights unenforceable for non-compliance with statutory disclosure requirements and dismissed the suit as barred by law and disclosing no cause of action.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
Versus
ARIES TRAVELS PVT. LTD. & ORS. ..... Defendants Through: None. CORAM: HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW
IAs No.1583/2020 & 1584/2020 (both for exemptions)
CS(OS) 46/2020, IA No.1581/2020 (under Order XXXIX Rules 1 and 2 CPC) and IA No.1582/2020 (under Order II Rule 2 CPC)
(i) that Farm No.3, Avenue Ashok, Westend Greens, Rajokri, New Delhi-110038 (subject farmhouse) is owned by ATPL;
(ii) the shareholding of ATPL is held equally by Nimitaya Property Ltd. (NPL – not a party to the suit) and JFL;
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(iv) Sandeep and his associates hold the entire shareholding of JFL;
(v) JFL had subscribed to the shareholding of ATPL at the behest of the plaintiff, so as to discharge the payment obligations of its erstwhile shareholder Samta Khinda to the plaintiff;
(vi) that JFL acquired its shareholding in ATPL from the funds of the plaintiff and the plaintiff is the real beneficiary of the shareholding of JFL in ATPL;
(vii) thus the plaintiff is the real owner of the entire subject farmhouse and which position has been undisputed for the last six years;
(viii) the plaintiff was 50% shareholder of HRLIPL and the remaining 50% shares of HRLIPL were held by one Jaswant Singh Chawla and the plaintiff and said Jaswant Singh Chawla were the only Directors of HRLIPL;
(ix) the plaintiff had a close relationship with Sandeep and his wife Samta Khinda and Sandeep was also inducted as a Director on the Board of HRLIPL;
(x) JFL, in the year 2005, owned land at Sohna Road;
(xi) the plaintiff, to acquire the said land of JFL, made HRLIPL acquire 96.82% shareholding of JFL; the plaintiff and his family members acquired 1.94% shares of JFL and Jaswant
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Singh Chawla aforesaid and his family acquired the remaining 1.24% shares of JFL; the plaintiff, the said Jaswant Singh Chawla and Brij Mohan Mahajan, father of the plaintiff were in May, 2005 inducted on the Board of Directors of JFL;
(xii) in September, 2011, due to efforts of plaintiff, a buyer for the land of JFL at Sohna Road was identified;
(xiii) on 28th September, 2011, the plaintiff transferred the 50% shares held by him in HRLIPL in favour of Samta Khinda, wife of Sandeep;
(xiv) though the said shares at that time were valued at Rs.25,17,30,000/- on the basis of valuation of land at Sohna Road of JFL, but the plaintiff received only Rs.1,25,000/- from Samta Khinda, with the understanding that the balance amount of Rs.25,16,05,000/- towards transfer of shares shall be paid by her once the land held by JFL would be sold;
(xv) a Share Transfer Agreement dated 28th September, 2011 was executed between the plaintiff, HRLIPL and Samta Khinda in this respect; in Clause 2 of the said Agreement, it was provided that the shares of HRLIPL transferred by the plaintiff to Samta Khinda, would be held by Samta Khinda on behalf of the plaintiff and the beneficial interest in the shares would continue to vest in the plaintiff and that in case the balance sale consideration towards transfer of shares was not received by the plaintiff upon sale of land of JFL, then JFL shall invest the said amount in an asset identified by the plaintiff at a subsequent stage;
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(xvi) the plaintiff thus continued to be the beneficiary of the shares held by Samta Khinda in HRLIPL, being 50% of the shareholding of HRLIPL;
(xvii) at that time Section 187C of the Companies Act, 1956 (the 1956 Act) permitted such beneficial shareholding by one party on behalf of the other and the plaintiff made declaration with respect to beneficial interest held in the shares of HRLIPL in compliance of the provisions of Section 187C(3) and also requested HRLIPL to file the return with the Registrar of Companies (ROC) pursuant to Section 187C (4) of the 1956 Act;
(xviii) simultaneously with the transfer of shares in HRLIPL in favour of Samta Khinda, the plaintiff, on 28th September, 2011 also resigned from the Directorship of HRLIPL and subsequently, on 6th February, 2012 Samta Khinda was appointed as Director of HRLIPL;
(xix) sale consideration of the land of JFL at Sohna Road was received by JFL in the first half of the year 2012; however no amount was distributed amongst any of the shareholders of JFL; (xx) on 17th December, 2012, the plaintiff and his family members sold their 1.93% shareholding in JFL to Sandeep;
(xxi) though after December, 2012, the plaintiff had exited from shareholding as well as Directorship of HRLIPL as well as JFL but retained vital commercial interests in both, as HRLIPL/Samta Khinda owed Rs.25,16,05,000/- to the plaintiff towards balance sale consideration of shares of HRLIPL
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transferred by plaintiff to Samta Khinda and owing whereto the plaintiff continued to hold beneficial interest in the shares of HRLIPL held by Samta Khinda;
(xxii) the amount of Rs.25,16,05,000/- so owed to the plaintiff was required to be paid by the wholly owned subsidiary of HRLIPL, namely JFL, inasmuch as the basis of valuation of the shares of HRLIPL was the value of the land held by JFL;
(xxiii) sometime around 2013, the plaintiff identified the subject farmhouse owned by ATPL and requested Samta Khinda to make payment of Rs.25,16,05,000/- owed by her to the plaintiff for purposes of acquiring the subject farmhouse;
(xxiv) Samta Khinda informed the plaintiff that she would be discharging her obligations by making payment of the said amount by utilizing her share of the sale proceeds received from the sale of the land at Sohna Road of JFL in the capacity of a shareholder of HRLIPL, being the holding company of JFL;
(xxv) on 7th August, 2013, a Settlement Agreement was executed between the plaintiff, Samta Khinda and JFL, towards discharge of obligation of the parties arising under the earlier Share Transfer Agreement dated 28th September, 2011;
(xxvi) the Settlement Agreement dated 7th August, 2013 provided that Samta Khinda would call upon JFL to subscribe to 50% shareholding of ATPL and though the said shares of ATPL would be held in the name of JFL but JFL would hold the same
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in trust for the plaintiff who shall be beneficial owner of the said shares;
(xxvii) the Settlement Agreement dated 7th August, 2013 also provided that the plaintiff shall remain in exclusive possession of the subject farmhouse of ATPL and would be considered as the absolute owner of the same, to the exclusion of JFL, Samta Khinda and Sandeep;
(xxviii) pursuant to the Settlement Agreement dated 28th September, 2011, the plaintiff ceased to hold the beneficial interests in the shareholding of HRLIPL held by Samta Khinda and the shares became freely transferrable by Samta Khinda;
(xxix) the plaintiff acquired the remaining 50% shareholding of ATPL in the name of NPL;
(xxx) the plaintiff made his declaration with respect to beneficial interest held in the shares of ATPL in compliance of Section 89 of the Companies Act, 2013 (the 2013 Act) and also requested JFL to submit its declaration with respect to the same so as to enable ATPL to do the necessary filing with the ROC, however the same was not forthcoming; the plaintiff was however not worried because of the relationship with Samta Khinda;
(xxxi) the plaintiff thus became the owner in possession of the subject farmhouse; ATPL, vide resolution dated 10th April, 2014 of its Board of Directors, resolved that the possession of the subject farmhouse shall vest exclusively with the plaintiff;
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(xxxii) since 2014, there has been no dispute over the title and possession of the plaintiff of the subject farmhouse and the plaintiff has been meeting all outgoings towards electricity, water maintenance, property tax etc. thereof;
(xxxiii) Sandeep, by his conduct has conceded to the sole and exclusive possession of the plaintiff of the subject farmhouse;
(xxxiv) the plaintiff started residing in the subject farmhouse from September, 2017 and Sandeep was aware of the same;
(xxxv) Sandeep, in or around January, 2018, acquired complete control of the assets of his wife Samta Khinda including ownership and control of JFL and HRLIPL where Samta Khinda held 1.24% and 9.09% shares respectively and Samta Khanna also ceased to be Director of JFL and HRLIPL;
(xxxvi) disputes arose between Sandeep and Samta Khinda but were settled vide Settlement Agreement dated 23rd August, 2018 whereunder Samta Khinda give up her entire shareholding and Directorship, in both JFL and HRLIPL in favour of Sandeep;
(xxxvii) Sandeep has filed various frivolous and vexatious complaints against the plaintiff including an application under Sections 241 and 242 of the 2013 Act before the National Company Law Tribunal (NCLT) and a complaint under Section 452 of the 2013 Act before the Special Judge, South West, Dwarka Courts;
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(xxxviii) by way of the complaint under Section 452 of the 2013 Act, Sandeep has for the first time since 2014 sought to challenge the possession of the plaintiff of the subject farmhouse; and,
(xxxix) from the complaint filed by Sandeep against the plaintiff under Section 241 and 242 of the 2013 Act, the plaintiff realized that Sandeep was claiming to be a majority shareholder to the extent of 90% in HRLIPL; and,
(xl) the cause of action paragraph 54 of the plaint is as under:-
“54. That the cause of action arose on 06.05.2019, when the Defendant No.2 filed various frivolous and vexatious complaints against the Plaintiff. The Cause of action again arose on 05.08.2019 when a copy of the petition under Section 452 of the Companies Act, 2013 filed before the Special Judge South West, Dwarka Courts, was served upon the Plaintiff and Plaintiff became aware that the Defendant No.2 had illegally and for the first time challenged the possession of the Plaintiff in the suit property. The cause of action still continuing on a day to day basis.”
“i. Pass a decree of declaration declaring that the Plaintiff has beneficial interest in the shares held by JFL/Defendant No.3 in Defendant No.1;
ii. Pass a decree of declaration that the shares subscribed by Defendant No.3 in Defendant No.1 was in discharge of the obligations arising under agreement dated 28.9.2011;
iii. Pass a decree of Permanent Injunction restraining Defendant No.2 either himself or through Defendant No.3
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from in any manner interfering with the peaceful possession of the Plaintiff in the property bearing no. Farm No.3 Avenue Ashok, Westend Greens, Rajokri, New Delhi-110038.
iv. Pass a decree of Mandatory Injunction directing Defendant No.3 to submit its declaration under Section 89 of the Companies Act 2013 to Defendant No.1
v. Pass such other order/orders as this Hon’ble Court may deem fit and proper in the facts and circumstances of the case.”
paragraph 54 reproduced above, it is clear that the present suit has been instituted to scuttle the proceedings in the complaint initiated against the plaintiff under Section 452 of the 2013 Act i.e. of wrongful withholding of the property of a company i.e. ATPL and which is pari materia to Section 630 of the 1956 Act.
company was neither a tenant nor a licensee in the premises in his occupation and the term of the licence had expired, the complaint under Section 630 of the 1956 Act was held to be not maintainable, reasoning that the question was required to be determined by the civil court and could not be determined by a Magistrate Court in a proceeding under Section 630 of the 1956 Act.
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the plaintiff had beneficial interest, in discharge of the balance sale consideration payable to the plaintiff, called upon JFL to subscribe to 50% of the shareholding of ATPL; (iv) JFL agreed that the 50% shares held by it in ATPL would be held by it in trust for the plaintiff who shall be the beneficial holder thereof; and, (v) thus plaintiff is the beneficial owner of the 50% shares held by JFL in ATPL.
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to Samta Khinda of Rs.25,17,30,000/-, had paid Rs.1,25,000/- only and the balance Rs.25,16,05,000/- was to be paid by Samta Khinda to the plaintiff as and when JFL sold the land at Sohna Road, Gurgaon and distributed sale proceeds to HRLIPL as shareholder of JFL and if the sale proceeds were not so distributed to HRLIPL, HRLIPL, either itself or through JFL, shall invest the said amount of Rs.25,16,05,000/in an asset identified by the plaintiff. The senior counsel for the plaintiff has argued that the subject farmhouse is the asset identified by the plaintiff, which was owned by ATPL and JFL, in pursuance to the aforesaid, acquired 50% shares of ATPL.
“187C. Declaration by persons not holding beneficial interest in any share. – (1) Notwithstanding anything contained in section 150, section 153B or section 187B, a person, whose name is entered, at the commencement of the Companies (Amendment) Act, 1974 (41 of 1974), or at any time thereafter, in the register of members of a company as the holder of a share in that company but who does not hold the beneficial interest in such share, shall, within such time and in such form as may be prescribed, make a declaration to the
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company specifying the name and other particulars of the person who holds the beneficial interest in such share.
(2) Notwithstanding anything contained elsewhere in this Act, a person who holds a beneficial interest in a share or a class of shares of a company shall, within thirty days from the commencement of the Companies (Amendment) Act, 1974 (41 of 1974) or within thirty days after his becoming such beneficial owner, whichever is later, make a declaration to the company specifying the nature of his interest, particulars of the person in whose name the shares stand registered in the books of the company and such other particulars as may be prescribed.
(3) Whenever there is a change in the beneficial interest in such shares the beneficial owner shall, within thirty days from the date of such change, make a declaration to the company in such form and containing such particulars as may be prescribed.
(4) Notwithstanding anything contained in section 153 where any declaration referred to in sub-section (1), subsection (2) or sub-section (3) is made to a company, the company shall make a note of such declaration, in its register of members and shall file, within thirty days from the date of receipt of the declaration by it, a return in the prescribed form with the Registrar with regard to such declaration.
(5)(a) If any person, being required by the provisions of sub-section (1), sub-section (2) or sub-section (3), to make a declaration, fails, without any reasonable excuse, to do so, he shall be punishable with fine which may extend to one thousand rupees for every day during which the failure continues.
(b) If a company fails to comply with the provisions of this section, the company, and every officer of the company who is in default shall be punishable with fine which may extend to one hundred rupees for every day during which the default continues.
(6) Any charge, promissory note or any other collateral agreement, created, executed or entered into in relation to any share, by the ostensible owner thereof, or any hypothecation by the ostensible owner of any share, in respect
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of which a declaration is required to be made under the foregoing provisions of this section, but not so declared, shall not be enforceable by the beneficial owner or any person claiming through him.
(7) Nothing in this section shall be deemed to prejudice the obligation of a company to pay dividend in accordance with the provisions of section 206, and the obligation shall, on such payment, stand discharged.
(8) The provisions of this section shall not apply to the trustee referred to in section 187B on and after the commencement of Companies (Amendment) Act, 2000.”
“89. Declaration in respect of beneficial interest in any share.—(1) Where the name of a person is entered in the register of members of a company as the holder of shares in that company but who does not hold the beneficial interest in such shares, such person shall make a declaration within such time and in such form as may be prescribed to the company specifying the name and other particulars of the person who holds the beneficial interest in such shares.
(2) Every person who holds or acquires a beneficial interest in share of a company shall make a declaration to the company specifying the nature of his interest, particulars of the person in whose name the shares stand registered in the books of the company and such other particulars as may be prescribed.
(3) Where any change occurs in the beneficial interest in such shares, the person referred to in sub-section (1) and the
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beneficial owner specified in sub-section (2) shall, within a period of thirty days from the date of such change, make a declaration to the company in such form and containing such particulars as may be prescribed.
(4) The Central Government may make rules to provide for the manner of holding and disclosing beneficial interest and beneficial ownership under this section.
(5) If any person fails, to make a declaration as required under sub-section (1) or sub-section (2) or sub-section (3), without any reasonable cause, he shall be punishable with fine which may extend to fifty thousand rupees and where the failure is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first luring which the failure continues.
(6) Where any declaration under this section is made to a company, the company shall make a note of such declaration in the register concerned and shall file, within thirty days from the date of receipt of declaration by it, a return in the prescribed form with the Registrar in respect of such declaration with such fees or additional fees as may be prescribed.
(7) If a company, required to file a return under subsection (6), fails to do so before the expiry of the time specified therein, the company and every officer of the company who is in default shall be punishable with fine which shall not be less than five hundred rupees but which may extend to one thousand rupees and where the failure is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the failure continues.
(8) No right in relation to any share in respect of which a declaration is required to be made under this section but not made by the beneficial owner, shall be enforceable by him or by any person claiming through him.
(9) Nothing in this section shall be deemed to prejudice the obligation of a company to pay dividend to its members under this Act and the said obligation shall, on such payment, stand discharged.
(10) For the purposes of this section and section 90, beneficial interest in a share includes, directly or indirectly,
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through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to –
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to show that HRLIPL complied with Section 187(4). The plaintiff pleads having made declaration of beneficial interest in shares held by Samta Khinda in HRLIPL, in or about September-October, 2011. HRLIPL, in accordance with Section 187C(4), was required to file return with ROC, latest by November, 2011. More than eight years have since elapsed. There is nothing to show that any such return was filed. Section 187C(6) provides the consequences of, declaration required to be made “under the foregoing provisions”. In my opinion use of the expression “foregoing provisions” as distinct from only Section 187C(1) and Section 187C(2) is indicative of the consequence under Section 187C(6) flowing, even when though there is compliance of Section 187C(1) and (2) by the ostensible owner and beneficial owner respectively, but there is no compliance of Section 187C(4) by the company.
any defence based on any right in respect of any property held benami against the person in whose name the property was held. Though the Benami Act did not make any exception with respect to benami holding of shares but notwithstanding the promulgation of the Benami Act in the year 1988, Section 187C, providing a procedure for declaration of shares in a company held benami, continued on the statute book. Not only did it so continue in the 1956 Act even after 1988 but a reincarnation thereof in the 2013 Act also finds mention in the form of Section 89.
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enforcement of rights by the beneficial owner in shares only if declared in accordance therewith and the plaintiff on his own averments has not been able to make out a case of complete compliance of Section 187C of the 1956 Act. This Court cannot thus lend its process to the plaintiff. In the absence of full compliance of the provisions of Section 187C, Samta Khinda remained the owner of the 50% shares of HRLIPL, admittedly transferred to her by the plaintiff, and the plaintiff has no right with respect thereto.
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with the ROC, no such beneficial ownership can be enforced in Court. The benami transaction in shares is permitted by providing for public declaration thereof in ROC and if kept hidden, cannot be enforced. The plaintiff has not pleaded having exercised any right or got any benefit or having been treated as beneficial owner of shares in HRLIPL, since 28th September, 2011 or as beneficial owner of shares in ATPL since 7th August, 2013. The records required to be maintained by a company qua beneficial interest in shares, are public records, open to inspection by all and the conduct of the plaintiff, of inspite of such declaration being not made, keeping quite till now, speaks volumes of natural course of human conduct. The plaintiff had option under Section 59 of the 2013 Act to apply for rectification of register of members, but failed to exercise the said option. The claim of beneficial ownership of shares of ATPL, even otherwise stands on the edifice of beneficial ownership of HRLIPL and which is unsustainable under Section 187C(6) supra.
majority shares of JFL, agreeing to, on non payment of such balance sale consideration by Samta Khinda, make JFL invest the amount due to the plaintiff in an asset identified by the plaintiff, is an agreement / promise by HRLIPL, without any consideration and unenforceable. The plaintiff has mixed up the corporate identity with the identity of the shareholders and Directors of such corporation and the plaint has been drafted treating the corporate entity to be the same as the shareholders and Directors and which is contrary to the basic covenants of corporate law. A corporation / company is a distinct juristic entity, distinct from its shareholders and Directors and has its own persona, independent from its shareholders and Directors. A corporation / company is not liable for the dues of its shareholders and Directors. Moreover, the shareholders / Directors of a corporation / company in their such capacity also are entitled to exercise only such rights with respect to affairs of a corporation / company, as are within the domain of the Articles of Association of the Corporation / company. The plaintiff has made the averments of HRLIPL, as the majority shareholder of JFL, having agreed to make JFL invest the amount due to the plaintiff from Samta Khinda in an asset identified by the plaintiff, not only without disclosing the consideration therefor but also without referring to the Articles of Association of HRLIPL and JFL and without pleading that HRLIPL and / or JFL were entitled under their Articles of Association to do so. A company otherwise is not concerned with relationship inter se its shareholders. There is also no explanation why the plaintiff, inspite of being not paid the substantial sale consideration due for transfer of shares of HRLIPL to CS(OS) No.46/2020 Page 23 of 25
Samta Khinda, on 17th December, 2012 also transferred his and his family‟s shareholding in JFL to Sandeep, being the husband of Samta Khinda.
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for declaration of existence of any such resolution of the Board of Directors of ATPL.
Decree sheet be prepared.
RAJIV SAHAI ENDLAW, J
FEBRUARY 04, 2020 „ak‟/gsr (corrected & released on 18th February, 2020)
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3 issues framed by the court
Could beneficial ownership of shares be enforced without complete compliance with Section 187C, including filing the company's return with the ROC?
Did alleged beneficial ownership of shares entitle the plaintiff to retain possession of the company's farmhouse?
Did the pleaded claims disclose a cause of action for declarations and injunctions, or was the suit barred by law?
Colour shows how this judgement treated each authority
Jagdish Chandra Nijhawan Vs. S.K. SarafReferred¶77
Jagdish Chandra Nijhawan Vs. S.K. Saraf (1999) 1 SCC 119 · Who else cites this
Damodar Das Jain Vs. Krishna Charan ChakrabortiReferred¶77
Damodar Das Jain Vs. Krishna Charan Chakraborti (1989) 4 SCC 531 · Who else cites this
Ashwani Sharma Vs. Kanta SharmaRelied on¶137
Ashwani Sharma Vs. Kanta Sharma 2017 SCC OnLine Del 6623 · Who else cites this
7 provisions across 3 enactments
SANJEEV MAHAJAN
Aries Travels Pvt. Ltd.
Sandeep Singh Khinda
Jain Floriculture Ltd.
Habitat Royale Land Investments Pvt. Ltd.
RAJIV SAHAI ENDLAW
As recorded by the court registry
A civil suit filed on the original side of a High Court exercising ordinary original civil jurisdiction.
Judgements on the same questions, provisions and authorities, from every court
