Supreme Court of India
RAM PARSHOTAM MITTAL & ANR.versusM/S HILLCREST REALTY SDN.BHD. & ORS. ETC.
- Citation
- 2009 INSC 926
- Decided
- 20 July 2009
- Disposal
- Dismissed
- Bench
- ALTAMAS KABIR
Holding
The Court held prima facie that the resolutions of 30 September 2002 converted Hotel Queen Road into a public company, thereby lifting the bar under Section 90(2) and allowing Hillcrest Realty to exercise voting rights under Section 87(2)(b).
Summary
The case concerned whether Hotel Queen Road Pvt. Ltd., a special purpose vehicle, had converted into a public company by resolutions passed on 30 September 2002, which were accompanied by a Form 23 filing and a statement in lieu of prospectus. The conversion would affect the applicability of Section 87(2)(b) of the Companies Act, 1956, granting voting rights to Hillcrest Realty, a cumulative preference shareholder, after two years of unpaid dividends. The Delhi High Court had issued contradictory interim orders—one treating the company as private and denying voting rights, the other treating it as public and allowing voting. The Supreme Court examined the interpretation of Sections 3, 44, 87(2)(b), 90(2) and related provisions, and considered whether the status of a company is determined by the Registrar’s records or by the statutory definition. It held that the resolutions, together with the filings, prima facie converted the company into a public company, thereby lifting the bar under Section 90(2) and enabling Hillcrest Realty to vote under Section 87(2)(b). The Court dismissed the Special Leave Petitions, noting that its observations were only for the purpose of disposing of the petitions and should not prejudice the pending suits. The High Court was directed to dispose of the suits expeditiously.
Issues considered
- Whether the resolutions of 30 September 2002 converted Hotel Queen Road Pvt. Ltd. from a private to a public company under the Companies Act, 1956.
- Whether Section 87(2)(b) of the Companies Act, 1956 applies to Hillcrest Realty as a cumulative preference shareholder after two years of non‑payment of dividend.
- Whether Section 90(2) bars the operation of Section 87(2)(b) when the company is a private company not a subsidiary of a public company.
- Whether the High Court's contradictory interim orders should be set aside.
- Whether the status of a company is determined by the Registrar of Companies' records or by the statutory definition in the Act.
Legislation cited
- Companies Act, 1956s. 205, s. 31, s. 3(1)(iii), s. 43, s. 44(1)(b), s. 87(2)(b), s. 90(2)
Subjects
Companies Act 1956public company conversionprivate companypreference shareholder voting rightsSection 87(2)(b)Section 90(2)Form 23Statement in lieu of prospectusSpecial Leave Petitionfraudcorporate governance
Judgment
[2009] 10 S.C.R. 1121
; RAM PARSHOTAM MITTAL & ANR. A
v.
M/S HILLCREST REALTY SDN.BHD. & ORS. ETC.
(Special Leave Petition (Civil) Nos.1069-1071 of 2009)
JULY 20, 2009
B
[ALTAMAS KABIR AND CYRIAC JOSEPH, JJ.)
COMPANIES ACT, 1956:
Sections 3, 87(2)(b), 90(2) - Interpretation and c
applicability of - Held: The very fact that Form 23 was filed
along with the necessary resolutions and a statement in lieu
of prospectus was filed is sufficient for arriving at a prima facie
conclusion that the company ha.s altered its status and had
become a public company - Also having regard to the D
definition in Section 3(1 )(iii) as soon as its number of
members exceeds 50, the company loses its character as a
private company - The observations made in this case are
of prima facie nature only for disposal of the Special Leave
Petitions and not to influence the final decision in the suits -
E
However, High Court functioning as Trial Court to dispose of
the suits early so that the management and affairs of the
~
company are not left in a state of uncertainty.
.
Respondent No.3, Mis. Hotel Queen Road Pvt. ltd.,
was incorporated as a Special Purpose Vehicle from 23rd F
August, 2001 for taking over the assets of Hotel Ashok
Yatri Niwas, which was a unit of the India Tourism
Development Corporation ('ITDC'), and to manage the
same as part of the disinvestment process initiated by the
Government of India. After the transfer of assets was G
completed through a Scheme of Arrangement of
Demerger between the ITDC and Hotel Queen Road Pvt.
ltd., which was sanctioned by the Government of India
on 5th July, 2002, the Government of India invited bids
1121 H
1122 SUPREME COURT REPORTS (2009] 10 S.C.R.
A for the purchase of 99.97% of the total voting equity share
capital of Hotel Queen Road Pvt. Ltd. The requisite •
shares in the said Company were sold to the successful
bidder, Moral Trading and Investment Ltd., by two share
purchase agreements dated 8th October, 2002, entered
B into between the President of India, Moral Trading and
Investment Ltd. and Hotel Queen Road Pvt. Ltd. On the
same date an agreement was entered into between the
President of India and Hotel Queen Road Pvt. Ltd.,
whereby the land on which Hotel Ashok Yatri Niwas was
c erected, was leased out to the Company for 99 years.
In June, 2005, Hillcrest Realty served a notice on
Hotel Queen Road Pvt. Ltd. asking the Company to
convene an Extraordinary General Meeting (EGM) to
remove Mr. Ram Parshotam Mittal and Mrs. Sarla Mittal as
D Directors of Hotel Queen Road Pvt. Ltd. and to appoint
the nominees of Hillcrest Realty in their place. Since,
Hotel Queen Road Pvt. Ltd. declined to hold such a
meeting, Hillcrest Realty issued another notice for
holding an EGM on 4th August, 2005 for the same
E purpose. Hotel Queen Road Pvt. Ltd. thereupon filed a
Suit before the Delhi High Court for an injunction to
restrain Hillcrest Realty from going ahead with the
•
proposed meeting and from exercising voting rights
therein. Holding that the requisition for an EGM by
F Hillcrest Realty was illegal, the Single Judge, held that
any Resolution passed in the said meeting was ineffective
and that Hotel Queen Road being a private company,
Hillcrest Realty had no voting rights which it could have
exercised in the EGM.
G
Hillcrest Realty filed Suit in the Delhi High Court for
a declaration that by virtue of certain resolutions passed
by Hotel Queen Road Pvt. Ltd. on 30th September, 2002,
the Company had converted itself from a private
company to a public company. On an interim application,
H
RAM PARSHOTAM MITTAL v. HILLCREST REALTY 1123
SDN.BHD. & ORS. ETC.
filed in the Suit by Hillcrest Realty, the Single Judge, upon A
• holding that Hotel Queen Road Pvt. Ltd. had frauciulently
concealed the fact that it had acquired the status of a
public company in the year 2002 and had obtained order
of injunction on 12th August, 2005 by virtue of such
concealment, allowed the application and permitted B
Hillcrest Realty to vote in the meeting which was
scheduled to be held on 16th October, 2008.
Hillcrest Realty also filed an application, in the Suit
filed by Hotel Queen Road Pvt. Ltd., inter alia, for a C
declaration that Hotel Queen Road was a Public
Company and for vacation of the order of injunction
passed on 12th August, 2005. By his order dated 20th
October, 2008, the Single Judge vacated the interim order
dated 12th August, 2005, on the ground that it was a
natural consequence of the earlier order passed on 15th D
October, 2008, whereby Hotel Queen Road Pvt. Ltd. was
held to have become a Public Company on acco.unt of
the resolutions dated 30th September, 2002.
On appeal, the Division Bench of the Delhi High E
Court by a common judgment decided not to go into the
status of Hotel Queen Road, and kept the question of
conversion of Hotel Queen Road Pvt. Ltd. into a public
company and acquisition of voting rights by Hillcrest
Realty in the Company, for decision in the two other F
appeals; that denial of natural justice was curable even
at the appellate stage and that instead of remanding the
said appeals to the Single Judge for fresh consideration,
the appeals could be taken up for decision by the
Division Bench itself; and that as a cumulative preference G
shareholder in Hotel Queen Road Pvt. Ltd., Hillcrest
Realty was entitled to vote at any EGM of its
shareholders. The Division Bench took into.
consideration the statements made on behalf of Hillcrest
Realty that since it had not been paid dividend on its H
1124 SUPREME COURT REPORTS [2009] 10 S.C.R.
A preference shares for over two years, it became entitled
to exercise voting rights on every resolution placed •
before the Company at any meeting, in accordance with
the provisions of Section 87(2) of the Companies Act. The
Division Bench decided the question on the assumption
8 that Hotel Queen Road Pvt. Ltd. was a public company.
Hence the Special Leave Petitions.
Dismissing the SLPs, the Court
HELD: 1.1. As will be evident from the pleadings in
c both the suits, the reliefs sought for in the two suits are
dependent on the question as to whether by the
resolutions adopted on 30th September, 2002, Hotel
Queen Road had lost its private character and had been
converted into a Public Company. While the issues are
D the same in the two suits, the interim orders passed
therein operate in contradictory fields. On the one hand,
the Single Judge has passed an order on the basis that
Hotel Queen Road was a Private Limited Company in
which Hillcrest Realty, as a preference shareholder, had
E no voting rights and, on the other, an interim order has
been passed on the basis that the said company was, a
Public Company and by operation of Section of 87(2)(b)
~
of the Companies Act, 1956, Hillcrest Realty, as a
preference shareholder, was entitled to vote at all the
F meetings of the company. In an attempt to reconcile the
two contradictory positions, the Division Bench of the
High Court, without deciding the core issue, proceeded
to dispose of the appeals before it by treating Hotel
Queen Road to be a Public Company, and based upon
such presumption proceeded further to hold that on
G
account of non-payment of dividend on its cumulative
preference shares for two years, Hillcrest Realty became
entitled to vote at the meeting of the company under the
provisions of Section 87(2)(b) of the Companies Act,
1956. [Para 32] [1144-F-H; 1145-A-C]
H
RAM PARSHOTAM MITIAL v. HILLCREST REALTY 1125
SDN.BHD. & ORS. ETC.
1.2. Although, the language of the first resolution was A
-• different from the language of the two following
resolutions, and at first glance appears to militate against
each other, on a closer look at the three resolutions taken
one after the other, it is not difficult to discern that they
were all part of the same thinking process or meeting of B
minds of the shareholders. Without the first resolution
being accepted as a final decision taken by the company
to convert itself from a private company into a public
company, there could be no occasion for the subsequent
two resolutions to have been passed. [Para 33] [1145-C· c
E]
1.3. This Court is unable to appreciate the
methodology adopted by the Division Bench of the High
Court, but is in agreement with the end result by which
the Division Bench had set aside the interim order dated D
12th August, 2005, passed in Suit No.992 of 2005. Apart
from endorsing the view of the Single Judge that the
interim order of 12th August, 2005, had been obtained by
suppression of material facts, in order to decide the
appeals, the Division Bench had to arrive at a prima facie E
finding as to whether by virtue of the resolutions adopted
on 30th September, 2002, Hotel Queen Road had shed its
private character and had been converted into a public
company with all its consequences. [Para 34] [1145-E-H;
1146-A] -F
1.4. From the materials on record, prima facie this
Court is of the view that by the said resolutions, a final
decision had been taken by Hotel Queen Road to convert
itself into a public company with immediate effect without G
having to wait for any decision to be rendered by the
Registrar of Companies who, in any event, had no
authority to make any decision in that regard. The very
fact that Form 23 was filed along with the resolutions
dated 30th September, 2002, coupled with the fact that a
H
1126 SUPREME COURT REPORTS [2009] 10 S.C.R.
A Statement in lieu of Prospectus, which is required to be
filed by a private company when it converts itself into a
public company, was filed on behalf of Hotel Queen Road,
is sufficient for the purpose of arriving at a prima facie
conclusion that Hotel Queen Road had altered its status
B and had become a public company even though the
necessary alterations had not been effected in the
records of the Registrar of Companies. [Para 35] [1146-
A-D]
1.5. Having regard to the definition of "private
C company" in Section 3(1 )(iii), as soon as the number of
its members exceeds 50, it loses its character as a private
company. Since in the instant case shares were said to
have been allotted to 134 persons on 30th September,
2002, on which date the resolutions were passed by Hotel
D Queen Road Pvt. Ltd., the company lost its private
character requiring the subsequent resolutions to be
passed regarding alteration of the share capital. [Para 35]
[1145-F-H]
E 1.6. Whichever way one may look at the three
resolutions passed one after the other on 30th
September, 2002, it appears to have been the intention
of the company to convert itself from a private company
to a public company and that the same was effected by
F the three resolutions passed on 30th September, 2002.
[Para 36] [1147-A]
1.7. The moment the resolutions were passed by the
company on 30th September, 2002, the provisions of the
Companies Act became applicable and by operation of
G law, Hotel Queen Road simultaneously ceased to be a
private limited company and under the conditions
prescribed in the Act, Hillcrest Realty acquired voting
rights in the meetings of the company by operation of
Section 87(2)(b) and Section 44 of the said Act. The right
H of a preference shareholder to acquire voting rights is
RAM PARSHOTAM MITTAL v. HILLCREST REALTY 1127
SON.BHD. & ORS. ETC.
also indicated in,clear and unambiguous terms in the A
Explanation to Section 87(2)(b). [Para 37] [1147-C-E]
1.8. In the event dividend had not been declared or
paid for a period of two years as far as Hillcrest is -
concerned, the Explanation to Section 87(2)(b) would
8
come into play thereby giving Hillcrest Realty, as a
cumulative preference shareholder, the right to vote on
every resolution placed before the Company, at any -
meeting, in keeping with Clause (i) of Section 87(2)(b) of
the aforesaid Act. [Para 38] [1148-A-B]
c
A. V. Papayya Sastry vs. Govt of Andhra Pradesh (2007)
4 SCC 221; S.P. Chengalvaraya Naidu vs. Jagannath (1994)
1 SCC 1; Gowrishankar vs. Joshi Amba Shankar Family
Trust (1996) 3 SCC 310 and State of Andhra Pradesh vs. T.
Suryachandra Rao (2005) 4 SCC 149, referred to. O
Cane vs. Jones and others, 1981 (1) All ER 533; Lazarus
Estates Ltd. vs. Beasley 1956 (1) All E.R. 341; Bradford
Investments Ltd. (1991) BCLC 224 and Walters' Deed of
Guarantee in Walters' "Palm" Toffee, Limited vs. Walters 1932
W. 3978, referred to. E
2. It is made clear that the observations made in this
judgment are of a prima facie nature only for disposal of
the Special Leave Petitions and should not influence the
final decision in the suits, where the question relating to F
the status of Hotel Queen Road has been left open for
decision. However, the High Court, functioning as the
Trial Court is requested to dispose of the suits at an early
date so that the management and affairs of Hotel Queen
Road are not left in a state of uncertainty. [Para 39] [1148- G
B-D]
Case Law Reference :
(2007) 4 sec 221 referred to Para 22
. H
1128 SUPREME COURT REPORTS [2009] 10 S.C.R.
A (1994) 1 sec 1 referred to Para 23
(1996) 3 sec 310 referred to Para 23
(2005) 4 sec 149 referred to Para 23
1981 (1) All ER 533 referred to Para 20
B
1956 (1) All E.R. 341 referred to Para 22
(1991) BCLC 224 referred to Para 25
932 w. 3978 referred to Para 30
c CIVIL APPELLATE JURISDICTION : SLP (Civil) Appeal
Nos. 1069-71 of 2009.
From the Judgment & Order dated 14.01.2009 of the High
Court of Delhi at New Delhi in FAO (OS) No. 282 of 2005, FAO
D (OS) No. 426 of 2008 and FAO (OS) No. 440 of 2008.
WITH
SLP (C) Nos. 9212-9214 of 2009.
E Soli J. Sorabjee, S. Ganesh, Jayant Bhushan, Shyam
Diwan, P.S. Patwalia, Mahesh Agarwal, Sandeep Mittal, Nikhil
Rohatgi, E.C. Agrawala, Mohit Chaudhary, Puja Sharma,
Shobha, Manish Jain, Jyoti Mendiratta, Devesh Tripathi, Tushar
Bakshi, Aman Preet Rahi and Ajay Singh Chauhan for the
F appearing parties.
The Judgment of the Court was delivered by
ALTAMAS KABIR, J. 1. These Special Leave Petitions
have been taken up for final disposal at the admission stage
G itself. SLP(C)Nos.1069-1071 of 2009 have been filed by Ram
Parshotam Mittal and Mrs. Sarla Mittal, who were the
Respondent Nos.2 and 3 in FAO(OS)No.282 of 2005 and
Appellant Nos.2 and 3 in FAO(OS)Nos.426 and 440 of 2008,
against the common judgment dated 14th January, 2009
H passed by the Division Bench of the Delhi High Court in the
RAM PARSHOTAM MITIAL v. HILLCREST REALTY 1129
SDN.BHD. & ORS. ETC. [ALTAMAS KABIR, J.]
above-mentioned appeals. SLP(C)Nos.9212-9214 of 2009 A
Ji have been filed by M/s. Hillcrest Realty Sdn. Bhd., which was
the appellant in FAO(OS)No.282 of 2005 and the Respondent
No.1 in FAO(OS)Nos.426 and 440 of 2008, against the same
judgment.
B
2. Although, the Special Leave Petitions mainly involve the
interpretation and application of Section 87(2)(b) and Section
90(2) and other connected provisions of the Companies Act,
1956, to the facts of this case, it is necessary to briefly set out
the said facts to appreciate the background in which the said
questions have arisen.
c
3. M/s. Hotel Queen Road Pvt. Ltd, which is the proforma
Respondent No.3 in all these Special Leave Petitions, was
incorporated as a Special Purpose Vehicle from 23rd August,
2001 for taking over the assets of Hotel Ashok Yatri Niwas, D
-~
which was a unit of the India Tourism Development Corporation
(hereinafter referred to as 'ITDC'), and to manage the same
as part of the disinvestment process initiated by the
Government of India. After the transfer of assets was completed
through a Scheme of Arrangement of Demerger between the E
ITDC and Hotel Queen Road Pvt. Ltd., which was sanctioned
by the Government of India on 5th July, 2002, the Government
of India invited bids for the purchase of 99.97% of the total
*
voting equity share capital of Hotel Queen Road Pvt. Ltd. The
requisite shares in the said Company were sold to the F
successful bidder, Moral Trading and Investment Ltd., by two
share purchase agreements dated 8th October, 2002, entered
into between the President of India, Moral Trading and
Investment Ltd. and Hotel Queen Road Pvt. Ltd. On the same
date an agreement was entered into between the President of G-
India and Hotel Queen Road Pvt. Ltd., whereby the land on
,. which Hotel Ashok Yatri Niwas was erected, was leased out
to the Company for 99 years. Simultaneously, a meeting of the
Board of Directors of the Company was convened in which Mr.
Ram Parshotam Mittal, Mr. Ashok Mittal, Mrs. Sarla Mittal and
H
1130 SUPREME COURT REPORTS [2009] 10 S.C.R.
A Mr. C.S. Paintal were appointed as Additional Directors and
in December, 2002, their appointment was approved at a "
meeting of the Company. A further resolution was passed to
increase the share capital of the Company from Rs.90 lakhs
to Rs.33 c•ores. The additional capital was divided into 71 lakh
B equity shares of Rs.10/- each and 25 lakh preference shares
of Rs.100/- each. The Articles of Association of Hotel Queen
Road Pvt. Ltd. were amended to exclude preference
shareholders from having any voting rights.
4. Subsequently. M/s. Hillcrest Realty (a Malaysian
c company) purchased 23,65,000 redeemable preference shares
from Hotel Queen Road Pvt Ltd. bearing interest at the rate of
8.5% per annum. The Board of Directors of the Company
approved the allotment in favour of Hillcrest Realty on 5th May,
2003, subject to the condition that the allotment would not carry
D any voting rights. In July, 2003, Hillcrest Realty purchased
another 4,64,290 preference shares on similar terms.
5. For a period of 2 years from the date of purchase of
the preference shares by Hillcrest Realty, no dividend was
E declared or paid by the Company. In June, 2005, Hillcrest
Realty served a notice on Hotel Queen Road Pvt. Ltd. asking
the Company to convene an Extraordinary General Meeting
(EGM) to remove Mr. Ram Parshotam Mittal and Mrs. Sarla *
Mittal as Directors of Hotel Queen Road Pvt. Ltd. and to appoint
F the nominees of Hillcrest Realty in their place. Inasmuch as,
Hotel Queen Road Pvt. Ltd. declined to hold such a meeting,
Hillcrest Realty issued another notice for holding an EGM on
4th August, 2005 for the same purpose. Hotel Queen Road Pvt.
Ltd. thereupon filed Suit No.992 of 2005 before the Delhi High
Court in its original jurisdiction for an injunction to restrain
G
Hillcrest Realty from going ahead with the proposed meeting
and from exercising voting rights therein. Holding that the
requisition for an EGM by Hillcrest Realty was illegal, the
learned Single Judge, by his order dated 12th August, 2005,
further held that any Resolution passed in the said meeting was
H
RAM PARSHOTAM MITTAL v. HILLCREST REALTY 1131
SDN.BHD. & ORS. ETC. [ALTAMAS KABIR, J.]
ineffective and that Hotel Queen Road being a private company, A
Hillcrest Realty had no voting rights which it could have
exercised in the EGM.
6. In August, 2008, Hillcrest Realty filed Suit No.1832 of
2008 in the Delhi High Court for a declaration that by virtue of
B
certain resolutions passed by Hotel Queen Road Pvt. Ltd. on
3oth September, 2002, the Company had converted itself from
a private company to a public company. On an interim
application, being I.A. No.12164 of 2008, filed in the Suit by
Hillcrest Realty, the learned Single Judge, upon holding that
Hotel Queen Road Pvt. Ltd. had fraudulently concealed the fact c
that it had acquired the status of a public company in the year
2002 and had obtained order of injunction on 12th August,
2005 by virtue of such concealment, allowed the application
and permitted Hillcrest Realty to vote in the meeting which was
scheduled to be held on 16th October. 2008. D
7. Apart from the above, Hillcrest Realty also filed an
application, being I.A. No. 12638 of 2008, in Suit No.992 of
2005 filed by Hotel Queen Road Pvt. Ltd., inter alia, for a
declaration that Hotel Queen Road was a Public Company and E
for vacation of the order of injunction passed on 12th August,
2005. By his order dated 2oth October, 2008, the Single Judge
}
vacated the interim order dated 12th August, 2005, on the
ground that it was a natural consequence of the earlier order
passed on 15th October, 2008, whereby Hotel Queen Road Pvt.
F
Ltd. was held to have become a Public Company on account
of the resolutions dated 30th September, 2002.
8. Being aggrieved by the said two orders passed by the
learned Single Judge in Suit No.1832 of 2008 filed by Hillcrest
Realty and Suit No.992 of 2008 filed by Hotel Queen Road Pvt. G
Ltd., Hotel Queen Road Pvt. Lt9., through Mr. Ram Parshotam
Mittal and others, filed FAO(OS) Nos.426 and 440 of 2008
before the Division Bench of the Delhi High Court. Hillcrest
Realty Sdn. Bhd. had earlier filed FAO(OS)No.282 of 2005
against the order dated 12th August, 2005, which had been H
1132 SUPREME COURT REPORTS [2009] 10 S.C.R.
A passed by the learned Single Judge in Suit No.992 of 2005
filed by Hotel Queen Road Pvt. Ltd.
9. All the three appeals were taken up together for hearing
and disposal by the Division Bench of the Delhi High Court and
were disposed of by a common judgment on 14th January,
B 2009. Although, the status of Hotel Queen Road, after the
resolutions were passed on 30th September, 2002, which
included filing of a Statement in lieu of Prospectus and the filing
of Form No.23 with the Registrar of Companies on 8th October,
2002, along with the text of the two special resolutions passed
C by the shareholders of Hotel Queen Road Pvt. Ltd. on 30th
September, 2002, was the core issue, the Division Bench of
the High Court decided not to go into the aforesaid question
since the very same issue was the subject matter of Suit
No.1832 of 2002 filed by Hillcrest Realty Sdn. Bhd .. The
D Division Bench set aside the order dated 12th August, 2005,
passed by the learned Single Judge in l.A.No.5505 of 2005 and
dismissed the same, while holding further that the Suit itself
could not be dismissed outright on such score. Having held as
above, the Division Bench kept the question of conversion of
E Hotel Queen Road Pvt. Ltd. into a public company and
acquisition of voting rights by Hillcrest Realty in the Company,
for decision in the two other appeals.
10. On the question of denial of natural justice to the
F appellants in the two remaining appeals, the Division Bench
held that such denial was curable even at the appellate stage
and that instead of remanding the said appeals to the learned
Single Judge for fresh consideration, the appeals could be
taken up for decision by the Division Bench itself. In that context,
the Divis.ion Bench held that as a cumulative preference
G shareholder in Hotel Queen Road Pvt. Ltd., Hillcrest Realty was
entitled to vote at any EGM of its shareholders. The Division
Bench took into consideration the statements made on behalf
of Hillcrest Realty that since it had not been paid dividend on
its preference shares for over two years, it became entitled to
H
RAM PARSHOTAM MITTAL v. HILLCREST REALTY 1133
SDN.BHD. & ORS. ETC. [ALTAMAS KABIR, J.]
exercise voting rights on every resolution placed before the A
;;
Company at any meeting, in accordance with the provisions of
Section 87(2) of the Companies Act and discarding the
submissions made on behalf of Hotel Queen Road that by virtue
of Section 90(2) of the aforesaid Act, the provisions of Section
87(2) thereof were not applicable to a private company, unless B
it was a subsidiary of a public company, the Division Bench
decided the question on the assumption that Hotel Queen Road
Pvt. Ltd. was a public company. The latter part of the decision
of the Division Bench was, therefore, based on the suppositiom
that Hotel Queen Road Pvt. Ltd. had become a public company c
which entitled Hillcrest Realty to vote at the EGM held on 4th
August, 2005, as well as the EGM scheduled for 16th October,
2008. The Division Bench, however, appeared to be undecided
as to the course of action to be taken and without deciding the
question as to whether Hotel Queen Road was a private D
company or a public company, proceeded on the assumption
that the company was a public company and directed that
Hillcrest Realty would thenceforth be permitted to exercise
voting rights in all meetings of Hotel Queen Road, subject to
tile decision at the trial stage regarding the status of the
E
company. While disposing of the appeals, the Division Bench
awarded costs of Rs.19, 76,000/- in favour of Hillcrest Realty
Sdn. Bhd. and Rs.5,94,000/- in favour of Mr. Ashok Mittal, as
per statements submitted by them, which was to be paid within
a period of four weeks from the date of the order.
F
11. As mentioned hereinbefore, two different sets of
Special Leave Petitions have been filed, one set by Ram
Parshotam Mittal and Mrs. Sarla Mittal and the other set by M/
s. Hillcrest Realty Sdn. Bhd.
G
12. Appearing for the petitioners in SLP(C) Nos.1069-
,. 1071 of 2009, Mr. Soli J. Sorabjee submitted that the core
issue in these petitions was with regard to the application of
Section 87(2)(b) of the Companies Act to the facts of the case
having regard to the bar imposed under Section 90(2) thereof.
H
1134 SUPREME COURT REPORTS [2009] 10 S.C.R.
A Mr. Sorabjee submitted that the main plank of the case made
out by Hillcrest Realty rested on the tvvo resolutions which had "'
been passed by Hotel Queen Road Pvt. Ltd. on 30th
September, 2002, in the following terms :
"Resolved that the company be converted into Public
B
Limited Company and that such consequential
amendments as may be necessary, in such a manner that
no longer the provisions of Section 3(1 )(iii) of the
Companies Act, 1956 are required to be included in the
Memorandum and Articles of Association of the Company.
c
Further the Board of Directors of the Company be and is
hereby authorised to do such acts, deeds, things that may
necessary to effect the above resolutions.
D Resolved that the authorised share capital of the company
be and is hereby increased from Rs.1,00,000/- divided into
10,000 equity shares of Rs.10/- each, to Rs.90,00,000/-
divided into 9,00,000 equity shares of Rs.10/-.
Resolved further that the Memorandum and Articles of
E Association of the Company be and is hereby altered to
reflect the above increased authorised share capital of the
company.
Further resolved that the Board of Directors of the
F Company be and is hereby authorised to do such acts,
deeds, things that may necessary to effect the above
resolution."
13. Mr. Sorabjee urged that the difference between the
first resolution and the other resolutions would be clear from the
G very language used in respect of the said resolutions. Mr.
Sorabjee submitted that while the first resolution was merely
an enabling resolution for the conversion of the Company into
a Public Limited Company, the other resolutions became
effective immediately. As a result, the authorised share capital
H of the Company was increased from Rs.1,00,000/- divided into
RAM PARSHOTAM MITIAL v. HILLCREST REALTY 1135
SDN.BHD. & ORS. ETC. [ALTAMAS KABIR, J.]
10,000 equity shares of Rs.10/- each to Rs.90,00,000/- divided A
into 9,00,000 equity shares of Rs.10/- each and a further
resolution was also adopted whereby the Memorandum and
Articles of Association of the Company were altered to reflect
the increased authorised share capital of the Company. Mr.
Sorabjee urged that while the other resolutions took effect B
instantaneously, the first resolution was merely to enable the
Company to take steps for its conversion from a private
company to a public company and did not alter the nature and
character of the Company eo instanti. It was submitted that in
the absence of a positive resolution changing the nature and c
character of the Company to a Public Company, the Division
Bench of the High Court committed a serious error in
proceeding on assumptions in order to give voting rights to
Hillcrest Realty without determining the issue and leaving the
same for determination to the learned Single Judge. Mr.
0
Sorabjee urged that this was a classic example of putting the
cart before the horse, which has had the effect of taking away
the management of the Company from the equity shareholders
and handing over the same to the preference shareholders who
were not entitled to the management.
E
14. Mr. Sorabjee urged that the equity shareholders had
been wrongly deprived of the management of the company
based on the order passed by the learned Single Judge on 15th
October, 2008, which had been passed on the supposition that
Hotel Queen Road Pvt. Ltd. had suppressed the fact that it had F
acquired the status of a Public Limited Company on the basis
of the resolutions dated 30th September, 2002. Mr~ Sorabjee
urged that the question of suppression of the said resolutions
did not arise since Hillcrest Realty was fully aware of the
'conversion' resolution of 30th September, 2002, which was G
part of the Directors' Report for the year ended 31.3.2004,
wherein it had been clearly mentioned that the Company's
application for conversion into a public company was pending
with the Registrar of Companies and had not attained finality.
Accordingly, with the passing of the resolutions on 30th H
1136 SUPREME COURT REPORTS [2009) 10 S.C.R.
A September, 2002, Hotel Queen Road Pvt. Ltd. did not
automatically become a public company and the Division
Bench had erred in assuming it to be so in giving voting rights
to Hillcrest Realty which was only a preference shareholder
without voting rights, particularly when the Company was ready
B and w:lling to pay the dividend for the two years in question to
Hillcrest Realty out of funds arranged by it for such purpose~
Learned counsel also urged that along with Form No.23,
copies of the resolutions adopted on 30th September, 2002,
had also been forwarded to the Registrar of Companies and
c certified copies thereof could have been obtained by Hillcrest
Realty from the office of the Registrar of Companies. Mr.
Sorabjee urged that the very basis on which the Division Bench
vacated the injunction order dated 12th August, 2005, passed
by the learned Single Judge, was non-est, as no fraud had
been perpetrated by Hotel Queen Road Pvt. Ltd. since the
0
conversion resolution of 30th September, 2002, was not a final
decision which would have had the effect of converting Hotel
Queen Road Pvt. Ltd. into a public limited company with
immediate effect.
E 15. Mr. Sorabjee submitted that the approach of the
Division Bench of the High Court treating Hotel Queen Road
Pvt. Ltd. to be a public company was wholly erroneous leading
to the peculiar situation which had been created in the
management of the company by giving Hillcrest Realty, a
F preference share holder, the right to vote at the meetings of the
company. Mr. Sorabjee urged that since the very basis of the
order passed by the Division Bench was fallacious, the same
was liable to be set aside and the management of Hotel Queen
Road Pvt. Ltd. was liable to be restored to the equity share
G holder Directors.
16. The submissions of Mr. Sorabjee were strongly
opposed by Mr. Jayant Bhushan, learned Senior Advocate
appearing for M/s. Hillcrest Realty Sdn. Bhd. Learned counsel
submitted that the crucial question in the case was whether
H
RAM PARSHOTAM MITTAL v. HILLCREST REALTY 1137
SDN.BHD. & ORS. ETC. [ALTAMAS KABIR, J.]
_., Hotel Queen Road Pvt. Ltd. was a private company or a public A
company. If it was a private company and not a subsidiary of
any public company, Hillcrest Realty would not have any voting
rights. Mr. Bhushan submitte~f that the resolutions adopted by
Hotel Queen Road Pvt. Ltd. on 30th September, 2002 were,
therefore, of great relevance in deciding the said question. Mr. B
Bhushan contended that the suppression of the said resolutions
had a definite effect on the decision- making process of the
learned Single Judge while passing an interim order on 12th
August, 2005. Learned counsel submitted that the first of the
three resolutions passed on 30.9.2002, was not of an enabling c
nature as had been contended by Mr. Sorabjee. It was
submitted that the two following resolutions could not have been
passed simultaneously with the first resolution unless a final
decision had been taken to convert Hotel Queen Road Pvt. Ltd.
from a private company to a public company. Mr. Jayant D
Bhushan urged that the same would be even more evident from
the fact that Hotel Queen Road Pvt. Ltd also filed a "statement
in lieu of prospectus", which is required to be filed only when a
private company converts itself into a public company, as
contemplated under Section 44(1)(b) of the Companies Act,
E
1956.
17. It was urged that even if the above-mentioned
resolutions were available with the Registrar of Companies, by
not mentioning the same in its application for injunction, Hotel
Queen Road had perpetrated a fraud by misleading the Court F
into believing that Hotel Queen Road was a private limited
company, which disentitled Hillcrest Realty from having voting
rights at the company's meetings.
18. In addition to the above, learned counsel submitted that G
• the reference made in the Directors' Report regarding the
pendency of the application for conversion of the company from
a private limited company into a public limited company, was
a complete misnomer, since the conversion of a company from
_. a private company to a public company did not require the
H
1138 SUPREME COURT REPORTS [2000] 10 S.C.R
A sanction or permission of the Registrar of Companies. Such a
•
conversion can only· be made upon a decision being taken by
the shareholders and only an intimation of such decision is
required to be given to the Registrar of Companies who is
required to act thereupon for alteration of the records of the
B company maintained in his office.
19. Mr. Jayant Bhushan also pointed out that the Form 23
which had been submitted to the Registrar of Companies
makes reference to Section 31 of the aforesaid Act which
relates to the alteration of the Articles of the Company, which
C lent strength to the submission that a positive decision had been
taken to convert the company into a public limited company and
that the said resolution was not an enabling provision as was
contended by Mr. Sorabjee. Learned counsel submitted that
the same would be borne out from the two subsequent
D resolutions which with immediate effect increased the share
capital and the number of members beyond 50, which
simultaneously took the company out of the definition of "private
company" as defined in Section 3(1 )(iii) of the Companies Act,
1956. The Memorandum and Articles of Association were also
E altered with immediate effect to reflect the increased
authorised share capital of the company which made it
abundantly clear that the first resolution was, in fact, a definitive
decision to convert Hotel Queen Road Pvt. Ltd into a public
limited company. It was urged that once a decision was taken
F to convert the company into a public limited company, the
provisions of Section 87 of the Companies Act became
operative, as far as the company was concerned, as the bar
of Section 90(2) of the said Act was no longer applicable to
the company. Mr. Jayant Bhushan also referred to the certificate
G issued by the Company Secretary on 20th September, 2003,
indicating that Hotel Queen Road Pvt. Ltd. had altered its
Articles of Association in the financial year 2002-2003.
20. In support of his aforesaid submission, Mr. Jayant
Bhushan firstly referred to and relied on the decision of the
H
RAM PARSHOTAM MITTAL v. HILLCREST REALTY 1139
.
SDN.BHD. & ORS. ETC. [ALTAMAS KABIR, J.]
Chancery Division in Cane vs. Jones and others, reported in A
1981 (1) All ER 533, wherein the question as to whether the
Articles of Association of a company could be altered, other
than by way of a special resolution passed at a General
Meeting, fell for decision. Upon consideration of the provisions
of Section 10(1) of the Companies Act, 1948 (English Act), it B
was held that all the Corporators of the company acting together
could do anything which was intra vires the Company and that
Section 10(1) of the Act did not undermine that principle but
merely laid down the procedure whereby some only of the
shareholders of a company could validly alter the articles. In the
facts of that case, it was further held that an agreement arrived
c
at between the then shareholders, though not drafted as a
resolution and though not signed by the signatories in each
other's presence, represented a meeting of all the
. shareholders' minds which was the essence of a general
meeting and the passing of a resolution on the said agreement
D
was effective. Drawing a parallel, Mr. Jayant Bhushan submitted
that the first resolution adopted by Hotel Queen Road Pvt. Ltd.
at its meeting held on 30th September, 2002, was a clear
meeting of minds of the Directors of the Company and would
have effect eo instanti whereupon the provisions of Section E
44(1)(b) simultaneously came into play. Learned counsel
submitted that simultaneously with the passing of the conversion
resolution Hotel Queen Road Pvt. Ltd. ceased to be a private
limited company and was converted into a public company by
operation of law. F
21. Regarding non-disclosure of the resolutions passed on
30th September, 2002, Mr. Jayant Bhushan urged that even if
the said resolutions were available with the Registrar of
Companies, it did not absolve Hotel Queen Road from G
,. disclosing the same before the learned Single Judge. It was
submitted that it was all the more so because it was the case
of Hotel Queen Road that the said company was a private
company and that as a result, the provisions of Section 87(2)(b)
of the Companies Act were not applicable to the company,
H
1140 SUPREME COURT REPORTS [2009] 10 S.C.R.
A being barred under Section 90(2) thereof. It was submitted that
having come to a finding that a fraud had been perpetrated by
Hotel Queen Road in obtaining an order of injunction by
suppression of material facts, the Division Bench erred in not
dismissing the suit filed by Hotel Queen Road and only vacating
8 the interim order passed on 12th August, 2005.
22. Learned counsel submitted that the Division Bench of
the High Court ought not to have left the decision as to the
company's status as a public company or a private company
to the learned Single Judge. Instead, it should have decided
C the same and should have dismissed the suit. Referring to the
oft-repeated observation of Lord Denning in Lazarus Estates
Ltd. vs. Beasley [1956 (1) All E.R. 341], Mr. Jayant Bhushan
submitted that no judgment of a Court could be allowed to stand
if it had been obtained by fraud as fraud unravels everything.
D Reliance was also placed on the decision of this Court in A. V.
Papayya Sastry vs. Govt. of Andhra Pradesh [(2007) 4 SCC
221], wherein also it was observed that fraud vitiates all judicial
acts whether in rem or in personam and the judgment, decree
or order has to be treated as non-est and a nullity, whether the
E same was passed by the Court of first instance or by the final
Court. It could be challenged in any Court, at any time, in appeal,
revision, writ or even in collateral proceedings and was an
exception to the doctrine of merger and also the provisions of
Article 141 of the Constitution.
F
23. Mr. Jayant Bhushan also referred to the decisions of
this Court in (i) S.P. Chengalvaraya Naidu vs. Jagannath
[(1994) 1 SCC 1]; (ii) Gowrishankar vs. Joshi Amba Shankar
Family Trust [(1996) 3 SCC 310], where the view taken in
Chengalvaraya Naidu's case was upheld; and (iii) State of
G Andtlfa Pradesh vs. T. Suryachandra Rao [(2005) 4 SCC 149],
which reiterated the principle that suppression of a material
document in order to gain advantage over the other side, would
also amount to a fraud on the Court.
H 24. Mr. Jayant Bhushan submitted that having regard to the
RAM PARSHOTAM MITTAL v. HILLCREST REALTY 1141
SDN.BHD. & ORS. ETC. [ALTAMAS KABIR, J.]
_, . views expressed in the aforesaid decisions and its own A
findings, the Division Bench of the High Court ought to have
dismissed the suit itself.
25. As an off-shoot of his aforesaid submissions, Mr.
Jayant Bhushan submitted that since Hotel Queen Road had 8
not paid dividend for more than two consecutive years, under
Section 87(2)(b)(i) of the Companies Act, Hillcrest Realty as a
preference shareholder became entitled after 5th May, 2005,
to vote on every resolution placed before the Company at any
meeting, as provided under Section 87(2)(b) of the said Act. It
was submitted that even if the Company had not made profits
c
and no dividend had been declared for more than two years,
dividend would be deemed to be due for the purpose of Section
87(2)(b), as indicated in the Explanation thereof, which reads
as follows:
• D
"Explanation : For the purposes of this clause, dividend
shall be deemed to be due on preference shares in respect
of any period, whether a dividend has been declared by
the company on such shares for such period or not. ~ ...... "
E
It was urged that the aforesaid Explanation created a legal
fiction that dividend would be deemed to be due for the
.. purpose of Clause (b) of Section 87(2) of the Companies Act,
whether a dividend is declared by the Company on such shares
or not. It was submitted that the rationale for the legal fiction
F
was that if the company is managed in such a manner that no
profits are being made and no dividend is, therefore, declared
or paid to preference shareholders, such preference
shareholders wou.ld then be entitled to have voting rights on
every resolution fat the selecting a better management. Learned
counsel referred to and relied on a decision of the Chancery G
,.. DivisionJn Bradford Investments Ltd. [(1991) BCLC 224],
where a similar question arose regarding the right of preference
shareholders to vote at a General Meeting of the Company on
account of non-declaration of dividend. On a consideration of
' H
the relevant provisions of the Companies Act, 1985 (English
1142 SUPREME COURT REPORTS [2009) 10 S.C.R.
A Act), it was held that the deeming provisions contained in
Art!cle 3(b)(3) regarding "dividend deemed to be payable"
meant that the dividend was deemed payable whether or not
there were profits out of which it could be paid. Consequently,
1
,as the dividend on the preference shares was in arrears, the
B preference shareholders were entitled to vote.
26. Regarding the offer made on behalf of the Hotel Queen
Road to pay the dividend to the preference shareholders, Mr.
Jayant Bhushan contended that such offer to make payment of
dividend not having been made by the Company out of its
C profits, as required under Section 205 of the Companies Act,
the same could not be accepted for the purpose of depriving
the shareholders of their right to vote which had already accrued
to them on account of non-payment of dividend. In fact,
according to learned counsel, such an offer was itself bad on
D account of the statutory bar imposed under Section 205 which
makes it very clear that dividend could be declared or paid only
out of profits made by the company.
27. Mr. Jayant Bhushan then referred to the provisions of
E Section 43 of the Companies Act dealing with the
consequences of default in complying with the conditions by
which a company was constituted as a private company.
Learned counsel submitted that consequent upon the
resolutions adopted on 30th September, 2002, it was
F incumbent upon Hotel Queen Road to take immediate steps
for amendment of its Articles of Association by changing its
status as a private company and having failed to do so, it
attracted the consequences indicated in Section 43 to the
extent that the provisions of the Act would apply to the company
G as if it was not a private company. Responding to Mr.
Sorabjee's objection that the said point had not been urged
either before the learned Single Judge or the Division Bench
of the High Court, learned counsel submitted that not only had
the aforesaid point been pleaded, but the same had also been
argued before the Division Bench, as would be evident from
H
RAM PARSHOTAM MITTAL v. HILLCREST REALTY 1143
SDN.BHD. & ORS. ETC. [ALTAMAS KABIR, J.]
the impugned judgment itself. A
28. It was lastly submitted by Mr. Bhushan that the
company ought not to have been saddled with the costs
directed to be paid by the Division Bench of the High Court
since all dE>cisions to commence and pursue the litigation on
B
behalf of the company had been taken almost single-handedly
by Shri R.P. Mittal, particularly, when the management of the
company had changed hands. Mr. Bhushan urged that while the
Special Leave Petitions filed by Ram Parshotam Mittal were
liable to be dismissed, those filed by Hillcrest Realty should be
allowed.
c
29. Mr. Shyam Diwan, learned Senior Counsel and Mr.
P.S. Patwalia, learned Senior Counsel, appearing for the
Respondent Nos.2 and 3, adopted Mr. Jayant Bhushan's
submissions. In addition, Mr. Shyam Diwan submitted that the D
discretionary and equitable exercise of jurisdiction by the High
Court was not liable to be disturbed in a proceeding under
Article 136 of the Constitution. He urged that the suppression
resorted to by Hotel Queen Road was sufficient for the Division
Bench of the High Court to vacate the interim order passed E
earlier and even to dismiss the suit.
'!
30. In reply to Mr. Jayant Bhushan's submissions, Mr.
Sorabjee, while reiterating his earlier submissions, joined issue
on the question of payment of dividend due by private
arrangement other than from out of the profits of the company,
F
as envisaged under Section 205 of the Companies Act. Mr.
Sorabjee contended that in Bradford Investments Ltd. 's case
(supra) no occasion had arisen to consider a statutory provision
similar to Section 205 of the Companies Act, 1956 (Indian Act)
and reliance was placed only on one of the Articles in the G
t"
Articles of Association and was, therefore, clearly
distinguishable from the facts of this case. Referring to the
decision of the Chancery Division in re Walters' Deed of
Guarantee in Walters' "Palm" Toffee, Limited vs. Walters [1932
W. 3978], Mr. Sorabjee submitted that in the said decision it H
1144 SUPREME COURT REPORTS [2009] 10 S.C.R.
A had been held that dividend guaranteed to preference
shareholders could also be paid by the guarantor, who would
then be subrogated to the rights of a preference shareholder.
In other words, payment of dividend on the preference shares
did not necessarily have to be made from out of the company's
B profits, but could also be paid from other sources.
31. In deciding the two separate sets of Special Leave
Petitions, it has to be kept in mind that they arise out of two
separate suits, one filed by Hotel Queen Road and the other
filed by Hillcrest Realty. While Suit No.992 of 2005 was filed
C by Hotel Queen Road Pvt. Ltd. for an injunction to restrain
Hillcrest Realty from proceeding with the proposed EGM on 4th
August, 2005, and from exercising voting rights therein, Suit
No.1832 of 2008 was filed by Hillcrest Realty for a declaration
that Hotel Queen Road had become a public company by virtue
D of the resolutions passed on 3oth September, 2002. While in
the suit filed by Hillcrest Realty, the learned Single Judge
permitted the Plaintiff to vote in the meeting of Hotel Queen
Road to be held on 16th October, 2008, in the suit filed by Hotel
Queen Road, the learned Single Judge also passed an interim
E order prohibiting any effect being given to the resolutions
passed in the EGM on 4th August, 2005, upon holding that
Hotel Queen Road being a private company, Hillcrest Realty
could not have exercised voting rights in the EGM.
F 32. As will be evident from the pleadings in both the suits,
the reliefs sought for in the two suits are dependent on the
question as to whether by the resolutions adopted on 30th
September, 2002, Hotel Queen Road had lost its private
character and had been converted into a Public Company.
While the issues are the same in the two suits, the interim
G orders passed therein operate in contradictory fields. On the
one hand, the learned Single Judge has passed an order on
the basis that Hotel Queen Road was a Private Limited
Company in which Hillcrest Realty, as a preference
shareholder, had no voting rights and, on the other, an interim
H
RAM PARSHOTAM MITTAL v. HILLCREST REALTY 1145
SDN.BHD. & ORS. ETC. [ALTAMAS KABIR, J.]
order has been passed on the basis that the said company was, A
a Public Company and by operation of Section of 87(2)(b) of
the Companies Act, 1956, Hillcrest Realty, as a preference
shareholder, was entitled to vote at all the meetings of the
company. In an attempt to reconcile the two contradictory
positions, the Division Bench of the High Court, without deciding B
the core issue, proceeded to dispose of the appeals before it
by treating Hotel Queen Road to be a Public Company, and
based upon such presumption proceeded further to hold that
on account of non-payment of dividend on its cumulative
preference shares for two years, Hillcrest Realty became c
entitled to vote at the meeting of the company under the
provisions of Section 87(2}(b} of the Companies Act, 1956.
33. Although, as pointed out by Mr. Sorabjee, the language
of the first resolution was different from the language of the two
following resolutions, and at first glance appears to militate D
against each other, on a closer look at the three resolutions
taken one after the other, it is not difficult to discern that they
were all part of the same thinking process or meeting of minds
· of the shareholders. Without the first resolution being accepted
as a final decision taken by the company to· convert itself from E
a private company into a public company, there could be no
occasion for the subsequent two resolutions to have been
passed.
34. We are unable to appreciate the methodology adopted F
by the Division Bench of the High Court, but we are in
agreement with the end result by which the Division Bench had
set aside the interim order dated 12th August, 2005, passed
in Suit No.992 of 2005. In our view, apart from endorsing the
view of the learned Single Judge that the interim order of 12th G
August, 2005, had been obtained by suppression of material
facts, in order to decide the appeals, the Division Bench had
to arrive at a prima facie finding as to whether by virtue of the
resolutions adopted on 30th September, 2002, Hotel Queen
Road had shed its private character and had been converted H
1146 SUPREME COURT REPORTS [2009] 10 S.C.R.
A into a public company with all its consequences. •
35. From the materials on record, we are prima facie of
the view that by the said resolutions, a final decision had been
taken by Hotel Queen Road to convert itself into a public
company with immediate effect without having to wait for any
B
decision to be rendered by the Registrar of Companies who,
in any event, had no authority to make any decision in that
regard. The very fact that Form 23 was filed along with the
resolutions dated 30th September, 2002, coupled with the fact
that a Statement in lieu of Prospectus, which is required to be
c filed by a private company when it converts itself into a public
company, was filed on behalf of Hotel Queen Road, is sufficient
for the purpose of arriving at a prima facie conclusion that Hotel
Queen Road had altered its status and had become a public
company even though the necessary alterations had not been
D effected in the records of the Registrar of Companies. We are
unable to agree with the contention canvassed on behalf of
Hotel Queen Road that till such time as the records of the
Registrar of Companies were not altered to show that Hotel
Queen Road had become a public company, it could not be
E treated as such. It is not the records of the Registrar of
Companies which determines the status of a company but •
whether it falls within the definition of a "private company" or
"public company" as defined in Section 3(1 )(iii) and 3(1 )(iv) of
the Companies Act. On the other hand, the records of the
F Registrar of Companies reflect the status of the Company as
per the information received from the company in accordance
with the provisions of the aforesaid Act. Having regard to the
definition of "private company" in Section 3(1)(iii), as soon as
the number of its members exceeds 50, it loses its character
G as a private company. Since in the instant case shares were •,
said to have been allotted to 134 persons on 30th September,
2002, on which date the resolutions were passed by Hotel
Queen Road Pvt. Ltd., the company lost its private character
requiring the subsequent resolutions to be passed regarding
H alteration of the share capital.
RAM PARSHOTAM MITTAL v. HILLCREST REALTY 1147
SDN.BHD. & ORS. ETC. [ALTAMAS KABIR, J.]
36. Whichever way we look at the three resolutions passed A
one after the other on 30th September, 2002, it appears to have
been the intention of the company to convert itself from a private
company to a public company and that the same was effected
by the three resolutions passed on 30th September, 2002.
B
37. Then again, the offer to pay dividends from a private
source and not out of the company's profits, is not contemplated
under Section 205 of the Companies Act. The decision referred
to by Mr. Sorabjee in the Walters' Deed of Guarantee in
Walters' "Palm" Tofee, Limited's case (supra) had not been
required to take into consideration a provision similar to C
Section 205 of the Companies Act, 1956. The said decision
is, therefore, of no help to the petitioners' case, particularly when
the language of the Section is clear and unambiguous. The
moment the resolutions were passed by the company on 30th
September, 2002, the provisions of the Companies Act D
became applicable and by operation of law, Hotel Queen Road
simultaneously ceased to be a private limited company and
under the conditions prescribed in the Act, Hillcrest Realty
acquired voting rights in the meetings of the company by
operation of Section 87(2)(b) and Section 44 of the said Act. E
The right of a preference shareholder to acquire voting rights
is also indicated in clear and unambiguous terms in the
Explanation to Section 87(2)(b).
38. Since the question as to whether Hotel Queen Road F
ceased to be a private company upon the resolutions being
passed on 30th September, 2002, is the crucial issue for
decision in both the two suits referred to hereinabove, it would
not be proper for this Court to delve into the question further.
However, for the purpose of disposing of these Special Leave G
Petitions, we are prima facie of the view that by virtue of the
resolutions dated 30th September, 2002, Hotel Queen Road
had become a public company thereby attracting the provisions
of Section 87(2)(b) of the Companies Act, 1956, upon the bar
under Section 90(2) thereof having been lifted. A natural H
1148 SUPREME COURT REPORTS (2009] 10 S.C.R.
A consequence is that in the event dividend had not been
declared or paid for a period of two years as far as Hillcrest is
concerned, the Explanation to Section 87(2)(b) would come
into play thereby giving Hillcrest Realty, as a cumulative
preference shareholder, the right to vote on every· resolution
B placed before the Company, at any meeting, in keeping with
Clause (i) of Section 87(2)(b) of the aforesaid Act.
39. In keeping with the aforesaid principle, while dismissing
the Special Leave Petitions filed by Hotel Queen Road and
Hillcrest Realty, we make it clear that the observations made
C in this judgment are of a prima facie nature only for disposal of
the Special Leave Petitions and should not influence the final
decision in the suits, where the question relating to the status
of Hotel Queen Road has been left open for decision. We,
however, request the High Court, functioning as the Trial Court,
D to dispose of the suits at an early date so that the management
and affairs of Hotel Queen Road are not left in a state of
uncertainty.
40. The Special Leave Petitions are, accordingly,
E dismissed, but there will be no order as to costs.
•
G.N. Special Leave Petitions dismissed.
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