IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION (CIVIL)NOS.1069-1071 OF 2009

Ram Parshotam Mittal & Anr.   …   Appellants  Vs.

M/s Hillcrest Realty Sdn.Bhd. & Ors. Etc.   …   Respondents

WITH SPECIAL LEAVE PETITION (CIVIL) NOS.9212-9214 of 2009

J U D G M E N T

ALTAMAS KABIR, J.

1. These Special Leave Petitions have been taken  

up  for  final  disposal  at  the  admission  stage  

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  passed  by  the  

Division  Bench  of  the  Delhi  High  Court  in  the  

above-mentioned  appeals.   SLP(C)Nos.9212-9214  of  

2009 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.  

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.

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  

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Vehicle from 23rd August, 2001 for taking over the  

assets of Hotel Ashok Yatri Niwas, 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  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 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  India  and  

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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  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  crores.   The  additional  

capital was divided into 71 lakh 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  company)  purchased  23,65,000  redeemable  

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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 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 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  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  

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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  

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 ineffective and that Hotel Queen Road being a  

private  company,  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 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, being I.A. No.12164 of 2008,  

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filed in the Suit by Hillcrest Realty, the learned  

Single Judge, upon holding that Hotel Queen Road  

Pvt. Ltd. had fraudulently 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  Hillcrest  

Realty to vote in the meeting which was scheduled  

to be held on 16th October, 2008.

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 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  

October, 2008, whereby Hotel Queen Road Pvt. Ltd.  

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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. Ltd., Hotel Queen  

Road Pvt. Ltd., 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 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, 2009.  Although,  

the  status  of  Hotel  Queen  Road,  after  the  

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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  

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  

Division  Bench  set  aside  the  order  dated  12th  

August, 2005, passed by the learned Single Judge in  

I.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 Hotel Queen Road Pvt. Ltd. into a  

public company and acquisition of voting rights by  

Hillcrest Realty in the Company, for decision in  

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the two other appeals.

10. On the question of denial of natural justice to  

the 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 Division Bench held that as a  

cumulative  preference  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  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  

and discarding the submissions made on behalf of  

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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 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  

supposition  that  Hotel  Queen  Road  Pvt.  Ltd.  had  

become a public company 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 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  

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Queen Road, subject to the decision at the trial  

stage regarding the status of the 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.

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.   

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.   Mr.  Sorabjee  submitted  that  the  

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main plank of the case made out by Hillcrest Realty  

rested on the two 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 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.

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.

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 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 Company be and is hereby  authorised to do such acts, deeds, things  that  may  necessary  to  effect  the  above  resolution.”  

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13. Mr. Sorabjee urged that the difference between  

the  first  resolution  and  the  other  resolutions  

would  be  clear  from  the  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  of  the  

Company  was  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/- 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 instantaneously, the first  

resolution was merely to enable the Company to take  

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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 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. 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.

14. Mr.  Sorabjee  urged  that  the  equity  

shareholders  had  been  wrongly  deprived  of  the  

management of the company based on the order passed  

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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  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 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 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  

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shareholder  without  voting  rights,  particularly  

when the Company was ready and willing 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 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  

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.  

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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 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  

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 Hotel Queen Road  

Pvt. Ltd was a private company or a public company.  

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If it was a private company and not a subsidiary of  

any public company, Hillcrest Realty would not have  

any voting rights. Mr. Bhushan submitted 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.  

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 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 Bhushan urged that the  

same would be even more evident from the fact that  

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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, 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 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 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  

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a  complete  misnomer,  since  the  conversion  of  a  

company from a private company to a public company  

did not require the 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 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 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  

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would  be  borne  out  from  the  two  subsequent  

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  

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  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 issued by the Company Secretary on 20th  

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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 Chancery Division in  Cane vs.  

Jones and others, reported in 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 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  

23

agreement arrived 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 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 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.

21. Regarding  non-disclosure  of  the  resolutions  

passed on 30th September, 2002, Mr. Jayant Bhushan  

24

urged  that  even  if  the  said  resolutions  were  

available with the Registrar of Companies, it did  

not absolve Hotel Queen Road from 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,  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  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  

25

company or a private company to the learned Single  

Judge.  Instead, it should have decided 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.  

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 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  

26

Constitution.     

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  Andhra  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.

24. Mr.  Jayant  Bhushan  submitted  that  having  

regard  to  the  views  expressed  in  the  aforesaid  

decisions and its own 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  

27

Road  had  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 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 :

“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. - ……” 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  

28

or not.  It was submitted that the rationale for  

the  legal  fiction  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 would then be entitled to have voting  

rights  on  every  resolution  for  the  selecting  a  

better management.  Learned counsel referred to and  

relied on a decision of the Chancery Division in  

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 the  

relevant  provisions  of  the  Companies  Act,  1985  

(English  Act),  it  was  held  that  the  deeming  

provisions contained in Article 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.  

29

Consequently,  as  the  dividend  on  the  preference  

shares was in arrears, the 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 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  

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.  

30

27. Mr.  Jayant  Bhushan  then  referred  to  the  

provisions  of  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  

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  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  

31

had also been argued before the Division Bench, as  

would be evident from the impugned judgment itself.  

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 decisions to commence and  

pursue the litigation on 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.

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  discretionary  and  

equitable  exercise  of  jurisdiction  by  the  High  

32

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  

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,  

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 Articles of Association and was, therefore,  

clearly  distinguishable  from  the  facts  of  this  

case.  Referring to the decision of the Chancery  

33

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 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  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 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  

34

2008  was  filed  by  Hillcrest  Realty  for  a  

declaration  that  Hotel  Queen  Road  had  become  a  

public company by virtue of the resolutions passed  

on 30th 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  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.

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  

35

issues are the same in the two suits, the interim  

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  

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  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 account of non-payment of dividend  

on its cumulative preference shares for two years,  

36

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.

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 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 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 by the Division Bench of the High Court,  

but we are in agreement with the end result by  

37

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 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 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  

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  

38

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 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 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 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  

39

Section  3(1)(iii)  and  3(1)(iv)  of  the  Companies  

Act.   On  the  other  hand,  the  records  of  the  

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  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  alteration  of  the  share  

capital.

36. Whichever way we 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  

40

a public company and that the same was effected by  

the  three  resolutions  passed  on  30th September,  

2002.

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 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 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  

41

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  

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  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 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 consequence is that in the event  

42

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 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 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, to dispose of the suits at an early date so  

43

that the management and affairs of Hotel Queen Road  

are not left in a state of uncertainty.   

40. The Special Leave Petitions are, accordingly,  

dismissed, but there will be no order as to costs.

________________J. (ALTAMAS KABIR)

________________J. (CYRIAC JOSEPH)

New Delhi Dated:20.07.2009

44