Mr. Amit Rawal and Mr. Satvik Verma, Senior Advocates along with Mr. Mohit K v. MR AJAY RELAN & ORS

Judgment

1. passed on 17.03.2025 by the learned Single Judge [hereinafter referred to as „LSJ‟], whereby the application moved by the Appellant Company [Applicant/Defendant before the LSJ] seeking setting-aside Signature Not Verified Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 FAO(OS) 52/2025 of the compromise decree dated 28.03.2003, came to be dismissed. The said compromise decree formed the very basis on which CS (OS) 749/1994 was decreed as settled.

2. At the outset, it is necessary to note that the Appellant Company, MS Durga Builders Private Limited [hereinafter referred to as „DBPL‟], is presently being represented through its director, Mr. Divij Mehra. At the time when the underlying civil suit was pending adjudication before the LSJ, DBPL was represented through a different Managing Director, namely, Mr. Ravinder Kumar Nanda, who was shown as being in charge of, and responsible for, the conduct of the affairs of DBPL.

3. Pithily put, the present appeal arises from a long and complex chain of transactions and litigations concerning DBPL, the possession of first floor of property admeasuring 800 sq. yds. bearing no. S-23, Panchsheel Park, New Delhi [hereinafter referred to as „suit property‟] and the validity of the compromise decree dated 28.03.2003 [hereinafter referred to as „compromise decree‟] granted qua the entire suit property as also its subsequent execution.

4. The case of DBPL through Mr. Divij Mehra, in essence, is that as on 28.03.2003, Mr. R.K. Nanda, was neither the Managing Director nor otherwise duly authorized to enter into any compromise, settlement, or binding arrangement on behalf of the company in relation to the said civil suit. On the aforesaid premise, it is the case of DBPL that the compromise deed as well as the decree founded thereon are non est in the eyes of law. It was on this premise that DBPL moved an application before the LSJ seeking, inter alia, the Signature Not Verified Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 FAO(OS) 52/2025 setting aside of the compromise decree and recall or annulment of the compromise decree passed in the civil suit. A. FACTUAL BACKGROUND:

5. The dispute before this Court concerns the suit property, which was originally owned by K.D. Somaia (HUF). The suit property was initially agreed to be sold to DBPL in 1992. Thereafter, under a tripartite agreement dated 30.04.1993, DBPL, acting through its then

management headed by Mr. R.K. Nanda, agreed to sell the suit property to Mr. Ajay Relan. Whereafter, Mr. Relan, instituted CS (OS) 749 of 1994 seeking specific performance of the said agreement, wherein an interim injunction was granted restraining alienation of the first floor of the suit property. Eventually, on 20.11.2002, a compromise was recorded between the parties, culminating in a compromise decree. Under this decree, DBPL was obliged to hand over vacant and peaceful possession of the first floor, along with the title documents, to Mr. Relan upon receipt of the balance sale consideration.

6. When the decree was not complied with, Mr. Relan instituted an Execution Petition No. 321 of 2003 captioned Ajay Relan v. Pranay Somaia & Ors. and CE Construction Limited, wherein it emerged from the Local Commissioner‟s report that the first floor was in the possession of CE Construction Ltd. [hereinafter referred to as „CECON‟], managed by Mr. Arun Mehra (Father of Mr. Divij Mehra) which entered the fray as an obstructionist claiming rights through alleged financial arrangements and deposit of title deeds. Issues were framed on whether the obstructionist had acquired any right or interest Signature Not Verified Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 FAO(OS) 52/2025 in the suit property and whether the decree was obtained by collusion or fraud.

7. CECON set up claims over the suit property traceable to (i) an alleged Shareholder Purchase Agreement dated 1997 [hereinafter referred to as „SPA‟], under which the shareholding and control of DBPL were stated to have passed to the present „Mehra management‟, and (ii) certain financial accommodations purportedly secured on the said property. Objections were filed in the execution by CECON.

8. By a detailed order passed on 04.01.2008, the objections filed by Mr. Mehra was dismissed and it was held that CECON failed to prove any enforceable right or interest in the suit property; its pleas of mortgage/security were found vague and unsupported by books of account, balance sheets or registered charge, and the alleged transaction was held unenforceable in law. It was further held that even assuming CECON came into possession at some stage, it derived its claim entirely from DBPL. The execution proceedings were not the forum to settle inter se disputes between CECON and DBPL. The allegation that the decree was collusive or vitiated by fraud was expressly rejected; the Court found no collusion or fraud and directed CECON to hand over possession within 30 days.

9. Additionally, CECON also instituted a separate civil suit seeking a decree of declaration that the compromise decree is null and void, however, the said suit was rejected by the Court under Order 7 Rule 11 of the Code of Civil Procedure, 1908 [hereinafter referred to as „CPC‟]. Aggrieved by the said dismissal CECON filed an appeal, however the same was also dismissed. Parallel challenges carried by Signature Not Verified Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 FAO(OS) 52/2025 CECON up to the Supreme Court against the compromise decree as well as the execution orders met the same fate, being dismissed or withdrawn, with liberty granted only to pursue such objections as might be available in the execution proceedings.

10. Subsequently, by order dated 25.11.2021 in EFA (OS) 5 of 2008 captioned CE Construction Ltd v Ajay Relan & Ors., the Division Bench of this Court, while dealing with an appeal filed by DBPL under the Mehra management against the dismissal of CECON‟s objections in Ex. P. No. 321 of 2003, closed the said appeal and observed that all issues relating to alleged fraud and lack of authority could appropriately be agitated in an application seeking recall of the compromise decree in the original suit. Pursuant thereto, DBPL, now under the management of Mr. Mehra, filed IA No.20535 of 2014 in CS (OS) No.749 of 1994 praying for recall and setting aside of the compromise dated 20.11.2002 forming into a compromise decree on the grounds of alleged fraud, collusion, and want of authority on behalf of Mr. Nanda to represent and bind DBPL.

11. The LSJ, vide its order dated 17.03.2025, having first condoned the delay in filing the said application, examined the objections on merits and rejected them. It was held that the statutory records reflected that the Nanda group continued to be the only shareholders in control of DBPL at the material time when the compromise was entered into; that the compromise decree merely effectuated a subsisting contractual obligation undertaken by DBPL; and that no case of fraud on the Court had been established. Consequently, the application for recall of the compromise decree, along with connected Signature Not Verified applications, was dismissed. Hence, the present appeal. Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 FAO(OS) 52/2025

12. This Court has heard learned counsels representing the parties at length and, with their able assistance, has perused the paper book as well as the trial court record.

13. Learned senior counsel for the parties have filed their respective written submissions. The contentions of the parties are examined hereinafter. B. CONTENTIONS ON BEHALF OF DBPL (APPELLANT)

14. Learned senior counsel for DBPL, while impugning the findings of the LSJ, have made the following submissions-

14.1 The case set out by DBPL rests principally on the twin foundations of (a) lack of authority of Mr. Nanda to bind DBPL at the relevant time, and (b) fraud vitiating the compromise and consequent decree.

14.2 With respect to the validity of compromise decree, it is contended that the said decree was not executed by or on behalf of the LRs of late Mr. K.D. Somaia, and therefore, could not have effectively conveyed or compromised their rights in the suit property. It is his case that in fact, by virtue of SPA, the Nanda group had already divested themselves of 100% of the equity in DBPL in favour of the Mehra family and had resigned from the Board of Directors, thereby ceasing to have any authority in law to represent DBPL or alienate its assets in 2002-03. On this premise, the execution of the compromise by Mr. Nanda is alleged to be wholly without authority, and any alienation of corporate assets pursuant thereto is asserted to be void Signature Not Verified Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 FAO(OS) 52/2025 and incapable of sustaining a decree under Order XXIII Rule 3 of the CPC.

14.3 In relation to the consideration of Rs. 1.80 crores, against which the compromise is stated to have been entered into, learned senior counsel submits that the payment of Rs. 10 lakhs were shown as having been made to „Manjit Kumar‟ under the name of an entity styled as „Kumar Security Syndicate‟. It is alleged that this entity was a fictitious or sham concern, created for the sole purpose of siphoning away the assets of DBPL, which fact is stated to have emerged during a police investigation. It is further pointed out that the said entity ultimately came to be struck off/found non-existent (as alleged), thereby reinforcing the contention that the compromise arrangement was merely a device to divert corporate assets under the guise of settlement.

14.4 It is further argued that the order dated 20.11.2002 records that a sum of Rs. 10 lakhs were paid to Manjit Kaur and that an amount of Rs. 1.70 crores were paid to DBPL. However, there is no material on record indicating the particulars of the bank, the instrument or the channel through which the alleged remittances were made, nor has any bank statement been produced to substantiate the factum of such payments.

14.5 On the aforesaid premise, it has been argued that the LSJ proceeded, on an ipse dixit assumption, to treat the alleged consideration of Rs. 1.80 crores as having been duly paid, in the absence of documentary proof and contrary to the adverse inference that ought to have been drawn under section 114(g) of the Indian Signature Not Verified Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 FAO(OS) 52/2025 Evidence Act, 1873 from the non-production and disappearance of the pay orders.

14.6 Assailing the findings of the LSJ in relation to the dismissal of the application seeking recall of the compromise decree, while dealing with the question of corporate control, it is contended by the learned senior counsel that the records of the Registrar of Companies (ROC) pertaining to DBPL were, in fact, amended and updated by Mr. Nanda in the year 2000 to reflect the change in management in favour of Mr. Mehra and his group. On this premise, it is argued that the LSJ fell into error in holding that the ROC records were never updated in favour of the Mehra management and, consequently, erred in concluding that control of DBPL continued to vest exclusively with the Nanda group at the relevant time.

14.7 On these premises, DBPL contends that the compromise decree cannot be said to be “lawful” within the meaning of Order XXIII Rule 3 of the CPC, as the underlying agreement is vitiated by fraud, misrepresentation and want of authority, thereby attracting sections 17, 18 and 19 of the Indian Contract Ac, 1872. It is submitted that the LSJ, instead of confining itself to whether a prima facie case of fraud on the Court and absence of authority was made out, effectively conducted a “mini trial” on disputed questions of fact, yet paradoxically ignored critical documentary and investigative material, including the police report and ROC records, which militated against the validity of the compromise. C. CONTENTIONS ON BEHALF OF MR. AJAY RELAN (RESPONDENT) Signature Not Verified Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 FAO(OS) 52/2025

15. Per contra, learned senior counsel for Mr. Relan, while supporting the reasoning adopted by the LSJ, has made the following submissions:

15.1 At the outset it is argued that no ground has been made out for interference with the finding that Mr. Nanda was competent to represent DBPL at the time compromise was entered into, and that no fraud on the Court has been established.

15.2 Reference has been made to the statutory records of DBPL, to argue that the Annual Returns in Form 20B for the financial years 2003-04 and 2004-05, unequivocally record that the Nanda family continued to be in management and control of DBPL well beyond the alleged date of transfer of shares through SPA. Additionally, it is contended that these returns, corresponding to the Annual General Meetings (AGMs) held on 27.10.2004 and 26.09.2005, were duly signed by Mr. R.K. Nanda and Ms. Promila Nanda and list them as the only shareholders, holding 14,500 and 14,000 shares respectively. As such the public documents forming part of the ROC record, thereby demonstrate that the Nanda family retained full ownership and statutory authority over DBPL during the relevant period and negate the plea that the Nandas had divested themselves of control in 1997.

15.3 Further reliance has been placed on the chequered history of company law proceedings between the Mehra and Nanda groups. It is pointed out that, although the SPA was relied upon by Mr. Arun Mehra to claim purchase of 100% equity in DBPL, neither control of the company nor the necessary statutory formalities were ever undertaken in pursuance of that agreement. In particular, a reliance Signature Not Verified Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 FAO(OS) 52/2025 has been placed on Co. A (SB) No. 07/2006 captioned Arun Mehra & Anr. v. Durga Builders P. Ltd., whereby this Court, while dismissing the said appeal by a reasoned order dated 30.10.2006, observed that the SPA had admittedly not been given effect to in relation to DBPL‟s affairs and that Mr. Mehra had failed to offer any cogent explanation as to why, despite claiming to have purchased the entire shareholding, he took no steps for years to file Form 32 or otherwise assume management as a 100% shareholder.

15.4 Relying on the aforesaid order, it has been argued that the order also recorded that Mr. Mehra did not resort to either of the obvious courses open to him, namely, filing Form 32 to reflect changes in directorship or taking over control of DBPL‟s management, thereby raising a presumption that the SPA was intended merely as a security arrangement to safeguard the Mehras‟ advances in two ongoing projects of the company, rather than as an immediately operative transfer of management. It was in the said background that it was held that, even after endorsement of the share certificates in favour of the Mehras, their conduct in not taking control indicated an intention to retain a lien over the shares as security, and not to displace the Nandas from management.

15.5 Learned senior counsel has also relied on the subsequent proceedings in SLP (C) No. 20293/2006 captioned Arun Mehra & Anr v Durga Builders Pvt. Ltd. & Ors., filed by Mr. Mehra assailing the dismissal of company appeal, wherein the Supreme Court, by order dated 15.10.2012, recorded the query made to the counsel representing Mr. Mehra, whether his client was prepared to take over Signature Not Verified DBPL along with all its liabilities as on that date. In response to Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 FAO(OS) 52/2025 which, the counsel made a submission that Mr. Mehra is willing to take over the company only after being apprised of the actual liabilities. Against this backdrop, it has been argued that absence of any firm stand taken by Mr. Mehra, coupled with continuing disinclination to assume responsibility for DBPL‟s management and lack of knowledge of the company‟s affairs, reinforces the inference that the Nanda group remained in de facto and de jure control during the relevant period.

15.6 On the aforesaid premise, it has been contended that the LSJ was correct in holding that, at the time of the compromise in 2002-03, the statutory and factual position was that the Nandas‟ continued as the only shareholders and were in control of DBPL; accordingly, Mr. Nanda was fully competent to enter into the compromise and bind the company. The belated attempt by the Mehra management, which only acquired limited locus post the Company Law Board‟s order in 2014, to reopen and impeach a long-standing compromise decree on the basis of alleged fraud, is argued to be an afterthought inconsistent with the public statutory record and the findings in the earlier company law proceedings. D. ANALYSIS & FINDINGS:

16. Having heard the rival submissions advanced by the learned senior counsel for the parties and upon perusal of record, we are limiting out consideration in this matter solely to three issues. We intend to answer the controversy in three parts, carefully delineating the following issues: Signature Not Verified Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 FAO(OS) 52/2025 I. Whether the SPA resulted in transfer of management or control of DBPL to the Mehra group; accordingly Mr. Nanda lacked authority to enter into the compromise on behalf of DBPL; II. Whether the compromise decree dated 28.03.2003 is vitiated by fraud so as to warrant recall under Order XXIII Rule 3 of the CPC; III. Whether the application seeking recall was barred by delay, limitation, acquiescence. I. WHETHER THE SPA RESULTED IN TRANSFER OF MANAGEMENT OR CONTROL OF DBPL TO THE MEHRA LACKED GROUP; ACCORDINGLY, MR. NANDA AUTHORITY TO ENTER INTO THE COMPROMISE ON BEHALF OF DBPL?

17. The principal foundation of challenge by DBPL lies in the SPA, under which the Mehra group claims to have acquired 100% equity in DBPL. It is their case that by virtue of the said agreement and alleged endorsements on share certificates, the Nanda family has divested themselves of all ownership and authority in DBPL with effect from 1997 and as such could not have entered into the compromise which was later effectuated via a decree.

18. This Court, however, does not find itself in agreement with said contention raised for the reason that it is trite law that execution of a SPA does not, by itself, effectuate transfer of corporate control unless followed by statutory compliance and assumption of management. In this regard, it also becomes relevant to highlight that control of a company is not merely a matter of rights claimed through an execution of a SPA as provided on paper, rather it is derived from the Signature Not Verified Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 FAO(OS) 52/2025 actual acquisition and exercise of the person claiming to have control over the relevant company. The aforesaid also aligns with the broader principle, that the acts and intent of those who in fact and in law manage the company, its „alter ego‟, are attributable to it, and not those who merely assert a contractual claim without assuming management or complying with statutory formalities. Reliance in this regard maybe placed on law laid down by the Supreme Court in HDFC Bank Limited v. State of Bihar & Ors.1; Sunil Bharti Mittal v. Central Bureau of Investigation2; and Iridium India Telecom Limited v. Motorola Incorporated & Ors3. While the aforesaid judgment primarily concerns criminal liability of a company, the principle delineated therein that the acts of those who are, in law and in fact, the “controlling mind and will” of the company bind it, is equally relevant in the present case.

19. It is no longer res integra that a SPA is merely a first step in a larger corporate process, emphasising the need for proper registration and compliance before the transferee can insist on recognition as member and controller of the company. Until the transfer is perfected in accordance with the Companies Act, including compliance with statutory formalities and recognition by the company, the transferee cannot insist upon being treated as a member, much less as a person in management or control of the company.