Ajay Kapoor v. M/s Hitkari Industries Ltd & Ors.

Judgment

By this order the aforementioned two appeals are being disposed of, since common questions of law and fact arise for decision. The undisputed facts are that Hitkari Industries Ltd. (HIL), Hitkari Potteries Ltd. (HPL) and Hitkari China Ltd. (HCL) are all part of the Hitkari group of Companies. These companies were set up by late Shri K.P.Kapoor, father of the appellant and Mr. Ved Kapoor the principal respondent. Unfortunately, Shri K.P.Kappor 2 expired in 1999. After his death, disputes arose between the two wings of the family, here-in-after referred to as the Ajay Kapoor Group and the Ved Kapoor Group. The appellant alleged that he and his family were being excluded from the Hitkari Group of companies and the Ved Kapoor Group was indulging in various acts of oppression and mismanagement. On these grounds, the appellant filed Company Petition No. 74 of 2003 title as Ajay Kapoor vs. Hitkari Industries Ltd. and others under Section 379, 398, 402 and 403 of the Companies Act, 1956 (here-in-after referred to as the Act) before the Company Law Board (CLB). It is not necessary to go into the detailed allegations and counter allegations levelled by each group against the other group. It would, however, be pertinent to mention that Shri Ved Kapoor also filed a petition under Section 397 and 398 of the Companies Act, 1956 before the CLB in relation to the affairs of HCL levelling allegations of mismanagement against the appellant Shri Ajay Kapoor. Keeping in view the fact that the main dispute was between two groups of the same family, the Company Law Board made serious attempts to have the disputes amicably resolved by way of settlement between the parties. Meetings between the parties were held under the aegis of the CLB and finally the broad terms of the compromise were reduced in writing in the order dated

12.8.2004, which reads as follows:- “Terms of compromise discussed with the parties in my chamber in respect of Hitkari Potteries, China and Industries. It has been agreed that valuation of all these three companies will be determined by joint 3 Valuers Shri Bhalla and Shri Subhash Malhotra, Chartered Accountants. It has also been agreed that after valuation, Shri Ajay Kapoor will have the right to take over HCL & HPL without any consideration to Ved Kapoor Group. In case he decides not to take over these two companies, he will pay 50% of the excess liability over the assets of the company subject to a maximum of Rs.1 Crore.” Subsequently, the compromise in respect of HIL only was modified with the consent of the parties. Both groups agreed that instead of getting the shares of HIL evaluated, the parties would bid for the shares and the highest bidder would have the right to purchase the shares of HIL. Consent order in this regard was passed on 24.10.2004, relevant portion of which reads as follows:- “In modification of the consent order dated 12.8.2004 now the parties have agreed that as far as HIL is concerned there need not be any valuation and instead the parties may bid for the shares and the higher bidder would purchase the shares of the other at that price. In so far as HCL and HPL are concerned the earlier order will continue. To enable the petitioner to bid for the shares of HIL, it has been agreed to by the parties that Ajay Kapoor will be at liberty to inspect all books of accounts and other records after giving notice to the other side. The inspection will be restricted to a period of seven days from the date of commencement which will be within 15 days. The same will apply to HCL and HPL. The company employees will render all assistance to the petitioner for inspection. It is agreed that none of the information collected will be used except for the purpose of the proceedings before court. Date of bidding will be 30.11.2004.” A bare perusal of these two orders read jointly leaves no manner of doubt that as far as HPL and HCL were concerned, the 4 appellant Ajay Kapoor was given the right to take over the said company without payment of any consideration to the Ved Kapoor group. As far as HIL is concerned, though in the order dated

12.8.2004 the agreement was that either group would be entitled to purchase the shares of the other group at the value determined by

the valuers, by consent of the parties, this order was modified and the parties were permitted to bid for the shares. It was made clear that the highest bidder would have the right to purchase the share at the price so bid by him. Shri Ajay Kapoor was given the liberty of inspection of all the books of account and other records of HIL. According to the appellant, though the Ved Kapoor Group had agreed to render all cooperation and give inspection of the books, actually, this was not done and therefore, the appellant filed an application before the CLB seeking direction to the Ved Kapoor Group to place on record before the CLB the copies of the records of the Company. This application was decided by the CLB on

3.12.2004. The order dated 3.12.2004 passed by the CLB reads as follows:- “It has been agreed that photocopies of the documents duly authenticated by the Co. Secy. listed in the note will be deposited with the Bench Officer on 6th December, 2004. The petitioner is at liberty to inspect these documents before the BO and take notes. No copy of the documents will be made. The inspection can be done by the petitioner/his two representatives from 7 to 14th December. Bidding on 6.1.2005 at 4.30 p.m.” 5 The petitioner then alleges that despite the clear cut orders and the consent of the Ved Kapoor Group before the CLB, the Ved Kapoor Group suppressed vital documents and information. According to the appellant, he noticed various discrepancies in the documents. The appellant, thereafter filed an application before the CLB seeking certain warranties and indemnities from the Ved Kapoor Group. The main prayer made in the application with which we are concerned in the present appeal reads as follows:- “Ved Kapoor Group hereby indemnifies the Ajay Kapoor Group in respect of all current assets of the Company comprising inventories, work in progress, raw and process material, finished goods and merchandise whether in hand or in transit both in terms of quantities and values as reflected in the stock registers and/or the stock statements furnished to the Company’s Bankers from time to time and any shortfall therein shall be to the account of the Ved Kapoor Group.” This application appears to have been filed on 4th January,

2004. However, no orders were passed on this application and bidding took place as per the previous orders on 10.1.2005. It is not disputed that the bidding started at Rs.30/- per share of HIL and Shri Ved Kapoor raised the bid till Rs.49/- but Shri Ajay Kapoor was the highest bidder at Rs.50/- per share. He also, in terms of the compromise, opted to take over HPL and HCL. Thereafter, the CLB heard the matter further on 17.1.2005 and a detailed order was passed on 1.2.2005, which reads as follows:- “In 3 companies viz. Hitkari China Limited (HCL), Hitkari Industries Limited (HIL) and Hitkari Potteries Limited (HPL), Ved Kapoor Group and Ajay Kapoor Group hold substantial shares. TFPL is a wholly owned 6 subsidiary of HIL. While Ajay Kapoor Group filed a petition under Sections 397/398 of the Companies Act, 1956 (the Act) alleging oppression and mismanagement in the affairs of HIL, Ved Kapoor Group filed a similar petition in respect of HCL. While the hearing in respect of HIL was concluded and order reserved, the petition in respect of HCL was part heard. Considering the close relationship between the parties that Ajay Kapoor is son of the brother of Ved Kapoor, I impressed upon the parties to settle the disputes amicably. Extensive discussions took place between the parties in my Chamber on 12.8.2004 and terms of compromise arrived at between the parties were recorded in the order dated 12.8.2004. Thereafter, the said order was modified with the consent of the parties vide order dated 24.10.2004 by which both the sides were given the liberty to bid for the shares in HIL and as far as the other two companies are concerned, the choice of taking over the control of these two companies was given to Ajay Kapoor.

2. The date of the bidding was fixed on 10.1.2005. In the meanwhile, both Ajay Kapoor and Ved Kapoor filed two applications seeking for decision on certain matters before the bidding took place. Both the applications were heard. In regard to most of the issues raised in these two applications, consensus emerged, while a few of them were left to my decision. Thereafter, the bidding process started and Ajay Kapoor emerged as the higher bidder at Rs.50/- per share in respect of HIL. He also opted to take over HPL and HCL. The total number of shares involved in respect of HIL as far as Ved Kapoor Group is concerned is 14,97,137 and the total consideration comes to Rs.7,48,56,850. I have noted that the shareholders collectively holding the above mention shares from Ved Kapoor Group have given letters agreeing to sell their shares.

3. The following terms were agreed to by the parties:

4. 20% of the total consideration will be paid by 10.2.2005 and the balance by 10.7.2005 in one or more installments. On payment of 20% consideration, Ajay Kapoor Group will take over the management of the company and the Board of all the three companies will be reconstituted with 3 persons from Ajay Kapoor Group and 2 from Ved Kapoor Group. Ved Kapoor Group would continue to be on the Board of HIL only till the entire consideration is paid by Ajay Kapoor Group and in HCL and HPL, till their personal guarantees are released. Ajay Kapoor Group will release Ved Kapoor Group from all their personal guarantees given in the interest of the 4 companies 7 including TFPL, by 10.4.2005 and Ajay Kapoor Group will execute an indemnity bond undertaking to release Ved Kapoor Group from their personal guarantees within the stipulated time. The main fixed assets and stock on hand shall be as reflected in the documents filed before the Bench. The transfer of shares held by Ved Kapoor Group shall be effected only after receipt of full consideration from Ajay Kapoor Group and till then, no voting rights shall be exercised on the shares by either side. Ved Kapoor Group shall not sell or transfer any of the shares held by that group and to ensure the same, they shall immediately inform the concerned Depositories in which they hold their de mat accounts about this order and get their acknowledgements to the effect the all their accounts have been frozen and file the same with the Bench Officer with a copy to Shri Ajay Kapoor. Personal loans and advances of Ved Kapoor Group as per the books of accounts of HIL will be paid by 10.1.2006. Ajay Kapoor Group shall not sell or dispose of fixed assets including plant and machinery of HIL or TFPL till the entire consideration is paid except for replacement of the personal guarantees of Ved Kapoor Group.

10. Except in the normal course of business, any expenditure of over Rs.5 lacs in HIL shall be with the consent of Ved Kapoor Group.

4. In respect of the following issues, the parties have left the decision to me:

1. Payment of dues from HIL and its subsidiary TFPL to Ved Kapoor Group and companies and firms controlled by that Group.

2. Similar dues from HCL and HPL.

5. In the hearing held on 17.1.2005, Ajay Kapoor Group tendered a cheque for Rs.1,49,71,370 being the 20% of the consideration for the shares to Ved Kapoor Group. Accordingly, by an order on that day, the Boards of Directors of all the 3 companies were directed to be reconstituted with immediate effect with Shri R.N.Khanna, Mrs. Usha Kapoor, Shri Ajay Kapoor, Shri Ved Kapoor and Shri Jaiwant Bery as Directors. Shri R.K.Dalmia, Bench Officer was directed to take inventory of all the assets and documents in all the 4 companies immediately in the presence of nominees of Ved Kapoor Group and Ajay Kapoor Group and hand over the same to Ajay Kapoor Group under acquaintance. Ajay Kapoor Group was directed to execute an indemnity bond in favour of Ved Kapoor Group in the format handed over during the hearing after obtaining all the details from Ved Kapoor Group. 8

6. In furtherance to that order, following directions are given: (a) All major business decisions shall be taken in Board Meetings with 7 days notice to all the directors together with agenda with liberty to both sides to apply if there is any difficulty in the meetings of the Boards of HIL/TFPL (b) The two directors from Ved Kapoor group will continue as such only up to the date on which the entire amount of the consideration is paid by Ajay Kapoor Group and personal guarantees are released. (c) All the terms agreed upon between the parties as indicated in paragraph 3 above shall be strictly followed by the parties.

7. In regard to the amount due from HCL and HPL to Ved Kapoor Group, the decision of which has been left to me, I find that in the application filed by Ved Kapoor Group on 10.1.2005, prayer has been made in the following terms: “Provide for take over of all BIFR responsibilities and entire payment of liabilities by the buyer group. In case of any delay in the payment of OTS of Canara Bank or in the implementation of the BIFR scheme and/or default, due to any reason, then any existing liabilities and subsequent liabilities arising shall be the sole responsibility of the buyers group”. In view of this prayer in the application, the dues by HCL and HPL to Ved Kapoor Group shall be in accordance with the BIFR scheme, except amounts due to them on their personal account like loans etc about which I shall decide after the full consideration for the shares is paid. As far as amounts payable by HIL to Hibar Packaging Private Limited, Packit, and Shri Ved Kapoor (HUF) and also amount payable by TFPL to Hibar Packaging Private Limited are concerned, the same shall be in accordance with the terms of the contracts and in case the amounts are over due, then, the same shall be paid on or before 10.7.2005. The fixed deposits receipt of Rs.100 lacs given by Jaiwant Bery against loans availed by TFPL shall also be replaced/substituted by 10.5.2005.

8. In case, Ajay Kapoor Group fails to release the personal guarantees or to pay the full consideration for the shares by due dates the management of the company shall revert back to Ved Kapoor Group who shall refund all the consideration received till then from Ajay Kapoor Group.

9. Since settlement of disputes between the groups is for the benefit for the companies and the shareholders at large, in terms of Section 402, I direct that none of the Regulations of the SEBI, more particularly, the Take Over Code shall not apply in respect of the sale and purchase of the shares between the two groups. 9

10. Banks and financial institutions connected with the companies shall render all assistance to the parties to ensure compliance with this order more particularly in replacement of guarantees as per this order.

11. Likewise, governmental, both State and Central shall render all assistance, if need be, to give effect to this order.

12. The hand written order on 18.1.2005 shall be read as a part of this order.

13. The parties should cooperate with each other to ensure in implementing this order and are at liberty to approach this Bench in case of any difficulty in working out this order. “ The appellant alleges that in terms of the agreement entered into between the parties and the orders passed by the CLB, he took over the management and possession of HIL on 20.1.2005. The Bench Officer of the CLB was present and inventory of the stocks was prepared by the said officer in the presence of both parties, which is duly signed by them. According to the appellant, after it took over the management of the company it found that the assets were not as per the stock statements filed before the Bench. According to the appellant, the Ved Kapoor Group on the basis of the inflated and over valued stock statements had got the working capital limit enhanced and had in fact utilized the entire working capital by the time management was taken over. The appellant further alleges that since it apprehend that the value of the stocks was not properly reflected in the stock statements by the Ved Kapoor Group, it made a note in the stock statements submitted to the State Bank of Bikaner and Jaipur (SBBJ) that the figures of the stock statements are provisional and subject to stock audit. The appellant also requested Shri J.C.Bhalla, Chartered Accountant to make the valuation of the stock handed over by the Ved Kapoor Group in accordance with the norms stipulated by the SBBJ. The SBBJ itself got an independent audit 10 conducted of the stocks of HIL. The auditors appointed by the SBBJ submitted their report on 22.8.2005 and found that the Ved Kapoor Group had over valued the stocks and including the printing cylinders. It also found that the number of cylinders had been inflated. According to the appellant, if the valuation method followed by the independent auditor is followed, the total value of stocks works out to Rs.4,61,27,392.38/- only and in case the value of the cylinders and flexo plates belonging to the 3rd parties is excluded the value of stocks is only Rs.3,98,56,548.38/-. The appellant alleges that, therefore, he is entitled to recover Rs.2,88,46,524/- from the Ved Kapoor Group of short fall of stocks and offered to pay the value of the shares after deducting this amount. He thereafter filed an application before the CLB praying for the grant of following reliefs:-

1. The Ved Kapoor Group is liable in the sum of Rs.2,52,06,529/- or such other sum as may be finally determined by the Bank Auditor on account of the shortfall in the stocks worth Rs.7,08,93,388/-.

2. The Ajay Kapoor Group is only liable to pay to Ved Kapoor group a sum of Rs.3,46,78,951/- as the balance sale consideration for the purchase price of all the shares of the HIL.

3. Permit the Companies Hitkari Potteries Ltd. and Hitkari China Ltd. to issue duplicate shares directly in the name of Ajay Kapoor and/or his nominee(s) in lieu of the shares of the Ved Kapoor group which have purportedly been lost/misplaced by the Ved Kapoor group as set out in Annexure “U”.

4. Permit/direct the transfer of the HIL shares belonging to the Ved Kapoor group in favour of Ajay Kapoor and/or his nominees in respect of the shares of HIL after mandates and transfer instructions to the depositories have been received in respect of the shares of the Ved Kapoor group.

5. Permit release of payment of a sum of Rs.3,46,78,951/- to the Ved Kapoor group in respect of all the shares of HIL only after all the mandes and transfer instructions have been received in respect of all the shares of HIL as er prayer 4 above.

6. Pending receipt of mandate and transfer instructions in respect of all the shares of HIL of the Ved Kapoor group, permit the applicant to deposit 11 demand draft for a sum of Rs.3,46,78,951/- with the Bench Officer of this Hon’ble Board.

7. Pass an order directing that the balance sum of Rs.2,52,06,529/- be kept in a separate interest bearing account till disposal of the present application.

8. Pass an order directing the Ved Kapoor group to forthwith return the Ajay Kapoor group the three Cars (Skoda Octavia, Hyundai Accent and Honda City) belonging to HIL which are in the possession of the Ved Kapoor Group.

9. Direct the Ved Kapoor group to forthwith pay to HIL a sum of Rs.2 lakhs as set out in paragraph 29 above. Vide order dated 10.7.2005 the CLB directed the appellant to pay the balance sale consideration for the shares of the Ved Kapoor Group and admittedly, the balance sale consideration was actually paid on 11.7.2005. The Ved Kapoor Group also filed an application before the CLB praying for the following reliefs:- (a) Make the payment of a sum of Rs.2,63,888/- to Mr. Ved Kapoor (HUF) as per earlier order dated 1.2.2005. (b) Make the payment of a sum of Rs.51,86,092.71 to Packit as per earlier order dated 1.2.2005. (c) Make the payment of a sum of Rs.6,40,746.76 to HIBAR as per earlier order dated 1.2.2005. (d) Make the payment for a sum of Rs.16,00,000/- to HIBAR from TFPL as per earlier order dated 1.2.2005. (e) (f) Make the payment of Gratuity due to Mr. Jaiwant Bery for a period of 10 years. Make the payment for a sum of Rs.36,000/- to Mr. Jaiwant Bery being expenses incurred by him for the purpose of Company prior to 17th January, 2005. (g) Direct the respondents/petitioners to make the payments to Ved Kapoor group as per the annexure L annexed with the application as per the earlier order dated

1.2.2005. (h) Direct HIL, it managing Diector, manager, agents or athorised representative to hand over the files and samples of Packit forthwith as inspite of the direction given by this Hon’ble Board after the biding. 12 Both parties contested the respective applications. The applicant in relation to the application filed by the Ved Kapoor Group raised certain additional claims in respect of the dues payable to HIL by another Hitkari Group Company called Himachal Folien Ltd. It also challenged the validity of the claims made by respondent Mr. Jaiwant Bery who is admittedly the son-in-law of Mr. Ved Kapoor and sought refund of the salary and other benefits availed of by Mr. Bery. The CLB vide order dated 2.8.2006 rejected the submissions of the appellant in respect of the valuation of actual stocks and also held HIL liable to pay Rs.51,86,092/- to M/s Packit and Rs.6,40,746/- to M/s Hibar and further held that M/s Hitkari Terrafilms is liable to pay an amount of Rs.16,00,000/- to M/s Hibar. Claims of the appellant in regard to Himachal Folien Ltd and Mr. Jaiwant Bery were rejected. It would be pertinent to mention that the CLB in its order held that the method of valuation of the stocks adopted by the previous management i.e. Ved Kapoor Group was being followed for a number of years. It came to the conclusion that neither the bank nor the statutory auditors had ever challenged the method of valuation. It also came to the conclusion that even the Ajay Kapoor Group had followed a similar system of valuation after taking over the company. The CLB further held that the warranties submitted by the Ved Kapoor Group pursuant to the earlier orders of the CLB were only in relation to the numbers of stock and not in relation to the method of valuation. As far as the claim of the Ajay Kapoor Group that some cylinders which had already been sold were still being reflected as assets of HIL in his stock statements, the CLB held that this matter would be decided later. The CLB also allowed the prayer of the 13 Ved Kapoor Group and directed HIL to pay the amount due from it to Packit. It also held that Shri Jaiwant Bery was not liable to refund the remuneration paid to him. It, therefore, directed the Ajay Kapoor Group to make payments of Rs.51,86,092/- from HIL to Packit and Rs.6,40,746/- from HIL to Hibar and Rs.16 lacs from Terrfilms to Hibar. It, however, rejected the claim of the Ved Kapoor Group for recovering the amount on account of loans made by it to HPL. It, however, directed that HCL will pay the amount due from it to the Ved Kapoor Group. The CLB rejected the claim of the Ajay Kapoor Group in respect of the claims of Himachal Folien Ltd on the ground that the said company was not part of the consent order dated 1.2.2005. Personal claims of Shri Ajay Kapoor and Jaiwant Bery were also rejected on the same ground. Aggrieved by this order, the appellant filed Co. Appeal No. 3 of 2006, which was admitted on 22.12.2006. Though the appellant had requested for grant of stay, no stay was granted and therefore the CLB continue with the further proceedings in the matter. The main dispute which remained to be settled by the CLB was in respect of the cylinders. The appellant claimed that as many as 1579 cylinders having value of Rs.1,01,84,550/- were not actually the property of HIL but belonged to the parties on whose accounts the packaging was being manufactured and therefore, the Ved Kapoor Group should be directed to reimburse this amount. The Ajay Kapoor Group in support of its contention relied upon an affidavit filed by the Ved Kapoor Group before the Excise Authorities and the findings of the Excise Authorities that these cylinders belong to the company. However, the Ved Kapoor Group 14 urged that these cylinders did not belong to the customers but to HIL. It was not denied that the affidavit had been filed but according to the Ved Kapoor Group its contention was that the cylinders were owned by the customers had been rejected by the appellate authority. In support of its contention, it was also mentioned that the words HIL were etched on all the cylinders which clearly show that these cylinders belong to HIL. The CLB vide its order dated 24.7.2007 held that the cylinders belong to HIL and therefore, the Ajay Kapoor Group cannot seek reimbursement or adjustment of the value of the same. Some minor corrections were made to the earlier order dated 2.8.2006. CLB also directed that the amount due by HCL to the Ved Kapoor Group be paid within two months from the date of order and further that the dues of HPL to the Ved Kapoor Group would be paid as per the scheme, if any, approved by the AIFR/BIFR. This latter order is the subject matter of challenge in company appeal No. 3 of

2007. The following points arise for consideration in this case:-

1. Whether any question of law falling within the ambit of Section 10F of the Company Act, 1956 arises in the appeal?

2. Whether the consent order dated 12th August, 2004, 24th October, 2004 and the order dated 1st February, 2005 constitute a family arrangement between the parities?

3. Whether the appellant is entitled to claim the difference in value of the stocks, as furnished to the bankers by Hitkari Industries Limited by the Ved Kapoor Group and the actual value as determined on the basis of the

9. 15 method of valuation prescribed by the bankers and now approved by the auditors of the bankers? Whether 1579 cylinders are the property of HIL or of its customers? Whether Ajay Kapoor or the Ajay Kapoor Group are not liable to pay any amount to any of the members of the Ved Kapoor Group on account of personal loans or any other amount due to them from HPL and HCL? Whether HIL is not liable to make any payment to Packit? Whether respondent No.3 Jaiwant Bery is liable to reimburse the entire salary, value of perquisite and other remuneration received by him from HIL? Whether HIL is entitled to recover any amount from M/s Himachal Folien Ltd. Whether HIL is entitled to recover the profits derived by Packit in respect of transactions held with HIL which are illegal, especially in respect of the profits earned by Packit after the order dated 24th September, 2003 passed by the CLB restraining management of HIL from any dealings with Packit? Point No.1: Section 10F of the Act reads as follows:- “Appeals against the orders of the Company Law Board.- Any person aggrieved by any decision or order of the Company Law Board may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him or any question of law arising out of such order: Provided that the High Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days.” It is apparent that a question of law must arise out of the order of the CLB. This Court does not sit as an Appellate Court to 16 decide questions of fact. It must also be noted contradistinction to Section 100 of the Code of Civil Procedure the word used in Section 10F are “question of law” and not “substantial question of law”. The Apex Court in M/s Dale and Carrington Invt. (P) Ltd. and another vs. P.K.Prathapan and others, AIR 2005 SC 1624, while discussing Section 10F held as follows:- “35. Section 10F refers to an appeal being filed on the question of law. The learned counsel for the appellant argued that the High Court could not disturb the findings of fact arrived at by the Company Law Board. It was further argued that the High Court has recorded its own finding on certain issues which the High Court could not go into and therefore the judgement of the High Court is liable to be set aside. We do not agree with the submission made by the learned counsel for appellants. It is settled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on the question of law. The perversity of the finding itself becomes a question of law. In the present case, we have demonstrated that the judgement of the Company Law Board was given in a very cursory and cavalier manner. The Board has not gone into real issues which were germane for the decision of the controversy involved in the case. The High Court has rightly gone into the depth of the matter. As already stated the controversy in the case revolved around alleged allotment of additional shares in favour of Ramanujam and whether the allotment of additional shares was an act of oppression on his part. On the issue of oppression the finding of the Company Law Board was in favour of Prathapan i.e. his impugned act was held to be an act of oppression. The said finding has been maintained by the High Court although it has given stronger reasons for the same.” In Hero Vinoth (minor) vs. Seshammal, JT 2006 (5) SC 436, while discussing the scope of Section 100 of the CPC, the Apex Court held as follows:- “20. To be "substantial" a question of law must be debatable, not previously settled by law of the land or a binding precedent, and must 17 have a material bearing on the decision of the case, if answered either way, insofar as the rights of the parties before it are concerned. To be a question of law "involving in the case" there must be first a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law is a substantial one and involved in the case, or not; the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis. (See: Santosh Hazari v. Purushottam Tiwari (deceased) by Lrs. [(2001) 3 SCC 179].

21. The principles relating to Section 100 CPC, relevant for this case, may be summerised thus:- (i) An inference of fact from the recitals or contents of a document is a question of fact. But the legal effect of the terms of a document is a question of law. Construction of a document involving the application of any principle of law, is also a question of law. Therefore, when there is misconstruction of a document or wrong application of a principle of law in construing a document, it gives rise to a question of law. (ii) The High Court should be satisfied that the case involves a substantial question of law, and not a mere question of law. A question of law having a material bearing on the decision of the case (that is, a question, answer to which affects the rights of parties to the suit) will be a substantial question of law, if it is not covered by any specific provisions of law or settled legal principle emerging from binding precedents, and, involves a debatable legal issue. A substantial question of law will also arise in a contrary situation, where the legal position is clear, either on account of express provisions of law or binding precedents, but the court below has decided the matter, either ignoring or acting contrary to such legal principle. In the second type of cases, the substantial question of law arises not because the law is still debatable, but because the decision rendered on a material question, violates the settled position of law. 18 (iii) The general rule is that High Court will not interfere with concurrent findings of the Courts below. But it is not an absolute rule. Some of the well recognized exceptions are where (i) the courts below have ignored material evidence or acted on no evidence; (ii) the courts have drawn wrong inferences from proved facts by applying the law erroneously; or (iii) the courts have wrongly cast the burden of proof. When we refer to 'decision based on no evidence', it not only refers to cases where there is a total dearth of evidence, but also refers to any case, where the evidence, taken as a whole, is not reasonably capable of supporting the finding.” From the reading of the aforesaid two judgements of the Apex Court, it is more than apparent that the scope of interference under Section 10F of Companies Act is wider than that in an appeal under Section 100 CPC since under the Companies Act only a question of law needs to be decided whereas in Regular Second Appeal a substantial question of law must arise in the appeal. The scope of interference of the High Court is governed by the principles laid down in the aforesaid cases and each point arising hereafter shall be considered in the light of the law laid down by the Apex Court. Point No.2: Shri R.L.Sood, learned Senior Counsel for the respondents has strenuously contended that the orders dated 12th August, 2004, 24th October, 2004 and 1st February, 2005 constitute a family arrangement between the parties and have even grater value and therefore, the Court should make an effort to ensure that the family arrangement is adhered to by all parties. He also submits that since the orders are consent orders, no appeal is maintainable and the appellant should go back to the CLB, if it wants modification of these orders. 19 On the other hand Shri Krishnendu Datta, learned counsel for the appellant urges that this plea was not raised before the Company Law Board nor has been raised in the pleadings before this Court and there is no basis to hold that the compromise arrived at between the parties was a family settlement. As already noted above, the Hitkari Group of Industries was set up by Shri K.P.Kapoor, father of the appellant and the principal respondent Shri Ved Kapoor. It is also clear that the Company Law Board was only seized of the matters relating to HIL, HPL and HCL. Other companies of the group were not party to the consent orders. Order dated 12th August, 2004 specifically states the compromise is in respect of these three companies only. Similarly, the order dated 24th October, 2004 also relates only to these three companies. It is the order dated 1st February, 2005 which is the real bone of contention between the parties. At the outset, it must be noticed that this order was passed after bidding had taken place and after applications had been filed by both sides expressing certain reservations and also claiming amounts which were not part of the original compromise. In our considered opinion, this order dated 1st February, 2005 can easily be split up into two parts. Paras 1 and 2 of the order, give the history of the compromise and this also clearly shows that the compromise was in respect of HIL, HPL and HCL only. Para 3 of the order contains the terms agreed to by the parties. Para 4 relates to other issues where the parties left the decision to be made by the 20 Company Law Board. We are clearly of the view that the compromise relates to matters specified in para 3 only and as far as the issues contained in para 4 as well as the claims of both sides in relation to other companies of the group are concerned, these were not part of the compromise arrangement. Even where the decision has been left to the Board, the decision had to be in accordance with law and as per the previous compromise entered into between the parties. The decision on these issues can be challenged by any party. However, the parties cannot be permitted to challenge the issues which were settled by them by means of compromise which is reflected in para 3 of the order. By means of a family arrangement or settlement, members of a family seek to resolve all their differences and disputes once and for all in order to buy peace. Courts attach a special equity to family arrangements. The effort in this regard is to ensure that family arrangements are enforced if honestly made. Even if there is an error of judgement while making the family arrangement, the Courts lean towards upholding such family arrangements. The Apex Court in Kale and others vs. Deputy Director of Consolidation and others, (1976) 3 SCC 119, held as follows:- “9. xxxx….. The object of the arrangement is to protect the family from long drawn litigation or perpetual strifes which mar the unity and solidarity of the family and create hatred and bad blood between the various members of the family. Today when we are striving to build up an egalitarian society and are trying for a complete reconstruction of the society, to maintain and uphold the unity and homogeneity of the family which ultimately results in the unification of the society and, therefore, of the entire country, is the prime need of the hour. A family arrangement 21 by which the property is equitably divided between the various contenders so as to achieve an equal distribution of wealth instead of concentrating the same in the hands of a few is undoubtedly a milestone in the administration of social justice. That is why the term “family” has to be understood in a wider sense so as to include within its fold not only close relations or legal heirs but even those persons who may have some sort of antecedent title, a semblance of a claim or even if they have a spes successions so that future disputes are sealed for ever and the family instead of fighting claims inter se and wasting time, money and energy on such fruitless or futile litigation is able to devote its attention to more constructive work in the larger interest of the country. The courts have, therefore, leaned in favour of upholding a family arrangement instead of disturbing the same on technical or trivial grounds. Where the courts find that the family arrangement suffers from a legal lacuna or a formal defect the rule of estoppel is pressed into service and is applied to shut out plea of the person who being a party to family arrangement seeks to unsettle a settled dispute and claims to revoke the family arrangement under which he has himself enjoyed some material benefits.” The Apex Court culled out the essentials of a binding family arrangement in para 10 of the judgement, which reads as follows:- “In other words to put the binding effect and the essentials of a family settlement in a concretised form, the matter may be reduced into the form of the following propositions: (1) The family settlement must be a bona fide one so as to resolve family disputes and rival claims by a fair and equitable division or allotment of properties between the various members of the family. (2) The said settlement must be voluntary and should not be induced by fraud, coercion or undue influence; (3) The family arrangements may be even oral in which case no registration is necessary; (4) It is well settled that registration would be necessary only if the terms of the family arrangement are reduced into writing. Here also, a distinction should be made between a document containing the terms and recitals of a family arrangement made under the document and a mere memorandum prepared after the family arrangement had already 22 been made either for the purpose of the record or for information of the court for making necessary mutation. In such a case the memorandum itself does not create or extinguish any rights in immoveable properties and therefore does not fall within the mischief of Section 17 (2) (sic) of the Registration Act and is, therefore, not compulsorily registrable ; (5) The members who may be parties to the family arrangement must have some antecedent title, claim or interest even a possible claim in the property which is acknowledged by the parties to the settlement. Even if one of the parties to the settlement has not title but under the arrangement the other party relinquishes all its claims or titles in favour of such a person and acknowledges him to be the sole owners, then the antecedent title must be assumed and the family arrangement will be upheld and the Courts will find no difficulty in giving assent to the same; (6) Even if bona fide disputes, present or possible, which may not involve legal claims are settled by a bona fide family arrangement which is fair and equitable the family arrangement is final and binding on the parties to the settlement.” In Manish Mohan Sharma and others vs. Ram Bahadur Thakur Ltd. others, (2006) 4 SCC 416, the Apex Court while dealing with the family arrangement held as follows:- “32. It has been repeatedly emhasised in several decisions that family settlements are governed by a special equity and are to be enforced if honestly made. This would be so “even if the terms may have been agreed to on the basis of an error of the parties or originate in a mistake or ignorance of fact as to what the rights of the parties actually are, or of the points on which their rights actually depend”. This is because the object of an arrangement is to protect the family from long drawn out litigation and to bring about harmony and goodwill in the family. (See Kale V. Dy. Director of Consolidation, (1976)(3) SCC 119. The courts lean heavily in favour of family arrangements and, “matters which would be fatal to the validity of similar transactions between strangers are not objections to the binding effect of family arrangements”. This view has been reiterated recently in Amteshwar Anand v. Virender Mohan Singh. (2006) 1 SCC 148.” 23 In Hari Shankar Singhania and others vs. Gaur Hari Singhania and others, (2006) 4 SCC 658, the Apex Court while dealing with the sanctity of the family arrangement held as follows:- “42. Another fact that assumes importance at this stage is that, a family settlement is treated differently from any other formal commercial settlement as such settlement in the eyes of law ensures peace and goodwill among the family members. Such family settlements generally meet with approval of the Courts. Such settlements are governed by a special equity principle where the terms are fair and bona fide, taking into account the well being of a family.

43. The concept of 'family arrangement or settlement' and the present one in hand, in our opinion, should be treated differently. Technicalities of limitation etc should not be put at risk of the implementation of a settlement drawn by a family, which is essential for maintaining peace and harmony in a family. Also it can be seen from decided cases of this Court that, any such arrangement would be upheld if family settlements were entered into ally disputes existing or apprehended and even any dispute or difference apart, if it was entered into bona fide to maintain peace or to bring about harmony in the family. Even a semblance of a claim or some other ground, as say affection, may suffice as observed by this Court in the case of Ram Charan v. Girija Nandini AIR 1966 SC 323. Xxx …xxxx …xxxxx ….xxxx …..xxxx Xxx …xxxx …xxxxx ….xxxx …..xxxx

53. Therefore, in our opinion, technical considerations should give way to peace and harmony in enforcement of family arrangements or settlements.” Similar view was taken by the Apex Court in Hansa Industries (P) Ltd. and others vs. Kidarsons Industries (P) Ltd., (2006) 8 SCC 531. On behalf of the appellant, it is contended that arrangement was not a family arrangement since all the properties of the family were not made part of the settlement and the settlement relates to three companies only viz. HIL, HPL and HCL. It was argued that not only the 24 other members of the company but even the other companies of the group were not a part of the compromise. On the other hand Shri R.L.Sood, learned counsel for the respondents contends that the compromise was in fact a family arrangement and covered all the companies. According to him, some disputes were decided by compromise and some disputes were left to be decided by the Company Law Board. In our view, if all the orders are read together, the original compromise was only in respect of HIL, HPL and HCL. On 17th January after the bidding had taken place on 10th January when the matter was argued the parties also agreed that the compromise would cover TFPL which was a wholly owned subsidiary of HIL. As per Clause 8 of para 3 of this order the personal loan and advances of Ved Kapoor Group were to be paid by 10.1.2006. Remaining issues in respect of dues of HIL and its subsidiary TFPL payable to Ved Kapoor Group and the Companies controlled by that group and similar dues from HCL and HPL were left to the decision of the CLB. It is thus clear that the compromise did not cover all the properties of the family and did not in fact cover all the Companies of the group. A settlement to be termed a family arrangement must relate to all the properties of the family and there cannot be a family settlement for a part of the properties of the family. The CLB itself held that the appellant Ajay Kapoor is not entitled to claim anything from M/s Hibar Ltd. on the ground that this Company was not part of the settlement. It is not disputed that Hibar is also a group Company. This clearly shows that the settlement or arrangement was only in respect of HIL, HPL, HCL and TFPL, 25 which was included by consent of parties. The essential ingredient of a family settlement is that all the disputes between the family members must come to an end. In the present case, we are of the considered view that the settlement arrived at between the parties was in respect of a few group of companies only. This settlement did not cover all the disputes between the two wings of the family and did not extend to all the companies and firms owned by different members of the family. Therefore, the compromise cannot be said to be a family arrangement. Having held so, we are of the opinion that the portion of the settlement arrived at between the parties by consent is binding on them. It is settled law that no party can be permitted to file an appeal or challenge a compromise/consent decree. Such a consent decree can only be set-aside on the ground of fraud. There is no other ground to challenge such a consent order. In fact, before us none of the parties has challenged the consent order. Shri Datta has made it amply clear that he is not challenging the consent orders but he is only challenging what happened subsequently. Therefore, the parties cannot be permitted to challenge the order dated 12th August, 2004 and 24th October, 2004 and that portion of the order dated 1st February, 2005, which is a consent order. As we have already made it clear above that the order dated 1st February, 2005 can easily be divided into two parts. One part is a consent order and one part leave the decision of the dispute to the Board. The second part of the order i.e. para 4 when read as a whole only means that the parties left the decision on those issues to the Company Law Board. 26 However, there is nothing on record to show that the parties ever agreed that they would be bound by the decision of the Board. Point No.3: This question can be easily divided into two parts. The challenge by the appellant is that he had sought warranty from the respondents prior to bidding. According to the appellant, the valuation of the cylinders is not being done as per the method prescribed by the State Bank of Bikaner and Jaipur (SBBJ) but the respondents are following their own method of valuation. On the other hand, it has been urged by the respondents that the warranty was in relation to the quantity only and not in respect to the method of valuation. It has been contended on behalf of the appellant that warranty was both in respect of valuation as well as inventories. According to Shri Datta since the data supplied was incomplete, they had filed the application seeking warranties prior to the bidding. It would be pertinent to note that prior to bidding taking place the appellant was allowed inspection of the record though according to him complete date was not supplied. However, he did not specifically challenge the system of valuation of the assets. According to him, the assets, especially the cylinders, were over valued. However, as rightly contended by the respondents, the appellant is not challenging the valuation in respect of certain fixed assets, like land. The land value reflected is much less than the market value. The appellant cannot be permitted to challenge the system of valuation only in respect of certain items. It is not disputed that this method of valuation was followed even when the father of the 27 appellant was having control over the Company. The same system of valuation was followed by the appellant for 5-6 months after he took over the Company. We are, therefore, clearly of the view that the appellant cannot be permitted to raise any challenge to the value of the stocks on the ground that the system of valuation being followed by the respondents was not correct and not in accordance with the method approved by SBBJ. Point No.4 Even the respondents admit that there was warranty in respect of the inventory and the respondents were liable to ensure that the stocks as reflected in stock statements exist at the spot. The dispute relates to 1579 cylinders only which are subject matter of the order dated

24.7.2007 passed by the CLB, which is subject matter of Company Appeal No. 3 of 2007. The undisputed facts are that prior to the bidding, the appellant had raised certain objections and had sought warranties and warranty of stocks was definitely given. The case of the appellant is that 1579 cylinders are not the property of the Company. In support of its case, reliance is placed on the statement of Shri K.M.Panday, General Manager of the Hitkari Industries Limited dated 24.1.2000 wherein he had stated that the Company is only engaged in manufacture of film and not the manufacture of Gravure Printing Cylinders. According to this statement, the HIL only gets the cylinders fabricated on behalf of the customers and for this purpose it receives the amount spent for getting the cylinder manufactured from the customers and pays it to the cylinder manufacturer. It was clearly stated in the statement that the cylinders remain the sale property of the customer though they are temporarily used 28 by Hitkari Industries Limited. This was the stand of Hitkari Industries Limited, even in the appeal filed before the Commissioner of Central Excise. Grounds 16 and 17 of the grounds of appeal read as follows:- “xvi) That the said cylinders manufactured by outside parties is the property of customers on whose behalf the same were ordered. These cylinders are used for printing of bare film into printed film by the job workers through the noticees and after printing the same are returned to the customers. xvii) That when cylinders (including its design/dev.) have been manufactured by other parties and the same belongs to customers then the present noticees cannot be asked to pay any duty on the said activity.” No doubt, this appeal was rejected but the appeal was not rejected on the ground that the Hitkari Industries Ltd. is the owner of the cylinders but it was rejected on the ground that Hitkari Industries Limited is deemed to be manufacturer of these cylinders. The Appellate Authority did not decide the issue as to whether HIL was the owner of the cylinders or not. It held following the judgement of CEGATE in Flex Industries Limited that the proportionate costs of the cylinders, keeping in view its life, had to be added to assess the cost of manufacture. Shri R.L.Sood, learned senior counsel for the respondents has urged that these averments were made only with a view to avoid payment of excise and in fact, HIL is not the owner of the 1579 cylinders. He submits that the appellate authority rejected the claim of HIL. We cannot accept this argument. A party who has filed an affidavit stating that it is not the owner of certain cylinders in tax proceeding cannot in other civil proceeding take a U turn and claim that it is not the owner of the cylinders. A party who on an affidavit states certain facts cannot be 29 permitted to withdraw its admission made on oath. The CLB has accepted the contention of the Ved Kapoor Group that the amount indicated in the invoice showing it to be the price of the cylinder is in fact only the amount reflecting the design and development charges of the cylinders. The CLB has also come to the conclusion that the Company has treated the cylinders as part of its stock for a very long time and customers place repeat orders and the same cylinders are being used repeatedly to execute the orders. The CLB has not dealt with the question that if the customer does not want to place a repeat order with the HIL, is the customer not entitled to ask HIL to handover the cylinders to it. In our view the CLB totally ignored the affidavit furnished by the HIL before the Excise Authorities and the stand taken by it before a judicial authority. It did not take into consideration the fact that no party should be permitted to back out of what it had stated before a judicial authority. The dispute is not with regard to all the cylinders but only in relation to 1579 cylinders, since even the appellant has conceded the fact that the remaining cylinders belong to the Company itself. However, we can in an appeal under Section 10F only decide questions of law and cannot decide questions of fact. We are clearly of the view that the CLB totally misdirected itself in ignoring the affidavits and the contention raised by the Ved Kapoor Group before the Excise Authorities. These were admissions made by the Ved Kapoor Group which could not have been withdrawn and brushed aside just on their mere asking. However, what is the effect of these admissions is a question of fact to be decided by the CLB and not by us. Both parties have taken us through a large number of documents. The effort of the 30 appellant has been to show that in certain invoices the cylinders are shown to belong to the customers. On the other hand, the respondent is relying on certain other documents to support its claim that the cylinders belong to the Company. These documents have not been dealt with by the CLB. The CLB has only relied upon the practice being followed to come to this conclusion that these cylinders are the property of the Company. The question whether 1579 cylinders or some lesser number of cylinders belong to the customers and not to the Company i.e. HIL must be decided by the CLB by taking into consideration the admission made by the Ved Kapoor Group before the authorities and all other relevant documents in this behalf. We would, therefore, accordingly remand the case to the CLB to decide this issue a fresh in the light of the observations made here-in- above. Point No.5: A bare reading of the consent order dated 12th August, 2004 clearly shows that Shri Ajay Kapoor would have the right to take over HCL and HPL without any consideration to the Ved Kapoor Group. This portion of the order was never modified. However, the Ved Kapoor Group started raising certain claims in respect of certain loans extended by members of the Ved Kapoor Group to HPL and HCL. This application was filed on

10.1.2005 i.e. the date when bidding took place. The CLB in its order dated 1.2.2005 held that “in view of this prayer in the application, the dues by HCL and HPL to Ved Kapoor Group shall be in accordance with the BIFR scheme, except amounts due to them on their personal account like loans etc. but which I shall decide after the full consideration for the 31 shares is paid.” Thereafter, by its order dated 2.8.2006 the CLB ordered that as far as personal loans given by the Ved Kapoor Group to HPL and HCL are concerned, if any amount is due from HCL the same will be paid by Ajay Kapoor within one month as HCL is not under BIFR and in respect of HPL it was held that since the Company is a sick the payment would be made in accordance with the scheme approved by the BIFR/AIFR. The Company Law Board held that the order dated 12th August, 2004 only related to the value of the shares of the Ved Kapoor Group and did not relate to other loans/advances made by the Ved Kapoor Group. The Company Law Board has totally misread the order dated 12th August,

2004. Admittedly, these two Companies were running in losses. The order dated 12th August, 2004 provided that Shri Ajay Kapoor was entitled to take over these companies without paying any amount to the Ved Kapoor Group and in case he did not decide to take over these companies he would be liable to pay 50% of the excess liability of the Company subject to maximum of one crore. Our attention has also been drawn to a written note admittedly prepared by Shri Ved Kapoor. This note shows that Shri Ved Kapoor had worked out the assets of HPL and HCL at about 8 crores and all the liabilities at 10 crores which included all types of creditors, including trade creditors and other creditors. The net liabilities worked out to approximately Rs.2 crores. It is thus obvious that the parties had intended that Shri Ajay Kapoor would be entitled to take over the assets and liabilities of HCL and HPL without payment of any amount whatsoever to the Ved Kapoor Group. This would include the loans, if any, advanced by members of the Ved Kapoor Group. In case he did not take 32 over the companies he would have to pay half of the net liabilities i.e. Rs.1 crore. The finding of the Company Law Board to the contrary is perverse and is against the very spirit of the terms of the compromise and therefore this portion of the order is held to be against the compromise and is accordingly set-aside. Issue No.6 and 9: We have already clarified here-in-above that the consent between the parties was limited to the two orders dated 12th August, 2004 and 24th August, 2004 and that portion of the order dated 1st February, 2005 (para 3 of the said order) which was the consent order. By the third consent order two parties had extended the terms of the original compromise. The parties extended the ambit of compromise entered into between them in respect of HIL, HPL and HCL to M/s TFPL also. Clause 8 of para 3 of the order dated 1st February, 2005 also made HIL liable in respect of loans and advances of the Ved Kapoor Group as per the books of account of HIL. We, however, are not in agreement with the respondents that the decision of the CLB in respect of the disputes mentioned in para 4 is binding on the parties. At the outset, we may note that bidding had already taken place on 10.1.2005. Parties could not have been permitted to raise new claims and counter claims which had not been raised and decided before bidding took place. The CLB should have either deferred the bidding till it decided the other claims but definitely should not have entertained the other claims after the bidding had taken place. In case this is permitted the compromise can never work out. 33 When the parties left the decision in respect of other issues to the CLB it did not mean that the decision on these issues was binding on the parties. There is neither any statement of the parties nor anything in the order which would indicate this fact. The parties were and are entitled to challenge the findings of the CLB on issues which were not part of the terms of consent as interpreted by us above. We also find that the CLB itself followed two different criteria while deciding these issues. Though it permitted the Ved Kapoor Group to raise claims against HIL, HPL and HCL in respect of the companies which were not part of the compromise it rejected the prayer of the appellant Ajay Kapoor in respect of the dues of M/s Himachal Folien Ltd to HIL on the ground that Himachal Folien was not a party to the compromise. We have already held above that as far as the HCL and HPL are concerned, Ajay Kapoor is not liable to pay any amount to the Ved Kapoor Group in respect of the loans and advances by members of Ved Kapoor Group to these Companies. We have also held that in view of clause 8, the members of the Ved Kapoor Group are entitled to recover the loans/advances made to HIL. However, this does not cover other companies. It may be true that these Companies were Companies of the group but there can be no manner of doubt that each Company had a separate juristic entity. The Companies were not parties to the proceedings nor were these Companies i.e. M/s Packit, Hibar Packaging, Himachal Folien Ltd, etc. properly represented before the CLB. On record there was no resolution of any of these Companies that they have authorized anybody to represent them before the CLB. We fail to 34 understand how the claim of these Companies could be a subject matter of a decision by the CLB that too after the bidding had already taken place. The procedure followed by the CLB in respect of the claims of the other companies against HIL, HPL and HCL is not at all proper. The parties bid for the shares of HIL in the light of the earlier two orders. Thereafter, certain other disputes were also settled between the parties as is reflected in the para 3 of the order dated 1st February, 2005. The CLB gravely erred in permitting the parties to raise other issues which were not linked to the compromise entered between the parties. The CLB in our opinion gravely erred in permitting both the groups to raise fresh claims in respect of these three companies after the bidding had taken place. No claim in respect of these companies by other creditors should have been permitted to be raised in proceedings by the CLB, otherwise the compromise arrived at would itself become unworkable. Here, it would be pertinent to mention that many contentious issues arose in these matters. As far as the claims of M/s Packit are concerned in the order dated 1.2.2005, the CLB held that payment to Packit is liable to be made in terms of the contract. The contention of the Ajay Kapoor Group was that any contract or arrangement between HIL and Packit was hit by Section 297 of the Companies Act since no approval of the Central Government had been taken in respect of the contract between the two companies and there were common members of both the companies. It was also contended that the meetings at which such contract were approved were only attended by Shri Ved Kapoor and his 35 son-in-law Shri Jaiwant Bery and therefore there was violation of Section 287 of the Act. It is also not disputed that the CLB itself had restrained HIL from having any dealing with Packit vide order dated 24th September,

2003. According to the appellant, this order was circumvented by routing the transactions through an intermediary company M/s Modesto Polymer Pvt. Ltd. From the documents on record, it is apparent that after the CLB passed an order that HIL will not deal with Packit, orders were placed by HIL with Modesto Polymer for supply of the goods. Modesto in turn placed orders with Packit and supplies were made to HIL. It is clear that the orders of the CLB were circumvented in this manner. These facts have not even been taken into consideration by the CLB. These were contentious issues involving important questions of fact and law. Ajay Kapoor Group had also raised certain claims from Packit with regard to the profits, allegedly illegally made by Packit because according to the Ajay Kapoor Group the contracts between HIL and Packit were hit by the Companies Act. These issues could not have been decided without leading evidence. The counter claim of Ajay Kapoor Group could not have been summarily rejected by the CLB. We are not going into the merits of the contention of either parties but it is clear that the claims of the appellant in respect of the dues payable by Packit to HIL could not be said to be totally without any force. Since Packit was not a party to the compromise, the proper course for the CLB was to have directed the parties to raise their claims before an appropriate fora. It should not have decided these issues, that too without giving the parties any opportunity to lead evidence. 36 Issue No. 7: We have already held above that the CLB should not have dealt with the matters which were not part of the compromise. Therefore, the claim of Ajay Kapoor Group against Shri Jaiwant Bery could not have been decided by the CLB and the remedy of the appellant is to seek his relief elsewhere. Point No. 8: Admittedly, M/s Himachal Folien Ltd was not a party to the compromise and therefore we are of the considered view that the CLB rightly held that HIL was not entitled to recover the amount, if any, due to it from M/s Himachal Folien Ltd in these proceedings. We are, however, of the view that the CLB should have followed the same principal in respect of the claims of the companies of the Ved Kapoor Group against HIL also. In view of the aforesaid discussion, we dispose of the present appeals by modifying the orders of the CLB on the following issues alone:-

1. The matter is remanded to the Company Law Board to re-determine the issue whether 1579 cylinders are the property of M/s Hitkari Industries Ltd or its customers in light of what we have observed under Point 4 above. We direct the CLB to dispose of this issue within a period of three months from the date of communication of this order. Till such time as this issue is not determined, the CLB may withhold an amount equal to value of these cylinders and the rest of the amount deposited by the Ajay Kapoor Group may be paid to the Ved Kapoor Group. 37

2. We hold that neither Shri Ajay Kapoor nor Ajay Kapoor Group is liable to pay any amount whatsoever to members of Ved Kapoor Group on account of personal loans or any other advances made by them to Hitkari Potteries Ltd. and Hitkari China Ltd.

3. We, further hold that all other claims which are subject matter of points No. 6 to 9 above, should not have been decided by the CLB and the respective parties may file appropriate proceedings for recovery of their dues from each other before the appropriate fora. The appeals are disposed of in the aforesaid terms with no order as to costs. ( Deepak Gupta ), J. December 29, 2008 ™ ( V.K.Ahuja ), J.