caselaws.org
Supreme Court of India
M/S. New Era Fabrics Ltd. vs Bhanumati Keshrichand Jhaveri on 3 March, 2020Author: Mohan M. Shantanagoudar
Bench: Mohan M. Shantanagoudar, R. Subhash Reddy
NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
INTERLOCUTORY APPLICATION NO. 61907 OF 2018
IN
MISCELLANEOUS APPLICATION NO. 1301 OF 2018
IN
SPECIAL LEAVE PETITION (CIVIL) NO. 3309 OF 2018
M/s New Era Fabrics Ltd. …Petitioner
Versus
Bhanumati Keshrichand Jhaveri & Ors. …
Respondents
IN THE MATTER OF
Nikhilesh Keshrichand Jhaveri …Applicant/
Respondent No. 4
J U D G M E N T
Signature Not Verified
Digitally signed by
ARORA
MOHAN M. SHANTANAGOUDAR, J. :
GULSHAN KUMAR
Date: 2020.03.03
17:46:33 IST
Reason:
1
1. This application has been filed under Section 340 read
with Section 195(1)(b) of the Criminal Procedure Code, 1973
(‘CrPC’) seeking institution of criminal proceedings against the
Petitioner in SLP (Civil) No. 3309/2018 for giving false evidence
before this Court.
2. The facts giving rise to this application are as follows:
The Respondents/plaintiffs claim to be the lessors of suit premises
being C.S. No. 560 and 561, final Plot No. 268, T.P.S. III of Mahim
Division, Ward No. 6/North 5546 (1-1A) situated at Mogul Lane,
Tulsi Pipe Road, known as Senapati Bapat Marg, Mahim, Mumbai-
400 016. The Petitioner/defendant Company was a monthly
tenant of the suit premises. The Respondents terminated the
tenancy by notice to quit dated 11.02.2009 and subsequently
filed Suit No. 48/62/2009 before the Court of Small Causes,
Mumbai (‘Trial Court’) for possession and injunction against the
Petitioner. The Respondents averred in their suit that the
Petitioner is a public limited company having a paid-up share
2
capital of more than Rs. 1 crore; hence it would not be protected
under the Maharashtra Rent Control Act, 1999. 1
The Petitioner claimed in its written statement that as of
31.02.2007, it had a paid up share capital of Rs. 1,03,64,000;
however, by resolution dated 01.03.2007, it had reduced its share
capital to Rs. 93,74,000. Hence it raised a preliminary objection to
the jurisdiction of the Trial Court to try the suit.
2.1 Consequently, the matter was directed to be heard on
the preliminary issue of whether the Trial Court had jurisdiction to
entertain, try and decide the suit. The Respondent relied on the
income tax return filed by the Petitioner Company for the
assessment year 2008-2009 (i.e. pertaining to the financial year
2007-2008), which showed that the paid-up share capital of the
company as on the date of termination of the tenancy was Rs.
1,03,64,000. A revised return showing the share capital to be
Rs.93,74,000/- was filed only on 4.04.2009, which was
subsequent to the notice for termination of the tenancy.
1
Section 3(1)(b) of the Maharashtra Rent Control Act, 1999 provides
that the Act shall not apply to any premises let or sub-let to private limited
and public limited companies having a paid up-share capital of more than
one crore rupees.
3
2.2 Per contra, the Petitioner argued before the Trial Court
that the share capital had been reduced by way of ‘buy-back’ of
shares on 1.03.2007, and hence the paid-up share capital for the
financial year 2007-2008, ending on 31.03.2008, was Rs.
93,74,000. Mr. R.K. Agarwal, who is the Director of the Petitioner
Company, was examined as D.W. 1 in this regard. He deposed
that the Registrar of Companies had been informed of the
aforesaid reduction in share capital; that the assistant of the
Company’s internal auditing firm had inadvertently entered the
share capital of the Company as Rs. 1,03,64,000/- while preparing
the income tax return for the assessment year 2008-2009; and
upon discovery of the error, the revised return dated 4.04.2009
(supra) was filed. That the audit report and the balance sheet for
the year 2007-2008 showed that the share capital had been
reduced, and the same had been submitted to the Central Excise
and Sales Tax Departments. The audit report and the balance
sheet dated 19.9.2008, as prepared for the financial year 2007-
2008, and as produced in the evidence of D.W. 1, were marked as
Exhibits 81 and 82 respectively.
4
Additionally, D.W. 3 Mr. Gautam Nemani, who was stated to
be a shareholder of the Company, deposed that he had
surrendered 18,000 shares at the rate of Rs. 10 per share, though
he admitted that the book value of a single share was Rs. 73.46.
D.W. 5, the internal auditor of the Company deposed that the
Company had bought back 99,000 shares of face value of Rs. 10
each, and therefore the Petitioner’s share capital for the year
2007-2008 was Rs. 93,74,000/-.
D.W. 6, the statutory auditor of the Company, similarly
deposed that he had prepared the balance sheet dated
19.09.2008, for the financial year 2007-2008 (as mentioned
supra) showing the reduced share capital as Rs. 93,74,000/-. He
also certified that the figure stated in Column 12 of the balance
sheet, showing the basic and diluted earning per share
(hereinafter ‘EPS’) as Rs. 15.91 per share, was correct.
2.3 However, the Trial Court rejected the Petitioner’s
contentions, finding that there were material discrepancies in the
evidence of their witnesses, which made their case regarding
‘buy-back’ of shares improbable. That there was no record of the
5
letters dated 09.03.2007 and 25.03.2007 which the Petitioner
contended it had filed before the Registrar of Companies as
returns relating to the buy-back, and electronic return was filed
only on 05.09.2009, though filing of electronic returns has been
made mandatory from 16.09.2006 onwards. Hence the Petitioner
had not complied with the procedure for buy-back of shares as
prescribed under Sections 77A, 77B and 159 of the Companies
Act, 1956.
Importantly, it was pointed out that there was a significant
discrepancy in the audit report and the balance sheet dated
19.09.2008, inasmuch as the weighted average number of shares
for the financial year 2007-2008 in Column 12 of the balance
sheet was stated to be the same as that for the year 2006-2007,
i.e., 10,36,400, even though the share capital of the Petitioner
Company had been reduced.2 Therefore it was evident that the
revised income tax return filed by the Petitioner was a
subsequent act, post notice of termination of tenancy served by
2
The Trial Court had erroneously stated that the ‘EPS’ was 10,36,400,
perhaps because the heading of Column 12 states ‘EPS’, however the same
does not have any bearing on the merits of the case.
6
the Respondent, and that the actual paid-up share capital of the
Petitioner Company as on the date of termination of the tenancy
was Rs. 1,03,64,000/-. Hence the Trial Court would have
jurisdiction to try the Respondent’s suit.
2.4 The Trial Court’s findings were affirmed by the Court of
Small Causes (Appellate Bench). The High Court dismissed the
revisional application filed by the Petitioner. Subsequently, on
09.04.2018, a three-Judge Bench comprising one of us dismissed
SLP (Civil) No. 3309/2018 filed by the Petitioner before this Court,
out of which the present application arises. Therefore it is not
disputed that the finding on the preliminary issue of jurisdiction
has attained finality, and the trial of the suit on merits is presently
pending before the Trial Court.
2.5 However it is the case of Respondent No. 4 in the
aforesaid SLP (Civil) No. 3309/2018 (hereinafter ‘Applicant’) that
the Petitioner in the aforesaid SLP deliberately made false
interpolations in the auditor’s report and the balance sheet dated
19.9.2008, while submitting these documents before this Court.
The Applicant’s contention is that these documents have been
7
revised/interpolated for the first time in the course of the SLP
proceedings, for the purpose of misleading this Court. Hence the
present application has been moved on 24.04.2018, soon after
the dismissal of the SLP, seeking institution of criminal
proceedings against the Petitioner for the offence of perjury.
3. Learned Senior Counsel Mr. Amit Sibal, arguing on
behalf of the Applicant, submitted that the Petitioner/defendant,
in its reply to the application for interim injunction filed by the
Applicant before the Trial Court, had annexed the audited balance
sheet dated 19.09.2008 for the financial year 2007-2008 (supra).
In the version filed before the Trial Court, the paid-up share
capital of the Petitioner/defendant was shown as Rs. 1,03,64,000/-
as on 31.03.2007, and Rs. 93,74,000/- as on 31.03.2008.
Therefore as per the Petitioner’s stand, the buy-back process
was completed in April 2007. If that was the case, the number of
Weighted Average shares and the EPS for the financial year 2007-
2008 ought to have been computed accordingly. However, Mr.
Sibal pointed out that the number of Weighted Average shares in
the
8
balance sheet was stated to be 10,36,400 for both financial years
2006-2007 and 2007-2008, even though it should have changed
to 9,37,400 for the year 2007-2008. Further, the EPS was also
calculated on the basis of the original share capital of Rs.
1,03,64,000, and not the reduced share capital as claimed by the
Petitioner.
Mr. Sibal argued that it was on account of this failure to
manipulate the balance sheet that the Trial Court declined to rely
on the document, and held that the Petitioner had failed to
establish that its share capital had been reduced. Hence, in order
to overcome this omission at the stage of hearing of the SLP, the
Petitioner for the first time made a handwritten interpolation in
Column 12 of the balance sheet, by which the words ‘Weighted
Average’ were crossed out, and the document was manipulated
(by interpolation) to show that the number of equity shares ‘as on
1/4/07’ was 10,36,400.
Mr. Sibal also pointed out that there were four instances in
the Trial Court record wherein D.W. 1 Mr. R.K. Aggarwal had
referred to the original balance sheet dated 19.09.2008, which did
9
not contain any handwritten interpolation. Therefore the first time
that the Petitioner sought to place reliance on the contents of the
manipulated balance sheet was before this Court, which clearly
showed that the document was forged specifically to mislead this
Court. Had the interpolated document been authentic, the
Petitioner would have naturally placed reliance on the same
before the Courts below.
3.1 Per contra, learned senior counsel for the
Petitioner/Non-Applicant, Mr. Basava Prabhu Patil submitted that
the auditor’s report and balance sheet dated 19.09.2008 were
exhibited multiple times as part of the evidence of different
parties. In the Petitioner’s reply to the application of the
Respondent/Applicant for interim injunction, the auditor’s report
together with the balance sheet had been marked as Exhibit 13.
Mr. Patil highlighted that the advocate appearing for the
Petitioner before the trial Court had obtained a certified copy of
the aforesaid Exhibit 13. In the certified copy of Exhibit 13,
Column 12 of the balance sheet states that the ‘number of Equity
Shares as on 1/4/07’ is 10,36,400 shares. It can be seen that the
10
words ‘Weighted average’ have been crossed out, and ‘as on
1/4/07’ has been added, by hand.
Mr. Patil also placed on record a certified copy of Exhibit 82,
which is the balance sheet dated 19.9.2008, as marked in the
evidence of D.W. 1. Column 12 of the certified copy of Exhibit 82
contains the same handwritten interpolation. Therefore it was
strenuously contended that the handwritten corrections in the
balance sheet were present since the beginning of the trial. The
Applicant ought to have raised any grievance regarding forgery in
the document at the stage of trial itself. However, no cross-
examination of the Petitioner’s witnesses was conducted on this
aspect before the Trial Court, and the perjury application was
moved only after the SLP had been dismissed.
It was further contended that the Petitioner’s advocate had
not relied upon Column 12 of the balance sheet while arguing the
SLP before this Court, and as such the contents of Column 12 had
no bearing on the dismissal of the SLP. Hence it was submitted
that there was no merit in the Applicant’s contention that the
Petitioner had committed perjury.
11
4. Be that as it may, having perused the original copies of
the Trial Court record, we find prima facie merit in the Applicant’s
case that the Petitioner has committed perjury. We have
compared the original copies of the auditor’s report and the
balance sheet, as exhibited before the Trial Court, with the copies
filed before this Court in SLP (Civil) No. 3309/2018. We find that in
the Trial Court record, Column 12 of the balance sheet dated
19.09.2008, marked as Exhibit 82, has tabulated the EPS as
follows:
2007-08 2006-07
a) Net profit available for Equity 1648667 13577864
Shareholders 3
b) Weighted average number of Equity 1036400 1036400
Shares
c) Basic and Diluted earning per share 15.91 13.10
of Rs. 10 each
Whereas in the copy of the balance sheet submitted before
this Court, the words ‘Weighted average’ have been struck out,
and ‘as on 1/4/07’ has been added after ‘Equity Shares’, as shown
below:
12
2007-08 2006-07
a) Net profit available for Equity 1648667 13577864
Shareholders 3
b) Weighted average number of Equity 1036400 1036400
Shares as on 1/4/07
c) Basic and Diluted earning per share 15.91 13.10
of Rs. 10 each
(emphasis supplied)
4.1 We further find that wherever the auditor’s report and
the balance sheet have been marked as evidence before the trial
Court, no such handwritten interpolation is present. Exhibit 13,
which is the Petitioner’s reply to the application for interim
injunction, Exhibit 92, which is the audited copy of the balance
sheet as filed with the Superintendent of Central Excise, and
Exhibit 93, which is the audited copy of the balance sheet as filed
with the Assistant Commissioner of Sales Tax, do not contain the
handwritten modifications as present in the documents filed
before this Court. Hence we find no merit in the Petitioner’s
submission that the handwritten interpolations were present right
from the stage when the documents were exhibited before the
Trial Court, and the certified copies produced by it in this regard
13
are patently unreliable. It is apparent from a comparison with the
original copies in the Trial Court record that the handwritten
modifications to Column 12 appear for the first time in the
documents filed before this Court.
5. We find it useful to briefly delve into the terms
‘Weighted Average’ and ‘EPS’ for understanding why the
aforesaid interpolation in the balance sheet, is a significant
deviation from the original document submitted before the Trial
Court. ‘EPS’ is used as a common tool for gauging the profitability
of a company. It indicates the benefit reaped per individual
shareholding of a company. The auditor’s report provides the
formula for calculating EPS as follows:
Basic and diluted earnings per share=Net
Profit for the Financial Year/Weighted
Average Number of Shares
The term ‘Weighted Average’ of shares in commercial
parlance refers to the number of shares in a company calculated
after adjusting for any change in shareholding over a given
financial reporting period. This is as opposed to the ‘outstanding’
14
number of shares, which merely shows the number of shares as
existing with a company on a given date. Therefore, if the
company has increased its share capital by purchasing new
shares, or reduced its share capital through buy-back or other
means, the ‘Weighted Average’ would change accordingly.
5.1 As mentioned supra, it was noticed by the Trial Court
that even though Column 7 of the balance sheet dated
19.09.2008 stated that the Petitioner Company had bought back
99,000 equity shares in the financial year 2007-2008, Column 12
showed that the ‘Weighted Average’ number of shares continued
to be the same, i.e., 10,36,400, for the financial years 2006-2007
and 2007-2008. Hence the Trial Court found that the auditor’s
report was unreliable as evidence to conclude that the Petitioner
Company had reduced its share capital.
It can be further noticed, as pointed out by the learned
senior counsel for the Applicant, that if the EPS had been
calculated on the basis of the reduced share capital, i.e. 9,37,400
shares it would have been 17.59. However, the EPS has been
calculated as 15.91 on the basis of the same Weighted Average
15
number of shares as was held in the Petitioner Company in 2006-
2007, i.e. 10,36,400 shares.
5.2 It is pertinent to note that the Petitioner, for the first
time in the SLP, raised a ground that since the buy-back process
was not complete as on 01.04.2007, the EPS as shown in Column
12 of the auditor’s report was calculated on basis of the original
share capital of Rs 1,03,64,000/-. Therefore it appears that the
Petitioner, in order to overcome the discrepancy between Column
7 and Column 12 of the Auditor’s Report at the stage of SLP
proceedings before this Court, changed the words ‘Weighted
average number of Equity Shares’ to ‘number of Equity Shares as
on 1/4/07’ by hand. This would indicate that the number of
outstanding equity shares held in the Petitioner Company
continued to be the same as of 1.04.2007, and the revised
‘Weighted Average’ and EPS were not calculated as the buy-back
process had not yet been completed by that date.
5.3 We do not wish to comment in detail upon the intention
behind making the aforesaid interpolations. At this juncture, all
that is required to be assessed is whether a prima facie case is
16
made out that there is a reasonable likelihood that the offence
specified in Section 340 read with Section 195(1)(b) of the CrPC
has been committed, and it is expedient in the interest of justice
to take action. From the above discussion, it is evident that the
handwritten modification made by the Petitioner in Column 12 of
the balance sheet dated 19.09.2008 is a significant alteration
from the terms as used in the original document. Hence we find
that a prima facie case is made out that the Petitioner has
fabricated evidence for the purpose of the SLP proceedings before
this Court.
We further find that prima facie case is also made out
against Mr. R.K. Agarwal, for having sworn in his affidavit before
this Court as to the veracity of the facts stated and documents
filed in SLP (Civil) No. 3309/2018, even though he had relied upon
the original auditor’s report, which did not contain any
handwritten interpolation, in his evidence before the Trial Court.
6. In similar circumstances, a three-Judge Bench of this
Court in In Re: Suo Motu Proceedings against R. Karuppan,
Advocate, (2001) 5 SCC 289 had authorized the Registrar
17
General of this Court to depute an officer to file a complaint for
perjury against the respondent therein. Accordingly, we direct the
Secretary General of this Court to depute an officer of the rank of
Deputy Registrar or above of the Court to file a complaint under
Sections 193 and 199 of the Indian Penal Code, 1872 against the
Petitioner Company in SLP (Civil) No. 3309/2018 and Mr. R.K.
Agarwal, before a Magistrate of competent jurisdiction at Delhi.
The officer so deputed is directed to file the aforesaid complaints
and ensure that requisite action is taken for prosecuting the
complaints.
7. Thus, the present application is allowed in the above
terms.
……………………………………………J.
[MOHAN M. SHANTANAGOUDAR]
……………………………………………J.
[R. SUBHASH REDDY]
NEW DELHI;
MARCH 03, 2020
18
Comments