M/S. New Era Fabrics Ltd. vs Bhanumati Keshrichand Jhaveri on 3 March, 2020


Supreme Court of India

M/S. New Era Fabrics Ltd. vs Bhanumati Keshrichand Jhaveri on 3 March, 2020

Author: 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:

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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

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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.

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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

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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.

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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

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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.

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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

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