MS Durga Builders Private Limited V. Mr. Ajay Relan & Ors.

FAO(OS)/52/2025

AI Insights

The case revolves around a dispute concerning a compromise decree related to the property transaction involving DBPL and Mr. Ajay Relan. Initially, DBPL, under the management of Mr. R.K. Nanda, entered into a compromise with Mr. Relan, which was later contested by DBPL's new management under Mr. Divij Mehra, claiming lack of authority and fraud. The High Court of Delhi examined the validity of the compromise decree and the authority of Mr. Nanda, ultimately dismissing the appeal and upholding the decree.

• Counselvise Citation: [] 140 COUNSELVISE.COM (IT) 825907 (HC-DELHI)
• Appeal Type: Others
• Pronouncement Date: 23-12-2025
• Assessment Year: misc
• Other Referred Cases: HDFC Bank Limited v. State of Bihar & Ors., Sunil Bharti Mittal v. Central Bureau of Investigation, Iridium India Telecom Limited v. Motorola Incorporated & Ors, Life Insurance Corporation of India v. Escorts Ltd., Arun Mehra & Anr. v. Durga Builders P. Ltd., Durga Builders Pvt. Ltd. & Ors. v. Ajay Relan & Ors.
• Laws Referred To: Code of Civil Procedure, 1908, Indian Evidence Act, 1873, Companies Act, 1956, Transfer of Property Act, 1882
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: SUDHIR MAKKAR
• Assessee Lawyers: AMIT RAWAL; SATVIK VERMA
• Keywords: Authority; Collusion; Compromise Decree; Execution Proceedings; Fraud; Management Control
• Section: 32; 125; 23; 58; 59

Judgement Text

" FAO(OS) 52/2025 Page 1 of 27 $~ * IN THE HIGH COURT OF DELHI AT NEW DELHI % Judgment reserved on: 08.12.2025 Judgment pronounced on: 23.12.2025 Judgment uploaded on: 23.12.2025 + FAO(OS) 52/2025, CM APPL. 26431/2025, CM APPL. 67489/2025, CM APPL. 67531/2025 & CM APPL. 73300/2025 MS DURGA BUILDERS PRIVATE LIMITED .....Appellant Through: Mr. Amit Rawal and Mr. Satvik Verma, Senior Advocates along with Mr. Mohit K. Mudgal, Mr. Shantanu Parmar, Ms. Rishika, Ms. Harshita Verma and Ms. Anushree Sudan, Advocates. versus MR AJAY RELAN & ORS. .....Respondents Through: Mr. Sudhir Makkar, Senior Advocate with Mr. Mayank Tripathi, Mr. Ashish Hira, Ms. Saumya Gupta and Ms. Rhea Jain, Advocates for Respondent No. 1. CORAM: HON'BLE MR. JUSTICE ANIL KSHETARPAL HON'BLE MR. JUSTICE HARISH VAIDYANATHAN SHANKAR J U D G M E N T ANIL KSHETARPAL, J 1. The present Appeal has been instituted assailing the order passed on 17.03.2025 by the learned Single Judge [hereinafter referred to as „LSJ‟], whereby the application moved by the Appellant Company [Applicant/Defendant before the LSJ] seeking setting-aside Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 2 of 27 of the compromise decree dated 28.03.2003, came to be dismissed. The said compromise decree formed the very basis on which CS (OS) 749/1994 was decreed as settled. 2. At the outset, it is necessary to note that the Appellant Company, MS Durga Builders Private Limited [hereinafter referred to as „DBPL‟], is presently being represented through its director, Mr. Divij Mehra. At the time when the underlying civil suit was pending adjudication before the LSJ, DBPL was represented through a different Managing Director, namely, Mr. Ravinder Kumar Nanda, who was shown as being in charge of, and responsible for, the conduct of the affairs of DBPL. 3. Pithily put, the present appeal arises from a long and complex chain of transactions and litigations concerning DBPL, the possession of first floor of property admeasuring 800 sq. yds. bearing no. S-23, Panchsheel Park, New Delhi [hereinafter referred to as „suit property‟] and the validity of the compromise decree dated 28.03.2003 [hereinafter referred to as „compromise decree‟] granted qua the entire suit property as also its subsequent execution. 4. The case of DBPL through Mr. Divij Mehra, in essence, is that as on 28.03.2003, Mr. R.K. Nanda, was neither the Managing Director nor otherwise duly authorized to enter into any compromise, settlement, or binding arrangement on behalf of the company in relation to the said civil suit. On the aforesaid premise, it is the case of DBPL that the compromise deed as well as the decree founded thereon are non est in the eyes of law. It was on this premise that DBPL moved an application before the LSJ seeking, inter alia, the Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 3 of 27 setting aside of the compromise decree and recall or annulment of the compromise decree passed in the civil suit. A. FACTUAL BACKGROUND: 5. The dispute before this Court concerns the suit property, which was originally owned by K.D. Somaia (HUF). The suit property was initially agreed to be sold to DBPL in 1992. Thereafter, under a tripartite agreement dated 30.04.1993, DBPL, acting through its then management headed by Mr. R.K. Nanda, agreed to sell the suit property to Mr. Ajay Relan. Whereafter, Mr. Relan, instituted CS (OS) 749 of 1994 seeking specific performance of the said agreement, wherein an interim injunction was granted restraining alienation of the first floor of the suit property. Eventually, on 20.11.2002, a compromise was recorded between the parties, culminating in a compromise decree. Under this decree, DBPL was obliged to hand over vacant and peaceful possession of the first floor, along with the title documents, to Mr. Relan upon receipt of the balance sale consideration. 6. When the decree was not complied with, Mr. Relan instituted an Execution Petition No. 321 of 2003 captioned Ajay Relan v. Pranay Somaia & Ors. and CE Construction Limited, wherein it emerged from the Local Commissioner‟s report that the first floor was in the possession of CE Construction Ltd. [hereinafter referred to as „CECON‟], managed by Mr. Arun Mehra (Father of Mr. Divij Mehra) which entered the fray as an obstructionist claiming rights through alleged financial arrangements and deposit of title deeds. Issues were framed on whether the obstructionist had acquired any right or interest Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 4 of 27 in the suit property and whether the decree was obtained by collusion or fraud. 7. CECON set up claims over the suit property traceable to (i) an alleged Shareholder Purchase Agreement dated 1997 [hereinafter referred to as „SPA‟], under which the shareholding and control of DBPL were stated to have passed to the present „Mehra management‟, and (ii) certain financial accommodations purportedly secured on the said property. Objections were filed in the execution by CECON. 8. By a detailed order passed on 04.01.2008, the objections filed by Mr. Mehra was dismissed and it was held that CECON failed to prove any enforceable right or interest in the suit property; its pleas of mortgage/security were found vague and unsupported by books of account, balance sheets or registered charge, and the alleged transaction was held unenforceable in law. It was further held that even assuming CECON came into possession at some stage, it derived its claim entirely from DBPL. The execution proceedings were not the forum to settle inter se disputes between CECON and DBPL. The allegation that the decree was collusive or vitiated by fraud was expressly rejected; the Court found no collusion or fraud and directed CECON to hand over possession within 30 days. 9. Additionally, CECON also instituted a separate civil suit seeking a decree of declaration that the compromise decree is null and void, however, the said suit was rejected by the Court under Order 7 Rule 11 of the Code of Civil Procedure, 1908 [hereinafter referred to as „CPC‟]. Aggrieved by the said dismissal CECON filed an appeal, however the same was also dismissed. Parallel challenges carried by Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 5 of 27 CECON up to the Supreme Court against the compromise decree as well as the execution orders met the same fate, being dismissed or withdrawn, with liberty granted only to pursue such objections as might be available in the execution proceedings. 10. Subsequently, by order dated 25.11.2021 in EFA (OS) 5 of 2008 captioned CE Construction Ltd v Ajay Relan & Ors., the Division Bench of this Court, while dealing with an appeal filed by DBPL under the Mehra management against the dismissal of CECON‟s objections in Ex. P. No. 321 of 2003, closed the said appeal and observed that all issues relating to alleged fraud and lack of authority could appropriately be agitated in an application seeking recall of the compromise decree in the original suit. Pursuant thereto, DBPL, now under the management of Mr. Mehra, filed IA No.20535 of 2014 in CS (OS) No.749 of 1994 praying for recall and setting aside of the compromise dated 20.11.2002 forming into a compromise decree on the grounds of alleged fraud, collusion, and want of authority on behalf of Mr. Nanda to represent and bind DBPL. 11. The LSJ, vide its order dated 17.03.2025, having first condoned the delay in filing the said application, examined the objections on merits and rejected them. It was held that the statutory records reflected that the Nanda group continued to be the only shareholders in control of DBPL at the material time when the compromise was entered into; that the compromise decree merely effectuated a subsisting contractual obligation undertaken by DBPL; and that no case of fraud on the Court had been established. Consequently, the application for recall of the compromise decree, along with connected applications, was dismissed. Hence, the present appeal. Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 6 of 27 12. This Court has heard learned counsels representing the parties at length and, with their able assistance, has perused the paper book as well as the trial court record. 13. Learned senior counsel for the parties have filed their respective written submissions. The contentions of the parties are examined hereinafter. B. CONTENTIONS ON BEHALF OF DBPL (APPELLANT) 14. Learned senior counsel for DBPL, while impugning the findings of the LSJ, have made the following submissions- 14.1 The case set out by DBPL rests principally on the twin foundations of (a) lack of authority of Mr. Nanda to bind DBPL at the relevant time, and (b) fraud vitiating the compromise and consequent decree. 14.2 With respect to the validity of compromise decree, it is contended that the said decree was not executed by or on behalf of the LRs of late Mr. K.D. Somaia, and therefore, could not have effectively conveyed or compromised their rights in the suit property. It is his case that in fact, by virtue of SPA, the Nanda group had already divested themselves of 100% of the equity in DBPL in favour of the Mehra family and had resigned from the Board of Directors, thereby ceasing to have any authority in law to represent DBPL or alienate its assets in 2002-03. On this premise, the execution of the compromise by Mr. Nanda is alleged to be wholly without authority, and any alienation of corporate assets pursuant thereto is asserted to be void Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 7 of 27 and incapable of sustaining a decree under Order XXIII Rule 3 of the CPC. 14.3 In relation to the consideration of Rs. 1.80 crores, against which the compromise is stated to have been entered into, learned senior counsel submits that the payment of Rs. 10 lakhs were shown as having been made to „Manjit Kumar‟ under the name of an entity styled as „Kumar Security Syndicate‟. It is alleged that this entity was a fictitious or sham concern, created for the sole purpose of siphoning away the assets of DBPL, which fact is stated to have emerged during a police investigation. It is further pointed out that the said entity ultimately came to be struck off/found non-existent (as alleged), thereby reinforcing the contention that the compromise arrangement was merely a device to divert corporate assets under the guise of settlement. 14.4 It is further argued that the order dated 20.11.2002 records that a sum of Rs. 10 lakhs were paid to Manjit Kaur and that an amount of Rs. 1.70 crores were paid to DBPL. However, there is no material on record indicating the particulars of the bank, the instrument or the channel through which the alleged remittances were made, nor has any bank statement been produced to substantiate the factum of such payments. 14.5 On the aforesaid premise, it has been argued that the LSJ proceeded, on an ipse dixit assumption, to treat the alleged consideration of Rs. 1.80 crores as having been duly paid, in the absence of documentary proof and contrary to the adverse inference that ought to have been drawn under section 114(g) of the Indian Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 8 of 27 Evidence Act, 1873 from the non-production and disappearance of the pay orders. 14.6 Assailing the findings of the LSJ in relation to the dismissal of the application seeking recall of the compromise decree, while dealing with the question of corporate control, it is contended by the learned senior counsel that the records of the Registrar of Companies (ROC) pertaining to DBPL were, in fact, amended and updated by Mr. Nanda in the year 2000 to reflect the change in management in favour of Mr. Mehra and his group. On this premise, it is argued that the LSJ fell into error in holding that the ROC records were never updated in favour of the Mehra management and, consequently, erred in concluding that control of DBPL continued to vest exclusively with the Nanda group at the relevant time. 14.7 On these premises, DBPL contends that the compromise decree cannot be said to be “lawful” within the meaning of Order XXIII Rule 3 of the CPC, as the underlying agreement is vitiated by fraud, misrepresentation and want of authority, thereby attracting sections 17, 18 and 19 of the Indian Contract Ac, 1872. It is submitted that the LSJ, instead of confining itself to whether a prima facie case of fraud on the Court and absence of authority was made out, effectively conducted a “mini trial” on disputed questions of fact, yet paradoxically ignored critical documentary and investigative material, including the police report and ROC records, which militated against the validity of the compromise. C. CONTENTIONS ON BEHALF OF MR. AJAY RELAN (RESPONDENT) Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 9 of 27 15. Per contra, learned senior counsel for Mr. Relan, while supporting the reasoning adopted by the LSJ, has made the following submissions: 15.1 At the outset it is argued that no ground has been made out for interference with the finding that Mr. Nanda was competent to represent DBPL at the time compromise was entered into, and that no fraud on the Court has been established. 15.2 Reference has been made to the statutory records of DBPL, to argue that the Annual Returns in Form 20B for the financial years 2003-04 and 2004-05, unequivocally record that the Nanda family continued to be in management and control of DBPL well beyond the alleged date of transfer of shares through SPA. Additionally, it is contended that these returns, corresponding to the Annual General Meetings (AGMs) held on 27.10.2004 and 26.09.2005, were duly signed by Mr. R.K. Nanda and Ms. Promila Nanda and list them as the only shareholders, holding 14,500 and 14,000 shares respectively. As such the public documents forming part of the ROC record, thereby demonstrate that the Nanda family retained full ownership and statutory authority over DBPL during the relevant period and negate the plea that the Nandas had divested themselves of control in 1997. 15.3 Further reliance has been placed on the chequered history of company law proceedings between the Mehra and Nanda groups. It is pointed out that, although the SPA was relied upon by Mr. Arun Mehra to claim purchase of 100% equity in DBPL, neither control of the company nor the necessary statutory formalities were ever undertaken in pursuance of that agreement. In particular, a reliance Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 10 of 27 has been placed on Co. A (SB) No. 07/2006 captioned Arun Mehra & Anr. v. Durga Builders P. Ltd., whereby this Court, while dismissing the said appeal by a reasoned order dated 30.10.2006, observed that the SPA had admittedly not been given effect to in relation to DBPL‟s affairs and that Mr. Mehra had failed to offer any cogent explanation as to why, despite claiming to have purchased the entire shareholding, he took no steps for years to file Form 32 or otherwise assume management as a 100% shareholder. 15.4 Relying on the aforesaid order, it has been argued that the order also recorded that Mr. Mehra did not resort to either of the obvious courses open to him, namely, filing Form 32 to reflect changes in directorship or taking over control of DBPL‟s management, thereby raising a presumption that the SPA was intended merely as a security arrangement to safeguard the Mehras‟ advances in two ongoing projects of the company, rather than as an immediately operative transfer of management. It was in the said background that it was held that, even after endorsement of the share certificates in favour of the Mehras, their conduct in not taking control indicated an intention to retain a lien over the shares as security, and not to displace the Nandas from management. 15.5 Learned senior counsel has also relied on the subsequent proceedings in SLP (C) No. 20293/2006 captioned Arun Mehra & Anr v Durga Builders Pvt. Ltd. & Ors., filed by Mr. Mehra assailing the dismissal of company appeal, wherein the Supreme Court, by order dated 15.10.2012, recorded the query made to the counsel representing Mr. Mehra, whether his client was prepared to take over DBPL along with all its liabilities as on that date. In response to Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 11 of 27 which, the counsel made a submission that Mr. Mehra is willing to take over the company only after being apprised of the actual liabilities. Against this backdrop, it has been argued that absence of any firm stand taken by Mr. Mehra, coupled with continuing disinclination to assume responsibility for DBPL‟s management and lack of knowledge of the company‟s affairs, reinforces the inference that the Nanda group remained in de facto and de jure control during the relevant period. 15.6 On the aforesaid premise, it has been contended that the LSJ was correct in holding that, at the time of the compromise in 2002-03, the statutory and factual position was that the Nandas‟ continued as the only shareholders and were in control of DBPL; accordingly, Mr. Nanda was fully competent to enter into the compromise and bind the company. The belated attempt by the Mehra management, which only acquired limited locus post the Company Law Board‟s order in 2014, to reopen and impeach a long-standing compromise decree on the basis of alleged fraud, is argued to be an afterthought inconsistent with the public statutory record and the findings in the earlier company law proceedings. D. ANALYSIS & FINDINGS: 16. Having heard the rival submissions advanced by the learned senior counsel for the parties and upon perusal of record, we are limiting out consideration in this matter solely to three issues. We intend to answer the controversy in three parts, carefully delineating the following issues: Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 12 of 27 I. Whether the SPA resulted in transfer of management or control of DBPL to the Mehra group; accordingly Mr. Nanda lacked authority to enter into the compromise on behalf of DBPL; II. Whether the compromise decree dated 28.03.2003 is vitiated by fraud so as to warrant recall under Order XXIII Rule 3 of the CPC; III. Whether the application seeking recall was barred by delay, limitation, acquiescence. I. WHETHER THE SPA RESULTED IN TRANSFER OF MANAGEMENT OR CONTROL OF DBPL TO THE MEHRA GROUP; ACCORDINGLY, MR. NANDA LACKED AUTHORITY TO ENTER INTO THE COMPROMISE ON BEHALF OF DBPL? 17. The principal foundation of challenge by DBPL lies in the SPA, under which the Mehra group claims to have acquired 100% equity in DBPL. It is their case that by virtue of the said agreement and alleged endorsements on share certificates, the Nanda family has divested themselves of all ownership and authority in DBPL with effect from 1997 and as such could not have entered into the compromise which was later effectuated via a decree. 18. This Court, however, does not find itself in agreement with said contention raised for the reason that it is trite law that execution of a SPA does not, by itself, effectuate transfer of corporate control unless followed by statutory compliance and assumption of management. In this regard, it also becomes relevant to highlight that control of a company is not merely a matter of rights claimed through an execution of a SPA as provided on paper, rather it is derived from the Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 13 of 27 actual acquisition and exercise of the person claiming to have control over the relevant company. The aforesaid also aligns with the broader principle, that the acts and intent of those who in fact and in law manage the company, its „alter ego‟, are attributable to it, and not those who merely assert a contractual claim without assuming management or complying with statutory formalities. Reliance in this regard maybe placed on law laid down by the Supreme Court in HDFC Bank Limited v. State of Bihar & Ors.1; Sunil Bharti Mittal v. Central Bureau of Investigation2; and Iridium India Telecom Limited v. Motorola Incorporated & Ors3. While the aforesaid judgment primarily concerns criminal liability of a company, the principle delineated therein that the acts of those who are, in law and in fact, the “controlling mind and will” of the company bind it, is equally relevant in the present case. 19. It is no longer res integra that a SPA is merely a first step in a larger corporate process, emphasising the need for proper registration and compliance before the transferee can insist on recognition as member and controller of the company. Until the transfer is perfected in accordance with the Companies Act, including compliance with statutory formalities and recognition by the company, the transferee cannot insist upon being treated as a member, much less as a person in management or control of the company. 1 (2024) SCC OnLine SC 2995 2 (2015) 4 SCC 609 3 (2011) 1 SCC 74 Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 14 of 27 20. Reliance in this regard, may be placed on the judgment of Supreme Court in Life Insurance Corporation of India v. Escorts Ltd.4, wherein the following observation was made- “100. Thus, we see that every shareholder of a company has the right, subject to statutorily prescribed procedural and numerical requirements, to call an extraordinary general meeting in accordance with the provisions of the Companies Act. He cannot be restrained from calling a meeting and he is not bound to disclose the reasons for the resolutions proposed to be moved at the meeting. Nor are the reasons for the resolutions subject to judicial review. It is true that under Section 173(2) of the Companies Act, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each item of business to be transacted at the meeting including, in particular, the nature of the concern or the interest, if any, therein of every director, the managing agent if any, the secretaries and treasurers, if any, and the manager, if any. This is a duty cast on the management to disclose, in an explanatory note, all material facts relating to the resolution coming up before the general meeting to enable the shareholders to form a judgment on the business before them. It does not require the shareholders calling a meeting to disclose the reasons for the resolutions which they propose to move at the meeting. The Life Insurance Corporation of India, as a shareholder of Escorts Ltd., has the same right as every shareholder to call an extraordinary general meeting of the company for the purpose of moving a resolution to remove some Directors and appoint others in their place. The Life Insurance Corporation of India cannot be restrained from doing so nor is it bound to disclose its reasons for moving the resolutions.” 21. Applying the aforesaid settled principles to the present case, the complete abstinence of Mr. Mehra from invoking his statutory rights as an alleged controlling shareholder, including the failure to call a general meeting, remove the existing management, or assume charge of the company‟s affairs, leads to an inescapable inference that the SPA was never intended to, nor did it in fact, result in a transfer of management or control. The continued functioning of DBPL through Mr. Nanda, without contemporaneous challenge, thus stands fully legitimised in law leading to an inference that the Nandas 4 (1986) 1 SCC 264 Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 15 of 27 were the „alter ego‟ and lawful controller at the time of compromise and Mr. Mehra, who never took formal or practical control, cannot retroactively deny their authority. 22. In the present case, even assuming arguendo that Mr. Mehra had acquired the shareholding of DBPL under the SPA, it is of considerable significance that no steps were taken by him to exercise the rights statutorily available to a shareholder claiming control. If, as alleged, Mr. Mehra stood in the position of a Managing Director or controlling shareholder, he was well within his legal rights to convene a general meeting, including an extraordinary general meeting (EGM), for the purpose of removing Mr. Nanda and reconstituting the Board of Directors. The failure to take recourse to such remedies militates strongly against the plea that control had, in fact or in law, passed to the Mehra group. 23. Additionally, it may also be noted that the stand taken by Mr. Mehra, with respect to the SPA also stands vitiated in view of the earlier adjudications. This Court in Co. A. (SB) 07/2006, after examining the SPA, recorded that the said agreement had admittedly not been given effect to in relation to DBPL‟s affairs; no Form 32 was filed to reflect change of directorship; no steps were taken to assume de facto control. Mr. Mehra, despite claiming to have purchased the entire shareholding of DBPL, has failed to offer any satisfactory explanation for remaining passive for all these years. 24. Further, reliance may also be placed on the order dated 15.10.2012 in SLP (C) No. 20293/2006, the relevant paragraph is reproduced below: Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 16 of 27 “During the course of arguments, we enquired from learned counsel for the petitioners whether his clients are willing to take over the company along with all its liabilities as on date. Learned counsel for the petitioners submitted that if his clients are made aware of the actual liabilities then they may think of taking over the company.” It is a recorded position that Mr. Mehra showed his reluctance to take over DBPL along with all its then liabilities, thereby highlighting his resistance to step into the role of management. 25. Additionally, the ROC records, in particular the Annual Returns in Form 20B for financial year 2003-04 and 2004-05, corresponding to AGMs held on 27.10.2004 and 26.09.2005, continue to show that Mr. R.K. Nanda and Ms. Promila Nanda as the only shareholders, holding 14,500 and 14,000 shares, respectively. 26. Therefore, the LSJ has rightly treated the aforestated statutory and judicial material as determinative of corporate authority. As the impugned judgment notes, had Mr. Nanda not continued to work and act on behalf of the DBPL, “there would have been a vacuum and the entire business would have collapsed”; hence the acts of Mr. Nanda, who alone was recognised in the statutory record as controlling DBPL, cannot be characterised as beyond authority. This reasoning accords with the general company-law principle, as elaborated in the preceeding paragraph, that the “alter ego” of a company, those in actual and legal control, bind it, and that purchasers of shares who neither perfected their title through statutory filings nor assumed management cannot displace the acts of the existing board through a purely private arrangement. 27. At this stage, it also becomes pertinent to note that, evidently, the Mehras, acting interchangeably under the guise of either CECON Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 17 of 27 or DBPL, have deliberately succeeded in delaying the execution of the decree. Had the alleged SPA been genuine and acted upon in its true spirit, the Mehras would have forthwith assumed the management and control of DBPL, particularly since CECON itself, was under the management and control of Mr. Mehra. 28. In such a scenario, all statutory filings, either under the Companies Act or the Income-tax Act, 1961, would necessarily have borne the signatures and authorisation of the Mehras, and not those of the Nandas. The continued execution of statutory and regulatory compliances by Nandas clearly belies the claim of any genuine transfer of control. Upon piercing the corporate veil of both CECON and DBPL, it becomes manifest that the Mehras are the real persons in control, operating behind the façade of separate corporate entities, with the sole objective of frustrating and delaying the lawful execution of the decree. 29. In light of these factors, the plea that Mr. Nanda lacked authority to act on behalf of DBPL in 2002-03 and that the compromise was entered into without corporate authority is unsustainable. II. WHETHER THE COMPROMISE DECREE DATED 28.03.2003 IS VITIATED BY FRAUD SO AS TO WARRANT RECALL UNDER ORDER XXIII RULE 3 CPC? 30. The case set out by DBPL before this Court, with respect to the compromise decree being fraudulent, finds its origin in two distinct arguments, firstly, that by virtue of the SPA, the Nandas had no authority to act on behalf of DBPL and secondly, that the consideration of Rs. 1.80 crores recorded in the compromise decree Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 18 of 27 was never paid, with a special focus on the payment of Rs. 10 lakhs to “Kumar Security Syndicate”. 31. As far as the authority vested in Mr. Nanda is concerned, the same has been dealt in detail by this Court in the preceding paragraph nos.18 to 26 of this judgment. However, with respect to consideration, the compromise order and decree record that a sum of Rs. 10 lakhs was paid by pay order in favour of Mr. Manjit Kaur, Kumar Security Syndicate and Rs. 1.70 crores to DBPL, aggregating to Rs. 1.80 crores as the balance consideration. In this regard, it is relevant to note that the LSJ in the impugned judgment has highlighted that the payment was duly reflected as having been credited to DBPL‟s account. Notably, no contemporaneous challenge was raised by the company itself or by any alleged “new management” at the relevant time. 32. In so far as the reliance placed by learned senior counsel on the subsequent police status report filed suggesting that only Rs. 10 lakhs were in fact paid is concerned, it may be noted that such report cannot retroactively convert a judicially accepted compromise into a fraudulent device in the absence of clear, independent evidence that the Court was misled at the time of recording the compromise. To put it differently, the report, being a product of police investigation, cannot, by itself, displace a judicially recorded compromise or the specific findings in Ex. P. No. 321/2003 that no fraud or collusion was established. The earlier execution judgment, after full evidence, rejected CECON‟s plea that the decree was collusive or fraudulent; that adjudication, never set Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 19 of 27 aside, is a significant factor which the LSJ was entitled to treat as weighing against the allegation of fraud. 33. With respect to Rs.10 lakhs paid to Kumar Security Syndicate, the LSJ has accepted the explanation that this amount represented professional fee payable to counsel engaged in effecting the compromise and that the routing of payment through that entity, even if unusual, does not, by itself, render the entire compromise unlawful, particularly where DBPL‟s own entitlement under the contract and decree stands satisfied. It was also noted that the subsequent winding-up or striking-off of that entity, and a later civil suit by the concerned lawyer disowning the firm, cannot, without more, demonstrate that the Court was misled at the time of recording the compromise. 34. Therefore, the LSJ has, rightly in terms, concluded that “no fraud is borne out from the record, and the compromise decree is valid”. Having regard to the high threshold for establishing fraud on the Court, requiring clear, cogent and specific proof that the Court‟s process was abused by suppression or misrepresentation, it is not possible to characterise this conclusion as perverse or unsupported by the material. The submissions made by DBPL, essentially invite this Court to re-appreciate facts already weighed in execution and in the recall order. Such exercise is impermissible in the present appellate jurisdiction, particularly where the LSJ has scrupulously applied the law on fraud, including the very Supreme Court authorities on which DBPL relies. Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 20 of 27 35. It also becomes relevant to note that the issues of fraud and collusion and the role of CECON were raised and adjudicated in Ex. P. No. 321/2003, the relevant paragraphs of the LSJ in order dated 04.01.2008 are reproduced hereinbelow- “30. The aforesaid submissions advanced by learned counsels for the parties, in my considered view, had to be considered within the parameters of the present proceedings. The present proceedings are not one of a trial between the claim of title of the obstructionist and that of judgement debtors 5 to 7. The decree has been passed in favour of the decree holder and against judgement debtors 5 to 7. It is not in dispute that the obstructionist stake its claim only from judgement debtors 5 to 7. Thus, the onus was put on the obstructionist to show that they had any right in the suit property. 31. I am thus unable to accept the plea of the learned counsel for the obstructionist that the testimony of the decree holder has to be looked at with any greater degree of scrutiny than for the said purpose. It is not for the decree holder to answer queries in respect of transactions alleged between judgement debtors 5 to 7 and the obstructionist. The decree holder would have no knowledge of such transactions. It is the obstructionist who was claiming right to occupy the property and for that had to establish that some interest had been acquired in the suit property. 32. The obstructionist other than claiming possession of the original documents has not been able to substantiate any of its pleas and thus has miserably failed to discharge the onus. The transaction thus pleaded by the obstructionist is vague. No exact amount has been stated in the testimony of the witness. The amount is stated to be at the relevant stage varying between Rs.2.00 to 3.00 crore. There is no document evidencing such dues owned from M/s. Durga Builders to the obstructionist. 33. Learned counsel for the decree holder was rightly able to point out that none of the balance sheets reflected such amount as due and owning. The plea of the obstructionist that the accounts were being maintained on cash basis is contrary to the legal requirement as stipulated under Section 209 of the Companies Act whereby the making of a balance sheet on accrual basis was made mandatory from 1988. Not only that at least for the relevant financial year 1992-93 there would have been a reflection of the dues payable. The obstructionist failed to produce either the books of accounts or the balance sheet. It is the decree holder who produced the certified copies of the balance sheets obtained from the Office of the Registrar of Companies to establish that the dues were not reflected in the same. Other than the oral statement the obstructionist has not produced even any books of accounts to establish that amount. There is also no Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 21 of 27 compliance of the mandatory requirement of Section 125 of the Companies Act of the charge on the assets of the company to be compulsory created with the Registrar of Companies failing which it would not be enforceable. The charge was never created by M/s. Durga Builders nor was it insisted upon to be so done by the obstructionist. Thus the very sub-stratum of the claim is absent. 34. The second important aspect is that on the one hand it is pleaded that the transaction was in the nature of a security of immovable property and on the other hand in the oral submission the learned senior counsel for the obstructionist has sought to emphasise some sharing arrangement. There is no such sharing arrangement placed on record. If the property was taken as a security there was a mandatory requirement under the Companies Act to file relevant documents in that behalf which have undisputedly not been filed. The claim of the obstructionist not being borne out from either any account books (not produced) or the balance sheets (filed by the decree holder), it would not be really open even for the obstructionist to plead a case contrary to the same in view of the observations in Liberty Sales Services case (supra). I am also unable to accept the plea of the learned counsel for the obstructionist that there are any attending circumstances or conduct of parties in the absence of written documents, which would give rise to a conclusion that the terms & conditions alleged by the obstructionist were so arrived at. 35. The other aspect which stands as a wall in the way of the obstructionist is that even assuming that there was such transaction the legal requirements for the same in respect of the requirement of a registered mortgage has not been fulfilled. This is apparent from the reading of Sections 58 & 59 of the TP Act. The only escape route for the obstructionist was to have established that it was an equitable mortgage by deposit of title documents not requiring such registration. However, in that eventuality the requirement in writing is necessary to show such deposit of title documents, which is absent. The witness of the obstructionist stated that there was such writing but no such writing has ever been produced. The obstructionist actually was required to file appropriate proceedings for recovery of the amount and for foreclosure of the mortgage, in case such a mortgage had been created. The obstructionist failed to take steps within the prescribed period of time to enforce the payment of money. The obstructionist cannot exercise its right in this indirect fashion in view of the observations in Ramesh Kumar & Ors. case (supra). Thus, on this account also the obstructionist has failed to establish the nature of transaction. 36. The obstructionist has really not been able to establish the date from which they came into possession because there is no writing and evidence for the same. The Local Commissioner who went to visit the premises during the pendency of the suit found no such possession. No doubt the visit of the Local Commissioner is stated to be not for Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 22 of 27 verifying possession but on his visit the status of possession has been put in the report. There were no boards or any other material to show such user by the obstructionist. It is the own case of the obstructionist that after the initial use, the room was used only as a storage space. The bills for electricity, water, telephone, etc. have also not been produced to establish any user or occupation of the same at the relevant period of time. The only defence of the obstructionist is that it is M/s. Durga Builders, which was paying the same pre-2000. This plea is difficult to accept. 37. The only conclusion which, thus, has to be arrived at is that though the obstructionist did come into possession, the same was only at some subsequent stage after the injunction order restraining the handing over of possession was passed. It is apparent that the obstructionist derived their claim from judgement debtors 5 to 7, they have to go with judgement debtors 5 to 7. The present proceeding is not for settlement of inter se claims between judgement debtors 5 to 7 and the obstructionist.” 36. The aforesaid view taken by this Court in Ex. P. No. 321/2003 assumes particular significance, as the present dispute has its genesis in the question of possession of the first floor of the suit property, which CECON was required to establish by cogent and credible evidence. The burden of proving lawful and prior possession rested squarely upon CECON, its claim being purely derivative and not independent of DBPL. 37. However, CECON failed to place on record any reliable documentary material evidencing its possession or user of the first floor during the relevant period. The Local Commissioner‟s report, prepared during the pendency of the suit, did not record CECON‟s possession; nor was any signboard, record, or other material found at the site indicative of its occupation or use. The oral testimony led on behalf of CECON was vague, internally inconsistent, and bereft of contemporaneous corroboration, thereby rendering it unworthy of reliance. Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 23 of 27 38. Although CECON asserted both possession and a security interest, it neither produced its books of account nor demonstrated compliance with the mandatory requirements of the Companies Act or the Transfer of Property Act, 1882. In particular, no valid mortgage either registered or equitable was proved, no charge was shown to have been duly registered, and no independent proceedings were instituted by CECON to enforce any such alleged security or monetary claim. 39. In these circumstances, CECON‟s failure to produce the best evidence, which was concededly within its special knowledge and control, justifies the drawing of an adverse inference against it. The only reasonable conclusion is that CECON did not enjoy lawful possession of the first floor at the material time, and that any possession, if at all, was assumed only subsequent to the injunction order, thereby lacking legal sanctity as against the decree holder, Mr. Relan. 40. It is equally material that CECON was under the management of Mr. Mehra, while DBPL, under its then management, entered into the agreement with Mr. Relan and thereafter suffered the consent decree. CECON‟s challenge proceeds on the premise that it was the user of the first floor; however, having failed to substantiate either its possession or any enforceable interest in the property, it cannot be permitted to undermine a compromise decree lawfully entered into by DBPL through its recognized management in favour of Mr. Relan. Once CECON‟s alleged possession and derivative claim stand unproved, it must necessarily “go with” DBPL, and no Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 24 of 27 infirmity can be imputed to the compromise decree on that account. The objections raised by CECON, therefore, are unsustainable 41. Against the aforesaid backdrop, it assumes considerable significance that CECON was, at all material times, managed and controlled by Mr. Mehra, and that its claim of possession arose only in opposition to DBPL having entered into a binding agreement with Mr. Relan. 42. Despite asserting itself to be the user and occupant of the first floor, CECON failed to discharge the burden of proving lawful or subsisting possession by any cogent documentary or circumstantial evidence. In these circumstances, and particularly in view of the fact that the compromise decree was entered into between DBPL, acting through its then lawful management, and Mr. Relan, this Court is constrained to draw an adverse inference that the compromise decree was neither vitiated by fraud nor tainted by collusion or fraudulent in nature. The failure of CECON to substantiate its alleged possession fatally undermined its challenge and, conversely, fortifies the conclusion that the compromise decree is lawful, valid, and binding, having been entered into by a competent management in respect of a property over which CECON failed to establish any independent, superior, or enforceable right in law. 43. While the LSJ correctly held that allegations of fraud on the Court are not barred by res judicata in the abstract, the Court nonetheless weighed the prior findings as a material circumstance and found that nothing new of probative value had been produced to justify revisiting those conclusions. This approach is entirely in Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 25 of 27 consonance with the principle that, though a fraud-tainted decree is a nullity, the burden lies heavily on the party alleging fraud to show that the earlier adjudications themselves were procured by deception. However, DBPL has failed to discharge the said burden. 44. In view of the aforesaid, in the opinion of this Court the compromise decree under Order XXIII Rule 3 of CPC carries a strong presumption of validity and as such this Court finds no infirmity in the Impugned Judgment. III. WHETHER THE APPLICATION SEEKING RECALL WAS BARRED BY DELAY, LIMITATION AND ACQUIESCENCE? 45. The conduct of the Mehra group in the execution proceedings further militates against their present stand. When Ex. P. No. 321/2003 was filed, the Local Commissioner‟s report of 22.05.1994/25.05.1994 in the main suit had earlier recorded only DBPL as in possession; subsequently, in the execution, a fresh Local Commissioner reported occupation of the first floor by CECON, represented by Col. Jairath and managed by Mr. Arun Mehra. CECON then filed detailed objections, put forth a case of mortgage/security and alleged collusion and fraud between DBPL and the decree-holder. 46. Those objections were tried on framed issues; Mr. Mehra deposed as CECON‟s witness, but his testimony failed to establish any specific amount due, any written record of deposit of title deeds, any reflection of the alleged debt in CECON‟s balance sheets, or any registered charge in compliance with section 125 of the Companies Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 26 of 27 Act, 1956. The Court categorically held that the obstructionist had “miserably failed” to discharge its onus; its transaction story was “vague”; and that, even assuming possession, it derived its claim entirely from DBPL and must “go with” DBPL, given that the decree was between the decree-holder and DBPL. 47. Critically, although Mr. Mehra was thus fully aware of the decree, the course of the litigation, and DBPL‟s representation through Mr. Nanda, no steps were taken at that stage either to assert directorial control over DBPL in the suit or execution, or to challenge the authority of Mr. Nanda before the Court which had passed the decree. The challenge was confined to CECON‟s objections as an obstructionist. Even later, when the Supreme Court, in 2012, queried whether Mr. Mehra was willing to take over DBPL with its liabilities, no unequivocal acceptance was forthcoming. 48. In this factual context and keeping in view that the compromise decree dates back to 2002, whereas the recall application was only filed in 2014 more than a decade later, it is difficult to accept the narrative that the Mehra management acquired “locus” to assail the compromise decree only in 2014. The Mehra group admittedly had knowledge of the compromise and execution proceedings, having filed objections through CECON and participated in subsequent litigation. Irrespective of the view ultimately taken on limitation, this prolonged acquiescence and the choice to litigate only as obstructionist, not as alleged management of DBPL, significantly erode the credibility of the current challenge and strongly support the conclusion that the recall application was merely an attempt to reopen settled issues under the guise of fraud. Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified FAO(OS) 52/2025 Page 27 of 27 E. CONCLUSION: 49. For all the foregoing reasons, this Court has reached the conclusion that the recall application filed by DBPL, through its Director, Mr. Mehra was barred by limitation and the compromise decree dated 28.03.2003 satisfies the requirement of being lawful under Order XXIII Rule 3 of the CPC. Since, the said decree was entered into by those who, in law and in fact, were the recognised management of DBPL; consideration was recorded and accepted; repeated collateral challenges have been unsuccessful; and, most importantly, there is no demonstrable fraud on the Court. 50. Hence, having found no merit in the challenged laid to the Appeal, the present Appeal, along with the pending applications, stands dismissed. ANIL KSHETARPAL, J. HARISH VAIDYANATHAN SHANKAR, J. DECEMBER 23, 2025 jai/hr Printed from counselvise.com Signed By:SAVITA PASRICHA Signing Date:23.12.2025 12:46:13 Signature Not Verified "