Order XXIII Rule 3 CPC | Mere Share Purchase Agreement Without Statutory Compliance Does Not Transfer Management; Compromise Decree Binding: Delhi High Court

“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.” — In a seminal ruling, the Delhi High Court, comprising Justice Anil Kshetrapal and Justice Harish Vaidyanathan Shankar, dismissed an appeal seeking the recall of a 2003 compromise decree, firmly establishing that corporate control is defined by statutory compliance and actual assumption of management, not merely by the execution of a Share Purchase Agreement (SPA).

The Division Bench was hearing an appeal filed by MS Durga Builders Private Limited (DBPL), currently represented by the "Mehra management," challenging a Single Judge's refusal to recall a compromise decree dated 28.03.2003. The underlying dispute concerned a prime property in Panchsheel Park, New Delhi.

In 2003, DBPL, then under the management of the "Nanda group," entered into a compromise with the Respondent, Mr. Ajay Relan, agreeing to hand over possession of the property. Years later, the Mehra group—claiming to have acquired 100% shareholding of DBPL via a 1997 Share Purchase Agreement (SPA)—sought to annul the decree. They argued that the Nanda group lacked the corporate authority to enter into the compromise in 2003 and that the decree was obtained by fraud.

The Core Issue: Who Controlled the Company?

The central legal question was whether the execution of an SPA in 1997 automatically divested the Nanda group of their authority to represent the company, thereby rendering the 2003 compromise void. The Appellant contended that the Nandas had resigned and transferred control, making their subsequent actions in Court unauthorized.

“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 actual acquisition and exercise of the person claiming to have control.”

Judicial Reasoning: Statutory Record Trumps Private Agreements

The High Court rejected the Appellant's contention, applying the "Alter Ego" doctrine. The Bench observed that while an SPA might create contractual rights, it does not effectuate a transfer of management unless followed by statutory compliance.

The Court noted that for the financial years 2003-05, the Registrar of Companies (ROC) records—specifically Annual Returns in Form 20B—continued to show the Nanda family as the only shareholders and directors. The Mehra group failed to file Form 32, did not convene meetings, and did not take charge of the company's affairs.

The Court held that the "controlling mind and will" of the company remained with the Nandas. To allow a party who neither perfected their title through statutory filings nor assumed management to retroactively displace the acts of the existing board would create a corporate vacuum.

No Fraud on the Court

Addressing the allegations of fraud, specifically regarding a payment of Rs. 10 Lakhs to a "Kumar Security Syndicate," the Court held that the threshold for proving fraud on the Court is extremely high. The Bench ruled that a subsequent police report or the striking off of an entity could not retroactively convert a judicially recorded compromise into a fraudulent device, especially when the consideration was duly recorded and accepted at the time.

“A police status report cannot retroactively convert a judicially accepted compromise into a fraudulent device in the absence of clear, independent evidence that the Court was misled.”

Delay and Acquiescence

The Court was also critical of the Appellant's conduct. It was highlighted that the Mehra group had participated in the execution proceedings for years through a related entity, CE Construction Ltd (CECON), acting as an obstructionist. The Court found that the Mehra group had knowledge of the decree but waited over a decade to file the recall application. This "prolonged acquiescence" and the strategy of litigating through a proxy entity eroded the credibility of their challenge.

The Bench dismissed the appeal, upholding the order of the Single Judge. The Court affirmed that the compromise decree was lawful and binding, as it was entered into by the management recognized in the statutory records at the relevant time.

Date of Decision: 23/12/2025