Re Jokai Tea Holdings Ltd (Note)

JurisdictionEngland & Wales
JudgeTHE VICE-CHANCELLOR,LORD JUSTICE PARKER,SIR JOHN MEGAW
Judgment Date15 February 1989
Judgment citation (vLex)[1989] EWCA Civ J0215-2
Docket Number89/0136
CourtCourt of Appeal (Civil Division)
Date15 February 1989
In the Matter of Jokai Tea Holdings Ltd
and
In the Matter of the Companies Act 1948

[1989] EWCA Civ J0215-2

Before:

The Vice-Chancellor

(Sir Nicolas Browne-Wilkinson)

Lord Justice Parker

Sir John Megaw

89/0136

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL. CIVIL DIVISION

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

MR JUSTICE MERVYN DAVIES

Royal Courts of Justice

MR A. HEYMAN Q.C. and MR D. SEROTA (instructed by Messrs D. J. Freeman & Co.) appeared on behalf of the appellants (defendants).

MR J. CHADWICK Q.C. and MR M. PHILLIPS (instructed by Messrs Slaughter & May) appeared on behalf of the respondents (plaintiffs).

THE VICE-CHANCELLOR
1

In this case Punjab National Bank ("the Bank") seek an order against Jokai Tea Holdings Limited ("Jokai") and Frendial Limited ("Frendial") for the rectification of the Register of Members of Jokai by striking out Frendial as the holder of 999 ordinary shares of lp each and 1,484,251 deferred ordinary shares of 70p each in Jokai and by inserting the name of the Bank as the holder of the shares.

2

Although the questions for our decision are procedural, to understand them it is necessary to refer in outline to the complicated background facts. Esal (Commodities) Limited ("Esal") is a United Kingdom company. The moving spirits behind Esal were two brothers Rajendra and Ranjit Sethia. Esal went into liquidation on the 7th November 1984 with an estimated deficiency of some £200m. The joint liquidators of Esal are Mr. Weiss and Mr. Jordan, both of whom are partners in Messrs Cork Gully.

3

Before the liquidation of Esal, the Bank acted as one of its bankers. Most of the dealings were between Esal and the London office of the Bank. The Bank has lodged proofs for debt in the liquidation of Esal at a figure of approximately £92m. There is substantial evidence that Rajendra Sethia was guilty of fraud. One employee of the Bank has been convicted of falsification of documents relating to Esal. The former manager of the London office of the Bank has been charged in India with offences relating to Esal's accounts but not, so we understand, offences relating to the particular transactions in question in this case. There is substantial evidence that the Bank's documents at the London office are suspect and that information relating to the affairs of Esal was suppressed by the London office of the Bank in its dealings with the Head Office of the Bank in India.

4

The particular transactions in question in these proceedings are as follows. Esal had a subsidiary, Shadereed Ltd. ("Shadereed"). On 20th May 1981 Shadereed acquired all the shares in Frendial for £3.65m. Frendial had a subsidiary, Jokai. Jokai in turn had a subsidiary Jokai India Limited which owned and conducted a tea plantation in India, the present value of which is estimated at between US $30 and 35m. The purchase of the shares in Frendial was financed by Esal who for that purpose borrowed US $6.241m. from the Bank. The method by which that borrowing took place was complex, possibly deliberately. On 16th September 1981 Frendial (the company whose shares had been bought in may of that year) entered into a guarantee securing to the Bank the repayment of US $6.25m. loaned to Esal. That guarantee was secured by a charge granted by Frendial on the shares in Jokai ("the 1981 Charge"). By a further charge carrying the date 27th January 1984 Frendial granted a further charge over the same shares in favour of the Bank to secure further lending to Esal ("the 1984 Charge").

5

By these proceedings, the Bank, as mortgagee, seeks to secure its registration as the holder of the shares. In the past, there has been much confusion as to whether Shadereed held the shares in Frendial beneficially or (as the Sethia brothers alleged) as nominees for them personally. Though little is clear in this confused case, it does now seem that it is accepted that Shadereed holds the shares in Frendial beneficially and that accordingly, indirectly, the Indian Tea plantation is one of the few valuable assets available to the liquidators of Esal, subject to the claim of the Bank as mortgagee of the shares in Jokai. The issue in this case, therefore, is between the Bank, as alleged secured creditor and chargee of the shares in Frendial, and the liquidators of Esal.

6

Originally the board of Frendial comprised two nominees of Esal and two nominees of Ranjit Sethia (Mr. Kini and Mr. Sen). The Esal nominees resigned in February 1984 with the result that when the joint liquidators of Esal were appointed in January 1985, the only directors of Frendial were two nominees of Ranjit Sethia. On 22nd April 1985, two members of Cork Gully, Messrs London and Rishi, were appointed directors of Frendial to represent the interests of the Joint Liquidators of Esal. But it appears that the conduct of these proceedings was left to Mr. Kini and Mr. Sen who were giving instructions to Frendial's then solicitors, Zaiwalla and Co. There was a manifest deadlock on the Board of Frendial since Messrs London and Rishi were looking after the interests of Esal whereas Messrs Kini and Sen were looking after the interests of Ranjit Sethia who claimed to be a beneficial owner of the shares in Frendial. This deadlock and conflict was not resolved until Shadereed was put into liquidation and Messrs Hughes and Copp were appointed joint liquidators: on 12th October 1987 they then appointed themselves to the board of Frendial. Therefore from 12th October 1987 onwards there was a majority on the board of Frendial representing the interests of the joint liquidators of Esal.

7

There is one further background matter which I must mention. In the summer of 1986 the Bank entered into direct negotiations with Ranjit Sethia. These negotiations led to an agreement dated 16th June 1986 ("the confidential agreement"). Under that agreement Ranjit was released from all his personal obligations to the Bank under various guarantees and agreements. In return he agreed to use his best endeavours to secure the Bank's registration as holder of the shares in Jokai. It was a term of the agreement that it should remain confidential to the parties: it was unknown to the liquidators of Esal and to the members of the board of Frendial until, I believe, January of 1988. The position therefore was that the two nominees of Ranjit Sethia on the board of Frendial were ostensibly resisting the claim of the Bank to registration at the same time as Ranjit Sethia himself was under an obligation to use his best endeavours to secure the Bank's registration as holder of the shares.

8

Against that background I can turn to the procedural history of the case. On 30th April 1985 the Bank issued its originating motion for rectification of the register. Substantial evidence was sworn on both sides. The case at that stage being made on behalf of the Respondents to the motion, Frendial and Jokai ("the Defendants") was that the Frendial shares belonged beneficially not to Shadereed but to the Sethia brothers and that accordingly the 1981 and 1984 charges were invalid. On 20th November 1985 Hoffmann J. ordered the matter to proceed on pleadings. Points of Claim were served on 11th December 1985 and Points of Defence on 2nd January 1986. The Defence served put forward two grounds of defence, viz. 1. that the Sethia brothers were the beneficial owners and therefore the charges were not entered into bona fide for the benefit of Frendial, and 2. that the 1984 charge was granted on 30th January 1984 (not 27th January 1984 as it was dated) after the granting of a Mareva injunction restraining the disposal of assets. On 28th January 1986 Points of Reply were served. Thereafter no further steps were taken in the proceedings by the Bank for nearly a year.

9

On 23rd January 1986 the Bank served a request for further and better particulars of the defence. Although the requests were copious, none of them related to the defence alleging the invalidity of the 1984 charge by reason of the Mareva injunction. The request for particulars was not answered. On 10th August 1987 the Bank issued a summons asking for an order for the particulars. On October 14th the time was extended by consent until 6th November 1987. Particulars not having been given by the 6th November, the summons was restored and came before Mr. Registrar Scott on 9th November 1987. He ordered the further and better particulars to be served within 56 days and ordered that in default the Points of Defence should be struck out and the Bank should be at liberty to apply for the relief claimed in the originating notice of motion. I will call this order "the Unless Order".

10

The defendant's solicitors, still Zaiwalla and Co., wrote to Mr. London to tell him of the making of the Unless Order; most unfortunately that letter specified that the time limit expired on 15th January 1988, whereas in truth the 56-days expired on the 5th January 1988. That error was not corrected until the 30th December 1987. In the meantime it had been arranged that there should be a meeting of the board of Frendial on the 4th January 1988 to consider the matter.

11

On 4th January 1988 (i.e. one day before the expiry of the 56 days) the Defendants issued a summons to extend the time for complying with the request for further and better particulars, for a stay of the Unless Order and for leave to amend their defence "due to further documents now being made available to the liquidators". Although the amended Points of Defence were said to be annexed to the summons, they were not so annexed. On the 5th January 1988 the Bank restored its originating notice of motion for judgment. On 12th and 13th January 1988 further and better particulars of the existing Points of Defence...

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