Indoor management and specific performance relief support interim injunction despite internal authority defects and pendente lite transfers.

In a suit for specific performance, the commentary states that interim protection may be justified where the agreements of sale are admitted, the company's managing director executed the contracts and acknowledged advance consideration, and the claimant had no notice of any internal restriction on authority. It explains that the doctrine of indoor management protects third parties dealing with a company through its apparent authority, while alleged defects in internal resolutions, use of old stamp papers, or purchase of stamp papers in another State do not by themselves defeat prima facie relief. It also notes that pendente lite transfers to related parties may be treated as collusive and kept in suspense pending disposal of the suits.

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Issues: (i) Whether the appellants had made out a prima facie case, balance of convenience, and irreparable injury to justify temporary injunction in the suit for specific performance; (ii) whether the alleged defects in the Managing Director's authority, the use of old stamp papers purchased in another State, and the plea of non-receipt of advance consideration defeated the appellants' claim for interim protection; (iii) whether the subsequent alienations pendente lite warranted interference and suspension of the transferees' rights.

Issue (i): Whether the appellants had made out a prima facie case, balance of convenience, and irreparable injury to justify temporary injunction in the suit for specific performance?

Analysis: The agreements of sale were admitted by the 2nd respondent, who was then the Managing Director, and he also admitted receipt of the advance amounts on behalf of the company. The Court applied the principle of indoor management and held that third parties dealing with a company are entitled to assume that internal corporate procedures have been regularly complied with. The appellants were not shown to have had knowledge of any internal resolution restricting the 2nd respondent's authority, and the trial court's doubts on this aspect were held to be erroneous. On these facts, the appellants established a strong prima facie case, the balance of convenience lay in their favour, and denial of injunction would cause irreparable injury.

Conclusion: The issue was answered in favour of the appellants.

Issue (ii): Whether the alleged defects in the Managing Director's authority, the use of old stamp papers purchased in another State, and the plea of non-receipt of advance consideration defeated the appellants' claim for interim protection?

Analysis: The Court held that internal company resolutions could not, at the interim stage, be used to defeat the appellants' claim when the company's Managing Director had executed the agreements and accepted consideration. It further held that use of old stamp papers does not by itself invalidate an agreement, and that a stamp paper purchased in another State does not render the document void merely on that ground. The admitted receipt of advance amounts by the 2nd respondent on behalf of the company was sufficient prima facie proof against the respondents' denial, and the demonetisation argument did not displace that position at this stage.

Conclusion: The issue was answered in favour of the appellants.

Issue (iii): Whether the subsequent alienations pendente lite warranted interference and suspension of the transferees' rights?

Analysis: The properties covered by the agreements were transferred after the trial court had vacated the interim injunction and before the appeals were decided. The transfers were made in favour of closely related persons and entities, and the Court treated the transactions as prima facie collusive and designed to frustrate the pending appeals. In these circumstances, the transferees were impleaded, the alienations were not allowed to defeat the appellants' rights, and the transferred interest was directed to remain suspended pending disposal of the suits.

Conclusion: The issue was answered in favour of the appellants.

Final Conclusion: The appellants were entitled to continued interim protection against alienation of the suit property, the impugned orders refusing injunction were set aside, and the injunction in their favour was restored with consequential protection against pendente lite transfers.

Ratio Decidendi: A person dealing in good faith with a company through its apparent managing authority is protected by the doctrine of indoor management, and prima facie corporate internal defects, the use of old or out-of-State stamp papers, or denials of receipt of consideration do not by themselves defeat interim protection where execution of the contract and receipt of advance are admitted.

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