2025 (7) TMI 1343 - HC - Companies Law

Interim Injunction Modified: Company Land Sales Must Match Market Rates to Prevent Undervaluation and Misappropriation

The HC granted modification of the interim injunction, directing the plaintiffs to ensure any sale of the Company's landed assets is at prevailing market ... Seeking modification of the interim injunction order - Order XXXIX Rule 4 read with Section 151 CPC - seeking permanent injunction restraining the defendants from holding themselves out to be shareholders, directors, agents or authorised representatives of plaintiff no. 1 Company and from dealing with the assets thereof - seeking mandatory injunction directing the defendants to hand over to the plaintiffs all records in their power and possession - HELD THAT:- There is prima facie evidence on record to suggest that the Company’s directors are likely to sell the properties owned by the Company, through and in collusion with its employees, by undervaluing the properties for the purposes of registration and taking huge portion of the actual/balance sale consideration in the form of cash, which cannot be accounted for in case the defendants/applicants succeed in the present suit, thereby causing them irreparable harm. It is trite that the relief of interlocutory injunction is an equitable relief granted by the court in order to preserve the status quo of the last non-contested status which preceded the pending controversy until the final hearing, when full relief may be granted. The courts must exercise judicial discretion while considering any application under Order XXXIX of CPC, in light of the facts and circumstances of each case. The court inter alia ought to analyse the comparative inconvenience which is likely to ensue to either of the parties from withholding or granting the injunction. In the considered opinion of this Court, not taking into account the the market value of the properties being put to sale gives an unbridled discretion to the plaintiffs to sell them at any value above the circle rate, to the detriment of the defendants/applicants, making the arrangement recorded in the order dated 22.01.2024 iniquitous for the defendants. No change in circumstances since then has been pointed out to suggest that the defendants, thereafter, have attained a better right in the Company. The only change in facts is the alleged new evidence which supposedly shows forgery and fabrication of the transfer deeds pertaining to shares of the Society. The said fact has already been considered by the learned Single Judge in order dated 07.03.2019 and the view taken therein is consistent with the view of the Division Bench, insofar as plaintiffs’ status as directors and control over the Company is concerned. As such, it is settled that the plaintiffs are still the de facto directors of the Company, in-charge of the management thereby. The plaintiffs (Sachdeva & Kishor Lal faction) shall ensure that any sale of the landed assets held in the name of the Company [Capital Land Builders Pvt. Ltd.] is made at the prevailing market rate. The Company shall furnish details of each sale transaction before this Court - Application disposed off. ISSUES: Whether the interim injunction order dated 22.01.2024 permitting sale of company land/property above circle rate and through banking channels should be modified in light of allegations of undervaluation and cash transactions.Whether the plaintiffs' alleged negotiation for sale involving substantial unaccounted cash violates the terms of the interim injunction order.Whether the defendants are entitled to a status quo order restraining the plaintiffs from dealing with the company's assets during pendency of the suit.Admissibility and evidentiary value of electronic recordings and transcripts relied upon to establish violation of court orders.Whether the authority of the company's employee negotiating sales without explicit board authorization affects the validity of alleged transactions.Appropriateness of appointing a Local Commissioner/Observer to ascertain market value of properties and monitor compliance with court orders.Effect of prior final orders on shareholding and management rights on modification of interim injunction. RULINGS / HOLDINGS: The Court held that the allegations of undervaluation and cash transactions raise a prima facie apprehension that the interim order dated 22.01.2024 may be violated, warranting modification of the order to better protect the rights of the parties.The Court found that the recordings and transcripts, without deciding on their full evidentiary value, disclose a probable situation prejudicial to defendants, as they indicate possible receipt of unaccounted cash despite sale purportedly at circle rate.The Court declined to grant complete status quo restraining plaintiffs from dealing with company assets, noting that the plaintiffs' rights as de facto directors and shareholders were previously crystallized by final orders, and no subsequent change justified such relief.The Court observed that the plaintiffs' employee negotiating sales without explicit authority does not preclude the company from being bound if he represented himself as agent, but also noted that authority to execute sale deeds rests with directors.The Court recognized its power under Order IX Rule 26 CPC to appoint a Local Commissioner/Observer to ascertain market value and oversee sale transactions, even without parties' consent.The Court modified clause (ii) of para 1 of the interim order dated 22.01.2024 to require sales at prevailing market value (not merely circle rate), receipt of entire consideration through banking channels, and appointment of a Local Commissioner-cum-Observer to determine market value and monitor sales.The Court reaffirmed that prior final orders establishing plaintiffs' control over the company and its assets remain binding, applying principles of res judicata to reject re-agitation of shareholding disputes in this context. RATIONALE: The Court applied the principles governing interlocutory injunctions under Order XXXIX CPC, emphasizing the equitable nature of such relief to preserve the status quo and balance the inconvenience to parties pending final adjudication.The Court relied on precedent establishing the triple test for interim injunctions: prima facie case, balance of convenience, and irreparable injury, as upheld in prior Division Bench orders and Supreme Court decisions.The Court noted that circle rates are a statutory benchmark for minimum stamp duty but do not reflect actual market value, which may be significantly higher; thus, limiting sales to circle rate does not adequately protect parties' interests.The Court referenced prior orders and appeals, including a Division Bench order dated 06.11.2009, which had conclusively recognized plaintiffs as de facto directors and shareholders, thereby controlling the company and its assets.The Court acknowledged the distinction between analog and electronic evidence and cited the Supreme Court's ruling in Arjun Panditrao Khotkar v. Kailash Kushanrao Gorantyal & Ors. regarding admissibility of electronic evidence under Section 65B of the Indian Evidence Act, 1872.The Court recognized the defendants' apprehensions based on the recordings but refrained from deciding on authenticity or admissibility at this interlocutory stage, reserving such issues for appropriate proceedings.The Court invoked its inherent powers under Order IX Rule 26 CPC to appoint a Local Commissioner to ascertain market value and ensure compliance, noting that such appointment may be made even without parties' agreement to safeguard justice.The Court applied the doctrine of res judicata and finality of prior orders to prevent re-litigation of shareholding and management rights, emphasizing that no new circumstances justified altering the established interim rights of the parties.