2026 (3) TMI 1157 - HC - Companies Law

Leave to institute proceedings for specific performance permitted without conferring title; sale process to proceed after fresh valuation.

Leave was granted to a claimant to institute proceedings to seek specific performance despite reliance on an unregistered agreement for sale, with the ... Entitlement to leave to institute a suit for specific performance in respect of an unregistered agreement for sale - disclaimer of onerous property - pre-emption/right to match highest bid in liquidation sale. Validity and effect of the unregistered agreement for sale relied upon by Eyelid in respect of Dunlop's undivided half share of the property - HELD THAT:- The Court found that Eyelid relies on an unregistered agreement for sale and that an unregistered agreement does not confer title. The Court also noted surrounding circumstances-absence of Eyelid at the time the official liquidator took possession, municipal records not recognising Eyelid, doubts as to authenticity of documents relied upon by Eyelid, and material suggesting circular payments between group companies-that cast serious doubt on Eyelid's asserted transactions and entitlement. Having regard to these findings, the Court held that Eyelid cannot insist on disclaimer by the official liquidator or on execution and registration of a deed of conveyance in its favour on the basis of the unregistered instrument. [Paras 21, 22] Eyelid's claim based on the unregistered agreement cannot sustain an entitlement to disclaimer or to execution and registration of conveyance. Leave to institute a suit for specific performance under the Companies Act - HELD THAT: - While recording doubts about Eyelid's title and the surrounding transactions, the Court declined to deny leave to institute proceedings under the Companies Act. The Court observed that Eyelid presently seeks leave to institute a proceeding and, without conferring any substantive right on Eyelid at this stage, it would not be prudent to refuse such leave. Accordingly, the Court granted liberty to Eyelid to institute a suit or proceeding to establish its rights in accordance with law. [Paras 23] Liberty granted to Eyelid to institute a suit or proceeding to establish its rights in accordance with law. Pre-emption/right to match highest bid in liquidation sale - Extent of Salasar's entitlement in relation to the proposed sale of the property by the official liquidator - HELD THAT:- The Court recorded earlier directions that Salasar may participate in the auction and, if able to match the highest bid, its claim would require further consideration. The Court observed that in terms of the prior order the matter would only require further consideration if Salasar matches the highest bid obtained in the auction process. [Paras 3, 24] Salasar's entitlement to further consideration is limited to the event it matches the highest bid in the liquidation sale. Final Conclusion: The application by Eyelid seeking prevention of the liquidation sale and seeking conveyance was rejected on the merits of the unregistered agreement, but Eyelid was granted liberty to institute civil proceedings to establish its rights; the application by Salasar will be considered further only if it matches the highest auction bid. Issues: (i) Whether Eyelid Merchantiles Pvt. Ltd. is entitled to leave to institute a suit for specific performance in respect of an unregistered agreement for sale dated 25th September, 2006; (ii) Whether the prayers in C.A. 83 of 2021 challenging the earlier sale notice and seeking recall of the valuation/sale process survive in view of the Division Bench order dated 19th December, 2023 and subsequent steps taken by the official liquidator; (iii) Whether Salasar Towers Pvt. Ltd.'s right to match the highest bid in relation to C.A. 61 of 2019 requires further adjudication.Issue (i): Whether leave should be granted to Eyelid to institute proceedings for specific performance under Section 446 of the Companies Act.Analysis: The Court examined the nature of the agreement relied upon by Eyelid (an unregistered agreement for sale), the contemporaneous events including absence of Eyelid at the time of official liquidator's taking of possession, municipal records, and documentary material suggesting group/company relationships and circular payments. The Court noted established principles that an unregistered agreement for sale does not itself confer title, and that questions of limitation and evidentiary sufficiency remain to be adjudicated. The Court distinguished between granting substantive relief and granting leave to institute a suit under Section 446, observing that leave can be granted without conferring any proprietary right at this stage.Conclusion: C.A. 386 of 2024 is allowed to the extent that Eyelid is granted liberty to institute a suit or proceeding to establish its rights in accordance with law; no substantive conveyance or title is conferred by this order.Issue (ii): Whether the prayers in C.A. 83 of 2021 (including quashing the earlier sale notice and recalling the valuation) survive after the Division Bench order directing fresh valuation and re-publication of sale notice.Analysis: The Division Bench directed a fresh valuation and publication of a fresh sale notice and granted liberty to interested parties (including Eyelid) to participate in the auction. The official liquidator has since taken steps in compliance with that direction and filed a report. Given the Division Bench directions and the subsequent processes, the specific challenges to the earlier valuation and sale notice no longer subsist.Conclusion: Nothing survives in prayers 'C' and 'E' of C.A. 83 of 2021; C.A. 83 of 2021 stands disposed of without any order.Issue (iii): Whether Salasar's entitlement to match the highest bid (as per earlier order) requires further consideration.Analysis: The Coordinate Bench had earlier recognized Salasar's right to participate and, if able, to match the highest bid subject to confirmation by the Court after offers are received and valuation processes are completed. The Court noted that further consideration will be necessary only if Salasar matches the highest bid obtained in the e-auction that was conducted following fresh valuation and sale notice.Conclusion: C.A. 61 of 2019 requires further consideration only if Salasar matches the highest bid; until such matching occurs, no fresh order is made on C.A. 61 of 2019.Final Conclusion: The Court granted procedural relief by permitting Eyelid to institute appropriate proceedings to establish its rights while disposing of the challenge to the earlier sale process in C.A. 83 of 2021 as redundant in light of the Division Bench's directions; the sale process shall proceed subject to the outcomes of the fresh valuation, e-auction and any bids matched by Salasar, and the Company Petition C.P. 233 of 2008 is listed for further steps relating to confirmation of sale.Ratio Decidendi: Leave to institute proceedings under Section 446 may be granted without conferring proprietary title where factual and legal issues (including validity of unregistered agreements and payment traceability) require full adjudication; challenges to earlier sale/valuation orders directed to be revisited pursuant to a Division Bench order become moot if the Court has directed fresh valuation and re-publication of sale notice and the official liquidator proceeds accordingly.