TaxTMI 
TaxTMI 
2008 (1) TMI 615
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....in C.A. No. 1900 of 2007 in C.P. No. 140 of 2005. 5. C.A. No. 2286 of 2007 has been filed to grant an ad interim injunction restraining respondent Nos. 2 to 5 herein their men, servants, agents, nominee, assignees or any one claiming through or under each one of them from in any manner dealing with the schedule mentioned property and from removing, demolishing, dealing with in any manner and from removing any structure, tree and from laying any road or from developing the schedule mentioned property till the disposal of C.P. No. 140 of 2005. 6. C.A. No. 2287 of 2007 has been filed to grant an ad interim injunction restraining respondent Nos. 4 to 6 from in any manner granting permission, process any papers or registering any document in respect of the schedule mentioned property. 7. C.A. No. 2288 of 2007 has been filed to vacate the interim injunction in C.A. No. 1899 of 2007 and C.A. No. 1900 of 2007 in C.P. No. 140 of 2005 made on 27-7-2007. 8. C.A. No. 2303 of 2007 has been filed to implead the petitioner as one of the respondents in C.P. No. 140 of 2005. 9. C.A. No. 2304 of 2007 has been filed to implead respondent Nos. 4 and 5 as respondents in C.P. No. 140 of 2005. 10. ....
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....es was owned by the company and the C.M.D. by letter dated 6-6-2005, appointed one Thiru M.S. Suresh Achari as the agent of the company authorising him to take possession of the property and on the same day the C.M.D entered into an agreement of sale with the abovesaid M.S. Suresh Achari, whereby Mr. M.S. Suresh Achari agreed to buy the property for a sum of Rs. 134 lakhs. On 13-6-2005, the abovesaid M.S. Suresh Achari and one Thiru R. Mohan who is the senior vice-president of the company entered into an agreement of sale with possession by which the said Mr. M.S. Suresh Achari agreed to purchase the property for a sum of Rs. 99 lakhs. 14. M/s. Gujarat Industrial Investment Corporation filed C.P. No. 213 of 2001 before this court for winding up of the company. In C.P. No. 213 of 2001, one Thiru N. Nageswara Raju filed an application in C.A. No. 830 of 2005 seeking for a direction directing the respondent therein to sell the very same Chittoor district property which is the subject-matter of the present application. The said Thiru Nageswara Raju also sought for an order of interim injunction restraining the respondent therein from dealing with the property. The company and Thiru M.....
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.... the loan availed by the company by giving the Chittoor district property as a security. Therefore, it was decided to sell the property to a nominee of the said M/s. Dempo (P.) Ltd. Though the said Nageswara Raju was nominated by M/s. Dempo (P.) Ltd., earlier, this nomination was changed by them by nominating one Mr. Suresh Achari who agreed to purchase the property for a sum of Rs. 134 lakhs. 19. It was specifically stated in the common counter affidavit that on coming to know about the agreement dated 6-6-2005, Thiru Nageswara Raju filed C.A. No. 830 of 2005 in C.P. No. 213 of 2001 for the relief of direction to the company to sell the property at Chittoor district to him only and also for a consequent injunction. As Nageswara Raju could not get expected orders when the application was filed on 12-6-2005, he arranged to buy fifty equity shares of the company in the name of one Rajendra Naidu, who is the petitioner in C.P. No. 140 of 2005 and the applicant in C.A. Nos. 1899 and 1900 of 2007. 20. After purchasing 50 equity shares in the second week of 2005, he filed C.P. No. 140 of 2005, on 20-6-2005. He also filed C.A. Nos. 989 and 900 of 2005 for an injunction restraining Thiru....
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....t was sold for Rs. 99 lakhs only. 24. The third respondent purchaser entered appearance through her counsel and filed C.A. No. 2288 of 2007 praying to vacate the interim injunction granted in C.A. Nos. 1899 and 1900 of 2007 on 27-7-2007. 25. In the affidavit filed in support of C.A. No. 2288 of 2007, it is stated that the applicant is a person who has been set-up by the said Nageswara Raju who was allegedly holding some agreement with the company to purchase the same property. He already filed a specific performance suit in O.S. No. 45 of 2007, in which she is also a party. She has paid valid consideration and a valid sale deed has been executed in her favour. This sale deed is not disputed by the company, she is in no way concerned with the internal affairs of the company. She has pointed out that the applicant was able to get an order of interim injunction from this court when the said Nageswara Raju failed to get any interim order in the specific performance suit filed by him. She is bona fide third party purchaser and protected by the doctrine of indoor management. The sale deed has been executed on 27-12-2006, itself and, therefore, the interim injunction granted on 27-7-200....
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....nt has got an alternative remedy under sections 397 and 398 of the Companies Act. He further pointed out, the applicant is only a puppet in the hands of Thiru N. Nageswara Raju, who having failed to get expected orders in C.A. No. 830 of 2005 in C.P. No. 213 of 2001 and also in the pending O.S. No. 45 of 2007, set-up the applicant to file the above applications for interim reliefs. Learned counsel further submitted that the order adjudicating the second respondent as an insolvent is an ex parte one and even though it was passed on 12-6-2000, the second respondent came to know about this order on 29-7-2005, only that too from a paper publication. Further, the ex parte order dated 12-6-2000, was already annulled on 23-11-2006 in A. No. 434 of 2006. He further submitted that the second respondent did not participate in the affairs of the company as a director from 29-7-2005 to 23-11-2006 and even otherwise the decision to sell the property to the third respondent is the decision of the board of directors of the company and, therefore, that cannot be questioned by the applicant. Learned counsel relied on the following decisions in support of his submissions : (1)Ashoka Marketing Ltd. ....
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....gement of a company, the company itself is the best judge of its affairs and the court should not interfere. But here the main point involved is the interpretation of a certain clause in the memorandum of association relating to the application of the assets of the company. Such a question is not a matter of mere internal management. It is alleged that certain directors whose good faith has not been questioned have misunderstood the clause in question and are in consequence acting ultra vires in their application of the funds of the company. Under these circumstances, I have no doubt that a single member of the company can maintain a suit for a declaration as to the true construction of the article in question. I would refer in this connection to the observations by Brice on ultra vires on page Nos. 714, 726 and 745 of third edition which deal with the circumstances under which a single member can maintain an action against the company for acts alleged to be ultra vires." (p. 413) 36. In N. Muthusami Chettiar's case (supra), this Court has held that the subsequent annulment of adjudication cannot give validity to a suit filed by an insolvent during the pendency of insolvency when....
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....pend. It is not that the building had not yet commenced, it had commenced and probably not completed. At that stage the appellant made an offer which was accepted but the offer was that he would finish the construction of the building and hand it over to the respondent-company as trust property of which the trustees would be the directors of the company. The transaction, therefore, was confined to the offer as contained in exhibit AB and in exhibit II. It is true that for some reason or another certain members of the company were not prepared to stick to the original arrangement and wanted certain modifications but in spite of that it was not open to the appellant to ignore his offer altogether and create a wholly new trust which he has done. His rights, if any, if they could be enforced would only be in exhibit II which the appellant himself has abandoned. He cannot now be heard to say that because the company after accepting his offer had refused to abide by the agreement, he was entitled to appropriate by means of the trust created by him the land in Schedule A by constituting the trust a tenant and deprive the company of which he was at that time a director and, therefore, a tr....
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....gument of Sri Jagannadha Rao was that the adjudication, having been annulled the effect of the annulment was to validate the suit instituted by the insolvent when the adjudication was in force. The answer of Sri Bapi Raju was that it would not be so where the annulment of adjudication was accompanied by a simultaneous order vesting the property in a person appointed under section 37 of the Provincial Insolvency Act. 6. In Moturi Veerayya v. P.V. Sreenivasa Rao AIR 1935 Mad. 826, a Full Bench of the Madras High Court considered the effect of an annulment of adjudication and a simultaneous vesting of the insolvent's property in an appointee under section 37. The learned Judges observed that there were three possible views and they expressed their preference for the view that while the property of the insolvent vested in the appointee under section 37 he was subject to the directions of the Court. The appointee had only such powers as were necessarily implied by the vesting order. The learned Judges did not accept the other two views, namely, (1) that the annulment of the adjudication brought the insolvency proceedings to an end and the insolvency court, thereafter would have no powe....
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....ver force there may be in this submission it is of no avail in the present case since the receiver was not impleaded as a party to the suit originally, but was impleaded as a party only after the period of limitation had expired. In Sripada Venkatasubba Rao v. Namagiri Venkateswaralu AIR 1937 Mad. 165, the insolvent had filed suits without obtaining the permission of the Court. Finding that the suits were defective for want of permission he applied for and obtained permission beyond the date of limitation. The High Court held that in as much as the suits were barred by limitation on the date of permission, such permission should not be granted." (p. 85) 40. In Gamoji Venkata Ramakrishnarao's case (supra), a Division Bench of this court, held that the effect of annulment of adjudication was to bring about, the state of affairs as if there had never been an adjudication and the property was deemed to have been the property of the applicant on the relevant dates. 41. The relevant portion reads as under : "(2) The decree to be scaled down was passed in O.S. No. 32 of 1933. The appellant or his own application was adjudged an insolvent on 16-4-1937 ; and on account of his own latches....
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....considered at some length; and it was pointed out that his remarks that if the annulment did not have retrospective effect, there would be no need for the clause validating Acts done by the court or by the receiver, for they would be valid, were very pertinent. So there can be no doubt that the effect of the annulment of the adjudication on 5-3-1941, was to bring about the same state of affairs as if there had never been an adjudication on 16-4-1947, which means that on the relevant dates 1-10-1937 and 22-3-1938, the property vested in the appellant. (3) The learned district Judge felt himself impelled to follow Kudithipudi Venkatramayya v. Mallacheruvu Pundareekakshudu [1942] 1 MLJ 491; AIR 1942 Mad. 523. In that case, as in the present case, the relevant dates occurred during the period between the adjudication and the annulment of the adjudication; but the learned Judge overlooked the distinction between that case and this in that there, upon the annulment of the adjudication, it was ordered that the property should continue to vest in the official receiver. If it had revested in the insolvent, then the date on which the revesting would be deemed to have taken place would be th....
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....dvantage of certain political situations in their dealings with him. It is common ground that, apart from the one transaction above referred to in respect of which the petitioner has already filed a suit, the petitioner has no manner of interest in or concern with, the affairs of the company as a shareholder, creditor or otherwise. This being so, the question raised is whether the petitioner has any locus standi to present this petition under section 237 of the Act, to ask for an investigation into the affairs of the company. ****** I have already pointed out that, on general principles, it would not be correct to read the section as authorising any man in the street to seek orders for investigation into the affairs of a company, merely because it is a public company and its affairs are, in his opinion, being conducted to the detriment of public interest. The interest which the person may have as a member of the public in the purity of the administration of public companies is too remote and intangible for the infraction of which he may move a court. That apart, I do not think that section 237 is capable of such a wide interpretation even when read in the context of the scheme a....
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....e rights have been affected by the manner in which the affairs of the company have been conducted or accounts maintained and has, therefore, a grievance in the eye of law for which he seeks relief from the Court. There is ample scope for the invocation of section 237 by persons whose rights are infringed or affected and whose interests need to be protected or safeguarded by an investigation, a creditor who is unable to move the Central Government, under section 235; member or members who, though aggrieved, are unwilling to move the Central Government, or unable to fulfil the requirements of section 236 and hence unable to move the Central Government; members who approach the Central Government under sections 235 and 237(b) and are aggrieved by the rejection of their applications; a company which wants an investigation but is unable to have special resolution passed. These are some illustrations of persons who would be able to move the Court under section 237(a). It is therefore, not as if the scope of the remedy enacted by this provision would be unreasonably curtailed or would become illusory by reading into the section an implied limitation to exclude persons having no manner of ....
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....y or not, because declaration with respect to the affairs of the company is important for the reputation of the company itself. If oral evidence has to be adduced, this Court may not find time to collect such evidence. That also is the reason why the petitioner should approach the specialised statutory authority, the Company Law Board constituted by the Act, to seek the very same relief." (p. 712) 47. In the above decision, the Kerala High Court held that the relief under section 237(a)(ii ) of the Companies Act is a discretionary relief and a person seeking the relief under the section should approach the Company Law Board first, it being specially constituted to deal with certain cases arising in respect of companies incorporated under the Companies Act alone. 48. In Freeman & Lockyer (A Firm)'s case (supra), the Court of Appeal held that the doctrine of ostensible authority in relation to a limited company gives rise to different legal problem and the strangers dealing bona fide with officers of the company have a right to assume that they have been duly appointed. 49. In Nellai Metal Rolling Mills (P.) Ltd.'s case (supra), this court held that even though, no resolution auth....
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....same Suresh Achari for selling the very same property situated at Chittoor district, Thereafter, by a sale deed executed on 27-12-2006, the property was sold to the third respondent by the company represented by the very same senior vice-president and the said M.S. Suresh Achari. This sale deed is assailed by the applicant on the ground that during the relevant period that is on 6-6-2005, the second respondent was an insolvent as it is he who appointed M.S. Suresh Achari as agent and authorised him to take possession of the property. 59. I am unable to accept the contention of the applicant in this regard. 60. Even though the second respondent wrote a letter on 6-6-2005, appointing M.S. Suresh Achari and entered into an agreement of sale with him on the same day, that was not the basis for executing the sale deed dated 27-12-2006. Another agreement of sale with possession was entered to by company through its senior vice-president R. Mohan with the same M.S. Suresh Achari, on that basis only both the company and the said M.S. Suresh Achari executed the sale deed in favour of the third respondent on 27-12-2006, wherein it was clearly mentioned that the third respondent was nominat....