TaxTMI 
TaxTMI 
TaxTMI 
2017 (3) TMI 1109
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....ion appeals and two company appeals), because of the twining of facts. They relate to one property A-24, Okhla Industrial Estate, Phase I (hereafter "the suit property"). The first set of two appeals are preferred by Yusuf Engineering Co (P) Ltd (hereafter "Yusuf" or "YECPL") which had filed EA 668-69/2011 claiming an order to set aside the sale of the suit property pursuant to a court order dated 30.09.2011 and a further stay of proceedings in Execution Petition No. 135/2010. The other application, EA 5/12 was by Manish Katyal (hereafter "the auction purchaser") who sought confirmation of the auction sale. Yusuf's applications were dismissed and those of the auction purchaser were allowed, by the learned Single Judge, in the order dated 02.03.2012. Yusuf prefers the two execution appeals, i.e. EFA 9 and 12/2012 against the said judgment (the said two appeals are hereafter referred to as the "execution appeals"). The second set of appeals is by Vijay Sharma (Co. A. No. 50/2013) and D.K. Warehouse Pvt. Ltd (Co. A. No. 61/2013- hereafter "D.K. Warehouse"). These appeals, preferred under Section 483 of the Companies Act, 1956 (hereafter called "company appeals") are directed against a....
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....11.2011 auction of the suit property was conducted and Manish Katyal was the highest bidder at Rs. 1,24,00,000/-. The reserve price of the disputed property was kept at Rs. 35,00,000/-. 3. In the two applications filed in execution proceedings, Yusuf claimed that the property in question had been leased by it to ARD for three years commencing from 10th February 2006. It was stated that Yusuf had orally worked out an arrangement of ARD and persuaded it to vacate the property in question at the earliest. Yusuf argued that ARD had written to it on 16th March 2011 stating that it would vacate the premises on 15th April 2011 and on that day it (ARD) handed over the premises to Yusuf, which was thereafter retained by it. On 15th November 2011 when Yusuf personnel visited the suit property to collect old files, the Local Commissioner appointed by this Court reached, with some others with local police and informed them about the court auction. Yusuf also urged that thereafter the lawyer inspected the court file and the applications to set aside the auction and stay execution proceedings were filed. In the circumstances, Yusuf says it could not be fastened with liability of a third party, ....
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....agreement filed by Yusuf was unregistered and was signed by one Ms. Indu K. Wattal on behalf of ARD and not by Ms. Anita Jain. It was urged that the lease deed was a fabricated document to show tenancy in favour of ARD because Mr. Vijay Kumar Sharma was Anita Jain's husband and was acting in connivance to defeat the decree and also to get the duly conducted auction sale set aside through fraudulent means. 5. The suit property was, according to the auction purchaser, always under the control of Vijay Kumar Sharma, the JD's husband, and this was known to him, the JD and Mr. Ravinder Kumar Mishra, who filed the affidavit in support of EA No.668 of 2011. Further, the auction purchaser stated in EA 5/2012, in addition to these facts, that the suit property was rented by Yusuf to ARD at Rs. 9,000 per month, whereas the extent of the premises was 7,000 sq. ft. and market rent was at least Rs. 1,40,000 per month. Even if a smaller area were to be taken i.e., less than 65% to 70% of the total area, the market rent would still not be less than Rs. 1 lakh per month. It was contended that the said lease deed produced by Yusuf was a manufactured document. 6. The learned Single Judge, by the i....
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....es through their Directors. Para 12.3 to 12.7 of the application filed by the OL, which are relevant for the purpose of present application, read as under: "12.3) That the payments were received from M/s JVG Finance Limited (In Liquidation) and the shares were transferred along with the property as mentioned above. The shares were transferred in the name of Sh. S.P. Sharma, Smt. Veena Sharma, Sh. Vinay Kumar Sharma and these persons became directors in this company. 12.4) That the investigation of SFIO further reveals that the agreement between M/s Yusuf Engineering Co. Pvt. Ltd. and M/s JVG Publication was only for name sake and actually the relatives of Sh. V.K. Sharma, Ex-CMD of JVG Finance Limited (In Liquidation) purchased the said property, which is in the name of M/s Yusuf Engg. Co. Pvt. Ltd. with the funds of JVG Finance Limited (in liquidation). 12.5) That the report of SFIO reveals that after transfer of shares the persons who were the directors of M/s. Yusuf Engineering Co. Pvt. Limited were close associates/ex- employees of Sh V.K. Sharma, Ex-CMD of JVG Group of Companies and one Sh. Ravinder Kumar Mishra, Director of M/s. Yusuf Engineering Pvt. Ltd stated on oath f....
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....the many devices adopted by Mr.Vinod Kumar Sharma to defraud the public. He has also involved his family members as is evident from the SFIO report. The person in actual control of YECPL is Mr. Vijay Kumar Sharma, who is none other than the husband of the JD, Ms. Anita Jain. Clearly the story about YECPL having given the premises in question on rent to ARDPL is only a smoke screen to conceal the real picture. YECPL's attempt through the present application to defeat the decree arising out of the Award in question should fail. It is only to help the JD avoid meeting the liability thereunder. 25. There can be no manner of doubt that YECPL has suppressed several material facts in its application, the most significant of which is that Mr. Vijay Kumar Sharma, who holds 99.3% of YECPL is, in fact, husband of the JD. YECPL's application is supported by the affidavit of Mr. Ravinder Kumar Mishra who holds only 0.70% of the shares of YECPL while being fully in the know of who owns the remaining shares and yet not revealing that fact. This brazen conduct of YECPL deserves the severest condemnation. It has resulted in the abuse of the process of the Court and delayed the confirmation....
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.... auction sale was duly published and the applicant ought to have had notice of the same. The rights of an auction purchaser who has purchased the property through public auction under the gaze of the court would take precedence over a subsequent agreement purchaser who claims to have entered into an agreement with the registered owner, particularly when the registered owner was aware of the earlier auction sale through the process of the court. If the submission of the applicant were to be accepted, in every such case, the party not interested in the auction sale going through, would easily scuttle the same on the premise of a subsequent agreement to sell, wherein the disclosed consideration is higher than the price at which the auction sale has been concluded. This would completely undermine the sanctity of the process of the conduct of auction sale by the court. 16. The auction purchaser having deposited the entire consideration on 02.12.2011, certain rights accrued in its favour. The court confirmed the sale subsequently on 02.03.2012 and the auction purchaser was even put in possession of the property on 07.03.2012. Only thereafter, the applicant approached the executing court....
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....ctor of the said company in liquidation which included diversion of funds. The matter was referred to Serious Fraud Investigation Office which, gave the report and as per that report, the aforesaid property was purchased from the funds of JVG Finance Limited. On that basis, the Official Liquidator has taken the possession as the property in question in fact belongs to JVG Finance Limited and, therefore could not even be sold in auction by the executing Court in civil proceedings and that to, without obtaining the permission of the Company Court under Section 446 of the Companies Act. 3 In these circumstances, before we proceed to adjudicate the issue which arises in these appeals, it is imperative that the question as to whether the property in question belongs to JVG Finance or not is to be determined first. 4 These appeals are accordingly adjourned to sine die and parties are given liberty to revive the same after the aforesaid issue is settled by the Company Judge." As a consequence, two applications were moved before the Company Judge (CA No.1067/12 in CP No.123/2010 and CA No.1065/12 in CP No.265/1998). The Company Judge on 07.5.2013, upholding the sale by auction in the ex....
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.... by Section 20 of the Contract Act and, improper, without jurisdiction, null and void ab-initio. Reliance is placed on the decision reported as Thakur Barmha v. Jibanram Marwari (1914) ILR 41 Cal 590 PC. In that judgment, the Privy Council held that sale of a wrong property in an auction to satisfy a decree could not be valid: "Their Lordships are of opinion that all such matters irrelevant. If by a mistake the wrong property was attached and an Order made to sell it, the only course open to the decreeholders on the discovery of the mistake was to commence the proceedings over again. They could not turn an authority to sell one property into an authority to sell another and a different one." 13. It is further argued that a decree or order, which is ipso facto a nullity, can be challenged at any stage, even in collateral proceedings. In support, reliance was placed upon Kiran Singh v. Chaman Paswan AIR 1954 SC 340: ". . . .It is a fundamental principle well established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even i....
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....to the latter, but to Yusuf, who rightfully sold it, to such bona fide purchaser. 16. It is stated that the learned single, in execution, exceeded the remit of a Division Bench order, in EFA (OS) No.12/2012, which had directed examination of the issue, whether having regard to the allegations of serious fraud in respect of the "JVG Finance Limited which is in liquidation and the proceedings are pending before the Company Judge in respect of the said company", the question for decision for the learned Single Judge was: "3. In these circumstances, before we proceed to adjudicate the issue which arises in these appeals, it is imperative that the question as to whether the property in question belongs to JVG Finance or not is to be determined first." Counsel submitted that in not deciding these, but instead proceeding to hold that the suit property was sold to a bona fide purchaser, who had no notice of any wrongdoing and had therefore perfected his title, the learned Single Judge committed an error. Arguments of the auction purchaser 17. The auction purchaser argues that there is no legal infirmity in the judgments impugned. It is highlighted that in addition to Rs. 1.24 Crores, ....
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....e jurisdiction in deciding validity of auction sale is without merit. The Company Judge relied on the decision of this Court in Reserve Bank of India v. Crystal Credit Corporation Ltd. 2005(121) DLT 375 and granted the sanction under Section 536(2). 20. The auction purchaser contests the argument that Anita Jain got married to Mr. V.K. Sharma on 01.09.2005 and two did not know each other before 2003. It is submitted that these two were associated since 1996 and had committed various acts of fraud in connivance with each other as noticed by the Division Bench of this Court in Smt. Benu Berry v. JVG Finance. Ltd. (Under Lqdn.) [2013] 113 CLA 515 (Delhi), a judgment pronounced on 10th April 2012. Reliance is placed on the following extract of the said judgment: "(i) that while Smt. Anita Jain claimed to have paid Rs. 1, 77, 71,888/- to various publications in December, 1996, January and February, 1997 and April to August, 1997 on behalf of the company in liquidation, the Statement of Account of the company in liquidation showed that a sum of Rs. 1,86,65,603/- had been paid to M/s Flying Colours between 05.11.1996 to 25.03.1997;" Furthermore some transactions were referred by the Se....
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....ita Jain vide deed dated 23.03.2001 agreed to sell the said flat to the said Smt. Anita Jain." 22. Counsel also points out that V.K. Sharma, ex-Director of JVG Finance Ltd. (Under Lqdn.) and Anita Jain had created different companies by partnering with each other to give birth to new frauds and played different roles to cheat creditors of the companies. This was so held in the said judgment:- "(ii) that the payments from the company in liquidation to M/s Flying Colours/Smt. Anita Jain were amounted more than claimed by Smt. Anita Jain to be due from the company in liquidation; (iii) that the records of company in liquidation further showed that Smt. Anita Jain have been receiving regular payments of her dues from the company in liquidation; (iv) that thus the dues from the company in liquidation to Smt. Anita Jain were not clearly established and the transaction in favour of Smt. Anita Jain could not be said to be a bonafide one; (v) that Smt. Anita Jain had closed the business of advertising agency in or about January, 1999 due to non payment of outstanding bills by the company in liquidation;...... (x) the aforesaid also showed collusion between the appellant, Smt. Anita Ja....
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....aud the creditors/investors who, though the victim of the fraud, are not involved in the transactions which constitute such conduct and may have no personal knowledge of the same. In K. T. Dharanendrah v. R. T. Authority, AIR 1987 SC 1321, the Supreme Court, while dealing with a case under the Customs Act, 1962, observed that "an economic offence is committed with cool calculation and deliberate design with an eye on personal profit regardless of the consequence to the Community. A disregard for the interest of the Community can be manifested only at the cost of forfeiting the trust and faith of the Community in the system to administer justice in an even handed manner without fear of criticism from the quarters which view white collar crimes with a permissive eye unmindful of the damage done to the National Economy and National Interest." Analysis and Conclusions 24. It can be seen from the above analysis that the main contention on behalf of the appellants in both the proceedings i.e., the execution appeals' revival applications and the company appeals is that, Yusuf was always the owner of and had title to the suit property, which could not be held responsible for the debts an....
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....from confirming the sale where a third person has purchased the property bonafide at the auction sale." In a later judgment in Janak Raj v. Gurdial Singh AIR 1967 SC 608, it was held as follows: "it must be held that the appellant-auction purchaser was entitled to a confirmation of the sale notwithstanding the fact that after the holding of the sale the decree had been set aside. The policy of the Legislature seems to be that unless a stranger auction-purchaser is protected against the vicissitudes of the fortunes of the suit, sales in execution would not attract customers and it would be to the detriment of the interest of the borrower and the creditor alike if sales were allowed to be impugned merely because the decree was ultimately set aside or modified." Gurjoginder Singh v. Jaswant Kaur & Anr (1994) 2 SCC 368, relied on the judgment rendered by the Privy Council held that the status of a bona fide purchaser in an auction sale in execution of a decree to which he was not a party stood on a distinct and different footing from that of a person who was inducted as a tenant by a decree-holder-landlord. It was held as follows: "A stranger auction purchaser does not derive his t....
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....t he has no notice of such developments. 28. The relevant provisions of the Companies Act are Sections 441, 536 and 537. The relevant extracts of Sections 536-37 are reproduced below: "536. Avoidance of transfers, etc. after commencement of winding up-. xxxxxxxxxxxxxxxx (2) In the case of a winding up by [the Tribunal], any disposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall [unless the Tribunal] otherwise orders, be void." "537. Avoidance of certain attachments, executions, etc,. in winding up by Tribunal- (1) Where any company is being wound up by Tribunal- xxxxxxxxxxxxxxxx (b) any sale held, without leave of the Tribunal of any of the properties or effects of the company after such commencement shall be void." Section 441 on the other hand, enjoins that upon admission of a winding up petition, it shall be "deemed to" relate back to the date of its filing. Whilst there is no doubt that upon winding up order being passed, there would be a "relation back" to the date of its presentation, yet the corollary tha....
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....panies in active collusion with each other rotated themselves in these companies and transferred / siphoned off / utilized the funds collected from the innocent investors by opening a large number of bank accounts in the name of these companies. The present petitioner / accused Vijay Kumar Sharma is the mastermind behind these activities." The other orders adverted to by the learned Single Judge also reveal that ARD too, apparently, was a front set up to ferret or tap the monies of investors. On the other hand, there is nothing on the record to suggest that the transaction, which was the basis of the arbitration award, was not bona fide. In the light of these facts, it is held that the submissions of Yusuf that it could not be held responsible for the liabilities of its shareholder or director, are without force. 30. The court is of opinion that the learned Single Judge, in lifting the corporate veil, to discern the real involvement of individuals who set up a network of corporate entities to evade their liabilities and also to dupe the innocent public, cannot be faulted. The doctrine of lifting the corporate veil has been resorted to by the Supreme Court in several decisions, su....