TaxTMI 
TaxTMI 
2018 (3) TMI 645
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....fendant. The third defendant in C.S.No.877 of 2005, who is arrayed as the first defendant in C.S.No.627 of 2008 is referred as the second defendant.. C.S.No.877 of 2005 3. C.S.No.877 of 2005 is filed by Mr. Thakur J. Bakshani against M/s. Shrutivinda Agro Farms Pvt. Ltd. and four others. The averments in the plaint briefly summarized are as follows: 3.1 The plaintiff has stated that he and his family members are major shareholders of the third defendant company, namely M/s. Nova Dyeing and Printing Mills Limited, holding 54.98% of Equity Shares out of the total number of 1,23,00,000/- Equity Shares of Rs. 10/- each and apart from the above, the plaintiff and his group of companies, had also brought in funds to the tune of Rs. 1,64,00,000/- by way of unsecured loans for funding operation cash losses from time to time. The plaintiff is the Founder-Promoter-cum- Director of the third defendant company. Originally, the third defendant company was incorporated during the year 1988 under the name and style of "Jupiter Dyeing and Processing Mills Private Ltd." and subsequently sought for change of name and became as "Nova Dyeing & Printing Mills Ltd." [third defendant company], incorp....
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.... first defendant company on 14.07.2005, without his consent and approval, especially when he is almost holding an extent of 54.98% of Paid Up Equity Capital. According to the plaintiff, if a company wanted to sell any of it's immovable assets, it is mandatory to follow Section 293 of the Companies Act, 1956 read with Article 54 of the Memorandum/Articles of Association of the third defendant company and however, it has not been done and despite the said fact, the plaintiff, being a major shareholder, has not received any notice. 3.5 The plaintiff would further state that the Sale Agreement dated 14.07.2005 entered into between the first defendant and third defendant company is also against Section 23 of the Indian Contract Act 1872 and it is ab initio null and void and that apart, the Sale Agreement is one sided to favour the purchaser, namely the first defendant. The plaintiff would further state that the first defendant did not exhibit due diligence before entering into the Sale Agreement and therefore, it is hit by Section 46 read with Section 293 of the Companies Act, 1956 and there is no document evidencing adherence to the said mandatory statutory provisions. The plaintiff a....
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....pecific performance of the Agreement for Sale dated 14.07.2005. The first defendant would contend that it is a Private Limited Company incorporated under the provisions of the Companies Act, 1956 and during June 2005, they became aware of the decision of the third defendant company to dispose of it's land and building and since the first defendant was already in the process of acquiring lands in the vicinity, it expressed interest in purchasing the Suit property and after negotiation and verification of title deeds, the Agreement for Sale dated 14.07.2005 came into being between them and the third defendant company for a valid consideration of Rs. 16,25,00,000/- free from all encumbrances and at the time of entering into the agreement, the first defendant paid an advance of Rs. 2,00,00,000/- and subsequently, paid a sum of Rs. 50,00,000/- on 18.08.2005 through cheque and the first defendant also expressed his readiness and willingness to perform his part of obligation. The first defendant took a specific stand that not only the members of the Board of Directors, almost the entire body of shareholders of the third defendant company including the plaintiff were actively involved duri....
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....st 2011, adopting the written statement of the first defendant. 6. The third defendant, namely M/s. Nova Dyeing & Printing Mills Ltd., had also filed a written statement and averred as follows. 6.1 The third defendant would state that it is a closely held Public Limited Company, now represented by it's present Chairman Mr. Thakur J. Bhakshani (Plaintiff in C.S.No.877 of 2005) and the second defendant in C.S.No.627 of 2008 and it is signed by Mr. Thakur Bakshani and he is the present Chairman of the company with effect from 10.04.2006. Mr. Jagdish A. Sadarangani was the then Chairman of the third defendant company when the Suit in C.S.No.877 of 2005 was filed and the defendants 4 and 5 were also directors of the said company at that point of time when Mr. Jagdish A. Sadarangani had resigned as Director and also as Chairman of the third defendant Company on 09.04.2006 and the defendants 4 and 5 had also resigned as Directors from the said Company. The third defendant would also aver that as per it's shareholding structure on the date of Sale Agreement dated 14.07.2005, the plaintiff held stake holding of 40.33% and the fourth defendant held 1.58% and the fifth defendant held 4.07% ....
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....ndant company and the said Clause also provides for unbridled and uncontrolled power to enter into the internal administration of the company to achieve the objectives of the purchaser and it is nothing but taking control of the company along with valuable assets which are incomparable to the advance paid by the purchaser and therefore, it is to be declared as void and prayed for dismissal of the Suit with costs. 7. The fourth defendant, namely Mr. Harish J. Bakshani had filed the written statement stating among other things that the plaintiff is his younger brother and he is taking care of his business in abroad and also in India and he regularly visits and participates in the Board Meetings and General Body Meetings of the third defendant company as and when called for and the plaintiff also actively participated in all the affairs of the third defendant company. The plaintiff is the Founder-cum-Promoter of the company and the Managing Director, namely Mr. V.C. Dhandapani, is instrumental for closure of the activities of the company in the year 2005. As regards Agreement for Sale, it is stated that Mr. Jagadish A. Sadarangani, then Chairman of the third defendant company has giv....
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....art in the Board Meeting and Shareholders Meeting and resolved to sell the immovable properties of the company and the plaintiff has immense confidence over the fourth defendant as he has been taking part and in-charge of the affairs of the company. 8.2 As regards the stand of the plaintiff that he wanted certain clarifications in the Clauses of the Sale Agreement, the fifth defendant would state that he was not aware of the same and the plaintiff had also admitted that final draft Sale Agreement is to be forwarded to him by the fourth defendant, after approval by the Auditor Mr. P. Ramachandran and however, the draft Sale Agreement was not sent to him by the fourth defendant. The fifth defendant would further state that the final Sale Agreement was approved by Mr. Jagdish A. Sadarangani, the fifth defendant and the fourth defendant, who are the directors of the company and the fourth defendant had fully appraised the plaintiff of the contents of the agreement and the plaintiff having understood the clauses of the agreement, did not make any objection or protest against any one of the directors of company and the Sale Agreement was signed on behalf of the third defendant company b....
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....y the statutory dues. 8.5 It is further averred by the fifth defendant that from May 2005 onwards, the company was receiving various offers for purchasing the lands adjoining the Suit property and M/s. Chettinad Granites offered to purchase the property for Rs. 14 Crores with the entire plant and machineries and stock and however, the Board of Directors did not agree to do so. The fifth defendant would further state that the plaintiff and the defendants 4 and 5, being Board of Directors of the Company, had discussions with M/s. B.N.T. Connections and decided that if an offer of about Rs. 17 Crores to Rs. 17.50 Crores was made for purchase of the entire land, plant, machineries and other articles, the company would sell off the property and it was also agreed among the Directors and the plaintiff that in the event of the machineries and stocks not being sold, the land and building alone would be sold for the price of Rs. 16.50 Crores. The plaintiff had also consented and authorized for such arrangement and subsequently, went to United States of America and he also made visits to Chennai to finalise the transaction and had discussions with various parties and when the plaintiff was ....
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....areholders and that the Sale Agreement with the first defendant company is not an unilateral one and it is a standardized format and Section 46 of the Companies Act, 1956 is also duly complied with. The fifth defendant further took a stand that the shareholders of the company, being closely related to each other, resolved to sell the company to save it from debts and the plaintiff, holding 54.98% of shares in the company, cannot do remote control operations of the defunct company through certain Directors of the Company in India and as such, the Agreement for Sale with the first defendant company is valid and binding on the company and it is also not open to the plaintiff to state that there was no General Body Meeting or resolution passed in the said meeting to sell the immovable properties of the Company. 8.8 The fifth defendant also denied the averments made in para 12 of the plaint with regard to Clause 8 of the Sale Agreement and as on date, the fifth defendant has no interest whatsoever either in the Suit property or in the affairs of the Company and the plaintiff had also acquired his shares. In sum and substance, the fifth defendant took a stand that the Suit filed by the ....
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....y had purchased another 16.61 Acres in order to comply with the directions of the Tamil Nadu Pollution Control Board to utilize the said lands for the purpose of discharge of treated effluents from Effluent Treatment Plants. The plaintiff also reiterated the stand as to the non-compliance of the mandate cast under Section 293(1)(a) of the Companies Act and though all the members of the Board and the shareholders of the third defendant company are close family associates, so far as the policy decisions are concerned, in the General Body Meeting it should be taken. 9.3 The plaintiff would further aver that no doubt the fourth defendant is his brother but at the same time, he is the Managing Director of the third defendant company and there cannot be any presumption that the fourth defendant has an implied authority to represent the plaintiff as shareholder or as Director in the respective meetings and mere relationship of brother cannot be taken as jurisdiction for the fifth defendant to finalize the said Sale Agreement and nothing prevented them to communicate the said decision to the plaintiff either by Phone, Fax or E-mail and further took a stand that it cannot be presumed that ....
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.... buy the property by the company? (6) Whether the third defendant company contravened Article 54 of the Articles of Association by entering the Sale Agreement which is void in law? (7) Whether the Sale Agreement is against Section 23 of the Indian Contract Act or not? (8) Whether the Sale Agreement is in contravention of Section 192(4)(ee) of the Companies Act or not? (9) Whether the Clauses in the Sale Agreement dated 14.07.2005 are prejudicial to the interest of the company? C.S.No.627 of 2008 11. C.S.No.627 of 2008 is filed by the first defendant in C.S.No.877 of 2005, namely M/s. Shrutivinda Agro Farms Pvt. Ltd. against the third defendant and the plaintiff in C.S.No.877 of 2005. The plaintiff herein is a Private Limited Company represented by its Power of Attorney Agent Mr. Umashankar Viswanathan and in the plaint, it is averred as follows: 11.1 The Suit is filed for Specific Performance of the Agreement for Sale dated 14.07.2005 and also for permanent injunction restraining the defendants from in any manner alienating or encumbering or otherwise dealing with the Suit property except in accordance with the above said agreement. The plaintiff is a Private Limited Co....
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....hey have not entered into any Agreement for Sale. Under Clause 8, time schedule is fixed at 4 months. Clause 11 expressly recorded that time is the essence of the Agreement for Sale and in the event of failure to keep up any of the obligations by either party, the other party shall be entitled to claim Specific Performance of the Agreement for Sale on the other. 11.4 The plaintiff had further paid an advance of Rs. 50,00,000/- through cheque and it was duly acknowledged by the first defendant and ever since the date of the agreement, the plaintiff has kept ready the balance sale consideration and expressed it's readiness and willingness to pay the balance sale consideration to the defendant to complete the sale transaction within the stipulated period of four months from the date of the agreement, which would expire on 14.11.2005. The first defendant has also taken several steps which include disposal of plant and machineries in the Suit property and settlement of various liabilities of the defendant company and it is mainly on account of statutory claims and other creditors. The plaintiff, apart from paying huge advance of Rs. 2.5 Crores to the defendant company, also proceeded w....
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....he Suit land and in fact, assented to such a course of action. The plaintiff would further aver that not only the members of the Board of Directors, almost the entire body of shareholders of the first defendant company including the second defendant had actively involved during negotiations between the parties, which culminated in the execution of the Sale Agreement dated 14.07.2005 and one of the Directors of the first defendant company, namely Mr. Haresh Bakshani, who is the fourth defendant in C.S.No.877 of 2005, is none other than the brother of the second defendant and Managing Director of the first defendant company and thereby sufficiently safeguarded the interest of the second defendant and his family. 11.7 The plaintiff would further aver that the entire documents relating to the first defendant company, including e-mails and other correspondences are in the exclusive custody of the second defendant and taking advantage of the same, the second defendant had instituted the Suit in C.S.No.877 of 2005. The plaintiff would further aver that the second defendant deliberately waited for over 2½ months so as to utilize the advance paid by the plaintiff towards settling th....
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....onsideration of Rs. 13,75,00,000/- and whereas the second defendant had deposited the entire advance of Rs. 2,50,00,000/- to the credit of C.S.No.877 of 2005, vide orders of this Court dated 24.07.2007. 12.2 The second defendant would further aver that no doubt a meeting was held on 04.10.2005 to discuss the agreement relating to the Suit property and it is not correct to state that he sought for amendment of the Sale Agreement and in fact on account of his wife's illness, he stayed in United States of America and never visited Chennai. The second defendant would also aver that the draft Sale Agreement forwarded by other directors of the first defendant company is contrary to the final agreement entered into between the plaintiff and the first defendant company and he is totally against the conditions of the Sale Agreement which are biased and against the seller and despite the fact that proposal has been sent by other Directors to sell the property, it cannot be put into effect as it is one sided. The second defendant would further aver that the purchaser, namely the plaintiff is very well aware of the E-mail message dated 10.07.2005 and though a meeting was held between the repr....
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....n the last day of limitation. The first defendant would further aver that no attempt has been made by the plaintiff to deposit the balance sale consideration and further stated that once a property held by a limited company, any transaction should be done only in terms of the statutory provisions of the Companies Act and before entering into Agreement of Sale and at the time of negotiation itself, the plaintiff should have verified and scrutinized the Memorandum of Association and Articles of Association and the persons holding shares in the Company and however, the plaintiff, without verifying and discussing with the second defendant, who is holding major shares in the Company viz., 54.98%, has gone ahead in purchasing the Suit property and the same is also in violation of Section 293(1) of the Companies Act as well as against Article 54 of the Articles of Association of the Company and Section 23 of the Indian Contract Act, 1872. The first defendant would further aver that the property to be conveyed is not free from encumbrance and the plaintiff, as per his own admission, has to make payment of balance sale consideration of Rs. 13.75 Crores within four months and it was not done....
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....to take a contra stand. The plaintiff would further aver that the second defendant had full knowledge of the terms of the agreement, approved the Sale Agreement before the parties signed the same and almost entire shareholders and directors of the first defendant company took a decision to sell the property and the same is evident from the e-mail communication dated 10.07.2005. The plaintiff would further aver that the defendants 1 and 2 are acting in collusion in order to frustrate the Agreement for Sale dated 14.07.2005 and insofar as the allegation connecting the plaintiff Company with "Satyam" group of companies, the plaintiff denied the same and also took a stand that the allegations are not in any manner germane to the present case and prayed for decreeing of the Suit with costs. 17. This Court, upon perusal and consideration of the pleadings and documentary evidence in C.S.No.627 of 2008, had framed the following issues for trial: (1) Whether the plaintiff followed statutory provisions of the Companies Act, in particular Section 293 of the Companies Act before entering into the Sale Agreement dated 14.07.2005 to buy the property of the first defendant? (2) Whether the p....
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....o executed a Deed of Mortgage under Ex.P3 dated 11.04.2005, securing the loan amount of Rs. 1,50,00,000/- which is to be repayable with interest @ 14% p.a. and the time for repayment was prescribed as one year. (c) Mr. Jagdish A. Sadarangani, one of the Directors of the third defendant company had entered into an Agreement for Sale under Ex.P6 dated 14.07.2005 with the first defendant company in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008, namely M/s. Shriutivinda Agro Farms P. Ltd., for the sale of immovable assets with the consent of the Founder Promoter and major shareholder, namely the plaintiff. The plaintiff, being the major shareholder, having stake of 57.24% shareholding/voting powers in the third defendant company, is entitled to question the validity of Ex.P6- Agreement for Sale dated 14.07.2005. (d) The third defendant company became a sick company in terms of Section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985 [Act 1 of 1986] [in short "SICA"] and as per the order of the Board for Industrial and Financial Reconstruction [in short "BIFR"] dated 28.08.1998, vide No.174/98, BIFR had directed the company/promoters under Section 22A of ....
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....nda Agro Farms P. Ltd., did not evince any interest to deposit the balance sale consideration of Rs. 13,75,00,000/- to the credit of the Suit in C.S.No.877 of 2005 and as such, they never exhibited their readiness and willingness to perform their part of obligation under Ex.P6/Agreement for Sale. (i) Suit for Specific Performance is an equitable remedy and in the light of the above said attitude exhibited by the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008, the said Suit is liable to be dismissed. (j) The first defendant in C.S.No.827 of 2005/plaintiff in C.S.No.627 of 2008 went for belated amendment of the prayer in C.S.No.627 of 2008, praying for the relief of damages of Rs. 93 Crores and the said claim/prayer is also per se unsustainable for the reason that they did not suffer any loss on account of the alleged non-performance of Ex.P6 and that they were not at all ready and willing to perform their part of contract and the claim for damages is also hit by limitation. (k) The first defendant company is also having a tainted record for the reason that it is a shell company under M/s. Satyam Group of companies, where the Directorate of Enforcement ha....
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....at the plaintiff is representing the interest of 54.98% of the shares of the third defendant company and however, he held only 43.32% of shareholding and failed to produce any material to show that he has authorization to represent the remaining 11.66% of shares. (c) The plaintiff did not have any serious objection for entering into Agreement for Sale under Ex.P6 to sell/dispose of the immovable properties and his objections seem to be (i) sale transaction will be completed through the purchase of property or vendor will sell to the purchase the entire company shares, (ii) purchaser was being given full power to take over the company, settle the staff labour and creditor problems etc., and (iii) the condition that a sum of Rs. 1 Crore will be kept in escrow account till the matter of Mr. V.C. Dhandapani is settled in full. (d) The plaintiff, as PW1, in his cross examination has admitted that his objection to Ex.P6-Agreement for Sale is only with regard to the above said three points and not in respect of the entire transaction and it is also evidenced by e-mail communication dated 09.07.2005 [Ex.P5/Ex.D1]. (e) Under Section 12 of the Specific Relief Act, 1963 part performance....
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....al capacity to pay the balance sale consideration as evidenced by the letter of Mrs. Jhansi Rani under Ex.D18 wherein, she being one of the promoters of the first defendant company, not only confirms her willingness but also shows her financial capacity to pay the balance sale consideration and the third defendant company never called upon the first defendant to perform their obligation. (k) Insofar as the allegation that the first defendant is a shell company of "Satyam" Group of Companies and its bank accounts have been attached/frozen, the order passed by the Court of competent jurisdiction at Hyderabad is also under challenge before the Hon'ble Apex Court and the said appeal/(s) are being continuation of original proceedings and not having reached the finality and as such, the issue is still at large. (l) The Agreement for Sale under Ex.P6 is not prohibited under Section 32 of the Indian Contract Act, 1872 and this Court, in the light of the pleadings and evidence, can also compel the plaintiff to give consent for and validate the Agreement for Sale, under Sections 10(i), 20(3) and 13(1)(b) of the Specific Relief Act, 1963. (m) Delay in performance of the agreement under ....
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....[2016] 1 SCC 762] It is also brought to the knowledge of this Court that during the pendency of the Suits, the plaintiff had become the major shareholder of the third defendant company. Attention of this Court was also invited to pleadings, relevant exhibits and other relevant material portion of the oral evidence. 22. This Court paid it's best attention and anxious consideration to the rival submissions and also perused the pleadings and considered the oral and documentary evidence, to which it's attention was drawn. 23. It is also to be noted at this juncture that arguments in these Suits commenced on 17.03.2016 and it went on piece meal and were concluded on 20.06.2017 and on that date, the judgment was reserved. Written arguments along with decisions were submitted by the learned counsel on 05.07.2017 and 10.07.2017 respectively. Issue No.1 in C.S.No.877 of 2005 and Issue No.1 in C.S.No.627 of 2008 24. It is relevant to extract hereunder Section 293 of the Companies Act, 1956: "S. 293. Restrictions on powers of Board. (1) The Board of directors of a public company, or of a private company which is a subsidiary of a public company, shall not, except with the consent of....
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.... discounting of bills and the issue of other short term loans of a seasonal character, but does not include loans raised for the purpose of financing expenditure of a capital nature.] Explanation [III].-Where a portion of a financial year of, he company falls before the commencement of this Act, and a portion falls after such commencement, the latter portion shall be deemed to be financial year within the meaning, and for the purposes, of clause (e). (2) Nothing contained in clause (a) of sub-section (1) shall affect- (a) the title of a buyer or other person who buys or takes a lease of any such undertaking as is referred to in that clause, in good faith and after exercising due care and caution: or (b) the selling or leasing of any property of the company where the ordinary business of the company consists of, or comprises, such selling or leasing. (3) Any resolution passed by the company permitting any transaction such as is referred to in clause (a) of sub-section (1) may attach such conditions to the permission as may be specified in the resolution, including conditions regarding the use, disposal or investment of the sale proceeds which may result from the tran....
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....i - Managing Director/fourth defendant 4. Shri Prem I Watwani - Director/fifth defendant. Sub/Item No.3 is the decision taken for repayment of unsecured loan, interest and return of advance received from the first defendant pursuant to Ex.P6 i.e., Rs. 2.50 Crores and the said amount has been subsequently deposited to the credit of C.S.No.877 of 2005, vide orders of this Court dated 24.07.2007 made in A. No. 3185 of 2006. 27. After filing of proof affidavits, trial of both the Suits commenced on 30.10.2012 and the chief examination of PW1, namely Thakur J. Bakshani/plaintiff in C.S.No.877 of 2005 was completed on 29.04.2013 and it is in tune with his pleadings and the proof affidavit filed in lieu of chief examination. Cross examination of PWI/plaintiff commenced on 09.07.2013 and it went on till 04.08.2014 and it runs to nearly 74 pages and excerpts of his cross examination are as follows: * The plaintiff/PW1 started the third defendant company with two persons, namely Selvaraj and Ramachandran. * The plaintiff/PW1 did not know the percentage of shareholding till today, but actual number of shareholding by him or his family or for that matter, any other shareholders of the....
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....005 to take over as Managing Director of the third defendant company and to work with the General Manager and team to manage the project and the business of the third defendant company was not profitable in the year 2005 and PW1 know the exact loss sustained by the third defendant company during March - April 2005. * Brother of PW1 namely, Mr. Haresh J. Bakshani/fourth defendant in C.S.No.877 of 2005 is also a Director or shareholder in almost all his companies so that he can assist him in managing the affairs of the company. * BIFR proceedings was initiated by State Bank of India. * The plaintiff/PWI and his wife together always had 55% shares of the third defendant company. * The fourth defendant became the shareholder of the third defendant company during 1990-1991 and his shareholding was 3.56%. * Mr. Jagadish A. Sadarangani was the Chairman from 1992 - 1993 till 2006 and in 2006, he resigned as Chairman and he sold his shares in the third defendant company to PWI/plaintiff due to ill health and personal reasons. * As of 2005, the third defendant company had about 29 acres of land, buildings admeasuring about 1,50,000 to 2,00,000 Sq.ft. and machinery and connected e....
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....dent Textiles Limited and there was no urgency to take any decision and the said claim is not supported by any document. * PW1/plaintiff was also deposing on behalf of the third defendant company on account of the subsequent development that he had purchased shares of Mr. Jagadish A. Sadarangani and the defendants 4 and 5. * PW1/plaintiff once again admitted that the entire advance amount from the third defendant company was utilized for discharge of its financial commitments, irrespective of the fact that it is pressing commitment or not. * The plaintiff/PW1 was specifically questioned as to whether any communication sent calling upon the third defendant to pay the balance sale consideration and he answered that he is not aware and that the third defendant did not call upon him to pay the remaining sale consideration and he took over the control of the third defendant company some time during April 2006. * In haste without getting the consent of PW1, the Ex- Chairman - Mr. Jagadish Sadarangani, Directors- defendants 4 and 5, entered into Agreement for Sale on behalf of the third defendant company with the first defendant company and he is for the third defendant company an....
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....rther depose that he did not know the guideline or market value of the properties covered under Ex.P6/Agreement for Sale and a suggestion has been put to him that as per the revised guideline value in the year 2012, the value of the property is approximately to the tune of Rs. 93 Crores. * A question was put to PW1 that Mr. Jagadish A. Sadarangani, fifth defendant and all the family members, who were shareholders in the third defendant company, had consented for the sale of the properties under Ex.P6 before filing of C.S.No.877 of 2005 and he replied it by saying "I would not know". * PW1/plaintiff would further state that at the time of execution of Ex.P6, apart from the properties which are covered under Ex.P6, 2 acres of land in VGP Industrial Estate in Poonamallee High Road was also there. * When PW1 was questioned as to the non-impleadment of the shareholders of the third defendant company, he replied it by saying that there has not been a General Body Meeting where a decision has been taken and law requires that General Body Meeting is to be convened and discussed and in the case on hand, admittedly, no such meeting was held. * PW1 would state that he is aware of the ....
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....on that Articles of Association does not require the convening of General Body Meeting and that selling of all major assets of the company will surely need the approval of shareholders in the General Body Meeting and that as a buyer, should have ascertained and done proper due diligence before entering into Ex.P6/Agreement for Sale. 28. DW3, namely Mr. G. Anand, in the chief examination, would depose that he was the Chief Financial Officer in BNT Group of Companies and the third defendant company and he spoke about the Enforcement Directorate action against M/s. Satyam Group of Companies in the year 2010 and the judgment given by the XXI Additional Chief Metropolitan Magistrate Court, Hyderabad, dated 09.04.2015, marked as Ex.D14 and the first defendant company is also involved in those cases and M/s. Jhani Rani, Director of the first defendant company and Mr. D.V.S. Subba Raju are the accused in the said cases. The excerpts of the evidence of DW3 are as follows: * As per the Board Resolution under Ex.P22 dated 24.06.2005, which pertains to sale of immovable properties, the third defendant company and the plaintiff did not attend the said meeting and it does not indicate the nam....
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....e day to- day affairs. * Quorum for conducting of the Board Meeting of the third defendant company is 1/3rd of the number of directors or two directors, whichever is more. * Companies Act speaks about subjects requiring Board Approval and which do not require Board Approval. * The third defendant company agrees for granting of decree in C.S.No.877 of 2995 filed by Mr. Thakur Bakshani/plaintiff. * To the knowledge of DW3, the third defendant company did not cancel the Agreement for Sale under Ex.P6, though he is the Director of the Company and he became the Director of the Company through Board Resolution dated 18.06.2008. * The Directors of the third defendant company at the relevant point of time were the plaintiff and his wife Mrs. Nisha T. Bakshani and Mr. Jagannath Khemlani and DW3 was nominated as a Director in the Board Meeting. * The testimony of DW3, on behalf of the third defendant company, is based on documents. * As regards sale of Plant and Machinery of the third defendant company, to the knowledge of DW3, there is no such objection as to obtaining approval of the shareholders through the General Body Meeting and he was not aware of the Board Resolution by....
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....e shareholders meeting for sale of immovable properties. * DW3 agrees with the suggestion that under Memorandum of Association, the third defendant company can purchase, sell, take on lease or otherwise acquire any lands and the sale of land is an object incidental and ancillary to the company and as per the Articles of Association, the Directors have been conferred with power to acquire and dispose of the properties belonging to the third defendant company. * DW3 pleads ignorance as to the Doctrine of Indoor Management and further stated that not obtaining shareholders consent before execution of the Agreement for Sale/Ex.P6 is a mistake committed by the third defendant company. * DW3 also speaks about the complaints/cases instituted by the Enforcement Directorate against Satyam Computer Services and others and when a specific question was put to him as to the allegations made against the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008, he would state that he has to go through the documents again. Insofar as Ex.P6/Agreement for Sale dated 14.07.2005 is concerned, DW3 denied the suggestion that the third defendant in C.S.No.877 of 2005, namely M/s. Nova ....
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....ird defendant in C.S.No.877 of 2005. * DW3 pleaded ignorance as to the negotiation took place prior to the execution of Ex.P6/Agreement for Sale; but he came to know about the said Agreement during the later part of the year 2005, i.e., after its execution and neither the plaintiff nor the fourth defendant or any other person associated with the plaintiff did not speak to him with regard to Ex.P6 before its execution. * DW3 would state that the third defendant Company stopped its business activities from the year 2005-2006 and was not sure whether the said activities were stopped prior to the execution of Ex.P6/Agreement for Sale. * DW3 would also concede that without the machineries belonging to the third defendant Company, it would not be possible for it to generate any revenue or carry on business and agreed that the third defendant Company alienated it's machineries in June 2005 vide Ex.P22 and entered into an Agreement of Sale in that regard under Exs.P8 and Ex.P9 dated 30.07.2005 and he would further state that the third defendant Company could have raised finance from it's shareholders, Directors by way of unsecured loans or otherwise, to settle the liabilities of Trid....
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....rd defendant company to enter into the said Agreement and denied the suggestion that the first defendant cannot be held responsible for the said lapse and would state that the first defendant company should have conducted due diligence before executing the Agreement of Sale. * DW3 do not agree to the question that the majority shareholders of the third defendant company have not objected to the execution of the Agreement for Sale dated 14.07.2005 and further denied the suggestion that the majority shareholders amounting to 60% of the shareholdings of the third defendant Company did not raise any objection for the Agreement of Sale and also denied the other general suggestions. 29. Excerpts of the testimony of DW1 are as follows:- * DW1 would depose that Jhansi Rani is his family friend and she is having 50% of the shareholding in the first defendant company, viz., M/s. Shruthivindha Agro Farms Pvt. Ltd. and apart from that she was not aware of any other details and not personally aware as to the formation of the said company. * The advance amount of Rs. 2.50 Crores was paid by the first defendant company and when a suggestion was put that the said amount emanates from Mythas....
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....quirements contemplated under the Memorandum and Articles of Association of the third defendant Company. * D.W.1 would admit that he was aware that the plaintiff, viz., Mr. Thakur J. Bakshani and his family had the major shareholding in the third defendant company to the tune of 50% and the fourth defendant had signed the Board of Directors Resolution with regard to the sale of immovable property and he was also informed that the plaintiff was in USA. * DW1 would further depose that the first defendant company went about doing what is necessary to be done before executing Ex.P6/Agreement for Sale. * Attention of DW1 was drawn to the E-Mail message - Ex.P.6/Ex.D1 which contains only three lines and he was asked as to whether any word the plaintiff has given his consent for the Agreement for Sale. DW1 answered by saying that the exact word of consent is not there and according to him, three lines in the E-Mail message pointed out is as good as concurrence pending three small points which came to be discussed among the Directors and that is what Mr. Jagdish A.Sadarangai, Mr. Prem Watwani and Mr. Ramachandran have told him and it amounts to concurrence of all the Directors of the....
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....sue of not wanting to sell the land by the plaintiff was not on the three points. * D.W.1 would state that the E-Mail message dated 10.07.2005 says that the draft agreement should be vetted by the auditor and should be made as final draft and it was approved by Mr. Ramachandran and he has no proof to show that the draft sale agreement has been approved and the final draft was sent to the plaintiff. * A specific question was also put to DW1 as to the proof that the shareholders of the third Defendant Company had given their consent for sale of the property of the Company and it was answered by him by stating that the Board Resolution was signed by the Managing Director and Ex.P22/Minutes of the Board Meeting came to be issued after consulting all the shareholders which was the practice and it was duly followed and denied the suggestion that the third defendant company did not convene the General Body Meeting. * Attention of DW1 was also drawn to E-Mail message dated 10.07.2005 and he answered it by saying that Mr. Thakur Bakshani was only talking about the mode of transfer and at no time, did he object to the sale transaction. * DW1 would state that insofar as the sale of ma....
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....nce before effecting purchase of immovable properties of the third defendant company, due diligence was done by the legal team of the first defendant company. * As regards Clause 15 of the Agreement for Sale/Ex.P6 dated 14.07.2005, DW2 stated that the company team has certified the cases filed by Dhandapani against the third defendant company. * DW2 denied the suggestion that advance money of Rs. 2.50 Crores paid by the first defendant company has been utilized for discharging the dues of the third defendant company. * The first defendant company had received the Board Resolution dated 24.06.2005/Ex.P22 from the third defendant company through Sitaram Reddy/DW1 and he personally thought that the said Board Resolution is sufficient for the sale transaction (Ex.P6) and DW1 had confirmed to the first defendant company that the plaintiff in C.S.No.877 of 2005 has given his consent and denied the suggestion that the plaintiff in C.S.No.877 of 2005 has not given any consent. * A specific question was put to him as to the reason for the first defendant to went ahead with the execution of Ex.P6/Agreement for Sale dated 14.07.2005 despite the majority shareholder of the ....
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....nd after filing of the Suit in C.S.No.877 of 2005, the plaintiff has come for negotiation through Sitaram Reddy/DW1 and however, it did not materialize. 31. A careful scrutiny and consideration of the testimonies of the above said witnesses would disclose that General Body Meeting has not been convened before entering into Agreement for Sale/Ex.P6 between the first defendant company and the third defendant company and the answer for justification given by the first defendant is that shareholders of the third defendant company are consisting of close family members and all of them except the plaintiff in C.S.No.877 of 2005 had participated in the Board of Directors Meeting and passed the Resolution under Ex.P22 and as such, compliance of Section 293 of the Companies Act, 1956 has been done. Insofar as compliance of Articles of Association of the third defendant company is concerned, due diligence has been done by the first defendant company. 32. Ex.P22 is the Minutes of the Board of Directors of M/s. Nova Dyeing and Printing Mills Limited/third defendant in C.S.No.877 of 2005/first defendant in C.S.No.627 of 2008 and the Directors present were Mr. Jagadish A. Sadarangani, Chairman....
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....ked as Ex.P27/Ex.D30 and in the said counter affidavit, it is averred that the third defendant company became financially sick from the year 2000 and steps were taken to sell the land and buildings and it was approximately 13 acres and it was used for very many years as a dumping place for wastewater from the unit. It is further averred in the said counter affidavit that the plaintiff in C.S.No.877 of 2005 is admittedly a major shareholder, holding 54% of shares and as regards, unsecured loans, it was admitted that he had brought in funds for the third defendant company and he alone is the Founder Promoter and Director of the company. It is further averred that the affairs of the third defendant company was closed on 03.02.2005 and as regards Agreement for Sale under Ex.P6, in para 8 of the counter affidavit, it is averred that draft copy was given to the plaintiff's brother-fourth defendant, who is also the Managing Director of the third defendant company and only on the instructions of the plaintiff and other Directors, he had signed the agreement based on the discussion with all the shareholders and he signed the Sale Agreement as a witness, based on the instructions of the plai....
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....the signatory witnessing the transactions itself, would go to show that it was only he, who was coordinating for and on behalf of the plaintiff and the family members of the plaintiff. In fact, upon receipt of the advance of Rs. 2.50 Crores and the settlement of all dues, the company is now presently debt-free company, which has emboldened the plaintiff to wriggle out of the agreement and dishonour the terms of the sale agreement. Hence, the allegation that Article 54 of the Association and Section 293 of the Companies Act are not complied with, is totally devoid of any truth. It is also to be stated that Section 23 of the Indian Contract Act is also not violated and the transaction is not one sided as it is for the benefit of the company and not to the benefit of the Directors or for the shareholders per se. But in any event, upon settlement of all liabilities, it is the shareholders who stand to gain as the liability has now been settled and more so, when the plaintiff holds the majority of the shares." In para 13 of the said counter affidavit, it is averred that more than 95% of the shareholders stood together and held the Extraordinary General Body Meeting, waiving 21 days not....
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.... any of the three recognized exceptions to the rule in Foss (cited supra) and yet the aggrieved shareholders would be entitled to challenge such transaction by taking proceedings in their own right under Sections 397 and 398". In Page Nos. 830 and 831 of the said decision, it is observed that. "It may be that a resolution may be passed by the directors which is perfectly legal in the sense that it does not contravene any provision of law, and yet it may be oppressive to the minority shareholders or prejudicial to the interest of the company. Such a resolution can certainly be struck down by the court under Section 397 or 398. Equally a converse case can happen. A resolution may be passed by the board of directors which may in the passing contravene a provision of law, but it may be very much in the interest of the company and of the shareholders. Such a resolution may be attacked as invalid in a suit or other appropriate proceeding, but not being oppressive to the minority shareholders or prejudicial to the interests of the company, it cannot be challenged in a petition under Section 397 of 398. I do not subscribe to the proposition that every action of the directors which is in ....
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.... of invalidating the meeting or the resolution passed at the meeting. 36.3 A question as to whether a statute is mandatory or directory has to be adjudged in the light of the intention of the legislature as disclosed by the object, purpose and scope of the statute. If the statute is mandatory, the thing done not in the manner or form prescribed can have no effect or validity; if it is directory, penalty may be incurred for non-compliance, but the act or thing done is regarded as good. A finding was recorded that Section 173 of the Companies Act is mandatory and not directory and if any contravention of the provisions of Section 173, the meeting held on 05.09.1961 is invalid and so also the resolution passed at the meeting is invalidated. 36.4 As already pointed out, consent was sought from the General Body Meeting for sale of movable and immovable properties and ultimately finding was recorded that there was no contravention to Section 173, which would invalidate the General Body Meeting held on 05.09.1961 and the resolution passed at the said meeting. 36.5 Admittedly, in the case on hand, only in terms of the resolution dated 24.06.2005/Ex.P22- Minutes of the Board Meeting, Ex.....
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....any that have been dealt with by the board of directors under the deeds of hypothecation and mortgage in favour of the bank. Hence, the learned company judge was right in holding that no part of the undertaking of the company was disposed of in favour of the bank." 36.10 The learned counsel appearing for the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008, by placing upon the said decision International Cotton Corpn case (cited supra)] would submit that admittedly, the undertaking of the company was not disposed of and what was attempted to be disposed of under Ex.P6 was only immovable assets of the company and as such, resolution to that effect need not be passed in the shareholders meeting and therefore, the said transaction is perfectly valid. However, facts of the case would disclose that by passing a resolution, the Board of Directors had sought to hypothecate and mortgage the properties in favour of the bank and it was held that no part of undertaking of the company was disposed of in favour of the bank. However, in the case on hand, immovable properties of the third defendant company were sought to be disposed of in favour of the first defendant in C.S....
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.... of S.293 will not apply to the Committee of Management appointed in a proceeding under ss.397 and 398 of the Companies Act." The said finding came to be rendered on the ground that the company therein has not been in production for more than 5 years and the thing weighed with the mind of the Calcutta High Court was that since the Committee of Management appointed by the Court was discharging the functions, the fetter on the part of the Board of Directors under Section 293 will not apply to the Committee of Management appointed in a proceeding under Sections 397 and 398 of the Companies Act. 36.13 However, in the case on hand, no such Committee was appointed by this Court and though the third defendant company ceased it's operations for some time, it was under the control and management of the Board of Directors of the Company. 36.14 A Single Bench of Bombay High Court, in the decision in P.S. Offshore Inter Land Services (P.) Ltd. v. Bombay Offshore Suppliers and Services Ltd. [1992] 75 Comp Case 583, has taken into consideration the decisions in International Cotton Corpn (P.) Ltd. (supra), Madras Gymkhana Club Employee's Union (supra) (cases cited supra). The case before the ....
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....t, for the purpose of section 293(1)(a) of the Act, all the capital assets of the undertaking taken together would be embraced by the expression "undertaking" as, otherwise, it would be very easy to defeat the legislative intention and avoid procurement of the consent of the general body when the legislative intention is clear that the directors cannot dispose of the entire or substantially the whole business of the company without the consent of the general body. If, after disposal of practically all the capital assets of a company, what remains is only the husk of the assets, it would be perhaps difficult to take the view that, merely, assets of the undertaking were disposed of and not the undertaking itself. It is, therefore, possible to take a view that the board of directors cannot dispose of "all the capital assets of the company" taken together which will denude the company of its business or will leave merely the husk left behind. In the present case, however, the first respondent- company owns, three vessels and the vessel in question was acquired only in June, 1989, and the same is lying idle. The first respondent-company is carrying on its business with the help of the o....
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.... whatsoever between a running undertaking and a closed undertaking. In Page No.600 observed that, "At any rate, the assets in question must be substantially all (if not all) the assets of the undertaking so as to leave nothing of the business or the running concern in the business sense of the term after the asset intended to be disposed of is disposed of." and thereby implying that substantial assets of the company is disposed of, it amounts to all assets of the undertaking so as to leave nothing of the business or the running concern in the business. 36.15 In the case on hand, if the assets of immovable properties of the third defendant company are sold pursuant to Ex.P6/Agreement for Sale, it is impossible for the third defendant company to run it's operations and it is also brought to the knowledge of the Court that the proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 also got terminated. No doubt, for sale of machineries of the company, the Board of Directors of the third defendant Company, under Ex.P22-Minutes of the Board of Directors Meeting dated 24.06.2005, accorded approval for sale of plant and machineries for a consideration of Rs. 88 ....
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....ders of the company moved the Calcutta High Court to hold up convening of General Body Meeting and the Calcutta High Court granted interim orders and it was put to challenge before the Hon'ble Supreme Court, which opined that the High Court has exceeded the jurisdiction and at the instance of the shareholders, some of the shareholders moved application for convening of General Body Meeting and though interim order was granted by Company Judge of Kerala High Court, which was vacated based on the undertaking that the entire assets would not be sold and appeal was moved before the Division Bench and it was also dismissed and thereafter, consent was given in the General Body Meeting and accordingly, Board of Directors proceeded with the sale by issuance of public notice. In Page No.793 of the said judgment, the Division Bench of Kerala High Court after taking into consideration the function of the Board of Directors, observed that, "The board of directors could effect sale of the immovable property only with the sanction of the general body under Section 293(1) of the Companies Act.." The functions of the Board of Directors were also considered in the said decision and in Page No.79....
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....company court. The company court should shut its doors to them and deny entry. The Court, on the facts of the case, observed that the Company Petition as well as the company applications filed by the petitioner/shareholder and third parties are with ulterior motive and it is nothing but an abuse of process of law and accordingly, allowed the appeal filed by the company with costs. 36.18 In Nirad Amilal Mehta (supra), interlocutory application was moved seeking the relief of injunction restraining the fifth defendant, who is the purchaser of the company's property under a Deed of Conveyance dated 13.12.2007 from selling, alienating, creating third party rights, developing or carrying out any construction or parting with the possession of the property purchased till the disposal of the Suit. Facts of the case would disclose that a resolution was purportedly passed by the first defendant company in its general body meeting to sell the suit property and accordingly, it was sold and transferred in favour the fifth defendant therein for a consideration of Rs. 6 Crores 95 Lakhs and defendants 2, 3 and 4 as the directors of the first defendant company signed the conveyance as vendors in ....
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...., 2007. In sub-paragraph No. (iv) of paragraph No. 15, the plaintiff has stated that the place of meeting as stated in the alleged notice was an open ground. He has further stated that no arrangements for the meeting had ever been made at that open space and any such meeting was held and could not be held on the open space. Neither a register of members present at the meeting nor any other material was produced to show that any meeting was held on 23rd March 2007. No minutes appear to have been prepared and aimed by the Chairman as required under Section 193 of the Companies Act. In any event no record was produced that the Chairman signed the minutes of the alleged meeting held on 23rd March 2007. The allegations made in paragraph No. 15 of the plaint are unrebutted in affidavit in reply. It must therefore be held, atleast at this prima facie stage, that no meeting was ever held on 23rd March 2007 much less a meeting in accordance with law. Re: Transfer not of the whole of the undertaking. Mr. Kamdar learned Counsel for the defendant submitted that the sale was not of the whole of the undertaking of the Company and therefore it was not necessary to have a resolution under Sect....
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....requires at least 21 days prior notice has not been complied with and so also Section 173 of the Companies Act for the reason that no explanatory statement has been annexed to the notice of the meeting and therefore, no meeting was held on 23.3.2007 much less a meeting in accordance with law. As regards transfer of the whole or substantially the whole of the undertaking of a company, the first defendant company had two undertakings, one at Mumbai and another at Aurangabad and neither of the said undertakings could be sold without consent of the company obtained in the general body meeting. 36.19 In the case on hand, admittedly General Body Meeting was held before entering into Ex.P6/Agreement for Sale between the third defendant company and the first defendant company and even otherwise, sale of the land and properties under the said agreement is a transfer of the undertaking of the movable properties of the third defendant company. 36.20 In IDBI Bank Ltd. (supra), contention was put forward on behalf of the appellant therein that Board Resolution taken in the meeting held on 31.03.1999 for sale of the property was sufficient and it was repelled by this Court on the ground that a....
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....eral powers conferred by or implied in Article and other powers conferred by these Articles and subject to the provisions of Section 292 and 293 of the Act, it is hereby expressly declared that it shall be lawful for the Directors to carryout all or any of the objects set forth in the Memorandum of Association and to do the following things. (a) To purchase or otherwise acquire for the company any property, rights or privileges which the Company is authorised to acquire at such price and generally on such terms and conditions as they fit and to sell, let, exchange or otherwise dispose of property privileges and undertakings of the company upon such terms and conditions and for such consideration as they may think fit..." Article 54 of the Articles of Association of the Company states, among other things, that subject to the provisions of Sections 292 and 293 of the Companies Act, it shall be lawful for the Directors to carryout all or any of the objects set forth in the Memorandum of Association and to do the following things, namely (a)......... to sell, let, exchange, or otherwise dispose of property privileges and undertakings of the company upon such terms and conditions and....
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....supra) and the plea put forward as to the defence of bonafide purchaser was also considered and it is relevant to extract hereunder the portions in Page No.489 and 490 of the said judgment: "Alleged protection under Section 46 of the Companies Act. Section 46 of the Companies Act lays down the form of contract to be made by the company and provides that any contract made by the Company in accordance with Section 46 shall bind the Company. Mr. Kamdar submitted that the deed of conveyance was a kind of contract, though a completed or an executed contract. The suit property stood conveyed and transferred by the said contract. As the contract was made in accordance with the form prescribed by Section 46 the contract was binding on the company. I am unable to agree. Section 46 only prescribes the form of the contract to be made by the Company. Every contract made by a company must fulfill other conditions, if any, imposed by the other provisions of the Companies Act. Section 293 of the Companies Act imposes a condition for transfer of the whole or substantially the whole of the undertaking of a company. If the whole or substantially the whole of the undertaking is to be transferred,....
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....d that it is a bona fide purchasers for value without notice, for reasons more than one. Firstly, whether the defendant No. 5 at all is a bona fide purchaser is a question of fact which would be required to be determined on appreciation the evidence to be adduced at the trial. At this stage, it cannot be held that the defendant No. 5 had no knowledge of the illegality. Whether the defendant No. 5 had made appropriate enquiries before purchase of the property is also a question of fact which can be determined only at the stage of trial. Secondly, in my prima facie view the defence of bona fide purchaser would not be available in case of breach of a statutory bar on the Board of Directors from selling the undertaking of a company without permission of the company obtained in a general meeting. Hence, at this stage, in my view, the defendant No. 5 cannot claim any benefit on the ground that he is a bona fide purchaser for value without notice." The Bombay High Court, by placing reliance upon the decision in Royal British Bank v. Turquand [(1856) 6E & B 327], held that "when there is a clear breach of a provision of a Statute, the Doctrine of Indoor Management cannot apply If a Statut....
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....n otherwise, ratification can be done by the shareholders in yet another meeting also. 46. It is also reiterated that admittedly the advance of Rs. 2.50 Crores paid by the first defendant in C.S.No.877 of 2005, namely M/s. Shrutivinda Agro Farms Pvt. Ltd. has been utilized by the third defendant company in C.S.No.877 of 2005, namely M/s. Nova Dyeing and Printing Mills Ltd., to settle of their debts, even prior to the ratification of Ex.P6/Agreement for Sale and the said act implies the intention of the third defendant company to give effect or go ahead with Ex.P6/Agreement for Sale anticipating that Ex.P6 will go through in its entirety and the first defendant in C.S.No.877 of 2005/M/s. Shrutivinda Agro Farms Pvt. Ltd. has irretrievably altered it's position by purchasing adjoining lands to the suit property under Exs.D4 to D10/Sale Deeds and it is not in a position to alter it's position to the utmost disadvantage. It is the stand of the plaintiff in C.S.No.877 of 2005 and the second defendant in C.S.No.627 of 2008, namely Thakur J. Bakshani that admittedly he did not authorize his brother, namely the fourth defendant/Harish J. Bakshani to represent his interest and that of his f....
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.... having found a lot of objections, which were not favourable to the third defendant company/M/s. Nova Dyeing and it was all in favour of the first defendant company/M/s. Shrutivinda Agro Farms Pvt. Ltd., he has sent an e-mail to his brother, who had forwarded the Sale Agreement to him, to show the draft Agreement for Sale to his auditor, for vetting it and corrected and to send him the final draft for his approval and despite such an advice, the Ex- Chairman has gone ahead with Ex.P6/Agreement for Sale dated 14.07.2005. It is also his evidence that three objections were raised, firstly, the sale transaction will be completed through purchase of property or vendor will sell to the purchaser the entire shares and this is not possible in view of the dispute M/s. Nova Dyeing and Printing Mills Ltd. with its Ex-Managing Director Mr. V.C. Dhandapani and secondly, Clause No. 14 was strongly objected on the ground that they have committed the purchaser full authority to take over the company, settle the staff labour and creditors problems out of funds due to them and thirdly, Clause 15 of the Agreement was also objected on the ground that a sum of Rs. 1 Crore will be kept in the escrow acc....
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.... of the shareholders is necessary and he has informed M/s. Shrutivinda Agro Farms Pvt. Ltd./first defendant company about the said requirement and he was specifically questioned as to the exercise of due diligence by M/s. Shrutivinda Agro Farms Pvt. Ltd./first defendant in C.S.No.877 of 2005 before entering into Agreement for Sale and he answered that such an exercise was done. DW3 would state that he did not personally verify before entering into Agreement for Sale and he did not personally verify the Memorandum and Articles of Association and would admit that the plaintiff/Thakur J. Bakshani and his family had major shareholding of more than 50%. 50. DW3 would further depose that according to him, the fourth defendant signing in the Board of Directors, amounts to Thakur J. Bakshani/plaintiff gave his consent and the Board Resolution under Ex.P22 did not say that the fourth defendant represents Thakur J. Bakshani/plaintiff. A specific question was put as to whether his Auditor Mr. Ramachandran had affirmed or objected to Ex.P6/Agreement for Sale and he answered that there is no document or report to that effect and the draft Agreement has been finally sent to Thakur.J. Bakshani/p....
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....his juncture that the Agreement for Sale/Ex.P6 was ratified under Ex.P21/Minutes of the Board Meeting dated 27.07.2005 and under Ex.P22, authorization/approval was given by the Board of Directors of M/s. Nova Dyeing and Printing Mills Ltd., (Item No. 4) to dispose of the factory Land and Buildings of the Company situated at No. 30, Kazhipattur Village, Old Mahabalipuram Road, Chengai District-603103 and in the considered opinion of the Court, it is not in compliance of Section 293(1)(a) of the Companies Act, 1956 and however, the said resolution of the Board of Directors can be ratified by the General Body of the shareholders, but it has not been done and as of now, it may not be possible for the reason that the plaintiff in C.S.No.877 of 2005/Mr. Thakur J. Bakshani has taken over the control of M/s. Nova Dyeing and Printing Mills Ltd., by purchasing the shares of Mr. Haresh J. Bakshani and other directors. 54. No doubt, the sale of land and immovable properties of the company or plant and machineries of the company would also amount to whole or otherwise disposal of the whole of undertaking or substantially the whole of undertaking for the reason that without either of those asse....
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....s Act, have not been followed/adhered to. Issue No.4 in C.S.No.877 of 2005 58. In N.V.R. Nagappa Chettiar v. Madras Race Club AIR 1951 Mad 831, it is held that "if the board of directors is mismanaging the affairs of the company or board of directors are conducting business prejudicial to the interest of the shareholders they could always move the Company Law Board after complying with the formalities laid down in the Companies Act and the Company Court should show circumspection while dealing with an application filed by an ordinary shareholder and a shareholder could always ventilate his grievance before various forums and detailed procedures against oppression of minority and mismanagement of the company affairs, enabling the shareholder to approach the Company Law Board, which in-turn exercise it's powers under Sections 388B to 388E and further, Section 237 also empowers the Department of Company Affairs to effectively interfere even on a mere complaint by a shareholder if there is evidence to justify the interference in cases where fraud, mismanagement or serious irregularities in the affairs of the company are raised". 59. In Cochin Malabar Estates and Industries Ltd. (su....
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....in the four walls of a company court. The company court should shut its doors to them and deny entry." In the said decision, it was observed that "the company court shall not interfere with the lawful decision of the board of directors of a company and even a commercial misjudgment would not amount to oppression or mismanagement and the board of directors may err, every error cannot be a ground for action and the company court is not a correctional court for all errors and a shareholder has to yield to majority rule and the decision of the board of directors who are also invariably be shareholders The shareholder if could procure the aid of the court in each and every action taken by the board of directors it would lead to endless litigation and pin down the company within the four walls of a company court. The company court should shut its doors to them and deny entry. 60. In Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. [1964] 34 Comp Cases 777, scope of Sections 397 and 398 of the Companies Act, 1956 came up for consideration especially relating to setting aside of past/concluded transactions and in page No.831, while answering the plea raised ....
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....and admittedly, it was not done so. 62. Therefore, Issue No.4 in C.S.No.877 of 2005 is answered accordingly. Issue No.6 in C.S.No.877 of 2005 and Issue No.2 in C.S.No.627 of 2008 63. It is relevant to extract Article 54 of the Articles of Association of the third defendant in C.S.No.877 of 2005/first defendant in C.S.No.627 of 2008/M/s. Nova Dyeing and Printing Mills ltd., "POWERS AND DUTIES OF DIRECTORS 54. In furtherance of and without prejudice to the general powers conferred by or implied in Article and other powers conferred by these Articles and subject to the provisions of Section 292 and 293 of the Act, it is hereby expressly declared that it shall be lawful for the Directors to carry out all or any of the objects set forth in the Memorandum of Association and to do the following things. (a) To purchase or otherwise acquire for the company any property, rights or privileges which the Company is authorised to acquire at such price and generally on such terms and conditions as they fit and to sell, let, exchange or otherwise dispose of property privileges and undertakings of the company upon such terms and conditions and for such consideration as they may think fit.....
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....that majority of the shareholders represent in their capacity as Director and Managing Director respectively, is of the considered view that they are entitled to presume that as per the Doctrine of Indoor Management, everything has taken place as per law and procedure and this Court is of the considered view that it is obligatory on the part of the first defendant as per the Memorandum and Articles of Association, to exercise due diligence and it has not been done. 66. The testimonies of DWs.1 and 3 would also disclose that such a minimum basic exercise has not been done before entering into Ex.P6/Agreement for Sale dated 14.07.2005. In the considered opinion of the Court, without taking note of the Memorandum and Articles of Association, more particularly Article 54 of the Articles of Association, Agreement for Sale under Ex.P6 was entered into by the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 with the third defendant in C.S.No.877 of 2005/first defendant in C.S.No.627 of 2008. 67. Therefore, Issue No.6 in C.S.No.877 of 2005 and Issue No.2 in C.S.No.627 of 2008 is answered in favour of the plaintiff in C.S.No.877 of 2008/second defendant in C.S.No.627 ....
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....approved even subsequently by the shareholders in the General Body Meeting, it is unenforceable. However, it is also to be pointed out at this juncture that the stand taken by the plaintiff in C.S.No.877 of 2005 may have a bearing while deciding the alternative relief of damages claimed by the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008. 71. Section 192(4)(ee) of the Companies Act contemplates that a resolution has to be passed by a company (i) according consent to the exercise by its Board of directors of any of the powers under clause (a), clause (d) and clause (e) of sub-section (1) of Section 293. 72. Admittedly, in the case on hand, consent of the shareholders in the General Body Meeting has not been obtained and that by subsequent ratification also, the exercise done by the Board of Directors in that regard under Ex.P22 has not been ratified/approved. Adherence to Section 173 of the Companies Act is also mandated. In the considered opinion of the Court, the resolution passed by the company as per Section 192(4)(eee)(i) of the Companies Act requires ratification at the hands of the Registrar of Companies and it has not been done. 73. Therefore, Iss....
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.... (c) who fails to aver and prove that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him, other than terms the performance of which has been prevented or waived by the defendant. Explanation.-For the purposes of clause (c),- (i) Where a contract involves the payment of money, it is not essential for the plaintiff to actually tender to the defendant or to deposit in court any money except when so directed by the court; (ii) the plaintiff must aver performance of, or readiness and willingness to perform, the contract according to its true construction." 79. It is a well settled position of law as enunciated in various pronouncements of the Hon'ble Supreme Court of India that under the said provision, it is incumbent on the part of the party who wants to enforce specific performance of the contract to prove that he is always ready and willing to perform essential terms of the contract and prove continuous readiness and willingness to perform his part of obligation under the terms of contract. 80. This Court, keeping in mind, the settled proposition of law coupled with the interpretation of the....
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....extract hereunder the relevant questions and answers of his cross examination found in Page No. 153: "Q: Did your company or Directors made any efforts to deposit the Balance Sale consideration before this Hon'ble Court? A: No, because Court has not given any direction to us. Q: I put it to you that neither your company nor your Directors have any funds to deposit the credit of this uit. A: I deny that. Q: I put it to you that the letter Ex.D18 has been caused as you were not able to deposit money the balance sale consideration before this Hon'ble Court? A: I deny the suggestion. Q: I put it to you that this letter, Ex.D18 has been produced before this Hon'ble Court as Shrutivinda Agro Farms Pvt. Ltd. had miserably failed to comply the terms and conditions laid down in the sale agreement? A: I deny the suggestion." DW2 would further depose that since execution of the Agreement for Sale, the plaintiff in C.S.No.627 of 2008 is always ready and willing to pay the balance sale consideration and however, M/s. Nova Dyeing and Printing Mills Ltd./third defendant in C.S.No.877 of 2005 has not fulfilled the conditions mentioned in Ex.P6 and in the year 2005, after filing of....
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....t should also bear in mind that when the parties prescribe certain time-limit(s) for taking steps by one or the other party, it must have some significance and that the said time-limit(s) cannot be ignored altogether on the ground that time has not been made the essence of the contract (relating to immovable properties)." As per the ratio laid down in the above cited decision, even where time is not the essence of the contract, the plaintiff must perform his part of the contract within a reasonable time and reasonable time should be determined by looking at all the surrounding circumstances including the express terms of the contract and the nature of the property. While exercising it's discretion, the Court should also bear in mind that when the parties prescribe certain time-limit(s) for taking steps by one or the other party, it must have some significance and that the said time-limit(s) cannot be ignored altogether on the ground that time has not been made the essence of the contract (relating to immovable properties). 85. It is pleaded by the plaintiff in C.S.No.627 of 2008 that, even now the Agreement for Sale/Ex.P6 has not been cancelled and in fact the third defendant in ....
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....le/Ex.P6. 89. Therefore, Issue Nos.4 and 6 are answered in negative against the plaintiff in C.S.No.627 of 2008. Issue No.5 in C.S.No.877 of 2005 90. It is not in serious dispute that the advance amount paid by the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 has been utilized by the third defendant company in C.S.No.877 of 2005 to settle the dues of the creditors. The objections raised by the plaintiff are that he, being the major shareholder of the third defendant company, his consent has not been taken and it is also in violation of Section 293(1)(a) of the Companies Act, 1956 read with Article 54 of the Articles of Association of the Company and further that the entire Agreement for Sale under Ex.P6 is one sided favouring the first respondent company. 91. PW1/plaintiff, in his oral testimony, has stated that his brother/fourth defendant, is a Director and shareholder in almost all of these companies, so that he can assist him in managing the affairs of the company and he is there to carry out his instructions. It is also stated by the plaintiff in C.S.No.877 of 2005/PW1 that plant and machineries were sold with his consent as per the decision of th....
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....are. A specific question was also put to him that the Suit came to be filed just 20 days prior to the expiry of three years period of limitation and answered it by saying that "he did not know" and he answered in similar lines as to the availability of funds to make the balance sale consideration. DW1 would also depose that the Board Resolution under Ex.P22 was shown to him by the Managing Director and it came to be issued after consulting the shareholders, which was the practice followed and according to him, shareholders consent has been taken. 94. DW2 was specifically asked as to whether the first defendant company and Directors made any effort to deposit the balance sale consideration and he answered it in negative for the reason that the Court did not give any direction and denied the suggestion that as per Ex.D18, the first defendant company was not in a position to deposit the balance sale consideration. DW2 would further depose that he would like to clarify that the third defendant company never asked them to deposit the balance sale consideration and further stated that after filing of the Suit in C.S.No.877 of 2005, the plaintiff came for negotiation through DW1, but did....
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.... C.S.No.627 of 2008. This Court, while answering Issue No.9 in C.S.No.877 of 2005, has also taken into consideration the testimonies of DWs.1 to 3 to the effect that the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 did not deposit the balance sale consideration on account of non-performance of the obligation on the part of the first defendant company. It is also to be noted at this juncture that no pre-suit notice has also been issued calling upon the first defendant in C.S.No.877 of 2005 to perform their part of obligation and the explanation offered is, after filing of the Suit in C.S.No.877 of 2005, such discussions were made, but did not materialize. This Court has also noted that the Suit in C.S.No.627 of 2008 for specific performance came to be filed just few days prior to the expiry of the period of limitation. 99. In Sardar Singh v. Smt. Krishna Devi [1994] 4 SCC 18, the decision relied on by the learned counsel appearing for the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008, the Hon'ble Supreme Court of India has taken into consideration Section 21 of the Specific Relief Act, 1963 and in Para 14 of the judgment held that "j....
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....dian Contract Act, 1872. According to the plaintiff in C.S.No.627 of 2008/first defendant in C.S.No.877 of 2005, anticipating performance of Ex.P6/Agreement for Sale, it purchased surrounding land and properties under Exs.D4 to D10/Sale Deeds. Following is the sale consideration paid in respect of the said documents through his sister concern M/s. Poorvabhadra Agro Farms Pvt. Ltd, Hyderabad: D4-Sale Deed dated 18.07.2005 -Rs. 53,82,000/- D5-Sale Deed dated 18.07.2005-Rs. 45,00,000/- D6-Sale Deed dated 18.07.2005-Rs. 45,00,000/- D7-Sale Deed dated 19.07.2005-Rs. 77,85,000/- D8-Sale Deed dated 19.07.2005-Rs. 84,15,000/- D9-Sale Deed dated 31.07.2007-Rs. 3,41,00,000/- D10-Sale Deed dated 19.03.2008-Rs. 6,85,00,000/- It is the submission of the learned counsel that access to the said land is only through the Suit schedule property and in support of the same, has placed reliance upon Ex.D11- Plan. Under Ex.D12- Information through Right to Information Act, furnished by SRO, Thiruporur dated 22.07.2014, guideline value of the property for the period from 1.4.2012 to 2014 has also been indicated and the computation sheets of the value of the property were also marked as Exs....
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....alty or unreasonable, the Court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation." 107. As per Clause 13 of Ex.P6/Agreement for Sale, if the "purchaser" fails to register the Sale Deed or Deeds or fails to take over the "Vendor's" company after four months hereof after, the "Vendor" has informed their readiness to sell the Schedule "B" Property and after the "Vendor" fulfils the terms and conditions of the para ten above or any other matters which arise later than the "purchaser" will pay an amount of Rs. 50,00,000/- (Rupees Fifty Lakhs Only) to the "Vendor" as damages. 108. This Court, while answering Issue No.1 in both the Suits, had held that since Section 293(1)(a) of the Companies Act, 1956 has not been adhered to coupled with the fact that the plaintiff in C.S.No.627 of 2008 has failed to exercise due diligence, Ex.P6/Agreement for Sale cannot be enforced. No doubt, plant and machineries were sold only pursuant to Board Resolution of the third defendant company Ex.P22. In the considered opinion of the Court, without the land and properties or plant and machineries, the third defendant company cannot effectively functi....
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....n C.S.No.627 of 2008, no issue has been framed and as such, it is not necessary to give any finding on that plea. 113. IN THE RESULT, (i) C.S.No.877 of 2005 is decreed as prayed for. However, this Court is not inclined to award costs, in the light of the conduct of the plaintiff in C.S.No.877 of 2005 who has given consent to the third defendant company to dispose of the plant and machineries through Board Resolution under Ex.P22; though the Statute mandates that it should be done through the General Body Meeting of the shareholders. (ii) C.S.No.627 of 2008 is dismissed. No costs. The plaintiff in C.S.No.627 of 2008/first defendant in C.S.No.877 of 2005 is entitled to withdraw the amount of Rs. 2.50 Crores deposited to the credit of C.S.No.877 of 2005 on the file of this Court, by the plaintiff therein, along with accrued interest. List of Witnesses: PW1 : Thakur J. Bakshani DW1 : Sitaram Reddy DW2 : D.V.S. Subba Raju DW3 : G. Anand List of Exhibits: Plaintiff's side documents: Exhibits Dated Documents P1 01.05.1996 Memorandum and Articles of M/s. Nova Dyeing and Printing Mills Ltd., P2 28.08.1998 Orders from BIFR P3 11.04.2005 Mortgage Deed by deposit....
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....ed Documents D1 09.07.2005 E-mail message from Mr. Thakur J. Bakshani D2 04.08.2014 Balance Sheet for 31.03.2004 of M/s. Nova Dyeing and Printing Mills Ltd. D4 18.07.2005 Sale Deed in favour of Poorva Badhra Agro Farms Pvt. Ltd. D5 18.07.2005 Sale Deed in favour of Poorva Badhra Agro Farms Pvt. Ltd. D6 18.07.2005 Sale Deed in favour of Poorva Badhra Agro Farms Pvt. Ltd. D7 19.07.2005 Sale Deed in favour of Poorva Badhra Agro Farms Pvt. Ltd. D8 19.07.2005 Sale Deed in favour of Poorva Badhra Agro Farms Pvt. Ltd. D9 31.07.2007 Sale Deed in favour of Poorva Badhra Agro Farms Pvt. Ltd. D10 19.03.2008 Sale Deed in favour of Poorva Badhra Agro Farms pvt. Ltd. D11 Plan Copy D12 22.07.2014 Information obtained under RTI Act D13 14.07.2005 Sale Agreement D15 31.03.2005 Balance Sheet of M/s. Shrutivinda Agro Farms Pvt. Ltd. D16 20.12.2004 Memorandum and Articles of Association of M/s. Shrutivinda Agro Farms Pvt. Ltd. D17 Income Tax Returns of M/s. Shrutivinda Agro Farms Pvt. Ltd. from 2009 to 2014 D18 19.11.2014 Letter of Mrs. Jansi Rani to M/s. Shrutivinda Agro Farms Pvt. Ltd. D19 04.05.2014 Bank Statement D20 10.02.2014 P....