TaxTMI 
TaxTMI 
2018 (3) TMI 645
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.....No.627 of 2008 is referred as the first defendant. 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 & Printi....
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....into being between the third defendant company and the 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 ....
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....on the file of this Court in C.S.No.627 of 2008, praying for specific 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 defenda....
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....ts. 5. The second defendant had filed Memo of Adoption dated August 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%....
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....d 14 have been drafted in such a way favouring only the purchaser/first defendant 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.....
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....ant is one of the Directors of the third defendant company and he had also taken part 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 ....
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....ose of repayment of loan to all the creditors and to settle the workers as well as to pay 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 fin....
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.... the purpose of saving the Company from it's debts and to realize the money invested by the shareholders 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 acquire....
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....endants 4 and 5 became Directors in the company and subsequently during the year 1994-1998, the Company 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 t....
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....tween the first defendant and third defendant company? (5) Whether the first defendant shown their bonafides as an Agreement Holder to 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 fr....
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....rty and of the property free from all encumbrances, land ceiling and acquisition proceedings, mortgage and lis pendens etc. Under Clause 7 further declaration has been given that they 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 c....
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....he second defendant for his perusal and the same is evidenced by e-mail dated 10.07.2005 sent by the second defendant and therefore, the second defendant was fully aware of the sale of the 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.....
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....gness on the part of the plaintiff to perform his obligation and the plaintiff never took any step at any point of time in making attempts to deposit to the credit of the Suit the balance sale consideration 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 ....
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....on 24.06.2008 i.e., 19 days just before the completion of three years period of the Sale Agreement and if the Board resolution of the Company is taken into consideration, the Suit has been filed exactly on 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 pr....
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....e stand that the draft Sale Agreement, that was forwarded to the second defendant, was the outcome of detailed discussion between the parties which include the second defendant and as such, it is not open to him 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 plaintif....
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....of ready-made garments through backward integration. The plaintiff and his family have a stake of 19.27% in M/s. Trident Textile Mills Limited and the said company had also lent money to the third defendant company and in order to secure the loan, the third defendant company had also 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 ....
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....there with accruing interest. (h) The Suit in C.S.No.627 of 2008, filed by the first defendant in C.S.No.877 of 2005, is also hit by delay and laches and admittedly, the said Suit came to be filed just 25 days prior to the expiry of the period of limitation and that apart, the first defendant, namely M/s. Shruitivinda 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-pe....
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....without seeking the leave under Order 1 Rule 8 of the Civil Procedure Code and as such, the Suit is liable to be dismissed at the threshold. In support of the said submission, he placed reliance on the decisions in S. Vetrivel v. Tamil Nadu Advocates Association [2011] 2 L.W. 790 and Executive Committee of the Synod Church of South India v. Rt. Rev. Dr. V. Devasahayam [(2009) 5 CTC 398]. (b) The Suit in C.S.No.877 of 2005 has been filed on the pretext that 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 ....
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....to go through, the first defendant would be definitely put to irreparable loss and great financial loss and it is also entitled to exercise it's discretion under Section 20(3) of the Specific Relief Act, 1963. (j) It is also pertinent to point out at this juncture that so far the third defendant did not receive Ex.P6/Agreement for Sale dated 14.07.2005 and he is always ready and willing to perform his part of obligation, but for the unreasonable/unethical attitude exhibited by the plaintiff and it had financial 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 ....
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....ion v. Management [AIR 1968 SC 554] (ix) Kollipara Sriramulu v. T. Aswathanarayana [AIR 1968 SC 1028] (x) R.C. Cooper v. Union of India [1970] (1) SCC 248] (xi) International Cotton Corp. (P.) Ltd. v. Bank of Maharashtra [1971] 41 Comp. Cases 226 (Kar)] (xii) Power Control Appliances v. Sumeet Machenics (P.) Ltd. [1994] 2 SCC 448] (xiii) Sardar Singh v. Krishna Devi [1994] 4 SCC 18 (xiv) P.D.' Souza v. Shondrilo Naidu [2004] 6 SCC 649] (xv) Anil Rishi v. Gurbaksh Singh [2006] 5 SCC 558] (xvi) MRF Ltd. v. Manohar Parrikar [2010] 11 SCC 374] (xvii) N. Nanjappa v. R.A. Hameed @ Ammersab [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....
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....with the provisions of sections 349 and 350 during the three financial years immediately preceding, whichever is greater. Explanation I.-Every resolution passed by the company in general meeting in relation to the exercise of the power referred to in clause (d) or in clause (e) shall specify the total amount up to which moneys may be borrowed by the Board of directors under clause (d) or as the case may be, the total amount which may be contributed to charitable and other funds in any financial year under clause (e). Explanation II.-The expression" temporary loans" in clause (d) means loans repayable on demand or within six months from the date of the loan such as short term, cash credit arrangements, the 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, o....
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....nt Dt. 14/07/2005 entered with M/s. SHRUTIVINDA AGRO FARMS PVT LTD in respect of sale of the company's land admeasuring 26 Acres and 54.90 Cents Situate at No.30, Kazipattur Village, Chengalpattu Taluk, Kancheepuram District for a total consideration of Rs. 16.25 Crores. The Board after discussion approved the following Resolution: RESOLVED THAT : the Sale Agreement Dt.14/07/05 as placed before the meeting duly initiated by the Chairman for the purpose of identification be and is hereby approved and ratified." 26. Ex.P20 is the Minutes of the Board of Directors Meeting of the third defendant company held on 09.04.2006 at 10.30 a.m., wherein the following Directors were present: 1. Shri Jagadish A. Sadarangani - Chairman/Brother of the plaintiff 2. Shri J. Thakur Bakshani - Director/Plaintiff 3. Shri J. Haresh Bakshani - 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....
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....rs as on date and he continued to be on the Board of Directors of M/s. Trident Textile Mills Pvt. Ltd. * After 1996, due to continuous losses, the third defendant company went into BIFR proceedings in the year 1999 and sometime during 2002 - 2003, a settlement was reached with State Bank of India, Chennai and the plaintiff had settled dues by selling his own house property and have also invested as and when funds were required by the company for operations and he cannot recollect the exact quantum of loans and the BIFR proceeding in respect of second loan of Rs. 6 Crores was during 1998-1999 and in respect of the same, the plaintiff/PW1 had mortgaged his personal property at Chennai, as collateral security. * The whole Board of the third defendant company was disinterested in managing the affairs of the company and therefore, the plaintiff asked his brother Mr. Harish J. Bakshani/fourth defendant in C.S.No.877 of 2005 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 susta....
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....h Sadrangani, the defendants 4 and 5 had sold their shares to the plaintiff and resigned from the company and now, he is representing the company as a Chairman. * The third defendant company received an advance of Rs. 2.50 Crores from the first defendant company and as per the records, out of the said amount received, Rs. 1.50 Crores was returned to the sister company, namely M/s.Trident Textile Mills and the plaintiff deposited the said amount to the Court in June 2007 out of personal funds with the permission of the Court. * The amount received as advance from the first defendant company was also utilized for settling the creditors and the plaintiff was also informed about the repayment of the loan to M/s. Trident Textiles Limited from and out of the amount paid by the first defendant company. * The plaintiff/PW1 would state that there is no need to enter into Agreement for Sale - Ex.P6 in a rush, as there was no demand on the third defendant company for urgent repayment of the loan to M/s.Trident 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....
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....hich he had with the draft agreement and had advised him not to rush with the Sale Agreement, to address all his objections and have the agreement vetted with his auditor and to send it to him for final approval. * PW1/plaintiff would admit that the said objections were oral and not borne out of any document and the Agreement for Sale was signed on 14.07.2005, just less than 4 days after he voiced his objections. * PW1/plaintiff would state that the third defendant company is still active as on date and would admit that all the machineries of the company have been sold as early as in the year 2005 and all the workers have also been retrenched in the said year. * PW1/plaintiff was asked as to the obligation cast upon the third defendant under Ex.P6 and he is unable to answer and he is not a party to Ex.P6 and would further add that on account of resignation of Mr. Jagadish A. Sadarangani, the fifth defendant had sold their shares to him and resigned from the Board and from April 2006, he is representing the third defendant company. * PW1/plaintiff would further depose that he did not know the guideline or market value of the properties covered und....
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....have agreed upon and consented to have the said procedure being followed by the third defendant company and the said procedure would cover Board Minutes. * PW1/plaintiff raised his objection to Ex.P6, but was not aware of any other shareholders objection and a suggestion was also put to him as to the convening of General Body Meeting and the procedure followed by the third defendant and that he will insist for the General Body Meeting to sell the machinery and he answered it by saying that he is not responsible for the company affairs and with regard to sale of machineries, his permission was sought, for which he gave his consent. * PW1 denied the specific question that a formal convening of a General Body Meeting was not required before the execution of Ex.P6 and would further state that it is a prerequisite when immovable assets of the company are being sold and for that purpose, General Body Meeting is to be convened. * PW1 denied the suggestion that he is in collusion with the third defendant company and once again denied the suggestion as to the non-requirement of convening a General Body Meeting and further denied the suggestion that Articles of Ass....
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....imited. * DW3 has signed the affidavit in one of the interim application filed on behalf of the third defendant company and also signed the additional written statement on behalf of the third defendant company in C.S.No.627 of 2008. * Plant and Machinery of the third defendant company was sold to BNT Innovations Private Limited for a sale consideration of Rs. 15 lakhs and it is owned by the plaintiff and his family members and for selling the same, Board Meeting was held. * The third defendant, besides having Land and Building, own other fixed assets, namely Plant and Machinery during the financial year 203-2004, 2004-2005 and 2005 -2006. * DW3 was not aware of any grievance on the part of the plaintiff for selling fixed assets and for giving evidence on behalf of the third defendant, he is expected to know about the affairs of the company. * The third defendant has entered into an Agreement for Sale under Ex.P6 without obtaining the shareholders approval for the sale as required under the Companies Act and therefore, the plaintiff has filed the Suit in C.S.No.877 of 2005. * Fourth defendant was the Managing Director of the thir....
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....t from the plaintiff, being the major share of the third defendant company, not given his consent, the other reason is that approval of the shareholders under Section 293(1) of the Companies Act is required before entering into Agreement for Sale and such approval was not taken by the third defendant company and since the said procedure was not followed by the third defendant company, opposing the relief prayed for by the first defendant in the Suit in C.S.No.627 of 2008 and apart from the said reasons, no other major reasons, based on which the third defendant is opposing the grant of relief in C.S.No.627 of 2008. * Question was put as to the such lapse/mistake committed by the third defendant company and DW3 positively answered by saying "yes" and would further depose that at the same time the first defendant company should have asked for approval from the third defendant company while entering into Agreement for Sale/Ex.P6. * DW3 answered in positive that as per Ex.P22-Minutes of the Board Meeting dated 24.06.2005, third defendant company has been authorized to sell the plant and machinery as well as immovable properties forming the subject matter of Ex.P6 and ....
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....sing and dyeing of fabric and garments. * DW3 would state that the sale consideration agreed under Ex.P6/Agreement for Sale was Rs. 16.25 Crores and the first defendant, namely M/s. Shruthivindha Agro Farms Pvt. Ltd. had paid Rs. 2 Crores at the time of signing Ex.P6/Agreement for Sale and subsequently, paid a sum of Rs. 50 lakhs and that the major portion of the amount received from the first defendant Company, probably Rs. 2 to 2.20 Crores, was used to repay the loan taken from M/s. Trident Textiles and the balance was used to pay some liabilities of the company and also reiterated that the entire sum of Rs. 2.5 Crores received from the first defendant Company towards part of sale consideration under Ex.P6/Agreement for Sale, was used by the third defendant, viz., M/s. Nova Dyeing and Printing Mills Ltd. for discharge of it's liabilities and would further state that however, the discharge of liability to M/s. Trident Textiles was not urgent. * DW3 would state that the plaintiff had obtained Exs.P13 and P14 and they are not the documents as claimed by the third defendant Company. DW3 would state that the plaintiff, viz., Thakur J. Bakshani and his family members ....
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....first defendant. * DW3 has stated that the plaintiff was granted Leave of Absence for the Meeting dated 24.06.2005 and that the fourth defendant took a decision relating to the business affairs of the company. * DW3 would state that he was not aware of the market value of the immovable property of the third defendant Company and would state that prior to sale of machinery, consent of the shareholders of the third defendant Company was obtained during March 2015 and the said Meeting was convened by the Board of Directors and it was chaired by the plaintiff. * DW3 would state that he was not aware of any objections received from the third defendant Company from any of its shareholders with regard to the execution of Ex.P6 and would concede that without machineries, it was impossible for the third defendant Company to carry on any of its business ; but added that the machineries can always be purchased to revive the business. * It was suggested to DW3 that not getting the shareholders' consent before entering into Ex.P6/Agreement for Sale is a mistake on the part of the third defendant company, he agreed the said suggestion and proceeded to state th....
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.... * As regards C.S.No.627 of 2008 filed for Specific Performance by M/s. Shruthivindha Agro Farms Pvt. Ltd., DW1 would state that the date of Agreement for Sale under Ex.P6 is 14.07.2005 and the Suit for Specific Performance was filed in the year 2008 and pleaded ignorance as to the deposition of the balance sale consideration of Rs. 13.75 lakhs by the first defendant Company and the said suit was filed on 24.06.2008 and pleaded ignorance that the said suit was filed 20 days prior to the expiry of three years period of limitation. * DW1 also pleaded ignorance as to the non-availability of funds with the first defendant Company to pay the balance sale consideration and pleaded ignorance to most of the questions on the ground that he only facilitated the sale of the property. * DW1 would further depose that he was aware of the fact that the sale of the property of the third defendant Company can be done with the consent of the General Body of the Shareholders and however, gave further answer that he was educated by the first defendant Company about the said requirement and pleaded ignorance as to Article 54 of the Articles of Association of the third defenda....
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....n any consent from him and his family members and DW1 answered it by saying that he disagree with the said suggestion and further when the plaintiff and his family members were represented by their brother who was the Managing Director of the third defendant Company and his signing of the Board Resolution amounts to the consent obtained from the plaintiff and his attention was further drawn to Ex.P22 - Resolution and he answered it by saying that the fourth defendant represented the interest of the plaintiff and his family and there were no objections from the plaintiff over a period of time and further denied the suggestion that the plaintiff never agreed for the sale of the property of the third defendant Company. * A suggestion was also put to him that the E-mail message dated 10.07.2005 [Ex.P5/D1] was only a draft and whether the final draft will be forwarded to the third defendant, DW1 answered it by saying that the final draft should be approved by the auditor and then, it should be forwarded to him and when a specific question was put that the final draft was never sent to the plaintiff, DW1 pleaded ignorance. * Insofar as the E-Mail dated 10.07.2005 is con....
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....en by all the shareholders for the sale of immovable property under ExP6 and that the Company Legal Team has also verified as to the cases filed by Mr. V.C. Dhandapani against the third defendant Company. 30. DW2, namely Mr. D.V.S. Subba Raju is the Director of M/s. Shrutivinda Agro-Farms Pvt. Ltd./first defendant in C.S.No.877 of 2005 and Director of M/s. Poorvabadra Agro Farms Pvt. Ltd., and he has filed proof affidavit in lieu of his chief examination and Exs.D14 to D25 were marked and was cross examined by the learned counsel appearing for the plaintiff in C.S.No.877 of 2005 - Mr. Thakur J. Bakshani and the excerpts of his oral evidence/testimonies are as follows: • * DW2 is having qualification of B.E. (Civil) and the first defendant company borrowed money from Maytas Properties Ltd., as loan. • * DW2 was Director in 53 companies and admitted in Ex.P18 that he along with Mrs. Jhansi Rani had signed as Directors and the company has been indicated in Panchanama Report of CBCID. • * DW2 was questioned with regard to the role of the company in Satyam Group of Companies Scam and he answered it by saying that judgment has come in the CBCID c....
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....orts to deposit the balance sale consideration under Ex.P6 before this Court as the Court did not give any direction and denied the suggestion that they lack efforts to do so and further denied the suggestion that Ex.D18 has been created on account of the fact that money was not available to deposit the balance sale consideration. • In respect of claim for damages in C.S.No.627 of 2008, DW2 explained that calculation sheet has been given in Ex.D25 and the said claim is based upon the said document and the amount of Rs. 2.50 Crores deposited by the plaintiff in C.S.No.877 of 2005 has been credited to the Suit. • DW2 would admit that he was the Director of Maytas Properties Limited for some time and denied the suggestion that the first defendant is the subsidiary company of Sathyam Group of Company and they can arrange funds for purchasing lands and with regard to Rs. 2.50 Crores paid by way of advance by the first defendant company, he answered it by saying that he has to verify the records. • When DW2 was specifically questioned that Ex.P6 is against the provisions of Section 293 of the Companies Act and before doing so, any approval is ....
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....d be and are hereby accorded to dispose the factory Land and Building of the company situated at No. 30, Kazhipattur Village, Old Mahabalipuram Road, Chengai District -603 103. RESOLVED FURTHER THAT Mr. Jagdish A. Sadarangini, Chairman of the company be and is hereby authorize to negotiate with prospective buyers to dispose the above property on the terms and conditions mutually agreed between the company and the prospective buyers. RESOLVED FURTHER THAT Mr. Jagdish A. Sadarngini be and is hereby authorised to finalise the Sale Agreement/Deed duly affixing the common seal of the company in the presence Mr. J.Haresh Bakshani Managing Director of the company whose also sign as witness thereof. RESOLVED FURTHER THAT Mr. Jagdish A. Sadarangini be and is hereby authorised to do all such acts, deeds and things which are necessary in this regard." Item/Sub No.6 of the said Minutes pertains to Authorization to sell existing Plant & Machinery and it is relevant to extract the same: "ITEM No.6 AUTHORISATION TO SELL PLANT & MACHINERY RESOLVED that approval of the Board be and is hereby accorded to sale the company's existing Plant....
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....ng held by only three families who were together at an emergency board meeting and EGM and confirmed the transactions and authorized the Chairman to sign the Agreement for Sale. In fact, since all the shareholders were present either in person or represented through their family members, including the plaintiff, the meeting was called a short notice, but still minutes were recorded by me as the Chairman which are under the custody of the 4th defendant. However, it is obvious that the Plaintiff and all Directors had agreed that the filing of Resolution with the Registrar of Companies would be done by the Managing Director to complete all formalities. Since these were only procedural matters, I, as the Chairman, was duly authorized to execute all the documents, apart from being the Power of Attorney holder of the properties. Hence, I, in my capacity as Chairman, issued a certified copy of the Minutes, genuinely believing that the 4th defendant, i.e., the Managing Director, would take appropriate steps to complete the legal formalities of filing the Forms with the Registrar of Companies. Therefore, the provision of Section 293 were in fact complied with and it could be seen that only ....
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.... is averred that Mr. Jagadish A. Sadarangani has invested Rs. 2.10 Crores and the plaintiff had gone ahead and purchased his shares for a consideration of Rs. 1,19,11,115.45. 35. A careful scrutiny of the oral and documentary evidence let in by the parties to these Suits would clearly reveal and disclose that no General Body Meeting of the shareholders was convened before entering into Ex.P6/Agreement for Sale between the first defendant company and the third defendant company in C.S.No.877 of 2005 and the explanation offered is that shareholding of the third defendant company was held by close family members of the plaintiff in C.S.No.877 of 2005 and since they represent the said company as Managing Director and Directors and further that before entering into Ex.P6/Agreement for Sale, due consultation was made with the plaintiff in C.S.No.877 of 2005 that the procedures contemplated under Section 293(1)(a) of the Companies Act have been complied with, in letter and spirit. 36. Let this Court consider the decisions rendered in that regard. 36.1 In Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. [1964] 34 Comp Case 777, scope of Sections 397, ....
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....iven that the Resolution passed in the Board of Directors Meeting dated 08.12.1957 did not contravene the provisions of Section 300 of the Companies Act, 1956. In the said decision, disposition of whole or substantial undertaking of the Company within the meaning of Section 293 of the Companies Act was also considered and a finding was given that creation of equitable mortgage and pledges as per the said resolution are valid resolution and the equitable mortgages created pursuant to the said resolutions are valid. 36.2 The validity of sale was challenged on the ground that it was effected without obtaining the consent of the company in general body meeting as required under Section 293 of the Companies Act, 1956. In Page No.840 of the said decision, it is observed that "a resolution giving the consent of the company was certainly passed at the extraordinary general meeting of the company held on 5th September, 1961, but the validity of the resolution was challenged on the ground that the meeting of the company at which the resolution was convened without complying with the requirements of Section 173 of the Companies Act, 1956". A contention was also put forth that under Section....
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....put forward that the defendant therein came into existence with the consent of the directors of the company and was taken for want of consent of the company as required under Section 293 of the Companies Act. In para 9 of the said decision, it is observed as follows: "9..... The want of consent of the Company in general meeting may result in invalidating the transaction of the nature mentioned in S.293 of the Companies Act but the crucial question is as to whether it also results in making the possession of the defendant taken under such a transaction without the consent of the company for purposes of S.9 of the Specific Relief Act.." Therefore, for the purpose of Section 9 of the Specific Relief Act, legality of the transaction is not the deciding factor. The question of invalidating the transaction does not arise and it is held that the want of consent of the Company in general body meeting may result in invalidating the transaction of the nature mentioned in Section 293 of the Companies Act. 36.7-36.8 As already observed by this Court, the resolution to sell the immovable properties of the third defendant company was not taken in the General Body Meeting of the....
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....h of Calcutta High Court sought to distinguish on the ground that the Committee of Management appointed by the High Court was not the Directors of the company and also pointed out the functions of the Board of Directors of the company and held in Page No.789 that, ".... We are also of the opinion that the Committee of Management appointed to discharge the functions of the board of directors of the company cannot be termed either as a receiver or a manager and, as such, such Committee of Management was not subject to the limitation that a receiver or a manager was but, at the same time, it must be emphasised that a Committee of Management is appointed by the court under s.397 of the Companies Act, and must always act under the superintendence and directions of the company court........ Therefore, in not complying with the requirements of S.293 of the Companies Act, nor in not obtaining any prior sanction or leave before entering into the transaction in question, in our opinion, the Committee of Management had not committed any breach of law". 36.12 The question whether the closed unit can be termed as an "undertaking" was also considered and in Page No.791 of the said de....
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.... word "undertaking" used therein. The Bombay High Court, after extracting Section 293(1)(a) of the Companies Act, in page 596 observed that: "In my judgment, the expression "undertaking" used in this section is liable to be interpreted to mean "the unit", the business as a going concern, the activity of the company duly integrated with all its components in the form of assets and not merely some asset of the undertaking. Having regard to the object of the provision, it can, at the most, embrace within it all the assets of the business as a unit or practically all such constituents. If the question arises as to whether the major capital assets of the company constitute the undertaking of the company while examining the authority of the board to dispose of the same without the authority of the general body, the test to be applied would be to see whether the business of the company could be carried on effectively even after disposal of the assets in question or whether the mere husk of the undertaking would remain after disposal of the assets? The test to be applied would be to see whether the capital assets to be disposed of constitute substantially the bulk of the assets so....
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....mpany in entirety or substantially, different criteria would have applied. This is a case of a business decision taken by the board of directors of the company as far back as on 21st May, 1990, in respect of sale of one of its assets which was lying idle in respect whereof operational expenses were mounting. The various reasons given by the first respondent itself in the viability report and in the justification put forward in the application made to the Director-General of Shipping for approval of the sale of the vessel cannot be ignored while considering the question as to whether one of the three vessels by itself, without anything more, can be considered as an undertaking. It is impossible for me to treat merely one of the assets of the company as an "undertaking". Several judgments have been cited by Mr. Zaiwala on behalf of the petitioners as well as by Mr. Cooper on behalf of respondents Nos. 1 and 3 under the Industrial Disputes Act, 1947, where the question arose as to how the expression "industrial undertaking" was to be interpreted in industrial law. Mr. Zaiwala relied on the judgment of our High Court in the case of National Union of Commercial Employees v. M.R. Meher, ....
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....een put to challenge by any of the shareholders of the company and unless and until it is done, this Court is not in a position to give its finding/verdict as to the validity of the sale of existing plant and machineries, which was also taken in the very same Board Meeting held on 24.06.2005. However, it may be a relevant factor while considering the claim for damages put forward by the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008. 36.16 The judgment of the Bombay High Court in P.S. Offshore Inter Land Services (P.) Ltd. Case (cited supra) has been considered by an another Division Bench of Bombay High Court in Allana Cold Storage Ltd. v. Goa Meat Complex Ltd. [1997] 90 Comp Cases 50. The Division Bench of Bombay High Court, after referring to P.S. Offshore Inter Land Services (P.) Ltd. case (cited supra), in Page No.64 of the said decision, observed as follows: "It must include all the assets of the undertaking so as to leave nothing of the business of a running concern in the business sense of the term after the asset intended to be disposed of is disposed of. Therefore, the right to use the spare capacity of the slaughter-house cannot by any ....
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....ors. If they act prejudicial to the interest of a minority shareholder there is ample provision in the Companies Act to redress their grievance. A public limited company will have thousands of shareholders each will have his own interests. Their views can be voiced at the annual general meeting or to move the Company Law Board or the Central Government on Company Affairs if situation warranted. The company judge is not expected to resolve the dispute raised by the shareholders and substitute his wisdom for that of the board of directors. In Kanika Mukherjee v. Rameshwar Dayal Dubey [1966] 1 Comp LJ 65 a Division Bench of the Calcutta High Court held that where the affairs of a company were manipulated as to deprive a shareholder of his sizable amount of rights shares, the remedy open to him is before the Company Law Board and not before the High Court. The company court would not as a general rule interfere with internal management of a company. It is for the board of directors to decide the manner in which the affairs of the company are to be carried on. Courts determine questions of law and not questions of business management. The company court shall not interfere with the lawfu....
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....of the Board of Directors. It provides that the Board of Directors of a public company or private company which is a subsidiary of the public company shall not, except with the consent of such public company or subsidiary in a general meeting, sale, lease or otherwise disposed of the whole of substantially the whole of the undertaking of the company or where the company owns more than one undertakings of the whole of substantially the whole of any such undertaking. Though the sale deed recites that sanction for the sale of the suit property was obtained by a resolution passed in its meeting held on 23rd March 2007 it is the case of the plaintiff that no general meeting of the company was held on 23rd March 2007 and no notice of any meeting to be held on 23rd March 2007 was given to the plaintiff. It is true that accidental omission to give notice to one or some of the members of the Company does not vitiate the notice of the meeting. However, it is not the case of the defendants that the omission to give notice to the plaintiff was on account of accidental omission. It appears to be a case where no notice was given to any member at all. This is clear from the averments made in para....
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....al part of the undertaking of the Company. Therefore approval of the generable meeting was not necessary. Firstly, the submission that the value of the undertaking at Mumbai was Rs. 6.95 crores is factually incorrect. Though the deed of conveyance is for a sum of Rs. 6.95 crores, the market value of the suit property on the date of sale was more than Rs. 18.28 crores. Article 25 of the Bombay Stamp Act requires the Stamp duty to be paid on the true market value of the property even if the consideration is less than the true market value. The market value of the property is determined by the Stamp Authorities in accordance with the Rules framed under the Bombay Stamp Act was Rs. 18.28 crores. Stamp duty on that amount was paid by the parties without demur or without challenging the valuation. Though the consideration of sale was Rs. 6.85 crores, the true market value was much higher at Rs. 18.28 crores as for the Government valuation. Secondly, Section 293 of the Companies Act provides that where a company has more than one undertakings, the Board of Directors of a company shall not sell any of such undertakings without consent of the company in a general meeting. Therefore even if ....
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.... the light of the factual aspects and the legal position enunciated in the above cited decisions, this Court is of the considered view that the sale and lease of immovable properties of the third defendant company in favour of the first defendant company in C.S.No.877 of 2005 is not in compliance of Section 293(1)(a) of the Companies Act. No doubt, under Ex.P22-Minutes of the Board Meeting dated 24.06.2005, plant and machineries were also directed to be sold and for effecting such sale, the plaintiff in C.S.No.877 of 2005 has no objection and thus it appears that he has taken a contradictory stand. In the considered opinion of the Court, the sale of immovable properties as well as the plant and machineries either individually or collectively would fall within Section 293(1)(a) of the Companies Act and for effecting such a sale, consent/approval of the shareholders of the company is required. Though it is vehemently contended by the learned counsel appearing for the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 that since major shares are being held by Manging Director and Directors of the company, their decision to sell the land and properties would amount t....
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....was also put forward that since the said transaction pertains to Indoor Management of the third defendant company, they can assume and presume that statutory and other legal formalities have been fully complied with and therefore, went ahead with the transaction which resulted in Ex.P6/Agreement for Sale. 40. Thus, an incidental question also arises for consideration as to whether any due diligence was exhibited by the first defendant company? 41. The first defendant company is a Private Limited Company and therefore, it is also expected to be aware of the statutory and other requirements and obligation is also cast upon them to adhere to Section 293(1)(a) of the Companies Act and also to exercise due diligence. Hence, the third defendant company ought to have fulfilled the said statutory compliance and unfortunately, they have failed to do so; May be on the ground that major shareholding of the third defendant company is held by close relatives/family members and since the majority of them were in the position of Managing Director and Directors, decision taken by them in the Board of Directors Meeting/Ex.P22 would constitute a decision of shareholders also. However, this Cou....
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.... Mr. Kamdar that since the conveyance is a kind of contract and was made in accordance in the form provided under Section 46 of the Companies Act, the contract is binding on the Company, notwithstanding breach of Section 293, has to be rejected. Regarding the defence of internal management. Mr. Kamdar submitted that whether a resolution of the general body under Section 293 of the Companies Act was passed or not was an internal matter of the company and the purchaser having no means of knowing whether such a resolution was passed was entitled to assume that the internal procedure was followed. The deed of conveyance dated 13th December 2007 recites that resolution of the general body was passed in the meeting held on 23rd March 2007 and the purchaser was entitled to assume the said statement to be true. It is true that in [Royal British Bank v. Turquand) (1856) 6 E.B 327 it has been held that a person dealing with a company is not affected by internal irregularities. He is entitles to assume that the internal procedure required by Articles of Association of the Company has been complied with. The differentiation however has to be made between the procedure prescri....
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....in C.S.No.877 of 2005 and consequently, Issue No. 1 in C.S.No.627 of 2008 is answered in negative against the plaintiff therein/first defendant in C.S.No.877 of 2005. Issue No.2 in C.S.No.877 of 2005 44. The Suit in C.S.No.877 of 2005 was instituted by Mr. Thakur J. Bakshani on the pretext that he is the promoter of the third defendant company in C.S.No.877 of 2005/first defendant in C.S.No.627 of 2008 and he is holding 54.98% of shares and whereas the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 is holding only 43.32 % of shares. It is also the stand of the first defendant/plaintiff in the above Suits that the plaintiff in C.S.No.877 of 2005 had objected from entering into Ex.P6/Agreement for Sale on the grounds that (a) the sale transaction will be completed through purchase of property or vendor will sell to the purchaser the entire shares, (b) purchaser was being given full power to take over the company, settle the staff labour and creditors problems etc. (c) the condition that a sum of Rs. 1 Crore will be kept in escrow till the matter of Mr. V.C. Dhandapani is settled in full. 45. It is also urged on behalf of the third defendant in C.S.No.8....
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....neither he nor his wife had involved in the day today affairs of the company and both of them held about 55% shareholding in the year 1998 and that all major decisions of the company were taken by him and he is the founder of all these businesses and would admit that his wife, namely Nisha T.Bhakshani was on the Board of Directors of the third defendant company. He would further depose that whole Board was disinterested in managing the affairs of the company and therefore, he asked the fourth defendant to take over as the Managing Director and he is the Director and shareholder in almost all the companies so that he can assist him. 48. Insofar as the sale of machineries under Ex.P22 - Minutes of the Board Meeting is concerned, it was done with his consent and was the decision of the Board of Directors of the third defendant company/M/s. Nova Dyeing and Printing Mills Ltd. which then consisted of Jagadish A. Sadrangani- Chairman, Haresh J. Bakshani - Director, Prem Watwan- Director, Nisha J Bakshani - Director and himself and in addition, Mr. V.C. Dhandapani continues to be as Director and however never participated in the Board Meeting and his consent was obtained to sell machin....
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.... to the Chairman over phone and sent reply on 10.07.2005 and the agreement was signed on 14.07.2005, less than four days after he raised objections. It is also deposed by PW1 that by way of subsequent development, the fourth development sold his shares to him and resigned from the company during April 2006 and now he is fully representing M/s. Nova Dyeing and Printing Mills Ltd. 49. DW3-Mr. Anand, who had supported the case of the plaintiff in C.S.No.877 of 2005 would state that with regard to e-mail sent, he did not get any feedback and would depose that the third defendant company/M/s. Nova Dyeing and Printing Mills Ltd. had entered into Agreement for Sale under Ex.P6 to sell the land and building without obtaining shareholders' consent/approval, which is mandated as per the Companies Act, 1956 and a specific question was put to him as to whether M/s. Nova Dyeing and Printing Mills Ltd./third defendant company ever cancelled Ex.P6 and he answered it by saying that "Not to his knowledge". DW3 would state that pursuant to Ex.P22-Minutes of the Board Meeting dated 24.06.2005, plant and machineries were sold and three directors were present in the said meeting and with regard to t....
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....m, shareholders' consent has been taken. 51. DW2 was the Director of the first defendant company in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 and a specific question was put to him that no proof has been filed to show that the shareholders of the third defendant company/M/s. Nova Dyeing and Printing Mills Ltd. have given consent to sell the properties in favour of the first defendant company/M/s. Shrutivinda Agro Farms Pvt. Ltd. and he denied the suggestion that M/s. Shrutivinda Agro Farms Pvt. Ltd. legal team has done due diligence as to the Indoor Management of the said company. DW2 was questioned as to his statement that auditor/Ramachandran had also confirmed the Agreement for Sale/Ex.P6 dated 14.07.2005 and he answered it by saying that Mr. Sitaram Reddy has confirmed. DW2 would further depose that M/s. Shrutivinda Agro Farms Ltd./first defendant in C.S.No.877 of 2005 had received the Board Resolution under Ex.P22 and he personally thought that the Board Resolution was sufficient for the sale transaction and denied the suggestion that the plaintiff in C.S.No.877 of 2005/Thakur J. Bakshani never gave his consent and once again denied the suggestion that for sale in ....
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....ugh a Board Resolution, for which the plaintiff in C.S.No.877 of 2005/Thakur J. Bakshani has no objection. The said fact coupled with the fact that advance amount received from M/s. Shrutivinda Agro Farms Pvt. Ltd./first defendant in C.S.No.877 of 2005 has been utilized to clear the debts of M/s. Nova Dyeing and Printing Mills Ltd./third defendant in C.S.No.877 of 2005, is a factor to be taken note of while considering the alternative plea for damages, as prayed for in C.S.No.627 of 2008 filed by M/s. Shrutivinda Agro Farms Pvt. Ltd. 55. Issue No. 2 is answered by saying that the third defendant and other directors did not obtain consent from the plaintiff in C.S.No.877 of 2005/Thakur J. Bakshani before entering into Ex.P6/Agreement for Sale dated 14.07.2005. 56. Incidental question as to whether the plaintiff in C.S.No.877 of 2005/Thakur J. Bakshani is a major shareholder or not, is not germane to the legal plea for the reason that Section 293(1)(a) of the Companies Act, 1956 mandates that the General Body of the company shall exercise the said power only by a special resolution passed and admittedly it was not done so and this Court has also considered the same and answered....
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....naging the company by the general body. The judges are ill- equipped to make business judgments. The court cannot as a rule adjudicate upon the commercial judgment of the board of directors. If they act prejudicial to the interest of a minority shareholder there is ample provision in the Companies Act to redress their grievance. A public limited company will have thousands of shareholders each will have his own interests. Their views can be voiced at the annual general meeting or to move the Company Law Board or the Central Government on Company Affairs if situation warranted. The company judge is not expected to resolve the dispute raised by the shareholders and substitute his wisdom for that of the board of directors. In Kanika Mukherjee v. Rameshwar Dayal Dubey [1966] 1 Comp LJ 65 a Division Bench of the Calcutta High Court held that where the affairs of a company were manipulated as to deprive a shareholder of his sizable amount of rights shares, the remedy open to him is before the Company Law Board and not before the High Court. The company court would not as a general rule interfere with internal management of a company. It is for the board of directors to decide the manner ....
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....oners in this petition to attack the validity of the resolution dated 08.12.1987, on the ground that it was passed by the board of directors without a quorum and in contravention of the provisions of Sections 299 and 300." In Page No.835 of the said decision, plea was also raised that consent of the company in General Body Meeting especially for creation of equitable mortgage was not obtained and it was answered by saying that Section 293 of the Companies Act has been complied, since there is no disposal of whole of undertaking or substantially the whole of undertaking within the meaning of the said Section. 61. Issue relating to mandatory nature of Section 173 of the Companies Act was also considered in the said decision [S.M. Ganpatram case (cited supra)] and it was concluded at Page No.841 of the said judgment by observing that "the object of enacting Section 173 is to secure that all facts which have a bearing on the question on which the shareholders have to form their judgment are brought to the notice of the shareholders so that the shareholders can exercise an intelligent judgment.......". Facts of the case would disclose that concerned resolution was also placed in the ....
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....Bakshani, N.Ramachandran, S.Selvaraj and Smt.Nisha Bakshani, wife of the plaintiff. 64. This Court while answering the above issues had given it's findings that Section 293(1)(a) of the Companies Act is mandatory and placed reliance upon judgments, more particularly the judgment in Nirad Amilal Mehta (supra), which gives an answer to the legal plea raised by the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008. Heavy reliance was placed by the first defendant to the decision rendered by a Division Bench of Karnataka High Court in International Cotton Corpn (P.) Ltd. (supra). Facts of the case would disclose that as per the resolution of the Board of Directors, deeds of hypothecation and mortgage have been created in favour of the defendant and it amounts to disposition of whole or part of the undertaking. The said judgment is of no help to the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 and Article 54 of the Articles of Association would also say that subject to the provisions of Sections 292 and 293 of the Act, it shall be lawful for the Directors to carry out all or any of the objects set forth in the Memorandum of Association and....
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....jects are lawful, and what not.- The consideration or object of an agreement is lawful, unless - it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy." This Court had given findings in the earlier issues that since consent of the shareholders in the Extraordinary General Body Meeting has not been obtained in terms of Section 293(1)(a) of the Companies Act, it cannot be enforced and however, it is also of the view that if it is ratified by shareholders in the General Body Meeting, it can be enforced. Admittedly, as on date, no ratification/approval has been accorded by General Body of shareholders to execute Ex.P6/Agreement for Sale and therefore, this Court will not enforce it. 69. If this Court construes that sale of land and immovable properties of M/s. Nova Dyeing and Printing Mills Ltd./third defendant in C.S.No.877 of 2005 as (a) forbidden by law, (b) would defeat that provisions of law or is fraudulent and (c) involves or implies injury to....
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.... 74. In the light of the findings given by this Court regarding Issue Nos. 1, 2, 6, 7 and 8 in C.S.No.877 of 2005, Agreement for Sale dated 14.07.2005 under Ex.P6 is unexecutable. Therefore, Issue No.3 in C.S.No.627 of 2008 is answered in negative against the plaintiff in C.S.No.627 of 2008. Issue No.9 in C.S.No.877 of 2005 75. Admittedly, it is not even the case of the plaintiff in C.S.No.877 of 2005 that the sale consideration fixed is low or inadequate and the objections are that consent of the General Body was not obtained and consent has not been obtained though he is a major shareholder/founder of the company and the agreement is one sided favouring M/s. Shrutivinda Agro Farms Pvt. Ltd./first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 and he has specifically deposed as to the objections in Page No.57 of his cross examination. However, he has also stated that the objections raised are oral and not borne out by any documents. 76. In the considered opinion of the Court, the plaintiff in C.S.No.877 of 2005, through pleadings and evidence, has failed to establish that clauses in Ex.P6/Agreement for Sale, are prejudicial to the interest of the company....
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....sions, has carefully scanned and analyzed the pleadings and evidence let in by the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008. 81. In C.S.No.877 of 2005, the first defendant, in the written statement, has pleaded that it has, at all times, been ready and willing to perform it's part of obligation under the Agreement for Sale/Ex.P6 dated 24.07.2005 and is willing to demonstrate it's bonafide with regard to payment of balance sale consideration of Rs. 13.75 crores and the first defendant has also bonafidely proceeded to purchase adjacent properties viz., S.Nos.31/2B, 14/1, 14/2 and 17/2 for valuable consideration and the adjacent properties purchased by the first defendant have access only through the suit property. According to the plaintiff in C.S.No.627 of 2008, it has proved and substantiated it's readiness and willingness to perform his part of obligation as to the essential conditions/clauses under Ex.P6. 82. Mr. Sitaram Reddy-DW1, in his cross examination, would depose that as per the Agreement for Sale under Ex.P6, within four months from the furnishing of information by the vendor M/s. Nova Dyeing and Printing Mills Ltd.,/third defendant in C....
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....877 of 2005, the plaintiff in C.S.No.877 of 2005/Thakur J. Bakshani came for negotiation through Mr. Sitaram Reddy/DW1 and however it did not materialize. The Agreement for Sale under Ex.P6 was entered into on 14.07.2005 and the Suit in C.S.No.627 of 2008 for Specific Performance and other reliefs was filed only on 24.06.2008 and the amendment with regard to prayer for damages was made on 13.03.2013. Ex.P18 would also disclose that on account of lodging of criminal prosecution, bank accounts of the plaintiff in C.S.No.627 of 2008 was frozen and however one of the Directors, namely Jhani Rani gave an undertaking under Ex.D18 to make good the balance sale consideration and also showed Exs.D27 and D28 to show that she is in possession of funds. It is to be pointed out at this juncture that the Suit for Specific Performance was filed just prior to the expiry of the limitation period and the amendment in the plaint was made for claiming damages after 8 years from the date of Ex.P6/Agreement for Sale. 84. In K.S. Vidyanadam (supra), scope of Sections 20, 16(c) and 10 of the Specific Relief Act, 1963 came up for consideration and it is held as under: "It has been consistently ....
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....t in C.S.No.877 of 2005/first defendant in C.S.No.627 of 2008 had actively colluded with the plaintiff in C.S.No.877 of 2005, as evidenced through the testimonies of DW3 and in the absence of any challenge to the sale consideration fixed under Ex.P6, it may not open to the plaintiff in C.S.No.877 of 2005 to plead escalation in price of immovable properties on account of long passage of time, pending disposal of these Suits. 86. It is also pointed out that an advance of Rs. 2.50 Crores paid by the plaintiff in C.S.No.877 of 2005 was admittedly used to settle the creditors of the third defendant company and it is also one of the important aspects to be considered as to the intention of the third defendant in C.S.No.877 of 2005/first defendant in C.S.No.627 of 2008 to proceed with the Agreement for Sale/Ex.P6. Attention of this Court was drawn to Ex.P17, order dated 24.07.2007 made in A.No.3185 of 2006 in O.A.Nos.968 and 1055 of 2005, wherein a Single Bench of this Court made absolute the interim injunction granted in O.A.Nos.968 and 1055 of 2005 filed by the defendants 1 and 2 and the plaintiff in C.S.No.877 of 2005 was restrained from alienating, encumbering, altering or to deal ....
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....the decision of the Board of Directors of the third defendant company and the said decision was taken as per Board Resolution, marked as Ex.P22, though he was not present in the said meeting. PW1 would further state that major decisions were taken by the Board of Directors of the third defendant company and it consists of himself, Mr. Jagadish A. Sadarangani - Chairman, Mrs. Nisha T.Bakshani - Director, Mr. Jarish J. Bakshani/fourth defendant - Managing Director, Mr. Prem Watwani/fifth defendant - Director. PW1 would further admit that advance amount paid by the first defendant company was utilized to settle the creditors of the third defendant company. 92. PW1, in Page No.52 of his deposition, would admit that the third defendant company never called upon the first defendant company to pay the remaining sale consideration, as per Ex.P6. PW1 was questioned as to whether the third defendant company offered to perform it's obligation as per Ex.P6/Agreement for Sale prior to filing of the Suit and he answered it in negative and further stated that he is a major shareholder of the third defendant company and he has filed the Suit in C.S.No.877 of 2005 disputing the Agreement for Sal....
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....ion through DW1, but did not materialize. 95. DW3, who deposed in favour of the plaintiff in C.S.No.877 of 2005, was specifically questioned as to whether the third defendant company has never cancelled Ex.P6/Agreement for Sale or exhibited his unwillingness to perform his part of obligation and he answered it by saying not to his knowledge. DW3 would state that plant and machineries were sold as per Ex.P22 and were sold under two different agreements and that he is not personally involved in Ex.P6/Agreement for Sale. DW3 would further state that as per Ex.P22, it is correct to state that the third defendant company has been authorized to sell plant and machineries as well as immovable properties forming part of Ex.P6/Agreement for Sale and at the time of passing Ex.P22, the plaintiff in the Suit was granted Leave of Absence. 96. This Court, on a perusal of oral and documentary evidence, is of the considered view that the first defendant has shown bonafide as Agreement Holder to buy the suit property. However, it did not fulfil the statutory mandate under Section 293(1)(a) of the Companies Act and was also not diligent for the reason that as per Article 54 of the Articles of ....
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....ara 14 of the judgment held that "jurisdiction to decree specific performance is discretionary, and the Court is not bound to grant such relief, merely because it is lawful to do so; but the discretion of the Court is not arbitrary but sound and reasonable, guided by judicial principles and capable of correction by a Court of appeal. The grant of relief of specific performance is discretionary. The circumstances specified in Section 20 are only illustrative and not exhaustive. The Court would take into consideration the circumstances in each case, the conduct of the parties and the respective interest under the contract". 100. In K.S. Vidyanadam (supra) (referred to supra), it is held that "the period of limitation prescribed by the Limitation Act for filing a suit is three years. From these circumstances, it does not follow that any and every suit for specific performance of the agreement (which does no provide specifically that time is the essence of the contract) should be decreed provided it is filed within the period of limitation notwithstanding the time-limits stipulated in the agreement for doing one or the other thing by one or the other party Even where time is not of ....
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.... been indicated and the computation sheets of the value of the property were also marked as Exs.D25 and D26. 104. The plaintiff, relying upon the said agreements, had prayed for the alternative relief of Rs. 78 Crores as damages. It is also to be noted at this juncture that claim for damages came to be made by way of amendment to the plaint, nearly after a lapse of 8 years from the date of agreement. It is the specific case of the second defendant in C.S.No.627 of 2008/plaintiff in C.S.No.877 of 2005 that anticipating execution of the sale deed pursuant to Ex.P6/Agreement for Sale, the sister concern, namely M/s. Poorvabhadra Agro Farms Private Ltd., had purchased properties under Exs.D4 to D10. The oral evidence let in on behalf of the plaintiff in C.S.No.627 of 2008 is lacking as to the said claim and that apart, the plaintiff have not purchased the property under the said documents. 105. In Punjab State Civil Supplies Corp. Ltd. v. Sikander Singh [A.I.R. 2006 SC 1438], it is held that a Suit for damages would be maintainable only on the ground of breach of the terms and conditions of the contract, when there are acts of mal-feasance, mis-feasance and non-feasance. 106. ....
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....t the land and properties or plant and machineries, the third defendant company cannot effectively function and therefore, it amounts to otherwise disposal of substantial whole of the undertaking and therefore, for sale of plant and machineries also, decision should have been taken at the General Body Meeting of the shareholders and admittedly, it was not done and however, it has not been put to challenge by a person having locus standi. 109. It is also to be pointed out that the petition for amending the plaint by enclosing the prayer for damages was done as per order dated 07.11.2013 made in A.Nos.3373, 3374, 3375 and 3376 of 2013 and it came to be passed mainly on the basis that the plaintiff is entitled to damages for the sum equivalent to the property that would be commercial exploitation of the Suit Schedule Property. It is also to be noted at this juncture that land and properties purchased by M/s. Poorvabadhra Agro Farms Pvt. Ltd., said to be the sister concern of the plaintiff in C.S.No.627 of 2008, are agricultural properties and unless conversion is done, it may not be capable of commercial exploitation. In para 17B of the plaint in C.S.No.627 of 2008, it is stated th....
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.... 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 of title deeds P4 11.04.2005 Letter by company to the Managing Director regarding mortgage of deposit of title deeds P5 09.07.2005 E-mail message from Mr. Thakur J. Bakshani along with draft agreement of sale P6 14.07.2005 Agreement for Sale P7 27.07.2005 E-mail message by G.Ananad to Mr. Thakur J. Bakshani along with affidavit P8 30.07.2005 Agreement of Sale for machineries P9 30.07.2005 Agreement of Sale of Generator and Boiler P10 Oct. 2005 Application for injunction by Mr. Thakur J. Bakshani in C.S.No.877 of 2005 P11 07.10.2005 Orders in Application No.968 of 2005 in C.S.No.877 of 2005 P12 Oct. 2005 Counter filed by M/s. Shrutivinda Agro Farms Pvt. Ltd., in Application No.968 of 2005 P13 Dec. 2005 Reply Affidavit filed by Mr. Thakur J. Bakshani in Application No.968 of 2005 P14 March, 2006 Application No.3185 of 2006 to deposit Rs. 2,50,00,000/- filed by Mr. Thakur J. Bakshani P15 June, 2006 Counter fi....