TaxTMI 
TaxTMI 
2019 (8) TMI 1473
X X X X Extracts X X X X
X X X X Extracts X X X X
....that the acts of the Respondent 2 are prejudicial to the interest of the Respondent No. 1 Company and are oppressive against the petitioner; (b) Declare the Sale of land admeasuring acres 9-18 Guntas of the Respondent No. 1 Company made vide Registered Document No. 15747/2015 dated 04.09.2015 in the office of the Sub-Registrar, Sangareddy is null and void; (c) Direct Respondent No. 4 to cancel the illegal sale of land made vide Registered Document No. 15747/2015 dated 04.09.2015 and restore the name of the Respondent No. 1 Company in their records as owner of the said land admeasuring Acres 9-18 Guntas; (d) Prohibit Respondent No. 2 from holding any post of Directorship or any office in the Respondent No. 1 Company. 2. The brief averments made in the petition are stated under: 1. That the Company was incorporated on 26.12.2012 under the Companies Act, 1956 (hereinafter called the Act, 1956) under the name and style of M/S. Envision Agritech Private Limited and subsequently the name of the Company was changed to M/S. J & A Avenues India Private Limited. ii. That the Company was acquired by the family of the petitioners on 15.03.2013 with family funds and for the convenien....
X X X X Extracts X X X X
X X X X Extracts X X X X
....espondent No. 2. The board has never authorized the Respondent No. 2 to sell the property of the Company. vi. That the impugned property is under control of the Petitioner even today. There is a temple of Lord Shiva and the Petitioner is taking care of the said temple by appointing a priest. It was noticed that some people were coming and seeing the property and upon enquiry the petitioner came to know that the Respondent No. 3 proposed to sell the land and on further verification of the petitioner and her daughters, they came to know that the Respondent No. 2 in collusion with the Respondent No. 3 illegally transferred the said land to the Respondent No. 3 on the basis of a false board resolution dated 01.08.2015. The sale deed was registered for Rs. 45,00,000/- per acre and whereas on the date of illegal registration, the market value of the land was more than Rs. 1,00,00,000/- per acre. The Respondent No. 2 in collusion with Respondent No. 3 illegally transferred with an ulterior motive to deprive the petitioner and her daughters who are also equal beneficial owners of the Company. vii. It is stated that the RI Company sold the land during the FY ending on 31.03.2016 and tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....07.06.2014 through a cheque bearing No. 32707 and the mother of Mr. Naga Satish had also lent to the tune of Rs. 35,00,000/-on 07.06.2014 through a cheque bearing No. 24085. The total money lent by Mr. Naga Satish and his mother was Rs. 1,65,00,000/-and the said money is to be repaid with interest in a short period. ii. At the request of Mr. Naga Satish, the Company agreed to sell an extent of Acres 9 - 28 guntas of the Company's land to Mr.Naga Satish for a total sale consideration of Rs. 12,27,65,000/- with an understanding that the loan amount of Rs. 1,65,00,000/- availed by the Respondent No. 2 from Mr. Naga Satish and his mother would be treated as an advance. After adjusting the advance amount of Rs. 1,65,00,000/- Mr. Naga Satish was required to pay Rs. 11,62,50,000/- in one or more tranches. However, on the date of registration, Mr. Naga Satish requested to execute the sale deed in favour of the Respondent No. 3 in which he is a director. iii. Out of the balance consideration, Rs. 7,91,00,000/- was paid to the Respondent No. 2 and Rs. 4,36,50,000/- was paid to the account of the Company. All the cheques except one cheque were issued by Mr. Naga Satish and no single c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ish filed a Crl R P No. 230 of 2017 against Crl MP No. 844 of 2017, and the said court disbelieved the statement of the evidence of the driver and the report of Mr Naga Satish stated before the police as false. vil. Mr.Naga Satish filed Crl P No. 10562 of 2017 before the Hon'ble High Court, Andhra Pradesh, however, he has withdrawn the same and filed a Crl P No. 996 of 2018 with the same relief and allegations. The Hon'ble High Court heavily came on Mr.Naga Satish and found that Mr. Naga Satish forged and fabricated alleged agreement of sale dated 16.02.2015 before the police. viii. Mr.Naga Satish also filed OS No. 16 of 2016 on the file of I Additional District Judge, Sanga Reddy for specific performance of the alleged agreement for sale dated 16.02.2015 and the said case is pending. ix. The petitioner is aware of all the proceedings, filed in the present petition taking advantage of the fact that by mistake while filing the Form MGT 7, the Company has not shown the Board Meeting in which the sale of land was approved. x. The Company has clearly stated in the note that the said land was sold at para 14 of the balance sheet. The learned Counsel for the Respo....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... protected under the "Doctrine of Indoor Management". (g) The allegations made in the petition are disputed questions of fact and that cannot be adjudicated upon before this Tribunal in the present proceedings which are summary in nature and the allegations can only be established or disproved before the Competent Trial Court. Therefore, the present petition is not maintainable before the Tribunal. (h) The Respondent No. 3 is protected under the provisions of Section 41 of the Transfer of Property Act. It is the contention of the petitioner that the Respondent No. 2 was not authorized to sell the property of the Company and applying principles of the provisions of section 41 of the Transfer of Property Act, the sale cannot be invalidated merely because the Respondent No.2 did not have the authority to execute the sale deed. (i) The Respondent No.3 purchased the property legally and the contention of the petitioner that she has not singed the board resolution is made only to defraud the Respondent No.3. (j) The Respondent No. 3 being the lawful owner of the said land executed an agreement of sale on 11.06.2018 with M/S. Anirudh Agro Farms Limited and M/S. VBS Builders and De....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pon the following case law in support of hiss submissions: (2000) 7 Supreme Court Cases 702 In the matter of Dilboo(smt) (Dead) by LRS and others Vs Dhanrsaj (smt) (Dead) and others - wherein it is held that in other cases where a fact could discovered by due diligence then deemed knowledge would be attributed to the plaintiff because a party cannot be allowed to extend the period of limitation by merely claiming that he had no knowledge. The learned Counsel for the Respondent No. 3 while reiterating the averments made in the counters submitted that the Respondent No. 3 is the bonafide purchaser of the property and it is not a party to the internal dispute of the shareholders of the Company. Therefore, he prayed for the dismissal of the petition. 6. The petitioner filed Rejoinder for the Counter of the Respondent No. 3 and inter-alia made the following averments and that are: a) The Respondent No. 3 in collusion with the Respondent No. 2 knocked away the property of the Company for a paltry sum of Rs. 4,36,50,000/- There was no board meeting held on 01.08.2015 and the MGT 7 filed by the Company is proof to that effect. If it is not stated in the MGT filed by the Company, it ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e the Respondent No. 2 is only the director and shareholder of the company and he cannot be considered as ostensible owner of the property as the same belongs to the Company. Therefore the property of the company neither can be sold by Respondent No. 2 nor can be purchased by the Respondent No. 3 under guise of good faith. Therefore, the Respondent No. 3 cannot invoke the provision of section 41 of the Transfer of Property Act in the instant case. 7. The petitioner also filed a rejoinder to the counter filed by the Respondent No. 2 and inter-alia made the following averments and that are: (a) The Respondent No. 2 has not been authorized by the Company to sell the property of the Company. The very fact that the major part of the sale consideration was received by the Respondent No. 2 and it shows his collusion with the Respondent No. 3 Company. (b) No board meeting was convened on 01.08.2015 and the Respondent No. 2 has not produced any copy of the notice and the attendance register before the Tribunal. It is also contended that the sale consideration received by the Respondent No. 2 was utilized for the Company and the shareholders and the Respondent failed to file necessary d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... at the impugned meeting as there are only two Directors and Respondent no. 2 alone could not have constituted quorum. E. Section 173(3) of the Companies Act, 2013 and the Secretarial Standards mandate compulsory issuance of notice for a Board Meeting. F. Any Board meeting held without notice is non est, invalid and void and consequently any decision taken thereat is non est, invalid, inoperative and void. In Parmeshwari Prasad Gupta Vs Union of India (AIR1973SC2389), the Supreme Court held as follows: "12. In Hasbury'sLaws ofEngland, Vol. 9, p. 46, it has been stated that it is essential that notice of the meeting and of the business to be transacted should be given to all persons entitled to participate and that if a member whom it is reasonably possible to summon is not summoned, the meeting will not be duly convened, even though the omission is accidental or due to the fact that the member has informed the officer whose duty it is to serve notice that he need not serve notice on him. In Volume 6 at p. 315 Article 626, it is stated that a meeting of the directors is not duly convened unless due notice has been given to all the directors, and the business put throug....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ompanies Act, 2013, along with the constitution ofthe NCLT. The NCLThas been vested with powers that are far reaching in respect of management and administration of companies. The said powers of the NCLTincIude powers as broad as "regulation ofconduct of affairs of the company" under Section 242(2)(a), as also various other specific powers. NCLT is a tribunal which has been constituted to have exclusive jurisdiction in the conduct ofaffairs of a company and its powers can be contrasted with that of the CLB under the unamended Companies Act, 1956. 11. In the 2013 Act, Sections 407 onwards deal with the constitution of the Tribunal. Section 420 has vested the Tribunal with powers to 'pass such orders thereon as it thinks fit'. The Tribunal is also vested with the power ofreview. Under Section 424 of the Companies Act, 2013, the Tribunal also has the same powers and functions as are vested with a Civil Court. In addition to the above, the Tribunal also has the power to punish for contempt which was hitherto not available with the CLB. In various ways, the NCLTis not merely exercising the jurisdiction of a Company Court under the new Act, but is also vested with inherent powe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y against the outsider. It prevents the outsider from alleging that he did not know that the constitution of the company rendered a particular act or a particular delegation of authority ultra vires. The doctrine ofindoor management is an exception to the rule of constructive notice. It imposes an important limitation on the doctrine ofconstructive notice. According to this doctrine, persons dealing with the company are entitled to presume that internal requirements prescribed in memorandum and articles have been properly observe, therefore doctrine of indoor management protects outsiders dealing or contracting with a company, whereas doctrine of constructive notice protects the insiders ofa company or corporation against dealings with the outsiders. However suspicion of irregularity has been widely recognized as an exception to the doctrine ofindoor management. The protection of the doctrine is not available where the circumstances surrounding the contract are suspicious and therefore invite inquiry. Hon 'ble NCLA Tin Aero Industries Vs. Shree Shree Radha Swamy Plastics Ltd. And Ors. MANU/NL/0012/2017 held as under: L. Authorization by the Board for execution of the Sale D....
X X X X Extracts X X X X
X X X X Extracts X X X X
....major part ofproperty of the company has been shown as sold off by respondent No. 2 who had tendered resignation as director but went ahead to execute the sale deed, there was oppression and mismanagement on the part of respondents Nos. 2 to 4. Respondent No. 7 was mother-in-law of respondent No. 3 who is brother ofrespondent No. 2. Looking to such relationship of these parties and the fact that it is private limited company, keeping in view the contradictory pleadings claiming exchange viz-a-viz. the sale deed claiming that money had been paid, the transaction in favour ofrespondent No. 7 was apparently suspicious and transfer without authority. Respondent No. 2 could not have passed title to respondent No. 7. Ifrespondent No. 7 did not have legal title, she could not pass it to respondent No. 8. Respondent No. 8 failed to verify ifhis vendor had duly acquired title and thus failed to act reasonably to show bona fides. The learned National Company Law Tribunal rightly set aside both the sale deeds dated November 3, 2015 and November 4, 2016. N. The RI Company is in the business of Real Estate. Any proceeds of sale of land must be reflected in the P& L account of the Company as r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... doctrine of Indoor Management into the Indian company law. The Doctrine of Indoor Management states that while a third party is dealing with a company, the third party is not bound to know the internal procedure of a company. This doctrine is an exception to the rule of constructive notice which states that every individual who deals with a company must have knowledge about the internal documents of a company such as the article of association, memorandum of association, etc. (d) Applying the doctrine of indoor management to the present case, it is submitted that Respondent No.3 is not bound to know the internal procedure followed by the Respondent No. 1 company in reporting its board meetings and in alienating its properties. Respondent No.3 was prima facie satisfied with the board resolution dated 01.08.2015 provided by the Respondent No.2 that Respondent No.2 is authorised to alienate the subject property on behalf of Respondent No. 1 and relying on this board resolution entered into registered sale deed acquiring the subject land. Therefore, only because the Respondent No. 1 company did not enter the board resolution dated 01.08.2015 in its MGT-7 form, Respondent No.3 cannot....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oes not dispute this signature of hers. Therefore, this further clearly and conclusively establishes that the Petitioner herein had knowledge about the sale of subject property in 2015 itself and choose not to challenge the execution of the sale deed iv. Reiterating above, the counsel for R3 prayed to dismiss the Present petition. 10. Heard both the sides and perused the record including written submissions filed by all the concerned parties. 11. The main issues arising for consideration before this Tribunal are: (1) Whether the Present Petition is barred by Limitation or not; (2) Whether the Board of Directors has passed the impugned Board Resolution dated 01.08.2015 in accordance with Articles of Association of R 1 Company and extant provisions of Company law or not and whether the Company adopted procedure as per law in support of above resolution; (3) Whether the Respondent No. 3 is a bonafide purchaser or not? (4) What is the legal validity of impugned Sale Deed dated 04.09.2015 in the absence of any valid Board Resolution? 12. It is not in dispute that the Respondent No. 1 Company is a Private Company registered under the Act, 1956 and its authorized Share Capita....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... well within time and not barred by limitation. 14. With regards to the plea of the Doctrine of Indoor Management, it is observed that there were several disputes between the Respondent No.2 and Mr. Y. Naga Satish who is the Director of Respondent No.3 Company and that such disputes were in existence even prior to the impugned Board Meeting dated 01.08.2015. That in view of such disputes between Respondent No.2 and Mr. Y. Naga Satish (Director of Respondent No.3 Company), the Respondent No.3 Company ought to have conducted a thorough inquiry and due diligence as to whether the Respondent No.2 was properly authorized by the Board of Respondent No. 1 Company and ought to have enquired with the petitioner whether the Petitioner has signed the impugned Board Resolution, dated 01. 08.2015, authorising Respondent No. 2 to alienate the property of the Company. In this context, the judgment of the Hon'ble Supreme Court in the matter of M.R.F. Ltd. and Ors. Vs. Manohar Parikar and Ors., is squarely applicable to the present case, wherein it was held that the suspicion of irregularity has been widely recognized as an exception to the doctrine of indoor management. The protection of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... also did not furnish those details in the Form MGT-7 filed with Registrar of Companies. Therefore, it is to be held that there was no Board Meeting held on 01.08.2015, so as to authorize the Respondent No. 2 to transact the impugned sale of the property of the Respondent No. 1 Company and thus the impugned Sale deed is void ab initio and non- est in the eye of law. 17. When the impugned transaction itself is void ab initio, there would not be any rights conferred upon the parties, who have dealt with property in question basing on alleged Board Resolution. The contention of the Respondent No.3, that they have purchased the impugned property for valid consideration and they are not aware of internal affairs of Respondent No. 1 Company, and thus they are protected by Law basing on principle like 'Doctrine of indoor management' and also under theprinciples enunciated in Section 41 of the transfer of the Property Act etc., are not at all tenable. Admittedly there is no evidence placed on record to show that there is a notice of Board meeting going to be held on 01.08.2015. The contention of Respondent that they have erroneously not mentioned about the Board Meeting in questio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f land, whereas the Respondent No. 3 relies on the entry made towards advances received during the said financial year by the Respondent No. 1 Company. This statement is contrary to the statement that it has paid the total consideration of Rs. 4,36,50,000/- towards the total consideration for the sale of the land. The Respondent No. 3 cannot take two different stands to suit its convenience. Further, the Company is doing real estate business and the lands are stock in trade of the Company. Once the stock in trade is disposed of, the entry should come under the Revenue of Operations and it is found that no such entry is made in the balance sheet as at 31.03.2016. 20. It is also relevant to note that there are various litigations raised before various judicial forums as detailed supra, and some of cases are still stated to be pending with regard to the impugned proceedings between the parties. It is also relevant to point here that OS No. 16 of 2016 is filed by Y.Naga Satish against VLCVSS Prasad ( Second Respondent) by seeking specific performance of the Agreement of Sale deed dated 16.02.2005. In spite of the Agreement of Sale in dispute, the impugned sale deed date 4.9.2015 was e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed in the financial statement as detailed supra, the impugned sale deed is illegal. The actions of Respondent No. 2 and 3 are not only illegal but also not in compliance with the provisions of the Act, 1956 and 2013. 23. Therefore, I am of considered view that the actions of Respondent No. 2 are acts of oppressive to the interest of petitioner and the Company in general and it being continuous harsh and burdensome as the impugned property is tried to transfer to third party. It is admitted that the Respondent No. 2 received a considerable amount from the sale of the property and he has not stated with the documents that how it was utilized for the company. The recording that the company received advances is also false and created by the Respondent No. 2. It is proved that the Respondent No.2 is mismanaging the affairs of RI Company by selling the company's property illegally. The Respondent No. 3 had also acted upon a colour Photostat copy/Xerox of the board resolution without taking due diligence and it has made contrary statement with regard to the payments made to the company. It is also not known that how the property of the Company was registered in the name of the Respon....