Madras High Court
Thakur J.Bakshani vs Shriutivinda Agro Farms Pvt. Ltd on 14 July, 2005
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on : 20.06.2017
Delivered on : 08.02.2018
CORAM:
THE HON'BLE MR. JUSTICE M.SATHYANARAYANAN
C.S.Nos.877 of 2005 and 627 of 2008
C.S.No.877 of 2005
Thakur J.Bakshani .. Plaintiff
Vs.
1.Shriutivinda Agro Farms Pvt. Ltd.,
Represented by its Director,
Mr.D.V.S.Subba Raju,
102, Dhanujaya Nest,
Rajiv Nagar, Yusufguda,
Hyderabad 500 0454.
2.Mr.K.V.V.Krishnam Raju,
Power of Attorney Holder
for Mr.D.V.S.Subba Raju,
392, HMT Hills, Kukatpally,
Hyderabad-500 072.
3.Nova Dyeing & Printing Mills Limited,
rept. By its Director Mr.Jagdish A.Sadarangani,
Old No.36, New No.126,
Nelson Manickam Road, Aminjikarai,
Chennai-600 029.
4.Mr.Harish J.Bakshani
5.Mr.I.Prem Watwani .. Defendants
C.S.No.627 of 2008
Shrutivinda Agro-Farms Pvt. Ltd.,
Plot No.102, Dhanunjaya Nest,
Rajiv Nagar, Yusufguda,
Hyderabad-500 044, A.P.
Represented by its Power of Attorney Agent,
Umashankar Viswanathan .. Plaintiff
Vs.
1.Nova Dyeing & Printing Mills Limited,
Represented by its Director
Thakur J.Bakshani,
Old No.36, New No.126,
Nelson Manickam Road, Aminjikarai,
Chennai-600 029.
2.Thakur J.Bakshani .. Defendants
Prayer in C.S.No.877 of 2005: Civil Suit filed under Order VI Rule 1 of CPC read with Order IV of O.S. Rules, praying for
(a) declaring that the Sale Agreement dated 14.07.2005 entered into between the first and third defendant is null and void, as it is against the provisions of Companies Act and Memorandum of Articles of Association of the third defendant Company.
(b) for a Permanent Injunction restraining the defendants, their men, agents or anybody working under them from enforcing or acting or proceeding in any manner in future in relation to sale agreement entered into between the first and third defendants dated 14.07.2005;
(c) for cost of the Suit;
(d) for such further or other reliefs as may be deemed.
Prayer in C.S.No.627 of 2008: Civil Suit filed under Order IV Rule 1 of Original Side Rules r/w. Order VII Rule 1 C.P.C. and Section 55 of the Copyright Act, praying for a judgment and decree
(a) directing specific performance of the terms of the Agreement for Sale dated 14.07.2005, by executing the sale deed and conveying the Schedule B mentioned property by the defendants to and in favour of the plaintiff;
(b) consequential permanent injunction restraining the defendants, their men, servants, agents or any other claiming under them from in any manner alienating or encumbering or altering the physical features of or parting with the Schedule -B property to any third parties except in accordance with the Agreement for Sale dated 14.07.2005 entered into between the parties herein;
(c) Alternatively and without prejudice, in the event of this Hon'ble Court coming to a conclusion that the relief of Specific Performance of the Agreement dated 14.07.2005 cannot be granted, this Hon'ble Court may be pleased to direct the defendants to make payment of Rs.78 Crores as damages to the plaintiff.
[Amended as per Order dated 07.11.2013 in Appl.Nos.3373 to 3376 of 2013]
(d) directing the defendants to pay the costs of the Suit; and
(e) to pass such further or other order or orders as this Hon'ble Court may deem fit and proper in th facts and circumstances of the case and thus render justice.
For Plaintiff
in C.S.No.877/2005 : Mr.P.Subba Reddy
in C.S.No.627/2008 : Mr.Madhan Babu
for Mr.R.Parthasarathy
For Defendants : Mr.P.Subba Reddy
for D3 in C.S.No.877 of 2005
for D1 and D2 in C.S.No.627 of 2008
Mrs.R.Rajashree
for D4 in C.S.No.877 of 2005
Mr.S.R.Rajan,
for D5 in C.S.No.877 of 2005
Mr.Madhan Babu
for Mr.R.Parthasarthy
for D1 and D2 in C.S.No.877 of 2005
C O M M O N J U D G M E N T
Facts leading to the filing of these Suits and the issues to be adjudicated are intertwined and that apart, this Court, vide order dated 28.02.2013, based on the endorsement made in C.S.No.877 of 2005 and C.S.No.627 of 2008, had ordered joint trial and recording of further evidence and hence, both the Suits are disposed of by this common judgment.
2. For the sake of convenience, the plaintiff in C.S.No.877 of 2005, who is also arrayed as the the second defendant in C.S.No.627 of 2008, is referred as the plaintiff. Similarly, the first defendant in C.S.No.877 of 2005, who has instituted the Suit in C.S.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 20053. C.S.No.877 of 2005 is filed by Mr.Thakur J. Bakshani against M/s.Shrutivinda Agro Farms Pvt. Ltd. and four others. The averments in the plaint briefly summarized are as follows:
3.1. The plaintiff has stated that he and his family members are major shareholders of the third defendant company, namely M/s.Nova Dyeing and Printing Mills Limited, holding 54.98% of Equity Shares out of the total number of 1,23,00,000/- Equity Shares of Rs.10/- each and apart from the above, the plaintiff and his group of companies, had also brought in funds to the tune of Rs.1,64,00,000/- by way of unsecured loans for funding operation cash losses from time to time. The plaintiff is the Founder-Promoter-cum-Director of the third defendant company. Originally, the third defendant company was incorporated during the year 1988 under the name and style of Jupiter Dyeing and Processing Mills Private Ltd. and subsequently sought for change of name and became as Nova Dyeing & Printing Mills Ltd. [third defendant company], incorporated with effect from 01.05.1996 and the plaintiff and his family members are holding 59% of the Paid-Up Equity Capital.
3.2. It is further stated in the plaint that the main object of the third defendant company is to carry on the business of processing, combing, sizing, preparing, weaving, spinning, curing, dyeing, manufacturing and other activities and it had turnover of several crores of rupees. One Mr.V.C.Dhandapani, Managing Director of the third defendant Company, lodged a complaint to the Pollution Control Board and on account of the same, it had undergone enormous difficulties and hardships and therefore, it's activities are in the process of decline and it virtually closed down it's activities with effect from 03.02.2005 and it is in the process of settling all the statutory dues.
3.3. The third defendant company is having valuable lands admeasuring to an extent of 29 acres and buildings/superstructures to an extent of 1,34,000 sq.ft. at Old Mahabalipuram Road [OMR Road]. After the third defendant company had closed it's activities, number of discussions took place among the Directors of the company to determine the strategy to revive the company and accordingly, on 09.07.2005, Mr.Jagadish A. Sadarangani gave a draft copy of the Sale Agreement to the fourth defendant to be forwarded to the plaintiff for approval through e-mail. The plaintiff was in abroad at that point of time and therefore, he sent an e-mail message to the fourth defendant clarifying certain Clauses in the draft Sale Agreement sent to him. The plaintiff was also informed that the final draft Sale Agreement would be sent to his approval after carrying out necessary corrections as approved by the Auditor Thiru.P.Ramachandran. The plaintiff has never received any final draft Sale Agreement approved and executed by Auditor and he was under bonafide impression that the final draft Sale Agreement is under process and upon his approval only, the Sale Agreement will be executed. The third defendant company had also informed the plaintiff about forwarding of the draft Sale Agreement to their Auditors, namely M/s.Ram and Kumar represented by their Partner Thiru.P.Ramachandran and however, the draft Sale Agreement has never been sent to the said Auditor.
3.4. The plaintiff would further aver that however the Sale Agreement came 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 the said mandatory statutory provisions. The plaintiff also took a stand that Clauses/Covenants in the said Agreement of Sale are oppressive and deliberately made with an intention to benefit the first defendant company at the cost of the third defendant company and as such, it cannot be enforced under law. It is further stated by the plaintiff that under Clause 15 of the Sale Agreement dated 14.07.2005, a sum of Rs.1 Crore out of total consideration of Rs.16.25 Crores, shall be kept in escrow account in a bank, jointly in the name of the defendants 1 and 3 till Mr.V.C.Dhandapani is settled in full, who is the Ex-Managing Director of the third defendant company. The third defendant company, in order to get over the lapse of non-compliance of the statutory provisions, had also purchased additional lands admeasuring to an extent of 7.99 acres in the joint name of promoters in proportion to their shareholding ratio in the third defendant company for the exclusive use of discharging the effluent into the said land.
3.6. The third defendant also filed a Suit before the Sub-Court, Chengalpattu, praying to register the land in the name of their Company and pendency of the same, the purchaser/first defendant Company, with malafide intention, compelled the third defendant Company to keep a sum of Rs.1 Crore in the escrow account in respect of Mr.V.C.Dhandapani account, which is the subject matter of the said Sale Agreement. The plaintiff would further state that the consideration of Rs.16.25 Crores minus Rs.1 Crore in the escrow account has been undervalued and it is not an adequate consideration and in the absence of adequate consideration, the Sale Agreement is not valid and unenforceable and therefore, the plaintiff had filed the Suit declaring the Sale Agreement dated 14.07.2005 entered into between the first and third defendant as null and void and also for permanent injunction restraining the defendants, their men, agents or anybody working under them from enforcing or acting or proceeding in any manner in future in relation to the Sale Agreement and also prayed for decreeing of the Suit with costs.
4. The first defendant, namely M/s.Shrutivinda Agro-Farms Private Ltd., filed the Written Statement and apart from denying/refuting the averments made in the plaint, took the following stand:
4.1. The first defendant also filed a comprehensive Suit 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 defendant company including the plaintiff were actively involved during negotiations. The first defendant also pointed out that the fourth defendant is none other than the brother of the plaintiff. The first defendant would further state that though it was waiting for 2 = months, no progress took place.
4.2. Insofar as the contention put forward by the plaintiff that the mandate under Section 293 of the Companies Act, 1956 r/w. Article 54 of the Memorandum/Articles of Association of the third defendant Company, the first defendant would plea that the entire shareholders including the plaintiff and the directors of the third defendant company had decided on selling the suit property and the draft copy of the Sale Agreement was forwarded to the plaintiff for his perusal and the plaintiff had not only approved the sale of the suit property but was also actively involved during negotiations. The first defendant denied the allegation regarding fraud and malafide and also took a stand that Section 293 of the Companies Act has no application to the case on hand and insofar as the Managing Director of the third defendant company, namely Mr.V.C.Dhandapani is concerned, he took a stand that they have already filed a Suit before the Sub-Court, Chengalpattu, praying to register the land in the name of the third defendant Company. The first defendant also took a stand that an extent of 2.39 acres of land standing in the name of Mr.V.C.Dhandapani, though claimed by the third defendant Company, is outside the purview and scope of the Sale Agreement.
4.3. The first defendant also took a legal plea that the Agreement for Sale is perfectly in order and admittedly, plant and machineries of the third respondent Company have been sold in favour of third parties without following transparent procedure and the plaintiff did not choose to make a challenge and therefore, the claim of the plaintiff lacks bonafide. The first defendant also took a stand that he is always ready and willing to perform his part of obligation and he had purchased lands in S.No.31/2B, 14/1, 14/2 and 17/2 for valuable consideration and he has also instituted a Suit in C.S.No.627 of 2008 on the file of this Court, praying for Specific Performance of the Agreement for Sale dated 14.07.2005 and the same is pending consideration and therefore, the first defendant prayed for dismissal of the Suit with costs.
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% and the fourth defendant held 1.58% and the fifth defendant held 4.07% and it's Managing Director V.C.Dhandapani held 4.06%.
6.2. The third defendant would also aver that the erstwhile Chairman and Director, namely Mr.Jagadish A.Sadarangani, the defendants 4 and 5 had already resigned from the Board of Directors of the third defendant company and they sold their entire equity stake in the Company on 09.04.2006 in favour of the plaintiff and as such, the present promoter holding is 95.94 % and it's Managing Director Mr.V.C.Dhandapani is holding 4.06%. It is also averred that M/s.Trident Textiles Mills Limited, who is the lender of money, vide their letter dated 11.04.2005, had agreed to advance loan of Rs.1.50 Crores, subject to the condition that the third defendant company shall create mortgage by way of deposit of title deeds for an extent of 12.87 acres of land and on that basis, loan was advanced and further that the Directors of the third defendant company were having substantial stake of 70.12% in M/s.Trident Textile Mills Limited and a General Power of Attorney was also given in favour of M/s.Trident Textile Mills Ltd., on 11.04.2005 by the third defendant company granting full power to them to deal with the above said property. The third defendant company had received a sum of Rs.2.20 Crores much prior to Sale Agreement dated 14.07.2005 and had also sold the plant and machineries for a value of Rs.100.08 lacs, which were also utilized to discharge the liabilities to the creditors, staff and for payment of statutory dues and the third defendant Company had arranged sufficient funds from it's own group Company and also from the sale of plant and machineries to discharge actual commitments.
6.3. The third defendant also took a stand that they had one year time as per Memorandum of Understanding to make the payment from 11.04.2005 i.e., upto 11.04.2006 and as such, there was no necessity to sell the property in a hurry and in the light of the time granted by M/s.Trident Textile Mills Limited upto 11.04.2006, there is no necessity to sell the land and properties. The third defendant, in para 10 of the written statement, had enumerated their stand that there was no necessity to dispose of the property and the said Agreement for Sale is certainly not in the interest of the company and further averred among other things that Clauses 9, 13 and 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.Jagadish A. Sadarangani, then Chairman of the third defendant company has given a draft copy of the Sale Agreement to be forwarded by e-mail to the plaintiff and the fourth defendant sent an e-mail dated 09.07.2005 as per the instruction of Mr.Jagadish A.Sadarangani and the plaintiff, after perusal of the e-mail, had sent back to the fourth defendant and General Manager (Finance) with instructions to forward a copy of the Sale Agreement to the Auditor of the plaintiff, who is also the Auditor of the third defendant company, namely Mr.P.Ramachandran and the fourth defendant passed on the same to Mr.Jagdish A.Sadarangani, Chairman of the third defendant Company and further that the Sale Agreement has been entered into as per the directions of the Chairman Mr.Jagdish A.Sadarangani. It is further stated that the fifth defendant was the witness to the Sale Agreement and also signatory to the Board Resolution and he was under the bonafide impression that Mr.Jagdish A.Sadarangani had obtained the plaintiff's consent before signing the Sale Agreement and major decisions of the company have been taken as per the consent of the plaintiff. The fourth defendant would further state that he is no longer interested/associated in the affairs of the third defendant company, as he has sold the shareholding to the plaintiff.
8. The fifth defendant, namely Mr.Prem I Watwani also filed the separate written statement and averred as follows:
8.1. The fifth defendant stated that the plaintiff's main interest is in a different Company and does not bestow his attention for the management of the third defendant company and the management of the company is left by him to his brother/fourth defendant, who is his elder brother and Mr.Jagadish A.Sadarangani is not added as a defendant in his personal capacity and therefore, the Suit is to be dismissed on that ground. It is further stated that lands admeasuring to an extent of 29 acres were purchased for the third defendant company and they did not have appreciable value at the time, when several bits of lands were purchased and consolidated. However, there was a sudden spurt in the price rise almost after the year 2005, after the State Government announced Old Mahabalipuram Road (OMR) as Information Technology corridor. The fifth defendant further averred that the elder brother of the plaintiff, namely the fourth defendant 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 company and the Sale Agreement was signed on behalf of the third defendant company by the fourth defendant.
8.3. The fifth defendant, apart from denying the averments made in the plaint, would aver that Section 293 of the Companies Act, 1956 read with Article 54 of the Memorandum and Articles of Association though have to decide about the disposal of the properties of the Company and took a stand that the plaintiff and his family members and certain Directors, who are his close friends, are managing the affairs of the Company and all of them knew that the Company was running under loss and the shareholders were informed of all these facts by the Directors and the plaintiff long before the Board of Directors resolved to sell the property and the plaintiff fully knew that emergency Shareholders Meeting/Board Meeting was convened by the plaintiff and himself upon the legal advice and the plaintiff was also obtaining information about business transaction of the Company on day-to-day basis.
8.4. The fifth defendant also stated that the Board of Directors of the third defendant company including the third defendant, in November 2004, took a decision to sell 13 acres of the suit properties, which was used as dumping ground for treating water from the Unit, to meet the additional capital expenditure and the fifth defendant also lent money to the company for erecting certain machineries and during April 2005, the Board of Directors of the third defendant company informally decided to shut shown the manufacturing unit and gave it to Mr.Inigo, the responsibility of negotiating with the Workers and Union to arrive at an amicable settlement and that apart, the creditors of the company also proceeded for repayment of the loans due and payable to them and since they had no funds to repay the dues, a decision has been taken to hypothecate 13 acres of lands which formed part of the suit properties with M/s.Trident Textiles Mills Ltd., and received a sum of Rs.1.50 crores. A Power of Attorney was also given to Mr.Jagdish A.Sadarangani, the Chairman of the company to sell the lands if the amount of Rs.1.50 Crores has not been repaid within 12 months from the date of borrowal and a further decision was also taken that the property of the company, the entire manufacturing operations, the stock of raw materials, finished goods and machines were to be sold for the purpose 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 finalise the transaction and had discussions with various parties and when the plaintiff was in India on 24th June, the Board of Directors met and upon legal advice, the shareholders meeting was called on the same day which was chaired by Mr.Jagdish A.Sadrangani and authorization to sell was resolved at the Extraordinary General Body Meeting followed by the Board of Directors Meeting, wherein formal authorization was given to Mr.Jagdish A.Sadrangani and Mr.Harish Bakshani, the fourth defendant herein to sell the property and therefore, by the above resolutions, authorization was given to Mr.Jagdish A.Sadrangani as well as the fifth defendant to complete the documentation of the sale transaction.
8.6. M/s.Chettinad Granites also made an offer to purchase the land and machineries for Rs.16.50 Crores and it was informed to the plaintiff over telephone and finally, the offer of Rs.16.75 Crores was made for the entire land and machineries to the defendant company and it was discussed with the plaintiff and the workers also informed the company that if they were paid a consolidated sum of Rs.1.10 Crores, they would be satisfied and the said offer seemed to be realistic and profitable for the company. It is further averred by the fifth defendant that the first defendant offered to pay Rs.16.25 Crores for the land and the said fact was also informed to the plaintiff by the defendants 4 and 5 and also by Mr.Jagdish A.Sadarangani, as the company was serious in settling the workers. The plaintiff and all other Directors took a decision to receive advance of Rs.2.50 Crores from the first defendant company to settle the workers and to repay the loan taken from M/s.Trident Textiles. The plaintiff had also agreed for the same and wanted a copy of the Sale Agreement from his brother, namely the fourth defendant and he in-turn on 11.06.2005, sent a copy to the plaintiff in U.S.A. and as such, the plaintiff is very well aware of the reasons for entering into Sale Agreement with the first defendant company and to prevent further loss and in the absence of the same, the Company would have lost the entire capital and it's assets.
8.7. The fifth defendant also took a stand that the plaintiff is prevented/restrained/has no locus standi to file the present Suit as he is one of the parties and was also consenting to the unanimous decision of selling the property for 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 acquired his shares. In sum and substance, the fifth defendant took a stand that the Suit filed by the plaintiff is a fictitious one and it is to be dismissed.
9. The plaintiff, in response to the written statement filed by the fifth defendant, filed his reply statement contending as follows:
9.1. The fifth defendant has rightly admitted that the plaintiff and his family members are holding substantial interest in the company. The plaintiff would further state that he was continuously funding from time to time to meet various financial needs of the third defendant company and as a shareholder, he is also having equal rights and privileges under the Companies Act and would further contend that Section 293 of the Companies Act, 1956 is a mandatory one. The plaintiff would further aver that since he is having 51% shareholding, he is having better title to decide to sell or not to sell the suit properties and at the same time, other shareholders are also having equal rights and privileges to express their views and cast their votes in any manner they like and such decision can be taken in the General Body Meeting in the form of resolution to that effect by majority shareholders present and vote in the meeting and admittedly, the said mandatory provision has not been followed and the immovable properties of the company are sold by the Board of Directors, vide Board Resolution dated 24.06.2005 and the same is null and void. The plaintiff, in his reply statement, took a stand that since Mr.Jagdish A.Sadarangini and the fifth defendant were preoccupied in their own business, the fourth defendant was appointed as the Managing Director to take care of the day-to-day management of the company and prior to that Mr.Jagdish A.Sadarangini was taking care of the same and the plaintiff has no personal grievance against any of them.
9.2. As regards transfer of shareholding in his favour, it is the stand of the plaintiff that nobody forced or induced Mr.Jagdish A.Sadarangini to transfer the shares and resign from the Board of the third defendant company and further took a stand that as on the date of filing of the counter affidavit, no authorization was given to Mr.Jagdish A.Sadarangini to do so. The plaintiff would further aver that the third defendant had purchased 12.24 acres of land during the year 1998-99, that is much prior to Mr.Jagadish A.Sadarangini, the defendants 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 to the plaintiff either by Phone, Fax or E-mail and further took a stand that it cannot be presumed that the plaintiff is having constructive notice of the entire sale transaction just because the fourth defendant is his brother and that the Sale Agreement was executed without his knowledge and he is not aware of the entire transaction, despite the fact that he was available in India at Chennai between 24.06.2005 and 02.07.2005 and left to U.S.A. on 03.07.2005. Insofar as the decision taken at the Board Meeting on 24.06.2005 to sell the Suit property, the plaintiff would aver that in the Board of Directors Meeting held on 26.04.2005, decision to sell the land and properties of the first defendant company was taken and three directors, namely the defendants 4 and 5 and Mr.Jagadish A.Sadarangini, took part in the meeting and none of them had appraised the said fact to the plaintiff and he was kept under dark and was unaware of the said Sale Agreement dated 14.07.2005.
9.4. The plaintiff also took a stand that loan was borrowed from M/s.Trident Textile Mills Limited with a repayment period of one year and the settlement of creditors took place between April and June 2005 and the Agreement for Sale with the first defendant company took place only after settlement of the creditors. The plaintiff denied the averment as to the holding of Extraordinary General Body Meeting prior to the Board of Directors Meeting on 24.06.2005 and prays for decreeing of the Suit with exemplary costs.
10. This Court, upon perusal and consideration of the pleadings, vide order dated 10.09.2012, framed the following issues for trial:
(1)Whether the Sale Agreement entered by the first defendant with the third defendant is against provisions of Companies Act in particular Section 293 of the Companies Act and Articles of Association of third defendant company ?
(2) Whether the third defendant and other Directors obtained consent from the plaintiff before entering into the Sale Agreement dated 14.07.2005, being a major shareholder in the company?
(3) Whether the then Chairman of the third defendant company and defendants 4 and 5 have any interest in the company and whether they are shareholders now in the company?
(4) Whether the plaintiff, being a founder of the company, empowered to question the validity of the Sale Agreement dated 14.07.2005 between 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 from in any manner alienating or encumbering or otherwise dealing with the Suit property except in accordance with the above said agreement. The plaintiff is a Private Limited Company incorporated under the Companies Act, 1956 and is primarily engaged in the business of acquisition and development of lands and properties. During June 2005, the plaintiff learnt about the defendant's decision to dispose of its land and building situated at Kalipattur Village, Old Mahabalipuram Road (OMR), Chengalpattu District admeasuring 26.55 acres morefully described in Schedule -A of the plaint schedule property. The plaintiff expressed interest in purchasing the Schedule-A mentioned property and after negotiations, due diligence and verification of defendant's title in the Schedule-A mentioned property, the parties entered into an Agreement for Sale dated 14.07.2005 recording the plaintiff's agreement to purchase and the defendant's agreement to sell Schedule-B mentioned property, which is a consolidation of all items of properties mentioned in Schedule-A for a net sale consideration of Rs.16,25,00,000/-, free from all encumbrances. The Agreement for Sale dated 14.07.2005 was signed by one Mr.K.V.V.Krishnam Raju, for and on behalf of the plaintiff and Mr.Jagdish A.Sadarangini, Director and Chairman, for and behalf of the first defendant company.
11.2. The plaintiff, at the time of entering into the above said Agreement for Sale, paid an advance of Rs.2,00,00,000/-, the receipt of which has been duly acknowledged by the first defendant, vide Clause 2 of the Sale Agreement. Clause 3 provides for payment of further advance of Rs.50,00,000/- by the plaintiff to the defendant within one month from the date of the agreement and Clause 4 provides for payment of balance sale consideration of Rs.13,75,00,000/- within four months thereafter and the first defendant furnished all the details mentioned in Clause 10 of the said agreement and the said agreement further provides that upon receipt of the entire sale consideration, the first defendant shall sign, execute and register the required deeds of sale in favour of the plaintiff or its nominee/s or in the alternative, facilitate the take over of the defendant company by the plaintiff.
11.3. Clauses 5 to 7 of the agreement provide the defendant's assurances regarding its absolute right, title and interest in the Suit property 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 company and it is mainly on account of statutory claims and other creditors. The plaintiff, apart from paying huge advance of Rs.2.5 Crores to the defendant company, also proceeded with the purchase of other adjacent properties for valuable consideration with the object of consolidating all the lands including Schedule-B mentioned property and developing the same as a single project and the properties purchased by the plaintiff subsequent to the agreement, have access only through the suit property.
11.5. The plaintiff would further aver that on 04.10.2005, the plaintiff was called for a meeting with the first defendant's directors to discuss certain issues relating to the sale of the Suit property and accordingly, a representative of the plaintiff viz., Mr.T.Sitaram Reddy attended the meeting and when the second defendant, a non-resident Director of the defendant company, who had come to Chennai from U.S.A. to conclude the sale transaction, sought for an amendment of the Sale Agreement so as to exclude 13 acres of land from the purview of the agreement, it was turned down by the plaintiff, which asserted its right to purchase the entire extent of land in terms of the Agreement for Sale. The plaintiff has also pointed out that on account of the Agreement for Sale, it has irreversibly altered its position and as such, any reworking on the land as suggested by the second defendant, is impossible of compliance and other Directors/shareholders of the third defendant company had expressed their inability to dissuade the second defendant from committing breach of the Sale Agreement.
11.6. It is further averred that the plaintiff was shocked to receive a notice during October 2005 from the second defendant's counsel stating that the second defendant had filed a Suit in C.S.No.877 of 2005 on the file of this Court against the plaintiff herein and other persons who were involved in the Agreement for Sale dated 14.07.2005 and according to the plaintiff, it is a gross abuse of judicial process and was instituted with ulterior motive. The plaintiff also took a stand that the averments made by the second defendant in the Suit in C.S.No.877 of 2005 are per se unsustainable for the reason that almost the entire shareholders and Directors of the first defendant company took a decision to sell the suit property and the draft copy of the Sale Agreement was forwarded to the 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.877 of 2005. The plaintiff would further aver that the second defendant deliberately waited for over 2= months so as to utilize the advance paid by the plaintiff towards settling the entire labour and statutory dues and even as per the second defendant's own averments in C.S.No.877 of 2005, he was actually involved through the Board in negotiations and sale transaction between the plaintiff and the first defendant company. The plaintiff would further state that on filing of the Suit, the second defendant filed an application for interim injunction in A.No.3185 of 2006 offering to deposit the advance amount of Rs.2.50 Crores paid by the plaintiff under the Sale Agreement and the plaintiff, who is arrayed as the first defendant in C.S.No.877 of 2005, filed his detailed counter and this Court, vide order dated 24.07.2007, granted ad-interim injunction as sought for by both the parties and permitted the second defendant to deposit the amount of Rs.2.5 Crores to the credit of the Suit and it was also indicated in the said order that the deposit of Rs.2.5 Crores by the second defendant shall not in any manner prejudice the rights of the plaintiff.
11.8. The plaintiff also took a stand that it is always ready and willing to perform its obligation under the Agreement for Sale dated 14.07.2005 and it is also ready with the balance sale consideration of Rs.13.75 Crores and however, the second defendant, who is in total control of the first defendant company, is evading the performance under the Sale Agreement and therefore, left with no other alternative, the present Suit is filed.
12. The second defendant has filed the written statement reiterating the stand taken in the Suit filed by him in C.S.No.877 of 2005 and further took the following stand:
12.1. There are various encumbrances and hurdles to sell the schedule mentioned property, especially the property owned by Mr.V.C.Dhandapani. The second defendant would further aver that the Clauses in the Sale Agreement dated 14.07.2005 have been drafted in such a manner to favour the plaintiff company and after entering into such Sale Agreement, the plaintiff company failed to comply with any of the terms of the Sale Agreement and the plaintiff before entering into such Sale Agreement, should have discussed with the majority of the shareholders. The second defendant had denied the readiness and willingness 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 one sided. The second defendant would further aver that the purchaser, namely the plaintiff is very well aware of the E-mail message dated 10.07.2005 and though a meeting was held between the representatives of the plaintiff and the defendant, it ended abruptly without any conclusion on account of the fact that the Clauses in the Sale Agreement are totally biased and are only in favour of the plaintiff company.
12.3. The second defendant also reiterated the stand as to the non-following of the relevant statutory provisions of the Companies Act and as per the e-mail communication dated 10.07.2005, the second defendant has clearly indicated that he wants draft copy to be approved by the Auditor and final draft to be sent to him for approval and admittedly, no such approval was granted by him and in any event, only after 32 months, the present Suit for Specific Performance came to be filed. The second defendant would further aver that Mr.Harish Bakshani [fourth defendant in C.S.No.877 of 2005] is the Director of the first defendant company and the second defendant never gave any instructions or consent to the Managing Director about the sale of Suit schedule mentioned properties and when he was available in India from 13.06.2005 to 02.07.2005, the plaintiff company or their representative should have consulted and had negotiations, but they have failed to do so. The second defendant also took a stand that the plaintiff was never ready to pay the balance sale consideration and however, a sum of Rs.1 Crore was deposited in Escrow Account, which is totally contrary to Clause 15 of the Sale Agreement and therefore, prayed for dismissal of the Suit with costs.
13. The plaintiff in C.S.No.627 of 2008, who is the first defendant in C.S.No.877 of 2005, subsequently moved applications in A.Nos.3373 to 3376 of 2013 for amendment of the plaint to include the alternative prayer of directing the defendants to make payment of Rs.78 Crores as damages to the plaintiff and it was ordered on 07.11.2013 and subsequently, amendment of the prayer was also carried out in the plaint.
14. The first defendant filed additional written statement dated 11.02.2014 and took the following stand:
14.1. The plaintiff Company conveniently waited for a period of 3 years in order to institute the present Suit and it is hopelessly barred by limitation and the Suit has been instituted 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 property to be conveyed is not free from encumbrance and the plaintiff, as per his own admission, has to make payment of balance sale consideration of Rs.13.75 Crores within four months and it was not done so and that apart, the Clauses in the Sale Agreement only favour them.
14.2. The first defendant took a stand that the plaintiff was never ready to perform it's part of obligation and the Clauses in the Sale Agreement, more particularly Clauses 8, 9, 12, 13 and 14 are only in favour of the plaintiff company and the Clause 15 of the Agreement for Sale states that the seller and the purchaser have agreed to deposit a sum of Rs.1 Crore in an Escrow Account till the claim of Mr.V.C.Dhandapani is settled in full for the extra portion of lands owned by Mr.V.C.Dhandapani and Clause 15 of the Sale Agreement is also against the Indian Contract Act. The first defendant would further aver that as per the E-mail communication dated 10.07.2005, the draft Sale Agreement is to be approved by the Auditor of the company and the final draft is to be sent to the second defendant and only thereafter, remaining transaction is to take place and admittedly, it has not been done so. The first defendant denied the averment that all the shareholders had given their consent and the amendment sought for by the plaintiff for alternative relief also came into being after a period of five years and that too at the verge of closure.
14.3. The first defendant would further aver that the plaintiff Company is a group company of Satyam of Mr.Ramalinga Raju, who was involved in a mega scam and the plaintiff company has been used to divert funds from Satyamand criminal prosecution has been launched by Central Bureau of Investigation [CBI] and accounts of the plaintiff company have been frozen by CBI and on that ground also, the plaintiff is not entitled to any relief.
15. The second defendant has filed additional written statement dated 11.02.2014, adopting the additional written statement filed by the first defendant.
16. The plaintiff had filed reply statement to the additional written statement filed by the first defendant and reiterated it's stand that it is always ready and willing to perform it's part of obligation and the second defendant, in collusion with the first defendant, disregarded the agreement and ensured non-performance of the same and further reiterated the 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 plaintiff followed statutory provisions of the Companies Act, in particular Section 293 of the Companies Act before entering into the Sale Agreement dated 14.07.2005 to buy the property of the first defendant?
(2)Whether the plaintiff company followed and seen the Articles of Association of first defendant company before entering into the Sale Agreement dated 14.07.2005 to buy the property of the first defendant?
(3)Whether the Agreement for Sale dated 14.07.2005 executed between the plaintiff and the first defendant is not valid and executable ?
(4) Did the plaintiff ever ready and willing to buy the property of the first defendant and shown any bonafide action either before institution of the Suit or after institution of the Suit in payment of balance sale consideration?
(5) Whether the plaintiff inordinate delay in filing the Suit for Specific Performance is not fatal for the reliefs sought for by the plaintiff which is a equitable relief ?
(6) Whether the plaintiff is entitled to the Specific Performance of the Agreement for Sale dated 14.07.2005?
18. This Court, during the course of arguments in these Civil Suits, had put the respective learned counsel on notice and framed the following additional issue in C.S.No.627 of 2008:
Whether the plaintiff is entitled to the alternative relief of damages to the tune of Rs.78 Crores from the defendants?
19. The Suit in C.S.No.877 of 2005 is the earlier Suit and this Court for the sake of convenience, has adopted the array of parties as per the cause title in C.S.No.877 of 2005. Written arguments along with supporting decisions have also been filed by the respective learned counsel.
20. Mr.P.Subba Reddy, learned counsel appearing for the plaintiff in C.S.No.877 of 2005/second defendant in C.S.No.627 of 2008 made the following submissions:
(a) The Plaintiff is the founder promoter of M/s.Trident Textile Mills Limited and M/s.Nova Dyeing and Printing Mills Limited / third defendant in C.S.No.877 of 2005 / first defendant in C.S.No.627 of 2008 and both the companies were promoted by him along with his wife and other person joined thereafter.
(b) M/s.Trident Textile Mills Limited came to be established in the year 1992 and was engaged in the manufacture of Woven grey mill made fabrics and was designed to support the main business of export 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 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985 [Act 1 of 1986] [in short SICA] and as per the order of the Board for Industrial and Financial Reconstruction [in short BIFR] dated 28.08.1998, vide No.174/98, BIFR had directed the company/promoters under Section 22A of the said Act not to dispose of any fixed assets of the company without the consent of the BIFR [Ex.P2].
(e) The third defendant company was classified/categorized as a Sick Industrial Company by the BIFR between 18.08.1998 and November 2004 and on account of the fact that it's net work turned positively, vide order dated 10.11.2014, the Agreement for Sale under Ex.P6 purported to have been entered into between the third defendant company and the first defendant company during the period in which the order passed under Section 22-A of the SICA, by which it was declared as Sick Unit by BIFR, is per se unsustainable in law and cannot be enforced.
(f) The Agreement for Sale under Ex.P6 came into being between the first defendant company and the third defendant company is also per se in violation of Section 293 (1)(a) of the Companies Act, 1956, Section 23 of the Indian Contract Act, 1872 and Article 54 of the Articles of Association of the third defendant company for the reason that consent of the General Body of the company has not been taken by holding a Extraordinary General Body Meeting, but the decision taken to sell the immovable assets of the third defendant company was taken by the Board of Directors of the third defendant Company in the meeting held on 24.06.2015 [Ex.P22-Minutes] and even assuming without admitting that the said consent to sell immovable assets was approved by the Board of Directors, subsequently no Extraordinary General Body Meeting was held to give concurrence/consent to the said fact and on that ground also Ex.P6 Agreement for sale dated 14.07.2005 is unsustainable.
(g) The plaintiff also took out an application in A.No.3185 of 2006 in C.S.No.877 of 2005 to deposit the advance amount of Rs.2.50 Crores received by the third defendant company pursuant to Ex.P6 and this Court, vide order dated 24.07.2007, had ordered the said application and in compliance of the same, Rs.2.50 Crores was deposited to the credit of C.S.No.877 of 2005 and the said amount was directed to be deposited in a Fixed Deposit and it is lying 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-performance of Ex.P6 and that they were not at all ready and willing to perform their part of contract and the claim for damages is also hit by limitation.
(k) The first defendant company is also having a tainted record for the reason that it is a shell company under M/s.Satyam Group of companies, where the Directorate of Enforcement had prosecuted them under the provisions of Money Laundering Act [PMLA] and other penal provisions and the bank accounts of the first defendant company have also been frozen and as per Ex.P18, bank balance of the first defendant was only Rs.23/-
The learned counsel appearing for the plaintiff in C.S.No.877 of 2005, in support of his submissions, relied upon the following judgments:
(i)Nedunuri Kameswaramma v. Sampati Subba Rao [AIR 1963 SC 884]
(ii)N.P.Thirugnanam (D) by Lrs. v. Dr.R.Jagan Mohan Rao & Ors. [JT 1995 (5) SC 553]
(iii)K.S.Vaidyanadam and Others v. Vairavan [(1997) 3 SCC 1]
(iv) Nirad Amilal Mehta v. Genelec Ltd. And Others [(2008) 146 Comp. Cases 481 (Bom)]
(v)Azhar Sultana v. B.Rajamani and Ors. [2009 (2) Supreme 262]
(vi) IDBI Bank Limited v. The Administrator, Kothari Orient Finance Limited & Others [2009-4-L.W.725]
(vii) Sharmila @ Sharmila Sherly Jesolite v. S.Ruben [2009-4-L.W.735]
(viii) R.Rajaram and Another v. T.R.Maheswaran [(2010) 2 MLJ 253]
(ix) Saradamani Kandappan v. S.Rajalakshmi and Others [2011 (4) CTC 640]
(x) J.Samuel and Others v. Gattu Mahesh and Others [2012 (1) Supreme 568]
(xi) Raheja Universal Limited v. NRC Limited & Ors. [2012-4-L.W.1]
(xii) Abdul Rehman and Another v. Mohd. Ruldu and Others [(2012) 11 SCC 341]
(xiii) M/s.Kailash Nath Associates v. Delhi Development Authority and another [2016-1-L.W. 505]
(xiv) L.C.Hanumanthappa (since dead) represented by his LRs. v. H.B.Shivakumar [2016-1-L.W.998].
21. Per contra, Mr.Madhan Babu, learned counsel appearing for the first defendant in C.S.No.877 of 2005 / plaintiff in C.S.No.627 of 2008, made the following submissions:
(a) C.S.No.877 of 2005 filed by Thakur J.Bakshani - second defendant in C.S.No.627 of 2008 is ex-facie not maintainable on the ground that institution of the said Suit is nothing but an gross abuse of judicial process. The plaintiff is the shareholder of the first defendant company and he seeks to represent other shareholders also on the pretext of espousing the interest and cause of the said company. Admittedly, the Suit has been filed 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 & another v. Tamil Nadu Advocates Association & Others [(2011) 2 L.W. 790] and The Executive Committee of the Synod Church of South India and another 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 a sum of Rs.1 Crore will be kept in escrow account till the matter of Mr.V.C.Dhandapani is settled in full.
(d) The plaintiff, as PW1, in his cross examination has admitted that his objection to Ex.P6-Agreement for Sale is only with regard to the above said three points and not in respect of the entire transaction and it is also evidenced by e-mail communication dated 09.07.2005 [Ex.P5/Ex.D1].
(e) Under Section 12 of the Specific Relief Act, 1963 part performance of the contract is permissible and neither the plaintiff nor the third defendant can object to the performance of the Agreement for Sale dated 14.07.2005/Ex.P6 and admittedly, the remaining shareholders of the third defendant company, despite having knowledge of Ex.P6, are yet to raise any objection as to the procedure adopted for entering into Ex.P6.
(f) The primordial objection on the part of the plaintiff is that Section 293(1)(a) of the Companies Act, 1956 r/w. Article 54 of the Articles of Association of the company have not been complied and the said objection is per se unsustainable and is liable to be rejected for the reason that the entire body of shareholders, as per shareholding pattern, was of close family members and all of them had participated in the Board Meeting held on 24.06.2005 Ex.P22/Minutes and therefore, it is deemed to be an Extraordinary General Body Meeting.
(g) In yet another Board Meeting held on 27.07.2005- Ex.P21 [Minutes], Ex.P6/Agreement for Sale came to be ratified and approved and therefore, it cannot be safely presumed that 56.68% shareholders of M/s.Nova Dyeing/third defendant company have acquiesced the decision and have not objected to the sale transaction or the utilization of funds.
(h) It is also an admitted fact that the advance paid by the first defendant company for a sum of Rs.2.50 Crores has been utilized by the third defendant company for discharging it's dues, even prior to entering into Ex.P6/Agreement for Sale and it is also an important fact to probablise the case of the first defendant that there was no serious objection in entering into Ex.P6/Agreement for Sale.
(i) The first defendant, in anticipation of completion of sale transaction under Ex.P6, had also irretrievably altered its position by purchasing adjoining lands under Ex.D4 to D10- Sale Deeds and if the agreement is not allowed 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 and the said appeal/(s) are being continuation of original proceedings and not having reached the finality and as such, the issue is still at large.
(l) The Agreement for Sale under Ex.P6 is not prohibited under Section 32 of the Indian Contract Act, 1872 and this Court, in the light of the pleadings and evidence, can also compel the plaintiff to give consent for and validate the Agreement for Sale, under Sections 10(i), 20(3) and 13(1)(b) of the Specific Relief Act, 1963.
(m) Delay in performance of the agreement under Ex.P6 is solely attributed to the plaintiff and merely because escalation of the value of the property is pleaded by him, it cannot be cited as a ground/reason to refuse specific performance.
(n) The first defendant, even assuming without admitting that Specific Performance of Agreement cannot be granted, still is entitled to damages under Section 21(2) of the Specific Relief Act, 1963 and Section 73 of the Indian Contract Act, 1872 for the reason that if the agreement was allowed to go through, it would have got the suit property and would have earned revenue and anticipating performance of Ex.P6, also purchased adjoining lands as evidenced under Exs.D4 to D10/Sale Deeds and computation of damages under Ex.D25 would also disclose that the first defendant would be entitled at least to a sum of Rs.102.81 Crores, being the guideline value of the property as on date and a maximum of Rs.433.68 Crores, being the direct damages sustained by the first defendant on account of non-availability of the Suit property for development and the said claim does not take into consideration the sale consideration parted for procuring adjacent lands.
The learned counsel appearing for the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008, in support of his submissions, placed reliance upon the following decisions:
(i)Webb v. The Commissioners of Herne Bay [1870 LR (5) QB 642]
(ii) In re Hercules Insurance Company [1874 LR EC 302]
(iii) Clara B Jones v. North Vancover Land [1910 AC 317]
(iv) Attorney General v. Collom [2 KB 193]
(v) Bacha F. Guzdar v. Commissioner of Income Tax [AIR 1955 SC 74]
(vi)Nagubai Ammal v. B.Shama Rao [AIR 1956 SC 593]
(vii) Shampada Chakrabarty v. Controller of Insurance [AIR 1962 SC 1355]
(viii) Secretary Madras Gymkhana Club Employee's Union v. Management [AIR 1968 SC 554]
(ix) Kollipara Sriramulu v. T.Aswathanarayana & Ors. [AIR 1968 SC 1028]
(x) R.C.Cooper v. Union of India [1970 (1) SCC 248]
(xi) International Cotton Corporation (P) Ltd. v. Bank of Maharashtra and Anr. [(1971) 41 Comp. Cases 226 (Kar)]
(xii) Power Control Appliances Case [(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 Limited v. Manohar Parrikar & Others [(2010) 11 SCC 374] (xvii) K.Nanjappa (D) by Lrs. v. R.A.Hameed @ Ammersab (D) by Lrs. & Ors. [(2016) 1 SCC 762] It is also brought to the knowledge of this Court that during the pendency of the Suits, the plaintiff had become the major shareholder of the third defendant company. Attention of this Court was also invited to pleadings, relevant exhibits and other relevant material portion of the oral evidence.
22. This Court paid it's best attention and anxious consideration to the rival submissions and also perused the pleadings and considered the oral and documentary evidence, to which it's attention was drawn.
23. It is also to be noted at this juncture that arguments in these Suits commenced on 17.03.2016 and it went on piece meal and were concluded on 20.06.2017 and on that date, the judgment was reserved. Written arguments along with decisions were submitted by the learned counsel on 05.07.2017 and 10.07.2017 respectively.
Issue No.1 in C.S.No.877 of 2005 and Issue No.1 in C.S.No.627 of 2008
24. It is relevant to extract hereunder Section 293 of the Companies Act, 1956:
S.293. Restrictions on powers of Board.
(1) The Board of directors of a public company, or of a private company which is a subsidiary of a public company, shall not, except with the consent of such public company or subsidiary in general meeting,-
(a) sell, lease or otherwise dispose of the whole, or substantially the whole, of the undertaking of the company, or where the company owns more than one undertaking, of the whole, or substantially the whole, of any such undertaking;
(b) remit, or give time for the re- payment of, any debt due by a director [except in the case of renewal or continuance of an advance made by a banking company to its director in the ordinary course of business];
(c) invest, otherwise than in trust securities, 3 the amount of compensation received by the company in respect of the compulsory acquisition, after the commencement of this Act], of any such undertaking as is referred to in clause (a), or of any premises or properties used for any such undertaking and without which it cannot be carried on or can be carried on only with difficulty or only after a considerable time;
(d) borrow moneys after the commencement of this Act, where the moneys to be borrowed, together with the moneys already borrowed by the company (apart from temporary loans obtained from the company' s bankers in the ordinary course of business), will exceed the aggregate of the paid- up capital of the company and its free reserves, that is to say, reserves not set apart for any specific purpose; or
(e) contribute, after the commencement of this Act, to charitable and other funds not directly relating to the business of the company or the welfare of its employees, any amounts the aggregate of which will, in any financial year, exceed 1 fifty thousand rupees] or five per cent. of its average net profits as determined in accordance 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, of clause (e).
(2) Nothing contained in clause (a) of sub- section (1) shall affect-
(a) the title of a buyer or other person who buys or takes a lease of any such undertaking as is referred to in that clause, in good faith and after exercising due care and caution: or
(b) the selling or leasing of any property of the company where the ordinary business of the company consists of, or comprises, such selling or leasing.
(3) Any resolution passed by the company permitting any transaction such as is referred to in clause (a) of sub- section (1) may attach such conditions to the permission as may be specified in the resolution, including conditions regarding the use, disposal or investment of the sale proceeds which may result from the transaction: Provided that this sub- section shall not be deemed to authorize the effect any reduction in its capital except in accordance with the provisions contained in that behalf in this Act.
(4) The acceptance by a banking company, in the ordinary course of its business, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise, shall not be deemed to be a borrowing of moneys by the banking company within the meaning of clause (d) of sub- section (1).
(5) No debt incurred by the company in excess of the limit imposed by clause (d) of sub- section (1) shall be valid or effectual, unless the lender proves that he advanced the loan in good faith and without knowledge that the limit imposed by that clause had been exceeded.
25. Ex.P21 is the Minutes of the Board of Directors Meeting of the third defendant company held on 27.07.2005 at 10.30 a.m., wherein the following Directors were present:
1.Shri Jagadish A. Sadarangani Chairman /Brother of the plaintiff
2.Shri J.Haresh Bakshani Managing Director/fourth defendant
3.Shri Prem I Watwani Director/fifth defendant.
Leave of Absence was granted to the plaintiff, namely Shri Thakur J. Bakshani and Tmt. Nisha T.Bakshani Directors of the said company. Sub/Item No.3 of the said meeting pertains to Ratification of Sale Agreement/Ex.P6 dated 14.07.2005 and it is relevant to extract the same:
ITEM NO.3 RATIFICATION OF SALE AGREEMENT:-
The Chairman placed before the meeting the original copy of Sale Agreement 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 to the credit of C.S.No.877 of 2005, vide orders of this Court dated 24.07.2007. made in A.No.3185 of 2006.
27. After filing of proof affidavits, trial of both the Suits commenced on 30.10.2012 and the chief examination of PW1, namely Thakur J.Bakshani/plaintiff in C.S.No.877 of 2005 was completed on 29.04.2013 and it is in tune with his pleadings and the proof affidavit filed in lieu of chief examination. Cross examination of PW1/plaintiff commenced on 09.07.2013 and it went on till 04.08.2014 and it runs to nearly 74 pages and excerpts of his cross examination are as follows:
The plaintiff / PW1 started the third defendant company with two persons, namely Selvaraj and Ramachandran.
The plaintiff / PW1 did not know the percentage of shareholding till today, but actual number of shareholding by him or his family or for that matter, any other shareholders of the third defendant company.
The plaintiff is the Chairman of the third defendant company between 1988 and 1993 and all decisions with regard to running of the company and works executed by the company were taken by the Directors, namely Tvl Selvaraj and Ramachandran and neither the plaintiff nor his wife were in any manner involved in the day-to-day running of the company or execution of work orders.
The plaintiff and his wife held 55% of shares at the time of incorporation in the year 1988 and the plaintiff/PW1 do not remember the amount which he had invested in the company and sometime he invested more and the same was treated as loan to the company without interest.
The plaintiff/PW1, as the Founder cum Promoter, has started very many companies and all major decisions of the companies were taken by him and one of them is the third defendant company and that apart, he is the Founder cum Promoter of M/s.Trident Textile Mills Pvt Ltd., and three companies in Delhi and also in USA and all the major decisions of the companies were always taken by him as he was the founder.
The wife of PW1, namely Tmt.Nisha T.Bakshani was also the Board of Directors of the third defendant company. The plaintiff/PW1 owns a house in Chennai.
The plaintiff/PW1 continued to hold 20% shares in M/s. Trident Textile Mills Pvt. Ltd., till today and about 60% of the shares of the said company are held by Mr.Jagadish A.Sadarangani and his family members 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 sustained by the third defendant company during March April 2005.
Brother of PW1 namely, Mr.Haresh J. Bakshani/fourth defendant in C.S.No.877 of 2005 is also a Director or shareholder in almost all his companies so that he can assist him in managing the affairs of the company.
BIFR proceedings was initiated by State Bank of India.
The plaintiff/PW1 and his wife together always had 55% shares of the third defendant company.
The fourth defendant became the shareholder of the third defendant company during 1990-1991 and his shareholding was 3.56%.
Mr.Jagadish A.Sadarangani was the Chairman from 1992 1993 till 2006 and in 2006, he resigned as Chairman and he sold his shares in the third defendant company to PW1/plaintiff due to ill health and personal reasons.
As of 2005, the third defendant company had about 29 acres of land, buildings admeasuring about 1,50,000 to 2,00,000 Sq.ft. and machinery and connected equipment worth about Rs.9 Crores.
On 05.02.2005, the third defendant company have not commenced it's business till date, since the labourers went on strike and a settlement was reached with the labourers by settling all their dues and by retrenching them.
The assets of the third defendant company, namely machineries were sold during July October 2005 and the said sale was with his consent and also as per the decision of the Board of Directors of the third defendant company which consisted of Mr.Jagadish Sadarangani Chairman, Mrs.Harish J.Bakshani Managing Director/fourth defendant, Mr.Prem I Watwani Director / fifth defendant and Mrs.Nisha T.Bakshani Director/wife of the plaintiff and the plaintiff and in addition to them, Mr.V.C.Dhandapani, continued to be the Director of the third defendant company and however, he never participated in the Board Meeting and Ex.P22 is the Minutes of the Board Meeting and as per the same, decision has been taken to sell machineries of the third defendant company and though the plaintiff was not present, the minutes was drawn with his consent and knowledge as discussed and agreed earlier.
All other major decisions were taken by the Board of Directors of the third defendant company comprised of PW1, his wife, the defendants 4 and 5 and Mr.Jagadish Sadarangani.
After filing of the Suit, Mr.Jagadish 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 on behalf of the third defendant company on account of the subsequent development that he had purchased shares of Mr.Jagadish A.Sadarangani and the defendants 4 and 5.
PW1/plaintiff once again admitted that the entire advance amount from the third defendant company was utilized for discharge of its financial commitments, irrespective of the fact that it is pressing commitment or not.
The plaintiff/PW1 was specifically questioned as to whether any communication sent calling upon the third defendant to pay the balance sale consideration and he answered that he is not aware and that the third defendant did not call upon him to pay the remaining sale consideration and he took over the control of the third defendant company some time during April 2006.
In haste without getting the consent of PW1, the Ex-Chairman Mr.Jagadish Sadarangani, Directors- defendants 4 and 5, entered into Agreement for Sale on behalf of the third defendant company with the first defendant company and he is for the third defendant company and that he did was in the best interest of the said company.
A specific question was put as to whether the claim made by the plaintiff for having advised the third defendant company or its then Chairman or Managing Director, supported by any documents? The answer given by PW1/plaintiff is that the e-mail of the draft agreement was forwarded to him on 09.07.2005 and he has found lot of objections which were not favourable to the third defendant and it was all in favour of the first defendant and he also talked to the Chairman- Mr.Jagadish A. Sadarangani objecting to the sale agreement and asked him not to rush and also sent an e-mail to his brother, who had forwarded the sale agreement to him, to show the draft Agreement of Sale to his auditor, have it vetted by him and corrected and send him the final draft for his approval and inspite of his advise, the Ex-Chairman had gone ahead and signed the Agreement for Sale on 14.07.2005 and the e-mail sent by the plaintiff/PW1 was marked as Ex.P5/Ex.D1, which also contains the e-mail dated 09.07.2005.
PW1/plaintiff would further state that no such objection was received along with Ex.P5 and only 8 pages of 32 pages Agreement (Ex.P6) has been sent to him and he called the Chairman-Mr.Jagadish A.Sadarangani over phone and discussed several objections which 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 under Ex.P6/Agreement for Sale and a suggestion has been put to him that as per the revised guideline value in the year 2012, the value of the property is approximately to the tune of Rs.93 Crores.
A question was put to PW1 that Mr.Jagadish A.Sadarangani, fifth defendant and all the family members, who were shareholders in the third defendant company, had consented for the sale of the properties under Ex.P6 before filing of C.S.No.877 of 2005 and he replied it by saying I would not know.
PW1/plaintiff would further state that at the time of execution of Ex.P6, apart from the properties which are covered under Ex.P6, 2 acres of land in VGP Industrial Estate in Poonamallee High Road was also there.
When PW1 was questioned as to the non-impleadment of the shareholders of the third defendant company, he replied it by saying that there has not been a General Body Meeting where a decision has been taken and law requires that General Body Meeting is to be convened and discussed and in the case on hand, admittedly, no such meeting was held.
PW1 would state that he is aware of the provisions of the Companies Act and he has also answered the question as to whether any General Body Meeting was convened before the disposal of the machineries of the third defendant company and he replied it by saying that he do not think so and his wife was suffering from Cancer and the decision to sell the machineries was taken orally and ratified by the Board Meeting held on 24.06.2005 and nobody made a challenge and to the knowledge of PW1/plaintiff, the shareholders of the third defendant company did not raise an issue with regard to any one of the contents in the Annual Reports till date.
As regards sale of machineries, PW1 would further add that he had given his consent to sell the machineries and later, a draft was sent to him on the specific point, which he had approved later.
A specific question was put to PW1 as to whether all the shareholders of the third defendant company gave consent for the decision to sell the machinery and he replied that He do not know and when he was asked for his consent, he gave his consent.
PW1/plaintiff would state that for sale of the machineries, the procedure followed by the third defendant is not in consonance and all the shareholders of the third defendant company 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 Association does not require the convening of General Body Meeting and that selling of all major assets of the company will surely need the approval of shareholders in the General Body Meeting and that as a buyer, should have ascertained and done proper due diligence before entering into Ex.P6/Agreement for Sale.
28. DW3, namely Mr.G.Anand, in the chief examination, would depose that he was the Chief Financial Officer in BNT Group of Companies and the third defendant company and he spoke about the Enforcement Directorate action against M/s.Satyam Group of Companies in the year 2010 and the judgment given by the XXI Additional Chief Metropolitan Magistrate Court, Hyderabad, dated 09.04.2015, marked as Ex.D14 and the first defendant company is also involved in those cases and M/s.Jhani Rani, Director of the first defendant company and Mr.D.V.S.Subba Raju are the accused in the said cases. The excerpts of the evidence of DW3 are as follows:
As per the Board Resolution under Ex.P22 dated 24.06.2005, which pertains to sale of immovable properties, the third defendant company and the plaintiff did not attend the said meeting and it does not indicate the name of the purchaser as well as sale consideration for the sale of immovable property.
The first defendant wanted an affidavit from the plaintiff as if he was present in the Board Meeting held on 24.06.2005 and they wanted to incorporate the name of the purchaser and the sale consideration in the affidavit, even though those particulars are not available in the Board Resolution dated 24.06.2005 and that the Sale Agreement under Ex.P6 has been entered secretly without the knowledge and approval of the plaintiff.
DW3 joined as an Accountant and continue to work in that capacity in various companies and he is related to the plaintiff. BNT Group of Companies means BNT Connections Impex Limited, India Apparels, BNT Connections, BNT Innovations Private Limited and the said companies are owned and controlled by the plaintiff and his family members.
Fourth defendant is the brother-in-law of the plaintiff.
Decisions relating to BNT Group of Companies were taken by the fourth defendant in the absence of the plaintiff in India since 2000 and the plaintiff was the Director in M/s.Trident Textile Mills Limited, third defendant company and BNT International Private Limited.
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 third defendant company and was more actively involved in the day to-day affairs.
Quorum for conducting of the Board Meeting of the third defendant company is 1/3rd of the number of directors or two directors, whichever is more.
Companies Act speaks about subjects requiring Board Approval and which do not require Board Approval.
The third defendant company agrees for granting of decree in C.S.No.877 of 2995 filed by Mr.Thakur Bakshani/plaintiff.
To the knowledge of DW3, the third defendant company did not cancel the Agreement for Sale under Ex.P6, though he is the Director of the Company and he became the Director of the Company through Board Resolution dated 18.06.2008.
The Directors of the third defendant company at the relevant point of time were the plaintiff and his wife Mrs.Nisha T.Bakshani and Mr.Jagannath Khemlani and DW3 was nominated as a Director in the Board Meeting.
The testimony of DW3, on behalf of the third defendant company, is based on documents.
As regards sale of Plant and Machinery of the third defendant company, to the knowledge of DW3, there is no such objection as to obtaining approval of the shareholders through the General Body Meeting and he was not aware of the Board Resolution by which the fixed assets of the third defendant company were sold and only two resolutions were passed in the year 2005.
DW3, in this case, has deposed as advised and requested by the Chairman of the third defendant company Mr.Thakur Bakshani/plaintiff.
Plant and Machinery were sold as per Ex.P22/Resolution and were sold under two different agreements and three directors were present in the Board Meeting and he is not personally involved in Ex.P6/Agreement for Sale dated 14.07.2005 and that apart from forwarding e-mail to the plaintiff, DW3 was not involved in any manner in the transactions.
Attachment to the e-mail alone appear to be forwarded to the plaintiff and not the entire e-mail and DW3 denied the suggestion that the e-mail dated 27.07.2005 never emanated from the first defendant company and became aware that all the transactions were concluded prior to Ex.P12/e-mail.
DW3 denied the suggestion that he is deposing on behalf of Mr.Thakur J.Bakshani/planitiff and it is based on facts.
DW3 would further state that apart 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 that plant and machineries were sold by virtue of the said resolution by the third defendant company and it should have obtained a resolution passed at the shareholders meeting for sale of immovable properties.
DW3 agrees with the suggestion that under Memorandum of Association, the third defendant company can purchase, sell, take on lease or otherwise acquire any lands and the sale of land is an object incidental and ancillary to the company and as per the Articles of Association, the Directors have been conferred with power to acquire and dispose of the properties belonging to the third defendant company.
DW3 pleads ignorance as to the Doctrine of Indoor Management and further stated that not obtaining shareholders consent before execution of the Agreement for Sale/Ex.P6 is a mistake committed by the third defendant company.
DW3 also speaks about the complaints/cases instituted by the Enforcement Directorate against Sathyam Computer Services and others and when a specific question was put to him as to the allegations made against the first defendant in C.S.No.877 of 2005 / plaintiff in C.S.No.627 of 2008, he would state that he has to go through the documents again. Insofar as Ex.P6/Agreement for Sale dated 14.07.2005 is concerned, DW3 denied the suggestion that the third defendant in C.S.No.877 of 2005, namely M/s.Nova Dyeing and Printing Mills Limited, had entered into the said Agreement of Sale to discharge it's debts from and out of the sale consideration and also would state that the said Company had debts payable to Creditors and workers for which, it availed the loan to an extent of Rs.2.20 Crores from M/s.Trident Textiles Mills Limited and it was effected during April 2005, for the purpose of discharging the debts due to the creditors and staffs and workers and the period of loan was for one year.
DW3 became the Director of the said Company during June 2008 and he was informed about the Agreement and the documents pertain to the same was given by the plaintiff in C.S.No.877 of 2005 and pleaded ignorance as to the authorisation given to the said person to hand over the documents to him.
DW3 would state that BNT Group of Companies are involved in manufacture and export of garments and it is an ancillary business to the third defendant company and the third defendant company was involved in processing 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 were the shareholders of the M/s.Trident Textiles and apart from that, he is also a shareholder in BNT Group of Companies and was aware of the contents of the written statement filed on behalf of the third defendant in C.S.No.877 of 2005.
DW3 pleaded ignorance as to the negotiation took place prior to the execution of Ex.P6/Agreement for Sale; but he came to know about the said Agreement during the later part of the year 2005, i.e., after its execution and neither the plaintiff nor the fourth defendant or any other person associated with the plaintiff did not speak to him with regard to Ex.P6 before its execution.
DW3 would state that the third defendant Company stopped its business activities from the year 2005-2006 and was not sure whether the said activities were stopped prior to the execution of Ex.P6/Agreement for Sale.
DW3 would also concede that without the machineries belonging to the third defendant Company, it would not be possible for it to generate any revenue or carry on business and agreed that the third defendant Company alienated it's machineries in June 2005 vide Ex.P22 and entered into an Agreement of Sale in that regard under Exs.P8 and Ex.P9 dated 30.07.2005 and he would further state that the third defendant Company could have raised finance from it's shareholders, Directors by way of unsecured loans or otherwise, to settle the liabilities of Trident Textiles.
DW3 would state that Tmt. Nisha T.Bakshani, Bindhya H.Bakshani, Rajitha Ramachandran, BNT Innovations Pvt. Ltd., who are some of the shareholders of the third defendant Company, have not been made as parties in C.S.No.877 of 2005.
DW3 would state that as on 14.07.2005, the shareholding of the plaintiff is 40.33% and do not want to express any comment with regard to the suggestion that no dispute has been raised in respect of Ex.P6, by majority of the shareholders of M/s.Nova Dyeing Company.
DW3 had stated that to his knowledge, the plaintiff did not challenge the decision of the third defendant Company to sell its machineries and the objection was that for the sale of the land, the third defendant Company did not obtain the consent of the shareholders before entering into Ex.P6/Agreement for Sale and there is nothing on record to show that the third defendant Company informed the said lapse or infirmity to the 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 that the third defendant company did not get the consent of the shareholders before entering into the Agreement for Sale, but at the same time, the first defendant should have obtained the consent. But the resolution was passed on the Shareholders Meeting authorising the third defendant company to enter into the said Agreement and denied the suggestion that the first defendant cannot be held responsible for the said lapse and would state that the first defendant company should have conducted due diligence before executing the Agreement of Sale.
DW3 do not agree to the question that the majority shareholders of the third defendant company have not objected to the execution of the Agreement for Sale dated 14.07.2005 and further denied the suggestion that the majority shareholders amounting to 60% of the shareholdings of the third defendant Company did not raise any objection for the Agreement of Sale and also denied the other general suggestions.
29. Excerpts of the testimony of DW1 are as follows:-
DW1 would depose that Jhansi Rani is his family friend and she is having 50% of the shareholding in the first defendant company, viz., M/s.Shruthivindha Agro Farms Pvt. Ltd. and apart from that she was not aware of any other details and not personally aware as to the formation of the said company.
The advance amount of Rs.2.50 Crores was paid by the first defendant company and when a suggestion was put that the said amount emanates from Mythas Estate Private and Sathyam Group of Companies only, he answered by stating that he was not aware of the Share Capital, Paid-up Capital and the source of income of the first defendant company and he merely facilitated the transaction. The balance sale consideration paid by the first defendant company out of the total sale consideration of Rs.16.25 lakhs was Rs.13.75 lakhs and as per Ex.P6/Agreement for Sale, within four months when the vendor furnished the information as per Clause 10 of the Agreement, the balance amount should have been paid and it was not paid for the reason that the vendor/third defendant company has failed to fulfil the commitments and in this regard, he has no proof asking the vendors as to the requirement to pay the balance sale consideration; but he met Mr.Jagadish A.Sadarangani many times and asked him to honour the commitment made under Ex.P6/Agreement for Sale.
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 defendant company as to the consent of the shareholders and would further state that the first defendant Company has informed about the due diligence exercised before entering into Ex.P.6-Agreement of Sale.
DW1 would state that before entering into Ex.P6/Agreement for Sale, the first defendant company did verify the requirements contemplated under the Memorandum and Articles of Association of the third defendant Company.
D.W.1 would admit that he was aware that the plaintiff, viz., Mr.Thakur J. Bakshani and his family had the major shareholding in the third defendant company to the tune of 50% and the fourth defendant had signed the Board of Directors Resolution with regard to the sale of immovable property and he was also informed that the plaintiff was in USA.
DW1 would further depose that the first defendant company went about doing what is necessary to be done before executing Ex.P6/Agreement for Sale.
Attention of DW1 was drawn to the E-Mail message Ex.P.6/Ex.D1 which contains only three lines and he was asked as to whether any word the plaintiff has given his consent for the Agreement for Sale. DW1 answered by saying that the exact word of consent is not there and according to him, three lines in the E-Mail message pointed out is as good as concurrence pending three small points which came to be discussed among the Directors and that is what Mr.Jagdish A.Sadarangai, Mr.Prem Watwani and Mr.Ramachandran have told him and it amounts to concurrence of all the Directors of the Company.
A suggestion was also put to DW1 that the plaintiff never convened the General Body Meeting regarding the sale of the property and he pleaded ignorance. DW1 would further state that he acted as a Middleman who only facilitated the sale of the property and the Board Resolution was also shown to him and the entire Company matters were dealt with by the first defendant Company.
DW1 would further state that he has done 10 to 12 projects and his attention was drawn to Exs.D4 to D10/Sale Deeds and he answered by saying that advise and guidance was given to M/s.Poorvabhadra Agro Farms Pvt. Ltd.
A specific question was put to DW1 that knowing fully well that the plaintiff is the major shareholder of the third defendant Company and the first defendant, namely M/s.Shruthivindha Agro Farms, had failed to obtain 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 concerned, it was answered by DW1 that only three minor issues were involved and there was no objection from the plaintiff with regard to sale of the land and therefore, he as well as the third defendant Company felt that the Board Resolution [consent] represented by its Managing Director and the Chairman was sufficient and Ex.P5/Ex.D1 [E-Mail] does not say minor points but the issue of not wanting to sell the land by the plaintiff was not on the three points.
D.W.1 would state that the E-Mail message dated 10.07.2005 says that the draft agreement should be vetted by the auditor and should be made as final draft and it was approved by Mr.Ramachandran and he has no proof to show that the draft sale agreement has been approved and the final draft was sent to the plaintiff.
A specific question was also put to DW1 as to the proof that the shareholders of the third Defendant Company had given their consent for sale of the property of the Company and it was answered by him by stating that the Board Resolution was signed by the Managing Director and Ex.P22/Minutes of the Board Meeting came to be issued after consulting all the shareholders which was the practice and it was duly followed and denied the suggestion that the third defendant company did not convene the General Body Meeting.
Attention of DW1 was also drawn to E-Mail message dated 10.07.2005 and he answered it by saying that Mr.Thakur Bakshani was only talking about the mode of transfer and at no time, did he object to the sale transaction.
DW1 would state that insofar as the sale of machineries is concerned, same process was done, thereby implying that the sale of machinery was done by passing the Board Resolution. DW1 denied the suggestion that the plaintiff did not give his consent to enter into the Agreement for Sale with the first defendant Company.
A suggestion was also put to DW1 as to the awareness regarding the advance money of Rs.2.5 Crores and it was denied by him.
DW1 would further state that M/s.Nova Dyeing and Printing Mills Private Limited was in deep financial difficulty and a Meeting was held by three families in which Mr.Jagdish Sadarangani, Prem Wadhwani/fifth defendant, Harish Bakshani/fourth defendant had participated.
DW1 also denied the suggestion that he has failed to file any proof as to the consent given by all the shareholders for the sale of immovable property under ExP.6 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 case and they have not found fault with the first defendant company and they are in the process of defreezing the bank accounts and Mrs.Jhansi Rani is one of the accused in CBCID Case and she is related to Ramalinga Raju, his sister-in-law.
DW2 denied that he has not filed any proof as to the consent given by shareholders for sale of immovable properties under Ex.P6/Agreement for Sale in favour of the first defendant company and with regard to due diligence before effecting purchase of immovable properties of the third defendant company, due diligence was done by the legal team of the first defendant company.
As regards Clause 15 of the Agreement for Sale/Ex.P6 dated 14.07.2005, DW2 stated that the company team has certified the cases filed by Dhandapani against the third defendant company.
DW2 denied the suggestion that advance money of Rs.2.50 Crores paid by the first defendant company has been utilized for discharging the dues of the third defendant company.
The first defendant company had received the Board Resolution dated 24.06.2005/Ex.P22 from the third defendant company through Sitaram Reddy/DW1 and he personally thought that the said Board Resolution is sufficient for the sale transaction (Ex.P6) and DW1 had confirmed to the first defendant company that the plaintiff in C.S.No.877 of 2005 has given his consent and denied the suggestion that the plaintiff in C.S.No.877 of 2005 has not given any consent.
A specific question was put to him as to the reason for the first defendant to went ahead with the execution of Ex.P6/Agreement for Sale dated 14.07.2005 despite the majority shareholder of the third defendant company and the plaintiff in C.S.No.877 of 2005 did not accord consent for sale of immovable properties and he answered it by saying that before execution of Sale Agreement, they have taken confirmation from Sitaram Reddy/DW1 and they also received the Board Resolution from the third defendant company signed by it's Chairman and Managing Director and with regard to asking for documents from the third defendant company, DW2 answered that he has to verify the records.
DW2 was also cross examined as to the belated filing of the Suit for Specific Performance and he answered that the first defendant company or it's directors did not make efforts 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 obtained from the shareholders of the third defendant company, he answered it by saying that he has to verify with his legal team and further denied the suggestion that the said approval is against Article 54 of the Articles of Association and gave further consent that it has been done with due diligence and further denied the suggestion that Ex.P6/Agreement for Sale is unlawful.
DW2 has explained the reason for non-deposit of balance sale consideration for the reason that the third defendant did not fulfil the conditions mentioned under Ex.P6 and after filing of the Suit in C.S.No.877 of 2005, the plaintiff has come for negotiation through Sitaram Reddy/DW1 and however, it did not materialize.
31. A careful scrutiny and consideration of the testimonies of the above said witnesses would disclose that General Body Meeting has not been convened before entering into Agreement for Sale/Ex.P6 between the first defendant company and the third defendant company and the answer for justification given by the first defendant is that shareholders of the third defendant company are consisting of close family members and all of them except the plaintiff in C.S.No.877 of 2005 had participated in the Board of Directors Meeting and passed the Resolution under Ex.P22 and as such, compliance of Section 293 of the Companies Act, 1956 has been done. Insofar as compliance of Articles of Association of the third defendant company is concerned, due diligence has been done by the first defendant company.
32. Ex.P22 is the Minutes of the Board of Directors of M/s. Nova Dyeing and Printing Mills Limited/third defendant in C.S.No.877 of 2005 / first defendant in C.S.No.627 of 2008 and the Directors present were Mr.Jagadish A.Sadarangani, Chairman, Mr.Harsh Bakshani fourth defendant in C.S.No.877 of 2005, in his capacity as Managing Director, Mr.Prem I Watwani fifth defendant in C.S.No.877 of 2005, in his capacity as Director. As per Item/Sub No.1 of the Minutes of the said meeting, Leave of Absence was granted to the plaintiff in C.S.No.877 of 2005 and his wife Tmt.Nisha T. Bakshani. Item/Sub No.4 of the said Minutes pertains to Authorization to sale land and building of the company and it is relevant to extract the same:
ITEM No.4 AUTHORISATION TO SALE LAND AND BUILDING OF THE COMPANY RESOLVED THAT Approval of the Board 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 Plants & Machinery, for a consideration of Rs.88 lakhs.
RESOLVED FURTHER that the approval of the Board be and is hereby accorded to enter into suitable sale agreement with the prospective buyers Mr.J.Balan on such terms and conditions as mutually agreed between the Board and the said buyer the draft copy.
RESOLVED THAT the draft copy of the Sale Agreement as placed before the meeting duly authenticated by the Chairman for the purpose of identification and is hereby approved.
33. Mr.Jagadish A.Sadarangani Chairman of the third defendant company has filed his counter affidavit in A.No.3185 of 2006 in C.S.No.877 of 2005, which was marked as Ex.P27/Ex.D30 and in the said counter affidavit, it is averred that the third defendant company became financially sick from the year 2000 and steps were taken to sell the land and buildings and it was approximately 13 acres and it was used for very many years as a dumping place for wastewater from the unit. It is further averred in the said counter affidavit that the plaintiff in C.S.No.877 of 2005 is admittedly a major shareholder, holding 54% of shares and as regards, unsecured loans, it was admitted that he had brought in funds for the third defendant company and he alone is the Founder Promoter and Director of the company. It is further averred that the affairs of the third defendant company was closed on 03.02.2005 and as regards Agreement for Sale under Ex.P6, in para 8 of the counter affidavit, it is averred that draft copy was given to the plaintiff's brother -fourth defendant, who is also the Managing Director of the third defendant company and only on the instructions of the plaintiff and other Directors, he had signed the agreement based on the discussion with all the shareholders and he signed the Sale Agreement as a witness, based on the instructions of the plaintiff and therefore, denied the suggestion that draft copy of the Sale Agreement was sent for approval of the plaintiff and took a stand that the said transaction was finalized after consultation with the plaintiff.
34. As regards compliance of Section 293(1)(a) of the Companies Act, 1956, it is relevant to extract hereunder para 11 of the said counter affidavit, marked as Ex.P27/Ex.D30:
11. As regards to paragraph -8, it is totally denied that Section 293 was not complied with when in fact most of the shares were being 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 because of the conspiracy between the Managing Director (the 4th defendant herein) and his brother (plaintiff herein) relying on the technicality based on the papers/documents which are to be formally fixed with the Registrar of Companies wherein no specific approval from the Registrar of Companies is required in this regard. Hence, based on this strength of the certified copy of the resolution, the 3rd defendant company had entered into transactions for the sale of the properties and in the event of sale of the properties not being completed, the sale of the shares of the Company (which does not fall under Section 293, for approval). The Managing Director, who is the signatory witnessing the transactions itself, would go to show that it was only he, who was coordinating for and on behalf of the plaintiff and the family members of the plaintiff. In fact, upon receipt of the advance of Rs.2.50 Crores and the settlement of all dues, the company is now presently debt-free company, which has emboldened the plaintiff to wriggle out of the agreement and dishonour the terms of the sale agreement. Hence, the allegation that Article 54 of the Association and Section 293 of the Companies Act are not complied with, is totally devoid of any truth. It is also to be stated that Section 23 of the Indian Contract Act is also not violated and the transaction is not one sided as it is for the benefit of the company and not to the benefit of the Directors or for the shareholders per se. But in any event, upon settlement of all liabilities, it is the shareholders who stand to gain as the liability has now been settled and more so, when the plaintiff holds the majority of the shares. In para 13 of the said counter affidavit, it is averred that more than 95% of the shareholders stood together and held the Extraordinary General Body Meeting, waiving 21 days notice and the meeting was held at the Registered Office itself where all the shareholders represented their family members and since it was an unanimous decision taken to sell, resolution was recorded and draft minutes was circulated to the Directors and based on the said minutes, certified copy was furnished to the first defendant/purchaser and the Directors acted only in the interest of its shareholders and the Sale Agreement is enforceable in law as it is beneficial to the company. As regards subsequent development, it 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 thirrd 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. and Others [1964 Vol.34 Company Cases 777], scope of Sections 397, 398 and 402(f) of the Companies Act, 1956 came up for consideration and the decision was rendered by Hon'ble Mr.Justice Bhagwati [Hon'ble Judge then was]. In Page No.807 of the said decision, the learned Judge has taken into consideration the decision in Foss v. Harbottle [(1843) 2 Hare 461] and held that "The effect of accepting that construction would be that if a transaction has been entered into between a company and a third party as part of a continuous and continuing course of oppressive or prejudicial conduct, any shareholders who are aggrieved by such conduct would be entitled to ask the Court to set aside such transaction. Now such transaction would not come within any of the three recognized exceptions to the rule in Foss v. Harbottle (cited supra) and yet the aggrieved shareholders would be entitled to challenge such transaction by taking proceedings in their own right under Sections 397 and 398". In Page Nos. 830 and 831 of the said decision, it is observed that, It may be that a resolution may be passed by the directors which is perfectly legal in the sense that it does not contravene any provision of law, and yet it may be oppressive to the minority shareholders or prejudicial to the interest of the company. Such a resolution can certainly be struck down by the court under Section 397 or 398. Equally a converse case can happen. A resolution may be passed by the board of directors which may in the passing contravene a provision of law, but it may be very much in the interest of the company and of the shareholders. Such a resolution may be attacked as invalid in a suit or other appropriate proceeding, but not being oppressive to the minority shareholders or prejudicial to the interests of the company, it cannot be challenged in a petition under Section 397 of 398. I do not subscribe to the proposition that every action of the directors which is in contravention of a proposition of law must necessarily be prejudicial to the interest of the company. These two represent different different angles of view and one may exist without the other. I am, therefore, of the opinion that it is not open to the petitioners in this petition to attack the validity of the resolution dated 8th December 1957, on the ground that is was passed by the board of directors without a quorum and in contravention of the provisions of Sections 299 and 300. A finding was also given 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 173, an explanatory statement was required to be sent to the shareholders along with the notice of the meeting and that explanatory statement was required to set out all material facts concerning the item of business to be transacted at the meeting including in particular the nature of the concern or interest, if any, therein, of every director and managing agent, if any, and this particular requirement of the Section was not satisfied in the case. A finding was given to the effect that the provisions of Section 173 were not mandatory but were directory and even if there was non-compliance with the requirements set out in those provisions, such non-compliance did not have the effect of invalidating the meeting or the resolution passed at the meeting.
36.3. A question as to whether a statute is mandatory or directory has to be adjudged in the light of the intention of the legislature as disclosed by the object, purpose and scope of the statute. If the statute is mandatory, the thing done not in the manner or form prescribed can have no effect or validity; if it is directory, penalty may be incurred for non-compliance, but the act or thing done is regarded as good. A finding was recorded that Section 173 of the Companies Act is mandatory and not directory and if any contravention of the provisions of Section 173, the meeting held on 05.09.1961 is invalid and so also the resolution passed at the meeting is invalidated.
36.4. As already pointed out, consent was sought from the General Body Meeting for sale of movable and immovable properties and ultimately finding was recorded that there was no contravention to Section 173, which would invalidate the General Body Meeting held on 05.09.1961 and the resolution passed at the said meeting.
36.5. Admittedly, in the case on hand, only in terms of the resolution dated 24.06.2005/Ex.P22- Minutes of the Board Meeting, Ex.P6/Agreement for Sale came into being and it is not even the case of the first defendant that the said decision was ratified in the subsequent General Body Meeting held, as done in the decision in Sheth Mohanlal Ganpatram case (cited supra).
36.7. In Shree Onama Glass Works Ltd., Gondia v. Shri Ram Harak Panday and Others [AIR 1966 Madhya Pradesh 282], issue relating to disposal of property by a limited company without its consent for the purpose of Section 9 of the Specific Relief Act, 1877 came up for consideration and contention was 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.
36.8. 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 said company.
36.9. The word undertaking as occurred in Section 293(1)(a) of the Companies Act, 1956 came up for consideration before a Division Bench of Mysore High Court in the decision in International Cotton Corporation (P.) Ltd. v. Bank of Maharashtra and Another [1970 Vol.40 Company Cases 1154]. The Division Bench of Mysore High Court has considered the dictionary meaning of the word undertaking and after taking into consideration the decision in Madras Gymkhana Club Employee's Union v. Management [AIR 1968 SC 554], in page No.1157, observed that The business of undertaking of the company must be distinguished from the properties belonging to the company. In this case, it is only the properties belonging to the company that have been dealt with by the board of directors under the deeds of hypothecation and mortgage in favour of the bank. Hence, the learned company judge was right in holding that no part of the undertaking of the company was disposed of in favour of the bank. 36.10. The learned counsel appearing for the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008, by placing upon the said decision [International Cotton Corporation case (cited supra)] would submit that admittedly, the undertaking of the company was not disposed of and what was attempted to be disposed of under Ex.P6 was only immovable assets of the company and as such, resolution to that effect need not be passed in the shareholders meeting and therefore, the said transaction is perfectly valid. However, facts of the case would disclose that by passing a resolution, the Board of Directors had sought to hypothecate and mortgage the properties in favour of the bank and it was held that no part of undertaking of the company was disposed of in favour of the bank. However, in the case on hand, immovable properties of the third defendant company were sought to be disposed of in favour of the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 under Ex.P6/Agreement for Sale.
36.11. In Pramod Kumar Mittal v. Andhra Steel Corporation Ltd. And Others [1985 vol.58 Company Cases 772 (DB) Calcutta High Court] a Committee of Management was appointed under Section 397 of the Companies Act for sale of closed unit of the company and it has been held that closed unit cannot be termed as undertaking of the company and the sale by it, is not hit by Section 293 of the Companies it. The Division Bench 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 decision it is held that, ...In view of the fact that the Dankuni unit has not been in production for more than five years past, it cannot be said that is is an undertakingof the company which is being sold in this case. In that view of the matter, the restrictions imposed by S.293 are not attracted in the instant case and the provisions of S.293(1)(a) in terms do not apply to the proposed sale of the Dankuni unit of the company. It has further to be noted in this case that sale of the Dankuni plant is being effected by the Committee of Management appointed by court in an application made under S.397 of the Companies Act and not by the board of directors. The fetter on the part of the board of directors under the provisions of S.293 will not apply to the Committee of Management appointed in a proceeding under ss.397 and 398 of the Companies Act. The said finding came to be rendered on the ground that the company therein has not been in production for more than 5 years and the thing weighed with the mind of the Calcutta High Court was that since the Committee of Management appointed by the Court was discharging the functions, the fetter on the part of the Board of Directors under Section 293 will not apply to the Committee of Management appointed in a proceeding under Sections 397 and 398 of the Companies Act.
36.13. However, in the case on hand, no such Committee was appointed by this Court and though the third defendant company ceased it's operations for some time, it was under the control and management of the Board of Directors of the Company.
36.14. A Single Bench of Bombay High Court, in the decision in P.S.Offshore Inter Land Services Pvt. Ltd. and Another v. Bombay Offshore Suppliers and Services Ltd. And Others [1992 Vol.75 Company Cases 583], has taken into consideration the decisions in International Cotton Corporation P.Ltd., v. Bank of Maharashtra [(1970) 40 Comp. Cas. 1154 (Mys.)], Madras Gymkhana Club Employee's Union v. Management of Madras Gymkhana Club [AIR 1968 SC 554] and Pramod Kumar Mittal v. Andhra Steel Corporation Ltd. [(1985) 58 Comp. Cas.772] (cases cited supra). The case before the Bombay High Court pertains to prayer for ad-interim injunction restraining the respondents from in any manner, acting in furtherance of the agreements dated 21.05.1990 and 26.01.1991 and acting in furtherance of the purported resolution of the Board of Directors of the first respondent company dated 05.02.1991. The Bombay High Court found that the summons involves a question of interpretation of Section 293(1)(a) of the Companies Act, 1956 and the 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 as to constitute the integral part of the undertaking itself in the practical sense of the term. The Bombay High Court, after referring to the decision in R.C.Cooper v. Union of India [(1970) 40 Company Cases 325 (SC)], in Page No.597 observed as follows:
It appears that the undertaking means a "unit", a business or a project. Each factory of a company may be considered as a separate undertaking. In the above-referred case, the Supreme Court was considering the meaning of the word "undertaking" as used in the Bank Nationalisation Statute of 1969. The above-referred observation, though not directly an interpretation of section 293(1)(a) of the Act is of some assistance in finding out the true meaning of the word "undertaking" used in section 293(1)(a) of the Act. It appears to me that, for the purpose of section 293(1)(a) of the Act, all the capital assets of the undertaking taken together would be embraced by the expression "undertaking" as, otherwise, it would be very easy to defeat the legislative intention and avoid procurement of the consent of the general body when the legislative intention is clear that the directors cannot dispose of the entire or substantially the whole business of the company without the consent of the general body. If, after disposal of practically all the capital assets of a company, what remains is only the husk of the assets, it would be perhaps difficult to take the view that, merely, assets of the undertaking were disposed of and not the undertaking itself. It is, therefore, possible to take a view that the board of directors cannot dispose of "all the capital assets of the company" taken together which will denude the company of its business or will leave merely the husk left behind. In the present case, however, the first respondent-company owns, three vessels and the vessel in question was acquired only in June, 1989, and the same is lying idle. The first respondent-company is carrying on its business with the help of the other two vessels. The company itself was a party to the transaction in respect of the disposal of one of its vessels in the ordinary course of its business for the reasons stated in the application seeking approval of the Director-General of Shipping signed by its vice-president. If the company had owned only one vessel and the result of the sale of the said vessel had been to wind up the company or to wind up the business of the company 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, AIR 1960 Bom 22, and the judgments of the Supreme Court in S.G. Chemicals and Dyes Trading Employees' Union v. S. G. Chemicals and Dyes Trading Limited. and Management of Hindustan Steel Ltd. v. Their Workmen 1973 3 SCR 303, Mr. Cooper relied on the judgment of the Supreme Court in the case of Madras Gymkhana Club Employees' Union v. Management of the Madras Gymkhana Club Employees' Union, . I am afraid that none of these judgments can be considered relevant for the purpose of interpreting and applying section 293(1)(a) of the Companies Act (1 of 1956), which has a different legislative mission to serve. The Bombay High Court, after distinguishing Pramod Kumar Mittal case (cited supra), in Page No.599, observed that Section 293(1)(a) makes no distinction whatsoever between a running undertaking and a closed undertaking. In Page No.600 observed that, At any rate, the assets in question must be substantially all (if not all) the assets of the undertaking so as to leave nothing of the business or the running concern in the business sense of the term after the asset intended to be disposed of is disposed of. and thereby implying that substantial assets of the company is disposed of, it amounts to all assets of the undertaking so as to leave nothing of the business or the running concern in the business.
36.15. In the case on hand, if the assets of immovable properties of the third defendant company are sold pursuant to Ex.P6/Agreement for Sale, it is impossible for the third defendant company to run it's operations and it is also brought to the knowledge of the Court that the proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 also got terminated. No doubt, for sale of machineries of the company, the Board of Directors of the third defendant Company, under Ex.P22-Minutes of the Board of Directors Meeting dated 24.06.2005, accorded approval for sale of plant and machineries for a consideration of Rs.88 Lakhs in favour of one Mr.J.Balan, subject to terms and conditions mutually agreed between the Board and the said buyer. The plaintiff in C.S.No.877 of 2005 did not challenge the said sale and technically it amounts to taking a contra stand on his part. However, the sale of such plant and machineries pursuant to the decision of the Board of Directors meeting instead of General Body Meeting of the shareholders has not been 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 Pvt. Ltd. Case (cited supra) has been considered by an another Division Bench of Bombay High Court in Allana Cold Storage Ltd. And Another v. Goa Meat Complex Ltd. And Another [1997 Vol.90 Company Cases 50]. The Division Bench of Bombay High Court, after referring to P.S.Offshore Inter Land Services Pvt. 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 imagination amount to a transfer either by lease or disposal otherwise of the whole of undertaking or substantially the whole of undertaking.... 36.17. In Cochin Malabar Estates and Industries Ltd. And Another v. (1) P.V. Abdul Khader and Another [2003 Vol.114 Company Cases 777], the Board of Directors of Cochin Malabar Estates in their efforts to sell some of the immovable properties so as to enable them to use the sale proceeds for meeting its financial obligation towards banks/financial institutions for which necessary approval from the General Body is required and accordingly, the Board of Directors of the said company resolved to get approval from the General Body under Section 293(1) of the Companies Act and issued notice for convening 71st Annual General Meeting on 07.12.2001 and one of the shareholders of the company moved the Calcutta High Court to hold up convening of General Body Meeting and the Calcutta High Court granted interim orders and it was put to challenge before the Hon'ble Supreme Court, which opined that the High Court has exceeded the jurisdiction and at the instance of the shareholders, some of the shareholders moved application for convening of General Body Meeting and though interim order was granted by Company Judge of Kerala High Court, which was vacated based on the undertaking that the entire assets would not be sold and appeal was moved before the Division Bench and it was also dismissed and thereafter, consent was given in the General Body Meeting and accordingly, Board of Directors proceeded with the sale by issuance of public notice. In Page No.793 of the said judgment, the Division Bench of Kerala High Court after taking into consideration the function of the Board of Directors, observed that, The board of directors could effect sale of the immovable property only with the sanction of the general body under Section 293(1) of the Companies Act.. The functions of the Board of Directors were also considered in the said decision and in Page No.796, it was observed as follows:
The company judge would normally start with the presumption that the directors are acting in the best interest of the company since they have been entrusted with the task of managing 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 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 lawful decision of the board of directors of a company. Even a commercial misjudgment would not amount to oppression or mismanagement. The board of directors may err, every error cannot be a ground for action and the company court is not a correctional court for all errors. A shareholder has to yield to majority rule and the decision of the board of directors who are also invariably be shareholders. A shareholder cannot come to the company court with the fanciful idea that he could move the machinery of the company court to set right what he thinks correct and what the board of directors does is wrong. The shareholder if could procure the aid of the court in each and every action taken by the board of directors it would lead to endless litigation and pin down the company within the four walls of a company court. The company court should shut its doors to them and deny entry.
The Court, on the facts of the case, observed that the Company Petition as well as the company applications filed by the petitioner/shareholder and third parties are with ulterior motive and it is nothing but an abuse of process of law and accordingly, allowed the appeal filed by the company with costs.
36.18. In Nirad Amilal Mehta v. Genelec Ltd. And Others [(2008) 146 Company Cases 481 (Bom)], interlocutory application was moved seeking the relief of injunction restraining the fifth defendant, who is the purchaser of the company's property under a Deed of Conveyance dated 13.12.2007 from selling, alienating, creating third party rights, developing or carrying out any construction or parting with the possession of the property purchased till the disposal of the Suit. Facts of the case would disclose that a resolution was purportedly passed by the first defendant company in its general body meeting to sell the suit property and accordingly, it was sold and transferred in favour the fifth defendant therein for a consideration of Rs.6 Crores 95 Lakhs and defendants 2, 3 and 4 as the directors of the first defendant company signed the conveyance as vendors in favour of the fifth defendant. Challenging the legality of the same, the plaintiff, who is it's shareholder, filed a Suit as a derivative action, challenging the said conveyance. It is relevant to extract the following portions at Page Nos 487 to 489 of the said decision:
Regarding violation of Section 293 Section 293 of the Companies Act puts restrictions on the powers 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 paragraph 15 of the plaint which are not rebutted in the affidavit in reply. Furthermore, the notice of the meeting and agenda is stated to be of the same date as that of the meeting. Section 171 of the Companies Act requires notice of atleast 21 days to be given prior to a general meeting. No material has been produced on record to show that 21 days notice was ever issued before the alleged general meeting on 23rd March 2007. Furthermore, under Section 173 of the Companies Act, an explanatory statement is required to be annexed to the notice of the meeting. No explanatory statement under Section 173 of the Companies Act was attached to the alleged notice dated 23rd March 2007. In fact, the explanatory statement is dated 13th December 2007 which is long after the date of the alleged general meeting dated 23rd March, 2007. In sub-paragraph No. (iv) of paragraph No. 15, the plaintiff has stated that the place of meeting as stated in the alleged notice was an open ground. He has further stated that no arrangements for the meeting had ever been made at that open space and any such meeting was held and could not be held on the open space. Neither a register of members present at the meeting nor any other material was produced to show that any meeting was held on 23rd March 2007. No minutes appear to have been prepared and aimed by the Chairman as required under Section 193 of the Companies Act. In any event no record was produced that the Chairman signed the minutes of the alleged meeting held on 23rd March 2007. The allegations made in paragraph No. 15 of the plaint are unrebutted in affidavit in reply. It must therefore be held, atleast at this prima facie stage, that no meeting was ever held on 23rd March 2007 much less a meeting in accordance with law.
Re: Transfer not of the whole of the undertaking.
Mr. Kamdar learned Counsel for the defendant submitted that the sale was not of the whole of the undertaking of the Company and therefore it was not necessary to have a resolution under Section 293 of the Companies Act for sale of the suit property. He submitted that company had two undertakings, one at Mumbai and another at Aurangabad. The value of the undertaking at Mumbai was only Rs. 6.95 crores and value of the undertaking at Aurangabad was Rs. 10 crores or more. Therefore the undertaking at Mumbai was a smaller undertaking and not a substantial 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 it is assumed that the defendant No. 1 company had two undertakings, one at Mumbai and another at Aurangabad, neither of the said undertakings could be sold without consent of the company obtained in the general body meeting. I have already held that there was no valid general meeting held on 23rd March 2007 and consequently there was no consent of the company obtained in a general meeting for the sale of the whole of the undertaking at Mumbai. The deed of conveyance dated 13th December 2007 is, prima facie, void and being contrary to Section 293 of the Companies Act. The Bombay High Court, on the facts of the case, found that with regard to the findings of the General Body meeting wherein a decision has been taken to sell the assets, no notice has been given to any member at all and Section 171 of the Companies Act which requires at least 21 days prior notice has not been complied with and so also Section 173 of the Companies Act for the reason that no explanatory statement has been annexed to the notice of the meeting and therefore, no meeting was held on 23.3.2007 much less a meeting in accordance with law. As regards transfer of the whole or substantially the whole of the undertaking of a company, the first defendant company had two undertakings, one at Mumbai and another at Aurangabad and neither of the said undertakings could be sold without consent of the company obtained in the general body meeting.
36.19. In the case on hand, admittedly General Body Meeting was held before entering into Ex.P6/Agreement for Sale between the third defendant company and the first defendant company and even otherwise, sale of the land and properties under the said agreement is a transfer of the undertaking of the movable properties of the third defendant company.
36.20. In IDBI Bank Ltd. v. Administrator, Kothari Orient Finance Ltd. and Others, [(2009) 152 Comp Cases 282 (Mad)], contention was put forward on behalf of the appellant therein that Board Resolution taken in the meeting held on 31.03.1999 for sale of the property was sufficient and it was repelled by this Court on the ground that as per Section 293(1) of the Companies Act, restriction has been placed on the powers of the Board of Directors to sell, lease or otherwise dispose of the whole or substantially the whole, of the undertaking of the company and on the facts of this case found that there was no resolution was passed at the General Body Meeting of the shareholders.
36.21. In 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 to consent of majority shareholders, this Court is of the view that the said submission lacks merit in the light of mandatory nature of Section 293(1)(a) of the Companies Act and that apart, in the event of holding General Body Meeting, explanatory statement under Section 173 of the Companies Act is also to be enclosed with the notice for the meeting and as such, both the provisions have not been adhered to.
37. Issue No.1 in C.S.No.877 of 2005 also pertains to non-adherence of Articles of Association of the third defendant company which in-turn deals with exercise of due diligence by the first defendant company.
38. It is relevant to extract hereunder Article 54 of the Articles of Association of the third defendant company, marked as Ex.P1:
POWERS AND DUTIES OF DIRECTORS
54. In furtherance of and without prejudice to the general powers conferred by or implied in Article and other powers conferred by these Articles and subject to the provisions of Section 292 and 293 of the Act, it is hereby expressly declared that it shall be lawful for the Directors to carryout all or any of the objects set forth in the Memorandum of Association and to do the following things.
(a) To purchase or otherwise acquire for the company any property, rights or privileges which the Company is authorised to acquire at such price and generally on such terms and conditions as they fit and to sell, let, exchange or otherwise dispose of property privileges and undertakings of the company upon such terms and conditions and for such consideration as they may think fit... Article 54 of the Articles of Association of the Company states, among other things, that subject to the provisions of Sections 292 and 293 of the Companies Act, it shall be lawful for the Directors to carry out all or any of the objects set forth in the Memorandum of Association and to do the following things, namely (a).......... to sell, let, exchange, or otherwise dispose of property privileges and undertakings of the company upon such terms and conditions and for such consideration as they may think fit.
39. When the witnesses examined on behalf of the first defendant company in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 were questioned with regard to the said articles, their answers were that legal team of the company has done that exercise. Alternatively, a submission 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 Court is of the view that it is not in compliance of Section 293 (1)(a) of the Companies Act, especially on account of the fact that when a Statute prescribes a thing to be done in a particular manner, it should be done in that manner and not otherwise. If the Directors of the first defendant company exercised due diligence by going through the Memorandum and Articles of Association of the third defendant company, they would have definitely got the knowledge of the compliance of the said statutory provision. The main defence put forward by them is the applicability of Doctrine of Indoor Management and they would expect that the affairs of the third defendant company would be carried out strictly in accordance with the Statute and Articles of Association.
42. The said issue was also considered by the Bombay High Court in the decision in Nirad Amilal Mehta case (cited supra) and the plea put forward as to the defence of bonafide purchaser was also considered and it is relevant to extract hereunder the portions in Page No.489 and 490 of the said judgment:
Alleged protection under Section 46 of the Companies Act.
Section 46 of the Companies Act lays down the form of contract to be made by the company and provides that any contract made by the Company in accordance with Section 46 shall bind the Company. Mr. Kamdar submitted that the deed of conveyance was a kind of contract, though a completed or an executed contract. The suit property stood conveyed and transferred by the said contract. As the contract was made in accordance with the form prescribed by Section 46 the contract was binding on the company. I am unable to agree. Section 46 only prescribes the form of the contract to be made by the Company. Every contract made by a company must fulfill other conditions, if any, imposed by the other provisions of the Companies Act. Section 293 of the Companies Act imposes a condition for transfer of the whole or substantially the whole of the undertaking of a company. If the whole or substantially the whole of the undertaking is to be transferred, then consent for such transfer has to be obtained in a general meeting. It is a condition precedent for the transfer. This condition is obviously in addition to the form of contract provided under Section 46. Any other interpretation could make Section 293 nugatory. In the circumstances, the contention of 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 prescribed by Articles of Association of a Company and the statutory restrictions imposed by the Companies Act. Where there is a clear breach of a provision of a statute, the doctrine of indoor management laid down in Royal British Bank v. Turquand (supra) cannot apply. In the event of a breach of a statutory provision, the consequences of the breach would follow and it would be no defence to hold that the person dealing with the company, including purchaser in the present case, was entitled to assume that all statutory requirements were complied with. If a statute prescribes a mandatory procedure the same must be complied with at the pevil of the action being declared void for its non compliance. There is therefore, no merit in this contention also.
Defence of Bona fide purchasers.
In my view, at this inter locutory stage, the defendant No. 5 is not entitled to any protection on the alleged ground that it is a bona fide purchasers for value without notice, for reasons more than one. Firstly, whether the defendant No. 5 at all is a bona fide purchaser is a question of fact which would be required to be determined on appreciation the evidence to be adduced at the trial. At this stage, it cannot be held that the defendant No. 5 had no knowledge of the illegality. Whether the defendant No. 5 had made appropriate enquiries before purchase of the property is also a question of fact which can be determined only at the stage of trial. Secondly, in my prima facie view the defence of bona fide purchaser would not be available in case of breach of a statutory bar on the Board of Directors from selling the undertaking of a company without permission of the company obtained in a general meeting. Hence, at this stage, in my view, the defendant No. 5 cannot claim any benefit on the ground that he is a bona fide purchaser for value without notice. The Bombay High Court, by placing reliance upon the decision in Royal British Bank v. Turquand [(1856) 6E & B 327], held that when there is a clear breach of a provision of a Statute, the Doctrine of Indoor Management cannot apply..... If a Statute prescribes a mandatory procedure, the same must be complied with at peril of the action being declared void for its non compliance....
43. In the light of the reasons assigned above, Issue No.1 in C.S.No.877 of 2005 is answered in affirmative in favour of the plaintiff 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.877 of 2005/first defendant in C.S.No.627 of 2008, namely M/s.Nova Dyeing and Printing Mills Ltd. that admittedly the machineries of the third defendant company had been sold under Ex.P22 Minutes of the Board of Directors dated 24.06.2005, without getting the consent of the shareholders in Extra Ordinary General Body Meeting and as such, it is not open to the plaintiff in C.S.No.877 of 2005 to take a contra stand insofar as managing the properties of the third defendant company is concerned. It is also urged that major shareholders of the third defendant company represent the company in their capacity as Managing Director and Directors respectively and under Ex.P21 Minutes of the Board Meeting dated 27.07.2005, the Board had ratified the Agreement for Sale/Ex.P6 dated 14.07.2005 and therefore, it may not be necessary to convene an Extra Ordinary General Body Meeting to get the approval of the shareholders and even otherwise, ratification can be done by the shareholders in yet another meeting also.
46. It is also reiterated that admittedly the advance of Rs.2.50 Crores paid by the first defendant in C.S.No.877 of 2005, namely M/s.Shrutivinda Agro Farms Pvt. Ltd. has been utilized by the third defendant company in C.S.No.877 of 2005, namely M/s.Nova Dyeing and Printing Mills Ltd., to settle of their debts, even prior to the ratification of Ex.P6/Agreement for Sale and the said act implies the intention of the third defendant company to give effect or go ahead with Ex.P6/Agreement for Sale anticipating that Ex.P6 will go through in its entirety and the first defendant in C.S.No.877 of 2005/M/s.Shrutivinda Agro Farms Pvt. Ltd. has irretrievably altered it's position by purchasing adjoining lands to the suit property under Exs.D4 to D10/Sale Deeds and it is not in a position to alter it's position to the utmost disadvantage. It is the stand of the plaintiff in C.S.No.877 of 2005 and the second defendant in C.S.No.627 of 2008, namely Thakur J.Bakshani that admittedly he did not authorize his brother, namely the fourth defendant/Harish J.Bakshani to represent his interest and that of his family and thereby, probablised and sustained his case that he was not a party to Ex.P6.
47. The plaintiff in C.S.No.877 of 2005, namely Thakur J.Bakshani, in his cross examination, had deposed among other things that he knew the percentage of his shareholding and 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 machineries and though he was not present in the meeting, his consent was taken and minutes were drawn with his consent and got signed and he would admit that all major decisions were taken by the Board which comprises of the above said persons. He would also concede that from the advance amount received from M/s.Shrutivinda Agro Farms Pvt. Ltd./first defendant in C.S.No.877 of 2005 creditors were settled and by way of subsequent development, he got control over the third defendant company/M/s.Nova Dyeing and Printing Mills Ltd. some time during April 2006. He would further depose that in haste, without his consent, Ex-Chairman and Director has entered into Agreement for Sale/Ex.P6 in contravention of Memorandum and Articles of Association. Insofar as his objection for entering into Ex.P6/Agreement for Sale, PW1-Thakur J.Bakshani would depose that under Ex.P5/e-mail, draft Sale Agreement was forwarded to him on 09.07.2005 and having found a lot of objections, which were not favourable to the third defendant company/M/s.Nova Dyeing and it was all in favour of the first defendant company/M/s.Shrutivinda Agro Farms Pvt. Ltd., he has sent an e-mail to his brother, who had forwarded the Sale Agreement to him, to show the draft Agreement for Sale to his auditor, for vetting it and corrected and to send him the final draft for his approval and despite such an advice, the Ex-Chairman has gone ahead with Ex.P6/Agreement for Sale dated 14.07.2005. It is also his evidence that three objections were raised, firstly, the sale transaction will be completed through purchase of property or vendor will sell to the purchaser the entire shares and this is not possible in view of the dispute M/s.Nova Dyeing and Printing Mills Ltd. with its Ex-Managing Director Mr.V.C.Dhandapani and secondly, Clause No.14 was strongly objected on the ground that they have committed the purchaser full authority to take over the company, settle the staff labour and creditors problems out of funds due to them and thirdly, Clause 15 of the Agreement was also objected on the ground that a sum of Rs.1 Crore will be kept in the escrow account till the issue pertaining to Mr.V.C.Dhandapani is settled in full. PW1/Thakur J.Bakshani would further state that the objections raised by him were oral and not borne out by documents/records and the draft agreement was sent on 09.07.2005 and he has spoken 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 the same, to his knowledge, no objection was received. DW3 would further reiterate that under Section 293(1) of the Companies Act, M/s.Nova Dyeing and Printing Mills Ltd./third defendant company should have taken shareholders' approval before entering into Ex.P6/Agreement for Sale and such approval was not taken and apart from the said reason, there is no other major reason for opposing the relief prayed for by M/s.Shrutivinda Agro Farms Pvt. Ltd./first defendant in C.S.No.877 of 2005. DW3 would further state that as per the Memorandum and Articles of Association, they can purchase, sell, take on lease or otherwise acquire any lands and the Directors have been conferred with power to acquire and dispose of the properties belonging to M/s.Nova Dyeing and Printing Mills Ltd./third defendant company. DW3 would further depose that he was aware of the fact that before sale of the property to the third defendant company, consent of the shareholders is necessary and he has informed M/s.Shrutivinda Agro Farms Pvt. Ltd./first defendant company about the said requirement and he was specifically questioned as to the exercise of due diligence by M/s.Shrutivinda Agro Farms Pvt. Ltd./first defendant in C.S.No.877 of 2005 before entering into Agreement for Sale and he answered that such an exercise was done. DW3 would state that he did not personally verify before entering into Agreement for Sale and he did not personally verify the Memorandum and Articles of Association and would admit that the plaintiff/Thakur J.Bakshani and his family had major shareholding of more than 50%.
50. DW3 would further depose that according to him, the fourth defendant signing in the Board of Directors, amounts to Thakur J.Bakshani/plaintiff gave his consent and the Board Resolution under Ex.P22 did not say that the fourth defendant represents Thakur J.Bakshani/plaintiff. A specific question was put as to whether his Auditor Mr.Ramachandran had affirmed or objected to Ex.P6/Agreement for Sale and he answered that there is no document or report to that effect and the draft Agreement has been finally sent to Thakur.J.Bakshani/plaintiff. DW3 would further depose that according to him, Board Resolution sworn to him under Ex.P22 was sent by the Managing Director and Chairman and he was made to understand that Ex.P22 was signed after the consent of shareholders and thus, according to him, 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 favour of M/s.Shrutivinda Agro Farms Pvt. Ltd. under Ex.P6, consent/approval from the shareholders of M/s.Nova Dyeing and Printing Mills Ltd., was obtained and also denied that it is against Article 54 of the Articles of Association of M/s.Nova Dyeing and Printing Mills Ltd.
52. This Court, while answering Issue No.1 in C.S.Nos.877 of 2005 and 627 of 2008, held that Section 293(1)(a) of the Companies Act has not been adhered to before entering into Ex.P6/Agreement for Sale and the testimonies of DWs.1 and 2 would also disclose that they were under the impression that since the Board of Directors representing major shareholders, the Board Resolution under Ex.P22 was sufficient to conclude the sale of immovable land and properties and no evidence is also made available as to the consent obtained from the plaintiff in C.S.No.877 of 2005 before entering into Ex.P6/Agreement for Sale.
53. It is also pertinent to point out at this juncture that the Agreement for Sale/Ex.P6 was ratified under Ex.P21/Minutes of the Board Meeting dated 27.07.2005 and under Ex.P22, authorization/approval was given by the Board of Directors of M/s.Nova Dyeing and Printing Mills Ltd., (Item No.4) to dispose of the factory Land and Buildings of the Company situated at No.30, Kazhipattur Village, Old Mahabalipuram Road, Chengai District-603103 and in the considered opinion of the Court, it is not in compliance of Section 293(1)(a) of the Companies Act, 1956 and however, the said resolution of the Board of Directors can be ratified by the General Body of the shareholders, but it has not been done and as of now, it may not be possible for the reason that the plaintiff in C.S.No.877 of 2005/Mr.Thakur J.Bakshani has taken over the control of M/s.Nova Dyeing and Printing Mills Ltd., by purchasing the shares of Mr.Haresh J.Bakshani and other directors.
54. No doubt, the sale of land and immovable properties of the company or plant and machineries of the company would also amount to whole or otherwise disposal of the whole of undertaking or substantially the whole of undertaking for the reason that without either of those assets, M/s.Nova Dyeing and Printing Mills Ltd./third defendant in C.S.No.877 of 2005 cannot function. Admittedly the plant and machineries of M/s.Nova Dyeing and Printing Mills Ltd./third defendant in C.S.No.877 of 2005 were sold under Ex.P22, only through 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 in Issue Nos.1 raised in C.S.No.877 of 2005 an C.S.No.627 of 2008.
Issue No.3 in C.S.No.877 of 2005
57. No doubt, then Chairman of M/s.Nova Dyeing and Printing Mills Ltd. - Jagadish A.Sadrangani and other Directors, namely the defendants 4 and 5 in C.S.No.877 of 2005 had interest in the third defendant company at the time of entering into Ex.P6/Agreement for Sale, but the fact remains that the statutory mandates cast upon the third defendant company/M/s.Nova Dyeing and Printing Mills Ltd. under Section 293 (1)(a) of the Companies Act, have not been adhered to/complied with de hors their interest and in the light of the findings recorded by this Court regarding Issue No.1 in both the Suits, Issue No.3 has no relevance. The findings given by this Court in respect of Issue No.1 in both the Suits, and Issue No.2 in C.S.No.877 of 2005 had sustained the legal plea that the procedures contemplated under Section 293(1)(a) of the Companies Act, have not been followed/adhered to.
Issue No.4 in C.S.No.877 of 2005
58. In N.V.R.Nagappa Chettiar v. Madras Race Club [(1949) 19 Comp Cases 175 : AIR 1951 Mad 831], it is held that "if the board of directors is mismanaging the affairs of the company or board of directors are conducting business prejudicial to the interest of the shareholders they could always move the Company Law Board after complying with the formalities laid down in the Companies Act and the Company Court should show circumspection while dealing with an application filed by an ordinary shareholder and a shareholder could always ventilate his grievance before various forums and detailed procedures against oppression of minority and mismanagement of the company affairs, enabling the shareholder to approach the Company Law Board, which in-turn exercise it's powers under Sections 388B to 388E and further, Section 237 also empowers the Department of Company Affairs to effectively interfere even on a mere complaint by a shareholder if there is evidence to justify the interference in cases where fraud, mismanagement or serious irregularities in the affairs of the company are raised".
59. In Cochin Malabar Estates and Industries Ltd. and Another v. P.V.Abdul Khader and another [2003 Vol.114 Company Cases 777 DB (Kerala)], at page Nos.796 to 797 it is observed as under:
The company judge would normally start with the presumption that the directors are acting in the best interest of the company since they have been entrusted with the task of managing 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 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 lawful decision of the board of directors of a company. Even a commercial misjudgment would not amount to oppression or mismanagement. The board of directors may err, every error cannot be a ground for action and the company court is not a correctional court for all errors. A shareholder has to yield to majority rule and the decision of the board of directors who are also invariably be shareholders. A shareholder cannot come to the company court with the fanciful idea that he could move the machinery of the company court to set right what he thinks correct and what the board of directors does is wrong. The shareholder if could procure the aid of the court in each and every action taken by the board of directors it would lead to endless litigation and pin down the company within the four walls of a company court. The company court should shut its doors to them and deny entry. In the said decision, it was observed that the company court shall not interfere with the lawful decision of the board of directors of a company and even a commercial misjudgment would not amount to oppression or mismanagement and the board of directors may err, every error cannot be a ground for action and the company court is not a correctional court for all errors and a shareholder has to yield to majority rule and the decision of the board of directors who are also invariably be shareholders...... The shareholder if could procure the aid of the court in each and every action taken by the board of directors it would lead to endless litigation and pin down the company within the four walls of a company court. The company court should shut its doors to them and deny entry.
60. In Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. and Others [1964 Vol.34 Company Cases 777], scope of Sections 397 and 398 of the Companies Act, 1956 came up for consideration especially relating to setting aside of past/concluded transactions and in page No.831, while answering the plea raised that wile passing resolution directors had committed contravention of of provision of law despite the resolution was beneficial and it was answered by observing that I am, therefore, of the opinion that it is not open to the petitioners 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 General Body Meeting held on 05.09.1961 for sale of immovable properties and therefore, it was held that the consent bought from the general meeting being a consent to the sale of the movable and immovable properties of the company to Bharat Kala Bhandar Limited and the resolution embodied the consent of the general meeting to the sale of the movable and immovable properties of the company. Therefore, this Court is of the view that the plaintiff, being a founder of the company, cannot question the validity of the Agreement for Sale/Ex.P6 dated 14.07.2005 and a shareholder is entitled to question the same on the ground that the mandates cast upon M/s.Nova Dyeing and Printing Mills Ltd./third defendant in C.S.No.877 of 2005 under Section 293(1)(a) of the Companies Act, have not been followed and the remedy, if any available at that point of time was that the approval/ratification by the General Body of the shareholders under Ex.P22 should have been obtained and admittedly, it was not done so.
62. Therefore, Issue No.4 in C.S.No.877 of 2005 is answered accordingly.
Issue No.6 in C.S.No.877 of 2005 and Issue No.2 in C.S.No.627 of 2008
63. It is relevant to extract Article 54 of the Articles of Association of the third defendant in C.S.No.877 of 2005/first defendant in C.S.No.627 of 2008/M/s.Nova Dyeing and Printing Mills ltd., POWERS AND DUTIES OF DIRECTORS
54. In furtherance of and without prejudice to the general powers conferred by or implied in Article and other powers conferred by these Articles and subject to the provisions of Section 292 and 293 of the Act, it is hereby expressly declared that it shall be lawful for the Directors to carryout all or any of the objects set forth in the Memorandum of Association and to do the following things.
(a) To purchase or otherwise acquire for the company any property, rights or privileges which the Company is authorised to acquire at such price and generally on such terms and conditions as they fit and to sell, let, exchange or otherwise dispose of property privileges and undertakings of the company upon such terms and conditions and for such consideration as they may think fit... Clause 2(d) of the Articles of Association defines Board of Directors and Clause 2(g) defines Managing Director. As per Clause 48, the First Directors of the said company were Tvl Thakur J.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 v. Genelec Ltd. and Others [(2008) 146 Comp Cases 481 (Bom.)], 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 Corporation (P) Ltd. v. Bank of Maharashtra and Another [(1971) 41 Comp. Cases 226 (Kar)]. 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 to the things contemplated under Article 54(a) to 54(q).
65. This Court, while answering the above issues, has given a categorical finding that Section 293(1)(a) of the Companies Act, has not been adhered to and by a Board Resolution under Ex.P22, land and immovable assets of the third defendant in C.S.No.877 of 2005/M/s.Nova Dyeing and Printing Mills Ltd. sought to be sold under Ex.P6/Agreement for Sale dated 14.07.2005. This Court has also given a finding that if either the land and immovable properties or plant and machineries are sold, it amounts to disposal of the whole, or substantially the whole, of the undertaking of the company for the reason that without either of those properties, the company cannot effectively function. Even this Court accepts the plea raised by the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 that if the Board Meeting under Ex.P22 would amount to signing of the shareholders of the company in the General Body Meeting for the reason that majority of the shareholders represent in their capacity as Director and Managing Director respectively, is of the considered view that they are entitled to presume that as per the Doctrine of Indoor Management, everything has taken place as per law and procedure and this Court is of the considered view that it is obligatory on the part of the first defendant as per the Memorandum and Articles of Association, to exercise due diligence and it has not been done.
66. The testimonies of DWs.1 and 3 would also disclose that such a minimum basic exercise has not been done before entering into Ex.P6/Agreement for Sale dated 14.07.2005. In the considered opinion of the Court, without taking note of the Memorandum and Articles of Association, more particularly Article 54 of the Articles of Association, Agreement for Sale under Ex.P6 was entered into by the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 with the third defendant in C.S.No.877 of 2005/first defendant in C.S.No.627 of 2008.
67. Therefore, Issue No.6 in C.S.No.877 of 2005 and Issue No.2 in C.S.No.627 of 2008 is answered in favour of the plaintiff in C.S.No.877 of 2008/second defendant in C.S.No.627 of 2008.
Issue Nos.7 and 8 in C.S.No.877 of 2005
68. It is relevant to extract hereunder Section 23 of the Indian Contract Act, 1872:
23. What consideration and objects 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 the person or property of another; or the Court regards it as immoral or opposed to public policy, equally has to declare the sale of plant and machineries by the said company under Ex.P6 as null and void for the reason that sale of plant and machineries would also amount to sale or otherwise dispose of whole or substantially, the whole of the undertaking of the company for the reason that without the plant and machineries, the company cannot effectively function and the defence put forth by the plaintiff in C.S.No.877 of 2005 is that he gave his consent and as such, Board of Directors' Resolution to sell the same is there. However, the said sale has not been challenged by anyone of the shareholders of M/s.Nova Dyeing and Printing Mills Ltd.,/third defendant in C.S.No.877 of 2005 and as such, it cannot be declared as null and void.
70. Therefore, this Court is of the considered opinion that on account of the bar under Section 293(1)(a) of the Companies Act coupled with the fact that Agreement for Sale under Ex.P6 has not been ratified/approved even subsequently by the shareholders in the General Body Meeting, it is unenforceable. However, it is also to be pointed out at this juncture that the stand taken by the plaintiff in C.S.No.877 of 2005 may have a bearing while deciding the alternative relief of damages claimed by the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008.
71. Section 192(4)(ee) of the Companies Act contemplates that a resolution has to be passed by a company (i) according consent to the exercise by its Board of directors of any of the powers under clause (a), clause (d) and clause (e) of sub-section (1) of Section 293.
72. Admittedly, in the case on hand, consent of the shareholders in the General Body Meeting has not been obtained and that by subsequent ratification also, the exercise done by the Board of Directors in that regard under Ex.P22 has not been ratified/approved. Adherence to Section 173 of the Companies Act is also mandated. In the considered opinion of the Court, the resolution passed by the company as per Section 192(4)(eee)(i) of the Companies Act requires ratification at the hands of the Registrar of Companies and it has not been done.
73. Therefore, Issued Nos.7 and 8 in C.S.No.877 of 2005 is answered in favour of the plaintiff in C.S.No.877 of 2005.
Issue No.3 in C.S.No.627 of 2008
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. However, this Court is of the view that in the light of the findings given in respect of above issues, it is not in consonance with the mandatory provision under Section 293(1)(a) of the Companies Act and also in the absence of subsequent approval/ratification by shareholders of the third defendant company in C.S.No.877 of 2005, it cannot be enforced.
77. Therefore, Issue No.9 in C.S.No.877 of 2005 is answered in negative against the plaintiff in C.S.No.877 of 2005.
Issue Nos.4 and 6 in C.S.No.627 of 2008
78. It is relevant to extract hereunder Section 16 of the Specific Relief Act, 1963:
16. Personal bars to relief.- Specific performance of a contract cannot be enforced in favour of a person-
(a) who would not be entitled to recover compensation for its breach; or
(b) who has become incapable of performing, or violates any essential term of, the contract that on his part remains to be performed, or acts in fraud of the contract, or wilfully acts at variance with, or in subversion of, the relation intended to be established by the contract; or
(c) who fails to aver and prove that he has performed or has always been ready and willing to perform the essential terms of the contract which are to be performed by him, other than terms the performance of which has been prevented or waived by the defendant.
Explanation.- For the purposes of clause (c),-
(i) Where a contract involves the payment of money, it is not essential for the plaintiff to actually tender to the defendant or to deposit in court any money except when so directed by the court;
(ii) the plaintiff must aver performance of, or readiness and willingness to perform, the contract according to its true construction.
79. It is a well settled position of law as enunciated in various pronouncements of the Hon'ble Supreme Court of India that under the said provision, it is incumbent on the part of the party who wants to enforce specific performance of the contract to prove that he is always ready and willing to perform essential terms of the contract and prove continuous readiness and willingness to perform his part of obligation under the terms of contract.
80. This Court, keeping in mind, the settled proposition of law coupled with the interpretation of the same in the ratio laid down by the Hon'ble Apex Court in very many decisions, 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.S.No.877 of 2005, it has to pay the balance sale consideration and however, it was not paid on the ground that it did not fulfil it's commitments. A specific question was put to him as to whether the vendor was asked to pay the balance sale consideration and he answered it yes and with regard to the proof, he answered it by saying that he has met Mr.Jagadish Sadarangani many times with regard to honouring the agreement. DW1 was also asked that the plaintiff in C.S.No.627 of 2008 do not have funds to deposit the balance sale consideration of Rs.13.75 Crores and he answered it by saying I do not know. DW1 was re-examined and he would depose that he does not have any documentary evidence to show that he has called Mr.Jagadish Sadarangani very many times to go ahead with Ex.P6/Agreement for Sale and to execute the sale deed.
83. DW2 was one of the Directors in 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 his cross examination deposed regarding around the case registered against Mr.Ramalinga Raju of Satyam Group of Companies. It is relevant to extract hereunder the relevant questions and answers of his cross examination found in Page No.153:
Q: Did your company or Directors made any efforts to deposit the Balance Sale consideration before this Hon'ble Court?
A: No, because Court has not given any direction to us.
Q: I put it to you that neither your company nor your Directors have any funds to deposit the credit of this uit.
A: I deny that.
Q: I put it to you that the letter Ex.D18 has been caused as you were not able to deposit money the balance sale consideration before this Hon'ble Court?
A: I deny the suggestion.
Q: I put it to you that this letter, Ex.D18 has been produced before this Hon'ble Court as Shrutivinda Agro Farms Pvt. Ltd. had miserably failed to comply the terms and conditions laid down in the sale agreement?
A: I deny the suggestion. DW2 would further depose that since execution of the Agreement for Sale, the plaintiff in C.S.No.627 of 2008 is always ready and willing to pay the balance sale consideration and however, M/s.Nova Dyeing and Printing Mills Ltd./third defendant in C.S.No.877 of 2005 has not fulfilled the conditions mentioned in Ex.P6 and in the year 2005, after filing of C.S.No.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 and Others v. Vairavan [(1997) 3 SCC 1], 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 held by the Courts in India, following certain early English decisions, that tin the case of agreement of sale relating to immovable property, time is not of the essence of the contract unless specifically provided to that effect. The period of limitation prescribed by the Limitation Act for filing a suit is three years. From these two circumstances, it does not follow that any and every suit for specific performance of the agreement (which does not provide specifically that time is of 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. That would amount to saying that the time-limits prescribed by the parties in the agreement have to significance or value and that they mean nothing. Even where time is not of the essence of the contract, the plaintiffs must perform his part of the contract within a reasonable time and reasonable time should be determined by looking at all the surrounding circumstances including the express terms of the contract and the nature of the property. While exercising its discretion, the Court should also bear in mind that when the parties prescribe certain time-limit(s) for taking steps by one or the other party, it must have some significance and that the said time-limit(s) cannot be ignored altogether on the ground that time has not been made the essence of the contract (relating to immovable properties). As per the ratio laid down in the above cited decision, even where time is not the essence of the contract, the plaintiff must perform his part of the contract within a reasonable time and reasonable time should be determined by looking at all the surrounding circumstances including the express terms of the contract and the nature of the property. While exercising it's discretion, the Court should also bear in mind that when the parties prescribe certain time-limit(s) for taking steps by one or the other party, it must have some significance and that the said time-limit(s) cannot be ignored altogether on the ground that time has not been made the essence of the contract (relating to immovable properties).
85. It is pleaded by the plaintiff in C.S.No.627 of 2008 that, even now the Agreement for Sale/Ex.P6 has not been cancelled and in fact the third defendant in 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 with the properties under Ex.P6.
87. As regards advance received by the third defendant from the first defendant in C.S.No.877 of 2005/M/s.Shrutivinda Agro Farms Pvt. Ltd., this Court granted permission to the plaintiff in C.S.No.877 of 2005 to deposit Rs.2.50 Crores in Fixed Deposit for one year to the credit of the Suit with liberty to renew the deposit and it continues to be in interest bearing deposit. It is also the case of the plaintiff in C.S.No.877 of 2005 that the plaintiff in C.S.No.627 of 2008 did not come forward to deposit the balance sale consideration till today and despite that gone for amendment of the plaint for claiming damages for Rs.93 Crores, that too belatedly and the same is unsustainable.
88. In the light of the evidence let in by DWs.1 and 2 coupled with the facts and circumstances especially belated filing of C.S.No.627 of 2008, this Court is of the view that the plaintiff in C.S.No.627 of 2008 is not ready and willing to perform it's part of obligation under Ex.P6/Agreement for Sale and even otherwise, as already pointed out, on account of non-compliance of Section 293(1)(a) of the Companies Act, is not entitled for Specific Performance of Agreement for Sale/Ex.P6.
89. Therefore, Issue Nos.4 and 6 are answered in negative against the plaintiff in C.S.No.627 of 2008.
Issue No.5 in C.S.No.877 of 2005
90. It is not in serious dispute that the advance amount paid by the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 has been utilized by the third defendant company in C.S.No.877 of 2005 to settle the dues of the creditors. The objections raised by the plaintiff are that he, being the major shareholder of the third defendant company, his consent has not been taken and it is also in violation of Section 293(1)(a) of the Companies Act, 1956 read with Article 54 of the Articles of Association of the Company and further that the entire Agreement for Sale under Ex.P6 is one sided favouring the first respondent company.
91. PW1/plaintiff, in his oral testimony, has stated that his brother/fourth defendant, is a Director and shareholder in almost all of these companies, so that he can assist him in managing the affairs of the company and he is there to carry out his instructions. It is also stated by the plaintiff in C.S.No.877 of 2005/PW1 that plant and machineries were sold with his consent as per the decision of 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 Sale and by way of subsequent development, all other board members had resigned and sold the shares to him and as such, he called upon the first defendant company to perform it's part of obligation and further reiterated that in haste and without his consent, the Directors and Chairman of the third defendant company had entered into Agreement for Sale/Ex.P6 with the first defendant company and he is for the company (third defendant company) and all that he did was for the interest of the company. PW1 would further state that his objections raised are oral and not borne out by any documents and the Agreement for Sale came into being less than 4 days after he lodged his objections.
93. DW1, namely Mr.Sitaram Reddy, in his chief examination, would depose that balance sale consideration has not been paid by the first defendant company, since the vendor, namely the third defendant, did not fulfil their commitments. DW1 was specifically asked as to the year in which the Suit for Specific Performance in C.S.No.627 of 2008 was filed and he answered it by saying that during the year 2008 and whether balance sale consideration was deposited after filing of the Suit and he answered it by saying that he was not aware. A specific question was also put to him that the Suit came to be filed just 20 days prior to the expiry of three years period of limitation and answered it by saying that he did not know and he answered in similar lines as to the availability of funds to make the balance sale consideration. DW1 would also depose that the Board Resolution under Ex.P22 was shown to him by the Managing Director and it came to be issued after consulting the shareholders, which was the practice followed and according to him, shareholders consent has been taken.
94. DW2 was specifically asked as to whether the first defendant company and Directors made any effort to deposit the balance sale consideration and he answered it in negative for the reason that the Court did not give any direction and denied the suggestion that as per Ex.D18, the first defendant company was not in a position to deposit the balance sale consideration. DW2 would further depose that he would like to clarify that the third defendant company never asked them to deposit the balance sale consideration and further stated that after filing of the Suit in C.S.No.877 of 2005, the plaintiff came for negotiation through DW1, but did 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 Association, should have been definitely aware of the fact that such a resolution is to be passed at the General Body Meeting of the shareholders and admittedly, the same has not been done. The first defendant in C.S.No.877 of 2005 / plaintiff in C.S.No.627 of 2008 is justified in taking the stand that the consent of shareholders has not been taken for the sale of plant and machineries of the first defendant company in the General Body Meeting of the shareholders and the said fact has also been stated by DWs.1 and 3 and however, such an objection is to be raised by a shareholder, but no such objection was raised. The said conduct may have a bearing while deciding the additional issue in C.S.No.627 of 2008 relating to damages. It is also pertinent to point out at this juncture that the Suit in C.S.No.627 of 2008 came to be filed at the fag end of limitation period and it may have a bearing while this Court deciding Issue No.5.
97. Therefore, Issue No.5 in C.S.No.877 of 2005 is answered in favour of the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008.
Issue No.5 in C.S.No.627 of 2008
98. This Court has answered Issue Nos.4 and 6 in C.S.No.627 of 2008 in negative against the plaintiff in C.S.No.627 of 2008. This Court, while answering Issue No.9 in C.S.No.877 of 2005, has also taken into consideration the testimonies of DWs.1 to 3 to the effect that the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 did not deposit the balance sale consideration on account of non-performance of the obligation on the part of the first defendant company. It is also to be noted at this juncture that no pre-suit notice has also been issued calling upon the first defendant in C.S.No.877 of 2005 to perform their part of obligation and the explanation offered is, after filing of the Suit in C.S.No.877 of 2005, such discussions were made, but did not materialize. This Court has also noted that the Suit in C.S.No.627 of 2008 for specific performance came to be filed just few days prior to the expiry of the period of limitation.
99. In Sardar Singh v. Krishna Devi (Smt) and Another [(1994) 4 SCC 18], the decision relied on by the learned counsel appearing for the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008, the Hon'ble Supreme Court of India has taken into consideration Section 21 of the Specific Relief Act, 1963 and in Para 14 of the judgment held that 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 and Others v. Vairavan [(1997) 3 SCC 1] (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 the essence of the contract, the plaintiffs must perform his part of the contract within a reasonable time and reasonable time should be determined by looking at all the surrounding circumstances including the express terms of the contract and the nature of the property. The said view of the Hon'ble Supreme Court has been considered and followed in a subsequent decision in Saradamani Kandappan v. S.Rajalakshmi & Ors. [2011 (4) CTC 640].
101. In the light of the settled position of law that grant of decree for specific performance is discretionary and readiness and willingness on the part of the plaintiff is to be gathered from the facts and circumstances of each case, this Court is of the view that inordinate delay on the part of the plaintiff in C.S.No.627 of 2008 is fatal and since the relief of specific performance is also an equitable relief, they are not entitled to get the same.
102. Therefore, Issue No.5 in C.S.No.627 of 2008 is answered in negative against the plaintiff in C.S.No.627 of 2008.
Additional Issue in C.S.No.627 of 2008
103. Section 21 of the Specific Relief Act, 1963 says that in determining the amount of any compensation awarded under this Section, the Court shall be guided by the principles specified in Section 73 of the Indian Contract Act, 1872. According to the plaintiff in C.S.No.627 of 2008/first defendant in C.S.No.877 of 2005, anticipating performance of Ex.P6/Agreement for Sale, it purchased surrounding land and properties under Exs.D4 to D10/Sale Deeds. Following is the sale consideration paid in respect of the said documents through his sister concern M/s.Poorvabhadra Agro Farms Pvt. Ltd, Hyderabad:
D4-Sale Deed dated 18.07.2005 -Rs.53,82,000/-
D5-Sale Deed dated 18.07.2005-Rs.45,00,000/-
D6-Sale Deed dated 18.07.2005-Rs.45,00,000/-
D7-Sale Deed dated 19.07.2005-Rs.77,85,000/-
D8-Sale Deed dated 19.07.2005-Rs.84,15,000/-
D9-Sale Deed dated 31.07.2007-Rs.3,41,00,000/-
D10-Sale Deed dated 19.03.2008-Rs.6,85,00,000/-
It is the submission of the learned counsel that access to the said land is only through the Suit schedule property and in support of the same, has placed reliance upon Ex.D11- Plan. Under Ex.D12- Information through Right to Information Act, furnished by SRO, Thiruporur dated 22.07.2014, guideline value of the property for the period from 1.4.2012 to 2014 has also been indicated and the computation sheets of the value of the property were also marked as Exs.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. In Oil & Natural Gas Corpn. Ltd. v. Saw Pipes Ltd. [AIR 2003 SC 2629], the principles and considerations for assessment of, in case of breach of contract and in terms of Sections 73 and 74 of the Contract Act, it is held that "(1) Terms of the contract are required to be taken into consideration before arriving at the conclusion whether the party claiming damages is entitled to the same. (2) If the terms are clear and unambiguous stipulating the liquidated damages in case of the breach of the contract unless it is held that such estimate of damages/compensation is unreasonable or is by way of penalty, party who has committed the breach is required to pay such compensation and that is what is provided in S.73 of the Contract Act. (3) S.74 is to be read along with S.73 and, therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of a contract. (4) In some contracts, it would be impossible for the Court to assess the compensation arising from breach and if the compensation contemplated is not by way of penalty or unreasonable, the Court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation."
107. As per Clause 13 of Ex.P6/Agreement for Sale, if the purchaser fails to register the Sale Deed or Deeds or fails to take over the Vendor's company after four months hereof after, the Vendorhas informed their readiness to sell the Schedule B Property and after the Vendor fulfils the terms and conditions of the para ten above or any other matters which arise later than the purchaser will pay an amount of Rs.50,00,000/- (Rupees Fifty Lakhs Only) to the Vendor as damages.
108. This Court, while answering Issue No.1 in both the Suits, had held that since Section 293(1)(a) of the Companies Act, 1956 has not been adhered to coupled with the fact that the plaintiff in C.S.No.627 of 2008 has failed to exercise due diligence, Ex.P6/Agreement for Sale cannot be enforced. No doubt, plant and machineries were sold only pursuant to Board Resolution of the third defendant company Ex.P22. In the considered opinion of the Court, without the land and properties or plant and machineries, the third defendant company cannot effectively 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 that the plaintiff has bonafidely proceeded to purchase the adjacent properties in S.Nos.31/2B, 14/1, 14/2 and 17/2 for valuable consideration and however, the properties were purchased by M/s.Poorvabhadra Agro Farms Pvt. Ltd.
110. The principles for awarding damages have not been complied with and as such, payment of damages would not arise at all. Even otherwise, it is always open to M/s.Poorvabhadra Agro Farms Pvt. Ltd., who had purchased land and properties under Exs.D4 to D10 to sell the same in favour of third parties, taking advantage of the price escalation.
111. Therefore, Additional Issue in C.S.No.627 of 2008 is answered in negative against the plaintiff.
112. The learned counsel appearing for the plaintiff in C.S.No.877 of 2005 advanced arguments that the plaintiff in C.S.No.627 of 2008 is involved in Satyam Computer Scam and therefore, it is not entitled to any relief and also raised an additional issue in that regard. In the considered opinion of the Court, the said case has nothing to do with the issue involved in these Suits and if any issues are framed and findings are given, it may affect the rights of the persons concerned in those cases. Insofar as the plea made as to the applicability of Sick Industrial Companies (Special Provisions) Act, 1985, by the plaintiff in C.S.No.627 of 2008, no issue has been framed and as such, it is not necessary to give any finding on that plea.
113. IN THE RESULT,
(i)C.S.No.877 of 2005 is decreed as prayed for. However, this Court is not inclined to award costs, in the light of the conduct of the plaintiff in C.S.No.877 of 2005 who has given consent to the third defendant company to dispose of the plant and machineries through Board Resolution under Ex.P22; though the Statute mandates that it should be done through the General Body Meeting of the shareholders.
(ii) C.S.No.627 of 2008 is dismissed. No costs. The plaintiff in C.S.No.627 of 2008/first defendant in C.S.No.877 of 2005 is entitled to withdraw the amount of Rs.2.50 Crores deposited to the credit of C.S.No.877 of 2005 on the file of this Court, by the plaintiff therein, along with accrued interest.
08.02.2018 Index : Yes / No Internet : Yes / No jvm List of Witnesses:
PW1 : Thakur J.Bakshani DW1 : Sitaram Reddy DW2 : D.V.S.Subba Raju DW3 : G.Anand List of Exhibits:
Plaintiff's side documents:
Exhibits Dated Documents P1 01.05.1996 Memorandum and Articles of M/s.Nova Dyeing and Printing Mills Ltd., P2 28.08.1998 Orders from BIFR P3 11.04.2005 Mortgage Deed by deposit 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 filed by Mr.Thakur J.Bakshani in Application No.1055 of 2006 filed by M/s.Shrutivinda Agro Farms Pvt. Ltd., P16 August, 2006 Reply Affidavit filed by Mr.Thakur J.Bakshani in Application No.3185 of 2006, O.A.Nos.968 and 1055 of 2005 P17 24.07.2007 Orders in Application No.3185 of 2006, O.A.Nos.968 and 1055 of 2005 P18 11.06.2012 Balance Sheet of M/s.Shrutivinda Agro Farms Pvt. Ltd., for 2009-2010 P19 02.09.2005 Balance Sheet of M/s.Nova Dyeing and Printing Mills Ltd.,, assessment for the year 2005-2006 P20 09.04.2006 Minutes of the Board Meeting of M/s.Nova Dyeing and Printing Mills Ltd.
P21 27.07.2005 Minutes of the Board Meeting of M/s.Nova Dyeing and Printing Mills Ltd.
P22 24.06.2005 Minutes of the Board Meeting of M/s.Nova Dyeing and Printing Mills Ltd.
P23 11.04.2005 General Power of Attorney given by M/s.Nova Dyeing and Printing Mills Ltd. to the Chairman Jagadish A.Sadarangani P24 10.06.2002 Passport of Mr.Thakur J.Bakshani P25 09.04.2006 Form-32 and Extract of Minutes of the Board Meeting of M/s.Nova Dyeing and Printing Mills Ltd.
P26 09.04.2006 Resignation Letters of Chairman and Directors P27 July, 2006 Counter Affidavit filed by Chairman on behalf of the company in Application No.3185 of 2006 in O.A.No.968 of 2005 P28 05.04.2005 Extract of the Minutes of the Board Meeting of M/s.Nova Dyeing and Printing Mills Ltd.
Defendants' side documents:
Exhibits Dated Documents D1 09.07.2005 E-mail message from Mr.Thakur J.Bakshani D2 04.08.2014 Balance Sheet for 31.03.2004 of M/s.Nova Dyeing and Printing Mills Ltd.
D4 18.07.2005 Sale Deed in favour of Poorva Badhra Agro Farms Pvt. Ltd.
D5 18.07.2005 Sale Deed in favour of Poorva Badhra Agro Farms Pvt. Ltd.
D6 18.07.2005 Sale Deed in favour of Poorva Badhra Agro Farms Pvt. Ltd.
D7 19.07.2005 Sale Deed in favour of Poorva Badhra Agro Farms Pvt. Ltd.
D8 19.07.2005 Sale Deed in favour of Poorva Badhra Agro Farms Pvt. Ltd.
D9 31.07.2007 Sale Deed in favour of Poorva Badhra Agro Farms Pvt. Ltd.
D10 19.03.2008 Sale Deed in favour of Poorva Badhra Agro Farms pvt. Ltd.
D11 Plan Copy D12 22.07.2014 Information obtained under RTI Act D13 14.07.2005 Sale Agreement D15 31.03.2005 Balance Sheet of M/s.Shrutivinda Agro Farms Pvt. Ltd.
D16 20.12.2004 Memorandum and Articles of Association of M/s.Shrutivinda Agro Farms Pvt. Ltd.
D17 Income Tax Returns of M/s.Shrutivinda Agro Farms Pvt. Ltd. from 2009 to 2014 D18 19.11.2014 Letter of Mrs.Jansi Rani to M/s.Shrutivinda Agro Farms Pvt. Ltd.
D19 04.05.2014 Bank Statement D20 10.02.2014 Payment of Stamp Duty D21 19.01.2005 Memorandum and Articles of Association of M/s.Poorva Badhra Agro Farms Pvt. Ltd.
D22 09.04.2014 Passport Copy of Mrs.Jansi Rani D23 20.01.2015 Shareholding of Directors of M/s.Shrutivinda Agro Farms Pvt. Ltd.
D24 20.08.2005 Balance Sheet of M/s.Poorva Badhra Agro Farms Pvt. Ltd. as on 31.03.2015 D25 Computation sheet of value of property D26 Computation sheet of value of property based on building cost.
D27 31.07.2005 Wealth Tax Returns of Mrs.Jansi Rani from 2005 to 2015 D28 31.07.2005 Income Tax Returns of Mrs.Jansi Rani from 2005 to 2015 D30 July, 2006 Counter Affidavit of Jagadish A.Sadarangani D31 15.07.2014 Petition before Magistrate Court, Hyderabad D32 22.06.2015 Petition before Additional Metropolitan Magistrate Court, Hyderabad.
08.02.2018 M.SATHYANARAYANAN,J.
After pronouncing the judgment, the learned Counsel for the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008, prays for suspension of the decree.
2. However, this Court is not inclined to suspend the decree and taking into consideration the urgency expressed, directs the Registry to make ready the certified copy of this common judgment along with the decree and furnish to the respective learned Counsel for the parties on payment of necessary charges.
08.02.2018 Index : Yes / No Internet : Yes / No rsb Note: Issue Judgment Copy on 16.02.2018.
M.SATHYANARAYANAN. J Jvm/Ap Common Judgment in C.S.Nos.877 of 2005 and 627 of 2008 08.02.2018