Madras High Court
P.G. Vivekanandan And Ors. And Archean ... vs R.P.S. Benefit Fund Ltd. on 30 April, 2002
Equivalent citations: [2003]115COMPCAS649(MAD), (2006)2COMPLJ134(MAD), [2004]49SCL671(MAD)
JUDGMENT E. Padmanabhan, J.
1. Application No. 2047 of 2000 has been taken out in C. P. No. 233 of 1999 by Archean Granites Ltd. praying this court to hold that the sale deed executed by R. P. S. Benefit Fund Ltd. in favour of the applicant is valid and binding and that the same cannot be challenged in the winding up proceedings and permit the applicant to pay the balance money due to the Bank of Madura Ltd., which is a secured creditor and get the document of title from the said bank.
Application No. 2048 of 2000 has been filed in C. P. No. 234 of 1999 by the same applicant for the identical relief.
Application No. 2049 of 2000 has been filed in C. P. No. 235 of 1999 by the same applicant for the identical relief.
Application No. 2050 of 2000 has been filed in C P. No. 236 of 1999 by the same applicant for the identical relief.
Application No. 2051 of 2000 has been filed in C. P. No. 237 of 1999 by the same applicant for the identical relief.
Application No. 2052 of 2000 has been filed in C. P. No. 238 of 1999 by the same applicant for the identical relief.
2. Identical but separate applications for the same relief have been taken out by the same applicant in those C Ps. namely, C. P. Nos. 233 to 238 of 1999. In other respects there is no difference. It would be sufficient to refer to the facts in one of the applications. These company petitions are pending and pending the company petitions, the provisional liquidator has been appointed by this court. That apart, this court also appointed an administrator.
3. According to the applicant, during the end of March 1999, R. P. S. Benefit Fund Ltd., hereinafter referred to as RPSB to sell the property bearing Door No. 23, G.N. Chetty Road, T. Nagar, admeasuring 9315 square feet comprised in T. S. Nos. 4890 and 4891, bounded on the north by G.N. Chetty Road, bounded on the East by Boag Road, bounded on the South by private land bearing T. S. 4892 and West by G.N. Chetty Road, within the sub-registration of T. Nagar. It is claimed that there were negotiations between the applicant and RPSB, and the sale price was agreed at Rs. 1,65,00,000 free of all encumbrances. The board of directors of RPSB, had passed a resolution at the meeting of the board of directors held on April 18, 1999, to sell the property to the applicant for the said price and the said resolution further authorised Mr. P.G. Saranyan, president of the company to execute the sale agreement and documents, and to finalise the terms of payment of the consideration amount. It was further resolved to authorise the said president to apply to the Appropriate Authority to get permission under the Income-tax Act. On April 22, 1999, an agreement was concluded and it was reduced to writing. It was agreed to between the parties that the property shall be conveyed to the applicant for a consideration of Rs. 1,65,00,000 free of all encumbrances and at the time of execution of the agreement a sum of Rs. 40 lakhs was paid by way of two pay orders issued by Canara Bank, dated April 22, 1999, towards part of sale consideration. The property in question is mortgage to Bank of Madura and a sum of Rs. 67 lakhs is due to the said banker.
4. According to the applicant, notwithstanding the fact that it was originally agreed that possession will have to be handed over at the time of sale, in view of the fact that the said RPSB, requires further funds to be advanced even before the date of sale for its business it was agreed that vacant possession will be handed over and accordingly possession was handed over to the applicant on May 19, 1999. It is claimed that the applicant had paid Rs. 15 lakhs on May 4, 1999, Rs. 5 lakhs on May 7, 1999, Rs. 10 lakhs on May 10, 1999, Rs. 12.50 lakhs on May 13, 1999, Rs. 1.50 lakhs on May 18, 1999, besides the advance of Rs. 40 lakhs, thus in all a sum of Rs. 84 lakhs had been paid towards sale consideration as on May 18, 1999. The said RPSB also acknowledged by its letter dated May 30, 1999, that Rs. 84 lakhs had been paid in pursuance of the sale agreement dated April 22, 1999.
5. On June 4, 1999, the Appropriate Authority called upon the company to furnish further particulars and by order dated July 13, 1999, the Appropriate Authority granted a "no objection certificate" for the transfer of the property in question for a consideration of Rs. 1,65,00,000 in favour of the applicant. The applicant called upon the Bank of Madura to confirm the actual amount outstanding as on date and also requested the said bank to confirm that on discharge of the full liability, the original document should be handed over to the applicant. The said Bank of Madura by reply dated July 24, 1999, replied that a sum of Rs. 67,97,895 is due and Rs. 3,930 is the amount of interest per day commencing from July 25, 1999.
6. It is claimed that the RPSB, confirmed by its letter dated July 31, 1999, that Rs. 92 lakhs out of sale consideration received had been disbursed to various depositors of the company. The said company also applied for income-tax certificate under Section 230A of the Income-tax Act, 1961. A clearance certificate had also been issued on August 3, 1999, for the sale. The said company executed a sale deed in favour of the applicant and the same has been registered as document No. 1673 of 1999 on May 19,1999, in the office of the Sub-Registrar, T. Nagar. In addition to the amount already referred payment the applicant paid Rs. 1 lakh on July 23, 1999, Rs. 1 lakh on July 24, 1999, Rs. 6 lakhs on July 29, 1999, which had been acknowledged by letter dated July 31, 1999, and the applicant retained Rs. 69,19,725 towards the discharge of the mortgage to Bank of Madura. The applicant is prepared to pay the entire amount due to the Bank of Madura, the mortgagee. While the applicant was ready to discharge the mortgage to the Bank of Madura the applicant came to know about the winding up petitions filed against RPSB, for liquidation and that by common order dated September 7, 1999, passed in the said company petitions the official liquidator had been appointed as the provisional official liquidator of the said company. The applicant thereafter made enquiries as to how the monies paid by it had been utilised and found that all monies had been utilised for payment towards the amount due to the depositors as seen from the bank accounts with Bharat Overseas Bank, T. Nagar Branch, Bank of Madura Ltd., West Mambalam Branch, Federal Bank Ltd., T. Nagar Branch, Nedungadi Bank Ltd., Chennai and the statement of bank accounts of several banks would show that the amounts paid towards sale consideration had been utilised for payment of dues to the depositors. Since the winding up petitions have been filed and since the sale in question is a bona fide transaction and since the entire consideration paid had been utilised for payment of the monies due to the depositors in the usual course of its business by the RPSB it is necessary that this court should hold that the sale in favour of the applicant is valid and that the sale in question should not be treated as void as the entire sale consideration paid has gone to the creditors of the said RPSB.
7. It is claimed that the transaction is genuine and it is bona fide transaction and the applicant has no idea or notice about the winding up petitions filed. Hence it is prayed that this court should hold that the sale deed executed by RPSB in the applicant's favour is valid and binding and that the same cannot be challenged in the winding up proceedings and also permit the applicant to discharge the mortgage and get the documents released from Bank of Madura.
8. On behalf of the mortgagee bank it is stated that RPSB., had deposited the documents of title and had created an equitable mortgage to secure the repayment of short-term loan of Rs. 60 lakhs and that the bank is interested in recovering the amount advanced by it with interest.
9. Heard Mr. V.S. Subramanian, learned counsel for the applicant in all the company applications, Mrs. Nalini Chidambaram, learned senior counsel, appearing for RPSB Mr. Chinnasamy, learned counsel for the administrator, Ms. Latha Parimalavadhana for the official liquidator and Mr. P. L. Naraya-nan, learned counsel appearing for Bank of Madura.
10. Mr. V.S. Subramanian, learned counsel appearing for the applicant in all the company applications mainly contended that the purchase by the applicant is a bona fide transaction and for valid consideration, besides the consideration paid reflects the prevailing market price and therefore this court has to come to the rescue of the applicant by allowing the applications. According to learned counsel for the applicant the transaction being bona fide and there being no application by the liquidator or by the administrator, the applications as taken out deserve to be allowed.
11. It is further contended that the transaction in question has not been entered with a view to defraud the depositors or creditors of RPSB and no application could be maintained under Section 536 of the Companies Act, 1956, nor the transaction is hit by Section 53 of the Transfer of Property Act, 1882, and therefore the applicant's purchase has to be held valid and binding and that it cannot be challenged in the winding up proceedings, besides the Bank of Madura should be directed to hand over the documents of title after receipt of balance mortgage loan.
12. Mr. V.S. Subramanian, learned counsel pointed out that RPSB and the applicant herein applied to the Appropriate Authority under Section 269UL(1) of the Income-tax Act and the said Authority granted no objection to the transfer of the property for a total consideration of Rs. 165 lakhs. RPSB has also secured a certificate under Section 230A(1) of the Income-tax Act, 1961, on August 3, 1999. Therefore the transaction is a bona fide transaction and unless the consideration agreed reflects a fair market value, the Appropriate Authority would not have given the permission under Section 269UL(1) of the Income-tax Act, 1961.
13. Mrs. Nalini Chidambaram, learned senior counsel appearing for the RPSB supported Mr. V.S. Subramanian and there is no basis to avoid the transfer of alienation effected in favour of the applicant by RPSB and the transaction is neither void, nor could be avoided, nor the liquidator has so far taken out an application to hold that the purchase by the applicant is void in terms of Section 531A of the Companies Act.
14. Mr. P.L. Narayanan, learned counsel appearing for the Bank of Madura, mortgagee of the property just represented that the bank as it has been informed of the pendency of the company petition and the appointment of official liquidator had not released the document nor had it chosen to collect, but so far as the bank is concerned being a mortgagee, it is always ready and willing to receive the money due under the mortgage and the mortgagee will stand outside the company petition to enforce its claim against the security.
15. Mr. Chinnasamy, learned counsel appearing for the administrator referred to the agreement and contended that the transaction is not a bona fide transaction, that it is an attempt to screen the property from the reach of the creditors and depositors that this court has already held that the transactions entered by RPSB are not bona fide and it is an attempt to siphon off the funds with a view to defeat all the depositors and creditors. Mr. Chinnasamy also pointed out as to how the applicant came to know about the proposed sale by the said RPSB. There has been no publication of the intended sale of the property by RPSB at any point of time, as to who arranged for the negotiations also is not known. The inherent and patent materials disclosing the factum of handing over possession, extent of the property, value of the property, loca-tion of the property and the conduct, of the applicant as well as the management of RPSB would show that the transaction is not a bona fide transaction, but it has been entered into with a view to defeat the creditors and to siphon off substantial amount at the cost of, depositors and creditors. Definitely the transaction is not a bona fide transaction, nor could it be stated that the board of directors and managing director have acted bona fide, in the interest of the company and its depositors, but they have with designs schemed and siphoned off the funds.
16. It is further pointed out that having purchased the property on April 8, 1995, for a consideration of Rs. 163 lakhs, having paid a stamp duty of the value of Rs. 22,82,235 incurred further incidental expenses of Rs. 46,000 besides having incurred the developmental expenditure of Rs. 3,91,448, it is rather extraordinary and highly shocking to have sold the property for a consideration of Rs. 165 lakhs, not to capitalise the interest on the investment made by RPSB up to March 31, 1998, which comes to Rs. 1,28,36,956. It is rather an extraordinary act on the part of the company, its directors and chairman to have sold the property for the same price as it was purchased after a lapse of four years. It is also pointed out by Mr. Chinnsamy, learned counsel that the company had applied to the CMDA for putting up commercial complex, viz., 144 floors and secured sanction by remitting huge sum. Even though the plot is not a square or rectangular plot, the plot at G.N. Chetty Road is at a short distance form the Gemini Circle off Mount Road, besides it has a road frontage on two sides, a corner plot.
17. Mr. Chinnasamy, learned counsel further pointed out that it may be that the applicant had paid a portion of the sale consideration as seen from the remittance to the RPSB through bank, but there are no bona fides at all and the property had been sold in a hurried manner without taking into consideration the company's interest and that of the shareholders and depositors. Mr. Chinnasamy, learned counsel vehemently contended that substantial amount has been siphoned off.
18. Mr. Chinnasamy, learned counsel further pointed out that though the apparent consideration recited in the sale deed is for Rs. 165 lakhs, the said consideration paid is not the market value as seen from the fact that the very applicant had paid a deficit stamp duty on the differential value of Rs. 1,81,61,115 and paid a stamp duty of Rs. 23,60,956 besides the deficit fees of Rs. 1,81,615. Mr. Chinnasamy, learned counsel highlighted that the apparent consideration is Rs. 165 lakhs, the market value of the property had been assessed at Rs. 346 lakhs, that the applicant had voluntarily without any objection paid the necessary stamp duty and registration fee without objection or challenge to the assessment of the market value under the Indian Stamp Act read with the Tamil Nadu Prevention of Undervaluation of Stamp Duty Rules. Therefore it is clear that the apparent value is less than 50 per cent. of the market value as assessed by the registering authority and it is clear that the property had been sold for a very low price as apparent consideration against the market value that prevailed on that date and substantial amount had been siphoned off by the directors of RPSB and therefore it is not a bona fide transaction entered into in the course of administration of RPSB and the applications deserve to be dismissed.
19. It is pointed by counsel that there is time enough for the official liquidator or the administrator to take out appropriate application under Section 536 or 531A of the Companies Act and it is also pointed out that even long prior to the very agreement itself there had been heavy pressure on the RPSB by its depositors and creditors as already recorded by this court in the earlier orders and therefore it is not a bona fide sale and it is a sale effected with a view to siphon off substantial sum which is far below the market price which is just 40 per cent. of the prevailing market value and the transaction cannot be accepted or treated or held as a bona fide transaction, but on the other hand such transaction has been undertaken for ulterior purpose, for personal gains and to deny and deprive the valuable assets of RPSB to the depositors and creditors of the said company.
20. Mr. V.S. Subramanian, learned counsel appearing for the applicant contended that there had been a fall in price and there has been no improvement in the real estate business, therefore there is every chance for RPSB to have disposed of the property since it required funds. Further what was the consideration paid at the time of purchase it was also suggested might have been a boosted price for the purpose of creating a security. Mrs. Nalini Chidambaram, learned senior counsel also suggested that the purchase price itself might have been a boosted price for various other reasons and in particular to show as if the RPSB owns substantial assets to create a security and to satisfy the provisions of the RBI Regulations. This again according to Mr. Chinnasamy, learned counsel will reflect either way against the directors of RPSB as well as the purchaser, the applicant herein.
21. Mr. V.S. Subramanian, learned counsel relied upon the Division Bench judgment of the Bombay High Court in Monark Enterprises v. Kishan Tulpule [1992] 74 Comp Cas 89 and contended that if the transaction was entered into as a result of lawful pressure of a bona fide creditor to recover his dues, the transaction or transfer could not be treated as a fraudulent preference and the dominant motive of the company is for its own benefit.
22. Per contra, Mr. Chinnasamy, learned counsel vehemently contended that the action of the company as well as the applicant not being bona fide and not being entered into with an honest intention, nor there being any good faith, the petitioner is not entitled to any relief. It is also pointed out by Mr. Chinnasamy, learned counsel that in the present applications, this court has to satisfy its conscience with respect to the transactions, its bona fides and whether it is in the interest of the company or its creditors, besides whether it is in good faith and for valid consideration. If any one or more of the above aspects are found to be wanting it is contended that the applications filed under Section 536 of the Companies Act read with Rule 9(1) of the Companies (Court) Rules deserve to be dismissed with costs.
23. In the foregoing circumstances, the points that arise for consideration are :
(a) Whether the applicant is entitled to an order holding that the purchases made by the applicant from RPSB are valid and binding and they are not liable to be challenged in the winding up proceedings ?
(b) Whether the property in question has been sold bona fide, in good faith and in the interest of the company ?
(c) Whether the property has been sold for a fair market price ? If not, whether it will reflect on the transaction as not bona fide ? and whether there is any siphoning off of the funds in the transaction by the directors by selling it far below the market value ?
(d) Whether the sale has been effected with the intent to defeat the claims of the depositors and other creditors of the company and to benefit the applicant as well as the persons who were in the management of RPSB ?
(e) Whether the applicants are entitled to an order as prayed for in all the applications ?
(f) Whether the sale transaction entered by the applicant is bona fide and valid and binding ?
(g) To what relief, if any ?
24. Before referring to the facts of the present applications, it is essential to find out whether there has been any pressure on the company by the depositors namely the creditors before the sale transaction and whether RPSB was in a position to discharge its liabilities. In the affidavit filed by Mr. P.G. Saranyan, chairman of RPSB, it is stated thus :
"(vi) We have invested funds in immovable properties also but encashing the same at this juncture particularly when there is virtual slump in prices of immovable property the returns will not at all be fair or adequate, particularly given such sale would be in the nature of a distress sale. We have invested in good properties and definitely we will be able to get good price provided we wait for the opportune moment to sell the same and not force it on buyers. But our creditors are not willing to wait.
(vii) In fact a number of depositors are opting to encash their deposits prematurely even prior to the date of maturity and this fact also has added greater financial strain on the company."
25. It is also admitted that the company has a liability aggregating to Rs. 42 crores while its assets worth Rs. 41 crores. This valuation of assets, it is pointed out is a boosted value. The evaluation of the assets of the company had been exaggerated. It would have been relevant to refer to the earlier orders passed by R. Jayasimha Babu J., in the above company petitions on September 7, 1999. The material portions read thus :
"5. As noticed in my earlier order the respondent-company has received huge sums of money as deposits from the public, particularly under the Pensioners' Benefit Fund Scheme under which it has received well over a sum of Rs. 20 crores. It is imperative that the assets of the company be converted into cash as early as possible so that the claim of the creditors will be met at least in part and hopefully in substantial part.
7. It is admitted by the company that it is unable to pay its debts. The reason for the company coming forward voluntarily and consenting to winding up by this court is that there appears to be a clamour for repayment of deposits by the depositors from whom monies have been received by the company."
26. The auditor's report would show that the percentage of liquidity resources of the RPSB was 4.56 per cent. as on June 30, 1997, and 5.99 per cent. as on March 31, 1998. Therefore even before the transaction in question the RPSB's liquidity position was very poor and it was under heavy pressure. The report of the administrator which has been accepted by this court as seen from the order dated October 12, 1999, would show that the chairman and directors in management would disclose prima facie fraud of massive proportions having been committed by the president of the company P.G. Saranyan apparently with the co-operation and approval of other members of the board of directors. This court further held thus :
"2. The enormity of the fraud is evident from a bare mention of the nature of the activity and the huge amounts which apparently have been siphoned off from a mutual benefit society, which enjoys many exemptions under the Companies Act, which exemptions have been granted in order to encourage thrift and mutual help, and which exemptions were intended to lesser the burden on people who save small amounts and who help each other through a mutual benefit society. That device of mutual benefit society, also known as 'Nidhis', has been abused perhaps to the severest possible extent in this company R. P. S. Benefit Fund Ltd. has turned out to be a benefit fund solely for the benefit of Saranyan, his family, his friends and his associates. The benefit fund device was not meant to confer a benefit to one individual or family at the expense of thousands of trusting individuals who had deposited their savings in the mutual benefit society.
Of the many schemes, under which this company collected monies is a scheme named after pensioners apparently to induce pensioners to trust their savings to the society. The huge amount of over Rs. 28 crores was collected from under that Scheme besides almost Rs. 20 crores under several other schemes. The total amount collected is of the order of Rs. 47 crores. Rs. 28 crores out of that Rs. 47 crores, disappeared in a space of less than about twelve months, and nothing has been left in the form of any worthwhile asset to warrant the enormous outgo of Rs. 28 crores, which is equal to the entire amount collected under the Pensioners Benefit Scheme. Thousands of pensioners have now been left in lurch.
4. What has been revealed from the investigation so far carried out is that the persons to whom a sum of over Rs. 19.5 crores are stated to have been lent are persons whose addresses remain unknown. Their names do not find a place in the loan register, or in the index of loanees. Their loan applications are not to be found. The amounts granted to them by way of loans, the purpose for which the loan was given, the security, if any, given, are not to be found in the records of the company. The manner in which payment was made and the person to whom the monies were paid also remains unknown, all of which lead to the inference that the persons named are fictitious persons, and merely names trotted out for the purpose of documentation, the real beneficiary being the said Saranyan, the members of his family, his friends and associates, the other directors of the company, the general manager and other employees of this company.
The magnitude of the fraud is also evident from the way in which documentation has been prepared by the company, agricultural lands whose value was of the order of Rs. 30 lakhs situated in two or three villages in Kancheepuram that value being the value as of the year 1995 is now shown to have been agreed to be purchased by this company for an enormous sum of Rs. 24.66 crores. Even the title to this land has not been transferred to the company. What has been produced are agreements to purchase. If these agreements are to be pursued further and sale deeds obtained, the stamp duty payable on the sale deeds will be a further sum of over Rs. 4 crores for lands worth Rs. 30 lakhs in the year 1995."
27. It is clear from the earlier orders as well as the report of the auditors and the very statement of P.G. Saranyan, the then president who has been controlling the entire affairs of RPSB, that even much prior to the sale agreement dated April 22, 1999, the company's liquidity position was very poor, there has been heavy pressure by the depositors on the company since the company had even failed to repay the matured deposits. Therefore at the material point of time the company was under heavy pressure from its depositors and the company had been conducting its affairs not in the interest of the company or its depositors, but had been treating the assets of the company as if it is a private property of P.G. Saranyan and his family members and a large scale fraud had been committed as has been held by R. Jayasimha Babu J., in various earlier orders.
28. It is also suggested that RPSB had set up the petitioners to file the winding up petitions to avoid the complaints being made by the depositors and such criminal complaints were in abundance.
29. Taking up the next aspect as to whether the property had been sold for a fair market value, it is rightly pointed out that RPSB had purchased the property on 8th day of June, 1995, from U. Kamalini S. Rao and others for a consideration of Rs. 1,63,01,250 and the document has been presented for registration on June 8, 1995, and a registration fee of Rs. 1,63,055 has been remitted and stamp duty of Rs. 21,19,190 has been paid for the conveyance. An equitable mortgage has been created by RPSB by depositing the title deeds to secure a short-term loan of Rs. 60 lakhs with the Bank of Madura Ltd.
30. Dr. S. Santhaseelan, Valuation Engineer, Bank of Madura had valued the property at Rs. 1,86,30,000 as on December 3, 1998, at the rate of Rs. 2,000 per square feet. It is also noted that planning permission of CMDA has been secured. In all a sum of Rs. 1,85,83,495 had been invested on the land in question on June 8, 1995, besides spending a huge sum towards planning permission. The sale in favour of the applicant, it is claimed had been agreed on April 22, 1999, the date on which RPSB resolved to sell the land for a sale consideration of Rs. 165 lakhs. The sale agreement also had been executed on April 22, 1999, as seen from the applications submitted to the Appropriate Authority under Section 269UC of the Income-tax Act, the RPSB has set out the cost of execution of the property as hereunder :
Rs.
(i) Consideration paid to the vendor 1,63,01,250
(ii) Stamp duty and registration expenses 22,82,235
(iii) Other incidentals 46,000
(iv) Developmental expenses 3,91,448
(v) Interest capitalised up to March 31, 1998 1,28,36,956 in all aggregating to Rs. 3,18,57,889. It is therefore clear that RPSB had spent Rs. 3,91,448 towards developmental expenses on the land which would show that it had invested further sum. To the said amount the RPSB had capitalised the interest at Rs. 1,28,36,956 and the book value of the property as even according to RPSB as on March 31, 1998, is Rs. 3,18,57,889, while the apparent agreed consideration as per the agreement was only Rs. 165 lakhs.
31. Though there was no agreement to deliver possession as seen from the agreement dated April 22, 1999, it is claimed that RPSB delivered physical possession of the land on May 19, 1999, and a confirmation letter had been produced by the applicant. This claim of handing over possession being extraordinary does not deserve to be accepted and it is false. On May 30, 1999, RPSB had given a confirmation letter to the applicant which reads thus ;
"... We confirm that a sum of Rs. 82,50,00 (rupees eighty-two lakhs and fifty thousand only) plus an additional amount of Rs. 1,50,000 (rupees one lakh fifty thousand only) was so far been received from your goodselves towards purchase of the property and the same has been used for disbursing to various depositors of our company".
32. The application filed before the appropriate authority on May 6, 1999, had been returned on June 4, 1999, and revised Form 37-I was filed. On July 13, 1999, no objection certificate has been issued by the appropriate authority. RPSB applied to the Income-tax Officer for certificate under Sub-section (1) of Section 230A. Even here also the cost of acquisition including stamp duty has been set out as Rs. 1,86,29,485 ; developmental expenses of Rs. 3,91,488 and interest capitalised at Rs. 1,28,36,956 aggregating to Rs. 3,18,57,889 has been concealed and the certificate under Section 230A had been managed on August 3, 1999.
33. The sale deed was executed on August 13, 1999, and it was presented for registration on the same date. It is admitted that the registering authority had assessed the stamp duty payable on the said deed. According to the registering authority the market value of the property is Rs. 3,46,61,115 and on that basis stamp duty payable on the sale deed had been determined and on the said market value and collected stamp duty on the same date of presentation namely August 13, 1999, and on the same date also registration fee of Rs. 18,615 had been remitted. It is rightly pointed out that the applicant had without any demur paid the stamp duty on the market value as determined at by the registering authority based up to the guideline value.
34. It is not as if the applicant had raised any objections, nor was the document kept pending, nor had the applicant filed an appeal as against the demand for payment deficit of stamp duty on the value of Rs. 3,46,61,115. It is not the normal conduct of a person to sell and purchase the property at Rs. 165 lakhs but pay stamp duty on Rs. 3,46,61,115 without even raising an objection or preferring an appeal before the competent forum.
35. On the very date of presentation itself the applicant paid the deficit stamp duty of Rs. 23,60,956. Therefore it is clear that the applicant was ready with such a huge sum when the document was presented for registration. This makes it clear that the applicant is aware of the market value. So also the vendor. The difference between the apparent consideration recited and the fair market value is Rs. 1,81,61,115. It is therefore clear that the apparent consideration paid being Rs. 165 lakhs, the market value being Rs. 3,46,61,115 and therefore it follows that the difference being 1,81,61,115. In other words, there is a bargain between the applicant and RPSB by which the apparent consideration paid is far less and a sum of Rs. 1,81,61,115 had been siphoned off by RPSB or passed under the table to persons in management.
36. Though it is contended that the real estate has not appreciated, yet as reflected from the fact that the applicant had paid the stamp duty on the market value as determined at Rs. 3,46,61,115, by the registering authority this would reflect the market value of the property as on date of the sale. This is obviously clear and therefore the property had been sold less than 50 per cent. of the market value. It cannot be stated that the prices of land had gone down, much less so steeply. The property is close to Anna Salai and it is a stone's throw away distance, it is in the junction of G.N. Chetty and Boag Road, a corner and rectangular plot and it is a corner plot also as seen from the fact that RPSB had spent Rs. 3,91,488 towards securing an approval of the building plan for putting up 1+4 stories. Yet such a valuable property had been sold for less than one half of the prevailing market rate. The suggestion that the purchase price has been boosted to show increase in the assets held by the company, but this has to be rejected in the light of the banker expert valuation arrived at before advancing a loan.
37. It is pointed out by Mr. V.S. Subramanian learned counsel for the petitioner that this court directed the banker to invite offers, but no offers have been received. Be that so, it will not mean that there is a reduction in the market price, nor could it be inferred that the market value of the property was only Rs. 165 lakhs. On June 8, 1995, the property had been purchased for Rs. 163 lakhs. The banker, namely, Bank of Madura has assessed the market value of the property at Rs. 1,86,30,000 as on December 3, 1998. Already the quantum of stamp duty paid and the registration charges and other incidental expenses incurred had been pointed out. Even according to the RPSB the book value of the property is Rs. 3,18,57,889 as on March 31, 1998. But at 50 per cent. of this value, the property had been sold for apparent consideration of Rs. 165 lakhs. In other words, even after a passage of four years the property which is close to Anna Salai and on the G.N. Chetty Road, had been sold for twice lesser than the cost of acquisition. This shows the desperate handling of the situation by RPSB. This is rather extraordinary and this would show that the transaction is not a bona fide one but it had been entered with an intention of throw away the property and siphon off the difference for the benefit of the individual directors by pocketing a sizeable amount in cash and the applicant is a party to such a transaction. Therefore it is clear that the applicant cannot claim that it is a purchase for a market value much less a bona fide transaction for fair market value.
38. A perusal of the minutes book also would show that the minutes are fabricated or brought up to suit the transaction and to cover up the design. Normally minutes should be maintained in a book containing pages numbered consecutively and each resolution should be numbered and arranged. But in the present case, loose sheets have been utilised and at the pressure of the persons in the management such resolutions have been recorded without page numbers and without resolution numbers. The contract to sell concluded over night without negotiations or offer and who found the purchaser is not known. There is nothing to show that there were discussions and that resolutions were carried out. On the other hand resolutions have been drafted to suit the brought up transactions and the very tenor of the resolutions would show that the resolutions of the board are nothing but brought up minutes to suit the convenience and not in the interest of the company, nor its shareholders. The resolutions are not bona fide resolutions passed in the regular course of transaction.
39. Any transaction of this nature and such magnitude, if it is not made in the ordinary course of business and it was not made in good faith and for valuable consideration, then it cannot be sustained. It is equally well settled that if the transaction was entered into as a result of lawful pressure of a bona fide creditor to recover his dues the transaction or transfer could not be treated as a fraudulent preference. Merely because it was entered into within a period of six months prior to the commencement of winding up, but if the transaction was entered into as a result of a design by directors to give preference to certain creditors and to siphon off the funds, definitely the court is not helpless. The test would be whether the company entered into such transaction to save its own skin for its own benefit in the circumstances then prevailing or whether the dominant motive of the company is to favour one creditor over another. This is not a case where the transferee could contend that he is not aware of the infirmity in the resolution or designs or motive behind the transaction. With full knowledge of what is going on in the company the transferee entered into the transaction with designs with the active assistance of the persons in the management of the company.
40. If the intention with which agreement is concluded, a transaction is entered to conceal a fraudulent or dishonest act which had already been committed, the intention could not be other than an intention to commit fraud or design to achieve what is not the real transaction but a design to benefit the individual directors. The concealment of an already committed fraud is also a fraud. Where therefore, there is an intention to obtain an advantage by deceit, there is fraud and if the document is fabricated with such intent, it is forgery. An act that is calculated to glean fraud already committed and to make the party defrauded believe that no fraud had been committed is a fraudulent act and the person responsible for the act acts fraudulently. It is the well settled legal position, where fraud on the part of the transferor is established the burden of proving when the transferee fell within the exception is upon him and in order to succeed the transferee must establish that he is not a party to the design of the transferor and that he did not share the intention with which the transfer has been effected, but that he took the sale honestly believing that the transfer was in the ordinary and normal course of business.
41. In Official Liquidator, Supreme Bank Ltd. v. P.A. Tendolkar , the apex court held thus :
"It is certainly a question of fact, to be determined upon the evidence in each case, whether a director alleged to be liable for misfeasance, had acted reasonably as well as honestly and with due diligence, so that he could not be held liable for conniving at fraud and misappropriation which takes place. A director may be shown to be so placed and to have been so closely and so long associated personally with the management of the company that he will be deemed to be not merely cognizant of but liable for fraud in the conduct of the business of a company even though no specific act of dishonesty is proved against him personally. He cannot shut his eyes to what must be obvious to everyone who examine the affairs of the company even superficially. If he does so he could be held liable for dereliction of duties undertaken by him and compelled to make good the losses incurred by the company due to his neglect even if he is not shown to be guilty of participating in the commission of fraud. It is enough if his negligence is of such a character as to enable fraud to be committed and losses thereby incurred by the company (page 1115) :
Any director conscious of his managerial responsibilities, who had cared to examine the affairs of the bank, could not have failed to find out what was really happening in the bank. The fact that these practices were tolerated for such a long period without any check by the board of directors indicates that the promoter directors must be participants in the benefits of widespread misappropriation even though they may have so operated as not to leave any traces of actual misappropriation by them in the records of the bank. (p. 1123) The promoter or founder directors who were there since the inception of the bank, were cognizant of the nature of the dealings by the managing director and the officers of the bank. The evidence showed that they had been discussing matters relating to the management of the company at the meetings of the board where item "policy" which benefited the directors at the expense of the depositors, must have been discussed. They could not have been ignorant of the fact that the account books contained fictitious entries showing payments for shares by them when they had not actually paid for them. Nor could they be so innocent as not to know of the window-dressing and presentation of false balance-sheets so as to conceal the true state of affairs from the depositors for years. (p. 1122) Where difficulties were encountered in determining the actual total loss to the company because of want of any reliable statement of accounts, this state of the records of the bank was itself evidence of breach of duty by the managing director and the board of directors to see that the business of the bank was honestly and efficiently conducted. (p. 1117) Although the managing director who was conducting the day-to-day affairs of the company, must therefore be held responsible for a greater share of losses incurred due to misappropriations, dishonesty and misuse of managerial powers yet, his co-directors could not possibly be ignorant of the nature of such dealings and activities of the employees and the managing director simply because they had executed a power of attorney in favour of the managing director. (p. 1116) Where the directors were cognizant of circumstances of such a character, so plain and so manifest, that no men with any ordinary degree of prudence, acting on their own behalf would have conducted themselves in the manner the directors of the company have done, the proved conduct of the founder directors was such that an inference of their complicity in concealing the true state of affairs from depositors, presumably because they were themselves benefiting from it, could not be avoided." (p. 1116)
42. This pronouncement squarely applies to the facts of this case. The official liquidator's report also would show that the property had been purchased by the company out of the borrowed funds and the interest on borrowings were shown as addition to the cost of the property. The cost of the very property is shown as Rs. 3,18,57,889 only and the sale proceeds are shown as Rs. 1,65,00,000 only. Thus the company had incurred a capital loss of Rs. 1,53,57,889, which would disclose the magnitude of the fraud and fraudulent transfer or a transfer which has been effected for appropriate purpose. The transfer was made beyond the date of balance-sheet and therefore the transaction has not been reflected in the audited statement.
43. Even according to the affidavit filed by the company, the board of directors of RPS Benefit Fund Ltd., it is claimed that a resolution was passed by the company on April 22, 1999, to sell the property in question and on the very same day the agreement was entered into. Peculiarly there was no negotiation at all, nor was there an effort to find out the best purchaser or search for any other purchaser. The agreement was entered on April 22, 1999, and the company petition was presented on July 26, 1999.
44. According to the official liquidator the agreement entered into between the company and the applicant is a fraudulent preference and the sale is void in law. The liquidator relies upon Section 531A of the Companies Act. The request of the applicant to treat the sale executed by the company as valid does not deserve any further consideration and it deserves to be dismissed. The contention that the plot was odd-sized or that sufficient space has to be left for purpose of promotion of construction cannot be countenanced. The location of the plot which is in the heart of the town should not be lost sight of. The very fact that without any demur substantial sum has been paid by the applicant without protest towards additional stamp duty would not only show the market value, but also the transaction has been entered into far less than the purchaser market value and it has been entered into collusively only with a view to deceive the creditors, to give preference to a set of creditors of the director's choice. The fact that under Section 47A without any demur the entire deficit stamp duty has been paid on the very date on which sale deeds were presented itself, is a fact which reflects on the applicant. The contention that there is a steep fall in the real estate market cannot be countenanced at all. It may be that there may not be any shooting up of the prices. But there was no fall in prices, much less, as sought to be made out. The contention that the property was not a property of the company on the date of filing of the company petition is a misconception and it runs counter to the statutory provision namely Section 531A of the Companies Act. Assuming for purposes that the entire sale consideration has been applied for discharge of certain depositors and there is no fraud, but there is no material at all to show that the entire sale proceeds had been utilised to discharge the liability of the company or the depositors. No particulars have been furnished. The property has been undervalued and deficit stamp fee of Rs. 23,60,956 has been determined and paid without any demur by the applicant in terms of Section 47A. That apart, at or about the same time, the directors in control of RPSB have drawn huge sum to the tune of Rs. 23,00,000 from the RPSB and there is no account or explanation for the same. Even if the Appropriate Authority had given the approval for the transaction, the same cannot shield the transaction which is fraudulent transaction. The very permission granted by the Appropriate Authority is rather strange and requires to be examined by a competent authority. Less said is better with respect to the Income-tax Department, who accorded permission as well.
45. The plot in question is facing G.N. Chetty Road on one side and on the Boag Road on the other side. Both the roads are prominant roads in the Metropolitan City and it commands respect and locational advantage being there are a number of commercial establishments and prestigious hotels or business houses are located.
46. In the light of the above discussion, the applicants in these applications are not entitled to any relief and all the points are answered against the applicants. This court holds that the property in question has not been sold bona fide in good faith and in the interest of the transferor-company. This court also holds that the property has not been sold for a fair market price and therefore the transaction is not bona fide. This court has to sustain the objections raised by the respondents and the administrator that substantial amount has been siphoned off by the sale transaction which has been effected far below the fair market value or existing market value. The transaction has been entered into with a view to defeat the claims of the creditors and in preference to a set of persons and to enable the directors in management to encash the benefit for themselves. The said transactions are not bona fide, nor valid and it is not binding. Therefore all the points are answered against the applicant.
47. In the result the above applications are dismissed with costs.