M/S Murli Manohar Leasing & Finance ... vs M/S Intraport (India) Ltd And Shri Tilak ... on 20 July, 2009

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Delhi High Court

M/S Murli Manohar Leasing & Finance ... vs M/S Intraport (India) Ltd And Shri Tilak ... on 20 July, 2009

1. Objections are filed on the ground that the property of the judgment debtors by attachment and sale whereof the money decree is sought to be executed, stood sold by agreement to sell, power of attorney, Will coupled with delivery of possession and payment of entire sale consideration, much prior to the filing of the execution.

2. Execution is sought of an arbitral award dated 17th September, 2003 having force of a decree under Section 36 of the Arbitration Act, 1996. The said award is stated to be for payment of Rs EA.No.352/2004 and Ex.No.31/2004 Page 1 of 15 61,11,290.32 as on date of filing of the execution, with future interest, by the judgment debtor to the decree holder. It is, inter alia, the plea of the decree holder in the execution petition that the judgment debtor as owner of property No. A-1, Mangol Puri Industrial Area, Phase-II had agreed to sell the same to the decree holder vide agreement to sell dated 30th August, 1996 for a sum of Rs 1,25,00,000/; that the decree holder had paid a sum of Rs 25 lacs to the judgment debtor at the time of signing of the agreement to sell; that the property agreed to be sold was at the time of agreement to sell mortgaged with Vysya Bank Limited and the judgment debtor had agreed to free the property from the mortgage and complete the sale within 90 days from the agreement to sell; that it was further agreed that if the judgment debtor is not able to, within the said time, have the property freed from mortgage, the agreement shall stand cancelled and the judgment debtor shall return the monies received from the decree holder together with interest at 18% per annum; that the judgment debtor was unable to have the property freed from mortgage within the stipulated period and the decree holder accordingly demanded refund of monies paid with agreed rate of interest and upon default of the judgment debtor, initiated arbitration as per the clause to that effect in the agreement; the arbitral tribunal accordingly awarded Rs 25 lacs to the decree holder against the judgment debtor together with interest at 18% per annum, costs, future interest etc.

3. It is further the case of the decree holder in the execution petition that judgment debtor has no other property except the property earlier agreed to be sold to the decree holder, and from which the decree could be satisfied and as such assistance of the EA.No.352/2004 and Ex.No.31/2004 Page 2 of 15 court in execution was sought by attachment and sale of the aforesaid property.

4. At this stage it may also be mentioned that OMP.No. 6/2004 was preferred inter alia by the judgment debtor under Section 34 of the Act with respect to the aforesaid award which was dismissed on 13th January, 2004. The execution petition was filed on 1 st March, 2004.

5. Though this court, did not issue any warrants of attachment of the property aforesaid and merely issued notice of the execution to the judgment debtor but EA.No.352/2004 has been filed by the objectors under Order 21 Rule 58 objecting to the relief claimed by the decree holder of execution of the money decree by attachment and sale of the property aforesaid. It is now settled law that such objection is maintainable even without the property being attached or sold in execution.

6. It is inter alia the case of the objectors that they are the bona fide purchasers of the aforesaid property from the judgment debtor. The objectors have in this regard alongwith their objections filed photocopies of:

i. an agreement to sell dated 25th February, 1999 executed by the judgment debtor in favour of the objectors with respect to the aforesaid property for a total sale consideration of Rs. 30 lacs. In the said agreement the judgment debtor has acknowledged receipt of entire sale consideration from the objectors. It is also a term of the said agreement that the possession of the property together with all title documents with respect thereto had been delivered by the judgment EA.No.352/2004 and Ex.No.31/2004 Page 3 of 15 debtor to the objectors at the time of execution of the agreement and the judgment debtor shall thereafter have no right, title or interest in the property and the agreement is irrevocable that the judgment debtor shall cooperate in all formalities for transfer of the said property in favour of the objectors;

ii. a general power of attorney registered on 25th February, 1999, by the director of the judgment debtor in favour of the objectors with respect to the aforesaid property, also authorizing the objectors to sell, mortgage, transfer the said property;

iii. a Will registered on 25th February, 1999 executed by the director of the judgment debtor who has executed the agreement to sell and power of attorney aforesaid, though in his personal capacity, but with respect to the aforesaid property in favour of the objectors;

iv. the telephone bills w.e.f. June, 1999 of the telephone connection in the name of the objectors at the address of aforesaid property;

v. the electricity bills in the name of the objectors of the year 2004 at the address of the aforesaid property; vi. a receipt of payment to MCD with respect to the said property;

vii. letter dated 13th February, 2003 of the MCD mutating the aforesaid property in the name of the objectors on the basis of their application dated 30th December, 2002. EA.No.352/2004 and Ex.No.31/2004 Page 4 of 15 The objectors thus contend that the property aforesaid being of the objectors w.e.f. 25th February, 1999 cannot be attached or sold in execution of a money decree against the judgment debtor.

7. It is further the case of the objectors that the decree holder had filed OMP 390/2003 in this court for restraining the judgment debtor from selling, transferring or alienating the said property; that vide order dated 30th September, 2003 this court was pleased to restrain the judgment debtor from alienating, encumbering or selling the property; the said order was affixed on the property and wherefrom the objectors learnt of the same and filed an application in this court in the aforesaid OMP and served copy thereof on the counsel for the decree holder, informing of the sale aforesaid of the property by the judgment debtor to them much prior to the order dated 30th September, 2003. It is the case of the objectors that the decree holder inspite of knowledge of same, still applied for execution of the award by sale of the property, without informing this court of the claim aforesaid of the objectors.

8. The decree holder has filed reply to the objections aforesaid contending that the agreement to sell is bogus and frivolous; that the title in the property cannot be transferred on the basis of agreement to sell and power of attorney and continues to vest with the judgment debtor; that there is no legal transfer of the property of the judgment debtor to the objectors. It is further contended that the application of the objectors for impleadment in OMP.No.390/2003 was never allowed and the said OMP was subsequently dismissed as withdrawn in view of the ad interim order dated 14th February, 2005 in this execution, after the objectors had EA.No.352/2004 and Ex.No.31/2004 Page 5 of 15 appeared, restraining the objectors from selling, mortgaging or transferring the property.

9. I had, during the hearing inquired from the counsel for the decree holder whether the decree holder disputes and controverts the registration of the power of attorney and Will aforesaid; inasmuch as it was felt that if that be the case, the matter will have to be put to evidence to adjudicate the objections. The counsel for the decree holder has informed that the registration is not disputed. He has confined his submissions only to, as pleaded in reply to the objections of there being no legal transfer of the property by the judgment debtor in favour of the objectors on the basis of the documents filed and thus execution against the said property being maintainable.

10. The aforesaid contention of the decree holder need not detain the disposal of these objections any longer, the matter being no longer res integra. The Division Bench of this court in Asha M Jain Vs Canara Bank 94(2001) DLT 841 negatived similar contentions of there being no transfer within the meaning of Section 54 of the Transfer of Property Act and held that a contract for consideration duly signed and in pursuance to which possession is taken in part performance and full consideration paid apart from execution of collateral documents viz power of attorney, Will etc, amounts to transfer of the property and the only right which can be attached by holder of money decree, with respect to the said property, is the right, if any, remaining of the transferor. Since, in such transaction no right of the transferor remains, the order of attachment in that case effected by the Single Judge and was revoked by the Division Bench. The agreement to sell in present case is of prior to the date EA.No.352/2004 and Ex.No.31/2004 Page 6 of 15 when registration of such agreements became compulsory. Further from registration of power of attorney and the Will, it cannot be said that the documents have been back dated.

11. The counsel for decree holder has under list dated 18th July, 2009 filed copies of following judgments in support of his contention of the judgment debtor continuing to be the owner of the property.

i) Narandas Karsondas Vs S.A. Kamtam AIR 1977 SC 774 laying down that in India there is no distinction between legal and equitable property, as in English law and that an agreement of sale not creating any interest in immovable property;

ii) Imtiaz Ali Vs Nasim Ahmed AIR 1987 Delhi 36 again holding that there can be no ownership on basis of agreement to sell;

iii) Patel Natwarlal Rupji Vs Shri Kondh Group Kheti Vishayak (1996) 7 SCC 690 on the same proposition.

However, the Division Bench in the judgment (supra) having dealt with the proposition in all the judgments aforesaid, no different view can be taken by this court.

12. That being the legal position, there is no option but to hold in the present case also that the decree holder is not entitled to execution of the money decree by attachment and sale of immovable property which had been transferred by the judgment debtor in the manner aforesaid to the objectors. It may also be noted that, during the course of hearing, it was not disputed that the arbitration proceedings had commenced on 22nd February, 1999 and prior to the order dated 30th September, 2003 aforesaid there was no restrain EA.No.352/2004 and Ex.No.31/2004 Page 7 of 15 whatsoever on the judgment debtor selling, alienating or dealing with the property. As noticed above, the property was sold in the manner aforesaid on 25th February, 1999 i.e. within three days of the commencement of the arbitration proceedings, the award wherein is sought to be executed as a decree.

13. The counsel for the decree holder next sought to contend that the sale transaction by the judgment debtor in favour of the objectors was fraudulent; it was urged that while the price at which the same property had been agreed to be sold to the decree holder in 1996 was Rs 1,25,00,000/- while sale to the objectors is shown to be of Rs 30 lacs only. Though on inquiry it was stated that no document has been filed by the decree holder to show that the price of the property in 1999 was more than Rs 30 lacs; counsel has contended that it is unbelievable that the price would depreciate to that extent and judicial notice can be taken of the overall increase in prices. Reliance in this regard is sought to be placed on DDA Vs Skiper Construction Co (P) Ltd (1996) 4 SCC 622. It was contended that this court ought not to permit such fraudulent transaction in concealment of price to come in the way of execution of decree and recovery of just dues.

14. In this case the need for considering the aforesaid submissions of the counsel for the decree holder does not arise inasmuch as there is absolutely no basis therefor.

15. It stands established that the decree holder, prior to filing of execution was aware of the claim of the objectors. The decree holder still chose not to make even a whisper of the same in the execution petition. If the decree holder felt that the transaction was fraudulent, the pleadings with respect thereto, as specifically EA.No.352/2004 and Ex.No.31/2004 Page 8 of 15 required to be made, ought to have been made. Not only so, in reply to the objections also, no such plea has been taken. The decree holder rested his case, perhaps in ignorance of the dicta aforesaid of the Division Bench and of other courts, on there being no legal transfer of the property. The decree holder cannot be permitted to make averments as serious as of fraud without any pleading whatsoever.

16. Be that as it may, since fraud is alleged merely on the basis of reduced price, it may be stated that it is inter alia a term of the agreement to sell by the judgment debtor in favour of the objectors that all kinds of dealing with respect to the property shall be completed by the objectors themselves with the concerned authorities in respect of the said property and all levies, dues, taxes, outgoings un-increased amounts, lease money etc demand of DDA with respect to the said property shall be borne by the objectors. It is quite possible that there were huge liabilities on this account and in consideration of the objectors undertaking the same the price was fixed at Rs 30 lacs. Though the decree holder has not placed before this court the agreement to sell earlier executed by the judgment debtor in favour of the decree holder, for Rs 1.25 crores but from the narration thereof in the execution petition and in the award it transpires that under the said agreement the unearned increase and DDA levies etc were payable by judgment debtor itself. This is indicated just to show that mere difference in price does not find favour with me to start a roving and fishing inquiry or to continue depriving the objectors of the use/benefits of their valuable property.

17. The judgment cited, in Skiper Construction Co (P) Ltd (supra) is not relevant for present purposes. The counsel for the EA.No.352/2004 and Ex.No.31/2004 Page 9 of 15 decree holder in list dated 18th July, 2009 (supra) also relied upon the following judgments on aspect of fraud:

i) Manmath Nath Chakravarty Vs Sachindra Kumar Chakravarty AIR 1956 Cal 59 (DB) holding that if the execution creditors knew of the real value and yet understated the value, it would be evidence of fraud and vitiate the sale inspite of objection having not been taken by the judgment debtor.

However, the said case was under Order 21 Rule 90 CPC i.e. sale in execution of decree and not relevant for present purpose.

ii) Sobhan Khan Vs Gangadhar Senapati AIR 1944 Patna 40 This judgment was also with respect to Order 21 Rule 90 CPC and in that context disparity between value stated in sale proclamation and real value was held sufficient to infer fraud. iii. Mahesh Chand Sharma Vs Jaswant Rai Hora 2002 (4) AD (Delhi) 334 This was a case of objections to attachment of property in execution. This judgment of Single Judge is of a date shortly after the judgment of Division Bench in Asha M Jain and does not consider the same. The judgment of Division Bench is binding. Moreover in this case, no consideration was mentioned in agreement to sell and which led the court to hold the same to be suspicious.

iv) Formosa Plastic Corporation Ltd Vs Ashok Chauhan 76 (1998) DLT 817 where in para 45 it has been held whether sale/transfer is fictitious or not can be decided only after evidence. EA.No.352/2004 and Ex.No.31/2004 Page 10 of 15

However, in the present case, there is no plea of transfer being fictitious. Evidence can be led on pleadings only and in the absence of any such case having been set up by decree holder inspite of notice of claim of objectors, since prior to filing execution, no issue arises and no trial required;

v) Nedungadi Bank Ltd Vs Ezhimala Agricultural Products AIR 2004 Kerala 62, to the effect that fraud is too unholy a thing to be condoned and courts will be justified in coming down heavily on perpetrators of same when the same is noticed in judicial proceedings.

Order VI Rule 4 CPC (which would be applicable, the procedure for disposal of objections being same as that of a suit) requires a party relying on any fraud, to plead particulars with dates and items. Nothing of the sort has been done herein, inspite of knowledge as aforesaid of decree holder of transfer claimed by objectors. It is not the case that the transfer is make belief or the property remains in control of the judgment debtor or that the objectors and the judgment debtor company/its directors are closely related to each other in any manner whatsoever. As aforesaid, transfer is of a date within three days of commencement of arbitral proceedings. There is no law prohibiting a person against whom money claim is made before court or arbitrator, from transferring his property. The lis was not with respect to the property. The decree holder choose not to take any steps for restraining the judgment debtor from transferring the property, till 30th September, 2003. In the circumstances legal propositions argued in abstract without laying any foundation therefor in pleadings or otherwise, do not compel this court to direct parties in this case to trial. EA.No.352/2004 and Ex.No.31/2004 Page 11 of 15

Though the Companies Act in Section 531 and Section 531A thereof voids any transfer of property by a company, otherwise than in ordinary course of business and in good faith and for valuable consideration, made within six months or one year respectively before presentation of petition for winding up, I do not find any such power in the executing court. Section 53 of the Transfer of Property Act empowers the court to, on a suit being filed, declare a transfer of immovable property made with intent to defeat or delay creditors of transferor, as void. However, no such suit has been filed in present case.

18. Accordingly, EA.No.352/2004 is allowed. The order dated 14th January, 2005 restraining the objectors from dealing with the property is vacated. The parties are left to bear their own costs. Ex.No.31/2004

19. That brings me to another argument of the counsel for the decree holder, for execution of the decree against Shri Sanjay Kumar Tandon and Shri Sunil Kumar Tandon the then directors of the judgment debtor company. Even though the arbitral award sought to be executed as a decree was not against the said Shri Sanjay Kumar Tandon and Shri Sunil Kumar Tandon but the decree holder filed execution impleading them also as judgment debtors. No permission from the court was taken in that regard. In these circumstances, vide order dated 15th July, 2009, the names of the said Shri Sanjay Kumar Tandon and Shri Sunil Kumar Tandon were struck off from the array of judgment debtors in the execution petition, reserving the right of the decree holder to proceed against them if succeeds in establishing a case of fraud and of being entitled to execute the decree against them.

EA.No.352/2004 and Ex.No.31/2004 Page 12 of 15

20. The counsel for the decree holder besides relying upon the judgments (supra), has in this regard in the list dated 18 th July, 2009 (supra) also relied upon Saurabh Exports Vs Blaze Finlease and Credits Pvt Ltd 129 (2006) DLT 429. That was a suit for recovery of money. The plaintiff therein had lent the money to a private limited company. On default in repayment, the suit was filed for recovery of money not only against the company but also against its directors. This court held that on the pleadings and the evidence led the principles laid down in Singer India Ltd Vs Chander Mohan Chadha (2004) 7 SCC 1 for lifting the corporate veil were satisfied. The Supreme Court in Singer India Limited held that when the corporate personality is being blatantly used as a cloak for fraud or improper conduct or where the protection of public interest is of paramount importance or where the company has been formed but evade obligations imposed by law, the court will disregard the corporate veil. This court in Saurabh Exports, on pleadings and evidence recorded, found that the company was a front for the business of its directors and thus the money decree was passed not only against the company but its directors also.

21. The counsel for the decree holder has also relied upon Ravinder Kaur Vs Ashok Kumar (2003) 8 SCC 289 where it has been held that courts of law should be careful enough to see through diabolical plans of the judgment debtors to deny the decree holders the fruits front of the decree obtained by them. This was not a case of money recovery but an eviction decree. The tenant in that case inspite of giving undertaking to vacate the premises did not do so. On execution being filed, objections were raised with respect to the identity of the property. It was in that context that the EA.No.352/2004 and Ex.No.31/2004 Page 13 of 15 observations aforesaid were made. In my view the same would not be relevant for the present purposes.

22. The execution petition in the present case does not make out any case whatsoever for execution of the decree against Shri Sanjay Kumar Tandon and Shri Sunil Kumar Tandon aforesaid. As such there is nothing for this court to hold that the judgment debtor company was used by the Tandons merely as cloak to receive money from the decree holder or to avoid payment thereof. It is not the case that the judgment debtor company had no business or was merely a front. On the contrary the case is that the judgment debtor was the owner of a valuable immovable property which the decree holder had agreed to buy.

23. It is necessary to reiterate that it cannot be laid down as a general proposition that whenever the decree is against a company, its directors/shareholder would also be liable. To hold so would be contrary to the very concept of limited liability and obliterate the distinction between a partnership and a company. The courts have, however, watered down the principles laid down in Solomon Vs Solomon & Company Ltd 1897 AC 22 by the House of Lords of the company, in law being a different person all together from its shareholders and directors and of the said shareholders and directors being not liable for the debts of the company except to the extent permitted by law, to cover the cases of fraud, improper conduct etc as laid down in Singer India Ltd (supra). However, in the absence of any pleadings to that effect, in the present case it cannot be said that the Tandons on account of being the directors of the company are liable for the money debts of the company. EA.No.352/2004 and Ex.No.31/2004 Page 14 of 15

24. Thus, it is held that no case for lifting of the corporate veil of the judgment debtor company is also made out in the present case.

RAJIV SAHAI ENDLAW (JUDGE) July 20, 2009 M EA.No.352/2004 and Ex.No.31/2004 Page 15 of 15

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