National Company Law Appellate Tribunal
Galaxy Enterprise Through Its Partner ... vs Indiraben Widow Of Shri Vinodrai ... on 18 April, 2023
1
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
PRINCIPAL BENCH
NEW DELHI
Company Appeal (AT) No. 38 of 2023
(Arising out of judgement and order dated 06.03.2023 passed in
CP/1(AHM)2023 by the National Company Law Tribunal,
Ahmedabad Division Bench, Court 1, Ahmedabad)
IN THE MATTER OF:
Galaxy Enterprise ...Appellant
A partnership firm through its
Partner, Shri Navinchandra Hiralal Zaveri,
101, Atul Shopping Center, Opp Nava Nagar High
School, Jayshree Talkies Road,
Jamnagar, Gujarat.
Versus
01. Indiraben
Wd/O Shri Vinodrai Hirjibhai Kansagara
125, Chatsworth Ct.,
Blue Bell, PA 19422, USA
Through her Power of Attorney Holder
Shri Kartikkumar Vinodchandra Patel,
C/3/A, Panchratna Apartment,
Opp. Sun view tower,
Membagar, Ahmedabad, Gujarat.
02. Galaxy Cinema Private Ltd,
Dwarkadhish Complex,
Unit A, 03rd Floor,
Tagore Road, Rajkot
360002 Gujarat.
03. Jivanlal Jadavbhai Jagani,
2
61 Amee Apartment,
Opposite Girnar Cinema,
Rajkot 360001, Gujarat
04. Rashmikant Valjibhai Bhalodia
Block No.701, sita apartment,
Kashi vishwanath Plotm Near Sardar Baug,
Babubhai Shah Marg,
Rajkot 360001 Gujarat.
05. Navinchandra Mohanlal Patel,
Block No.6102,
Taxshil Pulchhab Chowk,
Rajkot 360001, Gujarat.
06. Rajnikant Mohanlal Bhalodia,
Flat No.801,
Sita Apartment, Kashi vishwanath Plot,
Babubhai Shah Road,
Rajkot 360001, Gujarat.
07. Rajeshkumar govindlal Patel,
4, sita Apartment,
Babubhai Shah Marg,
Kashi Vishwanath Plot,
Rajkot 360001, Gujarat.
08. Kirankumar Valjibhai Bhalodia,
Block No.501,
Sita Apartment,
Babubhai Shah Marg,
Kashi vishwanath Plot,
Nutan Press Street,
Rajkot 360001
Gujarat.
09. Amar Rameshkumar Bhalodia
6, Sita Apartment,
Babubhai Shah Marg,
3
Kashi vishwanath Plot,
Nutan Press Street,
Rajkot 360001
Gujarat.
10. Registrar of Companies,
Gujarat, Dadra and Nagar Haveli,
ROC Bhavan,
Opp Rupal Park,
Naranpura,
Ahmedabad 380013
Gujarat. ...Respondents
Present: For Appellant : Mr. Krishnendu Datta, Sr. Advocate with Ms.
Anushree Kapadia, Ms. Neha Agarwal, Ms. Ruchi Chauhan,
Advocates.
For Respondents : Mr. Ranjit Kumar, Sr. Advocate with Mr. Abhijit
Sinha, Mr. Ravi Pahwa, Ms. Aastha Mehta, Ms. Prerana Mohapatra,
Mr. Aditya Shukla, Mr. Saikat Sarkar, Advocates for R-1.
Mr. Vaibhav Gaggar, Mr. Karan Valecha, Mr. Bhavesh Choksi, Mr.
Somdev Tiwari, Mr. Ketan Saraf, Mr. Mrityunjay Mahendra,
Advocates for R2 to R9.
JUDGEMENT
(18th APRIL, 2023) JUSTICE RAKESH KUMAR, MEMBER (JUDICIAL) The appellant, who purchased a piece of land through registered sale deed dated 13.07.2020 from Respondent No.2-Galaxy Cinema Private Limited, registered under the Companies Act, is aggrieved with an interim order passed by National Company Law 4 Tribunal, Ahmedabad Division Bench Court I, Ahmedabad in CP/01/(AHM)/2023 (hereinafter referred to as NCLT). By the order dated 06.03.2023 in CP/1/(AHM)/2023 which was filed under Section 241, 242 of the Companies Act, 2013, the Learned NCLT, directed Respondent No.1 to 9 of CP/1/(AHM)/2023 "to maintain status quo relating to remaining 227 units by not creating any third party interest and not to carry on work construction beyond 302 units till disposal of main CP." The appellant has specifically pleaded that being purchaser of the land in question he was not at all related in any manner with the Respondent No.2, who was the vendor of land in question. The appellant asserts that the appellant or its partner was neither director nor shareholder and also was not connected with the company in question. However, by the impugned order the appellant has been restrained from proceeding further with transferring/executing sale deed in respect of remaining constructed units which has been constructed much after purchase of the land in question.
It is the case of the appellant that Respondent No.2 (vendor) was operating a single screen cinema in the name of Galaxy Cinema in 5 the city of Jamnagar, Gujarat. The said theatre stood on new city survey No.361, old city survey No.361, 362 and 363, total admeasuring of 5701.18 sq mtr (hereinafter referred to as property in question). The Respondent No.1 herein, one of the shareholders of Respondent No.2 (vendor) filed an application under Section 241, 242 of the Companies Act, 2013 before the NCLT on an allegation of operation and mismanagement of Respondent No.2, by Respondent No.3 to 9 of the present appeal. The said case was registered as CP/1/(AHM)/2023 in which impugned order has been passed It is case of the appellant that after payment of full consideration amount to the tune of Rs.6 crores the appellant purchased the property in question through registered sale deed. At the time of registration of the sale deed it was vacant land. After purchasing the land the appellant got a building constructed and till date of passing of the order total 302 units were constructed. Out of constructed units in respect of 61 units third party interest was created and it was transferred to the purchasers. NOC for another 14 purchasers was received by the private bank. According to the appellant over a property in question entire construction was complete which is reflected from the impugned order also. However, the Learned NCLT 6 by order dated 6.3.2023 by directing to maintain status quo has virtually restrained the appellant from proceeding further with the property in question.
Mr. Krishnendu Dutta, learned senior counsel appearing on behalf of the appellant while assailing the impugned order, submitted that though appellant was not required to be impleaded in a proceeding filed under Section 241, 242 of the Companies Act, 2013, however, he was impleaded as Respondent No.9 before NCLT that too by not disclosing the full name of the appellant. According to the learned senior counsel, the appellant name is Shree Galaxy Enterprises, however, in the petition before NCLT it was arrayed as Galaxy Enterprise as Respondent No.9. He submits that before the NCLT he filed a detailed reply opposing relief sought for by the applicant against appellant herein. He has drawn our attention to application and filed by the Respondent No. 1 herein before NCLT under Section 241, 242 of the Companies Act which was numbered as Company Application No.CP/1/(AHM)/2023. By way of referring to relief portion which is at running page 223 to 227 he submitted 7 that the applicant before the NCLT had while making prayer of grant of interim reliefs she also prayed as follows:-
"Pending hearing and final disposal of the petition this Tribunal may be pleased to restrain Respondent No.9 (appellant herein) for putting up any construction on the subject land and from creating any third party rights, in the interest of justice."
Learned counsel for the appellant at the very outset has argued that admittedly the property in question was purchased by the appellant herein long back on 13.07.2020 through registered sale deed after payment of total consideration amount of Rs.6 crore to the vendor, the Respondent No.1 claiming to be one of the shareholder of the Respondent No.2 company (vendor) approached the NCLT with a petition filed under Section 241, 242 which was registered in the year 2023. Whereas in the meanwhile after purchasing the open land several development had taken place, construction of huge building was completed and also number of units were sold to new purchasers.
Shri Dutta by way of referring to reply affidavit filed before the NCLT which starts from page 458 Volume III submitted that after 8 getting the land in question registered on 13.07.2020 for total consideration amount of Rs.6 crore the appellant herein had constructed a cellar+Ground+3 storeyed shopping centre with 302 unit over 1,46,496 sq ft of construction, which is commercially known as "Star Galaxy". The appellant for construction of the building got the land mortgaged in favour of Rajkot Nagrik Sahkari Bank Ltd. He further submits that third party rights have already been created in favour of 61 purchasers. Further NOC from the Bank to execute sale deed to 14 purchasers had also been received from the Bank, 19 unregistered agreements to sell were executed and total consideration amount was received from the proposed purchasers. It has been asserted that construction of the building is practically complete as on the date barring some fitout works i.e. part building use permission were granted, the purchasers were put in possession of the respective units. It has also been asserted that the appellant had invested a total amount of Rs.16,62,48,422/- (Rupees sixteen crore sixty two lakh forty eight thousand four hundred twenty two only) till date towards acquisition of land, construction and other expenses.
9
Mr. Dutta, learned senior counsel by way of referring to the reply affidavit further submitted that even the applicant before the NCLT was holding less than 10% of the shareholding in the company and wanted to convey that it was not entitled to maintain petition under Section 241, 242 in view of Section 244 of the Companies Act, 2013. However, he had not seriously argued on this point. He further submitted before construction of the building development permission was granted by Jamnagar Municipal Corporation for construction of a Celler+Ground+3 storeyed shopping centre. According to the appellant the sale was effected in the property card on 11.9.2020 vide entry No.13898 which reflects the name of Galaxy Enterprise as the owner/occupant of the land. Thereafter development permission (revised) was granted on 8.1.2021 owing to change plan. Mr. Dutta has further drawn our attention to its reply affidavit filed before the NCLT which has been enclosed in the Volume III of Memo of Appeal and submits that the deed rectification of sale deed dated 13.7.2020 was executed on 2.2.2021, since there were certain typographical error in the sale deed. He further submits that construction project was registered under the Real Estate (Regulation Development) Act, 2016 on 17.3.2021. According to Mr. Dutta for 10 obtaining cash credit facility upto Rs.6 crore a mortgage deed was created in favour of Rajkot Nagrik Sahkari Bank Ltd. The mortgage was created by executing a registered equitable mortgage by deposit of title deeds.
By way of referring to para 6.5, Page 462 Volume III of the Memo of Appeal it was submitted that the said mortgage was executed after issuing a public notice dated 6.8.2021 calling for objections. However, no objection was raised by anyone, including the applicant. By April 2022 part of the construction work completed and as such part building use permission was granted on 21.4.2022 for certain construction in the cellar ground floor and 1st floor. Again on 28.9.2022 the development permission (revised) was obtained from the Jamnagar Municipal owing to certain changes in the plan.
By way of referring to para 6.8 at Page 463 learned counsel for the appellant submitted that Annexure M collectively shows the photographs showing construction and status of the Star Galaxy. According to him those photographs depicts that several work of the entire building was complete end only work of internal fitouts was going on. Total 302 units were already constructed over 1,46,496 sq 11 ft of the total construction with 82 units on the ground floor, 90 units on the 1st floor, 89 units on the second floor and 42 units on the third floor. Third party right was also created in respect of 61 purchasers in whose favour the sale deeds were executed. NOC from 14 persons were received from the Bank, whose sale deeds were to be executed and unregistered agreement for 19 proposed purchasers were executed. According to learned counsel for the appellant till the date of filing of the reply before NCLT the appellant Galaxy Enterprise had incurred a total expenditure of Rs.16,62,48,422/- (Rupees Sixteen crores sixty two lakhs forty eight thousand four hundred twenty two only) towards the project which includes the cost of acquisition of land and construction. He submits that appellant was completely alien to the dispute in between shareholders and as such there was no need for restraining the appellant by way of ordering maintenance of status quo by the impugned order. Mr. Dutta has further argued that since the appellant had purchased the property in question through registered sale deed, after payment of full consideration amount and also in absence of any allegation in the company petition regarding mala fide act on the part of the appellant or sham transaction on the date of passing the impugned order, it was beyond 12 jurisdiction of the NCLT to interfere with the right of the appellant as well as the person who were not even impleaded as party before the NCLT. He submits that even though by entertaining petition of oppression/mismanagement under Section 242(2)(g) the NCLT was having jurisdiction to set aside transfers which may be considered as execution of sale deed, but after expiry of three months from the date of execution the learned NCLT was not having any jurisdiction to examine the allegation of dispute relating to sale deed. He submits that admittedly in the present case sale deed in respect of property in question was executed on 13.7.2020, whereas the application before the NCLT was filed in the month of January 2023. Accordingly the NCLT is not having jurisdiction to examine the allegation of correctness of the sale deed which was executed in favour of the applicant on 13.7.2020 that too in the year 2023.
Mr Dutta has further, by way of referring to Section 180(1)(a) of the Companies Act, 2013 submits that though there is restriction on the power of the Board to deal with the sale, lease or otherwise dispose of the property of the company without the consent of the company by a special resolution, but in the present case since the 13 appellant in good faith has purchased land in question, the sale is protected under the provisions of Section 180(3) (a) of the Companies Act. According to learned counsel for the appellant, the appellant in good faith without having any connection directly or indirectly with the Respondent No.2 (vendor), had purchased the land in question after making payment of full consideration amount of Rs.6 crore and as such the protection under Section 180(1)(a) was not available to the Respondent No.1 herein who was applicant before NCLT.
Mr Dutta had also drawn our attention to the Page 433 Volume II of the Memo of Appeal wherein a declaration was made by the valuer and Clause 7 of the declaration states as follows:-
"This property is valued for personal purpose only and not for funding/court case etc. Not to produce in front of any authority"
Shri Dutta, further submitted that before NCLT the sale deed was questioned on one of the grounds as if sale was undervalued. He has referred to Page 428 Volume II of the Memo of Appeal which is valuation report dated 26.11.2022. It was submitted by learned counsel for the appellant that the said valuation report was enclosed 14 with the application filed by the applicant before the NCLT in Company Petition. He has drawn our attention to Page 429 of the Volume II i.e. 2nd page of valuation report to para 2. It was highlighted that this report depicts as if Shree Galaxy Enterprise (appellant) had requested valuer for preparation of valuation report. According to Mr. Dutta, it reflects that valuation report was forged or fabricated showing as if fair market value of the property was Rs.70,57,19,695/- (Rupees Seventy crore fifty seven lakh nineteen thousand six hundred ninety five only). He further tried to persuade the Court that other contents also create a situation to draw an inference that the said valuation report a forged one. In the valuation report valuer has indicated as if on 25.11.2022 he visited for valuation of the property, whereas only on the next date i.e. 26.11.2022 a detailed valuation report was signed by the valuer. According to learned counsel for the appellant, the valuation of the property was done as per Govt rate applicable in the vicinity of the property in question and this was the reason that Learned NCLT had also declined to place reliance on the valuation report. According to Mr. Dutta, the applicant before the NCLT have brought on record a forged and fabricated valuation report and as such the appellant is 15 liable to be prosecuted for using forged document in a court proceeding.
On the point of delay in filing of the application before NCLT by the applicant, who is Respondent No.1 herein, he has referred to Page 211 Volume II which contains Memo of Petition in CP No.1/(AHM)/2023 filed before the NCLT and submits that at least from the draft resolution with Notice dated 15.3.2019 whereby it was clear that Respondents in the Company petition before NCLT were intending to sale the subject land and thereafter on 13.7.2020 finally the property in question was transferred to the appellant through registered sale deed. The applicant before the NCLT did not assign any reason for filing company petition after such long delay in the month of January, 2023. He has also drawn our attention to Page 216 Volume II at para 45 which is quoted hereinbelow:
"45.The petitioner submits that in the above circumstances, the daughters of Shri Vinodrai Hirjibhai Kansagara filed a petition u/s 241 and 242 of the companies Act, 2013 against Gujarat Cine Enterprises Pvt Ltd, the respondent No.3 to 8 and Ishwarlal Jadavbhai Jagani before this Tribunal which 16 came to be registered as Company Petition No.18 of 2020. This Hon'ble Tribunal, vide order dated 01.06.2020 was pleased to issue notice and directed the respondent No.3 to 8 as well as Ishwarlal Jadavbhai Jagani to maintain status quo in respect of the two theatres situated in Ahmedabad. However, the respondents flauted the said order. This Hon'ble Tribunal then further ordered to continue the status quo vide order dated 21.07.2020. The petitioner begs to annex the copy of orders dated 01.06.2020 and 21.07.2020 in the Company Petition No.18/2020 at Annexure Y."
By way of referring to aforesaid fact it was submitted that in respect of another property of the same company, daughter of the applicant before NCLT had filed company petition No.18/2020 in which notice was issued on 1.6.2020 to the Respondents including the Respondent No.1 in the present appeal. However, in para 48 of the petition filed before the NCLT which is at page 217 Volume II it was stated by the applicant before the NCLT at the time of filing of the petition that as if she knew about the sale of the property very 17 recently. He has specifically referred to para 48 which is quoted herein below:
"48. The petitioner submits that to the shock and surprise of the petitioner, it has now come to the knowledge of petitioner that the respondent Nos. 1 to 8 have sold the sole property of the respondent company to respondent No.9 surreptitiously and behind the back of petitioner. The respondents have not followed any procedure know to law and in particular under the Act while taking the impugned action. The petitioner begs to annex a copy of registered sale deed executed by respondent Nos2 to 8 in favour of Respondent No.9 at annexure A-1."
Accordingly it has been argued that applicant before the NCLT, who is Respondent No.1 in the present case, had approached the NCLT with some oblique motive and to frustrate the finished project of the appellant herein. To substantiate his argument regarding oblique motive for filing the company petition by Respondent No.1 herein the learned senior counsel for the appellant has drawn our 18 attention to para 7 of the reply affidavit filed by Respondent No.1 in the present appeal. Para 7(i) of reply affidavit is quoted hereinbelow:
"7. In response to the contention of appellant that the appellant is a bonafide purchaser of the subject property and therefore, no interim injunction could have been granted against the appellant, I say as under:-
i. The appellant is not a bonafide purchaser of the property in question. The appellant has not published any public notice before purchasing the subject property inviting attention of the public about the sale and calling for objections, if any, from the public. Moreover, the appellant very well knew about Respondent No.1 being a shareholder and ought to have rightfully compensated her rather than giving her money to Respondent Company No.2. This itself shows a collusive transaction between the appellant and the Respondent No.2.
By way of referring to aforesaid stand taken by the Respondent No.1 in its reply affidavit it was argued that the intention of the 19 applicant before the NCLT was not regarding allegation of oppression/mismanagement rather to extract something from the purchaser who is appellant herein. According to him the applicant had not approached the NCLT with clean hands.
In support of his argument learned counsel for the appellant has also placed reliance on para 12 of the judgement K. Santhakumari Vs KJ Trading and para 5,6,7 of Anuragha Paultries & Breeders Pvt Ltd & Anr Vs. Padmavathi & Ors and para 57 of Greater Noida Industrial Development Authority (GNIDA) Vs. Roma Unicon Designex Consortium which are quoted herein below:
K. Santhakumari Vs KJ Trading:
"12. The court below held that the Company Law Board has got very wide powers under Section 402(f) to set right the issue and has got the jurisdiction to declare the invalidity of the document executed in favour of strangers. But it is to be noted that the power to pass orders under Section 402(f) is to set aside transfers, etc., made within 3 months before the date of application under Section 397 or
398. The sale deeds in question were executed in June, 2001 and 2002. Moreover there is no provision for granting a declaratory relief, which would necessarily require further consequential reliefs also, which the civil court alone can grant. There cannot be any dispute that there is no express bar created under the Companies Act. It cannot be said that the jurisdiction of the civil court is ousted by implication also. The appellant cannot be non suited on the ground of maintainability of the suit, as long as there is no provision under the Companies Act providing for an effective remedy in like circumstances, under which the Company Law Board or authorities constituted under the Companies Act are empowered to grant the relief sought for. The provisions contained in Section 397 or 398 do not stand in the way of the civil court granting a declaratory relief as 20 to the validity of the sale deeds executed in favour of 3rd parties, the first of which was executed in June, 2001, i.e. beyond 3 months of filing the suit. The winding up proceedings envisaged under the Companies Act will not by itself be an effective remedy in the circumstances of the case, especially when the impugned action is already done and 'is not being done'. Therefore, the pre-requisites to approach the Company Law Board and for grant of an effective remedy under the Companies Act are not available in the present case. The appellant is seeking a relief against all the remaining Directors of the company against a past transaction, which does not amount to a continuing wrong. Therefore, an effective remedy is available to her only before the civil court, for which there is no specific ouster in the Companies Act. Moreover, when the appellant can invoke her statutory rights under the Company Law as well as the rights under the common law, she has got every freedom to elect the forum which is more appropriate. The suit filed by her cannot therefore be dismissed as not maintainable."
Anuragha Paultries & Breederes Pvt Ltd & Anr Vs Padmavathi & Ors
5. According to Mr.A.Sivaji, the learned counsel appearing for the petitioners, the National Company Law Tribunal which is seized of the proceedings under Sections 241 and 242, is empowered to set aside the alienations made in favour of third parties and when such proceedings have been launched by the respondents, the respondents cannot resort to a Civil Suit which is barred by under Section 430 of the Companies Act, 2013. Section 430 of the Companies Act reads as follows;
"430.Civil Court not to have jurisdiction- No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered to determine by or under this Act or any other law for the time being in force and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or any other law for the time being in force, by the Tribunal or the Appellate Tribunal. "
6.A very reading of the provision shows that the bar enacted therein would apply only when the Tribunal or the Appellate Tribunal under the Act i.e., the Companies Act is empowered to determine any matter which is also the subject matter of a Civil Suit and in such event, the proceedings before the Civil Court would be barred. The Scope of the bar enacted under law was considered by a full bench 21 by this Court in Periathambi Goundan Vs. District Revenue Officer reported in (1980) 93 LW 169 wherein the full bench explained the scope of the bar and concluded that the bar would be only to the extent of matters that are provided to be under the exclusive jurisdiction of the authorities/ Tribunals under the enactment and not otherwise. The language of Section 430 of the Companies Act is inparimateria with that of Section 16 (A) of the Tamil Nadu Agricultural Lands Record of Tenancy Rights Act, 1969 which was considered by the full bench of this Court in Periathambi Goundan referred to supra.
7. Therefore, in order to invoke bar under Section 430 of the companies Act, it is incumbent on the petitioners to show that the National Company Law Tribunal or the National Company Law Appellate Tribunal as the case may be, had the exclusive power to set aside the sale deeds executed by the Companies in favour of third parties. I have already extracted the provisions of Section 242 (2) of the Companies Act. There are two clauses which would be very relevant, in my opinion. Clause (f) provides for termination, setting aside or modification of any agreement between the Company and any person other than those referred to in Clauses (e). The proviso to clause (f) would impose a condition that the National Company Law Tribunal or the National Company Law Appellate Tribunal will have to obtain a consent of the party before cancelling the agreement or transaction is entered into. Therefore, setting aside the transaction without consent of the parties is not possible. Clause
(g) which provides for setting aside of transfers, imposes a limitation of three months. If the sale of the property of the company has taken place three months prior to the date of the application under Section 242 of the Companies Act, then the same cannot be set aside by the Company Law Tribunal. The two pre conditions laid down in Clause
(g) are that the sale must have taken place within three months before filing of the petitions or during the pendency of the petitions." Greater Noida Industrial Development Authority Vs Roma Unicon Designex Consortium "57. We may also notice the submissions of Learned Counsel for the Respondent-Successful Resolution Applicant as well as Flat Buyer Association that both the Corporate Debtor as well as the Lessee were one economic entity. It is submitted on behalf of Learned Counsel for the Flat Buyer Association that both Corporate Debtor and Lessee, land holding companies were alter ego of each. The law is well settled that subsidiary company and the holding company 22 are separate entities. Learned Counsel for the Appellant in the above reference has relied on Judgement of the Hon'ble Supreme Court in "Bacha F. Guzdar, Bombay Vs. Commissioner of Income Tax, Bombay" [(1955) 1 SCR 876] Paragraph 7. It was held by the Hon'ble Supreme Court that shareholder does not acquire any interest in the assets of the company by purchasing shares of company. Following was observed in paragraph 7 of the Judgement: Company Appeal (AT) (Insolvency) Nos.180, 629 & 630 of 2022 74 "It was argued by Mr. Kolah on the strength of an observation made by Lord Anderson in Commissioners of Inland Revenue v. Forrest that an investor buys in the first place a share of the assets of the industrial concern proportionate to the number of shares he has purchased and also buys the right to participate in any profits which the company may make in the future. That a shareholder acquires a right to participate in the profits of the company may be readily conceded but it is not possible to accept the contention that the shareholder acquires any interest in the assets of the company. The use of the word 'assets' in the passage quoted above cannot be exploited to warrant the inference that a shareholder, on investing money in the purchase of shares, becomes entitled to the assets of the company and has any share in the property of the company. A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them. The interest of a shareholder vis-a-vis the company was explained in the Sholapur Mills Case. That judgment negatives the position taken up on behalf of the appellant that a shareholder has got a right in the property of the company."
By way of placing reliance on aforesaid judgments it was argued by learned senior counsel for the appellant that the learned NCLT lacks jurisdiction for annulling or setting aside of duly registered sale deed that too after expiry of more than 2 ½ years. Accordingly, it was argued that the interim order i.e. for maintaining status quo was not required to be passed by the NCLT and as such the interim order is fit to be quashed.
23
Mr. Vaibhav Gaggar, learned counsel appearing on behalf of Respondent No.2 to 9 adopting the argument advanced by Mr. Krishnendu Dutta, learned senior counsel for the appellant has further drawn our attention to page 27 of the counter affidavit filed on behalf of Respondent No.2 to 9 to show a chart which reflects that the value of the land in question was neither undervalued nor inconsistent with the value of other property in the area where land in question was situated. He has also drawn our attention to para 13 page 205 Volume II i.e. part of the company petition filed by the applicant before the NCLT to show that since last about 19 years the company was not earning anything and in para 16 page 206 Volume II it was admitted by the applicant before the NCLT that the theatre was shut down since last 18 years. According to Mr. Gaggar since the company (vendor) was in the need of generating fund for its investment for further earning, the sale of the property in question was in the interest of company and as such on the basis of market value the company (vendor) transferred the property in question to the appellant. According to Mr. Gaggar there is no error in the impugned order.
24
Mr. Ranjit Kumar, learned senior counsel has appeared on behalf of Respondent No.1, who is that applicant before the NCLT. At the very outset he submitted that the Respondent No.1 was having sufficient shareholding for maintaining the company petition under 241, 242. He has drawn our attention to page 231 Volume II i.e. list of shareholder as on 31.3.2021 of Galaxy Cinema Pvt Ltd (Respondent No.2)/vendor. According to Mr. Ranjit Kumar, at least on the date i.e. on 31.3.2021 the applicant (Respondent No.1) was having shareholding of 22.5% and she was entitled to maintain the petition under Section 241 and 242 of the Companies Act. He further raised an objection that appellant is not a registered partnership firm and it is not entitled to file the present appeal. However, such submission is required to be noticed only for its rejection due to the simple reason that neither before the NCLT nor before this Tribunal any specific pleading on this issue has been raised. On the contrary it was asserted by Mr. Dutta that before the NCLT in Company Petition the applicant has arrayed appellant herein as partnership firm. There is no indication as if it was not a registered partnership firm. Mr. Dutta asserted that the appellant is a registered partnership firm.
25
In support of his argument, Mr. Kumar appearing on behalf of Respondent No.1 has drawn our attention to para 5, 12, 14 and 15 of the impugned order and also he has drawn our attention to grounds taken by the applicant before the NCLT at Page 218 to 219 Volume II and highlighted that the husband of the applicant was illegally removed as Director from the company. He has further drawn our attention to Page 32 of the Memo of Appeal and submitted that though alleged sale deed was executed and registered on 13.07.2020, however, rectification of sale deed was done on 2.2.2021. He took a futile stand as if without any Board Resolution sale deed was executed on 13.7.2020. Learned senior counsel tried to develop a case that the sale itself was questionable. He further submitted that name of the vendor company is Galaxdy Cinema Pvt Ltd whereas appellant (vendee) name is Galaxy Enterprise. He tried to persuade as if the appellant and Respondent No.2 company (vendor) are interconnected. However, neither on this point any pleading has been made nor learned counsel for Respondent No.1 had drawn our attention to any other documents to show that the sale transaction was a sham transaction.
26
Learned senior counsel Mr. Ranjit Kumar for Respondent No.1 refuting the argument advanced by Mr. Dutta on the point of jurisdiction of NCLT to examine correctness of the registered sale deed, has argued that there are number of judgments which explain that the NCLT while proceeding in a case filed under Section 241 and 242 of the Companies Act is also competent to examine the correctness of the sale deed and also competent to declare the sale deed as void. In support of his submission he has also placed reliance on number of judgements and he has referred to para 18, 19, 20 of judgement of Hon'ble Delhi High Court in the matter of Dinesh Kumar Vs Sinecure Technocity Pvt Ltd & Ors, para 15 and 16 of Shankar Assana Gaddam Vs Achanak Associates Realtors Pvt Ltd, (2021 (2) Mh.L.J. 159; para 11 and 12 of A Renuga Vs Star Theme Park Pvt Ltd & Ors 2020 SCC Online (NCLAT) 1005 and para 11 and 15.1 of Gangadhar Madupu Vs Katta Corp Pvt Ltd & Ors 2018 SCC Oneline (NCLAT) 227 which are quoted hereinbelow:
Dinesh Kumar Vs Sinecure Technocity Pvt Ltd & Ors "18. Once it is found that NCLT has jurisdiction, the jurisdiction of the Civil Court to determine the matter which the NCLT is empowered to determine would stand excluded under Section 430 of the Act. A co-ordinate bench recently in Sas Hospitality Pvt. Ltd. Vs. Surya 27 Constructions Pvt. Ltd. 2018 SCC OnLine Del 11909 has also held that, (a) NCLT is a Tribunal which has been constituted to have exclusive jurisdiction in the conduct of affairs of companies; (b) it has been vested with powers to pass such order as it may deem fit, to review and also to punish for contempt; (c) NCLT is empowered to oversee and supervise the working of the company and also appoint such persons as may be deemed necessary to regulate affairs of the company; (d) the powers of NCLT are wider than that of the Civil Court; and, (e) the bar under Section 430 is absolute.
19. As far as the judgments cited by the counsel for the plaintiff are concerned,
(i) Dhulabhai Etc. supra was concerned with a suit instead of a writ petition under Article 226 of the Constitution of India impugning the Notifications under the Sales Tax Act on the ground of the same being violative of Article 301 of the Constitution. The suits were opposed inter alia on the ground that vide Section 17 of the Sales Tax Act, the jurisdiction of the Civil Court was barred. It was held that where a liability to tax is created by the statute which gives special and particular remedies against illegal exactions, the remedy contemplated by the statute must be followed and it is not open to the assessee to pursue the ordinary civil process of courts.
However, the question of ultra vires of the statute, is always open to the Civil Court.
The said judgment is found to have no application. The company is a creation of a statute and the rights and liabilities of shareholders of a company are also a creation of a statute and the statute i.e. the Companies Act having provided the remedy for grievances inter se shareholders / directors, I see no reason why the said remedy is not the appropriate remedy especially when care is taken in the statute to ensure that the Tribunal constituted thereunder is entitled to handle what, the Civil Court cannot handle. We are here not concerned with any question of ultra vires of a statute.
(ii) In Rajeshwar Tyagi supra, a shareholder of a company instituted the civil suit challenging the creation by the company of a Trust, to which a large number of shares of the company were transferred and impugning the vires of Section 187B of the Companies Act. It was in this context held that the CLB, being a creature of the Companies Act, could not entertain a challenge to the vires of the statute. The reliance 28 on the said judgment also in this case, where there is no challenge to the vires of any statute, is misconceived.
(iii) In Rajesh Kumar supra, the question before me was whether the suit for recovery of possession of immovable property was with respect to agriculture land, the jurisdiction with respect whereto was barred by the Delhi Land Reforms Act, 1954. There was no clarity on this aspect and in these circumstances, it was held that determination of the said question also requires evidence. However here, the question is whether on the plea of the plaintiff in the plaint itself, the jurisdiction of this Court is barred.
(iv) Himangni Enterprises supra was concerned with arbitrability of a claim of the landlord for eviction of a tenant and also has no application. In any case, the view taken therein has been doubted in Vidya Drolia Vs. Durga Trading Corporation 2019 SCC OnLine SC 358 and the matter referred to the larger bench.
(v) N. Radhakrishnan supra is also about arbitrability of a complicated matter and not concerned with the jurisdiction of the Civil Court.
(vi) Sahara Fabrics Pvt. Ltd. supra holds a suit for declaration of respective shareholding in a company and of illegality of the acts of the purported directors of the company to be maintainable. The question for consideration was, whether remedy of rectification of share register under Section 111 of the Companies Act, 1956 was the appropriate remedy. It was reasoned, that even the CLB when approached for rectification of share register was empowered to relegate the parties to the Civil Court and thus the jurisdiction of the Civil Court could not be said to be barred. Again, the said judgment is in its own facts and which have no application to the present controversy. I may in this context also refer to the dicta of the Supreme Court in Ammonia Supplies Corporation (P) Ltd. Vs. Modern Plastic Containers Pvt. Ltd. (1998) 7 SCC 105 qua Section 111 of the Companies Act, 1956, also holding to the same effect.
(vi) In Premwati supra, the Division Bench of this Court held that since the dispute raised in the suit was of inheritance of shares in a private limited company, it was eminently a dispute of a civil nature and jurisdiction was not barred. 29
(viii) Greenline Transit System Pvt. Ltd. supra was a suit by one Joint Signatory of Account of the company against the other, for injunction restraining deposit of receipts of a contract entered into by the plaintiff in a new bank account of which the former was not a signatory. The suit was held to be maintainable. I may highlight that there were no pleas of oppression and mismanagement.
(ix) Samar Kumar Roy supra was for continuation of a suit for declaration that the marriage between the plaintiff and defendant was not legal and valid by the legal heirs of the plaintiff and has no application to the present controversy.
(x) Dwarka Prasad Agarwal supra was also a suit for eviction filed by a lessor, also a shareholder in the lessee company, for eviction of the other member of the company who had dispossessed him and again, having no application to the present controversy.
20. I may in this context also observe that the question of bar of jurisdiction of the Civil Court would depend upon the nature of the averments in the plaint. If the averments in the plaint, though not using the words mismanagement, prejudicial to interest and oppression, are found to be amounting thereto and the relief sought are also which fall in the domain of Section 442(2) of the Act, the jurisdiction of the Civil Court would be barred." Shankar Assana Gaddam Vs Achanak Associates Realtors Pvt Ltd "15. It is submitted that NCLT can set aside any transfer made by or on behalf of the company only within three months, and not beyond. It is contended that thus the challenge to the sale-deed of the year 2014 cannot be entertained by the NCLT in the company petition, which is filed in the year 2017 and therefore the civil court will have jurisdiction to entertain the said challenge.
16. The contention in my considered view cannot be accepted at this stage in view of the clear provisions of S. 241 / 242 read with S. 430 of the Companies Act, particularly in the context of the reliefs sought before the civil court. It is necessary to note that the challenge to the sale- deed is essentially based on the challenge to the board resolution dated 2 nd February, 2014, which is subject matter of challenge before the NCLT. In any event, the relief sought in prayer 30 clause 23 (b) before the Civil Court, which consists of a challenge to the said board resolution, cannot be entertained by the civil court as it is the NCLT, which can deal with any such challenge. In that view of the matter, I do not find that exception can be taken to the impugned order upholding the objection under S. 9A of the CPC." A. Renuga Vs Star Theme Park Pvt Ltd
11.We have gone through the pleadings of both the parties. We have also observed that Appellant is free to exercise her remedy under the Companies Act, 2013 when the Company law provides for "Oppression and Mismanagement" and hence imposition of costs needs review. It is also evident that the Appellant came to know about the Board Resolution dated 04.09.2014 for the first time when Respondent No.3 has submitted its reply affidavit dated 08.03.2019 and at that juncture the Appellant wish to file a rejoinder affidavit but the NCLT refuse to allow her to do so and subsequently reserved the judgment. Since the Companies Act, 2013 provides for restrictions on powers of the Board to sell or dispose of the whole or substantially the whole of undertaking of the Company; Hence, the approval of shareholders through Extra- Ordinary General Meeting was required for selling the land being substantially the entire Assets of the Company. Extract of Section 180 of the Companies Act, 2013 is given hereunder:
180. Restriction on powers of Board.-- (1) The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:--
(a) to 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 of such undertakings.
Explanation.--For the purposes of this clause,--
(i) ―undertaking shall mean an undertaking in which the investment of the company exceeds twenty per cent. of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which generates twenty per cent. of the total income of the company during the previous financial year;
31
(ii) the expression ―substantially the whole of the undertaking‖ in any financial year shall mean twenty per cent. or more of the value of the undertaking as per the audited balance sheet of the preceding financial year;
(b) to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation;
(c) to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company's bankers in the ordinary course of business:
Provided that 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 monies by the banking company within the meaning of this clause.
Explanation.--For the purposes of this clause, the expression ―temporary loans 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 financial expenditure of a capital nature;
(d) to remit, or give time for the repayment of, any debt due from a director.
(2) Every special resolution passed by the company in general meeting in relation to the exercise of the powers referred to in clause (c) of sub-section (1) shall specify the total amount up to which monies may be borrowed by the Board of Directors.
(3) Nothing contained in clause (a) of sub-section (1) shall affect-
(a) the title of a buyer or other person who buys or takes on lease any property, investment or undertaking as is referred to in that clause, in good faith; or 32
(b) the sale or lease of any property of the company where the ordinary business of the company consists of, or comprises, such selling or leasing.
(4) Any special resolution passed by the company consenting to the transaction as is referred to in clause (a) of sub-section (1) may stipulate such conditions as may be specified in such resolution, including conditions regarding the use, disposal or investment of the sale proceeds which may result from the transactions:
Provided that this sub-section shall not be deemed to authorise the company to effect any reduction in its capital except in accordance with the provisions contained in this Act. (5) No debt incurred by the company in excess of the limit imposed by clause (c) 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.
Section 241 and 242 of the Companies Act, 2013 are given hereunder:
PREVENTION OF OPPRESSION AND MISMANAGEMENT
241. Application to Tribunal for relief in cases of oppression, etc.-- (1) Any member of a company who complains that--
(a) the affairs of the company have been or are being conducted in a manner prejudicial to public interest or in a manner prejudicial or oppressive to him or any other member or members or in a manner prejudicial to the interests of the company; or
(b) the material change, not being a change brought about by, or in the interests of, any creditors, including debenture holders or any class of shareholders of the company, has taken place in the management or control of the company, whether by an alteration in the Board of Directors, or manager, or in the ownership of the company's shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to its interests or its members or any class 33 of members, may apply to the Tribunal, provided such member has a right to apply under section 244, for an order under this Chapter.
(2) The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner prejudicial to public interest, it may itself apply to the Tribunal for an order under this Chapter.
242. Powers of Tribunal.-- (1) If, on any application made under section 241, the Tribunal is of the opinion--
(a) that the company's affairs have been or are being conducted in a manner prejudicial or oppressive to any member or members or prejudicial to public interest or in a manner prejudicial to the interests of the company; and
(b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Tribunal may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. (2) Without prejudice to the generality of the powers under sub-section (1), an order under that subsection may provide for--
(a) the regulation of conduct of affairs of the company in future;
(b) the purchase of shares or interests of any members of the company by other members thereof or by the company;
(c) in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital;
(d) restrictions on the transfer or allotment of the shares of the company;
(e) the termination, setting aside or modification, of any agreement, howsoever arrived at, between the company and the managing director, any other director or manager, upon such terms and conditions as may, in the opinion of the Tribunal, be just and equitable in the circumstances of the case;
34
(f) the termination, setting aside or modification of any agreement between the company and any person other than those referred to in clause (e): Provided that no such agreement shall be terminated, set aside or modified except after due notice and after obtaining the consent of the party concerned;
(g) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under this section, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference;
(h) removal of the managing director, manager or any of the directors of the company;
(i) recovery of undue gains made by any managing director, manager or director during the period of his appointment as such and the manner of utilisation of the recovery including transfer to Investor Education and Protection Fund or repayment to identifiable victims;
(j) the manner in which the managing director or manager of the company may be appointed subsequent to an order removing the existing managing director or manager of the company made under clause (h);
(k) appointment of such number of persons as directors, who may be required by the Tribunal to report to the Tribunal on such matters as the Tribunal may direct;
(l) imposition of costs as may be deemed fit by the Tribunal;
(m) any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be made. (3) A certified copy of the order of the Tribunal under sub- section (1) shall be filed by the company with the Registrar within thirty days of the order of the Tribunal.
(4) The Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company's affairs upon such terms and conditions as appear to it to be just and equitable. 35
(5) Where an order of the Tribunal under sub-section (1) makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of this Act, the company shall not have power, except to the extent, if any, permitted in the order, to make, without the leave of the Tribunal, any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles. (6) Subject to the provisions of sub-section (1), the alterations made by the order in the memorandum or articles of a company shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of this Act and the said provisions shall apply accordingly to the memorandum or articles so altered. (7) A certified copy of every order altering, or giving leave to alter, a company's memorandum or articles, shall within thirty days after the making thereof, be filed by the company with the Registrar who shall register the same.
(8) If a company contravenes the provisions of sub-section (5), the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.
12.From the above provisions of Companies Act, 2013, it is very much evident that Members are free to file a petition/application if he or she is adversely affected or the interest of the Company is prejudicially affected, he or she is authorized to file petition/application under the Companies Act, 2013. The NCLT/NCLAT is the specialised agency to look into the impact on the members/company. Hence, there is a need to provide proper opportunity to the aggrieved members to present the genuineness or otherwise of the documents in relation to the provisions of Section 241 of the Companies Act, 2013. We are not passing any comment on the merit of the case. However, we are remanding back the matter for appropriate consideration by the NCLT, Chennai Bench. NCLT, Chennai Bench will after giving the proper opportunities to parties to pass fresh order without influenced by the earlier orders. No order as to costs."
Gangadhar Madupu Vs Katta Corp Pvt Ltd 36
11. The Original Petitioner - Respondent No.1 in CA 409 of 2017 had then argued through counsel. According to counsel for Original Petitioner, the only ground pressed by the Respondent No.8 in NCLT was that NCLT did not have the jurisdiction to deal with the issue and the matter should go to Civil Court. According to the counsel, the documents pointed out at Pages - 134, 136 and 139 referred to by the counsel for Original Respondent No.8 were not before the NCLT and these have been simply filed in the appeal without explaining as to why they were not filed before NCLT. It is also argued that these documents are subsequently obtained and cannot be relied on to say that there was due diligence on the part of Respondent No.8. According to the learned counsel for Original Petitioner, Respondent No.8 has not shown that it had taken out revenue extracts before purchasing the property or that it had given any newspaper publication to check if there were any claims. The argument is that Respondent No.8 being a partnership dealing with real estate would know as to what are the documents required to be checked and how to verify transferable title and encumbrance and the very fact that such exercise was not conducted shows that this Respondent did not act with due diligence and cannot claim to be bona fide purchaser for value. The vendor of Respondent No.8, i.e. Respondent No.7 - Gade Saraswathi Devi did not have a title as the record shows. The counsel referred to the sale deed whereby Respondent No.2 transferred the property of the company in favour of Respondent No.7 which sale deed is at Page - 90 (CA 409 of 2017) to show that the sale deed purported that the vendor has received consideration of Rs.1,20,00,000/- which is contrary to the pleadings of these parties before NCLT (Counsel referred to Para - 3(v) of Impugned Order which we have already reproduced) where the Respondents claimed that they entered into exchange of property with Respondent No.7. The argument is that the Company neither received land in exchange nor the consideration which is shown in the sale deed which was bogus. According to the counsel when admittedly Respondent No.2 was no more a Director and it is claimed that he had resigned on 24.08.2015, he could not have executed the sale deed on 3rd November, 2015. The counsel claimed that admittedly this Respondent No.2 - Katta Jagadeesh had not only resigned but also was disqualified Director having been convicted.
15.1 Going through the above reasonings of the learned NCLT and the submission now made before us, we do not find that any grounds have been raised or documents shown to find fault with the reasoning so as to interfere with these findings. When major part of property of the Company has been shown as sold off by 37 Respondent No.2 who had tendered Company Appeal (AT) No.3 of 2018 and 409 of 2017 resignation as Director but went ahead to execute the sale deed, there was oppression and mismanagement on the part of Respondents 2 to 4. Respondent No.7 was mother- in-law of Respondent No.3 who is brother of the Respondent No.2. Looking to such relationship of these parties and the fact that it is Private Limited Company, keeping in view the contradictory pleadings claiming exchange viz-a-viz the sale deed claiming that money had been paid, the transaction in favour of Respondent No.7 was apparently suspicious and transfer without authority. Respondent No.2 could not have passed title to Respondent No.7. If Respondent No.7 did not have legal title, she could not pass it to Respondent No.8. Respondent No.8 failed to verify if his vendor had duly acquired title and thus failed to act reasonably to show bona fides. The learned NCLT rightly set aside both the sale deeds dated 3rd November, 2015 and 4th November, 2016. Learned senior counsel for Respondent No.1 by way of placing heavy reliance on aforesaid judgements has argued that the learned NCLT is well competent to declare the sale deed in the present case as void. He further submits that in case of disposal of the assets/disposal of the company's property, it was required by the company to take consent of the shareholders. However, neither consent of R1 was obtained nor even she was intimated regarding the proposed transfer. In sum and substance, it has been argued that NCLT has rightly passed the interim order and entire matter is sub- judice before NCLT for its final adjudication.
Besides hearing learned counsel for the parties we have perused the material available on record. At the time of hearing from both the 38 sides emphatic argument was advanced on the point of jurisdiction of NCLT particularly to the extent of examining sale deed in question by the NCLT. However, we think that learned counsel for the both the parties oblivitious of the fact that the present appeal was confined to an interim order, i.e. status quo order, even then learned senior counsel of both the sides had taken precious time of the Court on the issue which is secondary in the present context. In any event while we are examining correctness of the interim order, we are not expected to record any finding, which may affect either of the party in a proceeding which is pending before NCLT. Admittedly the company petition filed under Section 241 and 242 of the Companies Act is pending before NCLT. Accordingly, we are of the opinion that we may not record any finding either in favour of the sale deed executed in question or against the said transaction. If we record such finding it will amount to usurping the jurisdiction of the NCLT. However, we are only required to examine as to whether in the facts and circumstances it was permissible to grant an ad interim injunction in favour of the applicant by the NCLT. Whether NCLT was correct in directing Respondent 1 to 9 to maintain status quo relating to remaining 227 units by not creating any third party 39 interest and not to carry on work construction beyond 302 until disposal of the main company petition or not?"
In view of facts and circumstances which has emerged from the record as well as on the basis of argument advanced by the party it is not in dispute that in respect of the open land a registered sale deed was executed by the company (vendor) after receipt of payment of total consideration amount of Rs.6 crore. From the order impugned it is reflected that NCLT at least at the time of passing interim impugned order has not accepted the valuation report of the private valuer and recorded that the land was sold to the price fixed as per ready reckner rates fixed by the Govt of Gujarat properties situated in that area. Meaning thereby that the contention of the applicant before the NCLT regarding undervalued sale was not accepted by the NCLT for passing ad interim order. It is also not reflected as to any question was raised that the appellant had not purchased the land in good faith, rather the transaction appears to have been done in good faith by the appellant. It is also not disputed that the (i) sale deed was registered on 13.7.2020; (ii) the pleading that after registration permission was obtained from competent 40 authority for construction of the building; (iii) approval of the plan and mortgaging of the land for obtaining loan; (iv) thereafter almost completion of the project by way of construction of above 302 units;(v) creation of third party right since 61 persons had already purchased the unit; and (vi) NOC for another 14 purchasers from the Bank was received. In such a situation it was not permissible for the NCLT to pass an order affecting the right of the appellant as well as affecting right of those persons who were neither arrayed as party in the petition before NCLT nor they were noticed.
The interim relief which was sought for by the applicant before the NCLT was not needed to be entertained by the NCLT. On perusal of the language of the interim relief it is evident that the applicant was under impression as if some construction on land was going to be done by the appellant herein whereas facts noticed hereinabove makes it clear that construction over the land was almost complete and some of third party right was also created. Such circumstances are sufficient to draw an inference that balance of convenience was completely against the applicant and in absence of balance of convenience the learned NCLT has committed error in passing the 41 order of status quo restraining appellant from either creating any third party right or carrying any construction work. If we allow the status quo order to continue, there is every possibility of irreparable loss to the appellant and also some other proposed purchasers who had entered into agreement for purchasing the units in the premises in question which has been constructed over the land. If we allow the impugned order to continue, certainly the persons who have entered into agreement with the appellant for purchasing the units and also paid to the appellant may also suffer irreparable loss. We are not sure of the possibility that some of purchasers might have obtained loan for purchasing the unit. If status quo is not vacated, unnessarily those proposed purchasers may be constrained to make payment of EMI without immediately enjoying physical possession of the unit in question. In such a situation we are of the considered opinion that besides suffering of the appellant, others who are not party before the NCLT may also suffer which would not be in accordance with law.
In view of the facts and circumstances we are of the opinion that learned NCLT by the impugned order i.e. direction to respondents 42 particularly the appellant herein for maintaining status quo relating to remaining 227 units by not creating any third party interest or no construction beyond 302 units till disposal of the main CP has to go and as such the impugned order is hereby set aside. We may clarify that whatever observations we have recorded may not be taken note of by the NCLT while proceeding with the main case. We have passed order only to the extent of setting aside of status quo order which was obviously affecting the right of the appellant as well as some other persons who were not even party before the NCLT or even before this NCLAT. The appeal stands allowed, however, without costs.
(Justice Rakesh Kumar) Member (Judicial) (Dr. Alok Srivastava) Member (Technical) Bm