Company Law Board
Vijayawada Share Brokers Limited vs D. Ramkishore And Ors. on 7 February, 2003
Equivalent citations: [2004]120COMPCAS125(CLB), [2003]45SCL1(CLB)
ORDER
K.K. Balu, Member
1. This is an application filed by M/s. Vijayawada Share Brokers Limited ("the Company"), being the first respondent in the Company Petition under Rule 44 of the Company Law Board Regulations, 1991 seeking permission of this Bench to execute and register the sale deed in respect of about 74 sq. yard of the land situate at Old Municipal Ward No. 23, New Municipal Ward No. 27, Revenue Ward No. 16, NTS No. 9, Maruthi Nagar Vijayawada ("the Property") in favour of Shri G. Ramesh ("the Purchaser") or his nominee.
2. The facts, in brief, are that the petitioners in the Company Petition filed under Section 397 and 398 of the Companies Act, 1956 ("the Act") have alleged various acts of oppression and mismanagement in the affairs of the Company. According to the petitioners, the Company is taking steps to sell its land and has already sold a part of the land. In the circumstances, the petitioners sought for an interim order restraining the Company from selling the land till disposed of the Company Petition. However, the respondents opposed the prayer of the petitioners on the ground that the Company has already sold nearly 500 sq. yard of the land and that further entered into an agreement with a third party for sale of nearly 100 sq. yard. After hearing both Counsel for the petitioners and the Company, this Bench by an order dated 08.11.2002 directed the Company and the other respondents in the Company Petition to maintain status-quo in regard to the properties held by the Company, granting liberty in favour of the Company to seek sanction of this Bench before effecting sale of 100 sq. yard. The Company has now, pursuant to the aforesaid order of this Bench, come out with the present application.
3. According to Shri T.K. Seshadri, Counsel appearing for the Company, the proposal for sale of the land belonging to the Company was approved at the annual general meeting of the Company held on 30.09.1998 and the Board of Directors of the Company was authorized to sell a part of or whole of the land. The second petitioner is a party to the resolution passed at the annual general meeting of the Company held on 30.09.1998. According, the Company has been taking steps for sale of the land and in fact entered into an agreement on 02.06.2001 (page 402 of Counter in Company Petition) with the Purchaser for sale of 600 sq. yard for a consideration of Rs. 13.20,000 and received an advance payment of Rs. 2.40 lakhs. In this connection, Shri Seshadri referred to copies of the relevant extract from the Ledger Account of the Company; statement of account maintained with Canara Bank and the balance sheet for the year ended 31.03.2002 of the Company (page 314 of Counter in Company Petition) reflecting the advance payment received by the Company against sale of the land. Pursuant to the agreement of sale dated 02.06.2001, the Company made applications seeking permission of the Competent Authority under the Urban Land (Ceiling and Regulation) Act, 1976 to sell the land. After obtaining the requisite permission, the Company had executed and registered four sale deeds, out of which two sale deeds are dated 08.04.2002 and the remaining two sale deeds are dated 12.09.2002 covering an extent of abut 500 sq.yard in favour of (1) G. Bhima Lingeswara Rao, S/o Deen Dayal, (2) G.N. Chandra Sekhar, S/o Bhima Lingeswara Rao, (3) G. Ravi Dayal, S/o Bhima Lingeswara Rao & (4) G. Ramesh, S/o Bhima Lingeswara Rao ("the Purchasers), who are nominees of the Purchaser in accordance with the endorsement contained in the agreement dated 02.06.2001 (page 407 of Counter in Company Petition). The Competent Authority has also accorded permission in its letter dated 13.11.2002 (page 410 of Counter in Company Petition) for sale of 74 sq. yard, being the remaining extent covered by the agreement dated 02.06.2001 and the permission is valid for a period of three months from the date of issue of the order. In view of this, if the Company fails to execute and register the sale deed for 74 sq. yard of the land before 12.02.2003, it will amount to breach of contract for which the Company will be exposed to legal action at the instance of the Purchaser. Moreover, the Company is in dire need of the sale proceeds amounting to about Rs. 1,62,000 due from the Purchaser to meet the expenses on account of salary which remains unpaid to its employees since December, 2001. Shri Seshadri emphasized that in the absence of sale of 74 sq. yard, the Purchasers under the four sale deeds mentioned elsewhere cannot have access to their portion of the land. He further pointed out that the interim reliefs sought by the petitioners restraining the respondents from selling, alienating and dealing with the immovable properties of the Company and further from handing over the possession of the immovable properties already sold are not in consonance with the main prayer made in the Company Petition to restrain the respondents from entering into or handing over possession of the immovable properties. The interim prayers, he contended, must being conformity with the main reliefs.
4. Shri V.S. Raju, while opposing the application has submitted that the Company has failed to implead respondents 2 to 6 in the application and hence the application is liable to be dismissed in limni.
Shri Raju, before arguing the application on merits, has pointed out that the Company allowed the purchasers of 496.12 sq. yard of the land to tresspass and construct a boundary wall in the Company's land in violation of the order dated 08.11.2002 of this Bench, for which the petitioners will initiate contempt proceedings against the Company. The illegal construction made on the Company's land has been subsequently removed through the intervention of the Police authorities.
According to Shri Raju, the agreement dated 02.06.2001 has been created subsequent to filing of the Company Petition and is fictious and not valid in law for the following reasons:-
* The agreement is not signed by the Purchaser.
* The endorsement made at the bottom of the agreement (at page 407 of Counter in Company Petition) is neither dated nor signed on behalf of the Company.
* The agreement is silent about the dimensions or particulars of the plot intended to be sold.
* While the stamp papers containing recitals of the agreement were purchased on 25.09.1995, by Shri K. Siva Rao on behalf of the Company, the agreement was purported to have been executed only on 02.06.2001, when the Company did not own the land.
* The agreement of sale has not been registered as required under the provisions of Section 17(1)(g) of the Registration Act, 1908.
* The agreement is valid for a period of three months and becomes unenforceable after expiry of the period of three months.
* The four sale deeds dated 08.14.2002 and 12.09.2002 registered by the Company in favour of the Purchasers do not refer to the agreement.
Shri Raju pointed out that the extract from the Ledger Account and the statement of account do not indicate the details of the land. The entires relating to the advance payment are only book entires. The sale proceeds of the land received under the sale deeds dated 08.04.2002 & 12.09.2002 have already been utilized by the Company for its sister's concern and there is no necessity on the part of the Company for any funds. Shri Raju further pointed out that the Company has not furnished the full details regarding the extent of the land held by it. The Company will not be in any way prejudiced on account of non-execution and registration of the sale deed in relation to 74 sq. yard of the land. If the sale is effected it will be detrimental to the interests of the Company and its shareholders. The agreement of sale lacks bonafides and only benefits the respondents. For these reasons, Shri Raju sought for dismissal of the application.
5. Shri Seshadri in his reply has urged that the legalities of the agreement dated 02.06.2001 need not be looked into the this Bench, especially when the parties are willing to act upon the agreement and accordingly sell the remaining extent of the land. He emphasized that the permission granted by the Urban Ceiling Authority will amply prove the agreement entered into between the parties for sale of the land. The Company had already executed four sale deeds covering an extent of 496 sq. yard, pursuant to the agreement. The Property in respect of which the Company is obliged to execute and register the sale deed accounts for less than 0.2 per cent of the remaining extent held by the Company and, therefore, the same will not in any way prejudice the interest of the Company or its shareholders. Before concluding his submissions, Shri Seshadri pointed out that the petitioners cannot challenge the agreement invoking the provisions of Section 402(e) and 402(f) without notice to the Purchaser and that the Purchaser must be heard before the grant of any relief. He, therefore, sought permission of the Bench of execute and register the sale deed in respect of the property.
6. I have considered the elaborate arguments advanced by Counsel for the applicant as well as the respondents.
The Company is the first respondent in the Company Petition. The second respondent is Chairman and Managing Director and the respondents 3 to 6 are directors of the Company. The application has been made by the Company. As the Company is competent to make the application, the other respondents in the Company Petition need not be made parties to the application. Therefore, the plea of the respondents that the application is bad for non-joinder of necessary parties must fail.
While Shri T.K. Seshadri contends that the Company is obliged to execute and register the sale deed in respect of the Property in accordance with the agreement dated 02.06.2001, it is stoutly contended by Shri Raju that the agreement is a fictitious one.
The claim of the Company that the proposal for sale of the land was approved at the annual general meeting of the Company held on 30.09.1998 and that the Board of Directors of the Company was authorized to sell a part of or whole of the land has not been refuted by the applicants. The business wisdom of the shareholders is supreme and their decisions to sell the land of the Company cannot be interfered for the following reasons:-
The main grievance of the applicant, according to Shri Raju, is that the agreement is not valid for the various reasons enumerated by him, which in may considered view, do not arise in the present proceedings. A careful consideration of the entire facts and circumstances of the case show that the Company had received the cheque No. 90417 for Rs. 2,40,000/- on 11.06.2001 from the Purchaser towards advance and that the said cheque was realized on 13.06.2001 by the Company, as borne out by the extract from the Ledger Account of the Company and the statement of account for the period from 12.06.2001 to 18.06.2001 maintained with Canara Bank. The amount of advance of Rs. 2,40,000 received against sale of the land is reflected in the balance sheet of the Company for the year ended 31.03.2002 (page 314 of counter in Company Petition). The Company made an application on 15.02.2002 before the Urban Land Ceiling Authority seeking permission for sale of 496.12 sq. yard in favour of the Purchasers. The Competent Authority by its communication dated 28.03.2002 gave permission to sell 496.12 sq. yard in favour of the Purchasers. The Company after obtaining permission of the Urban Land Ceiling authority sold 496.12 sq. yard in favour of the Purchasers. Again the Company made an application on 01.10.2002 before the Urban Land Ceiling authority for sale of 74 sq. yard in favour of the Purchaser, upon which the Competent Authority by its communication dated 13.11.2002 (Page 410 of Counter in Company Petition) accorded the requisite permission. Admittedly, the Company has not sold any of its other immovable properties, in which case, the advance payment of 2,40,000 reflected in the balance sheet of the Company for the year ended 31.03.2002 must necessarily be in respect of the land covered by the agreement dated 02.06.2001. This chain of events clearly indicate that the Company has been taking steps since June, 2001 for sale of its land. At this juncture, it is relevant to observe that it was neither argued nor established that the Property is being sold for a price below the market rate, though it is subsequently contended in written submissions filed on behalf of the applicants that the Company is trying to alienate the Property at a depressed price. Admittedly, the Property in question represents less than two per cent of the balance of the land held by the Company. It is also not disputed by Counsel for the respondents that without the 74 sq. yard, the Purchasers under the sale deeds dated 08.04.2002 and 12.09.2002 cannot have access to their portion of the land. Considering the facts and circumstances of the case in totality, I am of the considered view that the Company has prima-facie made out case for sale of the Property and that balance of convenience is in favour of the Company. For these reasons, I am inclined to permit the Company to execute and register the sale deed in respect of 74 sq. yard of the land in favour of the Purchaser as sought in the application. However, if it is established in the Company Petition that the Property has been under valued, this Bench will consider granting appropriate relief in exercise of its powers under Section 402(f). Accordingly, the application is allowed, however, subject to outcome of the Company Petition.