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• The board of directors at its first meeting held immediately after incorporation of the Company, on 12.06.2004 (a) approved the opening of bank account; (b) approved the pre-incorporation arrangement; (c) decided to reduce the pre-incorporation agreement in writing with the second petitioner and K. Madhu; (d) decided to register the property in the name of the Company; (e) authorised the respondent Nos. 1 & 2 to complete the formalities in connection with execution of the sale deed concerning the property; and (f) appointed the auditor. Accordingly, a Memorandum of Understanding came to be executed on 20.06.2004, between the parties, wherein the Company acknowledged the payment of monies by the second petitioner in favour of the third respondent for purchase of the property, pending registration in the name of the Company. This was followed by a deed of sale executed on 28.06.2004 in favour of the Company by the third respondent, represented by V. Srinivasa Raju, one of the partners of the firm. By virtue of Sections 19 & 21 of the Indian Partnership Act, 1932 an individual partner can carry on the business of the firm and his acts are binding on the firm and its partners. Therefore, the execution of the sale deed by V. Srinivasa Raju, one of the partners is binding on the firm and other partners. However, the validity of the execution of the sale deed does not arise for adjudication in the present proceedings. If the sale deed is void, as claimed by the third respondent, it should have got the same declared as void by a competent civil court. Any declaration by way of the cancellation deed that the sale deed is void, is not permitted under law. Furthermore, if the cancellation deed is not supported by any consideration, such cancellation deed will be void ab initio.Therefore the execution of the cancellation deed by the respondent nos. l & 2, assuming the power of the civil court is untenable in law. At the board meeting held on 12.10.2004, (a) the petitioner Nos. 2 & 3 were appointed as additional directors of the Company; and (b) the petitioner Nos. 2 & 3 were allotted 2,50,000 equity shares and 50,000 equity shares of Rs. 10/-each respectively. The respondent Nos. 1 & 2 are parties to the resolutions passed at the board meeting held on 12.10.2004. One Dorarajulu Naidu, Advocate & Notary Public, participated as an invitee in the board meeting and signed the minutes of the board meeting. Form No. 2 and Form No. 32 have been filed establishing the allotment of shares in favour of the petitioner Nos. 2 & 3 and their appointment as additional directors of the Company. The appointment of the petitioner Nos. 2 & 3 as additional directors and allotment of shares made in their favour at the board meeting held on 12.10.2004 are not challenged by the respondent Nos. 2 & 3 in any forum. Hence, the respondent Nos. 2 & 3 cannot question the allotment of shares in favour of the respondent Nos. 2 & 3 and their appointment as additional directors of the Company. The letters dated 14.10.2004 addressed to the petitioner Nos. 2 & 3 by the first respondent confirm the appointment of the petitioner Nos. 2 & 3 as additional directors at the board meeting held on 12.10.2004. The petitioner Nos. 2 & 3 assumed charge as directors at the board meeting held on 25.11.2004. At the subsequent board meeting held on 15.12.2004, H.M. Venkatesh and K.V.R. Charan were appointed as additional directors. The respondent Nos. 1 & 2 conspicuously did not attend these board meetings, but subsequently started disputing the appointment of additional directors and allotment of shares in favour of the petitioner Nos. 2 & 3. When the original minutes book containing the board resolutions produced, it was vehemently opposed by the respondents on 14.10.2005 and therefore, the petitioners cannot now be found fault for non-production of the minutes book.
• The petitioner Nos. 2 & 3 are son and daughter of V. Srinivasa Raju, who is one of the partners of the third respondent firm. The property has been absolutely held by the third respondent and is in its enjoyment. While the second petitioner is party to the MOU dated 20.06.2004 the respondent Nos. 2 & 3 are not parties to the MOU. The MOU not having been approved by the board of directors is not binding on the Company or the respondent Nos. 1 & 2.
• The MOU is a self-serving document and no such MOU has been executed between the parties acknowledging receipt of the payments purportedly made by the second petitioner for purchase of the property in the name of the Company. The second petitioner has not paid any amount to the third respondent pending registration of the sale deed. There was no arrangement to register the property in the name of the Company, as and when incorporated in future. The consideration by way of demand drafts and cash referred to in the sale deed dated 28.06.2004 was paid to the individual partners and not in favour of the third respondent firm and therefore, there was no occasion to misappropriate the sale consideration by the third respondent. The consideration disclosed in the sale deed is sham and nominal. Any contract without consideration in terms of Section 25 of the Indian Contract Act is not valid. The sale deed does not reveal any authority given in favour of V. Srinivasa Raju by the remaining partners of the third respondent firm for registering the property in favour of the Company. The sale of the property is a collusive transaction between the Company and V. Srinivasa Raju, who has no, either express or implied authority to transfer the property of the firm as contemplated under the provisions of the Indian Partnership Act to execute any sale deed in favour of the Company. The partnership deed provides that all partners must jointly carry on the affairs of the third respondent partnership. Hence, V. Srinivasa Raju cannot convey any valid title in respect of the property in favour of the Company. The valuable asset of the third respondent has been hijacked by Srinivasa Raju in collusion with his children and other directors of the Company. The sale deed executed by V. Srinivasa Raju is a nullity in law and not binding on the third respondent, forcing the third respondent to execute the cancellation deed dated 02.02.2005, in accordance with law and the established procedures and systems. If an instrument is void, it need not be cancelled. The sale deed executed by V. Srinivasa Raju in favour of the Company, being void abinitio,the CLB cannot adjudicate the validity of the sale deed and can only be challenged in a competent civil court. The CLB has no jurisdiction under Section 402 to grant any relief affecting the right of the third respondent, being a third party in relation to the affairs of the Company. The allegation of collusion, fraud and other improper conduct with reference to the third party cannot be raised before this forum. The grievances in relation to the cancellation deeds are past transactions and not amenable to the jurisdiction of Sections 397 &. 398.
• V. Srinivasa Raju has filed a civil suit against the other partners for rendition of accounts,. but the Company is not a party to the said proceeding. In the meanwhile, Vasudevan filed before the Court of Additional City Civil Judge, Bangalore, an arbital application under Section 9 of the Arbitration and Conciliation Act, 1996, seeking for interim prayer against V. Srinivasa Raju. by contending that there is an arbital dispute. All disputes in relation to execution of the sale deed 28.06.2004 and various cancellation deeds, agitated before the CLB have been raised before the City Civil Judge Court, wherein an order directing both the parties not to alienate the property has been passed. Both the parties filed first appeal in MFA No. 10491 of 2005 and MFA No. 10800 of 2005 before the High court of Karnataka. V. Srinivasa Raju's appeal was rejected and the order of the City Civil Judge Court is confirmedjo the extent of interim order against V. Srinivasa Raju. V. Srinivasa Raju has filed a special leave petition before the Supreme Court and obtained an order of stay. Shri T.K. Seshadri, learned senior Counsel pointed out that the High Court held that the sale deed dated 28.06.2004 in favour of the Company is void. Hence, the plea of the petitioners in regard to execution of the sale deed and various cancellation deeds must be rejected in limine.The proceedings in MFA No. 10491 of 2005 and MFA No. 10800 of 2005 before the High Court and the reliefs claimed therein are the same as in the second petition and therefore, the CLB cannot deal with the disputes relating to the property as well as the intense disputes between the partners.

7. I have considered the elaborate arguments - oral and written - advanced on behalf of the parties. The issues, which rise for my consideration, are whether the acts complained of in these company petitions do warrant interference of this Bench and if so, what are the appropriate remedies to regulate the future affairs of the Company. The main grievances, according to the petitioners, are on account of the execution of (a) deed of cancellation dated 02.02.2005 executed by the Company represented by the respondent Nos. 1 & 2; (b) deed of cancellation/rectification dated 07.07.2005 executed by the third respondent represented by V.Srinivasa Raju and the Company through one H.M. Venkatesh; and (c) deed of cancellation dated 10.08.2005 entered into between the third respondent and the Company represented by the respondent Nos. 1 & 2. A lot of controversies have been raised on the validity or otherwise of the sale deed as well as the various cancellation deeds discussed supra. By virtue of the memorandum of understanding dated 07.02.2001, executed between the partners of the third respondent firm and the second respondent, it has been agreed that the latter would pay to the partners of the third respondent an amount of Rs. 3.40 crores to induct himself and his nominees to the third respondent and further paid an amount of Rs. 4.25 lakhs by way of demand drafts to each of the partners of the third respondent, receipt of which has been acknowledged by them. The balance consideration of Rs. 3.23 crores, was agreed to be paid by the second respondent as specified in Clause 7 of the memorandum of understanding, upon which the partners shall execute necessary documents to induct the second respondent and his nominees to the third respondent firm as partners and shall immediately thereafter retire from the third respondent firm to enable the second respondent and his nominees to enjoy exclusively the properties of the third respondent. It is explicitly agreed that the second respondent and his nominees must be inducted to the third respondent as partners on complying with his obligations of making payment of an amount of Rs. 3.40 crores, in terms of Clause 5 of the memorandum of understanding. The third respondent allegedly failed to act in strict compliance with the memorandum of understanding, compelling the second respondent to file civil suit in O.S. No. 184 of 2002 on the file of the court of Civil Judge, Bangalore restraining the third respondent from alienating or: encumbering the property in any manner in favour of third parties. However the respondent Nos. 2 & 3 reached a memorandum of understanding whereby the third respondent acknowledged receipt of the further payment of Rs. 1.76 crores made by the second respondent who in turn further agreed to pay the balance of sale consideration in conformity with the memorandum of understanding dated 07.02.2001. Accordingly a compromise decree came to be passed in O.S.No. 184 of 2002 on 27.09.2003 pursuant to which, it is reported that the third respondent delivered possession of the property to the second respondent and further undertook not to encumber the property in any manner in favour of any third parties. The petitioners have produced a letter dated 12.05.2004 purportedly written by the second respondent requesting the third respondent to register the property in favour of the Company. The genuineness of this letter is seriously disputed by the second respondent by pointing out the fact that the Company was not in existence on 12.05.2004, but it was incorporated only on 11.06.2004. In the meanwhile, the Company represented by the first petitioner entered into a memorandum of understanding dated 20.06.2004 with the second petitioner setting out certain terms and conditions essentials of which are- (a) The Company acknowledged that a sum of Rs. 1.50 crores was paid by the second petitioner to the partners of the third respondent on 06.02.2003 by way of fifteen demand drafts and further a sum of Rs. 22.17 lakhs by cash to the third respondent on various dates; (b) The aforesaid payment made by the second petitioner shall be treated as payment made on behalf of the Company as sale consideration to the owners of the property; (c) The Company shall allot equity shares in favour of the second petitioner and or its nominees in consideration of the aforesaid amount by the second petitioner to the owners of the property, as per clause III(B) 10 of the memorandum of association of the Company. Thereafter, the third respondent represented by V. Srinivasa Raju executed the sale deed on 28.06.2004 in respect of the property for Rs. 1,76,42,000/- in favour of the Company represented by the respondent Nos. 1 & 2. The sale deed acknowledges receipt of a total payment of Rs. 1,76,42,000/- (Rs. 1,54,25,000/- by way of demand drafts and Rs. 22,17,000/-by way of cash), which are found reflected in the compromise decree in O.S. No. 184 of 2002 reached between the respondent Nos. 2 & 3.S. Vasudevan, representing the third respondent lodged on 19.07.2004 a police complaint on among other grounds that three of the partners of the third respondents never authorised V. Srinivasa Raju to execute any sale deed in favour of the Company and that the Company did not pay any consideration towards purchase of the property and it could not have paid the amount in the year 2001 or 2003, when the Company itself was formed only in June, 2004. The third respondent firm and three of its partners filed civil suit in O.S. No. 5462 of 2004 before the Court of City Civil Judge, Bangalore for declaration that the sale deed dated 28.06.2004 registered in the name of the Company is illegal, null and void and not binding on the third respondent firm. The Company contended in the civil suit that V. Srinivasa Raju executed the sale deed, as a partner of the third respondent firm with the consent of all partners. The partners of the third respondent received the sale consideration by way of demand drafts and cash from the second respondent, who instead of acquiring the property in his name absolutely, after retirement of each partner, as agreed under the memorandum of understanding, got the property registered in the name of the Company. In the meanwhile, the Company represented by the respondent Nos. 1 & 2 executed a deed of cancellation dated 02.02.2005 cancelling the sale deed dated 28.06.2004, upon which, the civil suit in O.S. No. 5462 of 2004 came to be dismissed on 07.02.2005 as withdrawn by. the third respondent. Thereafter, the Company represented by the first petitioner along with the first petitioner filed civil suit in O.S. No. 469 of 2005 before the Court of City Civil Judge, Bangalore challenging the cancellation deed dated 02.02.2005 executed by the respondent Nos. 1 & 2 and sought for an order of permanent injunction restraining the respondent Nos. 1 to 3 from interfering in peaceful possession and enjoyment of the property. However, this civil suit also came to be withdrawn on 24.05.2005. A careful consideration of the sequence of events leading to the execution as well as the cancellation of the sale deed in respect of the property reveals serious controversies in terms of the claim and counterclaim of the parties. The first memorandum of understanding dated 07.02.2001 does not speak about the role of the petitioner Nos. 2 & 3 in extending financial assistance for purchase of the property, or pre-incorporation arrangement, or purchase of the property in the name of the Company on its incorporation, or the allotment of shares in favour of the petitioner Nos. 2 & 3 in lieu of their contribution towards purchase of the property. The petitioner Nos. 2 & 3 are neither parties to the memorandum of understanding. The memorandum of understanding on the other hand envisages that the second respondent and his nominees will be inducted to the third respondent firm on payment of a sum of Rs. 3.40 crores, upon which the partners of the third respondent shall retire from the firm. The memorandum of understanding further evidences payment of 5 % of the agreed amount by the second respondent. This memorandum of understanding and the payments made by the secon d respondent to the partners of the third respondent are found recognised in the civil proceedings initiated by the second respondent. At this juncture, it may be observed that the payments covered under the memorandum of understanding have been, prima facie, met by the second petitioner as borne out by the bank statements and 'B' reports filed by the police authorities. It is immaterial whether the statements made in the 'B' reports do have any evidentiary value or not. The second memorandum of understanding dated 20.06.2004 between the Company represented by the first petitioner and the second petitioner acknowledging the payments reportedly made by the second petitioner for purchase of the property and agreeing to allot shares in favour of the second petitioner, apart from the memorandum of understanding and copies of the board meeting 12.06.2004 and 12.10.2004, which are not free from doubt, is not supported by any primary material. There is no authority produced empowering the first petitioner to execute the memorandum of understanding dated 20.06.2004. There is either no document to show that the terms of the memorandum of understanding have been duly approved by the board of directors of the Company. The memorandum of understanding dated 20.06.2004 while speaks of the allotment of shares in favour of the second petitioner, is silent in regard to the proposal to induct the petitioner Nos. 2 & 3 on the board of the Company. The memorandum of understanding dated 20.06.2004 does not make any reference to the memorandum of understanding dated 07.02.2001. The second petitioner claims to be a promoter, but the essential requirements to constitute a promoter as laid down in Weavers Mills Limited v. Balkis Ammal and Ors. (supra) are found lacking in the case of the second petitioner. In this context the execution of the sale deed dated 28.06.2004 assumes utmost relevance. The sale deed does not make any reference to any of the memorandum of understandings. The memorandum of understanding dated 07.02.2001 envisages consideration of Rs. 3.40 crores, but sale consideration agreed and fixed under the sale deed account for only Rs. 1,76,42,000/-. Whereas, in the civil suit filed by the third respondent challenging the execution of the sale deed by V. Srinivasa Raju, the second respondent categorically contended that sale consideration namely, Rs. 1,76,42,000/- by way of demand drafts and an amount of Rs. 1,63,58,000/- by way of cash were paid by him to the partners of the third respondent. There are no answers for these contradictions, which cannot be resolved on the strength of the affidavits and reply affidavits of the parties defeating the very purpose of summary procedure prescribed by Section 397/398. While the partnership deed of the third respondent stipulates that the partnership affairs must be carried on jointly by the partners, the sale deed is executed only by V. Srinivasa Raju. The authority of V. Srinivasa Raju to execute the sale deed without the consent of other partners is under serious dispute. Under Section 19(2) of the Indian Partnership Act, the implied authority of a partner does not, prima facie, empower him to transfer any immovable property belonging to the firm as conclusively held in Bina Muralidhar Hemdev and Ors. v. Kanhiyalal Lokram Hemdev and Ors. (supra). In the present proceedings whether V.Srinivasa Raju had the authority to execute the sale deed in favour of the Company and if not, whether the sale transaction is void do not arise for consideration. The disputes in relation to the property between the parties are eminently civil disputes, in which case such controversies do not fall within the purview of the provisions of the Act as held in Dwarka Prasad Agarwal (D) by Lrs and Anr. v. Ramesh Chander Agarwal and Ors. (supra). The prayer for setting aside the cancellation deeds would very much depend upon the validity or otherwise of the sale transaction effected by V. Srinivasa Raju in favour of the Company. According to learned Counsel appearing for the petitioners the sale deed dated 28.06.2004 cannot be mutually cancelled by the parties without resorting to an order of civil court as prescribed in Section 31 of the specific relief act, 1963. However, this power of the civil court cannot be exercised by the CLB, invoking the provisions of Section 402(f) of the Act, in view of the nature of civil disputes involved in the cancellation of the sale deed. Any order of the CLB can be executed under Section 634A, as if it is a decree, but the CLB cannot assume the jurisdiction of the civil court in cancelling an instrument invoking the provisions of Section 31 of the Specific Relief Act. It is oh record the sale deed dated 28.06.2004 has been cancelled by a deed of cancellation dated 02.02.2005 by the Company represented by the respondents 1 & 2 in favour of the third respondent represented by S. Vasudevan. I do not see any authority of the board of directors of the Company authorising the respondent Nos. 1 & 2 to cancel the sale deed dated 28.06.2004. Similarly, when the cancellation deed dated 02.02.2005 has been cancelled on 07.07.2005, the Company has been represented by one H.M. Venkatesh, whose authority to execute the cancellation deed dated 07.07.2005 has not been produced. There is no material substantiating the authority of the respondent Nos. 1 & 2 to execute the cancellation deed dated 10.08.2005 thereby cancelling the deed of cancellation dated 07.07.2005. The validity and the controversies in relation to these cancellation deeds are of civil disputes, which do not tall within the jurisdiction of the CLB. The object of Section 397/398 is to provide remedy in non-controversial matters and is not intended for adjudicating serious disputes. The proper course in such cases of complexity necessitating investigation is to relegate the parties to a civil suit. In the present backdrop of facts, the grievances of the petitioners in regard to the various cancellation deeds in the light of several of the civil and criminal proceedings, could not be looked into in the present proceedings. This is not possible without detailed examination of complicated questions of facts, requiring extensive oral and documentary evidence in this behalf. Similarly, the plea that the cancellation deeds, not having been supported by any consideration, is hit by the provision of Section 25 of the Indian Contract as well as Section 54 of the Transfer of Property Act, cannot be entertained in the present proceedings. Furthermore, any title to the property is alien to an application under Section 397, as held in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad (supra). In these circumstances, I have to proceed with the other acts of commission and omission surfaced in the course of the present proceedings. At the annual general meeting held on 11.01.2005 the matters relating to adoption of balance sheet as at 31.12.2004, appointment of directors, etc were reportedly considered by the members of the Company. It is reported that the first petitioner who retired by rotation at the annual general meeting was not re-appointed as a director, which is seriously disputed by the first petitioner. The respondents have produced the certificate of posting to establish service of notice on the first petitioner. It may be noted that they have not chosen to produce the certificate of posting to prove service of notice on other shareholders. The despatch register or the books of account showing the expenses incurred by the Company for posting the notices have not been produced by the respondents. The certificate of posting will only show that certain postal envelopes have been put into the post office and will not by itself necessarily mean that there has been proper service on the addressee concerned. Therefore, mere production of certificate of posting will not necessarily mean that there was service of notice of the meeting on the first petitioner. Article 10 provides for the retirement of directors in every annual general meeting and prescribes the procedure for retirement of director the Bench. The second order dated 10.06.2005 provides that any development of the property and encumbering the same will be subject to the final outcome of the company petition. In this background, mere sending of copies of either of these orders by the petitioners to Bangalore Development Authority will not amount to contempt of the orders passed by this Bench. Similarly, when the validity of the sale deed registered in the name of the Company as well as the various cancellation deeds is yet to be adjudicated, the respondents cannot be charged with contempt of the order dated 18.03.2005 of CLB in executing the cancellation deed dated 10.08.2005, more so, when any such act has been subject to the outcome of the company petition. In view of my foregoing conclusions and (i) in exercise of the powers vested in Section 402; and (ii) to regulate the conduct of the affairs of the Company, I deem it fit that (a) allotment of shares allegedly made in favour of the petitioner Nos. 2 & 3 and the respondents group must be set aside, meaning thereby the first petitioner and the respondent Nos. 1 & 2 will only hold shares that they had agreed to subscribe in the Memorandum; (b) appointment of the petitioner Nos. 2 & 3, J.R. Venu and Arun Kumar Chordia as directors must be declared as null and void; and (c) the board of directors comprising of the first petitioner and the respondent Nos. 1 & 2 as per Article 6 will conduct the Company's affairs in future. The Registrar of Companies will ignore the statutory returns, which are contrary to these directions, filed by the parties before him in relation to the allotment of shares and the appointment of directors. Towards this end, the Bench Officer will forward a copy of the order in favour of the Registrar of Companies, for appropriate action in this behalf. Ordered accordingly. With these directions, the company petition and the connected applications stand disposed of. In view of this, the interim orders are vacated. No order as to costs.