Adarsh Kumar Aggarwal vs Kapri International Pvt. Ltd.
2013 Latest Caselaw 2506 Del

        IN THE HIGH COURT OF DELHI AT NEW DELHI

                                 CO.PET. No. 59 of 1994

        IN THE MATTER OF:
        KAPRI INTERNATIONAL PVT. LTD.               .... Petitioner
                     Through: Mr. Muneesh Malhotra with Mr. Vikram
                     V. Minesh and Mr. Achin Mittal, Advocates for
                     Ex-management.
                     Mr. Rajeev Sharma, Advocate for Mr. Adarsh
                     Kumar Aggarwal.
                     Ms. Meenakshi Singh, Advocate for Liquidator.

                                         AND

                        CS (OS) No. 2293 of 1996

        ADARSH KUMAR AGGARWAL                   .... Plaintiff
                    Through: Mr. Rajeev Sharma, Advocate.

                                 Versus

        KAPRI INTERNATIONAL PVT. LTD             ..... Defendant
                     Through: Mr. Muneesh Malhotra with Mr. Vikram
                     V. Minesh and Mr. Achin Mittal, Advocates for
                     Ex-management.
                     Ms. Meenakshi Singh, Advocate for Liquidator.

        CORAM: JUSTICE S. MURALIDHAR

                                       JUDGMENT

28.05.2013

CA No. 2068 of 2012 in Co. Pet. No. 59 of 1994 CA No. 27 of 1997 & IA No. 12367 of 2012 in CS (OS) No. 2293 of 1996

1. The background to these applications is that the Board for Financial and Industrial Reconstruction ('BIFR') made a reference to this Court under

Section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 ('SICA') for the winding up of the Kapri International Pvt. Ltd. ('KIPL'). An order was passed on 11th April 1994 by the Company Judge in Co. Pet. No. 59 of 1994 winding up KIPL and directing notices to issue to all parties including the Operating Agency ('OA') i.e. the Canara Bank. Meanwhile, on 19th December 1994 the Appellate Authority for Industrial and Financial Reconstruction dismissed the appeals filed by KIPL and its sister concern Dior International Pvt. Ltd. ('DIPL'). On 28th April 1995, the OA was asked to name an officer who could be appointed as Liquidator of KIPL. Thereafter on 1st May 1995, the OA informed the Court that Mr. L. Narayanan, Chief Manager (Assets & Recovery Management Branch) of the Canara Bank shall act as the Liquidator. Consequently, the Court appointed Mr. L Narayanan as the Liquidator, directed KIPL to be wound up under Section 20 (2) of the SICA and directed Liquidator to take appropriate steps for sale of assets of KIPL and invite claims from creditors.

2. CA No. 522 of 1996 was filed by the Liquidator under Sections 446(2) and (3) of the Companies Act, 1956 ('Act') stating that Suit No. 212 of 1991 against KIPL was pending in the District Court, Moradabad in respect of one of the properties of KIPL situated at B-72, Mohalla Mahatma Gandhi Nagar, Moradabad. The said suit was filed by Mr. Adarsh Kumar Agarwal and Mr. Niraj Kumar Agarwal. Notice of the said application was issued to them but despite service they did not appear. In the circumstances, on 19th August 1996 the Court directed transfer of Suit No. 212 of 1991 (titled Adarsh Kumar Agarwal & Niraj Kumar Agarwal v. Kapri International (P) Limited) pending in the Civil Court, Moradabad to this Court. On 16th

September 1996, the Court received the aforementioned file and directed the Registry to give the suit a fresh number. Accordingly, the suit was numbered as Suit No. 2293 of 1996. Notices were directed to be issued to the parties to the suit, returnable on 30th October 1996. The Court noted that Execution File No. 150/41/93 had been received from Civil Judge, Moradabad. The Sub-Registrar, Moradabad was restrained from executing any sale deed in favour of the Plaintiff.

3. CA Nos. 27-28 of 1997 in Suit No. 2293 of 1996 was filed by the Liquidator on behalf of KIPL under Order IX Rule 13 of the Code of Civil Procedure, 1908 seeking the setting aside of the ex parte decree dated 18th August 1993 passed by the Civil Judge, Moradabad in the aforementioned suit. By the said ex parte decree KIPL was directed to execute a sale deed in regard to one half of the plot at B-72, Mohalla Mahatma Gandhi Nagar, Moradabad in favour of the Plaintiffs i.e. Adarsh Kumar Agarwal and Niraj Kumar Agarwal within two months failing which the Plaintiffs were permitted to take possession of the plot with the help of the Court. It is stated in the application that when the Liquidator inspected the property in Moradabad in December 1995 pursuant to the order of this Court, he learnt of the said litigation.

4. In the said application it was stated that an agreement to sell dated 30th May 1998 was signed by one Mr. Kathuria on behalf of KIPL although there was no resolution passed authorising Mr. Kathuria to act on behalf of KIPL. It was, therefore, submitted that the agreement to sell was null and void and the decree was liable to be set aside. Moreover, it was pointed out

that the requisite income tax permission was not obtained although it was a condition precedent for registration of the sale deed. Thirdly, it was pointed out that the decree passed by Civil Judge, Moradabad would cause undue hardship to KIPL. If the said asset were to be sold, the money realised would be sufficient to cover the debts owed to various creditors.

5. Notice was issued in the said application by the Court on 8th January 1997 and the interim order passed on 30th October 1996, was directed to continue. On 31st March 1997 a reply was filed on behalf of Adarsh Kumar Agarwal and Niraj Kumar Agarwal. It was submitted by them that the order passed by the Civil Judge had already attained finality and a sale deed has already been executed in favour of the Plaintiffs on 25th May 1995. It was denied that Mr. Kathuria was not competent to enter into an agreement on behalf of KIPL. In the rejoinder filed the Liquidator pointed out that the Court had wound up the company and appointed him as such on 1st May 1995 whereas the sale deed purportedly was executed on 25th May 1995. In terms of Section 446(1) of the Act no suit or other legal proceedings shall be commenced, or if pending at the date of the winding up order, shall be proceeded with, against the company, except by leave of the Court. On 2nd December 1997, the Court restrained the original Plaintiffs transferring, alienating or creating any charge in respect of the property in question and also directed the status quo to be maintained.

6. On 24th April 1998, the Court asked Canara Bank to appoint a Valuer to determine the market value of the property in question, as on 31 March 1998. On 21st September 1998, the Court noted that the valuer had fixed the

price for the land @ Rs.4,000 per sq. yd. The Court raised some queries in its order dated 21st September 1998. On 3rd March 1999, Mr. M.B. Singh, learned counsel for the Plaintiff/non-Applicant in CA No. 27 of 2007 stated before the Court that "it may perhaps be not possible for his client to contest the illegality of the sale deed in respect of the property" allegedly executed on 25th May 1995 as contended by the Liquidator, "because the sale deed was actually registered after the appointment of the Liquidator on 1st May 1995". He prayed for a short adjournment to seek instructions whether the Plaintiff would be prepared to purchase the said land at the prevalent market value to be fixed by the Company Court. On 25th August 2008, the interim order passed earlier against Mr. Adarsh Kumar Agarwal and Mr. Niraj Kumar Agarwal was reiterated by the Court.

7. As regards the other half of the property at B-72, Mohalla Mahatma Gandhi Nagar, Moradabad, CA No. 434 of 2009 appears to have been filed in Co. Pet. No. 59 of 1995 in which it was stated that the said other half was the subject matter of agreement to sell between KIPL and one Mr. Ashok Kumar Agarwal. The Respondent in that application was one Mr. Shyam Kumar Agarwal who is stated to have expired during the pendency of the petition on 5th November 2011. After noting the above facts, the case was adjourned to 3rd February 2012 for the Liquidator to take steps. Two applications were thereafter filed by the Liquidator. CA No. 2068 of 2012 was filed in Co. Pet. No. 59 of 1994 under Section 446(2) of the Act for declaring the agreement to sell dated 31st May 1988 concerning the other half of the property found in the occupation of Mr. Ashok Agarwal was invalid. It was stated that the Liquidator was informed that the other half

had been sold to Mr. Shyam Agarwal. Mr. Ashok Agarwal who was his younger brother was claiming to be the owner of the said other half portion of the property. Mr. Ashok Agarwal produced before the Liquidator an agreement to sell dated 31st May 1988 executed by Mr. I.K.Kathuria who was stated to have been duly authorised by a power of attorney ('PoA') dated 17th May 1988 executed by Mr. Mohan Anand, a former Director of KIPL. The Liquidator pointed out that the said agreement to sell and PoA were insufficiently stamped and not registered. The balance consideration also did not appear to have been paid. Section 17 of the Registration Act as amended for the State of UP required such agreement to sell to be compulsorily registered before the Registrar in the absence of which there could not have been any decree for specific performance. It is submitted that said sale of the half portion to Mr. Shyam Agarwal was fraudulent and prejudicial to the investors of KIPL which was before the BIFR. It could not have been sold without the prior permission of the BIFR or of this Court. It is stated that inasmuch as the said agreement to sell did not find any mention in the records of KIPL, it appeared to be a false and fabricated document besides not being properly stamped and registered. Accordingly, it was prayed that the agreement to sell be declared null and void; Mr. Ashok Agarwal may be asked to hand over vacant and peaceful possession of the other half of the property to the Liquidator forthwith and pay damages in the sum of Rs.15,000 per month for the entire period of unauthorised use of occupation and to restrain him from alienating, transferring or creating any charge in respect of the said other half portion of the property at B-72, Mohalla Mahatma Gandhi Nagar, Moradabad. Notice was directed to issue in the application on 6th November 2012.

8. Meanwhile on 23rd May 2012, the Liquidator also filed IA No. 12367 of 2012 in Suit No. 2293 of 1996 under Sections 536 and 537 of the Act for a declaration that the sale deed dated 25th May 1995 executed in favour of Mr. Adarsh Kumar Agarwal and Niraj Kumar Agarwal in respect of the half portion of B-72, Mohalla Mahatma Gandhi Nagar, Moradabad be declared null and void. Reply was filed to the said application by the Respondents Adarsh Kumar Agarwal and Niraj Kumar Agarwal on 13th December 2012. Inter alia it was contended that the application was time barred in terms of Section 458-A of the Act. It was contended that the contract was already concluded prior to the winding up order and the actual execution of sale deed took place during the pendency of the winding up proceedings and that there is no transfer of property after the commencement of the winding up. It was contended that the Respondents/non-Applicants were bona fide purchasers of the property for valuable consideration.

9. Ms. Meenakshi Singh, learned counsel for the Liquidator submitted that as far as the one half of the property at B-72, Mohalla Mahatma Gandhi Nagar, Moradabad is concerned and in respect of which there was an ex parte decree in favour of Adarsh Kumar Agarwal and Niraj Kumar Agarwal, the decree itself was bad in law since it was based on an agreement not entered into with KIPL. She pointed out that the agreement was only signed by Mr. I.K. Kathuria without the seal of the company. Even the PoA purportedly executed in favour of Mr. Kathuria, the original of which was not produced, was not duly stamped. Importantly, she pointed out that there was no resolution whatsoever passed by the company for the sale of the property. At the earliest opportunity, the Liquidator had filed an

application in this Court for setting aside the ex parte decree. The sale deed ought not to have been executed without the leave of the Company Court since by that time the KIPL had already been directed to be wound up by the Court. She refers to Sections 536 and 537 of the Act and submits that the transfers made of both halves of B-72, Mohalla Mahatma Gandhi Nagar, Moradabad in favour of the respective purchasers are void.

10. Appearing on behalf of Mr. Adarsh Kumar Agarwal, Mr. Niraj Kumar Agarwal as well as Mr. Ashok Agarwal, Mr. Rajender Sharma learned counsel submitted that Mr. Kathuria was the PoA holder of KIPL. According to him, the PoA dated 17th May 1988 was registered in Ghaziabad and the details have been mentioned in agreement to sell dated 30th May 1988 which was registered. At the time of said agreement, there were no proceedings pending against KIPL before the BIFR. He submitted that a suit for specific performance was filed on 18th February 1991. An application under Order VII Rule 11 CPC was filed by KIPL on 18th December 1991 seeking rejection of the plaint on the ground that permission from the Income Tax Department ('ITD') had not been received. The said application was rejected by the Civil Court on 28th February 1998. It is pointed out that KIPL was thrice set ex parte, on 17th January 1992, 19th November 1992 and finally on 30th March 1993. During the pendency of the proceedings in the Civil Court in Moradabad, KIPL failed to disclose that proceedings were pending before the BIFR. Since in terms of the ex parte decree dated 18th August 1993, KIPL failed to execute the sale deed in respect of half portion of B-72, Mohalla Mahatma Gandhi Nagar, Moradabad in favour of Adarsh Kumar Agarwal and Niraj Kumar Agarwal,

they filed an execution petition and pursuant to the order passed by the executing court, the sale deed was executed on 25th May 1995. It was submitted that no convincing explanation has been given by KIPL for the delay in fling the application under Order IX Rule 13 CPC for setting aside the ex parte decree. As far as IA No. 12367 of 2012 is concerned, it was hopelessly time barred. As regards the other half of the property, learned counsel submitted that even now Mr. Ashok Agarwal is ready and willing to perform his part of the agreement and it was the company which failed to perform its obligations. Mr. Ashok Agarwal also claims protection under Section 53 A of the Transfer of Properties Act, 1872 ('TP Act'). Reliance was placed on the decision in Shrimant Shamrao Suryavanshi v. Prahlad Bhairoba Suryavanshi AIR 2002 SC 960. It was submitted that even if the period for limitation for bringing a suit of specific performance had expired, the occupant cannot be prevented from taking a plea under Section 53A of the TP Act. Learned counsel for the Respondents placed reliance on the decisions in Pankaj Mehra v. State of Maharashtra JT 2000 (2) SC 113, Banshidhar Sankarlal v. Md. Ibrahim AIR 1971 SC 1292, Minnie Pan (India) Pvt. Ltd. v. Eurobike Limited (decision dated 31st May 2005 of this Court in CP No. 307 of 1999) and Panchanan Dhara v. Monmatha Nath Maity 2006 (6) SCALE 34.

11. The above submissions have been considered. The facts not in dispute are that the application was filed in the BIFR sometime in 1991 itself. The proceedings of the BIFR in Case No. 150 of 1991 show that on 18th May 1992 the BIFR passed a detailed order appointing Canara Bank as OA after concluding that it was necessary in public interest to take measures under

Section 18 SICA. On 27th October 1993, the BIFR formed a prima facie opinion that it was fair and just for KIPL to be wound up in terms of Section 20 SICA. This was confirmed on 26th March 1994. This led to the filing of the Co. Pet. No. 59 of 1994.

12. As already noted at the very first hearing itself, the Court directed winding up of KIPL. A further formal order to that effect was made on 1st May 1995 under Section 20(2) SICA and the Chief Manager of Canara Bank was appointed as Liquidator of KIPL. The date the winding up became effective would be the date on which the BIFR formed its prima facie opinion that KIPL should be wound up. The law in this regard has been explained by the Supreme Court in NGEF Ltd. v. Chandra Developers (P) Ltd. (2005) 8 SCC 219. Disagreeing with the decision of the Division Bench of Karnataka High Court in BPL Ltd. v. Intermodal Transport Technology Systems (Karnataka) Ltd._____, the Supreme Court in NGEF Ltd. held that "it may be true that no formal application is required to be filed for initiating a proceeding under section 433 of the Companies Act as the recommendation therefor are made by BIFR or AAIFR, as the case may be, and thus the date on which such recommendations are made, the Company Judge applies its mind to initiate a proceeding relying on or on the basis thereof, the proceeding for winding up would be deemed to have been started". Therefore, the date of commencement of winding up would be the date on which BIFR made the recommendation for KIPL's winding up, i.e. 27th October 1993. Even before the ex parte decree was passed on 18th August 1993 proceedings had commenced before the BIFR i.e. 1991. If KIPL did not appear thereafter it

can possibly be explained by the fact that there was no information of the pendency of the suit filed by Adarsh Kumar Agarwal and Niraj Kumar Agarwal.

13. As rightly pointed out by learned counsel for the Liquidator, the agreement to sell has been signed only by Mr. Kathuria. The original of the PoA dated 17th May 2008 stated to have been issued in favour of Mr. Kathuria has not been produced. In any event there appears to be no resolution by KIPL in that behalf. Also there was no decision taken by KIPL either to sell the half portion of property at B-72, Mohalla Mahatma Gandhi Nagar, Moradabad in favour of Adarsh Kumar Agarwal and Niraj Kumar Agarwal or to sell the remaining half to Mr. Shayam Agarwal or Mr. Ashok Agarwal.

14. In any event under Section 22 of the SICA even if an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration or a sanctioned scheme is under implementation, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company can be instituted or continued except with the consent of the BIFR.

15. The subsequent facts were obviously not brought to the notice of the trial court and, therefore, the suit itself could not have been proceeded with without the permission of the BIFR. The ex parte decree passed on 18th August 1993 also overlooked the mandatory requirement in the agreement

to sell that exemption from the income tax authorities had to be obtained. Therefore the decree dated 18th August 1993 cannot be sustained in law. The execution proceedings for enforcement of the decree are also judicial proceedings. The execution petition in any event could not have been continued after 1st May 1995 when a Liquidator was appointed by the Court. It is an admitted position that the sale deed dated 25th May 1995 was executed in favour of Adarsh Kumar Agarwal and Niraj Kumar Agarwal only pursuant to the order passed by the executing court and subsequent to the winding up of KIPL. The above proceedings continued without any permission being sought from the Company Court. The actual conveyance of the property i.e. one half of B-72, Mohalla Mahatma Gandhi Nagar, Moradabad in favour of Adarsh Kumar Agarwal and Niraj Kumar Agarwal was clearly hit by Sections 536(2) and 537 of the Act which read as under:

"536 (2) In the case of a winding up by the Tribunal, any disposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall unless the Tribunal otherwise orders, be void.

537 (1) Where any company is being wound up by Tribunal-

(a) any attachment, distress or execution put in force, without leave of the Tribunal against the estate or effects of the company, after the commencement of the winding up; or

(b) any sale held, without leave of the Tribunal of any of the properties or effects of the company after such commencement shall be void.

(2) Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government."

16. This Court, therefore, has no hesitation in holding that neither the ex parte decree passed by the civil court on 18th August 1993 nor the subsequent sale deed executed on 25th May 1995 can be sustained in law. They are hereby declared to be illegal and void and quashed as such.

17. As regards the other half of B-72, Mohalla Mahatma Gandhi Nagar, Moradabad, there was only an agreement to sell which again was not expressly authorised by KIPL by a resolution. In fact, Mr. Ashok Agarwal and Mr. Shyam Agarwal never sought to enforce the said agreement by filing a suit for specific performance. Once the company was ordered to be wound up, there was no question of any transaction involving the said property without the permission of the Company Court. The benefit of Section 53A of the TP Act is not available to Mr. Ashok Agarwal as the contract is, for the reasons explained, not valid. The intervening act of KIPL being declared sick under the SICA and thereafter being wound up by the Court deprives the transferee of taking the plea of transfer in good faith and for due consideration. There cannot be a valid sale deed executed in favour of Mr. Ashok Agarwal after the order of winding up. There is no legal basis for permitting Mr. Ashok Agarwal to be in continued possession and occupation of the property being the other half of B-72, Mohalla Mahatma Gandhi Nagar, Moradabad.

18. The decisions relied upon by learned counsel for Mr. Adarsh Kumar

Agarwal and Mr. Niraj Agarwal are of no assistance to them. Under Section 48 of the Act, a company may by writing under its common seal, empower any person, either generally or in respect of any specified matters, as its attorney, to execute deeds on its behalf. Section 48(2) states that a deed signed by such an attorney on behalf of the company and under his seal where it is required would bind the company. In the instant cases, it is seen that the two agreements dated 18th May 2008. The agreements have been signed by Mr. Kathuria and not for and on behalf of the company. There is no seal of KIPL. The facts in Panchanan Dhara are that the Directors of the company took part in execution of the documents and there was also a resolution of the company. In the present case there is nothing to show that the former Directors of KIPL took part in execution of the documents in any manner. There is also no resolution of the company. None of the documents bear the seal of the company.

19. Section 458A simply talks of the period of one month to be excluded while computing limitation. After coming to know of the ex parte decree and the execution of the sale deed the Liquidator of KIPL has sought the setting aside of the sale deed and the ex parte decree. In the circumstances noticed earlier, no execution could have been taken place without permission of the Company Court. The plea of limitation under Section 458A of the Act is, therefore, rejected as being misconceived. The decision in Pankaj Mehra is also of no assistance to the Respondent/non-Applicants. The Court, in the said decision, clarified that all transactions that took place after winding up of the company would automatically become null and void since the Court had the power to decide otherwise. However, the Court

must be satisfied that the transaction was bona fide. In the present case for the reasons explained hereinbefore, the Court is not satisfied about the bona fide of the transactions particularly since no permission of the Court was taken for executing the sale deed. The decision in Banshidhar Sankarlal was under the Companies Act, 1913. It did not deal with Sections 446 or 536 of the Act of 1956. In Minnie Pan (India) Pvt. Ltd, the Court explained that the burden of proof that transaction was not in good faith or for full consideration is on the Official Liquidator. In the present case, properties of more than Rs. 50 lakhs were transferred just for Rs.10,000 and that too without appropriate documentation or authorisation.

20. For the aforementioned reasons, this Court is satisfied that the prayers of the Liquidator in CA No. 27 of 1997 and IA No. 12367 of 2012 in CS (OS) No. 2293 of 1996 as well as CA No. 2068 of 2012 in Co. Pet. No. 59 of 1994 should be allowed. Accordingly, it is ordered as under:

(i) the ex parte decree passed by the civil court on 18th August 1993 in CS (OS) No. 2293 of 1996 is set aside.

(ii) the sale deed dated 25st May 1995 is declared null and void and same is set aside.

(iii) the agreement to sell dated 30th May 1988 executed in favour of Mr. Shyam Agarwal is hereby set aside.

21. The applications, CA No. 2068 of 2012 in Co. Pet. No. 59 of 1994 and

CA No. 27 of 1997 & IA No. 12367 of 2012 in CS (OS) No. 2293 of 1996 are allowed with costs of Rs.5,000 which will be paid to the Liquidator by the non-Applicants Mr. Ashok Agarwal, Mr. Niraj Kumar Agarwal and Mr. Adarsh Kumar Agarwal within two weeks.

S. MURALIDHAR, J.

MAY 28, 2013 dn