Madras High Court
Shrutivinda Agro Farms Pvt.Ltd vs Nova Dyeing And Printing Mills Ltd on 11 March, 2022
O.S.A.Nos.191 & 192 of 2018
IN THE HIGH COURT OF JUDICATURE AT MADRAS
RESERVED ON : 17.02.2022
DATE OF DECISION : 11.03.2022
CORAM
THE HON'BLE MR.JUSTICE T.RAJA
AND
THE HON'BLE MR.JUSTICE SATHI KUMAR SUKUMARA KURUP
O.S.A.Nos.191 & 192 of 2018
Shrutivinda Agro Farms Pvt.Ltd.,
rep.by its Director
Fortune Monarch Mall
Third Floor, No.306 Plot No.707-709
Jubilee Hills Road No.36
Hyderabad, Telangana 500 033 .. Appellant in both the O.S.A's
-vs-
1. Nova Dyeing and Printing Mills Ltd.,
rep.by its Director Thakur J.Bakshani
No.123, AC Block
2nd Avenue, Anna Nagar
Chennai 600 040
2. Thakur J.Bakshani .. Respondents in OSA No.191/18
1. Thakur J.Bakshani
2. Mr.K.V.V.Krishnam Raju
3. Nova Dyeing and Printing Mills Ltd.,
rep.by its Director
1/95
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Mr.Jagadish A.Sadarangani
No.123, AC Block
2nd Avenue, Anna Nagar,
Chennai 600 040
4. Mr.Harish J.Bakshani
5. Mr.I.Prem Watwani .. Respondents in OSA No.192/18
Memorandum of Grounds of Original Side Appeal No.191 of 2018 is
filed under Order XXXVI, Rule 1 of the Original Side Rules read with
Clause 15 of the Letters Patent, against the common judgment and decree
dated 08.02.2018 passed in C.S.No.627 of 2008 on the file of the Original
Side of this Court.
Memorandum of Grounds of Original Side Appeal No.192 of 2018 is
filed under Order XXXVI, Rule 1 of the Original Side Rules read with
Clause 15 of the Letters Patent, against the common judgment and decree
dated 08.02.2018 passed in C.S.No.877 of 2005 on the file of the Original
Side of this Court.
For Appellant :: Mr.AR.L.Sundaresan, Sr.Counsel
Mr.Satish Parasaran, Sr.Counsel
for M/s Madhan Babu
For Respondents :: Mr.P.Subba Reddy for R1 & R2 in
OSA 191/18 & for R1 & R3
in OSA 192/18
M/s R.M.Priya Dharshini
for R4 in OSA 192/18
Mr.A.Vikash for R5 in
OSA 192/18
JUDGMENT
T.RAJA, J.
M/s Shrutivinda Agro Farms Private Limited represented by its
Director has brought these two original side appeals against the common
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judgment and decree dated 08.02.2018 passed by the trial Court in Civil
Suit Nos.877 of 2005 and 627 of 2008, respectively.
2(a). Civil Suit No.877 of 2005 was filed by Mr.Thakur
J.Bakshani/plaintiff against Shrutivinda Agro Farms Private Limited/first
defendant and four others seeking for a declaration declaring that the sale
agreement dated 14.07.2005 entered into between the first defendant and
third defendant/Nova Dyeing and Printing Mills Limited is null and void, as
it is against the provisions of the Companies Act and the Memorandum of
Articles of Association of the third defendant Company as well as for a
permanent injunction restraining the defendants, their men, agents or
anybody working under them from enforcing or acting or proceeding in any
manner in future in relation to the sale agreement entered into between the
first defendant and third defendant dated 14.07.2005.
2(b). Civil Suit No.627 of 2008 was filed by the appellant/plaintiff
against Nova Dyeing and Printing Mills Limited/first defendant and
Mr.Thakur J.Bakshani/second defendant for a judgment and decree
directing specific performance of the terms of the agreement for sale dated
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14.07.2005, by executing the sale deed and conveying the Schedule-B
mentioned property by the defendants 1 & 2 to and in favour of the
appellant/plaintiff with a consequential permanent injunction restraining the
defendants, their men, servants, agents or any other claiming under them
from in any manner alienating or encumbering or altering the physical
features of or parting with the Schedule-B property to any third parties,
except in accordance with the agreement for sale dated 14.07.2005 entered
into between the parties herein, alternatively, to direct the defendants to
make the payment of Rs.78 Crores as damages to the appellant/plaintiff.
3. For the sake of convenience, the appellant-Shrutivinda Agro Farms
Private Limited, who is arrayed as the first defendant in C.S.No.877 of 2005
and also the plaintiff in C.S.No.627 of 2008, will be hereinafter referred to
as “the first defendant”, the third defendant-Nova Dyeing and Printing Mills
Limited in C.S.No.877 of 2005, who is arrayed as the first defendant in
C.S.No.627 of 2008, will be hereinafter referred to as “the third defendant
company”, Mr.Thakur J.Bakshani, the plaintiff in C.S.No.877 of 2005, who
is also arrayed as the second defendant in C.S.No.627 of 2008, will be
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hereinafter referred to as “the plaintiff”, Mr.Harish J.Bakshani, the fourth
defendant in C.S.No.877 of 2005 and Mr.I.Prem Watwani, the fifth
defendant in C.S.No.877 of 2005, will be hereinafter referred to as “the
fourth and fifth defendants” in this judgment.
4.1. Civil Suit No.877 of 2005 was filed by the plaintiff contending
that he and his family members are the major shareholders of the third
defendant company holding 54.98% of equity shares out of the total number
of 1,23,00,000/- equity shares of Rs.10/- each and apart from the above, the
plaintiff and his group of companies also brought in funds to the tune of
Rs.1,64,00,000/- by way of unsecured loans for funding operation cash
losses from time to time. The plaintiff is the Founder-Promoter-cum-
Director of the third defendant company. Originally, the third defendant
company was incorporated during the year 1988 under the name and style of
“Jupiter Dyeing and Processing Mills Private Ltd.” and subsequently sought
for change of name and became as “Nova Dyeing & Printing Mills Ltd”,
incorporated with effect from 01.05.1996 and the plaintiff and his family
members are holding 59% of the paid-up equity capital.
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4.2. It was further pleaded that the main object of the third defendant
company is to carry on the business of processing, combing, sizing,
preparing, weaving, spinning, curing, dyeing, manufacturing and other
activities and it had turnover of several crores of rupees. One
Mr.V.C.Dhandapani, Managing Director of the third defendant company,
lodged a complaint to the Pollution Control Board and on account of the
same, it had undergone enormous difficulties and hardships and therefore,
its activities were in the process of decline and it virtually closed down its
activities with effect from 03.02.2005 and it is in the process of settling all
the statutory dues. The third defendant company is having valuable lands
admeasuring to an extent of 29 acres and buildings/superstructures to an
extent of 1,34,000 sq.ft. at Old Mahabalipuram Road. After the third
defendant company had closed its activities, number of discussions took
place among the Directors of the company to determine the strategy to
revive the company and accordingly, on 09.07.2005, Mr.Jagadish
A.Sadarangani gave a draft copy of the sale agreement to the fourth
defendant to be forwarded to the plaintiff for approval through e-mail. The
plaintiff was in abroad at that point of time and therefore, he sent an e-mail
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message to the fourth defendant clarifying certain clauses in the draft sale
agreement sent to him. The plaintiff was also informed that the final draft
sale agreement would be sent to his approval after carrying out necessary
corrections as approved by the Auditor Thiru.P.Ramachandran. The plaintiff
has never received any final draft sale agreement approved and executed by
Auditor and he was under bona fide impression that the final draft sale
agreement is under process and upon his approval only, the sale agreement
would be executed. The third defendant company had also informed the
plaintiff about forwarding of the draft sale agreement to their Auditors,
namely M/s.Ram and Kumar represented by their partner
Thiru.P.Ramachandran and however, the draft sale agreement has never
been sent to the said Auditor.
4.3. The plaintiff further averred that the sale agreement came into
being between the third defendant company and the first defendant on
14.07.2005, without his consent and approval, especially when he is almost
holding an extent of 54.98% of paid-up equity capital. According to the
plaintiff, if a company wanted to sell any of its immovable assets, it is
mandatory to follow Section 293 of the Companies Act, 1956 read with
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Article 54 of the Memorandum/Articles of Association of the third
defendant company and however, it has not been done and despite the said
fact, the plaintiff, being a major shareholder, has not received any notice.
Even the sale agreement dated 14.07.2005 entered into between the first
defendant and third defendant company is also against Section 23 of the
Indian Contract Act, 1872 and it is ab initio null and void and that apart, the
sale agreement is one-sided to favour the purchaser, namely the first
defendant. The plaintiff would further state that the first defendant did not
exhibit due diligence before entering into the sale agreement and therefore,
it is hit by Section 46 read with Section 293 of the Companies Act, 1956
and there is no document evidencing adherence to the said mandatory
statutory provisions. The plaintiff also took a stand that the
clauses/covenants in the said agreement of sale are oppressive and
deliberately made with an intention to benefit the first defendant at the cost
of the third defendant company and as such, it cannot be enforced under
law.
4.4. It was further pleaded by the plaintiff that under Clause 15 of the
sale agreement dated 14.07.2005, a sum of Rs.1 Crore out of total
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consideration of Rs.16.25 Crores, shall be kept in escrow account in a bank,
jointly in the name of the defendants 1 and 3 till Mr.V.C.Dhandapani is
settled in full, who is the Ex-Managing Director of the third defendant
company. The third defendant company, in order to get over the lapse of
non-compliance of the statutory provisions, had also purchased additional
land having an extent of 7.99 acres in the joint name of promoters in
proportion to their shareholding ratio in the third defendant company for the
exclusive use of discharging the effluent into the said land. The third
defendant company also filed a suit before the Sub Court, Chengalpattu,
praying to register the land in the name of their company and pendency of
the same, the purchaser/first defendant, with malafide intention, compelled
the third defendant company to keep a sum of Rs.1 Crore in the escrow
account in respect of Mr.V.C.Dhandapani, which is the subject matter of the
said sale agreement. The plaintiff would further state that the consideration
of Rs.16.25 Crores minus Rs.1 Crore in the escrow account has been
undervalued and it is not an adequate consideration and in the absence of
adequate consideration, the sale agreement is not valid and unenforceable
and therefore, the plaintiff had filed the suit for the reliefs as stated above.
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5.1. A detailed written statement was filed by the first defendant-
Shrutivinda Agro Farms Private Limited denying all the averments made by
the plaintiff. The first defendant pleaded that it is a Private Limited
Company incorporated under the provisions of the Companies Act, 1956
and is engaged in the business of agriculture and allied activities. In June
2005, when the first defendant came to know about the decision of the third
defendant company to dispose of its land and building situated at Kalipattur
Village, Old Mahabalipuram Road, Chengalpattu District having
approximately 26 acres and 55 cents to discharge the huge liabilities of the
third defendant company including the statutory dues, labour and staff
settlement, the first defendant expressed its willingness to purchase the suit
property. Therefore, after negotiations, on verification of the title deeds of
the third defendant company in the said property, both the parties entered
into an agreement for sale dated 14.07.2005, inter alia, the first defendant
agreed to purchase the land and building of the third defendant company for
a sale consideration of Rs.16,25,00,000/- free from all encumbrances.
Accordingly, at the time of entering into the agreement, the first defendant
paid an advance of Rs.2,00,00,000/- and subsequently, paid a further sum of
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Rs.50,00,000/- on 18.08.2005 vide cheque no.321739 drawn on HDFC
Bank. Since then, the first defendant kept ready the balance sale
consideration and expressed its readiness and willingness to pay the balance
sale consideration to the third defendant company to complete the sale
transaction within the stipulated period of four months from the date of the
sale agreement. However, after 2 ½ months, availing Rs.2,50,00,000/- from
the first defendant towards settlement of the striking workers dues, realising
that there was a sudden spurt in the price rise of land after the year 2005, as
the State Government announced the Old Mahabalipuram Road as
Information Technology corridor, the plaintiff filed the suit seeking for a
declaration declaring that the agreement for sale dated 14.07.2005 is null
and void and also for a consequential permanent injunction restraining the
defendants therein from implementing the sale agreement and obtained an
order of interim injunction restraining the defendants, their men from in any
way enforcing or proceeding in relation to the sale agreement dated
14.07.2005, citing a reason that the agreement is in contravention of Section
293 of the Companies Act read with Article 54 of the Memorandum/Articles
of Association of the third defendant company, without knowing the fact
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that the said provisions would come into play only prior to the sale of the
suit property and not at the time of entering into an agreement of sale, in
view of Section 46 of the Companies Act, 1956, which says that contracts
on behalf of the company may be made in writing signed by any person
acting under its authority, express or implied, and may in the same manner
be varied or discharged and that such contract would by law be valid,
although made by parol only on behalf of the company by any person acting
under its authority and that contract made under this section shall bind the
company.
5.2. The first defendant also further pleaded in the written statement
that pursuant to the payment of Rs.2,50,00,000/-, with the bona fide
intention, proceeded to purchase the adjacent land covered in S.Nos.31/2B,
14/1, 14/2 and 17/2 for a valid consideration. Such purchase of the adjacent
properties also would show that the first defendant was ready and willing to
purchase the property always, because, without the suit land, the first
defendant may not have access to the aforementioned survey land. Knowing
the bad intention of the plaintiff, the first defendant filed the Civil Suit
No.627 of 2008 before this Court praying for a decree of specific
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performance of the agreement for sale dated 14.07.2005, on the ground that
the decision to sell the said property was the conscious decision taken by all
the shareholders of the third defendant company which included the
plaintiff herein also, because the draft sale agreement was forwarded to the
plaintiff and the plaintiff also actively participated in the negotiations and
only thereafter, the agreement for sale was signed by the parties on
14.07.2005. For all these reasons, the first defendant sought for dismissal of
the suit.
6. Mr.K.V.V.Krishnam Raju, the second defendant in C.S.No.877 of
2005 filed a memo adopting the written statement filed by the first
defendant.
7.1. In the meanwhile, when O.A.No.968 of 2005 in C.S.No.877 of
2005 was moved by the plaintiff seeking an order of interim injunction, the
third defendant company represented by Mr.Jagdish A.Sadarangani, filed a
detailed counter affidavit supporting the sale agreement dated 14.07.2005,
stating that when the workers in the third defendant company went on
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strike, it became impossible to run the company, hence, the mill ought to be
shut down. Accordingly, in April 2005, the Board of Directors formally shut
down the unit and started negotiations with the employees for an amicable
settlement. Even before 2005, the company did not have funds to pay its
creditors. Hence 13 acres were hypothecated to M/s Trident Textile Mills
Limited for a sum of Rs.1,50,00,000/- in 2004-05. Accordingly, power of
attorney was executed in favour of Mr.Jagdish A.Sadarangani representing
the third defendant company to sell the land if the loan amount was not
repaid within 12 months. Based on the same, it was decided that the whole
mill can be sold as lock, stock and barrel and it was also decided that apart
from settling the creditors dues, the amount available would be sufficient
for settlement of the workers dues. At the same time, negotiations were
held with the other purchasers and finally the first defendant offered
Rs.16,25,00,000/- for the lands only and subsequently an agreement was
entered into. Based on the sale agreement, Rs.2,50,00,000/- was received
from the first defendant, which was exclusively used for settlement of the
workers dues and also to pay back the loan to M/s Trident Textile Mills
Limited in which the plaintiff was also the Founder. Under these
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circumstances, it was pleaded that it was not very clear as to how the
plaintiff committing himself to all the transactions, can go back from the
sale agreement.
7.2. The third defendant company, in the counter affidavit, also
denied the allegation of non-compliance of Section 293 of the Companies
Act, because, when in fact most of the shares were being held by only three
families who were together at an emergency Board meeting and EGM,
confirming all the transactions, authorised the Chairman to sign the
agreement for sale. Since all the shareholders were present either in person
or represented through their family members including the plaintiff, the
meeting was called at short notice and the minutes were recorded by
Mr.Jagdish A.Sadarangani as the Chairman. In the said meeting, it was
resolved that the plaintiff and other Directors had agreed that the filing of
resolution with the Registrar of Companies would be done by the Managing
Director to complete all formalities. Since these were only procedural in
nature, Mr.Jagdish A.Sadarangani being the Chairman of the third
defendant company, was duly authorised to execute all the documents, apart
from being the power of attorney holder of the properties. Finally, as
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Chairman of the third defendant company, issued a certified copy of the
minutes genuinely believing that the fourth defendant-Managing Director
would take appropriate steps to complete the legal formalities by filing the
forms with the Registrar of Companies. Therefore, the provisions of Section
293 were in fact complied with and it could be seen that only because of the
conspiracy between the fourth defendant and his brother, the plaintiff
herein, now relying on the technicalities based on the papers which are to be
formally filed with the Registrar of Companies, wherein no specific
approval from the Registrar of Companies is required in this regard,
pleading wrongly that Section 293 has not been complied with, wrongly
filed the suit to hold the sale agreement as null and void, which is neither
factually nor legally correct. Hence the allegation of non-compliance of
Article 54 of the Memorandum/Articles of Association of the company and
Section 293 of the Companies Act, is totally devoid of any truth.
7.3. It was also stated that Section 23 of the Indian Contract Act was
not violated, for the simple reason that when Rs.2,50,00,000/- was received
from the first defendant as part of the sale consideration, the said money
was utilised for settlement of the workers dues and claims. Therefore, after
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receiving the above money from the first defendant, the plaintiff having
been acquiesced of the resolution passed in the Board meeting held on
24.06.2005, cannot now go back from the sale agreement. It was also further
pleaded that the allegation of the plaintiff that no notice was received is now
being used as technicality, particularly, when more than 95% of the
shareholders stood together and held an EGM waiving 21 days notice and
that the meeting was held at the registered office itself, wherein all the
shareholders represented by their family members and since it was an
unanimous decision to sell, only the resolutions were recorded by the
Chairman and signed the draft minutes and left it with the Managing
Director to be circulated to all the Directors. Based on the strength of this
meeting, certified copy of the authority to sign the sale agreement was
furnished to the purchaser/first defendant. Hence it is totally denied that
there was no meeting or no resolution and the certified copy provided is true
giving authority to the Chairman of the company to enter into the
transaction. Even there was no violation of Section 192 also, as the
company could otherwise file Form-23 with belated filing fees which would
in any event not invalidate the transaction. Therefore, when the Directors
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acted only in the interest of the shareholders, the sale agreement is
enforceable in law, as it is beneficial to the company.
8. Opposite to the above stand taken by the third defendant in the suit,
the plaintiff himself filed a written statement on behalf of the third
defendant, taking a stand that he became the Chairman of the third
defendant company with effect from 10.04.2006 and he also stated that
there was no necessity to sell the property in a hurry. Interestingly, the
plaintiff, stepping into the shoes of the third defendant, also admitted the
case of the defendant that on receipt of Rs.2,50,00,000/- from the first
defendant, the said amount has been utilised towards repayment of the loan
to M/s Trident Textile Mills Limited, wherein the plaintiff was the
Chairman and Founder.
9. The fourth defendant also filed a written statement supporting the
stand of the first defendant that major decisions of the company have been
taken only with the consent of the plaintiff. Therefore, this defendant
became a witness to the sale agreement and signed the Board resolution on
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the bona fide belief that the then Chairman would have obtained the consent
of the plaintiff before entering into the sale agreement. It was also further
pleaded that the Chairman of the third defendant company had given a draft
copy of the sale agreement to be forwarded by e-mail to the plaintiff and
this defendant sent the e-mail on 09.07.2005 as per the instructions of
Mr.Jagdish A.Sadarangani. The plaintiff, after perusal of the e-mail sent
back to this defendant and General Manager (Finance) Mr.Anand Gessani
with instructions to forward the copy of the sale agreement to the Auditor of
the plaintiff, who is also the Auditor of the third defendant company to
review the draft sale agreement. This message was passed on to the
Chairman Mr.Jagdish A.Sadarangani. The fourth defendant, in his written
statement, clearly stated that major decisions have been taken only with the
consent of the plaintiff, therefore the plaintiff cannot go back from the sale
agreement, the fourth defendant pleaded.
10.1. The fifth defendant also filed a written statement stating that
when there was a spurt in the price rise as per the State Government's
announcement that Old Mahabalipuram Road is an Information Technology
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corridor, the plaintiff, having given his consent to enter into the sale
agreement dated 14.07.2005 for selling the plant and machineries and also
the land, has wrongly questioned the correctness of the sale agreement. It
was also the stand of the fifth defendant in the written statement that there
was a labour strike in the company. There were number of unsecured
creditors pressing for repayment of the amounts due to them and some of
them also threatened to institute proceedings for winding up of the
company. In such circumstances, the Board of Directors had to take a
decision to wind up the manufacturing activities of the company and to sell
the entire unit consisting of 29 acres of land and building and machinery in
order to repay all the creditors including the labourers and their claims and
to pay the statutory claims such as taxes, etc. Thereafter, the Board of
Directors made calculations about this and all of them came to an
unanimous decision that if they sell the company, they could repay all the
debts and the other dues and they would be able to realise their investments
which they have paid for purchase of the shares in the company. The
plaintiff's elder brother, the fourth defendant himself was one of the
Directors of the company and he also took part in the Board's meeting and
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shareholders meeting, which resolved in favour of selling the immovable
property of the company. When the fourth defendant has been taking part in
the entire affairs of the company, because he has been actually managing the
day-to-day affairs of the company, for the simple reason that the plaintiff is
very much attached to his elder brother, who is the fourth defendant, the
plaintiff had immense confidence in the fourth defendant, because the
fourth defendant is managing the business of the plaintiff elsewhere also.
10.2. It was also pleaded that the fourth defendant, on receipt of the
copy of the sale agreement dated 14.07.2005, sent the draft of the sale
agreement by e-mail to the plaintiff, who was fully aware of the intended
sale transaction and the clauses mentioned in the agreement. Moreover, the
plaintiff who was in U.S., on 10.07.2005, requested the fourth defendant,
his elder brother to clarify certain clauses in the draft sale agreement. On
receipt of the e-mail, the plaintiff did not object or protest about entering
into the sale agreement. It was also the claim of the fifth defendant in the
written statement that all the shareholders knew that the company was
running in loss. The shareholders knew the loss of the company could be
wiped out only if the property of the company is sold and the creditors are
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paid; that only if the property of the company was sold, they could realise
their share capital in full. Therefore, the plaintiff fully knew that the
emergency shareholders meeting/Board meetingwas convened by his
brother and himself upon the legal advice and now the papers in regard to
the company are under the custody of the Managing Director, cannot now
take a plea that there is a lacuna in the sale agreement. The fifth defendant
also pleaded clearly that Section 46 of the Companies Act was duly
complied with. Therefore, the plaintiff is prevented from filing the suit, as
he is one of the Directors who has from time to time taken unanimous
decisions for selling the property only for saving the company from its debts
and to realise the money invested by the shareholders. It was also pleaded
in the written statement that the plaintiff cannot at this stage state that there
was no General Body meeting or resolution passed, when he had in fact
done so.
10.3. With regard to the Board meeting held on 24.06.2005, the fifth
defendant pleaded that on 24.06.2005, when the plaintiff was in India, the
Board met and upon legal advice, shareholders meeting was also called on
the same day which was chaired by Mr.Jagdish A.Sadarangani and after the
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authorisation to sell was passed at the EGM, then immediately the board
minutes was recorded formally authorising Mr.Jagdish A.Sadarangani and
Mr.Harish J.Bakshani, the Chairman and Managing Director respectively, to
sell the property. After that the Managing Director stated that he would look
after the resolution to complete the documentation in regard to the sale
transaction so that it would enable them to proceed further without any
hurdles. When negotiations took place for sale of the plant and machineries
and land, finally the offer of Rs.16,25,00,000/- was made by the first
defendant. This was also discussed with the plaintiff. The workers also
informed that if they were paid with a consolidated amount of
Rs.1,10,00,000/-, they would be satisfied with their claim and accordingly,
they were finally settled of their claim. Therefore, the plaintiff knew very
well that the entire agreement for sale was entered into for resurrecting the
company from further loss, as otherwise the company would have to lose
the entire capital and its business assets.
11. The trial Court, upon consideration of the respective pleadings
and oral and documentary evidence, on hearing the respective learned
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counsel appearing for the parties, on the issues framed therein, decreed the
Civil Suit No.877 of 2005 filed by Mr.Thakur J.Bakshani declaring that the
sale agreement dated 14.07.2005 is null and void, inter alia, on the premise
that the conditions mentioned in Section 293(1)(a) of the Companies Act
have not been complied with, and dismissed the Civil Suit No.627 of 2008
filed by Shrutivinda Agro Farms Private Limited seeking for specific
performance of the agreement of sale, inter alia on the ground that no pre-
suit notice was issued calling upon the defendants to perform their part of
the obligation. Therefore, Original Side Appeal No.191 of 2018 has been
filed by the appellant against the dismissal of the C.S.No.627 of 2008 and
the Original Side Appeal No.192 of 2018 has been filed against the decree
passed in C.S.No.877 of 2005. Hence, both the appeals are taken up
together and disposed of by this common judgment.
12. Mr.AR.L.Sundaresan, learned Senior Counsel appearing for the
first defendant, leading the arguments, submitted that the first defendant is a
Private Limited Company incorporated under the Companies Act, 1956 and
engaged in the business of acquisition and development of lands and
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properties. In June 2005, the first defendant learnt about the decision of the
third defendant company to dispose of its land and building situated at
Kalipattur Village, Old Mahabalipuram Road, Chengalpattu District
measuring approximately 26.55 acres described in the schedule thereunder
and the first defendant expressed its interest in purchasing the said property.
After negotiations, due diligence and verification of title of the second
defendant, both the parties also entered into an agreement for sale dated
14.07.2005 for a total sale consideration of Rs.16,25,00,000/- free from all
encumbrances. The said agreement was signed by one Mr.K.V.V.Krishnam
Raju, for and on behalf of the first defendant and Mr.Jagdish
A.Sadarangani, Director and Chairman, for and on behalf of the third
defendant company. The first defendant, at the time of entering into the
above said agreement for sale, paid an advance of Rs.2,00,00,000/-, the
receipt of which was duly acknowledged by the third defendant company as
per clause 2 of the sale agreement. Clause 3 provided for payment of further
advance of Rs.50,00,000/- by the first defendant to the third defendant
company within one month from the date of the agreement and clause 4
provided for payment of the balance sale consideration of Rs.13,75,00,000/-
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within four months. It was further agreed that the representative of the third
defendant company shall sign, execute and register the required deeds of
sale in favour of the first defendant or in the alternative, facilitate the take
over of the third defendant company by the first defendant. Ever since the
date of agreement, the first defendant has kept ready the balance sale
consideration and expressed its readiness and willingness to pay the balance
sale consideration to the third defendant to complete the sale transaction
within the stipulated period of four months from the date of agreement. The
first defendant further proceeded with the purchase of other adjacent
properties for valuable consideration with the object of consolidating all the
lands including Schedule-B property for developing the same as a single
project. Moreover, the properties purchased by the first defendant,
subsequent to the agreement, have access only through the suit property and
without the suit property, the other lands cannot be put to use, therefore, the
first defendant was always ready to pay the balance sale consideration.
13. Continuing his arguments, Mr.Sundaresan submitted that when
the first defendant was called for a meeting on 4.10.2005 with the directors
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of the third defendant company to discuss certain issues relating to the sale
of the suit property, a representative of the first defendant viz.,
Mr.T.Sitaram Reddy attended the meeting and when the plaintiff, a non-
resident Director of the third defendant company, who had come to Chennai
from U.S.A. to conclude the sale transaction, sought for an amendment of
the sale agreement so as to exclude 13 acres of land from the purview of the
agreement. But the said request for amending the sale agreement was
refused by the first defendant, as it is against the terms of the agreement for
sale. But all of a sudden, the first defendant received a notice from the
plaintiff's counsel that he had filed a suit in C.S.No.877 of 2005 on the file
of this Court against the first defendant and other persons seeking a decree
of declaration that the agreement for sale dated 14.07.2005 is null and void
and for other reliefs, on the ground that the plaintiff, being a majority
shareholder, has never consented for the execution of the agreement for
sale; that the agreement for sale was entered into without his approval, is a
blatant falsehood; that the agreement is in contravention of Section 293 of
the Companies Act read with Article 54 of the Memorandum/Articles of
Association is untenable; inasmuch as the said provisions would come into
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operation on completion of the sale of the suit property and not at the time
of entering into the agreement for sale. Besides, the first defendant submits
that the plaintiff, with the full knowledge of the terms of the agreement,
agreed and approved the agreement for sale. Even the pleadings contained
in the plaint filed in C.S.No.877 of 2005 would show that the entire body of
shareholders and the directors of the third defendant company including the
plaintiff had decided to sell the suit property and the draft copy of the sale
agreement was forwarded to the plaintiff for his perusal. Moreover, it is
also evident from the e-mail dated 10.7.2005 sent by the plaintiff that he
was fully aware of the proposed sale of the suit property and had assented to
such course of action. The said e-mail also supports the case of the first
defendant that the plaintiff had not only approved the sale of the suit
property, but actively involved during the negotiations in approval of the
sale agreement.
14. Mr.Sundaresan, learned Senior Counsel further submitted that
when the third defendant company had received Rs.2,00,00,000/- as
advance and subsequently a sum of Rs.50,00,000/- on 18.08.2005 from the
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first defendant for settlement of the dues of the workers who resorted to a
strike, as it was not possible to run the company and in April, 2005 also, the
Board formally shut down the unit and started negotiations with the workers
for an amicable settlement, the third defendant received the aforesaid
money, which was exclusively used for the settlement of the workers and
also to pay back the loan to M/s Trident Textiles Mills Limited, it is not
open to them to back out from the sale agreement. This crucial aspect has
been overlooked by the trial Court. Secondly, the trial Court, ignoring the
legal aspect that the first defendant has complied with the conditions
enumerated in Section 293 of the Companies Act, wrongly dismissed the
suit filed by the first defendant for specific performance and decreed the suit
filed by the plaintiff declaring that the sale agreement dated 14.07.2005 is
null and void. When most of the shares were being held only by three
families who were together and emergency shareholders meeting and board
meeting authorised the Chairman to sign the agreement for sale; that all the
shareholders were present either in person or represented through their
family members including the plaintiff; that the meeting was held and the
minutes were also recorded by Mr.Jagdish A.Sadarangani, as Chairman; that
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it was obvious that the plaintiff and two directors had agreed that the filing
of resolution with the Registrar of Companies would be done by the
Managing Director to complete all the formalities and the Chairman having
been duly authorised to execute all the documents and a copy of the minutes
having been given to Mr.Harish J.Bakshani to take appropriate steps to
complete the legal formalities and filing the documents with the Registrar of
Companies, the provisions of Section 293 were in fact complied with and it
can be seen that only because of the collusion between Mr.Harish
J.Bakshani and the plaintiff, who are brothers, now relying on the
technicalities which are to be formally filed with the Registrar of
Companies, wherein no specific proceeding from the Registrar of
Companies is required in this regard, the trial Court wrongly came to the
conclusion that the provisions of Section 293 of the Companies Act have
not been complied with. Mr.Sundaresan, learned Senior Counsel, primarily
assailing the impugned judgment of the trial Court, submitted that the suit
filed by the plaintiff is collusive in nature, because the plaintiff and
Mr.Harish J.Bakshani are brothers, if so, the plaintiff, joining hands with
Mr.Harish J.Bakshani, to wriggle out from the sale agreement, has filed the
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suit taking a stand that the provisions of Section 293 of the Companies Act
have not been complied with.
15. Mr.Satish Parasaran, learned Senior Counsel appearing for the
appellant contended that the impugned judgment suffers from apparent
mistakes, inasmuch as when the findings are recorded in favour of the first
defendant holding that the first defendant is a bona fide purchaser and the
sale agreement is bona fide one in paragraph-96 of the judgment, instead of
decreeing the suit for specific performance in favour of the first defendant,
the trial Court has wrongly dismissed the same. Secondly, drawing the
notice of this Court to paragraph-46 of the impugned judgment, he
submitted that when the trial Court accepted the case of the first defendant
that admittedly the amount of Rs.2,50,00,000/- paid by the first defendant
has been utilized by the third defendant company to settle their debts even
prior to the ratification of Ex.P6-agreement for sale, the said act implies the
intention of the third defendant company to give effect or go ahead with
Ex.P6 agreement anticipating that Ex.P6 will go through in its entirety.
Thirdly, the trial Court has also found that the first defendant has
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irretrievably altered its position by purchasing the adjacent lands to the suit
property under Exs.D4 to D10 sale deeds on the basis of the sale agreement-
Ex.P6 and therefore, it is not in a position to alter its position to the utmost
disadvantage. Fourthly, the trial Court has also given a finding that insofar
as the sale of machineries under Ex.P22-Minutes of the Board Meeting is
concerned, it was done with the consent of the plaintiff. Though the plaintiff
was not present in the meeting, a minutes was drawn with his consent and it
got signed. Moreover, the plaintiff would also admit that all major
decisions were taken by the Board of Directors which comprised of
Mr.Jagdish A.Sadarangani-Chairman, Harish J.Bakshani-Director, Prem
I.Watwani-Director, Nisha J Bakshani-Director and himself. Fifthly, the
plaintiff would also admit that from the advance amount received from the
first defendant, the creditors were settled of their dues. Again the trial Court
in paragraph-69 of the judgment held that if this Court construes that the
sale of land and immovable properties of M/s Nova Dyeing and Printing
Mills Limited as (a) forbidden by law, (b) would defeat the provisions of
law or is fraudulent and (c) involves or implies injury to the person or
property of another and also the Court regards it as immoral or opposed to
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public policy, equally this Court has to declare the sale of plant and
machineries by the said company under Ex.P6 as null and void, for the
reason that the sale of plant and machineries would also amount to sale or
otherwise dispose of the whole or substantially the whole of the undertaking
of the company and that without the plant and machineries, the third
defendant company could not function effectively. The trial Court also gave
a finding that the defence of the plaintiff shows that he gave his consent and
as such, the Board of Directors' resolution to sell the same is available and
the said sale has not been challenged by anyone of the shareholders of the
third defendant company and therefore, it cannot be declared as null and
void, because the plaintiff has given his consent for the sale of the land, then
the prayer for specific performance ought to have been granted. There being
a material irregularity, the impugned judgment shall be set aside by
decreeing the suit for specific performance, he pleaded.
16. Again Mr.Satish Parasaran submitted that the trial Court has also
held in paragraph-96 that on perusal of oral and documentary evidence, the
Court is of the considered view that the first defendant is an agreement
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holder to buy the suit property. When the trial Court has given a finding in
favour of the first defendant that the agreement, Ex.P6 is a bona fide
transaction, the sale should also be held as bona fide, accordingly, the sale
deed should have been directed to be executed. The learned Senior Counsel
also submitted that the trial Court has also in paragraph-75 has given a
finding in favour of the first defendant that admittedly, it is not the case of
the plaintiff that the sale consideration fixed is low or inadequate and the
consent of the General Body was not obtained and that his consent has also
not been obtained, though he is a major shareholder, and the agreement is
one-sided favouring the first defendant. Therefore, when the plaintiff has
given his consent for the sale of plant and machineries of the third
defendant company; that the plaintiff has also given his consent for the sale
of land of the third defendant company for a valuable consideration; that he
has also admitted that the advance of Rs.2,50,00,000/- paid by the first
defendant has been utilized for settlement of the dues of the workers and
also towards the loan of M/s Trident Textiles Mills Limited and when the
plaintiff has failed to establish that the clauses in the Ex.P6 agreement for
sale are prejudicial to the interest of the company and the sale agreement is
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a mala fide one, merely on the ground that Section 293(1)(a) of the
Companies Act has not been complied with, the trial Court cannot dismiss
the suit for specific performance, inasmuch as Section 293 is totally
inapplicable to the present case. When the plaintiff has consented for the
sale of plant and machineries, the plant and machineries of the third
defendant company having been sold away in December, 2005, the third
defendant undertaking ceased to exist, hence, Section 293 of the Companies
Act will not be applicable to any non-existing company. Taking support
from the judgment of a Division Bench of Karnataka High Court in
International Cotton Corporation (P) Ltd., v. Bank of Maharashtra, (1971)
41 Comp Cas 226 (Kar), he has argued that the Division Bench, referring to
the decision of the Apex Court in Secretary, Madras Gymkhana Club
Employees' Union v. Management of Gymkhana Club, AIR 1968 SC 554,
has held that the word 'undertaking' has been defined as any business or any
work or project which one engages in or attempts as an enterprise analogous
to the business or trade. The business or undertaking of the company must
be distinguished from the properties belonging to the company.
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17. Again referring to the judgment in R.C.Cooper v. Union of India,
(1970) 1 SCC 248, wherein the Apex Court has explained the word
'undertaking' as meaning the entire organisation, whether it has a plant or
whether it has an organisation, is considered as one whole unit and the
entire business of the going concern is embraced within the word
'undertaking', the learned Senior Counsel has argued that in the case on
hand, when the plant and machineries were sold with the consent of the
plaintiff in December, 2005, the undertaking ceased to exist, therefore,
Section 293 of the Companies Act will not apply. Concluding his
arguments, Mr.Satish Parasaran would contend that the sale agreement
dated 14.07.2005 is not against Section 23 of the Indian Contract Act, as the
trial Court in its findings has categorically held that the first defendant is a
bona fide holder of the agreement for sale, besides the plaintiff has not
chosen to terminate the same by issuing notice to the first defendant at the
earliest point of time. On this basis, he sought for allowing the appeals.
18. Per contra, Mr.P.Subba Reddy, learned counsel appearing for the
plaintiff argued on how Section 293 of the Companies Act is applicable.
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When Section 293 puts restrictions on the powers of the Board of Directors
of a public company or a private company not to sell the whole of the
undertaking of the company without the consent of such public company or
a subsidiary, in the general meeting, in the case on hand, the general body
meeting was not convened before entering into the agreement for sale under
Ex.P6 between the first defendant and the third defendant company and the
justification given by the first defendant shows that the shareholders of the
third defendant company consisted of close family members and to that
extent, the plaintiff had participated in the Board of Directors meeting and
passed the resolution under Ex.P22, hence, the compliance of Section 293
has been made. Ex.P22 is the minutes of the meeting of the Board of
Directors of M/s Nova Dyeing and Printing Mills Limited/third defendant
and the Directors present at the meeting were Mr.Jagdish A.Sadarangani-
Chairman, Mr.Harish J.Bakshani in his capacity as the Managing Director,
Mr.I.Prem Watwani in his capacity as the Director. While so, as per the
minutes of the said meeting, leave of absence was granted to the plaintiff
and his wife Mrs.Nisha T.Bakshani. In respect of the said minutes relating
to authorisation to sell the land and building of the company, it cannot be
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treated as sufficient compliance of Section 293. The object of Section 293
shows that the Directors cannot sell away the shares belonging to the
shareholders, for which consent of the General Body is required and
thereafter, the same should be informed to the Registrar of Companies. This
compliance has not been followed, therefore, the trial Court has held that in
the interest of the shareholders, non-compliance of Section 293 before
entering into the sale agreement, is unacceptable.
19. Referring to the judgment of a learned single Judge of the
Bombay High Court in Nirad Amilal Mehta v. Genelec Limited and others,
CDJ 2008 BHC 999, Mr.Subba Reddy argued that when there was a General
Body meeting held and a decision taken to sell the assets, no notice was
given to any member, therefore, Section 171 of the Companies Act requires
at least 21 days prior notice. That also has not been complied with. So also,
Section 173 of the Companies Act requiring an explanatory statement to be
annexed to the notice of the meeting. When Section 171 of the Companies
Act requires 21 days prior notice to be given to the members, it was held by
the learned single Judge that the undertaking cannot be sold without the
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consent of the shareholders. In the present case, neither the General Body
meeting was held nor 21 days prior notice as per Section 171 of the
Companies Act was given. Therefore, the findings given by the trial Court
that Section 293 of the Companies Act has not been complied with for
selling the land of the undertaking, are in order and the same do not call for
any interference. Although the first defendant claims that there was a
resolution passed by the Board authorising the sale of plant and
machineries, authorising the retrenchment of the workers working in the
third defendant company and authorising the Board of Directors to sell the
land in question, the Board Resolution cannot be converted as approval in
the Annual General Meeting, as the law will not permit to do so. When the
Board resolution was passed on 27.07.2005, only thereafter the sale
agreement ought to have been entered into. But in the present case, the sale
agreement was entered on 14.07.2005. When 21 days prior notice has not
been given to the shareholders under Section 171 of the Companies Act, the
sale agreement cannot have any legal force. Mr.Subba Reddy further
contended that the whole agreement for sale is not only invalid, but also
against Section 23 of the Indian Contract Act, inasmuch as ignoring the
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interest of the majority shareholders, only a handful of directors cannot sell
away the shares of the plaintiff. Referring to the annual report for the year
2004-05, Mr.Subba Reddy contended that the sale agreement entered with
the third defendant on 14.07.2005 specifically mentions that it is subject to
the approval of the members in the General Body meeting. Due to the
objections raised by Mr.Thakur J.Bakshani, the plaintiff and his family
members controlled companies, this matter was not included in the Annual
General Meeting for the financial year 2004-05 which was held on
21.09.2005 and this matter did not come up for discussion at the aforesaid
Annual General Meeting of the company, therefore, the sale of land was not
brought by the shareholders as required under Section 293(1)(a) of the
Companies Act at the General Body Meeting of the shareholders of the
company on 21.09.2005, hence, the sale agreement cannot be enforced.
Hence, the trial Court has come to the conclusion that since the consent of
the shareholders in the extraordinary general body meeting has not been
obtained, in terms of Section 293 of the Companies Act, the sale agreement
cannot be enforced. When the interest of the shareholders are to be taken
note of, the resolution passed by the company, as per Section 192(4)(ee) of
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the Companies Act, requires ratification at the hands of the Registrar of
Companies. That also has not been done. Therefore, the sale agreement to
sell the land of the undertaking is not legally permissible.
20. Again Mr.Subba Reddy, pointing out Clauses 4, 8 & 14 of the
agreement for sale of the landed property, argued that clause 4 of the said
agreement says that the purchaser shall pay the balance sum of
Rs.13,75,00,000/- to the vendor in full within four months and on receipt of
the same, the vendor shall sign, execute and register the required deed in
favour of the purchaser or in the alternate, the vendor would sell and the
purchaser shall purchase the entire shares and take over the company
without any liabilities. After paying out Rs.2,50,00,000/-, the first defendant
has not paid the balance sum. Clause 8 of the agreement also shows that the
sale transaction shall be completed within four months and similarly, clause
14 of the agreement also says that if the vendor fails to register the sale deed
or in the alternate, fails to transfer the company within six months due to
staff, labour and creditor problems, then the purchaser would be given an
option to settle the vendor's staff, In the present case, after making the
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payment of Rs.2,50,00,000/-, the balance consideration has not been paid,
therefore, there is no continuous readiness and willingness shown by the
appellant/first defendant. As a matter of fact, even the filing of the Civil Suit
No.627 of 2008 by the first defendant just 19 days before the expiry of the
limitation period, is fatal, because of inordinate delay and, as the relief of
specific performance is also an equitable relief, the first defendant is not
entitled to get the same. When the suit for specific performance should be
filed within a reasonable time showing the continuous readiness and
willingness, Mr.Subba Reddy, relying upon the judgment of a Division
Bench of this Court in the case of S.Sarojini and another v. P.Mariappan
and another, 2018 (4) CTC 13, submitted that if the agreement holder
seeking the decree of specific performance is found with blemish conduct
not showing its readiness and willingness from the date of agreement till the
date of decree, the decree for specific performance cannot be granted. In the
present case, when the agreement dated 14.07.2005 stipulated that the
balance consideration shall be paid within four months, even after expiry of
the four months period, without showing its readiness and willingness to
make the entire sale consideration, the first defendant chose to file the Civil
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Suit No.627 of 2008 just 19 days before the expiry of the period of
limitation. That shows that the first defendant was not ready and willing to
perform their part of the obligation. Hence, the trial Court has rightly
dismissed the suit and the same requires no interference. He also relied
upon a judgment of the Apex Court in the case of Jagjit Singh (dead)
through legal representatives v. Amarjit Singh, (2018) 9 SCC 805 for the
proposition that the failure to establish readiness and willingness would
disentitle the agreement holder to the relief of specific performance of
contract. Concluding his arguments, Mr.Subba Reddy also argued that the
plaintiff, after filing the suit, with the leave of the Court, had also deposited
the sum of Rs.2,50,00,000/- in 2007 in the name of the Registrar General,
High Court, Madras and the said amount is lying in fixed deposit with the
accrued interest. Therefore, the first defendant cannot have any grievance or
plead that he had paid part of the sale consideration long time back.
21. Further Mr.Subba Reddy pleaded that when there is no counter
claim made by the first defendant in the written statement, peculiarly, they
have amended the plaint only after 8 long years claiming damages. As per
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Article 55 of the Limitation Act, for any breach of the clauses of the
agreement giving rise to damages, three years period is the maximum
limitation. Therefore, the first defendant ought to have filed their claim for
damages within a reasonable time of three years, which has not been done.
Hence the said claim is also not legally maintainable.
22. We have given our anxious consideration to the rival contentions
and upon consideration of the entire materials available on record, this
Court frames the following points for determination:-
(i) When the third defendant undertaking ceased to exist in December,
2005 on selling off its plant and machineries and retrenching all the
work force by settling their dues, whether the compliance of Section
293 of the Companies Act is required in the present case?
(ii)When the plaintiff Mr.Thakur J.Bakshani has admitted in the plaint
and also pleaded before the trial Court that the decision taken for sale
of plant and machineries of Nova Dyeing and Printing Mills Limited
was with his knowledge, concurrence and due to unanimous decision
of the Directors in the Board, whether can he take a contra stand in
the same plaint that the sale agreement dated 14.07.2005 is without
his consent, hence the sale agreement is per se null and void?
(iii)Whether the principle of estoppel will apply against the plaintiff's
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own admission before the trial Court, as per Section 115 of the
Evidence Act?
(iv)When Section 397 of the Companies Act provides relief in cases of
oppression, again Section 398 provides relief in cases of
mismanagement of the affairs of the company and Section 402
empowers the Tribunal to terminate any agreement reached between
the Directors, whether the plaintiff, without challenging the Board's
resolution dated 24.06.2005 before the Tribunal, can be allowed to
file a civil suit for the same relief?
(v) Whether the suit for specific performance filed by the first defendant
is maintainable on the ground of readiness and willingness under
Section 16(c) of the Specific Relief Act, 1963?
23. Point No.(i): As rightly contended by the learned Senior Counsels
appearing for the appellant/first defendant, the expression 'undertaking' has
not been defined in the Companies Act. However, the expression
'undertaking' as per the Webster's Dictionary would mean, anything
undertaken or any business, work or project which one engages in or
attempts, as an enterprise. A Eleven-Judge Bench of the Apex Court in
R.C.Cooper v. Union of India, (1970) 1 SCC 248 has discussed the
expression 'undertaking' as follows:-
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“164. The word “undertaking” is used in various
statutes of our country, viz., the Indian Electricity
Act, 1910, (Sections 6, 7, 7-A), Indian Companies
Act [Sections 125(4)(f), 293 and 394], Banking
Regulation Act, 1949 (Section 14-A), Cotton
Textiles Companies, (Management of Undertakings
and Liquidation or Reconstruction) Act, 1967
[Sections 4(1), 5(1)(2)]. By the word “undertaking”
is meant the entire organisation. These provisions
indicate that the company whether it has a plant or
whether it has an organisation is considered as one
whole unit and the entire business of the going
concern is embraced within the word
“undertaking...”
A careful reading of the above judgment shows that the word 'undertaking'
means the entire organisation, that means the company whether it has a
plant or whether it has an organisation, the same is considered as one whole
unit and the entire business of the going concern is embraced within the
word 'undertaking'. The said judgment also tells us that the undertaking is
an amalgam of all ingredients of property and is not capable of being
dismembered. That would destroy the essence and innate character of the
undertaking, because in reality, the undertaking is a complete and complex
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weft and the various types of business and assets are threads which cannot
be taken apart from the weft. Again the word 'undertaking' has been
explained by the Division Bench of the Calcutta High Court in Pramod
Kumar Mittal v. Andhra Steel Corporation Ltd. and others, (1985) 58 Comp
Cas 772(Cal), after discussing various authorities, to answer whether the
term 'undertaking' requires compliance under Section 293 of the Companies
Act, has held that a closed unit not giving any production cannot be said
that it is an undertaking of the company.
24. Again the Apex Court in Secretary, Madras Gymkhana Club
Employees' Union v. Management of Gymkhana Club, AIR 1968 SC 554,
had an occasion to consider the meaning of the word 'undertaking' and
observed that the word 'undertaking' must be defined as “any business or
any work or project which one engages in or attempts as an enterprise
analogous to business or trade”. When the Eleven-Judge Bench of the
Hon'ble Apex Court in the decision in R.C.Cooper's case (supra) has
defined the word 'undertaking' as the entire organisation as one whole unit
and the entire business of the going concern is embraced within the word
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'undertaking' and this judgment has also been followed consistently in
various decisions holding that if the unit of the company has been closed
and has not been in production for more than five years past, the same
cannot be said that it is an undertaking of the company, in the case on hand,
whether the third defendant company can be considered as an undertaking
for the purpose of applying Section 293 of the Companies Act when it
ceased to exist?
25. To answer the same, let us look at the admitted position of the
parties. The plaintiff in his own plaint has clearly admitted that the
company's activities have completely come to a virtual close with effect
from 03.02.2005. The relevant portion of the said admission made by the
plaintiff before the trial Court is extracted as under:-
“4...The Plaintiff further states that due to certain
complaint made to Pollution Control Board by the
then Managing Director, Mr.V.C.Dhandapani, the
Company had undergone enormous difficulties and
for the past six years, the Company's activities are
in the process of decline and the Company's
manufacturing activities virtually closed with effect
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from 03.02.2005. Now the Company is under the
process of settling all the statutory dues, staff
settlement dues and all its Trade Creditors.”
Secondly, all the workers of the company were also retrenched in 2005. The
plaintiff, in his cross examination, has also admitted as follows:-
“As the Mill had stopped its businesses in
February 2005 the company had only focused on
settling creditors and retrenching the workers.”
[page 98 Vol-II]
Therefore, when the entire workers were also retrenched and consequently
and thirdly the plant and machineries were also sold in July, 2005 prior to
the filing of the suit in October, 2005 and fourthly, when the entire business
operation of Nova Dyeing was virtually closed on 03.02.2005, the third
defendant company had lost the character of an undertaking and therefore,
when they have entered into a sale agreement on 14.07.2005, there was no
ongoing working unit or undertaking to do any business, hence, a mere
barren land and building alone cannot constitute an undertaking. Therefore,
in our considered view, Section 293(1)(a) of the Companies Act cannot be
applied.
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26. Although we find that Section 293 of Companies Act cannot be
applied to a closed unit, for the purpose of selling the plant and machineries
and retrenching the workers and to effect the sale of the land, Article 54 of
the Articles of Association of the company is necessary to be referred to,
hence, the same is also extracted as under:-
“POWERS AND DUTIES OF DIRECTORS
54. In furtherance of and without prejudice to the
general powers conferred by or implied in Article
and other powers conferred by these Articles and
subject to the provisions of Section 292 and 293 of
the Act, it is hereby expressly declared that it shall
be lawful for the Directors to carryout all or any of
the objects set forth in the Memorandum of
Association and to do the following things.
(a) To purchase or otherwise acquire for the
company any property, rights or privileges which
the Company is authorised to acquire at such price
and generally on such terms and conditions as they
fit and to sell, let, exchange or otherwise dispose
of property privileges and undertakings of the
company upon such terms and conditions and for
such consideration as they may think fit...”
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27. A perusal of the above Article 54 of the Articles of Association,
among other things, clearly shows that subject to the provisions of Sections
292 and 293 of the Companies Act, it shall be lawful for the Directors to
carry out all or any of the objects set forth in the Memorandum of
Association and to do the following things, namely, (a)...to sell, let,
exchange, or otherwise dispose of property privileges and undertakings of
the company upon such terms and conditions and for such consideration as
they may think fit.
28. When we have found in the preceding paragraph that Section 293
of the Companies Act cannot be applied to a closed unit, Article 54 gives
power to the Board of Directors to sell, let, exchange or dispose of the
property of the company upon such terms and conditions. Therefore, in
compliance of Article 54, the Board meeting was held on 24.6.2005 at 10.30
A.M., at BNT Export House, No.126, Nelson Manickam Road, Aminjikarai,
Chennai, the registered office of the company under Ex.P22. In the said
meeting, decision was taken (a) to sell the subject land belonging to the
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third defendant company and the entire minutes of the said Board meeting
dated 24.06.2005 were drawn with the consent of Mr.Thakur J.Bakshani,
the plaintiff and leave of absence was also given to him, as requested by
him for the said meeting. Even in the cross examination, Mr.Thakur
J.Bakshani, P.W.1, has deposed that after 05.02.2005 the third defendant
company has not commenced its business activities till date, namely,
16.4.2014 for about nine long years, since the labourers went on strike.
[Useful reference can be had from page 79 Vol II of the paper book]. The
relevant portion is given as under:-
“...After 5th February 2005, the Nova Dyeing
Printing has not commenced its business activities
till date since the labourers went on strike. The
labour strike went on till October 2005, however, I
am not sure of the date. However, I can assert that
the labour issue was resolved in 2005. The
settlement with the labourers was by settling all
their dues and by retrenching them. The assets of
Nova Dyeing and Printing Mills company in the
form of its machineries were sold during July –
October 2005. All the machineries of the company
were disposed of during the said period. However,
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I am not sure to state if the sale of the machineries
was concluded before the settlement was arrived at
with the workers. The sale of the machinery was
with my consent and it was the decision of the
Board. The Board of Nova Dyeing Printing Mills
Ltd then consisted of 1. Mr.Jagdish Sadarangani,
the Chairman, 2. Mr.Harish J.Bakshani, Managing
Director, 3. Mr.Prem Watwani, Director, 4.
Mrs.Nisha T.Bakshani, Director and 5. myself,
Director. In addition to us Mr.V.C.Dhandapani,
continued to be a director of Nova Dyeing
however never participated in the board meeting.
My consent was obtained before a decision to sell
the machineries were taken by the board of Nova
Dyeing and Printing Mills Ltd. Ex.P22 is the
extract of the board meeting in which the
machineries of the company were decided to be
sold and though I was not present for the said
meeting the minutes drawn were with my consent
and knowledge as discussed and agreed earlier.”
(emphasis supplied)
29. The above admission of the plaintiff clearly shows that the
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minutes of the meeting were drawn with his consent and knowledge as
discussed and agreed earlier. Further, in the meeting held on 24.06.2005, the
Board of Directors had passed a resolution to sell the land and building of
the company, which is given as under:-
“Item No.4
AUTHORISATION TO SELL LAND AND
BUILDING OF THE COMPANY
RESOLVED THAT approval of the Board be and
are hereby accorded to dispose the factory Land
and Building of the company situated at No.30,
Kazhipattur Village, Old Mahabalipuram Rod,
Chengai District-603 103.
RESOLVED FURTHER THAT Mr.Jagdish
A.Sadarangani, Chairman of the company be and is
hereby authorized to negotiate with prospective
buyers to dispose the above property on the terms
and conditions mutually agreed between the
company and the prospective buyers.
RESOLVED FURTHER THAT Mr.Jagdish
A.Sadarangani be and is hereby authorized to
finalise the Sale Agreement / Deed duly affixing
the common seal of the company in the presence of
Mr.J.Haresh Bakshani, Managing Director of the
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company whose also sign as witness thereof.
RESOLVED FURTHER THAT Mr.Jagdish
A.Sadarangani be and is hereby authorized to do
all such acts, deeds and things which are necessary
in this regard.”
30.1. When the plaintiff himself has admitted before the trial Court
that with his consent and knowledge, the Board meeting was held on
24.06.2005, in which the approval of the sale of the land and building of the
company, was accorded, if at all the plaintiff is aggrieved, without
challenging the Board's resolution giving power to the Directors to sell the
land, before the Court of law, it is not open to the plaintiff to challenge the
consequential decision-the validity of the sale agreement dated 14.07.2005
by filing a suit on the ground that Section 293 of the Companies Act have
not been complied with. As we have held already that as per the ratio laid
down by the Hon'ble Eleven-Judge Bench of the Apex Court in R.C.Cooper
case holding that an undertaking of a company will be the entire integrated
organisation consisting of all property, movable or immovable and the
entire business of the going concern but not a shut down or closed unit, the
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restrictions imposed by Section 293 to hold Annual General Meeting to
obtain approval are not attracted in the present case. Moreover, the
argument advanced on behalf of the plaintiff that the sale agreement is
invalid in view of non-compliance of the statutory provisions under Section
293 of the Companies Act, cannot be put against the first defendant,
because, the doctrine of indoor management provides for persons dealing
with the company to be entitled to presume that the internal requirements as
prescribed in the Memorandum/Articles of Association have been properly
complied with. The Hon'ble Apex Court in MRF Limited v. Manohar
Parrikar and others, (2010) 11 SCC 374, has held as follows:-
“111. The doctrine of indoor management is in
direct contrast to the doctrine or rule of
constructive notice, which is essentially a
presumption operating in favour of the company
against the outsider. It prevents the outsider from
alleging that he did not know that the constitution
of the company rendered a particular act or a
particular delegation of authority ultra vires. The
doctrine of indoor management is an exception to
the rule of constructive notice. It imposes an
important limitation on the doctrine of constructive
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notice. According to this doctrine, persons dealing
with the company are entitled to presume that
internal requirements prescribed in memorandum
and articles have been properly observed.
Therefore doctrine of indoor management protects
outsiders dealing or contracting with a company,
whereas doctrine of constructive notice protects the
insiders of a company or corporation against
dealings with the outsiders. However, suspicion of
irregularity has been widely recognized as an
exception to the doctrine of indoor management.
The protection of the doctrine is not available
where the circumstances surrounding the contract
are suspicious and therefore invite inquiry.”
30.2. The above observation clearly shows that when persons dealing
with the company are entitled to presume that the internal requirements as
prescribed in the Memorandum/Articles of Association have been duly
complied with, as rightly held by the trial Court that the first defendant is a
bona fide agreement holder and that the plaintiff has come to the Court with
unclean hands, we are of the considered opinion that the trial Court ought to
have dismissed the suit for declaration filed by the plaintiff. Therefore, the
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first point is answered in favour of the first defendant.
31. Point Nos.(ii) & (iii): Admission and Estoppel: Whether the
plaintiff-Mr.Thakur J.Bakshani shall be estopped under Section 115 of the
Evidence Act from acting against his own decision taken during the Board
meeting held on 24.06.2005 to sell the suit land and also to sell the plant
and machineries, particularly, when the entire minutes of the meeting were
drawn with his consent and leave of absence was also given to Mr.Thakur
J.Bakshani?
32. In this context, it is relevant to extract Section 115 of the
Evidence Act, as follows:-
“115. Estoppel. –– When one person has, by his
declaration, act or omission, intentionally caused or
permitted another person to believe a thing to be
true and to act upon such belief, neither he nor his
representative shall be allowed, in any suit or
proceeding between himself and such person or his
representative, to deny the truth of that thing.”
33. A careful reading of the above provision clearly shows that when
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one person, by his declaration or act, has permitted another person to act
upon such belief, thereafter, neither he nor his representative shall be
allowed to deny the truth of that thing.
34. In the case on hand, the meeting of the Board of Directors of M/s
Nova Dyeing and Printing Mills Limited was held on 24th June, 2005 at
10.30 A.M., at BNT Export House, Chennai, the registered office of the
company in respect of the Agenda shown in Item Nos.1 to 6. For better
appreciation, the said minutes are extracted hereunder:-
“MINUTES OF THE MEETING OF THE BOARD OF DIRECTORS
OF THE M/S NOVA DYEING & PRINTING MILLS LIMITED ON
24TH JUNE 2005 AT 10.30 A.M. AT BNT EXPORT HOUSE,
NO.126, NELSON MANICKAM ROAD, AMINJIKARAI, CHENNAI
600 029, THE REGISTERED OFFICE OF THE COMPANY
DIRECTOR'S PRESENT:
1. SHRI.JAGADISH A.SADARANGANI - CHAIRMAN
2. SHRI.J.HARESH BAKSHANI - MANAGING DIRECTOR
3. SHRI.PREM I.WATWANI - DIRECTOR
ITEM NO.1 LEAVE OF ABSENCE:
Leave of absence was granted to Shri J.Thakur
Bakshani and Smt.Nisha T.Bakshani, Directors of the
Company.
ITEM NO.2
CONFIRMATION OF THE MINUTES OF PREVIOUS
BOARD MEETING:
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The minutes of the previous Board Meeting held on
5th April 2005. The draft copy of which was circulated to all
the Directors were read and confirmed and the same was
signed by the chairman as fair and correct summary of the
proceeding.
ITEM NO.3
RATIFICATION OF SETTLEMENT DONE WITH
TRADE CREDITORS, WORKERS AND STAFF:
RESOLVED that the following expenditure which was
incurred towards settlement of trade creditors, workers and
staff in aggregate Rs.284.15 Lacs be and is hereby approved
and ratified.
Trade Creditors
Rs.146.95 Lacs
Workers & Staff
Rs.122.89 Lacs
Factory expenses
Rs. 14.31 Lacs
-------------------
Total Rs.284.15 Lacs
-------------------
RESOLVED FURTHER that the above expenditure was met
out of the money borrowed from M/s Trident Textiles Mills
Limited and out of the Sale proceeds of company's movable
Assets such as plant and Machineries.
ITEM NO.4:
AUTHORISATION TO SELL LAND AND BUILDING
OF THE COMPANY
RESOLVED THAT approval of the Board be and are
hereby accorded to dispose the factory Land and Building of
the company situated at No.30, Kazhipattur Village, Old
Mahabalipuram Rod, Chengai District-603 103.
RESOLVED FURTHER THAT Mr.Jagdish A.Sadarangani,
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Chairman of the company be and is hereby authorized to
negotiate with prospective buyers to dispose the above
property on the terms and conditions mutually agreed
between the company and the prospective buyers.
RESOLVED FURTHER THAT Mr.Jagdish A.Sadarangani
be and is hereby authorized to finalise the Sale Agreement /
Deed duly affixing the common seal of the company in the
presence of Mr.J.Haresh Bakshani, Managing Director of
the company whose also sign as witness thereof.
RESOLVED FURTHER THAT Mr.Jagdish A.Sadarangani
be and is hereby authorized to do all such acts, deeds and
things which are necessary in this regard.
ITEM NO.5:
RATIFICATION OF SETTLEMENT MADE WITH
WORKERS & STAFF:
RESOLVED that the list of the workers and the staff with
whom the company has entered into individual settlement under
section 12(3) & Settlement before Joint Labour Commissioner
under Section 18(1) of the Industrial Disputes Act and the copy
of the said Agreements which was placed before the Meeting
duly initiated by the Chairman for the purpose of identification
be and is hereby approved.
RESOLVED FURTHER that the total expenditure of Rs.122.89
Lacs which was incurred by the company towards settlement of
dues of all workers and staffs be and is hereby approved and
ratified.
ITEM NO.6:
AUTHORISATION TO SELL EXISTING PLANT &
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MACHINERY:
RESOLVED that approval of the Board be and is hereby
accorded to sell the company's existing plant & Machinery for a
consideration of Rs.88 Lakhs.
RESOLVED FURTHER that the approval of the Board be and
is hereby accorded to enter into suitable sale agreement with the
prospective buyers Mr.J.Balan on such terms and conditions as
mutually agreed between the Board and the said buyer the draft
copy.
RESOLVED THAT the draft copy of the Sale Agreement as
placed before the meeting duly authenticated by the Chairman
for the purpose of identification be and is hereby approved.
VOTE OF THANKS:
As there was no other business to transact, the meeting was
concluded with a vote of thanks to the chair.
PLACE : CHENNAI Sd/-
DATE: 24th June, 2005 CHAIRMAN”
35.1. A careful perusal of item no.1 of the above minutes shows that
leave of absence was granted to Mr.Thakur J.Bakshani, the plaintiff and his
wife. Item No.2 relates to the confirmation of the minutes of the previous
board meeting held on 5.4.2005. This was unanimously accepted and
ratified by all the Directors including the plaintiff. Item No.3 relates to
ratification of the settlement done with trade creditors, workers and staff
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aggregating to Rs.284.15 lakhs that was met from the money borrowed from
M/s Trident Textile Mills Limited and out of the sale proceeds of movable
assets such as plant and machineries of the third defendant company. This
was also approved and ratified. Item No.4 relates to the authorisation to sell
the land and building of the third defendant company. The first part of the
resolution vividly says that the Board has accorded approval to dispose of
the factory land and building of the defendant company. The second part of
the resolution also says that Mr.Jagdish A.Sadarangani, the Chairman of the
third defendant company was authorised to dispose of the above property on
the terms and conditions mutually agreed between the company and the
prospective buyers. Again the third part of the resolution says that
Mr.Jagdish A.Sadarangani was again authorised to finalise the sale
agreement/deed duly affixing the common seal of the company in the
presence of the Managing Director of the company. Once again the fourth
part of the resolution says that Mr.Jagdish A.Sadarangani was authorised to
do all such acts, deeds and things which are necessary in this regard.
Importantly, this was also not questioned by the plaintiff before any
authority viz., the Tribunal. Item No.5 relates to the ratification of
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settlement made with workers and staff and by virtue of this ratification of
settlement, the third defendant company sought to ratify the settlement
entered into with the workers and staff under Section 12(3) and the
settlement before the Joint Labour Commissioner under Section 18(1) of the
Industrial Disputes Act, as a result, all the workers and staff constituting
essential ingredients of undertaking were retrenched in 2005 bringing the
undertaking to an end. This was also not questioned by the plaintiff. Item
No.6 relates to the authorisation to sell the existing plant and machineries,
another component of undertaking. The plaintiff having approved this
authorisation also, has acted upon this resolution by selling the plant and
machineries for a sum of Rs.88 lakhs and again failed to question any one of
the items of the resolution, therefore, he cannot now pick and choose only
the sale agreement, when he had received the sale consideration of
Rs.2,50,00,000/-. When the plaintiff has approved the resolution of the
Board of Directors to sell the land and building and also the plant and
machineries of the third defendant company, he shall be lawfully estopped
from questioning the sale agreement dated 14.07.2005 entered into by the
third defendant with the first defendant. As referred to earlier, when the
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plaintiff has admitted before the trial Court that he gave his consent for
passing the resolution in the Board meeting held on 24.06.2005 for sale of
the plant and machineries and also for sale of the land and building, after
acting on the minutes of the Board meeting to sell the plant and machineries
under Ex.P22, the same plaintiff, without even raising any written objection
with regard to the sale of the land, cannot approbate and reprobate only with
regard to the sale of the land, since, in the meanwhile, the price of land in
the area in question shot up. The detailed, explicit and clear admission
made by the plaintiff standing in the witness box before the trial Court,
having been extracted in the preceding paragraphs 25 & 28, for the sake of
brevity, is again given below:-
“...My consent was obtained before a decision to
sell the machineries were taken by the board of
Nova Dyeing and Printing Mills Ltd. Ex.P22 is the
extract of the board meeting in which the
machineries of the company were decided to be
sold and though I was not present for the said
meeting the minutes drawn were with my consent
and knowledge as discussed and agreed earlier.”
This admission of the plaintiff clearly brings his case under Section 58 of
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the Evidence Act read with Order XII, Rule 6 of the Code of Civil
Procedure, which are extracted hereunder:-
“Section 58 – Facts admitted need not be proved –
No fact need to be proved in any proceeding which
the parties thereto or their agents agree to admit at
the hearing, or which, before the hearing, they
agree to admit by any writing under their hands, or
which by any rule of pleading in force at the time
they are deemed to have admitted by their
pleadings:
Provided that the Court may, in its discretion,
require the facts admitted to be proved otherwise
than by such admissions.
Order XII, Rule 6 of CPC – Judgment on
admissions – (1) Where admissions of fact have
been made either in the pleading or otherwise,
whether orally or in writing, the Court may at any
stage of the suit, either on the application of any
party or of its own motion and without waiting for
the determination of any other question between
the parties, make such order or give such judgment
as it may think fit, having regard to such
admissions.
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(2) Whenever a judgment is pronounced under sub-
rule (1) a decree shall be drawn up in accordance
with the judgment and the decree shall bear the
date on which the judgment was pronounced.”
35.2. While Section 58 of the Evidence Act says that facts admitted
need not be proved, Order XII, Rule 6 of the Civil Procedure Code would
further make it clear that where admissions of fact have been made either in
the pleading or otherwise, whether orally or in writing, the Court may, at
any stage of the suit, either on the application of any party or of its own
motion and without waiting for determination of any other question between
the parties, make such order or give such judgment, having regard to such
admissions. In the case on hand also, since the plaintiff in his deposition
before the trial Court has admitted that the Board of Directors held a
meeting on 24.06.2005 and with his consent minutes were drawn, which is
marked as Ex.P22, and the decisions were taken to sell the plant and
machineries and as the sale of the land was also part of the decision taken in
the Board meeting held on 24.06.2005, without even challenging the
minutes under Ex.P22 before the Tribunal, the plaintiff cannot come to the
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civil Court only questioning the sale of the land. Therefore, on the basis of
his own admission, he is not entitled to the relief of declaration sought for in
the Civil Suit No.877 of 2005.
35.3. Further, the plaintiff, Mr.Thakur J.Bakshani filed a reply
statement for the written statement filed by the fifth defendant, Mr.I.Prem
Watwani stating that he has not given his consent for passing the resolution
to sell the plant and machineries and land to the third defendant company.
The relevant portion of the reply reads thus:-
“10.....It was fact that there was a Board Meeting
on 24.06.2005 when the Plaintiff was in India but
was away from Chennai to attend his other
business interests and the Plaintiff has not attended
the said Board Meeting on 24.06.2005. Further the
mere witnessing the transaction by the Fourth
Defendant doesn't amount that he has obtained the
consent of the Plaintiff...”
Whereas, in his cross examination before the trial Court on 16.04.2014, he
has answered the question as follows:- [page 79 Vol II of the paper book]
“...The sale of the machinery was with my consent
and it was the decision of the Board. The Board of
Nova Dyeing Printing Mills Ltd then consisted of
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1. Mr.Jagdish Sadarangani, the Chairman, 2.
Mr.Harish J.Bakshani, Managing Director, 3.
Mr.Prem Watwani, Director, 4. Mrs.Nisha
T.Bakshani, Director and 5. myself, Director. In
addition to us Mr.V.C.Dhandapani, continued to be
a director of Nova Dyeing however never
participated in the board meeting. My consent was
obtained before a decision to sell the machineries
were taken by the board of Nova Dyeing and
Printing Mills Ltd. Ex.P22 is the extract of the
board meeting in which the machineries of the
company were decided to be sold and though I was
not present for the said meeting the minutes drawn
were with my consent and knowledge as discussed
and agreed earlier.”
35.4. The above answer given by the plaintiff standing in the witness
box before the trial Court clearly and undoubtedly shows that the plaintiff
was conscious of the decision taken by all the Directors of the Board for
closing down the undertaking, for selling the plant and machineries of the
undertaking and also for selling the land and building and also for executing
the sale agreement dated 14.07.2005. In view of his own solemn admission
made before the trial Court that he was a party to the decision taken on
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24.06.2005, we are of the considered opinion that by virtue of Section 58 of
the Evidence Act read with Order XII, Rule 6 and Order XV, Rule 1 of the
Code of Civil Procedure, the trial Court ought to have decreed the suit for
specific performance by dismissing the plaintiff's suit for declaration.
Therefore, the points are answered accordingly.
36. Coming to the fourth point whether the plaintiff, without
challenging the Board's resolution before the Tribunal under Sections 397,
398 & 402 of the Companies Act, can go to civil Court to challenge only the
sale agreement, it may be mentioned that on the basis of the minutes of the
Board meeting, when the plaintiff has acted upon the minutes to sell away
the plant and machineries without even resorting to Section 293 of the
Companies Act and again he has also ratified the settlement made with the
workers and staff, for questioning the execution of the sale agreement dated
14.07.2005, the plaintiff ought to have approached the Tribunal/Company
Law Board the competent authority for mismanagement either under
Section 397 or under Section 398 or under Section 402 of the Companies
Act, 1956, which are given as under:-
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“397. Application to Tribunal for relief in cases of
oppression:- (1) Any members of a company who
complain that the affairs of the company are being
conducted in a manner prejudicial to public
interest or in a manner oppressive to any member
or members (including any one or more of
themselves) may apply to the Tribunal for an order
under this section, provided such members have a
right so to apply in virtue of section 399.
(2) If, on any application under sub-section (1), the
Tribunal is of opinion- (a) that the company's
affairs are being conducted in a manner prejudicial
to public interest or in a manner oppressive to any
member or members ; 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.
398. Application to Tribunal for relief in cases of
mismanagement: (1) Any members of a company
who complain -
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(a) that the affairs of the company are being
conducted in a manner prejudicial to public
interest or in a manner prejudicial to the interests
of the company ; or
(b) that a 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 its 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 public interest or in a manner
prejudicial to the interests of the company ; may
apply to the Tribunal for an order under this
section, provided such members have a right so to
apply in virtue of section 399.
(2) If, on any application under sub-section (1), the
Tribunal is of opinion that the affairs of the
company are being conducted as aforesaid or that
by reason of any material change as aforesaid in
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the management or control of the company, it is
likely that the affairs of the company will be
conducted as aforesaid, the Tribunal may, with a
view to bringing to an end or preventing the
matters complained of or apprehended, make such
order as it thinks fit.
402. Powers of Tribunal on application under
Section 397 or 398. Without prejudice to the
generality of the powers of the Tribunal under
section 397 or 398, any order under either section
may provide for -
(a) the regulation of the conduct of the company's
affairs in future;
(b) the purchase of the 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) the termination, setting aside or modification of
any agreement, howsoever arrived at, between the
company on the one hand, and any of the
following persons, on the other, namely :
(i) the managing director,
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(ii) any other director,
(iii) and (iv) [***]
(v) the manager, upon such terms and
conditions as may, in the opinion of the Tribunal
be just and equitable in all the circumstances of the
case;
(e) the termination, setting aside or modification of
any agreement between the company and any
person not referred to in clause (d), provided that
no such agreement shall be terminated, set aside or
modified except after due notice to the party
concerned and provided further that no such
agreement shall be modified except after obtaining
the consent of the party concerned;
(f) 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 section 397 or 398, which
would, if made or done by or against an individual,
be deemed in his insolvency to be a fraudulent
preference;
(g) any other matter for which in the opinion of the
Tribunal it is just and equitable that provision
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should be made.” (emphasis supplied)
37. Firstly, the Tribunal under Section 402 of the Companies Act has
got enormous power to deal with, to terminate, set aside or to modify any
agreement between the company and any other person not referred to in
clause (d). Therefore, having taken a stand that Section 293 of the
Companies Act was violated, the plaintiff should have approached the
Tribunal, because the plaintiff in such circumstances would have
complained that the affairs of the company are being conducted in a manner
prejudicial to the public interest or in a manner oppressive to any member
under Section 397, but he has chosen not to do so. Even Section 398 also
says that any member of the company who complains that the affairs of the
company are being conducted in a prejudicial manner to the interest of the
company, can apply for any relief in case of mismanagement. That
course/remedy also has not been availed of. Even under Section 402, when
the Tribunal has got enormous power for regulation of the conduct of the
company's affairs in future or to set aside any transfer, delivery of goods,
payment, modification of any agreement or termination of any agreement or
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any act relating to property made against the company within three months
from the date of application, ironically, it is not known why the plaintiff has
not even approached the Tribunal questioning the minutes of the Board
meeting held on 24.06.2005. On the other hand, when the Board meeting
has authorised the sale of plant and machineries and also the sale of the land
and building of the company, the plaintiff, having agreed with the resolution
and has also acted upon to sell away the plant and machineries without even
complying with Section 293 of the Companies Act, he is again legally
estopped from questioning the validity of the sale agreement alone before
the civil Court, because, as highlighted above, by virtue of Sections 397,
398 & 402 of the Companies Act, filing a suit before the civil Court
challenging the sale agreement is not legally maintainable, as the remedy
lies before the Tribunal to question the Board's resolution. This legal aspect
has been overlooked by the trial Court. Secondly, the plaintiff having
admitted before the trial Court that he had consented to pass the resolution
in the Board's meeting to sell away the plant and machineries, to close down
the company and to sell the land of the company, is estopped from either
going to the civil Court or to the Tribunal. Therefore, the failure to approach
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the Tribunal under Section 397 or under Section 398 or under Section 402
of the Companies Act to set aside the Board's resolution dated 24.06.2005
giving power to sell the land and challenging only the consequential act of
entering into an agreement to sell the land of the third defendant company is
fatal, hence, filing civil suit to challenge the sale agreement is unjustified.
Accordingly, this point is answered in favour of the first defendant.
38. Point No.(v): Coming to the issue whether the suit for specific
performance filed by the first defendant is maintainable under Section 16(c)
of the Specific Relief Act, 1963 is concerned, the said section is extracted
hereunder:-
“16. Personal bars to relief.—Specific performance
of a contract cannot be enforced in favour of a
person—
(a) & (b) ....
(c) who fails to prove that he has performed or has
always been ready and willing to perform the
essential terms of the contract which are to be
performed by him, other than terms of the
performance of which has been prevented or waived
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by the defendant.
Explanation.—For the purposes of clause (c),
(i) where a contract involves the payment of
money, it is not essential for the plaintiff to actually
tender to the defendant or to deposit in court any
money except when so directed by the court;
(ii) the plaintiff must prove performance of, or
readiness and willingness to perform, the contract
according to its true construction.”
The above section envisages that the first defendant/plaintiff in C.S.No.627
of 2008 must plead and prove that he has performed or has always been
ready and willing to perform the essential terms of the contract which are to
be performed by him, other than terms the performance of which has been
prevented or waived by the defendant and the continuous readiness and
willingness on the part of the plaintiff is a condition precedent to grant the
relief of specific performance. This circumstance is material and relevant,
hence, it is required to be considered by the Court while granting or refusing
the relief. To adjudge whether the plaintiff is ready and willing to perform
his part of the contract, the Court must take into consideration the conduct
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of the plaintiff prior and subsequent to the filing of the suit along with other
attending circumstances.
39. In this case, it may be mentioned that
(i) both the first defendant/Shrutivinda Agro Farms Private Limited and
the third defendant/Nova Dyeing and Printing Mills Limited entered
into an agreement for sale on 14.07.2005 at Chennai, in and by which
the first defendant has agreed to purchase and the third defendant
company has agreed to sell the 'B' schedule property morefully
described in the schedule thereunder for a net sale consideration of
Rs.16,25,00,000/- free from all encumbrances.
(ii)The said sale agreement was signed by Mr.K.V.V.Krishnam Raju, for
and on behalf of the first defendant and Mr.Jagdish A.Sadarangani for
and on behalf of the third defendant company on the basis of the
minutes of the meeting of the Board of Directors held on 24.06.2005.
(iii)At the time of entering into the agreement, the first defendant paid an
advance of Rs.2,00,00,000/-, the receipt of the same was also duly
acknowledged by the third defendant vide clause 2 of the agreement
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for sale.
(iv)Clause 3 of the agreement provided for payment of a further sum of
Rs.50,00,000/- by the first defendant within one month from the date
of agreement. Subsequent to the sale agreement, the first defendant
paid a further sum of Rs.50,00,000/- on 18.08.2005, the receipt of the
same also has been duly acknowledged by the third defendant
company and ever since the date of agreement, the first defendant has
kept ready the balance sale consideration and expressed its utmost
readiness and willingness to pay the balance sale consideration to
complete the sale transaction within the stipulated period of four
months from the date of agreement.
(v) Clause 4 provided for payment of the balance sale consideration of
Rs.13,75,00,000/- within four months thereof after the defendant
company furnished the details mentioned in clause 10 of the
agreement.
(vi)Clause 8 provided that the sale transaction shall be completed within
four months.
(vii)Clause 11 recorded that time is the essence of the agreement for sale
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and in the event of failure to keep up any of the obligations by either
party, the other party shall be entitled to claim specific performance
of the agreement for sale on the other.
(viii) When the four months time was to expire on 14.11.2005, the
plaintiff filed the Civil Suit No.877 of 2005 before the High Court for
no fault on the part of the first defendant seeking to declare that the
sale agreement dated 14.07.2005 entered into between the first
defendant and the third defendant company is null and void against
his own brother with a consequential relief of permanent injunction
restraining the defendants therein from enforcing any terms and
conditions of agreement dated 14.07.2005 in any manner. After filing
the suit, the plaintiff obtained an order of injunction on 07.10.2005
restraining the defendants including the plaintiff in the suit for
specific performance from enforcing any terms and conditions of the
agreement for sale in any manner interfering with the sale agreement.
(ix)When the trial Court has granted interim injunction restraining the
defendants, more particularly, the first defendant/plaintiff in
C.S.No.627 of 2008 for specific performance not to enforce any terms
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and conditions of the agreement for sale in any manner, the first
defendant has been injuncted from issuing even the pre-suit notice
calling upon the third defendant company to come forward to execute
the sale deed on the basis of the sale agreement dated 14.07.2005, that
has become the subject matter of lis in C.S.No.877 of 2005.
(x) When the first defendant had paid a sum of Rs.2,00,00,000/- as
advance at the time of entering into the sale agreement dated
14.07.2005 and also paid a further sum of Rs.50,00,000/- on
18.08.2005, after receiving the said amount which was exclusively
used for settlement of the workers dues and also to pay back the loan
of M/s Trident Textiles Mills Limited in which the plaintiff was the
Chairman, when there was a sudden spurt in price rise of the land
after 2005, because the State Government made an announcement
that the Old Mahabalipuram Road has become an Information
Technology corridor, the plaintiff has hurriedly filed the Civil Suit
No.877 of 2005 and obtained an injunction order restraining the first
defendant not to issue even the pre-suit notice.
(xi)Therefore, when the first defendant had paid Rs.2,00,00,000/- on the
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date of agreement and also a further sum of Rs.50,00,000/- on
18.08.2005, having received notice along with the order of injunction,
the filing of the civil suit for specific performance against the
defendants therein for execution of the sale deed on the basis of the
sale agreement clearly averring and pleading that the first defendant
has performed its part of the contract, are all the relevant material
circumstances sufficiently proving the readiness and willingness of
the first defendant to perform the execution of the sale deed, ought to
have been considered by the trial Court while granting the said relief.
40. In similar circumstances, the Apex Court in Man Kaur (Dead) by
L.R's v. Hartar Singh Sangha (2010) 10 SCC 512, has held that to adjudge
whether the plaintiff is ready and willing to perform his part of the contract,
the Court must take into consideration the conduct of the plaintiff prior and
subsequent to the filing of the suit along with other attending circumstances.
The relevant portions of the judgment read thus:
12. Section 16(c) of the Specific Relief Act 1963
(`Act for short) bars the specific performance of a
contract in favour of a plaintiff who fails to aver
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and prove that he has performed or has always
been ready and willing to perform the essential
terms of the contract which are to be performed by
him (other than terms of the performance of which
has been prevented or waived by the defendant).
Explanation (ii) to section 16 provides that for
purposes of clause (c) of section 16, the plaintiff
must aver performance of, or readiness and
willingness to perform, the contract according to
its true construction. Thus in a suit for specific
performance, the plaintiff should not only plead
and prove the terms of the agreement, but should
also plead and prove his readiness and willingness
to perform his obligations under the contract in
terms of the contract. (See : N.P. Thirugnanam to
R. Jagan Mohan Rao - AIR 1996 SC 116 ;
Pushparani S.Sundaram v. Pauline Manomani
James - 2002 (9) SCC 582 ; and Manjunath
Anandappa v. Tammanasa - 2003 (10) SCC 390 ).
13. In the first case, this Court held :
"The continuous readiness and
willingness on the part of the plaintiff is
a condition precedent to grant the relief
of specific performance. This
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circumstance is material and relevant
and is required to be considered by the
court while granting or refusing to grant
the relief. If the plaintiff fails to either
aver or prove the same, he must fail. To
adjudge whether the plaintiff is ready
and willing to perform his part of the
contract, the court must take into
consideration the conduct of the plaintiff
prior and subsequent to the filing of the
suit along with other attending
circumstances. The amount of
consideration which he has to pay to the
defendant must of necessity be proved to
be available. Right from the date of the
execution till date of the decree he must
prove that he is ready and has always
been willing to perform his part of the
contract. As stated, the factum of his
readiness and willingness to perform his
part of the contract is to be adjudged
with reference to the conduct of the
party and the attending circumstances.
The court may infer from the facts and
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circumstances whether the plaintiff was
ready and was always ready and willing
to perform his part of contract."
41. Therefore, as per the above judgment of the Apex Court, to
adjudge whether the first defendant (plaintiff in C.S.No.627 of 2008) was
ready and willing to perform his part of the obligation, the Court must take
into consideration the attending circumstances prior and subsequent to the
filing of the suit. In this context, the conduct of the first defendant prior to
the filing of the suit would show that the first defendant had purchased 8
acres of nearby land and the access to the purchased land is only through the
suit schedule property. After the sale agreement, legitimately expecting that
the sale agreement would materialise, the first defendant had purchased the
adjacent lands. Now in view of refusal of decree for specific performance,
the first defendant is unable to use the purchased land. These attending
circumstances prior and subsequent to the filing of the suit would indicate
that the first defendant was ready and willing to perform their part of the
contract. This apart, the trial Court also, in paragraph-96 of the impugned
judgment, has held in favour of the first defendant that the first defendant
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was a bona fide agreement holder to buy the suit property. The said portion
is given as under:-
“96. This Court, on a perusal of oral and
documentary evidence, is of the considered view
that the first defendant has shown bonafide as
Agreement Holder to buy the suit property.”
42. When the trial Court also has come to the conclusion that the first
defendant is a bona fide agreement holder and has also recorded a finding
that the Board of Directors of the third defendant company in the minutes of
the meeting under Ex.P22 dated 24.06.2005 have accorded approval for sale
of the plant and machineries for a consideration of Rs.88 lakhs, the contra
stand taken by the plaintiff would clearly show that he has not come to the
Court with clean hands, therefore, the relief of declaration sought for by the
plaintiff to hold the sale agreement as null and void, ought not to have been
granted. Therefore, we are of the considered opinion that there is a material
irregularity committed by the trial Court holding that the third defendant
had sold away the plant and machineries for Rs.88 lakhs on the basis of the
minutes of the Board meeting dated 24.06.2005 and the plaintiff did not
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challenge the said sale would technically amount to taking a contra stand,
clearly exposes the unclean hands of the plaintiff, because when the trial
Court has given a finding that the third defendant had sold away the plant
and machineries on the basis of the minutes of the Board of Directors dated
24.06.2005 without complying with Section 293 of the Companies Act,
cannot give a finding that the written agreement for sale dated 14.07.2005
would violate Section 293 of the Companies Act. Even the explanation
given under Section 16(c) of the Specific Relief Act, 1963 shows that for
the purpose of clause (i) of Section 16(c) where a contract involves the
payment of money, it is not essential for the plaintiff to actually tender to
the defendant or to deposit in Court any money except when so directed by
the Court.
43.1. Moreover, the Apex Court in its recent judgment in Kamal
Kumar v. Premlata Joshi and others, (2019) 3 SCC 704, has again reiterated
the settled principles of law that the decree for specific performance is a
discretionary and equitable relief, for which the material questions required
to be gone into are: (i) existence of valid concluded contract; (ii) readiness
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and willingness of plaintiff to perform his part of contract; (iii) plaintiff
performing his part of contract and its extent and manner, and whether such
performance is in consonance with terms of contract; (iv) whether it is
equitable to grant relief of specific performance regarding suit property or it
causes any hardship to defendant, and if yes, how and in what manner such
relief can be granted; and (v) entitlement of plaintiff to any other alternative
relief such as refund of earnest money with interest etc., and on what
grounds such relief can be granted?
43.2. In the case on hand, firstly, both the parties have executed the
agreement for sale dated 14.07.2005 for sale of the land in question.
Secondly, the first defendant (plaintiff in C.S.No.627 of 2008), showing its
readiness and willingness, paid a huge sum of Rs.2,00,00,000/- as advance,
at the time of executing the agreement for sale. Thirdly, the first defendant
(plaintiff in C.S.No.627 of 2008) had also paid a further sum of
Rs.50,00,000/- on 18.08.2005 and has been readily and willingly waiting to
pay the balance sale consideration. Fourthly, the plaintiff (Mr.Thakur
J.Bakshani) has only filed the C.S.No.877 of 2005 challenging the
correctness of the agreement for sale and obtained an order of injunction
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dated 07.10.2005 against the defendants therein not to interfere in any
manner with the sale agreement. Besides, on the basis of the sale agreement
and the payment of part consideration, the first defendant (plaintiff in
C.S.No.627 of 2008) has also purchased 8 acres of nearby land, and has
been waiting for the execution of the sale deed on payment of the balance
consideration, as the access to the purchased land is only through the suit
land. When the first defendant (plaintiff in C.S.No.627 of 2008) has fulfilled
the aforementioned conditions, we are of the considered opinion that the
first defendant would suffer hardship, if the equitable relief of specific
performance is not granted. Moreover, when the first defendant has proved
its readiness and willingness to perform its part of the contract by paying
part of the sale consideration of Rs.2,50,00,000/- and the plaintiff has not
disputed the execution of the sale agreement and that the first defendant has
also filed the Civil Suit No.627 of 2008 seeking the relief of specific
performance within the time of three years, as the limitation for filing the
suit as prescribed under Article 54 of the Limitation Act having not
commenced, the judgment and decree passed by the trial Court, without
considering the aforementioned aspects, dismissing the suit for specific
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performance, in our considered view, are unjustified, as the trial Court
ought to have held that the sale agreement is valid and enforceable one.
43.3. The Hon'ble Apex Court in A.Kanthamani v. Nasheen Ahmed,
(2017) 4 SCC 654, relying upon the decision of the Privy Council in Bank
of India v. Jamsetji A.H.Chinoy, 1949 SCC OnLine PC 81 on the question
as to how and in what manner the plaintiff is required to prove his financial
readiness so as to enable him to claim specific performance of the
contract/agreement, also quoted with approval the view taken by Chagla
A.C.J., inter alia that “it is not necessary for the plaintiff to produce the
money or vouch a concluded scheme for financing the transaction to prove
his readiness and willingness”.
44. In the present case, as we have discussed above, when the
plaintiff has obtained an order of injunction dated 07.10.2005 restraining
the first defendant not to interfere with the sale agreement dated 14.07.2005
in any manner, the non-issuance of pre-suit notice by the first defendant,
cannot be taken as a defence by the plaintiff, as the first defendant has to
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respectfully comply with the order of injunction. Moreover, when the
plaintiff has obtained an order of injunction not to interfere with the sale
agreement, the first defendant was lawfully prevented from issuing the pre-
suit notice. Therefore, the plaintiff, having obtained an order of injunction
dated 07.10.2005 against the first defendant, cannot complain that there was
no readiness or willingness to perform the execution of the contract.
Besides, the sale agreement dated 14.07.2005 entered into between the
parties has not been terminated by the defendant company-M/s Nova
Dyeing. As a matter of fact, the plaintiff, having received part of the sale
consideration of Rs.2,50,00,000/-, utilised the same and above all, no notice
whatsoever has been given to cancel or terminate the sale agreement. Hence,
the fifth point is also answered in favour of the first defendant that the suit
for specific performance is maintainable in law, more particularly, when the
trial Court has given two findings, namely, (i) that the plaintiff has come to
the Court with unclean hands, for the reason that he has given his consent to
pass the resolution in the Board meeting, which gives power to sell the plant
and machineries and also the suit land, after selling the plant and
machineries, he cannot challenge the sale of the land and (ii) when the first
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defendant was the bona fide sale agreement holder, the suit filed by the
plaintiff should have been dismissed and the suit filed by the first defendant
for specific performance should have been decreed, since the plaintiff has
come to the Court with unclean hands.
45. Therefore, for all the aforementioned discussions and conclusions,
answering all the points in favour of the first defendant and against the
plaintiff, the impugned common judgment and decree passed by the trial
Court are set aside and the original side appeals are allowed. As a necessary
corollary, C.S.No.627 of 2008 filed by M/s Shrutivinda Agro Farms Private
Limited seeking for specific performance of the agreement for sale dated
14.07.2005 is decreed by directing the purchaser to deposit the balance sale
consideration before the trial Court within a period of two weeks from the
date of receipt of a copy of this order and on such deposit, the sale deed in
respect of the 'B' schedule property shall be executed by the vendor in
favour of the purchaser within a period of four weeks therefrom. In view
thereof, the alternate prayer for damages stands rejected. For the very same
reasons, C.S.No.877 of 2005 is dismissed. Consequently, C.M.P.Nos.9923
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to 9926 of 2018 are closed. However, there is no order as to costs
throughout.
Speaking order (T.R.,J.) (S.S.K.,J.)
Index : yes 11.03.2022
ss
To
1. The Sub Assistant Registrar (O.S.)
High Court, Madras
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T.RAJA, J.
and
SATHI KUMAR SUKUMARA KURUP, J.
ss
Judgment in
O.S.A.Nos.191 & 192 of 2018
11.03.2022
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