TMI Blog2018 (3) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... within Section 293(1)(a) of the Companies Act and for effecting such a sale, consent/approval of the shareholders of the company is required. Contention by the first defendant/plaintiff in that since major shares are being held by Manging Director and Directors of the company, their decision to sell the land and properties would amount to consent of majority shareholders, this Court is of the view that the said submission lacks merit in the light of mandatory nature of Section 293(1)(a) of the Companies Act and that apart, in the event of holding General Body Meeting, explanatory statement under Section 173 of the Companies Act is also to be enclosed with the notice for the meeting and as such, both the provisions have not been adhered to. Also when there is a clear breach of a provision of a Statute, the Doctrine of Indoor Management cannot apply If a Statute prescribes a mandatory procedure, the same must be complied with at peril of the action being declared void for its non compliance. Third defendant and other directors did not obtain consent from the plaintiff/Thakur J. Bakshani before entering into Ex.P6/Agreement for Sale dated 14.07.2005 No doubt, then Chairma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4)(eee)(i) of the Companies Act requires ratification at the hands of the Registrar of Companies and it has not been done. - C. S. Nos.877 of 2005 And 627 of 2008 - - - Dated:- 8-2-2018 - MR. M. SATHYANARAYANAN, J. For The Plaintiff : Mr.P.Subba Reddy, Mr.Madhan Babu And Mr.R.Parthasarathy For The Defendants : Mr.P.Subba Reddy, Mrs. R. Rajashree, Mr.S.R.Rajan And Mr.Madhan Babu COMMON JUDGMENT Facts leading to the filing of these Suits and the issues to be adjudicated are intertwined and that apart, this Court, vide order dated 28.02.2013, based on the endorsement made in C.S.No.877 of 2005 and C.S.No.627 of 2008, had ordered joint trial and recording of further evidence and hence, both the Suits are disposed of by this common judgment. 2. For the sake of convenience, the plaintiff in C.S.No.877 of 2005, who is also arrayed as the second defendant in C.S.No.627 of 2008, is referred as the plaintiff. Similarly, the first defendant in C.S.No.877 of 2005, who has instituted the Suit in C.S.No.627 of 2008 is referred as the first defendant. The third defendant in C.S.No.877 of 2005, who is arrayed as the first defendant in C.S.No.627 of 2008 is referred as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 bonafide impression that the final draft Sale Agreement is under process and upon his approval only, the Sale Agreement will 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. 3.4 The plaintiff would further aver that however the Sale Agreement came into being between the third defendant company and the first defendant company on 14.07.2005, without his consent and approval, especially when he is almos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count in respect of Mr. V.C. Dhandapani account, which is the subject matter of the said Sale Agreement. The plaintiff would further state that the consideration of ₹ 16.25 Crores minus ₹ 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 declaring the Sale Agreement dated 14.07.2005 entered into between the first and third defendant as null and void and also for 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 and also prayed for decreeing of the Suit with costs. 4. The first defendant, namely M/s. Shrutivinda Agro-Farms Private Ltd., filed the Written Statement and apart from denying/refuting the averments made in the plaint, took the following stand: 4.1 The first defendant also filed a comprehensive Suit on the file of this Court in C.S.No.627 of 2008, praying for specific performance of the Agreement for Sale dated 14.07.2005. The first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dant Company. The first defendant also took a stand that an extent of 2.39 acres of land standing in the name of Mr. V.C. Dhandapani, though claimed by the third defendant Company, is outside the purview and scope of the Sale Agreement. 4.3 The first defendant also took a legal plea that the Agreement for Sale is perfectly in order and admittedly, plant and machineries of the third respondent Company have been sold in favour of third parties without following transparent procedure and the plaintiff did not choose to make a challenge and therefore, the claim of the plaintiff lacks bonafide. The first defendant also took a stand that he is always ready and willing to perform his part of obligation and he had purchased lands in S.No.31/2B, 14/1, 14/2 and 17/2 for valuable consideration and he has also instituted a Suit in C.S.No.627 of 2008 on the file of this Court, praying for Specific Performance of the Agreement for Sale dated 14.07.2005 and the same is pending consideration and therefore, the first defendant prayed for dismissal of the Suit with costs. 5. The second defendant had filed Memo of Adoption dated August 2011, adopting the written statement of the first defendant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.20 Crores much prior to Sale Agreement dated 14.07.2005 and had also sold the plant and machineries for a value of ₹ 100.08 lacs, which were also utilized to discharge the liabilities to the creditors, staff and for payment of statutory dues and the third defendant Company had arranged sufficient funds from it s own group Company and also from the sale of plant and machineries to discharge actual commitments. 6.3 The third defendant also took a stand that they had one year time as per Memorandum of Understanding to make the payment from 11.04.2005 i.e., upto 11.04.2006 and as such, there was no necessity to sell the property in a hurry and in the light of the time granted by M/s. Trident Textile Mills Limited upto 11.04.2006, there is no necessity to sell the land and properties. The third defendant, in para 10 of the written statement, had enumerated their stand that there was no necessity to dispose of the property and the said Agreement for Sale is certainly not in the interest of the company and further averred among other things that Clauses 9, 13 and 14 have been drafted in such a way favouring only the purchaser/first defendant company and the said Clause also pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the plaintiff. 8. The fifth defendant, namely Mr. Prem I Watwani also filed the separate written statement and averred as follows: 8.1 The fifth defendant stated that the plaintiff s main interest is in a different Company and does not bestow his attention for the management of the third defendant company and the management of the company is left by him to his brother/fourth defendant, who is his elder brother and Mr. Jagadish A. Sadarangani is not added as a defendant in his personal capacity and therefore, the Suit is to be dismissed on that ground. It is further stated that lands admeasuring to an extent of 29 acres were purchased for the third defendant company and they did not have appreciable value at the time, when several bits of lands were purchased and consolidated. However, there was a sudden spurt in the price rise almost after the year 2005, after the State Government announced Old Mahabalipuram Road (OMR) as Information Technology corridor. The fifth defendant further averred that the elder brother of the plaintiff, namely the fourth defendant is one of the Directors of the third defendant company and he had also taken part in the Board Meeting and Shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the fifth defendant also lent money to the company for erecting certain machineries and during April 2005, the Board of Directors of the third defendant company informally decided to shut shown the manufacturing unit and gave it to Mr. Inigo, the responsibility of negotiating with the Workers and Union to arrive at an amicable settlement and that apart, the creditors of the company also proceeded for repayment of the loans due and payable to them and since they had no funds to repay the dues, a decision has been taken to hypothecate 13 acres of lands which formed part of the suit properties with M/s. Trident Textiles Mills Ltd., and received a sum of ₹ 1.50 crores. A Power of Attorney was also given to Mr. Jagdish A. Sadarangani, the Chairman of the company to sell the lands if the amount of ₹ 1.50 Crores has not been repaid within 12 months from the date of borrowal and a further decision was also taken that the property of the company, the entire manufacturing operations, the stock of raw materials, finished goods and machines were to be sold for the purpose of repayment of loan to all the creditors and to settle the workers as well as to pay the statutory dues. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t defendant offered to pay ₹ 16.25 Crores for the land and the said fact was also informed to the plaintiff by the defendants 4 and 5 and also by Mr. Jagdish A. Sadarangani, as the company was serious in settling the workers. The plaintiff and all other Directors took a decision to receive advance of ₹ 2.50 Crores from the first defendant company to settle the workers and to repay the loan taken from M/s. Trident Textiles. The plaintiff had also agreed for the same and wanted a copy of the Sale Agreement from his brother, namely the fourth defendant and he in-turn on 11.06.2005, sent a copy to the plaintiff in U.S.A. and as such, the plaintiff is very well aware of the reasons for entering into Sale Agreement with the first defendant company and to prevent further loss and in the absence of the same, the Company would have lost the entire capital and it s assets. 8.7 The fifth defendant also took a stand that the plaintiff is prevented/restrained/has no locus standi to file the present Suit as he is one of the parties and was also consenting to the unanimous decision of selling the property for the purpose of saving the Company from it s debts and to realize the mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t been followed and the immovable properties of the company are sold by the Board of Directors, vide Board Resolution dated 24.06.2005 and the same is null and void. The plaintiff, in his reply statement, took a stand that since Mr. Jagdish A. Sadarangini and the fifth defendant were preoccupied in their own business, the fourth defendant was appointed as the Managing Director to take care of the day-to-day management of the company and prior to that Mr. Jagdish A. Sadarangini was taking care of the same and the plaintiff has no personal grievance against any of them. 9.2 As regards transfer of shareholding in his favour, it is the stand of the plaintiff that nobody forced or induced Mr. Jagdish A. Sadarangini to transfer the shares and resign from the Board of the third defendant company and further took a stand that as on the date of filing of the counter affidavit, no authorization was given to Mr. Jagdish A. Sadarangini to do so. The plaintiff would further aver that the third defendant had purchased 12.24 acres of land during the year 1998-99, that is much prior to Mr. Jagadish A. Sadarangini, the defendants 4 and 5 became Directors in the company and subsequently during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettlement of the creditors. The plaintiff denied the averment as to the holding of Extraordinary General Body Meeting prior to the Board of Directors Meeting on 24.06.2005 and prays for decreeing of the Suit with exemplary costs. 10. This Court, upon perusal and consideration of the pleadings, vide order dated 10.09.2012, framed the following issues for trial: (1) Whether the Sale Agreement entered by the first defendant with the third defendant is against provisions of Companies Act in particular Section 293 of the Companies Act and Articles of Association of third defendant company ? (2) Whether the third defendant and other Directors obtained consent from the plaintiff before entering into the Sale Agreement dated 14.07.2005, being a major shareholder in the company? (3) Whether the then Chairman of the third defendant company and defendants 4 and 5 have any interest in the company and whether they are shareholders now in the company? (4) Whether the plaintiff, being a founder of the company, empowered to question the validity of the Sale Agreement dated 14.07.2005 between the first defendant and third defendant company? (5) Whether the first defendant shown th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... behalf of the first defendant company. 11.2 The plaintiff, at the time of entering into the above said Agreement for Sale, paid an advance of ₹ 2,00,00,000/-, the receipt of which has been duly acknowledged by the first defendant, vide Clause 2 of the Sale Agreement. Clause 3 provides for payment of further advance of ₹ 50,00,000/- by the plaintiff to the defendant within one month from the date of the agreement and Clause 4 provides for payment of balance sale consideration of ₹ 13,75,00,000/- within four months thereafter and the first defendant furnished all the details mentioned in Clause 10 of the said agreement and the said agreement further provides that upon receipt of the entire sale consideration, the first defendant shall sign, execute and register the required deeds of sale in favour of the plaintiff or its nominee/s or in the alternative, facilitate the take over of the defendant company by the plaintiff. 11.3 Clauses 5 to 7 of the agreement provide the defendant s assurances regarding its absolute right, title and interest in the Suit property and of the property free from all encumbrances, land ceiling and acquisition proceedings, mortgage an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reversibly altered its position and as such, any reworking on the land as suggested by the second defendant, is impossible of compliance and other Directors/shareholders of the third defendant company had expressed their inability to dissuade the second defendant from committing breach of the Sale Agreement. 11.6 It is further averred that the plaintiff was shocked to receive a notice during October 2005 from the second defendant s counsel stating that the second defendant had filed a Suit in C.S.No.877 of 2005 on the file of this Court against the plaintiff herein and other persons who were involved in the Agreement for Sale dated 14.07.2005 and according to the plaintiff, it is a gross abuse of judicial process and was instituted with ulterior motive. The plaintiff also took a stand that the averments made by the second defendant in the Suit in C.S.No.877 of 2005 are per se unsustainable for the reason that almost the entire shareholders and Directors of the first defendant company took a decision to sell the suit property and the draft copy of the Sale Agreement was forwarded to the second defendant for his perusal and the same is evidenced by e-mail dated 10.07.2005 sent by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Sale dated 14.07.2005 and it is also ready with the balance sale consideration of ₹ 13.75 Crores and however, the second defendant, who is in total control of the first defendant company, is evading the performance under the Sale Agreement and therefore, left with no other alternative, the present Suit is filed. 12. The second defendant has filed the written statement reiterating the stand taken in the Suit filed by him in C.S.No.877 of 2005 and further took the following stand: 12.1 There are various encumbrances and hurdles to sell the schedule mentioned property, especially the property owned by Mr. V.C. Dhandapani. The second defendant would further aver that the Clauses in the Sale Agreement dated 14.07.2005 have been drafted in such a manner to favour the plaintiff company and after entering into such Sale Agreement, the plaintiff company failed to comply with any of the terms of the Sale Agreement and the plaintiff before entering into such Sale Agreement, should have discussed with the majority of the shareholders. The second defendant had denied the readiness and willingness on the part of the plaintiff to perform his obligation and the plaintiff never too ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany or their representative should have consulted and had negotiations, but they have failed to do so. The second defendant also took a stand that the plaintiff was never ready to pay the balance sale consideration and however, a sum of ₹ 1 Crore was deposited in Escrow Account, which is totally contrary to Clause 15 of the Sale Agreement and therefore, prayed for dismissal of the Suit with costs. 13. The plaintiff in C.S.No.627 of 2008, who is the first defendant in C.S.No.877 of 2005, subsequently moved applications in A.Nos.3373 to 3376 of 2013 for amendment of the plaint to include the alternative prayer of directing the defendants to make payment of ₹ 78 Crores as damages to the plaintiff and it was ordered on 07.11.2013 and subsequently, amendment of the prayer was also carried out in the plaint. 14. The first defendant filed additional written statement dated 11.02.2014 and took the following stand: 14.1 The plaintiff Company conveniently waited for a period of 3 years in order to institute the present Suit and it is hopelessly barred by limitation and the Suit has been instituted on 24.06.2008 i.e., 19 days just before the completion of three years pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir consent and the amendment sought for by the plaintiff for alternative relief also came into being after a period of five years and that too at the verge of closure. 14.3 The first defendant would further aver that the plaintiff Company is a group company of Satyam of Mr. Ramalinga Raju, who was involved in a mega scam and the plaintiff company has been used to divert funds from Satyam and criminal prosecution has been launched by Central Bureau of Investigation [CBI] and accounts of the plaintiff company have been frozen by CBI and on that ground also, the plaintiff is not entitled to any relief. 15. The second defendant has filed additional written statement dated 11.02.2014, adopting the additional written statement filed by the first defendant. 16. The plaintiff had filed reply statement to the additional written statement filed by the first defendant and reiterated it s stand that it is always ready and willing to perform it s part of obligation and the second defendant, in collusion with the first defendant, disregarded the agreement and ensured non-performance of the same and further reiterated the stand that the draft Sale Agreement, that was forwarded to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the plaintiff is entitled to the alternative relief of damages to the tune of ₹ 78 Crores from the defendants? 19. The Suit in C.S.No.877 of 2005 is the earlier Suit and this Court for the sake of convenience, has adopted the array of parties as per the cause title in C.S.No.877 of 2005. Written arguments along with supporting decisions have also been filed by the respective learned counsel. 20. Mr. P. Subba Reddy, learned counsel appearing for the plaintiff in C.S.No.877 of 2005/second defendant in C.S.No.627 of 2008 made the following submissions: (a) The Plaintiff is the founder promoter of M/s. Trident Textile Mills Limited and M/s. Nova Dyeing and Printing Mills Limited/third defendant in C.S.No.877 of 2005/first defendant in C.S.No.627 of 2008 and both the companies were promoted by him along with his wife and other person joined thereafter. (b) M/s. Trident Textile Mills Limited came to be established in the year 1992 and was engaged in the manufacture of Woven grey mill made fabrics and was designed to support the main business of export of ready-made garments through backward integration. The plaintiff and his family have a stake of 19.27% i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsent of the General Body of the company has not been taken by holding a Extraordinary General Body Meeting, but the decision taken to sell the immovable assets of the third defendant company was taken by the Board of Directors of the third defendant Company in the meeting held on 24.06.2015 [Ex.P22-Minutes] and even assuming without admitting that the said consent to sell immovable assets was approved by the Board of Directors, subsequently no Extraordinary General Body Meeting was held to give concurrence/consent to the said fact and on that ground also Ex.P6 - Agreement for sale dated 14.07.2005 is unsustainable. (g) The plaintiff also took out an application in A.No.3185 of 2006 in C.S.No.877 of 2005 to deposit the advance amount of ₹ 2.50 Crores received by the third defendant company pursuant to Ex.P6 and this Court, vide order dated 24.07.2007, had ordered the said application and in compliance of the same, ₹ 2.50 Crores was deposited to the credit of C.S.No.877 of 2005 and the said amount was directed to be deposited in a Fixed Deposit and it is lying there with accruing interest. (h) The Suit in C.S.No.627 of 2008, filed by the first defendant in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maheswaran [2010] 2 MLJ 253 (ix) Saradamani Kandappan v. S. Rajalakshmi [2011 (4) CTC 640] (x) J. Samuel v. Gattu Mahesh [2012 (1) Supreme 568] (xi) Raheja Universal Ltd. v. NRC Limited Ors. [2012-4-L.W.1]) (xii) Abdul Rehman v. Mohd. Ruldu [2012] 11 SCC 341 (xiii) Kailash Nath Associates v. Delhi Development Authority [2016-1-L.W. 505] (xiv) L.C. Hanumanthappa v. H.B. Shivakumar [2016-1-L.W.998]. 21. Per contra, Mr. Madhan Babu, learned counsel appearing for the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008, made the following submissions: (a) C.S.No.877 of 2005 filed by Thakur J. Bakshani - second defendant in C.S.No.627 of 2008 is ex-facie not maintainable on the ground that institution of the said Suit is nothing but an gross abuse of judicial process. The plaintiff is the shareholder of the first defendant company and he seeks to represent other shareholders also on the pretext of espousing the interest and cause of the said company. Admittedly, the Suit has been filed without seeking the leave under Order 1 Rule 8 of the Civil Procedure Code and as such, the Suit is liable to be dismissed at the thre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Extraordinary General Body Meeting. (g) In yet another Board Meeting held on 27.07.2005- Ex.P21 [Minutes], Ex.P6/Agreement for Sale came to be ratified and approved and therefore, it cannot be safely presumed that 56.68% shareholders of M/s. Nova Dyeing/third defendant company have acquiesced the decision and have not objected to the sale transaction or the utilization of funds. (h) It is also an admitted fact that the advance paid by the first defendant company for a sum of ₹ 2.50 Crores has been utilized by the third defendant company for discharging it s dues, even prior to entering into Ex.P6/Agreement for Sale and it is also an important fact to probablise the case of the first defendant that there was no serious objection in entering into Ex.P6/Agreement for Sale. (i) The first defendant, in anticipation of completion of sale transaction under Ex.P6, had also irretrievably altered its position by purchasing adjoining lands under Ex.D4 to D10- Sale Deeds and if the agreement is not allowed to go through, the first defendant would be definitely put to irreparable loss and great financial loss and it is also entitled to exercise it s discretion under Section 20(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the property as on date and a maximum of ₹ 433.68 Crores, being the direct damages sustained by the first defendant on account of non-availability of the Suit property for development and the said claim does not take into consideration the sale consideration parted for procuring adjacent lands. The learned counsel appearing for the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008, in support of his submissions, placed reliance upon the following decisions: (i) Webb v. Commissioners of Herne Bay [1870] LR (5) QB 642] (ii) Hercules Insurance Co., In re [1874] LR EC 302] (iii) Clara B Jones v. North Vancover Land [1910] AC 317] (iv) Attorney General v. Collom [2 KB 193] (v) Bacha E Guzdar v. CIT [AIR 1955 SC 74] (vi) Nagubai Ammal v. B. Shama Rao [AIR 1956 SC 593] (vii) Shampada Chakrabarty v. Controller of Insurance [AIR 1962 SC 1355] (viii) Secretary Madras Gymkhana Club Employee s Union v. Management [AIR 1968 SC 554] (ix) Kollipara Sriramulu v. T. Aswathanarayana [AIR 1968 SC 1028] (x) R.C. Cooper v. Union of India [1970] (1) SCC 248] (xi) International Cotton Corp. (P.) Ltd. v. Bank of Maharashtra [1971] 41 Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndertaking and without which it cannot be carried on or can be carried on only with difficulty or only after a considerable time; (d) borrow moneys after the commencement of this Act, where the moneys to be borrowed, together with the moneys already borrowed by the company (apart from temporary loans obtained from the company s bankers in the ordinary course of business), will exceed the aggregate of the paid-up capital of the company and its free reserves, that is to say, reserves not set apart for any specific purpose; or (e) contribute, after the commencement of this Act, to charitable and other funds not directly relating to the business of the company or the welfare of its employees, any amounts the aggregate of which will, in any financial year, exceed 1 fifty thousand rupees] or five per cent. of its average net profits as determined in accordance with the provisions of sections 349 and 350 during the three financial years immediately preceding, whichever is greater. Explanation I.-Every resolution passed by the company in general meeting in relation to the exercise of the power referred to in clause (d) or in clause (e) shall specify the total amount up to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e had been exceeded. 25. Ex.P21 is the Minutes of the Board of Directors Meeting of the third defendant company held on 27.07.2005 at 10.30 a.m., wherein the following Directors were present: 1. Shri Jagadish A. Sadarangani - Chairman/Brother of the plaintiff 2. Shri J. Haresh Bakshani - Managing Director/fourth defendant 3. Shri Prem I Watwani - Director/fifth defendant. Leave of Absence was granted to the plaintiff, namely Shri Thakur J. Bakshani and Tmt. Nisha T. Bakshani - Directors of the said company. Sub/Item No.3 of the said meeting pertains to Ratification of Sale Agreement/Ex.P6 dated 14.07.2005 and it is relevant to extract the same : ITEM NO.3 RATIFICATION OF SALE AGREEMENT: - The Chairman placed before the meeting the original copy of Sale Agreement Dt. 14/07/2005 entered with M/s. SHRUTIVINDA AGRO FARMS PVT LTD in respect of sale of the company s land admeasuring 26 Acres and 54.90 Cents Situate at No.30, Kazipattur Village, Chengalpattu Taluk, Kancheepuram District for a total consideration of ₹ 16.25 Crores. The Board after discussion approved the following Resolution: RESOLVED THAT : the Sale Agreement Dt.14/07/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Promoter, has started very many companies and all major decisions of the companies were taken by him and one of them is the third defendant company and that apart, he is the Founder cum Promoter of M/s. Trident Textile Mills Pvt Ltd., and three companies in Delhi and also in USA and all the major decisions of the companies were always taken by him as he was the founder. * The wife of PW1, namely Tmt. Nisha T. Bakshani was also the Board of Directors of the third defendant company. The plaintiff/PW1 owns a house in Chennai. * The plaintiff/PW1 continued to hold 20% shares in M/s. Trident Textile Mills Pvt. Ltd., till today and about 60% of the shares of the said company are held by Mr. Jagadish A. Sadarangani and his family members as on date and he continued to be on the Board of Directors of M/s. Trident Textile Mills Pvt. Ltd. * After 1996, due to continuous losses, the third defendant company went into BIFR proceedings in the year 1999 and sometime during 2002 - 2003, a settlement was reached with State Bank of India, Chennai and the plaintiff had settled dues by selling his own house property and have also invested as and when funds were required by the company for o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laintiff and the plaintiff and in addition to them, Mr. V.C. Dhandapani, continued to be the Director of the third defendant company and however, he never participated in the Board Meeting and Ex.P22 is the Minutes of the Board Meeting and as per the same, decision has been taken to sell machineries of the third defendant company and though the plaintiff was not present, the minutes was drawn with his consent and knowledge as discussed and agreed earlier. * All other major decisions were taken by the Board of Directors of the third defendant company comprised of PW1, his wife, the defendants 4 and 5 and Mr. Jagadish Sadarangani. * After filing of the Suit, Mr. Jagadish Sadrangani, the defendants 4 and 5 had sold their shares to the plaintiff and resigned from the company and now, he is representing the company as a Chairman. * The third defendant company received an advance of ₹ 2.50 Crores from the first defendant company and as per the records, out of the said amount received, ₹ 1.50 Crores was returned to the sister company, namely M/s.Trident Textile Mills and the plaintiff deposited the said amount to the Court in June 2007 out of personal funds with the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement to him, to show the draft Agreement of Sale to his auditor, have it vetted by him and corrected and send him the final draft for his approval and inspite of his advise, the Ex-Chairman had gone ahead and signed the Agreement for Sale on 14.07.2005 and the e-mail sent by the plaintiff/PW1 was marked as Ex.P5/Ex.D1, which also contains the e-mail dated 09.07.2005. * PW1/plaintiff would further state that no such objection was received along with Ex.P5 and only 8 pages of 32 pages Agreement (Ex.P6) has been sent to him and he called the Chairman-Mr. Jagdish A. Sadarangani over phone and discussed several objections which he had with the draft agreement and had advised him not to rush with the Sale Agreement, to address all his objections and have the agreement vetted with his auditor and to send it to him for final approval. * PW1/plaintiff would admit that the said objections were oral and not borne out of any document and the Agreement for Sale was signed on 14.07.2005, just less than 4 days after he voiced his objections. * PW1/plaintiff would state that the third defendant company is still active as on date and would admit that all the machineries of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d given his consent to sell the machineries and later, a draft was sent to him on the specific point, which he had approved later. * A specific question was put to PW1 as to whether all the shareholders of the third defendant company gave consent for the decision to sell the machinery and he replied that He do not know and when he was asked for his consent, he gave his consent . * PW1/plaintiff would state that for sale of the machineries, the procedure followed by the third defendant is not in consonance and all the shareholders of the third defendant company have agreed upon and consented to have the said procedure being followed by the third defendant company and the said procedure would cover Board Minutes. * PW1/plaintiff raised his objection to Ex.P6, but was not aware of any other shareholders objection and a suggestion was also put to him as to the convening of General Body Meeting and the procedure followed by the third defendant and that he will insist for the General Body Meeting to sell the machinery and he answered it by saying that he is not responsible for the company affairs and with regard to sale of machineries, his permission was sought, for which he ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies means BNT Connections Impex Limited, India Apparels, BNT Connections, BNT Innovations Private Limited and the said companies are owned and controlled by the plaintiff and his family members. * Fourth defendant is the brother-in-law of the plaintiff. * Decisions relating to BNT Group of Companies were taken by the fourth defendant in the absence of the plaintiff in India since 2000 and the plaintiff was the Director in M/s. Trident Textile Mills Limited, third defendant company and BNT International Private Limited. * DW3 has signed the affidavit in one of the interim application filed on behalf of the third defendant company and also signed the additional written statement on behalf of the third defendant company in C.S.No.627 of 2008. * Plant and Machinery of the third defendant company was sold to BNT Innovations Private Limited for a sale consideration of ₹ 15 lakhs and it is owned by the plaintiff and his family members and for selling the same, Board Meeting was held. * The third defendant, besides having Land and Building, own other fixed assets, namely Plant and Machinery during the financial year 203-2004, 2004-2005 and 2005 -2006. * DW3 was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appear to be forwarded to the plaintiff and not the entire e-mail and DW3 denied the suggestion that the e-mail dated 27.07.2005 never emanated from the first defendant company and became aware that all the transactions were concluded prior to Ex.P12/e-mail. * DW3 denied the suggestion that he is deposing on behalf of Mr. Thakur J. Bakshani/planitiff and it is based on facts. * DW3 would further state that apart from the plaintiff, being the major share of the third defendant company, not given his consent, the other reason is that approval of the shareholders under Section 293(1) of the Companies Act is required before entering into Agreement for Sale and such approval was not taken by the third defendant company and since the said procedure was not followed by the third defendant company, opposing the relief prayed for by the first defendant in the Suit in C.S.No.627 of 2008 and apart from the said reasons, no other major reasons, based on which the third defendant is opposing the grant of relief in C.S.No.627 of 2008. * Question was put as to the such lapse/mistake committed by the third defendant company and DW3 positively answered by saying yes and would further d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the same was given by the plaintiff in C.S.No.877 of 2005 and pleaded ignorance as to the authorisation given to the said person to hand over the documents to him. * DW3 would state that BNT Group of Companies are involved in manufacture and export of garments and it is an ancillary business to the third defendant company and the third defendant company was involved in processing and dyeing of fabric and garments. * DW3 would state that the sale consideration agreed under Ex.P6/Agreement for Sale was ₹ 16.25 Crores and the first defendant, namely M/s. Shruthivindha Agro Farms Pvt. Ltd. had paid ₹ 2 Crores at the time of signing Ex.P6/Agreement for Sale and subsequently, paid a sum of ₹ 50 lakhs and that the major portion of the amount received from the first defendant Company, probably ₹ 2 to 2.20 Crores, was used to repay the loan taken from M/s. Trident Textiles and the balance was used to pay some liabilities of the company and also reiterated that the entire sum of ₹ 2.5 Crores received from the first defendant Company towards part of sale consideration under Ex.P6/Agreement for Sale, was used by the third defendant, viz., M/s. Nova Dyeing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the third defendant Company to sell its machineries and the objection was that for the sale of the land, the third defendant Company did not obtain the consent of the shareholders before entering into Ex.P6/Agreement for Sale and there is nothing on record to show that the third defendant Company informed the said lapse or infirmity to the first defendant. * DW3 has stated that the plaintiff was granted Leave of Absence for the Meeting dated 24.06.2005 and that the fourth defendant took a decision relating to the business affairs of the company. * DW3 would state that he was not aware of the market value of the immovable property of the third defendant Company and would state that prior to sale of machinery, consent of the shareholders of the third defendant Company was obtained during March 2015 and the said Meeting was convened by the Board of Directors and it was chaired by the plaintiff. * DW3 would state that he was not aware of any objections received from the third defendant Company from any of its shareholders with regard to the execution of Ex.P6 and would concede that without machineries, it was impossible for the third defendant Company to carry on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason that the vendor/third defendant company has failed to fulfil the commitments and in this regard, he has no proof asking the vendors as to the requirement to pay the balance sale consideration; but he met Mr. Jagadish A. Sadarangani many times and asked him to honour the commitment made under Ex.P6/Agreement for Sale. As regards C.S.No.627 of 2008 filed for Specific Performance by M/s. Shruthivindha Agro Farms Pvt. Ltd., DW1 would state that the date of Agreement for Sale under Ex.P6 is 14.07.2005 and the Suit for Specific Performance was filed in the year 2008 and pleaded ignorance as to the deposition of the balance sale consideration of ₹ 13.75 lakhs by the first defendant Company and the said suit was filed on 24.06.2008 and pleaded ignorance that the said suit was filed 20 days prior to the expiry of three years period of limitation. DW1 also pleaded ignorance as to the non-availability of funds with the first defendant Company to pay the balance sale consideration and pleaded ignorance to most of the questions on the ground that he only facilitated the sale of the property. DW1 would further depose that he was aware of the fact that the sale of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given to M/s. Poorvabhadra Agro Farms Pvt. Ltd. A specific question was put to DW1 that knowing fully well that the plaintiff is the major shareholder of the third defendant Company and the first defendant, namely M/s. Shruthivindha Agro Farms, had failed to obtain any consent from him and his family members and DW1 answered it by saying that he disagree with the said suggestion and further when the plaintiff and his family members were represented by their brother who was the Managing Director of the third defendant Company and his signing of the Board Resolution amounts to the consent obtained from the plaintiff and his attention was further drawn to Ex.P22 - Resolution and he answered it by saying that the fourth defendant represented the interest of the plaintiff and his family and there were no objections from the plaintiff over a period of time and further denied the suggestion that the plaintiff never agreed for the sale of the property of the third defendant Company. A suggestion was also put to him that the E-mail message dated 10.07.2005 [Ex.P5/D1] was only a draft and whether the final draft will be forwarded to the third defendant, DW1 answered it by saying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... families in which Mr. Jagdish Sadarangani, Prem Wadhwani/fifth defendant, Harish Bakshani/fourth defendant had participated. DW1 also denied the suggestion that he has failed to file any proof as to the consent given by all the shareholders for the sale of immovable property under ExP6 and that the Company Legal Team has also verified as to the cases filed by Mr. V.C. Dhandapani against the third defendant Company. 30. DW2, namely Mr. D.V.S. Subba Raju is the Director of M/s. Shrutivinda Agro-Farms Pvt. Ltd./first defendant in C.S.No.877 of 2005 and Director of M/s. Poorvabadra Agro Farms Pvt. Ltd., and he has filed proof affidavit in lieu of his chief examination and Exs.D14 to D25 were marked and was cross examined by the learned counsel appearing for the plaintiff in C.S.No.877 of 2005 - Mr. Thakur J. Bakshani and the excerpts of his oral evidence/testimonies are as follows: * DW2 is having qualification of B.E. (Civil) and the first defendant company borrowed money from Maytas Properties Ltd., as loan. * DW2 was Director in 53 companies and admitted in Ex.P18 that he along with Mrs. Jhansi Rani had signed as Directors and the company has been indicated in Panc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Specific Performance and he answered that the first defendant company or it s directors did not make efforts to deposit the balance sale consideration under Ex.P6 before this Court as the Court did not give any direction and denied the suggestion that they lack efforts to do so and further denied the suggestion that Ex.D18 has been created on account of the fact that money was not available to deposit the balance sale consideration. In respect of claim for damages in C.S.No.627 of 2008, DW2 explained that calculation sheet has been given in Ex.D25 and the said claim is based upon the said document and the amount of ₹ 2.50 Crores deposited by the plaintiff in C.S.No.877 of 2005 has been credited to the Suit. DW2 would admit that he was the Director of Maytas Properties Limited for some time and denied the suggestion that the first defendant is the subsidiary company of Sathyam Group of Company and they can arrange funds for purchasing lands and with regard to ₹ 2.50 Crores paid by way of advance by the first defendant company, he answered it by saying that he has to verify the records. When DW2 was specifically questioned that Ex.P6 is against the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Road, Chengai District -603 103. RESOLVED FURTHER THAT Mr. Jagdish A. Sadarangini, Chairman of the company be and is hereby authorize 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 . Sadarngini be and is hereby authorised to finalise the Sale Agreement/Deed duly affixing the common seal of the company in the presence Mr. J.Haresh Bakshani Managing Director of the company whose also sign as witness thereof. RESOLVED FURTHER THAT Mr. Jagdish A. Sadarangini be and is hereby authorised to do all such acts, deeds and things which are necessary in this regard. Item/Sub No.6 of the said Minutes pertains to Authorization to sell existing Plant Machinery and it is relevant to extract the same: ITEM No.6 AUTHORISATION TO SELL PLANT MACHINERY RESOLVED that approval of the Board be and is hereby acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n fact most of the shares were being held by only three families who were together at an emergency board meeting and EGM and confirmed the transactions and authorized the Chairman to sign the Agreement for Sale. In fact, since all the shareholders were present either in person or represented through their family members, including the plaintiff, the meeting was called a short notice, but still minutes were recorded by me as the Chairman which are under the custody of the 4th defendant. However, it is obvious that the Plaintiff and all 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 matters, I, as the Chairman, was duly authorized to execute all the documents, apart from being the Power of Attorney holder of the properties. Hence, I, in my capacity as Chairman, issued a certified copy of the Minutes, genuinely believing that the 4th defendant, i.e., the Managing Director, would take appropriate steps to complete the legal formalities of filing the Forms with the Registrar of Companies. Therefore, the provision of Section 293 were in fact complied wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As regards subsequent development, it is averred that Mr. Jagadish A. Sadarangani has invested ₹ 2.10 Crores and the plaintiff had gone ahead and purchased his shares for a consideration of ₹ 1,19,11,115.45. 35. A careful scrutiny of the oral and documentary evidence let in by the parties to these Suits would clearly reveal and disclose that no General Body Meeting of the shareholders was convened before entering into Ex.P6/Agreement for Sale between the first defendant company and the third defendant company in C.S.No.877 of 2005 and the explanation offered is that shareholding of the third defendant company was held by close family members of the plaintiff in C.S.No.877 of 2005 and since they represent the said company as Managing Director and Directors and further that before entering into Ex.P6/Agreement for Sale, due consultation was made with the plaintiff in C.S.No.877 of 2005 that the procedures contemplated under Section 293(1)(a) of the Companies Act have been complied with, in letter and spirit. 36. Let this Court consider the decisions rendered in that regard. 36.1 In Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 299 and 300. A finding was also given that the Resolution passed in the Board of Directors Meeting dated 08.12.1957 did not contravene the provisions of Section 300 of the Companies Act, 1956. In the said decision, disposition of whole or substantial undertaking of the Company within the meaning of Section 293 of the Companies Act was also considered and a finding was given that creation of equitable mortgage and pledges as per the said resolution are valid resolution and the equitable mortgages created pursuant to the said resolutions are valid. 36.2 The validity of sale was challenged on the ground that it was effected without obtaining the consent of the company in general body meeting as required under Section 293 of the Companies Act, 1956. In Page No.840 of the said decision, it is observed that a resolution giving the consent of the company was certainly passed at the extraordinary general meeting of the company held on 5th September, 1961, but the validity of the resolution was challenged on the ground that the meeting of the company at which the resolution was convened without complying with the requirements of Section 173 of the Companies Act, 1956 . A conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me up for consideration and contention was put forward that the defendant therein came into existence with the consent of the directors of the company and was taken for want of consent of the company as required under Section 293 of the Companies Act. In para 9 of the said decision, it is observed as follows: 9..... The want of consent of the Company in general meeting may result in invalidating the transaction of the nature mentioned in S.293 of the Companies Act but the crucial question is as to whether it also results in making the possession of the defendant taken under such a transaction without the consent of the company for purposes of S.9 of the Specific Relief Act.. Therefore, for the purpose of Section 9 of the Specific Relief Act, legality of the transaction is not the deciding factor. The question of invalidating the transaction does not arise and it is held that the want of consent of the Company in general body meeting may result in invalidating the transaction of the nature mentioned in Section 293 of the Companies Act. 36.7-36.8 As already observed by this Court, the resolution to sell the immovable properties of the third defendant company was not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies it. The Division Bench of Calcutta High Court sought to distinguish on the ground that the Committee of Management appointed by the High Court was not the Directors of the company and also pointed out the functions of the Board of Directors of the company and held in Page No.789 that, .... We are also of the opinion that the Committee of Management appointed to discharge the functions of the board of directors of the company cannot be termed either as a receiver or a manager and, as such, such Committee of Management was not subject to the limitation that a receiver or a manager was but, at the same time, it must be emphasised that a Committee of Management is appointed by the court under s.397 of the Companies Act, and must always act under the superintendence and directions of the company court .. Therefore, in not complying with the requirements of S.293 of the Companies Act, nor in not obtaining any prior sanction or leave before entering into the transaction in question, in our opinion, the Committee of Management had not committed any breach of law . 36.12 The question whether the closed unit can be termed as an undertaking was also considered and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies Act, 1956 and the word undertaking used therein. The Bombay High Court, after extracting Section 293(1)(a) of the Companies Act, in page 596 observed that: In my judgment, the expression undertaking used in this section is liable to be interpreted to mean the unit , the business as a going concern, the activity of the company duly integrated with all its components in the form of assets and not merely some asset of the undertaking. Having regard to the object of the provision, it can, at the most, embrace within it all the assets of the business as a unit or practically all such constituents. If the question arises as to whether the major capital assets of the company constitute the undertaking of the company while examining the authority of the board to dispose of the same without the authority of the general body, the test to be applied would be to see whether the business of the company could be carried on effectively even after disposal of the assets in question or whether the mere husk of the undertaking would remain after disposal of the assets? The test to be applied would be to see whether the capital assets to be disposed of constitute substantially the bul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness of the company in entirety or substantially, different criteria would have applied. This is a case of a business decision taken by the board of directors of the company as far back as on 21st May, 1990, in respect of sale of one of its assets which was lying idle in respect whereof operational expenses were mounting. The various reasons given by the first respondent itself in the viability report and in the justification put forward in the application made to the Director-General of Shipping for approval of the sale of the vessel cannot be ignored while considering the question as to whether one of the three vessels by itself, without anything more, can be considered as an undertaking. It is impossible for me to treat merely one of the assets of the company as an undertaking . Several judgments have been cited by Mr. Zaiwala on behalf of the petitioners as well as by Mr. Cooper on behalf of respondents Nos. 1 and 3 under the Industrial Disputes Act, 1947, where the question arose as to how the expression industrial undertaking was to be interpreted in industrial law. Mr. Zaiwala relied on the judgment of our High Court in the case of National Union of Commercial Employees v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lders has not been put to challenge by any of the shareholders of the company and unless and until it is done, this Court is not in a position to give its finding/verdict as to the validity of the sale of existing plant and machineries, which was also taken in the very same Board Meeting held on 24.06.2005. However, it may be a relevant factor while considering the claim for damages put forward by the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008. 36.16 The judgment of the Bombay High Court in P.S. Offshore Inter Land Services (P.) Ltd. Case (cited supra) has been considered by an another Division Bench of Bombay High Court in Allana Cold Storage Ltd. v. Goa Meat Complex Ltd. [1997] 90 Comp Cases 50. The Division Bench of Bombay High Court, after referring to P.S. Offshore Inter Land Services (P.) Ltd. case (cited supra), in Page No.64 of the said decision, observed as follows: It must include all the assets of the undertaking so as to leave nothing of the business of a running concern in the business sense of the term after the asset intended to be disposed of is disposed of. Therefore, the right to use the spare capacity of the slaughter-house cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors. If they act prejudicial to the interest of a minority shareholder there is ample provision in the Companies Act to redress their grievance. A public limited company will have thousands of shareholders each will have his own interests. Their views can be voiced at the annual general meeting or to move the Company Law Board or the Central Government on Company Affairs if situation warranted. The company judge is not expected to resolve the dispute raised by the shareholders and substitute his wisdom for that of the board of directors. In Kanika Mukherjee v. Rameshwar Dayal Dubey [1966] 1 Comp LJ 65 a Division Bench of the Calcutta High Court held that where the affairs of a company were manipulated as to deprive a shareholder of his sizable amount of rights shares, the remedy open to him is before the Company Law Board and not before the High Court. The company court would not as a general rule interfere with internal management of a company. It is for the board of directors to decide the manner in which the affairs of the company are to be carried on. Courts determine questions of law and not questions of business management. The company court shall not interfere with the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Board of Directors. It provides that the Board of Directors of a public company or private company which is a subsidiary of the public company shall not, except with the consent of such public company or subsidiary in a general meeting, sale, lease or otherwise disposed of the whole of substantially the whole of the undertaking of the company or where the company owns more than one undertakings of the whole of substantially the whole of any such undertaking. Though the sale deed recites that sanction for the sale of the suit property was obtained by a resolution passed in its meeting held on 23rd March 2007 it is the case of the plaintiff that no general meeting of the company was held on 23rd March 2007 and no notice of any meeting to be held on 23rd March 2007 was given to the plaintiff. It is true that accidental omission to give notice to one or some of the members of the Company does not vitiate the notice of the meeting. However, it is not the case of the defendants that the omission to give notice to the plaintiff was on account of accidental omission. It appears to be a case where no notice was given to any member at all. This is clear from the averments made in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al part of the undertaking of the Company. Therefore approval of the generable meeting was not necessary. Firstly, the submission that the value of the undertaking at Mumbai was ₹ 6.95 crores is factually incorrect. Though the deed of conveyance is for a sum of ₹ 6.95 crores, the market value of the suit property on the date of sale was more than ₹ 18.28 crores. Article 25 of the Bombay Stamp Act requires the Stamp duty to be paid on the true market value of the property even if the consideration is less than the true market value. The market value of the property is determined by the Stamp Authorities in accordance with the Rules framed under the Bombay Stamp Act was ₹ 18.28 crores. Stamp duty on that amount was paid by the parties without demur or without challenging the valuation. Though the consideration of sale was ₹ 6.85 crores, the true market value was much higher at ₹ 18.28 crores as for the Government valuation. Secondly, Section 293 of the Companies Act provides that where a company has more than one undertakings, the Board of Directors of a company shall not sell any of such undertakings without consent of the company in a general mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shareholders. 36.21 In the light of the factual aspects and the legal position enunciated in the above cited decisions, this Court is of the considered view that the sale and lease of immovable properties of the third defendant company in favour of the first defendant company in C.S.No.877 of 2005 is not in compliance of Section 293(1)(a) of the Companies Act. No doubt, under Ex.P22-Minutes of the Board Meeting dated 24.06.2005, plant and machineries were also directed to be sold and for effecting such sale, the plaintiff in C.S.No.877 of 2005 has no objection and thus it appears that he has taken a contradictory stand. In the considered opinion of the Court, the sale of immovable properties as well as the plant and machineries either individually or collectively would fall within Section 293(1)(a) of the Companies Act and for effecting such a sale, consent/approval of the shareholders of the company is required. Though it is vehemently contended by the learned counsel appearing for the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 that since major shares are being held by Manging Director and Directors of the company, their decision to sell the land and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission was also put forward that since the said transaction pertains to Indoor Management of the third defendant company, they can assume and presume that statutory and other legal formalities have been fully complied with and therefore, went ahead with the transaction which resulted in Ex.P6/Agreement for Sale. 40. Thus, an incidental question also arises for consideration as to whether any due diligence was exhibited by the first defendant company? 41. The first defendant company is a Private Limited Company and therefore, it is also expected to be aware of the statutory and other requirements and obligation is also cast upon them to adhere to Section 293(1)(a) of the Companies Act and also to exercise due diligence. Hence, the third defendant company ought to have fulfilled the said statutory compliance and unfortunately, they have failed to do so; May be on the ground that major shareholding of the third defendant company is held by close relatives/family members and since the majority of them were in the position of Managing Director and Directors, decision taken by them in the Board of Directors Meeting/Ex.P22 would constitute a decision of shareholders also. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Kamdar that since the conveyance is a kind of contract and was made in accordance in the form provided under Section 46 of the Companies Act, the contract is binding on the Company, notwithstanding breach of Section 293, has to be rejected. Regarding the defence of internal management. Mr. Kamdar submitted that whether a resolution of the general body under Section 293 of the Companies Act was passed or not was an internal matter of the company and the purchaser having no means of knowing whether such a resolution was passed was entitled to assume that the internal procedure was followed. The deed of conveyance dated 13th December 2007 recites that resolution of the general body was passed in the meeting held on 23rd March 2007 and the purchaser was entitled to assume the said statement to be true. It is true that in [Royal British Bank v. Turquand) (1856) 6 E.B 327 it has been held that a person dealing with a company is not affected by internal irregularities. He is entitles to assume that the internal procedure required by Articles of Association of the Company has been complied with. The differentiation however has to be made between the procedure prescribed by A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2005 and consequently, Issue No. 1 in C.S.No.627 of 2008 is answered in negative against the plaintiff therein/first defendant in C.S.No.877 of 2005. Issue No.2 in C.S.No.877 of 2005 44. The Suit in C.S.No.877 of 2005 was instituted by Mr. Thakur J. Bakshani on the pretext that he is the promoter of the third defendant company in C.S.No.877 of 2005/first defendant in C.S.No.627 of 2008 and he is holding 54.98% of shares and whereas the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 is holding only 43.32 % of shares. It is also the stand of the first defendant/plaintiff in the above Suits that the plaintiff in C.S.No.877 of 2005 had objected from entering into Ex.P6/Agreement for Sale on the grounds that (a) the sale transaction will be completed through purchase of property or vendor will sell to the purchaser the entire shares, (b) purchaser was being given full power to take over the company, settle the staff labour and creditors problems etc. (c) the condition that a sum of ₹ 1 Crore will be kept in escrow till the matter of Mr. V.C. Dhandapani is settled in full. 45. It is also urged on behalf of the third defendant in C.S.No.877 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither he nor his wife had involved in the day today affairs of the company and both of them held about 55% shareholding in the year 1998 and that all major decisions of the company were taken by him and he is the founder of all these businesses and would admit that his wife, namely Nisha T.Bhakshani was on the Board of Directors of the third defendant company. He would further depose that whole Board was disinterested in managing the affairs of the company and therefore, he asked the fourth defendant to take over as the Managing Director and he is the Director and shareholder in almost all the companies so that he can assist him. 48. Insofar as the sale of machineries under Ex.P22 - Minutes of the Board Meeting is concerned, it was done with his consent and was the decision of the Board of Directors of the third defendant company/M/s. Nova Dyeing and Printing Mills Ltd. which then consisted of Jagadish A. Sadrangani- Chairman, Haresh J. Bakshani - Director, Prem Watwan- Director, Nisha J Bakshani - Director and himself and in addition, Mr. V.C. Dhandapani continues to be as Director and however never participated in the Board Meeting and his consent was obtained to sell machiner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en to the Chairman over phone and sent reply on 10.07.2005 and the agreement was signed on 14.07.2005, less than four days after he raised objections. It is also deposed by PW1 that by way of subsequent development, the fourth development sold his shares to him and resigned from the company during April 2006 and now he is fully representing M/s. Nova Dyeing and Printing Mills Ltd. 49. DW3-Mr. Anand, who had supported the case of the plaintiff in C.S.No.877 of 2005 would state that with regard to e-mail sent, he did not get any feedback and would depose that the third defendant company/M/s. Nova Dyeing and Printing Mills Ltd. had entered into Agreement for Sale under Ex.P6 to sell the land and building without obtaining shareholders consent/approval, which is mandated as per the Companies Act, 1956 and a specific question was put to him as to whether M/s. Nova Dyeing and Printing Mills Ltd./third defendant company ever cancelled Ex.P6 and he answered it by saying that Not to his knowledge . DW3 would state that pursuant to Ex.P22-Minutes of the Board Meeting dated 24.06.2005, plant and machineries were sold and three directors were present in the said meeting and with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, shareholders consent has been taken. 51. DW2 was the Director of the first defendant company in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 and a specific question was put to him that no proof has been filed to show that the shareholders of the third defendant company/M/s. Nova Dyeing and Printing Mills Ltd. have given consent to sell the properties in favour of the first defendant company/M/s. Shrutivinda Agro Farms Pvt. Ltd. and he denied the suggestion that M/s. Shrutivinda Agro Farms Pvt. Ltd. legal team has done due diligence as to the Indoor Management of the said company. DW2 was questioned as to his statement that auditor/Ramachandran had also confirmed the Agreement for Sale/Ex.P6 dated 14.07.2005 and he answered it by saying that Mr. Sitaram Reddy has confirmed. DW2 would further depose that M/s. Shrutivinda Agro Farms Ltd./first defendant in C.S.No.877 of 2005 had received the Board Resolution under Ex.P22 and he personally thought that the Board Resolution was sufficient for the sale transaction and denied the suggestion that the plaintiff in C.S.No.877 of 2005/Thakur J. Bakshani never gave his consent and once again denied the suggestion that for sale i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough a Board Resolution, for which the plaintiff in C.S.No.877 of 2005/Thakur J. Bakshani has no objection. The said fact coupled with the fact that advance amount received from M/s. Shrutivinda Agro Farms Pvt. Ltd./first defendant in C.S.No.877 of 2005 has been utilized to clear the debts of M/s. Nova Dyeing and Printing Mills Ltd./third defendant in C.S.No.877 of 2005, is a factor to be taken note of while considering the alternative plea for damages, as prayed for in C.S.No.627 of 2008 filed by M/s. Shrutivinda Agro Farms Pvt. Ltd. 55. Issue No. 2 is answered by saying that the third defendant and other directors did not obtain consent from the plaintiff in C.S.No.877 of 2005/Thakur J. Bakshani before entering into Ex.P6/Agreement for Sale dated 14.07.2005. 56. Incidental question as to whether the plaintiff in C.S.No.877 of 2005/Thakur J. Bakshani is a major shareholder or not, is not germane to the legal plea for the reason that Section 293(1)(a) of the Companies Act, 1956 mandates that the General Body of the company shall exercise the said power only by a special resolution passed and admittedly it was not done so and this Court has also considered the same and answer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of managing the company by the general body. The judges are ill- equipped to make business judgments. The court cannot as a rule adjudicate upon the commercial judgment of the board of directors. If they act prejudicial to the interest of a minority shareholder there is ample provision in the Companies Act to redress their grievance. A public limited company will have thousands of shareholders each will have his own interests. Their views can be voiced at the annual general meeting or to move the Company Law Board or the Central Government on Company Affairs if situation warranted. The company judge is not expected to resolve the dispute raised by the shareholders and substitute his wisdom for that of the board of directors. In Kanika Mukherjee v. Rameshwar Dayal Dubey [1966] 1 Comp LJ 65 a Division Bench of the Calcutta High Court held that where the affairs of a company were manipulated as to deprive a shareholder of his sizable amount of rights shares, the remedy open to him is before the Company Law Board and not before the High Court. The company court would not as a general rule interfere with internal management of a company. It is for the board of directors to decide the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioners in this petition to attack the validity of the resolution dated 08.12.1987, on the ground that it was passed by the board of directors without a quorum and in contravention of the provisions of Sections 299 and 300. In Page No.835 of the said decision, plea was also raised that consent of the company in General Body Meeting especially for creation of equitable mortgage was not obtained and it was answered by saying that Section 293 of the Companies Act has been complied, since there is no disposal of whole of undertaking or substantially the whole of undertaking within the meaning of the said Section. 61. Issue relating to mandatory nature of Section 173 of the Companies Act was also considered in the said decision [S.M. Ganpatram case (cited supra)] and it was concluded at Page No.841 of the said judgment by observing that the object of enacting Section 173 is to secure that all facts which have a bearing on the question on which the shareholders have to form their judgment are brought to the notice of the shareholders so that the shareholders can exercise an intelligent judgment . . Facts of the case would disclose that concerned resolution was also placed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... akshani, N.Ramachandran, S.Selvaraj and Smt.Nisha Bakshani, wife of the plaintiff. 64. This Court while answering the above issues had given it s findings that Section 293(1)(a) of the Companies Act is mandatory and placed reliance upon judgments, more particularly the judgment in Nirad Amilal Mehta (supra), which gives an answer to the legal plea raised by the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008. Heavy reliance was placed by the first defendant to the decision rendered by a Division Bench of Karnataka High Court in International Cotton Corpn (P.) Ltd. (supra). Facts of the case would disclose that as per the resolution of the Board of Directors, deeds of hypothecation and mortgage have been created in favour of the defendant and it amounts to disposition of whole or part of the undertaking. The said judgment is of no help to the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 and Article 54 of the Articles of Association would also say that subject to the provisions of Sections 292 and 293 of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lawful, and what not.- The consideration or object of an agreement is lawful, unless - it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or involves or implies, injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. This Court had given findings in the earlier issues that since consent of the shareholders in the Extraordinary General Body Meeting has not been obtained in terms of Section 293(1)(a) of the Companies Act, it cannot be enforced and however, it is also of the view that if it is ratified by shareholders in the General Body Meeting, it can be enforced. Admittedly, as on date, no ratification/approval has been accorded by General Body of shareholders to execute Ex.P6/Agreement for Sale and therefore, this Court will not enforce it. 69. If this Court construes that sale of land and immovable properties of M/s. Nova Dyeing and Printing Mills Ltd./third defendant in C.S.No.877 of 2005 as (a) forbidden by law, (b) would defeat that provisions of law or is fraudulent and (c) involves or implies injury to the person or prope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght of the findings given by this Court regarding Issue Nos. 1, 2, 6, 7 and 8 in C.S.No.877 of 2005, Agreement for Sale dated 14.07.2005 under Ex.P6 is unexecutable. Therefore, Issue No.3 in C.S.No.627 of 2008 is answered in negative against the plaintiff in C.S.No.627 of 2008. Issue No.9 in C.S.No.877 of 2005 75. Admittedly, it is not even the case of the plaintiff in C.S.No.877 of 2005 that the sale consideration fixed is low or inadequate and the objections are that consent of the General Body was not obtained and consent has not been obtained though he is a major shareholder/founder of the company and the agreement is one sided favouring M/s. Shrutivinda Agro Farms Pvt. Ltd./first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008 and he has specifically deposed as to the objections in Page No.57 of his cross examination. However, he has also stated that the objections raised are oral and not borne out by any documents. 76. In the considered opinion of the Court, the plaintiff in C.S.No.877 of 2005, through pleadings and evidence, has failed to establish that clauses in Ex.P6/Agreement for Sale, are prejudicial to the interest of the company. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... analyzed the pleadings and evidence let in by the first defendant in C.S.No.877 of 2005/plaintiff in C.S.No.627 of 2008. 81. In C.S.No.877 of 2005, the first defendant, in the written statement, has pleaded that it has, at all times, been ready and willing to perform it s part of obligation under the Agreement for Sale/Ex.P6 dated 24.07.2005 and is willing to demonstrate it s bonafide with regard to payment of balance sale consideration of ₹ 13.75 crores and the first defendant has also bonafidely proceeded to purchase adjacent properties viz., S.Nos.31/2B, 14/1, 14/2 and 17/2 for valuable consideration and the adjacent properties purchased by the first defendant have access only through the suit property. According to the plaintiff in C.S.No.627 of 2008, it has proved and substantiated it s readiness and willingness to perform his part of obligation as to the essential conditions/clauses under Ex.P6. 82. Mr. Sitaram Reddy-DW1, in his cross examination, would depose that as per the Agreement for Sale under Ex.P6, within four months from the furnishing of information by the vendor M/s. Nova Dyeing and Printing Mills Ltd.,/third defendant in C.S.No.877 of 2005, it has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Bakshani came for negotiation through Mr. Sitaram Reddy/DW1 and however it did not materialize. The Agreement for Sale under Ex.P6 was entered into on 14.07.2005 and the Suit in C.S.No.627 of 2008 for Specific Performance and other reliefs was filed only on 24.06.2008 and the amendment with regard to prayer for damages was made on 13.03.2013. Ex.P18 would also disclose that on account of lodging of criminal prosecution, bank accounts of the plaintiff in C.S.No.627 of 2008 was frozen and however one of the Directors, namely Jhani Rani gave an undertaking under Ex.D18 to make good the balance sale consideration and also showed Exs.D27 and D28 to show that she is in possession of funds. It is to be pointed out at this juncture that the Suit for Specific Performance was filed just prior to the expiry of the limitation period and the amendment in the plaint was made for claiming damages after 8 years from the date of Ex.P6/Agreement for Sale. 84. In K.S. Vidyanadam (supra), scope of Sections 20, 16(c) and 10 of the Specific Relief Act, 1963 came up for consideration and it is held as under: It has been consistently held by the Courts in India, following certain early English d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had actively colluded with the plaintiff in C.S.No.877 of 2005, as evidenced through the testimonies of DW3 and in the absence of any challenge to the sale consideration fixed under Ex.P6, it may not open to the plaintiff in C.S.No.877 of 2005 to plead escalation in price of immovable properties on account of long passage of time, pending disposal of these Suits. 86. It is also pointed out that an advance of ₹ 2.50 Crores paid by the plaintiff in C.S.No.877 of 2005 was admittedly used to settle the creditors of the third defendant company and it is also one of the important aspects to be considered as to the intention of the third defendant in C.S.No.877 of 2005/first defendant in C.S.No.627 of 2008 to proceed with the Agreement for Sale/Ex.P6. Attention of this Court was drawn to Ex.P17, order dated 24.07.2007 made in A.No.3185 of 2006 in O.A.Nos.968 and 1055 of 2005, wherein a Single Bench of this Court made absolute the interim injunction granted in O.A.Nos.968 and 1055 of 2005 filed by the defendants 1 and 2 and the plaintiff in C.S.No.877 of 2005 was restrained from alienating, encumbering, altering or to deal with the properties under Ex.P6. 87. As regards advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e third defendant company and the said decision was taken as per Board Resolution, marked as Ex.P22, though he was not present in the said meeting. PW1 would further state that major decisions were taken by the Board of Directors of the third defendant company and it consists of himself, Mr. Jagadish A. Sadarangani - Chairman, Mrs. Nisha T.Bakshani - Director, Mr. Jarish J. Bakshani/fourth defendant - Managing Director, Mr. Prem Watwani/fifth defendant - Director. PW1 would further admit that advance amount paid by the first defendant company was utilized to settle the creditors of the third defendant company. 92. PW1, in Page No.52 of his deposition, would admit that the third defendant company never called upon the first defendant company to pay the remaining sale consideration, as per Ex.P6. PW1 was questioned as to whether the third defendant company offered to perform it s obligation as per Ex.P6/Agreement for Sale prior to filing of the Suit and he answered it in negative and further stated that he is a major shareholder of the third defendant company and he has filed the Suit in C.S.No.877 of 2005 disputing the Agreement for Sale and by way of subsequent development, all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95. DW3, who deposed in favour of the plaintiff in C.S.No.877 of 2005, was specifically questioned as to whether the third defendant company has never cancelled Ex.P6/Agreement for Sale or exhibited his unwillingness to perform his part of obligation and he answered it by saying not to his knowledge. DW3 would state that plant and machineries were sold as per Ex.P22 and were sold under two different agreements and that he is not personally involved in Ex.P6/Agreement for Sale. DW3 would further state that as per Ex.P22, it is correct to state that the third defendant company has been authorized to sell plant and machineries as well as immovable properties forming part of Ex.P6/Agreement for Sale and at the time of passing Ex.P22, the plaintiff in the Suit was granted Leave of Absence. 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. However, it did not fulfil the statutory mandate under Section 293(1)(a) of the Companies Act and was also not diligent for the reason that as per Article 54 of the Articles of Association, should have been definitely awa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jurisdiction to decree specific performance is discretionary, and the Court is not bound to grant such relief, merely because it is lawful to do so; but the discretion of the Court is not arbitrary but sound and reasonable, guided by judicial principles and capable of correction by a Court of appeal. The grant of relief of specific performance is discretionary. The circumstances specified in Section 20 are only illustrative and not exhaustive. The Court would take into consideration the circumstances in each case, the conduct of the parties and the respective interest under the contract . 100. In K.S. Vidyanadam (supra) (referred to supra), it is held that the period of limitation prescribed by the Limitation Act for filing a suit is three years. From these circumstances, it does not follow that any and every suit for specific performance of the agreement (which does no provide specifically that time is the essence of the contract) should be decreed provided it is filed within the period of limitation notwithstanding the time-limits stipulated in the agreement for doing one or the other thing by one or the other party Even where time is not of the essence of the contract, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the property were also marked as Exs.D25 and D26. 104. The plaintiff, relying upon the said agreements, had prayed for the alternative relief of ₹ 78 Crores as damages. It is also to be noted at this juncture that claim for damages came to be made by way of amendment to the plaint, nearly after a lapse of 8 years from the date of agreement. It is the specific case of the second defendant in C.S.No.627 of 2008/plaintiff in C.S.No.877 of 2005 that anticipating execution of the sale deed pursuant to Ex.P6/Agreement for Sale, the sister concern, namely M/s. Poorvabhadra Agro Farms Private Ltd., had purchased properties under Exs.D4 to D10. The oral evidence let in on behalf of the plaintiff in C.S.No.627 of 2008 is lacking as to the said claim and that apart, the plaintiff have not purchased the property under the said documents. 105. In Punjab State Civil Supplies Corp. Ltd. v. Sikander Singh [A.I.R. 2006 SC 1438], it is held that a Suit for damages would be maintainable only on the ground of breach of the terms and conditions of the contract, when there are acts of mal-feasance, mis-feasance and non-feasance. 106. In Oil Natural Gas Corpn. Ltd. v. Saw Pipes Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries, the third defendant company cannot effectively function and therefore, it amounts to otherwise disposal of substantial whole of the undertaking and therefore, for sale of plant and machineries also, decision should have been taken at the General Body Meeting of the shareholders and admittedly, it was not done and however, it has not been put to challenge by a person having locus standi. 109. It is also to be pointed out that the petition for amending the plaint by enclosing the prayer for damages was done as per order dated 07.11.2013 made in A.Nos.3373, 3374, 3375 and 3376 of 2013 and it came to be passed mainly on the basis that the plaintiff is entitled to damages for the sum equivalent to the property that would be commercial exploitation of the Suit Schedule Property. It is also to be noted at this juncture that land and properties purchased by M/s. Poorvabadhra Agro Farms Pvt. Ltd., said to be the sister concern of the plaintiff in C.S.No.627 of 2008, are agricultural properties and unless conversion is done, it may not be capable of commercial exploitation. In para 17B of the plaint in C.S.No.627 of 2008, it is stated that the plaintiff has bonafidely proceeded to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and List of Exhibits: Plaintiff s side documents: Exhibits Dated Documents P1 01.05.1996 Memorandum and Articles of M/s. Nova Dyeing and Printing Mills Ltd., P2 28.08.1998 Orders from BIFR P3 11.04.2005 Mortgage Deed by deposit of title deeds P4 11.04.2005 Letter by company to the Managing Director regarding mortgage of deposit of title deeds P5 09.07.2005 E-mail message from Mr. Thakur J. Bakshani along with draft agreement of sale P6 14.07.2005 Agreement for Sale P7 27.07.2005 E-mail message by G.Ananad to Mr. Thakur J. Bakshani along with affidavit P8 30.07.2005 Agreement of Sale for machineries P9 30.07.2005 Agreement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Nova Dyeing and Printing Mills Ltd. P26 09.04.2006 Resignation Letters of Chairman and Directors P27 July, 2006 Counter Affidavit filed by Chairman on behalf of the company in Application No.3185 of 2006 in O.A.No.968 of 2005 P28 05.04.2005 Extract of the Minutes of the Board Meeting of M/s. Nova Dyeing and Printing Mills Ltd. Defendants side documents: Exhibits Dated Documents D1 09.07.2005 E-mail message from Mr. Thakur J. Bakshani D2 04.08.2014 Balance Sheet for 31.03.2004 of M/s. Nova Dyeing and Printing Mills Ltd. D4 18.07.2005 Sale Deed in favour of Poorva Badhra Agro Farms Pvt. Ltd. D5 18.07.2005 Sale Deed in favour of Poorva Badhra Agro Farms Pvt. Ltd. D6 18.07.2005 Sale ..... X X X X Extracts X X X X X X X X Extracts X X X X
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