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TMI Blog2020 (8) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... ath, Advocate for R8. Mr Sharath Chandran and Mr. Achyuth Ajithkumar, Advocate for R1-R3. JUDGEMENT Mr. Balvinder Singh, Member (Technical) The present appeals have been preferred by the appellants under Section 421 of the Companies Act, 2013 against the order dated 28.08.2013 passed by the National Company Law Tribunal, Chennai Bench, Chennai whereby the NCLT has allowed the Company Petition. The appellants have prayed that the impugned order dated 28.8.2018 passed by the NCLT Chennai may be set aside. COMPANY APPEAL (AT) NO.338 OF 2018 2. The facts of the case are that Company Petition No.29/2017 was filed by the 1st to 3rd Respondents (original petitioners) against the respondent under Section 241 and 242 of the Companies Act, 2013 alleging various sets of oppression and mismanagement in the affairs of 7th Respondent. It is stated that 7th respondent was incorporated as a Charitable Company initially under the Companies Act, 1913 and was governed by the provisions of Section 25 of the Companies Act, 1956 and is presently governed by Section 8 of the Companies Act, 2013. The object of 7th respondent specifically state that it is to collect funds through subscription, cond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount was also spent without sanction. -Respondent/Appellant herein amended the Clause 31 and 41 of the AOA in the EGM held on 4.7.2015 which were void and no effect. Some of the directors represented to the ROC who in turn declared that amendments made in Clauses 31 and 41 of the AOA was illegal and no prior consent of the Central Government was taken. -Respondent/Appellant herein approached the High Court of Kerala by filing Writ Petition challenging the constitutional validity of the provisions of Section 8 of the Act, 2013. -Respondent/Appellant herein spent huge amount in purchasing computers for which a criminal case was filed by one of the directors before High Court of Kerala. -The Respondent/appellant herein and other Board members sold prime land to 4th Respondent herein. Another land was also alienated to 5th and 6th Respondents herein who are son and daughter in law of 4th Respondent herein. The said sales were made without any resolution in the AGM of the Company. -The appellant informed 1st and 2nd respondent that they have been expelled in Board Meeting on 18.5.2017. No show cause was issued before expelling the directors. The powers to expel the directed is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present or at any time in the future. 5. 7th to 9th Respondent/4th to 6th Respondent herein also filed counter reply in company petition and stated - -7th to 9th Respondent/4th to 6th Respondent herein have purchased the properties of the company for a consideration value which is much above fair value fixed by the local government for transfer of immovable property in the concerned are and they are the bona fide purchasers. -The sale transactions do not constitute an act of oppression or prejudicial to the petitioners/1st to 3rd respondent herein. -The petitioners/1st to 3rd respondent herein do not have a case that the sale of property is a fraudulent transfer as defined in Section 53 of the Transfer of Property act and the petitioners/1st to 3rd respondent herein nowhere have stated specific clauses that have been violated in effecting the sale made. -The petitioners/1st to 3rd respondent ought to have invoked the jurisdiction of this Tribunal under Section 245 of the Act, 2013 but invoked section 241 and 242 of the Act, 2013 being afraid of the consequent penal provisions of section 245(8) of the Act, 2013. 6. 10th Respondent/8th Respondent herein filed reply and stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015. 9. NCLT, after giving the above observations disposed of the petition vide order dated 28.08.2018. 10. Being aggrieved the appellants have filed the present appeal. The appellant stated that the Company was incorporated as a Charitable Company initially under the Companies Act, 1913. It was governed by the provisions of Section 25 of the Companies Act, 2013. The objects of the company specifically state that it is to collect funds through subscriptions, conducting chits and through other sources as the company deems fit and the deployment of funds of the company for the purpose of promoting education, industry and charitable activities. 11. It is stated that the Hon'ble High Court of Travancore, Cochin vide its order dated 10th November, 1952 (Page 107 of appeal) went on to reaffirm the charitable nature of the 7th respondent and inter alia noted that the funds of the 7th respondent cannot be distributed for the benefit of the members of the Company. 12. The appellants stated that the affairs of the company were being conducted in a transparent manner and the AGMs for the years have been conducted. 13. The appellant had filed a criminal complaint dated 6.6.2014 before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al alienation of company property was well founded. Respondents stated that the NCLT has rightly disposed off the company petition directing the appointment of an interim Administrator to set right the affairs of the company and to investigate into the fraud and misappropriation committed by the appellants. 20. Respondents stated that the appeal is wholly misconceived and the contentions raised are false, self serving and devoid of cogent evidence or reasoning. The contentions raised in the appeal are denied unless specifically admitted herein. 21. Respondent stated that the interpretation of the Clause 40 of the AOA came up for consideration before the High Court of Travancore-Cochin and vide its judgement and decree dated 10.11.1952 passed in AS 47 of 1125, held that financial grants given by the then Board of the 7th respondent company to children of the members of the company amounted to a breach of trust and were ultra vires the powers of the company. Respondent further stated that the then Management had conceded that the payment of sitting fees to Directors were also ultra vires the powers of the company. 22. Respondents stated when 1st appellant, who has not passed even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and no amount shall be spent in violation of Article 40 and that the remuneration of the Directors, Auditors shall be strictly in accordance with Article 41 of the company. . 25. Respondent stated that 1st appellant called for an EGM on 4.7.2015 and shockingly on the same date passed a resolution deleting the existing Articles 31 and 41 of the company and substituting them with self serving provisions. Respondent stated that this brazenly illegal act was a direct affront to the order of the Munsiff Court restraining the 1st appellant and the Board from taking any policy decision till the conduct of a regular election. However, ROC Kerala declared that the amendments made to Articles 31 and 41 of the AOA without obtaining prior consent of the Central Government was illegal. 26. Respondent stated that the 1st appellant challenged the constitutional validity of Section 8 of the Companies Act by filing Writ Petition and the same is still pending. 27. Respondents stated that in complete violation of Article 40 of the AOA, 1st appellant and his coterie illegally decided to spend a sum of Rs. 13,50,000/- to buy computers with internet connections for some of the members of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttachment by court and other authorities and other dues claim and/or any other encumbrance and impediments. 35. 4th to 6th Respondent stated that as per the doctrine of 'Indoor Management' also known as Turquand's Rule it is established that "a person entering into a transactions with the company only needed to satisfy that his proposed transaction is not inconsistent with the articles and memorandum of the company. He is not bound to see the internal irregularities of the company and if there are any internal irregularities then company will be liable as the person has acted in the good faith and he did not know about the internal arrangement of the company." 36. 4th to 6th Respondent stated that the authorized representatives of the company were having authority to sell the property as per Article 29 of the AOA. 4th to 6th Respondent stated that before buying the said property had taken all reasonable steps to verify and confirm whether the property is having a good title and also made sure that all the compliances are done as per Kerala Land Act. 4th to 6th Respondent further stated that they are the bona fide purchasers of the property and the peaceful possession of the land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted and set aside the impugned order and pass an order declaring the sale deed as valid and binding on the company. 42. Reply on behalf of 1st to 3rd Respondent has been filed. 1st to 3rd Respondents stated that the NCLT has found that the 5th to 9th Respondents have gravely misused their position as Managing Director and committed grave acts of oppression and mismanagement by acting in brazen violation of the Articles of Association and/or court orders. 43. 1st to 3rd Respondents stated that 5th to 9th respondents members sold 2 acres and 36 cents land for a low sum of Rs. 35 lacs on 3.5.2017 to 1st appellant. 1st to 3rd Respondent stated that on the same day another 2.60 acres of land was alienated for a sum of Rs. 39 lakhs to 2nd and 3rd appellant, who are near relatives of 1st appellant. 44. 1st to 3rd respondents stated that the appellants intentionally did not file the counter affidavit filed before NCLT. 1st to 3rd respondents stated that in the said counter affidavit the appellants have pleaded that the company petition ought to have been filed under Section 245 of the Act, 2013 instead of Section 241 of the Act. 1st to 3rd Respondents stated that the NCLT took note o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant is expected to maintain a higher standard of fair play and probity while managing the affairs of a charitable company and any irregularity committed by him shall be taken to be far seriously than if it is committed in a non-charitable company. It would be highly inappropriate for the appellant to raise the issue that it is a charitable company and the petition cannot be filed under Section 241/242 of the Act. Seeing the various irregularities committed by the appellants, this Tribunal cannot shut their eyes to let appellant go scot free undermining the spirit of charity. We find no force in the arguments of the appellants and the same are rejected. 51. Learned counsel for the appellant argued that the removal of membership from the register cannot be a subject matter of a petition under Section 241. The same can be agitated only under Section 59 of the Companies Act. Section 241 of the Act stipulates only class action and not personal wrongs. Therefore, the relief in that regard ought not to have been granted. Learned counsel for the appellant argued that the removal of membership has been strictly in accordance with the Article 48(b) in the Article of Association reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le and the same needs the approval of the General Body. Learned counsel for the appellants argued that the sale has been for an amount much above the fair value fixed for the property and the sale consideration has been duly accounted in the company accounts. 55. Learned counsel for the 1st to 3rd respondent argued that there were only two Trustees in the Company at the time of passing the board resolution and even if it is admitted that the Board has been vested with the power of disposal of the properties, as the same were vested with them as per Clause 29 of the AOA, the decision of the disposal of the properties was not taken by the Managing Director and Four Trustees as required, therefore the said resolution is not valid. Learned counsel further argued that it is mandatory for the company to pass a special resolution which has not been passed at all by the Company. 56. We have heard the parties on this issued. We note that that when the Munsif Court has ordered that any policy decision shall be taken only with the approval of General Body, therefore, entering into such agreement for sale with the appellants in Company Appeal (AT) No.349/2018, which is very much a policy dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was again brought to the notice of the Court on 24.5.2019. 61. We also observe that despite specific direction the relevant documents were not provided by the appellants to Administrator, therefore, this Tribunal directed appellant No.1 to remain present in person on 8th August, 2019. The appellant did not appear on 8th August, 2019 and the hearing was deferred to 6th September, 2019 for personal appearance of appellant No.1. The appellant did not appear on 6.9.2019 also and the Tribunal has to stated that the appellant is playing hide and seek and not cooperating. 62. In view of the above we are of the view that the conduct of the appellant is not upto the mark. 63. We also note that this is a charity institution which has been created for a noble cause. In case a person who is in the management and managing the affairs of the institution not for the purpose of noble cause and his behaviour is not for the noble cause and his only agenda is to execute his private agenda and to benefit one or the other person, this will seriously compromise the goodwill and reputation and will spoil the image of the company for good work done. We also note that the Administrator has made seri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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