TMI Blog2020 (9) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... led to assume that the 2nd respondent, who was the Managing Director of the 1st respondent, while executing Ex. P1 agreements of sale was acting within the scope of his powers by the Articles of Association and they were not bound to enquire whether his actions had been properly and regularly performed - The very admission by respondents 1, 3 and 4 of execution of Ex. R9 resolution by the 2nd respondent implies that in the normal course of business of the Company, he did have the authority to enter into agreements of sale of plots and only after Ex. R9 dt. 14.07.2016 this practice changed. In our opinion, the appellants were entitled to assume prima facie that he continued to have such powers and were not bound to enquire into such issues of internal management. The view of the court below that a doubt arises as to whether the 2nd respondent could have executed the respective agreements of sale on 21.11.2016 in favour of the appellants, and they should have filed prima facie some material to show that the 2nd respondent had all the powers to execute the respective agreements of sale in favour of the appellants, or that they ought to have questioned the 2nd respondent for signing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uire into such issues of internal management. Appeal allowed with costs. - IA No. 3 of 2020 in Civil Miscellaneous Appeal Nos. 188 and 189 of 2020 - - - Dated:- 30-7-2020 - M. S. Ramachandra Rao and T. Amarnath Goud , JJ. For the Appellant : V. Hariharan For the Respondents : M.V.S. Sridhar, A. Narasimha Rao, P. Venugopal, Senior Counsel and Rachana S. Waddepalli JUDGMENT M.S. Ramachandra Rao, J. 1. Heard Sri V. Hariharan, learned counsel for the appellants, Sri M.V.S. Sridhar, learned counsel for respondents 1 and 4, Sri A. Narasimha Rao, learned counsel for the 2nd respondent and Sri P. Venugopal, learned Senior Counsel appearing for Mrs. Rachana S. Waddepalli, learned counsel for the 3rd respondent. 2. The issues raised in both the appeals are interconnected, the respondents are one and the same and the appellant in C.M.A. No. 188 of 2020 is the father of the appellant in C.M.A. No. 189 of 2020. Also the evidence adduced in the trial court is almost identical. Therefore these CMAs are being disposed off by this common order. The background facts 3. The 1st respondent is a Private Limited Company. Respondents 2 to 4 are its Directors. The 4th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale consideration; that the balance of sale consideration under the said agreements was to be paid by the respective appellants to the 1st respondent by March, 2018 and sale deeds were to be got executed and registered in their favour or in favour of their nominees. 8. They alleged that though they offered to pay the balance sale consideration, the 1st respondent through the 2nd respondent informed that certain development work was in progress and as soon as the same is completed, the agreements would be honoured; and that in January, 2018, the 2nd respondent informed the appellants that he was having certain disputes with respondents 3 and 4 and he had resigned from the 1st respondent Company, but assured that he would pursue the matter with respondents 3 and 4 and see that the suit agreements of sale were honoured. 9. The appellants contended that they are not concerned with the issues among respondents 2 to 4 and they were ready and willing to pay the balance sale consideration and perform their part of the contract; that they were not aware whether the information given by the 2nd respondent that he left the 1st respondent Company and resigned his directorship was true ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation of the 2nd respondent, he was acting as Managing Director of the 1st respondent Company and that the 3rd respondent was the Chairman of the Company and the 4th respondent, a Director of the Company. 17. The 1st respondent contended that a perusal of Ex. P1 agreements of sale shows that the stamps were purchased in the name of the 1st respondent Company by the 2nd respondent on 09.10.2014 at Gannavaram Mandal, Krishna District, Andhra Pradesh. When Government of Telangana has been issuing separate stamp papers why the stamp paper issued by the Government of Andhra Pradesh is used is to be explained by the appellants to convince that the agreements of sale are genuine ones. It contended that when the alleged agreements of sale are dated 21.11.2016, why the old stamp papers dt. 09.10.2014 are used. 18. It is contended that it is not the practice in the 1st respondent Company that Managing Director alone is executing the documents. Whatever documents were executed prior to the alleged agreements of sale were executed by the Chairman, Smt. K. Roja Rani and the 2nd respondent together and the same is evidenced by a number of sale deeds filed. It also contended that except sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24. The 2nd respondent filed counter in both the Applications supporting the appellants and admitting the appellants' claims to the extent of execution of the agreements of sale Ex. P1 and receipt of the advance amounts of ₹ 20,00,000/- and ₹ 10,00,000/- respectively on 21.11.2016 by him on behalf of the 1st respondent. He also stated that the appellants were ready and willing to pay the balance sale consideration to the 1st respondent. 25. He stated that he had some issues with respondents 3 and 4 and so he resigned from the 1st respondent Company by promising the appellants that he would pursue the matter with respondents 3 and 4 and see that the suit agreements of sale were honoured. He stated that because of the said disputes he was unable to execute registered sale deeds in favour of the appellants. 26. He stated that he also filed C.P. No. 469/249/HDB/2018 against the 1st respondent before the NCLT, Hyderabad Bench for a direction to the respondents not to alienate the properties of the 1st respondent until disposal of the cases. The 3rd respondent's counter which was adopted by the 4th respondent 27. The allegations in the counter of the 3rd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is proved that there were agreements of sale executed by the 1st respondent Company in favour of the appellants. It referred to the legal notice Ex. P2 dt. 02.05.2018 issued by the respondents and Ex. P3 postal receipts and observed that these documents support prima facie the requirements in a temporary injunction petition. It even observed that these were points tilting in favour of the appellants. 35. Having stated so, it then considered the defence set up by respondents 1, 3 and 4 and stated that the 2nd respondent had already authorized the 3rd respondent vide Ex. R-9 resolution dt. 14.7.2016 to execute sale deeds and agreements of sale on behalf of the 1st respondent. It observed that in view of Ex. R9, a doubt arises as to whether the 2nd respondent could have executed the respective agreements of sale on 21.11.2016 in favour of the appellants; that the 2nd respondent would have to answer the said point in his counter how he signed Ex. P1 when he had already authorized the 3rd respondent to sign sale deeds and agreements on behalf of the 1st respondent, and therefore the balance of convenience tilts in favour of respondents 1, 3 and 4. 36. It also observed that if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision dt. 16.3.2020 of the court below in IA. No. 255 and 256 of 2018 in the suits and before filing of these CMAs in this Court in May 2020 44. It is important to note that these Appeals were filed by the appellants on 18.5.2020 within limitation, but before the appeals could be filed and after I.A. No. 256 of 2019 in O.S. No. 39 of 2018 and I.A. No. 255 of 2019 in O.S. No. 38 of 2018 were dismissed on 16.03.2020, the 1st respondent represented by respondents 3 and 4 executed registered documents of sale bearing (i) Document No. 3398 of 2020 dt. 16.04.2020 in favour of M/s. A.K. Estates and Construction Private Limited represented by another daughter of the 3rd respondent by name Ms. Kilaru Alekya, (ii) Document No. 3399 of 2020 dt. 16.04.2020 in favour of the husband of the 3rd respondent by name Dr. Kilaru Panduranga Prasad, (iii) Document No. 3596 of 2020 in favour of M/s. A.K. Estates and Construction Private Limited represented by Ms. Alekya, the daughter of the 3rd respondent and (iv) Document No. 3597 of 2020 in favour of Dr. Kilaru Panduranga Prasad. 45. Prima facie this action of respondents 1, 3 and 4 in making alienation of the plots covered by the two agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the suit schedule properties pending disposal of the suits. 51. He also stated that the Court below misconstrued Ex. R9 resolution dt. 14.07.2016 and that notwithstanding the same, the 2nd respondent did retain the power as a Managing Director to enter into Ex. P1 agreements of sale with the appellants on behalf of the 1st respondent Company. He contended that even if there is any inter se dispute among respondents 2 to 4, it cannot be allowed the affect of rights of the appellants because the appellants cannot be presumed to know about any change in the authority of the 2nd respondent when they had entered into the agreements of sale Ex. P1 with the 1st respondent Company. 52. He also contended that there is no bar in law for usage of stamp papers of 2014 for execution of Ex. P1 agreements of sale in 2016 and even if the stamp papers used for Ex. P1 agreements of sale had been issued in the erstwhile composite State of Andhra Pradesh, the agreements of sale do not become invalid in law. 53. He contended that the respective Ex. P1 agreements of sale themselves contain a recital about receipt of consideration by the 1st respondent through the 2nd respondent and the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Managing Director, his client had rightly executed Ex. P1 agreements of sale in favour of the appellants, that he received advance, adjusted/accounted it with the 3rd respondent by depositing the sum of ₹ 20,00,000/- in the account of the 3rd respondent with DCB bank as per her advice and respondents 1 and 3 who are in possession of the records had deliberately suppressed it. 62. He stated that the very Ex. R9 dt. 14.07.2016 which has been relied upon by respondents 1, 3 and 4 would indicate that his client had the authority to execute documents or assign rights in favour of any party. 63. According to him, in the Court below the 2nd respondent did file vide SR No. 325 on 14.02.2019 certain documents showing that as authorized signatory of the 1st respondent Company he executed them and registered them without the signature of the 3rd respondent Chairman, but the Court below did not mark the same on the ground that they were photocopies. 64. He admitted that the 2nd respondent had resigned from the 1st respondent Company on 04.05.2017 because of differences of opinion with the 3rd respondent and others who are majority shareholders and stated that the same was accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent and he alleged that he committed theft of stamp papers from the office of the 1st respondent and utilized the same in collusion with the appellants. 73. He denied that any sale deed was executed by the 1st respondent with the 2nd respondent as the sole signatory and even in Ex. P1 agreements of sale, the seal used described the 2nd respondent as Chairman and Managing Director of the 1st respondent though he was only the Managing Director and not the Chairman. 74. According to him, the 1st respondent never intended to alienate the property and it also did not receive any consideration alleged to have been paid by the appellants through the 2nd respondent and therefore the agreements of sale being without consideration are void. 75. He also contended that in the notices issued by the appellants prior to filing of their respective suits, the correct addresses of the respondents were not mentioned and old addresses of the respondents were mentioned and the said notices were not served, and this indicates the mala fide intention of the appellants. 76. According to him, as per Articles of Association of the 1st respondent Company, the Managing Director has to work u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany as on 21.11.2016 and he is alleged by respondents 1, 3 and 4 to have resigned only on 04.05.2017. He has admitted in the counter affidavits filed by him in the Court below and also in this Court that he received the amounts of ₹ 20,00,000/- and ₹ 10,00,000/- respectively on behalf of the 1st respondent Company from the appellants on 21.11.2016 and that he had executed the two agreements of sale Ex. P1 dt. 21.11.2016 in favour of the appellants. 85. But respondents 1, 3 and 4 contend that Ex. R9 Board Resolution was signed by the 2nd respondent on 14.07.2016 authorising the 3rd respondent who was the Chairman of the 1st respondent Company to sign the sale deeds/AGPA documents on behalf of the 1st respondent in favour of proposed purchasers of the plots, and so the 2nd respondent could not have executed Ex. P1 agreements of sale in favour of the appellants. 86. Though the respondents 1, 3 and 4 contended that the appellant in C.M.A. No. 189 of 2020 had worked as a clerk in the 1st respondent and was aware of this fact, no material has been filed in the Court below by them in support of the said plea. Therefore, it cannot be said that the appellant in C.M.A. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nced by loans from Sassoon Company. For the debts really owed by the respondent Company, the Sassoon Company had obtained an equitable mortgage of the appellant's property. The Directors of the appellant Company were all Directors and shareholders of the respondent Company and this fact was known to Sassoon Company. Section 91-B of the Indian Companies Act, 1914 provided that no Director shall, as a Director, vote on any contract or arrangement in which he is either directly or indirectly concerned or interested, and if he does so, his vote shall not be counted. The Privy Council held that Section 91-B would not operate to deprive of the benefit of this contract with the Company, a third party who had no notice of the defect in the Director's authority; as it would be contrary to the principle that such a person would be entitled to assume that the internal management of the Company had been properly conducted as held in the Royal British Bank (1856) 6 E B 327 : 119 ER 886 (supra). But on the facts of that case, since the Sassoon Company was aware that all the Directors of the appellant Company were all Directors and shareholders of the respondent Company, in proceedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management. 97. So the respondents 1, 3 and 4 are prima-facie not entitled to rely on Ex. R-9 Board resolution to contend that the 2nd respondent had no authority to execute Ex. P1 agreements of sale in favor of the appellants. 98. The view of the court below that a doubt arises as to whether the 2nd respondent could have executed the respective agreements of sale on 21.11.2016 in favour of the appellants, and they should have filed prima facie some material to show that the 2nd respondent had all the powers to execute the respective agreements of sale in favour of the appellants, or that they ought to have questioned the 2nd respondent for signing Ex. P1 independently without the signature of the 3rd respondent because the rubber stamp used mentioned both Chairman and Managing Director, and therefore the balance of convenience tilts in favour of respondents 1, 3 and 4, is in our opinion, prima facie erroneous. 99. Next, we shall deal with the issue of use of 2014 stamp papers purchased by the 1st respondent in the State of Andhra Pradesh for the suit agreements of sale Ex. P1 dt. 21.11.2016. 100. In regard to this aspect, it was held by the Court below that the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Court below cannot doubt the authenticity of Ex. P1 agreements of sale, particularly when the 2nd respondent, who was then Managing Director of 1st respondent, admits to their execution, merely on the ground that they were drafted on stamp papers purchased by the 1st respondent in 2014. 104. Coming to the next issue about the stamp papers on which Ex. P1 agreements of sale were executed, having been purchased in the State of Andhra Pradesh in 2014 and not in the State of Telangana, which was created with effect from 02.06.2014 is concerned, this plea is also not tenable prima facie. 105. A learned Single Judge of this Court in V. Giridhar Kumar Vs. Sellammal AIR 2013 AP 31 : 2013 (2) ALD 295, held that use of stamp paper purchased in a different State for a document does not invalidate the document. In the said case, stamp papers purchased in the State of Tamilnadu were used for a promissory note executed in the State of Andhra Pradesh and the Court held that firstly, as regards promissory notes, the State Legislature has no power to legislate on it under Entry 63 of List II of the Seventh Schedule to Constitution and that promissory notes would fall in Entry 91 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned Single Judge in V. Giridhar Kumar AIR 1938 PC 159 : ILR 1938 Bom 421 (PC) (Supra) and observe that merely because Ex. P1 agreements of sale dt. 21.11.2016 were prepared on stamp papers purchased in the State of Andhra Pradesh in 2014, they cannot be held to be invalid in law because there is only a slight defect as to the form of stamp, which is capable of being cured, by paying the requisite stamp duty as per Section 37 read with Rule 18 of the Rules, as applicable in the State of Telangana and a prima facie bonafide claim under the said agreements of sale, cannot be defeated by such a plea. 108. We are not impressed by the contention of the respondents about the filing of the criminal complaints Exs. R14 to R16 regarding alleged theft of the stamp papers by the 2nd respondent and we are of the opinion that the Court below, cannot, without a trial being conducted, arrive at any presumption of existence of conspiracy between the appellants and the 2nd respondent on the basis of the said criminal complaints. 109. We are also of the opinion that the Court below erred in doubting the payment of advance amounts of ₹ 20,00,000/- and ₹ 10,00,000/- by the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged by the other respondents is required to be proved during trial. 116. Further, we are of the opinion that the view of the Court below that no prejudice would be caused to the appellants if the interim injunction granted by it is vacated, is not correct and that on the facts and circumstances of these Appeals, the appellants had not only made out a prima facie case, but there is balance of convenience also in their favour and irreparable injury would be caused if the respondents were permitted to alienate the suit schedule properties pending the suit. 117. We are of the opinion that the conduct of the respondents 1, 3 and 4 in transferring the properties which are subject matter of both I.As. to the husband of the 3rd respondent Dr. Kilaru Panduranga Prasad and M/s. A.K. Estates and Construction Private Limited represented by Ms. Kilaru Alekya, daughter of the 3rd respondent, is not bonafide because the sale deeds document Nos. 3398, 3399, 3596 and 3597 of 2020 were executed on 16.04.2020 and 08.05.2020 after the trial Court dismissed the I.A. Nos. 255 and 256 of 2019 on 16.03.2020 and before the appeal time expired and that this was deliberately done to render the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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