TMI Blog2005 (11) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 to 5 and, therefore, the petitioners have sought for the intervention of the Company Law Board to terminate and set aside the two sale deeds executed and registered on 22.11.2002 in favour of the purchasers, viz., the respondents 6 7. 2. Shri M.S. Krishnan, learned Counsel while initiating his arguments submitted: The Company formed for the purpose of running a plantation and acquiring other landed properties, was till 1994 under the management of late P.T. Abraham, lather of the first petitioner and husband of the second respondent herein. When late P.T. Abraham was initiating steps for selling the property, the petitioner by a letter dated 13.11.1990 emphasised that it was obligatory for the Company to convene the necessary general body meeting before proceeding to sell the property, which was brushed aside, as borne out by a communication dated 27.11.1990 of late P.T. Abraham. Despite the request of the petitioner made in writing on 22.03.1993, to refrain late P.T.Abraham from selling the property for a nominal consideration, the latter entered into an agreement of sale on 09.06,1994 with the eighth respondent for an amount of Rs. 34.67 lakhs, to be paid within six months ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 02, registered two sale deeds in respect of the property in favour of the respondents 6 7, who are nominees of the eighth respondent for the very same sale consideration of Rs. 34.67 lakhs, when the property was worth not less than Rs. 1.50 crores. The sale of the property vitiated by fraud is void. Any affair tainted with fraud cannot be perpetuated or saved by the application of any equitable doctrine including res judicata as held in Ram Chandra Singh v. Savitri Devi 2004-2.L. W. 70. This single act would constitute an act of oppression. The Madras High Court in M. Moorthy v. Drivers And Conductors Bus Service P. Ltd. (1991) 71 CC 136 justified the granting of relief under Sections 397 and 398 of the Act, when the company's only assets were sold in gross neglect of its interest. In A.M. Varkey v. J.R. Motishaw, it has been held that the sale of an undertaking of the company which is prejudicial to the interests of the company would fall within Clause (a) and Clause (b) of Section 398(1) and that the court could exercise its powers under Section 402 in directing the company not to sell the undertaking for a specified price unless the company by a special resolution resolves t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e board meeting. This Board in Prabhu Dayal Chitlangia v. Trinity Combine Associates Pvt. Ltd. (2000) 99 cc 21 held that major decisions should not be taken in a family company, without the presence of all the family directors and that taking such major decisions without the participation of all the family directors, is an act of grave oppression against the petitioner shareholders. The meeting convened by the second respondent, a lone director, violative of Section 87(2), is not valid for want of a valid quorum. The apex court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. held that any resolution passed by the board of directors of the company without a valid quorum is invalid. The Company has not produced any material to show that notice for the extra ordinary general meeting held on 14.11.2002 was served upon the petitioners. Therefore, the proceedings of the extra-ordinary general meeting approving the proposal to compromise the civil suit are neither valid nor binding the Company. While the Company forwarded to the fifth respondent, who was a non-resident of India, a copy of the circular resolution dated 11.11.2002, authorising the second r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without any authority. The fraud vitiates the sale and by virtue of Section 17 of the Limitation Act, an action is maintainable within one year of detection of such fraud. Hence, the present petition is not barred by limitation. The property sold without special resolution and without notice to all directors/shareholders, is void ab initio. The sale proceeds are not accounted in the books of account of the Company. The third respondent neither attended the board meeting reportedly held on 18.10.2002 nor signed the minutes. The minutes wrongly depict, as if the third respondent attended the board meeting. The board meeting with lone participation of the second respondent for the purpose of convening an extra ordinary general meeting on 14.11.2002 to approve the compromise with the eighth respondent is bad in law for want of a valid quorum. The Company failed to circulate to this respondent who was in India in terms of Section 289, the circular resolution dated 11.11.2002 authorising the second respondent to enter into a compromise with the eighth respondent, but sent to the fifth respondent, who was in USA, which does not meet the requirement of Section 289. Hence, the circular reso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the past more than a decade, but only harassed the family members by filing a petition under Section 397/398 before the Kerala High Court in the year 1994, which came to be dismissed for lack of jurisdiction. Under these circumstances, the management of the Company felt that it would be in the interest of the Company, to transfer the property and execute the deed of conveyance, provided the eighth respondent was willing to. settle the balance sale consideration in accordance with the agreement dated 09.06.1994. Accordingly, the parties approached the Kottarakara Taluk Legal Services Authority for a settlement and the award was accordingly passed on 21.11.2002. The sale transaction approved by the.Lok Adalat in exercise of the power under the provisions of the Legal Services Authorities Act, 1987 is conclusive and cannot be challenged before the CLB. The third respondent already filed a writ petition before the Kerala High Court against the award passed by the Lok Adalat and, therefore, no action would lie before the CLB, in respect of the same property and for the similar relief. Though the petitioners estimated the value of the property at Rs. 1.50 Crores, yet no material has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Comp Cas 213 - to show that a plain reading of Section 397 indicates that the object of the section is to terminate or prevent an existing, present state of prejudicial, oppressive, harsh, unfair conduct and past conduct or closed affairs are not encompassed in the section. If the affairs which are complained of are not being conducted in present as at the time of filing the petition, they are matters of the past. They have no present existence and so there can be no complaints to bring to an end by an order of the court. Normally, in such state of affairs, there are no affairs, present or future, to be prevented . G. Kasturi v. N. Murali (1992) 74 Comp Cas 661 - to show that Section 397(1) talks of a complaint that the affairs of the company are being conducted in a manner prejudicial to public interest . The words are being conducted must mean several acts in continuity and not one isolated act. Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. (1964) 34 Comp Cas 777 - to show that (i) Sections 397 and 398 apply to present continuous wrongs; (ii) the remedy is essentially preventive; (iii) there must exist on the date of the petition a continuous cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration to the Company and obtained the sale deeds and possession of the property. Thereafter, the respondents 6 7 made considerable investments making the property into a cultivable estate. The petitioners' claim that the property is worth Rs. 1.50 crores is not substantiated by any concrete material. 6. With the above, I may now proceed to consider the contentious issues involved in the present company petition. While the petitioners, supported by the third respondent are seeking to set aside the sale deeds executed and registered on 22.11.2002 in favor of the respondents 6 7, it is urged on behalf of the Company that the sale of the property, being a past and concluded transaction made in favour of a third party cannot be the subject matter of a Section 397/398 proceeding. The respondents 6 7 claim to be the bonafide purchasers, for a valid and proper consideration, after making reasonable enquiries before purchase of the property. It is in this context, the provisions of Sections 397 and 398 must be looked into. The CLB under Sub-section (2) of Section 397 may with a view to bringing to an end the matters complained of, make appropriate order, on an application made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are found reflected in the correspondence dated 13.11.1990, 27.11.1990 and 22.03.1993 exchanged between them (Annexure - II, III IV of company petition) and other records produced before the Bench. The first petitioner had objected as early as in November, 1990 to the sale of the property, without the consent of the shareholders of the Company and later filed a petition in April, 1993 before the High Court of Kerala under Sections 397 and 398 of the Act alleging that the Company's affairs were conducted by late P.T. Abraham in a manner prejudicial to the interests of the shareholders and also in a manner oppressive to the petitioner and other minority shareholders, which are set out hereunder: Late P.T. Abraham, while in the management of the Company, was determined and taking steps for sale of assets of the Company illegally to enrich himself without convening any general body meeting of the Company for a nominal consideration and in spite of a registered letter dated 13.11.1990 and a registered notice dated 22.03.1993 sent by the petitioner. The petitioner was excluded from participation of any of the meetings of the shareholders. Late P.T. Abraham was intending to enter into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in his communications dated 13.11.1990 and 22.03.1993. The petitioner's grievance is that late P.T. Abraham not only ignored by his communication dated 27.11.1990 the objections raised by him, but also entered into an agreement of sale on 09.06.1994 with the eighth respondent for an amount of Rs. 34.67 lakhs, which was renewed on 20.12.1994, in pursuance of which the property was put in possession and enjoyment of the eighth respondent. It has to be borne in mind that the petitioner approached the High Court of Kerala in April, 1993 with the very same grievances, placing reliance on the very same communications now sought to be relied before the CLB. The complaint before the High Court was that the petitioner was excluded from participation of any of the meetings of the shareholders and the late P.T. Abraham was determined to sell the properties ignoring the protests of the petitioner and without any proper resolution of the shareholders of the Company. The explanation offered by the petitioner that he did not pursue further due to the assurances given by Late P.T. Abraham (Para VI at Page 15 of company petition) is now required to be examined. The language used in the commu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cited by the petitioners are distinguishable from the facts of the present case. Moreover, it is doubtless from the recitals of the company petition that the petitioners were aware of the execution of the sale agreement executed by the Company, the enjoyment of the property for over eight years by the eighth respondent, an outsider and the purported yield from the property, but there is no explanation for their inaction all these years after withdrawal of the company petition before the High Court of Kerala as early as in December, 1994. It is reflected from the company petition that the Company was facing several difficulties from as early as in 1985. The Company was not able to manage the property due to non-cooperation and disorderly behaviour of the workmen of the Company. The balance sheet of the Company for the year as on 28.02.2001 discloses the loss of Rs. 14,960/- and the loss for the previous year (2000) accounts for an amount of Rs. 8,47,454/-. The profit and loss account figures for the subsequent years are not made available. The Company parted with possession of the property in December, 1994 in favour of the eighth respondent, a third party and presently, in the abs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Similarly, the case laws cited by learned Counsel for the petitioners in support of the remaining grievances in relation to, among other things, the decision for sale of the property in a family company without presence of all the family directors and the validity of any decision taken by the board of directors in the absence of a valid quorum, will have no application in the backdrop of the present case, on account of their inaction all these years. The main grievance of the third respondent is that the compromise reached in the civil suit before Kottarakara Taluk Legal Services Authority, resulting in dismissal of the suit for specific performance of the sale agreement is violative of the Legal Services Authority Act, 1987 and the rules framed thereunder. The award passed by the Legal Services Authority is sought to be set aside in a writ proceeding initiated by the third respondent before the Kerala High Court on several grounds elaborated therein, summary of which reads as under: The petitioner is one of the Directors of the second respondent company. In respect of 46 acres and 10 cents of land belonging to the company, an agreement for sale was entered into on 9-06-1994 by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to adjudicate the validity of the award dated 22.11 2002. I am, therefore, constrained not to express my opinion on the purported fraud played on the Company by its Managing Director in collusion with the eighth respondent and on the validity of the compromise decree obtained in the civil suit, as claimed by the petitioners as well as the third respondent and the supporting decisions cited in this behalf. The other charges - (a) sale of the property without special resolution and without notice to directors/shareholders; (b) illegal convening of the board meeting without participation of the third respondent; (c) illegal convening of the extraordinary general meeting; (d) circulation of the circular resolution in violation of Section 289 etc., not having been raised at any prior point of time are found per se not oppressive for the purpose of Section 397/398, more so, when no prejudices have been made out on account of the sale of the property on the facts and in circumstances set out elsewhere and, therefore, cannot be entertained in the present company petition. In view of the foregoing conclusions, the petitioners are not entitled for any reliefs sought by them and they are d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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