K.K.Balu, - (1.) IN this company petition, the petitioners together claiming in excess of 10% of the issued and paid up capital of M/s. Central Park Farm and Developers Private Limited, ("the Company") have invoked the equitable jurisdiction of the Company Law Board under Sections 397, 398, 402, 403 & 406 of the Companies Act ("the Act") to remedy their grievances on account of certain alleged acts of oppression and mismanagement in the affairs of the Company at the hands of the respondents, as under: (a) to declare that the third respondent has no authority to represent as a director of the Company and execute the sale deeds in favour of the respondents 7 & 8; (b) to declare that the sale of the properties of the Company under two sale deeds dated 28.04.2005 by the third respondent in favour of the respondents 7 and 8 are null and void and not binding on the Company; (c) to declare that the form No. 32, filed with the ROC notifying that the petitioners have resigned from directorship of the Company is illegal and void ab initio; (d) to frame a scheme for the vesting of the properties of the Company in the hands of an Administrator for distribution to all the shareholders as per their original shareholding or to dispose off the properties and distribute the proceeds to the share holders in proportionate to their shareholding; (e) to declare that the further allotment of shares made by the Company on 29.06.2002, 30.06.2003, 30.12.2004 and 14.03.2005 are illegal and void ab initio and not binding on the Company; and (f) to direct the Company to be wound up and distribute the proceeds of the sale of the properties in favour of the shareholders or in the alternative to distribute the properties in the ratio of the share holding as it existed at the time of incorporation.
(2.) Shri K.V. Satish, learned Counsel, while initiating his arguments in support of the petitioners submitted: • The Company has been promoted in July 1997, by the petitioners and the respondents 2 to 6, with the main object of carrying on construction activities. As at 31.03.2000 the petitioners and the respondents 2 to 6 each held one-seventh share capital of the Company. The petitioners and the respondents 2 to 6 are the first directors of the Company. The respondents 2 to 4 have been appointed as the Joint Managing Director, Managing Director and Chairman respectively. However, the third respondent had resigned from the office of director and Managing Director, with effect from 14.08.2000, leaving the petitioners and the respondents 2 & 4 to 6 as directors of the Company. The respondents 7 & 8 are the son and the brother s son of the third respondent. The respondent No. 8 is the brother of the fifth respondent. • The Company had acquired certain immovable properties with a total extent of 00 acres and 07 guntas, comprised in survey Nos. 33/1 and 33/2 situated at Nelamangala Taluk Bangalore District, under two sale deeds dated 25.08.1997 and 02.01.1908 for a total consideration of Rs. 22.94 lakhs, contributed equally by the petitioners and the respondents 2 to 6, as evident from the sale deeds. The payment so made by both the parties has been treated as an investment in equity in the books and records of the Company and is reflected in the balance sheet for the year ended 31.03.2000, as share application money. Both the sale deeds were withheld by the Sub-Registrar, after registration for non-payment of appropriate stamp duty, which led to a reference made under Section 45A of the Karnataka Stamp Act, 1057, for adjudication of the proper stamp duty. In view of the crisis in the real estate business the company did not carry on any business, and efforts were made by the promoters to develop the lands as a resort, on account of which the Company's properties came to be treated as current assets, even though they formed part of the fixed assets of the Company. Furthermore, the plea of the respondents 1 to 6 that the assets of the Company are treated as stock-in-trade has not been raised in their reply and they are guilty of "false uno false omnibus". In the meanwhile, the respondents 2 to 6 had clandestinely sold the properties by keeping away the petitioners away from negotiations, without obtaining any approval of the board of directors and shareholders of the Company and without valuation in favour of the respondent No. 7 (Survey No. 33/2 for Rs. 11,62,000/-) and respondent No. 8 (Survey No. 33/1 for Rs. 15,90,000/-) under two sale deeds executed on 28.04.2005. The specific pica of the petitioners raised in the main petition that..."during the last week of June 2005 one Sri S. Mohanan S/o Sri Shankaran Kutty, approached the Petitioner No. 1 and informed him that he is negotiating for purchase of the petition schedule properties with the Respondent Nos. 2 to 6 and since the Petitioner No. 1 also happens to be a Director of the Company, he has approached him as he was not present during the discussions with the said Respondents. The petitioner No. 1 was shocked and surprised to note that a decision had been taken by the Respondent Nos. 2 to 6 to sell the petition schedule properties without calling for any board meeting of the Company and without informing him." has not been denied by the respondents 2 to 6. The board minutes dated 15.02.2005 would show as if the directors deliberated about sale of the immovable properties of the Company, which are untrue. The affidavit sworn on 11.12.200b by the second respondent and produced before the Bench would only affirm the resolution authorising the bank account and not of the resolution deliberating the sale of the properties. The respondents simultaneously got released the original sale deeds in the name of the Company from the Sub-Registrar, pursuant lo the order dated 10.06.2005 of the High Court of Karnataka made in W.P. No. 13912/2005, with an endorsement dated 30.06.2005 made by the District Registrar on the reverse of the sale deeds to the effect that the release of the sale deeds were subject to the order of the High Court that may be passed in W.P. No. 13912/2005. At the same time, the entire stamp duty and registration fee aggregating Rs. 2,75,200/- incurred on account of the sale deeds dated 28.04.2005 executed in favour of the respondents 7 & 8, have been borne by the Company. The sale consideration was paid by the respondents 7 & 8 by way of post dated cheques, realisation of which are unknown to the petitioners. There was no response from the respondents 2 to 6 for the legal notice dated 04.07.2005 and the telegram dated 04.07.2005 sent by the first petitioner, indicating a ready offer of Rs. 1.65 crores and the intimation of the second petitioner regarding the willingness of a third party to buy the properties for Rs. 3 crores. However, the legal notice sent to the respondents 1, 3 & 4 was returned unserved. The properties are located next to Bangalore-Pune National High way and are very close to Peenya Industrial Area, the biggest Industrial Area in Asia, which are valued at Rs. 40 lakhs per acre, but sold for an insignificant price in favour of the respondents 7 & 8, being the brothers son and son of the third respondent, who are the nominee of the third respondent. The value of equity shares in the Company is lost on account of the sale of the properties at a meagre value and consequently, the petitioners have lost the equivalent market value proportionate to their investment in the Company or equal distribution of the properties. The properties sold by the Company consisted of a large number of coconut and mango trees, and silver oak, valued several lakhs of rupees. All the mango trees valued over Rs. 40 lakhs have been removed and sold by the Company. Thus, the respondents 2 to 6 have unilaterally and clandestinely wiped out the entire assets of the Company for their personal gains, thereby defrauding and denying the petitioners of the lawful returns on their investment in the Company and committing breach of their fiduciary duties owed to the Company, by acting contrary to the provisions of the articles of association and the Act. When the board of directors is guilty of misconduct, they will be liable to pay compensation under Section 543 read with Schedule XI, as held in Life Insurance Corporation of India v. Hari Das Mundhra and Ors. (1996) Vol. 36 CC 371. • The properties have further been sold by the purchasers, namely, the seventh respondent entered into an agreement dated 09.12.2005 for sale of 3 acres and 35 guntas in favour of Shri V.G. Malapur and three others -for a sum of Rs. 1.74 crores. The eighth respondent entered into an agreement on 09.12.2005 in respect of 5 acres and 12 guntas for an amount of Rs. 2.39 crores with certain purchasers, who in turn developed the properties by converting into 176 sites and entered into an agreement dated 03.04.2006 with Science Institute Employees Sites Purchasers Committee of Indian Institute of Science, Bangalore, for sale of the sites at the rate of Rs. 300/- per sq.ft., which would ultimately fetch Rs. 8.39 crores, whereas the respondents 2 to 6 sold the whole of properties only for Rs. 27.52 lakhs, causing huge losses to the Company and its shareholders. The agreements entered into by the respondents 7 & 8 have been witnessed by the respondents 3 & 5. By virtue of Sections 542 and 543 read with Schedule XI of the Act, the respondents are personally responsible for the losses suffered by the Company on account of sale of the properties for an insignificant amount and further they must compensate all the losses suffered by the Company. • The petitioners before approaching the CLB, had filed a civil suit on 17.02.2000 in O.S. No. 16 of 2006, before the Court of Civil Judge, (Junior Division), Nelamangala for an order of permanent injunction restraining the respondents from selling or leasing or encumbering the properties of the Company, which was however withdrawn on 15.07.2006. The remedies now sought before the CLB are with a view to redress the grievances against the oppressive acts of the respondents and many other issues, affecting the rights of the petitioners, as shareholders of the Company. It cannot, therefore, be said that the petitioners are engaged in forum shopping to remedy their grievances. • The Court (now CLB) as held in Rakhra Sports (P) Ltd. v. Kharatilal Rakhra and Ors. (1993) 2 CLJ 207 is empowered under Section 397/398 to make any order 'as it thinks fit'. Power under Section 402 is a power which may be exercised without prejudice to the generality of the powers of the Court under Sections 397 and 398 and, therefore, such a power can in no way be of a limited nature. The Karnataka High Court held in C.B. Pardhanani and Ors. v. M.B. Pardhanani (1990) Vol. 69 CC 106 that the remedy provided by Sections 397 & 398 is of a preventive nature so as to bring to an end oppression or mismanagement on the part of controlling shareholders and not to allow its continuance to the detriment of the aggrieved shareholders or the company. The remedy is not intended to enable the aggrieved shareholders to set at naught what has already been done by the controlling shareholders in the management of the affairs of the company. While it was putforth in that case that (a) Section 406 enables the Court to award compensation in respect of past and concluded transactions falling within Section 543 as set out in Schedule XI, even though they are no longer continuing wrongs; and (b) these are the only two cases in which, on an application under Section 397 or 398, the Court is empowered to give reliefs in respect of past and concluded transactions, by way of exceptions to the general principle manifest from the language of Sections 397 and 398 that the power of the Court under both the Sections is confined only to making an order for the purpose of putting an end to oppressive or prejudicial conduct and the Court cannot make an order setting aside or interfering the past and concluded transactions which are no longer continuing wrong giving compensation to the company or the aggrieved shareholders in respect of such transactions, the Karnataka High Court declined to entertain such submissions, yet they are squarely applicable to the present case. • The respondents 2 to 6 illegally tiled Form No. 32 with the Registrar of Companies on 06.07.2005 notifying as if both the petitioners ceased to be directors of the Company with effect from 04.07.2005, consequent upon their resignation from the office of director. The petitioners on the other hand at no point of time tendered any resignation from directorship and it is a clear case of filing of false documents by the respondents 2 to 6. These respondents, with a view to get away with the falsification of the statutory returns, have fabricated and produced three postal covers containing notices of the board meetings reportedly held on 06.06.2005, 23.06.2005 and 02.07.2005 and falsely contended that the petitioners failed to attend those board meetings consecutively and thereby ceased to be directors under Section 283(1)(8), whereas, the petitioners did not cease to be directors as borne out by the legal notice dated 04.07.2005, issued by the first petitioner, wherein it was clearly stated that he attended the previous board meeting conducted by the Company. The addresses mentioned on the postal covers have been over written in different ink and pen and subsequently filled up with the correct door number of the petitioners. The postal sticker affixed does not disclose the hill addresses of the petitioners. There is no resolution produced establishing the petitioners' cessation from directorship. The Company never adopted the practice of issuing notices by registered post, in which case notices ought to have been issued to all the respondents by registered post but never sent by the Company. • As on the dale of the incorporation of the Company, the petitioners as well as the respondents had equal shareholding and any further allotment of shares ought to have been equally made, whereas the impugned allotments were made illegally on 29.06.2002, 30.06.2003, 30.12.2004 and 14.03.2005., without following the procedure prescribed in the Act. Accordingly, at the board meeting held on 30.12.2004, 1250 shares were allotted at premium to the respondents 2 to 6 and at the board meeting on 14.03.2005 at premium to the petitioners 1 & 2, (each 2550 shares) nephew of the first petitioner (2375 shares), the lather of the second petitioner (2375 shares), since deceased and the second respondent (750 shares) as borne out by the board minutes dated 14.03.2005. The petitioners were reportedly present, at the board meeting held on 14.03.2005, whereat 2375 shares were allotted in favour of his lathe who died four years back on 24.08.2001, which establishes the manipulation of the board minutes at the instance of the respondents. While the respondents 2 to 6 were allotted shares at face value in June 2002 and June 2003 almost equally on those occasions, the petitioners were offered only minimum number of shares and that too at a premium. The second petitioner had signed only the provisional accounts for the year ended 31.03.2002, disclosing the enhanced capital, which were to be finalised after consulting the Chartered Accountants. The balance sheets produced by the respondents are not the audited balance sheets certified by the Chartered Accountants. No share certificates have been issued to the petitioners. The Company never received any consideration from the respondents 2 to a towards such discriminate allotment of shares. The petitioner each held 14% prior to the impugned allotment, which came to be reduced to 1 1% by virtue of the allotments challenged in the petition. The impugned allotments, are therefore, illegal and not binding on the petitioners. • Shri Dinesh Vora became a director, as reflected in the annual return for the period as at 30.09.2000, to whom the third respondent sold his one-seventh shares and thereby he became a stranger to the Company. These facts are not disputed by the respondents. The third respondent who ceased to be a director with effect from 14.08.2000 was never re-appointed by the Company. Form No. 32 dated 25.04.2005, filed with the Registrar of Companies on 27.04.2005 would disclose as if the third respondent was appointed as director of the Company on 14.03.2005, whereas no board meeting was ever held appointing him as a director of the Company. The board minutes produced by the respondents, appointing the third respondent as a director are fabricated and must be ignored. The search of the records of the Company made at the office of Registrar does not reveal any board meeting purportedly convened on 14.03.2005 in terms of Form No. 32 said to have been filed on 27.04.2005, and therefore, the appointment of the third respondent as a director is not true. • The respondents 2 to 6 without filing any balance sheet after the period ended 31.03.2000 have stealthily taken steps under Section 560 for striking off the name of the Company as per the Simplified Exit Scheme of the Central Government, without the knowledge of the petitioners and without disclosing the dues payable to Government. This act of the respondents, after selling the properties of the Company, is a clear case of fraud played against the petitioners, Government of Karnataka and Government of India. Shn R. Eshwar, learned Authorised Representative, opposed the company petition on the following, among other, grounds: • The main grievance of the petitioners is on account of the sale of the properties of the Company, which is a past and concluded transaction and therefore, does not fall within the ambit of Section 397/398. • By virtue of Section 54 of the Provincial Insolvency Act, 1920 every transfer of property, with a view to give a creditor preference over the other creditors shall, if such person is adjudged insolvent on a petition presented within three months after the date thereof, be deemed fraudulent and void as against the receiver and shall be annulled by the Court. The sale of the properties caused by the Company does not amount to a fraudulent preference as envisaged in Section 54 of the Provincial Insolvency Act. The petitioners cannot either invoke the remedy contemplated in Section 402(f) since the company petition has been filed beyond three months of the sale of the properties effected by the Company. • The petitioners are guilty of forum shopping by filing civil suits in respect of the subject matter of the main petition, which are prior in point of time. All the averments raised in the civil suit are forming part of the company petition, which in addition deals with the impugned allotment of shares. The petitioners with ulterior motive pressed for interim reliefs in the civil court even a tier tiling of the company petition and withdrew the suit only on 15.07.2006. The petitioners have initiated the present proceedings with a view to arm twist the respondents, compelling them to come to the terms imposed by the petitioners. The petitioners threatened the respondents 7 & 8, with serious consequences, as affirmed by the respondents 2 to 6 in an affidavit filed before this Bench, and therefore, the company petition is liable to be dismissed in-limine. The petitioners have not come with clean hands and therefore, the equitable reliefs should be declined to them. • The impugned allotments are legally made with the knowledge of the petitioners. While the petitioners are challenging the allotments, they claim together 5100 shares allotted on 14.03.2005 and thus, are taking contradictory pleas. The board of directors with a view to realise a better price increased the valuation of the Company by allotting shares on 30.12.2.004 and 14.03.2005 at premium. The board minutes dated 30.12.2004 allotting shares at premium and approving sale of the properties have been signed by, among others, the petitioners. The board minutes dated 30.12.2004 were confirmed at the board meeting held on 15.02.2005 by the directors, including the petitioners. The petitioners were present at the board meeting held on 14.03.2005, where shares were allotted by the Company. The respondents are not aware of the death of the second petitioner's lather on 24.08.2001 till today and therefore, the allotment made in his favour may be set aside. The Company is not maintaining the attendance register for the board or general meetings, as sworn by the second respondent in his affidavit on 11.12.2006. According to the petitioners, they were aware of the allotments on 06.01.2006, but the civil suit tiled on 17.01.2006 does not challenge the allotments. The balance sheet for the year ended 31.03.2002 and 31.03.2003 signed by the second petitioner, disclose the share capital of Rs. 25 lakhs, which include the impugned allotment of shares. The signing of the balance sheets by the second petitioner has been admitted in the rejoinder filed by the petitioners. • The properties of the Company are reflected in the balance sheet for the year ended 31.03.2000 under the head "current assets". The auditors' report for the year ended 31.03.2000 states that the stock of land has been physically verified by the management at the year end. The prices of real estate in Bangalore suffered a steep decrease in the later part of 1999 and the current asset even with any development would not have fetched the cost price for the Company, ultimately resulting in huge losses to the Company. The petitioners did not evince any interest in the day-to-day affairs of the Company, when the value of the current assets got depleted and did not choose to attend the board meetings conducted periodically by the Company. Nevertheless, the petitioners were appraised of the developments at the board meetings from time to time. The board of directors including the petitioners, resolved at the board meeting held on 14.03.2005 to sell the current assets, even though no board resolution is required for the purpose of selling the current assets of the Company. The respondents 7 & 8 purchased the current assets of the Company for a little more than the Company's purchase price and paid the consideration by way of post dated cheques. At the board meeting held on 23.05.2005, it was decided to take steps to strike off the name of the Company under the Simplified Exit Scheme. The petitioners did not attend the board meetings and they vacated their office on 02.07.2005. The legal nonce dated 04.07.2005 and the telegram of 04.07.2005 sent by the first petitioner alter sale of the properties would show that they are aware of the sale of the current assets of the Company. The petitioners have been claiming the value of the properties differently at different places of the company petition. The petitioners have valued the properties at Rs. 1.65 crores both in the legal notice dated 04.07.2005 and in the company petition; Rs. 3 crores in the reply given by the second petitioner to the first petitioner; and Rs. 3.50 to Rs. 4 crores in the company petition. However, the petitioners have not produced any document substantiating the value of the properties as claimed by them. The respondents on the other hand have sold the properties for the guideline value and, therefore, the petitioners cannot challenge the action of the respondents which has been done in the best interest of the Company. No fraud has been committed by the respondents 1 to 6 upon the petitioners. The reply notice dated 06.07.2005 of the second petitioner would show that one Shri Mohanan was interested to buy the properties for Rs. 3 crores, but never established any such offer by the petitioners. • The third respondent was re-appointed as a director at the board meeting held on 14.03.2005, to which the petitioners were parties. Form No. 32 notifying the appointment of the third respondent as a director was filed on 27.04.2005, prior lo sale of the properties in favour of the respondents 7 & 8. The petitioners specifically contended in the civil suit filed before the Court of Civil Judge, Nelamangala, that the third respondent is a shareholder of the Company, whereas it is pleaded before the CLB that the third respondent is not a shareholder of the Company. The first petitioner by sending a legal notice dated 04.07.2005 to the third respondent, deemed to have admitted that the third respondent is a shareholder, in the absence of which he need not have sent any legal notice to the third respondent. Thus, the third respondent continues to he a shareholder and director of the Company, belying the version of the petitioners. • The petitioners are concerned with the properties of the Company but not the welfare of the Company. The petitioners are seeking (a) to set aside the sale deeds dated 28.04.20O5 executed in favour of the respondents 7 & 8; (b) to dispose the properties and (c) to distribute the sale proceeds among the members according to their shareholding or for (a) an order lo wind up the Company, and (b) to distribute the sale proceeds of the properties in favour of the shareholders. The petitioners, will not, therefore be prejudiced on account of winding up of the Company, whereas the petitioners are claiming that any winding up order will prejudicially affect the interest of the Company and its members, thereby making inconsistent plea to suit their connivance. In view of the conduct of the petitioners, they should be denied the equitable reliefs claimed under Section 397, save the prayer for a declaration that Form No. 32 filed with the Registrar of Companies, notifying the resignation of the petitioners from the office of director of the Company as illegal and void ab initio. • The Company has made an application prior to filing of the company petition for striking off the name of the company under Section 560 in accordance with the Simplified Exit Scheme, 2005, introduced by Ministry of Company Affairs. The CLB has wide powers, which include the authority to wind up the Company and therefore, the Company may be permitted to be struck off from the register maintained by the ROC. The CLB, while exercising the inherent power cannot go against any statutory prescription in violation of the provisions of law as held in Jindal Praxair Oxygen Co. (P) Ltd. v. Praxair Pacific Ltd. (2005) 61 SCL 93. Therefore, the interim order of this Bench directing the Regional Director to keep in abeyance the proceedings under Section 560 against the Company being in conflict with his statutory power vested in Section 560 of the Act has to be vacated. The maxim falsee in uno, false in omnibus quoted by Shri S. Satish, learned Counsel (false in one thing, false in everything) is neither a sound rule of law nor a rule of practice, which is applicable only in case of tons and not in civil cases, as held in Ugar Ahiv v. State of Bihar CDJ 1964 SC 353. The maxim "falsus in uno falsus in Omnibus" has no application in India and has not received general acceptance nor has this maxim come to occupy the status of rule of law and it is merely rule of caution, as held in Sucha Singh v. State of Punjab CDJ 2003 SC 689.
(3.) SHRI V. Mahesh, learned Authorised Representative, in support of the claim of the respondents 7 & 8 submitted: • These respondents have purchased the properties from the Company for guideline value fixed by the Appropriate Authority in good faith after taking due care, by verifying the board minutes and after satisfying that the Company owned the properties, which were free from encumbrances; paid the entire consideration; thereafter, spent considerable amount of money in developing the lands; obtained approvals for lay-outs and laid down residential plots. The annual return as at 30.09.2000 shows that the third respondent is a director of the Company, which is clearly admitted by the first petitioner by sending the legal notice dated 04.07.2005 and the telegram to him. The third respondent who ceased to be a director came to be again appointed as a director oil 14.03.2005, in term of Form No. 32 filed with the Registrar of Companies. Hence, the Company has been duly represented by the third respondent, while conveying the properties in favour of the respondents 7 & 8. The respondents have filed the present petition with ulterior objects. The stamp duty and registration fee, as agreed between the parties, were borne by the Company, for which there is no bar under law. No reference has been made to SHRI Mohanan who reportedly made an offer of Rs. 3 crores for the properties, in the legal notice of the first petitioner but made only in the reply nonce of the second petitioner. There is no material substantiating the value of the properties, as claimed by the petitioners. By virtue of Section 402(f), any sale transaction ought to have been challenged within three months, which is not satisfied in the instant case. The seventh respondent has already sold the property acquired by him in two blocks as borne out by the sale deeds dated 21.07.2006 and 30.08.2006. The eighth respondent entered into a development agreement with a third party; developed 176 plots and already sold a large number of plots in favour of third parties. The respondents have sold after acquiring the properties, prior to filing of the company petition. The subsequent purchasers have not been impleaded as parties to the company petition. The civil suit filed earlier by the petitioners has been converted into the present company petition, which has to be dismissed.;