Decided on February 13,2003

P V Abdul Khader Respondents


- (1.) The Cochin Malabar Estates and industries Ltd. the appellant in MFA. 1160, 1159 abd 1161 of 2002 is a public limited company registered under the Indian Companies Act. Company is having its registered office at Cochin. The nominal capital of the company is Rs.5 Crores divided into 5000, 12% cumulative preferential shares of Rs. 100/- each and 49,50,000 equity shares of Rs. 10/-each. The amount of paid up capital is Rs. 1,77,19,080 divided into 17,71,908 equity shares of Rs. 10/-each. The company is having three Rubber Estates and one Tea Estate apart from Aqua - culture Units at Goa and an office building at Bombay, of which one estate called the Kinalur Estate is having an extent of 987.27 hectares. The Chairman and Managing Director of the company is a share holder of about 30% of paid up shares. Life Insurance Corporation has got 18% shares and has a nominee in the Board of Directors. Bangur group is holding about 18% of the total shares of the company. Company petitioner holds only 50 shares in the respondent company which is less than 0.02% of the total shareholdings of the company
(2.) The Company has to discharge some outstanding liabilities to the banking institutions such as Federal Bank, Bank of India, IDBI etc. The company has sufficient assets but not much cash reserve so as to pay off the liabilities. The Board of Directors were contemplating the sale of some of its assets so that substantial - liabilities of the company could be wiped off. The financial institutions have been pressurising the Board of Directors to discharge their liabilities. The Federal Bank has filed OA. 1677 2000,OA. 141/2000 before the Debt Recovery Tribunal, Ernakulam. Bank of India has also filed OA.210/2000 for recovery of debts due to them. In the.wake of these petitions, the Board of Directors in their wisdom thought it would be better to sell some of the immovable properties so that the sale proceeds could be utilised for meeting its financial obligations towards the Banks / Financial Institutions for which necessary approval from the general body is statutorily required. The Board of Directors resolved to get the approval of the general body under S.293(1) of the Companies Act subject to applicable permissions, approvals, consents, if any required of any other authorities. Board of Directors of the Company then issued a notice dated 30-10-2001 for holding its 71st annual general meeting on 7-12-2001 for transacting various business including the following item which is extracted below: To consider and if thought fit to pass with or without modification the following resolution as an ordinary resolution. This resolution will be considered for passing by postal ballot method. Please refer to note (1) herein below: - "RESOLVED THAT, pursuant to S.293(1) and other applicable provisions of the Companies Act, 1956 the consent of the member of the company be and is hereby accorded, subject to applicable permissions, approvals, consents, if any, required of any other authorities, to the board of directors for sale, lease or dispose otherwise from time to time any part (including substantially the whole) or whole or any or all of the immovable properties (inclusive of any trees and structures standing thereon) of the company on such terms and conditions as may be thought fit and proper by the board of directors in its absolute discretion". "RESOLVED FURTHER THAT, further consent of the members of the company be and is hereby further accorded to the board of directors for doing and performing from time to time for and on behalf of the company all such acts, deeds, matters and things as may be necessary and expedient in the matter of sale of any immovable properties as consented herein above." In the notes attached to the notice item No.6 reads as follows: As you know that your company has to make payment of outstanding interest as well as repayment of the monies that the company borrowed from various banks and financial institutions. Besides these liabilities towards the banks and financial institutions, the company also has other substantial financial liabilities / obligations which are required . to be honoured on urgent basis. In the present circumstances one of the feasible options, available to the company is to sell some of the assets (immovable properties) of the company and utilise the sale proceeds thereof in meeting its financial obligations particularly towards banks / financial institutions. Considering the fact that the company is engaged in business of plantation, sale of immovable properties on which the company has been carrying on plantation activities can be deemed to be sale of undertakings of the company. As per the provisions of Companies Act, 1956 sale of whole or substantially whole of the undertakings require approval of the members of the company. Your directors therefore thought it fit to hereby seek your approval for sale of any or whole of the immovable properties as mentioned in the resolution at serial No.6 under consideration. The consent of the members has been sought with a view to confer upon the board of directors the necessary authority enabling them to take appropriate decision for the purpose of sale / lease / assignment as and when the company receives an acceptable proposal / offer in respect of any of the immovable properties of the company. None of the directors of the company is in any way deemed to be concerned or interested in the resolution at serial No.6 of the notice under consideration. In the meanwhile, one of the share holders of the company by name Sushila Devi Shatter had approached the Calcutta High Court to hold up the convening of general body meeting which was scheduled to be held on 7-12-2001. Interim order was passed by the Calcutta High Court on 5-12-2001. The Supreme Court vide its order in CA.464 / 02 dated 6-12-2001 stayed the order of the Calcutta High Court and ordered that the company would be at liberty to hold its annual general meeting which was scheduled to be held on 7-12-2001 or any other adjourned day. The Supreme Court opined that the High Court had exceeded its jurisdiction in granting interim injunction 48 hours before the holding of the Annual General Meeting at the instance of a shareholder who held only 1000 shares. Few other share holders of the company had also approached this court by filing CP.64/01 and moved an application against convening of the general body meeting of the company on 7-12-2001. Learned Company Court Judge of this Court granted interim order on 29-11-2001 but was vacated at the instance of the company on 6-12-2001 taking into consideration the undertaking given by the company that the entire properties would not be sold and the company would effect sale of such extent of properties that would be necessary for the discharge of the liabilities. An appeal was preferred before the Division Bench as MFA. 360/02 against the order passed by the Learned Company Judge in CA.337/01 in CP.64/01 which came up before the Division Bench consisting of one of us, K.S. Radhakrishnan, J. Bench passed the following order. We find the steps now taken by the company is to sell away some of the properties which has got the sanction of the general body as well as the Board of Directors. It is for the general body and Board of Directors to decide what is best in the interest of the company. Appellants being shareholders of the company had their own say at the Annual General Meeting which resolved to take urgent steps by the company to sell away the properties to meet the pressing needs. Counsel for the appellant submitted that the company is selling away some of the estates which are income generating. This court sitting in this jurisdiction is not justified in substituting its wisdom to that of the Annual General Meeting or the Board of Directors. We find sufficient safeguards have been made in the order stating that the company should effect sale of such extent of properties that would be necessary for the discharge of the liabilities. In such circumstances, we find no reason to entertain this appeal. It is accordingly dismissed." Attempts were also made by some of the share holders to see that resolution passed in the general body be not given effect to by the Board of Directors but without any success.
(3.) The general body meeting was accordingly convened on 7-12-01 and accorded sanction under S.293(1)(a) to the Board of Directors to take steps for sale of the immovable property of the company to utilise the sale proceeds for reducing the financial liabilities of the company. The Board of Directors has therefore authority to take appropriate decision for the purpose of sale when acceptable proposal is received. The Board of Directors on the strength of the consent given by the annual general body issued a public notice dated 2-4-2002 for the sale of its estate called Kinalur Estate admeasuring approximately 987.27 hectares. Sealed bids were invited along with a pay order of a sum equivalent to 15% of the bid value. One. Paresh G. Sangani then filed a suit before the Sub Court, Kochi as OS.249/01 so as to prevent the Board from considering the resolution under S.293(1)(a) and from taking steps for sale of the properties. No orders have been granted by the Sub Court. The company petitioner herein has also filed OS.261/01 before Sub-Court, Kochi on 14-12-2001 praying that the company would sell the plaint schedule property only after due publication and after getting direction from Sub Court, Kochi.;

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