2007 (7) TMI 409 - HC - Companies Law

Summary

Issues Involved:
1. Confirmation and execution of the sale deed for the property.
2. Conversion of the partnership firm into a Joint Stock Company.
3. Allegations of misleading the court.
4. Nomination facility in court auction sales.

Issue-wise Detailed Analysis:

1. Confirmation and Execution of the Sale Deed for the Property:
The appeal challenges the judgment dated 9-5-2007, where the learned Company Judge dismissed Company Application No. 166 of 2007. The appellant sought a direction to the Official Liquidator to execute a sale deed for the property at 122, Maker Chambers, VI, Nariman Point, Mumbai, for Rs. 7.35 crores. This amount was already paid by 14-4-2007, pursuant to the order dated 28-12-2006. The property was initially valued at Rs. 4.10 crores and later at Rs. 4.55 crores. The highest bid was Rs. 5.95 crores, but M/s. Mak Enterprises offered Rs. 7.35 crores, which was accepted. The sale was confirmed with several conditions, including payment schedules and no nomination clause.

2. Conversion of the Partnership Firm into a Joint Stock Company:
M/s. Mak Enterprises, initially a partnership firm with two partners, converted into a Part IX Company. The firm inducted five new partners and converted into a Joint Stock Company. The appellant argued that the new entity was essentially the same as the original partnership, with the two original partners retaining a 90% controlling interest. The new partners, who were close relatives, held nominal shares. The conversion was done to comply with the Companies Act, requiring a minimum of seven shareholders.

3. Allegations of Misleading the Court:
The learned Company Judge initially allowed the application but later found that the partnership firm converted into the Joint Stock Company was not the same as the original firm with two partners. The Judge passed strictures against the appellant's advocate for allegedly misleading the court. However, the appellant contended that all relevant documents and facts were disclosed, and the conversion did not change the controlling interest of the original partners.

4. Nomination Facility in Court Auction Sales:
The learned Company Judge was concerned about potential stamp duty loss to the State if the sale deed was executed in favor of a nominee. The court observed that prohibiting nomination could reduce participation in court auctions, which would not benefit secured creditors and workmen. The court suggested that a disincentive, such as an additional 10% purchase consideration, could be imposed if the sale deed is executed in favor of a nominee. This would ensure higher participation and benefit the ultimate beneficiaries.

Conclusion:
The High Court allowed the appeal, set aside the order dated 9-5-2007, and expunged the remarks against the appellant's advocate. The court directed the Official Liquidator to execute the sale deed in favor of the appellant-Company within one month, as the full payment of Rs. 7.35 crores was undisputed. The court also emphasized that the two original partners continued to have a 90% controlling interest in the new entity, justifying the execution of the sale deed in favor of the appellant-Company. The Civil Application No. 241 of 2007 was disposed of accordingly.