2011 (4) TMI 1209 - HC - Companies Law

CLB Operation and mismanagement - Appellant purchased the property from Thiru G. George director of company - property purchased by the appellant was registered in the name of Thiru G. George - Respondents claimed that the schedule property belonged to M/s. Unicentre Agencies and Engineering P. Ltd. the fifth respondent though it was registered in the name of the sixth respondent (director of company) - appellant received a notice from the Company Law Board ordering the appellant to deal with the property only with liberty obtained from the Company Law Board - CLB set aside the sale of properties Held that - Sale of land owned by Thiru G. George has no connection with the business of the company - respondent being the registered owner has sold the property to the appellant in his individual capacity and not as director of the company - Land in dispute stood in the name of individual and not in the name of company - company appeal is allowed - order passed by the Company Law Board is set aside

Issues Involved:
1. Jurisdiction of the Company Law Board under sections 402 and 403 of the Companies Act, 1956.
2. Applicability of the doctrine of lis pendens.
3. Validity of the sale deed executed in favor of the appellant.
4. Estoppel by conduct of respondents.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Company Law Board under sections 402 and 403 of the Companies Act, 1956:
The appellant challenged the jurisdiction of the Company Law Board (CLB) to set aside the sale of immovable properties registered in an individual's name. The CLB's jurisdiction under section 402 is limited to properties standing in the name of the company and any transfer made within three months before the application under sections 397 or 398. The court observed that the property was never in the company's possession or ownership and was registered in the individual's name (sixth respondent) since 1989. Thus, the CLB exceeded its jurisdiction by setting aside the sale deed executed in favor of the appellant.

2. Applicability of the doctrine of lis pendens:
The CLB applied the doctrine of lis pendens, which imposes a prohibition on transferring property during the pendency of a suit. The court noted that while the doctrine of lis pendens can apply to CLB proceedings, the question was whether the CLB could set aside the sale deed. The court found that the sale deed in favor of the sixth respondent was executed in 1989, long before the CLB proceedings began, and thus, the CLB's application of lis pendens was incorrect.

3. Validity of the sale deed executed in favor of the appellant:
The appellant argued that he was a bona fide purchaser without knowledge of the pending proceedings. The court acknowledged the merit in the appellant's claim but noted that the plea of bona fide purchaser is not available in cases of lis pendens. However, the court found that the CLB did not have the jurisdiction to set aside the sale deed under sections 402 and 403, as the property was not in the company's name and the sale was not made within the relevant time frame.

4. Estoppel by conduct of respondents:
The court observed that respondents Nos. 1 to 4 were aware of the property being in the sixth respondent's name since at least 1991 when it was mortgaged as collateral security. Despite this knowledge, they did not take steps to seek remedy until much later. The court found that respondents Nos. 1 to 4 were estopped by their conduct from challenging the sale, as they had allowed the sixth respondent to act as the property's owner for many years.

Conclusion:
The court allowed the appeal, setting aside the CLB's order and dismissing the petition filed by respondents Nos. 1 to 4 under sections 397 and 398 of the Companies Act, 1956. The court concluded that the CLB exceeded its jurisdiction, the doctrine of lis pendens was incorrectly applied, and the respondents were estopped by their conduct from challenging the sale.

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