2005 (11) TMI 534 - Board - Companies Law

Summary

Issues Involved:
1. Fraudulent Sale of Property
2. Authority to Execute Sale Agreement
3. Validity of Compromise Decree
4. Conduct of Board Meetings and Resolutions
5. Applicability of Sections 397 and 398 of the Companies Act
6. Jurisdiction of Company Law Board (CLB)

Detailed Analysis:

1. Fraudulent Sale of Property:
The petitioners alleged that the only asset of the company, a plantation property, was fraudulently sold at a throwaway price without notice to shareholders for the personal gains of respondents 2 to 5. They sought the intervention of the Company Law Board to terminate and set aside the sale deeds executed on 22.11.2002 in favor of respondents 6 and 7. The property was sold for Rs. 34.67 lakhs, whereas its actual value was claimed to be not less than Rs. 1.50 crores. The sale was alleged to be vitiated by fraud and therefore void.

2. Authority to Execute Sale Agreement:
Late P.T. Abraham, who was managing the company, entered into a sale agreement with the eighth respondent without proper authorization and notice to shareholders. The sale agreement dated 09.06.1994 was contested in a civil suit for specific performance, which was eventually compromised on 21.11.2002. The compromise was reached without the consent of all directors, particularly respondents 3 and 5, who opposed it.

3. Validity of Compromise Decree:
The compromise decree reached before the Kottarakara Taluk Legal Services Authority was challenged as it was alleged to be fraudulent and not binding on all parties. The compromise led to the execution of sale deeds on 22.11.2002. The petitioners and respondent 3 argued that the compromise was illegal and not binding, citing precedents that a compromise decree is not a court decision but merely an agreement between parties.

4. Conduct of Board Meetings and Resolutions:
The petitioners contended that the board meeting held on 18.10.2002 and the extra-ordinary general meeting on 14.11.2002, which approved the sale, were invalid. The third respondent neither attended the board meeting nor signed the minutes. The company failed to circulate the circular resolution dated 11.11.2002 to all directors, violating Section 289. The meetings were alleged to be conducted without proper quorum and notice, making the resolutions invalid.

5. Applicability of Sections 397 and 398 of the Companies Act:
The petitioners invoked Sections 397 and 398, arguing that the affairs of the company were conducted in a manner oppressive to shareholders and prejudicial to the company's interests. They sought relief under Section 402(g) to set aside the fraudulent sale deeds. The respondents argued that Sections 397 and 398 apply to present continuous wrongs and not past concluded transactions. The sale being a past and concluded transaction could not be challenged under these sections.

6. Jurisdiction of Company Law Board (CLB):
The respondents argued that the CLB has no jurisdiction to interfere with the sale transaction, which was a past and concluded one. They cited precedents that Sections 397 and 398 are preventive and not intended to set aside past transactions. The award passed by the Legal Services Authority was final and binding, and any challenge to it should be addressed in the writ petition pending before the Kerala High Court.

Conclusion:
The CLB concluded that the petitioners failed to establish continuous oppression or mismanagement justifying intervention under Sections 397 and 398. The sale transaction was a past and concluded one, and the petitioners did not act promptly to challenge it. The compromise decree was under challenge in the Kerala High Court, and the CLB did not have jurisdiction to adjudicate its validity. The petitioners were not entitled to the reliefs sought, and the interim order restraining respondents 6 and 7 from alienating the property was vacated. The company petition was disposed of with no order as to costs.