2015 (11) TMI 264 - Board - Companies Law

Grant of development rights - Restraint order against a person who is not a shareholder of R1 company - creation of third party rights - Held that - In this case the petitioners initiated this CP against the act of Respondents saying the conduct of R2 and others is oppressive, and this fact of creating third party rights to Magnum has come to their noticed only after disclosure come from the Respondents side, therefore it cannot be said it is hit by limitation. For having the petitioner alleged that the value of the property is no way close to the real value of the property, for having alleged that R2 caused it transferred to Magnum without notice to the petitioners, and there being an order from CLB that the petitioners are entitled to implead Magnum as party to the proceeding, this Application is maintainable. On seeing the company accounts, it is evident that there is no entry showing that the money of ₹ 9,51,00,000/- shown as consideration to the company property has not come into the accounts of the company, therefore, for time being it is to be understood that no money has come into the company showing it as consideration to Swami Samarth Property, For having this Bench already stated in the order dated 18th May, 2015 that R2 dealt with the affairs of R1 prejudicial to the interest of the petitioners, this Bench directs Magnum Landcon LLP not to alienate or create third party rights over the Swami Samarth Property and shall maintain status quo over the property pending disposal of the main Company Petition. The respondent side is directed to file reply to this application within 15 days hereof, rejoinder, If any, within 15 days thereafter.

Summary

Issues involved:
1. Impleadment of a third party in a Company Petition regarding the grant of development rights.
2. Alleged undervaluation and unauthorized transfer of property rights.
3. Jurisdiction of the Company Law Board to pass a restraint order against a non-shareholder.
4. Compliance with legal provisions in transferring property rights.
5. Validity of the transaction and the necessity of impleading the third party.

Issue 1: Impleadment of a third party in a Company Petition regarding the grant of development rights

The petitioners filed an application for impleadment of Magnum Landcon LLP and its partners as respondents to the Company Petition as they were not aware of the grant of development rights without their knowledge. The Company Law Board (CLB) directed the production of the alleged agreement between R1 company and Magnum Landcon LLP, along with proof of payment. The CLB also ordered to maintain status quo with respect to shareholding and property until further proceedings. An Observer appointed by the Bench recorded the non-appearance of the respondents' Advocate during inspection, leading to a postponement.

Issue 2: Alleged undervaluation and unauthorized transfer of property rights

The petitioners presented an agreement showing the grant of development rights to Magnum Landcon LLP for a property in Mumbai. They argued that the sale was under-considered, and no evidence of the sale consideration being remitted to the company account was found. The petitioners contended that the transaction was prejudicial due to undervaluation and lack of notice to shareholders. The Bench found the transfer to be potentially oppressive and ordered a restraint on further alienation of the property by Magnum Landcon LLP.

Issue 3: Jurisdiction of the Company Law Board to pass a restraint order against a non-shareholder

The respondents argued that since the property rights were already transferred, the petitioners should seek relief through a civil suit, not under Sections 397 & 398 of the Companies Act. However, the Bench held that if an act is oppressive to the company or its members, it can intervene even against third parties involved. The Bench clarified that it can pass orders against non-members if the act is found to be oppressive, emphasizing the need for a fair hearing. The Tribunal asserted its authority to protect the rights of parties and prevent further alienation of assets pending resolution.

Issue 4: Compliance with legal provisions in transferring property rights

The petitioners alleged that the transfer of property rights was not in compliance with legal requirements and was prejudicial to their interests as shareholders. They argued that the transaction was unauthorized and lacked transparency, leading to the need for impleading the third party involved. The Bench found merit in the petitioners' claims and directed the respondents to maintain status quo over the property until the case's disposal.

Issue 5: Validity of the transaction and the necessity of impleading the third party

The Bench considered the lack of notice to the petitioners regarding the property transfer and the absence of consideration in the company accounts. It concluded that the petitioners' application for impleadment was maintainable due to the discrepancies in the transaction and the potential undervaluation of the property. The Bench emphasized the importance of protecting the rights of shareholders and preventing further harm to the company's assets. It directed the respondents to respond to the application within a specified timeline, ensuring a fair opportunity for both parties to present their arguments.

This detailed analysis of the judgment highlights the key legal issues involved and the decisions made by the Company Law Board regarding the impleadment of a third party, compliance with legal provisions, jurisdictional authority, and the validity of the property transaction.