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TMI Blog2010 (9) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... ny assets to respondents Nos. 6 and 7 herein, viz., "to declare that the impugned sale of the land belonging to the company which is an extent of 6.63 acres made under the deed indentures dated December 9, 2005 and December 20, 2003 and sale deed dated July 21, 2007, to respondents Nos. 5 and 6 are illegal, non est and void in law", the first respondent cannot be allowed to proceed with the joint development agreement. In the event of setting aside the sale in favour of respondents Nos. 6 and 7, the joint development agreement entered with the first respondent will be non est. It is not for the first respondent to state that the appellant and the other respondents could work out their remedies out of 36 per cent. of the shares of the company over the constructed area. As stated earlier, even assuming that the appellant can work out his remedy out of 36 per cent. shares of the company over the constructed area, in the event of setting aside the sale deed executed in favour of respondents Nos. 6 and 7, the prospective purchasers of the apartments from the respondents will be made to suffer. The first respondent is not going to proceed with the construction without collecting mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was shocked to notice some construction being carried on in the land belonging to the company situated at Athipalayam Road, Chinnavedampatti village, Coimbatore, which is of an extent of 10 acres. The enquiry done by the appellant revealed that the said 10 acres valuable property of the company was being jointly developed along with M/s. Coramandal Engineering Co. Ltd., the first respondent herein. On further enquiry, the appellant came to know that a fraudulent transaction took place by which, a sale deed was executed in favour of respondents Nos. 6 and 7, who are the sons of the fifth respondent. The said sale has been challenged before the Company Law Board by the appellant. The sale was made for the value which was below the market value. The execution of the company seal of the seller was duly authorised by the resolution of the shareholders in the extraordinary general meeting of the company held on November 21, 2005 and duly authorised by the board of directors of the company on the same day. ( c )The second respondent-company has created a charge by way of an equitable mortgage on another property of the company situated at Chinnavedampatti village, Coimbatore of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affecting the rights of the petitioner under section 397/398 of the Companies Act, 1956, on the sole ground that the company has other properties too ? ( iv )Whether the Company Law Board passed an interim order which amounts to giving a determination on the main company petition itself in a proceeding under section 397/398 of the Companies Act, 1956 ? ( v )Whether the Company Law Board confined its role to look at the alleged interests of the company alone when apparently larger public interest is involved by allowing the application through the impugned order ? 4. I have heard Mr. Aravind Dattar, learned senior counsel for M/s. Durga Rao and Associates for the appellant, Mr. P. S. Raman, learned senior counsel, for Mr. B. Giridhara Rao, learned counsel for the first respondent and Mr. Karthik Seshadri, learned counsel for M/s. Iyer and Thomas, learned counsel for respondents Nos. 2 to 7. 5. The second respondent-company is a private company incorporated on October 23, 1980. One G. Kandaswamy, the father of the appellant and respondents Nos. 3 and 5 were the major shareholders. The name of the shareholders and the number of shares held by them are set out hereunder : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment agreement was entered into with the seventh respondent. Hence, the said company petition came to be filed before the Company Law Board. 8. In the said proceeding, the first respondent filed an application in C. A. No. 84 of 2010 under section 403 of the Companies Act read with regulation 44 of the Company Law Board Regulations, 1991, Chennai seeking permission to proceed in terms of the joint development agreement dated May 23, 2008, entered into with the second respondent-company. The said application came to be allowed by the Company Law Board, which made the appellant to approach this court by filing the present appeal against the said order. 9. Learned senior counsel appearing for the appellant mainly contended that : ( i )maintainability of the said application filed by the first respondent herein was canvassed before the Company Law Board, but, however, no finding was given by the Company Law Board ; ( ii )the application filed by the first respondent under section 403 of the Act is not at all maintainable since section 403 does not contemplate filing of such application ; ( iii )the properties worth about several crores have been sold to respondents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... template filing of such application. Before adverting to the said contention, it would be useful to extract section 403 of the Act, which is extracted hereunder : "403. Interim order by Tribunal.-Pending the making by it of a final order under section 397 or 398, as the case may be, the Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company s affairs, upon such terms and conditions as appear to it to be just and equitable." 12. The above said provision makes it very clear that interim application could be filed pending final orders under section 397/398 of the Act for regulating the conduct of the companies affairs. Admittedly, the first respondent has moved the application under section 403 of the Act not for regulating the conduct of the affairs of the second respondent-company. The first respondent had filed the said application seeking a direction to proceed with the joint development agreement dated May 23, 2008. In the counter affidavit of the appellant, who is the first respondent in the said application, it is clearly stated that "there is no provision under section 403 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale is made by the first respondent by proceeding with the project, even if it is sold at the rate of Rs. 2,000 per sq.ft., the value of the project would be around Rs. 212 crores. Out of this, the value of the share of the owners would be around Rs. 76.46 crores. Due to the sale of the lands to respondents Nos. 6 and 7, the share of the company would be approximately about Rs. 25.48 crores and respondents Nos. 6 and 7, because of the sale deed by the company, would be getting Rs. 51 crores. That apart, the first respondent seems to have parted with Rs. 3.65 crores for joint development agreement, out of which Rs. 2 crores have gone to respondents Nos. 6 and 7 in view of the sale effected in their favour. These are the matters to be gone into at the time of final disposal of the matter before the Company Law Board. While so, the Company Law Board ought not to have allowed the application filed by the first respondent to proceed with the project. Further, when the appellant filed a counter affidavit putting forth these pleas, the Company Law Board should have considered the same before allowing the application filed by the first respondent. 16. It is further contended on b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 6 and 7, the joint development agreement entered with the first respondent will be non est. ( ii )It is not for the first respondent to state that the appellant and the other respondents could work out their remedies out of 36 per cent. of the shares of the company over the constructed area. ( iii )As stated earlier, even assuming that the appellant can work out his remedy out of 36 per cent. shares of the company over the constructed area, in the event of setting aside the sale deed executed in favour of respondents Nos. 6 and 7, the prospective purchasers of the apartments from the respondents will be made to suffer. The first respondent is not going to proceed with the construction without collecting money from the prospective purchasers of the apartments. Thus, the public money will be involved in the project. 20. Yet another submission that was made on behalf of the respondents is that the Company Law Board refused to grant interim order restraining the first respondent to proceed with the implementation of the joint development agreement. Hence, there cannot be any impediment to grant the relief that has been sought for by the first respondent to proceed with the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the financial position of the second respondent-company. In compliance with the order, all such particulars were furnished and the compliance of the order was duly recorded by the honourable Bench at the subsequent hearing held on February 20, 2009. In the circumstances, it could be seen that the honourable Bench was not convinced enough to grant any order impeding implementation of the joint development agreement. In the circumstances and in the absence of any interim order, there is no impediment whatsoever in the applicant proceeding further with the joint development agreement nor is there any difficulty in giving clear title to the prospective purchasers." 22. When the first respondent was conscious of the fact that there is no interim order against it for proceeding with the project, it is not known why it has approached the Company law Board seeking direction to proceed with the project. Perhaps, it seeks a seal of approval to proceed with the project. By getting a seal of approval from the Company Law Board it wants to attract the purchasers on its project. The first respondent cannot be allowed to have a seal of approval for proceeding which the project especially when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h of the matter. As already stated the controversy in the case revolved around alleged allotment of additional shares in favour of Ramanujam and whether the allotment of additional shares was an act of oppression on his part. On the issue of oppression the finding of the Company Law Board was in favour of Prathapan, i.e. , his impugned act was held to be an act of oppression. The said finding has been maintained by the High Court although it has given stronger reasons for the same." 25. In the given case on hand, as pointed by me earlier, even though the appellant has raised a plea that the application filed by the first respondent was not maintainable, the Company Law Board has not considered the said aspect. That apart, the appellant has raised several grounds for dismissing the claim made by the first respondent. However, the same was not considered by the Company Law Board. Hence, I am of the considered view that the decision cited by learned senior counsel appearing for the appellant is squarely applicable to the case of the appellant and the appeal filed by the appellant is perfectly valid. 26. Learned counsel appearing for respondents Nos. 2 to 7 relied on the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the Company Law Board as just and equitable. In those circumstances, it has been held by this court that the discretion to order for regulating the company s affairs in the best manner cannot be interfered with. Hence, the said judgment may not be useful to the case of the respondents. 28. Learned senior counsel appearing for respondents Nos. 2 to 7 contended that the appellant being a shareholder has no right over the assets of the company and hence, he cannot stop the first respondent from proceeding with the joint development agreement. In this connection, he relied on the judgment reported in [1955] 25 Comp Cas 1 ; [1955] 27 ITR 1 ; AIR 1955 SC 74 ( Mrs. Bacha F. Guzdar v. CIT ). Paragraph 9 of the said judgment is usefully extracted hereunder (page 6 of 25 Comp Cas) : "It was argued that the position of shareholders in a company is analogous to that of partners inter se. This analogy is wholly inaccurate. Partnership is merely an association of persons for carrying on the business of partnership and in law the firm name is a compendious method of describing the partners. Such is, however, not the case of a company which stands as a separate juristic entity distinc ..... 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