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TMI Blog2017 (3) TMI 1109X X X X Extracts X X X X X X X X Extracts X X X X ..... with it at all. Furthermore, the agreement is unregistered. It was entered into after the auction sale. There is nothing mentioned in the application to say that DK Warehousing had not inspected the properties, which had been attached, or that it had no notice of the court auction. In these circumstances, the court is of opinion that the learned Single Judge’s conclusion that its claim to have purchased the property in a bona fide manner, after the auction sale, is without foundation. X X X X Extracts X X X X X X X X Extracts X X X X ..... endered, adverse to ARD, i.e. the proprietorship concern of Ms. Anita Jain, on 6th January, 2010, holding her liable to pay ₹ 21,01,875.37 with interest @ 9% per annum from 2006. This award became the subject matter of the execution proceedings, EP 135/2010. In that proceeding, on 26th August 2010, the court attached the suit property as well as another property. The JD appeared through counsel before the Joint Registrar (JR) on 2nd December 2010 and stated that a petition was filed under Section 34 of the Arbitration and Conciliation Act (hereafter "the Act") to challenge the award. The JR noted that since there was no stay of the proceedings, draft sale proclamation schedule should be filed within four weeks. On the next date, i.e. 25th January 2011 since the JD did not appear, the JR directed notice under Order XXI Rule 54, CPC. One Kiran Mittal filed EA No. 95/2011 seeking for the setting aside of the order dated 26th August 2010 of the court- but insofar as it related to some other property, (80-4/3, Forest Lane, Sainik Farms,) New Delhi and not the suit property. The court directed proclamation of sale on 02.06.2011 and 30.09.2011. On 25th October 2011, the sale proclam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vijay Kumar Sharma is the husband of Ms. Anita Jain and that they were the owners of Yusuf and were conducting business from the property in question. The annual returns filed by Yusuf in Form-20B under the Companies Act, showed that in 2005, Mr. Vijay Kumar Sharma held 25.30% of the total shareholding with 40,010 equity shares as on 29th September 2005. From the Form-20B filed by Yusuf in 2008, it was revealed that Mr. Vijay Kumar Sharma and his relatives held 49.4% shares. In 2009, Mr. Vijay Kumar Sharma held 99.3% of the total shareholding, whereas Ravinder Kumar Mishra held 0.70% of the total shareholding. This continued in 2010 as well. It was, accordingly, prayed that Yusuf's corporate veil should be lifted to determine the real character of persons conducting its affairs. The auction purchaser also alleged that Ravinder Kumar Mishra perjured by affirming an affidavit on behalf of Yusuf in support of the application in which false statements were made concerning its purported request to ARDPL to vacate the premises. It was also argued by the auction purchaser that Yusuf was incorporated in 1984 with 40% equity shares and four directors. Later, it appears that Mr. Vijay Kumar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eez, to purchase all shares of Directors of the said company "owning building (constructed on a plot of land measuring 392.5 sq. yds.) bearing No. A-24, Okhla Industrial Area Phase-I, New Delhi-20." It is mentioned in the report of SFIO that the agreement was executed on 5th January 1996 and the total sale consideration settled was ₹ 34 lacs. When this is seen along with the documents enclosed by YECPL with its application a clear picture emerges. A sale deed was executed on 27th December 1992 in favour of YECPL by M/s. Azad Engineering Works through Mr. Abdul Hafeez, son of Mr. Abdul Latif, and property measuring 392.5 sq. yds. at A-24, Okhla Industrial Area Phase-I, New Delhi was transferred to YECPL. Then progressively shares in YECPL were purchased by Mr.Vinod Kumar Sharma and his wife Ms. Anita Jain and ultimately Mr.Vinod Kumar Sharma held 99.3% shares of YECPL. Thereafter the so-called lease deed (unregistered) was entered into between YECPL and ARDPL through its authorized signatory on 10th February 2006 in respect of the property in question. 22. The SFIO report, in fact, states that Mr. Abdul Hafeez and other Directors had appeared before the Inspectors o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficial liquidator attached with Delhi High Court Sh V.K. Sharma deliberately kept the management of Yusuf Engineering Pvt. Ltd. in the hands of his close relatives. Subsequently, he transferred management/control of this company from his relatives to his close/faithful associates/employees, such as D.K. Agarwal, Ravinder Kumar Mishra etc. During the year 2004-05, he again transferred the management/control of Yusuf Engg. Pvt. Ltd in his own name and his new wife's name i.e., Smt. Anita Sharma as is evident from the annual return of M/s. Yusuf Engg. Pvt. Ltd. made upto 30th September 2005 filed with ROC, Delhi. Therefore, he is illegally occupying/enjoying the benefits of property No. A-24, Okhla Industrial Area, Phase-I, New Delhi, which was solely acquired from out of funds of JVG Finance Limited (in liquidation)." 23. The matter has assumed serious proportions with Mr. Vijay Kumar Sharma being involved in a large number of cases of fraud and cheating and being on the run. He has been proclaimed an absconder since 2007. A plea by him in a separate petition for quashing of an FIR against him was dismissed by this Court with costs of ₹ 5 lakh. 24. It is in the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 8. On 5th April, 2013, the Company court rejected the application seeking leave, and observed as follows: "14. Having heard learned counsels, I am of the view that there is no merit in these applications. If the property in question, namely, property No.A-24, Okhla Industrial Area Phase I, New Delhi eventually is found to be that of JVG Finance Ltd. on account of the fact that the said company had provided the entire consideration for purchase thereof, though in the name of YECPL, neither the applicant nor the auction purchaser would have any interest in the said property. For the purpose of deciding the present applications, I am assuming that the property belonged to YECPL in its own name and in its own right. If so, it is clear that the property was put to public auction after due publication of the notice of the sale proclamation and the auction was held on 15.11.2011.The auction purchaser paid a substantial amount of ₹ 31 lacs on 15.11.2011 itself, and the balance amount of ₹ 93 lacs was paid on 03.12.2012, i.e. before the applicant claimed to have entered into agreement to sell with YECPL through Sh. Vijay Kumar Sharma. 15. The submission of the applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has no right to claim any relief against the auction purchaser, who stands at a higher pedestal than the applicant, insofar as the right to the property is concerned. 19. I may observe that after the conclusion of the argument, learned counsel for the applicant has sought to confine his relief to grant of permission under section 446 of the Companies Act to pursue its application under Order 21 Rule 89 before the executing court. However, I am not inclined to do so, precisely for the reason indicated herein above. Accordingly, these applications are dismissed." Appellate proceedings 9. Since the appellants felt aggrieved by the order of the learned Single Judge in execution proceedings, EFA 9/2012 and EFA 12/2012 were preferred. On 10.07.2012, the following orders were made: "2. While we are seized of these appeals, certain other developments have taken place. There is a company named JVG Finance Limited which is in liquidation and the proceedings are pending before the Company Judge in respect of the said company. Mr. V.K. Sharma, husband of Aneeta Sharma was holding 99.3% shares in the said company and remaining 0.7%shares was held by his employee. During the winding up proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... execution appeals, it is argued (by Yusuf, in the application seeking revival of its disposed off appeals) and - in the company appeals, (by DK Warehousing, as well as VK Sharma) that the auction of Yusuf's property was unwarranted. It is highlighted that the debt arising from the arbitration award was on account of the omission by ARD, which was a tenant of a part of the suit property. As lessee, it had no right or interest in the suit property. On the other hand, Yusuf was owner of the property. In the circumstances, the property belonging to the lessor (Yusuf) could never have been subjected to attachment or valid order of disposition in the execution proceedings. This position remained unaltered whether Yusuf objected to it or did not, in the execution proceedings. 12. It is argued on behalf of the appellants, Yusuf, DK Warehousing and Vijay Sharma, that the decree holder had an enforceable decree against Anita Jain in her personal capacity under the award dated 06.01.2010 passed by the Sole Arbitrator. A perusal of order passed by the Company Court dated 30.04.2012 establishes beyond doubt that the real owner of the property was Yusuf and not Anita Jain (JD). Therefore, aucti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer that it was a front for VK Sharma and his wife, Anita Sharma (formerly Jain). Yusuf held the property since 1992; that its shareholding was substantially taken over or purchased by someone connected by marriage to the sole proprietor of a concern which was the judgment debtor in the arbitration proceedings, was too tenuous a link to enable the court to proceed against its assets. In other words, the identity and corporate character of the owner of the suit property could not be shaken by the wrongdoings, real or alleged, of one of its prominent shareholders. Reference was made to Bacha F. Guzdar v. Commissioner Of Income Tax, Bombay AIR 1955 SC 74, which stated that upon acquisition of a stake in a company, the shareholder does not own any interest in its assets or properties. 15. It is argued that DK Warehousing was a bona fide purchaser of the suit property for value before the auction, and part payment towards the consideration was made on 13.11.2011, which was credited to Yusuf's account on 15.11.2011 before the auction sale and the entire balance amount was also paid. Therefore, its rights as such purchaser, bona fide and without notice, were superior to that of the aucti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and remains unaffected and does not lose title to the property by subsequent reversal or modification of the decree. The property bonafide purchased ignorant of the litigation should be protected. The judicial sales in particular would not be robbed of all their sanctity. It is a sound rule based on legal and equitable considerations." 19. The arguments of the appellants that the Company Judge could not have decided the validity or otherwise the auction sale and in doing so he overstepped the jurisdiction vested in the Company Court are refuted by the auction purchaser. It is pointed out that the application filed by the auction purchaser under Section 536(2) of the Companies Act, on 22.05.2012 much before the Division Bench order of 10.07.2012, and was pending adjudication for grant of sanction. The Company Judge therefore, rightly adjudicated that application for sanction strictly in accordance with law keeping in mind the interest of the creditors of the company. While deciding it, the Company court even directed that the sanction was subject to the condition of depositing of ₹ 1.26 crores more than the auctioned amount. The auction purchaser deposited the amount on 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Agency in the year 2001). The said flat was given as an adjustment of the dues of her firm, M/s Flying Colours Advertising Agency against M/s JVG Finance Limited (in Liquidation). SFIO report further states that the said flat was sold to Ms. Benu Berry vide sale agreement dated 13.12.2001 for an amount of ₹ 22,00,000/- and Mrs. Anita Jain/ Sharma received the payments vide cheque No. 042170 dated 13.12.2001 of ₹ 9,00,000/- and Ch. No. 042171 dated 14.11.2001 of ₹ 10,71,975." 21. Therefore, contends the auction purchaser, it is evident that the JD had committed various frauds in connivance with Mr. V.K. Sharma right from 1996 and not from 2005 onwards. Various courts from across the country had already declared her a proclaimed offender. The judgment in Smt. Benu Berry v. JVG Finance Ltd. (Under Lqdn.) (supra), also held that:- "4. The appellant claims, that the company in liquidation had engaged one Smt. Anita Jain, carrying on the business of an advertising agency in the name and style of Flying Colours, for its promotional work and the company in liquidation owed a sum of ₹ 1.25 Crores to the said Smt. Anita Jain for the work done for the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was held that: "10. Having considered the respective submissions, I am, as at present advised, inclined to agree with the submissions of Mr. Rajiv Shakdher, Sr. Advocate the learned Amicus Curiae. Keeping in view the purpose for which Section 542 has been enacted, and the fact that timely action is of the essence, not only to prevent the presentation of a fiat accompli by the fraudulent Directors of the company, but also to provide relief to the victims of the fraud, it seems that the establishment of the fraudulent conduct for attracting the provision of Section 542 of the Companies Act does. not require the same standard of proof as in a criminal trial and the rigours of the law of evidence as apply to a criminal trial would not apply to establish the commission of fraudulent acts and omissions by the Directors and Managers of a company. It has also to be kept in mind that by its very nature, fraud is not easy to establish. This is even more so, when the fraudulent conduct is undertaken by the Directors of a company, sitting in their own office, with a view to defraud the creditors/investors who, though the victim of the fraud, are not involved in the transactions whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s issued; it was directed to be published in, inter alia, the daily newspaper "The Hindu" as well as a local, vernacular newspaper. The sale was conducted and finalized after this event. There is, and cannot be any dispute that the auction purchaser is a bona fide purchaser, without notice of dispute regarding the title to the suit property. 26. The rule approved in Chinnammal (supra) i.e. that an innocent, third party bona fide auction purchaser's rights cannot be affected because of irregularity in the manner the decree was obtained, or as to the subsequent fate of the litigation, was first approved in a Full Bench ruling of the Nagpur High Court, in Shankar and Anr v. Jawaharlal AIR 1928 Nag 265 where it was held that: " a private satisfaction of a decree certified in court after the sale of immovable property has been held and before the confirmation of the sale is ordered, does extinguish the decree and prevent the Court from confirming the sale in favour of the auction purchaser, if he be the decree-holder himself, but it does not extinguish the decree and prevent the court from confirming the sale where a third person has purchased the property bonafide at the auction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a sale to a stranger is that the court, as a matter of policy, will protect honest outsider purchasers at sales held in the execution of its decrees, although the sales may be subsequently set aside, when such purchasers are not parties to the suit. But for such protection, the properties, which are sold in court auctions, would not fetch a proper price and the decree-holder himself would suffer. The same consideration does not apply when the decree- holder is himself the purchaser and the decree in his favour is set aside. He is a party to the litigation and is very much aware of the vicissitudes of litigation and needs no protection." 27. It is clear, therefore, that previous judgments have made a distinction between one class of purchasers in court auctions and another: if a decree holder purchases the property and the sale is upset because the underlying decree is reversed, or for other reason, the sale transaction can be avoided. On the other hand, if the purchaser is a third party, bona fide buyer of the property, he is immune to the vicissitudes of the underlying litigation as the law deems that he has no notice of such developments. 28. The relevant provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v VK Sharma (CCP(CO.) 17/2007 in CP 265/1998 order dated 30th April, 2012) "22. Further, the SFIO in its report has found that M/s. Yusuf Engineering Company Pvt. Ltd. owning property bearing No. A-24, Okhla Industrial Area, Phase-I, New Delhi, had been purchased from the funds of JVG Finance Limited. The amount of money transferred by JVG Finance Limited to Yusuf Engineering Pvt. Ltd. as well as to its ex-Directors is reproduced hereinbelow:…" Again, in Brain Bridge Advertising v. Ambica Research and Development (P) Ltd (order dated 8th May 2012 in CP 123/2010) it was stated that: "The modus operandi adopted by accused / Petitioner Vijay Kumar Sharma is that he floats a large number of companies and rotates the Directors, funds and MOUs between these companies to keep the innocent investors and government agencies in dark. The Petitioner Vijay Kumar Sharma and other directors are having interconnected links in several companies including M/s PSG Developers & Engineers Ltd, M/s Vian Infrastructure Ltd., M/s JVG groups of companies, M/s Yusaf Eng. Ltd., etc. The accused persons / directors of these companies in active collusion with each other rotated themselves in these ..... X X X X Extracts X X X X X X X X Extracts X X X X
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