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TMI Blog2018 (9) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... mentions the Company Petition as originally filed before CLB having "No.16/2014"). 2. The Impugned Order has been passed in the Company Petition filed by present Respondents 1 to 5, who are the original Petitioners in the Company Petition. Respondent No.6 of the appeal is original Respondent No.7 and the Company concerned M/s. Hotel Mass Private Limited was Respondent No.1 in the Company Petition and has been arrayed here in Appeal as Respondent No.7. 2.1 We will refer to the parties in the manner in which they have been arrayed in the NCLT in the Company Petition. Case of Original Petitioners 3. The Company Petition (Annexure A - 33 Page - 442 of the Appeal) shows the case of Petitioners in brief as under:- a) The Company Petition refers to the different shares held by the original Petitioners and refers to the Respondent No.1 - M/s. Hotel Mass Private Limited (hereinafter referred as the Company) stating that the same was incorporated in 1982. The object of the Company was to carry on business of restaurants and refreshment rooms. Original Respondent No.2 Dr. M.A.S. Subramanian (Appellant No.1) is son of Late Shri M.A. Shanmugam. The Company Petition gives details regardin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween themselves without offering the same to other members in violation of Section 81 of the Companies Act. The petition gives particulars regarding the shareholding on 31.03.2011. According to the Petitioners, Clause 3 and 15 of the Articles of Association prohibited transfer of shares to persons other than members. Clause 16 gives rights to members of pre-emption, if any member wants to sell the shares. The petition makes further averments regarding acts of Respondent No.2 and other Respondents to claim that the requests of Petitioners for information were being denied in spite of letters. Petitioners claimed that their enquiries in September, 2014 disclosed that the Respondents 2 to 6 had sold off the land standing in their name while the actual ownership was vesting with the Company, along with other lands of Respondent No.7 by sale deed dated 31.10.2011 which was registered as document No.1844 of 2013 in the office of District Registrar, Puducherry. Petitioner claimed that the Respondent No.2 with his family members had clandestinely sold their shares in the Company along with the assets of the Company. These facts were never informed to the Petitioners by the Respondents 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records pertaining to Respondent No.1 Company were in the custody of 7th Respondent. They claimed that the sale was legal, valid and binding. According to them, had the property not been sold at appropriate time, the Company would have ended up in winding up. Impugned Order in brief 5. The Impugned Order shows that the learned NCLT considered the rival pleadings and the Rejoinder as well as Counter in CA 15 of 2017 filed by Respondents/Petitioners. Reference was also made to the pleadings relating to lease deed which appears to have been executed by original Respondent No.2 in favour of the Company and the fact that the same was not property stamped. 6. The Impugned Order till Page - 34 keeps referring to the pleadings. From Page - 34 of Impugned Order, there are reasons referring to pleadings and findings. It would be more appropriate to reproduce the same as it is:- "The Respondents/petitioners have sought to set aside the sale of 3,15,860 equity share of Rs. 100/- each sold by the applicants/Respondents 2 to 6. In this connection, it is seen that the applicants/Respondents have not adduced any material evidence to prove that the issue of share capital was raised in the Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in other lands to R7 Company by a sale deed dt. 31.10.2011 registered as the document No.1844 of 2013 in the office of District Registrar, Puducherry. The petitioners have further stated that the Companies property including building, movables and fixtures were sold for Rs. 3,93,80,706/- to R7 Company which was much less than the book value of the buildings disclosed in the Balance Sheet for the financial year 2010 -11. The respondents have not shown any proof that the valuation was done for the properties of the R1 Company which were sold which due to non execution of the sale deed was held in trust by the R2. The Respondents have also not submitted a Special Resolution with the approval to sell the Company's properties by special resolution approved by AGM/EGM. In view of the fact, that it has been established that the property in question pertains to R1 Company, the sale consideration has not been shown by the Respondents 2 to 6 to have been debited to the books of accounts of R1 Company. In view of this, we make the order as follows:- ORDER In view of the facts discussed above, it is clear that the Respondents 2 to 6 have sold their entire shareholding to the R7 Company. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecretary." The Arguments 7. In this present appeal filed by original Respondents 2 to 6, referring to written submissions the learned counsel for the Appellants submitted that 34 pages of the Impugned Order merely refer to pleadings and there is hardly any discussion of the various rival claims. It has been argued that NCLT did not apply its mind to the dispute. According to the Appellants, after the death of M.A. Shanmugam, the LRs namely four daughters and the only son of Late M.A. Shanmugam executed lease deed on 11.06.1984 relinquishing all the rights, titles in the estate of M.A. Shanmugam in favour of wife of Shanmugam. Later on, wife of Shanmugam, on 04.07.1984 executed settlement deed in favour of the original Respondent No.2 (Appellant No.1) and the settlement deed includes the land on which the hotel stood. Mutation was carried out even in revenue records. Respondent No.2 executed lease deed of the land in favour of the hotel registered as document 5890/98. According to the Appellants, the original Petitioners were aware of these things. It has been argued that one of the daughters of Late M.A. Shanmugam had filed CS 352/1985 for partition of the assets, which included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how that in the balance sheet, the land was shown as fixed asset of the Company having value to the extent of Rs. 2 lakhs. They also referred to Form - 2 (Page - 112 of paper book) which is dated 14th March, 1983 to show allotment of shares against the land. It is argued that the Company had only this piece of land on which the structure was standing. Reference is also made to the Auditor's Notes for the Financial Year 1987 - 1988, copies of which have been filed (page 165 - 166). The argument is that the land belonged to the Company as well the structure on it, and the Respondents could not have transferred the land and disposed of their shares in favour of original Respondent No.7 - M/s. Vee Pee Estate and Hotels Pvt. Ltd. without holding an EOGM or AGM with specific Resolution on this count. According to original Petitioners, the Articles of Association give rights to the other members and without offering the shares to them, the Respondents could not have transferred their shares to Respondent No.7 who was admittedly not a member of the Company. No Board of Directors' approval or copy of meeting is shown. According to the original Petitioners, they were not served with any Noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M.A. Shanmugam cannot be spoken by the petitioners herein who do not have any personal knowledge. The allegations of relinquishment of right are denied. The petitioners do not have any right other than the present share holding, which they still own, in the first respondent company. 20) With regard to para 13, it is submitted that the sale made with the respondent is legal, valid and binding. This respondent submits that proper notice was issued to the petitioners. The allegation that the sale was done suruptiously and with malafide intention is false. There is no necessity for the second respondent to harass the petitioners or oppress the minority share holders as claimed by the petitioners. But for the act of the respondents 2 to 6 in selling their movables and immoveables standing in their name and discharging the loan availed from various financial institutions and individual, the 1st respondent would have been liquidated by winding up or any other recovery proceedings initiated by the creditors. The respondents 2 to 6 submit that the sale made by them is legal, valid and binding and has been done in accordance with law. Special resolution dt: 25/6/11 was properly passed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er properties includes the land on which the Company is standing, to show us where is the Resolution of the Company to transfer the land as well as the structure to original Respondent No.7. The learned counsel for the Appellant stated that the Resolution to sell is not there. The sale deed shows that the original Respondents 2 to 5 joined the sale deed as vendors 1 to 4 and the Company was added as vendor No.5 through the original Respondent No.2 - M.A.S. Subramanian claiming to be duly authorized to sell and these original Respondents 2 to 4 along with their other properties appear to have sold off the land of the Company to original Respondent No.7 - M/s. Vee Pee Estate and Hotels Pvt. Ltd. The sale deed is dated 31st October, 2011 but appears to have been recorded in the office of concerned Registrar on 7th October, 2014. The Company Petition was filed on 25th October, 2014. Thus, there is no substance in the claims of the Appellants regarding delay. 13. At the time of arguments, the learned counsel for the Appellants was confronted with this sale deed and when he was asked to show the Resolution to sell property of the Company, he merely stated that the land belonged to origi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the Company had even made structure of the same and the land and structure were shown as property of the Company and was treated accordingly right from 1983 till 2011. It appears that Shri M.A. Shanmugam after establishing the Company in 1983, suddenly passed away on 6th June, 1984. It is not in dispute that the shares of late Shri M.A. Shanmugam have come down to the present Appellant No.1 (original Respondent No.2). Thus, the Appellant No.1 who were managing the affairs of the Company had the fiduciary duty to protect such land which was in possession of the Company by way of partperformance of the contract. This Appellant No.1 on 16.09.1998 preferred to get a lease deed recorded (Appeal Page - 189) of the land of the Company. It is an interesting document. The lessor is the Appellant No.1 holding himself out as Managing Director and the lessee is M/s. Hotel Mass Private Limited (the present Company) represented by the same Appellant No.1 again describing himself as Managing Director of the Company to be the lessee. Thus, the lease deed was created by Appellant No.1 in two capacities and he acted for the lessor and lessee both and created the document to be a lease for 27 ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.7 - Vee Pee Estate and Hotels Pvt. Ltd. The counsel was unable to show us any document on that count. The Appellants in the Company Petition and in this Appeal have referred to Article 4 of the Articles of Association (Page - 98 and 99 of Appeal). According to the Appellants as per Article 4, the shares of the Company are under the control and discretion of the Directors who may allot, transfer or otherwise dispose the same to such person or persons and for such consideration upon such terms and conditions and at such time as Directors may in their absolute discretion think fit. The argument is that this gave discretion to the Directors to transfer all the shares as per their will and wish. We find that Article 4 is part of Articles 3 to 7 under the heading of Share Capital. These Articles cannot be read in isolation and are required to be read along with Articles 15 to 27 of the Articles of Association, which Articles are under the heading of "Transfer on Shares" (should be Transfer of Shares). Admittedly, this was not a new allotment or transfer of shares at the time of incorporation. The Appellants (original contesting Respondents) admittedly transferred the shares which had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es had been allotted to late Shri M.A. Shanmugam in lieu of selling his property being plot of land measuring 52 Kuzhies and 14 Veesams together with unfinished building constructed over the property. The reasonings show that the NCLT was aware of the fact that possession of the land had been handed over to the Company which completed the construction for setting up the hotel and that Form No.2 dated 14.03.1983 was there in support. NCLT noticed the early death of M.A. Shanmugam before execution of the sale deed and that the property had been shown in the assets of the Company even as on 31.03.2011. NCLT found that the Respondents did not show any proof that valuation was done on the properties which were being sold. NCLT found that it was established that the property in question pertained to Respondent No.1 Company. According to us, when the learned NCLT noticed and even found that the property in question was pertaining to Respondent No.1 Company and when it was finding that the burden on the Respondents had not been discharged by them, the NCLT was duty bound to set aside the sale deed transferring the land which was in possession of the Company. Looking to the pleadings, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds or that they had suppressed material facts. 17. In appeal, when this matter came up before us and the arguments had begun, we had expressed to the learned counsel for the Appellants that looking to the pleadings and admitted facts and the state of record, the NCLT should have set aside the sale deed as well as transfer of shares but had instead directed audit and asked the Company Secretary to be appointed to verify if the procedure had been followed. We had asked the learned counsel if he still wants to continue with the arguments of the appeal. The learned counsel preferred to argue the appeal and thus we have heard the whole appeal on merits and now we have come to this conclusion that the transfer of assets and business of the Company as well as transfer of shares is not liable to be upheld. Although the Respondents - original Petitioners did not file the appeal and appear to have gone along with the Impugned Order which is more in the nature of Interim Orders, we find that looking to the provisions of the Companies Act, 2013, when there is sufficient material to record a finding that the acts of the Appellants - original Respondents were oppressive to the other members of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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