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TMI Blog2020 (9) TMI 174X X X X Extracts X X X X X X X X Extracts X X X X ..... . The 1st respondent is a Private Limited Company. Respondents 2 to 4 are its Directors. The 4th respondent is the daughter of the 3rd respondent and respondents 2 to 4 are related to each other. 4. The 1st respondent Company is engaged in real estate business. 5. The appellants filed the said suits on 10.5.2018 before the Civil vacation Judge, Mahboobnagar during the summer vacation of May 2018 for specific performance of agreements for sale dt. 21.11.2016 and alternatively for damages of Rs. 30,00,000/- and Rs. 80,00,000/- respectively. They were later transferred to the Court of the II Addl. District and Sessions Judge, Mahboobnagar and numbered as O.S. No. 38 of 2018 and O.S. No. 39 of 2018. 6. Thus the appellants are plaintiffs in O.S. No. 38 of 2018 and O.S. No. 39 of 2018 on the file of the II Additional District and Sessions Judge, Mahboobnagar. The case of the appellants/plaintiffs in the suits 7. In the suits, the appellants contended that the two agreements dt. 21.11.2016 (both marked as Ex. P1 in IA. No. 255 of 2019 in O.S. No. 38 of 2018 and also in I.A. No. 256 of 2019 in O.S. No. 39 of 2018), one in favour of the appellant in C.M.A. No. 188 of 2020 and the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent Company and resigned his directorship was true or not as the 2nd respondent had not given any public notice about his resignation; that the agreements of sale were entered into by them with the 1st respondent Company through the Managing Director, the 2nd respondent, and hence, the same are also binding on respondents 3 and 4 or any other Directors in the 1st respondent Company. 10. They alleged that respondents 3 and 4 were not coming forward to honor the suit agreements of sale though they were aware that the 1st respondent validly entered into the agreements through the 2nd respondent; that legal notices Ex. P2 were issued by the appellants on dt. 02.05.2008 to the respondents through RPAD; that respondents 2 to 4 have colluded with each other and were blaming each other and they were intentionally trying to avoid the suit agreements and were planning to alienate the suit property to others. They alleged that the respondents evaded to receive the suit notices. I.A. No. 256 of 2019 in O.S. No. 39 of 2018 and I.A. No. 255 of 2019 in O.S. No. 38 of 2018 11. Along with the respective suits on 10.5.2018, the appellants filed I.A.s under Or. 39, R. 1 and 2 CPC seeking re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. It also contended that except saying that Rs. 20,00,000/-/Rs. 10,00,000/- were paid in pursuance of the alleged agreements of sale, it is not stated in the plaint whether the same were paid by way of cash or cheques or DDs. There is silence in the plaint on that aspect and there is no receipt issued by the 1st respondent Company acknowledging the payment and therefore all these circumstances would go to show that the agreements of sale are merely set up by the appellants at the instance of the 2nd respondent. 19. It also contended that the Government of India issued notification of demonetization on 08.11.2016 and thereby all 500 and 1000 rupee notes were cancelled. When the alleged agreements of sale are dt. 21.11.2016, the appellants must establish that they have paid Rs. 20,00,000/-/Rs. 10,00,000/- with new currency notes etc., as they have not stated that the said payments were made by way of cheques or DDs. It contended that the bank statement filed pertaining to the 1st respondent does not reflect any advance payment of Rs. 20,00,000/-/Rs. 10,00,000/- made by the appellants. 20. The 1st respondent alleged that the 2nd respondent, who is the Managing Director of the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntical with that of the counter of the 1st respondent. 28. In addition, it is contended that stamp papers which were used for execution of the suit agreements of sale had been purchased in the name of the 1st respondent Company by the 2nd respondent under the instructions of the 3rd respondent and kept at the office for emergency use of the 1st respondent Company and that the 2nd respondent, without intimation and information to the 3rd respondent, had taken away the papers and misused them to fabricate the suit agreements of sale and FIR/complaints had been registered against him with P.S. Banjara Hills and P.S. Kothur allegedly for theft of the stamp papers. 29. It is contended that as per the Memorandum of Association and Articles of Association (Clause 35) of the 1st respondent Company, it is mandatory that a Board resolution should exist with regard to any sale of property and that the Chairman and Managing Director together were always executing documents. 30. It is contended that the appellant in C.M.A. No. 188 of 2020 was a retired Teacher and his daughter, who is the appellant in C.M.A. No. 189 of 2020, worked as Clerk with the 1st respondent Company on a paltry salary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of sale with the 2nd respondent in November, 2016, there was no necessity for them to use stamp papers purchased in the year 2014 in the State of Andhra Pradesh for drafting the said agreements in 2016 and there is no explanation from the appellants in that regard. 37. It also noted that the respective agreements of sale were signed by the 2nd respondent who was Managing Director, but the stamp affixed by him on Ex. P1 agreements stated that he was both Chairman and Managing Director. It noticed that there was no counter signature by the 3rd respondent who was said to be the Chairman of the 1st respondent. 38. It also observed that there is no prima facie evidence placed before the Court either by the appellants or by the 2nd respondent about deposit of Rs. 20,00,000/- or Rs. 10,00,000/- which the 2nd respondent had taken on behalf of the 1st respondent and that he credited the same in the 1st respondent Company's account. 39. It referred to the police complaints Exs. R21 to R23 filed by respondents 1, 3 and 4 against the 2nd respondent and observed that whether or not the said charges were proved in a criminal case, they prima facie indicate about a conspiracy and theft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of both the suits O.S. Nos. 38 of 2018 and 39 of 2018, appears to have been done to somehow render the C.M. As. infructuous and frustrate the appeals filed by the appellants. We do not find this conduct to be bona fide. 46. Therefore, we deem it appropriate to suo motu implead (a) Dr. Kilaru Panduranga Prasad, S/o. Satyanarayana Rao, aged 61 years, Occupation: Doctor, resident of House No. 8-2-293/81A/E, Road No. 12, Banjara Hills, Khairatabad, Hyderabad-500034 and (b) M/s. A.K. Estates Construction Private Limited, House No. 8-2-293/81A/E, Road No. 12, MLA Colony, Banjara Hills, Hyderabad-500034 represented by its Director Kilaru Alekya as respondents in both the C.M. As. in exercise of our inherent powers under Order I Rule 10 CPC read with Section 151 CPC. 47. We also hereby implead Dr. K. Panduranga Prasad and M/s. A.K. Estates and Construction Private Limited etc., in both the I.A. No. 255 of 2019 in O.S. No. 38 of 2018 and I.A. No. 256 of 2019 in O.S. No. 39 of 2018 as respondents 5 and 6 and also in both the suits O.S. No. 38 of 2018 and O.S. No. 39 of 2018 as defendants 5 and 6 since according to us, they are necessary and proper parties. Events after filing of the CM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the interim injunction Applications filed by the appellants. 54. He also contended that the criminal complaint filed by the 3rd respondent against the 2nd respondent by itself will not disprove the claim of the appellants and the same should not have been taken into account by the Court below to deny relief to the appellants. 55. According to him, the 2nd respondent alone on behalf of the 1st respondent Company had executed several documents and the fact that some other documents were executed by both respondents 2 and 3, would not be material. 56. According to him, the suit plots were only plots left out in the venture of the 1st respondent Company and the Court below should have taken the same into account while passing the impugned orders and its view that if sales are effected pending suits, the appellants can keep adding the purchasers pendente lite is perverse. 57. He also contended that the anxiety of respondents 1, 3 and 4 in executing the sale deeds on 16.04.2020 and 08.05.2020 in favour of the husband of the 3rd respondent Dr. K. Panduranga Prasad and the Company represented by Alekya, the daughter of the 3rd respondent, shows that the appellants wanted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me documents including sale deed Document No. 5627 of 2017 dt. 08.08.2017 favouring Smt. Thummala Kavitha in an extent of 5096 square yards comprising 19 plots in the same venture, for which Rs. 20,36,500/- was received by the 1st respondent. 66. He also stated that the 2nd respondent filed C.P. No. 469/241/HDV/2018 before NCLT, Hyderabad against respondents 1, 3 and 4 and that it was pending consideration. Contentions of Counsel for 3rd respondent 67. Sri P. Venugopal, learned Senior Advocate appearing for Smt. Rachana, learned counsel for the 3rd respondent, contended that though there were ex parte ad interim injunctions granted in I.A. No. 255 of 2019 in O.S. No. 38 of 2018 and I.A. No. 256 of 2019 in O.S. No. 39 of 2018 on 24.05.2018 in favour of the appellants, the same were rightly vacated by the Court below in the impugned orders. He supported the reasoning of the Court below. 68. According to him, the Government of India has introduced demonetization on 08.11.2016 thirteen (13) days prior to execution of the agreements of sale; and the plea of the appellants that they paid portions of sale consideration amounting to Rs. 20,00,000/- and Rs. 10,00,000/- respectively in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in C.M.A. No. 188 of 2020 was a retired Teacher and the appellant in C.M.A. No. 189 of 2020 had worked as a Clerk with the 1st respondent on a meagre salary of Rs. 10,000/- and they did not have capacity to pay the sums of Rs. 20,00,000/- and Rs. 10,00,000/- respectively. 78. A Memo was also filed on behalf of the 3rd respondent on 16.07.2020 after the C.M. As. were reserved for orders stating that the 1st respondent Company was in dire financial crisis almost on the verge of bankruptcy and the sale deeds referred to supra had been executed in favour of the husband of the 3rd respondent and M/s. A.K. Estates and Construction Private Limited represented by Alekya, the daughter of the 3rd respondent, for valuable consideration. 79. He admitted that the 3rd respondent had alienated the suit schedule property to third parties but the 3rd respondent did not give the dates of alienations or the parties to whom such alienations were made. 80. This Court had to direct him to produce the four sale deeds dt. 16.04.2020, 16.04.2020, 08.05.2020 and 08.05.2020 being Document Nos. 3398, 3399, 3596 and 3597 of 2020 and they were only filed in the Court pursuant to the oral directions given by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondents 1, 3 and 4 that the appellant in C.M.A. No. 189 of 2020 was aware of Ex. R9 and consequently her father, the appellant in C.M.A. No. 188 of 2020 was also aware of Ex. R9, cannot be accepted. 89. It is a settled principle in Company Law that if a person deals with a Company or any other representative of a Company who is exercising the powers of Management and directing its business and affairs, that person is not affected by the lacuna of procedure within the Company or by its failure to fulfill conditions which are required by the Company's Memorandum or Articles to be fulfilled before the transaction. Such outsider is not bound to enquire whether acts of internal management have been regular. This doctrine of "indoor management" protects the persons dealing with the Company. 90. This principle was laid down in Royal British Bank Vs. Turquand (1856) 6 E&B 327 : 119 ER 886. In that case, a deed of settlement, the equivalent of the Memorandum and Articles of a Company, empowered the Board of Directors to borrow amounts as authorized by a resolution of the General Meeting of the shareholders. The Company borrowed money from a bank on the authority of two of its Direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to avoid the mortgage. 93. Section 290 of the Companies Act, 1956 incorporates this principle and states: "290. Validity of acts of directors.-Acts done by a person as a director shall be valid, notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in this Act or in the articles: Provided that nothing in this section shall be deemed to give validity to acts done by a director after his appointment has been shown to the Company to be invalid or to have terminated." 94. Section 176 of the Companies Act, 2013 also reiterates and states: "176. Defects in appointment of Directors not to invalidate actions taken. No act done by a person as a Director shall be deemed to be invalid, notwithstanding that it was subsequently noticed that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in this Act or in the Articles of the Company: Provided that nothing in this section shall be deemed to give validity to any act done by the Director after his appointment has been n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the 2nd respondent from the office of the 1st respondent proves this fact. 102. Counsel for the appellants placed reliance on the decision of the Supreme Court in Thiruvengada Pillai Vs. Navaneethammal and another AIR 2008 SC 1541. In the said judgment, the Supreme Court dealt with a similar contention of the 1st respondent therein that use of old stamp papers invalidates agreements of sale. It did not agree with the said plea and held that the Indian Stamp Act, 1899 nowhere prescribes any expiry date for use of a stamp paper; and that Section 54 of the said Act merely provides that a person possessing a stamp paper for which he has no immediate use (which is not spoiled or rendered unfit or useless), can seek refund of the value thereof by surrendering such stamp paper to the Collector provided that it was purchased within the period of six months next preceding the date on which it was so surrendered. The Supreme Court held that the stipulation of the period of six months prescribed in Section 54 is only for the purpose of seeking refund of the value of the unused stamp paper, and not for use of the stamp paper; that Section 54 does not require the person who has purchased a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedule. The learned Judge specifically held that the insistence on use of stamp papers is basically a measure to provide evidence as to the date of execution and the authenticity of the transaction; and earning of revenue by the State, is secondary to this. He held that the slight defect as to the form of the stamp cannot be permitted to render the entire document inadmissible; and an inadvertent mistake to which, both the parties to the suit might have contributed, should not defeat a claim, if it is otherwise proved and valid. The learned Judge held that Rule 3(iii) of the Indian Stamp Rules, 1925 no doubt requires stamps purchased in the Andhra Pradesh State alone to be used for instruments chargeable with duty under the Act as in force in that State, but the said Rule is only advisory in nature and that the said Rule does not invalidate a document as such, in the event of violation thereof. He relied on Section 37 of the Act which stated that the State Government may make rules providing that, where an instrument bears a stamp of sufficient amount but of improper description, it may, on payment of the duty with which the same is chargeable, be certified to be duly stamped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to whether the said amounts were credited to the account of the 1st respondent or not, prima facie, the appellants cannot be put to any disadvantage on the said count, because the 2nd respondent had received the said amounts as Managing Director of the 1st respondent and payment made to him, has to be prima facie treated as payment to the 1st respondent. 111. It may be that demonetization was done by the Union Government on 08.11.2016 cancelling Rs. 500 and Rs. 1000 currency notes. Still it is possible that the payment could have been made of the advance amounts by the appellants in lesser denominations; and when the 2nd respondent admits to have received the advance amounts, this issue loses its relevance prima facie. 112. In our opinion, there was no necessity for the appellants prima facie to again prove payment of advance amounts to the 2nd respondent on account of the 1st respondent, when the 2nd respondent admits to have received it and there are clear recitals in Ex. P1 agreements of sale also to that effect. 113. Even if the rubber stamp affixed on Ex. P1 agreements of sale mentions that the 2nd respondent is both the Managing Director and also the Chairman, that will no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t away with these transfers. 119. So, pending the disposal of the suits, we hold that transfer of right, title and interest of 1st respondent, if any, conveyed to Dr. Kilaru Panduranga Prasad and M/s. A.K. Estates and Construction Private Limited represented by Ms. Kilaru Alekya i.e. the purchasers under the above documents, shall also stand suspended. 120. Accordingly, (a) Dr. Kilaru Panduranga Prasad and M/s. A.K. Estates and Construction Private Limited etc., are impleaded in both the I.A. No. 255 of 2019 in O.S. No. 38 of 2018 and I.A. No. 256 of 2019 in O.S. No. 39 of 2018 as respondents 5 and 6 and also in both the suits O.S. No. 38 of 2018 and O.S. No. 39 of 2018 as defendants 5 and 6; (b) the Appeals are allowed with costs of Rs. 20,000/- to be paid by the 1st and 3rd respondents to each of the appellants; (c) the orders dt. 16.03.2020 in I.A. No. 255 of 2019 in O.S. No. 38 of 2018 and I.A. No. 256 of 2019 in O.S. No. 39 of 2018 are set aside; the said I.As. are allowed; (d) pending the disposal of the suits, the transfer of right, title and interest of 1st respondent, if any, conveyed to Dr. Kilaru Panduranga Prasad and M/s. A.K. Estates and Construction Private Limi ..... 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