Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 22.9.2010
THE HONOURABLE MR. JUSTICE K. VENKATARAMAN
Company Appeal No.21 of 2010 & M.P.No.1 of 2010
Dr. K. Balasundaram ….Appellant.
Vs.
Coromandel Engineering Company Ltd. & Others …..Respondents.
Appeal filed under Section 10F of the COMPANIES ACT, 1956 to set aside
the order dated 12.7.2010 made in C.A.No.84 of 2010 in C.P.No.7 of 2009 passed
by the Company Law Board, Chennai Bench.
For the Appellant : Aravind Dattar, S.C., for M/s. Durga Rao & Asso,
Advocates.
For the Respondents: R1, P.S. Raman, S.C., for B. Giridhara Rao, R2, R3
& R5 to R7, Karthik Seshadri for M/s. Iyer & Thomas, Advocates.
Challenging the order dated 12.7.2010 made in Company Application No.84
of 2010 in Company Petition No.7 of 2009 of the Company Law Board, Chennai
Bench and for setting aside the same, the present company appeal was filed.
2. The short facts leading to the filing of the appeal as put forth by
the appellant, are set out here under:-
(a) The second respondent is a private company incorporated on
23.10.1980. Late G. Kandaswamy was the in-charge of the second respondent
company and other group companies until his demise. The appellant could not involve
in the day to day affairs of the second respondent company and other companies
as he had to travel to United Kingdom often for his treatment. During the life
time of the said G. Kandaswamy, respondents 3 and 5 have been actively involved
in the day to day affairs of the company and running the same. The appellant is
entitled to about 28.29% of the shares in the second respondent company
pursuant to the demise of his father. After the demise of his father,
respondents 3 and 5 were running the second respondent company as if it was
their proprietary concern and the appellant was kept in isolation as regards
the affairs of the company.
(b) The appellant 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
Company Limited, the first respondent herein. On further enquiry, the appellant
came to know that a fraudulent transaction took place by which, sale deed was
executed in favour of respondents 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 authorized by
the resolution of the shareholders in the Extraordinary General Meeting of the
company held on 21.11.2005 and duly authorized 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 total extent of 3.37 acres on
29.5.1998 in favour of Dena Bank, Coimbatore to secure the facilities
sanctioned by the said Bank to M/s.Akkammal Steel Private Limited to an extent
of Rs.277 lakh. M/s.Akkammal Steel Private Limited is a group of company and
the respondents hold the entire shares and control in the said entity and as
such, the mortgage is completely illegal and any payment to and for the benefit
of M/s.Akkammal Steel Private Limited from and out of the funds of the second
respondent company is nothing but an unjust enrichment to respondents 3 and 5.
On the strength of the said mortgage, the Dena Bank has extended credit
facilities upto Rs.747 lakh to M/s.Akkammal Steel Private Limited. The credit
facilities would also show that the sale of 6.63 acres of land to respondents 6
and 7 for a meagre amount of Rs.51,00,000/- is illegal resulting huge loss to
the second respondent company and loss to the appellant herein, who is a
substantial shareholder in the company.
(d) The appellant had approached the Company Law Board under SECTION
397/398 of COMPANIES ACT, 1956 vide C.P.No.7 of 2009 seeking some reliefs. As
the first respondent did not move forward with the project pursuant to the filing
of the Company Petition No.7 of 2009, the appellant did not pursue the issue of
getting an order of stay against the first respondent.
(e) The value of the property sold by the second respondent would be
Rs.15 Crores as per the market value at the relevant point of time. The first
respondent filed C.A.No.84 of 2010 for a direction from the Company Law Board
that the first respondent is entitled to proceed with the terms of the Joint
Development Agreement dated 23.5.2008. The said application was allowed by the
Company Law Board of its order dated 12.7.2010 and the same is under challenge
in the present appeal.
3. The following substantial questions of law are framed for
consideration in this appeal:-
(i) Whether the Company Law Board passed an order in favour of a third
party and against a Minority Shareholder approaching the Board under SECTION
397/398 of the COMPANIES ACT, 1956?
(ii) Whether the Company Law Board passed an interim order against the
petitioner under SECTION 397/398 of the COMPANIES ACT, 1956 without looking at
the prima facie case and the evidence adduced?
(iii) Whether the Company Law Board justified an order affecting the
rights of the petitioner under SECTION 397/398 of the Company 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 2 to 7.
5. The second respondent company is a private company incorporated on
23.10.1980. One G. Kandaswamy, the father of the appellant and respondents 3
and 5 were the major shareholders. The name of the shareholders and the number
of shares held by them are set out here under:-
Name of the Shareholders
|
Number of share held
|
G.Kandasamy (HUF)
|
10705
|
K.Narayanaswamy
|
5480
|
K.Narayanaswamy
|
415
|
K.Balasundaram
|
5185
|
K.Venkatesh
|
5558
|
K.Lakshmiammal
|
3027
|
Master Sujay Senthil
|
625
|
Ranga Sai Chit Funds P.Ltd
|
5
|
G.K.Steels (Coimbatore) Ltd
|
4000
|
Total:
|
35000
|
6. After the death of the said G. Kandaswamy, the shares held by him
devolved on his sons. The appellant approached the Company Law Board under
SECTION 397/398 of the COMPANIES ACT, 1956 (herein after referred to as the
Act) in C.P.No.7 of 2009 seeking the following reliefs:-
(a) for a declaration that the impugned sale of the land belonging to the
company to an extent of 6.63 acres under the Deed of Indentures dated 9.12.2005,
20.12.2005 and sale deed dated 21.7.2007 to the 5th and 6th respondents are
illegal, non-est and void in law.
(b) To set aside all MOUs, Power of Attorney, Agreements, etc. entered
into by the respondents in relation to the sale and joint-development of land
to an extent of 10 acres situated at G/F,Nos.23/1, 24/2, 25/2, G.S.No.23/2A and
S/F No.22/1A, Chinnavedampatti Village, Coimbatore.
(c) For directing an investigation into the affairs of the first
respondent company and surcharge the respondents to make good the loss caused
to the first respondent company through their various acts of mismanagement.
(d) To appoint a management committee consisting of the petitioner and
one person from the respondent’s group and direct that the company be managed
by the Managing Committee.
(e) To remove the respondents 2 and 3 as Directors of the company and to
declare that such persons are unfit to manage the company.
(f) To regulate the conduct of the affairs of the first respondent
company in future.
(g) Grant such other reliefs and this Hon’ble Board may deem fit in the
interest of justice and equity.
7. The grievance of the appellant is that out of 10 acres of the lands
situated at Athipalayam Road, Chinnavedampatti Village, Coimbatore, 6.63 acres
of lands were sold by respondents 3 and 5 in favour of respondents 5 and 7, who
are none else than the sons of the fifth respondent. A Joint Development
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 CLB Regulations, Chennai seeking permission to proceed in terms of
the Joint Development Agreement dated 23.5.2008 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 6 and 7, who are none else than the sons of the fifth respondent;
(iv) the Company Law Board has not considered whether a prima facie case
was made out by the respondents and whether the balance of convenience is in
favour of the first respondent while ordering the application filed by the
first respondent;
(v) when the main company petition itself was posted for hearing, the
Company Law Board ought not to have entertained the interim application filed
at the instance of the first respondent.
10. On the other hand, it was contended on behalf of the respondents that
–
(i) the entire action in selling the properties was necessitated since
SARFAESI proceeding were initiated against the properties owned by the company.
Hence, in order to preserve the properties and also for the benefit of the
company, the properties in question have been sold to respondents 6 and 7;
(ii) the appeal filed against the interlocutory order passed by the
Company Law Board is not maintainable.
(iii) The appellant has sought for interim injunction restraining the
first respondent from proceeding further with the project or implementation of
the Joint Development Agreement, but, however, no interim order has been
granted in favour of the appellant by the Company Law Board. On the contrary,
the Bench directed respondents 2 to 7 to furnish all particulars including
receipts and payments in relation to the Joint Development Agreement and
financial position of the company. While so, there cannot be any impediment to
proceed with the project by the first respondent.
(iv) The overall value of the property in the hands of respondents 2, 6
and 7 will not be diluted on account of the Joint Development Agreement since
36% of the superstructure to be constructed will fall to the share of the
owners and the owners will still be retaining 36% of the land. The interest of
the appellant in the company could very well be safeguarded from out of the
said share.
11. The first and foremost submission that was made on behalf of the
appellant by the learned Senior counsel appearing for the appellant is that the
application filed by the first respondent before the Company Law Board is not
at all maintainable since Section 403 of the Act does not contemplate filing of
such application. Before adverting to the said contention, it would be useful
to extract Section 403 of the Act, which is extracted here under:-
“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 23.5.2008. In the counter affidavit
of the appellant, who is first respondent in the said application, it is
clearly stated that “there is no provision under Section 403 of the Act which
permits a respondent to apply for this type of relief. The powers are confined
to regulating the affairs of the company…..” when such a plea was taken before
the Company Law Board by the appellant herein, the Company Law Board has not
dealt with the same in its order. That is why the learned Senior Counsel
appearing for the appellant contended that though the said plea was taken by
the appellant in its counter before the Company Law Board, the Company Law
Board has not given any finding and the said order is liable to be set aside. I
did see force in the said contention.
13. That apart, as rightly contended by the learned Senior Counsel
appearing for the appellant, interim order could be passed by the Company Law
Board only for regulating the conduct of the affairs of the company and nothing
more. Since in the present case on hand, interim order was passed not for
regulating the conduct of the affairs of the second respondent company, the
same is not maintainable in view of Section 403 of the Act.
14.1. On merits of the matter, both the learned Senior Counsel appearing
for the appellant as well as first respondent and the learned counsel appearing
for respondents 2 to 7 have made their submissions. It is contended by the
learned Senior Counsel appearing for the appellant that the properties worth
about several Crores have been sold to respondents 6 and 7 by respondents 3 and
5, who are none else than the sons of the fifth respondent. On the other hand,
it is contended on behalf of the respondents that the sale came to be effected
because of the SARFAESI proceedings initiated by the Bank. In order to preserve
the property, such action was taken. That apart, the properties have been sold
not for a meagre amount, but, on the market value prevailing thereon. I am of
the considered opinion that these matters have to be considered only by the
Company Law Board when it takes up the matter for final disposal of the company
petition initiated by the appellant. At this stage, there need be no finding
regarding the same.
14.2. It is further contended on behalf of the appellant by the learned
Senior Counsel appearing for the appellant that by sale of the assets to
respondents 6 and 7, the company has lost several Crores. It is contended that
the project involves construction of 10,61,976 sq.ft., and the owners would be
getting 3,82,311 sq.ft. If 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 6 and 7, the share of the company would be
approximately about Rs.25.48 Crores and respondents 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 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.
14.3. It is further contended on behalf of the respondents that the
appellant was not taking much interest over the affairs of the company and that
the entire action in selling the properties was necessitated since SARFAESI
proceedings are initiated against the properties owned by the company. This
contention also requires a detailed consideration by the Company Law Board when
it takes up the main matter initiated by the appellant.
15. The next contention that is required to be considered is, whether any
safeguard has been made by the Company Law Board while granting the relief to
the first respondent in its application as contended by respondents?
15.1. It is vehemently contended on behalf of the respondents that the
overall value of the property in the hands of respondents 2, 6 and 7 will not
be diluted on account of the Joint Development, but, on the contrary, it will
only get enhanced since 36% of the superstructure to be constructed will fall
to the share of the owners and the owners will still be retaining 36% of the
land area. The petitioner’s interest could very well be safeguarded from out of
this owners’ share. Thus, it is contended that the total value of the
properties owned by the company would not be depleted, but would only get
enhanced. That apart, any cash flow arising out of the Joint Development
Agreement in the hands of the company will obviously accrue only to the benefit
of the company.
15.2. I am not inclined to accept the said contention raised on the side
of the respondents for the following reasons:-
(i) It is the case of the appellant that he is holding 20.29% of the
shares of the company, but, however, it is contended by the respondents that
the appellant is having only 14.81% paid up share capital. The shares of the
appellant cannot be considered at this stage. But, however, when the appellant
has questioned the sale of company assets to respondents 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 9.12.2005 and
20.12.2005 and sale deed dated 21.7.2007 to respondents 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 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% 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% shares of the company over the constructed area, in the
event of setting aside the sale deed executed in favour of respondents 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.
16. 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 project, when the
first respondent wants the purchasers to have a clear title over the
properties, in which it is going to put up a construction. Paragraphs 5 and
part of paragraph 6 are re-produced here under:-
“5. The applicant begs to point out that the Hon’ble Bench has not
restrained the further progress of the project of the implementation of the
Joint Development Agreement even though such interim prayers have been sought
for in the Company petition by the first respondent. On the contrary, this
Bench directed respondents 2 to 7 to furnish all particulars including receipts
and payments in relation to the Development Agreement and financial position of
the company. The Bench has also subsequently noted that such details /
particulars as directed by the Bench have been furnished by respondents 2 to 7.
6. It is submitted that given the fact that the applicant is a third
party vis-à-vis the company and its promoters, and given the reputation that
the applicant enjoys in the market, the applicant is different about proceeding
with the project, even in the absence of any injunction order. The applicant
who will be selling the constructed area with undivided share in the land and
the purchasers have to be given clear title. In view of the above petition, the
prospective purchasers cannot be given clear title. Hence, the applicant is
approaching this Hon’ble Bench seeking direction by this Hon’ble Bench that the
rights and remedies of the first respondent would be worked out from the share
falling to the owners under the Joint Development Agreement.”
17. In the affidavit filed on behalf of respondents 2 and 3 in the
company application, it is stated as follows:-
“At the outset it is submitted that there is no interim order passed by
this Honourable Bench restraining alienation or further implementation of the
Joint Development Agreement dated 23.7.2008. On the contrary, when injunction
restraining alienation and further implementation of the Joint Development
Agreement was pressed for by the first respondent in terms of his prayer in the
company petition, this Honourable Bench did not grant such relief. On the
contrary, vide order dated 30.1.2009, this Honourable Bench only directed these
respondents to furnish all receipts and payment particulars relating to the
Joint Development Agreement and complete particulars about 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 20.2.2009.
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.”
18. 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 with the project especially when the main
proceedings are pending before the Company Law Board.
19. That apart, the prayer sought for by the first respondent cannot be
granted unless and until a full-fledged trial is carried out. The substantial
issues raised in the company petition require a full-fledged enquiry into the
affairs of the company and the conduct of the parties. It amounts to deciding
the main issue without even commencing the enquiry and denying the relief that
has been sought for by the appellant in his company petition. When the main
petition itself was posted for hearing on 23.6.2010, the Company Law Board
should not have passed an order in the application filed by the first
respondent on 12.7.2010, which is few days before the date of hearing of main
company petition.
20. Learned Senior Counsel appearing for the appellant contended that the
appeal filed against the impugned order is maintainable even though the appeal
is permissible only on the question of law, if the appellant is able to
establish that the order of the Company Law Board is perverse and is based on
no evidence. In this connection, he relied on the decision of the Hon’ble Apex
Court reported in (2005) 1 Supreme Court Cases 212 – Dale & Carrington
Invt. (P) Ltd., and another vs. P.K. Prathapan and others. Paragraph No.36 of
the said judgment is re-produced here under:-
“36. Section 10-F refers to an appeal being filed on a question of law.
The learned counsel for the appellant argued that the High Court could not
disturb the findings of fact arrived at by the Company Law Board. It was
further argued that the High Court has recorded its own finding on certain
issues which the High Court could not go into and, therefore, the judgment of
the High Court is liable to be set aside. We do not agree with the submission
made by the learned counsel for the appellants. It is settled law that if a
finding of fact is perverse and is based on no evidence, it can be set aside in
appeal even though the appeal is permissible only on the question of law. The
perversity of the finding itself becomes a question of law. In the present case
we have demonstrated that the judgment of the Company Law Board was given in a
very cursory and cavalier manner. The Board has not gone into real issues which
were germane for the decision of the controversy involved in the case. The High
Court has rightly gone into the depth 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 or 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.
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 the 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.
21. Learned counsel appearing for respondents 2 to 7 relied on the
decision reported in (2008) 6 MLJ 1081 – Palanisamy and another vs. Milka
Nutrients Private Limited, Erode and others and contended that the interim
order made by the Company Law Board which had exercised its discretion, cannot
be interfered with. Paragraph 8 on which emphasis has been made, is usefully
extracted here under:-
“As per clause 41 of the Articles of Association, “subject to the
direction and control of the Board of Directors, the general Management of the
business of the company shall be carried on by the Managing Director. He shall
by himself have absolute powers to operate the bank accounts of the company. Of
course, hitherto the Managing Director and the Appellant were jointly operating
the bank account as is seen from the cheques issued by the company. In the
proposed BGM Resolution is sought to be passed in terms of clause 41 of the
Articles of Association authorizing Managing Director to solely operate the
bank accounts of the company and authorizing to sign cheques, instruments and
necessary documents. Having regard to clause 41 of the Articles of Association,
CLB has passed the order that any Resolution will not be implemented without
leave of CLB, save in the matter of operation of the bank account by the
Managing Director in the light of the authority envisaged in clause 41 of the
Articles of Association. During the pendency of the company petition under
SECTION 397 and 398, CLB has wide powers under Section 403 to make any interim
order, which it thinks fit for regulating the conduct of the companies affairs,
on such terms as appears to CLB as just and equitable. When CLB has passed the
interim order for regulating the company affairs in the best manner, such
discretionary order cannot be interfered with.”
That is the case where the appellant has sought for interim injunction
restraining the Directors of the company from conducting and holding the
proposed EGM of the company. While deciding the issue, this Court considering
the aspect that during the pendency of the company petition, the Company Law
Board has wide power under Section 403 of the COMPANIES ACT to make any interim
order which it thinks fit for regulating the conduct of the companies affairs,
on such terms as appears to 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.
22. Learned Senior Counsel appearing for respondents 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 AIR 1955 Supreme Court 74 (1) – Mrs. Bacha F. Guzdar, Bombay vs.
Commissioner of Income Tax, Bombay. Paragraph 9 of the said judgment is
usefully extracted here under:-
“9. 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 distinct from the shareholders. In Halsbury’s Laws of
England, Vol. 6 (3rd Edn.), p. 234, the law regarding the attributes of shares
is thus stated:
“A share is a right to a specified amount of the share capital of a
company carrying with it certain rights and liabilities while the company is a
going concern and in its winding up. The shares or other interest of any member
in a company are personal estate transferable in the manner provided by its
articles, and are not of the nature of real estate.”
Even assuming that the appellant has no right over the assets of the
company being a shareholder, he can very well question the sale made by the Directors
of the Company if he is able to establish that the sale is detrimental to the
company and its shareholders. Hence, the contention of the learned counsel
appearing for respondents 2 to 7 that the appellant being a shareholder, has no
right over the affairs of the company and he cannot question the Joint
Development Agreement entered into with the first respondent and cannot prevent
the first respondent from proceeding with the construction as per the Joint
Development Agreement cannot be accepted.
23. In view of the above facts and circumstances, I am of the considered
view that the impugned order dated 12.7.2010 made in Company Application No.84
of 2010 in Company Petition No.7 of 2009 passed by the Company Law Board is
liable to be set aside and accordingly set aside.
24. In fine, the company appeal stands allowed. The Company Law Board is
directed to hear the main company petition in C.P.No.7 of 2009 and pass
appropriate orders as expeditiously as possible, however, within two months
from the date of receipt of a copy of this order. No order as to costs.
Consequently, connected miscellaneous petition is closed.
Ozg Sarfaesi / DRT Lawyer
Ahmedabad | Pune |
Kolkata | Bangalore | Delhi | Mumbai
VoIP Text / Phone
# 09811415837-61-72-84-92-94
Website: http://sarfaesi.ozg.in
Email: debt@liaisoning.com