ORDER
K.K. Balu, Vice-Chairman
1. In this company petition filed under Sections 235, 237, 397, 398 & 402, Schedule XI read with Sections 540 & 543 of the Companies Act, 1956 (“the Act”), the main grievance of the petitioners is that the only asset belonging to M/s Sungkai Plantations Private Limited (“the Company”) situated at Airanallur village, Kollam, Kerala with an extent of 46 acres 10 cents (“the property”) was fraudulently sold at a throw away price, without notice to the shareholders, for the personal gains of the respondents 2 to 5 and, therefore, the petitioners have sought for the intervention of the Company Law Board to terminate and set aside the two sale deeds executed and registered on 22.11.2002 in favour of the purchasers, viz., the respondents 6 & 7.
2. Shri M.S. Krishnan, learned Counsel while initiating his arguments submitted: The Company formed for the purpose of running a plantation and acquiring other landed properties, was till 1994 under the management of late P.T. Abraham, lather of the first petitioner and husband of the second respondent herein. When late P.T. Abraham was initiating steps for selling the property, the petitioner by a letter dated 13.11.1990 emphasised that it was obligatory for the Company to convene the necessary general body meeting before proceeding to sell the property, which was brushed aside, as borne out by a communication dated 27.11.1990 of late P.T. Abraham. Despite the request of the petitioner made in writing on 22.03.1993, to refrain late P.T.Abraham from selling the property for a nominal consideration, the latter entered into an agreement of sale on 09.06,1994 with the eighth respondent for an amount of Rs. 34.67 lakhs, to be paid within six months thereof and received an advance of Rs. 5 lakhs from the eighth respondent. The eighth respondent failed to pay the balance sale consideration as agreed, but, entered into yet another agreement with the Company on 20.12.1994, whereby, the property was put in possession and enjoyment of the eighth respondent. Later, certain disputes arose in relation to the sale transaction, which resulted in exchange of the legal notices dated 28.02.1995 and 16.03.1995 between the eighth respondent, the Company, late P.T. Abraham and the second respondent, a director of the Company. The eighth respondent had ultimately instituted a civil suit (O.S.No. 109/1995) before the Subordinate Judge’s Court, Kottarakara for specific performance of the sale agreement dated 09.06.1994, which was resisted by one Abraham Philip, brother of the petitioner for himself and on behalf of the Company as it’s Manager on, among other, grounds that (i) late P.T. Abraham was not authorised to execute the sale agreement on behalf of the Company; (ii) the property would fetch more than Rs.l Crore; and (iii) the agreement of sale was against the interests of the Company and its shareholders. Nevertheless, suddenly a compromise was entered into between some of the parties to the suit on 21.11.2002 before the Kottarakara Taluk Legal Services Authority after deleting fraudulently the defendants 4 & 5, being the respondents 3 & 5 in the company petition, who opposed the compromise and the eighth defendant from array of the parties at the instance of the second respondent and Abraham Philip and accordingly the suit was dismissed. Hence, the respondents 3 & 5 are not bound by such compromise as held in Subban v. Varadarajanh 2004 (1) CTC 658, wherein it was held that a compromise between some parties alone cannot affect the position of other parties to the suit, since they are neither bound by it nor are entitled to enforce it. Furthermore, as held in Pulavarthi Venkata Subba Rao v. Valluri Jagannadha Rao AIR 1967 Supreme Court 591, a compromise decree is not a decision by the Court. It is the acceptance by the Court of something to which the parties had agreed. A compromise decree merely sets the seal of the Court on the agreement of the parties. The Court does not decide anything. Nor can it be said that a decision of the Court was implicit in it. The Company had hurriedly on the very next day i.e. 22.11.2002, registered two sale deeds in respect of the property in favour of the respondents 6 & 7, who are nominees of the eighth respondent for the very same sale consideration of Rs. 34.67 lakhs, when the property was worth not less than Rs. 1.50 crores. The sale of the property vitiated by fraud is void. Any affair tainted with fraud cannot be perpetuated or saved by the application of any equitable doctrine including res judicata as held in Ram Chandra Singh v. Savitri Devi 2004-2.L. W. 70. This single act would constitute an act of oppression. The Madras High Court in M. Moorthy v. Drivers And Conductors Bus Service P. Ltd. (1991) 71 CC 136 justified the granting of relief under Sections 397 and 398 of the Act, when the company’s only assets were sold in gross neglect of its interest. In A.M. Varkey v. J.R. Motishaw , it has been held that the sale of an undertaking of the company which is prejudicial to the interests of the company would fall within Clause (a) and Clause (b) of Section 398(1) and that the court could exercise its powers under Section 402 in directing the company not to sell the undertaking for a specified price unless the company by a special resolution resolves that it be sold. Section 402(f) would apply to transactions amounting to fraudulent preference, but not to the instant sale, being void ab initio. Even otherwise, the period of three months specified in Section 402(f) would commence from the date of knowledge of such sale i.e. from January, 2003. The third respondent has filed a writ petition before the Kerala High Court challenging the proceedings of the Kottarakara Taluk Legal Services Authority, pursuant to the fraud played by the other respondents, which does not have any bearing on the present proceedings, wherein the various resolutions approving the sale of the property are questioned. Furthermore, the petitioners are not parties to the writ proceedings initiated before the Kerala High Court and any order that may be passed in the writ petition is not binding on the petitioners. Therefore, the writ petition is not a bar to seek any remedy before the CLB, invoking the provisions of Sections 397 & 398. In Company Law Board v. Ganesh Flour Mills Company Ltd. (1991) 72 CC 459 it was held that the plenary nature of the powers of the company court under Sections 397 and 398 of the Companies Act, 1956, are not cut down by Section 402. The specific powers under Section 402 are in addition to the powers that a company court can exercise as plenary powers. Section 402 enlarges the powers under Sections 397 or 398 by specific additions. In Trackparts of India Limited v. K.N. Bhargava (2002) 109 CC 350, while considering the powers of the Company Law Board it was held that its powers under Section 397/398 read with Section 402 of the Act are absolute and are not controlled by any other provisions in the Act. Section 397/398 read with Section 402 provides an alternative to the winding up of a company and the CLB has very wide powers to pass just and equitable order to remedy the oppression/mismanagement complained of with the avoidance of the winding up.
The proceedings of the meeting of the board of directors of the Company said to be held on 18.10.2002, as borne out by copy of the minutes on record, resolving to convene an extra-ordinary general meeting on 14.11.2002 for the purpose of compromising the civil suit filed by the eighth respondent for specific performance of the sale agreement are non est, especially when the third respondent neither attended the board meeting on 18.10.2002 nor signed the minutes of the board meeting. This Board in Prabhu Dayal Chitlangia v. Trinity Combine Associates Pvt. Ltd. (2000) 99 cc 21 held that major decisions should not be taken in a family company, without the presence of all the family directors and that taking such major decisions without the participation of all the family directors, is an act of grave oppression against the petitioner shareholders. The meeting convened by the second respondent, a lone director, violative of Section 87(2), is not valid for want of a valid quorum. The apex court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. held that any resolution passed by the board of directors of the company without a valid quorum is invalid. The Company has not produced any material to show that notice for the extra ordinary general meeting held on 14.11.2002 was served upon the petitioners. Therefore, the proceedings of the extra-ordinary general meeting approving the proposal to compromise the civil suit are neither valid nor binding the Company. While the Company forwarded to the fifth respondent, who was a non-resident of India, a copy of the circular resolution dated 11.11.2002, authorising the second respondent to finalise the compromise and execute the sale deed in favour of the eighth respondent, it failed to send the circular resolution to the third respondent who was in India. By virtue of Section 289, every circular resolution must be sent to all directors in India which has not been satisfied by the Company. The minutes of the board meeting dated 18.10.2002, the circular resolution dated 11.11.2002, the minutes of the extra-ordinary general meeting 14.11.2002 have been hastily created and fabricated for the purpose of this case. These oppressive acts could be gone into only in a Section 397 proceeding. The CLB in exercise of the powers under Section 402(g) shall terminate and set aside the sale deeds fraudulently executed by the Company in favour of the respondents 6 & 7.
3. Shri R.Subramanian, Counsel representing the third respondent submitted: The respondents 2 to 5 are directors of the Company, of whom the fifth respondent is placed in USA. The directors or the shareholders were not consulted at any point of time, before sale of the property. Late P.T.Abraham was not authorised to sell the property, but entered into an agreement to sell the property to the eighth respondent, without any notice to the shareholders. When the sale deed was not executed, the eighth respondent filed a suit in O.S.No. 109/1995, on the file of the Court of Subordinate Judge, Kottarakara for specific performance of the agreement, wherein this respondent was arrayed as the fourth defendant. However, the civil suit came to be compromised on 21.11.2002 before the Kottarakara Taluk Legal Services Authority, after deleting from the array of parties, among others, this respondent who were not agreeable for the compromise. Thereafter, immediately on the very next date i.e. 22.11.2002, two sale deeds were executed in favour of the respondents 6 & 7, who are nominees of the eighth respondent. Thus, fraud has been played on the Company and this respondent, and, therefore, a writ petition was filed before the Kerala High Court challenging the award passed by the Kottarakara Taluk Legal Services Authority. The compromise effected without consent of this respondent is ex facie illegal and not binding the Company. The manner in. which the compromise was hastily reached would indicate that the second respondent by misusing her position as Managing Director fraudulently sold the property without any authority. The fraud vitiates the sale and by virtue of Section 17 of the Limitation Act, an action is maintainable within one year of detection of such fraud. Hence, the present petition is not barred by limitation. The property sold without special resolution and without notice to all directors/shareholders, is void ab initio. The sale proceeds are not accounted in the books of account of the Company. The third respondent neither attended the board meeting reportedly held on 18.10.2002 nor signed the minutes. The minutes wrongly depict, as if the third respondent attended the board meeting. The board meeting with lone participation of the second respondent for the purpose of convening an extra ordinary general meeting on 14.11.2002 to approve the compromise with the eighth respondent is bad in law for want of a valid quorum. The Company failed to circulate to this respondent who was in India in terms of Section 289, the circular resolution dated 11.11.2002 authorising the second respondent to enter into a compromise with the eighth respondent, but sent to the fifth respondent, who was in USA, which does not meet the requirement of Section 289. Hence, the circular resolution dated 11.11.2002 is not valid in law. Though Abraham Philip was said to be appointed as the whole time director in terms of the circular resolution dated 11.11.2002, he is described as manager of the Company in the minutes of the extra ordinary general meeting held on 14.11.2002. No notice of the extra ordinary general meeting was sent either to this respondent or the petitioners. In the present proceedings, it has to be seen whether the Company had followed the statutory requirements, while selling the property to the respondents 6 & 7, In the civil suit filed by the eighth respondent, the defence of the Company was that late P.T.Abraham had no authority to enter into any sale agreement and that the property valued over Rs. 1.50 Crore. The Company cannot now take a different stand before the CLB. Section 397/398 read with Section 402(g) gives wide powers to the CLB to set aside the sale deeds executed in favour of the respondents 6 & 7.
4. Shri P.H.Arvindh Pandian, learned Counsel appearing for the first respondent company submitted: The first petitioner is the eldest son of late P.T. Abraham and the second respondent and brother of the respondents 3 to 5. The first petitioner had serious differences of opinion with his late father and other family members as borne out by a number of litigations both civil and criminal, filed against each other. The present proceeding is yet another instance of the litigation initiated by the first petitioner against his family members, after a delay of 9 years of entering into the sale agreement with the eighth respondent. Late P.T. Abraham had on 09.06.1994 entered into an agreement on behalf of the Company with the eighth respondent to sell the property for a sum of Rs. 34.67 lakhs, which was followed by another agreement on 20.12.1994 and accordingly delivered possession of the property to the eighth respondent and since then the Company has no income and is lying defunct. The action of late P.T. Abraham was contested by the family members, forcing the eighth respondent to file a civil suit in O.S.No. 109/1995 on the file of the Subordinate Judge’s Court, Kottarakara seeking directions against, inter alia, the respondents 1 to 5 herein to execute the sale deed in respect of the property as per the agreement dated 09.06.1994. The first petitioner never took any interest for regaining possession of the property for the past more than a decade, but only harassed the family members by filing a petition under Section 397/398 before the Kerala High Court in the year 1994, which came to be dismissed for lack of jurisdiction. Under these circumstances, the management of the Company felt that it would be in the interest of the Company, to transfer the property and execute the deed of conveyance, provided the eighth respondent was willing to. settle the balance sale consideration in accordance with the agreement dated 09.06.1994. Accordingly, the parties approached the Kottarakara Taluk Legal Services Authority for a settlement and the award was accordingly passed on 21.11.2002. The sale transaction approved by the.Lok Adalat in exercise of the power under the provisions of the Legal Services Authorities Act, 1987 is conclusive and cannot be challenged before the CLB. The third respondent already filed a writ petition before the Kerala High Court against the award passed by the Lok Adalat and, therefore, no action would lie before the CLB, in respect of the same property and for the similar relief. Though the petitioners estimated the value of the property at Rs. 1.50 Crores, yet no material has been produced as to the comparative prices of similar estates in the area. During the year 1992-93, the real estate prices were low. The property entirely neglected and left in the possession and enjoyment of the eighth respondent for the past ten years would not fetch an amount of Rs. 1.50 Crores, as claimed by the petitioners. The sale was in the interests of the Company and its shareholders. The petitioners did not take any further action from the year 1994 onwards, but filed the present company petition after execution of the sale deed on 22.11.2002, in order to create obstacles for the buyers of the property. By virtue of Section 402(f), the petitioners are precluded from seeking to set aside the sale made on 22.11.2002, which ought to have been done within three months thereof. The board of directors at the meeting held on 18.10.2002 resolved to convene an extra ordinary general meeting on 14.11.2002 to approve a compromise settlement with the eighth respondent. The board of directors passed a circular resolution on 11.11.2002, which was recorded at the board meeting held on 25.11.2002, authorising the second respondent to finalise the compromise settlement. It was only the third respondent who opposed the resolution. Hence, the violation of Section 293 does not arise. At the extra ordinary general meeting held on 14.11.2002, the shareholders authorised the second respondent to enter into a compromise settlement and also effect sale of the property. Thus, the Company complied with the provisions of the Act, before selling the property, which is supported by more than 85% of the shareholders of the Company. The petitioners do not attribute any malafides on the part of the respondents. The only issue involved in the company petition is the impugned sale, a completed transaction, which cannot be interfered by the CLB. The sale proceeds are kept separately by the Company. While moving the company petition in March 2003, the petitioners invoked the provisions of Section 402(e), but now placed reliance on Section 402(1) & (g), which are inapplicable to the present case. Shri Arvindh Pandian, learned Counsel, while concluding his submissions reiterated that the impugned sale being a past and concluded one, cannot fall within the scope of Section 397/398, in support of which relied on the following decisions:
• Palghat Exports Private Ltd. v. T.V. Chandran (1994) 79 Comp Cas 213 – to show that “a plain reading of Section 397 indicates that the object of the section is to terminate or prevent an existing, present state of prejudicial, oppressive, harsh, unfair conduct and past conduct or closed affairs are not encompassed in the section. If the affairs which are complained of are not being conducted in present as at the time of filing the petition, they are matters of the past. They have no present existence and so there can be no complaints to bring to an end by an order of the court. Normally, in such state of affairs, there are no affairs, present or future, to be prevented”.
• G. Kasturi v. N. Murali (1992) 74 Comp Cas 661 – to show that Section 397(1) talks of a complaint that “the affairs of the company are being conducted in a manner prejudicial to public interest”. The words “are being conducted” must mean several acts in continuity and not one isolated act.
• Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. (1964) 34 Comp Cas 777 – to show that (i) Sections 397 and 398 apply to present continuous wrongs; (ii) the remedy is essentially preventive; (iii) there must exist on the date of the petition a continuous course of oppressive, or prejudicial conduct of the affairs of the company (iv) there is no power in the court to set aside or interfere with past and concluded transactions between a company and third party. The remedy envisaged in Section 397 of the Act is not intended to set at naught what has already been done by the controlling shareholders in the management of the affairs of a company. Clause (f) of Section 402 is not illustrative of any general power in the court to set aside or interfere with past and concluded transactions between a company and third parties, which are no longer continuing wrongs but embodies an additional power conferred on the court to set aside transactions amounting to fraudulent preference effected within three months from the date of the application.
• Thakur Hotel (Simla) Company Private Ltd., In re. (1963) 33 Comp Cas 1030 – to show that the object of Section 397 is not “to rake up the past but to redeem the future.
5. Shri P.P. Zibi Jose, learned Practicing Company Secretary, representing the respondents 6 to 8 submitted: The Company entered into an agreement on 09.06.1994 agreeing to sell the property, which was renewed on 20.12.1994, in pursuance of which, the eighth respondent was given possession of the property. When the Company failed to fulfil its obligations, the eighth respondent approached the civil court for specific performance of the contract in terms of the sale agreement dated 09.06.1994. After the prolonged litigation, the management of the Company approached for an amicable settlement, which was reached before the Kottarakara Taluk Legal Services Authority on 21.11.2002 in the form of an award passed by the said authority. The respondents 6 & 7 made reasonable enquiries before purchase of the property. When the dispute between the eighth respondent and the Company was amicably settled, the respondents 6 & 7, being nominees of the eighth respondent decided to acquire the property from the Company. The respondents 6 & 7 obtained attested copies of the minutes of the. extra ordinary general meeting of the Company held on 14.11.2002 and the board meeting held on 25.11.2002 authorising the sale of the property and based on the resolutions, which were verified from the office of Registrar of Companies, these respondents acquired the property by virtue of the sale deeds dated 22.11.2002 in good faith and paid the balance sale consideration to the Company and obtained the sale deeds and possession of the property. Thereafter, the respondents 6 & 7 made considerable investments making the property into a cultivable estate. The petitioners’ claim that the property is worth Rs. 1.50 crores is not substantiated by any concrete material.
6. With the above, I may now proceed to consider the contentious issues involved in the present company petition. While the petitioners, supported by the third respondent are seeking to set aside the sale deeds executed and registered on 22.11.2002 in favuor of the respondents 6 & 7, it is urged on behalf of the Company that the sale of the property, being a past and concluded transaction made in favour of a third party cannot be the subject matter of a Section 397/398 proceeding. The respondents 6 & 7 claim to be the bonafide purchasers, for a valid and proper consideration, after making reasonable enquiries before purchase of the property. It is in this context, the provisions of Sections 397 and 398 must be looked into. The CLB under Sub-section (2) of Section 397 may with a view to bringing to an end the matters complained of, make appropriate order, on an application made by any members qualified under Section 399, complaining that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members, provided it is of opinion that-
(i) the company’s affairs are being conducted in a manner prejudicial to public interst or in a manner oppressive of any member or members;
(ii) the facts would justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up; and
(iii) the winding up order would unfairly prejudice the members.
Section 398 can be pressed into service in either of the following two circumstances:
(a) that the affairs of the company are being conducted in a manner which is prejudicial to public interest or interest of the company;
OR
(b)it is likely that the affairs of the company will be conducted in a manner which is prejudicial to public interest or interest of the company;
due to a material change that has taken place in the management or control of the company. Such change may take place due to alteration in the company’s board of directors or manager or in ownership of its shares or membership or in any manner whatsoever.
It is thus far from doubt that Section 397/398 would come into operation when the affairs of the company are being conducted in a manner oppressive to a shareholder or shareholders or the affairs of the company conducted in a manner prejudicial to the interests of the company. The object of these sections is to prevent an existing, present state of prejudicial, oppressive conduct of the majority shareholders and past conduct or closed affairs are not envisaged therein. The remedy under these provisions is preventive in nature so as to bring to an end any acts of oppression or mismanagement which are continuous and detrimental of the minority shareholders. Against this legal background, the present company petition has to be considered. The Company is admittedly a closely held family company. The first petitioner, being the eldest son of late P.T. Abraham and the second respondent and brother of the respondents 3 to 5 is aggrieved by the sale of the property in favour of the respondents 6 & 7. The relationship between the first petitioner and his late father was not cordial as borne out by a series of litigations both civil and criminal against each other, which are found reflected in the correspondence dated 13.11.1990, 27.11.1990 and 22.03.1993 exchanged between them (Annexure – II, III & IV of company petition) and other records produced before the Bench. The first petitioner had objected as early as in November, 1990 to the sale of the property, without the consent of the shareholders of the Company and later filed a petition in April, 1993 before the High Court of Kerala under Sections 397 and 398 of the Act alleging that the Company’s affairs were conducted by late P.T. Abraham in a manner prejudicial to the interests of the shareholders and also in a manner oppressive to the petitioner and other minority shareholders, which are set out hereunder:
• Late P.T. Abraham, while in the management of the Company, was determined and taking steps for sale of assets of the Company illegally to enrich himself without convening any general body meeting of the Company for a nominal consideration and in spite of a registered letter dated 13.11.1990 and a registered notice dated 22.03.1993 sent by the petitioner.
• The petitioner was excluded from participation of any of the meetings of the shareholders.
• Late P.T. Abraham was intending to enter into agreements for slaughter tapping and clear felling of the rubber trees standing on the estate of the Company.
• The Company was not maintaining proper registers and accounts for the business transactions entered into by the Company.
• Late P.T. Abraham neither gave any notice of the annual general body meeting nor supplied copies of the annual reports or profit and loss accounts of the Company to the petitioner.
The petitioner, with a view to bringing to an end the matters complained of in the petition, prayed before the High Court the following, among other, reliefs:
• to restrain the Company from alienating any of its properties, movable or immovable property;
• to restrain the late P.T. Abraham from entering into any agreement for sale or for slaughter tapping and cutting and removing off the standing trees in the properties of the Company;
• to direct late P.T. Abraham to produce copies of the profit and loss accounts of the Company since the year 1984 and to scrutinize the profit and loss account from the year 1984 onwards;
• to remove late P.T. Abraham from functioning as manager of the estate of the Company;
• to direct the convening of the annual general meeting and a general body meeting of the Company to elect new manager; and
• to direct the board of directors of the Company to submit full information to the queries of the shareholders and the petitioner.
However, the company petition came to be dismissed by the High Court on 02.12.1994 as withdrawn, for want of jurisdiction, with liberty to move the appropriate forum. Nevertheless, there is no material on record to show whether the petitioner took any initiative after dismissal of the company petition (CP 9/1993) before the High Court, i.e., 02.12.1994 till filing of the present company petition, viz., 13.03.2003 against the Company and its directors restraining them from alienating the property or against the eighth respondent for recovery of possession of the property. While the petitioner had failed to evince any interest in the affairs of the Company for the past more than eight years, he chose to seek the intervention of the Company Law Board to set aside the sale deeds executed in November, 2002 in favour of the respondents 6 & 7 on the premises that late P.T. Abraham was fraudulently taking steps to sell the property without notice to the shareholders of the Company, in spite of the serious objections raised in his communications dated 13.11.1990 and 22.03.1993. The petitioner’s grievance is that late P.T. Abraham not only ignored by his communication dated 27.11.1990 the objections raised by him, but also entered into an agreement of sale on 09.06.1994 with the eighth respondent for an amount of Rs. 34.67 lakhs, which was renewed on 20.12.1994, in pursuance of which the property was put in possession and enjoyment of the eighth respondent. It has to be borne in mind that the petitioner approached the High Court of Kerala in April, 1993 with the very same grievances, placing reliance on the very same communications now sought to be relied before the CLB. The complaint before the High Court was that the petitioner was excluded from participation of any of the meetings of the shareholders and the late P.T. Abraham was determined to sell the properties ignoring the protests of the petitioner and without any proper resolution of the shareholders of the Company. The explanation offered by the petitioner that he “did not pursue further due to the assurances given by Late P.T. Abraham” (Para VI at Page 15 of company petition) is now required to be examined. The language used in the communications dated 27.11.1990 and 22.03.1993 (Annexures – III & IV of company petition) exchanged between the petitioner and the second respondents categorically indicate the bitterness between them. According to the petitioner, late P.T. Abraham was harassing him in all possible ways and filed a false complaint against him in February, 1993 through his wife, being the second respondent herein, before the Director General of Police, Thiruvananthapuram, on certain property disputes and there were civil disputes between them, as reflected in the company petition (CP 9/1993) filed before the High Court of Kerala. Furthermore, the petitioner’s father (P.T. Abraham) died during the pendency of the civil suit filed by the eighth respondent in O.S. No. 109/1995 before the Subordinate Judge’s Court, Kottarakara. Against this background, the plea of the petitioner that he did not pursue further due to the assurances of his late father is quite improbable. The petitioner is challenging the sale transaction in favour of the respondents 6 & 7 completed in November, 2002 pursuant to the sale agreement dated 09.06.1994. The petitioner is, therefore, without any doubt,’ questioning a concluded transaction between the Company and the respondents 6 & 7, being third parties. The Gujarat High Court in Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. (supra), while considering the scope of Sections 397 and 398 came to the conclusion that there is no power vested in the court to set aside or interfere with the past and concluded transactions between a company and third party. The Madras High Court, in G. Kasturi v. N. Murali (supra), while interpreting the words “are being conducted”, used in Section 397(1) of the Act concluded that they “must mean several acts in continuity and not one, isolated act.” The Punjab High Court in Thakur Hotel (Simla) Company Pvt. Ltd., In re: (supra) categorically held that the object of Section 397 is not “to rake up the past, but to redeem the future”. The Division Bench of the Madras High Court in M. Murthy v. Drivers and Conductors Bus Service P. Ltd.. (supra) granted reliefs under Sections 397 and 398 in view of not only the gross neglect of the interest of the company by the sale of its only assets (buses) but also the total inattention thereafter to the affairs of the company.Therefore, the facts of the said case cited by the petitioners are distinguishable from the facts of the present case. Moreover, it is doubtless from the recitals of the company petition that the petitioners were aware of the execution of the sale agreement executed by the Company, the enjoyment of the property for over eight years by the eighth respondent, an outsider and the purported yield from the property, but there is no explanation for their inaction all these years after withdrawal of the company petition before the High Court of Kerala as early as in December, 1994.
It is reflected from the company petition that the Company was facing several difficulties from as early as in 1985. The Company was not able to manage the property due to non-cooperation and disorderly behaviour of the workmen of the Company. The balance sheet of the Company for the year as on 28.02.2001 discloses the loss of Rs. 14,960/- and the loss for the previous year (2000) accounts for an amount of Rs. 8,47,454/-. The profit and loss account figures for the subsequent years are not made available. The Company parted with possession of the property in December, 1994 in favour of the eighth respondent, a third party and presently, in the absolute enjoyment of the respondents 6 & 7. The property is shrouded with litigations ever since April, 1993 till date, the first one being the company petition (CP 9/1993) before the High Court filed by the petitioner; which was followed the civil suit in O.S.No. 109/1995 on the file of the Subordinate Judge’s Court, Kottarakara, initiated by the eighth respondent. The compromise reached in the said civil suit in November, 2002 before the Kottarakara Taluk Legal Services Authority is under challenge before the Kerala High Court under writ jurisdiction at the instance of the third respondent. The writ petition is pending adjudication. The property under litigation over a decade and left in the hands of the third party, undoubtedly, in my considered view, could not fetch the market price. While the property has been sold for Rs. 34.67 lakhs, the property is reportedly worth according to the petitioners and the third respondent not less than Rs. 1.50 crores, which is not supported by any material. The petitioners have not even chosen to furnish the guideline value of the property fixed by the competent authority. The support drawn from the statement of the Company made in the written statement filed in the civil suit in O.S.No. 109/1995 before the Sub Judge’s Court of Kottarakara that the property ”would fetch a value of more than one crore rupees”, which is again a mere pleading without any proof can in no way advance the case of the petitioners. It has to borne in mind that the sale agreement was entered into between the Company and the eighth respondent on 09.06.1994, in pursuance of which the sale deeds were executed in 22.11.2002, after the compromising the civil suit filed by the eighth respondent, which is however under challenge before the Kerala High Court. Against the present sequence of events, the petitioners have not made out beyond doubt the prejudices suffered by the Company and its shareholders on account of the impugned sale transaction so as to remedy the grievances, in exercise of the powers vested in Section 397/398 and in these circumstances, the decisions in A.M. Varkey v. J.R. Motishaw; Company Law Board v. Ganesh Flour Mills Company Ltd.; Trackparts of India Limited v. K.N. Bhargava (supra) dealing with the powers of the court under Sections 397 and 398 read with Section 402 will be of little assistance to the petitioners. Similarly, the case laws cited by learned Counsel for the petitioners in support of the remaining grievances in relation to, among other things, the decision for sale of the property in a family company without presence of all the family directors and the validity of any decision taken by the board of directors in the absence of a valid quorum, will have no application in the backdrop” of the present case, on account of their inaction all these years.
The main grievance of the third respondent is that the compromise reached in the civil suit before Kottarakara Taluk Legal Services Authority, resulting in dismissal of the suit for specific performance of the sale agreement is violative of the Legal Services Authority Act, 1987 and the rules framed thereunder. The award passed by the Legal Services Authority is sought to be set aside in a writ proceeding initiated by the third respondent before the Kerala High Court on several grounds elaborated therein, summary of which reads as under:
The petitioner is one of the Directors of the second respondent company. In respect of 46 acres and 10 cents of land belonging to the company, an agreement for sale was entered into on 9-06-1994 by the then Manager with the 8th respondent without any authority. The 8″ respondent filed O.S.No. 109 of 1995 before the Sub Court, Kottarakara for specific performance of the alleged agreement for sale. The company opposed the suit tooth and nail and filed a written statement denying the validity and existence of the agreement and also the competency to enter into the alleged agreement for sale. While so, the Managing Director of the company colluded with the 8th respondent, played fraud on the company and filed a joint petition before the Kottarakara Taluk Committee of Kerala State Legal Services Authority. It was prayed that the other defendants, directors of the company, who have not joined in the compromise petition are to he removed from the array of parties. In the so called compromise it was agreed that the property will be conveyed to the 8” respondent or his nominees for the sale consideration of Rs. 34.67 lakhs as claimed in the plaint. In fact at that point of time, the property would have fetched a value of more than Rs. 1.5 Crores. It was only when the petitioner received a notice of a Board meeting of the company to be held on 29.01.2003 wherein one of the item of agenda was indicated as ”approval of expenses in comection with the sale of Estate” and on further enquiries that the petitioner came to know about the compromise before the Legal Services Authority. The provisions of the Legal Services Authority Act, 1987 and the rules framed there under have been violated. Taking shelter under the alleged compromise before the Legal Services Authority, sale deeds were executed in favour of the nominees of the 8th respondent challenging the same, two shareholders of the company have approached the Company Law Board, Chennai and moved a company petition as C.P.No. 13 of 2003. The alleged compromise entered into before the Legal Service Authority is illegal for various reasons set out in the Writ Petition.
The parties will be bound by the order which may. be passed by the Kerala High Court in the writ petition filed challenging the award of the Kottarakara Taluk Legal Services Authority. By virtue of Section 21(2) of the Legal Services Authority Act, 1987 every awa d made by a Lok Adalat shall be final and binding on all the parties to the dispute, and no appeal shall lie to any court against the award. Hence, the CLB has no jurisdiction to adjudicate the validity of the award dated 22.11 2002. I am, therefore, constrained not to express my opinion on the purported fraud played on the Company by its Managing Director in collusion with the eighth respondent and on the validity of the compromise decree obtained in the civil suit, as claimed by the petitioners as well as the third respondent and the supporting decisions cited in this behalf. The other charges – (a) sale of the property without special resolution and without notice to directors/shareholders; (b) illegal convening of the board meeting without participation of the third respondent; (c) illegal convening of the extraordinary general meeting; (d) circulation of the circular resolution in violation of Section 289 etc., not having been raised at any prior point of time are found per se not oppressive for the purpose of Section 397/398, more so, when no prejudices have been made out on account of the sale of the property on the facts and in circumstances set out elsewhere and, therefore, cannot be entertained in the present company petition.
In view of the foregoing conclusions, the petitioners are not entitled for any reliefs sought by them and they are declined. Ordered accordingly. The interim order made on 28.03.2003 restraining the respondents 6 & 7 from alienating or selling the propsrty and cutting or removing the trees thereon is vacated. With these directions, the company petition stands disposed of No order as to cost.