IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 9.4.2009. CORAM THE HON'BLE MR.JUSTICE M.JEYAPAUL Application No.4775 of 2007 in C.S.No.1153 of 1991 1. K.Balarama Das 2. K.Bhagwan Das Applicants vs. 1. K.Rama Das 2. K.Narayana Das Respondents For Applicants : Mr.R.Parthasarathy for Mr.Satish Parasaran For R1 : Mr.Sriram Panchu, Senior Counsel for Mr.Arun Anbumani For R2 : Mr.S.Raghavan ORDER
The application is filed seeking a suitable direction to sell the land and building situated at door Nos.100-102, Poonamallee High Road, Chennai 600 084 in which Hotel Dasaprakash is being run and the staff quarters at door No.4, Varadarajulu Naidu Street, Chennai 600 008.
2. The applicants as well as the first respondent filed the suit in C.S.No.285 of 1985 against their other brothers for administration of the estate of late K.Seetharama Rao. The plaint schedule mentioned properties were allotted to the parties to the present application by virtue of an oral family arrangement entered into between all the sons of the said K.Seetharamama Rao on 22.12.1988. The parties to the present application took over the business administration of Hotel Dasaprakash and started running the same from the month of January 1989. A memo of agreement was entered into between the parties to the present application on 27.3.1989 wherein it was agreed upon to share the property at door Nos.100-102, Poonamallee High Road, Chennai in the following ratio:-
K.Balarama Das 23%
K.Bhagwan Das 23%
K.Rama Das 24%
K.Narayana Das 30%
3. Of course, there is no specific agreement with respect to the ratio under which the property bearing door No.4 Varadarajulu Naidu Street, Chennai could be divided. Therefore, all the parties to this application are equally entitled to divide the said property, being co-owners of the same.
4. The suit in C.S.No.285 of 1988 was decreed on 7.7.1989 by this court in terms of the memo of compromise entered into between the parties. Serious dispute between the parties in the matter of running the Hotel business surfaced. Therefore, the suit in C.S.No.1153 of 1991 was filed by the applicants herein invoking the provision under section 20 of the Arbitration Act, 1940 for filing of the arbitration agreement before this court and also for appointment of an arbitrator. It is to be noted that a receiver was appointed by this court on 30.10.1991 to take over the affairs of the Hotel Dasaprakash. The fact remains that the receiver continues to hold the office of the receivership even as on date. The suit in C.S.No.1449 of 1991 was filed by the respondents herein praying for dissolution of the partnership firm of Hotel Dasaprakash and for rendition of accounts. Another suit in C.S.No.115 of 1994 was filed by the respondents herein seeking for partition and also for separate possession of the schedule mentioned properties.
5. A common order came to be passed by this court on 21.9.1999 in all the three suits appointing Honourable Mr.Justice V.Ratnam as sole arbitrator to adjudicate on all the disputes and differences between the parties. The terms of reference were framed. The following terms of reference have relevance for the disposal of this application:-
“e. whether the land and building bearing Door Nos.100-102, Poonamallee High Road, Chennai 600 084, where the Hotel business is being run, is capable of partition by metes and bounds.
g. if for any reason, the land and building bearing Door Nos.100-102, Poonamallee High Road, Chennai 600 084 in which the business of the firm is being carried on and the movables used in such business of the firm are not capable of being divided by metes and bounds or if it is otherwise not feasible to do so, whether Hotel Dasaprakash can be sold as a going concern alongwith the land and building and the movables and the proceeds of such sale be divided amongst the partners and co-owners proportionately.”
6. The arbitration which commenced in the year 1999 was completed in 2004 and the same was reserved for passing award. As the award was not passed till 2008, this court, having terminated the mandate of the learned arbitrator, directed the learned arbitrator to send back all the records to this court. Accordingly, this court received all the records from the learned arbitrator.
7. In view of the above factual scenario, the applicants have filed the present application seeking the directions from this court to sell both the properties referred in the application.
8. Learned counsel appearing for the applicants would vehemently submit that the statutory dues are spiraling to many a crore. None of the family members has the capacity to pay the statutory dues in order to save the property. There is a genuine apprehension in the minds of the applicants that the property may be brought for distress sale by the statutory authorities who are bent upon such a course of action. Further, the court will have to take judicial notice of the fact that on account of global financial melt down, the real estate is crashing down. There cannot be any partition of the properties referred to in the application unless the entire statutory dues are paid by the parties to the application. But, unfortunately, none of the family members has wherewithal to pay the statutory dues. The auditor takes his own time for the purpose of auditing the accounts of the partnership firm. No one is going to be benefitted by delaying any more the sale of the properties. There is no other option except selling the property in public auction, he would contend.
9. The learned counsel appearing for the first respondent would contend that there is no legal justification to sell the property, when the auditor has embarked upon the laborious task of auditing the accounts of the partnership firm. It is premature to seek for sale of the properties by public auction. He would further contend that the scope of the present suit does not permit such a prayer emanated from the applicants seeking sale of the property by public auction. He would vehemently submit that the property cannot be brought for sale just to meet the statutory liability.
10. The learned Senior Counsel appearing for the second respondent would contend that it is quite inadvisable to go in for sale of the property when there is possibility for partitioning the same. Two legal submissions were also made by him. It is contended that the present application under section 41 of the Arbitration Act, 1940 is not at all maintainable. The next legal submission is that as per section 2 of the Partition Act, unless a request emanates from the shareholders who individually or collectively have one moiety or upwards in the property, the court cannot invoke section 2 of the Partition Act, 1893. Therefore, he would submit that this application may be dismissed.
11. There is no dispute to the fact that each of the applicants is entitled to 23%, the first respondent is entitled to 24% and the second respondent is entitled to 30% of the shares in the property bearing door Nos.100-102, Poonamallee High Road, Chennai 600 084. Further, each of the parties is entitled to 25% of the share in the property bearing door No.4 Varadarajulu Naidu Street, Chennai. As per section 41(b) of the Arbitration Act, 1940, the court is empowered to pass any order to preserve any property which is the subject matter of reference. The term “preservation” in the context of the provision under section 41(b) read with the second schedule of the Arbitration Act, 1940 will have to be given a wider meaning. Conservative interpretation of the term will result in keeping the property in tact at its own peril. If the court, during the pendency of the arbitration proceedings, comes to the decision that it can sustain the value of the property or add value to the property only by disposing of the same, it can definitely invoke section 41(1)(b) read with the second schedule of the arbitration Act, 1940. Preservation of property would necessarily imply saving or safeguarding the property from perishing. Therefore, the submission made on the side of the respondents that this court has no authority to order public auction of the property in the guise of preservation of the property does not stand to reason.
12. Further, it is found that two other suits have been filed by the respondents in C.S.No.1449 of 1991 praying for dissolution of the partnership firm Hotel Dasaprakash and rendition of accounts and C.S.No.115 of 1994 seeking for partition and separate possession of the schedule mentioned properties. As already pointed out, the triable issues arisen in all the three suits were combined together for drafting the terms of reference to the learned Arbitrator. Therefore, the relief which has been sought in this suit through the present application cannot be technically confined to the scope of the present suit alone inasmuch as the parties had already agreed for taking up all the issues involved in the three suits by the learned Arbitrator. Quite unfortunately, the mandate flowed from this court to the learned Arbitrator was terminated before the award was passed and the records have now come to the portals of this court.
13. It is true that section 2 of the Partition Act, 1893 contemplates the right of the shareholders having one moiety or upwards to place a request to the court for sale of the property. The legislature has very carefully employed the term “may” to vest a discretion upon the court to bank on such a request or reject the same considering the suitability or feasibility of the division of property or sale of the property by public auction. The court has to consider the nature of the property and the number of shareholders to find whether it is reasonable or convenient to divide the property. If the court comes to the conclusion that no convenient division is possible, then the court has the authority to order sale of the property and distribution of the proceeds. In the opinion of the court, the sale of the property by public auction would be a beneficial venture for all the shareholders. It is not always necessary that the shareholders interested individually or collectively to one moiety or upwards, should have made a request beforeever the court embarks upon enquiry in the application filed under section 2 of the Partition Act, 1893. If the submission made by the learned Senior Counsel appearing for the second respondent is sustained, unscrupulous shareholders, who have one moiety or upwards, would try to put a break even in a case where the court feels that it is quite beneficial for the shareholders to go in for public auction of the property and distribution of the proceeds thereof to the shareholders. In view of the above facts and circumstances, the court holds that even if the shareholders have less than one moiety, they can approach the court for sale of the property if division of the property cannot be reasonably or conveniently made, as otherwise the shareholders having less than one moiety will have to meekly submit to the might of the shareholders having one moiety or more even if the property is found to be completely indivisible. Therefore, I do not agree with the submission made by the learned Senior Counsel appearing for the first respondent that the applicants having less than one moiety in the subject property cannot be apply for sale of the property.
14. The Commissioner of Employees Provident Fund has initiated recovery proceedings for a sum of Rs.45,00,000/= for the period from 4.10.2004 to 17.10.2006. The Chennai Metropolitan Water Supply and Sewerage Board has also initiated recovery proceedings towards arrears of water tax and water charges to the tune of more than Rs.10,00,000/= as on 13.1.2005. The Employees State Insurance authorities have also issued recovery proceedings for the dues of more than Rs.40,00,000/= for the period from 13.1.2005 to 19.3.2005. The Corporation of Chennai, on its part, has issued notice for recovery of property tax for more than Rs.10,00,000/= on 12.1.2006. The Labour Commissioner has directed to settle the labour dues which was more than a crore on 27.7.2006. The Commercial Tax Officer has also initiated recovery proceedings towards sales tax and luxury tax arrears to the tune of Rs.80,00,000/= for the period from 27.10.2006 to 28.12.2006. The fact remains that Hotel Dasaprakash has already closed its business.
15. The pertinent question which torments the parties to the proceedings is as to whether any of the parties could pay the statutory dues beforeever the property could be partitioned. As rightly pointed out by the learned counsel appearing for the applicants, the partition of the property presupposes payment of all the statutory dues to the authorities concerned. None of the parties to the proceedings has wherewithal or financial capacity to bear the spiraling financial burden on the property. When none of the parties is prepared to discharge or liquidate the statutory dues, the question of partition of the property does not arise for consideration.
16. The statutory dues have now spiraled to many a crore. The statutory authorities pose a real threat to the property with distress auction sale. If the property is brought by the statutory authorities under distress sale, the buyers would capitalize the situation and would quote a price far lesser than the real market price of the property. The parties will have to forgo atleast 1/3 of the real value of the property in case the property is brought for distress sale.
17. The learned counsel appearing for the first respondent refers to a judgment of this court in PL.CT.SP.SUBRAMANIAN CHETTIAR v. MEENAKSHI ACHI (AIR 1992 MADRAS 354) wherein it has been held that some of the properties in the final decree proceedings cannot be brought for sale just to meet the pressing demands of the estate in discharging the statutory liabilities.
18. That was a case where only for the purpose of meeting the huge tax arrears, some items of the properties in the final decree proceedings were brought for auction sale. In fact, one of the parties to the proceedings opted to purchase the suit property after the order of adjudication in the insolvency proceedings passed as against him was annulled and all his assets and effects were revested in him. But, in the case on hand, it is found that the parties to the application are not in a position to pay the dues to the statutory authorities in order to pave way for division of the property. Further, if the subject property is sold as a running business, it would definitely fetch more price. Division of the Hotel property in metes and bounds would definitely devalue the property and the marketability would be at stake. Therefore, the property cannot be reasonably and conveniently divided to the benefit of the parties to the application. As rightly pointed out by the learned counsel appearing for the applicant, the economic melt down in the global scene crashes down the real estate business. Further, in the aforesaid case, there was no instant threat of sale of those properties by the statutory authorities. One of the parties to the said proceedings, in fact, opted to purchase the property. Therefore, the aforesaid ratio will not apply to the facts and circumstances of this case.
19. The auditor appointed by this court seeks further time to complete the task of auditing the financial accounts of the Hotel business. It is not in the interest of the parties to wait any longer as the mounting pressure on the estate will definitely melt down the value of the property itself. Value of the property can be saved only by public auction sale.
20. In fact, the respondents have admitted in their counter that they originally agreed for a proposal to sell the property to one of their brothers by name K.Ram Vital Das who is not one of the parties to the application for a consideration of Rs.95 crores. It is to be noted that he does not have a share in the suit properties. The applicants have now shown before the court that prospective purchasers have made an offer for a sum of Rs.138 crores. As the offer made by the said K.Ram Vital Das is far below the offer made by the outsiders, the applicants have not given their consent for sale of the property to Ram Vital Das. But, the fact remains that the respondents have also originally thought of selling the property, of course, to their own brother. It appears that the respondents are putting up resistance for the sale of the property as the applicants have not agreed to sell the property to one of their brothers.
21. The court finds that the properties bearing door Nos.100-102, Poonamallee High Road, Chennai 600 084 and the property bearing door No.4, Varadarajulu Naidu Street, Chennai 600 008 are indivisible and the first referred property can be sold only as running business Concern and the second property as a staff quarters for the said business Concern. The sale of property by public auction and distribution of the proceeds thereof after defraying all the statutory dues on the estate is found to be the only viable solution to the issues confronting the parties to this application. The entire sale proceeds shall be kept in court deposit till the accounts are finalised by the auditor appointed by this court.
22. In view of the above, the upset price for both the properties viz., door Nos.100-102, Poonamallee High Road, Chennai 600 084 and door No.4, Varadarajulu Naidu Street, Chennai 600 008 is fixed at Rs.140 crores considering the offer already received from the public.
24. The learned Master is directed to conduct public auction of both the properties on 28.4.2009 after publication of the intending public auction within one week from the date of this order in one issue of English Daily, “The Hindu” and also in one issue of Tamil daily “Dhinamani” at the cost of the applicants. The auction proceedings shall be placed before this court on 29.4.2009 for confirmation.
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