Re: Company Application No. 245807 of 2007 The respondent Krishi Export Com. Corporation Limited incorporated under the Companies Act and registered with the Registrar of companies, Kanpur as a non Banking financial company having its registered office at Krishi Export Plaza, Sigra, Varanasi was ordered to be wound up vide order dated 27.4.2007 under Section 45 MC of the RBI Act, 1934 and the official liquidator was directed to take over the assets of the company from the Ex-Directors. The relevant portion of the order dated 27.4.2007 is reproduced herein below:-
"In the facts and circumstances, the Court find that the Reserve Bank of India has made out a case for winding up of the respondent company under Section 45 MC of Reserve Bank of India Act, 1934. The respondent company is as such wound up and the official liquidator is appointed as liquidator of the company under Section 449 of the Companies Act. Let the order be notified to the Registrar of Companies in accordance with the Companies Act, 12956 and the Companies (Court) Rules, 1959. The Ex-Directors will hand over the assets to the Official Liquidator and file statement of affairs within 21 days. The Official Liquidator will thereafter, submit a report to the Court."
Prior to the above order, this Court while entertaining the petition of the Reserve Bank of India for winding up of the company vide order dated 27.10.1999 had directed for issuance of notice to the respondent-company and had restrained the respondents company, its servants and agents from transferring, alienating and disposing of any of the assets of the company in any manner. The above interim order dated 27.10.1999 which is still continuing is reproduced herein below:-
"Issue notice to the respondent company Krishi Export Com. Corporation Limited having its registered office at Krishi Export Plaza, Sigra, Varanasi to show cause why the petition be not allowed fixing 7.12.1999 by which date the respondent company may file its reply. The petitioner shall take steps to serve by registered post within one one week.
List on 7.12.99.
Meanwhile, considering the facts and circumstances of the case, the respondent company, its servants and agents are restrained from transferring, alienating and disposing of the respondent company in any manner or encumbering its property.
Sd/- Sudhir Narain,J.
27.10.99"
Subsequently, vide order dated 27.4.2007 the Court directed for winding up of the respondent company.
The applicant B.K. Chabra has moved application no. 245807 of 2007 praying that one of the properties ie. B-64 Kalka ji, New Delhi which belonged to the respondent company be released from the net of the liquidation proceedings on the allegation that Company Law Board vide order dated 15.9.1999 had permitted the Ex-Manging Director of the company to sell the properties of the company including the above property subject to filing of affidavit that the sale consideration would be utilized only towards repayment of maturity of deposits of the investors/depositors. In view of the above permission of the Company Law Board and in ignorance of the interim order of the High Court dated 27.10.1999, the applicant bonafidely in good faith agreed to purchase the rights in the said property vide registered agreement dated 21.2.2000 from the Ex-Managing Director K.K. Gupta for a consideration of Rs. 8 lacs. The applicant was handed over constructive possession of the said property on 21.2.2000 itself in respect whereof a possession memo was duly executed. The delivery of possession to the applicant was acknowledged in the sale agreement dated 21.2.2000. The Ex-Managing Director K.K. Gupta had submitted affidavit dated 21.2.2000 as required by the Company Law Board accepting the execution of the agreement to sale; receiving of full and final sale consideration; delivery of possession to the applicant; no objection with regard to mutation of the name of the applicant or its nominee in the relevant records; execution of irrevocable power of attorney in favour of the applicant and also a Will bequeathing the same to the applicant and also an undertaking that he shall utilize the sale consideration only for discharging the liabilities of the company.
On the basis of the aforesaid agreement with possession, power of attorney etc. it is submitted by Sri Tarun Agrawal, learned counsel for the applicant that the applicant is virtually a de facto owner of the aforesaid property and his rights stand protected by Section 53-A of the Transfer of Property Act, 1882 (in short T. P. Act) and as such the official liquidator has no authority of law to inter meddle with his rights on the strength o the winding up order. It has further been submitted that part of property is under tenancy of M/S Green Power International Private Limited from whom the applicant had been realizing rent but pursuant to the winding up order the official liquidator has issued letter dated 25.5.2009 to the said tenant directing it to pay rent henceforth to the official liquidator.
On the other hand, Sri Arnab Banerji, learned counsel appearing for official liquidator on the basis of the judicial report of the official liquidator no. 106 of 2011 submitted that the the agreement to sale executed in favour of the applicant is a void document as it has been executed in violation of the restrain order dated 27.10.1999 passed by this Court in the winding up petition. He has also placed reliance upon Section 536 (2) and 537 of the Companies Act, 1956 which provides that any disposition of the property made after the commencement of the winding up and any sale held without the leave of the Court shall be void.
In substance the prayer of the applicant is based upon the agreement dated 21.2.2000, Will of the Ex-Managing Director K.K. Gupta and the General Power of Attorney executed by him in favour of the applicant in relation to the above property.
In order to adjudicate the controversy, let me examine the impact of each of the above documents vis-a-vis the rights, if any, on their basis flowing in favour of the applicant.
The word 'Will' in common parlance means a wish; a desire; or an inclination. In legal sense, it refers to a testamentary document of a person declaring his intention in respect of his property which he desires to be carried out after his death. 'Will' has been defined in Section 2 (h) of the Indian Succession Act, 1925 to mean a legal declaration of the intention of the testator with respect to his property which he desires to be carried out into effect after his death. The above definition most eloquently tells that under a 'Will' intention of the testator has to be carried out after his death and as such has no legal sanctity during his life time.
Section 3 (64) of the General Clauses Act, 1897 also defines a 'Will' to include a codicil and every writing making a voluntary posthumous disposition of property. Here also the disposition of property has to be posthumous.
A 'Will' as such has no force till the death of the testator or the person making it.
In Brijraj Singh and another Vs. Sheodan Singh and others (1913) ILR 35 Alld. 337, the PC held that a document intended to operate from the date of its execution is not a 'Will'.
Similarly, in Namburi Basava Subrahmanyam Vs. Alapati Hymavathi and Others AIR 1996 SC 2220 it was declared that a deed creating right and interest in prasenti' would be a deed of settlement and not a 'Will'.
In view of the above, a will operates only on the death of the testator and not in prasenti' during the life time of the testator.
A 'Will' is a sacred document which is personal to the person executing the Will. It is accepted to the parties that the property in question was not the personal property of K.K. Gupta, the Ex Managing Director. It was the property of the company in liquidation. Therefore, the Ex Managing Director under law had no authority to bequeath any rights in the same by means of a 'Will'.
A company never dies. Therefore, there can be no 'Will' on behalf of the company.
In view of the above, the Will, if any, executed by the Ex Managing Director K.K. Gupta in respect of the above property proposing to transfer rights to the applicant is wholly meaningless and is of no avail. It would not confer any rights in respect of the property in question upon the applicant.
Now, I examine the effect of the power of attorney executed by K. K. Gupta, Ex Managing Director.
"Attorney" in its broadest sense means to put someone in place of another ie., a person appointed by the principal to do something in his absence on his behalf.
Section 2 (21) of the Indian Stamp Act, 1899 defines "Power of Attorney" to include any instrument empowering a person to act for and in the name of the person executing it. In other words, it is a formal instrument of authority given by one person to another empowering him to represent him or to act on his behalf. A power of attorney by its very nature is always revocable but lately, a trend of executing irrevocable power of attorney has come into existence. However, even an irrevocable power of attorney can not operate in perpetuity. It ceases automatically as soon as the principal is dead or the person authorized becomes incapable of acting or is otherwise no more. Moreover, a power of attorney holder is authorized to act on behalf of the principal in his absence but it does not takes away the power of the principal himself to act and to deal with the property in respect whereof rights may have been assigned to such attorney. In this situation also an irrevocable power of attorney becomes meaningless.
In short, a power of attorney holder acts as an agent of the principal and his agency or power stands revoked on the death of the principal by operation of law and it also does not precludes the principal from acting himself in connection with the work for which the attorney is so appointed.
The power of attorney given by K.K. Gupta, the Ex Managing Director to the applicant authorizing him to deal with the property though irrevocable in nature automatically ceased to exist as soon as the order of winding up was passed and the official liquidator had assumed all powers of the company and the functions of the Directors. On the passing of the winding up order the Ex-Managing Director and also his attorney ceased to have any power to deal with the properties of the compnay. Admittedly, the above power of attorney was not acted upon. The said power of attorney automatically came to an end and is of no use as on date even if it is irrevocable and has not been specifically revoked.
The agreement dated 21.2.2000 is the principal document on which the claim of the applicant is dependent.
The aforesaid agreement is an agreement to sell an immovable property which is in the nature of a contract to sale. 'Sale' of immovable property is defined in Section 54 of the T. P. Act. It specifically lays down that a contract of sale does not, of itself, create any interest in or charge on property which may be a subject matter of the contract of sale.
The T. P. Act is more than a century old enactment. Its provisions specially Section 54 have very often been interpreted by the superior Courts. The Privy Council in a case from Burma Manna Shwe Goh Vs. Mong In AIR 1916 PC 139 on consideration of Section 54 of the T. P. Act in respect of contract for sale made a distinction between the English Law and the Indian Law. It observed that under the English Law a contract for sale of real property makes the purchaser the owner in equity whereas the said principle has no application to a case governed by the T. P. Act., as by Section 54 of the T. P. Act a contract of sale of real property does not create any interest or charge upon the land.
The Supreme Court in Purnendu Nath Tagore Vs. Administrator General of West Bengal and Others AIR 1954 SC 51 observed that according to Indian law, which is embodied in Section 54 of the T. P. Act, a contract of sale of land does not of itself create any interest in the property which is the subject matter of the contract.
The above view was reiterated by the larger bench of 5 Judges in the case of Radhakrishna Laxminarayan Toshniwal Vs. Shridher Ramchandra Alshi and others AIR 1960 SC 1368 and in placing reliance upon Section 54 of the T. P. Act it was held that where the parties enter into a mere agreement to sell, it creates no interest in favour of the vendee and the proprietary tittle does not validly pass from the vendors to the vendee.
In Ram Baran Prasad Vs. Ram Mohit Hazara AIR 1967 SC 744 it was observed that previous to the enactment of T. P. Act it was accepted doctrine in India that the agreement created an interest in the land in favour of the purchaser but there has been a change in the legal position since the passing of the T. P. Act. From the reading of Section 54 of the T. P. Act it is manifest that a mere contract for sale of immovable property does not create any interest in the property.
The Allahabad High Court also in a case reported in AIR 1995 Alld. 316 Indira Fruits and General Market Vs. Bijendra Kumar Gupta ruled that T. P. Act vide Section 54 specifically provides that a contract of sale does not create, of itself, any interest or charge on immovable property which is subject matter of contract.
The above legal position leads me to hold that no rights in the property flows in favour of the applicant by mere agreement/contract of sale dated 21.2.2000.
The decisions of the Delhi High Court cited by Sri Tarun Agrawal, learned counsel for the applicant Veer Bala Gulati Vs. Municipal Corporation of Delhi and another 104 (2003) DLT 841 following the earlier decision of the Delhi High Court itself in the case of Asha M. Jain Vs. Canara Bank and Ors. 94 (2001) DLT 841 holding that the agreement to sell with payment of full consideration and possession with irrevocable power of attorney and other ancillary documents is a transaction to sell even though sale deed has not been executed does not find favour with me.
The view so taken by their lordships of the Delhi High Court does not appear to be in consonance with the legal position which emanates from the plain reading of Section 54 of the T. P. Act as has been interpreted time and again by the superior Courts.
The aforesaid two decisions of the Delhi High Court ignores the above precedents and on the basis of Section 53- A of the T. P. Act read with Section 202 of the Contract Act proceeds to protect the right and interest of the prospective purchasers on the strength of the agreement to sell with irrevocable power of attorney.
Granting of protection in view of Section 53-A of the T. P. Act and Section 202 of the Contract Act to such person is altogether a different thing than in holding that the agreement to sell is virtually a transaction of sale.
In view of the above, the title of the applicant is technically incomplete in the property in question.
The above agreement and its contents are not disputed. The possession of the applicant and the fact that he had been realizing rent in respect of part of the property is also not in dispute. It is also admitted that the applicant had paid the actual sale consideration and had bonafidely entered into an agreement to purchase the property on the strength of the order of the company Law Board dated 15.9.1999 which order probably was not brought to the notice of this Court in obtaining the interim order. Therefore, there is no denial of the fact that the applicant is a bonafide and genuine person who had entered into an agreement with the Ex Managing Director of the respondent company for purchasing the property for valuable consideration.
The Apex Court in Bai Dosabai Vs. Mathura Das Govind Das and others AIR 1980 SC 1334 in considering the provisions of Section 54 of the T. P. Act laid down that the concept of legal and equitable ownership on the execution of an agreement to sell of immovable property as is understood in England is completely alien to Indian Law which recognized only one owner but went on to observe as under:-
"It is clear from the ultimate para of Section 54 and the ultimate and pen- ultimate paras of Section 40 of the T. P. Act that a contract for the sale of immovable property though does not, of itself, create any interest in or charge on such property creates an obligation annexed to the ownership of immovable property, not amounting to an interest in the property, but which obligation may be enforced against a transferee with notice of the contract or a gratuitous transferee of the property. Thus the equitable ownership in property recognized by Equity in England is translated into Indian law as an obligation annexed to the ownership of property, not amounting to an interest in the property, but an obligation which may be enforced against a transferee with notice or a gratuitous transferee."
In view of the above, though the agreement to sell may not create any interest or charge upon the property but it gives a right to the prospective purchaser to enforce the obligation under law.
Legally, in view of Section 54, an agreement to sell can not be regarded as a transaction of sale or a document transferring the title in any immovable property but the prospective purchaser therein having acted bonafidely, performed his part of the contract and having been put in possession is entitle to enforce the obligation under the agreement.
Section 53 A of the T.P. Act enshrines the doctrine of part performance of a contract and envisages that where any person contracts to transfer for consideration any immovable property in writing signed by him or on his behalf and the transferee in part performance of such a contract has taken possession of the property and of the contract, even if, no instrument of transfer has been executed finally, the transferor or any person claiming under him shall be debarred from claiming any right in respect of the said property against the transferee.
The aforesaid provision protects the proposed purchaser of an immovable property with possession who has performed his part of the contract from invasion by the transferor or any person claiming under him. In other words, the possession and the right to use and occupy the immovable property by the transferee under contract of sale of immovable property can not be disturbed by the transferor.
There is another way of looking to the rights of the parties under such a contract of sale of immovable property. In a contract of sale of immovable property with the possession, the prospective purchaser is actually placed in a position of an agent of the principal ie., the transferor to whom the property belongs. So, where the principal himself grants an agency to the prospective purchaser, such an agency is not liable to be terminated unless expressly provided in the contract or for the reasons provided in the contract. The aforesaid principal is part of Section 202 of the Contract Act which provides where the agent has interest in the property, the agency can not be terminated causing prejudice to his interest unless there is a provision to this effect in the contract.
It is based upon the aforesaid two provisions of Section 53-A of the T.P. Act and Section 202 of the Contract Act, the possession and use of the property by the applicant stands protected.
Section 536(2) of the Companies Act, 1956 stipulates that any disposition of the property of the company made after the commencement of the winding up shall be void unless the Court otherwise directs.
Section 537 (1) of the Act provides that where any company is being wound up by Court, any sale made without the leave of winding up by the Court after such commencement, shall be void.
It is important to note that winding up of the company commences with the presentation of the petition for winding up as provided under Section 441 (2) of the Companies Act.
In Pankaj Mehra and another Vs. State of Maharashtra and others (2002) 2 SCC 756 it has been ruled that winding up proceedings commences with the presentation of petition for winding up and any disposition of property of the company during the interregnum period between presentation of petition and passing of order of winding up would not be void ab inito.
A reading of Section 536 (2) of the Companies Act demonstrates that such disposition may not be null and void but voidable and is at the discretion of the Court.
In the earlier part it has already been held that the applicant is a bonafide prospective purchaser in good faith for value who has been put in possession. He is entitle to enforce the obligation particularly when he had entered into the agreement on the basis of the permission for sale granted by the Company Law Board on 15.9.1999. In these circumstances, the Court is not inclined to hold the agreement to be void even though it was executed after the commencement of winding up proceedings.
As far as Section 537 (1) is concerned, it does not get attracted for the simple reason that it talks about the sale to be void. There is no sale of any property so far. Therefore it would not be applicable and the agreement which is not a sale can not be held to be void. The decision reported in 2003 (51) ALJ 369 Sarita Devi Vs. Civil Judge, Sr. Division would not not be applicable to render the agreement to be void.
The applicant has been put in possession pursuant to the above agreement which fact is duly acknowledged and is not disputed. The applicant being in possession of the property and armed with the agreement in his favour is entitle to protection provided under Section 53-A of the T.P. Act. Accordingly, his possession or use of the said property can not be objected to or interfered with by the owner of the property ie., company in liquidation or the official liquidator who may have stepped into the shoes of the Ex Managing Director for the purposes of managing the company till its dissolution but at the same time no rider cam be placed on the sale of the property on behalf of the company.
In view of the above discussion, I am of the opinion that the applicant having obtained possession of the property in question in part performance of the agreement to sale dated 21.2.2000 is entitle to protect his possession and use of the same and the official liquidator can not interfere with his right to use and occupy the same or even to realize rent which he had been realizing from the very beginning. However, as the title of the property continues to be with the company, the same can not be removed from the net of the official liquidator. The applicant is free to take recourse to whatever suitable remedy is available to him under law as may be advised for the enforcement of the agreement.
Application disposed of as above.
Date: 8.7.2011 SKS