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Ajai Johri and Others Vs. Shingal Land and Finance P. Ltd. - Court Judgment

LegalCrystal Citation
Subject Company
CourtDelhi High Court
Decided On
Case NumberC.P. No. 27 of 1982
Reported in[1985]58CompCas350(Delhi); 1984(6)DRJ1; 1983RLR746
ActsCompanies Act, 1956 - Sections 209A(5), 433, 433(1), 434, 439, 445, 466(3) and 477; Transfer of Property Act - Sections 54
AppellantAjai Johri and Others
RespondentShingal Land and Finance P. Ltd.
Advocates: Satish Chander and; G.A. Shah, Advs
Cases Referred and Jiwan Dass Rawal v. Narain Dass
.....lands mutated in their favor. the court found from record that the company had not acquired any title on the land nor could it produce any sale deed. while the company collected over rupees ten lacs from purchasers, the value of stock in trade, development charges and advances to members were only rs. 4,936, rs. 16,050 and rs. 58,670 respectively. according to the registrar it has been showing losses continuously.; the company has enacted large scale public deception, it has no right to exist and it must be would up. - section 13: [altamas kabir & cyriac joseph,jj] custody of child - welfare of child vis--vis comity of courts - the minor girl child of 3 1/2 years was brought to india by her mother. the minor girl was a citizen of u.k. being born in u.k. her parents had set up their..........park' in village pavi, sadiquepur pargana loni, tehsil and district ghaziabad. wide publicity for sale of plots in this colony was given, and as a result about 500 plots were sold to different persons. 2. the five petitioners who have moved the present petition under s. 433/439 of the companies act, 1956, were similarly sold six plots as detailed in para. 6 of the petition. the price charged from each of petitioners nos. 1, 2 and 4 was rs. 3,000, and from petitioners nos. 3 and 5, rs. 4,000 each. another plot was sold to petitioner no. 6 for rs. 6,000. five of these sales were in 1968, and the sixth in favor of petitioner no. 3 in 1970. these plots were described in the sale deeds as forming part of khasra no. 476 of that village. it was further represented in the sale deed as under :.....

D.R. Khanna, J.

1. Singhal Land and Finance P. Ltd. was incorporated in 1962 with authorised capital of rupees two lakhs. Its paid-up capital has been Rs. 1,10,500. It has been claiming to effect purchase of land at different places, develop them into plots and sell them. One such colony said to have been developed 'Vijay Park' in village Pavi, Sadiquepur Pargana Loni, Tehsil and District Ghaziabad. Wide publicity for sale of plots in this colony was given, and as a result about 500 plots were sold to different persons.

2. The five petitioners who have moved the present petition under s. 433/439 of the Companies Act, 1956, were similarly sold six plots as detailed in para. 6 of the petition. The price charged from each of petitioners Nos. 1, 2 and 4 was Rs. 3,000, and from petitioners Nos. 3 and 5, Rs. 4,000 each. Another plot was sold to petitioner No. 6 for Rs. 6,000. Five of these sales were in 1968, and the sixth in favor of petitioner No. 3 in 1970. These plots were described in the sale deeds as forming part of khasra No. 476 of that village. It was further represented in the sale deed as under :

'That the vendor assures the vendee that they are the absolute owners of the land and the plot is free from all encumbrances whatsoever. The vendor further assures the vendee that in the event of any flaw in the title of the vendor, the property sold shall pass out from the ownership or possession of the vendee, the vendor shall be held responsible to compensate the vendee in all respects.

That the vendor has put the vendee into actual physical possession of the plot of land.

That the vendee shall take all steps to get his name mutated in the revenue records and do the necessary expenses himself to which the vendor shall have no objection.'

3. The case of the petitioners is that the respondent company had been assuring transfer of land in their favor by the process of mutation in the revenue records and taking up the matter with the revenue authorities. However, as time passed, it gradually became clear to the petitioners that they had been cheated and defrauded, and the respondent was avoiding on one pretext of the other to get the land mutated in their favor. All that was shown to the petitioners was a sign-board fixed at a place in Ghaziabad with the name 'Vijay Park', and this was how the sale of the plots was effected in their favor. No development of plots actually existed. The enquiries later revealed that the company had itself no title over the land, and, as such, entirely misrepresented that it was the absolute owner of the land. It was further revealed that the land had come under consolidation and is irrigated, and as such there was no possibility of building any house there. The petitioners demanded proof of ownership of the land from the respondent-company, and also the plan of the developed khasra No. 476. None of them was supplied by the company.

4. It has also been averred that petitioner No. 1 was posted outside India in Zambia from October, 1970, to April, 1976, and, thereafter at Calcutta. He later tried in 1978 to get mutation effected in his favor, but without result.

5. Alleging next that the respondent company was served with statutory notices in December, 1981, and January, 1982, requiring it to refund the amount which it had received from the petitioners along with interest at the rate of 20% per annum, the present petition for winding up was brought. The total amount thus due to the petitioners is stated to be Rs. 97,225.

6. The petitioners have also alleged that on inspection of the records of the company maintained by the Registrar of Companies, it has been found that the company is not functioning at all, and its balance-sheet of 1978 showed that it had fixed assets of Rs. 71,810, of which Rs. 70,900 constituted the value of goodwill. Huge amounts collected from the purchasers of the plots do not find reflected in the balance-sheets and the profit and loss accounts, and it is not known what had happened to them. Instead continued losses have been shown every year, with the result that the company is unable to pay its creditors and has become commercially insolvent having no substratum left.

7. The respondent company has raised a number of preliminary objections to the maintainability of the winding-up petition. Firstly, it is urged that the claim is based upon damages for breach of warranty of title, and the same cannot be treated as 'debt' within the meaning of s. 433(1)(e) or s. 434 of the Companies Act. In any case, it is pointed out that the claim for damages is manifestly barred by limitation as the sale deeds were executed in 1968 or 1970, while the present petition has been brought in 1982. No specific particulars besides, it is urged, have been given in the petition with regard to misrepresentation, fraud, etc. In any case, they are denied, and it is asserted that the petitioners fully knew the existence of the colony, and purchased land with knowledge of its existence, location and other details. As such, the rule of 'buyers beware' was applicable. The present petition is stated to be in reality an exercise for putting pressure upon the company to pay disputed claims and scandalise it by abuse of the process of the court.

8. On merits, it is stated that the company had purchased land measuring 105 bighas in the area, out of which about 60 bighas were mutated in its favor, and the rest could not be done because of the ceiling on land under the U.P. Land Reforms Act. It was as such that khasra No. 476 could not be formally sold and mutated in company's favor by the previous owners. However, they had executed an agreement to sell in favor of the company authorising it to develop the land and effect sale of plots. 60 to 70% of the value of the land was paid by the company to the different owners of the land, but the sales in its favor did not materialise because of consolidation and the ceiling on land.

9. It has been claimed that the company sold the plots to the petitioners under the bona fide valid impression that the land in question would be purchased by it from the land owners whenever the opportunity for doing the same on the basis of the pending agreements to sell was available in view of the provisions of the U.P. Land Reforms Act and for consideration. Allegations for cheating, fraud or misrepresentation have been controverter and it is appointed out that physical possession of the plots was handed over to the petitioners and it was left over to them to get the mutations completed. Transactions were said to have been done through common agent and acquaintance, and thus the company did not come in direct contact with the petitioners/plot holders.

10. Development of the Vijay Park colony, it has been pleaded, did not require any authorisation from the prescribed authority under the Uttar Pradesh (Regulation of Building Operations) Act, 1958, as the land fell outside the 'regulated area'. The demarcation of the plot was undertaken three times, and this led to several prosecutions against the company. They, however, resulted in acquittals. The plot-holders, it is alleged, showed very little interest after obtaining sale deeds, and did not get mutations effected in their favor, nor constructed any buildings. They seemed to have apparently bought the plots for the purpose of speculation only and, thereforee, were not interested in investing any further money by way of contribution towards the levelling, development of roads, drains, etc. It has also been stated that the work of consolidation started in the village in 1969-70, and continued till 1972-73. Thereafter, there was no impediment in the mutations. As such, it is asserted that if the petitioners have now lost the plots, it was because of their own negligence and lack of interest for many long years. The respondent has denied that any letter was received from the petitioners demanding proof of their title or the plans.

11. Along with this winding-up petition, the petitioners applied for appointment of provisional liquidator in order to take possession of the records and assets of the company. This was allowed by Wad J. on March 31, 1982, after taking note that prima facie circumstances existed for winding-up of the company as large scale public deception appeared to have been enacted, and over rupees ten lakhs collected from various purchasers of plots without giving them the plots. The company, it was noted, itself did not own the said land or any colony, and as such had no substratum. All through, the attempt of the company appeared to have been to keep on promising and dodging the purchasers. It was also taken note that the company had not specifically refuted that in fact there was no colony which was being developed. This fact was rather admitted then by the company's counsel.

12. The company later moved a petition under r. 9 of the Companies (Court) Rules, 1959 and s. 151, CPC, and sought that the appointment of the provisional liquidator be vacated. This, however, was dismissed by Wad J. on May 26, 1982, by an elaborate and well-reasoned order. It was observed that it appeared that there was a layout plan on paper, but none on the actual land. The company admitted that it had never been the owner of khasra No. 476, and it had only an agreement to sell with the original owners. Reference was made to the circulars which the company had been off and on sending to the plot holders, and it was noted that throughout the company was avoiding to tell the location and the fate of the plots. In fact the narration in the sale deeds about delivery of posses was prima facie found to be incorrect. As regards the plea of limitation, it was observed that petitioner No. 1 was prevented from pursuing the matter because of his absence from India, and thereafter he showed due diligence and took all steps that were necessary to protect his rights. He was, thereforee, held entitled to the discretionary relief under s. 17 of the Limitation Act. The plot-holders were besides lulled into inaction by promises and bright prospects extended by the company.

13. Another attempt was made by the respondent-company to get its registered office released from the provisional liquidator. This too was disallowed by Anand J. by an order dated January 19, 1983. In para. No. 4, the learned judge took note that it was not disputed that none of the buyers of this area had possession of the plots and there had been no development of the colony and the right to build on the area was in serious legal jeopardy.

14. A petition under s. 477 of the Companies Act as well stands moved on record of summoning the three directors of the respondent company and ascertaining what they have done to about rupees twenty lakhs collected by them from 1965 to 1970, and to further amounts which were collected when a new scheme of farm housing colonies was conceived during 1979 and 1981. These directors were said to be indulging in spending sprees on foreign tours and diverting the company's money so collected for their own benefits. Chawla J., then directed on this application that R. S. Singhal, the managing director of the company, should be examined in this regard. It was observed that this was eminently a case in which the directors ought to be examined for the purpose of obtaining information as to what has become of the assets of the company. In another order dated May 10, 1983, Chawla J. further took note of the two company judges having already prima facie found that the company perpetrated fraud. He was also of the same prima facie impression.

15. Before proceeding further, it may also be mentioned that the Registrar of Companies who was given notice of the winding-up petition, has submitted a report in which he has also mentioned that various complaints have been received from the persons to whom plots have been sold for amounts for their sale obtained. The directors were, thereforee, summoned under s. 209A(5), but they have not complied. It has also been reported that the balance-sheet filed from the very beginning showed that the company has not made any substantial profit, and was always running in losses.

16. Reference may as well be made here to C.A. No. 136 of 1983, which the plot holders association of the Vijay Park has moved under s. 466(3) of the Companies Act, seeking the transfer of the suit which is pending in Ghaziabad, to this Court. A copy of the plaint of that suit has been attached which shows that the respondent company has started effecting resale of the plots of the so-called Vijay Park colony to some other persons who are now threatening to take possession of the land. Injunction has, thereforee, been sought against them.

17. During the course of the present winding-up petition, the parties have not led any oral evidence. From the side of the petitioners it was stated that the matter be set down for hearing on the basis of affidavits already filed. The respondent's counsel also stated that in view of the statement of the petitioners' counsel, he did not want to lead any evidence.

18. I have in these circumstances heard the parties' counsel and considered the entirety of circumstances and material on record. The narration above of the various interlocutory orders made by different company judges during the course of this petition has not been without purpose. Those orders were made on substantially the same material on which I am at this stage required to give a finding whether the company is liable to be wound up. Counsel for both the parties have not chosen to lead any further evidence apart from the affidavits which already existed, and were filed with the petitions and the replies thereto. The company filed an appeal against the orders of Wad J., but that was rejected. Normally, when an order is made seeking interim relief, a prima facie view of the affairs has to be formed, and that should not conclude the decision of the case at the final stage when both sides have led their entire evidence. The prima facie view cannot be treated as categorical expression of opinion on merits of the controversies which the parties later establish. However, the complexion in the present case is somewhat different inasmuch as it is the same material on which three learned judges have earlier formed opinions that large scale public deception appeared to have been enacted.

19. The undisputed fact which has emerged from the record is that although the company had not acquired any title over Khasra No. 476 as no sale deed was obtained by it in its favor, it had unequivocally represented in the sale deeds to the petitioners that it was the absolute owner of the land and the plot was free from all encumbrances whatsoever. This was clearly a wrong representation and a fraud perpetrated. The agreement to sell, which the company claimed it had in its favor, did not confer any title over the land with the respondent. Unlike the law in England where an agreement of sale creates an equitable estate in the purchaser, the law in India does not recognise any such estate. Section 54 of the Transfer of Property Act in specific terms provides that a contract for the does not, of itself, create any interest in or charge on such property. Such contract is merely a document creating a right to obtain another document in the form of a sale deed to be registered in accordance with law. In other words, a contract for sale is a right created in personam and not in estate. No privity in estate can be deduced there from which can bind the estate, as is the position in cases of mortgage, charge or lease. Of course, such personal right created against the vendor to obtain specific performance can ultimately bind any subsequent transferee who obtains transfer of the property with notice of the agreement of sale. (See Ram Baran Prasad v. Ram Mohit Hazra, : [1967]1SCR293 and Jiwan Dass Rawal v. Narain Dass AIR 1981 Delhi 291). The shelter now sought to be taken by the respondent on the rule of 'buyers beware' is further of no avail as when title itself did not exist, the company could not represent that it was the absolute owner.

20. The company has next admitted that till this day it has not been able to obtain sale of khasra No. 476 in its favor, and thus it is not even in a position to plead that whatever infirmity in its rights over the plots existed, the same has been subsequently made up, and thus it is now in a position to assure the petitioners that the title purported to be passed to them has now in any case become absolute and perfect. Thus the next result has been that no title has passed on to the petitioners over the plots as the company itself had no title. There was next no question of the petitioners obtaining mutation of the land in their favor on the basis of sale deeds, as mutation in favor of the respondent itself did not exist in revenue records, and, thereforee, the petitioners getting themselves substituted at its place could not arise. The sale deeds thus played another deception when it placed the duty for obtaining mutation on the vendees, as they could not have obtained the same till the company's name itself had earlier stood mutated. Still another deception played was the narration that the company had placed the vendees in actual physical possession while no such possession was given as the plots did not exist at the spot in the absence of development. It is correct that the petitioners should have objected to the narration in the sale deeds of the passing over of the possession. However, when large scale public deceptions by land racketeers are committed, the unwary buyers do fall in a trap to such like luring mis-statements.

21. There being thus total failure of title of the company, the petitioners are entitled to seek the return of the money paid along with interest. This was also specifically agreed to in the sale deeds. The amounts thus due have to be treated as debts due to the petitioners. I am in this regard, satisfied that they did demand the refund of the money, and before that it required the company to prove its title and show the development plan but the company failed to company. The winding-up petition is thus clearly maintainable.

22. The respondent company has been taking vague stand and playing hide and seek with the plot-holders. It has in its reply even taken the stand that deals were effected through agents and acquaintances, and the directors of the company did not directly come into the picture. This, it seems, is an attempt to save them from the consequences of deceptions seems, enacted. Who those agents and acquaintances were and how the company had authorised them, have not been clarified. I am, thereforee, inclined to accept the petitioners' case that annexure P-9 dated August 1, 1980, was delivered to a representative of the company at its office. In this, the documents of the ownership and the plans showing the development of plots had been sought.

23. Another significant fact to be noted is that although the respondent company claims to have obtained an agreement to sell in its favor from the previous owners on March 20, 1968, it had effected sales in favor of three of the petitioners on February 1, 1968. There was thus not even a semblance of interest in the company's favor. No affidavit of the so-called previous owners who had executed the agreement to sell has besides been filed, nor is it shown that they held the title.

24. While it has not been challenged that amounts totalling over rupees ten lakhs have been collected from the persons to whom plots were sold, these amounts are not reflected in the profit and loss accounts and balance-sheets. The value of stock-in-trade is shown as Rs. 4,936 and the development charges as Rs. 16,050 only. Advances to land owners are disclosed as Rs. 58,670. According to the Registrar of Companies, the respondent company has been showing losses continuously. Such company, especially when it has enacted large scale public deception, and seems to be bent upon doing so in future as well, has no right to exist and must be wound up.

25. Now, I advert to the plea of limitation. It is correct that a time-barred claim cannot be made the basis for seeking winding-up. However, the entire conspectus of events in the present case shows that the respondent company had lured and constantly kept the persons to whom the plots were purported to be sold under deception. Vague promises and bright future prospects were off and on extended, and even an attempt to create extra confidence in them was made by representing that the prices of the plots had substantially increased there and that the plots could be resold. Those circulars and letters addressed by the respondent are couched in an extremely clever manner by representing on the one hand that the company was doing everything and, on the other hand, the buyers were to blame as they were not taking steps towards mutation, ignoring that there could be no mutation in its favor. Petitioner No. 1 has brought out the circumstances of how he was away from India and posted outside Delhi. His claim is thus clearly within time, and once on its basis the company is directed to be wound up, all the creditors take the benefit of the same. Even otherwise, I am of the opinion that other petitioners' claims can as well be treated in time as the course of events shows that they became aware and realised the deception of which they had been the victim shortly before the filing of the petition.

26. I, thereforee, while allowing this petition, order the winding-up of the respondent company. The provisional liquidator will hence act as official liquidator and take over the affairs and assets and properties of the company. Citation of the winding-up order be published in the Delhi Gazette and the newspapers mentioned in the order dated March 31, 1982. A copy of this order be filed with the Registrar of Companies as required by s. 445. The official liquidator will not proceed with the winding-up.

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