Translate
Text Highlighter

Bookmark

PDF

Share

Report a problem
AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Judges
  • Hon'ble Mr. Justice A.S.Pachhapure
Acts
  • provisions of Section 560(6) of the Companies Act, 1956 (hereinafter called as "the Act" for short).
  • SECTION 560 COMPANIES ACT 1956
  • Section 353(6) of the Companies Act, 1948
Are you a practicing lawyer?
Enhance your digital presence and reach by creating a Casemine profile.
Upload pleading to use the new AI search
Click here to upload
Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Judges
  • Hon'ble Mr. Justice A.S.Pachhapure
Acts
  • provisions of Section 560(6) of the Companies Act, 1956 (hereinafter called as "the Act" for short).
  • SECTION 560 COMPANIES ACT 1956
  • Section 353(6) of the Companies Act, 1948
See more information ...
Smart Summary

Structured Summary of the Opinion: A.S. Pachhapure, J.

Factual and Procedural Background

The Petitioner seeks restoration of the name of Respondent No. 1 company (M/s. Kayesess Constructions P. Ltd.) on the register maintained by Respondent No. 4 (Registrar of Companies).

Respondent No. 1 is a private limited company with objects relating to design, planning and construction (copy of memorandum and articles produced as annexure A). The relevant land (S. No. 172, now S. No. 190) measuring 2 acres 10 guntas was agricultural land within Kethamaranahalli village. The land owner, Sri Muniaravappa, obtained permission for conversion of part of the land by an order dated 4 November 1987.

On 24 March 1990 Muniaravappa and his son executed an irrevocable general power of attorney in favour of K.G. Krishna Murthy (father of Respondent No.2) enabling dealings in the land; a sale deed dated 31 October 1990 transferred the relevant portion to Respondent No.1 (annexure E). Later transfers and formation of residential sites occurred and the Petitioner purchased site No. 4 by sale deed dated 20 February 1995 for Rs. 3,50,000 (stamp duty Rs. 49,040); other sale deeds are at annexures G1–G8.

In a registered family partition dated 24 January 2007 the Petitioner was allotted the site and claims absolute ownership. However, the land had been notified for acquisition by the City Improvement Trust Board (Bangalore Development Authority—BDA) with preliminary notification issued 2 March 1964 and final notification published 18 November 1967; possession by the authority was taken on 16 August 1972.

Suit O.S. No.1305 of 1990 (and O.S. No.6960 of 1991) filed to restrain demolition were dismissed. Suit O.S. No.4373 of 1995 seeking declaration that acquisition proceedings were null and void was also dismissed. The Petitioner alleges he was not informed of the acquisition by Respondent No.1 and that the directors induced him to purchase by concealment and misrepresentation; after demolition by BDA officers on 25 October 2008 the Petitioner claims loss and seeks to recover damages from the company and its directors.

Respondent No.1 ceased business through a scheme registered with the Registrar of Companies and its name was deleted from the register. The present petition seeks restoration of the company's name so the Petitioner can pursue recovery proceedings against the company and its directors.

Legal Issues Presented

  1. Whether the Petitioner has locus standi to seek restoration of the company's name on the register — specifically, whether he qualifies as a "creditor" or member within the meaning of Section 560(6) of the Companies Act, 1956.
  2. Whether the Court (High Court) has jurisdiction to restore the company's name when Section 560(6) of the Companies Act, 1956 uses the word "Tribunal" (post-amendment), or whether such jurisdiction lies exclusively with the Tribunal.
  3. Whether the petition is barred for defective cause title or because the company was not properly represented by its directors in the pleadings.
  4. Whether the High Court lacks jurisdiction to entertain the petition because the company's share capital is allegedly less than Rs. 1 lakh.
  5. Whether restoration of the company's name is appropriate in view of the Petitioner’s asserted right to pursue damages arising from sale of land in which the company allegedly had no title.

Arguments of the Parties

Petitioner's Arguments

  • The Petitioner contends he is one of the persons who obtained a site and, because the company and its predecessors had no title (due to prior acquisition), the sale to him did not convey title and he suffered loss for which he can claim damages.
  • The Petitioner relies on the decision reported at [1968] 2 All ER 1012 (Harvest Lane Motor Bodies Ltd., In re) which interpreted the word "creditor" (in Section 353(6) of the Companies Act, 1948) to include a person who has a claim for loss sustained at the instance of the company; by analogy, he says he falls within "creditor" for Section 560(6) of the Companies Act, 1956.
  • The petitioner asserts the company was represented by its directors as averred in paragraph 3 of the plaint, addressing the objection of defective cause title.

Respondents' Arguments (Respondents Nos. 1 and 2)

  • The petition is not maintainable due to defective cause title and because the company has not been represented by its directors.
  • The Petitioner lacks locus standi because he is neither a member nor a creditor within the meaning of Sub-section (6) of Section 560 of the Companies Act, 1956.
  • The Court has no jurisdiction to entertain relief under Section 560(6) because the word "Tribunal" (introduced by amendment Act No. 11 of 2003) confers jurisdiction on the Tribunal rather than the Court.
  • The Petitioner is not a creditor and therefore is not entitled to relief; alternatively, the share capital of the company is less than Rs. 1 lakh, thus this Court allegedly lacks jurisdiction to try the petition.
  • On these grounds, Respondents sought dismissal of the petition.

Note: Respondent No. 4 did not object to grant of relief subject to certain conditions (the opinion records this fact but does not detail those conditions).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
[1968] 2 All ER 1012 (Harvest Lane Motor Bodies Ltd., In re) Interpreted the word "creditor" (in Section 353(6) of the Companies Act, 1948) to include a person who has a claim for loss sustained at the instance of the company. The Court accepted the ratio as applicable by analogy: the Petitioner’s claim for loss occasioned by the company’s sale of property (in which the company had no title) brings him within the concept of "creditor" for purposes of Section 560(6) of the Companies Act, 1956, and therefore he has locus to seek restoration.

Court's Reasoning and Analysis

The Court proceeded through the contested issues as follows, applying the relevant facts and legal principles set out in the record:

  1. On locus standi and the meaning of "creditor": The Court observed that the Petitioner purchased a site which, because the land had been earlier acquired by the City Improvement Trust Board, meant the company had no title to sell. Consequently, the sale deed did not convey title and the Petitioner suffered loss arising from the sale transaction. Relying on the authority from the Chancery Division ([1968] 2 All ER 1012), which held that a "creditor" includes a person who has a claim for loss sustained at the instance of the company, the Court concluded that the Petitioner falls within the category of "creditor" for the purposes of Section 560(6). Thus the contention that the Petitioner does not come within "creditor" was rejected.
  2. On defective cause title and representation by directors: Although a defective cause title was pleaded by Respondents, the Court noted that paragraph 3 of the plaint expressly states that Respondent No.1 company is represented by its directors (Respondents Nos. 2 and 3). The Court held that this explanation was sufficient to address the point and that the alleged defect in the cause title did not warrant dismissal.
  3. On jurisdiction — "Court" vs "Tribunal": The Court acknowledged that Section 560(6) of the Companies Act, 1956 uses the word "Tribunal" as a result of an amendment (Act No. 11 of 2003). However, the Court noted the amended provision had not been brought into effect by governmental notification. In consequence, the substitution of "Tribunal" has not been operationalised; therefore the Court treated the reference as continuing to permit the Court to exercise jurisdiction under the Act until such time as the amended Act is given effect. Hence the objection that jurisdiction lay exclusively with a Tribunal was rejected on this practical basis.
  4. On share capital and jurisdiction: Respondents had contended the company's share capital was less than Rs. 1 lakh, thereby undermining the Court’s jurisdiction. The Court inspected the memorandum of association (Clause 3(a)) which shows the share capital as Rs. 25,00,000 (2,500 "A" class equity shares of Rs.100 each and 2,250 "B" class equity shares of Rs.1,000 each). On that basis, the Court found the contention incorrect and concluded that it was not necessary for the Petitioner to approach the District Court; the petition before the High Court was proper and valid.
  5. On relief and equities: The Court observed that the company had become defunct in 2004, and since the Petitioner intends to initiate proceedings for recovery of damages arising out of the allegedly void sale, restoring the company's name on the register is just and proper to enable such proceedings. Applying these factual findings and legal conclusions, the Court allowed the petition and ordered restoration of the company's name in the Registrar's register with immediate effect.

Holding and Implications

HOLDING: The petition seeking restoration of the name of Respondent No.1 company in the register of Respondent No.4 is allowed. The name of M/s. Kayesess Constructions P. Ltd. is ordered to be restored in the register of the Registrar of Companies with immediate effect.

Implications and consequences:

  • Direct effect: The company's name will be restored on the Registrar of Companies' register immediately, enabling the Petitioner to initiate proceedings for recovery of damages against the company and, potentially, its directors.
  • On precedent and wider effect: The Court applied an established interpretation (from the cited Chancery decision) to include a claimant for loss within the concept of "creditor" for purposes of restoration under the Companies Act provision at issue. The opinion does not purport to lay down a novel or broader precedent beyond its application of those principles to the facts; it addresses the specific petition before the Court.

Source: Summary is based exclusively on the text of the provided opinion authored by A.S. Pachhapure, J., as supplied to the analyst. No information has been added beyond what appears in that opinion.

Show full summary ...

    Velu B. Pethi v. Kayesess Constructions P. Ltd. And Ors.

    A.S. Pachhapure, J.

    1. The Petitioner has sought for the restoration of the name of Respondent No. 1 company on the register of Respondent No. 4.

    2. The facts relevant for the purpose of this petition are as under:

    Respondent No. 1 company is a private limited company having its registered office at Malleswaram, Bangalore and under the memorandum and articles of association, it is the main object of the company to carry on all or any of the business of designing, planning and/or construction of apartments, bungalows, residential houses, housing colonies, factories, public buildings, multistoreyed buildings, schools, colleges, community halls, shopping complexes or to carry on business as civil, mechanical, electrical, water supply and sanitary contracts, architects, designers, etc. The Petitioner has produced the copy of the memorandum and articles of association at annexure A.

    3. The land bearing S. No. 172 presently numbered as S. No. 190 measuring 2 acres 10 guntas was an agricultural land situated within the village limits of Kethamaranahalli, Yeshwanthapura Hobli, Bangalore North Taluk and it was granted by the Government of Karnataka in favour of one Sri Muniaravappa who made an application before the Deputy Commissioner, Bangalore District for grant of permission for conversion of the land to an extent of 974.24 sq. mts., and the Deputy Commissioner vide his order dated November 4, 1987, granted the permission sought for.

    4. On March 24, 1990, the said Muniaravappa and his son executed a irrevocable general power of attorney in favour of K.G. Krishna Murthy the father of Respondent No. 2 empowering him to deal with the above said lands to an extent of 863.95 sq. mts., and the said power of attorney sold the said land to Respondent No. 1 company under the sale deed dated October 31, 1990 and the copy of the sale deed has been produced by the Petitioner at annexure E.

    5. The said land owner subsequently through his GPA holder, Respondent No. 2 sold an area of 186 ft. x 50 ft. in S. No. 190 of the said village under the registered sale deed dated April 22, 1991. The residential sites were formed in the land acquired by Respondent No. 1 and amongst the 9 sites formed in the said land, the Petitioner purchased the site at S. No. 4 in the petition under the sale deed dated February 20, 1995, for a consideration of Rs. 3,50,000 on payment of the stamp duty of Rs. 49,040. The copies of the sale deeds executed by the company in favour of different persons related to the Petitioner have been produced by the Petitioners at annexure G1 to G8.

    6. In the registered partition dated January 24, 2007, amongst the family members of the Petitioner, the Petitioner was allotted the above said site towards his share in the joint family properties and thereby, the Petitioner claims to be the absolute owner of the site referred to supra.

    7. In the year 1964, the then City Improvement Trust Board, i.e., the Bangalore Development Authority notified the above said land in S. No. 172 for acquisition for the purpose of formation of West of Chord Road, 2nd Stage, 2nd Phase Layout (Near Nandini Talkies) and for a play ground and providing civic amenities. The preliminary notification was issued on March 2, 1964, in the Karnataka Gazette and the final notification dated November 18, 1967, was also published in the Karnataka Gazette. The then City Improvement Trust Board had taken possession of the land acquired on August 16, 1972. Later Respondent No. 1 along with the predecessor in title filed the suit bearing O.S. No. 1305 of 1990 in the City Civil Court seeking a decree of permanent injunction against the Bangalore Development Authority from demolishing the house in the property sold by the owner of the land bearing S. No. 172 through the GPA holder and the said suit came to be dismissed. The copy of the judgment has been produced by the Petitioner at annexure J.O.S. No. 6960 of 1991 was also filed for the same purpose and the said suit also came to be dismissed.

    8. Thereafter, Respondent No. 1 company along with its predecessors-in-title, i.e., Muniaravappa and Sri M. Lingaraju jointly filed the suit bearing O.S. No. 4373 of 1995 against the State of Karnataka and the officers of the Bangalore Development Authority seeking declaration that the acquisition proceedings initiated acquiring the lands bearing S. No. 172 as null and void and not binding upon the Plaintiffs. The said suit also came to be dismissed after hearing the parties.

    9. The Petitioner was unaware of the acquisition proceedings initiated by the Bangalore Development Authority and Respondent No. 1 never brought to the notice of the Petitioner about the said acquisition. In the circumstances, it is claimed by the Petitioner that the directors of Respondent No. 1 company induced the Petitioner to purchase the property by fraud and misrepresentation by concealing the fact of acquisition.

    10. On October 25, 2008, the officers of the Bangalore Development Authority pulled out the fence erected and demolished the construction and in these circumstances, the Petitioner claims that he is entitled to recover the loan due to him by fraudulent act of the company and its directors.

    11. Respondent No. 1 company closed the business by use of the scheme registered by the Register of Companies and Respondents Nos. 2 and 3 actively participated in the affairs of Respondent No. 1 and being the directors of the company, the Petitioner claims that they are also liable to make good the loss sustained by the Petitioner. In view of the closure of the company, the name of Respondent No. 1 was deleted from the register of Respondent No. 4 and it is in these circumstances, the Petitioner claims that as he intends to take action against the Respondents for recovery of the loss, has filed the present petition seeking the restoration of the name of the company in the register.

    12. Respondents Nos. 1 and 2 have filed their objection statement denying the allegations made and they contend that the petition is not maintainable as there is defective cause title and that the company has not been represented by the directors and further, that this Court has no jurisdiction to entertain the present petition for restoration of the name. So also, it is the contention that the Petitioner is not a creditor and therefore, he does not come within the purview of the provisions of Section 560(6) of the Companies Act, 1956 (hereinafter called as "the Act" for short). So also, it is the contention that the share capital of the company is less than Rs. 1 lakh and therefore, this Court has no jurisdiction to entertain and try the petition. On these grounds, he has sought for the dismissal of the petition.

    13. Respondent No. 4 has not objected to the grant of the relief subject to certain conditions.

    14. In the circumstances, I have heard learned Counsel for the Petitioner and also counsel for Respondents Nos. 1, 2 and 4.

    15. Learned Counsel for Respondents Nos. 1 and 2 contended that the Petitioner has no locus standi to file this petition on the ground that he is neither a member nor creditor as provided in Sub-section (6) of Section 560 of the Companies Act, 1956, nor this Court has jurisdiction to entertain the petition as it is the Tribunal which has got the jurisdiction to pass such orders and furthermore, that there is defective cause title and the company is not represented by the directors.

    16. It is not in dispute that the Petitioner is one of the persons to whom the site was allotted and ultimately, the nine sites allotted by the company were in the possession of the Petitioner and when the land on which the sites have been formed have been acquired by the City Improvement Trust Board long back, the company had no title to sell the said sites either to the Petitioner or any other person. In the circumstances, the sale deed executed by the company in favour of the Petitioner and others have not conveyed any title and thereby, the Petitioner is entitled to claim the loss occasioned due to the sale transaction. On this aspect of the matter, learned Counsel for the Petitioner has placed reliance on the decision of the Chancery Division reported in [1968] 2 All ER 1012 (Harvest Lane Motor Bodies Ltd., In re) wherein, the word "creditor" used in Section 353(6) of the Companies Act, 1948 was taken into consideration and it was held that it includes a person who has a claim for the loss sustained at the instance of the company. In the circumstances, the contention that the Petitioner does not fall within the category of the "creditor" cannot be accepted.

    17. So far as the defective cause title is concerned, though in the cause title it is so mentioned, the fact that the company was represented by the directors has been explained in paragraph 3 of the plaint wherein it is stated that Respondent No. 1 company is represented by its directors Respondents Nos. 2 and 3. Hence, even the contention, that there is defective cause title is not sufficient to discard the claim made by the Petitioner.

    18. Though the word "Tribunal" has been used under Section 560(6) of the Act, it is relevant to note that the substitution is made by an amendment to the provisions of the Act (amended by Act No. 11 of 2003), but no notification has been yet issued by the Government giving effect to the amended provisions. Thereby, though in the provisions of Section 560(6) of the Act, the word "Tribunal" is used, it is to be considered as the court which is under the Act till the amended Act is given effect to.

    19. Though it is contended that the share capital of the first Respondent-company is less than Rs. 1 lakh, as could be seen from the memorandum of association of Respondent No. 1 company, in Clause 3(a) it is clearly mentioned that the share capital of the company is Rs. 25,00,000 divided into 2,500 "A" class equity shares of Rs. 100 each and Rs. 2,250 "B" class equity shares of Rs. 1,000 each. In the circumstances, it was not necessary for the Petitioner to approach the District Court and the petition filed before this Court is legal and valid.

    20. As the company became defunct in the year 2004, the Petitioner has acquired a right to recover the damages in view of the transaction of sale in respect of the property of which the first Respondent had no title. In the circumstances, as the Petitioner intends to initiate the proceedings against the company for the recovery of damages, it is just and proper to restore the name of Respondent No. 1 company in the register maintained by the Registrar of Companies. Hence, the petition is allowed. The name of Respondent No. 1 company M/s. Kayesess Constructions P. Ltd., is ordered to be restored in the register of Respondent No. 4, i.e., the Registrar of Companies with immediate effect.

    Use AI to get other relevant cases.
    Try AI Pro free for 7 days Upgrade to AI Pro

    Comments

    Velu B. Pethi v. Kayesess Constructions P. Ltd. And Ors.
    (Feb 17, 2011)