Ch. Mohd Sharief Tariq, Member (Judicial):— Under consideration is an MA 68/2018 filed in CA/17/2018 by the Resolution Professional viz., Mr. V. Nagarajan seeking leave to amend CA/17/2018 filed in CP/511/2017. The Resolution Professional wants to insert “Para 4A” as part of facts set out in “Para 4” of the CA. The proposed “Para 4A” given in MA filed in CA/17/2018 in CP/511/2017 is as under:—
i. The Applicants state that the transaction of sale of property is any way null and void for reason of noncompliance of the provisions of the Companies Act, 2013 which require shareholder approval for sale of assets of the Company over 20% of the net worth.
ii. The Applicant states that the audited financial statements of the CD for 31/03/2015 were ready and available from for 31/08/2015 itself and reveals that the CD had a net worth of only Rs. 286 crore as on 31/03/2015.
iii. The Applicant state that the cost of the sold property to the Respondent was over Rs. 68 Crores and its market value as per CD's valuation was Rs. 82 Crores.
iv. The Applicant state that the object of Section 180 of the companies Act, 2013 being that material transaction ought to be approved by shareholders/members rather than merely by the board the value of the asset based on cost or market value whichever higher is bound to be taken for determine the value of undertaking for deciding whether Section 180 of the companies Act, 2013 is attracted to the transaction or not as otherwise merely by under valuing a property it can be sold without seeking members approval for sale under Section 180 of the companies Act, 2013.
v. The Applicant state that in the instant case the cost of the property was itself over Rs. 68 crores and market value was Rs. 82 Crores and as such the provisions of Section 180 of the companies Act, 2013 were attracted an the sale having been undertaken without approval of members of the CD the sale is to be declare void even for this reason.
vi. The Application state that there can be no case that the undervalued price of Rs. 45 Crores ought to be the bar for determining the applicability of Section 180 of the companies Act, 2013 as if such a view is countenanced than every Company can evade the requirement of the provision merely by undervaluing the properties.
vii. The applicant state that to make the provisions of Section 180 of the companies Act, 2013 not otiose the value of undertaking has to be taken at cost or market price whichever is higher and instant case even when valued at cost of Rs. 68 crores the property disposal attracts requirement of members approval as net worth as at 31/03/2015 was only Rs. 286 crores.
viii. The Applicant states that even apart from the avoidances of the transaction under Section 43 and 45 of the Code, the sale is nullity for want of approval of members of the CD and such approval being mandatory in this regard.
2. The genesis of the issue under reference is that the properties described in Annexures ‘A’ and ‘B’, to CA 17/2018 being land and building of the Corporate Debtor were valued at Rs. 90 Crore in June 2015 and within 3 months thereafter the Respondent viz., ICICI Bank Limited acquired the property by way of absolute sale deeds executed by the Corporate Debtor for a price of Rs. 45 Crores and bulk of the proceeds thereof was adjusted to settle the dues of the related party viz., Cethar Constructions Ltd., which is subsidiary company of the Corporate Debtor and therefore, it is a related party as per the definition given in Sec. 5(24)(i) of the I&B Code, 2016.
3. It is alleged by the Resolution Professional that the property of the Corporate Debtor was sold at significantly less than the value of the property and the sale was made in substantial part only to repay the loans of the related party viz. Cethar Constructions Ltd., and the sale of the property was a related party transaction as the sale proceeds of property of Corporate Debtor was directly adjusted for dues of a related party of Corporate Debtor.
4. It is further alleged by the Resolution Professional that the transaction in respect of the properties occurred in the month of September 2015, within 2 year of CIRP commencement date i.e., 16.06.2017. Further, on a notice to the Respondent seeking explanation as to how the property was acquired by it for a significantly lower price of Rs. 45 Crores when the valuation of the property was Rs. 90 Crores, it was replied by the Respondent that the transaction was done as per the valuation given by an independent values. Thus, the Resolution Professional has challenged the sale of the property of the Corporate Debtor under Section 43 & 45 of the IBC Code, which deals with preferential transaction and avoidance of undervalue transaction respectively. Now, the RP wants to add that the sale is also in contravention of Section 180 of the companies Act 2013.
5. The Resolution Professional has submitted that on 31/03/2015, the Corporate Debtor only had a net worth of Rs. 286 Crores and that the sale of CD's property valued at Rs. 82 Crores could not have been sold without shareholder's approval as per Section 180 of the companies Act, 2013 (more than 20% of the net worth of the company which come to Rs. 57.20 crores) and dehors such shareholders.
6. The Resolution Professional has further submitted that the amendment doesn't introduce a new cause of action but only introduce an additional legal ground for relief. Therefore, he prayed to insert Para 4A at the end of Para 4 in CA 17/2018.
7. The Counsel for the Respondent submitted that the MA seeking amendment in CA 17/2018 is not maintainable at this stage. The issue regarding application of Section 180 of the companies Act, 2013 for the sale transaction mentioned in the company application was not taken when the company application was originally filed.
8. The counsel for the Respondent further submitted that it is incorrect to state that the sale of property is null and void for the reason of non-compliance of the provisions of the Companies Act, 2013. The main application has been filed only under Section 43 & 45 of the IBC Code, 2016 which only deals with undervalue of the sale transaction and Section 180 of the companies Act has no relevance to the said provisions.
9. It is contended by the counsel for the Respondent that the audited financial statements of the CD for 31.03.2015 were ready and available from 31.08.2015 itself. The audited financials of 2014–2015 were approved by the Board of Directors in their meeting dated 31.08.2015 and adopted in the Annual General Meeting held on 28.09.2015, after the sale of property contemplated in this application. This is evident from Form No. MGT-7 filed by CD on December 3, 2015. Hence, audited financials of FY 2014–2015 could not be relied upon by the Respondent.
10. It is submitted by the counsel for the Respondent that as per Section 180 of the companies Act, 2013, the term “undertaking” has been defined and it also says that substantially the whole of undertaking in any financial year shall mean twenty percent or more of the value of the undertaking as per the audited balance sheet of the preceding financial year.
11. The counsel for the Respondent contends that the sale deed was dated 25.09.2015 while the audited financials of FY 2014–2015 was approved by the shareholders in the AGM held on 28.09.2015. Therefore, the Respondent could rely only on the audited financials of FY 2013–2014. The net worth of the Corporate Debtor as per the audited financials for FY 2013–2014 was Rs. 435.78 crores and 20% of such net worth comes to Rs. 87.15 crores, since the asset sale was only for Rs. 45 crores, it is less than 20% of the net worth. Therefore, shareholders resolution for completing the said sale transaction was not required. In support of its submission, the Respondent relied upon the certificate dated 24.08.2015 issued by the company secretary.
12. Counsel for the Respondent further submitted that without verifying the records, RP has come forward with this amendment application. There is no violation of provision of Section 180 of the companies Act. RP is trying to mix the two issues namely undervaluation and the compliance of the said provision. Having alleged the undervaluation, RP has miserably failed to prove that the sale transaction was undervalued. The Respondent had purchased the property only at the market price much more than Government Value. Therefore, the sale transaction is legally valid and further members approval is not mandatory in view of the said exemption.
13. On hearing both the sides it appears that the RP wants to take a legal ground i.e., on 31.03.2015, the Corporate Debtor only had a net worth of Rs. 286 Crores and that the sale of CD's property valued at Rs. 82 Crores could not have been sold without shareholder's approval as per Section 180 of the companies Act, 2013 (more than 20% of the net worth of the company which come to Rs. 57.20 crores) and dehors such shareholders. The RP further submitted that the amendment doesn't introduce a new cause of action but only introduce an additional legal ground for relief. Therefore, he prayed to amend CA 17/2018 to insert Para 4A at the end of Para 4 of the CA.
14. The only objection taken by the Respondent is that the main application has been filed only under Section 43 & 45 of the IBC Code, which only deals with undervalue of the sale transaction and Section 180 of the companies Act has no relevance to the said provisions. It has further been contended by the Respondent that there is no violation of provision of Section 180 of the companies Act, as it had purchased the property only at the market price much more than Government Value, as the sale deed was dated 25/9/2015 while the audited financials of FY 2014–2015 was approved by the shareholders in the AGM held on 28/9/2015 and the Respondent could rely only on the audited financials of FY 2013–2014. The net worth of the Corporate Debtor as per the audited financials for FY 2013–2014 was Rs. 435.78 crores and 20% of such net worth comes to Rs. 87.15 crores, since the asset sale was only for Rs. 45 crores, it is less than 20% of the net worth. Based on these grounds the Respondent submitted that the sale transaction is legally valid and further members' approval was not mandatory.
15. It is well settled proposition of law that the amendment of pleadings should ordinarily be allowed by the Court, once it is satisfied that the amendment is necessary for the just and proper decision of the controversy between the parties. In the case of Peethani Suryanarayana v. Repaka Venkata Ramana Kishore, (2009) 11 SCC 308 it was held that the Courts hold the power to allow such amendment provided (a) application is bona fide (b) does not cause injustice to the other side (c) does not affect the right(s) already accrued to the other side. In Sampat Kumar v. Ayyakannu, (2002) 7 SCC 559, the Supreme Court held that any amendment seeking to introduce a cause of action, which arose during pendency of the Suit, may be permitted in order to avoid multiplicity of Suit. But, it should not change the basic structure of the Suit. More so, the court should be liberal to allow amendment at the time of pre-trial of a Suit but must be strict and examine the issue of delay where the application for amendment is filed at a much belated stage of commencement of the trial.
16. In the case on hand the RP is merely adding a legal ground that the sale of the immovable property of the corporate debtor is an “undertaking” which satisfies the conditions as provided under the ‘Explanation’ to Section 180(1)(a) of the companies Act 2013 and the same could have not been sold without the necessary approval of the shareholders as mandated by the provisions of Section 180 of the companies Act 2013. Therefore, the proposed amendment, if allowed, is not going to cause any prejudice to the Respondent and the same will not change the basic structure of the CA sought to be amended. The proposed amendment is necessary for the just and proper decision of the controversy between the parties. Therefore, in view of the facts and circumstances of the case, and the principles laid down by the Hon'ble Apex Court in the above noted cases, the objections of the Respondent stand rejected. The MA 68/2018 is allowed with the direction to the RP to file the amended CA with in a weeks' time by circulating the copy to the other side. Thereafter, in subsequent week the Respondent will file the reply. Put up on 03.09.2018 at 10:30 AM.