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Delhi High Court

 

Reserve Bank Of India vs J.V.G. Finance Limited on 4 July, 2005

Equivalent citations: 2006 130 CompCas 316 Delhi, 2005 (83) DRJ 264, 2006 68 SCL 371 Delhi

rbi

Author: A Sikri Bench: A Sikri

 
 

105

JUDGMENT A.K. Sikri, J.

 

jvg

 

163

104

504

446

1. M/s JVG Finance Limited (in liquidation) (hereinafter referred to as `the company') was a non- banking financial company. Such companies require license from the Reserve Bank of India (RBI) to continue/carry on their business. The RBI also has necessary powers to conduct investigation into the affairs of these companies to ensure that they are doing the business in accordance with the provisions of the RBI Act and are complying with various directions issued by it from time to time. Since it became a non-banking financial company coming under the regulatory authority of RBI under Chapter IIIB of the RBI Act an inspection of the company was carried out and many irregularities were found. The company submitted an application dated 23rd June, 1997 for issue of a certificate of registration under the provisions of Section 45IA of the RBI Act. On this application the company was inspected during the period from December, 1997 to January, 1998 and again many irregularities were found and, therefore, show cause notice was issued as to why the application for issue of certificate of registration be not rejected. Ultimately, after the show cause notice application for certificate of registration was rejected. In the absence of certificate the company became disqualified to carry on the business of non-banking financial institutions. The RBI, accordingly, filed CP No. 265/1998 under Section 45MC of the RBI Act for its winding up. Vide order dated 5th June, 1998 this court admitted the petition and appointed the Official Liquidator (OL) attached to this court as the Provisional Liquidator with direction to take charge of all the assets and properties of the company along with books of accounts and other records. He was also directed to take immediate custody of all the assets belonging to the company. Pursuant to these directions, the OL sprung into action and has taken charge of various properties. Liquidation proceedings are underway in CP No. 265/1998.

2. This application is filed by the ex-management of the company pointing out that the company is also the owner of immovable properties comprising Flats No. 104, 105, 504 and 505 situated in the building called Panchtantra Apartment, Off Yari Road, Versova, Andheri (W), Mumbai. It is averred that in respect of these flats, certain suits are filed in the High Court of Judicature at Bombay and collusive orders obtained thereby making some strangers as the owners of the properties who had, as per the false averments made in those suits, allegedly purchased the properties from the company. Prayers which are, therefore, made are that proceedings in these suits be stayed and transferred to this court; provisional liquidator be directed to take necessary steps in those legal proceedings and seek restoration of the possession of the aforementioned flats; the provisional liquidator should take immediate steps for sealing the said flats and Mr. V.K. Sharma, ex-managing director be allowed to continue his residence in the flat No. 105 since he has no other accommodation available for residence except the said flat. The particulars of the suits filed in the Bombay High Court are as under:

(i) Suit No. 163/2000 titled Mrs. Bharti Bhagwan Jhadav v. JVG Finance Limited in respect of Flat No. 104.

titled Mrs. Bharti Bhagwan Jhadav v. JVG Finance Limited in respect of Flat No. 104. converted

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(ii) Suit No. 162/2000 titled Shrimati Gitanjali Kumar Krishna Pratap Singh v. JVG Finance

Limited, in respect of Flat No. 105.

(iii)

Suit No. 2/2000 titled Mrs. Sunita P.Agarwal v.JVG Finance Limited in respect of Flat No. 504

and

(iv)

Suit No. 7167/99 titled Miss Swati Verma v. JVG Finance Limited in respect of Flat No. 505.

3. It is alleged that the aforementioned suits are false and collusive in nature. The plaintiffs in the

suits have colluded with one Dr. Sukhvir Singh, who represented himself before the Court as Vice

Chairman of the company. The plaintiffs in collusion with the said Mr. Sukhvir Sigh have entered into compromise and got recorded before the Court the terms of the consent whereby Mr. Sukhvir Singh appeared on behalf of the company and confirmed that the agreements executed in favor of the plaintiffs were valid, operative and binding. The Court on the basis of the aforementioned proceedings, also passed orders for appointment of receiver with directions to take over the possession of flats in question.

4. In all these suits the parties filed their consent terms and on the basis of the said consent terms

decrees dated 21st January, 2000 were passed in suits No. 162/2000 and 163/2000, consent decree dated 4th January, 2000 was passed in suit No. 2/2000 and consent decree dated 31st December, 1999 was passed in suit No. 7167/1999. These decrees were passed when Dr. Sukhvir Singh appeared through counsel in the aforesaid cases; took notice on behalf of the company with the result notice of motion was dispersed with and the parties filed the consent terms. Exactly this very modus was adopted in all the four cases.

5. When this application came up for hearing on 7th July, 2000, an interim order was passed

staying the proceedings in the aforesaid suits and also directing that the decrees, if any, passed in the said suits shall not be executed without the leave of this court. Status-quo with regard to possession was also directed to be maintained.

6. Since Ms. Swati Verma, Smt. Gitanjali Kumar Krishna Pratap Singh, Mrs. Sunita P.Aggarwal and

Ms. Bharti Bhagwan Jadhav claim that they had purchased the aforesaid flats for a valid consideration from the company prior to its going into liquidation and were the bona fide purchasers and as outcome of this application could have affected them adversely, they filed applications for their impleadment which were allowed vide order dated 7th April, 2005. Thereafter, these intervenors filed joint reply dated (sic)th May, 2005 to this application contesting the same. According to these intervenors they had purchased the flats from the company and necessary Agreements were signed by the company through its authorised signatory Dr. Sukhvir Singh, its Vice Chairman. As per these intervenors, the transactions were fructified in the following manner:

Regarding Flat No. 505:

7. Ms. Swati Verma claims that she had purchased this flat from the company vide Article of

Agreement dated 6th June, 1997. This Agreement was signed, on behalf of the company, by its Vice Chairman Dr. Sukhvir Singh who had been authorized to enter into the said Agreement under the Board Resolution dated 3rd January, 1997. She agreed to the terms and conditions of the Agreement to Sell and in terms of her proposal in writing given on 2nd June, 1997 to the company and having deposited the entire consideration of Rs. 30 lacs in cash, the Board of the company in its meeting held on 3rd June, 1997 accepted the said proposal and the said transaction by signing all necessary documents. Physical possession of the flat was also handed over. Thereafter, she filed suit No. 7167/1999 in the High Court of Bombay for specific performance and in that suit consent decree dated 31st December, 1999 was passed when the consent terms duly signed by both the parties were filed in the court.

8. It may be noted that in identical fashion, Agreements to Sell and decrees in consent terms are

passed in other three cases. Therefore, we may just take note of the relevant dates of the purported transactions in those cases.

9. 21-7-1997- Agreement to sell in terms of the proposal given by Smt. Gitanjali Kumar Krishna

Agreement to sell in terms of the proposal given by Smt. Gitanjali Kumar Krishna converted by

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Pratap Singh in respect of this flat along with deposit of Rs. 30 lacs in cash as sale consideration.

12-6-1997- Board accepted the proposal in its meeting as stated in the agreement to sell.

24-7-1997- Agreement to sell executed and possession given.

21-1-2000 Thereafter, she filed suit No. 162/2000 in the High Court of Bombay for specific performance and in that suit consent decree dated 21st January, 2000 was passed when the consent terms duly signed by both the parties were filed in the court.

10. 17-7-1997- Terms of proposal submitted by purported purchaser Mrs. Bharti Bhagwan Jhadav along with Rs. 30 cash in cash.

12-6-1997- Proposal accepted by the Board.

17-7-1997- Agreement to sell executed and possession given.

21-1-2000- Thereafter, she filed suit No. 163/2000 in the High Court of Bombay for specific performance and in that suit consent decree dated 21st January, 2000 was passed when the consent terms duly signed by both the parties were filed in the court.

11. 3-6-1997- Terms of proposal submitted by purported purchaser Mrs. Sunita P.Agarwal along with Rs. 30 cash in cash.

3-6-1997- Proposal accepted by the Board.

11-6-1997 Agreement to sell executed and possession given.

4-1-2000 Thereafter, she filed suit No. 2/2000 in the High Court of Bombay for specific performance and in that suit consent decree dated 4th January, 2000 was passed when the consent terms duly signed by both the parties were filed in the court.

12. According to the intervenors, they had given the consideration of Rs. 30 lacs in respect of the

each flat purchased by the respective intervenors along with the proposals to purchase the said flats. Only after the Board of Directors approved the proposed sale, agreement to sell was entered into between the parties. They are, therefore, owners of the flats for valid consideration which was paid in full and according to these intervenors all these transactions were completed much before filing of the winding up petition and passing of winding up orders as provisional liquidator was appointed only on 5th June, 1998.

13. Mr. Jayant Bhushan, learned senior counsel appearing for Mr. V.K.Sharma, ex-Managing

Director submitted that all these transactions are bogus. His contention is that the documents are fabricated/manipulated and got signed from Dr. Sukhvir Singh, the then Vice Chairman. Allegedly the proposal is submitted to him, he has signed the alleged receipts of having received Rs. 30 lacs in cash in respect of each flat and it is he who has signed the sale agreements in favor of each intervenor which throws doubt about the genuineness of these transactions. It was also pointed out that the circumstances in which the suits were filed and consent decrees obtained strengthen this distrust and also exposes the intervenors as well as Dr. Sukhvir Singh of their dubious move to grab these properties. He submitted that on the very first date, without even notice of motion issued in those suits, Dr. Sukhvir Singh appeared through counsel and accepted notice on behalf of the company and consent terms were filed which led to passing of the decrees by the High Court of Bombay in those cases. He denied that Dr. Sukhvir Singh was ever authorized by the Board of Directors to enter into such transactions on behalf of the company. He also submitted that the very fact that entire consideration is alleged to have been paid in cash in all the four cases would cast shadow of doubt on the genuineness of these transactions, more so when the alleged transactions were also not accounted for or deposited in the company's account. His submission was that since Mr. V.K.Sharma was arrested and remained in prison for a long period, taking advantage of his absence illegal possession of the flats was handed over to the intervenors and back dated documents were manipulated/fabricated. He also pointed out discrepancies in the said documents which, according to him, would clinch the issue and clearly demonstrate that the documents are fabricated. For example, in the case of flat No. 105 allegedly sold to Shrimati Gitanjali Kumar

For example, in the case of flat No. 105 allegedly sold to Shrimati Gitanjali Kumar converted

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Krishna Patap Singh purported proposal is dated 21st July, 1997 along with deposit of Rs. 30 lacs whereas the Board meeting is shown to have taken place much earlier i.e. 12th June, 1997 accepting the said proposal which was not possible at all, as to how the Board could accept on 12th June, 1997 a proposal which was not submitted by that time but was allegedly submitted on 21st July, 1997. He argued that since the documents were forged, such mistakes occurred and while creating the documents the parties unwittingly committed these mistakes.

14. Learned counsel for the intervenors, on the other hand, submitted that Dr. Sukhvir Singh was

duly authorized and he represented so to the intervenors and, therefore, the transactions were entered into by the intervenors believing in said authorization of Dr. Sukhvir Singh. He further submitted that payment in cash was given as Mr. V.K.Sharma needed the same on urgent basis to purchase a property at Aurobindo Marg which was purchased around that time for Rs. 5 crores. He further submitted that the consent decrees have been passed by the court and no steps are taken by anybody to get the same set aside. He further sought to highlight the credentials of Mr. V.K.Sharma stating that he had dubious record inasmuch as there were several criminal cases against him; he had sold various properties after the appointment of the provisional liquidator and cheated number of persons. His intentions had become bad and, therefore, he wanted to wriggle out of the present transactions although these transactions were entered into by the intervenors with the knowledge and blessings of Mr. V.K.Sharma.

15. So far as passing of decrees by the Bombay High Court is concerned, those can be set aside on

legal ground itself. Admittedly, the provisional liquidator was appointed on 5th June, 1998 with the direction to take charge of all the assets and properties of the company along with books of accounts and other records. Thereafter final winding up orders were also passed by this court on 29th August, 2003. As per the provisions of Section 441 of the Act, the winding up of the company is deemed to have commenced with effect from the date of the presentation of the petition. Furthermore, Sub-section (1) of Section 446 mandates that when winding up order has been made or the Official Liquidator has been appointed as the provisional liquidator, no suit or other legal proceedings shall be commenced, or if pending at the time of winding up shall be proceeded with against the company except by the leave of the court. It is because of this reason that Sub-section (2) of Section 446 confers necessary jurisdiction with the Company Court to entertain and dispose of any suit or proceedings by or against the company as well as any claim made by or against the company. The intervenors, therefore, could not have filed any suit after 5th June, 1998 without obtaining the leave of this court. Suit in respect of flat No. 505 by Ms. Swati Verma was filed in December, 1999 and other suits were filed in the year 2000. Consent decrees were also obtained on 31st December, 1999, 4th January, 21st January and 21st January, 2000 respectively. Thus such proceedings could not have been filed or commenced after appointment of the provisional liquidator.

16. Furthermore, on the very first date in all these suits and without notice to the Official Liquidator, Dr. Sukhvir Singh appeared through counsel and consent terms were filed on the basis of which suits were decreed. The Bombay High Court was not informed about the liquidation proceedings or the appointment of the Provisional Liquidator by this court. In fact, it appears, there is no averments made about this order in the suits filed. The company is imp leaded as the defendant and after the appointment of the provisional liquidator, it is only he who could represent the company. It is, thus, clear that not only the proceedings in the suits were impermissible as they were initiated without the leave of the court, even they appear to be collusive as well. Such a decree will neither be binding on the Official Liquidator or the company and would be void. It is not necessary to take steps for recall of those decrees by filing appropriate proceedings in those suits. The Company Court seized with liquidated proceedings has ample power to pass necessary directions in this behalf. This aspect is succinctly explained and elaborated by the Supreme Court in the case of Sudarsan Chits (I) Ltd. v. G. Sukumaran Pillai and Ors. reported as AIR 1984 SC 1579

17. The next question would be about the genuineness of the purported transactions. From the

aforesaid description, it would be clear that the authority in favor of Dr. Sukhvir Singh allegedly flows from some Board Resolution dated 3rd January, 1997. Further, all the Agreements to sell record Board Resolutions purporting to accept the proposals of the intervenors for purchase of respective flats. Therefore, after hearing the arguments, the Official Liquidator was directed to file

Therefore, after hearing the arguments, the Official Liquidator was directed to file converted by Web2PDFConvert.com

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minutes of the Board meetings of the company for period June to August, 1997.

18. On the other hand, payment of entire consideration of Rs. 30 lacs in cash by all the four alleged

purchasers/intervenors also puts question mark on the authenticity of the transactions. Further, if the property was purchased in the years 1997-1998 and it is not an ante-dated transaction manufactured later but an honest deal, the intervenors must have shown purchase of these flats in the income tax returns. Because of this reason the intervenors were also directed to file income tax returns for the accounting year 1997-98 (assessment year 1998-99) indicating whether the purchase of flats in question was shown in their returns or not. They were also directed to file an affidavit stating source of Rs. 30 lacs purportedly paid in cash for the purchase of flats in question. Although two weeks' time was given for this purpose, requisite affidavits have not come on record. In the absence of these documents it cannot be conclusively determined as to whether the transactions in question are genuine or not. It may be noted that this court has already appointed a One Man Committee of Mr. G.P.Thareja, retired Additional District Judge, Delhi who is going into large number of such claims filed by many applicants claiming to have purchased flats/land etc.from the company. The claims of these intervenors can also be looked into by him.

19. This application is accordingly disposed of in the following terms:

(a) Decrees dated 21st January, 2000 passed in suits No. 162/2000 and 163/2000, dated 4th

January, 2000 passed in suit No. 2/2000 and dated 31st December, 1999 passed in suit No. 7167/1999 are hereby set aside.

(b) The intervenors would be entitled to prefer their claims in respect of the flats in question by

filing appropriate applications under Section 446 (2) of the Act and if and when such applications

are filed, the same shall be referred to the Committee for determination of the issued involved.

(c) Since the intervenors have failed to file affidavits in terms of order dated 11th May, 2005, for

time being adverse inference can be drawn against them and particularly when they have not been able to show the source of Rs. 30 lacs purportedly paid by each of them in cash. The Official Liquidator shall, accordingly, take possession of these flats immediately as prima facie transactions do not appear to be genuine. Only if the intervenors are able to establish, by necessary documentary evidence, that they are the genuine purchasers, orders for restoration of possession can be passed at that time.

the genuine purchasers, orders for restoration of possession can be passed at that time. converted by

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