IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE KURIAN JOSEPH & THE HONOURABLE MR. JUSTICE S.S.SATHEESACHANDRAN THURSDAY, THE 26TH FEBRUARY 2009 / 7TH PHALGUNA 1930 FAO.No. 315 of 2008() --------------------- (ORDER IN E.A.347/08 IN E.P.615/2000 IN O.S.NO.440 OF 1998) APPELLANT IN FAO/APPLICANT IN E.A. ------------------------------------------------------- N.G.GEORGE, S/O.LATE N.G.GEORGE, AGED 40, NO.7, KHADER NAVAS KHAN ROAD, CHENNAI-6. BY ADV. SRI.S.V.BALAKRISHNA IYER, SENIOR ADVOCATE SRI.K.JAYAKUMAR SRI.SHAJI P.CHALY SRI.P.B.KRISHNAN RESPONDENTS: RESPONDENTS -------------------------- 1. SHIRLEY VARKEY, W/O.SUNNY VARKEY, VARKEY GROUP OF COMPANIES, P.O.BOX NO.8607, DUBAI, UAE, REPRESENTED BY HER POWER-OF-ATTORNEY HOLDER ABY GEORGE, S/O.P.A.GEORGE, BUSINESS,EXECUTIVE, RESIDING AT 796,9TH MAIN, IIIRD BLOCK, KOLAMANGALA, BANGALORE-560 034. 2. NEXES INVETMENTS & PROPERTIES PVT.LTD, NO.5/6 KILPARK GARDEN ROAD, IST STREET, KILPAUK, CHENNAI-600 010,TAMIL NADU, REPRESENTED BY ITS CHAIRMAN AND MANAGING DIRECTOR SRI.RAMKUMAR CHANDRASEKHAR. 3. K.D.GOPALAKRISHNAN, VELIYIL HOUSE, ERUVA.P.O, ALAPPUZHA. ADV. SRI.BABU KARUKAPADATH FOR R2 SMT.M.A.VAHEEDA BABU FOR R2 SRI.JAGAN GEORGE FOR R2 SRI.K.A.NOUSHAD FOR R2 SRI.P.G.PRAMOD FOR R2 SRI.N.C.JOSEPH FOR R1 SRI.K.P.DANDAPANI, SENIOR ADVOCATE FOR R3 SRI.MILLU DANDAPANI FOR R3 THIS FIRST APPEAL FROM ORDERS HAVING BEEN FINALLY HEARD ON 13/02/2009, THE COURT ON 26/02/2009 DELIVERED THE FOLLOWING: ORDER ON I.A.5253 OF 2008 IN FAO NO.315 OF 2008 DISMISSED 26.2.2009 SD/- KURIAN JOSEPH, JUDGE. SD/- S.S.SATHEESACHANDRAN, JUDGE. KURIAN JOSEPH & S.S. SATHEESACHANDRAN, JJ. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - F.A.O.No.315 of 2008 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated: 26th February, 2009 JUDGMENT Satheesachandran,J. The 2nd judgment-debtor in E.P.No.615 of 2000 in O.S.No.440 of 1998 in Sub Court, Ernakulam, is the appellant. His application for setting aside the sale of the property of the 1st judgment-debtor, a Private Limited Company, in which he was the erstwhile Managing Director and at present continuing as a shareholder as vitiated by fraud and material irregularity was negatived by the learned Sub Judge, and hence the appeal. 2. The decree-holder brought to sale the property of the 1st judgment-debtor-Company to realise a sum of Rs.2,30,00,000/-, the sum due under the decree with interest and costs. The liability outstanding against the company under two other decrees, O.S.No.677/04 and O.S.No.678/04 was also included in the proclamation and thus, the upset price was shown as Rs.4,35,00,000/-. The 2nd judgment-debtor had contended that the centage value of the property was Rs.25 lakhs and the Advocate Commissioner deputed by the court had fixed that value as between Rs.40 to 50 lakhs. Proclamation issued for sale incorporated the above valuation of the property also. The property having an extent of 43.6 FAO 315/08 2 cents in Marine Drive lying to the west of Shanmugham road belonging to the 1st judgment-debtor proclaimed for sale was knocked down for 19 crores by the highest bidder, the third respondent. Impeaching the sale as vitiated by fraud and material irregularity, two applications were moved under Order 21 Rule 90 C.P.C., one by the 2nd judgment- debtor, the present appellant and another who had advanced money to the 1st judgment-debtor-company to purchase a flat proposed to be constructed in the property brought to sale. The applications numbered as E.A.Nos.347/08 and 338/08 filed by the appellant and the purchaser for the flat respectively, after being heard together, were dismissed with costs under the order impugned in the appeal by the learned Sub Judge. The applicant in E.A.No.338/08, the purchaser for the flat has submitted to the order and as such the challenges canvassed by him to impeach the sale need not be gone into in this appeal, preferred by the other applicant, the 2nd judgment-debtor. But it deserves to be pointed out that both the applicants had not made the auction purchaser as a party in their respective applications, but, later, the present appellant impleaded him as the additional third respondent in his application. 3. In this appeal the challenges mooted by the appellant against the sale alone survive for consideration to determine the correctness FAO 315/08 3 of the order passed by the learned Sub Judge holding that the sale in favour of the third respondent auction purchaser is unassailable. A twofold challenge was pressed into service by the appellant to assail the sale as illegal. Sale of the entire property of 43 cents to satisfy the liabilities outstanding against the 1st judgment-debtor-company was not at all required as such liabilities could have been cleared of by sale of a portion of the property is the case of the appellant. Sale should have been conducted by calling a global tender which would have invited bidders at large, and thereby fetching the maximum price for the property in auction, was the other ground mooted to impeach the sale. The decree-holder and the auction purchaser filed separate counter affidavits contending that no valid ground existed for setting aside the sale. Competency of the appellant to challenge the sale as a shareholder of the 1st judgment-debtor-company moving an application under Order 21 Rule 90 C.P.C. was also questioned by these respondents. 4. Mr.S.V.Balakrishna Iyer, the learned Senior Counsel appearing for the appellant submitted before us that the challenge against the sale is confined to the illegality in divesting the company of the entire extent of 43 cents for a value of Rs.19 crores to satisfy the liability outstanding to the tune of only Rs.4.35 crores. Such a sale is vitiated FAO 315/08 4 exfacie by fraud as it is against the mandate under Order 21 Rule 64 C.P.C. which mandates the court to sell only so much of the property of the judgment-debtor required to satisfy the decree debt. It is the obligation of the court conducting the sale to ensure that only such portion of the attached property to satisfy the decree shall be sold and not the whole extent of his properties even if it had been attached for sale, it is submitted. The amendment brought to Order 21 Rule 66 (2) (a) C.P.C. by Act 104 of 1976 adding a new clause thereto that the proclamation of sale by public auction has to be confined to a portion of the property alone if it is sufficient to satisfy the decree debt is projected by the counsel as an inbuilt safeguard to ensure that the properties of the judgment-debtor under the guise of the decree debt should not be divested from him as a whole, but only to the limited extent required to satisfy the liability. A number of authorities were cited by the counsel to contend that an infringement of the mandate under Order 21 Rule 64 C.P.C. by the court conducting the sale is per se illegal and without jurisdiction. The learned counsel relied on Desh Bandhu Gupta v. N.L.Anand & Rajinder Singh [ (1994) 1 SCC 131], T.P.S.Reddi v. Padmavathamma (AIR 1977 SC 1789), Ambati Narasayya v. M.Subba Rao (AIR 1990 SC 119), Balakrishnan v. Malaiyandi Konar (2006(1) KLT 926 (SC) and FAO 315/08 5 Thankamma v. Leelamma (2008(2) KLT 500) to contend that sale of a portion of the property sufficient to satisfy the decree alone can be allowed and not the whole property of the judgment-debtor. Sale price for the property received by auction is also much less the market value of the property, according to the learned counsel, who contended that if global tender had been invited, the property would have fetched substantially higher value as it is the only vacant piece of prime land situate in a highly potential commercial centre in Kochi. On the other hand, Sri.K.P.Dandapani, learned Senior Counsel appearing for the auction purchaser, Sri.Babu Karukapdath, appearing for the 1st judgment-debtor, and Sri.N.C.Joseph, appearing for the decree-holder contended that there is no merit in the challenge raised against the sale. Sale of the property as a whole only and not piecemeal was possible and that issue had already been considered by the court getting a report through an Advocate Commissioner and then only the sale of the whole property was ordered, submits the learned counsel. The lie of the property, its location and the imponderables in having sale of a portion of the property all were taken into account by the court in proceeding with the sale of the whole property though it has not been narrated in detail in the impugned order, submits the counsel. The floor area ratio to be followed under the present Building FAO 315/08 6 Rules in putting up a multi-storied structure added with the Coastal Regulation Zone Notifications which is applicable to the land sold, is pointed by the learned counsel with the reference to the blockage caused to its road frontage by extension of the bridge and footpath over the nearby canal reducing its width to 25 meters only, as noted by the Advocate Commissioner in his report, to contend that sale of the property as a whole and not any portion thereof was feasible. The executing court appreciating all the above aspects ordered for sale of the whole property. The judgment-debtor-company has not suffered any injury, but only benefited by such sale, according to the counsel. Nobody other than the judgment-debtor-company can object to the sale for the reason that the sale of the whole property was one without jurisdiction as violative of Order 21 Rule 64 C.P.C. The company has no objection thereof. At various stages of the execution, it is submitted by the counsel, the appellant-the 2nd judgment-debtor- the former Managing Director of the company had adopted dilatory tactics for extraneous reasons which were not to the best interest of the company. The appellant was all along interested only in a private sale of the property so that the property could be sold to someone on his behalf for a meagre sum, according to the counsel. The appellant, a shareholder of the company had no locus standi to impeach the sale FAO 315/08 7 moving an application under Order 21 Rule 90 C.P.C. or in pressing a challenge that the sale of the whole property suffered from want of jurisdiction, contends the counsel relying on Charanjit Lal v. Union of India (AIR(38) 1951 S.C. 41), Bacha F. Guzdar v. Commissioner of I.T., Bombay (AIR 1955 S.C. 74) and Shyamlal Purohit v. Jagannath Ray [ (1970) 40 Comp. Cases 138]. The challenges mooted by the appellant against the sale had been repelled by the executing court as unworthy of merit, appreciating the materials and taking note that it is in the best interest of the company to sell the whole property proclaimed, and, the appeal filed impugning that order is without any merit, according to the counsel. 5. Having regard to the submissions made by the learned counsel on both sides with reference to the impugned order and the authorities relied on, we find that the following points emerge for consideration: 1) Is the appellant, a shareholder of the 1st judgment-debtor-company competent to maintain an application under Order 21 Rule 90 C.P.C. impeaching the sale of the property of the company on the ground of material irregularity or fraud in publishing or conducting it? 2) Whether the sale of the whole extent of 43.6 cents of property of the company for a sum of Rs.19 crores to satisfy the liabilities to the FAO 315/08 8 tune of Rs.4.35 crores suffers from any serious infirmities or irregularities rendering it illegal and unsustainable in the facts and circumstances involved in the case? 6. Point No.1 :- Order 21 Rule 90 C.P.C. deals with an application for setting aside sale of an immovable property sold in execution of a decree on the ground of material irregularity or fraud. However, such an application is entertainable only at the instance of a decree-holder, or the purchaser, or any other person entitled to share in a rateable distribution of assets, or whose interests are affected by the sale. The appellant, a shareholder of the judgment-debtor- company can maintain his application only if he is able to satisfy that his interest is affected by the sale. The primary question then emerges for consideration is whether the appellant, a shareholder of the judgment-debtor- company, which is sui juris, has got any interest in the assets of the company. A shareholder, no doubt, acquires the right to participate in the profits of the company, but it is not possible to hold that he has any interest in the assets of the company. Position of a shareholder with respect to the company's assets is explained by the apex court in Bacha F. Guzdar v. Commissioner of I.T., Bombay (AIR 1955 S.C. 74) and the same is as follows: “That a share-holder acquires a right to participate FAO 315/08 9 in the profits of the company may be readily conceded but it is not possible to accept the contention that the share- holder acquires any interest in the assets of the company. A share-holder has not got a right in the property of the company. There is nothing in the Indian Law to warrant the assumption that a share-holder who buys shares buys any interest in the property of the company which is a juristic person entirely distinct from the share-holders. The true position of a share-holder is that on buying shares an investor becomes entitled to participate in the profits of the company in which he holds the shares if and when the company declares subject to the Articles of Association that the profits or any portion thereof should be distributed by way of dividends among the share- holders. He has undoubtedly a further right to participate in the assets of the company which would be left over after winding up but not in the assets as a whole.” In an earlier decision on the same point, Charanjit Lal v. Union of India (AIR(38) 1951 S.C. 41) while dealing with the question whether a shareholder of a company can impeach the constitutional validity of an Act under which the company had been taken over, as violative of FAO 315/08 10 fundamental rights, the apex court observed as follows: “The company and the shareholders are in law separate entities, and if the allegation is made that any property belonging to the Company has been taken possession of without compensation or the right enjoyed by the Company under Art.19 (1) (f) has been infringed, it would be for the Company to come forward to assert or vindicate its own rights and not for any individual shareholder to do so.” So long as the company exists, i.e., before its dissolution a shareholder cannot claim any interest in the assets of the company is reiterated by the apex court in Shyamlal Purohit v. Jagannath Ray [ (1970) 40 Comp. Cases 138] wherein the competency of a shareholder to impeach the sale of the property of the company under Order 21 Rule 90 C.P.C. as in the present case arose for consideration. The apex court held in categorical terms that such an application by a shareholder of the company to impeach the sale of its property is not entertainable and he has no locus standi to maintain an application under Order 21 Rule 90 C.P.C. The apex court has held thus: “A company is a separate entity from its shareholders and it is the company which is the owner of FAO 315/08 11 its assets including immovable property and not the shareholders. As long as a company exists, i.e., before its dissolution, no shareholder can be said to have any interest in the properties and assets of the company, either legal or equitable. When a company is being wound up the only right of a shareholder is to participate in the surplus assets after the payment of debts and liabilities. Therefore, a shareholder of a company, which is being compulsorily wound up, has no locus standi under Order 21, rule 90, Civil Procedure Code, 1908, to apply for setting aside a sale of the property of the company on the ground of irregularity or fraud.” 7. The appellant had represented the company as its Managing Director during the trial of the suit and, later, in the execution proceedings till he was substituted by another Director. True, he was impleaded in his individual capacity and the 2nd defendant and 2nd judgment-debtor in the execution proceedings. But that does not clothe him with any authority or special interest in the assets of the company. It has also to be noted that there is no decree against the appellant-2nd defendant. Thus, he can enjoy only such rights as available to a shareholder of the company and as long as the company FAO 315/08 12 exists, he will not have any interest in its assets. Such being the position of law, delineating the right of a shareholder vis-a-vis the company, the irresistible conclusion follows that the application under Order 21 Rule 90 C.P.C. by the appellant, a shareholder, impeaching the sale of the property of the company is not maintainable. Point found accordingly. 8. Point No.2 :- Realising the apparent and insurmountable difficulty in the prosecution of an application under Order 21 Rule 90 C.P.C. by a shareholder to challenge the sale of the assets of the company in execution, but not admitting that legal bar, the learned counsel for the appellant during the course of the arguments urged that the application be construed and entertained as one under Section 47 C.P.C. if it is found not entertainable under Order 21 Rule 90 C.P.C. The sale of the whole property but not a portion as may be necessary to satisfy the decree debt is in violation of the mandate under Order 21 Rule 64 C.P.C. and hence without jurisdiction is the crux of the contention. The appellant is a party to the suit (2nd defendant) and he is entitled to maintain the application under Section 47 C.P.C. when the sale is conducted without jurisdiction, submits the learned counsel. Conversion of the present appeal to a revision since appeal is not otherwise maintainable, seeking indulgence of this court FAO 315/08 13 was also urged stressing that the questions raised impeaching the sale as one without jurisdiction and the sale being violative of the mandate under Order 21 Rule 64 C.P.C., according to the learned counsel, demand an adjudication to advance the ends of justice. 9. We notice that the alternative approach made to sustain the challenge against the sale also face legal hurdles to the effect that even in a revision against an order under Section 47 C.P.C. a limited challenge circumscribed by the interdictions placed by Section 99A C.P.C. alone is permissible to test the correctness of that order. The only question to be considered whether it be in an appeal or revision in the given facts of the case relates to the jurisdiction exercised by the execution court in conducting the sale which is impugned as having infringed the mandate under Order 21 Rule 64 C.P.C. In that view of the matter, leaving on technicalities, we propose to examine the issue of jurisdiction on merits with reference to the materials available and the facts and circumstances involved in the case. 10. Order 21 Rule 64 C.P.C. reads thus: “Power to order property attached to be sold and proceeds to be paid to person entitled:- Any Court executing a decree may order that any property attached by it and liable to sale, or such portion thereof FAO 315/08 14 as may seem necessary to satisfy the decree, shall be sold, and that the proceeds of such sale, or a sufficient portion thereof, shall be paid to the party entitled under the decree to receive the same.” No doubt, the procedural requirement is mandatory. The court is obliged under the rule to examine whether the whole of the attached property of the judgment-debtor or a portion alone is to be sold to satisfy the decree. The question whether the property is one or more is not of much significance. Even if there is only one property, on enquiry, if the court is satisfied that a portion thereof alone is sufficient to satisfy the decree, only such portion should be sold. The mandate under the above rule is not a matter of discretion but an obligation cast upon the court and, so much so, any violation of the rule would be illegal. The jurisdiction of the court to conduct the sale to satisfy the decree debt extend only up to the point at which decree is satisfied and that being so, it has an obligation to ensure that only such property or portion of the property of the judgment-debtor as may be necessary to satisfy the decree is sold. The apex court in Desh Bandhu Gupta v. N.L.Anand & Rajinder Singh [ (1994) 1 S.C.C. 131] has held in that regard as follows: “The Code has taken special care charging the duty FAO 315/08 15 on the executing court and it has a salutory duty and a legislative mandate to apply its mind before settling the terms of proclamation and satisfy that if part of such property as seems necessary to satisfy the decree should be sold if the sale proceeds or portion thereof is sufficient for payment to the decree-holder or the person entitled under the decree to receive the amount and so much of that property alone should be ordered to be sold in execution. It is a mandate of the legislature which cannot be ignored.” 11. The obligation cast on the executing court to examine whether the whole property attached or a portion thereof as may be necessary to satisfy the decree debt has been highlighted earlier also by the apex court in Ambati Narasayya v. M.Subba Rao (AIR 1990 S.C. 119) and other decisions referred to by the learned counsel for the appellant which have been referred to earlier. The decisions of the apex court on that point leave no room for any doubt that if the sale is proceeded without examining that question and substantial injury thereof is resulted, then such sale could be attacked as one without jurisdiction since the procedural mandate under Order 21 Rule 64 C.P.C. had been infringed. Bearing in mind the legislative mandate FAO 315/08 16 under Order 21 Rule 64 C.P.C. and the decisions of the apex court, the sale impugned in the present case has to be examined with reference to the materials involved. 12. Before the impugned sale the very same property of the judgment-debtor had earlier been sold by the court in execution for a sum of Rs.1,71,50,833/- on 18.8.2003. Such sale was conducted after affording several opportunities to the present appellant who represented the company then in the execution proceedings to clear the decree debt by way of private sale. Yet, confirmation was kept in abeyance allowing the judgment-debtor to pay the sale price to the decree-holder within six months and get the sale set aside. The appellant had meekly surrendered to the sale for the price as indicated above, which the records would show was conducted even without settling a proclamation as mandated under Order 21 Rule 66 C.P.C. Even after the six months granted by the court, the appellant had been applying for time to make payment of the sale price and at this stage the Board of Directors of the judgment-debtor-company after passing a resolution substituted another Director to represent the company in the execution proceedings alleging that the appellant had not properly defended and protected the interests of the company in the proceedings. The company thereupon preferred an appeal as FAO 315/08 17 F.A.O.No.231/04 before this court impeaching the sale as vitiated by material irregularity and fraud. The appeal was disposed by judgment dated 8.4.2005 setting aside the sale and remitting the case to the execution court for fresh consideration with direction to examine whether sale of the whole property attached or a portion thereof is sufficient to satisfy the