'Insufficient Evidence To Decide Title In Summary Proceedings': Madras HC Directs Maxworth Orchards & Alleged Purchasers To Undergo Trial Process

In a matter pertaining to the winding up of Maxworth Orchards (India) Limited, Madras High Court has ordered an absolute interim injunction on the deletion of certain properties, for which the employees of the company are PoA holders, from the auction sale process. The dispute arose when two persons alleged that they had purchased the properties from the original owners in bona fide transactions. Subsequently, the Administrator/ Official Liquidator approached the High Court via an application.

The alleged purchasers had also placed a challenge against Maxworth's claim on the title to these properties on the basis of Power of Attorneys (PoAs).

The single-judge bench of Justice Senthilkumar Ramamoorthy framed two questions that required proper analysis. These two questions are:

i) Whether the Alleged Purchasers are entitled to an order for the deletion of the relevant properties from the auction sale process?; and

ii) Whether the sale deeds in favour of the alleged purchasers, i.e, T. Mohan and D. Thirumagal, are liable to be set aside or declared void?

The bench has also placed an interim stay of the confirmation of the sale in respect of the properties for a period of eight weeks. The court also noted there is insufficient evidence to apply Sections 536 and 537 of the Companies Act and set aside the registered sale deeds in summary proceedings.

"As stated earlier, only an MoU coupled with PoAs are on record. Thus, there is prima facie evidence that Maxworth has rights over the relevant immovable assets. If Maxworth's title was not under challenge, subject to the disclaimer that no warranty on title is being offered, either with regard to patent or latent defects, as was done in the sale notice, it would be possible to conclude the sale. But, bearing in mind the fact that the Alleged Purchasers have mounted a challenge to Maxworth's title, the evidence is insufficient to conclude that these are assets of Maxworth so as to apply Sections 536 and 537 of CA 1956."

The MoU for around 120 acres in Malayapatti village states that possession will be delivered since the date of getting General Power of Attorney in Maxworth's favour and that original documents will also be handed over.

"From the PoAs, it is evident that the agent was authorised to sell the lands and receive consideration. A few receipts in respect of payment of consideration are also on record. Pursuant thereto, two sale deeds dated 17.07.1996 are on record, which indicate that the lands were sold by Maxworth through the PoAs to its customers", the court inferred.

However, the court concluded that there aren't enough relevant documents to infer that the immovable properties whose alienation is challenged by Maxworth are actually the assets of Maxworth.

... It is a separate matter that while exercising such power, in appropriate cases, it may be necessary to direct the parties concerned to go through a trial process ...The sequitur thereof is that the dispositions cannot be treated as void. Hence, the rival title claims should be considered and determined. On the facts of this case, it is inappropriate to do so without putting the parties through a trial because a definitive conclusion on title cannot be drawn on the basis of the documents produced by the contesting parties."

In 2011, the High Court had restrained the original owners from alienation or encumbering the schedule properties in the company application filed by the administrator. The alleged purchasers have not approached the court to vacate the interim order that was still in force. It is pertinent to note that the winding petition of Maxworth was filed in 1998 and the official liquidator was appointed as provisional liquidator in 2010. Therefore, the date of initiation of winding up is deemed to be the date of filing the winding-up petition in 1998 as per Section 441(2) of the Companies Act, 1956. 

The Administrator had filed another Company Application in 2003 by virtue of which the agents under PoAs were restrained from alienating the properties claimed as company properties. This order remains in force till this date. The alleged purchasers entered into transactions with the original owners between 2002 and 2008.

Arguments & Court's Observations

Applying Sections 536 and 537 of the Act would mean that the conveyances are void since alleged Purchasers purchased the immovable assets from the original landowners after the presentation of the winding-up petition, submitted Administrator's counsel.

The alleged purchasers contended that they purchased the properties in the schedule from the original landowners and not the agents with PoAs since the PoAs in their favour were cancelled in 2001. The sale deeds in dispute were executed after 2001 and hence valid, they contended. They also submitted that PoAs cannot form the basis for claiming the tile by relying on Suraj Lamp & Industries (P) Ltd. v. State of Haryana, (2012) 1 SCC 656.

The court observed that there is enough evidence to show that the two agents, M Shankar and A. Venkatesan, who held the PoAs were employees of Maxworth. The fifty-two PoAs executed in their favour in 1995 was produced as evidence of title by the Administrator. After perusing the same, the court observed that it's possible to infer that the PoAs were executed during the course of the employment of agents by Maxworth.

About the reliance of the respondents on Suraj Lamp, the court noted that the apex court has carved out an exception for bona fide and genuine transactions. 

"We make it clear that our observations are not intended to in any way affect the validity of sale agreements and powers of attorney executed in genuine transactions...", the court had noted in the said judgment.

The court also referred to the earlier judgments involving Maxworth as a party wherein the Madras High Court set aside sale deeds on the ground that it has been executed post the initiation of winding up proceedings.

In one of such cases, i.e, in R. Ramesh babu v. The Official Liquidator as Provisional Liquidator of Maxworth Orchards (India) Limited (2021), the court observed that the applicants have come to derail the liquidation process and dismissed the same.

"...The facts regarding the actual knowledge of the applicants about the auction process, the unavailability of averments on the execution of the powers of attorney and subsequent cancellation, and non-submission of encumbrance certificates on record to prove due diligence were set out as the reasons to dismiss the said applications. It was also held that the remedy of the so-called bona fide purchaser lies against the vendors for wrongful representation", the single bench added.

Moreover, with regards to the conduct of original owners and the alleged purchasers in light of the interim order in force and their contention that the PoAs was cancelled much before, the court noted in the order as below:

"While on this issue, it should also be noticed that Company Application No.740 of 2003 was filed against the agents/ PoAs under all the Maxworth projects, including A. Venkatesan and M. Shankar, and all these agents were restrained by orders dated 24.04.2003 and 18.11.2003 from using the PoAs to alienate these assets on the basis that Maxworth had paid for these assets. None of the PoAs contested this application. Indeed, even the original landowners and the Alleged Purchasers did not do so on the basis that the PoAs had been cancelled and that the lands had been sold thereafter to the Alleged Purchasers."

Moreover, the alleged purchasers were only able to demonstrate the cancellation of three PoAs out of the fifty-two, the court observed. Moreover, 21 sale deeds, Patta transfer orders, encumbrance certificates from 01.09.1989 to 21.11.2005 and pattas in favour of the Alleged Purchaser were also produced.

The court was of the opinion that if the documents were held to be sufficient to treat the alleged properties as Maxworth's, then the date of winding up and Sections 536 and 537 would come into play. This would mean that the sale deeds become void unless validated by the Court on application. However, as stated above, the court opined that the evidence was not sufficient to deem it so.

While instructing that a trial is necessary, the court also referred to United Bank of India v. The Official Liquidator, (1994) 1 SCC 575 and stated that the Official Liquidator/ Administrator is unlikely to be in possession of the originals of all documents. Therefore, the court added that 'Official Liquidator will be permitted to exhibit documents in its possession without insisting on the originals, albeit subject to recording objections, if any, from the Alleged Purchasers.'

"The Administrator and Official Liquidator filed C.A.Nos.434 and 435 of 2009 in the year 2009 and even obtained an interim order restraining further alienation on 06.04.2009. All the vendors and the Alleged Purchasers are respondents therein. None of the vendors entered appearance to contend that they cancelled the PoAs and executed sale deeds in favour of the Alleged Purchasers. Even the Alleged Purchasers filed a counter in November 2012, which is about three years after receiving notice, and did not take any steps to vacate the interim order. Significantly, only three cancellations of PoAs have been filed by the Alleged Purchasers", the court judtified imposing absolute interim injunction on alienation.

Case Title: Maxworth Orchards (India) Limited & Anr. v. T. Mohan & Ors.

Case No: Comp.A.Nos.434 & 435 of 2009 batch

Citation: 2022 LiveLaw (Mad) 110

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