S. Murugan vs Karur Vysya Bank Ltd. , rep. by its Deputy General Manager & Others

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2008 Supreme(Mad) 43

High Court of Judicature at Madras
THE HONOURABLE MS. JUSTICE R. BANUMATHI
S. Murugan
Versus
Karur Vysya Bank Ltd., rep. by its Deputy General Manager & Others
O.A. No. 1169 to 1172 of 2007 & A. Nos. 6926 to 6930, 6935, 6936 of 2007 in
C.S. No. 937 of 2007 & O.A. Nos. 1240 & 1241 of 2007 in C.S. No. 980 of 2007
Decided on : 04-01-2008

Advocates Appeared:
P.H. Pandian, Senior Counsel, P.H. Arvindh Pandian, Harisankarmani, R. Rajesh, Habibulla Basha, Senior Counsel, A.V. Radhakrishnan, N.V. Srinivasan, N.V.S. Associates, P.S. Raman, Senior Counsel, R. Sagadevan, J. Srinivasan, AR.L. Sundaresan, Senior Counsel, G. Pavithra, N. Rajalakshmi, K.S. Natarajan, T.V. Ramnanujam, Senior Counsel, C. Umashankar, D. Janarthanam, K. Sridhar, Sridhar Associates, V. Ramakrishnan, A.K. Raghavalu, Satish Parasaran, K. Muthukrishnan, Advocates.

Headnote:
The Court held that the impugned transactions were tainted with fraud and cancellation of the impugned documents would be proper.
Fact of the Case:

The plaintiff, a shareholder and Director of D-7 Company, filed a suit challenging the impugned transactions, which included an assignment deed, mortgage deed, and lease deed, on the ground of fraud and collusion. The plaintiff alleged that the impugned transactions were entered into without the approval of the Board of Directors of D-7 Company and that they were intended to knock away the valuable property of Aruna Theatres for a throw away price.
Finding of the Court:

The Court found that the impugned transactions were tainted with fraud and that the defendants had acted in collusion with each other to deprive the plaintiff and other shareholders of their rightful share in the property. The Court noted that the impugned transactions were entered into hurriedly and in a secretive manner, and that the defendants had failed to provide any satisfactory explanation for their actions.
Issues: Whether the impugned transactions were tainted with fraud; Whether the plaintiff had shown a prima facie case that the transactions were to be avoided as they were tainted with fraud and cancellation of the impugned documents would be proper; Whether the impugned transactions were entered into without the approval of the Board of Directors of D-7 Company; Whether the impugned transactions were intended to knock away the valuable property of Aruna Theatres for a throw away price.
Ratio Decidendi: The Court held that the impugned transactions were tainted with fraud and that the defendants had acted in collusion with each other to deprive the plaintiff and other shareholders of their rightful share in the property. The Court noted that the impugned transactions were entered into hurriedly and in a secretive manner, and that the defendants had failed to provide any satisfactory explanation for their actions.
Final Decision: The Court granted the plaintiff's prayer for a declaration that the impugned transactions were void and for an injunction restraining the defendants from acting upon the impugned documents.

Judgment :-

Ms. R. Banumathi, J.

O.A. No. 1169 and Others in C.S. No. 937 of2007 and O.A. No. 1240 and 1241 of 2007 in C.S. No. 980 of 2007. In C.S. No. 937 of 2007 and A. No. 1169 to 1172 of 2007 applicant/plaintiff challenges the impugned Assignment Deed, Mortgage Deed and Lease Deed (dated 10. 2007) and seeks for declaration that those documents are void abinitio on the ground of collusion and that those documents were executed without authority and are null and void. Along with the plaint, four applications were filed by the plaintiff for restraining defendants 1 to 5 and 8 and their men from acting and giving effect to the impugned deeds of assignment, mortgage and lease deed.

2. The dispute relates to the 7th defendant Companys immovable assets Udayam Theatre and Kalyana Mandapam. The premise comprises of theatre building viz., Udayam, Suriyan, Chandiran, Mini Udayam and Kalyana Mandapam — Udayam Kalyana Mandapam standing in the name of M/s. Aruna Theatres and Enterprises Pvt. Ltd. (for short Aruna Theatres/7th defendant) The land in question is in an extent of 23 grounds and 1930 sq.ft. situated at T.S. No. 2, Kodambakkam, Door No. 3, Pillar Road, Ashok Nagar, Chennai. The applicant/plaintiff is the Shareholder and Director of D-7 Company. He was appointed as Director of D-7 Company at the EGM of the Company held on 1. 2007. Challenging the documents, D-7 Company also filed the suit C.S. No. 980 of 2007. It has also filed applications O.A. Nos. 1240 and 1241 of 2007 for restraining defendants 1 to 5 from entering into the premises. D-7 and 6-8 are the family owned private Companies. Family members are the share-holders. As the dispute pertains to the family Company, other family members, who are shareholders, have filed number of impleading applications. All the applications shall stand disposed of by this common order. For convenience, parties are referred as per array in O.S. No. 937 of 2007.

3. Background facts in brief which proliferated the litigation and dispute between the parties are as follows:

(i) One late Sankaranayana Pillai of Udayathur, Tirunelveli District had six sons living together with their children as members of a joint family. The eldest son Narayana Pillai was instrumental in starting food grains business at Madras for the benefit of the joint family. He was assisted by one of his brothers namely Sundaram Pillai. As the business flourished, the other brothers — Subramania Pillai, Karuppasamy Pillai, Paramasivam Pillai, Kalyanasundaram Pillai, also came to Chennai and they established more number of business. They expanded the business in several fields. The 7th defendant Company is a Theatre Complex business started in 1982 in about 23 grounds 1930 sq.ft. in Ashok Nagar and the 8th defendant Company is a flour mill started in 1989. The other brothers came to Madras at later stages.

.(ii) Credit Facilitiesof Annai Muganibigai Roller Flour Mills Ltd. -

M/s. Annai Mookambigai Roller Flour Mills (P) Ltd. (8th defendant) has been granted various credit facilities through KVB Kodambakkam branch from the year 1998 onwards. Aruna Theatres & Enterprises P. Ltd. has guaranteed the due repayment of all the credit facilities with interest thereon granted to the 8th defendant herein; On 110. 1998, Aruna Theatres executed the Letter of Corporate Guarantee in favour of the first respondent bank standing as the Guarantors for the financial assistance of total amount of Rs. 759.68 lakhs availed by the 8th defendant under various loan facilities. Further, as a security the 8th defendant as well as the guarantor Aruna Theatres have created an Equitable Mortgage by deposit of title deeds relating to their respective properties situate at No. 106, Alinjivakkam Village, Ponneri Taluk, Thiruvallur District (8th defendant) and suit property situate at No. 3, Pillar Road, Ashok Nagar, Chennai consisting of Land and theatre buildings namely Udayam Suriyan, Chandran & Mini Udayam and the Kalyana Mandapam – Udayam Kalyana

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