CANCELLATION OF SALE DEED DUE TO NOT HOLDING BOARD MEETING -CASE LAW-DECODED-CS ROHIT KUMAR

Most people consider Boardroom a picnic spot, and attending or holding board meeting is considered as a time-pass compliance process by most of the listed and unlisted companies. But, let me tell you board meeting minutes is one of the most important evidences of company's proper functioning, and the Courts also rely on papers of board meeting be it directors notice, attendance register, minutes etc.

NOT HOLDING BOARD MEETING COULD RESULT INTO LAND DEAL CANCELLATION

This case happened when NCLT declared the sale to be null and void in oppression & mismanagement case [Elaine Info Solution Pvt. Ltd. v. Avenues India Pvt. Ltd. & others] and the same uphold by NCLAT.

FACTS OF THE CASE:

Appellant: Elain Info Sol Pvt Ltd. (A1)

Respondents: J&A Avenues India Pvt Ltd (R1) | Mrs. Vishnumolaka Govardhanamma (R2) | Mr. V. Lakshmi Chenuchu Venkata (R3) | Sub-registrar (R4)

R2 and R3 are the only directors of R1, and R2 is mother of R3. R3 held 50% shareholding of R1.

In this case the appeal was filed before the NCLAT against the impugned order of NCLT where NCLT declared the board resolution dated 1/8/2015 as well as registration documents for sale of land with Sub-registrar as null and void.

A1 submit that R3 approached A1 for entering into sale of land  of R1 and produced board resolution dated 1/8/2015 which was signed by R2 as well but R2 denied that there was no such board meeting held on 1/8/2015 and submitted that the said deal was illegal and without authority.

NCLAT OBSERVATIONS:

1. Audit report and relevant financial statement is not reflecting sale of land.
2. No Board Meeting dated 1/8/2015 was held as per annual Return (2015-16).
3. Proper due diligence was not done by A1. They simply relied upon certified true copy of board resolution.
4. Under schedule 5 of Balance Sheet, no details for sale of Land
5. Therefore, NCLAT uphold the order of NCLT and accordingly dispose of the appeal. 

KEY LEARNINGS!

1. From MCA records, it appeared that both A1 and R1 did not appointed company secretary who could have advised company about basic compliances of board meeting, signing of attendance sheet and maintaining proper records. If proper records were there then it could have been easily proved whether R2 was in the meeting or not.
2. Do check minutes book of company and attendance sheet before buying property,  and also check whether directors have been authorised to enter into such transactions.