Deferred Payment Structure Raises Suspicion of Mala Fide Intent: Calcutta High Court Orders Inspection of Thane Property

Calcutta High Court, in a derivative suit involving family members of the Berlia family, ordered the inspection of a disputed Thane property that was sold in what the court described as an unusual and possibly mala fide transaction. The case, Narendra Kumar Berlia & Ors. v. Om Prakash Berlia & Ors., centered on the sale of land by PB Global Limited (formerly Pesticides and Brewers Limited) to Dhruva Woolen Mills Private Limited. The court noted that the sale was conducted hastily, raising concerns about under-valuation and the deferred payment structure.

The plaintiffs, including Narendra Kumar Berlia and Vijay Kumar Berlia, filed a derivative suit alleging mismanagement of PB Global Limited and challenged the sale of a Thane property. The land was sold to Dhruva Woolen Mills on March 31, 2022, with an agreed sale consideration of ₹342.55 crores. Of this amount, ₹185.91 crores was deferred, with payment scheduled between 2025 and 2027.

The plaintiffs argued that the sale was against the company's interest, alleging that the land was undervalued and sold in undue haste without giving them adequate time to respond to the valuation report prepared by CBRE South Asia Pvt. Ltd. They also raised concerns that the buyer had immediate possession of the land, despite the deferred payment.

The key legal issue was whether the sale of the Thane property was conducted transparently and in the best interests of PB Global Limited. The plaintiffs contended that the deferred payment arrangement and the rushed sale were indicators of mala fide intent and sought an injunction to restrain further dealings with the property.

The court, presided by Justices I.P. Mukerji and Biswaroop Chowdhury, found merit in the plaintiffs’ claims regarding the suspicious nature of the sale. The court noted that the plaintiffs were not given sufficient time to review the valuation report, as the sale occurred just two days after the report was provided. This, coupled with the deferred payment structure, raised doubts about the transparency of the transaction.

"The defendant gave no reasonable time to the plaintiffs to consider the valuation report and give views or move the Court for necessary orders. This act of undue haste shows some elements of mala-fide of the defendant."

While the court did not set aside the sale, it ordered a detailed inspection of the property to assess the ongoing developments. The court appointed Smt. Manimala De and Smt. Jyotsna Mukherjee as Special Officers to conduct the inspection and submit a report on the construction and any transfers made on the property. The court further directed the purchaser, Dhruva Woolen Mills, to disclose any agreements or conveyances made regarding the property until the entire sale consideration was paid.

The court expressed concern over the deferred payment, noting that the buyer had immediate control over the property without having paid the full amount. The court remarked:

"The buyer gets the property and is free to deal with it in any manner it so chooses without paying the consideration amount."

The Calcutta High Court’s ruling highlights the importance of transparency in corporate transactions, especially in cases involving family-owned businesses and derivative suits. The court’s order to inspect the property ensures that any potential mismanagement or undervaluation will be scrutinized, and the sale process will be closely monitored until the full payment is made.

Date of Decision: September 30, 2024

Narendra Kumar Berlia & Ors. v. Om Prakash Berlia & Ors.​.