Sale of Company Warehouse to Managing Director's Wife's Firm
Himalayan Herbs Pvt. Ltd. has three shareholders: Bikash (55%), Nirmala (30%), and Prakash (15%). Bikash is managing director; Nirmala is a director; Prakash is a silent investor. The company owns a warehouse in Birgunj, its main asset. On 15 Jestha 2081, Bikash signed a sale deed transferring the warehouse to Gorkha Suppliers Pvt. Ltd., a company owned by his wife, for Rs 1.2 crore. The market value was Rs 2.5 crore. No board meeting was held; Nirmala was not informed. The company's audited balance sheet shows the warehouse as Rs 2.4 crore. The buyer paid Rs 20 lakh and took possession. Nirmala discovered the sale when Gorkha Suppliers demanded rent from the company's tenant. The company's articles require board approval for asset sales above Rs 10 lakh. Bikash says the sale was necessary to repay a bank loan of Rs 80 lakh.
1. Was the sale valid? Discuss Bikash's duties, the conflict of interest, and the effect of the articles.
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Directors' duty. Under the Company Act, 2063, directors must act in good faith, in the company's best interest, and avoid conflicts of interest. Bikash is both managing director and the beneficial owner of the buyer through his wife. The sale is a related-party transaction. Articles. The articles require board approval for asset sales above Rs 10 lakh. No board meeting was held, and Nirmala was excluded. An act beyond the articles' internal limit is not necessarily void against a bona fide third party, but Gorkha Suppliers knew the facts because Bikash's wife controls it. Value. The sale at Rs 1.2 crore against a book value of Rs 2.4 crore and market value of Rs 2.5 crore is grossly undervalued. Conclusion. The sale is voidable at the company's instance and likely void as a fraud on the minority. Bikash must account for the shortfall. The bank-loan justification does not cure the conflict; a secured lender's pressure does not authorise a sham sale to a director's family.
2. What remedies can Nirmala pursue as a 30% shareholder? Consider derivative action, oppression relief, and winding up.
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Derivative action. Nirmala can sue in the company's name after demand on the board, because Bikash controls the board and demand would be futile. Oppression/mismanagement. As a 30% shareholder, she can apply to the court under the Company Act, 2063 for relief against oppression, mismanagement, and breach of fiduciary duty. Interim relief. The court can restrain Gorkha Suppliers from transferring the warehouse, appoint an independent auditor, and suspend Bikash's powers. Accounting. Bikash and his wife's company may be ordered to restore the property or pay the difference between market value and price. Winding up. A just-and-equitable winding-up petition is possible but disproportionate; courts prefer lesser remedies. Criminal/civil. A complaint for fraud or breach of trust may lie, but the primary remedy is corporate. Conclusion. Derivative action plus oppression relief and interim injunction is the strongest package.
3. If the company ratifies the sale at a general meeting with Bikash voting, is the ratification effective?
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General meeting. A company can ratify a director's act, but ratification must be by disinterested shareholders and must not amount to a fraud on the minority. Bikash's 55% vote cannot be counted on a resolution in which he has a personal interest. Conflict. The Company Act, 2063 and general company law require interested directors to disclose and abstain. The articles cannot be used to validate a sale that strips the company of its main asset at half value. Minority. Nirmala's 30% is enough to challenge the transaction; ratification obtained by the wrongdoer's votes is invalid. Conclusion. The ratification is ineffective. The sale remains voidable, and the court can order restoration or compensation.