The facts of the case

28 July 2017 Company N (the ‘company’) and Company T (the ‘respondent’ or ‘buyer’) concluded a contract for the sale of an immovable property No 1 with a total area of 504 square meters, located on a land unit with a total area of 2,456 square meters (the ‘asset’) for 650,000,000 soums.

Общество с ограниченной ответственностью S (the ‘claimant’) filed a claim against the respondent seeking to invalidate the minutes of the company’s founding meeting dated 20 July 2017, and contract No 1.

3 May 2021 the Judicial Collegium on Economic Cases of the Tashkent City Court upheld the claims and invalidated the minutes of 20 July 2017 and contract No 1.

1 July 2021 the Appellate Instance of the Judicial Collegium on Economic Cases of the Supreme Court overturned the decision to invalidate the transaction and issued a new resolution refusing to invalidate the [legal] transaction.

30 September 2021, the Cassation Instance of the Judicial Collegium on Economic Cases of the Supreme Court overturned the resolution of the appellate court and upheld the decision of the court of first instance.

The Deputy Prosecutor General of the Republic of Uzbekistan lodged an appeal for a repeated cassation and requested that the court decisions be overturned, and the case be sent back to the court of first instance for a new trial.

The Supreme Court’s position

[The Collegium has cited Arts 33 I, II and 34 II, IV Law on LLC of 6 December 2001 No 310-II.] As follows from the minutes dated 20 July 2017 the following individuals were in attendance: Mr. N, a participant (founder) of the company and Mr. R the company’s director, and other employees of the company. Mr. N participated in the meeting on his own behalf and did not represent interests of the claimant, which is the second participant.

[The Collegium has cited Arts 35 Law on LLC regarding the content of the minutes of the general meeting of participants.] However, the minutes do not specify such information.

[The Collegium has cited Art 41 I Law on LLC.] In this case the claimant did not participate in the meeting of 20 July 2017 and on 21 October 2019 he learned about the decision adopted during that meeting and on 17 December 2019 the claimant filed a claim to invalidate the minutes. Considering the foregoing, the court of first instance correctly concluded to invalidate the minutes, and the courts of appeal and cassation instances rightly concurred with this conclusion.

[The Collegium has cited Art 126 CC.] According to Section 6.2 (k) of the company’s charter adopting a decision on alienation of a capital asset is in the exclusive competence of the general meeting of participants of the company and according to Section 6.3 of the charter such decision shall be adopted unanimously by all participants of the company. In case at hand the general meeting of participants of the company have not adopted a decision on the alienation of the asset. Thus, the court of first instance invalidated the contract No 1.

The court of appeal instance – considering that for the invalidation of the contested contract it was necessary to establish the fact that the respondent knew or clearly should have known of the limitations of the power of the executive body of the company to make a transaction and that the claimant did not prove it – annulled the court decision in this part, dismissing the claim.

The court of cassation instance concluded that the respondent knew or clearly should have known of the limitations of the power of the executive body of the company to make a transaction because during the proceedings the representative of the claimant presented an audiotape of the court proceeding of the cassation instance dated 19 March 2021, where the respondent’s manager had acknowledged the fact of having received the copies of the charter and other documents [in relation to] the company.

The fact that the respondent knew of the limitations of the power of the executive body to alienate the asset is confirmed with the submitted statement of response dated 19 November 2019 in which the respondent indicates that the representatives of the company presented the copy of the charter and the minutes dated 20 July 2017 to comply with the requirements of Art 44 of Law [on LLC] and accordingly [to confirm] their legal capacity [правомочность] to conclude the sale-purchase agreement (P 101-5 Vol 1 [of the Record]).

It follows from the above that the court of cassation [instance] reasonably overturned the resolution of the court of appeal [instance] and upheld the decision of the court of first instance.

However, in justifying its decision, the court of cassation [instance] also stated that the [legal] transaction was carried out in violation of the requirements of the law, and in accordance with Art 116 CC, a transaction the content of which does not comply with the requirements of the law, as well as one carried out with the aim of knowingly violating the foundations of law and order [public policy] or morality, is void ab initio.

However, the court of cassation instance did not substantiate which part of the transaction (contract) or which of its contents did not comply with the requirements of the law and did not indicate which normative legal act it did not comply with. In addition, the court of cassation instance upheld the decision of the court of first instance, and the court of first instance rejected (did not recognise) the claimant’s arguments regarding the invalidity (nullity ab initio) of the contract on the basis of Arts 116, 124, and 125 CC.

In these circumstances, the collegium finds that the resolution of the court of cassation be amended, and the reference to Art 116 CC excluded from the judgment rationale of that resolution.