2009 (10) TMI 527 - HC - Companies Law

Post sale approval seeked in respect of the property belonging to the company (in liquidation) has been dismissed doubting the bona fides of the sale made apart from other grounds - Held that - A perusal of the order dated October 12 2004 passed by the Debts Recovery Tribunal would show that the property was required to be auctioned and a detailed order has been passed in that regard. There is no whisper in the application with regard to publication of any notice or compliance with the directions issued by the Debts Recovery Tribunal. The conclusion reached by the learned company judge holding that the sale was not bona fide stands further fortified as the appellant has failed to show that the directions issued by the Debts Recovery Tribunal were not violated. Accordingly it has to be held that the sale is fraudulent and it suffers from numerous lapses. Therefore the post sale approval cannot be accorded and we find no legal infirmity in the impugned order dated May 7 2009 passed by the learned company judge. Appeal dismissed.

Summary

Issues:
1. Dismissal of application seeking post-sale approval of property belonging to a company in liquidation.
2. Validity of sale transaction during winding up proceedings.
3. Bona fides of the sale and one-time settlement.
4. Compliance with directions of the Debts Recovery Tribunal for property auction.
5. Judicial interpretation of sections 536 and 537 of the Companies Act, 1956.

Issue 1: Dismissal of Application Seeking Post-Sale Approval:
The appeal was filed against the order dismissing the application for post-sale approval of a property belonging to a company in liquidation. The official liquidator opposed the application, arguing that the sale transaction was a sham to defeat winding up proceedings and defraud creditors. The court held that the sale without reference to the official liquidator during winding up proceedings could not be validated.

Issue 2: Validity of Sale Transaction During Winding Up Proceedings:
The court examined the validity of the sale transaction that took place during the pendency of winding up proceedings. It was held that the sale without court approval could be void under section 537 of the Act. The court emphasized the need for court orders for property disposition during winding up proceedings to be valid.

Issue 3: Bona Fides of the Sale and One-Time Settlement:
The court analyzed the bona fides of the sale and the one-time settlement. It was observed that the sale amount was nearly the same as the settlement amount, raising doubts about the transaction's legitimacy. The court noted that the sale did not benefit the company or its creditors, indicating potential fraudulent intent to avoid personal liabilities.

Issue 4: Compliance with Directions of the Debts Recovery Tribunal:
The court reviewed the directions issued by the Debts Recovery Tribunal for property auction and sale. It was found that the appellant failed to demonstrate compliance with the tribunal's directives, strengthening the conclusion that the sale was not bona fide. The court emphasized the importance of following tribunal orders in property transactions.

Issue 5: Judicial Interpretation of Sections 536 and 537 of the Companies Act:
The court interpreted sections 536 and 537 of the Companies Act to determine the validity of the sale transaction. It highlighted the significance of court orders in property disposition during winding up and emphasized the need for bona fide transactions that benefit the company and its creditors. The court's decision to dismiss the appeal was based on the lack of merit in challenging the lower court's findings regarding the legitimacy of the sale.

In conclusion, the appeal was dismissed, and costs were imposed on the appellant. The court upheld the lower court's decision, emphasizing the importance of following legal procedures and ensuring the legitimacy of transactions during company liquidation proceedings.