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2022 (3) TMI 201 - HC - Companies LawTransfer of shares - seeking validation of the purchase of 7,000,100 shares of Brainhunter, which were held by Zylog, upon enforcement of the pledge by ICICI Bank Limited, India - whether a secured creditor requires leave under Section 537 of CA 1956? - HELD THAT:- Upon perusal of Section 537, it is evident that it deals with attachment, distress, execution and sale of the estate, properties and effects of a company after commencement of winding up. It further prescribes that any of the above, if undertaken without the leave of the court, after the commencement of winding up, is void. On a textual reading, Section 537 does not exclude secured creditors from its ambit - By Act 35 of 1985, the proviso to Section 529(1) was inserted and a pari passu charge was created in favour of the workmen of a company to the extent of the workmen's portion in every secured asset of the company in liquidation. Indeed, by virtue of Clauses (a) and (b) of such proviso, the official liquidator concerned was conferred the statutory right of representing the workmen for purposes of asserting and enforcing the rights of the pari passu charge holder. Besides, Section 529A was introduced in the statute and workmen's dues became entitled to priority over all other debts. On the facts of this case, the Official Liquidator was restrained from taking steps to close the company, but all administrative decisions were required to be taken with his concurrence and he was directed to take over all money transactions and the accounts pertaining thereto. The consequence of appointing the Official Liquidator as the provisional liquidator is that he takes charge of the assets and affairs of the company concerned. When all the above factors are concerned, the only reasonable conclusion is that the legal fiction also gets triggered upon the appointment of the Official Liquidator as provisional liquidator. Although there is no documentary evidence to establish the direct knowledge of the Purchaser, the Purchaser was clearly under an obligation to undertake due diligence before acquiring 100% of the paid up share capital of Brainhunter especially when such transaction involved enforcement of a pledge. Indeed, the documents on record include communications from the Purchaser to the Reserve Bank of India (the RBI) and to the Bombay Stock Exchange (BSE) and the National Stock Exchange (the NSE) - It should also be borne in mind that the Purchaser is a company incorporated in and carrying on business in India. When these facts and circumstances are considered holistically, the only reasonable inference is that the Purchaser was probably aware that the pledgor was a company in liquidation and, without doubt, had the means to discover the same on exercise of reasonable due diligence. Therefore, either the pledgee or the Purchaser should have requested for leave before enforcing the pledge. The Purchaser says that it invested considerable sums to revive Brainhunter after the acquisition by relying upon the financial statement for the financial year ended 31.03.2021 in contradistinction to the financial statement for the financial year ended 31.03.2014 when the acquisition took place. While the accumulated losses have reduced and the share capital has increased, no definitive conclusions may be drawn since too many variables are at play - the disposition is deserving of contingent validation subject to conditions precedent. Ordinarily, a private sale without following a sealed tender or public auction process would not be validated, but in the unique circumstances of this case involving a private sale by a pledgee, in terms of and pursuant to the Pledge Agreement. The valuation of the shares of Brainhunter shall be arrived at as on the date of acquisition by the Purchaser. As regards the pledgee, ICICI Bank India, it was satisfied with the price realised on the basis of the earlier valuation. Therefore, it is just and necessary that ICICI Bank India should not be entitled to any additional consideration even if the shares are found to be of higher value on revaluation. Instead, the entire additional consideration, if any, should accrue to the benefit of Zylog. For purposes of carrying out such valuation, the Purchaser should obtain the concurrence of the learned Administrator and the Official Liquidator and appoint two renowned chartered accountants as valuers - The disposition in favour of the Purchaser is validated subject to and contingent on the fulfillment of the above requirements. If the above requirements are not fulfilled, the disposition stands declared ipso facto void. In such event, it is open to the Administrator and the Official Liquidator to file any consequential applications. In order to verify whether the conditions precedent have been fulfilled, upon receipt of the two valuation reports and after arranging for the differential consideration in terms thereof, the Purchaser shall file an application before this Court seeking permission to proceed to conclude the transaction in terms of this order. Application disposed off.
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