TMI Blog2005 (7) TMI 369X X X X Extracts X X X X X X X X Extracts X X X X ..... hich claimed a turnover of Rs. 3,500 crores. As the applicant-company offered higher interest than the banks, it was able to collect a number of deposits. It had to repay more than Rs. 160 crores collected by way of deposits from more than one lakh depositors. As the company went into trouble, it appears that it closed its operations completely after January 31, 1999. During the period January to March 1998, about 3,740 investors have invested their monies with the company under secured bonds. However, no security was created by the company in favour of any other person. During the said period, the respondent had also invested Rs. 90 lakhs in the company under "secured bonds", out of which Rs. 5 lakhs was repaid before the company was ordered to be wound up. It is the contention of the applicant that the respondent was very close to the former chairman of the applicant-company, and he executed a pledge agreement dated 4-1-1999, in favour of the respondent covering 61,740 equity shares of Divi s Laboratories Ltd. and also signed a blank transfer deed and gave it to the respondent along with the share certificates. As per the said agreement, the respondent was given the right to sell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same, the relief sought in this application is liable to be rejected. He would further submit that in any case C.P. No. 319 of 1999 was only closed and the winding up order was passed only in C.P. No. 496 of 2000. The said petition was filed on 10-8-2000, which is after the tripartite agreement. Hence, the provisions of section 536(2) cannot be invoked. He would also submit that insofar as invoking the provisions of sections 531 and 531A of the Act, there is no fraudulent preference, as the shares cannot be the assets of the applicant-company and in that case the transaction cannot be questioned, more particularly, on the ground of fraudulent preference under section 531 and avoidance of voluntary transfer under section 531A of the Act. 6. I gave my anxious consideration to the above submissions. From the pleading as well as submissions of the respective counsel, the following points arise for consideration : (1)Whether the shares in question belonged to the applicant-company or not? (2)If it is held that the shares belonged to the applicant-company, whether the transfer of those shares in favour of the respondent by the then chairman of the applicant-company is invali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the resolution, the said shares held by MSL were transferred at book value to the applicant-company in lieu of the loan obtained from the applicant-company. In view of the said communication the shares of Divi s Laboratories Ltd., were transferred to the applicant-company and on and from the date of resolution of the board of MSL, the shares must be held to be assets of the applicant-company. In this regard, it is also relevant to point out that the balance sheet of MSL as on June 30, 1999, subsequent to the board s resolution, did not include the said shares in the list of assets. In Vasudev Ramchandra Shelat v. Pranlal Jayanand Thakar [1975] 45 Comp. Cas. 43, the Supreme Court has held that the gift cannot be held to be incomplete for failure to comply with the formalities prescribed by the Companies Act for transer of shares. In CIT v. M. Ramaswamy [1985] 151 ITR 122 1 this Court has held that the transfer of shares is complete though it is not registered, as the registration is only a procedural formality and has no bearing on the transfer as between the transferor and the transferee. On the transfer of shares by a board s resolution and that too in lieu of the repaym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posing. Accordingly, the respondent-company, M/s. MCC Finance Ltd., is ordered to be wound up. The Provisional Liquidator already appointed shall be the Official Liquidator. The petition is ordered accordingly. The administrator already appointed is ordered to continue as administrator. The directors of the respondent-company are directed to file statement of affairs within a period of 21 days. In view of the order passed in this company petition, the alter company petitions in C.P. Nos. 319 of 1999, and 504 to 506 of 2000 are closed with the liberty granted to the petitioners to revive the company petitions if any necessity arises for modification of the order." 10. A reading of the above order, shows that the applicant-company was ordered to be wound up, as it was unable to discharge its liability to the Reserve Bank of India. Since the winding up was ordered in the said petition, the learned judge ordered the company petition filed by Mr. Avichi in C.P. No. 319 of 1999 as closed. The said petition came to be closed only due to the fact that the company has already been ordered to be wound up. It must be borne in mind that the company petition filed by Mr. Avichi was not di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within six months before the commencement of its winding up be deemed a fraudulent preference of its creditors and consequently is invalid. In this case, C.P. No. 319 of 1999 is said to have been filed by one Mr. Avichi for winding up of the applicant-company on November 4, 1999. The transfer of shares was effected in favour of the respondent on January 31, 2000, i.e., after the said petition was filed. As per section 441 of the Act, winding up proceedings are deemed to have commenced on the date of filing of the winding up petition. Section 531 relates to a fraudulent preference, if occasioned within six months before the commencement of the winding up proceedings. As the transfer of shares was effected after the commencement of the winding up proceedings in the company petition filed by the said Avichi, section 531 cannot be made applicable to the facts of this case. It is also relevant to note that the Reserve Bank of India filed C.P. No. 496 of 2000 for winding up of the applicant-company on August 10, 2000. As the transfer of shares was effected in favour of the respondent on January 31, 2000, and the said company petition was filed after a period of six months, section 531 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said petition was pending, pursuant to the tripartite agreement dated December 24, 1999, the shares were transferred on January 31, 2000, during the pendency of the winding up proceedings. In my opinion, the transfer of shares in favour of the respondent pursuant to the tripartite agreement dated December 24, 1999, is void in terms of the above section. The provisions of sections 531 and 531A relate to the invalidation and avoidance of the transactions that took place prior to the winding up proceedings. Section 536 relates to the avoidance of transfer, etc., after the commencement of the winding up proceedings. The object of section 536 seems to be to prevent improper disposition or dissipation of the property or transfer of shares of the company otherwise available for distribution among the creditors of the company in liquidation. The fundamental principle is that the assets of the company shall be made available for distribution pari passu amongst the creditors of the company and that no creditor should obtain advantage over his fellow creditors. The words employed in sub-section (2) of section 536, viz., "unless the court otherwise orders" relate to bona fide transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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