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TMI Blog2005 (9) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Annexure 'L' insofar as it relates to the schedule properties, subject-matter of agreements. In C.A. 481 and 482 of 2005, the applicants having not instituted Original Suits for specific performance of agreements have restricted the reliefs to a direction to the Official Liquidator to execute the sale deeds in respect of the properties, subject-matter of agreements of sale. 2. Facts in brief are : (i) The respondent-company in liquidation, was incorporated on 7-4-1941 under the Companies Act, 1913, with its main object of manufacture of machine tool products and foundry castings, for which purpose, the Company was allotted large tracts of land by the State Government. The Company is said to have availed credit facilities from financial institutions such as ICICI, IDBI and SBI. The representative of ICICI was a nominated Director of the respondent-company. According to the applicants, the company having suffered huge losses, the networth of the Company being eroded, impelled the Board of Directors to pass a resolution in their meeting dated 30-9-2000, Annexure C, to sell the non-performing assets, more particularly the quarters and vacant land not being a part of the undertaki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordered the respondent-company to be wound up. The Official Liquidator in his report No. OLR 55/2005 in Company Petition No. 166/2001, having sought for permission to sell the assets of the Company in liquidation, this Court directed the sale by inviting sealed tenders from intending purchasers, causing advertisement of the notice of auction sale, which was carried out in the 'Economic Times' dated 19-4-2005, Annexure-'L'. 6. It is the allegation of the applicants that the Official Liquidator ought to have excluded the properties agreed to be conveyed under the agreements of sale entered into between the applicants and the Company, while notifying the properties for sale. The applicants state that they were and are always ready and willing to perform their part of the contract, while it was the company which had committed breach of terms of contract. Hence, these applications. 7. Having heard the learned counsel for the parties and perused the pleadings, the question for decision making in these applications is, "Whether the applicants are entitled to the reliefs sought for in the applications?" 8. Sri G. Krishnamurthy, learned counsel for the applicants drew my attention to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that the applicants are not invested with an unimpeachable claim so as to be entitled to a discretionary order at the hands of this Court. Learned counsel would make reference to the decisions of the Supreme Court in the case of Chittoor District Co-operative Marketing Society Ltd. v. Vegetols Ltd. 1987 (Suppl.) SCC 167 and in the case of Pankaj Mehra v. State of Maharashtra AIR 2000 SC 1953. 10. The object of winding up of a Company, in the words of LINDLEX, LJ., is "to put all unsecured creditors upon an equality and pay them pari passu" in Cockpits Colliery Co., In re [1882] 21 Ch.D. 322. It must necessarily follow that all proceedings against the company, by way of suit, execution or otherwise, ought to stop, so that there may be no scramble amongst the creditors to get at the assets. Hence, section 446 of the Act, does not permit the continuance of the proceedings without the leave of the Company Court. Leave of the court is not automatic, but should be after an examination of the facts of each case and exercise of discretion. Leave of the court could be unconditional or conditional. It is well-settled that unless the question at issue, in the action or proceeding, is on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceive any bona fide person transacting business with the company by stage managing a petition to be presented for winding up in order to defeat such bona fide customers. This consequence has been correctly voided by the Division Bench in the impugned judgment. 21. If the payment is not ab initio void the company cannot contend that it is legally forbidden from making payment of the cheque amount when notice was issued by the payee regarding dishonour of the cheque. To circumvent this hurdle an endeavour was made by some of the appellants' counsel to show that the very issuance of a cheque would amount to disposition of property. We are unable to accept the said contention particularly in view of the definition of 'cheque' in the NI Act. 'A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand'." (p. 1958) 13. The undisputed fact is that the respondent-company was ordered to be wound up, by order dated 1-4-2004, Annexure G, passed in Co. P. Nos. 77 and 78/2000 and connected petitions, of which Co. P. 77/2000 was presented on 14-3-2000. The alleged agreements of sale were said to be executed between the period from 29-8-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -5-2000 having regard to the accumulated losses of the company having exceeded its entire networth, for the financial year ending 31-5-2000, resolved to make a reference to the Board for industrial and financial reconstruction, for short BIFR. It is not disputed that pursuant to the BIFR's recommendation to wind up the company, coupled with the creditors' winding up petitions this Court ordered the company to be wound up. 16. In the premise of the above facts, the Board of Directors having the special knowledge that as on 31-5-2000, the accumulated losses exceeded the entire networth of the company, the sale of the assets of the company under the agreements, could hardly be said to be bona fide, proper and just. This would show that the sale was not made either under compulsion of circumstances, in order to save or protect the property of the company, or that there was a commercial compulsion to enable it to run its business. The question of business of the company being paralyzed and there was an urgent contingency to be met by the company is far from truth. 17. There is yet another reason as to why the transactions entered into between the applicants and the company cannot be v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o hold, as valid, the agreements of sale in favour of the applicants. 18. The next contention of the learned counsel for the applicants that the acts done by the Directors of the Company are valid, notwithstanding the resolution in the meeting dated 30-9-2000, coupled with the execution of the agreements of sale, which may afterwards be discovered that the appointment of the directors were invalid by reason of defect or disqualification, is noticed only to be rejected. Section 290 of the Act deals with validity of acts of Directors. A plain reading of this section one can easily comprehend that it applies to cases of appointment of directors subsequently discovered to be invalid. Thus a stranger to a contract with the directors of the company, may rely upon this section if he has no knowledge of the irregularity. The facts of the present case are not that the appointments of the directors was subsequently discovered to be invalid. The decision in Eastern Linkers (P.) Ltd.'s case (supra), has no application to the facts of this case. 19. Applying the principles laid down by the Supreme Court in the aforesaid decisions and in the view that I have taken supra, I am of the considered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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