TMI Blog2008 (9) TMI 550X X X X Extracts X X X X X X X X Extracts X X X X ..... these transactions cannot be declared as void under section 536(2) of the Companies Act, 1956. Therefore, this court has to necessarily affirm the order of the learned single judge. Appeals dismissed. - O. S. A. NOS. 201, 210 AND 211 OF 2005 AND C. M. P. NOS. 14739, 14740, 15216,15217, 15218 AND 15219 OF 2005 - - - Dated:- 9-9-2008 - M. CHOCKLINGAM AND M. VENUGOPAL, JJ. Jayesh B. Dolia, Aiyar Dolia, M. Murali and P. Rathinamani for the Appellant . R. Krishnamoorthy and Shivakumar for the Respondent. Babu for the Official Liquidator. JUDGMENT M. Chockalingam, J. This appeal has arisen from an order of the learned single judge of this court made in C. A. No. 1275 of 1999 in C. P. No. 201 of 1996 (V. G. P. Finances Ltd. v. Official Liquidator [2005] 127 Comp Cas 1). The case of the first respondent/applicant is as follows : The applicant is a secured creditor of Neptune Inflatables Ltd., which was wound up as per the order of the court dated March 10, 1999. When the said company approached the applicant for loan facilities, the applicant had extended the same to the tune of Rs.65.20 lakhs. The company in liquidation had mortgaged th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties; that in this case, notice should have been issued to the secured and unsecured creditors ; that the provisions of section 536(2) of the Companies Act, 1956, should have been considered; that while allowing the company, the secured creditors like the appellants and the workmen of the company in liquidation have been denied their legitimate dues; that while deciding the issue as to the declaration of transfer during the pendency of the company petition, namely, whether it is void or not, the parties should be given opportunity to let in evidence, but not done so; that in the absence thereof, the transfer of the property shall be held to be invalid and void ab initio, and under the circumstances, the order of the learned single judge has got to be set aside. Learned senior counsel appearing for the first respondent would submit that the entire transaction of the first respondent is bona fide ; that the appellant Indian Bank admittedly not having any charge over the said immovable property cannot question the validation of the bona fide trans action as found by the learned single judge; that the rights of any secured creditor has to be individually safeguarded ; tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion dated June 1, 1999, informed the applicant about the same and also about the taking possession of the property. Accordingly, the official liquidator visited the schedule property on June 8, 1999, when the applicant put forth its objection from taking pos session. Thereafter, the official liquidator took possession of the property and recorded the minutes. The applicant filed C. A No. 1275 of 1999 in V. G. P. Finances Ltd. v. Official Liquidator [2005] 127 Comp Cas 1 (Mad), for directing the official liquidator to deliver possession of the property. That application was dismissed for default on August 14, 2002. The above application was not filed seeking proper remedy and hence necessary application to validate the above conveyance of the property was to be filed. Accordingly, application was filed for the said relief. C. A. No. 1275 of 1999 was dismissed on November 29, 2004, against which the applicant filed O. S. A. No. 13 of 2005. The said appeal was allowed by a Division Bench of this court remitting the matter back for fresh consideration and observing that the learned single judge should consider the question whether the transaction would be valid or not on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The company by an order of court was wound up on March 10,1999. From the above, it would be quite clear that both the mortgage deeds and sale deeds were executed by the company in liquidation in favour of the applicant after the filing of the company petition for winding up and before the order of winding up and hence pursuant to the order of winding up, the official liquidator took delivery of possession of the property on June 8, 1999. The applicant filed an application in C. A. No. 1275 of 1999 seeking re-delivery of the property. On dismissal of the application, the applicant filed O. S. A. No. 13 of 2005, whereby the order of the learned single judge was set aside and an order of remittal was made which reads as follows : "9. Though the application has been filed for delivering possession, we are of the view that since the official liquidator has taken over possession, he is permitted to retain the possession and it is not necessary for him to redeliver the possession to the appellant-company. Further, as already held, the question whether the transfer is valid or void has to be examined. It is needless to say that it is always open to the learned single judge to permit the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion was filed on October 14, 19% ; that the said date shall be taken as the date from which winding up proceedings were commenced for the purpose of applicability of the above said provision, and so the sale deeds executed on February 11, 1999 and February 16, 1999, by the company under liquidation, are void in terms of section 536(2) of the Act. On the contrary, it is contended by the first respondent's side that every transfer that is made even after the commencement of the winding up proceedings, the same would not by itself become void ab initio or void, and the transaction in question would fall under the clause "unless the Tribunal otherwise orders" since the transactions were bona fide . The apex court had an occasion to consider whether and under what circumstances a transfer made even after the commencement of the winding up proceedings, could be avoided in a case in Pankaj Mehra v. State of Maharashtra [2000] 100 Comp Cas 417 (SC); [2000] 2 SCC 756, wherein it has been held as follows (pages 423 to 425 of 100 Comp Cas) : "14. In the above backdrop alone we can consider the impact of the legislative direction in section 536(2) that any disposition of the property of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that 'there is no evidence to show that those payments were made either under compulsion of circumstances in order to save or protect the property of the company or that there was any commercial compulsion to enable it to run its business'. The decision only indicates that such payments could have been made valid if evidence was adduced to show that there was compulsion of circumstances. In fact, this decision lends support to the interpretation that the payments which were made after the commencement of winding up proceedings, would not become ab initio void. 17. An early decision of a Division Bench of the Bombay High Court in Tulsidas Jasraj Parekh v. Industrial Bank of Western India, AIR 1931 Bom. 2, was sought to be relied on by most of the learned counsel who argued for different appellants. The question which the court considered therein pertained to section 227(2) of the old Companies Act, 1913, which was identical to section 536(2) of the present Act. Certain payments made by a company after commencement of the winding up proceedings were questioned and the Division Bench considered the scope of sub-section and noticed that the principle had been borrowed f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and its business might be paralysed. The purpose underlying the investment of the power in court is for the benefit and the interest of the company so as to ensure that a company which is made the subject of a winding up petition may nevertheless obtain the money necessary for carrying out its business and so as to avoid its business being paralysed. If that is the purpose and object of the section, it would hardly be proper and just to stultify the power and restrict its operation since otherwise it is bound to be counter productive in the sense that the very purpose of keeping the company as a going concern so as to ensure the interest of the shareholders and creditors would be defeated'. 19. In Gray's Inn Construction Co. Ltd., In re [1980] 1 All ER 814, the Court of Appeal (Civil Division) considered the principle on which discretion of the court to validate the dispositions of property made by a company, during the interregnum between presentation of a winding up petition and the passing of the order for winding up, has been dealt with. Section 227 of the English Companies Act, 1948, is almost the same as section 536(2) of the Indian Companies Act. Dispositions which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roversy that the company in liquidation passed a resolution in the annual general meeting to avail of loan, to create mort gage and to dispose of the assets by way of sale even on September 29, 1995, itself. The loan agreement was entered into between the company in liquidation and the applicant on December 1, 1995 and the loan facilities were availed of by the company in liquidation to the tune of Rs. 65.20 lakhs consisting of Rs. 10 lakhs, Rs. 25 lakhs, Rs. 25 lakhs and Rs. 5.20 lakhs even before the filing of the company petition for winding up on October 14, 1996. The said facts namely the loan agreement and the loan facilities to the extent of Rs. 65.20 lakhs were raised accordingly by the company in liquidation from the applicant even before the filing of the winding up petition are not disputed either by the official liquidator before the learned single judge or by the appellants before this court. It is true that as security for the loan raised, the company under liquidation has executed the mortgage deed on January 31, 1997. The same was also reported to the Registrar of Companies and registered also on February 5, 1997. Following the same, two sale deeds dated February 11 ..... 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