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TMI Blog2015 (3) TMI 463X X X X Extracts X X X X X X X X Extracts X X X X ..... among other things, of the sometimes catastrophic consequences of the delays in the judicial system and the effect these delays can have on unsuspecting third parties. The circumstances in which these companies were ordered to be wound up are also most peculiar. 3. The applicants, Pavlova Estates Private Limited ("Pavlova") identified the Free Press House Premises, and the attendant car parking space, as suitable for their needs. At the relevant time, i.e., in 2005, these apparently were owned by Neco Tech Auto Components Limited ("Neco Tech"). Pavlova learnt that Neco Tech had purchased the Free Press House Premises from Shri Ishar Alloys under a Deed of Transfer dated 25th November 2001. On 2nd November 2005, Advocates for Pavlova issued a public notice in the Economic Times and in the Maharashtra Times setting out that Pavlova was interesting in purchasing these premises free of any encumbrances and inviting all persons with claims to make these claims known within 15 days. A search report of 8th November 2005 in respect of Neco Tech showed that there were no encumbrances in respect of these Free Press House Premises. On 16th December 2005, Neco Tech and Pavlova executed a Sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red, therefore, to take possession of the Free Press House premises and demanded the relevant documents after 28th September 1999, stated to be the date of commencement of winding-up proceedings under Section 441 of the Companies Act, 1956. 7. On 21st November 2001, the FPH Society replied to the Official Liquidator. It said that Shri Ishar Alloys was a member of the society from 29th July 1989 to 8th September 2005 as the owner of those premises; that at no point of time had the Society been informed of the pendency of these winding-up petitions either by Shri Ishar Alloys; that the premises had been transferred first to Neco Tech on 8th September 2005 and then to Pavlova; that Pavlova was in occupation and use of the premises ever since; and that the premises were mortgaged to Kotak Mahindra Bank Limited. The Society provided photocopies of all documents of transfer. 8. On 1st December 2011, Pavlova's Advocates wrote to the Official Liquidator setting out the circumstances of its purchase of these premises, and saying that these had been purchased at the market price after exercising of due caution. Pavlova claimed to be bana fide purchaser of these premises. 9. The presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared Shri Ishar Alloys to have become a sick industrial unit. Holding that measures under Section 18 of the SICA were necessitated, the BIFR appointed ICICI was appointed as an operating agency to formulate a rehabilitation scheme. Shri Ishar Alloys and its promoters were directed not to dispose of any of the company's assets without the BIFR's consent. (e) In the meantime, on 2nd June 1999, Company Petition No. 649 of 1999 (one of the Company Petitions above) was filed by one IFGL Refractories Limited seeking the winding up of Shri Ishar Alloys. At this time, the reference to the BIFR by Shri Ishar Alloys had been made, and was registered and pending, and an operating agency had been appointed. On 1st July 1999, IFGL Refractories Limited's petition No. 649 of 1999 was accepted. Notice was issued to Shri Ishar Alloys. The petition was made returnable on 12th August 1999. On 22nd September 1999, the second winding-up petition above, Company Petition No. 1214 of 1999 was filed by MSTC against Shri Ishar Alloys. On 14th December 1999, IFGL Refractories Limited's Company Petition No. 649 of 1999 came to be admitted. It was made returnable on 7th February 2000. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H Society and satisfied itself as to the marketability of the title. At this stage, it must be noted that contemporaneous sales of July and November 2000 of the sixth and twelfth floor of the same building indicate that the rate per square feet of the sale to Neco Tech, i.e., Rs. 10,393/-, was not an undervaluation. The sixth floor premises were sold in July 2000 at Rs. 9,300/- per square foot, while those on the twelfth floor, admeasuring 1,736 square feet, were sold in November 2000, for about Rs. 11,710/- per square foot. Also, at about this time, Neco Tech arrived at a settlement with Steel & Tube Exports Private Limited and secured vacant possession of the Free Press House premises. For the next four years, till 2005, when the Free Press House premises were transferred to Pavlova, Neco Tech continued in possession and occupation of these premises. The premises were also duly transferred to Neco Tech's name in the records of the FPH Society. (j) On 19th September 2001, the BIFR passed an order inter alia holding that it was of the prima-facie opinion that Shri Ishar Alloys was not likely to make its net worth positive within a reasonable time and that it would not be able ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was made returnable on 27th March 2007. A Provisional Liquidator was appointed and directions were issued for advertisement. (n) On 26th July 2007, an order was passed in Company Petition No. 479 of 1998 (with Company Application No. 412 of 1998) - the winding up petition filed by Vysya Bank - inter alia to the effect that the registry had received a communication from BIFR recommending the winding up of Shri Ishar Alloys. The Court noted that it was unclear from this communication whether Shri Ishar Alloys had filed an appeal or not. A direction was issued to the registry to ascertain this, and the matter was then adjourned for three weeks. (o) On 13th September 2007, an order was passed in Vysya Bank's Company Petition No. 479 of 1998. This Court noted that it had received confirmation of BIFR's recommendation for winding of Shri Ishar Alloys; that the BIFR's recommendation had been converted into a winding up Company Petition No. 154 of 2007, which was admitted on 8th February 2007 with a provisional liquidator being appointed and directions being issued for advertisement. In view of that, Vysya Bank's winding up petition was also admitted and further direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress House premises from Shri Ishar Alloys. On 25th February 2013, Neco Tech Auto Components Limited / Jayaswal's Neco Industries Limited, filed a further affidavit, following an earlier order on 31st January 2013, saying that Company Petition No. 649 of 1999 filed by IFGL Refractories Limited had been filed and entertained in June 1999 despite the fact that the BIFR reference had been filed and registered well prior thereto by the BIFR. Two days later, on 27th February 2013, by another order, notice was directed to be given to the petitioners in the present Company Petition. On 26th September 2013, the Company Applications were amended to include a prayer [by inserting prayer (aa)] for a declaration that Company Petition No. 649 of 1999 and all orders in that petition including the order dated 16th January 2008 were null and void in view of the then pending reference of the BIFR. I must straightaway note that this amended prayer, included in both Company Applications in relation to the orders of admission and winding up passed in those petitions, is not pressed by Mr. Chinoy, learned senior counsel for the applicants. 13. From these dates it is apparent that there were as man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, made after the commencement of the winding up, shall, unless the court otherwise orders, be void." 441. COMMENCEMENT OF WINDING UP BY COURT.- (1) Where, before the presentation of a petition for the winding up of a company by the Court, a resolution has been passed by the company for voluntary winding up, the winding up of the company shall be deemed to have commenced at the time of the passing of the resolution, and unless the Court, on proof of fraud or mistake, thinks fit to direct otherwise, all proceedings taken in the voluntary winding up shall be deemed to have been validly taken. (2) In any other case, the winding up of a company by the Court shall be deemed to commence at the time of the presentation of the petition for the winding up. (Emphasis supplied) 15. From this, it is clear that the date of winding up by a court is the date of presentation of the petition. Given that the present two petitions were not maintainable and that the Vysya Bank petition was subsequently dismissed, the only petition whose presentation date could be reckoned for the purposes of Section 441, was, therefore, the petition on the BIFR recommendation, i.e., Company Petition No. 154 of 2007 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fair market value for the premises, but also acquired a good, clear and marketable title. 18. Mr. Chinoy relies on two decisions of a learned Single Judge of this Court, in National Packaging v. Official Liquidator of Eupharma Laboratories Ltd. Order dated 23rd July 2013 in Company Application No. 108 of 2013 in Company Petition No. 945 of 1998, per N.M. Jamdar, J. and in Alkaben Rajeshbhai Shah v. Official Liquidator of Eupharma Laboratories Ltd. Order dated 24th September 2013 in Company Application No. 416 of 2012, per N.M. Jamdar, J. In both these orders, in circumstances that are perhaps not quite as extreme as the present case, the Court exercised its discretion having regard to the peculiar facts and circumstances of each of those cases and did not invalidate the sales. In Alkaben Rajeshbhai Shah's case (supra) the Court ordered a valuation on condition that if a difference in valuation was found, the purchaser would pay the differential. 19. Mr. Sen, learned senior counsel appearing for the Official Liquidator, however, contests this formulation by Mr. Chinoy. He relies on the decision of a Division Bench of this Court in Keshrimal Jivji Shah v. Bank of Maharashtra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted, those orders would operate in the form of an injunction. Therefore, according to Mr. Sen, there was in operation at least an order of injunction prior to the transfers in 2005 in favour of Pavlova. However, it must be noted that Vysya Bank's winding up Company Petition No. 479 of 1998 was not admitted or ordered to be advertised till 13th September 2007. The mere pendency of Vysya Bank's winding up petition, without any order of admission, advertisement or appointment of a provisional liquidator, could never have operated as an injunction in 2005. This mean that the only order which could possibly be said, on Mr. Sen's formulation, to have operated as an injunction was the order of 14th December 1999 by which IFGL Refractories Company Petition No. 469 of 1999 was admitted and ordered to be advertised. The trouble with this formulation is two-fold. First, that order of admission was set aside on 14th December 2000, exactly one year later. Therefore, from 14th December 2000, even in the present Company Petition No. 649 of 1999 there was no restraint order or any order that would have the effect of functioning as an injunction. Secondly, as I have already noted, bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ordinary course should be protected. Park Ward & Co Ltd, In re (1926) 1 Ch 828; Andhra Bank Ltd v. Provisional Liquidator, Godavari Sugars & Refineries Ltd. [1954] 24 Comp. Cas. 149 (Mad.). The expression "unless the Court otherwise orders" is one that imposes a duty on the court; it must deal with each case on its own facts, and have regard to questions of good faith and honest intention, to do what is just and fair. Certainly the legislature could not have intended that such honest, bona fide and genuine transactions be thrown to the winds. There are no statutory or legislative restrictions or stated principles governing or controlling the exercise of this discretion. It is, therefore, at large and the same principles that apply to every kind of judicial discretion must, too, apply here proprio vigore. Steane's (Bournemouth) Ltd., In re (1950) 1 All ER 21; T.W. Construction Ltd, In re (1954) 24 Comp. Cas 180 (Ch. D); Travancore Rayons Ltd. v. Registrar of Companies [1988] 64 Comp. Cas 819 (Ker). 25. In Monark Enterprises v Kishan Tulpule (1992) 74 Comp. Cas. 89 a learned single Judge of this Court enunciated the principle thus: "The basic principle is clear. Section 536( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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