1998 (11) TMI 501 - HC - Companies Law

Issues Involved:
1. Validity of property transactions by Rushvi Estate and Investments Pvt. Ltd. and Rutuja Estate and Investments Pvt. Ltd. with Shri Ambica Mills Ltd.
2. Legality of the attachment by the official liquidator.
3. Compliance with the Supreme Court's injunction and undertaking.
4. Applicability of Section 293(1)(a) and Section 536(2) of the Companies Act, 1956.
5. Claims of bona fide purchase by the applicants.
6. Fiduciary responsibility of the directors of Shri Ambica Mills Ltd.

Issue-wise Detailed Analysis:

1. Validity of Property Transactions:
Rushvi Ltd. and Rutuja Ltd. claimed to have purchased parcels of land from Shri Ambica Mills Ltd. through agreements and conveyance deeds executed in 1988 and 1993, respectively. They argued that the transactions were bona fide and legally valid. However, the court noted that these transactions were executed despite a pre-existing injunction by the Supreme Court and without obtaining necessary permissions from the financial institutions holding charges over the properties. The court found that the transactions were not in compliance with the legal requirements and were therefore invalid.

2. Legality of Attachment by Official Liquidator:
The official liquidator had attached the properties in question, arguing that the transactions were void due to non-compliance with legal provisions and the Supreme Court's injunction. The court upheld the liquidator's actions, stating that the possession of the properties by the official liquidator was legal and justifiable. The court rejected the applicants' request to lift the attachment.

3. Compliance with Supreme Court's Injunction and Undertaking:
The court emphasized the importance of the injunction granted by the Supreme Court on April 15, 1987, which restrained Shri Ambica Mills Ltd. from alienating its immovable assets without the Supreme Court's leave. The undertaking given by the company's secretary on May 27, 1987, further reinforced this restriction. The court found that the transactions by Rushvi Ltd. and Rutuja Ltd. were in clear violation of this injunction and undertaking, rendering them void.

4. Applicability of Section 293(1)(a) and Section 536(2) of the Companies Act, 1956:
Section 293(1)(a) requires the consent of a public company in a general meeting for the sale of its undertakings. The court noted that no such resolution was passed by Shri Ambica Mills Ltd., making the transactions unauthorized. Section 536(2) renders any disposition of property by a company after the commencement of winding-up proceedings void unless approved by the court. The court found no compelling circumstances to validate the transactions under this section, emphasizing the need to protect the interests of the company's creditors and shareholders.

5. Claims of Bona Fide Purchase:
The applicants argued that they were bona fide purchasers for value. However, the court found that they failed to conduct necessary due diligence, such as reviewing the company's audit reports and obtaining clearance from financial institutions. The court held that the applicants' failure to make these inquiries disqualified them from claiming bona fide purchaser status. The court cited the principle that a party which fails to make necessary inquiries is deemed to have notice of previous developments.

6. Fiduciary Responsibility of Directors:
The court highlighted the fiduciary responsibility of the directors of Shri Ambica Mills Ltd., particularly in light of the undertaking given to the Supreme Court. The court found that the directors' actions in executing the transactions without necessary permissions and in violation of the Supreme Court's injunction constituted a breach of their fiduciary duties. The court emphasized that such actions could not bind the company in liquidation.

Conclusion:
The court rejected all the applications filed by Rushvi Ltd., Rutuja Ltd., and Jain Corporation, holding that the transactions were invalid and unenforceable against the company in liquidation. The court directed the official liquidator to continue with the attachment and take further steps in accordance with the law. The court also ordered the applicants to pay costs to the official liquidator and rejected their request for a stay of the order.

← Previous Next →