1999 (12) TMI 785 - HC - Companies Law

Summary

Issues:
Application under sections 531, 531A and 537 of the Companies Act, 1956 for declaration of the transfer of assets as invalid and void, recovery of possession of assets, fraudulent transaction allegations, preferential treatment to a creditor, valuation of assets, involvement of related parties, application of sections 29 and 46(b) of the State Financial Corporations Act, ex parte appearances, absence of counter filings, examination of witnesses, burden of proof, fraudulent preference criteria, market value discrepancies, recovery of unsold properties.

Detailed Analysis:
1. The application under sections 531, 531A and 537 of the Companies Act sought a declaration that the transfer of assets of a company in liquidation to a third party was invalid and void. The petitioner, the Official Liquidator, alleged that the transfer was done fraudulently, without proper valuation, and in collusion with the third party. The petitioner aimed to recover possession of the assets based on these claims.

2. The company had taken term loans and subsequently sold its assets to the third party for a sum lower than the value shown in its balance sheet. Allegations of fraudulent transfer, collusion, and preferential treatment to a creditor were raised by the petitioner against the second and third respondents involved in the transaction.

3. The first respondent, a secured creditor, defended the transaction as being in the ordinary course of business and denied the allegations of fraudulent preference. The first respondent argued that it was entitled to take action under specific sections of the State Financial Corporations Act and was not involved in the fraudulent activities alleged by the petitioner.

4. The third respondent, the purchaser of the company's assets, refuted the fraudulent transaction claims, stating that the purchase was made at a reasonable price after obtaining necessary permissions and valuations. The third respondent denied any knowledge of the liquidation proceedings and defended the transaction as legitimate.

5. Witnesses were examined on behalf of the petitioner and the third respondent. The evidence presented highlighted discrepancies in asset valuation, lack of proper procedures followed in the transfer, and differing perspectives on the legitimacy of the transaction.

6. The judgment emphasized the legal criteria for establishing fraudulent preference, the burden of proof on the petitioner to demonstrate fraudulent intent, and the requirement for concrete evidence to support such claims. The court analyzed the transaction details, involvement of related parties, and the absence of evidence supporting the fraudulent transaction allegations.

7. Ultimately, the court concluded that the petitioner failed to prove the transaction as fraudulent or that preferential treatment was given to a specific creditor. The judgment dismissed the application, allowing the recovery of unsold properties from the second respondent based on the discrepancies identified during the proceedings. Costs were awarded accordingly, concluding the legal dispute.