2000 (8) TMI 1034 - HC - Companies Law

Summary

Issues:
1. Validity of sale of assets by U.P.F.C. in favor of respondent No. 2 belonging to a company in liquidation.

Analysis:
The Official Liquidator filed an application seeking to declare a sale void under section 537(2) of the Companies Act, 1956, conducted by U.P.F.C. in favor of respondent No. 2 for assets of a company in liquidation. The company, Hira Floon Ltd., was ordered to be wound up, and the assets were claimed to be in the custody of the court since the presentation of the winding-up petition. The U.P.F.C. sold the assets to respondent No. 2 without court approval. The Official Liquidator argued that the sale was void under the Act, and the proceeds should be distributed among creditors. The defense by U.P.F.C. contended that they were a secured creditor and had the right to sell the mortgaged property to recover the loan granted to the partnership firm before its conversion into a public Ltd. Company.

The court considered the legal provisions under sections 441(2), 456(2), and 537(1)(a) and (b) of the Companies Act. It was noted that the company's liabilities and assets had been transferred from the partnership firm to the company in liquidation. However, the court found that the property sold by U.P.F.C. did not belong to the company as it was originally mortgaged by one of the partners of the firm. The court emphasized that the conversion of the firm into a company did not automatically transfer the assets, as evidenced by the balance sheet and incomplete legal formalities regarding asset transfer.

The court referred to a relevant case law to emphasize that any disposition of property after the commencement of winding up requires court approval. However, the court concluded that for a sale to be declared void, it must be proven that the company owned the property in question. Since the property sold by U.P.F.C. was not transferred to the company in liquidation, the court dismissed the Official Liquidator's application, stating it lacked merit. The court ruled in favor of U.P.F.C., highlighting that they had the right to proceed against the mortgaged property to recover the loan granted to the partnership firm.