2003 (3) TMI 603 - HC - Companies Law

Summary

Issues Involved:
1. Whether the transfer of flats by the company in liquidation (PFSL) to certain purchasers constitutes fraudulent preference under Sections 531 and 531A of the Companies Act.
2. Whether the transactions were made in good faith and for valuable consideration.
3. Whether the Official Liquidator should be permitted to deseal the flats.

Detailed Analysis:

1. Fraudulent Preference under Sections 531 and 531A of the Companies Act:
- Section 531: Any transfer of property made by a company within six months prior to the commencement of its winding up, which would be deemed a fraudulent preference in individual insolvency, is invalid.
- Section 531A: Any transfer of property made within one year before the presentation of a winding-up petition, not in the ordinary course of business or not for valuable consideration, is void against the liquidator.

The court examined the transactions involving flat Nos. 8, 16, and 17, which were transferred by PFSL to certain purchasers on 7-5-1999, within six months before the presentation of the first winding-up petition on 21-10-1999. The transactions were scrutinized for being voluntary transfers, not under legal compulsion, and for showing preference to certain creditors over others, thus falling under fraudulent preference.

2. Good Faith and Valuable Consideration:
- Flat No. 8: Sold at Rs. 13 lakhs against an acquisition cost of Rs. 16.50 lakhs, resulting in a loss of Rs. 3.50 lakhs. The transaction was made before the loan due date and without clear evidence of who paid the transfer fees, indicating a lack of good faith.
- Flat No. 16: Sold at Rs. 12.28 lakhs against an acquisition cost of Rs. 16.50 lakhs, resulting in a loss of Rs. 4.22 lakhs. The company paid Rs. 2.72 lakhs in cash to the purchaser, showing a preference and lack of bona fide action.
- Flat No. 17: Sold at Rs. 14.43 lakhs against an acquisition cost of Rs. 19.37 lakhs, resulting in a loss of Rs. 4.95 lakhs. The transaction was made before the bill rediscounting facility's due date, indicating a lack of good faith and bona fide action.

The court found that the transactions were not made in good faith or for valuable consideration, as the company sold the flats below acquisition costs and preferred certain creditors without legal compulsion.

3. Desealing of Flats:
The Official Liquidator requested the desealing of the flats, arguing that the transactions were genuine and complied with all formalities. However, the court, after detailed analysis, concluded that the transactions were fraudulent preferences and not bona fide. Therefore, the request to deseal the flats was denied.

Conclusion:
The court held that the transactions involving flat Nos. 8, 16, and 17 were fraudulent preferences under Sections 531 and 531A of the Companies Act. The transactions were not made in good faith or for valuable consideration, and the flats in question vested in the Official Liquidator. The request to deseal the flats was denied, and the Official Liquidator was directed to seal the properties. The judgment emphasized the importance of preventing fraudulent preferences to ensure equitable treatment of all creditors during the winding-up process.