2005 (10) TMI 281 - HC - Companies Law

Issues Involved:
1. Validity and binding nature of the sale deed in the winding up proceedings.
2. Bona fide nature of the sale transaction.
3. Fair market price of the property and potential undervaluation.
4. Intent to defeat claims of depositors and creditors.
5. Entitlement of the appellant to an order as prayed for.
6. Bona fide and validity of the sale transaction.
7. Relief, if any, to the appellant.

Issue-Wise Detailed Analysis:

1. Validity and Binding Nature of the Sale Deed in the Winding Up Proceedings:
The appellant filed applications to declare that the sale deed executed by R.P.S. Benefit Fund Limited in favor of the appellant is valid and binding and cannot be challenged in the winding up proceedings. The Official Liquidator argued that the sale was void under section 531A of the Companies Act, as it was made within six months before the winding-up petitions and was for a consideration significantly lower than the property's cost.

2. Bona Fide Nature of the Sale Transaction:
The court considered whether the sale was bona fide and in good faith. The learned Single Judge found that the company was under heavy pressure and conducted its affairs not in the interest of the company or its depositors but treated the assets as private properties. The sale was completed in a hurried manner for a consideration of Rs. 165 lakhs, while the property's acquisition cost was Rs. 3,18,57,889, indicating the transaction was not bona fide.

3. Fair Market Price of the Property and Potential Undervaluation:
The court evaluated whether the property was sold for a fair market price. The Official Liquidator and the Inspection Committee reported that the property was grossly undervalued. The appellant paid additional stamp duty based on a guideline value of Rs. 346.61 lakhs, which was much higher than the sale consideration, indicating undervaluation. The learned Single Judge concluded that the property was sold at 50% of the book value, and the appellant was aware of the market value discrepancy, thus reflecting an undervaluation.

4. Intent to Defeat Claims of Depositors and Creditors:
The court examined if the sale was intended to defeat the claims of depositors and creditors. The learned Single Judge found that the transaction was entered into collusively to deceive creditors and give preference to certain creditors or directors. The additional stamp duty paid without protest and the undervaluation indicated an intent to siphon off funds.

5. Entitlement of the Appellant to an Order as Prayed For:
The appellant sought an order to validate the sale and permit payment to the bank to obtain original title documents. The court, however, found that the transaction was not bona fide and was intended to defraud creditors. The appellant's claim was dismissed as the sale was not in the ordinary course of business and did not reflect the market value.

6. Bona Fide and Validity of the Sale Transaction:
The court scrutinized the bona fides of the transaction. The learned Single Judge noted irregularities in the company's resolutions and the hurried manner of the sale. The appellant's payment of additional stamp duty without real protest and the undervaluation of the property indicated the transaction was not bona fide. The court concluded that the transaction was not valid and binding.

7. Relief, if Any, to the Appellant:
The court considered the relief sought by the appellant but found that the transaction was not bona fide and was intended to defraud creditors. The appeals were dismissed, and no relief was granted to the appellant.

Conclusion:
The court upheld the submission of the Official Liquidator and dismissed the appellant's applications. The transaction was found to be not bona fide, undervalued, and intended to defraud creditors. The sale deed was declared void under section 531A of the Companies Act, and no relief was granted to the appellant. The appeals were dismissed without any order as to costs.

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