2005 (10) TMI 282 - HC - Companies Law

Issues Involved:
1. Validity of the sale of the property during the winding-up process.
2. Bona fide status of the purchaser.
3. Rights of the mortgagee bank.
4. Compliance with Section 536(2) of the Companies Act.
5. Compensation to the purchaser if the sale is declared void.

Issue-wise Detailed Analysis:

1. Validity of the Sale of the Property During the Winding-Up Process:
The applicant-Bank sought a declaration that the sale of the property bearing Survey No. 1447/4, admeasuring 6,164 sq. mtrs., was invalid. The property was sold to respondent No. 5 during the winding-up proceedings of the company. According to Section 536(2) of the Companies Act, any disposition of the property after the commencement of winding-up proceedings is void unless the Court orders otherwise. The winding-up petition was filed in 1996, and the winding-up order was passed on 17-1-2001. The sale deed was executed on 3-1-2003, after the winding-up order, making the transaction void under Section 536(2).

2. Bona Fide Status of the Purchaser:
Respondent No. 5 claimed to be a bona fide purchaser, unaware of the winding-up order. The Court noted that there was no material evidence to prove that respondent No. 5 was not a bona fide purchaser. The auction was conducted by the Revenue Authority, and the sale deed was registered. The Court considered the bona fide nature of respondent No. 5's purchase, noting that the auction proceedings began before the winding-up order was passed.

3. Rights of the Mortgagee Bank:
The applicant-Bank had a registered charge over the property for Rs. 2.55 crores and had initiated recovery proceedings before the Debts Recovery Tribunal (DRT), resulting in a Recovery Certificate of Rs. 3 crores. The Bank's interest as a mortgagee could not be frustrated by the sale. The Court emphasized that the Bank's rights as a secured creditor must be preserved, and the property should be sold in a manner that maximizes the recovery for the secured creditors.

4. Compliance with Section 536(2) of the Companies Act:
The Court reiterated that any disposition of property after the commencement of winding-up proceedings is void unless the Court orders otherwise. The sale of the property to respondent No. 5 was deemed void under Section 536(2), but the Court acknowledged the bona fide nature of the purchase and the need to compensate respondent No. 5 to avoid undue hardship.

5. Compensation to the Purchaser if the Sale is Declared Void:
The Court decided that if the sale is declared void, the applicant-Bank must compensate respondent No. 5. The compensation would include the purchase amount of Rs. 1,05,000, expenses for stamp duty and registration, and interest at the rate of 12% per annum from the date of payment until the refund. The Bank could claim this amount as part of the winding-up expenses and seek priority in disbursement under Section 529A of the Companies Act.

Conclusion:
The application was allowed to the extent that the sale of the land admeasuring 6,164 sq. mtrs. was declared void, subject to the condition that the applicant-Bank compensates respondent No. 5. The compensation includes the purchase price, expenses for stamp duty and registration, and interest. Alternatively, the Court provided for the possibility of respondent No. 5 being refunded during the sale or disposal process of the company's property in winding-up. The Bank's claim for the refunded amount would be treated as part of the workmen's dues under Section 529A for pari passu payment.

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