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Issues:
1. Validity of sale conducted by Karnataka State Financial Corporation without court's permission. 2. Dispute over payment and possession between the second respondent and Karnataka State Financial Corporation. 3. Claim of second respondent as a bona fide purchaser for value without notice. 4. Interpretation of section 537(1)(b) of the Companies Act, 1956 regarding sale of company's property during winding up proceedings. Issue 1: Validity of Sale without Court's Permission The Company Application sought a declaration that the sale made by Karnataka State Financial Corporation (first respondent) was void under section 537(1)(b) of the Companies Act as it was conducted without the court's leave. The application argued that the sale occurred during the winding up proceedings without proper authorization. The court noted that the sale was conducted without obtaining permission from the court, which is required when an order of winding up is passed. The court emphasized that section 537(1)(b) prohibits the sale of company property without the court's approval, making such a sale void. Issue 2: Dispute over Payment and Possession The Karnataka State Financial Corporation objected, stating it conducted the sale as a secured creditor, auctioning the property to the second respondent. However, the second respondent failed to pay the balance amount as agreed, leading to non-execution of the sale deed. The second respondent argued being a bona fide purchaser and ready to pay the balance amount, citing a stay on the demand notice. The court found that the sale transaction was incomplete due to the second respondent's failure to deposit the balance amount, rendering the sale void. Issue 3: Claim of Second Respondent as Bona Fide Purchaser The second respondent claimed to be a bona fide purchaser for value without notice, willing to fulfill the payment terms. However, the court held that the second respondent could seek damages from the first respondent if any loss was incurred due to purchasing the property without court permission during winding up proceedings. Issue 4: Interpretation of Companies Act, 1956 The court interpreted section 537(1)(b) of the Companies Act, emphasizing the requirement of court permission for selling company property after a winding up order. It clarified that the sale without court leave is void, and possession of the property must be returned to the official liquidator. The court rejected subsequent applications and vacated the interim order, declaring the sale void and directing the second respondent to return possession to the official liquidator. In conclusion, the court declared the sale conducted without court permission as void, emphasizing the importance of complying with legal procedures during winding up proceedings under the Companies Act, 1956.
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