2008 (2) TMI 623 - HC - Companies Law

Avoidance of transfer after commencement of winding up - Held that - The relief prayed for in the present application cannot be granted. However, role of respondents Nos. 2 and 3 and allegations made therein are required to be considered in this application. Admittedly, both the irrevocable power of attorneys were executed after the date of winding up order. It is practically impossible to presume that respondents Nos. 2 and 3 are not aware about the winding up order. Respondent No. 2 has executed power of attorney way back in 2004, i.e., after more than 4 years from the date of winding up order. It was nowhere stated before the court taking up the criminal matter that the property in question belongs to the company and company went into liquidation. The ex-management has no right to mortgage the said property of the company in liquidation and despite this fact the property was mortgaged as security to the applicant-bank and on that ground, respondent No. 2 has obtained bail from this court. It, therefore, appears that respondent No. 2 has misled the court at the time of obtaining bail and true and correct facts were not presented before the court. Since this court is not seized with the said criminal matter the court is not passing any order adverse to respondents Nos. 2 and 3. However, it is open for the applicant-bank to take note of this order and take out appropriate proceeding, if it thinks proper. Likewise, respondent No. 3 was the director of the company and he has signed the power of attorney in 2001, i.e., after the date of winding up order. He is well educated and qualified person. He is supposed to know that the company went into liquidation and it is not proper for him to execute power of attorney whereby the powers are given to the bank to sell the property of the company in liquidation. The bank s version that it came to know only when an advertisement has appeared in the newspaper is also not satisfactory.

Issues Involved:
1. Confirmation of sale of the property.
2. Declaration of the applicant-bank as the sole secured creditor.
3. Restraining the official liquidator from executing the sale deed.
4. Allegations against respondents regarding the execution of irrevocable power of attorney.
5. Applicability of Section 536(2) of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Confirmation of Sale of the Property:
The applicant, Kalupur Commercial Co-operative Bank Ltd., sought an order to prevent the confirmation of the sale of the property situated at Plot No. 267/P, Mouje, village Iyava (Vasna), taluka Sanand, dist. Ahmedabad. The applicant argued that the property had been conveyed to them through irrevocable powers of attorney dated September 4, 2001, and April 16, 2004, as security for credit facilities. The court noted that the bank had objected to the auction of the property through letters dated October 16, 2007, October 23, 2007, and October 25, 2007. However, the court concluded that the relief sought no longer survived due to an order passed on February 19, 2008, which allowed the applicant-bank to participate in the sale proceedings. The bank's status would be determined based on the outcome of an application to the Company Law Board.

2. Declaration of the Applicant-Bank as the Sole Secured Creditor:
The applicant-bank claimed to be the sole secured creditor of the company in liquidation regarding the subject property. The bank argued that the powers of attorney created a charge over the property in their favor, making them the sole secured creditor. The court, however, indicated that this status would be decided by the Company Law Board and would assume significance only at the time of disbursement of the sale proceeds.

3. Restraining the Official Liquidator from Executing the Sale Deed:
The applicant-bank sought to restrain the official liquidator from executing the sale deed or any other document conveying the property to a successful bidder. The court found that the issue was moot in light of the February 19, 2008, order, which allowed the bank to participate in the sale process. The court did not grant the relief prayed for, as the matter would be resolved based on the Company Law Board's decision.

4. Allegations Against Respondents Regarding the Execution of Irrevocable Power of Attorney:
The applicant-bank alleged that respondents Nos. 2 and 3 executed irrevocable powers of attorney after the company went into liquidation, creating confusion regarding the title and ownership of the property. Respondent No. 2, Suresh Dhansiram Agrawal, and respondent No. 3, Jagrut Jantilal Bhagdev, filed affidavits denying ownership claims and explaining their actions. The court noted that both powers of attorney were executed after the winding-up order and found it implausible that the respondents were unaware of the liquidation. The court observed that respondent No. 2 misled the court during bail proceedings by not disclosing the company's liquidation status. However, since the court was not handling the criminal matter, it did not pass any adverse orders against the respondents but left it open for the applicant-bank to pursue appropriate proceedings.

5. Applicability of Section 536(2) of the Companies Act, 1956:
The official liquidator argued that the transactions creating the equitable mortgage in favor of the applicant-bank fell within the ambit of Section 536(2) of the Companies Act, 1956, as they were entered into within one year prior to the winding-up order. The court agreed that the transactions were invalid under this provision, as they occurred after the winding-up order. Consequently, the court did not grant the relief sought by the applicant-bank.

Conclusion:
The court concluded that the reliefs prayed for by the applicant-bank could not be granted. The applicant-bank's status as a secured creditor would be determined by the Company Law Board, and the issue would be revisited during the disbursement of the sale proceeds. The court disposed of the application, noting that no further directions were required at this stage.

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