2008 (12) TMI 406 - HC - Companies Law

Winding up - Avoidance of voluntary transfer - documentary evidence of ownership over the property seeked from the respondent - Held that - It is not just and proper on the part of the Official Liquidator to raise any doubt against the bona fide of the transactions. Though the burden is heavily lying on the Official Liquidator to prove that the transaction in question is not bona fide nor it is for the valuable consideration or for inadequate consideration, the said burden has not been discharged by the Official Liquidator. He has simply stated that the transaction was entered into within 12 months prior to the date of the presentation of the winding up petition. This is not enough and no Court can pass an order merely on this assertion holding that the transaction is void against the Liquidator. There is no violation of the provisions contained in section 531A of the Act and the Official Liquidator is not justified in making the prayer before the Court to treat the transaction in question as void against the Liquidator. Appeal dismissed.

Issues Involved:
1. Direction to Respondents to provide documentary evidence of ownership of the Company's registered office.
2. Direction to Respondent No. 5 to hand over possession of the resort property.
3. Confirmation of sale of the resort property by the Company in liquidation to M/s. Siddhi Vinayak Corporation.

Detailed Analysis:

1. Direction to Respondents to Provide Documentary Evidence of Ownership of the Company's Registered Office:
The Official Liquidator sought direction for Respondents Nos. 3 & 4 and Anyonya Co-operative Bank Limited to present documentary evidence of ownership over the Company's registered office at 79, Vishwas Colony, Vadodara. The Court issued a notice on 18-6-2007, and after considering the pleadings, passed an order on 15-12-2008. The Court observed that the property was not in the name of the Company in liquidation and the Official Liquidator had not taken possession of it. Evidence to this effect was placed on record, and no further documents were required. Consequently, the Court discharged Respondent No. 3 from the proceedings, and this issue no longer survived.

2. Direction to Respondent No. 5 to Hand Over Possession of the Resort Property:
The Official Liquidator sought possession of the resort property at Akshar Chowk, Vadodara, from Respondent No. 5 (M/s. Siddhi Vinayak Corporation), treating the transaction as void under section 531A of the Companies Act, 1956. The Liquidator argued that the sale, made within one year before the presentation of the winding-up petition, was null and void against him. The Liquidator asserted that it was not necessary to prove the transaction was not in good faith or for valuable consideration, as the statutory presumption under section 531A applied. The Liquidator also contended that the respondent should have known about the winding-up petition and that the property was sold under compelling circumstances, not at fair market value.

3. Confirmation of Sale of the Resort Property by the Company in Liquidation to M/s. Siddhi Vinayak Corporation:
M/s. Siddhi Vinayak Corporation sought confirmation of the sale of the property and argued that the transaction was genuine and bona fide. They provided detailed evidence of payments made towards the Company's dues and statutory authorities. The sale process started in December 2005, and the winding-up petition was filed on 19-7-2006, with the sale deed executed on 1-8-2006. The respondent argued that the sale was necessary to pay off the secured and statutory creditors and that the transaction was for valuable consideration and in good faith.

Court's Analysis and Judgment:
The Court examined the provisions of section 531A of the Companies Act, 1956, which deals with the avoidance of voluntary transfers. The section aims to preserve the Company's assets and allows transactions for the benefit of those interested in the Company's assets. The Court noted that the burden of proof initially lies on the one who wants to avoid the transaction to establish that it was not made in the ordinary course of business or lacked good faith. If this onus is discharged, it shifts to the Official Liquidator.

The Court found that the transaction was entered into in good faith and for valuable consideration. The sale process began before the winding-up petition was contemplated, and the proceeds were used to pay off the Company's secured and statutory creditors. No creditor raised any grievance against the sale, and the Official Liquidator failed to prove that the transaction was not bona fide or for inadequate consideration. The Court also noted procedural irregularities in the winding-up order but did not delve further as the order was not challenged.

Conclusion:
The Court rejected the Official Liquidator's prayer to declare the transaction void and granted M/s. Siddhi Vinayak Corporation's application for confirmation of the sale. The report of the Official Liquidator and the Company Application were disposed of accordingly.

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