2010 (2) TMI 595 - HC - Companies Law

Whether the documents of sale by a company, with respect to which subsequently a winding up petition is filed and the winding up order is passed, are not void by themselves but are only voidable at the option of the official liquidator? Held that - The sale deeds dated January 29, 1998, with respect to 1.57 acres of land sold by the company to S/Shri Rajani Ranjan, Priya Ranjan and Prabhat Ranjan for a sum of ₹ 4 lakhs bearing Plot No. 119, Khata No. 870 situated at Tola Bhagwanpur, Mauza, Bodh Gaya, Thana No. 359, District, Gaya being contrary to the provisions of section 531A of the Act, is fit to be declared void and is accordingly declared as void against the official liquidator. As a consequence, the subsequent three sale deeds dated September 16, 2002, with respect to 1.13 acres of land in favour of M/s. Daya Builders and Properties P. Ltd., for a consideration of ₹ 21.38 lakhs, 18.36 decimals of land in favour of Smt. Sunita Singh and 25.51 decimals of land in favour of Shri Shashank Shekhar for a consideration of ₹ 3,34,000 and ₹ 4,82,000 with respect to the same 1.57 acres of land are also void against the official liquidator.

Issues Involved:
1. Validity of sale deeds executed in favor of the landholders.
2. Bona fide nature of the transactions.
3. Applicability of Section 531A of the Companies Act, 1956.
4. Doctrine of ultra vires in relation to the company's memorandum of association.
5. Burden of proof on the official liquidator.

Issue-wise Detailed Analysis:

1. Validity of Sale Deeds Executed in Favor of the Landholders:
The official liquidator pointed out that certain sale deeds executed in favor of Daya Builders and Properties P. Ltd., Shashank Shekhar, and Sunita Singh should be declared null and void as they violated Sections 531A and 536 of the Companies Act, 1956. The court issued notices to the purchasers, and M/s. Daya Builders filed an interlocutory application stating that the land was purchased by the company in liquidation and subsequently sold to the Ranjan brothers, who then sold it to Daya Builders. The purchasers argued that the transactions were bona fide and conducted in the ordinary course of business.

2. Bona Fide Nature of the Transactions:
Counsel for the purchasers argued that all transactions were bona fide and the land was sold at a profit. They claimed that the Ranjan brothers had no knowledge of the winding-up proceedings and that the transactions were in the ordinary course of business. The official liquidator, however, contended that the transactions were not part of the company's usual business activities and were thus void under Section 531A.

3. Applicability of Section 531A of the Companies Act, 1956:
Section 531A states that any transfer of property made within one year before the presentation of a winding-up petition, not in the ordinary course of business, is void against the liquidator. The court found that the sale of land was not within the company's ordinary business activities as per its memorandum of association. Therefore, the transaction was void under Section 531A.

4. Doctrine of Ultra Vires in Relation to the Company's Memorandum of Association:
The official liquidator argued that the sale of land was ultra vires, as it was beyond the scope of the company's memorandum of association. The court agreed, stating that the company's main objects did not include the sale of land. The incidental or ancillary objects cannot expand the main objects to include activities not specified in the memorandum.

5. Burden of Proof on the Official Liquidator:
The court held that the official liquidator had successfully discharged the initial burden of proving that the transaction was not in the ordinary course of business. The purchasers failed to show that the company could have entered into such transactions as part of its ordinary business. The court also noted the significant increase in land value within a short period, indicating a lack of bona fides.

Judgment:
The court declared the sale deeds dated January 29, 1998, executed in favor of the Ranjan brothers, and the subsequent sale deeds dated September 16, 2002, executed in favor of Daya Builders, Sunita Singh, and Shashank Shekhar, as void against the official liquidator. The report of the official liquidator and the interlocutory applications filed by the purchasers were disposed of accordingly.

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