2010 (3) TMI 684 - HC - Companies Law

Whether the Official Liquidator should be restrained from issuing any notice of auction or tender notice and selling the plot of land? Held that - The Ex-Directors had knowledge of the proceedings. Each one of them is aware and in fact stated that the company in liquidation was carrying on its business and manufacturing activities on the subject plot. That it was adjacent to plot No. R-35 and possession of that plot was taken by the Liquidator. In such circumstances, by their acts, they prevented the Official Liquidator from attaching and taking possession of the subject plot, thereby they prevented the Court from attaching a valuable asset of the company in liquidation. The Court protects assets and properties so as to effectively and properly wind up the affairs of the company in liquidation. The Court ensures payment of all legal dues to the creditors of the company in liquidation as per their priorities. When such is the intent of the winding up proceedings, then, in the admitted set of facts, it is not possible to agree with Shri Rajadhyaksha that this is a fit case for giving the subject plot and the transaction in that behalf. We find no error in the conclusion reached by the learned Single Judge. In the result, the appeal fails and it is, accordingly, dismissed

Issues Involved:
1. Validity of the attachment order dated 21-4-2007.
2. Bona fide acquisition of the subject plot by the appellants.
3. Inaction of the Official Liquidator.
4. Application of Section 536(2) of the Companies Act, 1956.
5. The impact of winding up proceedings on the transactions involving the subject plot.

Issue-wise Detailed Analysis:

1. Validity of the attachment order dated 21-4-2007:
The appellants challenged the attachment order dated 21-4-2007, requesting the High Court to direct the Official Liquidator to remove the attachment on Plot No. R-34 and return possession to the appellants. The appellants argued that the attachment was unjustified as the plot was transferred to M/s. Arsh International Chemical Pvt. Ltd. before the winding-up order. However, the Court found that the transfer of the plot happened after the presentation of the winding-up petition, making the transaction void under Sections 536(2) and 537(1) of the Companies Act, 1956.

2. Bona fide acquisition of the subject plot by the appellants:
The appellants claimed they acquired the plot in good faith and were unaware of any litigation concerning the plot. They argued that they acted based on representations from M/s. Arsh International Chemical Pvt. Ltd. and had paid a substantial amount for the plot. However, the Court noted that the transaction was part of a series of deals initiated by the ex-Directors of the company in liquidation to keep the asset out of the reach of the Court and the Official Liquidator. The Court concluded that the appellants' acquisition could not be considered bona fide due to the circumstances surrounding the transaction.

3. Inaction of the Official Liquidator:
The appellants contended that the Official Liquidator's inaction for nine years indicated uncertainty about the plot being an asset of the company in liquidation. The Court acknowledged the delay but emphasized that the delay alone could not justify regularizing the transaction. The Court held that the inaction did not change the fact that the transaction was void under the statutory provisions.

4. Application of Section 536(2) of the Companies Act, 1956:
The appellants sought the Court's exercise of power under Section 536(2) to validate the transaction. The Court referred to the principles established in the case of Pankaj Mehra v. State of Maharashtra, highlighting that transactions undertaken to save or protect the property of the company could be saved if evidence of such compulsion was provided. However, the Court found no evidence of compulsion or necessity in the appellants' transaction. The Court concluded that the transaction was not in the interest of the company or its creditors and could not be validated.

5. The impact of winding up proceedings on the transactions involving the subject plot:
The Court emphasized that the winding-up proceedings aimed to protect the assets of the company for the benefit of its creditors. The ex-Directors' actions to transfer the plot after the presentation of the winding-up petition were seen as attempts to evade the Court's jurisdiction and prevent the Official Liquidator from taking possession. The Court held that allowing such transactions would undermine the purpose of the winding-up process and the principles of equality among creditors.

Conclusion:
The appeal was dismissed, and the Court upheld the attachment order dated 21-4-2007. The Court found no merit in the appellants' arguments and concluded that the transaction could not be validated under Section 536(2) of the Companies Act, 1956. The Court emphasized the importance of protecting the assets of the company in liquidation for the benefit of its creditors and ensuring the proper conduct of winding-up proceedings.

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