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2009 (8) TMI 1224 - HC - Companies LawProperty pending the winding up proceedings - Company application seeking a direction to execute and register a sale deed - agreement entered into between the parties - Whether Transfer of property effected six months prior to the presentation of the winding up proceedings fraudulent transfer? Whether agreement for sale does not by itself create any interest in or charge on the immovable property covered under the agreement for sale - Sale agreement was entered into on 17.2.2000 itself; that the company petition was filed on 2.7.2001 and thus the agreement was entered into one year and four months before the presentation of the winding up proceedings as contemplated u/s.441 of the Companies Act; that under such circumstances at no stretch of imagination it could be called as a fraudulent transfer; that even the ld Single Judge has not determined a question as to whether there was any collusion or not; but has raised the question as to whether the transaction was a fraudulent preference or not; that in the instant case all would clearly indicate that there was no fraudulent preference at all; and that the ld Single Judge has erred in coming to the conclusion that it was a fraudulent preference. Appellant had no knowledge about the financial crisis or crunch of Kothari Orient Finance Limited at the relevant time; that apart from this so long as it is not a fraudulent preference it cannot be stated that it was intended to defeat the interest of the depositors; that in the case on hand it cannot in any way affect the interest of the depositors since the company is having all assets both movable and immovable which were very well available; that under the circumstances it cannot be termed as fraudulent preference and hence the order of the ld Single Judge has got to be set aside and a direction be issued for registration of the sale deed. HELD THAT - The entire case of the appellant rests on the agreement dated 17.2.2000 which was executed by the Director of Kothari Orient Finance Limited on the one side and the appellant bank on the other whereby consideration was fixed at 105 lakhs and a letter dated 6.11.2000 on which date the possession of the property was handed over along with the documents of title. At this juncture it would be more apt and appropriate to look into the alleged agreement for sale. There was no need for making such a clause in the agreement as if the balance of consideration of 64 lakhs was liable to be paid by the appellant to Kothari Orient Finance Limited company under winding up who was actually under financial crisis. The ld Senior Counsel for the appellant brought to the notice of the Court that even this 41 lakhs of advance had not gone to the company and out of this amount 25 lakhs the major part had actually gone to the Directors and not to the Company. The Director of the company under winding up has agreed to deliver the original title deeds and also the vacant possession of the property only at the time of the registration of the sale deed to the purchaser. In the instant case it is contended that on 6.11.2000 the possession of the property was handed over with all the documents of title. Thus it would clearly indicate the intention of the management of the company under winding up to make an unjust and preferential treatment in favour of the appellant. It is clear that if any transfer of property is effected six months prior to the presentation of the winding up proceedings it cannot be termed as a fraudulent transfer. In the instant case what was available in the hands of the appellant was only an agreement for sale dated 17.2.2000. Under Sec.54 of the Transfer of Property Act it would not clothe him any right or interest over the said property. So long as registration of sale deed is not done it cannot be said to be a transfer of property in the eye of law. Merely because the possession and the documents were handed over it cannot also clothe him any right to have the benefit under Sec.531 of the Companies Act. Had it been true that the handing over of documents and possession was made on 6.11.2000 and a letter therefor was also made that day itself as contended by the appellant s side the long and unexplained delay in filing the company petition could not have occasioned. Admittedly the company petition was filed on 2.7.2001. This would be indicative of the fact that the said letter has been created pending the proceedings and also in order to avoid the transaction being called as a fraudulent preference. The conduct of the parties would clearly indicate that in appraisement of the financial crisis a resolution came to be passed by the board of directors authorising one of the directors who entered into an agreement for sale of the only one immovable property in favour of the appellant bank which in the considered opinion of the Court cannot but be termed as a fraudulent preference and that too when there are number of banks and depositors in thousands to whom the company under winding up owed crores of money. This Court is unable to notice any infirmity either factually or legally and hence the order of the learned Single Judge has got to be sustained. In the result this original side appeal is dismissed confirming the order of the ld Single Judge. The parties are directed to bear their costs.
Issues Involved:
1. Validity of the sale agreement under Section 446(2)(b) of the Companies Act. 2. Allegation of fraudulent preference. 3. Requirement of shareholder resolution under Section 293 of the Companies Act. 4. Applicability of Section 531 of the Companies Act regarding fraudulent transfer. 5. Rights under Section 53-A of the Transfer of Property Act. Detailed Analysis: 1. Validity of the Sale Agreement under Section 446(2)(b) of the Companies Act: The appellant bank sought a direction for the respondents to execute and register a sale deed for a property pending winding-up proceedings. The bank claimed that Kothari Orient Finance Limited (the company) owed them Rs. 60,55,055 as of 31.3.1999 and had entered into a sale agreement on 17.2.2000 for Rs. 105 lakhs, with Rs. 41 lakhs paid as an advance. The remaining amount was adjusted against the company's debt. The Administrator argued that the agreement was a fraudulent preference and that the appellant was just another creditor. The court noted the company's financial crisis and the lack of a shareholder resolution, making the agreement invalid. 2. Allegation of Fraudulent Preference: The Administrator contended that the sale agreement was a fraudulent preference, favoring the appellant over other creditors. The court observed that the company was in financial distress and had many creditors. The agreement for sale did not create any legal right or interest in the property for the appellant. The court found that the transaction was intended to give the appellant an undue advantage, thereby constituting a fraudulent preference. 3. Requirement of Shareholder Resolution under Section 293 of the Companies Act: The appellant argued that the board resolution dated 31.3.1999 was sufficient for the sale of the property. However, the court emphasized that Section 293(1) of the Companies Act requires a shareholder resolution for the sale of the whole or substantially the whole of the company's undertaking. The court found that the property in question was the only immovable asset of the company, making the board resolution insufficient and the sale agreement invalid. 4. Applicability of Section 531 of the Companies Act Regarding Fraudulent Transfer: The appellant claimed that the transaction could not be termed fraudulent as it occurred more than six months before the winding-up petition was filed on 2.7.2001. The court clarified that under Section 531, any transfer within six months before the commencement of winding-up proceedings is deemed fraudulent. However, since the sale deed was not executed, the transaction did not constitute a transfer of property under Section 54 of the Transfer of Property Act, and thus, the appellant could not claim protection under Section 531. 5. Rights under Section 53-A of the Transfer of Property Act: The appellant argued that there was part performance of the agreement under Section 53-A of the Transfer of Property Act, justifying the execution of the sale deed. The court noted that the agreement stipulated the delivery of possession and title deeds only at the time of registration of the sale deed. The court found that the handing over of possession and documents on 6.11.2000 was an attempt to create a record favoring the appellant, constituting a fraudulent preference. Judgment: The court dismissed the appeal, confirming the order of the learned Single Judge. It held that the sale agreement was a fraudulent preference, invalid without a shareholder resolution, and did not create any legal right or interest in the property for the appellant. The court directed the parties to bear their costs.
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