2011 (7) TMI 892 - HC - Companies Law

Winding up petition - B.K. Chabra has moved application no. 245807 of 2007 praying that one of the properties i.e. B-64 Kalka ji. New Delhi which belonged to the respondent company be released from the net of the liquidation proceedings - learned counsel appearing for official liquidator on the basis of the judicial report of the official liquidator no. 106 of 2011 submitted that the the agreement to sale executed in favour of the applicant is a void document as it has been executed in violation of the restrain order dated 27.10.1999 passed by this Court in the winding up petition - The power of attorney given by K.K. Gupta, the Ex Managing Director to the applicant authorizing him to deal with the property though irrevocable in nature automatically ceased to exist as soon as the order of winding up was passed and the official liquidator had assumed all powers of the company and the functions of the Directors - In the earlier part it has already been held that the applicant is a bona fide prospective purchaser in good faith for value who has been put in possession - the applicant having obtained possession of the property in question in part performance of the agreement to sale dated 21.2.2000 is entitle to protect his possession and use of the same and the official liquidator cannot interfere with his right to use and occupy the same or even to realize rent which he had been realizing from the very beginning - Application disposed of

Summary

Issues Involved:
1. Validity of the Will executed by the Ex-Managing Director.
2. Effect of the Power of Attorney executed by the Ex-Managing Director.
3. Legality of the Agreement to Sell dated 21.2.2000.
4. Applicability of Sections 53-A of the Transfer of Property Act and Section 202 of the Contract Act.
5. Impact of Sections 536(2) and 537 of the Companies Act, 1956 on the agreement and sale.

Issue-wise Detailed Analysis:

1. Validity of the Will executed by the Ex-Managing Director:
The judgment clarifies that a 'Will' operates only upon the death of the testator and has no legal sanctity during the testator's lifetime. The Ex-Managing Director, K.K. Gupta, had no authority to bequeath company property through a 'Will' as the property belonged to the company, not him personally. A company never dies, and thus, a company cannot execute a 'Will'. Therefore, the 'Will' executed by K.K. Gupta is deemed meaningless and does not confer any rights to the applicant.

2. Effect of the Power of Attorney executed by the Ex-Managing Director:
A power of attorney allows an agent to act on behalf of the principal but is generally revocable and ceases to exist upon the principal's death or incapacity. In this case, the irrevocable power of attorney given by K.K. Gupta to the applicant ceased to exist once the winding-up order was passed, transferring all powers to the official liquidator. Thus, the power of attorney is rendered ineffective and of no use.

3. Legality of the Agreement to Sell dated 21.2.2000:
The agreement to sell an immovable property is a contract that does not create any interest or charge on the property itself, as per Section 54 of the Transfer of Property Act (T.P. Act). The judgment references multiple precedents, including rulings by the Privy Council and the Supreme Court, affirming that a contract of sale does not transfer ownership. Consequently, the applicant does not acquire any proprietary rights from the agreement dated 21.2.2000.

4. Applicability of Sections 53-A of the Transfer of Property Act and Section 202 of the Contract Act:
Section 53-A of the T.P. Act protects the possession of a proposed purchaser who has taken possession and fulfilled their part of the contract, preventing the transferor from reclaiming the property. Similarly, Section 202 of the Contract Act protects an agent's interest in the property, preventing termination of the agency if it prejudices the agent's interest. The applicant, having been put in possession and having performed his part of the contract, is entitled to enforce the obligation and protect his possession and use of the property.

5. Impact of Sections 536(2) and 537 of the Companies Act, 1956 on the agreement and sale:
Section 536(2) stipulates that any disposition of company property after the commencement of winding-up proceedings is void unless the Court directs otherwise. Section 537(1) specifies that any sale without the Court's leave during winding-up proceedings is void. The winding-up commenced with the presentation of the petition. The Court, recognizing the applicant as a bona fide purchaser who entered the agreement based on the Company Law Board's permission, does not void the agreement despite its execution after the commencement of winding-up proceedings. However, as no sale has occurred, Section 537(1) is not applicable.

Conclusion:
The applicant, having obtained possession in part performance of the agreement, is entitled to protect his possession and use of the property under Section 53-A of the T.P. Act. The official liquidator cannot interfere with these rights. However, the title remains with the company, and the property cannot be removed from the liquidation process. The applicant may seek further legal remedies to enforce the agreement. The application is disposed of accordingly.