2012 (6) TMI 281 - HC - Companies Law

Winding up - application seeking to create charge over the Lease Hold rights of the property in favor of ICICI Bank ltd. - prior to the commencement of winding up proceedings, Mysore Kirloskar Limited (a company under liquidation) had leased 6 acres 29 guntas of land to the applicant Held that - without the permission of the Official Liquidator or the Lessor, the building is being constructed in violation of clause 14 of the lease agreement. The building can be constructed only with the prior intimation to the Official Liquidator or the Lessor. Further, clause 11 of the lease agreement provides for using of sports facilities like cricket ground, tennis court, squash court, golf course was permitted to use by the Lessee. Further, Lessee may also reside in the staff quarters within the residential colony. The intention of the applicant-society is to grab to maximum extent of the land. there is no bona fide in the claim made by the society and the applicant is not entitled for any reliefs in this application. Lease deed also appears to be contrary to section 531A of the Act. The transaction between the Lessor and Lessee is tainted with element of dishonesty. Company Application is dismissed.

Issues Involved:
1. Validity of the lease agreement in light of sections 531 and 531(A) of the Companies Act, 1956.
2. Permission to create a charge on the leasehold property in favor of ICICI Bank.
3. Allegations of fraudulent preference and undervaluation of the lease.
4. Previous attempts by the applicant to acquire the property through court applications.

Issue-wise Detailed Analysis:

1. Validity of the Lease Agreement:
The applicant, an educational society, entered into a lease agreement with Mysore Kirloskar Limited for 6 acres 29 guntas of land on 22-1-2000, prior to the commencement of winding-up proceedings against the company. The Official Liquidator argued that the lease was contrary to sections 531 and 531(A) of the Companies Act, 1956, which deem certain transfers made within specific periods before winding-up as fraudulent preferences. The court noted that the lease was executed 1.5 months before the winding-up proceedings began and highlighted that the lease terms were highly favorable to the applicant, with a meager rent of Rs. 1,250 per month for a valuable property. The court found that the lease agreement was not made in the ordinary course of business or in good faith for valuable consideration, thus violating section 531(A).

2. Permission to Create Charge:
The applicant sought permission to create a charge on the leasehold property to secure a loan from ICICI Bank for expanding its educational facilities. The court considered whether such permission could be granted given the lease's questionable validity. The court noted that the applicant had already constructed additional buildings without the Official Liquidator's permission, violating the lease agreement. Given the lease's dubious nature and the applicant's previous unsuccessful attempts to acquire the property, the court denied the request to create a charge on the leasehold property.

3. Allegations of Fraudulent Preference and Undervaluation:
The Official Liquidator contended that the lease was a fraudulent preference as it was executed shortly before the winding-up proceedings and significantly undervalued the property. The court agreed, noting that the lease allowed the applicant to become the absolute owner of the property after 28 years for a total rent of Rs. 2,84,000, whereas the property's market value was much higher. The court concluded that the transaction was tainted with dishonesty and not in the ordinary course of business.

4. Previous Attempts to Acquire the Property:
The applicant had previously filed multiple applications seeking to acquire the leasehold property, all of which were dismissed by the court. The court noted that these attempts indicated the applicant's intention to acquire the property through questionable means. The applicant's current request to create a charge was seen as another attempt to gain control over the property, further undermining the applicant's bona fides.

Conclusion:
The court dismissed the company application, finding that the lease agreement was contrary to section 531(A) of the Companies Act, 1956, and that the applicant's request to create a charge on the leasehold property lacked bona fides. The transaction was found to be tainted with dishonesty and not made in good faith for valuable consideration. The court upheld the Official Liquidator's objections and denied the relief sought by the applicant.

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