2011 (12) TMI 418 - HC - Companies Law

Winding up- sale deed not executed before commencement of winding up proceedings - vendee neither deposited the entire sale consideration nor got the sale deed registered in his favour before the commencement of winding up Held that - once a winding-up order is passed the undertaking and the assets of the company pass under the control of the liquidator whose statutory duty is to realise them and to pay from out of the sale-proceeds its creditors. Such creditors acquire on such order being passed the right to have the assets realised and distributed among them pari passu. No new rights can thereafter be created and no uncompleted rights can be completed - only a part of consideration was paid prior to appointment of provisional liquidator, sale should not be confirmed and disposition of property should not be validated Application dismissed

Issues Involved:
1. Validity of the agreement to sell and possession of the plot before the appointment of the Provisional Liquidator.
2. Challenge to the One Man Committee's rejection of the applicant's claim regarding plot No. C-363.
3. Scope and ambit of Section 536(2) and Section 537(1)(b) of the Companies Act, 1956.
4. Discretion of the Court to validate transactions post winding-up order.
5. Impact of Provisional Liquidator's appointment and RBI's prohibition on asset alienation.

Issue-wise Detailed Analysis:

1. Validity of the Agreement to Sell and Possession of the Plot:
The applicant argued that the company in liquidation had entered into an agreement to sell and handed over possession of plot no. B-532 prior to the appointment of the Provisional Liquidator on 5th June 1998. The applicant claimed ownership by virtue of a gift deed registered on 31st January 2008. The court issued notice to the Official Liquidator to respond within four weeks.

2. Challenge to the One Man Committee's Rejection of the Applicant's Claim:
The applicant challenged the One Man Committee's rejection of their claim regarding plot No. C-363. The Committee observed that the claimant deposited Rs. 1,43,154.05/- towards the sale consideration but failed to execute the sale deed due to non-payment of the balance amount. The Committee concluded that the claimant was not entitled to the plot but could recover the amount deposited after the appointment of the Provisional Liquidator in accordance with the law.

3. Scope and Ambit of Section 536(2) and Section 537(1)(b) of the Companies Act, 1956:
Section 536(2) states that any disposition of the company's property after the commencement of winding up shall be void unless the Tribunal orders otherwise. Section 537(1)(b) declares any sale of the company's properties without Tribunal's leave post-winding up commencement as void. The court examined these sections to determine the validity of the transactions in question.

4. Discretion of the Court to Validate Transactions Post Winding-Up Order:
The court referred to precedents from the Calcutta High Court and Gujarat High Court, which emphasized the court's absolute discretion to validate transactions based on judicial principles. The court must consider all surrounding circumstances and validate transactions that are bona fide and in the company's interest.

5. Impact of Provisional Liquidator's Appointment and RBI's Prohibition on Asset Alienation:
The court noted that the Provisional Liquidator was appointed on 5th June 1998, and the RBI had prohibited the company from alienating assets without prior permission since 18th October 1997. The court observed that only Rs. 68,154.05/- was paid before the Provisional Liquidator's appointment, while Rs. 75,000/- paid afterward was not accounted for. The court emphasized that creditors' rights to have the assets distributed pari passu must be upheld, and no new or incomplete rights could be created post-winding up.

Conclusion:
The court dismissed the application, holding that the transaction could not be validated as it would infringe upon the creditors' rights and allow the applicant to gain an unfair advantage. However, the applicant was entitled to simple interest at 4% per annum on the amount deposited with the respondent company.

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