2013 (2) TMI 314 - HC - Companies Law

Applicability of section 536(2) of the Companies Act 1956 - whether the alleged transfer of property in question in favour of the Appellant by the company in liquidation is validated? - Winding up proceedings - whether transaction was in interest of company? - Held that - Effect of Section 536(2) is that where a winding-up proceeding is by or subject to the supervision of the Court, any disposition of the property of the company which is made after the commencement of the winding-up is void, unless the Court otherwise orders. If a transfer is not completed before an order of winding-up has been passed, an application would not be maintainable before the Court for a direction to the Official Liquidator to complete the transfer. The case of the Appellant before the Court is that there was an oral agreement under which the property was to be sold to the Appellant for Rs.30.00 lakhs. There is admittedly no written document evidencing the transaction which is alleged. Significantly, the original proposal which the Appellant submitted, was in her capacity as the chief promoter of a proposed industrial co-operative society. MIDC declined to grant its no objection after the order of winding-up was passed. First and foremost, it is evident that there was no disposition of the property before the order of winding-up was passed on 27 March 2008. Secondly, even assuming that there was such a disposition before the order of winding-up came to be passed, it is evident that there is no foundation or basis on which the Court could have arrived at the conclusion that the transaction was in the best interest of the company. Admittedly, the transaction involving the sale of the property of the company, was not in the ordinary course of business. The fact that such a transaction is in the interest of the company has to be pleaded and proved. There is a complete failure to make a disclosure of the essential terms of the transaction both before the learned Company Judge and in appeal before this Court. As stated earlier, there is no written document evidencing the terms of the transaction. All that the Appellant states is that an amount of Rs.30.00 lakhs was paid to the company between May 2007 and September 2007. There is neither any pleading nor any proof on the record before the Company Judge that the transaction was arrived at on the basis of the prevailing market value. On these facts and on the basis of the principles set out in the consistent line of judicial precedent on the subject, it would be impossible to come to the conclusion that the transaction was in the interests of the company. Property belonging to a company does not lie at the pleasure of the company or its Board of Directors. A disposition made after the commencement of proceedings for winding-up has to be justified as being in the ordinary course of business or, if it is not in the ordinary course of business, by a proper disclosure of the underlying rationale and the basis and terms of the transaction. Nothing of the kind has been attempted to be explained before the Company Judge or before this Court in appeal. The discretion under section 536(2) cannot hence be exercised to protect or save such a transaction - Single Judge was not in error in declining to order that the alleged disposition in favour of the Appellant would not be void. Clearly the disposition is unlawful and void for the reasons indicated above.

Issues Involved:
1. Validity of the sale of immovable properties of the company in liquidation.
2. Possession of the property by the Official Liquidator.
3. Applicability of Section 536(2) of the Companies Act, 1956.
4. Bona fide nature and interest of the company in the transaction.
5. Applicability of Section 53A of the Transfer of Property Act, 1882.

Detailed Analysis:

1. Validity of the Sale of Immovable Properties of the Company in Liquidation:
The judgment arose from a report by the Official Liquidator seeking a declaration that the sale of the immovable properties of the company in liquidation is null and void. The learned Company Judge concluded that the Appellant had not made out a case under Section 536(2) of the Companies Act, 1956 for validating the alleged transfer of property in question in favor of the Appellant by the company in liquidation.

2. Possession of the Property by the Official Liquidator:
The Official Liquidator sought a direction permitting him to take possession of the property. The learned Company Judge allowed this request, noting that the Appellant had not provided sufficient evidence to validate the transfer of property.

3. Applicability of Section 536(2) of the Companies Act, 1956:
Section 536(2) states that any disposition of the property of the company made after the commencement of winding-up proceedings is void unless the Court orders otherwise. The Court highlighted that the winding-up of Hindustan Transmission Products Limited commenced with the presentation of the company petition on 7 April 1997. The order of winding-up was passed on 27 March 2008. The Court noted that no document was executed between the Appellant and the company transferring the leasehold rights, and the transaction was not completed before the winding-up order. Therefore, the transaction could not be validated under Section 536(2).

4. Bona Fide Nature and Interest of the Company in the Transaction:
The Appellant failed to plead and prove that the transfer was bona fide or in the interest of the company. The Court emphasized that no material was produced to demonstrate that the consideration was at the prevailing market price. The Appellant's claim of an oral agreement and the payment of Rs. 30.00 lakhs without a written document was insufficient to establish the bona fide nature of the transaction. The Court reiterated that transactions not in the ordinary course of business must be justified with proper disclosure of the underlying rationale and terms, which was not done in this case.

5. Applicability of Section 53A of the Transfer of Property Act, 1882:
The Appellant sought protection under Section 53A, which requires a written agreement from which the terms of the transaction can be ascertained. The Court noted that there was no written document in this case, and the terms of the transaction could not be ascertained with reasonable certainty. Therefore, Section 53A was not applicable.

Conclusion:
The Court upheld the decision of the learned Company Judge, concluding that the alleged disposition in favor of the Appellant was unlawful and void. The appeal was dismissed, and the registry was directed to return the original documents to MIDC.

Additional Note:
The judgment also addressed the procedural aspect of returning original documents to MIDC, as requested by the learned counsel appearing on behalf of MIDC, with no objection from the Official Liquidator.

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