2013 (9) TMI 1273 - HC - Companies Law

Summary

Issues Involved:
1. Validation of the transaction u/s 536(2) of the Companies Act, 1956.
2. Bona fides of the transaction and the transferee.
3. Adequacy of consideration.
4. Impact on secured and unsecured creditors.

Summary:

Validation of the Transaction u/s 536(2) of the Companies Act, 1956:

The applicant sought validation of the transaction u/s 536(2) of the Companies Act, 1956. The Court noted that any disposition of the property made after the commencement of the winding up is void unless the court orders otherwise. The application for validation was initially dismissed but later remanded by the Supreme Court for fresh consideration.

Bona Fides of the Transaction and the Transferee:

The applicant argued that the transaction was bona fide, citing the Master Loan Agreement and subsequent loan agreements. However, the respondent contended that the mortgage and sale were not in the ordinary course of business and were intended to benefit the applicant over other creditors. The Court found several suspicious circumstances, including the creation of the mortgage after the winding up petition and the sale of the property at a significantly lower price than its purchase price, indicating a lack of bona fides.

Adequacy of Consideration:

The Court examined the adequacy of consideration and found that the property was sold for a price much lower than its market value and the original purchase price. The sale did not bring any tangible benefit to the company and was primarily for discharging an antecedent debt, which failed the test of adequacy of consideration.

Impact on Secured and Unsecured Creditors:

The Supreme Court emphasized that the interests of secured and unsecured creditors must be considered. The Court found that the transaction allowed the applicant to gain an unfair advantage over other creditors, which was against the principle of equality among creditors.

Conclusion:

The Court dismissed the application for validation, stating that the transaction was neither bona fide nor in the ordinary course of business, and failed the tests of honesty and adequacy of consideration. The Official Liquidator was directed to take back possession of the property from the applicant.