2020 (1) TMI 594 - HC - Companies Law

Declaration of consent terms - commencement of winding up proceedings - whether the applicant has pleaded and proved that the consent terms arrived at between the applicant and the respondent in the Comm. Admiralty Suit on 24th October, 2016 after commencement of the winding up proceedings was in the ordinary course of business and was in the best interest of the respondent company in liquidation or not? - HELD THAT - Under Section 441(2) of the Companies Act, 1956, the winding up of the respondent shall be deemed to have commenced on the date of presentation of the petition for winding up i.e. 28th August, 2014 - It is admitted position that the consent terms between the applicant and the respondent in the said Comm. Admiralty Suit No. 15 of 2016 were filed only on 24th October, 2016. There is no dispute that this Court had already appointed official liquidator as provisional liquidator of the respondent on 5th May, 2017 and had appointed the official liquidator of the respondent on 4th December, 2018. It is not in dispute that the respondent had made payment of ₹ 4,07,99,612/- to the applicant under the said consent terms during the period between 10th October, 2016 and 14th June, 2017. The applicant does not dispute that under Section 441(2) of the Companies Act, 1956, the winding up of the respondent company shall be deemed to commence on the date of presentation of the petition for winding up i.e. 28th August, 2014. The applicant does not dispute that all the payments received by the applicant from the respondent under the said consent terms dated 24th October, 2016 were received after the date of commencement of the winding up proceedings against the respondent company in liquidation. The applicant also does not dispute that the payment of ₹ 49,97,357 and ₹ 50,00,059/- were received by the applicant on 12th May, 2017 and 14th May, 2017 respectively after the appointment of the official liquidator as the provisional liquidator of this Court i.e. on 5th May, 2017. Consent terms itself were filed after commencement of winding up proceedings. Section 536 (2) of the Companies Act, 1956 provides that any disposition of the property made after commencement of winding up shall unless the Court otherwise orders be void. This Court rejected the contention of the applicant that the official liquidator must plead and prove that the transaction was fraudulent before it can be treated as void under Section 536(2) of the Companies Act, 1956. It is held by this Court that Section 536 treats the transfer after commencement of winding up void unless the Court otherwise directs. The official liquidator is not required to file any application seeking a declaration that the transfer is void. The question of any burden cast on the liquidator cannot possible arise. The applicant who seeks validation of the transaction carried out after the date of commencement of winding up proceedings in view of Section 441(2) of the Companies Act, 1956 has to not only plead but also has to prove that such transactions were carried out in ordinary course of business and were in the benefit of the company in liquidation. A perusal of the averments made in the company application filed by the applicant seeking validation of the consent terms does not indicate that there is sufficient pleadings of the applicant in this regard. Be that as it may, the applicant has not proved before this Court that the said consent terms arrived at between the applicant and the respondent were in ordinary course of business and were for the benefit of the respondent company in liquidation. The applicant has failed to plead sufficiently and to prove that the consent terms entered into between parties were for the benefit and interest of the respondent. Various transactions carried out by the applicant with the respondent company in liquidation post the date of commencement of the winding up proceedings and thereafter filing consent terms with the respondent post the date of such commencement and winding up proceeding were not in ordinary course of business and the same were not in the interest of and for the benefit of the respondent company in liquidation. The applicant has thus not made out any case for validation of the transactions and the consent terms under Section 536(2) of the Companies Act, 1956. Applicant has failed to discharge the burden. In my view, the official liquidator has made out a case for declaration of the entire transactions as null and void as prayed. Application disposed off.

Summary

Issues Involved:

1. Declaration of transactions as void under Section 536(2) of the Companies Act, 1956.
2. Validity and binding nature of consent terms dated 24th October 2016.
3. Refund of ?4,07,99,612/- to the Official Liquidator.
4. Ratification of payments made by the company in liquidation.

Issue-wise Detailed Analysis:

1. Declaration of Transactions as Void under Section 536(2) of the Companies Act, 1956:

The Official Liquidator of M/s. GOL Offshore Limited (in liquidation) sought a declaration that payments made by the company to M/s. Arambhan Hospitality Services Limited between 10th October 2016 and 14th June 2017 were void under Section 536(2) of the Companies Act, 1956. It was argued that these transactions occurred after the commencement of winding-up proceedings, which began on 28th August 2014. The court held that any disposition of property after the commencement of winding-up is void unless the court orders otherwise. The applicant failed to prove that the transactions were in the ordinary course of business or in the best interest of the company. Consequently, the transactions were declared null and void.

2. Validity and Binding Nature of Consent Terms Dated 24th October 2016:

M/s. Arambhan Hospitality Services Limited sought validation of the consent terms dated 24th October 2016, arguing that they were executed in the ordinary course of business and were beneficial for keeping the company as a going concern. However, the court found that the applicant did not sufficiently plead or prove that the consent terms were in the ordinary course of business or in the best interest of the company. The court noted that the consent terms were filed after the commencement of winding-up proceedings and payments were made post the appointment of the provisional liquidator. Thus, the consent terms were not validated.

3. Refund of ?4,07,99,612/- to the Official Liquidator:

The Official Liquidator sought a direction for M/s. Arambhan Hospitality Services Limited to refund ?4,07,99,612/- received from the company in liquidation. The court agreed with the Official Liquidator’s contention that these payments were made after the commencement of winding-up proceedings and were thus void under Section 536(2). The court ordered M/s. Arambhan Hospitality Services Limited to deposit the sum of ?4,07,99,612/- with the Official Liquidator within four weeks, with interest at 9% per annum from the date of recovery.

4. Ratification of Payments Made by the Company in Liquidation:

M/s. Arambhan Hospitality Services Limited argued for the ratification of payments made by the company in liquidation, claiming they were made under compelling circumstances and were in the ordinary course of business. The court, however, found that the applicant did not provide sufficient evidence to prove that the transactions were in the ordinary course of business or beneficial for the company. The court emphasized that the burden of proof lies on the applicant to show that such transactions were in the best interest of the company, which the applicant failed to do. Consequently, the court did not ratify the payments.

Conclusion:

The court concluded that the transactions and consent terms were not in the ordinary course of business and were not in the best interest of the company in liquidation. The Official Liquidator’s request to declare the transactions as void was granted, and M/s. Arambhan Hospitality Services Limited was directed to refund the amount received with interest. The company application filed by M/s. Arambhan Hospitality Services Limited was dismissed.