2022 (1) TMI 912 - HC - Companies Law

Validity of transaction entered into by the applicant with the company in liquidation - transaction of purchase of sale of the assets of the company - in accordance with provisions of section 536(2) of the Act, 1956 or not - HELD THAT - The sale deed for purchase of the assets, land and building and machineries of the company in liquidation is executed in favour of the applicant prior to the date of admission of the company petition. From the chronology of the events narrated, it is clear that the winding up petition was filed on 11th June, 2012 and thereafter, notice of the petition was issued on 27th July, 2012 and this Court admitted the company petition by order dated 15th January, 2013 and till that date, no one appeared for the company in liquidation before this Court. It cannot be said that the applicant has entered into transaction of purchase of sale of the assets of the company without good faith or bona fide intention, more particularly, when the applicant has deposited the entire sale consideration with DENA bank with whom the property which was purchased by the applicant was mortgaged - It is declared that the transaction in question cannot be said to be hit by the provisions contained in sections 531 and 531-A of the Act, 1956 and therefore, the transaction is validated as per the provisions of section 536(2) of the Act, 1956 as such transaction cannot be said to be a void transaction. Application allowed.

Issues Involved:
1. Validation of a transaction under Section 536(2) of the Companies Act, 1956.
2. Bona fide purchase and good faith.
3. Applicability of Sections 531 and 531-A of the Companies Act, 1956.
4. Commencement of winding up and its implications.

Issue-wise Detailed Analysis:

1. Validation of a Transaction under Section 536(2) of the Companies Act, 1956:
The applicant sought validation of a transaction entered with the company in liquidation through a registered sale deed dated 24th September 2012. The application was filed under Section 536(2) of the Companies Act, 1956, which allows the court to validate transactions made after the commencement of winding up if they are in the interest of the company and its creditors. The court granted permission to delete respondent no.2, the Director of the company in liquidation, as his presence was not required for the disposal of the application.

2. Bona fide Purchase and Good Faith:
The applicant argued that the purchase was made in good faith and bona fide, with the entire sale consideration paid to DENA Bank, the secured creditor of the company in liquidation. The applicant was unaware of the winding-up proceedings and the subsequent winding-up order. The court found that the applicant had acted in good faith and with bona fide intentions, particularly since the entire sale consideration was deposited with DENA Bank, which had a mortgage over the property.

3. Applicability of Sections 531 and 531-A of the Companies Act, 1956:
The court examined whether the transaction was fraudulent or provided preferential treatment under Sections 531 and 531-A of the Companies Act, 1956. The court referred to the decision in Hawa Controls v. O.L. of Tirupati Foundry Private Limited, which established that transactions made in good faith and for valuable consideration should not be annulled. The court concluded that the transaction was not fraudulent and did not provide preferential treatment, as the sale deeds were registered, and the properties were transferred legally and validly.

4. Commencement of Winding Up and Its Implications:
The respondent argued that the transaction should be declared void under Section 531-A, as it was entered after the filing of the winding-up petition on 11th June 2012. According to Section 441, the commencement date of winding up is the date of filing the petition. However, the court noted that the sale deed was executed before the admission of the winding-up petition on 15th January 2013. Therefore, the transaction could not be considered void under Section 531-A.

Conclusion:
The court validated the transaction under Section 536(2) of the Companies Act, 1956, declaring that the transaction was not hit by Sections 531 and 531-A. The sale of lands and factory of the company in liquidation, along with machineries and other movable properties listed in the sale deed, was validated. The Official Liquidator was directed not to take possession of the said properties.

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