2025 (4) TMI 115 - HC - Companies Law

Prayer for declaration that the sale agreement is not binding upon the office of the official liquidator - validity of sale agreement - exercise of power under Section 536 (2) of the Companies Act 1956 to dispose of the present proceedings - obligation to pay stamp duty and registration charges - HELD THAT - The obligation for payment of stamp duty and registration charges was clearly on the applicant who was described as transferee in the said sale agreement dated 29th May 2017. It is an admitted position that neither was the entire stamp duty ever paid nor was the document registered and hence the charges for registration were also never paid/deposited by the applicant. It is also relevant to note that in the earlier application filed on behalf of the applicant i.e. Interim Application (Lodging) No. 4664 of 2022 the applicant prayed for permission of this Court to pay the necessary stamp duty and to register the document as per law after completing all formalities. This makes it abundantly clear that the applicant was aware about its obligation under the above quoted clause of the sale agreement dated 29th May 2017 that the stamp duty and registration charges were to be paid by the applicant. This Court finds substance in the contention raised on behalf of the official liquidator that the subject document i.e. the sale agreement dated 29th May 2017 is an incomplete and inchoate document incapable of being validated under Section 536 (2) of the Companies Act. The Supreme Court in the case of J. K. (Bombay) Private Ltd. v/s. New Kaiser-I-Hind Spinning and Weaving Co. Ltd. Ors. 1968 (11) TMI 63 - SUPREME COURT has laid down that once a winding up order is passed and the undertaking as well as the assets of the company in liquidation pass under the control of the liquidator it is the statutory duty of the liquidator to realize them and to pay from the sale proceeds to creditors and that the creditors also acquire rights to have the assets realized and distributed amongst them pari-passu. The official liquidator also alleged suppression on the part of the applicant as it was claimed that there was nexus between the management of the applicant and the former management of the company in liquidation. The official liquidator claimed that the company in liquidation had a sister concern called M/s. Desmo Capital and Finance Limited having the same management and ownership as that of the company in liquidation prior to its winding up - there is some substance in the contention raised on behalf of the official liquidator that the applicant could not have feigned ignorance about the fact that company petition for winding up of the said company i.e. M/s. Desmo Exports Limited had been filed and it was pending when the subject sale agreement dated 29th May 2017 was executed. In any case this Court has already rejected the substantial contentions raised in the present matter on behalf of the applicant and accepted those of the official liquidator herein. As regards delay and laches on the part of the applicant this Court is not inclined to hold against the applicant on that score. It is indeed observed in paragraph 33 of the judgment of this Court in the case of Rathnam P. V. v/s. Premier Automobiles Limited Ors. 2012 (4) TMI 234 - BOMBAY HIGH COURT that dispossession of the property of the company during the interregnum period between the date of presentation of winding up petition and date of passing of the winding up order can be validated at any time although the applicant would have to give explanation for any unreasonable delay in filing such application under Section 536 (2) of the Companies Act. In the facts of the present case delay and laches in itself cannot be held to be a ground to hold against the applicant. Conclusion - The applicant s failure to fulfill its obligations such as paying stamp duty and obtaining necessary permissions constituted a default preventing the application of this provision. Similarly the applicant s invocation of Section 53A of the Transfer of Property Act concerning part performance was rejected due to the lack of registration as required by Section 17(1A) of the Registration Act. The applicant s interim application for validation of the sale agreement is dismissed and the Official Liquidator s report directing the applicant to hand over possession of the subject property to the Official Liquidator is allowed.

Summary

The Court considered two primary issues in this judgment: the validity of a sale agreement dated 29th May 2017 concerning a company in liquidation and the application of Section 536(2) of the Companies Act, 1956, in this context. The Official Liquidator sought a declaration that the sale agreement was not binding, while the applicant sought validation of the agreement. The Court had to determine whether the agreement could be validated under the legal framework and whether it was executed bona fide and in the interest of the company and its creditors.

The legal framework involved Section 536(2) of the Companies Act, 1956, which allows the Court to validate transactions made after the commencement of winding-up proceedings if they are deemed beneficial to the company and its creditors. The Court also considered provisions from the Transfer of Property Act, 1882, and the Registration Act, 1908, particularly focusing on the requirements for registration and stamping of documents.

In its analysis, the Court first addressed the issue of the sale agreement being incomplete and inchoate. The agreement was executed on a Rs. 100 stamp paper and was not registered, which the Court found to be a significant deficiency. The obligation to pay stamp duty and registration charges was on the applicant, and the lack of necessary permissions from the Maharashtra Industrial Development Corporation (MIDC) further rendered the document incomplete. The Court emphasized that an unregistered and inadequately stamped agreement could not be validated under Section 536(2) of the Companies Act.

The Court referred to precedents, including the Supreme Court's decision in J. K. (Bombay) Private Ltd. v/s. New Kaiser-I-Hind Spinning and Weaving Co. Ltd., which established that no new rights or uncompleted rights could be created after a winding-up order, as this would contravene the rights of creditors to have assets distributed pari-passu. The Court also cited its own previous decisions, distinguishing them based on the completeness and bona fide nature of the transactions in those cases, which were not present in the current matter.

Regarding the bona fide nature of the transaction, the Court examined the adequacy of the consideration paid under the sale agreement. The applicant argued that the transaction was beneficial as it reduced the company's outstanding debt significantly. However, the Court noted that the consideration was below the property's fair market and distress values, indicating undervaluation and lack of bona fide intent. The Court rejected the applicant's argument that the payment directly into the loan account of the secured creditor justified the transaction's validation.

The applicant's reliance on Section 55(6)(b) of the Transfer of Property Act, which provides a buyer with a charge on the property for money paid, was also dismissed. The Court found that the applicant's failure to fulfill its obligations, such as paying stamp duty and obtaining necessary permissions, constituted a default, preventing the application of this provision. Similarly, the applicant's invocation of Section 53A of the Transfer of Property Act, concerning part performance, was rejected due to the lack of registration, as required by Section 17(1A) of the Registration Act.

The Court addressed the allegation of suppression regarding a nexus between the applicant and the former management of the company in liquidation. The official liquidator presented evidence suggesting a connection, which the applicant did not effectively counter. Although the Court did not base its decision solely on this ground, it considered it relevant to the overall assessment of the applicant's claims.

On the issue of delay and laches, the Court noted that while delay alone would not be a ground for dismissal, it was not inclined to favor the applicant given the substantive issues with the transaction.

In conclusion, the Court dismissed the applicant's interim application for validation of the sale agreement and allowed the Official Liquidator's report, directing the applicant to hand over possession of the subject property to the Official Liquidator. The Court's significant holdings emphasized the necessity for complete and bona fide transactions in the context of winding-up proceedings and reinforced the statutory duties of the liquidator to realize and distribute assets among creditors.