1956 (8) TMI 23 - HC - Companies Law

Summary

Issues Involved:
1. Whether the transaction constituted a fraudulent preference.
2. Whether the transaction was void under Section 227(2) of the Indian Companies Act, 1913.
3. Whether the official liquidator is estopped from disputing the transaction.

Detailed Analysis:

Issue 1: Whether the transaction constituted a fraudulent preference.

The official liquidator argued that the transaction between the bank, Lakshmi Achi, and Veerappa Chettiar was an act of fraudulent preference. The bank was insolvent and unable to pay its debts as they became due. The entries made in the bank's books suggested that Veerappa Chettiar had repaid his overdraft, and Lakshmi Achi had been paid her fixed deposit amount. The liquidator contended that this arrangement was made to prefer Lakshmi Achi over other creditors.

Lakshmi Achi denied any knowledge of the bank's financial condition and claimed that the bank was legally bound to pay her the matured fixed deposit. Veerappa Chettiar asserted that he was unaware of the bank's insolvency and had acted in good faith.

The court noted that the bank had stopped its business operations and was in a dire financial state long before the winding-up petition was presented. Evidence showed that both Lakshmi Achi and Veerappa Chettiar were aware of the bank's insolvency. The court found no substantial evidence of pressure exerted by Lakshmi Achi on the bank for payment. The suspicious circumstances surrounding the transaction, such as the lack of signatures on the pay-in slips and the timing of the entries in the bank's books, supported the liquidator's claim.

The court concluded that the transaction was a fraudulent preference, as the dominant intention was to favor Lakshmi Achi over other creditors.

Issue 2: Whether the transaction was void under Section 227(2) of the Indian Companies Act, 1913.

Section 227(2) states that any disposition of the company's property made after the commencement of the winding-up process is void unless the court orders otherwise. The evidence showed that the entries in the bank's books were made after the winding-up petition was filed, making the transaction void under this section.

The court also examined whether the transaction could stand if it had been effected before the winding-up petition. It was argued that the intention behind the transaction was to prefer Lakshmi Achi, which is sufficient to deem it invalid under Section 231(1) of the Indian Companies Act, 1913. The court found that the bank's managing director had no other purpose than to benefit Lakshmi Achi, making the transaction a fraudulent preference.

Issue 3: Whether the official liquidator is estopped from disputing the transaction.

Veerappa Chettiar argued that the official liquidator was estopped from disputing the transaction because he had admitted Veerappa Chettiar's claim as a creditor and declared a dividend on the amount standing to his credit. The court rejected this argument, stating that the liquidator's actions were based on Section 43 of the Banking Companies Act, which presumes claims to be proved unless there is reason to doubt their correctness. The liquidator had informed Veerappa Chettiar that his admission as a creditor was subject to the fraudulent preference claim.

The court found no estoppel and concluded that the transaction was void and amounted to a fraudulent preference. Veerappa Chettiar was ordered to pay the full amount due to the bank with interest, and Lakshmi Achi was entitled to rank as an ordinary creditor for the amount due on her fixed deposit. The respondents were also ordered to pay the official liquidator's costs.