1961 (9) TMI 25 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the sale of a truck by a company in liquidation.
2. Application of Section 536(2) of the Companies Act, 1956.
3. Bona fides of the purchaser and the transaction.
4. Utilization of sale proceeds by the company.
5. Judicial discretion in validating transactions during winding up proceedings.

Detailed Analysis:

1. Validity of the Sale of a Truck by a Company in Liquidation:
The applicant sought an order declaring the sale of a truck by a company, now in liquidation, as valid and binding on the official liquidator. The sale was authorized by a resolution of the board of directors on September 10, 1958, and executed on October 3, 1958, for Rs. 11,000, prior to the winding-up order dated January 5, 1959. The company informed the Director of Public Vehicles Department about the sale on the same day.

2. Application of Section 536(2) of the Companies Act, 1956:
Section 536(2) states that any disposition of the property of a company after the commencement of winding up shall be void unless the court orders otherwise. The court reviewed various precedents, including the English Act of 1948 and the old Indian Companies Act, to determine the application of judicial discretion under Section 536(2).

3. Bona Fides of the Purchaser and the Transaction:
The applicant, Gabriel Gasper, testified that he purchased the truck in good faith without knowledge of the winding-up proceedings. He paid Rs. 11,000, a price higher than the truck's worth due to its permit. The court found Gasper's evidence credible, noting that he had no knowledge of the winding-up petition and had overhauled the truck after purchase.

4. Utilization of Sale Proceeds by the Company:
The company's head cashier, Radhagobinda Saha, confirmed the receipt of Rs. 11,000 from Gasper and its entry in the company's books. A part of the proceeds was used to pay customs duty, necessary for the company's business. The court noted that the company was short of funds and could not realize its dues, indicating the sale was to keep the company operational.

5. Judicial Discretion in Validating Transactions During Winding Up Proceedings:
The court emphasized that it has absolute discretion under Section 536(2) to validate transactions, guided by general judicial principles. The court must consider all surrounding circumstances to determine if the transaction benefits the company or keeps it operational. The court cited various cases, including *In re T.W. Construction Ltd.* and *Ripon Press and Sugar Mill Co. Ltd. v. Gopal Chetty*, to illustrate the application of this discretion.

Conclusion:
The court concluded that the transaction was bona fide and for valuable consideration, with a substantial portion of the proceeds used to meet the company's liabilities. The sale was deemed necessary to keep the company operational. Therefore, the court validated the transaction and made an order in terms of clause (a) of the summons, with no order as to costs except that the liquidator shall retain his costs out of the assets.