2005 (7) TMI 378 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the sale of land by R.P.S. Benefit Fund Ltd. after the presentation of the winding-up petition.
2. Applicability of Sections 531A and 536(2) of the Companies Act.
3. Determination of whether the transactions were in good faith and for valuable consideration.
4. The right of the appellants to be heard before the sale order was passed.
5. The duty of the Administrator/Liquidator to ascertain encumbrances on the property.

Detailed Analysis:

1. Validity of the Sale of Land by R.P.S. Benefit Fund Ltd. After the Presentation of the Winding-Up Petition:
The core issue revolves around the sale of 16.32 acres of land by R.P.S. Benefit Fund Ltd. after the winding-up petition was filed on 26-7-1999. The sale deeds were executed between 9-8-1999 and 12-8-1999, subsequent to the presentation of the winding-up petition. The court held that these transactions were void under Section 536(2) of the Companies Act unless the court otherwise directed.

2. Applicability of Sections 531A and 536(2) of the Companies Act:
The appellants contended that the transactions should be judged under Section 531A, which deals with transactions made within one year before the presentation of the winding-up petition. However, the court clarified that Section 536(2) was applicable since the transactions occurred after the presentation of the winding-up petition. Section 536(2) states that any disposition of the property of the company made after the commencement of the winding-up shall be void unless the court orders otherwise.

3. Determination of Whether the Transactions Were in Good Faith and for Valuable Consideration:
The appellants argued that the transactions were bona fide and for valuable consideration, as the sale deeds were executed in exchange for the matured fixed deposits. The court, however, found that the transactions were preferential and lacked justification for favoring the appellants' father over other creditors. The court emphasized that the burden of proving good faith and valuable consideration under Section 536(2) was on the appellants, which they failed to establish.

4. The Right of the Appellants to Be Heard Before the Sale Order Was Passed:
The appellants argued that they should have been given an opportunity to be heard before the order dated 28-6-2004, which granted permission for the sale of the properties. The court acknowledged that the Administrator should have obtained a "No Encumbrance Certificate" but concluded that this oversight did not invalidate the transactions. The court maintained that it was the appellants' responsibility to present relevant circumstances to protect their transactions.

5. The Duty of the Administrator/Liquidator to Ascertain Encumbrances on the Property:
The appellants contended that the Administrator failed to ascertain encumbrances on the property before obtaining the sale order. The court agreed that the Administrator could have been more diligent but held that this did not affect the void nature of the transactions under Section 536(2). The court emphasized that the appellants should have raised objections during the first publication of the sale notice on 20-3-2004 but failed to do so.

Conclusion:
The court dismissed the appeals, upholding the learned Company Judge's decision that the transactions were void under Section 536(2) of the Companies Act. The appellants were advised that their claims for repayment should be considered along with other creditors and were given the opportunity to participate in the auction if not already held. The court emphasized that equity favors the vigilant and not the indolent, thus reinforcing the importance of timely action in legal proceedings.