2012 (4) TMI 436 - HC - Companies Law

Instant application filed by the Official Liquidator under Section 537 to declare the sale held during the petition period as null and void - out of the sale proceeds of Rs. 2,55,000/- a sum of Rs. 1,70,000/- is stated to have been paid by respondent Nos. 1 and 2 to the 4th respondent, who was a secured creditor of the Company-in-liquidation and the balance sum of Rs. 85,000/- has been paid to one of the employees who was working as a Manager prior to the closure of the company Held that - Keeping in view and considering the fact that respondent Nos. 1 and 2 have paid amounts from their personal account even subsequent to the date of winding up order and the said amount is much more than the amount for which a direction has been sought for the direction as against respondent Nos. 1 and 2 to refund the same would not arise - the entire amount of Rs. 1,70,000/- in any event cannot be appropriated by the respondent. No. 4 alone to the detriment of any other claims of the secured creditors or employees which would have to be considered on a pari passu basis - a direction is issued to the fourth respondent to bear the advertisement expenses (not exceeding Rs. 10,000/-) for the Official Liquidator to invite claims from any persons who may have claims against the Company-in-liquidation.

Summary

Issues:
Application under Section 537 of the Companies Act seeking to declare a sale as null and void, and to direct remittance of sale proceeds to the Official Liquidator.

Analysis:
The case involved an application by the Official Liquidator under Section 537 of the Companies Act, seeking to declare a sale during the petition period as null and void and to direct the remittance of sale proceeds. The company in question was ordered to be wound up, and the sale in question was made by the erstwhile directors of the company-in-liquidation. The applicant contended that the sale was contrary to the provisions of the Companies Act, specifically Section 537, and sought a refund of the sale proceeds. The respondents, the former directors, acknowledged the sale but argued it was made in good faith due to financial difficulties faced by the company. They claimed to have paid off a secured creditor and an employee from the sale proceeds. The matter proceeded to evidence, with documents presented by both parties. The evidence confirmed the sale of movables by the respondents post the filing of the winding-up petition. The respondents argued that they made payments even after the winding-up order to settle dues, indicating good faith efforts. The court noted the payments made by the respondents from personal funds towards settling outstanding amounts post-winding up. Considering these payments and the lack of claims against the Official Liquidator, the court held that a refund direction against the respondents was not warranted.

The court further deliberated on the payment made to the secured creditor, amounting to Rs. 1,70,000, which was towards discharging the company's liability. Given the absence of other claims and the need for fair distribution of assets, the court directed the fourth respondent to bear advertisement expenses for inviting potential claims against the company-in-liquidation. The court emphasized that in the absence of other claims, no refund direction to the fourth respondent was necessary. However, the Official Liquidator was granted the liberty to seek directions if other claims emerged. The court disposed of the application in line with the observations, emphasizing fair distribution of assets without disturbing the present status.

In conclusion, the judgment addressed the application seeking to declare a sale null and void under the Companies Act. It considered the circumstances of the sale, payments made by the respondents post-winding up, and the need for fair asset distribution. The court ruled against a refund direction to the respondents but directed the fourth respondent to cover advertisement expenses for potential claims, ensuring fair distribution if other claims arise.