2015 (3) TMI 463 - HC - Companies Law

Winding up application on the recommendation made by BIFR - Bonafide purchase of permises - Disposing power exercised prior to the commencement of winding up - Held that - It is clear that the date of winding up by a court is the date of presentation of the petition. Given that the present two petitions were not maintainable and that the Vysya Bank petition was subsequently dismissed, the only petition whose presentation date could be reckoned for the purposes of Section 441, was, therefore, the petition on the BIFR recommendation, i.e., Company Petition No. 154 of 2007. The presentation date of that petition was 8th February 2007. By that time, the sales in favour of Pavlova had already been completed. In fact, they had been completed two years earlier. At this stage, it must be noted that the order of admission on the present two petitions filed by IFGL Refractories and MSTC was set aside on 14th December 2000. Those two petitions then lay dormant and they were only again taken up along with the BIFR suo-motu Company Petition No. 154 of 2007. The order dated 16th January 2008 allowing the present two petitions and ordering the winding up of Shri Ishar Alloy Steels Limited, could not, in my view, have been made. Those petitions, as I have noted, were clearly not maintainable and did not lie. That order ought to have been made, and made only, in the suo-motu BIFR Company Petition No. 154 of 2007. Mr. Chinoy points out that before the BIFR too, it was clear that a sale of these very office premises was very much in contemplation. This is evident inter alia from the minutes or summary record of the proceedings held on 30th March 1999 before the BIFR and also from paragraph 11 of the summary record or proceedings of the hearing held on 22nd May 2000. Indeed, the latter record indicates that it was specifically stated that the promoters of Shri Ishar Alloys would bring in ₹ 18 crores by way of their contribution, of which ₹ 2 crores would be through the sale of the office premises. There was, therefore, Mr. Chinoy submits, and in my view rightly, no injunction per se or any restraining order in respect of the sale of these premises at that time from Shri Ishar Alloys to Neco Tech or its nominees. Consequently, the further sale by Neco Tech to Pavlova could not be invalidated, in as much as Neco Tech not only paid a fair market value for the premises, but also acquired a good, clear and marketable title. The principle laid down in the case of Monark Enterprises 1991 (10) TMI 208 - HIGH COURT OF BOMBAY is equally applicable in the current case. The disposing power was exercised and the sale to Pavlova was completed before the presentation of the suo-motu BIFR-recommended Company Petition No.154 of 2007. - Decided in favour of appellant.

Summary

Issues Involved:
1. Bona fide purchase and validity of transactions.
2. Consequences of judicial delays and peculiar circumstances of winding-up.
3. Maintainability of winding-up petitions in light of BIFR proceedings.
4. Applicability of Sections 536 and 441 of the Companies Act, 1956.
5. Equitable discretion under Section 536(2) of the Companies Act, 1956.

Detailed Analysis:

1. Bona fide Purchase and Validity of Transactions:
The applicant sought a declaration that it is the bona fide purchaser of the Free Press House premises and that transactions relating to these premises are valid. The court found that the applicant, Pavlova Estates Private Limited, had purchased the premises from Neco Tech Auto Components Limited after exercising due caution and paying a fair market value. The transactions were completed before the presentation of the winding-up petition deemed valid (Company Petition No. 154 of 2007).

2. Consequences of Judicial Delays and Peculiar Circumstances of Winding-Up:
The judgment highlighted the catastrophic consequences of judicial delays and peculiar circumstances in which Shri Ishar Alloys was ordered to be wound up. The winding-up petitions filed by IFGL Refractories Limited and MSTC were not maintainable due to the prior reference to BIFR, which was pending. The court noted that the delays and missteps in judicial proceedings should not adversely affect the applicant, who acted in good faith.

3. Maintainability of Winding-Up Petitions in Light of BIFR Proceedings:
The court emphasized that the winding-up petitions filed after the BIFR reference were not maintainable under Section 22 of the SICA, which prohibits proceedings for winding up once a reference is registered. The only effective petition was the one on the BIFR recommendation (Company Petition No. 154 of 2007), presented on 8th February 2007, after the sale to Pavlova was completed.

4. Applicability of Sections 536 and 441 of the Companies Act, 1956:
Section 536(2) states that any disposition of the property of the company after the commencement of winding up shall be void unless the court orders otherwise. Section 441 specifies that the winding-up by the court commences at the time of the presentation of the petition. Since the valid petition was presented after the sale to Pavlova, the transactions were not void under these sections.

5. Equitable Discretion under Section 536(2) of the Companies Act, 1956:
The court exercised its discretion under Section 536(2) to validate the transactions, considering the bona fide nature of the purchase and the absence of fraud, collusion, or undervaluation. The court noted that the applicants should not suffer due to errors and missteps in judicial proceedings. The principle that honest, bona fide transactions should be protected was upheld, as seen in similar cases cited by the court.

Conclusion:
The court allowed the applications, declaring that the applicant is a bona fide purchaser, the transactions are valid, and the Official Liquidator has no claim over the premises. The judgment emphasized the importance of equitable discretion and protecting bona fide transactions in the face of judicial delays and procedural errors.