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2019 (10) TMI 967 - SC - Companies LawExecution of a sale deed in favour of the Petitioner - revival of winding up proceedings initiated against KOFL - whether a winding up petition can be dismissed solely on the ground of lack of a prosecuting creditor under Rule 101, or whether the Company Court has the power to direct the publication of an advertisement by the Liquidator of the company, especially in cases where other unsatisfied creditors still remain? HELD THAT - It is important to bear in mind that winding up proceedings are proceedings in rem and have an impact on the rights of people, in general. Thus, it is mandatory to advertise such proceedings, so as to ensure that they receive the widest possible publicity and all relevant stakeholders have adequate notice. This implies that in a situation where the petitioning creditor fails to advertise the petition and no other creditor or contributory comes forward to prosecute it, Rule 101 should not be read in a manner that absolutely bars the continuation of a winding up petition. This is particularly so when there are unsatisfied creditors who should have been given an opportunity to prosecute the petition, but were deprived of the same due to the failure to advertise. Indeed, Rule 101 is only limited to instances where the petitioning creditor fails to advertise the petition. However, there is nothing in the language of Rules 24, 96, or 99 to indicate that only such petitioning creditor can advertise the petition. Given the absence of a specific provision mandating that the petition only be advertised by petitioning creditor, the Company Court has the discretion to direct the publishing of an advertisement to secure the interest of other creditors. In such situations, the winding up proceedings cannot be dismissed, as it would frustrate the very objective of securing the interest of all creditors. Whether the Petitioner has a right to seek the execution of a sale deed in its favour? - HELD THAT - Solely based on an examination of factors indicating a dominant motive of the management of KOFL to benefit the Petitioner, it went on to hold that the agreement to sell constitutes a fraudulent preference. In doing so, it has failed to appreciate that the said agreement was executed on 17.02.2000, while the winding up petitions were filed on 02.07.2001, signifying that there was a gap of over sixteen months between the two events, as opposed to the six-month period contemplated under Section 531. Similarly, it failed to consider that even the transfer of possession of the subject property occurred on 06.11.2000, which was also before the six-month period preceding the filing of the winding up petition. It is evident that the agreement to sell dated 17.02.2000 cannot be termed as a fraudulent preference under Section 531.
Issues Involved:
1. Whether the winding up proceedings against KOFL should be revived. 2. Whether a sale deed can be executed based on the agreement to sell dated 17.02.2000 entered into by the Petitioner and KOFL. Detailed Analysis: Revival of the Winding Up Petition 1. Background and Advertisement Requirements: - The Division Bench observed that the mandatory procedure for advertising a winding up petition under the Companies (Court) Rules, 1959 (1959 Rules) had not been complied with. - Rules 96, 99, and 24 require that the winding up petition be advertised to ensure that all relevant stakeholders have adequate notice. - Rule 101 allows for the substitution of the petitioning creditor if they fail to advertise the petition, but no other creditor expressed willingness to prosecute the petition. 2. Company Court's Decision: - The Company Judge dismissed the winding up petition due to the lack of advertisement and no other creditor stepping forward to prosecute the petition. - The Judge noted that dismissing the petition would not prejudice creditors as unsecured creditors had been settled, and secured creditors could pursue their claims before the Debts Recovery Tribunal (DRT). 3. Division Bench's Decision: - The Division Bench revived the winding up proceedings, noting that it would be unjust to dismiss the petition solely due to the lack of advertisement, as several secured creditors, including SBI, had not been satisfied. - The Bench held that the Company Court has the discretion to direct the provisional liquidator to publish the advertisement if the petitioning creditor fails to do so, to secure the interest of other creditors. 4. Supreme Court's Conclusion: - The Supreme Court agreed with the Division Bench, emphasizing that winding up proceedings are in rem and affect the rights of people in general. - The Court held that it would be unjust to dismiss the winding up petition solely on the ground of lack of a prosecuting creditor under Rule 101, especially when other unsatisfied creditors remain. - The decision to revive C.P. No. 179 of 2001 was upheld, and the Company Court was directed to issue appropriate directions to the Official Liquidator for publishing the advertisement of the proceedings. Execution of Sale Deed 1. Relevant Provisions: - Section 531 of the Companies Act, 1956 deals with fraudulent preference, invalidating any transfer or act relating to property made within six months before the commencement of winding up. - Section 293(1) restricts the Board of Directors from selling or disposing of the whole or substantially the whole of the company’s property without the consent of the general meeting. 2. Company Court's Decision: - The Company Judge dismissed the application for executing a sale deed, finding the agreement to sell dated 17.02.2000 to be a collusive transaction and a fraudulent preference. - The Judge noted that KOFL was in financial distress and owed significant amounts to other secured creditors, and the transfer of the subject property was preferential treatment to the Petitioner. 3. Division Bench's Decision: - The Division Bench affirmed the Company Judge's decision, noting that the subject property was the only and prime immovable asset of KOFL and required approval from the general meeting under Section 293(1). - The Bench held that the agreement to sell did not transfer any rights and the transfer of possession reflected preferential treatment. 4. Supreme Court's Conclusion: - The Supreme Court upheld the dismissal of the application for executing a sale deed, agreeing that the requirements of Section 293(1) had not been met. - The Court noted that the agreement to sell does not transfer any right, title, or interest in the immovable property and requires approval from the general meeting. - The Court disagreed with the Division Bench's finding of fraudulent preference under Section 531, noting that the agreement to sell was executed outside the six-month period preceding the winding up petition. - The Court emphasized that the non-compliance with Section 293(1) alone was sufficient to dismiss the application for execution of a sale deed. Conclusion: The Supreme Court upheld the revival of the winding up proceedings against KOFL and dismissed the application for executing a sale deed based on the agreement to sell dated 17.02.2000, primarily due to non-compliance with Section 293(1) of the Companies Act, 1956.
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