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TMI Blog1970 (7) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... its notified order dated 9th October, 1969. On being appointed as the authorised controller, the corporation applied for being joined as a party to the aforementioned two company petitions ; and by an order made by the company judge in Company Application No. 127 of 1969 on 13th October, 1969, the corporation was joined as a party to both the petitions. The corporation has made the present two applications for a permission to create two mortgages on the security of the immovable properties of the company, one in favour of the corporation itself for a loan of Rs. 11.85 lakhs and the other in favour of National Textile Corporation Ltd. for a loan of Rs. 12.10 lakhs. These applications were made under section 536(2) of the Companies Act. The applications are resisted by the petitioning creditors in the aforementioned two company petitions, inter alia , on the ground that this court has no jurisdiction at this stage to grant the permission prayed for ; and alternatively it was contended that even if the court comes to the conclusion that the court has jurisdiction to grant it, the corporation has not put sufficient materials on the record to decide at this stage whether the permission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in finding out the true import of the section intended by the legislature. The language of sub-section (2) indicates that it would come into operation in respect of a company which is ordered to be wound up. The opening words of the section "in the case of a winding up", would show that the jurisdiction conferred on the court by sub-section (2) can be invoked in the event an order for winding up is made. The section provides that in the event of a winding-up order being made any disposition of property made by the company since the commencement of winding-up shall be void unless the court otherwise orders. By operation of the section itself, any disposition of property made by the company after the commencement of the winding-up proceeding would be void unless the court otherwise orders. Therefore, before the court can order that a particular disposition of property would not be void, it must first become void by the happening of the event envisaged by the section. The power or jurisdiction is conferred upon the court to pass upon the nature of the transaction which would necessarily be void but for the direction which the court may give in respect of the transaction. By the oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has reference to the time lag between the presentatior of winding-up petition and an order for winding-up being made. It is crystal clear that an order for winding-up made by the court would relate back to the date on which the petition for winding up the company is presented. Ordinarily, there would be some time lag between the date on which the petition for winding up is presented and the date on which an order for winding up is made. If a petition for winding up a company is made in respect of a flourishing company or a going concern, it is natural that the company would be, day to day in its ordinary course of business, entering into transaction which can be styled as disposition of the property of the company. All these dispositions of property will be made by the directors within the scope of their power. On the date on which such disposition of the property is made they would be. valid dispositions of property. But if at a later date an order for winding up the company is made, they would become void. If at all they become void, jurisdiction is conferred upon the court to decide the nature of such transaction, namely, to declare that they are not void or to declare that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may or may not become necessary. If the winding-up petition is dismissed section 536(2) would never come into play. Section 536(2) would come into play only when a winding-up petition is presented which is ultimately granted and the company is ordered to be wound up and such company having made dispositions of the property during the period between the presentation of the petition and the date of the winding-up order. In order to see that, since the presentation of the petition, the directors of the company do not fritter away the assets of the company, a wholesome provision is made that, in the event of the company being ordered to be wound up, such disposition of property shall be void, simultaneously providing that the court may examine the nature of such disposition of the property at the instance of the liquidator or at the instance of any other person interested in the disposition of the property and declare that the particular disposition is not. void or is valid. But it must be remembered that every petition presented for winding up the company would not necessarily be granted. Now, if, after presentation of the petition and till the time it is finally decided, every dispo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gested by Mr. Vakil of sub-section (2). Even if the object sought to be achieved or the mischief sought to be arrested is taken into consideration after putting proper construction on the language of sub-section (2), in my opinion, both can be achieved by adopting the first construction, namely, that the court will have jurisdiction to examine the nature of the transaction only in winding-up proceeding after the company is ordered to be wound up. It was also attempted to be urged that in fact there is nothing in the language of sub-section (2) to indicate one or the other stage where the jurisdiction of the court can be invoked and, therefore, it would appear that the jurisdiction of the court to pass upon the nature of the transaction can be invoked at any stage. I am afraid, as stated earlier, the condition precedent for the exercise of the court's jurisdiction under sub-section (2) is indicated by the use of the words "in the case of a winding-up" which, in my opinion, mean that in the event of the winding-up order being made, the transactions falling within a certain period would be void unless the court otherwise orders. Therefore before the court's jurisdiction under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of Vaisey J. in In re Miles Aircraft Ltd. [1948] Ch. 188, 190 ; [1948] 1 All. ER 225, 226 ; 18 Comp. Cas. 250 , 252 (Ch. D.). A question of jurisdiction was again in terms raised before Vaisey J. In the case before Vaisey J. a petition for winding up Miles Aircraft Ltd. was filed on November 11, 1947. The return date was November 24, 1947. The petition came to be adjourned till December 15 when it was adjourned till 19th January. On November 12, the company entered into a contract for the sale of certain leasehold property of which the company was the registered proprietor. The debenture-holders of the company who believed that the transaction was for their benefit applied for an order under section 173 of the Companies Act, 1929, that the contract and disposition of the property made should not be void in the event of an order for winding up the company being made. It may be noticed that section 173 of the Companies Act, 1929, is in fiari materia with section 536(2) of the Companies Act, 1956. Considering the question of jurisdiction, Vaisey J. observed as under : "In my judgment, the object of the section, both in its original and in its present form, is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l's Company Law and Precedents, 3rd edition, page 830, and is not referred to in Buckley or Palmer. Apart from that, looking to the report of that case, the question of jurisdiction does not appear to have been canvassed before the court. It would thus appear that the question of jurisdiction was in terms raised before Vaisey J. in In re Miles Aircraft Ltd. [1948] Ch. 188 ; [1948] 1 All. ER 225 ; 18 Comp. Cas. 250 (Ch. D.) and before Buckley J. in In re A. I. Levy (Holdings) Ltd. [1964] 1 Ch. 19 ; 54 Comp. Cas. 720 (Ch. D.). Both these decisions take exactly contrary views of almost the same section and are not reconcilable. My attention was drawn to only two cases decided under section 536(2) by the courts in India. First case on the subject is Ramesh Chandra v. Chopasni Ice, Aerated Water and Oil Mills Ltd. AIR 1963 Raj. 187. Considering the scope of the jurisdiction of the court under sub-section (2) of section 536, the Division Bench has in no uncertain terms observed that the situation visualised by the section dc js not arise before a winding-up order is passed by the court. Mr. Vakil, who strongly favoured the construction put upon the section by Buckley J., u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lienation from becoming void, appears ordinarily to be, in the light of the section, an order made after winding up, because, until an order for winding up is made, the normal powers of the directors continue, and, unless an order for winding up is made, any disposition or alienation made by the directors does not become void." The use of the word "ordinarily" does not mean that the court had any doubt about the construction sought to be placed on sub-section (2). In fact the court has expressed itself most clearly and unequivocally when it said that the occasion for exercise of the power under section 536(2) arises after an order for winding up is made. It would appear that the trend of the authorities is in the direction of the court having no jurisdiction to pass upon the validity or otherwise of disposition of property by a company before a winding-up order is made in respect of that company. Therefore, both upon principle as well as on authority, it appears that the court has no jurisdiction to entertain an application for validating the transaction or put its seal of approval upon a transaction by the company before that company is ordered to be wound up. Even if it is as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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