9911796707
TMI Blog1991 (10) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the company court under one or the other provisions of the Companies Act I of 1956 (hereinafter referred to as "the Act"). On August 12, 1987, Shri Kishan Tulpule, Shri Ramakrishna Venkat, Shri Satyanarayan Ramsurat Tripathi and Shri Ramtirath Sukhanarayan Kahar, in their capacity as representatives of the Mill Mazdoor Sabha, an approved and recognised union for the textile processing industry, representing the workmen of the company, filed a winding-up petition in this court, being Company Petition No. 756 of 1987. The petitioners sought a winding-up order against the said company on the ground of non-compliance with the notice of demand of Rs. 70,74,282.59, being notice of demand dated July 13, 1987. The said petition was declared on August 5, 1987, and was filed on August 12, 1987. It was, inter alia, averred in the petition that the company had resorted to an illegal lock-out in July, 1986. The company employed about 423 workmen at the material time. On June 9, 1988, this court passed an order for winding up of the company. The winding up order relates back to the date of presentation of the petition, i.e., August 12, 1987. By the said order, the Official Liquidator, Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was duly implemented prior to the passing of the winding-up order. The relevant facts in respect of the abovereferred impugned transaction shall be set out at some length in the latter part of this order. On September 24, 1987, Monark Enterprises executed a deed of mortgage in respect of the same property, i.e., plot No. 10 and the structures thereon situate at Government Industrial Estate, Kandivli (leasehold rights) in favour of the Bank of Maharashtra. It is the contention of Monark Enterprises and the Bank of Maharashtra that plot No. 10 was- not an asset of the company on the relevant date, that the impugned transaction dated February 18, 1987, and the above referred mortgage were arrived at in good faith and for valuable consideration and that the said asset cannot be considered as an asset of the company on the relevant date. It is also the contention of Monark Enterprises that the said transaction dated February 18, 1987, cannot be treated as "disposal of property" by the company after August 12, 1987, merely because the Collector of Bombay granted sanction thereto on September 14, 1987, the company having already exercised its disposing power on February 18, 1987. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y payable to the income-tax department, Collector of Bombay, Municipal Corporation of Greater Bombay, etc.; on behalf of the company and adjust such payments towards their obligation to pay the stipulated consideration of Rs. 32,74,294. It was further stated in paragraph 7 of the said report that Monark Enterprises had obtained a certificate under sections 230A and 269UL of the Income-tax Act and had also applied to the Collector of Bombay for transfer of leasehold rights in their favour. It was further stated in paragraph 7 of the said report that Monark Enterprises had subsequently mortgaged the said plot No. 10 to the Bank of Maharashtra by a deed of mortgage dated September 24, 1987. I have carefully gone through the said report with the assistance of learned counsel. It is clear from the said report that the official liquidator did not dispute the validity of the decree passed by this court in Summary Suit No. 2334 of 1986 at the stage of making the said report or the fact that Monark Enterprises were bona fide creditors of the company for a large amount even prior to February 18, 1987, or that the company had defaulted in payment of the stipulated instalments. It is clear fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,95,000 to Kishinchand and Co., in which the directors of the company under liquidation had an interest and Rs. 80,000 to one Mr. Wadhoo Sakhrani. The official liquidator observed in paragraph 9 of his report that the said payments, according to him, amounted to preferential treatment over other creditors. The official liquidator sought directions from this court on this aspect of the matter also by posing the question as to whether the official liquidator may take out proceedings under section 531 of the Act against the ex-directors and Kishinchand and Co. and against Wadhoo Sakhrani to have the alleged preferential payment made to them as mentioned in paragraph 9 of the report declared void. Before setting out the gist of Company Applications Nos. 136 and 137 of 1991 which are being heard along with the above-referred report, I consider it proper to grant leave to the official liquidator to take out separate proceedings against the ex-directors, Kishinchand and Co. and Mr. Wadhoo Sakhrani in respect of his alleged grievance regarding the alleged preferential treatment/payments referred to in paragraph 9 of the said report. This question is incapable of being decided in the prese ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l liquidator. By the said order, I granted liberty to the parties to use the affidavits already filed in response to the report of the official liquidator dated November 9, 1990. The official liquidator is heard by the court not merely on the report dated November 9, 1990, but also on the two applications, being, Company Applications Nos. 136 and 137 of 1991. All the questions of fact and law arising from these two applications and the report of the official liquidator pertaining to the transaction dated February 18, 1987, are being adjudicated upon by this order except the claim for damages/compensation made by Monark Enterprises. It would be an exercise in futility to grant leave to the official liquidator to take out one more judge's summons to impugn the transaction dated February 18, 1987. In the affidavit in support of Company Application No. 137 of 1991, Shri Ramkrishna Venkat, representing the workmen, impugned the said transaction dated February 18, 1987, on various grounds. The said grounds are briefly summarised as under: (a)The impugned transaction amounted to "fraudulent preference" of one creditor in preference to other creditors within the meaning of section 531 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration. I have heard learned counsel for all the parties at some length. Written submissions have been filed. Compilations have also been filed. Some of the affidavits were taken on record subject to objection. All the affidavits filed by the parties are duly considered. I shall have to consider the various grounds of challenge to the impugned transaction while deciding Company Applications Nos. 136 and 137 of 1991, and the connected aspect of challenge contained in the report of the official liquidator and his affidavit. While deciding the said proceedings which are being decided after hearing the official liquidator, the court shall record its findings on the question whether the impugned transaction is liable to be treated as void ab initio or is liable to be annulled under sections 531, 531A, 537 or 536(2) of the Act. Since these questions are being adjudicated upon on merits after hearing the official liquidator while disposing of the two judge's summonses, the question of granting leave to the official liquidator to take out separate proceedings under section 531A of the Act for annulment of the suit transaction does not arise. The first question which arises for co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated August 3, 1985, the Bank of Maharashtra informed Monark Enterprises that a sum of Rs. 14.63 lakhs was overdue for payment since February, 1985. It was stated in the said letter that, if the said amount was not paid within a short time, the bank will be constrained to proceed legally against Monark Enterprises as well as against Kishco Mills Pvt. Ltd. Kishco Mills Pvt. Ltd. had accepted the hundis. The Bank of Maharashtra discounted the said hundis. Some of these hundis were honoured and some were not honoured. Thus, it is clear from the said letter dated August 3, 1985, that both Monark Enterprises as well as Kishco Mills Pvt. Ltd. were jointly and severally liable to pay the above-referred amount to the Bank of Maharashtra. It is also clear from the said letter that Monark Enterprises were also entitled to recover the amount for the price of goods sold to and, delivered to, Kishco Mills Pvt. Ltd. Monark Enterprises have also produced copies of three certificates of noting and protest dated July 21, 1986, issued by Phadke and Co. certifying that some of the relevant hundis were not honoured by the company which is now under liquidation. From the audited accounts (prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he invoices and delivery challans which would create suspicion in the mind of any reasonable person as more than 400 employees were on the pay roll of the company at the relevant time. It has also been pointed out that, in some of the delivery challans, the address given is not the factory address. The alleged discrepancies have been well replied to in the affidavits filed on behalf of Monark Enterprises. Since every single hundi/bill of exchange was to be discounted by Monark Enterprises with the Bank of Maharashtra or with the Dena Bank, as the case may be, it was a condition stipulated by the bankers that the basic documents like duplicates of the invoices and delivery challans should be signed by the executive director of the company. In my judgment, the submissions made on behalf of the official liquidator and the petitioning workmen can be reasonably described as speculative arguments having no legal foundation for the submission that the goods in question must not have been delivered by Monark Enterprises to the company and the decretal claim was a fictitious claim. The company did receive goods from Petrofils Co-operative Ltd. The company did honour a large number of hundis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said suit. It appears from the detailed annexures to the plaint that the company was liable to pay the amount of suit claim to the plaintiffs therein on account of the unpaid bills of exchange, i.e., a sum of Rs. 16,47,566.45 in respect of unpaid hundis drawn in favour of the Bank of Maharashtra in consideration of the goods supplied by Monark Enterprises to the company. It appears that the company was also liable to pay a sum of Rs. 2,39,899.65 in respect of unpaid hundis drawn in favour of the Dena Bank and a further sum of Rs. 1,88,590.30 to Monark Enterprises in respect of transactions referred to in the plaint. It appears from the plaint that the plaintiffs had filed the said suit on the basis of confirmation of accounts and confirmation of liability duly signed by Shri Ravi Nariman, executive director of the company under liquidation, it has been contended by learned counsel for the official liquidator that the said suit was not filed to enforce unpaid hundis but was filed for the price of goods sold and delivered. Each of the unpaid hundis was discounted by Monark Enterprises. Monark Enterprises were entitled in law to recover the said amount from Kishco Mills P. Ltd. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the company to them. In this view of the matter, I have no hesitation in holding that Monark Enterprises were bona fide lawful creditors of the company under liquidation under the decree dated September 5, 1986, until February 18, 1987. No prima facie case is made out for assailing the decree itself or to justify the contention that the decree was obtained by Monark Enterprises against the company in respect of a fictitious claim. There are two more aspects which deserve to be dealt with before I wind up the discussion on this question. Learned counsel for the official liquidator has rightly commented on the books of account of the company under liquidation. Learned counsel for the official liquidator has also tendered a copy of the statement of affairs filed by Shri Ravi Nariman as ex-director with the official liquidator. It has been pointed out in the said statement of affairs that the company is still supposed to continue to be liable to pay a sum exceeding Rs. 10 lakhs to Monark Enterprises when, according to Monark Enterprises, no amount is outstanding in view of the adjustment made of the decretal claim against the sale price fixed under the agreement dated February 18, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor to another creditor and that too fraudulently. The question which arises for consideration of the court is whether the company entered into the said transaction as a result of lawful pressure exercised by Monark Enterprises to recover its legitimate dues forthwith. It is well-settled that, if the transaction was entered into as a result of lawful pressure of a bona fide creditor to recover his dues, the transaction of transfer could not be treated as a fraudulent preference. Another connected aspect of the same question is as to whether the company entered into the said transaction to save its own skin for its own benefit in the circumstances then prevailing or whether the dominant motive of the company in effecting the said transaction was to favour one creditor to another. By its letter dated August 3, 1985, the Bank of Maharashtra had already threatened in writing to the effect that it would adopt legal proceedings both against Monark Enterprises as well as against "the company" if the sum of Rs. 14.63 lakhs with overdue interest remained unpaid. The threat of legal proceedings was an imminent threat. It is an admitted fact that the company did not pay the decretal instalme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company law. In the instant case, the facts are quite eloquent. Learned counsel for the official liquidator and the petitioners have submitted that Monark Enterprises had not issued any notice to the company to the effect that it would execute the decree in view of the default committed. No such notice need be actually issued. Since Monark Enterprises were receiving threatening letters from the Bank of Maharashtra, Monark Enterprises must have threatened the company to pay its dues as the primary liability in respect of unpaid hundis executed by the company for the price of goods sold and delivered by Monark Enterprises to the company was of the company and Monark Enterprises were facing threats from the Bank of Maharashtra mainly because of the company having defaulted in respect of its obligation to discharge its liability to pay the amount in question. Paragraphs 908, 909, 913, 914, 915, 918 and 920 of the Halsbury's Laws of England, volume 2, 4th edition, set out the statement of law on the subject of fraudulent preference neatly and clearly. The principles of law operating in the field of bankruptcy/insolvency law are imported into the Companies Act. In order that a trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of the lease has now expired. It is beyond my comprehension as to how the creditors would be able to auction the leasehold rights which have come to an end particularly when the Collector has recognised Monark Enterprises as a lessee of the property since February 18, 1987, in view of his letter of sanction dated September 14, 1987, after according "No objection" approval or sanction of several other statutory authorities. The said indenture of lease imposed an obligation on the company to pay the amount of stipulated rent regularly and in advance. The said indenture of lease provided for revision of rent. Clause X of the said indenture of lease provided that the lessee shall not, at any time, assign or underlet the said plot or any part thereof or transfer his rights or interest therein to anybody without the previous consent in writing of the Collector. Clause X of the said indenture of lease permitted the Collector to impose conditions while granting sanction requiring the lessee to pay to the Government half of the unearned increment, etc. Clause XI of the said indenture of lease empowered the Government to issue forfeiture notices on the lessee in case the lessee failed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t by engaging the services of professional experts. By a letter dated February 18, 1987, the company had recorded that Monark Enterprises were placed in actual possession of the said property on that very day. A joint application was made on the same day both by the transferor and the transferee to the Additional Collector, Bombay Suburban District, for his sanction and/or permission to the said transaction. By a letter dated March 3, 1987, the Additional Collector of Bombay made a reference to the Director of Industries in that behalf. Correspondence ensued. In the meanwhile, Monark Enterprises discharged certain liabilities and made certain payments on account of the said transaction. Monark Enterprises obtained some bank drafts from the Bank of Maharashtra for purpose of implementation of the said transaction. (d)On July 24, 1987, a meeting was held of the secretaries of the Government at which the said transaction was discussed. (e)By letter dated September 3, 1987, the Director of Industries informed his views to the Additional Collector to the effect that the directorate will be in a position to grant a "no objection certificate" to Monark Enterprises, provided the leasehol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permission was obtained from the Additional Collector of Bombay in respect of the said transaction and only after a "no objection certificate" was issued by the appropriate authority under the relevant provision of the Income-tax Act, 1961. A "No objection certificate" was issued by the appropriate authority under the Income-tax Act, 1961, on May 5, 1991. The income-tax authorities have also issued a certificate under section 230A of the Income-tax Act, 1961. Permission or no objection certificate was also obtained by the parties from the Directorate of Industries and the authority under the Urban Land (Ceiling and Regulation) Act. The transaction was entered into with the aid of advocates after making a search, investigating title and execution of declaration and was implemented after several statutory authorities approved and/or sanctioned the same, much before the passing of winding up order. (b)The said transaction was finally completed on September 14, 1987, on issue of a letter of sanction by the Collector of Bombay or on issue of letter dated October 19, 1987, by the Collector after all the amounts required to be deposited were deposited by Monark Enterprises and necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds the Collector of Bombay and all the parties to the deed of mortgage. (e)Till October 16, 1987, Shri Ravi Nariman of the company was a consenting party to the transaction dated February 18, 1987. The company had received the amounts stipulated under the contract dated February 18, 1987. As a matter of fact, a joint application was made to the Collector of Bombay to effect transfer of the leasehold rights in favour of Monark Enterprises as far back as on February 18, 1987. It is unfortunate that Shri Ravi Nariman developed an afterthought and tried to back out of the transaction. By its letters dated October 16, 1987, and November 12, 1987, the company wrote to the Collector that no transfer should be effected in the record of the Collector in favour of Monark Enterprises in respect of the said plot No. 10 and structures thereon unless a no objection letter was issued by the company thereafter. Several allegations were made in these letters. To my mind, it was improper on the part of Shri Ravi Nariman to do so. The Additional Collector of Bombay, by his letter dated November 4, 1987, informed the company and its executive director, Shri Ravi Nariman, that the transfer in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the balance-sheet of the company, I hold that this allegation is not at all proved. Prima facie, the transaction was entered into in good faith and for valuable consideration. It has been argued by learned counsel for the official liquidator as well as by learned counsel for the petitioners-workmen that Monark Enterprises must have been aware of the circumstances indicating virtual bankruptcy of the company on the date of the transaction and the impugned transaction shall have to be scrutinised in the context of the insolvent position of the company on the date of the transaction to the knowledge of Monark Enterprises. Monark Enterprises denies that it had knowledge of the so-called alleged bankruptcy of the company on February 18, 1987. Learned counsel for the official liquidator and the petitioners-workmen have emphasised that the court receiver appointed in the suit of the Central Bank had already taken charge of plot No. 7A and the machinery and if Monark Enterprises had taken due care and caution and made responsible enquiries in the matter, they would have definitely come to the conclusion that the transferor was in embarrassed circumstances. Before I analyse this submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court held that the definition of "good faith" given in the General Clauses Act (X of 1897) shall have to be read in all Central statutes unless some other definition was provided in the specific statute. It was, therefore, held that the act of the transferee shall have to be held to have been done in good faith if it was done honestly, whether it was done negligently or without due care and caution. No definition of "good faith" is to be found in the Companies Act I of 1956. Applying the ratio of this judgment to the facts of this case and their assessment and overall impact, I hold that Monark Enterprises had acted honestly in obtaining the transfer of the leasehold right in the plot in question and the structures thereon and their conduct is not blameworthy, although the conduct of the transferor is not free from doubt. It is not possible to hold that Monark Enterprises knew that the company was insolvent or that they acted in collusion or fraudulently or shared any common intention to defraud. The petitioning workmen have a valid claim. Merely because Monark Enterprises realised their lawful claim by obtaining a transfer, it cannot be inferred that Monark Enterprises acted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned counsel submits that this clause in the agreement shows the mala fides of the company and clearly proves that the conduct of the company and its directors entering into the impugned transaction was not straightforward. This clause merely states that the said plot or the building thereon was not encumbered by any claim of workmen or decree or order of the court or tribunal. The said clause does not state that no claim of workmen was pending against the company. The company is not prohibited in law from disposing of one or other of its assets in good faith and for valuable consideration merely because of the subsistence of the claim of the workmen. Even if the bona fides of the transferor are to be suspected, it does not automatically follow that the transferee acted in bad faith. In my judgment, the above clause of the agreement by itself is not sufficient to invalidate the impugned transaction or warrant a finding that the transaction was not entered into in good faith and for valuable consideration. The court is required to take an overall view of all the facts and circumstances. It is most unfortunate that the workmen's dues are still outstanding. However, on this ground a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. Shri Puri, learned counsel for the petitioners-workmen, submitted that the provisions of section 25FF of the Industrial Disputes Act, 1947, are applicable to the present case. I am not at all impressed by this contention. Section 25FF has no application to this case. Section 537 of the Companies Act was invoked by learned counsel for the official liquidator and the petitioners-workmen as an additional ground for impeaching the transaction. Section 537 invalidates attachments, distress or execution put in force, without leave of the court, against the estate or effects of the company, after the commencement of the winding up. Both learned counsel relied on section 537(1)(b) of the said Act and submitted that the expression "any sale held" would vitiate the impugned transaction as the agreement of 18th February, 1987, culminated in a sale only on 14th September, 1987, or 19th October, 1987, when the winding up proceedings had already commenced and it was admitted that no leave of the court was obtained. In my judgment, section 537(1)(b) of the Act has no relevance at all to the problem. The said section shall apply only to such sales which were held in pursuance of attachme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious authorities. Thus the transaction cannot be treated as "disposition of property" effected after the commencement of the winding up. The impugned transaction is, therefore, not vitiated either under section 537 or section 536(2) of the Act. On this aspect, it is useful to refer also to the judgment of Vinelott J. of the Chancery Division in French's ( Wine Bar) Ltd., In re [1987] Butterworths Company Law Cases 499. In this case, the company had entered into a contract in October, 1985, for sale of its leasehold premises, goodwill, fixtures and fittings and its stock-in-trade. The contract provided that the company could rescind the contract if it was unable to obtain the necessary consent to the assignment from the lessor. The purchaser was allowed to get into possession on payment of deposit in October, 1985. On 5th December, 1985, a petition for winding up was presented to the court. During the pendency of this petition, i.e., on 17th January 1986, the contract was completed and the lease was transferred to the purchasers and proceeds of the sale distributed to the company's bank. An order for winding up the company was passed on 31st January, 1986. The question before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isposing power prior to the presentation of the petition for winding up and the instant case cannot be considered as a case of disposition of property effected after the presentation of winding up petition merely because the permission or sanction of the Collector was received in September, 1987. Viewed in this perspective and taking an overall view of the matter, the impugned transaction shall have to be treated as valid as it does not suffer from any legal infirmity. Mr. Puri, learned counsel for the petitioners-workmen, then argued that without the workmen's consent, no transfer could be effected as the workmen are deemed to be co-owners of the undertaking. There is no merit in this contention also. In view of the above discussion, I pass the following order: (1)Report of the official liquidator dated 9th November, 1990 : (a)Leave is granted to the official liquidator to take out proceedings against the ex-directors of Kishco Mills Pvt. Ltd. and Mr. Wadhoo Sakhrani in respect of the alleged preferential payments out of the sale proceeds received by the said Kishco Mills Pvt. Ltd. from Monark Enterprises. (b)Application of the official liquidator for leave to take out procee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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