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TMI Blog2005 (8) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... d amount of loan periodically to the borrower. 2. That the lender will while disbursing the loan amount periodically consider the payment record of the borrower for the purpose of determining the quantity of the disbursement. 3. That the borrower will, if necessary, create security as desired by the lender in terms of the assets of the borrower, present and future. 4. That the borrower will, without any hesitation, provide necessary securities in terms of the assets of the borrower in consideration of the dues payable by the borrower to the lender and to the satisfaction of the lender. 5. That the borrower will discharge the entire loan by means of sale of its assets, if necessary, to the lender. 6. That the lender and the borrower will execute separate agreements at the time of receiving the amount of loan periodically. 7. That the borrower will not assign or transfer its assets given to the lender as security until the discharge of the entire amount of loan. 8. That in case of any dispute, the Courts at Madras alone shall have jurisdiction." Following the above loan agreement, the applicant and the company in liquidation entered into four loan agreements dated, 1-1-1996, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er AIR 2003 SC 4156. 5. On the other hand, the Official Liquidator submitted that the sale deeds are not bona fide. According to the Official Liquidator, all transactions are void against the Official Liquidator in terms of sub-section (2) of section 536 of the Companies Act. He would also submit that the judgments of the Supreme Court relied upon by the learned counsel for applicant would be applicable only in case of day-to-day transactions for the administration of the company and not for the sale of the property or assets. Hence, he submitted that the transaction was not bona fide. 6. I have carefully considered the rival contentions. The application came up for consideration earlier before the learned single Judge who, by an order dated 29-11-2004, dismissed the same. The applicant preferred O.S.A.No. 13 of 2005 questioning the said order. A Division Bench of this Court, by an order dated 7-3-2005, passed the following order : "We are of the view that the question raised in the appeal is covered by the decision of the Supreme Court in the case of Pankaj Mehra v. State of Maharashtra [2000] 2 SCC 756, wherein the Supreme Court has construed section 536(2) of the Companies Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above backdrop, the application is remanded for fresh hearing and disposal. Section 536(2) contemplates avoidance of transfers or disposition of any property of a company after the commencement of the winding up proceedings, as such proceedings are void. The date on which the petition for winding up is filed shall be the date from which the winding up proceedings are deemed to have commenced for the purpose of applicability of the provisions of section 536(2) of the Companies Act. It is the case of the Official Liquidator that as the winding up proceedings commenced on 14-10-1996, the sale deeds executed on 11-2-1999 and 16-2-1999 are void in terms of section 536(2). The question as to the avoidance of transfer under sub-section (2) of section 536 of the Companies Act came up for consideration before the Supreme Court in Pankaj Mehra's case (supra). As the application of the provision of section 536(2) is discussed in detail, the relevant paragraphs of the Supreme Court judgment are reproduced below : "14. In the above backdrop alone we can consider the impact of the legislative direction in section 536(2) that any disposition of the property of the company made after the commence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made either under compulsion of circumstances in order to save or protect the property of the company or that there was any commercial compulsion to enable it to run its business." (SCC p.169, para 4) The decision only indicates that such payments could have been made valid if evidence was adduced to show that there was compulsion of circumstances. In fact, this decision lends support to the interpretation that the payments which were made after the commencement of winding-up proceedings, would not become ab initio void. 17. An early decision of a Division Bench of the Bombay High Court in Tulsidas Jasraj Parekh v. Industrial Bank of Western India was sought to be relied on by most of the learned counsels who argued for different appellants. The question which the Court considered therein pertained to section 227(2) of the old Companies Act, 1913 which was identical to section 536(2) of the present Act. Certain payments made by a company after commencement of the winding-up proceedings were questioned and the Division Bench considered the scope of the sub-section and noticed that the principle had been borrowed from the English Companies Act. Hence some of the English authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the benefit and the interest of the company so as to ensure that a company which is made the subject of a winding up petition may nevertheless obtain the money necessary for carrying out its business and so as to avoid its business being paralysed. If that is the purpose and object of the section, it would hardly be proper and just to stultify the power and restrict its operation since otherwise it is bound to be counterproductive in the sense that the very purpose of keeping the company as a going concern so as to ensure the interest of the shareholders and creditors would be defeated." 19. In Gray's Inn Construction Co. Ltd., In re the Court of Appeal (Civil Division) considered the principle on which discretion of the court to validate the dispositions of property made by a company, during the interregnum between presentation of a winding up petition and the passing of the order for winding up, has been dealt with. Section 227 of the English Companies Act, 1948 is almost the same as section 536(2) of the Indian Companies Act. Dispositions which could be validated are mentioned in the decision. The said decision was cited before us in order to emphasise the point that court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Provincial Insolvency Act (5 of 1920) came up for consideration before the Supreme Court in Sankar Ram & Co.'s case (supra). While construing the above provisions, the Supreme Court has held as follows : "6. The object of section 28 of the Act is to secure unrestricted right to dispose of the insolvent's property after an order of adjudication is made. This section clearly states that during the pendency of the insolvency proceedings, the creditor shall not commence any proceeding against the property of the insolvent in respect of his debt without the leave of the Insolvency Court. On making an order of adjudication, the whole of the property of the insolvent shall vest in the court or in a Receiver, as the case may be, in terms of sub-section (2). An obligation is placed upon the insolvent to assist the Official Receiver to realize the assets. When sub-section (1) is read along with sub-section (7), the effect would be an order of adjudication which relates back to the date of presentation of insolvency petition and the order of adjudication takes effect from the date of the presentation of the insolvency petition. Consequently, vesting of property under sub-section (2) also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquidator that the judgment of the Supreme Court in Pankaj Mehra's case would be applicable to the day-to-day transactions and not to the facts on hand. I am unable to agree with the said submission. Law declared by the Supreme Court is binding on all Courts under article 141 of The Constitution of India. Of course, the applicability of the law depends on the facts of each case. The facts of this case, which have been elaborately extracted above, needs further reference. Even much before the winding up proceedings commenced on 14-10-1996, the applicant has entered into a loan agreement with the company in liquidation on 1-12-1995, i.e., ten months prior to the commencement of proceedings. The agreement preceded earlier correspondences between the applicant and the company in liquidation. The amounts to the tune of Rs. 65,20,901 were paid by way of four cheques as evidenced by four agreements dated 1-1-1996, 30-1-1996, 7-2-1996 and 10-1-1997 and a mortgage deed was also executed by the company in liquidation on 31-1-1997 followed by a declaration by the Managing Director of the company creating charge on the property. In the regular transaction, the company also registered the charg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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