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TMI Blog2012 (4) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... Engineering Company Private Limited (in liquidation), the Respondent Company, made before order of winding up i.e. 22.03.1990, but after filing of petition for winding up of the Respondent Company, under Section 536(2) of the Companies Act, 1956." 2. The said company in liquidation was ordered to be wound up by order dated 22 March 1990 of the Company Court. The present application was made on 25 September 2009 by the appellant for seeking confirmation/recognition of 3498 equity shares of Rs. 100/- each fully paid up in the company in liquidation, made before order of winding up (i.e. 22 March 1990) but after filing of the winding up petition. 3. The appellant filed this company application with the following case: 3.1 The appellant was appointed as Director of the company under liquidation at its extraordinary general meeting held on 3 March 1990 in which meeting 3498 shares of the company were transferred in favour of the appellant and thus, became majority shareholders holding 3498 out of 6995 equity shares in the company in liquidation. It is also the case of the appellant that the company in liquidation was one of the Elmot Group of Companies and that Mr. C.V.K Rao and Mrs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts recorded by the Official Liquidator confirmed that the appellant was director-in-charge of the affairs of the company under liquidation. The appellant's case about transfer of shares as set out in the affidavit in support of the company application is already quoted in para 6 of the judgment under appeal. 3.3. The appellant's case is that the appellant has not received any salary or any other form of compensation from the company under liquidation but on the contrary, the appellant paid a total amount of Rs. 2,87,039/- to 16 employees of the company under liquidation only because 3498 shares were transferred to the appellant and the appellant was elected as director of the company under liquidation. It is also the appellant's case that after coming to know of the order of winding up, the appellant decided to revive the other companies in the group in preference to the company under liquidation and on revival of Elmot Alternators Private Ltd. (EAPL), the Rao Group wanted to marginalize the shareholding of the appellant in EAPL which led to serious disputes and that the Rao group is now attempting to do the same in the company under liquidation through the sham revival proposal b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that Mr. A.V.K. Rao is the sole beneficiary of the very same trusts which held 3498 shares in the company under liquidation. It is also contended that the appellant has not produced any evidence of his having filed before the Registrar of Companies form No.32 relating to his appointment as director of the company under liquidation. 5. The appellant thereafter filed affidavit-in-rejoinder to which affidavit in sur-rejoinder came to be filed by Mr. A.V.K. Rao. 6. The aforesaid company application No.212 of 2008 filed by Mr. A.V.K. Rao (respondent No.3 herein) for revival of the company under liquidation, came to be disposed of with liberty to file a fresh company application. The order refers to the suit which Mr. A.V.K. Rao proposed to file and such a suit ultimately came to be filed in Ranga Reddy District Court at Hyderabad and numbered as Suit No.244 of 2009. The said order reads thus- "1. The applicant seeks an order recalling/revoking and or setting aside the order dated 22.3.1990 ordering the winding up of the company. Mr. Munshi, the learned Advocate appearing for the applicant, states that in view of the leave granted by this Court under Section 446 in Company App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied that this order and the pendency of any suit that may be filed pursuant thereto, shall not be a ground by itself for the Official Liquidator not proceeding with the liquidation proceedings." 8. After hearing company application giving rise to this appeal, the learned Company Judge referred to the rival contentions and then rejected the application seeking confirmation/recognition of the transfer of shares in favour of the appellant purportedly made on 3 March 1990 in the following terms:- "40. Having considered the rival versions in their entirety, I am of the opinion that it is not as if the interveners have raised the issue of holding of meeting on 03.03.1990, passing the resolution there at with regard to transfer of 3498 shares, drawing up the minutes on loose papers, but it is the Applicant who has pleaded all this in his affidavit in support. Once it is doubtful whether there was any transfer of shares and once I am of the opinion that the Applicant is raising the issue with regard to his rights as transferee of shares, shareholder of the Company under liquidation after a lapse of more than 18 years from the date of the alleged meeting, then, all the more this Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2011 which is under challenge in this appeal. 10. Mr. Zal Andhyarujina, learned counsel for the appellant has raised the following contentions for challenging the order under appeal:- (i) The learned Company Judge erred in dismissing the application on the ground of delay and in holding that the appellant did not give satisfactory explanation for filing this company application under section 536(2) of the Act at this stage. It is vehemently contented that no period of limitation is prescribed for filing an application under section 536(2) of the Act. Strong reliance has been placed on several decisions in support of the contention that application under section 536(2) may be filed at any time even after passing of the winding up order and so long as the company has not been dissolved. Vide Bir Chand v. John Bros., AIR 1934 All. 161, H.L. Seth v. Wearwell Cycle Company (India) Ltd., 46 (1992) DLT 599, Pankaj Mehra v. State of Maharashtra DLT [2000] 2 SCC 756. (ii) It is submitted that in view of the provisions of sections 82 and 84 of the Companies Act, the share certificates in favour of the appellant constitute evidence of the title of the appellant to such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reddy District Court at Hyderabad, the appellant and/or his family members/nominees shall transfer their share holding held in Escrow to interveners at 15% p.a compounded return on investment. 11. On the other hand, the application has been vehemently opposed by Mr. Shyam Mehta, learned senior counsel appearing for respondent No.3 Mr. A.V.K. Rao and by Mr. Kirti Munshi, learned counsel appearing for respondent No.4 Mr. C.V.K. Rao and respondent No.5 Mrs. R.K. Rao. Mr. L.T. Sathelkar, learned counsel appeared for the Official Liquidator and for the original petitioning creditor. 12. Sham Mehta, learned senior counsel for respdent No.3 has made the following submissions: (a) the company application was filed on 25 September 2009 after the admission of the winding up petition in the year 1989 (by virtue of operation of the consent terms dated 29 March 1989 under which the company petition was to stand admitted upon failure to pay two instalments) and in any case, long after the order of winding up was passed on 22 March 1990. The application though deserves to be dismissed on the ground of delay, laches and negligence. (b) There is no substance in the argument of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly M/s. Alcon Engineering, to loan funds to EAPL, which was the only possible way that it could be revived. At this time, there were no funds even to pay regular salaries to the employees, let alone to raise working capital for the execution of pending orders placed with EAPL. The Applicant then informed me that he had already represented to the said financier that he holds 50% equity in three Elmot Group Companies, namely, the Company, EAPL and Mechelm Engineers Private Limited. The Applicant also informed me that the said financier would release the money only on condition that the Applicant holds 55% of the Equity Share Capital in all these three Companies. Since there was unsubscribed capital in EAPL in 1992, the Applicant had already and without my knowledge got issued equity shares from time to time to himself and to his family, so that their equity share holding was approximately 50%. Although the Applicant and his family got issued only 0.5% equity in Mechelm Engineers Private Limited, he claimed to be a deemed 50% share holder in the said Company since it is a 99% subsidiary of EAPL, in which he and his family were 50% share holders. As regards the Company in liquidation h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on; (c) no transfer forms were signed and no valuable consideration was ever paid; and (d) the first transfer was executed in the name of my son. I hesitatingly in 1999 handed over these share certificates to the Applicant. Thereafter, the Applicant in his purported capacity as director of EAPL, entered into an agreement with M/s. Alcon Engineering dated 17th August 1999 and I was asked to sign the said Agreement even though I was not a party to the said Agreement. After the said Agreement was executed, the Applicant requested me to execute another agreement dated 19th August 1999, by which I was asked to undertake that I would take necessary steps for issue of additional 5% of the equity shares of the Company to the Applicant, in order to show compliance with the condition laid down by M/s. Alcon Engineering for releasing finance. Subsequently, the understanding with M/s. Alcon Engineering did not go through. Hence there was no occasion to issue 5% additional shares of the Company to the Applicant. Subsequently the Agreement dated 19th August 1999 was cancelled. In April 2000, the Applicant informed me that he had identified another financier and this time there would be no hitche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Applicant to me or to any of the trustees of the trusts at any time. I say that the story of the Applicant that he has paid me consideration in cash for purchase of 3,498 shares is bogus and false to the knowledge of the Applicant and has been deliberately concocted with mala fide intentions and ulterior motives. I submit that all that is stated in the Applicant's Affidavit in Support of the Company Application No.1107 of 2009 in respect of the transfer of these shares is an afterthought and false to the knowledge of the Applicant. I submit that the claim of the Applicant that he owns 3,498 shares in the Company is baseless as the transfer in any event is not valid in law." [Emphasis supplied] 15. Having heard the learned counsel for the parties and having given our anxious consideration to the rival submissions and having regard to the rival versions about the circumstances and the manner in which the appellant claims to have become owner of 3498 equity shares in the company under liquidation, we are of the view that the company application raises serious disputed questions of fact which can only be decided after a fulfledged trial and after considering the oral evidence of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Companies Act. The Court held in terms that the Company Court has the jurisdiction under section 536(2) to validate the transfer of shares which had taken place after the winding up order, so long as the company has not been dissolved, that is to say, the name of the company struck off from the register of companies under the Companies Act, 1956. 19. In S.P. Khanna v. S.N. Ghosh, 1976 (6) TLR 1740 equivalent to 1976 Mh L.J.150, a Division Bench of this Court considered the provision s of Section 536(2) of the Act, where the transaction in question had taken place after presentation of winding up petition and before the date of winding up order. The order under Section 536(2), however, was made after the date of winding up order, in the course of the winding up proceedings. The question raised before the Division Bench was whether such an order under Section 536(2) of the Act could be made after the date of winding up order. The Division Bench held that sub-section (2) of section 536 clearly permits making of such an order by the Court after the commencement of the winding up proceedings by the Court and while the proceedings of winding up are going on and the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties, is voidable only." 24. We may note that the decision of the Apex Court in Pankaj's Mehra's case (supra) was rendered in the context of the controversy whether a company under liquidation can escape the penal liability for dishonor of cheque under section 138 of the Negotiable Instruments Act on the ground that payment of the cheque pursuant to the issuance of notice under proviso (b) to section 138 would amount to disposition of property of the company and hence, void under section 536(2) of the Companies Act. It was in this context that the Apex Court held that the presentation of the winding up petition would not disentitle the creditor-payee of the cheque from legally enforcing the "debt or other liability" of the Negotiable Instrument Act. The Apex Court held that Companies Act does not prohibit enforcement of debt due from the company and that failure to pay the cheque amount for whatever reason would render the drawer of the cheque liable for the penal action under section 138. The Court also held that any disposition of property of the company during the interregnum between presentation of petition and passing of order for winding up would not be void ab initio. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um between the presentation of a petition for winding up and the passing of the order for winding up would be null and void. If such a view is taken the business of the company would be paralysed, for the company may have to deal with very many day-to-day transactions, make payments of salary to the staff and other employees and meet urgent contingencies. An interpretation which could lead to such a catastrophic situation should be averted. That apart, if any such view is adopted, a fraudulent company can deceive any bona fide person transacting business with the company by stage-managing a petition to be presented for winding up in order to defeat such bona fide customers. This consequence has been correctly voiced by the Division Bench in the impugned judgment." 26. We must, however, say that the defence of the respondents in the present case is to the effect that 3498 shares of the company under liquidation were not transferred till 22 March 1990 when the company was ordered to be wound up but the appellant implored respondent No.4 Mr. C.V.K. Rao to go alongwith the appellant in a scheme of showing back-dated transfer of 3498 trust shares in favour of the appellant. This was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing up by the Company Court, the Official Liquidator shall, by virtue of his office, become the Liquidator of the Company, as provided in section 449 of the Act and the properties of the company including the shares would vest in the Official Liquidator and there can be no question of approving or validating any purported transfer of shares which might have taken place after passing of the order of winding up. The decision of the Supreme Court in Pankaj Mehra's case (supra) also clearly indicates that the power under Section 536(2) is to be exercised in respect of transaction after presentation of winding up petition and before the date of winding up order. 29. The question whether the alleged transfer of 3498 shares in the company under liquidation had taken place before 22 March 1990 as alleged by the appellant or after 22 March 1990 as averred by the respondents is itself a seriously disputed question of fact and that question is already pending trial before the District Court at Ranga Reddy, Hyderabad. We are, therefore, of the view that the learned Company Judge was fully justified in not granting any relief to the appellant in the background of such seriously disputed questi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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