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TMI Blog2011 (10) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... the above issue after taking into consideration all the documents. 2. Pursuant to the aforesaid order of the Apex Court, the applicant-Poddar Finance has filed misc. application no. 49/2011 before the Division Bench of this Court on 22.3.2011. It is averred in the application that the applicant-Poddar Finance is holding 1,65,010 equity shares of Rs.10/- each and 12,478 preference shares of Rs.100/- each of M/s Jaipur Spinning and Weaving Mills Ltd. (hereinafter referred to as "Jaipur Spinning Mills") and the aforesaid shares were acquired from Shree Shakti Mills Limited, Bombay (hereinafter referred to as "Shakti Mills") on 25.1.1979 and transferred on 10.5.1979. The aforesaid shares have been reflected in the balance sheets for the year ended March 1981 and March, 1983. The value of the aforesaid shares was shown Nil in the balance sheet ended March, 1984. On company being wound-up, it was advised that said shares could not be reflected as their value had become Nil for the purpose of accounting, as such, they were removed from the balance sheets of the applicant-Poddar Finance for the subsequent years. The share certificates constitute prima facie evidence of applicant's title ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the provisions contained in section 428 of the Act. There was no infirmity in the shares obtained by the applicant. The creation of folio and recording thereof on the reverse of the share certificates was the common accepted legal practice that existed at the relevant time. The provisions of sections 531, 531A and 536 of the Act are not applicable. The Official Liquidator of Shakti Mills in the Company Petition No. 70/86 filed before the Bombay High Court sought to recover amount of Rs. 17,08,069/- being loss suffered for the sale of the shares at alleged under-value by Shakti Mills to Poddar Finance. Whether aforesaid transfer was under-valued is still pending adjudication in the Bombay High Court. Transfer of shares can be questioned only in the Bombay High Court. Every person, who is holder of fully paid up shares of the company in liquidation, is a contributory. Hence, the applicant-Poddar Finance should be treated as contributory of the company in liquidation. 5. In compliance of the order of the Apex Court dated 11.3.2011, the matter was taken up by the Division Bench of this Court for several times, but time was prayed by the applicant. On 26.5.2011, it was pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansfer of shares in question in terms of section 536(2) after commencement of winding up proceedings of Shakti Mills is void. (vii) That applicant-Poddar Finance has failed to submit any application in any court for validation of transfer of shares in question. (viii) That transfer of shares in question is under-valued." 7. The Company Judge has assigned the following reasons while recording the finding that applicant-Poddar Finance cannot be treated to be a contributory of Jaipur Spinning Mills in liquidation:- (i) That transfer of shares in question in the same management by one company to another was made on the under-valued price and therefore, transfer of shares cannot be said to be in the interest of creditors, which is of paramount consideration and should not be defeated. (ii) That while examining the question whether the applicant-Poddar Finance is contributory, validity of transfer can be looked into. The Court has not validated the transaction, as such, applicant-Poddar Finance cannot be treated to be a contributory of Jaipur Spinning Mills in liquidation. (iii) That applicant-Poddar Finance cannot be held to be a contributory merely because it holds fully paid-up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCC 756 and submitted that finding be recorded that applicant-Poddar Finance is a contributory of Jaipur Spinning Mills in liquidation. 11. Per contra, Mr.G.K.Garg, learned Senior Advocate appearing with Mr.Anuroop Singhi and Mr.Kunal Jaiman on behalf of the respondent-Official Liquidator has submitted that transfer of shares in question is void in view of the provisions contained in section 536(2) of the Act as Shakti Mills transferred the shares in 1979 in favour of applicant-Poddar Finance after commencement of the winding up proceedings in 1978. The winding up order made in the year 1981 relates back as per the provisions of section 441 (2) of the Act to the date of commencement of the proceedings by presentation of the application for liquidation. No application has been filed for validation of transfer of shares in question before the Company Judge of either Bombay High Court or this Court. Considering the relationship of Directors of the Companies, the transaction was fraudulent and grossly under-valued. It was not in the interest of creditors which is of paramount consideration. The learned Senior Counsel has relied upon the provisions of Sections 531, 531A, 536(2), 537(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of presentation of the petition for winding up. In the instant case, winding up of Shakti Mills has been ordered and since the transfer of shares in question was made after commencement of the winding up proceedings, the same is void under section 536(2) of the Act unless otherwise ordered by the Court. It is not the case of the applicant-Poddar Finance that any court has otherwise ordered. Thus, the expression "unless otherwise ordered by the Court, any transfer made after the commencement of the winding up proceedings is void" has to be given full effect. The Court is given power to validate the transaction. Thus, any disposition would not be ab initio void. The word 'void' is not conclusive as Court has been given power to order otherwise. However, the fact remains that in the instant case, the Court has not so far ordered otherwise. 15. In our considered opinion, under section 536 (2) of the Act transaction of transfer of share or other disposition is not required to be annulled by court. It is void unless court orders otherwise. An order "to the otherwise" is required to be made in order to validate transfer of share/other disposition. It was at option of the applicant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in respect of a company, the official liquidator becomes the liquidator of the company. In the instant case, the order of winding up of Shakti Mills has been passed and official liquidator has been appointed by Bombay High Court with respect to Shakti Mills and thus, transaction in question has to be treated as void unless the court otherwise orders and the court has not ordered otherwise. Consequently, the transaction is void, the applicant- Poddar Finance cannot be said to be a contributory. 18. In Tulsidas Jasraj Parekh v. Industrial Bank of Western India AIR 1931 Bom. 2, it has been laid down by the Bombay High Court that any bona fide transaction carried out and completed in the ordinary course of current business will be sanctioned by the Court under section 227(2) of Companies Act, 1913. On the other hand, it will not allow the assets to be disposed of at the mere pleasure of the company and thus, cause the fundamental principles of equity amongst creditors to be violated. 19. In Sarigam Containers Pvt. Ltd. (supra), the Bombay High Court considering the provisions of section 536(2) of the Act, has referred to the decision in the case of J.Sen Gupta (P.) Ltd. [1962] 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in liquidation. If the transfer is not bona fide, in terms of section 536(2), the transaction would be void. Once winding up has been ordered, the provisions of section 536(2) are attracted. 22. In Re:Shivshakti Builders & Financial Co. Ltd. (supra), the Patna High Court has observed that any disposition after commencement of the winding up proceedings would be void in view of Section 536(2) of the Act. 23. In the case of Navjivan Mills Ltd., In Re [1986] 59 Comp. Cas. 201, the Gujarat High Court has laid down that the Court can exercise jurisdiction under section 536(2) of the Act of giving directions validating proposed transactions pending a petition for winding up but before the winding up order is made for the obvious reason that these transactions are saved from the consequence which may ensue. 24. Gray Inn Construction Company Ltd., In Re [1980] 1 All E.R. 814, the Court of Appeal (Civil Division) has laid down that the court would be very circumspect in the matter of validating the payments and the interest of the creditors as well as the company would be kept uppermost in consideration. 25. The Apex Court in NGEF Ltd. v. Chandra Developers (P) Ltd. [2005] 64 SCL 1 /27 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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." 27. The Apex Court in the case of Pankaj Mehra ( supra) has considered the provisions of section 536(2) of the Act and the provisions of section 138 of the Negotiable Instruments Act and held that every transaction is not null and void since the Court has power to order otherwise. The liability under section 138 of NI Act is penal liability. This section creates a statutory offence, which on the confluence of the various factors enumerated therein, commencing with the drawing of the cheque and ending with the failure of the drawer of the cheque to pay the amount covered by it within the time stipulated, ripens into a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for allowing the disposition of the company's properties "which may have to take place" as a consequence of the loans advanced by the ICICI to the company from 1976. The Division Bench set aside the order of Single Bench. The Division Bench opined that what the appellant-ICICI was in fact seeking to do was to convert itself from an unsecured into a secured creditor in respect of transactions which had taken place "15 to 17 years ago". The Apex Court held that Division Bench did not err in rejecting the application of ICICI pertaining to the loan transactions prior to 10.7.1986. The Apex Court further held that "the Division Bench was also correct that the grant of leave under section 536(2) would not be appropriate after this delay. Leave under section 536(2) may be granted for the benefit of the company in liquidation or the creditors of the company in general". 30. We find no force in the submission that it is for the Bombay High Court to look into the validity of transfer of shares in question as shares of Jaipur Spinning Mills were transferred in favour of applicant-Poddar Finance by Shakti Mills, Bombay. When winding up of Shakti Mills has been ordered, obviously transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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