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TMI Blog2015 (8) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... n purchasing yarn from the Company. On 8 October 1992, the present Company Petition was filed against the Company. Subsequent to the filing of this petition, a reference was filed by the Company before BIFR. The reference was registered as Case No.46 of 1993. As a result of the reference, the winding up proceedings could not proceed. The Company, however, continued to carry on its business during the pendency of the reference. During this period, the Company approached the Applicant seeking assistance for procurement of raw material. On 1 December 1994, an agreement was arrived at between the Applicant and the Company, in terms of which the Applicant agreed to supply raw material to the Company upto a certain quantity annually for its manufacturing purposes. The Company agreed to supply yarn to the Applicant at market rates less quantity based discounts as applicable. Between December 1994 and May 1995, the Applicant procured and supplied raw material, namely, caprolactum, worth about Rs. 2.43 crores to the Company. The Company, however, supplied nylon yarn worth only Rs. 1.56 crores to the Applicant. As a result of the mounting credit, the Company agreed to pledge 14,99,988 equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant.(The current value at that date was of Rs. 82,49,934/.) On 17 May 1997, the Company confirmed the transfer of 14,99,998 equity shares of GOSL to the Applicant for a consideration of Rs. 82,49,934/. (Even after this transfer, an amount of Rs. 10,97,791/was till outstanding and owed by the Company to the Applicant.) Following this transfer, the Applicant wrote to the Share Department of GOSL about its acquisition of ownership of the pledged shares. Sometime thereafter, on 29 May 1997, BIFR addressed a communication to the Registrar of this Court recording an opinion that it was just and equitable and in larger public interest to wind up the Company. On 2 June 1997, the Company forwarded duly executed Transfer Deed along with 14 Share Certificates covering 14,99,988 equity shares of GOSL to the Applicant. Subsequently, on or about 5 September 1997, a Provisional Liquidator was appointed by this Court in the present Company Petition in respect of the Company. On 18 October 1997, the Applicant wrote to the Provisional Liquidator putting him to notice that the Applicant was enforcing its option to transfer the subject shares to its name. Thereafter, on 18 December 1998, this Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income Tax, Madurai vs. M. Ramaswamy Company Law Cases 1985 Vol. 57 page 7 in support of his submissions. On the other hand, it is submitted by Mr. J.P. Sen, learned Senior Counsel appearing for the Official Liquidator, that there are three separate transactions in the present case, namely, (i) pledge of 14,99,998 shares, (ii) transfer of 2,21,420 shares and (iii) transfer of 14,99,998 shares, effected on different dates and in that order. It is submitted that each of these transactions must satisfy the test of Section 536(2) of the Act. Secondly, it is submitted that there was no necessity for these transactions and no corresponding benefit to the Company and what these transactions have effectively done is converting an unsecured creditor (i.e. the Applicant) into a secured creditor in fraudulent preference. Learned Counsel further submits that an incomplete transaction cannot be completed subsequent to an order of winding up, since after a winding up order, all creditors of the Company in liquidation acquire a right to have the assets realized and distributed amongst them pari passu. Learned Counsel relies upon the judgment of the Division Bench in the case of Sunita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the surrounding circumstances, and if from all the surrounding circumstances it comes to the conclusion that the transaction should not be void, it is within the power of the Court under Section 536 (2) to say that the transaction is not void. 4. If it is found that the transaction was for the benefit of, and in the interests of, the company or for keeping the company going or keeping things going generally, it ought to be confirmed." The principle that a transfer must be in the best interests of the Company to be validated under Section 536 (2) was also reaffirmed in the judgment of this Court in Kanchan Kumar Dhar, Official Liquidator vs. Dr. L.M. Visrani and others (supra), where Parekh, J. observed: "The question is not whether Respondent No.1 acted bona fide or he was a victim of a deception or a fraud practiced on him by the Company. The question is whether the transaction in question is in the interest of the business of the Company or in the interest of the Company (now in liquidation) or its creditors." 6. Applying these tests, we have to now see whether the impugned transfer is within the principles laid down by this Court for validation of transfer. Though there ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uent transfer of shares in favour of the Applicant cannot be faulted on the ground that it amounts to a fraudulent preference or invalid transfer during the pendency of the winding up. Under Section 176 of the Contract Act, a pledgee is entitled in the event of a default of the pledgor to retain the goods pledged as a security or at its option, to bring the property pledged to sale with notice to the owner. The Official Liquidator does not question the fact of non-payment of the Applicant's dues by the Company in pursuance of the agreement of pledge and, in the premises, the subsequent enforcement of the pledge by effecting a transfer of shares in favour of the Applicant cannot be faulted. 7. Even as regards the transaction of transfer of 2,21,420 shares of GOSL, the transfer in effect is a payment made by the Company to the Applicant towards its dues incurred for business transacted pending the reference before the BIFR and, in the circumstances, more particularly noted above, it is very much a transaction effected in the course of the Company's business and for the benefit of the Company. 8. Mr. Sen, learned Senior Counsel appearing for the Official Liquidator, relied o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents of both Sections 122 and 123 of the Transfer of Property Act, 1882, were completely satisfied so as to vest the right in the donee to obtain the share certificates in accordance with the provisions of the company law, that the gift of the right to get share certificates made out in the name of the donee became irrevocable and complete by registration of the deed as well as by delivery and nothing was left to be done so far as the vesting of such a right in the donee was concerned and that the actual transfers in the registers of the companies concerned, which were necessary to enable the donee to exercise the rights of a shareholder, were mere enforcement of that right, and the mere fact that such transfers had to be recorded in accordance with the company law did not detract from the completeness of what was donated. According to the said decision of the Supreme Court, if the transferor has transferred the right to get the share certificates from the company in the name of the donee, then, as between the transferor and the transferee, the transfer is complete, though the transferee cannot exercise his rights as a shareholder visa vis the company, until the transfer of shares ..... X X X X Extracts X X X X X X X X Extracts X X X X
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