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TMI Blog2021 (12) TMI 346X X X X Extracts X X X X X X X X Extracts X X X X ..... the Company filed C.A.No.395 of 2019 seeking validation of the above mentioned sale transactions (the Dispositions) in terms of Section 536(2) of CA 1956. 2. About 65 hectares of land were granted to the Company by the Government of Tamil Nadu in order to carry out limestone mining. Pursuant to a request from the company on 17.08.1995, the Government of Tamil Nadu issued G.O.Ms.No.197, Industries (MMDI) Department, dated 07.10.1996, by which permission was granted to the Company to dispose of the unsuitable limestone mines from the Pudhupatti Mines. Pursuant thereto, it appears that a meeting of the then Board of Directors of the Company took place on 10.06.1997. At such meeting, it was resolved to initiate action for the sale of the idle dry land of the Company of an extent of about 66.15 hectares. The Board authorised Mr.S.Nazirudin, Managing Director, to enter into agreements in relation to the sale of the property. Within about eight days, on 18.06.1997, an agreement of sale appears to have been entered into purportedly on behalf of the Company through one S.Khaja Mohideen acting as a power of attorney of the Company. Such agreement of sale is in favour of one K.Abdul Hameed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty of the company or a transfer of shares in the company or alteration in the status of its members, if done after the commencement of winding up, is void unless the court orders otherwise. In terms of Section 441(2) of CA 1956, as regards companies which are ordered to be wound-up, the winding up of the company is deemed to commence at the time of presentation of the petition for winding up. Consequently, the winding-up of the Company would relate back and commence from the date of presentation of C.P.No.153 of 2002. As a corollary, the winding-up in the present case commenced some time in the year 2002. 6. The ex-director contends that the Dispositions warrant validation since such transactions were entered into in the interest of the Company. Moreover, it is contended that the Dispositions were envisaged as early as in 1997 when the Board of Directors resolved to sell the unusable mining land. Because the Dispositions were envisaged and acted upon in 1997, by entering into an agreement for sale, it is submitted that the Dispositions preceded the commencement of winding up. On behalf of the ex-director, the relevant minutes of the board meeting were placed as also the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns may be in the ordinary course of business such as the sale of goods that the company concerned is in the business of selling, the making of payments for the procurement of components or raw materials for making such goods and the like. During such period, it is also possible that dispositions outside the ordinary course of business, such as the sale of an unused but valuable asset, may be effected in order to avert insolvency, discharge liabilities or bolster liquidity. As long as the disposition is bona fide and in the interest of the company concerned, the jurisdictional companies court may exercise the power to validate such transactions. There is little reason, therefore, to whittle down such power, which may be exercised either prior to or after such disposition. Whether such dispositions are void ab initio was considered in Pankaj Mehra. After considering the judgment in Kamani Metallic Oxides Ltd. v. Kamani Tubes Ltd. (1984) 56 Comp Cas 19 (Bom) (Kamani), the Supreme Court concluded that it is not void ab initio, and that the use of the expression "unless the court otherwise orders" dilutes the rigour of the word "void". In Kamani, the Division Bench of the Bombay High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was adequate, with reference to its market value?'' The aforesaid questions and the answers thereto would throw considerable light on whether the Dispositions are liable to be validated. However, as would be evident from the discussion that follows, it is not a condition precedent to validation that these tests should be fulfilled cumulatively. For instance, one of the questions is whether the transaction was in the ordinary course of business. The sale of the immovable assets of a company is not in the ordinary course of business unless such company is in the business of selling immovable assets. Besides, the present Dispositions pertained to the sale of an extremely large extent of about 65 hectares in the aggregate. This was clearly not in the ordinary course of business of the Company. Section 536(2) of CA 1956 is of wide amplitude and it cannot be said that a transaction which is not in the ordinary course of business cannot be validated. However, the threshold for establishing that the transaction was bona fide and in the interest of the company is higher if the transaction is not in the ordinary course of business. 12. By bearing in mind this aspect, the Disposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idator indicates that only 2% of the admitted claims of about Rs. 23.81 crore could be discharged from the sale proceeds in course of liquidation. Thus, the Dispositions did not enable the discharge of liabilities to creditors such as SIPCOT and TIIC or even to meet workmen's dues. 14. Keeping in mind the above factual context, I revert to an issue raised earlier: while Section 536 (2) is triggered in respect of all dispositions which are subsequent to the commencement of winding up, can a request for validation be made in respect of dispositions effected after the winding up order was passed? It was contended on behalf of the ex-director that Section 536(2) of the CA 1956 does not contain any limitation as to validation even after a winding up order is passed. On a textual and plain reading of Section 536(2) of CA 1956, the said contention appears prima facie to have some merit. However, Section 536(2) cannot be construed in isolation, as if it operates in a silo. Once a winding-up order is passed, in terms of Section 456(2) of CA 1956, all the property and effects of the company concerned shall be deemed to be in the custody of the court, and the Official Liquidator is requi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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