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TMI Blog2022 (11) TMI 1075X X X X Extracts X X X X X X X X Extracts X X X X ..... aking a declaration that transaction is not void. If the facts of the case are appraised on the touchstone of aforesaid principles, aspect of delay in laying a claim of ownership over the subject shares can not be said to be wholly inconsequential. Such a claim was made for the first time in the year 2014 - Applicants cannot urge that the transactions were entered into being unaware of the winding up order. Evidently, the applicant No. 1 has received a substantial amount as a part consideration for transfer of shares in favour of applicant Nos. 2 to 4. Such enrichment is clearly in teeth of the prohibition contained in Section 536 (2) of the Act, 1956. The validation of which is sought, have been entered into being fully cognizant of the prohibition in law. No element of benefit to the company in liquidation is manifest, even remotely. In the circumstances, the Court cannot give its imprimatur to such transactions. In a given case, the Court may be justified in validating the transaction entered into even after the passing of the winding up order. However, in the facts of the case, such exercise of discretion would not be justifiable. Application dismissed. - Interim App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 25th April, 2019 to sell and transfer 2800 shares in favour of the applicant Nos. 2 and 3. Likewise the applicant No. 1 has entered into another agreement to transfer another lot of 2800 shares in favour of applicant No. 4. According to applicants, the present status of ownership of those 6600 shares is as under i) Yogesh Kanaiyalal Shah-1000 shares ii) Shardul Jasvantlal Shah Ravi Vijay Ramaiya-2800 shares iii) Bipin Jivrajbhai Bagadia-2800 shares e) The applicants aver that if the aforesaid transaction are not validated and the shares are not transferred in the name of the applicants, the applicants would suffer irretrievable prejudice and irreparable loss. Hence this application. 3. An affidavit-in-reply is filed on behalf of the Official Liquidator, resisting the prayers in the application. At the threshold, the Official Liquidator assails the tenability of the application on account of inordinate delay and latches, as the application has been preferred after 23 years of the alleged acquisition of the shares, in the year 1998. Relying upon the provisions contained in Section 108 of the Act, 1956, which prescribe a mandatory procedure for transfer of shares, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 of the Act, 1956, Mr. Pimple would urge that, in the least, this inordinate delay should put the Court on guard. Secondly, there is no complete transfer of the shares. Mr. Pimple would urge that an incomplete transfer cannot be sought to be validated under Section 536 (2) of the Act, 1956. Nor the Official Liquidator can be directed to complete an incomplete transaction. Thirdly, according to Mr. Pimple, there can be no validation of transfer after a winding up order. 8. In the case at hand, the material shows that the applicant No. 1 (whose name is yet to be registered in the share register of the company (in liquidation)) has professed to transfer the shares in favour of the applicant Nos. 2 and 3, and 4, as late as in the year 2019. Thus, in the face of the winding up order passed in the year 2005, of which the applicants have been fully cognizant, the application does not deserve countenance, urged Mr. Pimple 9. Section 536 (2) of the Act, 1956 reads as under- Avoidance of transfers, etc., after commencement of winding up- (1) . (2) In the case of winding up by (the Tribunal), any disposition of the property (including actionable claims) of the company, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sferries. 14. In the light of the aforesaid facts, the question which thus wrenches to the fore is, whether the Court would be justified in exercising the discretion to validate the transfer. In the case of Pankaj Mehra and Anr V. State of Maharashtra and Anr. (2000) 2 Supreme Court Cases 756 the Hon ble Supreme Court had an occasion to consider the import of the provisions contained in Section 536 in the light of other provisions of the Act, 1956. The Supreme Court expounded the import of legislative edict in Section 536 (2), in the following words- 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 commencement of the winding up (i,e. after the presentation of a petition for winding up) shall be void. There are two important aspects here. First is that the word void need not automatically indicate that any disposition should be ab initio void. The legal implication of the word void need not necessarily be a stage of nullity in all contin-gencies. Black's Law Dictionary gives the meaning of the word !'void as having different nuances in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dispose of any of the company's assets. For instance, a mill company might not be able to buy a ton of coal for the use of its furnaces or, on the other hand, it might not be able to sell any of its goods in the ordinary course of business. Consequently, the Court has very properly laid down that, speaking generally, any bona fide trans-action carried out and completed in the ordinary course of current business will be sanctioned by the Court under S. 227(2 ) . On the Other hand it wil l not allow the assets to be disposed of at the mere pleasure of the company, and thus cause the fundamental principle of equality amongst creditors to be violated. To do so would in effect be to add to the preferential debts enumerated in s. 230 a further category of al l debts which the company might choose to pay wholly or in part. 18. It is useful to refer to the reasoning adopted by a Division Bench of the Gujarat High Court in Navjivan Mills Ltd., In re (1986) 59 Company Cases 201 in favour of adopting a pragmatic attitude when a Company Court was approached for approval of certain dispositions which a com-pany made after presentation of a petition for winding-up. A clear distinc-tion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aforesaid pronouncement in the case of Pankaj Mehra (Supra) as well as other precedents culled out the principles as under- On an analysis of the above decisions, the following principles emerge:- (i) The jurisdiction of the Court under section 536(2) is extant till such time the company is dissolved. (ii) The application, if any, under section 536(2) may be made at `any time after the transfer of shares', which transfer must have taken place after presentation of the winding up petition, but before passing of the winding up order. (iii) That such an application is in the form of application against the Official Liquidator but in fact is against the company. (iv) That the Court will apply the principles of equity and justice in exercising its discretion. (v) That the Court will bear in mind the object of the section is to prevent a share holder from defeating the winding up by disposing off his liability in respect of his shares. 17. The Division Bench, albeit with reference to the facts of the said case, went on to further postulate that it is obvious that the power under Section 536 (2) would not be available to the company Court for approving or conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , thereafter registering the shares in the name of applicants Nos. 2 to 4 to the extent they claimed to have purchased 5600 shares from applicant No. 1. 20. The parameters for exercise of discretion are well neigh settled. The court has absolute discretion to validate a transaction. Exercise of discretion is controlled by the principles which govern exercise of a judicious discretion in other jurisdictions. The Court must be cognizant of all the attendant circumstances and if from all the surrounding circumstances, the Court comes to the conclusion that the transaction, otherwise hit by Section 536 (2) of the Act, 1956, should not be rendered void, the Court would be justified in making a declaration that transaction is not void. Of pivotal consideration is whether a transaction is for benefit or in the interest of the company for keeping the company a going concern or for keeping the things going generally. Bona fide of the parties indisputably bear upon the exercise of discretion. 21. If the facts of the case are appraised on the touchstone of aforesaid principles, aspect of delay in laying a claim of ownership over the subject shares can not be said to be wholly inconseque ..... X X X X Extracts X X X X X X X X Extracts X X X X
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