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TMI Blog2005 (11) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... being Summary Suit No. 1698 of 1993 before the High Court of Bombay and in the said Suit a consent decree was passed on 27.6.1993. Based on the said consent decree, the applicant preferred execution proceedings before the High Court of Bombay and it is the case of the applicant that in the said execution proceedings as per the precept, the 9 plots in question being Survey No. 78 were attached by the Court and thereafter pending the said proceedings the company M/s. Vitta Mazda Limited (hereinafter referred to as 'the Company in liquidation) agreed to execute the sale deed for the consideration of Rs. 3,95,000/-. The Company is ordered to be wound up on 27.9.1998 by this Court in the proceedings of Company Petition No. 126 of 1990 and No. 212 of 1994. However, as per Section 441(2) of the Act, the order of winding up has the effect from the date of filing of the petition which would be 14.8.1990 in view of the proceedings of the Company Petition No. 126 of 1990 and, therefore, the present applicant has preferred this application. It may also be recorded that the applicant has stated in the application that initially the applicant did file Company Petition No. 49 of 1991 and No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by registered sale deed in favour of the applicant. 5. Company Application No. 293 of 1999 is preferred for validating the transaction entered into between the Company in liquidation and the applicant for a value of Rs. 60,000/- against the decretal amount of Rs. 10,61,727.58 in Suit No. 2273 of 1990 and consequently for the sale of the property bearing Survey No. 78/226 at Village Katira, Nani Daman. The applicant has also prayed for directing the Official Liquidator to hand over the possession of the property to the applicant. The stand of the applicant is more or less at par with the applicant of Company Application No. 292 of 1999. 6. Company Application No. 294 of 1999 is preferred for validating the transaction entered into between the respondent Company and the applicant for Rs. 60,000/- against the decretal amount of Rs. 10,61,727.58 in Suit No. 2273 of 1990 consequently for the Plot bearing Survey No. 78 and the applicant has also prayed for directing the Official Liquidator to hand over the possession of the Plot bearing Survey No. 78/227 at Village Katira, Nani Daman. The stand of the applicant is more or less at par with the applicant of Company Application No. 292 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tition No. 48 of 1990, the present application is preferred for validation of the transaction. 11. Company Application No. 447 of 1999 is preferred for validation of the transaction of the sale by the company in liquidation of the land admeasuring 332.46 sq., mtr., bearing Survey No. 78, Block No. 25 and the applicant has consequently prayed for declaration for the said property does not belong to the company in liquidation and the Sub-Registrar be directed to register the sale deed made between Shri Karsanbhai B. Tandel and the present applicant. The case of the applicant is that on account of the winding up proceedings taking effect from the year 1990, the present petition is preferred for validation of the transaction and for relief prayed for in the application. 12. Company Application No. 454 of 1999 is for the relief of validation of the transaction and for the declaration that the property bearing Survey No. 78 peki Block No. 46, admeasuring 3118 sq., mtrs., situated at Village Katira, Nani Daman is not the property of the company in liquidation and the basis in the application is that on 14.2.1992 the property was purchased by the applicant from the company in liquidation b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... winding up proceedings having been commenced no preferential payment be permitted by the company, which is facing the winding up proceedings, nor the company who is facing the winding up proceedings may enter into a transaction which may result into giving voluntary preference to any of its creditors which may otherwise not be illegally permissible. Since Section 536(2) of the Act leaves room to the Company Court for declaration of the transaction as valid or legal, it cannot be said that all transactions would be void, but it can rather be said that unless the transaction is declared valid, all transactions would be void. Therefore, declaration of validity of the transaction is to be read as an exceptional category to the normal rule and such declaration may fall only if it is established to the fullest satisfaction of the Company Court that the transaction is genuine, bonafide and is not with a view to frustrate the rights of the other creditors. The Company Court while undertaking the exercise for declaring the transaction as valid in normal circumstances would give more weightage to the bonafide of the party who has secured interest by such transaction and whether such bonafide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1986 (60) Company cases 717 HC for contending that if the transaction is entered into in normal course of business so that with the help of the borrowing, the company would restart its mill, then such transaction can be said as bonafide transaction entered into by the company. 18. In order to appreciate the contention, the reference can be made to the decision of Bombay High court in case of Provisional Liquidator, The Godavari Sugars Refineries Ltd. 1954 (24) Company Cases, 149, whereby view taken is that the Court should bear in mind the fundamental principle that the assets of the company should be made available for the distribution on pari passu amongst the creditors of the Company and no creditor should obtain an advantage over the fellow creditors. The reference may also be made to the another decision of Bombay High Court in case of Monark Enterprises v. Kishan Tulpule and Ors. reported in 1992(74) Company Cases 89 HC. 19. It may be recorded that in case of one of the beneficiaries of the transaction by the company in liquidation of Shri Aspi F. Langrana, who is the financial consultant at Mumbai, this Court (Coram: R.R. Tripathi, J.) in Company Application No. 213 of 2000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... results into ex-facie illegality since transfer of the property which was under the attachment of the Income Tax Department. He additionally submitted that there was also attachment by the Government Authority for recovery of the revenue dues and, therefore, he submitted that as the action of the Ex-Directors of the Company in liquidation was ex-facie in contravention to the statutory provisions as the transfer was barred, this Court may declare the transaction as invalid or may not validate the transaction as prayed for in the application. 21. It appears that the attachment by the Government Authority or may be by the Income Tax Authority is one of the relevant circumstances which this Court may consider for invalidation of the transaction, since as per law once there is an order of attachment by competent authority, the rights of the owner in the property stands attached and legally the property cannot be conveyed in favour of any party. However, such situation does not absolutely take care of the interest of the bonafide purchaser, who may have been duped by the Ex-Directors of the Company, who by non-disclosure of the relevant order of attachment and/or order might transfer th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be aware about the consequence of the pending winding up proceedings. The ground as sought to be canvassed of the suit before the Bombay High Court and the consent decree and the execution proceedings, if considered as it is, then also all such proceedings were without leave of the Company Court, nor any material is placed before this Court to establish that the aspects regarding the pendency of the proceedings of winding up were brought to the notice of the Court concerned. Such transaction can at the most be said as voluntary action by the Ex-Directors of the Company in liquidation and the applicant being fully aware of the pendency of the winding up proceedings, cannot contend that the transaction is bonafide and even if such contention is raised, the same holds no water. 24. The only aspects which may deserve consideration by this Court is as to whether the transaction was entered into in regular course of business of not. It appears that as per the Memorandum of Association and Articles of Association of the Company, the Company was established for dealing in higher purchase of machineries. However, in the annual Report of the Company for the year 1990-91, copy whereof i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred the property in spite of the order of attachment of the competent Authority to the purchaser, possibly the purchaser cannot be faulted with or at least it cannot be said that the transaction is not bonafide so far as it relates to the purchaser, but it may be malafide or not valid for the Company in liquidation. Under such circumstances, as observed earlier, even if the transaction is set at naught or not declared as valid, this Court may put the property of the Company in liquidation on condition before declaring the transaction as valid or otherwise, and the consequence may be for declaration of the transaction as invalid upon suitable conditions this Court may find it proper to consider the facts and circumstances of the case. It appears that the same time that even while imposing such conditions, the Court may take care of not creating a situation, whereby any creditor is given preference in comparison to other creditors similarly situated. 28. Therefore, it appears that the applicant of Company Application No. 157 of 1999 would not be entitled to the relief of declaring the transaction as valid, since the company had the knowledge of the proceedings and the claim of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperty in question. At the same time, if the transactions are declared invalid, it may result into putting the concerned purchaser who are concerned applicants in the respective applications at loss for no fault on their part. Therefore, equitable consideration does demand that even if the transaction is declared invalid, the Court may impose suitable conditions to be complied with by the Official Liquidator representing the company in liquidation. The reference may be made to the decision of this Court in case of Bank of Baroda v. O.L of Astron Drugs Indus. Ltd. in Company Application No. 254 of 2003, wherein at para 10, it was observed thus: 10. Therefore, it appears that Respondent No. 5 has the basis for claiming the status as bonafide purchaser of the property but thereby the rights of the Bank as a mortgagee over the property cannot be allowed to be frustrated creating the situation that the Bank would not be in a position to recover any amount from the property which is purchased by respondent No. 5. The interest is created in favour of the mortgagee and even if Respondent No. 5 has purchased the property, the same will be with the security interest of the secured creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und the amount of sale consideration to the purchaser, who is applicant of the concerned Company Application and also the reasonable interest at the rate of 12% per annum from the date of the transaction till the actual payment. Therefore, Company Applications No. 315 of 2000, No. 447 of 1999 and No. 454 of 1999 are disposed of with the observations and directions that the transactions in question are declared invalid on condition that the amount of sale consideration mentioned in the sale deed with the interest at the rate of 12% per annum from the date of sale deed till actual payment shall be paid by the Official Liquidator to the concerned applicants of the concerned Company Applications, before the final sale deed is executed by the Official Liquidator. It is further clarified that the Official Liquidator may move the Company Court for disposal of such property. However, before the sale deed is executed by the Official Liquidator in favour of the purchaser whose sale may be confirmed by this Court, it would be required for the O.L., to pay the aforesaid amount of principal together with interest to the concerned applicant of the concerned Company Applications including substit ..... 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