Rajni Anand vs Cosmic Structures Ltd on 16 April, 2024

[Cites 23, Cited by 0]

Delhi High Court

Rajni Anand vs Cosmic Structures Ltd on 16 April, 2024

1. This application dated 23.11.2020 has been instituted on behalf of the applicant - M/s. Surya Jyoti Software Pvt. Ltd. (hereinafter referred to as 'SJSPL'), under Rules 6 & 9 of the Companies (Court) Rules, 1959, for de-sealing and handing over of the physical, vacant and peaceful possession of the property situated at Plot No.01, Sector- 154, Noida, Uttar Pradesh-201301 and removal of the security guards deputed by the Official Liquidator from the property in question.

2. It is pertinent to mention at the outset that the aforesaid application has been moved in the instant company petition filed under Sections 433 and 434 of the Companies Act, 1956 seeking winding up of M/s. Cosmic Structure Ltd. (hereinafter referred to as the 'company (in liquidation)'), which was entertained by this Court for the first time on 23.02.2016 and inter alia an interim order was passed against the respondent/company (in liquidation) restraining it Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 2 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 from alienating, selling, transferring and/or creating third party interest in its immovable properties, save and except in the usual and normal course of business. The Provisional Liquidator was appointed by this Court in terms of order dated 11.01.2017.

3. Reverting to the instant application, shorn of unnecessary details, it is the case of the applicant/SJSPL that in terms of the Lease Deed dated 27.06.2008, which was duly registered on 03.07.2008 between the applicant/company and New Okhla Industrial Development Authority (hereinafter referred as 'Noida Authority'), a perpetual lease was created in its favour qua the plot of land measuring 20,002.40 sq. mtrs. in Sector-154, Noida for a total consideration of Rs. 10,19,34,727/- towards the land premium calculated @ Rs. 5096/- per sq. mtr.; out of which, 30% i.e., Rs. 3,05,76,000/- had been paid by the applicant/SJSPL/ company/lessee to the lessor i.e., Noida Authority; thereby acknowledging balance payment of Rs. 7,13,44,000/- to be paid to the lessor/Noida Authority in 16 equal half-yearly installments along with interest @ 11% p.a. compounded half-yearly and payable from 27.09.2008 to 27.03.2016. The Lease Deed provided that the applicant/SJSPL/company/lessee shall complete construction and obtain occupancy certificate from the Competent Authority within 05 years from the date of actual possession and that the leased property was meant to be developed in a phased manner.

4. It is stated that the applicant/SJSPL faced a liquidity crunch, and therefore, it entered into an Agreement dated 16.04.2013 with M/s. Cosmic Structure Ltd., whereby the entire shareholding in the Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 3 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 applicant/company was agreed to be transferred in favour of the second party viz., M/s Cosmic Structure Ltd. for a total consideration of Rs. 21,000/- per sq. mtr. totaling to Rs. 42,00,50,400/- besides one time lease rent of Rs. 2,80,46,777/-.

5. It is stated that the second party paid a total amount of Rs. 5 crores by way of cheques/bank transfer/RTGS towards the transfer of shareholding and also for conveyancing the right, title and interest in the plot of land. It was mutually agreed by the parties that the remaining amount of consideration would be payable within 12 months from the payment of the first installment as per the payment schedules viz. Rs.39,80,97,177/- to be paid in the period starting from 07.06.2013 to 07.03.2014, such that each installment would be of a sum of Rs. 4 crores, apart from the last one i.e., 11 installments of Rs.80,47,177/-; and that it was stipulated that the transfer of the entire equity of paid-up shares in favour of the buyer i.e., M/s. Cosmic Structure Ltd. shall be affected after the consideration is paid in entirety. It appears that the buyer company i.e., M/s. Cosmic Structure Ltd. failed to make the payment of consideration in accordance with the Agreement dated 16.04.2013 and the applicant/company sought to invoke forfeiture of the amount paid towards part-consideration and cancellation of the Agreement in terms of clause (6), which is reproduced as under:

―That it is agreed between the Parties that the First Party will transfer its equity paid up shares in favour of the Second Party on its Nominee in after receiving the entire consideration amount from the Second Party as per the payment plan schedule mentioned above in clause 4 and the First Party shall simultaneously deliver to the Second Party or its Nominee liable to pay liquidated damages Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 4 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 of Rs. 10,000/- per month to the First Party (OR this Agreement be terminated and 20% of total consideration shall be forfeited by the First Party).‖

6. It is stated that accordingly, a legal notice was sent on 25.02.2016 by the applicant/SJSPL and eventually, since no further payment was made, the applicant/SJSPL was constrained to issue a public notice in daily newspapers regarding the cancellation of the Agreement namely, ‗Hindustan Times' (English and Hindi editions) dated 28.04.2016. Aggrieved thereof, the respondent company filed a petition being OMP(I) No.11/2016 in this Court inter alia seeking to restrain the applicant/company from handing over/creating third-party rights with regard to the said property inter alia admitting and acknowledging that in terms of the Agreement dated 16.04.2013, a sum of Rs.25,07,25,400/- was due and payable to the applicant/SJSPL, along with interest @ 24% p.a. for delayed payment. It is stated that the said OMP(I) No.11/2016 was dismissed by this Court vide order dated 19.12.2016, and accordingly, the Agreement between the parties stood terminated.

7. In the aforesaid backdrop, the grievance of the applicant/SJSPL is that without any notice or information, the Official Liquidator has taken possession of the vacant land in question by deputing their own security guards at the site from an unknown date, which fact came to be known as per the Status Report dated 30.10.2019 submitted by the Official Liquidator in CO. APPL. 932/2019. It is stated that the said situation came to be verified during a visit to the site, only post lockdown (due to the then ongoing Covid Pandemic) and Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 5 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 subsequently, a representation/letter dated 10.09.2020 was sent by the applicant/SJSPL to the Official Liquidator canvassing their legal rights over the subject property and bringing to the fore, the true and correct facts, however, the same was done in vain.

8. In the said backdrop, the applicant company has sought the following reliefs in the instant application:

―a) Direct de-sealing and for handing over the physical, vacant and peaceful possession of the property bearing Plot No.1, Sector- 154, Noida, U.P. 201301 by removal of the guards deputed at the said property, and;

b) Pass any further orders as this Hon'ble Court may deem fit and proper in the facts and circumstances of the present case and in the interests of Justice.‖

9. Reply to the said application has been filed on behalf of the Official Liquidator bringing forth that the property/land was seized by the Official Liquidator on 10.02.2017, as the same was found to be part and parcel of the real estate project that was launched and being undertaken by the company (in liquidation), namely ―Cosmic Masterpiece‖. It is stated therein that the evidence collected by the Official Liquidator revealed that at some time in the past, Bhumi Pujan was performed at the site and initial construction/digging work had commenced. Further, a valuation report was filed with regard to the parcel of land in question in terms of this Court's order dated 26.04.2019, valuing the property at Rs. 32 crores. It was pointed out that the Ex-directors/Promoters of the company (in liquidation) had included the parcel of land/property in question in the proposed township scheme, which was meant for commercial purposes and the Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 6 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 Official Liquidator justified its decision to wrest control of the land/property in order to safeguard the interests of the stakeholders.

10. It is pertinent to mention that during the pendency of this proceeding, certain schemes have been propounded by four different groups for revival of the company (in liquidation) and a reply has also been filed by the Investors Association i.e. Cosmic Victim Association, who have opposed the grant of prayers sought by the applicant/company.

LEGAL SUBMISSIONS ADVANCED AT THE BAR:

11. Mr. Manish Bishnoi, learned counsel for the applicant/SJSPL, alluding to the terms and conditions/covenants of the Lease Deed dated 27.06.2008 executed with Noida Authority and also the Agreement dated 16.04.2013 with M/s. Cosmic Structure Ltd., vehemently urged that it was a genuine transaction whereby the entire shareholding of the applicant/company was promised to be transferred to the respondent/company (in liquidation) much prior to the appointment of the Provisional Liquidator on 11.01.2017. The Court was taken through the OMP(I) No.11/2016 filed by the respondent/company (in liquidation) as also the order dated 19.12.2016, whereby the said petition was dismissed on account of failure on the part of the Ex-management to make complete payment of the outstanding sale consideration.

12. It was also pointed out that the breach committed by the respondent/company (in liquidation) in honouring the Agreement dated 16.04.2013, has resulted in a huge financial burden upon the applicant company inasmuch as the Noida Authority in terms of letter Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 7 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 dated 09.10.2013, demanded payment of outstanding dues to the tune of Rs. 8,26,00,000/-, which demand was subsequently increased to Rs. 20.88 crores in terms of notice dated 24.06.2021. It is further urged that the Lease Deed was cancelled and the Noida Authority proposed to exercise re-entry rights in terms of the notice dated 30.05.2019, which was unsuccessfully assailed before the Allahabad High Court that dismissed their Writ Petition bearing No. 3489/2019 vide order dated 11.11.2019. Thereafter, they were constrained to approach the Supreme Court in SLP No. 4283/2020 and in terms of order dated 24.02.2020 followed by orders dated 04.05.2020 and 05.06.2020, they have already deposited a total sum of Rs. 2.50 crore with the Noida Authority, without prejudice.

13. Learned counsel for the applicant/company further urged that there is no allegation of collusion between the management of the applicant company and the management/Ex-directors of the respondent/company (in liquidation). It was pointed out that pursuant to the directions passed by this Court in CO. APPL. No. 890/2017, moved on behalf of the applicant investor - Dr. Anil Midha, an investigation was directed to be conducted by the Serious Fraud Investigation Office (hereinafter 'SFIO') in terms of Section 212 of the Companies Act, 2013 vide order dated 29.05.2018. The SFIO, in its report, brought to the fore that there were as many as 26 sister companies incorporated by Mr. Suhant Mutreja Ex-director, besides taking over as many as six different entities, having nexus with the management/Ex-directors of the company (in liquidation). However, there was no mention of the applicant/SJSPL being associated with the Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 8 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 respondent/company (in liquidation) in any manner, except for the transaction in question. The SFIO report on the record, which is lying in a sealed cover, has not indicted the applicant company in any manner.

14. Learned counsel for the applicant company, in order to buttress his submissions, has relied upon the decisions in the case of Stressed Assets Stabilization Fund v. West Bengal Small Industries Development Corp. Limited1, Phatu Rochiram Mulchandani v. Karnataka Industrial Areas Development Board2, R.G. Soft Drinks P. Ltd. v. Official liquidator3, and Citicorp International Limited v. Shiv Vani Oil & Gas Exploration Services Ltd.4.

15. Ms. Ruchi Sindhwani, learned Senior Standing Counsel for the Official Liquidator has submitted that evidently, about Rs. 16 crores had been paid to the applicant company by the respondent/company (in liquidation), but it was pointed out that surprisingly, the property which was valued at Rs. 32 crores, as per the valuation conducted by the office of the Official Liquidator, was agreed to be sold vide Agreement dated 16.04.2013 for a consideration in excess of Rs. 40 crores and that the Ex-management have not explained as to why the statutory dues liable to be paid to the Noida Authority had not been paid despite evidently receiving a sum of Rs. 16 crores from the respondent/company (in liquidation). It was vehemently urged that the Agreement dated 16.04.2013 is collusive in nature as it was ostensibly 1 (2019) 10 SCC 148 2 (2015) 5 SCC 244 3 2007 SCC Online Del 1307 4 2023 SCC Online Del 4312 Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 9 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 for the transfer/sale of shareholding, but in reality, it was for the purposes of selling the land, the vacant and physical possession of which, was transferred to the respondent/company (in liquidation) for the purposes of building a commercial project at the site and evidently bookings were accepted from the investors, raking in investments to the tune of Rs. 80 crores to Rs. 100 crores, and that the monies received have since been siphoned off by the management/Ex- directors of respondent/company (in liquidation).

16. Learned Senior Standing Counsel for the Official Liquidator vehemently urged that the Agreement dated 16.04.2013 was not acted upon and the notice dated 25.02.2016, served at the behest of the applicant company was issued soon after this Court entertained the winding up petition on 23.02.2016 and the action taken by the applicant company for taking over/regaining possession of the property in question was hit by Section 457 of the Companies Act, 1956.

17. Lastly, it was urged that if the purported action of the applicant company to terminate the Agreement was by virtue of clause (12) of the Agreement dated 16.04.2013, the only option was to deduct 20% of the amount out of the sum of Rs. 16.40 crores that was paid to them and return the balance amount with interest, as evidently, the said amount belongs to the investors.

18. Mr. Kalyan Dutt, learned counsel appearing for the objectors/Investors Association vehemently urged that the entire Agreement dated 16.04.2013 was a sham, bogus and collusive since it was in complete violation of the terms and conditions of the lease Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 10 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 executed by the applicant company with the Noida Authority dated 27.06.2008. It was pointed out during the period of 2012-2016, investments had been made by approximately 15,000 investors in the 06 township projects envisaged by the respondent/company (in liquidation). Further, that the collusion between the management of the applicant and the respondent/company (in liquidation) is apparent from the fact that although OMP(I) No.11/2016 was filed, however, the same was not pursued nor it could have been pursued for the reason that winding up proceedings were initiated vide order dated 23.02.2016.

19. Ms. Vrinda Bhandari, learned counsel appearing for the Ex- director/Mr. Nishant Muttreja of the respondent/company (in liquidation) has urged that there was never any collusion between the management/Ex-directors of the respondent/company (in liquidation) and the management of the applicant company. However, she submitted that the actual, vacant and physical possession of the site had been handed over to the respondent/company (in liquidation) in terms of Agreement dated 16.04.2013, which possession was never given back to the applicant company and the parcel of land in question was integral to the six township projects that were being propounded by the respondent/company (in liquidation). It was vehemently urged that if the land in question is allowed to go back to the applicant company, the entire project would be jeopardized. ANALYSIS AND DECISION:

20. I have given my anxious consideration to the submissions advanced by the learned counsels for the contesting parties at the Bar.

Signature Not Verified

CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 11 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 I have meticulously perused the record as well.

21. First things first, it would be apposite to refer to the relevant provisions of the Companies Act, 1956 that come into consideration for adjudication of the instant application, which provides as under:-

―531-A. Avoidance of voluntary transfer.--Any transfer of property, movable or immovable, or any delivery of goods, made by a company, not being a transfer or delivery made in the ordinary course of its business or in favour of a purchaser or encumbrancer in good faith and for valuable consideration, if made within a period of one year before the presentation of a petition for winding up by [the Tribunal] or the passing of a resolution for voluntary winding up of the company, shall be void against the liquidator.‖

22. A careful perusal of the aforesaid provision would show that the transfer of an immovable property made by a company within a period of one year before the presentation of the winding up petition, which is made otherwise than in the ordinary course of its business, and not done in good faith, and not for valuable consideration, may be held to be void against the Liquidator. As regards the disposition of any property/assets of the company in liquidation, after commencement of a winding up petition, the following provisions have to be considered:

"Section 536. Avoidance of transfers, etc., after commencement of winding up (1) In the case of a voluntary winding up, any transfer of shares in the company, not being a transfer made to or with the sanction of the liquidator, and any alteration in the status of the members of the company, made after the commencement of the winding up, shall be void.

(2) In the case of a winding up by [the Tribunal], any disposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall, unless the 2 [Tribunal] otherwise orders, be void.

1. Substituted for "or subject to the supervision of the Court" by the Companies (Second Amendment) Act, 2002 (w.e.f. a date yet to be notified).

2. Substituted for "court" by the Companies (Second Amendment) Act, 2002 Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 12 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 (w.e.f. a date yet to be notified).

Section 537. Avoidance of certain attachments, executions, etc., in winding up by tribunal (1) Where any company is being wound up by the Tribunal -

(a) any attachment, distress or execution put in force, without leave of the Tribunal against the estate or effects of the company, after the commencement of the winding up ; or

(b) any sale held, without leave of the Tribunal of any of the properties or effects of the company after such commencement ; shall be void.

(2) Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government.]

23. A bare perusal of Section 536 of the Act would show that any transfer of the assets of the company after commencement of winding up proceedings may be held to be void. This Court in the case of Reserve Bank of India v. J.V.G. M/s. Finance Limited5 dealt with a report filed by a one-man Committee appointed by the Court whereby the claim of the applicant with regard to an Agreement to Sell executed by the company (in liquidation) after commencement of the winding up proceedings was rejected. This Court referred with approval, the decision of the Calcutta High Court in the case of J. Sen Gupta Private Ltd. (In Liquidation)6, which dealt with Section 536(2) of the Act and observed as under:-

―12. It seems to me, therefore, upon considering various authorities on this subject that the following principles are doubtless applicable to sub-sec (2) of Sec. 536 of the Companies Act, 1956:

1. The Court has an absolute discretion to validate a transaction; and that

2. This discretion is controlled only by the general principles which apply to every kind of judicial discretion; and that .

3. The Court must have regard to all the surrounding circumstances and if from all the surrounding circumstances it 5 (20110 SCC OnLine Del 5135 6 AIR 1962 Cal. 405 Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 13 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 comes to the conclusion that the transaction should not be void, it is within the power of the Court under Sec. 536(2) to say that the transaction is not void; and lastly that

4. If it be 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.‖ (Bold portions emphasized)

24. In the above-noted judgment of this Court, reference was also invited to a decision by the Gujarat High Court in the matter of the Sidhpur Mills Company Limited7, wherein it was held as under:-

―12. It is trite position in law that the commencement of winding-up proceedings relates back to the presentation of the petition (see: section 441 of Companies Act, 1956). It should be recalled that the winding-up petition in which the order was made was company petition No.9 of 1979 which was presented on 22.2.1979. The winding-up order was made by this Court on October 18, 1979. In the circumstances, therefore, any transfer of shares of Siddhpur Mills Co. Ltd. made after the presentation of the winding-up would be void unless as otherwise directed by the Court. The Court has an absolute discretion as to validating the transaction after presentation of the winding-up petition. The discretion is to be exercised on recognized principles which guide the exercise of judicial discretion generally with particular attention to the interest of the company. The Court can validate such impugned transaction in those bona fide cases which demand protection of equitable consideration. (See B.B. Khanna v. S.N. Ghose 1976 Tax L.R. 1740).‖ (Bold portions emphasized)

25. In view of the aforesaid proposition of law this Court held that:

―it has the discretion to validate any disposition of the property made after passing of the winding up order, but the said discretion is not an untrammelled one, as it has to be exercised on sound judicial principles. In the opinion of this Court, while validating any disposition of the property after the appointment of the Provisional Liquidator, the Company Court, has to keep in view all surrounding circumstances and if it finds that the transaction is a bona fide one for the benefit of the company, then 7 (1987) 1 Comp. L.J. 71 (Guj.) Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 14 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 alone the same would be validated‖. (Bold portions emphasized)

26. Further, it was held that Knowledge of the presentation or of the pendency of the winding up proceedings, on the part of the contracting parties at the time of sale or disposition of the property, is immaterial. We may also invite reference to the decision of this Court in the case of Smt. Benu Berry v. JVG Finance Ltd.8, wherein the respondent company was ordered to be wound up vide order dated 05.06.1998 and after commencement of the winding up proceedings, a property belonging to the company (in liquidation) at Mumbai had been sold to one Smt. Anita Jain on the premise that the company owed certain monies to her for the promotion work done by her, vide Agreement to Sell dated 23.03.2001. It was found that the concerned Housing Society had recognized Smt. Anita Jain as the bonafide owner of the plot in question but she had also sold the said property to the appellant vide agreement to sell dated 13.12.2001. Finding that the aforesaid disposition or sale was not genuine and bonafide, it was held as under:

―9. Be that as it may, we have otherwise looked into the matter. Counsel for the appellant has argued that the learned company judge erred in not considering that the appellant was a bona fide purchaser for value and in proceeding on the premise that the transaction was void merely for the reason of having been effected after the order of winding up. It is contended that it was incumbent upon the company judge to record a finding whether Smt. Anita Jain was a bona fide creditor of the company or not and that the preference shown to Smt. Anita Jain as a creditor could have been held to be bad only if found to be fraudulent and of which there is no finding. It is contended that the subject transaction is in good faith and for valuable consideration within the meaning of sections 531A and 536(2) of the Companies Act, 1956 and is not a nullity. It is further argued that the appellant had paid the then prevalent market price for the flat. The appellant in this regard has also filed 8 2012 SCC OnLine Del 6378 Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 15 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 an additional affidavit along with documents being the sale deeds of the other flats and valuation reports with respect to the property.

10. The purported transfer of the flat aforesaid in the present case is admittedly after the order of winding up and appointment of provisional liquidator. Upon such happening the ex-management of the company which is alleged to have transferred the flat, lost any right to act on behalf of the company or to transact any of the properties of the company. The transfer thus claimed by the appellant has not been affected by any person authorised to do so.

Section 531A of the Companies Act deals with transfers within a period of one year before the presentation of a petition for winding up and has no application to the facts of the present case. Section 536(2) declares transfers of the property of the company after the commencement of winding up as ―void‖ unless otherwise ordered.

11. The question which thus arises is as to in what cases the court should order the transfer effected (of the property of the company), after the commencement of winding up as otherwise then void. The learned company judge in this regard has already referred to J. Sen Gupta (Private) Ltd., In re, [1962] 32 Comp Cas 876; AIR 1962 Cal 405 and Siddhpur Mills Co. Ltd., In re, [1987] 61 Comp Cas 756 (Guj); [1987] 1 Comp. LJ 71. We find that the Supreme Court in Pankaj Mehra v. State of Maharashtra, [2000] 100 Comp Cas 417; (2000) 2 SCC 756, to have laid down the "test of whether the transfer was under compulsion of circumstance or other commercial compulsion to enable the company in liquidation to run its business". We further find a Division Bench of the Bombay High Court in Laxman Yeswant Prabhudesai v. NRC Ltd., [2010] 155 Comp Cas 88; [2010] 2 Comp. LJ 380, to have, after noticing a large volume of case law on the subject deduced that the transaction undertaken by company in liquidation can be validated if under section 536(2) under compulsion of circumstances, in order to save or protect the company, provided evidence is produced about such compulsion; it was further held that the assets of the company (in liquidation) cannot be disposed of at the mere pleasure of the company and only such disposal shall be validated which is found to be for the benefit and interest of the company; it is for enabling the company to continue as a going concern and to protect the interest of the shareholders and creditors, that power of validation under section 536(2) should be exercised. We also find a Division Bench of this court to have in H.L. Seth v. Wearwell Cycle Co. (India) Ltd., [1992] 46 DLT 599, observed the test to be applied for validating a transaction in exercise of the powers under section 536(2) is of ―good faith in the ordinary course of trade, for the benefit of the company‖.

Signature Not Verified

CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 16 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02

27. In light of the aforesaid proposition of law, reverting to the instant matter, it is brought to the fore that the applicant - M/s. Surya Jyoti Software Pvt. Ltd. had acquired the perpetual lease of the property in question from the Noida Authority in terms of the Lease Deed dated 27.06.2008 measuring 20002.40 sq. mtrs. and in terms of clause 11(A), the applicant/allottee/lessee was supposed to complete construction in a phased manner and such construction was supposed to have been completed within five years from the date of possession. It was also stipulated in the Lease Deed dated 27.06.2008 that the lease consideration was to be paid in sixteen half-yearly equal installments carrying interest @ 11% p.a. compounded half-yearly and there was a penal clause that in case there was any default in payment of the installment by the specified dates, the delayed payment was to be charged with interest @ 14% p.a. compounded half-yearly for the default period.

28. It is also the admitted position that an Agreement dated 16.04.2013 was entered into between the applicant/allottee/lessee and the company (in liquidation), whereby the entire shareholding in the applicant/allottee/lessee was agreed to be transferred to the company (in liquidation) for a total consideration of Rs. 42,00,50,400/- plus one time rent of Rs. 2,80,97,177/- totalling Rs. 44, 80,97,177/- directly payable to the Noida Authority, by the respondent company. It is also an admitted position that an initial amount of Rs. 5 crores was paid on or by 09.04.2013 and the balance amount of the consideration i.e., Rs. 39.80 crore was to be paid by way of 11 installments within a period Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 17 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 of 12 months starting from the date of payment of first instalment. It is also apposite to note that vide clause (12) of the Agreement dated 16.04.2013, it was affirmed and declared that the vacant and peaceful possession of the plot, including appurtenants, if any thereto, had been handed over to the second party i.e., company (in liquidation) on 07.04.2013.

29. Evidently, the parties entered into the contract for transfer of the shareholding of the company in the ordinary course of its business. Admittedly, there was a default on the part of the respondent/company in making the payment of the sale consideration and the applicant SJSPL served a legal notice dated 25.02.2016 upon the respondent company (not yet in liquidation) i.e., two days after the interim order was passed in the present winding up petition on 23.02.2016 with regard to the assets of the company (in liquidation). Although a Provisional Liquidator was appointed by this Court vide order dated 11.01.2017, it is borne out that in the interregnum the company (in liquidation) filed a petition being O.M.P.(I) 11/2016 under Section 9 of Arbitration and Conciliation Act, 1996, invoking the arbitration clause on 25.05.2016 which came to be entertained on 30.05.2016 and eventually after notice to the parties, the same came to be disposed of by this Court vide order dated 19.12.2016. It would be apposite to reproduce the order dated 19.12.2016 for better understanding the prevailing facts and circumstances, which go as under:

―1. The petitioner has filed the present petition under Section 9 of the Arbitration and Conciliation Act, 1996 (hereafter ‗the Act'), inter alia, praying as under:-

Signature Not Verified

CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 18 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 ―It is, therefore, respectfully prayed that the respondents may please be restrained from handing over / parting with possession of Plot No. 1 situated at Sector 154, Noida to any third party as also from doing any act in furtherance of notice of termination dated 25.02.2016 till the commencement of Arbitral proceedings with any other or further orders, relief or direction as this Hon'ble Court may deem fit and proper under the facts and circumstances of the present petition.‖

2. The parties had entered into an agreement dated 16.04.2013 whereby it was agreed that the entire shareholding of the of the respondent company would be transferred to the petitioner at the stated consideration of ₹42,00,50,400/-. Admittedly, the entire consideration was not paid as agreed and the respondents terminated the said agreement on 25.02.2016.

3. The present petition was moved on 30.05.2013 and at that date the learned counsel appearing for the respondent had stated that the respondent would consider and revive the agreement provided the petitioners show their bonafides and pay the balance amount on the next date of hearing and the matter was adjourned to 27.07.2016.

4. On 27.07.2016, the petitioner prayed for further time to make the balance payment in terms of the suggestion that was made by the learned counsel for the respondent on 30.05.2013; since the same was not objected to, the petition was adjourned to 02.12.2016 and thereafter for today.

5. Even today, the learned counsel for the petitioner is not in a position to state whether the petitioners' would be in a position to make the balance amount. It is apparent that the agreement dated 16.04.2013 was essentially for the effective transfer of the lease hold property - Plot No.1 situated at Sector 154, NOIDA -

held by the respondent no.1; the consideration for the shares was also computed at the rate of `21,000/- per square meter.

6. Since the petitioner is unable to deposit the consideration as agreed, the relief as prayed for by the petitioner cannot be granted at this stage.

7. The petition is, accordingly, disposed of. 8. However, it is clarified that this would not preclude the petitioner from filing an appropriate application under Section 17 of the Act as and when the arbitral tribunal constituted.‖

30. It is pertinent to mention that the applicant company (in liquidation) in O.M.P. (I) 11/2016 vide paragraph (8) of the petition, Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 19 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 acknowledged that the entire shareholding of M/s. SJSPL had been agreed to be transferred for a total consideration of Rs. 42,00,50,400/- (sic which should be read as Rs. 44 crores) and vide paragraph (10) of the petition, it was brought out that Rs. 3,45,25,000/- had been paid to the Noida Authority and Rs. 12.95 crores had been paid to the applicant SJSPL, thereby the total amount being paid amounting to Rs.16,40,25,000/- and that there were outstanding dues to the extent of Rs. 25,60,25,400/-. It was acknowledged that the petitioner company in O.M.P. (I) 11/2016 was unable to pay the full consideration for purchase of the shareholding. Interestingly, the relief sought was to the effect that the respondent company i.e., the seller/SJSPL be restrained from handing over/parting with possession of the property in question to any third-party as also doing any act in furtherance of notice of termination dated 25.02.2016 till the commencement of the arbitral proceedings.

31. Although much has been argued by the learned Senior Standing Counsel for the Official Liquidator as also learned counsels for the Investor Association besides Ex-director/Mr. Nishant Muttreja, that the sale itself was in violation of the terms and conditions of the initial perpetual Lease Deed dated 27.06.2008, such contentions do not cut any ice. Evidently, the sale of the shareholding of M/s. SJSPL was permissible under law. At this stage, it would be expedient to refer to the relevant covenants on the perpetual Lease Deed. It would also be appropriate to extract the relevant recitals of the Agreement dated 16.04.2013, which read as under:

Signature Not Verified

CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 20 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 ―5. The lessee shall be liable to pay all the rates local taxes charges and assessment by whatever name called of every description in respect of the demised plot/or building constructed thereon assessed or imposed from time to time by local or other Authority / State / Central Govt. /The Lessor.

6. That the lessee will obey and submit to all the directions or regulations made by the lessor now existing or hereafter to exist so far as the same are incidental to the possession of immovable property or the health, safety or effect the convenience of the other inhabitants of the surrounding area.

7. The lessee will at their own cost construct a building on the demised plot as per floor area ratio (FAR) as applicable in accordance with the prescribed bye laws plan and building regulation.

The building will be constructed by lessee as per building regulations and directions and bye laws of the Authority. It shall be the responsibility of the lessee to get the allotted plot inspected by the authorised officer appointed by the lessor. The lessee shall write / contact the building cell department of the lessor first during the time of construction of the basement and second after completion of the plinth third after completion of lintel level. The lessee will not make any unauthorized construction on the plot and if so will be removed / demolished by the lessor at the risk cost responsibility of the lessee. It shall be treated as breach of terms and conditions of building bye laws and lease deed.

14. (a) That the lessee shall not be permitted to transfer the demised plot before making the unit functional and building constructed thereupon. However at the discretion of CEO the transfer may be permitted after making the unit functional and building constructed thereupon and laying transfer charges as prevalling at that time of transfer such transfer charges shall be paid to the lessor. The decision of Chairman / Chief Executive Officer for all purpose will be final and binding on the lessee.

(b) That the lessee may be permitted to sub-lease the part built up space for the same project in case of IT/ITES allotment of 20000 sq.mtr. or above after making the unit functional and completion of minimum of 75% of total permissible FAR subject to payment of prevailing pro-rata transfer charges and prior approval of lessor.

15. Notwithstanding anything contained in the Clause 18, the lessee may, with the previous permission of CEO mortgage the demised plot to any Government Organisation or any Government recognised institution for raising loans for purposes of construction Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 21 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 of the building / funetioning of the institution subject to such charges & terms and conditions as decided by the lessor at the time of granting the permission the first charges shall be of the lessor on the property.

Provided that in the event of the sale or foreclosure of the mortgaged or charged property the lessor shall be entitled to claim and recover such percentage as decided by the lessor of the unearned increases in the value of the demised plot as aforesaid and the amount of the lessor share of the said unearned increase shail be first charges in the favour of the lessor and having priority over the said mortgage or charge. The decision of the lessor in respect of the market value of the said land shall be final and binding on the lessee.

Provided further that the lessor shall have the pre-emptive right to purchase the mortgaged or charged property after deducting such percentage as decided by the lessor of unearned increase as aforesaid. The lessor right to the recovery of the unearned increase and the pre-emptive right to purchase the property as mentioned herein before shall apply equally to insolvent sale or transfer it by or through execution of decree of insolvency by the court. That the lessee shall not be allowed to be rented out the allotted premises or any part thereof. The plot cannot be transferred before making the unit functional and all such action done for transfer of the plot will be deemed as null and void ab-intio.

16. That if the lessee obtain the demised plot by suppression of any fact or misrepresentation, mis-statement of fraud or if there is any breach of the condition of the lease or if the lessee does not abide by the terms & conditions of the building rules framed by the lessor or violate any terms of the lease deed the lease may be determined and the entire money paid lessee will be forfeited and the possession of the demised plot and the structure raised thereon, unless removed by the lessee within the time specified in the notice by the lessor may be taken over by the lessor and lessee will not be entitled to any compensation.

32. In light of the aforesaid stipulations, at the cost of repetition, part-sale consideration had been paid to the extent of Rs. 16,40,25,000/- by the respondent/company (in liquidation), prior to and much before the winding up petition came to be entertained, which was evidently filed and taken up for hearing for the first time on Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 22 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 23.02.2016. At this juncture, as pointed out by the learned counsel for the applicant/SJSPL, it would be apposite to highlight that the payments commenced from 09.09.2013 and lasted till 10.12.2015, as per the tabular details provided in the Affidavit of the applicant, reproduced as under:

                                         Date                   Amount (in Rs.)
                                     09-09-2013                    50,00,000
                                     09-09-2013                    25,00,000
                                     23-09-2013                    50,00,000
                                     07-10-2013                   1,00,00,000
                                     14-10-2013                    50,00,000
                                     18-10-2013                   1,00,00,000
                                     18-10-2013                    50,00,000
                                     21-10-2013                    50,00,000
                                     23-10-2013                    50,00,000
                                     12-11-2013                    50,00,000
                                     16-11-2013                    10,00,000
                                     06-02-2014                    60,00,000
                                      18-2-2014                    50,00,000
                                     04-03-2014                    50,00,000
                                     11-03-2014                    50,00,000
                                     12-03-2014                    50,00,000
                                     28-07-2014                    50,00,000
                                     25-08-2014                    25,00,000
                                     27-08-2014                    25,00,000
                                     09-09-2014                    25,00,000
                                     30-10-2014                    25,00,000
                                     30-10-2014                    25,00,000



Signature Not Verified
                        CO.APPL. 703/2020 in CO. PET 152/2016
Digitally Signed By:PRAMOD                                                        Page 23 of 30
KUMAR VATS
Signing Date:22.04.2024
19:36:02
                                      07-11-2014                           35,00,000
                                     07-11-2014                           25,00,000
                                     06-08-2015                           25,75,000
                                     17-09-2015                           23,00,000
                                     30-09-2015                            9,50,000
                                     10-12-2015                            2,00,000
                                         Total                           11,40,25,000
                                                                Total Receipt 16,40,25,000/- Only.

33. Thus, the aforesaid pattern of payments resorted to by the respondent company (till then not in liquidation) does not lead to any inference, as suggested by the learned Standing Counsel, that there was any delay on the part of the applicant/SJSPL in asserting its legal rights and thereby seeking to rescind the Agreement dated 16.04.2013, for which recourse was taken. It initially served a notice dated 25.02.2016, besides bringing the general public to notice, by way of leading publications in daily newspapers on 28.04.2016, resulting in filing of the petition by the respondent company (till then not in liquidation) under Section 9 of the Arbitration & Conciliation Act, which eventually came to be dismissed by this Court vide order dated 19.12.2016.

34. There is in fact another side to the story that cannot be overlooked, to the effect that due to the alleged breaches committed by the respondent/company (in liquidation), the applicant/SJSPL became vested with a heavy financial burden towards the Noida Authority, which is presently standing to the tune of Rs. 23 crores. Said burden has been assailed before the Supreme Court in SLP(C) No. 4283/2020 and in terms of orders dated 17.02.2020, 24.02.2020, Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 24 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 05.06.2020 and 04.09.2020, it appears that a sum of Rs. 2.5 crores already stands deposited by SJSPL, before the Court.

35. In the aforesaid backdrop, what emerges is that the applicant has been diligently pursuing its remedy in law with regard to the subject property. Although much mileage is sought to be drawn from the fact that the legal notice dated 25.02.2016, had been issued by the applicant/SJSPL, after passing of the interim order in the present winding up petition on 23.02.2016, and that the same was done in collusion with the Ex-directors/management of the company (in liquidation); said contention is merely a bald allegation which does not hold any water. The order dated 23.02.2016 could not be said to have provided any bar to instituting or defending any legal proceedings with regard to the properties of the company (in liquidation) till the appointment of the Official Liquidator, which came about vide order dated 11.01.2017. It is admitted fact that the Official Liquidator seized the possession of the property on 10.02.2017, which came to be revealed as per the Status report dated 30.10.2019 submitted by the Official Liquidator in CA No. 932/2019, giving rise to the instant application moved on 23.11.2020. There is not an iota of evidence brought on the record suggesting that there was any connection or nexus between the management of the applicant - M/s Surya Jyoti Software Pvt. Ltd. and the Ex- directors/management of the company (in liquidation). There is also no sufficient allegation that any money was siphoned off, diverted or misappropriated for some extraneous consideration. There is nothing in the report of the SFIO so as to hold that the directors/management Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 25 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 of the applicant/SJSPL were the beneficiaries of any financial mismanagement done on the behest of the Ex-directors/management of the company (in liquidation). There is no merit in the plea taken by the learned Senior Standing Counsel that the subject property/land in question was sold for an inflated value. The submission belies common sense and it is not inconsistent with prevailing market practices. It was rightly urged by the learned counsel for the applicant that sale considerations are factored on various market permutations and combinations and are determined after taking calculated risks with regards to the real estate market. Needless to state, in all probability, the company (in liquidation) had much to gain commercially from legitimate exploitation of the subject property, which was meant for commercial purposes. Of course, it is canvassed on behalf of the contesting parties to the present application that booking amounts totaling to a sum of over Rs. 100 crores had been generated by the company (in liquidation) as against the property in question. However, there is not an iota of evidence suggesting that any of the funds were siphoned off or that there was some collusive foul play between the management of the applicant/SJSPL and the respondent company or that the applicant was the beneficiary of any unjust enrichment.

36. To sum up, the manner in which the sale agreement dated 16.04.2013 was executed, towards the transfer of shareholding of SJSPL, as also the pattern of payments pursuant to the same, which events took place prior to the winding up petition being entertained by this Court, raise an inference that such disposition had been done in the ordinary course of business. The transfer of shareholding was a Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 26 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 purely commercial decision taken in the ordinary course of business and was obviously based on certain conditions prevailing in the real estate market. The management of SJSPL pursued its remedies against the respondent company in good faith, in the process laying claim over the subject property subsequent to the adverse action taken by the Noida Authority. The Ex-directors of the respondent company also pursued appropriate legal remedies in so far that they chose to refer the matter to arbitration, on service of the legal notice dated 25.02.2016. Further, the OMP bearing No. 11/2026 came to be dismissed vide order dated 19.12.2016 for apparently sound legal reasons. It is borne out from the order dated 19.12.2016 that the applicant/SJSPL expressed its willingness to waive the notice dated 25.02.2016, provided that balance payments are made; however, the respondent company failed to make the due payments.

37. Since it is evident that the right to the shareholding of the applicant company/SJSPL did not fructify in favour of the respondent/ company (in liquidation), it is difficult to discern that there has been any lack of bonafides or diligence on the part of the applicant/SJSPL and for that matter, on the part of the Ex-directors of the company (in liquidation). It is also difficult to discern any element of collusiveness or conspiracy between the two parties, soon before or after commencement of the winding up petition vide order dated 23.02.2016. In such a scenario, there could be no two opinions but to hold that the subject property cannot be made available to the Official Liquidator for the purposes of the winding up proceedings. The Ex- management, investors or the home buyers cannot enrich themselves Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 27 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 at the cost of the applicant/SJSPL, especially in the absence of any evidence which would prove siphoning off funds by the Ex-directors of the company (in liquidation) in favour of the applicant company. Rather, SJSPL is also a victim at the hands of the Ex-management. The benefit of vesting the subject property in favour of the company (in liquidation) so as to enhance its assets cannot be sustained. Lastly, merely because some schemes for revival of the company (in liquidation) have been proposed by the stakeholders and are pending for consideration before this Court, the same would not warrant vesting the subject property in favour of the company (in liquidation), particularly when, apart for bhumipujan at the site, no construction work ever commenced at the subject property.

38. Before parting with this application, it may be pointed out that in terms of the order dated 24.08.2023, the applicant was afforded an opportunity to negotiate with the Official Liquidator for arriving at a One-Time Settlement ('OTS'). However, such an effort did not prove fruitful and failed to fructify into any settlement. In terms of the OTS submitted by the applicant with the Official Liquidator, out of the total amount of Rs. 16.40 crores, Rs. 3.45 crores had been deposited with the Noida Authority on account of interest and 20% of the total consideration for forfeiture vide clause (12) of the agreement came to be Rs. 8.96 crores. Although, there remains a balance of Rs. 3.98 crores, it has been urged that total loss to the company for non- performance of the agreement is to the tune of Rs. 18.46 crores. Further, as per the OTS, the applicant company was to undertake to clear all the pending dues towards the security agency that has been Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 28 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 deputed for the purpose of safeguarding and protecting the subject property during this period.

39. In view of the foregoing discussion, the instant application moved by the applicant-SJSPL is hereby allowed and the Official Liquidator is directed to de-seal the subject property viz. Plot No.1, Sector 154, Noida- 201301 and hand over its peaceful and vacant possession to the applicant-company.

40. However, this shall be subject to the applicant-company bearing the entire charges towards the services rendered by the security agencies deputed at the site to safeguard and protect the subject property, already paid as well as outstanding w.e.f. 12.02.2017. The amount, if any, already paid by the Official Liquidator to the security agencies for safeguarding and protecting the subject property shall be refunded in toto as also the amount, if any, remaining outstanding towards the security agencies till this date. The Official Liquidator is hereby directed to spell out the amount which has already been paid to the security agencies towards such services, besides outstanding bills, if any, which be verified by the empanelled Chartered Accountant in terms of the directions of this Court dated 17.08.2023. The said verification be done and details of the amount to be paid be furnished to the applicant-company within two weeks from the date of this judgment by way of email as well as appropriate notice by serving the same through courier. The applicant SJSPL shall remain duty bound to make good such payment to the Official Liquidator within two weeks on receipt of said notice and the subject Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 29 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02 property be de-sealed and peaceful and vacant possession of the same be handed over to the applicant-company within two weeks thereafter.

41. CO.APPL. 703/2020 stands disposed of accordingly.

DHARMESH SHARMA, J.

APRIL 16, 2024/ck Signature Not Verified CO.APPL. 703/2020 in CO. PET 152/2016 Digitally Signed By:PRAMOD Page 30 of 30 KUMAR VATS Signing Date:22.04.2024 19:36:02

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