Andhra HC (Pre-Telangana)
Srinivasa Enterprises, Rep. By Its ... vs The Official Liquidator Of High Court Of ... on 29 January, 2007
Equivalent citations: (2007)2COMPLJ500(AP), [2007]78SCL346(AP)
ORDER S. Ananda Reddy, J.
1. This is an application filed by the applicant, who is a third party, seeking a direction to the Official Liquidator to hand over the possession of the Flat bearing No.804, VIII Floor, Paigah Plaza, Basheer Bagh, admeasuring 2069 sq.ft. to the applicant and to pass such other orders.
2. According to the applicant, it is a Firm represented by its Managing Partner M. Srinivasa Rao. It is a creditor of the Company, viz. M/s. Nirup Synchrome Limited, represented by its liquidator, the Official Liquidator, attached to this Court. It was the case of the applicant that the applicant Firm was in possession of the property in question since 31.07.2000. On 01.11.2000 the officials of the Official Liquidator have locked and sealed the premises. Thereafter, the applicant Firm had approached the respondent enquiring about such action. Then the applicant Firm was informed by the office of the Official Liquidator that as per their records, the premises belongs to M/s. Nirup Synchrome Limited, which is under liquidation.
3. It is stated that the applicant Firm is an unsecured creditor of the said company to the tune of Rs. 29,94,000/-. The Company in discharge of part of its liability, has executed a sale deed along with the builder M/s. Deccan Builders, Basheerbagh, Hyderabad, which is the absolute owner. It is stated that though the Company under liquidation did not secure any title over the said premises, but by virtue of agreement of sale dated 10.08.1985 by the Company with the Builder, the Company was also made as Vendor No.2 in the sale deed dated 31.07.2000 executed in favour of the applicant Firm.
4. It is stated that the applicant Firm has approached the respondent on number of occasions in person and through communications, requesting to release of the premises and handover the same to the applicant. But, since the same was not complied with, the applicant has come up with the present application. It is stated that the applicant is a bona fide purchaser of the property for a valuable consideration. The applicant was not aware of any proceedings against the company. The Company came forward to execute the sale deed in favour of the applicant Firm in discharge of part of its liability only after consistent follow up and pressures on the Company. The Company also assured the applicant Firm to clear up entire debt by the end of December, 2000. To the utter surprise of the applicant Firm, it is brought to its notice by the officials of the respondent that the Company is under liquidation.
5. It is also stated that the Company has informed the applicant Firm before execution of the sale deed that the registered office was shifted from the above premises to Nirup Nagar, Waddepally, Warangal. The applicant Firm has also verified the same from the Registrar of Companies and it was found that the Company has filed Form-18 in respect of shifting of its registered office with effect from 21.07.2000. The copy of the said Form-18 is also filed along with the present application. In view of the above, the applicant Firm sought for release of the premises to it, being the purchaser and owner of the property.
6. A report is filed on behalf of the Official Liquidator, disputing and denying the claims of the applicant. It is stated that this Court appointed the Official Liquidator as a provisional liquidator, by order dated 01.11.2000 made in RCC.10/2000. Subsequently, by order dated 04.12.2000, winding up order was passed, appointing the Official Liquidator as its liquidator. It is stated that on appointment of the Official Liquidator as a provisional liquidator, he has deputed his officials to take possession of the registered office of the premises as per the address given in the winding up order, situated at 804, Paigah Plaza, Basheerbagh, Hyderabad, on 29.11.2000. During which it was observed that a notice was affixed on the entrance of the premises, notifying that the registered office of the company has been shifted to Wadapally factory premises of the company. The registered office viz. under #804 was found to be interconnected with #802, which was under M/s. Siri Marketing Limited.
7. It is stated that the claim of ownership is made by the applicant basing on the sale deed dated 31.07.2000, which was executed during the pendency of the winding up petition. The contention of the applicant that the company, in adjustment of its past debt due to the applicant to the tune of Rs. 29,94,000/-, has executed the above sale deed in its favour along with the absolute owner of the premises M/s. Deccan Builders, Basheerbagh, Hyderabad and pursuant to which, the company has delivered the premises to the applicant, is clearly illegal. It is stated that even as per the material papers filed by the applicant, it shows that as per Form-18 the company had shifted its premises only with effect from 21.07.2000, while the sale deed was executed on 31.07.2000, and till then the registered office of the company was at the above address. But, however, the applicant claims that it was given possession on 19.05.1998, which is clearly not in conformity with the other facts.
8. It is stated that against M/s. Nirup Synchrome Limited, as many as five company petitions are filed viz. CP.Nos.57/1996, 119/1997, 122/1997, 37/1998, 100/1998 and RCC No.10/2000. The earliest company petition was filed during the year 1996, and by virtue of Section 441 of the Companies Act, the winding up proceedings of the Company are deemed to have been commenced with effect from 04.04.1996, on which date the said company petition was filed. Further, it is not known when the proceedings before the BIFR has commenced against the company, and even during the pendency of the proceedings before the BIFR, the Company is not free to dispose of any of its assets, without obtaining necessary orders from the BIFR. But, there is no reference even in the sale deed as to any of such permission having been obtained from the BIFR.
9. It is stated that the company was aware of the winding up proceedings as it was being represented by a Counsel before this Court, therefore, the sale that was effected is void even as per the terms of Section 536 of the Companies Act. It is further stated that as per the alleged board resolution dated 15.05.1998, where the sale was approved in favour of the applicant company for consideration of Rs.4,90,000/- and on that day, in addition to the above sale consideration, the company was indebted to the applicant in an amount of Rs.29,94,000/-. But, however, no such resolution has been filed before this Court, and in the absence of which, the Official Liquidator was not in a position to comment upon the veracity of the recitals. Further, it is stated that even if the resolution has been passed, any transfer of property taken place after the date of the commencement of the winding up petition, without leave of the Court, is void, as per Section 536 of the Companies Act. Further, as per Section 531 of the said Act, any transfer by the company in favour of the creditor, within six months before the commencement of the winding up proceedings, be deemed to be a fraudulent preference of its creditors and is invalid. Further, under Section 531-A of the Act, any transfer by the company, not being a transfer made in the ordinary course of its business in favour of a purchaser, if made, within a period of one year before the presentation of a petition for winding up by the company, shall be void against the liquidator. Therefore, by virtue of the above provisions of the Companies Act, the transfer, even if any, is invalid, apart from being void. In addition, it is stated that as per the statement of affairs filed by the Ex.Directors of the company, nowhere it is mentioned as regards the alleged adjustment of the debt due to the applicant. In fact, the list of creditors shown in the statement of affairs shows that a sum of Rs.37,31,554.41ps is due to the applicant Firm. Therefore, the claim made by the applicant is clearly illegal and invalid, and the applicant is not entitled to seek the relief.
10. At the time of hearing, the learned Counsel for the applicant while reiterating the averments made in the affidavit, it is contended that in view of the pressure created by the applicant Firm for repayment of the debt due to it against the company, the company was obligated to execute the sale deed in its favour. Under those circumstances, the sale deed executed in favour of the applicant Firm cannot be treated as fraudulent preference of the creditors. The learned Counsel also contended that possession of the premises was delivered as early as in the year 1998 itself, therefore, the sale deed that was executed is only in conformity with the delivery of the possession of the property. In fact, the sale deed was executed by the original owner, the builder and the applicant company jointly. As there is an agreement in favour of the company, therefore, sought for allowing the application. The learned Counsel relied upon the following decisions in (1) F.L.E.Holdings Ltd. v. Lloyds Bank Ltd. (1968) II Comp.L.J. 30, (2) Jayanthi Bai v. Popular Bank Ltd. , (3) Eluru Motor Transport Ltd. v. V.R. Venkataratnam Vol. XXXVI 1966 Comp.Cases 888, (4) In re Maneckchowk and Ahmedabad Mfg.Co.Ltd. Vol.40 1970 Comp.Cases 819, and (5) K. and Co. v. Aruna Sugars and Enterprises Ltd. AIR 1999 Madras 45 in support of his contentions.
11. The learned Counsel, appearing for the Official Liquidator, on the other hand, sought to dismiss the application. The learned Counsel contended that in view of the statutory violations the transaction is to be treated as void transaction in view of the fact that it was executed during the pendency of the winding up proceedings, without obtaining the leave of the Court, therefore, the applicant is not entitled to any relief.
12. From the above rival contentions, the issue to be considered is whether the applicant is entitled for the relief sought for.
13. Admittedly, the applicant is one of the creditor of the company, which is under liquidation. The earliest company petition viz. C.P.57/1996, seeking winding up of the respondent company, was filed on 04.04.1996. Admittedly, the applicant claimed to have obtained the sale deed on 31.07.2000, though it has claimed that it was given possession in the year 1998 itself. From the material on record, it is also clear that the registered office of the company under liquidation was at the premises till 21.07.2000. Therefore, the claim of the applicant that it was given possession in the year 1998 itself is clearly devoid of merit. Further, no evidence was produced by the applicant, except its unilateral version that it was given possession in the year 1998 itself. Therefore, there is no merit in the claim of the applicant that it was given possession in the year 1998. The possession, if any, could be given only after 21.07.2000, but not prior to it, since the registered office of the company continued at the premises till that date.
14. Apart from that, the applicant claimed that it is a bona fide purchaser since the company executed the sale deed in view of the pressures created by the applicant against the company. Even with reference to this claim also, except the oral version of the applicant, there is no evidence as to either institution of any proceedings against the company for realisation of the amount, or any other mode that was adopted by the applicant. Further, the applicant claimed that an amount of Rs.4,90,000/-, being the sale consideration, was adjusted against the debt due to the applicant company. After adjustment or before adjustment, the liability was Rs.29,94,000/-. But, these figures are not tallying, since admittedly in the statement of affairs filed by the Ex.Directors, the applicant is being shown as creditor to the extent of Rs.37,31,554.41ps. Therefore, even the alleged adjustment is also clearly without any evidence or merit.
15. Apart from all the above factual aspects, there are legal hurdles in the way of the applicant. According to the respondent, as per Section 536 of the Act, any transfer without the sanction of the liquidator, made after the commencement of the winding up, shall be void. Here, admittedly, since the winding up proceedings have started by filing of the company petition on 04.04.1996, the sale effected on 31.07.2000 is clearly a void transaction, since there is no sanction of either from the liquidator or the Court. Further, as per Section 531 of the Act, any transfer made by a company within six months before the commencement of its winding up in favour of any of its creditors, would be deemed to be a fraudulent preference of its creditors, and therefore, it is invalid. Admittedly, in the present case, the sale was effected after the commencement, not even before the commencement, and the sale was effected in favour of one of its creditors, which is clearly invalid. Further, as per Section 531-A of the Act, any transfer of property, movable or immovable, by a Company, not being a transfer made in the ordinary course of its business, if made within a period of one year before the presentation of a petition for winding up, by the Court or the passing of resolution for voluntary winding up of the company, shall be void against the liquidator. Therefore, in any of the above provisions, the transaction is clearly void and is liable to be declared as invalid. However, the learned Counsel relied upon the decisions referred to above in support of his contention.
16. In F.L.E. Holdings Ltd. v. Lloyds Bank Ltd. (supra), a company which was indebted to a bank for money advanced, to secure the sum, title deeds were deposited creating a charge. However, the said creation of charge had not been registered in terms of Section 95 of the Companies Act. But, however, it is stated that by mistake registration had been effected in respect of the alleged oral agreement of a charge, though no such agreement had in fact been made. However, subsequently, a winding up order for compulsory winding up of the company was passed on 18.10.1965. on 29.09.1965 when the company was insolvent, a legal charge was executed in favour of the bank, in consequence of repeated requests on behalf of the bank, but which, on the evidence, did not amount to pressure for payment of the money due to the bank. Therefore, on application filed by the liquidator for an order that the giving of the legal charge constituted a fraudulent preference of the bank, the claim was rejected, on the premise that the execution of the said charge was with the dominant intention that to keep on good terms with the bank in the hope of future banking facilities, and not to confer on the bank a benefit or advantage.
17. In Jayanthi Bai v. Popular Bank Ltd. (supra), a Hindu joint family made a deposit in the bank in the name of a female member. The family while availing overdrafts from the bank, the depositor in whose name the joint family has deposited, gave the deposit as a security for availing overdraft facility by the family. But, the bank went to liquidation. Therefore, the depositor claimed to have the amount due from the bank to be set off against the amount payable by the joint family. It was held that as the individual depositor was not liable personally for the amount of overdraft drawn by the other there was no question of mutual dealings, therefore, set off was allowed. But, however, the said transaction was treated as a fraudulent preference in terms of Section 531 of the Companies Act. But, since the debtors were not made parties who were effected, the order was reversed.
18. In Eluru Motor Transport Ltd. v. V.R. Venkataratnam (supra), a company owned a number of stage carriages, operating on the various routes in the State. In the year 1953, the financial position of the company was unsound and several of its creditors were pressing for the repayment of dues. One such creditor filed a suit for recovery of Rs.57,299.43 ps on the foot of a promissory note. Pending the suit, the said creditor applied for attachment before judgment of all the buses belong to the company. When that petition was filed, the company came to terms with the respondent and passed a resolution agreeing to sell to the respondent three buses for a consideration of Rs.61,500/-. Pursuant to the resolution, the Managing Director of the company entered into an agreement for the sale of those buses. A few days thereafter, the company went into liquidation, and therefore, the Official Liquidator filed an application to declare the transaction as a fraudulent preference of the creditor. But, the said claim was negatived by the lower Court, which was confirmed in appeal. It was held that the transaction was entered into in view of the pressure created by the creditor, effecting the entire business of the company. Therefore, to avoid the effecting of the business, it was resolved, and accordingly, effected sale of three buses in favour of the creditor, which was held to be not a fraudulent preference, liable to be declared as void.
19. In re. Maneckchowk and Ahmedabad Mfg. Co. Ltd. (supra), an application filed under Section 391 for sanction of scheme of compromise with the creditors and the members, and in that case, the counsel relied upon a decision, which was referred to in that case viz. Sharp (Official Receiver) v. Jackson (1899) A.C.419 (H.L.). In that case, the trustee had committed breaches of trust and became insolvent, and on the event of his bankruptcy, he conveyed an estate to make good the breaches of trust, this transfer was sought to be avoided as fraudulent preference in a bankruptcy proceeding against a trustee. It was held that the transfer cannot be avoided as fraudulent preference because it was found that the trustee made the conveyance not with the intention or view or object whatever it may be called preferring any person in whose favour the transfer was made but for the sole purpose of shielding himself. In order to find out whether a transfer of property would amount to fraudulent preference, the question should be addressed whether it was done to prefer one of the creditors to the exclusion of others. If it was done not with a view to prefer one of the creditors but to save one's own skin, say a threat of prosecution looming large or to avoid prosecution, certainly the transfer could not in such circumstances be fraudulent preference.
20. In K. and Co., v. Aruna Sugars and Enterprises Ltd. (supra), a learned since Judge of Madras High Court, while considering the provisions of Section 536(2), held that the dispossession of the property by a Company after commencement of winding up proceedings, can be sanctioned if necessary for general interest of company without causing harm to creditors. It was held that the hands of the Court are not fettered under Section 433(1) of the Companies Act from exercising its inherent powers. If the transaction is bone fide and it has done in the ordinary course of business without causing any harm to the general body of the creditors, such disposition of properties of the Company after commencement of the winding up can be sanctioned if it is necessary in the general interest of the Company also.
21. Though the learned Counsel for the applicant relied upon the above decisions, the ratio laid down in any of the above decisions would not come to the assistance of the applicant, since on facts it is clear that the sale was effected after the commencement of the winding up order, which is clearly void in terms of Section 536 as well as 531-A of the Act. Though it was claimed that the sale deed was executed due to the pressure created by the applicant, there is no such evidence. In fact, the applicant claimed that the sale consideration was adjusted against the amounts due to the applicant, but even such adjustment was also not reflected, as is evident from the statement of the creditors list filed by the Ex.Directors.
22. Under the above circumstances, the applicant is not entitled to any relief, since the sale effected in its favour is clearly one of the fraudulent action on the part of the company, and the same is void under the provisions of the Act.
23. The Company Application is, therefore, dismissed.