M/S. Mclanahan India Private Ltd vs M/S. Ge Godavari Engineering ... on 18 August, 2025

[Cites 15, Cited by 0]

Telangana High Court

M/S. Mclanahan India Private Ltd vs M/S. Ge Godavari Engineering ... on 18 August, 2025

Bench: K. Lakshman

            HON'BLE SRI JUSTICE K. LAKSHMAN

            COMPANY APPLICATION No.7 OF 2021
                          in
             COMPANY PETITION No.328 OF 2015

ORDER:

Heard Sri Vikram Pooserla, learned Senior Counsel representing Ms. Siva Praneetha Sreeramula, learned counsel for the Applicant and Sri J. Srinadh Reddy, learned standing counsel appearing for Official Liquidator (OL). Despiteservice of notice, none appears for 2nd respondent.

2. This application is filed under 536 (2) of the Companies Act, 1956 (for short, 'the Act') read with Sections 9 and 10 of Companies (Court ) Rules, 1959 (for short, 'the Rules') and Section 151 of CPC to declare the Applicant as the rightful owner of the property i.e. the land admeasuring 7865 sq.yards or Ac.01.25 guntas out of Ac.3.20 guntas in Sy.No.655 (part), situated at Peddapur Village and Grampanchayat, Sadasivpet Mandal, Sangareddy District ( for short, 'the subject property') purchased vide registered sale deed bearing 2 document No.67 of 2018, dated 03.01.2018 and also to declare the said transaction as bonafide.

3.The Applicant filed the present application contending as follows:-

i. The Applicant is a company by name M/s. McLanahan India Private Limited. It was incorporated on 05.01.2015.

ii. Vide agreement of lease dated 01.08.2015 the Applicant leased a portion of the factory shed of the respondent No.1 company i.e. M/s GE Godavari Engineering Industries Limited, for a period of 12 months in the subject property for the purpose of assembly and fabrication works. Later, on 01.08.2016, the Applicant entered into another agreement of lease for a period of 36 months i.e., until 31.07.2019.

iii. Soon after the lease agreement dated 01.08.2015, the Applicant came to know that the leased premises had become a stressed asset and its possession was to be taken and the said premises was to be vacated.

iv. The Applicant was aware of the Letter of Arrangement dated 16.10.2014 wherein drop line facility of Rs.5,00,00,000/-

(rupees five crores) has been extended to the 1st respondent by 2nd respondent - the State Bank of India (SBI) subject to certain conditions inter alia including mortgage of the leased premises with third party guarantees.

v. Thefact of the premises becoming a stressed asset is an impression by the 1st respondent that it was working towards fulfilling its obligations under the said Letter of Arrangement with SBI dated 16.10.2014 and vacating the premises at such notice under Rule 1 of Security Interest (enforcement ) Rules, 2002 was not feasible as the same would have impact on its business adversely, given the large equipment and inventory at the premises and partly constructed/assembled large machines which could not be removed from the premises.

vi. They reached a consensus regarding the release/sale of the premises vide e-mail dated 11.01.2017 from Respondent No.2 to both the parties.

vii. A MOU was executed between the Applicant and the 1st respondent on 25.01.2017 for the proposed sale of the said premises and the execution of the MOU was overseen by Respondent No.2 to whom all funds and payments connected to the MOU were to be paid.

viii. The Applicant has paid a sum of Rs. 20,00,000/- to 2nd respondent - bank as recorded In the MOU in paragraph No.i. The balance sale consideration of Rs. 3,80,00,000/- (three crores 80 lakhs) was to be paid by the applicant to the Respondent No.2.

ix. The Applicant and 1st respondent entered into a registered sale deed bearing document No. 67 of 2018, dated 03.01.2018 for sale of the subject property for a total consideration of Rs.4,00,00,000/- in accordance to the valuation report issued by Respondent No.2 where in it was directly paid in installments to Respondent No.2. Further, the Respondent No.2 has issued a No Objection to release the subject property from mortgage 5 charge through letter dated 24.05.2017 issued to by the Respondent No.1.

x. Subsequent to the said sale deed dated 03.01.2018, on 10.02.2020, the Applicant discovered that a notice dated 03.02.2020 was sent from the Official Liquidator, in the matter of winding up of Respondent No.1 company to take the possession of the property. A reply through e-mail and letter to the notice dated 03.02.2020 was given on 12.02.2020 by the Applicant to the OL informing about the bona fide purchase of the subject property and other necessary information and documents.

xi. The Applicant contends that despite his reply, he received a letter dated 25.02.2020 from the OL wherein it was stated the veracity of the purchase by the Applicant was unduly doubted and further information was demanded.

xii. Applicant states that after notice dated 03.02.2020 only, it had come to know that a Company Petition No. 328 of 2015 was filed by M/s Ramesh Krishna Engineering Works on 20.11.2015 6 seeking winding up of the 1st respondent company but it did not have any information regarding the said company petition. It came to know only after the officials from the Office of the OL have visited the factory premises on 10.02.2020. xiii. This Court vide order dated 06.12.2019 passed in C.P No. 328 of 2015, directed the winding up of the 1st respondent company and pursuant to the said order, the OL seeks to take the possession of movable and immovable properties and so issued notice dated 03.02.2020.

xiv. During the said process, it included the subject property. The Applicant states the said property belongs to it as he is bona fide purchaser.

xv. On 31.10.2019, the Applicant entered into an agreement for sale of the scheduled property to M/s Bajaj Heavy Engineering Limited and has received an amount of Rs.40,00,000/- as part sale consideration out of Rs.2,50,00,000 and states that he did not have knowledge of the winding up petition pending before this Court.

xvi. The Applicant submits that the present case attracts Section 536 of the Act, which provides for avoidance of transfers etc. as the section mandates such transfers are void unless Court orders. Further, this would cause grave harm and injury and effects its business.

xvii. Applicant has filed I.A.No.1 of 2021 in C.A. No.7 of 2021 on 26.02.2021 to restrain the OL from disposing of or dealing with the subject property and the said petition was allowed vide order dated 22.04.2021.

xviii. The Applicant has also filed I.A.No. 2 of 2021 on 26.02.2021 to permanently restrain the OL from including the subject property from the winding up proceeding in C.P. No. 328 of 2015. The Applicant has also filed I.A.No.3 of 2021 on 26.02.2021 to modify/amend the order dated 06.12.2019 by excluding the subjectproperty from winding up proceedings and list of assets of Respondent No.1.

4. With the said submissions, the Applicant sought to declare it as rightful owner of the subject property and the transaction under registered sale deed dated 03.01.2028 as bona fide.

5. 1st respondent - Official Liquidator filed counter contending as follows:-

i. Before the end of first lease agreement dated 01.08.2015 itself, C.P.No.328 of 2015 was filed and the notice of the same was also served on 1st respondent Company. Therefore, the Applicant and the 1st respondent are well aware about the pendency of the suit against the company ii. The petitioner in C.P No.328/2015, during the visit of taking possession of the factory premises, informed that the order dated 06.10.2017 was also affixed on the factory gate for not to proceed for sale. In spite of such notice, the sale of the premises was proceeded.

iii. 1st respondent company has to display the name boards of hypothecation of premises which would have made the 9 Applicant Company even more cautious before entering the first lease agreement itself.

iv. Though the Applicant was aware of the letter of arrangement dated 16.10.2014, it proceeded with the second lease agreement dated 01.08.2016.

v. The Applicant and 1st respondent company entered the MOU on 25.01.2017 for the proposed sale of the factory premises and the said event is also after the date of the presentation of the CP No.328 of 2015 i.e. 20.11.2015.

vi. The 1st respondent should not have proceeded with the sale of the premises with the Applicant since the said assets were mortgaged with2nd respondent under SARFAESI Act, 2002. vii. 2nd respondent has not taken steps for preserving stock, which were hypothecated for sanctioning of drop line facility and what happened to the stock hypothecated.

viii. The Rules/Sections framed under SARFAESI Act, 2002 were not followed i.e., no paper publication, no tenders called for, nor any bidding. Further, the said sale was for land Ac 1.25 10 along with EOT cranes, Compressor, Pipelines and Transformers for a meager amount of Rs. 4.00 crores. As per the valuation in 2016, the property was valued for Rs.399 Lakhs and after two years, the value of the property should have escalated, but the same was sold for a paltry sum. The OL seeks an explanation from SBI, Secunderabad in this regard. ix. 2nd respondent has issued NOC even before payment of balance of Rs. 1.00 Crore. Stamps affixed in the sale deed dated 03.01.2018 were in 2016 and 2017, that too, in different SROs at Sangareddy and Sadashivpet, whereas the sale deed was executed on 03.01.2018.

x. All the sale events are pertaining between date of presentation of the petition and date of passing of winding up order. Hence under Section 537 of the Companies Act, 1956, the sale may be set aside and be declared as null and void.

xi. The applicant has entered into agreement of sale with M/s.

Bajaj Heavy Engineering Limited for sale consideration of Rs.2.50 Crores for subject property which is much less than the 11 amount of sale consideration paid by the Applicant which proves that the entire alleged sale transaction is nothing but sham and deserves to be declared as null andvoid. xii. The Encumbrance Certificate (EC) reveals that the property of 12100 sq.yds @ 2.499 acres along with machinery were sold to M/s. Bajaj Heavy Engineering Limited vide document bearing No.10494/2019 at Sadasivpet SRO by M/s GE Godavari Engineering Industries Ltd.but not by the Applicant company and the said EC nowhere reveals that Applicant sold the subject property.

Therefore,the learned OL sought to dismiss the present application and declare the above sale as null and void and direct the Applicant to hand over the said property to the OL.

6.The Applicant has filed rejoinder affidavit contending as follows:-

i. Upon commencement of the lease under the deeds dated 01.08.2015 and 01.08.2016, the Applicant was provided an 12 empty factory premises with no machinery belonging to the Respondent No.1.

ii. The clarifications pertain to events that transpired between Respondent No.1 company and Respondent No.2 to which the Applicant Company is not privy and therefore cannot issue a fitting appropriate response to the same.

iii. The Applicant submits that the authenticity of the sale deed is irrefutable and has been duly registered before the SRO, Sadasivpet.

iv. Applicant states that the transaction coming under the ambit of Section 536 of the Act, is hereby being considered as void, this Court does not have discretion to order otherwise in consideration of the bona fide nature of the transaction and the fraud is committed by the Respondent No.1 company by not disclosing crucial details.

v. The Applicant, due to circumstance out of control, was forced to sell the property at a consideration of Rs.2,50,00,000/- Crores which include power transmission tower was located in 13 the first shed and relocation of the same was mandatory for power supply to the schedule property. The estimated costs to incurred for doing those activity, it was decided to sell the schedule property to M/s. Bajaj Heavy Engineering Ltd. for an amount of Rs. 2.5 Crores, which would otherwise not possible as the approach road was obstructed by M/s. Bajaj Heavy Engineering Ltd.

vi. EC provided by the OL pertains to a separate and distinct sale deed to which the Applicant is not a party and the Applicant has entered into an agreement of sale dated 31.10.2019 and received Rs.50,00,000/- as a part of total consideration of Rs. 2.5 Crores.

FINDINGS OF THE COURT:-

7. The aforesaid facts and rival contentions would reveal that company in liquidation has obtained an amount of Rs.5,00,00,000/-

towards loan by way of hypothecation of stocks/receivables by mortgaging the subject property in favour of 2nd respondent/State bank 14 of India, Stressed Asset Management (SAM) Branch, Saifabad, Hyderabad.

8. Vide letter dated 14.12.2016, 1st respondent company informed 2nd respondent bank that it is looking for prospective buyers to sell part of the property given as collateral to the bank. 1st respondent also requested 2nd respondent to accord permission to go ahead with the same. Once the deal is finalized, 1st respondent will request the party to pay the advance amount and further will have an agreement to close the complete loan amount.

9. The Applicant made correspondence with 2nd respondent bank by sending mails dated 30.11.2016, 11.01.2017. Thereafter, the Applicant and 1st respondent entered into MOU on 25.01.2017 for sale of subject property for total sale consideration of Rs.4,00,00,000/- (Rupees four crores only). The Applicant had paid an amount of Rs.20,00,000/- (Rupees twenty lakhs only) by way of cheque bearing No.476656 dated 25.01.2017 to the 2nd respondent. The Applicant agreed to pay balance sale consideration of Rs.3.80,00,000/- (Three 15 crores eighty lakhs only) to the 2nd respondent within 180 days from the date of the said MOU.

10. It is relevant to note that in the said MOU, it is also stated that the Applicant may, at its sole option, issue a public notice in leading newspapers inviting objections, if any, from the general public. If the Applicant receives any objections with supporting documentary proof regarding any issues with the subject property which mayhave an adverse effect on the ownership of 1st respondent in future, the said MOU is liable tobe cancelled. In which event, the banker of theApplicant shall refund a sum of Rs.20,00,000/- (Rupees twenty lakhs only) to the Applicant within seven days from the date of notice from the Applicant intimating it of such objections, if any, received from the third parties. Thus, 2nd respondent, banker of 1strespondent is not entitled to retain any sum from out of the said advance amount of Rs.20,00,000/- in the event of said MOU is cancelled for the aforesaid reasons. It is apt to note that 2nd respondent is not a party to the said MOU.

11. Thereafter, a meeting was held on 16.05.2017 at Applicant's office. Minutes of the said meeting were also recorded. 1st respondent had executed a registered sale deed bearing document No.67 of 2018 dated 03.01.2018 in favour of the Applicant. In the said sale deed also, it is specifically mentioned that the total sale consideration agreed is Rs.4,00,00,000/-(Four Crores), Applicant had paid an amount of Rs.20,00,000/-(twenty Lakhs) on 03.02.2017 to the 2nd respondent, vide cheque No.476656, Further an amount of Rupees 1,50,00,000/- (One Crore Fifty Lakhs)on 31.03.2017, through RTGS,and further Rs.50,00,000/-( Fifty Lakhs) on 13.04.2017 through RTGS, Rs.1,50,00,000/-(One Crore Fifty Lakhs) dated 22.05.2017 by way of NEFT, and finally Rs.30,00,000/- (Thirty Lakhs) on 23.05.2017 in favour of 2nd respondent.

12. Thus, the Applicant contends that it has no knowledge of the aforesaid proceedings initiated by M/s Ramesh Krishna Engineering Works in C.P.No.328 of 2015 against 1st respondent seeking winding up of the said company under the provisions of the Act. It is a bonafide purchaser.

13. Whereas, OL, representing 1st respondent filed counter denying contentions of the Applicant. He submits that the Applicant is not abonafide purchaser. 1st respondent failed to follow the conditions mentioned under the letter of arrangement dated 16.10.2014 between the respondent Nos.1 and 2 while seeking drop line facility of Rs.5 Crores. As per the conditions of Annexure -B(n), respondent No.1 has to display name boards of hypothecation of premises, which would have made the Applicant company more cautious before entering first lease agreement itself. The Applicant company, being fully aware of the letter of arrangement dated 16.10.2014, it should not have proceeded with the second lease agreement dated 01.08.2016 on the mortgaged property. The Applicant company has entered into the MOU dated 25.01.2017 for sale of subject property. The same is also after date of presentation of the company petition i.e. on 20.11.2015. Thus, 1strespondent company should not have proceeded with the sale of the premises, even though the said assets were mortgaged with 2nd respondent under SARFAESI Act, 2002. 2nd respondent should have taken steps for preserving stock, which were hypothecated for 18 sanctioning of drop line facility. The Applicant failed to explain with regard to due diligence exercised by it while purchasing the subject property.

14. It is further contended by OL that the said sale for the land of Rs.1.25 guntas in Sy.No.655 of Peddapur village along with the EOT cranes, Compressor, pipelines and transformers was for a meager amount of Rs.4 crores. Whereas, the saidproperty was valued by the valuers in the year 2016 itself for Rs.399 lakhs and after two years, the value of the property should have escalated, but same was sold for a paltry sum. There is no explanation by the 2nd respondent with regard to the same. Therefore, 1st respondent, in collusion with the 2nd respondent, obtained NOC to release the subject property vide letter dated 24.05.2017 for Rs.4 Crores. 2nd respondent in the said letter dated 24.05.2017 mentioned about the balance sale consideration of Rs.1,00,000/- was yet to be paid by 1st respondent. There is no explanation for the same.

15. It is further contended by OL that as per the letter dated 12.02.2020 of the Applicant, the purchase of the subject property took place during the pendency of the Company Petition and further the stamps in the sale deed dated 03.01.2018 were in 2016-2017, that too, in different Sub Registrar Offices, Sangareddy and Sadashivpet, whereas, the sale deed was executed on 03.01.2018 only. The same was informed to the Applicant by the OL vide letter dated 25.02.2020 and sought for explanation. There is no explanation from the Applicant company.

16. M/s Ramesh Krishna Engineering Works, the petitioner in CP No.328 of 2015 has filed a suit O.S.No.1059 of 2017 for recovery of amount against the 1st respondent company. It has obtained order dated 06.10.2017 in I.A.No.779 of 2017. The same was affixed on the subject property. The said suit was decreed. Thus, the Applicant is not a bonafide purchaser. It has purchased the subject property in collusion with the respondent Nos. 1 and 2 and the same is during pendency of the Company Petition and it is in violation of the procedure laid down under Sections 536 and 537 of the Act. 20

17. In the light of the said submissions, Sections 536 and 537 of the Act are relevant and the same are extracted below:-

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 Tribunal otherwise orders, be void.

537. Avoidance of certain attachments, executions, etc., in winding up by Tribunal.-

(1) Where any company is being wound up by 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.

18. Learned Counsel for the petitioner has placed reliance on the principle laid down in the following judgments in Re: Prudential Capital Markets Ltd. 1, ICICI Venture Funds Management Ltd. vs. Neptune Inflatables Limited2and Pankaj Mehravs. State of Maharastra3 to contend that petitioner is not aware of the pendency of the proceedings in C.P.No.328 of 2015, it is bonafide purchaser and there is no irregularity in purchasing the subject property of the petitioner.

19. In Prudential Capital Markets Ltd. (supra), the Calcutta High Court held as follows:-

"26. The principles that apply under Section 536(2) of the Act make it irrelevant as to whether the transferee of a company's property is aware of the presentation of the winding up petition against the company. A disposition must not be validated merely because the transferee bona fide entered into the transaction. Section 536(2) provides a mechanism for a company or a transferee of its properties (or assignees of actionable claims) to apply to the Company Court sitting over the winding up petition to accord sanction to a transaction even before an order of winding up is made. Upon such sanction, the transfer is protected at the post winding up 1 (2008) 1 CompLJ 314(Cal), 2007 SCC Online Cal 632 2 ( 2005) SCC Online Mad 602 3 (2000) 2 SCC 756 22 order stage. The order of sanction becomes irrelevant if the order for winding up is ultimately declined."

47. Section 536(2) of the Act provides for preservation of all assets of a company, upon commencement of winding up proceedings, for ultimate distribution thereof among the creditors following winding up. Section 536(2) contemplates leave being obtained subsequent to presentation of a petition for winding up but prior to the winding up order being passed, before a disposition of the kind covered is made. Even if there is disposition of property without prior leave, the court will not automatically annul the transaction but will probe into the purpose therefor. The mere presentation of a winding up petition cannot fetter the company to continue its functioning including bona fide disposition of its properties. There is wide discretion conferred on the company judge by the expression "unless the court otherwise orders". The court has to weigh whether a company is to be altogether paralysed upon a presentation of a petition for having it wound up or whether a company can continue business in the usual course and enter into transactions that ultimately have to satisfy the test of bona fides.

20. In Pankaj Mehra (supra), it was held:-

20. It is difficult to lay down that all dispositions of property made by a company during the interregnum between the presentation of a petition for winding up and the passing of the order for winding up would be null and void. If such a view is taken the business of the company would be paralysed, for, the company may have to deal with very many day-to-day transactions, make payments of salary to the staff and other employees and meet urgent contingencies. An interpretation which could lead to such a 23 catastrophic situation should be averted. That apart, if any such view is adopted, a fraudulent company can deceive any bona fide person transacting business with the company by stage-managing a petition to be presented for winding up in order to defeat such bona fide customers. This consequence has been correctly voiced by the Division Bench in the impugned judgment.

21. In ICICI Venture Funds Management Ltd (supra), Madras High Court while referring to principle laid down in Pankaj Mehra (supra) and also Sankar Ram and Company vs. Kasi Naicker 4, held as follows:-

"11....On the facts of this case, the provisions of Sub-section (2) of Section 536 cannot be made applicable and consequently the contention of the Official Liquidator that those judgments are applicable only to day-to- day transactions is not acceptable, as the judgments of the Supreme Court apply to all bona fide transactions of the company and could not be limited only to the day-to-day transactions."

22. Further learned Official Liquidator has placed reliance on the principle laid down by a learned Single Judge of Madras High 4 AIR 2003 SC 4156 24 Court in "Administrator, MCC Finance Ltd. v. Ramesh Gandhi5, wherein it was held:-

" 13......Section 536 relates to the avoidance of transfer, etc., after the commencement of the winding up proceedings. The object of Section 536 seems to be to prevent improper disposition or dissipation of the property or transfer of shares of the company otherwise available for distribution among the creditors of the company in liquidation. The fundamental principle is that the assets of the company shall be made available for distribution paripassu amongst the creditors of the company and that no creditor should obtain advantage over his fellow creditors. The words employed in Sub-section (2) of Section 536, viz., "unless the court otherwise orders" relate to bona fide transaction occasioned in the ordinary course of business. If the transfer is not bona fide, in terms of Sub-section (2) of Section 536, the transaction would be void. On the facts of this case, it appears to me that the transaction is not bona fide......"

23. He has also placed reliance on the judgment of the erstwhile High Court of Andhra Pradesh, in "The Official Liquidator, High Court of Andhra Pradesh and the Liquidator of M/s. Sri Raj Rajeshwara Finance & Investment Ltd., (In Liqn) vs. Sri Sangem Trilochana Rao 6 wherein in the similar circumstances, High Court has set aside the sale as void and directed to deliver the vacant possession of the property to the Official Liquidator. It was held as: 5

(2005) 127 Comp Cas 85 6 Order dated 25.07.2010 in COMPA No.117 of 2008 25 "The Winding up application in C.P.No.100 of 2002 was filed on 27.06.2002. The Winding up order was passed on 03.10.2005. During the Pendency of the Winding up application, the property belonging to the Company in liquidation was sold without leave of the Court and the same was purchased by respondent No. 2 to 6 under registered sale deed dated 10.09.2003. The said transaction is clearly hit by the provisions of Sections 536 and 537(1) (b) of the Act."

24. A Division Bench of the Bombay High Court in "Sunita Vasudeo Warke Appellant vs. Official Liquidator 7, held:-

"11. In order that Section 536(2) of the Companies Act, 1956 can be invoked by the Court to "otherwise order", there has to be a disposition of property of the company; a disposition which has been made after the commencement of winding-up proceedings. In the judgment of the House of Lords in The Governor and Company of 13 of 21 APP.737.2012 The Bank of Scotland Vs. Macleod and others, Lord Kinnear observed that the rights of competing creditors in liquidation are to be governed by the same rules as regulate the rights of creditors in a sequestrated estate under the Bankruptcy Acts. The House of Lords held that "rights in security which have been effectually completed before the liquidation must still receive the effect which the law gives to them. But the company and its liquidators are just as completely disabled by the winding-up from granting new or completing imperfect rights in security as the individual bankrupt is by his bankruptcy." The Law Lord noted that this indeed was the necessary effect of the Companies Act under which the estate has to be distributed amongst the creditors paripassu and every creditor has an equal share unless anyone has already a part of the estate in his hands, by virtue of an effectual legal right.

12. This principle was followed in the judgment of the Supreme Court in J.K. (Bombay) Private Limited Vs. M/s.New Kaiser-I- Hind Spinning and 7 2013(2) Mah.L.J.777 26 Weaving Co. Ltd. and others. The Supreme Court after adverting to the judgment in the Bank of Scotland (supra), held as follows:

"39. It is thus well established that once a winding-up order is passed the undertaking and the assets of the company pass under the control of the liquidator whose statutory duty is to realize them and to pay from out of the sale proceeds its creditors. Such creditors acquire on such order being passed the right to have the assets realized and distributed among them paripassu."

25. Further the High Court of Bombay in Sunitha Vasudevo (supra) referring to a decision of learned Single Judge of Calcutta High Court in In Re.J. Sen Gupta (Private) Limited 8,held that the underlying principles for the exercise of discretion by the Court under Section 536 of the Companies, Act, 1956 have been summarized as follows :

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

1. The court has an absolute discretion to validate a transaction;

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

3. The court must have regard to all the surrounding circumstances, and if from all the surrounding circumstances it comes to the conclusion that the transaction should not be void, it is within the power of the court under section 536(2) to say that the transaction is not void;

AIR 1962 CAL 405 27

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."

26. The Supreme Court in Pankaj Mehra (supra) referred to a judgment of Gujarat High Court where in it was held:

"18. It is useful to refer to the reasoning adopted by a Division Bench of the Gujarat High Court in Navjivan Mills Ltd.9, In favour of adopting a pragmatic attitude when a Company Court was approached for approval of certain dispositions which a company made after presentation of a petition for winding-up. The following reasoning is useful for consideration of the issues involved:

"The Court can exercise the jurisdiction under Section 536(2) if the Companies Act, 1956, of giving directions validating proposed transactions pending a petition for winding up but before the winding up order is made for the obvious reason that unless these transactions are saved from the consequence which may ensue, if at all, on an order of winding up being made, the company might find it difficult to keep itself going and its business might be paralysed. The purpose underlying the investment of the power in Court is for the benefit and the interest of the company so as to ensure that a company which is made the subject of a winding-up petition may nevertheless obtain the money necessary for carrying out its business and so as to avoid its business being paralysed. If that is the purpose and object of the section, it would hardly be proper and just to stultify the power and restrict its operation since otherwise it is bound to be counter-productive in the sense that the very purpose of keeping the company as a going concern so as to ensure the interest of the shareholders and creditors would be defeated."

1986(59) Company Cases 201 1 28

19. In Re. Grays Inn Construction Company Ltd. 10, the Court of Appeal (Civil Division) considered the principle on which discretion of the Court to validate the dispositions of property made by a company, during the interregnum between presentation of a winding up petition and the passing of the order for winding up, has been dealt with. Section 227 of the English Companies Act, 1948 is almost the same as Section 536(2) of the Indian Companies Act. Dispositions which could be validated are mentioned in the decision. The said decision was cited before us in order to emphasize the point that Courts would be very circumspect in the matter of validating the payments and the interest of the creditors as well as the company would be kept uppermost in consideration. Be that so, the said decision is not sufficient to support the contention that disposition during the interregnum would be irretrievably void."

27. Thus, any disposition of the property by a company, after commencement of winding up proceedings from the date of presentation of the petition is void in terms of Section 536 (2) and also 537 (1)(b) of the Act, unless the Company Court specifically validates such transaction. The discretion of the Court to validate such transaction is to be exercised sparingly, keeping in view the larger interest of the body of creditors and the integrity of the liquidation process.

28. As discussed supra, in the present case, the Applicant is contending that it is not aware of the pendency of the winding up 10 1980(1) All England Reporter 814 29 proceedings in CP No.328 of 2015. Therefore, it is a bona fide purchaser.

29. It is relevant to note that vide order dated 06.12.2019 in C.P.No.328 of 2015, this Court allowed the said CP directing the winding up of the 1st respondent company. This Court directed learned OL to take charge of the assets of 1st respondent company by following due process, shall takes necessary steps and causing advertisementand publication of the factum of winding up of the respondent company under the Provisions of the Company Courts Rules, 1956.

30. Perusal of the said order would reveal that the 1st respondent has entered appearance in the said CP No.328 of 2015 by engaging Sri B. Chandrasen Reddy, Advocate. In the said order, there is mention about the 1st respondent filing counter affidavit dated 01.07.2016 before this Court in C.P.No.328 of 2015 undertaking to discharge the liability of Rs.15,62,559/- in ten instalments commencing from October, 2016 to July, 2017. The petitioner company in the said 30 Company Petition examined P.W.1 and marked Exs.A.1 to A.14. On consideration of the same, this Court allowed the said Company Petition, vide order dated 06.12.2019.

31. Thus, 1st respondent has engaged Sri B.Cahndrasen Reddy, Advocate, who entered appearance by filing vakalath in the year 2015 itself. Ithas filed counter vide SR No.2016 on 09.06.2016. It has filed undertaking on 01.07.2016 to discharge the liability of Rs.15,62,559/-. Thus, 1st respondent is aware of the pendency of C.P. No.328 of 2015 by the year 2015 itself.

32. Thus, there is no dispute that the said M/s Ramesh Krishna Engineering Works filed the said C.P. No.328 of 2015 against the 1st respondent to wind up the said company on 20.11.2015. 1st respondent has entered into lease agreement with the Applicant on 01.08.2015 for a period of 12 days. It has entered into second agreement of lease with Applicant on 01.08.2016 for a period of 36 months with regard to the subject property. Thus, by the date of entering into second agreement of lease of the subject property on 01.08.2016,the said Company 31 Petition was already instituted and is pending. 1st respondent has entered into appearance by engaging Sri B.Chandrasen Reddy, Advocate, as its counsel by filing vakalath by 2015 itself. It has filed counter vide USR No.2 of 2016 on 09.06.2016 itself. The Managing Director of the 1st respondent company and its Director suppressingthe fact of pendency of C.P.No.328 of 2015, entered into second lease agreement dated 01.08.2016 and MOU dated 25.01.2017 with the applicant company. In the minutes of the meeting, dated 16.05.2017, it was suppressed.

33. In suppression of the said fact, the Managing Director of the 1st respondent company has addressed a letter dated 14.12.2016 to the 2nd respondent seeking permission to sell the part of the mortgaged property. The Applicant being in possession of the subject property from 01.08.2015, cannot claim ignorance of the pendency of the proceedings in C.P.No.328 of 2015. It has not exercised due diligence while purchasing the said property before entering into transaction. At the cost of repetition, as discussed supra, the Applicant has specifically mentioned in the MOU dated 25.01.2017 that it will issue 32 public notice in leading newspapers, receive objections etc. On consideration of the same, vide order dated 01.07.2022, this Court directed the Applicant to produce the newspapers in which the Applicant had carried out advertisement regarding the purchase of property pursuant to MOU dated 25.01.2017. It has not filed the said newspapers. In the absence of the same, the Applicant cannot contend that it is a bonafide purchaser.

34. It is also relevant to note that it has soldsome part of the subject property to M/s Bajaj Heavy Engineering Works Limited, by way of entering into an agreement of sale dated 31.10.2019 for an amount of Rs.2.50 crores and it has received Rs.50 lakhs towards part of sale consideration.

35. As discussed supra, even according to the Applicant, it has purchased the subject property by paying an amount of Rs.4 Crores towards sale consideration. In the year 2016, the valuation of the said property is Rs.399 lakhs. Therefore, Applicant cannot contend that it has sold the subject property for Rs.2.50 crores. The Applicant tried to 33 explain the same by mentioning the dispute with the purchaser etc. The same is not believable and the said contention of the Applicant is untenable.

36. In the light of the aforesaid discussion, this Court is of the view that the Applicant is not a bona fide purchaser and the said sale dated 03.01.2018 entered by and between the Applicant and 1st respondent is in violation of the procedure laid down under Section 536(2) and 537 (1)(b) of the Act and the principle laid down in the aforesaid judgments. Therefore, the Applicant is not entitled for any relief, much less the relief sought in the present application.

37. Therefore, this application is liable to be dismissed and accordingly dismissed.

Consequently, miscellaneous petitions, if any, pending in this Company Application, shall stand closed.

________________________ JUSTICE K.LAKSHMAN Date:18-08-2025 vvr

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