Telangana High Court
M/S Shree Jagannth Steels Ltd., In ... vs Indian Bank, Chennai on 11 September, 2025
Author: K. Lakshman
Bench: K. Lakshman
HON'BLE SRI JUSTICE K. LAKSHMAN
COMPANY APPLICATION Nos. 1348 OF 2005, 259, 561, 735 &
736 OF 2007 AND 969 OF 2014
IN
COMPANY PETITION No.236 OF 1998
COMMON ORDER:
Heard Mr. M. Anil Kumar, learned counsel for the Official Liquidator in COMPA No.561 of 2007 and respondent in COMPA No.969 of 2014, Mr. T. Surya Satish, learned counsel for the applicant in COMPA No.735 of 2007 and respondent Nos.2 and 3 in COMPA No.561 of 2007, Mr. V.S. Raju, learned counsel for the applicant in COMPA No.259 of 2007 and respondent in COMPA No.1348 of 2005 and Mr. Satish, learned counsel representing Mrs. Nandini S. Bilolikar, learned counsel for the applicant in COMPA No.969 of 2014 and respondent in COMPA No.561 of 2007.
2. Originally, all the above said Company Applications arise out of Company Petition No.236 of 1998 filed under Sections - 433
(e), 434 (1) (a) and 439 (1) (b) of the Companies Act, 1956 (for short 'Act, 1956'), seeking winding up of M/s. Shree Jagannath Steels Limited (hereinafter referred to as "the Company"). 2
KL, J COMPA No.1348 of 2005 & batch
3. It is the case of the petitioner-Company that, under a lease agreement dated 19-04-1995, it supplied various items of equipment to the respondent-Company involving a net finance of Rs.70,00,000/-, on the terms that the respondent would pay a monthly lease rental of Rs.1,58,200/- in advance. The first instalment under the said agreement fell due on 19-04-1995, and the last instalment was agreed to be paid on 19-03-2000. In pursuance thereof, the respondent- Company had issued post-dated cheques towards the monthly instalments. The record discloses that the respondent-Company paid the instalments only up to October, 1996. Thereafter, the cheques presented for encashment were dishonoured, leading to termination of the lease agreement by the petitioner. As on 10-12-1998, the respondent stood indebted to the petitioner a sum of Rs.82,23,592/-, besides interest at the rate of 30% per annum with monthly rests as stipulated under the agreement. Despite repeated letters of demand (Exs.A3 to A7) and even after admitting its liability in its own correspondence (Exs.A8 to A10), the respondent failed and neglected to discharge the said dues. A legal notice dated 31-01-1998 (Ex.A13), duly served on 09-02-1998 (Ex.A14), also elicited no compliance. 3
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4. The winding-up petition was admitted on 17.06.1999. Substituted service was affected and notice was published. No objections were filed. An affidavit of evidence by one Mr. S.R. Ramesh Babu was filed with exhibits (Ex.A1 to A14). The Company was held commercially insolvent and the Official Liquidator (OL) was appointed by this Court vide order dated 07.09.1999.
5. The aforesaid Company Applications are filed by the applicants seeking various reliefs. The details of the same are as follows:
S.No. COMPA No. Filed by Relief sought for The OL sought permission to sell the company's assets comprising Acs.7.48 situated at Sy.Nos.5/8, 5/15, 5/16, 5/20, 6/5, 7/3, 7/5, 7/6, 8/1 to 10, 9/6 & 9/7, GNT Road, Alinjavakkam, Ponneri Taluk, Thiruvallur District, Tamil Nadu, as a single lot by inviting sealed tenders. This Court, after approving the proposed tender notice, terms and conditions including a minimum upset price of Rs.56.88 lakhs, earnest money deposit of
01. 1348/05 OL Rs.5 lakhs, and tender cost of Rs.1,000, permitted the OL to conduct the sale, open tenders, negotiate bids, and secure 20% of the highest bid amount at the time of opening. Pursuant thereto, an auction was held and by order dated 27.10.2006, this Court accepted the highest bid of Rs.231 lakhs made by M/s.
Ramjee Leathers & Suppliers. It was subsequently brought to the notice of the Court that an extent of Acs. 1.46 cents out of the auctioned land overlapped with 4 KL, J COMPA No.1348 of 2005 & batch land previously sold to respondent Nos.2 and 3 by the ex-Managing Director of the company.
To hand over and register the properties M/s. Ramjee 259/07 in its name and also in the name of his
02. Leathers & sister concern, M/s Indian Embroidery Supplies Company.
To declare transfer of land to the extent of Acs.13.09100 cents by the Company in favour of respondent No.2 herein and the transfer in respect of land
03. 561/07 OL admeasuring Acs.14.28895 cents in favour of respondent No.3 herein, situated in various survey numbers in Alinjivakkam village, Ponneri Taluq, Thiruvallur District as void in terms of Sections - 531 and 531-A of the Act, 1956.
To declare the action of the OL in taking over the possession of land admeasuring Acs.1.46 cents situated at
04. 735/07 Mr. Jitender Kumar Azahimjivakkam Village, Pooneri Taluk, Kedia & his wife - Thiruvallur District on 12.03.2007 as Anita Kedia. illegal and consequently direct the OL to forthwith re-deliver the possession of the same.
to direct the OL not to execute or register any document over the land admeasuring
05. 736/07 -do- Acs.1.46 cents situated at Azhinjivakkam Village, Pooneri Taluk, Thiruvallur District.
to stay all further proceedings in relation to the winding up of the Company Mr. Pramod Kumar permanently and consequently direct the
06. 969/14 Agarwal, Ex. MD OL to hand over all the records, assets, of the Company other movable and immovable properties belongs to the Company.
6. SUMMARY OF DOCKET ORDERS IN RESPECT OF COMPA No.1348 OF 2005
i) On 17.02.2006, this Court, while considering the application of the OL seeking permission to sell the assets of the Company under liquidation, directed that the sale notice be published in "Eenadu" 5
KL, J COMPA No.1348 of 2005 & batch Telugu Daily (Hyderabad Edition) and in "The Indian Express" and "The Hindu" English Dailies (Chennai Edition). The application was accordingly ordered and the first respondent - Indian Bank was directed to deposit a sum of Rs.1,00,000/- within two weeks to meet advertisement and incidental expenses.
ii) On 28.04.2006, the matter was placed before this Court for confirmation of sale pursuant to the earlier order. The OL reported that auction was conducted and bids were received from 21 participants, the highest being that of Mr. Jitender Kedia, Hyderabad, for Rs.69,00,000/-. The Indian Bank, however, filed a report valuing the land alone at Rs.1,12,20,000/-, apart from the factory buildings valued at Rs.21,79,087/-. In view of this valuation and objection, the bid of Rs.69,00,000/- was not accepted, and the OL was directed to issue a fresh sale notice in "Dinamani" and "Dinamalar" (Tamil Dailies, Chennai and Thiruvallur Editions), and in "Eenadu" and "Vaartha" (Telugu Dailies, Chittoor and Nellore Editions). The Bank was directed to incur the expenses.
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iii) On 03.07.2006, this Court again considered the OL's report. The upset price had been fixed at Rs.1,34,00,000/- on the basis of a valuation report, but the highest bid received was Rs.72,00,000/-. During hearing, the second highest bidder expressed willingness to enhance the bid to Rs.73,50,000/-. As these offers were far below the upset price, they were rejected and the OL was directed to conduct a fresh sale. The Earnest Money Deposits (EMD) received were directed to be refunded, and the matter was posted on 07.08.2006.
iv) On 13.09.2006, noting that the previous notice had not attracted proper offers, this Court cancelled the earlier sale notice and directed the OL to issue a fresh notice without fixing any upset price, by publishing the sale notice in "Eenadu" Telugu Daily (Nellore Edition), "The Hindu" English Daily, and another Tamil Daily having circulation in Chennai. The matter was posted on 26.10.2006.
v) On 26.10.2006, the OL reported that pursuant to the fresh notice, auction was held and the highest bid of Rs.145 lakhs was received from one Mr. P.R. Reddy and others of Visakhapatnam. In further negotiations held before this Court, M/s. Ramjee Leathers & 7 KL, J COMPA No.1348 of 2005 & batch Suppliers, Chennai, and M/s. A.K. Enterprises, Hyderabad, participated. An open inter se bidding was conducted in Court between the two, wherein M/s. Ramjee Leathers & Suppliers, applicant in COMPA No.259 of 2007, offered Rs.231 lakhs, far above the earlier highest bid. This offer was accepted as final. The OL was directed to return the deposits of unsuccessful bidders and file a report.
vi) On 27.10.2006, this Court formally accepted the highest bid of Rs.231 lakhs made by M/s. Ramjee Leathers & Suppliers in the inter se bidding, as against the earlier Rs.67.5 lakhs. The OL was directed to collect the sale consideration in terms of the conditions and deposit the same in Bank of Baroda, Barkatpura Branch, and to report on 01.12.2006.
vii) On 27.12.2006, it was brought to the notice of this Court that there was a dispute concerning land surrounding the auctioned property. The OL informed that certain lands belonging to the Company were fraudulently alienated by the Ex-Managing Director, thereby obstructing access to the factory premises. The OL was 8 KL, J COMPA No.1348 of 2005 & batch directed to enquire into the matter and obtain particulars from the creditor bank regarding the properties mortgaged, along with copies of title deeds. The matter was posted on 18.01.2007.
viii) On 25.01.2007, this Court directed the respondent bank to produce all relevant material and information, including the information as to whether permission had been given to the Ex- Managing Director to effect sale of Acs.1.55 cents out of Acs.7.75 cents, and to explain the circumstances.
ix) On 08.02.2007, the Manager of the Bank appeared and filed relevant documents, which were served on the OL. Time was granted to the OL to examine the documents, and the Officer's appearance was dispensed with.
x) On 15.02.2007, it was further brought to the notice of this Court by the OL that in addition to the auctioned extent, the Company still owned Acs.3.41 cents, situated in Survey Nos. 1/6A, 5/9, 6/4A, 7/1B, 7/2B, 7/4 and 9/5A at Alinjivakkam Village. The OL was directed to take possession of these properties and to file an appropriate application for their sale as well. 9
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7. COMPA No. 561 of 2007 is filed by the OL under Sections 457 (1) (a) & (e) read with Sections 531, 531A and 456 of the Act, 1956 praying to declare two sale transactions executed by the Ex- Managing Director, Sri Pramod Kumar Agarwal, within six months prior to the commencement of winding up as void. These sales comprised:
(a) Acs.13.09100 cents in favour of Sri Jitender Kedia (R-2), and
(b) Acs.14.28895 cents in favour of Smt. Anita Kedia (R-3)
i) It is the case of the OL that these transactions executed in September 1998, amount to fraudulent preference under Section 531 and voluntary transfers not in the ordinary course of business void under Section 531A. The transferees are close relatives of the Ex-Managing Director. The OL also alleged suppression of these transactions in the Statement of Affairs and deliberate obstruction to access to the Acs.7.48 cents auctioned property.10
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ii) Contentions of respondent No.1, the Ex-Managing Director in COMPA No.561 of 2007:
a) The sales were bona fide for valid consideration and not barred merely due to relationship. He denied concealment, claiming Company functioned till August 1999.
b) The sale proceeds were used to meet liabilities and that records showed genuine transactions. He denied that any mortgaged land was sold or access hindered.
iii) Two auction purchasers sought impleadment as respondent Nos.4 and 5 in COMPA No.561 of 2007 claiming interest in land acquired through auction. They submitted that disputes over part of Acs.7.48 cents prevented full delivery. They relied on the order in COMPA No.259 of 2007 allowing registration of undisputed land.
iv) It is apt to note that the OL examined Mr. M. Yadubhushana Rao, Legal Assistant in the office of the OL. The said witness deposed that pursuant to the winding up order dated 07.09.1999 passed in C.P.No.236 of 1998, the OL assumed charge of the Company's assets under Section 449 of the Act, 1956. Based upon the statement of affairs furnished by respondent No.1 (Ex-11
KL, J COMPA No.1348 of 2005 & batch Managing Director), the OL brought to sale a portion of the Company's land, which was confirmed by this Court in favour of M/s. Ramjee Leathers & Supplies, Chennai.
v) It has, however, come to light during subsequent survey by the Tahsildar, Ponneri, that several portions of the land forming part of the Company's assets had already been transferred in favour of respondent Nos.2 and 3 herein, who are none other than the sister and brother-in-law of the Ex-Managing Director. Copies of sale deeds dated 22.09.1998 and 25.09.1998 clearly establish that such transfers were affected within six months preceding the commencement of winding up proceedings on 24.12.1998. The said transfers are, thus, squarely hit by Sections 531 and 531-A of the Act, 1956 amounting to fraudulent preference and being void in the of OL.
vi) He has further deposed that while the Company originally owned Acs.36.88945 cents of land in Alinjivakkam village, Ponneri Taluk, the Ex-Managing Director had clandestinely transferred Acs.13.09100 cents and Acs.14.28895 cents in favour of his close relatives. Consequently, only Acs.9.50950 cents remains in the name 12 KL, J COMPA No.1348 of 2005 & batch of the Company, out of which Acs.7.48 cents stood mortgaged to Indian Bank, Chennai. Thus, the Statement of Affairs filed by the Ex- Managing Director deliberately suppressed the said facts by disclosing only Acs.7.48 cents and omitting the balance.
vii) He has also deposed that the financial records annexed, particularly the sale of Land Account (Ex.P-13) and the Tamil Nadu Mercantile Bank Statement (Ex.P-14), disclose that an amount of Rs.14,88,226/- shown as sale proceeds on 24.09.1998 was immediately transferred to M/s. Jagannath Constructions, a sister concern of the Company, on the very next day. Such circular diversion of funds unmistakably demonstrates that the impugned sale transactions were not genuine sales for valuable consideration in the ordinary course of business, but were sham transactions devised to siphon assets away from the Company in liquidation.
viii) Nothing contra was elicited from him during cross- examination.
ix) AUDITOR'S REPORT: Perusal of the Auditor's Report for the financial year ending 31.03.1998 would reveal that the auditors 13 KL, J COMPA No.1348 of 2005 & batch have unequivocally noted that the Company was a "sick industrial Company" within the meaning of Section 3 (1) (o) of the Sick Industrial Companies (Special Provisions) Act, 1985. It was incurring continuous losses, posting Rs.4.03 Crores loss during 1997-98 and Rs.1.84 Crores during 1998-99. The auditors further recorded statutory defaults in payment of sales tax and excise duty, besides admitting that the Company had not provided for provident fund and ESI to its employees.
x) These findings corroborate the testimony of the OL that by 1998, the Company was financially distressed, operating under accumulated losses, and was already facing proceedings before the Debt Recovery Tribunal at the instance of Indian Bank. In such circumstances, the sale of substantial extents of land to near relatives of the Ex-Managing Director, without valuation, without disclosure to secured creditors, without sanction of shareholders in general meeting without following the procedure laid down under law cannot be held to be bona fide.
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xi) The Auditor's Report also shows that while the Company had maintained books of accounts, no entries reflecting the impugned sales were found in the Balance Sheets for 1997-98 and 1998-99 (Exs.P-11 & P-12). This lends further support to the contention of the OL that the transfers were deliberately concealed and not recorded as part of the Company's Regular Business.
8. COMPA Nos.735 AND 736 OF 2007
i) These applications were filed by Sri Jitender Kedia and his wife, Smt. Anita Kedia seeking to declare the action of the OL in taking over the possession of land to the extent of Acs.1.46 cents, situated at Azhinjivakkam Village, Pooneri Taluk, thiruvallur District on 12.03.2007 as illegal and violative of Article 300A of the Constitution. They claimed possession pursuant to registered sale deeds of 1998. They prayed that OL be restrained from dealing with said land pending adjudication of COMPA No. 561/2007.
ii) The OL, however, justified the attachment stating that once the winding up order was passed, custody and control of the assets 15 KL, J COMPA No.1348 of 2005 & batch vested in him, and the transfers being void, possession was lawfully taken.
9. COMPA No.259 OF 2007 - Sale Deed Execution:
i) This application has been filed by the auction purchaser, M/s.
Ramjee Leathers and Suppliers, seeking directions to the OL to execute and register the sale deed and to deliver possession of the entire extent of Acs.7.48 cents of land together with structures thereon, purchased by it in the auction sale held pursuant to the orders of this Court. The record discloses that by order dated 27.10.2006, this Court had confirmed the sale of the said property in favour of the applicant for a total consideration of Rs.231 Lakhs, the full amount whereof has since been deposited with the OL.
ii) It appears, however, that disputes arose in relation to a portion of the auctioned property on account of prior transactions and claims set up by third parties. Consequently, though the auction purchaser sought conveyance of the entire extent of Ac.7.48 cents, the OL was in a position to deliver and execute sale deeds only in respect of an extent of Ac.5.92335 cents, which portion was undisputed. The 16 KL, J COMPA No.1348 of 2005 & batch remaining extent was withheld pending adjudication of the objections raised in connected company applications concerning alleged fraudulent transfers of land.
iii) By order dated 22.03.2007, this Court, while considering COMPA No. 259 of 2007 in C.P. No. 236 of 1998, was pleased to direct the OL to execute and register the sale deed in favour of the auction purchaser to the extent of the undisputed portion admeasuring Ac.5.92335 cents, and to deliver possession thereof. In respect of the balance extent of Ac. 1.55665 cents, which is the subject matter of contest in other pending proceedings, consideration was expressly deferred and made subject to the outcome of the said adjudication.
iv) SUMMARY OF DOCKET ORDERS:
a) On 01.03.2007, this Court, pending further orders regarding the disputed portion of land, directed the OL to deliver possession of the land already sold to the auction purchaser and to remove the security personnel of the erstwhile Company, if any, from the premises.17
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b) On 22.03.2007, it was represented by the learned counsel for the applicant that the undisputed portion of land, admeasuring Acs.5.92 cents in Survey Nos.5/8, 5/15, 5/16, 5/20, 6/5, 7/3, 7/5, 7/6, 8/1 to 10, 9/6 & 9/7, GNT Road, Alinjavakkam, Ponneri Taluk, Thiruvallur District, Tamil Nadu, had already been delivered. Insofar as the said extent is concerned, the applicant sought execution of registered sale deeds in its favour and in favour of its sister concern. The OL was accordingly directed to execute the necessary registered sale deeds with respect to the undisputed extent, pending further orders in relation to the disputed portion of land.
c) On 03.06.2016, learned counsel Sri Milind Gokhale took notice for respondent No. 2. Learned counsel for respondent Nos.3 and 4 was absent. Having considered the averments in the affidavit filed in support of the application, respondent Nos.3 and 4 were restrained by this Court from alienating or otherwise disposing of Acs.1.56 cents of land situated in Survey Nos. 5/8, 5/15, 5/16, 5/20, 6/5, 7/6, 8/5, 8/6, 8/9, 9/6 and 9/7, situated at Alinjivakkam 18 KL, J COMPA No.1348 of 2005 & batch Village, Ponneri Taluk, Thiruvallur District, Tamil Nadu, pending further orders.
d) On 02.05.2018, in I.A. Nos. 1 and 2 of 2014 in COMPA No. 259 of 2007, this Court, having considered the facts stated in the supporting affidavits, directed the respondents to maintain status quo with respect to the property. They were further restrained from altering the nature of the property in any manner for a period of twelve weeks. The matter was directed to be listed after six weeks.
10. COMPA No. 969 OF 2014:
i) This application is filed by the Ex-Managing Director of M/s. Shree Jagannath Steels Limited, seeking revival of the Company, nearly fifteen years after the winding-up order was passed on 07.09.1999. The applicant had previously executed two sale deeds dated 22.09.1998 and 25.09.1998 in favour of respondent Nos.2 and 3, his relatives which were the subject of challenge in COMPA No. 561 of 2007. These transactions occurred within six months of the winding-up petition and were not disclosed to the OL. The revival application was filed after possession of the Company's assets had 19 KL, J COMPA No.1348 of 2005 & batch already been taken by the OL and subsequent proceedings for asset sale were underway.
ii) OL opposed revival, citing absence of Court leave in post- liquidation settlements, unlawful possession of assets, prior transfer of land to relatives without disclosure, and unresolved COMPA No. 561/2007. OL submitted that assets were sold with Court's leave and winding up proceedings were advanced.
11. ANALYSIS AND FINDINGS OF THE COURT:
i) The present case presents a complex interplay of issues arising under the Act, 1956, involving fraudulent preference, revival after liquidation, authority of the OL, and competing rights of auction purchasers and private transferees. The central issues in the case revolve around the legality of certain transactions conducted within the twilight period of winding-up and the subsequent plea for revival.
Section 531 of the Act, 1956 renders transfers made within six months of the winding-up petition void if they constitute fraudulent preference, while Section 531A of the Act, 1956, renders such transfers void unless in the ordinary course of business. Further, 20 KL, J COMPA No.1348 of 2005 & batch Section 537 provides that any sale or disposition of property after commencement of winding-up without the leave of the Court is void.
"531. FRAUDULENT PREFERENCE (1) Any transfer of property, movable or immovable, delivery of goods, payment, execution or other act relating to property made, taken or done by or against a Company within six months before the commencement of its winding up which, had it been made, taken or done by or against an individual within three months before the presentation of an insolvency petition on which he is adjudged insolvent, would be deemed in his insolvency a fraudulent preference, shall in the event of the Company being wound up, be deemed a fraudulent preference of its creditors and be invalid accordingly : Provided that, in relation to things made, taken or done before the commencement of this Act, this sub-section shall have effect with the substitution, for the reference to six months, of a reference to three months.
(2) For the purposes of sub-section (1), the presentation of a petition for winding up in the case of a winding up by 1 [the Tribunal], and the passing of a resolution for winding up in the case of a voluntary winding up, shall be deemed to 21 KL, J COMPA No.1348 of 2005 & batch correspond to the act of insolvency in the case of an individual.
531A. 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 1[the Tribunal] or the passing of a resolution for voluntary winding up of the Company, shall be void against the liquidator."
ii) In COMPA No.561 of 2007 sought to declare two transactions of land executed by the Ex-Managing Director in favour of his relatives (respondent Nos.2 and 3) as void. The sale was affected on 22.09.1998 and 25.09.1998 within six months of the winding-up petition's presentation. These transactions involved related parties and were concealed from the OL, and obstructed the Court-authorized sale to a bona fide purchaser. These facts directly attract the bar under Sections 531 and 531A of the Act, 1956. 22
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iii) In Rakesh Jagmohan Pandey v. JVG Finance Ltd.1, the Delhi High Court emphasized that a transaction within the proximity of winding up must withstand scrutiny of bona fide's and arm's length dealing. In Paragraph No.27, the Delhi High Court relied upon the decision rendered by the Calcutta High Court in Prudential Capital Markets Ltd. (In Liquidation) In Re MANU/WB/0361/2007:(2007) 140 Comp Case 754, wherein it was held as under:
"44. ...... The onus is on the official liquidator to establish that the Company as debtor deliberately singled out the creditor for the transfer ahead of other creditors who, upon the Company ultimately be wound up, may not have enough for the entire dues to be discharged. But Section 531 does not come into play in this case as the respondent was no creditor of the Company as on the date of the second agreement.
45. Section 531A of the Act provides that any transfer of property or goods made by a Company within one year before the presentation of a winding up petition against it will be void unless such transaction was in the ordinary course of business. In principle, the same tests as to intent as 1 . MANU/DE/3264/2017 23 KL, J COMPA No.1348 of 2005 & batch in Section 531 apply to a transaction challenged under Section 531A of the Act and the onus is on the official liquidator seeking to avoid the transaction to establish that the transfer was not made in the ordinary course of the Company's business or that it was not made in good faith or for valuable consideration. As to whether the transaction is made in good faith or for valuable consideration will depend on the facts of a given case. If there is no consideration or the consideration is woefully inadequate, there may arise a presumption of want of good faith. Again, even if there is adequate consideration, the official liquidator may attempt to establish that a valuable asset of the Company was sought to be shielded against the claims of the Company's creditors. The official liquidator's challenge would not pass muster if he cannot establish lack of bona fides on the part of the transferee."
iv) In Hawa Controls v. Official Liquidator of Tirupati Foundry Pvt. Ltd. 2, the Gujarat High Court clarified that the onus to prove that the transaction entered into within 6 months of winding up 2 . MANU/GJ/7511/2007 24 KL, J COMPA No.1348 of 2005 & batch is fraudulent lies on the person trying to prove that such transaction does not hold well in law. In paragraph No.10, it was held as under:
"10. Before this Court, reliance was placed on the decision of the Bombay High Court in the case of Monark Enterprises v. Kishan Tulpule and Ors. 74 Company Cases 89wherein it is held that Section 531-A of the Companies Act, 1956 provides for' Savoidance of voluntary transfers' made by a Company within a period of one year during the presentation of a petition for winding up (i) if such transfer was not made inthe ordinary course of its business, or (ii) if such transfer was not made in good faith for valuable consideration. If the Court comes to the conclusion that such transfer, though made within a period of one year before presentation of the petition, was made either in the ordinary course of business or in good faith and for valuable consideration, such transfer would not be annulled. The burden of proving that the impugned transaction was not entered into in the ordinary course of business or in good faith and for valuable consideration would be on the Official Liquidator or the Creditors impugning the transaction.
11. So far as the present case is concerned, neither the Official Liquidator nor any of the Creditors have come forward and pointed out that the 25 KL, J COMPA No.1348 of 2005 & batch transaction in question was not entered into in the ordinary course of business or in a good faith and for valuable consideration. On the contrary, the applicant has proved beyond reasonable doubt by producing necessary evidence and established that the transaction in question was valid and genuine. The Bombay High Court has further observed in the aforesaid judgment that unless a transaction of transfer of a Company's property amounts to a fraudulent preference under the bankruptcy law or insolvency law and it is entered into within a period of six months prior to the commencement of winding up of the Company, the transaction in question cannot be treated as void under Section 531 (1) of the Companies Act, 1956. The law does not presume the transaction to be a fraudulent preference merely because it was entered into within a period of six months prior to the commencement of winding up. If the transaction was entered into as a result of lawful pressure of a bona fide creditor to recover his dues, the transaction of transfer could not be treated as a fraudulent preference. This question does not arise in the present case as it is not the case of the applicant that the applicant has entered into the transaction in question as a result of any pressure to recover its dues."26
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v) The transfers made by the Ex-Managing Director in favour of his relatives (respondent Nos.2 and 3) on 22.09.1998 and 25.09.1998 fall squarely within the fraudulent transaction in terms of Sections 531 and 531A of the Act, 1956, and are not made in good faith. These transactions occurred during the twilight period within six months prior to the presentation of the winding-up petition and were executed in favour of related parties without any credible evidence of adequate consideration or justification in the ordinary course of business. The failure of the Ex-Managing Director to disclose these transfers to the OL, coupled with the concealment of the transactions during the liquidation process, further reflects a lack of bona fide intent. There was no leave of the Court obtained, nor any proof that the transactions were conducted at arm's length, and the transferees subsequent obstruction of Court-authorized sale proceedings only exacerbates the inference of fraudulent preference.
12. COMPA No. 1348 of 2005 was filed seeking confirmation of the sale conducted by the OL in respect of the assets of the Company under liquidation. Pursuant to the orders of this Court, public advertisements were issued in widely circulated newspapers, 27 KL, J COMPA No.1348 of 2005 & batch and an open auction was held. The OL has reported that the auction was conducted in strict adherence to the directions of this Court, after due publication, and with full transparency. The highest bid received was duly placed before this Court for confirmation, and the entire process has been supervised under judicial directions, including inter se bidding held in open Court, thereby ruling out any allegation of irregularity or undervaluation.
13. Upon perusal of the record, including the Auditor's Report and the Chief Examination of the Legal Assistant of the OL, as considered in COMPA No. 561 of 2007, this Court is satisfied that the auction process was carried out in accordance with law, with due publicity, and the best possible price was realized. The objections raised by the respondents, challenging the correctness of the sale, are not supported by any substantive material.
14. Accordingly, this Court holds that the auction sale conducted by the OL is valid and proper. COMPA No. 1348 of 2005 is accordingly allowed in favour of the petitioner and the sale so 28 KL, J COMPA No.1348 of 2005 & batch affected stands confirmed. The directions issued herein shall be read conjointly with the findings recorded in COMPA No. 561 of 2007.
15. The rights of auction purchasers, including M/s. Ramjee Leathers & Suppliers, applicants in COMPA No.259 of 2007 stand protected where the sale has been confirmed and possession delivered pursuant to orders of this Court. However, on account of dispute concerning overlapping claims over a portion of the land asserted by respondent Nos.2 and 3, only partial registration to the extent of Acs.5.92335 cents was permitted by keeping the remainder in abeyance pending adjudication of COMPA No.561 of 2007. In COMPA No.561 of 2007, since this Court declared the underlying transfers to respondent Nos.2 and 3 as void under Sections 531 and 531A of the Act, 1956, the said dispute stands resolved in favour of the auction purchaser. Consequently, the overlapping land shall also be treated as lawfully available for completion of the auction sale process and transferred to M/s Ramjee Leathers & suppliers.
16. The plea of respondent Nos.2 and 3 in COMPA Nos. 735 and 736 of 2007 alleging trespass by the OL gets automatically 29 KL, J COMPA No.1348 of 2005 & batch rejected as it is established that the transaction in which the property was transferred in the name of respondent Nos.2 and 3 is rendered void while deciding COMPA No.561 as the same falls under the twilight period i.e., six (06) months before the liquidation and was done under fraudulent manner by the Ex-Managing Director of the Company.
17. Additionally, in J.K. (Bombay) (P) Ltd v. New Kaiser-I- Hind Spg. &Wvg. Co. Ltd. 3, the Hon'ble Supreme Court reiterated that once a winding-up order is passed, the custody and control of the assets vest solely with the OL. Therefore, the seizure of the land to an extent of Acs.1.46 on 12.03.2007 by the OL and objected by respondent Nos.2 and 3 in COMPA Nos.735 and 736 of 2007 is held as lawful. In the said decision, the Apex Court held as under:
"32. 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 3 . 1968 SCC OnLine SC 32 30 KL, J COMPA No.1348 of 2005 & batch being passed the right to have the assets realized and distributed among them pari passu. No new rights can thereafter be created and no uncompleted rights can be completed, for doing so would be contrary to the creditors' right to have the proceeds of the assets distributed among them pari passu. But Mr Sen's argument was that the appellants had acquired under the scheme a vested right to have a second mortgage which could not be nullified by the court passing the winding-up order. We cannot accede to this contention for the scheme vested no such right. What it did provide was that in consideration of the Company agreeing to execute a second mortgage the appellants and the other Schedule 'B' creditors agreed to receive repayment of debts due to them in the manner provided in the scheme and the agreement of August 16, 1965. On failure of the Company to execute the mortgage the consideration for postponement of repayment failed and the monies due to those creditors became immediately payable. It is also not correct to say that the scheme gave any priority to those creditors. Such a priority could result only on the execution of the mortgage which would make them secured creditors."31
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18. Further, with regard to COMPA No. 969 of 2014, where the Ex-Managing Director seeks revival of the Company under Section 466 of the Act, 1956, the Bombay High Court in Forbes & Company Ltd. v. Official Liquidator of the Hon'ble Bombay High Court4 held that the discretion under Section 466 to grant a permanent stay on winding up must be exercised judicially and only when there is "proof to the satisfaction of the Court" that proceedings "ought to be stayed." The revival must not be a mere resumption of corporate existence, but must also amount to a genuine revival of the business, capable of serving the interest of creditors, workmen, and the broader public, and not merely serve as a vehicle for asset appropriation by erstwhile promoters. The Court emphasized that satisfaction of the Company Court is imperative and cannot be presumed solely because the applicant promises to discharge liabilities. The test laid down requires consideration of bona fides, commercial morality, and whether revival is a ruse to regain control over assets already vested in the OL. In view of the same, the case on hand in COMPA No.969 of 2014, it neither discloses a concrete scheme for revival nor establishes 4 . 2013 SCC OnLine Bom 2339 32 KL, J COMPA No.1348 of 2005 & batch a prima facie case of commercial viability. Therefore, the application lacks supporting financial restructuring, clearance of statutory dues, or demonstrable support from creditors or workmen. Moreover, it is tainted by past conduct of concealment and unauthorized alienation of Company assets, which disqualifies the Ex-Managing Director from seeking equitable relief under Section 466. In Forbes & Company Ltd4, the Bombay High Court held as under:
"12. Sub-section 1 of Section 466 empowers the Company court to stay the proceedings in winding up either altogether or for a limited time on such terms and conditions as it thinks fit. Such an order can be passed on the application either of the Official Liquidator or of any creditor or contributory. The fundamental requirement of Section 466(1), is that the court may do so "on proof to the satisfaction of the court that all proceedings in relation to the winding up ought to be stayed." Section 466(1) confers a discretion on the court and not a sat 9/24 app 34-2012 mandate. The discretion has to be exercised on satisfaction that stay of the proceedings in relation to winding up ought to be granted. The legislature has carefully used the expressions "on proof to the satisfaction" and "ought to be stayed". Before the 33 KL, J COMPA No.1348 of 2005 & batch court grants a stay, the statutory requirement is that there must be proof which is brought before the court on the basis of which it is satisfied that the proceedings ought to be stayed."
19. Upon an exhaustive consideration of the factual matrix, statutory provisions and authoritative judicial precedents placed on record, this Court is constrained to arrive at the conclusion that COMPA No.561 of 2007 is decided in favour of OL holding that the transfer of the land by the Ex-Managing Director of M/s. Shree Jagannath Steels Limited (in liquidation) in favour of respondent No.2 herein to the extent of Acs.13.09100 cents and the transfer of land in favour of respondent No.3 to the extent of Acs.14.28895 cents are vitiated by legal infirmities and cannot be sustained in law since such transfers were affected during the twilight period i.e., within six months prior to the presentation of the winding-up petition and were not in the ordinary course of business, nor accompanied by any contemporaneous, verifiable record evidencing bona fide consideration or arm's-length dealing. As discussed above, such transactions, having been affected in proximity to the commencement of liquidation proceedings, without disclosure to the OL and in 34 KL, J COMPA No.1348 of 2005 & batch contravention of Sections 531 and 531A of the Act, 1956, are declared void.
20. The act of clandestinely transferring valuable immovable properties to related parties without obtaining leave of the Court, and thereby obstructing the OL's access to estate assets for realization and distribution to creditors, constitutes a breach of fiduciary obligations and undermines the equitable administration of the winding-up process. The settled legal position mandates that such preferential and concealed transactions are to be subjected to heightened judicial scrutiny and invalidated when found to be tainted by mala fides or executed with intent to frustrate creditor claims.
21. Equally, the challenge by respondent Nos.2 and 3 in COMPA Nos.735 and 736 of 2007 with regard to the OL's seizure of Acs.1.46 is devoid of merit. It is well settled in law, and affirmed by the Apex Court in J.K. (Bombay) (P) Ltd3, that upon the passing of a winding-up order, the assets and undertaking of the Company stand vested in the custody of the OL and any attempt to interfere with such control without leave of the Company Court is ipso facto illegal. The 35 KL, J COMPA No.1348 of 2005 & batch objection raised by the said respondents is accordingly liable to be repelled.
22. Furthermore, this Court finds no merit in COMPA No. 969 of 2014 seeking revival of the Company. The applicant, the Ex- Managing Director, who was already found to have engaged in unauthorized and undisclosed transfers of Company assets, has approached the Court after an inordinate delay of nearly fifteen years post-liquidation, without any demonstrable scheme of revival, financial infusion, creditor consensus, or statutory dues clearance. Revival under Section 466 of the Act, 1956, is not a matter of right but lies within the discretion of the Court, to be exercised only on proof to its satisfaction that such a course is warranted in the interest of creditors, contributories, and the commercial viability of the undertaking. As elaborated in Forbes & Company Ltd4, such discretion must be guided by considerations of commercial morality, bona fides, and fairness, not mere intent to reclaim control over assets already vested in the OL. The conduct of the Ex-Managing Director, marred by concealment and fiduciary breach, militates against the 36 KL, J COMPA No.1348 of 2005 & batch invocation of equitable jurisdiction under Section 466, and the revival plea stands rejected accordingly.
23. In view of the above findings, this Court further holds that the dispute over overlapping land raised in COMPA No.259 of 2007, stands conclusively resolved in favour of the auction purchaser, M/s. Ramjee & Suppliers, consequent to the declaration of nullity of the impugned sale deeds in COMPA No.561 of 2007. The auction process, having been conducted with prior Court approval and the consideration fully paid and accepted, shall stand protected and implemented in full.
24. This Court is, thus, satisfied that the liquidation process was undertaken in accordance with law and any subsequent attempts to disturb the settled estate without judicial sanction and in contravention of statutory mandates cannot be countenanced. The sanctity of winding-up proceedings must be preserved, and all fraudulent, preferential or unauthorized transactions must be declared void to uphold the supremacy of creditor rights and statutory administration.
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25. Having regard to the foregoing discussion, this Court concludes the following:
i) COMPA No.1348 of 2005 filed by the OL seeking confirmation of the auction sale conducted by the OL is allowed holding that the auction conducted by the OL for sale of the property in favour of M/s. Ramjee Leathers & Suppliers, is valid and proper.
ii) COMPA No.259 of 2007 filed by the auction purchaser is allowed directing the OL to execute registered sale deeds for the remaining disputed land to the extent of Acs.1.46 cents in favour of M/s. Ramjee Leathers & Suppliers in accordance with law.
iii) COMPA No. 561 of 2007 filed by the OL is also allowed, declaring the transfers effected on 22.09.1998 and 25.09.1998 by the Ex-Managing Director of the Company in favour of his close relatives, respondent Nos.2 and 3 herein, as void since the same is barred by Sections 531 and 531-A of the Act, 1956.38
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iv) COMPA Nos.735 and 736 of 2007 filed by the close relatives of Ex-Managing Directors, respondent Nos.2 and 3, are dismissed holding that the said seizure being valid upon the winding-up order.
v) COMPA No. 969 of 2014 filed by the Ex-Managing Director seeking revival of the Company under Section 466 of the Act, 1956, is also dismissed.
vi) In the circumstances of the case, there shall be no order as to costs.
_________________ K. LAKSHMAN, J 11th September, 2025 Mgr