Full Judgment Text
KPP -1-
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
OFFICIAL LIQUIDATOR'S REPORT NO. 145 OF 2011
IN
COMPANY PETITION NO. 827 OF 2007
IN
COMPANY PETITION NO. 327 OF 1997
IN
COMPANY PETITION NO. 870 OF 1999
Board of Industrial and Financial Reconstruction )
M/s. Jaipur Golden Transport Co. Ltd. )
M/s. Intec Polymers Ltd. )..Petitioners.
vs.
M/s. Hindustan Transmission Products Ltd. ..Respondent
(In Liquidation)
Mr. J.P. Sen for Official Liquidator.
Mr. S. Malik along with Mr. Tanvir Shaikh for Mrs. Sunita V. Warke occupant.
Mr. Chavan along with Mr. Suhas Patil, instructed by M/s. Navdeep Vora &
Associates for the MIDC.
Ms. Vinita Hombalkar, instructed by M/s. Dhruve Liladhar & Co., for IDBI.
Mr. Y.I. Ghoghavi, instructed by Dehlvi & Co., for PNB.
Dr. T. Pandian, Official Liquidator present.
CORAM : S.J. KATHAWALLA, J.
JUDGMENT RESERVED ON : June 21, 2012
JUDGMENT PRONOUNCED ON: September 05, 2012
JUDGMENT
1. By the above report, the Official Liquidator has sought directions
from this Court as follows:
“(a) In view of paras 7 and 8 of this Report, whether this
Hon’ble Court would be pleased to declare the sale of the
property situated at H16, MIDC Waluj Industrial Area, Waluj,
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -2-
Aurangabad to Smt. Sunita V. Warke as null and void;
(b) If prayer (a) is in the affirmative, whether this Hon’ble
Court would be pleased to permit the Official Liquidator to take
possession of the said property situated at H16, MIDC Waluj
Industrial Area, Waluj, Aurangabad”.
The facts in the matter are briefly set out hereunder:
th
2. On 7 April 1997, Company Petition No. 327 of 1997 seeking
winding up of the Company Hindustan Transmission Products Limited
(“HTPL”) was filed /presented. Smt. Sunita V. Warke (“the occupant”) claims to
th
have paid an aggregate sum of Rs. 30 lakhs to the Company between 14 May,
th
2007 and 26 September 2007 towards the purchase of the Company’s leasehold
rights in respect of Plot No. H16, MIDC Waluj Industrial Area, Waluj,
Aurangabad (“the said property”). It is an admitted position that no document,
by way of an agreement for sale or a transfer deed, was executed between the
Company and the occupant. In the Incometax returns filed by the occupant for
st
the period upto 31 March 2008 and thereafter, the said amount is shown as an
“investment”.
3. Sometime in May, 1990, on the application of HTPL, the said
property was allotted to HTPL by the Maharashtra Industrial Development
Corporation (“MIDC”) on the terms and conditions stated in the allotment
th
letter/order. On 7 September, 1990, MIDC and HTPL entered into an
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -3-
agreement whereunder the said property was leased to HTPL by MIDC and the
possession of the said property was handed over to HTPL. Clause 3 (m) of the
Agreement to Lease provides that HTPL will not directly or indirectly transfer,
assign, sell, encumber or part with its interest under or the benefit of the
Agreement or any part thereof in any manner whatsoever without the previous
consent in writing from the MIDC. Thereafter, the said HTPL constructed a
factory building on the said plot of land for which MIDC had issued a
completion certificate to HTPL.
th
4. MIDC on 26 March, 2008 received a letter from the occupant in her
capacity as the Chief Promoter of Sairam Industrial Cooperative Society Limited
(Proposed) informing MIDC that she is interested in setting up a Cooperative
Industrial Society by acquiring the said property and has therefore submitted her
application along with the necessary documents seeking the consent of MIDC for
transfer of the said property in her favour. Along with the said letter, the
st
occupant also forwarded to MIDC a letter dated 31 December, 2007 addressed
by HTPL to MIDC inter alia stating that due to some problems HTPL is now not
in a position to continue its activity on the said property and requested MIDC to
grant their consent for transfer of the said property in favour of “Sau Sunita
Vasudeo Warke, Chief Promoter of Sairam Industrial Cooperative Society Ltd.
(Proposed)”. Along with the said application, the occupant also annexed the
th
minutes of a meeting held on 20 July 2007 of the members of the Sairam
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -4-
Industrial Cooperative Society Ltd. (Proposed) which showed that the said
society had 51 members and that the occupant was the Chief Promoter of the
said Society. All the particulars including the age, caste, profession, number of
shares held, etc. of the said 51 members were also provided by way of separate
annexures to the application seeking registration of the said Industrial Co
operative Society.
th
5. On the next day i.e. 27 March, 2008 this Court directed winding up
of HTPL and the Official Liquidator, High Court, Bombay was appointed as the
Liquidator of HTPL.
th
6. MIDC by its letter dated 10 April, 2008 informed HTPL that as per
the policy of MIDC, the said property could not be allotted to an Industrial Co
operative Society and that therefore their request for transfer of the said plot
could not be accepted and the proposal of HTPL to transfer the said property in
favour of Sairam Industrial Cooperative Society Ltd. stood closed.
7. Thereafter, the occupant, vide her undated letter addressed to MIDC,
recorded that she had purchased the said property and that she proposed to
start her business activity on the said property and requested allotment/transfer
th
of the said property in her name. This letter was received by MIDC on 16 April,
2008. Along with the said letter, MIDC received an undated letter from HTPL
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -5-
requesting for transfer of the said property in the name of “Smt. Sunita Vasudeo
Warke, Prop. of M/s. Sunita Enterprises”. The said letter was signed by
Mr. Vasudev Jayram Warke, authorized signatory under a Special Power of
th
Attorney dated 12 October, 2007 issued by HTPL. The said Vasudev Warke is
the husband of the occupant. In the recital of the said Power of Attorney, Mr.
Rattan Kumar Talia, Director of HTPL has recorded that under a Board
th
Resolution dated 12 September, 2007 Mr. Thalia had been authorized by the
Board of HTPL to identify a buyer, negotiate and finalise the sale transaction
with a purchaser and also to sign all necessary papers and documents for the sale
transaction in respect of the said property, and that since Mr. Thalia was
engrossed in some other matter which was of more importance, he had therefore
decided to appoint his friend Mr. Vasudeo Jayram Warke, in whom he had full
confidence, as his true and lawful attorney for dealing with all documentary
compliance including registration and notarization of all the requisite documents
relating to the transfer of the said property held by HTPL.
nd
8. Thereafter, IDBI Bank vide their letter dated 2 July, 2008 furnished
to the MIDC a warrant of attachment issued by the Debt Recovery Tribunal
(“DRT”) in respect of the said property. IDBI Bank vide its further letter dated
th
14 November, 2008 informed MIDC that in the proceedings before the DRT in
respect of attachment of the said property, the occupant has filed an intervention
application contending that she has purchased the said plot of land from HTPL,
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -6-
and requested MIDC to furnish the documents pertaining to the said property.
st
MIDC vide their letter dated 21 July, 2008 addressed to the occupant, whilst
th
referring to letter dated 9 July, 2008 of the IDBI Bank, informed the occupant
that it was not possible for the MIDC to process further her application without
the decision of the DRT in Recovery Proceedings No. 212 of 2003 filed by the
nd
IDBI Bank. The Recovery Officer passed an order dated 2 December, 2009 in
favour of the occupant and IDBI Bank filed an Appeal therefrom being Appeal
No. 4 of 2010. The Official Liquidator was directed by the DRT to file the status
report of the said property and statement in the matter. Accordingly, the Official
th
Liquidator filed his status report dated 7 July, 2010 before the DRT wherein he
has recorded that he proposes to submit a report before the High Court, Bombay,
declaring the transaction to be void and to seek possession of the said property
from the occupant.
th
9. MIDC vide its letter dated 19 January, 2010 addressed to HTPL
requested HTPL to produce the original copy of the Resolution of the Members of
the Board to transfer the said property, no objection certificate from Labour
Commissioner and certificate of no dues of water and service tax. However,
HTPL failed to comply with the requirements of MIDC. The said property, as on
date, is standing in the name of HTPL.
10. In the meantime the Official Liquidator has moved the above report
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -7-
and has prayed for the aforestated reliefs/directions.
11. Initially in his Report, the Official Liquidator had invoked Sections
531 (1) and 531 A of the Companies Act, 1956 (“the Act”). Subsequently, the
th
Official Liquidator in his rejoinder dated 29 September, 2011 has submitted
that since the alleged sale of the property is after the date of presentation of the
Company Petition filed for winding up of the Company, the transaction is void as
per the provisions of Section 536 (2) and 537 (1) (b) of the Act.
th
12. The Applicant has filed her affidavitinreply dated 5 September,
nd
2011, a further affidavit dated 22 December, 2011 and an additional affidavit
th st
dated 27 March, 2012. MIDC has filed its affidavit dated 21 January, 2012 and
th
IDBI has also filed its affidavit dated 19 November, 2011.
13. Mr. Malik, the learned Advocate appearing for the occupant has
submitted that the transaction entered into by and between the occupant and
HTPL is a bona fide transaction which is completed and possession of the said
property was also given to the occupant by HTPL. He has relied on a copy of the
th
letter written by HTPL dated 14 November, 2007 enclosing a Photostat copy of
th
a receipt of possession issued by MIDC to HTPL. In the said letter dated 14
November, 2007 HTPL has recorded “ Now that we have given you the possession
of the said plot No. H16, MIDC Waluj Ind. Estate,Aurangabad, we are handing
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -8-
over the said possession receipt to you”. Mr. Malik submitted that the said
transaction was entered into with the occupant by HTPL in view of the honest
and compelling need to dispose of the said property. He has therefore submitted
that the transaction pertaining to the sale of the said property between the
occupant and HTPL is honest and bona fide and the occupant has paid an
amount of Rs. 30 lakhs towards sale consideration to HTPL. He has submitted
that though valuation report was not obtained by the occupant, the sale price of
the said plot at the relevant time was about Rs. 65 lacs. Rs. 30 lacs was paid to
HTPL and an amount of approximately Rs. 27 lacs plus Rs. 7 lacs were to be
paid towards transfer fee and service charge respectively. He has submitted that
a transaction need merely be honest or bona fide to deserve sanction. It is
submitted that the Official Liquidator has neither alleged fraud nor has he
alleged that the sale is at an undervalued price. It is submitted that the Official
Liquidator must plead and prove that the transaction was fraudulent before it
could be treated as void under Section 536 (2) of the Act. It is submitted that
since the occupant’s rights have been effectually pleaded and the permission
from MIDC could not be obtained due to the wrongful attachment levied by
IDBI, the sale must now receive full effect. He has submitted that the occupant is
entitled to the protection of Section 53A of the Transfer of Property Act, having
come into possession of the said property in part performance of the alleged
agreement in her favour. In support of his aforestated submissions/contentions
Mr. Malik relied on the decisions in Kamani Metallic Oxides Ltd. Vs. Kamani
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -9-
1 2
Tubes Ltd. ; Travancore Rayons Ltd. Vs. Registrar of Companies ; S.P. Khanna vs.
3 4
S.N. Ghosh ; Monark Enterprises vs. Kishan Tulpule and Ors. ; and Abdul Shukoor
5
vs. Arji Papa Rao . Mr. Malik has therefore submitted that the transfer of the said
property is liable to be validated under Section 536 (2) of the Act in favour of
the occupant.
14. Mr. J.P. Sen, learned Advocate appearing for the Official Liquidator,
has submitted that the contentions raised by the occupant are misconceived and
the Official Liquidator ought to be directed to take possession of the said
property in view of the following:
(a) The question of validating a transaction under Section 536 (2) arises only
where the transfer is complete. In the present case, there is no completed
transfer in favour of the occupant which is capable of validation. Even the
alleged agreement pleaded by the occupant is clearly illegal having been
reached after the winding up order was passed;
(b)Further, for a transfer to be validated under Section 536 (2), the
Applicant must plead and prove not only that the transfer is bona fide but
also that the transfer was in the interest of the Company. The occupant
1 [1984] 56 Com. Cas. 19 (Bom.)
2 [1988] 64 Com. Cas. 819
3 1976 TLR 1740
4 [1992] 75 Com. Cas. 89
5 AIR 1963 SC 1150
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -10-
has made no attempt to show this.
(c) Section 53A of the Transfer of Property Act has no application in the
present case in the absence of any agreement in writing from which the
terms of the alleged transaction is capable of being ascertained with
reasonable certainty.
In support of his above contentions, Mr. Sen has relied on the decisions in the
1
Governor and Co. of the Bank of Scotland vs. Macleod and others ;M/s. JK
2
(Bombay) Pvt. Ltd. Vs. New KaiserIHind Spinning and Weaving Company ;
3
Shankar Gopinath Apte vs. Gangabai Patwardhan ; Rambhau Namdeo Gajre vs.
4 5
Narayan Bapuji Dhotra ; Shravan Jayaram Patil vs. Garbad Ukha Nhavi ; Tulsidas
6 7
Jasraj Parekh vs. Industrial Bank of Western India ; J. Sen Gupta (Pvt.)Ltd., In re ;
8
Kanchan Kumar Dhar, Official Liquidator vs. Dr. L.M. Visrani and others ;
9
Sarigam Containers Pvt. Ltd. Vs. Magatul Industries Ltd. ; and Laxman Yeshwant
10
Prabhudesai and Ors. vs. NRC Ltd. and others
1 [1914] AC 311 at 317318
2 AIR 1970 SC 1041, 1058 (paras 38 and 39)
3 AIR 1976 SC 2506, 2509 (Para 11)
4 [2004] 8 SCC 614, 618 (para 8),
AIR 1943 Bom. 406407
5
6 AIR 1931 Bom. 2 at pages 1821
7 [1956) 32 Com. Cas. 876 at pages 879886
8 [1986] 60 Com. Cas. 746 at 748749, 752
9 2008 (5) Bom. CR 112, 119120 (Paras 21 and 23)
10 2011 (Supp.) Bom. CR 243248 at 251 (Paras 1923)
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -11-
15. The learned Advocate appearing for the MIDC has submitted that
th
though MIDC by its letter dated 19 January, 2010 addressed to HTPL requested
HTPL to produce the original copy of the Resolution of the Members of the Board
to transfer the said property, no objection from Labour Commissioner and the
certificate of no dues of water and service tax, MIDC has not received any of the
said documents. MIDC has therefore not allowed the said property to be
transferred to the occupant and the said property till date stands in the name of
HTPL. In the circumstances it is submitted on behalf of the MIDC that this Court
may pass appropriate orders in the above Official Liquidator’s report. The
learned Advocate appearing for IDBI has submitted that no sale has taken place
in respect of the said property in favour of the occupant and the claim of the
occupant is illegal and dishonest and the Official Liquidator should be called
upon by this Court to take possession of the said property from the occupant.
16. I have considered the pleadings filed by the parties, the submissions
advanced on behalf of the learned Advocates appearing for the parties and the
judgments cited by them.
17. Admittedly there is no document executed by and between the occupant
and the Company recording the alleged sale of the said property by the Company
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -12-
in favour of the occupant. However, the occupant has contended that she has
th
paid the entire consideration of the suit property to the Company between 14
th
May 2007 and 26 September 2007. If the amounts paid between May and
September 2007, by the occupant to the Company is indeed the purchase price of
the said property, it would necessarily follow that the alleged sale was finalized
th
on or prior to 14 May 2007. However this fact is belied by the Special
th
Irrevocable Power of Attorney dated 12 October 2007 executed by Mr. Rattan
Kumar Thalia, Director of HTPL wherein it is recorded that the Board of HTPL
th
has by a resolution on 12 September 2007 authorized Mr. Thalia to identify a
buyer, negotiate and finalize the sale transaction. If the sale of the said property
th
was finalized between the occupant and the Company on or before 14 May
2007 and almost all the installments (except one) was paid by the occupant to
th
the Company by 12 September 2007, the question of the Company authorizing
th
Mr. Thalia to identify a buyer, negotiate and finalize the sale transaction on 12
September 2007 would never arise. Again, the question of Mr. Thalia
th
authorizing his “friend” Mr. Vasudeo Warke (husband of the occupant) on 12
October 2007 to identify a buyer, negotiate and finalize the sale transaction
would never arise, since according to the occupant she had paid the entire
th th
agreed sale price to HTPL by 26 September 2007 i.e. much before 12 October
2007. The story now spun by the occupant that the amount paid by her to HTPL
th th
between 14 May 2007 and 26 September 2007 constitutes the entire sale price
of the said property purchased by her from HTPL therefore cannot be accepted
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -13-
and is hereby rejected.
18. Even if this Court assumes for the sake of argument that the
occupant had in fact paid Rs. 30 lacs to HTPL towards sale consideration of the
said property, the next question the Court is required to consider before
validating the sale under Section 536 (2) of the Act is whether the transfer has
been completed in favour of the occupant, prior to the winding up order. It is
settled law that if a transfer has not been completed prior to the winding up
order, no application would lie to the Court for a direction to the Official
Liquidator to complete the transfer. As pointed out on behalf of the Official
Liquidator, the classic statement of the law in this regard is to be found in the
Judgment of the House of Lords in the Governor and Co. of the Bank of Scotland
vs. Macleod and others ( supra ) , where Lord Kinnear observed that while “ rights in
security which have been effectually completed before the liquidation must still
receive the effect which the law gives to them”, 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 brankrupt is by his bankruptcy”.
These observations were cited with approval by the Hon’ble Supreme Court in
M/s. JK (Bombay) Pvt. Ltd. Vs. New KaiserIHind Spinning and Weaving
Company ( supra ) , where Shelat, J. speaking for the Court went on to observe
that after a winding up order is passed, “ no new rights can thereafter be created
and no uncompleted rights can be completed, for doing so would be contrary to the
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -14-
creditors' right to have the proceeds of the assets distributed among them pari
passu” . In the present case, the transfer in favour of the occupant has not been
completed by registered deed or otherwise. In fact, there is not even a
document recording the terms of any alleged agreement that may have been
reached between the Company and the occupant for the transfer of the said
property in her favour. Even the requisite NOC from MIDC for the transfer of the
leasehold rights in the said property in favour of the occupant was not obtained
prior to the winding up order. It is therefore clearly established that in the
present case there is no completed transfer in favour of the occupant which is
capable of validation.
19. Even in a case where the transfer is complete, a further question that
arises for consideration is whether for a transfer to be validated under Section
536 (2) of the Act, the Applicant must plead and prove not only that the transfer
is bona fide but also that the transfer was in the interest of the Company.
Section 536 (2) of the Act provides that any disposition of property made after
commencement of winding up shall, unless the Court otherwise orders, be void.
Some of the situations in which a transfer may be validated under Section 536
(2) of the Act were enumerated in the judgment of a Division Bench of this Court
in Tulsidas Jasraj Parekh vs. Industrial Bank of Western India (supra) . While
sounding a note of caution that “the discretion confided to the Court cannot be
crystallized in rules of law in view of the varying circumstances of human action”
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -15-
the Court held that it would not permit transactions bona fide entered into in
the ordinary course of trade and completed before the date of the winding up
order to be annulled. In respect of transactions which were not in the ordinary
course of trade, the principles that would govern the exercise of discretion under
Section 536 (2) were summarized in the judgment of the Calcutta High Court in
J. Sen Gupta (Pvt.)Ltd. ( supra ) as follows:
“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.
4. If it is 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.”
The principle that a transfer must be in the best interests of the Company to be
validated under Section 536 (2) was also reaffirmed in the judgment of this
Court in Kanchan Kumar Dhar, Official Liquidator vs. Dr. L.M. Visrani and others
( supra ), where Parekh, J. observed:
“ The question is not whether Respondent No.1 acted bona fide
or he was a victim of a deception or a fraud practiced on him
by the Company. The question is whether the transaction in
question is in the interest of the business of the Company or in
the interest of the Company (now in liquidation) or its
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -16-
creditors.”
20. The Judgment in J. Sen Gupta Pvt. Ltd. (supra) was more recently
followed by a single Judge of this Court in Sarigam Containers Pvt. Ltd. Vs.
Magatul Industries Ltd. ( supra ), where the Court observed that the fact that a
transaction was in the best interest of the Company “is a factual aspect to be
pleaded and proved” by the party seeking validation. This principle was also
reiterated by a Division Bench of this Court in Laxman Yeshwant Prabhudesai and
Ors. vs. NRC Ltd. and others ( supra ), where the Court held:
“ Thus, the principles that can be deduced are that the transactions
which have been undertaken under compulsion of circumstances in
order to save or protect the property of the Company could be saved
provided evidence is produced about such compulsion. The assets of
the Company cannot be disposed of at the mere pleasure of the
Company. If the business is going to be paralyzed, then the Court in
appropriate cases can, for the benefit and interest of the Company,
save the transaction. It is for enabling the Company to continue as a
going concern and to protect the interest of the shareholders and
creditors that such a power is conferred and must be exercised.”
The suggestion to the contrary on behalf of the occupant that a transaction need
merely be honest or bona fide to deserve sanction is unsupported by authority.
The judgments cited on behalf of the occupant do not support this position. The
judgment of the Nagpur Bench of the Bombay High Court in S.P. Khanna (supra)
is a case where the Court was considering a transaction in the ordinary course of
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -17-
business between two branches of a Bank which subsequently entered
liquidation. It is a settled position that where a transaction is in the ordinary
course of business, the burden that must be discharged to validate such a
transaction is far lower. A bona fide transaction of this nature would be protected
by a Court under section 536 (2) of the Act. The judgment in S.P. Khanna
(supra) was considered by a Division Bench of this Court in Laxman Prabhudesai
(supra) where sanction under Section 536 (2) was declined despite the fact that
the property had changed hands several times over and the Applicant was the
eventual transferee who had no links to the Company in liquidation.
21. The other two judgments under Section 536 of the Act, of this Court
in Kamani Metallix Oxides (supra) and of the Kerala High Court in Travancore
Rayons Ltd. (supra), cited on behalf of the occupant are equally unhelpful. They
deal with the question as to whether an application under Section 536 (2) will
lie before a winding up order is passed. While answering the question in the
affirmative, both judgments held that such an application ought to be allowed
where the proposed transfer is in the interest of the Company. I am in
agreement with the submission advanced by the learned Advocate appearing for
the Official Liquidator that the occupant has made out no ground in the present
case for the Court to direct otherwise. Except for a bare statement in her further
Affidavit that the Company has made a business deal “keeping in mind their
business need at that time”, the occupant has neither pleaded nor proved that
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -18-
the said alleged transfer is in the best interest of the Company. She has
admittedly not filed an application seeking sanction of the Court to the alleged
transfer in her favour of the said property. She has only filed a reply to the report
of the Official Liquidator seeking directions from this Court in respect of the said
property. She has merely relied on the fact that she has paid a sum of Rs. 30
lakhs to the Company, which she claims was the consideration that was agreed
upon and that she was placed in possession of the property by the Company. She
has not even made an attempt to demonstrate that the alleged consideration was
at par with the prevailing market price. The question of validation in the absence
of the occupant establishing that the transfer was in the interest of the Company
therefore does not arise.
22. It was also sought to be contended on behalf of the occupant that the
Official Liquidator must plead and prove that the transaction was fraudulent
before it could be treated as void under Section 536 (2) of the Act. This is clearly
contrary to the judgment of this Court in case of Sarigam Containers (supra).
Section 536 treats as void any transfer after commencement of winding up
unless the Court otherwise directs. This Court has held in Kanchan Kumar Dhar
(supra) that in view of the tenor of the section, the Official Liquidator is not
required to file any application seeking a declaration that a transfer is void. As
such, the question of any burden resting on the Liquidator cannot possibly arise.
Even otherwise, if such a burden were to be cast on the Official Liquidator, he
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -19-
would find it impossible to discharge in many cases, having limited resources
and often even more limited access to the relevant records. The two judgments
cited on behalf of the occupant on the issue of burden do not support her case. In
Monark Enterprises (supra) this Court held Section 536 of the Act to be
inapplicable in view of the fact that there was a disposition of the property prior
to the commencement of winding up. The observations in the judgment as to
burden and as to the ingredients that must be established to set aside a
transaction are in the context of Sections 531 and 531 A which are inapplicable
in the present case. The judgment of the Hon’ble Supreme Court in Abdul
Shukoor (supra) is also of little assistance. The said judgment rendered under
Section 53 of the Transfer of Property Act rightly holds that the initial burden to
establish a fraudulent transfer would lie on the Plaintiff who seeks to impugn the
transaction. Fraud is not one of the elements of Section 536 which stipulates that
any transfer after the commencement of winding up is void unless the Court
otherwise directs.
23. As regards the reliance by the occupant on Section 53A of the
Transfer of Property Act, the said Section enables a transferee to resist an
attempt made by the owner to recover possession of the property under certain
limited circumstances which are not to be found in the present case. As held by
the Hon’ble Supreme Court in its decisions in Shankar Gopinath Apte vs.
Gangabai Patwardhan ( supra ), and Rambhau Namdeo Gajre vs. Narayan Bapuji
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -20-
Dhotra ( supra ) , the Section applies only where any person contracts to transfer
for consideration any immovable property in writing, signed by him or on his
behalf from which the terms necessary to constitute the transfer can be
ascertained with reasonable certainty and such person has been placed in
possession of the property in pursuance of such a contract. In the present case, it
is an admitted position that no written contract was entered into between the
Company and the occupant. There is even otherwise no means of ascertaining
the terms of the transaction (including the consideration) alleged to have been
agreed to. Though the occupant has been found to be in possession of the said
property, the circumstances in which she was so placed are unclear. The
th
occupant has relied on the alleged letter dated 14 November, 2007 where there
is a reference to the occupant having been placed in possession of the said
property by HTPL. The occupant has however not produced any possession
receipt that may have been executed between the parties which would indicate
the basis on which the possession was handed over. The occupant merely relied
st
on an alleged letter dated 31 December, 2007 addressed by the Company to
MIDC seeking their no objection for the transfer of the said property to the
occupant as a Chief Promoter of the proposed Society. Apart from the fact that
the said letter does not disclose any agreement in favour of the occupant in her
personal capacity or the terms and conditions of any such alleged agreement, it
is a settled position that such a letter would not constitute an agreement in
writing for the purpose of Section 53A. In fact, in Shravan Jayaram Patil vs.
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -21-
Garbad Ukha Nhavi ( supra ) where an application was made by a Plaintiff to have
the Defendant's name entered in the mutation register in respect of certain land
on the ground that it had been sold by him to the Defendant orally and setting
out the terms of the sale, it was held not to be sufficient to satisfy the
requirements of Section 53 A of the Act. In view thereof, the reliance placed by
the occupant on Section 53 A of the Transfer of Property Act also lends no
assistance to the occupant and the learned Advocate appearing for the Official
Liquidator is correct in his submission that Section 53A of the Transfer of
Property Act has no application in the present case in the absence of any
agreement in writing from which the terms of the alleged transaction is capable
of being ascertained with reasonable certainty.
24. In the above circumstances, in my view, the occupant has not made
out any case for validating the alleged transfer of the said property in her favour
by the Company in liquidation. The Official Liquidator is therefore directed to
take physical possession of the said property for the benefit of the creditors and
workers of the Company in liquidation. The Official Liquidator’s report is
accordingly disposed of.
25. At the request of the learned Advocate for the occupant the Official
Liquidator is directed not to take physical possession of the said property for a
period of two weeks from today. However, pending the Official Liquidator
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -22-
taking possession of the said property, the occupant shall not part with
possession of the said property or induct any third party therein.
(S.J. KATHAWALLA, J.)
::: Downloaded on - 26/06/2024 07:31:32 :::
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
OFFICIAL LIQUIDATOR'S REPORT NO. 145 OF 2011
IN
COMPANY PETITION NO. 827 OF 2007
IN
COMPANY PETITION NO. 327 OF 1997
IN
COMPANY PETITION NO. 870 OF 1999
Board of Industrial and Financial Reconstruction )
M/s. Jaipur Golden Transport Co. Ltd. )
M/s. Intec Polymers Ltd. )..Petitioners.
vs.
M/s. Hindustan Transmission Products Ltd. ..Respondent
(In Liquidation)
Mr. J.P. Sen for Official Liquidator.
Mr. S. Malik along with Mr. Tanvir Shaikh for Mrs. Sunita V. Warke occupant.
Mr. Chavan along with Mr. Suhas Patil, instructed by M/s. Navdeep Vora &
Associates for the MIDC.
Ms. Vinita Hombalkar, instructed by M/s. Dhruve Liladhar & Co., for IDBI.
Mr. Y.I. Ghoghavi, instructed by Dehlvi & Co., for PNB.
Dr. T. Pandian, Official Liquidator present.
CORAM : S.J. KATHAWALLA, J.
JUDGMENT RESERVED ON : June 21, 2012
JUDGMENT PRONOUNCED ON: September 05, 2012
JUDGMENT
1. By the above report, the Official Liquidator has sought directions
from this Court as follows:
“(a) In view of paras 7 and 8 of this Report, whether this
Hon’ble Court would be pleased to declare the sale of the
property situated at H16, MIDC Waluj Industrial Area, Waluj,
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -2-
Aurangabad to Smt. Sunita V. Warke as null and void;
(b) If prayer (a) is in the affirmative, whether this Hon’ble
Court would be pleased to permit the Official Liquidator to take
possession of the said property situated at H16, MIDC Waluj
Industrial Area, Waluj, Aurangabad”.
The facts in the matter are briefly set out hereunder:
th
2. On 7 April 1997, Company Petition No. 327 of 1997 seeking
winding up of the Company Hindustan Transmission Products Limited
(“HTPL”) was filed /presented. Smt. Sunita V. Warke (“the occupant”) claims to
th
have paid an aggregate sum of Rs. 30 lakhs to the Company between 14 May,
th
2007 and 26 September 2007 towards the purchase of the Company’s leasehold
rights in respect of Plot No. H16, MIDC Waluj Industrial Area, Waluj,
Aurangabad (“the said property”). It is an admitted position that no document,
by way of an agreement for sale or a transfer deed, was executed between the
Company and the occupant. In the Incometax returns filed by the occupant for
st
the period upto 31 March 2008 and thereafter, the said amount is shown as an
“investment”.
3. Sometime in May, 1990, on the application of HTPL, the said
property was allotted to HTPL by the Maharashtra Industrial Development
Corporation (“MIDC”) on the terms and conditions stated in the allotment
th
letter/order. On 7 September, 1990, MIDC and HTPL entered into an
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -3-
agreement whereunder the said property was leased to HTPL by MIDC and the
possession of the said property was handed over to HTPL. Clause 3 (m) of the
Agreement to Lease provides that HTPL will not directly or indirectly transfer,
assign, sell, encumber or part with its interest under or the benefit of the
Agreement or any part thereof in any manner whatsoever without the previous
consent in writing from the MIDC. Thereafter, the said HTPL constructed a
factory building on the said plot of land for which MIDC had issued a
completion certificate to HTPL.
th
4. MIDC on 26 March, 2008 received a letter from the occupant in her
capacity as the Chief Promoter of Sairam Industrial Cooperative Society Limited
(Proposed) informing MIDC that she is interested in setting up a Cooperative
Industrial Society by acquiring the said property and has therefore submitted her
application along with the necessary documents seeking the consent of MIDC for
transfer of the said property in her favour. Along with the said letter, the
st
occupant also forwarded to MIDC a letter dated 31 December, 2007 addressed
by HTPL to MIDC inter alia stating that due to some problems HTPL is now not
in a position to continue its activity on the said property and requested MIDC to
grant their consent for transfer of the said property in favour of “Sau Sunita
Vasudeo Warke, Chief Promoter of Sairam Industrial Cooperative Society Ltd.
(Proposed)”. Along with the said application, the occupant also annexed the
th
minutes of a meeting held on 20 July 2007 of the members of the Sairam
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -4-
Industrial Cooperative Society Ltd. (Proposed) which showed that the said
society had 51 members and that the occupant was the Chief Promoter of the
said Society. All the particulars including the age, caste, profession, number of
shares held, etc. of the said 51 members were also provided by way of separate
annexures to the application seeking registration of the said Industrial Co
operative Society.
th
5. On the next day i.e. 27 March, 2008 this Court directed winding up
of HTPL and the Official Liquidator, High Court, Bombay was appointed as the
Liquidator of HTPL.
th
6. MIDC by its letter dated 10 April, 2008 informed HTPL that as per
the policy of MIDC, the said property could not be allotted to an Industrial Co
operative Society and that therefore their request for transfer of the said plot
could not be accepted and the proposal of HTPL to transfer the said property in
favour of Sairam Industrial Cooperative Society Ltd. stood closed.
7. Thereafter, the occupant, vide her undated letter addressed to MIDC,
recorded that she had purchased the said property and that she proposed to
start her business activity on the said property and requested allotment/transfer
th
of the said property in her name. This letter was received by MIDC on 16 April,
2008. Along with the said letter, MIDC received an undated letter from HTPL
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -5-
requesting for transfer of the said property in the name of “Smt. Sunita Vasudeo
Warke, Prop. of M/s. Sunita Enterprises”. The said letter was signed by
Mr. Vasudev Jayram Warke, authorized signatory under a Special Power of
th
Attorney dated 12 October, 2007 issued by HTPL. The said Vasudev Warke is
the husband of the occupant. In the recital of the said Power of Attorney, Mr.
Rattan Kumar Talia, Director of HTPL has recorded that under a Board
th
Resolution dated 12 September, 2007 Mr. Thalia had been authorized by the
Board of HTPL to identify a buyer, negotiate and finalise the sale transaction
with a purchaser and also to sign all necessary papers and documents for the sale
transaction in respect of the said property, and that since Mr. Thalia was
engrossed in some other matter which was of more importance, he had therefore
decided to appoint his friend Mr. Vasudeo Jayram Warke, in whom he had full
confidence, as his true and lawful attorney for dealing with all documentary
compliance including registration and notarization of all the requisite documents
relating to the transfer of the said property held by HTPL.
nd
8. Thereafter, IDBI Bank vide their letter dated 2 July, 2008 furnished
to the MIDC a warrant of attachment issued by the Debt Recovery Tribunal
(“DRT”) in respect of the said property. IDBI Bank vide its further letter dated
th
14 November, 2008 informed MIDC that in the proceedings before the DRT in
respect of attachment of the said property, the occupant has filed an intervention
application contending that she has purchased the said plot of land from HTPL,
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -6-
and requested MIDC to furnish the documents pertaining to the said property.
st
MIDC vide their letter dated 21 July, 2008 addressed to the occupant, whilst
th
referring to letter dated 9 July, 2008 of the IDBI Bank, informed the occupant
that it was not possible for the MIDC to process further her application without
the decision of the DRT in Recovery Proceedings No. 212 of 2003 filed by the
nd
IDBI Bank. The Recovery Officer passed an order dated 2 December, 2009 in
favour of the occupant and IDBI Bank filed an Appeal therefrom being Appeal
No. 4 of 2010. The Official Liquidator was directed by the DRT to file the status
report of the said property and statement in the matter. Accordingly, the Official
th
Liquidator filed his status report dated 7 July, 2010 before the DRT wherein he
has recorded that he proposes to submit a report before the High Court, Bombay,
declaring the transaction to be void and to seek possession of the said property
from the occupant.
th
9. MIDC vide its letter dated 19 January, 2010 addressed to HTPL
requested HTPL to produce the original copy of the Resolution of the Members of
the Board to transfer the said property, no objection certificate from Labour
Commissioner and certificate of no dues of water and service tax. However,
HTPL failed to comply with the requirements of MIDC. The said property, as on
date, is standing in the name of HTPL.
10. In the meantime the Official Liquidator has moved the above report
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -7-
and has prayed for the aforestated reliefs/directions.
11. Initially in his Report, the Official Liquidator had invoked Sections
531 (1) and 531 A of the Companies Act, 1956 (“the Act”). Subsequently, the
th
Official Liquidator in his rejoinder dated 29 September, 2011 has submitted
that since the alleged sale of the property is after the date of presentation of the
Company Petition filed for winding up of the Company, the transaction is void as
per the provisions of Section 536 (2) and 537 (1) (b) of the Act.
th
12. The Applicant has filed her affidavitinreply dated 5 September,
nd
2011, a further affidavit dated 22 December, 2011 and an additional affidavit
th st
dated 27 March, 2012. MIDC has filed its affidavit dated 21 January, 2012 and
th
IDBI has also filed its affidavit dated 19 November, 2011.
13. Mr. Malik, the learned Advocate appearing for the occupant has
submitted that the transaction entered into by and between the occupant and
HTPL is a bona fide transaction which is completed and possession of the said
property was also given to the occupant by HTPL. He has relied on a copy of the
th
letter written by HTPL dated 14 November, 2007 enclosing a Photostat copy of
th
a receipt of possession issued by MIDC to HTPL. In the said letter dated 14
November, 2007 HTPL has recorded “ Now that we have given you the possession
of the said plot No. H16, MIDC Waluj Ind. Estate,Aurangabad, we are handing
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -8-
over the said possession receipt to you”. Mr. Malik submitted that the said
transaction was entered into with the occupant by HTPL in view of the honest
and compelling need to dispose of the said property. He has therefore submitted
that the transaction pertaining to the sale of the said property between the
occupant and HTPL is honest and bona fide and the occupant has paid an
amount of Rs. 30 lakhs towards sale consideration to HTPL. He has submitted
that though valuation report was not obtained by the occupant, the sale price of
the said plot at the relevant time was about Rs. 65 lacs. Rs. 30 lacs was paid to
HTPL and an amount of approximately Rs. 27 lacs plus Rs. 7 lacs were to be
paid towards transfer fee and service charge respectively. He has submitted that
a transaction need merely be honest or bona fide to deserve sanction. It is
submitted that the Official Liquidator has neither alleged fraud nor has he
alleged that the sale is at an undervalued price. It is submitted that the Official
Liquidator must plead and prove that the transaction was fraudulent before it
could be treated as void under Section 536 (2) of the Act. It is submitted that
since the occupant’s rights have been effectually pleaded and the permission
from MIDC could not be obtained due to the wrongful attachment levied by
IDBI, the sale must now receive full effect. He has submitted that the occupant is
entitled to the protection of Section 53A of the Transfer of Property Act, having
come into possession of the said property in part performance of the alleged
agreement in her favour. In support of his aforestated submissions/contentions
Mr. Malik relied on the decisions in Kamani Metallic Oxides Ltd. Vs. Kamani
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -9-
1 2
Tubes Ltd. ; Travancore Rayons Ltd. Vs. Registrar of Companies ; S.P. Khanna vs.
3 4
S.N. Ghosh ; Monark Enterprises vs. Kishan Tulpule and Ors. ; and Abdul Shukoor
5
vs. Arji Papa Rao . Mr. Malik has therefore submitted that the transfer of the said
property is liable to be validated under Section 536 (2) of the Act in favour of
the occupant.
14. Mr. J.P. Sen, learned Advocate appearing for the Official Liquidator,
has submitted that the contentions raised by the occupant are misconceived and
the Official Liquidator ought to be directed to take possession of the said
property in view of the following:
(a) The question of validating a transaction under Section 536 (2) arises only
where the transfer is complete. In the present case, there is no completed
transfer in favour of the occupant which is capable of validation. Even the
alleged agreement pleaded by the occupant is clearly illegal having been
reached after the winding up order was passed;
(b)Further, for a transfer to be validated under Section 536 (2), the
Applicant must plead and prove not only that the transfer is bona fide but
also that the transfer was in the interest of the Company. The occupant
1 [1984] 56 Com. Cas. 19 (Bom.)
2 [1988] 64 Com. Cas. 819
3 1976 TLR 1740
4 [1992] 75 Com. Cas. 89
5 AIR 1963 SC 1150
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -10-
has made no attempt to show this.
(c) Section 53A of the Transfer of Property Act has no application in the
present case in the absence of any agreement in writing from which the
terms of the alleged transaction is capable of being ascertained with
reasonable certainty.
In support of his above contentions, Mr. Sen has relied on the decisions in the
1
Governor and Co. of the Bank of Scotland vs. Macleod and others ;M/s. JK
2
(Bombay) Pvt. Ltd. Vs. New KaiserIHind Spinning and Weaving Company ;
3
Shankar Gopinath Apte vs. Gangabai Patwardhan ; Rambhau Namdeo Gajre vs.
4 5
Narayan Bapuji Dhotra ; Shravan Jayaram Patil vs. Garbad Ukha Nhavi ; Tulsidas
6 7
Jasraj Parekh vs. Industrial Bank of Western India ; J. Sen Gupta (Pvt.)Ltd., In re ;
8
Kanchan Kumar Dhar, Official Liquidator vs. Dr. L.M. Visrani and others ;
9
Sarigam Containers Pvt. Ltd. Vs. Magatul Industries Ltd. ; and Laxman Yeshwant
10
Prabhudesai and Ors. vs. NRC Ltd. and others
1 [1914] AC 311 at 317318
2 AIR 1970 SC 1041, 1058 (paras 38 and 39)
3 AIR 1976 SC 2506, 2509 (Para 11)
4 [2004] 8 SCC 614, 618 (para 8),
AIR 1943 Bom. 406407
5
6 AIR 1931 Bom. 2 at pages 1821
7 [1956) 32 Com. Cas. 876 at pages 879886
8 [1986] 60 Com. Cas. 746 at 748749, 752
9 2008 (5) Bom. CR 112, 119120 (Paras 21 and 23)
10 2011 (Supp.) Bom. CR 243248 at 251 (Paras 1923)
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -11-
15. The learned Advocate appearing for the MIDC has submitted that
th
though MIDC by its letter dated 19 January, 2010 addressed to HTPL requested
HTPL to produce the original copy of the Resolution of the Members of the Board
to transfer the said property, no objection from Labour Commissioner and the
certificate of no dues of water and service tax, MIDC has not received any of the
said documents. MIDC has therefore not allowed the said property to be
transferred to the occupant and the said property till date stands in the name of
HTPL. In the circumstances it is submitted on behalf of the MIDC that this Court
may pass appropriate orders in the above Official Liquidator’s report. The
learned Advocate appearing for IDBI has submitted that no sale has taken place
in respect of the said property in favour of the occupant and the claim of the
occupant is illegal and dishonest and the Official Liquidator should be called
upon by this Court to take possession of the said property from the occupant.
16. I have considered the pleadings filed by the parties, the submissions
advanced on behalf of the learned Advocates appearing for the parties and the
judgments cited by them.
17. Admittedly there is no document executed by and between the occupant
and the Company recording the alleged sale of the said property by the Company
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -12-
in favour of the occupant. However, the occupant has contended that she has
th
paid the entire consideration of the suit property to the Company between 14
th
May 2007 and 26 September 2007. If the amounts paid between May and
September 2007, by the occupant to the Company is indeed the purchase price of
the said property, it would necessarily follow that the alleged sale was finalized
th
on or prior to 14 May 2007. However this fact is belied by the Special
th
Irrevocable Power of Attorney dated 12 October 2007 executed by Mr. Rattan
Kumar Thalia, Director of HTPL wherein it is recorded that the Board of HTPL
th
has by a resolution on 12 September 2007 authorized Mr. Thalia to identify a
buyer, negotiate and finalize the sale transaction. If the sale of the said property
th
was finalized between the occupant and the Company on or before 14 May
2007 and almost all the installments (except one) was paid by the occupant to
th
the Company by 12 September 2007, the question of the Company authorizing
th
Mr. Thalia to identify a buyer, negotiate and finalize the sale transaction on 12
September 2007 would never arise. Again, the question of Mr. Thalia
th
authorizing his “friend” Mr. Vasudeo Warke (husband of the occupant) on 12
October 2007 to identify a buyer, negotiate and finalize the sale transaction
would never arise, since according to the occupant she had paid the entire
th th
agreed sale price to HTPL by 26 September 2007 i.e. much before 12 October
2007. The story now spun by the occupant that the amount paid by her to HTPL
th th
between 14 May 2007 and 26 September 2007 constitutes the entire sale price
of the said property purchased by her from HTPL therefore cannot be accepted
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -13-
and is hereby rejected.
18. Even if this Court assumes for the sake of argument that the
occupant had in fact paid Rs. 30 lacs to HTPL towards sale consideration of the
said property, the next question the Court is required to consider before
validating the sale under Section 536 (2) of the Act is whether the transfer has
been completed in favour of the occupant, prior to the winding up order. It is
settled law that if a transfer has not been completed prior to the winding up
order, no application would lie to the Court for a direction to the Official
Liquidator to complete the transfer. As pointed out on behalf of the Official
Liquidator, the classic statement of the law in this regard is to be found in the
Judgment of the House of Lords in the Governor and Co. of the Bank of Scotland
vs. Macleod and others ( supra ) , where Lord Kinnear observed that while “ rights in
security which have been effectually completed before the liquidation must still
receive the effect which the law gives to them”, 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 brankrupt is by his bankruptcy”.
These observations were cited with approval by the Hon’ble Supreme Court in
M/s. JK (Bombay) Pvt. Ltd. Vs. New KaiserIHind Spinning and Weaving
Company ( supra ) , where Shelat, J. speaking for the Court went on to observe
that after a winding up order is passed, “ no new rights can thereafter be created
and no uncompleted rights can be completed, for doing so would be contrary to the
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -14-
creditors' right to have the proceeds of the assets distributed among them pari
passu” . In the present case, the transfer in favour of the occupant has not been
completed by registered deed or otherwise. In fact, there is not even a
document recording the terms of any alleged agreement that may have been
reached between the Company and the occupant for the transfer of the said
property in her favour. Even the requisite NOC from MIDC for the transfer of the
leasehold rights in the said property in favour of the occupant was not obtained
prior to the winding up order. It is therefore clearly established that in the
present case there is no completed transfer in favour of the occupant which is
capable of validation.
19. Even in a case where the transfer is complete, a further question that
arises for consideration is whether for a transfer to be validated under Section
536 (2) of the Act, the Applicant must plead and prove not only that the transfer
is bona fide but also that the transfer was in the interest of the Company.
Section 536 (2) of the Act provides that any disposition of property made after
commencement of winding up shall, unless the Court otherwise orders, be void.
Some of the situations in which a transfer may be validated under Section 536
(2) of the Act were enumerated in the judgment of a Division Bench of this Court
in Tulsidas Jasraj Parekh vs. Industrial Bank of Western India (supra) . While
sounding a note of caution that “the discretion confided to the Court cannot be
crystallized in rules of law in view of the varying circumstances of human action”
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -15-
the Court held that it would not permit transactions bona fide entered into in
the ordinary course of trade and completed before the date of the winding up
order to be annulled. In respect of transactions which were not in the ordinary
course of trade, the principles that would govern the exercise of discretion under
Section 536 (2) were summarized in the judgment of the Calcutta High Court in
J. Sen Gupta (Pvt.)Ltd. ( supra ) as follows:
“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.
4. If it is 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.”
The principle that a transfer must be in the best interests of the Company to be
validated under Section 536 (2) was also reaffirmed in the judgment of this
Court in Kanchan Kumar Dhar, Official Liquidator vs. Dr. L.M. Visrani and others
( supra ), where Parekh, J. observed:
“ The question is not whether Respondent No.1 acted bona fide
or he was a victim of a deception or a fraud practiced on him
by the Company. The question is whether the transaction in
question is in the interest of the business of the Company or in
the interest of the Company (now in liquidation) or its
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -16-
creditors.”
20. The Judgment in J. Sen Gupta Pvt. Ltd. (supra) was more recently
followed by a single Judge of this Court in Sarigam Containers Pvt. Ltd. Vs.
Magatul Industries Ltd. ( supra ), where the Court observed that the fact that a
transaction was in the best interest of the Company “is a factual aspect to be
pleaded and proved” by the party seeking validation. This principle was also
reiterated by a Division Bench of this Court in Laxman Yeshwant Prabhudesai and
Ors. vs. NRC Ltd. and others ( supra ), where the Court held:
“ Thus, the principles that can be deduced are that the transactions
which have been undertaken under compulsion of circumstances in
order to save or protect the property of the Company could be saved
provided evidence is produced about such compulsion. The assets of
the Company cannot be disposed of at the mere pleasure of the
Company. If the business is going to be paralyzed, then the Court in
appropriate cases can, for the benefit and interest of the Company,
save the transaction. It is for enabling the Company to continue as a
going concern and to protect the interest of the shareholders and
creditors that such a power is conferred and must be exercised.”
The suggestion to the contrary on behalf of the occupant that a transaction need
merely be honest or bona fide to deserve sanction is unsupported by authority.
The judgments cited on behalf of the occupant do not support this position. The
judgment of the Nagpur Bench of the Bombay High Court in S.P. Khanna (supra)
is a case where the Court was considering a transaction in the ordinary course of
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -17-
business between two branches of a Bank which subsequently entered
liquidation. It is a settled position that where a transaction is in the ordinary
course of business, the burden that must be discharged to validate such a
transaction is far lower. A bona fide transaction of this nature would be protected
by a Court under section 536 (2) of the Act. The judgment in S.P. Khanna
(supra) was considered by a Division Bench of this Court in Laxman Prabhudesai
(supra) where sanction under Section 536 (2) was declined despite the fact that
the property had changed hands several times over and the Applicant was the
eventual transferee who had no links to the Company in liquidation.
21. The other two judgments under Section 536 of the Act, of this Court
in Kamani Metallix Oxides (supra) and of the Kerala High Court in Travancore
Rayons Ltd. (supra), cited on behalf of the occupant are equally unhelpful. They
deal with the question as to whether an application under Section 536 (2) will
lie before a winding up order is passed. While answering the question in the
affirmative, both judgments held that such an application ought to be allowed
where the proposed transfer is in the interest of the Company. I am in
agreement with the submission advanced by the learned Advocate appearing for
the Official Liquidator that the occupant has made out no ground in the present
case for the Court to direct otherwise. Except for a bare statement in her further
Affidavit that the Company has made a business deal “keeping in mind their
business need at that time”, the occupant has neither pleaded nor proved that
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -18-
the said alleged transfer is in the best interest of the Company. She has
admittedly not filed an application seeking sanction of the Court to the alleged
transfer in her favour of the said property. She has only filed a reply to the report
of the Official Liquidator seeking directions from this Court in respect of the said
property. She has merely relied on the fact that she has paid a sum of Rs. 30
lakhs to the Company, which she claims was the consideration that was agreed
upon and that she was placed in possession of the property by the Company. She
has not even made an attempt to demonstrate that the alleged consideration was
at par with the prevailing market price. The question of validation in the absence
of the occupant establishing that the transfer was in the interest of the Company
therefore does not arise.
22. It was also sought to be contended on behalf of the occupant that the
Official Liquidator must plead and prove that the transaction was fraudulent
before it could be treated as void under Section 536 (2) of the Act. This is clearly
contrary to the judgment of this Court in case of Sarigam Containers (supra).
Section 536 treats as void any transfer after commencement of winding up
unless the Court otherwise directs. This Court has held in Kanchan Kumar Dhar
(supra) that in view of the tenor of the section, the Official Liquidator is not
required to file any application seeking a declaration that a transfer is void. As
such, the question of any burden resting on the Liquidator cannot possibly arise.
Even otherwise, if such a burden were to be cast on the Official Liquidator, he
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -19-
would find it impossible to discharge in many cases, having limited resources
and often even more limited access to the relevant records. The two judgments
cited on behalf of the occupant on the issue of burden do not support her case. In
Monark Enterprises (supra) this Court held Section 536 of the Act to be
inapplicable in view of the fact that there was a disposition of the property prior
to the commencement of winding up. The observations in the judgment as to
burden and as to the ingredients that must be established to set aside a
transaction are in the context of Sections 531 and 531 A which are inapplicable
in the present case. The judgment of the Hon’ble Supreme Court in Abdul
Shukoor (supra) is also of little assistance. The said judgment rendered under
Section 53 of the Transfer of Property Act rightly holds that the initial burden to
establish a fraudulent transfer would lie on the Plaintiff who seeks to impugn the
transaction. Fraud is not one of the elements of Section 536 which stipulates that
any transfer after the commencement of winding up is void unless the Court
otherwise directs.
23. As regards the reliance by the occupant on Section 53A of the
Transfer of Property Act, the said Section enables a transferee to resist an
attempt made by the owner to recover possession of the property under certain
limited circumstances which are not to be found in the present case. As held by
the Hon’ble Supreme Court in its decisions in Shankar Gopinath Apte vs.
Gangabai Patwardhan ( supra ), and Rambhau Namdeo Gajre vs. Narayan Bapuji
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -20-
Dhotra ( supra ) , the Section applies only where any person contracts to transfer
for consideration any immovable property in writing, signed by him or on his
behalf from which the terms necessary to constitute the transfer can be
ascertained with reasonable certainty and such person has been placed in
possession of the property in pursuance of such a contract. In the present case, it
is an admitted position that no written contract was entered into between the
Company and the occupant. There is even otherwise no means of ascertaining
the terms of the transaction (including the consideration) alleged to have been
agreed to. Though the occupant has been found to be in possession of the said
property, the circumstances in which she was so placed are unclear. The
th
occupant has relied on the alleged letter dated 14 November, 2007 where there
is a reference to the occupant having been placed in possession of the said
property by HTPL. The occupant has however not produced any possession
receipt that may have been executed between the parties which would indicate
the basis on which the possession was handed over. The occupant merely relied
st
on an alleged letter dated 31 December, 2007 addressed by the Company to
MIDC seeking their no objection for the transfer of the said property to the
occupant as a Chief Promoter of the proposed Society. Apart from the fact that
the said letter does not disclose any agreement in favour of the occupant in her
personal capacity or the terms and conditions of any such alleged agreement, it
is a settled position that such a letter would not constitute an agreement in
writing for the purpose of Section 53A. In fact, in Shravan Jayaram Patil vs.
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -21-
Garbad Ukha Nhavi ( supra ) where an application was made by a Plaintiff to have
the Defendant's name entered in the mutation register in respect of certain land
on the ground that it had been sold by him to the Defendant orally and setting
out the terms of the sale, it was held not to be sufficient to satisfy the
requirements of Section 53 A of the Act. In view thereof, the reliance placed by
the occupant on Section 53 A of the Transfer of Property Act also lends no
assistance to the occupant and the learned Advocate appearing for the Official
Liquidator is correct in his submission that Section 53A of the Transfer of
Property Act has no application in the present case in the absence of any
agreement in writing from which the terms of the alleged transaction is capable
of being ascertained with reasonable certainty.
24. In the above circumstances, in my view, the occupant has not made
out any case for validating the alleged transfer of the said property in her favour
by the Company in liquidation. The Official Liquidator is therefore directed to
take physical possession of the said property for the benefit of the creditors and
workers of the Company in liquidation. The Official Liquidator’s report is
accordingly disposed of.
25. At the request of the learned Advocate for the occupant the Official
Liquidator is directed not to take physical possession of the said property for a
period of two weeks from today. However, pending the Official Liquidator
::: Downloaded on - 26/06/2024 07:31:32 :::
KPP -22-
taking possession of the said property, the occupant shall not part with
possession of the said property or induct any third party therein.
(S.J. KATHAWALLA, J.)
::: Downloaded on - 26/06/2024 07:31:32 :::