Court validates bona fide pre-litigation asset sale under Section 536(2) despite pendency of winding-up petition.

The Petitioner filed for the winding up of the Respondent Company on April 27, 2015

On September 9, 2016, the Company agreed to sell its registered office ("the Property") to the Applicant for Rs. 27 crores, executing a registered deed on October 1, 2016 ("First Transaction")

The Company Petition was admitted on November 29, 2016, and a final winding-up order was passed on February 1, 2018

The Applicant subsequently sold the property to Pharma Access Pvt. Ltd. on December 2, 2019 ("Second Transaction")

The Official Liquidator (OL) sought to declare both transactions void under Section 536(2) as they occurred after the commencement of winding-up proceedings

The Applicant sought validation of the transactions, claiming they were bona fide and the proceeds were used to settle secured creditors like Fullerton India Credit Company Ltd

1. Whether the "First Transaction" (sale by the Company to the Applicant) should be validated under Section 536(2) of the Companies Act, 1956

2. Whether the "Second Transaction" (sale by the Applicant to a third party) falls within the scope of Section 536(2) for Court validation

3. Whether the conduct of the ex-directors affects the validation of the sale to a bona fide purchaser

Section 536(2) of the Companies Act, 1956, which states that Any disposition of property made after the commencement of winding up is void unless the Court orders otherwise

Following Pankaj Mehra v. State of Maharashtra, the Court interpreted "void" as "voidable," holding that the provision is an enabling power to validate bona fide transactions

The Court relied on Kamani Metallic Oxides Ltd. v. Kamani Tubes Ltd. and Navjivan Mills Ltd., establishing that transactions in the ordinary course of business or those benefiting the company’s creditors/shareholders should be protected

It further referred to Helbon Engineers Pvt. Ltd. v. Feral Anant Machinery Manufacturers Pvt. Ltd. regarding the validation of sales where due diligence was conducted and no creditors remained aggrieved

The Court reasoned that the Applicant was a bona fide purchaser for value who exercised due diligence, as a title search prior to the transaction showed no pending litigation

Crucially, the OL conceded that the Property was not sold at an undervalue

The Court found the First Transaction benefited the Company because the proceeds were used to discharge a major secured debt of Rs. 17.40 crores to Fullerton India Credit Company Ltd. and settle other creditors; notably, no workmen or other creditors came forward to oppose the application despite notice

Regarding the "Second Transaction," the Court noted it was a private sale between the Applicant and a third party, executed after the First Transaction gave the Applicant title, and thus did not constitute a "disposition of the property of the company" under Section 536(2)

The Court condemned the ex-directors for dealing with property despite having knowledge of the winding-up petition, declaring their conduct lacked bona fides

It held that the Second Transaction did not require validation as it was a private transaction between two non-company parties

The Official Liquidator's Report seeking to declare the transactions void was dismissed. The Court granted liberty to statutory authorities to proceed against the ex-directors personally for any outstanding statutory dues