Mutation Entries Without Registered Instruments Executed Within Six Months of Winding Up Constitute Void Fraudulent Preference

The Company (Indage Vineyard Pvt. Ltd.) acquired agricultural land (“Subject Property”) in 2008 for Rs. 84.50 lakhs

On April 15, 2011, the Company passed a resolution to transfer the property to its Promoters (the Choughule family) purportedly under Section 293(1)(a) of the Companies Act, 1956

A winding-up petition was filed on April 30, 2011, marking the commencement of winding-up proceedings under Section 441

Despite the absence of a registered sale deed or documented consideration, the Promoters successfully mutated the land records into their names on June 30, 2011

The Company was ordered to be wound up in 2014

In 2023, the Promoters attempted to sell the property to third parties, which was blocked by the Official Liquidator (OL)

The Promoters eventually argued that since no formal transfer instrument was executed, there was no "transfer" to be declared void under Section 531

1. Whether the mutation of land records in favor of the Promoters without a registered instrument and consideration constitutes a "fraudulent preference" under Section 531 of the Companies Act, 1956

2. Whether the lack of a formal transfer deed exempts the transaction from being declared void under the Act

Section 531(1) of the Companies Act, 1956, which provides that any transfer of property made by a company within six months before the commencement of its winding up is deemed a fraudulent preference and invalid if it would have been deemed so in an individual’s insolvency

The Court applied the civil standard of "preponderance of probability" to determine fraudulent intent

The Court distinguished the precedents of Monark Enterprises v. Kishan Tulpule and Morepen Finance Ltd. v. RBI, noting that those cases involved "valuable consideration" and "good faith," which were absent in the present matter

The Court reasoned that the transfer was a related-party transaction involving a wholly-owned private company where the Promoters exercised total control

The resolution was passed just fifteen days before the winding-up petition was filed, and the actual mutation occurred after the commencement of winding-up

The Court found no evidence of any consideration paid or valuation conducted, concluding that the "pretended consideration" of past loans was a device to erode the assets available to legitimate creditors

The Court rejected the Promoters' technical defense that no "transfer" occurred due to the lack of a registered deed, holding that a transfer effected via mutation entries—achieved through the Promoters' "resourcefulness"—still falls within the ambit of Section 531(1)

The Promoters' attempt to sell the property in 2023 further evidenced an intent to place the asset beyond the reach of the Liquidator

The Court held that the mutation entries were wholly illegal and ordered their reversal. The Collector was directed to restore the Company’s name as the owner of the Subject Property in the land records within four weeks of receiving the judgement