Substantial completion of sale transactions prior to winding-up is not fraudulent preference and protects bona fide purchasers.

14 applicants invested in a residential housing scheme floated by M/s JVG Finance Ltd. in Hyderabad in 1995.

Registered sale deeds were executed between December 1997 and March 1998, and possession was handed over.

On June 5, 1998, a Provisional Liquidator was appointed following a petition by the RBI, and the company was ordered to be wound up on August 29, 2003.

In 2003, the Official Liquidator (OL) took symbolic possession of the plots.

A 'One-Man Committee' (OMC) verified the applicants' claims between May and June 2011, holding they were entitled to lawful possession.

The ex-management and Ms. Aneeta Sharma (wife of the ex-director) objected to the release of plots, alleging the transfers were void due to an RBI prohibition order dated October 10, 1997, and fraudulent preference under the Companies Act.

1. Whether the sale deeds executed after the RBI prohibition order but before the winding-up petition are valid and binding.

2. Whether the transfers executed within six months of the winding-up petition constitute "fraudulent preference" under Section 531 of the Companies Act, 1956.

3. Whether the ex-management or their associates have the locus standi to object to the release of assets in a liquidation proceeding.

Section 531 of the Companies Act, 1956, which invalidates transfers made within six months of winding up if intended as a fraudulent preference.

Regarding the RBI Act, it applied principles from BOI Finance Ltd. v. Custodian, stating that violations of RBI circulars do not automatically invalidate contracts with third parties.

Fraudulent preference requires a "dominant motive" to prefer one creditor over others as held in IDBI Bank v. Official Liquidator.

Section 531A was applied noting that transfers in the "ordinary course of business" and in "good faith for valuable consideration" are protected.

The court found that the applicants were bona fide purchasers who paid valuable consideration and booked plots as early as 1995, long before winding-up proceedings commenced.

The OMC reports confirmed that the transactions were in the ordinary course of business and lacked any "dominant motive" to defraud other creditors, thus exempting them from Section 531.

The court dismissed the ex-management's reliance on the RBI prohibition order, noting that such orders are penal against the company and do not nullify concluded sale deeds to third parties unaware of the restrictions.

The court held that the ex-management has no locus standi to obstruct the liquidation process once the OL has assumed control, characterizing the objections by Ms. Aneeta Sharma as "proxy litigation" for the ex-director.

The review petition (CA 1374/2018) filed by Ms. Aneeta Sharma was dismissed for lack of merit and locus standi.

The Official Liquidator was directed to hand over physical possession of the plots to the applicants within three weeks.