Coates Of India Ltd. vs M/S Mitra Prakash Ltd.
2012 Latest Caselaw 1952 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

A.F.R.
 
Reserved
 
Case :- COMPANY PETITION No. - 35 of 2000
 

 
Petitioner :- Coates Of India Ltd.
 
Respondent :- M/S Mitra Prakash Ltd.
 
Petitioner Counsel :- Gopal Chandra Saxena, A.N. Mishra, A.N. Mitra, Shiv Bahadur Singh
 
Respondent Counsel :- J. Nagar, Arun Kumar Singh, B.K. Tewari, C.B. Yadav, C.P. Singh, C.S.C., Krishna Mohan, Kushal Kant, Miss Bushra Marium, Navin Sinha, O.L.B. K.L. Srivastava, P.K. Mukherji, R.K. Pandey, Raj Nath N. Shukla, Ram Krishna, S. Narain Sinha, T.P. Singh, U.P. Singh, V.K. Srivastava, V.K. Tiwari, V.V.Tiwari, Yashwant Verma
 

 
Hon'ble Pankaj Mithal,J.

The present petition for winding up of the Company M/s Mitra Prakashan Ltd. was filed on 19.5.2000. The petition was ordered to be advertised by publication in accordance with Rule 24 of the Company Court Rules, 1959 vide order dated 28.11.2001. Consequently, publication was made in newspapers "Northern India Patrika" and "Amar Ujala" both dated 15.12.2001. It was also published in the Official Gazette on 22.12.2001.

The Company was ordered to be wound up vide order dated 23.5.2005 and the Official Liquidator was appointed.

One Pankaj Kumar Parekh has filed Application No.103970 of 2007 in respect of one of the properties of the Company Flat No.8A situated at 8th Floor "Dimple Court", 26, Shakespeare Sarani, Kolkata praying that the aforesaid property be allowed to be peacefully enjoyed and occupied by him without any restrain or fetter pursuant to the agreement dated 10.5.2002 and sale deed dated 13.9.2002 after declaring that it is not an asset of the Company in liquidation.

In respect of the above property, another Application No.22094 of 2009 has been filed by Deepak Mitra, one of the ex-Directors of the Company in liquidation with the prayer to declare null and void the sale deed dated 13.9.2002 and to direct the Official Liquidator to take possession of the said property or for attachment of it.

The Official Liquidator has submitted report No.124 of 2007 in which one of the prayers made is to direct Pankaj Kumar Parekh to vacate the aforesaid property and to handover its possession to Official Liquidator as the winding up proceedings had commenced in 2000 and the lease in his favour was made subsequent to it.

On behalf of the Official Liquidator a counter affidavit, numbered as 211926 has been filed in reply to the application of Pankaj Kumar Parekh.

The Company Court on the motion of the Official Liquidator, as reflected from the order dated 18.2.2011, was prima facie satisfied that the sale/sub lease of the above property made on 13.9.2002 is a fraudulent preference, hit by the provisions of Section 537(1)(b) read with Section 441(2) of the Companies Act, 1956 and, therefore, directed for issuing notices to Ashok Mitra, the ex-Director of the Company in liquidation who executed the agreement and sub-lease of the above property, and to Pankaj Kumar Parekh, the purchaser of the property to show cause why the said transactions may not be declared void and direction be issued to handover possession of it to the Official Liquidator.

It appears that pursuant to the above order, in response to the show cause notices issued, Pankaj Kumar Parekh as well as Ashok Mitra have filed responses in the shape of separate counter affidavits.

I have heard Sri Manish Goyal, learned counsel appearing for Pankaj Kumar Parekh, Sri Ravikant, Senior Advocate assisted by Sri Kapil Ratore, learned counsel appearing for Ashok Mitra, one of the ex-Director of the Company in liquidation, Sri Pranav Ganguli, learned counsel appearing for Deepak Mitra, another ex-Director of the Company in liquidation and Sri R.N.Shukla, learned counsel appearing for the Official Liquidator on Applications No.103970 of 2007 and 22094 of 2009 as well as O.L. Report No.124 of 2007.

In short, the submission of Sri Manish Goyal, learned counsel appearing for Pankaj Kumar Parekh is that he has acquired rights in the above property in a bona fide manner and in good faith for valuable consideration after taking all possible care that a prudent purchaser could have taken and, as such, his rights in the property on the basis of the agreement dated 10.5.2002 and the so-called deed of sale dated 13.9.2002 which in effect is a deed of transfer of leasehold rights of the property of the Company in liquidation are not liable to be interfered with.

Sri Ravi Kant, Senior Advocate has justified the above transaction on the basis of the settlement/order of the Company Law Board dated 11.9.2002 and the resolution dated 15.3.2002 of the Board of Directors wherein Ashok Mitra was permitted to dispose of the above property in the interest of the Company in liquidation. He has submitted that the above transactions were entered into on behalf of the Company prior to the winding up order though after the initiation of the proceedings for winding up and, therefore, the said transactions are not void but are only voidable. His further submission is that no one has made any prayer for declaration of the above transaction as void and, therefore, they cannot be declared to be void. The said transactions are bona fide transactions executed by Ashok Mitra on behalf of the Company in liquidation.

In contrast to the above submissions advanced on behalf of Pankaj Kumar Parekh and Ashok Mitra, Sri Pranav Ganguli, learned counsel for Deepak Mitra another ex-Director of the Company in liquidation, contends that the above transactions are based upon a false resolution of the Board of Directors. No such resolution authorising Ashok Mitra to transfer the above property was passed and otherwise if passed, it has been passed in a meeting of the Board of Directors where quorum was not complete, therefore, the said resolution is no resolution in the eyes of law.

On behalf of the Official Liquidator, Sri R.N.Shukla has submitted that in view of Section 441(2) of the Act the winding up proceedings have commenced on 19.5.2000 and, as such, any disposition of the property of the Company in liquidation could not have been made by its ex-Directors or the Company without the leave of the Court. The transactions are therefore void under Section 531 and 537 of the Company Act.

There is no dispute that the Company in liquidation had acquired rights in the above property which have been transferred by the indenture dated 13.9.2002 in favour of Pankaj Kumar Parekh pursuant to the agreement dated 10.5.2002 between the two.

One M/s. Ruby (Dimple) Properties Private Ltd. acquired leasehold rights over the whole of property 26, Shakespeare Sarani for a period of 75 years sometime in the year 1973-74. It agreed to transfer its unexpired part of leasehold rights in the aforesaid property in favour of Kuldeep Singh Hundal vide registered agreement dated 9.4.1981 for a consideration of Rs.1,43,724/-. The Company in liquidation entered into an agreement dated 24th May, 1986 with aforesaid Kuldeep Singh Hundal in confirmation with M/s. Ruby (Dimple) Properties Private Ltd. for acquiring residual leasehold rights in the above property. Thus, the Company in liquidation acquired rights as a lesee/sub-lesee in the above property. The Company in liquidation vide agreement dated 10.5.2002 agreed to transfer its rights in the said property to Pankaj Kumar Parekh. Finally on 13.9.2002 a tripartite indenture of sub-lease transferring rights and interest of the Company in liquidation in the above property in favour of Pankaj Kumar Parekh was executed between M/s. Ruby (Dimple) Properties Private Limited on the first part, Company in liquidation as the confirming party on the second part and Pankaj Kumar Parekh as the sub-lesee on the third part for a sale consideration of Rs.24 lacs which was all paid by cheques. The aforesaid indenture on behalf of the Company in liquidation has been signed by one of its ex-Directors Ashok Mitra. Pursuant to the above, Pankaj Kumar Parekh is said to be in possession of the property.

It is accepted to the parties that the agreement dated 10.5.2002 and finally indenture of transfer dated 13.9.2002 were executed on behalf of the Company by one of its Directors Ashok Mitra, after filing of the present winding up petition and its publication in the news-papers and the Gazette but before the passing of the winding up order. Therefore, the moot questions which need to be addressed is whether the above transactions, precisely the indenture of sale, which is actually a sub-lease dated 13.9.2002, is void in view of Section 536 of the Act; and if yes, whether Pankaj Kumar Parekh happens to be a bona fide purchaser in good faith of the property entitle to get protection over it through the process of Court.

Section 441 of the Act provides that voluntary winding up shall be deemed to have commenced from the time of the passing of the resolution to that effect by the Company and in all other cases it shall be deemed to have commenced at the time of the presentation of the petition for the winding up. Therefore, in the present case winding up commenced on 19.5.2000 when winding up petition was filed in Court.

Section 536(2) of the Act stipulates that any disposition of the property of the Company made after the commencement of the winding up shall, unless the Court otherwise orders, be void i.e. once a winding up of a company has commenced any transfer of its property would be void unless it is otherwise directed by the Court. Thus, transfer of any property by the company after the commencement of its winding up may or may not be void and it would depend upon the discretion of the Court.

Section 537(1)(b) provides that where any company is being wound up by the Court any sale of the property of the company held without the leave of the Court, after the commencement of winding up, shall be void. It means if the winding up proceedings have commenced, permission of the Court for the sale of properties of the company is mandatory, otherwise the sale shall be void.

A conjoint reading of Section 536(2) and 537(1)(b) would make it clear that on the commencement of winding up proceedings the properties of the company cannot be disposed of or transferred without the leave of the Court and, if they are so transferred, such a transaction shall be void unless it is otherwise directed by the Court. Even though the aforesaid provisions are coughed in a mandatory language nonetheless there is an option to the Court to direct otherwise i.e. not to declare the disposition to be void.

In Pankaj Mehra and another Vs. State of Maharashtra and others (2000)2 SCC 756 their Lordships of Supreme Court while dealing with the language of Section 536(2) of the Act, described that the word 'void' has different nuances. One of them is of course "null, or having no legal force or binding effect" but frequently it is used and construed as having the meaning of 'voidable'. The legislative intend behind the use of the word 'void' in Section 536(2) could be noticed from the fact that it has not employed it in its strictest sense as the Court has the power to order otherwise. The use of the words "unless the court otherwise orders" have diluted the vigour of the word 'void' enforcing to adopt the alternative meaning attached to the word i.e. 'voidable'. In statutes, the word 'void' is sometimes used in the strictest sense where the transaction is incapable of rectification and also in liberal sense. The act or contract neither wrong in itself nor against the public policy but declared void by statute may, therefore, be voidable only. Thus, the use of word 'void' need not automatically indicate and necessarily mean that any disposition made is ab initio void or nullity but its use may be in a sense of voidable.

The view expressed by the Madras High Court in R. Ranganathan Vs. Veerakumar Trading Chit Funds Pvt. Ltd. and others (1976) 46 Company Cases 637 (Madras) that sale having been effected without the leave of the Court after the commencement of the winding up proceedings of Section 537 of the Act is of no consequence and benefit in the light of the above decision of the Supreme Court in Pankaj Mehra (supra).

In view of the above legal position, merely for the reason that the above transactions relating to the disposition of the property of the Company in liquidation were executed after the commencement of the winding up proceedings cannot ipso facto be recognised as void on the ground that leave of the Court was not taken.

It is in the above backdrop a judicial exercise is necessary to examine the transactions before declaring them to be void under Section 536(2) read with Section 537(1)(b) of the Act.

The conduct of the parties and the attending circumstances in entering into such transactions plays a pivotal role in helping to take a decision in this regard.

Let me first consider the conduct of the purchaser Pankaj Kumar Parekh. There is nothing on record to establish that he is not a bona fide purchaser. According to him, he has taken all possible care which a prudent person could have taken before entering into the above transaction. He had satisfied himself that the company has rights in the said property, the said rights have not been transferred by it to any third party, the property is not mortgaged and is free from all encumbrances and that Ashok Mitra has been authorised by the resolution of the Board of Directors to execute the deed. He had no knowledge of the commencement of the winding up proceedings against the company in liquidation irrespective of the publication of the petition as no one connected with the company gave any information about it to him.

Sri R.N.Shukla, on the other hand, contends that publication of the winding up petition in the newspapers as well as in the Official Gazette are sufficient to draw a presumption that everyone including Pankaj Kumar Parekh had notice of the commencement of winding up proceedings.

The publication of the petition was in the newspapers published from Allahabad which probably had no circulation in Kolkata where the property is situate. The petition was also published in Gazette of the State of U.P. The persons living in Kolkata where the property is situated may not actually come across the publication aforesaid but even if any presumption of knowledge on their basis is drawn it would not render the actions of Pankaj Kumar Parekh doubtful to hold that he had failed to act bonafidely.

Section 53 of the Transfer of Property Act deals with the fraudulent transfer and provides that the transfers of immovable property made with intention to defeat the claims of the creditors of the transferor shall be voidable at the option of any creditors so defeated or delayed. At the same time, it impairs the rights of a transferee who purchases the immoveable property in good faith for valuable consideration. The above protection has been extended to the transferees on an equitable principle and is of a very wide import. The above equitable principle enshrined in Section 53 of the Transfer of Property Act has its applicability in all spheres of law unless specifically prohibited by statute. It means that if a person acquires property for value and in good faith and without being party to any fraudulent design of the transferor to defeat the claim of his creditors his rights would not be affected. Thus, where a transferee takes the transfer for consideration and in good faith even though the transfer may have been made by the transferor with any fraudulent intention, the right of the transferee would be protected.

There is nothing on record to establish that Pankaj Kumar Parekh had the knowledge of any fraudulent intention, if any, on the part of the transferor or that he was party to any such design. Thus, on the analogy of the principle enshrined in Section 53 of the Transfer of Property Act, his rights over the property in question need to be protected.

Ashok Mitra, the ex-Director of the Company in liquidation also claims to have acted bona fidely in making the above sale transaction. He relied upon the resolution of the Board of Directors of the Company in liquidation dated 15.3.2002 which authorised him to negotiate and sell the above property to pay statutory liabilities such as provident fund, gratuity, bonus as well as sales tax etc. of the Company in liquidation. A copy of the said resolution has been enclosed as Annexure - C to the counter affidavit filed on behalf of Pankaj Kumar Parekh. It is signed by the Chairman and three Directors. Therefore, apparently it cannot be said that the quorum of the meeting was not complete. None of the Directors who have signed the same have come forward to deny their signatures. The mere averment that it is false or it has been passed in a meeting where quorum was not complete is not sufficient to discard the same. One of the ex-Directors of the company alone cannot make complain against any transaction executed on the basis of the above resolution as the said resolution is binding upon each one of them.

The learned counsel for the Official Liquidator submitted that no part of the sale consideration was deposited in the accounts of the company.

Sri Ravi Kant, Senior Advocate in this regard drew the attention of this Court to Annexure - 8 to the reply filed by Ashok Mitra to the show cause notice. The aforesaid paper contains details as to how the said amount of Rs.24 lacs received by Ashok Mitra in the name of the company had been utilised. Most of it has been utilised for making payment of fee to various consultants, legal advisers, counsel for the company, Tehsildar and so on whereas part of it was paid in cash to some of the Directors of the Company in liquidation. No part of the proceeds were utilised for settling the dues/liabilities of the company which action is contrary to the spirit of the resolution of the Board of Directors permitting Ashok Mitra to sell the property.

In view of the above, the Court has no hesitation to record that the conduct of Ashok Mitra in utilising the above amount was not above board and that he is guilty of misuse and misappropriation of the entire amount. There is nothing on record to establish that the Board of Directors of the Company in liquidation ever authorised him to use the said part in the manner it has been utilised.

As far as the prima facie satisfaction of the Court as recorded in the order dated 18.2.2011 that the above transactions are in the nature of fraudulent preference, a reference may be had to Section 531 of the Act which deals with fraudulent preferences. The aforesaid provision provides for treating the transfer of property by or against the company made within six months before commencement of winding up proceedings to be a fraudulent preference of its creditors and be invalid by way of legal fiction. Apparently, the above legal fiction is applicable to transactions executed six months before the commencement of the winding up proceedings and not to transactions executed thereafter. Accordingly, Section 531 of the Act would not come into play and cover the above transactions so as to render them invalid.

In Administrator, MCC Finance Ltd. Vs. Ramesh Gandhi (2005) 127 Company Cases 85 (Madras) it has been held that the provisions of Section 531 of the Act are not attracted to transfer made after commencement of winding up or to transaction executed beyond six months prior to commencement of winding up. It fully supports the view I have taken above.

In Kamal Kumar Dutta and another Vs. Ruby General Hospital Ltd. and others (2006) 7 SCC 613 the Apex Court, quoting from Pennington's Company Law, 6th Edition, observed that if the Directors mismanage the company's affairs, they incur liability to pay damages or compensation to the company or to make restitution to it and held that the upshot of the above discussion is that the Directors are in a position of trust. They must confirm to the probity and their conduct should be above suspicion.

In the light of the above discussions, I am of the opinion that both the above transactions dated 10.5.2002 and 13.9.2002 amounting to disposition of the property of the Company, though executed after the commencement of the winding up proceedings, are not void but voidable and in view of the factual situation of this case it is not in the interest of justice to declare them void as a third party rights have intervened which party, like all prudent persons, had acted in good faith and in a bona-fide manner and deserves protection.

The Court, however, in exercise of its supervisory jurisdiction as a Company Judge cannot be oblivion to the lapses or the misconduct on part of the Director in utilising the proceeds thereof. Accordingly, Court directs Ashok Mitra, ex-Director of the Company in liquidation to deposit a sum of Rs. 24 lacs realised as proceeds of the above transactions with the Official Liquidator within a period of six weeks from today with simple interest at the rate of 8% per annum w.e.f. 13.9.2002 till the date of deposit failing which the same shall be recovered by the Collector, Allahabad as arrears of land revenue on the request in this behalf being made by the Official Liquidator.

Applications No.22094 of 2009 and 103970 of 2007 and O.L. Report No.124 of 2007 stand disposed of.

Office is directed to list other pending applications, one by one, for consideration.

Order Date :- 21.5.2012

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