Bombay High Court
Axis Bank Ltd And 8 Ors vs Export Import Bank Of India And Anr on 12 April, 2023
Bench: N. J. Jamadar
2023:BHC-OS:2825
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INTERIM APPLICATION NO.2917 OF 2021
IN
COMPANY PETITION NO.756 OF 2014
Axis Bank and Others ...Applicants
In the matter between
Export Import Bank of India ...Petitioner
vs.
GOL Offshore Limited (Company in Liquidation) ...Respondent
Ms. Apurva Sanglikar i/b. Link Legal, for the Applicants.
Mr. Aditya Pimple, for the Respondent.
CORAM : N.J. JAMADAR, J.
RESERVED ON : 8th FEBRUARY, 2023
PRONOUNCED ON : 12th APRIL, 2023
--------------
ORDER:
1. The applicants who claim to be the secured creditors of Gol
Offshore Limited, the company in liquidation, have preferred this
application to seek permission to appropriate their purportedly
exclusive security namely the amounts lying in the Trust and
Retention Account and O & M expenses sub account of the company
in liquidation as maintained by the applicant No. 1 Axis Bank
Limited, the Lead Bank, on behalf of the applicants.
2. The background facts necessary for determination of this
application can be stated in brief as under:-
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a] The applicants claimed to be the secured creditors of the
company in liquidation. Applicants No. 1 to 5, 8 and 9 and the
assignors of applicant Nos. 6 and 7 had granted various loan
facilities to the company in liquidation which were, inter alia, duly
secured by the company in liquidation by creating various securities
on its assets in favour of the applicants which included various
vessels owned by the company in liquidation. The applicants had,
inter alia, granted a loan facility in the sum of Rs. 385 Crores in
relation to one of the vessels owned by the company in liquidation
namely Malavia - 36. The said loan facility was secured by mortgage
in favour of the applicants in accordance with the Merchant
Shipping Act, 1958. The charge was also duly registered with the
Ministry of Corporate Affairs (MCA) under section 77(1) and 78 of
the Companies Act, 2013.
b] The said vessel Malavia- 36 was chartered to ONGC and the
amounts generated by the said vessel were deposited by ONGC in
the company in liquidation's Trust and Retention US$ Account
(TRA) and subsequently those amounts were transferred to TRA
INR Account No. 914020041607073 held by Axis Bank Limited, the
applicant No. 1, on behalf of the applicants. An account namely O &
M Expenses Sub Account with Account No. 914020042093925 was
also opened.
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c] The applicants assert the funds in the TRA and O & M
Expenses Sub Account have been, inter alia, used by the company in
liquidation for the maintenance of vessel Malavia 36. As of 30 th
June, 2021 an amount of Rs. 16,60,67,829.96/- along with further
interest was lying in the TRA account and an amount of Rs.
20,44,749.99/- along with further interest was lying in the O & M
Expenses Sub Account.
d] In the meanwhile, by an order dated 5 th May, 2017 passed in
Company Petition No.119 of 2015, the Company Petition came to be
admitted and the official liquidator attached to this Court was
appointed as the provisional liquidator of the company in
liquidation. By a further order dated 4 th December, 2017, the
company in liquidation was ordered to be wound up and the Official
Liquidator came to be appointed as liquidator of the company in
liquidation.
3. The applicants claimed that on account of the default
committed by the company in liquidation in respect of the various
loan facilities, the applicants in the capacity of the secured creditors
enforced their respective security by standing outside the winding
up proceeding. Therefore, the applicants have preferred this
application to seek permission of the Court to appropriate the
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amounts lying in the TRA and O & M Expenses Sub Account. The
applicants undertake to satisfy pro rata the claims of the workmen
of the company in liquidation upon adjudication under section 529A
of the Companies Act, 1956 or section 326 of the Companies Act,
2013 along with interest at the prevailing rate by depositing a
portion of the amount equivalent to the workmen's portion with the
Official Liquidator as and when directed by this Court. Hence, this
application.
4. The Official Liquidator resisted the application by filing an
affidavit in reply. The Official Liquidator contends the Company
Petition was presented on 20th August, 2014 and, post the winding
up order, the Official Liquidator has invited the claims of workmen
and other creditors and has adjudicated 1381 claims for an
aggregate sum of Rs.1283.95,75,520/-. However, Official Liquidator
pursuant to an order passed by this Court on 19 th May, 2020 in
Admiralty Suit No. 1 of 2017 with other connected suits has filed
report seeking to re-adjudicate the claims as per the Companies Act.
5. Opposing the prayer of the applicants to appropriate the
amounts standing in TRA and O & M Expenses Sub Account, the
Official Liquidator disputes that the applicants are the secured
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creditors. It is contended that the applicants are not entitled to the
amounts lying in the TRA account as the said amount was generated
by vessel Malavia 36. The Official Liquidator contends the said
amount generated by the vessel while on charter would constitute
an asset of the company in liquidation. Therefore, any transfer of
the money generated by the vessel owned by the company in
liquidation before six months of the commencing of winding up
proceedings would constitute a fraudulent preference by the
company of its creditors and would be invalid under section 531 of
the Companies Act. The Official Liquidator, therefore, contends that
the said amounts lying in TRA and O & M Expenses Sub Account are
liable to be brought back to the custody and control of the Official
Liquidator.
6. The Official Liquidator further contends that since the
amounts lying to the credit of TRA and O & M Expenses Sub
Account constitute the property of the company under section 456
of the Companies Act, 1956, the applicants can not lay any claim
over the said property unless the applicants have a charge duly
registered under the provisions of section 125 of the Companies Act,
1956. In any event, according to the Official Liquidator the said
amount shall be subject to a Pari Passu claim of the workmen.
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7. An affidavit in rejoinder came to be filed controverting the
contentions in the affidavit in reply.
8. As there was no clarity as to the period during which the
amounts were credited to TRA and O & M Expenses Sub Account,
the applicants were directed to file a further affidavit. Thereupon, to
the additional affidavit filed on behalf of the applicants, a copy of the
extract of TRA account came to be annexed.
9. In the affidavit in reply to the additional affidavit the Official
Liquidator contended that the transaction would be hit by the
provisions contained in section 536(2) of the Companies Act, 1956.
It was further asserted that the Official Liquidator has received
claim from the seafarers and crew members in respect of vessel
Malavia 36 and has admitted the claims to the tune of Rs.
6,01,14,233/-. It was thus contended that the amount standing to
the credit of TRA and O & M Expenses Sub Account are liable to be
brought back to the Official Liquidator for being utilized for
settlement of claims of workers/ seafarers and for distribution of
dividend amongst the creditors.
10. In the wake of the aforesaid pleadings, I have heard Ms.
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Apurva Sanglikar, learned counsel for the applicants, and Mr.
Aditya Pimple, learned counsel for the Respondent-Official
Liquidator. With the assistance of the learned counsel for the
parties, I have perused the material on record.
11. Ms. Sanglikar, learned counsel for the applicants, at the
outset, urged that the objection of the Official Liquidator wavered
from one end to another. Initially it was contended that the transfer
of the amount to TRA and O & M Expenses Sub Account would
amount to a fraudulent preference within the meaning of section
531 of the Companies Act, 1956. Subsequently, in the affidavit in
reply to the additional affidavit, which was filed for the limited
purpose of placing on record the account extract, a stand was taken
that transactions are void under section 536 of the Act, 1956.
12. Ms. Sanglikar would urge that none of the aforesaid objections
deserves any countenance. Taking the Court through the documents
evidencing the creation and registration of the charge over the
assets of the company in liquidation and the facility agreements
extended to the company in liquidation as well as the TRA
Agreement dated 29th September, 2014 and addendum 1 dated 11 th
December, 2014, Ms. Sanglikar would urge that receivables were
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also hypothicated to the applicants. The TRA agreement created an
exclusive charge over the amounts received by the company in
liquidation. All these transactions were executed in the ordinary
course of business. Thus, neither can the said transaction be termed
as fraudulent preferences to one of the creditors nor can they be
declared void under section 536 of the Act, 1956. Ms. Sanglikar
urged with tenacity that the amount generated on charter of one of
the vessels of the company in liquidation can by no stretch of
imagination be said to be a matter of fraudulent preference.
13. As against this, Mr. Aditya Pimple, the learned counsel for the
Official Liquidator, strenuously submitted that charter hire clearly
forms part of the assets of the company in liquidation. Conceding
that the initial objection of the Official Liquidator was centered
amount fraudulent preference within the meaning of section 531 of
the Act, 1956 and, later on, the Official Liquidator pleaded that the
transactions were void under section 536 of the Act, 1956, Mr.
Pimple would urge that the substance of the matter has to be looked
into. Once the order of winding up is passed, it relates back to the
date of the presentation of the petition and, therefore, all amounts
deposited in the TRA account and generated from the charter of the
vessel of the company in liquidation post presentation of the
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Company Petition constitute an asset of the company in liquidation
and thus the transfer would be void under section 536 of the Act,
1956, urged Mr. Pimple.
14. It is in this backdrop, according to Mr. Pimple, the Official
Liquidator filed Official Liquidator's Report No. 83 of 2018 seeking
direction, inter alia, to the applicant No. 1 to deposit all the amounts
lying in the accounts in the name of company in liquidation
maintained by the applicant No. 1, with the Official Liquidator
(prayer clause (f)).
15. The preliminary objection on behalf of the Official Liquidator
that the applicants are not secured creditors and the applicants did
not enforce their security standing outside the winding up
proceedings are not required to be delved into elaborately. The fact
that a charge on the assets of the company in liquidation was
created to secure the amount of Rs. 385 Crores is evidenced by the
certificate of registration of charge dated 23rd January, 2015
(Exhibit B-1). Form No. CHG-1 (Exhibit B-2) lends support to the
claim of the applicants that a first priority mortgage of vessel
Malavia 36 came to be registered with the Ministry of Corporate
Affairs in the sum of Rs. 385 Crores. Copies of the agreements
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evidencing the extension of the financial facilities by the applicants
annexed at Exhibit C-1, lend further support to the claim of the
applicants.
16. Ms. Sanglikar was justified in placing reliance on the
observations in an order passed by this Court dated 25 th September,
2019 in Company Application No. 218 of 2019 in Company Petition
No. 756 of 2014 wherein the capacity in which the applicant No. 1
was enforcing its securities was explained. The observations in
paragraphs 9 and 10 read as under:-
9] Having considered the submissions, in my view, the
Applicant has been held by this Court only to be acting
in the capacity of mortgagee as well as secured
creditor and this is apparent from the orders dated 6 th
June 2017 and 30th April 2019 by which
orders, the Applicant has been granted leave to take
out the application in the winding up proceedings for
sale of Rig Kedarnath belonging to the Respondent
Company (in liquidation). By the order dated 30 th
April 2019, the Applicant was directed not to use the
amounts deposited in the Designated Account (no-lien
account) without prior approval of this Court and the
relief of appropriation of the sale proceeds as sought
by the Applicant would be considered by the Company
Court.
10. It is further apparent from the Affidavit filed by
the Applicant pursuant to the order dated 12 th April
2019 passed in the Notice of Motion taken out in
Admiralty Suit No. 41 of 2015 (DVB Group Merchant
Bank (Asia) Ltd. Vs. M.V. Malaviya 23 IMO No.
9299082 & Ors.) that the Applicant in the Affidavit
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dated 15th April 2019 has stated that the Applicant has
opted to stand outside the present liquidation
proceedings of the Company (in liquidation) and
further that the Applicant is entitled to enforce the
securities belonging to the Company (in liquidation)
which have been secured to the Applicant by way of
mortgage/hypothetication. It is in this context that the
present application sought the appropriate sale
proceeds from sale of the Rig Kedarnath. In fact, the
submission of the learned Counsel for the Official
Liquidator that the Applicant having taken out the
Company Application in the winding up proceedings
would have given up its security and would have to
lodge and prove its claim with the Official Liquidator
and stand in line with the other unsecured creditors
cannot be accepted. This Court has in the said orders
referred above, clearly accepted the position of the
Applicant as acting only in the capacity of mortgagee
and secured creditor and the Applicant has also made
it clear that it was acting in such capacity as
mortgagee by choosing not to be a part of the winding
up proceedings.
17. In the face of the aforesaid material and order, I find it rather
difficult to accede to the submissions on behalf of the Official
Liquidator that the applicants status as the secured creditors has
not been established and they had not stood outside the winding up
proceedings. This takes me to the core question as to whether in the
capacity as secured creditors, the applicants are entitled to
appropriate the amounts standing to the credit of TRA and O & M
Expenses Sub Account.
18. To start with, it may be necessary to note few clauses of the
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TRA Agreement dated 29th September, 2014. Clauses B, E and F of
the TRA Agreement indicate the circumstances in which the said
agreement came to be executed. They read as under:-
B] The Borrower has requested the lenders to provide
financial assistance on the terms of corrective action
plan by way of a term loan for an amount not
exceeding Rs. 385,00,00,000/- (Loan Facility) with
interchangeable sub-limits in the form of letter of
credit limit (LC facility) and bank guarantee (BG
facility) as set out against their respective names in
Schedule I hereunder.
...... .........
E] One of the conditions of the Facility Agreement is
that the borrower shall enter into a trust and
retention account agreement and the trust and
retention account shall have been opened/established
with the Account Bank into which all the proceeds (as
defined in the corrective action plan and the Facility
Agreement) shall be deposited and appropriated in
the manner specified in this agreement; and
F] The Lenders, in consultation with the Borrower,
has decided to appoint Axis as the Account Bank on
the terms and conditions set out hereunder.
19. Clause 2.6 obligated the Borrower to pay into the TRA the
amounts received by the Borrower, reads as under:-
2.6] Payments into the TRA :-
The Borrower shall pay or cause to be paid into the
TRA as provided in this Agreement, immediately on
receipt, any proceeds received by the Borrower from
any source whatsoever, whether received by the
Borrower or by any other person on behalf of the
Borrower and the Sale Proceeds. Unless otherwise
provided in this Agreement, the Borrower further
undertakes that all invoices and other demands or
requests for payment of amounts relating to the
business of the Borrower (including amounts in
respect of trade receivables, proceeds of sales of
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assets of the Borrower, rebates and other receipts)
owed or payable or to be owed or payable to the
Borrower from whatever source, shall be so directed
that such amounts are payable by telegraphic
transfer to, or by any other means which shall result
in the payment of such amounts directly into the TRA
or shall result in the deposit/transfer of such amounts
into the TRA and shall ensure that such amounts are
paid directly into the TRA or are deposited/
transferred into the TRA. ..... ........
20. An operational fund account was to be maintained in
accordance with Clause 4 which reads as under:-
4. Operational Fund Account :-
The Borrower shall open and maintain, in its name,
Operational Fund Account on the date hereof until the
Final Settlement Date. The Borrower shall pay all the
amounts by real time gross settlement, or by any
other means which results in the payment of such
amounts directly into the Operational Fund Account or
results in the deposit/ transfer of such amounts into
the Operational Fund Account. The Borrower shall pay
or cause to be paid into the Operational Fund Account,
the following immediately on receipt:
(a) all proceeds including the cash flows from the
Vessels (excluding 9 (nine) charter vessels financed
by foreign lenders until repayment of the entire loan
such foreign lenders) and project receipts from ONGC
to be routed through account of YES Bank Limited.
(b) all Disbursements under the Facility; and
(c) Investment income and investment proceeds from
the permitted investments made from the funds lying
in the Operational Fund Account, save to the extent
that the Borrower is allowed to reinvest such
investment income in further permitted investments.
The Operational Fund Account shall have the following
Sub-Accounts:
a. "Statutory Dues Sub-Account"
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b. "O & M Expenses Sub-Account"
c. "Debt Service Payment Sub-Account"
d. "Surplus Sub-Account; and"
e. "Distribution Sub-Account".
21. Clause 5.2 provided for O & M Expenses Sub-Account -
(a) Deposits :
To the extent that there are sufficient funds available
in the Operational Fund Account, the transfers to be
made into this account shall be as set out in Clause
4.2(b) hereof.
In the event that there are insufficient funds available
Operational Fund Account on any Monthly Cash
Transfer Date to transfer the Amount Due towards the
O & M Expenses to the O & M Expenses Sub-Account,
the Account Bank shall transfer such amounts ( to the
extent of the Required Amount), from the Surplus
Sub-Account.
(b) Withdrawals :
The Borrower may withdraw amounts from the O & M
Expenses Sub-Account to meet the O & M Expenses
failing due, from time to time in accordance with the
Operational Budget. The Borrower may withdraw
amounts standing to the credit of the O & M Expenses
Sub Account only if the procedure as set out in Clause
9.2 hereof has been complied with.
If, on any Monthly Cash Transfer Date, the
aggregate of the balances standing to the credit of the
O & M Expenses Sub-Account exceeds the Required
Amount, the surplus shall be transferred by the
Account Bank to the Operational Fund Account and
applied in the Operational Period Order of Priority.
22. Under clause 11(b) the Borrower undertook, inter alia, to
ensure that the Trust and Retention Account and each of the Sub
Accounts were and continued to be, charged in favour of the
Security Trustee/Lender.
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23. Finally the Event of Default Clause 13 provided as under:-
13] Event of Default :-
On occurrence of Event of Default, the Facility Agent,
without the consent of the Borrower and upon Facility
Agent giving notice to the Account Bank, shall become
the sole signatory on the Trust and Retention
Account, the TRA and all Sub-Accounts shall apply all
amounts in the Trust and Retention Account, the TRA
and all Sub-Accounts in or towards the discharge of
Obligations (including Permitted Investments) as the
Facility Agent may decide (and may appropriate such
amounts to such obligations in such order as the
Facility Agent think fit). After delivery of such notice,
no amount will be payable to the Borrower, or may be
withdrawn by the Borrower, with respect to the TRA
and any Sub-Account save as the Facility Agent
otherwise agree.
24. A conjoint reading of the aforesaid clauses would indicate that
in consideration of the financial assistance upto Rs. 385 Crores
extended by the creditors the company in liquidation had agreed to
pay or caused to be paid into the TRA all the proceeds received by
the company in liquidation from any source whatsoever whether
received by the company in liquidation or any other person on
behalf of the company in liquidation and the sale proceeds. The
company in liquidation also undertook to pay or caused to be paid
into the Operational Fund Account all proceeds including the cash
flows from the vessels and project receipts from ONGC. The
Operational Fund Account was to have O & M Expenses Sub Account
as one of the Sub Accounts. The company in liquidation further
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undertook that the Trust and Retention Account and each of the
Sub Accounts were to be continued to be charged in favour of the
security trustee/ lenders. In the event of default, the company in
liquidation ceased to have authority to withdraw any amount from
the TRA and any of the Sub Accounts.
25. In the backdrop of the aforesaid nature of the transactions
between the applicant and the company in liquidation, the core
question noted above deserves determination. It would be
contextually relevant to note that the Company Petition No. 756 of
2014 was presented on 28th August, 2016. The TRA came to be
executed on 29th September, 2014 followed by Addendum- 1 dated
11th December, 2014. Provisional Liquidator came to be appointed on
5th May, 2017 and eventually the winding up order was passed on
14th December, 2017.
26. In the context of the nature of the transactions, where a huge
financial facility was extended to the company in liquidation, the
objection on behalf of the Official Liquidator that the credit of
amounts in the TRA and O & M Expenses Sub Account amounts to
fraudulent preference to the creditor does not merit acceptance.
Evidently, these agreements were executed by the company in
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liquidation in the ordinary course of business. The charter of
Malavia 36 to ONGC and the transfer of the receivables consequent
to the charter can not be explained on any premise other than that
of the dealing with the assets of the company in the ordinary course
of business. The contention on behalf of the Official Liquidator that
such credit of the charter hire to TRA and O & M Expenses Sub
Account would be invalid for being a fraudulent preferences to one
of the creditors does not seem to be borne out by the material on
record.
27. One gets an impression that realizing the difficulty in pursuing
the objection that the transactions constitute fraudulent preference
within the meaning of Section 531 of the Companies Act, 1956, the
Official Liquidator contended that the transaction would be void
under section 536 of the Act, 1956.
Section 536 reads as under:-
536 Avoidance of transfers, etc., after commencement
of winding up -
(1) In the case of a voluntary winding up, any transfer
of shares in the company, not being a transfer made to
or with the sanction of the liquidator, and any
alteration in the status of the members of the
company, made after the commencement of the
winding up, shall be void.
(2) In the case of a winding up by [the Tribunal], any
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disposition of the property (including actionable
claims) of the company, and any transfer of shares in
the company or alteration in the status of its
members, made after the commencement of the
winding up, shall [unless the Tribunal] otherwise
orders, be void.
28. Sub section (2) of Section 536 provides that any disposition of
the property of the company in liquidation and any transfer of
shares or alteration in the status of its members, made after the
commencement of the winding up, shall be void unless the Tribunal
otherwise orders. Under section 441 of the Act, 1956, the winding
up of a company shall be deemed to have commenced at the time of
the presentation of the petition for winding.
29. It would thus imply that any transaction entered into by the
company from the date of the presentation of the petition, (where a
winding up order is eventually passed) would be void. It is for this
reason the expression 'unless the Tribunal otherwise orders' used
in section 536(2) of the Act, 1956 assumes critical salience. The
Court/ Tribunal is invested with authority to validate the
disposition of the property which have been made since the date of
the presentation of the petition. The matter clearly lies in the arena
of discretion. It is trite such discretion has to be exercised
judiciously. A very rigid view of the matter has the inevitable
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consequence of bringing the operations of the company to a grinding
halt, the moment winding up petition is preferred. Conversely, a too
liberal a view may lead to a situation that nothing comes in the
hands of the liquidator to satisfy the claims of the creditors and
other stake holders. Thus the Court has to steer clear of the two
extremes.
30. The approach to be adopted by the Court while dealing with a
case covered by the provisions contained in section 536 of the
Companies Act, 1956 was delineated by a Division Bench of this
Court in the case of Tulsidas Jasraj Parekh vs. Industrial Bank of
Western India and Others1, which is often quoted, in the following
words:-
33] ....... .... Now here as regards Section 227 (0) the
Court has to steer a middle course between two
extremes. On the one hand the words of the section
are wide enough to include any sale or payment that a
company may make after the date of the winding-up
petition. On that basis any business would practically,
have to be stopped if Section petition was presented,
because it would be unsafe to dispose of any of the
company's assets. For instance, a Mill company might
not be able to buy a ton of coal for the use of its
furnaces, or on the other hand it might not be able to
sell any of its goods in the ordinary course of
business, Consequently, the Court has very properly
laid down that speaking generally any bona fide
transaction carried out and completed in the ordinary
course of current business will be sanctioned by the
Court under Section 227(2). On the other hand it will
not allow the assets to be disposed of at the mere
1 1930, Indian Law Reports (Vol. LIV), 718.
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pleasure of the company, and thus cause the
fundamental principle of equality amongst creditors
to be violated. To do so would in effect be to add to the
preferential debts enumerated in Section 230 a
further category of all debts which the company
might choose to pay wholly or in part. ... ......
(emphasis supplied)
31. The aforesaid judgment was referred with approval by the
Supreme Court in the case of Pankaj Mehra and Another vs. State of
Maharashtra and Others2. The Supreme Court expounded the
import of the term 'void' used in the section 536 of the Companies
Act, 1956. It was enunciated that the expression, "unless the court
otherwise orders" are capable of diluting the rigor of the word "void"
and warrants its construction in a less rigid manner. The
observations of the Supreme Court in paragraphs 14, 15 and 20 are
instructive and, hence, extracted below.
14] In the above backdrop alone we can consider the
impact of the legislative direction in Section 536(2)
that any disposition of the property of the company
made after the commencement of the winding up (i,e.
after the presentation of a petition for winding up)
shall be void. There are two important aspects here.
First is that the word "void" need not automatically
indicate that any disposition should be ab initio void.
The legal implication of the word "void" need not
necessarily be a stage of nullity in all contingencies.
Black's Law Dictionary gives the meaning of the word
'void" as having different nuances in different
connotations. Once of them is of course "null, or
having no legal force or binding effect". And the other
is "unable in law, to support the purpose for which it
was intended". After referring to the nuances between
void and voidable the Lexicographer pointed out the
following :
2 (2000) 2 Supreme Court Cases 756.
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"The word 'void' in its strictest sense, means that
which has no force and effect, is without legal efficacy,
is incapable of being enforced by law, or has no legal or
binding force, but frequently the word is used an
construed as having the more liberal meaning of
'voidable'.
The word 'void' is used in statutes in the sense of
utterly void so as to be incapable of ratification, and
also in the sense of voidable and resort must be had to
the rules of construction in many cases to determine in
which sense the Legislature intended to use it. An act
or contract neither wrong in itself nor against public
policy, which has been declared void by statute for the
protection or benefit of a certain party, or class of
parties, is voidable only."
15] For discerning the legislative idea in employing
the word "void" in the context set out in Section
536(2) of the Companies Act the second aspect to be
noticed is that the provision itself shows that the
word void is not employed peremptorily since court
has power to order otherwise. The words "unless the
court otherwise order" are capable of diluting the
rigor of the word "void" and to choose the alternative
meaning attached to that word.
....... ............
20] It is difficult to lay down that all dispositions of
property made by a company during the interregnum
between the presentation of a petition for winding up
and the passing of the order for winding up would be
null and void. If such a view is taken the business of
the company would be paralysed, for, the company
may have to deal with very many day-to-day
transactions, make payments of salary to the staff
and other employees and meet urgent contingencies.
An interpretation which could lead to such a
catastrophic situation should be averted. That apart,
if any such view is adopted, a fraudulent company can
deceive any bonafide person transacting business
with the company by stage-managing a petition to be
presented for winding up in order to defeat such
bonafide customers. This consequence has been
correctly voiced by the Division Bench in the
impugned judgment.
(emphasis supplied)
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32. A judgment of a learned single Judge of Calcutta High Court in
Re: J. Sen Gupta (Private) Limited (In Liquidation) 3, on which
reliance was placed by Ms. Sanglikar, is also often quoted for the
propositions succinctly postulated therein. Paragraph No. 14 which
culls out the principles reads as under:-
14] It seems to me, therefore, upon considering
various authorities on this subject that the following
principles are doubtless applicable to sub-section (2)
of section 536 of the Companies Act, 1956:
(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 be 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.
33. Mr. Pimple, the learned counsel for the Official Liquidator
would urge that if the case at hand is considered on the touchstone
of aforesaid principles, an inference become inescapable that the
transactions in question do not commend validation. To bolster up
this submission, Mr. Pimple placed reliance on another Division
Bench judgment of this Court in the case of Sunita Vasudeo Warke
3 1961 SCC OnLine Cal. 143.
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vs. Official Liquidator and Others 4. In the said case, after adverting
to the pronouncements in the case of Tulsidas Parekh (supra) and
Pankaj Mehra (supra), the legal position was expounded as under:-
10] The effect of Section 536(2) is that where a
winding-up proceeding is by or subject to the
supervision of the Court, any disposition of the
property of the company which is made after the
commencement of the winding-up is void, unless the
Court otherwise orders. Under section 441(2), a
winding-up of a company by the Court is deemed to
have commenced at the time of the presentation of a
petition for winding-up. Sub-section 2 of Section 536
confers an enabling power on the Court to direct that
a disposition of the property of a company shall not be
void, though it was effected after the commencement
of winding-up proceedings. Since an enabling power is
conferred upon the Court, to order otherwise, a
disposition after the commencement of a winding-up
proceeding is not, in law, regarded as void ab-initio or
a nullity in all situations. Parliament has used the
words "unless the Court otherwise orders" to dilute
the rigour of the word "void" by conferring a power on
the Court to protect a bona fide transaction. This
principle is incorporated to protect bona fide
transactions carried out and completed in the
ordinary course of the current business of a company.
The presentation of a petition for winding-up does not
by itself disable a company from carrying on its
business. Companies in the ordinary course of
business have to carry out transactions involving a
disposition of properties as an incident of their
business activities. These transactions are not
foreclosed, for to hold otherwise would bring the
business to a grinding halt. The law would not permit
such a consequence by disabling a company from
attending to business in the ordinary course merely
because a petition for winding-up is instituted. The
law recognizes this position and the practical
necessity for a company against which a petition for
winding-up has been presented to continue its
business. .........
............ .......
4 2013 (2) Mh.L.J. 777.
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12] ..... ........ In view of the judgment of the Supreme
Court it is now a settled principle of law that if a
transfer is not completed before an order of winding-
up has been passed, an application would not be
maintainable before the Court for a direction to the
Official Liquidator to complete the transfer. This
principle necessarily follows the settled legal position
that upon the passing of an order of winding-up, no
new rights can be completed and no uncompleted
rights can be completed.
34. Mr. Pimple also placed reliance on a judgment of a learned
single Judge of this Court in the case of Board of Industrial and
Financial Reconstruction vs. M/s. Hindustan Transmission
Products Limited (In liqn.)5 wherein it was, inter alia, observed that
the applicants seeking the validation of a transaction under section
536(2) must plead and prove not only that the transfer is bona fide
but also that the transfer was in the interest of the company. Mr.
Pimple would urge that, in the case at hand, the applicants have
failed to establish these pre-requisites.
35. I am afraid to accede to the aforesaid submission. A distinction
is required to be drawn between the cases where disposition is in the
ordinary course of business and where the transactions were shown
to be not in the ordinary course of business. In the former case, the
burden which rests on a party who seek the validation is less
rigorous. In the later case, the question as to whether the
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transaction was for the benefit of the company or for keeping the
company a going concern or keeping things going generally may
become more poignant. However, where the disposition is shown to
have been in the ordinary course of business, the Court may not
insist upon the fulfillment of all the conditions which are referred to
in the fourth principle culled out in the case of Re: J. Sen Gupta
(supra).
36. On the aforesaid anvil reverting to the facts of the case, it is
imperative to note that the TRA was executed by the company in
liquidation apparently in the ordinary course of business and by
way of a measure of repayment of the financial facilities extended
by the creditors. There is a specific reference to the obligation to
deposit of proceeds including the cash flows from the vessel, and
project receipts from ONGC. Letting on hire the vessel, owned by the
company in liquidation, was the primary and principal business of
the company in liquidation. It would be inconceivable to hold that
the said exercise was not in the ordinary course of business of the
company in liquidation.
37. I find substance in the submission of Ms. Sanglikar that the
amount which was generated by the vessel Malavia 36 upon its
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charter and duly credited to the TRA can not carry taint of
fraudulent disposition. In substance, the transfer of the said amount
was a bonafide act in the ordinary course of business.
38. Since the company in liquidation had created the security
over the said amount as well, the secured creditors are within their
rights in standing outside the liquidation process and enforce the
security subject to the obligation under section 529A of the
Companies Act, 1956. In fact, the applicants have undertaken to
bring back the amount to satisfy the workmen's dues.
39. In the affidavit in reply to the additional affidavit, the Official
Liquidator has asserted that the Official Liquidator has admitted the
claims of seafarers and crew members in respect of vessel Malavia
36 aggregating to a sum of Rs. 6,01,14,233/-.
40. The said affidavit in reply further adverse to the fact that the
vessel M.V. Malavia 36 has been sold for Rs. 8,50,00,000/- and the
sale proceeds are lying with the office of Official Liquidator. The
seafarer and crew members have highest priority as the maritime
lease holder under section 9(1)(a) of the Admiralty (Jurisdiction
and Settlement of Maritime Claims) Act, 2017. The claim of seafarer
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and crew members can thus be satisfied out of the sale proceeds.
Therefore, in my view, the fact that the Official Liquidator has
admitted the claim of seafarer and crew members of the vessel M.V.
Malavia 36 would not constitute an impediment in allowing this
application subject to an undertaking by the applicants to bring
back the amount to satisfy the workmen's dues.
41. The aforesaid direction also deals with the prayer clause (f) of
the Official Liquidator's Report No. 83 of 2018.
Hence, the following order.
ORDER
1] The application stands allowed.
2] The applicants are permitted to appropriate the amounts of Rs.
16,81,12,579.95/- standing to the credit of Trust and Retention
Account and O & M Expenses Sub Account as of 30 th June, 2021
along with the interest accrued thereon towards the secured dues of
the applicants against the company in liquidation subject to
furnishing an undertaking that the applicants would bring back the
amount required to satisfy the workmen's dues under section 529A
of the Companies Act, 1956.
3] Such undertaking be filed within a period of two weeks from
today.
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4] The applicants shall also furnish a statement indicating the total
amount which the applicants have appropriated, to the Official
Liquidator.
5] Such statement be furnished to the Official Liquidator within two
weeks of the appropriation.
6] The prayer clause (f) of the Official Liquidator's Report No. 83 of
2018 stands worked out.
7] Official Liquidator's Report No. 83 of 2018 be listed separately.
8] There shall be no order as to costs.
(N.J.JAMADAR, J.)
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