H.L. Seth vs Wearwell Cycle Company (India) ...
1992 Latest Caselaw 17 Del

JUDGMENT

P.K. Bahri, J.

(1) These two appeals are directed against order dated May 20, 1987, of a Company Judge in which certain directions have been given by the Company Judge, inter alia, directing the Official Liquidator to substitute the names of S/Shri A.K.Mishra and Brahm Arenja-respondent No.3 and their nominees as per the transfer deeds on record in place of the members as per annexure 'A' & 'B' to the agreement dated November 28, 1984, in the register of members of the Company subject to the condition that Shri Mishra would produce requisite permission from the Reserve Bank of India for his being brought on record as member of the Company and S/Shri A.K.Misra and Brahm Arenja would be treated as creditors of the Company in place of those mentioned in annexure 'D' to the aforesaid agreement as well as in place of Punjab National Bank in respect of the debts as appearing in the statement of affairs filed under Section 454 of the Companies Act and that members appearing in the list of members of the Company and the creditors as given in the statement of affairs and as amended as per above directions will be the members and creditors entitled to vote and those lists of members and creditors shall be submitted by the Official Liquidator to the Chairman of the meeting of the members and shareholders which was to be called on July 10, 1987 for considering the Scheme of Revival of the Company proposed by the appellant and meeting to be held on July Ii, 1987, in respect of the scheme proposed by Kelvinator of India Limited. The brief facts leading to the passing of the impugned order may be noticed.

(2) M/S. Wearwell Cycle Co.(India) Ltd. (hereinafter called to be the Company) incorporated on November 14, 1951 and was having its factory on a leasehold land measuring about 55,000 Sq.Yards in Faridabad. The appellant appears to have acquired the controlling interests in the Company somewhere in 1965. An eviction order had been passed against the Company under the Public Premises Act on December 28, 1965. However, the same was got set aside in appeal decided on June 22, 1969. The Company, however, entered into a transaction for getting the land transferred to it from the Government of India @ Rs.2.75P per square yard on June 23, 1969. As the Government of India was not inclined to go ahead with the deal of transferring the land in favor of the Company at the said rate, the Company filed a writ petition for necessary relief which came to be decided in favor of the Company and the case is reported as 2nd 1975(1) Delhi 586. However, the Government of India filed an appeal (L.P.A.No. 109/74) and a stay order was obtained. The appeal was still pending when C.P.54/77 was filed by M/s.Lalit Trading Company a creditor of the Company, seeking winding up of the said Company. Punjab National Bank, another creditor of the Company, had filed a suit for recovery of Rs.24,87,547/95P against the Company and the two guarantors, namely, H.L.Seth-appellant and P.N.Seth, who had created equitable mortgage of their shares as security for the loan given to the Company by the Bank On March 9, 1978, the order of winding up was passed by the Company Judge which was to take effect from the date of the filing of the petition i.e. May 24, 1977.

(3) The appellant had filed a petition (C.A.527/83) for the revival of the Company under Section 391 of the Companies Act. The scheme was found to be vague by the Company Judge vide order dated March 15, 1984, in which it was mentioned that the propounder was still seeing the viability of the scheme as incase the liabilities of the Company extend a particular limit then the propounder might not be interested to pursue his scheme. The Court observed that it was strange that such stand was being taken after having moved the scheme. It was also observed in order dated May 21, 1984, that the Official Liquidator had pointed out that the scheme was ex-fade highly vague and generalised. The scheme also did not disclose as to what investments are to be made for reviving the company and how the funds have been arranged. It appears that after such orders were made by the Company Judge, the appellant entered into an agreement with Sarvashri A.K.Misra and Brahm Arenja on November 28, 1984. The salient features of the said agreement are that Misra and Arenja agreed to taking over of the entire project of the Company for its revival/reconstruction on the basis of the scheme already propounded by the appellant in his C.A.527/83. The appellant commanded over 75% of the equity shareholding and 2100 preference shares of the said Company which were fully paid up having the face value of RS.100.00 each which include the shares of his relatives and friends and he agreed to transfer 13000 shares @ Rs.20.00 per equity share and 2000 paid up preference share @ Rs.30.00 each. In this way the total price payable came to be Rs.3,20,000.00 . By virtue of this agreement the appellant agreed to transfer and convey the said shares to Sarvashri A.K.Misra and Brahm Arenja and Rs.51,000.00 as part payment was made vide cheque of the even date and a cheque ofRs.30,000.00 was issued which was to be encashed after no objection had been given by the Delhi High Court in regard to the transfer of the shares in the Scheme of Revival of the Company and the balance of Rs.2,39,000.00 was to be paid immediately on approval of the scheme by the Delhi High Court and account payee cheques which were post-dated were issued covering the said amount in favor of the appellant but they were to be encashed only on the scheme being approved by the High Court and the shares were to be transferred in the names of the said persons or their nominees and the possession of the factory premises was to be banded over to respondent No.3.

(4) The agreement further recites that the appellant and his friends had credit of Rs.4,88,996/24 and respondent No.3 was to take over the said credits on paying 50% of the said amount which came to be Rs.2,44,498/12 and the said amount was to be paid only after the approval of the scheme by the Delhi High Court. It was further recited in the agreement that Punjab National Bank had instituted a suit for recovery of the amount and vide letter dated May 6, 1981, the Bank had agreed to accept Rs.l4 lakhs in full and final settlement of its claim but as three years period had elapsed the appellant assured that the Bank would be still agreeable to accept Rs.l4 lakhs in full and final settlement. Respondent No.3 agreed to liquidate this liability of the Bank on sanction of the scheme by the High Court and on possession of the premises being handed over. The balance liability of the Company was stated to be Rs. 6,27,082.00 which respondent No.3 agreed to liquidate in accordance with the scheme which was to be approved by the High Court Respondent No.3 also undertook to prosecute the L.P.A. and it was agreed that respondent No.3 shall be entitled to the fruits of the decree which may be passed in the said LPA.

(5) C.A.NO-527/83 had become infructuous and was, thus, disposed of and a new petition for revival of the Company was filed by the appellant i.e. C.A.No.26/85 although in the original agreement entered into between the parties it was envisaged that shares were to be transferred and consideration was to be paid after the approval of the scheme by the Court but it appears that the parties entered into a modified arrangement which was confirmed by the appellant in the letter dated February Ii, 1985, (in C.A.280/87) in which was recorded that the appellant in pursuance of the agreement dated November 28, 1984, handed over to the respondents A.K.Misra and Brahm Arenja 4038 equity shares which have been submitted to the High Court for transfer and documents of transfer in respect of remaining 8962 equity shares and 2000 preference shares have been delivered to them on that day and be confirmed having received payment of agreed consideration of Rs.51,000.00 on November 28, 1984 and balance of Rs.2,69,000.00 on that day in full and Final settlement of dues against 13,000 equity shares and 2000 preference shares. He confirmed that for effecting the transfer of those shares they may file the same with the Hon'ble High Court/Official Liquidator. He also assured to facilitate the transfer of shares. He under took that if for the registration of shares any further documents are required by the Court or by the Official Liquidator, he shall furnish the same on demand without any hitch or hindrance and in case the High Court did not agree for transfer of shares, he undertook to refund the amount ofRs.3,20,000.00 on return of the aforesaid shares and the connected documents. He also offered full cooperation for getting the scheme for revival of the Company approved from the High Court.

(6) On February 12, 1985, the Company Judge passed the order in respect of these new facts and recorded that parties have also completed the necessary documentation in respect of those transactions and counsel for the appellant confirmed that the appellant would have no objection to the shares being duly registered by the Company in accordance with law as and when such registration in possible. It was further recorded in the order that the respondents in consolation with the appellant could enter into proper negotiations and correspondence with the Punjab National Bank for settlement of the dues of the Punjab National Bank. The respondents were allowed to participate in the meeting of the creditors, however, without exercising the right to vote. These directions were given by the Company Judge in that of the scheme which was at that time yet to be referred to the meeting of the creditors and the members.

(7) Admittedly, the respondents had entered into the negotiations with the Punjab National Bank for settling the dues of the Punjab National Bank and the Punjab National Bank wrote a letter dated September 4, 1985 (in C.A.943/85) which was ad- dressed to the appellant and a copy sent to the respondents in which it was recorded that in the discussion held with the appellant and the respondents the Board of the Bank had approved to accept a sum of Rs.l9,18,000.00 in full and final settlement of their dues and the respondents have already deposited Rs.l5,00,000.00 and they had agreed to pay the balance amount of Rs.4,18,000.00 within three years or within two years from the date of the sanction of the scheme by the High Court. Then, there is another letter appearing in the same file (C.A.949/85). It is written by the appellant to the Bank in which he sought time from the Bank for persuading the respondents to give the bank guarantee for the balance sum of Rs.4,18,000.00 and he wanted assurance from the Bank that the guarantees and securities given by the appellant and others to the Bank would be released simultaneously.

(8) So, it is now admitted fact that the respondents paid the said balance amount also to the Bank on May 8, 1986. Lpa was dismissed and the respondents also deposited Rs.l6,36,707/78 as the price of the land. There was some application of the Union of India for getting some interest and it was got resolved by the respondents from the Court and further sum of Rs.2,36,707/78 was deposited by the respondents on September 30, 1985. The sale consideration was thereafter paid to the Government and sale deed was ultimately executed in favor of the Company in liquidation on March 3, 1987. The Bank had discharged the equitable mortgages and securities of the appellant and his brother on receiving the amounts from the respondents. The respondents have taken these steps after obtaining the orders of the Company Judge. It is to be emphasized at this stage that it is after the decision in the Lpa that the appellant had taken the full consideration in respect of the transfer of the shares from the respondents and had agreed that the shares be got registered in the name of the respondents from the High Court/Official Liquidator.

(9) I may mention that later on the appellant had second thoughts and did not agree that the High Court should transfer shares in the books of the Company in the names of the respondents. It appears that Kelvinator of India Ltd. also had later on come forward with the revival scheme which is still pending for consideration before the Company Judge. Rather in pursuance of the orders of the Company Judge the meetings of the members and the creditors have been held separately and in pursuance to the interim orders passed by the Company Judge later on confirmed by the Division Bench and by the Supreme Court, the appellant and the respondents were allowed to exercise parallel voting. The present petition was moved before the Company Judge by the respondent for getting the shares transferred in their names in the register of the Company. It is not necessary to reproduce all other facts pertaining to filing of the liquidation petition and various orders made therein which have been reproduced by the learned Company Judge in his impugned order.

(10) The learned counsel for the appellant has contended that the Company Court had no jurisdiction under the Companies Act to order specific performance of the agreement entered into between the parties with regard to transfer of the shares. He has also urged that under Section 536 of the Companies Act the Company Court had no jurisdiction to order transfer of shares and credits in the books of the Company inasmuch as the transaction having taken place after not only of the commencement of the winding up but also passing of the winding up order and the Court could not entertain the petition under Section 536 unless leave had been obtained from the Court under Section 446 of the Act. He has also contended that Section 536(2) could be invoked only in respect of the transaction which had been completed and entered in the books of the Company. He has also urged that Section 536(2) could be invoked in respect of the transactions entered into between the date of the commencement of the winding up and the date of the winding up order and not in respect of any other trans- action taking place after the winding up order. He has also urged that the transaction was unconscionable and thus, the Court should not have exercised its discretion for declaring the said transaction as valid. He has also contended that the transfer of shares could not be registered without following the mandatory provisions of Section 108 of the Act. He has also contended that at any rate the Company Court could have no jurisdiction to order the transfer of credit of the appellant and also of the Punjab National Bank in the name of the respondents in the record of the Company as the status of the creditors could not be changed during the winding up proceedings. He has also urged that the orders made by previous Company Judges, namely, H.L.Anand, J.and B.N.Kirpal, J.,could not have been set at naught by passing the impugned order. Lastly, he argued that as permission under the Foreign Exchange Regulation Act was pre- requisite, thus, the Transfer of shares in the Company register could obtained by one of the respondents.

(11) These contentions are supported by the learned counsel appearing for the Kelvinator India Private Limited. He has urged that the Company Judge ought not to have directed the transfer of shares before considering the schemes pending before him for revival of the Company. He has urged that while considering the schemes for revival of the Company, the Company Judge was to keep in view various factors and most important being the public interest and these transactions inter se between the appellant and the respondents for the transfer of shares could have been dealt with by the Company Judge while deciding upon the schemes pending before him.

(12) The learned counsel for the respondent has, however, contended that the Company Judge had full jurisdiction under the Companies Act for passing the impugned order and the transaction between the parties was just and fair and the Company Judge had exercised proper discretion in directing the registration of shares in the name of the respondent in the records of the Company and he has also argued that there is no provision in the Companies Act which makes the transaction relating to transfer of credits as void. He has pointed out that the respondents have taken various steps and have invested lot of money in order to get the scheme of revival of Company approved from the Company Judge and that they had paid the full consideration as agreed upon under the agreement to the appellant and his associates and thus, they are entitled to has the shares registered in their names and credits transferred in their names. The learned counsel for the respondents has argued that Section 536(2) has no i terminus point as is sought to be urged on behalf of counsel for the appellant and thus, any transactions entered into after the commencement of the winding up are void unless othre wise directed by the Company Judge. Section 536(2) of the Indian Companies reads as follows: "IN the case of a winding-up by or subject to the supervision of the Court, any 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 Court otherwise orders, be void."

(13) This Section appears in Part Vii which pertains to winding-up. Chapter I in this part contains Section 425 to 432 which lay down different modes of winding-up. Chapter Ii deals with winding-up by the Court and Section 441 in this Chapter deals with the question of commencement of winding-up by the Court. Section 447 gives the effect of winding-up order i.e. once the winding-up order is made it relates back to the date of the filing of the petition of winding-up under Section 441. Other Section- sin this Chapter relate to powers of the court, consequences of winding-up order, appointment of Official Liquidators and their duties. Chapter Iii contains Sections 484 to 521 pertaining to voluntary winding-up. Chapter Iv pertains to winding-up subject to supervision of the court and Chapter V contains the provisions applicable to every mode of winding-up and in this Chapter appears the heading "Effect of Winding-Up of Antecedent and Other Transactions" and Sections 531 to 537 relate to the same. The reading of various Sections in this particular Chapter Vii makes it clear that till the Company is fully dissolved, the winding-up process continues. The very wording of Section 536(2) which is unambiguous clearly leads to the interpretation that any transfer of shares in the Company in the case of winding-up by of subject to the supervision of the Court made after the commencement of the winding up shall, unless the court otherwise orders, be void. It is not mentioned in the Section at all that only transactions which take place in between the date of the commencement of the winding-up and the date of order of winding-up are to be considered void subject to the Court making them valid by an order. It is quite evident from simple reading of the language of the Section which is not ambiguous in any manner that all transactions of transfer of shares in the Company or any alteration in the status of its members made after the commencement of the winding-up would be void unless the Court otherwise orders. So, it cannot be said that the transfer of shares effected after the winding-up order had been made, the same is not subject to the scrutiny of the Court to declare the same as valid by virtue of exercising the power given to the Court under the said Section. Till the dissolution of the Company takes place the Company is under the supervision of the Court and it is evident from the wording of the Section that any transfer of shares in the Company has to be deemed void till the Court otherwise orders. It means that the Court has jurisdiction to declare such transfer of shares as valid. Section 536(2) is similarly worded as Section 227 of the English Companies Act, 1948. In England there has taken place certain amendments in the Companies Act of 1862. There appeared Section 153 in the old Act dealing with this subject which was worded as follows: "WHERE any company is being wound up by the Court or subject to the supervision of the Court, all dispositions of the property, affects, and things in action of the company, and every transfer of shares of alteration in the status of the members of the company made between the commencement of the winding up and the order for winding up shall, unless, the court otherwise orders, bevoid."

(14) Later on by amendment of the said Act in 1948, Section 227 was brought on the statute book which is akin to Section 536(2) of our Act. The English Legislature has deliberately omitted the terminus point which was there in the old Section 153. Section 153 of the old Act came up for consideration in the Court of Appeal in re : ON- Ware Building Society, (1891)2 Queen's Bench 463. In the said case also, the transfer of shares had taken place after the commencement of the winding-up and also after the order for winding-up was made. A contention was raised before the said Bench that a transfer is not within the terms of the Section 153, therefore, there is nothing in the Act to render it void as far as the company is concerned. At page 474 the learned Judge posed the question as follows: "THIS question depends on the true construction of Section 153 and whether that section applies only to a transfer between the commencement of the winding-up and the order for winding-up, or applies also to a transfer of shares after such order."

(15) A passage was then culled out from the Book on Companies by Lindley, L.J., which was to effect that if a transfer made between the commencement of the winding-up and the winding-up order is void so far as the recognition of it by the company is concerned unless the Court otherwise order, a fortiori a transfer made after the winding-up order would be also void unless the Court otherwise directs. Then, the learned Judge held that if by a necessary or anything like a reasonable construction the section does mean that, then be had no doubt that the Court has the same power in the case of a transfer made after the winding- up order as in the case of one made between the commencement of the winding up and the winding-up order. Lord Esher, M.R. has given this interpretation to Section 153 when the Section contained the terminus of date of winding-up order. The other two Judges Bowen, L.J. and Kay, L.J. also endorsed this interpretation of Section 153. Although on merits the Judges held that it was not a fit case for giving effect to the transaction of transfer of shares by the company, but that was a question of discretion to be exercised in a particulars facts of the case. So, even when Section 153 of the English Companies Act contained the two terminals, (1) date of commencement of the winding-up proceedings and (2) the dale of the order, still the interpretation given in this judgment to that Section 153 was that even if the transfer of shares takes place after the winding-up order, the court has the jurisdiction over the matter. It may be that the English Legislature, in view of the interpretation given to Section 153 which contained the terminal up to the date of the order of winding-up, thought in its wisdom to omit that terminal while modifying the said Section in 1948.

(16) The learned counsel for the appellant referred to para 1210of Halsbury's Laws of England, 4th Edition, Volume Vii, which lays down that compulsory winding-up order has a retrospective effect. Every transfer of shares of a company made after the commencement of winding-up is void unless the court otherwise orders. The validity of the transfer is not effected as between the parties to it although the court will not alter the register to give effect to it except for the benefit of the company and of those interested in its assets. Nothing said above shows that the transfers made after the winding-up order but before the dissolution of the company are not subject to the jurisdiction of the court.

(17) Reference was also made to para 1209 of the Halsbury's Laws of England which lays down that in exercise of its discretion the court will validate transactions entered into in good faith in the ordinary course of trade and completed before the date of winding up order. This statement of law is based on certain judgments quoted in the note below which we have perused and we find that one of the judgments quoted is re: Onward Building Society (supra) which judgment we have analysed above. So, it cannot be held that transactions which take place after the winding up order are void and cannot be declared valid by the Company Judge whose supervision over the com- pany continues till the company is dissolved.

(18) Reference was also made to Companies Act by Buckley, 14th Edition, page 571, which lays down that court may validate bona Retransfer of shares made and completed between the commencement of winding up and the winding up order air fought it will not enforce the agreement for purchase of shares if it has not been completed. The learned author has not categorically opined that if the transfer of shares is completed after the winding up order and before the dissolution of the company, whether the same could be declared valid by the Company Court or not.

(19) The learned counsel for the appellant has made reference to certain judgments which we may notice. The First judgment relied upon by him is Tulsidas Jasraj Parekh Vs Industrial Bank of Western India, Air 1931 Bombay 2. In the said case, the winding up order was made on March 3, 1925, which took effect from the date of filing of the petition June 12, 1924. Industrial Bank was one of the unsecured creditors of the Company in the sum of Rs.2,02,187.00 on the said date of filing of the petition. At the same date Imperial Bank of India Ltd. and Dungershi Harilal were also unsecured creditors to the tune of Rs. 3,86,428.00 and Rs.40,278.00 respectively. On July 31, 1924, i.e. in between the date of filing of the petition and the winding up order, Industrial Bank and Dungershi Harilal obtained security from the Company in the shape of deposit or pledge of debentures of Whittle Spinning and Manufacturing Co.Ltd. which were part of the assets of the company in liquidation. Imperial Bank also obtained similar security. These three transactions pertaining to the assets of the company in liquidation had been impugned by the Liquidator before the Company Judge and after the transactions were validated by the Company Judge the appeals were brought. So, it is evident that this case relates to the transactions pertaining to the assets of the company which took place in between the date of the commencement of winding up and the date of winding up order. So, this case is distinguishable on facts.

(20) Reference was also made to Sullivan Vs. Henderson, 1.973(1)All Er 48. It was held in this judgment that after the commencement of the winding up of a company the court would not order the specific performance of a contract previously made for the sale of shares in it. For, to do so would be to force on the transferee a transfer which although valid as between him and the transferor would be void under Section 227 of the Companies Act, 1948, as against the company. In the judgment itself the Court has held that if the Company Court otherwise orders such a transaction can be held to be valid. So, it is a question of discretion to be exercised by the court whether to declare a particular transaction as valid or not. If the transaction is equitable and fair and does not adversely affect the interest of the company, there appears to be no earthly reason why such a transaction should not be held as valid and why the court should not have jurisdiction to determine whether such a transaction should be held valid or not.

(21) Another case referred is V.Rajagopal Vs. Salem Provident Society Ltd., . In this case an application for rectification of the share register was filed after a delay of seven years and it was held that the same was liable to be rejected summarily, especially when the member had ample opportunity of repudiating his liability before the final order was passed in the liquidation proceedings. It was observed in this judgment that once a winding up order is passed, a member has no right to file an application for the rectification of the register. In this case the application was rejected on account of laches and not on account of lack of jurisdiction of the Company Court. Nothing said in this judgment advances the contention of the learned counsel for the appellant in any manner. Reliance was also sought to be placed on certain observations appearing in a Division Bench judgment of this Court in Income-Tex Officer, District Ii (2) Additional, New Delhi Vs. Official Liquidator, National Conducts(P) Ltd., 1981(51) Company Cases 174. At page 178 the learned Judges only analysed the Sections appearing from 441 to 537; rather it was observed by the court that thus, right from the date of presentation of a petition for winding up, the courts protective arm is thrown on all transactions so that private individuals may not take undue advantage of the situation and thus leave only the husk of the company at the time when the order of winding-up comes to be passed. The facts of this case were totally different inasmuch as certain income-tax deductions had been made from the salaries of the employees and the Income-Tax Officer made a request for payment to the Liquidator after the winding-up has commenced. The Liquidator wanted the Income-Tax Officer to obtain the leave of the court under Section 446 of the Companies Act. The Company Judge refused to grant the leave but permitted the Income-Tax Officer to move any application if he could show that any portion of the amount was entitled to priority under Section 53(1) of the Companies Act Appeal filed by the Income-Tax Officer was dismissed by the Division Bench holding that in the absence of any claim for priority the Income-Tax Officer was not entitled to grant of any leave under Section 446 of the Act.

(22) The Division Bench judgment of Bombay High Court in the case of Kamani Metallic Oxides Ltd. Vs. Kamani Tubes Limited 1984(56) Company Cases 19, has been also cited by the learned counsel for the appellant. While analysing Section 536(2) of the Act, it was observed by the Division Bench the opening clause of Section 536(2) "In the winding up" does not mean "after the winding up order is passed" or "upon passing such order". It means "during winding up proceedings" which admittedly commence on' the date on which the petition for winding up is filed. The question in the said case was whether the Company Court had jurisdiction to protect transactions entered into by the Board of Directors after the commencement of the winding up proceedings? The Court held that rule of harmonious construction supports the view that the Court can exercise the jurisdiction under Section 536(2) even before the winding up order is made. Nothing observed by the Court in this judgment helps in coming to the conclusion that after the winding up order the Court loses the jurisdiction. Similarly, the Division Bench of the Gujarat High Court in the matter of : Navjivan Mills Ltd., 1985(2) Company L.J. 28, was considering as to whether the Company Court had the power and jurisdiction to give directions validating any disposition of the properties of the Company before the winding up order is made? The question was answered in affirmative.

(23) The learned counsel for the appellant also referred to re: London, Hamburg and Continental Exchange Bank Emerson's Case, 1866(1) Ch.A 433. Facts, in brief were that Mr. Emersons had bought shares in the company after a petition for winding up had been presented. Both he and his vendors were ignorant of this fact. The Master of the Rolls had placed the names of Mr. Emerson on the list of contributors in respect of those shares Emersons had Filed an appeal. It was held in appeal that on the ordinary principles of law and equity a contract to sell shares entered into in ignorance when the company was defunct could not be enforced and the Companies Act, 1862, makes no difference as the Act says that such transfers shall be void unless .the court otherwise directs but the court cannot make any contract good which would be bad otherwise. At page 436 Sir GJ.Tumer, L.J. observed that the discretion given by Section 153 only authorises the Court to say that a transfer of shares or an alteration of the status of a member of the company may be valid notwithstanding it took place between the commencement of the winding up and the order of winding up but it does not in other respects alter the effect of transfer or alteration of status. Hence, there occurs difficulties in these cases where the shares were not transferred in the names of the purchasers and in that respect the transactions were incomplete and the Court of Equity would not compel the purchaser to complete them and to register the shares in his name. There was a question of exercising discretion in peculiar facts of the said case. This judgment is again distinguishable on facts.

(24) However, a Division Bench of Bombay High Court in S.P.Khanna Vs. S.N.Ghosh, 1976(6) Tax Law Reports 1740, considered the similar question. In the said case also, the transaction has taken place after the winding up order. The question arose whether such a transaction could be declared valid by the Court while exercising the power under Section 536(2) of the Act and it was clearly held that sub-section (2) of Section 536 clearly permits making of such an order by the court after the commencement of the winding-up proceedings by the court and while the proceedings of winding-up are going on and the dissolution has not reached, the power under the said Section can be exercised by the court. It is true that the court held that the principle and policy underlying the said provision is clearly enabling and the power has to be exercised in the interest of justice. The jurisdiction is equitable and is meant to be exercised as such. This judgment was followed by a Single Judge of Gujarat High Court in the matter of The Sidhpur Mills Company Ltd. (1987)1 Company Lj 71. The facts of the said case are somewhat similar to the facts of the present case. The application has been moved before the court seeking directions with regard to the transfer of certain shares of the company. The report of the Official Liquidator was called. The Official Liquidator did not raise objection to transfer of some of the shares in favor of four investment companies but raised objection with regard to four transactions. The Official Liquidator has raised objections to the recording of the said transfer of shares. One of them was that share certificates were not surrendered at the relevant time and the stamp fees have not been paid on the said transactions and another objection was that the court has no jurisdiction to validate the said transfers under Section 536(2) as those transfer of shares had taken place after the winding-up order. It was held that the court can validate such impugned transactions in those bona fide cases which demand protection of equitable consideration. The court then directed the company to register the said transfers.

(25) So, we held that the court has the jurisdiction under Section 536(2) to validate the transfer of shares which had taken place in the present case after the winding-up order as the winding-up process is still continuing and the Company has not yet been dissolved The learned counsel for the appellant has argued that the Company Court has no jurisdiction to direct any specific performance of the agreement of sale of shares and that the transaction was not complete and thus, could not be validated by the Company Judge. He has referred to Palmer's Company Law, 24th Edition (1937), para 4029 which state "where the winding up is compulsory or under supervision, transfers of shares during the winding up are avoided unless sanctioned by the court and the court will not, if a transfer is incomplete by reason of want of registration at the commencement of the winding up, put the buyer on the register. This observation has been based on the cases, namely, Emerson's Case, L.R.(1866)1 Ch.Appeals 433, re.:ONWARD Building Society (supra) Sullivan Vs. Henderson (1972)116 Sj 969 and also Nelson Mitchell Vs City of Glasgow Bank, 1879, 6R (H.L.) 66. It may be that if the transaction of transfer of shares is not complete the Company Judge may in its discretion refuse to entertain any claim for transfer of shares. But in the present case the parties had completed the transaction of transfer of shares when he share certificates and the transfer forms were duly handed over to the respondent by the appellant and his associates and full consideration which was agreed upon had been obtained by the transferors from the transferees. So, the transaction of transfer of shares was complete in the present case.

(26) It has been then contended after placing reliance on certain observations of the Supreme Court in Munnalal Khetan Vs. Kedar Nath Khetan and others, , that provisions of Section 108 being mandatory in nature no transfer of shares could be given effect to unless provisions of Section 108 of the Companies Act are complies with. The learned counsel for the appellant forgets that Section 108 could be complied with only if the company had not gone into liquidation. At present there exists no Board of Directors to which the share certificates could be presented for registration. The learned Single Judge has given ample reasons for holding that the compliance of Section 108 after the winding-up order had been made is not prerequisite for directing the registration of the transfer of shares under the orders of the court and rightly so because the Company is now under the complete supervision of the Company Court and the Official Liquidator is to manage the company under the orders of the Court. If the court in its wisdom comes to the conclusion that transfer of shares has been made between the parties validly and the said transfer shares is not going to adversely affect the public interest or the interest of the Company, there is no earthly reason why the Company Court should not declare such a transaction as valid and direct the registration of shares in the names of the transfers or their nominees in the register of the company.

(27) We may refer to also Ridge Vs. Bowman), 1968(3) Lr (Q.B.) 689. In this case. the company was ordered to be wound up on March 17 on a petition presented on March 7 and after the commencement of the winding up the plaintiff agreed to sell to the defendant certain shares in the company and defendant undertook to indemnify the plaintiff from all calls thereafter to be made. A question which arose was whether the plaintiff continues to be member of the company and liable as a contributory despite the transaction between the plaintiff and defendant? Blackburn, J. while deciding the question opined as follows: "Icon quite understand that if there has been no default in the company the court would not exercise its power to put an insolvent transferee on the register but why should they not order the rectification of the register by putting the solvent vendee upon it."

(28) Lush, J.opined that in view of Section 98 the Court can rectify the register if the court had approved the transaction. It has been clearly held by Blackbum,J. in the opening of his judgment that he saw no reason why transfer of shares should not be registered after winding up order has been made. We may also refer to re: Overend, Grew olid Co., 1867(4) Lr (Equity Cases) 189. It was held while construing Section 35 of the English Companies Act, 1862, that if any transfer of shares takes place during the winding up under the supervision of the court, the court has power to register the names of the transferees in the register of the company.

(29) It has been then argued that the transaction in question was unconscionable inasmuch as the appellant was in dire circumstances and had to agree to the transfer of shares in order to come out of the economic hardship which he was facing. The transaction of shares between the parties is purely a commercial transaction. The transaction has been entered into by the appellant and his associates willingly and voluntarily and thus, it does not lie in his mouth to urge that the transaction is unconscionable. Mere fact that the Company had become solvent with the acquisition of the precious land by the Company would not render the transaction earlier made between the parties as void or voidable. The agreed full consideration of transfer of shares and the credits has been obtained by the appellant and his associates. The appellant is, thus, now estopped from urging that the appellant and his associate sought to have been paid better price of their shares and credits as the Company had become solvent. The appellant in his claim for revival of the Company had intended to pay same type of consideration to the shareholders and the creditors as has been obtained by the appelant and his associates from the repondents. The mere fact that now the profounder of the schemes pending before the Company Judge had proposed to pay full value of the shares and also the credits to other members of the Company and the creditors would not mean that the transaction which has been completed earlier between the parties stands vitiated.

(30) The Company Judge in our view could, invoking the jurisdiction under. Section 536(2), Section 155 and Section 446 of the Companies Act, come to the conclusion that the-transaction was valid, genuine and bona fide and could direct the Official Liquidator to make necessary amendments in the registers. It is true that under Rule 154 and Form 35(1) of the Company Court Rules, 1959, the status of creditor is to be recognised as it existed on the date of winding-up order but by substituting one creditor with the other creditor does not mean change in the status of the creditors as it existed on the date of winding-up order. There is no provision in the Companies Act by virtue of which the transfer of credits is declared as void. So, the transaction of transfer of credits entered into between the parties is not hit by any provisions of law and could be duly given effect to by the Company Judge. The interim orders earlier made in the case by which the respondent was not to have any voting rights in the meetings of the creditors and the appellant and the respondent have later been asked to exercise parallel voting rights in the meetings of the members were obviously subject to the final disposal of the present petition. It was so made clear even in the order of B.N.Kirpal, J. dated April 10,1986.

(31) A contention was raised that the Company Judge should not have passed impugned order and should have decided the question of transfer of shares while considering and taking the decision on the schemes which are pending before him for the revival of the Company. We do not agree. It is true that initial agreement dated November 28, 1984, contemplated the transfer of shares and transfer of credits after the scheme was to be sanctioned by the Company Judge but later on the parties had given a go by to the said agreement and had gone ahead with the completion of the transaction of transfer os shares and transfer of credits inasmuch as the appellant obtained he full consideration and handed over the share-scrips and the other documents to the transferees and gave undertaking to get them transferred in the names of the transferees in the books of the Company after obtaining the orders of the Company Judge.

(32) One of the respondents being Non-Resident Indian was required to obtain permission of the Reserve Bank of India before shares in his name could be registered and the Company Judge has given a direction in this connection that shares in his name would be registered only after he had obtained necessary permission. We do not find anything wrong in Company Judge making such a direction. We may mention that the appellant in ground No.12 in Company Appeal No-16/87 had mentioned that he had entered into the agreement with the respondent firstly because his claim was liable to be rejected for non-compliance of the order of the Company Judge dated May 21, 1984, which required furnishing of particulars of the financial tie up and secondly, because the crucial land appeal No. 105/78 was to come up for final hearing and after the appeal was to be dismissed the Company would have required substantial funds to acquire the factory land and building of the Company. So in view of such averments, how could it be said by the appellant that the transactions entered into by him with his free will were in any manner unconscionable and were not pure commercial transactions.

(33) Hence, we find no merit in these appeals. We make it clear that the Company Judge would consider the schemes pending before him keeping in view the public interest of reviving the Company so that job opportunities become available. The Company Judge may also keep in view as to which propounder is having sufficient finances to revive the Company and put it on sound footing, without selling or encumbering the precious land owned by the Company. There are various considerations which have to be considered by the Company Judge in deciding as to whether he should accept any of the schemes already propounded before him which we need not elaborate further. These two appeals are dismissed. The parties are left to bear their own costs. Co. Appeals 9/88 & 27/90

(34) These appeals were directed against subsequent orders made by the Company Judge in pursuance to the orders made subject-matter of the above appeals. Those impugned orders have been upheld by us. Thus, these appeals have also no merits. So, the same are dismissed. The parties are left to bear their own costs.