Minnie Pan (India) Pvt. Ltd. vs Eurobike Limited
2005 Latest Caselaw 914 Del

JUDGMENT

A.K. Sikri, J.

1. M/s. Eurobike Ltd. (hereinafter referred to as the 'Company') has been ordered to be wound up by this Court. It is in liquidation. The Official Liquidator attached to this Court as been appointed as the provisional liquidator. There are many creditors of the company, who have preferred their claims. The O.L. is to realise the assets of the company and settle these claims. This exercise is on.

2. Few unsecured creditors have filed CA No. 555/2000 impleading the O.L. as respondent No. 1 and the company as respondent No. 2. Other two respondents are Sh. .L.N. Sood (respondent No. 3) and Smt. Ketiki Sood (respondent No. 4). Application is filed under Section 446(2)(d) read with Sections 531A, 542 and 543(1) of the Companies Act (in short the 'Act' ) and Rule 9 of the Companies (Court) Rules, 1959 (in short the 'Rules') and is primarily against respondents No. 3 and 4. What is alleged is that one and only unencumbered asset of the company, i.e H-3, Block B-1, Mohan Cooperative Industrial Estate, New Delhi-44 (hereinafter referred to as the 'property in question'') has been transferred/disposed of by respondent No. 3 (the then Director of the company) to respondent No. 4, who is wife of respondent No. 3 and this transfer has taken place by virtue of on Agreement to Sell dated 1st October 1999 for a consideration ofRs.47,00,000/-. The applicant states that it is a fraudulent transfer and is hit by Section 531A of the Act and the transfer of the property took place for an inadequate consideration ofRs.47,00,000/- as against the actual market value of the property being Rs. 5,00,00,000/-. Therefore, the prayer made is to declare the said Agreement to Seal dated 1st October 1999 as void and direct the respondent No. 4 to restore the property in question, to the company. Some incidental prayers are also made.

3. CA No. 1084/2000 is filed by Steel Tubes of India Ltd, which is another secured creditor. Allegations and prayer made in this application are identical as in CA No. 555/2000.

4. It may be mentioned that substantial part of this property is let out to two tenants, namely, M/s. Jay Engg. Co. Ltd. and M/s. Usha International and the respondent No. 4 is receiving rents from these tenants. Therefore, CA No. 786/2000 is also filed by these applicants seeking direction against the respondents No. 3 and 4 to deposit the rent with the O.L. and an order is also sought that future rent be deposited by these tenants (who are arrayed as the respondents No. 5 and 6 in this case) with the O.L directly.

5. Crl. M. No. 6/2000 is also filed by these applicants against respondents No. 3 and 4, which is an application under Section 340 read with Section 195 of the Cr.P.C. and it is alleged in this case that the respondents No. 3 and 4 have intentionally and willfully committed the offence of perjury by filing false and fabricated documents with their reply and, therefore, appropriate proceedings be initiated against them under Section 340 of the Cr.P.C. Gravemen of the charge in all these applications preferred by the applicants seeking to declare the transaction void is as under:-

CP No. 307/99 was filed by M/s. Manniepan Ltd. against M/s. Eurobike Ltd. seeking its winding-up. This petition was presented on 1st September 1999. Petition was admitted on 6th October 1999 and provisional liquidator appointed on that date with direct on to take charge of the assets and records of the company. The property in question was owned by the company and Agreement to Sell dated 1st October 1999 was entered into whereby the company agreed to sell this property to the respondent No. 4. This transaction is within one year of the presentation of the petition. Section 442 of the Act states that once the company is wound up it would relate back to the date of presentation of the petition. As the transfer took place within six months before commencement of the winding-up, it be deemed that it is a fraudulent preference under Section 531 of the Act. It is also stated that the property was sold for Rs. 47,00,000/-, although the net worth of the property on the date of sale was Rs. 5,00,00,000/-. It was for insufficient consideration as adequate consideration has not passed on and furthermore, it is also not a transfer in good faith inasmuch as the respondent No. 4 is wife of the director of the company (respondent No. 3) and thus, it should be treated as void against the liquidator as prerequisites of Section 531A of the Act were also not fulfillled.

5. In the reply filed by the respondents No. 3 and 4 to these applications they have emphasised that although the Agreement to Sell is dated 1st October 1999, the transaction of transfer took place much earlier and in fact, the Agreement to Sell dated 26th June 1996 was executed between the company and Smt. Ketaki Sood and a sum of Rs. 5,00,000/- was paid as initial advance while entering into said Agreement to Sell dated 26th June 1996. On the same day General Power of Attorney was also executed in favor of the respondent No. 3 by Eurobike authorising him to do all acts, things, deeds and actions whatsoever in respect of the property in question. Remaining payments of Rs. 38,55,200/- were also made on 31st March 1998, 27th July 1998 and 28th July 1998. After deducting a sum of Rs. 2,44,800/-, which was owed by the company to the respondents No. 3 and 4. The circumstances in which fresh Agreement to Sell dated 1st October 1999 was executed are stated in the reply. According to the respondents, the transaction was conceived way back in the year 1996. The respondents have stated that in fact, for allotment of the property in question, originally applications were submitted by Smt. Ketaki Sood with the DDA. However, allotment of this property was got in the name of M/s. Rupayan Associates Pvt. Ltd. (later name changed as Eurobike Ltd.) in the year 1982 in which Mr. L.N. Sood was a director. The history of transaction and under what circumstances the property in question was agreed to be sold to the respondent No. 4 are stated in the reply and the brief description thereof reads as under:-

(a) M/s. Rupayan Associates Pvt. Ltd. (in shofr 'Rupayan') was formed to make furniture and was also involved in providing warehousing facilities for Usha International and Jay Engg. Co. Ltd. This company owned two properties, namely, C-98, Noida Phase-

I and the property in question (hereinafter referred to as the tenants). From the remaining portion furniture business of Rupayan was conducted. This company started bicycle business also in 1990-91. However, it was not from the property in question were furniture business continued to be conducted. On 10th October 1994 a meeting of the Board of Directors of Rupayan was held wherein it was decided to accept the proposal to merge another firm Cezario with Rupayan. It was also decided that the furniture business would be split from the bicycle activity in Rupayan. In this meeting itself, Smt. Ketaki Sood expressed her intention to continue the furniture and interior decoration business as a proprietorship concern by the name of Rupayan and that for such purpose, she wanted the furniture business of the company be split from the company. She also offered to resign as a Director of the company.

(b) It was, therefore, resolved in this meeting that the splitting of the business be effected as per the provisions of the Companies Act, the property in question be transferred to Smt. Ketaki Sood or her nominee or corporate body as per the provisions of the Companies Act, and that Smt. Ketaki Sood would be given Power of Attorney in respect of the property in question with a view to effect its transfer.

(c) On 16th February 1995, M/s. Cezario headed by Smt. Rita Jain was merged with the newly constituted Rupayan (later known as Eurobike). The furniture business was under the name of Rupayana and was being managed by Smt. Ketaki Sood, who resigned from the Board of Directors of the newly formed merged company. Two new directors joined the company i.e. Smt. Rita Jain (proprietor of Cezario), as Promotor-Director and Ms. Roma Trikha (Director, P.R.O. and looking after General Administration). There were other Directors also and Mr. L.N. Sood was one of them, but merely a Non-Working Director.

(d) On 19th February 1996 Rupayan changed its name to Eurobike, which change of name was approved by the Registrar of Companies. The Board of Directors of Eurobike unanimously decided in a Board Meeting on 23rd April 1996 that the subject property be sold to Smt. Ketaki Sood, proprietor of Rupayan who had by then resigned from the company. This Resolution in effect, confirmed the resolution dated 10th October 1994 passed by the original Rupayan before the merger. In this meeting, Smt. Rita Jain informed the Board that the fair market value of the property in question in view of the fact that there are two floors in possession of the tenants, was assessed at Rs. 46,00,000/- The Board by this meeting, resolved to hand over vacant, quiet and peaceful physical possession of the property in question to Smt. Ketaki Sood and to enter into an Agreement to Sell to her on receipt of Rs. 5,00,000/- as initial advance, on receipt of which sum, the possession was to be handed over to Smt. Kekti Sood and a formal Agreement to Sell was to be drawn up between Smt. Ketaki Sood and the company represented by either Ms. Rita Jain or Ms. Roma Trikha. The Board decided to execute the necessary documents to confirm the sale. The rent from the tenants in possession of two floors of the property in question was to be received by the company till the entire consideration for the sale of the property in question was paid by Smt. Ketaki Sood, and then all rights in the property including receipt of rent from the tenants were to vest in her.

(e) An Agreement to Sell with respect to the entire property along with leasehold rights, was duly executed on 26th June 1996 between Eurobike and Smt. Ketaki Sood, incorporating all the terms and conditions decided on in the aforementioned two Board meetings of the company and acknowledging the receipt of Rs. 5,00,000/- from Smt. Ketaki Sood as initial advance. It clearly stipulated that the original documents of the lease-deed, sanction plan etc. would be handed over when the entire balance sale prices received by Eurobike and that it would obtain sale permission on its own expenses from all concerned authorities and would intimate Smt. Ketaki Sood of the same. On the same day i.e. 26th June 1996, a General Power of Attorney was executed in favor of Mr. L.N. Sood by Eurobike authorising him to do all acts, things, deed and actions whatsoever in respect of the property in question.

(f) On 31st March 1998, 27th July 1998 and 28th July 1998 remaining payments totalling Rs. 38,55,200/- were made by Smt. Ketaki Sood, after deducting a sum of Rs. 2,44,800/- which the company owed to her and Mr. L.N. Sood.

(g) On 7th August 1998, a letter was addressed by the company to Smt. Ketaki Sood, acknowledging the receipt of Rs. 46,00,000/- i.e. the entire sale price of the property in question and informed her that it would be handing over physical, peaceful possession and the relevant records of the property and that it would inform the tenant in possession of two floor of the property to remit their rent to Smt. Ketaki Sood or her nominee w.e.f. 1st September 1998. The above-mentioned two tenants were duly informed of the same by the company and a certificate to this effect issued by Satish Malik and Co., Chartered Accountants on 31st August 1998.

6. It is accordingly sought to contend that much before filing of the petition, which was filed on 1st September 1999, transaction in question took place which has genesis in Agreement to Sell dated 26th June 1996 and even the entire payments were made by 28th July 1998. Winding-up petition was filed more than a year after the transaction was completed. It is further stated that from the history of incorporation of Rupayan and its merger with Cezario and the intention of Smt. Ketaki Sood to continue the furniture business while resigning from the Board of Directors in 1995, would clearly show that she wanted to continue to do furniture business from the property in question and it is because of this reason the company agreed to sell this property to her. In fact, according to the respondents, it was a loose arrangement as per which, she was given the subject property and the new management with induction of Smt. Rita Jain heading Cezario, the company retained other property at Noida. In 1996, therefore, Agreement to Sell was entered into and even the entire consideration was paid. The consideration of Rs. 46,00,000/-, in these circumstances, was proper and reasonable, more particularly when the two floors of the property were in possession of the tenants. Highlighting the aforesaid facts learned counsel for the respondents argued that such a transfer was bona fide, in the ordinary course of business and for valuable consideration and, in fact, was not even within one year before the presentation of the petition for winding-up and, therefore, was not hit by provisions of Section 531A of the Act. She, in support of her submission, relied upon certain judgments, reference to which would be made while discussing the respective arguments.

7. The applicants, on the other hand, submit that in order to bring the case out of the provisions of Sections 530 and 531A of the Act, bogey of Agreement to Sell dated 26th June 1996 is created. If that was a genuine agreement, there was no necessity for entering into Agreement to Sell dated 15th July 1999, which was even got registered with the Sub-Registrar on 5th November 1999. As per this agreement, property is purportedly been agreed to be sold for a consideration of Rs. 46,00,000/- and Rs. 45,00,00/- have been paid by means of three cheques dated 3rd June 1999, 9th June 1999 and 15th June 1999 for Rs. 15,00,000/- each. It is further stated that this Agreement to Sell dated 15th July 1999 has not been disclosed in the reply and back-dated document is manufactured showing it as agreement dated 26th June 1996, which is a forged document. Various submissions are made in a attempt to demonstrate that the Agreement to Sell dated 26th June 1996 was forged document, including the ground that if such an agreement was entered into and even the entire consideration paid in the year 1998 itself, there was no necessity to enter into Agreement to Sell dated 15th July 1999. The applicants have also alleged that even General Power of Attorney dated 26th June 1996 is forged. Documents in support of the said transactions, which are filed, are also dubbed as forged, including letter dated 3rd August 1998 allegedly written by the respondents No. 3 and 4 to the company (Eurobike) informing that entire sale consideration has been paid and seeking possession of the property; letter dated 7th August 1998 by Eurobike acknowledging receipt of full consideration; certificate dated 31st August 1998 issued by M/s. Satish Malik and Co., Chartered Accountants of the company certifying that the company has received entire sale consideration of Rs. 46,00,000/-; letter dated 27th December 1996 allegedly written by the respondent No. 4/Ketaki Sood to Eurobike calling upon the company to extend the time for payment of alleged balance sale consideration; letter dated 3rd February 1997 allegedly written by the company to Smt. Ketaki Sood purporting to extend the time. It is also contended that these documents are created in order to give a semblance of the alleged transaction taking place in 1996. Further an attempt is made to relate certain payments of 1998 i.e. more than two years after the agreement with the purported Agreement to Sell even when such payments had otherwise no nexus or connection with the purported Agreement to Sell. It is contended that the respondent No. 4 was earlier a director of the company and even after ceasing to be director had some business dealing and the respondent No. 3 continued to be the director of the company. These payments made in some other connection are tried to be sought to be connected with fake transaction of the year 1996. Even when these payments fell short of approximately Rs. 2,00,000/-, attempt is made to cover up the same by showing that the company owed this much amount to the respondents No. 3 and 4 and adjustment thereof if given. It is further stated that, in the process, the respondents No. 3 and 4 have even in collusion and conspiracy with certain known and unknown persons, fabricated and manufactured the minutes of meetings, which are filed with the reply in an attempt to demonstrate as if the Board of Directors had agreed to sell this property to the respondent No. 4 in the year 1996. According to the applicants, these meetings were never held and no such resolution was passes therein and the applicants have given their own circumstances according to which, as per the applicants, these minutes are forged.

8. I am not reproducing in detail the version of the applicants because of which they alleged that it be treated that there were no such meetings of the Board of Directors agreeing to sell the property to the respondent No. 4 in 1996 or that there was no such agreement dated 26th June 1996 and no such letters were written seeking extension of time to make the payment and making the payments ultimately. It is because of the following inalienable and impeccable circumstances pointing towards the genuineness of the transaction and to which learned counsel for the applicants could not give any reply:

A) Agreement to Sell dated 1st October 1997 is executed by Mr. L.N. Sood on behalf of the company. The applicants have relied upon this Agreement to Sell and as per the version of the applicants themselves, this document is genuine document, but on the basis of this document, sale comes under the mischief of Section 531A of the Act. Significantly this very document executed by Mr. L.N. Sood, on behalf of the company refers to Power of Attorney dated 26th July 1996. Whereas the applicants do not dispute the existence of the Agreement to Sell dated 1st October 1999, but at the same time they allege that the General Power of Attorney is a fabricated document and created afterwards. It is self-contradictory. It can, therefore, safely be stated that Power of Attorney dated 26th July 1996 was executed by the company in favor of Mr. L.N. Sood. The occasion to execute this Power of Attorney none else but the Agreement to Sell dated 26th June 1996 agreeing to sell the subject property by the company to Smt. Ketaki Sood, as can be deciphered from the Power of Attorney itself. This would give credence to the version of the respondents that the Agreement to Sell was executed in the year 1996.

B) Most important aspect is the attornment of tenants in favor of Smt. Ketaki Sood. This attornment was in September 1998. It is the case of the respondents No. 3 and 4 that after paying full consideration in September 1998, they asked the company to give possession. Be as it may, letters are produced on record, which were written to the tenants (one letter was written by the company to the tenants asking them to pay the rent to Smt. Ketaki Sood henceforth and other letters are written by the said tenants agreeing to do the same. This correspondence is not between the company and its directors or Ketaki Sood. This correspondence is with outsiders, namely, the two tenants.

C) More than this, there is another significant aspect which, in fact, by itself clinches the entire issues, namely, the two tenants started paying rents to Ketaki Sood with effect from September 1998. These rents are paid by means of cheques. Affidavit of tenants is also filed confirming their attornment in favor of Ketaki Sood. If sale transaction was envisaged for the first time when Agreement to Sell dated 1st October 1999 was executed, as contended by the applicants, why the two tenants would start paying the rents from September 1998? Learned counsel for the applicants were candid in their admission that they had no answer to this. On the other hand, payment of rents by the tenants to Ketaki Sood is in line with the version of the respondents namely, when the entire consideration was paid in the year 1998 by means of three cheques, she was treated as the owner of the property with entitlement to receive the rents. As stated above, this factor alone is sufficient to conclude that the transaction of sale of the property by the company in favor of Ketaki Sood was much prior to 1999 and in any case, more than one year prior to 1st September 1999.

D) At this stage, it would also be relevant to note that in view of the controversy raised, this Court had directed the O.L. to enquire into the matter after examining the documents produced by both the parties and submit his report. The O.L. examined the matter and went through the records as well as the bank statement of the company with Allahabad Bank and submitted his report. In this report he has confirmed the sale of the property as per the Agreement daed 26th June 1996, after receipt of full consideration in the year 1998, which is duly acknowledged and entered into the books of accounts of the company, which are in possession of the O.L.

9. In this background, we have to consider the question: If the Agreement to Sell was entered into on 26th June 1996 and the entire consideration also stood paid by July 1998, what was the necessity to execute another Agreement dated 1st October 1999? The respondents No. 3 and 4 have given the explanation by submitting that in 1999, a company was newly incorporated under the name of "Rupayan Associates Pvt. Ltd." with Mr. L.N. Sood and Smt. Ketaki Sood as its Directors. Permission of Eurobike was sought to get the sale executed in the name of the newly incorporated company. It was to this end that the cheques were again given to the company. However, due to the fact that the sale transaction which was started in 1996 had concluded in 1998, the total sale consideration was received by the company and profits were booked, the property could not be sold in the name of Rupayan Associates Pvt. Ltd. In view of this, Mr. L.N. Sood is Power of Attorney holder of Eurobike in continuation of the Agreement to Sell of 1996 and Power of Attorney of 1996 executed a registered sale deed. According to the respondents, therefore, the Agreement to Sell dated 15th July 1999 is nothing but extension and reiteration of the 1996 Agreement. The respondents have also expressed that the amount of Rs. 45,00,000/- mentioned in the Agreement to Sell dated 15th July 1999, which was received by means of three cheques of Rs. 15,00,000/- each was returned immediately vide cheques dated 8th June 1999, 14th June 1999 and 17th June 1999 for Rs. 15,00,000/- each. Although motive of writing such an agreement is not fully appreciated, in view of other circumstances weighing in favor of the respondents, explanation given by the respondents seems to be plausible.

10. In the facts of this case the transaction would not come under the mischief of Section 531A of the Act, which can be treated as a void transfer as against the Liquidator. It appears that as Smt. Kataki Sood wanted to continue the furniture business from the premises in question, on her resignation as Director after the merger of Cezario with the company (Eurobike) and split of furniture business from bicycle business, the company agreed to give her the property in question which led to signing of Agreement dated 26th June 1996. Merger had taken place in the year 1995 and at that time the name of the company was also changed from Rupayan to Eurobike Ltd. Smt. Ketaki Sood continued to do the furniture business but now as a sole proprietor and the name of her sole proprietorship firm with the same name 'Rupayan', which shows her sentimental attachment to this name and the goodwill she might have earned while doing furniture business in the name of Rupayan. This is further strengthened from the fact that in 1999 (which event took place before the filing of the winding-up petition), Smt. Ketaki Sood along with her husband incorporated the company with the name Rupayan Associates Pvt. Ltd. for the same furniture business. Be as it may, as there is evidence on record that payments were also made in July 1998 and the two tenants also attorney in her favor and starting paying her rent, the transaction seems to be bona fide and for valuable consideration. Further it took place more than one year before piling of the company petition and, therefore, Section 531A of the Act shall have no application even on this ground.

11. The principles, while considering such cases under Section 531A of the Act to be kept in mind, are stated in Monark Enterprises v. Kishan Tulpule and Ors., [1992] 74 Comp Case 89. In this case the Court held that even if a transfer is made within a period of one year before presentation of the petition, once it is shown that it was made in the ordinary course of business or in good faith and for valuable consideration, such a transfer would not be annulled and the burden of proof that transaction as not in good faith or not for valuable consideration, would be on the O.L. or the creditors challenging the transfer. To the same effect is the judgment of Punjab and Haryana High Court in the case of Sunder Lal Jain v. Sandeep Paper Mills Pvt. Ltd. and Ors., [1986] 60 Comp Case 77. More proximate to the facts of this case would be the judgment of Punjab and Haryana High Court in the case of Estate Development Ltd. in Re [1957] 27 Comp Case 581. In that case it was held that where a contract was already concluded prior to commencement of winding-up and transaction was merely completed during the period of winding-up in pursuance of such contract, Section 536(2) of the Act, which deals with avoidance of transfers etc., after commencement of winding-up, would have no application.

12. I, therefore, do not find any merit in these applications and dismiss the same.

No costs.