[Cites 19, Cited by 0]
Karnataka High Court
Official Liquidator vs M/S. Kirloskar Institute Of Advanced on 17 February, 2026
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OSA No. 19 of 2015
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 17TH DAY OF FEBRUARY, 2026
PRESENT
THE HON'BLE MR. JUSTICE D K SINGH
®
AND
THE HON'BLE MR. JUSTICE VENKATESH NAIK T
ORIGINAL SIDE APPEAL NO. 19 OF 2015
BETWEEN:
1. OFFICIAL LIQUIDATOR
OF THE MYSORE KIRLOSKAR LTD., (IN LIQN.)
ATTACHED TO HIGH COURT OF KARNATAKA,
CORPORATE BHAVAN, NO.26-27, 12TH FLOOR,
RAHEJA TOWERS, M.G.ROAD
BANGALORE-560 001
...APPELLANT
(BY SMT. KRUTIKA RAGHAVAN, ADVOCATE FOR
SRI. K.S. MAHADEVAN, ADVOCATE/OL)
AND:
1. M/S. KIRLOSKAR INSTITUTE OF ADVANCED
MANAGEMENT STUDIES
Digitally YANTHRAPURA
signed by HARIHAR-577601
VASANTHA
KUMARY B K ...RESPONDENT
Location: (BY SRI. K.G.RAGHAVAN, SENIOR COUNSEL FOR
HIGH
COURT OF SRI. RAGHURAM CADAMBI., ADVOCATE)
KARNATAKA
THIS OSA IS FILED UNDER SECTION 483 OF
COMPANIES ACT, 1956, PRAYING THIS HON'BLE COURT
TO CALL FOR RECORDS AND SET ASIDE THE ORDER
PASSED ON 21.07.2015 IN CO.A. NO. 826/2011 IN CO.P.
NO. 166/2001 AND BE PLEASED TO PASS AN ORDER
ALLOWING C.A. 826/11 IN COP 166/01, AND ETC.
THIS APPEAL HAVING BEEN HEARD AND RESERVED
FOR JUDGMENT ON 09.10.2025, COMING ON FOR
PRONOUNCEMENT THIS DAY, HON'BLE MR. JUSTICE D K
SINGH PRONOUNCED THE FOLLOWING:
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OSA No. 19 of 2015
CORAM: HON'BLE MR. JUSTICE D K SINGH
and
HON'BLE MR. JUSTICE VENKATESH NAIK T
CAV JUDGMENT
(PER: HON'BLE MR. JUSTICE D K SINGH)
1. The present appeal has been filed by the appellant-
the Official Liquidator of the Mysore Kirloskar Ltd., (the
Company in liquidation) being aggrieved by the impugned
order dated 21.07.2015 passed by the learned Company
Court in Company Application No.826/2011 in Company
Petition No.166/2001.
2. The Company Application No.826/2011 was filed by
the appellant herein seeking a declaration from the
Company Court to declare the Lease Agreement dated
22.01.2000 executed between the Mysore Kirloskar
Limited., and the respondent as void against the Official
Liquidator and for consequential cancellation of the lease
agreement. The learned Company Court vide impugned
order dated 21.07.2015 has dismissed the application in
CA No.826/ 2011.
3. The relevant facts for the purposes of decision in the
present appeal are stated as under:
i. The respondent is a Society registered under
the Karnataka Registration of Societies Act, 1960 under the
name "Kirloskar Institute of Advanced Management
Studies" now named as "Kirloskar Institute of Management
Studies" ;
ii. The respondent entered into a registered lease
agreement dated 22.01.2000 with M/s. Mysore Kirloskar
Ltd., (the Company in liquidation). Pursuant to the
aforesaid lease deed, respondent was put in possession of
the land bearing Survey No.22, a part of Survey No.23 and
a part of Survey No.27 in Harihara Village and Taluka,
Karnataka.
iii. Since its execution, respondent has been paying
the paltry rent of Rs.1,250/- per month. The Company
Court vide order dated 01.04.2004 ordered for winding up
of Mysore Kirloskar Limited, pursuant to the petitioner in
Company Petition No.166/2001. On 29.07.2011, the
Official Liquidator filed an application in Company
Application No.826/2011, seeking to declare the lease deed
as void against the Official Liquidator as it was executed a
few days prior to the presentation of the Company Petition
before the Company Court, which was on 14.03.2000.
iv. The Company Court after hearing the parties in
Company Application No.826/2011 has dismissed the
application vide impugned judgment and order dated
21.07.2015, on the ground that the Company Application
was barred by Limitation.
BACKGROUND OF THE CASE:
4. The Mysore Kirloskar Limited was ordered to be
wound up by the Company Court vide order dated
01.04.2004 in Company Petition No.166/2001 and the
Official Liquidator attached to this Court was appointed as
Liquidator of the Company (in liquidation) by virtue of
provisions of Section 449 of the Companies Act, 1956.
5. Consequences of the winding up in respect of the
assets and properties of the Company in Liquidation are
provided in Section 456 of the Companies Act. Section
456(1) of the Companies Act provides as under:-
"'Where a winding up order has been
made or where a provisional liquidator
has been appointed, the liquidator or the
provisional liquidator as the case may
be, shall take into his custody or under
his control, all the properties, effects and
the actionable claims to which the
Company is or appears to be entitled."
6. Further Section 456(2) provides "All the properties
and effects of the Company shall be deemed to be in the
custody of the Tribunal as from the date of the order for
the winding up of the company". Accordingly, the official
liquidator had taken possession of the company's land ad
measuring 176 acres, buildings, plants and machineries,
fixtures and movable assets, residential quarters and sites
etc., situated at Yantrapura, Harihara, Davangere District.
Subsequently with the permission of this Court the Official
Liquidator had sold the undisputed properties.
7. With the permission of this Court, the Official
Liquidator invited claims from the creditors of the Company
(Company in liquidation) and distributed dividend to an
amount of Rs.89,70,74,758/- as first dividend and
Rs.17,67,59,066/- as the second dividend to the secured
creditors and workmen of the Company in liquidation. Put
together 95% of their admitted amounts were paid by the
Official Liquidator by disposing of the properties of the
Company in liquidation. Apart from that, under the order of
High Court dated 16.08.2019 passed in OLR
No.5/2019, the Official Liquidator had paid a sum of
Rs.50,52,521/- to M/s.Kotak Mahindra Bank towards an
interim dividend (at the rate of 50 paisa in a Rupee) Now
the Company in liquidation is having Rs.14,01,923/- only
available to the credit of the Company in liquidation.
8. The Company in liquidation is also having land of
6.29 acres in Survey Nos.22, 23 part, 27 part in Harihar
Village and Taluk, measuring to an extent of 1.430 acres
and 4.869 acres together with assets thereon which was
leased to M/s. Kirloskar Institute of Advanced Management
Studies (KIAMS), the respondent herein by the Ex-
management of the Company in liquidation vide the lease
agreement dated 22.01.2000 for a period of 28 years.
9. The valuable land ad measuring 6.29 acres was given
on lease basis by the former Management in favour of M/S.
Kiloskar Institute of Advanced Management Studies,
Harihara, a related entity vide lease agreement dated
22.01.2000, just a few days prior to the filing of the
petition for winding up on monthly rental of Rs.1,250/- for
a period of 28 years.
10. The Official Liquidator therefore, filed an application
in CA No.826/2011 before the Company Court against
M/s.KIAMS informing the facts of the case and prayed to
declare the lease agreement dated 22.01.2000, entered
between the Ex-Management of Mysore Kirloskar Limited,
company in liquidation in favour of KIAMS Institute of
Advanced Management Studies for 28 years as void
against the Official Liquidator and to cancel the lease
agreement. However, the said application has been
dismissed vide impugned order dated 21.07.2015 passed
by the learned Company Judge on the ground that the
application was barred by Limitation.
11. The leased property is pending for realisation,
therefore, the Official Liquidator is unable to settle the
balance payable amount to the secured creditors, workmen
and other creditors of the Company in liquidation, who are
eagerly waiting and knocking the doors of the Official
Liquidator often and the Official Liquidator is unable to
complete the liquidation proceedings to dissolve the
Company in liquidation.
Relevant Clauses of the Lease Agreement dated
22.01.2000:-
12. Before proceeding further, it would be apt to take
note of the relevant clauses of the lease agreement dated
22.01.2000, whereby the Ex-Management of the Company
in liquidation had allegedly leased the valuable land and
buildings, structures and facilities, plants and machinery
thereon measuring 6.29 acres in favour of a related party,
KIAMS, for a paltry sum of Rs.1,250/- per month for a
period of 28 years. The lease deed is not only in respect of
the land, but also land together with buildings, structures,
facilities, plant and machinery and other capital assets as
described in the schedule of the lease deed. The land
together with buildings, structures, facilities, plants,
machinery and other capital assets are described in the
schedule as demised premises in the lease deed. The Ex-
Management also agreed to make available its facilities like
cricket ground, tennis court, squash court, golf course for
the use of the lessee KIAMS. The lessee has been given a
right, free of any hindrance, to plan and construct its own
further buildings, structures including residential buildings
required for its purposes at its own costs with prior
intimation to the lesser.
13. Under the lease deed, it is also provided in Clause 15
that the lessor, the Company in liquidation would not have
any objection to lease out the demised premises by the
lessee to any third party. The lessee, may offer the same
as security to any person, firm or Company or Financial
Institution to secure any borrowing arrangement. The
lessee would also be entitled to enter into with such
lenders and create charge in their favour for such
borrowing of the demised premises.
14. In Clause 19 it is further provided that on the expiry
of the term of the lease agreement, the demised premises
shall be conveyed by the lessor to the lessee without any
further financial or other compensation whatsoever, and
the parties shall execute such documents or conveyance as
would be required to transfer the absolute title over the
demised premises to the lessee. Clause 19 of the lease
deed is extracted hereunder:
" (19) On the expiry of the term of this LEASE
AGREEMENT, the subject Demised Premises
shall be conveyed by the LESSOR to the LESSEE
without any further financial or other
compensation whatsoever and the parties
herein shall execute such documents of
conveyance as may be required to transfer the
absolute title over the Demised Premises to the
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LESSEE. Upon such conveyance conferring
absolute title to the LESSEE, the LESSOR shall
permit the right of passage to the staff
members of the LESSEE, who may reside in the
staff quarters of the LESSEE located within the
residential colony premises of the LESSOR. The
stamp duty, registration charges and other
expenses for the conveyance of the title to the
LESSEE as aforesaid shall be borne by the
parties herein equally."
15. The Questions for consideration:-
a. Whether the lease deed executed by the
Ex-Management of the Company in liquidation is a
fraud played by the Ex-Management on shareholders,
creditors (secured and unsecured) and against the
public interests?
b. Whether the lease deed was void abinitio,
entered by the Ex-Management of the Company in
liquidation to a related party as it was not a
transaction at arm's length?
c. Whether the valuable properties of 6.29 acres
along with all the assets, the buildings, structures,
facilities, plant and machinery and other capital
assets as described in the schedule of the lease deed,
could have been leased out to a related party just
before filing of the winding-up petition by the Ex-
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Management for a paltry sum of Rs.1,250/- per
month for a period of 28 years which stipulated that
and the property would get conveyed without any
further consideration in favour of the KIAMS on
completion of 28 years i.e., in the year 2028, was a
bona fide transaction in the interest of the Company
or it was a fraud played by the Ex-Management,
conveying the valuable assets of the Company to a
related party and therefore, same was void ab initio
as it was not a transaction at arm's length?
The Previous Proceedings:-
16. Company Application No.413 /2005 in Company
Petition No. 166/2001:
The KIAMS filed the aforesaid application on
05.05.2005 under Section 446 and 531(A) of the
Companies Act r/w Rule 9 of the Companies (Court) Rules,
1959, seeking for stay of the sale proceedings of the
property in question. It was further prayed that applicants
be permitted to bid the leased properties in the interests of
justice. The prayer of the said application reads as under:
"It is therefore prayed that this Hon'ble High
Court be pleased to stay the Sale Proceedings
to be held on 10.05.2005 by the Respondent
insofar as this Applicant's Institution is situated
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in portion of Sy,No.22,23 and 27 is concerned
as per Schedule mentioned in Annexure A
including lands of Sy.No.21, 22, 23 and 27 of
Harihar Village and Taluk and further permit
this Applicant to bid and buy these lands, in the
interest of justice."
17. The learned Company Court vide ordered dated
26.07.2005 rejected the application on the statement
made by the learned counsel for the Official Liquidator that
the property in occupation of the applicant was not the
subject matter of auction sale and therefore, the Company
Court held that the relief sought for in the application
would not survive for consideration and therefore, the
application came to be rejected.
18. The Company Application No.188/2005 in
Company Petition No.166/2001:
The aforesaid application was filed by KIAMS on
04.03.2008 under Section 457 of the Companies Act r/w
Rule 9 of the Companies (Court) Rules. In Paragraph 11 of
the said application, KIAMS submitted that the it would be
constrained to get the property transferred into their name
immediately, failing which, the Institution would not be
recognized. It was also said that they were willing to pay
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the present market price of the said land and buy the
scheduled property situated in 6.3 acres, immediately.
19. Prayer was sought for a direction to the Official
Liquidator to sell the said 6.3 acres of schedule property
wherein the Institution of the KIAMS is situated by
accepting the amount stated therein.
20. Company Court vide order dated 30.09.2008 took
note of the earlier application filed by the KIAMS being
Application No.413/2005 and the order was passed on the
basis of the stand taken by the learned counsel appearing
for the Official Liquidator. The Company Court rejected the
application giving liberty to the KIAMS to buy the property
as and when the property in question would be sold in
public auction. It would always be open to the petitioner to
participate in such auction.
21. Company Application No.237/2011 in Company
Petition No.166/2001:
The said application was filed seeking permission of
the Company Court by KIAMS to create a charge over the
leasehold rights on the property in question in favour of
the ICICI Bank. The Company Court vide detailed
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judgment and order dated 14.07.2011 noted the relevant
provisions of the lease deed and also took note of the fact
that the Company had closed its activities w.e.f.
31.12.2000 itself. The lease deed was entered in respect
of the land admeasuring 6.29 acres and the buildings,
structures, fixtures, machinery etc., on the said land for a
period of 28 years on a monthly rent of Rs.1,250/-. The
lease agreement came to be executed one and a half
months prior to the commencement of the liquidation
proceedings before the Company Court.
22. The Company Court also took note of the relevant
Clause 5 of the lease deed, which would provide for
delivery of the demised premises to the lessor on expiry of
the lease or its earlier determination thereof in good
condition. However, Clause 19 would provide for conveying
the demised premises by the lessor to the lessee on expiry
of the terms of the lease agreement without any further
financial or other compensation whatsoever. The learned
Single Judge held that under Section 531 of the Companies
Act, certain transaction are treated as invalid and Section
532 treats another category of transfer as void, Section
531A stands in between, treating the transfers covered
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thereunder as void against the Liquidator. The Section
531A of the Companies Act provides for avoidance of the
voluntary transfer made by the Company within a period of
1 year before presentation of the petition for winding up.
23. The learned Company Judge held that for meagre
amount of Rs.2,84,000/- would be paid over a period of 28
years for the land of 6 acres 29 guntas and buildings,
structures, facilities, amenities, plants and machinery on
the land. A very valuable property had been transferred in
favour of the applicant- Society and the such a transfer
was not for valuable consideration. The learned Company
Judge also took note of the fact that the official liquidator
after taking control over the company in liquidation, issued
notification on 28.10.2008 for sale of the assets of the
Company in liquidation and sold the properties of the
Company except the property held by the KIAMS and the
housing quarters for a sum of Rs.65 crores.
24. It was further held that the transaction entered into
between the ex-management of the Company in liquidation
and the KIAMS was not in the ordinary course of business
and the encumbrance was not on good faith. Before
initiating winding up proceedings, the statutory notice
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would have been issued to the Companies, then only
winding up proceedings could have been initiated. After the
receipt of the statutory notice, the lease agreement was
entered into between the KIAMS and the Company in
liquidation. Some clauses in the lease agreement were
prejudicial to the interest of the creditors, workers and
contributors of the Company in liquidation.
25. Paragraphs 11 and 12 of the said order are extracted
hereunder.
"11. Admittedly, 6 acres 29 guntas of land has
been leased/transferred in favour of the
applicant-Society for a period of 28 years.
After completion of 28 years, the applicant
became the absolute owner of the said
property as per clause 19 of the lease
agreement. The rent is fixed as Rs.1,250/-
p.m. The value of the property at Davanagere
is more than Rupees one Crore. For the use of
6 acres 29 guntas of land for 28 years, the rent
being paid is only about Rs.2,84,000/-. For the
said meager amount very valuable property
has been transferred in favour of the applicant-
Society and it is not a valuable consideration.
In fact, after the Official Liquidator taking
control over the Company in liquidation issued
notification on 28-10-2008 for the sale of the
assets of the company in liquidation and sold
the properties of the Company except the
property held by the applicant and the housing
quarters for Rs.65,00,00,000/- Crores (Rupees
sixty five crores only). The transaction entered
into between the company in liquidation and
the applicant-Society was not in ordinary
course of business, the encumbrance is not on
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good faith. Before initiating winding up
proceedings, the statutory notice would have
been issued to the Companies, then only
winding up proceedings would be initiated. It
appears to me that after issuing statutory
notice the lease agreement was entered into
between the applicant-Society and the
Company in liquidation. Some clauses in the
lease agreement are also prejudicial to the
interest of creditors, workers and contributors
of the company in liquidation. 6 acres 29
guntas of land is being leased to the applicant-
Society for a period of 28 years and the rent
for the entire 28 years is only Rs.2,84,000/-.
After expiry of lease period, the applicant
becomes the absolute owner of the said
property. Apart from that, on an earlier
occasion, the applicant-Society approached this
Court in C.A.No.413/2005 challenging the
auctioning of the property of the Company in
liquidation on the apprehension that the
Leasehold properties, which are in occupation
of the applicant, were also auctioned. A prayer
was also made to sell 6 acres 29 guntas of land
in favour of them. The said company
application was dismissed by this Court.
Thereafter, the applicant-Society once again
approached this Court in C.A.No188/2008
seeking direction to the Official Liquidator to
sell 6 acres 29 guntas of land held by the
applicant-Society and applicant to purchase the
same. The said application has been dismissed
by this Court on 30th September 2008. Being
aggrieved by the same, OSA 27/2008 was filed
by the applicant-society and the same was also
dismissed by the Division Bench of this Court
on 28th January 2009 observing as under:
"Therefore, we do not find any reason to
interfere in the impugned order passed by
Learned Company Judge. More so, when
Learned Company Judge has made it
categorically clear that as and when land,
under occupation of appellant, is put to an
auction sale, it would also be at liberty to
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participate in the auction proceedings. This
according to us serves the purpose of the
appellant. There cannot be any other better
method for sale of the properties belonging to
company in liquidation so as to have complete
transparency in the transaction. As and when
land in occupation of the appellant as lessee is
put to auction sale, appellant would be at
liberty to participate in the said auction and in
case its offer happens to be maximum, then
the same can be considered by Official
Liquidator."
12. Hence, it is clear that efforts made by the
applicant-society to grab 6 acres 29 guntas of
land ended in failure. One more attempt is
being made to garb the land creating charge on
the Leasehold right by mortgaging the property
to ICICI bank for Rs.8.00 crores. The present
market value of the land is valued at Rs.1.00
crore per acre. The applicant-Society by virtue
of clause 19 of the lease agreement wanted to
take control over the said land. The intention
of Society is not genuine. Further, without the
permission of the Official Liquidator or the
Lessor, the building is being constructed in
violation of clause 14 of the lease agreement.
The building can be constructed only with the
prior intimation to the Official Liquidator or the
Lessor. Further, clause 11 of the lease
agreement provides for using of sports facilities
like cricket ground, tennis court, squash court,
golf course was permitted to use by the
Lessee. Further, Lessee may also reside in the
staff quarters within the residential colony.
The intention of the applicant-Society is to grab
to maximum extent of the land. I find that
there is no bonafide in the claim made by the
society and the applicant is not entitled for any
reliefs in this application. Lease deed also
appears to be contrary to Section 531-A of the
Act. The transaction between the Lessor and
Lessee is tainted with element of dishonesty.
Hence, I pass the following:
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ORDER
The Company Application is dismissed."
26. Thus, the Company Court held that there was no
bona fide in the claim made by the KIAMS, and the
applicant was not entitled for any relief in the application.
The lease deed was contrary to Section 531A of the
Companies Act. The transaction between the lessor and
lessee was tainted with element of dishonesty.
OSA No.27/2008:-
27. The OSA No.27/2008 was filed by KIAMS against the
order dated 30.09.2008 passed by the Company Court in
Company Application No.188/2005 in Company Petition
No.166/2001. The said OSA came to be dismissed by the
Division Bench of this Court vide judgment and order dated
28.01.2009 observing as under:
"Therefore, we do not find any reason to
interfere in the impugned order passed by
Learned Company Judge. More so, when
Learned Company Judge has made it
categorically clear that as and when land,
under occupation of appellant, is put to an
auction sale, it would also be at liberty to
participate in the auction proceedings. This
according to us serves the purpose of the
appellant. There cannot be any other better
method for sale of the properties belonging to
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company in liquidation so as to have complete
transparency in the transaction. As and when
land in occupation of the appellant as lessee is
put to auction sale, appellant would be at
liberty to participate in the said auction and in
case its offer happens to be maximum, then
the same can be considered by Official
Liquidator."
28. COMPANY APPLICATION No.826/2011 in
COMPANY PETITION NO.166/2001:
The Company Application No.826/2011 in Company
Petition No.166/2001 was filed by the official liquidator
under Section 446 read with 456(1) (2) and Section 531-A
of the Companies Act, 1956. The learned Company Judge
has dismissed the said application as mentioned above.
Submissions on behalf of the Appellant/Official
Liquidator:
29. The Official Liquidator has enlisted the amount dues
and payable to the secured creditors, workmen and other
creditors of the Company till 19.04.2024 in its written
synopsis which is extracted in tabular form hereunder:
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Sl.N Particulars Amount payable
o.
(in Rs.)
1 Amount payable to 13 4,83,69,918/-
secured creditors
2. Amount payable to 50,52,521/-
Kotak Mahindra Bank
Ltd., (Secured
Creditor)
3. Workmen 1,22,67,210/-
4. Gratuity Amount 15,05,21,361/-
payable to Employees
(as per the details
furnished by The
Mysore Kirloskar
Employees' Gratuity
Fund Trust, Yantrapur,
Harihar
20,39,43,800/-
5. Amount payable to Not yet quantified
staff category considering of the
amount in hand
6. Amount payable to Not yet quantified
Preferential Creditors considering of the
viz., Governmental amount in hand
dues namely
ST,IT,ESI, P.F. etc.,
7. Amount payable to Not yet quantified
Unsecured Creditors considering of the
amount in hand
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30. It has been submitted that the lease deed was
entered on 22.01.2000 when the Company in liquidation
was facing all financial issues and just before winding-up
petition was filed by the creditors on 14.03.2000. It is
evident that after the statutory notice of winding-up was
issued by the creditors to the Company, the said lease
deed was entered into on 22.01.2000. The KIAMS has been
paying partly sum of Rs.1,250 per month as rental for last
24 years for use of the vast extent of valuable land and the
properties situated thereon. It is further submitted that
there is an inconsistency in clause 5 and 19 of the lease
agreement. Whereas the clause 5 of the lease deed
provides that the lessee shall deliver the scheduled
premises to the lessor on expiry of the lease or on its
earlier determination thereof in good condition, clause 19
of the lease deed provides for conveying of the scheduled
premises to the KIAMS on expiry of the term of lease (28
years).
31. It is submitted that the said property is custodia legis
and the Official Liquidator has stepped into the shoes of
the management of the Company, therefore, the Official
Liquidator has become the lessor of the property. Once the
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official liquidator has terminated the lease, the clause 19
would not be operational. Learned counsel for the official
liquidator has placed reliance on the judgment of Delhi
High Court in SUNIL KUMAR CHANDRA VS. SPIRE
TECHPARK PRIVATE LIMITED (2023) SCC OnLine del
286 to say that where there is inconsistency between two
clauses in an agreement, the former clause would have
precedence over the latter clause. The Delhi High Court has
placed reliance on the judgment of the Supreme Court in
the case of RAMKISHORE LAL VS. KAMALNARAYAN
(1962) SCC OnLine SC 113 wherein it has observed as
follows:
"12. The golden Rule of construction, it has
been said, is to ascertain the intention of the
parties to the instrument after considering all the
words, in their ordinary, natural sense. To ascertain
this intention the Court had to consider the relevant
portion of the document as a whole and also to
take into account the circumstances under which
the particular words were used. Very often the
status and the training of the parties using the
words have to be taken into consideration. It has to
be borne in mind that very many words are used in
more than one sense and that sense differs in
different circumstances. Again, even where a
particular word has to a trained conveyancer a clear
and definite significance and one can be sure about
the sense in which such conveyancer would use it,
it may not be reasonable and proper to give the
same strict interpretation of the word when used by
one who is not so equally skilled in the art of
convincing. Sometimes it happens in the case of
documents as regards disposition of properties,
whether they are testamentary or non-
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testamentary instruments, that there is a clear
conflict between what is said in one part of the
document and in another. A familiar instance of this
is where in an earlier part of the document some
property is given absolutely to one person but later
on, other directions about the same property are
given which conflict with and take away from the
absolute title given in the earlier portion. What is to
be done where this happens? It is well settled that
in case of such a conflict the earlier disposition of
absolute title should prevail and the later directions
of disposition should be disregarded as
unsuccessful attempts to restrict the title already
given. (See Sahebzada Mohd. Kamgar
Shah v. Jagdish Chandra Deo Dhabal Deo)
[(1960)(3) SCR 604 at p. 611] . It is clear,
however, that an attempt should always be made
to read the two parts of the document
harmoniously, if possible; it is only when this is not
possible, e.g., where an absolute title is given is in
clear and unambiguous terms and the later
provisions trench on the same, that the later
provisions have to be held to be void."
32. It is further submitted that dismissal of the Company
Application No.188/2005, vide impugned order dated
30.09.2008 on the ground of limitation is incorrect and
against the provisions of the law. The Learned Company
Judge has not considered the fact that the lease deed was
nothing but a bogus, sham and fraudulent act of the ex-
management in conveying the valuable properties of
several crores to the related party for pittiance and
therefore, the lease deed was nothing but a fraudulent act
against the interests of the shareholders, creditors,
members, workers and the public interest, the said lease
- 25 -
deed was void for all purposes and not only against the
official liquidator. By mentioning a wrong provision in the
application i.e., Section 531A, the void transaction would
not become voidable. It is therefore, submitted that the
said lease deed was neither in any commercial prudence or
at arm's length not in the ordinary course of the business
of the company, and therefore, the learned Company Court
ought not to have dismissed the petition on the ground of
delay.
Submissions on behalf of the Respondent:
33. On the other hand, Mr. K.G. Raghavan, learned
Senior Counsel for KIAMS has submitted that under Section
531, the transfer of movable or immovable property of the
Company within one year before the presentation of the
petition is void against liquidator, if the transfer of the
property by a Company was not made in ordinary course of
its business, and if the transfer was not made in good faith
for valuable consideration. He has placed reliance on
judgment in VIRENDRA SINGH BHANDARI VERSUS
NANDLAL BHANDARI AND SONS P. LTD. (2019) SCC
OnLine MP 6437 and K.N. NARAYANA IYER VERSUS
- 26 -
COMMISSIONER OF INCOME TAX (1992) SCC OnLine
Ker 436.
34. As the transaction of lease could be said to be
voidable, the limitation for seeking the relief of declaration
under Article 58 of the Limitation Act, 1963, is three years
from the date of the cause of action which would be
execution of the document in respect of which declaration
is sought. In addition, under Section 458A of the
Companies Act, the benefit extended to the Companies in
liquidation while computing the period of limitation in
respect of any suit or application in the name and on behalf
of the Company which is being wound up by the Company
Court is the period from the date of commencement of the
winding up of the Company to the date on which the
winding up order is made (both inclusive) and a period of
one year immediately thereafter stands excluded. Thus,
the period between 14.03.2000 which is the
commencement of the winding-up proceedings and
01.04.2004 the date on which the winding-up order came
to be passed and a further period of one year thereon is
excluded. Thus, the exclusion period would be 5 years and
15 days. The application was filed on 27.07.2011 by the
- 27 -
official liquidator whereas the limitation as provided under
Section 58 of the Limitation Act read with Section 458A of
the Companies Act got expired on 04.04.2008. Therefore,
the Company Court was right in holding that the
application was barred by limitation.
35. Learned Senior Counsel has further submitted that
the transfer of the assets by the lease deed was not per se
void but void against the liquidator as mentioned in Section
531A of the Companies Act. In support of his submission
the learned counsel for the respondent has placed reliance
on the following judgments
i. RM. NL. Ramaswami Chettiar & Ors. Vs. Official
Receiver, Ramanathapuram at Madurai & Ors.
1959 SCC Online SC 166.
ii. Johri Lal Soni Vs. Smt. Bhanwari Bai (1977) 4
SCC 59.
iii. Pankaj Mehra & Anr. Vs. State of Maharashtra
& Ors. (2000) 2 SCC 756.
Analysis and Conclusion:
36. Section 531 provides that any transfer of property
whether movable or immovable etc., by the Company
within 6 months before the commencement of its winding-
up which, had it been made, shall be in the event of
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Company being wound up, be deemed a fraudulent
preference of its creditors and be invalid accordingly.
37. Section 531 of the Companies Act reads as under:
"531. FRAUDULENT PREFERENCE (1) Any transfer
of property, movable or immovable, delivery of
goods, payment, execution or other act relating to
property made, taken or done by or against a
company within six months before the
commencement of its winding up which, had it been
made, taken or done by or against an individual
within three months before the presentation of an
insolvency petition on which he is adjudged
insolvent, would be deemed in his insolvency a
fraudulent preference, shall in the event of the
company being wound up, be deemed a fraudulent
preference of its creditors and be invalid accordingly:
Provided that, in relation to things made, taken or
done before the commencement of this Act, this sub-
section shall have effect with the substitution, for the
reference to six months, of a reference to three
months.
(2) For the purposes of sub-section (1), the
presentation of a petition for winding up in the case
of a winding up by [the Tribunal], and the passing of
a resolution for winding up in the case of a voluntary
winding up, shall be deemed to correspond to the act
of insolvency in the case of an individual.
- 29 -
38. Section 532 provides that any transfer by a Company
of all its property to trustees or to the benefit of all its
creditors shall be void.
39. Section 531A comes in between Section 531 and 532
which provides that any transfer of property, movable or
immovable, or any delivery of goods, made by a company,
not being a transfer or delivery made in the ordinary
course of its business or in favour of a purchaser or
encumbrancer in good faith and for valuable consideration,
if made within a period of one year before the presentation
of a petition for winding up shall be void against the
liquidator.
40. Section 531 is not in the respect of void transactions
which are mentioned in Section 531A. The transactions in
Section 531 are a distinct category other than the
transactions made in Section 531A. The void transactions
under Section 531 are void from the very inception that is
void ab initio. Whereas under Section 531A, the
transactions are to be made in good faith for valuable
consideration but if they are not in the ordinary course of
its business and made within a period of one year before
- 30 -
the presentation of the petition for winding up would be
void against the liquidator.
41. Therefore, we are of the opinion that by merely
mentioning Section 531A in the application filed by the
official liquidator i.e., CA No. 826/2011, it would not
change the nature of the transaction which was void ab
initio. Under Section 531 of the Companies Act, as the
transfer of the valuable assets of the company was
effected within less than two months before the filing of
the winding up petition and it was a fraud on its creditors,
therefore, void ab initio.
42. Section 533 provides for liability and rights of certain
fraudulently preferred persons. Section 533 of the
Companies Act, 1956 reads as under:
"533. Liabilities And Rights Of Certain Fraudulently
Preferred Persons
(1) Where, in the case of a company which is
being wound up, anything made, taken or done after
the commencement of this Act is invalid under
section 531 as a fraudulent preference of a person
interested in property mortgaged or charged to
secure the company's debt, then (without prejudice
to any rights or liabilities arising apart from this
provision), the person preferred shall be subject to
- 31 -
the same liabilities, and shall have the same rights,
as if he had undertaken to be personally liable as
surety for the debt, to the extent of the mortgage or
charge on the property or the value of his interest,
whichever is less.
(2) The value of the said person's interest shall
be determined as at the date of the transaction
constituting the fraudulent preference, and shall be
determined as if the interest were free of all
encumbrances other than those to which the
mortgage or charge for the company's debt was then
subject.
(3) On any application made to the[Tribunal]
with respect to any payment on the ground that the
payment was a fraudulent preference of a surety or
guarantor, the 1[Tribunal] shall have jurisdiction to
determine any questions with respect to the payment
arising between the person to whom the payment
was made and the surety or guarantor and to grant
relief in respect thereof, notwithstanding that it is not
necessary so to do for the purposes of the winding
up, and for that purpose may give leave to bring in
the surety or guarantor as a third party as in the
case of a suit for the recovery of the sum paid."
43. Section 533 does not speak about the transaction
under Section 531A.
- 32 -
44. As noted above, the learned Company Judge vide a
detailed order dated 14.07.2011 in Company Application
No.237/2011 in Company Petition No.166/2001 observed
that if the transaction is tainted with an element of
dishonesty, the question of fraud would arise. The KIAMS is
to grab 6 acres 39 guntas of land and the properties
thereon. It was also held that on the date of the order, the
market value of the land itself was valued at Rs.1 Crore
per acre. The lease deed was not a genuine transfer. The
lease deed also appears to be contrary to Section 531 of
the Act and the transaction between the lessor and lessee
was tainted with element of dishonesty and fraud on its
creditors.
45. Considering the aforesaid facts, we are of the
considered view that the lease deed was nothing but
fraudulent and dishonest act on behalf of the ex-
management of the Company in liquidation to transfer the
valuable property of several crores against the interest of
the company, its shareholders, creditors, workmen and
members and therefore, it is a void transaction from the
very inception. The application filed by the official
liquidator was to take possession of the property and put
- 33 -
the same for auction for making payment of the creditors.
The said application has been rejected only on the ground
of limitation as the transaction was said to be covered
under Section 531A.
46. We, therefore, hold that the view taken by the
learned Single Judge is erroneous one and cannot be
sustained. The transaction between the Company in
liquidation and the KIAMS is not at arm's length but to a
related party and that too against the interest of the
Company, its creditors, shareholders etc., valuable
properties of several crores has been sought to be given
for pittance to the related party just before presentation of
the winding up petition. The lease deed is nothing but
sham, bogus and fraudulent transaction in transferring the
valuable assets in favour of the KIAMS, a related party.
47. Accordingly, we proceed to pass the following:
ORDER
i. The appeal is allowed.
ii. The impugned judgment and order dated
21.07.2015 in C.A.No.826/2011 in COP
No.166/2001 is set aside.
iii. The Official Liquidator is directed to take
possession of the property in question and put
- 34 -
the same for public auction to realize the fair
market value in a transparent manner for
making payment to the creditors as mentioned
above.
iv. The respondent may also participate in public
auction proceedings, if they so desire.
v. The respondent is liable to pay the market rent
of the assets in its possession from the date of
the lease deed till the possession is taken over
by the official liquidator for which the approved
valuer to assess the market rent of the assets
in question.
Sd/-
(D K SINGH)
JUDGE
Sd/-
(VENKATESH NAIK T)
JUDGE
NG/RKA
