Sri Jitender Kumar Kedia, Hyderabad And ... vs M/S Sree Jagannath Steels Limited In ...
2025 Latest Caselaw 5419 Tel

Telangana High Court

Sri Jitender Kumar Kedia, Hyderabad And ... vs M/S Sree Jagannath Steels Limited In ... on 11 September, 2025

Author: K. Lakshman

Bench: K. Lakshman

            HON'BLE SRI JUSTICE K. LAKSHMAN

COMPANY APPLICATION Nos. 1348 OF 2005, 259, 561, 735 &
                  736 OF 2007 AND 969 OF 2014
                          IN
             COMPANY PETITION No.236 OF 1998

COMMON ORDER:

Heard Mr. M. Anil Kumar, learned counsel for the Official

Liquidator in COMPA No.561 of 2007 and respondent in COMPA

No.969 of 2014, Mr. T. Surya Satish, learned counsel for the applicant

in COMPA No.735 of 2007 and respondent Nos.2 and 3 in COMPA

No.561 of 2007, Mr. V.S. Raju, learned counsel for the applicant in

COMPA No.259 of 2007 and respondent in COMPA No.1348 of

2005 and Mr. Satish, learned counsel representing Mrs. Nandini S.

Bilolikar, learned counsel for the applicant in COMPA No.969 of

2014 and respondent in COMPA No.561 of 2007.

2. Originally, all the above said Company Applications arise

out of Company Petition No.236 of 1998 filed under Sections - 433

(e), 434 (1) (a) and 439 (1) (b) of the Companies Act, 1956 (for short

'Act, 1956'), seeking winding up of M/s. Shree Jagannath Steels

Limited (hereinafter referred to as "the Company").

KL, J COMPA No.1348 of 2005 & batch

3. It is the case of the petitioner-Company that, under a lease

agreement dated 19-04-1995, it supplied various items of equipment

to the respondent-Company involving a net finance of Rs.70,00,000/-,

on the terms that the respondent would pay a monthly lease rental of

Rs.1,58,200/- in advance. The first instalment under the said

agreement fell due on 19-04-1995, and the last instalment was agreed

to be paid on 19-03-2000. In pursuance thereof, the respondent-

Company had issued post-dated cheques towards the monthly

instalments. The record discloses that the respondent-Company paid

the instalments only up to October, 1996. Thereafter, the cheques

presented for encashment were dishonoured, leading to termination of

the lease agreement by the petitioner. As on 10-12-1998, the

respondent stood indebted to the petitioner a sum of Rs.82,23,592/-,

besides interest at the rate of 30% per annum with monthly rests as

stipulated under the agreement. Despite repeated letters of demand

(Exs.A3 to A7) and even after admitting its liability in its own

correspondence (Exs.A8 to A10), the respondent failed and neglected

to discharge the said dues. A legal notice dated 31-01-1998 (Ex.A13),

duly served on 09-02-1998 (Ex.A14), also elicited no compliance.

KL, J COMPA No.1348 of 2005 & batch

4. The winding-up petition was admitted on 17.06.1999.

Substituted service was affected and notice was published. No

objections were filed. An affidavit of evidence by one Mr. S.R.

Ramesh Babu was filed with exhibits (Ex.A1 to A14). The Company

was held commercially insolvent and the Official Liquidator (OL) was

appointed by this Court vide order dated 07.09.1999.

5. The aforesaid Company Applications are filed by the

applicants seeking various reliefs. The details of the same are as

follows:

S.No. COMPA No. Filed by Relief sought for The OL sought permission to sell the company's assets comprising Acs.7.48 situated at Sy.Nos.5/8, 5/15, 5/16, 5/20, 6/5, 7/3, 7/5, 7/6, 8/1 to 10, 9/6 & 9/7, GNT Road, Alinjavakkam, Ponneri Taluk, Thiruvallur District, Tamil Nadu, as a single lot by inviting sealed tenders. This Court, after approving the proposed tender notice, terms and conditions including a minimum upset price of Rs.56.88 lakhs, earnest money deposit of

01. 1348/05 OL Rs.5 lakhs, and tender cost of Rs.1,000, permitted the OL to conduct the sale, open tenders, negotiate bids, and secure 20% of the highest bid amount at the time of opening. Pursuant thereto, an auction was held and by order dated 27.10.2006, this Court accepted the highest bid of Rs.231 lakhs made by M/s.

Ramjee Leathers & Suppliers. It was subsequently brought to the notice of the Court that an extent of Acs. 1.46 cents out of the auctioned land overlapped with

KL, J COMPA No.1348 of 2005 & batch

land previously sold to respondent Nos.2 and 3 by the ex-Managing Director of the company.

To hand over and register the properties M/s. Ramjee 259/07 in its name and also in the name of his

02. Leathers & sister concern, M/s Indian Embroidery Supplies Company.

To declare transfer of land to the extent of Acs.13.09100 cents by the Company in favour of respondent No.2 herein and the transfer in respect of land

03. 561/07 OL admeasuring Acs.14.28895 cents in favour of respondent No.3 herein, situated in various survey numbers in Alinjivakkam village, Ponneri Taluq, Thiruvallur District as void in terms of Sections - 531 and 531-A of the Act, 1956.

To declare the action of the OL in taking over the possession of land admeasuring Acs.1.46 cents situated at

04. 735/07 Mr. Jitender Kumar Azahimjivakkam Village, Pooneri Taluk, Kedia & his wife - Thiruvallur District on 12.03.2007 as Anita Kedia. illegal and consequently direct the OL to forthwith re-deliver the possession of the same.

to direct the OL not to execute or register any document over the land admeasuring

05. 736/07 -do- Acs.1.46 cents situated at Azhinjivakkam Village, Pooneri Taluk, Thiruvallur District.

to stay all further proceedings in relation to the winding up of the Company Mr. Pramod Kumar permanently and consequently direct the

06. 969/14 Agarwal, Ex. MD OL to hand over all the records, assets, of the Company other movable and immovable properties belongs to the Company.

6. SUMMARY OF DOCKET ORDERS IN RESPECT OF COMPA No.1348 OF 2005

i) On 17.02.2006, this Court, while considering the application

of the OL seeking permission to sell the assets of the Company under

liquidation, directed that the sale notice be published in "Eenadu"

KL, J COMPA No.1348 of 2005 & batch

Telugu Daily (Hyderabad Edition) and in "The Indian Express" and

"The Hindu" English Dailies (Chennai Edition). The application was

accordingly ordered and the first respondent - Indian Bank was

directed to deposit a sum of Rs.1,00,000/- within two weeks to meet

advertisement and incidental expenses.

ii) On 28.04.2006, the matter was placed before this Court for

confirmation of sale pursuant to the earlier order. The OL reported

that auction was conducted and bids were received from 21

participants, the highest being that of Mr. Jitender Kedia, Hyderabad,

for Rs.69,00,000/-. The Indian Bank, however, filed a report valuing

the land alone at Rs.1,12,20,000/-, apart from the factory buildings

valued at Rs.21,79,087/-. In view of this valuation and objection, the

bid of Rs.69,00,000/- was not accepted, and the OL was directed to

issue a fresh sale notice in "Dinamani" and "Dinamalar" (Tamil

Dailies, Chennai and Thiruvallur Editions), and in "Eenadu" and

"Vaartha" (Telugu Dailies, Chittoor and Nellore Editions). The Bank

was directed to incur the expenses.

KL, J COMPA No.1348 of 2005 & batch

iii) On 03.07.2006, this Court again considered the OL's

report. The upset price had been fixed at Rs.1,34,00,000/- on the basis

of a valuation report, but the highest bid received was Rs.72,00,000/-.

During hearing, the second highest bidder expressed willingness to

enhance the bid to Rs.73,50,000/-. As these offers were far below the

upset price, they were rejected and the OL was directed to conduct a

fresh sale. The Earnest Money Deposits (EMD) received were

directed to be refunded, and the matter was posted on 07.08.2006.

iv) On 13.09.2006, noting that the previous notice had not

attracted proper offers, this Court cancelled the earlier sale notice and

directed the OL to issue a fresh notice without fixing any upset price,

by publishing the sale notice in "Eenadu" Telugu Daily (Nellore

Edition), "The Hindu" English Daily, and another Tamil Daily having

circulation in Chennai. The matter was posted on 26.10.2006.

v) On 26.10.2006, the OL reported that pursuant to the fresh

notice, auction was held and the highest bid of Rs.145 lakhs was

received from one Mr. P.R. Reddy and others of Visakhapatnam. In

further negotiations held before this Court, M/s. Ramjee Leathers &

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Suppliers, Chennai, and M/s. A.K. Enterprises, Hyderabad,

participated. An open inter se bidding was conducted in Court

between the two, wherein M/s. Ramjee Leathers & Suppliers,

applicant in COMPA No.259 of 2007, offered Rs.231 lakhs, far above

the earlier highest bid. This offer was accepted as final. The OL was

directed to return the deposits of unsuccessful bidders and file a

report.

vi) On 27.10.2006, this Court formally accepted the highest bid

of Rs.231 lakhs made by M/s. Ramjee Leathers & Suppliers in the

inter se bidding, as against the earlier Rs.67.5 lakhs. The OL was

directed to collect the sale consideration in terms of the conditions and

deposit the same in Bank of Baroda, Barkatpura Branch, and to report

on 01.12.2006.

vii) On 27.12.2006, it was brought to the notice of this Court

that there was a dispute concerning land surrounding the auctioned

property. The OL informed that certain lands belonging to the

Company were fraudulently alienated by the Ex-Managing Director,

thereby obstructing access to the factory premises. The OL was

KL, J COMPA No.1348 of 2005 & batch

directed to enquire into the matter and obtain particulars from the

creditor bank regarding the properties mortgaged, along with copies of

title deeds. The matter was posted on 18.01.2007.

viii) On 25.01.2007, this Court directed the respondent bank to

produce all relevant material and information, including the

information as to whether permission had been given to the Ex-

Managing Director to effect sale of Acs.1.55 cents out of Acs.7.75

cents, and to explain the circumstances.

ix) On 08.02.2007, the Manager of the Bank appeared and filed

relevant documents, which were served on the OL. Time was granted

to the OL to examine the documents, and the Officer's appearance

was dispensed with.

x) On 15.02.2007, it was further brought to the notice of this

Court by the OL that in addition to the auctioned extent, the Company

still owned Acs.3.41 cents, situated in Survey Nos. 1/6A, 5/9, 6/4A,

7/1B, 7/2B, 7/4 and 9/5A at Alinjivakkam Village. The OL was

directed to take possession of these properties and to file an

appropriate application for their sale as well.

KL, J COMPA No.1348 of 2005 & batch

7. COMPA No. 561 of 2007 is filed by the OL under Sections

457 (1) (a) & (e) read with Sections 531, 531A and 456 of the Act,

1956 praying to declare two sale transactions executed by the Ex-

Managing Director, Sri Pramod Kumar Agarwal, within six months

prior to the commencement of winding up as void. These sales

comprised:

(a) Acs.13.09100 cents in favour of Sri Jitender Kedia

(R-2), and

(b) Acs.14.28895 cents in favour of Smt. Anita Kedia

(R-3)

i) It is the case of the OL that these transactions executed in

September 1998, amount to fraudulent preference under Section

531 and voluntary transfers not in the ordinary course of business

void under Section 531A. The transferees are close relatives of the

Ex-Managing Director. The OL also alleged suppression of these

transactions in the Statement of Affairs and deliberate obstruction

to access to the Acs.7.48 cents auctioned property.

KL, J COMPA No.1348 of 2005 & batch

ii) Contentions of respondent No.1, the Ex-Managing Director in COMPA No.561 of 2007:

a) The sales were bona fide for valid consideration and not

barred merely due to relationship. He denied concealment,

claiming Company functioned till August 1999.

b) The sale proceeds were used to meet liabilities and that

records showed genuine transactions. He denied that any

mortgaged land was sold or access hindered.

iii) Two auction purchasers sought impleadment as respondent

Nos.4 and 5 in COMPA No.561 of 2007 claiming interest in land

acquired through auction. They submitted that disputes over part of

Acs.7.48 cents prevented full delivery. They relied on the order in

COMPA No.259 of 2007 allowing registration of undisputed land.

iv) It is apt to note that the OL examined Mr. M.

Yadubhushana Rao, Legal Assistant in the office of the OL. The said

witness deposed that pursuant to the winding up order dated

07.09.1999 passed in C.P.No.236 of 1998, the OL assumed charge of

the Company's assets under Section 449 of the Act, 1956. Based

upon the statement of affairs furnished by respondent No.1 (Ex-

KL, J COMPA No.1348 of 2005 & batch

Managing Director), the OL brought to sale a portion of the

Company's land, which was confirmed by this Court in favour of M/s.

Ramjee Leathers & Supplies, Chennai.

v) It has, however, come to light during subsequent survey by

the Tahsildar, Ponneri, that several portions of the land forming part

of the Company's assets had already been transferred in favour of

respondent Nos.2 and 3 herein, who are none other than the sister and

brother-in-law of the Ex-Managing Director. Copies of sale deeds

dated 22.09.1998 and 25.09.1998 clearly establish that such transfers

were affected within six months preceding the commencement of

winding up proceedings on 24.12.1998. The said transfers are, thus,

squarely hit by Sections 531 and 531-A of the Act, 1956 amounting to

fraudulent preference and being void in the of OL.

vi) He has further deposed that while the Company originally

owned Acs.36.88945 cents of land in Alinjivakkam village, Ponneri

Taluk, the Ex-Managing Director had clandestinely transferred

Acs.13.09100 cents and Acs.14.28895 cents in favour of his close

relatives. Consequently, only Acs.9.50950 cents remains in the name

KL, J COMPA No.1348 of 2005 & batch

of the Company, out of which Acs.7.48 cents stood mortgaged to

Indian Bank, Chennai. Thus, the Statement of Affairs filed by the Ex-

Managing Director deliberately suppressed the said facts by disclosing

only Acs.7.48 cents and omitting the balance.

vii) He has also deposed that the financial records annexed,

particularly the sale of Land Account (Ex.P-13) and the Tamil Nadu

Mercantile Bank Statement (Ex.P-14), disclose that an amount of

Rs.14,88,226/- shown as sale proceeds on 24.09.1998 was

immediately transferred to M/s. Jagannath Constructions, a sister

concern of the Company, on the very next day. Such circular

diversion of funds unmistakably demonstrates that the impugned sale

transactions were not genuine sales for valuable consideration in the

ordinary course of business, but were sham transactions devised to

siphon assets away from the Company in liquidation.

viii) Nothing contra was elicited from him during cross-

examination.

ix) AUDITOR'S REPORT: Perusal of the Auditor's Report

for the financial year ending 31.03.1998 would reveal that the auditors

KL, J COMPA No.1348 of 2005 & batch

have unequivocally noted that the Company was a "sick industrial

Company" within the meaning of Section 3 (1) (o) of the Sick

Industrial Companies (Special Provisions) Act, 1985. It was incurring

continuous losses, posting Rs.4.03 Crores loss during 1997-98 and

Rs.1.84 Crores during 1998-99. The auditors further recorded

statutory defaults in payment of sales tax and excise duty, besides

admitting that the Company had not provided for provident fund and

ESI to its employees.

x) These findings corroborate the testimony of the OL that by

1998, the Company was financially distressed, operating under

accumulated losses, and was already facing proceedings before the

Debt Recovery Tribunal at the instance of Indian Bank. In such

circumstances, the sale of substantial extents of land to near relatives

of the Ex-Managing Director, without valuation, without disclosure to

secured creditors, without sanction of shareholders in general meeting

without following the procedure laid down under law cannot be held

to be bona fide.

KL, J COMPA No.1348 of 2005 & batch

xi) The Auditor's Report also shows that while the Company

had maintained books of accounts, no entries reflecting the

impugned sales were found in the Balance Sheets for 1997-98 and

1998-99 (Exs.P-11 & P-12). This lends further support to the

contention of the OL that the transfers were deliberately concealed

and not recorded as part of the Company's Regular Business.

8. COMPA Nos.735 AND 736 OF 2007

i) These applications were filed by Sri Jitender Kedia and his

wife, Smt. Anita Kedia seeking to declare the action of the OL in

taking over the possession of land to the extent of Acs.1.46 cents,

situated at Azhinjivakkam Village, Pooneri Taluk, thiruvallur District

on 12.03.2007 as illegal and violative of Article 300A of the

Constitution. They claimed possession pursuant to registered sale

deeds of 1998. They prayed that OL be restrained from dealing with

said land pending adjudication of COMPA No. 561/2007.

ii) The OL, however, justified the attachment stating that once

the winding up order was passed, custody and control of the assets

KL, J COMPA No.1348 of 2005 & batch

vested in him, and the transfers being void, possession was lawfully

taken.

9. COMPA No.259 OF 2007 - Sale Deed Execution:

i) This application has been filed by the auction purchaser, M/s.

Ramjee Leathers and Suppliers, seeking directions to the OL to

execute and register the sale deed and to deliver possession of the

entire extent of Acs.7.48 cents of land together with structures

thereon, purchased by it in the auction sale held pursuant to the orders

of this Court. The record discloses that by order dated 27.10.2006,

this Court had confirmed the sale of the said property in favour of the

applicant for a total consideration of Rs.231 Lakhs, the full amount

whereof has since been deposited with the OL.

ii) It appears, however, that disputes arose in relation to a

portion of the auctioned property on account of prior transactions and

claims set up by third parties. Consequently, though the auction

purchaser sought conveyance of the entire extent of Ac.7.48 cents, the

OL was in a position to deliver and execute sale deeds only in respect

of an extent of Ac.5.92335 cents, which portion was undisputed. The

KL, J COMPA No.1348 of 2005 & batch

remaining extent was withheld pending adjudication of the objections

raised in connected company applications concerning alleged

fraudulent transfers of land.

iii) By order dated 22.03.2007, this Court, while considering

COMPA No. 259 of 2007 in C.P. No. 236 of 1998, was pleased to

direct the OL to execute and register the sale deed in favour of the

auction purchaser to the extent of the undisputed portion admeasuring

Ac.5.92335 cents, and to deliver possession thereof. In respect of the

balance extent of Ac. 1.55665 cents, which is the subject matter of

contest in other pending proceedings, consideration was expressly

deferred and made subject to the outcome of the said adjudication.

iv) SUMMARY OF DOCKET ORDERS:

a) On 01.03.2007, this Court, pending further orders regarding the

disputed portion of land, directed the OL to deliver possession of

the land already sold to the auction purchaser and to remove the

security personnel of the erstwhile Company, if any, from the

premises.

KL, J COMPA No.1348 of 2005 & batch

b) On 22.03.2007, it was represented by the learned counsel for the

applicant that the undisputed portion of land, admeasuring

Acs.5.92 cents in Survey Nos.5/8, 5/15, 5/16, 5/20, 6/5, 7/3, 7/5,

7/6, 8/1 to 10, 9/6 & 9/7, GNT Road, Alinjavakkam, Ponneri

Taluk, Thiruvallur District, Tamil Nadu, had already been

delivered. Insofar as the said extent is concerned, the applicant

sought execution of registered sale deeds in its favour and in

favour of its sister concern. The OL was accordingly directed to

execute the necessary registered sale deeds with respect to the

undisputed extent, pending further orders in relation to the disputed

portion of land.

c) On 03.06.2016, learned counsel Sri Milind Gokhale took notice for

respondent No. 2. Learned counsel for respondent Nos.3 and 4

was absent. Having considered the averments in the affidavit filed

in support of the application, respondent Nos.3 and 4 were

restrained by this Court from alienating or otherwise disposing of

Acs.1.56 cents of land situated in Survey Nos. 5/8, 5/15, 5/16,

5/20, 6/5, 7/6, 8/5, 8/6, 8/9, 9/6 and 9/7, situated at Alinjivakkam

KL, J COMPA No.1348 of 2005 & batch

Village, Ponneri Taluk, Thiruvallur District, Tamil Nadu, pending

further orders.

d) On 02.05.2018, in I.A. Nos. 1 and 2 of 2014 in COMPA No. 259

of 2007, this Court, having considered the facts stated in the

supporting affidavits, directed the respondents to maintain status

quo with respect to the property. They were further restrained from

altering the nature of the property in any manner for a period of

twelve weeks. The matter was directed to be listed after six weeks.

10. COMPA No. 969 OF 2014:

i) This application is filed by the Ex-Managing Director of

M/s. Shree Jagannath Steels Limited, seeking revival of the Company,

nearly fifteen years after the winding-up order was passed on

07.09.1999. The applicant had previously executed two sale deeds

dated 22.09.1998 and 25.09.1998 in favour of respondent Nos.2 and 3,

his relatives which were the subject of challenge in COMPA No. 561

of 2007. These transactions occurred within six months of the

winding-up petition and were not disclosed to the OL. The revival

application was filed after possession of the Company's assets had

KL, J COMPA No.1348 of 2005 & batch

already been taken by the OL and subsequent proceedings for asset

sale were underway.

ii) OL opposed revival, citing absence of Court leave in post-

liquidation settlements, unlawful possession of assets, prior transfer of

land to relatives without disclosure, and unresolved COMPA No.

561/2007. OL submitted that assets were sold with Court's leave and

winding up proceedings were advanced.

11. ANALYSIS AND FINDINGS OF THE COURT:

i) The present case presents a complex interplay of issues

arising under the Act, 1956, involving fraudulent preference, revival

after liquidation, authority of the OL, and competing rights of auction

purchasers and private transferees. The central issues in the case

revolve around the legality of certain transactions conducted within

the twilight period of winding-up and the subsequent plea for revival.

Section 531 of the Act, 1956 renders transfers made within six months

of the winding-up petition void if they constitute fraudulent

preference, while Section 531A of the Act, 1956, renders such

transfers void unless in the ordinary course of business. Further,

KL, J COMPA No.1348 of 2005 & batch

Section 537 provides that any sale or disposition of property after

commencement of winding-up without the leave of the Court is void.

"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 1 [the Tribunal], and the passing of a resolution for winding up in the case of a voluntary winding up, shall be deemed to

KL, J COMPA No.1348 of 2005 & batch

correspond to the act of insolvency in the case of an individual.

531A. AVOIDANCE OF VOLUNTARY TRANSFER 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 by 1[the Tribunal] or the passing of a resolution for voluntary winding up of the Company, shall be void against the liquidator."

ii) In COMPA No.561 of 2007 sought to declare two

transactions of land executed by the Ex-Managing Director in favour

of his relatives (respondent Nos.2 and 3) as void. The sale was

affected on 22.09.1998 and 25.09.1998 within six months of the

winding-up petition's presentation. These transactions involved

related parties and were concealed from the OL, and obstructed the

Court-authorized sale to a bona fide purchaser. These facts directly

attract the bar under Sections 531 and 531A of the Act, 1956.

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iii) In Rakesh Jagmohan Pandey v. JVG Finance Ltd.1, the

Delhi High Court emphasized that a transaction within the proximity

of winding up must withstand scrutiny of bona fide's and arm's length

dealing. In Paragraph No.27, the Delhi High Court relied upon the

decision rendered by the Calcutta High Court in Prudential Capital

Markets Ltd. (In Liquidation) In Re MANU/WB/0361/2007:(2007)

140 Comp Case 754, wherein it was held as under:

"44. ...... The onus is on the official liquidator to establish that the Company as debtor deliberately singled out the creditor for the transfer ahead of other creditors who, upon the Company ultimately be wound up, may not have enough for the entire dues to be discharged. But Section 531 does not come into play in this case as the respondent was no creditor of the Company as on the date of the second agreement.

45. Section 531A of the Act provides that any transfer of property or goods made by a Company within one year before the presentation of a winding up petition against it will be void unless such transaction was in the ordinary course of business. In principle, the same tests as to intent as

. MANU/DE/3264/2017

KL, J COMPA No.1348 of 2005 & batch

in Section 531 apply to a transaction challenged under Section 531A of the Act and the onus is on the official liquidator seeking to avoid the transaction to establish that the transfer was not made in the ordinary course of the Company's business or that it was not made in good faith or for valuable consideration. As to whether the transaction is made in good faith or for valuable consideration will depend on the facts of a given case. If there is no consideration or the consideration is woefully inadequate, there may arise a presumption of want of good faith. Again, even if there is adequate consideration, the official liquidator may attempt to establish that a valuable asset of the Company was sought to be shielded against the claims of the Company's creditors. The official liquidator's challenge would not pass muster if he cannot establish lack of bona fides on the part of the transferee."

iv) In Hawa Controls v. Official Liquidator of Tirupati

Foundry Pvt. Ltd. 2, the Gujarat High Court clarified that the onus to

prove that the transaction entered into within 6 months of winding up

. MANU/GJ/7511/2007

KL, J COMPA No.1348 of 2005 & batch

is fraudulent lies on the person trying to prove that such transaction

does not hold well in law. In paragraph No.10, it was held as under:

"10. Before this Court, reliance was placed on the decision of the Bombay High Court in the case of Monark Enterprises v. Kishan Tulpule and Ors. 74 Company Cases 89wherein it is held that Section 531-A of the Companies Act, 1956 provides for' Savoidance of voluntary transfers' made by a Company within a period of one year during the presentation of a petition for winding up (i) if such transfer was not made inthe ordinary course of its business, or (ii) if such transfer was not made in good faith for valuable consideration. If the Court comes to the conclusion that such transfer, though made within a period of one year before presentation of the petition, was made either in the ordinary course of business or in good faith and for valuable consideration, such transfer would not be annulled. The burden of proving that the impugned transaction was not entered into in the ordinary course of business or in good faith and for valuable consideration would be on the Official Liquidator or the Creditors impugning the transaction.

11. So far as the present case is concerned, neither the Official Liquidator nor any of the Creditors have come forward and pointed out that the

KL, J COMPA No.1348 of 2005 & batch

transaction in question was not entered into in the ordinary course of business or in a good faith and for valuable consideration. On the contrary, the applicant has proved beyond reasonable doubt by producing necessary evidence and established that the transaction in question was valid and genuine. The Bombay High Court has further observed in the aforesaid judgment that unless a transaction of transfer of a Company's property amounts to a fraudulent preference under the bankruptcy law or insolvency law and it is entered into within a period of six months prior to the commencement of winding up of the Company, the transaction in question cannot be treated as void under Section 531 (1) of the Companies Act, 1956. The law does not presume the transaction to be a fraudulent preference merely because it was entered into within a period of six months prior to the commencement of winding up. If the transaction was entered into as a result of lawful pressure of a bona fide creditor to recover his dues, the transaction of transfer could not be treated as a fraudulent preference. This question does not arise in the present case as it is not the case of the applicant that the applicant has entered into the transaction in question as a result of any pressure to recover its dues."

KL, J COMPA No.1348 of 2005 & batch

v) The transfers made by the Ex-Managing Director in favour

of his relatives (respondent Nos.2 and 3) on 22.09.1998 and

25.09.1998 fall squarely within the fraudulent transaction in terms of

Sections 531 and 531A of the Act, 1956, and are not made in good

faith. These transactions occurred during the twilight period within

six months prior to the presentation of the winding-up petition and

were executed in favour of related parties without any credible

evidence of adequate consideration or justification in the ordinary

course of business. The failure of the Ex-Managing Director to

disclose these transfers to the OL, coupled with the concealment of the

transactions during the liquidation process, further reflects a lack of

bona fide intent. There was no leave of the Court obtained, nor any

proof that the transactions were conducted at arm's length, and the

transferees subsequent obstruction of Court-authorized sale

proceedings only exacerbates the inference of fraudulent preference.

12. COMPA No. 1348 of 2005 was filed seeking confirmation

of the sale conducted by the OL in respect of the assets of the

Company under liquidation. Pursuant to the orders of this Court,

public advertisements were issued in widely circulated newspapers,

KL, J COMPA No.1348 of 2005 & batch

and an open auction was held. The OL has reported that the auction

was conducted in strict adherence to the directions of this Court, after

due publication, and with full transparency. The highest bid received

was duly placed before this Court for confirmation, and the entire

process has been supervised under judicial directions, including inter

se bidding held in open Court, thereby ruling out any allegation of

irregularity or undervaluation.

13. Upon perusal of the record, including the Auditor's Report

and the Chief Examination of the Legal Assistant of the OL, as

considered in COMPA No. 561 of 2007, this Court is satisfied that the

auction process was carried out in accordance with law, with due

publicity, and the best possible price was realized. The objections

raised by the respondents, challenging the correctness of the sale, are

not supported by any substantive material.

14. Accordingly, this Court holds that the auction sale

conducted by the OL is valid and proper. COMPA No. 1348 of 2005

is accordingly allowed in favour of the petitioner and the sale so

KL, J COMPA No.1348 of 2005 & batch

affected stands confirmed. The directions issued herein shall be read

conjointly with the findings recorded in COMPA No. 561 of 2007.

15. The rights of auction purchasers, including M/s. Ramjee

Leathers & Suppliers, applicants in COMPA No.259 of 2007 stand

protected where the sale has been confirmed and possession delivered

pursuant to orders of this Court. However, on account of dispute

concerning overlapping claims over a portion of the land asserted by

respondent Nos.2 and 3, only partial registration to the extent of

Acs.5.92335 cents was permitted by keeping the remainder in

abeyance pending adjudication of COMPA No.561 of 2007. In

COMPA No.561 of 2007, since this Court declared the underlying

transfers to respondent Nos.2 and 3 as void under Sections 531 and

531A of the Act, 1956, the said dispute stands resolved in favour of

the auction purchaser. Consequently, the overlapping land shall also

be treated as lawfully available for completion of the auction sale

process and transferred to M/s Ramjee Leathers & suppliers.

16. The plea of respondent Nos.2 and 3 in COMPA Nos. 735

and 736 of 2007 alleging trespass by the OL gets automatically

KL, J COMPA No.1348 of 2005 & batch

rejected as it is established that the transaction in which the property

was transferred in the name of respondent Nos.2 and 3 is rendered

void while deciding COMPA No.561 as the same falls under the

twilight period i.e., six (06) months before the liquidation and was

done under fraudulent manner by the Ex-Managing Director of the

Company.

17. Additionally, in J.K. (Bombay) (P) Ltd v. New Kaiser-I-

Hind Spg. &Wvg. Co. Ltd. 3, the Hon'ble Supreme Court reiterated

that once a winding-up order is passed, the custody and control of the

assets vest solely with the OL. Therefore, the seizure of the land to an

extent of Acs.1.46 on 12.03.2007 by the OL and objected by

respondent Nos.2 and 3 in COMPA Nos.735 and 736 of 2007 is held

as lawful. In the said decision, the Apex Court held as under:

"32. It is thus well established that once a winding- up order is passed the undertaking and the assets of the Company pass under the control of the liquidator whose statutory duty is to realize them and to pay from out of the sale-proceeds its creditors. Such creditors acquire on such order

. 1968 SCC OnLine SC 32

KL, J COMPA No.1348 of 2005 & batch

being passed the right to have the assets realized and distributed among them pari passu. No new rights can thereafter be created and no uncompleted rights can be completed, for doing so would be contrary to the creditors' right to have the proceeds of the assets distributed among them pari passu. But Mr Sen's argument was that the appellants had acquired under the scheme a vested right to have a second mortgage which could not be nullified by the court passing the winding-up order. We cannot accede to this contention for the scheme vested no such right. What it did provide was that in consideration of the Company agreeing to execute a second mortgage the appellants and the other Schedule 'B' creditors agreed to receive repayment of debts due to them in the manner provided in the scheme and the agreement of August 16, 1965. On failure of the Company to execute the mortgage the consideration for postponement of repayment failed and the monies due to those creditors became immediately payable. It is also not correct to say that the scheme gave any priority to those creditors. Such a priority could result only on the execution of the mortgage which would make them secured creditors."

KL, J COMPA No.1348 of 2005 & batch

18. Further, with regard to COMPA No. 969 of 2014, where

the Ex-Managing Director seeks revival of the Company under

Section 466 of the Act, 1956, the Bombay High Court in Forbes &

Company Ltd. v. Official Liquidator of the Hon'ble Bombay High

Court4 held that the discretion under Section 466 to grant a permanent

stay on winding up must be exercised judicially and only when there

is "proof to the satisfaction of the Court" that proceedings "ought to

be stayed." The revival must not be a mere resumption of corporate

existence, but must also amount to a genuine revival of the business,

capable of serving the interest of creditors, workmen, and the broader

public, and not merely serve as a vehicle for asset appropriation by

erstwhile promoters. The Court emphasized that satisfaction of the

Company Court is imperative and cannot be presumed solely because

the applicant promises to discharge liabilities. The test laid down

requires consideration of bona fides, commercial morality, and

whether revival is a ruse to regain control over assets already vested in

the OL. In view of the same, the case on hand in COMPA No.969 of

2014, it neither discloses a concrete scheme for revival nor establishes

. 2013 SCC OnLine Bom 2339

KL, J COMPA No.1348 of 2005 & batch

a prima facie case of commercial viability. Therefore, the application

lacks supporting financial restructuring, clearance of statutory dues, or

demonstrable support from creditors or workmen. Moreover, it is

tainted by past conduct of concealment and unauthorized alienation of

Company assets, which disqualifies the Ex-Managing Director from

seeking equitable relief under Section 466. In Forbes & Company

Ltd4, the Bombay High Court held as under:

"12. Sub-section 1 of Section 466 empowers the Company court to stay the proceedings in winding up either altogether or for a limited time on such terms and conditions as it thinks fit. Such an order can be passed on the application either of the Official Liquidator or of any creditor or contributory. The fundamental requirement of Section 466(1), is that the court may do so "on proof to the satisfaction of the court that all proceedings in relation to the winding up ought to be stayed." Section 466(1) confers a discretion on the court and not a sat 9/24 app 34-2012 mandate. The discretion has to be exercised on satisfaction that stay of the proceedings in relation to winding up ought to be granted. The legislature has carefully used the expressions "on proof to the satisfaction" and "ought to be stayed". Before the

KL, J COMPA No.1348 of 2005 & batch

court grants a stay, the statutory requirement is that there must be proof which is brought before the court on the basis of which it is satisfied that the proceedings ought to be stayed."

19. Upon an exhaustive consideration of the factual matrix,

statutory provisions and authoritative judicial precedents placed on

record, this Court is constrained to arrive at the conclusion that

COMPA No.561 of 2007 is decided in favour of OL holding that the

transfer of the land by the Ex-Managing Director of M/s. Shree

Jagannath Steels Limited (in liquidation) in favour of respondent No.2

herein to the extent of Acs.13.09100 cents and the transfer of land in

favour of respondent No.3 to the extent of Acs.14.28895 cents are

vitiated by legal infirmities and cannot be sustained in law since such

transfers were affected during the twilight period i.e., within six

months prior to the presentation of the winding-up petition and were

not in the ordinary course of business, nor accompanied by any

contemporaneous, verifiable record evidencing bona fide

consideration or arm's-length dealing. As discussed above, such

transactions, having been affected in proximity to the commencement

of liquidation proceedings, without disclosure to the OL and in

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contravention of Sections 531 and 531A of the Act, 1956, are declared

void.

20. The act of clandestinely transferring valuable immovable

properties to related parties without obtaining leave of the Court, and

thereby obstructing the OL's access to estate assets for realization and

distribution to creditors, constitutes a breach of fiduciary obligations

and undermines the equitable administration of the winding-up

process. The settled legal position mandates that such preferential and

concealed transactions are to be subjected to heightened judicial

scrutiny and invalidated when found to be tainted by mala fides or

executed with intent to frustrate creditor claims.

21. Equally, the challenge by respondent Nos.2 and 3 in

COMPA Nos.735 and 736 of 2007 with regard to the OL's seizure of

Acs.1.46 is devoid of merit. It is well settled in law, and affirmed by

the Apex Court in J.K. (Bombay) (P) Ltd3, that upon the passing of a

winding-up order, the assets and undertaking of the Company stand

vested in the custody of the OL and any attempt to interfere with such

control without leave of the Company Court is ipso facto illegal. The

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objection raised by the said respondents is accordingly liable to be

repelled.

22. Furthermore, this Court finds no merit in COMPA No. 969

of 2014 seeking revival of the Company. The applicant, the Ex-

Managing Director, who was already found to have engaged in

unauthorized and undisclosed transfers of Company assets, has

approached the Court after an inordinate delay of nearly fifteen years

post-liquidation, without any demonstrable scheme of revival,

financial infusion, creditor consensus, or statutory dues clearance.

Revival under Section 466 of the Act, 1956, is not a matter of right but

lies within the discretion of the Court, to be exercised only on proof to

its satisfaction that such a course is warranted in the interest of

creditors, contributories, and the commercial viability of the

undertaking. As elaborated in Forbes & Company Ltd4, such

discretion must be guided by considerations of commercial morality,

bona fides, and fairness, not mere intent to reclaim control over assets

already vested in the OL. The conduct of the Ex-Managing Director,

marred by concealment and fiduciary breach, militates against the

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invocation of equitable jurisdiction under Section 466, and the revival

plea stands rejected accordingly.

23. In view of the above findings, this Court further holds that

the dispute over overlapping land raised in COMPA No.259 of 2007,

stands conclusively resolved in favour of the auction purchaser, M/s.

Ramjee & Suppliers, consequent to the declaration of nullity of the

impugned sale deeds in COMPA No.561 of 2007. The auction

process, having been conducted with prior Court approval and the

consideration fully paid and accepted, shall stand protected and

implemented in full.

24. This Court is, thus, satisfied that the liquidation process

was undertaken in accordance with law and any subsequent attempts

to disturb the settled estate without judicial sanction and in

contravention of statutory mandates cannot be countenanced. The

sanctity of winding-up proceedings must be preserved, and all

fraudulent, preferential or unauthorized transactions must be declared

void to uphold the supremacy of creditor rights and statutory

administration.

KL, J COMPA No.1348 of 2005 & batch

25. Having regard to the foregoing discussion, this Court

concludes the following:

i) COMPA No.1348 of 2005 filed by the OL seeking

confirmation of the auction sale conducted by the OL is

allowed holding that the auction conducted by the OL for

sale of the property in favour of M/s. Ramjee Leathers &

Suppliers, is valid and proper.

ii) COMPA No.259 of 2007 filed by the auction purchaser is

allowed directing the OL to execute registered sale deeds for

the remaining disputed land to the extent of Acs.1.46 cents

in favour of M/s. Ramjee Leathers & Suppliers in

accordance with law.

iii) COMPA No. 561 of 2007 filed by the OL is also allowed,

declaring the transfers effected on 22.09.1998 and

25.09.1998 by the Ex-Managing Director of the Company in

favour of his close relatives, respondent Nos.2 and 3 herein,

as void since the same is barred by Sections 531 and 531-A

of the Act, 1956.

KL, J COMPA No.1348 of 2005 & batch

iv) COMPA Nos.735 and 736 of 2007 filed by the close

relatives of Ex-Managing Directors, respondent Nos.2 and 3,

are dismissed holding that the said seizure being valid upon

the winding-up order.

v) COMPA No. 969 of 2014 filed by the Ex-Managing

Director seeking revival of the Company under Section 466

of the Act, 1956, is also dismissed.

vi) In the circumstances of the case, there shall be no order as to

costs.

_________________ K. LAKSHMAN, J 11th September, 2025 Mgr