Partly allowed

Sri Pramod Kumar Agarwal v. M/s. Shree Jagannath Steels Limited (In Liqn.)

Telangana HC11 Sept 2025COMPA/969/2014

Case brief

AI extract

What is this about?

Company applications arising from winding-up of a steel company. Court confirmed auction sale to an inter se bidder, declared pre-liquidation land transfers by the ex-Managing Director to his relatives void under Sections 531/531A, upheld the liquidator's seizure of disputed land, and rejected the ex-Managing Director's delayed plea for revival under Section 466.

What did the court decide?

Auction sale confirmed; OL directed to execute sale deeds for disputed Ac.1.56 cents to auction purchaser; impugned transfers declared void; seizure upheld; applications 735, 736 and 969 dismissed.

Sri Pramod Kumar Agarwal Vs M/s. Shree Jagannath… — Insolvency and Bankruptcy | Telangana HC (2025)

¶1

¶2

[³¹⁶⁸ ]

¶3

IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD

¶4

THURSDAY, THE ELEVENTH DAY OF SEPTEMBER TWO THOUSAND AND TWENTY FIVE

¶5

PRESENT

¶6

THE HONOURABLE SRI JUSTICE K.LAKSHMAN

¶7

COMPANY APPLICATION Nos. 1348 OF 2005 259 561 735 AND

¶8

736 0F 2007 AND 969 0F 2014

¶9

¶10

COMPANY PETITION NO. 236 OF 1998

¶11

COMPA No. 1348 OF 2005

¶12

¶13

cP NO. 236 0F 199S

¶14

ln the matter of the Companies Act, 1956 And

¶15

ln the matter of M/s. Shree Jagann(in liqn),

¶16

Between:

¶17

N//s Shree Jagannth Steels LTD., ( ln Liqn), Rep. by the Official Liquidator, High Court of Andhra Pradesh, Hyderabad.

¶18

...APPLICANT

¶19

AND

¶20

lndian Bank, Represented by its General [\tlanager, ARMB-2, Circle Office Building, Ground Floor, # 55, Ethiraj Salai, Chennai-600 008.

¶21

...RESPONDENTS

¶22

Application under Section a57(1)(c) of the Companies Act, 1956 read with Rule I of the Companies (Court) Rules, 1959^praying that this Court may^be pleased to:

¶23

i) Permit the Official Liquidator to sell the land ( to an extent of Ac7.48) and buildings of the company situated at Sy.Nos.5/8, 5115, 5116,5120,615,713,715,716,8/1 to 10,, 9i6 and 9/7, GNT Road, Alinjavakkam, Pooneri Taluk, Thiruvallur Dist., Tamilnadu as one lot comprising of Land and Building inviting sealed tenders and to publish the notice inviting sealed tenders in the Hyderabad edition of Deccan Chronicle and Chennai editions of lndian Express and Economic Times.

¶24

ii) Consider and approve the notice inviting sealed tenders;

¶25

Consrder and approve the terms and conditions for the sale of the

¶26

iii) properties of the company and the format o' the application;

¶27

iv) Consider and approve the fixing of I/li.rirnum Upset Price as Rs.56,88,000/- and Rs.5,00,000/- as EMD ;rnd Rs.1,0001 as Cost of Terms and Conditions.

¶28

v) Permit the Official Liquidator to open thc ;ealed tenders in the chambers of the Official Liquidator in rhe presence of the available secured creditor and the availabie participants.

¶29

vi) Permit the Official Liquidator to negotiate \'ith the participants in the presence of the secured creditor on 1te day of opening of tenders to fetch better price;

¶30

vii) Permit the Official Liquidator to obtain a cn,rque from the highest bidder for 20o/o of the offered amount or the day of opening of tenders rn the presence of secured creditor;

¶31

viii) Direct the respondent herein to deposit t; s.1,00,000/- with the Official Liquidator to incur the advertisenrerrt charges and other incidental expenses;

¶32

ix) Order the cost of this application do come c tt of the assets of the company.

¶33

This application coming on for orders, upon readin3 he Judge's summons and the affidavit dated 05-12-2005 filed by sri Arvind strr <ta, official Liquidator attached to High Court of Andhra Pradesh in support of th€, Company Application and upon hearing the arguments of sri M. Anil Kumar. c,runsel for the official Liquidator for the Apphcant and Sri V.S. Raju, Advocate for tlre Respondent.

¶34

ln the matter of the Companies Act, 1956 ('l of 1956)

¶35

And

¶36

ln the matter of M/s. Shree Jagannath Steels Limited, (in liquidation),

¶37

Between:

¶38

M/s. Ramjee ^Leathers 4 Suppliers, A-14, 15 SID lO Industrial Estate, Arumbakkam,^{Chennai-600106; Tamil Nadu.Represerred by its partner,} Shri Damodaran

¶39

...APPLICANT

¶40

AND

¶41

M/s. Shree Jagannath Steels Limited, (in liquidatiorl Reoresented bv the Official Liquidator, High Court of Andhra^pradesh, Hyo: abad

¶42

...RESPONDENT

¶43

Application under Section Rule 9 of the Companitrs (Court) Rules, 1959 praying that this Court may be pleased to:

¶44

(i) To handover and register the properties in the name of the applicant and in the name of our sister concern namely M/s. lndian Embroidery Company as shown above at the earliest and;

¶45

This application coming on for orders, upon reading the Judge's summons and the affidavit dated 05-12-2005 filed by Sri M.R. Bhat, Official Liquidator attached to High Court of Andhra Pradesh in support of the Company Application and upon hearing the arguments of Sri V.S. Raju, Counsel for the Applicant.

¶46

COMPA No.561 OF 2007

¶47

IN cP NO. 236 0F 1998

¶48

ln the matter of the Companies Act, 1956 And

¶49

ln the matter of M/s. Shree Jagannath Steels Limited, (in Liqn)

¶50

Between:

¶51

M/s Shree Jagannath Steels Limited (ln Liqn), Rep By the Official Liqudator High Court AP Hyderabad

¶52

...APPLICANT

¶53

AND

¶54

1 Sri Pramod Kumar Agarwal, Ex-Director, 12-5-41n, Vidyanagar Colony, Siddipet - 502 103, Medak District.

¶55

2 Sri Jitender Kumar Kedia, S/o Guljarilal Kedia, 5-9-30/4/3, Road No. 5, Basheerbagh, Hyderabad.

¶56

J Ms Anita kedia, 5-9-30i4l3, Road No. 5 Basheerbagh, Hyderabad.

¶57

..RESPONDENTS

¶58

Application under Section 457 (1) (a) & (e) r/w Sections 531 & 531A & Section 456 of the Companies Act, 1956 further r/w Rule 9 of the Companies (Court) Rules, 1959 praying that this Court may be pleased to:

¶59

i) declare transfer of land to the extent of Ac. 13.09100 cents by the company in favour of the 2nd respondent herein and the transfer in respect of land admeasuring Ac. 14.28895 cents in favour of the 3rd respondent herein situated in various survey numbers in Alinjivakkam village, Ponneri Taluq, Thiruvallur District as void in terms of Sections 531 & 531A of the Companies Act, 1956

¶60

ii) consequently direct the 2nd and 3d respondent to deliver possession of the above land to the Official Liquidator order that the costs of this application do come out of assets of the company in liquidation

¶61

This application coming on for orders, upon reading the Judge's summons and the affidavit dated 21-03-2007 filed by Sri M,R. Bhat, Official Liquidator attached to High Court of Andhra Pradesh in support of the Company Application

¶62

and upon hearing the arguments of Sri tt/. Anil Kumar, t-),',uns6l for the Official Liquidator for the Applicant, Sri Satish, Counsel representrng Mrs. Nandini S. Bilolikar, Counsel for Respondent No. 1 and Sri T. Suryi: Satish, Counsel for Respondent Nos. 2 and 3.

¶63

ln the mafter of the Companies Act, 19116

¶64

And

¶65

ln the matter of M/s. Shree Jagannath Steels Linrited, (in Liqn)

¶66

Between:

¶67

'1. Sri Jitender Kumar Kedia S/o. Guljari Lal Kec a, aged 36 years, Occ: Busrness, H. No.5-9-30/'1 /4/3, Road No. 5, Basheertragh, Hyderabad.

¶68

Smt Anita Kedia Wo. Jitendra Kumar Kedia, ageci irbout 36 years, Occ: House Wife, R/o H.No.5-9-30111413, Road No.5, Bashr:e.bagh, Hyderabad.

¶69

..APPLICANTS

¶70

AND

¶71

M/s Sree Jag annath Steels Limited (ln Liqn.), Rep. Bv he Official Liquidator, High Court of Andhra Pradesh, Hyderabad.

¶72

...RESPONDENTS

¶73

Application under Section 457, 458,463 of Companie s Act, 1956 R/w Rule 9 of Company (Court) Rules, 1959 R/w 3004 of the Constil rtion of lndia praying that this Court may be pleased to declare the action of tl.c Official Liquidator in takrng over the possession of land admeasuring Ac.1.46 siturted at Azhinjivakkam Village, Pooneri Taluk, Thiruvallur District on 12-03-2007 as legal, arbitrary and in violation of the principles of natural justice as well as provisic rs of companies Act.

¶74

This application coming on for orders, upon reading lte Judge's summons and the affidavit dated 16-04-2007 f iled by Sri M. Anil Kurrrar, Official Liquidator attached to High Court of Andhra Pradesh in support of the lompany Application and upon hearing the arguments of Sri T. Surya Satish, Cour;el for Applicants.

¶75

COMPA No.736 OF 2007

¶76

IN cP NO. 236 0F 1998

¶77

ln the mafter of the Companies Act, 19t;6 And

¶78

ln the matter of M/s. Shree Jagannath Steels Limited, (in Liqn)

¶79

Between:

¶80

Sri Jitendar Kumar {e!1a, S/o Guljari Lal Kedia, aged 36 years, OccBusiness, R/o.H.No.5-9-30/1/4/3, Road No.5, Basheerbrrgh, Hydeiabad.

¶81

Smt. Anita Kedia, Wo. Sri Jitendra Kumar Kedia, age:d about 36 years, OccHousewife, R/o. H.No.5-9-30111413, Road No.5, Bashere bagh, Hyderabad.

¶82

..APPLICANTS

¶83

AND M/s. Sree Jagannath Steels Limited (ln Liqn.), Rep. By the Official Liquidator, High Court of Andhra Pradesh, Hyderabad and another.

¶84

...RESPONDENTS

¶85

Apptication under Order 39 Rules 1 & 2 of CPC R/w Rules 6 & I fo Company (Court) Rules, 1959 praying that this Court may be pleased to direct the Official Liquidator not to execute or register any document over the land admeasuling Ac,1.46 situated at Azhinjivakkam village, Pooneri Taluk, Thiruvallur District pending the main application.

¶86

This application coming on for orders, upon reading the Judge's summons and the affidavit dated 16-04-2007 filed by Sri M. Anil Kumar, Official Liquidator attached to High Court of Andhra Pradesh in support of the Company Application and upon hearing the arguments of Sri T. Surya Satish, Counsel for Applicants.

¶87

ln the matter of the Companies Act, 1956 And

¶88

ln the matter of M/s. Shree Jagannath Steels Limited, (in Liqn)

¶89

Between:

¶90

Sri Pramod Kumar Agarwal S/o. Late C.M. Agarwal, Aged about 54 years, Occ: Ex-Managing Director of Shree Jagannath Steels Limited, the respondent Company R/o. Flat No.003, H.No. 6-3-1238/15, Vishnu Building, Asif Avenue, Somajiguda, Hyderabad.

¶91

...PETITIONER

¶92

AND

¶93

M/s. Shree Jagannath Steels Limited (ln Liqn.), Rep. by the Official Liquidator, High Court, at Hyderabad.

¶94

...RESPONDENT

¶95

Application under Rule 9 of Company (Court) Rules praying that this Court may be pleased to

¶96

(i) Hon'ble court may be^pleased to the winding up of M/s.Shree Jagannath Steels Limited^permanently and consequently direct the Official Liquidator to handover all the records, assets and other movable and immovable properties belonging to M/s. Shree Jagannath Steels Limited to the applicant herein,

¶97

This application coming on for orders, upon reading the Judge's summons and the affidavit dated 16-04-2007 filed by Sri M. Anil Kumar, Official Liquidator

¶98

attached to High Court of Andhra Pradesh in sup,crrrt of the Company Application and upon hearing the arguments of liri Satish, Counsel representing Mrs. Nandini S. Bilolikar for Applicants.

¶99

The Court made the following: COMMON ORDER

¶100

HON'BLE SRI JUSTICE K. LAKSHMAN

¶101

COMPAI\Y APPLICATION Nos. 1348 OF 2005,^259- 561.^{735 &} 736 0F 2007 AND 969 0F 2014

¶102

IN COMPANY PETITION No.236 OF¹⁹⁹⁸

¶103

CON{MON ORDBR

¶104

Heard Mr. M. Anil Kumar, learned counsel^{for the Official} t.iquidator in COMPA No.56l of 2007 and respondent^{in COMPA} No.969 ol20l4, Mr, I . Surya Satish. learncd counsel^{for thc applicant} in COMPA No.735 of 2007 and respondent^{Nos.2and 3 in COMPA} No.56l ol 2007, Mr. V.S. Ra.iu, leamed^{counscl lor the applicant in} COMPA No.259 of 2007 and respondent in^{COMPA No.l348 of} 2005 and Mr. Satish, leamed counsel representing^{Mrs. NandiniS.} ll ilolikar, lcarned counsel lor thc applicant in COMPA^{No.969 of} 2014 arrd respondent in COMPA No.56l of 2007.

¶105

Originally. all the above said Company Applications^arise out of Company Petition No.236 of 1998 filcd under Scctions^{- 433} (c), 134 (l) (a) and 439 (l) (b) ofthe Companies Act, 1956 (for shorl 'Act, 1956'), seeking^windingup of^{IWs.Shree JagannathStcels} Limited^(hercinafter referred^{to as "the Company").}

¶106

¶107

KLI COMPA No I348 of2005 & ,i lrin(ll'No236ot1998

¶108

It is thc case ol thc pctitioner-Company th,Lt. undcr a lease agreemcnt datcd l9-04-1995. it supplied various iternr ol cquipment to thc respondcnt-Compan. involving a net linance o' 1s.70.00,000/-, on the lerms that thc respondcnt rvould pay a monthl.. casc rental of Rs. 1,58,200/- in advancc.^'l hc flrst instalmcnt LLr.dcr tho said agreement lell duc on l9-0.1-1995, and the last instalnr,.nt was agreed to bc paid on l9-03-2000. ln pursuance thcrcot, rh: rcspondentCompany had issued post-dated chequcs towards rhe monthly instalments.^'fhc record discloses that thc rcspondenr_-r^'ompany paid thc instalments only up to October, 1996.^{'l'hercafi,i:.} thc cheques prcsented fbr encashment ucrc dishonoured. lcading t., crrnination of thc lease agrccment b1' thc pctitioner. ns on lt).12-1998, the respondent stood indebtcd to the petitioncr a sum of l:.s.t2.23.592/-, besides interest at the rate ol'3070 pcr annutn n.ith r-,onthh rests as stipulated unclcr thc agreemcnt. Dcspite repoated leu_t'"s ol'demand (trxs.A3 to A7) and even alier admitting its liabilil in irs own correspondencc (lixs.A8 to A l0). the respondent faile,l ,rnd neglected to discharge 1hc said dues. A legal norice datcd 3l-01-l9tt (tix.A13), dulyserved on 09-02-1998 (Ex.Al4). also elicired no cor.rpliancc.

¶109

¶110

KL, J coMt^^No ll,lE o12005 &^barchin c^l,No216 0f¹⁹⁹⁸

¶111

Thc winding-up pctition was admitted on 17.06.1999. Substituted service was alfccted and notice was publishcd. No objcctions rvere filed. An affidavit of cvidence by one Mr. S.R Ramcsh Babu was filed with exhibits (Ex.A I to A14).^'I'hc Company was held comrncrcially insolvcnt and thc Otllcial I-iquidator (OL) was appointed by this Court vide order dated 07.09.1999

¶112

Thc afbresaid Company Applications are filed by the applicants secking various relief. The dctails of the same are^as

¶113

follows:

¶114

S.No	COMPA No	Filed	Reliefso tfor
			TheOLsought permissiontosellthe company'sassetscomprisingAcs.7-48 situatedatSy.Nos.5i8, 5/15, 5/16, 5/20, 6t5,7/3,715,716,8/lto10,9/6&917, GNIRoad.Alinjavakkam.Ponneri I'aluk, Thiruvallur District,larnilNadu. asasinglelotbyinvitingsealed tenders. This Court,afterapprovingtheproposed tender notice,terms andconditions includingaminimumupsetpriccof Rs.56.88 lakhs,earnest moneydepositof
0t	1348/05	ot.	Rs.5lakhs, andtendcrcostofRs.1,000, permittedtheOLtoconductthesale, opentcndcrs,negotiate bids,andsecure 20yoolthchighestbidamountatthe timeofopening-Pursuant thereto,an auctionwasheldandbyorderdated 27.10.2006,thisCourtacceptedthe highestbidofRs.23llakhsmadebyIr,Vs. RamjeeLeathers&Supplies.ttwas subsequently broughttothc noticeofthe Courtthat an extentofAcs.1.56cents outoftheauctioned land ovcr with

¶115

¶116

Kll

¶117

COMPA No llt8ol2005 6. hi.r h⁽ I'No216oflql8

¶118

		I	alld 3 bytheex-Mxnf irqI)rrcctorofthe com n ^{t""a-prc1i.rt5'iolilt,rcsp,,ndentNos.2}
02	259t(J',?	M/s. Leathers Supplies I{arnjee &	Tohandovcr andrc!slcrlhcproperties in itsnamcandalsc,Ithcnameofhis sister conccm,M/:lrilianIimbroidery Com
03	56r/()7	ot.	Todeclaretranslerolar)dtothe exlent olAcs.l1.09100cenl.l))thcCompany inthvourofrespol:erI\oIhercinand thetranslerin :spcclo[land admeasuringAes.II 'xx')i(cr\in furourol'resfrorilrr'Noihc',.;.- situatcdinvariousr\c\rrumhersin Alinjivakkanr villaitPonncrilaluq. ihirrrvallur Districta.\oidir)temrsof 'Sc"tiors^{- 5llanc'll-Aol-tlreAct,} ile56
			ITodectarc thcactioI thc^()1.intakins ovcr the^possession,,lrrnd .rdnreasuring Acs-t.56 cenls sitrated al
04	735,',0']	Mr-JitcndcrKumar Kedia&hisrvile- AnitaKedia.	AzahimjivakkatnVillrr:e.PooneriTaluk. ThiruvallurDistrictrn12.03.2007as illegalandconsequenlvdirecttheOLto lbrthwithre-dcliverth,oossessionofthe safile,
05	736107	-do-	todirecltheOLnotlor\ccrrrcorregister arydocurn.'ntoverlr,llrnJrrdmeasuring Acs,l.56cents situaLc(lalAzhinjivatlam Village,Poonerilrlul.^'lhiruvallur District.
		Mr-PramodKumar	1ostayallfurtherpr tothewindingLrl olcrlingsinrelation ) rlthcCompany
06	969,II	Agarwal.l:x.N4D oftheConrpany	pcnnancnll!' andcol OL tohandoveral othcrmovableandi rs.,.lu!-ntlydirectthe rcracords,assets, -rrovablc propcfties e).t bclo stotheCom

¶119

6. SUMMARY OF DOCKET ORDERS IN RT]SPECT OF COMPA No.1348 OF 2005

¶120

i) On 17.02.2006, this Court. while considering thc application

¶121

of the OL seeking pcrmission to sell the assets of the ( rrnpany under liquidation, dirccted that thc sale noticc bc publishr:r' in "Eenadu"

¶122

¶123

XI,. J COMPA No 1348 of2005 & batch in C P No.2l6 ot lyrS

¶124

Telugu Daily (Hyderabad Edition) and in "The Indian Express" and "The l{indu" English Dailies (Chennai Edition).^'l'he applicarion was accordingly ordercd and the first respondent - lndian Bank was directed to deposit a sum of Rs.1,00,000/- within two weeks to meet advertisement and incidental expcnses.

¶125

ii) On 28.04.2006. the matter u,as placed belore this Court for conflrmation ol sale pursuant to the earlier order.^'l'he OL reported that auction r.r,as conducted and bids r.r,ere rcceived from 2l participants, the highcst being that ol' 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 lrom the factory buildings valued at Rs.2 1,79,087/-. In view of this valuation and objection, the bid of Rs.69,00,000/- was not acceptcd, and the OL was directed to issuc a fresh sale noticc in^"[)inamani" and "l)inamalar" (Tamil Dailics, Chennai and Thiruvallur Editions), and in "Eenadu" and "Vaartha" (Telugu Daitics, Chinoor and Nellorc Ettitions). The Bank was directed to incur the expenses.

(

kt I COL{PA No ll18 of1005 d h rrrnCP.No216ol l!r'98

¶130

iii) On 03.07.2006, this Court again consid,'red thc OL's report.^'l'he upsct pricc had been flxed at Rs.1.14,00.0(.^)'- on thc basis ol a valuation repotl, but the highest bid receiYed wa. 1is.72.00,000/l)uring hearing, the second highest bidder exprcssc,J sillingness to cnhance the bid to Rs.73,50,000/-. As thcse off-ers u,. r^' l'ar belo$ thc upset prioc, thcy wcre rejected and thc OL was dircc:t,-d to corlduct a licsh sale. Thc ['.amest Mouey [)eposits^{(EMI )} )^'cccived *'cre dirccted to bc re[Lnded, and the mattcr^r.vas posted on 0 .08.2006

¶131

iv) On i3.09.2006, noting that the prcvious otice had not attracted proper offers. this Court cancelled thc carlicr :.ale noticc and directed the O[- to issue a fiesh noticc without tixing i l upset pricc'. by publishing thc sale noticc in "lrenadu" Tclugu l)aily (Nellorc lidition), "The Hindu" English Daily, and another^'l'ar,ril I)ailv having circulation in Chennai. The matter was posted on 26.1⁽ 2006

¶132

v) On 26.10.2006, the OL rcported that pursrrr rt to the frcsh notice, auction was held and thc highest bid of llr;.145 lakhs rvas rec{ved from onc Mr. P.R. Reddy and others ol' Visal, hapatnam. ln furth\er negotiations held beforc this Court, M/s. Rarrr :c Leathcrs &

¶133

¶134

KI, J coMPA No¹³⁴⁸ 0f2005 & barch^rn c^{P No} 216 0f t998

¶135

Supplies, Chennai and also its sister concem M/s. Indian Embroidery Company, Chennai, and M/s. A.K. Enterprises, I{yderabad, participated. An open inter se bidding was conducted in Court between the hvo, whercin M/s. Ram.jee Leathers & Supplies, applicant in COMPA No.259 of 2007. oflcred Rs.23 I lakhs, far above the earlier highest bid.^'l'his olfer was accepted as final. The OL was directed to retum the deposits of unsuccesslul bidders and file a report

¶136

vi) On27.10.2006, this Court lormally accepted thc highest bid of Rs.231 lakhs made by M/s. Ramjee Leathers & Supplies in lhe 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 Barod4 Barkatpura Branch, and to report on 0t.t2.2006.

¶137

vii) On 27.12.2006, it was brought to thc notice of this Court that there was a dispute conceming land surrounding the auctioned property. The OL infbrmed that certain lands belonging to the Company were fraudulcntly^alienated by the Ex-Managing Director,

¶138

¶139

¶140

KI,. COMPA No Il18 oflt)l]5 ]: Lr .lr ]n⁽ l'No216oll998

¶141

thereby obstructing access to the factory^premises'fhc OL^u'as directed to enquire inlo the matter and obtain^{part.ir:ulars liom the} crcditor bank regarding the propcrties mortgaged, alon,^riith copies of title deeds.^'l'he mattcr was posted on 18.01.2007

¶142

viii) {)n 25.01 .2007. this Court directed the resl:.rndcnt bank to produce all relevant tnaterial and information- irrcltrtling the information as to rvhether permission had bccn g. en to the ExManaging Director to effect sale of Acs.l.5-5 ccnts out ol' Acs.7.75 ccnts, and to explain the circumstances.

¶143

ix) On 08.02.2007. the Manager of thc Bank aol'!'are^(l and filcd relevant documents. which u,ere served on the Ot..^{'l'ir.tc u} as granted to the Ol. to examine the documents, and thc Olficr:r''s appearance was dispensed with

¶144

x) On 15.02.2007, it was further brought to th. notice ol this Court by the OL that in addition to thc auctioncd cxternl. the Companl' still owned Acs.3.4l cents, situated in Survey Nos. t^'5,A, 5i9, 614A, 7llB. 7128, 7/4 and 9/5A at Alinjivakkam Village Ihc C)L u'as { i

¶145

¶146

KI, J COMPA^{No1348of 20oi} &^{batch,nC.P.No2160l1998}

¶147

directed to take possession of thesc^{propertiesand to file an} appropriate application for their sale^{as rvell.}

¶148

COMPA No. 561 of 2007 is filcd^{by thc OL underSections} 457 (l) (a) & (e) read with Sections^531, 53lA^{and 456 of the Act,} 1956 praying to declare two sale^{transactions executedby thc Fx-} Managing Director, Sri Pramod Kumar^{Agar-wal,rvithinsix months} prior to the commencemcnt of^{rvinding up as} void.^{These sales} comprised:

¶149

(a) Acs.13.09100 cents in favour ofSri Jitender Kedia

¶150

(R-2), and

¶151

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

¶152

(R-3)

¶153

i) It is the case ol the Ol. that thesc transactions^executcdin September 1998, amount to lraudulent^{prelerenoc under Section} 531 and voluntary transfers not^{in the ordinarycourse of business} void under Section 531A. The^{transf'ereesare cl<lserelativesof the} Ex-Managing^{Director. Thc OL also alleged suppression of these}

¶154

¶155

KIJ COMI'A No ll18 ol 2ul5 A- L. .h rt t l' No^2'16 ol^I9qs

¶156

transactions in the Statcmcnt of Affairs and dclibe'etc obstruotiou

¶157

to acccss to the Aos.7.48 cents auctioned property

¶158

ii) Contentions of respo ndent No.l. the Ex-M ln4g!_qg Director in COMPA No.561 of 2007:

¶159

a)^'l he sales u,ere bona fide for valid consi([,- ration and not barred merely due to relationship. l1c dcnic,l concealnrent.

¶160

claiming Company functioned till August 1t) '!)

¶161

b)^'l'he sale proceeds were used to meet liab'lities and that records showed genuine transactions. IIc r1:nictl that an\ rnorlgaged land u'as sold or acccss hindcrcrl

¶162

iii)^'l'wo auction purchasers sought implcadmcr as respondcnt Nos.4 and 5 in COMPA No.56l of 2007 claimins rterest in land acquired through auction.^'Ihcy submitted that disput(s o\er parl ol' Acs.7.48 cents prevented full delivery. They relied^,n the ordcr in COMPA No.259 of 2007 allowing registration of undisputed land

¶163

iv) It is apt to note that the OL exan'ined Mr. M. Yi4lubhushana Rao. Lcgal Assistant in the officc of th,. OL. Thc said witness deposed that pursuant to thc winding u r, order datcd

¶164

¶165

r!L, J COMPA No t.].18 ol-2005 & tJarch ln C^p No 216 of tg98

¶166

07.09.1999 passcd in C.P.No.236 of 1998, rhe OL assumed charge of the Company's iusets under Section 449 of the Act, 1956. Based upon the statcment of affairs furnishcd by respondcnt No.l (ExManaging Director), the OL brought ro sale a portion of the Company's land, which was confirmed by this Court in favour of M/s. Ramjce Leathers & Supplies, Chennai.

¶167

v) It has, however, come to light during subsequcnt suney by the Tahsildar, Ponneri, that several portions of the land lilrming part of the Company's assets had alrcady been transfcrred in favour of respondent Nos.2 and 3 herein, who arc none other than the sistcr and brother-in-law of the Ex-Managing Director. Copies of sale deeds dated 22.O9.1998 and 25.09.1998 clearly establish thal such transf'ers were aff'ected within six months preccding the commencement of winding up proceedings on 24.12.1998. The said translers are, thus, squarely hit by Scctions 531 and 531-A of the Act, 1956 amounring to fraudulent preference and being void in the ofOL.

¶168

vi) He has further deposed rhat while the Company originally owned Acs.36.88945 cents of land in Alinjivakkam village, Ponneri

¶169

¶170

XI ] COMPA No.l348 of2005 6- h (lfn( l'\o216of1993

¶171

I'aluk, thc l;r-Managing Director had clandcstirr. lr transferred Acs.l3.09l00 ccnts and Acs.14.28895 cents in favo. r' o[' his close rclativcs. Conscquently, only ncs.g.50950 cents remains in the name of the Cornpanr,. out of which Acs.7.48 cents stott<l mortgagcd to Indian Bank.^{(lhennai.'[hus.} the Statcment of Allairs l]led bv the ExManaging I)ircctor dcliberatelv suppressed the said far:is hy disclosing only Acs.7.4tl ccnts and omitting thc balance.

¶172

vii) lle has also deposcd that thc financial lerords annexed, particularl) thc sale of Land Account (Ex.P-13) and t.rc^'fanril Nadu Mercanlile Ilank Slatcment (Ex.P- l4), disclose thar an arnount of Rs.14,88,226l- shown as sale proceeds on itl 09. 1998 was immediatell' transf'erred to M/s. Jagannath Constru< Lions. a sistcr coucern ol' thc Company, on the very next day. Such circular diversion o1'lunds unmistakably demonstrates that thc impugned salc transactions wcrc not genuine sales for valuable consirleration in the ordinary coursc of husiness, but were sham transacti ,ns devised to siphon asscts arvay fiom the Company in liquidation.

¶173

¶174

KL. J COMPA No¹³⁴⁸ of 2005 & batch^rn C^P No 216 of 198

¶175

viii) Nothing contra was elicited from him during cross-

¶176

examlnatlon.

¶177

ix) AUDITOR'S REPORT Perusal of the Auditor's Report for thc financial year ending 3 1 .03. I 998 would reveal that thc auditors have unequivocally noted that thc 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 incuning continuous losses, posting Rs.4.03 Crores loss during 1997-98 and Rs.l.84 Crores during 1998-99. The auditors lurthcr 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.

¶178

x) These findings corroborate the testimony ol thc OL that by 1998, the Company was hnancially distressed, operating under accumulated losses, and was already facing proceedings bclore the Debt Recovery Tribunal at the instance of lndian Bank. [n such circumstances, the sale of substantial extents of land to near relatives of the Ex-Managing Director, without valuation, without disclosure to

¶179

¶180

¶181

K_. CONIPA No 13.{13 of200i r: t rlrrn( 1,No216otlry8

¶182

secul'cd creditors. \ithout sanction of shareholders in .,eneral rneetins ri,ithout lbllos,ing thc procedure laid down undcr Ia.^, cannot be held to bc bona .fide

¶183

xi) l'hc Auditor's Rcport also shows Lhat ivhil' the Companl, had maintained books of accounts, no eutrieri rcflccting the impugnetl salcs u,erc tbund in the Balance Sheets iirr I 997-98 and 1998-99 (lrxs.l'-ll & P-12).^'['his lends further ;upport to the contention of thc OI- that the translcrs were dclibcr:rtcly concealed and not rccorded as part ofthe Company's Regulal' llusincss

¶184

ll. COMPA Nos.735 AND 736 OF 2007

¶185

i)^'fhcsc applications u,ere flled by Sri Jitendcr Kcdia and his u'ife, Smt. Anita Kcdia seeking to declare thc actior. of the OL in taking over the posscssion of land to the extent of,\cs.I.56 cents, situated at Azhinjivakkam Village, Pooneri Taluk, thin.'vallur District on 12.03.2007 as illcgal and violative of Article, 300,4 of the Constitution.^'Ihcy claimed possession pursuant tc, r'cgistcred sale deeds of 1998. The1, prayed that OL bc restrained fror.,r dealing with said [and pcnding ad.judication ol'COMPA No. 561/200'z

¶186

¶187

KL. J COMPA No ll4E of 2005 & barch inC.P No²¹⁶ ol¹⁹⁹⁸

¶188

ii) The OL, however,^justified the attachment stating that once the winding up order was passed, custody and control of^{the assets} vested in him, and the transfers being void,^{possessionwas lawlully} taken.

¶189

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

¶190

i) This apptication has been filed by the auction^{purchaser,M/s'} Ramjec Leathcrs and Supplies and its^{sistcr concem M/s.Indian} t.)mbroidery Company, seeking directions^{to the OL to execuleand} register the sale deed and to deliver^{possessionof the entire extent of} Acs.7.48 cents of land together with structures thereon,^purchasedby it in the auction sale held^pursuant to the orders^{of this Court.The} rccord discloses that b!' ordel dated^{27.10.2006,this Courthad} confirmed the salc of the said property in^{favourofthe applicantlor a} total consideration of Rs.23 I Lakhs, the full amount^{whereofhassince} bcen doposited with the O[..

¶191

ii) It appears, however, that disputes arose in relation to^a portion of the auctioned property on account of^{prior transactionsand} claims set up by third palties. Consequently,^{thoughthe auction}

¶192

¶193

KI "I COMI,A No 1348 of2005 & bi.h rn( l'No216ol1998

¶194

purchaser souqht con\reyancc ol'the entirc cxtent ofl.c 7.48 ccnts. the OL was in a position to deliver and cxccute sale deeds only in respect ol an extent ol'Ac.5.92335 ccnts. which portion was r- rdisputed. The remaining e\tcnt $,as withhcld pcnding adjudication .r the ol-r.iections raiscd in connectcd company applications con,::urrIing alleged Iiaudulent trarrs lcrs ol land

¶195

iii) I]1, order datcd 22.03.2007, this Court, while considering COMPA No 259 ot2007 in C.P. No.236 of 1998. ,vas pleased to direct the OL to executc and register the sale deed ir lavour of the auclion purchaser to the extcnt of the undisputed portlorr admcasuring Ac.5.92335 ccnts. and to dcliver possession thereof. [r rcspcct of the balancc extent of Ac. 1.55665 cents, which is the sr-rb lcct matter of contest in othcr pending proccedings, consideration vas expressly dcf'ened and rnade subjccl to the outcome of the said arl Lrdication.

¶196

iu) SUMMARY OF DOCKET ORDERS:

¶197

a) On 01.03.2007, this Court. pending further orders rcgarding the disputed portion of land, directed the OL to delivcr posscssion of th: IAnd alrcady sold to thc auction purchaser ancl to rentove the

¶198

¶199

KL.I COMPA^No1348 ol2oos^{& batch inCP No 236 of1998}

¶200

securiry^{persoilnelof the erstwhileCompany, if any, fromthe} premlses.

¶201

b) On 22.03.2007,^{it was representedby the learned counselfor the} applicant that the^{undisputed portion ofland, admeasuring} Acs.5.92 cents in Survey^{Nos.5/8.5115.5116,5120, 615, 713,7/5,} 716,8ll to 10, 9/6 &^{9i7, GNT Road,Alinjavakkam,Ponneri} Tatuk, Thiruvallur^{District,Tamil Nadu,had alreadybeen} delivered. lnsof'ar^{as the said extent is concerned,the applioant} sought execution of^{registered sale deeds in its fbvour and in} favour of its sister^{concem. The OL was accordingly directed to} eiecute the^{necessary registered sale deeds with respect to the} undisputed extcnt,^{pending further orders in relation to the disputed} portion of land.

¶202

c) On 03.06.2016, learned^{counsel Sri Milind Gokhale took notice for} rcspondent No. 2. Leamed^{counsel for respondent Nos'3 and 4} was absent. Having considered^{the avermentsin the affrdavit filed} in support of^{the application,respondentNos.3 and 4 were} restrained by this^{Court from alienating or otherwise disposingof}

-.*;

tit r COMI'A No 1348 ol200i & br ch in C P l,lo 216 of l99E

¶207

Acs. 1.56 cents ol land situated in Surv'ey Nos. :^'8, 5115, 5116, 5/20, 615.116. 8/5. 816, 819,916 and 9/7, situated ar Alinjivakkam Village. I'onncri^'laluk, Thiruvallur District, Tamil Nadu, pending lurther orders.

¶208

d) On 02.05.201ti, in I.A. Nos. I and 2 ol 2014 in (](.,MPA No. 259 of 2007. this Courl, having considered the f-acr.s staled in the supporting affidavits, directed thc respondents to r.raintxin s/a/rs quo with rcspect to the properl"y. They werc fuilhe r :esl.rained from altering the nature of the propefi in any manner. tor a period of lwelve weeks. The matter was directed to be listcd ittter six weeks.

¶209

COMPA No. 969 OF 2014:

¶210

i) this application is filed by the lix-Managi:rg Director of M/s. Shree Jagannath Steels Limitcd, seeking revival r_,1 the Company, nearly fifteen years aftcr the winding-up order w rs passed on 07.09.1999. The applicant had previously executed [rvo sale deeds dated 22.09.1998 and 25.09.1998 in favour of respondcr.t Nos.2 and 3, his relatives which were the subjcct of challenge in CrlrMpA No. 561 of 2007. These transactions occurred within six n.onths of the

¶211

¶212

Kl-' I COMPA No 11,18 of 2m5 &^{batch in} C^{P No216} ol¹⁹⁹⁸

¶213

winding-up petition and were not^{disclosedto the OL. The revival} application was filed after^{possession of the Company'sassets had} already been taken by the^{OL and subsequcntproceedingsfor asset} sale were underway

¶214

ii) OL opposed revival, citing^{absenceof Court leave in post-} tiquidation scftlcments,^{unlawlulpossessionof assets, prior transfer of} land to rclativcs without^{disclosure.and unresolved COMPA No.} 561l2OOl. Ot- submitted^{that assets rvcre sold with Court's lcave and} winding up proceedings^{wcre advanced}

¶215

ANA LYSIS AND FINDINGS OF THE^COURT:

¶216

i)^'lhe present case presents a complex^interplay of^issues arising under the Act, 1956, involving^{fraudulent preference,revival} after liquidation, authority of the OL,^{and competingrights of auction} purchasers and private transferecs. The central issues in^thecase revolve around the legality of certain^{transactions conductedwithin} the twilight^period of^winding-up and^{the subsequent plea for revival.} Section 53 I of thc^{Act,1956 renders transfers made within six months} of the winding-up^{petition void iftheyconstitutefraudulent}

.i,

KI J UOMPA No I348o120056rb chrn( t,No216orl99r

¶221

prcl'erence. ii hile Section 53 I A of thc Act, l95ri rcnde rs such transt'ers void unless in thc ordinarv course of b_r;iltcss. Furlher. Scction 537 provides that any sale or disposition rrf pr6rperty 3fls1 commcncemcnt of winding-up u.ithout the lcave olth,, ( loun is void.

¶222

"5.]^I. FRAUDULF]N'I' PREFERIINCE

¶223

( I) Any transler ol' propeq,. movabl(r or intnrovablo- deliverl olgoods, pa).nlent, cxeclr on or othcr act rclating to properfy nrade, takon or donc by or against a Company rvithin sir mrtr ths before the commcncement of its winding up rvhich, had it been made, takcn or donc b., or against an individual within three months bt:l ,r.c thc presentation ofan insolrency pctition on rr r -.lr he is adj udged insolvcnt, would bc deemed irr lris insolvency a liaudulent prel'ercncc, shalI in trc ovcnt ofthe Companl,being wound up, bc deerr:d a liaudulent prclercncc ol ils creditors ancl rc invalid accordingly : I,rovidcd thal., in relation ro things made, taken or done before tllc cornrrencement of this Act, this sub-section sh:ll havc cffect with thc substitution. lor the referu:nci: to six months. of a re('crence to three months.

¶224

(2) For the purposes of sub-scction (1). t r: presentation o1 a petition for winding up in rJ t

¶225

¶226

KL, T CoMPA No ll48 ol2m5 & batch m C P No 216 oI 1998

¶227

case of a winding up by I lthe Tribunal], and the passing of a resolution lor u,inding up in the case of a voluntary u,inding up, shall be deemed to correspond to the act of insolvcncy in the case of an individual.

¶228

531A. AVOIDANCE OI' VOLUNTARY TRANSFER Any transfcr of propcrty, movable or immovable, or any delivcry of goods, made by a Company, not being a transl'cr or delivcry made in thc ordinary coursc of its busincss or in favour ofa purchaser or encumbrancer in good laith and for valuable consideration, il'mado within a period of one year before the presenlation of a petition for winding up by 1[the Tribunal] or the passing ofa resolution for voluntary winding up of the Company, shall be void against lhe liquidator."

¶229

ii) In COMPA No.56l ol' 2007 sought to declare two transactions of land executed by thc l;x-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 liom the OL, and obstructed the

¶230

r&;

¶231

¶232

i,l COMPA No ll.{8 of200i i: I il:hrn( " No 216 ot 1998

¶233

Court-a uthorirod salc to a bona fide purchaser. Th(ls,i lacts dircctlv attract thc har under Sections 531 and 53 lA of thcAcr. 195(r

¶234

iii) In Rakcsh Jagmohan Pandey v. JVG Finrrnce Ltd.r, thc Dclhi I{igh Court emphasized that a transaction s'ithi r the proxinritv ol'winding up must withstand scrutiny of bonafide^'s rrrd arrn's length dcaling. In l)aragraph No.27, thc l)ethi High Courl elied upon thc decision rcndcred by the Calcutta tligh Court in Prurlential Capital Markets Ltd. (In Liquidation) In Re NIANU/WB/03h1/2007:(2007) 140 Comp Oase 754, whcrein it was held as under

¶235

"{4. ...... The onus is on the officia[ liquidatr,- to cstablish that the Company as dcbtor dclibclr rely srnqlcd out the creditor for the transfer ahe;r of othcr crcditors who, upon the Company ultir-: clr. be rvound up, lnay ltot have enough lor the t:r tirc ducs to be discharged. But Section 531 docs not comc into play in this case as the responden- .r,as no crcditor of the Company as on the date ,t1 the sccond agreement.

¶236

Scction 53lA of the Act provides thal rn), transl'er ol property or goods made by a Conr;, rny u,ithin one year before the presentation c' a

¶237

'.^{MAN-U/t )D/t204/20I 7}

¶238

¶239

KL. J

¶240

COMPA No ll48 of 2005 & batch^rnCP.No216 of¹⁹⁹⁸

¶241

winding up petition against it will be void^unless such transaction was in the ordinary course of business. In principle. the srme lesls^{as Lo intenl. as} in Section 531 apply to a transaction^challenged under Section 531A of the Act^{and the onus is on} the offrcial liquidator seeking to^avoidthe ffansaction to establish that the^{transferwasnot} made in the ordinary course of the^Company's business or that it was not made^{in goodfaith or} for valuable consideration. As^{to whetherthe} transaction is made in^good laith^{or tbr valuable} consideration will depend on the lacts^{of a given} case. Il there is no consideration or^the consideration is rvocfully inadequate,^theremay arise a presumption of^want of^{good faith. Again,} even ifthere is adequate consideration,^{the official} liquidator may attempt^{to establish that a valuable} asset of the Company^was sought^{to bc shielded} against thc claims of the Company's^{creditors.The} official liquidator's challenge would not^pass muster il he cannot establisl.r lack of^{bona fides on} the part of the transferee."

¶242

iv) In Hawa Controls v. Official Liquidator of^Tirupati Foundry Pvt. Ltd.2, the Gujarat IIigh Court^{clarifiedthatthe onusto}

¶243

'.^{MANU/GJ/7511/2007}

¶244

¶245

¶246

(I I COMPA No.l348 0[2005 d- b ich in C I'} -.-o 2]6 of 198

¶247

prove that the lransaction entered into within 6 monthr; of rvinding up is fraudulenr lics on thc pcrson trying to prove thht srrch transaction does not hold rvcll in law. ln paragraph No.10, it r.r,as iLeld as undcr

¶248

"10. Beforc this Court, reliance was placed (--rr the decision of thc Bombay High Cout in the c:rs : of Monark Enterprises v. Kishan Tulpule and C'^-r; 74 Oompany Cases 89wherein it is held that S: r :ion 531-A of the Companies Act, 1956 providt:s lbr' Savoidance of voluntary transfers' madc L" a Company within a period of one year during the prcsentation ofa petition for winding up (i) it^,uch tlansl-er was not made inthe ordinary coursc c^'its busincss, or (ii) if such transfer was not mrrd,: in good faith for valuable consideration. If thc t-,rurt comcs to the conclusion that such transfer, tl-('ugh made within a period of one year be trre presenLation 01 the pctition, was made either ir., the ordinary course ofbusiness or in good faith arrl tbr valuablc consideration, such transler would rrc be annulled. The burden of proving that the impugned transaction was not entered into in the olli rary course ofbusiness or in good faith and for va uable consideration would be on the Official Liquic rtor or thc Creditors impugning the transaction.

¶249

¶250

KI-, J coMPA No ll48^0f2005 &^barch 'n^{c P No.2360fl99E}

¶251

So f'ar as the prcsent c?se is concemed, neither the Official Liquidator nor any of the Creditors havc come fonvard and pointcd out that the transaction in qucstion was not entered into in thc ordinary course of busincss or in a good laith and lor valuable consideration. On thc contrary,^the applicant has proved beyond reasouable doubt^by producing necessary evidence and established that the transaction in question u'as valid and^genuinc. 'l'he Bombay High Court has lufther observcd in the afbresaid^judgment that unless a transaction ol' transfer of a conrpany's propcrty amounts to^a Iiaudulcnt preferencc under thc bankruptcy law or insolvency law and it is entcrcd into rvithin a period of six months prior to thc commencement of winding up of the Company, the transactionⁱⁿ question cannot bc treated cs void under Section 531 (l) ofthe Companies Act. 1956. The law docs not presume the transaction to be a liaudulent preference merely because it rvas 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 lawtul pressure of a bona fide creditor to rccover his dues, thc transaction of transler 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

¶252

¶253

I-. COMI'A No llJli of200:.r t .h rn C P .: 16 ol t998

¶254

appiicant that thc applicant has entered irlro rhe trausaction in qucstion as a result of any pr..s:rure trr 1g..,,"aa its dues."

¶255

')^'l he lranslers made by thc Ex-Managing Dir. jctor in lavour of his rclatives (respondent Nos.2 and 3) on 1.t.09. l99g and 25.09.1998 lall square ly u,ithin the tiaudulent transa:.tron in tcmrs ol' Scctions 531 and 53lA ot'thc Act. 1956, and are n! )t madc in good laith. I'hesc transactions occurred during the twitieh pcriod within six months prior to the prcsentation of the winding.ult petition and werc exccuted in favour o1' related parties without an1 crcdible evidencc ol' adequate considcration or justification ir thc ordinary courso ol- business. Thc lailurc of the Ex-Managir.t Director to disclosc thesc transfers to thc OL, coupled r.vith the conr:ealment of thc transactions during thc liquidation process, further rt:llects a laok ol bona Jide intent.^'fhere was no lcave of the Court olrr. ined. nor any proof that thr: transactions wcre conclucted at arm,s |:ngth, and the transferccs subsequent obstruction of Court-aL(. rorized salc procccdings onlv exacerbatcs the inl-erencc ol fraudulenr prelerence.

¶256

¶257

KI, J coMPA No 134E of2005 & barch mC.p.No236 0f 1998

¶258

':^:: i:'

¶259

COMPA No. l34E 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 widcly circulated newspapers, 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 opcn Court, thereby ruling out any attegation of irregularity or undervaluation.

¶260

Upon perusal of thc 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 sarisfied rhat the auction process was carried out in accordance with law. with due publicity, and the best possible price was reatized. The objections raised by the respondents, challenging the correctness of the sale, are not supported by any substantive material.

:.]

Kl I COMPA No 1348 of2005I brchinC.I,.No216ofI998

¶265

Accordingly, this Court holds that ttrr. auction sale conducted br.the OL is valid and proper. COMpA l,lc l34g of 2005 is accorclinglv allow,cd in lavour of the peritioner ,r rd the sale so affected stands oonfirmed. The directions issued her.i, shall be read conjointly with the findings recorded in COMpA No. 5rr I of 200:/.

¶266

I5.^'Ihc lights of auction purchasers, includinl: M/s. Itamjec Lcathers & Supplies, applicants in COMI,A No.25!r rrf 2007 stand protected whcre the sale has been confirmed and possr:s,sion delivcred pursuanf to orders of this Court. I Iowever, on accor_rnt of dispute conccrning ovcrlapping claims ovcr a portion of the lar-d asscrted by respondenl Nos.2 and 3. only partial registration to ihe extent of Acs.5.92335 cents was permitted by keeping the -emainder in abeyance pending adjudication ol COMpA No.56l of 2007. In COMPA No.56l of 2007. since this Court declared tl.e undcrlying translbrs to respondent Nos.2 and 3 as void under Sec.rons 531 and 531,4 of the Ac1, 1956, the said dispute stands resolv,:<l in fhvour of the aucLion purchaser. Consequently, the overlapping land shall also be trcated as larvlully availabre for completion of ttte auction sale process and transl'crred to M/s Ramjec Lcathcrs & Supplir:s.

¶267

¶268

¶269

KL, J COM?A No.1l48 o12005 & batch rn C P No.2l6 ot 1998

¶270

The plea of respondent Nos.2 and 3 in COMPA Nos. 735 and 736 of 2007 alleging trcspzrss by the Ot. gets automatically rejected as it is established that the transaction in which the property was transt'erred in thc name of respondent Nos.2 and 3 is rcndered void while deciding COMPA No.561 as the samc falls under the twilight period i.e., six (06) months before the liquidation and was donc undcr tiaudulent manner by the Ex.Managing Dircctor of thc Company.

¶271

Additionally, in J.K. (Bombay) (P) Ltd v. New Kaiser-IHind Spg. &Wvg. Co. Ltd.r, 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.l.56 on 12.03.2007 by the OL and objected by rcspondent Nos.2 and 3 in COMPA Nos.735 and 736 of 2007 is held as lawful. In the said dccision, thc Apex Court hcld as under:

¶272

"32. It is thus wcll cstablished that once a windingup order is passed thc underlaking and the assets of the Company pass under the control of the

¶273

r. 1968 SCC Online SC 32

' It I I i

Kt .r

COMPA No.ll43 012005 &. t^r ih^{nt CP No216} ol¹⁹⁹⁸

¶278

liquidator whose statutor) duty is to realize^tlrcm and to pay fiom out ol the sale-procee,is^its creditors- Such creditors acquirc on such c^der being passed the right to have the assots retLl^zcd and distributcd among them pari^passu. No^tLcw rights can thereafter be created and^r1o uncompleted rights can be completcd, for doinrl^str .,vould be contrary to thc credilors' right to lTarr' lhc proceeds olthc asscts distributed among thetti rari passu. But Mr Sen's argument lvas thlLr the appellants had acquired under the scheme a 't.ted right to have a sccond motgage rvhich could not be nullified by the court passing the rvindin.^-up order. Wc caurot accede to this contention lit^Lhe scheme vested no such right. What it did plo ide \,as that in conside ration of the Company agre, ing to cxecute a second moftgage the appellan',s and thc other Schedule 'B' creditors agreed to r,:c,rive rcpaymcnt of debts due to them in Lhe ntattuer provided in the schemc and the agreemcnt of August 16, 1965. On failure of the Compirn . to execute thc mortgage the consideratior fbr postponement of repayment failed and the nrt,,ries due to thosc creditors became immerliir Lely payable. lt is also not correct to say th:t the schemc^gave any priority 1o those creditors. llt ;h a priority could result onl.v on the execution o. the

¶279

¶280

KL, J coMPA No ll4E o12005 & balch rn c.P.No.2l6 0f 1998

¶281

mortgago which would make them secured creditors."

¶282

Further, with regard to COMPA No. 969 of 2014, where the Ex-Managing Director sceks revival of the Company under Scction 466 of the Act, 1956, the Bombay lligh 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 pcrmanent stay on winding up must be exercised^judicially and only when there is "proof to the satisfaction ol the Court" that proceedings "ought to be stayed." Thc revival must not be a mere resumption of corporate existence, but must also amount to a genuine revival of the business, capable of serving thc interest of creditors, workmen, and the broader public, and not mercly serve as a vehicle for asset appropriation b1' 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 alrcady vested in the OL. In view of the same, thc case on hand in COMPA No.969 of

¶283

n. 2013 scc online Bom 2339

i :t t I

. .. 4..

KI I COMPA No ll48 o12005 d b,^{.hlnC P.No 236ol1998}

¶289

2014, it neithcr discloses^a concrete^{scheme for revival nor establishes}

¶290

a primo facie case of commercial^{viability. Thercfor,:, Lhe application} lacks supporting financial rcstructuring,^clearanceof 't:Ltutory^dues,or demonstrable support from creditors^{or workmen.} '4orelrver,^{it is} tainted by past conduct ol concealment^{and unauthorizt d alienation of} Company assets. which disqualities^{the Ex-Managirrlr l)irector liom} seeking cquitable relicf under Scction^{466. [n Forbt's & Company} Ltda. the Bombal, I{igh Court held^{as under:}

¶291

"12. Sub-section I of Section^{466empolve'.1;the} Company court to stay the^{proceedingsin rvin,ling} up either altogether or for a limitcd time ort^:uch tcrms and conditions as it thinks fit.^Such ar^order can be passed on the application^{cither :,1 the} Ofhcial Liquidator or of Any credit,:,r^or contributory. The fundamental requiremcnt^ol Section 466(l), is that thc court may do^{:;o "on} proof to the satisf'action of the couft tltat all procccdings in relation to the winding up otrgltl^to be stayed." Section 466(l) confers^a discretic^{r on} the court and not a sat 9174^{app 34-2012mltnrlate.} fhe discretion has to^{be oxercisedon salis:a: tion} that stay of the^proceedings in^{relation to uirL.ling} up ought to be grantcd. The legislatur',:^has

'i :, :, :..

KL. J

COMPA No ll48 012005 & batch in C P No.236 of 1998

¶296

carefully used the expressions "on proof to the satisfaction" and "ought to be stayed". Before the 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."

¶297

Upon an exhaustive consideration of the fachral matrix,

¶298

statutory provisions and authoritative judicial precedents placed on record, this Court is constrained to arrive at thc conclusion that COMPA No.56l of 2007 is dccided in favour of OL holding that the transfer of thc land by the Ex-Managing Director of lWs. Sfuee Jagannath Steels Limited (in liquidation) in favour of respondent No.2 herein to the extent olAcs.13.09100 cents and the transfer of land in favour of respondent No.3 to the extent of Acs.i4.28895 cents are vitiated by legal infirmities and cannot be sustained in law since such transfers were affected during the twitight period i.e., within six months prior to the presentation of the winding-up petition and were not in the ordinary course ol business, nor accompanied by any contemporaneous, verifiable record evidencing bona fid" consideration or arm's-length dealing. As discussed above, such

¶299

,'.

¶300

¶301

KI, ] COMPA No.l348 ot2005 l..l ch in C l' No²¹⁶ ol¹⁹⁹⁸

¶302

transactions, having been affected in proximity to thc^{r'ommcncemcnt} of liquidation proceedings. without disclosure to thc CIL and in contraventior-r of Sections 531 and 531A ofthc Act, 1():6. are dcclared void

¶303

The act of clandestinely transferring val -LrLclc immovable properties to related parties without obtaining leave o the Cou(. and thereby obstructing the OL's access to estatc asscts li,r realization and distribution to creditors, constitutes a breach o[ fidtLciary obligations and undermines the equitable administration of llre winding-up process. The settlcd legal position mandates that sucl.. prct-erential and concealed transactions are to be subjected to heiq'rtened^judiciat scrutiny and invalidated when found to be tainted [r'' mala fides or executed with intent to fruslrate creditor claims-

¶304

Equally, the challenge by respondent lios.2 and 3 in COMPA Nos.735 and 736 of 2007 with regard to th,:^t )l-'s seizurc of Acs.1.56 is devoid of merit. lt is r.r,ell settled in law,^rrnd affirmed by the Apex Court in J.K. (Bombay)^(P) Ltd3, that upon lhc^passing of^a wQding-up order, the assets and undertaking o1' thc 0ompany stand

¶305

¶306

III, J coMPA No l34t of2005 &^{barchrncP No.2l6011q,8}

¶307

vested in the custody of the OL and^{any attempt to interferewithsuch} control without leave of the Companl'^{Court is ipsofacto illegal.Thc} objection raised by the said respondents^{is accordingly liable to be} repelled.

¶308

Furthermore. this Court finds no merit^{in COMPA No. 969} of 2014 sceking revival of thc^{Company.The applicant.thc Ex-} Managing Director, who was^{alreadyiound to have cngagedin} unauthorized and undisclosed^transfers of^{Companyassets,has} approached the Court after an^{inordinatedelay of nearly fifteenyears} post-liquidation, without any demonstrable^schcme of^revival, financial infusion, creditor^{consensus, or statutory duesclearance.} Revival under Section 466 olthe^{Act, 1956, is not a matter ofright but} lies within the discretion of the Court,^{to be exercisedonlyon proof to} its satisfaction that such a course^{is warrantedin the interest of} creditors, contributorics, and the commcrcial^{viability ofthe} undertaking. As claborated in Forbes & Company^{Ltda, such} discretion must be^guided by^{considerationsof commercialmorality,} bona fides, and faimess, not^{mere intent to reclaimcontroloverassets} already vested in the OL. The conduct of the Ex-Managing^Director,

. ir:
.1 .
:i'

KLJ COMPA No 11,18 of2005 & 1 rh rn C P No 236 ol 1998

¶313

marred by concealment and fiduciary breach, milit.:l:s aeainst thc invocation of equitable jurisdiction under Section 46f,, rnd the revival plea stands rcjectcd accordingly.

¶314

In view of the above findings, this Court lilther holds that the dispute over overlapping land raiscd in COMI'}A N r.2-59 o[ 2007, stands conclusively resolved in favour of the auction g:urchaser, N4's. Ramjee & Supplies, consequent to the declaration r:,l nullity ol the impugned sale deeds in COMPA No.561 of 200-:I. The auction process, having been conducted with prior Court ap.,roval and the consideration fully paid and accepted, shall stancl protectcd and implemented in fu[.

¶315

This Court is, thus, satisfied that thc liq:ri,lation proccss was undertaken in accordance with law and any subs;crluenl- atlempls to disturb the settled estate without judicial sarL,..:tion and in contravention of statutory mandates cannot bc corLnrcnanccd. The sanctity of winding-up proceedings must be prc:;c'ved. and all fraudulent, preferential or unauthorized transactions mlrst be declared

i D

KI. J

.:,

coMPA No ll48 0f2005 & batch^rnc.P-No.2l6 0f^l99E

¶321

void to uphold the supremacy of creditor rights and statutory administration

¶322

Having regard to the foregoing discussion, this Court concludes the following

¶323

D^{COMPANo.1348of 2005 filed by the OL seeking} confirmation of the auction sale conducted by the OL^is allowed holding that thc auction conductcd by the OL for sale of the property in l'avour ol M/s. Ramj ee Leathers & Supplies and its sistcr concern, M/s. lndian Embroidery Company, is valid and proper

¶324

ii) COMPA No.259 of 2007 filed by the auction^purchaseris allowed directing the OL lo exeoutc registered sale deeds for the remaining disputed land to the extent of Acs.1.56 cents in favour of Mis. Ramjee Leathers & Supplies and its sister concem, iWs. lndian llmbroidery Companl, in accordance with law.

¶325

¶326

iiDCOMPA No. 561 of 2007 filed by the OL is also allowed, declaring the transfers effected on 22.09.1998 and

¶327

25.09.1998 by the Ex-Managing Director of the Company in

,.*E

,t;,

..!^.

KLJ COMPA No i]48 012005 A rrrh rn C P No 236 of 1998

¶334

Iavour of his close rclatives. respondent Nos..l and 3 herein.

¶335

as void since the same is barred bv Sectionr, :ti I and 53 I -A of the Act, 1956.

¶336

iv)COMI']A Nos.735 and 736 of 2007 filed by, rhe close re latives of Ex-Managing Directors, responcleirt Nos.2 and 3. are disnisscd hotding that the said seizure l;r.ng r,.alid upon the winding-up order.

¶337

v) COMPA No. 969 of 2014 filed by rht: Ex-Managing Director seeking revival of the Company urLd,:r Section 466 of the Act, I 956, is also dismissed.

¶338

vi) In the circumstances of the case. there shall bt: no ordcr as to

¶339

costs

¶340

SdI. K. SRINIVASA RAO JOINT REGISTRAR

//TRUE COPY//

SECTION OFFICER

To,

1 The official Liquidator, M/s shree Jagannth Steels Limi:ed., office at 1st floor, Corporate Bhawan, Bandlaguda, Nagole, Hyderabad -500068. The Registrar of Companies, Ministry of borporate lrffairs, Government of lndia 2nd floor Corporate Bhawan, Nagole, Bandla,Juda, Thattiannaram Village Hayathnagar Mandal, Ranga Reddy Distr tt, Telangana State Pin Code 500 680

¶346

2 The Regional Director, South Eastern Region, [rinistry of Corporate Affairs, 3rd floor Corporate Bhawan, Nagole, Bandiar;uda, Thattiannaram Village, Hayathnagar Mandal, Ranga Reddy Dislricl Telangana State, pin Code 500 680.

¶347

¶348