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2008 DIGILAW 613 (GUJ)

O. L. of Trimline Health and Resort Ltd. v. GSFC

2008-12-30

K.A.PUJ

body2008
JUDGMENT : K.A. Puj, J. OLR No. 107 of 2007 is filed by the Official Liquidator seeking direction to the respondent Nos. 3 & 4 i.e., Mrs. Dolly Neel Chokshi and Shri Neel Bhupendrabhai Chokshi as well as Anyonya Co-operative Bank Limited to place before the Court the documentary evidence of ownership over the property of the Company's registered office situated at 79, Vishwas Colony, Opp. Alkapuri Shopping Centre. The Official Liquidator has also sought for the direction to the respondent No. 5 i.e., M/s. Siddhi Vinayak Corporation to hand over the peaceful and vacant possession of the resort property situated at Akshar Chowk, Munj Mahuvad, Old Padra Road, Vadodara to the Official Liquidator, treating the said transaction as void against the Official Liquidator in terms of Section 531A of the Companies Act, 1956. 2. Company Application No. 414 of 2008 is filed by M/s. Siddhi Vinayak Corporation seeking confirmation of sale by M/s. Trimline Health and Resort Limited (in Liquidation) of the property bearing Plot Nos. 8, 9 and 10 of Revenue Survey No. 467/1 in village Atladra, Baroda vide registered sale deed dated 1-8-2006/14-8-2006 and sale of furniture, fixtures and appliances in favour of the applicant. 3. Asfaras OLR No. 107 of 2007 is concerned, this Court has issued notice on 18-6-2007. After service of the notice on the respondents and after considering the pleadings of the parties, this Court has passed a detailed order on 15-12-2008 observing therein that the property of the Company's Registered Office situated at 79, Vishwas Colony, Opp. Alkapuri Shopping Centre, Vadodara is not standing in the name of the Company in liquidation, the Official Liquidator has not taken the possession of the said property. The Court further held that evidence to that effect are placed on record and no further document is required. Hence, prayer 7(A) made in the report no longer survive. The Court, therefore, discharged respondent No. 3 from the present proceedings of OLR No. 107 of 2007. The said OLR survives only in respect of prayer 7(B) which deals with the resort property situated at Akshar Chowk, Munj Mahuvad, Old Padra Road, Vadodara. The Official Liquidator has sought for the possession from the respondent No. 5 which is also the applicant of Company Application No. 414 of 2008. It is for this reason, both these matters are heard and disposed of together by this common judgment and order. 4. The Official Liquidator has sought for the possession from the respondent No. 5 which is also the applicant of Company Application No. 414 of 2008. It is for this reason, both these matters are heard and disposed of together by this common judgment and order. 4. It is the case of the Official Liquidator in his report that while visiting the resort property of the Company on 21-4-2007, one Mr. Bhailal B. Patel, Partner of M/s. Siddhi Vinayak Corporation informed the representative of the Official Liquidator that the said property has been sold to them vide a registered sale deed dated 1-8-2006 by the vendor M/s. Trimline Health and Resort Limited (In Liquidation) through its Director Shri Ranjit R. Pradhan in the name of M/s. Siddhi Vinayak Corporation. The Official Liquidator is of the view that since the said property was sold on 1-8-2006 i.e., within one year prior to the date of presentation of the petition dated 19-7-2006, the sale is null and void against the Official Liquidator under Section 531-A of the provisions of the Companies Act, 1956. The Official Liquidator is also of the view that the sale of the said property during the pendency of the petition before this Court is nothing but a fraudulent transaction and, therefore, is void under the provisions of Section 531A of the Companies Act, 1956 against the Official Liquidator. He has, therefore, sought the direction to the respondent No. 5 to hand over the possession of the said resort property to the Official Liquidator. 5. Over and above the averments made in the report of the Official Liquidator, Mr. Nitin Mehta, learned advocate appearing for the Official Liquidator has submitted that the winding up petition was filed on 19-7-2006 and the transaction of transfer of property took place on 14-8-2006 i.e., after the commencement of winding up, much less within a period of one year before the presentation of the winding up petition to make the transaction void under Section 531A of the Companies Act, 1956. It is not for the Official Liquidator to prove and establish that the transaction was not in good faith and not for valuable consideration. It is not for the Official Liquidator to prove and establish that the transaction was not in good faith and not for valuable consideration. As per the provisions of Section 531A of the Companies Act, 1956, any transaction of sale or transfer of property of the Company, if made within a period of one year before the presentation of the winding up petition is void as a statutory presumption unless the transaction is proved by the purchaser to be in ordinary course of Company's business and in good faith and for valuable consideration, as a bona fide transaction. The transaction is indisputably within the period specified under Section 531A of the Companies Act and not in the ordinary course of Company's business and is, therefore, by statutory presumption, void against the Official Liquidator. It is for the respondent No. 5 to prove that the transaction was in the ordinary course of Company's business and in good faith and for valuable consideration. 6. Mr. Mehta has further submitted that the respondent No. 5 cannot contend that it is not in the knowledge of the winding up petition. The respondent No. 5 in its own affidavit has explained that he was approached by the Directors of the Company to purchase the property. As a bona fide purchaser and as a matter of due diligence, it was necessary for the purchaser to ascertain as to whether the transaction was suffering from legal defect like pendency of the winding up petition. On the contrary, respondent No. 5 has contended that secured creditors were pressing for recovery of their dues and respondent No. 5 has purchased the assets of the Company to sell the Company's assets being sold in discharge of its dues and to save the Company from financial stringency in the larger interest of the Company. No concession is given by respondent No. 5 while purchasing the assets of the Company at a negotiated price determined on the basis of One Time Settlement proposal of the Company with the Secured Creditors. The respondent No. 5 has not saved the Company's assets as contended, but on the contrary, it has purchased the assets of the Company without proper and fair market value. The respondent No. 5 has not saved the Company's assets as contended, but on the contrary, it has purchased the assets of the Company without proper and fair market value. It appears that the respondent No. 5 has taken the advantage of compelling circumstances and has purchased the property at a consideration equivalent to the One Time Settlement proposal and not a consideration which is equivalent to the fair market value of the property. 7. Mr. Mehta has further submitted that if the property would not have been purchased by respondent No. 5, the property would have been sold under liquidation by a public auction and if the property would have been sold by public auction, the actual and fair market price would have been realized. Therefore, the consideration paid by the respondent No. 5 could not have been said to be the fair market value of the property and hence, the transaction is not for the valuable consideration. 8. Mr. Mehta has further submitted that the respondent No. 5 has purchased the property knowing it fully well that the Company was in financial crisis and it has sold the property under compelling circumstances which have been advantageous to the Director of the Company as guarantors to the secured creditors. This factual position itself is sufficient to establish that the assets have been sold in collusion with the Ex-Directors of the Company to the mutual advantage of respondent No. 5 and the Ex-Directors as well, leaving the shell of the Company to undergo formal winding up procedure. No resolution has come on record before entering into the transaction of sale and hence, it is violative of the provisions contained in Section 293(1)(a) of the Companies Act, 1956. He has further submitted that looking at the sale deed, it appears that it is dated 1-8-2006. On page 3, the date mentioned is 14-8-2006. It is practically impossible to take cognizance of No Due Certificate issued by HUDCO on 14-8-2006 in a sale deed dated 1-8-2006. He has, therefore, submitted that the transaction is clearly hit by the provisions of Section 531A of the Companies Act, 1956 and hence, the Official Liquidator is entitled to claim the possession of this resort property from the respondent No. 5. 9. He has, therefore, submitted that the transaction is clearly hit by the provisions of Section 531A of the Companies Act, 1956 and hence, the Official Liquidator is entitled to claim the possession of this resort property from the respondent No. 5. 9. The respondent No. 5 has strongly objected to the prayer made by the Official Liquidator in his report and filed a detailed affidavit on 8-7-2008 along with which all necessary documents are filed showing that the transaction is real, genuine and bona fide. Mr. S.N. Soparkar, learned Senior advocate with Mr. Amar N. Bhatt, learned advocate appeared for M/s. Siddhi Vinayak Corporation in both these matters. Mr. Soparkar has submitted that M/s. Siddhi Vinayak Corporation has purchased the property bearing Plot Nos. 8, 9 and 10 admeasuring about 850.50 Sq. Mts., each aggregating to 2551.50 Sq. Mts. Bearing Revenue Survey No. 467/1 in village Atladra, Baroda as well as the furniture, fixtures and appliances on 1-8-2006 for a consideration of Rs. 2,99,45,100 and Rs. 1,28,99,912 which has been paid to HUDCO and other Secured Creditors and statutory authorities towards discharge of the dues of the Company which is now in liquidation. 10. Mr. Soparkar has further submitted that Company Petition No. 124 of 2006 was fled on 19-7-2006. This Court issued notice for the first time on 31-7-2006 and vide order dated 19-1-2007, the Company was ordered to be wound up. Mr. Soparkar has given factual background of the entire matter. In or about December 2005, Shri Ranjit Pradhan, the then Managing Director of the Company approached partners of M/s. Siddhi Vinayak Corporation and requested them to purchase the property in question so that the consideration there from could be paid off in payment of huge dues of the Secured Creditors who were pressing for their payment. The said Mr. Pradhan knew one partner of M/s. Siddhi Vinayak Corporation, Shri Bharat Parikh from whom the Company had purchased the property in question in 1999. M/s. Siddhi Vinayak Corporation has been in the business of developing lands and buildings. It desired to purchase the property in question as it was situated adjacent to the property in possession of Shri Bharat Parikh bearing Plot Nos. 1, 2, 3 and 4 of revenue Survey No. 467/1. M/s. Siddhi Vinayak Corporation paid an amount of Rs. M/s. Siddhi Vinayak Corporation has been in the business of developing lands and buildings. It desired to purchase the property in question as it was situated adjacent to the property in possession of Shri Bharat Parikh bearing Plot Nos. 1, 2, 3 and 4 of revenue Survey No. 467/1. M/s. Siddhi Vinayak Corporation paid an amount of Rs. 30,000 immediately on 23-12-2005 by way of its commitment and for showing its interest in purchase of the said property. Thereafter, at the instance of the said Mr. Pradhan, M/s. Siddhi Vinayak Corporation wrote a letter dated 29-12-2005 showing interest in purchasing the property in question, as he wanted to submit a One Time Settlement proposal to its Secured Creditor, namely, HUDCO. M/s. Siddhi Vinayak Corporation also deposited Rs. 5 lakhs with the escrow agent M/s. K.C. Mehta & Company and placed another sum of Rs. 5 lakhs with another secured creditor of the Company, namely, Anyonya Cooperative Bank Limited in no lien account. In or about January 2006, the said Mr. Pradhan informed the partners of M/s. Siddhi Vinayak Corporation that the Company has submitted a one time settlement proposal with HUDCO. However, on January 18, 2006, HUDCO issued notice under Section 13(2) of the Securitisation Act and demanded an amount of Rs. 4,35,96,335 with further interest. 11. Mr. Soparkar has further submitted that once again vide its letter dated 4-3-2006 and 10-3-2006, the Company submitted one time settlement proposal to HUDCO. HUDCO vide its letter dated 14-3-2006 informed the Company that it did not accept the said proposal. The Company vide its letter dated 1-4-2006 gave an improved one time settlement proposal for full and final settlement of the dues of HUDCO for Rs. 418 lakhs. Along with its letter, the Company gave a cheque of Rs. 1 Crore towards one time settlement proposal. The said cheque was issued by M/s. Siddhi Vinayak Corporation. However, as the clearance of the said cheque was likely to be delayed due to the nation wide strike of SBI on 17-4-2006, M/s. Siddhi Vinayak Corporation gave another cheque of Rs. 1 crore payable at Ahmedabad along with its letter dated 17-4-2006. Thereafter, on 20-7-2006, HUDCO accepted the one time settlement of the Company. On 27-7-2006, the Company wrote another letter to HUDCO wherein it was mentioned that the entire payment of one time settlement is being made by M/s. Siddhi Vinayak Corporation. 1 crore payable at Ahmedabad along with its letter dated 17-4-2006. Thereafter, on 20-7-2006, HUDCO accepted the one time settlement of the Company. On 27-7-2006, the Company wrote another letter to HUDCO wherein it was mentioned that the entire payment of one time settlement is being made by M/s. Siddhi Vinayak Corporation. On 31-7-2006, HUDCO issued a receipt for 3,43,73,012 towards the repayment of the dues of the Company. On 1-8-2006, the sale deed was executed for the property in question for a total consideration of Rs. 2,99,45,100 which was the market value of the property in question as per the valuation made by HUDCO and as per the value shown in the Government Jantri. 12. Mr. Soparkar has further submitted that in addition to the payment made to HUDCO, M/s. Siddhi Vinayak Corporation made following payments to various authorities/persons as part of sale consideration at the instance of the Company: Sr. No. Amount Cheque No. Bank Date Name of Authority 1 2,10,750 464127 Corporation Bank, Vadodara 22-5-2006 Vadodara Municipal Corporation 2 4,00,000 387419 Corporation Bank, Vadodara 23-5-2006 M.G.V.C. Ltd. 3 4,18,195 367420 Corporation Bank, Vadodara 23-5-2006 For payment to employees 4 1,86,400 387421 Corporation Bank, Vadodara 26-5-2006 For payment of Provident Fund to Employees 5 1,86,99,755 464128 Corporation Bank, Vadodara 31-7-2006 HUDCO 13. He has submitted that if this payment had not been made, the said authority would have taken action against the Company for attachment of the property in question. Thus, there were compelling circumstances for the Company to sell the property in question. HUDCO issued No Due Certificate on 14-8-2006 and precisely for this reason, the date is mentioned in the sale deed dated 14-8-2006. The index dated 14-8-2006 was issued only after the No Due Certificate was produced. 14. Mr. Soparkar has further submitted that the above facts clearly indicate that almost the entire sale consideration of the property in question was paid by M/s. Siddhi Vinayak Corporation towards paying of the secured and statutory dues of the Company. Same was done to save the Company's assets being sold in distress due to financial stringency and was in the larger interest of the Company. 15. Mr. Soparkar has further submitted that on 1-8-2006, M/s. Siddhi Vinayak Corporation also purchased other adjoining immovable properties bearing Plot No. 5 admeasuring 490.50 Sq. Mts., Plot No. 6 admeasuring 1450 Sq. Mts. and Plot No. 7 admeasuring 1450 Sq. Mts. 15. Mr. Soparkar has further submitted that on 1-8-2006, M/s. Siddhi Vinayak Corporation also purchased other adjoining immovable properties bearing Plot No. 5 admeasuring 490.50 Sq. Mts., Plot No. 6 admeasuring 1450 Sq. Mts. and Plot No. 7 admeasuring 1450 Sq. Mts. aggregating to 3390.50 Sq. Mts. of Revenue Survey No. 467/1 in village Atladra, Distt. and Sub-Distt. Vadodara from Mr. Pradhan, his wife and their relatives for agreed sale consideration of Rs. 1,15,28,000 and the sale consideration was used by them to clear the dues of the Company to Anyonya Co-operative Bank Limited, Vadodara, Bharat Co-operative Bank Limited and Baroda City Co-operative Bank Limited. The amount of sale proceed was also used for payment of one time settlement amount. After purchasing the said property, M/s. Siddhi Vinayak Corporation has also incurred huge expenses of approximately more than Rs. 35 lakhs for the maintenance of the said properties. 16. Mr. Soparkar has further submitted that Company Petition No. 124 of 2006 appears to have been filed in collusion with the Company as is evident from the bare reading of the said Company Petition. The said petition was filed on 19-7-2006. Notice was issued by this Court on 31-7-2006 making it returnable on 30-8-2006. The order of admission of the Company Petition and advertisement was passed on 28-9-2006 fixing final hearing on 22-11-2006 which date was ultimately fixed on 29-1-2007. Company Petition was advertised on 19-1-2007 and final order of winding up was passed on 29-1-2007. The original petitioner of the said Company Petition did not follow rules and proper procedure for advertisement and the order dated 29-11-2007 came to be passed. 17. Based on the aforesaid facts and circumstances, Mr. Soparkar has strongly urged that there is no reason for the Official Liquidator to invoke the provision of Section 531A of the Companies Act, 1956, simply because the transaction of sale falls within the period of one year prior to the date of presentation of the winding up petition before this Court. He has, therefore, submitted that the prayer made by the Official Liquidator in his report deserves to be rejected and the prayer made by the applicant in Company Application No. 414 of 2008 for confirmation of sale deserves to be granted. 18. He has, therefore, submitted that the prayer made by the Official Liquidator in his report deserves to be rejected and the prayer made by the applicant in Company Application No. 414 of 2008 for confirmation of sale deserves to be granted. 18. Having heard learned advocates appearing for the parties and having considered their respective submissions and the documentary evidence produced on record in light of the statutory provisions contained in Section 531A of the Companies Act, 1956, this Court is of the view that there is no violation of the provisions contained in Section 531A of the Act and the Official Liquidator is not justified in making the prayer before the Court to treat the transaction in question as void against the Liquidator. To appreciate the rival contentions between the parties, it is necessary to have a close look at the provisions of Section 531A of the Act. It deals with avoidance of voluntary transfer. It reads as under: "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 or the passing of a resolution for voluntary winding up of the company, shall be void against the liquidator." 19. The purpose of the section is to preserve the assets of the Company and to enable the Company to carry out transactions that might be for the benefit of those interested in the assets of the Company. The substance of the section is that any transfer of property or goods made by a Company otherwise than in the ordinary course of business, will be void, if it had been made within one year from the presentation of a winding-up petition or the passing of a resolution for voluntary winding up. Section 531A has put the initial burden upon the one who wants to avoid the transaction to establish that the transaction was not made in the ordinary course of business or that it lacked good faith. It is only when this initial onus is discharged that it will shift to the Official Liquidator. Section 531A has put the initial burden upon the one who wants to avoid the transaction to establish that the transaction was not made in the ordinary course of business or that it lacked good faith. It is only when this initial onus is discharged that it will shift to the Official Liquidator. An application under this section for setting aside a transfer can be allowed where either it is proved that there was no consideration for the transaction or that the consideration was so inadequate as to raise a presumption of want of good faith. Even if there was valuable consideration, the Liquidator may show want of good faith in the sense that the transferee entered into the transaction with the knowledge of all the circumstances with a view to shield the assets against the claims of creditors. Where a transaction is sought to be annulled under this provision, the burden of proof is on the Official Liquidator or the person who impugns the transaction of transfer. If the Court comes to the conclusion that such transfer though made within a period of one year before the 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. Thus, crucial question in all cases is whether the transferor's dominant intention was to deny assets to creditors. 20. If the above broad principles laid down by the Courts while interpreting the provisions of Section 531A of the Act were applied to the facts of the present case, it can hardly be said that the transaction was not entered into in good faith or that it was not for valuable consideration or that the consideration was very inadequate. The process of the sale of the assets of the Company was started way back in December 2005. The winding up petition was not even contemplated at that stage. The assets of the Company were sold for the purpose of discharging its liabilities towards the creditors. Not only Secured Creditors were paid, but Statutory Creditors were also paid out of the sale proceeds realised on the sale of the assets of the Company. No Creditor has raised any grievance against the sale of the assets of the Company. But for the sale of the assets of the Company, the Creditors would not have got their due amount. No Creditor has raised any grievance against the sale of the assets of the Company. But for the sale of the assets of the Company, the Creditors would not have got their due amount. The Secured Creditors, namely, HUDCO, Anyonya Co-operative Bank Limited, Bharat Cooperative Bank Limited and Baroda City Co-operative Bank Limited had also received their due amount. Statutory Creditors, namely, Vadodara Municipal Corporation, MGVC Limited and Provident Fund Department as well as employees have also received their due payments. In light of these facts, it is not just and proper on the part of the Official Liquidator to raise any doubt against the bona fide of the transactions. Though the burden is heavily lying on the Official Liquidator to prove that the transaction in question is not bona fide nor it is for the valuable consideration or for inadequate consideration, the said burden has not been discharged by the Official Liquidator. He has simply stated that the transaction was entered into within 12 months prior to the date of the presentation of the winding up petition. This is not enough and no Court can pass an order merely on this assertion holding that the transaction is void against the Liquidator. 21. Instead of raising any doubt or suspicion against the transaction in question, the Court takes note of the fact that the manner and method in which the winding up order is passed is not just and proper nor it is in accordance with the statutory Rules. Despite the fact that the order of admission and advertisement was passed on 22-11-2006 which was extended to 29-1-2007, the petition was advertised only on 19-1-2007 and winding up order was passed on 29-1-2007 i.e., within 10 days from the date of the publication of the advertisement. At least 21 days time should have been given either to raise objection or to support the winding-up petition. These facts were not brought to the notice of the Court and winding-up order was got to be passed. Since this order is not challenged by any one nor by the Company in liquidation and since it has become final, no further discussion is necessary at this stage. These facts were not brought to the notice of the Court and winding-up order was got to be passed. Since this order is not challenged by any one nor by the Company in liquidation and since it has become final, no further discussion is necessary at this stage. Suffice it to say that the Official Liquidator is not justified in making prayer before this Court to declare the transaction in question as void against him only on the ground that the transaction in question was entered into on 1/14-8-2006 and winding-up petition was filed on 19-7-2006. 22. There is no substance in other objections raised by Mr. Nitin Mehta, learned advocate appearing for the Official Liquidator. As the sale deed was executed on 1-8-2006, there was a blank in mentioning the date of no objection certificate issued by HUDCO. The Certificate was received on 14-8-2006. It was duly communicated to the Sub-Registrar and hence, Sub-Registrar has issued index only on 14-8-2006. There is also no substance in the submission that a transaction in question is in violation of the provisions contained in Section 293(1)(a) of the Companies Act, 1956 as the Resolution dated 4-3-2006 is produced on the record of the present proceedings during the course of arguments which clearly states that the extraordinary general meeting of the shareholders of the Company held on 4-3-2006 had resolved that as authorised vide Articles 78 and 172 of its Articles of Association and pursuant to the provisions of Section 293(1)(a) of the Companies Act, 1956 and subject to the approval of its lenders, including Banks and HUDCO, the consent of the Company was accorded to the Board of Directors to sell, transfer and assign the properties of the Company being Plot Nos. 8, 9 and 10 admeasuring 850.50 Sq. Mts. Each, aggregating 2551.50 Sq. Mts. together with building and structures standing thereon and movables to M/s. Siddhi Vinayak Corporation on the terms and conditions as entered into between the Board of Directors of the Company and the said M/s. Siddhi Vinayak Corporation vide their Memorandum of Understanding dated 23-12-2005 and any modifications thereto as mutually agreed. 23. Mts. Each, aggregating 2551.50 Sq. Mts. together with building and structures standing thereon and movables to M/s. Siddhi Vinayak Corporation on the terms and conditions as entered into between the Board of Directors of the Company and the said M/s. Siddhi Vinayak Corporation vide their Memorandum of Understanding dated 23-12-2005 and any modifications thereto as mutually agreed. 23. In the above view of the matter, the prayer made by the Official Liquidator in his report vide Clause 1(b) is hereby rejected and the prayer made by M/s. Siddhi Vinayak Corporation in its application being Company Application No. 414 of 2008 for confirmation of sale is hereby granted. 24. The report of the Official Liquidator as well as Company Application are, accordingly, disposed of in the above terms.