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2012 DIGILAW 196 (BOM)

Ajanta Pharma Ltd. v. O. L. High Court, Mumbai

2012-01-27

S.C.DHARMADHIKARI

body2012
Judgment This company application and the Official Liquidator's report involve common questions of law and fact, were heard together and are disposed of by this common judgment. 2. The prayers in the Official Liquidator's report dated 25th January 2011 are as under: "(a) Whether this Hon'ble Court may be pleased to declare that the sale of the properties of the company (in liqn) as per the Sale Deed dated 7.7.2009 as null and void as the same is in violation of section 537(1)(b) of the Companies Act, 1956; (b) If the prayer above is in affirmative, whether this Hon'ble Court may be pleased to direct the purchaser viz. M/s.Ajanta Pharma Ltd. to hand over the said properties to the Official Liquidator; (c) If this Hon'ble Court upholds that the sale is valid, whether this Hon'ble Court would be pleased to direct the secured creditors viz Allahabad Bank, Bank of India Mutual Fund, SICOM and MSFC to furnish an undertaking that they would bring back the money taken by them alongwith accured interest so as to enable the Official Liquidator to declare dividend to the workers in terms of the provisions of section 529A of the Companies Act, 1956." 3. In the company application, the purchaser M/s.Ajanta Pharma Limited has prayed for declaration that the Agreement for Sale dated 7th July 2009 between it and the company in liquidation be declared valid, binding and subsisting and the sale be thus approved. It is the case of the said M/s.Ajanta Pharama Ltd that Mayo (India) Ltd was a company which was engaged in the activity of manufacture, sale and distribution of various pharmaceuticals preparations. Wexford Trading Company Pvt Ltd and Arogya Pharma Pvt Ltd are the sister companies of Mayo (India) Ltd. One Penesia Printing and Packaging Pvt Ltd was also a sister company of Mayo (India) Ltd, and had purchased land from Gat No.11 to the extent admeasuring 0.2816 hectares. The land was however recorded in the name of Wexford Trading Company Pvt Ltd in the revenue records. The land was however recorded in the name of Wexford Trading Company Pvt Ltd in the revenue records. The said Penesia Printing and Packaging Pvt Ltd was wound up and the confirming parties to the sale deed are the directors of the said Penesia Printing and Packaging Pvt Ltd. The respondent company and its sister companies were the owners and in possession of land situated at Gat Nos.11, 12, 14 and 15 at Chitegaon, Paithan Road, admeasuring 2.29 hectares (hereinafter called as "the said property"). 4. It is further the case of the applicant that the respondent company had constructed a factory building on the said property having a built up area of 2929.55 sq.mtrs and had also installed various plant and machineries and was engaged in the business of manufacturing various pharmaceutical products. 5. M/s. Ajanta Pharma Ltd states that the applicant is also a company which is engaged in the business of manufacture of various pharmaceutical preparations and has its factory at Paithan Aurangabad. The applicant was desirous of purchasing a factory near Aurangabad for the purpose of expanding its business activities of the manufacture and sale of a wide range of drugs and pharmaceutical preparations. 6. It is further stated by the applicant that it had learnt that the respondent company was desirous of selling of its factory and accordingly the applicant had approached the respondent company and its sister companies and expressed its desire to purchase the land, factory building and the plant and machinery. 7. Applicant states that on 10th August 2007, a Memorandum of Understanding (MOU) was entered into amongst the parties, whereby it was agreed that the respondent alongwith its sister companies would sell and the applicant would purchase the said land, building, plant and machinery. It was specifically stated in the said MOU that the respondent would settle all its dues with MSFC, SICOM, Allahabad Bank, Bank of India Mutual Fund and submit copies of the settlement to the applicant. 8. The applicant further states that pursuant to the said MOU, the applicant had prepared a Public Notice dated 30th May 2008 which was published on 31st May 2008 in the local newspaper "Lokmat" having wide circulation in Chitegaon, Aurangabad. Public Notice was given of the intention of the respondent and its sister companies to sell to the applicant the said property. Public Notice was given of the intention of the respondent and its sister companies to sell to the applicant the said property. Therefore, with effect from 31st May 2008, a notice was given to the world at large about the said sale. 9. It is stated that the total consideration paid is Rs.3 crores 5 lakhs. Certain payments have been made by the applicants directly to the banks and they have obtained the No Dues Certificate which were relied upon. The attempt is to demonstrate as to how the dues of the secured creditors of the company in liquidation have been cleared from the sale proceeds or otherwise, by the applicant. Further, it has been stated that before the transaction was concluded, the applicant has verified that the dues of the workmen have been settled. Prior to the execution of the Sale Deed, valuers had been appointed by the applicant to value the building and plant and machinery. After all these steps were taken, on 7th July 2009 a Sale Deed was executed between the respondent and its sister companies as the vendors and the applicant as a purchaser under which the said land, building, plant and machinery have been conveyed in favour of the applicant for total consideration of Rs.3 crores 5 lakhs. The Sale Deed was lodged for registration and it is duly registered. The Authorities have not found anything objectionable in so far as the valuation of the property under the instrument/Sale Deed. It is in these circumstances and when the land has been transferred, that after more than a year from the Sale Deed on 7th July 2010, an order of winding up was passed and appointment of the Official Liquidator was made, it is stated that a report was submitted by the Official Liquidator thereafter but admitted position is that on 10th August 2007 and even on 7th July 2009 which are the two crucial dates in so far as the transaction with the applicant is concerned, the respondent was not wound up. There was no order even admitting the winding up petition. Thus, this is not a case of any legal impediment in purchasing the property. A property has not been purchased after the winding up order. There was no order even admitting the winding up petition. Thus, this is not a case of any legal impediment in purchasing the property. A property has not been purchased after the winding up order. It is in such circumstances that it is argued that the property has been purchased at a fair value, several steps have been taken by the applicants in clearing off the debts and liabilities of the company in winding up by utilising the sale proceeds and for all these reasons, when parties have acted bonafide, that the relief as prayed be granted. 10. An affidavit has been filed by the original petitioner -Maharashtra State Financial Corporation (for short MSFC) in which it is alleged that the applicants are not a bonafide purchaser of the property without notice. They were fully aware of the filing of the above petition and the orders passed by this Court. In any event, they were bound to make enquiry and due diligence before executing any Agreement for Sale or conveyance. It is only after making such enquiries and due diligence, that they would have been aware of filing of a winding up petition. It is not as if the applicant was unaware of the dues of the original petitioner and other financial institutions and banks. Therefore, when the law is very clear, namely, an order of winding up of the respondent relates back to the date of presentation of the winding up petition and enures for the benefit of all creditors and contributories, then, the sale cannot be held to be bonafide and is void. 11. In para 7 of this affidavit, this is what is stated: "7 With reference to paragraph Nos.4 to 6 of the said affidavit, I say and submit that the above petition was filed on or about 10/09/1999. The above company petition was admitted by this Hon'ble Court on 09/02/2000 and the above petition was published in newspaper "Janmabhoomi" on 11/03/2000 and in "Free Press Journal" on 10/03/2000. The said company thereafter made a Reference to BIFR and the same was registered as Case No.356 of 2000. By order dated 20/09/2001, the said Reference No.356 of 2000 filed by the said company was rejected by the BIFR. It appears that thereafter the said company filed an appeal before AAIFR and the reference was remanded back for hearing to the BIFR. By order dated 20/09/2001, the said Reference No.356 of 2000 filed by the said company was rejected by the BIFR. It appears that thereafter the said company filed an appeal before AAIFR and the reference was remanded back for hearing to the BIFR. By order dated 09/06/2003, the BIFR held that the said company is systematically siphoned away the funds through transactions which could not be explained nor supporting documents/vouchers produced to the satisfaction of the SIA (Special Investigative Audit) and once again rejected the Reference as not maintainable. The said company thereafter filed another Reference being Case No.32 of 2002 before the BIFR and the said reference was also rejected by the BIFR on 9th June 2003. I say that the said company thereafter filed further references being Case Nos.236 of 2004 and 237 of 2004 which also ultimately came to be rejected by the BIFR. In the meantime due to the pendency of the reference made by the said Company before the BIFR, the proceeding of the above company petition was stayed. The applicant-company is thus aware of the said proceedings including the above company petition filed by the petitioners and sale of the property of the said company is thus illegal, bad-in-law, void-ab-initio and not binding upon the petitioners." "As held by the BIFR in its order dated 9th June 2003 that the said company systematically siphoned away the funds through transactions which could not be explained nor supporting documents/vouchers were produced to the satisfaction of the SIA (Special Investigative Audit) appointed by the Operating Agency appointed by the BIFR. The said sale is one of the dishonest steps taken by the said company to deprive its creditors. I say and submit that the applicant is not a bonafide purchaser and is a party to the fraud played upon the said company in disposing of its properties to deprive the creditors of the said company." 12. Thus, accusing the applicant and the respondent-company of perpetrating a fraud on the Court as also the creditors and contributories, it is alleged that by mere insertion for public notice in newspapers on 31st May 2008, the applicant and the company in winding up cannot urge that they have acted bonafide or that the transaction is not vitiated. 13. Thus, accusing the applicant and the respondent-company of perpetrating a fraud on the Court as also the creditors and contributories, it is alleged that by mere insertion for public notice in newspapers on 31st May 2008, the applicant and the company in winding up cannot urge that they have acted bonafide or that the transaction is not vitiated. 13. The parties were aware that the petitioner MSFC had sanctioned a term loan of Rs.40 lakhs and it was secured by an Indenture of Mortgage dated 28th June 1988 where under the premises, namely, land was mortgaged in favour of the petitioners. There were further facilities and that are referred to in this affidavit. In such circumstances, it is stated that a huge amount is due and payable to the petitioner and this liability is not disputed by the respondent, but is duly reflected in its books. In such circumstances, by picking and choosing creditors, applicants cannot give precedence or priority to some dues of selected creditors. Therefore, notice be issued to all the creditors including the petitioner and other banks to verify whether their dues have been cleared. For all these reasons, it is prayed that this application be dismissed. 14. Together with this application, there is a report of the Official Liquidator in which the prayer is that the earlier report was placed before this Court and one Ex-Director of the company in liquidation Mr.S.S.Agarwal appeared and sought time. Thereafter, he filed an affidavit stating that two assets mentioned in the report of the Official Liquidator, namely, Gat No.12 and Gat No.14 of village Chitegaon, Taluka Paithan, District Aurangabad, owned and possessed by M/s.Mayo Health Care Pvt Ltd, now known as M/s.Mayo (India) Ltd with factory building and plant and machinery have been sold by a Registered Deed of Sale dated 7th July 2009 to the applicant M/s.Ajanta Pharma Ltd. These lands were mortgaged with secured creditors whose names are listed in Official Liquidator's report dated 25th January 2011. They stated that each of these secured creditors claims have been settled. Further it was stated that there is one more secured creditor M/s.Saraswat Co-operative Bank Ltd but Official Liquidator is not aware whether their claim is paid or not. 15. They stated that each of these secured creditors claims have been settled. Further it was stated that there is one more secured creditor M/s.Saraswat Co-operative Bank Ltd but Official Liquidator is not aware whether their claim is paid or not. 15. The contention of the Official Liquidator, therefore, is that the winding up process has commenced with the presentation of the winding up petition being Company Petition No.1004 of 1999, which was filed on 10th September 1999. The sale of the properties has taken place as per the Sale Deed dated 7th July 2009 and, therefore, reliance is placed on section 537(1)(b) of the Companies Act, 1956 and it is prayed that sale be declared void and in the alternative if it is held valid, this Court should direct the secured creditors to furnish a undertaking that they would bring back the money taken alongwith accrued interest, so as to enable the Official Liquidator to declare dividend to workers under the provisions of section 529A of the Companies Act, 1956. 16. On this report, notice was directed to be issued to the Ex-Director and the purchaser on the 10th February 2011 and thereupon they have appeared and filed a reply. The Ex-Director has filed a reply and stated that each of the creditors have been paid in full. The entire money received from the sale of the property has been used to pay all secured creditors who were threatening to take legal action. The sale of the property was with their consent and knowledge. There are no unsecured creditors. The Ex-Director in the affidavit dated 22nd March 2011 urges that there was no order of injunction against the company restraining it from selling its assets. Though the winding up petition was pending, on 7th July 2009 the Sale Deed was executed with bonafide intention to pay all the secured creditors and fearing coercive action by them. Therefore, the sale is valid and should not be set aside. 17. In the rejoinder affidavit of the Official Liquidator what has been stated is that the company has no right to sell the properties when a winding up petition was pending in this Court and even if there was no injunction against the company from selling its assets. Therefore, the sale is valid and should not be set aside. 17. In the rejoinder affidavit of the Official Liquidator what has been stated is that the company has no right to sell the properties when a winding up petition was pending in this Court and even if there was no injunction against the company from selling its assets. Once the winding up order relates back to the date of filing of the petition, then, there is no merit in the argument that this Court should not set aside the sale. 18. It is on the above material that I have heard the learned counsel appearing for the parties. Mr.Madon, senior counsel appeared on behalf of the applicant M/s.Ajanta Pharma Ltd and Mr.Narichania appeared for respondent No.2 and Ex-Director Mr.S.S. Agarwal. Ms.Manorama Mohanty appeared for the original petitioner. 19. After hearing all parties, in my view, the legal position is in no doubt. The principles are summarised in several decisions of this Court and the Hon'ble Supreme Court. The principle is that bonafide transaction for a consideration can be protected. The power under section 536(2) enables this Court to make appropriate orders. The Court has held that the said jurisdiction and power is discretionary and equitable. Merely because winding up process has started does not mean that such transaction should be declared as void but the Court can in appropriate cases protect and save bonafide transactions. The reliance placed on the decisions in that regard is, therefore, appropriate. The Hon'ble Supreme Court has held that if the transaction resulting in disposition of company's property during the interrugum, namely, between presentation of petition for winding up and passing of order for winding up if declared null and void, would paralyse the business of the company, then, the Court has ample discretion not to invalidate it. The company may have to deal with their property for day to day transactions, make payment of salary to the staff and other employees and meet urgent contingencies. The judgments that are relied upon by Mr. Madon and Mr.Narichania summarise these principles. However, their application depends upon facts and circumstances of each case. In the judgment of the Division Bench of this Court to which I was a party, (Prabhudesai's case) this Court refused to exercise the discretion under section 536(2) of the Companies Act, 1956. The judgments that are relied upon by Mr. Madon and Mr.Narichania summarise these principles. However, their application depends upon facts and circumstances of each case. In the judgment of the Division Bench of this Court to which I was a party, (Prabhudesai's case) this Court refused to exercise the discretion under section 536(2) of the Companies Act, 1956. That judgment is in the case of Laxman Yeswant Prabhudesai and Ors. vs. NRC Ltd and others, reported in (2010) 155 Company Cases 88). Therein, the transaction was found to be not in good faith and honest intention. The whole attempt was to take the properties and assets of the company in liquidation out of the control of this Court. The transaction was held to be vitiated. Once the Official Liquidator was prevented from attaching the valuable assets and taking possession thereof and ensuring its disposition in accordance with the provisions and in accordance with the powers conferred on him by the Companies Act, 1956 and obviously to take them out of the control of the Court, that this Court refused to protect the said transaction. In the instant case what emerges from the record is that the company in liquidation was carrying on business in pharmaceuticals. It had mortgaged its land in favour of secured creditors. Besides the winding up petition there were proceedings initiated by Allahabad and ICICI Bank. During the pendency of these proceedings, the company offered one time settlement proposal to Allahabad Bank and on 17th May 2007, Allahabad Bank accepted the said proposal/offer. Once that proposal was accepted, the company's Board of Directors passed resolution on 31st July 2007 authorisinig the sale of the property to the applicant. There was an Memorandum of Understanding dated 10th August 2007. In the meanwhile, the company also offered one time settlement proposal to ICICI Bank and that offer was accepted. Thereafter, from September 2007 to March 2008, the secured creditors were paid in full and final satisfaction of all their claims. Thereafter, they issued No Due Certificate. In May 2009, the final installment of Rs.55 lakhs was paid under the said Memorandum of Understanding. The balance amount of the sale consideration for the property remaining after making payment to secured creditors was utilised by the company for making payment of statutory dues, for settling the claims of the workers/office staff and making payment to unsecured creditors. In May 2009, the final installment of Rs.55 lakhs was paid under the said Memorandum of Understanding. The balance amount of the sale consideration for the property remaining after making payment to secured creditors was utilised by the company for making payment of statutory dues, for settling the claims of the workers/office staff and making payment to unsecured creditors. Thereafter, on 7th July 2009, this Sale Deed was executed. On 7th July 2010, the winding up order was passed. 20. Each of these events are sought to be proved by producing relevant documents including the correspondence. True it is that the Court can validate transactions which are not entered into ordinary course of the current business, however, to my mind the broad proposition or tests, in addition to what have been already referred by me is not necessary to be referred or considered. 21. Once the transaction is found to be for the benefit of and in the interest of the company or for keeping the company going generally, then, the Court can exercise the discretion. 22. In the present facts and circumstances, when the report of the Official Liquidator was presented, even in the month of November 2010 and now in the month of January 2012 what transpires is that not only the Sale Deed has been executed but the applicant has started commercial production. Mr.Madon, learned senior counsel states that the applicant had inserted an advertisement in the newspapers on 31st May 2008 inviting claims and, therefore, it is not as if they wanted to hurriedly and hastily grab the property. From the record, according to him it is clear that the Memorandum of Understanding is dated 10th August 2007, whereas the Sale Deed is dated 7th July 2009. During this period there was no winding up order nor was their any restraint against the company, but to my mind, that is not a sole factor which would enable this Court to exercise its discretion. Once a winding up order relates back to the date of presentation of the petition and the power under section 536(2) is discretionary, then, all that remains for consideration is whether the parties have acted bonafide. 23. Once a winding up order relates back to the date of presentation of the petition and the power under section 536(2) is discretionary, then, all that remains for consideration is whether the parties have acted bonafide. 23. In the present case, the company was facing claims from secured creditors and there was a original application filed in Debt Recovery Tribunal by Allahabad Bank and there was a suit filed being Suit No.2759 of 2000 by ICICI Bank. Each of these have been filed immediately after the said winding up petition. The claims of the secured creditors were enormous. The Board of Directors, therefore, thought that if the companies running pharmaceuticals business could be taken over by another entity and if the said company is ready and willing to settle the claims of all secured creditors, workers and unsecured creditors, then, the sale be finalised. It is accordingly, that the parties met and executed Memorandum of Understanding. Post Memorandum of Understanding, the steps referred by me above have been taken and now all claims of secured creditors, workers and office staff have been settled. It is not as if MSFC can claim that it was surprised and shocked at this transaction because what has been pointed out to me on affidavit is that the Sale Deed was executed and duly registered. The Sale Deed is dated 7th July 2009. It has been referred to in the Sale Deed itself that the payment is of Rs.3 crores 5 lakhs. In the Sale Deed itself it has been stated that due search was conducted with the Government Revenue Records and even a paper publication was made. The Sale Deed recites that the property does not belong only to the company in liquidation but to two other entities, namely, Mayo Health Care Pvt. Ltd., Wexford Trading Company Pvt Ltd and Arogya Pharma Pvt Ltd. There is one more sister company which had claimed rights in one of the Gat numbers. The property is not belonging just to company in liquidation but other entities as well. Even the copy of the Memorandum of Understanding has been annexed to the affidavits. The charge on the properties has been noted as satisfied even in the records of the Government of India, Ministry of Corporate Affairs. The property is not belonging just to company in liquidation but other entities as well. Even the copy of the Memorandum of Understanding has been annexed to the affidavits. The charge on the properties has been noted as satisfied even in the records of the Government of India, Ministry of Corporate Affairs. Pertinently, there is a letter dated 5th March 2008 issued by the original petitioner MSFC, Aurangabad stating that the Corporation has sanctioned and disbursed term loan of Rs.40 lakhs to the company in liquidation on 28th June 1988. It is stated that there is no dues to be recovered from the company in liquidation from Loan Account No.M-00941. It may be that the MSFC has filed an affidavit and has sought to disown this communication but what is apparent is that the same is on the letterhead of the company. If at all there is a fraud played on the MSFC and the certificate has been obtained, the MSFC could have initiated legal proceedings and particularly when it is alleged that its claim is not disputed by the company and duly reflected in the balance sheet filed before BIFR. The applicant has been asserting that the dues of the MSFC have also been cleared and is relying upon this letter. Once the entity such as SICOM which is also on par with MSFC has certified that there are no dues and there are other public sector undertakings who have given such certificates, then, to my mind, rejecting the application of M/s.Ajanta Pharma Ltd and setting aside the sale, would prejudice each one of them. This is not a case where the company and the applicant have acted malafide and perpetrated a fraud as alleged. This is a case where the company has proceeded to dispose off an asset belonging to it and its sister companies as set out in the application and in the documents for settling the dues of all secured creditors. That dues together with the claim of the workers have been settled. This is not a case where the Official Liquidator has been able to demonstrate that the property has been sold as argued by private treaty without any public auction and, therefore, it fetched much lower than what it could, at such an auction. If the land has been sold at a throw away price, something more needed to be brought on record. 24. If the land has been sold at a throw away price, something more needed to be brought on record. 24. In the given facts and circumstances, to my mind, this is a case where the discretion needs to be exercised in favour of the sale rather than declaring it as void. Now, the applicants have upgraded the machineries and have spent considerable sums in construction of civil works and have employed workers/staff afresh. In these circumstances, the company application is made absolute in terms of prayers (a) and (b). 25. As a result of the above, the prayer made by the Official Liquidator fails and his report is accordingly rejected. 26. However, it would be open for the Official Liquidator to determine the dues of workers as claimed by him in his report dated 25th January 2011 and thereafter seek appropriate directions against the secured creditors in terms of prayer clause (c) of the report. Let the Official Liquidator adjudicate the claims pending, if any, of the workers expeditiously and the amounts can be then directed to be brought back by the secured creditors on appropriate undertakings obtained from them. Leaving open that course, the prayer that sale may be declared null and void is rejected. In the circumstances, there will be no order as to costs.