S.C. Dharmadhikari, J.
1. This Appeal under Section 483 of the Indian Companies Act, 1956 read with Clause 15 of the Letters Patent is directed against an order dated 30th July, 2009, passed by the learned Company Judge in the above company application.
2. The appellants before us are the original Applicants. They moved the above company application praying that the order dated 21st April, 2007 in company application No. 3 of 2007 be set aside and this Court should direct the Official Liquidator, High Court, Bombay to forthwith remove attachment of Plot No. R34 situate at MIDC, Trans Thane Creek Industrial Area, Village Tetavali, District Thane, Navi Mumbai and return the possession thereof to the applicants.
3. The other prayer is that the Official Liquidator should be restrained from issuing any notice of auction or tender notice and selling the aforementioned plot of land.
4. The company application was supported by the affidavit of the appellant No. 1. He stated in the affidavit that he is carrying on business as a partner of a partnership firm M/s.. Refair Industries. The business of the firm is of manufacturing electrical parts and assemblies. The firm has been producing electrical assemblies and parts to be supplied to various companies including M/s.. Siemens Limited. The demand for their product has been increasing and in fact, the business with M/s. Siemens Limited necessitated acquisition of more space for production activities. Therefore, the firm was in search of an additional plot of land. One real estate agent known to the first appellant assisted him earlier and, therefore, he informed the said agent that the agent should find out any additional plot for the business of the firm. Accordingly, the agent alongwith another person approached the appellant No. 1 in December, 2006 and informed him that M/s. Arsh International Chemical Pvt. Ltd. which is the original applicant No. 4 and Respondent No. 3 before us was interested in selling plot No. 34 (subject plot). Therefore, there was a meeting arranged between the Directors of the said Arsh International Chemical (P) Ltd. After negotiations, it was agreed that the firm would acquire the plot for consideration of Rs. 1,80,00,000/. Thereafter, a token money was paid and subsequently, the Directors of M/s. Arsh International Chemical Pvt. Ltd. forwarded copies of title deeds and other documents to the partners of the firm. It was asserted in the affidavit that from a perusal of these documents, it is clear that M/s. Arsh International Chemical Pvt. Ltd. have title to the subject plot and in such circumstances, the agreement between the firm and M/s. Arsh International Chemicals was finalised. The amounts as stated in paras 2.7 and 2.8 of the affidavit in support have been paid. Thereafter, the deponent of the affidavit states that he asked his Chartered Accountant to take search in the office of Registrar of Companies and find out the status of the company from whom the said Arsh International Chemical Pvt. Ltd. have acquired the subject plot. The search was carried out and thereafter, public notice was issued.
5. Once again it is asserted that the total sum of Rs. 1,75,00,000/has been paid and the shares of the company have been transferred to the other applicants by the said Arsh International Chemical Pvt. Ltd. Further, the possession of the subject plot was handed over. The MOU was also signed between the parties. Thereafter, permission from the Maharashtra Industrial Development Corporation was sought to demolish the existing structure which came to be granted. Thereafter, other permissions so as to carry out manufacturing of electrical goods were also applied for.
6. However, when the site was being cleared on 21st September, 2007, some officers from the office of Official Liquidator, High Court, Bombay came at site and told the applicants that the High Court has directed attachment of the plot. On that statement being made, the opponent of the affidavit called up the other Director Mr. Anwar Merchant of M/s. Arsh International Chemicals Pvt. Ltd. who told him that he did not have any knowledge of court proceedings. Therefore, the Director did not assist the applicant No. 1 and the firm in resisting the attachment. As a result, the subject plot was attached. The officials of the Official Liquidator took possession and deployed their security. However, the applicants repeatedly followed up the matter with Shri Anwar Merchant but there was no response. They made enquiries and it was revealed during the same that an order was passed on 21st April, 2007 by this Court attaching the said premises. It is in such circumstances that the aforementioned company application was filed claiming the reliefs referred to hereinabove.
7. It was the case of the applicants that the plot was transferred to M/s. Arsh International Chemical Pvt. Ltd. It was stated that the records pertaining to the subject plot did not reveal that there was any litigation pertaining to the same. There was no fault found with the title of M/s. Arsh International Chemical Pvt. Ltd.
8. It was stated that when M/s. Aminx Alkalies Limited (the company in liquidation) was ordered to be wound up by this Court order dated 26th April, 1999, enquiries revealed that there were two plots viz. R34 i.e. the subject plot and R35. These are adjoining plots. R35 was an asset of the company in liqudation. There was attachment and it was subsequently sold but there was no encumbrance or any attachment in respect of the subject plot. It is in such circumstances that the order passed attaching the plot deserves to be set aside. Further, although the order was passed on 21st April, 2007, the Official Liquidator did not attach the plot till September, 2007. Further, it was stated that the winding up order of this Court is dated 26th April, 1999 but various other properties such as office premises at Mumbai, factory premises at Gujarat and various plots at Pune belonging to the company in liquidation have not been attached, nor their possession was taken by the Official Liquidator. In these circumstances, the period of 9 years which passed by from the date of winding up till the attachment of the subject plot is crucial and relevant for the purposes of the prayers made in the company application. For all these reasons, it was prayed that the Company Application be allowed.
9. Reliance was placed upon several documents annexed to the company application.
10. When this company application was served on the respondents thereto, certain affidavits have been filed. One of the affidavits is of respondent No. 5 Mehul Mahipatrai Shah. He is the Director of M/s. Aminex Alkalies Limited (company in liquidation). He states that he is not aware of the transaction in respect of the subject plot of the applicants.. He states that the company in liquidation was manufacturing chemicals on two plots viz. the subject plot and plot No. R35. On the other hand, Anwar Ismail Merchant and Ismail Hasan Merchant from whom the applicants claimed their rights in the subject plot were carrying on business in the firm name and style of M/s. Merchant Transports and M/s. Merchant Roadways. The said Merchants were transporting the goods manufactured by the company in liquidation from both plots for more than 13 years. It is stated that the Merchants had to recover some amount from an associate company of the company in liquidation and, therefore, they requested that the subject plot which was neither mortgaged to any bank or financial institution be transferred to them and they would withdraw the cases they had filed against the company in liquidation and its group companies. Therefore, on their insistence, the subject plot was transferred in the name of their company (M/s. Arsh International Chemical Pvt. Ltd.). A Deed of Assignment was executed on 15th December, 1998 transferring the subject plot to M/s. Aminex Holdings and Investments and thereafter, the said Aminex Holdings had transferred the subject plot to M/s. Arsh International Chemical Pvt. Ltd. and these Deeds of Assignments were registered on 20th April, 1999. It is stated that the respondents including respondent No. 5 were not aware of the winding up order passed by this Court. The deponent states that even MIDC permission for assignment was obtained. In such circumstances, it is stated that the respondents were not concerned with the winding up petition and any order made therein. On the other hand, since they had handed over possession of the subject plot to the Merchants, they did not make enquiries with regard to the appointment of Official Liquidator. He came to know of such appointment only after the Merchants filed a criminal case against the respondents. Thus, it is stated that the order passed by this Court on 21st April, 2007 was set aside and the Official Liquidator was directed to do the needful after Deed of Assignment was quashed by this Court. The respondents confirmed that the subject plot and plot No. R35 are adjacent to each other and they are in use of the company in liquidation for production activities.
11. One Anwar Esmail Merchant, respondent No. 8 filed an affidavit-inreply to the Company Application. His stand is that he has not made any representation for sale of the subject plot to applicant No. 1 Laxman Yeshwant Prabhudesai. He denied all the statements made in the affidavit in support of the company application.12. Official Liquidator also filed an affidavitinreply in which he were transferred to Anwar Merchant and Ismail Merchant vide agreement dated 15th December, 1999. These are ordinary creditors of associate company viz. Aminex Holdings and Investments. This is a group company/sister concern of the company in liquidation. The dues of the associate company cannot be paid out of the assets of the company in liquidation. It is stated that the agreement dated 15th December, 1999 is executed subsequent to the commencement of winding up. In fact, it is after the winding up order. Reliance was placed upon Section 441(2) of the Companies Act and it was stated that the leasehold rights were transferred by the company in liquidation to M/s. Aminex Holdings & Investments after winding up petition was filed in this Court. It is stated that the rights were purportedly transferred within three days of the filing of the winding up petition. Therefore, by virtue of the statutory provisions, these transactions are void and reliance was placed on Sections 536(2) and 537(1) of the Companies Act, 1956. The Official Liquidator, therefore, denied that the subject plot is not belonging to the company in liquidation. In fact, he relied upon the minutes drawn at site when taking possession. On earlier occasion, the possession was not taken, according to the Liquidator, for the reason that the valuer had informed the Official Liquidator by letter dated 24th January,2003 that the only asset of the company in liquidation is Plot No. R35 and not the subject plot. However, when all the events and transactions were brought to the notice of the Liquidator including the order of this Court that he moved in the matter. The Liquidator denied all allegations of collusion between him and the Merchants. He, therefore, prayed that no reliefs can be granted in this company application and it be dismissed.
13. The applicants filed an additional affidavit on 4th March, 2009 and dealt with some of the statements made in the affidavits of the contesting respondents and the Liquidator.
14. With this material, the company application was placed before the learned Single Judge and after hearing the counsel appearing for the parties, by the impugned order, he has dismissed the same.
15. It is this order which is under challenge before us.
16. Shri Rajadhyaksha, learned Senior Counsel appearing on behalf of the applicants did not seriously dispute that the subject property was assigned by the Director of the Company in liquidation in favour of its sister concern M/s. Aminex Holdings and Investments. He did not dispute that this is a partnership firm of the ExDirector of the company in liquidation. He does not dispute that on 18th December, 1998 M/s. Aminex Holdings and Investments have assigned the subject plot to Anwar Ismail Merchant and Ismail Hashan Merchant. On 15th February, 1999, the Merchants (respondent Nos. 8 to 10) incorporated the company by the name of Arsh International Chemical Pvt. Ltd. The subject plot was brought in by the Merchants as an asset of Arsh International Chemical Pvt. Ltd. However, Shri Rajadhyaksha submits that the applicants had no knowledge of the order dated 21st April, 2007 passed by this Court as they were not parties to the same. By this order, the court set aside the assignment dated 18th December, 1998 which was in favour of the sister concern of the company in liquidation. Shri Rajadhyaksha submits that when the court passed an order of winding up and appointed the Official Liquidator as Liquidator of the said company, for a period of 8 years, the Liquidator did not take any steps with regard to the subject plot. This was a clear indication that the Liquidator was not sure about the said plot being an asset of the company in winding up. It is in such circumstances the applicants acting bonafide on the representation of M/s. Arsh International Chemical Pvt. Ltd. acquired the rights in respect of the subject plot. Therefore, this is a fit case where the Single Judge should have exercised the power conferred by Section 536(2) of the Companies Act, 1956 and regularized the transaction between M/s. Arsh International Chemical Pvt. Ltd. and the applicants, appellants before us. He submits that there is nothing by which the applicants could be said to be acting in bad faith or malafide. On the other hand, complete inaction on the part of the Official Liquidator and when for nine long years he did not take any steps to take possession of the subject plot, the Single Judge should not have rejected the company application. The transaction could have been regularized and saved as the applicants are bonafide purchasers of the subject plot. For all these reasons, this is a fit case where the Liquidator should be directed to hand over the possession of the subject plot to the applicants after regularization of the deal. More so, when the applicants had parted with Rs. 1,80,00,000/ already and they would be badly affected in the business.
17. On the other hand, Ms. Pai appearing on behalf of the Official Liquidator invited our attention to the report of the Official Liquidator which was filed pursuant to the orders of the Division Bench of this Court. She submits that the Official Liquidator while denying all the allegations of inaction, negligence and collusion, has pointed out the true and correct position at site. He has in paras 5 to 7 of the report dated 4th January, 2010 explained the position. Ms. Pai submits that the Official Liquidator should be permitted to go ahead and dispose of the subject plot so that the creditors of the company in liquidation are paid their dues. She, therefore, submits that there is no substance in the appeal and it be dismissed.
18. Although there are several parties impleaded to the appeal as respondents other than the Official Liquidator, none other than the Official Liquidator addressed us.
19. With the assistance of the learned Counsel appearing for parties, we have perused the impugned order, some of the relevant documents and the statutory provisions in question. The principles on which Company Court exercises its power under Section 536(2) are well settled. In a decision (Pankaj Mehra and Anr. v. State of Maharashtra and Ors.) reported in AIR 2000 SC 1953, the Supreme Court noticed relevant sections of the Company Act and in paras 14 to 18 this is what is observed by the Hon'ble Supreme Court:
14. In the above backdrop alone we can consider the impact of the legislative direction in Section 536(2) that any disposition of the property of the company made after the commencement of the winding up (i.e. after the presentation of a petition for winding up) shall be void. There are two important aspects here. First is that the word 'void' need not automatically indicate that any disposition should be ab initio void. The legal implication of the word 'void' need not necessarily be a stage of nullity in all contingencies. Black's Law Dictionary gives the meaning of the word 'void' as having different nuances in different connotations. One of them is of course 'null, or having no legal force or binding effect.' And the other is 'unable in law, to support the purpose for which it was intended.' After referring to the nuances between void and voidable the Lexicographer pointed out the following:
The word 'void' in its strictest sense, means that which has no force and effect, is without legal efficacy, is incapable of being enforced by law, or has no legal or binding force, but frequently the word is used and construed as having the more liberal meaning of 'voidable'. The word 'void' is used in statutes in the sense of utterly void so as to be incapable of ratification, and also in the sense of voidable and resort must be had to the rules of construction in many cases to determine in which sense the legislature intended to use it. An act or contract neither wrong in itself nor against public policy, which has been declared void by statute for the protection or benefit of a certain party, or class of parties, is voidable only.15. For discerning the legislative idea in employing the word 'void' in the context set out in Section 536(2) of the Companies Act the second aspect to be noticed is that the provision itself shows that the word 'void' is not employed peremptorily since Court has power to order otherwise. The words 'unless the Court otherwise orders' are capable of diluting the rigor of the word 'void' and to choose the alternative meaning attached to that word.
16. In Chittoor District Cooperative Marketing Society Ltd. v. Vegetols Ltd. : 1987 (suppl) SCC 167 a twoJudge Bench of this Court considered a plea for validation of payments made by a Company after presentation of a petition for winding up. One set of payments were made thereafter. This Court declined to validate such payments on the ground that 'there is no evidence to show that those payments were made either under compulsion of circumstances in order to save or protect the property of the company or that there was any commercial compulsion to enable it to run its business'. The decision only indicates that such payments could have been made valid if evidence was adduced to show that there was compulsion of circumstances. In fact, this decision lends support to the interpretation that the payments which were made after the commencement of winding up proceedings, would not become ab initio void.
17. An early decision of a Division Bench of the Bombay High Court in Tulsidas Jasraj Parekh v. Industrial Bank of Western India AIR 1931 Bombay 2 was sought to be relied on by most the learned Counsel who argued for different appellant. The question which the Court considered therein pertained to Section 227(2) of the old Companies Act, 1913 which was identical to Section 536(2) of the present Act. Certain payments made by a Company after commencement of the winding up proceedings were questioned and the Division Bench considered the scope of the subsection and noticed that the principle had been borrowed from the English Companies Act. Hence some of the English authorities were also referred to by Marten, C.J., who spoke for the Division Bench. Learned Judges stated thus:
Now here as regards Section 227(2) the Court has to steer a middle course between two extremes. On the one hand the words of the section are wide enough to include any sale or payment that a company may make after the date of the winding up petition. On that basis any business would practically have to be stopped if a petition was presented, because it would be unsafe to dispose of any of the company's assets. For instance, a mill company might not be able to buy a ton of coal for the use of its furnaces, or, on the other hand, it might not to be able to sell any of its goods in the ordinary course of business. Consequently, the Court has very properly laid down that, speaking generally at any bona fide transaction carried out and completed in the ordinary course of current business will be sanctioned by the Court under Section 227(2). On the other hand, it will not allow the assets to be disposed of at the mere pleasure of the company, and thus cause the fundamental principle of equality amongst creditors to be violated. To do so would in effect be to the preferential debts enumerated in Section 230 a further category of all debts which the company might choose to pay wholly or in part.18. It is useful to refer to the reasoning adopted by a Division Bench of the Gujarat High Court in Navjivan Mills Ltd. In re (1986) 59 Comp Case 201 : (1986 Tax LR 1817) in favour of adopting a pragmatic attitude when a Company Court was approached for approval of certain dispositions which a company made after presentation of a petition for winding up. A clear distinction was drawn by the Division Bench between the period till the passing of the order for winding up and thereafter, so far as dispositions are concerned. The following reasoning is useful for consideration of the issues involved:The Court can exercise the jurisdiction under Section 536(2) of the Companies Act, 1956, of giving directions validating proposed transactions pending a petition for winding up but before the winding up order is made for the obvious reason that unless these transactions are saved from the consequence which may ensue, if at all, on an order of winding up being made, the company might find it difficult to keep itself going and its business might be paralysed. The purpose underlying the investment of the power in Court is for the benefit and interest of the company so as to ensure that a company which is made the subject of a winding up petition may nevertheless obtain the money necessary for carrying out its business and so as to avoid its business being paralysed. If that is the purpose and object of the section, it would hardly be proper and just to stultify the power and restrict its operation since otherwise it is bound to be counter productive in the sense that the very purpose of keeping the company as a going concern so as to ensure the interest of the shareholders and creditors would be defeated.
20. Thus, the principles that can be deduced are that the transactions which have been undertaken under compulsion of circumstances in order to save or protect the property of the company could be saved provided evidence is produced about such compulsion. The assets of the company cannot be disposed of at the mere pleasure of the company. If the business is going to be paralyzed, then, the court in appropriate cases can, for the benefit and interest of the company, save the transaction. It is for enabling the company to continue as a going concern and to protect the interest of shareholders and creditors that such a power is conferred and must be exercised.
21. In a decision of this Court reported in 1976 Mh.L.J. 150 (S.P. Khanna, Dy. Official Liquidator, Laxmi Bank Ltd., Nagpur v. S.N. Ghosh), the same principles are summarized. These are no different than what have been set out in the decisions relied upon by Shri Rajadhyaksha. However, assuming that the court has power to save bonafide deals and transactions by applying the aforementioned principles, we are of the opinion that in the facts and circumstances of the present case, the learned Company Judge was in no error in dismissing the company application. From the record it is apparent that the Directors of the company in liquidation upon presentation of the petition entered into the first transaction with the sister concern of the company in liquidation. Thereafter, followed a chain wherein the exDirectors of the company in liquidation alienated the subject plot fully knowing the consequences of their acts. As they were aware that the petition was before this Court, the winding up order was passed, yet, they went on entering into further deals and transactions. Their acts are nothing but an attempt to keep the valuable assets in the form of the subject plot out of the reach of the court and the Official Liquidator. In such circumstances, it cannot be said that the transaction with the applicants was in good faith and honest intention. It may be true that the applicant has paid the monies to the Merchants in good faith unaware of any orders of this Court. Further, the Liquidator may not have moved in the matter for nine years but that by itself without anything more cannot be a ground to save the subject deal and transaction. That would amount to putting a premium on the acts of the exDirectors of the Company in liquidation.
22. It is in such circumstances that we had suggested to Shri Rajadhyaksha that instead of pursuing the company application and the appeal, the applicants must take recourse to filing substantive proceedings against all including the Official Liquidator and claim appropriate declarations and reliefs pertaining to their title. However, on instructions, Shri Rajadhyaksha made a statement that the applicants do not wish to do so but would be content with applying to this Court to exercise its powers under Section 536(2) of the Companies Act. After applying the aforestated principles to the facts of this case, we are of the view that this is not a fit case wherein the powers conferred by Section 536(2) of the Companies Act, 1956 can be exercised. The acts of taking away the property and assets of the company in winding up are by the exDirectors of the Company in liquidation. The transaction with the sister concern of the company in liquidation is after the winding up petition was presented to this Court. In fact, it was within three days thereafter. Further, the assignment in favour of the firm of ExDirectors is also after the date of presentation of the petition. The ExDirectors had knowledge of the proceedings. Each one of them is aware and in fact stated that the company in liquidation was carrying on its business and manufacturing activities on the subject plot. That it was adjacent to plot No. R35 and possession of that plot was taken by the Liquidator. In such circumstances, by their acts, they prevented the Official Liquidator from attaching and taking possession of the subject plot, thereby they prevented the court from attaching a valuable asset of the company in liquidation. The court protects assets and properties so as to effectively and properly wind up the affairs of the company in liquidation. The court ensures payment of all legal dues to the creditors of the company in liquidation as per their priorities. When such is the intent of the winding up proceedings, then, in the admitted set of facts, it is not possible to agree with Shri Rajadhyaksha that this is a fit case for giving the subject plot and the transaction in that behalf.
23. Consequently, we find no error in the conclusion reached by the learned Single Judge. In the result, the appeal fails and it is, accordingly, dismissed but without any order as to costs.