1983 (9) TMI 256 - HC - Companies Law

Court dismisses company applications; transfer of boiler in good faith; sale proceeds repay debts

Sunder Lal Jain Versus Sandeep Paper Mills (P.) Ltd.

Sunder Lal Jain Versus Sandeep Paper Mills (P.) Ltd. - [1986] 60 COMP. CAS. 77 (PUNJ. & HAR.) Issues Involved:1. Whether the transfer of the boiler was made in good faith and for valuable consideration.2. Whether the transfer was made within one year before the presentation of the winding-up petition.3. Whether the transfer of the boiler was made in the ordinary course of business.4. Whether the transfer of the boiler was made by the company.Detailed Analysis:1. Whether the transfer of the boiler was made in good faith and for valuable consideration:The petitioner alleged that the transfer of the boiler was not in the ordinary course of business and lacked bona fides and valuable consideration. The court examined Section 531A of the Companies Act, 1956, which addresses the avoidance of voluntary transfers. The burden of proving the lack of good faith and valuable consideration lies on the party seeking annulment. The court referenced the Supreme Court's observations in Subramania Iyer's case, which stated that a transaction could be annulled if there was no consideration or if the consideration was so inadequate as to raise a presumption of lack of good faith. Alternatively, the transaction could be annulled if it was shown that the transferee entered into the transaction with a view to shielding the assets from creditors.The court found that the boiler, purchased for Rs. 41,000 in 1974, was sold for Rs. 85,000 in 1980 after being idle since January 1979. The petitioner failed to provide reliable evidence to support the claim that the boiler's market value was five lakh rupees. The court noted that the sale was conducted with due diligence, including an assessment by the bank's technical officer, and the amount was used to repay the company's debt to the bank. There was no evidence of collusion or intent to defraud creditors. Thus, the court concluded that the transfer was made in good faith and for valuable consideration.2. Whether the transfer was made within one year before the presentation of the winding-up petition:The court noted that the transfer of the boiler occurred on February 15, 1980, while the winding-up petition was filed on August 28, 1980. Therefore, the transfer was made within one year before the presentation of the winding-up petition, satisfying the requirement under Section 531A of the Act.3. Whether the transfer of the boiler was made in the ordinary course of business:The respondents conceded that the transfer of the boiler was not made in the ordinary course of business. Consequently, the court decided this issue accordingly.4. Whether the transfer of the boiler was made by the company:The petitioner contended that the resolution authorizing the sale was not passed by legitimate directors of the company. The court examined the evidence, including affidavits and statements, and found that the persons who passed the resolution were indeed directors of the company. The court also referenced Section 290 of the Companies Act, which validates acts of directors even if their appointment was later found to be invalid. The court held that the resolution dated November 16, 1979, was valid, and the sale was conducted with the consent of the bank, which had the right to sell the pledged assets.The court further noted that the bank, as a secured creditor, could have sold the boiler independently to recover the debt. The sale proceeds were used to repay the company's debt to the bank, and there was no evidence of misappropriation or fraud.Additional Considerations:The petitioner also moved an application for the prosecution of certain individuals for perjury and preparation of false documents. The court, however, found no reasonable probability of conviction and declined to order prosecution.Conclusion:The court dismissed both company applications, finding no merit in the petitioner's claims. The transfer of the boiler was held to be in good faith, for valuable consideration, and within the stipulated time frame, though not in the ordinary course of business. The resolution authorizing the sale was deemed valid, and the sale proceeds were used to repay the company's debt.