Validation of pre-winding-up charges can be granted when bona fide borrowing supports a realistic business revival.

Section 536(2) of the Companies Act, 1956 permits the court, in a winding-up context, to validate transactions and charges over company property where the arrangements are bona fide and support a realistic revival of the business. Here, the company's closure, subsequent governmental concessions, relief undertaking status, suspension of existing liabilities, and actual resumption efforts were treated as material circumstances showing a genuine attempt to restart operations. The proposed borrowing and security creation with State Bank of India and Industrial Development Bank of India were viewed as measures to keep the business running, with the interests of creditors, workers, and the company better served by resuscitation than by freezing assets pending winding up.

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Issues: Whether the applicant company should be permitted under section 536(2) of the Companies Act, 1956 to create charges and enter into transactions with the State Bank of India and the Industrial Development Bank of India before any winding-up order was made, so that the company could revive and continue its business.

Analysis: Section 536(2) empowers the court, in a winding-up context, to validate dispositions of property unless the court otherwise orders. The company had closed down because of financial difficulty, but subsequent governmental concessions, declaration of the unit as a relief undertaking, suspension of pre-existing liabilities, and actual revival efforts showed a genuine attempt to restart production. The court treated the later financial assistance already received and the resumed operations as material circumstances demonstrating that further borrowing and creation of security were directed to keeping the business going. In that setting, the court applied the principle that where revival is realistically possible, the interests of creditors, workers, and the company may be better served by permitting transactions that support resuscitation rather than by freezing the assets pending winding up.

Conclusion: The application was allowed and permission was granted to enter into the proposed transactions and create the necessary charges, and such transactions were declared authorised, valid, and binding.

Final Conclusion: The court exercised its discretion in favour of preserving and reviving the company, rather than preventing the proposed financial arrangements during the pendency of the winding-up proceedings.

Ratio Decidendi: A court may validate pre-winding-up dispositions of a company's property where the transactions are bona fide and are shown to be in the best interests of creditors and the company by facilitating a realistic revival of the business.

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