Court voids sale of mortgaged properties in winding-up; guarantor granted standing to challenge.

The court declared the sale of mortgaged properties during winding-up proceedings as void due to lack of court leave, as required by Section 537(1) of the Companies Act, 1956. The guarantor was found to have standing to challenge the sale under Section 537. The court rejected the notion of granting ex-post facto leave for the sale, affirming its void status. Consequently, the sale in favor of the second respondent was set aside, with directions to return the properties to the official liquidator and allowing further legal actions against other parties.

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Issues Involved:
1. Validity of the court sale under Section 537(1) of the Companies Act, 1956.
2. Locus standi of the guarantor to invoke Section 537 of the Companies Act, 1956.
3. The possibility of ex-post facto leave by the court for the sale.

Detailed Analysis:

1. Validity of the Court Sale under Section 537(1) of the Companies Act, 1956:

The primary issue concerns the validity of the court sale of the mortgaged properties of My Leaf Tobacco Development Co. P. Ltd. (in liquidation) without the leave of the court after the commencement of winding-up proceedings. The court sale took place on August 25, 1981, and was confirmed on August 29, 1981. However, the winding-up order was made on April 15, 1982, but the winding-up proceedings commenced when the petition was presented, as per Section 441 of the Act. The applicant argued that the sale was void under Section 537(1) because it was conducted without court leave during the winding-up proceedings. The court agreed, stating, "for the purpose of section 537(1) of the Act, the winding-up of the company by the court was deemed to have commenced at the time of presentation of the petition for winding-up." Thus, the sale was void.

2. Locus Standi of the Guarantor to Invoke Section 537 of the Companies Act, 1956:

The first respondent contended that the guarantor had no locus standi to invoke Section 537 of the Act. They argued that the guarantor is not mentioned in Sections 433 and 439 of the Act, which detail who may petition for winding-up. The court rejected this argument, emphasizing that Section 537 is designed to protect any aggrieved person affected by unauthorized sales during liquidation. The judgment stated, "The applicant as a guarantor of the loan due to the first respondent-bank is greatly prejudiced by the court auction sale. He is now saddled with the liability of paying the balance of the decretal amount due to the first respondent-bank." Therefore, the guarantor had the right to challenge the sale under Section 537.

3. Possibility of Ex-Post Facto Leave by the Court for the Sale:

The first respondent also argued that even if the sale was conducted without leave, the court could grant ex-post facto leave. The court dismissed this argument, stating, "On the plain language of section 537, the ex-post facto sanction of this court granting leave for the sale in question does not arise." The sale, being void under Section 537, could not be validated by a subsequent court order.

Conclusion:

The application was allowed, and the sale in favor of the second respondent was set aside as void. The court directed the second respondent to deliver the properties to the official liquidator within four weeks. The second respondent was granted liberty to pursue rights against the first respondent and other parties in a civil court. The judgment concluded, "Parties to bear their own costs."

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