Winding up transfers and undervalued sales can be ignored when collusion, bad faith, and creditor prejudice are shown.

In winding up proceedings, a company's transfer of immovable property may be disregarded where the surrounding circumstances show it was not a bona fide arm's-length sale. The Court found the transaction hurried, unexplained, and arranged through management collusion rather than an open commercial process, so it was not in good faith or binding against the company. It also held that the property was sold well below market value, with the undervaluation indicating a device to siphon assets and defeat creditors' claims. Prior approvals under tax or stamp law did not protect a fraudulent transfer. The sale was therefore treated as invalid and prejudicial to creditors.

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Issues: (i) whether the sale of the company's immovable property in favour of the applicant was bona fide, in good faith, and in the interest of the company, and therefore valid and binding in the winding up proceedings; (ii) whether the property was sold for a fair market price or whether the transaction reflected an undervalued and collusive transfer amounting to siphoning off of funds and defeating the claims of creditors.

Issue (i): whether the sale of the company's immovable property in favour of the applicant was bona fide, in good faith, and in the interest of the company, and therefore valid and binding in the winding up proceedings?

Analysis: The transfer was scrutinised in the context of pending winding up proceedings and the power of the Court to examine whether the transaction was entered into in good faith and for valuable consideration. The materials showed that the company was under severe financial pressure, that depositors and creditors were pressing for repayment, and that the transaction was not part of an open or transparent process. The Court found that the board resolution and the agreement were brought up to suit the transaction, that the manner of sale was hurried and unexplained, and that the transferee was not an innocent purchaser acting in the ordinary course of business. The circumstances indicated collusion with those in management rather than a bona fide commercial sale.

Conclusion: The sale was not bona fide, not in good faith, and not valid or binding against the company in winding up.

Issue (ii): whether the property was sold for a fair market price or whether the transaction reflected an undervalued and collusive transfer amounting to siphoning off of funds and defeating the claims of creditors?

Analysis: The Court compared the apparent sale consideration with the company's own book value, the earlier purchase price, the banker's valuation, and the stamp duty valuation accepted by the purchaser without protest. It concluded that the property was sold for far less than the prevailing market value, that the differential suggested a clandestine benefit to persons in management, and that the transaction resulted in substantial loss to the company. The sale was held to be a device to defeat creditors and to siphon off funds rather than a genuine arm's-length transfer. The prior permissions obtained under the income-tax and stamp law regime did not protect a fraudulent transaction.

Conclusion: The property was not sold for a fair market price, and the undervalued transfer was treated as collusive and prejudicial to creditors.

Final Conclusion: The applications failed because the transaction was found to be neither bona fide nor in the interest of the company or its creditors, and the Court declined to protect the sale from challenge in the winding up proceedings.

Ratio Decidendi: In winding up proceedings, a transfer by a company may be disregarded where the surrounding circumstances show that it was not a bona fide arm's-length transaction, was substantially undervalued, and was effected in collusion with management to defeat creditors or divert assets from the company.

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