2010 (9) TMI 927 - HC - Benami Property

Land sales during winding-up proceedings deemed void under Companies Act; individuals face criminal prosecution

Maxworth Orchards (India) Ltd. Versus P. Ananthalakshmi

The court found that land sales by the company during winding-up proceedings were deemed null and void under Sections 536 and 537 of the Companies Act, ... Whether no general power of attorney document was produced before this court and it is not known whether such power of attorney was a registered document and inasmuch as the original documents are with the respondents, there is no need to interfere with the said sales? Held that:- There is ample evidence to show that when a notice was issued on behalf of the respondents through their counsel calling for objections for the purchase of 27 acres of land, specific objections were raised on behalf of the company and in spite of such objections, the respondents have proceeded to purchase the property under various sale deeds. Such purchases have been made despite the fact that winding up petition against the company was pending and many orders came to be passed by this court restraining the intermeddlers from interfering with the possession of the property by the company, and publications have been effected widely in Andhra Jyothi, Telugu daily in Andhra Pradesh as per the orders of this court in various company applications and even afterwards it is astonishing to note that in the documents, especially Document Nos. 7314 to 7316 of 2003 executed by the second respondent (Koduru Venkateswara Prasad), the beneficiary himself has signed as a witness to the documents. In addition to the above, while the total extent transferred under the said documents sought to be set aside is 27 acres, the fourth respondent has chosen to execute a sale deed in respect of 3 acres and if that is so, the total extent of lands put together would come to 30 acres as against 27 acres and this would show the unscrupulous manner with which the sale deeds have been executed in respect of the properties of the company. The sales which are the subject-matter of these applications are not only against the interest of the creditors of the company in liquidation, but the transactions also cannot be said to be bona fide and the respective purchasers cannot be said to be the purchasers without knowledge of defective title. Therefore, it is not possible to accept the contention raised by learned senior counsel for the respondents/purchasers that such sales should not be interfered with. Issues Involved:1. Legitimacy of land sales by the company during winding-up proceedings.2. Authority and actions of individuals acting on behalf of the company.3. Application of Sections 536, 537, 441, 450, 451, and 446 of the Companies Act, 1956.4. Bona fide nature of transactions and the rights of purchasers.5. Prosecution for fraudulent transactions.Issue-Wise Detailed Analysis:1. Legitimacy of Land Sales by the Company During Winding-Up Proceedings:The applications concern various lands in Medak District, Andhra Pradesh, assets of the company under winding-up proceedings initiated on February 24, 1998. The company had acquired approximately 20,000 acres of land, and thousands of customers invested in these plantations. The winding-up petition was filed due to unpaid dues to a creditor, M/s. EPC Industries Ltd., Mumbai. The court appointed an administrator on February 12, 2001, and later as a provisional liquidator on February 6, 2006.The sales of the company's lands after the winding-up petition were deemed null and void under Sections 536 and 537 of the Companies Act, 1956, which void dispositions of property after the commencement of winding-up proceedings unless the court orders otherwise. The court found that the sales were not bona fide and were executed with the intention of defrauding the company.2. Authority and Actions of Individuals Acting on Behalf of the Company:The first respondent, an employee of the company, executed sale deeds in her individual capacity, claiming ownership of the land purchased earlier. However, her counter affidavit admitted that the lands were purchased by the company in her name during her tenure. The court found that she had no independent right to act except on behalf of the company, and the sales were fraudulent.The fourth respondent also executed sale deeds in favor of the second respondent, who subsequently sold the land to the third respondent. The court found these transactions to be dubious and in collusion with company employees, intending to defraud the company.3. Application of Sections 536, 537, 441, 450, 451, and 446 of the Companies Act, 1956:Sections 536 and 537 void transfers of property after the commencement of winding-up proceedings unless the court orders otherwise. Section 441(2) states that winding-up commences from the date of the petition. Section 450 allows the court to appoint a provisional liquidator pending the winding-up order. Section 451 outlines the powers of the liquidator. Section 446 stays suits and legal proceedings against the company after a winding-up order or provisional liquidator appointment.The court held that transactions after the winding-up petition are subject to judicial scrutiny and can be declared void if not bona fide. The appointment of the administrator as a provisional liquidator was within the court's powers, and the transactions executed during this period were scrutinized and found fraudulent.4. Bona Fide Nature of Transactions and the Rights of Purchasers:The respondents claimed that the sales were bona fide and that the purchasers were unaware of any defective title. However, the court found ample evidence of fraud and collusion. The first respondent admitted that the lands were purchased by the company in her name. Public notices were issued, and objections were raised on behalf of the company, yet the respondents proceeded with the sales.The court concluded that the transactions were not bona fide, and the purchasers were not without knowledge of the defective title. Therefore, the sales were set aside.5. Prosecution for Fraudulent Transactions:The court directed the Central Crime Branch, Land Grabbing Cell, Chennai, to investigate the fraudulent transactions and launch criminal prosecution against the offenders. The administrator was permitted to file a comprehensive complaint, and the criminal law was set in motion to bring the culprits before the criminal court.Judgment:The court allowed the applications, set aside the respective sale deeds, and dismissed the application to vacate the injunction order. The court also directed criminal prosecution for the fraudulent transactions.