Sham transfer and statutory vesting: collusive company sale could not defeat nationalisation of coal mine property.

A transfer of company property to the wives of directors was treated as sham and collusive where the surrounding circumstances showed an antedated resolution, unexplained variation in consideration, and no assertion of ownership until litigation. The Court stated that the corporate veil may be pierced to determine the real nature of such a transaction when collusion is alleged. Because the transfer was held ineffective, the property remained with the company and fell within the Coal Mines (Nationalisation) Act, under which the company's rights and interests vested in the Central Government free of all encumbrances from the appointed date.

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Issues: (i) Whether the sale transaction in favour of the appellants was bona fide and genuine or a sham and collusive transaction entered into to defeat statutory vesting. (ii) Whether, in view of the statutory vesting under the Coal Mines (Nationalisation) Act, the suit property stood transferred to and vested in the Central Government free of all encumbrances.

Issue (i): Whether the sale transaction in favour of the appellants was bona fide and genuine or a sham and collusive transaction entered into to defeat statutory vesting.

Analysis: The evidence showed that although a resolution, receipt and sale deed were produced, the surrounding circumstances negatived the genuineness of the transaction. The resolution was found to be antedated, there was no satisfactory explanation for the variation in consideration, and the appellants did not assert ownership rights over the property until litigation ensued. The Court held that in a case where immovable property of a company is transferred to the wives of its directors and the transaction is alleged to be collusive, the corporate veil may be pierced to ascertain the real nature of the transaction.

Conclusion: The sale was not bona fide or genuine and conferred no right on the appellants.

Issue (ii): Whether, in view of the statutory vesting under the Coal Mines (Nationalisation) Act, the suit property stood transferred to and vested in the Central Government free of all encumbrances.

Analysis: Once the transaction in favour of the appellants was found to be unreal and ineffective, the suit property remained the property of the company. The property fell within the statutory scheme of Section 3(1) read with Section 2(h)(xi) and the relevant Schedule to the Coal Mines (Nationalisation) Act, under which the rights and interests of the company in the coal mine vested in the Central Government from the appointed date.

Conclusion: The suit property vested in the Central Government free of all encumbrances.

Final Conclusion: The appeal failed because the transfer in favour of the appellants was held to be sham and ineffective, and the property was found to have vested under the nationalisation statute.

Ratio Decidendi: A transfer of company property that is found, on intrinsic and surrounding circumstances, to be sham or collusive cannot defeat statutory vesting under a nationalisation law, and the corporate veil may be pierced to determine the real nature of the transaction.

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