Fraudulent preference and shareholder approval rules barred enforcement of a sale of a company's only immovable asset.
An agreement for sale of a company's only immovable asset, entered into during financial distress, was treated as a fraudulent preference because it did not itself create any enforceable interest in the property and its timing and effect prejudiced the general body of creditors. The claimed part performance could not prevail over the company's obligations in winding up. The board resolution alone was also insufficient to authorise disposal of the whole or substantially the whole undertaking without shareholder approval under the Companies Act. Shareholder consent was therefore required, and the proposed transfer was invalid; the order declining execution and registration of the sale deed was sustained.
Issues: (i) Whether the agreement for sale and subsequent handing over of possession could be enforced against the company in winding up, or was a fraudulent preference invalid under the Companies Act. (ii) Whether a board resolution alone was sufficient to authorise sale of the company's immovable property without shareholder consent.
Issue (i): Whether the agreement for sale and subsequent handing over of possession could be enforced against the company in winding up, or was a fraudulent preference invalid under the Companies Act.
Analysis: The agreement related to the company's only immovable asset and was entered into when the company was in financial distress and indebted to the appellant and other creditors. An agreement for sale does not by itself create any interest in or charge over immovable property, and the claimed part performance could not override the surrounding conduct and the company's obligations to other creditors. The timing and manner of the transaction indicated preferential treatment in favour of the appellant and supported the finding that the arrangement was collusive and intended to prejudice the general body of creditors.
Conclusion: The transaction was held to be a fraudulent preference and could not be enforced against the company in winding up.
Issue (ii): Whether a board resolution alone was sufficient to authorise sale of the company's immovable property without shareholder consent.
Analysis: Section 293(1) restricted the board's power to sell or otherwise dispose of the whole or substantially the whole of the undertaking without consent in general meeting. The company had not passed any shareholder resolution, and the property in question was the only immovable asset of the company. In that setting, a mere board resolution was insufficient to validate the proposed sale.
Conclusion: Shareholder consent was required and the board resolution alone did not authorise the transfer.
Final Conclusion: The appeal failed, and the order declining direction for execution and registration of the sale deed was sustained.
Ratio Decidendi: An agreement for sale of a company's asset does not by itself create any enforceable interest against a company in winding up, and where the transaction preferentially transfers the company's only substantial immovable asset without the requisite corporate approval, it may be treated as a fraudulent preference and invalid.
TaxTMI 
AI Drafter ✕
TaxTMI 
