Validation of post-winding-up dispositions depends on admission, advertisement, and bona fide treatment of creditors.

Section 536(2) validation of post-petition dispositions must fit the winding-up scheme: an application should not be entertained before the petition is admitted and advertised, because creditor participation and pari passu treatment would otherwise be undermined. The commentary also stresses that a proposed share sale can be validated only if it is bona fide, in the ordinary course of business, and for the benefit of the company and its creditors. Where material facts are withheld, secured creditors are not properly heard, or selective payments would disturb equal distribution, the transaction will not satisfy that standard.

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Issues: (i) Whether an application under Section 536(2) of the Companies Act, 1956 could be entertained and orders passed upon it before the winding-up petition was formally admitted and advertised; (ii) whether the proposed sale of shares was a bona fide transaction in the ordinary course of business and in the interests of the company and its creditors.

Issue (i): Whether an application under Section 536(2) of the Companies Act, 1956 could be entertained and orders passed upon it before the winding-up petition was formally admitted and advertised.

Analysis: The power under Section 536(2) is an enabling power intended to protect dispositions made after commencement of winding up from being treated as void, but its exercise must conform to the scheme of winding-up proceedings. A winding-up petition is heard for admission, and once admitted, advertised so that all creditors may appear. The Court reasoned that validating a disposition before admission would affect the rights of creditors who are not yet before the Court and would undermine the pari passu principle. Inherent powers under the rules could not be used to bypass the statutory structure governing winding up and creditor participation.

Conclusion: The application was not maintainable before admission and the order made on that basis could not stand.

Issue (ii): Whether the proposed sale of shares was a bona fide transaction in the ordinary course of business and in the interests of the company and its creditors.

Analysis: The transaction was not treated as a simple sale in the ordinary course of business. It was part of a larger arrangement that raised serious issues about suppressed facts, pledged shares, creditor priorities, and the effect of the transaction on the company's control over USL. The Court found that material facts were withheld, the secured creditors were not properly heard, and the price fixed could not be accepted as conclusively representing fair market value merely because regulatory approvals had been obtained. The Court also held that permitting direct payments to selected creditors would disturb the statutory scheme of equal distribution among creditors. In these circumstances, the transaction did not satisfy the standard of bona fide disposition for the benefit of the company as a whole.

Conclusion: The transaction was not bona fide and could not be validated under Section 536(2).

Final Conclusion: The appellate challenge succeeded in part, and the permission granted for the share sale was set aside with consequential protection of the sale proceeds and remaining assets pending decision of the winding-up petitions.

Ratio Decidendi: A disposition of a company's assets after presentation of a winding-up petition can be validated only where the petition has been duly admitted and advertised and the transaction is shown to be bona fide, in the ordinary course of business, and consistent with pari passu treatment of creditors.

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