Section 536(2) validation turns on bona fides, creditor protection, and compliance with existing restraints on transfers.

Section 536(2) of the Companies Act, 1956 permits validation of a post-winding-up transfer only where the arrangement is bona fide, benefits the company and its creditors, and does not prejudice secured creditors or breach existing judicial or statutory restraints. On the facts discussed, validation was refused because the proposed transfer was entered into despite injunction and status quo orders, pending DRT proceedings, SARFAESI restrictions, and an undisclosed secured creditor mortgage. The article also notes that interim restraint on asset and share transfers was declined on the stated facts, but disclosure of transfer deeds, registration details, and related particulars was directed.

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Issues: (i) Whether permission could be granted under Section 536(2) of the Companies Act, 1956 to validate and allow transfer of the company's properties in favour of the agreement holder. (ii) Whether interim restraint and disclosure directions could be issued in relation to the company's transfer of assets and shares in its subsidiary companies.

Issue (i): Whether permission could be granted under Section 536(2) of the Companies Act, 1956 to validate and allow transfer of the company's properties in favour of the agreement holder.

Analysis: The power under Section 536(2) is discretionary and is exercised on settled principles, including bona fides, benefit to the company and its creditors, and avoidance of preferential treatment. The proposed transfers were found to have been entered into despite existing injunction and status quo orders, pending proceedings before the Debt Recovery Tribunal, and statutory restraints under the SARFAESI regime. The properties were also under mortgage to a secured creditor who was not made a party to the application. The arrangement was held to lack candour and bona fides and to attempt to keep secured creditors at bay.

Conclusion: Permission to validate or complete the transfer was refused and the application was dismissed.

Issue (ii): Whether interim restraint and disclosure directions could be issued in relation to the company's transfer of assets and shares in its subsidiary companies.

Analysis: The company's challenge to restraint on transfer of shares had become unnecessary on the facts, but the record showed suppression of material facts and contradictory stands regarding the transfer of estates and the status of the subsidiary companies. The prayer for injunction was not granted because the transfers were said to have already been completed, but the company was required to furnish full particulars and file certified copies of the transfer deeds and related registration details. The request to restrain placement of an AGM agenda was closed on the company's statement that no such agenda existed.

Conclusion: The injunction was declined, disclosure directions were issued, and the AGM-related request was closed.

Final Conclusion: The common order substantially went against the agreement holder's request for court approval of the property transfers, while giving the secured creditor limited protective and disclosure reliefs.

Ratio Decidendi: In proceedings under Section 536(2) of the Companies Act, 1956, a post-winding-up transfer will be validated only if it is bona fide, in the interests of the company and its creditors, and does not prejudice secured creditors or violate subsisting statutory or judicial restraints.

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