Post-winding up sale validation requires bona fide commercial necessity; inconsistent undervalued transfers cannot secure preferential treatment.

Section 536(2) of the Companies Act, 1956 permits validation of post-commencement dispositions only where the transaction is honest, bona fide, in the ordinary course of business, and beneficial to the company and its creditors. The Court also treated creditor equality as a central consideration and looked for commercial necessity to keep the company operational. On the stated facts, the later mortgage and sale documents were inconsistent and undervalued, no security had been created when earlier loans were advanced, and the arrangements appeared to confer a preferential charge in favour of one creditor after winding up had materially advanced. Validation was therefore refused.

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Issues: Whether the sale transactions entered into after commencement of winding up could be validated under Section 536(2) of the Companies Act, 1956, and whether they were bona fide and in the ordinary course of business so as to justify interference with the order refusing validation.

Analysis: Section 536(2) confers a discretion to validate post-commencement dispositions only where the transaction is shown to be honest, bona fide, and in the interest of the company and its creditors. The guiding considerations are whether the transaction was undertaken in the ordinary course of business, whether it was necessary to keep the company operational, and whether it respects the principle of equality among creditors. On the facts, the Court found that no security was created when earlier loans were advanced, the subsequent mortgage and sale documents were inconsistent and undervalued, the impugned sales were executed after the winding up process had materially advanced, and the arrangement appeared designed to give one creditor a preferential first charge over the assets of the company in liquidation.

Conclusion: The sale transactions were not fit for validation under Section 536(2) and the refusal to validate them was upheld.

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