2013 (10) TMI 1593 - HC - Companies Law

Application Dismissed: 20-Year Delay, Unauthorized Transaction Under Companies Act & Income Tax Act.

Kishor Motilal Balsara & 1 Versus O.L. OF Vitta Mazda Ltd

The court dismissed the application due to an excessive delay of nearly 20 years, lack of proper authorization, and the transaction's void status under ... - Issues Involved:1. Delay in seeking validation of the sale transaction.2. Validity of the sale transaction under Section 536 of the Companies Act, 1956.3. Impact of property attachment by the Income Tax Department under Section 281 of the Income Tax Act, 1961.4. Authorization for executing the sale deed.Detailed Analysis:1. Delay in Seeking Validation of the Sale Transaction:The application was filed after an inordinate delay of almost 20 years since the execution of the disputed sale transaction in December 1993. The court noted that no satisfactory explanation was provided for this delay. The delay exhibited neglect and disregard for legal provisions, particularly those prescribing prohibitions and restrictions. The court emphasized that in cases involving statutorily void transactions, the obligation to justify and explain such a delay is higher and stricter than in ordinary cases. The absence of any explanation or sufficient cause for the delay led the court to find no justification to condone it, thus failing the application on this ground.2. Validity of the Sale Transaction Under Section 536 of the Companies Act, 1956:The disputed transaction was executed during the pendency of winding-up proceedings, making it statutorily void ab-initio under Section 536(2) of the Companies Act, 1956. According to this provision, any disposition of the company's property made after the commencement of winding-up proceedings is void unless validated by the court. The court highlighted that the winding-up process is deemed to have commenced from the date of the petition's presentation, which in this case was 14.8.1990. Therefore, the transaction executed in December 1993 was during the pendency of the petition and thus void from inception. The court concluded that the transaction required a special order for validation, which was not justified in this case.3. Impact of Property Attachment by the Income Tax Department Under Section 281 of the Income Tax Act, 1961:The property in question was under attachment by the Income Tax Department at the time of the sale, rendering the transaction void under Section 281 of the Income Tax Act, 1961. This section states that any transfer of assets during the pendency of proceedings is void against tax claims unless made for adequate consideration and without notice of such proceedings. The court noted that the transaction was executed despite a demand notice served on the company, making it void and illegal. Even if the provisions of the Income Tax Act were not considered, the transaction remained void under the Companies Act.4. Authorization for Executing the Sale Deed:The court found a lack of proper authorization for the sale transaction. The sale deed was executed by an individual claiming to be the company's constituted attorney without any resolution from the company or its Board of Directors authorizing such a sale. The court emphasized that company assets cannot be sold without a resolution passed in a general meeting or by the Board of Directors if so provided in the Articles of Association. No such resolution was produced to establish authority for the sale, rendering the transaction unauthorized and void. The absence of any resolution or authorization further invalidated the transaction.Conclusion:The court rejected the application due to the inordinate delay, lack of proper authorization, and the transaction being void under both the Companies Act and the Income Tax Act. The applicant failed to make out a case for validation of the sale transaction, and the court found no justification to grant the request for regularizing the transaction. Consequently, the application was disposed of accordingly.