Sale agreement executed after winding up proceedings validated under Section 536(2) as voidable not void

The Bombay HC ratified a sale agreement dated September 5, 2007, despite it being executed after commencement of winding up proceedings in August 2003. The court held that under Section 536(2) of Companies Act 1956, "void" means "voidable" rather than automatically null. The applicant conducted due diligence, paid full consideration, obtained necessary permissions, and settled outstanding dues. The court found the transaction bonafide, fair, and reasonable, warranting protection against unjust enrichment by the company. The equitable jurisdiction under Section 536(2) was exercised to validate the legitimate transaction.

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Issues Involved:
1. Validity of the sale agreement dated 5th September 2007.
2. Applicability of Section 536(2) of the Companies Act, 1956.
3. Rights of the Official Liquidator regarding the property.
4. Claims from creditors and workers of the company in liquidation.
5. Jurisdiction of the Civil Court to adjudicate the matter.

Detailed Analysis:

1. Validity of the Sale Agreement Dated 5th September 2007:
The Applicant sought a declaration that the sale agreement dated 5th September 2007 is valid, subsisting, and binding. The Applicant argued that the transaction was bonafide, conducted in the ordinary course of business, and for valuable consideration. The sale agreement was duly registered, and the entire consideration was paid. The Applicant also invested substantial sums in the property and mortgaged it to raise finance. The Court found the transaction to be bonafide, fair, just, and reasonable, deserving protection.

2. Applicability of Section 536(2) of the Companies Act, 1956:
Section 536(2) states that any disposition of the property of a company made after the commencement of winding up shall be void unless the Court orders otherwise. The Applicant argued that the transaction was bonafide and in the company's interest, thus should not be void under Section 536(2). The Court noted that the provision is an enabling section allowing the Court to validate transactions that are bonafide and in the interest of justice. The Court cited precedents, including S.P. Khanna vs. S.N. Ghosh and Pankaj Mehra vs. State of Maharashtra, to support the view that bonafide transactions should be protected.

3. Rights of the Official Liquidator Regarding the Property:
The Official Liquidator opposed the application, arguing that the sale was void ab-initio as it occurred after the presentation of the winding-up petition and without the Court's leave. The Liquidator claimed that the company had no right to sell the property during the liquidation proceedings. The Court, however, found that the Applicant had conducted due diligence, obtained necessary approvals, and paid the full consideration. Given the bonafides of the transaction and the absence of any claims from creditors or workers, the Court ruled in favor of the Applicant.

4. Claims from Creditors and Workers of the Company in Liquidation:
The Official Liquidator had not received any claims from creditors or workers. The Applicant had settled the dues of the petitioner in the winding-up petition and obtained a no dues certificate from Bank of Baroda. The Court noted that there were no outstanding liabilities against the company in liquidation, reinforcing the bonafide nature of the transaction.

5. Jurisdiction of the Civil Court to Adjudicate the Matter:
The Official Liquidator filed an application for rejection of the plaint in the Civil Court under Order VII Rule 11(b) and (d) of the CPC, arguing that the Civil Court had no jurisdiction to deal with the matter. The Civil Court rejected the plaint on these grounds. The High Court, however, proceeded to adjudicate the matter, emphasizing its discretion under Section 536(2) to validate bonafide transactions.

Conclusion:
The High Court ratified the sale agreement dated 5th September 2007, declaring it valid and not affected by Section 536(2) of the Companies Act, 1956. The Court issued a permanent injunction restraining the Official Liquidator from disturbing the Applicant's possession of the property. The Court found the transaction to be bonafide, fair, just, and reasonable, with no outstanding claims from creditors or workers, and thus deserving protection. The request for a stay of the order was rejected.

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