2025 (9) TMI 1002 - HC - Companies Law

Post-commencement registered sale deeds held void under Section 536(2); company title upheld, validation refused, applications dismissed

S. Mahendran, K Singili and K. Karuppiah Versus The Official Liquidator, Mrs. D. Nagasaila, Administrator of Maxworth Orchards (India) Ltd, Chennai

HC held that registered sale deeds executed after commencement of winding up did not vest title against the company. The court found the company ... Acquistion of land by registered sale deeds executed after commencement of winding up acquired valid title against the Company - failure to produce any evidence of revocation of the registered powers of attorney in favour of the ex-employees of the Company - HELD THAT:- The execution of registered powers of attorney in favour of ex-employees of the Company; the availability of receipts evidencing payment of consideration for the purchase of significant proportion of the lands claimed by K. Singili; and the custody of both original powers of attorney and parent documents being with the Company, the only reasonable conclusion that follows is that the Company has established ownership over these lands. In Suraj Lamp & Industries (P) Ltd. v. State of Haryana [2011 (10) TMI 8 - SUPREME COURT], while holding that title to immovable property should be conveyed by a registered sale deed, the Supreme Court carved out an exception for genuine transactions by way of a power of attorney, including in favour of a developer. Once it is concluded that the relevant immovable property is that of the Company, Section 536 of the Companies Act, 1956 is triggered. As per sub-section (2) thereof, any disposition of the assets of the Company, after the commencement of winding up is void unless validated by the Court. The power of validation is intended to validate transactions which were undertaken after commencement of winding up in the interest of the Company - the applicant has set up a claim which is adverse and inimical to the interest of the Company. Hence, no case is made out to validate the dispositions in favour of the applicant. Consequently, the documents of conveyance and the revenue records on which the applicant relies are void against the Company. There is reasonable evidence to conclude that these lands appear to be lands of the Company. In addition, as stated above, the applicant/K. Karuppaiah has failed to produce any documents prior to the year 2019. Since all the documents on which the applicant relies were executed more than two decades after the commencement of winding up, these dispositions are void unless validated. All these applications are dismissed by declaring that the sale deeds in favour of the respective applicants are void. As a corollary, the mutation of revenue records on such basis is also void. Application dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the purchasers who acquired land by registered sale deeds executed after commencement of winding up acquired valid title against the Company, or whether such dispositions are void under the Companies Act. 2. Whether registered general powers of attorney executed by original land owners in favour of the Company's agents/employees, together with parent documents and receipts evidencing payment of consideration, establish ownership of the lands in the Company. 3. Whether the exception recognized for bona fide transactions effected by way of power of attorney (as articulated in Suraj Lamp & Industries line of authority and affirmed in Ghanshyam) applies to validate the post-winding conveyances relied upon by the applicants. 4. Whether the auction sale conducted by the Official/Provisional Liquidator is liable to be set aside insofar as it covers parcels for which rival claimants assert title. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of dispositions executed after commencement of winding up (Companies Act provision) Legal framework: Section 536(2) of the Companies Act, 1956: any disposition of the assets of a company after commencement of winding up is void unless validated by the Court. The power of validation is to protect the interest of the Company and to validate post-commencement transactions undertaken in the Company's interest. Precedent treatment: The Court applied the statutory rule directly; no precedent conflicting with the statutory bar was treated as overruling this rule in the facts. Interpretation and reasoning: The disposals relied upon by the applicants (sale deeds dated 2006-2021, principally 2019) were executed well after commencement of winding up (circa 24.02.1998). In the absence of antecedent parent documents or evidence showing bona fide pre-commencement rights in the chain of title, such dispositions are adverse to the Company's interest and do not deserve validation. The Court therefore concluded these post-commencement conveyances are void as against the Company. Ratio vs. Obiter: Ratio - where land forming part of company's assets is disposed of after commencement of winding up, such disposition is void unless validated; lacking antecedent bona fide title, later conveyances cannot be validated. Conclusion: Dispositions in favour of the applicants executed after commencement of winding up are void against the Company and revenue mutations based on such dispositions are also void. Issue 2 - Sufficiency of registered general powers of attorney, parent documents and receipts to establish Company ownership Legal framework: Evidentiary weight of registered powers of attorney, parent title documents and receipts; principle that proof of parent documents and payments coupled with custody of originals supports ownership claim. Precedent treatment: The analysis does not overrule authorities but applies established principles regarding documentary proof and possession of originals to infer ownership. Interpretation and reasoning: The Administrator produced original registered general powers of attorney executed in 1996-1998 in favour of specific agents/ex-employees, parent documents evidencing title in original owners, receipts showing payment of consideration to original owners, and employment records establishing agency/employment relationship of the agents. The custody of original powers and parent documents with the Company, together with receipts, leads to the only reasonable inference that the lands were Company property and that the original owners had executed powers of attorney (coupled with interest) relinquishing direct power to convey. Where antecedent documents supporting Company's title exist and are in its custody, later sale deeds by third parties lack good title. Ratio vs. Obiter: Ratio - a combination of registered powers of attorney in the Company's custody, parent title documents, receipts for consideration and evidence of agency suffice to establish that the property is that of the Company for the purposes of contesting later transfers. Conclusion: The Company has established ownership over the subject lands by documentary evidence; applicants' title claims that do not contradict or displace these antecedent documents fail. Issue 3 - Applicability of exception for bona fide GPA/SA transactions (Suraj Lamps and Ghanshyam) Legal framework: The exception recognized in Suraj Lamps I & II permits recognition of genuine transactions effected by power of attorney or agreement where bona fides and regulatory/administrative acceptance exist; Ghanshyam affirms Suraj Lamps' ratio. Precedent treatment: The Court followed and applied the Suraj Lamps principle and the subsequent affirmation in Ghanshyam, while emphasizing its limited scope to bona fide/genuine transactions and subject to surrounding facts. Interpretation and reasoning: The Court acknowledged that powers of attorney and SA/GPA transactions can be valid in genuine cases. However, here the purported transfers in 2019 (and later) were executed after winding up and lacked antecedent documentary basis in favour of predecessors-in-title prior to the winding up. Where the Company holds original GPAs, parent documents and receipts establishing prior disposals to agents, the later GPA-based protections invoked by purchasers do not assist them. The Suraj Lamps exception cannot be used to validate post-commencement dispositions adverse to the Company absent evidence of bona fide pre-commencement title and appropriate validation. Ratio vs. Obiter: Ratio - the Suraj Lamps exception does not operate to validate post-winding disposals that are shown to be adverse to the Company and lacking antecedent bona fide title; the exception is confined to genuine transactions and acts accepted/acted upon by authorities. Conclusion: The GPA/SA exception does not validate the applicants' post-winding transfers; Suraj Lamps/Ghanshyam do not assist applicants on these facts. Issue 4 - Entitlement to set aside auction sale and direction as to revenue mutation Legal framework: Court's power to declare void dispositions and to direct rectification of revenue records in accordance with findings on title and Companies Act consequences. Precedent treatment: The Court invoked statutory scheme and equitable powers to protect company assets and to direct corrective measures; no conflicting precedent was applied to permit maintaining of post-commencement dispositions here. Interpretation and reasoning: Because the lands in question are established to be Company property and the conveyances in favour of the applicants were effected post-commencement and are void, the sale deeds relied upon by the applicants are void and the mutation of revenue records based on those deeds is likewise void. Accordingly, the auction sale insofar as it deals with those parcels is not to be set aside in favour of the purchasers, and the Official Liquidator is directed to take measures to mutate title and revenue records consistent with the declaration. Ratio vs. Obiter: Ratio - where decree and evidence establish that lands are Company assets and subsequent transfers are void, the Court will declare such transfers and consequent revenue mutations void and direct restoration of records; no costs awarded. Conclusion: The rival claimants' applications fail; the Court dismissed the applications, declared the sale deeds in their favour void, declared consequent revenue mutations void, and directed the Official Liquidator to effect necessary mutation of title and revenue records. No order as to costs.