Winding-up petition transfers: bona fide pre-order dispositions may be validated under Section 536(2) when made for fair value.

Section 536(2) of the Companies Act, 1956 was treated as conferring an equitable power to validate bona fide dispositions made after presentation of a winding-up petition but before the winding-up order, because the word "void" is read as "voidable" in that context. A transfer made without knowledge of the winding-up proceedings, after due diligence, for fair value, and with sale proceeds applied to discharge company debts was validated, while the conduct of ex-directors dealing with company property despite awareness of the proceedings was disapproved. A separate transfer between private parties was held not to be a disposition by the company during winding up and therefore fell outside Section 536(2), so validation under that provision did not arise.

---

---

Issues: (i) Whether the first transaction, entered into after presentation of the winding-up petition but before the winding-up order, should be validated under Section 536(2) of the Companies Act, 1956. (ii) Whether the second transaction fell within the scope of Section 536(2) of the Companies Act, 1956 and could be validated.

Issue (i): Whether the first transaction should be validated under Section 536(2) of the Companies Act, 1956.

Analysis: The word "void" in Section 536(2) is to be read as "voidable", and the power of validation is an enabling equitable power intended to protect bona fide dispositions made before the winding-up order. The first transaction was entered into without the Applicant's knowledge of the winding-up proceedings, after due diligence, at a consideration above market value, and the sale proceeds were used to discharge the company's debts. No material was placed to show fraud, tainted conduct, or sale at an undervalue. The Court, however, disapproved the conduct of the ex-directors, who dealt with company property despite knowledge of the proceedings.

Conclusion: The first transaction was validated and upheld in favour of the Applicant.

Issue (ii): Whether the second transaction fell within the scope of Section 536(2) of the Companies Act, 1956 and could be validated.

Analysis: The second transaction was a transfer between private parties and was not a disposition by the company during the winding-up process. It therefore did not attract the statutory control under Section 536(2), and the question of validation under that provision did not arise.

Conclusion: The second transaction was held to be outside the scope of Section 536(2) and no validation was granted under that provision.

Final Conclusion: The application succeeded only to the extent of protecting the first transaction, while the Official Liquidator's challenge failed, and the second transaction was left outside the statutory validation exercise.

Ratio Decidendi: A disposition made after presentation of a winding-up petition may be validated if it is bona fide, for fair value, and in the interests of the company or its creditors, since the statutory expression "void" in Section 536(2) operates as "voidable" in such cases.

---