1976 (1) TMI 88 - HC - Companies Law

Unauthorized sale in winding-up void under Companies Act sec. 537. Court emphasizes compliance with law in asset restoration.

R. Ranganathan Versus Veerakumar Trading Chit Funds (P.) Ltd.

The court held that a sale conducted without court approval in a winding-up proceeding was void under section 537 of the Companies Act. Despite the ... Winding up – Avoidance of certain attachments, executions, etc. Issues:- Validity of sale held without the court's leave- Applicability of section 537 of the Companies Act- Restoration of assets purchased in the sale- Payment of sale proceeds to the official liquidator- Direction to hand over movables not forming the subject-matter of the saleValidity of Sale Held Without Court's Leave:The judgment revolves around the validity of a sale held without the court's leave in a winding-up proceeding. The court observed that the sale of movables belonging to a company under liquidation took place without the required leave of the court, rendering it void under section 537 of the Companies Act. The petitioner contended that the failure to obtain leave should not invalidate the proceedings, citing a Supreme Court decision. However, the court upheld the official liquidator's argument that section 537 explicitly states that such sales shall be void, emphasizing the imperative language of the provision.Applicability of Section 537 of the Companies Act:The court analyzed the application of section 537 of the Companies Act, which mandates that sales conducted without the court's leave shall be void. Despite the petitioner's reliance on a previous Supreme Court case under the old Companies Act, the court differentiated the current situation where the sale occurred without court approval. The court affirmed that the language of section 537 leaves no room for deviation, emphasizing that the sale in question would be considered void due to the absence of court authorization.Restoration of Assets Purchased in the Sale:Regarding the relief sought by the official liquidator to restore the assets purchased in the sale held without court leave, the court dismissed the civil revision petition. The court clarified that the sale proceeds, including the amount paid to the decree-holder, should be returned to the official liquidator. The court directed the decree-holder to repay the sum received from the sale within two months and instructed that the remaining funds from the small cause suit be transferred to the official liquidator.Payment of Sale Proceeds to the Official Liquidator:In addressing the payment of sale proceeds, the court ordered the entire proceeds to be handed over to the official liquidator. The court highlighted that the decree-holder should return the amount received from the sale to the official liquidator within the specified timeframe. Additionally, the court mandated the transfer of the remaining funds from the small cause suit to the official liquidator for proper administration.Direction to Hand Over Movables Not Forming the Subject-Matter of the Sale:The judgment also addressed the issue of certain movables not forming the subject-matter of the sale that were handed over to the decree-holder pursuant to the attachment. The court directed the decree-holder to return these specific movables to the official liquidator within two months. While allowing the attachment to continue, the court emphasized the restoration of the status quo ante concerning the movables not involved in the sale, ensuring compliance with the legal requirements.Overall, the judgment focused on upholding the provisions of the Companies Act, specifically section 537, to address the unauthorized sale of assets in a winding-up scenario, emphasizing the importance of court approval in such transactions and the subsequent actions required for the proper administration of the liquidation process.