TaxTMI 
TaxTMI 
2003 (3) TMI 603
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....') had issued a certificate under section 45 I(f) of the Reserve Bank of India Act, 1934 that it was a non-banking Financial Company and it was bound by the directions issued by the R.B.I. as amended from time to time. 2.2 R.B.I., a body Corporate, established by the Reserve Bank of India Act, 1934 ('the 'R.B.I. Act') had filed winding up petition under the provisions of R.B.I. Act before this Court for winding up of PFSL. On 10-5-2000 this Court passed order to the effect that the Official Liquidator attached to this Court be appointed as Provisional Liquidator of the company in liquidation. 2.3 This Court by the judgment and order dated 20-10-2000 (since Reserve Bank of India v. Piramal Financial Services Ltd. [2000] 4 Guj. LR 3476 admitted the said petition and appointed Provisional Liquidator to the said company. 2.4 Thereafter, this Court by its order dated 20-3-2001 passed an order winding up PFSL and the Official Liquidator who was appointed as Provisional Liquidator earlier by the order dated 20-10-2000 was directed to be appointed as Liquidator of the company with usual powers under Companies Act, 1956. Thereafter, this Court by its order dated 20-7-2001 passed in Compa....
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....and the flats were found to be locked and the owners were not present at that moment. Then all such properties and flats were sealed by the Official Liquidator by taking symbolic possession. The Official Liquidator is not having keys of these flats. 2.11 In view of the above, the Official Liquidator stated that from the records produced before the Official Liquidator it appears that all the formalities for sale have been duly complied with by owners of flats and it is clear from above that the flats do not belong to the Company (in liquidation) i.e., PFSL. 2.12 In view of the aforesaid report of the Official Liquidator, the question which has been set out earlier hereinbefore, has been posed before the Official Liquidator. The said report was filed on 25-10-2001. 2.13 As the matter pertains to a large number of immovable properties of the Company (in liquidation), it may be noted that the Official Liquidator has also filed further reports dated 30-1-2002 and 30-9-2002. It may be noted that in view of the importance of the matter, this Court requested the Official Liquidator that if he desires to have assistance of an advocate, this Court may appoint any advocate of this Court. A....
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....e importance of the matter, I also requested learned counsel to file written submissions and accordingly written submissions were filed by the learned counsel for respective parties. 3. It may be noted that over and above R.B.I., other creditors have also filed winding up petition under the provisions of the Companies Act and in Company Petition No. 296 of 1999 this Court also passed winding up order dated 23-8-2002. Submissions on Behalf of The Official Liquidator: 4.1 The learned counsel for the Official Liquidator submitted all these facts in his report which I have stated earlier in this behalf. It may be noted that this petition relates to flat Nos. 8, 16, 17 and 18 situated at Haridwar Apartment. Panchavati, Near Gulbai Tekra, Ahmedabad. Regarding flat No. 8- 4.2 It appears that flat No. 8 was purchased by Rajiv Petro Chemical Pvt. Ltd. vide Deed of Sale dated 7-5-1999 from Piramal Financial Services Limited (hereinafter referred to "the company in liquidation"). The said Sale Deed was lodged for registration with the Sub- Registrar of Assurances under Serial No. 1261. From the correspondence which has been produced in this case it appears that consideration of flat No. ....
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....fer of flat No. 16 from the company in liquidation to Aarti Rajiv Mehta. It may be noted that Smt. Aarti Rajiv Mehta has given deposit of Rs. 15 lakhs to the company and the said sum of Rs. 15 lakhs has been adjusted against the purchase of the said flat. 4.4 As regards flat No. 17, it appears that Rajiv Enterprise, sole proprietor Shri Rajiv Vastupal Mehta had granted bill discounting facility to the tune of Rs. 15 lakhs to the company in liquidation. The said facility was granted for a period of six months from 25-11-1998 to 24-5-1999. The said fact has been gathered from letter dated 26-11-1998 which is produced at 116 of the paper book. Against the said loan the company in liquidation has issued cheque dated 24-5-1999 in favour of Rajiv Enterprise for Rs. 15,00,000 which is at page 117 of the paper book. The Sale Deed has been lodged for registration with the Sub-Registrar of Assurances under serial No. 1260. The Company in liquidation sold the said flat No. 17 to Shri Rajiv Vastupal Mehta, sole proprietor of Rajiv Enterprise for consideration of Rs. 14,43,000. A copy of the agreement for Sale, Deed of Sale and other relevant documents are produced at pages 119 to 151 of the p....
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.... learned counsel for the Official Liquidator therefore submitted that in view of the aforesaid facts, transfer of flat Nos. 8, 16 and 17 is fraudulent preference in favour of Rajiv Petrochemicals Pvt. Ltd., Smt. Aarti Rajiv Mehta and Shri Rajiv Vasupal Mehta and covered by sections 531 and 531A of the Companies Act. 4.8 To substantiate the aforesaid contention, the learned counsel for the Official Liquidator relied on sections 441, 531 and 531A of the Companies Act which read as under :- Section 441 of the Companies Act reads as under : "Commencement of winding up by Court - (1) Where, before the presentation of a petition for the winding up of a company by the Court, a resolution has been passed by the Company for voluntary winding up, the winding up of the Company shall be deemed to have commenced at the time of the passing of the resolution and unless the Court, on proof of fraud or mistake, thinks fit to direct otherwise, all proceedings taken in the voluntary winding up shall be deemed to have been validly taken. (2) In any other case, the winding up of a company by the Court shall be deemed to commence at the time of the presentation of the petition for the winding up." ....
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....of the Companies Act which provides that winding up of the company shall be deemed to commence at the time of presentation of the petition for winding up. 4.11 The flats are transferred against deposit/bill discounting facilities given to the company. The date of maturity of the said deposits/bills was 8-7-1999/24-5-1999. The company in liquidation had transferred flats in favour of Rajiv Mehta and others in discharge of their deposits/bills rediscounting facilities much prior to the maturity dates. 4.12 He submitted that according to the depositors against whose deposits the flats in question are transferred (hereinafter referred to as Rajiv Mehta and others), they had placed inter corporate deposits with the Company and had given bills discounting facilities to the company. The details emerging from the documents produced may be summarised as under : Deposits/bills Discounting facility Date Due date Date of transfer of flats in lieu of amount due from the company to Rajiv Mehta & others 1. Rs. 10 lakhs (Deposit) 8-1-1999 8-7-1999 7-5-1999 Deposits/bills Discounting facility Date Due date Date of transfer of flats in lieu of amount due from ....
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.... years. 4.14 It appears that even before the said reply was filed, Agreement for Sale was entered into on 8-4-1999. It is submitted that the said Agreement for Sale is not genuine for the reason that there was no confirming party in the Agreement for Sale which is produced at page 18 of the paper book. The said agreement only referred to two parties. However, clause 18 of the Deed of Sale at page 37 refers to confirming parties. It is clear that clause 18 in the Deed of Sale dated 7-5-1999 at page 37 is similar to clause 11 of the Agreement for Sale. The date of agreement is in handwriting as 8-4-1999 and Notary has certified the Agreement for Sale and Deed of Sale on 7-5-1999. It is submitted that notary has certified the Deed of Sale as true copy before it is lodged for registration with the Sub-Registrar of Assurances. The learned advocate for the Liquidator has made this submission on the basis that the Sub-Registrar after document is lodged for registration will return the document only after registering the same. It appears that Notary has certified the Deed of Sale as true copy without comparing the same with the original Deed of Sale. These facts leads to belief that the ....
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....stances which exist and which require the company to sell the said flats to save its own skin. Since it is voluntary transfer and in selling the said flat Nos. 8, 16, 17 and 18 preference is shown to the purchasers namely Rajiv Petro Chemicals Pvt. Ltd., Rajiv Enterprise Pvt. Ltd. (Smt. Aarti Rajiv Mehta) and Rajiv Vastupal Mehta as sole proprietor and as Karta of HUF the transaction is void and not binding on the Liquidator. 4.17 In view of the same, it clearly shows that there is fraudulent preference shown to the said three depositors amongst other depositors and these flats are sold without adequate consideration. In view of the same, transaction is void under section 531A of the Companies Act, 1956. 4.18 The learned counsel for the Official Liquidator further submitted that the aforesaid facts clearly establish beyond doubt that the transaction in question is not done in good faith and not for valuable consideration and as such is void against the liquidator. 4.19 In support of the aforesaid contention, the learned counsel for the R.B.I. has relied on the decision of this Court [Coram; D.A. Desai, J. (as he was then)] In re Maneckchowk and Ahmedabad Mfg. Co. Ltd. [1970] 40....
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....he arguments of Mr. D.C. Gandhi in which he has stated that the directors of the company were threatened with prosecution and under the threat of prosecution they executed the mortgage deed. Mr. R.M. Gandhi, however, urged that, assuming that this submission is factually correct, yet, execution of the mortgage in favour of the Central Board of Trustees would not be a fraudulent preference.............In order to find out whether if property would amount to fraudulent preference, the question should be addressed whether it was done to prefer one of the creditors to the exclusion of others. If it was done not with a view to prefer one of the creditors but to save one's own skin, say a threat of prosecution looming large or to avoid prosecution, certainly the transfer could not in such circumstances be fraudulent preference. This decision has been followed in In Re M.I.G. Trust 3 Comp. Cas. 345 (CA). Reference may also be made to In re F.L.E. Holdings Ltd. [1968] 38 Comp Cas 214 (Chd. D). In that case a passage from Buckley on the Companies Acts, 13th Edition (1957), is quoted which shows that as preference implies selection and selection implies freedom of choice, a payment must in o....
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....ce' implied selection and selection implied freedom of choice. The learned judge observed that a payment, in order to constitute a preference, must be voluntarily made, and that a payment made under pressure, e.g. in the context of proceedings, actual or threatened, by the creditor concerned, or fear of such proceedings, could not be considered as a fraudulent preference under the company law. In the instant case, the facts are quite eloquent. Learned counsel for the official liquidator and the petitioners have submitted that Monark Enterprises had not issued any notice to the company to the effect that it would execute the decree in view of the default committed. No such notice need be actually issued. Since Monark Enterprises were receiving threatening letters from the Bank of Maharashtra, Monark Enterprises must have threatened the company to pay its dues as the primary liability in respect of unpaid hundis executed by the company for the price of goods sold and delivered by Monark Enterprises to the company was of the company and Monark Enterprises were facing threats from the Bank of Maharashtra mainly because of the company having defaulted in respect of its obligation to dis....
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....in favour of creditor or surety. Paragraph No. 913 provides transaction with view of preferring creditor. 4.23 The learned counsel for the Official Liquidator has submitted that unless transaction of company property amounts to a fraudulent preference under the Insolvency Law and it is entered into within a period of six months prior to the commencement of winding up, the transaction cannot be treated as void under section 531 of the Companies Act, 1956. It is held that law does not presume that the transaction was fraudulent transaction. The question is as to whether the company entered into the transaction to save its own skin for its own benefit in the circumstances prevailing or whether the dominant motive of the company in effecting the transaction was to favour one creditor to another. After relying on the said judgment he submitted that the facts of the present case clearly establish that though the creditors and the depositors have initiated action and some depositors have filed petition before the Company Law Board, instead of making payment to creditors, the amount is paid to the purchasers by selling the flats that too at the price much lower than cost of acquisition an....
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....by PFSL to Rajiv Petro Chemicals Pvt. Ltd., Aarti Rajiv Mehta and Rajiv Vastupal of flats 8, 16 and 17 amounts to fraudulent preference in favour of Rajiv Mehta and others and hence covered by section 531 of the Companies Act which will be clear from the following facts : (i)The first petition against PFSL is filed on 21-10-1999 being Company Petition No. 296 of 1999. The transactions have taken place on 7-5-1999 i.e., within the period of six months from the date of presentation of the first petition. He has also relied on section 441(2) of the Companies Act which provides that winding up of a company by the Court shall be deemed to commence at the time of the presentation of the petition for winding up. (ii)The flats are transferred by the company against the deposits/bills discounting facility given by Rajiv Mehta and others to the Company. The due dates/maturity dates for the said deposits/bills rediscounting facilities were 8-7-1999 and 24-5-1999. Thus the transfer of flats on 7-5-1999 against the deposits/bills rediscounting facilities is made prior to the due dates/maturity dates. 5.4 The above details have been given in the affidavit of one P. Radhakrishnan, Deputy Gener....
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.... to the decision of the House of Lords in Sharp v. Jackson [1899] AC 419 in appeal from the case in New Prance Garrard's Trustee v. Hunting [1897] 2 QB 19 referred to above, and the decision of their Lordships of the Privy Council in Sime, Darby & Co. v. Official Assignee AIR 1928 PC 77, followed in Sholapur Spinning Co. Ltd. v. Pandharinath AIR 1928 Bom. 341. It was observed in the last case (p. 291) (of 30 BLR); 'The question to be determined is one of fact; was the dominant motive actuating the debtor in making the transfer, a desire to prefer the particular creditor or was it of a different character ? As the solution of this question involves an inquiry into the state of a man's mind, and as it must very seldom be the case that there is direct evidence on the point, the decision generally depends on the inference properly to be drawn from the circumstances attending the transfer as established by the evidence." (p. 218) The Court on the said judgment has further held as under : "It is true that because the ultimate result of a payment made was preference, it does not follow that the view in the sense of dominant motive at the time of payment was preference. As the case refer....
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....I., dated 28-8-2002 produced at page 263 particularly pages 267-270, the details of which have been referred to earlier. He further submitted that there are several discrepancies in the documents produced with the OLR (Official Liquidator's Report) as well as with the affidavit of Rajiv V. Mehta. He submitted that the letter from the company to Rajiv Enterprises Pvt. Ltd. dated 11-1-1999 and the letter from the Company to Rajiv Petro Chemicals Ltd. dated 11-1-1999 refer to inter corporate loan whereas in the affidavit of Rajiv V. Mehta it is described as deposit although the document produced with the OLR shows that the printed words Fixed Deposit Receipt have been cancelled and the words loan receipt are typed. In the banakhat between Rajiv Enterprises Pvt. Ltd. and the company alleged to have been executed on 8-4-1999 there is a reference to the payment of Rs. 15 lakhs as deposit by "confirming party". However, there is no confirming party in the banakhat dated 8-4-1999. He has further stated that Rajiv Enterprises Pvt. Ltd. was the confirming party only in the Sale Deed dated 7-5-1999 between Aarti Mehta and the company. Again the witnesses in the banakhat and the witnesses in t....
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.... therefore the said valuation reports cannot be relied upon. At any rate from the totality of the documents produced in this OLR it is clear that the transactions cannot be called good faith transactions nor can they be called bona fide transactions. In fact, in these transactions the seller has paid the amounts to Rajiv Mehta and others over and above selling the flats which is not usual in the transaction of the transfer of properties. Apart from the difference being paid by the company to the purchasers/depositors for adjusting them towards the dues of the depositors the company has also transferred maintenance deposit of Rs. 50,000 for each flat (total Rs. 2 lakhs) by requesting Sashya Association, a Non-Trading Corporation who developed the said flats to transfer the said deposits in the name of the purchasers. Thus, Rajiv Mehta and others not only got back the principal amount of their dues in preference to the other depositors but they also got additional amount by way of maintenance deposit towards interest. The transactions, thus, are covered by section 531A of the Companies Act. Submissions of learned Senior Advocate Mr. S.N. Soparkar 6. Shri S.N. Soparkar, learned seni....
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....nder Fixed Deposit was adjusted and for the difference of Rs. 57,000 the Company (in liquidation) issued a cheque of Rs. 14,000 on 6-5-1999 and balance of Rs. 43,000 was adjusted against interest. 6.5 The learned counsel has further submitted that all the three flats were sold at the market value and the purchasers have paid full consideration. 6.6 The learned counsel appearing for the purchasers has submitted that the said properties were transferred vide Sale Deed dated 7-5-1999 and the first winding up petition of the company (in liquidation) was presented on 21-10-1999. The only fact that the transfer was made within one year before the presentation of the winding up petition is not the only criterion for proving the violation of section 531A of the Companies Act. The other conditions to be seen are whether the transfer was made in ordinary course of its business and whether the consideration is valuable. It is submitted that the properties were transferred to the purchasers in ordinary course of business and the consideration arrived is based on market value of the properties and hence is reasonable. It is further submitted that the transaction is not covered by sections 531....
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....on proof either that there was no consideration for the transaction or that the consideration was so inadequate as to raise the presumption of want of good faith". (p. 6) 6.11 The learned counsel for the purchasers after relying on the decision of the Hon'ble Supreme Court in the case of N. Subramania Iyer (supra) has submitted that the burden to prove that transaction is mala fide lies on the persons who impeach the transaction. The initial burden of proving that the transaction impeached had not been made in good faith and for valuable consideration lies on the party seeking to set aside the transaction. If the transaction impeached was a real and not a fictitious one, the receiver could not be said to have brought the case within section unless he proved that the transferee knew that the transferor was insolvent at the time the transfer was made, even though the transfer was of the entire assets of the transferor. The receiver may also succeed on showing that though there was a valuable consideration for the transaction impeached, there was want of good faith in the sense that the transferee knowing all the circumstances of the transferor who had since been adjudged as insolven....
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....aith and for valuable consideration would be on the Official Liquidator or the creditors impugning the transaction. 6.14 He has further referred to the decision in the case of Sunder Lal Jain v. Sandeep Paper Mills (P.) Ltd. [1986] 60 Comp. Cas. 77 (Punj. & Har.) and submitted that in a case where there was valuable consideration, the liquidator may show want of good faith in the sense that the transferee, knowing all the circumstances of the transferor company which is since wound up, entered into the transaction with a view to shield the asset against the claim of the creditors. Unless it is found that the transferee was wanting in bona fide in respect of the transaction in question, he cannot be affected by the dishonest course of conduct of the transferor company. 6.15 It was further observed that it was not necessary for upholding the transaction that the transferor who had been subsequently adjudged as an insolvent should have been honest and straightforward in the matter of transaction impeached. Both the transferor and transferee must have common intention to defraud the creditors. The test is that the purchasers have acted honestly. A thing shall be done in good faith wh....
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....Deeds are dated 7-5-1999. The sale deed of flat No. 16 has been in favour of Mrs. Aarti Rajiv Mehta, the wife of Shri Rajiv V. Mehta. The sale deed has been also executed by M/s. Rajiv Enterprise (P.) Ltd. as the confirming party. Similarly, the sale deed of flat No. 17 has been in favour of Shri Rajiv V. Mehta, the sole proprietor of M/s. Rajiv Enterprise. The said sale deed has been executed by the said M/s. Rajiv Enterprise through its said sole proprietor as the confirming party. The sale deed of flat No. 8 has been executed in favour of M/s. Rajiv Petrochemicals (P.) Ltd. belonging to the preferred creditor. Thus, all the said flats have been sold to the same preferred creditor. 7.6 No monetary consideration has been passed from the purchasing parties to the company but only the adjustment of the amounts alleged to be due by the company to the various parties is made and on the contrary, the balance has been actually paid by the company to the concerned parties as is stated in the respective sale deeds. 7.7 The company has been paid much less consideration of about Rs. 59 lakhs for the total of four flats being flat Nos. 8, 16, 17 and 18 against the total value of about Rs. ....
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....is transferred to the purchasers. The Company has thus, in effect, paid the total sum of Rs. 1,50,000 to the preferred creditor. The said amount of Rs. 50,000 has to be deducted from the amount received by the Company from the preferred creditor in each of the said three cases. (e)In addition to the above, there is nothing to show as to who has paid the stamp duty and registration charges for the said sale deeds. Normally, the said charges are required to be paid by the purchasers and since the same has not been paid by the purchasers, they have benefited in the said transactions to that extent. The stamp duty payable is about 12% of the sale consideration in each of the said cases and since the purchasers have not paid the same, the preferred creditor has benefited to a considerable extent even on that count. Same is the case with respect to the registration charges of the said sale deeds. The preferred creditor has not produced anything to show that the purchasers have paid anything towards the said stamp duty in spite of the arguments to the above effect at the time of the hearing of the above application. As such, an adverse inference has to be drawn against the purchasers in ....
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....s passed with respect to the same Company earlier. Section 441(2) is to be read to the effect that winding up is deemed to have commenced from the respective dates of the filing of the petitions when there are more than one orders passed for winding up of a Company. 7.9 The learned counsel has submitted that the valuation reports relied upon by the preferred creditor has no value and the same cannot be relied upon on account of the following : (a)The said valuation reports are made on 5-5-1999 while the valuer has stated that he had inspected the properties on 15-2-2002 i.e. after about three years after making the reports. In addition to this, he has signed the reports on 16-2-2002 i.e. before the alleged inspection. (b)In the column 'owner' in the said reports, the names of the respective purchasers are shown, while, as a matter of fact, on the date of the making of the said valuation namely, on 5-5-1999, no sale deed was executed and the concerned parties were not at all the owners of the respective flats. (c)No sale instances have been taken into consideration by the valuer which is much necessary for making such valuation. No reason for the same is stated in the said repor....
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.... discharge a legal obligation, or what is thought to be a legal obligation, or voluntarily to repair a wrong done, or to protect the paying party from penal consequences or from exposure, the payment is not a fraudulent preference. . . . . To prove the motive or intention to prefer evidence of other acts of preference in favour of other creditors committed at or about the same time is admissible. Burden of proof - The onus is on those who claim to avoid the transaction to establish what the debtor really intended and that the real intention was to prefer. The onus is only discharged when the Court, upon a review of all the circumstances, is satisfied that the dominant intent to prefer was present. That may be a matter of direct evidence or of inference, but when there is no direct evidence and there is room for more than one explanation it is not enough to say, there being no direct evidence, the intent to prefer must be inferred. But this does not mean that unless there is no other possible explanation the intent to prefer will not be inferred; the ordinary principles adopted by the Court in drawing inferences of fact apply. 7.13 The learned counsel has also referred to the jud....
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....ce, the existence of some other possible explanation for the transaction will not itself exclude the drawing of an inference that there was an intention to prefer.' It is not necessary to discuss decided cases cited at the bar, in which the debtor was found to have acted not with a dominant intent, but say, with a belief that he was under a legal obligation to do the act whether such belief was well-founded or not, or with an intent to keep his business going or to set right his financial position, or even to take an advantage for himself if the law would permit such a course. If on the facts and circumstances there is room for more than one explanation, an intent to prefer is not of necessity to be drawn. The onus of proof is of course on the liquidator. We may examine the circumstances, having regard to these considerations." (p. 300) 7.14 The learned counsel has also referred to the decision in the case of In re Eric Holmes (Property) Ltd. (Chancery Division) [1966] 1 Comp. LJ 19 in which on page 25 it is observed thus : "I was referred to a number of authorities on the effect of section 44 of the Bankruptcy Act, 1914, in particular Peat v. Gresham Trust Ltd. 1934 AC 252, Re ....
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....tions of Mr. D.S. Vasavada, learned advocate, appearing on behalf of Rajesh Chimanlal Shah, Chartered Accountant: 8.1 Mr. Vasavada, learned counsel appearing on behalf of Rajesh Chimanlal Shah, Chartered Accountant, has submitted that the transfer of flats in question is a voluntary transfer and the company showed preference in repaying the dues of only a few select depositors. Even the documents produced before the Court do not inspire confidence and the same are fraudulent transfers and in view of the same, OLR No. 81 of 2001 is required to be dismissed. The said affidavit of Shri Rajesh Chimanlal Shah is produced at page Nos. 293 to 298 of the paper book. Over and above the said affidavit of Mr. Rajesh C. Shah, Mr. Vasavada has supported the contentions of Mr. Roshan Desai, Mr. Amar Bhatt and Mr. Ashwin L. Shah, learned advocates for the other parties. Conclusion : 9.1 As regards flat No. 8 as per the deed of sale it is sold at Rs. 13 lakhs while the cost of acquisition of the said flat is Rs. 16,50,000 as is evident from the figures stated in the application for Income-tax Clearance Certificate under section 230A(1) of the Income-tax Act, 1961 produced at page 94 of the pape....
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....2,72,000 to the Rajiv Enterprise (P.) Ltd. on that day. This clearly shows that the company has given preference not only by adjusting the flat value of Rs. 12,28,000, but it has also paid Rs. 2,72,000 to Rajiv Enterprise (P.) Ltd. in cash, though in fact the company had no capacity to make the payment to the other creditors. This fact is corroborated by the sale deed dated 17-8-1999. Income-tax clearance certificate which has been produced on record clearly shows that cost of acquisition of the said flat is Rs. 16,50,000 but admittedly the flat has been sold much below the cost of acquisition. It may be noted that the learned advocate for the purchaser has only stated that values of the property have gone down and therefore the Company had no alternative but to sell the flat at below the cost of acquisition. In support of the same, he has relied on the valuation report but it does not inspire any confidence because the valuation as on 7-5-1999 has been done only on 16-2-2002 and the valuation report also does not show how the value is arrived at. In view of this, the valuation report does not inspire any confidence and the same cannot be relied on. It may be noted that when the co....
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....tors in this behalf. Even on that day there was no compulsion to sell the flat. 9.6 It may be noted that Income-tax clearance certificate which has been produced shows the cost of acquisition of the flat at Rs. 19,37,750. Thus the company has sold the flat below the cost of acquisition and suffered loss of Rs. 4,95,750 and Rs. 50,000 towards transfer of maintenance deposit. In view of the same, for the reasons stated above, the company has tried to prefer this creditor to other creditors and the transaction is not in good faith and not bona fide. I also do not give any importance to the valuation report for the reasons which I have stated in connection with flat No. 16. 9.7 The facts emerging from the record of the present case are that the company in liquidation has transferred three flats i.e. flat Nos. 8, 16 and 17 situate at Haridwar Apartments, Panchvati, Gulbai Tekra, Ahmedabad, in favour of Rajiv Mehta on 7-5-1999. It may be noted that one company, namely, Unnati Investment Limited filed winding up petition against the company on 21-10-1999 for which winding up order has been passed by this Court on 23-8-2002. In the present case the transaction has taken place on 7-5-1999....
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.... for R.B.I. clearly apply to the facts of the present case. The facts gathered from the record clearly establish that the company has incurred considerable loss in the transaction. Even Rajiv Mehta in his affidavit has stated that the parties have renegotiated the deal before the date of maturity. In view of the same, company in liquidation has transferred three flats even before the due date and therefore also the transaction in question is not under compulsion or not under threat or duress. The transaction was at the volition of the parties and therefore the company in liquidation cannot raise any defence that they were compelled to sell the flats to save their skin. 9.9A What is meant by fraudulent transfer (sic). "Section 76 of the Joint Stock Companies Act, 1856 first introduced the Bankruptcy principles as to fraudulent preferences into the liquidation of insolvent companies. The last such provision was contained in section 615 of the Act of 1985. Under this provision, any act relating to property made or done by or against a company within six months before the commencement of winding up is invalid as a fraudulent preference if it qualified as such in the bankruptcy of an ....
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....neral Clauses Act, 'act' includes 'illegal omissions', the wording of the present section (i.e. section 531) is capable of covering all possible cases of fraudulent preference in respect of property. 9.11. If the transaction of transfer amounts to a fraudulent preference under the insolvency law and if it is entered into within a period of six months prior to the commencement of winding up, then alone the transaction in question can be treated as void under section 531(1) of the Act or otherwise. 9.12 To constitute fraudulent preference, there need not be a transfer of property, nor is any cash payment necessary. The words "other act relating to the property" are very comprehensive, and round about transaction may come within its scope. In Re Nattukottai Bank Ltd. [1957] 27 Comp. Cas. 404 (Mad.); Smt. Jayanti Bai's case (supra). According to the above mentioned case the section will apply even if the fraudulent preference is not direct but the intention is fraudulent preference. [See also Taylor Re ex parte (1887) 18 QB 295.] 9.13 To establish fraudulent preference under section 531, it is not enough to show that preference was shown to a particular creditor; it must also be sho....
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....g. Co. Ltd. (supra) the use of the word "preference" implies an act of free will and that would by itself make it necessary to consider whether pressure was or had not been used. A payment made under the impression that unless a particular creditor was paid, the Company would go into liquidation is not done out of free will and volition. If the object was to save the company, it may not amount to fraudulent preference. In this case the transaction was not entered into to save the company from threat or liability and therefore it amounts to fraudulent preference. Good faith 9.17 Good faith is defined in the General Clauses Act as follows : "A thing shall be deemed to be done in good faith where it is in fact done honestly whether it is done negligently or not". In the absence of a separate definition under the Companies Act, this definition must be applied. I have relied upon the judgments of the Hon'ble Supreme Court in the case of N. Subramania Iyer (supra) and Monark Enterprises (supra) which are applicable to present case. 9.18 In view of the same, I have to examine as to whether the transaction is done bona fide buy the company. For examining this aspect, it may be noted tha....
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....uation report is concerned, the transaction in question was entered in 1999 whereas the valuation has been done in 2001/2002. The valuation report does not give any comparable figure and therefore the valuation report does not inspire any confidence. 9.21B As the flats in question has been sold below the price at which they have been acquired, the transaction entered into by the company in liquidation with the purchaser is not in good faith or the transaction is not bona fide. 9.22 In view of the above, documents like banakhat, sale deed search report and valuation report on which the creditors placed reliance, do not inspire any confidence. The intention on the part of the company was to prefer the preferred creditor to the prejudice of the other unsecured creditors and as such the same amounts to fraudulent preference liable to be hit by sections 531 and 531A of the Companies Act. 9.23 It may be noted that there is no provision under the Act to the effect that no order of winding up can be passed when an earlier order is already passed. In the decision of this Court in the case of V.S. Spinners Ltd. v. Official Liquidator, Ambica Mills Ltd. [2000] 100 Comp. Cas. 547, the order....
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....e : Guide to the Companies Act, A. Ramaiya, Fifteenth Edition 2001, page 3392). 9.25 Thus a Company continues to exist even after the winding up order. An order of winding up can be passed in case of a Company which is already ordered to be wound up in another case and in each case of a winding up petition, the order takes effect and the winding up commences from the date of the winding up petition. Once an order of winding up is made, the provision of section 441 automatically comes into operation and the winding up commences from the date of the concerned petition. There cannot be any exception to the said legal effect and the law has to be given effect to. In case winding up order is passed in more than one petition, the winding up will commence from the date of the earliest petition and any transfer within six months previous to such commencement will be hit by section 531. 9.26 In view of the same, order of winding up was passed in Company Petition No. 147 of 2000, winding up commenced from 9-5-2000. After that when the order was passed in Company Petition No. 296 of 1999, it commenced from 18-10-1999. The impugned transfers have been effected on 7-5-1999 which date is withi....