TaxTMI 
TaxTMI 
2003 (3) TMI 603
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....ated on 8-10-1992. Reserve Bank of India ('R.B.I.') 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, ....
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.... in his report stated that his representative visited the premises 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 assist....
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.... I am not dealing with flat No. 18 in the present judgment. 2.17 Looking to the 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 cor....
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....uffered in all loss of Rs. 4,72,000. It is not clear who has paid the transfer fees for transfer 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 agreemen....
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....registered with the Registrar of Companies on 30-1-1997, is satisfied in full on 7-5-1999. 4.7 The 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....
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....tation of Company Petition No. 296 of 1999. The learned counsel for the Official Liquidator further relied on section 441(2) 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) 8-1-1....
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....vt. Ltd. the amount of deposit as per clause 8 of Annexure IV i.e. within a period of five years from the date of maturity meaning thereby that from 8-7-1999 the amount will be paid within a period of five 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 ....
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.... concerned parties. 4.16 He further submitted that from the facts which have emerged from the records, it is clear that the transfer is voluntary transfer and is not transfer under compulsion i.e. in the circumstances 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. ....
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....i, however, urged that, even apart from this, the circumstances in which the mortgage deed came to be executed would themselves indicate that it would not be avoided as a fraudulent preference, Mr. R.M. Gandhi referred to the 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....
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....the transfer could not, in such circumstances, be treated as a fraudulent preference. After referring to a passage from Buckley on the Companies Acts 13th Edition (1957), the learned Judge observed that the expression 'preference' 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 so....
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.... surety. In order to avoid a transaction as a fraudulent preference, it is, as a general rule, essential that the relation of debtor and creditor should exist between the parties to the transaction. Paragraph 911 provides act done must be 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 init....
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....ing up petitions have been given in the affidavit dated 7-2-2002 of A.K. Khound, General Manager of Non-Banking Supervision of R.B.I. which is on page 180 of the paper book. 5.3 The learned counsel further submitted that transfer of flats in this case 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 w....
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....as under : "The words 'with a view of giving a creditor a preference over other creditors' have formed the subject of numerous decisions, the corresponding sections in most of the Bankruptcy Acts in different parts of the Empire being identical. It suffices to refer 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." (....
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.... the conduct of Rajiv Mehta and the company, it is clear that the case is also covered by section 531A and the transfer is not a bona fide transfer. In support of the same, the learned counsel for the R.B.I. has referred to affidavit of P. Radhakrishnan, Deputy General Manager, R.B.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".....
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....valuation reports have been produced to show that the consideration involved in the transactions was adequate. However, the said valuation reports are dated 16-2-2002 i.e. after filing of the OLR. Again the person giving the valuation reports has not given any comparative sale instances and 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....
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....ed that Mrs. Aarti R. Mehta has purchased the said flat for full consideration and is the owner of the said flat. 6.4 The learned counsel submitted that the Company (in liquidation) had sold flat No. 17 for Rs. 15 lakhs to Rajiv Enterprise. Against its dues of Rs. 15 lakhs, Rs. 14.43 lakhs payable under 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....
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....s supported by good faith and valuable consideration." (p. 4) The Hon'ble Supreme Court further observed as under : "The contrary proposition has not been pressed upon us and we need not therefore, pronounce upon that. If the burden lay on the Receiver, in our opinion, his application for annulment can be allowed 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 th....
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....made within a period of one year before presentation of the petition, was made either in the ordinary course of business or in good faith and for valuable consideration, such transfer would not be annulled. The burden of proving that the impugned transaction was not entered into in the ordinary course of business or in good faith 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 tha....
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....editor but on the contrary, go against him as stated hereinafter. 7.4 As regards banakhats, no party is shown to be confirming party as shown in the Sale Deeds. All the said banakhats are dated 8-4-1999 and the total consideration in all the said banakhats is Rs. 40 lakhs and that to in favour of the same party. 7.5 As regards Sale Deeds, the said Sale 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 d....
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....o. 8, also applies here. (d)Thus, there is a total loss of Rs. 14.22 lakhs being the amount realised less than the total amount of cost of acquisition of the said 3 flats only in a period of 1½ years. In addition to this, the amount of Rs. 50,000 in case of each of the said 3 flats deposited by the company with Sashya Association by way of maintenance deposits 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. Sa....
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....ed that under section 441(2) of the Companies Act, 1956, the winding up of a Company by the Court is to be deemed to have commenced at the time of the presentation of the petition for the winding up. This provision is to be given effect to in case of every petition when an order of winding up is passed in case of a Company irrespective of whether or not any order of winding up is 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 purchase....
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.... 227 to validate transactions such as sale of the Company as a going concern at best price available." 7.12A He has also referred to Companies Act, 1948 (Part V.P. 745) - Buckley 7th Edition in the heading Motive and deeds of arrangement - (pages 745 and 746) - On the question of fraudulent preference the Court looks at the dominant or real intention and not the result. . . . Where the intention is to 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....
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....at of giving a particular creditor or surety a preference over the other creditors, the payment is not fraudulent and void, for it is from the intention of the debtor to act in fraud of the law (i.e., to prevent the distribution of the bankrupt's property rateably among all his creditors) that the invalidity of the transaction arises.' And at page 557, paragraph 1104 : "On the other hand, in the absence of direct evidence, 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....
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....tted that there is a distinction between the point of time when an order of winding up is made and the point of time when an order of dissolution is made. The Company continues to exist between the two termini. 7.17 In view of the above, the learned counsel submitted that the sale transactions are not bona fide, for valuable consideration and entered into in the ordinary course of business of the Company and as such, are void. Contentions 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....
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....nd not under compulsion and not for valuable consideration. Therefore, the transaction amounts to fraudulent preference by the Company in liquidation. 9.3 As regards flat No. 16, the same was sold at Rs. 12,28,000. The said flat was sold against loan of Rs. 15 lakhs which the company obtained from Rajiv Mehta. An agreement to sell clearly shows that Rs. 12,28,000 has been adjusted by the company against the said loan and the company had paid Rs. 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 ....
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.... was paid by the company to the purchaser on 6-5-1999 whereas Rs. 43,000 the company had earlier paid the said amount to the purchaser of the said flat, namely Rajiv Mehta. This also shows that the company has not only adjusted Rs. 14,43,000 against bills rediscounting facility but paid Rs. 57,000 in cash on 6-5-1999. The transaction of sale took place on 7-5-1999. This fact clearly shows that the company has tried to prefer this creditor to other creditors 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....
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....y has clearly preferred Rajiv Mehta to other creditors in this behalf whose claim the company express its inability to pay before the Company Law Board. This clearly shows that the company has given fraudulent preference to Rajiv Mehta which clearly falls within the provisions of section 531 of the Companies Act. In fact the decisions in the cases of N. Subramania Iyer (supra) and Gandabhai Gulabchand (supra) which have been referred to by the learned counsel 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). "Sec....
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....J. at p. 342.' [See Charlesworth and Cain - Company Law - 12th Edition 1983, page 638]." 9.10 The law relating to fraudulent preference in the case of individuals is contained in section 56 of the Presidency Towns Insolvency Act and section 54 of the Provincial Insolvency Act. In the place of words "every obligation incurred and every judicial proceeding taken or suffered" occurring in those Acts, the words "any other act relating the property" are found here. As under the General 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 tra....
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....riod, namely six months before the presentation of the petition for winding up is to be considered and what is to be considered is not the incurring of debt, but the payments made to discharge that debt. (Paras 9.15 and 9.15A - Re : Division Bench judgment of this Court in the case of Official Liquidator, Navjivan Trading Finance (P.) Ltd. (supra) relevant pages 255 and 256). Whether the transfer is voluntary transfer 9.16 As held by this Court in the case of Maneckchowk and Ahmedabad Mfg. 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 fa....
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....y the creditors, the same cannot be relied on because the search reports and the title clearance certificates are dated 17-4-1999 stating that the title of Sashya Association is clear. However, in Form No. 17, the company has stated that the charge in favour of HDFC has been satisfied on 7-5-1999 that till then the charge of HDFC was subsisting and the title to the said properties was not clear. Admittedly, on the date of the said report, the said flats were under mortgage with HDFC. 9.21A So far as the valuation 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 ....
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....ad of "shall commence" indicate that although the winding up of a company does not in fact commence at the time of the presentation of the petition, it nevertheless shall be taken to commence from that stage if and when the winding up order is made (See AIR 1960 Punj. and Har. 476). Winding up is a process which begins after the Court passes the order for winding up. Till such order is passed, there cannot be any winding up in fact. [U.O. No. 21182/71/Adv. (F), dated 31-3-1971 on Department's File No. 5/1/69-CL-III] (See : 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 c....