TaxTMI 
TaxTMI 
2019 (10) TMI 967
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....ecution of a sale deed in favour of the Petitioner by one Kothari Orient Finance Limited (hereinafter "KOFL") and also revived the winding up proceedings initiated against KOFL. 2. The factual background to the instant petitions is as follows: 2.1 On 20.03.1992, KOFL availed a working capital loan of Rs. 55 lakhs from the erstwhile United Western Bank (now taken over by the Petitioner). As on 31.03.1999, the amount owed was Rs. 60.55 lakhs. KOFL defaulted on the same. Consequently, it proposed a one-time settlement to the Petitioner for repayment of its dues. Towards this end, KOFL offered to sell its property - Office Space Nos. 102 and 103, 1st Floor, Prestige Point, admeasuring 2056.89 sq. ft. and situated at No. 33, Haddows Road, Nungambakkam, Chennai [hereinafter "the subject property"]. 2.2 Pursuant to the same, KOFL and the Petitioner executed an agreement to sell dated 17.02.2000 with respect to the subject property for a consideration of Rs. 1.05 crores. According to this agreement, the Petitioner paid Rs. 41 lakhs as advance and the balance of Rs. 64 lakhs was to be paid at the time of the completion of the sale transaction. This was done in pursuance of the authori....
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....smissed on the basis that the agreement to sell suffered from legal infirmities and was a fraudulent preference. This order passed by the Division Bench has been impugned in the instant S.L.P. filed by the Petitioner before this Court. Interim Proceedings 2.7 In the interim, Mr. Pradeep D. Kothari (Respondent No. 1) filed C.A. Nos. 2482-2485 of 2007, seeking permission to pay amounts due to the unsecured creditors of KOFL out of his own personal funds. By order dated 09.10.2007, the learned Company Judge disposed of these applications, directing Respondent No. 1 to deposit Rs. 4.69 crores with the Administrator towards full and final settlement of the dues of the unsecured creditors of KOFL. It was also directed that remaining amount (if any) should be refunded back to him after payment to the depositors. 2.8 On 23.06.2009, based on a perusal of the interim and final report filed by the Administrator, the learned Company Judge noted that 6,464 out of the total 10,968 depositors (unsecured creditors) of KOFL had been paid by the Administrator to the extent of 20% and 30% of the funds had been brought in by the Director. For the remaining 4,504 depositors, it was observed that ....
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....oached the Debts Recovery Tribunal, Chennai (hereinafter "DRT") for securing its interest and sought an injunction restraining the Official Liquidator from refunding the sum of Rs. 1.27 crores to KOFL. By order dated 13.12.2013, the DRT ordered that the said sum be attached once it is transferred to KOFL, so that the banks can recover their dues from the company. 2.13 In the interim, Respondent No. 1 filed an appeal against the order of the Company Court dismissing the winding up petition. By order dated 28.07.2017, a Division Bench of the High Court revived the winding up proceedings on the basis that it would be unjust and inequitable to wind up the company only for the reason that no other creditor or contributory was willing to prosecute the winding up petition. Taking note of the secured creditors of KOFL who had still not been satisfied and had consequently approached the DRT, C.P. No. 179 of 2001 was revived and the Official Liquidator was directed to continue the winding up proceedings under the supervision of the Company Judge. This order of the Division Bench in O.S.A. No. 396 of 2013 has been impugned in the aforementioned S.L.P. (Civil) No. 5143 of 2018 filed by the P....
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....te this, he relied on the provisions of the agreement which state that the remaining consideration of Rs. 64 lakhs would be paid only at the time of registration of the property. In light of this, he submitted that the adjustment of the said amount was not contemplated in the agreement and by doing so, the clause itself has been rendered redundant. 6. We have considered the arguments advanced by both sides and perused the material on record. Since the issue of fraudulent preference hinges on the survival of the winding up petition, we shall first proceed to examine whether the Division Bench was correct in reviving the winding up proceedings. Revival of the winding up petition 7. From a bare perusal of the decision of the Division Bench, it is evident that the requirements governing the advertisement of winding up petitions under the 1959 Rules are crucial for the determination of this issue. It would therefore be useful to note the relevant rules, which are reproduced hereunder: "R.96. Admission of petition and directions as to advertisement - Upon the filing of the petition, it shall be posted before the Judge in Chambers for admission of the petition and fixing a date f....
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..... No. 179 of 2001 seeking discharge of the Official Liquidator, the learned Company Judge observed that the mandatory procedure for advertising a winding petition, as stipulated under Rules 95, 96, 99, and 24 of the 1959 Rules had not been complied with. While looking into the implications of the failure to advertise, the learned Company Judge adverted to Rule 101, which allows for substitution of the petitioning creditor. However, since it was found that no other creditor had expressed the desire to prosecute the original petition, C.P. No. 179 of 2001 was dismissed. It was observed that such dismissal would not prejudice the creditors as more than 10,000 unsecured creditors of KOFL had been settled in the last 12 years after being given adequate notice, and even the secured creditors would not be prejudiced, as they would still be free to pursue their claims before the DRT. 10. As noted supra, a Division Bench of the High Court set aside the order of the Company Court in appeal. While it was observed that the winding up petitions had not been advertised by the petitioning creditor in accordance with the 1959 Rules, it was held that it would be unjust and inequitable to wind up ....
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....ses for our consideration is whether a winding up petition can be dismissed solely on the ground of lack of a prosecuting creditor under Rule 101, or whether the Company Court has the power to direct the publication of an advertisement by the Liquidator of the company, especially in cases where other unsatisfied creditors still remain. For answering this question, it is important to bear in mind that winding up proceedings are proceedings in rem and have an impact on the rights of people, in general. Thus, it is mandatory to advertise such proceedings, so as to ensure that they receive the widest possible publicity and all relevant stakeholders have adequate notice. This implies that in a situation where the petitioning creditor fails to advertise the petition and no other creditor or contributory comes forward to prosecute it, Rule 101 should not be read in a manner that absolutely bars the continuation of a winding up petition. This is particularly so when there are unsatisfied creditors who should have been given an opportunity to prosecute the petition, but were deprived of the same due to the failure to advertise. Indeed, Rule 101 is only limited to instances where the petitio....
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....of the company. 11.6 Therefore, given that the secured creditors of KOFL have still not been satisfied and are bound to be affected by any order dismissing the winding up proceeding, we uphold the decision of the Division Bench reviving C.P. No. 179 of 2001, and direct the Company Court to issue appropriate directions to the Official Liquidator for publishing the advertisement of the proceedings in accordance with law. 11.7 We hasten to add here that the other winding up petition, C.P. No. 180 of 2001 filed by the wife of Respondent No. 3 continues to remain on record, as the impugned proceedings pertain to C.A. No. 734 of 2011, which was filed in C.P. No. 179 of 2001 only. The impugned judgment and decree does not contain any direction qua C.P. No. 180 of 2001, which shall therefore remain unaffected. 12. In light of the finding that the revival of the winding up petition by the Division Bench was correct, we will now turn to examine whether the agreement to sell executed by KOFL in favour of the Petitioner amounts to a fraudulent preference, and consequently, whether the Petitioner has a right to seek the execution of a sale deed in its favour. Execution of sale deed 13....
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....ven the existence of such secured and other unsecured creditors, the transfer of the subject property in favour of the Petitioner (which was found to be the prime property of the company) was held to be a fraudulent preference. Further, it was observed that the Petitioner would not have any priority over the general body of creditors merely because possession of the property had been handed over to it. It was also held that the Petitioner could not claim to be a bona fide purchaser who was unaware of the financial crunch of KOFL, as it had access to the annual report of KOFL for the year 1999-2000, which revealed the company's poor financial condition. 16. As noted supra, the Division Bench affirmed the order of the Company Court in appeal on the basis that it would be unjust to allow the sale transaction, especially since the property in question was the only and prime immovable asset of KOFL and was to meet the demands of several secured and unsecured creditors. In light of this, it was held that the Board resolution dated 31.03.1999 was insufficient and a resolution of the general meeting of KOFL approving the sale transaction was necessary, as required under Section 293(1). T....
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....nsel for the Petitioner, this provision is applicable to the present case in view of the categorical finding by both the Courts below that the subject property is the only immovable property of KOFL. Notably, no approval from the general meeting of KOFL has been obtained. There is only a Board resolution dated 31.03.1999 permitting Respondent No. 1 to execute agreements of sale and other documents for the purpose of selling the subject property. In the absence of the requisite approval from the general meeting, the instant application for execution of a sale deed cannot be allowed as doing so would be allowing the Petitioner to sidestep the mandatory requirements of Section 293(1). Therefore, in our considered opinion, C.A. No. 1208 of 2002 deserves to be dismissed on this ground alone. 17.2 Be that as it may, in light of the contentions raised by both the parties on whether the agreement to sell in question amounts to a fraudulent preference, we consider it necessary to address the same. We differ with the Division Bench inasmuch as the said agreement cannot be termed as a fraudulent preference under Section 531. Under Indian company law, Section 531 of the 1956 Act (now Section....