TaxTMI 
TaxTMI 
2026 (5) TMI 525
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....ermination in both are really two sides of the same coin, by consent of the Learned Counsel, they were heard together and are being disposed of by this common order. For convenience, reference to the parties shall be as they appear in the Interim Application. The facts in brief: i. The captioned company petition ("the said petition") was presented on 27th April 2015 under the provisions of Section 433 of the Companies Act, 1956 ("the Companies Act"), seeking the winding up of the Respondent, i.e., Milestone Interactive Pvt. Ltd. ("the company"). ii. It is not in dispute that the company owned a property situated at 702, Supreme Chambers, Shah Industrial Estate, Near Veera Desai, V.D. Road, Andheri (West), Mumbai 400 053 ("the said Property"), which in fact was the registered office of the company. iii. On 9th September 2016, the company entered into an agreement to sell the said property to the Applicant for a total consideration of Rs. 27 crores. iv. Consequently, on 1st October 2016, the company executed a registered deed of apartment in favour of the Applicant on payment of full consideration. The agreement to sell and the deed of the apartment are collectively re....
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....he provisions of Section 536(2)^1 of the Companies Act, 1956. 3. Mr. Kachwala then submitted that, notwithstanding the use of the word "void" in Section 536(2), all transactions which were entered into after the presentation of a winding-up petition were not ipso facto void but were voidable at the instance of the Court. In support of his contention, he placed reliance upon the decision of the Hon'ble Supreme Court in Pankaj Mehra v. State of Maharashtra (2000) 2 SCC 756., which he pointed out held as follows: "14. In the above backdrop alone we can consider the impact of the legislative direction in Section 536(2) that any disposition of the property of the company made after the commencement of the winding up (i.e. after the presentation of a petition of winding up) shall be void. There are two important aspects here. First is that the word "void" need not automatically indicate that any disposition should be ab initio void. The legal implication of the word "void" need not necessarily be a stage of nullity in all contingencies. Black's Law Dictionary gives the meaning of the word "void" as having different nuances in different connotations. One of them is of course "....
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....ity that if the company court is satisfied that a particular disposition of the property of a company which is the subject-matter of a winding-up petition, is necessary or expedient in the interest of the company and particularly its creditors and shareholders and the transactions are in the ordinary course of its current trade bona fide entered into and completed, and it is in the interest of every one to preserve the company as a going concern, and if such transactions are not maintained, and the presentation of the petition groundless or well-founded would result ipso facto into paralysing the trade of the company and a great injury without any counter-balance of advantage would be done to those interested in the assets of the company, it would be in the discretion and duty of the court to validate such transactions. 5. Basis the above, Mr. Kachwala submitted that the consistent judicial position was that the Company Court possesses jurisdiction under Section 536(2) to validate dispositions made by a company even during the pendency of a winding-up petition so as to ensure that bona fide transactions, entered into in the ordinary course of business and in the interest of the ....
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....as paid on 14th September 2016 to the Company. iii. Rs. 17,00,00,000/- was paid on 30th September 2016 to Fullerton India Credit Company Ltd., a secured creditor of the company for which a no-due certificate was issued by Fullerton India Credit Company Ltd. iv. Rs. 5,00,00,000/- was paid on 30th September 2016 to the company, and accordingly, a deed of apartment came to be registered in favour of the Applicant, and the possession of the said property was delivered to the Applicant. v. The TDS amount of Rs. 27 crores in respect of the First Transaction was deposited by the Applicant, in support of which the Applicant has filed an Affidavit dated 21st April 2026 to which is annexed Form 26AS. 10. Mr. Kachwala submitted that the company had admitted that the revenue from the first transaction was utilised towards the repayment of the debts due to various creditors of the company and to maintain the company as a going concern. He, therefore, argued that the first transaction was clearly in the best interest of the company and that the creditors of the company had benefited from the consideration received from the first transaction. He thus submitted that t....
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....e any public notice was issued. He pointed out that no creditors or workmen of the company had come forward to oppose the transaction and that the consideration from the first transaction had been used to discharge the debt of Rs. 17,00,00,000/-, a secured creditor of the company to whom the said property was mortgaged as security as well as the other creditors of the company. He thus submitted that the first transaction was just, fair, and bona fide, and that the company and its creditors had derived benefits from the same. He submitted that the first transaction was also not undervalued and therefore ought to be validated by this Court. 12. Mr. Kachwala concluded by reiterating that the jurisdiction under Section 536(2) was an enabling and equitable one which requires the Court to take a balanced approach when considering an application for validation. He submitted that the Court was not required to view every transaction with suspicion, treat every disposition as void, or mechanically validate all transactions. He submitted that the jurisdiction under Section 536(2) should be exercised equitably based on the facts of each case and that it was an enabling power requiring confi....
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....of the property. 16. Mr. Hariani then placed reliance upon the decision of this Court in Laxman Yeswant Prabhudesai v. NRC Ltd. (2010) SCC OnLine Bom 434., to point out that there must be some commercial compulsion for the transfer of an asset of a company in liquidation, and the same cannot be done at the whims and fancies of the ex-directors. He also placed reliance upon the decision of this Court in In Re: Rustech Products [Bombay High Court] Order dated 15th September 2025 in OLR No. 42 of 2018., to submit that the property belonging to a company does not lie at the pleasure of its board of directors. 17. On the aspect of valuation, Mr. Hariani submitted that the Applicant had, in the Interim Application, failed to discharge the burden of proving that the said transactions were entered into for proper value; in light of the Valuation Reports, filed by Kishore Karamsey & Co. and M/s. Shetgiri & Associates, he fairly conceded that the first transaction had not been undervalued. He, however, pointed out that the Applicant had not discharged the burden of proving the payment of the balance consideration of Rs. 10 crores to the company, since the bank statements, upon wh....
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....the Official Liquidator, since those very books would have disclosed that each of the said financial creditors had already been paid off in full. He further submitted that the ex-directors had made great efforts in negotiating one-time settlements with all the creditors of the company and in settling their dues by utilising the proceeds from the sale of the said property. It was thus that he submitted that none of the said creditors had any subsisting claims against the company. He then pointed out that the very sale agreement annexed by the Official Liquidator to the OLR recorded that the Applicant had directly discharged the dues of Fullerton India Credit Company Ltd., out of the sale consideration, which he submitted was itself evidence of the bona fide character of the first transaction. 22. Basis the above, Mr. Murthy submitted that the first transaction was bona fide and entered into in the interest of the company. He submitted that the company had no option but to dispose of the said property in view of the outstanding dues owed by the company to various creditors. He further submitted that the ex-directors of the company at that time, were unaware of the provisions of....
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....es Private Limited and Ors. v. The Official Liquidator, High Court Bombay and Ors.[(BHC) Order dt. 9th June 2025 in Company Application No. 248 of 2019].] that the word 'void' in Section 536(2) of the Companies Act is to be read as 'voidable' and that validation of a transaction under Section 536(2) is an enabling power to protect and validate bona fide transactions completed before the date of the winding-up order. It is also equally well settled [Sunita Vasudeo Warke v. Official Liquidator and Ors.[2013 (2) Mh. L.J. 777]; Kalani Industries Private Limited v. The Official Liquidator, High Court Bombay and Ors. [(BHC) Order dt. 9th June 2025 in Company Application No. 248 of 2019.] that the Court must avoid extreme positions where every disposition is void or every disposition is permissible. Therefore, if it is found that the transaction was for the benefit of and in the interests of the company or for keeping the company going or keeping things going generally or in the interest of the creditors of the company, such transactions ought to be validated. In the case of MSFC v. Ajanta Pharma Bombay High Court Order dt. 3rd July 2022 in Company Application No. 380 of 2011., this Court....
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.... such a claim exists, in the facts of the present case, I find that for the reasons set out in (C) above, this would not by itself be enough to declare the first transaction void. In this regard, I find the Applicants' reliance upon the decisions in Kamani Metallic Oxides Ltd. Navjivan Mills Ltd. to be well founded. E. However, I find merit in the contention of the Official Liquidator that while the Applicant might not have known about the presentation of the winding-up Petition, the ex-directors of the company certainly did, since the record shows that the statutory notice was duly served, as also in view of the public notice of admission. Despite this, the ex-directors of the Company proceeded to deal with the property of the Company. The contention that the ex-directors were not aware of the relevant provisions of the Companies Act, 1956, needs only to be stated to be rejected, as correctly contended by Mr Hariani. To my mind, therefore, the conduct of the ex-directors of the company is clearly lacking in bona fides and therefore cannot go unnoticed. 24. In view of the aforesaid reasons, I pass the following Order: i. The captioned Interim Application is....