TaxTMI 
TaxTMI 
2026 (7) TMI 332
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.... which is now under liquidation. The Board of Directors of the Company resolved to transfer the Subject Property to the joint names of the then Directors and promoters, comprising the Choughule Family ("Promoters") headed by one Mr. Sham G. Choughule. On April 15, 2011, an extraordinary general meeting of the Company was held and a resolution was passed purportedly under Section 293(1)(a) of the Act, which deals with approval of shareholders for the transfer of the whole or substantially the whole of the undertaking of a company. 3. It is common ground that this resolution forms the basis of the transfer being effected, with mutation entries being passed in the land records indicating that the Subject Property stood transferred to the Promoters without any other instrument being executed in respect of the transfer, much less a registered transfer deed documenting the conveyance of title from the Company to the Promoters. In other words, this was a related party transaction without being documented by anything other than a shareholder resolution and a board resolution, and yet the State Authorities were convinced to make a mutation entry to change the land records to insert the n....
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....on the Collector to provide copies of the documents and instruments on the basis of which the Promoters' names came to be entered in the land records in respect of the Subject Property. 8. Mr. Amir Arsiwala, Learned Advocate for the Promoters would submit that the initial reply from the Promoters in these proceedings was a clear assertion that the transfer to the Promoters had been valid and that the Official Liquidator's Report was misconceived. However, in a Sur-Rejoinder, after the Rejoinder of the Official Liquidator articulated the precise state of facts, there was a volte face but a legitimate one, from the Promoters who had discovered that they had been under a misconception that there had been a valid transfer from the Company to the Promoters. The Promoters' stance in the Sur-Rejoinder was that the late Mr. Sham Choughule had handled all the affairs of the Company and they were not personally aware of the precise factual position until their lawyers pressed them for documents to deal with the Rejoinder and then advised them about the legal position, namely, that there had been no valid transfer in favour of the Promoters in the first place. 9. To counter Mr. Hariani'....
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....e to six months, of a reference to three months." [Emphasis Supplied] 12. It is clear from a plain reading of the provision that any transfer of property, movable or immovable, would be deemed to be a fraudulent preference if it is effected within a period of six months before the commencement of the winding up, had such transfer been regarded as fraudulent preference in the case of an individual facing insolvency having effected a transfer in the three months prior to the presentation of an Insolvency Petition. The transaction being regarded as one of fraudulent preference is a deemed position in the eyes of the law. Apart from the variation of the period from three months for individual insolvency to six months for corporate insolvency, the ingredients of fraudulent preference as stipulated in this provision is. uniform. 13. Having examined the record, it appears that the transfer from the Company to the Promoters was indeed effected in the land records in the absence of any instrument of transfer, well after the winding up petition was presented in April 2011. There is not a whisper of the consideration paid by the Promoters to the Company. The enabling shareholde....
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....selves to the Subject Property for no stated consideration and worse, for a pretended consideration of past loans owed by the Company to the Promoters, would evidently and materially erode the ability of the creditors to recover their dues from the liquidation estate of the Company. This is precisely the mischief sought to be interdicted by the deeming fiction of fraudulent preference created in Section 531 - of shareholders of a company helping themselves to the assets of a company, from which the creditors would need to paid upon liquidation of such assets. 18. The Promoters had remarkable resourcefulness to have the land records mutated in their favour without any executed instrument much less a registered instrument. Once that was achieved, upon Mr. Choughule's demise, his widow's name was routinely substituted by another mutation entry. However, in 2023, the Promoters have attempted to further sell the Subject Property. By this time, Mr. Sham Choughule was long dead. In short, the Promoters enjoyed the title to the Subject Property and attempted to sell the Subject Property to third-party purchasers, which would have created further third party rights and complicated the ab....
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.... "the real object of transfer is to place the property beyond the reach of the creditor for the benefit of the debtor and is not for the payment of his debts" but for protection of his interest. Thus, dominant intention must be to benefit the debtor as against the creditor. *** 29. Keeping in view the aforesaid principles in mind, it cannot be said that transaction in question would amount to "fraudulent preference". The transaction is of a date before even winding up petition was filed. Further, valuable consideration is proved as the applicant advanced a loan in the form of an ICD in consideration whereof the bond in question was endorsed. Therefore, good faith in the transaction follows and there is not even a suggestion either by the official liquidator or the exdirector or the RBI which could shake this presumption, what to talk of any cogent evidence establishing want of good faith. It was a contemporaneous act. It was not a case where the ICD was given much earlier and the applicant was subsequently, to secure that loan, given the bond. The report of the court commissioner, to which reference has already been made, has found the transaction to be genuine. T....
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....with law. All that can be considered in good faith in accordance with law, but as far as the factual matrix of what has already transpired is concerned, it is clear to me that a fit case of fraudulent preference against the creditors has been made out. 25. The contention that in the absence of an actual transfer instrument there was no transfer at all for it to be declared void is a circuitous one, turning the logic on its head. A transfer sought to be effected by whatever means would bring within its fold a transfer effected by way of mutation entries, which the Promoters were resourceful enough to effect with the Sub-Registrar's Office without so much as an instrument of transfer. Having done that, they have secured title to the Subject Property even without documentation, and that calls for nullification within the jurisdiction of Section 531(1) of the Act. 26. Whether the Promoters can legitimately attribute all decisions to the late Mr. Sham G. Choughule, indicating that they were not personally involved and therefore were unable to understand or explain the context in which the transfers took place, may be considered appropriately if a meritorious application for perman....