1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.461 OF 2009 IN COMPANY APPLICATION NO.593 OF 2008 IN COMPANY PETITION NO.731 OF 1998 1) Shri Laxman Yeswant Prabhudesai 2) Shri Uday Laxman Prabhudesai 3) Mrs. Gayatri Uday Prabhudesai all India Inhabitant, residing at B-901 Florentine, Hiranandani Garden, Hiranandani Estate, Powai, Mumbai 400 076. ...Appellants (Org. Applicants) Versus 1) NRC Limited a Public Limited Company having its registered office at Eward House, Homi Mody Street, Mumbai 400 023. ...Respondent No.1 (Org. Petitioners) 2) Mr. Mohammed Pasha Hussain Indian Inhabitant, residing at 10, Malik Minar Apartments, Koliwada, Govindwadi Road Kalyan (East), Thane 421301. 3) M/s. Arsh International Chemicals Pvt. Ltd. a Company duly incorporated under the provisions of the Companies Act, 1956 2 having its registered office earlier at 1, Albion Palace, Hotel Heritage Compound, Sant Savata Marg, Byculla (E), Mumbai 27 And now at A/27, Nandjyot Industrial Estate Kurla-Andheri Road, Sakinaka Mumbai 400072. 4) Shri Shah Jadavji Mahipatrai 5) Shri Shah Mahipatrai Pradeep All Indian Inhabitants residing at 21, Ram House, 1st Floor, 1st Dady Sheth Road Babulnath, Mumbai 400 007. 6) Shri Shah Mahipatrai Deepak Indian Inhabitant, residing at Silva Apartments, 7th Floor, Shankar Ghankar Marg, Prabhadevi, Mumbai 400 028. 7) Shri Shah Mahipatrai Mehul Indian Inhabitant residing at 74, Shaan Apartment, Kashinath Duru Road, Prabhadevi Mumbai 400 028. 8) Shri Kamdar Kevalchand Masukhlal 9) Shri Kamdar Masukhlal Hiten Both Indian Inhabitant residing at 9/256, Sion (E) Road, Mumbai 400 022. 10) Mr Anwar Esmail Merchant 11) Mr. Esmail Hasham Merchant 12) Mrs. Shamin Anwar Merchant All Indian Inhabitant residing at 7, Gulistan, Faruq Umarbhai Road Agripada, Mumbai 400 011 3 13) Official Liquidators of M/sAminex Alkalies Ltd. High Court, Bombay. 14) M/s Aminex Holding and Investment Company a Partnership Firm having office at Flat No.3 Ground Floor, Milap Bhavan, 10th Lane Santacruz (East), Mumbai 400 055. ..Respondents Mr. Arul Rajadhyaksha a/w Mr. A.Dubey i/b M/s.Tripathi and Co. for the Appellants. Mrs. A.S. Pai, Official Liquidator. Mr. A.Z. Mookhtiar for Respondent Nos.10 and 12. CORAM : ANIL R. DAVE , C.J. & S.C.DHARMADHIKARI , J. Date of reserving the order : 3rd March, 2010 Date of pronouncing the order : 22nd March, 2010 JUDGMENT (Per S.C.Dharmadhikari, J.) This Appeal under section 483 of the Indian Companies Act, 1956 read with clause 15 of the Letters Patent is directed against an order dated 30th July, 2009, passed by the learned Company Judge in the above company application. 2. The appellants before us are the original Applicants. They moved the above company application praying that the order dated 21st April, 2007 in company application No.3 of 2007 be set aside and this court 4 should direct the Official Liquidator, High Court, Bombay to forthwith remove attachment of Plot No. R-34 situate at MIDC, Trans Thane Creek Industrial Area, Village Tetavali, District Thane, Navi Mumbai and return the possession thereof to the applicants. 3. The other prayer is that the Official Liquidator should be restrained from issuing any notice of auction or tender notice and selling the aforementioned plot of land. 4. The company application was supported by the affidavit of the appellant No.1. He stated in the affidavit that he is carrying on business as a partner of a partnership firm M/s.. Refair Industries. The business of the firm is of manufacturing electrical parts and assemblies. The firm has been producing electrical assemblies and parts to be supplied to various companies including M/s.. Siemens Limited. The demand for their product has been increasing and in fact, the business with M/s. Siemens Limited necessitated acquisition of more space for production activities. Therefore, the firm was in search of an additional plot of land. One real estate agent known to the first appellant assisted him earlier and, therefore, he informed the said agent that the agent should find out any additional plot for the 5 business of the firm. Accordingly, the agent alongwith another person approached the appellant No.1 in December, 2006 and informed him that M/s. Arsh International Chemical Pvt. Ltd. which is the original applicant No.4 and Respondent No.3 before us was interested in selling plot No.34 (subject plot). Therefore, there was a meeting arranged between the Directors of the said Arsh International Chemical (P) Ltd. After negotiations, it was agreed that the firm would acquire the plot for consideration of Rs.1,80,00,000/-. Thereafter, a token money was paid and subsequently, the Directors of M/s. Arsh International Chemical Pvt.Ltd. forwarded copies of title deeds and other documents to the partners of the firm. It was asserted in the affidavit that from a perusal of these documents, it is clear that M/s. Arsh International Chemical Pvt.Ltd. have title to the subject plot and in such circumstances, the agreement between the firm and M/s. Arsh International Chemicals was finalised. The amounts as stated in paras 2.7 and 2.8 of the affidavit in support have been paid. Thereafter, the deponent of the affidavit states that he asked his Chartered Accountant to take search in the office of Registrar of Companies and find out the status of the company from whom the said Arsh International Chemical Pvt. Ltd. have acquired the subject plot. The search was carried out and thereafter, public notice was issued. 6 5. Once again it is asserted that the total sum of Rs.1,75,00,000/- has been paid and the shares of the company have been transferred to the other applicants by the said Arsh International Chemical Pvt.Ltd. Further, the possession of the subject plot was handed over. The MOU was also signed between the parties. Thereafter, permission from the Maharashtra Industrial Development Corporation was sought to demolish the existing structure which came to be granted. Thereafter, other permissions so as to carry out manufacturing of electrical goods were also applied for. 6. However, when the site was being cleared on 21st September, 2007, some officers from the office of Official Liquidator, High Court, Bombay came at site and told the applicants that the High Court has directed attachment of the plot. On that statement being made, the opponent of the affidavit called up the other Director Mr. Anwar Merchant of M/s. Arsh International Chemicals Pvt.Ltd. who told him that he did not have any knowledge of court proceedings. Therefore, the Director did not assist the applicant No.1 and the firm in resisting the attachment. As a result, the subject plot was attached. The officials of the Official Liquidator took possession and deployed their security. However, the applicants 7 repeatedly followed up the matter with Shri Anwar Merchant but there was no response. They made enquiries and it was revealed during the same that an order was passed on 21st April, 2007 by this court attaching the said premises. It is in such circumstances that the aforementioned company application was filed claiming the reliefs referred to hereinabove. 7. It was the case of the applicants that the plot was transferred to M/s. Arsh International Chemical Pvt.Ltd. It was stated that the records pertaining to the subject plot did not reveal that there was any litigation pertaining to the same. There was no fault found with the title of M/s. Arsh International Chemical Pvt.Ltd. 8. It was stated that when M/s.Aminx Alkalies Limited (the company in liquidation) was ordered to be wound up by this court order dated 26th April, 1999, enquiries revealed that there were two plots viz. R-34 i.e. the subject plot and R-35. These are adjoining plots. R-35 was an asset of the company in liqudation. There was attachment and it was subsequently sold but there was no encumbrance or any attachment in respect of the subject plot. It is in such circumstances that the order passed attaching the plot deserves to be set aside. Further, although the order was 8 passed on 21st April, 2007, the Official Liquidator did not attach the plot till September, 2007. Further, it was stated that the winding up order of this court is dated 26th April, 1999 but various other properties such as office premises at Mumbai, factory premises at Gujarat and various plots at Pune belonging to the company in liquidation have not been attached, nor their possession was taken by the Official Liquidator. In these circumstances, the period of 9 years which passed by from the date of winding up till the attachment of the subject plot is crucial and relevant for the purposes of the prayers made in the company application. For all these reasons, it was prayed that the Company Application be allowed. 9. Reliance was placed upon several documents annexed to the company application. 10. When this company application was served on the respondents thereto, certain affidavits have been filed. One of the affidavits is of respondent No.5 Mehul Mahipatrai Shah. He is the Director of M/s. Aminex Alkalies Limited (company in liquidation). He states that he is not aware of the transaction in respect of the subject plot of the applicants.. He states that the company in liquidation was manufacturing chemicals on two 9 plots viz. the subject plot and plot No.R-35. On the other hand, Anwar Ismail Merchant and Ismail Hasan Merchant from whom the applicants claimed their rights in the subject plot were carrying on business in the firm name and style of M/s. Merchant Transports and M/s. Merchant Roadways. The said Merchants were transporting the goods manufactured by the company in liquidation from both plots for more than 13 years. It is stated that the Merchants had to recover some amount from an associate company of the company in liquidation and, therefore, they requested that the subject plot which was neither mortgaged to any bank or financial institution be transferred to them and they would withdraw the cases they had filed against the company in liquidation and its group companies. Therefore, on their insistence, the subject plot was transferred in the name of their company (M/s. Arsh International Chemical Pvt.Ltd.). A Deed of Assignment was executed on 15th December, 1998 transferring the subject plot to M/s. Aminex Holdings and Investments and thereafter, the said Aminex Holdings had transferred the subject plot to M/s. Arsh International Chemical Pvt.Ltd. and these Deeds of Assignments were registered on 20th April, 1999. It is stated that the respondents including respondent No.5 were not aware of the winding up order passed by this court. The deponent states that even MIDC permission for assignment was 10 obtained. In such circumstances, it is stated that the respondents were not concerned with the winding up petition and any order made therein. On the other hand, since they had handed over possession of the subject plot to the Merchants, they did not make enquiries with regard to the appointment of Official Liquidator. He came to know of such appointment only after the Merchants filed a criminal case against the respondents. Thus, it is stated that the order passed by this court on 21st April, 2007 was set aside and the Official Liquidator was directed to do the needful after Deed of Assignment was quashed by this court. The respondents confirmed that the subject plot and plot No.R-35 are adjacent to each other and they are in use of the company in liquidation for production activities. 11. One Anwar Esmail Merchant, respondent No.8 filed an affidavit- in-reply to the Company Application. His stand is that he has not made any representation for sale of the subject plot to applicant No.1 Laxman Yeshwant Prabhudesai. He denied all the statements made in the affidavit in support of the company application. 12. Official Liquidator also filed an affidavit-in-reply in which he pointed out that this is a case where the leasehold rights of the subject plot 11 were transferred to Anwar Merchant and Ismail Merchant vide agreement dated 15th December, 1999. These are ordinary creditors of associate company viz. Aminex Holdings and Investments. This is a group company/sister concern of the company in liquidation. The dues of the associate company cannot be paid out of the assets of the company in liquidation. It is stated that the agreement dated 15th December, 1999 is executed subsequent to the commencement of winding up. In fact, it is after the winding up order. Reliance was placed upon section 441(2) of the Companies Act and it was stated that the leasehold rights were transferred by the company in liquidation to M/s. Aminex Holdings & Investments after winding up petition was filed in this court. It is stated that the rights were purportedly transferred within three days of the filing of the winding up petition. Therefore, by virtue of the statutory provisions, these transactions are void and reliance was placed on sections 536(2) and 537(1) of the Companies Act, 1956. The Official Liquidator, therefore, denied that the subject plot is not belonging to the company in liquidation. In fact, he relied upon the minutes drawn at site when taking possession. On earlier occasion, the possession was not taken, according to the Liquidator, for the reason that the valuer had informed the Official Liquidator by letter dated 24th January,2003 that the only asset of the company in liquidation is Plot 12 No.R-35 and not the subject plot. However, when all the events and transactions were brought to the notice of the Liquidator including the order of this court that he moved in the matter. The Liquidator denied all allegations of collusion between him and the Merchants. He, therefore, prayed that no reliefs can be granted in this company application and it be dismissed. 13. The applicants filed an additional affidavit on 4th March, 2009 and dealt with some of the statements made in the affidavits of the contesting respondents and the Liquidator. 14. With this material, the company application was placed before the learned Single Judge and after hearing the counsel appearing for the parties, by the impugned order, he has dismissed the same. 15. It is this order which is under challenge before us. 16. Shri Rajadhyaksha, learned Senior Counsel appearing on behalf of the applicants did not seriously dispute that the subject property was assigned by the Director of the Company in liquidation in favour of its sister 13 concern M/s. Aminex Holdings and Investments. He did not dispute that this is a partnership firm of the Ex-Director of the company in liquidation. He does not dispute that on 18th December, 1998 M/s. Aminex Holdings and Investments have assigned the subject plot to Anwar Ismail Merchant and Ismail Hashan Merchant. On 15th February, 1999, the Merchants (respondent Nos.8 to 10) incorporated the company by the name of Arsh International Chemical Pvt.Ltd. The subject plot was brought in by the Merchants as an asset of Arsh International Chemical Pvt.Ltd. However, Shri Rajadhyaksha submits that the applicants had no knowledge of the order dated 21st April, 2007 passed by this court as they were not parties to the same. By this order, the court set aside the assignment dated 18th December, 1998 which was in favour of the sister concern of the company in liquidation. Shri Rajadhyaksha submits that when the court passed an order of winding up and appointed the Official Liquidator as Liquidator of the said company, for a period of 8 years, the Liquidator did not take any steps with regard to the subject plot. This was a clear indication that the Liquidator was not sure about the said plot being an asset of the company in winding up. It is in such circumstances the applicants acting bonafide on the representation of M/s. Arsh International Chemical Pvt.Ltd. acquired the rights in respect of the subject plot. Therefore, this is a fit case where the 14 Single Judge should have exercised the power conferred by section 536(2) of the Companies Act, 1956 and regularised the transaction between M/s. Arsh International Chemical Pvt.Ltd. and the applicants, appellants before us. He submits that there is nothing by which the applicants could be said to be acting in bad faith or malafide. On the other hand, complete inaction on the part of the Official Liquidator and when for nine long years he did not take any steps to take possession of the subject plot, the Single Judge should not have rejected the company application. The transaction could have been regularised and saved as the applicants are bonafide purchasers of the subject plot. For all these reasons, this is a fit case where the Liquidator should be directed to hand over the possession of the subject plot to the applicants after regularisation of the deal. More so, when the applicants had parted with Rs.1,80,00,000/- already and they would be badly affected in the business. 17. On the other hand, Ms. Pai appearing on behalf of the Official Liquidator invited our attention to the report of the Official Liquidator which was filed pursuant to the orders of the Division Bench of this court. She submits that the Official Liquidator while denying all the allegations of inaction, negligence and collusion, has pointed out the true and correct 15 position at site. He has in paras 5 to 7 of the report dated 4th January, 2010 explained the position. Ms. Pai submits that the Official Liquidator should be permitted to go ahead and dispose of the subject plot so that the creditors of the company in liquidation are paid their dues. She, therefore, submits that there is no substance in the appeal and it be dismissed. 18. Although there are several parties impleaded to the appeal as respondents other than the Official Liquidator, none other than the Official Liquidator addressed us. 19. With the assistance of the learned Counsel appearing for parties, we have perused the impugned order, some of the relevant documents and the statutory provisions in question. The principles on which Company Court exercises its power under section 536(2) are well settled. In a decision (Pankaj Mehra and another v. State of Maharashtra and others), reported in AIR 2000 SC 1953, the Supreme Court noticed relevant sections of the Company Act and in paras 14 to 18 this is what is observed by the Hon'ble Supreme Court :- 16 “14. In the above backdrop alone we can consider the impact of the legislative direction in S. 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 for 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 “null, or having no legal force or binding effect.” And the other is “unable in law, to support the purpose for which it was intended.” After referring to the nuances between void and voidable the Lexicographer pointed out the following : “The word `void’ in its strictest sense, means that which has no force and effect, is without legal efficacy, is incapable of being enforced by law, or has no legal or binding force, but frequently the word is used and construed as having the more liberal meaning of `voidable’. The word `void’ is used in statutes in the sense of utterly void so as to be incapable of ratification, and also in the sense of voidable and resort must be had to the rules of construction in many cases to determine in which sense the legislature intended to use it. An act or 17 contract neither wrong in itself nor against public policy, which has been declared void by statute for the protection or benefit of a certain party, or class of parties, is voidable only.” 15. For discerning the legislative idea in employing the word “void” in the context set out in S. 536(2) of the Companies Act the second aspect to be noticed is that the provision itself shows that the word `void’ is not employed peremptorily since Court has power to order otherwise. The words “unless the Court otherwise orders” are capable of diluting the rigor of the word “void” and to choose the alternative meaning attached to that word. 16. In Chittoor District Co-operative Marketing Society Ltd. v M/s Vegetols Ltd., 1987 (suppl) SCC 167 a two-Judge Bench of this Court considered a plea for validation of payments made by a Company after presentation of a petition for winding up. One set of payments were made thereafter. This Court declined to validate such payments on the ground that “there is no evidence to show that those payments were made either under compulsion of circumstances in order to save or protect the property of the company or that there was any commercial compulsion to enable it to run its business”. The decision only indicates that such payments could have been made valid if evidence was adduced to show that there was compulsion of circumstances. In fact, this decision lends support to the interpretation that the payments which were made after the commencement of winding up proceedings, would not become ab initio void. 18 17. An early decision of a Division Bench of the Bombay High Court in Tulsidas Jasraj Parekh v Industrial Bank of Western India, AIR 1931 Bombay 2 was sought to be relied on by most the learned counsel who argued for different appellant. The question which the Court considered therein pertained to S. 227(2) of the old Companies Act, 1913 which was identical to S. 536(2) of the present Act. Certain payments made by a Company after commencement of the winding up proceedings were questioned and the Division Bench considered the scope of the sub-section and noticed that the principle had been borrowed from the English Companies Act. Hence some of the English authorities were also referred to by Marten, C.J., who spoke for the Division Bench. Learned Judges stated thus : “Now here as regards S. 227(2) the Court has to steer a middle course between two extremes. On the one hand the words of the section are wide enough to include any sale or payment that a company may make after the date of the winding up petition. On that basis any business would practically have to be stopped if a petition was presented, because it would be unsafe to dispose of any of the company’s assets. For instance, a mill company might not be able to buy a ton of coal for the use of its furnaces, or, on the other hand, it might not to be able to sell any of its goods in the ordinary course of business. Consequently, the Court 19 has very properly laid down that, speaking generally at any bona fide transaction carried out and completed in the ordinary course of current business will be sanctioned by the Court under S.227(2). On the other hand, it will not allow the assets to be disposed of at the mere pleasure of the company, and thus cause the fundamental principle of equality amongst creditors to be violated. To do so would in effect be to the preferential debts enumerated in S.230 a further category of all debts which the company might choose to pay wholly or in part.” 18. It is useful to refer to the reasoning adopted by a Division Bench of the Gujarat High Court in Navjivan Mills Ltd., In re (1986) 59 Comp Case 201 : (1986 Tax LR 1817) in favour of adopting a pragmatic attitude when a Company Court was approached for approval of certain dispositions which a company made after presentation of a petition for winding up. A clear distinction was drawn by the Division Bench between the period till the passing of the order for winding up and thereafter, so far as dispositions are concerned. The following reasoning is useful for consideration of the issues involved: 20 “The Court can exercise the jurisdiction under S. 536(2) of the Companies Act, 1956,