IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 07-10-2005 CORAM THE HONOURABLE MR. JUSTICE P.K. MISRA AND THE HONOURABLE MR. JUSTICE N. KANNADASAN O.S.A.NOs.275 to 280 OF 2002 and CMP.NOs.4439, 4444, 4343, 4850 of 2005 Archean Granites Pvt. Ltd. .. Appellant in all OSAs Vs. 1. RPS Benefit Fund Limited, rep. by the Official Liquidator 2. ICICI Bank Ltd., (Formerly Bank of Madura Ltd.,) Mount Road Branch, 192, Anna Salai, Chennai 2. 3. M. Muthusamy, Addl. Administrator R.P.S.Benefit Fund Ltd., Madras Bar Association, Chennai 104. (Respondents 2 and 3 are impleaded as per order dated 9.10.2003 and 17.11.2003 in CMP.Nos.15227/03, to 15229/03, 15272/03, 10051/02, 10056 to 10061/02 and 16827/03 to 16829/03 & 17053/03, 16830/03, 16831/03 respectively) .. Respondents in all OSAs Appeals filed under Clause 15 of Letters patent read with Section 483 of the Companies Act, 1956 against the common judgment dated 30.4.2002 passed by the learned single Judge in Application Nos.2047 to 2052 of 2000 in C.P.NOs.233 to 238 of 1999. For Appellants : Mr.S. Sampath Kumar in all OSAs Senior Advocate for Mr.A.R. Karunakaran https://hcservices.ecourts.gov.in/hcservices/ For Respondents 1&3 : Mr.Aravind P. Dattar in all OSAs Senior Advocate for Mr.M. Muthusamy Addl. Administrator and for Official Liquidator Respondent-2 : Mr.P.L. Narayanan in all OSAs - - - COMMON JUDGMENT P.K. MISRA, J The present appeals have been filed against the common order dated 30.4.2002 in Appln.Nos.2047 to 2052 of 2000 arising out of C.P.NOs.233 to 238 of 1999. Such applications were filed by the present appellant with a prayer that the sale deed executed by M/s.R.P.S. Benefit Fund Limited in favour of the appellant is valid and binding, and cannot be challenged in the winding up proceedings relating to M/s.R.P.S. Benefit Fund Ltd., with a further prayer to permit the appellant to pay the balance amount due to the Bank of Madura Ltd., and to get the original documents of title from the said Bank. 2. The basic allegations in such applications are as follows :- M/s.R.P.S. Benefit Fund Ltd., is a Company registered under the Companies Act. The said Company had purchased the disputed property by a sale deed dated 10.8.1995. Subsequently the said property was mortgaged to the Bank of Madura Ltd., by the Company by way of deposit of title deeds for a loan amount of Rs.60 lakhs. Since the Company started facing pressure from the depositors as well as from the Bank of Madura, an advertisement was taken out for sale of such property, but, since there was no proper response, a further advertisement was taken on 21.3.1999. Pursuant to the latter advertisement dated 21.3.1999, the appellant had offered Rs.165 lakhs and was willing to deposit 50% by May, 1999. On 22.4.1999, the Board of Directors passed a resolution authorising the President to execute the sale deed in favour of the appellant for the said amount. An agreement was executed in favour of the appellant accordingly and an advance of Rs.40 lakhs was received by the Company towards part consideration. Subsequently, an application in Form 37-I under Chapter XX C of the Income Tax Act, 1961 was filed before the appropriate Income Tax authorities. On 13.7.1999, the appropriate authority under the Income Tax Act issued No Objection Certificate for transfer of the property for the stated https://hcservices.ecourts.gov.in/hcservices/ value of Rs.165 lakhs. As required under the agreement of sale, the appellant wrote to the Bank of Madura on 22.7.1999 regarding outstanding amount due to the Bank with a view to pay such amount to discharge the mortgage and secure the original documents of title, which were with the Bank. On 24.7.1999, the Bank gave a reply stating that the outstanding amount was Rs.67,97,895/- as on 25.7.1999 and interest at the rate of Rs.3,930/- per day is to be charged thereon. On 26.7.1999, Company Petitions, namely, C.P.Nos.233 to 238 of 1999 were filed by various creditors of the Company for winding up of the company under Section 433(e) of the Companies Act. On 31.7.1999, the Company confirmed the receipt of Rs.92 lakhs towards sale consideration. As per the agreement, balance amount towards consideration of Rs.165 lakhs was to be paid to the Bank of Madura towards the loan. On 3.8.1999, the Company received Clearance Certificate under Section 230-A of the Income Tax Act. On 13.8.1999, the Company through its President executed the sale deed, which was registered. At the time of registration of the sale deed, balance consideration amount had been paid retaining a sum of Rs.69,19,725/-, which was payable to Bank of Madura. On 7.9.1999, the High Court passed orders in the Company Petitions appointing a provisional liquidator under Section 450 of the Companies Act and also appointed a committee of inspection. On 9.9.1999, the appellant paid a sum of Rs.10 lakhs to the Bank towards part payment of dues of the Bank and thereafter, on 14.9.1999, the appellant called upon the Bank to indicate about the total outstanding. On 17.9.1999, the appellant tendered balance amount due to the Bank by way of Demand Drafts and requested for release of the original title deeds. However, the Bank expressed its inability to receive the balance amount and to release the title deeds. On 20.9.1999, the registration authorities raised a demand for payment of additional stamp duty on the basis of the guideline value of the property at Rs.346.61 lakhs. The Company paid additional amount of Rs.25,42,571/- under protest and without prejudice to its right to recover the said amount through legal proceedings. Thereafter, in October, 1999, the applicant filed C.A.Nos.2047 to 2052 of 2000 in pending C.P.Nos.233 to 238 of 1999, seeking appropriate directions from the Court. During pendency of such proceedings, the Bank filed an application seeking permission to call sealed tenders for disposal of the property and thereafter an advertisement was issued on 12.2.2001 as per the direction of the court with an upset price of Rs.225 lakhs, but no response was received. 3. In the report filed on behalf of the Official Liquidator, it was indicated as follows :- The property had been purchased by the Company to run their Corporate Office. As per the report submitted by the Inspection Committee, it is shown that the property had been purchased out https://hcservices.ecourts.gov.in/hcservices/ of borrowed funds and the interest on borrowings were shown as additions to the cost of the property and as per the records, the cost of the property was shown as Rs.3,18,57,889/, but the sale was effected for Rs.165 lakhs. The sale transaction was made beyond the date of balance sheet and was not reflected in the audited statements. The agreement dated 22.4.1999 was made within six months before the filing of the Winding up petitions and was void under Section 531-A of the Companies Act. The sale consideration of Rs.165 lakhs, urged against the cost of the property of Rs.3,18,57,889/-, was very low. 4. An affidavit was also filed on behalf of the Inspection Committee. In such affidavit it was indicated that the process of sale of property commenced on 22.4.1999 and by that time, Mr.P.G. Sarnyan had made all arrangements to wind up the company by voluntarily withdrawing a sum of Rs.23.00 crores from the Nidhi. “Therefore, the negotiation process of selling the property is yet another device adopted by Mr.P.G. Sarnyan to sell the company’s properties for a very low consideration on paper / record and to receive the secrete the balance of market value by collecting the same in cash.” As per the endorsement made by the Collector, the property was grossly under valued to the tune of Rs.1,81,61,115/- and the differential stamp duty of Rs.23,60,956/- was collected from the buyer. “This itself would clinchingly prove that the actual consideration agreed by the parties had not been disclosed in the sale deed and the property has been grossly undervalued for the purpose of obtaining orders from the I.T. Department u/s.269-UL(1) and the real consideration was not reflected in the sale deed”. The sale agreement was on 22.4.1999 and the entire proceedings were completed on 31.8.1999, within a period of one year before the commencement of the winding up proceedings, and, therefore, the sale transaction was void against the Official Liquidator under Section 531-A of the Companies Act. The order passed by the Income Tax authorities under Section 269 does not shield the under valuation of the property. As per the Books of accounts of the company, value had been shown as Rs.3,18,57,889/- and the sale consideration of Rs.165 lakhs was grossly low. The real and the actual consideration would be much more than what was reflected in the sale deed. 5. A reply affidavit was filed on behalf of the appellant to the report of the Official Liquidator and the counter affidavit which had been filed on behalf of the Inspection Committee. In such reply affidavit, it was indicated that the plot in question was a very odd shaped plot, being a triangular plot with roads on three sides, and, therefore, value of the land was less. The real value of the land was less as vacant space has to be left on all the three sides. The https://hcservices.ecourts.gov.in/hcservices/ guideline value is not based on any material and it was increased by the Government from time to time and since the document was to be released urgently, the appellant thought it best to pay the additional stamp duty under protest. The Income Tax authorities had made enquiries and being convinced that there had been no under valuation, granted permission to go ahead with the sale. The value of the property was at peak level in 1995, when the property was acquired by the Company for Rs.1,64,00,000/- with registration charges of Rs.23,00,000/-, and in the Books of accounts such amount along with interest at 23% had been shown from year to year, and, therefore, the accumulated figure was shown as Rs.3,18,00,000/-. However, there has been steep fall in the real property value after 1996. Moreover, the property had been mortgaged to the Bank. Keeping in view these things, proper consideration had been paid. At the time of liquidation, the property in question was not in possession of the company. The Company had advised for sale of the property long before filing of the petition for winding up and as there were pressing necessities to the Company to pay the depositors, who were pressing for refund of the money, and also for payment to the Bank. It was further indicated in the reply that, on 31.8.1998, a regularly shaped property very near to the disputed property in question had been sold to a builder for putting up apartments, wherein 4 grounds and 28 sq.ft of undivided share was sold for Rs.23,68,800/- and the value comes to Rs.2100/- per sq.ft., whereas the value of the disputed plot was Rs.1771.34 sq.ft. 6. At the time of hearing of such applications before the learned single Judge, learned counsel for the applicant/appellant had contended that the purchase was a bona fide transaction and for a valid consideration which reflected the prevailing market price, and, therefore, the transaction should be protected. Moreover, the transaction had not been entered into with a view to defraud the depositors or the creditors and no application could be maintained under Section 531-A of the Companies Act and the application was not hit by Section 53 of the Transfer of Property Act and cannot be challenged in the winding up proceedings. It was also pointed out that the applicant had applied to the Income Tax authorities under Section 269-UL(1) of the Income Tax Act and No Objection Certificate had been issued for transfer of property for a total consideration of Rs.165 lakhs and the Company had also secured a Certificate under Section 230-A of the Companies Act. 7. Learned counsel who was appearing for the Administrator had contended that the transaction was not a bona fide transaction as it was completed in a hurried manner for a low consideration, particularly, when the property had been purchased 4 years before the impugned transaction by incurring https://hcservices.ecourts.gov.in/hcservices/ expenditure of about Rs.190 lakhs. It was further contended that in view of the location of the land, the property was a very valuable property and a sum of Rs.165 lakhs obviously did not reflect the market value. It was further submitted by him that the deficit stamp duty had been paid, which prima facie indicate that the original consideration indicated in the sale deed did not reflect the market value. 8. Learned single Judge observed that the following questions arose for consideration :- “(A) Whether the applicant is entitled to an order holding that the purchases made by the applicant from RPSB are valid and binding and they are not liable to be challenged in the winding up proceedings? (B) Whether the property in question has been sold bona fide, in good faith and in the interest of the company? (C) Whether the property has been sold for a fair market price? If not, whether it will reflect on the transaction as not bona fide? and whether there is any siphoning off the funds in the transaction by the Directors by selling it far below the market value? (D) Whether the sale has been effected with the intent to defeat the claims of the depositors and other creditors of the company and to benefit the applicant as well as the persons who were in management of RPSB? (E) Whether the applicants are entitled to an order as prayed for in all the applications? (F) Whether the sale transaction entered by the applicant is bona fide and valid and binding? (G) To what relief, if any?” 9. Learned single Judge found that :- (a) At the material point of time, the Company was under heavy pressure and had been conducting its affairs not in the interest of the Company or its depositors but had been treating the assets of the company as if those were the private properties of P.G. Saranyan and his family members. (b) The cost of the acquisition of the property as it indicated in the Application under Section 269-UL of the Income Tax Act was about Rs.3,18,57,889/- including the interest of Rs.1,28,36,956/- capitalised upto 31.3.1998, however, the appellant agreed, as per the sale agreement, to a sum of Rs.165 lakhs. (c) The claim of handing over possession does not deserve to be accepted and it is false. https://hcservices.ecourts.gov.in/hcservices/ (d) The application to the Income Tax authority was returned on 4.6.1999 and revised form 37.1 was filed. In such revised form, cost of acquisition including stamp duty had been set out as Rs.1,86,29,485/-, developmental expenses as Rs.3,91,488/- and interest capitalised at Rs.1,28,36,956/- had been concealed and “the certificate under section 230A had been managed on 3.8.1999”. (e) The applicant had paid the additional stamp duty on the market value as determined by the registering authority without any demur which was an abnormal conduct. Such conduct indicated that the applicant was aware of the market value and the difference between the apparent consideration and the actual market value had been siphoned off by RPSB or passed under the table to persons in management. (f) The property had been sold at 50% of the book value and the applicant cannot claim that it was a bonafide purchaser for value. (g) The Minutes Book had not been maintained properly and pages had not been numbered consecutively and loose sheets had been utilised and the resolutions were not bonafide resolutions passed in regular course of transaction and it cannot be said that the beneficiary was not aware of the infirmity in the resolution or designs or motive behind the transaction. The conclusions as summarised in paragraph 49 are as follows:- “49. According to Official Liquidator the agreement entered between the company and the applicant is a fraudulent preference and the sale is void in law. The Liquidator relies upon Section 531-A of the Companies Act. The request of the applicant to treat the sale executed by the company as valid does not deserve any further consideration and it deserves to be dismissed. The contention that the plot was odd sized or that sufficient space has to be left for purchase of promotion of construction cannot be countenanced. The location of the plot which is in the heart of the town should not be lost sight of. The very fact that without any demur substantial sum has been paid by the applicant without protest towards additional stamp duty would not only show the market value, but also the transaction has been entered far less than the purchaser market value and it has been entered collusively only with a view to deceive the creditors, to give preference to a set of creditors or Directors choice. The fact that under https://hcservices.ecourts.gov.in/hcservices/ Section 47-A without any demur the entire deficit stamp duty has been paid on the very date on which sale deeds were presented itself, is a fact which reflects on the applicant. The contention that there is a steep fall in the real estate market cannot be countenanced at all. It may be that there may not be any shooting up of the prices. But there was no fall in prices, much less, as sought to be made out. The contention that the property was not a property of the company on the date of filing of the company petition is a misconception and it runs counter to the statutory provision namely Section 531.A of the Companies Act. Assuming for purpose that the entire sale consideration has been applied for discharge of certain depositors and there is no fraud, but there is not material at all to show that the entire sale proceeds had been utilised to discharge the liability of the company or the depositors. No particulars have been furnished. The property has been undervalued and deficit stamp fee of Rs.23,60,956/- has been determined and paid without any demur by the applicant in terms of Section 47-A. That apart, at or about the same time, the Directors in control of RPSB have drawn huge sum to the tune of Rs.23,00,000/- from the RPSB and there is no account or explanation for the same. Even if the appropriate authority had given the approval for the transaction, the same cannot shield the transaction which is fraudulent transaction. The very permission granted by the appropriate authority is rather strange and requires to be examined by a competent authority. Less said is better with respect to Income Tax Department, who accorded permission as well.” On the basis of the aforesaid conclusions, the learned single Judge upheld the submission made by the Administrator and negatived the contentions made by the applicant and rejected such applications. 10. Learned counsel appearing for the appellant has submitted that the order of the learned single Judge is based on surmises and conjectures without considering certain basic aspects applicable to such cases. Particularly, the counsel has pointed out that the observation “The certificate under section 230-A had been managed on 3.8.1999” is a pure surmise in respect of an order passed by a statutory authority under the Income Tax Act. Similarly, according to the learned counsel appearing for the appellant the observation in paragraphs 38, 39 and 40 to the effect that the applicant paid the enhanced stamp duty without any demur on the very same day on which the sale deed was registered, is a clear error of record. He has submitted that in https://hcservices.ecourts.gov.in/hcservices/ fact the sale deed was registered on 13.8.1999, but the notice regarding payment of higher stamp duty was on 20.9.1999. Moreover, while making such payment of additional stamp duty, the applicant had raised objection by writing a letter of protest, and, therefore, it cannot be said that it was without any demur. Similarly the observation of the learned single Judge that the plot was a rectangular plot is clearly an error of record as the sketch map clearly points out that the plot was not a rectangular plot by any stretch of imagination. Learned counsel further pointed out that apart from the above series errors of record, and conjectures and surmises, the learned single Judge has not kept in view the fact that the money paid by the appellant had been utilised by the company for repaying the creditors, and the Company itself had advertised for sale of plot on two occasions much before the initiation of the proceedings for the winding up and the transaction was completed only pursuant to such advertisement, which clearly indicated that the appellant was a bona fide purchaser. It has been further contended that the mere fact that the guideline value was more or Book value of the property was more cannot be considered as sufficient to come to a conclusion that the market value had not been indicated in the sale deed, more particularly when there was a recession in the market value during the particular period. Learned counsel also pointed out that the observation of the learned single Judge in paragraph 42 that the transaction had been entered with an intention to throw away the property and siphon of the difference for the benefit of the individual directors by pocketing a sizeable amount in cash and the applicant is a party to such a transaction, is purely a surmise and conjecture without any basis. It has been further contended that the very fact that no bidders had given any offer even when the Bank had advertised pursuant to the direction of the Court itself clearly indicated that there had been no under valuation. 11. Learned counsel appearing for the Official Liquidator, while supporting the conclusions of the learned single Judge, has submitted that various resolutions relied upon by the applicant / appellant were not serially numbered nor properly maintained as contemplated under Sections 192, 193, 194 and 195 of the Companies Act and no sanctity is attached to the so called resolutions. It has been further submitted by him that even though the additional stamp duty had been paid on a later date and not on the date of the sale deed, the facts indicate that there was no real protest regarding valuation and the applicant paid the differential amount. It has been submitted by him that if the applicant was not convinced about the market value and the differential amount claimed by the Collector, he could have taken legal steps to get return of the documents instead of paying a huge sum of about Rs.23 lakhs as additional https://hcservices.ecourts.gov.in/hcservices/ stamp duty and such conduct only indicated the undue haste on the part of the applicant. Moreover, the Books of account as well as the guideline value clearly indicated that the valuation of Rs.165 lakhs was obviously more low. It has been pointed out by him that the so called delivery of possession, before clearance certificate was given by the Income Tax authorities, cannot at all be countenanced and it was never indicated to the Income Tax authorities that possession was taken and it is only an after thought. It is further submitted that the very fact that the title deeds were with the Bank and yet the applicant and the Directors proceed to complete the transaction in a hot-haste manner indicated their anxiety to complete the transaction. It has been further indicated that as per the agreement, possession was to be given at the time of registration and in fact the recital in the sale deed does not indicate giving possession on an earlier date, and thus evident that possession was not delivered on such date as has been claimed. 12. On the question of bona fides of the transaction and burden of proof, learned counsel appearing for the appellant has relied upon several decisions, particularly, including a few decisions under the Provincial Insolvency Act. In A.I.R. 1958 SC 1 (N. SUBRAMANIA IYER v. OFFICIAL RECEIVER, QUILON AND ANOTHER) it was observed :- “(10) The finding on the question of consideration being entirely in favour of the appellant-mortgagee, the only other serious question which remains to be considered is