CAPP 40 of 2009 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. CAPP No.40 of 2009 Date of decision 12.10.2009 Chetan K. Singh ... Petitioner Versus Citi Bank and others ... Respondents. CORAM: HON'BLE MR. JUSTICE M.M. KUMAR HON'BLE MR. JUSTICE JASWANT SINGH Present: Mr.A.K.Chopra, Sr. Advocate with Mr. Sudhir Mittal ,Advocate for the appellant 1.To be referred to the Reporter or not ? 2.Whether the judgement should be reported in the Digest ? M.M.KUMAR, J. This is an appeal filed under Section 483 of the Companies Act, 1956 (for brevity 'the Act') is directed against order dated 7.5.2009 passed by the learned Company Judge in Company Application No. 803 of 2007 in C.P.No.374 of 2002. The application filed by the appellant an Ex-Director of respondent no. 3 Company (in liquidation) under Section 536 of the Act seeking post sale approval in respect of the property belonging to the company (in liquidation )has been dismissed doubting the bona-fide of the sale made apart from other grounds. Brief facts of the case are that a winding up petition was filed by respondent- Citi Bank being C.P.No.374 of 2002 on 12.11.2002 before this Court. The Allahabad Bank- respondent no.2 six months prior in time had filed O.A.No. 117 of 2002 before the Debt Recovery Tribunal, New Delhi (for brevity 'the DRT'). The property of respondent no. 3 i.e. M/s Venire Industries Ltd. (in liquidation) was attached by the DRT vide order dated 19.7.2002 which included the industrial plot which is subject matter of dispute in the present application. A copy of the order has been placed on CAPP 40 of 2009 2 record as Annexure R.11 with the written statement. The plot No. J 15 Jagamara Bhubneshwar measuring about one acre was purchased by the respondent company (in liquidation) which is situated at Bhubneshwar (Orissa) from the Government of Orissa by way of 90 years lease. The Allahabad Bank entered into one time settlement (OTS) with the respondent company (in liquidation) for a sum of Rs. 201 lakhs on 23.3.2005 (A.1) and the DRT vide its order dated 12.10.2004 had permitted the respondent company (in liquidation) to seek a prospective buyer of the mortgaged property (A.2). Consequently respondent company found a buyer namely M/s Siksha 'O' Anusandhan having its principal office at 224, Dharam Vihar Khandagiri Bhubneshwar who agreed to purchase the aforesaid property for a sum of Rs. 200 lakhs. Accordingly, an agreement to that effect was entered into on 3.3.2005 (A.3) i.e. prior to date of OTS. The respondent company addressed a letter on 31.3.2005 to the Director of Estates, Government of Orissa to transfer the property in favour of M/s Siksha 'O' Anusandhan after the sale consideration was realised and paid to Allahabad Bank (A.4). On 20.4.2005, the Allahabad Bank wrote to the Director of Estates, Government of Orissa informing him that the mortgage had since been redeemed and the Plot No. J 15 was no longer subject to any charge (A.5). The Allahabad Bank withdrew its recovery application since its claim had been settled and the Original Application was disposed of vide order dated 22.8.2005 (A.6). The Government of Orissa permitted the transfer of the aforesaid property in favour of M/s Siksha 'O' Anusandhan vide memo dated 21.7.2007 (A.7). The appellant- applicant has stated that tri-partite deed is required to be executed for effecting the formal transfer in favour of M/s Siksha 'O' Anusandhan. CAPP 40 of 2009 3 It has come on record that after the filing of C.P.No.374 of 2002 on 12.11.2002, the winding up order was passed on 23.2.2007. The application was opposed by the Official Liquidator by filing a detailed reply by stating that mere attachment did not confer any right on the attached creditor in respect of the property of the company in winding up. The purpose of attaching is to avoid private alienation of the said property and it continues to remains the property of the owner despite such attachment. The bona-fide of the sale transaction has been doubted by the Official Liquidator by pleading that one time settlement with Allahabad Bank was reached for a sum of Rs. 201 lakhs and the property was sold for almost the same amount of Rs. 200 lakhs. Accordingly it has been submitted that the transaction has to be regarded as a sham transaction with the object of disposing of the valuable property and assets of the company to defeat the winding up proceedings and to defraud the other creditors of the company. The amount of loan taken from the Allahabad Bank was secured by the personal guarantees of the two Directors of the company which includes Chetan K. Singh who is the applicant- appellant. The whole transaction has been an attempt on the part of the ex-directors to avoid their personal guarantee by fraudulently sale of valuable assets of the company in winding up. The learned Company Judge after examining the pleadings and the arguments raised has held that once the winding up proceedings have been initiated on 12.11.2002 and all events like OTS and sale had taken place during the pendency of the petition for winding up before this Court, the sale without reference to Official Lquidiation could not be validated. Placing reliance on the judgement of Hon'ble the Supreme Court in the case CAPP 40 of 2009 4 of Pankaj Mehra and another v. State of Maharashtra and others (2000)2 SCC 756, the learned Company Judge held that disposition of the property during the pendency of the winding up proceedings is not void ab-initio as it is qualified with the expression used in the same section namely unless the Court otherwise orders. Accordingly, if there is disposition of the property under the orders of the Court by virtue of Section 536(2) of the Act then the disposition shall be valid. The provision of Section 537 of the Act is attracted only when such orders have not been obtained and the sale has taken place with leave of the Court. The learned Company Judge further held that it is in the nature of one action following the other for, if the occasion for invoking Section 536(2) has already been exercised, there is no scope for applicability of Section 537. The learned Company Judge held that if such an approach is adopted then the company not approaching this Court for sanction of sale before it was undertaken, the sale effected would be seen as void by virtue of Section 537 of the Act. The learned Company Judge then examined the issue by adopting a restrictive approach with regard to the scope of Section 537(2) of the Act for rectification of post sale. The Court has to be satisfied about the bona-fide of the transaction. The learned company Judge went on to hold as under: “...... It is difficult to believe that a company, which had lost the entire property for the satisfaction of one creditor could not even urge the plea of bona fides. If any portion of property had been salvaged for the benefit of the company or any portion was available in surplus for satisfaction of other unsecured creditors it may be possible to infer bona-fides. If the property which is secured is allowed to be transferred for the exact CAPP 40 of 2009 5 amount, which was paid to a creditor, then it means the debtor was actually facilitating one secured creditor for, the earlier realization of his own debt. Even if the company had not consented for the sale, it would have come to a similar result of the property being sold at the instance of the creditor whose debt was fully satisfied. By the OTS, scaling down the debt had no meaning, for no benefit obtained to the company. As stated above, the entire security was lost to the company for the satisfaction of the creditor who held the property as his exclusive security. Even in the absence of OTS, the company could have realised the money by sale of the property and if there was still a shortfall and if there had been any personal liability of the Directors, the personal remedy may have been available for the creditor. In such an event, the OTS would have meant saving their own skin against personal liability but obtained no benefit to the company or its other creditors.” We have heard Senior counsel for the appellant at a considerable length who has tried to persuade us to take a different view and hold that the sale to Siksha 'O' Anusdhan is bona-fide. He has also urged that there are no powers with the Company Court once there is an order of the DRT. Having heard the learned senior counsel, we are of the considered view that this appeal is without any merit. The learned Single Judge has rightly found that the sale to Siksha 'O' Anusdhan is not bona- fide. The OTS was entered into for a sum of Rs. 201 lakhs on 23.3.2005 and the plot was sold on 31.3.2005 for a sum of Rs. 200 lakhs. Moreover, an attempt has been made by the Director to avoid personal liability as they CAPP 40 of 2009 6 stood personal surety to the loan advanced to the company. No benefit has been secured to the company or its other creditors as has been held by the learned Company Judge. A perusal of order dated 12.10.2004 passed by the DRT would show that the property was required to be auctioned and a detailed order has been passed in that regard. According to order dated 12.10.2004 (A.2) passed in OA No. 117 of 2002, the DRT was conscious of interest of the Allahabad Bank as well as the interest of justice. Accordingly, it directed the bank to publish an advertisement for sale of the aforesaid property through auction within a period of two weeks. It also allowed the company to locate a prospective buyer who could pay maximum price of the property as and when so notified to be sold through auction by the Allahabad Bank. The exercise was required to be completed within a span of two months which would take care of the litigation pending between the company and the sales Tax Department. Bhubneswar. The Allahabad Bank was allowed to recover the advertisement and other incidental charges incurred by it in undertaking this exercise which would include publication in two leading news papers of which one should be vernacular circulating in Orissa and one in English daily 'The Pioneer”. There is no whisper in the application with regard to publication of any notice or compliance with the directions issued by the DRT. The conclusion reached by the learned Company Judge holding that the sale was not bona-fides stand further fortified as the appellant has failed to show that the Directions issued by the DRT were not violated. Accordingly, it has to be held that the sale is fraudulent and it suffers from numerous lapses. Therefore, post sale approval cannot be accorded and we find no legal infirmity in the impugned order dated CAPP 40 of 2009 7 7.5.2009 passed by the learned Company Judge. In view of the above, this appeal fails and the same is dismissed with costs which is quantified at Rs. 20,000/-. (M.M.Kumar) Judge (Jaswant Singh) 12.10.2009 Judge okg