Case: Rathnam P.V Vs. The Premier Automobiles Limited &amp; Others

staff and other employees and meet urgent contingencies. An interpretation which could lead to such a catastrophic situation should be averted. That apart, if any such view is adopted, a fraudulent company can deceive any bona fide person transacting business with the company by stage-managing a petition to be presented for winding up in order to defeat such bona fide customers. This consequence has been correctly voiced by the Division Bench in the impugned judgment.26. We must, however, say that the defence of the respondents in the present case is to the effect that 3498 shares of the company under liquidation were not transferred till 22 March 1990 when the company was ordered to be wound up but the appellant implored respondent No.4 Mr.C.V.K. Rao to go alongwith the appellant in a scheme of showing backdated transfer of 3498 trust shares in favour of the appellant. This was to be done to enable the appellant to represent to M/s. Alcon Engineering for the purposes of obtaining finance. The defence of the respondents also is that when this was done, the shares were held by the trusts of which respondent No.3 Mr.A.V.K. Rao was the sole beneficiary and at the relevant time in 1990 Mr.A.V.K. Rao was a minor. It is further case of the respondents that when Mr.C.V.K. Rao refused to give the appellant possession of the share certificates pertaining to the equity shares held in the company by the 17 trusts, the appellant in his own handwriting wrote out transfer of all shares belonging to the said trusts (of which respondent No.3 Mr.A.V.K. Rao is the sole beneficiary inspite of the fact that respondent No.3 was a minor in the year 1990). According to respondent No.4, though he was still hesitant to go through with this scheme, the appellant convinced him to go alongwith it, pointing out that the appellants possession of these share certificates was harmless for the following reasons :-(a) None of the trust shares could be transferred to anyone, as his son is the sole beneficiary of these trusts;(b) the trustees of the 14 trusts which owned the 3498 shares whose certificates were to be handed over to the appellant were not parties to this transaction;(c) no transfer forms were signed and no valuable consideration was ever paid; and(d) the first transfer was executed in the name of his son.27. In short, it is the case of respondent No.4 in the affidavit in reply that there was no board meeting of the company held on 3 March 1990 as alleged by the applicant (appellant) nor was there any transfer of 3498 equity shares of the company in liquidation by the appellant before the Company Court passed the order of winding up on 22 March 1990.28. Having regard to the aforesaid stand of the respondents as set out in para 8 of the reply affidavit of respondent No.4, it appears that according to the defence of respondent Nos.3 to 5, the alleged transfer of shares took place after Elmot Engineering Co. Pvt. Ltd. (that is the company in question) was ordered to be wound up on 22 March 1990. If that be so, it is obvious that the power under section 536(2) would not be available to the Company Court for approving or confirming the transaction which would be void ab initio. Obviously, upon passing of the order of winding up by the Company Court, the Official Liquidator shall, by virtue of his office, become the Liquidator of the Company, as provided in section 449 of the Act and the properties of the company including the shares would vest in the Official Liquidator and there can be no question of approving or validating any purported transfer of shares which might have taken place after passing of the order of winding up. The decision of the Supreme Court in Pankaj Mehras case (supra) also clearly indicates that the power under Section 536(2) is to be exercised in respect of transaction after presentation of winding up petition and before the date of winding up order.29. The question whether the alleged transfer of 3498 shares in the company under liquidation had taken place before 22 March 1990 as alleged by the appellant or after 22 March 1990 as averred by the respondents is itself a seriously disputed question of fact and that question is already pending trial before the District Court at Ranga Reddy, Hyderabad. We are, therefore, of the view that the learned Company Judge was fully justified in not granting any relief to the appellant in the background of such seriously disputed questions of fact. If the District Court at Ranga Reddy, Hyderabad allows the suit filed by respondent No.3 being suit No. OS 244 of 2009, then obviously, the question of validating the transfer of 3498 shares in favour of the appellant can never arise. However, in case the District Court at Ranga Reddy, Hyderabad dismisses the suit and holds that the alleged transfer of shares had, in fact, taken place prior to 22 March 1990 then only the question would still survive for the appellant to move this Court for sanction /validating the transfer during pendency of the winding up petition No.645 of 1988.30. Since the Courts have already taken the view in Bir Chand vs. John Bros., AIR 1934 Allahabad 161, H.L.Seth vs. Wearwell Cycle Company (India) Ltd. and others, 46(1992) Delhi Law Times 599, Pankaj Mehra and another v. State of Maharashtra and others, (2000)2 SCC 756 and Navjivan Mills Ltd. (1986)59 Company Cases 201, that disposition of property of the company during the interregnum period between the date of presentation of winding up petition and the date of passing of the winding up order can be validated at any time, the company application filed by the present appellant should not have been rejected on the ground of limitation but of course, the applicant would have to give explanation for any reasonable delay in making such an application under section 536(2) of the Act.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]15. Having heard the learned counsel for the parties and having given our anxious consideration to the rival submissions and having regard to the rival versions about the circumstances and the manner in which the appellant claims to have become owner of 3498 equity shares in the company under liquidation, we are of the view that the company application raises serious disputed questions of fact which can only be decided after a fulfledged trial and after considering the oral evidence of the parties. Admittedly, Suit No.244 of 2009 filed by Mr.A.V.K. Rao (respondent No.3 herein) in the Ranga Reddy District Court at L.B. Nagar, Hyderabad centers around the same controversy about the alleged transfer of 3498 equity shares in the company under liquidation in favour of the appellant.We must, however, say that the defence of the respondents in the present case is to the effect that 3498 shares of the company under liquidation were not transferred till 22 March 1990 when the company was ordered to be wound up but the appellant implored respondent No.4 Mr.C.V.K. Rao to go alongwith the appellant in a scheme of showing backdated transfer of 3498 trust shares in favour of the appellant. This was to be done to enable the appellant to represent to M/s. Alcon Engineering for the purposes of obtaining finance. The defence of the respondents also is that when this was done, the shares were held by the trusts of which respondent No.3 Mr.A.V.K. Rao was the sole beneficiary and at the relevant time in 1990 Mr.A.V.K. Rao was a minor. It is further case of the respondents that when Mr.C.V.K. Rao refused to give the appellant possession of the share certificates pertaining to the equity shares held in the company by the 17 trusts, the appellant in his own handwriting wrote out transfer of all shares belonging to the said trusts (of which respondent No.3 Mr.A.V.K. Rao is the sole beneficiary inspite of the fact that respondent No.3 was a minor in the year 1990). According to respondent No.4, though he was still hesitant to go through with this scheme, the appellant convinced him to go alongwith it, pointing out that the appellants possession of these share certificates was harmless for the following reasonsNone of the trust shares could be transferred to anyone, as his son is the sole beneficiary of these trusts;(b) the trustees of the 14 trusts which owned the 3498 shares whose certificates were to be handed over to the appellant were not parties to this transaction;(c) no transfer forms were signed and no valuable consideration was ever paid; and(d) the first transfer was executed in the name of his son.27. In short, it is the case of respondent No.4 in the affidavit in reply that there was no board meeting of the company held on 3 March 1990 as alleged by the applicant (appellant) nor was there any transfer of 3498 equity shares of the company in liquidation by the appellant before the Company Court passed the order of winding up on 22 March 1990.28. Having regard to the aforesaid stand of the respondents as set out in para 8 of the reply affidavit of respondent No.4, it appears that according to the defence of respondent Nos.3 to 5, the alleged transfer of shares took place after Elmot Engineering Co. Pvt. Ltd. (that is the company in question) was ordered to be wound up on 22 March 1990. If that be so, it is obvious that the power under section 536(2) would not be available to the Company Court for approving or confirming the transaction which would be void ab initio. Obviously, upon passing of the order of winding up by the Company Court, the Official Liquidator shall, by virtue of his office, become the Liquidator of the Company, as provided in section 449 of the Act and the properties of the company including the shares would vest in the Official Liquidator and there can be no question of approving or validating any purported transfer of shares which might have taken place after passing of the order of winding up. The decision of the Supreme Court in Pankaj Mehras case (supra) also clearly indicates that the power under Section 536(2) is to be exercised in respect of transaction after presentation of winding up petition and before the date of winding up order.29. The question whether the alleged transfer of 3498 shares in the company under liquidation had taken place before 22 March 1990 as alleged by the appellant or after 22 March 1990 as averred by the respondents is itself a seriously disputed question of fact and that question is already pending trial before the District Court at Ranga Reddy, Hyderabad. We are, therefore, of the view that the learned Company Judge was fully justified in not granting any relief to the appellant in the background of such seriously disputed questions of fact. If the District Court at Ranga Reddy, Hyderabad allows the suit filed by respondent No.3 being suit No. OS 244 of 2009, then obviously, the question of validating the transfer of 3498 shares in favour of the appellant can never arise. However, in case the District Court at Ranga Reddy, Hyderabad dismisses the suit and holds that the alleged transfer of shares had, in fact, taken place prior to 22 March 1990 then only the question would still survive for the appellant to move this Court for sanction /validating the transfer during pendency of the winding up petition No.645 of 1988.30. Since the Courts have already taken the view in Bir Chand vs. John Bros., AIR 1934 Allahabad 161, H.L.Seth vs. Wearwell Cycle Company (India) Ltd. and others, 46(1992) Delhi Law Times 599,  Pankaj Mehra and another v. State of Maharashtra and others, (2000)2 SCC 756   and Navjivan Mills Ltd. (1986)59 Company Cases 201, that disposition of property of the company during the interregnum period between the date of presentation of winding up petition and the date of passing of the winding up order can be validated at any time, the company application filed by the present appellant should not have been rejected on the ground of limitation but of course, the applicant would have to give explanation for any reasonable delay in making such an application under section 536(2) of the Act.