Back
SUPREME COURT OF INDIA
MOHAN M. SHANTANAGOUDAR, AJAY RASTOGI, JJ.
IDBI Bank Limited Through DGM (Legal) - Petitioner
Versus
The Official Liquidator, Office of the Official Liquidator of Companies & Anr - Respondents
Special Leave Petition (Civil) No. 33825 of 2009
IDBI Bank Limited - Petitioner
Versus
Pradeep D. Kothari & Ors - Respondents
Special Leave Petition (Civil) No. 5143 of 2018
Decided On : 17-10-2019
(A) Companies Act, 1956 – Sections 433(e) and (f) and 434 read with Section 536(2) – Companies (Court) Rules, 1959 – Rules 24, 96 and 99 – Company petitions – Agreement to sell – Fraudulent preference – Advertisement of a winding up petition is mandatory – There has been a violation of advertisement requirements under Rules 96, 99 and 24, which are mandatory in nature – Both Courts below have found that no other creditor or contributory expressed willingness to prosecute original winding up petition – There are other unsatisfied secured creditors of KOFL who were not given option to step into shoes of petitioning creditor in terms of Rule 101 – Winding up proceedings are proceedings in rem and have an impact on rights of people, in general – It is mandatory to advertise such proceedings so as to ensure that they receive widest possible publicity and all relevant stakeholders have adequate notice – In a situation where petitioning creditor fails to advertise petition and no other creditor or contributory comes forward to prosecute it, Rule 101 should not be read in a manner that absolutely bars continuation of a winding up petition – Given absence of a specific provision mandating that petition only be advertised by petitioning creditor, Company Court has discretion to direct publishing of an advertisement to secure interest of other creditors – In such situations, winding up proceedings cannot be dismissed, as it would frustrate very objective of securing interest of all creditors. (Paras 8, 11.1,11.2 and 11.3)
(B) Companies Act, 1956 – Sections 433(e) and (f) and 434 read with Section 536(2) – Companies (Court) Rules, 1959 – Rules 24, 96 and 99 – Company petitions – Agreement to sell – Fraudulent preference – It would be unjust to dismiss winding up petition in instant case solely on the ground that there is no other person willing to substitute original creditor in terms of Rule 101 – In present case, secured creditors of KOFL were relevant stakeholders who were affected by non-advertising of winding up petition – They should have been called upon to indicate whether they would want to step into shoes of petitioning creditors as per Rule 101 – Settlement of dues has only been with respect to unsecured creditors of KOFL, which was carried out pursuant to orders issued by Company Judge – Given that secured creditors of KOFL have still not been satisfied and are bound to be affected by any order dismissing winding up proceeding, decision of Division Bench reviving C.P. and directing Company Court to issue appropriate directions to Official Liquidator for publishing advertisement of proceedings in accordance with law, upheld – Revival of winding up petition by Division Bench was correct. (Paras 11.4, 11.5, 11.6 and 12)
(C) Companies Act, 1956 – Sections 531 read with Section 293 – Companies (Court) Rules, 1959 – Rules 24, 96 and 99 – Winding up petition – Transfer of assets of company – Transfer or any other act done in relation to property of a company within a period of six months before commencement of its winding up shall be deemed to be a fraudulent preference of its creditors and accordingly be invalid – Sale of an immovable property can only be effectuated through a sale deed and an agreement to sell does not transfer any right, title or interest in immovable property – In absence of requisite approval from general meeting, instant application for execution of a sale deed cannot be allowed as doing so would be allowing Petitioner to sidestep mandatory requirements of Section 293(1) – Section 531 is comprehensive and includes indirect transactions within its scope – Petitioner is not precluded from benefiting from Section 531 on account of non-fulfilment of six-month condition – Agreement to sell cannot be termed as a fraudulent preference under Section 531. (Paras 14, 17.1, 17.4 and 17.5)
Facts of the case:
Instant SLPs have been preferred by IDBI Bank against judgments dated 17.08.2009 and 28.07.2017 passed by High Court of Judicature at Madras in O.S.A. No. 284 of 2003 and O.S.A. No. 396 of 2013 respectively, which relate to Company Petition (C.P.) No. 179 of 2001. Vide impugned judgments, High Court dismissed an application seeking the execution of a sale deed in favour of the Petitioner by one Kothari Orient Finance Limited (KOFL) and also revived winding up proceedings initiated against KOFL. Crucial question that arises for consideration is whether a winding up petition can be dismissed solely on the ground of lack of a prosecuting creditor under Rule 101, or whether Company Court has power to direct publication of an advertisement by Liquidator of company, especially in cases where other unsatisfied creditors still remain.
Findings of Court:
Our finding on fraudulent preference does not affect our conclusion that C.A. No. 1208 of 2002 is liable to be dismissed, as the non-compliance with Section 293(1) cannot be ignored. However, given our decision in support of revival of winding up proceedings, we observe that even if infirmity with respect to Section 293 is subsequently removed by KOFL, any execution of a sale deed in favour of Petitioner in the future will be subject to outcome of winding-up proceedings.
Result : SLPs dismissed.
JUDGMENT :
MOHAN M. SHANTANAGOUDAR, J.
1. The instant SLPs have been preferred by IDBI Bank (erstwhile United Western Bank) (hereinafter “the Petitioner”) against the judgments dated 17.08.2009 and 28.07.2017 passed by the High Court of Judicature at Madras in O.S.A. No. 284 of 2003 and O.S.A. No. 396 of 2013 respectively, which relate to Company Petition (C.P.) No. 179 of 2001. Vide the impugned judgments, the High Court dismissed an application seeking the execution of a sale deed in favour of the Petitioner by one Kothari Orient Finance Limited (hereinafter “KOFL”) and also revived the winding up proceedings initiated against KOFL.
2. The factual background to the instant petitions is as follows:
2.1 On 20.03.1992, KOFL availed a working capital loan of Rs. 55 lakhs from the erstwhile United Western Bank (now taken over by the Petitioner). As on 31.03.1999, the amount owed was Rs.60.55 lakhs. KOFL defaulted on the same. Consequently, it proposed a one-time settlement to the Petitioner for repayment of its dues. Towards this end, KOFL offered to sell its property - Office Space Nos. 102 and 103, 1st Floor, Prestige Point, admeasuring 2056.89 sq. ft. and situated at No. 33, Haddows Road, Nungambakkam, Chennai [hereinafter “the subject property”].
2.2 Pursuant to the same, KOFL and the Petitioner executed an agreement to sell dated 17.02.2000 with respect to the subject property for a consideration of Rs.1.05 crores. According to this agreement, the Petitioner paid Rs. 41 lakhs as advance and the balance of Rs. 64 lakhs was to be paid at the time of the completion of the sale transaction. This was done in pursuance of the authority vested with Mr. Pradeep D. Kothari (Director of KOFL and Respondent No. 1 in SLP No. 5143/2018, hereinafter “Respondent No. 1”) by the resolution dated 31.03.1999 passed by the Board of Directors of KOFL, giving him the right to execute agreement(s) of sale for the said property to improve the liquidity of the company.
2.3 It is important to note that on 18.04.2000, in accordance with the provisions of the Income Tax Act, 1961, a ‘No Objection Certificate’ was issued by the income tax authorities for the sale of the subject property for a consideration of Rs.1.05 crores. Later, vide letter dated 06.11.2000, possession of the property was also handed over to the Petitioner by KOFL.
2.4 Issues surfaced when two company petitions were filed on 02.07.2001, being C.P. No. 179 of 2001 and C.P. No. 180 of 2001 by one Mr. S. Ramaiah (Respondent No. 3 in S.L.P. (Civil) No. 33825/2009) and his wife respectively. Having deposited monies with KOFL, which had been defaulted upon, they preferred these company petitions under Section 433(e) and (f) and Section 434 of the Companies Act, 1956 (hereinafter“the 1956 Act”) seeking the winding up of KOFL and the repayment of their dues (hereinafter“winding up petitions”). When these petitions came up before the learned Company Judge on 05.12.2001, it was observed that the liabilities of KOFL (including outstanding secured loans) were more than the assets. Consequently, the petitions were admitted and directions were issued for appointment of an Administrator and a Provisional Liquidator for KOFL. In addition to this, directions were also issued for publishing the company petitions in an English and Tamil daily, as well as in the Government Gazette.
Genesis of S.L.P. (Civil) No. 33825 of 2009
2.5 In April 2002, the Petitioner filed Company Application (C.A.) No. 1208 of 2002 in the aforesaid winding up petition being C.P. No. 179 of 2001, seeking a direction to the Administrator to execute a sale deed in its favour for the subject property, as per Section 536(2) of the 1956 Act.
2.6 Vide order dated 21.04.2003, the learned Company Judge dismissed this application on the ground that the agreement to sell amounted to a fraudulent preference in favour of the Petitioner, as it ignored other similarly placed creditors. The appeal preferred by the Petitioner was numbered as O.S.A. No. 2
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
