Share transfers made after the commencement of winding up are void unless sanctioned by the court, and must be justified as beneficial to the company.

JUDGMENT :

The appellants are aggrieved by the order dated 27-10-2006 passed by the Company Law Board, Western Region, Bench at Mumbai in Company Petition No. 7/111A/CLB/WR/2004 directing the appellant no. 1 – M/s. Maharashtra Antibiotics and Pharmaceuticals Limited as also the respondent no. 2 - SICOM Limited to transfer the shares to the respondent no. 1, who allegedly purchased 40530 equity shares of Rs. 100/- each held by respondent no. 2.

2. The respondent no. 1 had approached the Company Law Board under Section 111A of the Companies Act, 1956 (for short ‘the Companies Act’) seeking directions to the appellant no. 1 to accept share transfer deeds along with share certificate and to transfer 40530 shares of Rs. 100/- each in the name of respondent no. 1.

3. The appellant no. 1 is joint venture of Government of India through appellant no. 2 - Hindustan Antibiotics Limited, which is wholly owned company having share holdings of the Government of India, Government of Maharashtra through respondent no. 2 – SICOM and IDBI Bank. The appellant no. 2 holds 59% shares of the appellant no. 1 – company, respondent no. 2 had 33% shares and IDBI has 8% shares.

4. There is no dispute that Board for Industrial and Financial Reconstruction (BIFR) has on 4-7-2000, passed an order under Section 20 of the Sick Industrial Companies Act recommending for winding up of the company. The order of recommendation was forwarded to this Court, which has registered the same as Company Petition No. 15/2000. There is further no dispute that respondent no. 1 has purchased impugned shares on 8-9-2002 which is subsequent to the order passed by BIFR recommending for winding up of the company as also the registration of company petition.

5. Heard Mr. A. A. Naik, learned Senior Counsel for the appellant and Mr. Naphade, learned counsel for respondent no. 1.

6. The appellants had challenged the transfer by relying upon sub-section (2) of Section 536 of the Companies Act which reads thus :

“(2) In the case of a winding up by [the Tribunal], any disposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall, [unless the Tribunal] otherwise orders, be void.”

7. Mr. Naik, learned Senior Counsel has taken aid of sub- section (2) of Section 441 to contend that winding up of a company, in the present case, has commenced in the year 2000. He submits that the order dated 4-7-2000 of BIFR was received by this Court on or about 13-11-2000 and the notices were issued on 1-12-2000 and thus, the winding up of a company had commenced in the year 2000. He further submits that subsequent to commencement of winding up of company, any disposition of the property of the company and any transfer of shares in the company, if made without approval of this Court, is void and, therefore, it was impermissible for the Company Law Board to direct the appellant to transfer the impugned shares to the respondent no. 1. According to Mr. Naik, the respondent no. 1 ought to have obtained prior permission of this Court before purchasing the shares belonging to respondent no. 2.

8. The Company Law Board, however, has taken a view that unless winding up order is passed by this Court, the rigor of Section 536(2) of the Companies Act will be not attracted. Consequently, the Company Law Board has validated the transfer of shares.

9. Mr. Naphade, learned counsel for respondent no. 1 submits that the order passed by the BIFR recommending winding up of a company is nothing but an opinion of the Board and will only form basis for the proceeding to be continued against the sick industrial company for the purpose of winding up. He submits that it is always open to the Company Court to go into the correctness of the opinion so submitted by the Board and decide whether winding up order should be passed. Thus, according to him, unless winding up order is passed, which in