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2005 Supreme(Mad) 1661
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE P.K. MISRA & THE HONOURABLE MR. JUSTICE N. KANNADASAN
Archean Granites Pvt.Ltd. - Appellant
Versus
RPS Benefit Fund Limited, rep.by the Official Liquidator & Others - Respondents
O.S.A.Nos.275 to 280 of 2002 & CMP.Nos.4439, 4444, 4343, 4850 of 2005
Decided On : 07 October 2005
The main legal point established in the judgment is that a transaction may be invalidated if it is not made in good faith, does not reflect the market value, and is completed in a hurried manner, even without a formal application by the Liquidator.
Headnote:
FRAUDULENT PREFERENCE - Companies Act - Section 531-A, Section 433(e) - Income Tax Act, 1961 - Chapter XX C - Section 269-UL(1) - Section 230-A - Section 269 - Section 47-A - Section 450 - Section 536(2) - Section 53(1) of the Transfer of Property Act - Section 23 of the Act - Section 47A - Section 269-UL(1)
Fact of the Case:
The appellant sought validation of a sale deed executed by M/s. R.P.S. Benefit Fund Limited in their favor, which was challenged in winding up proceedings. The property was purchased by the company for Rs.190 lakhs, but sold to the appellant for Rs.165 lakhs. The Official Liquidator alleged fraudulent preference and void sale under Section 531-A of the Companies Act.
Finding of the Court:
The court found that the company's conduct was not in the interest of the company or its depositors, and the sale was made at 50% of the book value. The appellant's claim of being a bona fide purchaser for value was negated due to suspicious circumstances, false recitals, and lack of evidence of negotiation process. The court upheld the submission made by the Administrator and rejected the applications.
Issues: The court considered whether the sale was valid and binding, made in good faith and for a fair market price, and not intended to defraud creditors. It also examined whether the transaction was a fraudulent preference and whether the appellant was entitled to the relief sought.
Ratio Decidendi: The court held that the transaction was not made in good faith, as the consideration did not reflect the market value, possession was not delivered as claimed, and the transaction was completed in a hurried manner. The court also found that the appellant failed to prove the transaction was for the benefit of the company or its depositors.
Final Decision: The court dismissed the appeals, upholding the rejection of the applications seeking validation of the sale deed, without any order as to costs.
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 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
