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2025 Supreme(Telangana) 1169
IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD
K.LAKSHMAN, J.
M/S Shree Jagannth Steels Ltd., in Liqn., Hyderabad – Appellant
Versus
Indian Bank, Chennai – Respondent
Company Application Nos. 1348 of 2005, 259, 561, 735, 736 of 2007, 969 of 2014, Company Petition No. 236 of 1998
Decided On : 11-09-2025
Advocate Appeared:
For the Appellant : MR J SRINADHA REDDY COUNSEL FOR OL
For the Respondent: P SHIV KUMAR
Transfers of company assets to related parties within six months of winding-up petition are void under Sections 531 and 531A of the Companies Act, 1956, due to lack of bona fide consideration and non-compliance with statutory disclosure requirements.
Headnote:(A) Companies Act, 1956 - Sections 433(e), 434(1)(a), 439(1)(b), 531, and 531A - Winding-up proceedings initiated against a company due to non-payment of lease dues - Lease agreement established with post-dated cheques; dishonor led to termination of lease - Court appointed Official Liquidator and later held company commercially insolvent and voided certain transactions involving related parties as fraudulent under Sections 531 and 531A. (Paras 2, 11, 19)
(B) The court emphasized the necessity of leave from the court for any transaction post-winding-up that affects company assets. Transactions not conducted in the ordinary course of business with credible consideration will be scrutinized closely. (Paras 11, 20)
Facts of the case:
Winding-up petition against company filed due to default on a lease agreement, with multiple affidavits and legal notices issued without compliance. Origin of financial distress highlighted by auditor's reports indicating reaffirmation of company's declining financial status. (Paras 3, 4, 10, 12)
Findings of Court:
The auction sale conducted by the Official Liquidator was validated and the transfer of certain land to relatives of the Ex-Managing Director found to be void. Prior sales illicitly conducted with no disclosures were deemed fraudulent preferences. (Paras 25)
Issues: Whether the sales conducted prior to winding-up were valid and whether the Ex-Managing Director's revival plea aligns with commercial principles. (Paras 19, 25)
Ratio Decidendi: The court asserted that any transfer executed within six months of a winding-up petition, particularly to relatives, demands a high threshold of scrutiny to validate consideration and necessity in business conduct. (Para 20)
Result: COMPA No.1348 of 2005 and COMPA No.259 of 2007 allowed; COMPA No.561 of 2007, COMPA Nos.735 and 736 of 2007, and COMPA No.969 of 2014 dismissed.
| Table of Content |
|---|
| 1. winding up petitions initiated under the companies act (Para 1 , 2 , 3) |
| 2. proceedings post-admission of winding up (Para 4) |
| 3. details of company applications and reliefs sought (Para 5 , 6) |
| 4. contentions on fraudulent transfers during winding up (Para 7 , 8 , 9) |
| 5. overview of ongoing court proceedings and issues (Para 10) |
| 6. judicial scrutiny of transactions near winding up (Para 11 , 12 , 13) |
| 7. validation of auction sale procedures (Para 14 , 15) |
| 8. rights of creditors post-winding order (Para 16 , 17) |
| 9. overview of fraudulent transfers and legal consequences (Para 18 , 19 , 20) |
| 10. refusal of company revival due to misconduct (Para 21 , 22) |
| 11. court's final orders on various applications (Para 23 , 24 , 25) |
ORDER :
1. Heard Mr. M. Anil Kumar, learned counsel for the Official Liquidator in COMPA No.561 of 2007 and respondent in COMPA No.969 of 2014, Mr. T. Surya Satish, learned counsel for the applicant in COMPA No.735 of 2007 and respondent Nos. 2 and 3 in COMPA No.561 of 2007, Mr. V.S. Raju, learned counsel for the applicant in COMPA No.259 of 2007 and respondent in COMPA No.1348 of 2005 and Mr. Satish, learned counsel representing Mrs. Nandini S. Bilolikar, learned counsel for the applicant in COMPA No.969 of 2014 and respondent in COMPA No.561 of 2007.
2. Originally, all the above said Company Applications arise out of Company Petition No.236 of 1998 filed under Sections 433 (e), 434 (1) (a) and 439 (1) (b) of the COMPANIES ACT , 1956 (for short ‘Act 1956’), seeking winding up of M/s. Shree Jagannath Steels Limited (hereinafter referred to as “the Company”).
3. It is the case of the petitioner-Company that, under a lease agreement dated 19-04-1995, it supplied various items of equipment to the respondent-Company involving a net finance of Rs.70,00,000/- on the terms that the respondent would pay a monthly lease rental of Rs.1,58,200/- in advance. The first instalment under the said agreement fell due on 19-04-1995, and the last instalment was agreed to be paid on 19-03-2000. In pursuance thereof, the respondent-Company had issued post-dated cheques towards the monthly instalments. The record discloses that the respondent-Company paid the instalments only up to October, 1996. Thereafter, the cheques presented for encashment were dishonoured, leading to termination of the lease agreement by the petitioner. As on 10-12-1998, the respondent stood indebted to the petitioner a sum of Rs.82,23,592/- besides interest at the rate of 30% per annum with monthly rests as stipulated under the agreement. Despite repeated letters of demand (Exs.A3 to A7) and even after admitting its liability in its own correspondence (Exs.A8 to A10), the respondent failed and neglected to discharge the said dues. A legal notice dated 31-01-1998 (Ex.A13), duly served on 09-02-1998 (Ex.A14), also elicited no compliance.
4. The winding-up petition was admitted on 17.06.1999. Substituted service was affected and notice was published. No objections were filed. An affidavit of evidence by one Mr. S.R. Ramesh Babu was filed with exhibits (Ex.A1 to A14). The Company was held commercially insolvent and the Official Liquidator (OL) was appointed by this Court vide order dated 07.09.1999.
5. The aforesaid Company Applications are filed by the applicants seeking various reliefs. The details of the same are as follows:
| S. No. | COMPA No. | Filed by | Relief sought for |
| 01. | 1348/05 | OL | The OL sought permission to sell the company’s assets comprising Acs.7.48 situated at Sy.Nos.5/8, 5/15, 5/16, 5/20, 6/5, 7/3, 7/5, 7/6, 8/1 to 10, 9/6 & 9/7, GNT Road, Alinjavakkam, Ponneri Taluk, Thiruvallur District, Tamil Nadu, as a single lot by inviting sealed tenders. This Court, after approving the proposed tender notice, terms and conditions including a minimum upset price of Rs.56.88 lakhs, earnest money deposit of Rs.5 lakhs, and tender cost of Rs.1,000, permitted the OL to conduct the sale, open tenders, negotiate bids, and secure 20% of the highest bid amount at the time of open |
