Case Note & Summary
The Official Liquidator of M/s. GOL Offshore Limited (in liquidation) filed OLR No. 139 of 2018 under Section 536(2) of the Companies Act, 1956, seeking a declaration that payments of Rs.4,07,99,612/- made by the company to M/s. Arambhan Hospitality Services Limited between 10th October 2016 and 14th June 2017 were void and seeking refund. The applicant, Arambhan, filed Company Application (L) No. 89 of 2019 seeking ratification of the payments and the consent terms dated 24th October 2016 in Commercial Admiralty Suit (L) No. 69 of 2016. The court noted that the winding up order was passed on 10th October 2016, and the payments were made thereafter. The court held that under Section 536(2), any disposition of property after the commencement of winding up is void unless the court orders otherwise. The burden was on the applicant to show that the payments were made in good faith and for the benefit of the company. The applicant failed to discharge this burden, as the payments were made to a related party and the company was already insolvent. The court rejected the application for ratification and directed the applicant to refund the amount with interest at 9% per annum from the date of the last payment until realization.
Headnote
A) Company Law - Winding Up - Void Transactions - Section 536(2) Companies Act, 1956 - Payments made by a company in liquidation after the commencement of winding up are void unless the court orders otherwise - The Official Liquidator sought a declaration that payments of Rs.4,07,99,612/- made by GOL Offshore Limited (in liquidation) to M/s. Arambhan Hospitality Services Limited between 10th October 2016 and 14th June 2017 were void and sought refund - The court held that the payments were made after the winding up order and were void under Section 536(2), and the applicant failed to prove good faith or that the payments were for the benefit of the company - The court directed the applicant to refund the amount with interest (Paras 1-30).
Issue of Consideration
Whether payments made by a company in liquidation to a third party after the commencement of winding up are void under Section 536(2) of the Companies Act, 1956, and whether such payments can be ratified by the court.
Final Decision
The court allowed the Official Liquidator's report and declared the payments of Rs.4,07,99,612/- made by GOL Offshore Limited (in liquidation) to M/s. Arambhan Hospitality Services Limited between 10th October 2016 and 14th June 2017 as void under Section 536(2) of the Companies Act, 1956. The court directed M/s. Arambhan to refund the amount with interest at 9% per annum from the date of the last payment until realization. The company application filed by M/s. Arambhan was dismissed.
Law Points
- Section 536(2) of the Companies Act
- 1956
- void transactions
- ratification
- burden of proof
- good faith
- winding up
Case Details
2020 LawText (BOM) (01) 101
Official Liquidator's Report No. 139 of 2018 in Company Petition No. 756 of 2014 and Company Petition No. 119 of 2015, along with Company Application (Lodging) No. 89 of 2019
Mr. Prathamesh Kamat along with Mr. Shanay Shah for the Official Liquidator; Mr. Sarosh Bharucha along with Mr. Som Sinha, Ms. Sneha Prabhu, Ms. Divya Vishwanath i/by M/s. Som Sinha and Associates for M/s. Arambhan Hospitality Services; Mr. Mahendhar Aithe, Company Prosecutor for O.L.
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Nature of Litigation
Official Liquidator's report seeking declaration that payments made by company in liquidation are void and seeking refund; company application by recipient seeking ratification of payments.
Remedy Sought
Official Liquidator sought declaration that payments of Rs.4,07,99,612/- made by GOL Offshore Limited (in liquidation) to M/s. Arambhan Hospitality Services Limited are void and direction to refund the amount. M/s. Arambhan sought ratification of the payments and consent terms.
Filing Reason
Payments were made by the company in liquidation after the winding up order without court approval, allegedly in violation of Section 536(2) of the Companies Act, 1956.
Previous Decisions
Winding up order was passed on 10th October 2016 in Company Petition No. 756 of 2014 and Company Petition No. 119 of 2015.
Issues
Whether the payments made by the company in liquidation to the applicant after the commencement of winding up are void under Section 536(2) of the Companies Act, 1956.
Whether the court should ratify the payments and the consent terms under Section 536(2).
Submissions/Arguments
Official Liquidator argued that the payments were made after the winding up order and are void under Section 536(2), and the applicant failed to prove good faith or benefit to the company.
Applicant argued that the payments were made in good faith under a pre-existing contract and for the benefit of the company, and sought ratification.
Ratio Decidendi
Under Section 536(2) of the Companies Act, 1956, any disposition of property after the commencement of winding up is void unless the court orders otherwise. The burden is on the recipient to prove that the transaction was made in good faith and for the benefit of the company. In this case, the applicant failed to discharge that burden, and the payments were held void.
Judgment Excerpts
Official Liquidator of M/s. GOL Offshore Limited (in liquidation) has filed OLR No. 139 of 2018 under Section 536 (2) of the Companies Act, 1956 inter-alia praying for a declaration that the transaction of payments made by M/s. GOL Offshore Limited (in liquidation) through director of the company (in liquidation) to M/s. Arambhan Hospitality Services Limited during the period between 10th October, 2016 and 14th June, 2017 are void and seeks direction against the M/s. Arambhan Hospitality Services Limited to refund Rs.4,07,99,612/- to the official liquidator.
Company Application (L) No. 89 of 2019 is filed by M/s. Arambhan Hospitality Services Limited inter-alia praying for an appropriate order and direction under Section 536(2) of the Companies Act, 1956 declaring that the consent terms dated 24th October, 2016 in Commercial Admiralty Suit (L) No. 69 of 2016 is valid, subsisting and binding on the parties in the suit and to ratify the same and also the payment of Rs.4,07,99,612/- made by the M/s.GOL Offshore Limited (in liquidation) be ratified.
Procedural History
The winding up order was passed on 10th October 2016. Thereafter, the Official Liquidator filed OLR No. 139 of 2018 under Section 536(2) challenging payments made between 10th October 2016 and 14th June 2017. The recipient filed Company Application (L) No. 89 of 2019 seeking ratification. Both were heard together and disposed of by this common order.
Acts & Sections
- Companies Act, 1956: Section 536(2)
