Case Note & Summary
The case involves an Interim Application filed by M.M. Styles Private Limited seeking validation of two property transactions under Section 536(2) of the Companies Act, 1956, and an Official Liquidator's Report seeking possession of the property and a declaration that the transactions were void. The company, Milestone Interactive Pvt. Ltd., owned a property at 702, Supreme Chambers, Mumbai. On 9 September 2016, the company entered into an agreement to sell the property to the applicant for Rs. 27 crores, and on 1 October 2016, executed a registered deed of apartment in favour of the applicant upon payment of full consideration. However, a winding-up petition had been filed against the company on 27 April 2015, which was admitted on 29 November 2016, and a winding-up order was passed on 1 February 2018. The Official Liquidator filed a report on 26 February 2019 seeking possession and a declaration that the first transaction was void. Meanwhile, on 2 December 2019, the applicant sold the property to Pharma Access Pvt. Ltd. for Rs. 28 crores (second transaction). The applicant claimed it had no knowledge of the winding-up proceedings until served with the Official Liquidator's report. The court considered whether the transactions should be validated under Section 536(2), which renders void any disposition of property after the presentation of a winding-up petition unless the court orders otherwise. The court found that the first transaction was entered into before the admission of the petition and before any public notice, and the applicant was a bona fide purchaser without notice. The second transaction was also found to be bona fide. The court held that the transactions were in the ordinary course of business and that the consideration was adequate. Accordingly, the court validated both transactions subject to the condition that the applicant deposit the sale proceeds of the second transaction (Rs. 28 crores) with the Official Liquidator for distribution among the creditors of the company. The Official Liquidator's report was disposed of accordingly.
Headnote
A) Company Law - Validation of Transactions - Section 536(2) Companies Act, 1956 - Post-petition transactions - The court considered whether two transactions for sale of property by a company after the filing of a winding-up petition but before the winding-up order should be validated. The first transaction was an agreement to sell and registered deed executed before the admission of the petition, and the second transaction was a sale by the first purchaser to a third party after the winding-up order. The court held that the transactions were bona fide and in the ordinary course of business, and thus validated them under Section 536(2), subject to the condition that the sale proceeds be deposited with the Official Liquidator for distribution among creditors. (Paras 1-29) B) Company Law - Bona Fide Purchaser - Section 536(2) Companies Act, 1956 - The court examined whether the applicant was a bona fide purchaser for value without notice of the winding-up proceedings. It found that the applicant had no notice of the petition at the time of the first transaction, as the public advertisement of admission was issued after the transaction. The court also noted that the consideration paid was adequate and the transaction was in the ordinary course of business. (Paras 10-15) C) Company Law - Official Liquidator's Powers - Section 536(2) Companies Act, 1956 - The Official Liquidator sought to declare the transactions void and take possession of the property. The court held that while the transactions were voidable under Section 536(2), the court had discretion to validate them if they were bona fide and in the ordinary course of business. The court exercised its discretion in favor of validation, directing the applicant to deposit the sale proceeds with the Official Liquidator. (Paras 16-22)
Issue of Consideration
Whether the sale of property by the company after the filing of the winding-up petition but before the winding-up order, and the subsequent sale by the purchaser, should be validated under Section 536(2) of the Companies Act, 1956, despite the Official Liquidator seeking to declare them void.
Final Decision
The court allowed the Interim Application and validated both transactions under Section 536(2) of the Companies Act, 1956, subject to the condition that the applicant deposit the sale proceeds of the second transaction (Rs. 28 crores) with the Official Liquidator for distribution among the creditors of the company. The Official Liquidator's Report was disposed of accordingly.
Law Points
- Section 536(2) Companies Act
- 1956
- validation of post-petition transactions
- bona fide purchaser
- ordinary course of business
- winding up
- Official Liquidator's powers
