[2008] 81 SCL 313 (KAR.)

High Court of Karnataka

Official Liquidator, Metallic Soaps and Chemicals (P.) Ltd. (In Liquidation)

v.

Manager, Karnataka State Financial Corpn.

V.G. Sabhahit, J.

C.A. Nos. 420 of 1994, 160 of 2002 and 250 of 2006

In Co.P. Nos. 50 and 90 of 1987 and 74 of 1989

June 29, 2006

Section 537 of the Companies Act, 1956 - Winding up - Avoidance of certain attachments, executions, etc. - Whether sale effected by State Financial Corporation of company’s property without leave of Court after commencement of winding up proceedings was void in terms of section 537(1)(b) - Held, yes

Facts

A company was ordered to be wound up and the Official Liquidator was directed to take charge of all the assets, properties and the effects of the company. The Official Liquidator learnt that the respondent-corporation, which was a secured creditor of company-in-liquidation, had conducted sale of the company’s property in favour of the second respondent without leave of the Court, during the pendency of winding up proceedings. The Official Liquidator filed the application under section 537(1)(b), seeking for a declaration that the impugned sale was void having been conducted without the leave of the Court, and for a direction to the second respondent to handover the property, and to the respondent-corporation not to execute sale deed or collect sale proceeds from the second respondent. The respondent filed objections averring that the second respondent being the highest bidder in auction proceedings, an agreement was entered into between it and the second respondent and in pursuance of the said agreement, possession of the assets was handed over to the second respondent. However, since the second respondent did not pay the balance amount within the time as agreed, sale deed had not been executed. The second respondent opposed the application, submitting that he was the bona fide purchaser, and that he was ready to pay the balance amount.

Held

Section 537(1)(b) clearly states that no sale can be held without the leave of the Court of any of the properties or effects of the company after commencement of winding up and any such sale held shall be void. In the instant case, admittedly, permission of the Court had not been obtained and when once an order of winding up was passed, it was incumbent to obtain permission of the Court for the sale of the property. Even otherwise, the material on record showed that sale transaction was not yet completed as the sale deed had not been executed in favour of the second respondent for default on the part of the second respondent in depositing the balance amount. [Paras 9 and 10]

Under the circumstances, the sale effected by the first respondent without the leave of the Court during the pendency of the winding up proceedings was void and it was liable to be declared as such and since the sale deed had not been executed and only the possession had been handed over to the second respondent, the second respondent was to be directed to hand over the possession of the property to the Official Liquidator. [Para 12]