Company Application No. 7 of 2021 · The High Court · 2025

HON'BLE SRIJUSTTCE K. LAKSHMAN COMPANIYAPPLICATION No.7 OF 2021 COMPANY PETITION No.328 OF 2015 ORDER: Heard Sri Vikram Pooserla, learned Senior Counsel representing Ms. Siva Praneetha Sreeramula, leamed counsel for the Applicant and Sri J. Srinadh Reddy, leamed standing counsel appearing for Official Liquidator (OL). Despiteservice of notice, none appears lor 2nd respondent.

2. This application is hled under 536 (2) of the Companies Act, 1956 (for short, 'theAct') read with Sections 9 and l0 of Companies (Court ) Rules, 1959 (for short, 'the Rules') and Section 151 of CPC to declare the Applicant as the rightful owner of the property i.e. the land admeasuring 7865 sq.yards or Ac.01.25 guntas out of Ac.3.20 guntas in Sy.No.655 (part), situated at Peddapur Village and Grampanchayat, Sadasivpet Mandal, Sangareddy District ( for short, 'the subject property') purchased vide registered sale deed bearing 2 document Nc.6'l of 2018, dated 03.01.2018 and also to declare the said transaction as bonafide.

3.The Applicant filed the present application crrntending as follows:- 1 The Applicant is a company by name M/s. Mc l-anahan India Private Limited. It was incorporated on 05.01.20 L j. Vide agreement of lease dated 01.08.2015 the Applicant leased a portion of the factory shed of the respondent No. I company i.e. M,'s GE Godavari Engineering lndustries Limited, for a period of 12 months in the subject property lbr tlre purpose of assembly and fabrication works. Later, on t I 08.2016, the Applican,. entered into another agreement ol' lea st: for a period of 36 morrths i.e., until 31.07 .2019 . 1ll Soon after the lease agreement dated 01.08.201:;, the Applicant came to <now that the leased premises had beiome a stressed asset and its possession was to be taken and th: said premises was to be vacated. 3 The Applicant was aware of the Letter of Arrangement dated

16.10.2014 wherein drop line facility of Rs.5,00,00,000/- (rupees five crores) has been extended to the I't respondent by 2od respondent - the State Bank of India (SBI) subject to certain conditions inter alia including mortgage of the leased premises with third party guartrntees. Thefact of the premises becoming a stressed asset is an impression by the l" respondent that it was working towards fulfilling its obligations under the said Letter of Arrangement with SBI dated 16. 10.2014 and vacating the premises at such notice under Rule I of Security Interest (enforcement ) Rules, 2002 was not feasible as the same would have impact on its business adversely, given the large equipment and inventory at the premises and partly constructed,/assembled large machines which could not be removed from the premises. vl. They reached a consensus regarding the release,/sale of the premises vide e-mail dated 11.01.2017 from Respondent No.2 to both the parties. 4 A MOU was executd between the Applicant and the 1" respondent on 25.01.2017 for the proposed sele of the said premises and the execution of the MOU was overseen by Respondent No.2 to whom all funds and payments connected to the MOU were to be paid. vlll. The Appticant has paid a sum of Rs. 20,00,000 l- to 2"d respondent - bank as recorded In the MOU in paragraph No.i. The balance sale consideration of Rs. 3,80,(X),000/- (three crores 80 lakhs) was to be paid by the a;rpticant to the Respondent No.2 lx. The Applicant and l"t respondent entered into a registered sale deed bearing document No. 67 of 2018, dated l)l0l 2018 for sale of the suQl-ect property for a total consideration of Rs.4,00,00,000/- in accordance to the valuation leport issued by Respondent No.2 where in it was directly paid in installments to Respordent No.2. Further, the Respondent N,; .1 has issued a No Obiection to release the subject property liom mortgage charge through letter dated 24.05.2017 issued to by the Respondent No. l. x Subsequent to the said sale deed dated 03.01.2018, on

10.02.2020, the Applicant discovered that a notice dated

03.02.2020 was sent from the Official Liquidator, in the matter of winding up of Respondent No. I company to take the possession of the property. A reply through e-mail and letter to the notice dated 03.02.2020 was given on 12.02.2020 by the Applicant to the OL informing about the bona fide purchase of the subject property and other necessary information and documents. xl. The Applicant contends that despite his reply, he received a letter dated 25.02.2020 ffom the OL wherein it was stated the veracity of the purchase by the Applicant was unduly doubted and further information was demanded. Applicant states that after notice dated 03.02.2020 only, it had come to know that a Company Petition No. 328 of 2015 was filed by M/s Ramesh Krishna Engineering Works on 20.11.2015 6 seeking winding up of the l't respondent company but it did not have any information regarding the said compiuly petition. It came to know only after the offrcials from the Office of the OL have visited the factory premises on 10.02.2020. xl . This Cout vide order d^ted06.12.2019 passed rn C.P No. 328 of 2015, rlirected the winding up of the I't resporrlent company and pursuant to the said order, the OL seel:s to take the possession of movable and immovable properties and so issued notice dat ed 03.02.2020. x l\/ During the said process, it included the subject Droperty. 'fhe Applican. states the said property belongs to i as he is bona fide purchaser. xv. On 31.10.2019 licant entered into an agl ecment for sale of the sr:heduled property to IWs Bajaj Hea'ry Engineering Limited und has received an amount of Rs.40,()0,000/- as part sale consideration out of Rs.2,50,00,000 and stat,:s that he did not have knowledge of the winding up petition oending belore this Court. 7 xvl. The Applicant submits that the present case attracts Section 536 of the Act, which provides for avoidance of transfers etc. as the section mandates such transfers are void unless Court orders. Further, this would cause grave harm and injury and effects its business xvlt. Applicant has filed I.A.No. I of 2021 in C.A. No.7 of 2021 on

26.02.2021 to restrain the OL from disposing of or dealing with the subj ect properfy and the said petition rvas allowed vide order dated 22.04.2021. xvlll. The Applicant has also filed I.A No. 2 of 2021 on26.02.2021 to permanently restrain the OL from including the subject property from the winding up proceeding in C.P. No.328 of 2015. The Applicant has also filed I.A.No.3 of 2021 on 26.02.2021 to modiff/amend the order dated 06.12.2019 by excluding the subjectproperfy from winding up proceedings and list of assets ofRespondent No.l. 8

4. With the said submissions, the Applicant souftht to declare it as rightful owner of the subject property and the tra n saction under registered sale deed dated 03.01.2028 as bonafide.

5. 1" respondent - Offrcial Liquidator filed counter contending as follows;- Before the end of first lease agreement dated 01.08.2015 itsell C.P.No.3.l8 of 2015 was filed and the notice o[ the same was also ser,,ed on I't respondent Company. fherefore, the Applicant and the I't respondent are well arvare about the pendency of the suit against the company lt. The petitioner in C.P No.328/2015, during the r,isit of taking possessicn of the factory premises, informed that the order dated 06.10.2017 was also affixed on the facton, gate for not to proceed lbr sale. In spite of such notice, the sale of the premises was proceeded. ll1. l" respondent company has to display the narne boards of hypothecation of premises which would have made the 9 Applicant Company even more cautious before entering the first lease agreement itself. lv. Though the Applicant was aware of the letter of arrangement dated 16.10.2014, it proceeded with the second lease agreement dated 01.08.2016. The Applicant and 1" respondent company entered the MOU on

25.01.2017 for the proposed sale of the factory premises and the said event is also after the date of the presentation of the CP No.328 of 2015 i.e.20.11.2015. The l" respondent should not have proceeded with the sale of the premises with the Applicant since the said assets were mortgaged with2od respondent under SARFAESI Act, 2002. vlt. 2nd respondent has not taken steps for preserving stock, which were hypothecated for sanctioning of drop line facility and what happened to the stock hypothecated. The RuleVSections framed under SARFAESI Act, 2002 were not followed i.e., no paper publication, no tenders catted foc nor any bidding. Further, the said sale was for land Ac 1.25 10 along with EOT cranes, Compressor, Pipelines and Transformers for a meager amount of Rs. 4.00 crores. As per the valuation in 2016, the property was vahred for Rs.399 Lakhs and after two years, the value of the property should have escalated. but the same was sold for a paltry sunL. 'fhe OL seeks an explar ation from SBI, Secunderabad in this n:gard. tx. 2nd respo:rdent has issued NOC even before payrnent ofbalance of Rs. 1.00 Crore. Stamps affixed in the srrle deed dated

03.01.20 l8 were in 2016 and2017, that too, in different SROs at Sangareddy and Sadashivpet, whereas the sale deed was executed on 03.01.2018. x Al[ the sale events are pertaining between date of presentation of the petition and date of passing of winding rLp order. Hence under Ser:tion 537 of the Companies Act, 1956, the sale may be set aside and be declared as null and void. xt. The applicant has entered into agreement of sale with ltl/s. Bajaj Heavy Engineering Limited for sale c,rnsideration of Rs.2.50 (lrores for subject property which is much less than the 11 amount of sale consideration paid by the Applicant which proves that the entire alleged sale transaction is nothing but sham and deserves to be declared as null andvoid. xll. The Encumbrance Certificate (EC) reveals that the property of 12100 sq.yds @2.499 acres along with machinery were sold to M/s. Bajaj Heavy Engineering Limited vide document bearing No.10494/2019 at Sadasivpet SRO by iWs GE Godavari Engineering Industries Ltd.but not by the Applicant company and the said EC nowhere reveals that Applicant sold the subject property. Therefore,the learned OL sought to dismiss the present application and declare the above sale as null and void and direct the Applicant to hand over the said property to the OL.

6.The Applicant has filed rejoinder affrdavit contending as follows:- I Upon commencement of the lease under the deeds dated

01.08.2015 and 01.08.2016, the Applicant was provided an L2 empty fa{rtory premises with no machinery belonging to the Respondent No. l. . The clarifications pertain to events that hanipired between Respondent No.l company and Respondent No.2 to which the Applicant Company is not privy and therefore cannot issue a fitting appropriate response to the same. Iu. The Applicant submits that the authenticity of the sale deed is irrefutable and has been duly registered belbre the SRO, Sadasirptt. 1V. Applicant states that the transaction coming under the ambit of Section 536 of the Act, is hereby being considered as void, this Court drres not have discretion to order otherwise in consideration of the bona fide nah-ue of the transaction and the fraud is ,:ommitted by the Respondent No.l ormpany by not disclosinl; crucial details. The App!icant, due to circumstance out of contrcl, was forced to sell tre property at a consideration of F.s.2,50,00,000/- Crores which include power transmission tower was located in 13 the first shed and relocation of the same was mandatory for power supply to the schedule properfy. The estimated costs to incurred for doing those activity, it was decided to sell the schedule property to IWs. Bajaj Heavy Engineering Ltd. for an amount of Rs. 2.5 Crores, which would otherwise not possible as the approach road was obstructed by M/s. Bajaj Heary Engineering Ltd. \,I. EC provided by the OL pertains to a separate and distinct sale deed to which the Applicant is not a party and the Applicant has entered into an agreement of sale dated 31.10.2019 and received Rs.50,00,000/- as a part of total consideration of Rs.

2.5 Crores. FINDINCS OF THE COURT:-

7. The aforesaid facts and rival contentions would reveal that company in liquidation has obtained an amount of Rs.5,00,00,000/- towards loan by way of hypothecation of stocks/receivables by mortgaging the subject property in favour of 2nd respondent/State bank 74 of India, Stressed Asset Management (SAM) Braech, Saifabad, Hyderabad.

8. Mde letter dated 14.12.2016, l" respondent company informed 2nd respondent bank that it is looking for pror;pective buyers to sell part of the property given as collateral to the bank. I't respondent also requested 2nd respondent to accord pt:nnission to go ahead with the same. Once the deat is finalized, l't respondent will request the party to pay the advance amount and furth er will have an agreement to cl(lse the complete loan amount.

9. The Applicant made correspondence with 2od respondent bank by sending mails dated 30. 11.2016, 11.01.2017. thereafter, the Applicant and l" respondent entered into MOU on25.01.2017 for sale of subject property for total sale consideration of I1s.4,00,00,000/- (Rupees four t;rores only). The Applicant had paid an amount of Rs.20,00,000/- (Rupees twenty lakhs only) by way of cheque bearing No.476656 dated 25.01.2017 to the 2nd respondent. The Applicant agreed to pay balance sale corrsideration of Rs.3.80,C0,000/- (Three 15 crores eighty lakhs only) to the 2nd respondent within 180 days from the date of the said MOU.

10. It is relevant to note that in the said MOU, it is also stated that the Applicant may, at its sole option, issue a public notice in leading newspapers inviting objections, if any, from the general public. If the Applicant receives any objections with supporting documentary proof regarding any issues with the subject property which mayhave an adverse effect on the ownership of I't respondent in future, the said MOU is liable tobe cancelled. tn which event, the banker of theApplicant shall refund a sum of Rs.20,00,000/- (Rupees twenty lakhs only) to the Applicant within seven days from the date of notice from the Applicant intimating it of such objections, if any, received from the third parties. Thus, 2nd respondent, banker of I'trespondent is not entitled to retain any sum from out of the said advance amount of Rs.20,00,000/- in the event of said MOU is cancelled for the aforesaid reasons. It is apt to note that 2nd respondent is not a party to the said MOU. 16

11. Thereafter, a meeting was held on 16.05.201'l at Applicant's oflice. Minutes of the said meeting were also recorded. X't respondent had executed a registered sale deed bearing document No.67 of2018 dated 03.0 1.20 I 8 in favour of the Applicant. In the saic sale deed also, it is specificalll, mentioned that the total sale consideral.ion agreed is Rs.4,00,00,000/-(Four Crores), Applicant had paid an amount of Rs.20,00,000/-(twenty Lakhs) on 03.02.2017 to the 2nd respondent, vide cheque No.476656, Further an amount of Rupees 1,50,00,000/- (One Crore Fitty Lakhs)on 31.03.2017, through RTGS,and turther Rs.50,00,000/-( Fifty Lakhs) on 13.04.2017 ttrrough RTGS, Rs.1,50,00,000r-(One Crore Fifty Lakhs) dated22.05.2.017 by way of NEFT, and finally Rs.30,00,000/- (Thirty Lakhs) on 23.05.2017 in favour of 2nd respondent.

12. Thus, the Applicant contends that it has no knowledge of the aforesaid proceedings initiated by lvTs Re mesh Krishna Engineering \lbrks in C.P.No.328 of 2015 against I'i respondent seeking winding up of the said company under the p -ovisions of the Act. It is a bonafide purchaser. 17

13. Whereas, OL, representing l" respondent filed counter denying contentions of the Applicant. He submits that the Applicant is not abonafide purchaser. l't respondent failed to follow the conditions mentioned under the letter of arrangement dated 16.10.2014 between the respondent Nos.l and 2 while seeking drop line facility of Rs.5 Crores. As per the conditions ofAnnexure -B(n), respondent No.1 has to display name boards of hypothecation of premises, which would have made the Applicant company more cautious before entering first lease agreement itself. The Applicant company, being fully aware of the letter of arrangement dated 16.10.2014, it should not have proceeded with the second lease agreement dated 01.08.2016 on the mortgaged property. The Appticant company has entered into the MOU dated 25.01.2017 for sale of subject property. The same is also after date ofpresentation ofthe company petition i.e. on 20.11.2015. Thus, l'trespondent company should not have proceeded with the sale of the premises, even though the said assets were mortgaged with 2nd respondent under SARFAESI Act, 2002.2"d respondent should have taken steps for preserving stock, which were hypothecated for 18 sanctioning of drop line facility. The Applicant failed to explain with regard to due diligence exercised by it while purchas ing the subject property.

14. It is Iurther contended by OL that the said sale for the land of Rs.1.25 guntas in Sy.No.655 of Peddapur village along with the EOT cranes, Compressor, pipelines and transformers was for a meager amount of Rs.4 crores. Whereas, the saidproperty wa:i valued by the valuers in the y'ear 2016 itself for Rs.399 lakhs and after two years, the value of the property should have escalated, but sarne was sold for a paltry sum. 'Ihere is no explanation by the 2nd r:spondent with regard to the same. Therefore, l " respondent, in collusion with the 2nd respondent, obtained NOC to release the subject prop,crty vide letter dated 24.05.20 t7 for Rs.4 Crores. 2nd respondent in the said letter dated, 24.05.201.7 mentioned about the balance sale consideration of Rs. 1,00,0001 was yet to be paid by l" respondent. There is no explanation for the same. 19

15. It is further contended by OL that as per the letter dated

12.02.2020 of the Applicant, the purchase of the subject property took place during the pendency of the Company Petition and further the stamps in the sale deed dated 03.01 .201 8 were in 2016-2017 , that too, in different Sub Registrar Offrces, Sangareddy and Sadashirpet, whereas, the sale deed was executed on 03.01.2018 only. The same was informed to the Applicant by the OL vide letter dated 25.02.2020 and sought for explanation. There is no explanation from the Applicant company.

16. IWs Ramesh Krishna Engineering Works, the petitioner in CPNo.328 of 2015 has filed a suit O.S.No. 1059 of 2017 for recovery of amount against the 1" respondent company. It has obtained order dated 06.10.2017 in I.A.No.779 of 2017. The same was affixed on the subject property. The said suit was decreed. Thus, the Applicant is not a bonafide purchaser. It has purchased the subject property in collusion with the respondent Nos. 1 and 2 and the same is during pendency of the Company Petition and it is in violation of the procedure laid down under Sections 536 and 537 of the Act. 70

17. In the light ofthe said submissions, Sections 536 and 537 of the Act are relevant and the same are extracted below:-

536. Avoidance o f transfers, etc., after commencement of winding up.- (l) In the case of a voluntary winding up, any transfer o'shares in the company, not being a transfer made to or with the sanction o[the liquidator and any alteration in the status of the members of the comp:ny made after the commencement of the winding up, shall be void. (2) In the case of a winding up by the Tribunat, any disposition o1'the property including actionable claims of the company, and rny transler ol shares in the company or alteration in the status of its members. made altcr thc commencernent of the winding up, shall(unless the Tritunal otherwise orders, be void.

537. Avoidanct: of certain attachments, executions, etc., in rrrnding up by Tribunal.- ( I ) Where any ,rornpany is being wound up by Tribunal- (a) any attachment, distress or execution put in force, witt orrt leave o[ the Tribunal against the estate or effects of the companv after the commencen'.ent of the winding up; or (b) any sale held, without leave of the Tribunal of any of the properties o- effects of the company after such commenr:ernent shall be void. (2) Nothing in this section applies to any proceedings for the recovery of any tax or impc'st or any dues pa5rable to the Govemment. 27

18. Learned Counsel for the petitioner has placed reliance on the principle laid down in the following judgments in Re: Prudential Capital Markets Ltd.r, ICICI Veuture Funds Management Ltd. vs. Neptune Inflatables Limited2and Pankaj Mehravs. State of Maharastra3 to contend that petitioner is not aware of the pendency of the proceedings in C.P.No.328 of 2015, it is bonafide purchaser and there is no irregularity in purchasing the subject property of the petitioner.

19. In Prudential Capital Markets Ltd. (supra), the Calcutta High Court held as follows:- "26. The principles that apply under Saction 5 -1 of the Act make tt irrelevant as to whether the transferee of a company's property is aware of the presentation of the winding up petition against the company. A disposition must not be validated merely because the lransferee bona ftde entered into the transaction. Section 536(2) provides a mechanism for a company or a transferee of its properties (or assignees of actionable claims) to apply lo the Company Court silting over the winding up petition to accord sanction to a transaction even before an order of winding up is made. Upon such sanctton, the transfer is protected at the post winding up 1 CompLJ 3 l4(Cal), 2007 SCC Online Ca[ 632 1(2008) 21 zoos; scc online Mad 602 31zooo; z scc 7s6 22 order sto-ge. The ord-er of sanction becomes irrelevant iJ the order for winding up is ultimately declined. "

47. Section 536(2) of the Act provides for preseraation of ttll assets of a company, upor commencement of winding up proceedings, for ultimate distribution th,zreof among the creditors followtng winditrg up- Section 536(2) contemplates leave being obtdined subsequent to pr2se tation of a petition for witding up but prior to the winding up order being passed, before a disposition of the ktnd covered is made. Even if there ils disposition of properry \|,ithout prior leave, the court will not automoti.ally annul the lransaction but will probe into the purpose therefor. The mere presentation of a windint up petition cannot fetter the company t) continue its .functioning including bona fide dtsposition of its properties 'fhere is wide discretiott conJerred on the company judge by the expression "unless the court othentist orders". The court has to weigh whether a conoanv is to be altogether parulysed upon a presentation of a petition for hur..ing it wound up or whether a company can continue business in the us,nl course and enter inlo trunsactions that ultimately have to satisly the test tfbonafides.

20. In Pankaj Mehra (supra), it was held:-

20. lt is ditlcult to lay down that all dispositions of pro6 erty made by a company during the interegnum between the presentation cf a petition for winding up and the passing of the order for winding up wo.rkl be null and void- If sur:h a view is taken the business of the cornp arry w. culd t-.e paralysed, for, the company may have to deal with very mxny day-to-day transactions make payments of salary to the staff and other employees and meet urgenl c('ntingencies. An interpretation which could lead to such a catastrophic situatioo should be averted. That apart, if any such view is adopted, a fraudulent company can deceive any bona fide person transacting business with the company by stage-managing a petition to be presented for winding up in order to defeat such bona fide customers. This consequence has been correctly voiced by the Division Bench in the impugned judgment.

21. In ICIC[ Venture Funds Management Ltd (supra), Madras High Court while referring to principle laid down in Pankaj Mehra (supra) and also Sankar Ram and Company vs. Kasi Naickera, held as follows:- "ll....On the facts of this case, the provisions of Sub-section (2) of Section 536 cannot be made applicable and consequenlly the contention of the Offcial Liquidator that those judgments are applicable only to day-to- day transactions is not acceptable, os the judgments of the Supreme Court apply to dll bona fide transactions of the company and could nor be limited only to the day-to-dsy trdnsactions. "

22. Further leamed Official Liquidator has placed reliance on the principle laid down by a learned Singte Judge of Madras High *a.tR 2oo3 sc 4156 24 Court in "Atlministrator, MCC Finance Ltd. v. Rartresh Gandhis, wherein it was held:- " 13....."399!!st 536 relates to the avoidance of transfea etc., after thq commencement of the winding up proceedings. The oQiect ofSection !!f seems to ,ie to prevent improper disposition or dissipation of the propery' or tntnsfer of shares of the company otherttise available for distribution anrong the creditors of the company in li,yidation. The .fundamcntal principle is that the assels of the company shall be made available fo,' distribution paripassu amongst the creditors of the company and that no creditor should obtain advantage over his fellou creditors. The vords entploveC in Sub-section (2) ofSection 536. viz., "u"tless the ('ourt olherwist, orders" rclate to bona f.de transaction occasioned in the ordinary uturse of brtsiness. IJ the transfer is nol bona fide, tn terms of Sub-section (2) ttf the tra saction would be void. On the fads of this case, il uppears to m,. that the transdclion is not bonafide.-...."

23. He hr,s also placed reliance on the judgment of'the erstwhile High Court ,r[ Andhra Pradesh, in "The Olficial Lirluidator" High Court of Andhra Pradesh and the Liquidator ol M/s. Sri Raj Rajeshwara Finance & Investment Ltd., (In Liqn) 'rs. Sri Sangem Trilochana Rao6 wherein in the similar circumstances, High Court has set aside the sale as void and directed to deliver the vacant possession of the property to the Official Liquidator. It was held as: izoos) tzz Comp Cas 85 6 C)rdcr dated 25.07.2O1O in COMPA No.l l7 of 2008 25 "The Wnding up application in C.P.No.l11 of 2002 was filed on 27.06.2002. The Wnding up order was passed on 03.10.2005. During the Pendency of the Wnding up application, the property belonging to the Company in liquidation was sold without leave of the Court and the same was purchased by respondent No- 2 to 6 under registered sale deed dated 10.09.2003. The said transaction is clearly hit by the provisions of Sections 536 and 537(l) (b) of the Act. "

24. A Division Bench of the Bombay High Court in "Sunita Vasudeo Warke Appellant vs. Ollicial LiquidatorT, held:- "ll. ln order that Section 536(2) of the Companies Act, ]956 can be invoked by the Court to "otherwise order", there has to be a disposition of property of the company; a dtsposition which has been made aJier the commencement of winding-up proceedings. In the judgment of the House of Lords in The Governor and Company of lj of 21 APP737.2012 The Bank of Scotland Vs- Macleod and others, Lord Kinnear observed that the rights of competing creditors in liquidation are to be governed by the same rules as regulate the rtghts of creditors in a sequestrated estate under the Banknrptcy Acts. The House of Lords held that "rights in seayity which have been eflectually completed before the liquidation must still receive the elfect which the law gives to them. But the company and its liquidators are just as completely disabled by the winding-up from granting new or completing imperfect rights in security as the individual bankrupt is hy his banlouptcy." The Law Lord noted that this indeed was the necessary effect of the Companies Act under which the estate hos to be distributed amongst the crerlitors paripassu and every creditor has an equal share unless anyone has ctlready a part of the estqte in his hands, by virtue of an effectual legal right.

12. This principle was followed in the judgment of the Supreme Court in J.K (Bombay) Private Limited Ys. Ws.New Kaiser-I- Hind Spinning and 'zots(z) Mah.L.J.77i 26 ll/eaving Co. Ltd. and others. The Supreme Court after t'dverting to tlte judgment in thc Bank ofScotland (supra), held as follows: "39. lt is thus well established that once a widding-up order is passed the undertaking and the assets of rte company ,tass under the control of the tiquidator whose statutory duu is to realize lhem 0nd to pay from out o1'th,: sale proceeds its creditors. Such creditors at:quire on such order being pflssed the right to have the assets realized tnd distributed among them puripassu."

25. Furtlrcr the High Court of Bombay in SurLitha Vasudevo (supra) referring to a decision ol leamed Single Ju,lge of Calcutta High Court in In Re.J. Sen Gupta (Private) Limit€dE,held that underlying principles flor the exercise of discretion by the Court under Section 536 of the Companies, Act, 1956 have been summarized as follows : " Il seems to mt. tl,trefore, upon considering various authorities on this subject that the follottirrg principles are doubtless applicable to tub-section (2) ofsection 536 ofthe Companies Act, 1956: I. The court hus an absolute discretion to validate t lra sactiott; 2, Thk discretion is conlrolled only by the general prtnciples which apply to every kind ofjudicial discretion;

3. The <:ourt must have regard to all the surrounding circt'mstances, and if from all the surrounding circumstances it comes to the .orrclusion that the trarrsacliot should not be voitl, it is within the power of the court under section 536(2) to say that the transaction is not void; *AIR 1962 CAI . 4r)-i 27

4. If it be found that the transaction was for the beneftt of and in the interests of, the contpany or for keeping the company going or keeping things going generally, it ought to be confirmedtl

26.'the Supreme Court rn Pankaj Mehra (supra) referred to a judgment of Gujarat High Court where in it was held: " 18. It is useful to refer to the reasoning adopted by a Division Bench of the Gujarat High Court in Naujivan Mills Ltd.e, In favour of adopting a pragmatic attitude w'hen a Company Court was approached for approval of certain dispositiow which u compdny made after presentation ofa petition for *inding-up. Tlte following reasoning is useful for consideration of the issues involted: "The Court can exercise the jurisdiction under Section 536(2) if the Companies Act, 1956, of giving directions validating proposed transactions pending a petition for winding up but before the winding up order is mude for the obviotts reason that unless these transactions are saved from the consequence which may ensue, if at al[, on an order of winding up being made, the company might find it d{rtcuk to keep itse{' going and its business might be paralysed- The purpose underlying the investm€nt of the power in Court ts for the benefit and the interest of the company so as to ensure that a company which is made the xtbject of a winding-up petition may neverlheless obtain the money necessary for carrying out its business and so as to avoid its business being paralysed. If that is the purpose and object of the section, it would hardly be proper and jLsl to stultily the power and restrict its operation since otherwise il is bound to be counter-productive in the sense that the very purpose of keeping the compony as a going concern so as to ensure the interest of the shareholders and creditors would be defeated." e toaolsol Company Cases 20t I 28

19. In Re. Gra.ys Inn Coastructitn Company Ltd.to, the Court of Appeal (Civil Division) considered the principle on which discretion ol the Court to validate the dispositions of prcperty made by a compa .t', duing the interregnum be\veen presentation of a winding up petition cnd the passing of the otder.for winding up, has been dedlt with. Sectio 22i ef the English Companies Act, 1948 is almost the same as Section 536(2, of the Indian Companies Act Dispositions which could be validated are mentioned in the decision. The said decision was cited before us in order to t,mphasize the point that Coutls would be very circumspect in the matter or" validating the payrnents and the interest of the creditors as well as the compdny would be lcept uppermost in consideration. Be that so, the said c'e<'ision is not suficient to sulrport the contention that disposition during l\e interregnum would be irretrievably void."

27. Thus, any disposition of the property by a c,rmpany, after commencement of winding up proceedings fron the date of presentation of the petition is void in tenns ofSection :;36 (2) and also 537 (lXb) of'the Act, unless the Company Court speciiically validates such transacti('n. The discretion of the Court to validate such transaction is to be exercised sparingly, keeping in r,'iew the larger interest of the body of creditors and the integrity of dre liquidation process.

28. As Ciscussed supra, i.n the present case, tre Applicant is contending tha: it is not aware ol the pendency of the winding up to t9801t1 .ail mgbnd Reporter 814 29 proceedings in CP No.328 of 2015. Therefore, it is a bona fide purchaser.

29. It is relevant to note that vide order dated 06.12.20L9 in C.P.No.328 of 2015, this Court allowed the said CP directing the winding up of the I " respondent company. This Court directed leamed OL to take charge of the assets of 1" respondent company by following due process, shall takes necessary steps and causing advertisementand publication of the factum of winding up of the respondent company under the Provisions of the Company Courts Rules, 1956.

30. Perusal of the said order would reveal that the l't respondent has entered appearance in the said CP No.328 of20l5 by engaging Sri B. Chandrasen Reddy, Advocate. In the said order, there is mention about the I't respondent filing counter affidavit dated 01.07.2016 before this Court in C.P.No.328 of 2015 undertaking to discharge the liability of Rs. 15,62,5591- in ten instalments commencing from October, 2016 to Ju|y,2017. The petitioner company in the said 30 Company Petition examined P.S/.l and marked Exs.I..l to A.14. On consideration cf the same, this Court allowed the said Company Petition, vide order dated 06.12.2019.

31. Thus. l't respondent has engaged Sri B.Cahndrasen Reddy, Advocate, who entered appearance by filing vakalath ia the year 2015 itself. Ithas h1etl counter vide SR No.2016 on 09.06.2016. It has filed undertaking on 01.07,2016 to discharge the liability ofl{s.15,62,559/-. Thus, lo respondent is aware ofthe pendency ofC.P. 1.Jo.328 of2015 by the year 201:5 itself.

32. Thus, there is no dispute that the said M/s F amesh Krishna Engineering Works filed the said C.P. No.328 of 201j; against the 1't respondent to wind up the said company on 20. I L20 t i . l " respondent has entered into lease agreement with the Applicant on 01.08.2015 for a period of 12 days. It has entered into second agreement of lease with Applicant on 01 .08.2016 for a period of 36 months wirh regard to the subject propert5,. Thus, by the date of entering into ser:ond agreement of lease of the subject propelty on 01.08.2016,the saici Company 31 Petition was already instituted and is pending. I't respondent has entered into appearance by engaging Sri B.Chandrasen Reddy, Advocate, as its counsel by filing vakalath by 2015 itself. It has filed counter vide USR No.2 of 2016 on 09.06.2016 itself. The Managing Director of the l " respondent company and its Director suppressingthe fact of pendency of C.P.No.328 of 2015, entered into second lease agreement dated 01.08.2016 and MOU dated 25.01.2017 with the applicant company. In the minutes of the meeting, dated 16.05.2017, it was suppressed.

33. In suppression of the said fact, the Managing Director of the l't respondent company has addressed a letter dated 14.12.2016 to the 2nd respondent seeking permission to sell the part of the mortgaged property. The Appticant being in possession of the subject property from 01.08,2015, cannot claim ignorance of the pendency of the proceedings in C.P.No.328 of20l5. It has not exercised due diligence while purchasing the said property before entering into transaction. At the cost of repetition, as discussed supra, the Applicant has specifically mentioned in the MOU dated 25.01.2017 that it will issue 32 public notice in leading newspapers, receive ob-iectrons etc. On consideration of the same, vide order dated 01.07.2022, this Court directed the Applicant to produce the newspapers in which the Applicant had t:arried out advertisement regarding ttLc purchase of property pursuant to MOU dated 25.01.2017. It has nct hled the said newspapers. [n the absence of the same, the Applicant :annot contend that it is a bonaJide purchaser.

34. It is ;r1so relevant to note that it has soldsc,rre part of the subject propertl,to lWs Bajaj Heavy Engineering Works Limited, by way of entering into an agreement of sale dated 3l . 10.2019 for an amount of Rs.2.50 crores and it has received Rs.50 lakh:; towards parl of sale consideration.

35. As drscussed supra, even according to the Applicant, it has purchased the subject property by paying an amount rrf Rs.4 Crores towards sale consideration. [n the year 2016, the valu rtion of the said property is lts.399 lakhs. Therefore, Applicant cannot contend that it has sold the subject property for Rs.2.50 crores. The l.pplicant tried to explain the same by mentioning the dispute with the purchaser etc. The same is not believable and the said contention of the Applicant is untenable.

36. In the light of the aforesaid discussion, this Court is of the view that the Applicant is not a bona fide purchaser and the said sale dated 03.01.2018 entered by and between the Applicant and 1" respondent is in violation of the procedure laid down under Section 536(2) and 537 (lxb) of the Act and the principle laid down in the aforesaid judgments. Therefore, the Applicant is not entitled for any reliet much less the relief sought in the present application

37. Therefore, this apptication is liable to be dismissed and accordingly dismissed. Consequently, miscellaneous petitions, if any, pending in this Company Application, shall stand closed. sD/- c.v. AL IKARJUNA VARMA OINT REGISTRAR //TRUE COPY// SECTION OFFICER t To, I I

1. The-Official Liquidator, M/s. GE Godavari Engineering lndustries Ltd, Office at '1'' floor, Corporate Bhawan, Bandlaguda, Nagole, Hyderabad -500068. 2. The Registrar of Companies, Ministry of Corporate Affairs, Government of lndia 2no floor Corporate Bhawan, Nagole, Bandlaguda, Thattiannaram Village Hayathnagar Mandal, Ranga Reddy District, Telangana State Pin Code 500 680.

3. The Regional Director, South Eastern Region, Ministry of Corporate Affairs, 3'd floor Corporate Bhawan, Nagole, Thattiannaram Village Hayathnagar Mandal, Ranga Reddy District Telangana State, Pin Code 500 680. -Bandlaguda,-

4. Authorized Representative State Bank of lndia, Stressed Assets Management Branch,5th Floor, Rear Block, HMWSSB Compound, D. No.6-2-915, Khairtabad, Hyderabad - 500004 'r. ' , l..l.,i':

5. The S.O. O.S. Section, High Court at Hyderabad, for the State of Telangana. 6. One CC to Sri Ms. SIVA PRANEETHA SREERAMULA , Advocate (OPUC) 7. One CC to Sri J. Srinadh Reddy, Counsel for Official Liquidator, High Court for at Hyderabad [OPUC] 8, Two CD Copies KuliPSL TW I HIGH COURT DATED:1 8/08/2021i .,:-.:.t,... - \-. 15 rltT 20r r.,,:-- \l% \ { ( t COMPANY APPLICATION No. 7 of 2021 COI|IPANY PETITION No. 328 of 2015 DISMISSTNG 'f HE CO\,fPANY APPLICATION @ \*- ^-.-w