# IDBI BANK LIMITED THROUGH DGM (LEGAL) v. THE OFFICIAL LIQUIDATOR, OFFICE OF THE OFFICIAL LIQUIDATOR OF COMPANIES & ANR

- **Citation:** [2019] 15 S.C.R. 549
- **Court:** Supreme Court of India
- **Decided:** 2019-10-17
- **Bench:** Mohan M. Shantanagoudar, Ajay Rastogi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/idbi-bank-limited-through-dgm-legal-v-the-official-liquidator-office-of-the-33876
- **Pages:** 20

## Headnote

Company (Court) Rules, 1959: rr.96, 99, 24 and 101 -
Winding up petitions, advertisement - Mandatory requirement -
Held: The advertisement of a winding up petition is mandatory -
However, if the petitioning creditor fails to advertise the petition
within the prescribed time, r.101 accords discretion to the court to
substitute such petitioning creditor with another creditor or
contributory, if latter is capable and desirous of prosecuting the
winding up petition - In the instant case, no such advertisement
was made - No other creditor or contributory expressed willingness
to prosecute the original winding up petition - At the same time, as
noted by the Division Bench of High Court, there were other
unsatisfied secured creditors of KOFL who were not given the option
to step into the shoes of the petitioning creditor in terms of r.101 -
Given the absence of a specific provision mandating that the petition
only be advertised by petitioning creditor, the Company Court has
the discretion to direct the publishing of an advertisement to secure
the interest of other creditors - In such situations, the winding up
proceedings cannot be dismissed, as it would frustrate the very
objective of securing the interest of all creditors - Clearly, the
submission for the Petitioner that the winding up petition deserves
to be dismissed as all creditors of KOFL have been satisfied is belied
by the existence of the proceedings before the DRT - The records
showed that the settlement of dues was only with respect to the
unsecured creditors of KOFL, which was carried out pursuant to
the orders issued by the Company Judge - Therefore, given that the
secured creditors of KOFL have still not been satisfied and are
bound to be affected by any order dismissing the winding up
proceeding, the Company Court is directed to issue appropriate
directions to the Official Liquidator for publishing the advertisement
of the proceedings in accordance with law.
 [2019] 15 S.C.R. 549
549
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SUPREME COURT REPORTS
[2019] 15 S.C.R.
Companies Act, 1956: ss.293, 531 - Whether the agreement
to sell executed by KOFL in favour of petitioner amounted to
fraudulent preference and consequently whether the petitioner has
a right to seek the execution of sale deed in its favour - Held: s.531
is a provision that deals with the effect of winding up of a company
on its antecedent transactions - It provides that a transfer or any
other act done in relation to the property of a company within a
period of six months before the commencement of its winding up
("twilight period") shall be deemed to be a fraudulent preference
of its creditors and accordingly be invalid - In the instant case,
s.531 should be read in conjunction with s.293, which stipulates
that the sale of the whole, or substantially the whole of the property
of a public company requires the consent of its general meeting -
s.531 provides that any act relating to the property of a company
may qualify as a fraudulent preference if two conditions are met -
First, the dominant motive in the mind of the company (as represented
by its directors or general body of shareholders) should be to prefer
a particular creditor - Second, the said act must be undertaken
during the period of six months preceding the filing of the winding
up petition of the company - While the first requirement ensures
that the dominant intention to defraud creditors is detected, the
second ensures that there is a level of commercial certainty and
finality of transactions for those interacting with the company -
s.293(1) requires the consent of the general meeting of a company
in case of a sale or disposition of the whole or substantial whole of
its property - s.293(1) is applicable to the instant case in view of
the categorical finding by both the Courts below that the subject
property is the only immovable property of KOFL - Notably, no
approval from the general meeting of KOFL was obtained - There
was only a Board resolution permitting Re

## Text

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IDBI BANK LIMITED THROUGH DGM (LEGAL)
v.
THE OFFICIAL LIQUIDATOR, OFFICE OF THE
OFFICIAL LIQUIDATOR OF COMPANIES & ANR.
(Special Leave Petition (Civil) No. 33825 of 2009)
OCTOBER 17, 2019
[MOHAN M. SHANTANAGOUDAR AND
AJAY RASTOGI, JJ.]
Company (Court) Rules, 1959: rr.96, 99, 24 and 101 -
Winding up petitions, advertisement - Mandatory requirement -
Held: The advertisement of a winding up petition is mandatory -
However, if the petitioning creditor fails to advertise the petition
within the prescribed time, r.101 accords discretion to the court to
substitute such petitioning creditor with another creditor or
contributory, if latter is capable and desirous of prosecuting the
winding up petition - In the instant case, no such advertisement
was made - No other creditor or contributory expressed willingness
to prosecute the original winding up petition - At the same time, as
noted by the Division Bench of High Court, there were other
unsatisfied secured creditors of KOFL who were not given the option
to step into the shoes of the petitioning creditor in terms of r.101 -
Given the absence of a specific provision mandating that the petition
only be advertised by petitioning creditor, the Company Court has
the discretion to direct the publishing of an advertisement to secure
the interest of other creditors - In such situations, the winding up
proceedings cannot be dismissed, as it would frustrate the very
objective of securing the interest of all creditors - Clearly, the
submission for the Petitioner that the winding up petition deserves
to be dismissed as all creditors of KOFL have been satisfied is belied
by the existence of the proceedings before the DRT - The records
showed that the settlement of dues was only with respect to the
unsecured creditors of KOFL, which was carried out pursuant to
the orders issued by the Company Judge - Therefore, given that the
secured creditors of KOFL have still not been satisfied and are
bound to be affected by any order dismissing the winding up
proceeding, the Company Court is directed to issue appropriate
directions to the Official Liquidator for publishing the advertisement
of the proceedings in accordance with law.
 [2019] 15 S.C.R. 549
549
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Companies Act, 1956: ss.293, 531 - Whether the agreement
to sell executed by KOFL in favour of petitioner amounted to
fraudulent preference and consequently whether the petitioner has
a right to seek the execution of sale deed in its favour - Held: s.531
is a provision that deals with the effect of winding up of a company
on its antecedent transactions - It provides that a transfer or any
other act done in relation to the property of a company within a
period of six months before the commencement of its winding up
("twilight period") shall be deemed to be a fraudulent preference
of its creditors and accordingly be invalid - In the instant case,
s.531 should be read in conjunction with s.293, which stipulates
that the sale of the whole, or substantially the whole of the property
of a public company requires the consent of its general meeting -
s.531 provides that any act relating to the property of a company
may qualify as a fraudulent preference if two conditions are met -
First, the dominant motive in the mind of the company (as represented
by its directors or general body of shareholders) should be to prefer
a particular creditor - Second, the said act must be undertaken
during the period of six months preceding the filing of the winding
up petition of the company - While the first requirement ensures
that the dominant intention to defraud creditors is detected, the
second ensures that there is a level of commercial certainty and
finality of transactions for those interacting with the company -
s.293(1) requires the consent of the general meeting of a company
in case of a sale or disposition of the whole or substantial whole of
its property - s.293(1) is applicable to the instant case in view of
the categorical finding by both the Courts below that the subject
property is the only immovable property of KOFL - Notably, no
approval from the general meeting of KOFL was obtained - There
was only a Board resolution permitting Respondent No.1 to execute
agreements of sale and other documents for the purpose of selling
the subject property - In the absence of the requisite approval from
the general meeting, the instant application for execution of a sale
deed cannot be allowed as doing so would be allowing the Petitioner
to sidestep the mandatory requirements of s.293(1) - A bare reading
of s.531 shows that in addition to any transfer of property, it covers
"any other act relating to the property" - These terms indicate that
s.531 is comprehensive and includes indirect transactions within its
scope - The Petitioner is not precluded from benefiting from s.531
on account of non-fulfilment of the six-month condition - Therefore,
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the agreement to sell cannot be termed as a fraudulent preference
under s.531.
Transfer of property: It is well-settled that the sale of an
immovable property can only be effectuated through a sale deed
and an agreement to sell does not transfer any right, title or interest
in the immovable property.
Dismissing the Special Leave Petitions, the Court
HELD: 1. From a reading of Rules 96, 99, and 24, it is
clear that the advertisement of a winding up petition is mandatory.
In the event that the petitioning creditor fails to advertise the
petition within the prescribed time, Rule 101 accords the Court
with the discretion to substitute such petitioning creditor with
another creditor or contributory, if the latter is capable and
desirous of prosecuting the winding up petition. The winding up
proceedings are proceedings in rem and have an impact on the
rights of people, in general. In a situation where the petitioning
creditor fails to advertise the petition and no other creditor or
contributory comes forward to prosecute it, Rule 101 should not
be read in a manner that absolutely bars the continuation of a
winding up petition. This is particularly so when there are
unsatisfied creditors who should have been given an opportunity
to prosecute the petition, but were deprived of the same due to
the failure to advertise. Indeed, Rule 101 is only limited to
instances where the petitioning creditor fails to advertise the
petition. However, there is nothing in the language of Rules 24,
96, or 99 to indicate that only such petitioning creditor can
advertise the petition. Given the absence of a specific provision
mandating that the petition only be advertised by petitioning
creditor, Company Court has the discretion to direct the
publishing of an advertisement to secure the interest of other
creditors. In such situations, the winding up proceedings cannot
be dismissed, as it would frustrate the very objective of securing
the interest of all creditors. [Para 8, 11.3] [561-B; 562-G-H; 563A-C]
2. Due to the lack of adequate advertisement of the winding
up petitions, it appears that the secured creditors of KOFL were
constrained to approach the DRT for recovery of their dues by
filing O.A. Further, upon learning of the decision of the Company
Judge dismissing the winding up petition, one of the secured
IDBI BANK LTD. THR. DGM(LEGAL) v. OFFICIAL LIQUIDATOR, OFFICE OF
THE OFFICIAL LIQUIDATOR OF COMPANIES
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creditors (SBI) also approached the DRT to secure its interest.
Based on this, the DRT had directed that the amount to be
returned to KOFL be attached so that the banks have an
opportunity to recover their dues from KOFL. This clearly goes
on to show that the secured creditors of KOFL were relevant
stakeholders who were affected by the non-advertising of the
winding up petition. They should have been called upon to
indicate whether they would want to step into the shoes of the
petitioning creditors as per Rule 101. The records show that the
settlement of dues has only been with respect to the unsecured
creditors of KOFL, which was carried out pursuant to the orders
issued by the Company Judge. This is supported by the fact that
the advertisement dated 24.08.2005 issued by KOFL inviting
claims from recoveries made by its Administrator, was only limited
to the depositors or unsecured creditors of the company.
Therefore, given that the secured creditors of KOFL have still
not been satisfied and are bound to be affected by any order
dismissing the winding up proceeding, the decision of the Division
Bench reviving C.P. No. 179 of 2001 is upheld and the Company
Court is directed to issue appropriate directions to the Official
Liquidator for publishing the advertisement of the proceedings
in accordance with law. The other winding up petition, C.P. No.
180 of 2001 filed by the wife of Respondent No. 3 continues to
remain on record, as the impugned proceedings pertain to C.A.
No. 734 of 2011, which was filed in C.P. No. 179 of 2001 only. The
impugned judgment and decree does not contain any direction
qua C.P. No. 180 of 2001, which shall therefore remain unaffected.
[Paras 11.4-11.7] [563-D-H; 564-A-C]
3. Section 531 is a provision that deals with the effect of
winding up of a company on its antecedent transactions. It provides
that a transfer or any other act done in relation to the property of
a company within a period of six months before the
commencement of its winding up ("twilight period") shall be
deemed to be a fraudulent preference of its creditors and
accordingly be invalid. For the purpose of the present case,
Section 531 should be read in conjunction with Section 293, which
stipulates that the sale of the whole, or substantially the whole of
the property of a public company requires the consent of its
general meeting. It is also well-settled that the sale of an
immovable property can only be effectuated through a sale deed
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and an agreement to sell does not transfer any right, title or
interest in the immovable property. Section 293(1) is applicable
to the present case in view of the categorical finding by both the
Courts below that the subject property is the only immovable
property of KOFL. Notably, no approval from the general meeting
of KOFL has been obtained. There is only a Board resolution
dated 31.03.1999 permitting Respondent No. 1 to execute
agreements of sale and other documents for the purpose of selling
the subject property. In the absence of the requisite approval
from the general meeting, the instant application for execution of
a sale deed cannot be allowed as doing so would be allowing the
Petitioner to sidestep the mandatory requirements of Section
293(1). Therefore, C.A. No. 1208 of 2002 deserves to be
dismissed on this ground alone. [Para 14, 17.1] [565-B-C; 566F-H; 567-A-B]
Suraj Lamp & Industries (P) Ltd. (2) v. State of Haryana,
(2012) 1 SCC 656 : [2011] 11 SCR 848 ; Bank of India
v. Abhay D. Narottam, (2005) 11 SCC 520 - relied on
4. The agreement cannot be termed as a fraudulent
preference under Section 531. Under Indian company law, Section
531 of the 1956 Act (now Section 328 of the Companies Act, 2013)
is the cornerstone provision that lays down the requirements for
a transaction to amount to a fraudulent preference. Framed along
the lines of Section 320 of the English Companies Act of 1948, it
provides that any act relating to the property of a company may
qualify as a fraudulent preference if two conditions are met. First,
the dominant motive in the mind of the company (as represented
by its directors or general body of shareholders) should be to
prefer a particular creditor. Second, the said act must be
undertaken during the period of six months preceding the filing
of the winding up petition of the company. While the first
requirement ensures that the dominant intention to defraud
creditors is detected, the second ensures that there is a level of
commercial certainty and finality of transactions for those
interacting with the company. [Para 17.2] [567-C-E]
Jayanthi Bai v. Popular Bank Ltd., AIR 1966 Ker 296;
Official Liquidator, Victor Chit Fund (P.) Ltd. v. Kanhiya
Lal & Ors., (1972) 42 Com Cas 196 (Del) - approved
IDBI BANK LTD. THR. DGM(LEGAL) v. OFFICIAL LIQUIDATOR, OFFICE OF
THE OFFICIAL LIQUIDATOR OF COMPANIES
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5. The Division Bench has entirely ignored the second
requirement under Section 531. Solely based on an examination
of factors indicating a dominant motive of the management of
KOFL to benefit the Petitioner, it went on to hold that the
agreement to sell constitutes a fraudulent preference. In doing
so, it has failed to appreciate that the said agreement was executed
on 17.02.2000, while the winding up petitions were filed on
02.07.2001, signifying that there was a gap of over sixteen months
between the two events, as opposed to the six-month period
contemplated under Section 531. Similarly, it failed to consider
that even the transfer of possession of the subject property
occurred on 06.11.2000, which was also before the six-month
period preceding the filing of the winding up petition. Clearly
then, the Division Bench has erred in ignoring the time limit
stipulated under Section 531 and holding that the transaction
qualifies as a fraudulent preference. The same cannot be
disregarded as it is crucial for ensuring commercial certainty for
parties transacting with a company. Section 531 is comprehensive
and includes indirect transactions within its scope. Thus, the
Petitioner is not precluded from benefiting from Section 531 on
account of non-fulfilment of the six-month condition. Therefore,
the agreement to sell dated 17.02.2000 cannot be termed as a
fraudulent preference under Section 531. [Paras 17.3-17.5] [567F-H; 568-A-D]
Manik Ratan Guin & Ors. v. Prokash Chandra
Chattopadhyay, (1953-54) 58 CWN 545 (Cal); National
Conduits (P) Ltd. v. S.S. Arora, AIR 1968 SC 279 :
[1968] SCR 430; Lt. Col. RK Saxena v. Imperial Forestry
Corporation, 2001 CLC 1746 -relied on
Case Law Reference
[1968] SCR 430
relied on
Para 11.1
[2011] 11 SCR 848
relied on
Para 17.1
(2005) 11 SCC 520
relied on
Para 17.1
CIVIL APPELLATE JURISDICTION: Special Leave Petition
(Civil) No. 33825 of 2009.
From the Judgment and Order dated 17.08.2009 of the High Court
of Judicature at Madras in O.S.A. No. 284 of 2003.
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With
S.L.P. (Civil) No. 5143 of 2018.
R. P. Bhat, Sr. Adv., Ms. Madhu S., Sumit Gupta, Ms. Subhashree
Mohapatra, Siddharth Raj Agarwal, Ms. Astha Tyagi, Advs. for the
Petitioner.
Sriram Parakkat, B. Ragunath, P. Arun Kumar, Vijay Kumar,
K. K. Mani, Ms. T. Archana, Advs. for the Respondents.
The Judgment of the Court was delivered by
MOHAN M. SHANTANAGOUDAR, J.
1. The instant SLPs have been preferred by IDBI Bank (erstwhile
United Western Bank) (hereinafter "the Petitioner") against the
judgments dated 17.08.2009 and 28.07.2017 passed by the High Court
of Judicature at Madras in O.S.A. No. 284 of 2003 and O.S.A. No. 396
of 2013 respectively, which relate to Company Petition (C.P.) No. 179
of 2001. Vide the impugned judgments, the High Court dismissed an
application seeking the execution of a sale deed in favour of the Petitioner
by one Kothari Orient Finance Limited (hereinafter "KOFL") and also
revived the winding up proceedings initiated against KOFL.
2. The factual background to the instant petitions is as follows:
2.1 On 20.03.1992, KOFL availed a working capital loan of Rs.
55 lakhs from the erstwhile United Western Bank (now taken over by
the Petitioner). As on 31.03.1999, the amount owed was Rs.60.55 lakhs.
KOFL defaulted on the same. Consequently, it proposed a one-time
settlement to the Petitioner for repayment of its dues. Towards this end,
KOFL offered to sell its property - Office Space Nos. 102 and 103, 1st
Floor, Prestige Point, admeasuring 2056.89 sq. ft. and situated at No. 33,
Haddows Road, Nungambakkam, Chennai [hereinafter "the subject
property"].
2.2 Pursuant to the same, KOFL and the Petitioner executed an
agreement to sell dated 17.02.2000 with respect to the subject property
for a consideration of Rs.1.05 crores. According to this agreement, the
Petitioner paid Rs. 41 lakhs as advance and the balance of Rs. 64 lakhs
was to be paid at the time of the completion of the sale transaction. This
was done in pursuance of the authority vested with Mr. Pradeep D.
Kothari (Director of KOFL and Respondent No. 1 in SLP No. 5143/
2018, hereinafter "Respondent No. 1") by the resolution dated
31.03.1999 passed by the Board of Directors of KOFL, giving him the
IDBI BANK LTD. THR. DGM(LEGAL) v. OFFICIAL LIQUIDATOR, OFFICE OF
THE OFFICIAL LIQUIDATOR OF COMPANIES
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right to execute agreement(s) of sale for the said property to improve
the liquidity of the company.
2.3 It is important to note that on 18.04.2000, in accordance with
the provisions of the Income Tax Act, 1961, a 'No Objection Certificate'
was issued by the income tax authorities for the sale of the subject
property for a consideration of Rs.1.05 crores. Later, vide letter dated
06.11.2000, possession of the property was also handed over to the
Petitioner by KOFL.
2.4 Issues surfaced when two company petitions were filed on
02.07.2001, being C.P. No. 179 of 2001 and C.P. No. 180 of 2001 by one
Mr. S. Ramaiah (Respondent No. 3 in S.L.P. (Civil) No. 33825/2009)
and his wife respectively. Having deposited monies with KOFL, which
had been defaulted upon, they preferred these company petitions under
Section 433(e) and (f) and Section 434 of the Companies Act, 1956
(hereinafter "the 1956 Act") seeking the winding up of KOFL and the
repayment of their dues (hereinafter "winding up petitions"). When
these petitions came up before the learned Company Judge on 05.12.2001,
it was observed that the liabilities of KOFL (including outstanding secured
loans) were more than the assets. Consequently, the petitions were
admitted and directions were issued for appointment of an Administrator
and a Provisional Liquidator for KOFL. In addition to this, directions
were also issued for publishing the company petitions in an English and
Tamil daily, as well as in the Government Gazette.
Genesis of S.L.P. (Civil) No. 33825 of 2009
2.5 In April 2002, the Petitioner filed Company Application (C.A.)
No. 1208 of 2002 in the aforesaid winding up petition being C.P. No. 179
of 2001, seeking a direction to the Administrator to execute a sale deed
in its favour for the subject property, as per Section 536(2) of the 1956
Act.
2.6 Vide order dated 21.04.2003, the learned Company Judge
dismissed this application on the ground that the agreement to sell
amounted to a fraudulent preference in favour of the Petitioner, as it
ignored other similarly placed creditors. The appeal preferred by the
Petitioner was numbered as O.S.A. No. 284 of 2003. On 17.08.2009, it
was dismissed on the basis that the agreement to sell suffered from
legal infirmities and was a fraudulent preference. This order passed by
the Division Bench has been impugned in the instant S.L.P. filed by the
Petitioner before this Court.
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Interim Proceedings
2.7 In the interim, Mr. Pradeep D. Kothari (Respondent No. 1)
filed C.A. Nos. 2482-2485 of 2007, seeking permission to pay amounts
due to the unsecured creditors of KOFL out of his own personal funds.
By order dated 09.10.2007, the learned Company Judge disposed of
these applications, directing Respondent No. 1 to deposit Rs. 4.69 crores
with the Administrator towards full and final settlement of the dues of
the unsecured creditors of KOFL. It was also directed that remaining
amount (if any) should be refunded back to him after payment to the
depositors.
2.8 On 23.06.2009, based on a perusal of the interim and final
report filed by the Administrator, the learned Company Judge noted that
6,464 out of the total 10,968 depositors (unsecured creditors) of KOFL
had been paid by the Administrator to the extent of 20% and 30% of the
funds had been brought in by the Director. For the remaining 4,504
depositors, it was observed that the entire claims of about Rs. 5.87 crores
had been settled by Respondent No. 1 privately. Since part of the amount
due to them was covered by recoveries made from debtors of KOFL,
an amount of Rs. 1.95 crores remained out of the Rs. 4.69 crores
deposited by Respondent No. 1. Consequently, this amount was directed
to be refunded back to him. Vide this order, the learned Company Judge
also discharged the Administrator on the basis that his primary obligation
of redemption of dues of unsecured creditors had been fulfilled.
2.9 Against this backdrop, the original Company Petitions came
up for hearing before the Company Court on 21.06.2010. Notice was
issued to the petitioning creditor, S. Ramaiah, who is arraigned as
Respondent No. 3 herein.
Genesis of S.L.P. (Civil) No. 5143 of 2018
2.10 On 03.03.2011, the Petitioner filed another company
application, C.A. No. 734 of 2011 in C.P. No. 179 of 2001 seeking the
discharge of the Official Liquidator, who was acting as the Provisional
Liquidator of KOFL (Respondent No. 2 in the SLPs before us). This
application was made on the ground that there were no other claims left
to be settled against the company, and therefore, the services of the
Official Liquidator were no longer required. The application was opposed
by Respondent No. 1 on the ground that it would prejudice other creditors
of the company and was a mala fide attempt by the Petitioner to grab
the subject property. Meanwhile, the Official Liquidator filed a report on
IDBI BANK LTD. THR. DGM(LEGAL) v. OFFICIAL LIQUIDATOR, OFFICE OF THE
OFFICIAL LIQUIDATOR OF COMPANIES [MOHAN M. SHANTANAGOUDAR, J.]
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16.01.2013 seeking permission to advertise and invite claims from
unsettled creditors of KOFL, if any.
2.11 By order dated 04.10.2013, the learned Company Judge
allowed the application and discharged the liquidator in view of the fact
that unsecured creditors of KOFL had been settled. Further, given the
lack of adequate advertising of the winding up petition, and the
unwillingness of any other creditor or contributory of KOFL to prosecute
the petition in terms of Rule 101 of the Companies (Court) Rules, 1959
(hereinafter "1959 Rules"), the original winding up petition, C.P. No.
179 of 2001, was dismissed. The Official Liquidator was directed to
return investments worth Rs. 1.27 crores which were lying with him,
back to KOFL after deducing administrative expenses incurred by him.
2.12 Soon after this order, one of the secured creditors of KOFL,
State Bank of India (hereinafter "SBI") approached the Debts Recovery
Tribunal, Chennai (hereinafter "DRT") for securing its interest and
sought an injunction restraining the Official Liquidator from refunding
the sum of Rs. 1.27 crores to KOFL. By order dated 13.12.2013, the
DRT ordered that the said sum be attached once it is transferred to
KOFL, so that the banks can recover their dues from the company.
2.13 In the interim, Respondent No. 1 filed an appeal against the
order of the Company Court dismissing the winding up petition. By order
dated 28.07.2017, a Division Bench of the High Court revived the winding
up proceedings on the basis that it would be unjust and inequitable to
wind up the company only for the reason that no other creditor or
contributory was willing to prosecute the winding up petition. Taking
note of the secured creditors of KOFL who had still not been satisfied
and had consequently approached the DRT, C.P. No. 179 of 2001 was
revived and the Official Liquidator was directed to continue the winding
up proceedings under the supervision of the Company Judge. This order
of the Division Bench in O.S.A. No. 396 of 2013 has been impugned in
the aforementioned S.L.P. (Civil) No. 5143 of 2018 filed by the Petitioner
before this Court.
3. In view of this factual background, two issues arise for
consideration before this Court:
First, whether the winding up proceedings against KOFL should
be revived.
Second, in the event that the proceedings should be revived, can
a sale deed be executed based on the agreement to sell dated 17.02.2000
entered into by the Petitioner and KOFL.
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4. Learned Senior Counsel for the Petitioner argued that the
winding up petition deserves to be dismissed, as all the creditors of KOFL
have now been satisfied in accordance with the orders of the Company
Judge and there are no other proceedings pending against KOFL before
any fora. Further, since no creditor had challenged the order of the
Company Court dismissing the winding up proceedings, it was submitted
that the proceedings do not merit revival at this stage. As regards the
execution of a sale deed, learned Senior Counsel refuted the finding that
the agreement to sell amounts to a fraudulent preference. Relying on
the provisions of Section 531 of the 1956 Act, he argued that the
agreement to sell cannot be deemed as a fraudulent preference as the
agreement to sell was not executed within the six-month period preceding
the filing of the winding up petition. In addition to this, he also adverted
to the lack of any fraudulent intention underlying the transaction and
drew support from the No Objection Certificate issued by the Income
Tax authorities to argue that the sale was not undervalued. Lastly, it was
submitted that Section 293(1) of the 1956 Act is inapplicable to the present
case, as the subject property does not form the whole or substantial
whole of the property owned by KOFL. Thus, he stated that the approval
of the Board of Directors vide resolution dated 31.03.1999 was sufficient,
and no approval from the general meeting was required.
5. Per contra, learned Counsel for Respondent No. 2 (Official
Liquidator) submitted that the winding up proceedings were correctly
revived, as there are several secured creditors of KOFL that have still
not been satisfied. He also argued that the subject property is the only
property of KOFL and cannot be transferred without the approval of the
general meeting in terms of Section 293(1) of the 1956 Act. With respect
to the agreement to sell, it was submitted that it is a fraudulent preference
in favour of the Petitioner. To substantiate this, he relied on the provisions
of the agreement which state that the remaining consideration of Rs.64
lakhs would be paid only at the time of registration of the property. In
light of this, he submitted that the adjustment of the said amount was not
contemplated in the agreement and by doing so, the clause itself has
been rendered redundant.
6. We have considered the arguments advanced by both sides
and perused the material on record. Since the issue of fraudulent
preference hinges on the survival of the winding up petition, we shall
first proceed to examine whether the Division Bench was correct in
reviving the winding up proceedings.
IDBI BANK LTD. THR. DGM(LEGAL) v. OFFICIAL LIQUIDATOR, OFFICE OF THE
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Revival of the winding up petition
7. From a bare perusal of the decision of the Division Bench, it is
evident that the requirements governing the advertisement of winding
up petitions under the 1959 Rules are crucial for the determination of
this issue. It would therefore be useful to note the relevant rules, which
are reproduced hereunder:
"R.96. Admission of petition and directions as to
advertisement - Upon the filing of the petition, it shall be posted
before the Judge in Chambers for admission of the petition and
fixing a date for the hearing thereof and for directions as to the
advertisements to be published and the persons, if any, upon whom
copies of the petition are to be served. The Judge may, if he thinks
fit, direct notice to be given to the company before giving directions
as to the advertisement of the petition.
R.99: Advertisement of petition - Subject to any directions of
the Court, the petition shall be advertised within the time and in
the manner provided by rule 24 of these rules. The advertisement
shall be in Form No. 48.
R.24: Advertisement of petition -
(1) Where any petition is required to be advertised, it shall, unless
the Judge otherwise orders, or these rules otherwise provide, be
advertised not less than fourteen days before the date fixed for
hearing, in one issue of the Official Gazette of the State or the
Union Territory concerned, and in one issue each of a daily
newspaper in the English language and a daily newspaper in the
regional language circulating in the State or the Union
Territory concerned, as may be fixed by the Judge.
R.101: Substitution of creditor or contributory for original
petitioner -
Where a petitioner - ... (2) fails to advertise his petition within
the time prescribed by these rules or by order of Court or such
extended time as the Court may allow ...
(4) if appearing, does not apply for an order in terms of the prayer
of his petition, or, where in the opinion of the Court there is other
sufficient cause for an order being made under this rule, the Court
may, upon such terms as it may think just, substitute as petitioner
any creditor or contributory who, in the opinion of the Court, would
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have a right to present a petition, and who is desirous of prosecuting
the petition."
8. The above rules find mention in the part relating to winding up
petitions under the 1959 Rules. They lay down the procedure for instituting
a winding up action. From a reading of Rules 96, 99, and 24, it is clear
that the advertisement of a winding up petition is mandatory. In the event
that the petitioning creditor fails to advertise the petition within the
prescribed time, Rule 101 accords the Court with the discretion to
substitute such petitioning creditor with another creditor or contributory,
if the latter is capable and desirous of prosecuting the winding up petition.
9. In the instant case, while dealing with C.A. No. 734 of 2011 in
C.P. No. 179 of 2001 seeking discharge of the Official Liquidator, the
learned Company Judge observed that the mandatory procedure for
advertising a winding petition, as stipulated under Rules 95, 96, 99, and
24 of the 1959 Rules had not been complied with. While looking into the
implications of the failure to advertise, the learned Company Judge
adverted to Rule 101, which allows for substitution of the petitioning
creditor. However, since it was found that no other creditor had expressed
the desire to prosecute the original petition, C.P. No. 179 of 2001 was
dismissed. It was observed that such dismissal would not prejudice the
creditors as more than 10,000 unsecured creditors of KOFL had been
settled in the last 12 years after being given adequate notice, and even
the secured creditors would not be prejudiced, as they would still be free
to pursue their claims before the DRT.
10. As noted supra, a Division Bench of the High Court set aside
the order of the Company Court in appeal. While it was observed that
the winding up petitions had not been advertised by the petitioning creditor
in accordance with the 1959 Rules, it was held that it would be unjust
and inequitable to wind up the company only for this reason, as there
were several secured creditors (including SBI) who had still not been
satisfied and had consequently approached the DRT. It was observed
that before dismissing the winding up petition, all the secured creditors
to whom KOFL owed money, should have been called by the Official
Liquidator to inquire whether they wanted to step into the shoes of the
original petitioner. Taking a broad interpretation of Rule 101, the Division
Bench held that the Rule cannot be read as an absolute bar on the
continuation of winding up proceedings, where the petitioning creditor
fails to advertise the petition. Adverting to the inherent powers vested
with the Company Court under Rule 9 and given the absence of a specific
IDBI BANK LTD. THR. DGM(LEGAL) v. OFFICIAL LIQUIDATOR, OFFICE OF THE
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provision mandating that the advertisement shall only be published by
the petitioning creditor, the Division Bench observed that the Company
Court has the discretion to direct the provisional liquidator to publish the
advertisement, where the situation so demands. In view of this, C.P. No.
179 of 2001 was revived and the Official Liquidator was directed to
continue the winding up proceedings.
11. Upon examining the relevant rules and the decisions rendered
by the learned Company Judge and the Division Bench, we are inclined
to agree with the view taken by the latter.
11.1 By order dated 05.12.2001, the learned Company Judge had
directed the publication of C.P. No. 179 of 2001 in an English and Tamil
daily as well as the Government Gazette. However, despite this order,
no such advertisement was made. To this extent, we agree with the
Division Bench that there has been a violation of the advertisement
requirements under Rules 96, 99 and 24, which are mandatory in nature
[see National Conduits (P) Ltd. v. S.S. Arora, AIR 1968 SC 279; Lt.
Col. RK Saxena v. Imperial Forestry Corporation, 2001 CLC 1746].
11.2 Given this failure to advertise, the option of substitution
provided in Rule 101 becomes relevant. In this respect, both the Courts
below have found that no other creditor or contributory expressed
willingness to prosecute the original winding up petition. At the same
time, as noted by the Division Bench, there are other unsatisfied secured
creditors of KOFL who were not given the option to step into the shoes
of the petitioning creditor in terms of Rule 101.
11.3 Against this backdrop, the crucial question that arises for our
consideration is whether a winding up petition can be dismissed solely
on the ground of lack of a prosecuting creditor under Rule 101, or whether
the Company Court has the power to direct the publication of an
advertisement by the Liquidator of the company, especially in cases where
other unsatisfied creditors still remain. For answering this question, it is
important to bear in mind that winding up proceedings are proceedings
in rem and have an impact on the rights of people, in general. Thus, it is
mandatory to advertise such proceedings, so as to ensure that they receive
the widest possible publicity and all relevant stakeholders have adequate
notice. This implies that in a situation where the petitioning creditor fails
to advertise the petition and no other creditor or contributory comes
forward to prosecute it, Rule 101 should not be read in a manner that
absolutely bars the continuation of a winding up petition. This is particularly
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so when there are unsatisfied creditors who should have been given an
opportunity to prosecute the petition, but were deprived of the same due
to the failure to advertise. Indeed, Rule 101 is only limited to instances
where the petitioning creditor fails to advertise the petition. However,
there is nothing in the language of Rules 24, 96, or 99 to indicate that
only such petitioning creditor can advertise the petition. In our
considered opinion, given the absence of a specific provision mandating
that the petition only be advertised by petitioning creditor, the Company
Court has the discretion to direct the publishing of an advertisement to
secure the interest of other creditors. In such situations, the winding up
proceedings cannot be dismissed, as it would frustrate the very objective
of securing the interest of all creditors.
11.4 In light of this discussion, we find that it would be unjust to
dismiss the winding up petition in the instant case solely on the ground
that there is no other person willing to substitute the original creditor in
terms of Rule 101. Here, due to the lack of adequate advertisement of
the winding up petitions, it appears that the secured creditors of KOFL
were constrained to approach the DRT for recovery of their dues by
filing O.A. Nos. 139 of 2001, 978 of 2000; and 14 of 2002. Further, upon
learning of the decision of the Company Judge dated 04.10.2013
dismissing the winding up petition, one of the secured creditors (SBI)
also approached the DRT to secure its interest. Based on this, vide order
dated 13.12.2013, the DRT had directed that the amount to be returned
to KOFL be attached so that the banks have an opportunity to recover
their dues from KOFL. This clearly goes on to show that the secured
creditors of KOFL were relevant stakeholders who were affected by
the non-advertising of the winding up petition. They should have been
called upon to indicate whether they would want to step into the shoes
of the petitioning creditors as per Rule 101.
11.5 Clearly, the submission of the learned Senior Counsel for the
Petitioner that the winding up petition deserves to be dismissed as all
creditors of KOFL have been satisfied is belied by the existence of the
proceedings before the DRT. The records show that the settlement of
dues has only been with respect to the unsecured creditors of KOFL,
which was carried out pursuant to the orders issued by the Company
Judge. This is supported by the fact that the advertisement dated
24.08.2005 issued by KOFL inviting claims from recoveries made by its
Administrator, was only limited to the depositors or unsecured creditors
of the company.
IDBI BANK LTD. THR. DGM(LEGAL) v. OFFICIAL LIQUIDATOR, OFFICE OF THE
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11.6 Therefore, given that the secured creditors of KOFL have
still not been satisfied and are bound to be affected by any order dismissing
the winding up proceeding, we uphold the decision of the Division Bench
reviving C.P. No. 179 of 2001, and direct the Company Court to issue
appropriate directions to the Official Liquidator for publishing the
advertisement of the proceedings in accordance with law.
11.7 We hasten to add here that the other winding up petition,
C.P. No. 180 of 2001 filed by the wife of Respondent No. 3 continues to
remain on record, as the impugned proceedings pertain to C.A. No. 734
of 2011, which was filed in C.P. No. 179 of 2001 only. The impugned
judgment and decree does not contain any direction qua C.P. No. 180 of
2001, which shall therefore remain unaffected.
12. In light of the finding that the revival of the winding up petition
by the Division Bench was correct, we will now turn to examine whether
the agreement to sell executed by KOFL in favour of the Petitioner
amounts to a fraudulent preference, and consequently, whether the
Petitioner has a right to seek the execution of a sale deed in its favour.
Execution of sale deed
13.