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OSA No. 19 of 2015

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 17

TH

DAY OF FEBRUARY, 2026

PRESENT

THE HON'BLE MR. JUSTICE D K SINGH

AND

THE HON'BLE MR. JUSTICE VENKATESH NAIK T

ORIGINAL SIDE APPEAL NO. 19 OF 2015

BETWEEN:

1. OFFICIAL LIQUIDATOR

OF THE MYSORE KIRLOSKAR LTD., (IN LIQN.)

ATTACHED TO HIGH COURT OF KARNATAKA,

CORPORATE BHAVAN, NO.26-27, 12TH FLOOR,

RAHEJA TOWERS, M.G.ROAD

BANGALORE-560 001

…APPELLANT

(BY SMT. KRUTIKA RAGHAVAN, ADVOCATE FOR

SRI. K.S. MAHADEVAN, ADVOCATE/OL)

AND:

1. M/S. KIRLOSKAR INSTITUTE OF ADVANCED

MANAGEMENT STUDIES

YANTHRAPURA

HARIHAR-577601

…RESPONDENT

(BY SRI. K.G.RAGHAVAN, SENIOR COUNSEL FOR

SRI. RAGHURAM CADAMBI., ADVOCATE)

THIS OSA IS FILED UNDER SECTION 483 OF

COMPANIES ACT, 1956, PRAYING THIS HON'BLE COURT

TO CALL FOR RECORDS AND SET ASIDE THE ORDER

PASSED ON 21.07.2015 IN CO.A. NO. 826/2011 IN CO.P.

NO. 166/2001 AND BE PLEASED TO PASS AN ORDER

ALLOWING C.A. 826/11 IN COP 166/01, AND ETC.

THIS APPEAL HAVING BEEN HEARD AND RESERVED

FOR JUDGMENT ON 09.10.2025, COMING ON FOR

PRONOUNCEMENT THIS DAY, HON'BLE MR. JUSTICE D K

SINGH PRONOUNCED THE FOLLOWING:

®

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OSA No. 19 of 2015

CORAM: HON'BLE MR. JUSTICE D K SINGH

and

HON'BLE MR. JUSTICE VENKATESH NAIK T

CAV JUDGMENT

(PER: HON'BLE MR. JUSTICE D K SINGH)

1. The present appeal has been filed by the appella nt-

the Official Liquidator of the Mysore Kirloskar Ltd., (the

Company in liquidation) being aggrieved by the impu gned

order dated 21.07.2015 passed by the learned Compan y

Court in Company Application No.826/2011 in Company

Petition No.166/2001.

2. The Company Application No.826/2011 was filed by

the appellant herein seeking a declaration from the

Company Court to declare the Lease Agreement dated

22.01.2000 executed between the Mysore Kirloskar

Limited., and the respondent as void against the Of ficial

Liquidator and for consequential cancellation of the lease

agreement. The learned Company Court vide impugned

order dated 21.07.2015 has dismissed the applicatio n in

CA No.826/ 2011.

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OSA No. 19 of 2015

3. The relevant facts for the purposes of decision in the

present appeal are stated as under:

i. The respondent is a Society registered under

the Karnataka Registration of Societies Act, 1960 under the

name "Kirloskar Institute of Advanced Management

Studies" now named as "Kirloskar Institute of Management

Studies" ;

ii. The respondent entered into a registered lease

agreement dated 22.01.2000 with M/s. Mysore Kirlosk ar

Ltd., (the Company in liquidation). Pursuant to the

aforesaid lease deed, respondent was put in possession of

the land bearing Survey No.22, a part of Survey No.23 and

a part of Survey No.27 in Harihara Village and Talu ka,

Karnataka.

iii. Since its execution, respondent has been paying

the paltry rent of Rs.1,250/- per month. The Compan y

Court vide order dated 01.04.2004 ordered for winding up

of Mysore Kirloskar Limited, pursuant to the petitioner in

Company Petition No.166/2001. On 29.07.2011, the

Official Liquidator filed an application in Company

Application No.826/2011, seeking to declare the lease deed

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OSA No. 19 of 2015

as void against the Official Liquidator as it was executed a

few days prior to the presentation of the Company Petition

before the Company Court, which was on 14.03.2000.

iv. The Company Court after hearing the parties in

Company Application No.826/2011 has dismissed the

application vide impugned judgment and order dated

21.07.2015, on the ground that the Company Applicat ion

was barred by Limitation.

BACKGROUND OF THE CASE:

4. The Mysore Kirloskar Limited was ordered to be

wound up by the Company Court vide order dated

01.04.2004 in Company Petition No.166/2001 and the

Official Liquidator attached to this Court was appointed as

Liquidator of the Company (in liquidation) by virtu e of

provisions of Section 449 of the Companies Act, 1956.

5. Consequences of the winding up in respect of the

assets and properties of the Company in Liquidation are

provided in Section 456 of the Companies Act. Secti on

456(1) of the Companies Act provides as under:-

"'Where a winding up order has been

made or where a provisional liquidator

has been appointed, the liquidator or the

provisional liquidator as the case may

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OSA No. 19 of 2015

be, shall take into his custody or under

his control, all the properties, effects and

the actionable claims to which the

Company is or appears to be entitled."

6. Further Section 456(2) provides "All the propert ies

and effects of the Company shall be deemed to be in the

custody of the Tribunal as from the date of the order for

the winding up of the company". Accordingly, the of ficial

liquidator had taken possession of the company's land ad

measuring 176 acres, buildings, plants and machiner ies,

fixtures and movable assets, residential quarters and sites

etc., situated at Yantrapura, Harihara, Davangere District.

Subsequently with the permission of this Court the Official

Liquidator had sold the undisputed properties.

7. With the permission of this Court, the Official

Liquidator invited claims from the creditors of the Company

(Company in liquidation) and distributed dividend t o an

amount of Rs.89,70,74,758/- as first dividend and

Rs.17,67,59,066/- as the second dividend to the sec ured

creditors and workmen of the Company in liquidation . Put

together 95% of their admitted amounts were paid by the

Official Liquidator by disposing of the properties of the

Company in liquidation. Apart from that, under the order of

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OSA No. 19 of 2015

High Court dated 16.08.2019 passed in OLR

No.5/2019, the Official Liquidator had paid a sum o f

Rs.50,52,521/- to M/s.Kotak Mahindra Bank towards a n

interim dividend (at the rate of 50 paisa in a Rupee) Now

the Company in liquidation is having Rs.14,01,923/- only

available to the credit of the Company in liquidation.

8. The Company in liquidation is also having land o f

6.29 acres in Survey Nos.22, 23 part, 27 part in Ha rihar

Village and Taluk, measuring to an extent of 1.430 acres

and 4.869 acres together with assets thereon which was

leased to M/s. Kirloskar Institute of Advanced Management

Studies (KIAMS), the respondent herein by the Ex-

management of the Company in liquidation vide the l ease

agreement dated 22.01.2000 for a period of 28 years.

9. The valuable land ad measuring 6.29 acres was gi ven

on lease basis by the former Management in favour of M/S.

Kiloskar Institute of Advanced Management Studies,

Harihara, a related entity vide lease agreement dat ed

22.01.2000, just a few days prior to the filing of the

petition for winding up on monthly rental of Rs.1,250/- for

a period of 28 years.

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OSA No. 19 of 2015

10. The Official Liquidator therefore, filed an application

in CA No.826/2011 before the Company Court against

M/s.KIAMS informing the facts of the case and praye d to

declare the lease agreement dated 22.01.2000, enter ed

between the Ex-Management of Mysore Kirloskar Limit ed,

company in liquidation in favour of KIAMS Institute of

Advanced Management Studies for 28 years as void

against the Official Liquidator and to cancel the l ease

agreement. However, the said application has been

dismissed vide impugned order dated 21.07.2015 pass ed

by the learned Company Judge on the ground that the

application was barred by Limitation.

11. The leased property is pending for realisation,

therefore, the Official Liquidator is unable to settle the

balance payable amount to the secured creditors, workmen

and other creditors of the Company in liquidation, who are

eagerly waiting and knocking the doors of the Offic ial

Liquidator often and the Official Liquidator is unable to

complete the liquidation proceedings to dissolve th e

Company in liquidation.

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OSA No. 19 of 2015

Relevant Clauses of the Lease Agreement dated

22.01.2000:-

12. Before proceeding further, it would be apt to t ake

note of the relevant clauses of the lease agreement dated

22.01.2000, whereby the Ex-Management of the Compan y

in liquidation had allegedly leased the valuable land and

buildings, structures and facilities, plants and machinery

thereon measuring 6.29 acres in favour of a related party,

KIAMS, for a paltry sum of Rs.1,250/- per month for a

period of 28 years. The lease deed is not only in respect of

the land, but also land together with buildings, structures,

facilities, plant and machinery and other capital assets as

described in the schedule of the lease deed. The l and

together with buildings, structures, facilities, pl ants,

machinery and other capital assets are described in the

schedule as demised premises in the lease deed. The Ex-

Management also agreed to make available its facilities like

cricket ground, tennis court, squash court, golf course for

the use of the lessee KIAMS. The lessee has been given a

right, free of any hindrance, to plan and construct its own

further buildings, structures including residential buildings

required for its purposes at its own costs with pri or

intimation to the lesser.

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OSA No. 19 of 2015

13. Under the lease deed, it is also provided in Clause 15

that the lessor, the Company in liquidation would not have

any objection to lease out the demised premises by the

lessee to any third party. The lessee, may offer the same

as security to any person, firm or Company or Finan cial

Institution to secure any borrowing arrangement. Th e

lessee would also be entitled to enter into with su ch

lenders and create charge in their favour for such

borrowing of the demised premises.

14. In Clause 19 it is further provided that on the expiry

of the term of the lease agreement, the demised premises

shall be conveyed by the lessor to the lessee without any

further financial or other compensation whatsoever, and

the parties shall execute such documents or conveyance as

would be required to transfer the absolute title over the

demised premises to the lessee. Clause 19 of the le ase

deed is extracted hereunder:

" (19) On the expiry of the term of this LEASE

AGREEMENT, the subject Demised Premises

shall be conveyed by the LESSOR to the LESSEE

without any further financial or other

compensation whatsoever and the parties

herein shall execute such documents of

conveyance as may be required to transfer the

absolute title over the Demised Premises to the

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OSA No. 19 of 2015

LESSEE. Upon such conveyance conferring

absolute title to the LESSEE, the LESSOR shall

permit the right of passage to the staff

members of the LESSEE, who may reside in the

staff quarters of the LESSEE located within the

residential colony premises of the LESSOR. The

stamp duty, registration charges and other

expenses for the conveyance of the title to the

LESSEE as aforesaid shall be borne by the

parties herein equally."

15. The Questions for consideration:-

a. Whether the lease deed executed by the

Ex-Management of the Company in liquidation is a

fraud played by the Ex-Management on shareholders,

creditors (secured and unsecured) and against the

public interests?

b. Whether the lease deed was void abinitio,

entered by the Ex-Management of the Company in

liquidation to a related party as it was not a

transaction at arm's length?

c. Whether the valuable properties of 6.29 acres

along with all the assets, the buildings, structures,

facilities, plant and machinery and other capital

assets as described in the schedule of the lease deed,

could have been leased out to a related party just

before filing of the winding-up petition by the Ex-

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OSA No. 19 of 2015

Management for a paltry sum of Rs.1,250/- per

month for a period of 28 years which stipulated that

and the property would get conveyed without any

further consideration in favour of the KIAMS on

completion of 28 years i.e., in the year 2028, was a

bona fide transaction in the interest of the Company

or it was a fraud played by the Ex-Management,

conveying the valuable assets of the Company to a

related party and therefore, same was void ab initio

as it was not a transaction at arm's length?

The Previous Proceedings:-

16. Company Application No.413 /2005 in Company

Petition No. 166/2001:

The KIAMS filed the aforesaid application on

05.05.2005 under Section 446 and 531(A) of the

Companies Act r/w Rule 9 of the Companies (Court) R ules,

1959, seeking for stay of the sale proceedings of t he

property in question. It was further prayed that applicants

be permitted to bid the leased properties in the interests of

justice. The prayer of the said application reads as under:

"It is therefore prayed that this Hon'ble High

Court be pleased to stay the Sale Proceedings

to be held on 10.05.2005 by the Respondent

insofar as this Applicant's Institution is situated

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OSA No. 19 of 2015

in portion of Sy,No.22,23 and 27 is concerned

as per Schedule mentioned in Annexure A

including lands of Sy.No.21, 22, 23 and 27 of

Harihar Village and Taluk and further permit

this Applicant to bid and buy these lands, in the

interest of justice."

17. The learned Company Court vide ordered dated

26.07.2005 rejected the application on the statemen t

made by the learned counsel for the Official Liquidator that

the property in occupation of the applicant was not the

subject matter of auction sale and therefore, the Company

Court held that the relief sought for in the applic ation

would not survive for consideration and therefore, the

application came to be rejected.

18. The Company Application No.188/2005 in

Company Petition No.166/2001:

The aforesaid application was filed by KIAMS on

04.03.2008 under Section 457 of the Companies Act r /w

Rule 9 of the Companies (Court) Rules. In Paragraph 11 of

the said application, KIAMS submitted that the it would be

constrained to get the property transferred into their name

immediately, failing which, the Institution would not be

recognized. It was also said that they were willing to pay

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OSA No. 19 of 2015

the present market price of the said land and buy t he

scheduled property situated in 6.3 acres, immediately.

19. Prayer was sought for a direction to the Offici al

Liquidator to sell the said 6.3 acres of schedule property

wherein the Institution of the KIAMS is situated by

accepting the amount stated therein.

20. Company Court vide order dated 30.09.2008 took

note of the earlier application filed by the KIAMS being

Application No.413/2005 and the order was passed on the

basis of the stand taken by the learned counsel appearing

for the Official Liquidator. The Company Court rejected the

application giving liberty to the KIAMS to buy the property

as and when the property in question would be sold in

public auction. It would always be open to the petitioner to

participate in such auction.

21. Company Application No.237/2011 in Company

Petition No.166/2001:

The said application was filed seeking permission of

the Company Court by KIAMS to create a charge over the

leasehold rights on the property in question in favour of

the ICICI Bank. The Company Court vide detailed

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OSA No. 19 of 2015

judgment and order dated 14.07.2011 noted the relev ant

provisions of the lease deed and also took note of the fact

that the Company had closed its activities w.e.f.

31.12.2000 itself. The lease deed was entered in respect

of the land admeasuring 6.29 acres and the building s,

structures, fixtures, machinery etc., on the said land for a

period of 28 years on a monthly rent of Rs.1,250/-. The

lease agreement came to be executed one and a half

months prior to the commencement of the liquidation

proceedings before the Company Court.

22. The Company Court also took note of the relevan t

Clause 5 of the lease deed, which would provide for

delivery of the demised premises to the lessor on expiry of

the lease or its earlier determination thereof in g ood

condition. However, Clause 19 would provide for conveying

the demised premises by the lessor to the lessee on expiry

of the terms of the lease agreement without any fur ther

financial or other compensation whatsoever. The lea rned

Single Judge held that under Section 531 of the Companies

Act, certain transaction are treated as invalid and Section

532 treats another category of transfer as void, Se ction

531A stands in between, treating the transfers cove red

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OSA No. 19 of 2015

thereunder as void against the Liquidator. The Sect ion

531A of the Companies Act provides for avoidance of the

voluntary transfer made by the Company within a period of

1 year before presentation of the petition for winding up.

23. The learned Company Judge held that for meagre

amount of Rs.2,84,000/- would be paid over a period of 28

years for the land of 6 acres 29 guntas and buildin gs,

structures, facilities, amenities, plants and machinery on

the land. A very valuable property had been transferred in

favour of the applicant- Society and the such a tra nsfer

was not for valuable consideration. The learned Com pany

Judge also took note of the fact that the official liquidator

after taking control over the company in liquidation, issued

notification on 28.10.2008 for sale of the assets o f the

Company in liquidation and sold the properties of t he

Company except the property held by the KIAMS and t he

housing quarters for a sum of Rs.65 crores.

24. It was further held that the transaction entered into

between the ex-management of the Company in liquida tion

and the KIAMS was not in the ordinary course of bus iness

and the encumbrance was not on good faith. Before

initiating winding up proceedings, the statutory no tice

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OSA No. 19 of 2015

would have been issued to the Companies, then only

winding up proceedings could have been initiated. After the

receipt of the statutory notice, the lease agreement was

entered into between the KIAMS and the Company in

liquidation. Some clauses in the lease agreement we re

prejudicial to the interest of the creditors, workers and

contributors of the Company in liquidation.

25. Paragraphs 11 and 12 of the said order are extracted

hereunder.

"11. Admittedly, 6 acres 29 guntas of land has

been leased/transferred in favour of the

applicant-Society for a period of 28 years.

After completion of 28 years, the applicant

became the absolute owner of the said

property as per clause 19 of the lease

agreement. The rent is fixed as Rs.1,250/-

p.m. The value of the property at Davanagere

is more than Rupees one Crore. For the use of

6 acres 29 guntas of land for 28 years, the rent

being paid is only about Rs.2,84,000/-. For the

said meager amount very valuable property

has been transferred in favour of the applicant-

Society and it is not a valuable consideration.

In fact, after the Official Liquidator taking

control over the Company in liquidation issued

notification on 28-10-2008 for the sale of the

assets of the company in liquidation and sold

the properties of the Company except the

property held by the applicant and the housing

quarters for Rs.65,00,00,000/- Crores (Rupees

sixty five crores only). The transaction entered

into between the company in liquidation and

the applicant-Society was not in ordinary

course of business, the encumbrance is not on

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OSA No. 19 of 2015

good faith. Before initiating winding up

proceedings, the statutory notice would have

been issued to the Companies, then only

winding up proceedings would be initiated. It

appears to me that after issuing statutory

notice the lease agreement was entered into

between the applicant-Society and the

Company in liquidation. Some clauses in the

lease agreement are also prejudicial to the

interest of creditors, workers and contributors

of the company in liquidation. 6 acres 29

guntas of land is being leased to the applicant-

Society for a period of 28 years and the rent

for the entire 28 years is only Rs.2,84,000/-.

After expiry of lease period, the applicant

becomes the absolute owner of the said

property. Apart from that, on an earlier

occasion, the applicant-Society approached this

Court in C.A.No.413/2005 challenging the

auctioning of the property of the Company in

liquidation on the apprehension that the

Leasehold properties, which are in occupation

of the applicant, were also auctioned. A prayer

was also made to sell 6 acres 29 guntas of land

in favour of them. The said company

application was dismissed by this Court.

Thereafter, the applicant-Society once again

approached this Court in C.A.No188/2008

seeking direction to the Official Liquidator to

sell 6 acres 29 guntas of land held by the

applicant-Society and applicant to purchase the

same. The said application has been dismissed

by this Court on 30

th

September 2008. Being

aggrieved by the same, OSA 27/2008 was filed

by the applicant-society and the same was also

dismissed by the Division Bench of this Court

on 28

th

January 2009 observing as under:

“Therefore, we do not find any reason to

interfere in the impugned order passed by

Learned Company Judge. More so, when

Learned Company Judge has made it

categorically clear that as and when land,

under occupation of appellant, is put to an

auction sale, it would also be at liberty to

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OSA No. 19 of 2015

participate in the auction proceedings. This

according to us serves the purpose of the

appellant. There cannot be any other better

method for sale of the properties belonging to

company in liquidation so as to have complete

transparency in the transaction. As and when

land in occupation of the appellant as lessee is

put to auction sale, appellant would be at

liberty to participate in the said auction and in

case its offer happens to be maximum, then

the same can be considered by Official

Liquidator.”

12. Hence, it is clear that efforts made by the

applicant-society to grab 6 acres 29 guntas of

land ended in failure. One more attempt is

being made to garb the land creating charge on

the Leasehold right by mortgaging the property

to ICICI bank for Rs.8.00 crores. The present

market value of the land is valued at Rs.1.00

crore per acre. The applicant-Society by virtue

of clause 19 of the lease agreement wanted to

take control over the said land. The intention

of Society is not genuine. Further, without the

permission of the Official Liquidator or the

Lessor, the building is being constructed in

violation of clause 14 of the lease agreement.

The building can be constructed only with the

prior intimation to the Official Liquidator or the

Lessor. Further, clause 11 of the lease

agreement provides for using of sports facilities

like cricket ground, tennis court, squash court,

golf course was permitted to use by the

Lessee. Further, Lessee may also reside in the

staff quarters within the residential colony.

The intention of the applicant-Society is to grab

to maximum extent of the land. I find that

there is no bonafide in the claim made by the

society and the applicant is not entitled for any

reliefs in this application. Lease deed also

appears to be contrary to Section 531-A of the

Act. The transaction between the Lessor and

Lessee is tainted with element of dishonesty.

Hence, I pass the following:

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OSA No. 19 of 2015

ORDER

The Company Application is dismissed."

26. Thus, the Company Court held that there was no

bona fide in the claim made by the KIAMS, and the

applicant was not entitled for any relief in the application.

The lease deed was contrary to Section 531A of the

Companies Act. The transaction between the lessor a nd

lessee was tainted with element of dishonesty.

OSA No.27/2008:-

27. The OSA No.27/2008 was filed by KIAMS against t he

order dated 30.09.2008 passed by the Company Court in

Company Application No.188/2005 in Company Petition

No.166/2001. The said OSA came to be dismissed by t he

Division Bench of this Court vide judgment and order dated

28.01.2009 observing as under:

“Therefore, we do not find any reason to

interfere in the impugned order passed by

Learned Company Judge. More so, when

Learned Company Judge has made it

categorically clear that as and when land,

under occupation of appellant, is put to an

auction sale, it would also be at liberty to

participate in the auction proceedings. This

according to us serves the purpose of the

appellant. There cannot be any other better

method for sale of the properties belonging to

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OSA No. 19 of 2015

company in liquidation so as to have complete

transparency in the transaction. As and when

land in occupation of the appellant as lessee is

put to auction sale, appellant would be at

liberty to participate in the said auction and in

case its offer happens to be maximum, then

the same can be considered by Official

Liquidator.”

28. COMPANY APPLICATION No.826/2011 in

COMPANY PETITION NO.166/2001:

The Company Application No.826/2011 in Company

Petition No.166/2001 was filed by the official liquidator

under Section 446 read with 456(1) (2) and Section 531-A

of the Companies Act, 1956. The learned Company Jud ge

has dismissed the said application as mentioned above.

Submissions on behalf of the Appellant/Official

Liquidator:

29. The Official Liquidator has enlisted the amount dues

and payable to the secured creditors, workmen and o ther

creditors of the Company till 19.04.2024 in its wri tten

synopsis which is extracted in tabular form hereunder:

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OSA No. 19 of 2015

Sl.N

o.

Particulars Amount payable

(in Rs.)

1 Amount payable to 13

secured creditors

4,83,69,918/-

2. Amount payable to

Kotak Mahindra Bank

Ltd., (Secured

Creditor)

50,52,521/-

3. Workmen 1,22,67,210/-

4. Gratuity Amount

payable to Employees

(as per the details

furnished by The

Mysore Kirloskar

Employees' Gratuity

Fund Trust, Yantrapur,

Harihar

15,05,21,361/-

20,39,43,800/-

5. Amount payable to

staff category

Not yet quantified

considering of the

amount in hand

6. Amount payable to

Preferential Creditors

viz., Governmental

dues namely

ST,IT,ESI, P.F. etc.,

Not yet quantified

considering of the

amount in hand

7. Amount payable to

Unsecured Creditors

Not yet quantified

considering of the

amount in hand

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OSA No. 19 of 2015

30. It has been submitted that the lease deed was

entered on 22.01.2000 when the Company in liquidati on

was facing all financial issues and just before winding-up

petition was filed by the creditors on 14.03.2000. It is

evident that after the statutory notice of winding-up was

issued by the creditors to the Company, the said le ase

deed was entered into on 22.01.2000. The KIAMS has been

paying partly sum of Rs.1,250 per month as rental for last

24 years for use of the vast extent of valuable land and the

properties situated thereon. It is further submitted that

there is an inconsistency in clause 5 and 19 of the lease

agreement. Whereas the clause 5 of the lease deed

provides that the lessee shall deliver the schedule d

premises to the lessor on expiry of the lease or on its

earlier determination thereof in good condition, clause 19

of the lease deed provides for conveying of the scheduled

premises to the KIAMS on expiry of the term of lease (28

years).

31. It is submitted that the said property is custodia legis

and the Official Liquidator has stepped into the shoes of

the management of the Company, therefore, the Offic ial

Liquidator has become the lessor of the property. Once the

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OSA No. 19 of 2015

official liquidator has terminated the lease, the clause 19

would not be operational. Learned counsel for the official

liquidator has placed reliance on the judgment of D elhi

High Court in SUNIL KUMAR CHANDRA VS. SPIRE

TECHPARK PRIVATE LIMITED (2023) SCC OnLine del

286 to say that where there is inconsistency between two

clauses in an agreement, the former clause would ha ve

precedence over the latter clause. The Delhi High Court has

placed reliance on the judgment of the Supreme Cour t in

the case of RAMKISHORE LAL VS. KAMALNARAYAN

(1962) SCC OnLine SC 113 wherein it has observed as

follows:

"12. The golden Rule of construction, it has

been said, is to ascertain the intention of the

parties to the instrument after considering all the

words, in their ordinary, natural sense. To ascertain

this intention the Court had to consider the relevant

portion of the document as a whole and also to

take into account the circumstances under which

the particular words were used. Very often the

status and the training of the parties using the

words have to be taken into consideration. It has to

be borne in mind that very many words are used in

more than one sense and that sense differs in

different circumstances. Again, even where a

particular word has to a trained conveyancer a clear

and definite significance and one can be sure about

the sense in which such conveyancer would use it,

it may not be reasonable and proper to give the

same strict interpretation of the word when used by

one who is not so equally skilled in the art of

convincing. Sometimes it happens in the case of

documents as regards disposition of properties,

whether they are testamentary or non-

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OSA No. 19 of 2015

testamentary instruments, that there is a clear

conflict between what is said in one part of the

document and in another. A familiar instance of this

is where in an earlier part of the document some

property is given absolutely to one person but later

on, other directions about the same property are

given which conflict with and take away from the

absolute title given in the earlier portion. What is to

be done where this happens? It is well settled that

in case of such a conflict the earlier disposition of

absolute title should prevail and the later directions

of disposition should be disregarded as

unsuccessful attempts to restrict the title already

given. (See Sahebzada Mohd. Kamgar

Shah v. Jagdish Chandra Deo Dhabal Deo)

[(1960)(3) SCR 604 at p. 611] . It is clear,

however, that an attempt should always be made

to read the two parts of the document

harmoniously, if possible; it is only when this is not

possible, e.g., where an absolute title is given is in

clear and unambiguous terms and the later

provisions trench on the same, that the later

provisions have to be held to be void."

32. It is further submitted that dismissal of the Company

Application No.188/2005, vide impugned order dated

30.09.2008 on the ground of limitation is incorrect and

against the provisions of the law. The Learned Comp any

Judge has not considered the fact that the lease deed was

nothing but a bogus, sham and fraudulent act of the ex-

management in conveying the valuable properties of

several crores to the related party for pittiance a nd

therefore, the lease deed was nothing but a fraudulent act

against the interests of the shareholders, creditor s,

members, workers and the public interest, the said lease

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deed was void for all purposes and not only against the

official liquidator. By mentioning a wrong provision in the

application i.e., Section 531A, the void transaction would

not become voidable. It is therefore, submitted tha t the

said lease deed was neither in any commercial prudence or

at arm's length not in the ordinary course of the business

of the company, and therefore, the learned Company Court

ought not to have dismissed the petition on the ground of

delay.

Submissions on behalf of the Respondent:

33. On the other hand, Mr. K.G. Raghavan, learned

Senior Counsel for KIAMS has submitted that under Section

531, the transfer of movable or immovable property of the

Company within one year before the presentation of the

petition is void against liquidator, if the transfer of the

property by a Company was not made in ordinary cour se of

its business, and if the transfer was not made in good faith

for valuable consideration. He has placed reliance on

judgment in VIRENDRA SINGH BHANDARI VERSUS

NANDLAL BHANDARI AND SONS P. LTD. (2019) SCC

OnLine MP 6437 and K.N. NARAYANA IYER VERSUS

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COMMISSIONER OF INCOME TAX (1992) SCC OnLine

Ker 436.

34. As the transaction of lease could be said to be

voidable, the limitation for seeking the relief of declaration

under Article 58 of the Limitation Act, 1963, is three years

from the date of the cause of action which would be

execution of the document in respect of which declaration

is sought. In addition, under Section 458A of the

Companies Act, the benefit extended to the Companie s in

liquidation while computing the period of limitatio n in

respect of any suit or application in the name and on behalf

of the Company which is being wound up by the Compa ny

Court is the period from the date of commencement o f the

winding up of the Company to the date on which the

winding up order is made (both inclusive) and a period of

one year immediately thereafter stands excluded. Th us,

the period between 14.03.2000 which is the

commencement of the winding-up proceedings and

01.04.2004 the date on which the winding-up order c ame

to be passed and a further period of one year there on is

excluded. Thus, the exclusion period would be 5 years and

15 days. The application was filed on 27.07.2011 by the

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official liquidator whereas the limitation as provided under

Section 58 of the Limitation Act read with Section 458A of

the Companies Act got expired on 04.04.2008. Theref ore,

the Company Court was right in holding that the

application was barred by limitation.

35. Learned Senior Counsel has further submitted th at

the transfer of the assets by the lease deed was not per se

void but void against the liquidator as mentioned in Section

531A of the Companies Act. In support of his submis sion

the learned counsel for the respondent has placed reliance

on the following judgments

i. RM. NL. Ramaswami Chettiar & Ors. Vs. Official

Receiver, Ramanathapuram at Madurai & Ors.

1959 SCC Online SC 166.

ii. Johri Lal Soni Vs. Smt. Bhanwari Bai (1977) 4

SCC 59.

iii. Pankaj Mehra & Anr. Vs. State of Maharashtra

& Ors. (2000) 2 SCC 756.

Analysis and Conclusion

:

36. Section 531 provides that any transfer of prope rty

whether movable or immovable etc., by the Company

within 6 months before the commencement of its wind ing-

up which, had it been made, shall be in the event o f

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Company being wound up, be deemed a fraudulent

preference of its creditors and be invalid accordingly.

37. Section 531 of the Companies Act reads as under :

"531. FRAUDULENT PREFERENCE (1) Any transfer

of property, movable or immovable, delivery of

goods, payment, execution or other act relating to

property made, taken or done by or against a

company within six months before the

commencement of its winding up which, had it been

made, taken or done by or against an individual

within three months before the presentation of an

insolvency petition on which he is adjudged

insolvent, would be deemed in his insolvency a

fraudulent preference, shall in the event of the

company being wound up, be deemed a fraudulent

preference of its creditors and be invalid accordingly:

Provided that, in relation to things made, taken or

done before the commencement of this Act, this sub-

section shall have effect with the substitution, for the

reference to six months, of a reference to three

months.

(2) For the purposes of sub-section (1), the

presentation of a petition for winding up in the case

of a winding up by [the Tribunal], and the passing of

a resolution for winding up in the case of a voluntary

winding up, shall be deemed to correspond to the act

of insolvency in the case of an individual.

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38. Section 532 provides that any transfer by a Com pany

of all its property to trustees or to the benefit of all its

creditors shall be void.

39. Section 531A comes in between Section 531 and 5 32

which provides that any transfer of property, movab le or

immovable, or any delivery of goods, made by a comp any,

not being a transfer or delivery made in the ordina ry

course of its business or in favour of a purchaser or

encumbrancer in good faith and for valuable consideration,

if made within a period of one year before the presentation

of a petition for winding up shall be void against the

liquidator.

40. Section 531 is not in the respect of void transactions

which are mentioned in Section 531A. The transactio ns in

Section 531 are a distinct category other than the

transactions made in Section 531A. The void transac tions

under Section 531 are void from the very inception that is

void ab initio. Whereas under Section 531A, the

transactions are to be made in good faith for valua ble

consideration but if they are not in the ordinary course of

its business and made within a period of one year b efore

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the presentation of the petition for winding up would be

void against the liquidator.

41. Therefore, we are of the opinion that by merely

mentioning Section 531A in the application filed by the

official liquidator i.e., CA No. 826/2011, it would not

change the nature of the transaction which was void ab

initio. Under Section 531 of the Companies Act, as the

transfer of the valuable assets of the company was

effected within less than two months before the filing of

the winding up petition and it was a fraud on its creditors,

therefore, void ab initio.

42. Section 533 provides for liability and rights of certain

fraudulently preferred persons. Section 533 of the

Companies Act, 1956 reads as under:

"533. Liabilities And Rights Of Certain Fraudulently

Preferred Persons

(1) Where, in the case of a company which is

being wound up, anything made, taken or done after

the commencement of this Act is invalid under

section 531 as a fraudulent preference of a person

interested in property mortgaged or charged to

secure the company's debt, then (without prejudice

to any rights or liabilities arising apart from this

provision), the person preferred shall be subject to

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the same liabilities, and shall have the same rights,

as if he had undertaken to be personally liable as

surety for the debt, to the extent of the mortgage or

charge on the property or the value of his interest,

whichever is less.

(2) The value of the said person's interest shall

be determined as at the date of the transaction

constituting the fraudulent preference, and shall be

determined as if the interest were free of all

encumbrances other than those to which the

mortgage or charge for the company's debt was then

subject.

(3) On any application made to the[Tribunal]

with respect to any payment on the ground that the

payment was a fraudulent preference of a surety or

guarantor, the 1[Tribunal] shall have jurisdiction to

determine any questions with respect to the payment

arising between the person to whom the payment

was made and the surety or guarantor and to grant

relief in respect thereof, notwithstanding that it is not

necessary so to do for the purposes of the winding

up, and for that purpose may give leave to bring in

the surety or guarantor as a third party as in the

case of a suit for the recovery of the sum paid."

43. Section 533 does not speak about the transactio n

under Section 531A.

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44. As noted above, the learned Company Judge vide a

detailed order dated 14.07.2011 in Company Applicat ion

No.237/2011 in Company Petition No.166/2001 observe d

that if the transaction is tainted with an element of

dishonesty, the question of fraud would arise. The KIAMS is

to grab 6 acres 39 guntas of land and the propertie s

thereon. It was also held that on the date of the order, the

market value of the land itself was valued at Rs.1 Crore

per acre. The lease deed was not a genuine transfer. The

lease deed also appears to be contrary to Section 531 of

the Act and the transaction between the lessor and lessee

was tainted with element of dishonesty and fraud on its

creditors.

45. Considering the aforesaid facts, we are of the

considered view that the lease deed was nothing but

fraudulent and dishonest act on behalf of the ex-

management of the Company in liquidation to transfe r the

valuable property of several crores against the interest of

the company, its shareholders, creditors, workmen a nd

members and therefore, it is a void transaction from the

very inception. The application filed by the offici al

liquidator was to take possession of the property and put

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the same for auction for making payment of the cred itors.

The said application has been rejected only on the ground

of limitation as the transaction was said to be cov ered

under Section 531A.

46. We, therefore, hold that the view taken by the

learned Single Judge is erroneous one and cannot be

sustained. The transaction between the Company in

liquidation and the KIAMS is not at arm's length but to a

related party and that too against the interest of the

Company, its creditors, shareholders etc., valuable

properties of several crores has been sought to be given

for pittance to the related party just before presentation of

the winding up petition. The lease deed is nothing but

sham, bogus and fraudulent transaction in transferring the

valuable assets in favour of the KIAMS, a related party.

47. Accordingly, we proceed to pass the following:

ORDER

i. The appeal is allowed.

ii. The impugned judgment and order dated

21.07.2015 in C.A.No.826/2011 in COP

No.166/2001 is set aside.

iii. The Official Liquidator is directed to take

possession of the property in question and put

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the same for public auction to realize the fair

market value in a transparent manner for

making payment to the creditors as mentioned

above.

iv. The respondent may also participate in public

auction proceedings, if they so desire.

v. The respondent is liable to pay the market rent

of the assets in its possession from the date of

the lease deed till the possession is taken over

by the official liquidator for which the approved

valuer to assess the market rent of the assets

in question.

Sd/-

(D K SINGH)

JUDGE

Sd/-

(VENKATESH NAIK T)

JUDGE

NG/RKA