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Rakesh Jagmohan Pandey Vs. JVG Finance Ltd. - (High Court of Delhi) (25 Oct 2017)

A transfer would not be annulled, if the same is made in the ordinary course of business or in good faith and for valuable consideration



Present appeal is against the notice of the Official Liquidator and against the report of the One Man Committee constituted by this Court. It is only on the basis of the report of the One Man Committee, the Official Liquidator had demanded the vacant possession of two flats. The Appellant alleged to be a bona fide purchaser in good faith for valuable consideration and claims to be a registered owner of the flats. The Appellant claims to be in possession of the flats since 20th April, 1998 pursuant to two separate agreements to sell dated 13th April, 1998. The One Man Committee had rejected the claim of the applicants observing that, Respondent Company was prohibited per prohibitory order dated 10th October, 1997 from selling, transferring, creating charge or mortgaging or dealing in any manner with its property and assets without prior written permission of the bank.

The One Man Committee completely ignored that such a prohibitory order was valid only for a period of six months from the date it was issued. These flats were purchased by the Appellant after six months have elapsed. Admittedly, the prohibitory order was never extended, hence would not have any effect upon the legality of sale of these flats. Thus, the finding of One Man Committee viz., the sale being hit by Section 45MB of Reserve Bank Of India Act, 1934 is wholly incorrect. Alternatively, even if the sale was in contravention of prohibitory orders, then it simply could have entailed a penalty or imprisonment to the company's officials which could have been extended to three years or fine. The sale was not in contravention of Section 45MB of the Act.

Section 531A of Act, needs to be interpreted in the following manner: a) first one may examine if sale is made within a year of presentation of winding up petition; then b) then if the sale is in the ordinary course of business of the company and then c) if it is in favour of purchaser in good faith and for valuable consideration.

Section 531A of Act, rather saves the transaction if entered into in good faith and for valuable consideration, even if not entered in ordinary course of its business. Further, though the One Man Committee held the sale being not for valuable consideration as the appellant failed to prove the payment of balance amounts of Rs. 5.50 Lac for flat No. 402 and of Rs. 8.00 Lac for flat No. 502, but the committee ignored the verification being conducted by the office of Official Liquidator by visiting the concerned authorities and even from the Sub Registrar's Office where such agreement to sell(s) were duly registered and the entire valuation checked and paid was noted. Registration certificate(s) were executed within ten days of the agreements to sell for both the flats, as stipulated in such agreements. Hence, there was no reason for the One Man Committee to say the entire consideration was never paid. Admittedly, the Respondent Company did not challenge alleged inadequate consideration in any forum, including before the Official Liquidator. Rather it never denied the receipt of entire consideration from the appellant.

Further, the apprehension of One Man Committee viz., such flats being undervalued also appear to be misconceived since, the record of Sub Registrar's Office revealed that, property was inspected and its valuation was based on Roads (Amendment) Act, 1998 and the entire stamp duty was paid per its valuation.

Thus, where the Appellant did not have knowledge of the prohibitory orders or of the company going in liquidation in the ensuing months; where the Appellant acted honestly and did not share common intention to defraud the creditors; where due diligence/verification was done by the employees of Official Liquidator; where Official Liquidator failed to prove the Appellant did not act in good faith; and where the sale being for valuation consideration; the intention of the Appellant cannot be doubted with and hence, in the circumstances, the sale transactions for flats are neither hit by Section 45MB of the Reserve Bank of India Act nor by Section 531A of the Companies Act, 1956, as alleged. Hence, the appeal is allowed and report of One Man Committee as also the order/notice of the Official Liquidator is set aside.


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