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Judgment
M.C. Jain, J.—The Official Liquidator has made the present application to declare the sale as void in terms of Section 537 (2) of the Companies Act which has been made by the U.P.F.C. respondent No. 1 in favour of respondent No. 2 of the assets allegedly belonging to M/s. Hira Floon Ltd. (In Liquidation).
The relevant facts may be stated briefly. A winding up petition No. 18 of 1989 was presented against M/s. Hira Floon Ltd. having its registered office at Kaloki, Anupshahr Road, Bulandshahr by one Jitendra Kumar, Proprietor of a firm Ultimate Advertising & Marketing, New Delhi. The Company was ordered to be wound up by the Court''s order dated 881989. Formerly, Hira Industries was a partnership firm and Hira Floon Ltd. (In Liquidation) was incorporated on 2186, taking the running partnership firm along with all its assets, liabilities and goodwill as agreed upon between the partners of the said firm and Directors of the newly formed company. The U.P.F.C. respondent No. 1 had allegedly advanced a loan to the partnership firm abovenamed. It took over possession of the company on 3489 and sold the assets of the company to respondent No. 2 for Rs. 4 lacs in 1990. The winding up petition had been presented on 9389 in which the winding up order was ultimayely passed on 8889. Section 441(2) of the companies Act provides that in a winding up of Company by the Court, the winding up proceedings shall be deemed to commence at the time of presentation of the petition for the winding up. The winding up order having been made on 8889, all its properties came into the custody of the Court, relating back to the date of presentation of the winding up petition. Therefore, the U.P.F.C. could not take possession of the assets of the Company and sell them. It is with these allegations that the Official Liquidator has presented the present application for declaring the sale effected by the U.P.EC. respondent No. 1 in favour of respondent No. 2 in respect of the assets of the Company to be void as per the provision contained in Section 537 (2) of the Companies Act.
The defense put forth by respondent No. 1U.P.F.C. may shortly be stated thus: It granted a term loan of Rs. 2,84,000/ and Rs. 52,0007 (reduced to Rs. 29,650/) respectively to the partnership firmM/s Hira Industries. The partners of the said firm were Raghunath Prasad Singhal, Santosh Kumar, Harish Kumar Singhal and Smt. Madhu Singhal. To secure the above two loans, the firm mortgaged a piece of land 3 bighas 15 biswas bearing khasra No. 106 situate at Kaloli, Tehsil & Pargana Baran, District Bulandshahr in favour of U.P.F.C. by deposit of title deed. The said land belonged to one of the partners of the firm, Raghunath Prasad Singhal. Subsequently, the partners of the firm decided to change the constitution of, the firm and converted it into a Public Ltd. Company. The U.P.F.C. granted permission to this change subject to completion of the requisite legal formalities. But the immovable assets of the firm were never transferred to the company. The U.P.F.C. took possession of the mortgaged property in pursuance of Section 29 of the State Financial Corporation Act and sold the same on 28389 in favour of Mohd. Rais to whom the possession of these assets was handed over on 14590. The property sold to the said purchaser never belonged to the Company (In Liquidation). The U.P.F.C. being a secured creditor could proceed under Section 29 of the State Financial Corporation Act and had every right to sell the property mortgaged to it to secure the loan advanced to the partnership firm. With these contentions, the U.P.F.C. has prayed for the rejection of the application made by the Official Liquidator.
Notice was also issued to the purchaser also, but he did not turn up before the Court.
The affidavit and counter affidavit have been exchanged between the contesting applicantOfficial Liquidator on behalf of the Company (In liquidation) and U.P.F.C.respondent No. 1 have also heard the arguments advanced by the Official Liquidator and on behalf of the respondent No. 1.
The point for consideration is as to whether the property sold by the U.P.F.C.respondent No. 1 belonged to the Company (in liquidation). Some facts are undisputed that the winding up petition had been presented by a creditor against the Company in question on 9389 and the winding up order was passed on 8889. There can be no dispute about the legal position that as per Section 441 (2) of the Companies Act, in case a winding up of Company by the Court, the winding up proceeding is deemed to commence at the time of presentation of petition for the winding up. Section 456(2) of the Companies Act says that all the properties and assets of the Company shall be deemed to be in the custody of the Court as from the date of order for winding up of the company. The provisions contained in Section 37 (1) (a) & (b) of the Companies Act further provide that where any Company is being wound up by or subject to the supervision of the Court, any attachment, distress or execution put in force, without leave of the Court, against the estate or effects of the Company, alter the commencement of the winding up or any sale held, without leave of the Court, of any of the properties or assets of the company after such commencement shall be void. The submission of the Official Liquidator is that the Company in question (In liquidation) had been formed to take over the running partnership business of the firmHira Industries along with all its assets and liabilities. As such, the property where against the U.P.F.C. proceeded, purportedly under Section 29 of the Slate Financial Corporation Act, had vested in the Company and were in the custody of the Company Court. The same, it is urged, could not be sold by the U.P.F.C. without the leave of the Court. The U.P.F.C. having acted in contravention of the provisions of the Companies Act referred to above, the complained sale is liable to be declared as void. It has been submitted that in any case, the U.P.F.C. is bound to make over the sale proceeds to the Official Liquidator for being distributed amongst eligible creditors consequent upon the winding up order. Stress has been laid on the balance sheet of the Company for the year 198687 and so on 88 89. It has been pointed out that on the liabilities side, the loan advanced by the U.P.F.C. has been shownunder the title (secured loans), amounting to Rs. 5,62,500/. On assets side land, building, machinery etc. have been shown meaning thereby that liabilities and assets of the partnership firm had been transferred to the Company (In liquidation).
The submissions made by the Official Liquidator do not stand a close and indepth scrutiny. Indeed, the land stood in the name of one of the partners of the erstwhile firm, namely, Raghunath Prasad Singhal when the loan had been taken from U.P.F.C. by effecting simple mortgage of the said property with depositing of title deed. Raghunath Prasad Singhal was one of the partners of the firm when the loan had been advanced by the U.P.F.C. The firm was in existence when the loan was advanced and as a matter of fact the loan was advanced to the partnership firm. The law provides that the liability of the partner of a partnership firm is joint and several. To say in simple words, the partner of a firm is liable personally also in respect of liability of the partnership firm and his personal property can be proceeded against by the creditor. Therefore, the U.P.F.C. which had advanced the loan to the firm on the basis of simple mortgage of certain property belonging to one of the partners, namely, Raghunath Prasad Singhal, had every right to proceed against that property as per Section 29 of the State Financial Corporation Act.
Unilateral act of the partners of the firm by converting the firm to the Public Ltd. Company and professing to transfer all the liabilities and assets of the firm to the newly incorporated Company would have no effect on the creditorU.P.F.C. The balance sheet of the company a� on 31387 itself contains a note that transfer deed of immovable assets had not yet been registered in the name of the company. It is obvious that the alleged assertion by the company of taking over all the liabilities and assets of the partnership firm remained paper work only with no legal effect. There is clear averment from the side of U.P.F.C. in affidavit of Sri D.S. Lai, Senior Manager Law (A7) that when the partners of the firm had decided to change the constitution of the firm and convert it into Public Ltd. Company, the U.P.F.C. granted permission to this change subject to completion of the required legal formalities. Note in the balance sheet referred lo above is to the effect that the transfer deed of immovable assets had not yet been registered in the name of the company and it is itself clearly an indicator that the legal formalities as to the transfer of the assets of the partnership firm to the company had not been completed.
The Official Liquidator has made reference to the case of Iftex Oils and Chemicals Pvt. Ltd. v. Official Liquidator and others 1999 Company Cases Vol. 96page 386, to urge that disposition of property after commencement of winding up is void unless approved by Court. There can be no quarrel with this proposition but the point of the matter is that the ownership of the property must be shown as vesting in the company. Unless it is shown that the company was the owner of the property, the sale cannot be declared to be void. On an analytic scrutiny of the present controversy in an adjudicatory manner, this Court finds that the properly where against the respondent No. 1U.P.F.C. proceeded under Section 29 of the State Financial Corporation Act and sold the same had not been transferred to the Company (In Liquidation) and was not, therefore, owned by it. Resultantly, the Official Liquidator cannot lay any claim there against. The application made by the Official Liquidator isliable to be dismissed.
In view of the above discussion, application made by the Official Liquidator is found to be devoid of merit and the same is hereby dismissed.