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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION

COMPANY APPLICATION NO.341 OF 2016
WITH
OFFICIAL LIQUIDATOR'S REPORT NO.84 OF 2017
WITH
COMPANY APPLICATION (L) NO.85 OF 2018
IN
COMPANY PETITION NO.505 OF 2006

Forbes and Company ....Applicant
IN THE MATTER BETWEEN :
Bord for Industrial and Financial 
Reconstruction (B.I.F.R.)  ….Petitioner
          Vs.
Coromandel Garments Ltd. & Ors.  ….Respondents
­­­­
Shri   Girish   Godbole   a/w.   Shri   Sajjed   Shamim   I/b.   Shamim   and   Co.   for
applicant in CA/341/2016.
Ms. Sunanda Kumbhat for applicant in CAL/85/2018.
Shri   J.P.   Sen,   senior   advocate   a/w.   Shri   Shushrit   Desai   for   Official
Liquidator. 
Shri Mahendhar Aithe, Company Prosecutor for Official Liquidator present.
­­­­
CORAM                  : K.R.SHRIRAM, J.
RESERVED ON       : 20th JUNE 2018
  PRONOUNCED ON : 13th JULY 2018
P.C.:

1   This   application   is   filed   seeking   leave   of   this   Court   under

Section   446   of   the   Companies   Act   1956   to   execute   the   Consent   Decree

dated 9th  July 2009 obtained in suit no.164 of 2009 by applicant against

Coromandel   Garments   Limited   (in   liquidation).   Coromandel   Garments

Limited (in liquidation) is hereinafter referred to as the Company. Official

Liquidator has, on behalf of the Company, filed a reply opposing grant of

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such   leave.   Official   Liquidator   has   also   filed   Official   Liquidator’s   Report

No.84 of 2017 seeking various directions from this  Court  including,  inter

alia,   that   the   Consent   Decree   dated   9th  July   2009   be   set   aside   and   that

applicant be directed to bring back, along with interest, amounts received by

it from out of the sale proceeds of one of the Company’s properties. The

company application has also been opposed by a few unsecured creditors of

the   Company   (in   liquidation)   who   have,   in   this   behalf,   filed   company

application (lodging) No.85 of 2018 (hereinafter ‘Interveners’). The counsel

appearing   for   Interveners   basically   supplemented   the   submissions   of   the

counsel for Official Liquidator.   

2 By its order dated 2nd  June 1998, the Board for Industrial and

Financial  Reconstruction  (BIFR) declared  the  Company  (in  liquidation) a

sick   unit  under  the   provisions  of  The   Sick  Industrial  Companies (Special

Provisions)   Act,   1985   (SICA)   and   appointed  Bank   of   Baroda   as   the

Operating Agency for framing a scheme for revival of the Company. The

said order contained several directions regarding such a scheme including,

inter   alia,   that   “Any   shortfall   in   cash­flow   projection   shall   be   met   by   the

promoters by bringing in interest­free­funds and not by diversion of working

capital.” The Company/Promoters were also directed under Section 22A of

SICA not to dispose off any fixed or current assets of the Company without

the consent of the BIFR. 

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3 As part of the revival process, the Promoters were required to

make a contribution of Rs.400 lakhs to pay off the workers of the Company

under a voluntary retirement scheme floated by it. The Company sought the

approval of the BIFR to the creation of a second charge on its mortgaged

assets in favour of the Promoter Group Company/Companies bringing in the

said contribution. By an order dated 16 th September 1999, BIFR sanctioned

the proposed  creation  of  the  second  charge  and recorded the  consent of

Bank of Baroda, the first charge holder, in this behalf. 

4 Pursuant   to   the   said   order,   applicant   (then   Forbes   Gokak

Limited)   appears   to   have   entered   into   a   Loan   Agreement   dated

21st September 2000 with the Company. The purpose of the loan, the terms

on which it was granted and the relationship between applicant and the

Company   were   reflected   in   the   Loan   Agreement,   the   salient   portions   of

which are reproduced hereinbelow:

“…Whereas the Borrower is a wholly owned subsidiary of The Swadeshi
Mills Co. Ltd. having its registered office at Swadeshi Mills Compound,
Sion, Mumbai – 400 022 and whereas The Swadeshi Mills Co. Ltd. is a
Sick   Company   registered   with   the   Board   for   Industrial   and   Financial
Reconstruction (BIFR) and whereas the Borrower is also a sick company
registered with BIFR.

And whereas the Lender holds a significant portion of the share capital of
the Swadeshi Mills Co. Ltd. and whereas the Borrower has finalized a
scheme of VRS for its employees and for the purpose, has entered into a
settlement with the Unions of its employees and whereas the Borrower
has made an application to BIFR for availing of loan from the Lender
and BIFR had approved availing of such Loan and providing security and
the security for such loan, is agreed to by and between the Lender and
the Borrower as detailed in Table ‘A’ hereto.

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It is agreed to by and between the Lender and the Borrower as under:

3. The amount of the loan provided under the terms of the agreement
together with the interest and all other costs recoverable by the Lender
from the Borrower, shall be secured by a charge which is hereby provided
by the Borrower to the Lender as set out in table “A” hereto.

4. The loan together with interest shall be repayable by the Borrower to
the Lender as per such schedule as may be approved by BIFR. Pending
issuance order by BIFR, the same shall be payable immediately on call by
the Lender.

5. The loan shall carry interest at the Bank Rate. However, this will be
subject   to   the   provisions   of   Sick   Industrial   Companies   (Special
Provisions) Act, 1985, order of BIFR and such instructions as may be
issued by the operating agency viz. Bank of Baroda and BIFR.

6. The   Borrower   owns   1/3rd  undivided   shares   of   the   property   at

Pachgani. The Borrower agrees that it shall not create any charge on the
said property without prior approval of the Lender.”

….”

5 The asset in respect of which a second charge was created in

favour   of   applicant   Company   was   land   at   Plot   No.21,   Industrial   Estate,

Ambattur,   Tamil   Nadu   together   with   the   structures   standing   thereon

(Ambattur   property).   The   Company   also   appears   to   have   executed   a

Supplemental Memorandum of Deposit of Title Deeds, inter alia, recording

the creation of the second charge in respect of the Ambattur property in

favour of applicant. Further, the said second charge also appears to have

been   recorded   in   the   register   of   charges   maintained   by   the   Registrar   of

Companies in this behalf. 

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6 Applicant appears to have advanced a sum of Rs.3.25 Crores to

the  Company under the  said Loan  Agreement. The remaining amount of

Rs.75 lakhs, appears not to have been disbursed. Meanwhile, attempts to

revive the Company failed. By its order dated 9 th April 2002, BIFR confirmed

that it would be in the public interest to wind up the Company. This order

was communicated to this Court on 7th May 2002. On 31st October 2002, the

Appellate   Authority   for   Industrial   &   Financial   Reconstruction  (‘AAIFR’)

dismissed   an   appeal   filed   by   the   Company   challenging   the   order   dated

9th April 2002 of the BIFR recommending that it be wound up. However, the

BIFR recommendation was set aside by an order dated 23 rd February 2006

passed by the Hon’ble Madras High Court in Writ Petition Nos.34837 and

34838 of 2003 filed by the Company. The matter was remanded back for

re­consideration to the BIFR. By the said order, the Hon’ble Madras High

Court sanctioned the sale of the Ambattur property for a sum of Rs.27.86

Crores to one Sugal and Damani Lottery Agency Private Limited. The sale

proceeds were deposited with Bank of Baroda in a no lien account. 

7 On 29th June 2006, this Court passed an order directing that the

communication   dated   7th  May   2002   of   the   BIFR   recommending   that   the

Company   be   wound   up   be   treated   as   a   petition.   By   the   said   order,   the

petition   was   admitted   and   Official   Liquidator,   High   Court,   Bombay   was

appointed   as   Provisional   Liquidator   of   the   Company.   The   order   of   the

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Hon’ble   Madras   High   Court   setting   aside   the   recommendation   does   not

appear to have been brought to the notice of this Court. 

8 On   22nd  January   2007,   BIFR   passed   a   fresh   order

recommending   that   the   Company   be   wound   up.   The   said   order   was

communicated   to   this  Court  on   5th  July   2007.   On   25th  September   2007,

Appeal No.58 of 2007 filed by the  Bank of Baroda against the order dated

22nd January 2007 of BIFR was dismissed by AAIFR. Appeal No.85 of 2007

filed by the Company was withdrawn. These orders were not further tested.

As such, the recommendation for winding up the Company became final.  

9 By   their   letter   dated   30th  April   2008,   applicant’s   advocates

called   upon   the   Company   to   repay   the   said   sum   of   Rs.3,25,00,000/­

“together   with   interest   as   agreed   in   terms   of   the   Loan   Agreement   dated

29th  September   2000…”.  By its  reply dated  28th  May  2008, the  Company

described the demand as being ‘unreasonable and not sustainable in law.’ In

doing so, the Company, inter alia, also noted that the Loan Agreement did

not provide for any rate of interest, that the BIFR had not permitted any

interest to be charged and that applicant was on that account disentitled to

claim any interest under the said Agreement. The letter referred to the order

dated 29th June 2006 appointing Provisional Liquidator and claimed that the

Company  was  proposing   to   file   a   company  application   to   recall   the   said

order.   However,   in   the   meanwhile,   on   account   of   the   appointment   of

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Provisional   Liquidator,   the   Company   pleaded   its   inability   to   make   any

preferential payment to any creditors including applicant.

10 On 28th  August 2008, the Company filed company application

(L) No.951 of 2008 before this Court praying that the order dated 29 th June

2006 be recalled. By an order dated 16th October 2008, this Court recalled

the order dated 29th June 2006. In doing so, it noted:

“It now transpires that recommendation of BIFR was questioned by way
of writ petition before Madras High Court, which in turn has set aside
the opinion of the BIFR that the Company is incapable of being revived…
It necessarily follows that the basis on which this Court proceeded to pass
order dated 29th June, 2006 was non­existant…In the circumstances, the
appropriate course is to recall the Order dt. 29th June, 2006.…”

  While   the   company   application   made   a   reference   to   the

subsequent   recommendation   of   the   BIFR   dated   22nd  January   2007   for

winding up the Company, the same does not appear to have been brought

to the notice of the Learned Company Judge at the time of the hearing of

the company application. As for the appeal filed by the Company against the

recommendation of the BIFR and subsequently withdrawn, no reference was

made to it either in the company application or in the course of the hearing.

11 Shortly thereafter, on 30th December 2008, applicant filed Suit

No.164   of   2009   before   this  Court,  inter   alia,   for   a   declaration   that   the

Company  owed   applicant   a   sum   of   Rs.13,92,45,091/­   along   with   further

interest thereon, for a declaration that the said amount was secured by a

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second   charge   on   the   Ambattur   property   and   for   a   declaration   that   the

Ambattur   property   and   its   sale   proceeds   stand   duly   charged   to   secure

applicant’s alleged dues. The said figure of Rs.13,92,45,091/­ was arrived

at,   as   evident   from   the   particulars   of   claim   annexed   to   the   plaint,   by

computing   interest   at   a   rate   of   18%   p.a.   compounded   quarterly.   On

31st December 2008, applicant filed Notice of Motion No.372 of 2009 in the

said   suit   seeking,  inter   alia,   a   decree   on   admission   to   the   extent   of

Rs.3.25   Crores   as   well   as   appointment   of   Court   Receiver,   High   Court,

Bombay as Receiver in respect of the Satara property described in Exhibit ‘B’

to the plaint. This was a property in respect of which no charge had been

created in favour of applicant under the Loan Agreement. 

12 By its reply dated 4th March 2009, the Company sought to resist

the grant of the said reliefs. In doing so, the Company repeatedly asserted

that applicant’s claim for interest was not sustainable, in view of no rate of

interest having been agreed upon in the Loan Agreement and no rate having

been stipulated by the BIFR. 

13 By an order dated 12th  February 2009, this  Court  declined to

appoint   Court   Receiver   in   respect   of   the   Satara   property,   but   merely

restrained   the   Company   from   creating   any   third   party   rights   in   respect

thereof. On 9th June 2009, when Suit No.164 of 2009 appeared on board, a

submission  was made  on behalf of  the  parties that  they proposed to file

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consent terms and that the dispute had been amicably resolved. The suit

was accordingly stood over to 7th July 2009 for filing consent terms.

14 On 9th July 2009, applicant and the Company tendered consent

terms and a decree was passed in respect thereof. Under the said consent

terms,   the   Company   submitted   to   a   decree   on   admission   in   the   sum   of

Rs.12,49,27,897/­   together   with   interest   thereon   @   15.76%   p.a.   with

quarterly rests from 8th  June 2009 till payment and/or realization. It was

stipulated that if the Company paid applicant a sum of Rs.10,00,00,000/­

within 3 months from the date of the consent terms, the decree would stand

fully satisfied and that in the event of default to do so within the period

stipulated,   the   entire   decretal   amount   would   become   due   and   payable

forthwith. The consent terms also declared that the decretal amount would

be secured by the Ambattur property in respect of which a second charge

had been created in favour of applicant under the Loan Agreement. Under

the consent terms, the 1/3rd undivided interest of the Company in the Satara

Property   stood   “attached   forthwith  in   execution   of   the   decree”.   The   said

purported   consent   terms   was   signed   on   behalf   of   the   Company   by   one

Shri R. Venkateshwaran. He did so on the strength of a Power of Attorney

dated   9th  August   2002.   The   said   Power   of   Attorney   authorized   the   said

Shri   Venkateshwaran   to   do   various   acts   on   behalf   of   the   Company   as

stipulated   in   the   Power   of   Attorney.   The   Power   of   Attorney,   however,

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provided that the exercise of the said powers shall be “subject to the prior

sanction of the Board and subject to such restrictions, conditions and limits

as may be imposed by the Board or were permitted by a committee of the

Board”.   While   the   said   Power   of   Attorney   conferred   on

Shri Venkateshwaran, subject to the limitations referred to hereinabove, the

power to commence, prosecute, enforce, defend, answer or oppose various

legal proceedings and to represent and appear for the Company before the

Government of India and statutory authorities, it did not confer upon him

specifically the power to compound or compromise any action or proceeding

to which the Company may be a party. 

15 By an order dated 27th  August 2009, on an application moved

by Kotak Mahindra Bank Limited (claiming rights as a purported assignee of

Bank of Baroda), this  Court  admitted winding up proceedings against the

Company and once again appointed Official Liquidator, High Court, Bombay

as   its   Provisional   Liquidator.   In   doing   so,   the   Learned   Company   Judge

referred in the following terms to the failure of the Company to bring to the

notice   of   the   earlier   Company   Judge   the   recommendation   dated

22nd January 2007 of the BIFR :

“xi) On 16th  October 2008  an  application being  application  (lodging)

No. 951 of 2008 was filed before this Court by the respondent seeking
setting aside of the order passed by this Court on 29th June, 2006 on the
ground, that at the time when the said order was passed, the appeal of
the   respondent   was   pending   before   the   AAIFR,   which   application   was
allowed. However, it appears that it was not pointed out to the Court

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that   BIFR   had   again   recommended   on   22nd  July   2007   that   the
respondent should be wound up and that the appeal preferred therefrom
by the company was also withdrawn by the company on 25 th September
2007. If this would have been pointed out to this Court, this Court would
surely   have   again   passed   a   fresh   order   admitting   the   petition   and
appointing the provisional liquidator of the respondent.

2. Applicants   have,   therefore,   submitted   that   appropriate   orders   be

passed against the respondent.

3. The learned Advocate for the respondent states that all the required /
necessary facts were set out in the affidavit in support of the application
pursuant to which the order dated 29 th June, 2006 was set aside by an
order dated 16th October 2019. In my view, the duty of an Advocate does
not end with setting out of facts in Affidavits. The Advocates appearing
before the Court are duty bound to draw the attention of the Court to
facts which are relevant for the purpose of deciding an issue by the Court
which may have been set out in the affidavit/s of their clients.”

This Court directed that the recommendation of the BIFR dated

22nd January 2007 be treated as a petition for winding up and that the same

stand admitted, returnable on 10th November 2009. This order was followed

by a further order dated 24 th June 2011 whereby the Company was wound

up. At the hearing of winding up, the advocate appearing for the Company

brought to the notice of the Court the purported liability of the Company

towards   applicant   to   the   tune   of   Rs.12.49   Crores   and   further   interest

thereon. Sometime in 2016, Kotak Mahindra Bank, applicant and  Bank of

Baroda  arrived   at   an   understanding   for   distribution   of   the   sale   proceeds

received   from   the   Ambattur   property.   In   view   of   Official   Liquidator’s

opposition to the said consent terms or in any event, his unwillingness to

accept   it,   by   an   order   dated   26th  February   2016,   the   Learned   Presiding

Officer of the Debts Recovery Tribunal (DRT) directed Official Liquidator to

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seek directions from this Court regarding the proposed compromise. 

16 Aggrieved by the said order, Kotak Mahindra Bank Limited filed

Appeal No.80 of 2016 before the Debts Recovery Appellate Tribunal, Delhi

Bench (DRAT, Mumbai being unavailable). By an order dated 23 rd  March

2016,   the   said   appeal   was   allowed   and   the   matter   was   remitted   for

reconsideration to the DRT, Mumbai. However, the said consent terms were

not   tendered   to,   or   taken   on   record   by   the   DRT.   Kotak   Mahindra   Bank

Limited   chose   the   alternative   course   of   filing   company   application   (L)

No.258 of 2016 before this  Court  seeking directions in the matter. By an

order   dated   21st  April   2016,   this  Court  directed   that   a   sum   of

Rs.1,33,64,389/­ out of the sum of Rs.51 Crores (approximately) lying with

Kotak Mahindra Bank Limited be paid over to Official Liquidator to secure

the claim of the workmen of the Company (in liquidation), with the balance

to be distributed in the ratio of 80% to Kotak Mahindra Bank and 20% to

applicant herein. However, the order noted that this would be an interim

arrangement   and   “subject   to   final   outcome   of   the   issue   on   status   of   the

creditors   of   the   Company   in   Liquidation   including   Kotak   Mahindra   Bank

Limited.” The order also noted that it was being passed “at the instance of

applicant   and   Respondent   No.3   and   without   prejudice   to   the   rights   and

contentions of Official Liquidator”, ‘Applicant’ and ‘Respondent No. 3’ being

Kotak Mahindra Bank and applicant herein, respectively. At this stage, it is

Gauri Gaekwad 
 13/51 CA-341-2016.doc

stated, the papers and proceedings in Suit No.164 of 2009 filed by applicant

against   the   Company   in   which   consent   terms   had   been   taken   were   not

available with Official Liquidator. Official Liquidator had, accordingly, not

raised before either the DRT or this Court any issue regarding the legality of

the consent terms nor was such an issue considered or decided by either

forum. 

17 Pursuant to the order dated 21st April 2016, applicant received

a sum of Rs.10,17,03,493/­ towards its 20% share in the distribution of sale

proceeds. Meanwhile, applicant had filed the present company application

no.341 of 2016 seeking the leave of this Court under section 446 of the

Companies Act 1956 to proceed in execution to recover the balance decretal

amount alleged to be due to it. The company application proceeds on the

basis that applicant has a charge over the Satara property and as a secured

lender is entitled to priority over all other creditors. On an application being

made on behalf of Official Liquidator, this Court was pleased, by an order

dated   4th  January   2017,   to   direct   applicant   to   furnish   Official   Liquidator

with a copy of the papers and proceedings in Suit No.164 of 2009 in which

the Consent Decree came to be passed. It is on examining these papers and

proceedings, Shri Sen  submitted that Official Liquidator formed the  view

that the Consent Decree constituted a fraudulent preference and was thus

invalid.   Official   Liquidator   accordingly   filed   Official   Liquidator's   Report

Gauri Gaekwad 
 14/51 CA-341-2016.doc

No.84 of 2017 seeking directions in this behalf from this Court as well as

opposing the grant of leave under Section 446 of the Companies Act, 1956

to execute the Consent Decree.

18 Shri Godbole for applicant submitted as under :

(a)   Official   Liquidator   cannot   seek   to   impugn   the   Consent

Decree by way of a report filed before this Court or by a reply filed in the

application seeking leave under Section 446;

  (b) Even if the Consent Decree could be challenged by way of

an Official Liquidator’s Report, the directions sought by Official Liquidator

from this Court are clearly barred by time. 

  (c) The defence/plea of fraudulent preference raised by Official

Liquidator   on   the   assumption   that   the   Decree   was   allegedly   obtained   by

fraud   and   was   therefore   nullity   is   barred   by   limitation.   This   is   because

Official   Liquidator   had   knowledge   of   the   Decree   at   least   on   26 th  August

2010 and in any case on 24th June 2011. Official Liquidator could have and

ought to have filed suit under Section 31 of the Specific Relief Act 1963 for

rescission of the Decree within 3 years from the date of the knowledge. Such

suit   could  have   been   governed   either   by   Article   58   or   59   or   113   of   the

Schedule II of Limitation Act 1963, which would be 3 years and the starting

point under Article 58 and Article 113 would be “when the right to sue first

accured”, under Article 59 would be “when the facts entitling the Plaintiff to

Gauri Gaekwad 
 15/51 CA-341-2016.doc

have the instrument or decree cancelled or set aside or the contract rescinded

first becomes known to him”. The plea of illegal decree having been raised

for the first time on 11th  April 2017 by filing Official  Liquidator's Report

No.84 of 2017 is clearly beyond 3 years. Even otherwise, Official Liquidator

was a party in O.A. No.27 of 2008 filed by Kotak Mahindra Bank Limited in

which   DRT   passed   order   dated   21 st  May   2009   directing   impleadment   of

applicant   as   one   of   the   creditors   of   the   Company.   The   limitation   for

applying to the Company Court for holding that the Decree is a fraudulent

preference or filing a suit under Section 31 of the Specific Relief Act 1963

would   therefore  first   commence   on   27th  August   2010,   then   on   24th  June

2011.

(d)   In   any   case,   the   present   application   is   not   a   collateral

proceeding where the defence of the alleged nullity of the Decree can be

raised by Official Liquidator. Shri Godbole relied upon Prem Singh & Ors.

V/s. Biebal & Ors.1.

  (e)   Further   assuming   without   admitting,   that   Official

Liquidator's Report seeking reliefs against applicant is not a suit, but is in

the   nature   of   an   application   made   to   the   Company   Court   under   the

Company (Court) Rules, 1959, the same is nevertheless an application made

to Court and hence, is governed by Article 137 of the Schedule of Limitation

Act 1963. Even in such cases, unless, such application is made within the

1. (2006) 5 SCC 353

Gauri Gaekwad 
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period   of   limitation   prescribed   by   the   said   Article,   the   same   cannot   be

entertained   by   the   Court   and   the   Karnataka   High   Court   in   the   case   of

Official Liquidator of Mysore Kirlokar Limited, Bangalore V/s. Kirloskar

Institute of Advanced Management Studies2  has held that the contention

that the Limitation Act 1963 cannot be applied to a report/application made

by Official Liquidator is not tenable.  

  (f) While interpreting Article 59 of Limitation Act, the Hon’ble

Supreme Court in the case of  Md. Noorul Hoda V/s. Bibi Raifunnisa &

Ors.3  has clearly held that a suit filed for setting aside Decree obtained by

fraud is governed by Article­59, the starting point of limitation is the date of

knowledge of alleged fraud, the remedy of plaintiff is to get a decree to set

aside by filing a suit under Section 31 of the Specific Relief Act 1963.

(g)   Applicant  has   received   20%   of   the   sale   proceeds   of   the

Ambattur property pursuant to directions issued by DRT, in the course of

which proceedings Official Liquidator did not raise any contention that there

was   any   infirmity   in   the   Consent   Decree   dated   9 th  July   2009.   Official

Liquidator   was   thus   precluded   from   seeking   refund   of   the   amounts   so

withdrawn. 

  (h)   This   Court,   in   any   event,   has   no   jurisdiction   to   consider

entertaining prayer ­ (b) in this OLR. Bank of Baroda had first charge by

2. (2015) SCC Online 9051
3. (1996) 7 SCC 767

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registered mortgage and had agreed to cede the second charge in favour of

applicant with the consent of BIFR and this second charge is duly registered

under   Section   125   of   the   Companies   Act   1956.   Bank   of   Baroda   and   its

assignee   Kotak   Mahindra   Bank   were   entitled   to   stand   out   of   liquidation

proceedings and recover the dues which is precisely what they did by filing

O.A. No.27 of 2008 before the DRT in which Company, Bank of Baroda and

applicant were impleaded. The provisions of the Recovery of Debts Due to

Banks and Financial Institutions Act 1993 (RDDB Act) overrides Companies

Act 1956 as held in Allahabad Bank V/s. Canara Bank & Anr. 4. Applicant

had   received   money   under   consent   terms   with   Kotak   Mahindra   Bank   in

proceedings before DRT. The consent terms in DRT are valid and subsisting

and  is  a   result  of   commercial   arrangement  between   applicant  and  Kotak

Mahindra Bank and are outside the purview of this Court. Even for sake of

argument, it is assumed that applicant has received excess money and is

required to return it even in that case only Kotak Mahindra Bank can have

cause of action. Even otherwise, except DRT, no other Court would have

jurisdiction to do so. Any application/proceeding seeking recovery of alleged

excess   cannot   be   entertained.   Once   Kotak   Mahindra   Bank   and   Bank   of

Baroda being secured creditors are entitled to stand outside winding up to

sell the property, which was done pursuant to the order of Madras High

Court and DRT permitted to retain the same, except the liability to pay dues

4. (2000)4 SCC 406 

Gauri Gaekwad 
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to workers under Section 529 of the Companies Act, 1956, no other claim

can be entertained. Kotak Mahindra Bank and not Official Liquidator can

claim as Kotak Mahindra  Bank still  has not recovered the entire  amount

owed to it in full satisfaction of its claim/charge. 

  (i)   Further,   applicant   is   an   undisputed   second   charge   holder

with respect to Ambattur property. In so far as prayer ­ (a) for declaration

that the decree is a nullity, the Hon'ble Supreme Court in the case of Indian

Bank V/s. Official Liquidator5 has clearly observed that the Company Court

does not have power to declare a Decree of the competent Court void in an

application   made   by   Official   Liquidator   and   such   an   application   is   not

maintainable.   Hence,   this   Court   does   not   have   jurisdiction   to   entertain

either prayer ­ (a) or prayer ­ (b) in Official Liquidator's Report.

(j) In any event, the Consent Decree dated 9 th  July 2009 does

not   constitute   a   fraudulent   preference   on   account   of   the   fact   that   the

winding   up   proceedings   could   be   deemed   to   have   commenced   only   on

24th  June   2011,   when   the   Company   was   ordered   to   be   wound   up.   The

Consent Decree dated 9th July 2009 was therefore entered into prior to the

period   stipulated   in   Section   531   of   Companies   Act   1956,   viz.,   6   months

prior   to   the   commencement   of   winding   up   proceedings.  The   contention

regarding fraudulent preference under Section 531 of the Companies Act

5. (1998) 5 SCC 401 

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1956 is also incorrect. Section 531(2) provides for a deeming fiction only in

case   of   presentation   of   a   petition   for   winding   up   by   or   subject   to   the

supervision of the Court as an act of insolvency. The suit was instituted with

leave   under   Clause   12   on   30th  December   2008   after   the   order   recalling

appointment of Official Liquidator was passed on 16 th  October 2008. The

Decree was passed on 9th July 2009 whereas the fresh order of winding up

was passed on 24th June 2011. This is clearly beyond six months. The order

dated 27th August 2009 does not really recall order dated 16 th October 2008

or  revive  the  original  winding up order  dated 29 th  June 2006. The  fresh

winding up order dated 24th June 2011 is, therefore, not within the ambit of

Section   531   of   the   Companies   Act   1956   and   therefore,   there   cannot   be

fraudulent   preference   of   applicant.   In   any   case,   even   in   order   dated

24th  June   2011,   the   Court   had   clearly   taken   cognizance   of   Decree   of

Rs.12.49 Crores plus interest in favour of applicant and even at that stage,

the defence of fraudulent preference or related party transaction had not

been   raised   by   Official   Liquidator.   The   defence/plea   of   fraudulent

preference could have been/ought to have been raised by Official Liquidator

at the time of passing of order dated 27 th August 2009 and in any case, on

or   before   24th  June   2011   since   applicant   had   filed   an   intervention

application in the winding up proceeding which was allowed on 26 th August

2010 after hearing Official Liquidator. Even the Learned Single Judge being

Gauri Gaekwad 
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aware of the factual position did not think it fit to nullify the Decree on the

ground of fraudulent preference under Section 531 of the Companies Act

1956. The contention about the fraudulent preference is therefore not open

on the principles of res judicata  under Section  11 (Explanation 4) of the

Civil   Procedure   Code   1908   and   principles   analogous   thereto.   Even

otherwise, the Division Bench of Gujarat High Court in the case of Bank of

Maharashtra V/s. Official Liquidator6  has extensively considered the law

in this regard and held that mere admission  of  an  existing  liability  by  a

Company   prior   to   its   winding   up   can   never   amount   to   a   fraudulent

preference.

(k)   Section   531   of   the   Companies   Act   1956   uses   the   word

‘invalid’ and not ‘void’. Thus at the highest the Consent Decree against the

Company would be voidable only at the instance of Official Liquidator. The

difference   between   the   terms   invalid,   voidable   and   void   are   judicially

recognised in many judgments. It was observed by BIFR in its order dated

22nd  January   2007   that   the   promoter   Company   –   M/s.   Swadeshi   Mills

Company   Limited,   had   been   ordered   to   be   wound   up   vide   order   dated

5th February 2001 (Bench – I) and as such there was actually no promoter to

revive the Company. Further, it is pertinent to mention that Swadeshi Mills

Company Limited was wound up by this Court much prior to the consent

terms dated 9th  July 2009 as such the question of any indirect interest of
6. (1998) SCC Online Guj 370

Gauri Gaekwad 
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applicant in the Company does not arise. The burden of proof is on Official

Liquidator to prove fraud. Official Liquidator was aware about the consent

terms/suit much before passing of order dated 4th January 2017 and hence

is time barred. 

  (l)   None   of   the   Sections   viz.,   531,   531A   and   536   of   the

Companies Act 1956 apply. Sub­section 2 of Section 531 deals only with

presentation of petition for winding up. In that case, winding up is subject

to the supervision of the Court or passing of resolution for winding up and

there   is   deeming   fiction   that   these   two   incidents   shall   be   deemed   to

correspond to the act of insolvency in the case of an individual. This deemed

fiction is obviously not attracted to an opinion of BIFR or AAIFR. In case of

winding up, the supervision of the Court by or under Section 446 of the

Companies   Act   1956   accepts   the   Company   Court   and   no   other   Court   or

authority can exercise any power in respect of the assets of the Company.

But, in case of BIFR, as held in NGEF Limited V/s. Chandra Developers (P)

Ltd.   and   Anr.7,   the   provisions   of   SICA   1985   overrides   provisions   of

Companies Act 1956 and consequently, jurisdiction of the Company Court

under Section 446 of the Companies Act 1956 is also taken away, meaning

thereby Sub­section 2 of Section 531 of the Companies Act 1956 does not

apply. In such cases of deeming fiction, the statute cannot be expanded to

mean something more than the legislature has intended. Section 531A of
7. (2005) 8 SCC 219

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 22/51 CA-341-2016.doc

the Companies Act 1956 is not applicable because attachment of property at

Satara by judgment is not transfer of property. Assuming without admitting

that   the   winding   up   petition   is   deemed   to   have   been   admitted   on

22nd January 2007, when the opinion of BIFR was expressed or on 5 th July

2007, when it was received, the Decree having been passed on 9 th July 2009

(assuming that the attachment in judgment is transfer as alleged by Official

Liquidator and intervenors), Section 531A of Companies Act 1956 would, in

any case, be inapplicable. Section 536(1) of the Companies Act 1956  is per

se   inapplicable   as   it   deals   with   transfer   of   share   of   a   company.   Section

536(2)   is   also   not   applicable   for   the   same   reason.   Since   in   view   of   the

Hon'ble Supreme Court judgment in  NGEF Limited (Supra), the Company

Court   does   not   have   jurisdiction   to   hold   that   the   act   of   submitting   to   a

Consent  Decree  is  void  and if   Official  Liquidator  ever   desires to  seek  an

order of submitting to such Decree, the only course was open to approach

Board for Industrial and Financial Reconstruction (BIFR) of NCLT as SICA

1985 was repealed by Section 252 of the Insolvency and Bankruptcy Code,

2016 (IBC) w.e.f. 1st December 2016. This is strictly without prejudice to the

contention that Section 536(2) of the Companies Act 1956 is even otherwise

inapplicable   since   it   was   attachment   in   judgment   and   not   disposal   of

property.

Gauri Gaekwad 
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(m)   Even otherwise, the Consent Decree dated 9 th  July 2009

was entered into  bona fide  and did not constitute a fraudulent preference

within the meaning of Section 531 of the Companies Act 1956; 

(n) The attachment by the said Consent Decree of the Satara

property   constitutes   a   charge   in   favour   of   applicant   which   entitles   it   to

priority in payment over all other lenders; 

  Paragraph 13 in  Kerala State Financial Enterprises Ltd. V/s.

Official Liquidator, Kerala8 provides :

“13. Save and except certain special statues in relation to recovery of
debts from the properties of a company which has been directed to be
wound up, the provision of the Companies Act shall apply. An order of
attachment made prior to passing of an order of winding up may not
be   void,   but   then   the   executing   proceedings   must   be   allowed   to
continue  with the  leave  of the court  in terms  of Section 446 of the
Companies Act”. 
 

(o) From Clause 6 of the Loan Agreement with the Company, it

is evident that the Company had agreed not to create any charge over the

Satara property at that particular time. This clearly evidences the intention

of   applicant   to   have   charge   over   the   same   in   future   in   the   event   the

Company was unable to pay its dues under the Loan Agreement as it had

only second charge over the Ambattur Property. The judgment in the case of

Mahadev Sahu V/s. Thakur Prasad Singh and Ors. 9  relied upon by the

counsel for Official Liquidator is completely inapplicable since it is not the

8. (2006) 10 SCC 709
9. (1910) SCC Online Cal 60

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case of applicant that either applicant has got a title to or charge over Satara

property   but   submission   is   that   there   is   a   decree   which   has   reached   its

finality and applicant is entitled to execute the same.  

  (p)  The   principal   defence   taken   by   Official   Liquidator   in   his

report   is   that   the   order   of   winding   up   dated   24th  June   2011   passed   by

Shri S. J. Kathawalla, J. relates back to the date of reference issued by BIFR

on 22nd  January 2007. Thus according to  Official  Liquidator, winding up

proceeding   is   deemed   to   have   commenced   from   22nd  January   2007.   To

support this contention, Official Liquidator has relied upon the judgement

delivered by Shri R.D. Dhanuka, J. in the matter of “Modi Stone Ltd. (in

liquidation)10”   However,   the   said   order   is   challenged   before   Hon’ble

Division Bench under two separate Appeals, viz., Appeal No.359 of 2017

and   Appeal   No.34   of   2018.   Thus,   the   said   judgement   has   not   attained

finality. 

  Without   prejudice,  the   said   judgement   is   contrary   to   the

binding precedents and hence per incuriam. 

  (q) While considering the validity of Section 20 of SICA 1985,

Division   Bench   of   Madras   High   Court  in  J.M.   Malhotra   V/s.   UOI11  has

clearly   held   that   Section   20(2)   of   SICA   merely   dispenses   with   the

procedural requirements of Section 349 or 440 of the Companies Act 1956

10. (2017) 202 Company Cases 551
11. (1994) SCC Madras 349

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and it is not obligatory on the part of High Court to wind up a sick Company

once it receives an opinion from the Board in this regard without examining

correctness   of   such   opinion   on   hearing   the   concerned   parties.   This

judgement has been subsequently approved by the Hon'ble Supreme Court

in V.R. Ramaraju V/s. UOI12 and it is held that High Court has to take into

account the opinion, but it is not to abdicate its own function of determining

the question of winding up. The Learned Single Judge in Modistone (Supra)

(R.D. Dhanuka, J.), has relied upon the Hon'ble Supreme Court judgement

in NGEF Limited (Supra) and the real issue involved in the said judgement

of the Hon'ble Supreme Court was not regarding the date of commencement

or deemed commencement for winding up. 

(r) The ratio of the judgment in NGEF Limited (Supra) was that

the   Board   and   Company   Court   exercise   concurrent   jurisdiction   and   the

provisions of SICA have overriding effects and the inherent power of the

Company Court does not exist in such cases. 

  (s) The judgment of Madras High Court has been consistently

followed in the cases of Ashok Alloy Steel Ltd. V/s. BIFR13, BIFR V/s. Unity

Steels   Ltd.14,  Tata   Iron   Steel   Company   V/s.   Him   Ispat   Ltd.15,  Board

Opinion   V/s.   Hathising   Manufacturing   Company   Ltd.   &   Ors. 16  and

12. (1997) 89 Company Cases 609
13. (2008) 142 Company Cases 915 HP
14. (2002) 109 Company Cases 236
15. (2002) 108 Company Cases 537
16. 2009 SCC Online Guj. 10270

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Kamdar Ladat Simiti V/s. Nanikram Shobraj Mills Ltd. 17, etc. Therefore,

the winding up proceeding of the Company was initiated on 24 th June 2011,

when   the   Learned   Company   Judge   of   this   Court   applied   his   mind   to

reference dated 22nd January 2007 of BIFR ultimately ordering winding up

of the Company. 

  (t)   The   constituted   attorney   of   the   Company   ­   Shri   R.

Venkateswaran   was   duly   authorised   through   a   Power   of   Attorney   dated

9th  August 2002 and the same was attached alongwith the consent terms

and therefore presumption can safely be drawn that the said person had the

authority   to   execute   the   consent   terms.   In   any   event,   the   authority   of

Mr. Venkateswaran had not been challenged either by Official Liquidator in

Official   Liquidator's   Report   No.84   of   2017   nor   the   same   had   been

questioned by anyone from 9th  July 2009 till date. Applicant is entitled to

claim   benefit   under   Doctrine   of   Indoor   Management   for   irregularities,   if

any, in affairs of the Company as per rule laid down in Royal British Bank

V/s. Turquand18. The person entering into a transaction with the Company

only   needed   to   satisfy   himself   that   his   proposed   transaction   is   not

inconsistent with the articles and memorandum of the Company. He is not

bound to see the internal irregularities of the Company and if there are any

internal  irregularities then  the  Company will  be  liable  as the  person has

17. (2005) 125 Company Cases 740
18. (1856) 119 E.R. 886

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acted in good faith and he did not know about the internal arrangement of

the   Company.   The   rule   is   based   upon   obvious   reason   of   convenience   in

business relations. The articles of association and memorandum are public

documents and they are open to public for inspection. 

19 It is Official Liquidator’s case that :

  (a)   The   winding   up   proceedings   in   respect   of   the   Company

commenced on 22nd  January 2007, when the BIFR recommended that the

Company be wound up.

  (b) The Consent Decree dated 9th July 2009, which was entered

into after the commencement of the winding up proceedings, constitutes a

fraudulent preference within the meaning of Section 531 of the Companies

Act 1956 and is ex­facie illegal and void.

  (c)   In   any   event,   the   attachment   in   respect   to   the   Satara

property   effected   by  the   Consent  Decree   does  not   constitute  a   charge  in

favour of applicant and does not make it a secured lender entitled to any

priority over other payments.

  (d)   Applicant   is   therefore   liable   to   refund   the   amount   of

Rs.10,17,03,493/­ withdrawn by it from the sale proceeds of the Ambattur

property   along   with   interest   at   such   rate   as   this  Court  may   deem

appropriate. 

  (e) Even otherwise, applicant not having any prior charge in

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respect to the Satara property, the leave sought by it to execute the Consent

Decree and to put the Satara property to sale and execution ought to be

refused and;

(f) The interest of all stakeholders would be better served if the

1/3rd undivided share of the Company in the Satara property were to be sold

by Official Liquidator under the supervision of the Company Court.

20  Ms.   Kumbhat,   counsel   appearing   for   Interveners   apart   from

adopting   the   submissions   of   Shri   Sen,   counsel   for   Official   Liquidator,

submitted that :

  (a) The amount of Rs.3.25 Crores provided by applicant to the

Company was by way of promoter’s contribution without any interest as per

the guidelines of BIFR. 

  (b) BIFR in the proceedings held on 2 nd June, 1998, laid down

certain guidelines wherein the board ascertained the requirement of interest

free promoters contribution and also made clear that there should not be

diversion of funds by promoters.

  (c) the scheme of Operating Agency (BoB) being proposed on

the basis of guidelines framed by BIFR, sought for promoter group to pump­

in interest free promoter’s contribution to which the BIFR gave its approval.

  (d)  In   view   of   the   clear   guidelines   of   BIFR   and   the   Loan

Agreement   specifying   that   the   loan   shall   carry  interest   at   the   Bank   Rate

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subject   to   instructions   of   BIFR,   the   interest   charged   by   applicant   is

unapproved of and cannot be permitted.

21 Before we proceed further, it will be useful to reproduce the

Consent Terms dated 9th July 2009 in Suit No.164 of 2009, which is sought

to be executed, for which leave is being sought. The same reads as under :

1.   The   defendants   submit   to   the   decree   on   admission   in   the   sum   of

Rs.12,49,27,897/­ (Rupees Twelve Crores Forty Nine Lacs Twenty Seven
Thousand   Eight   Hundred   Ninety   Seven   only)   together   with   interest
thereon   at   the   rate   of   15.76%   per   annum   with   quarterly   rests   from
8th June 2009 till payment and/or realization.
2. It is  declared that the aforesaid sum of  Rs.12,49,27,897/­ (Rupees
Twelve Crores Forty Nine Lacs Twenty Seven Thousand Eight Hundred
Ninety Seven only) together with interest as set out in clause – 1 above is
secured by charge by way of mortgage on the land situate at Plot No.21,
Industrial Estate, Ambattur, Chennai together with buildings, structures,
plant   and   machinery   standing   thereon   more   particularly   described   in
Schedule   –   Ex­A   hereto   including   sale   proceeds   thereof   together   with
interest thereon.
3.  However,  if  the  Defendants  pay  to  the  Plaintiffs  Rs.10,00,00,000/­
(Rupees Ten Crores only) with three months from the date hereof the
decree shall be marked fully satisfied.
4. In the event of default in the payment of Rs.10,00,00,000/­ (Rupees
Ten Crores only) within the period limited by clause – 3 above the entire
decretal   amount   as   per   clause   –   1   shall   become   due   and   payable
forthwith and the Plaintiffs shall be at liberty to execute the decree for
the entire decretal amount as per clause – 1 above then outstanding.
5. The immovable property being one­third undivided share, right, title
and interest in Final Plot No.540 situate lying and being in the Village of
Taighat   Registration   Sub­District   of   Wai   in   the   District   of   Satara
together   with   structure   standing   thereon   more   particularly   set   out   in
Schedule – Ex­B hereto is hereby stand attached forthwith in execution of
the decree and Defendants also undertake not to sell and dispose of or
create any third party interets into the said property or any part thereof,.
6. The Plaintiffs are at liberty to execute the decree on the basis of the
Minutes of Consent Terms without sealing of decree and sealing of decree
is dispensed with under Rule 314 of the High Court Original Side Rules,
1980.   The   Prothonotary   and   Senior   Master   is   directed   to   act   on   the
authenticated   copy   of   the   Minutes   of   Order   and   Consent   Terms   duly
authenticated by the Associate and issuance of decree is expedited.

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7. 2/3rd of Institution fees be refunded to the Plaintiffs.
8. Suit stand disposed of in the aforesaid terms with no order as to costs. 

22   Date of commencement of winding up proceedings :

(a) The first issue that arises for consideration is as to when the

winding up proceedings against the Company (in liquidation) commenced.

It   is   the   case   of   Official   Liquidator   that   the   winding   up   proceedings

commenced on the date of recommendation by the BIFR that the Company

be wound up while it is applicant’s case that, in the absence of a petition for

winding   up,   the   winding   up   proceedings   must   be   deemed   to   have

commenced only on a  winding up  order being passed, i.e., on  24 th  June

2011.   In   support   of   his   contention   that   the   winding   up   proceedings

commenced   on   the   BIFR   making   a   recommendation,   Official   Liquidator

relied   on   the   judgment   of   the   Hon’ble   Supreme   Court   in  NGEF   Limited

(Supra)  and the  judgments of various High Courts in  Modi Stone (Supra)

Kapri   International   Pvt.   Ltd.19  and  Indoco   Remedies   Ltd.   V/s.   Official

Liquidator of Kay Packaging P. Ltd. & Anr.20

(b)  Section 441 of the Companies Act 1956 provides that the

winding up of the Company by the Court “shall be deemed to commence at

the time of the presentation of the petition for the winding up”. Section 441

does not expressly address a situation where a Company is wound up not on

19. 2013 SCC Online Del. 2176
20. (2009) 150 Company Cases 770

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a   winding   up   petition   filed   by  a   creditor   or   other   stakeholder,   but   on   a

recommendation made in this behalf by the BIFR under the provisions of

SICA. Section 20 of SICA provides for the winding up of a sick industrial

company and reads in relevant part:

“20. Winding­up of sick industrial company: ­ 
(1)   Where   the   Board,   after   making   inquiry   under   section   16   and   after
consideration of all the relevant facts and circumstances and after giving an
opportunity of being heard to all concerned parties, is of opinion that the
sick   industrial   company   is   not   likely   to   make   its   net   worth   exceed   the
accumulated losses within a reasonable time while meeting all its financial
obligations and that the company as a result thereof is not likely to become
viable in future and that it is just and equitable that the company should be
wound   up,   it   may  record   and   forward   its  opinion  to the   concerned   High
Court.
(2) The High Court shall, on the basis of the opinion of the Board, order
winding­up of the sick industrial company and may proceed and cause to
proceed with the winding­up of the sick industrial company in accordance
with the provisions of the Companies Act, 1956 (1 of 1956).
…..........” 

(c) Applicant relied on various judgments, both of the Hon’ble

Supreme Court and of various High Courts on the issue as to whether a

recommendation   by   the   BIFR   to   wind   up   a   Company   was   conclusive   or

whether the High Court had any discretion in the matter. It is applicant’s

case that the High Court indeed has discretion in the matter of winding up a

Company   before   it   and   was   not   bound   to   accept   without   reflection,   the

recommendation made in this behalf by the BIFR. However, this issue is of

limited relevance since the Company has already been wound up. The only

question that survives for consideration is the date when the winding up

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proceedings must be treated as having commenced.

(d) The question as to when winding up proceedings must be

deemed to have commenced when a Company is wound up pursuant to the

recommendation by the BIFR has been considered by various Courts. This

issue fell for consideration by the Hon’ble Supreme Court in  NGEF Limited

(Supra)  where, while overruling the opinion of the Division Bench of the

Hon’ble Gujarat High Court that a winding up proceeding arising out of a

recommendation by the BIFR would commence only on the passing of an

order of winding up, the Court observed:

“50.We may, however, observe that the opinion of the Division Bench in BPL
Ltd.   to  the   effect   that   the   winding­up   proceeding   in  relation   to  a   matter
arising out of the recommendations of BIFR shall commence only on passing
of an order of winding up of the Company may not be correct. It may be true
that no formal application is required to be filed for initiating a proceeding
under Section 433 of the Companies Act as the recommendations therefor
are made by BIFR or AAIFR, as the case may be, and, thus, the date on which
such recommendations  are made, the Company Judge applies its mind to
initiate a proceeding relying on or on the basis thereof, the proceeding for
winding up would be deemed to have been started; but there cannot be any
doubt whatsoever that having regard to the phraseology used in Section 20
of SICA that BIFR is the authority proprio vigore which continues to remain
as custodian of the assets of the Company till a winding­up order is passed by
the High Court.”

(e) While this observation was characterized as ambiguous by

Shri Godbole, there is little doubt that the date of the winding up order was

rejected by the Hon’ble Supreme Court as the date on which the winding up

proceedings would commence. In fact, this  Court  in its judgment in  Modi

Stone Limited (Supra)  has, while relying on the judgment in  NGEF Limited

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(Supra),   held   that   the   date   of   recommendation   by   the   BIFR   would   be

considered   the   date   of   commencement   of   winding   up.   This   view   is   also

shared   by   the   Delhi   High   Court   in  Kapri   International   (Supra)  and   the

Gujarat High Court in Indoco Remedies Limited (Supra). As such, the weight

of authority is clearly in favour of the view that winding up proceedings

would be deemed to have commenced on the date of recommendation by

the BIFR that a Company be wound up and I respectfully agree with the said

view.   In   any   event,   whether   one   were   to   take   as   the   relevant   date   to

commence the winding up proceedings, the date of recommendation, i.e.,

22nd January 2007, the date of receipt by this Court of the recommendation,

i.e., 5th July 2007, or the date of admission of the winding up proceedings,

i.e, 27th  August 2009, the Consent Decree dated 9 th  July 2009 falls within

the   period   stipulated   in   Section   531   of   the   Companies   Act,   1956   for   an

enquiry as to whether a transaction constitutes a fraudulent preference.

23 The Consent Decree and Section 531 :

  (a)  The next question that arises is as to whether the Consent

Decree in question falls foul of section 531. Section 531 (1) 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

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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   sub­section   shall   have   effect   with   the
substitution,   for   the   reference   to   six   months,   of   a   reference   to   three
months.”

(b) It is the Official Liquidator’s case as submitted by Shri Sen,

with whom I agree, that the Consent Decree was collusive and a fraud on

the Court and clearly a fraudulent preference within the meaning of Section

531. This would be apparent from the following :

(i) The Company filed company application (L) No. 951 of
2008 to recall the order dated 29th  June 2006, whereby the
company   petition   had   been   admitted   and   a   Provisional
Liquidator appointed in respect of the Company. They did so
on the basis that the earlier recommendation for winding up
issued by the BIFR on 9th April 2002 had been set aside by an
order dated 23rd February 2006 of the Madras High Court;

(ii) When this application was argued on 16th October 2008, it
was not brought to the notice of the Company Judge that in
the interregnum a fresh recommendation had been made by
the BIFR on 22nd  January 2007 that the Company be wound
up   and   that   the   Company   had   in   fact   withdrawn   Appeal
No.385 of 2007 filed before the AAIFR challenging the BIFR
recommendation. In his order of admission dated 27th August
2009, Kathawalla, J. notes that if the later recommendation
had   been   brought   to   the   notice   of   the   Company   Court,   it

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would surely have passed a fresh order admitting the Petition
and appointing the Provisional Liquidator;

(iii)   After   the   order   dated   16th  October   2008   came   to   be

passed in the aforementioned circumstances and the earlier
order of admission was recalled, applicant on 30th  December
2008   filed   Suit   No.   164   of   2009   claiming   a   sum   of
Rs.13,92,45,091/­ and other ancillary reliefs; 

(iv)   Applicant   was   a   promoter   group   company   of   the

Company in liquidation. This would be evident, both from
the orders passed by the BIFR as well as the Loan Agreement
itself.   It   is   an   admitted   position   that   applicant   was   a
substantial stakeholder (22%) of Swadeshi Mills Limited, of
which   the   Company   in   Liquidation   was   a   wholly   owned
subsidiary; 

(v)   The   order   dated  2nd  June   1998  of   the   BIFR   required
promoter contribution for the revival of the Company to be
interest   free.   The   Loan   Agreement,   apart   from   making   an
obtuse reference to interest being levied at a ‘bank rate’, did
not stipulate any rate of interest and contemplated a fixing
by   BIFR   of   such   rate   of   interest   at   a   future   date.   It   is   an
admitted position that no such rate of interest was fixed by
the BIFR;

(vi) It is clear, both from the correspondence addressed and
pleadings   filed   by   the   Company   in   Liquidation,   that   they
were   fully   aware   that   no   interest   was   payable   on   the
Promoter’s   contribution   brought   in   by   applicant.   Both   the

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letter and the Affidavit refer specifically to the absence of any
interest being stipulated by the BIFR;

(vii) a mere three months after the filing of the affidavit in
reply   opposing   aggressively   the   grant   of   any   interlocutory
reliefs   in   favour   of   applicant   in   Suit   No.164   of   2008
including a prayer for a decree on admission for a sum of
Rs.3.25 Crores, the Company is alleged to have agreed to a
decree   on   admission   for   a   much   larger   sum   of
Rs.12,49,27,897/­ along with interest thereon at the rate of
15.76%   p.a.   with   quarterly   rests   from   8th  June   2009   till
payment and/or realization. There is nothing whatsoever on
record to explain or justify this abrupt reversal in position by
the   Company.   The   only   possible   inference   in   the
circumstances can be that the Company was attempting to
favour applicant, a promoter group company, in preference
to its other creditors;

(viii)   Applicant   was   fully   aware   of   the   recommendation

dated 22nd  January 2007 of the BIFR that the Company be
wound  up. In  fact,  there is a  reference  to it  in the  plaint.
However, neither applicant nor the Company appear to have
brought   this   recommendation   to   the   notice   of   the   learned
Single Judge considering the Consent Terms. The parties also
appear not to have brought to the notice of this  Court  the
orders of the BIFR which required promoter contribution to
be interest free or the terms of the Loan Agreement which
failed to stipulate any rate of interest and indeed required
the BIFR to fix it which it never did;

Gauri Gaekwad 
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(ix)   The   Consent   Terms   were   signed   on   behalf   of   the

Company by one Shri Venkateshwaran. He is stated to have
done so on the basis of a Power of Attorney dated 9th August
2002. The said Power of Attorney could not have been acted
upon in so far as it could not have survived the appointment
of  the   Provisional   Liquidator   by   the  order  dated  29 th  June
2006 and the consequent displacement of the board of the
Company.   The   setting   aside   of   the   Order   dated   29 th  June
2006 would not revive  the  power which would have  been
required to be re­conferred. There is no evidence of any such
conferral. In any event, the Power of Attorney did not confer
an   express   power   to   compromise   or   compound   any   legal
proceeding. It is settled law that an agent would be entitled
to   compromise   a   proceeding   only   in   the   event   such   an
express   power   has   been   conferred   by   the   document
constituting him an agent. In this behalf, Official Liquidator
relied   on   the   judgement   of   the   Delhi   High   Court   in
Manmohan Singh Dahliwal V/s. Gurbax Singh21 where the
Court observed:

“13. The interpretation of the word 'prosecute' provides by
the learned counsel for the defendants that the power to
prosecute   includes   the   power   to   withdraw   or   effect   a
compromise   is   entirely   misconceived   and
miscomprehended.   The   power   conferred   upon   the
attorney to 'prosecute' the suit or proceedings is to pursue
it and not to withdraw or compromise it unless specific
power   to   withdraw   or   compromise   the   suit   has   been
bestowed   upon   the   attorney.   To   say   that   the   power   to
prosecute   includes   the   power   to   effect   the   ultimate
conclusion   of   the   suit   by   way   of   compromise   or
withdrawal is erroneous and highly untenable as such a
21. 2002 AIHC 275

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power is special power can be exercised by the attorney
only when he is authorised to do so.

14. Black's Law Dictionary itself shows that the meaning
of the word 'prosecute' is to follow up an action or other
judicial proceedings which includes ultimate conclusion.
By   no   stretch   of   imagination   the   withdrawal   or
compromise of the suit without legal authority amounts
to bringing the suit to ultimate conclusion. In ordinary
sense,   the   terms   "ultimate   conclusion"   connotes   getting
the suit decreed by making honest and bonafide efforts to
prove the claim in the suit. If the suit is to be disposed of
by   way   of   compromise,   it   may   loosely   be   termed   as
"ultimate   conclusion"   but   for   such   a   conclusion   of   the
suit, specific authority  has  to be given to the attorney.
Even   otherwise   in   the   power   of   attorney   the   words
'prosecute the suit' don't figure. There is only reference in
the plaint.

15.   The   attorney   has   only   those   powers   which   are

specified in the power of attorney and mere reference in
the   plaint   that   he   is   also   authorised   to   prosecute   the
plaint does not mean that he is vested with the power to
withdraw the suit or settle it by way of compromise.

19. As is apparent these clauses gave the power to pursue
the  suit.  Pursue  means   to  continue  or   proceed  along  a
course of action and not to withdraw.

20. Power of attorney is always to be interpreted strictly
in its terms. There is no scope for searching meanings or
intentions.   Nor   is   it   permissible   to   stretch   or   provide
elasticity to the meaning of the words such as "prosecute",
"pursue", "proceed', "execute", "sign" etc. Mere execution of
power of attorney does not mean that the attorney has
been conferred with power to do all such acts which the
executor   of   the   attorney   possesses.   Unless   and   until   a
specific   power   has   been   conferred   upon   the   attorney,
attorney is not free to arrogate the powers of "dominus".”

(x) In any event, the exercise by Shri Venkateshwaran of the
powers conferred under the Power of Attorney in question is

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expressly   made   subject   to   the   sanction   of   the   board.   The

scope   of   the   powers   permitted   to   be   exercised   by
Shri Venkateshwaran appear to have been purely ministerial
and as a matter of convenience. He does not appear to have
had, under the Power of Attorney, any authority to take any
decision   which   would   significantly   impact   the   outcome   of
any   legal   proceeding   to   which   the   Company   was   a   party,
leave alone the authority to compound it. 

(xi) The parties do not appear to have brought to the notice
of the learned Single Judge considering the Consent Terms
any of the aforementioned infirmities in the authority of Shri
Venkateshwaran   to   bind   the   Company   or   to   enter   into   a
settlement.

  (c) In the aforementioned circumstances, that the events reveal

an   orchestrated   attempt   by   applicant   and   the   Company   acting   in

conjunction   to   fraudulently   prefer   one   creditor,   viz,   applicant,   over   the

others. The Consent Terms has the effect of not only enhancing dramatically

the   entitlement   of   applicant   from   Rs.3.25   Crores   to   Rs.12.5   Crores

approximately, but also affirms that the Ambattur property would constitute

a security in favour of applicant for the entire enhanced amount. This was

clearly a fraudulent preference and plainly illegal. 

  (d) Applicant has attempted to defend the Consent Terms on

the basis that applicant did not enjoy a controlling interest in the Company,

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holding as it did only 22% of the shares of the parent, i.e., Swadeshi Mills

Limited. It was sought to be suggested on this basis that the parties were not

related   and   that   the   Consent   Terms   was   an   arms   length   transaction.

However, it is apparent, both from the orders of the BIFR and the terms of

the Loan Agreement, that applicant was an entity belonging to the Promoter

Group which clearly controlled the Company (in liquidation). Applicant has

been unable to explain the aforementioned circumstances which are plainly

suspicious and allow no inference save that of a fraudulent preference.

24 Remedy Available to Official Liquidator :

(a)  Applicant,   however,   sought   to   contend   that   Official

Liquidator   was   not   entitled   to   challenge   the   Consent   Decree,   either   by

means of a report filed before the Company Court or by his reply to the

application   for   leave   under   Section   446.   Shri   Godbole   relied   on   the

judgment   of   the   Hon’ble   Supreme   Court   in  Indian   Bank  V/s.   Official

Liquidator   Chemmeens   Exports   (P)   Ltd.   &   Ors.22  and   in   particular

paragraph 12 thereof, which is reproduced hereinbelow:

“It   may   be   noted   that   these   provisions   have   no   application   to   any

proceeding pending in appeal before a High Court or the Supreme Court.
From   this   what   follows   is   when   a   suit   is   instituted   in   the   court   of
competent jurisdiction with the leave of the court under sub­section (1)
and a decree is passed by that court whether on the basis of mortgage or
otherwise,   it   would   be   binding   on   Official   Liquidator   and   no   plea
inconsistent   with   the   decree   passed   against   Official   Liquidator   can   be
raised while deciding the questions of priorities under clause (d) of sub­
section (2). We wish to make it clear that under Section 446, no power is
22. (1998) 5 SCC 401

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conferred   on  the   company  court   to  declare   a   decree   of  the   competent
court   void   ­   a   prayer   which   is   made   by   Official   Liquidator   in   the
application   out   of   which   this   appeal   arises   ­   so   to   that   extent   the
application   filed   by   the   liquidator   in   the   company   court   is   not
maintainable.”

  (b) This judgment concerned a case where leave had already

been   granted   under   section   446   of   the   Companies   Act   to   a   creditor   to

prosecute the suit, in which Official Liquidator had been joined. A Decree in

such a suit where Official Liquidator had participated was held to be binding

on   him.   Official   Liquidator   could   not   have   ignored   such   a   Decree   by   a

competent   Court   or   sought   to   challenge   it   under   Section   446   of   the

Companies Act 1956. It is in this context that the observations relied upon

by   applicant   appear   to   have   been   made.   In   the   present   case,   however,

Official Liquidator was not a party to the said suit. The Indian Bank (Supra)

judgment   is   certainly   no   authority   for   the   proposition   that   a   decree   can

never be set aside by the Company Court in exercise of its powers under

section 446 of the Companies Act 1956. 

  (c) It is in fact settled law that a Decree that has been procured

by   fraud   can   be   set   aside   at   any   stage   and   in   any   proceedings,   even   a

collateral one. The Hon’ble Supreme Court has in fact affirmed this principle

on several occasions including in its judgment in S.P. Chengalvaraya Naidu

V/s. Jagannath23 where it observed:

23. (1994) 1 SCC 1

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“Fraud avoids all judicial acts, ecclesiastical or temporal" observed Chief
Justice   Edward   Coke   of   England   about   three   centuries   ago.   It   is   the
settled proposition of law that a judgment or decree obtained by playing
fraud on the court is a nullity and non est in the eyes of law. Such a
judgment/decree   by   the   first   court   or   by   the   highest   court   has   to   be
treated as a nullity by every court, whether superior or inferior. It can be
challenged in any court even in collateral proceedings.”

5. The High Court, in our view, fell into patent error. The short question
before the High Court was whether in the facts and circumstances of this
case, Jagannath obtained the preliminary decree by playing fraud on the
court. The High Court, however, went haywire and made observations
which are wholly perverse. We do not agree with the High Court that
"there is no legal duty cast upon the plaintiff to come to court with a true
case and prove it by true evidence". The principle of "finality of litigation"
cannot be pressed to the extent of such an absurdity that it becomes an
engine of fraud in the hands of dishonest litigants. The courts of law are
meant for imparting justice between the parties. One who comes to the
court, must come with clean hands. We are constrained to say that more
often than not, process of the court is being abused. Property­grabbers,
tax­evaders, bank­loan­dodgers and other unscrupulous persons from all
walks of life find the court­process a convenient lever to retain the illegal­
gains indefinitely. We have no hesitation to say that a person, who's case
is based on falsehood, has no right to approach the court. He can be
summarily thrown out at any stage of the litigation.”

  (d) The Consent Decree in question, which has been procured

by fraud can be set aside at any stage including in an application for leave to

execute   it   or   in   an   Official   Liquidator’s   Report   challenging   it.   Even

otherwise, the scope of the Company Court’s power under Section 446 has

been very broadly construed by the Hon’ble Supreme Court in  Sudarsan

Chits (I)  Ltd.  V/s.  O. Sukumaran Pillai and Others24, where the  Court

observed :

“8.… Now at a stage when a winding up order is made the company may
as well have subsisting claims and to realise these claims the Liquidator
will have to file suits. To avoid this eventuality and to keep all incidental
proceedings   in   winding   up   before   the   court   which   is   winding   up   the

24. (1984) 4 SCC 657

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company,   its   jurisdiction   was   enlarged   to   entertain   petition   amongst

others   for   recovering   the   claims   of   the   company.   In   the   absence   of   a
provision  like  Sec.   446  (2)  under  the   repealed Indian Companies   Act,
1913, Official Liquidator in order to realise and recover the claims and
subsisting debts owed to the company had the unenviable fate of filing
suits. These suits as is not unknown, dragged on through the trial court
and Courts of appeal resulting not only in multiplicity of proceedings but
would hold up the progress of the winding up proceedings. To save the
company which is ordered to be wound up from this prolix and expensive
litigation and to accelerate the disposal of winding up proceedings, the
parliament   devised   a   cheap   and   summary   remedy   by   conferring
jurisdiction on the court winding up the company to entertain petitions
in respect of claims for and against the company. This was the object
behind   enacting   Sec.   446   (2)   and   therefor,   it   must   receive   such
construction at the hands of the court as would advance the object and at
any rate not thwart it.”

  (e) The position that Official Liquidator can invite the Company

Court to exercise its powers under Section 446 by way of a report seeking

directions and is not required to file a company application in that behalf is

also firmly established. This question fell for consideration by this Court in

Modi Stone Limited (Supra), where the Court observed:

“115. In so far as the submission of the learned senior counsel for the
Modi Rubber Ltd. that the directions sought by Official Liquidator for
recovery of possession from sub­lessee cannot be granted by this Court in
the report submitted by Official Liquidator but can be considered if at all
in the company application on the ground that the report submitted by
Official Liquidator is in the nature of an administrative direction and not
for adjudication of the dispute is concerned, in my view, there is no merit
in this submission of the learned senior counsel. Under Section 455 of the
Companies  Act,  1956 read  with  Rule   135 and  137 of  the  Companies
(Court) Rules, 1959, Official Liquidator is empowered to submit a report
in a case where the winding up order is made by the Company Court for
appropriate directions and reliefs. Official Liquidator is not required to
file any suit for seeking any reliefs which can be granted by the Company
Court by exercising powers under Section 446(2) of the Companies Act,
1956. All contentious issues can be decided by the Company Court by
exercising   powers   under Section   446(2) of   the   Companies   Act,   1956
including any claims by or against the company in liquidation (including
any claims by or against any of its branches in India.

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116. Under Section 446(2)(d) of the Companies Act, 1956, the Company
Court   is   also   empowered   to   entertain   or   dispose   of   any   question
whatsoever,   whether   of   law   or   fact,   which   may   relate   to   or   arise   in
course   of   the   winding   up   of   the   company.   In   my   view,   there   is   no
substance   in   the   submission   of   the   learned   senior   counsel   for   Modi
Rubber Ltd. that only an administrative direction can be granted by the
Company Court in the report submitted by Official Liquidator or that the
evidence can be recorded only in the company application and not in the
report submitted by the official liquidator. The powers exercised by the
Company Court by issuing such directions and/or orders under various
provisions   of   the Companies   Act,   1956   whether   passed   in   company
applications or in the official liquidator's report, as the case may be, are
the judicial orders and have equal force of law. Official Liquidator is not
required   to   file   a   company   application   for   seeking   directions   and/or
reliefs before the Company Court for recovery of possession, assets and
other things from the Ex­directors of the company in liquidation or from
any third party. In my view, whatever may be the nomenclature of the
proceedings i.e. whether by way of the official liquidator's report or by
way of company application for seeking various directions including the
relief for recovery of possession, powers of the Company Court are the
same.”

  (f) In fact, the judgment of the Division Bench of this Court in

The   Official   Liquidator,   High   Court   Bombay   and   the   Liquidator   of

Kamani   Brothers   Private   Limited   (In   Liquidation)  V/s.  Suryakant

Natvarlal   Surati25  relied   upon   by   applicant   itself,   is   authority   for   the

proposition that the Company Court may set aside or refuse to enforce a

Decree. That was a case in which a Decree had been obtained confirming an

unregistered   charge   which   was   void   as   against   Official   Liquidator   on

account of Section 125 of the Companies Act 1956. The Decree holder had

applied   for   and   obtained  leave   under   Section   446   of   the  Companies  Act

1956 to put the Decree in execution. This leave was sought to be revoked by

three contributories of the Company on the ground that the charge on the

25. (1986) 59 Company Cases 147

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basis of which the Decree had been rendered was void on account of Section

125. In agreeing with the contributories, the Court observed :

“42.The decree fixed a date for redemption of the “mortgage or charge”
so declared. It ordered the mortgagees to deliver up all deeds relating to
the   mortgage   property   to   the   mortgagors   (the   company)   should   the
mortgagors make payment on or before the date of redemption of the
amount declared by the decree to be due under the mortgage. From these
provisions of the decree declaring the equitable mortgage and the charge
created   thereby   and   permitting   redemption   thereof   within   the   stated
period, we find that the unregistered charge created by the company in
favour of the mortgagees is kept alive. The order of sale of the mortgage
property   under   the   decree   is   to   operate   only   if   by   the   stated   period
redemption has not been effected. Upon such sale the charge could be
extinguished.   The   provisions   of   s.   125,   therefore,   apply   to   the
unregistered charge created by the equitable mortgage and declared by
the   decree   and   it   is   void   as   against   the   Official   Liquidator.   The
unregistered charge has no effect upon the property of the company in
liquidation.   The   mortgagees   cannot   sell   the   mortgage   property
notwithstanding the decree obtained prior to the order winding­up the
company. 

44. It was contended by Shri Tulzapurkar that Official Liquidator could
not go behind the decree unless there be fraud or collusion. In view of the
provisions of s. 125 Official Liquidator is entitled, if not obliged, to place
before the executing court his objection based thereon.”

  (g) The present case bears a striking resemblance to the facts

considered by the  Division   Bench,   save   for   the   added   feature   that   the

Consent Decree that applicant seeks to enforce was procured by fraud. This

would, of course, make the Decree more vulnerable rather than less.

25  Attachment not a charge :

  (a) The application proceeds on the basis that the attachment of

the Satara property constitutes a charge in favour of applicant. In the course

of the hearing, however, applicant has sought to abandon its stand that the

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attachment would constitute a charge. If it did, it would in any event fall

foul of both Sections 531 and 536 of the Companies Act 1956. However,

applicant   has   continued   to   maintain   that   by   virtue   of   the   attachment,

applicant was a secured lender and was entitled to priority of payment out

of the sale proceeds from the Satara property.

  (b) There is nothing in law to support this proposition. In fact,

the authorities are quite clear that an attachment does no more than prevent

a debtor from dealing with an asset, thus ensuring that it would be available

to satisfy any legitimate debt. Official Liquidator has relied in this behalf on

the   judgment   of   the   Hon’ble   Supreme   Court   in  Kerala   State   Financial

Enterprises Ltd. V/s. Official Liquidator, High Court of Kerala 26 where the

Court,  inter   alia,   observed   that   “an   attachment   itself   does   not   create   any

charge in the property”. Official Liquidator also relied on the judgment of the

Hon’ble   Calcutta   High   Court   in  Mahadeo   Saran   Sahu  (Supra)  where   the

Court following the  Full Bench ruling in  Frederick  Peacock  V/s.  Madan

Gopal27  and   the   dictum   of   the   Judicial   Committee   in  Motilal   V/s.

Karrabuldani28 held that it was impossible to contend that plaintiff in that

case   “acquired   any   title   or   charge   upon   the   property   by   reason   of   the

attachment in question”.

26. (2006) 10 SCC 709
27. I.L.R. 29 Cal 428
28. I.L.R. 25 Cal 179 (1897)

Gauri Gaekwad 
 47/51 CA-341-2016.doc

  (c) In the light of the aforesaid, apart from the fact that the

Consent Decree itself is liable to be set aside, applicant also acquired no title

or   interest   in   the   Satara   Property   merely   by   virtue   of   the   attachment.

Applicant is no more than an unsecured creditor who has no prior right in

law over any other lender for payment out of the sale proceeds of the Satara

property.   The   interest   of   all   stakeholders   would   therefore   be   far   better

served if leave as sought for by applicant is refused and the property is sold

by the Official Liquidator.

26 Plea of Limitation :

  (a)   Applicant   has   contended   that   the   directions   sought   by

Official   Liquidator   for   setting   aside   the   Consent   Decree   are   time   barred.

Shri Godbole for applicant relied on the judgment of the  Andhra Pradesh

High Court in Official Liquidator, High Court V/s. Andhra Pradesh State

Financial   Corporation29  in   support   of   the   proposition   that   the   law   of

limitation would apply as much to Official Liquidator as to any other litigant

and that an application  of the  nature  brought by Official  Liquidator  was

required to be brought within  three years from when the cause of action

accrued. The Consent Decree having been passed on 9th July 2009, applicant

contends   that   the   reliefs   sought   in   the   Official   Liquidator's   Report   were

clearly barred by time.

29. 2001 (3) ALT 334

Gauri Gaekwad 
 48/51 CA-341-2016.doc

  (b)   The   argument   of   applicant   is   misconceived.   While   the

Limitation Act would undoubtedly apply to Official Liquidator subject to the

qualification introduced in Section 458A30  of the Companies Act 1956 the

reliefs sought in the Official Liquidator's Report are not time barred for two

reasons, viz.  applicant’s argument loses sight of the fact that the Consent

Decree impugned in the Official Liquidator's Report was procured by fraud.

Any act of Court, which is the result of fraud ought be undone, regardless of

the stage at which it is impugned and or before which forum and secondly,

Official   Liquidator   became   aware   of   the   fraud   only   on   coming   into

possession of the papers and proceedings in Suit No.164 of 2009 pursuant

to the Order dated 4th January 2017 in the present company application. 

(c)   Shortly   thereafter,   Official   Liquidator   filed   a   reply   in   the

company application and an Official Liquidator's Report, in both of which he

impugned the Consent Decree as constituting a fraudulent preference. Thus,

in any view of the matter, the cause of action in favour of Official Liquidator

can   be   held   to   be   complete   only   on   his   becoming   aware,   from   the   suit

proceedings, of the nature of the fraud perpetrated by applicant in collusion

with the Company. As such the directions sought by Official Liquidator are

clearly within time.

30. Section 458A : Exclusion of certain time in computing periods of limitation. Notwithstanding anything in the Indian
Limitation Act, 1908 (9 of 1908) or in any other law for the time being in force, in computing the period of limitation
prescribed for any suit or application in the name and on behalf of a company which is being wound up by the [Tribunal],
the period from the date of commencement of 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 following the date of the winding up order shall be excluded.

Gauri Gaekwad 
 49/51 CA-341-2016.doc

27 Refund of amounts withdrawn :

  (a)  It is applicant’s case that Official Liquidator is, in any event,

not entitled to apply for refund by applicant of the amounts withdrawn by

it. Applicant so contends on the ground that the distribution was permitted

by DRT and that Official Liquidator, despite being heard, did not object to

such distribution and certainly not on the basis that the consent decree was

fraudulent.
 
  (b)   The   formulation   of   this   argument   is   problematic.   The

distribution was effected not under orders passed by DRT. While applicant

and Kotak Mahindra Bank did place before the DRT consent terms defining

the proportion in which the sale proceeds of the Ambattur property would

be distributed as between them, no order was passed in terms of the said

consent terms by DRT. Directions in this behalf were eventually sought by

Kotak Mahindra Bank from this Court.

(c)   The   order   dated   21st  April   2016   of   this   Court  permitting

such distribution was careful to qualify the order by the observation that it

would be an interim arrangement subject to final outcome of the issue on

status of the creditors of the Company (in liquidation) and that the order

was being passed at the instance of Kotak Mahindra Bank and applicant and

“without prejudice to the rights and contentions of the Official Liquidator”.

As   such,   this   order   merely   permitted   an   ad­hoc   distribution   of   the   sale

Gauri Gaekwad 
 50/51 CA-341-2016.doc

proceeds and did not conclude any rights between the parties.

  (d)   Indeed,   this   issue   regarding   the   illegality   of   the   Consent

Decree   sought   to   be   enforced   by   applicant   was   neither   considered   nor

determined by either the DRT or this Court. This was on account of the fact

that   the  papers  and   proceedings  in   Suit   No.164   of   2009,  which   induced

Official Liquidator to form the view that the Consent Decree is a fraudulent

preference,   was   not   then   in   his   possession.   His   omission   in   these

circumstances   to   raise   a   specific   plea   that   the   Consent   Decree   was

fraudulently procured cannot preclude Official Liquidator, being more fully

informed, from raising that plea now.

28 In these circumstances, 

  (a)   the   leave   sought   by   applicant   under   Section   446   of   the

Companies Act 1956 to enforce the Consent Decree dated 9 th  July 2009 is

refused;

  (b) the Consent Decree dated 9th  July 2009 is declared illegal

and void as a fraudulent preference; and

  (c) applicant is directed to refund with interest at 12% p.a. the

amount of Rs.10,17,03,493/­ withdrawn by it from the sale proceeds of the

Ambattur property.   

29 Company application no.341 of 2016 and Official Liquidator's

Report accordingly disposed.

Gauri Gaekwad 
 51/51 CA-341-2016.doc

30 In view of the above, company application (lodging) no.85 of

2018 also disposed. 

(K.R. SHRIRAM, J.)

Digitally
signed by
Gauri Gauri Amit
Gaekwad
Amit Date:
Gaekwad 2018.07.18
11:12:56
+0530

Gauri Gaekwad