JUDGMENT
Amitava Lala, J.
1.This writ petition is made on behalf of a company by the pen of a director with a supporting affidavit of competency dated July 17, 1998, as against the respondents including M/s. Small Industries Development Bank of India (hereinafter called as “the SIDBI”) for the purpose of getting orders in the nature of release of transfer bonds as well as payment of interest from them who are wrongfully withholding the same bonds being property of the petitioners. It is as good as interference with the right of property of the petitioners protected by the Constitution of India.
2. The petitioners contended before this court that in the course of business petitioner No. 1-company purchased 41 bonds issued by M/s. Small Industries Development Bank of India in its favour aggregating to Rs. 410 lakhs having a face value of Rs. 10 lakhs each. Such purchase occurred in between one Sri Sankarlal Saraff and petitioner No. 1-company at a consideration of price of Rs. 3,69,00,000 (rupees three crores and sixty-nine lakhs only) on July 1, 1998. Petitioner No. 1 paid the consideration amount by cheque bearing No. 136229, dated July 1, 1998 of Vaisya Bank Ltd., Netaji Subhas Road Branch, Calcutta. The petitioners took delivery of the bonds from such person and deposited in the office of respondent No. 1 for grant of transfer/registration of the bonds in favour of the petitioners. The petitioners requested respondent No. 1 by letter dated July 2, 1998, to issue the interest cheques for the period of June 31, 1997, to June 30, 1998, in his favour. The aforesaid bonds were received by respondent No. 1 on July 2, 1998 ; formal receipt was issued on July 9, 1998.
3. The petitioners, along with the bonds, duly submitted specimen signature of petitioner No. 2 who was the operator to deal with the subject bonds. Respondent No. 1 is also under obligation to pay interest to petitioner No. 1 who is presently the holder of the bonds. The bonds themselves specify the rate of interest, particulars of which are set out in annexure E to the petition.
4. The Union of India, respondent No. 3 stands as guarantor towards the repayment of principal and interest. Respondent No. 1 is required to return the bonds to the petitioners after recording the factors of transfer in its record so that the interest can be received by the petitioner. The transfer is required to be authenticated by respondent No. 1. The respondents are required to transfer the bonds without any delay so that the petitioner can deal with the bonds in the market. The respondents failed and neglected to transfer as well as pay interest to the petitioner without assigning any reason. Subject bonds are “goods” within the meaning of the Sale of Goods Act. The petitioner being a bona fide purchaser of the bonds for value, is entitled to register the transfer in its name and pay-
ment of interest. By withholding the bonds and not paying interest the respondents have deprived the petitioners from using the properties without due sanction of law. The acts of the respondents are violative of Articles 14, 19(1)(g) and 300A of the Constitution of India.
5. According to the contesting respondent, i.e., on April 25, 1997, Sri Sankarlal Saraf lodged with SIDBI, Mumbai, SIDBI bonds aggregating to a face value of Rs. 435 lakhs comprising 13.5 per cent. SIDBI Bonds, 2003 (IV series) for Rs. 100 lakhs and 12.5 per cent. SIDBI Bonds, 2004 (V series) for Rs. 285 lakhs transferred in his favour by CRB (M/s. CRB Capital Markets Ltd.) as also 13.5 per cent. SIDBI Bonds, 2003 (IV series) for Rs. 50 lakhs transferred in his favour by ANZ Grindlays Bank Ltd. for collection of interest due on the bonds.
6. On May 22, 1997, an appropriate Bench of the Delhi High Court passed an order appointing the official liquidator provisionally over the assets of the company and also passed an order of injunction restraining all the directors, servants to deal with their personal properties. The said order was passed in Company Petition No. 191 of 1997, at the instance of the Reserve Bank of India in exercise of its power under Section 45MC of the Reserve Bank of India Act, 1934. On June 9, 1997, by a fax message, the Reserve Bank of India intimated the SIDBI that a winding up petition was filed against the said company in the Delhi High Court and this bank was advised not to effect any transfer, register any lien or otherwise deal with such securities and also not to part with the dividend or principal without the permission of the official liquidator appointed by the Delhi High Court. On June 13, 1997, a further order was passed by the Delhi High Court directing freezing of accounts of M/s. CRB Capital Markets Ltd. and its 40 sister concerns and companies, their directors, lying” with all the banks nationalised as well as scheduled, Indian and foreign, and all other financial institutions. On October, 1997, a department of supervision of the Reserve Bank of India intimated the SIDBI making certain allegations in respect of bonds held by M/s. CRB Capital Markets Ltd. in IDBI and SIDBI. In view of such information, transfer of bonds held by Sri Sankarlal Saraf to any person ; payment of interest, etc. were stopped by the bank. Moreover, a portion of the bonds were lodged by Sri Saraf on December 19, 1997, for collection of interest due on December 20, 1997, but he did not lodge the remaining bonds for collection of interest, etc. In any event, the SIDBI (Small Industries Development Bank of India) being respondent No. 1 wrote a letter to the official liquidator on April 3, 1998, seeking advice with regard to payment of interest on the bonds held by Sri Sankarlal Saraf. The writ petitioner alleged to have purchased 41 bonds having aggregate value of R. 410 lakhs for a consideration of Rs. 3,69,00,000 from Sankarlal Saraf as on July 1, 1998.
7. It appears to this court that although respondent No. 1-bank wrote a letter to the concerned official liquidator as on April 3, 1998, but no reply has been obtained till date. From the said letter it is crystal clear that the bonds were held by Sri Sankarlal Saraf prior to institution of the company petition before the appropriate Bench of the Delhi High Court whereunder the order was passed giving certain directions to the official liquidator as well as in the nature of the injunction at the instance of the Reserve Bank of India.
8. Hence the only question before this court that since the bonds were transferred by the company to an individual being Sri Sankarlal Saraf prior to initiation of the company petition whether the SIDBI (Small Industries Development Bank of India) being respondent No. 1 can withhold the same from transferring to a third party, i.e., the petitioner or petitioners herein or not.
9.The order which has been passed by the Delhi High Court in the company petition might have a binding effect upon the company against whom the order is sought for but the SIDBI i.e., respondent No. 1-bank cannot interfere with the right of transfer between Sri Sankarlal Saraf and the petitioner-company accrued prior to the same in the garb of such order.
10. Although the respondents have taken various points in the affidavit-in-opposition to the extent that (a) the petitioners suppresed the material facts ; (b) disputed questions of fact cannot be decided in the writ petition ; (c) the writ petition is essentially made for obtaining an order for payment of money ; and (d) the claim of the petitioners is arising out of commercial transactions, I do not say that these are not the relevant questions to be considered but according to me which is much more fundamental, i.e., whether the bank can withhold the transfer of the bonds and payment of interest in such situation. Mr. P. K. Mallick and Mr. S. K. Kapur, learned senior counsel on behalf of the petitioners, repeatedly submitted before this court on the above score. They have drawn my attention to various sections of the Companies Act and the Negotiable Instruments Act and ultimately to a decision in K.N. Narayana Iyer v. CIT [1993] 78 Comp Cas 156 (Ker). According to them, Sections 531, 531A and 532 of the Companies Act are playing in the field, if any. Section 531 is made for fraudulent preference. In respect of 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 the company within six months before the commencement of its winding up which, had it been made, taken or done by or against an individual within three months before the presentation of an insolvency petition on which he is adjudged insolvent, would be deemed in his insolvency a fraudulent preference, shall in the event of a company being wound up, be deemed a fraudulent preference of its
creditors and be invalid accordingly. As per Sub-section (2) mere presentation of the petition or supervision by the court, etc. will be deemed to correspond to the act of insolvency in the case of any individual. Section 531A of the said Act speaks about avoidance of voluntary transfers, meaning thereby any transfer, etc. as aforesaid made by a company, not being transfer or delivery made in the ordinary course of this business or in favour of the purchaser or encumbrances in good faith and for valuable consideration within one year before the presentation of the winding up petition or subject to supervision shall be avoided against the liquidator. Section 532 of the Act speaks of transfers for the benefit of all creditors to be void meaning thereby any transfer or assignment by a company of all its properties, to trustees for the benefit of all its creditors shall be void. It appears from the factual position that originally between December 21, 1993 and 1994, bonds in the form of promissory notes were issued. Promissory notes are transferable by endorsement. Prior to February 28, 1997, bonds were purchased by M/s. ANZ Grindlays Bank, City Bank, etc. as available from the endorsement on the promissory note. The same were sold to one M/s. Nuclear Security Ltd. and others, and M/s. Nuclear Security Ltd. sold to a company, M/s. CRB Capital Markets Ltd. from which Sri Sankarlal Saraf purchased such bonds and the same were transferred to petitioner No. 1-company. The transaction of transfer of the bonds caused in between the M/s. CRB Capital Markets Ltd. and Sri Sankarlal Saraf on February 28, 1997. Sankarlal Saraf submitted the bonds in favour of the petitioners on April 25, 1997. The winding up of the company was initiated by the Reserve Bank of India and obtained certain orders appointing official liquidator etc. on May 22, 1997. Therefore, the transfers were admittedly held within a short span of time and definitely it attracts Section 531 of the Companies Act, 1956, which provides the period. Mr. Mallick cited a judgment in K. N. Narayana Iyer v. CIT [1993] 78 Comp Cas 156 (Ker), it appears that while Section 531 of the Companies Act, treats certain transactions as invalid and Section 532 treats another category of transfers as void, Section 531A stands in between treating the transfers covering thereby as void against the liquidator. The expression is often used “void as against” a person or persons. The strict terminology is a thing that cannot be void and valid at the same time. As “void” denotes a nullity a thing which is void must be a nullity for all. It is totally nonexistent. Therefore, “void as against A” can mean only that A can treat it as void ; Or, in other words lean avoid it. It is, strictly speaking voidable at the option of A. The fact that a transfer falling within Section 531A is void as against the liquidator implies that it is not a nullity in the absolute sense. Since it is void only as against the liquidator it means that the court will invalidate or ignore the transfer only if the relief is either by a right person namely the liquidator and in appropriate circumstances. For
instance, it may be avoided only if it is necessary to satisfy the creditors of the company, or to the extent necessary for that purpose. Therefore, when the liquidator himself does not choose or find it necessary to avoid a particular transfer or to recover the property concerned it is not open to a stranger to ignore it and treat the transferred asset as remaining with the liquidator relying on Section 531A of the Act. By citing this judgment both learned counsel interpreted that the liquidator has no business to interfere with the transfer between Sri Sankarlal Saraf and the petitioner No. 1-bank. It cannot ignore and treat the transfer of asset in between themselves as remaining with liquidator relying on Section 531A. They have also made certain submissions in respect of Section 36 and Section 118(e) and (g) of the Negotiable Instruments Act, 1881. They wanted to submit that every prior party to a negotiable instrument is liable thereto in due course until the instrument is duly satisfied. He also stated that the endorsements appearing upon a negotiable instrument were made in the order in which they appear thereon. The holder of the negotiable instrument is a holder in due course.
11. Mr. Soumen Sen, learned counsel, appearing on behalf of the SIDBI, i.e., the respondent-bank contended that Section 446(2) of the Companies Act, 1956, speaks that the court which is winding up the company “shall” notwithstanding anything contained in any other law for the time being in force have jurisdiction to entertain, or dispose of, (a) any suit or proceedings by or against the company; (b) any claim made by or against the company ; (c) any application made under Section 391 by or in respect of the company ; (d) any question of priorities or any other question whatsoever whether of law or fact, which may relate to or arise in the course of the winding up of the company. Therefore, when the statute gives fullest power to a court having appropriate jurisdiction why such jurisdiction cannot be invoked. He relied upon a judgment in Engineers India Ltd. v. D. Wren International Ltd. [1997] 2 CHN 1, to establish that when an arbitration agreement exists in between the parties, the High Court in exercise of the power under Article 226 of the Constitution normally does not interfere in such cases and contended that a similar principle will be applicable in the instant case. He also relied upon a judgment in Firth (India) Steel Co. Ltd. (In Liquidation) In re, AIR 1999 Bom 75, and made his submission by saying that the expression “legal proceedings” or “other legal proceedings” would not include criminal complaint for the sake of Section 446 of the Act must be read ejusdem generis within the expression “suit” and can mean only civil proceedings which have a bearing in so far as the winding up is concerned namely realisation of the assets and discharge of liabilities of the company. It cannot ignore the writ petition of a High Court which is flowing directly from the Constitution of India but it should be remembered by the court that what are the exceptional circumstances which can
be entertained in spite of having other avenues of law open. In the instant case, SIDBI, i.e., respondent No. 1 acted on the basis of the direction of the Reserve Bank of India who is not a party herein. The transactions are definitely of commercial nature which normally be not entertained in the writ jurisdiction. It also appears that the intervention of the transfer of bonds from the company under the winding up and Sri Sankarlal Saraf as well as the present company have occurred within a very short span of time which requires certain fact-finding and definitely not by the writ court, Moreover, whether petitioners are entitled for benefit of Section 531A on the basis of the judgment of K. N. Narayana Iyer v. Commissioner of Income-tax [1993] 78 Comp Cas 156 (Ker) or not is definitely dependable under certain circumstances and such circumstances are to be adjudicated by a court having jurisdiction in respect of the company affairs.
12. I have carefully considered all the aspects of the matter. Under Article 300A of the Constitution of India, no person shall be deprived of his property save by authority of law. Therefore, if the freedom is restricted under any authority of law, invocation of writ jurisdiction is also restricted under Article 226 of the Constitution of India. Factually, SIDBI, the respondent No. 1 bank as controlled by the Reserve Bank of India directed them to withhold the transfer of bond in favour of the petitioners in view of an order passed by an appropriate company court of a High Court appointing provisional liquidator. If I read the provisions of Section 531(1), I shall be able to find that any transfer by or against the company within six months before the commencement of the winding up or three months before the presentation in the case of individual would be deemed a fraudulent preference of its creditors and be invalid accordingly. In the instant case, such transfer of bonds occurred in between the erstwhile company and Sri Shankarlal Saraf within such period. Hence ownership of Sri Shankarlal Saraf is under challenge on account of fraudulent preference. If such ownership is under challenge, unless determined, how the writ court will establish right of property of the petitions being subsequent transferees is unknown to this court. Therefore, two courses are open ; either to institute a suit or to institute a proceeding under Section 446 of the Companies Act before the appropriate court. If the suit is barred in view of the proceeding before the court, an application under Sub-section (2)(d) of Section 446 can be made by the petitioners in such court having company jurisdiction not only to avoid the multiplicity of the proceedings but also for an appropriate adjudication and order. In any event the writ court is riot the forum for fact-finding in any manner whatsoever. This being the position, I do not want to see any reason to interfere with the matter in the writ jurisdiction. Thus the writ petition stands dismissed. No order is passed as to costs. Interim order if any, stands vacated.
13. This order is passed herein will not put any embargo upon the petitioner/ s to invoke the appropriate jurisdiction of the court and in such question of limitation, if any, will be superseded by the principle of lis pendens before this court.
14. Xerox certified copies of this judgment will be supplied to the parties within seven days from the date of putting requisition.
15. All parties are to act on a signed copy minutes of the operative part of this judgment on the usual undertaking and subject to satisfaction of the officer of the court in respect as above.
