{"id":46653,"date":"1997-12-19T00:00:00","date_gmt":"1997-12-18T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/sundram-trading-chit-fund-p-ltd-vs-sudhir-kumar-paroothi-on-19-december-1997"},"modified":"2019-03-20T18:16:25","modified_gmt":"2019-03-20T12:46:25","slug":"sundram-trading-chit-fund-p-ltd-vs-sudhir-kumar-paroothi-on-19-december-1997","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/sundram-trading-chit-fund-p-ltd-vs-sudhir-kumar-paroothi-on-19-december-1997","title":{"rendered":"Sundram Trading & Chit Fund P. Ltd. vs Sudhir Kumar Paroothi on 19 December, 1997"},"content":{"rendered":"
Delhi High Court<\/div>\n
Sundram Trading & Chit Fund P. Ltd. vs Sudhir Kumar Paroothi on 19 December, 1997<\/div>\n
Author: . M Sharma<\/div>\n
Bench: . M Sharma<\/div>\n<\/p>\n
<\/pre>\n
ORDER<\/p>\n
 Dr. M.K. Sharma, J. <\/p>\n
 1.     This is an application filed by the Official Liquidator under  Section
\n446 of the Companies Act praying for a payment order against the respondent
\nfor a sum of Rs. 21,573 with future pendente lite interest of 12% per annum
\nfrom  the date of filing of the application till the date  of  realisation.
\nThe  applicant company on whose behalf this application has been  filed  by
\nthe  Official Liquidator had its registered office at New Delhi.  The  main
\nobject  with  which the company was incorporated was the business  of  chit
\nfund  and of finance. In C.A. 91\/84, an order was passed by this  Court  on
\n11.10.1984 appointing the Official Liquidator attached to this Court as the
\nProvisional Liquidator. Subsequently, the applicant company was wound up by
\nan order passed by this Court on 21.8.1987.\n<\/p>\n
 2.   The  respondent applied and became a member of a chit of  the  company
\nbearing  No.  DLD-9\/15 for Rs. 20,000\/- payable in 40  instalments  of  Rs.
\n500\/- per month. The respondent became the successful bidder at the auction
\nheld  on 16.8.1983 having bid at a discount of Rs. 5,000\/- and thus  became
\nentitled  to receive the prized amount of Rs. 15,000\/- with  the  attendant
\nliability  to subscribe for the remaining istalments. The aforesaid  amount
\nof  Rs. 15,000\/- was paid to the respondent by the applicant company  by  a
\nCheque No. 787611 dated 13.9.1983 and the said cheque was encashed. As  per
\nthe  account as standing in the chit ledger of the company which  is  being
\nkept in the regular course of business, it appears that the respondent made
\ncertain  payments by way of instalments. However, as on 17.7.1984,  as  per
\nthe aforesaid books of account of the company, the respondent was liable to
\npay  an amount of Rs. 12,955.50. From the said ledger account,  it  further
\nappears that on 27.10.1984 two entries came to be made in the said  account
\nand brought the account of the respondent to Nil.\n<\/p>\n
 3.   The  respondent has stated that out of the two entries, an  amount  of
\nRs.  5,660.25 was adjusted out of Chit No. DLD-9\/14 in which  account,  ac-
\ncording to the respondent, the aforesaid amount was due and payable to  the
\nrespondent.  The next entry dated 27.10.1984 is in respect of Rs.  6,0.9.75
\nwhich, according to the respondent, was adjusted as against the payment due
\nand  payable to Smt. Prakash Wanti who was holding Chit No.  DLD-7\/30.  The
\nrespondent  has  taken a stand that the aforesaid two  transactions  giving
\nadjustment of the amount on the account of the respondent was made in  good
\nfaith  and  the said entries are supported by documentary evidence.  It  is
\nalso further case of the respondent that the aforesaid sum of Rs.  5,660.25
\nplus Rs. 650\/- as dividend was adjusted from Chit No. DLD-9\/14 which was  a
\nnon-prized  chit held by the respondent. The respondent, therefore,  denies
\nthat although a sum of Rs. 12,955.50 was due to the applicant against  Chit
\nNo.  DLD-9\/15, the said amount stood paid in full and final  settlement  on
\n27.10.1984  against  receipts  and return of the  original  documents  and,
\ntherefore,  nothing is due and payable by the respondent to the  applicant.
\nThe  respondent  has also placed on record two  receipts  dated  27.10.1984
\nshowing  payment  of  Rs. 5,660.25 and the receipt for  Rs.  6,039.75.  The
\nrespondent has also placed on record a no-dues certificate dated 27.10.1984
\nissued  by  Shri Ashwani Kumar who was a Director of the company.  The  respondent has also placed on record a copy of the cancelled demand promissory note. Relying on the contents of the aforesaid documents, the respondent stated that the aforesaid transaction by way of adjustment of accounts  was made  bona  fide and without knowledge of appointment  of  the  Provisional Liquidator  by  the respondent and, therefore, neither  the  provisions  of
\nSection 531 or 531A of the Companies Act could be attracted to the facts of the present case.\n<\/p>\n
 4.   Ms. Zubeda Begum appearing for the Official Liquidator submitted  that
\nthe  Provisional Liquidator in the present case as appointed on  11.10.1984
\nand therefore the alleged transaction entered into between the then  Direc-
\ntor of the company and the respondent on 27.10.1984 by giving adjustment of
\nthe accounts is void since the same was entered into with dishonest  inten-
\ntion  and  is  the outcome of fraud being played on the  creditors  of  the
\ncompany.  My attention was also drawn to the provisions of Section 531  and
\n531A  of  the Companies Act in support of her submission that  the  present
\ntransaction  alleged  by the respondent by way of  adjustment  showing  two
\nentries  on 27.10.1984 is void. Mr. Dhir appearing for the  respondent,  on
\nthe other hand, submitted that there is nothing on record to show that  the
\nrespondent  had knowledge about the appointment of the Official  Liquidator
\nas the Provisional Liquidator on 11.10.1984. According to him, the Official
\nLiquidator  has failed to allege, prove and establish a case of  fraudulent
\ntransfer in respect of the present transaction.\n<\/p>\n
 5.   The ledger account of the company on the account of the respondent has
\nbeen placed on record on careful perusal of which I find that as per  entry
\ndated  17.7.1984,  an amount of Rs. 12,955.50 was due from  the  respondent
\npayable to the applicant. The respondent in its reply to paragraph 6 of the
\napplication admitted that a sum of Rs. 12,955.50 was due to the  petitioner
\nagainst  Chit  No.DLD-9\/15, but it is the case of the respondent  that  the
\nsaid  amount stood paid in full and final settlement on 27.10.1984  against
\nreceipts  and  return  of the original documents by  adjusting  the  entire
\namount  of the deponent by purported transfer of a sum of Rs. 6,039.75  out
\nof  Chit No. DLD-7\/30 wherein Mrs. Prakash Wanti was a member and a sum  of
\nRs. 5,660.25 purported to be paid by the respondent out of his own Chit No.
\nDLD-9\/14  which  was also a non-prized chit. The aforesaid  adjustment  has
\nbeen  given by one of the Directors of the company on 27.10.1984 after  the
\ncompany  was provisionally wound up on 11.10.1984. The company was  finally
\nwound  up by order dated 27.8.1987. Therefore, if any of the provisions  of
\nSection  531 or 531A of the Companies Act is attracted to the facts of  the
\npresent  case,  these transactions admittedly could be  declared  void  and
\nconsequently  a  payment order, as sought for by the  applicant,  could  be
\nmade.\n<\/p>\n
 6.   Ms. Zubeda Begum appearing for the Official Liquidator relief upon the
\nprovisions  of Section 531 to state that it was a pure and simple  case  of
\nfraudulent  preference  given by the then Director of the  Company  to  the
\nrespondent in order to give the respondent undue and fraudulent  advantage.
\nIn order to constitute fraudulent preference, there need not be a  transfer
\nof  property nor is any cash payment necessary. Even when there is  payment
\nor transfer of payment or adjustment in accounts or any other act  relating
\nto  property, then also the provisions of Section 531 of the Act could  get
\nattracted provided the other conditions as set out in the said section  are
\nfulfilled. To establish fraudulent preference under Section 531, it may not
\nbe  enough to show that preference was shown to a particular  creditor.  It
\nmust also be shown that it was done with a view to give him favoured treat-
\nment.  The dominant motive attending the transaction has to be  ascertained
\nand if it is tainted with an element of fraud, then only the provisions  of
\nSection  531 could get attracted, to set aside a transaction as  fraudulent
\npreference  under Section 531 of the Companies Act. This Court in  Official
\nLiquidator, Victor Chit Fund Vs. Kanhiya Lal & Others reported in 1972 Vol.
\n42  Company Cases Page 396 held that fraud must be clearly alleged,  proved
\nand established. It was also held that the petition containing mere general
\nallegations and lacking in material particulars relating to fraud is liable
\nto be dismissed. To the same effect in the decision in Official  Liquidator
\nVs.  V.  R. Venkataratnam   when  it
\nheld  that  onus  is on the person who impugned a transaction  as  being  a
\nfraudulent  preference  to make it out. To prove and  establish  fraudulent
\npreference,  such material particulars for foundation to establish  fraudu-
\nlent preference under Section 531, in my considered opinion, are lacking in
\nthe  present  case. Therefore, the application cannot plead for  relief  in
\nthis case without laying foundation for making out a case under Section 531
\nof the Companies, Act. However, the applicant shall be still entitled to  a
\nrelief provided the provisions of Section 531A could be said to be attract-
\ned to the facts and circumstances of the present case. For ready reference,
\nit  is  necessary to extract the provisions of Section 531A which  are  ex-
\ntracted below:-\n<\/p>\n
       S.531-A. Avoidance of voluntary transfer: Any transfer of proper-
\n     ty,  movable  or immovable, or any delivery of goods, made  by  a
\n     company,  not being a transfer or delivery made in  the  ordinary
\n     course of its business or in favour of a purchaser or encumbranc-
\n     er in good faith and for valuable consideration, if made within a
\n     period  of  one year before the presentation of  a  petition  for
\n     winding  up by or subject to the supervision of the Court or  the
\n     passing of a resolution for voluntary winding up of the  company,
\n     shall be void against the liquidator.\n<\/p><\/blockquote>\n
 7.   The substance of the aforesaid section is that any transfer of proper-
\nty  or  goods held by a company otherwise than in the  ordinary  course  of
\nbusiness  or such transfer in favour of a purchaser or encumbrance not  in
\ngood  faith  and valuable consideration would be void if it had  been  made
\nwithin  one  year before the presentation of a winding up petition  or  the
\npassing of a resolution for voluntary winding up. In my considered opinion,
\nto attract the Provisions of Section 531-A of the Companies Act also,  like
\nthe  provisions  of Section 531 of the Companies Act, it is  not  necessary
\nthat payment has to be made in cash. Even payment by transfer or adjustment
\nin accounts or any other act relating to property could also be  challenged
\nif the other requirements of the provisions are met with or fulfillled.  The
\nexpression “good faith” is defined in the General Clauses Act to the effect
\n“an entry shall be deemed to be done in good faith where it is in fact done
\nhonestly  whether it is done negligently or not”. In absence of a  separate
\ndefinition  under the Companies Act, in my considered opinion, the  defini-
\ntion as given in the General Clauses Act for the aforesaid expression “good
\nfaith” must apply.\n<\/p>\n
 8.   On  scrutiny of the records, it is apparent that by making entries  in
\nthe ledger account on 27.10.1984 and giving adjustment to the respondent in
\nthe  said account by way of transfer from other accounts, there was  indeed
\ntransfer  of  movable property by the company. Therefore,  the  issue  that
\narises for my consideration is whether such transfer made by way of adjust-
\nment to the account of the respondent by making it a nil liability was  not
\nmade in the ordinary course of business or in good faith. Since the  afore-
\nsaid  entries came to be entered into the ledger account of the  respondent
\non  27.10.1984,  that is, after 16 days of appointment of  the  Provisional
\nLiquidator  in  respect of the company in question, the  said  transfer  of
\nmovable  property made by the Director of the Company after appointment  of
\nthe Provisional Liquidator cannot be said to have been made in the ordinary
\ncourse of its business.\n<\/p>\n
 9.   The next issue, therefore, to be decided in the present case is wheth-
\ner  the said entries by way of transfer of property could be said  to  have
\nbeen made in favour of a purchaser or encumbrancer in good faith. On  scru-
\ntiny  of the records, it is disclosed that in the present  case  adjustment
\nwas given in the account of the respondent from the account in Chit No.DLD-
\n9\/14  which also belonged to the respondent. The other adjustment  for  the
\nbalance  amount  is from Chit No.DLD-7\/30 which stood in the name  of  Smt.
\nPrakash Wanti from whose account an amount of Rs. 6,039.75 is shown to have
\nbeen  adjusted  in the present account held by the  respondent.  Said  Smt.
\nPrakash Wanti is stated to have given a no objection certificate which fact
\nis  not  denied by the Official Liquidator in his pleadings. If  said  Smt.
\nPrakash  Wanti  permitted such adjustment by way of transfer from  her  ac-
\ncount,  the said transfer cannot be said to be without consent and,  there-
\nfore, illegal.\n<\/p>\n
 10.  Although  Ms.  Begum appearing for the Official Liquidator  laid  much
\nstress  on  the issue of time factor of giving the adjustment  and  thereby
\nabsolving  the  respondent from making any payment to the  company,  in  my
\nconsidered  opinion, it is a pure and simple case of giving  adjustment  of
\namount  due and payable to the respondent and to Smt. Prakash Wanti by  the
\ncompany  to  an account of the respondent in respect of which  the  present
\nclaim is made. The intention of giving such a benefit to the respondent, by
\ngiving adjustment of the amount from one of the chit accounts belonging  to
\nthe  respondent himself and also from another account in respect  of  which
\nconsent  was  given by its holder, cannot be said to be not bona  fide  and
\nwith  honest  intention. The said respondent and Smt.  Prakash  Wanti  were
\nentitled to receive back from the company in liquidation the amount due and
\npayable  to them, of course, in accordance with the provisions of the  Act,
\nafter the winding up order was passed.\n<\/p>\n
 11.  The  Official Liquidator has neither alleged nor led any  evidence  to
\nshow and establish that the said transfer made in favour of the  respondent
\nby  giving  adjustment was done with dishonest intention. In terms  of  the
\ndefinition  of  the expression “good faith”, as appearing  in  the  General
\nClauses  Act,  reference to which has already been made, in  my  considered
\nopinion, the onus is on the Official Liquidator to allege, prove and establish  that the aforesaid entries in favour of the respondent were not  done
\nin good faith, that is, the same is not done honestly. There is nothing  on
\nrecord to prove and establish that the aforesaid adjustments were given  in
\nfavour  of the respondent dishonestly. In absence of any evidence  in  that
\nrespect  and  in the facts and circumstances of the present case,  I  would
\nhold  that  the said action of transferring the property by way  of  giving
\nadjustment was bona fide and in good faith.\n<\/p>\n
 12.  In  this connection, reference may also be made to a decision  of  the
\nPunjab  High Court in the First National Bank Ltd. Vs. Om Prakash Sharma  &
\nothers  wherein it was held that it is  open
\nfor  the Court to validate transactions which is made by the  company  bona
\nfide entered into by the company for its benefits. It is true that once the
\nCourt  appoints a Provisional Liquidator and directs him to take over  into
\nhis possession and custody the assets of the Company, the Director’s powers
\ncannot  be exercised in respect of the property and assets of the  company,
\nthe  same  having come into the custody of the Official Liquidator.  It  is
\nalso  settled law that so long as the order of the appointment of a  Provisional Liquidator is operative, the powers of the Directors must remain  in abeyance  and, therefore, all dispositions of the property of  the  company made  between the date of presentation of the petition for winding  up  and the  winding up order would be void unless the Court otherwise orders.  The Court, however, has also been given the power and jurisdiction to  validate such dispositions if they have been made honestly.\n<\/p>\n
 13.  Since  I have already held that the Official Liquidator has failed  to
\nprove and establish any dishonest intention in transferring the property by
\ngiving  adjustment,  in my considered opinion, the said entries  cannot  be
\nheld  to  be  void. This is therefore, not a case where  in  provisions  of
\nsection 531-A is attracted. As the aforesaid transfer has been held to have
\nbeen done bona fide and with honest intention, by giving adjustment of  the
\namount  due  and  payable to the respondent and another  depositor  to  the
\npresent account of the respondent, this petition is dismissed as having  no
\nmerit.  However,  on the facts and circumstances of the case,  the  parties
\nshall bear their own cost.<\/p>\n","protected":false},"excerpt":{"rendered":"
Delhi High Court Sundram Trading & Chit Fund P. Ltd. vs Sudhir Kumar Paroothi on 19 December, 1997 Author: . M Sharma Bench: . M Sharma ORDER Dr. M.K. Sharma, J. 1. This is an application filed by the Official Liquidator under Section 446 of the Companies Act praying for a payment order against the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[14,8],"tags":[],"class_list":["post-46653","post","type-post","status-publish","format-standard","hentry","category-delhi-high-court","category-high-court"],"yoast_head":"\nSundram Trading & Chit Fund P. 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