A. U. Mohammed Ashraf v Official Liquidator, High Court of Kerala, Ernakulam & Others

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH & THE HONOURABLE MRS. JUSTICE M.C.HARI RANI WEDNESDAY, THE 19TH OCTOBER 2011 / 27TH ASWINA 1933 Co.Appeal.No. 39 of 2010(A) ------------------------------------(AGAINST THE ORDER DATED 17.5.2010 OF THE LEARNED COMPANY JUDGE OF THIS COURT IN C.A.No.539/2005 IN REPORT No.88 IN C.P No.18/1999) .................... APPELLANT (S): PETITIONER: -------------------------------------------- A.U.MOHMMED ASHRAF S/O.LATE UMMER, AZHIVELIKAKATHA HOUSE, SYED MOHAMMED ROAD, EDAVANAKKAD P.O., ERNAKULAM. BY ADV. SRI.SEBASTIAN PAUL SRI.LAL K.JOSEPH SRI.A.A.ZIYAD RAHMAN SRI.V.R.REKESH RESPONDENT(S): RESPONDENTS: ------------------------------------------------ 1. THE OFFICIAL LIQUIDATOR, HIGH COURT OF KERALA, ERNAKULAM. 2. BOBBY VARGHESE, (EX-MANAGING DIRECTOR ST. MARY'S FINANCE LTD.) RESIDING AT MARIYA HOUSE, PIPILINE ROAD, PADIVATOOM ,KOCHI-24 3. M/S.KANOOS BUSINESS INDIA PVT LTD., RUKIYAS BAGH,RAVIPURAM ROAD, KOCHI, REP.BY ITS MANAGING DIRECTOR. R1 BY ADV.SRI.C.KHALID (B/O) SRI.K.MONI R2 BY ADV. SRI.K.K.JOHN R3 BY ADV. SRI.VAKKOM N.VIJAYAN SRI.MAATAYIL R.S.NAIR SMT.V.RENJU SRI.P.ANIYAN THIS COMPANY APPEAL HAVING BEEN FINALLY HEARD ON 14/12/2010, ALONG WITH COA NO. 59 OF 2010 COA NO. 60 OF 2010 THE COURT ON 19/10/2011 DELIVERED THE FOLLOWING: ## **K.M.JOSEPH & M.C.HARI RANI, JJ.** ------------------------------------------------------ ## **Company Appeal No.39 of 2010-A Company Appeal No.59 of 2010-E & Company Appeal No.60 of 2010-E** ---------------------------------------------- Dated, this the 19[th] day of October, 2011 ## **J U D G M E N T** ## K.M.Joseph, J. Being connected we dispose of these appeals by this common judgment. 2. The appellant in all these cases is one and the same. He calls in question the order passed by the learned Company Judge in Co.A.No. 539 of 2005 in Report No.88 in C.P.No. 18 of 1999. He also challenges the order passed in M.C.A.No.112 of 2008 in Report No.88 in CP 18 of 1999. Lastly, he also calls in question the order passed in Co.Appl No.620 of 2008 in Report No.88 in C.P.No.18 of 1999. C.P.No.18 of 1999 was filed to wind up St. Mary's Finance Ltd. (hereinafter referred to as the 'Company'). 3. Briefly put, the case of the appellant is as follows: The appellant entered into an agreement dated 31.3.2002 with Sri.Bobby Varghese (2[nd] respondent) for purchase of property having an extent of 6.792 cents in COA 39,50, 60/2010 -2- Ernakulam village. The 2[nd] respondent is none other than the Ex-Managing Director of the company. It is the case of the appellant that the property in the agreement originally belonged to Sri. M.U.Varkey who is the father of the 2[nd] respondent. The appellant paid a sum of R.10.25 lakhs to the 2[nd] respondent in all and after issuing lawyer notice he instituted O.S.No.197/2005 before the Ist Additional Sub Court, Ernakulam seeking specific performance of the agreement. The suit was decreed allowing specific performance of the contract directing the appellant to deposit the balance sale consideration of Rs. 1,52,575/- within one month and the 2[nd] respondent was to execute the sale deed on such deposit being made in favour of the appellant. It is the further case of the appellant that he remitted the balance sale consideration within the stipulated time. It is his case that the 2[nd] respondent expressed his inability to execute the sale deed and informed him as to the proceedings initiated by the Official Liquidator which was concealed by him at the time of advancing the sale consideration. It is his case that the 2[nd] respondent also informed him that the property has been attached and sold in auction in the Company Petition as part of liquidation. It is further contended that on further enquiry it was revealed that in compliance with the order of Court on COA 39,50, 60/2010 -3- 30.5.2005, proceedings were to be initiated against the properties of Directors of the company including the properties of the 2[nd] respondent, and, accordingly, the Official Liquidator conducted sale of the property in which the 3[rd] respondent was the highest bidder. The 3[rd] respondent has offered Rs.70,00,584/-. On the said basis the appellant filed C.A No.539/2005 to set aside the sale by the Official Liquidator in favour of the 3[rd] respondent. Pending the same, Liquidator filed M.C.A No.112/2008 to review the judgment in O.S.No.197/2005. The 3[rd] respondent filed C.A.620/2008 for a direction to the Liquidator to confirm the sale conducted in his favour. By the judgment under challenge the learned Company Judge dismissed C.A.No.539/2005, while he allowed the prayers in M.C.A.No.112/2008 and C.A.No.620/2008. It is accordingly that the appellant has filed Co.A.No.39/2010 against the order passed in C.A.No.539/2005, Co.A.No.59/2010 against the order in M.C.A.No.112/2008 and Co.A.No.60/2010 against the order in C.A.No.620/2008 as aforesaid. 4. A learned Single Judge of this Court had withdrawn the decree in the suit and other proceedings to this Court in exercise of the powers under Article 227 and it was directed that in exercise of the authority under the Companies COA 39,50, 60/2010 -4- Act that the suit itself shall stand tagged along with the Company Applications for further consideration. The Official Liquidator had been directed to take appropriate steps . It is thereafter that the Official Liquidator apparently filed petition to review MCA No.112/2008. 5. We heard the learned counsel for the parties. We also heard Sri.Jacob Mathew Manalil who purported to appear for the Depositors' Association which is the prime player in the proceedings as on all hands admitted. 6. The findings of the learned Company Judge are as follows: O.S.No.197/2005 filed by the appellant is not incompetent for want of leave of the Court under Section 446 of the Companies Act or for non-joinder of the Official Liquidator. The property in question is not the property belonging to the company in liquidation admittedly. It cannot also be said that the property was acquired utilizing the funds of the company in liquidation as it was acquired by the father of the Ex-Managing Director of the company in liquidation before the company in liquidation came into existence and the property devolved under a will. The Official Liquidator at best would be a proper party, but, it does not make the suit incompetent. But, the decree would be subject to the rights of the Official Liquidator on the basis of COA 39,50, 60/2010 -5- attachment and sale as the suit was filed long after the order of the Court directing attachment and sale. It is further found as follows. It is not open to the appellant and 2[nd] respondent relying on the observations of the judgment in M.F.A.No.629/2002 to contend that only those properties of the 2[nd] respondent found to have been acquired utilizing the funds of the company could be proceeded against in the winding up proceedings. The Company Petition was filed as a creditor's winding up petition in 1999. From the beginning of the proceedings it is noted that the directors especially the Managing Director was acting without bonafides. Reliance is placed on the order dated 28.9.1999 and the winding up order to show that directors are guilty of misfeasance and malfeasance in respect of the affairs of the company and it is a clear indictment of the directors. None of the records of the company were handed over by the Managing Director to the Official Liquidator even after specific directions issued by this Court in that regard. Crores of rupees were unauthorizedly paid off by the Managing Director to various persons of his choice while proceedings were going on alleging the same to be debts due to the payees. It is in the said circumstance the personal property of the directors were directed to be attached. The learned Judge expressed his COA 39,50, 60/2010 -6- opinion that the agreement between the appellant and the 2[nd] respondent was a pre-emptive transaction to create the 3[rd] party rights in the property and defeat the creditors of the company and to pre-empt the Court from proceeding against that property which agreement was entered into two months prior to the winding up order. Learned company Judge expressed his disinclination to believe that the appellant was unaware of those proceedings. The 2[nd] respondent did not even choose to contest the case and allowed the suit to be decreed exparte. For the prime property near Banerji Road at Ernakulam the consideration was Rs.11,77,575/-. The 3[rd] respondent has offered more than Rs.70 lakhs in a distress sale. The Court distrusted the Managing Director and Directors of the company. The public was aware of the position. In 1999 the learned Judge found it hard to believe that the appellant was not aware of the situation the 2[nd] respondent was in. The Official Liquidator took possession of the attached property on 10.2.2003 and put a notice board in the premises of the property declaring his possession which is the property agreed to be purchased by the appellant. The appellant would have been aware of these happenings. He allegedly paid further consideration without any legal compulsion. There is no evidence except the endorsement in COA 39,50, 60/2010 -7- the sale agreement. The amounts should have been paid under law only by cheque. Even going by the payments endorsed in the agreement on 10.6.2004 the total payment was only Rs.7 lakhs. However, the appellant acknowledged receipt of Rs.8 lakhs which casts serious doubt regarding the truth of the payments themselves. The learned Judge was not inclined to believe that any consideration passed from the appellant to the 2[nd] respondent. By endorsement dated 20.12.2004 the period of validity of the agreement was extended upto 30.4.2005. One month prior to the expiry of the extended period suit notice was issued alleging noncompliance and the suit was filed by the appellant for specific performance without the plaintiff or the counsel signing the plaint and without paying court fee as if the same was the last date for filing the same. The defects were cured on 5.4.2005. There was no reason for the appellant to file on 31.3.2005 when there was time till 30.4.2005. There is collusion. It is only a reasonable conclusion that the 2[nd] respondent was expecting some adverse orders from the Court for proceeding against his personal properties and thereby entered into the sale agreement barely two months prior to the order of attachment by this Court in an attempt to pre-empt the Court from proceeding against the property. From the conduct of COA 39,50, 60/2010 -8- the appellant it is clear that he was a willing accomplice to the 2[nd] respondent in his illegal designs to defeat the creditors. The appellant was not found a transferee in good faith for consideration. The suit was found to be collusive to defraud the Court and creditors. Since the Court had chosen to make the 2[nd] respondent personally responsible for the debts of the company even if sale deed had been executed pursuant to the decree there was justification to declare the same as fraudulent transfer by virtue of Sec.64 of the Transfer of Property Act. It is further found that since the sale agreement has not yet fructified into a sale and the title in the property has not yet passed to the appellant from the 2[nd] respondent before attachment, the property is still available for disposition of the Court in accordance with the attachment and sale as ordered in the winding up proceedings. The sale agreement is not a registered one under Sec.64(2) of the Code of Civil Procedure and therefore the attachment and sale is unaffected by the sale agreement and decree. Learned company Judge on these findings inter alia declared that the sale agreement and decree are vitiated by fraud and collusion and accordingly the decree in O.S.197/2005 was declared as null and void. Finding the price offered by the 3[rd] respondent as reasonable the Liquidator was permitted to confirm the sale COA 39,50, 60/2010 -9- and to execute the sale deed after receiving the balance sale consideration. To pay the balance sale consideration one month's time was given. 7. Learned counsel for the appellant would contend as follows: Learned Judge went wrong in relying on the price mentioned in the agreement between the appellant and the 2[nd] respondent. He would point out that the agreement was in the year 2002. He relies on the report of the Official Liquidator to show that in the year 2004 it was estimated at about Rs.32 lakhs. The fact that it is sold in 2008 for about Rs.70 lakhs should therefore be viewed in the circumstance as not militating against the genuineness of the agreement in 2002. It is also pointed out that in the auction at which the 3[rd] respondent quoted at Rs.70 lakhs the rest of the bidders had quoted far lower amounts. It is further contended that the learned Judge has erred in finding that even adding all the sums mentioned the amount would be only Rs.7 lakhs. It is pointed out that one payment has been omitted to be considered. It is further contended that the reliance placed on the newly added provision to Se.64 of the Code of Civil Procedure was misplaced. He would submit that the amendment came into effect on 1.7.2002 while the agreement is dated 31.3.2002 and the amendment which speaks about COA 39,50, 60/2010 -10- registration of the agreement cannot be applied. His next contention is that while the agreement is dated 31.3.2002, the attachment is effected only in 2003. In such circumstances, the decision of the Apex Court in _**Vannarakkal Kallalathil Sreedharan v. Chandramaath Balakrishnan and another (1990 (3) SCC 291)**_ and the Division Bench decision of this Court in _**Abdul Jalal v. Mariya Financiers & Anr. (2002 (1) KLJ 482)**_ would show that the right of the earlier agreement holder will prevail over the later attaching creditor. He would submit that on this short point the appeals are to be allowed. It is further contended that the property in question is the personal property of the 2[nd] respondent. He derives his title under a will executed by his father. It is not the property of the company. He refers to the judgment in M.F.A. 629/2002 in an attempt to contend that what really the Court was concerned with was the properties which were acquired using the funds of the company and sister concern and by no means it could be contended that the property in question was acquired by the 2[nd] respondent using the funds of the company or benami as admittedly, this property belonged to his father and a conveyance was executed in the year 1982 in favour of his father. COA 39,50, 60/2010 -11- 8. Per contra, learned counsel for the 3[rd] respondent/auction purchaser would support the order. She would point out various circumstances establishing collusion between the appellant and the 2[nd] respondent. It is her case that actually the agreement was created upon knowing of the attachment in the year 2003. In this connection, she points out that all the payments are allegedly made in cash and there is no payment by way of cheque. She would point out that the 2[nd] respondents embarrassed circumstances was well-known and if there was a genuine agreement when the property was attached by the Official Liquidator as directed by this Court there would have been a claim raised against the attachment. This is not done. It is further contended that the recitals in the agreement to the effect that the 2[nd] respondent must take steps to lift the attachment and to make the property free from encumbrance would also show that the appellant was aware that there were attachments and property had to be rendered free from encumbrance by the 2[nd] respondent. This shows that the appellant was fully aware of the facts and he was privy to the collusion and fraud as rightly found by the Company Judge. Another important circumstance which is pointed out is the institution of the suit at the time when there was about a month under the alleged agreement COA 39,50, 60/2010 -12- for the 2[nd] respondent to execute sale deed. In other words, the suit was premature. In this context, it is further pointed out that the suit is for specific relief and not for injunction. This is to counter the allegation of the appellant that the suit could not be termed as premature as there were attempts by 2[nd] respondent to transfer the property. If that was true, learned counsel for the 3[rd] respondent submits, that the suit would have been one for injunction. Then it is next pointed out that the conduct of the 2[nd] respondent in not contesting the suit and remaining exparte spoke volumes for the collusion between the parties. That the price is very low for the prime property is reiterated as another circumstance establishing collusion and fraud between the parties. Learned counsel also read out the recital in Annexure A1 document of title by which the predecessor in interest of the 2[nd] respondent acquired title to contend that actually the 2[nd] respondent's father had acquired on behalf of the firm of which he was the managing partner. She also relied on the recital in the agreement that the 2[nd] respondent will remove the notice board to contend that it was the attachment which is referred to and it shows lack of bonafides in the claim of the appellant. 9. Learned counsel on behalf of Depositors Association Sri. Sri.Jacob Mathew Manalil whom we are told COA 39,50, 60/2010 -13- copies of all applications have been served right from the beginning would submit as follows: It is a case where Sec.53 of the Transfer of Property Act is applicable and the appellant was not a bonafide transferee for consideration. In this regard he would point out that actually the deposits were taken by the firm. The company was floated somewhere in the year 1986. Several suits were filed by the unpaid depositors. Decrees were obtained against the 2[nd] respondent, his wife and the company. In fact, it is pointed out that the attachment was obtained in respect of one suit in regard to the very property in question. Therefore, there can be no doubt that the 2[nd] respondent was in an embarrassed position and the only question was whether the appellant was aware of and party to it. In this regard it is pointed out that the appellant and the 2[nd] respondent belong to Ernakulam district. Both of them are dealing in real estate. Therefore it is most probable that the appellant was fully aware of the condition. It is submitted that the matter was reported in news papers including the arrest of the 2[nd] respondent. He would also submit that even if any payments were made by the appellant it cannot be treated as bonafide. He does not admit that payments were made. He relied on the decision in **AIR 1963 SC 1150** to contend that the appellant was fully aware and is COA 39,50, 60/2010 -14- a party to the efforts of the 2[nd] respondent to delay and defeat his creditors by allegedly entering into the agreement. 10. Learned counsel for the appellant in reply would submit that the appellant is not afforded an opportunity by the learned Company Judge to adduce evidence to establish his case. He contends that the appellant had obtained a decree from the civil Court. There was an application to review the said judgment. It stands allowed. It is only when the decree was reviewed and set aside that the appellant need have adduced evidence in support of his contentions, he submits. No doubt, he does not have a case that he made request to the learned Company Judge to adduce evidence. He would further contend that the property in question was the personal property of the 2[nd] respondent and the appellant may have been aware of the financial position which the company was in. Being engaged in real estate the appellant was prepared to take risk in the matter, he contends. But, he would never have thought that the personal property of the 2[nd] respondent would be proceeded against by the Company Court. He dubs the order of the Company Court by which the personal property is directed to be proceeded as unusual. Even if there may have been justification for the Court to order so, when the agreement COA 39,50, 60/2010 -15- was entered into the appellant was not to be blamed for entering into the agreement. He would also submit that fraud and collusion has not been established. It is further contended that the only beneficiary of the impugned order is the 2[nd] respondent. 11. As already noted the appeals arise from the common order passed in three proceedings. Firstly, the appellant filed C.A.No.539/2005 to set aside the proceedings by the Official Liquidator. Let us examine whether there is any merit in the complaint of the appellant against the order of the Company Judge rejecting the said application. The appellant inter alia refers to the sale agreement, payments made, proceedings in the suit, the decree obtained, the order passed by the Company Judge winding up the company, the order passed by the Division Bench in MFA 629/2002 and he further states that he was not aware of the proceedings initiated against the property by the Official Liquidator. He alleges that the 2[nd] respondent was well aware of the proceedings and deliberately concealed the facts from him with ulterior motive and that he managed to receive more than 90% of the sale consideration. 12. A counter affidavit is filed in the matter by the Official Liquidator. COA 39,50, 60/2010 -16- 13. CP 18/1999 was a creditor's petition to wind up the company. The company had filed application under Section 391 (1) of the Act for sanction of a scheme of compromise. A creditor filed CP 18/99 for winding up of the company. Both these petitions were disposed of by order dated 28.9.99 rejecting the scheme of compromise proposed by the company, but the Court did not allow the winding up either and instead the Court proposed a scheme for the running of the business of the company without winding up of the company. The court gave various directions for the working of the scheme. Official Liquidator was appointed as the provisional liquidator of the company under Section 450 of the Act. It appears that the scheme did not work and the petitioner in the CP filed C.A.320/2000 seeking various reliefs. The Court proceeded to pass order dated 30.5.2002 winding up the company. It was further ordered (direction No.3) that the properties of the directors of the company as well as certain others mentioned therein shall be attached and those properties shall also be brought for sale in accordance with law. In the said order this Court had referred to order dated 28.9.1999 and to the fact that this Court had found in the said order that the company had admitted that a huge amount of Rs.7.67 crores had been diverted to another COA 39,50, 60/2010 -17- company St.Mary's Properties Limited in violation of law. It is further found that in violation of the order Rs. 2.9 crores had been paid off to certain creditors of the choice of the directors of the company though there is a direction to retain the amount. The Court also in the order dated 30.5.2002 took note of the repeated directions to produce the records. Further, the Court took note that in a statement submitted on 23.6.1999 the Company admitted gold security of more than 2 crores in the possession of the company. After adjusting the amount received and release of gold for Rs.1,29,20,039/-, the Court found that still there would be gold worth nearly Rs.1 crore. The company had not surrendered the above gold security to the Official Liquidator even after repeated directions. The Court noted that it appears that the gold had been misappropriated by the company or the amount had been collected and misappropriated. 14. Sri.C.K.Moni, learned counsel for the Official Liquidator would point out that it is on this basis that the personal property of the Directors have been directed to be proceeded against and the reason the property in question was also attached and brought to sale. 15. Learned counsel for the appellant would urge however that the matter was carried in appeal by the 2[nd] COA 39,50, 60/2010 -18- respondent, the former Managing Director in MFA No.629/2002 and while the appeal had been dismissed he drew our attention to the following passage from the judgment. “ ....Apprehension was voiced by the counsel for the appellant that under the guise of the recovery of the amount personal properties of the directors would be attached. We are of the view it is for the investigating officer to examine whether the directors had acquired any properties diverting the funds of St.Mary's Finance Limited and its sister concern. We make it clear if there is any irregularity in the manner in which investigation is being conducted it is always open to the aggrieved party to bring it to the notice of the Company Judge and the Company Judge would consider the matter and pass appropriate orders....” 16. It is appropriate to bear in mind in this context that direction No.(4) in order dated 30.5.2002 reads as follows: “4.The official liquidator or the agent of the official liquidator shall file a written complaint before the Dy.S.P., Crime Branch, Ernakulam, relating to the misappropriation, fraud, falsification and forging of documents, concealment of records, documents, securities etc. within ten days from today. On receipt of the complaint the Dy.S.P. shall register a case and shall initiate investigation forthwith. All the genuine registers, account books, securities including the gold securities etc. shall be seized/recovered. COA 39,50, 60/2010 -19- The investigating officer shall further enquire whether any properties had been acquired by the directors in the name of others as benami with the company's funds. The investigating officer shall report the progress of investigation every fortnight before this court. It shall be open to the investigating officer to arrest the managing director as well as the directors of the company and to interrogate them under police custody in accordance with law.” 17. It is the contention of the learned counsel for the appellant that the property in question was not acquired with the funds of the company. He would point out that the property was acquired by the father of the former Managing Director in the year 1982. The Ex-Managing Director acquired the property under a will executed by his father in the year 1996, and, therefore, he would point out that on reading both the order of the learned Company Judge and the Division Bench it could not be held that there was authority for the Court to proceed against the property in terms of the order of the learned Company Judge dated 30.5.2002 as clarified by the order of the Division Bench in MFA No.629/2002. The order of the Division Bench was challenged in appeal before the Apex Court and the judgment of the Division Bench is confirmed. The learned Company Judge, in fact, has dealt with the argument by holding that in view of the fact that the Division Bench had confirmed the order in the COA 39,50, 60/2010 -20- CP which contained specific direction to attach and sell the personal properties of 2[nd] respondent there is no merit in the said argument. We must also bear-in-mind the following findings of the Division Bench. “....We are of the view conduct of the directors of the Company would justify issuance of; those direction by the learned Company Judge. St.Mary's Finance Limited was a Nidhi Company within the meaning of Section 620A of the Companies Act. Government of India in exercise of the powers conferred under subsection (1) of Section 637-A of the Companies Act issued notification GSR 604 (E) dated 20.10.1997 by which Nidhi Company cannot lend any amount to any borrower. Clause (4) of the above notification says that no Nidhi Company shall give any one borrower loans or advances exceeding Rs.7.5 lakhs or 1% of the total deposits of the company whichever is less. We find in total violation of the above restrictions after the coming into force of the above notification, the Company had advanced a loan of R.7.65 crores to another company by name St.Mary's Properties Limited through the intervention of two individuals Vino P.Jacob and M.C.Jacob. Diversion of Rs.7.65 crores was without complying any of the norms and without obtaining proper security also. Facts reveal that directors of St.Mary's Properties Limited are none other than the Managing Director of St.Mary's Finance Limited as well as his wife. Facts reveal that the money remitted by the depositors in St.Mary's Finance Limited were utilised to build up the assets of St.Mary's Islands and Resorts Limited another Company of which the Directors are the same.” COA 39,50, 60/2010 -21- Thus, the observation of the Division Bench relied upon by the appellant is in relation to direction No.4, which we have extracted. 18. In the document of sale executed in favour of the Ex-Managing Director it is recited that conveyance is being made on behalf of St.Mary's Bankers to its Managing Partner Sri.Varkey (Father of the 2[nd] respondent). Learned Company Judge has also found that the company in liquidation came into existence after the acquisition of the property by the father of the Ex-Managing Director and that the 2[nd] respondent acquired the property by way of a will. The auction purchaser would draw upon the recital in the sale deed in favour of the father of the 2[nd] respondent to contend that actually the property must be treated as property of the firm St.Mary's Properties. Sri.Jacob Mathew Manalil, learned counsel appearing on behalf of Depositors' Association would also point out the connection between the St.Mary's Properties and the company. 19. In the impugned order the learned Company Judge has found that the price offered by the auction purchaser was reasonable (Rs.70,00,584 ). The sale consideration mentioned in the agreement relied on by the appellant and on the basis of which the civil court was pleased COA 39,50, 60/2010 -22- to pass decree in his favour reflects a price of only Rs.11,77,575 (Rs.1.75 lakhs per cent). In fact, the price obtained in the sale conducted by the Official Liquidator can by no stretch be attacked. His only point is of course that the sale consideration shown in the agreement cannot be considered unreasonably low having regard to the fact that the agreement was in the year 2002 and he would also point out that the amount of Rs.70 lakhs offered by the successful tenderer is on the higher side as can be seen that the 2[nd] highest tender and further lower tenders are far below Rs.70 lakhs. He would also bring to our attention the fact that the liquidator in the 76[th] Report dated 15[th] July, 2004 stated that the property is estimated to be worth Rs.32 lakhs going by the market value of the property then. We notice that in Report No.76 the Liquidator had identified the land in question. It is stated that the land is attached and taken possession of by the Liquidator on 10.2.2003 and that a large sized hoarding board was found installed at the time of attachment. It is also stated that on enquiry the Managing Director had granted licence to exhibit the hoarding board to a concern on receiving some consideration and they are prepared to pay annual rent to the Official Liquidator. The fact was reported under Report No.63 and the Court ratified the action. It is COA 39,50, 60/2010 -23- further stated that when contacted the 2[nd] respondent refused to help the Official Liquidator by furnishing details of his title deeds and vaguely stated that the property was acquired by his predecessor. This Court by order dated 28.7.2004 directed the former Managing Director to furnish the details about the title deed of the property. Accordingly, a statement is filed by him wherein he refers to the property being the property of his father and his acquiring it under a will and he produced copies of tax receipts and he stated that he was in possession of the property and that St.Mary's Finance Limited was incorporated only in the year 1986. He also refers to the direction dated 30.5.2002 which we have referred namely to attach and sell the personal properties and the observation of the Division Bench which are relied on by him. We notice that in the said affidavit the Ex-Managing Director does not refer to any agreement entered into between him and the appellant. It does not also reveal anything about the original document being handed over to the appellant or that it is in his possession. The Court ordered on 4.11.2004 that further report shall be filed based on the statement of the Managing Director. 20. The appellant essentially relies on the agreement entered into between him and the Ex-Managing COA 39,50, 60/2010 -24- Director. The agreement according to him was entered into on 31.3.2002. He is alleged to have paid Rs.3 lakhs and agreed to pay the balance at the time of execution of sale deed. Subsequently, going by the plaint averments it is his case that the defendant had agreed to settle all dues whatsoever with the creditors and produce the encumbrance certificate and to lift all attachments in respect of the property. He had also agreed to remove the advertisement hoarding in the property. He is also alleged to have handed over the original title deeds. It is his case that the defendant obtained Rs.1 lakh on 20.6.2002 and Rs.1 lakh on 21.10.2002, Rs.1 lakh on 22.12.2002 (extending time by 6 months). Appellant allegedly enquired in April 2003 and the defendant sought more time. It is stated that the defendant sought further payment of Rs.1 lakh which was paid on 2.5.2003 which was acknowledged and the period of agreement was extended by 9 months. It is the further case of the appellant that the defendant further sought balance payment and on 8.10.2003 the appellant paid Rs.50,000/-. On 2.2.2004 the appellant again paid Rs.50,000/- and time was extended till 30[th] December, 2004. The payments are stated to be acknowledged on the reverse side. On 10.6.2004 the appellant again paid a further sum of COA 39,50, 60/2010 -25- Rs.50,000/-. Again Rs.50,000/- was paid on 27.9.2004. The defendant on 20.12.2004 is stated to have extended the period of another 4 months and received Rs.50,000/-. The defendant again demanded some more amount assuring that the conditions have been fulfilled and the hoarding will be removed from the property within two months. The defendant is alleged to have received Rs.50,000/- and on 9.2.2005 the defendant again alleged to have received Rs.25,000/- and thus a sum of Rs.10.25 lakhs is received, it is stated. Further allegation inter alia is that the defendant was attempting to sell the property to somebody else. The suit itself was filed on 31.3.2005. 21. It appears to be fairly clear that the appellant was aware of the financial condition of the Ex-Managing Director. Both the Ex-Managing Director and the appellant were in the same field, namely real-estate. They were hailing from the same district. In fact, there is some merit in the contention of the learned counsel for the Depositors Association that there was considerable media coverage of the state of affairs of 2[nd] respondent. The property itself was undoubtedly attached as stated by the Liquidator on 10.2.2003. Large number of the alleged payments were allegedly made by the appellant to the defendant after the COA 39,50, 60/2010 -26- attachment was effected. The learned counsel for the appellant presses into service the decision of the Apex Court in _Vannarakkal Kallalathil Sreedharan v. Chandramaath Balakrishnan and another (1990 (3) SCC 291_ ). Therein the Apex Court held as follows: “Under a contract of sale entered into before attachment the conveyance after attachment in pursuance of the contract passes on good title in spite of the attachment. The agreement for sale indeed creates an obligation attached to the ownership of property and since the attaching creditor is entitled to attach only the right, title and interest of the judgment-debtor, the attachment cannot be free from the obligations incurred under the contract for sale. Though Section 64 CPC was intended to protect the attaching creditor, but if the subsequent conveyance is in pursuance of an agreement for sale which was before the attachment, the contractual obligation arising therefrom must be allowed to prevail over the rights of the attaching creditor. The rights of the attaching creditor shall not be allowed to override the contractual obligation arising from an antecedent agreement for sale of the attached property. The attaching creditor cannot ignore that obligation and proceed to bring the property to sale as if it remained the absolute property of the judgment-debtor.” 22. He also relied on the Division Bench decision of this Court in _Abdul Jalal v. Mariya Financiers & Anr. (2002 (1) KLJ 482)_ on similar lines. He would contend that even if it is true that there is an attachment effected on 10.2.2003 in so COA 39,50, 60/2010 -27- far as the right of the appellant is traceable to the agreement of an earlier date namely 31.3.2002, it is not correct to override the rights of the appellant under the agreement on the basis of the subsequent attachment. The appellant has also a case that there is no power under the companies Act for the Company Court to set aside the decree of the civil court. It is pointed out that the suit is not against the company and therefore the case would not come under Section 446 of the Companies Act. 23. But, the question which is raised in the facts of this case is whether the said principle can apply if the agreement and the subsequent decree passed on the basis of agreement is flawed in that it is the product of collusion or fraud between the parties. It is found by the Company Judge that the decree is obtained by collusion and fraud. Learned counsel for the appellant would attack the said finding on the basis that there is a decree passed by the competent civil court and there is no basis to arrive such a finding. He would submit that whatever may have been in the mind of the ExManaging Director (he would submit that he was in fact acting in a fraudulent manner) that does not mean that the appellant shared his fraudulent intention. He would point out that it is COA 39,50, 60/2010 -28- true that he had not sought to adduce evidence in the matter as it is his contention that he was under the impression that if the application to review the judgment of the trial court in the civil case was allowed then there would be opportunity afforded to him. He does not dispute that he did not make any request to permit him to adduce evidence. In fact, the learned Company Judge held as follows: “10. Parties have not chosen to adduce any evidence, but only wanted to argue the matters on the basis of the documents already on record. I have heard arguments of counsel of all parties on the basis of the pleadings and documents.” 24. We notice that it is not as if the learned Company Judge dictated the judgment immediately after the closing of the arguments. The matter was reserved and the learned Company Judge pronounced the judgment thereafter. The appellant did not choose to make any request to adduce evidence or to request the court that an opportunity may be given to adduce evidence if the judgment of the civil court was reviewed. 25. We must further notice the salient features in this case. The property in question is located at an important location. It consists of 6.5 cents. The Banerji road abuts the property on the north. There is another road on the west. COA 39,50, 60/2010 -29- Yet the price of the property is shown as Rs.11.25 lakhs. No doubt, the case of the appellant is that at that time the price was reasonable. The source of the appellant's funds is not disclosed or supported by material. All payments are alleged to have been made by cash payments. The suit was decreed exparte. The 2[nd] respondent did not choose to contest the suit. It is in this context that the learned counsel for the Depositors Association Sri.Jacob Mathew Manalil would bring to our notice the decision of the Apex Court in _**Abdul Shukoor Saheb v. Arji Papa Rao (AIR 1963 SC 1150)**_ . According to him, in the case, Sec.53 of the Transfer of Property Act is squarely applicable and the conduct of the party is fraudulent. He would point out in this context that large number of decrees had been passed against the ExManaging Director in his personal capacity. The Apex Court inter alia held as follows: “(h) Where fraud on the part of the transferor is established by the terms of paragraph (1) of S.53 (1) being satisfied, the burden of proving that the transferee fell within the exception is upon him and in order to succeed he must establish that he was not a party to the design of the transferor and that he did not share the intention with which the transfer had been effected but that he took the sale honestly believing that the transfer was in the ordinary and normal course of business. The transferor and the transferee belonged to the same COA 39,50, 60/2010 -30- community, a small, compact and well-knit one and they must obviously have known each other having been in trade for several years in several places in common and must therefore have been well-acquainted with the financial and business affairs of each other. The transferee admittedly had with him a copy of the deed of dissolution between the transferor and his partner which disclosed that the firm's business had resulted in losses and that it was greatly indebted, the debts amounting to Rs.2 ½ lakhs. Registration of the sale deed was at Madras and not at Vizianagaram where the property was situated, with a view to keep the transaction secret from the creditors and thus the transferee was as much a party to the secrecy of the transaction as the transferor. As regards the enquiries that the transferee made before he took the transfer, he no doubt led evidence to show that he consulted his lawyers about the title of the transferor, but any attempt at an enquiry of the transferor as to why he was effecting the sale of the only immovable property of the firm which was allotted to him under the deed of dissolution was significantly absent. Even when the transferee was fixed with notice that the firm's business had been running at a loss and it had accumulated a very large volume of debts as disclosed by the recitals in the deed of dissolution which was placed in his hands, the transferee did not insist that the consideration which he was paying should be utilised for the discharge of at least some of the debts of the firm. Held that in the circumstances, it stood to reason that the transferee must be fixed with notice of the design in pursuance of which the transfer was effected. If the object of a transferor who is heavily indebted was to convert his immovable property into cash for keeping it away from his creditors and knowing it the transferee helped him to achieve that purpose it has naturally to be held that he shared that intention and was himself a party COA 39,50, 60/2010 -31- to the fraud. Thus the transferee was not a transferee in good faith and the transfer was a scheme by the transferor with the knowledge and concurrence of the transferee to put the property out of the reach of the creditors.” 26. We must remember that the learned Single Judge has proceeded on this basis that the agreement was entered into as a pre-emptive transaction. Counsel for third respondent contends that it was brought into existence after the attachment. If there was a genuine agreement before attachment, no doubt, the attachment would not stand in the way of the transfer in pursuance of the agreement and it will prevail over the rights of attaching creditor. It may be true that there is merit in the contention of the appellant that the figures stated by the appellant tallies if one payment which was omitted by the learned Judge is also reckoned. It may also be true that the alleged agreement was made on 31.3.2002 which was prior to the amendment of Section 64 of the Code of Civil Procedure. C.P.No.18/99 was a creditor's petition to wind up the Company. Orders were passed thereon. A scheme proposed failed. C.A.No.320/00 was filed by the petitioner leading to Order dated 30.5.2002 to wind up the Company and also directing proceedings against the personal properties of the Directors. Reference to Order dated 28.8.1999 was made in the last mentioned Order COA 39,50, 60/2010 -32- revealing a state of affairs showing the conduct of the second respondent, inter alia. It showed diversion and misappropriation of funds. The appellant is also from the same District and he is also involved in real estate, just as the second respondent, and the affairs of the Company were apparently attended by considerable publicity. It is hard to believe that the appellant would not have been aware of the events. 27. It is pertinent to note that a winding up petition was indeed pending since 1999. There were various orders passed and finally the order to wind up the company, more importantly containing the direction to proceed against the personal properties of the directors was passed on 30.5.2002. The alleged agreement between the appellant and the 2[nd] respondent, the Managing Director is alleged to have been entered into on 31.3.2002. The property itself was attached by the Official Liquidator on 10.2.2003. No steps were taken to lift the attachment by the appellant. Yet, several payments are alleged to have been made by the appellant after the attachment, all in cash. This case of the appellant does not inspire confidence of this Court. In fact, no attempt was made by the appellant, as already noted, to adduce any evidence in the matter establishing the source of COA 39,50, 60/2010 -33- funds or payment. Again, on 31.3.2005, this Court vide its order in Report No.82 gave permission to the Official Liquidator to sell the property. It is on the same day that the appellant filed the suit. The 2[nd] respondent remained ex parte. Without any contest and without anybody apprising the civil court of the factual developments, the suit is decreed ex parte on 5.9.2005. The date of opening of tender was on 8.9.2005. It clearly appears to be a collusive affair. We are not inclined to believe the case of the appellant about any payments having been made. It may be true that the appellant has made the final payment amounting to Rs.1,52,575/-. The learned counsel for the appellants points out that the 2[nd] respondent has applied for withdrawal of that amount. As already noticed, the price of the property which is located in an important locality is just a little over Rs.11 lakhs. We are also not inclined to believe that the appellant was not aware of the financial embarrassment in which the 2[nd] respondent was personally in. We cannot brush aside the finding of the learned Single Judge that the 2[nd] respondent was expecting some adverse orders from this Court against his personal properties and therefore, entered into the agreement with the appellant. No doubt, the attachment was on 10.2.2003. At any rate, having regard to the fact that the COA 39,50, 60/2010 -34- case of any payments being made, though they are seen acknowledged in the agreement, does not inspire confidence, we are inclined to think that the appellant cannot lay store by the alleged agreement or the decree and seek to set aside the sale held by the Official Liquidator pursuant to a direction of a learned Single Judge, which has attained finality. 28. Even going by the order passed in the MFA, we have noticed that as held by the learned Single Judge, the Court has not only dismissed the Appeal which included direction No.3, but it has indicated in the Judgment that it was not inclined to interfere with the directions. At any rate, we must notice that, the learned Company Judge has found that since the sale agreement has not fructified into sale and title has not passed to the appellant from the 2[nd] respondent before the attachment as ordered by this Court the property is still available for disposition by this Court in accordance with the attachment and sale as ordered in the winding up proceedings inter alia. A contract for sale of immovable property or an agreement to sell as it is commonly called, does not of itself create any interest or any charge on the property (see Section 54 of the Transfer of Property Act). At best, it is a document creating a right to obtain another document. The concept of two classes of ownership, ie., legal COA 39,50, 60/2010 -35- and equitable is unknown to Indian Law as it stands. However, it does create in the case of a genuine contract an obligation annexed to the ownership of the property which may be enforced against the transferee without notice or a volunteer transferee. Interestingly it may be noted that in Mulla on the Transfer of Property Act, it is , inter alia stated as follows: “ It has also been held that even after a decree has been passed in a suit for specific performance, the purchaser has no interest in the property.” No doubt, Section 53 of the Transfer of Property Act speaks about a transfer of property made with intent to delay or defeat the creditors of the transferor being voidable at the option of any creditor so defeated or delayed. Also, we may notice that in Mulla by Transfer of Property Act, the learned Author would state as follows: “ The principle of the section has been extended to a collusive award and decree, even though s. 2 (d) excludes transfers by the operation of law from the scope of the TP Act. The Lahore High Court has applied the principle of s. 53 to a collusive award and decree as a rule of justice, equity and good conscience, though the TP Act is not in force in Punjab, on the ground that s. 2 (d) was a technical provision which did not bind the courts in Punjab.” COA 39,50, 60/2010 -36- 29. It is not open to the appellant to challenge the sale held in pursuance of the direction given on 30.5.2002. The direction has been upheld by the appellate court and though a special leave petition was filed, it also met with failure. In the circumstances of the case, we are inclined to agree with the learned Company Judge. Finding that the Appeals are meritless, we dismiss the same. **K.M. JOSEPH, JUDGE** **M.C.HARI RANI, JUDGE** **MS/kbk.**