CP/13/2002 of G.VENUGOPAL AND 3 ORS Vs M/S.MAMATHA CHIT FUND LTD on 3 December 2002

Company Application Nos.1088 of 2006, 760 of 2009 and 1382 of 2014in Company Petition No.13 of 2002Dated 25.03.2015Comp.A.No.1088 of 2006Between:N.V.Subba Raju…ApplicantandM/s.Mamatha Chit Fund (P) Ltd.,(in liqn.)rep. by the Official Liquidator…RespondentCounsel for the Applicant: Mr.V.V.Ramana Counsel for the respondent: Mr.M.Anil Kumar, Counsel for OLComp.A.No.760 of 2009Between:M/s.Mamatha Chit Fund (P) Ltd.,(in liqn.)rep. by the Official Liquidator…Applicantand1.Sri K.Narasimha Rao and another Counsel for the Applicant: Mr.M.Anil Kumar, Counsel for OLCounsel for the respondents: ---Comp.A.No.1382 of 2014Between:M/s.Mamatha Chit Fund (P) Ltd.,(in liqn.)rep. by the Official Liquidator…ApplicantandSri N.V.Subba Raju and another…RespondentsCounsel for the petitioner: Mr.M.Anil Kumar, Counsel for OLCounsel for respondent No.1: Mr.VV.RamanaThe Court made the following:Common Order:

Company Application No.1088 of 2006 is filed by oneMr.N.V.Subba Raju, a third party to Company Petition No.13of 2002 to direct the Official Liquidator to vacate andhandover the possession of office room Nos.222 and 223,Second Floor of Panchavati Mall situated at Narayanaguda,Hyderabad, to him.

Company Application No.760 of 2009 is filed by the OfficialLiquidator for appointing a Chartered Accountant to look intothe affairs of the Company in liquidation and to establish themismanagement by its previous management.

Company Application No.1382 of 2014 is filed by the OfficialLiquidator to hold and declare that the premises bearingNos.222 and 223, Second floor of Panchavati Mall, bearingMCH Nos.3-5-943 to 3-5-948/222-223, situated atNarayanguda, Hyderabad (for short ‘the property in question’),was purchased from the funds of the Company (in provisionalliquidation) obtained from the poor investors/public and todeclare that the sale deed bearing document No.1356 of2006, dated 31-03-2006, is null and void.

Of all the above three applications, Company ApplicationNos.1088 of 2006 and 1382 of 2014 pertain to a commonsubject matter viz., whether the property in question,purchased by the applicant in Company Application No.1088of 2006, needs to be excluded from the winding upproceedings.

In his affidavit, filed in support of Company ApplicationNo.1088 of 2006, the applicant averred that he has purchasedthe property in question from Smt.K.Prameela, Wife ofK.Narasimha Rao, under registered sale deed, dated 31-03-2006, but after knowing that the said property is in possessionof the Official Liquidator, he has approached the latter alongwith the registered document and requested him to vacate thesame and that as the office staff of the Official Liquidatoradvised him to approach this Court, he has filed the saidapplication. Along with the application, the applicant has fileda copy of the registered sale deed, dated 31-03-2006,executed by Smt.K.Prameela, W/o.Sri K.Narsimha Rao, in hisfavour.

By Order, dated 01-04-2014, in Company Application No.760of 2009, this Court has appointed M/s.Deva and Company asthe Chartered Accountant for probing into the affairs of theCompany in Liquidation.

The said auditor has submitted his report to the Official Liquidator, who, in turn, has filed Company ApplicationNo.210 of 2015 for receiving the said report. Accordingly, byOrder, dated 02-03-2015, the said report was taken on file.

In Company Application No.1382 of 2014 filed by the OfficialLiquidator, he has inter alia stated that the Company inLiquidation was engaged in the business of chit fund in theState of Andhra Pradesh; that the erstwhile management ofthe said Company has misutilised the money mobilized fromthe public at large for purchasing properties in their personalnames as well as in the names of their spouses; that onesuch property is the property in question purchased underregistered sale deed, dated 10-04-1996, in the name ofSmt.K.Prameela, who is the wife of the former ManagingDirector of the Company in liquidation; that in order to makeunjust enrichment, the wife of the former Managing Director ofthe Company in Liquidation has sold the said property inquestion to the applicant in Company Application No.1088 of2006. He has further stated that the winding up petition waspresented on 19-02-2002; that by order, dated 20-03-2002,this Court has appointed the Official Liquidator of this Court asthe provisional liquidator of the Company in Liquidation; andthat the property in question was sold under registered saledeed, dated 31-03-2006, only with a view to deprive theinvestors/public of their investments and to make unjustenrichment and personal gain by the family of the formerManaging Director of the Company in Liquidation. The OfficialLiquidator has referred to the auditor’s report wherein it wasfound that the Directors of the Company in liquidation havediverted an amount of Rs.4,10,73,727/- from the Company inLiquidation.

From the respective pleadings of the applicant in CompanyApplication No.1088 of 2006 and the Official Liquidator, thepoint that arises for consideration in these applications is,whether the property in question is liable to be excluded from the winding up proceedings ?

Under Section 441 (2) of the Companies Act, 1956 (for short‘the Act’), in all cases other than those mentioned in sub-Section (1) thereof, the winding up of a Company by the Courtshall be deemed to have commenced at the time of thepresentation of the Petition for winding up.

Section 537 (1) (b) of the Act postulates that where anyCompany is being wound up by the Court, any sale held,without the leave of the Court, of any of the properties oreffects of the said Company, after such commencement shallbe void.

On a conjoint reading of these two provisions, it is quiteevident that the winding up proceedings, in cases other thanvoluntary winding up of a Company, commence from the dateof presentation of the petition for winding up of the Companyand from that date, if any sales of the properties of theCompany are held, the same are void.

Mr.V.V.Ramana, learned Counsel for the applicant inCompany Application No.1088 of 2006 submitted that hisclient has purchased the property in question from the wife ofthe former Managing Director of the Company in Liquidationas she was its owner and that therefore, the above-mentionedprovisions do not apply to the said sale.

At this stage, it needs to be pointed out that, in his report, theauditor has observed that the examination of the accounts ofthe Company in Liquidation reveals that its Directors havediverted its funds to an extent of Rs.4,10,73,727/- to SarithaFinance, which was a proprietory concern owned by its formerManaging Director and the husband of the vendor of theapplicant in Company Application No.1088 of 2006 . It wasfurther observed that the said figure may further vary if cashbook, ledgers and bank statements for the period prior to

January, 1998, are verified. No objections are filed to thesefindings either by the applicant in Company ApplicationNo.1088 of 2006 or his vendor Smt.K.Prameela. The auditorhas also pointed out that during the financial years 1994-95 to1998-99, huge funds were diverted by the erstwhilemanagement of the Company in Liquidation to SarithaFinance and during that period itself, several properties werepurchased either in the name of the former Managing Directorof the Company in Liquidation or his wife Smt.K.Prameela,who was also a Director. Though there is no specificreference to the property in question, the fact, however,remains that the said property was purchased in the name ofSmt.K.Prameela in the year 1996. Though, the purchaser hasfiled Company Application No.1088 of 2006 in the year 2006,no effort has been made by him to establish thatSmt.K.Prameela had independent source of income and thatshe has purchased the property in question from out of suchincome. Interestingly, Smt.K.Prameela has also not filed anyaffidavit in Company Application No.1088 of 2006 stating thatshe has independent source of income and that the propertyin question was acquired by her from the said source.

In the face of the auditor’s report that huge funds, collectedfrom the chit subscribers and depositors of the Company inliquidation, were diverted to Saritha Finance, the proprietaryconcern of the former Managing Director of the Company inLiquidation and in the absence of any evidence, what-so-everproduced by the purchaser/applicant in Company ApplicationNo.1088 of 2006 that the property in question was purchasedby Smt.K.Prameela from out of her independent source ofincome, the inevitable conclusion that emerges is that theproperty in question was also purchased from out of the fundsbelonging to the Company in liquidation and diverted toSaritha Finance. A fortiori, the property in question must beconsidered as the one belonging to the Company in liquidation itself.

It is quite evident from the admitted facts of the case that witha view to make personal gain, the former Managing Directorof the Company in Liquidation and his wife have sold theproperty in question to the applicant in Company ApplicationNo.1088 of 2006, four years after the provisional liquidatorwas appointed by this Court. Therefore, I have no hesitation tohold that the sale of the property in question is intended todefeat the legitimate rights of the depositors and chitsubscribers of the Company in Liquidation. Consequently, thesale of the property in question by the said Smt.K.Prameelavide registered sale deed, dated 31-03-2006, in favour of theapplicant in Company Application No.1088 of 2066 needs tobe declared as void and it is, accordingly, declared as such.

If the applicant in Company Application No.1088 of 2006 is abona fide purchaser for valuable consideration, he is entitledto proceed against Smt.K.Prameela (Sri K.Narasimha Rao,the former Managing Director of the Company in Liquidationhas since died), for recovery of the sale consideration paid byhim and any other relief available to him in law.

For the above mentioned reasons, Company ApplicationNo.1088 of 2006 is dismissed, Company Application No.1382of 2014 is allowed and Company Application No.760 of 2009is disposed of as infructuous.

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(C.V.Nagarjuna Reddy, J)

Dt: 25[th] March, 2015

LUR