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  • Writer's pictureMERWIN RICHARD

Certain attachments, executions, etc., in winding up by Tribunal to be void.

Updated: Sep 30, 2022

#companiesact2013, #section335, #attachments, #executions, #windingup, #tribunal, #void #rules, #sections, #business , #law

This article talks about the activities or tasks which are done by the company such as Certain attachments, executions, etc., without the leave of the court was held to be void which is laid down under Section 335 of the Companies Act 2013.

Section 335 lays down the rule that :

(1) Where any company is being wound up by the Tribunal,—

(a) any attachment, distress or execution put in force, without leave of the Tribunal against the estate or effects of the company, after the commencement of the winding up; or

(b) any sale held, without leave of the Tribunal of any of the properties or effects of the company, after such commencement, shall be void.

(2) Nothing in this section shall apply to any proceedings for the recovery of any tax or impost or any dues payable to the Government.

Section 335 of the Act inter alia provides that any sale of the properties of the company, which is made without the leave of the Court after the commencement of winding up proceedings, shall be void. However, the expression 'property of the company' has not been defined under the Act. In cases of provisional allotments of immovable property, the property does not pass on to the company until the sale deed is executed and registered. Consequently, prior to that stage, the right, title, ownership, and interest in the property vests solely in the actual owner in whose favor the title deeds exist, and with whom the Company has executed the Agreement for Sale. Such an owner is free to deal with the property till the execution and registration of the sale deed. The owner may even sell the property to a third party, in the event that the Company breaches any of the material terms of the agreement for sale. Cancellation/termination sale/transfer of such agreement for sale and consequent sale to a third party in case of breach by the company cannot be challenged under Sections 334 and 335 of the Act on the ground that such sale/transfer / cancellation has been carried out without obtaining the leave of the Court. The leave of the Court is only to be obtained in cases of disposition and sale of 'property of the company', which a provisional allotment is not. Imposing an obligation, either on the provisional allotted, i.e. the company, or the owner, to obtain leave of the Court under Sections 335 of the Act, before carrying out any sale/transfer / cancellation of a provisional allotment is not legally justifiable for the reasons set out In the absence of any guidance under the Act to ascertain the meaning and scope of the expression 'property of the company', reference may be made to the general law governing and regulating the transfer of property. Chapter III of the TPA deals with sale of immovable property.

Section 54 of the TPA defines 'sale' as a transfer of ownership in exchange for a price. It further provides that such transfer in the case of tangible immovable sale property whose value exceeds INR 100 (Indian Rupees One hundred) can only be made by a registered instrument. It further defines a 'contract for sale' as a contract stipulating that a sale of the subject property shall take place on the terms settled between the parties. It provides that a contract for sale does not create any interest in or charge on such property on its own. The Hon'ble Supreme Court in Suraj Lamp & Industries Pvt. Ltd. v State of Haryana & Others upon an analysis held that a transfer of immovable property by way of a sale can only be made by a deed of conveyance, i.e. a sale deed. The Court has held that in the absence of a deed of conveyance (duly stamped and registered as required by law), no right, title or interest in an immovable property can be transferred. While analyzing the sanctity of an agreement/ contract for sale, the Court held that such agreement/contract immovable, not being a registered deed of conveyance (deed of sale) would fall short of the requirements and would not confer any title or transfer any interest in an immovable property.

The buyer is not conferred the right to use the property and / or the buyer is not handed over possession of the property at the time of execution of the contract / agreement for sale, or the issuance of provisional allotment letter. In other words, the right of possession or similar beneficial interest does not accrue to the buyer until the execution and registration of sale deed upon payment of entire consideration. Therefore, even if we were to apply the principle of beneficial ownership in the present context, provisional allotments in the name of the company will fall short event of this definition as the companies are typically not handed over possession upon execution of the contract / agreement for sale or issuance of the provisional allotment letter. Therefore, provisional allotments made in favor of the company, pursuant to the execution of an agreement/contract for sale would be governed and regulated by the provisions and principles and the law laid down by the Hon'ble Supreme Court. Thus, the bar on the disposition and sale of 'property of the company' in the context of immovable property will have to be understood as including only such properties of the Company where a registered conveyance deed has been executed, upon payment of sale consideration. Provisional allotments of immovable properties where the company still needs to remit the balance consideration amount, obtain possession, and have the sale deed executed and registered cannot be brought within the scope of the expression 'property of the company' under Sections 335 of the Act. Thus there cannot be any bar / restriction on the otherwise lawful owner of such property to deal with it (by disposing / selling it) in the event the company commits a breach / default of the terms and conditions of the proposed sale. In the event of the otherwise lawful owner's disposition/ sale of the property, such disposition/ sale cannot be challenged under Sections 335 of the Act, as having been made without obtaining the leave of the Court, as such leave is only required where a 'property of the company' is being disposed or put to sale.

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