'Insufficient Evidence To Decide Title In Summary Proceedings': Madras HC Directs Maxworth Orchards & Alleged Purchasers To Undergo Trial Process

In a matter pertaining to the winding up of Maxworth Orchards (India) Limited, Madras High Court has ordered an absolute interim injunction on the deletion of certain properties, for which the employees of the company are PoA holders, from the auction sale process. The dispute arose when two persons alleged that they had purchased the properties from the original owners in bona fide transactions. Subsequently, the Administrator/ Official Liquidator approached the High Court via an application.The alleged purchasers had also placed a challenge against Maxworth's claim on the title to these properties on the basis of Power of Attorneys (PoAs).The single-judge bench of Justice Senthilkumar Ramamoorthy framed two questions that required proper analysis. These two questions are:i) Whether the Alleged Purchasers are entitled to an order for the deletion of the relevant properties from the auction sale process?; andii) Whether the sale deeds in favour of the alleged purchasers, i.e, T. Mohan and D. Thirumagal, are liable to be set aside or declared void?The bench has also placed an interim stay of the confirmation of the sale in respect of the properties for a period of eight weeks. The court also noted there is insufficient evidence to apply Sections 536 and 537 of the Companies Act and set aside the registered sale deeds in summary proceedings."As stated earlier, only an MoU coupled with PoAs are on record. Thus, there is prima facie evidence that Maxworth has rights over the relevant immovable assets. If Maxworth's title was not under challenge, subject to the disclaimer that no warranty on title is being offered, either with regard to patent or latent defects, as was done in the sale notice, it would be possible to conclude the sale. But, bearing in mind the fact that the Alleged Purchasers have mounted a challenge to Maxworth's title, the evidence is insufficient to conclude that these are assets of Maxworth so as to apply Sections 536 and 537 of CA 1956."The MoU for around 120 acres in Malayapatti village states that possession will be delivered since the date of getting General Power of Attorney in Maxworth's favour and that original documents will also be handed over."From the PoAs, it is evident that the agent was authorised to sell the lands and receive consideration. A few receipts in respect of payment of consideration are also on record. Pursuant thereto, two sale deeds dated 17.07.1996 are on record, which indicate that the lands were sold by Maxworth through the PoAs to its customers", the court inferred.However, the court concluded that there aren't enough relevant documents to infer that the immovable properties whose alienation is challenged by Maxworth are actually the assets of Maxworth.Therefore, the single bench deemed it fit to instruct the parties to file draft issues and a statement of admission/denial of documents filed by the counterparty and submit a common, proposed schedule for recording evidence. The court noted that the Company Courts have wide powers under Section 446(2) of the Companies Act including the power to transfer and decide suits against a company in liquidation or to decide claims and any question arising in the course of winding up. These powers have also been cemented by the precedent in Sudarsan Chits v. O. Sukumaran Pillai (1984) 4 SCC 65, the court added.... It is a separate matter that while exercising such power, in appropriate cases, it may be necessary to direct the parties concerned to go through a trial process ...The sequitur thereof is that the dispositions cannot be treated as void. Hence, the rival title claims should be considered and determined. On the facts of this case, it is inappropriate to do so without putting the parties through a trial because a definitive conclusion on title cannot be drawn on the basis of the documents produced by the contesting parties."BackgroundIn 2011, the High Court had restrained the original owners from alienation or encumbering the schedule properties in the company application filed by the administrator. The alleged purchasers have not approached the court to vacate the interim order that was still in force. It is pertinent to note that the winding petition of Maxworth was filed in 1998 and the official liquidator was appointed as provisional liquidator in 2010. Therefore, the date of initiation of winding up is deemed to be the date of filing the winding-up petition in 1998 as per Section 441(2) of the Companies Act, 1956. The Administrator had filed another Company Application in 2003 by virtue of which the agents under PoAs were restrained from alienating the properties claimed as company properties. This order remains in force till this date. The alleged purchasers entered into transactions with the original owners between 2002 and 2008.Arguments & Court's ObservationsApplying Sections 536 and 537 of the Act would mean that the conveyances are void since alleged Purchasers purchased the immovable assets...

'Insufficient Evidence To Decide Title In Summary Proceedings': Madras HC Directs Maxworth Orchards & Alleged Purchasers To Undergo Trial Process

Sebin James

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