Rajkumar Mohansing Bajaj v. Milestone Interactive Pvt. Ltd.

What happened

The winding-up petition under section 433 was presented on 27 April 2015; the company owned 702, Supreme Chambers, Andheri (West), its registered office. By agreement of 9 September 2016 it agreed to sell the property to the applicant for ₹27 crores and executed a registered deed of apartment on 1 October 2016. The petition was admitted on 29 November 2016, public notice issued on 12 April 2017, and the winding-up order passed on 1 February 2018. The Official Liquidator filed OLR No. 53 of 2019 on 26 February 2019 seeking possession and a declaration that the sale was void, and the applicant resold the property to Pharma Access Pvt. Ltd. on 2 December 2019 for ₹28 crores. The applicant, which says it learned of the winding up only when served with the OLR in July 2024, applied under section 536(2). Payment was ₹17 crores to the secured creditor Fullerton India Credit Company, which gave a no-dues certificate, and the balance to the company; the bank loan of ₹22 crores to the applicant had been sanctioned after an encumbrance and title search found no litigation. Notices to secured creditors on 15 December 2017 produced no claims, nor did workmen. The Official Liquidator accepted that the price was not undervalued, but said bank statements were not certified, and that the ex-directors knew of the petition.

Questions before the court

• Should the post-petition sale be validated under section 536(2) of the Companies Act, 1956, and does the same apply to the second sale?

Why the court ruled this way

The Court noted the settled view, from Pankaj Mehra, Kamani Metallic Oxides and Sunita Vasudeo Warke, that 'void' means 'voidable' and that validation is an enabling power to protect bona fide transactions, avoiding the extremes of treating every disposition as void or valid (paragraph 25A). The burden lies on the applicant, but here the Official Liquidator did not allege fraud or undervalue and conceded that the price exceeded market value (paragraph 25B). The applicant had shown it could not have known of the petition, since admission and public notice came later, that it did due diligence, that the price was above market value, that the consideration repaid the creditors and that no claims arrived, so Helbon Engineers applied (paragraph 25C). The Official Liquidator's mention of statutory dues, not in the report or on affidavit, did not by itself make the sale void (paragraph 25D). The ex-directors, however, knew of the statutory notice served in 2015 and the petition, and their plea of ignorance of section 536(2) was rejected, so their conduct lacked bona fides (paragraph 25E). The second sale was a transaction between private parties and outside section 536(2) (order, paragraph ii).

Controlling point

The first transaction deserved validation, and the ex-directors' conduct was lacking in bona fides.

Order and next steps

The Interim Application was allowed in part in terms of prayer clause (a) for the first transaction; the second transaction was held outside the scope of section 536(2); statutory authorities may take steps permissible in law against the ex-directors to recover statutory dues; the OLR was dismissed in those terms; the interim application was disposed of with no order as to costs; and Interim Application (L) No. 20469 of 2025 was disposed of.

Practical implications

A purchaser from a company in a pending winding-up case should do title and encumbrance searches, pay full value and ensure creditors are paid, and then apply under section 536(2) for validation.

Limits of this ruling

• The Court validated the sale on its facts, and did not decide the status of the second sale between private parties or any statutory dues, which remain open against the ex-directors.