Section 531A Prohibits lease of property for 30 years by a Company one year prior to its winding up petition

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HIGH COURT OF MADRAS

Sri Krishnasamy Reddiar Educational Trust

v.

Official Liquidator

O.S.A No. 129 of 2008

August 16, 2011

The appellant is said to have entered into a lease agreement with the company-in-liquidation on 22-1-2000, for demised building of 8,400 sq.ft. along with adjacent vacant land (about 5.33 acres) for a lease rent of Rs. 5,000 per month for a period of 11 months, which expired on 21-12-2000. Again, the company-in-liquidation is said to have entered into a fresh lease agreement for a period of 30 years in respect of the said building of 8,400 sq.ft. and the adjacent vacant land at Rs. 5,000 per month with 20 per cent increase in rent on every five years, commencing from 22-12-2005 and so on. The terms of lease deed are heavily loaded in favour of the lessee. It is difficult to understand as to how such large extent of property with a spacious building has been rented out for a meagre sum of Rs. 5,000 per month with marginal increase once in 5 years.

Even though the lease deed is stated to be for thirty years, the lease agreement was not registered. The winding up petition was filed on 29-6-2001. The lease granted under the first lease deed (dated 22-1-2000) expired on 21-12-2000. The next lease deed is dated 22-12-2000. As per section 531A of the Companies Act, 1956, any transfer of property, movable or immovable, or any delivery of goods, made by a company, not being a transfer or delivery made in the ordinary course of its business or in favour of a purchaser or encumbrancer in good faith and for valuable consideration ‘if made within a period of one year’ before the presentation of a petition for winding up, or the passing of a resolution for voluntary winding up of the company shall be void against the liquidator. The said lease deed dated 22-12-2000, is within a period of one year prior to filing of a winding up petition. Even though the Official Liquidator has not filed any petition to set aside the lease deed dated 22-12-2000, the lease deed being for long period of 30 years, it falls within the prohibition of section 531A.d