In a significant ruling on creditor protection during winding up, the Bombay High Court has held that where promoters of a company in liquidation procure mutation of company-owned immovable property into their own names, without any transfer instrument, without disclosed or valid consideration, and in circumstances showing that the asset has been taken out of the company estate to the detriment of creditors, the transaction attracts Section 531(1) of the Companies Act, 1956 as a fraudulent preference and is void.
The Court made it clear that even if the promoters later contend that there was “no valid transfer at all,” that does not save the transaction. On the contrary, such a stance supports the conclusion that the mutation entries were illegal and required reversal. The Court treated the mutation-based transfer itself as sufficient interference with the company’s title and with creditors’ rights to justify nullification.
Accordingly, the High Court allowed the Official Liquidator’s Report and declared the impugned transaction void. It directed that the mutation entries changing the title of the subject property from the company to the promoters, including the later entry made after Sham G. Choughule’s death, must be reversed, and the company’s name must be restored in the land records. The Collector was directed to ensure reversal of the mutation entries within four weeks from service of the judgment by the Official Liquidator. The Official Liquidator was also directed to serve the judgment on the Collector within three weeks from its upload on the Court website. The matter was directed to be listed under the caption “Reporting Compliance” on August 24, 2026.
A Single Judge Bench of Justice Somasekhar Sundaresan observed that Section 531(1) creates a deeming fiction: a transfer made within six months before commencement of winding up can be treated as a fraudulent preference if it would have had that character in insolvency law. The Bench emphasised that the purpose of the provision is to protect creditors, and that the assets of a company are not the assets of its shareholders or promoters.
The Bench found several suspicious features in the transaction. There was no transfer deed, no disclosed consideration, no valuation of the property, and no disclosure of the amount allegedly owed by the company to the promoters. The promoters had claimed the property was transferred because they had lent money to the company, but the record did not reveal the quantum of debt or how it compared with the value of the land. The Bench also noted that the shareholder resolution relied upon was itself questionable, including because Section 293(1)(a) would ordinarily apply to public companies and the resolution mentioned no value for the related party transfer.
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The Bench further observed that the promoters had effectively “helped themselves” to company property without stated consideration, thereby materially eroding the pool of assets available to creditors in liquidation. Their conduct in getting the land mutated in their names without any transfer instrument, and then attempting to sell it to third parties in 2023, showed that they had enjoyed and dealt with the property as their own, creating a real risk of putting the asset beyond the reach of creditors.
The Bench held that the absence of consideration itself demonstrated absence of good faith, and that the only reasonable conclusion was that the promoters had sought to place the property beyond the reach of creditors. The Bench also rejected the argument that, because there was no transfer instrument, there was no transfer to invalidate. It held that a transfer sought to be effected by mutation entries also falls within the mischief of Section 531(1), especially where those entries had the effect of securing title in favour of the promoters without lawful documentation.
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Briefly, the issue relates to an Official Liquidator’s Report in the winding up of Indage Vineyard Pvt Ltd., seeking a declaration that the transfer of certain agricultural land was void under Section 531(1) of the Companies Act, 1956. The land had been purchased by the company in April 2008 for Rs. 84.50 lakhs. In April 2011, the company’s board and shareholders passed resolutions to transfer the land to the company’s promoters/directors, namely the Choughule family. However, no transfer instrument or registered conveyance deed was executed; despite this, mutation entries were later made in the land records showing the promoters as owners.
The winding up petition against the company had already been filed on April 30, 2011, which marked the commencement of winding up under Section 441 of the Act, while the mutation entry in favour of the promoters was made only on June 30, 2011. The winding up petition was admitted in February 2012, and the company was ordered to be wound up in September 2014. Later, after the death of Sham G. Choughule in 2020, another mutation entry was made in 2021 to substitute his widow as joint owner.
The Official Liquidator had consistently informed the revenue and registration authorities that the land belonged to the company and that no further transfers should be recognised. Even so, in December 2023, the promoters entered into a memorandum of understanding to sell the land to third parties. The Deputy Collector paused the process because of the Official Liquidator’s objection and sought guidance, following which the Official Liquidator reiterated in January 2025 that the land belonged to the company and asked for the documents on the basis of which the promoters’ names had entered the land records.
The promoters initially defended the transfer as valid, but later changed their stand in a sur-rejoinder, saying they had discovered there had in fact been no valid transfer at all. They claimed that Sham G. Choughule had managed the company’s affairs and that they were not aware of the legal position earlier. They also argued that their later attempt to sell the property was meant to raise money to pay creditors and revive the company.
