Private Property Not Transferred To Company By Owner Cannot Be Auctioned In Recovery Proceedings: Allahabad High Court

The Allahabad High Court has recently held that when there is no transfer of property between a private individual and his company, the property cannot be considered a property of the company for the purpose of recovering debts. Further, the Court held that merely because the property finds mention in the balance sheet will not make it a company property in absence of a sale deed.

“There being no material to suggest that there was any registered sale deed in favour of the company, only on account of the property being presumed to be shown in the balance sheets, the company would not be the owner of the property,” held Justice Pankaj Bhatia.

Factual Background

A suit was filed in Delhi for recovery of arrears of profit share, rent and damages against Lavanaya Ayurvedic Pvt. Ltd (Defendant No.1), company of which petitioner no. 1 is a Director and petitioner no. 4 is the Chairman. While ex-parte decree was passed against Defendant no.1, it was specifically stated that no decree was being issued against defendant no. 2 Sangeet Srivastava (Petitioner No.4 in the writ petition). Subsequently, an execution case was filed in Lucknow seeking attachment of movable and immovable properties of the judgment debtor company.

Petitioners moved an application claiming that they had individual rights on the property for auction, however, the same was rejected. The Civil Revision against the execution decree was also dismissed. The petitioners moved an application under Order 21 Rule 90 of CPC seeking dismissal of auction sale. The said application was also dismissed.

During the pendency of the recall application against the aforesaid dismissal, the auction purchaser moved for physical possession of the property, and the plaintiff-decree holder filed for release of money raised in the auction. Objections filed by the petitioners against the aforesaid applications were rejected.

Petitioners filed writ petitions before the High Court against the execution decrees and auction sale deed.

Counsel for petitioners argued that the fact that the property auctioned belonged to petitioners in private capacity was not looked into by the Execution Court. It was argued that the land belonged to Shri Ashok Kumar Srivastava who had purchased it to run Cancer Institutes in the name of Lavanaya Ayurvedic Schools of Nursing and Pharmacy, Lavanaya Ayurvedic Hospital and Research Centre and Lavanaya Ayurvedic Pvt. Ltd.(Defendant Company) through his society.

It was submitted that upon his death was transferred to his legal heirs and no other transfer deed was ever executed in respect of the auctioned property. Since the property was a private one, it was argued that the same could not be auctioned for recovery from judgment debtor company.

Further, it was argued that provisions of U.P. Revenue Code were not applicable in this case as the property was not an agricultural property.

Per contra, decree holder appearing in person argued that petitioner 1 and 4 were directors of the company and the issues regarding the auctioned property being a fixed asset was already discussed by the Trial Court and could not be reagitated upon. It was further argued that judicial order of a competent court would not be violative of fundamental rights to be amenable to writ jurisdiction under Article 227 of the Constitution of India.

High Court Verdict

Admittedly, the Court observed that the property was purchased by Shri Ashok Kumar Srivastava and was then converted from agricultural to non-agricultural nature. It was settled no other sale deed or transfer deed was ever executed with regards to the property in question and that the property was transferred to his legal heirs upon his death.

The Court relied on Suraj Lamp and Industries Private Limited vs. State of Haryana and Anr, wherein the Supreme Court held that property could only be transferred by way of a sale deed. Further, Justice Bhatia relied on the Transfer of Property Act and the Registration Act, to hold that transfer of property can only be done by a sale deed, which was not done in the present case.

The Court carved out an exception to above rule where the property coparcener can be held to be that of an HUF. It was termed as “blending”.

“Even the said concept is limited to claim of partition amongst the coparceners and in any case, does not treat the HUF as the owner in rem as against the third party. It is also well settled that doctrine of blending is alien for deeming of ownership of property by a company which cannot happen except by a registered conveyance deed as prescribed under the Transfer of Property Act.”

Further, the Court held that Section 93 of the UP Revenue Code was not applicable in the case and held that the company was not the owner of the land. It was held that Shri Ashok Kumar Srivastava never took a loan from the judgment debtor company to transfer the rights of the land in the company's favour.

Section 93 of the UP Revenue Code provides that if a bhumidhar transfers a possession or a part thereof, for the purposes of securing loan, then such transfer will be considered as a sale to the transferee. Accordingly, Section 89 of the Code shall be applicable to such sale.

“The claim that the company was the owner by virtue of mandate of Section 93 of the U.P Revenue Code also cannot be accepted for two reasons: firstly, that the property not being an agricultural property after its conversion would be out of the rigour of Chapter IX of U.P. Revenue Code by virtue of Section 81 of the Code and secondly, even otherwise, in terms of Section 93 of the U.P. Revenue Code, it is essential that the:

i. Bhumidhar transfers the possession of any holding

ii. for the purpose of securing any money advanced by way of loan to call the transaction a sale to the transferee.”

Accordingly, the Court held that property could not be attached and sold against the debts incurred by the judgment-debtor(Defendant) company as the company never owned the auctioned land. The Court held that the execution court failed to verify the fact that the land did not belong to the company and just the execution decree was liable to be set aside.

Lastly, the Court held that petitioners being Directors in the company did not prevent them from protecting their individual rights. However, while allowing the writ petition, the Court imposed a cost of Rs. 50,000 for not disclosing that she was the Chairman of the company.

Case Title: Gazal Srivastava And 2 Others v. Dhajaram Charitable Trust,New Delhi Thru. Its Chairman Captain Dilavar Singh Sanghwan(Rtd.)And Anr. 2025 LiveLaw (AB) 72 [MATTERS UNDER ARTICLE 227 No. - 2694 of 2022]

Case Citation: 2025 LiveLaw (AB) 72

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