2015 (8) TMI 890 - SC - Companies Law

Sale of Assets Repayment of loan Validity of Auction proceeding - High Court dismissed appeal and review application of appellant company, filed against order confirming sale and handing over assets of appellant-company to respondent in lieu of repayment of loan amount Held that - Prima facie, it appeared that objections of appellant were not properly considered as objections were not heard on merit and auction sale was confirmed Conduct of Official Liquidator in selling property at price of ₹ 45.45 lakhs without proper publicity through advertisement or fixing any reserve price for assets cannot be sustained in law, particularly, when predecessor Official Liquidator reported that property put in auction was of much higher valuation Having considered illegality and irregularity committed in auction sale of property, entire process was vitiated Company Judge also failed to exercise its judicial discretion to see that properties were sold at reasonable price Therefore, impugned judgment passed by High Court hereby set aside Official Liquidator directed to recover possession of properties and proceed with fresh auction in accordance with procedure established by law Decided in favour of Appellant.

Issues:
1. Appeal against High Court judgments dismissing appeal and review application challenging sale confirmation.
2. Allegations of improper auction process, valuation discrepancies, and procedural irregularities.
3. Validity of objections not being considered during confirmation of sale.
4. Representation error by an unauthorized advocate.
5. Official Liquidator's conduct in auctioning assets without proper valuation and reserve price.
6. Failure of Company Judge to ensure properties sold at a reasonable price.
7. Lack of disclosure of valuation report to interested parties.
8. Setting aside the judgment and orders, directing a fresh auction process.

Analysis:
1. The case involved appeals against High Court judgments dismissing the appellant company's challenge to the sale confirmation of its assets. The respondent alleged non-repayment of a loan, leading to winding-up proceedings. The Official Liquidator took possession of the assets for valuation and auction, which the appellant disputed, citing lack of reserve price and procedural flaws.

2. Allegations included improper valuation by an unauthorized valuer, resulting in a significantly lower asset value, affecting the auction process. The High Court confirmed the sale without adequately considering objections, raising concerns about the auction's legality and fairness due to lack of proper publicity and reserve price fixation.

3. The Court noted a representation error by an unauthorized advocate claiming to represent the appellant, leading to objections not being properly heard during the sale confirmation. This raised doubts about the fairness of the process and the validity of the sale.

4. The Official Liquidator's conduct in selling the assets without proper valuation and reserve price, especially when a previous valuation indicated a much higher value, was deemed legally unsustainable. The Company Judge's failure to ensure a reasonable sale price further added to the irregularities in the auction process.

5. The Court found that the valuation report should have been disclosed to interested parties to determine the market value before the auction sale. The lack of transparency in this regard rendered the auction sale and confirmation order liable to be set aside due to procedural deficiencies.

6. Ultimately, the Court allowed the appeals, setting aside the judgments and orders. It directed the Official Liquidator to recover possession of the properties and conduct a fresh auction with a new valuation report and a reserve bid. Emphasizing adherence to legal procedures, the Court mandated all future actions to comply with established laws and regulations.

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