1995 (1) TMI 290 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the sale conducted by the execution court.
2. Requirement of permission under section 446(1) of the Companies Act for execution proceedings.
3. Adequacy of the publicity for the sale.
4. Applicability of the Limitation Act to the application filed by the official liquidator.
5. Rights and interests of the workmen and other creditors.

Issue-wise Detailed Analysis:

1. Validity of the Sale Conducted by the Execution Court:
The primary issue was whether the sale of the company's assets conducted by the execution court was valid. The official liquidator contended that the sale should be set aside due to inadequate publicity, resulting in a lower sale price. The sale was initially fixed at Rs. 2,10,37,148.59 but was reduced to Rs. 1,10,00,000, which was considered significantly lower than the property's actual value. Offers from other parties indicated the property could fetch much higher prices, suggesting material irregularity in the sale process. The court found that the disparity in the sale price and the actual value, along with the inadequate publicity, constituted material irregularity, warranting the setting aside of the sale.

2. Requirement of Permission under Section 446(1) of the Companies Act for Execution Proceedings:
The official liquidator argued that the sale was void as the bank did not obtain leave from the company court to commence execution proceedings. However, it was established that the bank had obtained permission to file the suit, and the Supreme Court in Bansidhar Shankarlal v. Mohd. Ibrahim held that fresh sanction for execution proceedings is not necessary if permission for the suit was already obtained. The court agreed with this principle, stating that the sale was not void under section 537 of the Companies Act.

3. Adequacy of the Publicity for the Sale:
The official liquidator and other parties argued that the sale did not receive wide publicity, resulting in no bidders coming forward and the property being sold at a much lower price. The court noted that the property was situated in a prime area, and inadequate publicity led to a significant undervaluation. The court directed that a fresh sale proclamation be published in multiple leading newspapers to ensure adequate publicity and a fair sale price.

4. Applicability of the Limitation Act to the Application Filed by the Official Liquidator:
The bank contended that the application to set aside the sale was barred by limitation, as it was not filed within 60 days as required under section 127 of the Limitation Act. However, the court referred to the Gujarat High Court's decision in Rajratna Naranbhai Mills Co. Ltd. v. New Quality Bobbin Works, which held that the Limitation Act does not apply to applications made under the Companies Act. The court agreed with this view, stating that the provisions of the Limitation Act would not apply to the official liquidator's application.

5. Rights and Interests of the Workmen and Other Creditors:
The court emphasized the need to safeguard the interests of the workmen and other creditors. Section 529A of the Companies Act ensures that workmen's dues have priority over other claims. The court noted that the official liquidator, as the custodian of the property, must protect the interests of all creditors, both secured and unsecured. The court directed that the fresh sale should ensure that the workmen's dues are adequately covered, and the sale proceeds are distributed fairly among all creditors.

Conclusion:
The court set aside the sale conducted by the execution court due to material irregularity and inadequate publicity. It directed the official liquidator to conduct a fresh sale with adequate publicity and to ensure the interests of the workmen and other creditors are protected. The fresh sale proclamation should be published in leading newspapers, and the sale should be conducted with a reserve price of Rs. 3.5 crores, subject to confirmation by the court.