1998 (10) TMI 477 - HC - Companies Law

Summary

Issues:
Challenge to auction sale of company assets by petitioner-bank.

Analysis:
The petitioner-bank contested the auction sale of assets of a company by the Orissa State Financial Corporation (OSFC) to a third party. The OSFC, along with other financial institutions, had provided loans and credit facilities to the company against valuable securities. It was agreed that the properties mortgaged to the OSFC would have the first charge, and the petitioner-bank would have the second charge. When the company defaulted on its loans, the petitioner-bank seized the unit and initiated the sale process. However, the petitioner alleged that the assets were sold for a significantly low amount of Rs. 27 lakhs, causing substantial losses to the bank. The petitioner claimed that the sale was invalid due to lack of wide publicity and failure to provide prior notice as per the agreement.

In response, the OSFC argued that the agreement regarding the loan was not registered with the Registrar of Companies as required by law, rendering it void. Therefore, the OSFC contended that providing prior notice to the petitioner-bank was unnecessary. The OSFC also stated that the sale process had followed proper procedures, including notifying the relevant authorities and holding meetings with concerned parties. The company and the third party buyer supported the OSFC's position.

After hearing arguments from all parties, the court found that the unit had indeed been sold for a low price, and the OSFC had not followed the guidelines established by the Supreme Court in a relevant case. The court emphasized that the valuation of the unit should have been communicated to the interested parties to allow for objections and competitive bids. Since these procedures were not followed, the court ruled to set aside the sale.

Consequently, the court allowed the petition, setting aside the sale and directing the OSFC to advertise the unit for a fresh sale with proper publicity and compliance with legal requirements. The court mandated a minimum 15-day notice to the petitioner-bank and the company for participation in the auction, along with the opportunity to inspect the unit. No costs were awarded in this judgment. Both judges agreed on the decision.