2001 (2) TMI 953 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the sale of assets by Andhra Pradesh State Financial Corporation (APSFC).
2. Procedural compliance by APSFC in the sale of assets.
3. Rights of ex-directors and shareholders to challenge the sale.
4. Jurisdiction of the Company Court.
5. Discharge of guarantors' liabilities.
6. Official Liquidator's application to declare the sale null and void.

Detailed Analysis:

1. Validity of the Sale of Assets by APSFC:
The primary issue revolves around whether the sale of assets by APSFC was valid. The ex-directors and shareholders argued that the sale conducted on 23-6-1997 should be set aside due to non-compliance with procedural safeguards and lack of seizure. However, the court found that since the sale occurred before the winding-up order dated 16-11-1998, it was not in contravention of Section 446 of the Companies Act. The sale was thus deemed valid.

2. Procedural Compliance by APSFC:
The applicants contended that APSFC did not follow the procedural safeguards required under the State Financial Corporations Act. The court, however, stated that it could not delve into this matter as the sale preceded the winding-up order. The Company Court is not a civil or constitutional court and thus lacks jurisdiction to examine the procedural compliance of APSFC in this context.

3. Rights of Ex-Directors and Shareholders to Challenge the Sale:
The court acknowledged that ex-directors and shareholders have the right to challenge actions that adversely affect their interests. Despite not contesting the winding-up order earlier, they could still raise objections regarding the sale of assets. However, the court ultimately dismissed their application, noting that the sale was conducted before the winding-up order and thus was not invalid under Section 446.

4. Jurisdiction of the Company Court:
The court emphasized that its jurisdiction is governed by the Companies Act and is not equivalent to the jurisdiction of civil or constitutional courts. The Company Court's jurisdiction to declare actions void is limited to those actions taken in contravention of Section 446. Since the sale by APSFC occurred before the winding-up order, it did not fall under the purview of Section 446, and thus the court could not declare it void.

5. Discharge of Guarantors' Liabilities:
The application to discharge the guarantors from their liabilities was dismissed. The court found no grounds to grant such relief, especially in light of the earlier orders dismissing the applications challenging the sale. The relief sought was beyond the jurisdiction of the Company Court.

6. Official Liquidator's Application to Declare the Sale Null and Void:
The Official Liquidator sought to declare the sale conducted by APSFC as null and void and requested the deposit of sale proceeds with the Official Liquidator. This application was also dismissed for the same reasons as the other applications. The court directed APSFC to make funds available to the Official Liquidator for satisfying statutory claims under Section 529A of the Companies Act as and when demanded.

Conclusion:
The court dismissed all applications challenging the sale of assets by APSFC, affirming the validity of the sale conducted before the winding-up order. The court also clarified the limitations of its jurisdiction and the rights of ex-directors and shareholders in such matters.