2003 (9) TMI 561 - HC - Companies Law

Issues Involved:
1. Mandatory placement of Valuation Report before the Court.
2. Validity of the sale conducted without placing the Valuation Report before the Court.
3. Conditions for confirming the sale in favor of the highest bidder.

Detailed Analysis:

1. Mandatory Placement of Valuation Report Before the Court:
The Court emphasized that according to Condition No. 2 of the order dated 30-9-1999 in C.A. No. 464 of 1998, the Corporation was required to place the Valuation Report before the Court before proceeding to put the properties to sale. This condition was intended to ensure that the valuation of the properties was subjected to the Court's assessment and scrutiny, allowing objections from other secured creditors and the Official Liquidator. The Court stated, "Non-placing of the Valuation Report as directed by this Court in its earlier order, is certainly a violation of the orders of this Court, and any sale of the properties conducted without placing the valuation report before the Court, is vitiated."

2. Validity of the Sale Conducted Without Placing the Valuation Report Before the Court:
The Court found that the Corporation failed to comply with the mandatory condition of placing the Valuation Report before the Court. Despite the Corporation's argument that the Official Liquidator and another secured creditor participated in the sale proceedings, the Court held that this did not dilute the requirement to place the Valuation Report before the Court. The Court noted, "Merely because the Official Liquidator and another secured creditor participated in the sale proceedings, it cannot be said that the Official Liquidator and the other secured creditor have given their consent or expressed their no objection to the Valuation Report." The sale conducted without placing the Valuation Report before the Court was deemed vitiated.

3. Conditions for Confirming the Sale in Favor of the Highest Bidder:
The Court considered the conditions sought by the Official Liquidator for confirming the sale:
- Condition No. 1: The Corporation must prove its claim against the respondent before the Official Liquidator.
- Condition No. 2: The Corporation must prove it is a secured creditor under section 125 of the Companies Act.
- Condition No. 3: The Corporation shall not discharge the liability of any other creditor and must make over the excess sale proceeds to the Official Liquidator.
- Condition No. 4: The realization of the sale proceeds should be considered for the entire sale consideration.
- Condition No. 5: The Corporation shall keep the sale proceeds in an interest-bearing deposit until their claim is quantified and approved by the Court.
- Condition No. 6: The sale proceeds are meant for distribution among the Corporation, workmen, and other secured creditors.
- Condition No. 7: The sale proceeds should be realized within the time stipulated by the Court.
- Condition No. 8: The amount incurred by the Corporation for the preservation of the security may be paid on a priority basis.

The Court rejected the Corporation's contention that they had absolute rights over the properties by virtue of section 29 of the SFC Act. The Court cited the Supreme Court's judgment in International Coach Builders Ltd. v. Karnataka State Financial Corpn., which held that after a winding-up order, the Corporation's rights are subject to the pari passu charge of the workmen, represented by the Official Liquidator. The Court concluded that the sale conducted by the Corporation without placing the Valuation Report before the Court was vitiated and could not be confirmed.

Conclusion:
The application for confirmation of sale was rejected. The Court set aside the sale conducted by the Corporation, emphasizing the mandatory requirement to place the Valuation Report before the Court and the necessity to protect the interests of other secured creditors and workmen.

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