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2005 (9) TMI 306 - SC - Indian LawsSick industrial company - Whether the impugned order is contrary to the statutory provisions contained in sub-section (4) of section 20? Held that - Appeal allowed. BIFR had permitted only the Company to approach the High Court in case any occasion arises therefor. BIFR did not permit any other person to do so. The Company did not file such an application. It opposed the prayer of the First respondent. The Company as noticed hereinbefore had preferred an appeal before the Division Bench of the High Court questioning the correctness of the order passed by the learned Company Judge. The Company has since been directed to be wound up and is now being represented by the Official Liquidator who also questions the correctness of the order. Before us an application has been filed by the Government of Karnataka for impleading it as a party being I.A. Nos. 2-4 of 2005 in Civil Appeal Nos. 5199-5201 of 2004 wherein also the validity of the impugned order is in question. Thus the impugned judgment of the High Court cannot be sustained.
Issues Involved:
1. Jurisdiction of BIFR vs. Company Court regarding sale of assets. 2. Existence of a concluded contract between the Company and Chandra Developers. 3. Requirement of Government of Karnataka's approval for the sale. 4. Inherent powers of the Company Court. 5. Adequacy of the sale price and protection of creditors' interests. Detailed Analysis: 1. Jurisdiction of BIFR vs. Company Court regarding sale of assets: The Supreme Court held that the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) contain non obstante clauses, making it a special statute that prevails over the Companies Act. The jurisdiction of the Company Court arises only when BIFR or AAIFR recommends winding up of the company under section 20 of SICA. Until a winding-up order is passed, BIFR retains control over the assets of the company, including the power to sell assets under section 20(4) of SICA. The Court emphasized that concurrent jurisdiction between BIFR and the Company Court would lead to chaos and confusion. 2. Existence of a concluded contract between the Company and Chandra Developers: The Court found that the resolution dated 25-2-2002 by the Board of Directors of the Company, which Chandra Developers relied upon, was not a concluded contract as it required the formal approval of the Government of Karnataka. The omission of the sentence regarding the need for government approval in Chandra Developers' application was a material fact that was suppressed. The Court highlighted that the original advertisement for the sale was issued by the Government of Karnataka, indicating that its approval was necessary for the sale to be finalized. 3. Requirement of Government of Karnataka's approval for the sale: The Supreme Court noted that the Government of Karnataka's approval was necessary for the sale, as indicated in the resolution and the advertisement issued by the government. The Court rejected the argument that seeking government approval would make the government an appellate authority over the High Court. Instead, it clarified that the application before the Company Judge was maintainable only upon obtaining the government's approval, which would then constitute a concluded contract. 4. Inherent powers of the Company Court: While the Company Court has inherent powers saved under rules 7 and 9 of the Companies (Court) Rules, the Supreme Court held that these powers cannot be exercised in contravention of the express provisions of another statute, namely SICA. Section 32 of SICA, which contains a non obstante clause, prevails over the Companies Act, limiting the Company Court's power to direct the sale of assets before a winding-up order is passed. 5. Adequacy of the sale price and protection of creditors' interests: The Court emphasized that the Company Court, while exercising its jurisdiction, must ensure that the sale of assets is in the interest of the creditors. The Company Court failed to consider whether the sale price offered by Chandra Developers was adequate and reasonable, given the market value of the property. The Court highlighted that the Company Court has a duty to act with circumspection and caution, especially in protecting the interests of creditors and ensuring that the transaction benefits the unsecured creditors of the company. Conclusion: The Supreme Court set aside the impugned judgment of the High Court, holding that the Company Court did not have jurisdiction to approve the sale of assets without the necessary approval from the Government of Karnataka and in contravention of the provisions of SICA. The appeals were allowed, and the judgment of the High Court was reversed.
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