2005 (2) TMI 532 - HC - Companies Law

Issues Involved:
1. Validity of the sale of the company's assets.
2. Commencement of winding up under section 441(2) of the Companies Act, 1956.
3. Applicability of section 537(1) of the Companies Act, 1956.
4. Adequacy of valuation and publicity for the sale of assets.
5. Overriding effect of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) over the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Validity of the Sale of the Company's Assets:
The employees of M/s. Elconmet Ltd. filed an application to declare the sale of the company's assets as null and void. The sale was conducted by IPICOL as per the guidelines provided by the B.I.F.R. in its proceedings dated 19-2-2001. The B.I.F.R. had directed the sale of the company's assets and the proceeds to be deposited with the High Court for distribution as per the Companies Act, 1956. The sale was approved by the B.I.F.R. and the final bid of Rs. 131 lakhs by Mr. Shyam Sundar Agarwala was accepted.

2. Commencement of Winding Up Under Section 441(2) of the Companies Act, 1956:
The winding up of the company commenced on 4-4-2001 when Company Act No. 17 of 2001 was registered based on the opinion of the B.I.F.R. under section 20(1) of the SICA. The sale of the company's assets was made by IPICOL on 20-1-2003, which was after the commencement of winding up.

3. Applicability of Section 537(1) of the Companies Act, 1956:
Section 537(1) of the Companies Act, 1956 states that any sale of the company's properties after the commencement of winding up without the leave of the Court shall be void. The employees argued that the sale was void as it was conducted after the commencement of winding up without the Court's leave. However, the Court held that the sale was conducted pursuant to the B.I.F.R.'s order before the winding up commenced, and thus, section 537(1) did not apply.

4. Adequacy of Valuation and Publicity for the Sale of Assets:
The employees contended that no satisfactory valuation was made, and there was inadequate publicity for the sale. The Court noted that IPICOL had conducted the sale following the B.I.F.R.'s guidelines, including valuation by an approved valuer and advertisements in newspapers. The valuation report showed the assets were valued at Rs. 1,23,99,000, and the sale fetched Rs. 1,31,00,000, indicating a reasonable price.

5. Overriding Effect of the SICA Over the Companies Act, 1956:
Sections 20(4) and 32(1) of the SICA provide that the B.I.F.R. can cause the sale of assets of a sick industrial company and that the provisions of the SICA override those of the Companies Act, 1956. The Court held that the B.I.F.R.'s order for the sale of assets under section 20(4) of the SICA took precedence over the Companies Act, 1956, and the sale could not be declared void under section 537(1) of the Companies Act, 1956.

Conclusion:
The Court found no merit in the application to declare the sale of the company's assets as null and void. The sale was conducted in accordance with the B.I.F.R.'s guidelines and approved by the B.I.F.R. before the commencement of winding up. The provisions of the SICA, which override the Companies Act, 1956, were duly followed, and the sale was for a reasonable price after proper valuation. The application was dismissed.

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