2006 (8) TMI 311 - SC - Companies Law

Whether the company judge was justified in setting aside his own order of confirmation of sale merely on account of inadequacy of price after the possession was handed over to the appellant auction purchaser and if so then under what circumstances ? Whether the workmen/employees of the company (in liquidation) have to be treated at par with secured creditors so as to be associated by the Official Liquidator in the process of sale of company ? Held that - Appeal allowed. No doubt the learned company judge has made an endeavour commensurate with the object desired to be achieved viz. to fetch the maximum price for the assets of the company in liquidation but there appears to be no concrete material for disturbing the sale already conformed. The net result is that the impugned order dated 30-3-2005 is hereby set aside and the earlier order dated 10-12-2004 which is further clarified on 13-1-2005 confirming the sale is restored. Vide order dated 28-1-2005 the Official Liquidator was restrained from taking any further action with regard to the sale he may now proceed in completing all the requisite formalities in favour of the auction purchaser. A sum of Rs. 2 crores which was ordered to be deposited by respondent No. 10 with the Official Liquidator shall now be returned to it on an application to be moved in this regard. Any interest if accrued thereupon shall also be paid to respondent No. 10 along with the aforesaid amount.

Summary

Issues Involved:
1. Confirmation of sale of assets.
2. Adequacy of sale price.
3. Interests of workmen in liquidation.
4. Jurisdiction of the Company Judge to set aside a confirmed sale.
5. Allegations of fraud in the bidding process.

Issue-wise Detailed Analysis:

1. Confirmation of Sale of Assets:
The Supreme Court reviewed the order of the Punjab & Haryana High Court concerning the sale of assets of Punjab Wireless Systems Ltd. (PUNWIRE) to Winsome Yarns Ltd. (WINSOME). The Company Judge initially confirmed the sale to WINSOME for Rs. 3.36 crores. However, later, the sale was set aside on the application of SUNGROUP, which offered a higher price.

2. Adequacy of Sale Price:
SUNGROUP contended that the sale price of Rs. 3.16 crores for Item No. 17 was very low, citing a subsequent purchase of an adjoining plot for Rs. 11.6 crores. The Supreme Court noted that the Company Judge had confirmed the sale after considering the valuation report and the bids received. The Court emphasized that mere inadequacy of price is not sufficient to set aside a confirmed sale unless there is a substantial difference, which was not the case here.

3. Interests of Workmen in Liquidation:
The Employees' Union argued that the sale should be set aside as the workers were not notified and their interests were not considered. The Supreme Court clarified that under sections 529 and 529A of the Companies Act, the workmen's dues are to be treated pari passu with those of secured creditors. However, it held that the Official Liquidator represents the workmen's interests and there is no requirement to associate workmen in the sale process.

4. Jurisdiction of the Company Judge to Set Aside a Confirmed Sale:
The Supreme Court examined whether the Company Judge had the jurisdiction to set aside the confirmed sale. It held that the Company Judge does have the authority to set aside a sale on grounds of material irregularity or gross inadequacy of price. However, in this case, the Court found no such irregularity or substantial inadequacy to justify setting aside the sale.

5. Allegations of Fraud in the Bidding Process:
The Employees' Union alleged that one of the bidders, Star Point Financial Services Ltd., was a sister company of WINSOME, implying a lack of genuine competition. The Supreme Court found no evidence of fraud or collusion in the bidding process. It emphasized that the auction was conducted transparently, with adequate publicity and in the presence of the Sale Committee.

Conclusion:
The Supreme Court exercised its powers under Article 142 of the Constitution to settle the matter in the larger interest of all parties. It directed SUNGROUP to pay Rs. 6.36 crores to WINSOME and Rs. 5.24 crores to the Official Liquidator for the assets in question. The sale in favor of WINSOME was set aside not on merits but as part of a negotiated settlement. The Court also directed SUNGROUP to pay Rs. 50 lakhs ex gratia to the Employees' Union for distribution among the workers. The sale of Item No. 17 was confirmed in favor of SUNGROUP, and necessary formalities for the transfer were to be completed.