2007 (8) TMI 448 - HC - Companies Law

Custody of company s property - sale to highest bidder - Held that - As find from the records made available by learned counsel for the official liquidator that the official liquidator had not secured the details of the landed properties to be sold in public auction. Except a copy of the survey sketch other details are not forthcoming. From this document, the boundaries of the property cannot be ascertained. During the pendency of the appeal it is brought to our notice that in respect of the very property confirmed in favour of the second purchasers the proceedings were pending before the Debts Recovery Tribunal in Case No. DCP. 3118. The proceedings were initiated by the Industrial Finance Corporation of India Ltd. The property described therein comprised of 18 acres 13 guntas of land and the building with plinth area of 1,137.14 sq. ft. Thus, it is not clear as to whether the property secured to Industrial Finance Corporation of India Ltd., was included in the sale confirmed in favour of the second respondent. The order of the learned single judge, confirming the sale in favour, of the second respondent on the ground that the second respondent has come forward with the highest offer raising his offer from ₹ 124.5 lakhs to ₹ 165.13 lakhs, without noticing the material irregularities, can not be sustained. Case remanded to direct the official liquidator to tender the property for sale afresh.

Issues Involved:
1. Confirmation of sale in absence of application by the second respondent.
2. Valuation of the company's assets.
3. Adequacy and correctness of property description in sale advertisement.
4. Interest of the company's employees.

Issue-Wise Detailed Analysis:

1. Confirmation of Sale in Absence of Application by the Second Respondent:
The appellant contended that the learned single judge confirmed the sale in favor of the second respondent without an application for confirmation from the second respondent. The learned judge overlooked that the company's assets were worth more than Rs. 750 lakhs, and the valuation by the official liquidator seemed inadequate. The representation dated September 8, 2003, requesting the valuation report was ignored. The court should have ensured the best possible price for the assets, as per the Supreme Court's ruling in *Allahabad Bank v. Bengal Paper Mills Co. Ltd.*, which emphasized the High Court's obligation to ensure the best price for creditors.

2. Valuation of the Company's Assets:
The learned single judge failed to notice that the operating agency valued the fixed assets at Rs. 750 lakhs before the BIFR. The machinery, being imported and in good condition, had no reserve price fixed. The valuation report dated April 10, 2002, showed the assets valued at Rs. 164.46 crores, conflicting with the BIFR valuation. The court did not disclose the valuation report to secured creditors and interested parties, as mandated by the Supreme Court in *Union Bank of India v. Official Liquidator, High Court of Calcutta*. The fluctuating offers by the second respondent, from Rs. 80.45 lakhs to Rs. 165.13 lakhs, indicated a speculative approach, not reflecting the market value.

3. Adequacy and Correctness of Property Description in Sale Advertisement:
The sale advertisement lacked proper and complete property descriptions, including survey numbers and boundaries, hindering prospective buyers from inspecting the land. The plant and machinery were vaguely described without specifying their nature and use. The term "inventories" was used without further description. The reserve price was not mentioned, violating the Supreme Court's directive in *Union Bank of India v. Official Liquidator, High Court of Calcutta*. The learned single judge did not address these discrepancies or the valuation report details before confirming the sale.

4. Interest of the Company's Employees:
The learned single judge ignored the interests of the employees entitled to retrenchment compensation and interim relief, as per the order in Ref. No. 50 of 1995. The appellant's submission to confirm the sale on the condition that the second respondent re-employs the ex-employees was turned down. The judge held that secured creditors, who participated in the sale proceedings, considered the second respondent's offer the highest and equivalent to the reserve price.

Conclusion:
The court found material irregularities and inadequacies in the sale proceedings, including improper property descriptions, non-mention of reserve price, and speculative offers by the second respondent. The learned single judge's confirmation of the sale, without addressing these issues, was unsustainable. The case was remanded to the learned single judge with instructions to direct the official liquidator to re-tender the property for sale afresh, ensuring compliance with the observations made in this order.

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