2010 (1) TMI 571 - HC - Companies Law

Winding up - whether the appellant was unable to show any irregularity or fraud in the conduct of the sale, and hence it should not be set aside? Held that - In the instant case it can be well stated that there was no proper publication at all calling for sufficient number of bidders and only two bidders were present. In such circumstances, this Court is of the considered opinion that the sale has got to be set aside. The above auction purchaser is entitled to get back the amount paid by him towards sale transaction. The Official Liquidator is directed to return the said amount and also the accrued interest if any thereon to him. In the result, all these original side appeals are allowed setting aside the orders of the learned Single Judge. The auction sale is set aside. The Company Court is required to proceed with the sale process afresh after making necessary publication.

Issues Involved:
1. Stay of auction proceedings.
2. Setting aside auction proceedings.
3. Adjudication of claims by the Official Liquidator.
4. Valuation and sale of properties.
5. Procedural irregularities in the auction process.
6. Confirmation of sale and adequacy of sale price.
7. Return of sale amount to the auction purchaser.

Issue-wise Detailed Analysis:

1. Stay of Auction Proceedings:
The appellant filed C.A. No. 1238 of 2009 to stay all further proceedings in the auction. The learned Single Judge dismissed the application, leading to the appeal.

2. Setting Aside Auction Proceedings:
The appellant filed C.A. No. 1239 of 2009 to set aside the auction proceedings on grounds including improper valuation, lack of proper publication, and procedural irregularities. The learned Single Judge dismissed the application, leading to the appeal.

3. Adjudication of Claims by the Official Liquidator:
The appellant argued that the Official Liquidator had not yet adjudicated upon the claims called for, and without crystallization of the amount, there was no reason to sell all the properties. The Court noted that the claims of the banks were under dispute and not decided, and the Official Liquidator should have acted to realize sale proceeds by selling only such properties required to discharge crystallized liabilities.

4. Valuation and Sale of Properties:
The appellant contended that the valuation given by ITCOT was very low and that the market value of the property was much higher. The Court observed that when the value fixed was low and unreasonable, proper publication was necessary to fetch the best and adequate price for the properties. The Court found that the sale was conducted without proper publication, which was detrimental to the interests of all concerned.

5. Procedural Irregularities in the Auction Process:
The Court noted several procedural irregularities, including the lack of proper publication for the auction sale and the presence of only two bidders who did not bring the EMD amount initially. The sale was adjourned, and even on the adjourned date, the bidders were not present pursuant to the publication made, indicating that they were brought by others interested in the sale, which was detrimental to the interests of all others.

6. Confirmation of Sale and Adequacy of Sale Price:
The Court emphasized that the purpose of an open auction is to get the most remunerative price and that proper publicity is essential. The Court referred to precedents, including the Apex Court's decision in Navalkha & Sons v. Ramanuja Das, which highlighted the importance of proper publicity and the need for the auction to be open to the general public. The Court concluded that the sale conducted without proper publication and adequate price was not a sound exercise of discretion.

7. Return of Sale Amount to the Auction Purchaser:
The Court directed that the auction purchaser is entitled to get back the amount paid by him towards the sale transaction. The Official Liquidator was instructed to return the said amount along with any accrued interest to the auction purchaser.

Conclusion:
The Court allowed the appeals, setting aside the orders of the learned Single Judge and the auction sale. The Company Court was directed to proceed with the sale process afresh after making necessary publication. The parties were ordered to bear their own costs, and the connected miscellaneous petitions were closed.

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