2010 (3) TMI 683 - HC - Companies Law

Direction to issue tender and hold auction afresh for the sale of properties covered under the order dated November 18, 2009, after assessing the value of the entire properties including plant, machinery and other movable and immovable properties based on the current market value and to allow the petitioners to participate and to be present throughout the sale process. Held that - There is no fraud or collusion in the auction sale. The sale has been confirmed and the sale certificate has also been issued. The dues to the members of the petitioners union have been safeguarded by the remittances made by the second respondent and undertaking given as per section 13(9) of the SARFAESI Act. We see no merit in the writ petition.

Issues Involved:
1. Legality of the upset price and sale process.
2. Adequacy of publicity for the auction.
3. Payment of workers' dues and priority of their claims.
4. Allegations of fraud or collusion in the auction process.

Detailed Analysis:

1. Legality of the Upset Price and Sale Process:
The petitioners, two workers' unions, challenged the upset price fixed for the auction of the first respondent mill's properties, arguing it was arbitrarily low and not based on the current market value. The second respondent, an assignee under the SARFAESI Act, had taken possession of the properties and involved the official liquidator in the sale process as directed by the company court. The valuation report dated August 11, 2009, assessed the market value of the immovable property at Rs. 15,02,57,000 and the movables at Rs. 2,25,00,000. The reserve price was set at Rs. 17,30,00,000, and the highest bid received was Rs. 17,32,00,000, which was declared successful. The court found that the second respondent followed due process, involved the official liquidator, and fixed the reserve price based on the approved valuer's report, dismissing the petitioners' claims of an arbitrarily low upset price.

2. Adequacy of Publicity for the Auction:
The petitioners contended that wide publicity was not given for the auction. However, the court noted that the auction notice was published in The Economic Times and Dina Thanthi, newspapers with wide circulation. Four bids were initially received, but due to interim court orders, two bidders withdrew. The court found that adequate publicity was given, and the auction process was conducted transparently with the involvement of the official liquidator.

3. Payment of Workers' Dues and Priority of Their Claims:
The petitioners argued that their dues were not considered in the sale process. The court observed that the second respondent had remitted Rs. 4,04,38,909 to PF authorities and Rs. 34,19,037 to the ESI Corporation. Additionally, Rs. 4.25 crores was deposited with the official liquidator towards labor dues. The court reiterated that under sections 529 and 529A of the Companies Act, workers' dues are treated pari passu with secured creditors' claims. The official liquidator confirmed receiving claims from 327 workmen amounting to Rs. 16 crores. The court concluded that the workers' dues were safeguarded as per legal requirements.

4. Allegations of Fraud or Collusion in the Auction Process:
The petitioners alleged that the sale process was conducted unlawfully to exclude them. However, the court found no specific allegations of fraud or collusion in the petitioners' affidavit. The second respondent had acted per court orders, involved the official liquidator, and conducted the sale transparently. The court referenced the Supreme Court's decision in Valji Khimji and Co. v. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd., emphasizing that setting aside a confirmed sale without evidence of fraud or collusion would create significant problems. The court found no merit in the petitioners' allegations and upheld the auction sale.

Conclusion:
The High Court of Madras dismissed the writ petition, finding that the second respondent had followed due process, given adequate publicity, and safeguarded the workers' dues. The court found no evidence of fraud or collusion in the auction process and upheld the sale. There was no order as to costs, and connected miscellaneous petitions were closed.

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