2010 (12) TMI 1052 - HC - Companies Law

Winding up - liquidation - possession of land - held that - The Official Liquidator was appointed as a provisional liquidator on 6-4-2004. At this stage, we have to keep in mind interest of the creditors and workmen. Interest of the promoters or members/ management of the company is relevant but not as important as interest of creditors and workmen. We have to also keep in mind the fact that 7 years have lapsed and unless immediate steps are taken, the value of the plant and equipments will depreciate. Issue of fresh sale proclamation on the basis of the valuation report submitted by ITCOT is likely to take time. It will be open to the management of CBL to negotiate and submit a proposal/scheme from a third party in the integram. I am not inclined to adjourn the matter to enable the management of BIPL to find a third party and file an application propounding a scheme as this would cause delay. It will be open to the management or any third party associated with them to participate in the auction/bidding process. The primary concern of the Company Court at this stage as stated above is twofold; (i) to secure and ensure payment to the creditors on best possible terms and (ii) to get a fair deal for the workers both with regard to the past arrears and future employment. These aspects cannot be left to the management of the CBL alone. Attempts have to be made to get a best possible deal by tapping all sources and parties, who are interested.

Summary

Issues Involved:
1. Default in loan repayment and possession by SICOM.
2. Winding up petitions by creditors.
3. Disputes with NRI Lead Bank and arbitration proceedings.
4. Execution petition and possession disputes.
5. Valuation and sale of BIPL factory.
6. Confirmation and challenge of sale to CBL.
7. Supreme Court's directions and findings.
8. Implementation of Supreme Court's directions.
9. Financial claims by CBL.
10. Valuation of dismantled equipment.
11. Interest on refunded auction amount.
12. Inspection and future proposals for BIPL property.

Issue-wise Detailed Analysis:

1. Default in Loan Repayment and Possession by SICOM:
Bakemans Industries Private Limited (BIPL) defaulted on a loan of Rs. 17 crores from State Industrial Corporation of Maharashtra Limited (SICOM). Consequently, SICOM took over BIPL's factory under section 29 of the State Financial Corporations Act, 1951, and shut down operations on 18-7-2003.

2. Winding Up Petitions by Creditors:
In 2003, 16 petitions were filed by BIPL's creditors under sections 433(e) and (f) read with sections 434 and 439 of the Companies Act, 1956. On 6-4-2004, the court admitted CP No. 204/2003 and appointed the Official Liquidator as the provisional liquidator to take over BIPL's assets.

3. Disputes with NRI Lead Bank and Arbitration Proceedings:
BIPL approached NRI Lead Bank for financial assistance, leading to arbitration proceedings. The Tribunal initially closed the proceedings due to the absence of a genuine arbitration agreement. However, a subsequent award dated 16-8-2003 was issued, leading to an execution petition by NRI Lead Bank.

4. Execution Petition and Possession Disputes:
BIPL's management took forcible possession of the factory on 14-9-2003 based on the arbitration award. SICOM filed an application, resulting in a status quo order on 15-9-2003. The High Court later directed BIPL to deposit Rs. 2 crores to proceed with statutory remedies.

5. Valuation and Sale of BIPL Factory:
SICOM obtained a valuation report of BIPL's factory and advertised its sale. Ceylon Biscuits Private Limited (CBL) expressed interest and was allowed to inspect the property. CBL submitted the highest bid of Rs. 12.5 crores, which was accepted by the Company Court.

6. Confirmation and Challenge of Sale to CBL:
The sale confirmation was challenged up to the Supreme Court, which set aside the sale in its judgment dated 16-5-2008, citing the need to protect the interests of all creditors, including workmen, under sections 529A and 530 of the Companies Act.

7. Supreme Court's Directions and Findings:
The Supreme Court held that SICOM, having submitted to the Company Court's jurisdiction, could not exercise its statutory powers under section 29 of the 1951 Act independently. The Company Court was required to safeguard the interests of all creditors and ensure compliance with statutory provisions before selling the property.

8. Implementation of Supreme Court's Directions:
The High Court focused on implementing the Supreme Court's directions, including re-auctioning the property with proper valuation and considering CBL's offer with some preference.

9. Financial Claims by CBL:
CBL sought reimbursement of Rs. 12.5 crores deposited for the auction, expenses incurred on the plant and machinery, and losses incurred by its subsidiary CBIPL. The court appointed Vaish and Associates to verify these claims, which confirmed substantial transfers and expenses by CBL.

10. Valuation of Dismantled Equipment:
The court appointed ITCOT to value the equipment dismantled and taken to Sri Lanka. ITCOT's report estimated the value at Rs. 354.83 lakhs as of February 2009 and Rs. 449.43 lakhs as of June 2005. The court found the valuation method defective but accepted the parties' agreement to reassemble the equipment at BIPL's property.

11. Interest on Refunded Auction Amount:
The court awarded CBL interest at the rate of 5% on Rs. 12.5 crores from the date of payment till 10-1-2011, balancing equities and considering the benefits accrued to BIPL and the financial institutions from the appropriated amount.

12. Inspection and Future Proposals for BIPL Property:
The court allowed BIPL's management to inspect the property and submit proposals for its rehabilitation and payment to creditors. The court emphasized the need to protect the interests of creditors and workmen and directed immediate steps to prevent further depreciation of the plant and equipment.

Conclusion:
The court disposed of the applications by CBL, the management of CBIPL, and the Official Liquidator, ensuring compliance with the Supreme Court's directions and safeguarding the interests of all stakeholders involved.