2012 (9) TMI 604 - HC - Companies Law

Sale of the assets of a company in liquidation - second highest bidder alleging that the offer ascribed to him in the order confirming the sale was not at his bidding - Held that - Sony may have been unwittingly dragged into a charade enacted by Sarkar, possibly at the behest of Bose or, to do Bose a favour by ensuring that the sale was scuttled and the business of the company was continued in terms of the appellate order of November 2, 2011 for an indefinite period. Sarkar has admitted to having a telephone conversation with Bose on February 29, 2012. The timing of the call matches with Sony s assertion that he was at the manufacturing facility of the company in liquidation in Maniktala on that day when Bose informed him of the imminent sale of the company; and, on Sony showing interest in the matter and seeking further information, Bose made a call to give Sony the details of how to make a bid therefor. Sarkar appears to have put Sony up to the altar as the sacrificial lamb to sabotage the sale and prolong Bose s de facto control of the business of the company, now that Saha was out of the way following his disputes with Bose after Saha may have invested for the continued operations of the company in liquidation. Sony was a godsend for Bose to neutralise Saha s lone bid for taking over the company as a going concern and to catapult Bose from a measly supervisor to a businessman with no care to pay for the tools or the space used for the business by virtue of the court largesse. Sarkar was the perfect ally to prey on the gullibility of Sony with the finesse of a dispassionate executioner. In the light of the conduct of those informally running the business of the company in liquidation as it appeared at the interlocutory stage of the present proceedings, the official liquidator has been directed to take possession of the assets of the company in liquidation and they ought now to be in his control. The official liquidator has applied for a direction for the sale of the assets of the company in liquidation. In view of it not being established that Saha made the frivolous bid to scuttle the sale on the contrary, Saha appears to have been a victim of sorts - of the company and perpetuate its business operations being informally run, the suo motu rule of contempt issued against him stands discharged and he is honourably acquitted - Saha will be refunded a sum of Rs.4 lakh out of the deposit of Rs. 5 lakh that he has made with the official liquidator. The balance amount will stand forfeited, for Saha having failed to honour his bid but having cited some mitigating circumstances, and be retained by the official liquidator to be available for distribution to the creditors of the company in liquidation in accordance with law. Sony will be refunded a sum of Rs.4.50 lakh out of the deposit of Rs.5 lakh that he has made with the official liquidator. The balance amount will stand forfeited, for Sony not asserting himself at the time of the sale and causing the matter to be blown up beyond it was necessary, and be retained by the official liquidator to be available for distribution to the creditors of the company in liquidation in accordance with law. The Official liquidator will invite offers for sale of the assets of the company in liquidation upon a fresh valuation of the assets by an empanelled valuer other than the one who had been engaged to value the company as a going concern. The expenses for the valuation will be decided at the time of sale, but an initial ad hoc payment of Rs.10,000/-may be made to the valuer from out of the official liquidator s Establishment Charges Account. Mr. Ashim Sarkar who is working in the office of the Official Liquidator who attempt to cheat is given a desk job not having any connection with any money transaction or anything to do with the sale or preservation of the assets of any company in liquidation till such time that a decision as to his further continuation in the office is taken. Upon the sale of the assets of the company in liquidation being completed, the official liquidator will ensure that all movables are removed from the three rooms in the Sealdah property that continue to be held by the company in liquidation within a reasonable time of the conclusion of the sale and also Maniktala property within reasonable time of the conclusion of the sale. The official liquidator will immediately thereafter engage security guards to protect the Maniktala property from any encroaches or trespasser. The official liquidator will take immediate, appropriate measures to preserve the assets of the company in liquidation till the conclusion of the sale and the handing over thereof to the rightful persons upon consulting the secured creditors and, for such purpose, the secured creditors will have to bear the expenses therefor; such expenditure will be regarded as liquidation expenses and have priority at the time of disbursement.

Summary

Issues Involved:
1. Legitimacy of the court sale of the assets of a company in liquidation.
2. Allegations of fraudulent bidding practices.
3. Claims by landlords for unpaid rents and occupation charges.
4. Validity of the practice of allowing the business of companies in liquidation to be carried on under the official liquidator.
5. Refund of deposits to the bidders.
6. Directions for the sale of the assets of the company in liquidation.

Issue-wise Detailed Analysis:

1. Legitimacy of the court sale of the assets of a company in liquidation:
The assets of AOP (India) Limited (in liquidation) were sold at an open auction held in court on March 2, 2012. The sale was on the basis of the company being taken over by the highest bidder as a going concern. The highest bid was Rs.4.50 crore by Rabindranath Saha, followed by Gulshan Sony with Rs.4.20 crore. The order of March 2, 2012 indicated that the purchaser would have to take over all liabilities of the company in liquidation, and the purchase price would be retained by the official liquidator to meet liquidation expenses and distribute the balance among the contributories.

2. Allegations of fraudulent bidding practices:
Sony alleged that his advocate bid beyond his instructions, claiming he was coerced and misled. He filed CA No. 277 of 2012 detailing his grievances. The court found that Sony may have been unwittingly used by Ashim Sarkar, possibly at the behest of Sovan Kumar Bose, to sabotage the sale and prolong de facto control over the company's assets. Sarkar admitted to having a telephone conversation with Bose on February 29, 2012, suggesting a nexus between them.

3. Claims by landlords for unpaid rents and occupation charges:
The landlords of the Sealdah and Maniktala properties claimed substantial sums were due to them, as no rent or occupation charges had been paid during the period the business was conducted under court orders. Realistic levels of monthly rents for the properties were fixed during the sale, and two rooms in the Sealdah property were directed to be disclaimed.

4. Validity of the practice of allowing the business of companies in liquidation to be carried on under the official liquidator:
The court noted that over the years, a practice had developed allowing the business of companies in liquidation to be carried on under the official liquidator. However, this practice had degenerated, leading to assets being plundered by fly-by-night operators. The court emphasized the need for stricter controls and more exceptions than the rule.

5. Refund of deposits to the bidders:
The court decided to refund a part of the deposits to both Saha and Sony. Sony was to be refunded Rs.4.50 lakh out of his Rs.5 lakh deposit, with the balance forfeited for not asserting himself during the sale. Saha was to be refunded Rs.4 lakh out of his Rs.5 lakh deposit, with the balance forfeited for failing to honor his bid but citing mitigating circumstances.

6. Directions for the sale of the assets of the company in liquidation:
The official liquidator was directed to invite offers for the sale of the assets of the company upon a fresh valuation by an empanelled valuer. The official liquidator was also instructed to ensure the preservation of the assets until the sale and to take immediate measures to remove the assets from the Sealdah and Maniktala properties after the sale. The court mandated that Ashim Sarkar be given a desk job without any connection to money transactions or the sale of assets until further proceedings determine his continuation in the office.

Conclusion:
The court concluded that the unfortunate experiment of allowing the assets of the company in liquidation to be used to run a private business without accountability had met its inevitable end. The official liquidator was directed to proceed with the sale of the assets, and measures were put in place to ensure the preservation and proper handling of the assets until the sale. The court also highlighted the need for more careful conduct of court sales and the extent of credence given to habitual participants in such matters.