2013 (4) TMI 386 - HC - Companies Law

Permissibility of sale of the assets of the sick industrial company till it is wound up - orders of sale of the assets/properties of the appellant-Company by public auction questioned - Held that - The Company Judge by order dated 23.1.2004 appointed the Provisional Official Liquidator & eventually by order dated 11.5.2007 was vested with the power under Section 457(1) of the 1956 Act and accorded permission to complete the sale made subject to the final decision in the Company Petition No.29/2003. Thereafter, by order dated 20.7.2007, the sale was confirmed in favour of M/s.Chaudhary & Sons (Forgings) Pvt.Ltd., Ghaziabad (UP) and the official liquidator was directed to take follow up steps. It is thus more than apparent that the exercise for sale of the assets/properties of the appellant-Company was undertaken and completed before final orders being passed in Company Petition No.29/2003 registered on the recommendation dated 11.6.2003 of the Board forwarded under Section 20(1) of SICA. It would be patent from sub-section (2) of Section 20 that whereas the High Court, on the basis of the opinion of the Board is to order the winding up of sick industrial company or cause it to be so done in accordance with the provisions of 1956 Act, the Board as envisaged in sub-section (4) may cause to be sold the assets/properties of the Company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution thereof in accordance with the provisions of Section 529A and other provisions of the said enactment. The Hon ble Apex Court in NGEF Ltd.(2005 (9) TMI 306 - SUPREME COURT OF INDIA) stated that on a comparative analysis of the provisions of the 1956 Act, the rules thereunder as well as Sections 20 and 22A of SICA, their Lordships held in authoritative terms that a Company declared to be sick in terms of the provision of SICA, continued to be sick unless it was directed to be wound up and having regard to Section 20(4) of the enactment, the Board alone had the jurisdiction as regards sale of its assets, till the order of winding up of a Company is passed. Having regard to the scope and ambit of the power of the Company Court to order or cause to effect sale of the assets of a sick industrial company pending its decision to wind up the same on the receipt of the recommendation of the Board as contemplated in Section 20(1) of SICA, as conditioned by Section 20(4) thereof and as held in NGEF Ltd.(supra) the impugned orders dated 11.5.2007 and 20.7.2007 pertaining to sale of the assets/properties of the appellant-Company by public auction cannot be sustained in law and on facts.The appeals are allowed.

Issues Involved:
1. Legality of the sale of the appellant-Company's assets by public auction.
2. Jurisdiction and competence of the Company Court to permit the sale before the final winding-up order.
3. Applicability of Section 20(4) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
4. Compliance with Sections 450, 454, and 457 of the Companies Act, 1956.
5. Validity of the orders passed by the learned Company Judge on 11.5.2007 and 20.7.2007.

Issue-wise Detailed Analysis:

1. Legality of the Sale of the Appellant-Company's Assets by Public Auction:
The appellant-Company challenged the orders permitting the sale of its assets, arguing that no judicial order sanctioned such sale. The Company Court initially made the sale subject to the decision in the company petition. The sale process was questioned on the grounds that it was initiated without a final winding-up order, which the appellant contended was not permissible under law.

2. Jurisdiction and Competence of the Company Court to Permit the Sale Before the Final Winding-Up Order:
The Company Court had appointed a Provisional Official Liquidator and later empowered him under Section 457(1) of the Companies Act, 1956, to proceed with the sale of the Company's assets. However, the appellant argued that without a final winding-up order, the court lacked the jurisdiction to permit the sale. The respondents countered that the court had the authority under Sections 450, 454, and 457 of the Companies Act, 1956, to permit such actions.

3. Applicability of Section 20(4) of SICA:
The appellant emphasized that Section 20(4) of SICA grants the Board exclusive jurisdiction over the sale of a sick industrial company's assets until a winding-up order is passed. The Supreme Court's decision in NGEF Ltd. vs. Chandra Developers (P) Ltd. was cited, which clarified that the High Court does not have the jurisdiction to direct the sale of assets of a sick company pending a decision on its winding-up.

4. Compliance with Sections 450, 454, and 457 of the Companies Act, 1956:
The respondents argued that the sale was conducted in compliance with the relevant sections of the Companies Act, 1956, and that the Provisional Official Liquidator had acted within his powers. The learned Company Judge had initially made the sale subject to the final decision in the company petition, which was later confirmed despite the appellant's ongoing negotiations with creditors.

5. Validity of the Orders Passed by the Learned Company Judge on 11.5.2007 and 20.7.2007:
The High Court evaluated whether the orders permitting and confirming the sale of the appellant-Company's assets were valid. The court concluded that the sale was not permissible under Section 20(4) of SICA, as the Board retains control over the assets of a sick industrial company until a winding-up order is passed. The High Court emphasized that SICA, being a special statute, prevails over the Companies Act, 1956, in cases involving sick industrial companies.

Conclusion:
The High Court set aside the impugned orders dated 11.5.2007 and 20.7.2007, ruling that the sale of the appellant-Company's assets was not sanctioned by law without a final winding-up order. The appeals were allowed, and the court underscored that the Board under SICA has exclusive jurisdiction over the sale of assets of a sick industrial company until the High Court orders its winding-up.

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