2013 (4) TMI 596 - HC - Companies Law

Auction of the property of company in liquidation (Respondent 1) by Karnataka State Financial Corporation (KSFC) (Respondent 2) secured creditor of the company in association with O.L. appellant was the successful bidder of the property - erstwhile Directors of the Company-in-liquidation called in question the confirmation of sale made by filing an appeal. The said appeal came to be ultimately allowed setting aside the sale in favour of the applicant. With regard to the amount which had been deposited as the auction sale price, the same has been refunded to the applicant - The issue in the instant application is however with regard to the amount which had been incurred by the applicant for taking possession and that was invested for improvement of the said property for its utilisation and also to protect the property. Held that - In that regard, it cannot be in dispute that though the property was sold by the KSFC, the same was in association with the Official Liquidator and when such responsibility is cast on the Official Liquidator also to ensure the sale be conducted in accordance with law and when the Division Bench has found fault with the procedure, there would be joint responsibility. However, in the instant case, the undisputed position is that the dismantled steel structures and other materials which was available in the property due to the work of dismantling carried out by the applicant, which would in a normal circumstance have ensured to the benefit of the applicant has been subsequently sold for by the KSFC. The said amount is available with the KSFC. Further, when the property is re-auctioned, it would fetch a higher value and the liability of the KSFC in any event would be recoverable. The said amount with accrued interest will cover the major portion of the amount which is held as payable to the applicant. The application is allowed in part. The respondents 1 and 2 are held liable to pay the sum of, Rs.29,55,010/- to the applicant.

Issues Involved:
1. Validity of the Power of Attorney (POA) holder's authority.
2. Bona fide status of the applicant as a purchaser.
3. Entitlement of the applicant to recover expenses incurred.
4. Determination of payable expenses and responsible party for payment.

Issue-wise Detailed Analysis:

1. Validity of the Power of Attorney (POA) holder's authority:
The second respondent, KSFC, challenged the authority of the POA holder representing the applicant-company, claiming discrepancies in the POA document. The POA dated 16.07.2009 referred to a resolution dated 31.03.2009, while the name change to Reliance Prolific Traders Pvt. Ltd. occurred on 23.04.2009. The court found that the POA was valid as it was executed after the name change and the resolution date referred to the former name, Himadri Enterprises. The POA holder, being the Vice-President of Reliance Retail Limited, a sister concern, had the authority to represent the applicant.

2. Bona fide status of the applicant as a purchaser:
The KSFC argued that the applicant was not a bona fide purchaser without notice, as they were aware of the pending litigation by an erstwhile director opposing the sale. The court determined that the applicant acted in good faith based on the initial confirmation of the sale by the Company Court. The applicant's investment in the property was made under the belief that the sale was valid. The court noted that the issue of bona fide status is relevant only when the purchaser seeks to retain the property, not when seeking reimbursement of expenses.

3. Entitlement of the applicant to recover expenses incurred:
The court referred to precedents, including the Supreme Court's decision in Allahabad Bank v. Bengal Paper Mills Co. Ltd., which allowed auction purchasers to claim expenses incurred in good faith. The court concluded that the applicant was entitled to reimbursement for expenses that enhanced the property's value or protected it, as these expenses would benefit the company-in-liquidation and the secured creditor.

4. Determination of payable expenses and responsible party for payment:
The court examined the evidence presented by the applicant, including receipts and invoices for various expenses such as borewell charges, civil works, security services, and other improvements. The court allowed claims for expenses that added value to the property, such as borewell charges, civil works, and security services, totaling Rs. 29,55,010/-. Expenses for electricity, water consumption, liaison charges, and legal fees were disallowed as they did not benefit the company-in-liquidation or were incurred for the applicant's own interest.

Responsibility for Payment:
The court held both respondents liable but directed the KSFC to pay the amount since they had sold the dismantled structures for Rs. 21,00,000/- and had not taken steps to re-auction the property. The KSFC was instructed to pay the amount within six weeks, failing which interest at 12% p.a. would apply.

Order:
1. The application was allowed in part.
2. Respondents 1 and 2 were held liable to pay Rs. 29,55,010/- to the applicant.
3. The second respondent, KSFC, was directed to make the payment.
4. Payment to be made within six weeks, failing which interest at 12% p.a. would apply.
5. Parties to bear their own costs.

← Previous Next →