2008 (11) TMI 742 - Board - Companies Law

Summary

Issues Involved:
1. Approval to sell the property of the company.
2. Compliance with Section 293(1)(a) of the Companies Act, 1956.
3. Validity of the extraordinary general meeting and its resolutions.
4. Objections by respondents regarding the sale process.
5. Consideration of public auction versus private sale.

Summary:

1. Approval to Sell the Property:
The application was filed u/s 402 of the Companies Act, 1956, seeking approval to sell the property of M/s. Karnataka Pressure Vessels Ltd. to protect the interests of secured creditors, KSFC and Canara Bank. The company owed approximately Rs. 1.5 crores to KSFC and Rs. 90 lakhs to Canara Bank, and was unable to pay its dues.

2. Compliance with Section 293(1)(a):
To comply with Section 293(1)(a) of the Act, an extraordinary general meeting was called on June 5, 2008, where resolutions were passed enabling the company to sell the property. The resolution was passed with a majority, with 29 votes in favor and 4 against.

3. Validity of the Extraordinary General Meeting and Its Resolutions:
The court noted that the extraordinary general meeting was conducted properly, with majority shareholders favoring the resolution. Citing Maxwell Dyes and Chemicals P. Ltd. v. Kothari Industrial Corporation Ltd., the court held that it is not for the court to interfere with the decision of the shareholders when resolutions are passed by an overwhelming majority.

4. Objections by Respondents Regarding the Sale Process:
Dr. K.S. Ravichandran, representing respondents Nos. 1 to 12, argued that the Company Law Board has no power to permit the sale of the company's property and that the applicant had not made out a prima facie case for interim relief. He also contended that the proposed sale would require prior consent of the secured creditors u/s 13(13) of the SARFAESI Act, 2002. The respondents claimed that the sale was prejudicial to the interests of the company and its shareholders, and that public auction would ensure the best price.

5. Consideration of Public Auction Versus Private Sale:
The court emphasized that public auction after adequate publicity ensures participation of every interested person and generally secures the best price, citing Chairman and Managing Director, Sipcot v. Contromix P. Ltd. The court directed the company to advertise the sale in newspapers and other modes with the consent of the secured creditors to secure the best price in an open auction. If the open auction did not secure the best price, sealed tenders could be called, to be opened in the presence of the petitioner and secured creditors.

Conclusion:
The application was allowed with directions for the company to advertise the sale widely and conduct an open auction to secure the best price, ensuring transparency and compliance with all norms. The respondents/petitioners were also permitted to participate in the auction. The matter was posted for further hearing on December 2, 2008.