2024 (4) TMI 306 - HC - Companies Law

Recovery of outstanding dues - priority of charges - whether Andhra Bank which had the first charge over the property in question and is evidently a secured creditor could have effected a sale of the property in question by way of a private treaty? - Legitimacy and consequences of a Sale Deed executed by the company in liquidation. - HELD THAT - This Court has gone through the relevant provisions of the SARFAESI Act 2002 as also the Companies Act of 1956. There is no gain saying that the company (in liquidation) was a borrower in terms of Section 2(f) of the SARFAESI Act and the debt was taken and in existence against the property in question which was recoverable by the Bank. Further the property in question was a financial asset of the Bank in terms of Section 2(l) and there also arose a default in so far that there was apparently non-payment of the debt taken by the borrower in terms of Section 2(j) of the SARFAESI Act. Where a secured asset is an immovable property sale by any method other than public auction or public tender may be effected on such terms as may be settled between the secured creditor and the proposed purchaser in writing. Although in terms of sub-Section (2) to Section 13 of the SARFAESI Act there was no specific declaration as to the account of the company in liquidation having become a Non-Performing Asset such recourse was definitely on the cards. This court finds substance in the plea advanced by the learned counsel for Andhra Bank that by virtue of the order dated 03.12.2012 passed by the CLB whereby liberty was granted to the Bank to take action against the mortgaged property as per law the sale of the property in question by way of a private treaty with the borrower and the purchaser was squarely included and envisaged. Whether the sale of the property in question on 30.01.2013 should be validated by this Court? - HELD THAT - Unhesitatingly from the trail of correspondence viz. the letters/emails dated 20.12.2012 22.12.2012 27.12.2012 28.12.20212 that preceded between the principal borrower i.e. the company (in liquidation) through Ms. Manju Kanwar and Andhra Bank before the sale was effected does go to show that all efforts were being made to set the company (in liquidation) on course to recovery and revive it and further to ensure that its account with the Bank does not become an NPA. If the said letters dated 20.12.2012 22.12.2012 27.12.2012 and 28.12.20212 emanating from the company (in liquidation) are to be believed the company was going through a poor commercial phase due to a world-wide recession which greatly impacted Europe and United Kingdom in particular. This Court finds that the reliefs claimed in Company Application No. 340/2016 moved on behalf of the Official Liquidator are not sustainable. There are no justifiable reasons to invalidate the sale deed for the simple reason that the sale had been effected by Andhra Bank under its aegis through the principal borrower/debtor under its overall supervision and control and the entire sale consideration was duly received and accounted for. There is not an iota of material placed on the record to suggest that any part of the sale consideration was siphoned off or misappropriated by anyone connected with the company (in liquidation). Application dismissed.

Summary

Issues Involved:
1. Validity of the sale deed dated 30.01.2013.
2. Whether the sale of the property was in the ordinary course of business.
3. The role and actions of Andhra Bank in the sale process.
4. The rights and claims of the Official Liquidator and other stakeholders.
5. Allegations of undervaluation and fraudulent transactions.
6. The impact of the sale on the creditors and workers of the company (in liquidation).

Summary:

1. Validity of the Sale Deed Dated 30.01.2013:
The Official Liquidator moved CO. APPL. 340/2016, asserting that the sale deed dated 30.01.2013 was void ab initio, not in the ordinary course of business, and caused loss to creditors and workers. Respondent No. 2/Ms. Manju Kanwar contended the sale was bona fide, executed under Andhra Bank's behest, and not undervalued. Respondent No. 3/Ms. Pranjali Khanna claimed the purchase was bona fide, with the sale consideration paid through cheque/RTGS. Andhra Bank defended the sale, stating it was a private treaty sale under the SARFAESI Act, due to financial distress and market recession.

2. Ordinary Course of Business:
The sale was argued to be outside the ordinary course of business, as it was executed after the commencement of winding-up proceedings. The Official Liquidator claimed it was not authorized by the court and undervalued. However, the court found no substantive evidence of collusion or undervaluation, noting similar properties sold for comparable prices.

3. Role and Actions of Andhra Bank:
Andhra Bank, a secured creditor, facilitated the sale under a private treaty to avoid the company's account becoming an NPA. The court noted that the sale was in line with the SARFAESI Act provisions, and the bank's actions were justified given the financial distress and efforts to revive the company.

4. Rights and Claims of the Official Liquidator and Stakeholders:
The Official Liquidator's application to cancel the sale deed was dismissed. The court directed the Official Liquidator to de-seal the property in favor of Ms. Pranjali Khanna, recognizing her bona fide purchase.

5. Allegations of Undervaluation and Fraudulent Transactions:
The court found no evidence supporting the allegations of undervaluation or fraudulent transactions. The sale price was consistent with market rates, and the proceeds were accounted for, with no misappropriation.

6. Impact on Creditors and Workers:
The court noted that the sale did not prejudice the interests of creditors and workers, as the proceeds were used to settle debts with Andhra Bank and Vijaya Bank. The sale was deemed necessary to prevent further financial deterioration of the company.

Conclusion:
The court validated the sale of the property, dismissing the Official Liquidator's application and directing the de-sealing of the property. All other applications were disposed of accordingly, and the case was listed for further proceedings on 09.05.2024.