9911796707
TMI Blog1999 (4) TMI 499X X X X Extracts X X X X X X X X Extracts X X X X ..... R. Das, Dhruv Aggarwal, Rashmi Jain, R.P. Gupta, Ranjan Mukherjee and A.D. Sikri for the Respondent. JUDGMENT Bharucha, J. - The relevant facts need to be set out to appreciate what is involved in these appeals from the judgment and order of a Division Bench of the High Court at Calcutta. 2. In June, 1985 a winding petition was filed against the first respondent company, now in liquidation ('the said company'). On 30-9-1986 a mort-gage suit (Title Suit No. 143 of 1986) was filed by the Punjab National Bank and the Bank of Baroda against the said company for recovery of the sum of ₹ 1,94,24,886.37 before the Subordinate Judge, Burdwan. On the same day a hypothecation suit (Suit No. 736 of 1986) was filed by the United Bank of India, the Punjab National Bank and American Express against the said company for recovery of the sums of ₹ 20,46,010.31 and 17,87,796.49 in the Calcutta High Court. On the same day, a hypothecation suit (Suit No. 737 of 1986) was filed by the Allahabad Bank against the said company for recovery of the sums of ₹ 29,18,360.65 and 11,64,370.00 in the Calcutta High Court. Again on the same day, the Punjab National Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auction by inviting sealed tenders upon advertisements once in the 'The Statesman' once in 'Jugantore' and once in 'Biswamitra' as per usual terms and conditions of sale . The sale was to be held on 15-9-1989 at 2.00 p.m. in Court. The Official Liquidator was directed to issue the advertisements at least three weeks prior to the sale and to give notice to the valuer asking him to be present on the date of the sale. The Official Liquidator, the secured creditors and the valuer were required to act on a signed copy of the minutes of the order. 6. On 14-8-1989 the sale notice was issued. It stated that the sale was of the entire movable and immovable assets of the said company lying in its factory premises at Ballavpur, Ranigunge, District Burdhaman and mov-able assets lying in its registered office at Calcutta. The sale was to be on as is where is and whatever there is basis. The terms and conditions of sale were stated to be available at the office of the Official Liquidator. 7. Clause ( 1 ) of the terms and conditions of sale stated that the sale would be as per inventory on 'as is where is and whatever there is' basis and subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 the other was only with regard to the sale of furniture and the third was for ₹ 1,10,00,000 for the sale of the assets. The sale of assets had taken place in the open court though there were no further bidders at the auction. The offer of ₹ 1,50,00,000 had been subsequently raised to ₹ 2 crores by the second respondent. The Advocate General for the State of West Bengal, appearing for the second respondent, had submitted that the concerned unit would not be disposed off as scrap but would be used as a going concern. An agreement has already been reached with the union affiliated to the CITU containing detailed terms and conditions as to the working of the mill. The Advocate General had produced a letter from the Bengal Paper Mill Mazdoor Congress affiliated to INTUC wherein an unequivocal acceptance of the terms had been recorded. The Advocate General had assured the Court that 1700 people would be re- employed within a span of two weeks and to those who could not be taken in necessary compensation would be paid, which might exceed ₹ 50 lakhs. The learned single Judge recorded that the learned advocate appearing for the secured creditors has raised no objec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome monies to the secured creditors .... 11. Appeals were filed by the banks against the orders dated 15-9-1989 and 27-9-1989. The appeals were disposed off by the order that is under challenge. 12. The Division Bench noted that the valuation report was not disclosed to any of the banks, but it stated that it appeared from the valuation report produced before it that the total value of the assets of the said company was estimated by the valuer to be ₹ 6,22,16,875. Since the valuation report was not disclosed to the banks, the banks had no opportunity to object to the valuation made. According to the advocate appearing on behalf of the banks, the proper valuation of the assets should have been much higher; the loans granted by the banks were fully secured and should have been fully recovered if the assets had been sold at a proper price. Since the valuation report was not shown to the banks, the banks had no opportunity to point out the defects in the valuation report. The said company had 15.2.73 acres of lease-hold land. This was not taken into consideration by the valuer on the ground that the lease was only upto 14-10-1992. The valuer had not indicated whether h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale till 3-2-1990 and no stay of its operation had been asked for. The counsel for the banks had contended that the appeals were filed within the period of limitations. The Division Bench countered that that might be so, but the purchaser had been allowed to take possession after the sale. He had employed persons and placed orders without objection from the banks. It was only after these things had happened that the banks 'woke up'. The delay was found fatal to the case of the banks. But, the Division Bench added: There is, however, considerable force in the argument of Mr. Mitra that the sale was made with undue haste. The proposal for sale of a large paper mill should only have been effected after giving wide publicity all over India. Moreover, the successful bidder's offer should have been examined in depth before acceptance. Some enquiry should have been made to find out the number of workers actually employed by the company in liquidation at the time of the closure of its mills. No attempt was made out to find out how many of those workers were still unemployed and whether the Trade Union with which the purchaser had entered into an agreement represented all th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ground that the lease period was only upto 14-10-1992. The valuer has not indicated whether he had examined the lease deed or whether there was any renewal clause in the lease agreement . The valuation was, therefore, itself suspect. 14. The sale was advertised once only in three newspapers, two of which at least were local newspapers. For a sale of the magnitude of that with which we are concerned, this was surely inadequate publicity. Inadequate publicity necessarily suggests the possibility that a better price could have been obtained. 15. The learned single Judge would appear to have been carried away by the prospect that 1700 people would be re-employed. He did not appreci- ate that the said company's ex-employees were only some of its creditors and that they stood on no better footing than its other unsecured creditors. No order could have been passed that, while it favored them, took no account of other unsecured creditors. The employees of the said company had been, as the order of the learned single Judge itself shows, out of employment for 7 to 8 years but the learned single Judge did not inquire how many of them had secured other employment in the interve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the Official Liquidator to hand over to the second respondent the possession of the assets and properties 'by tomorrow'. 20. The observation of the Division Bench in the order under appeal that the sale was conducted with undue haste is very appropriate. So are the other critical observations that the Division Bench made, which we have quoted above. It could not but have been obvious to the Division Bench, therefore, that there was every possibility that the sale had not procured the best possible price. Even so, the Division Bench did not interfere with the order of sale, because, in its view, the second respondent had been allowed by the banks to take possession of the assets and properties and to incur expenditure. In our view, the Division Bench was in error. 21. Upon liquidation, the assets and properties of the company in liquida-tion vest in the Official Liquidator for the benefit of its creditors. It is only from out of the sale proceeds of these assets and properties that the creditors of the company can hope to recoup their dues. To ensure that the best possible price is realised upon the sale of these assets and properties, the sale thereof by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation by the Court being a safeguard against the property being sold at an inadequate price, it will be not only proper but necessary that the Court in exercising the discretion which it undoubtedly has of accepting or refusing the highest bid at the auction held in pursuance of its orders should see that the price fetched at the auction is an adequate price even thought there is no suggestion of irregularity or fraud. 23. It is also well to remember that, for the most part, the creditors of a company in liquidation are small trade creditors whose dues are not so large as would make it economical for them to resort to proceedings in the Court. It is these small creditors that the High Court is expected to protect when confirming a sale by the liquidator. 24. We think that the Division Bench lost sight of what is stated above. It could not have realistically expected the ordinary unsecured creditors of the said company to have filed appeals on the ground of inadequacy of the sale price. It could not have turned a blind eye to the many defects that it itself noted in the order of sale merely because the banks had moved the appeals after five months; nor was there any jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the fact that to do so would be wrong in principle. We do not know and have no means of knowing what the fair value of the said assets and properties that were sold was; that could only have found after a properly advertised sale had been held. We do not know, and counsel were unable to tell us, what the totality of the claims against the said company are. 27. The learned counsel for the banks had contended before the Division Bench of the High Court that the mortgages could only have given up by the banks in writing and not otherwise and he had pointed out that the mortgage suits by the banks were still pending. He had also contended that what was sold to the second respondent, in any event, was only the equity of redemption in the mortgaged property. These contentions were repeat- ed before us. On behalf of the second respondent it was contended, on the other hand, that the banks had given up their securities and become unsecured creditors. 28. It is to be noted than on 11/12-1-1988, the Punjab National Bank had made an application to the High Court in the transferred suit and prayed that the Official Liquidator should be appointed receiver in place and stead of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent and its associates, had obtained the lease in its favour from the State of West Bengal. The order of sale in favour of the second respondent being liable to be set aside, everything consequential thereon must necessarily also be set aside. The lease, patently, was obtained as a consequence of the order of sale. For doing complete justice, therefore, it is necessary to set aside the lease. 31. The learned counsel for the second respondent submitted that the second respondent would be entitled to recover the sale price as also all expenditure that it had incurred consequent upon the order of sale. We are in no doubt that the Official Liquidator must refund to the second respondent the sum of ₹ 2 crores. As to any other expenditure, the second respondent must apply to the High Court and satisfy it, first, that it was incurred and, secondly, that, in law, the second respondent is entitled to recover it. 32. The appeals are allowed. The judgment and order under appeal is set aside as also the order of sale dated 15-9-1989 in favour of the second respondent. The Official Liquidator shall forthwith recover possession, from whoever is in possession, of the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X
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