9911796707
TMI Blog2005 (3) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... into rough weather which resulted in filing a winding up petition in this court being C. P. No. 226 of 1999 under sections 433 and 434 of the Companies Act, 1956 (for brevity, "the Act"). The aforementioned petition was allowed on February 1, 2001, and the official liquidator was appointed the liquidator. It is pertinent to mention that before passing order dated February 1, 2001, for winding up the Punwire finally, this court had appointed a provisional liquidator vide its order dated July 27, 2000, passed in C. A. No. 705 of 1999. After the order of winding up, the official liquidator filed C. A. No. 775 of 2003 for permission to sell the assets and properties of the Punwire. The afore mentioned C. A. No. 775 of 2003 was allowed by accepting the prayer of the official liquidator to sell the assets and properties of the Punwire, vide order dated January 4, 2003. Thereafter, a sale committee was constituted to work out the modalities for auctioning of the properties of the Punwire which comprised of the official liquidator and representatives of the secured creditors. It was decided that the auction of the assets and properties of Punwire was to be conducted by inviting sealed tend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at since no tender had been received for machinery, it would be difficult to sell the land of this building because the machines would be required to be shifted to another premises which may result into damage to those machines. This tender was opened on July 27, 2004. How ever, the decision was deferred by retaining the offer of the "auction purchaser" for some time so as to take a decision after looking into other tenders in respect of furniture and fixtures and other miscellaneous items. On July 28, 2004, the tender in respect of lots Nos. 19 and 20 comprised of furniture and air conditioners respectively was opened. The auction purchaser had offered Rs. 4.50 lakhs for lot No. 19 against the reserve price of Rs. 4 lakhs and the sale committee expressed the opinion for moving appropriate application for consideration of this court. The other tenderers in respect of this lot, namely, Rajdhani Cables (India) were not found qualified as no negotiable instrument of any cash showing the payment of earnest money was attached. For lot No. 20 comprised of air conditioners again the auction purchaser had offered Rs. 15.50 lakhs on the condition that lot No. 17 is also sold to it at a pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se bidding was held between the auction purchaser and M/s. Star Point Financial Services Limited in respect of lot No. 17. Against the highest bid of the "auction purchaser" received by the official liquidator, the company M/s. Star Point Financial Services Limited made an offer of Rs. 3.15 crores which was further toppled by the "auction purchaser" by offering higher bid of Rs. 3.16 crores. The official liquidator supported the view that the highest bid of the auction purchaser in respect of lot No. 17 deserved to be accepted. While noticing the objection raised on behalf of the secured creditors that movable items including plant and machinery should be sold first and the confirmation of sale of the land and property styled as B-77, Industrial Area, Phase VII, S.A.S. Nagar (Mohali) be deferred, this court confirmed the sale of lot Nos. 17, 19 and 20 in favour of the auction purchaser. The operative part of the order dated December 10, 2004, is reproduced hereunder for facility of reference : "After hearing counsel for the parties, I am of the considered view that sale in favour of the auction purchaser deserves to be confirmed because it has been pointed out by learned counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On December 21, 2004, the auction purchaser is claimed to have availed of a term loan of Rs. 1.64 crores from the Canara Bank and Rs. 1.38 crores from Sate Bank of Patiala on January 6, 2005 (total Rs. 3.02 crores), against the land and building situated at B-77, Industrial Area, Phase VII, Mohali. It is further claimed that to avail of the term loan it has entered into an agreement to mortgage the land and building situated at B-77, Phase VII, Mohali with Canara Bank on January 4, 2005, and had also given an undertaking to create a mortgage in favour of State Bank of Patiala on January 4, 2005. Accordingly, the sale deed has to be deposited with those banks. Certain other steps were also taken by sending intimation to the Punjab Small Scale Industries Export Corporation (for brevity, "PSIEC") to transfer the land in favour of the auction purchaser. On account of some omissions in order dated December 10, 2004, C. A. No. 27 of 2005 was filed by the auction purchaser seeking clarification and on January 13, 2005, the clarification was issued by stating that sale in favour of the auction purchaser in respect of lot Nos. 19 and 20 has also been confirmed. However, C. A. No. 72 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re assets of Punwire which included land and building situated at B-77, Industrial Area, Phase VII, Mohali. The applicant has asserted that it would be in the interest of justice, equity and public interest to sell the property of Punwire in one lot rather than in different lots. A detailed reply has been filed by the auction purchaser claiming that it had acquired vested rights after confirmation of auction by this court on December 10, 2004, deposit of total amount on December 13, 2004, and taking of possession on December 16, 2004. It is claimed that the reserve price is Rs. 40 crores and the offer of Rs. 12 crores is woefully low. It has been pointed out that the property included in lot No. 25 situated at Bom bay alone is kept at the reserve price of Rs. 8 crores and the offer of Rs. 12 crores for the entire assets of Punwire being far below the reserve price amounted to playing a fraud and such an offer would not serve the interest of the company or anyone else. The application is said to be filed beyond the last date of submission of tenders. The application has also been opposed on the ground of mala fide as Mr. B. S. Baidwan is stated to be well aware of the liquidatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industries ( P. ) Ltd. v. Asnew Drums ( P. ) Ltd. [1974] 3 SCR 678 ; [1974] 2 SCC 213. Learned counsel has invoked the principle of administrative law of legitimate expectation and has argued that this court should not accept any toppling bid, at this stage, because it would amount to forcing the auction purchaser to again come up with a higher bid which would be arbitrary. In support of his submission, learned counsel has placed reliance on a judgment of the Supreme Court in the case of Food Corporation of India v. Kamdhenu Cattle Feed Industries [1993] 1 SCC 71. It has further been argued that once the highest bid has been accepted at the auction, the court must see that the price fetched is adequate and thereafter no subsequent higher bid would constitute a valid ground for refusing confirmation of sale or declining the offer already received. In that regard, reliance has been placed on a judgment of the Supreme Court in the case of Navalkha and Sons v . Ramanuja Das [1970] 40 Comp. Cas. 936 ; [1970] 3 SCR 1. Describing the Sun Group intervener as the "trouble maker", learned counsel has argued that it is for it to show that there is real need to set aside the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the usual clause in the terms and conditions like the one found incorporated in the terms and conditions concerning the case Divya Manufacturing Co.'s case ( supra ) which empowered the court to set aside the sale, even after it is confirmed, is conspicuously absent from the sale notice which further shows that the sale by the official liquidator or by this court was not even subject to confirmation. Mr. Vivek Bhandari, learned counsel appearing for the intervener has argued that basic principle underlying the proceedings for winding up of the company in liquidation is to achieve optimum welfare of the creditors and to ensure that the maximum price is received by the Punwire. Learned counsel has made a reference to the judgment of the Supreme Court in the case of Union Bank of India v. Official Liquidator, High Court of Calcutta [2000] 101 Comp. Cas. 317 ; [2000] 5 SCC 274 and has argued that judg ment of the Supreme Court in Kayjay Industries ( P. ) Ltd. 's case ( supra ) and Navalkha and Sons's case ( supra ) on which reliance has been placed by Dr. Abhishek M. Singhvi, have been considered and the argument that mere inadequacy of price cannot constitute the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the intending bidders are free to participate and offer higher value. It has been emphasized that if that path is cut down, the possibility of fraud or to secure the best price would be a mirage. Mr. Bhandari has refuted the argument advanced on behalf of the auction purchaser that the omission to incorporate the terms and conditions that the sale would be subject to confirmation of the court is not intentional but an inadvertent act. According to him, it would not mean that this court has no power to confirm the sale. Learned counsel has made a reference to rule 9 of the Rules and section 457 of the Act to argue that omission to incorporate such a clause would not result into replacing section 457 of the Act which postulates power of the liquidator who acts subject to the control of the court. The official liquidator through the court is the custodian of the property of the company. Mr, Bhandari has made an offer after obtaining instructions that for all the three lots the intervener is prepared to purchase the same in lump sum of Rs. 3.75 crores as against the confirmed rate of Rs. 3.36 crores in favour of the auction purchaser. The difference in both the bids is about Rs. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial liquidator are required to be conducted by a public auction or by inviting sealed tenders or by any other mode as may be directed by the court. It is also of paramount consideration that the interest of the secured and unsecured creditors and the workmen of the company in liquidation are kept in view. These principles flow from a reading of section 447 of the Act, which deals with the effect of winding up. Section 447 reads as under : "447. Effect of winding up order. An order for winding up a company shall operate in favour of all the creditors and of all the contributories of the company as if it had been made on the joint petition of a creditor and of a contributory." A perusal of the aforementioned provision makes it clear that once an order of winding up has been made as has been done in the instant case, vide order dated February 1, 2001, then such an order of winding up operates in favour of the creditors and the contributories of the company. All of them can avail of the benefit of the order to themselves as if the order was passed on a petition filed by all of them jointly. The provisions to which a reference has been made in the preceding paragraphs have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rajan v. Khaka Mahomed Ismail Saheb of Roshan and Co., AIR 1940 Mad. 42. In A. Subbaraya Mudaliar v. K. Sundararajan AIR 1951 Mad. 986, it was pointed out that the condition of confirmation 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 though there is no suggestion of irregularity or fraud. It is well to bear in mind the other principle which is equally well settled, namely, that once the court comes to the conclusion that the price offered is adequate, no subsequent higher offer can constitute a valid ground for refusing confirmation of the sale or offer already received." It is, however, pertinent to mention that in Navalkha and Sons's case ( supra ) the confirmation order was yet to be passed and the auction held by the official liquidator was not con firmed by the company judge on account of inherent defect that wide publicity to the proposed auction was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a safeguard against the property being sold at an inadequate price whether or not it is a consequence of any irregularity or fraud in the conduct of the sale; the court is required to satisfy itself that having regard to the market value of the property the price offered is reasonable ; unless the court is satisfied about the adequacy of the price the act of confirmation of sale would not be a proper exercise of judicial discretion. This aspect is reiterated by the court by holding that the aforesaid principles must govern every court sale. The court has also observed that failure to apply its mind to the material factors bearing on the reasonableness of the price offered may amount to material irregularity in the conduct of sale." It is thus obvious that the power of the court to set aside even a con firmed sale is unassailable. The judgment of the Supreme Court in Navalkha and Sons's case ( supra ) has not dealt with such a power. However, in Union Bank of India's case ( supra ) the view taken in Navalkha and Sons's case ( supra ) has been considered. Emphasising that the object of sale is to apply the sale proceeds to meet the claims of the creditors of the company, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mages to the auction purchaser. The Division Bench of the High Court after taking into consideration all the relevant facts, ordered resale of the assets of the company. The order of the Division Bench was upheld by the Supreme Court after referring to the judgments in Navalkha and Sons's case ( supra ), UCA ( P. ) Ltd. ( No. 1 ) v. Official Liquidator [1996] 85 Comp. Cas. 788 (SC) and UCA ( P. ) Ltd. ( No. 2 ) v. Official Liquidator [1996] 85 Comp. Cas. 792 . Relying and explaining various earlier judgments of the Supreme Court, it was held as under (page 75 of 102 Comp. Cas.) : "16. . . . The offer of Rs. 1.30 crores is totally inadequate in comparison to the offer of Rs. 2 crores and in a case where such higher price is offered, it would be in the interest of the company and its creditors to set aside the sale. This may cause some inconvenience or loss to the highest bidder but that cannot be helped in view of the fact that such sales are conducted in court precincts and not by a business house well versed in the market forces and prices. Confirmation of the sale by a court at a grossly inadequate price, whether or not it is a consequence of any irregularity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur of the intervener : ( a )participation at the stage when the proceedings are pending, although confirmation has been made on December 10, 2004, in respect of lot Nos. 17, 19 and 20 in favour of the auction purchaser; ( b )Rs. 3.75 crores for lot Nos. 17,19 and 20 as a lump sum price as against the offer of the auction purchaser of Rs. 3.36 crores. All litigation expenses and interest incurred on the loan approved upon released by the banks is undertaken to be paid back. The possibility of reviving the company back to its life by making higher offer to purchase the whole company; ( c )more effective care of the secured and unsecured creditors as well as of the workmen ; ( d )views of the employees union with regard to sale have not been ascertained. The auction purchaser has offered the highest bid of Rs. 3.14 crores for land and building in respect of lot No. 17. The official liquidator had listed only three bidders, namely, ( a ) auction purchaser, ( b ) M/s. Star Point Financial Services Limited and ( c ) S.K. Khaitan and Company and a prayer was made to the court to consider the offers received by the official liquidator for sale of land and building from the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated December 10, 2004 made in favour of the auction purchaser. I am further of the view that the workmen have overriding claim to that of the secured creditors as provided by section 529A of the Act. The dues claimed by the workmen and that due to the secured creditors are to be treated pari passu . The dues of the workmen have to be treated as prior to all other dues. The official liquidator has failed to associate the workmen in the process of sale of the company. The interest of the workmen is in no way insignificant than the interest of the secured creditors in the company under liquidation. For that reason also, the order dated December 10, 2004, requires to be recalled. The argument of Dr. Singhvi, learned counsel for the auction purchaser, that inadequacy of price cannot be considered as a basis for setting aside the confirmed bid or that there should be some element of perversity or unfairness in conducting the auction, in view of the law laid down in various paragraphs quoted from the judgments of the hon'ble Supreme Court in the cases of Union Bank of India's case ( supra ), Divya Manufacturing Co. [2000] 102 Comp. Cas. 66 ; [2000] 6 SCC 69 and Allahabad Bank's ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
