9911796707
TMI Blog2006 (8) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... . (first respondent in both batches, for short 'WINSOME') is the purchaser of Item Nos. 17, 19 and 20 from out of the assets of PUNWIRE under sale notice dated 15-6-2004 issued by the official liquidator. Respondents 3 to 10 are the banks/financial institutions which are the creditors of PUNWIRE. M/s. Sungroup Enterprises Pvt. Ltd. (respondent No. 11 in the first batch and appellant in the second batch, for short 'SUNGROUP') is a company interested in purchasing Item Nos. 17, 19 and 20. 3. M/s. Punjab Wireless Systems Ltd. was ordered to be wound up on 1-2-2001. On 4-1-2003, the learned Company Judge permitted the Official Liquidator to sell the assets of PUNWIRE. A Sale Committee was constituted (consisting of the Official Liquidator and two of the major creditors, namely, Canara Bank and IFCI), to work out the modalities of sale. The Sale Committee divided the assets of PUNWIRE to be sold into 25 separate lots, for convenient sale. The Official Liquidator issued a sale notification dated 15-6-2004 inviting sealed tenders. The sale notice was widely published on 25-6-2004 in leading newspapers that is Economic Times, Times of India, The Tribune (all India editions), Punjab Kesari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Ltd. (PSIEC), the Official Liquidator gave a no objection certificate for transfer of the lease from the name of PUNWIRE to the name of WINSOME on 29-12-2004. In pursuance of it WINSOME applied to PSIEC for transfer of the lease in its favour. On payment of a transfer fee of Rs. 11,78,550, the lease in respect of plot No. B-77 was transferred to WINSOME and a lease deed dated 25-10-2005 has been executed and registered between PSIEC and WINSOME, the period of lease being 99 years from the date of allotment to the original allottee. 6. SUNGROUP filed C.A. No. 72/2005 in January, 2005, offering to take over the entire assets of PUNWIRE (Item Nos. 1 to 25) as a going concern for a price of Rs. 12 crores. The Company Court directed SUNGROUP to deposit a sum of Rs. 2 crores with the Official Liquidator to establish its bona fides, as a condition for entertaining the application. SUNGROUP deposited the said sum of Rs. 2 crores. On 11-2-2005, SUNGROUP raised its offer for the total assets (Item Nos. 1 to 25) to Rs. l4 crores. The price offered by SUNGROUP for Item Nos. 17, 19 and 20 (out of the total price offered) was Rs. 353.2 lakhs for Item No.17, Rs. 1.25 lakhs for Item No. 19 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the price of Rs. 3.16 crores realized for Item No. 17 very low. SUNGROUP next submitted that the adjoining plot of equal dimension (that is Plot No. B-76 - lot No. 10) was purchased by SUNGROUP on 20-4-2006 for a price of Rs. 11.6 crores and that if the price for Item No. 17 is worked back on that basis by deducting the annual appreciation for two years at the rate of about 15 per cent to 20 per cent per year, the price of item No. 17 would have been around not less than Rs. 6 to 7 crores, in the year 2004. It also alleged that one of the bidders at the inter se bidding on 10-12-2004, namely Star Point Financial Services Ltd., was a sister company of WINSOME and therefore the sale was not legal. 10. The Employees' Union adopted the contentions urged by SUNGROUP and in addition submitted that notice should have been issued by the Company Court to it before confirming the sale in favour of WINSOME as the employees were vitally interested in the outcome of the sale. The Employees' Union also submitted that large amounts were due to the employees and unless a good price was received, the employees would be adversely affected. It was further contended that learned Company Judge, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having been confirmed and the PSIEC having executed the registered lease deed in their favour the question of interfering with the sale does not arise. 12. After the matter was argued for sometime the learned counsel for SUNGROUP submitted that having purchased the adjoining property, they were interested in purchasing Plot No. B-77 also and SUNGROUP was willing to offer the same price of Rs. 11.6 crores for the property (Item No. 17). Learned counsel for the Employees' Union submitted that in the interest of workers, WINSOME should take a reasonable profit and give up the property in favour of SUNGROUP so that the workers and creditors will be benefited. At this stage, learned counsel for SUNGROUP stated that being interested in the welfare of the workers, in addition to the price of Rs. 11.6 crores offered by them for Item No. 17, it will also pay ex gratia, a sum of Rs. 50 lakhs to the employees of PUNWIRE, as they have been without salary for quite sometime. In view of these submissions, we queried the learned counsel for WINSOME as to whether WINSOME was interested in considering the offer of SUNGROUP. 13. Learned counsel for WINSOME took time and after obtaining instruction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng manner : (a)Rs. 2 crores by authorizing the Official Liquidator to adjust the deposit already made by SUNGROUP. (b)Rs. 3.24 crores by demand draft drawn in the name of Official Liquidator, High Court of Punjab & Haryana, to the account of company in liquidation (PUNWIRE). (iii)On payment of the amounts as aforesaid, the Official Liquidator shall file a report with the Company Judge confirming the receipt of Rs. 8.6 crores as full sale price for Item Nos. 17, 19 and 20 in the following manner : (a)Rs. 3.36 crores received from WINSOME and adjusted towards the sale price. (b)Rs. 2 crores deposited by SUNGROUP and adjusted towards the price. (c)Rs. 3.24 crores received by way of demand draft from SUNGROUP. The price of Rs. 8.6 crores so received shall he dealt with as per directions of the learned Company Judge. (iv)PUNWIRE, the company under liquidation shall be entitled to retain any interest accrued on Rs. 3.36 crores and Rs. 2 crores till date, without being liable to refund or account for the same either to WINSOME or to SUNGROUP. (v)On receipt of the payments as aforesaid by WINSOME and the Official Liquidator, the sale in favour of WINSOME in respect of item Nos. 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Wireless Systems Ltd. VIRENDER SINGH AND N.K. SUD, JJ. COMPANY APPEAL NO. 11 OF 2005 IN C. APPLICATION NO. 650 OF 2004 AND C.A. NO. 72 OF 2005 IN C.A. NO. 775 OF 2003 IN C.P. NO. 226 OF 1999 OCTOBER 6, 2005 L.M. Suri, Deepak Suri and Neeraj Khanna for the Appellant. Alok Jain, Manish Jain, Vivek Bhandari and S.C. Nagpal for the Respondent. JUDGMENT Virender Singh, J. - This is a hotly contested matter anent the post auction jurisdiction of Company Judge to set aside a confirmed sale on the basis of a higher offer. The facts of the case, are set down as under : Winsome Yarns Limited, (auction purchaser) through the instant appeal has impugned the order of the learned Company Judge dated March 30, 2005 (Punjab Wireless Systems Ltd. (In Liquidation) v. Indian Overseas Bank [2005] 126 Comp. Cas. 554 (Punj. & Har.), whereby the confirmed auction sale has been set aside and the Official Liquidator has been directed to undertake the exercise of re-auction of lot Nos. 17, 19 and 20 of Punjab Wireless Systems Limited (for brevity, "Punwire"), in liquidation. The company in liquidation namely Punwire had gone into rough weather which resulted in the filing of a winding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed at Rs. 25 crores. The appellant was one of the tenderers for the following three lots : (i )Lot No. 17 (consisting of land and building) ; (ii )Lot No. 19 (consisting of furniture); (iii)Lot No. 20 (consisting of air conditioners). The other bidders who had submitted their tenders were M/s. Star Point Financial Services Ltd. and M/s. S.K. Khaitan and Company. Both these bidders were for lot No. 17. The Official Liquidator opened the tenders in the presence of the Committee in respect of lot No. 17 which was for B-77, Industrial Area, Phase VII, S.A.S. Nagar (Mohali). The appellant had offered Rs. 3.15 crores for the land and building against the reserve price of Rs. 3 crores. The Committee thought that since no tender was 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 building which would cause damage to the machinery. The decision was deferred by the Committee for sometime pending consideration of the tenders in respect of furniture and fixtures. Thereafter, the tender in respect of lot Nos. 19 and 20 comprised of furniture and air conditioners was also opened. The appellant h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised in Plot No. B-77 (lot No. 17) should be sold first to avoid any payment of rent, shifting expenses, etc. On December 10, 2004, inter se bidding was then held between the appellant and M/s. Star Point Financial Services Limited in respect of Lot No. 17. M/s. Star Point Financial Services Limited made an offer of Rs. 3.15 crores. The appellant had an edge of higher bid by offering Rs. 3.16 crores. The Official Liquidator supported the view of the appellant in respect of Lot No. 17 and made a prayer that the offer of Rs. 3.16 crores should be accepted. The learned company judge, thus, confirmed the sale in favour of the appellant vide order dated December 10, 2004. The appellant thereafter moved an application for clarification of the order with regard to the confirmation of the sale in respect of lot Nos. 19 and 20. On January 13, 2005, it was made clear by the learned company judge that the sale in favour of the appellant of above said two lots have also been confirmed vide order dated December 10, 2004. The aforesaid three lots were confirmed for a total sum of Rs. 3.36 crores and the split up is as under : Lot No. 17-Rs. 3.16 crores. Lot No. 19-Rs. 15.50 lakhs. Lot No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion against the auction purchaser, i.e., the appellant. The appellant was also restrained from creating any further encumbrance on the property or changing its nature. The appellant challenged the aforesaid interim order before the Hon'ble Apex Court vide Special Leave Petition No. 10990 of 2005 and the same was dismissed on May 12, 2005. Another fact which needs to be mentioned is that initially the union was not arrayed as one of the respondents in the instant appeal but during the proceedings on an oral request made by Mr. S.C. Nagpal, advocate appearing for the union, vide order dated April 5, 2005, the union through its President was impleaded as respondent No. 11. The appellant then placed on record the amended grounds of appeal by moving separate application registered as Company Misc. No. 68 of 2005 and the same was allowed. During the pendency of the appeal another application was also moved by the union bearing Company Misc. No. 80 of 2005 under rule 9 pointing out that M/s. Star Point Financial Services Pvt. Ltd. and M/s. S.K. Khaitan had, in fact, been propped up by the appellant/auction purchaser only to give a semblance of competition before the company judge with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces the impugned order passed by the company judge setting aside the confirmed sale is not sustainable. Mr. Suri then submits that the appellant was also the successful bidder in the inter se bid by the company judge himself and it is only thereafter that it had paid the entire sale consideration and was put in possession of the property. Even the formalities for transfer had been completed. The Official Liquidator had issued the "no objection certificate" to the PSIEC to Execute the transfer document in favour of the appellant. The appellant had also paid all the requisite charges for the transfer. Since it was a leasehold property, only a lease deed was required to be prepared in respect of transfer. Challenging the very maintainability of the application, Mr. Suri contends that Sun Group had woken up all of a sudden from slumber on one fine morning, i.e., January 28, 2005, and offered a lump sum price of Rs. 12 crores for the entire assets (25 lots) of Punwire as a going concern, which was much below the reserve price and still the learned company judge took cognizance and restrained the Official Liquidator from executing the transfer deed in favour of the appellant. According ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel in support of his contentions relies upon the judgment of Hon'ble Apex Court rendered in Kayjay Industries Pvt. Ltd. v. Asnew Drums Pvt. Ltd. [1974] 2 SCC 213. Mr. Suri then submits that even otherwise the secured creditors who are the most affected persons holding a charge on the property are supporting the case of the appellant throughout and union (respondent No. 11) could not intervene in this case during the sale as there is no such provision in the company law that the workmen have to be associated for the purpose of sale. A workman steps in only at the stage of disbursement of the dues where he has the preferential right over a secured creditors as envisaged in section 529A of the Act. According to Mr. Suri, the advertisement of sale notice was given in various leading newspapers and the union at one stage had even approached the Official Liquidator to defer the sale process. A letter in this regard was also received in the office of the Official Liquidator on July 9, 2004, requesting him to suspend/defer the sale of assets of Punwire in view of the reference made to the BIFR. The Official Liquidator in his written response had directed the union to approach the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Divya's case [2000] 102 Comp. Cas. 66 ; [2000] 6 SCC 69 was that neither the possession of auctioned property had been handed over nor had the sale deed been executed and in these peculiar circumstances, the sale already confirmed was set aside. But in this particular case, the possession of the property stood already handed over to the appellant and all the steps for transfer of property including the deposit of fees etc., had also been taken. Therefore, the view taken in Divya's case [2000] 102 Comp. Cas. 66 ; [2000] 6 SCC 69 rather comes to the aid of the appellant for reaffirming the earlier order dated December 10, 2004, confirming the sale. Mr. Suri lastly contended that there has to be finality to the sales by public auction. There can always be one or other intervener with a higher bid after the auction and if the courts were to act on such offers, the process of auction will become unending. Seen from this angle as well, the impugned order deserves to be set aside. On the basis of the aforesaid submissions, Mr. Suri prays for setting aside the impugned order of the learned company judge dated March 30, 2005, with a further prayer that the order dated December 10, 2004, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chor, Mr. Bhandari wants to submit that the company judge has rightly set aside the confirmed sale in this case. On the merits Mr. Bhandari submits that the application moved by the Sun Group on January 28, 2005, before the company judge giving an offer of Rs. 12 crores indicates that prior to that they had sent a letter dated January 18, 2005, to the Punjab Government to obtain a stay of further proceedings for sale of assets because the Official Liquidator was already in the process of selling the assets of Punwire on piecemeal basis and after receipt of the reply from the Secretary, Industries Department, Punjab on January 27, 2005, the representatives of the Sun Group had approached the Official Liquidator through written request and apprised him that they were ready to purchase the entire assets of the Punwire consisting of 25 lots. Thereafter the company court was moved by filing the present application on January 28, 2005, showing its desire to buy the entire assets of Punwire as a going concern and the same was entertained subject to depositing of Rs. 2 crores with the Official Liquidator. During the course of proceedings an additional affidavit was filed by the Sun Group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact in the interest of the workmen as they have been assured of re-employment and this fact alone should tilt the balance in favour of the Sun Group. Another aspect touched by Mr. Nagpal is that it was the duty of the Official Liquidator to join the employees of Punwire during the sale proceedings inasmuch as he should have put up the valuation report before them so that they could visualize as to what was best for them and if they had any objection to the said valuation report, they could knock at the door of the company judge showing their grouse. The workmen were the affected party as they after being rendered jobless were waiting for their dues. Therefore, the interest of the workmen has not been properly watched by the official liquidator in this case and for this reason also, the sale confirmed in favour of the appellant was liable to be set aside. In support of his submissions, learned counsel again relies upon the judgment of the Hon'ble Apex Court rendered in Textile Labour Association v. Official Liquidator [2004] 120 Comp. Cas. 505 ; [2004] (Suppl.) 1 JT 1. Mr. Nagpal then submits that the appellant has intentionally not arrayed the union as one of the respondents in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Official Liquidator [2005] 124 Comp. Cas. 453 ; AIR 2005 SC 1814. On the basis of the aforesaid submissions, Mr. Jain submits that the impugned order is liable to be set aside and the sale already confirmed by the company judge in favour of the appellant deserves to be reaffirmed. Mr. Alok Jain appearing for the Official Liquidator also supports the case of the appellant tooth and nail and submits that there is no irregularity committed by the Official Liquidator on any count at any stage inasmuch as he had been apprising the company judge of all the events before the sale was confirmed and the company judge had taken the same into account before confirming the sale in favour of the appellant. After hearing the rival contentions of the parties, the following two core questions crop up for consideration in the instant appeal : (i )Whether the company judge was justified in setting aside his own order of confirmation of sale merely on account of inadequacy of price after the possession was handed over to the appellant auction purchaser, and if so, then under what circumstances ? (ii )Whether the workmen/employees of the company (in liquidation) have to be treated at par with se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out that steps will soon be taken for floating the tenders in respect of lot No. 18. Mr. B.B. Bagga appearing for respondent Nos. 1 to 6 has raised an objection that as a matter of policy movable items like machinery and plant should have been sold first because after sale of land and building those items have to be shifted to a rented place which would incur unnecessary expenses on the company in liquidation which in turn has to be paid by the secured creditors. Therefore, learned counsel has submitted that confirmation of sale of land and property styled as B-77, Phase VII, Industrial Area, Mohali be deferred till sale process is finalised in respect of the movable items including plant and machinery, etc. 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 for the Official Liquidator that according to the valuation report, the value of movable property which include machinery, plant, etc. is about Rs. 20 lakhs. Therefore, the meagre expenses in the shape of payment may have to be incurred for securing the same elsewhere. At the same t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )agreement to mortgage the purchased land and building of lot No. 17 with Canara Bank and the State Bank of Patiala ; (f )delivery of possession of land and building comprised in lot No. 17, the furniture comprised in lot No. 19 and the air-conditioners comprised in lot No. 20 ; (g )the price offered is more than the reserve price. As far lot No. 17 the reserve price is Rs. 3 crores, for lot No. 19 Rs. 4 lakhs and for lot No. 20 Rs. 15 lakhs. The price offered and accepted is Rs. 3.16 crores, Rs. 4.5 lakhs and Rs. 15.5 lakhs and the total comes to Rs. 3.36 crores. The following factors may persuade the court to lean in favour 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 purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n purchaser for all the expenses towards interest on financial damages suffered by them after taking into possession of the property. It appears to me that such a huge difference in the price of lot Nos. 17, 19 and 20 cannot be incidental. It has been repeatedly laid down by the Supreme Court that the court is the custodian of the assets of the property of the company on behalf of the secured and unsecured creditors as well as the workmen and it is the obligation of the court to ensure that the maximum price is fetched for the property and the assets of the company. Therefore, I am inclined to recall the order of conformation dated 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 credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2004, as clarified on January 13, 2005, is set aside. The auction purchaser, namely, M/s. Winsome Yarns Limited are directed to hand over the possession of lot Nos. 17, 19 and 20 to the official liquidator immediately. As per the undertaking of the intervener namely, Sun Group Enterprises (P.) Limited, the auction purchaser would be entitled to recover the amount of interest paid by it to the bank on the loan taken by it on actual basis. Such bill in respect of the interest shall be presented to the official liquidator within one week from today and the official liquidator shall ensure the payment of the aforesaid bill from the interveners to the auction purchaser. It would be appropriate for the official liquidator to undertake the exercise of re-auction of lot Nos. 17,19 and 20. The expenses for re-auction shall be borne by the interveners, namely, M/s. Sun Group Enterprises (P.) Ltd." Let us delve into the first question posed by us. We further divide this proposition in two parts : one is that after the sale is confirmed, can the same be set aside on inadequacy of price, if so, then under what circumstances; the second part is that as to whether the confirmed sale can be set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale even after possession was handed over observing that the Division Bench of the Calcutta High Court had overlooked the irregularities simply on the ground that possession was given. The observation in para No. 20 to this effect is reproduced as under (page 813) : "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." It is under these circumstances that the Hon'ble Supreme Court had ultimately given directions to recover the possession from the auction purchaser after setting aside the confirmed sale. In Union Bank's case [2000] 101 Comp. Cas. 317 ; [2000] 5 SCC 274, another judgment cited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some stage and attain finality ? The instant answer would be that this process cannot hang fire for unlimited period may be that the aim is to fetch the maximum price which is ultimately in the interest of secured and unsecured creditors. Otherwise the auction purchaser would never get the fruits even after being declared the highest bidder or the entire amount having been deposited by him. We appreciate this aspect yet from another angle which is in the larger interests of the company in liquidation. If the auction purchaser is not sure about the confirmation of his sale despite it being hammered down in his favour, the true auction purchaser will not enter into arena of bidding by investing huge amount because of the uncertainty and this situation would certainly run adverse to the interest of the company in liquidation. Therefore, at some point of time, the sale has to reach its finality. In the light of our aforesaid observations, we are now appreciating the case in hand. Let us examine in the first instance as to whether, the order of the learned company judge confirming the sale is in conformity with the principles laid down in Navalkha's case [1969] 3 SCC 537; [1970] 40 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 conformation of the sale or offer already received." (Emphasi11 supplied) In brief the facts in Navalkha's case [1969] 3 SCC 537; [1970] 40 Comp. Cas. 936 were that when the final bid of Rs. 8.82 lakhs was concluded in favour of the appellant (M/s. Navalkha & Sons) and the learned company judge had directed the appellant to make the balance payment on a stipulated date, the balance payment was made by the auction purchaser one day prior to the stipulated date and it was at that stage that an application was moved by one Padam Chand Aggarwal offering Rs. 10 lakhs. In the said application, a complaint was made that there was no adequate publicity of the sale and the applicant had come to know of the advertisement very late. He also of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding an auction without giving wide publicity was not justified in law. Rule 273 of the Companies (Court) Rules provides that all sales shall be made by public auction or by inviting sealed tenders or in such manner as the judge may direct. It appears that on April 17, 1964, at the instance of the official liquidator and at the instance of a contributory, the court had approved of the terms and conditions of sale which provided for calling of sealed tenders. On December 24, 1964, the learned judge realised the inefficacy of this course and decided to abandon the original procedure and put the properties to auction. But having made up his mind to resort to auction the learned judge confined the auction to only two persons, namely, the previous tenderer and the fresh tenderer. The auction in question no doubt was conducted in a public place but it was not a public auction because it was not open to the .general public but was confined to two named persons. Secondly, it was not held after due publicity. It was held immediately after it was decided upon. It is, therefore, obvious that the sale in question was not a public sale which implies sale after giving notice to the public wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed January 4, 2003, had also constituted a committee for the auction of the properties which comprised of representatives of the secured creditors and the official liquidator. The auction of the assets of the company was then conducted by inviting sealed tenders in the office of Official Liquidator. All tenders were opened on three different dates in the presence of the members of the sale committee and the representatives of the prospective buyers. Another interesting aspect is that the matter was even re-examined by the sale Committee after the bid of Rs. 3.16 crores was received from the appellant and it recommended that the offer of the appellant (auction purchaser) may be retained for some time so that some decisions could be taken in respect of furniture and fixtures. Since the sale committee had suggested that the appellant be asked to offer Rs. 5 crores at least for the aforesaid three lots, the appellant was asked to come forward for further negotiations. However, no other party came forward with an offer exceeding the bid of the appellant. An objection was raised at one stage by the secured creditors to the effect that the items like machinery and plant should be sold fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was entertained on the same day by the learned company judge and notice thereof was given to the appellant and to the official liquidator. In the meanwhile, the official liquidator was restrained from continuing with other proceedings in favour of the appellant. In our considered view, the aforesaid application moved by the Sun Group, in fact, should have been rejected outright on the ground that offer of Rs. 12 crores for the entire assets of Punwire was less than even the half of the reserve price. On this score alone, it deserved dismissal. Another interesting feature in the said application is that the Sun Group had not shown any keenness to buy lot Nos. 17, 19 and 20 disclosing any price higher than the amount for which the bids of the appellant were finalised. A perusal of the record shows that during the proceedings, an affidavit was filed on 11-2-2005, by one Maj. Gen. Amar Singh Sehgal (Retd.), Director and Authorised Signatory of the Sun Group in which it had revised its bids for certain lots including lot Nos. 17,19 and 20 but again in para. No. 6 of the aforesaid affidavit it was stated that all the bids were submitted with a view to purchase the entire assets en bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er now given by the Sun Group. The increase is not substantial enough so as to set aside the confirmed sale and that too after possession was handed over and thereafter, the appellant had even raised loans from banks. Any undertaking by the Sun Group to pay back the actual paid interest on the loan amount is of no consequence and it cannot deter the confirmed sale for the reason that it does not take into account the value of the effort put in by auction purchaser to set up a new project. We are not in agreement with the view taken by the learned company judge in this regard. We shall now be appreciating the present case in the light of two judgments Union Bank's case [2000] 101 Comp. Cas. 317 ; [2000] 5 SCC 274 and Allahabad Bank's case [1999] 96 Comp. Cas. 804; [1999] 4 SCC 383 cited by Mr. Bhandari and also referred to in the impugned order. As already discussed hereinabove, in Allahabad Bank's case [1999] 96 Comp. Cas. 804 ; [1999] 4 SCC 383, the Apex Court had set aside the confirmed sale after the possession was handed over observing that the High Court had overlooked the irregularities. A careful perusal of the aforesaid judgment indicates that there were many gross irregu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )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 and 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. So far as factors enumerated in clauses (c) and (d) are concerned, we shall be dealing with them separately when we delve into discussion with regard to section 529A of the Act. But at the same time we are also of the firm, view that the other two factors which have been considered by the learned company judge with advantage in favour of the Sun Group (intervener) are in fact of no help to it. What weighed mainly with the learned company judge is the possibility of reviving of the company to its life by making higher offer to purchase the whole company. This observation, according to us, again is not appealing if seen in the flash back of the facts esp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with a view to obtaining still a higher price it may prove a self-defeating exercise, for industrialists will lose faith in the actual sale taking place and may not care to travel up to the place of auction being uncertain that the sale would at all go through. After reiterating the principles governing confirmation of sale in Navalkha's case [1969] 3 SCC 537; [1970] 40 Comp. Cas. 936 , their Lordships in para. No. 9 of the judgment observed as under (page 219): "Be it by a receiver, Commissioner, liquidator or court this principle must govern. This proposition has been propounded in many ruling cited before us and summed up by the High Courts. The expression 'material irregularity in the conduct of the sale' must be benignantly construed to cover the climax act of the court accepting the highest bid. Indeed, under the Civil Procedure Code, it is the court which conducts the sale and its duty to apply its mind to the material factors bearing on the reasonableness of the price offered is part of the process of obtaining a proper price in the course of the sale. Therefore, failure to apply its mind to this aspect of the conduct of the sale may amount to material irregularity. Here, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ists in the public and private sectors knew about it and turned up. Offers reached a stationary level. Nor could the Corporation be put off indefinitely in recovering its dues on baseless expectations and distant prospects. The judgment-debtor himself, by his litigious exercises, would have contributed to the possible buyers being afraid of hurdles ahead. After all, producing around Rs. 11.5 lakhs openly to buy an industry is not easy even for apparently affluent businessmen. The sale proceedings had been pending too long and the first respondent could not, even when given the opportunity, produce buyers by private negotiation. Not even a valuer's report was produced by him. We are satisfied that the District Judge had committed no material irregularity in the conduct of the sale in accepting the highest offer of the appellant on 3-9-1969." As a sequel to the aforesaid discussion, we are of the considered view that the impugned order of the learned company judge setting aside the confirmed sale on the ground of inadequacy of the price is not sustainable. We accordingly reverse the same. We now advert to the second core question with regard to the status of workmen/employees of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount of the workmen's portion in his security, whichever is less, shall rank pari passu with the workmen's dues for the purposes of section 529A. (2) All persons who in any such case would be entitled to prove for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of this section. (3) For the purposes of this section, section 529A and section 530,- (c )workmen's portion, in relation to the security of any secured creditor of a company, means the amount which bears to the value of the security the same proportion as the amount of the workmen's dues bears to the aggregate of- (i )the amount of workmen's dues ; and (ii )the amounts of the debts due to the secured creditors. 529A. Overriding preferential payments.-Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company- (a )workmen's dues ; and (b )debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 pari passu with such dues, sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secured creditor, instead of relinquishing his mortgage and proving his debt, opts to stand outside the winding up proceedings and realise his security, the Official Liquidator shall be entitled to represent the workmen and enforce such charge and that any amount realised by enforcement of such charge shall be applied rateably by the Official Liquidator for the discharge of workmen's dues. It is true that even the amended proviso does not give the liquidator an independent right of enforcing the charge by selling the security against which such charge is created. Nonetheless, it creates a 'pari passu' charge in favour of the workmen to the extent of their dues and makes the liquidator the representative of the workmen to enforce such a charge. By reason of clause (c) of the newly added proviso, so much of the debt due to the secured creditor opting to realise security as could not be realised because of the specially created rights in favour of the workmen, or the amount of the workmen's portion in the security, whichever is less, shall rank pari passu with the workmen's dues under section 529A. Section 529A provides for overriding preferential payments of workmen's dues and unrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lippery footing. The other argument advanced by Mr. Nagpal to the effect that the union was initially not arrayed as the respondent in the instant appeal and for this reason the union had to move an application for being impleaded as one of the parties carries no substance in it for the reason that after we had allowed the application of the union for being impleaded as one of the respondents, the appellant had amended the grounds of appeal. This objection, therefore, being hyper-technical and having no affect on the merits of the case, deserves to be rejected. We also do not find any force in another submission of Mr. Nagpal which was otherwise highlighted by him in his separate application asserting that the only other bidders, namely, M/s. Star Point Financial Services Pvt. Ltd. and M/s. S.K. Khaitan & Company, are the sister concerns of the appellant and, therefore, the appellant has played a fraud upon the court. We do not find any merit in this contention of the respondent/union. It is not in dispute that the auction notice was circulated in all the leading newspapers and the auction proceedings were held under the supervision of the sales committee. In fact the final bidd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitive bidding. The objection raised by Mr. Nagpal, in our view, is only to raise a storm in a tea cup having no after-effect. We may also point out that on the question of inadequacy of price, Mr. Nagpal has merely relied upon on the offer made by respondent No. 10. He has fairly pointed out that there is no other material on record to show that any other person was willing or ready to buy the lots in question at a price higher than the accepted bid of the auction purchaser. Since we have already discussed this issue in detail, we need not comment upon it once again. After considering the pros and cons at a great length and examining the entire case on facts we are of the view that no doubt the learned company judge has made an endeavour commensurate with the object desired to be achieved, viz., to fetch the maximum price for the assets of the company in liquidation but there appears to be no concrete material for disturbing the sale already conformed. The net result is that the impugned order dated 30-3-2005, is hereby set aside and the earlier order dated 10-12-2004, which is further clarified on 13-1-2005, confirming the sale is restored. Vide order dated 28-1-2005, the Off ..... X X X X Extracts X X X X X X X X Extracts X X X X
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