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TMI Blog2014 (8) TMI 1242X X X X Extracts X X X X X X X X Extracts X X X X ..... R LORDSHIPS may be pleased to permit the applicant bank to remain outside the winding up proceedings for enforcing its security interest in the secured assets of the Company (in liquidation) and further be pleased to permit the applicant bank to sell the secured assets of the Company (in liquidation) under the provisions of the Securitisation And Reconstruction of the Financial Assets and Enforcement of Security Interest Act, 2002; (B) pending hearing, admission and final disposal of the Company Application, YOUR LORDSHIPS may be pleased to permit the applicant bank to proceed with the sale by e-auction fixed on 28.3.2014; (C) Any other and further relief/s that this Hon'ble Court may deem fit may please be granted in the interest of justice." 2. The applicant in Company Application No. 109 of 2014 is the sole bidder who has participated in the e-auction conducted at the behest of the bank with following prayers:- "A) The Hon'ble Court be pleased to permit opponent 2 bank to confirm the sale of the secured assets being all the part and parcel of the property consisting Factory Land & Building situated at Nava Sadhulka Survey No. 113/3 paiki, Opp. Laxminagar Nr. Kandla Raj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntimate the estimated amount of workmen's dues under section 529A to the opponent 2 and in such case the opponent 2 may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues wit this Hon'ble Court. E) The Hon'ble Court be pleased to pass such other and further relief/s as may be deemed fit and proper in the facts & circumstances of the present case." 3. As both these applications were in respect of the e-auction held on 28/3/2014, they were heard together at length and this common order is being passed therein. 4. Facts in brief leading to filing these two applications deserve to be set out herein below in order to appreciate the rival contentions of the counsels for the parties. The petitioner of Company Petition No. 263 of 2013, Company Petition No. 264 of 2013 and Company Petition No. 291 of 2013 filed winding-up petitions in this Court invoking provisions of Section 433, 434 and 439 of the Companies Act, 1956 (herein after referred to as the 'Companies Act' for the sake of brevity), inter alia contending that the dues were not paid by the company in liquidation and hence it should be wound-up as the financial status of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tum and therefore, requires to be wound up. 7. Accordingly, Company Petitions are allowed and the respondent- Company being M/s. Apoorva Laminates Private Limited is ordered to be wound up under Sections 433, 434 and 439 of the Act and Official Liquidator attached to this Court, shall forthwith take into the custody the assets, properties of the Company and report to this Court." 5. As it transcribes from the proceedings, the Official Liquidator before it files any report pursuant to the winding up order made by this Court on 17/2/2014, the application being Company Application No. 77 of 2014 was presented by the applicant bank with aforesaid prayers. The application was presented on 19/3/2014 and on 21/3/2014 this Court made the following orders:- "Mr. Utkarsh B Jani for Mr. Bharat Jani for the applicant submits that on account of urgency in the matter, if the Court is inclined to issue notice, let there be a short time gap as the e-auction is slated on 28/3/2014. Learned Official Liquidator who is present in the Court has received the copy and he submits that he would waive the notice, and let the matter be fixed on 26/3/2014. Hence NOTICE returnable on 26/3/2014. Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets were taken 12/09/13 Notice of possession under section 13(4) of Securitisation Act rule 8(1) of Securitisation Rules was issued and physical possession was taken with the consent of the company as per the resolution and letter dated 11/9/2013. 28 12/09/13 Possession notice was published in two daily newspapers one in vernacular language and one in English language 41 19/8/2013 Valuation report of Mr. D.B. Chandarana for the valuation of Factory Land and building showing Market Value of Rs.260.85 lacs, Realisable Value of Rs.234.76 lacs and Distress Value of Rs.208.68 lacs. 54 20/8/2013 Second valuation report of M/s. Multi Mulyankan, INC for the valuation of Factory Land and building showing Market Value of Rs.256.97 Lacs, Realisable Value of Rs.218.40 Lacs and Distress Value of Rs.192.70 66 10/10/13 First e-auction sale notice published by applicant in two newspapers for sale of movable and immovable properties of the company for composite reserve price of Rs.651.05 Lacs (A) Factory Land and building Rs.260.85 Lacs (B) Plant and machinery Rs.262.30 Lacs and (C) Stock of Rs.127.90 Lacs. Higher amount of factory land and building was taken as per the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has chosen to remain outside the winding-up proceedings and resorted to enforce its legal rights and remedy available under law for realizing its dues on the strength of the security, this Court may confirm the sale proceeding so that the bank may realize its dues. 10. Learned counsel appearing for the applicant bank further submitted that the bank's endeavour in realizing its dues by selling property which came to be possessed by the bank may not be struck down only on account of there being a sole bidder coming forward in e-auction. The submission canvassed on behalf of Official Liquidator of the company in liquidation for re-advertising the property only on account of nonavailability of other bidders may not be accepted by this Court. 11. Learned counsel appearing for the applicant bank further submitted that the bank has all along shown its readiness and willingness to keep aside or even to deposit in this Court an amount that may be deemed fit so as to meet with the requirement of liquidating the dues of the workmen as envisaged under Section 529A of the Companies Act. The Official Liquidator also may not thereafter create any hurdle in the bank's way in disposing of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncerned, no workman has come forward even registering his claim against the property of the company or in respect of his employment of the company. When no workman has come forward and when no other claim is envisaged to be respected so far as provision of Section 13(9) of SARFAESI Act is concerned, then, the Court may reject resistance on the part of the O.L., and accord its confirmation to the sale in question. 15. Learned counsel appearing for the bank further submitted that provision of SARFAESI Act as well as those of Companies Act clearly provides for dealing with the properties of the company with the secured creditors under the SARFAESI Act, and it provides special provision for taking care of the provision of Section 529 of Companies Act for workman. Therefore when the workmen have not come forward for lodging any claim, there exists practically no resistance for confirming the sale and if there is no ascertainable claim of the workmen at the given point of time, the O.L., can notify the estimated claim of the secured creditor invoking SARFAESI provisions for liquidating assets of the company only so as to make provision on that basis. The O.L., can therefore cannot obje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also there is no scope for resisting the prayer for confirmation of the sale. 19. Learned counsel appearing for the applicant bank further submitted that the bank is incurring expenses for maintaining the property as the bank has taken physical possession of property and, therefore, when buyer is available and has offered the reserve price same cannot be said to be unreasonable from any angle. Even the provision of SARFAESI Act is also providing for various methods of disposing of the property and in the instant case e-auction cannot be said to be in any manner irregular or illegal. Therefore this Court may accord its approval and confirm the sale in favour of the sole bidder. 20. Learned counsel Shri Ravindra Shah appearing for the applicant in Company Application No. 109 of 2014 in Company Petition No. 263 of 2013 for the sole bidder contended that the applicant bank has chosen to remain outside the winding up proceedings and has resorted to remedies under SARFAESI Act, and when the bank has right to enforce its security without any intervention of the Court, then, that would include the Company Court also, and, therefore, winding up proceedings will have no bearing whatsoever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n maintaining this application and so far sale certificate is not issued by the bank, the sale would not be complete in eye of law and, therefore, the prayers in the application be granted and bank's sale be confirmed which will in turn benefit the present applicant. 26. Learned counsel for the sole bidder further submitted that there is compliance with sub section 8(5) of the Rules, as the bank had obtained valuation report twice, and therefore, the Official Liquidator is not justified in resisting the prayer for confirmation only on account of single bidder. Sub-rule 5 of Rule 8 empowers the authorized officer to sale the property by way of private treaty also. When the legislature has given freedom to this extent, it is submitted that the Official Liquidator is not justified in any manner to throw spanner in the smooth wheel of realization of the secured creditor. 27. Both the counsels i.e. counsel for the bank and counsel for the sole bidder have relied upon following authorities in support of their respective submissions. == State Bank of India Vs. Pro. O.L. Of Volvo Steel Ltdd (Presently,Stanrose Steel Ltd.), reported in [2004] 53 SCL139(Guj) == The Akola Oil Indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as unlimited power in the bank to deal with the property. 32. Learned counsel appearing for the O.L., submitted that the provision of the Companies Act as well as those of SARFAESI Act cannot be said to be in any manner repugnant to each other, rather they are complimentary to each other and therefore, harmonious reading of these provisions would be required for taking care of everyone those who are concerned with the company in liquidation. 33. Learned counsel for the O.L., invited this Court's attention to the provisions of SARFAESI Act, especially provision 13(9), 34, 35 and 37 and submitted that complete reading of these provisions and rules made therein would clearly indicate that the provisions of SARFAESI Act are not in derogation of the provisions of Companies Act and, therefore, when it is specifically mentioned in the special act that the provision of SARFAESI Act i.e. that of special act is not in derogation of any of the Companies Act, then, the submission made on behalf of the counsel for the parties i.e. bank and sole bidder may not be accepted. 34. Learned counsel appearing for the O.L., thereafter invited this Court's attention to the fact that there were glar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wait for their share as per provisions of law. Of course there is option to the secured creditor to remain outside the winding up provisions but that in itself is not the sole option as to nullify completely the right of the Official Liquidator to see to it that the property is being sold in such a manner as to fetch price which is prevalent in the market. 37. Learned counsel for the O.L., submitted that the Company Court is in fact to oversee for the purpose of ensuring that the company under liquidation is wound-up and all claimants including secured and nonsecured shall have their respective say and share out of the sale procedure of the company's properties. Therefore Companies Act provides safeguards and guidance for dealing in the companies properties at the end of O.L. who in turn seeks permission of the Court at every stage. This balance and check is required to be observed for ensuring the maximum satisfaction to all the claimants in accordance with provisions of Section 529 and 520 of the Companies Act. This Court, therefore, may have to taken into consideration the overall facts & circumstances attending the matter and within the permissible limits if the sale is effec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat as the bank inprinciple agreed to provide financial assistance and credit facilities of Rs.625.00 lakh and as a security this very property which are to be purchased have been mentioned, and in addition thereto one collateral security is mentioned being equitable mortgage of residential building situated on a plot admeasuring 163.41 sq. meters in Morbi which belonged to one of the partners of the sole bidder. 41. Learned counsel for the O.L., submitted that funding of the purchase of the auction property by the auctioneer himself leaves much to be said, though it may not hit by any technicality, yet it is very clear that the bank is offering this facility to the sole bidder for purchasing the property and by proposing to mortgage the very same property, meaning thereby one NPA is closed and bank is heading for another NPA, as there is no other security for ensuring recovery of huge amount of Rs.625.00 lakhs which have been requested by the sole bidder. The entire transaction therefore needs to be viewed with abundant caution and it is to be ensured that the property which is likely to fetch more may not be sold at a lower price which may deprive the other creditors, who would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the provisions of SARFAESI Act are not in derogation of any provision of the Companies Act and, therefore, when the legislature has made it clear by way of Section 37, then, the secured creditor like the bank cannot argue contrary to law to indicate that the provision of SARFAESI Act is over riding all other provisions of Companies Act so as to play an exclusive right to deal in the property. 46. Learned counsel thereafter invited this Court's attention to provisions of companies Act viz; Section 441, 443, 444 and 447 of the Companies Act in support of his submission that in the winding up proceedings the Court will have to take into consideration the aforesaid provisions to see to it that the legislature's intent and object is fulfilled. 47. Learned counsel thereafter tendered that once the O.L., is appointed, then, he has statutory right and duty vis-a-vis the company in liquidation and the creditors, promoters and all the concerned which do not get affected merely on account of the provision of SARFAESI Act, which is merely an act providing a special remedy to the creditor who has secured his right to recover money on secured assets. Therefore, when the Companies Act and its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company shall be deemed to be in custody of the Court as to the date of winding up of the company and the Court will function through the O.L. Now merely on account of SARFAESI proceedings being invoked it cannot be said that Section 456 is in any manner rendered inoperative. 53. Learned counsel invited this Court's attention to provisions of section 449, 450 and 451 and other provisions of the Company Law and submitted that once the O.L., is appointed and winding up order is passed, then for all the purposes O.L., steps into the shoes of the company and he statutorily assumes entitlement and right to act on behalf of the company as being he is the custodian of the company and he is entitled to defend the action or bring an action against any one on behalf of the company. The directors, office bearers and all the concerned do not have any right or entitlement to act in any manner on behalf of the company. Based upon this submission learned counsel assailed the possession notice issued by the applicant bank and submitted that there is noncompliance with statutory provision for issuing notice to the concerned has not been followed. The bank has issued notice only to ex-directors o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of three petitioners collectively indicate that the company is indebted to around Rs. One Crore and odd and there are claims pending, the haste on the part of the applicant bank is unfortunately affecting the other creditors right to recover money. 57. Learned counsel contended that it is the practice of this Court to follow judgment rendered by another Court. That, even if there is invitation of bids and more bidders have come, then instead of allowing it to the highest bidder, there can be an opportunity to others to bid and such an exercise is always resulting into tremendous increase in the offer. In the instant case the bank has not even bothered to request the sole bidder to enhance his offer, may it on account of bank's dues were getting secured. As against this, had there been more bidders or even appropriate publicity to the public at large, then the possibility of fetching higher value cannot be ruled out. 58. Shri Godiawala, learned counsel for the original petitioner thereafter invited this Court's attention to the averments made in the petition which he had filed and submitted that the statutory notice issued by the creditor had been sent back by the postal departmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission order admitting all these three matters were passed on 6/1/2014 and publication was also ordered there under fixing 10/2/2014 to be final hearing date. Accordingly after due publication of the petitions and after hearing all the concerned, the Court was convinced to pass winding-up order on 17/2/2014. While ordering winding-up of the respondent company the Court made following observations. "3. The record indicates that the claim in Company Petition No. 263 of 2013 is of Rs.50,51,213/-, whereas the claim in Company Petition No. 264 of 2013 is of Rs.50,51,213/-, and the claim in Company Petition No. 291 of 2013 is of Rs.13,57,581/-. It further appears from the record that the Company is not an ongoing concern and the possession of its assets is taken over by the Bank being secured creditor. It is also averred that the Company has remained closed and it has lost its overall substratum including economic and financial. 4. This Court was pleased to issue notice to the respondent. The respondent appeared and have filed reply in two petitions, i.e. Company Petition Nos. 263 of 2013 and 264 of 2013. It appears from the reply filed by the respondent- Company that no substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SARFAESI Act have been resorted to for securing dues from the company. As stated herein above, under Section 13(2) of the Act notice came to be issued on 2/4/2013 and symbolic possession came to be taken on 3/6/2013. Notice of possession came to be issued on 12/12/2013 under Section 13 (4) and Rule 8 (1) of the Securitisation Rules which was pursuant to the resolution dated 11/9/2013 passed by the company, as per the say of the bank. Applicant bank has mentioned in its application in para-4 and annexed with the application the documents which included the resolution of the company dated 1/9/2013 inviting the bank to take possession of the property. The resolution passed by the company in its board meeting held on 11/9/2013 read as under: "Resolved that in pursuance of proceedings under Securtisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFEASI) act, we hereby agree and consent amicably to handover company's factory land & building, plant & machinery, all type of stocks (raw material/finished goods), stores and spares situated at - Survey No.113/3 paiky Nava Sadulka, 8-A National Highway, near Rajkot- Kandla bye pass, opp. Laxminagar, Morv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... keep the Official Liquidator informed about all offers received during the e-auction process. (iii) The offers etc. will be placed on record with a copy to the Official Liquidator. (iv) The sale, if any, would be placed before the Court for confirmation. (v) The proceeds of the sale be deposited in this Court and nothing would be finalized without express permission from this Court. S.O. to 21.04.2014." (8) The sole bidder preferred Company Application No.109 of 2014 with the prayers mentioned there under which essentially is to the effect of seeking confirmation of sale in favour of the applicant. 60. Against the aforesaid backdrop of factual aspects, this Court is to examine the rival contentions raised on behalf of the parties for & against the conformation of sale in question. 61. Learned counsel for the bank as well as the sole bidder have submitted relying upon the provisions of SARFAESI Act with special emphasis upon Section 13(9) of the said Act to support their submission that when SARFAESI proceedings are invoked by a secured creditor to choose to remain outside the winding-up proceedings, then, in that case confirmation of sale is merely a formality, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by further provisions of the SARFAESI Act where the SARFAESI Act is invoked and conjoint reading of Section 529, 529A and 530 of the Companies Act, and agency or an instrumentality or bank working under SARFAESI Act therefore cannot justify to completely ignore or avoid the mandatory provisions of the Companies Act, and in case if the company in whose case SARFAESI Act and provisions are invoked is also subject matter of winding-up proceedings in the Court. In such a situation a fine balance is envisaged and therefore no agency is arrogated to itself any superior or better power than the one which is envisaged under the Act i.e. SARFAESI Act as well as the Companies Act. 63. The provision of making reserve or providing for reserve from the sale proceeds cannot be said to be an unfettered license in SARFAESI Act to deal with the property which may not be commensurate with commercial prudence and tenets flowing there from. The Court hasten to add here that the provision of section 13 (9) of SARFAESI Act and proviso thereto are to be read bear-in-mind that the agency invoking SARFAESI Act in a case of company under liquidation will take all the care and precaution to see to it th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecome mute spectator to the dealings. The judgment cited at the bar i.e. Haryana State Industrial And Infrastructure Development Corporation (supra) though is also in respect of the provisions of Section 529A Companies Act, but the principles laid down therein would clearly indicate that the Court cannot be called upon to accord its approval in all the proceedings merely on account of provision of SARFAESI Act are invoked in a case where winding-up proceedings are also ordered. 64. The Supreme Court in the case reported in (2008) 15 SCC 1, in case of Bakemans Industries Private Limited Vs. New Cawnpore Flour Mills and other, has observed as under: "para-39: But, in this case, the sale in favour of Ceylon Biscuits Pvt. Ltd. Having not taken place in terms of Section 29 of the 1951 Act, the said question (sic provision) cannot have any application whatsoever. It is, however, a case where the learned Company Judge was not authorized to exercise its power under Section 29 of the 1951 Act. It purported to exercise its power only under the Companies Act. SICOM submitted itself to its jurisdiction. It allowed the Company Judge to conduct the sale. The sale that was conducted was purpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner of sale has nothing to do with the process required to be gone into for the said purpose. It must have before it all these facts and figures so as to enable it to pass a final order one way or the other. In so doing, the court must keep in mind that it is not only determining an issue by and between the mortgagor and one mortgagee only but could also be determining the issue between a debtor and a vast number of creditors; whether secured or non-secured." Thus, even while acknowledging and accepting that the provisions of SARFAESI Act would permit the dealing in the property by the secured creditors, que the property mortgaged i.e. winding up proceeding are also in the fray, then, the Company Court, will have to see to it that there is proper sale of the property, which fetch the highest price. The secured creditor even if is permitted to remain outside the winding up proceedings, cannot be permitted to ignore or over look the interest of other creditor so as to deprive them of their right to realise the dues. Ofcourse the secured creditors are to be given priority than unsecured creditors but that in itself would not cloth the secured creditor with power to sale property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed to this the bank could not have been oblivious to the principle which are governing the sale of property of the company in liquidation. Therefore, to that extent the sale in question is required to be viewed and also from the provision of Rule 272 of Companies (Court) Rules which makes it incumbent upon all to see to it that the property is to be dealt with so as to fetch maximum price so as to satisfy larger faction of the creditors. The creditors interse preference is not important at this stage as no one is challenging bank's right to have its complete dues from the sale proceeds. But that in itself would not entitle bank to deviate from the procedures as it would amount to deviation which cannot be countenanced by at least the Company Court as it would not be in consonance with the principle applicable under Rule 272 of the Companies (Court) Rules. b) In the instant case the advertisement for sale is also not referring the company as Company In Liquidation, nor has the advertisement or notice thereof is cared to be furnished to the O.L. Instead of O.L., the bank chose to sent notice in so called compliance with Rule 8(6) to the original borrowers, who in eye of law did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property is sought to be sold for only at a reserve price, that too bank is financing more than 75% on the very same property which they are proposing to sell. The bank has not joined any other property except residential premises admeasuring 163.41 sq. meter in an area where this property cannot be said to have greater valuation so as to even cover part of the finance which is proposed to be provided to the sole bidder. Moreover a question arises, in case if it was known to the prospective bidders that there was facility available to receive finance on that very property by mortgaging the property to very same bank, it would have surely fetched more than the offer coming from the sole bidder. d) The entire issue of sole bidder and the development in aftermath and development thereafter cannot be brushed aside by merely saying that the bank was well within its right to offer finance on the same property offered and auction to another person like sole bidder as the bank will atleast start earning interest. A question arises, when the entire SARFAESI Act is sought to have been provided to help the bank like financial institutions in overcoming their NPA problem, can the same bank ..... X X X X Extracts X X X X X X X X Extracts X X X X
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