1993 (2) TMI 228 - SC - Companies Law

Supreme Court amends installment plan, upholds bank guarantee, and rules on default conditions.

Industrial Finance Corporation Versus Official Liquidator

The Supreme Court modified the installment schedule to ensure the balance consideration is paid by the end of 1996 in equal bi-monthly installments, ... Whether the time for making the payment should be curtailed? Whether some interest should be directed to be paid by the purchaser? Held that:- the interest of the financial institutions, the interest of the workers who have since been re-employed by the purchaser and the fact that the purchaser has already invested substantial amounts to revive the company, we are of the opinion that certain modifications should be made in the number of instalments in which the balance consideration shall be paid. As after the payment of the aforesaid Rs. 52 lakhs due in the year 1992, the total balance consideration will be Rs. 5.80 crores. This amount shall be paid in full by the end of the year 1996 in equal bi-monthly instalments. The instalments shall be payable by the last day of February, April, June. August, October and December in each year. .This means that each instalment, excepting the last instalment, shall be in a sum of Rs. 24,16,000. The last instalment shall be in such sum as to make up the total shortfall payable on that date, i.e., Rs. 20,16,000. There shall be no other modification in the terms and conditions prescribed in the order under appeal including those relating to default and interest. Issues Involved:1. Terms of Sale of Assets2. Interest of Financial Institutions3. Installment Payment Schedule4. Bank Guarantee Requirement5. Default and Forfeiture Conditions6. Modification of Sale TermsIssue-wise Detailed Analysis:1. Terms of Sale of Assets:The appeal concerns the terms of sale of the assets of Neptune Paper Mills (NPM) in liquidation. The company court directed the sale of the assets as a going concern on an 'as is where is and whatever there is basis.' The highest bid received was Rs. 6.90 crores, but the sale was not finalized until Buxa Holdings Ltd. (now Kanoi Agrotech Ltd.) offered Rs. 8 crores. The court stipulated that the balance consideration could be paid in installments, with specific terms to be fixed by the court.2. Interest of Financial Institutions:The financial institutions, which had a charge of Rs. 8 crores on NPM's assets, argued that the terms settled by the company judge were too liberal and prejudicial to their interests. They sought either the setting aside of the sale or a reduction in the number of installments with a provision for interest. The Division Bench modified the terms to include a revolving bank guarantee and a more stringent installment schedule but did not set aside the sale.3. Installment Payment Schedule:The initial terms allowed Buxa to pay Rs. 60 lakhs annually for the first two years, followed by half-yearly installments of Rs. 30 lakhs without interest. The Division Bench modified this to Rs. 60 lakhs annually for the first two years, then half-yearly installments of Rs. 40 lakhs, with the last installment due by June 30, 2000. The Supreme Court further modified the schedule, requiring the balance consideration of Rs. 5.80 crores to be paid by the end of 1996 in equal bi-monthly installments of Rs. 24,16,000, with the last installment making up any shortfall.4. Bank Guarantee Requirement:The Division Bench required Buxa to provide a revolving bank guarantee of Rs. 60 lakhs until all installments were paid. This was intended to safeguard the financial institutions' interests. The Supreme Court upheld this requirement, emphasizing the need for adequate security.5. Default and Forfeiture Conditions:The company judge's initial terms included forfeiture of the earnest money and repossession of assets by the official liquidator upon default of any installment. The Division Bench upheld these conditions but added that Buxa must not encumber, alienate, or transfer assets until the entire consideration was paid. The Supreme Court maintained these conditions, highlighting Buxa's unfair conduct in interpreting a status quo order as a stay on installment payments.6. Modification of Sale Terms:The Supreme Court noted that the sale notice should have specified the number of installments and other terms to avoid the court negotiating terms with parties. Despite Buxa's argument that the court had no power to modify the terms at this stage, the Supreme Court asserted its authority to do so. The court emphasized the need for a fair procedure that protects the interests of all parties involved, including financial institutions and workers re-employed by Buxa.Conclusion:The Supreme Court modified the installment schedule to ensure the balance consideration is paid by the end of 1996 in equal bi-monthly installments, upheld the requirement for a revolving bank guarantee, and maintained the default and forfeiture conditions. The appeal by the financial institutions was allowed in part, and the appeal by Buxa was dismissed.