1992 (6) TMI 160 - HC - Companies Law

Official Liquidator Must Notify Petitioner Before Sale Confirmation: Legal Implications

The court held that it is mandatory for the official liquidator to notify the petitioner before confirming the sale of a company's property in ... Summons for directions to be taken out by official liquidator, Sale to be subject to confirmation by court, Winding up - Powers of liquidator Issues Involved:1. Whether it is mandatory to notify the petitioner before approving the sale of the property of the company in liquidation.2. Whether the court should refrain from declaring the sale void based on principles of equity.Issue-wise Detailed Analysis:1. Mandatory Notification to Petitioner:The appellant, a creditor, filed a petition for winding up the company, which was ordered on March 9, 1983. The official liquidator was appointed to realize the company's properties. In 1986, the official liquidator filed a report (OLR No. 196 of 1986) suggesting the transfer of an industrial shed to facilitate its sale. The petitioner-bank was not served a copy of this report. On July 23, 1987, the court ordered the sale of the shed and plot, but the petitioner-bank was not notified.The appellant contended that as the petitioner seeking winding up, it was necessary to issue notice before the sale was ordered and confirmed, referring to section 457(1)(c) of the Companies Act and rule 139 of the Companies (Court) Rules, 1959. The Supreme Court's decision in Smt Jatan Kanwar Golcha v. Golcha Properties Private Limited was cited, emphasizing that if a notice is not issued to a prejudicially affected person, they can challenge the order by filing an appeal. Rule 139 requires the official liquidator to take out a summons for directions regarding the exercise of powers under section 457(1), which includes selling the company's property. The court must confirm the sale to ensure the price is reasonable, considering the interests of the company and its creditors.The court concluded that the official liquidator must notify the petitioner at the time of seeking confirmation of the sale, as the petitioner is interested in realizing a proper price for the company's assets. The sale is not complete until judicially accepted, and the petitioner is not obligated to monitor the official liquidator's activities continuously. Therefore, the requirement of notice to the petitioner under rule 139 is mandatory.2. Equity Considerations:The second respondent argued that the appellant was aware of the sale proceedings and that rule 139 was not applicable at the stage of seeking court approval for the tender acceptance. They also claimed to have made significant improvements to the property after taking possession, pleading equity in their favor.However, the court noted that statutory requirements must be strictly adhered to, and no equity can arise from proceedings conducted in violation of the law. The principle of proprietary estoppel or any other equity doctrine does not apply when statutory procedures based on public policy are not followed. The court emphasized that confirmation of the sale is a matter of discretion only when mandatory requirements are met.The appellant pointed out that an earlier bid for the property was Rs. 3,00,000, but the sale could not proceed due to objections from a director. The advertisement for the sale was unclear, indicating 938 square feet instead of 938 square yards, and the corrigendum did not rectify this adequately. The tenders received appeared to be from the same group, raising suspicions about the auction's propriety.The court did not delve into these suspicious circumstances, as the appellant succeeded on the first ground alone. The confirmation of the sale in favor of the second respondent was set aside, and the confirmation proceedings were to be conducted afresh, giving the appellant an opportunity to file objections.Conclusion:The appeal was allowed, and the confirmation of the sale was set aside. The confirmation proceedings were to be conducted afresh, considering the appellant's objections. The appellant could also plead that it had no notice of the earlier proceedings regarding O.L.R. No. 119 of 1986.