1998 (1) TMI 406 - HC - Companies Law

Court voids asset sale without leave, orders joint sale with higher price. Third respondent to cover sale expenses.

Karnataka State Industrial Investment & Development Corpn. Ltd. Versus Intermodel Transport Technology Systems (Karnataka) Ltd.

Karnataka State Industrial Investment & Development Corpn. Ltd. Versus Intermodel Transport Technology Systems (Karnataka) Ltd. - [2000] 24 SCL 200 (KAR) Issues Involved:1. Modification of the previous court order regarding the official liquidator's charge over company assets.2. Legality of the sale of company assets by the Karnataka State Industrial Investment and Development Corporation Limited (the Corporation) without court leave.3. Applicability of the Sick Industrial Companies (Special Provisions) Act, 1985 (SIC Act) and its provisions over the Companies Act, 1956 (the Act).4. Validity of the sale of assets under the State Financial Corporation Act, 1951 (SFC Act) without court intervention.5. Impact of the pari passu charge in favor of workmen under sections 529 and 529A of the Act.6. The necessity of leave from the Company Court for the sale of assets during winding-up proceedings.Detailed Analysis:1. Modification of the Previous Court Order:The applicant, Karnataka State Industrial Investment and Development Corporation Limited, sought modification of the court order dated 31-10-1996, which directed the official liquidator to take charge of all properties and effects of Intermodel Transport Technology Systems (Karnataka) Limited. The Corporation requested exemption from this direction for assets they had taken over and sold to the second respondent.2. Legality of the Sale of Company Assets by the Corporation:The Corporation argued that the sale of the company's assets was legal and valid as it was conducted under the statutory power conferred by the BIFR under section 20(4) of the SIC Act. They contended that the sale did not require the leave of the court as it was done without court intervention and was approved by the BIFR. They also emphasized that the sale was widely publicized and the highest bid was accepted, ensuring no prejudice to the company, workmen, or creditors.3. Applicability of the SIC Act Over the Companies Act:The Corporation and the second respondent argued that the SIC Act, being a special enactment, should prevail over the Companies Act. They cited section 32 of the SIC Act, which provides that the provisions of the SIC Act shall have an overriding effect over any other law. They contended that since the BIFR approved the sale, the provisions of the SIC Act should take precedence.4. Validity of the Sale Under the SFC Act:The Corporation also relied on section 29 of the SFC Act, which allows a secured creditor to take possession of the assets and sell them without court intervention. They argued that the sale was conducted legally under this provision and the assets did not vest with the official liquidator upon the winding-up order.5. Impact of the Pari Passu Charge in Favor of Workmen:The official liquidator and the third respondent contended that the sale was void as it did not consider the pari passu charge in favor of the workmen under sections 529 and 529A of the Act. They argued that any sale of the company's assets during winding-up proceedings requires the leave of the Company Court to protect the interests of the workmen and other creditors.6. Necessity of Leave from the Company Court:The court held that the sale of the company's assets without the leave of the Company Court was void under section 537 of the Act. The court emphasized that the winding-up proceedings commenced from the date of the petition for winding up, and any sale after this date without court leave is void. The court also noted that the provisions of the SIC Act and the Companies Act should be harmoniously construed to protect the interests of all parties involved, including the workmen and creditors.Conclusion:The court rejected the application for modification of the previous order and held that the sale of the company's assets by the Corporation without the leave of the Company Court was void. The court directed that fresh steps be taken to sell the assets jointly by the Corporation and the official liquidator, with the minimum sale price set higher than the previous sale amount plus accrued interest. The court also noted the third respondent's commitment to bear the expenses for conducting the fresh sale.