Court upholds secured creditor's asset sale pre-winding up; post-order requires court approval

The court held that a sale of assets by a secured creditor, as directed by the BIFR before a winding-up order, without the leave of the company court, is valid. However, after a winding-up order, the creditor must obtain court permission and involve the official liquidator in the sale process. The court found no irregularities in the sale procedure or the sale price, upholding the validity of the sale to BPL. The court dismissed OSA No. 7 of 1998 and allowed OSA No. 6 of 1998, modifying the direction to the official liquidator and ordering the distribution of sale proceeds.

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Issues Involved:
1. Validity of the sale of assets by a secured creditor without the leave of the company court during the pendency of a winding-up petition.
2. Necessity of associating the official liquidator in the sale process by a secured creditor.
3. Procedural irregularities and adequacy of the sale price of the company's assets.

Issue-Wise Detailed Analysis:

1. Validity of the Sale of Assets by a Secured Creditor Without the Leave of the Company Court:
The court examined whether a sale made by a secured creditor as per the directions of the BIFR under section 20(4) of the SICA, prior to the winding-up order, becomes void if a winding-up petition was pending and leave of the company court was not obtained. The court held that any sale in pursuance of a direction by the BIFR under section 20(4) before an order of winding up under section 20(2) is valid, and there is no need to obtain any leave or permission of the company court for such sale. The sale in favor of BPL was permitted by the BIFR on 26-8-1993, approved on 27-10-1995, and concluded on 28-12-1995, prior to the winding-up order dated 31-10-1996. Therefore, the sale by KSIIDC to BPL was valid and could not be ignored.

2. Necessity of Associating the Official Liquidator in the Sale Process:
The court addressed whether a sale by a secured creditor who has taken over the assets of the company under section 29 of the SFC Act is void if made without the permission of the company court and without associating the official liquidator. The court noted that the legal position is that even a secured creditor who wants to stand outside the winding-up proceedings and realize his security should obtain the leave of the company court for sale of the assets of the company and also associate the official liquidator in the sale process, once an order of winding up is passed. However, this requirement applies only to sales after the winding-up order and not to sales made prior to the winding-up order.

3. Procedural Irregularities and Adequacy of the Sale Price:
The court considered whether the sale should be interfered with on the grounds of procedural irregularities or inadequacy of the sale price. The BIFR had permitted KSIIDC to sell the assets, and this decision was confirmed by the AAIFR. The sale was conducted with wide publicity, and BPL's offer was the highest. The company court does not have the jurisdiction to re-examine the correctness of the price or the procedure adopted for the sale once the BIFR has approved it. Therefore, the court found no merit in the contention that the sale was irregular or that the sale price was inadequate.

Other Observations:
The court also addressed the grievances of the appellant in OSA No. 7 of 1998 regarding the observations made by the learned company judge about the conduct of the company and its directors in repeatedly challenging the sale. The court found these observations to be statements of fact and saw no reason to delete them.

Final Order:
- OSA No. 7 of 1998 was dismissed.
- OSA No. 6 of 1998 was allowed, setting aside the order dated 29-1-1998 of the learned company judge dismissing CA No. 64 of 1997.
- The direction to the official liquidator to take over the properties and assets of the company was modified, excluding the properties sold to BPL.
- KSIIDC was allowed to hand over the possession of the assets to BPL, subject to any pending writ petitions.
- The sale proceeds of Rs. 2.80 crore were to be kept in a fixed deposit in the joint names of KSIIDC and the official liquidator for distribution by the company court.
- Parties were to bear their respective costs.

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