2005 (3) TMI 473 - HC - Companies Law

Court sets aside sale of assets due to inadequate price, orders re-auction. Workmen's interests considered.

The court set aside the confirmed sale of assets of Punjab Wireless Systems Limited in favor of M/s. Winsome Yarns Ltd. due to inadequacy of the price and ... Winding up – Powers of liquidator Issues Involved1. Confirmation of the sale of assets of the company in liquidation.2. Inadequacy of the price offered in the auction.3. The rights and interests of secured creditors and workmen.4. Legitimacy of the interveners' higher bid post-confirmation.5. Compliance with the procedural requirements for the sale.Detailed Analysis1. Confirmation of the Sale of AssetsThe court was tasked with confirming the sale of assets of the company in liquidation, Punjab Wireless Systems Limited (Punwire). The official liquidator had conducted an auction, and the highest bid was received from M/s. Winsome Yarns Ltd. for lot Nos. 17, 19, and 20. The sale was confirmed on December 10, 2004, and possession was handed over to the auction purchaser.2. Inadequacy of the Price OfferedThe primary issue was whether the price offered by the auction purchaser was adequate. The court emphasized that it is the duty of the court to ensure that the price fetched at the auction is adequate. The Supreme Court's rulings in Navalkha and Sons and Union Bank of India cases were cited, which state that the confirmation of the sale acts as a safeguard against the property being sold at an inadequate price. The court noted that the price difference between the confirmed bid (Rs. 3.36 crores) and the subsequent offer by the intervener (Rs. 3.75 crores) was significant, indicating that the initial sale price might have been inadequate.3. Rights and Interests of Secured Creditors and WorkmenThe court highlighted the importance of considering the interests of secured creditors and workmen. Under Section 529A of the Companies Act, the dues of the workmen are treated pari passu with those of secured creditors. The court found that the official liquidator failed to associate the workmen in the sale process, which was a significant oversight. The employees' union had not been consulted, and their interests were not adequately protected.4. Legitimacy of the Interveners' Higher Bid Post-ConfirmationThe court considered the legitimacy of the higher bid made by the intervener, Sun Group Enterprises Pvt. Ltd., after the sale was confirmed. The intervener offered Rs. 12 crores for the entire assets of Punwire, which was substantially higher than the confirmed bid. The court noted that the higher bid was made in good faith and aimed at reviving the company, which would benefit the secured creditors and workmen. The court referred to the Supreme Court's judgment in Divya Manufacturing Co., which allows setting aside a confirmed sale if a higher offer is made subsequently.5. Compliance with Procedural RequirementsThe court examined whether the sale process complied with the procedural requirements under the Companies (Court) Rules, 1959. Rule 272 requires that every sale by the official liquidator be subject to confirmation by the court. The court found that the official liquidator had followed the required procedures, including wide publicity and inviting sealed tenders. However, the court noted that the sale price's adequacy was not sufficiently ensured, which warranted setting aside the confirmation.ConclusionThe court concluded that the confirmed sale in favor of M/s. Winsome Yarns Ltd. should be set aside due to the inadequacy of the price and the failure to consider the interests of the workmen. The court directed the official liquidator to re-auction the assets, with the expenses for re-auction to be borne by the intervener, Sun Group Enterprises Pvt. Ltd. The auction purchaser was entitled to recover the interest paid on the loan from the interveners. The applications were disposed of accordingly.