2008 (5) TMI 419 - SC - Companies Law

Supreme Court directs fresh auction under Companies Act, Ceylon Biscuits as receiver.

The Supreme Court allowed the appeal, directing the Company Judge to reconsider the matter in accordance with the Companies Act and conduct a fresh ... Whether power of a Company Court to sell the property of a company vis-a-vis the power of the Financial Corporation can be merged is the question involved in these appeals which arise out of the judgments and orders dated 2-7-2007 and 6-7-2007 passed by the Division Benches of the Delhi High Court? Held that:- Appeal allowed. The Company Judge was not correct in its view and passed the impugned judgments only having regard to the wrongful conduct on the part of the appellant in obtaining an award from the conciliation tribunal or failure to bring a better offer from another bidder. The question which is really an intricate one is what relief can be granted. On the one hand, the Company has committed wrongs, on the other, its property has been sold in auction. Even a part of the property has been permitted by us to be taken out of the country. The factory, we are told, has started operation. It has employed a large number of workmen. Would that itself mean that we should refrain ourselves from granting any relief ? Direction issued by this Court in a case of this nature need not be a narrow one. The court has to take into consideration the fate of not only those workmen who are working but also those who have a claim against the Company. We must also take into consideration the fate of the other creditors. Thus interest of justice would be subserved if while allowing the appeal, the learned Company Judge is requested to go into the question afresh in accordance with the provisions of the Companies Act and hold a fresh auction. Issues Involved:1. Whether the power of a Company Court to sell the property of a company can be merged with the power of the Financial Corporation.2. Jurisdiction of the Executing Court and Company Judge in supervising the sale of assets.3. Involvement of the Official Liquidator in the sale process.4. Compliance with legal requirements for the sale of assets.5. Consideration of claims of other creditors, especially workmen.6. Fairness of the procedure adopted by the High Court.7. Impact of the wrongful conduct of the appellant on the sale process.Issue-wise Detailed Analysis:1. Merger of Powers:The Supreme Court examined whether the Company Court's power to sell a company's property could be merged with the Financial Corporation's powers under section 29 of the State Financial Corporations Act (1951 Act). It was determined that the proceedings under section 29 of the 1951 Act would prevail over a winding-up proceeding before a Company Judge. However, in this case, the sale was not conducted under section 29 but under the Companies Act, with SICOM submitting to the Company Judge's jurisdiction.2. Jurisdiction of the Executing Court and Company Judge:The Court held that the Company Judge could exercise jurisdiction only under the Companies Act and not under section 29 of the 1951 Act. SICOM had submitted to the Company Judge's jurisdiction, allowing the sale to be conducted under the Companies Act. The Court found that the Company Judge had jurisdiction to supervise the sale of the appellant's assets on behalf of SICOM.3. Involvement of the Official Liquidator:The Court emphasized the importance of involving the Official Liquidator, especially when other creditors' claims were brought to the court's notice. The Company Judge was bound to consider all creditors' claims, particularly under section 529A of the Companies Act, which gives workmen's dues a pari passu charge with secured creditors. The Court criticized the Company Judge for not involving the Official Liquidator adequately.4. Compliance with Legal Requirements:The Court found that the Company Judge did not follow the mandatory provisions of the Companies Act and the Company Court Rules. The sale process was not conducted fairly, as the Company Judge did not issue a fresh advertisement, fix a reserve price, or make any attempt to secure the best possible market price. The Court emphasized that the Company Judge must consider all relevant factors and comply with statutory obligations while conducting a sale.5. Consideration of Claims of Other Creditors:The Court highlighted that the Company Judge must consider the claims of all creditors, including workmen, in accordance with section 529A of the Companies Act. The claims of workmen have a statutory pari passu charge with secured creditors. The Court criticized the High Court for disregarding the claims of other creditors and workmen.6. Fairness of the Procedure:The Court found that the High Court did not adopt a fair procedure. The hearing was preponed without granting adequate time for the appellant to respond. The Court emphasized that the Company Judge must ensure fairness and transparency in the sale process, considering the interests of all parties involved.7. Impact of Wrongful Conduct:The Court acknowledged the appellant's wrongful conduct in obtaining an award from the Conciliation Tribunal and failing to bring a better offer. However, it held that this conduct should not justify adopting an unfair procedure that prejudices other creditors. The Court emphasized that the Company Judge must adopt a fair and just procedure, regardless of the appellant's conduct.Conclusion:The Supreme Court allowed the appeal to the extent that the learned Company Judge was requested to reconsider the matter afresh in accordance with the Companies Act and hold a fresh auction. The Court directed that Ceylon Biscuits Pvt. Ltd.'s offer should be considered, and a proper valuation of all assets should be conducted. Ceylon Biscuits Pvt. Ltd. was appointed as a receiver of the Company Court until a final order was passed, and it was required to act under the Court's supervision. The appeals were allowed to this extent, with no order as to costs.