2008 (7) TMI 583 - HC - Companies Law

Invalid Sale by Bank Due to Lack of Official Liquidator Notice Upheld

The High Court upheld the Single Judge's decision to set aside a sale conducted by a bank due to lack of notice to the Official Liquidator, emphasizing ... Winding up - Powers of Liquidator - application filed by Liquidator seeking to set aside the sale was to the effect that no notice has been given to him nor there is any intervention of the company Court, where the company is directed to be wound up and properties stood vested in the Official Liquidator - Held that:- Absence of notice, be it under the provisions of Companies Act consequent to wounding up or even as per the procedure contemplated under rule 31 of the Schedule II of the Income-tax Act, is mandatory and would vitiate the entire proceedings. Either way, the Official Liquidator was not put on notice before the bank has taken steps for conduction of sale or auction, which is quite fatal and vitiates the proceedings. Admittedly, the entire proceedings as initiated by the bank for recovery of the said amounts after obtaining the certificate and conducting the sale etc., are much later to the orders of winding up. Therefore, having regard to the aforesaid situation and especially there being no notice issued to the Official Liquidator, the learned Single Judge has rightly held that the sale would not be sustained. Issues:1. Validity of sale conducted by a bank without notice to the Official Liquidator after a company was ordered to be wound up.2. Rights of a third-party purchaser in a sale set aside by the court.Issue 1: Validity of Sale Conducted by Bank Without Notice to Official Liquidator:The case involved appeals challenging the orders passed by a Single Judge allowing the Official Liquidator's application to set aside a sale conducted by a bank without notice to the Official Liquidator. The company in question was ordered to be wound up, and the Official Liquidator claimed that the sale was void as no notice was given to him, and the bank proceeded with the sale without intervention of the Company Court. The bank argued that the proceedings before the Debt Recovery Tribunal under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, were not subject to the Company Court's jurisdiction. The Single Judge allowed the application, citing the Supreme Court's decision in Rajasthan State Financial Corpn. v. Official Liquidator [2005] 63 SCL 468.The High Court analyzed the facts and determined that the sale conducted by the bank without notifying the Official Liquidator was invalid. The court emphasized that the Company Court's orders of winding up automatically vested all assets with the Official Liquidator. The absence of notice to the Official Liquidator before the sale proceedings commenced was deemed fatal and rendered the sale unsustainable. The court referred to the mandatory nature of issuing notice to the Official Liquidator as established in previous legal precedents.Issue 2: Rights of Third-Party Purchaser in Set-Aside Sale:A separate appeal was filed by a third-party purchaser who bought the property in question through a registered sale deed after the auction conducted by the bank was set aside. The appellant argued that the sale should not have been set aside, considering the proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the involvement of third parties. The Official Liquidator contended that the objections raised by the appellants were addressed in the Rajasthan State Financial Corpn.'s case and that no merit existed in the appeals.The High Court held that the absence of notice to the Official Liquidator invalidated the sale, and as a result, the appeals by both the bank and the third-party purchaser failed. The court emphasized that no equities could be claimed or extended in light of the established legal principles. Both appeals were dismissed without costs.In conclusion, the High Court upheld the Single Judge's decision to set aside the sale conducted by the bank due to the lack of notice to the Official Liquidator, emphasizing the mandatory nature of such notice as established in legal precedents. The rights of the third-party purchaser were also considered in the context of the invalidated sale, leading to the dismissal of both appeals.