2009 (9) TMI 591 - HC - Companies Law

Court orders fresh sale with official liquidator involvement, refunds for purchaser, and new valuation for fairness. Procedural transparency mandated.

The court set aside the auction sale conducted by the Recovery Officer and ordered a fresh sale with the official liquidator's involvement. The auction ... Official liquidator seeked to set aside the auction sale made by the Recovery Officer Held that:- In view of the position of law laid down in Rajasthan Financial Corporation v. Official Liquidator [2005 (10) TMI 280 - SUPREME COURT OF INDIA] the sale by the Recovery Officer and subsequent confirmation have got to be set aside in view of the non-association of the official liquidator in the process of sale which would ensure a proper price for the assets of the company in order to safeguard the interest of all the creditors secured and unsecured and also the workers' union, and also it was in violation of the order of the company court. The auction sale in question is set aside.The auction purchaser is entitled to refund of the monies paid by him towards the auction sale which is now set aside also in the interest of all the creditors and also the workers' union, a fresh sale is ordered to be made by the Recovery Officer after following the procedural formalities and after preparation of a fresh valuation done by the panel of valuers appointed by the company court with the association of the official liquidator and on acceptance of the same by the company court in order to ensure a proper price is fetched for the assets of the company in liquidation. Issues Involved:1. Legality of the auction sale conducted by the Recovery Officer.2. Jurisdiction and authority of the Recovery Officer versus the official liquidator.3. Compliance with procedural requirements and court orders.4. Validity of the valuation and auction process.5. Rights and interests of the creditors and workers' union.Detailed Analysis:1. Legality of the Auction Sale Conducted by the Recovery Officer:The auction sale of the assets of M/s. Deve Sugars Ltd., conducted by the Recovery Officer, was challenged on the grounds that it violated procedural norms and court orders. The official liquidator, appointed by the court, had taken possession of the company's assets, and the State Bank of Mysore obtained a recovery certificate from the Debts Recovery Tribunal (DRT) for the outstanding dues. The Recovery Officer proceeded with the auction without adequately addressing the objections raised by the official liquidator and other stakeholders. The auction sale was hurriedly conducted, and the official liquidator was not properly involved in the process, leading to questions about the legality and fairness of the sale.2. Jurisdiction and Authority of the Recovery Officer Versus the Official Liquidator:The court emphasized that the assets of the company in liquidation were under the exclusive custody of the official liquidator. The order dated March 10, 2000, from the company court, granted leave to the State Bank of Mysore to proceed with the recovery proceedings, provided the official liquidator was impleaded and no coercive steps were taken against the company's assets during or after the proceedings. This order was binding and had not been varied or set aside. The Recovery Officer's actions, including the auction sale, were found to be inconsistent with this order, as they constituted coercive steps against the company's assets.3. Compliance with Procedural Requirements and Court Orders:The Recovery Officer's actions were scrutinized for compliance with procedural requirements and court orders. The official liquidator's objections were not adequately considered, and the valuation and inventory of the assets were conducted without his involvement. The court noted that the valuation and inventory reports were prepared hastily and without proper notice to the official liquidator, rendering them unreliable. The auction sale was conducted in a manner that did not ensure transparency and fairness, as evidenced by the hurried registration of bidders and the lack of proper public notice.4. Validity of the Valuation and Auction Process:The court found that the valuation of the company's assets was improper and incorrect, as it was conducted without the knowledge or involvement of the official liquidator. The valuation report was deemed imaginary and did not reflect the actual value of the assets. The auction process was also flawed, with only one genuine bidder participating, and the upset price being set too low. The court emphasized the need for a proper valuation and auction process to ensure that the assets fetched a fair price.5. Rights and Interests of the Creditors and Workers' Union:The court underscored the importance of protecting the rights and interests of all creditors, including secured and unsecured creditors, and the workers' union. The official liquidator, representing the entire body of creditors, had a duty to ensure that the assets were sold at a fair price and the proceeds were distributed equitably. The Recovery Officer's actions, which excluded the official liquidator and disregarded his objections, were detrimental to the interests of the creditors and workers. The court ordered a fresh sale to be conducted with the involvement of the official liquidator to safeguard these interests.Judgment:The court set aside the auction sale conducted by the Recovery Officer and ordered a fresh sale to be conducted with the involvement of the official liquidator. The auction purchaser was entitled to a refund of the monies paid towards the auction sale. The fresh sale was to be conducted following procedural formalities, with a new valuation done by a panel of valuers appointed by the company court and accepted by the court to ensure a proper price for the assets of the company in liquidation. All original side appeals were allowed, and the order of the learned single judge was set aside.