2010 (2) TMI 967 - HC - Companies Law

Court overturns AAIFR order on sick company property sale, stresses procedure compliance for public interest

Bharat Commerce Industries Ltd. Versus Appellate Authority for Industrial & Financial Reconstruction

The High Court set aside the Appellate Authority for Industrial and Financial Reconstruction's (AAIFR) order confirming the sale of a sick company's ... Jurisdiction of AAIFR - Whether AAIFR has gone wrong to say that respondents Nos. 5 to 7 have failed to comply with only condition of furnishing of bank guarantee? - Held that:- There was total non-compliance with the terms and conditions set down for sale of the property by the competent authority, i.e., the BIFR. ASC acted in an unjustified manner by ignoring the specific terms for sale laid down by the BIFR. Without ensuring the compliance of terms and conditions, bid made by respondents Nos. 5 to 7 was accepted. Respondents Nos. 5 to 7 when asked to comply with the terms and conditions set down for the sale of the property, they rather started dictating terms and failed to furnish bank guarantee and also to make payment within the stipulated period. The AAIFR had no jurisdiction to reverse the order of the BIFR by setting aside a mandatory term of the ASC guidelines for furnishing a bank guarantee. Appeal allowed. Issues Involved:1. Sale of property of a sick company.2. Compliance with guidelines for sale.3. Confirmation of sale by the Appellate Authority for Industrial and Financial Reconstruction (AAIFR).4. Rights and interests of the employees residing on the property.5. Legality of the bidding process and acceptance of bids.6. Jurisdiction of AAIFR in altering sale conditions.Issue-Wise Detailed Analysis:1. Sale of Property of a Sick Company:The dispute concerns the sale of Block No. IV of a property owned by a sick company, BCI, which was confirmed in favor of respondents Nos. 5 to 7 on May 30, 2005. BCI was declared a sick company by the BIFR on May 16, 2000, and IDBI was appointed as the operating and later the selling agency under sections 17(3) and 20(4) of the Sick Industrial Companies (Special Provisions) Act, 1985. The sale was to be conducted transparently under the supervision of an Assets Sale Committee (ASC).2. Compliance with Guidelines for Sale:The BIFR issued specific guidelines for the sale, including public sale through sealed tenders, earnest money deposits, payment schedules, and furnishing of bank guarantees. The ASC was to ensure compliance with these guidelines. However, the bid by respondents Nos. 5 to 7 did not adhere to these guidelines, particularly the requirement to furnish a bank guarantee and timely payment of the sale consideration.3. Confirmation of Sale by the AAIFR:The AAIFR set aside the BIFR's order rejecting the bid of respondents Nos. 5 to 7 and directed the confirmation of the sale in their favor. The AAIFR found the condition of furnishing a bank guarantee redundant, given that possession and title transfer were contingent on full payment. However, the High Court found this interference erroneous, as the AAIFR had no jurisdiction to alter the mandatory conditions set by the BIFR.4. Rights and Interests of the Employees Residing on the Property:The petitioners, representing BCI employees residing on the property, argued that they were entitled to the property in equity and law. They had been residing there for periods ranging from 6 to 35 years and had unpaid dues from the bankrupt company. The High Court acknowledged their plight and noted that the sale would displace them without addressing their dues.5. Legality of the Bidding Process and Acceptance of Bids:The ASC accepted the bid of respondents Nos. 5 to 7 despite their non-compliance with the sale conditions. The High Court noted that the ASC failed to ensure strict compliance with the guidelines, leading to an unjustified acceptance of the bid. The petitioners and another party had made higher offers after the initial bid, but these were not considered due to procedural lapses.6. Jurisdiction of AAIFR in Altering Sale Conditions:The High Court held that the AAIFR overstepped its jurisdiction by altering the BIFR's mandatory conditions for sale. The AAIFR's decision to waive the bank guarantee requirement was deemed improper, as it was a vital condition to secure payment. The High Court emphasized the need for strict adherence to the BIFR's guidelines to protect public funds and ensure a fair sale process.Conclusion:The High Court allowed the writ petition, set aside the AAIFR's order, and restored the BIFR's decision. It directed the refund of the amount deposited by respondents Nos. 5 to 7 with interest and instructed that the property be sold as per legal provisions. The decision underscored the importance of adhering to established guidelines and protecting the interests of employees and public funds.