Embedded factory machinery is immovable property; auction of movables did not include permanently fixed plant or structures.

The challenge to the auction sale under the winding-up provisions failed because the sale of movable assets had taken place before the winding-up order, with no effective notice showing awareness of the earlier company petition. The auction was confined to movable assets described as chal sampatti, so permanently embedded plant, machinery and factory structures were treated as immovable property and excluded from the sale. Directions for execution of conveyance were granted for the assets validly purchased, but claims for compensation, withdrawal of sale proceeds and inclusion of embedded items were rejected, subject only to a limited local commissioner inquiry on items removed or remaining at the site.

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Issues: (i) Whether the auction sale of the company's movable assets conducted by the Tehsildar could be set aside as being hit by the winding-up provisions of the Companies Act, 1956. (ii) Whether the plant, machinery and structures lying at the factory premises were included in the auction sale in favour of the purchaser, or whether only movable assets were sold. (iii) Whether the auction purchaser was entitled to directions for execution of conveyance and withdrawal of sale proceeds.

Issue (i): Whether the auction sale of the company's movable assets conducted by the Tehsildar could be set aside as being hit by the winding-up provisions of the Companies Act, 1956.

Analysis: The auction had taken place before the court passed the winding-up order, and there had been no effective publication or notice showing that the Tehsildar, the auction purchaser, or even the objecting creditor was aware of the earlier BIFR-related company petition. The sale was also treated earlier by the court as one made before the winding-up order. In these circumstances, the challenge based on sections 441, 531 and 537 of the Companies Act, 1956 was not accepted.

Conclusion: The challenge to the auction sale on the ground that it was void under the winding-up provisions failed and was rejected.

Issue (ii): Whether the plant, machinery and structures lying at the factory premises were included in the auction sale in favour of the purchaser, or whether only movable assets were sold.

Analysis: The auction proceedings showed that only the movable assets, described as chal sampatti, were put to sale. Applying the settled distinction between movable and immovable property, and the permanency test for machinery embedded in the earth, the plant, heavy machinery and structures installed permanently at the site were held to be immovable property. The purchaser's own earlier stand and the contemporaneous proceedings before the Tehsildar and the Madhya Pradesh High Court supported the conclusion that only movables were purchased. A local commissioner was nevertheless directed to inspect the site and report on any immovable components already removed or any movables still lying there.

Conclusion: The purchaser was held not to have bought the permanently embedded plant, machinery and structures, and its claim to include those items in the auction purchase was rejected.

Issue (iii): Whether the auction purchaser was entitled to directions for execution of conveyance and withdrawal of sale proceeds.

Analysis: The court accepted that the purchaser had paid the auction price and was entitled to have the immovable property already purchased conveyed. At the same time, no compensation for delay was granted, and no withdrawal of a substantial part of the deposited sale consideration was permitted. The purchaser was allowed to deal with the assets purchased, but subject to the outcome of the commissioner's report and any admissible claim for movables or missing parts.

Conclusion: Directions for execution of the conveyance were granted, but the claims for compensation and withdrawal of sale proceeds were declined.

Final Conclusion: The objections to the earlier auction sale were substantially rejected, the purchaser's claim to take over embedded plant and machinery was disallowed, and the matter was kept open only for a limited factual enquiry by a local commissioner regarding the nature of the items removed or remaining at the factory.

Ratio Decidendi: Machinery and structures permanently embedded in the earth and intended for permanent use as part of a factory are immovable property, and a sale described as one of movable assets does not extend to such embedded plant and machinery unless the auction terms and surrounding facts clearly show that intention.

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