2015 (1) TMI 1269 - HC - Companies Law

Court permits party substitution in company application, emphasizes transparency in asset sale process

In Re : M/s Pashupati Haryana Woolens Limited

The court allowed the substitution of a party in a company application, directing the correction of the memo of parties based on an Assignment Agreement. ... Assignment Agreement - whether assignee of a secured creditor in terms of Section 5(1)(b) of the SARFAESI Act, who steps into the shoes of secured creditor has a right to stand outside the winding up proceedings and still bring the properties mortgaged to sale? - Held that:- There is no bar in handing over the possession of the assets of the company in liquidation to the Asset Reconstruction Company for taking further steps to sell the same. The sale of the assets shall also be got confirmed from the Company Court. The object is to get maximum price for the assets of the company in liquidation. The contention raised by learned counsel for the shareholders and guarantors for restraining the Asset Reconstruction Company to sell of the assets of the company in liquidation is merely to be noticed and rejected. No provision of law has been pointed out to show as to how validity of assignment agreement can be challenged before the Company Court. Once the debt has been assigned by IFCI to the Asset Reconstruction company, it steps into its shoes as secured creditor and can take whatever action a secured creditor could take. The apprehension of the shareholders and the guarantors was that the assets of the company in liquidation may not be sold at throw away price. The apprehension is misplaced, if considered in the light of the directions already issued in terms of which the Asset Reconstruction company is to associate the Official Liquidator at every stage and further the sale shall be subject to approval by the Company Court. Even at that stage, the applicants- shareholders and guarantors shall be at liberty to intervene and bring a better buyer so as to get the maximum price for the properties sold. As far as claim of liquidation expenses by the Official Liquidator is concerned, learned counsel for the Asset Reconstruction company has stated that entire amount claimed shall be paid, however, it is directed that the Official Liquidator shall provide the vouchers in support of the claim for the amount paid for valuation of the assets for sale and also for payments made to the security agencies. The amount claimed by the Official Liquidator be paid within one month. The possession of the assets of the company in liquidation be handed over by the Official Liquidator to the Asset Reconstruction company as early as possible with notice to the shareholders. The inventory of the fixed and moveable assets shall be prepared at the time of handing over the possession to the Asset Reconstruction company. At that time, respondent nos. 8 and 9 shall be at liberty to be present and ensure that correct inventory is being prepared. Issues:1. Substitution of a party in a company application.2. Direction for handing over physical possession of assets.3. Validity of assignment agreement and sale of company assets.Analysis:1. The judgment addressed the substitution of a party in a company application, where the Asset Reconstruction Company sought to replace IFCI as a secured creditor. The court allowed the substitution based on an Assignment Agreement and directed the correction of the memo of parties accordingly. The court referred to relevant legal provisions and previous judgments to support its decision.2. The court considered a plea for the direction to hand over physical possession of the assets of the company in liquidation for sale by the Asset Reconstruction Company. The court examined the rights of the assignee of a secured creditor under the SARFAESI Act and Companies Act. It cited previous judgments to establish the procedure for sale of secured assets under the SARFAESI Act while keeping the Company Court informed and involved in the process. The court emphasized the need for transparency and approval from the Company Court for the sale of assets.3. The judgment also dealt with the validity of the assignment agreement and the sale of company assets by the Asset Reconstruction Company. Shareholders and guarantors raised concerns about the sale price and challenged the agreement's adequacy. The court dismissed these concerns, highlighting that once the debt is assigned, the assignee steps into the shoes of the secured creditor. The court emphasized the involvement of the Official Liquidator and oversight by the Company Court to ensure a fair sale process and maximum price for the assets. Additionally, the court addressed the reimbursement of expenses claimed by the Official Liquidator and directed the provision of vouchers for verification.Overall, the judgment provided detailed analysis and legal reasoning on each issue, considering relevant laws, judgments, and procedural requirements to facilitate the substitution of parties, direction for asset possession, and validation of the sale process in the context of company liquidation proceedings.