Official Liquidator must be associated before sale of a company in liquidation's assets; unauthorised auction set aside.

A sale of assets of a company in liquidation by a recovery tribunal may proceed under the special recovery statute, but the Official Liquidator must be notified and associated with the sale process to protect the workmen's pari passu charge under the Companies Act. The right to sell is distinct from the right to distribute proceeds, yet a sale conducted after commencement of winding up without that statutory safeguard cannot be sustained. An auction, confirmation of sale and sale certificate issued without such association are liable to be set aside, with restoration of possession and compliance required before any fresh sale.

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Issues: (i) Whether the Debt Recovery Tribunal and its Recovery Officer could sell the assets of a company in liquidation at the instance of a secured creditor without leave of the Company Court and without associating the Official Liquidator, and (ii) whether the auction sale, confirmation of sale and sale certificate issued in favour of the purchaser were liable to be set aside.

Issue (i): Whether the Debt Recovery Tribunal and its Recovery Officer could sell the assets of a company in liquidation at the instance of a secured creditor without leave of the Company Court and without associating the Official Liquidator.

Analysis: The recovery jurisdiction under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 is exclusive as to adjudication and execution, and the Tribunal may proceed notwithstanding the pendency of winding up. However, where the debtor is a company in liquidation, the statutory scheme under Sections 529 and 529A of the Companies Act, 1956 preserves the workmen's pari passu charge and requires the Official Liquidator, representing that interest, to be associated with the sale process. The right to sell is distinct from the right to distribute proceeds, but sale of assets of a company in liquidation must be conducted after notice to and association of the Official Liquidator so that a proper price is fetched and the interests protected under Section 529A are safeguarded. The winding up is deemed to commence from the date of presentation of the petition, and a sale after commencement without the necessary association cannot be sustained merely because the secured creditor proceeded under the special recovery statute.

Conclusion: The Debt Recovery Tribunal could proceed with the sale, but only after associating the Official Liquidator; sale without such association was not valid.

Issue (ii): Whether the auction sale, confirmation of sale and sale certificate issued in favour of the purchaser were liable to be set aside.

Analysis: The auction was conducted, confirmed and culminated in a sale certificate after the winding up petition had been presented and while the company was in liquidation, but without the Official Liquidator being associated in the sale process. In such circumstances, the sale falls within the mischief of Section 537 of the Companies Act, 1956 and cannot be sustained against the estate of the company in liquidation. The purchaser's participation as a bona fide bidder does not cure the statutory defect in the sale process. Once the sale is set aside, consequential directions regarding restoration of possession and correction of revenue/registration records follow, while the secured creditor may resell only in compliance with the statutory safeguards.

Conclusion: The auction sale, confirmation of sale and sale certificate were liable to be set aside.

Final Conclusion: The application succeeded, the impugned sale was annulled, possession had to be restored to the Official Liquidator, and any future sale could proceed only with the Official Liquidator's association in accordance with law.

Ratio Decidendi: A sale of assets of a company in liquidation by the Recovery Officer under the recovery statute is permissible only if the Official Liquidator is notified and associated in the sale process, so that the workmen's pari passu charge under the Companies Act is protected; a sale conducted without that safeguard is liable to be invalidated.

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