2011 (10) TMI 710 - HC - Companies Law

Private sale legality under Income Tax Act questioned; sale not nullified despite non-compliance.

B.I.F.R. Versus M/s. SLM Maneklal Industries Ltd.

B.I.F.R. Versus M/s. SLM Maneklal Industries Ltd. - TMI Issues Involved:1. Legality of the sale of movable and immovable assets of the company in liquidation.2. Validity of the private sale under Rule 66 of Schedule II of the Income Tax Act, 1961.3. Compliance with statutory provisions and the role of the Official Liquidator.4. Allegations of fraud and collusion in the sale process.5. Settlement of dues with secured creditors, workers, and statutory authorities.6. Rights and claims of Gujarat Industrial Investment Corporation (GIIC).Detailed Analysis:1. Legality of the Sale of Movable and Immovable Assets:The Official Liquidator requested the court to declare the sale of movable assets to Yusufbhai I. Parmar and Deven Rameshbhai Patel in January 2007 and the sale of immovable properties to M/s. Texraj Realty Pvt. Ltd. in June 2007 as null and void. The Liquidator argued that these sales occurred after the presentation of the winding-up petition on 29th April 2003, making them void under Sections 536(2) and 537 of the Companies Act, 1956.2. Validity of the Private Sale under Rule 66:The purchaser, M/s. Texraj Realty Pvt. Ltd., contended that the sale was conducted under the aegis of the Debt Recovery Tribunal (DRT) and should be considered a statutory sale under Rule 66 of Schedule II of the Income Tax Act, 1961. However, the court found that the sale did not comply with all the requirements of Rule 66, such as obtaining a certificate from the Recovery Officer and confirmation of the sale by the Recovery Officer. Therefore, the sale could not be considered a statutory sale under the RDB Act.3. Compliance with Statutory Provisions and Role of the Official Liquidator:The court noted that the sale was conducted without the knowledge or involvement of the Official Liquidator, which bypassed the company court and the official procedures. The Liquidator argued that such private sales lack transparency and do not ensure the highest price for the assets. The court emphasized that sales conducted through the company court and by the Liquidator follow meticulous steps to avoid allegations of lack of transparency and arbitrariness.4. Allegations of Fraud and Collusion:The unions and some workers alleged that the sale was collusive and fraudulent, claiming that properties worth about Rs. 250 Crores were sold for only Rs. 19.22 Crores. However, the court found no concrete evidence of fraud or collusion. The court noted that the sale occurred in 2007, and no objections were raised until much later, indicating a lack of vigilance on the part of the objectors.5. Settlement of Dues with Secured Creditors, Workers, and Statutory Authorities:The purchaser, M/s. Texraj Realty Pvt. Ltd., provided evidence of settling dues with secured creditors, including banks, workers, and statutory authorities. The company in liquidation claimed to have settled the claims of 1350 out of 1600 workers and paid statutory dues, including provident fund contributions. The court acknowledged these settlements and noted that the sale proceeds were used to discharge significant liabilities.6. Rights and Claims of Gujarat Industrial Investment Corporation (GIIC):GIIC raised objections, claiming that it was kept in the dark about the sale and that its dues were still outstanding. The court clarified that the findings and conclusions in the order were confined to the report and did not prejudice GIIC's claims. GIIC was allowed to pursue its claims in pending proceedings, and the court kept all pleas open for both sides.Conclusion:The court concluded that the private sale in favor of M/s. Texraj Realty Pvt. Ltd. was not conducted under the statutory provisions of the RDB Act and did not comply with Rule 66. However, given the settlements with secured creditors, workers, and statutory authorities, and the lack of concrete evidence of fraud or collusion, the court decided not to nullify the sale. The court allowed GIIC to pursue its claims independently and directed the Official Liquidator to proceed with the winding-up process in accordance with the law.