2012 (12) TMI 473 - HC - Companies Law

Court modifies order for additional payment, sets structured plan for default

The court modified the original order, directing Siddheswari to pay an additional amount to match the refund to Bharat Metal. The appeal partially ... Company in liquidation - The Official Liquidator then put up the property for auction - Subsequently, Siddheswari made application for disclaimer as referred to above. They claimed, two rooms in possession of the Official Liquidator actually belonged to them. The workers also filed application for settling their claim. If we try to find out a solution by looking into the problem in a different way we would find, the sale in favour of Bharat Metal did not have any resistance from any corner. The Court was also satisfied with the price that was offered by Bharat Metal. Bharat Metal approached the Court for reduction of price as they could not get actual area of land that was offered for sale. The learned Judge directed refund of a sum of rupees seventy lacs that, according to His Lordship, was the value of the land, that was offered by Bharat Metal and confirmed by Court. If Bharat Metal would not have approached, the controversy, that is arising today, would not have been there at all. Hence, if we restore rupees seventy lacs as on January 11, 2010 being the date of the order when Official Liquidator was asked to refund the said sum together with reasonable interest for the period when Official Liquidator was out of pocket to the extent of rupees seventy lacs we feel, it would meet ends of justice. Hence, the sum of rupees thirty-seven lacs that was paid by Siddheswari should attract interest at the rate of six per cent per annum on and from January 11, 2010 till the date of payment of the said sum to the Official Liquidator. The balance sum of rupees thirty-three lacs would also carry interest at the same rate on the reducing balance on and from January 11, 2010 till the respective dates of payment. Issues Involved:1. Demarcation of land belonging to the company in liquidation.2. Validity of sale by private treaty versus public auction.3. Legal standing of workers and secured creditors in challenging the sale.4. Authority of a Coordinate Bench to recall an order of another Judge.5. Impact of the purchaser's investments post-sale confirmation on the validity of the sale.Issue-wise Detailed Analysis:1. Demarcation of Land Belonging to the Company in Liquidation:The Official Liquidator faced difficulties in demarcating the land belonging to Anantapur Textile Limited, which was in liquidation, and Siddheswari Cotton Mills Private Limited. The Official Liquidator attempted to take possession of 11.73 acres of land, but Siddheswari objected, claiming two acres of the land. Despite several attempts, the land could not be demarcated, leading to complications in the sale process.2. Validity of Sale by Private Treaty Versus Public Auction:The learned Company Judge initially directed the sale of the land by private treaty to Siddheswari for Rs. 37 lakhs without holding a public auction. This decision was based on the frustration and inordinate delay in the beneficial winding up of the company. The reasons included the applicant's willingness to pay the purchase price matching the valuation, the difficulty in finding a better purchaser due to the lack of demarcation, the empowerment of the Official Liquidator under Section 457(1)(C) of the Companies Act, 1956, and the absence of objections from secured creditors.3. Legal Standing of Workers and Secured Creditors in Challenging the Sale:The workers challenged the sale by private treaty, arguing that it was contrary to earlier court orders and that the revenue records indicated more land belonging to the company in liquidation. They insisted on a public auction to get the best possible price for realizing their dues. The court recognized the workers' locus standi to challenge the sale and insist on a public auction.4. Authority of a Coordinate Bench to Recall an Order of Another Judge:The appeal raised the issue of whether a Coordinate Bench could recall or set aside an order of another Judge. The court acknowledged that an order of the court should have sanctity and that a Coordinate Bench should not ordinarily recall the order of another Judge unless there was an apparent error on the face of the record. The court found that the recall of the order by the Coordinate Bench was irregular but not illegal.5. Impact of the Purchaser's Investments Post-sale Confirmation on the Validity of the Sale:Siddheswari had already spent substantial sums in putting the unit into operation after the sale was confirmed. The court considered the purchaser's investments and the stamp duty paid on the Deed of Conveyance as relevant factors. The court emphasized that a sale once confirmed should not be upset except on cogent reasons, and the purchaser's altered position due to investments was a significant consideration.Conclusion:The court modified the original order dated January 17, 2011, directing Siddheswari to pay an additional Rs. 33 lakhs with interest to match the amount refunded to Bharat Metal. The appeal succeeded in part, setting aside the order of the learned Single Judge passed on August 24, 2012, and modifying the order dated January 17, 2011. The court directed a structured payment plan for Siddheswari and provided for repossession and public auction in case of default. Appeals were disposed of without any order as to costs.