2015 (12) TMI 1472 - SC - Indian Laws

Supreme Court upholds Rs. 32 crore secured asset sale under SARFAESI Act, rejects challenge to auction process

The SC upheld a secured asset sale under the SARFAESI Act for Rs. 32 crores to Venus Realcon, rejecting challenges from a petitioner. The court found no ... SARFAESI Act - Whether a Company Court, directly or through an Official Liquidator, can wield any control in respect of sale of a secured asset by a secured creditor in exercise of powers available to such creditor under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘the SARFAESI Act’)? - Held that:- We find that the sale confirmed in favour of M/s. Venus Realcon for ₹ 32 crores does not require any interference particularly at the instance of Petitioner-Vinod Rajaliwala. There was no illegality or irregularity established against the conduct of auction and once it is found that the offer of ₹ 32 crores was a fair offer in a competitive bid conducted fairly and the offer has been accepted and the sale confirmed, it would not be proper for this court to undermine the value of such auction sale conducted not only by the secured creditor but also by the Official Liquidator who was permitted to be associated with the whole process of finding out of valuation as well as the conduct of sale. There is a discretion in the Company Court either to accept or reject the highest bid before an order of confirmation of sale is made. However, once the Company Court is satisfied that the price is adequate, the subsequent higher offer cannot be a ground for refusing confirmation. The price of immoveable property keeps on varying depending upon the market conditions and availability of a buyer. Such fluctuations may attract fresh higher offers but normally such offers cannot be made the basis for reopening the confirmed sale which was otherwise valid. In the present case, we are satisfied that the sale made in favour of M/s. Venus Realcon does not require any interference. There is no good reason why the full price paid by Venus Realcon should be ordered to be refunded with interest etc. and possession which was delivered to Venus Realcon at the time of sale should be disturbed after passage of so much time. The money deposited in this case by the intervener M/s. Himalayan Infra Projects Private Limited should be refunded to it forthwith along with interest accrued thereupon. The judgment and order of the Delhi High Court is affirmed by holding that powers under the Companies Act cannot be wielded by the Company Judge to interfere with proceedings by a secured creditor to realize its secured interests as per provisions of the SARFAESI Act. Issues Involved:1. Whether a Company Court or Official Liquidator can control the sale of a secured asset by a secured creditor under the SARFAESI Act.2. The conflict between the judgments of Punjab and Haryana High Court and Delhi High Court regarding the application of the SARFAESI Act and the Companies Act.3. The specific case of Pegasus Assets Reconstruction Pvt. Ltd.4. The specific case of Megnostar Telecommunications Pvt. Ltd.5. The specific case of Mr. Vinod Rajaliwala.Issue-wise Detailed Analysis:1. Control by Company Court or Official Liquidator:The central issue was whether a Company Court, directly or through an Official Liquidator, can control the sale of a secured asset by a secured creditor under the SARFAESI Act. The Supreme Court concluded that the SARFAESI Act allows secured creditors to enforce their security interest without court intervention, thus limiting the Company Court's supervisory role. The court emphasized that the SARFAESI Act and its Rules provide sufficient safeguards for the interests of workmen and other stakeholders, making additional oversight by the Company Court unnecessary.2. Conflict Between Judgments:The judgment addressed the conflicting views of the Punjab and Haryana High Court and the Delhi High Court. The Punjab and Haryana High Court held that the Company Court could issue supervisory directions to a secured creditor under the SARFAESI Act. In contrast, the Delhi High Court asserted that the Company Court or the Official Liquidator could not interfere with the sale of secured assets by secured creditors under the SARFAESI Act. The Supreme Court sided with the Delhi High Court, stating that the SARFAESI Act is a complete code and does not require intervention from the Company Court.3. Case of Pegasus Assets Reconstruction Pvt. Ltd.:Pegasus, as an asset reconstruction company, sought to enforce its security interest under the SARFAESI Act without the fetters imposed by the Company Court. The Supreme Court agreed with Pegasus, stating that the SARFAESI Act allows secured creditors to operate outside the winding-up process. The conditions imposed by the Company Judge, which required transparency and involvement of the Official Liquidator, were deemed unnecessary and were set aside.4. Case of Megnostar Telecommunications Pvt. Ltd.:Megnostar's case involved the sale of secured assets by a bank under the SARFAESI Act, which was challenged by the Official Liquidator. The Delhi High Court ruled that the Official Liquidator could not interfere with the sale. The Supreme Court upheld this view, emphasizing that the SARFAESI Act provides a comprehensive mechanism for the enforcement of security interests, including provisions for protecting workmen's dues.5. Case of Mr. Vinod Rajaliwala:Mr. Rajaliwala challenged the sale of secured assets of Haryana Concast Ltd. to M/s. Venus Realcon Pvt. Ltd., claiming the sale price was undervalued. The Supreme Court found no irregularity in the auction process and upheld the sale, noting that subsequent higher offers cannot undermine a confirmed sale conducted fairly and transparently. The court dismissed Mr. Rajaliwala's appeals, emphasizing the importance of finality in auction sales to avoid endless litigation and uncertainty.Conclusion:The Supreme Court clarified that the SARFAESI Act allows secured creditors to enforce their security interests without court intervention, and the Company Court cannot impose additional supervisory conditions. The judgment harmonized the provisions of the SARFAESI Act with the Companies Act, ensuring the protection of workmen's dues while allowing secured creditors to operate independently. The court dismissed the appeals challenging the sales conducted under the SARFAESI Act, reinforcing the finality and integrity of the auction process.