2013 (3) TMI 863 - HC - Companies Law

Court upholds validity of auction sale, dismisses Liquidator's challenge. Sale proceeds settle company debts.

The Court dismissed the Official Liquidator's application to declare the auction sale null and void, upholding the validity of the sale conducted by the ... - Issues Involved:1. Validity of the auction sale conducted by the District Collector and Thasildar.2. Applicability of Section 536(2) of the Companies Act, 1956.3. Rights and claims of the secured creditors and workmen.4. Legal standing of the Official Liquidator to challenge the auction sale.Summary:Issue 1: Validity of the auction sale conducted by the District Collector and ThasildarThe Official Liquidator filed an application u/s 460(4) of the Companies Act, 1956, seeking to declare the auction sale conducted by the District Collector and Thasildar as null and void in view of Section 536(2) of the Companies Act, 1956. The auction was conducted on 9.1.2003 for a total sale consideration of Rs. 42,55,000/- to Hindu Educational Society. The sale proceeds were used to settle labour dues and pay Tamil Nadu Industrial Investment Corporation. The respondent No.3 contended that the auction sale was conducted under statutory provisions of the Revenue Recovery Act, 1956, and was upheld by the Court in previous writ petitions.Issue 2: Applicability of Section 536(2) of the Companies Act, 1956Section 536(2) states that any disposition of the property of the company after the commencement of winding up shall be void unless the Court orders otherwise. The Court noted that the winding up of the company commenced on 8.1.1997, the date of the presentation of the winding-up petition. However, the Court also highlighted that the word 'void' in Section 536(2) is not peremptory and the Court has the power to order otherwise, as elucidated in the Supreme Court judgment in Pankat Mehra and another vs. State of Maharashtra and others.Issue 3: Rights and claims of the secured creditors and workmenThe Official Liquidator reported claims from secured creditors like Vijaya Bank, Canara Bank, TIIC, and SIPCOT. The auction sale proceeds were used to pay the workmen and Tamil Nadu Industrial Investment Corporation. The claims of Canara Bank and Vijaya Bank were rejected by the competent authority, and this order attained finality. The respondent No.3 argued that the sale proceeds were used for the benefit of the company, and the sale was conducted in compliance with statutory provisions.Issue 4: Legal standing of the Official Liquidator to challenge the auction saleThe Court found that the Official Liquidator has no locus standi to challenge the auction sale as the sale was previously upheld by the Court in writ petitions filed by the company. The Court emphasized that the Official Liquidator steps into the shoes of the management of the company after it is ordered to be wound up and is bound by the decisions of the Court. The Court concluded that the sale by the District Collector cannot be said to be 'void ab initio' and the application by the Official Liquidator is devoid of any merit.Conclusion:The application by the Official Liquidator to declare the auction sale as null and void was dismissed. The Court upheld the validity of the auction sale conducted by the District Collector and Thasildar, stating that the sale was not 'void ab initio' and the Official Liquidator has no locus standi to challenge the auction. The sale proceeds were utilized to discharge the dues of the company in liquidation, and the claims of the secured creditors were addressed as per the statutory provisions.