TaxTMI 
TaxTMI 
2001 (4) TMI 825
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.... was void even on the ground of irregularities in the sale. He has also challenged the following observations recorded by the learned company judge in the course of the order : (i) that the company and its directors have made every effort to nullify the sale by filing writ petitions repeatedly and such conduct will not entitle them to any indulgence in the hands of the court; and (ii) that the process of sale of the assets of the company by KSIIDC and the purchase by BPL is proper and does not call for interference. 1.2 As the ranks of parties differ in the two appeals, for convenience the parties will be referred to as follows : BPL Ltd. (appellant in OSA No. 6 of 1998 and 4th respondent in OSA No. 7 of 1998) will be referred to as 'purchaser' or 'BPL'; Inter Modal Transport Technology System (Karnataka) Ltd. will be referred to as the 'company' when referred with reference to the period up to the date of order of winding (31-10-1996) and as 'the company in liquidation' when referred with reference in any date subsequent to the order of winding up dated 31-10-1996. The secured creditor (KSIIDC) which is the second respondent in both appeals will be referred to as KSIIDC or the 'C....
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....ection 20(2). The said order was not passed with reference to the claims of the creditors who filed those company petitions under section 433 of the Companies Act but on the basis of the final opinion dated 26-8-1993 recorded by the BIFR under section 20(1). 6. In the meanwhile, the oral (final opinion) dated 26-8-1993 recommending winding up of the company was challenged by the company before AAIFR in Appeal No. 127 of 1993. The company court was unaware of the pendency of the said appeal when it passed the order of winding up on 25-3-1994. Subsequently, when the pendency of the appeal was brought to its notice, the company court found that it could not have passed the order of winding up, during the pendency of the appeal before AAIFR having regard to the bar contained in section 22(1) of SICA and, therefore, passed an order dated 2-6-1995 recalling the order of winding up dated 25-3-1994 and restoring the winding up petitions to file. 7. The AAIFR dismissed the appeal filed by the company against BIFR's order dated 26-8-1993, by order dated 25-9-1995. It found that there was no infirmity in the composite order dated 26-8-1993 recording the final opinion under section 20(1) tha....
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....he initial payment of Rs. 32 lakh made on 3-9-1994. On receipt of such payment, KSIIDC issued a sale letter dated 28-12-1995 to BPL. By reply dated 28-12-1995, BPL accepting the terms of the sale stipulated in KSIIDC's letter dated 28-12-1995 and the sale was concluded on 28-12-1995. 9. Before BPL could make the balance payment and take delivery, yet another writ petition was filed by the company in WP No. 8025 of 1996, wherein another interim order was granted, staying the sale of assets of the company. However, by subsequent order dated 10-4-1996, the learned single judge vacated and discontinued the interim stay. The said order dated 10-4-1996 was challenged in WA No. 1825 of 1996. The said appeal was rejected on 28-6-1996. WP No. 8760 of 1994 filed earlier was dismissed on 25-9-1996 and the appeal filed by the company against the said order in WA No. 9161 of 1996 was dismissed on 12-9-1997. Thereafter, yet another petition was filed by Raj Kotak (ex-director) in WP No. 34402 of 1996, which is stated to be pending, wherein an interim order was made on 20-12-1996 to the effect that the sale of assets of the company would be subject to the result of said writ petition. On 23-12-1....
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.... fixing the minimum bid amount at Rs. 2.83 crore plus interest (at the prevailing lending rate of KSIIDC) on Rs. 2.8 crore from the respective dates of payments by BPL to the date of resale. (ii)If no offers exceeding the said minimum bid amount is received, the sale of the assets of the company to BPL shall be confirmed at Rs. 2.8 crore. (iii)The official liquidator shall secure appropriate directions from the company court for fresh sale and comply with the procedure prescribed and complete the sale within two months. (iv)The third respondent (ex-director of company) shall bear the expenses to be incurred by KSIIDC and official liquidator; for conducting the fresh sale." 12. Feeling aggrieved, BPL, which purchased the assets from KSIIDC has filed OSA No. 6 of 1998. In brief the contentions of appellant are : (a )Having regard to the order dated 26-8-1993 of the BIFR under section 20(4) permitting the sale and the subsequent approval of the sale by the BIFR by order dated 27-12-1995, and the overriding effect of the provisions of the SICA, there is no need to obtain the leave of the company court. (b)KSIIDC was a secured creditor who was in lawful possession of the assets of....
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....f the secured assets, will have to take permission of the company court and has to act in association with the official liquidator, who will represent the workmen. Section 20(4) should be read harmoniously with sections 529, 529A, 433, 441(2) and 537 of the Companies Act and if so done, it will be seen that even if there is an order under section 20(4), the requirement of obtaining the leave of company court cannot be dispensed with. (iii)Any sale by the secured creditor, during the pendency of winding up petition, without obtaining the permission of the company court and without associating the official liquidator will be void, vide decision of the Bombay High Court in Maharashtra State Financial Corpn.'s case (supra) and the decision of a Division Bench of this court in Karnataka State Industrial Investment & Development Corpn. Ltd.'s case (supra). 15. The learned counsel for appellant in OSA No. 7 of 1998 contended that there were several procedural irregularities in the sale in favour of BPL resulting in realisation of a lesser price; and the learned company judge instead of setting aside the sale on that ground also, has wrongly held that the sale of assets had been properly....
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.... company, the High Court may appoint any officer of the operating agency, if the operating agency gives its consent, as the liquidator of the sick industrial company and the officer so appointed shall for the purpose of the winding up of the sick industrial company be deemed to be, and have all the powers of, the official liquidator under the Companies Act, 1956 (1 of 1956). (4) Notwithstanding anything contained in sub-section (2) or sub-section (3), the Board may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of section 529A, and other provisions of the Companies Act, 1956 (1 of 1956)." 17.1 Section 22 of the SICA provides for suspension of legal proceedings, contracts, etc. Sub-section (1) provides, inter alia, that where an inquiry under section 16 is pending or an appeal is pending under section 25, no proceedings for the winding up of the industrial company shall lie or be proceeded with further, except with the consent of the BIFR or the AAIFR as the case may be. Sub-section (3) provides, inter alia, that where an inqui....
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....ass over to the High Court and the BIFR ceases to have any power to pass any orders or give any directions. 19. Sub-section (4) of section 20 provides that notwithstanding anything contained in sub-section (2) or sub-section (3) of section 20, the BIFR may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of section 529A and other provisions of the Companies Act. That is, even though the power to order winding up and proceed with the winding up of the sick company on the basis of the opinion of the BIFR, is entrusted to the High Court under section 20(2), the BIFR is entrusted with the power to cause to be sold, the assets of the sick industrial company in such manner as it deems fit, subject only to the condition that the sale proceeds should be forwarded to the High Court for distribution. It follows therefrom that until the High Court passes an order of winding up under section 20(2) on the basis of the opinion of the BIFR, the jurisdiction and power over the company, in particular to cause the assets of the company to be sold ....
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....rt, any sale held without the leave of the court, of any of the properties or effects of the company after commencement of the winding up shall be void. 21.2 Having regard to the provision for relating back contained in section 441(2), the words 'commencement of the winding up' occurring in section 537(1) refers to the time of presentation of the petition for winding up and not the date of order of winding up, where the winding up order is passed under section 433. The intention of relating back the winding up of a company to the date of presentation of the petition for winding up is to avoid dispositions of the property, made after presentation of the petition for winding up. Therefore, when an order of winding up is made, even though the actual process of winding up starts from the date of the order, the winding up of the company is deemed to commence from the date of filing of the petition for winding up. But such relation back of the commencement of winding up of the company to the date of filing of the petition for winding up, does not extend to relating back of the passing of the custody of the company's properties, to the date of winding up petition. 21.3 Section 441(1) re....
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....ing up under section 433. The order of winding up is made under section 20(2). Therefore, the sale by KSIIDC in favour of BPL, which is before the date of winding up order under section 20(2) is valid and unaffected by such order of winding up. Re. Point (2) 22. In fact second question does not survive in view of our finding on Point (1). However, as elaborated arguments were addressed on this aspect and as the learned company judge, has decided the matter with reference to this issue, we will examine the question. 23. The position of a secured creditor who stands outside the winding up proceedings and realises his security was considered in M K Ranganathan's case (supra). The Supreme Court held that a secured creditor can stand outside the winding up and realise his security without intervention of the court, by effecting the sale of the mortgaged property, by private treaty or public auction. But, when the intervention of any court is sought by a secured creditor to realise his security, either by filing a suit or otherwise, he is bound to obtain the leave of the winding up court. The Supreme Court held that the words 'any sale held without leave of the court of any of the pro....
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....his court in International Coach Builders Ltd.'s case (supra) is followed in Gujarat State Finance Corpn. v. Official Liquidator, Himachal Tools (P.) Ltd. [1996] 87 Comp. Cas. 658 (Guj.). The Gujarat High Court has also taken the view that the amendment of section 529 and insertion of section 529A, by amending Act No. 35 of 1985 has not altered the position of a secured creditor, as envisaged under section 28(6) of the Insolvency Act, 1920 read with section 529(1)(c), to stand outside the winding up and realise the security without intervention of the court. It, however, directed that from out of the sale proceeds realised by GSFC, proportion of workmen's dues shall be realised by the official liquidator from GSFC in view of the proviso to section 529(1). 26. In Aryavarta Plywood Ltd. v. Rajasthan State Industrial & Investment Corpn. Ltd. [1991] 72 Comp. Cas. 5 , the Delhi High Court held that the assets of a company are deemed to vest in court on the date of winding up order; and that though the winding up relates back to the date of winding up petition, the vesting of the assets of the company do not relate back to date of winding up petition. In that case, the financial corpora....
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....ari passu charge for the recovery of their dues. It may be that unlike a co-mortgagee, a pari passu chargeholder can receive payment of his mortgage debt from the mortgagor and release his charge independently. But when it comes to realise the security, both the pari passu chargeholders must join or realise the security simultaneously. The sale proceeds are required to be divided proportionately between them in the same proportion as their dues. Hence, when a sale takes place, it is for the simultaneous recovery of claims of all pari passu charge holders. ". . . Also, the statutory right which is given to financial corporation under section 29 to sell the property has to be exercised consistently with the rights of a pari passu charge holder in whose favour a statutory charge is created by the proviso to section 529 of the Companies Act when the company is in liquidation. Therefore, such a power can be exercised only with the concurrence of the official liquidator and the official liquidator is required to take the permission of the court before giving such concurrence since he is an officer of the court and is required to act under the directions of the court while exercising his....
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.... favour statutory charge is created by the proviso to sub-section (1) of section 529 of the Act when the company is in liquidation, and the said pari passu charge holder being official liquidator who is required to act under the directions of the court, leave of the court would be necessary, and any sale without such leave would be void under section 537 of the Act. . . ." 28. In Andhra Pradesh State Financial Corpn. v. Official Liquidator AIR 2000 SC 2642, the Supreme Court considered the challenge by State Finance Corporation to the order of the learned company judge of the Andhra Pradesh High Court imposing the following conditions while granting permission to the State Financial Corporation to stay outside the liquidation proceedings : (i)The State Financial Corporation will undertake to discharge its liability due to the workers, if any, under section 529A; (ii)The petitioner shall inform at least 10 days in advance of the date fixed for receipt of tenders, to the official liquidator about the proposed sale of the properties of the company. (iii)The petitioner shall also obtain the permission of the court before finalising the tenders. The Supreme Court upheld the aforesa....
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.... no change in the legal position expressed by the Supreme Court in M.K. Ranganathan's case (supra) even after amendment to section 529(1) and insertion of section 529A by Act 35 of 1985 except subjecting the sale proceeds realised by the secured creditor to a pari passu charge in favour of the workmen's dues as provided in the proviso to section 529(1) and, therefore, the right to secured creditor to stand outside the winding up and realise his security remains unaffected and, therefore, there is no need to shift the power of sale from the secured creditor to the official liquidator, when an order of winding up is made. In the case as the sale was with the permission of the company court, the question whether leave of company court was necessary for sale or not did not arise for consideration. (3) The third view is expressed in Shivmoni Steel Tubes Ltd.'s case (supra) that sale of the assets of the company, by the secured creditor standing outside the liquidation proceedings without the leave of the company court and without associating the official liquidator will be void under section 537 of the Companies Act. 30. The appeal against the decision in International Coach Builders ....
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....of insolvency. Sections 27 and 28 of the said Act, relate to order of adjudication and effect of an order of adjudication. Sub-section (6) of section 28 of the Insolvency Act provides that an order of adjudication shall not affect the power of any secured creditor to realise or otherwise deal with his security, in the same manner as he would have been entitled to realise or deal with it, if section 28 had not been passed. Thus, it has always been recognised that the secured creditor can stand outside the winding up and if the law and/or terms of mortgage so provided, realise his security without the intervention of court, by effecting a sale either by private treaty or by public auction. Section 232(1) of Companies Act, 1913 [corresponding to section 537(1) of the Companies Act] was considered by the Supreme Court in M.K. Ranganathan's case (supra). It was held that the said provision did not affect the position of secured creditor or his right to realise the security by private treaty or by public auction, without intervention of the court. When the Companies Act was enacted there was no change in law on this aspect and, therefore, the principle laid down in M.K. Ranganathan's cas....
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....o properties at Rs. 3.03 crore, the third respondent had obtained a valuation report valuing the assets at more than Rs. 4 crore, and the assets of the company have been sold in the year 1995 in pursuance of an advertisement given in March 1994 and there were violations in terms of sale in regard to manner of payment of sale price. Raj Kotak has filed OSA No. 7 of 1998 contending that the procedure adopted by KSIIDC in holding the sale in irregular and that has resulted in a sale at a price far less than the market price. The next question that arises for consideration is whether the sale should be interfered with on the ground that the sale price is inadequate or on the ground of alleged irregularities in the sale procedure. 35. The BIFR permitted KSIIDC to sell the assets of the company by order dated 26-8-1993. That order was confirmed by AAIFR on 26-9-1995. In pursuance of the direction of BIFR, KSIIDC invited tenders and reported to BIFR that the price of Rs. 2.80 crore offered by BPL was the highest and proposed to accept the said offer. The BIFR by its order dated 27-10-1995 approved the conclusion of sale of assets of the company by KSIIDC in favour of BPL for a considerat....
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....tion in accordance with provisions of section 529A and other provisions of the Companies Act. Even the AAIFR, while confirming the order of the BIFR in appeal, has made it clear that the amount realised shall have to be deposited with this court for distribution as per law. It is stated that the sale realisation of Rs. 2.80 crores is with KSIIDC. KSIIDC will have to deposit the sale realisation with the company court for being dealt in accordance with section 20(4) read with the proviso to section 529(1). On the facts and circumstances, interest of justice will be served if KSIIDC is directed to deposit the sale proceeds in a fixed deposit with a Nationalised Bank in the joint names of KSIIDC and official liquidator so that the said funds could be dealt with as per the orders of the company court. Having regard to the fact that KSIIDC itself is a financial institution, it is also open to KSIIDC to make an appropriate application to the company court to permit it to retain the said amount in trust subject to condition that the same will generate interest equivalent to the rate of interest given by Nationalised Banks, until distribution as per proviso to section 529(1) read with sect....