TaxTMI 
TaxTMI 
2008 (5) TMI 419
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....ng over possession of the properties of the sister concern of the appellant, viz. Captain Hygiene Products Ltd. Appellant and its sister concern filed two writ petitions in the Punjab and Haryana High Court at Chandigarh. They were dismissed as withdrawn on 10-2-2003. 4. 1st respondent and fourteen others filed fifteen applications before the Delhi High Court for winding up of the appellant-company. Notices were issued thereupon. SICOM issued a second notice under section 29 of the 1951 Act on 6-6-2003. 5. Indisputably the factory of the appellant was an ongoing concern. SICOM took over the possession of the appellant's factory at Patiala on 18-7-2003. It was at that time in operation. It had finished bakery products which were perishable in nature. Allegedly the operations were shut down and the factory was locked. 6. We may notice here that different proceedings were initiated either at the instance of the appellant or at the instance of some of the respondents. 7. Appellant evidently took recourse to a proceeding which was unknown to law. A purported agreement was entered into by and between the appellant and one NRI Lead Bank. We are not aware as to what were the di....
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....d execution proceeding seeking for the following directions : (i)to withdraw the proceeding before the learned Additional District Judge; (ii)to vacate and handover the premises; (iii)to grant prohibitory injunction; and (iv)to stay the operation of the Arbitration Award. 16. An order of status quo which had been passed earlier was directed to be maintained by the parties by the High Court on 15-9-2003. 17. An application for modification of the order dated 15-9-2003 was filed by SICOM on 16-9-2003. 18. Appellant also filed an application for permission to sell all perishable goods lying in the factory. Allegedly, the Receiver was asked to sell the perishable goods. It also directed the appellant to pay some amount to show its bona fide. Appellant furthermore filed an application for vacation of the order dated 15/16-9-2003. On 28-11-2003 an assurance was also given to the Court that the appellant will come with a definite proposal for payment to the creditors. By an order dated 18-12-2003 the High Court directed the appellant to deposit a sum of Rupees two crores failing which SICOM was given a liberty to proceed with the statutory remedies available to it ....
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....res and a firm schedule being given for repayment, as acceptable to the financial institutions, the Court should grant repossession to judgment debtor No. 2. This aspect would be considered upon the payment of Rs. 2 crores having been made and firm schedule for repayment having been given and accepted. Counsel for judgment debtor Nos. 1 and 2 state that, in the meanwhile, they would not proceed further with the arbitration proceedings, initiated before the ADR, Arbitral Tribunal No. 3. Mr. Arun Bhardwaj, counsel for judgment debtor No. 1, further states that judgment debtor No. 1 would not proceed with Suit No. 139/2003, pending in the Court of Sh. S.K. Sarvaria, A.D.J., Delhi." 19. In the meantime, SICOM obtained a valuation report in respect of the factory form a Public Sector Organization known as Northern India Technical Consultancy Organization Ltd. (NITCOL). In the said proceeding, SICOM had also moved an application for direction to permit them to publish an advertisement for sale of the movable properties of the appellant and to invite bids for sale. 20. We may now deal with the process of sale of assets of the company. The factory of the appellant was situated in vil....
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....2.5 crores. It also deposited the earnest money of Rs. 25 lakhs. There was another bidder Longful Trading (India) Pvt. Ltd. who had made a bid of Rs. 11.7 crores. It had also deposited the earnest money of Rs. 25 lakhs. In regard to the valuation of the properties both in respect of the factory of the appellant as also its sister concern Captain Hygiene Products Pvt. Ltd. the Court noticed :- "It is, however, pointed out by the counsel appearing for Bakemans Industries Pvt. Ltd. and Captain Hygiene Products Pvt. Ltd. that valuation of the said plant and machineries, and land and building would be much higher than what is shown in the valuation report. A valuation report is placed on record wherein it is stated that the realisable value of the aforesaid assets is Rs. 8,42,43,000. Counsel appearing for M/s. Bakemans Industries Pvt. Ltd., however, disputes the aforesaid valuation. In order to ascertain the valuation of the aforesaid assets, it would be appropriate to pass an order directing for re-evaluation of the entire aforesaid assets of the said company. M/s. SICOM Ltd. is directed to get the entire assets re-evaluated by appointing an approved valuer. The said valuation repor....
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....er of status quo to be maintained by the parties. No order on the said application was, however, passed. In its order dated 17-7-2004 the learned Company Judge observed that the offer of Ceylon Biscuits did not appear to be improper. However, appellant was given an opportunity to bring a better offer. Second report of NITCON as regards valuation was also accepted. 30. Before the learned Company Judge a valuation report of a Chartered Accountant was submitted which was rejected stating that they were not the approved valuers and they had only taken into account the book value and not the market value of the assets. 31. The matter was posted for hearing on 22-7-2004. On that date, proceedings before the learned Company Judge were in two sessions - one before lunch and another after lunch. Before recess, appellant was granted one more opportunity to bring any other bid and the judge adjourned the matter to 4-8-2004. However, after recess on a purported request made by the learned counsel for M/s. Ceylon Biscuits the case was preponed to 28-7-2004. Learned counsel for the appellant was not present, although it was mentioned that he had been informed. On the next date, i.e. 28-7-2....
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....ny has not been able to produce better bid. Property in question, which is subject-matter of sale, has been valued at Rs. 10 crores. Bid of Rs. 12.50 crores of M/s. Ceylon Biscuits Ltd. is, therefore, reasonable more particularly when other bidders whose bids were not only lesser have already withdrawn from the bidding process, this bid is hereby accepted. Let balance payment be made by the successful bidder strictly in terms with the bidding conditions and the amount would be deposited in the court. The amount so deposited should be kept in FDR initially for a period of six months." 32. An intra-court appeal was preferred against the orders dated 17-7-2004, 27-7-2004 and 30-7-2004. The matter was listed on 26-8-2004. Before the appellate court also an offer was made by the appellant to bring a higher offer of Rs. 15 crores. Pursuant to an order made in this regard, a sum of Rs. 50 lakhs was directed to be deposited. The Division Bench also directed maintenance of status quo in the meantime. 33. In the meantime, SICOM and Ceylon Biscuits both filed applications for possession of the factory to be handed over. Such permission was granted on 13-10-2004. 34. Various app....
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....se to the process of sale of the factory of the appellant at a higher price, particularly when a memorandum of agreement entered into by and between the appellant and Ceylon Biscuits show that the actual value of the factory was very high as per the Ceylon Biscuits' own valuation report dated 9-9-2005. (vii)The learned Company Judge as also the Division Bench of the High Court proceeded to determine the entire dispute only on the conduct of the appellant both in respect of obtaining the Award of the Board of Conciliators as also its failure to secure a better price and not on the basis of the legal principles involved in sale of assets of the company in liquidation. (vii)As the Company was an ongoing concern, the Company Judge without involving the Official Liquidator committed a serious error in directing sale of the assets of the company at an early stage of the winding up proceeding without applying its mind that a Scheme for revival of the Company was possible to be filed in terms of section 391 of the Companies Act. 36. Mr. Rajiv Shakdher, learned senior counsel appearing on behalf of SICON, on the other hand, urged :- (i)SICOM had never been averse to obtaining an....
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....tisement issued by SICOM was in accordance with the usual practice and it is not correct to contend that no guideline was issued or bidders were not permitted to bid (in accordance with the norms). (xii)NITCON is a Public Sector Organization with which SICOM has no concern, thus it would not be correct to contend that the second valuation report should not have been obtained by it, particularly when the said valuation was in relation to the uninstalled machinery lying at the factory premises in respect whereof the appellant moved the learned Company Judge. 37. Mr. Sundaram, learned counsel appearing on behalf of respondent No. 4 (Ceylon Biscuits), would submit :- (i)SICOM had all along exercised its powers under section 29 of the 1951 Act and the Court merely supervised exercise of such powers and in that view of the matter the appellant has not been prejudiced at all inasmuch as the same merely provided for additional safeguard for fetching a proper price for the assets. (ii)In view of the decision of this Court in Rajasthan Financial Corpn. Ltd. v. Official Liquidator [2005] 63 SCL 468 the involvement of the Official Liquidator is necessary only to sell the assets of ....
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.... (7)Whether in any event the High Court could have ignored the legal requirements as regards the conduct of sale of the assets of the appellant only on the basis of : (1) wrongful conduct on the part of the appellant in obtaining an award from the Conciliation Tribunal; and (2) its failure to bring a better offer from another bidder. 39. The 1951 Act indisputably is a special statute. If a financial corporation intends to exercise a statutory power under section 29 of the 1951 Act, the same will prevail over the general powers of the Company Judge under the Companies Act. 40. There cannot be any doubt whatsoever that the proceedings under section 29 of the 1951 Act would prevail over a winding up proceeding before a Company Judge in view of the decision of this Court in International Coach Builders Ltd. v. Karnataka State Financial Corpn. [2003] 43 SCL 297 wherein it has been held: "26. We do not really see a conflict between section 29 of the SFC Act and the Companies Act at all, since the rights under section 29 were not intended to operate in the situation of winding up of a company. Even assuming to the contrary, if a conflict arises, then we respectfully reiterate t....
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.... sale in favour of Ceylon Biscuits Pvt. Ltd. having not taken place in terms of section 29 of the 1951 Act, the said question cannot have any application whatsoever. It is, however, a case where the learned Company Judge was not authorized to exercise its power under section 29 of the 1951 Act. It purported to exercise its power only under the Companies Act. SICOM submitted itself to its jurisdiction. It allowed the Company Judge to conduct the sale. The sale that was conducted was purported to be interms of the Companies Act. We have noticed hereinbefore that when a provisional liquidator was appointed, the High Court instead of exercising its writ jurisdiction referred the matter to the Company Judge. It was the Company Judge, therefore, who proceeded in the matter. The Company Judge could exercise its jurisdiction only in terms of the Companies Act and not in terms of section 29 of the 1951 Act. If it did not have the power under the 1951 Act, any decision purported to have been taken by it would be a nullity. SICOM indisputably has a statutory power but it could waive the same. It preferred the conduct of the auction at the hands of the Company Judge in stead and place of ca....
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....ose matters it has no jurisdiction. 44. The matter might have been otherwise if SICOM had remained outside the winding up proceedings. If it attained, disposal of the assets of the Company would be subject to pari passu claim of unpaid workmen in terms of section 529A of the Companies Act. 45. The sale has been effected by the court treating SICOM as an agent. Factually the court did not do so. Even otherwise, it is impermissible. It exercised its own jurisdiction. It was bound to do so. There cannot be any doubt whatsoever that in the matter of control over the assets of a company in liquidation, the courts exercise a wide jurisdiction. It may not only take recourse to the sale of the assets of the company whether before or after it is wound up, but also would be entitled to, nay obligated to, if the situation so warrants to attempt to rehabilitate the company itself. While doing so, it exercises its parens patriae power. It safeguards not only the interest of the mortgages, but also the interest of the mortgagor. It has a statutory obligation to safeguard the interest of the workmen as also other non-secured creditors. It is one thing to say as to how the assets shall....
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....sibility that secured creditor may frustrate the above pari passu right of the workmen." (p. 137) At this stage we may also notice a decision of three-Judge Bench of this Court in the case of Andhra Bank (supra) wherein this Court had to consider the correctness of the decision in Allahabad Bank's case (supra). The questions therein, inter alia, to be decided were :- "Whether after a winding-up order is passed under section 446(1) of the Companies Act or a provisional liquidator is appointed, the company court can stay proceedings under the RDB Act, transfer them to itself and also decide questions of liability, execution and priority under section 446(2) and (3) read with sections 529, 529A and 530 etc., of the Companies Act or whether these questions are all within the exclusive jurisdiction of the Tribunal?" (P. 74) This Court after referring to the provisions of section 529 and 529A stated the law in the following terms :- "In terms of the aforementioned provisions, the secured creditors have two options (i) they may desire to go before the Company Judge; or (ii) they may stand outside the winding up proceedings. The secured creditors of the second category, however....
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....ovides for appointment of 'official liquidator'. An official liquidator would be a liquidator on a winding up order being made in respect of a company. Section 450 provides for appointment and powers of provisional liquidator; sub-sections (1), (2) and (3) whereof read as under :- "450. Appointment and powers of provisional liquidator.-(1) At any time after the presentation of a winding up petition and before the making of a winding up order, the [Tribunal] may appoint the Official Liquidator to be liquidator provisionally. (2) Before appointing a provisional Liquidator, the Tribunal shall give notice to the company and give a reasonable opportunity to it to make its representations, if any, unless, for special reasons to be recorded in writing, the Tribunal thinks fit to dispense with such notice. (3) Where a provisional liquidator is appointed by the Tribunal, the Tribunal may limit and restrict his powers by the order appointing him or by a subsequent order, but otherwise he shall have the same powers as a liquidator." 52. Section 456 envisages that when a winding up order has been made or where a provisional liquidator has been appointed, the liquidator or the provi....
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....ision, In re Dry Docks Corporation of London [1888] 39 Ch. D. 88, wherein Fry J. held :- "But then there are circumstances which, in my opinion, vary the rights of the parties. On the 8th of March a provisional liquidator had been appointed. Now the provisional liquidator's appointment is not only provisional, but contingent in this sense, that it operates to protect the property for an equal distribution only in the event of an order for compulsory winding-up being made; and if no such order be made, then his appointment ought not to interfere with the rights of third persons. He was in the position of a receiver, whose appointment might interfere with the rights of third persons. Now with regard to that, the practice of the Court is perfectly plain, as was stated by Lord Truro, in the case of Russel v. East Angilan Railway Co. (1), in very clear terms. He said : 'I apprehend then it may be taken as a rule that, though this Court may have issued a process or have made an order which may interfere with the supposed rights and interests of other parties not parties to the cause, it is always competent for such parties to make an application to the Court for relief; and it is not ....
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....n to affecting sale of a movable or immovable property. Indisputably, it is subject to the direction of the court but, as indicated hereinbefore, the Court while undergoing the process of winding up and, in any event, resorting to sale of the assets of the company under winding up proceeding could not have a ignored the involvement of the provisional liquidator for any purpose whatsoever. At the cost of repetition, it is reiterated that the discretion of the court for selecting the mode and manner of sale has nothing to do with the process required to be gone into for the said purpose. It must have before it all these facts and figures so as to enable it to pass a final order one way or the other. In so doing, the court must keep in mind that it is not only determining an issue by and between the mortgagor and one mortgagee only but could also be determining the issue between a debtor and a vast number of creditors; whether secured or non-secured. The ratio of the decision of the Madras High Court in Sri Chamundi Theatre Mysore Talkies Ltd. v. S. Chandrasekara Rao [1975] 45 Comp. Cas. 60 whereupon reliance has been placed by Mr. Sundaram may be noticed. In that case, an ad....
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....The liquidator's functions' section 143 of the Insolvency Act describes the general functions of the liquidator in a winding up by the court as follows :- "General functions in winding up by the court.-(1) The functions of the liquidator of a company which is being wound up by the court are to secure that the assets of the company are got in, realised and distributed to the company's creditors and, if there is a surplus, to the persons entitled to it. (2) It is the duty of the liquidator of a company which is being wound up by the court in England and Wales, if he is not the official receiver- (a)to furnish the official receiver with such information, (b)to produce to the official receiver, and permit inspection by the official receiver of, such books, papers and other records, and (c)to give the official receiver such other assistance, as the official receiver may reasonably require for the purposes of carrying out his functions in relation to the winding up." In Official Receiver v. Wadge Rapps & Hunt [2003] UKHL 49, the question which was to be decided by the House of Lords was whether the official receiver can have recourse to the powers conferred by section 2....
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....o the functions of the applicant in relation to the company which is being wound up. But I reject the unspoken assumption that the functions of a liquidator are limited to the administration of the insolvent estate. This is only one aspect of an insolvency proceeding; the investigation of the causes of the company's failure and the conduct of those concerned in its management are another. Furthermore such an investigation is not undertaken as an end in itself, but in the wider public interest with a view to enabling the authorities to take appropriate action against those who are found to be guilty of misconduct in relation to the company. If the investigation yields information material to the Secretary of State's decision to bring or continue disqualification proceedings, it must be reported." It was furthermore opined :- "In my opinion, the only limitation which is implicit in section 236 is that it may be invoked only for the purpose of enabling the applicant to exercise his statutory functions in relation to the company which is being wound up. Whether the applicant is the official receiver or the liquidator or other office-holder these include the provision of informati....
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....ty of what the directors have done. But where a company is insolvent, the interests of the creditors intrude. They become prospectively entitled through the mechanism of liquidation, to displace the power of the shareholders and directors to deal with the company's assets. It is in a practical sense their assets and not the shareholders' assets that through the medium of the company are under the management of the directors pending either liquidation, return to solvency, or the imposition of some alternative administration'." 62. This is the meet of the matter. If the property which has been put to auction was the prime property over which the fate of the creditors depended, be they secured or non-secured ones, the company court, in exercise of its equity jurisdiction could not have obliterated it from its mind the cases of the others. If the assets belong to the creditors, that must mean the whole body of the creditors and not only one of the secured creditors. The inconsistency of is self-evident, as, on the one hand, it is stated that the property of the company does not vest in the court or the official liquidator, on the other hand, it is stated that it is vested in the bod....
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....on the other, its property has been sold in auction. Even a part of the property has been permitted by us to be taken out of the country. The factory, we are told, has started operation. It has employed a large number of workmen. Would that itself mean that we should refrain ourselves from granting any relief ? Direction issued by this Court in a case of this nature need not be a narrow one. The court has to take into consideration the fate of not only those workmen who are working but also those who have a claim against the Company. We must also take into consideration the fate of the other creditors. 67. We, therefore, are of the opinion that interest of justice would be subserved if while allowing the appeal, the learned Company Judge is requested to go into the question afresh in accordance with the provisions of the Companies Act and hold a fresh auction. While doing so, indisputably, Ceylon Biscuits Pvt. Ltd.'s offer would be considered. The Company Judge may consider the question of grant of some preference to Ceylon Biscuits Pvt. Ltd. but while an auction is to be held, there should be a proper valuation of all the assets of the Company both movable and immovable. ....