TaxTMI 
TaxTMI 
2014 (8) TMI 1242
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....rred to as the company in liquidation). "(A)YOUR LORDSHIPS may be pleased to permit the applicant bank to remain outside the winding up proceedings for enforcing its security interest in the secured assets of the Company (in liquidation) and further be pleased to permit the applicant bank to sell the secured assets of the Company (in liquidation) under the provisions of the Securitisation And Reconstruction of the Financial Assets and Enforcement of Security Interest Act, 2002; (B) pending hearing, admission and final disposal of the Company Application, YOUR LORDSHIPS may be pleased to permit the applicant bank to proceed with the sale by e-auction fixed on 28.3.2014; (C) Any other and further relief/s that this Hon'ble Court may deem fit may please be granted in the interest of justice." 2. The applicant in Company Application No. 109 of 2014 is the sole bidder who has participated in the e-auction conducted at the behest of the bank with following prayers:- "A) The Hon'ble Court be pleased to permit opponent 2 bank to confirm the sale of the secured assets being all the part and parcel of the property consisting Factory Land & Building situ....
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....is Hon'ble Court and in case such workmen's dues cannot be ascertained, the Liquidator shall intimate the estimated amount of workmen's dues under section 529A to the opponent 2 and in such case the opponent 2 may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues wit this Hon'ble Court. E) The Hon'ble Court be pleased to pass such other and further relief/s as may be deemed fit and proper in the facts & circumstances of the present case." 3. As both these applications were in respect of the e-auction held on 28/3/2014, they were heard together at length and this common order is being passed therein. 4. Facts in brief leading to filing these two applications deserve to be set out herein below in order to appreciate the rival contentions of the counsels for the parties. The petitioner of Company Petition No. 263 of 2013, Company Petition No. 264 of 2013 and Company Petition No. 291 of 2013 filed winding-up petitions in this Court invoking provisions of Section 433, 434 and 439 of the Companies Act, 1956 (herein after referred to as the 'Companies Act' for the sake of brevity), inter alia contending that the dues were n....
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....e SARFESAI Act. It is, therefore, quite clear that the respondent-Company is not in working condition and has lost its financial substratum and therefore, requires to be wound up. 7. Accordingly, Company Petitions are allowed and the respondent- Company being M/s. Apoorva Laminates Private Limited is ordered to be wound up under Sections 433, 434 and 439 of the Act and Official Liquidator attached to this Court, shall forthwith take into the custody the assets, properties of the Company and report to this Court." 5. As it transcribes from the proceedings, the Official Liquidator before it files any report pursuant to the winding up order made by this Court on 17/2/2014, the application being Company Application No. 77 of 2014 was presented by the applicant bank with aforesaid prayers. The application was presented on 19/3/2014 and on 21/3/2014 this Court made the following orders:- "Mr. Utkarsh B Jani for Mr. Bharat Jani for the applicant submits that on account of urgency in the matter, if the Court is inclined to issue notice, let there be a short time gap as the e-auction is slated on 28/3/2014. Learned Official Liquidator who is present in the Court has rec....
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....unsel of the parties. Date And Events Date Events Page Nos 02/04/13 Notice under section 13(2) of Securitisation Act issued by the applicant bank. 22 03/06/13 Symbolic possession of the secured assets were taken 12/09/13 Notice of possession under section 13(4) of Securitisation Act rule 8(1) of Securitisation Rules was issued and physical possession was taken with the consent of the company as per the resolution and letter dated 11/9/2013. 28 12/09/13 Possession notice was published in two daily newspapers one in vernacular language and one in English language 41 19/8/2013 Valuation report of Mr. D.B. Chandarana for the valuation of Factory Land and building showing Market Value of Rs.260.85 lacs, Realisable Value of Rs.234.76 lacs and Distress Value of Rs.208.68 lacs. 54 20/8/2013 Second valuation report of M/s. Multi Mulyankan, INC for the valuation of Factory Land and building showing Market Value of Rs.256.97 Lacs, Realisable Value of Rs.218.40 Lacs and Distress Value of Rs.192.70 66 10/10/13 First e-auction sale notice published by applicant in two newspapers for sale of movable and immovable prope....
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....icant bank filed affidavit by placing on record the jantri value of the land and building. 145 9. Learned counsel appearing for the applicant bank has specifically chosen to remain outside the winding-up proceedings, and therefore an appropriate prayer is also taken into in the Judge's Summons. When the bank has chosen to remain outside the winding-up proceedings and resorted to enforce its legal rights and remedy available under law for realizing its dues on the strength of the security, this Court may confirm the sale proceeding so that the bank may realize its dues. 10. Learned counsel appearing for the applicant bank further submitted that the bank's endeavour in realizing its dues by selling property which came to be possessed by the bank may not be struck down only on account of there being a sole bidder coming forward in e-auction. The submission canvassed on behalf of Official Liquidator of the company in liquidation for re-advertising the property only on account of nonavailability of other bidders may not be accepted by this Court. 11. Learned counsel appearing for the applicant bank further submitted that the bank has all along shown its readiness and willing....
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....e prayer for sale confirmation. 14. Learned counsel appearing for the bank thereafter contended that proviso to Section 13(9) of SARFAESI Act also may not help the O.L., and others in resisting prayer for confirming the sale inasmuch as the fact that the case indicate that despite clear invitation from O.L., to all the concerned, no workman has come forward even registering his claim against the property of the company or in respect of his employment of the company. When no workman has come forward and when no other claim is envisaged to be respected so far as provision of Section 13(9) of SARFAESI Act is concerned, then, the Court may reject resistance on the part of the O.L., and accord its confirmation to the sale in question. 15. Learned counsel appearing for the bank further submitted that provision of SARFAESI Act as well as those of Companies Act clearly provides for dealing with the properties of the company with the secured creditors under the SARFAESI Act, and it provides special provision for taking care of the provision of Section 529 of Companies Act for workman. Therefore when the workmen have not come forward for lodging any claim, there exists practically no r....
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....earned counsel appearing for the petitioner submitted that reserve price of the land & building in question are fixed by the valuer taking into consideration on the relevant factors and if one looks at prevalent jantri rate, then, one can easily know that reserve price was manifold than the jantri rate and, therefore, on this count also there is no scope for resisting the prayer for confirmation of the sale. 19. Learned counsel appearing for the applicant bank further submitted that the bank is incurring expenses for maintaining the property as the bank has taken physical possession of property and, therefore, when buyer is available and has offered the reserve price same cannot be said to be unreasonable from any angle. Even the provision of SARFAESI Act is also providing for various methods of disposing of the property and in the instant case e-auction cannot be said to be in any manner irregular or illegal. Therefore this Court may accord its approval and confirm the sale in favour of the sole bidder. 20. Learned counsel Shri Ravindra Shah appearing for the applicant in Company Application No. 109 of 2014 in Company Petition No. 263 of 2013 for the sole bidder contended th....
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....rt. 25. Learned counsel for the sole bidder further submitted that Rule 7 of the Rules is held out for justifying the filing of present application, as the applicant bidder was under an intimation by the bank that the entire proceeding is subject to confirmation of sale by the Court. Therefore, the present applicant-sole bidder is justified in maintaining this application and so far sale certificate is not issued by the bank, the sale would not be complete in eye of law and, therefore, the prayers in the application be granted and bank's sale be confirmed which will in turn benefit the present applicant. 26. Learned counsel for the sole bidder further submitted that there is compliance with sub section 8(5) of the Rules, as the bank had obtained valuation report twice, and therefore, the Official Liquidator is not justified in resisting the prayer for confirmation only on account of single bidder. Sub-rule 5 of Rule 8 empowers the authorized officer to sale the property by way of private treaty also. When the legislature has given freedom to this extent, it is submitted that the Official Liquidator is not justified in any manner to throw spanner in the smooth wheel of rea....
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....iate proceedings, the bank which is only a secured creditor should not have in hot haste gone ahead with selling of the property. 31. Learned counsel appearing for O.L., submitted that the bank has invoked provisions of SARFAESI Act for taking possession of the company's assets and therefore O.L., has not physically taken possession, but that in itself should not be construed as unlimited power in the bank to deal with the property. 32. Learned counsel appearing for the O.L., submitted that the provision of the Companies Act as well as those of SARFAESI Act cannot be said to be in any manner repugnant to each other, rather they are complimentary to each other and therefore, harmonious reading of these provisions would be required for taking care of everyone those who are concerned with the company in liquidation. 33. Learned counsel for the O.L., invited this Court's attention to the provisions of SARFAESI Act, especially provision 13(9), 34, 35 and 37 and submitted that complete reading of these provisions and rules made therein would clearly indicate that the provisions of SARFAESI Act are not in derogation of the provisions of Companies Act and, therefore, when it is sp....
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....inst the borrower, as the borrower has absolute option to pay up the dues and in that eventuality the secured creditor shall have to release the property. As against this, once the company is ordered to be wound-up, Official Liquidator assumes the statutory custody of the properties of the company against the entire gamut of the agencies and creditors and all the claimants shall have to wait for their share as per provisions of law. Of course there is option to the secured creditor to remain outside the winding up provisions but that in itself is not the sole option as to nullify completely the right of the Official Liquidator to see to it that the property is being sold in such a manner as to fetch price which is prevalent in the market. 37. Learned counsel for the O.L., submitted that the Company Court is in fact to oversee for the purpose of ensuring that the company under liquidation is wound-up and all claimants including secured and nonsecured shall have their respective say and share out of the sale procedure of the company's properties. Therefore Companies Act provides safeguards and guidance for dealing in the companies properties at the end of O.L. who in turn seeks pe....
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....for mortgaging the very same property which he proposed to buy under eauction and he requested for loan amount of Rs.4,11,75,000/-, that means the sole bidder requested the bank for offering him finance so that he can make the payment of the remaining 75% of the purchase price which he had offered. The bank vide its letter dated 16/4/2014 which is produced at page-122 informed the sole bidder that as the bank inprinciple agreed to provide financial assistance and credit facilities of Rs.625.00 lakh and as a security this very property which are to be purchased have been mentioned, and in addition thereto one collateral security is mentioned being equitable mortgage of residential building situated on a plot admeasuring 163.41 sq. meters in Morbi which belonged to one of the partners of the sole bidder. 41. Learned counsel for the O.L., submitted that funding of the purchase of the auction property by the auctioneer himself leaves much to be said, though it may not hit by any technicality, yet it is very clear that the bank is offering this facility to the sole bidder for purchasing the property and by proposing to mortgage the very same property, meaning thereby one NPA is close....
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....nes. 44. Learned counsel Shri Godiawala who at the relevant time represented original petitioner in winding up petition was also given an opportunity to address the Court, who made his extensive submissions against granting of approval to sale in question. 45. Learned counsel Shri Godiawala invited this Court's attention to provisions of SARFAESI Act with special emphasis upon Section 37, indicating the provisions of SARFAESI Act are not in derogation of any provision of the Companies Act and, therefore, when the legislature has made it clear by way of Section 37, then, the secured creditor like the bank cannot argue contrary to law to indicate that the provision of SARFAESI Act is over riding all other provisions of Companies Act so as to play an exclusive right to deal in the property. 46. Learned counsel thereafter invited this Court's attention to provisions of companies Act viz; Section 441, 443, 444 and 447 of the Companies Act in support of his submission that in the winding up proceedings the Court will have to take into consideration the aforesaid provisions to see to it that the legislature's intent and object is fulfilled. 47. Learned counsel thereafter tende....
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....ection 445(3). 51. Learned counsel thereafter submitted that Section 452 of the Companies Act makes it clear that how the Official Liquidator is to be styled and how he is to be in-charge of the affairs of the company thereafter. 52. Learned counsel thereafter invited this Court's attention to Section 456 with special emphasis upon Section 456(2) in support of his contention that all the properties in name of the company shall be deemed to be in custody of the Court as to the date of winding up of the company and the Court will function through the O.L. Now merely on account of SARFAESI proceedings being invoked it cannot be said that Section 456 is in any manner rendered inoperative. 53. Learned counsel invited this Court's attention to provisions of section 449, 450 and 451 and other provisions of the Company Law and submitted that once the O.L., is appointed and winding up order is passed, then for all the purposes O.L., steps into the shoes of the company and he statutorily assumes entitlement and right to act on behalf of the company as being he is the custodian of the company and he is entitled to defend the action or bring an action against any one on behalf of the ....
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.... that too so far as only the assets which are secured by the secured creditor. Therefore the Court may not approve the sale in which the sole bidder has only offered the reserve price and bank has not bothered to even seek enhancement therein as the bank's dues were being satisfied, but that in itself is not sufficient as number of creditors, may be unsecured, will be left with high and dry. The three petitions at the behest of three petitioners collectively indicate that the company is indebted to around Rs. One Crore and odd and there are claims pending, the haste on the part of the applicant bank is unfortunately affecting the other creditors right to recover money. 57. Learned counsel contended that it is the practice of this Court to follow judgment rendered by another Court. That, even if there is invitation of bids and more bidders have come, then instead of allowing it to the highest bidder, there can be an opportunity to others to bid and such an exercise is always resulting into tremendous increase in the offer. In the instant case the bank has not even bothered to request the sole bidder to enhance his offer, may it on account of bank's dues were getting secured. As a....
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....verments indicating that the bank has resorted to the provisions of SARFAESI Act for securing its dues from the respondent company and it has also been mentioned in some of the petitions that there was likelihood of defeating the claim of the creditor petitioners. (3) In all these petitions, the oldest happened to be Company Petition No. 263 of 2013 in which this Court issued notice on 13/11/2013 which was made returnable on 9/12/2013. The admission order admitting all these three matters were passed on 6/1/2014 and publication was also ordered there under fixing 10/2/2014 to be final hearing date. Accordingly after due publication of the petitions and after hearing all the concerned, the Court was convinced to pass winding-up order on 17/2/2014. While ordering winding-up of the respondent company the Court made following observations. "3. The record indicates that the claim in Company Petition No. 263 of 2013 is of Rs.50,51,213/-, whereas the claim in Company Petition No. 264 of 2013 is of Rs.50,51,213/-, and the claim in Company Petition No. 291 of 2013 is of Rs.13,57,581/-. It further appears from the record that the Company is not an ongoing concern and the po....
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....of the property of the Company, in order to comply with the order, O.L. sent letter dated 11/3/2014 and 12/3/2014 to the bank inquiring of the position. The bank did not reply and rushed to the Court by way present application being Company Application No. 77 of 2014. (5) Bank in its application inter alia indicated that the bank has resorted to the provision of Section 13(2) of the SARFAESI Act. The property was mortgaged with the bank and bank created charge on 12/11/2010 and provision of SARFAESI Act have been resorted to for securing dues from the company. As stated herein above, under Section 13(2) of the Act notice came to be issued on 2/4/2013 and symbolic possession came to be taken on 3/6/2013. Notice of possession came to be issued on 12/12/2013 under Section 13 (4) and Rule 8 (1) of the Securitisation Rules which was pursuant to the resolution dated 11/9/2013 passed by the company, as per the say of the bank. Applicant bank has mentioned in its application in para-4 and annexed with the application the documents which included the resolution of the company dated 1/9/2013 inviting the bank to take possession of the property. The resolution passed by the company i....
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.... 24/3/2014, with a copy to the Official Liquidator. Put up on 26/3/2014." (7) Thereafter on 26/3/2014 further orders were made,which read as under: "Shri Utkarsh Jani for Mr. Bharat Jani, learned advocate for the applicant under the instructions and in order to over come the resistance on the part of the Official Liquidator submitted that the e-auction be permitted to be proceeded with on the following conditions namely; (i) The applicant shall bring on record all the proceedings qua the e-auction. (ii) The applicant shall keep the Official Liquidator informed about all offers received during the e-auction process. (iii) The offers etc. will be placed on record with a copy to the Official Liquidator. (iv) The sale, if any, would be placed before the Court for confirmation. (v) The proceeds of the sale be deposited in this Court and nothing would be finalized without express permission from this Court. S.O. to 21.04.2014." (8) The sole bidder preferred Company Application No.109 of 2014 with the prayers mentioned there under which essentially is to the effect of seeking confirmation of sale in favour of....
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....idation is for reserving the funds from the sale proceeds, to meet with the liability of the company qua its workmen, is to say the least inadequate and truncated reading of the provisions without any reference to the detailed provisions of the Companies Act as well as the SARFAESI Act and the Rules. The proviso of Companies Act is not to be brushed aside and the Companies Act cast an obligation upon all the concerned to see to it that the company in liquidation and its assets are to be treated in a manner so as to satisfy the larger segment. Priority of the creditor interse is of course governed by further provisions of the SARFAESI Act where the SARFAESI Act is invoked and conjoint reading of Section 529, 529A and 530 of the Companies Act, and agency or an instrumentality or bank working under SARFAESI Act therefore cannot justify to completely ignore or avoid the mandatory provisions of the Companies Act, and in case if the company in whose case SARFAESI Act and provisions are invoked is also subject matter of winding-up proceedings in the Court. In such a situation a fine balance is envisaged and therefore no agency is arrogated to itself any superior or better power than the o....
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.... remain outside the proceedings of winding-up. But that also will not absolve that agency of observing minimal of principle of reasonableness in dealing with the property. Therefore when the provision of the two acts are read together in light of decisions cited at the Bar qua Haryana State Industrial And Infrastructure Development Corporation V. Haryana Concast Ltd. And Another, reported in [2010] 158 Comp Cas 168 (P&H, this Court is of the considered view that the proceedings of winding-up when is to be viewed in view of provisions of SARFAESI Act, then the Court is not rendered helpless and become mute spectator to the dealings. The judgment cited at the bar i.e. Haryana State Industrial And Infrastructure Development Corporation (supra) though is also in respect of the provisions of Section 529A Companies Act, but the principles laid down therein would clearly indicate that the Court cannot be called upon to accord its approval in all the proceedings merely on account of provision of SARFAESI Act are invoked in a case where winding-up proceedings are also ordered. 64. The Supreme Court in the case reported in (2008) 15 SCC 1, in case of Bakemans Industries Private Limited Vs....
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....a position to agree with the submissions of Mr. Sundaram that provisional liquidators have no statutory powers in relation to affecting sale of a moveable or immoveable 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 ignored the involvement of the provisional liquidator for any purpose whatsoever. Para-68. 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." Thus, even while acknowledging and accepting that the provisions of SARFAESI Act would permit t....
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....urther as to completely oust the O.L. from being associated with the dealing on the property thereafter, as the secured creditor have all the right to deal with the property so far as it has been dealt with in all reasonableness. But the provision of Section 456 and the notional custody will have to be taken into consideration by all the concerned. In the instant case the order which was passed on 21/3/2014 and 26/3/20/14 are self-explanatory as the bank volunteered in accepting the principle governing the prudent sale of the property and volunteered to place on record, not only the record & proceeding but the sale proceeds also. Having agreed to this the bank could not have been oblivious to the principle which are governing the sale of property of the company in liquidation. Therefore, to that extent the sale in question is required to be viewed and also from the provision of Rule 272 of Companies (Court) Rules which makes it incumbent upon all to see to it that the property is to be dealt with so as to fetch maximum price so as to satisfy larger faction of the creditors. The creditors interse preference is not important at this stage as no one is challenging bank's right to have....
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....f very old, which is of only five years old, offer matching the reserve price without any further efforts of even requesting or inquiring the very bidder to raise his offer cannot be accepted. Shri Jani's submission qua no obligation on the bank to seek any further offer in light of the SARFAESI Act is required to be rejected on the account of the fact that even the sole bidder has not been indicating his worth or having wherewithal to buy the property as he had sought financial assistance from the bank and the bank in turn has not shown willingness but sanctioned financial assistance. In the narration of submission of O.L., and its counsel the entire property is sought to be sold for only at a reserve price, that too bank is financing more than 75% on the very same property which they are proposing to sell. The bank has not joined any other property except residential premises admeasuring 163.41 sq. meter in an area where this property cannot be said to have greater valuation so as to even cover part of the finance which is proposed to be provided to the sole bidder. Moreover a question arises, in case if it was known to the prospective bidders that there was facility available to....