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Judgment
Shiv Kumar Sharma, J.—By the instant application under Sections 446 and 537 of the Companies Act, 1956 (for short ''1956 Act''), the applicant has prayed as under:
To quash and set aside the notice (Annexure-A/2) published in newspaper Rajasthan Patrika dated November 13, 2005 and the auction proceedings dated November 22, 2005 along with the certificate of sale dated June 7, 2006 (Annexure-A/5) issued by the Recovery Officer, Debts Recovery Tribunal, Jaipur (Rajasthan) and to direct Recovery Officer, Debts Recovery Tribunal, Jaipur (Rajasthan) not to sell any assets or effects of the company in liquidation without leave of this Court.
The respondent No. 2 be directed to deposit the sale proceeds of the auction proceedings dated November 22, 2005 with the Official Liquidator and not to take any decision regarding its disbursement without leave of Hon''ble Court.
Contextual facts depict that the company M/s. Kesri Vanaspati Products Limited was ordered to be wound up by Hon''ble High Court vide order dated January 23, 2004 and the Official Liquidator attached to this Court was appointed as Provisional Liquidator with the direction to take charge of all the property and effects of the company in liquidation. The provisional winding up order was passed on the matter forwarded by the Board of Industrial and Financial Reconstruction (for short "BIFR") vide order dated July 18, 2003 in case No. 242/2000. The charge of the assets and record of the company in liquidation situated at Maharajpura, Navai, District Tonk was taken over by the Official Liquidator on April 3, 2004. The Industrial Development Bank of India Limited, Sansar Chandra Road, Jaipur (for short ''IDBI), Vijaya Bank, Jaipur, the State Bank of Bikaner and Jaipur (for short ''SBBJ'') and the Rajasthan State Industrial Development and Investment Corporation Limited (for short ''RIICO'') are the secured creditors of the company in liquidation. Out of the above referred secured creditors of the company in liquidation except the RIICO the other secured creditors have already opted to remain out of the winding up proceedings.
The IDBI in response to a letter from the Official Liquidator conveyed him vide letter dated June 11, 2004 (Annexure-A/1) that it had filed an application with Debts Recovery Tribunal, Jaipur (Rajasthan) (for short ''DRT'') which had decreed in its favour vide order dated August 20, 2003. Para 4 of the letter reads as under:
(iv) Taking over of possession of secured assets-
As per the provisions of the Companies Act, after the confirmation of winding up of the company by the Hon''ble High Court. the office of the Official Liquidator shall take necessary action as regards to possession and protection of the assets. We request you to constitute Sale Committee for the sale of the assets of the company under your Chairmanship subject to obtaining suitable order of the Hon''ble High Court.
On November 13, 2005 a notice issued by Recovery Officer, DRT was published in newspaper Rajasthan Patrika for auction of the properties of the company in liquidation on November 22, 2005 in Recovery Matter No. 120/2003, IDBI v. Kesri Vanaspati Products Limited.
The Official Liquidator was not served with any notice by Recovery Officer. DRT, Jaipur or by DRT, Jaipur.
The Official Liquidator wrote a letter to Recovery Officer. DRT, Jaipur apprising him about the complete factual and legal position in the matter and requested to cancel the proposed auction but he rejected the request vide order dated November 21, 2005.
M/s. Vijay Solvex vide letter dated November 23, 2005 informed the Official Liquidator that in the auction proceedings held on November 22, 2005 a bid of Rs. 2,30,65,000/- has been received for the plant and machinery as against reserve price of Rs. 2,30,000/- and that no bid for the land and building was received.
The Official Liquidator filed S.B. Civil Writ Petition No. 9715/2005 challenging the notice dated November 13, 2005, along with the stay application. The Hon''ble Court passed interim order that sale in pursuance of the auction held by Recovery Officer shall not be confirmed. The writ petition was dismissed vide order dated June 2, 2006, which reads as under:
Heard.
Company Application No. 79/2005 has been filed by the Official Liquidator in regard to the controversy involved in the instant writ petition. Even though the instant writ petition was filed while Company Judge was not available in this Court, I am of the view that this writ petition is not maintainable and it stands accordingly dismissed. The interim order passed shall stand vacated. However, I observe that the recovery proceedings as well as confirmation of sale shall be subject to the decision of Company Application No. 79/2005. Let the Company Application No. 79/2005 be listed on July 7, 2006.
On June 7, 2006 the Recovery Officer, DRT issued a certificate of sale of auctioned property of company in liquidation in favour of auction purchaser M/s. Blooming Engineers Private Limited. The said certificate does not mention that the sale confirmation is subject to the decision of company application No. 79/2005 as ordered in the order dated June 2, 2006.
The Official Liquidator raised following grounds in the application:
(i) No action as notified in notice dated November 13, 2005 could be held after the winding up order dated January 23, 2004. The record, assets and effects of the company in liquidation are under the deemed custody of Hon''ble High Court by virtue of Section 456 of the 1956 Act and no sale of the property of company in liquidation could be made except prior permission of the Court. Section 537 of the 1956 Act prohibits any such auction of sale or execution without leave of the Court and further declared that any sale of properties or effects of company in liquidation held without leave of the Court shall be void. Therefore, the proposed action was in violation of Section 537 of the 1956 Act.
(ii) The proposed action of notice (Annexure A/2) was illegal since the matter of company in liquidation was forwarded by BIFR to Hon''ble Court and when after accepting the recommendations of BIFR the Hon''ble Court ordered for winding up of company in liquidation and the assets and effects of the company in liquidation had been taken in custody of the Official Liquidator the same could not be put to sale by the Recovery Officer, DRT, Jaipur without leave of the Hon''ble Court.
(iii) The IDBI acted illegally when he proceeded with its application before DRT, Jaipur after the order dated July 18, 2003 passed by BIFR, as BIFR put certain conditions with respect to IDBI in its order u/s 20(4) of Sick Industrial Companies (Special Provisions) Act, 1985. This condition had been ignored by IDBI. Even as per the order of BIFR the sale proceeds of the assets of the company in liquidation were to be forwarded to High Court for orders for distribution in accordance with the provisions of Section 529A and other provisions of 1956 Act.
(iv) The IDBI committed illegality in seeking to recover its dues through Recovery Officer, DRT, Jaipur, inasmuch as IDBI vide letter dated June 11, 2004 had requested the Official Liquidator to constitute sale committee for the sale of the assets of the company under his chairmanship subject to obtaining suitable order of Hon''ble Court.
(v) The question whether DRT can direct sale of assets of a company which had been wound up and Official Liquidator was appointed is sub judice before Hon''ble Supreme Court in Bagrian Shoes Ltd. v. Indian Overseas Bank in Special Leave to Appeal (Civil) No. 3636/2002 and the Hon''ble Supreme Court vide order dated November 14, 2003 restrained the Recovery Officer from selling the assets of the company. In such view of the matter Recovery Officer, DRT, Jaipur should not have proceeded to hold auction of the assets of the company in liquidation,
(vi) No notice of proposed auction was issued to Official Liquidator despite the fact that assets of the company in liquidation are in the deemed custody of the Hon''ble Court vide order dated January 23, 2004 therefore holding of auction is illegal being violative of principles of natural justice.
(vii) The notice dated November 13, 2005, auction proceedings dated November 22, 2005 and sale certificate dated June 7, 2006 are illegal and void being violative of Sections 536 and 537 of 1956 Act and in view of the order of Apex Court dated November 14, 2003.
(viii) The notice dated November 13, 2005, auction proceedings dated November 22, 2005 and sale certificate dated June 7, 2006 are illegal since the Recovery Officer, DRT, Jaipur did not implead the company in liquidation as party to the proceedings. No proceeding could be held without participation of the Official Liquidator and without taking leave of the Court.
(ix) The sale certificate dated June 7, 2006 is illegal since the same has been issued violating the condition imposed in order dated June 2, 2006 in writ petition No. 9715/2005.
Learned Counsel for the applicant placed reliance on Rajasthan Financial Corporation and Another Vs. The Official Liquidator and Another, , wherein the Apex Court held that DRT so acting will have power to order such sale, but only after issuing notice to Official Liquidator or Liquidator appointed by Company Court and after hearing him.
I have pondered over the rival submissions.
In Rajasthan State Financial Corpn. v. Official Liquidator (supra) Their Lordships of the Supreme Court indicated as under: (Para 17)
Thus, on the authorities what emerges is that once a winding up proceeding has commenced and the Liquidator is put in charge of the assets of the company being wound up, the distribution of the proceeds of the sale of the assets held at the instance of the financial institutions coming under the Recovery of Debts Act or of financial corporations coming under the SFC Act, can only be with the association of the Official Liquidator and under the supervision of the Company Court. The right of a financial institution or of the Recovery Tribunal or that of a financial corporation or the Court which has been approached u/s 31 of the SFC Act to sell the assets may not be taken away, but the same stands restricted by the requirement of the Official Liquidator being associated with it, giving the Company Court the right to ensure that the distribution of the assets in terms of Section 529A of the Companies Act takes place...
Having discussed the relevant case law the legal position that has been summed up is as under: (Para 18)
(i) A Debts Recovery Tribunal acting under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 would be entitled to order the sale and to sell the properties of the debtor, even if a company-in-liquidation, through its Recovery Officer but only after notice to the Official Liquidator or the Liquidator appointed by the Company Court and after hearing him.
(ii) A District Court entertaining an application u/s 31 of the SFC Act will have the power to order sale of the assets of a borrower company-in-liquidation, but only after notice to the Official Liquidator or the Liquidator appointed by the Company Court and after hearing him.
(iii) If a financial corporation acting u/s 29 of the SFC Act seeks to sell or otherwise transfer the assets of a debtor company-in-liquidation, the said power could be exercised by it only after obtaining the appropriate permission from the Company Court and acting in terms of the directions issued by that Court as regards associating the Official Liquidator with the sale, the fixing of the upset price or the reserve price confirmation of the sale, holding of the sale proceeds and the distribution thereof among the creditors in terms of Section 529A and Section 529 of the Companies Act
(iv) In a case where proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or the SFC Act are not set in motion, the creditor concerned is to approach the Company Court for appropriate directions regarding the realisation of its securities consistent with the relevant provisions of the Companies Act regarding distribution of the assets of the company-in-liquidation.
Reverting back to the case on hand, I find that since the Official Liquidator has not been associated in auction proceedings by Recovery Officer, DRT, Jaipur the notice (Annexure-A/2), auction proceedings held on November 22, 2005 along with the certificate of sale dated June 7, 2006 (Annexure-A/5) deserve to be quashed.
For these reasons, I allow the instant application and quash the notice (Annexure-A/2) published in Rajasthan Patrika on November 13, 2005, auction proceedings held on November 22, 2005 and the sale certificate dated June 7, 2006 (Annexure-A/5). The IDBI is directed to refund the sum of Rs. 2,30,65,000/- to respondent No. 3 M/s. Blooming Engineers Private Limited. There shall be no order as to costs.