Official Liquidator, Metallic Soaps and Chemicals (P.) Ltd. (In Liquidation) vs Manager, Karnataka State Financial Corpn.

V.G. Sabhahit, J.—Company Application No. 420 of 1994 has been filed u/s 537(1)(b) of the Companies Act, 1956, seeking for a declaration that the sale made by the Karnataka State Financial Corporation is void u/s 537(1)(b) of the Companies Act having conducted without the leave of the court and to direct the second respondent to hand over the property and to direct the Karnataka State Financial Corporation not to execute sale deed or collect sale proceeds from the second respondent.

It is averred in the application that M/s. Metallic Soaps and Chemicals (P.) Ltd., has been ordered to be wound up by order dated 13-8-1993, passed in Company Petition Nos. 90 of 1987 and 74 of 1989, and the official liquidator attached to this Court was appointed and the official liquidator was directed to take charge of all the assets, properties and effects of the company. The official liquidator sent notice to the ex-directors of the company on 1-10-1993, to hand over the books of account and assets of the company. The notices sent were returned undelivered with an endorsement "addressee left" and thereafter correct address was obtained. The official liquidator deputed his staff to take possession of the property at the correct address and when the staff went there, it was learnt that the Karnataka State Financial Corporation has conducted sale in favour of the second respondent without the leave of the court during the pendency of the winding up proceedings in the writ petition. Wherefore, in view of the provision of Section 537(1)(b) and since the sale is held without leave of the court, the application is filed for the abovesaid relief.

The Karnataka State Financial Corporation has filed objections averring that it is a secured creditor and it has conducted sale of the property by auctioning the property in which the second respondent was the highest bidder for Rs. 7,75,800 and an agreement was entered into between the first and the second respondent and in pursuance of the said, agreement, possession of the assets was handed over to the second respondent on 25-2-1994. However, since the second respondent did not pay the balance amount within the time as agreed, sale deed has not been executed and demand notice was issued to the respondent and despite the same, the amount has not been paid by the second respondent.

The second respondent has filed objections averring that he is the bona fide purchaser for value without notice and that he is ready to pay the balance amount as per the agreement and the amount could not be deposited as he has obtained stay of the demand notice issued by the Karnataka State Financial Corporation in C.A. Nos. 1008 and 1009 of 2000, on 24-2-2000.

I have heard learned Counsel appearing for the parties.

Today an application has been filed seeking permission to deposit Rs. 3,75,000.

It is clear from the perusal of the material on record that Company Petition Nos. 90 of 1987 and 74 of 1989, were allowed and the company was ordered to be wound up by order dated August 13, 1993. Sale has been conducted on 21 -2-1994, and the second respondent was the highest bidder and thereafter an agreement was entered into between the first and second respondent wherein 25 per cent of the bid amount was to be paid within seven days and the balance of 75 per cent of the bid amount was to be paid as per the agreement in two instalments, i.e., Rs. 2,00,000 was payable on or before 10-6-1994, and Rs. 1,75,000 was payable before 10-9-1994. However, the balance bid amount was not paid as per the schedule. Thereafter, the Karnataka State Financial Corporation has issued demand notice and despite demand notice amount was not paid and sale deed could not be executed.

Learned Counsel appearing for the second respondent submitted that the demand notice issued by the first respondent against the second respondent has been stayed by this Court in C.A. No. 1009 of 2000, by order dated 24-2-2000, and wherefore the amount could not be paid and thereafter an Application No. 160 of 2002, has been filed to deposit the balance amount. It is also submitted that the second respondent is a bona fide purchaser who has invested Rs. 45,00,000 and he has also purchased the machinery worth Rs. 18,00,000.

In view of the abovesaid facts, it is clear that the fact that Karnataka State Financial Corporation, who is a secured creditor has effected sale subsequent to the order of winding up cannot be disputed and further it is also clear that the Karnataka State Financial Corporation has not executed any sale deed in favour of the second respondent for default on the part of the second respondent in depositing the balance amount of Rs. 3,75,000 as per the letter dated 21-2-1994. It is clear from the provision of Section 537 of the Companies Act that when an order of winding up is passed, the property belonging to the company cannot be sold without the leave of the Court. There is no merit in the contention of learned Counsel appearing for the first respondent that the first respondent being the secured creditor was entitled to sell the property. Section 537(1)(b) of the Companies Act, 1956, clearly states that no sale can be held without the leave of the Court of any of the properties or effects of the company after such commencement and any such sale held shall be void.

In the present case, admittedly, permission of this Court has not been obtained and when once an order of winding up is passed, it is incumbent to obtain permission of this Court for the sale of the property. Even otherwise the material on record shows that sale transaction is not yet completed as the sale deed has not been executed in favour of the second respondent for default on the part of the second respondent in depositing Rs. 3,75,000.

The contention of the second respondent cannot be accepted, as it is open to him to recover the amount of damages from the first respondent if he has suffered any loss by purchasing the property after the winding up order was passed without the leave of this Court since the sale has been held without the leave of this Court.

Under the circumstances, it is clear that the sale effected by the first respondent without the leave of this Court during the pendency of the winding up proceedings in the writ petition is void and it is liable to be declared as such and since the sale deed has not been executed and only the possession has been handed over to the second respondent, the second respondent is directed to hand over the possession of the property to the official liquidator and wherefore the question of permitting the second respondent to deposit the balance amount of Rs. 3,75,000 does not arise. Similarly, the question of considering the validity of the demand notice made by the first respondent against the second respondent also does not arise and the interim order granted by this Court staying the demand notice is vacated. Accordingly, I pass the following order.

The company application is allowed. The sale effected by the first respondent in favour of the second respondent on 21-2-1994, is declared to be void and the second respondent is directed to hand over the possession of the property to the official liquidator.

Company Application Nos. 160 of 2002 and 250 of 2006, are rejected.