Prasanthi Cashew (P.) Ltd. vs Official Liquidator (In Liquidation)

K.M. Joseph, J.—This company appeal is lodged against the order of the Company Court Judge in Report No. 37 in C.P. No. 53/2000. By the impugned order the learned Company Judge refused to confirm the sale conducted by the Official Liquidator in the winding up proceedings. Appellant is none other than the auction purchaser.

We heard Sri M.K. Damodaran, the learned senior counsel for the appellant and also the other counsel appearing. The learned Company Judge noted that the Court had passed an order on 18-3-2011 permitting the Official Liquidator to take steps for sale of certain immovable properties belonging to the company. The Official Liquidator published notice on 23-3-2011 and the sale was conducted on 31-3-2011. The appellant-auction purchaser bid the property at an amount of Rs. 8,80,05,001. We further note that the learned Judge has referred to the objections of the ex-managing director of the company that the sale is conducted in haste and he opposed the request for confirmation on the ground that if more time had been given a better offer would have come. Thereafter, the reasoning given is as follows :

As is clear from the fact that the present bid is for Rs. 8,80,05,001, the property is worth crores of rupees. It is not every day that properties worth so much are sold. A person who intends to participate in the bid will have to necessarily find source of funds to participate in the sale proceedings. Further, sufficient time has to be given to prospective purchasers in neighbouring States as well. For that I am of opinion that 8 days'' time is palpably insufficient. The Official Liquidator is bound to take all possible steps to get the best price possible. Therefore, I am not inclined to allow the prayers of the Official Liquidator in the report. Accordingly, I refuse to confirm the sale. The Official Liquidator is directed to readvertise the properties for sale giving at least one month''s time.

Learned senior counsel for the appellant would contend that this is a re-sale. He would point out that, actually there is only one qualified bidder and in the circumstances of the case 8 days'' notice given by the Official Liquidator is sufficient. He also placed reliance on the decision of the Apex Court in Sorath Builders Vs. Shreejikrupa Buildcon Limited and Another, . He further questioned the title of the ex-managing director to impugn the same. In this regard he also pointed out that he is actually not a shareholder and he has no interest in the company. His previous conduct in particular disentitles him from questioning the sale, it is submitted. He would submit that the sale secured the best price and the learned Company Judge erred in passing the order.

Per contra, learned counsel for the ex-managing director submits that he does have shares. He would point out that the extent involved is about 8 acres and it will fetch much more price and the notice given is too short. Learned counsel on behalf of the share-holders would also submit that the property is situated in the heart of Kollam town and the price secured is not sufficient. Learned counsel for the Official Liquidator Sri Money would submit that the provisions extant in this matter is Rules 272 and 273 besides Rule 6 of the Companies (Court) Rules.

Rules 272, 273 and 6 of the Companies (Court) Rules, 1959 read as under:

Sale to be subject to sanction and to confirmation by Court.--Unless the court otherwise orders, no property belonging to company which is being wound-up by the Court shall be sold by the Official Liquidator without the previous sanction of the Court, and every sale shall be subject to confirmation by the Court.

Procedure at sale.--Every sale shall be held by the Official Liquidator, or, if the Judge shall so direct, by an agent or an auctioneer approved by the Court, and subject to such terms and conditions, if any, as may be approved by the Court. All sales shall be made by public auction or by inviting sealed tenders or in such manners as the Judge may direct.

Practice and Procedure of the Court and provisions of the Code to apply.--Save as provided by the Act or by these rules the practice and procedure of the Court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these rules. The Registrar may decline to accept any document which is presented otherwise than in accordance with these rules or the practice and procedure of the Court.

He would, however say that in the circumstances of this case, because it was a re-sale notice is sufficient. As far as the creditor is concerned, the learned counsel submits that they are only interested in getting the money.

We must notice that though the report was filed by the Official Liquidator requesting confirmation of sale, the Official Liquidator has virtually accepted the decision of the Company Court as he has not chosen to impugn the order. No doubt, the auction purchaser has right to challenge the order.

When a question comes before the Company Judge as to whether the sale is to be confirmed necessarily three aspects must be borne in mind. Firstly, whether the sale is done in accordance with law, secondly, whether the sale is in the best interest of the Company and its shareholders, and, thirdly, whether it is in the interest of the creditors. Though there are no criteria indicated in Rule 272 of the Companies (Court) Rules to be borne in mind by the learned Company Judge, the power cannot be an unfettered discretion. The decision must be one informed by the fact situation and the legal position. Viewed in the said perspective let us examine the case. As contended by Sri Money, learned counsel for the Official Liquidator the Companies (Court) Rules makes the CPC applicable. This is a re-sale as the earlier sale did not go through on account of the failure of the auction purchaser to honor his bid. The mere fact that it is a re-sale would not mean that the Official Liquidator would be absolved from his responsibility to act in conformity with law. If 15 days'' notice is warranted as per the provisions of CPC which becomes through Rule 6 of the Companies (Court) Rules then the Official Liquidator should have given 15 days'' notice. We are reinforced in this view of ours particularly having regard to the fact that the extent of the property is fairly large. It is said to be about 8 acres, and, what is more it is said to be in the heart of Kollam town. It is also pointed out that the land is a dry land. Therefore, we would think that the notice given is certainly too short in view of the circumstances of this case in particular. As noted by the learned Company Judge a prospective purchaser must take steps to be ready with requisite funds which also is not a small amount. He would have to inspect the property, the documents relating to the property etc. before he decides to participate in the auction.

We are not much impressed by the reliance placed by the appellants on the decision of the Apex Court. There the university had invited tenders for the construction of a veterinary college building. Respondent No. 1 therein filed a writ petition for quashing the decision of Respondent No. 2 considering him as disqualified for participating. It is in the context of jurisdiction we would think under Article 226 in particular that the Court inter alia made the following observations:

The aforesaid stand makes it crystal clear that Respondent 1 was prevented in submitting the required documents in time due to his personal difficulty and not for the time schedule attached to the notice inviting tenders. That was also not one of his grounds taken specifically in the writ petition at any stage. But only during the course of hearing such a contention seems to have been raised which found favour with the High Court. No other intending bidder came to the court on any such plea that they were deprived of an opportunity of submitting their tender due to paucity of time and that any prejudice is caused to anyone due to time schedule provided by the University.

It appears that only during the hearing stage a plea was raised which found favour with the High Court but as stated above the aforesaid plea is without any merit for the advertisement was issued on 21-11-2008 requiring the parties to submit their pre-qualification documents only by 27-11-2008. Therefore, sufficient time was provided to submit tender papers. The University also permitted pre-qualification documents to be submitted "online". Therefore, the contention that the time was too short for submission of the pre-qualification documents by 27-11-2008 is without any merit.

We would think that it is inapposite to import the said principle into the jurisdiction under the Companies Act and in the facts of this case in particular. We would think that the learned Company Judge was correct in refusing to confirm the sale having regard to the interest of the relevant parties as aforesaid. Accordingly, we dismiss the appeal. It is open to the Official Liquidator to explore the possibility of selling the property in plots having a lesser extent so that best possible price is obtained.