TMI Blog2008 (5) TMI 419X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Thus 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. - CIVIL APPEAL NOS. 3628 AND 3629 OF 2008 - - - Dated:- 16-5-2008 - S.B. SINHA AND V.S. SIRPURKAR, JJ. JUDGMENT S.B. Sinha, J. - Leave granted in both the matters. 2. Whether power of a Company Court to sell the property of a company vis-a-vis the power of the Financial Corporation can be merged is the question involved in these appeals which arise out of the judgments and orders dated 2-7-2007 and 6-7-2007 passed in Company Appeal No. 27 of 2004 and Company Appeal No. 2 of 2007 respectively passed by the Division Benches of the Delhi High Court. 3. Certain basic facts are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... execution petition was filed by NRI Lead Bank before the Delhi High Court seeking execution of a purported written agreement/settlement dated 16-8-2003 passed by the Board of Conciliation in the said proceedings. 10. The execution petition was filed not only against the appellant and its sister concern, Captain Hygiene Products Pvt. Ltd. but also against SICOM. Industrial Development Bank of India, Industrial Finance Corporation of India, HUDF Bank, State Bank of Patiala, and Punjab State Industrial Development Corporation Ltd. were also impleaded as parties therein. 11. We shall deal with the factual matrix thereabout a little later. 12. However, in the meantime, another proceeding by way of an application under section 9 of the Arbitration and Conciliation Act, 1996 was filed before the Tis Hazari Courts, Delhi. It was registered as Misc. Suit No. 139 of 2003. Inter alia, a prayer was made therein to appoint a receiver. However, it appears that another Bank initiated a proceeding before the Debt Recovery Tribunal for recovery of its dues. A Receiver was appointed by the said Tribunal in respect of the perishable goods on 1-9-2003. 13. Possession of the said peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the modalities of restoration of possession be got done under the supervision of officers of this Court, so as to avoid unseemly controversies and a clear account of the equipments, machinery and the assets, of which possession is taken over at the factory premises is available. Considering the quantum of work required, counsel for the parties pray that at least three Local Commissioners be appointed. Accordingly, I appoint Mr. D.K. Batra, Joint Registrar of this Court, Mr. S.P. Tara, Deputy Registrar of this Court and Mr. Anil Kumar Arora, Sr. Personal Assistant of this Court, as the Local Commissioners to visit the Factory Area, Village Rasulpur Saidan, Tehsil and District Patiala, State of Punjab. The Local Commissioners shall make a complete inventory of the equipment, machinery, assets, raw materials, finished, semi-finished products, if any. The possession of factory and assets be handed over to the representatives of respondent No. 3. Inventory be also got signed by the parties. The Local Commissioners may in their discretion also make any observation with regard to the condition or state of equipment, assets etc. The Local Commissioners to execute the commission on 23-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect the factory on the premise that they had held negotiations with the appellant for taking over the entire unit. Counsel who was representing the appellant also represented Ceylon Biscuits Pvt. Ltd. 22. A question was raised in regard to the jurisdiction of the executing court to proceed with the matter of sale of the properties. By reason of an order dated 16-3-2004, the Court noticed the bids submitted by the ITC Limited and Britannia Industries Ltd. not only on the entire plant but also on item wise basis. The Court rejected the contention of the appellant both in regard to its jurisdiction as also its valuation report inter alia opining that it had failed to deposit a sum of Rupees two crores and submitted the repayment schedule in terms of its earlier order as such there was no other option but to proceed with the sale process. In regard to the offer of Ceylon Biscuits Ltd. it was directed : "They shall file their bid positively before 23-3-2004. It is also made clear that if there could be any other interested bidder, he/it could submit a bid in accordance with the requirements, which shall be considered. It shall also be open to the judgment debtor Nos. 1 and 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if any, so as to enable this Court to ascertain the break-up value of the various plants and machineries and to facilitate the process of sale by this Court. It shall be open to any other willing purchasers also to submit their fresh bids, if so desired, on or before the next date." 24. Allegedly, the appellant filed an application before the Executing Court with a prayer to decide its jurisdiction at the first instance. It is stated at the Bar that neither there is any record in respect thereof in the High Court nor any order appears to have been passed thereon. 25. We may now notice the proceeding before the learned Company Judge. 26. The Company Applications were admitted by an order dated 6-4-2004. A Provisional Liquidator was appointed. It was directed to take charge of the properties and books of account of the company. On an application made by SICOM, however, the learned Company Judge by order dated 16-4-2004 directed that its possession may not be disturbed. 27. As the Provisional Liquidator had been appointed, the Executing Court transferred the petition to the Company Judge by an order dated 19-4-2004. 28. Some correspondences appear to have passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avit of Managing Director of the respondent company is filed. It does not offer any bid of any buyer. On the contrary, what is stated is that the Managing Director has been able to tie up finances with the various associates and the first instalment would be received on or before 5-8-2004 on which date a pay order of Rs. 50 lakhs shall be produced in the court. It is also stated that the management and associates thereafter would be definitely for the welfare of all the financial institutions and workers and would be a far better than which is being offered by the bidder. This affidavit, obviously, is not in compliance with the directions contained in the earlier orders and Mr. Chhabra s own statement to the effect that the respondent company had negotiated with a buyer who was willing to offer more than the amount offered by M/s. Ceylon Biscuits Ltd. such attempt had been made earlier but failed. The arrangement offered in the affidavit does not inspire confidence and it is only a delaying tactic. He offer to deposit Rs. 50 lakhs, in the first instance when the total liability of secured creditors itself is more than Rs. 50 crores, is a pittance. The respondent company has also no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recting a fresh valuation of the assets of the company and upon taking into consideration the interest of other creditors as also that SICOM itself before accepting the offer of Ceylon Biscuits. ( ii )When a Provisional Liquidator was appointed, his involvement in the process of sale was imperative in character. ( iii )Provisions of sections 441, 456, 450 and 457 read with rule 293 of the Companies Act show that the involvement of Official Liquidator was absolutely mandatory and the Court could not, in the name of supervision over the sale, substitute itself in the place of the Official Liquidator. ( iv )The learned Company Judge completely disregarded the law laid down by this Court in a series of decisions in each and every respect concerning the sale of the assets of a company, insofar as : ( a )it did not issue any fresh advertisement; ( b )the advertisement issued being in small print and no guidelines having been issued, the same was irrelevant; ( c )the Company Court did not fix any reserve price; ( d )the Company Court did not make any attempt to secure the best possible market price which was its duty to do for the sake of the general body of creditors inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Board of Arbitration. ( v )It took recourse to adventurous litigations not only by getting the aforementioned case filed but also filing an application under section 9 of the Arbitration and Conciliation Act, 1996 with a view to get a Receiver appointed, although it did not succeed in that attempt. ( vi )It is not correct to contend that a Receiver was appointed by the Court in the Arbitration proceeding but the Receiver was appointed by Debt Recovery Tribunal in respect of perishable articles only. ( vii )The Executing Court at the initial stage and subsequently the learned Company Judge, merely supervised the sale with a view to bring about transparency in the entire process. ( viii )That when a sale is held by a Financial Institution in terms of section 29 of the 1951 Act, opportunities are granted to the debtors to purchase the property at the price for which the sale had been held or to bring a higher offer. ( ix )With a view to satisfy the set norms, the High Court not only permitted Ceylon Biscuits and another to take part in the bidding process but also gave opportunities after opportunities to the appellant to bring a better offer which it failing and/or ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Company Judge could have supervised the purported sale of the assets of the appellant on behalf of SICOM having regard to the provisions of section 29 of the 1951 Act ? (2)Whether in a case of this nature and particularly having regard to the fact that SICOM submitted itself to the jurisdiction of the executing court and Company Court, can now turn around and contend that in effect and substance it had exercised its statutory powers under section 29 of the Act and allowed the same only to be supervised by the learned Company Judge ? (3)Whether the statutory powers of a Financial Corporation as envisaged under section 29 of the 1951 Act would prevail over the proceedings before a Company Judge in a winding up proceeding ? (4)Whether involvement of the Official Liquidator in the facts and circumstances of the case and particularly in view of the fact that Official Liquidator brought to the court s notice claims of other creditors, the Company Judge ought to have dealt with the same in the manner laid down in the Companies Act and/or the Rules framed thereunder and/or the decision of this Court ? (5)Whether the High Court while exercising its powers under section 433 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven 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 under section 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 under section 29 of the SFC Act seeks to sell or otherwise transfer the assets of a debt or 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether in the facts and circumstances of this case, the involvement of official liquidator was imperative. 42. The official liquidator brought to the court s notice the claims of the other creditors. The Company Judge having been exercising its jurisdiction under section 433 of the Companies Act was, thus, under a statutory obligation to consider the cases of all creditors of the Company simultaneously. For the said purpose, the learned Company Judge was bound to follow the provisions of the Companies Act and/or the Company Court Rules. The jurisdiction of a Company Court extends only to those matters which are specified in the Companies Act and apart therefrom it had no jurisdiction. It also has a duty to see that the claims of all creditors be dealt with, particularly having regard to the provisions of section 529A of the Companies Act. We are informed that the workers had also filed their claims. Their claims having regard to a series of decisions of this Court could not have been ignored. [See Allahabad Bank v. Canara Bank [2000] 101 Comp. Cas. 64 (SC) and Andhra Bank v. Official Liquidator [2005] 59 SCL 239 (SC)]. 43. The claim of the workmen having re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that SICOM was exercising its statutory power to cause sale of the assets of the mortgagor through the agency of the court but it is also contended that the sale was affected by the court through SICOM. Such a contradictory or inconsistent stand, in our opinion, is impermissible in law. 47. In NGEF Ltd. v. Chandra Developers (P.) Ltd. [2005] 64 SCL 1 (SC), this Court opined : "The Company Judge moreover will have to bear in mind the provisions contained in section 529A of the Companies Act in terms whereof the dues of the workman and the debts due to the secured creditors to the extent such debts rank in clause ( c ) of the proviso appended to sub-section (1) of section 529 pari passu therewith and shall have a priority over all other debts." (p. 20) In A.P. State Financial Corpn. v. Official Liquidator [2000] 27 SCL 133 (SC), this Court held : ". . . Under the proviso to sub-section (1) of section 529, the liquidator shall be entitled to represent the workmen and force the above pari passu charge. Therefore, the Company Court was fully justified in imposing above conditions to enable the Official Liquidator to discharge his function properly under supervis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g up of a company by the court. Section 433 provides for winding up, inter alia, by two modes. One, if the company has by special resolution resolved that it should be wound up by the court; or (2) if the company is unable to pay its debts. An application for winding up is to be filed in terms of section 431 of the Act. Section 441 provides that winding up of a company by the court shall be deemed to commence at the time of presentation of petition for winding up. The provision has since been omitted by Companies (Amendment) Act, 2002. Section 442 provides for the power of the court to stay or restrain proceedings against the company, section 443 envisages power of the court on hearing petition. Section 446 provides for stay of all suits shall. Sub-section (3) of section 446 reads as under : "446. Suits stayed on winding up order. (1) (2)****** (3) Any suit or proceeding by or against the company which is pending in any Court other than that in which the winding up of the company is proceeding may, notwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that court." 50. The Executive Court being a co-ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch jurisdiction by a provisional liquidator, therefore, shall not be denied of his powers only because it did not obtain possession of the properties. Section 529 of the Act which occurs in Chapter V provides for application of insolvency rules in winding up proceeding of the insolvent companies. Section 529A expressly saves the rights of the workmen. It contains a non obstante clause. A statutory pari passu charge is created in support of the dues of the workmen being equivalent to the dues of a secured creditor for the purpose enforcing the insolvency rules as contained in clause ( c ) of sub-section (1) of section 529. Section 538 of the Companies Act provides for offences by officers of companies in liquidation. 53. The rights, jurisdiction and powers of the provisional liquidator may not be the same as that of an official liquidator. But in a case of this nature, only because the financial institution stands outside the winding up proceedings, would it mean that the court shall, for all intent and purport, ignore its officer and concentrate on the interest of the financial institution alone? Can it be said that supervision of the court is necessary only in a pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thermore not a case where the rights of third persons were involved. We have held hereinbefore that SICOM failed to keep itself outside the winding up proceedings. It has become a party to it and, thus, when a sale is held by a Company Judge, it should not keep a provisional liquidator out of its purview. It may be true that the provisional liquidator could not sell the property without the sanction of the court, but then feed back of the provisional liquidator by the Company Court was necessary for the purpose of having a complete picture before it. The official liquidator has informed us that about 373 claims have been filed. The amount of claim is about 100 crores; amongst the claimants, there are banks in whose favour also deeds of mortgages have been executed. Provident Fund dues and other dues of statutory claims are also subject matter of the claim petition. They also have a priority. The claim of the provident fund is on behalf of the workmen. For scrutiny of the said claims, a Committee has been constituted and we had been informed that except the properties which have been sold in liquidation, there is hardly any other asset upon which the creditors can back upon for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the order passed by the learned Company Judge. The provisional liquidator, in view of the orders of the court, ceased to be in judicial control or statutory control over the properties of the company. Interpretation of section 450 as opined by the learned judges of the Madras High Court must be viewed from the aforementioned factual matrix in mind. It is not the law nor has such a proposition been canvassed before us that the properties vested in the provisional liquidator, as was the submission in that case. But then, however, the learned judges opined that the appointment and power of an official liquidator is controlled by the instrument which appoints him and that his office is not in equation to that of an official liquidator, the same, however, would not mean that even when there does not exist such limitation, the services of provisional liquidator shall not be resorted to. 59. Strong reliance has been placed on In re, A.I. Levy (Holdings) Ltd. [1964] 1 Chancery Division 19. 60. We may at this stage notice the statutory provisions as regards the provisional liquidator in the United Kingdom. The Insolvency Act, 1986 governs the winding up proceedings in Engl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the collection and distribution of the company s assets. I agree that the bringing of disqualification proceedings is not a function which is conferred on the official receiver in the winding up ; if it were, the costs of the proceedings would be payable out of the assets of the estate. It is not necessary to consider whether the gathering of evidence for the purpose of such proceedings is part of his functions in the winding up , for this formulation is unduly narrow. The liquidator s functions in relation to the company which is being wound up are not and never have been limited to the recovery and distribution of the company s assets. It would be very odd if the liquidator of a company in voluntary liquidation could apply to the court to direct a public examination in the wider public interest but could not invoke section 236 to order a private examination in the same interest. In practice the liquidator would usually prefer to invite the official receiver to make the application; and even where the application was made by the liquidator the court would be disposed to invite the views of the official receiver. But it is impossible to say that the liquidator would be acting ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e duties to the company s creditors. The orthodox position being as stated by Dillon LJ in Multinational Gas and Petrochemical Co. v. Multinational Gas Petrochemical Services Ltd. [1983 Ch. 258] directors owe fiduciary duties to the company though not to the creditors, present or future, or individual shareholders. Winkworth v. Edward Baron Development Co. Ltd. [(1987) 1 All ER 114], a House of Lords decision, might suggest that there has been a change to that position with Lord Templeman stating : ....a company ownes a duty to its creditors, present and future. The company owes a duty to its creditors to keep its property inviolate and available for repayment of its debts. The conscience of the company, as well as its management, is confided to its directors. A duty is owed by the directors to the company and to the creditors of the company to ensure that the affairs of the company are properly administered and that its property is not dissipated or exploited for the benefit of the directors themselves to the prejudice of the creditors ." The learned author furthermore observed : "Support here for this approach can be found in West Mercia Safetywear Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elf would be without jurisdiction. In this case, however, even otherwise a fair procedure was not adopted. We, however, very much appreciate the anxiety on the part of the Court to see that otherwise just dues of SICOM be realized. Conduct of a party plays an important role in the matter of grant of a relief. However, only because the conduct of a party was not fair, the same, by itself, cannot be a ground to adopt a procedure which is unjust or unfair, particularly, when by reason thereof, not only the Company itself but also other creditors are seriously prejudiced. We fail to see any reason as to why the hearing of the case was to be prepound. Why even a day s time could not have been granted when a prayer for adjournment was made. The jurisdiction of the Company Court is vast and wide. It can inould its reliefs. It may exercise one jurisdiction or the other. It may grant a variety of reliefs to the parties before it. The parties before the Company Judge are not only the Company or the creditors who had initiated the proceedings but also others who have something to do therewith. Even in a given case a larger public interest may have to be kept in mind. The court may direct wind ..... X X X X Extracts X X X X X X X X Extracts X X X X
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