TMI Blog2011 (9) TMI 1181X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 10 of the Industrial Disputes Act, 1947, directing the employer to pay backwages to the workmen with effect from 6 February 1995 and to continue payment during the subsistence of the relationship of employer and employee between the parties. On 18 December 2006, a recovery certificate was issued by the Deputy Labour Commissioner at Bangalore in the amount of ₹ 4.44 crores towards the dues of the workmen under the award of the Industrial Tribunal. These dues, according to the Union, have been computed until 1999. Proceedings for the winding up of the Company were initiated before the Company Judge of this Court in 1996 (Company Petition 336 of 1996). Subsequently, on a reference made by the BIFR under Section 20(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, the Company Court held that it was just and equitable for the Company to be wound up. The Official Liquidator was appointed as provisional Liquidator by an order dated 6 October 2005 of the Company Judge to take charge of the books, assets and business of the Company and to exercise all necessary powers under the Companies Act, 1956. By an order dated 15 October 2008, the Company Judge made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e adjourned on 9 August 2006 to 21 August 2006. On 21 August 2006 bidding took place inter se between the two bidders, who submitted private offers, when the First and Second Respondents enhanced their bid to ₹ 2.50 crores. The meeting was adjourned to 5 September 2006 and the successful bidder was directed to make up an amount representing 25% of the offer by 28 August 2006. The Central Bank was not present. 5. A letter was addressed by the Receiver on 29 September 2006 to the Advocates for the two Banks enclosing a report seeking the confirmation of sale in favour of the First and Second Respondents in terms of their offer of ₹ 2.50 crores. The Banks were informed that the matter stood adjourned to 27 October 2006 when the sale may be confirmed. The sale in favour of the First and Second Respondents was confirmed on 27 October 2006. 6. On 30 October 2006, an application was filed by Central Bank of India for setting aside the sale. The Central Bank in its application complained that though the usual procedure which was followed by the Receiver was to intimate its Advocate of the next date of hearing, and though on 24 July 2006 the Bank had opposed the acceptance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the First and Second Respondents be set aside since no notice had been furnished to the Liquidator though the Registrar had directed that the Liquidator be brought on the record. 8. By an order dated 5 December 2006, the Recovery Officer set aside the confirmation of sale holding that it was obligatory to ensure that a higher price is fetched for the property and assets of a Company in liquidation, if the sale price offered by an auction purchaser is inadequate. The Recovery Officer held that he was entitled to set aside the confirmation in view of the higher offer which was received within a few days and before the sale deed was executed. Moreover, the Official Liquidator who had submitted a report dated 29 March 2005 was also required to be associated with the sale proceedings. Accordingly, the Recovery Officer directed, while setting aside the sale, that a fresh auction be conducted in the presence of all secured creditors, the Receiver and the Official Liquidator after notice. 9. Immediately after the sale was set aside on 5 December 2006, the Recovery Officer conducted a sale on the very same day. No fresh notification of sale was published. Bids were not invited from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he earlier bidders. 11. The order of the Tribunal was challenged in appeal by the First Respondent. The DRAT granted a stay on 26 February 2007 as a result of which the entire process of holding a fresh auction came to a stand still. Thereupon, an application was filed by Umrah Developers before the DRT to permit it to withdraw the amount which it had deposited. The application was rejected by the Tribunal. Thereafter, Umrah Developers took out an application before the DRAT for permission to withdraw the amount which was deposited. The DRAT by an order dated 20 March 2007 allowed Umrah Developers to withdraw 90% of its bid amount of ₹ 6.45 crores, leaving in balance ₹ 64.5 lakhs in deposit before the Recovery Officer. In support of the order, the DRAT furnished the following reasons: When the order was passed directing holding of a fresh auction in respect of the property, the party, whose bid has not been accepted as the highest bid or sale in his favour has been set aside cannot be in law as well as in equity prevented from withdrawing his deposit, specially when the entire purchase price was deposited by that party and the offer given by him cannot be said to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed the First and Second Respondents and restoring the confirmation of sale made in favour of the First and Second Respondents on 27 October 2006. 13. Both the Banks who are secured creditors before the Court have filed Petitions under Article 226 of the Constitution for questioning the order passed by the DRAT. As a matter of fact, the first Petition chronologically was instituted by the workers' Union to challenge the order of the DRAT. During the course of the hearing of these proceedings, the Court has been informed that an effort has been made by the First and Second Respondents to settle the outstanding dues of the workers through an out of Court settlement. Counsel appearing on behalf of the workmen submitted that the workmen would abide by the result of the Petitions which have been filed by the secured creditors and it is only in the event that the Petitions filed by the Banks are dismissed that the workers would be inclined to enter into an out of Court settlement with the First and Second Respondents. Counsel for the First and Second Respondents stated that his clients would be able to resolve the dispute with the workmen only if the Petitions filed by the secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be issued inviting fresh offers and an effort should be made to realise the best price. The valuation of the property was obviously flawed and even without a public notice, a bid with full payment of price in the amount of ₹ 6.45 crores was realized as against ₹ 2.50 crores offered by the First and Second Respondents. The submissions which were urged on behalf of Central Bank were supported by Counsel appearing on behalf of Standard Chartered Bank. The Standard Chartered Bank had, during the pendency of the proceedings, communicated by its letter dated 27 October 2006 that it was consenting to the confirmation of sale at a price of ₹ 2.50 crores. Counsel submitted that this letter was addressed by the Bank before a higher bid in the amount of ₹ 6.45 crores emerged on 5 December 2006 and consequently, the Bank should not be held down to the consent which it had offered at an earlier stage. 15. Ms. Cox appearing for the Union representing the Workers urged that it is the workers who have actively opposed the conduct of the sale proceedings as being unfair and unlawful. Counsel urged that even before the DRAT when the impugned order was passed, the worker ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence, in any event a live objection. 19. The record of the case reveals that the principal borrower, which is a Company incorporated under the Companies' Act, 1956, has been ordered to be wound up. A provisional Liquidator was initially appointed by an order of the Company Judge dated 6 October 2005. While passing an order of winding up on 15 October 2008, the Company Judge directed that the Liquidator shall act in accordance with law in relation to the assets of the Company in liquidation. The Official Liquidator placed his report dated 1 December 2006 on the file of the DRT contending that the sale which has been effected in favour of the First and Second Respondents ought to be set aside for the reason that no notice had been furnished to him. The DRAT in the course of its impugned order observed that the Liquidator who was appointed under the orders passed by the Company Court only had restricted powers to participate at the stage of the disbursement of the dues of the workmen. This efface is not a correct reading either of the order of the Company Judge dated 6 October 2005 by which a provisional Liquidator came to be appointed or of the final order dated 15 October 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrower. While the movable assets were sold, the immovable property could not be sold. On 24 July 2006, a meeting was convened by the Receiver appointed by the DRT at which there were two private bids in the amount of ₹ 1.10 crores and ₹ 80 lakhs respectively. The Central Bank which is a secured creditor opposed the acceptance of the bid. On 21 August 2006, bidding took place inter se between the two bidders at which the First and Second Respondents enhanced their bid to ₹ 2.50 crores. On 29 September 2006, a letter was addressed by the Receiver to the Central Bank stating that the proceedings would come up on 27 October 2006 for confirmation of sale. According to the Central Bank, it had in the meantime, received two bids respectively in the amount of ₹ 2.55 crores and ₹ 3 crores for the purchase of the property. The Central Bank in its application dated 30 October 2006 made a serious grievance of the fact that the confirmation of sale on 27 October 2006 took place behind its back because though it was informed by the Receiver that the confirmation hearing would take place at 4 p.m., the Receiver proceeded to confirm the sale at 11 a.m. prior to the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... August 2003 under which the principal borrower is liable to pay an amount of ₹ 1.12 crores together with interest at the rate of 12% per annum. The dues of the workmen arise out of the award of the Industrial Tribunal. The recovery certificate in favour of the workmen shows that an amount of ₹ 4.44 crores was due and payable. The amount due under the recovery certificate dated 18 December 2006 is, according to Counsel for the workmen, computed as of 1999. The principal borrower has been ordered to be wound up under the orders passed by this Court. The workmen would be entitled to their dues as of the date of winding up. The basic question which has to be addressed by the Court is as to whether the sale process has been fair, proper and transparent and as to whether the price that has been realized is reflective of a reasonable value of the property. We are of the view that the manner in which the sale process was conducted is anything but fair. The Receivers have cast aside every norm of prudence. They failed to act in a transparent manner and elevated a private preference to an overriding priority. As a result, the necessity of selling property at a public auction at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubt or dispute that when an auction is held upon compliance of the statutory provisions, withholding of auction on the ground that still higher price may be obtained may prove to be selfdefeating exercise as has been held in Kayjay Industries Pvt. Ltd. v. Asnew Drums Pvt. Ltd. AIR 1974 SC 1331 and State of Punjab v. Yoginder Sharma Onkar Rai Company and Ors. (1996) 6 SCC 173 Equities which are created in favour of a bidder who submits a bona fide bid which is found at the end of a transparent sale process to be the highest bid have to be preserved. At the same time, it is necessary that the sale process must be conducted with transparency and in accordance with law. In the present case, we find that the element of transparency was completely lacking. The grounds which weighed with the DRAT in setting aside the order of the Tribunal are misconceived. The DRAT, as we have noted earlier, was of the view that the powers of the Liquidator were restricted by the Company Court to participate at the stage of disbursement of the dues. This efface is an incorrect reading of the orders passed by the Company Court. The DRAT has found fault with the Central Bank for having remained absent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of all the above, the conclusion of the DRAT that there was no material irregularity is specious. A case for interference under the jurisdiction of this Court is made out. 23. For these reasons, we allow the petitions by setting aside the order of the DRAT dated 3 March 2011. We direct that the Recovery Officer attached to the DRT to issue a public advertisement which shall be published in at least two newspapers, one in English and another in Kannada having circulation in Mysore, inviting bids for the sale of the property. The terms and conditions governing the sale shall be laid down by the Recovery Officer of the DRT, and a fresh valuation shall be carried out on the basis of which the reserve price of the property shall be fixed. We record the statement made on behalf of the Central Bank and the Standard Chartered Bank by their Counsel that both the Banks shall cooperate with the Recovery Officer and shall meet all the expenses of the sale, including towards newspaper advertisements. On the request of the two banks, we further clarify that if the Banks are ready and willing to meet the expenses for the issuance of a publication in any additional newspapers, that shall ..... X X X X Extracts X X X X X X X X Extracts X X X X
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