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CASE NO.:

Appeal (civil) 5199-5201 of 2004

PETITIONER:

M/s NGEF Ltd.

RESPONDENT:

M/s Chandra Developers Pvt. Ltd. & Anr.

DATE OF JUDGMENT: 29/09/2005

BENCH:

S.B. Sinha & C.K. Thakker

JUDGMENT:

JUDGMENT

WITH

CIVIL APPEAL NO.5202 TO 5205 OF 2004

S.B. SINHA, J :

These appeals are directed against a common judgment and order

dated 5.1.2004 passed by a Division Bench of the Karnataka High Court in

O.S.A. Nos.67, 68 and 70 of 2003 whereby and whereunder a judgment and

order dated 8.10.2003 passed by a learned Company Judge in C.A. No. 771

of 2003 was affirmed.

Background fact :

NGEF Ltd., (for short, 'the Company') herein, was a joint venture of

the Government of Karnataka, holding 90.18% shares and EHG Electro-

holding GMBH holding 9.72% shares therein. The Company became sick,

whereupon a reference was made to the Board for Industrial and Financial

Reconstruction (for short, 'BIFR') in terms of the provisions of the Sick

Industrial Companies (Special Provisions) Act, 1985 (for short, 'SICA'). It

is not in dispute that virtually all its assets had been placed either under

mortgage and/or offered as collateral security to various financial institutions

amongst which the State Bank of Mysore was the lead bank.

It is furthermore not in dispute that from time to time the Company

with the permission of BIFR and its secured creditors has been selling some

of its surplus lands, inter alia, for the purpose of paying wages to the

workers and refund of loans to the financial institutions etc. It had sold

29.225 acres of land to the Nuclear Power Corporation for a sum of Rs.63.65

crores; 1.65 acres of land to CDAC for about Rs.4.29 cores and 0.625 acres

of land to Indian Oil Corporation for Rs.1.63 crores. All the vendees were

public sector undertakings.

It is also not in dispute that the State of Karnataka took a decision to

make disinvestment of its shares in the said Company pursuant whereto or

in furtherance whereof global tenders were invited by it in terms of an

advertisement dated 15.9.2001. The First Respondent herein, Chandra

Developers Pvt. Ltd. (for short, 'Chandra Developers') submitted its bid for

purchase of 40.45 acres of land offering the price of Rs.125/- per sq. ft.

which was later enhanced to Rs.278 per sq. ft. Allegedly, valuation of lands

had been done by Tata Economic Consultancy Services and Ernst & Young

Pvt. Ltd. The offer of the First Respondent was said to have been accepted

by the Board of Directors in its meeting dated 25.2.2002. The Company, it

appears, has also submitted an application to BIFR as regard progress made

by it in its attempt to privatize the Company, and praying for a direction to

the financial institutions to release their charge over the assets of the

Company so as to enable it to sell its surplus lands. BIFR, however, upon

considering the matter in some details by its order dated 19.4.2002 opined

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that the Company cannot be revived.

Before BIFR some of the parties pleaded that the Company should not

be wound up but BIFR decided to recommend winding up of the company

and sent the same to the High Court. As regard request of the Company for

sale of its assets, an observation was made by BIFR in its order dated

24.08.2002 that the Company would have to seek an appropriate direction

from the concerned High Court.

Proceedings before the High Court :

Upon receipt of the said recommendations, the High Court of

Karnataka registered the same as Company Petition No. 154 of 2002. The

Respondent herein filed an application before the learned Company Judge of

the High Court purported to be under Rules 6 & 9 of the Companies (Court)

Rules praying for a direction upon the Company to execute a deed of sale in

its favour in respect of the said 40.45 acres of land relying on or on the basis

of the said purported resolution dated 25.02.2002, alleging that the same

constituted a concluded contract between the parties. Objections to the said

application were filed by the Appellants herein.

By reason of an order dated 8.10.2003, the said application was

allowed on the premise that the agreement between the Chandra Developers

and the Company constituted a concluded contract in relation to sale of

40.45 acres of land. A Review Application was filed by the Appellant

herein which came to be dismissed. Three appeals were preferred from the

said order viz. by the EHG, State Bank of Mysore and the Company before

the Division Bench of the High Court which came to be dismissed by reason

the impugned Judgment.

However, the learned Company Judge appears to have dismissed an

identical application filed by M/s Salapuria Housing (P) Ltd. being C.A.

No.1589 of 2003, which had been relied upon by the First Respondent

herein in its application, holding that the Company Court had no such

jurisdiction.

Submissions :

Mr. T.R. Andhiyarujina, the learned Senior Counsel appearing on

behalf of the Appellants, in Civil Appeal Nos. 5199-5201 of 2004, would,

inter alia, contend that the learned Company Judge and the Division Bench

of the High Court misdirected themselves in passing the impugned judgment

and order insofar as they failed to take into consideration that BIFR retains

the control over the assets of the company in terms of sub-section (4) of

Section 20 of SICA and, thus, it was BIFR alone which could issue a

direction as regard sanction of sale of assets of the company in respect

whereof the learned Company Judge had no jurisdiction. In any event, the

learned Company Judge had no jurisdiction to issue any direction to the

Company to execute a deed of sale which amounted to grant of a decree for

specific performance of contract. In any view of the matter, the finding of

the Company Judge to the effect that there existed a concluded contract

between the First Respondent and the Company is wholly erroneous.

Mr. Sundara Varadan, the learned Senior Counsel appearing for the

State Bank of Mysore appearing in Civil Appeal Nos.5203-05 of 2004,

supplemented the submissions of Mr. Andhyarujina, contending that the

learned Company Judge had a duty, in larger interest of the creditors, to

obtain the best price for the lands sold. Our attention, in this connection, has

been drawn to the fact that the total dues of the secured creditor banks and

financial institutions as on 26.02.2003 was Rs.5825.31 lakhs towards fund

based facilities and Rs.522.93 lakhs towards non-fund based facilities and,

thus, the consideration amount was not sufficient to meet the liabilities of

the Company. The contentions raised by the State Bank of Mysore, the

learned counsel would submit, as contained in various paragraphs of the

objections had not been taken into consideration either by the Company

Judge or by the Division Bench of the High Court. The learned counsel

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would urge that assuming that such contentions had not been raised during

argument as was observed by the Division Bench, it was the duty of the

Company Judge to take into consideration those aspects of the matter. It

was urged that the considerations which arise before a Company Judge for

confirmation of sale are relevant factors for the purpose of directing

execution of a deed of sale even in a private transaction.

The learned counsel would argue that had a suit for specific

performance of contract been filed by a vendee against the Company, the

latter as also the Government of Karnataka could have raised several

contentions including one that the court should not in the facts and

circumstances of the case exercise its discretionary jurisdiction in favour of

the First Respondent herein. It was argued that having regard to the

statutory scheme and in particular the provisions contained in Sections 443,

446 and 447 read with Section 529-A of the Companies Act, 1956 the

Company Judge cannot be held to have any inherent power to direct the

Company to execute a deed of sale; and more so whence a Provisional

Liquidator had not been appointed. Such a direction could only be issued to

the Official Liquidator.

The First Respondent herein was represented by Mr. Dushyant A.

Dave, Mr. Udaya Holla and Mr. K.K. Venugopal. Mr. Dave would

submit that the power of the Company Judge as also BIFR being

concurrent, the latter could ask the company to approach the High Court for

a direction as regard sale of its surplus lands. The learned counsel would

contend that in view of the fact that global tenders had been invited and the

same having been accepted by the learned Company Judge, this Court may

not exercise its jurisdiction under Article 136 of the Constitution of India.

Mr. Dave would argue that the statutory scheme envisages various

stages of winding up as would appear from Section 456(1), sub-sections (1)

and (3) of Section 150, Sections 457, 446(2) and Section 536(2) of the

Companies Act, in terms whereof the learned Company Judge had the

requisite jurisdiction to direct sale of lands in a case of this nature. Relying

on or on the basis of a decision of this Court in M/s Kayjay Industries (P)

Ltd. vs. M/s Asnew Drums (P) Ltd. and Others [(1974) 2 SCC 213], the

learned counsel would contend that the discretion exercised by the learned

Company Judge cannot be said to be arbitrary meriting interference by this

Court.

Mr. Holla, has drawn our attention to a letter of the Government of

Karnataka dated 30.07.2002, and submitted on the basis thereof that the

Government of Karnataka had agreed to grant approval to such sale by

mutual agreement by asking the Company to approach the High Court for

the said purpose. Our attention has specifically been drawn to the orders

passed by BIFR, the learned Company Judge as also the Division Bench of

the High Court to show that apart from advancing an argument that

application for according sanction for sale of land could only have been

filed before BIFR, no other contention had been raised by the Appellants

herein.

Mr. Holla would submit that even Article 100 of the Memorandum

of Association of the Company to which a reference has been made by this

Court while issuing notice on 8.3.2004 is not attracted as in terms thereof

approval of the Government was not necessary.

It has, however, been contended that a new Memorandum of Articles

of Association has come into being; clause (6) of Article 100 whereof is as

under :

"(6) To let, mortgage, charge, sell or otherwise

dispose of, subject to the provisions of section 293

of the Act, any property of the Company either

absolutely or conditionally and in such manner and

upon such terms and conditions in all respects as

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they think fit and to accept payment or satisfaction

for the same in cash or otherwise, as they think

fit."

Thus, in terms of the said provision, the approval of the Government

of Karnataka was not necessary.

It was submitted that the court has inherent power to direct sale of

assets of a company during the pendency of winding up proceedings even

before the winding up order is passed in terms of section 536(2) of the

Companies Act.

It is further submitted that sanctity of an auction sale should be

maintained and in the event auctions are set aside and re-auctions are

ordered on less satisfactory material, loss to exchequer would be far greater.

Mr. K.K. Venugopal, the learned Senior Counsel, would submit that

having regard to sub-section (2) of Section 536 of the Companies Act, the

High Court has the jurisdiction to permit sale of assets of the company even

before passing of the winding up order, in relation whereto Section 20(4) of

SICA will have no application.

It was urged that the provisions of both the statutes must be read

together and so read, it would be manifest that when a winding up

proceeding is initiated under the recommendations of BIFR in terms of

Section 20(1), the power of the Company Court to order approval of a

disposition, prior to passing of winding up order, would not in any manner

be affected by the provisions of SICA, in view of the provisions contained

in sub-section (2) thereof whereby and whereunder the Company Court has

been empowered to proceed with the winding up of the sick industrial

company in accordance with the provisions of the Companies Act, 1956. As

regard application of sub-section (4) of Section 20 of SICA, it was urged

that thereby the right of BIFR is also preserved for issuing any necessary

direction as regard sale of the assets of the company and by reason thereof

the jurisdiction of the Company Court has not been taken away. The learned

counsel would contend that the provisions of SICA did not intend to denude

the Company Court of its power under Section 536(2) read with Rule 9 of

the rules; once the recommendations for winding up by BIFR are made. On

the other hand, Section 20(2) and Section 22-A of SICA acknowledge the

powers of the Company Court and in that view of the matter there being no

inconsistency between the Companies Act and SICA, Section 32 thereof

will have no application.

As regard the requirement of the approval of the Government of

Karnataka, it was urged that the Articles of Memorandum of Association of

the Company cannot control and render ineffective the exercise of statutory

power under the Companies Act and in that view of the matter as the High

Court has approved sale in favour of the First Respondent after examining

the documents, it is not open to the Government of Karnataka to act as an

Appellate Authority thereover.

Relevant provisions of the Companies Act, 1956, Companies (Court)

Rules, 1958 & SICA :

The provisions relating to winding up by the courts occur in Chapter

II of the Companies Act, 1956. Section 433 of the Act enumerates the

circumstances in which company may be wound up by the court including

inability on the part of the company to pay its debts. Section 441 of the Act

specifies as to when the proceeding for winding up of a company by the

court shall commence at the time of the presentation of the petition for the

winding up. In a case, however, where winding up proceedings are initiated

in terms of recommendations made by BIFR or AAIFR, as the case may be,

no such petition is required to be presented. Section 443 lays down the

power of a court on hearing petition; clause (d) of Sub-section (1) whereof

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provides for a power to make an order for winding up of the company with

or without costs or any other order that it thinks fit. Section 444 lays down

the consequences of winding up order. In terms of Section 446 of the Act, in

the event of passing of a winding up order or appointment of liquidator as

provisional liquidator, no suit or legal proceeding would commence or if

pending at the date of the winding up order, shall not be proceeded with

against the company except by leave of the court and subject to such terms

as the court may impose. Sub-section (2) of Section 446 provides for a non-

obstante clause, in terms whereof the company court shall have jurisdiction

to entertain or dispose of any suit or proceedings specified therein. Section

451 lays down general provisions as to liquidators. Section 457 specifies the

power of the liquidator which is required to be exercised with the sanction of

the court. Sub-section (2) of Section 536 reads as under:

"536. Avoidance of transfers, etc., after

commencement of winding up.

xxx xxx xxx

(2) In the case of a winding up by the

Tribunal any deposition of the property (including

actionable claims) of the company, and any

transfer of shares in the company or alteration in

the status of its members, made after the

commencement of the winding up, shall unless the

Tribunal otherwise orders, be void."

Rules 6, 9 & 99 of Companies (Court) Rules, 1959 read as under :

"6. 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."

"9. Inherent powers of Court.- Nothing in these

Rules shall be deemed to limit or otherwise affect

the inherent powers of the Court to give such

directions or pass such orders as may be necessary

for the ends of justice or to prevent abuse of the

process of the Court."

"99. Advertisement of petition.-Subject to any

directions of the Court, the petition shall be

advertised within the time and in the manner

provided by Rule 24 of these Rules. The

advertisement shall be in Form No.48."

Sub-sections (1), (2) and (4) of Section 20, Section 22A & Section

32(1) of SICA read as under :

"(1) Where the Board, after making inquiry

under section 16 and after consideration of all the

relevant facts and circumstances and after giving

an opportunity of being heard to all concerned

parties, is of opinion that the sick industrial

company is not likely to make its net worth exceed

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the accumulated losses within a reasonable time

while meeting all its financial obligations and that

the company as a result thereof is not likely to

become viable in future and that it is just and

equitable that the company should be would up, it

may record and forward its opinion to the

concerned High Court.

(2) The High Court shall, on the basis of the

opinion of the Board, order winding up of the sick

industrial company and may proceed and cause to

proceed with the winding up of the sick industrial

company in accordance with the provisions of the

Companies Act, 1956.

(4) Notwithstanding anything contained in

sub-section (2) or sub-section (3), the Board may

cause to be sold the assets of the sick industrial

company in such manner as it may deem fit and

forward the sale proceeds to the High Court for

orders for distribution in accordance with the

provisions of section 529A, and other provisions of

the Companies Act, 1956."

"22-A. Direction not to dispose of assets. \026

The Board may, if it is opinion that any direction is

necessary in the interest of the sick industrial

company or creditors or shareholders or in the

public interest, by order in writing, direct the sick

industrial company not to dispose of, except with

the consent of the Board, any of its assets \026

(a) during the period of preparation or

consideration of the scheme under section 18; and

(b) during the period beginning with the

recording of opinion by the Board for winding up

of the company under sub-section (1) of section

20 and up to commencement of the proceedings

relating to the winding up before the concerned

High Court."

"32. Effect of the Act on other laws.- (1)

The provisions of this Act and of any rules or

schemes made thereunder shall have effect

notwithstanding anything inconsistent therewith

contained in any other law except the provisions of

the Foreign Exchange Regulation Act, 1973 and

the Urban Land (Ceiling and Regulation) Act,

1976 for the time being in force or in the

Memorandum or Articles of Association of an

industrial company or in any other instrument

having effect by virtue of any law other than this

Act.

Approval of State :

The First Respondent herein admittedly filed an application for

direction to the Company to execute a deed of sale, inter alia, on the premise

that a concluded contract had been entered into by and between it and the

Company purporting to be relying upon or on the basis of the resolution

dated 25.02.2002 of the Board of Directors of the Company. It is not in

dispute that along with the said application while annexing the copy of the

resolution, the following sentence had been omitted.

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"MD stated that the Board decision for the above

sale will be forwarded to the Government of

Karnataka and seek their formal approval."

The First Respondent, as noticed hereinbefore, has relied upon a

Government Order issued by the Government of Karnataka dated

30.07.2002, which reads as follows :

"The company shall wind up the loan amount

sanctioned to it by the Government in full from the

proceeds of sale of assets of NGEF Ltd; and

It is, however, not in dispute that although the said Government Order

was placed before BIFR, the same was not placed either before the

Company Judge or before the Division Bench of the High Court. The First

Respondent furthermore relies upon a letter filed in Civil Appeal Nos.5203-

05 of 2004, to show that the Government of Karnataka granted implied

approval as the Company was asked to approach the High Court. It,

however, stands admitted that the First Respondent herein, offered its bid

pursuant to or in furtherance of an advertisement issued by the Government

of Karnataka and not by the Company.

BIFR, indisputably by an order dated 02.08.2002 stated :

"17. Shri M. Gowda, DS, GOK submitted that

GOK had decided to close the company subject to

approval of BIFR and GO had been issued in this

connection on 30.07.2002. The company has

cleared all the dues of FIs under OTS. The

working capital dues are secured by Govt.,

guarantee both for fund based and non-fund based

dues. Shri Gowda requested that permission be

accorded to the company to sell the remaining

assets in a transparent manner and discharge the

liabilities of the secured creditors, employees and

other creditors within a reasonable time. On a

query from the Bench, Shri Gowda clarified that

the funds for VRS would be provided by the State

Government.

18. Shri Govind Raj, MD of the company

submitted that GOK had decided to close down the

unit. The company had been assured adequate

funds from the State Govt., for VRS. The

company was having some problem in sorting out

the outstanding issued with FIs, so much so that

IFCI was demanding a sum of Rs.25,000/- for

issuing NOC even though their dues have been

fully paid. The company was not able to fulfill the

condition of working capital bankers for

converting their second charge on the assets of the

company into first charge because of non-

cooperation of FIs. Canara Bank Financial

Services were also not issuing NOC. The

company had sought permission to sell all the

assets to generate funds to pay the workers dues,

VRS dues, the dues of secured creditors and

others. The Bench noted that the company would

have to seek further directions in the matter from

the concerned High Court".

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BIFR evidently, thus, asked the Company to approach the High Court

if an occasion arises for obtaining sanction for disposing of its surplus lands.

The First Respondent herein was not a party before BIFR. Before the

Company Judge, however, it is the First Respondent herein, who filed the

said application and, as indicated hereinbefore, obtained an order from the

Company Judge by suppression of material fact that the Managing Director

of the Company, having regard to the aforementioned resolution dated

25.02.2002 stated that the approval of the Government of Karnataka would

be sought for.

The Order issued by the Government of Karnataka on 30.07.2002

does not suggest either expressly or by necessary implication that it had

granted its approval for the said sale. Whether such sanction was necessary

is, however, another question which we shall advert to a little later.

We may at this juncture notice that arguments had been raised before

the Division Bench of the High Court that the Government of Karnataka had

not approved the said transaction which is itself a pointer to the fact that the

Appellants herein never accepted that there had been a concluded contract.

It is also not correct to contend that the company will be acting as an

appellate authority over the High Court, if its approval is sought for. The

question should, in fact, be considered from a different angle. An application

before the Company Judge, if at all, was maintainable only upon obtaining

the approval of the Government of Karnataka and if such approval is

granted, then only it would constitute a concluded contract.

It is accepted that the advertisement was issued by the State in the

following terms :

"While preference would be given for bids offering

purchase of entire unit. GOK reserves the right to

accept/reject any of the offers. A party can bid for one or

more alternatives."

In terms of the said advertisement, thus, the State reserved unto itself

the right to accept or reject the said offer. If the bid had been made pursuant

to the said advertisement indisputably the State's approval was necessary.

In any event the records were required to be placed before the State so as to

enable it to apply its mind as to whether offer should be accepted or not.

The submission of Mr. Venugopal that in the event if it be held that

the company's approval was necessary, the same would be contrary to the

statutory power of the Company Court is, thus, misconceived.

It is also not correct to contend that the question as regard the

concluded contract was not raised by the Appellants herein. In fact, the

Company filed a Review Petition before the Company Judge on 30.10.2003

wherein it was clearly averred that such a submission was not made in view

of the observations of the learned Company Judge during the course of

hearing that the issue whether there existed concluded contract would not be

determined and as such there existed an error on the face of its order dated

8.10.2003.

The very fact that original advertisement was issued by the

Government of Karnataka and there existed such a clause in the

Memorandum of Association of the Company is suggestive of the fact that

the Board of Directors of the Company proceeded on the basis that such

approval of the Government of Karnataka was imperative.

Jurisdiction of the Company Court :

The provisions of SICA contain non-obstante clauses. It is a special

statute. It is a complete code in itself. The jurisdiction of the Company

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Court in such matters would arise only when BIFR or AAIFR, as the case

may be , has exercised its jurisdiction under Section 20 of SICA

recommending winding up of the company upon arriving at a finding that

there does not exist any chance of revival of the company.

Mr. Venugopal has placed reliance upon a decision of a learned Single

Judge of the Karnataka High Court in Karnataka State Industrial Investment

and Development Corporation Ltd. vs. M/s Intermodel Transport

Technology Systems and Others [AIR 1998 (Karnataka) 195] for the

proposition that despite the fact BIFR retains jurisdiction to get the assets of

a sick company sold in terms of sub-section (4) of Section 20 of SICA; still

the leave of the Company Court, therefore would be required. The said

decision, however has been reversed by the Division Bench of the Karnataka

High Court in BPL Limited, Bangalore vs. Intermodal Transport

Technology Systems (Karanataka) Limited, Bangalore (In Liquidation) and

Others. [2001 (3) Kar.L.J. 622 (DB)], holding that the company Court has

no such jurisdiction. We generally accept the views of the Division Bench.

It is difficult to accept the submission of the learned counsel

appearing on behalf of the Respondents that both the Company Court and

BIFR exercise concurrent jurisdiction. If such a construction is upheld, there

shall be chaos and confusion. A company declared to be sick in terms of

the provisions of SICA, continues to be sick unless it is directed to be wound

up. Till the company remains a sick company having regard to the

provisions of sub-section (4) of Section 20, BIFR alone shall have

jurisdiction as regard sale of its assets till an order of winding up is passed

by a Company Court.

Apart from the fact that sub-section (4) of Section 20 contains a non-

obstante clause and, thus, it shall prevail over the provisions contained in

sub-section (2). The said Act is also a latter statute.

The provisions of SICA would prevail over the provisions of the

Companies Act. Section 20 of SICA relates to winding up of the sick

industrial company. Before BIFR or AAIFR, as the case may be, makes a

recommendation for winding up of the company, an enquiry is made in

terms of Section 16 thereof wherefor all relevant facts and circumstances are

required to be taken into consideration. Before an opinion is arrived at in

that behalf, the parties are given an opportunity of hearing. The satisfaction

arrived at by BIFR that the company is not likely to become viable in future

and it is just and equitable that the company should be wound up must be

based on objective criteria. The High Court indisputably on receipt of such

recommendation of BIFR would initiate a proceeding for winding up in

terms of Section 433 of the Companies Act. Sub-section (2) of Section 536

ipso facto does not confer any jurisdiction upon the Company Court to direct

sale of the assets of the sick company. It has to exercise its power

thereunder subject to the provisions of the special statute governing the field.

Despite the fact that the procedures laid down under the Companies Act

would be applicable therefor but they must be read with sub-section (4) of

Section 20 of SICA which contains a non-obstante clause and in terms

thereof, BIFR is authorized to sell the assets of the sick industrial company

in such a manner as it may deem fit. By reason of the said provision, BIFR

is also empowered to forward the sale proceeds to the High Court for orders

for distribution in accordance with Section 529-A and other provisions of the

Companies Act which in no uncertain terms would mean that the distribution

of the sale proceeds would be for the purpose of meeting the claims of the

creditors in the manner laid down therein. The intention of the Parliament in

enacting the said provision becomes clear as in terms of Section 22-A of

SICA, BIFR is empowered to issue any direction in the interest of the sick

industrial company or its creditors or share-holders and direct the sick

industrial company not to dispose of its assets except with its assent.

Section 32, as noticed hereinbefore, again contains a non-obstante clause.

The scheme suggests that BIFR retains control over the assets of the

company and in terms of the aforementioned provisions may either prevent

any sale or permit any sale of the assets of the sick industrial company.

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Such a power in BIFR remains till a winding up order is passed by the High

Court and a stage arrives at for the High Court for issuing orders for

distribution of the sale proceeds.

SICA was furthermore enacted subsequent to the provisions of the

Companies Act. It is not, thus, possible to accept the submission that the

High Court exercises a concurrent jurisdiction.

It may be true that the High Court's jurisdiction is that of the

Appellate Authority but keeping in view the terminology contained in sub-

section (4) of Section 20 read with Section 32 of the Act leaves no manner

of doubt that the provisions of SICA shall prevail over the provisions of the

Companies Act. For the aforementioned purpose, it was not necessary for

the Parliament to mention specifically the provisions of sub-section (4) of

Section 20 that the same shall prevail over Section 536 of the Companies

Act, as was suggested by the learned counsel appearing for the First

Respondent. The construction of the provisions of both the Acts, as

suggested by the learned counsel, that both the provisions of sub-section (4)

of Section 20 and Section 536 should be read conjointly so as to enable an

applicant to obtain a sanction of both BIFR and the Company Court, thus,

do not appeal to us.

It is inconceivable that in law not only the approval will have to be

taken from both the courts; in case of any private sale, the Company will

have to obtain the consent of both the Company Court or BIFR. While

interpreting the provisions of the two statutes, the court cannot remain

oblivious of the fact that in a given case, possibility of a conflict in the

orders passed by the two courts may arise, which must be avoided.

It is interesting to note that a learned Single Judge of the said Court

dismissed a similar application filed by M/s Salapuria Housing (P) Ltd.

although the First Respondent's application categorically mentions about the

pendency of the said application.

Inherent Power :

The Company Court has inherent power. Such inherent power of the

Company Court is saved in terms of Rules 7 and 9 of the Companies (Court)

Rules. The Company Court, therefore, may have the requisite jurisdiction to

approve sale of the assets of a company but the question which arises for

consideration is as to whether such inherent power can be exercised despite

existence of a provision contained in another statute..

Section 32 of SICA contains a non-obstante clause stating that

provisions thereof shall prevail notwithstanding anything inconsistent with

the provisions of the said Act and of any rules or schemes made thereunder

contained in any other law for the time being in force. It would bear

repetition to state that in ordinary course although the Company Judge may

have the jurisdiction to pass an interim order in exercise of its inherent

jurisdiction or otherwise directing execution of a deed of sale in favour of an

applicant by the Company sought to be wound up; but keeping in view the

express provisions contained in sub-section (4) of Section 20 of SICA such

a power, in our opinion, in the Company Judge is not available. [See BPL

Limited (supra).

We may, however, observe that the opinion of the Division Bench in

BPL Limited (supra) to the effect that the winding up proceeding in relation

to a matter arising out of the recommendations of BIFR shall commence

only on passing of an order of winding up of the company may not be

correct. It may be true that no formal application is required to be filed for

initiating a proceeding under Section 433 of the Companies Act as the

recommendations therefor are made by BIFR or AAIFR, as the case may

be, and, thus, the date on which such recommendations are made the

Company Judge applies its mind to initiate a proceeding relying on or on the

basis thereof, the proceeding for winding up would be deemed to have been

started; but there cannot be any doubt whatsoever that having regard to the

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phraseology used in Section 20 of SICA that BIFR is the authority proprio

vigore which continues to remain as custodian of the assets of the Company

till a winding up order is passed by the High Court.

Some precedents on court's power:

The decisions of the Karnataka and Bombay High Courts reported in

Smt. Usha R. Shetty and Others vs. Radeesh Rubber Pvt. Ltd. and Another

[1995 (84) CC 602] and Kamani Metallic Oxides Limited vs. Kamani Tubes

Limited [1984 (56) CC 19], relied upon by Mr. Holla cannot be said to have

any application in the instant case. The other decisions cited at the bar

taking the similar view also have no application.

In Buckley on the Companies Acts , the law is stated, thus :

"When the application should be made.- In an

early case it was argued that the sanction of the court

should be obtained before the transaction is entered into

and cannot be given afterwards, but Malins VC,

disagreed, 'for it would be almost impossible that

directions could from time to time be obtained; but when

the matter is brought before the court, it must have regard

to all the surrounding circumstances'. Vaisey J agreed

that the object of the section is that, if a winding up order

is made, any transaction which has been entered into

since the commencement of the winding up shall be

subject to review by the liquidator and held that he had

no jurisdiction while the petition was pending. Roxburgh

J went to the other extreme and on an application made

after the winding up order refused to validate the

transaction on the ground that the applicant ought to have

applied before the transaction was entered into. Buckly J

held that he had jurisdiction to sanction and did sanction

while the petition was pending a proposed transaction

which on any possible view would be beneficial to the

creditors, one of the objects of the section being to

protect the interests of the creditors during the pending of

the petitions. Since this last decision such orders have

regularly been made, normally in one of two cases: the

first being where the proposed transaction is not in the

ordinary course of business (as in the case last cited) and

the second where it is necessary to persuade the

company's bankers to unfreeze the account in order to

enable the business to be carried on."

In Pankaj Mehra and Another vs. State of Maharashtra and Others

[(2000 (2) SCC 756] whereupon the learned counsel appearing on behalf of

the First Respondent placed strong reliance, construction of sub-section (2)

of Section 536 of the Companies Act came up for consideration and it was

held that having regard to the phraseology used therein, the transaction

shall be void unless the court otherwise orders. It is interesting to note that

in para 19 thereof, this Court noticed the principles laid down in Gray's Inn

Construction Col. Ltd., Re [1980 (1) All.E.R. 814 (CA)] emphasizing the

point that the courts would be very circumspect in the matter of validating

the payments and the interests of the creditors as well as the company would

be kept uppermost in consideration. Thus, a disposition of assets during the

interregnum may not be irretrievably void but the courts are required to

exercise power with circumspection and caution.

Jurisdiction of the Company Court, if any, how should be exercised :

Assuming that the Company Court alone has the jurisdiction to

sanction sale of the assets of a sick company, it having regard to its duties

towards the debtors was required to apply its mind as regard the question as

to whether the disposition of the asset of the company is in the interest of its

creditors. In this case, the company was not the applicant. It did not join the

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First Respondent in its application. It had all along resisted its claim.

In the winding up proceeding no order admitting the petition was

passed at the relevant time. Order admitting the petition was passed much

later. Even no provisional liquidator was appointed.

Reliance has been placed on a decision of the learned Single Judge of

the Allahabad High Court in Bengani Food Products Private Ltd. vs. Official

Liquidator and Others [1998 (94) CC 762] wherein it was held that the court

has the jurisdiction to approve the disposition of the property provided it is

found that the scheme or proposal which has been put forward is a viable

scheme and would be in the interest of the creditors as well as beneficial for

the general public.

It may be true that therein the Allahabad High Court was considering

the case involving a sick industrial company but the questions which have

been raised herein were not raised there. The High Court considered the

prayer made in the application and was of the opinion that the proposal

given by the applicant was not a viable one for the benefit of the company or

its creditors. In the instant case, the said relevant factors were also not

considered by the High Court.

In Sudarsan Chits (I) Ltd. vs. O. Sukumaran Pillai and Others [(1984)

4 SCC 657], this Court observed :

"10. The Appellate Bench declined to direct the

Provisional Liquidator to file claim petition at the

instance of the Company under Section 446(2)(b) on the

sole ground that such a petition at the instance of the

Liquidator would be maintainable in the course of

winding up of proceedings which means that the

winding-up proceedings are pending. Undoubtedly,

Section 446(1) manifests the legislative intention that the

procedure thereunder prescribed could be availed of

when the winding-up order has been made or where the

Official Liquidator is appointed as the Provisional

Liquidator. Section 446(1) envisages two situations in

which the court will have jurisdiction to make the order

thereunder contemplated. These two situations are: where

a winding-up order has been made or where the Official

Liquidator has been appointed as Provisional Liquidator.

The first of the two situations envisages an order for

winding-up of the company having been made and which

is subsisting. The second situation is where without

making a winding-up order, the court has appointed

Official Liquidator to be the Provisional Liquidator.

Section 450(1) of the Companies Act confers power on

the Company Court to appoint Official Liquidator to be

Provisional Liquidator at any time after the presentation

of the winding-up petition and before making of the

winding-up order. The court before which a winding-up

petition is presented has power to appoint Official

Liquidator as Provisional Liquidator of the company

even before making the winding-up order. If ultimate

winding-up order is made, the Official Liquidator acts as

such. And let it be remembered that where a winding-up

order is made, it relates back to the date when petition for

winding-up is presented. Referring to Section 446(1) it

becomes clear that the court will have jurisdiction to

make the order therein contemplated, where a winding-

up order has been made or prior to the making up of the

winding-up order, Official Liquidator has been appointed

as Provisional Liquidator as contemplated by Section

450(1)."

Once the Company Judge proceeds to direct disposition of assets of

the Company whether during pendency of the proceedings or upon

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culmination thereof, ordinarily a provisional liquidator is appointed.

There lies a distinction between accord of sanction for private

negotiation of sale of assets of the Company vis-`-vis the auction held by the

Official Liquidator. It is not in dispute that no Provisional Liquidator was

appointed. The court may have an inherent power to approve a transaction

of sale entered into by and between the Company and the third party; but it

is beyond any cavil of doubt that while doing so the Company Court must

bear in mind its duties towards the creditors. While exercising jurisdiction

under Section 433 of the Companies Act, the Company Court remains the

custodian of the interest of the Company and its creditors. It has, thus, a

duty to satisfy itself that having regard to the market value of the property,

the price offered is reasonable. [See M/s Kayjay Industries (P) Ltd.

(supra)]. It is further more required to be borne in mind that upon

liquidation, the assets and properties of the Company vest in the Official

Liquidator for the benefit of its creditors. [See Allahabad Bank and Others

vs. Bengal Paper Mills Co. Ltd. and Others [(1999) 4 SCC 383].

The satisfaction as regard adequacy of the price is one of the relevant

factors for proper and reasonable exercise of the judicial discretion vested in

it. There cannot be any doubt 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 self-defeating

exercise as has been held in M/s Kayjay Industries (P) Ltd. (supra) and State

of Punjab vs. Yoginder Sharma Onkar Rai & Co. and Others [(1996) 6 SCC

173] but having regard to the accepted position that the Company Judge in a

case of this nature exercises a discretionary jurisdiction; it is bound to act

with great circumspection and caution. Such a jurisdiction should ordinarily

be exercised in exceptional cases and when necessary for seeing the

company as an on-going concern.

It may, furthermore, be true that before the Company Judge or before

the High Court the secured creditors did not raise objections which have

been raised before us although specifically taken in their objections, as

would appear from paragraphs 7, 9, 11, 12 and 13 thereof, but if such

considerations were relevant having regard to the statutory duties imposed

upon the court, the learned Company Judge must be held to have failed

and/or neglected to exercise its discretionary jurisdiction in a fair and

reasonable manner.

In any event having regard to the importance of the questions

involved and in particular the question as to whether the impugned order is

contrary to the statutory provisions contained in sub-section (4) of Section

20, we have thought it proper to consider the same.

The Company Judge moreover will have to bear in mind the

provisions contained in Section 529-A 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.

In Andhra Bank vs. Official Liquidator and Another [(2005) 5 SCC

75] , a three-Judge Bench of this Court, observed :

"Section 446 of the Companies Act indisputably confers

a wide power upon the Company Judge, but such a power

can be exercised only upon consideration of the

respective contentions of the parties raised in a suit or a

proceeding or any claim made by or against the

company. A question of determining the priorities would

also fall for consideration if the parties claiming the same

are before the court. Section 446 of the Companies Act

ipso facto confers no power upon the court to pass

interlocutory orders. The question as to whether the

courts have inherent power to pass such orders, in our

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opinion, does not arise for consideration in this

proceeding. Assuming such a power exists, it was

imperative that the same should have been exercised on

consideration of the factors laid down by this Court in

Morgan Stanley Mutual Fund etc. vs. Kartick Das etc.

[(1994) 4 SCC 225]. An unreasoned order does not

subserve the doctrine of fair play [See M/s. Mangalore

Ganesh Beedi Works Vs. The Commissioner of Income

Tax, Mysore and Anr. JT 2005 (2) SC 442 ]".

It was further observed that for judging the correctness of an equitable

order even the subsequent events can be taken into consideration. In any

view of the matter an equitable order passed by a Company Court in exercise

of its inherent jurisdiction or otherwise must conform to the requirements of

the relevant statutes. [See Manohar Lal Chopra vs. Rai Bahadur Rao Raja

Seth Hiralal -AIR 1962 SC 527, Vareed Jacob vs. Sosamma Geevarghese

and Others (2004) 6 SCC 378 & National Institute of Mental Health &

Neuro Sciences vs. C. Parameshwara (2005) 2 SCC 256]

In re A.I. Levy (Holdings) Ltd. [1964 (1) Chancery Division 19]

Buckley J. while considering the provisions of Section 227 of the English

Companies Act which is pari materia with Section 536(2) of the Indian

Companies Act, opined that the object of the said section was to protect the

interests of the creditors from the possible unfortunate results which would

ensue from the presentation of a petition and to protect their interests as

much during the period while the petition was pending as after an order has

been made on it. The said decision, therefore, does not lay down a law that

the provision of Section 536(2) of the Act is meant to benefit the vendee.

In fact such a provision enures to the benefit of the creditors. A Company

Judge granting sanction in terms of the aforementioned provision, thus, has a

duty to see that the transaction is one which must benefit the unsecured

creditors of the company.

In A.I. Levy (Holdings) Ltd. (supra) it was held :

"In these circumstances, this being a case in which it

appears to me to be manifest that the transaction is one

which must benefit the unsecured creditors of the

company if in due course a winding up order is made, the

reason which affected Vaisey J.'s mind, that is to say,

that the liquidator should be given an opportunity to

investigate the matter and bring it before the court

representing the interests of all the creditors, does not

affect my mind, for I do not think the liquidator could

make the position clearer to me than it is at the present

time on the facts."

CONCLUSION :

BIFR had admittedly power to sell the assets of the Company but the

High Court until a winding up order is issued does not have the same. BIFR

in its order dated 02.08.2002 might have made an observation to the effect

that the Company may approach the High Court in case it intended to

dispose of its property by private negotiation but the same would not mean

that BIFR could delegate its power in favour of the High Court. BIFR

being a statutory authority in absence of any provision empowering it to

delegate its power in favour of any other authority had no jurisdiction to do

so. 'Delegatus non potest delegare' is a well-known maxim which means

unless expressly authorized a delegatee cannot sub-delegate its power.

Moreover, the said observations of BIFR would only mean that the

Company Court could exercise its power in accordance with law and not

de'hors it. If the Company Court had no jurisdiction to pass the impugned

order, it could not derive any jurisdiction only because BIFR said so.

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In any view of the matter, BIFR had permitted only the Company to

approach the High Court in case any occasion arises therefor. BIFR did not

permit any other person to do so. The Company did not file such an

application. It opposed the prayer of the First Respondent The Company, as

noticed hereinbefore, had preferred an appeal before the Division Bench of

the High Court questioning the correctness of the order passed by the

learned Company Judge. The Company has since been directed to be

wound up and is now being represented by the Official Liquidator who also

questions the correctness of the order. Before us an application has been

filed by the Government of Karnataka for impleading it as a party being I.A.

Nos.2-4 of 2005 in Civil Appeal No.5199-5201 of 2004 wherein also, the

validity of the impugned order is in question.

In this view of the matter, we are of the opinion that the impugned

judgment of the High Court cannot be sustained. It is set aside accordingly.

For the reasons aforementioned, the Appeals are allowed. No costs.