IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 03/03/2010 C O R A M THE HONOURABLE Mr. JUSTICE C. NAGAPPAN and THE HONOURABLE Mr. JUSTICE T.S.SIVAGNANAM Writ Petition No.647 of 2010 and M.P.Nos.1, 2 and 3 of 2010. 1. Sri Akilandeshwari Mills, Panjalai Anna Thozhilalar Sangam, rep. by its Secretary 169/A, Narayana Pillai Street, Peramanoor, Salem. 2. Salem District Dravida Panjalai Thozhilalar Munnetra Sangam, represented by its President, Palani Nagar, Angammal Colony, Salem-636 009. ... Petitioners Vs 1.The Management of Sree Akilandeshwari Mills Pvt. Ltd., rep. by the Official Liquidator, Attached to the High Court, Madras, The Office of the Official Liquidator, 29, Rajaji Salai, Chennai-1. 2. Assets Reconstruction Company (India) Ltd., Shreepati Arcade, Nana Chowk, Mumbai-400 036. https://hcservices.ecourts.gov.in/hcservices/ 3. ITCOT Consultancy and Services Ltd., No.9A, III Floor, Wellingdon Estate, 53, Ethiraj Salai, Egmore, Chennai-600 105. 4. M/s.Paavai Construction, represented by its Managing Partner, Mrs.N.Mangaiarkarasi, 64-C, Rotary Nagar, Rasipuram, Namakkal District-637 408. ... Respondents. Prayer:- Writ petition filed under Article 226 of the Constitution of India praying for issuance of a Writ of certiorarified mandamus as stated therein. For Petitioners ... Mr.V.Ajoy Khose for M/s.D.Balachandran For R2 and R3 ... Mr.Yashod Vardhan Senior Counsel for Mr.P.Vinod Kumar For R1 ... Mr.S.R.Sundar for Official Liquidator For R4 ... Mr.B.Rabu Manohar O R D E R (Order of the Court was made by C.NAGAPPAN, J.) The petitioners have sought for issuance of a writ of certiorarified mandamus to quash the order dated 18.11.2009 passed by the second respondent and to direct the respondents 2 and 3 to issue tender and hold auction afresh for the sale of properties covered under the order dated 18.11.2009 after assessing the value of the entire properties including Plant, Machinery and other movable and immovable properties based on the current market value and to allow the petitioners to participate and to be present throughout the sale process. 2. The petitioners are two Workers Union, employed in the first respondent Mill at Salem. The United Bank of India extended financial facilities to the first respondent Company from 1989-1994 and the first respondent Company had mortgaged inter alia its immovable properties and hypothecated its plant and machinery lying at factory premises to the United Bank of India and due to failure to repay the the amount, the Bank initiated steps and issued notice dated 20.1.2007 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 to the first respondent Company and the United Bank of India by assignment https://hcservices.ecourts.gov.in/hcservices/ deed, dated 26.3.2007, assigned and released all the financial assistance granted to the first respondent Company in favour of the second respondent Company in terms of Section 5 of SARFAESI Act. Thereafter the second respondent issued a fresh noitce, dated 6.8.2007, under Section 13(2) of the Act and it took symbolic possession of the secured immovable properties under Section 13(4) of the Act on 27.11.2007 and subsequently took actual possession on 25.8.2008 pursuant to an order passed under Section 14 of the Act. In the meanwhile, the first respondent Company was directed to be wound up and the Official Liquidator was appointed by Order of this Court, dated 28.10.2008, in C.P.No.141 of 1994 on the petition filed by one G.P.Economical Traders Private Limited. On coming to know the same, the second respondent moved the Company Court by filing applications in Company Application Nos.244 to 246 of 2009 in C.P.No.141 of 1994 seeking for impleading itself and for an injunction. The Company Court, by its Order dated 1.4.2009, allowed the Applications and permitted the second respondent Company to sell the properties by involving the Official Liquidator in the sale process. The second respondent, upon the involvement of the Official Liquidator, appointed approved Valuers to value the movable and immovable properties of the Company. 3. As per the Valuation Report, the market value of the immovable property was determined as Rs.15,02,57,000/- as on 11.8.2009 and the fair market value of the movables was fixed at Rs.2,25,00,000/-. The petitioners, on coming to know of the sale, filed Writ Petition in W.P.No.8930 of 2008 seeking to forbear the respondents 2 and 3 from bringing the properties of the first respondent Mill for sale without being evaluated on the current market value and not to appropriate the sale proceeds without settling the dues payable to petitioners and obtained interim injunction on 11.4.2008. On coming to know the sale, the petitioners filed W.P.No.24480 of 2008 seeking to declare the sale and confirmation of sale of the lands covered by sale notice dated 6.3.2008 in favour of M/s.Syhims Granites, Salem as null and void and also filed W.P.No.24481 of 2008 seeking to declare the sale of the properties and confirmation of sale covered by sale notice, dated 24.9.2008, as null and void, and sought for interim injunction, but notice alone was ordered. All the three Writ Petitions came up for hearing on 25.8.2009 and a Division Bench of this Court vacated the interim order granted in W.P.No.8930 of 2008 on the ground that the second and third respondents herein agreed to share 3/8 of sale proceeds of Rs.6 Crores received by them pursuant to the sale of the part of properties of the first respondent Mill to M/s.Syhims Granites. 4. The second respondent in consultation with the Official Liquidator, fixed the reserve price at Rs.17,30,00,000/- and effected publication of notice of sale in 'The Economic Times' and 'Dina Thanthi' on 22.9.2009. The first respondent, through its Authorised Officer, filed appeal in S.A.No.225 of 2009 before the Debts Recovery Tribunal, Madurai under Section 17 of SARFAESI Act and after notice, the Tribunal granted stay on condition https://hcservices.ecourts.gov.in/hcservices/ that the first respondent to deposit an amount of Rs.1 Crore in an interest bearing no lien account with a nationalised bank on or before 24.10.2009 and permitted the second respondent to receive the tenders as per the terms of the sale notice and keep them intact. The first respondent challenged the same by filing writ petition in W.P.No.10773 of 2009 before the Madurai Bench of this Court and obtained stay of the sale of auction fixed on 24.10.2009 on condition the first respondent deposits a sum of Rs.2 Crores within a period of two weeks. By that time, the second respondent had received four bids and in view of the interim order of the Court, two of the bidders wanted to withdraw from the bid and wanted refund of Earnest Money Deposit. The second respondent filed miscellaneous petition in W.P.No.10773 of 2009 seeking permission to return the Earnest Money Deposits to the bidders who desired to withdraw and after obtaining the order, returned the EMDs to both of them. The first respondent did not comply with the condition and the order of interim stay stood vacated by the order of the Court on 10.11.2009. The first respondent withdrew the writ petition in W.P.No.10773 of 2009 on 17.11.2009. 5. A telegram by a third party M/s.Rajendra Mills Limited was sent to the third respondent informing about the order of interim stay of auction obtained by it in respect of the first respondent's property, in S.A.No.229 of 2009 on the file of the Debts Recovey Tribunal-I, Chennai. Challenging the said order, the second respondent filed C.R.P.No.3549 of 2009 under Article 227 of the Constitution of India and this Court originally granted interim stay and allowed the revision by order dated 7.1.2010. 6. Tenders were opened on 11.11.2009 in the presence of representative of the Official Liquidator and the fourth respondent's bid of Rs.17,32,00,000/- was the highest and it was declared as successful bidder and it paid 25% of the sale consideration and agreed to pay the balance sale consideration on or before 18.1.2010. 7. The petitioners filed the present writ petition on 29th December, 2009 seeking for the reliefs mentioned above. 8. The submission of the learned counsel for the petitioners is that the members of the petitioners Union are employed for two decades in the first respondent Mill and they have not been paid wages and terminal benefits and neither the market value nor the guideline value of the property was taken into consideration while determining the upset price and the upset price fixed was arbitrarily low and not fair and reasonable and wide publicity was not given and the respondents 2 and 3 have concluded the sale process in an unlawful manner in order to gain more amount to the exclusion of the petitioners and there are offers for a higher price and the guideline value of the lands alone would be Rs.18 crores on the basis of value of Rs.400/- per sq. ft. and the market value will be still higher and the upset/reserve price fixed is less than the actual market value and public auction, after adequate publicity, would only ensure the best price and https://hcservices.ecourts.gov.in/hcservices/ that has not been done in the present case and hence the petitioners are entitled for the reliefs sought for. In support of his submission, the learned counsel for the petitioners relies on a decision of this Court in HARYANA FINANCIAL CORPORATION AND ANOTHER VS. JAGADAMBA OIL MILLS AND ANOTHER (2002) 3 Supreme Court Cases 496). 9. The Official Liquidator has filed his Report dated 9.2.2010 in the matter stating that the first respondent Company was wound up by order dated 28.10.2008 made in Company Petition No.141/1994 and the second respondent has sold the assets at Alagapuram, Pudur Village, Salem before the order of winding up and a sum of Rs.4,04,38,909/- has been remitted to PF Authorities and a sum of Rs.34,19,037/- to ESI Corporation and pursuant to the order of this Court, the second respondent has brought the Company's factory premises at Gandhi Nagar, Salem for sale on 11.11.2009 by fixing the reserve price for the assets at Rs.17.30 Crores and the auction was held in the presence of representative of the Official Liquidator and the sale was confirmed in favour of the fourth respondent for a sum of Rs.17,32,00,000/- and the entire sale consideration has been remitted. He has further stated in the report that in the writ petition filed by the petitioners in W.P.No.8930 of 2008, the stay was vacated on 25.68.2009 for the reason that respondents 2 and 3 assured to file an undertaking before the Official Liquidator for apportionment of sale proceeds of Rs.6,00,00,000/- to safeguard the interest of the workmen and accordingly the second respondent deposited an estimated amount of Rs.4,25,00,000/- on 29.1.2010 towards labour dues and also given an undertaking under Section 13(9) of the SARFAESI Act, 2002. It is further stated in the report that the Official Liquidator has voluntarily received the claims in Form No.67 from 327 workmen, claiming a sum of Rs.16,00,00,000/- in all and he has given an advertisement on 24.1.2010 inviting the claims from the creditors of the Company in liquidation in accordance with Rule 151 of the Companies (Court) Rules, 1959 through paper publication in "Daily Thanthi" and "New Indian Express". 10. The learned counsel appearing for the Official Liquidator submits that as per language of Section 529-A of the Companies Act, 1956, the workmen's dues and debts due to the secured creditors are to be treated pari passu and shall have priority over all other debts. He places reliance on the decisions of the Apex Court in TEXTILE LABOUR ASSOCIATION AND ANOTHER VS. OFFICIAL LIQUIDATOR AND ANOTHER (2004) 9 Supreme Court Cases 741); ANDHRA BANK VS. OFFICIAL LIQUIDATOR AND ANOTHER (2005) 5 Supreme Court Cases 75) and RAJASTHAN STATE FINANCIAL CORPN. AND ANOTHER VS. OFFICIAL LIQUIDATOR AND ANOTHER (2005) 8 Supreme Court Cases 190). 11. Mr.Yashod Vardhan, learned Senior Counsel appearing for the second respondent submits that the issue involved in the matter is sale of the properties only and the second respondent moved the Company Court in C.P.No.141 of 1994 and the Company Court held that the second respondent is entitled to sell the secured https://hcservices.ecourts.gov.in/hcservices/ assets and retain the sale proceeds after depositing the workmen's dues with the liquidator in accordance with Section 529-A of the Companies Act and directed the second respondent to involve the Official Liquidator in the sale process and further directed the second respondent to appoint M/s.ITCOT Consultancy & Services Limited to value the assets in the presence of Official Liquidator and the second respondent appointed the approved Valuer through ITCOT to value the movable and immovable properties and as per the valuation report, the value of the immovable properties as on 11.8.2009 was fixed at Rs.15,02,57,000/- and the fair market value of the movables was fixed at Rs.2,25,000/- and in consultation with the Official Liquidator, taking into account the market value of the properties and fixed assets, the second respondent fixed the upset/reserve price at Rs.17,30,00,000/- and wide publication was effected in 'The Economic Times' and 'Dina Thanthi' dated 22.9.2009 and four bids were received and in view of the interim order of this Court, two of the bidders wanted to withdraw from the bid and wanted refund of Earnest Money Deposits and the second respondent obtained permission of this Court and returned the Earnest Money Deposits to both of them and the tenders were opened on 11.11.2009 in the presence of the representative of the Official Liquidator and the fourth respondent offered Rs.17,32,00,000/- which was the highest and it was declared as successful bidder and the fourth respondent paid 25% of sale consideration and assured to pay the balance 75% on or before 18.1.2010 and subsequently, it has deposited the entire amount and the entire sale consideration was paid and the sale certificate was also issued on 28.1.2010 to it. 12. The learned Senior Counsel appearing for second respondent further submits that the second respondent, in terms of interim order passed by the Division Bench of this Court in the writ petition filed by the petitioners in W.P.No.8930 of 2008, an amount of Rs.6 Crores has been apportioned and kept in no lien Fixed Deposit account towards payment of portion of dues of workmen and further the second respondent has also remitted a sum of Rs.4,41,42,765/- towards the labour dues to EPF and ESIC and thereafter, a sum of Rs.4.25 Crores was remitted by the second respondent on an 'Estimated' basis towards the labour dues with the Official Liquidator and further, the second respondent has given an undertaking that it would comply the Orders of the Court in respect of forwarding/transferring the monies retained by it towards the sale of assets of the first respondent Company to the Official Liquidator for payment of the workmen's dues, if any. 13. It is the contention of the learned Senior Counsel appearing for the second respondent that auction sale was made after adequate publicity in 'Economic Times' and 'Dinathanthi' Newspapers and there is no specific allegation of collusion or fraud allegged by the petitioners against the respondents and further, the second respondent obtained the order of the Company Court and as directed, involved the Official Liquidator right from the appointment of Valuer to the date of auction sale and the sale was confirmed in favour of highest bidder and the entire sale consideration has also been deposited and the sale certificate has been issued in favour of the https://hcservices.ecourts.gov.in/hcservices/ fourth respondent and there is no genuine proposal offering a higher price than the price for which the properties were sold and the second respondent has observed the legal formalities in letter and spirit and the reserve price has been fixed based on the approved Valuer's report and it is not distress sale and the present writ petition is not maintainable and deserves to be dismissed. In support of his submission, the learned Senior Counsel relies on a decision of the Supreme Court in VALJI KHIMJI AND COMPANY VS. OFFICIAL LIQUIDATOR OF HINDUSTAN NITRO PRODUCT (GUJARAT) LTD. AND ORS. (2008) 9 SCC 299). 14. The fourth respondent has filed counter affidavit stating that its bid of Rs.17,32,00,000/- was the highest and was declared as successful bidder and it paid the 25% of sale consideration amounting to Rs.4,33,00,000/- on 16.11.2009 and the balance sale consideration was directed to be paid on or before 15.12.2010 and the same was extended upto 27.1.2010 if paid with interest at 20% and the fourth respondent paid the balance 75% of sale consideration with interest on various dates and the last payment was made on 23.1.2010 and totally, the fourth respondent has paid a sum of Rs.17,52,00,000/-, which includes the interest for belated payment and the same was agreed and acted upon by the second respondent and the sale certificate was issued in its favour. The learned counsel for the fourth respondent submits that it is a bona fide purchaser for value and the sale has also been confirmed in its favour. 15. The petitioners have alleged in the affidavit filed in support of the writ petition that even on the guideline of Rs.400/- per sq. ft., the value of the lands alone would be Rs.18 Crores and the market value would be much more than that of it and the second respondent has fixed the upset/reserve price less than that of the actual market value and they have concluded the sale process in an unlawful manner. The second respondent is the assignee in terms of Section 5 of the SARFAESI Act and it has issued notice under Section 13(2) of the Act and took symbolic possession of the secured immovable properties under Section 13(4) of the Act on 27.11.2007, followed by actual possession on 25.8.2008. In the meanwhile, the first respondent Company was wound up and Official Liquidator was appointed on 28.10.2008 in C.P.No.141 of 1994 and on knowing the same, the second respondent moved the Company Court and this Court, by order dated 1.4.2009, observed that the second respondent is entitled to sell the secured assets and retain the sale proceeds after depositing the workers' dues with the Official Liquidator and it also directed the second respondent to involve the Official Liquidator in the sale process and further directed to value the assets through ITCOT in the presence of Official Liquidator. Accordingly the second respondent has appointed the Valuer through ITCOT and the Valuer has submitted the report, dated 11.8.2009. For better appreciation, the valuation of the property, as found in the report, is extracted below. https://hcservices.ecourts.gov.in/hcservices/ Description Assessed value – Rs. Assessed market value of the land – 10.225 acres Assessed market value of the structures and facilities Assessed current market value of the property Distress value of the property (80%) 1 2,37,37,000.00 2,65,20,000.00 _____________________________ 1 5,02,57,000.00 1 2,02,10,000.00 Purpose of valuation To assess the market value of the Plant and machinery and other items available at the subject factory for sale purpose. Date & Place of inspection 11.8.2009 at M/s.Akilandeswari Mills Pvt. Ltd., Gandhi Nagar, Salem, Tamilnadu Executives associated Mr.Santhosh – Representative – OL office, Chennai. Mr.Madhavan and Mr.Mani Babu - Legal Officers – ARCIL Portfolio office, Chennai. Mr.Senthil – ITCOT Consultancy and Services, Chennai. Details Net worth/Value in Rs. as on 11.8.2009 Fair Market Value 225 Lakhs 16. It is relevant to note that the assessed market value of the land and the structures and facilities therein has been determined at Rs. 15,02,57,000/-. The distress value of the property is also indicated in the report. The second respondent has taken only the current market value of the immovable and movable properties while fixing the reserve price. https://hcservices.ecourts.gov.in/hcservices/ Due publication was effected in "The Economic Times" and "Dina Thanthi", which are newspapers having wide circulation and in the auction, four bids were received and in the meanwhile, interim order was passed in a writ petition in W.P.No.10773 of 2009, filed by the first respondent before the Madurai Bench of this Court and two of the bidders expressed their wish to withdraw. The second respondent obtained the permission of the Court in the writ petition to return the EMDs of those two bidders and later the writ petition itself came to be withdrawn. 17. Among the two bidders, the tenders were opened on 11.11.2009 and the bid of the fourth respondent of Rs.17,32,00,000/- was the highest and it was declared as successful bidder. In this context, it is relevant to note that the petitioners herein have filed earlier writ petitions and in terms of the interim order, an amount of Rs.6 Crores has been apportioned out of the sale proceeds of other secured assets and was kept in no lien Fixed Deposit account towards workmen's dues and further, an amount of Rs.4,41,42,765/- has also been deposited in discharge of labour dues to EPF and ESI Corporation and the second respondent has also remitted a sum of Rs.4.25 Crores on an 'Estimated' basis towards the labour dues to the Official Liquidator. 18. In this context, it is relevant to note that the Apex Court in the decision in RAJASTHAN STATE FINANCIAL CORPN'S CASE (cited supra) has held that the Official Liquidator represents the entire body of creditors and also holds a right on behalf of the workers to have a distribution pari passu with the secured creditors and the duty for further distribution of the proceeds on the basis of the preferences contained in Section 530 of the Companies Act under the directions of the Company Court, and to ensure the proper working out of the scheme of distribution, it is necessary to associate the Official Liquidator with the process of sale so that he can ensure, in the light of the directions of the Company Court, that a proper price is fetched for the assets of the Company-in-liquidation. 19. In the present case, the first respondent Company was wound up and the Official Liquidator was involved in the process of sale and the sale has been conducted in his presence. 20. The Supreme Court, in the decisions in TEXTILE LABOUR ASSOCIATION'S CASE and ANDHRA BANK'S CASE (cited supra), has dealt with the effect of Sections 529 and 529-A of the Companies Act and laid down that the workmen of the company become secured creditors by operation of law to the extent of the workmen's dues provided there exists a secured creditor by contract and the assets of the company would remain charged for the payment of the workers' dues and such charge will be pari passu with the charge of the secured creditors. In the present case, the second respondent has remitted the workers' dues, namely, the dues of the members of the petitioners' Union and from the report of the Official Liquidator, it is seen that the claims in Form No.67 from 327 workmen, claiming a sum of Rs.16 Crores have been received and the enquiry is to take place. https://hcservices.ecourts.gov.in/hcservices/ 21. There is no specific allegation of any collusion in the affidavit filed in support of the petition, but it is averred that the second and third respondents have concluded the sale process in an unlawful manner. As already seen, in the sale process, the second respondent has acted as per the order of this Court then and there and there was no distress sale. The valuation has been done by an approved Valuer, who was suggested by the Official Liquidator and directed by the Company Court and the assessed market value of the land mentioned in the report was taken into account and the reserve price was fixed higher than that. Though it is stated that there is higher bidder, no such concrete proposal is found in the records. 22. We are satisfied that there was adequate publication in well known Newspapers, having wide circulation and the auction sale was made after due publicity. In this context, the latest decision of the Supreme Court in VALJI KHIMJI AND COMPANY'S CASE (referred to above) is relevant and for better appreciation, the relevant observation made in the decision is extracted below. " Para 31. If it is held that every confirmed sale can be set aside the result would be that no auction sale will ever be complete because always somebody can come after the auction or its confirmation offering a higher amount. Para 32. It could