IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 17-9-2009 CORAM THE HONOURABLE MR.JUSTICE M.CHOCKALINGAM AND THE HONOURABLE MR.JUSTICE R.SUBBIAH OSA Nos.59 to 63, 76, 77 and 82 of 2009 and MP Nos.1 and 2 of 2009 in OSA 59 of 2009 and MP No.2 of 2009 in OSA 60 of 2009 Tungabadra Sugar Works Mazdoor Sangh Represented by its President R.No.282-1958, Malavagoppa Shimoga – 577 222. .. Appellant in OSA 59 & 60/2009 and 5th Respondent in OSA 76/2009 and 4th Respondent in OSA 77/2009 and 3rd Respondent in OSA 82/2009 N.Ponnusamy .. Appellant in OSA 61, 62, 63, 76 & 77/2009 vs 1.Subhash Kathuria Sole Proprietor Anitha International 55B, Rama Road, Industrial Area New Delhi 110 015. .. 1st Respondent in OSA 59, 77 & 82/2009 2.The Official Liquidator High Court Madras as Liquidator of Deve Sugars Limited (Company in Liquidation) High Court, Chennai 104. .. 2nd Respondent in OSA 59, 77 & 82/2009 and 1st respondent in OSA 60, 61, 62, 63 & 76/2009 https://hcservices.ecourts.gov.in/hcservices/ 3.Tapti Machines Private Limited 171C, Mittal Court, Nariman Point Mumbai 400 021 represented by its Authorised Signatory M.Gopal residing at 73/2, Nandidurga Road Bangalore 560 046. .. 3rd Respondent in OSA 59, 77/2009 and Appellant in OSA 82/2009 4.State Bank of Mysore Main Branch, B.H.Road Shimoga Represented by its Chief Manager .. 2nd Respondent in OSA 60, 61, 62, 63 & 76/2009 5.The Recovery Officer Debts Recovery Tribunal Bangalore, Krishi Bhavan Hudson Circle, Bangalore .. 3rd Respondent in OSA 60 & 76/2009 and 4th Respondent in OSA 61, 62 & 63/2009 6.Central Warehousing Corporation No.9, Mission Road, Bangalore 560 029. .. 4th Respondent in OSA 60 & 76/2009 7.Anita International 55-B, Rama Road Industrial Area New Delhi 110 015. .. 3rd Respondent in OSA 61, 62 & 63/2009 8.State Bank of Mysore, Asset Recovery Branch, Bangalore 52. ..2nd Respondent in OSA.No.96/09 Original Side Appeals preferred under Order XXXVI Rule 9 of O.S. Rules read with Section 483 of the Companies Act 1956 and Clause 15 of Letters Patent against the common order of this Court made in C.A.No.1811 of 2005, 854 of 2006 and 2740, 2741 and 2742 of 2007 in CP No.170 of 1995 dated 3.3.2009. https://hcservices.ecourts.gov.in/hcservices/ For Appellants : Mr.V.Prakash Senior Counsel for M/s.Ramapriya for Appellant in OSA 59 & 60/09 and R5 in OSA 76/09, R4 in OSA 77/09 & R3 in OSA 82/09 Mr.Karthik Seshadri for Appellant in OSA 61 to 63, 76 & 77/09 Mr.Sathish Parasaran for Appellant in OSA 82/09 & R3 in OSA 59 & 77/09 For Respondent : Mr.T.K.Seshadri Senior Counsel for Mr.P.B.Ramanujam for R1 in OSA 59, 77 & 82/09 & R3 in OSA 61, 62 & 63/09 ` Mr.AR.L.Sundaresan Senior Counsel for Mrs.K.Latha Parimala Vardhana Addl. O.L. for O.L. For R2 in OSA 59, 76, 77, 82/09 & R1 in OSA 60 to 63/09 Mr.R.Ravichandran for R2 in OSA 60 to 63/09 COMMON JUDGMENT (Judgment of the Court was delivered by M.CHOCKALINGAM, J.) All these appeals challenge a common order of the learned Single Judge of this Court made in C.A.Nos.1811 of 2005, 854 of 2006 and 2740 to 2742 of 2007 in C.P.Nos.170 of 1995. 2.All the above appeals have been filed under the following facts and circumstances: (a) One M/s.Dev Sugars Limited was ordered to be wound up in C.P.No.170 of 1995 and C.P.No.35 of 1997 by an order dated 16.9.1999. An Official Liquidator was appointed who took possession of the assets of the company on 28.9.1999. State Bank of Mysore who extended financial assistance to the said company, in order to secure the outstanding dues, filed O.A.No.440 of 1997 before the Debt Recovery Tribunal (DRT), Bangalore, for recovery of a sum of Rs.22,31,78,558.55. After the decree was made in the said O.A., the Recovery Officer issued an official notice for the sale of the https://hcservices.ecourts.gov.in/hcservices/ properties in various newspapers fixing the date of auction as 11.8.2005. Since the said company was ordered to be wound up, the Official Liquidator of the company raised his objections before the Tribunal at Bangalore. The auction was directed to be held by the Debt Recovery Tribunal. The applicant in C.A.No.1811/2005 a third party, participated in the auction and his offer of Rs.10.25 crores being the highest was accepted by the Recovery Officer. The applicant deposited 25% on the same day, and the balance amount was also deposited in time as directed by the Tribunal. The said auction sale was confirmed by the Recovery Officer on 12.9.2005, and a letter of confirmation was also issued to the applicant. (b) The State Bank of Mysore obtained prior permission from the Court for selling the properties of the company. After the issuance of the sale confirmation letter, the applicant approached the Official Liquidator to hand over possession of the property of the company in liquidation. Since no action was taken by the Official Liquidator, the DRT by letter dated 26.10.2005 also wrote to the Official Liquidator directing him to withdraw the security personnel appointed by him to enable the DRT to hand over possession of the property. The Recovery Officer also wrote a letter on 23.9.2005 to the Chief Secretary, Government of Karnataka, to provide securities for the properties of the company in liquidation. A receiver was also appointed by the Recovery Officer to hand over possession. In such circumstances, the auction purchaser of the property filed C.A.No.1811/2005 seeking for a direction to the Official Liquidator to remove the Security Guards and hand over possession of the property. (c) While the matter was pending, C.A.No.250 of 2006 was filed by M/s.Thungabadra Sugar Works Mazdoor Sangha, represented by its President to implead them as a party in C.A.No.1811/2005 alleging that State Bank of Mysore approached the Court for permission, and the Company Court in C.A.Nos.1251 to 1253 of 1999 permitted the applicant/Bank on 10.3.2000 in O.A.Nos.440 and 1300 of 1997 by imposing a condition that the leave granted was subject to the condition that the Official Liquidator was impleaded, and no coercive steps were taken against the assets of the company during or after the conclusion of the proceedings before the Tribunal; that the members of the Sangh were appointed as Security men by the Official Liquidator to protect the assets of company with effect from 1.8.2001 on a monthly salary basis; that the DRT, Bangalore, passed a decree in 2001 and ordered for sale by auction of the assets of the company on 1.10.2004; that the Worker's Union objected to the sale and filed a writ petition before the High Court of Karnataka seeking stay of the sale by auction proceedings as their salary and provident fund dues to the extent of Rs.15 crores were due from the company; that the High Court of Karnataka by an order dated 27.9.2004 made an interim order to the effect that the sale was subject to the result of the writ petition; that in view of the said order, the Recovery Officer of the DRT postponed the auction proceedings to be held on 1.10.2004; but, again the DRT called for the auction of the property by fixing the date as 11.8.2005; that the Sangh filed a fresh affidavit before the High Court, Karnataka, in W.P.No.37991 of 2004 objecting to the methods adopted by the DRT; that apart from that, M/s.Tapti Machinery who are the petitioners for winding up of the company and also a creditor of the company objected to the sale and filed objections separately before the Official Liquidator and also https://hcservices.ecourts.gov.in/hcservices/ before the DRT, Bangalore; that all the objections were rejected by the DRT and the sale was conducted and confirmed in favour of the applicant in C.A.No.1811/2005 who was the successful bidder; that the successful bidder filed a petition before the High Court of Karnataka to implead them as a party in the writ petition and the same was allowed; that after getting himself impleaded in the writ petition, the applicant herein filed a petition to quash the writ petition, but the High Court by order dated 2.12.2005 dismissed that petition filed by the auction purchaser, and under the circumstances, the Sangh is a necessary party. (d) The said application was allowed as prayed for, and thus the Sangh has become a party. On being impleaded, the Sangh filed a counter affidavit opposing the said application that the property was sold in total violation of the procedures and also interim orders passed by the Court. (e) Another application in C.A.No.253 of 2006 was filed by M/s.Tapti Machineries (P) Ltd., to implead them as a party in C.A.No.1811 of 2005. The same was allowed by the Court on 1.3.2006 as prayed for. On being impleaded it has filed a counter affidavit stating that they filed C.P.No.35 of 1997 for winding up of the company and C.P.No.170 of 1995 was filed by M/s.Simcom Ltd.; that by order dated 16.9.1999, the Court ordered winding up of the company, and the Official Liquidator was appointed to take possession of the property of the company in liquidation; that the properties were sold for a meagre value of Rs.10.25 crores while it was valued based on Government valuation at Rs.57 crores; that the respondent also filed a writ petition in W.P.No.26564 of 2005 before the High Court of Karnataka challenging the sale proceedings, and the same was also pending; that they were also taking steps for revival of the company; that an application was also filed to that effect before this Court; that the proper and necessary procedure was not followed by the Recovery Officer while selling the property in auction sale which is in the custody of the Official Liquidator; that under the circumstances, the sale had no legal sanctity and hence the application was to be dismissed. (f) The Official Liquidator filed a report on 31.1.2006 wherein he has stated that he took possession of the available assets of the company on 28.9.1999; that after taking possession, the premises were locked and sealed; that he also appointed the Mazdoor Sangh to safeguard the assets of the company in liquidation with effect from 28.9.1999; that they withdrew their services in the month of December 1999 for the non-payment of the security charges; that on 30.7.2001, a meeting was conducted, and it was decided to appoint M/s.Tungabadra Sugar Works Mazdoor Sangh to safeguard the premises with effect from 1.8.2001 and to make the payment out of the rent amount collected from the Central Warehousing Corporation; that he filed his objections before the DRT, Bangalore, on 1.10.2004, in response to the sale proclamation issued by the DRT; that when the DRT issued a proclamation of sale of property for the second time fixing the date of auction as 11.8.2005, again objections were filed by the Official Liquidator putting forth his objections to the sale; that the valuation of the property has been made on 24.3.2003 by a valuer without the knowledge of the official liquidator; that the inventory report dated 25.11.2004, also revealed that the valuation of the property has been done without the knowledge of the Official Liquidator; that in view of the order passed by the Company Court on https://hcservices.ecourts.gov.in/hcservices/ 10.3.2000 in C.A.Nos.1251 to 1253 of 1999, the sale conducted by the DRT, Bangalore, without the participation and presence of the Official Liquidator is vitiated; that he has also received the copies of the letters addressed to the CBI by the ex- shareholders/directors/promoters of the company in liquidation wherein certain allegations against the Recovery Officer have been made; that under the circumstances, the Official Liquidator sought for a fresh sale by the DRT with the association of the Official Liquidator, and the sale proceeds should be deposited with this Court. (g) Apart from filing the above report, the Official Liquidator has also made an application in C.A.No.854 of 2006 to set aside the sale confirmed by the DRT and to direct the third respondent Central Warehousing Corporation to remit the arrears of rent to the Official Liquidator and also to permit the Official Liquidator to sell the assets of the company in liquidation afresh. (h) The first respondent Bank filed a counter questioning the maintainability of C.A.No.854 of 2006. (i) The learned Single Judge heard the Counsel on either side, allowed C.A.No.1811 of 2005 and dismissed C.A.Nos.854 of 2006 and 2740 to 2742 of 2007. Hence these appeals at the instance of the respective parties. 3.Advancing arguments on behalf of the appellant Sangh in OSA Nos.59 and 60 of 2009, the learned Senior Counsel Mr.V.Prakash would submit that it is pertinent to note that the appellant had very vehemently objected to the auction fixed by the Recovery Officer and filed a writ petition immediately when the first auction was called for and also filed objections before the Recovery Officer when the second auction was called; that the company in liquidation had not paid salaries and wages to the workmen and also statutory payments like gratuity, bonus, EPF Contributions; that the appellant is very interested in ensuring that the assets of the company in liquidation fetched the best price possible; that without reference to the official liquidator, no valuation could be done; that the valuation based on which the upset price came to be fixed by the Recovery Officer was unacceptable and too low; that in the instant case, since the affected party is the official liquidator who is holding the assets in trust for so many claimants, the Company Court's jurisdiction under Sec.446 does not get ousted; that there appears to be serious collusion between the successful bidder and the Recovery Officer; that there was no proper information to the public on the proposed auction, and under the circumstances, the auction sale already conducted has got to be set aside. 4.Advancing arguments on behalf of the appellant in OSA Nos.61 to 63, 76 and 77 of 2009, the learned Counsel Mr.Karthik Seshadri would submit that the order of the Company Court made in CA Nos.1251 to 1253 of 1999 dated 10.3.2000, was not varied or modified till date and hence without the leave of this Court no coercive steps like auction sale, is possible in law; that the proposed auction has been challenged by the Workers' Union even as early as 2004 before the High Court of Karnataka; that the auction held on 11.8.2005 was the subject matter of challenge before the DRT at Bangalore; that since the successful bidder had approached this Court in CA No.1811/2005, the DRT did not pass final orders in the appeal before it; that under https://hcservices.ecourts.gov.in/hcservices/ the circumstances, the learned Single Judge has erred in coming to the conclusion that there was no challenge to the auction held on 11.8.2005; that the report filed by the official liquidator would go to show that no consultation whatsoever had been undertaken either by the DRT or the secured creditor; that there was no consultation at all, and hence the auction would not bind the first respondent; that it is pertinent to note that only one person participated in the auction namely Subhash Katuria of the third respondent; that the price of Rs.10.25 crores was grossly undervalued considering the Government Gazette value namely Rs.57.25 crores; that there was no proper valuation at all; that apart from that, there was no proper information to the public on the proposed auction, and hence the order of the learned Single Judge has got to be set aside and the auction sale be set aside. 5.The learned Counsel Mr.Sathish Parasaran appearing for the appellant in OSA No.82 of 2009 would submit that the auction proceedings were challenged not by one party but by several others including the Official Liquidator, Workers' Union, Central Warehousing Corporation and the appellant herein; that the auction itself was hurriedly and irregularly conducted by the Recovery Officer during the pendency of the above proceedings; that the valuation report and the inventory report were prepared without notice to or involvement of the Official Liquidator; that the said valuation was imaginary; that the impugned order is vitiated in view of the pendency of the appeals before the DRT challenging the auction; that it is pertinent to note that both the conduct of the auction sale and its confirmation by the Recovery Officer himself and the illegality of the auction were yet to be determined by the DRT in the appeal preferred by the appellant; that the orders of the Recovery Officer were passed subsequent to the winding up order passed by the Company Court; that the auction is clearly violative of the earlier directions of this Court issued on 10.3.2000; that no notice of proclamation of sale was served on the official liquidator; that the Recovery Officer rejected the objection memo dated 30.9.2004 filed by the official liquidator in a casual manner and without assigning any cogent reasons; that it is pertinent to note that as per Section 456 of the Companies Act, all the properties of a company in liquidation shall be deemed to be in the custody of the High Court; that the Official Liquidator has to safeguard the interest of the workmen, preferential creditors and other credits in accordance with law; that in the instant case, the Recovery Officer has acted against law and in a manner detrimental to the interest of the workmen, Government and other creditors of the second respondent, and hence the order of the learned Single Judge has got to be set aside. 6.The learned Senior Counsel Mr.T.K.Seshadri, appearing for the first respondent successful bidder put forth the very same contentions in sustaining the order of the learned Single Judge. 7.This Court also heard the learned Senior Counsel Mr.AR.L.Sundaresan appearing on behalf of the Official Liquidator and also the learned Counsel Mr.R.Ravichandran for the second respondent bank. https://hcservices.ecourts.gov.in/hcservices/ 8.As could be seen above, by an order dated 16.9.1999 made in CP Nos.170/95 and 35/97 by this Court one M/s.Deve Sugars Limited was ordered to be wound up, and the Official Liquidator attached to this Court, was appointed as the Official Liquidator of the company with directions to take charge of all the assets and effects of the company in liquidation. The Official Liquidator accordingly took possession of the assets of the company situated at Harige, Shimoga District, Karnataka State, on 28.9.1999 in the presence of the Deputy Commissioner, Shimoga and the Chief Manager of the State Bank of Mysore, one of the secured creditors of the company. Due to the default in payment of the outstanding dues, the State Bank of Mysore, the second respondent herein, filed OA 440 of 1997 before the Debt Recovery Tribunal, Bangalore, whereby a decree was granted against the company in liquidation to pay a sum of Rs.22,31,78,558.55. Pursuant to the grant of the application and also the certificate, the Recovery Officer issued an order under Rule 38 and Rule 52(2) of the second schedule to the Income Tax Act, 1961 and brought the property owned by the company in liquidation for sale. It cannot be disputed that when the immovable property of the company under liquidation was brought for sale, it stood vested with the Official Liquidator appointed by the Court and in respect of which he has also taken possession. It is pertinent to note that in C.A.Nos.1251 to 1253 of 1999 filed at the instance of the State Bank of Mysore seeking leave to the petitioner bank to proceed and prosecute further O.A.No.440 of 1997 filed by them against the respondent company in the Debt Recovery Tribunal at Bangalore, the Court made the following order: "Leave is granted subject to the condition that the Official Liquidator is impleaded and no coercive steps against the assets of the company during or after the conclusion of the proceedings before the Tribunal." 9.Now, at this juncture it is pertinent to point out that the above order was never varied, altered or set aside. Pursuant to the said order, the Official Liquidator was also made as a party in C.A.No.440/97. He has put forth his objections. There is nothing to indicate that any of his objections were considered by the Recovery Officer at any point of time. It remains to be stated that a valuation report was prepared on 24.3.2003, and an inventory report was also prepared on 25.11.2004 in respect of the company under winding up. But, no material was placed before the Court to indicate that any notice was given to the Official Liquidator before making valuation of the property. During the relevant time, as pointed out earlier, the entire assets of the company under liquidation was in the exclusive custody and possession of the Official Liquidator. It should be further added that the premises was actually kept under the seal of the Official Liquidator. It is a matter of surprise to note that how the property in the person and exclusive custody of the Official Liquidator could be valued and inventory could be taken even without a notice to him and in his absence and that too when the premises is kept under his seal. It would be indicative of the fact that the valuation and inventory report could have been prepared hastily. Hence those reports could not reflect the real and actual value of the property brought for sale. A memo was filed by the Official Liquidator on 30.9.2004 itself notifying that he has taken https://hcservices.ecourts.gov.in/hcservices/ possession of the property of the company in liquidation on 28.9.1999 itself and requesting that the sale fixed on 1.10.2004 could be deferred. He has also asked for conduct of the sale of the property jointly. Even the valuation of the property at this juncture can be commented as not only improper and incorrect, but also imaginary. 10.While the proceedings were pending in the hands of the Recovery Officer, W.P.No.37991 of 2004 was filed by Tungabhadra Sugar Works Mazdoor Sangha, a Trade Union and others before the High Court of Judicature at Karnataka whereby the petitioners therein complaining that the Official Liquidator who was the custodian of the property belonging to the company under liquidation failed to protect the company and property of the company under liquidation and hence the auction sale in favour of the third respondent herein namely Anitha International, was null and void and also for a mandamus directing the Recovery Officer not to hand over possession. The following part of the judgment of the Karnataka High Court in WP Nos.26564/2005 and 37991/2004 runs as follows: "16...It is not in dispute that the official liquidator had filed objections to the proclamation of sale. The said objections was rejected by the Recovery Officer. It is useful to extract the observation made by the Recovery Officer while rejecting the objections of the official liquidator. "While issuing order of proclamation of sale, I considered the memo dated 30.9.04 filed by the Official Liquidator, appointed by the Hon'ble High Court of Chennai, on 01.10.04. The contentions raised therein are in total contrast to the provisions contained in the Second Schedule to the Income Tax Act as well as the Certificate Proceedings. Recovery Officer has to get guided by the provisions made under S.29 as well as S.19 (19) of RDDB Act, 1993. Also the guidelines laid down by the Hon'ble Supreme Court of India in Civil Appeal No.2536 of 2000 between Allahabad Bank and Canara Bank, codifying the jurisdiction of Recovery Officer as "exclusive" and its direction to the matter of distribution of sale proceeds (para 50) shall be followed in this case. Hence the contentions of the Official Liquidator are rejected and disposed off as against the principles codified by Hon'ble Supreme Court of India." 17.A perusal of the order which is cryptic would give a clear indication that the Recovery Officer has not applied his mind at all to the contentions raised by the official liquidator. It is no doubt true that the official liquidator is not before this court. But that by itself does not necessarily mean that the order of rejecting the objections of the official liquidator can be sustained. The other objector before the Recovery Officer is the petitioner in the companion writ petition