IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 12-1-2010 CORAM THE HONOURABLE MR.JUSTICE M.CHOCKALILNGAM AND THE HONOURABLE MR.JUSTICE T.RAJA OSA Nos.370 to 372 of 2009 and MP Nos.1 to 3 of 2009 in OSA No.370 of 2009 T.Narayanan .. Appellant in all appeals vs 1.The Official Liquidator High Court, Madras, As the Liquidator of Sri Visalakshi Mills Pvt. Ltd. (In Liquidation) .. 1st Respondent in OSA 370/2009 and 3rd Respondent in OSA 371 & 372 of 2009 2.Indian Bank Madurai Main Branch 100/101, East Avantmoola Street Madurai 625 001. 3.Dena Bank No.203, East Market Street Madurai 625 001. .. Respondents 2 & 3 in OSA 370/2009 & Respondents 4 & 5 in OSA 371 & 372 of 2009 4.N.Subramaniam 5.Rm.Ramanathan 6.M/s.True Value Homes India Pvt. Ltd., TVH Belicia Towers, Tower II, 9th Floor, Block No.94, MRC Nagar, Chennai 600 028. https://hcservices.ecourts.gov.in/hcservices/ 7.P.Muthuraja, General Secretary Madurai Pura Nagar Mavatta Panchalai Thozhilalar Sangam No.3, Thodanery Road Samayanallur, Madurai 625 402. (impleaded as R7 as per the order of Court in MP No.4/2009 in OSA 370/2009 dated 12.1.2010) .. Respondents 4 to 7 in OSA 37/2009 8.Sree Visalakshi Mills Private Limited Vishalakshi Nagar Madurai 625 401. 9.K.R.Palaniappan Proprietor, KRSA Karuppan Chettiar & Co No.443, KK Nagar, Madurai 20. .. Respondents 1 & 2 OSA Nos.371 and 372/2009 Original side appeals preferred under Order XXXVI Rule 11 of O.S. Rules read with Clause 15 of the Letters Patent against the orders of this Court made in C.A.Nos.2107 of 2008 in C.P.No.78 of 2008 dated 15.9.2009 and in C.A.Nos.1238 and 1239 of 2009 in C.P.No.78 of 2008 dated 7.9.2009 respectively. For Appellant : Mr.T.R.Rajagopalan Senior Counsel for Mr.T.K.Bhaskar For Respondents : Mrs.K.Latha Parimalavadana Asst. O.L. For R1 in OSA 370/2009 and for R3 in OSA 371 & 372 of 2009 Mr.Jayes Dolio for M/s.Aiyar & Dolia for R2 in OSA 370/2009 and for R4 in OSA 371 & 372 of 2009 Mr.K.S.Viswanathan for RR4 & 5 in OSA 370/2009 Mr.R.Krishnamurthy Senior Counsel for Mr.C.Kathiravan for R6 in OSA 370/2009 Mr.K.Srinivasamurthy for R7 in OSA 370/2009 https://hcservices.ecourts.gov.in/hcservices/ Mr.G.R.Lakshmanan for R5 in OSA 371 & 372 of 2009 COMMON JUDGMENT (Judgment of the Court was delivered by M.CHOCKALILNGAM, J.) These three intracourt appeals have arisen from the orders of the learned Single Judge of this Court made in Company Application No.2107 of 2008 and Company Application Nos.1238 and 1239 of 2009 respectively. 2.The Court heard the learned Counsel on either side. 3.C.A.No.1238 of 2009 was filed to stay all further proceedings in the auction, while C.A.No.1239 of 2009 was to set aside the auction proceedings under the following facts and circumstances: (a) Seeking winding up of the company, the first respondent therein made CP No.78 of 2008 on the ground that a sum of Rs.8,79,035/- was due as on 21.12.2007, and the company was unable to pay the same. The applicant could not pay the amount immediately on receipt of the summons; but the applicant has made part payments to the first respondent on various dates and has settled the entire amount due to the first respondent in full quit, and a sum of Rs.45000/- was paid to the Counsel for the first respondent on 27.8.2009, in the open Court as last balance. Under such circumstances, the above company petition was not pressed. (b) The applicant was also ready and willing to deposit the amount due to the Official Liquidator, the second respondent therein, who has made excessive claims. If the dues to the Official Liquidator were paid, nothing survives in C.P.No.78 of 2008, and the company petition was liable to be dismissed. (c) An order of winding up came to be passed on 3.12.2008. The Official Liquidator, who was initially appointed as Provisional Liquidator, was later on appointed as Official Liquidator of the company. The Official Liquidator must have got the sanction of the Court to sell the properties; but, he has not asked for the sale of the properties of the company in liquidation in auction. The Court directed him to invite tenders as the company has not paid Rs.25,08,395/- due to the Official Liquidator. (d) On 19.2.2009, the Court directed the company in liquidation to pay a sum of Rs.25,08,395/- on or before 4.3.2009. It was represented by the Counsel for the company that the company was unable to pay that amount. Hence a direction was issued to the Official Liquidator to proceed with the sale as per the order dated 3.12.2008. Thereafter, tenders were invited for the sale of the properties of the company in liquidation as per the orders of the Court fixing the last date as 28.7.2009. Though the Official Liquidator was directed to invite tenders for the purchase of the properties, no specific sanction or direction was given to him for https://hcservices.ecourts.gov.in/hcservices/ sale of the properties. By order dated 29.6.2009, the Court ordered to sell the properties for a sum of Rs.25,08,395/-, but no sanction was given to sell the properties in entirety for the amount due to the other creditors in the order dated 29.6.2009. A misrepresentation was made that the order of the Court was to sell the entire immovable and movable properties of the company in liquidation. (e) The valuation was not properly done. The properties were situate in prime locality, and therefore, the value of the property was Rs.3.5 lakhs per cent approximately. But the value quoted by the Official Liquidator at Rs.1 lakh was very low. It is a case in which global tenders should have been called for fixing the upset price at Rs.200 crores. There was violation of provisions of law while bringing the properties into auction. The description of properties with survey numbers and boundaries, the amount due for which sale was ordered and the encumbrance to the properties have not been specifically mentioned. (f) As far as the banks were concerned, they were holding a decree made by the Debt Recovery Tribunal, and appeals have been preferred before the Appellate Tribunal. Hence the debts due to the banks stood under dispute, and they could not participate in the proceedings before the Company Court. As far as the movables were concerned, their claim was a disputed debt, and no finality was reached in respect of their claim. Hence these applications. (g) The applications were strongly opposed by the Official Liquidator and also by the creditor banks. (h) After hearing the Counsel, the learned Single Judge took the view that there was no reason either to set aside the sale or to stay the same. Accordingly, both the applications were dismissed. Hence, O.S.A.Nos.371 and 372 of 2009 have arisen. 4.As far as C.A.No.2107 of 2008 was concerned, it was filed by the Official Liquidator under the following circumstances: (a) Subsequent to the publication made and pursuant to the orders made by the Company Court on various dates, auction was held on 15.9.2009, for three items of the properties namely Lot 'A' - land and building in 'A' Mill and 'B' Mill, Lot 'B' - plant and machineries and movables in 'A' Mill and Lot 'B' - plant and machineries and other movables in 'B' Mill. The auction was conducted firstly for Lot 'B' namely item 2 in respect of plant and machineries and other movables in 'A' Mill. There were two offers received. One Subramani has offered to purchase the properties for Rs.2.5 crores and he submitted a demand draft for Rs.83 lakhs towards EMD, on 15.9.2009, while the other bidder Ramasubbu offered Rs.2 crores and submitted a draft for Rs.83 lakhs. Between these two offers, the sale was confirmed in favour of M.Subramani which was higher. The EMD given by him was accepted and handed over to the Official Liquidator. The successful bidder was directed to pay the balance amount of Rs.2.49 crores in two consecutive instalments. The first instalment of Rs.1,24,50,000/- being the half of the balance amount, should be paid by the successful bidder within four weeks https://hcservices.ecourts.gov.in/hcservices/ while the remaining half should be paid within four weeks therefrom. The plant and machineries and other movables which were the subject matter of sale, were directed to be delivered to him on receipt of the entire balance amount payable by the bidder, and he should take delivery of the items within a period of three months from the date of final payment. It was also made clear that if he did not make the payment within the stipulated time, the EMD amount paid by him should be forfeited. (b) As far as item 3 namely Lot 'B' plant and machineries and other movables in 'B' Mill was concerned, there were two offers made by one Ramanathan who offered Rs.1.5 crores and submitted a demand draft for Rs.53,75,000/- on 15.9.2009, while one Ramesh offered Rs.1.5 crores and submitted a demand draft for Rs.53,75,000/- towards EMD. In between these two, Mr.Ramanathan offered Rs.2.15 crores finally. Thus he was the highest bidder. His demand draft was accepted and handed over to the Official Liquidator. The period of payment of the balance was stipulated, in default of which, the EMD amount paid by him should be forfeited. (c) As far as Lot 'A' land and building of both 'A' Mill and 'B' Mill was concerned, there was an offer from True Value Home India Pvt. Ltd., who offered Rs.45 crores and submitted a demand draft for Rs.12.11 crores on 15.9.2009 towards EMD. One Seetharaman also offered Rs.46 crores and submitted a demand draft for Rs.12.11 crores towards EMD. M/s.True Value Home India Pvt. Ltd., raised their bid to Rs.49 crores. Thus it was the highest offer. Hence the demand draft was accepted and handed over to the Official Liquidator. The successful bidder was directed to make the balance payment of Rs.36,89,00,000/- in two consecutive instalments. The first instalment of 50% of the balance amount i.e., Rs.18,11,50,000/-, should be paid within a period of two months, and the remaining amount should be paid within a period of three months thereafter. If there is any default, the EMD amount paid by him should be forfeited. Thus the sale in respect of the above bidders was confirmed. Aggrieved over the same, OSA No.370 of 2009 has been brought forth by the appellant. 5.Advancing arguments on behalf of the appellant, the learned Senior Counsel Mr.T.R.Rajagopalan would submit that it is pertinent to note that the Official Liquidator has not yet adjudicated upon the claims called for; that without the crystallization of the amount, there was no reason to sell all the properties; that the Official Liquidator owed a duty to the contributories to release the best amounts by selling only such of the properties that is required to discharge all the liabilities crystallized and return to the company along with the surplus assets to give back to the contributories; that it is to be noted that the valuation given by ITCOT is very low; that the Official Liquidator cannot bring the entire properties to sale only for realizing a sum of mere Rs.25 lakhs; that the appellant or any other contributory is entitled to appeal at any stage if it affects the contributories; that the upset price quoted was lower than the market value; that it is pertinent to note that appeals were filed by the applicant before the DRAT and therefore the sale of the https://hcservices.ecourts.gov.in/hcservices/ properties by the Company Court would render such appeal infructuous and redundant, and under the circumstances, the orders of the learned Single Judge have got to be set aside and the sale be set aside. 6.This Court also heard the learned Counsel for the auction purchaser, creditor banks and also the employees' Union and paid its anxious consideration on the submissions made. 7.All these appeals concentrate in attacking the sale of three items of properties of the company in liquidation. They are shown as item 1 – Lot 'A' land and building in 'A' Mill and 'B' Mill, item 2 – Lot 'B' plant and machineries and other movables in 'A' Mill and item 3 – Lot 'B' plant and machineries and other movables in 'B' Mill. Pursuant to the order of winding up dated 3.12.2008, the Official Liquidator who was initially appointed as Provisional Liquidator, was subsequently appointed as Official Liquidator. An appeal preferred challenging the same in OSA No.312 of 2008 was dismissed. On 31.7.2008, pursuant to the directions of the Company Court in C.A.No.2107 of 2008, the claims of the creditors of the company in liquidation were called. On 12.9.2008, the Company Court directed the secured creditor namely the Indian Bank, to furnish a copy of the valuation report. On 19.9.2008, the Company Court directed the Official Liquidator to value the properties through ITCOT. Following the same, on 24.9.2008, an order was passed by the Company Court directing the Official Liquidator to take possession of the properties belonging to the company in liquidation. An order came to be passed on 3.12.2008, directing the Official Liquidator to take steps to sell the properties fixing the upset price of the immovable assets at Rs.48,44,00,000/-. Some part payments made by the company in liquidation were recorded by the Company Court. On the first day of auction namely 23.1.2009, since there was only one offer and the same was also below the upset price, the auction was postponed. Though the Company Court directed the company in liquidation to pay Rs.25,08,395/- to the Official Liquidator on or before 4.3.2009, the same was not done. At this juncture, it becomes necessary to state that once the Official Liquidator has been appointed and the properties are vested on him, such a direction to the company in liquidation to pay the said sum to the Official Liquidator would not arise. The Company Court directed the Official Liquidator to proceed with the sale as per the order dated 3.12.2008, since the company in liquidation did not make the payment of Rs.25,08,395/- as stated above. On the next date of auction namely 30.7.2009, there was only one offer, which was below the upset price. The publication was also made only in two newspapers, but not in three as ordered. The Official Liquidator was also directed to find out the purchasers. The auction was posted to 7.9.2009. But the auction was not held that day. The same was adjourned to 15.9.2009. On that day, for purchase of all the three items, the offerers were present in Court. They made their offers. The Court accepted the highest offer made by the offerers present in Court and subsequently confirmed the sale. The above sale proceedings and the confirmation of sale are challenged in these appeals. 8.The learned Counsel on either side argued in length attacking and affirming the order of winding up respectively. This Court is of the considered opinion that all these contentions as to the order of https://hcservices.ecourts.gov.in/hcservices/ winding up need not be considered in these appeals for two reasons. Firstly, it is admitted by the parties that independent proceedings as to the winding up are pending in the Company Court. Secondly, all these appeals challenge only the auction proceedings and thus the order of winding up stands outside the scope of the appeals. Now, at this juncture, the only question that would arise for consideration is whether the auction sale proceedings as mentioned above, has to be set aside as asked for by the appellant. 9.As could be seen from the available materials, the Company Court made an order on 3.12.2008, to invite tenders for the purchase of the properties. But no order or direction for sale of the properties was made. Pursuant to the orders, the Official Liquidator has invited tenders for sale of the properties of the company in liquidation which he should not have done at that juncture, since there was no specific order for sale of the properties. An order directing the sale of properties was made on 29.6.2009, since the direction given to the company in liquidation to pay a sum of Rs.25,08,395/- on or before 4.3.2009, was not complied with. It remains to be stated at this juncture that the Company Court did not give sanction for sale of the entire properties for the said amount due namely Rs.25,08,395/-. Thus, there was a mere claim of Rs.25 lakhs and odd. Admittedly, the claims of the banks namely the secured creditors, were the subject matter of appeals before the DRAT, and thus their claims were under dispute and not decided. However, when the properties were brought for sale by the Official Liquidator, the claim before him was only Rs.25 lakhs and odd. Then, at that juncture, there was no justification in bringing the entire properties of the company in liquidation for sale. It is settled proposition of law that the Official Liquidator has to act not only for the benefit of the creditors but also to the contributories like the appellant, and a duty is cast upon him to realise the sale proceeds by making sale of only such of the properties required to discharge the liabilities crystallized and return the surplus assets to give back to the contributories. In the instant case, he has not acted so at that juncture. 10.As far as the valuation of the properties is concerned, it is contended by the appellant that the market value of the property was much more than the value found in the report which, according to them, was very low. When such a contention was raised that the value fixed was low and unreasonable, there arose a necessity for making proper publication in order to fetch best and adequate price for the properties. It is not in controversy that for the auction sale in respect of the three items of properties mentioned above, a publication was made by the Official Liquidator stating that the sealed tenders should be submitted along with the EMD on or before 28.7.2009. They would be opened on 30.7.2009, before the Court. As could be seen from the order, on 30.7.2009, the date fixed for auction, there was only one bidder, who offered to purchase the properties for Rs.40 crores, and hence the auction was postponed. At that time, it was found that the publication was effected only in two newspapers, while it was ordered to be made in three. Then the auction was adjourned to 7.9.2009. From the time of the order for making a publication till the date to which the auction was posted namely 7.9.2009, no material is available that the order of the Court https://hcservices.ecourts.gov.in/hcservices/ for publication was complied with. Apart from the same, the auction was adjourned to 7.9.2009 also returning the demand draft to the only bidder. The properties were actually sold on 15.9.2009. It is not in controversy that for the sale held on 15.9.2009, there was no publication at all. As far as the first item namely Lot 'A' was concerned, the sale was fixed on 10.9.2009. There were only two bidders present, but they did not bring the EMD amount. Then the sale was adjourned to 15.9.2009. Both the bidders were present on 15.9.2009, along with the EMD amount. In respect of the first item namely Lot 'A', the land and building of both 'A' Mill and 'B' Mill, among the two bidders M/s.True Value Home India Pvt. Ltd., came forward to purchase the same for Rs.49 crores. Since his offer was higher, the sale was made in his favour. However, for the sale of the first Lot or for the sale of the other Lot, made on the above dates, there was no actual publication made. The offerers and in particular the offerer whose offer was accepted and in whose favour sale was made, did not place any sealed cover. It is pertinent to point out that on 10.9.2009, when these two bidders were present, they were not ready with EMD. Hence the sale was adjourned to 15.9.2009 calling upon them to be present with EMD. It is true that these are all procedural formalities. But, when the sale was made in favour of the bidders without making proper publicity of the sale and that too when the value found in the valuation report was found to be low, the sale cannot be upheld, and in the interest of all, it should have been made only after making proper publicity. 11.It was repeatedly contended by the learned Counsel for the auction purchaser and creditor banks that the appellant was unable to show any irregularity or fraud in the conduct of the sale, and hence it should not be set aside. It should not be forgotten that the Court can set aside the sale even though the same was confirmed, if the interest of the creditors at large, contributories and all concerned is affected. Merely because of the confirmation of the sale, the Court will not become functus officio. In the instant case, no doubt this would cause inconvenience or even a loss to the highest bidder, but the same cannot be helped since in the instant case, the sale was conducted in the Court premises, but not in a business house. Though the sale is not attacked on any ground of irregularity or fraud in the conduct of the sale, when the Court is able to notice that there was neither just nor proper exercise of the judicial discretion, the sale has to be set aside on that ground. In the instant case, there was no proper publication. Two bidders were present in Court who did not have the EMD amount. Then the sale was adjourned, and even on that day, two bidders were present. Both of them were not present in Court pursuant to the publication made. Hence it would be quite clear that they should have been brought by others who were interested in the sale of the properties, but detrimental to the interest of all others. Under such circumstances, a meaningful intervention by the Court becomes necessary. The Apex Court had an occasion to consider the principles which would govern the confirmation of sale conducted in the winding up of a company in a case reported in 1970 40 COMPANY CASES 936 (NAVALKHA AND SONS V. RAMANUJA DAS AND OTHERS) and has held as follows: In the present case the Division Bench has come to the conclusion that publicity was not as wide as originally https://hcservices.ecourts.gov.in/hcservices/ proposed by the Commissioners in their affidavit. The publication was made in four dailies namely The Hindu, Indian Express, the Hindustan Times and The Statesman. There was no publication in the Times of India. Further out of the four newspapers in which publication was made only in two there were two insertions and in the remaining two there was only one insertion. This was contrary to what the Commissioners have promised in their affidavit dated July 8, 1964. No doubt, other efforts were made for giving publicity but these efforts were not sufficient to attract more than one offer. When the case came for confirmation on December 24, 1964 there was an application by Babu Khan that the property was of much higher value and that fresh offers must be invited again with wider publicity. There is also the affidavit of the State Government dated August 29, 1963 in which the value of the property was shown as Rs 13,40,000. Besides, on that very day, one Gopaldas Darak had come before the Court with a higher offer showing his bona fides and earnestness by depositing more than one lakh of rupees. He came with the complaint that there was not sufficient publicity as to attract people from the north and that as soon as he came to know he gave his offer. In these circumstances the learned Single Judge was right in expressing his reluctance to confirm the offer of Navalkha & Sons. He therefore decided to have an open bid as between the appellant and Darak in the Court itself on that very day. The complaint of Padam Chand Agarwal is that the second step taken by the Single Judge of holding an auction without giving wide