Case: M/S. Ngef Ltd Vs. M/S. Chandra Developers Pvt. Ltd.

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. 61. 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. 62. 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 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 ]". 63. 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 ] 64. 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. 65. 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: 66. 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 dehors it. If the Company Court had no jurisdiction to pass the impugned order, it could not derive any jurisdiction only because BIFR said so. 67. 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.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]32. 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 later33. 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 contract34. 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 contract37. The submission of Mr. Venugopal that in the event if it be held that the companys approval was necessary, the same would be contrary to the statutory power of the Company Court is, thus, misconceived38. 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 8.10.200346. It may be true that the High Courts 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 us47. 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 avoided48. 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 statute50. 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 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 Court56. 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 Court60. 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 same63. 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.66. 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 dehors it. If the Company Court had no jurisdiction to pass the impugned order, it could not derive any jurisdiction only because BIFR said so67. 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