Case: Jay Electric Wire Corporation Employees Union &amp; Another Vs. Pravin Gada &amp; Others

2. A Company by the name of Jay Electric Wire Corporation Ltd., which is now in liquidation, had its factory at Mysore on land admeasuring about 4.4 acres, comprised in Plots 44 and 47 in Serial Nos.55 and 69 in the Industrial area of village Habal and Sr.No.22 of Metagally, Hobla Kasba. The Company employed about 149 workers. The factory closed down in February 1995 and the workers claimed that their services were illegally terminated. On 5 January 2001, an award was passed by the Industrial Tribunal at Mysore in a reference under Section 10 of the Industrial Disputes Act, 1947, directing the employer to pay backwages to the workmen with effect from 6 February 1995 and to continue payment during the subsistence of the relationship of employer and employee between the parties. On 18 December 2006, a recovery certificate was issued by the Deputy Labour Commissioner at Bangalore in the amount of Rs.4.44 crores towards the dues of the workmen under the award of the Industrial Tribunal. These dues, according to the Union, have been computed until 1999. Proceedings for the winding up of the Company were initiated before the Company Judge of this Court in 1996 (Company Petition 336 of 1996). Subsequently, on a reference made by the BIFR under Section 20(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, the Company Court held that it was just and equitable for the Company to be wound up. The Official Liquidator was appointed as provisional Liquidator by an order dated 6 October 2005 of the Company Judge to take charge of the books, assets and business of the Company and to exercise all necessary powers under the Companies Act, 1956. By an order dated 15 October 2008, the Company Judge made the Petition absolute by directing that the Company be wound up. The Official Liquidator was accordingly directed to proceed in the matter, in accordance with law, in relation to the assets of the Company in liquidation.3. In the year 1999, ICICI Bank had instituted a suit before this Court, on its Original Side, for the recovery of its dues against the Company, Jay Electric Wire Corporation Ltd. By an order of a Learned Single Judge dated 8 July 1999, the Court Receiver was appointed as Receiver inter alia of the assets of the Company with liberty to sell the assets by a public auction or by private treaty and to apply the net sale proceeds as between the ICICI Bank and the Central Bank of India (impleaded as the Second Defendant to the suit) in satisfaction of their respective charges on the immovable property. The suit was transferred to the DRT upon the enactment of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The DRT by its order dated 26 August 2003, allowed the application filed by ICICI Bank Ltd. in the amount of Rs.1.12 crores together with future interest at 12% per annum. The Tribunal directed that upon the failure of the borrower to repay the amount within six months, the immovable property would be sold and the net sale proceeds would be paid to the applicant Bank and to the Central Bank of India in proportion to their respective charges. The Receiver appointed by the Tribunal was, by an order dated 19 April 2004, continued in the recovery proceedings.4. In June 2004, a public notice was issued for the sale of the moveable and immovable properties of the borrower. A notice of the proposed sale was published in the newspapers. Though moveables of the borrower came to be sold, no offer was received for the sale of its immovable property. On 24 July 2006, a meeting took place before the private receiver, who had been appointed by the DRT as receiver. The Receiver recorded that two offers were received, one in the amount of Rs.1.10 crores, while another of the First and Second Respondents in the amount of Rs.80 lakhs. The Central Bank of India stated that the offers were not acceptable to it. At that stage, the Standard Chartered Bank appeared before the Receiver stating that ICICI Bank Ltd. had assigned its debts to it. The meeting was adjourned to 9 August 2006. Before the Receiver, proceedings were adjourned on 9 August 2006 to 21 August 2006. On 21 August 2006 bidding took place inter se between the two bidders, who submitted private offers, when the First and Second Respondents enhanced their bid to Rs.2.50 crores. The meeting was adjourned to 5 September 2006 and the successful bidder was directed to make up an amount representing 25% of the offer by 28 August 2006. The Central Bank was not present.5. A letter was addressed by the Receiver on 29 September 2006 to the Advocates for the two Banks enclosing a report seeking the confirmation of sale in favour of the First and Second Respondents in terms of their offer of Rs.2.50 crores. The Banks were informed that the matter stood adjourned to 27 October 2006 when the sale may be confirmed. The sale in favour of the First and Second Respondents was confirmed on 27 October 2006.6. On 30 October 2006, an application was filed by Central Bank of India for setting aside the sale. The Central Bank in its application complained that though the usual procedure which was followed by the Receiver was to intimate its Advocate of the next date of hearing, and though on 24 July 2006 the Bank had opposed the acceptance of the offers which had been submitted, it had no intimation of the proceedings until it received a letter dated 29 September 2006 of the Receiver stating that the property had been sold to the First and Second Respondents for Rs.2.50 crores and that the sale was to be confirmed on 27 October 2006. The Central Bank claimed that in the absence of intimation, it had been unable to remain present when the bidding took place on 21 August 2006 before the Receiver. The Central Bank in its application further stated that it had made efforts and obtained an expression of interest in the property from two parties who had indicated offers in the amount of Rs.2.55 crores and Rs.3 crores for the purchase of the property at Mysore. According to the Central Bank, upon receipt of the letter of the Receiver dated 29 September 2006, their Chief Manager had personally visited the office of the Receiver on 17 October 2006 and had informed him of the expression of interest by at least two other bidders who were willing to pay a higher price. According to the Bank, the Receiver had called upon its Chief Manager to remain present at 4 p.m. on 27 October 2006 and the Bank was, therefore, led to believe that the confirmation would take place at that time. However, a meeting was held by the Receiver at 11 a.m. on 27 October 2006. The Bank was unable to contact its Advocate due to a strike of public sector Banks on that date. But on 27 October 2006 when both the interested bidders arrived at the office of the Receiver, they were informed that the sale had been confirmed in the morning. A protest was registered by a letter dated 27 October 2006. By its application, the Bank sought the setting aside of the order confirming the sale dated 27 October 2006 and a direction to the Receiver to conduct a fresh auction and to consider the offers submitted by the two bidders who had expressed interest in the purchase of the property.7. At this stage, it would also be necessary to note that the Official Liquidator had filed a report dated 1 December 2006 before the DRT stating that an application has been received from the workers contending that the sale which had been conducted in favour of the First and Second Respondents was at a price which was not fair and reasonable. The Official Liquidator further submitted that the sale which was conducted by the Receiver in favour of the First and Second Respondents be set aside since no notice had been furnished to the Liquidator though the Registrar had directed that the Liquidator be brought on the record.8. By an order dated 5 December 2006, the Recovery Officer set aside the confirmation of sale holding that it was obligatory to ensure that a higher price is fetched for the property and assets of a Company in liquidation, if the sale price offered by an auction purchaser is inadequate. The Recovery Officer held that he was entitled to set aside the confirmation in view of the higher offer which was received within a few days and before the sale deed was executed. Moreover, the Official Liquidator who had submitted a report dated 29 March 2005 was also required to be associated with the sale proceedings. Accordingly, the Recovery Officer directed, while setting aside the sale, that a fresh auction be conducted in the presence of all secured creditors, the Receiver and the Official Liquidator after notice.9. Immediately after the sale was set aside on 5 December 2006, the Recovery Officer conducted a sale on the very same day. No fresh notification of sale was published. Bids were not invited from the parties. In his roznama dated 5 December 2006, the Recovery Officer noted that the original auction purchasers did not participate in the fresh bidding process. Two bids appear to have been privately received by the Recovery Officer. The highest bid in the amount of Rs.6.45 crores was of Umrah developers. The Recovery Officer directed that the bid of Umrah developers in the amount of Rs.6.45 crores be accepted and the successful bidder was directed to pay the purchase consideration.10. Umrah developers deposited the full consideration of Rs. 6.45 crores on 10 November 2006 and 11 December 2006. After the sale in favour of the First and Second Respondents was set aside, and the Recovery Officer declared Umrah developers as the successful bidder, the First and Second Respondents filed an appeal before the Debts Recovery Tribunal. The Tribunal by its order dated 6 February 2007 noted that on 5 December 2006, the Recovery Officer while setting aside the sale had immediately conducted an auction amongst the bidders who were present in which the highest offer was Rs.6.45 crores. The property had been valued between 2004 and 2005 at Rs.80 lakhs for which the last offer now received was Rs.6.45 crores. In the circumstances, the Tribunal held that there was something wrong on the part of the valuer. The fact that an offer of Rs.6.45 crores was received when bids were conducted only amongst a few persons and not in the public realm was indicative of the fact that the property could fetch a higher value. The Tribunal was of the view that instead of selling the property by private negotiation, the Recovery Officer should have issued a public notice and ought to have invited fresh offers. The Tribunal found fault with the Recovery Officer proceeding in a sale of the property immediately after he had set aside the earlier sale. Consequently, there was a finding that the sale, right from the inception, had not been conducted properly. Accordingly, the Tribunal directed that while retaining the offers which were received until 5 December 2006, the Recovery Officer should publish a public notice to determine as to whether offers higher than the bid of Rs.6.45 crores of Umrah Developers were realised. If no further offers were received, the Recovery Officer was directed to accept the highest bid after inter se bidding between the earlier bidders.11. The order of the Tribunal was challenged in appeal by the First Respondent. The DRAT granted a stay on 26 February 2007 as a result of which the entire process of holding a fresh auction came to a stand still. Thereupon, an application was filed by Umrah Developers before the DRT to permit it to withdraw the amount which it had deposited. The application was rejected by the Tribunal. Thereafter, Umrah Developers took out an application before the DRAT for permission to withdraw the amount which was deposited. The DRAT by an order dated 20 March 2007 allowed Umrah Developers to withdraw 90% of its bid amount of Rs.6.45 crores, leaving in balance Rs.64.5 lakhs in deposit before the Recovery Officer. In support of the order, the DRAT furnished the following reasons:When the order was passed directing holding of a fresh auction in respect of the property, the party, whose bid has not been accepted as the highest bid or sale in his favour has been set aside cannot be in law as well as in equity prevented from withdrawing his deposit, specially when the entire purchase price was deposited by that party and the offer given by him cannot be said to be not genuine.These observations of the DRAT indicate that it proceeded on the basis that the offer by Umrah Developers was a genuine offer. However, as a result of the pendency of the proceedings before the DRAT, the sale process was stalled. The DRAT consequently directed a refund of 90% of the bid amount to Umrah Developers. Subsequently, Umrah Developers moved the Tribunal for withdrawal of the balance representing 10% of the total bid amount on 23 June 2009, inter alia on the ground that though more than two and a half years had elapsed, the property had not been put up for auction.12. By an order dated 2 July 2008, the DRAT dismissed the appeal filed by the First Respondent, principally on the ground that the offer of Rs.6.45 crores was higher than the offer of Rs.2.50 crores furnished by the First and Second Respondents. The First and Second Respondents challenged the order of the DRAT in writ proceedings before this Court. During the pendency of the writ proceedings, an application filed by Umrah Developers for refund of the balance representing 10% of the bid amount was allowed and the remaining amount was released on 15 September 2009. The Writ Petition filed by the First and Second Respondents challenging the order of the DRAT was disposed of by consent by a Division Bench of this Court by an order dated 11 August 2010 in terms of agreed Minutes. The agreed order records that one of the principal factors which weighed with the DRAT was that at the relevant time, an offer for the purchase of the property at Rs.6.45 crores had been made. However, since that offer had been withdrawn and the bid consideration also had been refunded, this Court remanded the proceedings back to the DRAT for a fresh decision. On remand, the DRAT by its order dated 15 October 2010, allowed the appeal filed by the First and Second Respondents and directed the Recovery Officer and the Tribunal to restore the confirmation of sale in favour of the First and Second Respondents on 27 October 2006. This order of the DRAT was questioned by the Union representing the workers in a writ proceeding before this Court. By an order dated 20 December 2010, this Court set aside the order of the DRAT and remitted the proceedings back for fresh consideration. Following the order of remand, the DRAT has passed its impugned order dated 3 March 2011 allowing the appeal filed the First and Second Respondents and restoring the confirmation of sale made in favour of the First and Second Respondents on 27 October 2006.13. Both the Banks who are secured creditors before the Court have filed Petitions under Article 226 of the Constitution for questioning the order passed by the DRAT. As a matter of fact, the first Petition chronologically was instituted by the workers Union to challenge the order of the DRAT. During the course of the hearing of these proceedings, the Court has been informed that an effort has been made by the First and Second Respondents to settle the outstanding dues of the workers through an out of Court settlement. Counsel appearing on behalf of the workmen submitted that the workmen would abide by the result of the Petitions which have been filed by the secured creditors and it is only in the event that the Petitions filed by the Banks are dismissed that the workers would be inclined to enter into an out of Court settlement with the First and Second Respondents. Counsel for the First and Second Respondents stated that his clients would be able to resolve the dispute with the workmen only if the Petitions filed by the secured creditors challenging the sale in favour of his clients fail. Counsel appearing on behalf of the First and Second Respondents submitted that while the First and Second Respondents are ready and willing to negotiate with the workmen, they are not in a position to do so until the litigation which has been instituted by the secured creditors attains finality. The Central Bank of India and the Standard Chartered Bank who are two secured creditors have pressed their challenge to the order of the DRAT, submitting that there is a material irregularity and the sale has been conducted in a manner lacking in transparency and fairness.

Reasoning:
19. The record of the case reveals that the principal borrower, which is a Company incorporated under the Companies Act, 1956, has been ordered to be wound up. A provisional Liquidator was initially appointed by an order of the Company Judge dated 6 October 2005. While passing an order of winding up on 15 October 2008, the Company Judge directed that the Liquidator shall act in accordance with law in relation to the assets of the Company in liquidation. The Official Liquidator placed his report dated 1 December 2006 on the file of the DRT contending that the sale which has been effected in favour of the First and Second Respondents ought to be set aside for the reason that no notice had been furnished to him. The DRAT in the course of its impugned order observed that the Liquidator who was appointed under the orders passed by the Company Court only had restricted powers to participate at the stage of the disbursement of the dues of the workmen. This exfacie is not a correct reading either of the order of the Company Judge dated 6 October 2005 by which a provisional Liquidator came to be appointed or of the final order dated 15 October 2008 when a Liquidator was appointed upon an order of winding up being passed. As a matter of fact, the record before the Court would indicate that initially it was on 26 February 2004 that the Official Liquidator was appointed as provisional Liquidator in Company Petition 336 of 2006. The powers of the Liquidator were not restricted by the orders of the Companywithout a public notice inviting offers, the price for the property had more than doubled. The process adopted by the Recovery Officer was, however, faulty for the reason that when the earlier sale was set aside on 5 December 2006, no fresh notice was issued to enable participation amongst bidders drawn from the public at large. This was noticed in the order of the DRT dated 6 February 2007. The DRT directed that a fresh process of bidding be concluded after the issuance of a public notice. The reasons which weighed with the DRT were eminently proper. The Tribunal found that the valuation was flawed, and that instead of a private negotiation, a fair public auction should be held. It is this order of the DRT which was carried in appeal to the DRAT and which was setare of the view that the manner in which the sale process was conducted is anything but fair. The Receivers have cast aside every norm of prudence. They failed to act in a transparent manner and elevated a private preference to an overriding priority. As a result, the necessity of selling property at a public auction at which the best possible price could be realised has been an unfortunate casualty. The sale has been conducted evidently without following any principles of transparency or fair dealing. Admittedly no public notice has been issued before the sale which culminated in favour of the First and Second Respondents was held. The price which was offered by the First and Second Respondents was Rs.2.50 crores. The sale was confirmed on 27 October 2006 and it is a matter of some significance that within a period of a little over a month thereafter, an offer was made to the Recovery Officer for the same property for Rs.6.45 crores. Even that offer, it must be noted, was without a public advertisement being issued and an opportunity being granted to the public at large to bid for the property. The amount of Rs.6.45 crores was deposited by the bidder, who had submitted a bid on 5 December 2006. That bid was, however, withdrawn as a result of the fact that the process of conducting a fresh auction came to be stalled as a result of the order of stay passed by the DRAT. The bid amount was permitted to be withdrawn under orders of the Court, specifically in view of the fact that as a result of the delay that had taken place in the conduct of the fresh auction, the process had been brought to a stand still. Significantly, the Recovery Officer after confirming the sale on 27 October 2006, proceeded to hand over possession of the property on 31 October 2006. On 30 October 2006, the previous day, Central Bank had moved an application for setting aside the confirmation of sale. There has been a material irregularity in the sale which vitiates thethe present case, the authenticity of the valuation report is another factor that ought to have been weighed by the DRAT, especially in light of the fact that higher offers were received days after the sale. In light of all the above, the conclusion of the DRAT that there was no material irregularity is specious. A case for interference under the jurisdiction of this Court is made out.