Case: Pegasus Assets Reconstruction P.Ltd Vs. M/S Haryana Concast Limited

2. In order to understand the central issue involved in each of the matters, it may be useful to notice that Civil Appeal No. 3646 of 2011 preferred by Pegasus Assets Reconstruction Private Limited (for brevity,which has been heard as the lead matter, arises out of a Division Bench judgment of Punjab and Haryana High Court dated 15.12.2009 whereby the Division Bench upheld the judgment of Company Court and approved of certain fetters placed upon M/s. Pegasus Assets Reconstruction Pvt. Ltd., while allowing it to exercise its powers as a secured creditor under the SARFAESI Act and proceed with the sale of the secured assets. Since the judgment of Division Bench disallowed the appeal of Haryana State Infrastructure and Industrial Development Corporation (for brevityagainst the order of Company Judge allowing Pegasus to stay outside the winding up proceeding of the respondent Haryana Concast Limited, HSIIDC is also before this Court through SLP (C) No. 7074 of 2010.3. The secured asset in the form of approximately 36 acres of land of Haryana Concast Ltd. was subjected to auction by Pegasus in association and collaboration with the Official Liquidator as per order of the company judge and was ultimately sold for Rs.32 crores in favour of M/s. Venus Realcon Pvt. Ltd. One Vinod Rajaliwala challenged the orders of the company judge confirming sale in favour of M/s. Venus Realcon Pvt. Ltd. by preferring a company appeal and also through a public interest litigation (a writ petition). Both were dismissed by the Division Bench. Those orders have been challenged by Mr. Vinod Rajaliwala through Special Leave Petition (C) Nos.117-118 of 2011. The three matters indicated above thus relate to secured assets of the same company under Liquidation, M/s. Haryana Concast Limited.4. The fourth matter, C.A. No. 9293-94 of 2014 preferred by Megnostar Telecommunications Private Limited (for brevity,arises out of a Division Bench Judgment of Delhi High Court dated 17.9.2012. By this order the Delhi High Court has differed with the views taken by the Punjab and Haryana High Court in the judgment assailed by Pegasus in Civil Appeal No.3646 of 2011. According to Delhi High Court, the company judge or the official liquidator cannot have any say in the sale of secured assets by the secured creditors under the SARFAESI Act. The Companies Act cannot be used to put any fetters on the sale by secured creditors because a secured creditor under Section 13 of the SARFAESI Act has been granted a right to enforce the security interestthe intervention of the court orin accordance with the provisions of the SARFAESI Act. It goes without saying that if the view taken by the Punjab and Haryana High Court in the matter of Pegasus is approved and the Civil Appeal No. 3646 of 2011 is dismissed, then the Delhi Highview will stand disapproved and Civil Appeal No. 9293-94 of 2014 will have to beof 20116. M/s. Haryana Concast Ltd., respondent no.1 suffered a winding up order of the Company Judge of Punjab & Haryana High Court in 1999. The only secured creditor, the Bank of India obtained a recovery certificate against respondent no.1 from the Debt Recovery Tribunal, Chandigarh in 2002 for a sum of Rs.5.84 crores approx. with pendente lite and future interest @ 18% p.a. from the date of filing of the suit till realization. Although the High Court allowed the Official Liquidator to sell the assets of the company in May 2004 and the bank also submitted its claim before the Official Liquidator in July 2004 for Rs.10.58 crores approx. as dues upto 30th June 2004, the sale could not be effected for one reason or the other. Being a guarantor, the HSIIDC settled the liabilities of three banks by paying Rs.10.39 crores approx. and as a result acquired a charge only over the moveable assets, that is, raw materials of the company. Accordingly it was substituted/subrogated in place of the three banks. As a registered securitization company, Pegasus entered into an assignment agreement with the sole secured creditor, Bank of India on 27.8.2008 and soon informed the Official Liquidator that it intends to remain outside the winding up process, to enforce its security as per the provisions of SARFAESI Act, subject to the rights of the erstwhile workmen of the company, respondent no.1 as per Section 529A of the Companies Act. Pegasus pursued its aforesaid stand by filing an application before the Company Judge for recalling an order dated March 20, 2008 wherein it had directed the Official Liquidator to undertake a fresh sale of the assets of the company. In this petition dated 22.09.2008, Pegasus also sought directions to the Official Liquidator to hand over the secured assets of the company in its favour. The Company Judge allowed Pegasus to proceed under the SARFAESI Act for enforcing its security by an order passed on March 20, 2009 but in view of orders passed earlier in the winding up proceedings the Company Judge laid down certain terms and conditions for permitting Pegasus to stay outside the winding up proceedings and bring about sale of secured assets under Section 13 of the SARFAESI Act read with Rules 8 and 9 of Security Interest Enforcement Rules, 2002 (hereinafter referred to as ‘theThese conditions forming part of paragraph 19 of the judgment of the learned Company Judge are extracted hereinbelow because these have been objected to by Pegasus as fetters which the Company Judge could not have obtained and therefore Pegasus preferred Company Appeal No.28 of 2009 which has been dismissed by the order under appeal dated 15.12.2009. Para 19 is as followsIf any attempt to harmonize the provisions of the SARFAESI Act and the Companies Act could be made, in the context of orders for sale having already been made by the Company Court and the participation of the assignor of the applicant at several steps for the conduct of sale through the Company Court, it will be inexpedient unyoke the proceeding that were put through the O.L. While upholding the claim that the procedure laid down under the SARFAESI Act would enable the provisions of the Security Enforcement Rules to be applied for conduct and confirmation of the sale, the dispensation in this case would be(a) to permit the applicant to stay outside the winding up proceedings and take action to bring to sale the secured assets under Section 13 of the SARFAESI Act read with Rules 8 and 9 of Security Interest Enforcement Rules, 2002.(b) The applicant-Reconstruction Company shall keep all the steps taken under the SARFAESI Act and the relevant rules transparent and submit all the proposals for sale to the O.L. and the details of valuation obtained for the conduct of the sale for the purpose of determining the used price.(c) Sale shall be advertised with a specific clause that the winding up proceedings are pending before the Company Court, with details of case number and the Court of adjudication.(d) The expenses already incurred for the conduct of the sale by O.L. shall be deducted from out of the sale proceeds before any appropriation or disbursement and deposited with O.L.(e) The Reconstruction Company shall place before the Company Court the details of its claim and all expenses incurred before the Company Court before making any appropriation to himself and disbursed.(f) The surplus proceeds over what is lawfully due to it shall be deposited to the credit of the Company (in liquidation) before theof 20149. Megnostar is the company, now under liquidation, which mortgaged its property bearing Plot No.1297 admeasuring 502.33 Sq. Yds. situated at MIE, Bahadurgarh, Haryana along with structures, present and future, with respondent-bank through Memo of Deposit of Title Deeds dated 29.04.2008 for securing loans obtained from the bank. In December 2008 respondent-bank issued a notice under Section 13(2) of the SARFAESI Act upon Megnostar on account of persistent defaults in making timely payment of amounts due to the bank. On 05.02.2009 Megnostar requested for release of the secured assets to enable it to sell the same for making part payment of dues of the bank. A Company Petition No.359 of 2009 was filed by an unsecured creditor M/s. Magicon Impex Pvt. Ltd. for winding up of Megnostar but the bank was not made aware of this proceeding till visit of some officials from the office of the Official Liquidator on 28.08.2011. The bank obtained directions from the District Magistrate concerned under Section 14(1) of the SARFAESI Act, took over possession of the secured asset on 16.06.2010 and a notice to that effect was published in various newspapers on 18.06.2010. O.A. No.38 of 2009 filed by the bank against Megnostar was allowed by DRT-II, Delhi on 13.07.2010 holding the company liable to pay to the bank Rs.12.95 crores approx. with pendente lite and future interest @ 15.5.% p.a. with quarterly interests from date of filing of O.A. till date of realization. To realize its dues, the respondent-bank published auction-cum-sale notice of the secured assets on 23.07.2011 in exercise of its rights under Section 13(4) of the SARFAESI Act. In the public auction held on 24.08.2011 respondent, M/s. Mohan Tractors (P) Ltd. offered the highest bid of Rs.80 lacs. As a successful auction purchaser, it was handed over the possession and title deed of the mortgaged property. On 28.08.2011 this property at Bahadurgarh was visited by 4-5 persons claiming to be from the office of the Official Liquidator. They had come to take possession of the property on the basis of an order dated 03.08.2011 in Company Petition No.359 of 2009 whereby the Company Judge had appointed the Official Liquidator as a provisional liquidator with direction to take charge of all assets of the company Megnostar. The personnel from the office of the Official Liquidator were apprised of developments and sale under the SARFAESI Act but with the aid of police personnel they took forcible possession of the mortgaged property on August 30, 2011. In September 2011 the bank filed C.A.No.1948 of 2011 in C.P. No.359 of 2009 for a direction upon the Official Liquidator to unseal the property and hand over its possession to M/s. Mohan Tractors. To similar effect was C.A.No.1947 of 2011 filed by M/s. Mohan Tractors. The Company Judge appointed a valuer who submitted a Valuation Report on 14.01.2012. As per the report the land was valued at Rs.77.44 lacs approx. and the construction existing on the land was valued at Rs.40.65 lacs, the total value thus amounted to Rs.1.18 crores approx. The learned Company Judge dismissed C.A. Nos.1947 and 1948 of 2011 by order dated 26.4.2012. Against that, the bank respondent no.2 preferred Company Appeal No.58 of 2012 before the Division Bench of High Court of Delhi. A separate appeal bearing no.62 of 2012 was filed by M/s. Mohan Tractors. Those appeals were allowed by the Division Bench as per order under appeal dated 17.09.2012.10. The case of Mr. Vinod Rajaliwala requires separate consideration but only after an adjudication on the main issue indicated earlier and after deciding which of the two views is in accordance with law, of Delhi High Court in the case of Megnostar or of Punjab & Haryana High Court in the case of Pegasus. As the case of Pegasus has been argued as a lead matter, we propose to first consider the views of Punjab & Haryana High Court. After noticing the Statement of Objects & Reasons for enactment of the SARFAESI Act as discussed by the Company Judge, the Division Bench took note of detailed arguments advanced on behalf of Pegasus which is to the following effect. Section 5 of the SARFAESI Act provides for acquisition of rights or interest in financial assets of any bank or financial institution by any securitization company or reconstruction company, inter alia, by entering into an agreement and this Section begins with a non obstante clause. Section 9 enumerates various measures which can be adopted by a securitization company or reconstruction company, including the sale or lease of a part or whole of the business of the borrower and this Section also begins with a non obstante clause. Chapter III consists of 7 sections providing for enforcement of security interest created in favour of any secured creditor. Section 13, which also begins with a non obstante clause of a limited nature for overcoming the hurdles of Section 69 or Section 69A of the Transfer of Property Act, 1882, creates a right in the secured creditor to enforce any security interest in its favour without the intervention of a court or tribunal, in accordance with the provisions of this Act. The detailed scheme for enforcement of the secured assets under various sub-sections and provisos in Section 13 were pointed out along with Section 35 and 37 in support of a submission that the provisions are not only a complete code for enforcement of secured asset by a secured creditor but in case of conflict with any other statute, the provisions of the SARFAESI Act would prevail. Some other statutes enumerated in Section 37 can play a supplemental role along with any other law for the time being in force including the Companies Act but obviously only till they are consistent with provisions of the SARFAESI Act. The relevant case laws were also cited and considered. The rival contention and case laws were noted for framing the main question of law in the following wordsthe Company Court enjoys jurisdiction to issue supervisory direction to a securitization company/secured creditor in connection with a company in liquidation or under winding up in the face of Section 13 of the SARFAESI Act or securitization company opting to stand outside the winding up is absolutely free to utilize the sale proceeds of assets of the company in

Reasoning:
27. We grant leave in SLP(C) No.7074 of 2010 preferred by HSIIDC but only to dismiss this case as we have found the grievance of Pegasus to be justified; it was entitled not only to stay outside the winding up proceeding in view of provisions of SARFAESI Act which is a special and later Act but was also entitled to exercise its rights without any fetters that were erroneously placed upon it by the company Judge and were approved also by the Division Bench. Hence, the grievance of the HSIIDC that Pegasus should not have been permitted to stay outside the winding up proceeding is found meritless. Consequently its appeal has to be dismissed.28. As we have approved the judgment of the Division Bench of Delhi High Court in the case of Megnostar, the appeals preferred against the judgment in Civil Appeal Nos. 9293-94 of 2014 are hereby dismissed. In the facts of the case there shall be no order as to costs.29. With respect to the case of Vinod Rajaliwala, it has been indicated earlier that approximately 36 acres of land of Haryana Concast Limited was put to auction and sale by Pegasus in association with official liquidator and was ultimately sold for Rs.32 crores in favour of M/s. Venus Realcon Private Limited. Vinod Rajaliwala challenged the orders of the company Judge confirming the sale by preferring a company appeal and also through a public interest litigation (a writ petition). Both were dismissed by the Division Bench of Punjab and Haryana High Court by orders passed on 23.9.2010. These orders in company appeal No. 10/2010 and PIL being CWP No.8422 of 2010 are under challenge at the instance of Mr. Rajaliwala through special leave petition (C) Nos. 117-118 of 2011.30. Since the larger issue arising out of the conflicting judgments of Punjab and Haryana High Court and Delhi High Court has already been addressed by us, the case of Mr. Rajaliwala requires adjudication, mostly on facts as to whether the sale confirmed by the Company Judge and approved by the Division Bench in favour of M/s. Venus Realcon requires any interference. It is not at all necessary to go into the facts which preceded the sale in favour of M/s Venus Realcon for Rs.32 crores which till date stands confirmed. It is against confirmation of sale that Mr. Rajaliwala has preferred appeal as well as a PIL on the ground that the consideration money does not reflect the correct value of the secured assets, i.e., the land sold to M/s. Venus Realcon. In order to substantiate this claim, Mr. Rajaliwala was granted an opportunity by the Division Bench to find out a higher bid. One M/s. ACHASTES Promoters Private Limited through an application in Company Appeal No. 10/2010 claimed to offer a bid of Rs.33 crores but later withdrew the same. Thereafter, another buyer made an offer of Rs.37 crores but tendered a meagre amount of Rs.1 crore only before the Division Bench. On these facts the Division Bench dismissed company appeal on 23.9.2010. As a consequence, the PIL was also dismissed on the same date. In this Court, the petitioner claimed that the property was worth hundred of crores but ultimately petitioner persuaded another entity M/s. Himalayan Infra Projects Private Limited to offer a higher bid. This company was allowed to intervene and be impleaded, and it deposited 10 crores in January, 2011 and Rs. 40 crores in April, 2011. That money is lying in deposit in this Court.31. The argument on behalf of Mr. Rajaliwala and the intervener Himalayan Infra Projects Private Limited is that this Court should take a practical view and allow the offer of Rs.50 crores in comparison to Rs.32 crores deposited by the auction purchaser. In reply, on behalf of Venus Realcon- respondent No. 3, it was pointed out that Mr. Rajaliwala is himself a property dealer and a PIL at his instance, in this matter, does not deserve any consideration for lack of good faith, in view of Judgment in the case of Arun Kumar Agrawal vs. Union of India, 2014 (2) SCC 609. It was pointed out from materials on record that the valuation of property has been changing from 2002 when it was estimated to be Rs.10.13 crores. In January 2010 its market value was around Rs.24-25 crores and the distress value was Rs.18-20 crores approximately as per two different valuation reports. The valuation of Rs.75 crores approximately in 2008 was unrealistic, solely on the basis of oral communication from the Collector said to be based upon valuation for commercial plot and not for an industrial plot. It is pointed out that one bid in 2005 by M/s. Radha Raman Builders and Developers Private Limited for Rs.29 crores approximately for a larger plot than the actual land, could not materialize. The first offer by M/s. Venus Realcon on 9.4.2010 was Rs.26 crores which on negotiation was raised to Rs.26.50 crores. Subsequently on allegations made by Mr. Rajaliwala the Company Judge on 13.5.2010 held an open bid in Court, wherein M/s. Venus Realcon raised its bid to Rs.32 crores. The Court then ordered for fresh advertisement pursuant to which no bidder, including Mr. Rajaliwala offered more than Rs.32 crores. Hence the Company Court confirmed the sale in favour of M/s. Venus Realcon for Rs.32 crores but it was made subject to Special Leave Petitions filed by Pegasus and HSIIDC.32. On considering the submissions of parties, we find that the sale confirmed in favour of M/s. Venus Realcon for Rs.32 crores does not require any interference particularly at the instance of Petitioner-Vinod Rajaliwala. There was no illegality or irregularity established against the conduct of auction and once it is found that the offer of Rs.32 crores was a fair offer in a competitive bid conducted fairly and the offer has been accepted and the sale confirmed, it would not be proper for this court to undermine the value of such auction sale conducted not only by the secured creditor but also by the Official Liquidator who was permitted to be associated with the whole process of finding out of valuation as well as the conduct of sale. M/s. Venus Realcon has rightly placed reliance upon the judgments of this court in the case of Valji Khimji & Co. vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd. 2008(9) SCC 299 and Vedica Procon Private Limited vs. Balleshwar Greens P. Ltd., 2015(8) SCALE 713. In Valji Khimji, the law was enunciated in Paragraph 28 in the followingit 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. It could have been a different matter if the auction had been held without adequate publicity in well-known newspapers having wide circulation, but where the auction-sale was done after wide publicity, then setting aside the sale after its confirmation will create huge problems. When an auction-sale is advertised in well-known newspapers having wide circulation, all eligible persons can come and bid for the same, and they are themselves to be blamed if they do not come forward to bid at the time of the auction. They cannot ordinarily later on be allowed after the bidding (or confirmation) is over to offer a higher price. Of course, the situation may be different if an auction-sale is finalized, say for Rs.1 crore, and subsequently somebody turns up offering Rs.10 crores. In this situation it is possible to infer that there was some fraud because if somebody subsequently offers Rs.10 crores, then an inference can be drawn that an attempt had been made to acquire that property/asset at a grossly inadequate price. This situation itself may indicate fraud or some collusion. However, if the price offered after the auction is over which is only a little over the auction price, that cannot by itself suggest that any fraud has been done.case (supra) the aforesaid view was noticed and after considering many judgments in Paragraph 39, the Court approved the view taken in Navalkha and Sons vs. Sri Ramanya Das & Ors., 1969 (3) SCC 537  that there is a discretion in the Company Court either to accept or reject the highest bid before an order of confirmation of sale is made. However, once the Company Court is satisfied that the price is adequate, the subsequent higher offer cannot be a ground for refusing confirmation. The price of immoveable property keeps on varying depending upon the market conditions and availability of a buyer. Such fluctuations may attract fresh higher offers but normally such offers cannot be made the basis for reopening the confirmed sale which was otherwise valid. In the present case, we are satisfied that the sale made in favour of M/s. Venus Realcon does not require any interference. There is no good reason why the full price paid by Venus Realcon should be ordered to be refunded with interest etc. and possession which was delivered to Venus Realcon at the time of sale should be disturbed after passage of so much time. In such circumstances, while granting leave in SLP(C) Nos.117-118, the consequent Civil Appeals are hereby dismissed but without any order as to costs. The money deposited in this case by the intervener M/s. Himalayan Infra Projects Private Limited should be refunded to it forthwith along with interest accrued thereupon.