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

2. NGEF Ltd., (for short, the Company) herein, was a joint venture of the Government of Karnataka, holding 90.18% shares and EHG Electro- holding GMBH holding 9.72% shares therein. The Company became sick, whereupon a reference was made to the Board for Industrial and Financial Reconstruction (for short, BIFR) in terms of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short, SICA). It is not in dispute that virtually all its assets had been placed either under mortgage and/or offered as collateral security to various financial institutions amongst which the State Bank of Mysore was the lead bank3. It is furthermore not in dispute that from time to time the Company with the permission of BIFR and its secured creditors has been selling some of its surplus lands, inter alia, for the purpose of paying wages to the workers and refund of loans to the financial institutions etc. It had sold 29.225 acres of land to the Nuclear Power Corporation for a sum of Rs.63.65 crores; 1.65 acres of land to CDAC for about Rs.4.29 cores and 0.625 acres of land to Indian Oil Corporation for Rs.1.63 crores. All the vendees were public sector undertakings4. It is also not in dispute that the State of Karnataka took a decision to make dis-investment of its shares in the said Company pursuant whereto or in furtherance whereof global tenders were invited by it in terms of an advertisement dated 15.9.2001. The First Respondent herein, Chandra Developers Pvt. Ltd. (for short, Chandra Developers) submitted its bid for purchase of 40.45 acres of land offering the price of Rs.125/- per sq. ft. which was later enhanced to Rs.278 per sq. ft. Allegedly, valuation of lands had been done by Tata Economic Consultancy Services and Ernst & Young Pvt. Ltd. The offer of the First Respondent was said to have been accepted by the Board of Directors in its meeting dated 25.2.2002. The Company, it appears, has also submitted an application to BIFR as regard progress made by it in its attempt to privatize the Company, and praying for a direction to the financial institutions to release their charge over the assets of the Company so as to enable it to sell its surplus lands. BIFR, however, upon considering the matter in some details by its order dated 19.4.2002 opined that the Company cannot be revived5. Before BIFR some of the parties pleaded that the Company should not be wound up but BIFR decided to recommend winding up of the company and sent the same to the High Court. As regard request of the Company for sale of its assets, an observation was made by BIFR in its order dated 24.08.2002 that the Company would have to seek an appropriate direction from the concerned High Court6. Proceedings before the High CourtUpon receipt of the said recommendations, the High Court of Karnataka registered the same as Company Petition No. 154 of 2002. The Respondent herein filed an application before the learned Company Judge of the High Court purported to be under Rules 6 & 9 of the Companies (Court) Rules praying for a direction upon the Company to execute a deed of sale in its favour in respect of the said 40.45 acres of land relying on or on the basis of the said purported resolution dated 25.02.2002, alleging that the same constituted a concluded contract between the parties. Objections to the said application were filed by the Appellants herein7. By reason of an order dated 8.10.2003, the said application was allowed on the premise that the agreement between the Chandra Developers and the Company constituted a concluded contract in relation to sale of 40.45 acres of land. A Review Application was filed by the Appellant herein which came to be dismissed. Three appeals were preferred from the said order viz. by the EHG, State Bank of Mysore and the Company before the Division Bench of the High Court which came to be dismissed by reason the impugned Judgment.

Reasoning: 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