Case: United Bank Of India Vs. Off. Liquidator,H.C.Of Calcutta

This appeal is filed against the judgment and order dated 24-12-1996 passed by the Division Bench of the Calcutta High Court dismissing the appeal GA No. 708 of 1996 arising out of Company Petition No. 316 of 1981 whereby the learned Single judge had confirmed the auction-sale of the property of M/s. Kolay Biscuits Company Private Limited - the Company under liquidationIn the present case, it is an admitted fact that on 9-7-1965 M/s. Kolay Biscuits Company Private Limited created a mortgage of its land and building in favour of Union Bank of India for the loan granted in its favour. The factory of the Company was closed down in 1980. On 20-3-1991 under the provisions of the Sick Industrial Companies (Special Provisions) Act (SICA), the Company was declared as a sick unit by the Board of Industrial and Financial Reconstruction (for short "BIFR") and thereafter application under the said Act was rejected by the Board. Appeal filed before AAIFR was also dismissed. It is the contention of the Bank that on 30-3-1981, the borrowings by the Company increased to about Rs. 3 crores and the Company executed four balance confirmations in respect of the dues in various accounts. The Bank also filed Title Mortgage Suit No. 103 of 1992 before the Assistant District Judge, Sealdah against the Company and five guarantors for recovering Rs. 4, 11, 21, 411 along with interest after obtaining leave by the Company Judge under Section 446 of the Companies Act. By order dated 19-8-1991 the Company Judge issued directions for winding up of the Company and appointing an Official Liquidator to take over assets. On 16-2-1996, the Company Judge appointed Mr. Pranoj Roy Chowdhary of M/s. Chowdhary Associates as a valuer with a direction to submit a report within six weeks from the date. The Official Liquidator has stated that he informed the appellant Bank about the said order by letter dated 29-2-1996. Thereafter the matter was placed before the Company Judge on 21-6-1996 and on the same date the Company Judge passed an order fixing the date of sale of the Companys assets as 2-8-1996 and directed the Official Liquidator to make advertisement for notice of sale of assets of the Company in newspapers, namely, The Statesman, Dainik Bishwamitra and Anand Bazaar Patrika inviting applications for purchase of the property on "as-is-where-is basis" with a direction that the purchaser will be bound to deposit 20 per cent of the tender amount along with the tender by bank draft or bankers cheque or pay orderOn 2-8-1996, one advocate Mr. Dutta moved an application stating that nearly 1200 workmen would be affected if the sale does not take place as a going concern and the workmen are not re-employed. The Company Judge observed"The fate of so many workmen nearly 1200 in number with their families depending upon them cannot be ignored by the Court." *On that day on behalf of the State of West Bengal it was submitted that its Corporation (Respondent 4) was interested in purchasing the land and the entire Company and they were also interested in re-employment of workers so the Company be sold out as a going concern. Thereafter, the Court straight away directed that the sale fixed on that day would not be held and the Official Liquidator was directed to issue fresh advertisement in the same newspapers on 22-8-1996 fixing the date for auction-sale on 13-9-1996 for the assets of the Company "as a going concern"On 20-9-1996, the matter was placed before the Court and it was stated on behalf of the State Government Corporation that it was not agreeable to purchase with the condition of re-employing workmen. Therefore, they withdrew their offer to purchase the Company as a going concern. The Court also considered the valuation report which was placed before it wherein the assets of the Company were valued at Rs. 66, 90, 032. On the basis of the said valuation M/s. Indrani Soft Drinks - Respondent 1 whose offer was Rs. 40 lakhs raised the same to Rs. 67 lakhs and agreed that they would take the Company as a going concern and all eligible employees would be re-employed. Hence, the Court accepted the said offer. The learned advocate appearing on behalf of the secured creditor - Union Bank of India prayed for stay of the operation of the order but the same was rejected on the ground that no useful purpose would be served if the stay of the operation of the order was granted. Thereafter, it appears that on behalf of Syndicate and Promising Exports Limited, one advocate appeared and submitted that it was ready and willing to purchase the Company as a going concern by paying Rs. 70 lakhs on the same terms and conditions as stated above. His offer was considered by the Court by giving a direction that the offeror would deposit 20 per cent of the amount either by bank draft or pay order, with the Official Liquidator on or before 23-9-1996. The Court further directed that in the event of failure to deposit the said sum, the offer of M/s. Indrani Soft Drinks will stand accepted without there being any further bid. The matter was kept for further orders on 27-9-1996. On that date it was found that Promising Exports had neither sent any offer to the Official Liquidator nor had deposited any amount. The Court observed that the sale in favour of the auction-purchaser - M/s. Indrani Soft Drinks remains accepted and directed them to pay the balance amount within 60 days. It also directed -"Official Liquidator will supply a copy of the valuation report to the secured creditor at their cost." *The Official Liquidator was directed not to part with possession of the Company till the entire purchase price was paidAgainst that order the appellant preferred an appeal before the Division Bench. Before the Division Bench a contention was raised with regard to the inadequacy of the price and the Court observed that the Court would be rather loath to interfere and intervene in a court sale where a question of inadequacy of the price is to be considered by observing that"Court sale has taken place for the benefit of the employees concerned and more than 100 employees were starving to death and the Official Liquidator was trying to sell the assets as a going concern so that the employment opportunities can be maintained in these hard days." *The Court also considered the fact that in the meantime after confirmation of the sale the entire purchase price has been paid by M/s. Indrani Soft Drinks and the Official Liquidator has intimated to the purchaser that possession will be made over in the course of the day and at that stage Union Bank of India thought it fit to move this Court for staying the operation of the order which cannot be granted. The Court also observed that the offer obtained in court matches with the valuation report and the grievance of inadequacy of price cannot be accepted and sale when taking place in a court of law ought to be given a final shape, as quickly as possible, so that rehabilitation of the employees can be effected without any loss of time because the Court was informed that "more than 100 employees have already died". Against that order this appeal is filed

Reasoning: 8. At the outset, we would state that in proceedings for winding up of the company under liquidation, the court acts as a custodian for the interest of the company and the creditors. Therefore, before sanctioning the sale of its assets, the court is required to exercise judicial discretion to see that properties are sold at a reasonable price. For deciding what would be a reasonable price, valuation report of an expert is must. Not only that, it is the duty of the court to disclose the said valuation report to the secured creditors and other interested persons including the offerors. Further, it is the duty of the court to apply its mind to the valuation report for verifying whether the report indicates reasonable market value of the property to be auctioned, even if objections are not raisedFrom the facts narrated above, it is apparent that the attention of learned Company Judge was not focussed to the fact that since 1980 the Company was closed and that there was no question of selling the Companys assets as a going concern. Not only that it was the duty of the Court to verify the statement made by some applicant that sale of the Company ons basis" will affect 1200 workers and for that proper notice was required to be issued to the secured creditors for whose benefit the property was to be auctioned. To straight away rely upon such statement was, to say the least, not judicious. The Company Judge ought to have also considered the fact that an attempt made by BIFR and AAIFR which are expert bodies under SICA to revive the sick unit had failed. In any set of circumstances, there was no material on record before the learned Judge for holding that the Company could be revived and the employees would be reinstated in service by giving them. Without indulging in any such exercise straight away to state that property would be sold as a going concern was totally without any basis and, therefore, unjustified. At the time of hearing of this matter it is admitted that after purchase of the Company, it was restarted only for one day i.e. on the day of inauguration9. It also appears that the Division Bench was persuaded by thed sympathy for the workers, without verification of the fact that the Company was closed before 17 years of sale. The Court has noted in the beginning while narrating the submission of the learned counsel who appeared for the benefit of the employees that more than 100 employees were starving to death and in the later para stated that the Court was informed by the learned advocate appearing for the employees union that more than 100 employees have already died. Without there being any application on record and without there being proper verification of the facts from the parties concerned, it is not just and proper to make such observations. It is not impossible that because of the lapse of 17 years, out of 1200 workers who might have worked in the said factory 100 employees might have died a natural death. But in any circumstances it was unjustified to make a case over it and to accept oral submissions and to dispose of the valuable properties of a Company by stating that the sale of the Company as a going concern was for the benefit of thed employees who were not in employmentFurther, in the present case, it is admitted that valuation report was called for by order dated; once the report was called for, it was the duty of the Court to see that copy of the said report is given to the secured creditors and other affected persons. It was known to the Court that the appellant secured creditor was claiming more than Rs. 4 crores from the Company. It appears that valuation report was kept as a secret, confidential document. Afterp order, the properties of the Company are in the custody of the Court for the benefit of the secured creditors and if anything remains, thereafter for other creditors and its shareholders. In the present case, without disclosing the valuation report to the creditors and without fixing its reserve price, the properties were auctioned and the sale was confirmed. This approach is unjustifiable by any judicial standard and is against the normal procedure for auctioning the immovable property of the Company which is to be wound up10. Further, it appears that learned Judge has not applied his mind to the valuation report itself. He has only considered the last figures given in the valuation report which says that total valuation of the property was Rs. 66, 19, 032. Had the Court considered the report, it would have immediately noticed that the valuation report was not at all reliable11. In our view the valuer stating that for the purpose of valuation of the land he has enquired from local people and that he understood that the land price in this particular area varies between Rs. 2 lakhs to 2.5 lakhs per katta cannot be said to be an opinion of an expert valuer. He has not relied upon any sale instance for arriving at the conclusion that the valuation varies from Rs. 2 to 2.5 lakhs per katta. He has also not stated from whom he has verified the value of the land. Further, he has stated that after considering all aspects, he felt that fair and reasonable value would be Rs. 2 lakhs per katta. Presuming that valuation of land is Rs. 2 lakhs per katta then also the value of the land, admeasuring 67 kattas and 8 chattak, would be more than Rs. 1.35 crore. Thereafter, he stated the land is a leasehold land, so the value of the land would be on the basis of its rental income and he arrived at the conclusion that its value would be only Rs. 4, 09, 860. It appears that the valuer has also not considered the material fact that lease period was for 99 years with the condition for its renewal. It is apparent that learned Company Judge has simply noted the final figures mentioned in valuation report and accepted the same without applying his mind to the aforesaid factsIn our view, this submission requires to be rejected on the ground that in the said case, the Court has reproduced the paragraph which we have quoted above from the decision in Navalkha and Sons (1969 SC 379) wherein the Court has specifically held that the condition of confirmation by the court operates as a safeguard against the property being sold at inadequate price whether or not it is a consequence of any irregularity or fraud in the conduct of the sale; the court is required to satisfy itself that having regard to the market value of the property the price offered is reasonable; unless the court is satisfied about the adequacy of the price the act of confirmation of sale would not be a proper exercise of judicial discretion. This aspect is reiterated by the Court by holding that the aforesaid principles must govern every court sale. The Court has also observed that failure to apply its mind to the material factors bearing on the reasonableness of the price offered may amount to material irregularity in conduct of sale14. As discussed above, in the present case, there is totaln of mind to the material which is required to be considered fore of the assets of the Company17. The Court further ordered that in case the official assignee has kept the sale amount in anyg security, the principal amount together with interest is directed to be refunded to the appellant. And, in case the amount was not kept in any deposit and was used to discharge outstanding debt due by Respondents 2 and 3, ther was entitled to get interest at 18% per annum on the amount deposited by himIn the present case, the said judgment has no bearing mainly because as soon as the amount was deposited by Respondent 2, possession of the property was handed over to him. Not only that, in our view, similar contention was dealt with in Allahabad Bank v. Bengal Paper Mills case (1999 SC 1099)18. Thereafter the Court has directed refund of the amount without any interest and has permitted ther to apply to the High Court and specify it firstly that expenditure was incurred and secondly that in law it was entitled to recover it19. For the reasons stated, same would be the position in the present case. Further, in this case, there is a specific condition of thee which reads thus"The High Court may set aside the sale in favour of purchaser/purchasers even after the sale is confirmed and/or purchase consideration is paid on such terms and conditions as the Court may deem fit and proper for the interest and benefits of creditors, contributories and all concerned and/or for public interest." *20. Hence, if the sale is set aside in appeal, it cannot be stated that the purchaser is entitled to have refund of the amount with interest21. We also make it clear that we have not dealt with the contention of the learned counsel for the Bank that what was sold in auction was equity of redemption and not the rights of the mortgagee