M/S Bakemans Industries Pvt.Ltd vs M/S New Cawnpore Flour Mills & Ors

3. Certain basic facts are not in dispute which are as under :

4. 1st respondent and fourteen others filed fifteen applications before the Delhi High Court for winding up of the appellant-company. Notices were issued thereupon. SICOM issued a second notice under Section 29 of the 1951 Act on 6th June, 2003.

5. Indisputably the factory of the appellant was an ongoing concern. SICOM took over the possession of the appellant's factory at Patiala on 18th July, 2003. It was at that time in operation. It had finished bakery products which were perishable in nature. Allegedly the operations were shut down and the factory was locked.

6. We may notice here that different proceedings were initiated either at the instance of the appellant or at the instance of some of the respondents.

7. Appellant evidently took recourse to a proceeding which was unknown to law. A purported agreement was entered into by and between the appellant and one NRI Lead Bank. We are not aware as to what were the disputes about between them. The said purported disputes were referred to Arbitral Justice Tribunal of ADR Arbitration, a body said to have been recognized by the Government of India in terms of Section 21 of the Arbitration and Conciliation Act, 1996. A purported reference of disputes in terms of a purported arbitration agreement contained in a composite instrument dated 14th August, 2003 was referred on 16th August, 2003. It was accepted by the Tribunal on 18th August, 4 2003 and notices were issued. The majority of the Tribunal opined that there was no genuine arbitration agreement. The arbitration proceeding was closed on 23rd August, 2003.

10. The execution petition was filed not only against the appellant and its sister concern, Captain Hygiene Products Pvt. Ltd. but also against SICOM. Industrial Development Bank of India, Industrial Finance Corporation of India, HUDF Bank, State Bank of Patiala, and Punjab State Industrial Development Corporation Ltd. were also impleaded as parties therein.

11. We shall deal with the factual matrix thereabout a little later.

12. However, in the meantime, another proceeding by way of an application under Section 9 of the Arbitration and Conciliation Act, 1996 was filed before the Tis Hazari Courts, Delhi. It was registered as Misc. Suit No. 139 of 2003. Inter alia, a prayer was made therein to appoint a receiver. However, it appears that another Bank initiated a proceeding before the Debt Recovery Tribunal for recovery of its dues. A Receiver was appointed by the said Tribunal in respect of the perishable goods on 1st September, 2003.

14. Appellant in the meantime relying on or on the basis of the said purported Award of the Board of Conciliation took forcible possession of the factory premises on 14th September, 2003.

It also directed the appellant to pay some amount to show its bona fide. Appellant furthermore filed an application for vacation of the order dated 15th/16th September, 2003. On 28th November, 2003 an assurance was also given to the Court that the appellant will come with a definite 7 proposal for payment to the creditors. By an order dated 18th December, 2003 the High Court directed the appellant to deposit a sum of Rupees two crores failing which SICOM was given a liberty to proceed with the statutory remedies available to it under the Act for sale of the properties. An undertaking was given to the Court by the Managing Director of the appellant in the following terms :-

20. We may now deal with the process of sale of assets of the company. The factory of the appellant was situated in village Rasulpur, District Patiala in the State of Punjab. The land measured 30,544 sq. yards. The building comprised of three floors having RCC construction. There were plants and machineries. There was also unpacked material which had been imported from abroad. Pursuant to the permission granted by the Court to SICOM to make an advertisement, one was issued in Economic Times(All Editions), Business Standard (All Editions), Tribune (Chandigarh Edition) and Dainik Bhaskar (Chandigarh and Patiala Editions). As the appellant failed to deposit the said sum of Rupees two crores and never submitted the definite proposal in terms of the order dated 28th November, 2003, SICOM was given the liberty to proceed with the sale.

22. A question was raised in regard to the jurisdiction of the executing court to proceed with the matter of sale of the properties. By reason of an order dated 16th March, 2004, the Court noticed the bids submitted by the ITC Limited and Britannia Industries Ltd. not only on the entire plant but also on item wise basis. The Court rejected the contention of the appellant both in regard to its jurisdiction as also its valuation report inter alia opining that it had failed to deposit a sum of Rupees two crores and submitted the repayment schedule in terms of its earlier order as such there was no other option but to proceed with the sale process.

24. Allegedly, the appellant filed an application before the Executing Court with a prayer to decide its jurisdiction at the first instance. It is stated at the Bar that neither there is any record in respect thereof in the High Court nor any order appears to have been passed thereon.

25. We may now notice the proceeding before the learned Company Judge.

26. The Company Applications were admitted by an order dated 6th April, 2004. A Provisional Liquidator was appointed. It was directed to 13 take charge of the properties and books of accounts of the company. On an application made by SICOM, however, the learned Company Judge by order dated 16th April, 2004 directed that its possession may not be disturbed.

31. The matter was posted for hearing on 22nd July, 2004. On that date, proceedings before the learned Company Judge were in two sessions - one before lunch and another after lunch. Before recess, appellant was granted one more opportunity to bring any other bid and the judge adjourned the matter to 4th August, 2004. However, after recess on a purported request made by the learned counsel for M/s. Ceylon Biscuits the case was preponed to 28th July, 2004. Learned counsel for the appellant was not present, although it was mentioned that he had been informed. On the next date, i.e. 28th July, 2004 the Court recorded a statement that the respondent company was negotiating with some buyers. An affidavit of the prospective buyer and its Managing Director was directed to be filed in this behalf alongwith an undertaking to honour the bid quoted by the prospective buyer. The matter came up 15 before the learned Company Judge on 30th July, 2004. A prayer for adjournment was made. An affidavit of the Ex-Managing Director of the appellant was filed. However, adjournment was refused. The affidavit was called from the registry and the matter was heard. The Court is said to have waited for the learned counsel to appear till 4.00 O' clock and then took up the mater for hearing at 4.45 p.m. In its order the learned Company Judge noticed the earlier proceedings at some length. It was held :-

34. Various applications were filed before the Division Bench and/or this Court. Except noticing that in the meantime another valuation report was filed on 21st November, 2006 in regard to the intangible assets of the company as being Rs.35.88 cores which had been sold by SICOM in favour of Ceylon Biscuits for a sum of Rs.10 crores, we need not take note of any other fact. By reason of the impugned judgment dated 2nd July, 2007 the Letters Patent Appeal preferred by the appellant was dismissed and by an order dated 6th July, 2007 the sale certificate was directed to be issued to M/s. Ceylon Biscuits.

But in a case of this nature, only because the financial institution stands outside the winding up proceedings, would it mean that the court shall, for all intent and purport, ignore its officer and concentrate on the interest of the financial institution alone? Can it be said that supervision of the court is necessary only in a post winding scenario and not prior to it? The question which should be addressed, in our opinion, by the Company Court is that the ultimate interest of both secured and non- secured creditors must be kept in mind. Should Court have exercised its jurisdiction for directing the sale of the prime property and, in fact, the essence of the assets of the appellant at the initial stage. The answer, in our opinion, should be rendered in the negative.

These words are not derived from the express terms of the section but are evidently considered to be implicit in it. The unspoken assumption is that a liquidator's "functions in the winding up" are limited to the collection and distribution of the company's assets. I agree that the bringing of disqualification proceedings is not a function which is conferred on the official receiver "in the winding up"; if it were, the costs of the proceedings would be payable out of the assets of the estate. It is not necessary to consider whether the gathering of evidence for the purpose of such proceedings is part of "his functions in the winding up", for this 48 formulation is unduly narrow. The liquidator's functions in relation to the company which is being wound up are not and never have been limited to the recovery and distribution of the company's assets. It would be very odd if the liquidator of a company in voluntary liquidation could apply to the court to direct a public examination in the wider public interest but could not invoke section 236 to order a private examination in the same interest. In practice the liquidator would usually prefer to invite the official receiver to make the application; and even where the application was made by the liquidator the court would be disposed to invite the views of the official receiver. But it is impossible to say that the liquidator would be acting outside his proper role in the one case and not in the other.

63. The High Court, therefore, could not have ignored the official liquidator only on the ground that a provisional official liquidator was appointed and not a regular official liquidator. The power and functions of the provisional official liquidator for all intent and purport would be the same as that of the official liquidator and, therefore, it was not necessary for the Company Judge to wait till the Company was wound up.

65. We, therefore, are of the opinion that the Company Judge was not correct in its view and passed the impugned judgments only having regard to the wrongful conduct on the part of the appellant in obtaining an award from the conciliation tribunal or failure to bring a better offer from another bidder.

67. We, therefore, are of the opinion that interest of justice would be subserved if while allowing the appeal, the learned Company Judge is requested to go into the question afresh in accordance with the provisions of the Companies Act and hold a fresh auction.

69. For the reasons aforementioned, the appeals are allowed to the aforementioned extent. In the facts and circumstances of the case, however, there shall be no order as to costs.

May 16, 2008