Authorized Officer And Assistant ... vs Official Liquidator Of Apoorva ... on 28 July, 2014

[Cites 33, Cited by 3]

Gujarat High Court

Authorized Officer And Assistant ... vs Official Liquidator Of Apoorva ... on 28 July, 2014

1. The applicant in Company Application No. 77 of 2014 happens to be a secured creditor bank which has taken out Judges' Summons for following prayers in respect of the company in liquidation, i.e. M/s. Apoorva Laminates Private Limited (herein after referred to as the company in liquidation).

"(A)YOUR LORDSHIPS may be pleased to permit the applicant bank to remain outside the winding up proceedings for enforcing its security interest in the secured assets of the Company (in liquidation) and further be pleased to permit the applicant bank to sell the secured assets of the Company (in liquidation) under the provisions of the Securitisation And Reconstruction of the Financial Assets and Enforcement of Security Interest Act, 2002;

(B) pending hearing, admission and final disposal of the Company Application, YOUR LORDSHIPS may be pleased to permit the applicant bank to proceed with the sale by e-auction fixed on 28.3.2014;

(C) Any other and further relief/s that this Hon'ble Court may deem fit may please be granted in the interest of justice."

2. The applicant in Company Application No. 109 of 2014 is the sole bidder who has participated in the e-auction conducted at the behest of the bank with following prayers:-

"A) The Hon'ble Court be pleased to permit opponent 2 bank to confirm the sale of the secured assets being all the part and parcel of the property consisting Factory Land & Building situated at Nava Sadhulka Survey No. 113/3 paiki, Opp.

Laxminagar Nr. Kandla Rajkot Bypass, National Highway 8A, Page 2 of 43 O/COMA/77/2014 ORDER Morbi admsg 7284.50 sq. mts, Plant & Machineries, Stocks of Mica sheets, Furnitures & fixtures etc. lying in the said premises in favour of the applicant by the bank pursuant to the sale effected by it following E-Auction dated 28.03.2014 and to require the bank to hand over the actual physical possession of the secured assets along with the sale letter and/or sale deed in favour of the applicant.

B) The Hon'ble Court be pleased to direct the opponent 1 Official Liquidator to intimate the opponent 2 secured creditor Bank of India, the workmen's dues in accordance with the provisions of section 529A of the CompaniesAct, 1956 and be further pleased to direct the opponent 2 to deposit the amount of workmen's dues from the sale proceeds before this Hon'ble Court and in case such workmen's dues cannot be ascertained, the Liquidator shall intimate the estimated amount of workmen's dues under section 529A to the opponent 2 and in such case the opponent 2 may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with this Hon'ble Court.

C) Pending hearing and final disposal of the Company Application, the Hon'ble Court be pleased to permit opponent 2 bank to confirm the sale of the secured assets being all the part and parcel of the property consisting Factory Land & Building situated at Nava Sadulka Survey No. 113/3 paiki, Opp. Laxminagar Nr. Kandla Rajkot Bypass, National Highway 8A, Morbi admsg 7284.50 sq. mts, Plant & Machineries, Stocks of Mica sheets, Furnitures & Fixtures etc. lying in the said premises in favour of the applicant by the bank pursuant to the sale effected by it following the E-Auction dated 28.03.2014 and to require the bank to hand over the actual physical possession of the secured assets along with the sale letter and/or sale deed in favour of the applicant.

D) Pending hearing and final disposal of the Company Application, the Hon'ble Court be pleased to direct the opponent 1 Official Liquidator to intimate the opponent 2 secured creditor Bank of India, the workmen's dues in accordancewith the provisions of section 529A of the Companies Act, 1956 and be further pleased to direct the opponent 2 to deposit the amount of workmen's dues from the sale proceeds before this Hon'ble Court and in case such Page 3 of 43 O/COMA/77/2014 ORDER workmen's dues cannot be ascertained, the Liquidator shall intimate the estimated amount of workmen's dues under section 529A to the opponent 2 and in such case the opponent 2 may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues wit this Hon'ble Court.

E) The Hon'ble Court be pleased to pass such other and further relief/s as may be deemed fit and proper in the facts & circumstances of the present case."

3. As both these applications were in respect of the e-auction held on 28/3/2014, they were heard together at length and this common order is being passed therein.

4. Facts in brief leading to filing these two applications deserve to be set out herein below in order to appreciate the rival contentions of the counsels for the parties.

The petitioner of Company Petition No. 263 of 2013, Company Petition No. 264 of 2013 and Company Petition No. 291 of 2013 filed winding-up petitions in this Court invoking provisions of Section 433, 434 and 439 of the Companies Act, 1956 (herein after referred to as the 'Companies Act' for the sake of brevity), inter alia contending that the dues were not paid by the company in liquidation and hence it should be wound-up as the financial status of the company has also been suggestive of justifying winding-up order. Hence on 6/1/2014 this Court while admitting all the three matters ordered issuance of advertisement to be published in the concerned newspapers and final hearing of these petitions was ordered to be held on 10/2/2014. Ultimately on 17/2/2014 after recording inter alia the claim in Company Petition No. 263 of 2013 being Rs.50,51,213/-, in Company Petition No. 264 of 2013 being Rs..50,51,213/- and in Company Petition No. 291 of 2013 being Rs.13,57,581/- issued order of winding up. The relevant part thereof Page 4 of 43 O/COMA/77/2014 ORDER could be set out as under:-

" 3. The record indicates that the claim in Company Petition No. 263 of 2013 is of Rs.50,51,213/-, whereas the claim in Company Petition No. 264 of 2013 is of Rs.50,51,213/- and the claim in Company Petition No. 291 of 2013 is of Rs.13,57,581/-. It further appears from the record that the Company is not an ongoing concern and the possession of its assets is taken over by the Bank being secured creditor. It is also averred that the Company has remained closed and it has lost its overall substratum including economic and financial.

4. This Court was pleased to issue notice to the respondent. The respondent appeared and have filed reply in two petitions, i.e. Company Petition Nos. 263 of 2013 and 264 of 2013. It appears from the reply filed by the respondent-Company that no substantial defence is raised. On the contrary, reply indicates that secured creditor has undertaken proceedings under SARFESAI Act which itself shows that the respondent- Company is unable to take its own stand as it is closed. It appears from the record that the respondent-Company has thus lost its financial substratum.

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6. Considering the aforesaid submissions and documents on record and in view of the fact that the respondent- Company has neither filed any reply to the statutory notice nor have come out with a defence in the reply which is filed and the stand taken by it not supported by any documents and as such only moonshine defence is raised by the respondent- Company. The record further indicates that possession of the properties belonging to the respondent-Company is taken over by the Bank under the SARFESAI Act. It is, therefore, quite clear that the respondent-Company is not in working condition and has lost its financial substratum and therefore, requires to be wound up.

7. Accordingly, Company Petitions are allowed and the respondent- Company being M/s. Apoorva Laminates Private Page 5 of 43 O/COMA/77/2014 ORDER Limited is ordered to be wound up under Sections 433, 434 and 439 of the Act and Official Liquidator attached to this Court, shall forthwith take into the custody the assets, properties of the Company and report to this Court."

5. As it transcribes from the proceedings, the Official Liquidator before it files any report pursuant to the winding up order made by this Court on 17/2/2014, the application being Company Application No. 77 of 2014 was presented by the applicant bank with aforesaid prayers. The application was presented on 19/3/2014 and on 21/3/2014 this Court made the following orders:-

" Mr. Utkarsh B Jani for Mr. Bharat Jani for the applicant submits that on account of urgency in the matter, if the Court is inclined to issue notice, let there be a short time gap as the e-auction is slated on 28/3/2014. Learned Official Liquidator who is present in the Court has received the copy and he submits that he would waive the notice, and let the matter be fixed on 26/3/2014. Hence NOTICE returnable on 26/3/2014. Learned Official Liquidator waives service of notice for opponent.

The Bank in the meantime shall place on record the Valuation Report, Detailed terms & conditions of sales determined and all other proceedings, including upset price by 24/3/2014, with a copy to the Official Liquidator. Put up on 26/3/2014."

6. On 24/3/2014 applicant bank filed an affidavit along with documents thereon and on 26/3/2014 this Court passed further order, which read as under:-

" Shri Utkarsh Jani for Mr. Bharat Jani, learned advocate for the applicant under the instructions and in order to over come the resistance on the part of the Official Liquidator submitted that the e-auction be permitted to be proceeded with on the following conditions namely;

Page 6 of 43

O/COMA/77/2014 ORDER

(i) The applicant shall bring on record all the proceedings qua the e-auction.

(ii) The applicant shall keep the Official Liquidator informed about all offers received during the e-auction process.

(iii) The offers etc. will be placed on record with a copy to the Official Liquidator.

(iv) The sale, if any, would be placed before the Court for confirmation.

(v) The proceeds of the sale be deposited in this Court and nothing would be finalized without express permission from this Court.

S.O. to 21.04.2014."

7. On 16/4/2014 an affidavit came to be filed on behalf of the bank indicating various aspects of e-auction and about offer received and Official Liquidator filed its report dated 11/6/2014. Thereafter bank placed on record further documents and an application came to be filed being Company Application No. 109 of 2014 in Company Petition No. 263 of 2014 by the sole bidder vying for property in question. During the course of hearing of these applications the Official Liquidator invited claims and ultimately had placed on record by way of report dated 16/4/2014 for Rs.26.00 lakhs and Rs.6000/- towards excise duty and no workman claimed any amount.

8. Learned counsel appearing for applicant bank placed on record gist containing dates and events in tabular form which could be reproduced herein below to appreciate the developments and the events which may surely be of much help in appreciating rival submissions of the counsel of the parties.

                            Date And Events



                                  Page 7 of 43
             O/COMA/77/2014                                     ORDER



Date                         Events                                     Page
                                                                        Nos
02/04/13        Notice under section 13(2) of Securitisation Act 22
                issued by the applicant bank.
03/06/13        Symbolic possession of the secured assets were
                taken
12/09/13        Notice of possession under section 13(4) of 28

Securitisation Act rule 8(1) of Securitisation Rules was issued and physical possession was taken with the consent of the company as per the resolution and letter dated 11/9/2013.

12/09/13 Possession notice was published in two daily 41 newspapers one in vernacular language and one in English language 19/8/2013 Valuation report of Mr. D.B. Chandarana for the 54 valuation of Factory Land and building showing Market Value of Rs.260.85 lacs, Realisable Value of Rs.234.76 lacs and Distress Value of Rs.208.68 lacs.

20/8/2013 Second valuation report of M/s. Multi Mulyankan, 66 INC for the valuation of Factory Land and building showing Market Value of Rs.256.97 Lacs, Realisable Value of Rs.218.40 Lacs and Distress Value of Rs.192.70 10/10/13 First e-auction sale notice published by applicant in two newspapers for sale of movable and immovable properties of the company for composite reserve price of Rs.651.05 Lacs (A) Factory Land and building Rs.260.85 Lacs (B) Plant and machinery Rs.262.30 Lacs and (C) Stock of Rs.127.90 Lacs.

Higher amount of factory land and building was taken as per the valuation report of Mr. D.B. Chandarana.

15/11/2013 First Auction date - No bid was received. 20/12/2013 Second e-auction sale notice published by applicant bank in two daily newspapers for sale of movable and immovable properties of the company for composite reserve price of Rs.651.05 Lacs (A) Factory Land and building Rs.260.85 Lacs (B)Plant and machinery Rs.262.30 Lacs and (C) Stock of Rs.127.90 Lacs. Higher amount of factory land and building was taken as per the valuation report of Mr. D.B. Chandarana.

22/1/2014 Second auction date - No bid was received.

Page 8 of 43

             O/COMA/77/2014                                   ORDER



12/02/14        Second valuation report of M/s. Multi Mulyankan, 82
                INC for the valuation of plant and machinery and

showing Market value of Rs.261.96 Lacs, realizable 98 value of Rs.209.55 Lacs and distress value of Rs.183.40 and valuation of stock showing Market value of Rs.118.56 Lacs, realizable value of Rs.94.85 Lacs and distress value of Rs.83.00 Lacs. 22/2/2014 Notice issued by the applicant to the borrower 43 company for reducing reserve price from Rs.651.05 Lacs to Rs.549.00 Lacs which was duly acknowledged by the borrower company.

25/2/2014 Third e-auction sale notice published by applicant 46 bank in two daily newspapers for sale of movable and immovable properties of the company for composite reserve price of Rs.549.00 Lacs (A) Factory Land and building Rs.260.85 Lacs (B) Plant and machinery and Stock of Rs.288.15 Lacs.

28/3/2014 Third auction date. Bid from Shakti Laminates, 114 partnership firm was received and it has deposited 10% of the reserve price i.e. Rs. 54.90 Lacs on 24/3/2014 and remaining 15% of the reserve price i.e. Rs.82.35 Lacs on 28/3/2014. Thus amount of Rs.1,37,25,000/- has been deposited by the bidder. 02/04/14 Letter issued by Shakti Laminates to the applicant 121 bank requesting to grant finance by offering additional security of residential house of the partner of the firm along with the property to be purchased in auction.

16/4/2014 Sanction letter issued by the applicant bank to 122 Shakti Laminates.

25/6/2014 Applicant bank filed affidavit by placing on record 145 the jantri value of the land and building.

9. Learned counsel appearing for the applicant bank has specifically chosen to remain outside the winding-up proceedings, and therefore an appropriate prayer is also taken into in the Judge's Summons. When the bank has chosen to remain outside the winding-up proceedings and resorted to enforce its legal rights and remedy available under law for realizing its dues on the strength of the security, this Court may confirm the sale proceeding so that the bank may realize its dues.

Page 9 of 43

O/COMA/77/2014 ORDER

10. Learned counsel appearing for the applicant bank further submitted that the bank's endeavour in realizing its dues by selling property which came to be possessed by the bank may not be struck down only on account of there being a sole bidder coming forward in e-auction. The submission canvassed on behalf of Official Liquidator of the company in liquidation for re-advertising the property only on account of non- availability of other bidders may not be accepted by this Court.

11. Learned counsel appearing for the applicant bank further submitted that the bank has all along shown its readiness and willingness to keep aside or even to deposit in this Court an amount that may be deemed fit so as to meet with the requirement of liquidating the dues of the workmen as envisaged under Section 529A of the Companies Act. The Official Liquidator also may not thereafter create any hurdle in the bank's way in disposing of the property and appropriating the sale proceeds. Learned counsel for the applicant bank further submitted that provisions of Companies Act and those of the Securitisation And Reconstruction of the Financial Assets And Enforcement Of Security Interest Act (SARFAESI Act) may not be set at naught at the instance of Official Liquidator or anyone else under the provisions of the Companies Act. The Official Liquidator's submission in respect of the sale and e-auction therefore may be rejected by this Court and this Court may accord its approval to the e- auction and the sale in favour of the bidder who has already deposited 25% of his offer price for the property in question.

12. Learned counsel appearing for the bank submitted that the provision of SARFAESI Act being special provision vis-a-vis provision of Companies Act and being later in point of time they shall be given precedence over the provisions of the Companies Act, and when the bank is ready & willing to keep aside certain amount from the sale proceeds to Page 10 of 43 O/COMA/77/2014 ORDER meet with the exigencies or liabilities on account of the claim of the workmen in view of provision of Section 529A of the Companies Act, then, the resistance to the prayer for confirming the sale may not be justified.

13. Learned counsel appearing for the bank thereafter submitted that the provision of Section 13(9) of SARFAESI Act being a complete Code in itself would prevail upon the provisions of Companies Act and the secured creditor who resorts to provisions of SARFAESI Act may not be prevented from selling the property and realizing sale proceeds of the secured assets of the company in liquidation are concerned. Learned counsel for the bank relying upon provision of Section 13(9) of SARFAESI Act submitted that all care which is required to be taken is only in respect of the provision of Section 529 of the Companies Act and, therefore, when there is clear willingness and readiness on the part of the bank in keeping aside part of the sale proceeds for meeting with liability towards workmen, then, there cannot be any objection to the prayer for sale confirmation.

14. Learned counsel appearing for the bank thereafter contended that proviso to Section 13(9) of SARFAESI Act also may not help the O.L., and others in resisting prayer for confirming the sale inasmuch as the fact that the case indicate that despite clear invitation from O.L., to all the concerned, no workman has come forward even registering his claim against the property of the company or in respect of his employment of the company. When no workman has come forward and when no other claim is envisaged to be respected so far as provision of Section 13(9) of SARFAESI Act is concerned, then, the Court may reject resistance on the part of the O.L., and accord its confirmation to the sale in question.

15. Learned counsel appearing for the bank further submitted that Page 11 of 43 O/COMA/77/2014 ORDER provision of SARFAESI Act as well as those of Companies Act clearly provides for dealing with the properties of the company with the secured creditors under the SARFAESI Act, and it provides special provision for taking care of the provision of Section 529 of Companies Act for workman. Therefore when the workmen have not come forward for lodging any claim, there exists practically no resistance for confirming the sale and if there is no ascertainable claim of the workmen at the given point of time, the O.L., can notify the estimated claim of the secured creditor invoking SARFAESI provisions for liquidating assets of the company only so as to make provision on that basis. The O.L., can therefore cannot object to the prayer for granting confirmation to the sale.

16. Learned counsel appearing for the applicant bank submitted that the bank has followed due procedure of law prescribed under SARFAESI Act and therefore it can permit to conclude the sale in favour of sole bidder as the offer of the sole bidder is capable of satisfying outstanding dues of the bank and surplus money could be deposited to O.L., which may be distributed in accordance with provisions of section 529 and/or 530 of the Companies Act.

17. Learned counsel appearing for the bank submitted that the chronological events and narration in the tabular form would clearly indicate that the notice under provision of section 13(2) of SARFAESI Act had been issued way back on 2/4/2013 and symbolic possession of secured assets were taken on 3/6/2013, then, winding up order had not been passed. Winding up order was passed only on 17/2/2014 and therefore, it can well be said that provisions of SARFAESI Act were already invoked and bank had chosen the remedy of realizing its dues by way of acting under provisions of SARFAESI Act, and the possession notice was issued on 12/9/2013. The bank has acted in accordance with provisions of SARFAESI Act and obtained proper valuation from the Page 12 of 43 O/COMA/77/2014 ORDER approved valuer on the panel of the bank for arriving at a proper reserve price in respect of the property in question. The bank's earlier two attempts having failed and on account of passage of time one more report was invited from the valuer for putting the property under auction by revising the reserve price, as on account of passage of time the movables and stocks had been deteriorated. The three attempts and the reserve price have been forming part of the table of events of facts which have been produced before the Court, the same would indicate that due care and caution is exercised by the bank in arriving at a just and proper reserve price and when on the 3rd attempt sole bidder came forward the bank had to accept its offer, else, it was fully in accordance with provisions of SARFAESI Act.

18. Learned counsel appearing for the petitioner submitted that reserve price of the land & building in question are fixed by the valuer taking into consideration on the relevant factors and if one looks at prevalent jantri rate, then, one can easily know that reserve price was manifold than the jantri rate and, therefore, on this count also there is no scope for resisting the prayer for confirmation of the sale.

19. Learned counsel appearing for the applicant bank further submitted that the bank is incurring expenses for maintaining the property as the bank has taken physical possession of property and, therefore, when buyer is available and has offered the reserve price same cannot be said to be unreasonable from any angle. Even the provision of SARFAESI Act is also providing for various methods of disposing of the property and in the instant case e-auction cannot be said to be in any manner irregular or illegal. Therefore this Court may accord its approval and confirm the sale in favour of the sole bidder.

20. Learned counsel Shri Ravindra Shah appearing for the applicant in Page 13 of 43 O/COMA/77/2014 ORDER Company Application No. 109 of 2014 in Company Petition No. 263 of 2013 for the sole bidder contended that the applicant bank has chosen to remain outside the winding up proceedings and has resorted to remedies under SARFAESI Act, and when the bank has right to enforce its security without any intervention of the Court, then, that would include the Company Court also, and, therefore, winding up proceedings will have no bearing whatsoever upon the bank's right to enforce the security against the borrower, except and only in case provision of Section 13(9) of the SARFAESI Act being special Act vis-a-vis Companies Act the winding up proceedings are of no consequence and cannot act as barrier in the way of bank in realizing its dues.

21. Learned counsel Shri Shah appearing for the sole bidder-applicant contended that the right of bank to deal with the property of the company in liquidation in light of the provision of SARFAESI Act is absolutely unaffected on account of liquidation proceedings and it is all the more so in light of the provision of Section 13 of the SARFAESI Act.

22. Shri Shah, learned counsel appearing for the sole bidder extensively relied upon sub section 5A and B of Section 13, to show that when even the secured creditors right to purchase the property by participating in auction is recognized by the legislature, the O.L. cannot be said to be justified in resisting the proposal for confirming the sale.

23. Shri Shah, learned counsel for the sole bidder emphatically relied upon provisions of sub-section (8) and (9) of Section 13 of SARFAESI Act in support of his contention that the only objection that could be permitted to be raised is, since the borrower is in default he has right to come forward and say that he is interested in paying up the dues, and in that case the bank will have to accept the same and the proceedings at that juncture will come to an end. However these two provisions would Page 14 of 43 O/COMA/77/2014 ORDER not envisage any one, including Official Liquidator to have any say so far as the proceedings of sale under Section 13 is concerned.

24. Learned counsel for the sole bidder invited this Court's attention to Rule 9 of the Security Interest Enforcement Rules, 2002 and he also relied upon Rule 6 of the Rules, and urged that the Court may appreciate that the discretion is left only in the authorized officer to deal with the secured movable assets and the entire scheme of the rule clearly indicate that it does not brook any interference from any Court.

25. Learned counsel for the sole bidder further submitted that Rule 7 of the Rules is held out for justifying the filing of present application, as the applicant bidder was under an intimation by the bank that the entire proceeding is subject to confirmation of sale by the Court. Therefore, the present applicant-sole bidder is justified in maintaining this application and so far sale certificate is not issued by the bank, the sale would not be complete in eye of law and, therefore, the prayers in the application be granted and bank's sale be confirmed which will in turn benefit the present applicant.

26. Learned counsel for the sole bidder further submitted that there is compliance with sub section 8(5) of the Rules, as the bank had obtained valuation report twice, and therefore, the Official Liquidator is not justified in resisting the prayer for confirmation only on account of single bidder. Sub-rule 5 of Rule 8 empowers the authorized officer to sale the property by way of private treaty also. When the legislature has given freedom to this extent, it is submitted that the Official Liquidator is not justified in any manner to throw spanner in the smooth wheel of realization of the secured creditor.

27. Both the counsels i.e. counsel for the bank and counsel for the sole Page 15 of 43 O/COMA/77/2014 ORDER bidder have relied upon following authorities in support of their respective submissions.

== State Bank of India Vs. Pro. O.L. Of Volvo Steel Ltdd (Presently,Stanrose Steel Ltd.), reported in [2004] 53 SCL139(Guj) == The Akola Oil Industries (Under Liquidation) Vs. State Bank of India and others, reported in 2005(5) BomCR706, [2006]66SCL147(Bom).

== Bank of India Vs. O.L., of Phar East Laboratories Ltd. and Anr., decided by this Court in Company Application No. 177 of 2005 in Company Petition No. 225 of 1997, and reported in 2006 (0) GLHEL-HC 216336.

== Dena Bank Vs. O.L. Of Rama Filament Pvt. Ltd., decided by this Court in Company Application No. 25 of 2008 in Company Petition No. 318 of 2000.

== Asset Reconstruction Company,Mumbai V. Paharpur Cooling Towers Ltd. & Anr, reported in AIR 2008 M.P. 79.

28. Learned counsel Shri J.S. Yadav appearing on behalf of O.L., invited this Court's attention to the report filed by the O.L., in response to Company Application No. 77 of 2014 and submitted that the bank has not complied with the directions contained in the order of this Court and, thereore, the bank could not have prayed for confirmation of sale. Learned counsel for the O.L., submitted that the bank could not have prayed for confirming the sale when bank has chosen not to place on record of this Court complete facts with documentary evidences in respect of the sale in question. Therefore bank's prayer for according confirmation to the sale deserve to be rejected.

29. Learned counsel appearing for O.L., invited this Court's attention to the orders made on 21/3/2014 and order dated 26/3/2014 and submitted that the affidavits which have sought to be filed purported to be in Page 16 of 43 O/COMA/77/2014 ORDER compliance of the directions, do not contain the specific documentary evidence to show that there was complete compliance with the direction issued by this Court. Therefore the bank could not have proceeded with the sale as the order dated 26/3/2014 is clear qua requirement on the part of the bank to place on record the entire proceedings.

30. Learned counsel appearing for the O.L., submitted that winding up order in these matters came to be passed on 17/2/2014 and therefore when O.L., was in the process of inviting claims and taking out appropriate proceedings, the bank which is only a secured creditor should not have in hot haste gone ahead with selling of the property.

31. Learned counsel appearing for O.L., submitted that the bank has invoked provisions of SARFAESI Act for taking possession of the company's assets and therefore O.L., has not physically taken possession, but that in itself should not be construed as unlimited power in the bank to deal with the property.

32. Learned counsel appearing for the O.L., submitted that the provision of the Companies Act as well as those of SARFAESI Act cannot be said to be in any manner repugnant to each other, rather they are complimentary to each other and therefore, harmonious reading of these provisions would be required for taking care of everyone those who are concerned with the company in liquidation.

33. Learned counsel for the O.L., invited this Court's attention to the provisions of SARFAESI Act, especially provision 13(9), 34, 35 and 37 and submitted that complete reading of these provisions and rules made therein would clearly indicate that the provisions of SARFAESI Act are not in derogation of the provisions of Companies Act and, therefore, when it is specifically mentioned in the special act that the provision of Page 17 of 43 O/COMA/77/2014 ORDER SARFAESI Act i.e. that of special act is not in derogation of any of the Companies Act, then, the submission made on behalf of the counsel for the parties i.e. bank and sole bidder may not be accepted.

34. Learned counsel appearing for the O.L., thereafter invited this Court's attention to the fact that there were glaring defects in the sale proceedings said to have been conducted under the provisions of SARFAESI Act. Those proceedings therefore cannot be said to be bringing about any legal result which can be placed before the Court for its approval.

35. Learned counsel for the O.L., further submitted that counsel for the applicant bank and sole bidder are not justified in canvasing proposition that the secured creditor under SARFAESI Act is at absolute liberty to deal with the property of the company in liquidation. The provision of SARFAESI Act and Companies Act are to be read harmoniously and that would show that the O.L., and his office are required to be associated with the sale procedure as the company in liquidation is statutorily under the auspice of O.L. and O.L., for all purpose is to act for discharging companies liabilities towards the creditors, be it secured or unsecured, strictly in accordance with Companies Act, therefore O.L., is entrusted with larger statutory duties to be discharged in respect of company in liquidation unlike a secured creditor, who is empowered to deal with his security only that too after taking due care and caution in compliance with provision of Section 529 and 529A of the Companies Act. Therefore the prayer for confirming sale under the e-auction to a sole bidder cannot be said to be justified in any manner and the same is required to be rejected.

36. Learned counsel Shri J.S. Yadav appearing for Official Liquidator relied upon following authority in case of Haryana State Industrial And Page 18 of 43 O/COMA/77/2014 ORDER Infrastructure Development Corporation Vs. Haryana Concast Ltd. And Another, reported in [1210] 158 Comp Cas 168 (P&H), in support of his submission that secured creditor cannot be said to have absolute liberty in dealing with the property and his liberty is hedged with the statutory restrictions mentioned in the SARFAESI Act and the Rules. The secured creditor when dealing with the property secured for its financial assistance does not have absolute right even against the borrower, as the borrower has absolute option to pay up the dues and in that eventuality the secured creditor shall have to release the property. As against this, once the company is ordered to be wound-up, Official Liquidator assumes the statutory custody of the properties of the company against the entire gamut of the agencies and creditors and all the claimants shall have to wait for their share as per provisions of law. Of course there is option to the secured creditor to remain outside the winding up provisions but that in itself is not the sole option as to nullify completely the right of the Official Liquidator to see to it that the property is being sold in such a manner as to fetch price which is prevalent in the market.

37. Learned counsel for the O.L., submitted that the Company Court is in fact to oversee for the purpose of ensuring that the company under liquidation is wound-up and all claimants including secured and non- secured shall have their respective say and share out of the sale procedure of the company's properties. Therefore Companies Act provides safeguards and guidance for dealing in the companies properties at the end of O.L. who in turn seeks permission of the Court at every stage. This balance and check is required to be observed for ensuring the maximum satisfaction to all the claimants in accordance with provisions of Section 529 and 520 of the Companies Act. This Court, therefore, may have to taken into consideration the overall facts & circumstances attending the matter and within the permissible limits if the sale is effected by the secured creditors, then, bearing-in-mind provisions of Company law and Page 19 of 43 O/COMA/77/2014 ORDER special provision of Section 13 (9) of SARFAESI Act accord its approval or consider according its approval. Therefore, the absolute authority in dealing with the property as propounded by the counsel for the sole bidder and the applicant bank may be rejected by this Court as having no force in law.

38. Learned counsel for the O.L., invited this Court's attention to the valuation reports and submitted that the property is situated at the cross roads on the National Highway and as such the same would have fetched more value than the one which is offered. Learned counsel for O.L., further submitted that the three attempts were in fact held in a small interval which would also not justify the say of the bank that three attempts were really made. In fact the realistic value of the property should have been made and the bank should have endeavoured to secure higher bids by giving proper publicity. The property is situated on Morbi- Kandla Highway right on the road and therefore newspaper having large circulation in vernacular should have been published.

39. Learned counsel for O.L., invited attention of this Court on page- 71 and submitted that the valuer Multi Mulyankan had given valuation of property in the range of Rs.2200 to 2700 per sq. meter to be the market rate, then, there is no justification for the bank choosing the lower end. By choosing the lower end sizable difference has occurred, which would have made difference of Rs.36.00 valuation. No justification is coming forward for choosing the lower end of the valuation.

40. This Court's attention was invited to page no. 121 and 122 of the compilation being request by the sole bidder to the bank for grant of credit facilities for the remaining amount of Rs.4,11,75,000/- as they had already deposited Rs.1,37,25,0900/- with the bank. Thus the sole bidder under his letter dated 2/4/2014 requested the bank to grant credit facilities Page 20 of 43 O/COMA/77/2014 ORDER for mortgaging the very same property which he proposed to buy under e- auction and he requested for loan amount of Rs.4,11,75,000/-, that means the sole bidder requested the bank for offering him finance so that he can make the payment of the remaining 75% of the purchase price which he had offered. The bank vide its letter dated 16/4/2014 which is produced at page-122 informed the sole bidder that as the bank in- principle agreed to provide financial assistance and credit facilities of Rs.625.00 lakh and as a security this very property which are to be purchased have been mentioned, and in addition thereto one collateral security is mentioned being equitable mortgage of residential building situated on a plot admeasuring 163.41 sq. meters in Morbi which belonged to one of the partners of the sole bidder.

41. Learned counsel for the O.L., submitted that funding of the purchase of the auction property by the auctioneer himself leaves much to be said, though it may not hit by any technicality, yet it is very clear that the bank is offering this facility to the sole bidder for purchasing the property and by proposing to mortgage the very same property, meaning thereby one NPA is closed and bank is heading for another NPA, as there is no other security for ensuring recovery of huge amount of Rs.625.00 lakhs which have been requested by the sole bidder. The entire transaction therefore needs to be viewed with abundant caution and it is to be ensured that the property which is likely to fetch more may not be sold at a lower price which may deprive the other creditors, who would have otherwise been benefited they being secured creditors.

42. Learned counsel for the O.L., submitted on the financial sanction letter issued by the bank dated 1/5/2014 and placed it on record to indicate that the total property which was subject matter of auction and for which the reserve price were fixed being Rs.549.00 lakhs, out of which as per valuation the land & building were valued at Rs.261.00 Page 21 of 43 O/COMA/77/2014 ORDER lakhs and plant & machinery and stock etc. were valued at Rs.288.00 lakhs, against that valuation the bank has shown ruddiness and rather sanctioned financial assistance to the tune of Rs.430.00 lakhs. If those figures were taken into consideration then, it will be said that the bank has appropriate estimate of this property worth more than Rs.430.00 crores and though the bank put it auctioning only at a value of Rs.288.00 lakhs that is almost undervalued by Rs.142.00 lakhs as submitted by learned counsel. Similarly if one looks at the entire scenario then the total financial assistance offered is to the tune of Rs.625.00 lakhs and 20% margin money if counted then that would come to Rs.1,37,25,000/-, which merges with the amount already deposited. Learned counsel appearing for the bank could not explain as to whether the amount deposited is to be treated as margin money or not. Against this backdrop, learned counsel for the O.L., submitted that the Court may consider the balance of convenience and larger public interest before according approval to the sale in question.

43. At this stage learned counsel for the bank by placing on record letter dated 1/5/2014 invited this Court's attention to the annexures therein and submitted that the amount which is being sanctioned cannot be said to be without any security and if this bank had not granted this facility, then, the sole bidder could have obtained such facility from any other bank also. Therefore, there is nothing wrong in financing the purchase of the property and the same is in consonance with the RBI guidelines.

44. Learned counsel Shri Godiawala who at the relevant time represented original petitioner in winding up petition was also given an opportunity to address the Court, who made his extensive submissions against granting of approval to sale in question.

Page 22 of 43

O/COMA/77/2014 ORDER

45. Learned counsel Shri Godiawala invited this Court's attention to provisions of SARFAESI Act with special emphasis upon Section 37, indicating the provisions of SARFAESI Act are not in derogation of any provision of the Companies Act and, therefore, when the legislature has made it clear by way of Section 37, then, the secured creditor like the bank cannot argue contrary to law to indicate that the provision of SARFAESI Act is over riding all other provisions of Companies Act so as to play an exclusive right to deal in the property.

46. Learned counsel thereafter invited this Court's attention to provisions of companies Act viz; Section 441, 443, 444 and 447 of the Companies Act in support of his submission that in the winding up proceedings the Court will have to take into consideration the aforesaid provisions to see to it that the legislature's intent and object is fulfilled.

47. Learned counsel thereafter tendered that once the O.L., is appointed, then, he has statutory right and duty vis-a-vis the company in liquidation and the creditors, promoters and all the concerned which do not get affected merely on account of the provision of SARFAESI Act, which is merely an act providing a special remedy to the creditor who has secured his right to recover money on secured assets. Therefore, when the Companies Act and its provisions have been specifically referred to in the SARFAESI Act by the legislature while passing the SARFAESI Act and when SARFAESI Act is not made to be in any way not containing anything which is in derogation to the provisions of Companies Act, then certain provisions which have been mentioned by the counsel for the bank needs proper consideration before according approval to the sale in question.

48. Learned counsel thereafter invited attention of this Court to Rule 272 of Companies (Court) Rules and submitted that the Company Court Page 23 of 43 O/COMA/77/2014 ORDER may either accord its approval or withhold it as envisaged under that rule to any sale and by virtue of provision of Section 37 of SARFAESI Act the operation of Rule 272 will not get ousted or odious. Had it been so, it would have been clearly spelled out in the provision of SARFAESI Act itself. Therefore, this Court while examining the prayer for confirmation to the sale proceedings may see to it, whether the sale in question is in consonance therewith.

49. Learned counsel thereafter relying upon various provisions of SARFAESI Act and the Rules made thereunder vehemently contended that the applicant bank has not even followed the provision of Section 13, Rules 7, 8 and 9 of the Security Interest (Enforcement) Rules 2002 and therefore on this ground also the sale in question may not be confirmed by this Court.

50. Learned counsel while elaborating his submission based upon non- compliance of the provisions of SARFAESI Act as well as the Rules contended that by virtue of the provision of the Companies Act, especially after the winding up order is passed on 17/2/2014, the company cannot be said to have any independent entity, if then, it is the "company under liquidation" and in that view of the matter company directors and or other office bearers will have no say whatsoever in respect of the property and the assets of the company. Learned counsel placed heavy reliance upon Section 445, with special emphasis upon section 445(3).

51. Learned counsel thereafter submitted that Section 452 of the Companies Act makes it clear that how the Official Liquidator is to be styled and how he is to be in-charge of the affairs of the company thereafter.

Page 24 of 43

O/COMA/77/2014 ORDER

52. Learned counsel thereafter invited this Court's attention to Section 456 with special emphasis upon Section 456(2) in support of his contention that all the properties in name of the company shall be deemed to be in custody of the Court as to the date of winding up of the company and the Court will function through the O.L. Now merely on account of SARFAESI proceedings being invoked it cannot be said that Section 456 is in any manner rendered inoperative.

53. Learned counsel invited this Court's attention to provisions of section 449, 450 and 451 and other provisions of the Company Law and submitted that once the O.L., is appointed and winding up order is passed, then for all the purposes O.L., steps into the shoes of the company and he statutorily assumes entitlement and right to act on behalf of the company as being he is the custodian of the company and he is entitled to defend the action or bring an action against any one on behalf of the company. The directors, office bearers and all the concerned do not have any right or entitlement to act in any manner on behalf of the company. Based upon this submission learned counsel assailed the possession notice issued by the applicant bank and submitted that there is non- compliance with statutory provision for issuing notice to the concerned has not been followed. The bank has issued notice only to ex-directors of the company and omitted to issue any notice to O.L., though by virtue of operation of provision of Companies Act, after 17/2/2014 O.L., had stepped into the shoes of the company in liquidation and therefore non issuing of notice to O.L., would vitiate the action of sale itself. The original borrowers cannot be said to be retaining any entitlement or right to act so far as company's properties were concerned and, therefore, on this ground also sale not being in consonance with provisions of section 13(9) of the SARFAESI Act and also not in conformity with rules stated herein above, may not be confirmed.

Page 25 of 43

O/COMA/77/2014 ORDER

54. Learned counsel for the original petitioner further argued that the development of events and averments made on oath in the winding up petitions contain sufficient material to indicate that the petitioners therein nourished genuine apprehension in respect of the business in-charge / affairs of the company defeating the right of such borrowers and therefore while the petitions were being heard and winding up proceedings were prayed to be initiated, there was absolutely no resistance as the directors themselves had invited the bank under SARFAESI Act by passing resolution to take possession of the property.

55. This Court's attention was invited to page-33 of the petition inviting bank to take into possession of the property, therefore the bank cannot be said to have acted in strict compliance with provisions of SARFAESI Act also, and in this view of the matter, the Court may not accord its approval to the sale in question.

56. Learned counsel appearing for the original petitioner further contended that the Court after winding up order is passed, is to act and take care of all the properties, not only of secured creditors and winding up orders are therefore held in ram which will not in any manner exclude the ban on other secured creditors so as to claim better right against others more than what is envisaged under the SARFAESI Act, that too so far as only the assets which are secured by the secured creditor. Therefore the Court may not approve the sale in which the sole bidder has only offered the reserve price and bank has not bothered to even seek enhancement therein as the bank's dues were being satisfied, but that in itself is not sufficient as number of creditors, may be unsecured, will be left with high and dry. The three petitions at the behest of three petitioners collectively indicate that the company is indebted to around Rs. One Crore and odd and there are claims pending, the haste on the part of the applicant bank is unfortunately affecting the other creditors right Page 26 of 43 O/COMA/77/2014 ORDER to recover money.

57. Learned counsel contended that it is the practice of this Court to follow judgment rendered by another Court. That, even if there is invitation of bids and more bidders have come, then instead of allowing it to the highest bidder, there can be an opportunity to others to bid and such an exercise is always resulting into tremendous increase in the offer. In the instant case the bank has not even bothered to request the sole bidder to enhance his offer, may it on account of bank's dues were getting secured. As against this, had there been more bidders or even appropriate publicity to the public at large, then the possibility of fetching higher value cannot be ruled out.

58. Shri Godiawala, learned counsel for the original petitioner thereafter invited this Court's attention to the averments made in the petition which he had filed and submitted that the statutory notice issued by the creditor had been sent back by the postal department with an endorsement that "the company is closed and therefore the document is returned to the centre". Whereas in this application on page-33 resolution of the company is placed on record which indicate that the company itself invited bank to take the possession as the company decided to handover the possession and there was clear mentioning in respect of the dubious dealing of the directors and those who are buyers of the company in alienating or disposing of the assets of the company, so as to leave the other secured creditors high & dry. Learned counsel has further submitted that when the winding up order was passed, the secured creditor as well as the unsecured creditor have locus and right to be heard when the property of the company in liquidation are being sold. This is submitted in view of the provision of Rule 139 of the Companies (Court) Rules 1959 and Division Bench decision in case of East India Co. V. Official Liquidator and Anr., reported in (1970) GLR 457 and followed by Page 27 of 43 O/COMA/77/2014 ORDER another decision in case of Syndicate Bank Vs. Field Star Cycle Industries P. Ltd. And another, reported in (1992) 74 CompCas79 (Kar).

59. This Court has heard learned counsels for the parties and perused documents and the annexures placed on record. Before adverting to the rival contentions of the parties it would be most expedient to set out herein below indisputable aspects emerging therefrom, namely:-

(1) The company in liquidation happened to be a Private Limited Company against which three petitions were filed being Company Petition No. 263 of 2013, 264 of 2013 and Company Petition No. 291 of 2013. The first petition in point of time being Company Petition No. 263 of 2013 had been filed on 4/10/2013.

(2) In all these three company petitions presented by the creditors for seeking winding up of the respondent company, the outstanding claim of all the three petitioners put together comes to around Rs.1,13,00,000/-.

There are averments indicating that the bank has resorted to the provisions of SARFAESI Act for securing its dues from the respondent company and it has also been mentioned in some of the petitions that there was likelihood of defeating the claim of the creditor petitioners.

(3) In all these petitions, the oldest happened to be Company Petition No. 263 of 2013 in which this Court issued notice on 13/11/2013 which was made returnable on 9/12/2013. The admission order admitting all these three matters were passed on 6/1/2014 and publication was also ordered there under fixing 10/2/2014 to be final hearing date. Accordingly after due publication of the petitions and after hearing all the concerned, the Court was convinced to pass winding-up order on 17/2/2014. While ordering winding-up of the respondent company the Court made following observations.

Page 28 of 43

O/COMA/77/2014 ORDER "3. The record indicates that the claim in Company Petition No. 263 of 2013 is of Rs.50,51,213/-, whereas the claim in Company Petition No. 264 of 2013 is of Rs.50,51,213/-, and the claim in Company Petition No. 291 of 2013 is of Rs.13,57,581/-. It further appears from the record that the Company is not an ongoing concern and the possession of its assets is taken over by the Bank being secured creditor. It is also averred that the Company has remained closed and it has lost its overall substratum including economic and financial.

4. This Court was pleased to issue notice to the respondent. The respondent appeared and have filed reply in two petitions, i.e. Company Petition Nos. 263 of 2013 and 264 of 2013. It appears from the reply filed by the respondent- Company that no substantial defence is raised. On the contrary, reply indicates that secured creditor has undertaken proceedings under SARFESAI Act which itself shows that the respondent-Company is unable to take its own stand as it is closed. It appears from the record that the respondent-Company has thus lost its financial substratum.

5. xxxxxxxxxxxxxxx

6. Considering the aforesaid submissions and documents on record and in view of the fact that the respondent- Company has neither filed any reply to the statutory notice nor have come out with a defence in the reply which is filed and the stand taken by it not supported by any documents and as such only moonshine defence is raised by the respondent-Company. The record further indicates that possession of the properties belonging to the respondent- Company is taken over by the Bank under the SARFESAI Act. It is, therefore, quite clear that the respondent- Company is not in working condition and has lost its financial substratum and therefore, requires to be wound up.

7. Accordingly, Company Petitions are allowed and the respondent- Company being M/s. Apoorva Laminates Private Limited is ordered to be wound up under Sections Page 29 of 43 O/COMA/77/2014 ORDER 433, 434 and 439 of the Act and Official Liquidator attached to this Court, shall forthwith take into the custody the assets, properties of the Company and report to this Court."

These facts indicate that the petitions of creditors were accepted and winding-up order was passed on 17/2/2014 after even taking note of the fact that the SARFAESI proceedings were resorted to by the concerned Bank. O.L., attached to this Court was appointed as O.L., of the respondent-Company i.e., M/s. Apoorva Laminates Pvt. Ltd., and was ordered to take all needful actions pursuant to the order of winding-up dated 17/2/2014.

(4) As the order dated 17/2/2014 contained specific direction to O.L., to act forthwith in taking possession of the property of the Company, in order to comply with the order, O.L. sent letter dated 11/3/2014 and 12/3/2014 to the bank inquiring of the position. The bank did not reply and rushed to the Court by way present application being Company Application No. 77 of 2014.

(5) Bank in its application inter alia indicated that the bank has resorted to the provision of Section 13(2) of the SARFAESI Act. The property was mortgaged with the bank and bank created charge on 12/11/2010 and provision of SARFAESI Act have been resorted to for securing dues from the company. As stated herein above, under Section 13(2) of the Act notice came to be issued on 2/4/2013 and symbolic possession came to be taken on 3/6/2013. Notice of possession came to be issued on 12/12/2013 under Section 13 (4) and Rule 8 (1) of the Securitisation Rules which was pursuant to the resolution dated 11/9/2013 passed by the company, as per the say of the bank. Applicant bank has mentioned in its application in para-4 and annexed with the application the documents which included the resolution of the company dated Page 30 of 43 O/COMA/77/2014 ORDER 1/9/2013 inviting the bank to take possession of the property. The resolution passed by the company in its board meeting held on 11/9/2013 read as under:

"Resolved that in pursuance of proceedings under Securtisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFEASI) act, we hereby agree and consent amicably to handover company's factory land & building, plant & machinery, all type of stocks (raw material/finished goods), stores and spares situated at - Survey No.113/3 paiky Nava Sadulka, 8-A National Highway, near Rajkot- Kandla bye pass, opp. Laxminagar, Morvi to authorized officer Bank of India, Morvi Branch.

It is further resolved to handover a copy of this resolution to authorized officer Bank of India Morvi Branch for their necessary action/proceedings to realize their debts against the company as stated in the demand notice dated 02.04.2013."

Thus the company in its own volition in its meeting held in the same premises appears to have passed resolution that the dues of the bank as mentioned in the notice dated 2/4/2014 could not be cleared and hence the company resolved to handover possession of the assets of the company to the bank. This resolution was passedd on 11/9/2013 and on the next day i.e. 12/9/2013 physicalpossessionn is said to have been taken over by the bank.

(6) Physical possession appears to have been taken over by the bank on 12/9/2013 and winding-up order and appointment of O.L., is made on 17/2/2014. The O.L., was under direction to take possession of the property of the company forthwith, hence communications were sent to the bank which appears to have goaded the bank to approach this Court by way of Company Application No. 77 of 2014 in which this Court on Page 31 of 43 O/COMA/77/2014 ORDER 21/3/2014 passed the following order:-

" Mr. Utkarsh B Jani for Mr. Bharat Jani for the applicant submits that on account of urgency in the matter, if the Court is inclined to issue notice, let there be a short time gap as the e- auction is slated on 28/3/2014. Learned Official Liquidator who is present in the Court has received the copy and he submits that he would waive the notice, and let the matter be fixed on 26/3/2014. Hence NOTICE returnable on 26/3/2014. Learned Official Liquidator waives service of notice for opponent.

The Bank in the meantime shall place on record the Valuation Report, Detailed terms & conditions of sales determined and all other proceedings, including upset price by 24/3/2014, with a copy to the Official Liquidator. Put up on 26/3/2014."

(7) Thereafter on 26/3/2014 further orders were made,which read as under:

" Shri Utkarsh Jani for Mr. Bharat Jani, learned advocate for the applicant under the instructions and in order to over come the resistance on the part of the Official Liquidator submitted that the e-auction be permitted to be proceeded with on the following conditions namely;

(i) The applicant shall bring on record all the proceedings qua the e-auction.

(ii) The applicant shall keep the Official Liquidator informed about all offers received during the e-auction process.

(iii) The offers etc. will be placed on record with a copy to the Official Liquidator.

(iv) The sale, if any, would be placed before the Court for confirmation.

(v) The proceeds of the sale be deposited in this Court and nothing would be finalized without express permission from Page 32 of 43 O/COMA/77/2014 ORDER this Court.

S.O. to 21.04.2014."

(8) The sole bidder preferred Company Application No.109 of 2014 with the prayers mentioned there under which essentially is to the effect of seeking confirmation of sale in favour of the applicant.

60. Against the aforesaid backdrop of factual aspects, this Court is to examine the rival contentions raised on behalf of the parties for & against the conformation of sale in question.

61. Learned counsel for the bank as well as the sole bidder have submitted relying upon the provisions of SARFAESI Act with special emphasis upon Section 13(9) of the said Act to support their submission that when SARFAESI proceedings are invoked by a secured creditor to choose to remain outside the winding-up proceedings, then, in that case confirmation of sale is merely a formality, as in the instant case the bank has invoked SARFAESI provisions and initiated proceedings under SARFAESI Act way back on 2/4/2013, i.e. the notice issued under section 13(2) and factum of winding-up been passed on 17/4/2014 may therefore weigh with this Court in appreciating the fact that the SARFAESI Act being special act and containing procedures for giving utmost priority to the procedure realizing dues by the secured creditors like bank and financial institutions covered under the SARFAESI Act, and when offer is such satisfying dues of the bank from the company; then merely on the ground that the sole bidder is available and that no one have come forward to bid, that in itself may not be factor for discarding the sale proceeding and rejecting request for confirmation of sale. In support of this submission as stated herein above the authorities have been relied upon its attempt to show that the action of the bank is required to be approved by way of requisite formality without further Page 33 of 43 O/COMA/77/2014 ORDER going into the matter.

62. This Court is unable to accept this submission, as the provisions of SARFAESI especially section 13 and proviso there under are required to be read along with provision of Section 37 and other provisions and bare reading of the provision of Section 37 would make it incumbent upon all the concerned to accept that the provision of SARFAESI Act are not to be treated as interrogation of any provision of law, including Companies Act. Therefore bear-in-mind provision of Section 37 and its mandate which has been embedded in the very Special Act the submission of counsel for the bank and sole bidder is required to be viewed. The submission in respect of Section 13(9) that the only obligation upon the agency invoking SARFAESI provisions in respect of the company in liquidation is for reserving the funds from the sale proceeds, to meet with the liability of the company qua its workmen, is to say the least inadequate and truncated reading of the provisions without any reference to the detailed provisions of the Companies Act as well as the SARFAESI Act and the Rules. The proviso of Companies Act is not to be brushed aside and the Companies Act cast an obligation upon all the concerned to see to it that the company in liquidation and its assets are to be treated in a manner so as to satisfy the larger segment. Priority of the creditor interse is of course governed by further provisions of the SARFAESI Act where the SARFAESI Act is invoked and conjoint reading of Section 529, 529A and 530 of the Companies Act, and agency or an instrumentality or bank working under SARFAESI Act therefore cannot justify to completely ignore or avoid the mandatory provisions of the Companies Act, and in case if the company in whose case SARFAESI Act and provisions are invoked is also subject matter of winding-up proceedings in the Court. In such a situation a fine balance is envisaged and therefore no agency is arrogated to itself any superior or better power than the one which is envisaged under the Act i.e. Page 34 of 43 O/COMA/77/2014 ORDER SARFAESI Act as well as the Companies Act.

63. The provision of making reserve or providing for reserve from the sale proceeds cannot be said to be an unfettered license in SARFAESI Act to deal with the property which may not be commensurate with commercial prudence and tenets flowing there from. The Court hasten to add here that the provision of section 13 (9) of SARFAESI Act and proviso thereto are to be read bear-in-mind that the agency invoking SARFAESI Act in a case of company under liquidation will take all the care and precaution to see to it that the provisions of SARFAESI Act are completely complied with, and it may not in any manner violate principles of Company Law. In other words the absolute right sought to be canvassed in the secured creditor invoking SARFAESI Act is required to be read as if it is hedged with a duty to take care of the provisions of Companies Law also. To that extent the agency working under SARFAESI Act will have to establish that it has followed the commercial prudence and its tenets in dealing with the property. It is all the more so when the entire property is mortgaged and there is no time or practically no time available to the O.L., for even inviting claim from others as it happened in the present case. In the instant case the winding- up order was passed on 17/2/2014 and before the O.L., invited claims, the bank rushed to this Court with an application in form of Company Application No. 77 of 2014 in due deference to the provisions of both the acts. The Court granted permission to proceed with the sale by way of e- auction. But that in itself is not sufficient to seek approval as a matter of course open to the facts & circumstances of the present case. The parties cited at the Bar on behalf of the applicants and applicants cannot be said to be holding their case for seeking approval by calling it as merely a formality. This Court in the matter of company under winding-up is not to be oblivious of the dealings which may not be commensurate with the avowed and declared practice and procedure for selling the property. The Page 35 of 43 O/COMA/77/2014 ORDER Court is in full agreement with the counsels of the applicants that in a given case when there is proper justification for the secured creditor who is sought to invoke SARFAESI Act shall take precedence over all other creditors and essentially when it has chosen to remain outside the proceedings of winding-up. But that also will not absolve that agency of observing minimal of principle of reasonableness in dealing with the property. Therefore when the provision of the two acts are read together in light of decisions cited at the Bar qua Haryana State Industrial And Infrastructure Development Corporation V. Haryana Concast Ltd. And Another, reported in [2010] 158 Comp Cas 168 (P&H, this Court is of the considered view that the proceedings of winding-up when is to be viewed in view of provisions of SARFAESI Act, then the Court is not rendered helpless and become mute spectator to the dealings. The judgment cited at the bar i.e. Haryana State Industrial And Infrastructure Development Corporation (supra) though is also in respect of the provisions of Section 529A Companies Act, but the principles laid down therein would clearly indicate that the Court cannot be called upon to accord its approval in all the proceedings merely on account of provision of SARFAESI Act are invoked in a case where winding-up proceedings are also ordered.

64. The Supreme Court in the case reported in (2008) 15 SCC 1, in case of Bakemans Industries Private Limited Vs. New Cawnpore Flour Mills and other, has observed as under:

"para-39: But, in this case, the sale in favour of Ceylon Biscuits Pvt. Ltd. Having not taken place in terms of Section 29 of the 1951 Act, the said question (sic provision) cannot have any application whatsoever. It is, however, a case where the learned Company Judge was not authorized to exercise its power under Section 29 of the 1951 Act. It purported to exercise its power only under the Companies Act. SICOM submitted itself to its jurisdiction. It allowed the Company Judge to conduct the sale. The sale that was conducted was purported to be in terms of the Companies Act.

Page 36 of 43

O/COMA/77/2014 ORDER Para- 40: We have noticed hereinbefore that when a provisional liquidator was appointed, the High Court instead of exercising its writ jurisdiction referred the matter to the Company Judge. It was the Company Judge, therefore, who proceeded in the matter. The Company Judge could exercise its jurisdiction only in terms of the Companies Act and not in terms of Section 29 of the 1951 Act. If he did not have the power under the 1951 Act, any decision purported to have been taken by him would be a nullity. SICOM indisputably has a statutory power but it could waive the same. It preferred the conduct of the auction at the hands of the Company Judge instead and in place of carrying on the same by itself. It submitted itself to the jurisdiction of the Company Judge. Not only it took part in the proceedings without any demur whatsoever, it actively participated therein. It is only at its instance that the bid was held. The other bidders were also brought in. It is, therefore, not a case where the learned Company Judge had no jurisdiction to exercise supervision of sale of the assets of the appellant on behalf of SICOM in terms of the provisions of Section 29 of the 1951 Act or otherwise. The respondents even never insisted to get the question of jurisdiction determined as a preliminary issue, although raised them specifically. They thus, for all intent and purport waived their right.

Para- 66: It is true that in a liquidation petition, secured creditors ought to be differently treated. A third party which has an independent right would not be affected by reason thereof. Ordinarily, even the statutory power of the said financial corporation would also not be affected.

Para- 67. We, however, are not in a position to agree with the submissions of Mr. Sundaram that provisional liquidators have no statutory powers in relation to affecting sale of a moveable or immoveable property. Indisputably, it is subject to the direction of the court but, as indicated hereinbefore, the Court while undergoing the process of winding up and, in any event, resorting to sale of the assets of the company under winding up proceeding could not have ignored the involvement of the provisional liquidator for any purpose whatsoever.

Para-68. At the cost of repetition, it is reiterated that the discretion of the court for selecting the mode and manner of sale has nothing to do with the process required to be gone into for the said purpose. It must have before it all these facts and figures so as to enable it to pass a final order one way or the other. In so doing, the court must keep in mind that it is not only determining an Page 37 of 43 O/COMA/77/2014 ORDER issue by and between the mortgagor and one mortgagee only but could also be determining the issue between a debtor and a vast number of creditors; whether secured or non-secured."

Thus, even while acknowledging and accepting that the provisions of SARFAESI Act would permit the dealing in the property by the secured creditors, que the property mortgaged i.e. winding up proceeding are also in the fray, then, the Company Court, will have to see to it that there is proper sale of the property, which fetch the highest price. The secured creditor even if is permitted to remain outside the winding up proceedings, cannot be permitted to ignore or over look the interest of other creditor so as to deprive them of their right to realise the dues. Of- course the secured creditors are to be given priority than unsecured creditors but that in itself would not cloth the secured creditor with power to sale property for song. The Court has also considered the judgment in case of Jiterndra Nath Singh Vs. Official Liquidator and others, reported in (2013) 1 SCC 462.

65. This brings this Court to consider the case on hand and its facts. The following glaring irregularities dissuade this Court from according its approval to the sale in question, namely:

a) The fact remains to be noted that by virtue of provision of Section 456 of the Companies Act, the property of the company comes under the control and custody of the O.L., attached to this Court and since that day onwards the company is required to be referred to as the Company Under Liquidation. The juristic entity of the company is of course not wiped off but is required to be referred to as the Company In Liquidation so as to caution all those who are dealing in it or likely to deal with it in future. In the instant case the bank had though took peaceful possession of Page 38 of 43 O/COMA/77/2014 ORDER movable and immovable properties of the company, neither the SARFAESI Act nor the company provisions clearly indicate anywhere that provisions of Section 456 is in any manner wiped off, crippled or eclipsed. Therefore it is in due deference to the provision of SARFAESI Act the O.L., is not disturbing the possession, but his right to be associated with the sale of the property thereafter is required to be acknowledge by all, including the agency which is invoking SARFAESI Act. If the property is not sold off when winding up order is passed, then even that property also notionally is to be treated as the property under section 456 and thus though it may remain physically with the agency who had invoked SARFAESI Act provisions and to that extent O.L. may not impose physical custody but that in itself would not be enlarged further as to completely oust the O.L. from being associated with the dealing on the property thereafter, as the secured creditor have all the right to deal with the property so far as it has been dealt with in all reasonableness. But the provision of Section 456 and the notional custody will have to be taken into consideration by all the concerned. In the instant case the order which was passed on 21/3/2014 and 26/3/20/14 are self-explanatory as the bank volunteered in accepting the principle governing the prudent sale of the property and volunteered to place on record, not only the record & proceeding but the sale proceeds also.

Having agreed to this the bank could not have been oblivious to the principle which are governing the sale of property of the company in liquidation. Therefore, to that extent the sale in question is required to be viewed and also from the provision of Rule 272 of Companies (Court) Rules which makes it incumbent upon all to see to it that the property is to be dealt with so as to fetch maximum price so as to satisfy larger faction of the creditors. The creditors interse preference is not important at this stage as no one is challenging bank's right to have its complete dues from the sale proceeds. But that in itself would not entitle bank to deviate from the procedures as it would amount to deviation which Page 39 of 43 O/COMA/77/2014 ORDER cannot be countenanced by at least the Company Court as it would not be in consonance with the principle applicable under Rule 272 of the Companies (Court) Rules.

b) In the instant case the advertisement for sale is also not referring the company as Company In Liquidation, nor has the advertisement or notice thereof is cared to be furnished to the O.L. Instead of O.L., the bank chose to sent notice in so called compliance with Rule 8(6) to the original borrowers, who in eye of law did not have any say so far as the properties in question are concerned. Shri Jani's submission qua complete compliance based upon definition of borrower is required to be rejected on the ground that in a situation where by statutory provision O.L. becomes the custodian of the company's properties and he is under obligation and duty to defend the company as if it is a company in all proceedings, then the bank invoking SARFAESI Act cannot be said to be absolved of its obligation to address notice to Liquidator also, who is appointed by this Court, and his say is not merely a formality but for the so called parties it is embedded in the statute the borrower's place is taken by the O.L., so far as the SARFAESI Act is concerned. Therefore it was duty of the liquidator to see to that the property is fetching appropriate value as it was otherwise duty or right of the borrower that the property of the borrower is not sold for a song. The Liquidator has that notice of sale dated 25/2/2014 whereas O.L., was appointed on 17/2/2014, meaning thereby the bank had knowledge of O.L., being appointed, and therefore bank cannot be said to have been absolved of its obligation to address notice of sale to O.L., also.

c) The Court is at pain to record that if the location and situation of the property in question have three valuation reports taken by the bank are considered, then it cannot be said that there was no justification on the part of the bank in straightway accepting the sole bidder's offer which Page 40 of 43 O/COMA/77/2014 ORDER was exactly the same as of that of reserve price or upset price. Learned counsel for the O.L., is justified in canvassing the submission that looking to the situation of the property in question and the land & building being not of very old, which is of only five years old, offer matching the reserve price without any further efforts of even requesting or inquiring the very bidder to raise his offer cannot be accepted. Shri Jani's submission qua no obligation on the bank to seek any further offer in light of the SARFAESI Act is required to be rejected on the account of the fact that even the sole bidder has not been indicating his worth or having wherewithal to buy the property as he had sought financial assistance from the bank and the bank in turn has not shown willingness but sanctioned financial assistance. In the narration of submission of O.L., and its counsel the entire property is sought to be sold for only at a reserve price, that too bank is financing more than 75% on the very same property which they are proposing to sell. The bank has not joined any other property except residential premises admeasuring 163.41 sq. meter in an area where this property cannot be said to have greater valuation so as to even cover part of the finance which is proposed to be provided to the sole bidder. Moreover a question arises, in case if it was known to the prospective bidders that there was facility available to receive finance on that very property by mortgaging the property to very same bank, it would have surely fetched more than the offer coming from the sole bidder.

d) The entire issue of sole bidder and the development in aftermath and development thereafter cannot be brushed aside by merely saying that the bank was well within its right to offer finance on the same property offered and auction to another person like sole bidder as the bank will atleast start earning interest. A question arises, when the entire SARFAESI Act is sought to have been provided to help the bank like financial institutions in overcoming their NPA problem, can the same Page 41 of 43 O/COMA/77/2014 ORDER bank offer more finance to the person on the same property which is being sold for realizing its dues. In other words the bank's dues on the property are to the tune of Rs.5,28,27,686/- as on date 28/7/2014 as against this the property is sought to be sold at Rs.5,49,00,000/-, out of which the sole bidder has deposited only Rs.1,37,00,000/- and rest of the entire amount is financed by the bank by showing preparedness to create charge over the same property as its own security which is being sold under the process with additional security in the nature of collateral security of one partner's bungalow admeasuring only 163.41 sq. meter in an area of Morvi. In other words the sole bidder is sought to be helped in getting the property by depositing Rs.1,37,00,000/- and rest of the money is paid by the very bank on the very same security. This facility though was declared to be available to all the concerned or even bank's inclination to do it was made to be, then certainly more proposed buyers would have been persuaded to make their offers which would have in turn satisfied the requirement of Rule 272 of the Companies (Court) Rules.

e) It is also required to be noted at this stage that worth of the property which is sought to be sold at Rs.5,49,00,000/- is valued by the bank itself of the worth more than Rs.6,25,00,000/- as it has offered finance by securing this very property as security for financing Rs.6,25,00,000/-, meaning thereby in the eyes of the bank this very property is capable of fetching more than Rs.6,25,00,000/- as the bank in principle will not finance more than 80% of the property's price. In other words the bank has valued it to be more than Rs.6,25,00,000/- renders bank's plea for according sanction to the sale of the property at Rs.5,49,00,000/- would fall flat and, therefore, on this ground also the Court is unable to accord its sanction to the sale in question.

66. The Court, therefore is of the considered view that the bank is required to be directed to issue fresh advertisement after obtaining fresh Page 42 of 43 O/COMA/77/2014 ORDER valuation in consultation with Official Liquidator, and make it clear in the advertisement itself that the company is in liquidation, that the bank shall after fresh valuation prepared of the entire property in consultation with the Official Liquidator, fix the reserve price, which shall not be less than Rs.6,25,00,000/- as it is in bank's own assessment for offering finance on this very property. In any manner if the valuation is more than Rs.6,25,00,000/- then the bank is at liberty to fix appropriate reserve price / upset price also.

67. With this observations, Company Application No. 77 of 2014 and Company Application No. 109 of 2014 are disposed of . Notice in both the applications are discharged. Interim relief, if any granted earlier in the applications shall stand vacated.

68. At this stage, Ms. Bhavsar for the applicant bank in Company Application No. 77 of 2014 requests for passing order of refund of the balance amount, out of Rs.5,00,000/- deposited with the office of Official Liquidator as required under Rule-148, under the order of this Court dated 27/6/2014. Official Liquidator is permitted to refund the amount after deducting the amount incurred of Rs.90,511/- , to the applicant bank.

(S.R.BRAHMBHATT, J.) vgn Page 43 of 43

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Gujarat High Court