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2005 DIGILAW 108 (ORI)

EMPLOYEES ELCONMET LTD. v. IPICOL

2005-02-02

A.K.PATNAIK

body2005
JUDGMENT : A.K. Patnaik, J. - This is an application filed by the employees of M/s. Elconmet Ltd. (for short, "the Company") in Company Act No. 17 of 2001 to declare the sale of the assets of the said Company as null and void. 2. The facts briefly are that the Company made a reference to the B.I.F.R. u/s 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short, the 'SICA'). The reference was dismissed as non-maintainable by the B.I.F.R. on 30.4.1991, the Company preferred an appeal before the appellate authority for industrial and financial reconstruction and by Order dated 12.12.1991, the said appellate authority remanded the case back to the B.I.F.R. After all attempts to rehabilitate the Company failed, the B.I.F.R. decided in its proceedings held on 19.2.2001 that it is just and equitable in the public interest to wind up the Company and appointed the IPICOL (Industrial Promotion and Investment Corporation of Orissa Ltd.) as operating agency in terms of Section 20(4) of the SICA to arrange for disposal of the assets of the Company and directed that the entire sale proceeds after deducting expenses incurred in connection with the sale of the assets shall be deposited with the High Court for disposal by the Official Liquidator as per the provisions of the Companies Act, 1956. Paragraphs-12, 13 and 14 of the said proceedings of the B.I.F.R. held on 19.2.2001 are quoted herein below : "12. After hearing the submissions of the OA, secured creditors, Banks, OSFC, OSEDC and others, the Bench noted that despite giving an opportunity to the company to rehabilitate itself no acceptable viable proposal had been submitted by the company which could be considered for its rehabilitation even at this late stage. The Company had failed to take any steps to change its negative net worth and make it positive, although they had come to BIFR 10 years ago which fact gave an indication that the company and its promoters were taking undue advantage of law and were not serious about it's rehabilitation. Moreover, the company's net worth still remained negative and their accumulated losses were mounting year after year. Moreover, the company's net worth still remained negative and their accumulated losses were mounting year after year. The Board, therefore, decided that it was just, equitable and in the public interest to wind up the company as the Sick Company viz, M/s. Elconment Ltd. would not be able to make its net worth positive within a reasonable time while meeting all its financial obligations and concluded that its prima facie opinion for winding up of the Company taken in the last hearing should be confirmed. The secured creditors wanted to realize their outstanding amount through the sale of the assets of the company. However, the Bench appointed IPICOL as Operating Agency (OA) in terms of Section 20(4) of the Act to arrange for disposing off the assets of the company. 13. IPICOL (OA) would constitute an Assets Sales Committee which should be chaired by a representative of IPICOL, not below the rank of GM, who would be the chairman of the Assets Sales Committee to decide about the sale of the assets of the company and he would decide about this through a representative each of SBI, OSFC, ICICI and a representative of the company. The Assets Sales Committee would follow the guidelines for the disposal of the assets as per the guidelines given below : (a) All the assets should be got valued by an independent expert valuer and having regard to the likely market prices thereof, reserve price should be fixed in respect of each of the assets, if possible. Asset valuation should be got completed within a month from now and reserve price got approved by the Board. (b) The sale of assets should be effected by way of public sale through sealed tenders, after adequate notice is given to the public through advertisements in three leading newspapers/trade journals-one of the newspapers being in English and the other in the regional language of the locality where the assets are located. Minimum four weeks time will be allowed to the bidders to inspect the assets and submit their offers. Minimum four weeks time will be allowed to the bidders to inspect the assets and submit their offers. (c) The proposed sale of assets of the company was being effected under the directions of Board for Industrial and Financial Reconstruction (hereinafter referred to as the 'Board') in pursuance of the provisions of Sub-section (4) of Section 20 of the Act, read with the overriding provisions of Section 32(1) of the said Act, after the Board has formed its final opinion under Sub-section (1) of Section 20 of the aforesaid Act to the effect that it is just and equitable and in public interest that the Sick Industrial Company should be wound up. (d) The prospective buyers/bidders would be allowed to inspect the assets on stipulated date or dates in the presence of the company's representatives. Offers/bids should be made in sealed envelopes to be opened by the Asset Sale Committee on previously specified and notified place, date and time in the presence of the bidder's representatives. Sale of assets should be on "As is, Where is" basis. (e) The bidder should deposit by means of a Bank Draft earnest money equivalent to 10% of the notified reserve price in respect of each asset along with the bid. This amount shall be forfeited if the party whose offer/bid is finally accepted defaults in making the balance of payment in terms of the conditions of sale and completing other sales formalities within the due date. If, however, the sale is completed within the specified time limit, the EMD would be adjusted towards the final sale price. The EMD would not, however, carry any interest. (f) Where a bid was finally accepted the purchaser should be required to pay the balance of the purchase consideration in two instalments, of 50% and 40% of the total selling price, payable, respectively before the end of 45 days and 90 days from the date on which intimation regarding the final acceptance of the bid was dispatched to him by Registered Post (A.D.)/Speed Post at his notified address. (g) The successful purchaser would within 10 days of the receipt of intimation regarding the acceptance of his bid, furnish an Bank guarantee, valid for one year, as might be considered satisfactory by the IIBI, to secure full and timely payment of consideration for the assets purchased. (g) The successful purchaser would within 10 days of the receipt of intimation regarding the acceptance of his bid, furnish an Bank guarantee, valid for one year, as might be considered satisfactory by the IIBI, to secure full and timely payment of consideration for the assets purchased. (h) The EMD received from unsuccessful bidders would be refunded to them, without any interest promptly. (i) The possession of the assets purchased and the title thereof should be transferred to the purchaser only on receipt of full payment of the purchase consideration along with interest ' 18% p.a. in case of delayed payments, if any, which may be accepted with prior the approval of the Board. (j) The extension of time to be granted by the Board in terms of Sub-para (i) above will not exceed 60 days each from the due date(s) of the second and third instalment(s) and shall be subject to prior extension, if necessary, of the period of validity of the Bank guarantee for the unpaid amount, besides payment of interest ' 18% p.a. for the extended period. (k) Sale of tenancy rights shall be subject to the applicable Rent Control Laws, if any. (l) After opening the offers, the Asset Sale Committee will examine the offers and finalize its recommendations regarding the best acceptable offer/bid, specifying the reasons therefor, in consultation with the involved FIs and Banks, and submit their recommendations to the Board, within a months of the receipt of sale offers, for consideration land final decision. (m) The Board reserves the right to accept or reject the recommendations of the Asset Sale Committee at its absolute discretion, without assigning any reasons. (n) The entire sale proceeds, after deducting expenses incurred by the IIBI/Asset Sale Committee in connection with the sale of the assets, shall be deposited with the concerned High Court for disposal by the Official Liquidator as per the provisions of the Companies Act, 1956. (o) The scales of fees and expenses shall be regulated in accordance with the relevant provisions of the Companies' (Court) Rules, 1989 and the standing orders of the concerned High Court relating to the liquidation of companies under the Companies Act, 1956. 14. The Bench also directed that a copy of today's proceedings along with the copies of the earlier proceedings and other related orders may be forwarded to the respective High Court for further necessary action. 14. The Bench also directed that a copy of today's proceedings along with the copies of the earlier proceedings and other related orders may be forwarded to the respective High Court for further necessary action. The Bench also discharged the Special Director, Mr. N. R. Hota from the Board of the Company". 3. A copy of the proceedings dated 19.2.2001 of the BIFR was received by the High Court and Company Act No. 17 of 2001 was registered in the High Court on 4.4.2001 u/s 20(1) of the SICA. On 4.10.2002, the Court issued notice to the IPICOL to file a status report in respect of the Company and as to what steps have been taken pursuant to the aforesaid proceedings of the BIFR On 4.10.2002, the Court also issued notice to the Company, 4. Thereafter, Misc. Case No. 35 of 2003 was filed by the IPICOL stating therein that pursuant to the proceedings of the BIFR dated 19.2.2001, IPICOL constituted a Assets Sale Committee and has disposed of the assets of the Company having followed the guidelines prescribed by the BIFR and has submitted a report to the BIFR and the final bid of the highest bidder Mr. Shyam Sundar Agarwala of Bhubaneswar for purchase of the fixed and current assets of the Company at Rs. 131 lakhs as per the recommendation of the Assets Sale Committee has been approved by the BIFR. A copy of the letter dated 12.9.2002 of the Bench Officer-II intimating the CMD of IPICOL about such approval of the final bid by the BIFR has been annexed to the Misc. Case No. 35 of 2003 as Annexure-2. In the said copy of the letter dated 12.9.2002 it is also mentioned that the Bench has directed the IPICOL to deposit the entire sale proceeds after deducting the expenses of Rs. 98,961/- incurred by IPICOL towards the sale with the High Court for orders for distribution in accordance with the provisions of Section 529(A) and other provisions of the Companies Act, 1956. In the said Misc. Case No. 35 of 2003, a prayer was also made to allow IPICOL to deposit the entire sale proceeds less the aforesaid expenses towards sale incurred by the IPICOL amounting to Rs. 1,30,01,039/- with the Official Liquidator for distribution as per the provisions of Section 529(A) of the Companies Act, 1956. In the said Misc. Case No. 35 of 2003, a prayer was also made to allow IPICOL to deposit the entire sale proceeds less the aforesaid expenses towards sale incurred by the IPICOL amounting to Rs. 1,30,01,039/- with the Official Liquidator for distribution as per the provisions of Section 529(A) of the Companies Act, 1956. On 5.9.2003 the Court directed that the said amount of Rs. 1,30,01,039/- will be deposited by a Bank Draft in the name of the Official Liquidator, Orissa High Court, Cuttack in the account of the Company and the amount will be kept in fixed deposit bearing maximum interest by the Official Liquidator. Pursuant to the said Order dated 5.9.2003, the amount of Rs. 1,30,01,039/-has been deposited with the Official Liquidator and the said amount has been kept in fixed deposit in the account of the Company. 5. On 5.9.2003, Misc. Case No. 49 of 2003 was also filed by the intervenor-employees of the Company with a prayer to implead them as parties and the Court rejected the prayer of the intervenor-employees to be impleaded as parties but allowed the prayer for intervention and observed that the intervenors will be heard through their counsel in Company Act No. 17 of 2001. Thereafter, the present Misc. Case No. 22 of 2004 was filed on 4.8.2004 with a prayer to declare the sale of the assets of the Company in favour of Mr. Shyam Sundar Agarwala as null and void. The said Misc. Case No. 22 of 2004 was heard on 17.12.2004 and reserved for orders, 6. Mr. S.A. Ali, Learned Counsel for the intervenor-employees of the Company submitted relying on the averments in the Misc. Case application that as per the provisions of Section 44(2) of the Companies Act, 1956, the winding up of the Company commenced on 4.4.2001 when the Company Act No, 17 of 2001 was registered on the opinion of the BIFR u/s 20(1) of the SICA whereas the sale of the assets of the Company in favour of Mr. Shyam Sundar Agarwala was made by the IPICOL only on 20.1.2003 long after the commencement of the proceedings for winding up of the Company on 4.4.2001. Shyam Sundar Agarwala was made by the IPICOL only on 20.1.2003 long after the commencement of the proceedings for winding up of the Company on 4.4.2001. He pointed out that Section 537(1) of the Companies Act, 1956 provides that where any Company is being wound up by or subject to the supervision of the Court, any sale held, without leave of the Court, of any of the properties or effects of the Company after such commencement of the winding up shall be void. He cited the decision of the Learned Company Judge of the Karnataka High Court in Karnataka State Industrial Investment and Development Corporation Ltd. Vs. Intermodel Transport Technology Systems (Karnataka) Ltd. (In Liquidation) and Others, wherein it has been held that any sale of the assets of a Company after the commencement of the winding up by the BIFR without the leave of the Court would be void even if there is no order for winding up. He further submitted that in this case, no satisfactory valuation of the assets of the Company was made before the assets of the Company were sold and for this reason also the sale of the assets of the Company in favour of Mr. Shyam Sundar Agarwala was void. He cited the decision of the Supreme Court in Union Bank of India Vs. Official Liquidator H.C. of Calcutta and Others, wherein it has been held that before sanctioning sale of the assets of the Company under liquidation, the Court is required to exercise judicial discretion to see that properties are sold at a reasonable price and it is the duty of the Court to apply its mind to the valuation report for verifying whether the report indicates reasonable market value of the property to be auctioned even if objections are not raised. Mr. AN further submitted that the assets of the Company were sold without giving any wide publicity in the newspapers and the advertisement for sale was published in only one newspaper, namely, 'The Indian Express'. Finally, he argued that even the name of the Company, Elconmet Ltd. was suppressed from the sale notice. 7. Mr. Sandeep Rath, Learned Counsel for the IPICOL submitted that the decision of the Learned Company Judge of the Karnataka High Court in Karnataka State Industrial Investment and Development Corporation Limited v. Intermodel Transport Technology Systems and Ors. Finally, he argued that even the name of the Company, Elconmet Ltd. was suppressed from the sale notice. 7. Mr. Sandeep Rath, Learned Counsel for the IPICOL submitted that the decision of the Learned Company Judge of the Karnataka High Court in Karnataka State Industrial Investment and Development Corporation Limited v. Intermodel Transport Technology Systems and Ors. (supra) did not apply to the facts of the present case wherein the sale was made pursuant to the orders passed by the BIFR dated 19.2.2001 before the commencement of the winding up on 4.4.2001. He submitted that sufficient powers have been vested in the BIFR u/s 20(4) of the SICA to cause the assets of the Sick Industrial Company sold in such a manner as he may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of Section 529(A) and other provisions of the Companies Act, 1956. He also referred to the provisions of Section 32(1) of the SICA to show that the provisions of the SICA override the provisions of the Companies Act, 1956. He further submitted that it is not correct that no proper valuation was made on the assets of the Company. He has filed a copy of the valuation report prepared by A. K. Samantaray and Company, an approved valuer and chartered engineer, which shows that the assets of the Company were valued at Rs. 1,23,99,000/-. He submitted that since the sale was made by the Assets Sale Committee at Rs. 1,31,00,000/-, the price fetched for the properties of the Company were reasonable and adequate and more than the value of the. properties of the Company as determined by the approved valuer and chartered engineer. He submitted that it will be clear that the Assets Sale Committee followed the guidelines of the BIFR in the proceedings dated 19.2.2001 while making the advertisement in the newspapers and it is not correct that anything was suppressed at the time of sale. 8. Sections 20 and 32 of the SICA on which Mr. Rath places reliance are quoted herein below: "20. 8. Sections 20 and 32 of the SICA on which Mr. Rath places reliance are quoted herein below: "20. Winding up of Sick Industrial Company: (1) Where the Board, after making inquiry u/s 16 and after consideration of all the relevant facts and circumstances and after giving an opportunity of being heard to all concerned parties, is of opinion that the Sick Industrial Company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record and forward its opinion to the concerned High Court. (2) The High Court shall, on the basis of the opinion of the Board, order winding up of the Sick Industrial Company and may proceed and cause to proceed with the winding up of the Sick Industrial Company in accordance with the provisions of the Companies Act, 1956 (1 of 1956). (3) For the purpose of winding up of the Sick Industrial Company, the High Court may appoint any officer of the operating agency, if the operating agency gives its consent, as the liquidator of the Sick Industrial Company and the officer so appointed shall for the purposes of the winding up of the Sick Industrial Company be deemed to be, and have all the powers of, the Official Liquidator under the Companies Act, 1956 (1 of 1956). (4) Notwithstanding anything contained in Sub-section (2) or Sub-section (3), the Board may cause to be sold the assets of the Sick Industrial Company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of Section 529(A), and other provisions of the Companies Act, 1956 (1 of 1956)". 32. 32. Effect of the Act on other laws: (1) The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Accusation of an industrial company or in any other instrument having effect by virtue of any law other than this Act. (2) Where there has been under any scheme under this Act an amalgamation of a Sick Industrial Company with another company, the provisions of Section 72(A) of the Income Tax Act, 1961 (43 of 1961), shall, subject to the modifications that the power of the Central Government under that section may be exercised by the Board without the Central Government under that section may be exercised by the Board without any recommendation by the specified authority referred to in that section, apply in relation to such amalgamation as they apply in relation to the amalgamation of a company owning an industrial undertaking with another company." 9. Sections 441 and 537 of the Companies Act, 1956 on which Mr. Ali places reliance are quoted herein below : "441. Commencement of winding up by Court: (1) Where, before the presentation of a petition for the winding up of a company by the Court, a resolution has been passed by the company for voluntary winding up, the winding up of the company shall be deemed to have commenced at the time of the passing of the resolution, and unless the Court, on proof of fraud or mistake, thinks fit to direct otherwise, all proceedings taken in the voluntary winding up shall be deemed to have been validly taken. (2) In any other case, the winding-up of a company by the Court shall be deemed to commence at the time of the presentation of the petition for the winding up." 537. (2) In any other case, the winding-up of a company by the Court shall be deemed to commence at the time of the presentation of the petition for the winding up." 537. Avoidance of certain attachments, executions, etc., in winding up by or subject to supervision of Court: (1) Where any company is being wound-up by or subject to the supervision of the Court: (a) any attachment, distress or execution put in force, without leave of the Court, against the estate or effects of the company, after the commencement of the winding-up; or (b) any sale held, without leave of the Court, of any of the properties or effects of the company after such commencement; shall be void. (2) Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government." 10. It will be clear that under Sub-section (1) of Section 20 of the SICA, the BIFR can form an opinion after making enquiry u/s 16 of the SICA and after consideration of all relevant facts and circumstances and after giving an opportunity of being heard to all concerned parties that it is just and equitable that a Sick Industrial Company should be wound up if it is not likely to make its not worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and is not likely to become viable in future. Sub-section (2) and (3) of Section 20 of the SICA provide the manner in which the High Court will thereafter proceed to wind up the Sick Industrial Company which in the opinion of the BIFR should be wound up. Sub-section (4) of Section 20 of the SICA makes it abundantly clear that notwithstanding anything contained in Sub-sections (2) and (3) of Section 20, the BIFR may cause to be sold the assets of the Sick Industrial Company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of Section 529(A) and other provisions of the Companies Act, 1956. Sub-section (1) of Section 32 of the SICA further provides that the provisions of the SICA and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976 for the time being in force or in the Memorandum of Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than the SICA. The combined effect of the provisions of Sub-section (4) of Section 20 of the SICA and Sub-section (1) of Section 32 of the SICA is that notwithstanding anything contained either in Sub-sections (2) and (3) of the SICA or the provisions of the Companies Act, 1956, the BIFR may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of Section 529(A) and other provisions of the Companies Act, 1956. Hence, when orders are passed by the BIFR under Sub-section (4) of Section 20 of the SICA for sale of the assets of the Sick Industrial Company, such orders cannot be declared by the Company Court to be null and void u/s 537(1) of the Companies Act, 1956 on the ground that no leave was taken from the Company Court before the sale was made. 11. A reading of Sub-section (2) of Section 441 of the Companies Act, 1956 makes it clear that in the case of winding up of a company by the Court, the commencement of winding up shall be deemed to be at the time of presentation of the petition for the winding up. Sub-section (2) of Section 441, therefore, does not apply to a case where winding up of a Company is commenced on the basis of the opinion of the BIFR u/s 20 of the SICA. Sub-section (1) of Section 537 in Clause (b) further provides that where the Company is wound up by or subject to supervision of the Court, any sale held, without leave of the Court, of any of the properties or effects of the Company after such commencement of winding up shall be void. Sub-section (1) of Section 537 in Clause (b) further provides that where the Company is wound up by or subject to supervision of the Court, any sale held, without leave of the Court, of any of the properties or effects of the Company after such commencement of winding up shall be void. In the facts of the present case, commencement of winding up of the Company can only be from 4.4.2001 when Company Act No. 17 of 2001 for winding up of the Company was registered on the basis of the opinion of the BIFR in its proceedings dated 19.2.2001. But before 4.4.2001, the BIFR had already passed Orders on 19,2.2001 for sale of the assets of the Company in exercise of its powers under Sub-section (4) of Section 20 of the SICA and the sale of the assets of the Company to Mr. Shyam Sundar Agarwala by the IPICOL on 20.1.2003 was only pursuant to the said order for sale passed by the BIFR on 19.2.2001 and such a sale made pursuant to orders passed by the BIFR under Sub-section (4) of Section 20 of the SICA before the commencement of winding up of a Company cannot be held by the Company Court to be void u/s 537(1) of the Companies Act, 1956. 12. In Karnataka State Investment and Development Corporation Limited v. Intermodel Transport Technology Systems and Ors. (supra) cited by Mr. Ali, the facts were that the petition for winding up was filed by M/s. Pradeep Industrial Corporation under Sections 433(e) and 433(f) read with Section 439 of the Companies Act, 1956 before the High Court of Karnataka on 21.1.1989. Hence, the winding up proceedings commenced on 21.1.1989. It is only thereafter that the BIFR passed Orders on 26.8.1993 for winding up of the Company and for sale of the assets of the Company and on these facts, the Learned Company Judge of the Karnataka High Court held that the sale of the assets of the Company in question made after the commencement of the winding up was void under Clause (b) of Sub-section (1) of Section 537 of the Companies Act, 1956. The said decision of the Learned Company Judge of the Karnataka High Court in Karnataka State Industrial Investment and Development Corporation Limited v. Intermodel Transport Technology Systems and Ors. (supra), therefore, does not apply to the facts of the present case. 13. The said decision of the Learned Company Judge of the Karnataka High Court in Karnataka State Industrial Investment and Development Corporation Limited v. Intermodel Transport Technology Systems and Ors. (supra), therefore, does not apply to the facts of the present case. 13. In Union Bank of India v. Official Liquidator, High court of Calcutta and Ors. (supra) cited by Mr. AM, the Supreme Court has explained the duties of the Company Court under the Companies Act, 1956 and Rule 272 of the Companies (Court) Rules, 1959 while sanctioning and confirming sale of the assets of a Company which is being wound up by or subject to the supervision of the Court. The said decision does not apply to the facts of the present case where the sale of the assets of the Company has not been made under the provisions of the Companies Act, 1956 or Rule 272 of the Companies (Court) Rules, 1959 by the Official Liquidator or by the Company Court but by the IPICOL as an operating agency pursuant to the orders passed by the BIFR under Sub-section (4) of Section 20 of the SICA before the commencement of winding up of the Company. It was, therefore, for the IPICOL as the operating agency and the BIFR to ensure that the sale of the assets of the Company was for adequate and reasonable price and was made after proper valuation by an expert valuer. Once such a sale has been made by the IPICOL as an operating agency and once such sale has been approved by the BIFR in exercise of its statutory powers under Sub-section (4) of Section 20 of the SICA, the High Court as a Company Court under the provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959 cannot declare such sale as null and void on the ground that the IPICOL and the BIFR did not ensure that the sale was made without a proper valuation of the assets of the Company which were put to sale. For the aforesaid reasons, I find no merit in this Misc. Case and accordingly dismiss the same.