PENTA PROPERTIES Vs. OFFICIAL LIQUIDATOR

JUDGEMENT

(1.) THE Travancore Ogale Glass Manufacturing Company Limited (for short 'the Company') went into liquidation. THE winding up order was passed on 10-6-1985 in C. P. No. 3 of 1984. THE Federal Bank Ltd. , Alwaye, as one of its secured creditors was permitted by the Company Court , by order dated 11-2-1985, in C. A. No. 291/84, to file a suit against the company. THE suit (O. S. No. 3 of 1986) was filed before the Subordinate Judge's Court, Ernakulam. By the decree dated 30-1-1988, the bank was made entitled to realise a sum of Rs. 1,48,22,388-73 with future interest at the rate of 10% per annum from 2-1-1986 and costs were quantified at Rs. 8,11,188-25. THEreafter, the Bank filed an execution Petition (E. P. No. 275 of 1990) in the Sub Court, Ernakulam. Notice was issued to the Official Liquidator and the company in the execution proceedings. But, the official liquidator did not file any objections. THE case was posted on 11-4-1990, 25-7-1990 and 24-11-1990 awaiting objections from the official liquidator Since the objection was filed, the execution court on 24-11-1990 directed the Bank to produce draft sale papers. THE proclamation was settled on 4-6-1991 and the court directed the proclamation to be published for sale of the property on 1-8-1991. But the sale had to be postponed till 27-9-1991 as per the direction of this Court. On 27-9-1991, the reserve price was fixed by the executing court at Rs. 2,10,37,148. 59 for immovable properties and Rs. 10,00,000/- for movable items. Permission was also given to the decree holder to bid at the court sale. But, there were no bidders on 27-9-1991 and the sale was adjourned. THEreafter, the execution court revised the reserve price and reduced it to Rs. 1 crore and 10 lakhs after taking evidence and by considering the report of a valuer. On 21-12-1991 the decree holder (the Bank)bid the immovable items of properties for Rs. 1,10,00,100/ -. THE application filed by the official liquidator, on that day, for an adjournment of the sale was rejected by the execution court. THE official liquidator, thereafter, filed an application (M. C. A. No. 6 of 1991) before this Court for stay of further proceedings in E. P. No. 275 of 1990 and for a direction to the execution court to sell the plaint schedule properties only after due publicity in various newspapers. This court passed an interim order of stay of confirmation of sale, by order dated 29-1-1992 in M. C. A. No. 6/92. By order dated 5-7-1993, E. P. No. 275/90 in O. S. No. 3/86 on the file of the Sub Court, Ernakulam was withdrawn and transferred to this Court. On 4-11-1993, the official liquidator filed an application (MCA 193/1993) praying therein to set aside the sale of the assets of the company which was made in the execution proceedings by the Sub Court, ernakulam and for order of resale of the same. It is contended in the petition that the bank had not obtained leave of this Court to commence the execution proceedings under S. 446 (1) of the Companies Act. In the execution proceedings, no wide publicity has been given before the sale was conducted. Hence no bidders came forward to purchase the property. THE bank being the secured creditor reduced the upset price fixed. THE property in question would fetch much higher price than the amount for which it was sold to' the bank. THE total extent of land in the possession of the Official Liquidator comprises of 26. 40 acres of land out of which only 24. 65 acres of land is charged to the bank, the secured creditor. THE total extent is much more than what is charged to the bank and the whole extent of 26. 40 acres is lying as a single patch of land and it is just and necessary that the whole extent of land is put up for sale. In the absence of proper advertisement, the assets did not fetch adequate value. It is also slated that in the meantime many offers have come from various sources for sale of the property at a higher rate than the price for which it was sold. THE sale having not been conducted after giving wide publicity and since the price for which it was old is far less than its value, the sale should be set aside and the property should be put to fresh auction sale by this court.

(2.) WHILE the matter stood thus, M/s. Penta Properties, represented by its Managing Partner filed a petition (M. C. A. No. 89 of 1994)praying therein to vacate the order passed in M. C. A. No. 6 of 1991 staying the confirmation of the sale. It is stated that considering the fact that the confirmation of the sale alone is stayed by this Court, the applicant made an offer to the bank agreeing to buy the properties for a total amount of Rs. 1,85,00,000/ -. The applicant has only agreed to discharge the entire amount quantified by the official liquidator as payable to the workers of the company less the amount available with the official liquidator from the sale proceeds of other assets of the company. The above offer was accepted by the Board of directors of the bank in their meeting held on 18-5-1994. On the basis of the acceptance of the offer, the applicant has deposited with the bank a sum of Rs. 10 lakhs on 20-5-1994 and a further sum of Rs. 90 lakhs on 23-6-1994 by way of advance towards the sale price. Thereafter a formal agreement was entered into between the bank and the applicant on 19-7-1994 (Annexure-B in M. C. A. No. 89/94 ). It is contended that an application to set aside the sale can only be filed in the execution court and not before the company court. The sale at the instance of a secured creditor who stands outside the winding up is not subject to confirmation by the company court. Once the company court under S. 446 of the companies Act gives permission to a creditor to file a suit impleading the official liquidator, the court where the suit is filed is the only court having jurisdiction" in all matters concerning the trial of the suit and the execution of the decree. Since the bank is standing outside the winding up, the right of the official liquidator is only to represent the workers for enforcing pari passu charge available to them under Ss. 529 and 529a of the Companies Act. The applicant agrees to pay the entire amount due to the workers as quantified by the official liquidator and fixed by this Court. If the petition to set aside the sale is rejected, the workers would get a paripassu amount with the bank from out of the sale price. The amount quantified as due to the workers is about 58,57 lakhs while the amount due to the Bank as on 30-11-1993 would be about 2 crore 75 lakhs. The workers are not offered the entire amount as quantified by the official liquidator. The workers thus stand to gain a manifest advantage by the agreement being implemented. They would also get their amount at an early date without being subjected to protracted litigation.

(3.) IN another counter-affidavit filed by the Official liquidator in M. C. A. No. 110 of 1994, it is contended that he has taken all necessary steps to safeguard the interest of the workers of the company and that only because of such steps having been taken the confirmation of sale has been stayed by this court. IN view of the higher offers for purchase of the property it can be put up for sale after wide publication in the news papers.