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PETITIONER: ALLAHABAD BANK

       Vs.

RESPONDENT: ARC HOLDING LIMITED & ORS.

DATE OF JUDGMENT:       26/09/2000

BENCH: A.P. Misra & Doraiswamy Raju

JUDGMENT:

Misra, J.

Leave granted. L...I...T.......T.......T.......T.......T.......T.......T..J

   The  appellant-Allahabad  bank   the  decree-holder  has raised  a  question,  whether  after   an  order  passed  in execution  proceedings for the sale of plant, machinery  and moveable lying at the factory, can the same court later pass an  order for sale of the factory of the company as a ‘going concern’.   The submission is, by introducing into the  sale of  the factory as a ‘going concern’ has in fact,  nullified the   execution   itself.   In   order  to  appreciate   the controversy we are hereunder giving short essential facts.

   The  appellant-Allahabad  bank  the decree-holder  is  a secured  creditor  of Rishra Steels Limited respondent  no.4 the   judgment-debtor.    On  19th    December,   1990   the appellant-bank  filed  a  suit   against  the  said  company represented by the Official Liquidator in the High Court for a  decree  for Rs.4,06,90,548/- together with interest.   On 15th  July,  1996 a decree was passed by the  Calcutta  High Court  for  Rs.3,47,94,232.85 together with  interest.   The decree  provided;   payment of decretal amount in  60  equal monthly  installments on and from 12th September, 1996;   in default  the  petitioner  was  entitled  to  sale  the  suit properties by public auction or private contract.  No appeal was  preferred from this order nor any installment was  paid by  the  judgment-debtor.   On  the 26th  August,  1997  the appellant-bank  applied  for  execution of  decree  for  the aforesaid  amount  along with interest.  It is  relevant  to refer  that the aforesaid judgment-debtor-company went  into liquidation  under  the  order of the winding up  dated  4th June, 1990.

   On  12th  December,  1997 the High Court  appointed  the Official  Liquidator  in  the said execution case,  to  take possession  of the assets of the company and directed it  to take  steps for the sale of the assets of this company.  The relevant portion of this order is quoted hereunder:

   "The  Official Liquidator is appointed Receiver for  the purpose  of making an inventory of the assets of the Company liquidation  (in liquidation) and have the same valued by  a qualified Valuer for the purpose of sale of the said assets. The conditions for such sale shall be settled by him subject

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to confirmation by this Court."

   On  19th  December,  1997  this order  was  modified  by directing  that  order  for  sale must  be  limited  to  the security  of Allahabad bank, which has been plant, machinery and  other  moveable assets as mentioned in the schedule  to the  decree.   The  relevant portion of this order  is  also quoted hereunder:

   "In  the  order for the sale on the application  of  the secured creditor Allahabad Bank, the same must be limited to its security and the order dated 12.12.97 is modified to the above extent.....At the time of settling the above sale, the question  as to whether the suit of the company can be  sold as a going concern shall be considered."

   Thereafter  the High Court through its order dated  23rd February,  1998 directed the Official Liquidator to  publish an  advertisement inviting offers for sale of the assets  of the  company  in  liquidation  as a  ‘going  concern’.   The relevant portion of this order is also quoted hereunder:

   "The Official Liquidator is directed to appoint a Valuer in  terms  of the order dated 12th December, 1997 passed  by this Court.  Such valuation is to be made within 16th March, 1998.    Upon  such  valuation   being  made,  the  Official Liquidator  shall, thereafter, publish advertisements within 13th  April,  1998, inviting offers for sale of the  factory and  assets  of  the  Company  in  liquidation  as  a  going concern......The  Official  Liquidator shall mention in  his sale notice that the intending bidders should be prepared to re- employ the workmen stated to be 468 in number.  In their offers  and  bidders shall indicate as to whether  they  are prepared to pay all the arrear dues of the workmen and if so the  manner in which they proposed to pay off the said dues. It  should  be  mentioned in the said notice that  the  sale shall be subject to confirmation by this Court."

   Another  order  dated 10th July, 1998 was passed by  the High Court directing the Official Liquidator to sale all the assets  of the company in liquidation as a ‘going  concern’. On   these  facts,  the  submission,   on  behalf   of   the appellant-bank is that respondent no.4 Rishra Steels Limited the  judgment-debtor was not functional even before the date of  winding up i.e.  it is not a running concern since  last more  than ten years.  The argument is, by order dated  19th December,  1997  the court directed for the sale  of  plant, machinery  and  moveable  which are security  of  the  bank. There  could be no difficulty in execution in terms of  this order.   This is natural also to first get satisfaction from the  securities  which stood for the loan.   But  subsequent order  directs sale of the entire assets of the company as a ‘going  concern’.   This means revive the company  first  to make  it  operational, re-employ its employees, which  would involve  huge  investment  by   the  prospective  buyer,  an Herculean task, making execution practically infructuous.

   On  these  facts  the  appellant-bank  has  filed  these appeals  against  two orders dated 23rd February,  1998  and 10th  July,  1998.   Learned counsel submits,  the  Division Bench  of  the  High Court fell in error  in  not  directing plant,  machinery  and securities to be sold separately,  by this,  vast land and building of the factory would still  be left,  which would fetch much higher price, which may  cover

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the total balance liabilities of the company in liquidation. On  the  other  hand,  selling of the factory  as  a  ‘going concern’  with a rider to absorb all the employees would not only  bring low sale price but would negate the execution of the decree.

   On  the  other  hand  the   submission  on  behalf   the judgment-debtor  and  on  behalf of the workmen is  such  an order  is just and proper as it brings back workers to  earn their  livelihood  and simultaneously it would  satisfy  the decree.

   It is not in dispute that the appellant-bank is the only secured creditor as against the said judgment-debtor company in  liquidation.  The total decree along with interest  till 31st  August,  1999 recorded is Rs.8,29,48,725.72p.   It  is true,  the court must find that method of sale of the assets or of the company, which brings maximum price to satisfy its creditors.   This  may,  in a given case,  include  recovery through  instalments  out of the production of the  company. This  would depend on the potentiality, viability and health of  a  company.  Sometimes when company is taken over  under Section 29 of the Financial Corporation Act, corporation may run  or get the factory run to recover the loan.  In another set  of  cases,  where company has become  non-  functional, sick,   due  to  its  heavy   debt,  lack   of   production, mismanagement  etc.   then  possibility of  its  revival  is examined through expert statutory body the BIFR.  It is only after  scrutiny  a decision is made to help in revival.   It may order if no revival is possible.  If company agrees with conditions  imposed  under  any scheme framed  by  BIFR,  if revival  is  possible  such company may be brought  back  as running  concern,  with  hope  of its revival.   But,  if  a company  has reached a skeleton stage, where its revival  is not  possible,  its  assets  are   sold,  to  pay  back  the creditors.   In  the present case, undisputedly an order  of winding  up  was  passed as far back as on 4th  June,  1990. There  is nothing on the record to show even any attempt was made  by  the  judgment-debtor  respondent-company  for  its revival  nor there is any thing on the record, to show  that there  exist possibility of its revival.  Submission for the appellant-bank  in support of sale being as ‘going  concern’ is  made  under  the garb and in the name  of  ‘workers’  to resist the present execution.

   Learned  counsel for the appellant-bank strongly  relies on  Union  Bank of India vs.  Official Liquidator  H.C.   of Calcutta  and Ors.  2000 (5) SCC 274.  This was a case where a  company  was  closed for about 17  years.   The  relevant portion is quoted hereunder:

   "It  also appears that the Division Bench was  persuaded by   the  so-called  sympathy   for  the  workers,   without verification  of the fact that the Company was closed before 17  years  of  sale.  The Court has noted in  the  beginning while  narrating  the submission of the learned counsel  who appeared for the benefit of the employees that more than 100 employees  were  starving  to death and in  the  later  para stated  that the Court was informed by the learned  advocate appearing  for  the  employees’  union that  more  than  100 employees  have  already  died.   Without  there  being  any application  on  record  and   without  there  being  proper verification  of the facts from the parties concerned, it is not  just  and proper to make such observations.  It is  not impossible  that  because of the lapse of 17 years,  out  of

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1200  workers who might have worked in the said factory  100 employees  might  have  died a natural death.   But  in  any circumstances  it was unjustified to make a case over it and to  accept  oral submissions and to dispose of the  valuable properties  of  a  Company by stating that the sale  of  the Company  as  a  going  concern was for the  benefit  of  the so-called employees who were not in employment."

   Submission is, applying this decision and in the absence of  any credible material the direction to sale the  company as a ‘going concern’ is not sustainable.

   Learned  counsel for the company in liquidation and  for the  employees  union, representing workers submits,  for  a compassionate consideration, in the interest of workers;  as a  last resort, attempt be made, if possible, to get a buyer who  may  take over the company as a ‘going concern’ and  be ready  to  pay the price to satisfy the decree and  pay  the rest  of  the  liability  in  a  phased  manner  after   the production starts.

   When  indisputably  the  order  of winding  up  made  on 4.6.1990   had   become  final   and  company   has   become non-functional  for  long, even BIFR could not come  to  its rescue  and the attempt of the workers union to  resuscitate the   company  by  getting  a  committee   constituted   for management  was  repelled  by a Division Bench of  the  High Court and this Court when the SLP filed by the workers Union came  to  be  dismissed on 5.12.1997, it would no  doubt  be ironical  and unjust to get order for the sale of the assets of  the company - as a going concern.  But, at the same time to  give a last try to the fond hopes expressed on behalf of the erstwhile workers, we consider giving one more chance to have it so done within a strict frame of time limit.

   After  considering submission of the learned counsel for the  parties, we are granting this indulgence, by permitting the  sale  of the company as a ‘going concern’ with  certain conditions only.

   The Official Liquidator for this purpose shall advertise the  sale of the company in liquidation-judgment debtor as a ‘going  concern’  as  ordered  by   the  High  Court.   Such publication  shall indicate that the reserve price, shall be the  amount  equal  to the total decree  including  interest which  has accrued upto 31st December, 1999 in favour of the appellant-bank,  and  shall  also  has to  pay  the  balance interest  which  accrues,  till full payment is  made.   The publication  shall also indicate that purchaser has also  to pay the liabilities of other claimants in the proceeding for the liquidation of the company.

   Since  all  the  parties   are  represented  before  us, including  the Official Liquidator, we grant total period of ten  weeks  from  today,  for   concluding  sale,  with  the aforesaid  condition, including the period of advertisement, receiving  offers etc.  In case, it is not concluded  within this  period, the order of the High Court directing the sale of  the company as a ‘going concern’ shall stand set  aside. The Official Liquidator will then proceed to sell the assets of  the  company first by selling the plant,  machinery  and other  moveable  assets and then the other assets in such  a manner  to fetch the maximum price, keeping the interest  of all  other  creditors.  Out of the aforesaid proceed,  first

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the  decree  in  favour  of  the  appellant-bank  should  be satisfied  and then to proceed to distribute the balance  to other  creditors  in accordance with law.   Accordingly  the aforesaid  two orders of the High Court dated 23rd February, 1998  and  10th July, 1998 stand modified to the  extent  we have  passed this order.  In these terms these appeals stand disposed of.  Costs on the parties.