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CASE NO.: Appeal (civil)  5199-5201 of 2004

PETITIONER: M/s NGEF Ltd.                                                    

RESPONDENT: M/s Chandra Developers Pvt. Ltd. & Anr.                  

DATE OF JUDGMENT: 29/09/2005

BENCH: S.B. Sinha & C.K. Thakker

JUDGMENT: JUDGMENT WITH

CIVIL APPEAL NO.5202 TO 5205 OF 2004

S.B. SINHA, J :                  These appeals are directed against a common judgment and order  dated 5.1.2004 passed by a Division Bench of the Karnataka High Court in  O.S.A. Nos.67, 68 and 70 of 2003 whereby and whereunder a judgment and  order dated 8.10.2003 passed by a learned Company Judge in C.A. No. 771  of 2003 was affirmed.   Background fact :

NGEF Ltd., (for short, ’the Company’) herein, was a joint venture of  the Government of Karnataka, holding 90.18% shares and EHG Electro- holding GMBH holding 9.72% shares therein.  The Company  became sick,  whereupon  a reference was made to the  Board for Industrial and Financial  Reconstruction (for short, ’BIFR’) in terms of the provisions of the Sick  Industrial Companies (Special Provisions) Act, 1985 (for short, ’SICA’).  It  is not in dispute that virtually all its assets had been placed either under  mortgage and/or offered as collateral security to various financial institutions  amongst which the State Bank of Mysore was the lead bank.   

It is furthermore not in dispute that from time to time the Company  with the permission of BIFR and its secured creditors has been selling some  of its surplus lands, inter alia, for the purpose of paying wages to the  workers and refund of loans to the financial institutions etc.  It had sold  29.225 acres of land to the Nuclear Power Corporation for a sum of Rs.63.65  crores; 1.65 acres of land to CDAC for about Rs.4.29 cores and 0.625 acres  of land to  Indian Oil Corporation for Rs.1.63 crores.  All the vendees were  public sector undertakings.                    It is also not in dispute that the State of Karnataka took a decision to  make disinvestment of its shares in the said Company pursuant whereto  or  in furtherance whereof global tenders were invited by it in terms of an  advertisement dated 15.9.2001.  The First Respondent herein, Chandra  Developers Pvt. Ltd. (for short, ’Chandra Developers’) submitted its bid for  purchase of 40.45 acres of land offering the price of Rs.125/- per sq. ft.  which was later enhanced to Rs.278 per sq. ft.   Allegedly, valuation of lands  had been done by Tata Economic Consultancy Services and Ernst & Young    Pvt. Ltd. The offer of the First Respondent was said to have been accepted  by the Board of Directors in its meeting dated 25.2.2002.  The Company, it  appears, has also submitted an application to BIFR as regard progress  made  by it in its attempt to privatize the Company, and  praying for a direction to  the financial institutions to release their charge over the assets of the  Company so as to enable it to sell its surplus lands.  BIFR, however, upon  considering the matter in some details by its order dated 19.4.2002 opined

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that the Company cannot be revived.

Before BIFR some of the parties pleaded that the Company should not  be wound up but BIFR decided to recommend winding up of the company  and sent the same to the High Court.  As regard request of the Company for  sale of its assets, an observation was made by BIFR in its order dated  24.08.2002 that the Company would have to seek an appropriate direction  from the concerned High Court.

Proceedings before the High Court : Upon receipt of the said recommendations, the High Court of  Karnataka registered the same as Company Petition No. 154 of 2002.   The  Respondent herein filed an application before the learned Company Judge of  the High Court purported to be under Rules 6 & 9 of the Companies (Court)  Rules praying for a direction upon the Company to execute a deed of sale in  its favour in respect of the said 40.45 acres of land relying on or on the basis  of the said purported resolution dated 25.02.2002, alleging that the same  constituted a concluded contract between the parties.  Objections to the said  application were filed by the Appellants herein.

       By reason of an order dated 8.10.2003, the said application was  allowed on the premise that the agreement between the Chandra Developers  and the Company constituted a concluded contract in relation to  sale of  40.45 acres of land.  A Review Application was filed by the Appellant  herein which came to be dismissed.  Three appeals were preferred from the  said order viz. by the EHG, State Bank of Mysore and the Company before  the Division Bench of the High Court which came to be dismissed by reason  the impugned Judgment.                  However, the learned Company Judge appears to have dismissed an  identical application filed by M/s Salapuria Housing (P) Ltd. being C.A.  No.1589 of 2003, which had been relied upon by the First Respondent  herein in its application, holding that the Company Court had no such  jurisdiction.  

Submissions :

       Mr. T.R. Andhiyarujina, the learned Senior Counsel appearing on  behalf of the Appellants, in Civil Appeal Nos. 5199-5201 of 2004, would,  inter alia, contend that the learned Company Judge and the Division Bench  of the High Court misdirected themselves in passing the impugned judgment  and order insofar as they failed to take into consideration that BIFR retains  the control over the assets of the company in terms of sub-section (4) of  Section 20 of SICA and, thus, it was BIFR alone which could issue a  direction as regard sanction of  sale of assets of the company in respect  whereof the learned Company Judge had no jurisdiction.  In any event, the  learned Company Judge had no  jurisdiction to issue any direction to the  Company to execute a deed of sale which amounted to grant of a decree for  specific performance of contract.   In any view of the matter, the finding of  the Company Judge to the effect that there existed a concluded contract  between the First Respondent and the Company is wholly erroneous.    Mr. Sundara Varadan, the learned Senior Counsel appearing for the  State Bank of Mysore appearing in Civil Appeal Nos.5203-05 of 2004,  supplemented the submissions of Mr. Andhyarujina, contending that the  learned Company Judge had a duty, in larger interest of the creditors, to  obtain the best price for the lands sold.  Our attention, in this connection, has  been drawn to the fact that the total dues of the secured creditor banks and  financial institutions as on 26.02.2003 was Rs.5825.31 lakhs towards fund  based facilities and Rs.522.93 lakhs towards non-fund based facilities and,  thus, the consideration  amount   was not sufficient to meet the liabilities of  the Company.  The contentions raised by the State Bank of Mysore, the  learned counsel would submit, as contained in various paragraphs of the  objections had not been taken into consideration  either by the Company  Judge or by the Division Bench of the High Court.  The learned counsel

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would urge that assuming that such contentions had not been raised during  argument as was observed by the Division Bench, it was the duty of the  Company Judge to take into consideration those aspects of the matter.  It  was urged that the considerations which arise before a Company Judge for  confirmation of sale are relevant factors for the purpose of directing  execution of a deed of  sale even in a private transaction.  

The learned counsel would argue that had a suit for specific  performance of contract  been filed by a vendee  against the Company, the  latter as also  the Government of Karnataka could have raised several  contentions including  one that the court should not in the facts and  circumstances of the case exercise its discretionary jurisdiction in favour of  the First Respondent herein.   It was argued that having regard to the  statutory scheme and in particular the provisions contained in Sections 443,  446 and 447 read with Section 529-A of the Companies Act, 1956 the  Company Judge cannot be held to have any inherent power to direct the  Company to execute a deed of sale; and more so whence a Provisional  Liquidator had not been appointed.  Such a direction could only be issued to  the Official Liquidator.   

       The  First  Respondent herein was represented by  Mr. Dushyant A.  Dave,  Mr. Udaya Holla  and  Mr. K.K. Venugopal.   Mr. Dave would  submit  that the power of the Company Judge as also BIFR being  concurrent, the latter  could ask the company to approach the High Court for  a direction as regard sale of its surplus lands.  The learned counsel would  contend that in view of the fact that global tenders had been invited and the  same having been accepted by the learned Company Judge, this Court may  not exercise its jurisdiction under Article 136 of the Constitution of India.  

       Mr. Dave would argue that the statutory scheme envisages various  stages of winding up as would appear from Section 456(1), sub-sections (1)  and (3) of Section 150, Sections 457, 446(2) and Section 536(2) of the  Companies Act, in terms whereof the learned Company Judge had the  requisite jurisdiction to direct sale of lands in a case of this nature.   Relying  on or on the basis of a decision of this Court in M/s Kayjay Industries (P)  Ltd. vs. M/s Asnew Drums (P) Ltd. and Others  [(1974) 2 SCC 213], the  learned counsel would contend that the discretion exercised by the learned  Company Judge cannot be said to be arbitrary meriting interference by this  Court.  

       Mr. Holla, has drawn our attention to a letter of the Government of  Karnataka dated 30.07.2002, and submitted on the basis thereof that the  Government of Karnataka had agreed to grant approval to such sale by  mutual agreement by asking the Company to approach the High Court for  the said purpose.  Our attention has specifically been drawn to the orders  passed by BIFR, the learned Company Judge as also the Division Bench of  the High Court to show that apart from advancing an argument  that  application for according sanction for sale of land could only  have been  filed before  BIFR, no other contention had been raised by the Appellants  herein.

           Mr. Holla would submit that even Article 100 of the Memorandum  of  Association of the Company to which  a reference has been made by this  Court while issuing notice on 8.3.2004 is not attracted as in terms thereof  approval of the Government was not  necessary.

It has, however, been contended that a new Memorandum of Articles  of Association has come into being; clause (6) of Article 100 whereof is as  under :

"(6)    To let, mortgage, charge, sell or otherwise  dispose of, subject to the provisions of section 293  of the Act, any property of the Company either  absolutely or conditionally and in such manner and  upon such terms and conditions in all respects as

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they think fit and to accept payment or satisfaction  for the same in cash or otherwise, as they think  fit."      

       Thus, in terms of the said provision, the approval of the Government  of Karnataka was not necessary.

       It was submitted that the court has inherent power to direct sale of  assets of a company during the pendency of winding up proceedings even  before the winding up order is passed in terms of section 536(2) of the  Companies Act.   

       It is further submitted that sanctity of an auction sale should be  maintained and in the event auctions are set aside and re-auctions are  ordered on less satisfactory material, loss to exchequer would be far greater.   

Mr. K.K. Venugopal, the learned Senior Counsel, would submit that  having regard to sub-section (2) of Section 536 of the Companies Act, the  High Court has the jurisdiction to permit  sale of assets of  the company even  before  passing of the winding up order, in relation whereto Section 20(4) of   SICA will have no application.   

       It was urged that the provisions of both the statutes must be read  together and so read, it would be manifest that when a winding up  proceeding is initiated under the recommendations of BIFR in terms of  Section 20(1), the power of the Company Court to order approval of a  disposition,  prior to passing of winding up order,  would not in any manner  be affected by the provisions of   SICA, in view of the provisions contained  in sub-section (2) thereof whereby and whereunder the Company Court has  been empowered to proceed with the winding up of the sick industrial  company in accordance with the provisions of the Companies Act, 1956.  As  regard application of sub-section (4) of Section 20 of SICA, it was urged  that thereby the right of BIFR is also preserved for issuing any necessary  direction as regard sale of the assets of the company and by reason thereof  the jurisdiction of the Company Court has not been taken away.  The learned  counsel would contend that the provisions of  SICA did not intend to denude  the Company Court of its power  under Section 536(2) read with Rule 9 of  the rules; once the recommendations for winding up by  BIFR are made.  On  the other hand, Section 20(2) and Section 22-A of  SICA acknowledge the  powers of the Company Court and in that view of the matter there being no  inconsistency between the Companies Act and SICA, Section 32 thereof   will have no application.

       As regard the requirement of the approval of the Government of  Karnataka, it was urged that the Articles of Memorandum of Association of  the Company cannot  control and render ineffective the exercise of statutory  power under the Companies Act and in that view of the matter as the High  Court has approved sale in favour of the First Respondent after examining  the documents, it is not open to the Government of Karnataka to act as an  Appellate Authority thereover.  

Relevant provisions of the Companies Act, 1956, Companies (Court)  Rules, 1958 & SICA :  

The provisions relating to winding up by the courts occur in Chapter  II of the Companies Act, 1956.  Section 433 of the Act enumerates the  circumstances in which company may be wound up by the court  including  inability on the part of the company to pay its debts.  Section 441 of the Act  specifies as to when the proceeding for  winding up of a company by the  court shall commence at the time of the presentation of the petition for the  winding up.  In a case, however,  where winding up proceedings are initiated  in terms of  recommendations made by BIFR or AAIFR, as the case may be,  no such petition is required to be presented.  Section 443 lays down the  power of a court on hearing petition; clause (d) of Sub-section (1) whereof

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provides for a power to make an order for winding up of the company with  or without costs or any other order that it thinks fit.  Section 444 lays down  the consequences of winding up order.  In terms of Section 446 of the Act, in  the event of passing of a winding up order or appointment of liquidator as  provisional liquidator, no suit or legal proceeding would commence or if  pending at the date of the winding up order, shall not be proceeded with  against the company except by leave of the court and subject to such terms  as the court may impose.  Sub-section (2) of Section 446 provides for a non- obstante clause, in terms whereof the company court shall have jurisdiction  to entertain or dispose of any suit or proceedings specified therein.  Section  451 lays down general provisions as to liquidators.  Section 457 specifies the  power of the liquidator which is required to be exercised with the sanction of  the court.  Sub-section (2) of Section 536 reads as under:

       "536. Avoidance of transfers, etc., after  commencement of winding up.                                                         xxx                     xxx             xxx      

       (2)     In the case of a winding up by the  Tribunal any deposition of the property (including  actionable claims) of the company, and any  transfer of shares in the company or alteration in  the status of its members, made after the  commencement of the winding up, shall unless the  Tribunal otherwise orders, be void."

       Rules 6, 9 & 99 of Companies  (Court) Rules, 1959 read as under :

"6.  Practice and procedure of the Court and  provisions of the Code to apply.- Save as  provided by the Act or by these Rules, the practice  and procedure of the Court and the provisions of  the code so far as applicable, shall apply to all  proceedings under the Act and these Rules.  The  Registrar may decline to accept any document  which is presented otherwise than in accordance  with these Rules or the practice and procedure of  the court."

"9.  Inherent powers of Court.- Nothing in these  Rules shall be deemed to limit or otherwise affect  the inherent powers of the Court to give such  directions or pass such orders as may be necessary  for the ends of justice or to prevent abuse of the  process of the Court."

"99. Advertisement of petition.-Subject to any  directions of the Court, the petition shall be  advertised within the time and in the manner  provided by Rule 24 of these Rules.  The  advertisement shall be in Form No.48."  

Sub-sections (1),  (2) and (4) of Section 20, Section 22A & Section  32(1)  of   SICA read as under :

       "(1) Where the Board, after making inquiry  under section 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

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the accumulated losses within a reasonable time  while meeting all its financial obligations and that  the company as a result thereof is not likely to  become viable in future and that it is just and  equitable that the company should be would 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.

       (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 529A, and other provisions of  the Companies Act, 1956."

       "22-A. Direction not to dispose of assets. \026  The Board may, if it is opinion that any direction is  necessary in the interest of the sick industrial  company or creditors or shareholders or in the  public interest, by order in writing, direct the sick  industrial company not to dispose of, except with  the consent of the Board, any of its assets \026

       (a)     during the period of preparation or  consideration of the scheme under section 18; and

       (b)     during the period beginning with the  recording of opinion by the Board for winding up  of the company  under sub-section (1) of section  20 and up to commencement of the proceedings  relating to the winding up before the concerned  High Court."

       "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 and  the Urban Land (Ceiling and Regulation) Act,  1976 for the time being in force or in the  Memorandum or Articles of Association of an  industrial company or in any other instrument  having effect by virtue  of any law other than this  Act.     

Approval of State :         The First Respondent herein admittedly filed an application for  direction to the Company to execute a deed of sale, inter alia, on the premise  that a concluded contract had been entered into by and between it and the  Company  purporting to be relying upon or on the basis of the  resolution  dated 25.02.2002 of the Board of Directors of the Company.  It is not in  dispute that along with the said application while annexing the copy of the  resolution, the following sentence had  been omitted.

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                        "MD stated that the Board decision for the above  sale will be forwarded to the Government of  Karnataka and seek their formal approval."

       The First Respondent, as noticed hereinbefore, has relied upon a  Government Order issued by the Government of Karnataka dated  30.07.2002, which reads as follows :                  "The company shall wind up the loan amount  sanctioned to it by the Government in full from the  proceeds of sale of assets of NGEF Ltd; and

       It is, however, not in dispute that although the said Government Order   was placed before BIFR, the same was not placed either before the   Company Judge or before the Division Bench of the High Court.  The First  Respondent furthermore relies  upon  a letter filed in Civil Appeal Nos.5203- 05 of 2004, to show that the Government of Karnataka granted implied  approval as the Company was asked to approach the High Court.  It,  however, stands admitted that the First Respondent  herein, offered its bid  pursuant to or in furtherance of an advertisement issued by the Government  of Karnataka and not by the Company.  

BIFR, indisputably by an order dated 02.08.2002 stated :

"17.    Shri M. Gowda, DS, GOK submitted that  GOK had decided to close the company subject to  approval of BIFR and GO had been issued in this  connection on 30.07.2002.   The  company has  cleared all the dues of FIs under OTS.  The  working capital dues are secured by Govt.,  guarantee both for fund based and non-fund based  dues.  Shri Gowda requested that permission be  accorded to the company to sell the remaining  assets in a transparent manner and discharge the  liabilities of the secured creditors, employees and  other creditors within a reasonable time.  On a  query from the Bench, Shri Gowda clarified that  the funds for VRS would be provided by the State  Government.

       18.     Shri Govind Raj, MD of the company  submitted that GOK had decided to close down the  unit.  The company had been assured adequate  funds from the State Govt., for VRS.  The  company was having some problem in sorting out  the outstanding issued with FIs, so much so that  IFCI was demanding a sum of Rs.25,000/- for  issuing NOC even though their dues have been  fully paid.  The company was not able to fulfill the  condition of working capital bankers for  converting their second charge on the assets of the  company into first charge because of non- cooperation of FIs.  Canara Bank Financial  Services were also not issuing NOC.  The  company had sought permission to sell all the  assets to generate funds to pay the workers dues,  VRS dues, the dues of secured creditors and  others.  The Bench noted that the company would  have to seek further directions in the matter from  the concerned High Court".    

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       BIFR evidently, thus, asked the Company to approach the High Court  if an occasion arises for obtaining sanction for disposing of its surplus lands.   The First Respondent herein was not a party before BIFR.  Before the  Company Judge, however,  it is the First Respondent herein, who filed the  said application and, as indicated hereinbefore, obtained an order from the  Company Judge by suppression of material fact that the Managing Director  of the Company, having regard to the aforementioned resolution dated  25.02.2002 stated that the approval of the Government of Karnataka would  be sought for.     

The Order issued by the Government of Karnataka on 30.07.2002  does not suggest either expressly or by necessary implication that it had  granted its approval for  the said sale.  Whether such sanction was necessary  is, however, another question which we shall advert to a little later.

       We may at this juncture notice that arguments had been raised before  the Division Bench of the High Court that the Government of Karnataka had  not approved the said transaction which is itself a pointer to the fact that the  Appellants herein never accepted that there had been a concluded contract.  

It is also not correct to contend that the company will be acting as an  appellate authority over the High Court, if its approval is sought for.  The  question should, in fact, be considered from a different angle. An application  before the Company Judge, if at all, was maintainable only upon obtaining  the approval of the Government of Karnataka and if such approval is  granted, then only it would constitute a concluded contract.   It is accepted that the advertisement was issued by the State in the  following terms :

"While preference would be given for bids offering  purchase of entire unit.  GOK reserves the right to  accept/reject any of the offers.  A party can bid for one or  more alternatives."  

In terms of the said advertisement, thus,  the State reserved unto itself  the right to accept or reject the said offer.  If the bid had been made pursuant  to the said advertisement indisputably the State’s approval was necessary.   In any event the records were required to be placed before the State so as to  enable it to apply its mind as to whether offer should be accepted or not.   

The submission of Mr. Venugopal that in the event if it be held that  the company’s approval was necessary, the same would be contrary to the  statutory power of the Company Court  is, thus, misconceived.   

It is also not correct to contend that the question as regard the  concluded contract was not raised by the Appellants herein.  In fact, the  Company  filed a Review Petition before the Company Judge on 30.10.2003  wherein it was clearly averred that such a submission was not made in view  of the observations of the learned Company Judge during the course of   hearing that the issue whether there existed concluded contract would not be  determined and as such there existed an error on the face of its order dated  8.10.2003.

The very fact that original advertisement was issued by the  Government of Karnataka and there existed such a clause in the  Memorandum of Association of the Company is  suggestive of the fact that  the Board of Directors of the Company proceeded on the basis that such  approval of the Government of Karnataka was imperative.

Jurisdiction of the Company Court :

The provisions of  SICA contain non-obstante clauses.  It  is a special  statute.   It is a complete code in itself.   The jurisdiction of the Company

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Court in such matters would arise only when  BIFR or AAIFR, as the case  may be , has exercised its jurisdiction under Section 20 of SICA  recommending winding up of the company upon arriving at a finding that  there does not exist any chance of revival of the company.   

Mr. Venugopal has placed reliance upon a decision of a learned Single  Judge of the Karnataka High Court in Karnataka State Industrial Investment  and Development Corporation Ltd. vs. M/s Intermodel Transport  Technology Systems and Others [AIR 1998 (Karnataka) 195] for the  proposition that despite the fact  BIFR retains jurisdiction to get the assets of  a sick company sold in terms of sub-section (4) of Section 20 of SICA; still  the leave of the Company Court, therefore would be required.  The said  decision, however has been reversed by the Division Bench of the Karnataka  High Court in BPL Limited, Bangalore vs. Intermodal  Transport  Technology Systems (Karanataka) Limited, Bangalore (In Liquidation) and  Others.  [2001 (3) Kar.L.J. 622 (DB)], holding that the company Court has  no such jurisdiction.  We generally accept the views of the Division Bench.

       It is difficult to accept the submission of the learned counsel  appearing on behalf of the Respondents that both the Company Court and   BIFR exercise concurrent jurisdiction.  If such a construction is upheld, there  shall be  chaos and confusion.  A company declared to be sick in terms of  the provisions of SICA, continues to be sick unless it is directed to be wound  up.  Till the company remains a sick company having regard to the  provisions of sub-section (4) of Section 20, BIFR alone shall have  jurisdiction as regard sale of its assets till an order of winding up is passed  by a Company Court.

       Apart from the fact that sub-section (4) of Section 20 contains a non- obstante clause and, thus, it shall prevail over the provisions contained in  sub-section (2). The said Act is also a latter statute.

The provisions of  SICA  would prevail over the provisions of  the  Companies Act.  Section 20 of SICA relates to winding up of the sick  industrial company.  Before  BIFR or  AAIFR, as the case may be, makes a  recommendation for winding up of the company, an enquiry is made in  terms of Section 16 thereof wherefor all relevant facts and circumstances are  required to be taken into consideration.  Before an opinion is arrived at in  that behalf, the parties are given an opportunity of hearing.  The satisfaction  arrived at by BIFR that the company is not likely to become viable in future  and it is just and equitable that the company should be wound up must be  based on objective criteria.  The High Court indisputably on receipt of such  recommendation of BIFR would initiate a proceeding for winding up in  terms of Section 433 of the Companies Act.    Sub-section (2) of Section 536  ipso facto does not confer any jurisdiction upon the Company Court to direct  sale of the assets of the sick company.  It has to exercise its power  thereunder subject to the provisions of the special statute governing the field.   Despite the fact that the procedures laid down under the Companies Act  would be applicable  therefor but they must be read with sub-section (4) of   Section 20 of  SICA which contains a non-obstante clause and in terms  thereof,   BIFR is authorized to sell the assets of the sick industrial company  in such a manner as it may deem fit.  By reason of the said provision,  BIFR   is also empowered to forward the sale proceeds to the High Court for orders  for distribution in accordance with Section 529-A and other provisions of the  Companies Act which in no uncertain terms would mean that the distribution  of the sale proceeds would be for the purpose of meeting the claims of the  creditors in the manner laid down therein.  The intention of the Parliament in  enacting the said provision becomes clear as in terms of Section 22-A of   SICA,  BIFR is empowered to issue  any direction in the interest of the sick  industrial company or its creditors or share-holders and direct the sick  industrial company not to dispose of its assets except with its assent.   Section 32, as noticed hereinbefore, again contains a non-obstante clause.   The scheme suggests that BIFR retains control over the assets of the  company and in terms of the aforementioned provisions may either prevent  any sale or permit any sale of the assets of the sick industrial company.  

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Such a power in BIFR remains till a winding up order is passed by the High  Court and  a stage arrives at for the High Court for issuing orders for  distribution of the sale proceeds.   

SICA was furthermore enacted subsequent to the provisions of the  Companies Act.  It is not, thus, possible to accept the submission that the  High Court exercises a concurrent jurisdiction.  

It may be true that the High Court’s jurisdiction is that of the  Appellate Authority but keeping in view the terminology contained in sub- section (4) of Section 20 read with Section 32 of the  Act leaves no manner  of doubt that the provisions of  SICA shall prevail over the provisions of the  Companies Act.  For  the aforementioned purpose, it was not necessary for  the Parliament to mention specifically the provisions of sub-section (4) of  Section 20 that the same shall prevail over Section 536 of the Companies  Act, as was suggested by the learned counsel appearing for the First  Respondent.   The construction of the provisions of both the Acts, as  suggested by the learned counsel, that both the provisions of sub-section (4)  of Section 20 and Section 536 should be read conjointly so as to enable an  applicant to obtain a sanction of both  BIFR and the Company Court, thus,  do not appeal to us.  

It is inconceivable that in law  not only the approval will have to be  taken from both the courts; in case of any private sale, the Company will  have to obtain the consent of both the Company Court or BIFR.  While  interpreting the provisions of the two statutes, the court cannot remain   oblivious of the fact that in a given case, possibility of a conflict in the  orders passed by the two courts may arise,  which must be avoided.  

It is interesting to note that a learned Single Judge of the said Court  dismissed a similar application filed by M/s Salapuria Housing (P) Ltd.  although the First Respondent’s application categorically mentions about the  pendency of the said application. Inherent Power :   The Company Court has inherent power.   Such inherent power of the  Company Court is saved in terms of Rules 7 and 9 of the Companies (Court)  Rules.  The Company Court, therefore, may have the requisite jurisdiction to  approve sale of the assets of a company but the question which arises for  consideration is as to whether such inherent power can be exercised despite  existence of a provision contained in another statute..   

Section 32 of  SICA  contains a non-obstante clause stating that  provisions thereof shall prevail notwithstanding anything  inconsistent with   the provisions of the said Act and of any rules or schemes made thereunder  contained in any other law for the time being in force.  It would bear  repetition to state that in ordinary course although the Company Judge may  have the jurisdiction  to pass an interim order in exercise of its inherent  jurisdiction or otherwise directing execution of a deed of sale in favour of an  applicant by the Company sought to be wound up; but keeping in view the  express provisions  contained in sub-section (4) of Section 20 of  SICA such  a power, in our opinion, in the Company Judge is not available.  [See BPL  Limited  (supra).

We may, however, observe that the opinion of the Division  Bench in  BPL Limited (supra)  to the effect that the winding up proceeding in relation  to a matter arising out of the recommendations of BIFR shall commence  only on passing of an order of winding up of the company may not be  correct.  It may be true that no formal application is required to be filed for  initiating a proceeding under Section 433 of the Companies Act as the  recommendations therefor are made by  BIFR or  AAIFR, as the case may  be, and, thus, the date on which such recommendations are made the  Company Judge applies its mind to initiate a proceeding relying on or on the  basis thereof, the proceeding for winding up would be deemed to have been  started; but there cannot be any doubt whatsoever that having regard to the

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phraseology used in Section 20 of  SICA that  BIFR is the authority proprio  vigore which continues to remain as custodian of the assets of the Company  till a winding up order is passed by the High Court.   

Some precedents on court’s power: The decisions of the Karnataka and Bombay High Courts reported in  Smt. Usha R. Shetty and Others vs. Radeesh Rubber Pvt. Ltd. and Another  [1995 (84) CC 602] and Kamani Metallic Oxides Limited vs. Kamani Tubes  Limited  [1984 (56) CC 19], relied upon by Mr. Holla cannot be said to have  any application in the instant case.  The other decisions cited at the  bar  taking the similar view also have no application.

       In Buckley on the Companies Acts , the law is stated, thus :

       "When the application should be made.- In an  early case it was argued that the sanction of the court  should be obtained before the transaction is entered into  and cannot be given afterwards, but Malins VC,  disagreed, ’for it would be almost impossible that  directions could from time to time be obtained; but when  the matter is brought before the court, it must have regard  to all the surrounding circumstances’.  Vaisey J agreed  that the object of the section is that, if a winding up order  is made, any transaction which has been entered into  since the commencement of the winding up shall be  subject to review  by the liquidator and held that he had  no jurisdiction while the petition was pending.  Roxburgh  J went to the other extreme and on an application made  after the winding up order refused to validate the  transaction on the ground that the applicant ought to have  applied before the transaction was entered into.  Buckly J  held that he had jurisdiction to sanction and  did sanction  while the petition was pending a proposed transaction  which on any possible view would be beneficial  to the  creditors, one of the objects of the section being to  protect the interests of the creditors during the pending of  the petitions.  Since this last decision such orders have  regularly been made, normally in one of two cases: the  first being where the proposed transaction is not in the  ordinary course of business (as in the case last cited) and  the second where it is necessary to persuade the  company’s bankers to unfreeze the account in order to  enable the business to be carried on."    

In Pankaj Mehra and Another vs. State of Maharashtra and Others  [(2000 (2) SCC 756] whereupon the learned counsel appearing on behalf of  the First Respondent placed strong reliance, construction of sub-section (2)  of Section 536 of the Companies Act came up for consideration and it was  held that having regard to the phraseology used therein,  the  transaction  shall be void unless the court otherwise orders.  It is interesting to note that  in para 19  thereof,  this Court noticed the principles laid down in Gray’s Inn  Construction Col. Ltd., Re  [1980 (1) All.E.R. 814 (CA)] emphasizing the  point that the courts would be very circumspect in the matter of validating  the payments and the interests of the creditors as well as the company would  be kept uppermost in consideration.  Thus, a disposition of assets during the  interregnum may not be irretrievably void but the courts are required to  exercise power with circumspection and caution.  

Jurisdiction of the Company Court, if any, how should  be exercised :   Assuming that the Company Court alone has the jurisdiction to  sanction sale of the assets of a sick company, it having regard to its duties  towards the debtors was required to apply its mind as regard the question as  to whether the disposition of the asset of the company is in the interest of its  creditors. In this case, the company was not the applicant.  It did not join the

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First Respondent in its application.  It had all along resisted its claim. In the winding up proceeding no order admitting the petition was  passed at the relevant time.  Order admitting the petition was passed much  later.  Even no provisional liquidator was appointed.    Reliance has been placed on a decision of the learned Single Judge of  the Allahabad High Court in Bengani Food Products Private Ltd. vs. Official  Liquidator and Others [1998 (94) CC 762] wherein it was held that the court  has the jurisdiction to approve the disposition of the property provided it is  found that the scheme or proposal which has been put forward is a viable  scheme and would be in the interest of the creditors as well as beneficial for  the general public.   

It  may be true that  therein the Allahabad High Court was considering  the case involving a sick industrial company but the questions which have  been raised herein were not raised there.  The High Court considered the  prayer made in the application and was of the opinion that the proposal  given by the applicant was not a viable one for the benefit of the company or  its creditors.  In the instant case, the said relevant factors were also not  considered by the High Court.

In Sudarsan Chits (I) Ltd. vs. O. Sukumaran Pillai and Others [(1984)  4 SCC 657], this Court observed :          "10. The Appellate Bench declined to direct the  Provisional Liquidator to file claim petition at the  instance of the Company under Section 446(2)(b) on the  sole ground that such a petition at the instance of the  Liquidator would be maintainable in the course of  winding up of proceedings which means that the  winding-up proceedings are pending. Undoubtedly,  Section 446(1) manifests the legislative intention that the  procedure thereunder prescribed could be availed of  when the winding-up order has been made or where the  Official Liquidator is appointed as the Provisional  Liquidator. Section 446(1) envisages two situations in  which the court will have jurisdiction to make the order  thereunder contemplated. These two situations are: where  a winding-up order has been made or where the Official  Liquidator has been appointed as Provisional Liquidator.  The first of the two situations envisages an order for  winding-up of the company having been made and which  is subsisting. The second situation is where without  making a winding-up order, the court has appointed  Official Liquidator to be the Provisional Liquidator.  Section 450(1) of the Companies Act confers power on  the Company Court to appoint Official Liquidator to be  Provisional Liquidator at any time after the presentation  of the winding-up petition and before making of the  winding-up order. The court before which a winding-up  petition is presented has power to appoint Official  Liquidator as Provisional Liquidator of the company  even before making the winding-up order. If ultimate  winding-up order is made, the Official Liquidator acts as  such. And let it be remembered that where a winding-up  order is made, it relates back to the date when petition for  winding-up is presented. Referring to Section 446(1) it  becomes clear that the court will have jurisdiction to  make the order therein contemplated, where a winding- up order has been made or prior to the making up of the  winding-up order, Official Liquidator has been appointed  as Provisional Liquidator as contemplated by Section  450(1)."         Once the Company Judge proceeds to direct disposition of assets of  the Company whether during pendency of the proceedings or upon

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culmination thereof, ordinarily a provisional liquidator is appointed.

There lies a distinction between accord of sanction for private  negotiation of sale of assets of the Company vis-‘-vis the auction held by the  Official Liquidator.  It is not in dispute that no Provisional Liquidator was  appointed.  The court may have an inherent power to approve a transaction  of sale entered into by and between the Company and the third party; but it  is beyond any cavil of doubt that while doing so the Company Court  must  bear in mind its duties towards the creditors.  While exercising  jurisdiction  under Section 433 of the Companies Act, the Company Court remains the  custodian of the interest of the Company and its creditors.  It has, thus, a  duty to satisfy itself that having regard to the market value of the property,  the price offered is reasonable.  [See  M/s Kayjay Industries (P) Ltd.  (supra)]. It is further more required  to be borne in mind that upon  liquidation, the assets and properties of the Company vest in the Official  Liquidator for the benefit of its creditors.  [See Allahabad Bank and Others  vs. Bengal Paper Mills Co. Ltd. and Others  [(1999) 4 SCC 383].

The satisfaction as regard adequacy of the price is one of the relevant  factors for proper and reasonable exercise of the judicial discretion vested  in  it.   There cannot be any doubt or dispute that when an auction is held upon  compliance of the statutory provisions, withholding of auction on the ground  that still higher price may be obtained may prove to be self-defeating  exercise as has been held in M/s Kayjay Industries (P) Ltd.  (supra) and State  of Punjab vs. Yoginder Sharma Onkar Rai & Co. and Others  [(1996) 6 SCC  173]  but having regard to the accepted position that the Company Judge in a  case of this nature exercises a discretionary jurisdiction; it is bound to act  with great circumspection and caution. Such a jurisdiction should ordinarily  be exercised in exceptional cases and when necessary for seeing the  company as an on-going concern.   

It may, furthermore, be true that before the Company Judge or before  the High Court the secured creditors did not raise  objections which have  been raised before us although specifically taken in their objections, as  would appear from paragraphs 7, 9, 11, 12 and 13 thereof, but if such  considerations were relevant having regard to the statutory duties imposed  upon the court, the learned Company Judge must be held to have failed  and/or neglected to exercise its discretionary jurisdiction in a fair and  reasonable manner. In any event having regard to the importance  of the questions  involved and in particular the question as to whether the impugned order is  contrary to the statutory provisions contained in sub-section (4) of Section  20, we have thought it proper to consider the same.   

The Company Judge moreover will have to bear in mind the  provisions contained in Section 529-A of the Companies Act in terms  whereof the dues of the workman and the debts due to the secured creditors  to the extent such debts rank in clause (c) of the proviso appended to sub- section (1) of Section 529 pari passu therewith and shall have a priority over  all other debts.

In Andhra Bank vs. Official Liquidator and Another [(2005) 5 SCC  75] , a  three-Judge Bench of this Court,  observed :          "Section 446 of the Companies Act indisputably confers  a wide power upon the Company Judge, but such a power  can be exercised only upon consideration of the  respective contentions of the parties raised in a suit or a  proceeding or any claim made by or against the  company.  A question of determining the priorities would  also fall for consideration if the parties claiming the same  are before the court.  Section 446 of the Companies Act  ipso facto confers no power upon the court to pass  interlocutory orders.  The question as to whether the  courts have inherent power to pass such orders,  in our

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opinion, does not arise for consideration in this  proceeding.  Assuming such a power exists, it was  imperative that the same should have been exercised on  consideration of the factors laid down by this Court in  Morgan Stanley Mutual Fund etc. vs. Kartick Das etc.  [(1994) 4 SCC 225].   An unreasoned order does not  subserve the doctrine of fair play [See M/s. Mangalore  Ganesh Beedi Works Vs. The Commissioner of Income  Tax, Mysore and Anr. JT 2005 (2) SC 442 ]".

It was further observed that for judging the correctness of an equitable  order even the subsequent events can be taken into consideration.  In any  view of the matter an equitable order passed by a Company Court in exercise  of its inherent jurisdiction or otherwise must conform to the requirements of  the relevant statutes. [See Manohar Lal Chopra vs. Rai Bahadur Rao Raja  Seth Hiralal -AIR 1962 SC 527, Vareed Jacob vs. Sosamma Geevarghese  and Others (2004) 6 SCC 378 & National Institute of Mental Health &  Neuro Sciences vs. C. Parameshwara (2005) 2 SCC 256]    

In re A.I. Levy (Holdings) Ltd. [1964 (1) Chancery Division 19]   Buckley J. while considering the provisions of Section  227 of the English  Companies Act which is pari materia with Section 536(2) of the Indian  Companies Act, opined that the object of the said section was to protect the  interests of the creditors from the possible unfortunate results which would  ensue from the presentation of a petition and to protect their interests as  much during the period while the petition was pending as after an order has  been made on it.   The said decision, therefore, does not lay down a law that  the provision of Section 536(2) of the Act is meant to  benefit  the vendee.   In fact such a provision  enures to the benefit of the creditors.   A Company  Judge granting sanction in terms of the aforementioned provision, thus, has a  duty to see that the transaction is one  which must benefit the unsecured  creditors of the company.             In A.I. Levy (Holdings) Ltd. (supra) it was held :

"In these circumstances, this being a case in which it  appears to me to be manifest that the transaction is one  which must benefit the unsecured creditors of the  company if in due course a winding up order is made, the  reason which affected Vaisey J.’s mind, that is to say,  that the liquidator should be given an opportunity to  investigate the matter and bring it before the court  representing the interests of all the creditors, does not  affect my mind, for I do not think the liquidator could  make the position clearer to me than it is at the present  time on the facts."      

CONCLUSION :

BIFR had admittedly power to sell the assets of the Company but the  High Court until a winding up order is issued does not have the same.  BIFR  in its order dated 02.08.2002 might have made an observation to the effect  that the Company may approach the High Court in case it intended to  dispose of its property by private negotiation but the same would not mean  that BIFR could delegate its power in favour of  the High Court.  BIFR  being a statutory authority in absence of any provision empowering it to  delegate its power in favour of any other authority had no jurisdiction to do  so.  ’Delegatus non potest delegare’ is a well-known maxim which means  unless expressly authorized a delegatee cannot sub-delegate its power.   Moreover, the said observations of BIFR would only mean that the  Company Court could  exercise  its power  in accordance with law and not  de’hors it.  If the Company Court had no jurisdiction to pass the impugned  order, it could not derive any jurisdiction only because BIFR said so.

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In any view of the matter, BIFR had permitted only the Company to  approach the High Court in case any occasion arises therefor.  BIFR did not  permit any other person to do so.  The Company did not file such an  application.  It opposed the prayer of the First Respondent  The Company, as  noticed hereinbefore, had preferred an appeal before the Division Bench of  the High Court questioning the correctness of the order passed by the  learned Company  Judge.  The Company has since been directed to be  wound up and  is now being represented by the Official Liquidator who also  questions the correctness of the order.  Before us an application has been  filed by the Government of Karnataka for impleading it as a party being I.A.  Nos.2-4 of 2005 in Civil Appeal No.5199-5201 of 2004 wherein also, the  validity of the impugned order is in question.

In this view of the matter, we are of the opinion that the impugned  judgment of the High Court cannot be sustained.  It is set aside accordingly.   

For the reasons aforementioned, the Appeals are allowed.  No costs.