REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. _3628__ OF 2008 (Arising out of SLP (C) No. 12616 of 2007)

M/s. Bakemans Industries Pvt. Ltd.  ….. Appellant

Versus

M/s. New Cawnpore Flour Mills and others          …. Respondents

WITH

CIVIL APPEAL NO. 3629_ OF 2008 (Arising out of SLP (C) No. 14427 of 2007)

M/s. Bakemans Industries Pvt. Ltd.  ….. Appellant

Versus

M/s. New Cawnpore Flour Mills and others          …. Respondents

J U D G M E N T

S.B. SINHA, J.

1. Leave granted in both the matters.

2. Whether  power  of  a  Company  Court  to  sell  the  property  of  a

company vis-a-vis the power of the Financial Corporation can be merged

is  the  question  involved  in  these  appeals  which  arise  out  of  the

judgments and orders dated 2nd July, 2007 and 6th July, 2007 passed in

Company Appeal  No. 27 of 2004 and Company Appeal No.2 of 2007

respectively passed by the Division Benches of the Delhi High Court.

3. Certain basic facts are not in dispute which are as under :

SICOM Ltd. (SICOM in short) advanced a loan of Rs.17 crores to

the  appellant  (M/s.  Bakemans  Industries  Pvt.  Ltd.).    It  became  a

defaulter.  SICOM issued a notice under Section 29 of the State Financial

Corporations Act (1951 Act in short) on 22nd January, 2003.   Another

notice  was  issued  for  taking  over  possession  of  the  properties  of  the

sister  concern  of  the  appellant,  viz.  Captain  Hygiene  Products  Ltd.

Appellant and its sister concern filed two writ petitions in the Punjab and

Haryana High Court at Chandigarh.  They were dismissed as withdrawn

on 10th  February, 2003.   

4. 1st respondent and fourteen others filed fifteen applications before

the Delhi High Court for winding up of the appellant-company.  Notices

were issued thereupon.  SICOM issued a second notice under Section 29

of the 1951 Act on 6th June, 2003.   

2

5. Indisputably the factory of the appellant was an ongoing concern.

SICOM took over the possession of the appellant’s factory at Patiala on

18th July, 2003.  It was at that time in operation.  It had finished bakery

products which were perishable in nature.  Allegedly the operations were

shut down and the factory was locked.

6. We may notice here that different proceedings were initiated either

at  the  instance  of  the  appellant  or  at  the  instance  of  some  of  the

respondents.   

7. Appellant  evidently  took  recourse  to  a  proceeding  which  was

unknown  to  law.   A  purported  agreement  was  entered  into  by  and

between the appellant and one NRI Lead Bank.  We are not aware as to

what were the disputes about between them.  The said purported disputes

were referred to Arbitral  Justice  Tribunal  of  ADR Arbitration,  a body

said to have been recognized by the Government of India in terms of

Section 21 of the Arbitration and Conciliation Act, 1996.  A purported

reference  of  disputes  in  terms  of  a  purported  arbitration  agreement

contained in a composite instrument dated 14th August, 2003 was referred

on 16th August, 2003.  It was accepted by the Tribunal on 18th August,

3

2003 and notices were issued.  The majority of the Tribunal opined that

there was no genuine arbitration agreement.  The arbitration proceeding

was closed on 23rd August, 2003.

8. A  new set  of  Arbitrators  was  constituted  by  the  Tribunal  who

rendered an award on 16th August, 2003 upon holding a day’s sitting only

opining that (i) taking over of the unit was illegal and (ii) a direction was

issued to handover possession to Bakemans.

9. A purported execution petition was filed by NRI Lead Bank before

the  Delhi  High  Court  seeking  execution  of  a  purported  written

agreement/settlement  dated  16th August,  2003  passed by the  Board  of

Conciliation in the said proceedings.   

10. The execution petition was filed not only against the appellant and

its sister concern, Captain Hygiene Products Pvt. Ltd.  but also against

SICOM.   Industrial  Development  Bank  of  India,  Industrial  Finance

Corporation of  India,  HUDF Bank,  State  Bank of  Patiala,  and Punjab

State Industrial  Development Corporation Ltd.  were also impleaded as

parties therein.  

4

11. We shall deal with the factual matrix thereabout a little later.

12. However,  in  the  meantime,  another  proceeding  by  way  of  an

application under Section 9 of the Arbitration and Conciliation Act, 1996

was filed before the Tis Hazari Courts, Delhi.  It was registered as Misc.

Suit No. 139 of 2003.  Inter alia, a prayer was made therein to appoint a

receiver.  However, it appears that another Bank initiated a proceeding

before the Debt Recovery Tribunal for recovery of its dues.  A Receiver

was appointed by the said Tribunal in respect of the perishable goods on

1st September, 2003.

13. Possession of the said perishable goods lying in the factory was

taken from SICOM.  A spot report was prepared.

14. Appellant in the meantime relying on or on the basis of the said

purported Award of the Board of Conciliation took forcible possession of

the factory premises on  14th September, 2003.

15. SICOM  filed  an  application  in  the  said  purported  execution

proceeding seeking for the following directions :  

5

i) to  withdraw the  proceeding  before  the  learned Additional

District Judge ;  

ii) to vacate and handover the premises ;

iii) to grant prohibitory injunction ; and  

iv) to stay the operation of the Arbitration Award.

16. An order of status quo which had been passed earlier was directed

to be maintained by the parties  by the High Court  on 15th September,

2003.   

17. An application for modification of the order dated 15th September,

2003 was filed by SICOM on 16th September, 2003.   

18. Appellant  also  filed  an  application  for  permission  to  sell  all

perishable goods lying in the factory.  Allegedly, the Receiver was asked

to sell the perishable goods.   

It also directed the appellant to pay some amount to show its bona

fide.  Appellant furthermore filed an application for vacation of the order

dated 15th/16th September, 2003.  On 28th November, 2003 an assurance

was also given to the Court that the appellant will come with a definite

6

proposal for payment to the creditors.  By an order dated 18th December,

2003 the High Court directed the appellant to deposit a sum of Rupees

two crores failing which SICOM was given a liberty to proceed with the

statutory remedies available to it under the Act for sale of the properties.

An undertaking was given to the Court by the Managing Director of the

appellant in the following terms :-  

“ Mr.Rajiv Kumar Gupta, Managing  Director of judgment  debtor  No.1  and  Director  of  judgment debtor No.2,  who is  present  in Court,  undertakes to the Court that on or before 7.2.2004, a sum of Rs.2 crores would be deposited with judgment debtor No.3, to be apportioned  towards the liability of judgment debtor Nos.3,4 and 5. Judgment debtor Nos.1 and 2 shall also give a proposal for settlement, setting out a firm payment schedule for consideration of judgment debtor Nos.3, 4 and 5.  In the event the payment of Rs.2  crores  is  not  made  on  the  date  stipulated, judgment debtor No.3 would be at liberty to avail of statutory  remedies  available  at  law  for  sale  of  the property.

Counsel for the parties also pray that the modalities of restoration  of  possession  be  got  done  under  the supervision of officers of this Court,  so as  to avoid unseemly  controversies  and  a  clear  account  of  the equipments,  machinery  and  the  assets,  of  which possession  is  taken  over  at  the  factory  premises  is available. Considering the quantum of work required, counsel for the parties  pray that at  least three Local Commissioners be appointed. Accordingly, I appoint Mr.  D.K.  Batra,  Joint  Registrar  of  this  Court,  Mr. S.P.Tara, Deputy Registrar of this Court and Mr. Anil Kumar Arora, Sr.Personal Assistant of this Court, as the  Local  Commissioners  to  visit  the  Factory Area,

7

Village Rasulpur Saidan, Tehsil  and District  Patiala, State of Punjab. The Local Commissioners shall make a  complete  inventory  of  the  equipment,  machinery, assets, raw materials, finished, semi finished products, if any. The possession of factory and assets be handed over  to  the  representatives  of  respondent  No.3. Inventory be also got signed by the parties. The Local Commissioners may in their discretion also make any observation  with  regard  to  the  condition  or  state  of equipment,  assets  etc.  The  Local  Commissioners  to execute the commission on 23.12.2003 at 11.00 a.m. The fee of the Local Commissioners, Mr.D.K.Batra is fixed  as  Rs.22,000,  Mr.S.P.Tara  is  fixed  as Rs.20,000/-  and  Mr.Anil  Kumar  Arora  is  fixed  as Rs.18,000/-  ,  exclusive  of  out  of  pocket,  travel  and lodging expenses.

Learned  counsel  for  judgment  debtor  Nos.1  and  2 submit that upon payment of Rs.2 crores and a firm schedule being given for repayment, as acceptable to the  financial  institutions,  the  Court  should  grant repossession  to  judgment  debtor  No.2.   This  aspect would be considered upon the payment of Rs.2 crores having been made and firm schedule  for  repayment having  been  given  and  accepted.   Counsel  for judgment  debtor  Nos.1  and  2  state  that,  in  the meanwhile, they would not proceed further  with the arbitration  proceedings,  initiated  before  the  ADR, Arbitral Tribunal No.3. Mr. Arun Bhardwaj, counsel for judgment debtor No.1, further states that judgment debtor  No.1  would  not  proceed  with  Suit No.139/2003,  pending  in  the  Court  of  Sh. S.K.Sarvaria, A.D.J., Delhi.”   

19. In the meantime, SICOM obtained a valuation report in respect of

the factory form a Public Sector Organization known as Northern India

8

Technical  Consultancy  Organization  Ltd.  (NITCOL).   In  the  said

proceeding,  SICOM  had  also  moved  an  application  for  direction  to

permit  them  to  publish  an  advertisement  for  sale  of  the  moveable

properties of the appellant and to invite bids for sale.   

20. We  may  now  deal  with  the  process  of  sale  of  assets  of  the

company.  The factory of the appellant was situated in village Rasulpur,

District  Patiala in the State of Punjab.  The land measured 30,544 sq.

yards.  The building comprised of three floors having RCC construction.

There were plants and machineries.  There was also unpacked material

which  had  been  imported  from  abroad.   Pursuant  to  the  permission

granted  by  the  Court  to  SICOM  to  make  an  advertisement,  one  was

issued  in  Economic  Times(All  Editions),  Business  Standard  (All

Editions),  Tribune  (Chandigarh  Edition)  and  Dainik  Bhaskar

(Chandigarh and Patiala Editions).  As the appellant failed to deposit the

said sum of Rupees two crores and never submitted the definite proposal

in terms of the order dated 28th November, 2003, SICOM was given the

liberty to proceed with the sale.

21. On or about 15th March, 2004, respondent No.4, Ceylon Biscuits

Pvt. Ltd. filed an application seeking direction that they be also permitted

9

to inspect the factory on the premise that they had held negotiations with

the  appellant  for  taking  over  the  entire  unit.   Counsel  who  was

representing the appellant also represented Ceylon Biscuits Pvt. Ltd.   

22. A question was raised in regard to the jurisdiction of the executing

court to proceed with the matter of sale of the properties.  By reason of

an order dated 16th March, 2004, the Court noticed the bids submitted by

the ITC Limited and Britannia Industries Ltd. not only on the entire plant

but  also on item wise basis.   The Court  rejected the contention of the

appellant both in regard to its jurisdiction as also its valuation report inter

alia opining that it had failed to deposit a sum of Rupees two crores and

submitted the repayment schedule in terms of its  earlier order  as such

there was no other option but to proceed with the sale process.    

In regard to the offer of M/s. Ceylon Biscuits Ltd. it was directed :-

“They shall file their bid positively before 23.3.2004. It is also made clear that if there could be any other interested  bidder,  he/it  could  submit  a  bid  in accordance  with  the  requirements,  which  shall  be considered.   It  shall  also  be  open  to  the  judgment debtor Nos.1 and 2 to obtain other/better offers from any  other  bidder.   It  is  made  clear  that  in  all  the offers/bids  which  shall  be  submitted  by  any  other bidder,  the  bidders  shall  have  to  comply  with  the

10

formalities and the terms that have been advertised on 23.2.2004.”    

23. Ceylon Biscuits Pvt. Ld. on or about 24th March, 2004 offered the

bid price at Rs.12.5 crores.  It also deposited the earnest money of Rs. 25

lakhs.  There was another bidder M/s. Longful Trading (India) Pvt. Ld.

who had made a bid of Rs. 11.7 crores.  It had also deposited the earnest

money of Rs. 25 lakhs.  In regard to the valuation of the properties both

in respect of the factory of the appellant as also its sister concern Captain

Hygiene Products Pvt. Ltd. the Court noticed :-

“ It  is,  however,  pointed  out  by  the  counsel appearing  for  Bakemans  Industries  Pvt.  Ltd.  and Captain Hygiene Products Pvt. Ltd. that valuation of the said plant and machineries, and land and building would  be  much  higher  than  what  is  shown  in  the valuation  report.  A  valuation  report  is  placed  on record wherein it is stated that the realisable value of the  aforesaid  assets  is  Rs.8,42,43,000/-.  Counsel appearing  for  M/s.  Bakemans  Industries  Pvt.  Ltd., however, disputes the aforesaid valuation. In order to ascertain  the  valuation  of  the  aforesaid  assets,  it would be appropriate to pass an order directing for re- evaluation  of  the  entire  aforesaid  assets  of  the  said company.  M/s.  SICOM  Ltd.  is  directed  to  get  the entire assets re-evaluated by appointing an approved valuer.  The said valuation  report  shall  be submitted before the next date. The approved valuer shall visit the factory premises on March 29, 2004 at 11.00 A.M. when the representative of M/s. Bakemans Industries Pvt.  Ltd.  could  also  be   present  at  the  site  for  the purpose of assisting and giving appropriate guidance

11

to  the approved valuer  in  ascertaining  real  value of the  assets.  The  necessary  papers  of  the  plant  and machineries  and  other  connected  records  shall  be produced  by  M/s.  Bakemans  Industries  Pvt.  Ltd. before the approved valuer in order to assist  him in evaluating the aforesaid property. It shall also be open for  the  approved  valuer  to  collect  informations  in respect  of  various assets  from other  sources as well like  custom  authorities,  Director  General  Foreign Trade and such like authorities. He shall also give a separate  valuation  report  for  un-installed  plant  and machinery,  if  any,  so  as  to  enable  this  Court  to ascertain the break-up value of the various plants and  machineries  and to facilitate the process of sale by this Court.  

It shall be open to any other willing purchasers also  to  submit  their  fresh  bids,  if  so  desired,  on or before the next date.”

24. Allegedly, the appellant filed an application before the Executing

Court with a prayer to decide its jurisdiction at the first instance.    It is

stated at the Bar that neither there is any record in respect thereof in the

High Court nor any order appears to have been passed thereon.    

25. We may now notice the proceeding before the learned Company

Judge.  

26. The Company Applications  were admitted by an order  dated 6th

April, 2004.  A Provisional Liquidator was appointed.  It was directed to

12

take charge of the properties and books of accounts of the company.  On

an application made by SICOM, however, the learned Company Judge by

order  dated  16th April,  2004  directed  that  its  possession  may  not  be

disturbed.

27. As the Provisional Liquidator had been appointed, the Executing

Court transferred the petition to the Company Judge by an order dated

19th April, 2004.

28. Some  correspondences  appear  to  have  passed  between  the

Advocate of the appellant Official Liquidator and SICOM as regards the

effect  of  the provisions  of the Companies  Act viz-a-viz Section 29 of

1951 Act.   

29. Appellant,  thereafter  filed  an  application  on  12th July,  2004 for

restraining SICOM from taking any further action for the sale/auction of

the properties and also asked for an order of status quo to be maintained

by the parties.  No order on the said application was, however, passed.

In its order dated 17th July, 2004 the learned Company Judge observed

that  the  offer  of  Ceylon  Biscuits  did  not  appear  to  be  improper.

13

However,  appellant  was  given  an  opportunity  to  bring  a  better  offer.

Second report of NITCON as regards valuation was also accepted.   

30. Before  the  learned  Company  Judge  a  valuation  report  of  a

Chartered Accountant was submitted which was rejected stating that they

were not the approved valuers and they had only taken into account the

book value and not the market value of the assets.   

31. The matter  was posted for hearing on 22nd July, 2004.   On that

date,  proceedings  before  the  learned  Company  Judge  were  in  two

sessions  –  one  before  lunch  and  another  after  lunch.   Before  recess,

appellant was granted one more opportunity to bring any other bid and

the  judge  adjourned  the  matter  to  4th August,  2004.   However,  after

recess  on  a  purported  request  made  by  the  learned  counsel  for  M/s.

Ceylon  Biscuits  the  case  was  preponed  to  28th July,  2004.   Learned

counsel for the appellant was not present, although it was mentioned that

he had been informed.  On the next date, i.e. 28th July, 2004 the Court

recorded a statement that the respondent company was negotiating with

some buyers.  An affidavit  of the prospective buyer and its Managing

Director was directed to be filed in this behalf alongwith an undertaking

to honour the bid quoted by the prospective buyer.   The matter came up

14

before  the  learned  Company Judge  on  30th July,  2004.   A prayer  for

adjournment was made.  An affidavit of the Ex-Managing Director of the

appellant was filed.  However, adjournment was refused.   The affidavit

was called from the registry and the matter was heard.  The Court is said

to have waited for the learned counsel to appear till 4.00 O’ clock and

then took up the mater for hearing at 4.45 p.m.  In its order the learned

Company Judge noticed the earlier proceedings at some length.  It was

held :-

“ No affidavit is filed of any prospective buyer. Affidavit  of  Managing  Director  of  the  respondent company is  filed.   It  does  not  offer  any bid  of  any buyer.   On  the  contrary,  what  is  stated  is  that  the Managing Director  has  been able  to tie  up finances with  the  various  associates  and  the  first  instalment would  be received on or before 5th August, 2004 on which  date  a  pay  order  of  Rs.  50  lacs  shall  be produced  in  the  court.   It  is  also  stated  that  the management  and  associates  thereafter  would  be definitely  for  the  welfare  of  all  the  financial institutions  and  workers  and  would  be  a  far  better than  which  is  being  offered  by  the  bidder.   This affidavit,  obviously,  is  not  in  compliance  with  the directions  contained  in  the  earlier  orders  and  Mr. Chhabra’s  own  statement  to  the  effect  that  the respondent company had negotiated with a buyer who was willing to offer more than the amount offered by M/s.  Ceylon  Biscuits  Ltd.  such  attempt  had  been made earlier but failed.  The arrangement offered in the affidavit does not inspire confidence and it is only a delaying tactic.  He offer to deposit Rs. 50 lacs, in the first  instance when the  total  liability  of  secured

15

creditors  itself  is  more  than  Rs.  50  crores,  is  a pittance.  The respondent company has also not stated as to in what  manner and within how much time it would be in a position to discharge the entire liability. It is also not stated as to from where it would generate the  resources/finances  for  this  purpose.   It  is,  thus, clear that  in spite of giving various opportunities to the  respondent  company and  its  Managing  Director the respondent company has not been able to produce better bid.   

Property in question, which is subject matter of sale,  has  been  valued  at  Rs.  10  crores.   Bid  of Rs.12.50  crores  of  M/s.  Ceylon  Biscuits  Ltd.  is, therefore,  reasonable  more  particularly  when  other bidders whose bids were not only lesser have already withdrawn  from  the  bidding  process,  this  bid  is hereby accepted.  

Let balance payment be made by the successful bidder  strictly  in  terms with  the  bidding  conditions and the amount would be deposited in the court.  The amount so deposited should be kept in FDR initially for a period of six months.”      

32. An intra-court appeal was preferred against the orders dated 17th

July, 2004, 27th July, 2004 and 30th July, 2004.  The matter was listed on

26th August, 2004.  Before the appellate court also an offer was made by

the appellant  to bring a higher offer  of Rs. 15 crores.  Pursuant to an

order  made in  this  regard,  a  sum of  Rs.  50  lakhs  was directed  to  be

deposited.  The Division Bench also directed maintenance of status quo

in the meantime.  

16

33. In  the  meantime,  SICOM  and  Ceylon  Biscuits  both  filed

applications  for  possession  of  the  factory  to  be  handed  over.   Such

permission was granted on 13th October, 2004.      

34. Various applications were filed before the Division Bench and/or

this Court.  Except noticing that in the meantime another valuation report

was filed on 21st November, 2006 in regard to the intangible assets of the

company as being Rs.35.88  cores  which had been sold by SICOM in

favour of Ceylon Biscuits for a sum of Rs.10 crores, we need not take

note of any other fact.   By reason of the impugned judgment dated 2nd

July,  2007  the  Letters  Patent  Appeal  preferred  by  the  appellant  was

dismissed and by an order dated 6th July, 2007 the sale certificate was

directed to be issued to M/s. Ceylon Biscuits.   

It is these orders which are in question before us.

35. Mr. Kapur, the learned senior counsel appearing on behalf of the

appellant inter alia would submit :-

i) The learned Company Judge while proceeding to direct sale

committed  a  serious  illegality  in  not  directing  a  fresh

17

valuation of the assets of the company and upon taking into

consideration  the  interest  of  other  creditors  as  also  that

SICOM  itself  before  accepting  the  offer  of  M/s.  Ceylon

Biscuits.

ii) When  a  Provisional  Liquidator  was  appointed,  his

involvement  in  the  process  of  sale  was  imperative  in

character.

iii) Provisions of Sections 441, 456, 450 and 457 read with Rule

293  of  the  Companies  Act  show that  the  involvement  of

Official Liquidator was absolutely mandatory and the Court

could  not,  in  the  name  of  supervision  over  the  sale,

substitute itself in the place of the Official Liquidator.   

iv) The learned Company Judge completely disregarded the law

laid down by this Court in a series of decisions in each and

every respect concerning the sale of the assets of a company,

in so far as :-

a) it did not issue any fresh advertisement ;  

b) the advertisement issued being in small print and no

guidelines  having  been  issued,  the  same  was

irrelevant;

c) the Company Court did not fix any reserve price ;

18

d) the  Company  Court  did  not  make  any  attempt  to

secure  the  best  possible  market  price which was its

duty to do for the sake of the general body of creditors

including workmen and other secured creditors.

v) The  Company  Court  on  the  one  hand  appointed  an

independent valuer for valuing appellant’s intangible assets;

on  the  other  it  simply  relied  upon  two  valuation  reports

made  by  NITCON without  application  of  mind  about  its

correctness or otherwise.   

vi) SICOM’s action is mala fide as even it should not have been

averse to the process of sale of the factory of the appellant at

a  higher  price,  particularly  when  a  memorandum  of

agreement  entered  into  by and  between  the  appellant  and

Ceylon  Biscuits  show that  the  actual  value  of  the  factory

was  very high  as  per  the  Ceylon Biscuits’  own valuation

report dated 9th September, 2005.

vii) The learned Company Judge as also the Division Bench of

the High Court  proceeded  to  determine  the  entire  dispute

only  on  the  conduct  of  the  appellant  both  in  respect  of

obtaining the Award of the Board of Conciliators as also its

failure to secure a better price and not on the basis of the

19

legal principles involved in sale of assets of the company in

liquidation.   

vii) As  the  Company  was  an  ongoing  concern,  the  Company

Judge without involving the Official Liquidator committed a

serious error in directing sale of the assets of the company at

an  early  stage  of  the  winding  up  proceeding  without

applying its mind that a Scheme for revival of the Company

was  possible  to  be  filed  in  terms  of  Section  391  of  the

Companies Act.

36. Mr. Rajiv Shakdher,  learned senior counsel appearing on behalf of

SICON, on the other hand, urged :-

i) SICOM had never been averse to obtaining any higher price

as would appear from the proceedings before the High Court

both  in  Execution  Proceeding  as  also  the  Winding-up

Proceeding.   

ii) SICOM  had  all  along  exercised  its  right  to  sell  the

mortgaged assets in exercise of its  statutory powers under

Section 29 of the 1951 Act which being in consonance with

20

the principles and guidelines laid by this Court, could not

have been interfered with.  

iii) The appellant  having  questioned  the  action  of  SICOM in

invoking its statutory powers under Section 29 of 1951 Act

by filing  two writ  applications  and having  withdrawn the

same,  it  was  entitled  to  take  possession  of  the  properties

which it did on 18th July, 2003.

iv) The appellant with a view to get back the possession of the

factory forged a settlement agreement to deceive SICOM in

purported  execution  of  the  award  of  the  Board  of

Arbitration.   

v) It  took  recourse  to  adventurous  litigations  not  only  by

getting  the  aforementioned  case  filed  but  also  filing  an

application  under  Section  9  of  the  Arbitration  and

Conciliation  Act,  1996  with  a  view  to  get  a  Receiver

appointed, although it did not succeed in that attempt.   

vi) It is not correct to contend that a Receiver was appointed by

the Court in the Arbitration proceeding but the Receiver was

appointed  by  Debt  Recovery  Tribunal  in  respect  of

perishable articles only.  

21

vii) The Executing Court  at  the initial  stage and subsequently

the learned Company Judge, merely supervised the sale with

a view to bring about transparency in the entire process.

viii) That when a sale is held by a Financial Institution in terms

of Section 29 of the 1951 Act, opportunities are granted to

the debtors to purchase the property at the price for which

the sale had been held or to bring a higher offer.  

ix) With a view to  satisfy the  set  norms,  the High Court  not

only permitted Ceylon Biscuits and another to take part in

the  bidding  process  but  also  gave  opportunities  after

opportunities to the appellant to bring a better offer which it

failing and/or neglected to comply with.   

x) Appellant  having undertaken to pay a sum of Rupees two

crores and having failed to comply with the same, it was not

entitled  to  raise  any objection  in  regard  to  the legality or

otherwise  of  the  sale,  particularly  when  it  was  on  their

suggestions, other bidders were permitted to bid and the said

bids were opened in the Court itself.  

xi) The  advertisement  issued  by  SICOM  was  in  accordance

with the usual practice and it is not correct to contend that

22

no guideline was issued or bidders were not permitted to bid

(in accordance with the norms).  

xii) NITCON  is  a  Public  Sector  Organization  with  which

SITCOM has  no  concern,  thus  it  would  not  be correct  to

contend  that  the  second  valuation  report  should  not  have

been obtained by it, particularly when the said valuation was

in relation to the uninstalled machinery lying at the factory

premises in respect whereof the appellant moved the learned

Company Judge.  

37. Mr. Sundaram, learned counsel appearing on behalf of respondent

No.4 (Ceylon Biscuits), would submit :-  

i) SICOM had all along exercised its powers under Section 29

of the 1951 Act and the Court merely supervised exercise of

such powers and in that view of the matter the appellant has

not  been  prejudiced  at  all  inasmuch  as  the  same  merely

provided for additional safeguard for fetching a proper price

for the assets.  

ii) In view of the decision of this Court in Rajasthan Financnial

Corporation Ltd. and another  vs.  The Official Liquidator :

23

(2005)  8  SCC  190  the  involvement  of  the  Official

Liquidator  is  necessary  only  to  sell  the  assets  of  the

company in liquidation and as no winding up order has been

passed,  involvement  of  Official  Liquidator  was  not

necessary.    

iii) The  Company Court  exercised  its  jurisdiction  in  terms of

Rule 293 of the Company Court Rules which permitted it to

sell the assets itself or through an agent.  

iv) If the learned Company Judge thought that SICOM should

act  as  an  agent,  no  illegality  can  be  set  to  have  been

committed by reason thereof.

v) Respondent No.4 being a bona fide purchaser, pursuant to

an offer, it would be highly prejudiced if the auction sale is

set aside at this stage.     

38. The core issues which arise for our consideration in view of the

rival contentions of the leaned counsel are :-

1) Whether  in  the  facts  and  circumstances  of  the  case  the

Executing  Court  and  consequently  the  Company  Judge

could have supervised the purported sale of the assets of the

24

appellant  on  behalf  of  SICOM  having  regard  to  the

provisions of Section 29 of the 1951 Act?  

2) Whether  in  a  case  of  this  nature  and  particularly  having

regard  to  the  fact  that  SICOM  submitted  itself  to  the

jurisdiction of the executing court and company court, can

now turn around and contend that in effect and substance it

had exercised its statutory powers under Section 29 of the

Act  and  allowed  the  same  only  to  be  supervised  by  the

learned Company Judge?

3) Whether the statutory powers of a Financial Corporation as

envisaged under Section 29 of the 1951 Act would prevail

over the proceedings before a Company Judge in a winding

up proceeding?

4) Whether involvement of the Official Liquidator in the facts

and circumstances of the case and particularly in view of the

fact  that  Official  Liquidator  brought  to  the  court’s  notice

claims of other creditors, the Company Judge ought to have

dealt  with  the  same  in  the  manner  laid  down  in  the

Companies Act and/or the Rules framed thereunder and/or

the decision of this Court?

25

5) Whether the High Court while exercising its powers under

Section  433  of  the  Companies  Act  read  with  other

provisions could ignore the claims of the other creditors, and

in particular the workmen, having regard to the provisions

of Section 529A thereof.

6) Whether  the  High  Court  while  exercising  its  jurisdiction

both  in  the  execution  proceeding  as  also  winding  up

proceeding can,  in the  fact  situation  obtaining herein,   be

said to have adopted a fair procedure.

7) Whether in any event the High Court could have ignored the

legal  requirements  as  regards  the  conduct  of  sale  of  the

assets of the appellant only on the basis of : (1) wrongful

conduct on the part of the appellant in obtaining an award

from the Conciliation Tribunal; and (2) its failure to bring a

better offer from another bidder.

39. The  1951  Act  indisputably  is  a  special  statute.   If  a  financial

corporation intends to exercise a statutory power under Section 29 of the

1951 Act, the same will prevail over the general powers of the Company

Judge under the Companies Act.

26

40. There cannot be any doubt whatsoever that the proceedings under

Section 29 of the 1951 Act would prevail over a winding up proceeding

before  a  Company  Judge  in  view  of  the  decision  of  this  Court  in

International  Coach  Builders  Ltd. v.  Karnataka  State  Financial

Corporation [(2003) 10 SCC 482] wherein it has been held:

“26. We do not really see a conflict between Section 29 of the SFC Act and the Companies Act  at  all,  since  the  rights  under  Section  29 were not intended to operate in the situation of winding up  of  a  company. Even  assuming  to the  contrary,  if  a  conflict  arises,  then  we respectfully  reiterate  the  view  taken  by  the Division  Bench  of  this  Court  in  A.P.  State Financial Corpn. case. This Court pointed out therein that Section 29 of the SFC Act cannot override the provisions of Sections 529(1) and 529-A of the Companies Act, 1956, inasmuch as SFCs cannot exercise the right under Section 29  ignoring  a  pari passu charge  of  the workmen…

The view taken therein was reiterated by a three-Judge Bench of

this Court in  Rajasthan State Financial Corporation and Anr. v. Official

Liquidator and Anr. ( 2005 ) 8 SCC 190 wherein it was stated:

“18. In the light of the discussion as above, we think it proper to sum up the legal position thus:

27

(i)  A  Debts  Recovery  Tribunal  acting under the Recovery of Debts Due to Banks and Financial  Institutions Act,  1993 would be entitled to order the sale and to sell the properties of the debtor, even if a company- in-liquidation, through its Recovery Officer but  only  after  notice  to  the  Official Liquidator  or  the  Liquidator  appointed  by the Company Court and after hearing him.

(ii)  A  District  Court  entertaining  an application under Section 31 of the SFC Act will  have  the  power  to  order  sale  of  the assets of a borrower company-in-liquidation, but  only  after  notice  to  the  Official Liquidator  or  the  Liquidator  appointed  by the Company Court and after hearing him.

(iii)  If  a  financial  corporation  acting under  Section  29  of  the SFC Act  seeks  to sell  or  otherwise  transfer  the  assets  of  a debtor  company-in-liquidation,  the  said power  could  be  exercised  by  it  only  after obtaining  the  appropriate  permission  from the Company Court  and acting in terms of the directions issued by that court as regards associating the Official Liquidator with the sale,  the  fixing  of  the  upset  price  or  the reserve  price,  confirmation  of  the  sale, holding  of  the  sale  proceeds  and  the distribution  thereof  among  the  creditors  in terms of Section 529-A and Section 529 of the Companies Act.

(iv)  In  a  case  where  proceedings  under the  Recovery  of  Debts  Due  to  Banks  and Financial Institutions Act, 1993 or the SFC Act  are  not  set  in  motion,  the  creditor concerned  is  to  approach  the  Company Court  for  appropriate  directions  regarding the  realisation  of  its  securities  consistent with  the  relevant  provisions  of  the

28

Companies Act regarding distribution of the assets of the company-in-liquidation.”

[See also ICICI Bank Ltd. v. SIDCO Leathers Ltd. and Ors. 2006

(5) SCALE 27]

But, in this case, the sale in favour of Ceylon Biscuits  Pvt. Ltd.

having not taken place in terms of Section 29 of the 1951 Act, the said

question cannot have any application whatsoever.   

It is, however, a case where the learned Company Judge was not

authorized to exercise its power under Section 29 of the 1951 Act.  It

purported to exercise its power only under the Companies Act.  SICOM

submitted  itself  to  its  jurisdiction.   It  allowed  the  Company Judge  to

conduct the sale.  The sale that was conducted was purported to be in

terms of the Companies Act.  We have noticed hereinbefore that when a

provisional  liquidator  was  appointed,  the  High  Court  instead  of

exercising its writ jurisdiction referred the matter to the Company Judge.

It was the Company Judge, therefore, who proceeded in the matter.  The

Company  Judge  could  exercise  its  jurisdiction  only  in  terms  of  the

Companies Act and not in terms of Section 29 of the 1951 Act.  If it did

not have the power under the 1951 Act, any decision purported to have

been taken by it would be a nullity.  SICOM indisputably has a statutory

29

power but it could waive the same. It preferred the conduct of the auction

at the hands of the Company Judge in stead and place of carrying on the

same by itself.   It  submitted itself  to the jurisdiction  of  the Company

Judge.   Not  only  it  took  part  in  the  proceedings  without  any  demur

whatsoever, it actively participated therein.  It is only at its instance that

the bid was held.  The other bidders were also brought in.   

It is, therefore, not a case where the learned Company Judge had

no  jurisdiction  to  exercise  supervision  of  sale  of  the  assets  of  the

appellant on behalf of SICOM in terms of the provisions of Section 29 of

the 1951 Act or otherwise.  Respondents even never insisted to get the

question  of  jurisdiction  determined  as  a  preliminary  issue,  although

raised by it specifically.  It,  thus, for all  intent  and purport waived its

right.  

41. It is in the aforementioned situation, we must consider the question

as to whether in the facts and circumstances of this case, the involvement

of official liquidator was imperative.

42. The official liquidator brought to the court’s notice the claims of

the  other  creditors.   The  Company  Judge  having  been  exercising  its

jurisdiction under Section 433 of the Companies Act was, thus, under a

statutory obligation to consider the cases of all creditors of the Company

30

simultaneously.  For the said purpose, the learned Company Judge was

bound  to  follow  the  provisions  of  the  Companies  Act  and/  or  the

Company Court Rules.    The jurisdiction of a Company Court extends

only to those matters which are specified in the Companies Act and apart

therefrom it had no jurisdiction.  It also has a duty to see that the claims

of all creditors be dealt with, particularly having regard to the provisions

of  Section  529A  of  the  Companies  Act.   We  are  informed  that  the

workers  had  also  filed  their  claims.   Their  claims having regard  to  a

series  of  decisions  of  this  Court  could  not  have  been  ignored.  [See

Allahabad Bank v. Canara Bank (2000) 4 SCC 406 and Andhra Bank v.

Official Liquidator and Anr. (2005) 5 SCC 75].

43. The claim of the workmen having regard to the special provision

as contained in Section 529A of the Companies Act is pari passu to the

secured creditors of the Company.   

Clause (11) of Section 2 of the Companies Act, 1956 provides for

the definition of ‘the court’.  In A. Ramaiya, 16th Edn. 2004, the learned

author opines that the jurisdiction of a companies court extends only to

those matters which are specified in the Act and apart from those matters

it has no jurisdiction.

31

44. The matter  might  have  been otherwise if  SICOM had remained

outside the winding up proceedings.  If it attained, disposal of the assets

of the Company would be subject to pari passu claim of unpaid workmen

in terms of Section 529A of the Companies Act.

45. The  sale  has  been  effected  by the  court  treating  SICOM as  an

agent.   Factually  the  court  did  not  do  so.   Even  otherwise,  it  is

impermissible.  It exercised its own jurisdiction.  It was bound to do so.

There cannot be any doubt whatsoever that in the matter of control over

the  assets  of  a  company  in  liquidation,  the  courts  exercise  a  wide

jurisdiction. It may not only take recourse to the sale of the assets of the

company  whether  before  or  after  it  is  wound  up,  but  also  would  be

entitled to,  nay obligated to,  if  the situation so warrants  to attempt to

rehabilitate the company itself.  

While  doing  so,  it  exercises  its  parens  patriae  power.    It

safeguards not only the interest of the mortgages, but also the interest of

the mortgagor.  It has a statutory obligation to safeguard the interest of

the workmen as also other non-secured creditors.   

It is one thing to say as to how the assets shall be distributed but it

is another thing to say that while exercising the power to cause the sale

32

of the assets of the company, it would ignore the statutory provision.  It

must, while exercising its power, take into consideration a all relevant

factors.  The mode and manner as to how a sale would be conducted is

one  thing  but  it  is  another  thing  that  before  putting  the  assets  of  the

company to sale, the court will undertake certain obligations which are

inherent  in  exercise  of  its  jurisdiction  under  the  provisions  of  the

Companies Act.

46. We will assume that the court could appoint SICOM as an agent

but apart from the fact that it, in fact, did not do so, we are inclined to

hold that the stand of the learned counsel is mutually destructive.  On the

one hand, it is stated that SICOM was exercising its statutory power to

cause sale of the assets of the mortgagor through the agency of the court

but it is also contended that the sale was affected by the court through

SICOM.  Such a contradictory or inconsistent stand, in our opinion, is

impermissible in law.   

47. In NGEF Ltd. v. Chandra Developers Pvt. Ltd. and Anr., [(2005) 8

SCC 219], this Court opined:

“The  Company  Judge  moreover  will  have  to bear  in  mind  the  provisions  contained  in Section  529A of the Companies Act in terms

33

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 A.P. State Financial Corporation v. Official Liquidator [(2000)

7 SCC 291], this Court held :

“Under the proviso to Sub-section (I) of Section 529,  the  liquidator  shall  be  entitled  to represent the workmen and force the above pari passu  charge.  Therefore,  the  Company  Court was  fully  justified  in  imposing  above conditions to enable the Official Liquidator to discharge  his  function  properly  under supervision of the Company Court as the new Section  529A of  the  Companies  Act  confers upon a Company Court a duty to ensure that the workmen's dues are paid in priority to all other debts  in  accordance  with  provisions  of  the above  Section.  The  Legislature  has  amended the  Companies  Act  in  1985  with  a  social purpose viz. to protect dues of the workmen. If conditions are not imposed to protect the right of the workmen there is every possibility that secured  creditor  may frustrate  the  above  pari passu right of the workmen.”

34

At this stage we may also notice a decision of Three- Judge Bench

of this Court in Andhra Bank (supra) wherein this Court had to consider

the correctness  of  the  decision  in   Allahabad Bank   (supra)  .  The

questions therein, inter alia, to be decided were :

“Whether  after  a  winding-up  order  is  passed under Section 446(1) of the Companies Act or a provisional liquidator is appointed, whether the Company Court can stay proceedings under the RDB Act, transfer them to itself and also decide questions  of  liability,  execution  and  priority under Section 446(2) and (3) read with Sections 529, 529-A and 530 etc. of the Companies Act or  whether  these  questions  are  all  within  the exclusive jurisdiction of the Tribunal ?”

This court after referring to the provisions of Section 529 and 529-

A stated the law in the following terms :

“In terms of the aforementioned provisions, the secured creditors have two options (i) they may desire to go before the Company Judge; or (ii) they  may  stand  outside  the  winding  up proceedings.  The  secured  creditors  of  the second category, however, would come within the purview of Section 529- A(1)(b) read with proviso  (c)  appended  to  Section  529(1).  The 'workmen's portion' as contained in proviso (c) of sub-section (3) of Section 529 in relation to

35

the security of any secured creditor means the amount which bears to the value of the security in  the  same  proportion  as  the  amount  of  the workmen's  dues  bears  to  the  aggregate  of  (a) workmen's due, and (b) the amount of the debts due to all the creditors.”

Thus, the High Court could not  have disregarded the pari  passu

charge of the workmen upon the company’s assets.

48. The  role  of  the  official  liquidator  in  a  situation  of  this  nature

assumes great importance.

49. Chapter II of the 1956 Act deals with winding up of a company by

the court.  Section 433 provides for winding up, inter alia, by two modes.

One, if the company has by special resolution resolved that it should be

wound up by the court; or (2) if the company is unable to pay its debts.   

An application for winding up is to be filed in terms of Section

431 of the Act.  Section 441 provides that winding up of a company by

the court shall  be deemed to commence at  the time of presentation of

petition  for  winding  up.   The  provision  has  since  been  omitted  by

Companies (Amendment) Act, 2002.  Section 442 provides for the power

36

of the court to stay or restrain proceedings against the company, Section

443  envisages  power  of  the  court  on  hearing  petition.   Section  446

provides for stay of all suits shall.  Sub-section (3) of Section 446 reads

as under :

“S. 446. Suits stayed on winding up order.—

(1)…

(2) …  

(3) Any suit or proceeding by or against the company which is pending in any Court other than  that  in  which  the  winding  up  of  the company is  proceeding may, nothwithstanding anything contained in any other law for the time being in force, be transferred to and disposed of by that court.”

50. The Executive Court being a co-ordinate court (as the Execution

Petition was filed in the High Court itself) transferred the same to the

Company Judge having regard to the fact that  a provisional  liquidator

was  appointed.   Sub-section  (4)  of  Section  446,  therefore,  has  no

application  as  the  proceedings  before  the  Executing  Court  was  not  a

matter which came up in appeal from a judgment and order of another

court.  Section 447 provides for the effect of winding up order.

37

51. Section 448 provides for appointment of ‘official liquidator’.  An

official  liquidator  would  be a  liquidator  on a  winding up order  being

made in respect of a company.  Section 450 provides for appointment

and  powers  of  provisional  liquidator;  sub-sections  (1),  (2)  and  (3)

whereof read as under :

“Section  450—Appointment  and  powers  of provisional liquidator—(1) At any time after the presentation  of  a winding up petition  and before the making of a winding up order, the1 [Tribunal] may appoint the Official Liquidator to be liquidator provisionally.

(2) Before appointing a provisional Liquidator, the  Tribunal shall give notice to the company and give a reasonable opportunity to it to make its  representations,  if  any,  unless,  for  special reasons to be recorded in writing, the Tribunal thinks fit to dispense with such notice.

(3) Where a provisional liquidator is appointed by  the  Tribunal,  the  Tribunal  may  limit  and restrict his powers by the order appointing him or by a subsequent order, but otherwise he shall have the same powers as a liquidator.”

52. Section  456  envisages  that  when  a  winding  up  order  has  been

made or where a provisional liquidator has been appointed, the liquidator

or  the  provisional  liquidator,  as  the  case  may  be,  shall  take  into  his

custody nay his control of the property, assets and actionable claims to

which the company is or appears to be entitled.  It is true that the court

38

had not permitted the provisional liquidator to take over the assets.   It

protected the possession of SICOM.  But the same by itself would not

mean that the provisional liquidator was denied from performing its other

functions.  

Section 457 provides  for  the powers  of liquidator.   It  is  in  two

parts, one which had to be exercised with the sanction of the tribunal and

the other which had to be exercised by itself.  A liquidator, in terms of

clauses  (c)  and  (ca)  is  entitled  to  sell  the  moveable  and  immoveable

property.   Exercise  of  such  jurisdiction  by  a  provisional  liquidator,

therefore, shall not be denied of his powers only because it did not obtain

possession of  the properties.   Section 529 of the Act which occurs in

Chapter  V provides for  application  of  insolvency rules  in  winding up

proceeding of the insolvent companies.   

Section  529A  expressly  saves  the  rights  of  the  workmen.   It

contains a non obstente clause.  A statutory parri passu charge is created

in support of the dues of the workmen being equivalent to the dues of a

secured  creditor  for  the  purpose  enforcing  the  insolvency  rules  as

contained in clause (c) of sub-Section (1) of Section 529.   

Section  538  of  the  Companies  Act  provides  for  offences  by

officers of companies in liquidation.

39

53. The rights,  jurisdiction  and powers  of  the provisional  liquidator

may not be the same as that of an official liquidator.   

But in a case of this nature, only because the financial institution

stands outside the winding up proceedings, would it mean that the court

shall, for all intent and purport, ignore its officer and concentrate on the

interest of the financial institution alone?  Can it be said that supervision

of the court is necessary only in a post winding scenario and not prior to

it?   The  question  which  should  be  addressed,  in  our  opinion,  by the

Company Court  is  that  the ultimate  interest  of  both  secured and non-

secured creditors must be kept in mind.  Should Court have exercised its

jurisdiction for directing the sale of the prime property and, in fact, the

essence of the assets of the appellant at the initial stage.  The answer, in

our opinion, should be rendered in the negative.   

54. The Chancery Division in  Re. Dry Docks Corporation of London

[1888 (39) Chancery Division 88], wherein Fry J. held  

“But then there are circumstances which, in my opinion, vary the rights of the parties.  On the 8th of March a provisional liquidator had been appointed.   Now  the  provisional  liquidator’s appointment  is  not  only  provisional,  but contingent  in  this  sense,  that  it  operates  to protect  the  property  for  an  equal  distribution only  in  the  event  of  an  order  for  compulsory winding-up being made; and if no such order be

40

made,  then  his  appointment  ought  not  to interfere with  the rights  of  third persons.   He was  in  the  position  of  a  receiver,  whose appointment might interfere with the rights of third  persons.   Now  with  regard  to  that,  the practice of the Court is perfectly plain, as was stated by Lord Truro, in the case of  Russel v. East  Angilan  Railway Company n(1),  in  very clear terms.  He said : “I apprehend then it may be taken as a rule that, though this Court may have issued a  process  or  have  made an order which  may interfere  with  the  supposed rights and interests of other parties not parties to the cause, it is always competent for such parties to make an application to the Court for relief; and it  is  not  to  be  presumed or  doubted,  but  that justice  will  be  duly  administered  to  them on that application.”

55. The courts in India have to keep in mind different considerations.

The concept of right of property which was existing in 19th Century in

England  would  not  stand  the  test  of  the  act  and  the  interpretation  it

deserves keeping in view the object  and purport  of the 1956 Act.   In

India, the Company Courts have a statutory duty to protect and rights of

workmen keeping in view the parri passu charge created in their favour

in  terms  of  Section  529A  of  the  Act.   Power  and  functions  of  a

provisional liquidator subject to the limitations imposed by the court are

the same as that of an official liquidator.

41

56. It is furthermore not a case where the rights of third persons were

involved.  We have held hereinbefore that SICOM failed to keep itself

outside the winding up proceedings.  It has become a party to it and, thus,

when a sale is held by a Company Judge, it should not keep a provisional

liquidator  out  of  its  purview.   It  may  be  true  that  the  provisional

liquidator could not sell the property without the sanction of the court,

but then feed back of the provisional liquidator by the Company Court

was necessary for the purpose of having a complete picture before it.   

The official liquidator has informed us that about 373 claims have

been  filed.   The  amount  of  claim  is  about  100  crores;  amongst  the

claimants, there are banks in whose favour also deeds of mortgages have

been executed.  Provident Fund dues and other dues of statutoryclaims

are also subject matter of the claim petition.  They also have a priority.

The  claim of  the  provident  fund  is  on  behalf  of  the  workmen.   For

scrutiny of the said claims, a Committee has been constituted and we had

been  informed  that  except  the  properties  which  have  been  sold  in

liquidation, there is hardly any other asset upon which the creditors can

back upon for the purpose of realization of their dues.

57. It is true that in a liquidation petition, secured creditors ought to be

differently treated.  A third party who has an independent right would not

42

be affected by reason thereof.  Ordinarily, even the statutory power of the

said financial corporation would also not be affected.

58. We, however, are not in a position to agree with the submissions

of Mr. Sundaram that provisional liquidators have no statutory powers in

relation  to  affecting  sale  of  a  moveable  or  immoveable  property.

Indisputably, it is subject to the direction of the court but, as indicated

hereinbefore, the Court while undergoing the process of winding up and,

in any event, resorting to sale of the assets of the company under winding

up  proceeding  could  not  have  a  ignored  the  involvement  of  the

provisional liquidator for any purpose whatsoever.   

At the cost of repetition, it is reiterated that the discretion of the

court for selecting the mode and manner of sale has nothing to do with

the process required to be gone into for the said purpose.   

It must have before it all these facts and figures so as to enable it

to pass a final order one way or the other.  In so doing, the court must

keep in mind that it is not only determining an issue by and between the

mortgagor  and one mortgagee  only but  could  also be determining the

issue between a debtor and a vast number of creditors; whether secured

or non-secured.   

43

The  ratio  of  the  decision  of  the  Madras  High  Court  in  Sri

Chamundi Theatre Mysore Talkies Ltd. v.  S. Chandrasekara Rao [1975

(45)  Company cases  60]  whereupon  reliance  has  been  placed  by Mr.

Sundaram may be noticed.  In that case, an advocate was appointed as a

provisional  liquidator.   The  distinction  between  appointment  of  an

official  liquidator  as  a  provisional  liquidator  and  an  advocate  as  a

provisional  liquidator  must  be  viewed  differently.   When  an  official

liquidator is appointed as a provisional liquidator, the purpose is that he

must become aware of all the processes of winding up leading to exercise

of his statutory power, if ultimately the courts find it just and equitable to

direct  the winding up of  a company.  In that  case,  the application for

winding up was not pressed by the petitioner-creditor.

Provisional liquidator, however, was directed to continue unless he

hands over the charge to the Managing Director to be elected in terms of

the  order  passed  by  the  learned  Company  Judge.   The  provisional

liquidator,  in view of the orders  of  the court,  ceased to  be in judicial

control  or  statutory  control  over  the  properties  of  the  company.

Interpretation  of  Section  450  as  opined  by  the  learned  judges  of  the

Madras  High  Court  must  be  viewed  from the  aforementioned  factual

matrix in mind.   

44

It is not the law nor has such a proposition been canvassed before

us  that  the  properties  vested  in  the  provisional  liquidator,  as  was  the

submission in that  case.  But then,  however, the learned judges opined

that the appointment and power of an official liquidator is controlled by

the instrument which appoints him and that his office is not in equation

to that of an official liquidator, the same, however, would not mean that

even  when  there  does  not  exist  such  limitation,  the  services  of

provisional liquidator shall not be resorted to.

59. Strong reliance has been placed on in Re A.I. Levy (Holdings) Ltd.

[1964 (1) Chancery Division 19].

60. We may at this stage notice the statutory provisions as regards the

provisional liquidator in the United Kingdom.  The Insolvency Act, 1986

governs the winding up proceedings in England & Wales.

Briefly stated the scheme of the said Act is as under :

The  expression  "office-holder"  is  defined  in  section  234(1).  It

means the administrator, the administrative receiver, the liquidator or the

provisional liquidator, as the case may be. For the purposes of section

236 the expression includes,  in the case of a company which is  being

45

wound  up  by  the  court  in  England  and  Wales,  the  official  receiver,

whether or not he is the liquidator.

Under the heading "The liquidator's functions" section 143 of the

Insolvency  Act  describes  the  general  functions  of  the  liquidator  in  a

winding up by the court as follows:  

"General functions in winding up by the court

(1)  The  functions  of  the  liquidator  of  a company which is being wound up by the court are to secure that the assets of the company are got in, realised and distributed to the company's creditors  and,  if  there  is  a  surplus,  to  the persons entitled to it.

(2) It is the duty of the liquidator of a company which  is  being  wound  up  by  the  court  in England  and  Wales,  if  he  is  not  the  official receiver-

(a)  to  furnish  the  official  receiver  with  such information,

(b)  to  produce  to  the  official  receiver,  and permit  inspection  by  the  official  receiver  of, such books, papers and other records, and

(c)  to  give  the  official  receiver  such  other assistance,  as  the  official  receiver  may reasonably require for the purposes of carrying out his functions in relation to the winding up."

46

In Official Receiver (Appellant) v. Wadge Rapps & Hunt (a firm)

and another and two other actions [2003] UKHL 49, the question which

was  to  be  decided  by  the  House  of  Lords  was  whether  the  official

receiver can have recourse to the powers conferred by section 236 of the

Insolvency  Act  1986  ("the  Insolvency  Act")  for  the  sole  purpose  of

obtaining  evidence  for  use  in  disqualification  proceedings  against  a

former director.

Observing the functions of the liquidator vis-à-vis disqualification

proceedings  envisaged under  the Section 236 of  the Act,  Lord Millett

opined:

“The  first  of  these  strands  proceeds  from the premise  that  the  powers  conferred  by  section 236 are conferred on a liquidator "for the better discharge of his functions in the winding up". These words are not derived from the express terms  of  the  section  but  are  evidently considered  to  be implicit  in  it.  The unspoken assumption  is  that  a  liquidator's  "functions  in the  winding  up"  are  limited  to  the  collection and distribution of the company's assets. I agree that  the  bringing  of  disqualification proceedings  is  not  a  function  which  is conferred  on  the  official  receiver  "in  the winding  up";  if  it  were,  the  costs  of  the proceedings would be payable out of the assets of  the  estate.  It  is  not  necessary  to  consider whether  the  gathering  of  evidence  for  the purpose  of  such  proceedings  is  part  of  "his functions  in  the  winding  up",  for  this

47

formulation is  unduly narrow. The liquidator's functions  in relation to the company which is being wound up are not  and never have been limited to the recovery and distribution of the company's  assets.  It  would be very odd if the liquidator  of  a  company  in  voluntary liquidation could apply to the court to direct a public examination in the wider public interest but  could  not  invoke  section  236  to  order  a private  examination  in  the  same  interest.  In practice the liquidator would usually prefer to invite  the  official  receiver  to  make  the application; and even where the application was made  by  the  liquidator  the  court  would  be disposed  to  invite  the  views  of  the  official receiver.  But  it  is  impossible  to  say  that  the liquidator  would  be  acting  outside  his  proper role in the one case and not in the other.  

Section 236 contains no express limitation on the purpose  for  which  it  may be  invoked.  Of course it may be invoked only for a legitimate purpose  in  relation  to  the  company  which  is being  wound  up,  and  the  court,  which  has discretion to make or refuse an order, should be astute to see that the powers conferred by the section are not abused. It would plainly be an abuse to use those powers for a purpose which is  foreign to  the functions  of  the applicant  in relation to the company which is being wound up. But I reject the unspoken assumption that the functions of a liquidator  are limited to the administration  of  the  insolvent  estate.  This  is only  one  aspect  of  an  insolvency proceeding; the investigation of the causes of the company's failure and the conduct of those concerned in its management are another. Furthermore such an investigation  is  not  undertaken  as  an  end  in itself,  but  in  the  wider  public  interest  with  a view  to  enabling  the  authorities  to  take appropriate action against those who are found

48

to  be  guilty  of  misconduct  in  relation  to  the company.  If  the  investigation  yields information material to the Secretary of State's decision  to  bring  or  continue  disqualification proceedings, it must be reported.”  

It was furthermore opined:

“  In my opinion,  the  only limitation  which is implicit in section 236 is that it may be invoked only for the purpose of enabling the applicant to exercise his statutory functions in relation to the  company  which  is  being  wound  up. Whether the applicant is the official receiver or the  liquidator  or  other  office-holder  these include  the  provision  of  information  to  the Secretary of State or the official receiver which is  relevant  to  the  bringing  or  continuing  of disqualification proceedings.”

61. Interestingly,  Mr.  Rajiv  Shakdher  has  made  extensive  reference

from  Farar’s  Company  Law,  Third  Edition  to  contend  that  as  the

appellant  had defaulted in  payment of  its  dues to various  secured and

non-secured  creditors  including  SICOM,  it  was  admittedly  heading

towards  insolvency  and  in  that  view  of  the  matter,  the  assets  of  the

company were really in a practical sense their assets and not the assets of

the  creditors.   We may notice  the  observations  made  by  the  learned

author :

49

“As we have seen, directors do not owe duties to shareholders as such.  Neither do they owe duties  to  the  company’s  creditors.   The orthodox position being as stated by Dillon LJ in  Multinational Gas and Petrochemical Co. v. Multinational  Gas  &  Petrochemical  Services Ltd. [1983  Ch.  258]  directors  owe  fiduciary duties  to  the  company  though  not  to  the creditors,  present  or  future,  or  individual shareholders.

Winkworth v.  Edward  Baron Development Co. Ltd. [(1987) 1 All ER 114], a House  of  Lords  decision,  might  suggest  that there has  been a change to  that  position  with Lord Templeman stating :

‘…a  company  ownes  a  duty  to  its creditors,  present  and  future.   The company owes a duty to its creditors to keep its property inviolate and available for  repayment  of  its  debts.   The conscience of the company, as well as its management, is confided to its directors. A duty is  owed  by the  directors  to  the company  and  to  the  creditors  of  the company to ensure that the affairs of the company are  properly  administered  and that  its  property  is  not  dissipated  or exploited for the benefit of the directors themselves  to  the  prejudice  of  the creditors’.”

The learned author furthermore observed :

“Support here for this approach can be found in West Mercia Safetywear Ltd. v. Dodd [(1986) 4 ACLC  215]  where  Dillon  LJ  approved  the following statement of the position by the New

50

South  Wales  Court  of  Appeal  in  Kinsela v. Russell Kinsela Pry Ltd. [(1989) AC 755] :

‘In  a  solvent  company  the  proprietary interests of the shareholders entitle them as a general body to be regarded as the company when questions of the duty of directors arise.  If as a general body, they authorize or ratify a particular action of the director, there can be no challenge to the  validity  of  what  the  directors  have done.  But where a company is insolvent, the  interests  of  the  creditors  intrude. They  become  prospectively  entitled through the mechanism of liquidation, to displace  the  power  of  the  shareholders and directors to deal with the company’s assets.   It  is  in  a  practical  sense  their assets  and  not  the  shareholders’  assets that through the medium of the company are  under  the  management  of  the directors  pending  either  liquidation, return  to  solvency,  or  the  imposition  of some alternative administration’.”

62. This is the meet of the matter.  If the property which has been put

to auction was the prime property over which the fate of the creditors

depended, be they secured or non-secured ones, the company court, in

exercise of its equity jurisdiction could not have obliterated it from its

mind the cases of the others.  If the assets belong to the creditors, that

must  mean  the  whole  body of  the  creditors  and  not  only  one  of  the

secured creditors.  The inconsistency of is self-evident,  as, on the one

51

hand, it is stated that the property of the company does not vest in the

court or the official  liquidator, on the other hand, it  is stated that it  is

vested in the body of the creditors and not only in SICOM.

63. The  High  Court,  therefore,  could  not  have  ignored  the  official

liquidator only on the ground that a provisional official  liquidator was

appointed and not a regular official liquidator.  The power and functions

of the provisional official liquidator for all intent and purport would be

the  same  as  that  of  the  official  liquidator  and,  therefore,  it  was  not

necessary for the Company Judge to wait till the Company was wound

up.

64. If the jurisdiction of a Company Judge is limited, any substantial

deviation and departure therefrom would result in unfairness.  When an

order is passed in total disregard of the mandatory provisions of law, the

order itself would be without jurisdiction.  In this case, however, even

otherwise a fair procedure was not adopted.  We, however, very much

appreciate the anxiety on the part of the Court to see that otherwise just

dues of SICOM be realized.  Conduct of a party plays an important role

in the matter of grant of a relief.  However, only because the conduct of a

party was not  fair,  the  same, by itself,  cannot  be a ground to  adopt  a

procedure which is unjust or unfair, particularly, when by reason thereof,

52

not  only  the  Company  itself  but  also  other  creditors  are  seriously

prejudiced.  We fail to see any reason as to why the hearing of the case

was to be preponed.  Why even a day’s time could not have been granted

when  a  prayer  for  adjournment  was  made.   The  jurisdiction  of  the

Company  Court  is  vast  and  wide.   It  can  mould  its  reliefs.   It  may

exercise one jurisdiction or the other.  It may grant a variety of reliefs to

the parties before it.  The parties before the Company Judge are not only

the Company or the creditors who had initiated the proceedings but also

others  who have  something to  do therewith.   Even in  a given  case  a

larger public interest may have to be kept in mind.  The court may direct

winding up.  It may prepare a scheme for its restructuring.

65. We, therefore, are of the opinion that the Company Judge was not

correct  in  its  view  and  passed  the  impugned  judgments  only  having

regard to the wrongful conduct on the part of the appellant in obtaining

an award from the conciliation tribunal or failure to bring a better offer

from another bidder.   

66. The question which is really an intricate one is what relief can be

granted.  On the one hand, the Company has committed wrongs, on the

other, its property has been sold in auction.  Even a part of the property

has been permitted by us to be taken out of the country.  The factory, we

53

are  told,  has  started  operation.   It  has  employed  a  large  number  of

workmen.  Would that itself mean that we should refrain ourselves from

granting  any relief?   Direction  issued  by this  Court  in  a  case  of  this

nature need not be a narrow one.   

The court has to take into consideration the fate of not only those

workmen who are working but also those who have a claim against the

Company.  We must also take into consideration the  fate of the  other

creditors.   

67. We, therefore, are of the opinion that interest of justice would be

subserved if while allowing the appeal,  the learned Company Judge is

requested to go into the question afresh in accordance with the provisions

of the Companies Act and hold a fresh auction.   

While  doing  so,  indisputably,  Ceylon  Biscuits  Pvt.  Ltd.’s  offer

would be considered.  The Company Judge may consider the question of

grant  of  some  preference  to  Ceylon  Biscuits  Pvt.  Ltd.  but  while  an

auction is to be held, there should be a proper valuation of all the assets

of the Company both movable and immovable.   

The court, indisputably, may consider the question of framing an

appropriate scheme if it is found that there is a possibility of revival of

54

the Company.  In other words, we leave all options open to the learned

Company  Judge  as  are  available  in  terms  of  the  provisions  of  the

Companies Act including adjustment of equities amongst the parties.   

Till,  however,  a final  order  is  passed,  Ceylon Biscuits  Pvt.  Ltd.

would continue to function not as an auction purchaser but as a Receiver

of the Company Court.  Ceylon Biscuits Pvt. Ltd. shall file all statement

of accounts in regard to the amounts which it had invested and all other

requisite statements including the valuation of machinery it had taken out

of  the  country before  the Court.   The Court  may appoint  a Chartered

Accountant to verify the said statements.  The court, if it thinks fit and

proper,  may,  apart  from  the  provisional  liquidator,  appoint  another

person to supervise the works and functioning of Ceylon Biscuits  Pvt.

Ltd. as a receiver of the Court.  As Ceylon Biscuits Pvt. Ltd. is being

appointed as a receiver, it  goes without saying that it  shall  act strictly

under the supervision of the court and abide by the orders which may be

passed by it from time to time.

69. For  the  reasons  aforementioned,  the  appeals  are  allowed  to  the

aforementioned  extent.   In  the  facts  and  circumstances  of  the  case,

however, there shall be no order as to costs.

55

 ………………………

….J.    [S.B. Sinha]

..…………………………J.   [V.S. Sirpurkar]

New Delhi; May 16, 2008

56