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CASE NO.: Appeal (civil)  3490 of 2006

PETITIONER: Punjab Wireless Systems Employees Union

RESPONDENT: WINSOME Yarns Ltd. & Ors.

DATE OF JUDGMENT: 08/08/2006

BENCH: H K Sema & R V Raveendran

JUDGMENT: JUDGMENT

O R D E R  (Arising out of SLP ) Nos.24032-33/2005) With (CA Nos 3491 / 2006 @ SLP ) Nos.24547-48/2005)

Leave granted.

These appeals arise from the order dated 6.10.2005 of the Punjab &  Haryana High Court in Company Appeal No. 11/2005.  

2.      Punjab Wireless Systems Employees Union (the appellant in the first  batch and 11th Respondent in the second batch, and for short "Employees’  Union") claims to be a Union representing the employees of the Punjab  Wireless Systems Ltd. which is in liquidation (second respondent in both  batches of appeals, for short the ’company’ or ’PUNWIRE’). M/s.  Winsome Yarns Ltd. (first respondent in both batches, for short  ’WINSOME’) is the purchaser of Items 17, 19 and 20 from out of the  assets of PUNWIRE under sale notice dated 15.6.2004 issued by the  official liquidator. Respondents 3 to 10 are the banks/financial institutions  which are the creditors of PUNWIRE. M/s. Sungroup Enterprises Pvt. Ltd.  (Respondent No. 11 in the first batch and Appellant in the second batch, for  short ’SUNGROUP’) is a company interested in purchasing Item Nos.17,  19 and 20.

3.      M/s Punjab Wireless systems Ltd was ordered to be wound up on  1.2.2001. On 4.1.2003, the learned Company Judge permitted the official  liquidator to sell the assets of PUNWIRE. A Sale Committee was  constituted (consisting of the Official Liquidator and two of the major  creditors, namely, Canara Bank and IFCI), to work out the modalities of  sale. The Sale Committee divided the assets of PUNWIRE to be sold into  25 separate lots, for convenient sale. The official liquidator issued a sale  notification dated 15.6.2004 inviting sealed tenders. The sale notice was  widely published on 25.6.2004 in leading newspapers that is Economic  Times, Times of India, The Tribune (all India editions), Punjab Kesari  (Ambala, Delhi & Jallandhar editions \026 Hindi) and Jagbani (Jallandhar  edition \026 Punjabi). Items 17, 19 and 20 with which we are concerned in  these appeals, and their reserve price as per the sale notice dated 15.6.2004  were as under :

i)      Item 17 : Industrial Plot bearing No.B-77, Phase VII, Industrial  Area, Mohali (near Chandigarh), Punjab, measuring 14,550  sq.yds. with the structures thereon (reserve price Rs.3 crores)

ii)     Item 19 : Furniture in item no. 17 (reserve price Rs.4 lakhs)

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iii)    Item 20 : Air-conditioners and generator sets in item no. 17  (reserve price Rs.15 lakhs).

The sale notice reserved the power to reject any offer or to allow inter se  bidding in the official liquidator and the Sale Committee. It also made it  clear that sale will be subject to confirmation by the learned Company  Judge.  

4.      WINSOME gave its offers in regard to three items, that is Rs.3.14  crores for Item No.17, Rs.4.5 lakhs for Item No.19 and Rs.15.5 lakhs for  Item No.20. At its meeting held on 27.7.2004, the Sale Committee decided  to retain the offer of WINSOME in regard to item no. 17 until the  machinery, furniture and fittings (Items 18, 19, 20) kept in the premises  were disposed of. At its further meeting held on 28.7.2004, the Sale  Committee resolved to invite WINSOME to buy Item Nos.17, 18, 19 and  20, (that is, the three items for which it had made offers as also Item No.18  (- machineries installed in Item No.17) at a total price of Rs.5 crores, the  price being subject to negotiations, if WINSOME so desired. WINSOME  did not agree. On 10.12.2004 there was an inter se bidding among  WINSOME and two other tenderers, namely, M/s. Star Point Financial  Services Ltd. and M/s. S.K. Khaitan Pvt. Ltd., WINSOME increased the  offer in respect of Item No. 17 to Rs. 3.16 crores. There was no increase in  its offer for items 19 and 20. The learned Company Judge, by his order  dated 10.12.2004, accepted the offer of WINSOME at Rs.3.36 crores for  Items 17, 19 and 20 and confirmed the sale of these items in favour of  WINSOME. The order dated 10.12.2004 was clarified on 13.1.2005.  

5.      WINSOME deposited the balance of the sale price on 13.12.2004  and possession of Items 17, 19 and 20 was delivered to WINSOME on  16.12.2004. As Plot No.B-77 comprised in item No. 17 was a leasehold  property taken on lease from Punjab Small Industries & Export  Corporation Ltd. (PSIEC), the Official Liquidator gave a no objection  certificate for transfer of the lease from the name of PUNWIRE to the  name of WINSOME on 29.12.2004. In pursuance of it, WINSOME applied  to PSIEC for transfer of the lease in its favour. On payment of a transfer fee  of Rs.11,78,550/-, the lease in respect of plot No. B-77 was transferred to  WINSOME and a lease deed dated 25.10.2005 has been executed and  registered between PSIEC and WINSOME, the period of lease being 99  years from the date of allotment to the original allottee.  

6.      SUNGROUP filed C.A. No.72/2005 in January, 2005, offering to  take over the entire assets of PUNWIRE (Items 1 to 25) as a going concern  for a price of Rs.12 crores. The Company Court directed SUNGROUP to  deposit a sum of Rs.2 crores with the official liquidator to establish its bona  fides, as a condition for entertaining the application. SUNGROUP  deposited the said sum of Rs.2 crores. On 11.2.2005, SUNGROUP raised  its offer for the total assets (Items 1 to 25) to Rs.14 crores. The price  offered by SUNGROUP for Items 17, 19 and 20 (out of the total price  offered) was Rs. 353.2 lakhs for item No.17, Rs. 1.25 lakhs for item No.19  and Rs. 2.40 lakhs for item No.20 in all, Rs.356.85 lakhs, as against the  price of Rs.336 lakhs paid by WINSOME. The Employees Union also filed  objections dated 11.2.2005  to the sale in favour of WINSOME contending  that they were vitally interested in the sale of the assets and that the sale in  favour of WINSOME without notice to the workers, was liable to be set  aside. The Employees Union was of the view that if SUNGROUP took  over the entire assets of PUNWIRE as a going concern, there was a  reasonable chance of PUNWIRE employees being employed.

7.      The learned Company Judge by order dated 30.3.2005 allowed the  application of SUNGROUP in part and set aside the confirmation of sale  dated 10.12.2004 (as clarified on 13.1.2005) and directed to WINSOME to  deliver back possession of Items 17, 19 and 20 to the Official Liquidator.

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The Company Court held that WINSOME will be entitled to the refund of  the sale price along with the interest paid by it to its bankers on the loans  taken by it, on submission of a bill for interest based on actuals. The court  directed that SUNGROUP should bear and pay the said interest as also the  expenses relating to re-auction of Items 17, 19 and 20.

8.      The said order was challenged by WINSOME, in Company Appeal  No.11/2005. A Division Bench of the Punjab & Haryana High Court by  order dated 6.10.2005 allowed the said appeal, set aside the order dated  30.3.2005 of the learned Company Judge and restored the order dated  10.12.2004 (as clarified on 13.1.2005) confirming the sale in favour of  WINSOME. The Division Bench directed the Official Liquidator to  complete all formalities in regard to the sale in favour of WINSOME and  further directed the return of Rs.2 crores to SUNGROUP. The order of the  Division Bench is challenged by the Employees’ Union in the first batch of  appeals and by SUNGROUP in the second batch of appeals.  

9.      SUNGROUP contends that the sale price at which Items 17, 19 and  20 were sold to WINSOME was very low. It relied on the minutes of the  meeting dated 28.7.2004 of the Sale Committee to get a fair indication of  the market value. It pointed out that the Sale Committee had expressed the  view that the price should be Rs.5 crores for item Nos.17, 18, 19 and 20  which would mean that the market price of item no. 17 (B-77, Mohali  Industrial Area, Phase-VII) was at least Rs.4.5 crores. It, therefore,  contended that the price of Rs.3.16 crores realized for Item No.17 very low.  SUNGROUP next submitted that the adjoining plot of equal dimension  (that is Plot No.B-76 - lot No.10) was purchased by SUNGROUP on  20.4.2006 for a price of Rs.11.6 crores and that if the price for Item No.17  is worked back on that basis by deducting the annual appreciation for two  years at the rate of about 15%  to 20%  per year, the price of item no. 17   would have been around not less than Rs.6 to 7 crores, in the year 2004. It  also alleged that one of the bidders at the inter-se bidding on 10.12.2004,  namely Star Point Financial Services Ltd., was a sister company of  WINSOME and therefore the sale was not legal.  

10.     The Employees’ Union adopted the contentions urged by  SUNGROUP and in addition submitted that notice should have been issued  by the Company Court to it before confirming the sale in favour of  WINSOME as the employees were vitally interested in the outcome of the  sale. The Employees’ Union also submitted that large amounts were due to  the employees and unless a good price was received, the employees would  be adversely affected. It was further contended that learned Company  Judge, being the custodian of the assets of the company under liquidation,  had tried, by its order  dated 30.3.2005, to ensure that the maximum price  was secured for the assets and therefore the Division Bench ought not to  have interfered with the said order of the Company Judge setting aside the  sale in favour of WINSOME. It also submitted that if SUNGROUP is  permitted to take Item No.17 at Rs.11.6 crores, the price at which  SUNGROUP had purchased the adjoining property (Item No.10), it will  benefit the workers and creditors of the Company.  

11.     On the other hand WINSOME contended that they had purchased  Items 17, 19 and 20 at the then prevailing market price. WINSOME  pointed out that in spite of wide publicity, there were no better offers and  the Sale Committee at its meeting held on 27.7.2004 had proposed to  accept its bid of Rs.3.14 crores. Referring to the minutes of the meeting of  the Sale Committee on 28.7.2004, it was submitted that the Committee had  merely suggested that WINSOME should be requested to purchase Item  Nos.17 to 20, which included the machinery for which it had not made any  offer, for Rs.5 crores, making it clear that it was only an asking price, open  to negotiations. It is contended that the sum of Rs.5 crores referred to by  the Sale Committee was not an indication of the market price of Item No.  17 as Rs.4.5 crores but only an attempt by the creditor banks to maximize  the sale price receivable for Items 18 to 20.  Strong reliance was also  placed on the fact that SUNGROUP itself had offered only Rs.3.53 crores

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for Item No. 17 in February, 2005, when it sought the setting aside of the   sale in favour of WINSOME which showed that the price was only around  Rs.3 crores when it made its offer in July, 2004. It is contended that as  there were no irregularities in the sale, the sale could not be set aside,even  if for any reason, the price  paid  by it  is held  to  be  marginally  lower  than the then prevailing market price. Insofar as the purchase of the  adjoining plot by SUNGROUP on 20.4.2006 for Rs.11.6 crores,  it was  contended that the said sale was nearly 21 months after the sale of item no.  17 and therefore, could not be a yardstick for determining whether the sale  price paid for item no. 17 was proper and reasonable, particularly as there  was an enormous spurt in prices after it purchased the plot. Lastly it is  contended that the sale having been confirmed and the PSIEC having  executed the registered lease deed in their favour the question of interfering  with the sale does not arise.

12.     After the matter was argued for sometime the learned counsel for  SUNGROUP submitted that having purchased the adjoining property, they  were interested in purchasing Plot No.B-77 also and SUNGROUP was  willing to offer the same price of Rs.11.6 crores for the property (Item No.  17). Learned counsel for the Employees’ Union submitted that in the  interest of workers, WINSOME should take a reasonable profit and give up  the property in favour of SUNGROUP so that the workers and creditors  will be benefited. At this stage, learned counsel for SUNGROUP stated  that being interested  in the welfare of the workers, in addition to the price  of Rs.11.6 crores offered by them for Item No.17, it will also pay   ex  gratia, a sum of  Rs.50 lakhs to  the  employees  of PUNWIRE, as they  have been without salary for quite sometime. In view of these submissions,  we queried the learned counsel for WINSOME as to whether WINSOME  was interested in considering the offer of SUNGROUP. 13.     Learned counsel for WINSOME took time and after obtaining  instructions, submitted, though with some reluctance,  that WINSOME was  agreeable for the proposal, provided it received a sum of Rs.6.36 crores for  items 17,19, & 20 (made up of Rs.3.36 crores towards the refund of price  and Rs.3 crores towards interest, expenses and compensation for  deprivation of its property. He submitted that WINSOME had taken a great   risk by borrowing huge amounts from the banks for purchasing the  property and that a sum of Rs.1.64 crores is due to Canara Bank and  Rs.1.38 crores is due to the State Bank of Patiala (respondents 4 & 6  herein).  He also submitted that subject to payment of Rs.6.36 crores,  WINSOME had no objection either for transfer of its rights to  SUNGROUP, or for the sale in its favour being set aside and a fresh sale  being confirmed in favour of SUNGROUP. 14.     There was no objection to the proposal by the other parties,  obviously having regard to the fact that everyone is benefited by the said  arrangement. In view of the above we consider it a fit case to exercise our  power under Art. 142 of the Constitution, and accept the settlement as  proposed in the larger interest of parties and to benefit  the workmen. We  make it clear that the sale which has already been confirmed in favour of  WINSOME, is set aside, not on merits, but in pursuance of the negotiated  settlement arrived at among SUNGROUP, the Employees’ Union and  WINSOME. Accordingly, we allow these appeals in part accepting the  settlement on the following items:

i)      SUNGROUP shall pay a sum of Rs.6.36 crores to WINSOME  towards the refund of the sale price and as compensation for  depriving WINSOME from the enduring benefit of its capital  asset, in the following manner :

a)      Rs. 1.64 crores by Demand Draft drawn in favour of  Canara Bank, Sector 35B, Chandigarh, to the account of  WINSOME, in repayment of the loan taken for  purchasing item 17.

b)      Rs. 1.38 crores by demand draft drawn in favour of  State Bank of Patiala, Commercial Branch, SCO 103-

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107, Sector 8C, Chandigarh, to the account of  WINSOME, in repayment of the loan taken for  purchasing item 17.  

c)      Rs.3.34 crores by two demand drafts for Rs.3 crores and  Rs.34 lakhs respectively drawn in the name of  WINSOME payable at Chandigarh.

ii)     SUNGROUP shall pay a sum of Rs.5.24 crores to PUNWIRE  (company in liquidation) represented by the official liquidator,  towards the price of Item No.17 in the following manner :

a)      Rs. 2 crores by authorizing the Official Liquidator to  adjust the deposit already made by SUNGROUP.

b)      Rs.3.24 crores by demand draft drawn in the name of  Official Liquidator, High Court of Punjab & Haryana,  to the account of company  in liquidation (PUNWIRE).

iii)    On payment of the amounts as aforesaid, the official liquidator  shall file a report with the Company Judge confirming the  receipt of Rs.8.6 crores as full sale price for Item No. 17,19  and  in the following manner :  

a)      Rs.3.36 crores received from WINSOME and adjusted  towards the sale price.

b)      Rs.2 crores deposited by SUNGROUP and adjusted  towards the price.

c)      Rs.3.24 crores received by way of demand draft from  SUNGROUP.  

The price of Rs.8.6 crores so received shall be dealt with as per  directions of the learned Company Judge.

iv)     PUNWIRE, the company under liquidation shall be entitled to  retain any interest accrued on Rs.3.36 crores and Rs.2 crores  till date, without being liable to refund or account for the same  either to WINSOME or to SUNGROUP.

v)      On receipt of the payments as aforesaid by WINSOME and  the Official Liquidator, the sale in favour of WINSOME in  respect of items 17, 19, 20 shall stand set aside and sale of said  item No.17(Plot No. B.77 and structures thereon) shall stand  confirmed in favour of SUNGROUP. The Official Liquidator  shall issue a fresh NOC to enable SUNGROUP to obtain  transfer of lease from PSIEC in respect of Plot No. B-77.

vi)     On receipt of the demand drafts aggregating to Rs.6.36 crores  as detailed in para (i) above, WINSOME shall  

a)      issue a letter of request for cancellation of the existing  lease deed in its favour so as to enable SUNGROUP to  secure a fresh lease deed in its favour by PSIEC. (The  cost of execution of fresh documents in that behalf shall  be borne by SUNGROUP);

b)      deliver possession of item 17 to SUNGROUP in the  presence of the official liquidator on "as is where is"  basis;  c)      deliver possession of Items 19 and 20 to Official  Liquidator; d)      do all acts as may be reasonably required by  SUNGROUP and at the cost of SUNGROUP,  to ensure

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Item 17 is transferred to SUNGROUP.   

vii)   SUNGROUP shall make all the payments within one week  from today. The Official Liquidator and WINSOME shall  issue necessary NOCs./request letters within one week  thereafter.  

viii)    SUNGROUP shall pay ex gratia a sum of Rs.50 lakhs to the  Employees’ Union, by a demand draft made out in the name  of the Union, for equal distribution to the employees who were  in the employ of PUNWIRE during June, 1999 (when  employees were last paid salaries by the company). In respect  of any  employees who died subsequently, their LRs. shall be  paid the employee’s share. The entire distribution shall be  done by the Employees Union independent of these  proceedings.  

ix)     SUNGROUP will have the option to purchase Items 19 and 20  separately by paying the price of Rs.4.50 lakhs and Rs.15.50  lakhs respectively to the Official Liquidator to the account of  PUNWIRE.

x)      On the sale of Item No.17 being set aside and leasehold in  respect of Plot No.B-77, being transferred in favour of  SUNGROUP, it is open to WINSOME to seek refund of the  transfer fee in regard to lease in its favour from PSIEC or  stamp duty from the State Government, if permissible, as per  law.

The order of status quo granted on 5.12.2005 shall continue to  be in force till the transaction is completed, as aforesaid. Liberty is reserved to seek clarifications, if necessary.