(Prayer: Writ Petition filed under Article 226 of the Constitution of India, seeking to issue a writ of mandamus, forbearing the respondents 1 to 4 from proceeding with the proposed sale of the secured assets described in the schedule to the petition to the 6th respondent and consequently direct the respondents 1 to 4 to enforce the security sale interest strictly in accordance with the provisions of SARFAESI Act so as to enable the petitioner to participate in the sale.)
(P. JYOTHIMANI, J.)
1. These appeals have been directed against the order of the learned Judge passed in the Company applications by setting aside the sale effected by the Indian Overseas Bank by exercising its powers under Rule 8(5) of the Security Interest (Enforcement) Rules,2002 (hereinafter referred to as "Rules").The Company in liquidation has borrowed the amount from the said Bank, in respect of which the assets of the Company as well as some of the machineries were given as security for the repayment to the Bank. As the Bank has enforced its powers under the Rules, inasmuch as the Companies' assets are under the control of the Official Liquidator, the Official Liquidator raised an objection that the prices were not properly fixed by the Bank and no consultation was effected by the Bank.Learned Judge has set aside the sale effected by the Bank in favour of one N. Manikandan, who is the appellant in O.S.A. Nos.206 and 207 of 2012. The said appellant was considered to be the highest bidder and the sale consideration was Rs.2.55 crores along with encumbrance including all statutory liabilities to be paid.
2. The above appeals have been filed on the main ground that when the appellant in O.S.A. Nos.206 and 207 of 2012 has undertaken to pay the entire statutory claim and take the property along with encumbrance, the Bank is justified in selling the same and that is also based on the valuation effected by the authorized valuer of the Bank and there is no mala fide intention on the part of the Bank in confirming the sale in favour of the appellant in O.S.A. Nos.206 and 207 of 2012. It is also the case of the Bank that in fact, the Official Liquidator was informed about the sale to be effected and even though there is no concurrence required under SARFAESI Act, the information was made to the Official Liquidator based on the earlier order passed by this Court in Application No.1905 of 2010 etc. in C.P. No.26 of 2005.
3. It is the case of the appellant-Bank in O.S.A. Nos.224 and 316 of 2012, as submitted by the learned counsel Mr. Benjamin George that when once the workers' claim is protected as contemplated under Section 529A of the Indian Companies Act as confirmed under Section 13(9) of the SARFAESI Act, it is not open to the Official Liquidator to object to the sale effected so long as the sale is bona fide. The provisions of Section 529A of the Indian Companies Act and Section 13(9) of the SARFAESI Act are as follows:-
"529A.Overriding preferential payments:-
(1) Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company,---
(a) workmen's dues and
(b) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to sub-section (1) of section 529 `pa`ri` `p`assu with such dues, shall be paid in priority to all other debts.
(2) the debts payable under clause (a) and clause (b) of sub-section (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions.
13(9) of the SARFAESI ACT
In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than the three-fourth in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors;
Provided that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of section 529-A of the Companies Act, 1956 (1 of 1956):
Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realise his security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of section 529-A of that Act;
Provided also that the liquidator referred to in the second proviso shall intimate the secured creditor the workmen's dues in accordance with the provisions of section 529-A of the Companies Act, 1956(1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator;
Provided also that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator;
Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any."
4. On the other hand, it is the case of the Official Liquidator, as contended by the learned counsel Mr. Dhanaraj that the consultation as ordered earlier by this Court is not a mere empty formality. According to the learned counsel, this Court has directed the Bank, while exercising its powers under Rule 8(5) of the Rules to consult the Official Liquidator not onlyfor the purpose of safeguarding the interest of workers' claim but also to see that the property in question is sold for highest possible price in the interest of all the parties concerned.
5. He would submit that in all fairness, the Bank should have effectively made consultation with the Official Liquidator in arriving at the upset price with regard to the property. The Official Liquidator, who works under the control of the Company Court, obtains valuation from the ITCOT and other authorised agency and not private valuers, that will ensure protection to be given to all the parties in respect of upset price. The Official Liquidator would also submit that normally inthe Company Court, in the presence of the Official Liquidator, auction will be conducted after wide publication is effected and in the presence of all the parties concerned by way of public auction.
6. Mr. R. Thiagarajan, learned Senior counsel appearing for the petitioner in W.P. No.8123 of 2012 would submit that originally, the petitioner has made offer to the Bank, which was more than the offer made by the appellant in O.S.A. Nos.206 and 207 of 2012 and the Bank has requested the petitioner to increase the offer and the petitioner has also increased the same to Rs.2.57 crores.
7. In those circumstances, we have referred to the file produced by Mr. Benjamin George, learned counsel appearing for the Bank. We appreciate the conduct of the learned counsel in bringing out the file without suppression. On going through the file, we found that the appellant in O.S.A.Nos.206 and 207 of 2012, who was asked to be present in the Bank, was not present on 11.2.2012. On the basis of the highest offer made by the writ petitioner Mr. Palaniappan, the Head Office of the Indian Overseas Bank has written to the Regional office on 13.2.2012, directing the Regional Office to consider both the cases by way of inter se bidding. However, unfortunately, the files reveal that the Regional Office has not considered the claim made by the writ petitioner Palaniappan as per head office letter. Even before that letter, auction in favour of the appellant in O.S.A. Nos.206 and 207 of 2012 N. Manikandan came to be confirmed.
8. By referring to the said file, we only came to the conclusion that there has been some irregularity due to some communication gap, certainly we do not attribute any motive on the part of the Officials of the Bank. Nevertheless, on feeling thatthere has been some irregularity, we have decided to conduct auction in the Court without again going for public auction since the same will be again not only waste of time bur also waste of money on the part of the parties. Moreover, all the bidding parties were before us viz. the writ petitioner Palaniappan, the appellant in O.S.A. Nos.206 and 207 of 2012 N. Manikandan, one Sekar, who made an application before the Company Court, in addition to one Srinivasan. Therefore, it was in the presence of four persons, we have decided to conduct auction. On going through the file, we find that the upset price fixed by the Bank is not adequate, we have directed the Official Liquidator to obtain valuation from ITCOT. Accordingly,the Official Liquidator has also produced the valuation as per the valuation produced by ITCOT. The amount was also fixed at Rs.6.00 crores, which sale is without encumbrance.
9. Mr. Sekar and Srinivasan have opted out. Westarted auction in the open Court at Rs.6.0 Crores. The appellant in O.S.A. Nos.206 and 207 of 2012 N. Manikandan and the writ petitioner K.Palaniappan have participated in the auction and ultimately, the appellant in O.S.A. Nos.206 and 207 of 2012 N.Manikandan has offered to purchase for Rs.8.75 crores. It was in those circumstances, in the earlier order dated 20.9.2012, we have directed the said Manikandan, who has already paid a sum of Rs.3.10 crores, to pay the balance amount of Rs.5.65 crores within ten days from the date of the said order. The said order reads as under:-
"After hearing both the counsel in the appeal as well as the Official Liquidator, we have referred the matter for valuation in respect of the land situated in Nerpugapatti Village, Karaikudi Taluk, Sivagangai District to an extent of 17.93 acres standing in the name of M/s. Sri Vigneswara Cotton Mills Limited and the land measuring to an extent 8.42 acres in the same place apart from building and structure and other civil works standing in the name of Mrs.Valliyammai, one of the Ex-Director of the said Mill, who has offered it as security, for proper valuation to the ITCOT Consultancy and Services Limited through the Official Liquidator.
2.) This reference, we have made since we were not satisfied about the valuation by which, the Bank, by exercising its power under SARFAESI Act, is stated to have sold the property to the appellant/Manikandan for a sum of Rs.2.55 crores. It was thereafter, as per our direction, the said Manikandan has deposited with the Bank an amount of Rs.2.55 crores and another amount of Rs.55 lakhs totalling Rs.3.10 crores.
3.) The learned counsel for the Bank would submit that the amount of Rs.2.55 crores has been appropriated towards amount due and the remaining amount of Rs.55 lakhs is pending with the Bank. Insofar as it relates to Mr.Palaniappan, who is the writ petitioner is concerned, as per the direction of this Court, he has deposited Rs.3.10 crores before the Bank, which is now pending.
4.) On a reference to ITCOT, the valuation in respect of the properties stated supra, was given as Rs.608.96 lakhs. This only shows as to how the value has been arrived at by the Bank while exercising the power under SARFAESI Act about which, we would discuss it in detail at the time of disposal of the appeal.
5.) Having received the valuation report of the ITCOT, this Court finds that instead of sending back to the learned Single Judge and effecting advertisement for conducting auction, which is also time consuming process and costs wise not tenable, to conduct the auction in the open Court in the presence of the parties concerned.
6.) Accordingly, in the auction, which was conducted today in the open Court, Mr.Manikandan, appellant in OSA No. 206 of 2012, his counsel and Mr.Palaniyappan/ petitioner in WP No. 8123 of 2012, his counsel and Mr. Sekar/ 4th respondent and his counsel were present in Court.
7.) Even though the ITCOT has given the value as Rs.608.96 lakhs, we have started the offer from Rs.6 crores with the conditions that the purchaser, who is the highest bidder, shall be responsible for payment of stamp duty and the sale deed shall be only in the name of the party, who has participated in the bid and the properties are free from encumbrance. Accordingly, when we started the auction with Rs.6 crores, Mr.Sekar/ 4th respondent has opted out and therefore, there is a contest between the appellant / Manikandan and the writ petitioner/ Palaniappan. Ultimately, the offers were increased and the appellant/ Manikandan has opted to purchase the properties for Rs.8.75 crores since Mr.Palaniappan/ writ petitioner has opted out with the offer of Rs.8.70 crores.
8.) Accordingly, we declare that the appellant/Manikandan is the successful bidder and he is entitled to purchase the property for a sum of Rs.8.75 crores with the following conditions:-
(i) The said purchaser, who has already paid a total sum of Rs.3.10 crores, has to pay the balance amount of Rs.5.65 crores within a period of ten days from today to the Bank;
(ii) The purchaser, who is the highest bidder, shall be responsible for payment of stamp duty ;
(iii) The sale deed shall be only in the name of the party, who has participated in the bid and the properties are free from encumbrance;
(iv) The Bank shall keep the said amount of Rs.5.65 crores along with another sum of Rs.55 lakhs, which is pending with the Bank, in a separate interest bearing F.D.Account;
(v) In the event of failure on the part of the appellant/Manikandan in depositing the amount in Bank within ten days from today, the appellant/Manikandan shall forfeit the amount of Rs.1 crore;
(vi) On the appellant/Manikandan depositing the amount as per the conditions stated above, the Bank shall pay interest to the said Manikandan for the amount of Rs.2.55 crores stated to have been appropriated to the loan account from the date of his payment.
(vii) The writ petitioner/Palaniyappan is entitled for return of Rs.3.10 crores with interest from the date of his payment to the Bank after the appellant/Manikandan complying with the terms stated above.
For reporting compliance, post on 01.10.2012 immediately after admission. "
10. Now it is informed that the said Manikandan, the appellant in O.S.A. Nos.206 and 207 of 2012 has paid the balance amount as per the order dated 20.9.2012 passed by this Court. Therefore, we declare N. Manikandan, appellant in O.S.A. Nos.206 and 207 of 2012 as highest bidder in respect of the said property. Even though learned counsel appearing for th Official Liquidator would urge this Court to issue certain guidelines in respect of the term "consultation", which has been made earlier on the factual matrix, we are satisfied that the sale effected by the Bank was not proper and therefore, we have set aside the sale and proceeded to auction in the open Court. Hence, we are of the view that the said guidelines can be settled in some other case.
11. Insofar as his contention that further publication should have been effected, we are of the view that inasmuch as all the four parties were present before this Court and the amount of bid has been increased from Rs.6.0 crores to Rs.8.75 crores, no publication is required and that will be only the time consuming process, especially when taking note of the fact that the appellant in O.S.A. Nos.206 and 207 of 2012 N. Manikandan has deposited at the instance of the Court substantial amount before this Court. In such view of the matter, we also reject the claim made by the Official Liquidator for fresh public auction.
12. It is also relevant to note that the auction took place in the open Court and all the four persons have participated. Accordingly, we dispose of all the Original Side Appeals by declaring that the appellant in O.S.A. Nos.206 and 207 of 2012 N. Manikandan is entitled to purchase the property and entitled for sale Certificate to be issued by the Bank in accordance with the SARFAESI Act and thereafter execution of sale deed in his favour by the authorized person of the Bank, that shall be done within a period of one week from the date of receipt of a copy of this order, subject to the condition that the purchaser shall bear the stamp duty relating to the sale deed to be executed by the authorized Officer.
13. In respect of Rs.3.10 crores deposited by the appellant in O.S.A. Nos.206 and 207 of 2012 N. Manikandan, which amount has been appropriated towards the amount due to the Bank and on the said amount, the said appellant is entitled for interest. It is now stated that the interest amount has been paid to the appellant in O.S.A. Nos.206 and 207 of 2012 viz. Rs.12,62,123/-. Since the amount of interest has been paid to the appellant in O.S.A. Nos.206 and 207 of 2012, no further order in that regard is necessary.
14. The writ petitioner Palaniappan, who has also deposited a sum of Rs.3.10 crores, is entitled for refund of the amount with interest. Accordingly, we direct the Bank to refund the amount of Rs.3.10 crores with interest at the same rate of interest as that of Manikandan, appellant in O.S.A. Nos.206 and 207 of 2012 within a period of one week from the date of receipt of copy of this order.
15. The Official Liquidator, who is in possession of the property along with machineries, which are hypothecated to I.D.B.I. in O.S.A. No.178 of 2012, if available,shall deliver the physical possession of the land and machineries to the appellant in O.S.A. Nos.206 and 207 of 2012 within one
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week from the date of receipt of a copy of this order. It is made clear that the machineries, which are hypothecated to IDBI in O.S.A. No.178 of 2012 shall be kept by the appellant in O.S.A. Nos.206 and 207 of 2012 as it is for a period of two weeks or till the disposal of O.S.A. No.178 of 2012, whichever is earlier. 16. The amount of interest paid and to be payable to Manikandan, appellant in O.S.A. Nos.206 and 207 of 2012 and Palaniappan, writ petitioner as per the order passed by this Court shall be borne exclusively by the Bank. It is open to the Official Liquidator to proceed with the adjudication as early as possible. 17. The Official Liquidator is directed to expedite the claims of the workers and other debts, in any eventwithin a period of three months. However, it is made clear that for any reason, some more time is needed for the Official Liquidator, it is open to the Official Liquidator to approach the Company Court and it is for the Company Court to decide the same. If the Official Liquidator requires any expenses to be borne by him for which he requires money, he can approach the Company Court by filing necessary application, in which event, it is for the learned Judge to direct the Indian Overseas Bank to deposit the amount as decided by the Court. The Bank shall pay a sum of Rs.1.0 lakh towards counsel fee to the counsel for Official Liquidator from the sale proceeds. Learned counsel for the Bank shall be entitled to return the file to the Bank. 18. We also place on record our appreciation to Mr.Benjmin George, learned counsel for the Bank and Mr.B. Dhanaraj, learned counsel for the Official Liquidator and also all the participating counsel to enable this Court to dispose of the above appeals smoothly. The writ petition also stands disposed of. In view of the aforesaid order passed by this court, the impleading petition in M.P. No.2 of 2012 in O.S.A. No.206 of 2012 has become infructuous and the same is dismissed accordingly. Consequently, the connected M.Ps. are closed. No costs.