Reserve Bank Of India vs Crystal Credit Corporation Ltd.
2005 Latest Caselaw 733 Del

JUDGMENT

A.K. Sikri, J.

1. CA No. 7/2005 is filed by Brig. (Retd.) Inder Raj Sehgal for release of the property being Khata No. 31, Plot Nos. 1590 and 1591, Village Mehragaoun Patti, Pachmi Chakat, Nainital. The applicant states that in this application that this property was purchased by him in a public auction held by the court of Civil Judge (SD), Vth Fast Track Court, Nainital in CE No. 36/2001. It appears that one Khadak Singh Rawat had filed a suit against Crystal Credit Corporation Limited which is in liquidation (hereinafter referred to as `the company') and obtained a decree against the company. Thereafter, he filed execution application for recovery of the amount in the said court. This application was filed sometime in the year 2001 which would be clear from the number of the petition viz. 36/2001. In those proceedings the property in question belonging tj1 o the company was attached and order dated 29th October, 2002 was passed for sale of the property at public auction. This auction was held on 3rd December, 2002. Many bidders participated in the auction and bid of the applicant for Rs.6,05,000/-, being the highest bid, was accepted. Before putting the property to the auction, it was got evaluated and valuer assessed the property at Rs.5,96,325/-. These facts are gathered from the auction report filed by the Advocate Commissioner, Nainital who was appointed as such by the court for the purpose of auction of the property and this auction report is annexed by the applicant along with the application.

2. The applicant on the basis of aforesaid facts, submits that he is the bona fide purchaser who purchased the property in an auction held by the competent court of law. He submits that before the property was put to auction winding up orders were passed by this court on 20th November, 2002 but the citation was published only on 11th February, 2003 and much before that the applicant had deposited the sale consideration in the court and even sale certificate was issued in his favor on 11th February, 2003 and he was put in possession. Prayer made in this application is that this court may confirm the said sale.

3. The undisputed position in law can be summarized as follows:

After the winding up orders are passed and the liquidator is appointed, it is he alone who has the power to take charge of the assets of the company. Further, such assets can be sold only by the OL under the supervision of the Company Court. Any transfer/sale of the assets by any other person is void. This legal position is stated in Section 536 of the Companies Act, 1956 (for short `the Act') which reads as under:

"536. Avoidance of transfers, etc., after commencement of winding up.-(1) In the case of a voluntary winding up, any transfer of shares in the company, not being a transfer made to or with the sanction of the liquidator and any alteration in the status of the members of the company made after the commencement of the winding up, shall be void.

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

4. Sub-section (2) of Section 536, however, empowers the winding up court to order otherwise which includes power to give its approval to such sales if in a particular case the circumstances so justify. It is because of this provision contained in Sub-section (2) of Section 536 that prayer made is by the applicant for approving the sale by this court.

5. Obviously, the purpose behind sub-section (2) of Section 536 is to prevent improper disposition or dissipation of property so as to affect the assets otherwise available for distribution among the creditors of a company in winding up. But the court is, however, given the discretion to uphold all proper transactions which otherwise appear to be proper transactions. What is to be borne in mind, while examining such a transaction, is that the assets of the company should be made available for distribution pari passu amongst the creditors of the company and that no creditor should obtain an advantage over his fellow creditors. In Andhra Bank Ltd.Vs. Provisional Liquidator, Godavari Sugars & Refineries Ltd., reported as (1954) 24 CC 149 after scanning through the case law on the point culled out the following principles which are to be kept in mind in such cases:

(i) Transactions bona fide entered into and completed in the ordinary course of trade must be protected.

(ii) If the disposition is made for the purpose of preserving the business as a going concern, then also the discretion of the court must be exercised.

(iii) A disposition must not be validated merely because the party bona fide entered into the transaction.

(iv) Knowledge of the presentation of the winding up is immaterial.

6.One may usefully refer to the case of Re.Steane's (Bournemouth) Ltd., reported as (1950) 1 All England Law Reports 21 wherein the court observed:

"The legislature, by omitting to indicate any particular principles which should govern the exercise of the discretion vested in the court, must be deemed to have left it entirely at large, and controlled only by the general principles which apply to every kind of judicial discretion. I have reviewed the facts of the present case somewhat at length because I think that such a review must usually be necessary whenever a case of this nature falls to be decided."

7. Thus each case has to be dealt with on its own facts and particular circumstance to find out whether the transaction is in good faith and with honest intention of the persons concerned. Honest dispositions are usually allowed.

8. The factors which weigh in favor of the applicant would be the following:

(a) Sale in question is conducted by the court at Nainital.

(b) This sale is in execution of a decree in favor of a decree holder.

(c) The execution itself was filed in the year 2001 and it can logically be deduced that the decree must have been passed prior to that date. Even order to sell the property in auction was passed on 29th October, 2002. Winding up orders were passed this court in Delhi on 20th November, 2002. Within 15 days thereof the property was put to auction on 3rd December, 2002 at Nainital. The said winding up orders as on the date of auction were neither in the knowledge of the Civil Judge, Nainital nor in the knowledge of public as citation was published in the newspapers only on 11th February, 2003. However, by that date, the applicant had deposited the sale consideration and was put in possession of the property.

(d) Before putting the property to auction, it was got evaluated by a valuer appointed by the Civil Judge and the property is sold at a consideration which is more than the value fixed by the valuer.

(e) Perusal of the auction report reveals that the necessary procedure which is required for auctioning such properties by the court was followed and it was an open public auction in which number of persons participate. The bids were allowed to start a minimum price fixed in the valuation report and inter se bidding took place in which the bidders kept on revising their bids and ultimately bid of the applicant at Rs. 6,05,000/-, being the highest bid, was accepted.

9. Even if the property was to be auctioned by the official liquidator under the supervision of this court, same procedure would have been followed. As no infirmity in the procedure is found; property has fetched reasonable price and the applicant is bona fide purchaser who has purchased the property through the process of law, it would be unjust and inequitable to the applicant if he is dispossessed at this stage and the property is sold again under the supervision of this court. In fact such an exercise would only be repetitive without achieving any meaningful purpose.

10. At the same time, it has to be borne in mind that the sale proceedings of the property put to auction have to go to the OL and these are required to be distributed, along with other money realized by the OL, in accordance with the provisions of the Act by distributing the dividends to various creditors. The decree holders who have been able to get the money in the said sale would only be creditors along with other creditors and by realizing the money after the passing of the winding up orders they have been able to get the said money to which they were not entitled at this stage. The money was disbursed to various decree holders and the applicant has filed the list of those decree holders who were disbursed the money. For that appropriate steps which the Official Liquidator should take would be to file application under Section 446 of the Act against the said decree holders for realizing this money.

11. With this liberty given to the Official Liquidator, prayer made in this application is allowed. Sale in favor of the applicant is hereby confirmed. The Official Liquidator shall not take possession of the premises of which the applicant is held to be the bona fide purchaser. CA No. 8/2005 is also disposed of.