IMPORTANT POINT
Judicial discretion and judicial propriety are hallmarks of judicial action.

Headnote:(a) Administration of justice – Judicial propriety – Company Judge not hearing objections on merit and confirming sale on concession given by an advocate waiving objections of the shareholder purportedly representing him but actually not engaged by anybody – Company court decision without any basis – Not tenable. (Para 14)
       (b) Companies Act, 1956 – Section 434 – Official Liquidator selling property without proper publicity – Ignoring his predecessor’s opinion that property was worth much more – Action of Official Liquidator not sustainable. (Para 15)
       (c) Administration of Justice – Judicial discretion – Property sold at lesser value – Company Judge failing to exercise his judicial discretion – The valuation report brought before Company Judge ought to have been disclosed to secured creditors and other interested persons before property was auction sold – Having not been done so, sale liable to be set aside. (Para 16, 17)
       Facts of the case:
       Assets of the appellant company – under liquidation – were directed to be auctioned.
       In the auction, respondent no. 3 purchased the assets of the appellant-company. The sale in favour of respondent no. 3 was confirmed and possession of the assets of the company was directed to be given.
       Rajiv Gosain, a shareholder in the appellant-company, filed an application for rejecting the auction sale and for re-auction.
       The High Court confirmed the sale in favour of respondent no. 3 and the assets of the appellant-company were directed to be given to respondent no. 3.
       The appellant-company filed an appeal to the Division Bench of the High Court contending that its assets were worth much more than the price at which it was sold and that its objections were not considered at the time of confirmation of sale. The Division Bench dismissed the appeal.
       Finding of the Court:
       The sale as confirmed by High Court cannot be sustained.
       Result: Appeal allowed.

Judgment

M.Y. Eqbal, J.

Leave granted.

2. These appeals by special leave are directed against the judgments dated 25.09.2012 and 16.07.2012 of the High Court of Uttarakhand at Nainital, which dismissed the appeal and review application filed by the appellant company challenging the order confirming the sale and handing over the assets of the appellant-company to the respondent.

3. The facts of the case lie in a narrow compass. The respondent no. 1 had sent a statutory notice under Section 434 of the Companies Act, 1956 and filed a winding up petition against the appellant-company alleging that the appellant-company had taken a loan of Rs. 6 lakhs from respondent no. 1 on 23rd March, 1999 and promised to repay it within 30 days with 18% interest. The appellant-company was alleged to have, however, initiated measures to shut down its operations and sell its assets and issued closure notices in May, 1999 without repaying the dues to the respondent.

4. The Company Judge appointed an Official Liquidator on 14.10.1999 and the possession of the assets of the appellant-company was taken over by the Official Liquidator who was also granted permission to assess the valuation in terms of order dated 23.02.2000. The Official Liquidator filed an application for selling the assets of the appellant-company through a public auction and it was allowed on 11.08.2003. The public auction was to be held on 29.09.2003.

5. The appellant-company filed an application to stay the auction on the ground that its assets worth Rs. 7 crores were going to be auctioned without fixing the minimum reserve price and after issuing the auction sale notice only once. The appellant accordingly expressed apprehension about the highest price being secured. The Company Judge disposed of the application vide order dated 26.09.2003 refusing to interfere with the auction and directed the appellant-company to raise the aforesaid objections at the time of confirmation of sale.

6. In the auction, respondent no. 3 purchased the assets of the appellant-company for Rs. 45.55 lakhs and deposited 10% of the consideration. Vide order dated 28.05.2004, respondent no. 3 was directed to deposit the remaining amount after it was noted that the counsel for the major shareholders in the appellant-company had no objection. Noting that respondent no. 3 had deposited the said amount as directed, the sale in favour of respondent no. 3 was confirmed and possession of the assets of the company was directed to be given vide order dated 30.06.2004.

7. Rajiv Gosain, a shareholder in the appellant-company, filed an application for rejecting the auction sale and for re-auction. It was alleged that respondent no. 1 and the Official Liquidator had appointed S. K. Ahuja & Associates who had inspected the assets of the appellant-company and valued the assets to be worth Rs. 6.25 crores. The same was said to have been communicated to the petitioner vide letter dated 15.05.2000 and it was in turn said to have been communicated by the appellant-company to the Official Liquidator vide letter dated 26.06.2003. The Official Liquidator was, however, alleged to have not informed the High Court of the valuation by S. K. Ahuja and Associates and consequently secured permission for valuation on 23.02.2000 pursuant to which the Official Liquidator was alleged to have illegally and with mala fide intention appointed an ineligible valuer, Mr. S. B. Bhargava, to value the assets of the appellant-company. Mr. S. B. Bhargava was alleged to have drastically and illegally reduced the value of the assets of the appellant-company to Rs. 76.80 lakhs and his report was submitted to the High Court by the Official Liquidator. The same was alleged to have led to the issuance of an erroneous auction notice which did not mention minimum reserve price and many other vital details and which notice only came to the knowledge of a very limited number of individuals. The auction was further challenged on the ground of procedural irregularity

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2015 Supreme(SC) 774

IMPORTANT POINTJudicial discretion and judicial propriety are hallmarks of judicial action.

IMPORTANT POINT
Judicial discretion and judicial propriety are hallmarks of judicial action.