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High Court Of Delhi
MICRONIX INDIA - Appellant
Versus
DISCO ELECTRONICS LIMITED - Respondent
Decided On : 09/01/1996
COMPANY - WINDING UP - SALE OF PROPERTY - JURISDICTION OF COMPANY COURT - EFFECT OF AMENDMENT TO COMPANIES ACT - RIGHT OF FINANCIAL CORPORATION TO TAKE OVER MANAGEMENT OR POSSESSION - SCOPE OF SECTIONS 29 AND 32-G OF STATE FINANCIAL CORPORATION ACT - MEANING OF 'MANAGEMENT' AND 'CONTROL' - DISTINCTION - PROVISIONS OF SECTIONS 441(1), 442, 446(1) AND (2), 529-A, 537 OF COMPANIES ACT - INTERPRETATION - SCOPE AND APPLICABILITY - WHETHER PROVISIONS OF STATE FINANCIAL CORPORATION ACT ARE SPECIAL LAW OR GENERAL LAW - WHETHER PROVISIONS OF COMPANIES ACT OVERRIDE PROVISIONS OF STATE FINANCIAL CORPORATION ACT - WHETHER FINANCIAL CORPORATION IS DEEMED OWNER OF CONCERN - VESTING OF PROPERTY - RIGHT TO SUE OR DEFEND SUITS - SCOPE OF SECTION 29(5) OF STATE FINANCIAL CORPORATION ACT - WHETHER FINANCIAL CORPORATION CAN ACQUIRE RIGHTS SUPERIOR TO THOSE OF OWNER - EFFECT OF INJUNCTION ORDER - WHETHER FINANCIAL CORPORATION CAN IGNORE INJUNCTION - WHETHER PROVISIONS OF SECTION 537 OF COMPANIES ACT ARE ATTRACTED - WHETHER LEAVE TO SELL CAN BE GRANTED EX-POST FACTO - WHETHER COURT CAN ACCEPT OFFER ON PLEA THAT PRICE OFFERED IS NOT ADEQUATE.
Fact of the Case:
Delhi Financial Corporation (DFC) had taken over the possession of the company's property under Section 29 of the State Financial Corporation Act due to default in repayment of loan. Subsequently, a petition for winding up of the company was filed and an Official Liquidator was appointed. DFC claimed to have sold the property to a third party before the winding-up order was passed. The Official Liquidator challenged the sale, contending that it was void under Section 537 of the Companies Act, as it was made without the leave of the Court.
Finding of the Court:
1. The provisions of Section 32-E of the State Financial Corporation Act are not attracted as the takeover of management of the company was not effected by DFC. 2. The provisions of Sections 29 and 32-G of the State Financial Corporation Act have a different scope and deal with different situations. Section 29 provides for a speedy mode of enforcing security for realization of dues of the Financial Corporation, while Section 32-G provides for takeover of management of an industrial undertaking/unit to nurse and rehabilitate it by providing it with efficient management. 3. The provisions of the State Financial Corporation Act are not special laws vis-a-vis the Companies Act, but are complementary and not in derogation of the provisions of the Companies Act. 4. The provisions of Section 537 of the Companies Act are attracted in the present case, as the sale was made after the commencement of winding-up. 5. The Financial Corporation cannot acquire rights superior to those of the owner, who at the relevant time was under a disability to sell on account of injunction order of the Court. 6. The Financial Corporation cannot ignore the injunction order, particularly in view of the fact that the company at that time was holding the property as custodian appointed by the DFC. 7. The provisions of Sections 446 and 537 of the Companies Act are analogous to one another. 8. The Court has the power to grant leave to sell ex-post facto provided the sale is bonafide, legally valid and maximum price has been obtained.
Issues: 1. Whether the provisions of Section 32-E of the State Financial Corporation Act are attracted in the present case. 2. Whether the provisions of Sections 29 and 32-G of the State Financial Corporation Act have the same scope and deal with the same situations. 3. Whether the provisions of the State Financial Corporation Act are special laws vis-a-vis the Companies Act. 4. Whether the provisions of Section 537 of the Companies Act are attracted in the present case. 5. Whether the Financial Corporation can acquire rights superior to those of the owner. 6. Whether the Financial Corporation can ignore the injunction order. 7. Whether the provisions of Sections 446 and 537 of the Companies Act are analogous to one another. 8. Whether the Court has the power to grant leave to sell ex-post facto.
Ratio Decidendi: 1. The provisions of Section 32-E of the State Financial Corporation Act are not attracted as the takeover of management of the company was not effected by DFC. 2. The provisions of Sections 29 and 32-G of the State Financial Corporation Act have a different scope and deal with different situations. Section 29 provides for a speedy mode of enforcing security for realization of dues of the Financial Corporation, while Section 32-G provides for takeover of management of an industrial undertaking/unit to nurse and rehabilitate it by providing it with efficient management. 3. The provisions of the State Financial Corporation Act are not special laws vis-a-vis the Companies Act, but are complementary and not in derogation of the provisions of the Companies Act. 4. The provisions of Section 537 of the Companies Act are attracted in the present case, as the sale was made after the commencement of winding-up. 5. The Financial Corporation cannot acquire rights superior to those of the owner, who at the relevant time was under a disability to sell on account of injunction order of the Court. 6. The Financial Corporation cannot ignore the injunction order, particularly in view of the fact that the company at that time was holding the property as custodian appointed by the DFC. 7. The provisions of Sections 446 and 537 of the Companies Act are analogous to one another. 8. The Court has the power to grant leave to sell ex-post facto provided the sale is bonafide, legally valid and maximum price has been obtained.
Final Decision: The sale affected by DFC for inadequate consideration and contrary to the subsisting injunction order of the Court and whereby the possession of the property was delivered after the order of appointment of die provisional liquidator is not approved and is set aside. The DFC is granted leave to auction the property afresh by associating the Official Liquidator with settlement of proclamation of auction and the auction. Both the parties would be at liberty to scout for suitable bidders. The proclamation containing terms of saleshall be subject to the approval of the Company Judge. The DFC should take steps to recover possession of the property delivered. Rs. 28. 5 lakhs shall be fixed as the reserve price. However, the highest bidder at the sale by DFC is granted liberty to join in the future auction and bid for the same property. The sale shall be subject to confirmation by the Company Judge. In the circumstances of the case, the parties are left to bear their own costs.
( 1 ) IN this case the Official Liquidator has challenged the saleof certain properties of the Company in respect whereof Official Liquidator hadbeen appointed as the Provisional Liquidator, purported to have been affected bydelhi Financial Corporation Limited (hereinafter referred to as "the DFC") inexercise of its powers under Section 29 of the State Financial Corporations Act.
( 2 ) AFTER the arguments, I was informed that similar controversy is pendingdecision by the Hon ble Supreme Court and I should await the outcome thereof. Now Counsel have pointed out that the Hon ble Supreme Court has since decidedthe matter in the case of Industrial Credit and Investment Corporation of India Ltd. v. M/s. Srinivas Agencies and Ors. , reported as 1996 (3) Supreme 40. Mr. Nayar,counsel for the Official Liquidator, concedes that the controversy before thehon ble Supreme Court was not identical with the questions arising in the presentcase as would appear from the discussion appearing hereinafter.
( 3 class=pno> N> 3 ) BRIEFLY stating the facts of the case are as under :
( 4 ) THE Company "disco Electronics Ltd. " (hereinafter referred to as "disco")had created a mortgage in favour of the Delhi Financial Corporation to secure loanfacilities obtained by it on 20. 1. 1986. On 4/7. 12. 1990, the DFC on account ofunsatisfactory operation and the defaults committed by the Company recalled theloan. This notice was followed by another notice of 29/10/1991 threateningto take possession of the Unit at premises No. A-83, Okhla Industrial Area, Phaseii, New Delhi and the machinery installed at A-84, Okhla Industrial Area, Phase-II, New Delhi. After the DFC had resumed possession under Section 29 of the Statefinancial Corporation Act, the DISCO approached the DFC with the proposal thatit should carry out the sale of the said property and in fact produced an intendingpurchaser namely, M/s. Shivalik Traders for settling dues of the Corporation, butdespite the Corporation having agreed to accommodate DISCO the said purchaserfailed to honour its commitments as a consequence whereof possession of the saidproperty No. A-83, Okhia Industrial Area, Phase-II together with the machinerylying at A-84, Okhia Industrial Area, Phase-II was taken over by the Corporationon 23. 2. 1992 DISCO had undertaken to retain the possession for and on behalf ofthe DFC. In other words, DISCO continued to be in possession, but only ascustodian on behalf of the DFC which means that DISCO continued to hold theproperty though as agent of the DFC and for and on its behalf. The said propertieswere advertised for sale by the DFC on 4. 6. 1992 and the sale was conducted in theoffice of the DFC on 22. 6. 1992 when the highest bid of Rs. 18 lakhs was received. Thedfc called upon DISCO to produce a higher bid if they wanted to do so. Thereafterone Mr. Vinod Gupta made an offer of Rs. 20 lakhs. However, this bidder after sometime withdrew his offer inview of the DFC having received an offer of Rs. 28. 5 lakhson 23. 9. 1992 which offer was accepted by the DFC.
( 5 ) CANARA Bank claimed to have a charge on the movables lying stored at A-83, Okhla Industrial Area, the DFC called upon the Canara Bank to lift the stock asit wanted to hand over the vacant possession of the premises to the successfulbidder.
( 6 ) WHILE all this was going on, a petition for winding up of DISCO was filedon 3/03/1992 which was returned for removal of office objection and wasrefiled on 26/03/1992 i. e. , before the sale of the property and it came up fororders on 27/03/1992. Even before passing of the order for admission, thecourt had passed an order on 4. 8. 1992 (before the offer of impugned sale wasreceived on 23. 9. 1992) restraining DISCO from disposing of in any manner any ofits assets or making any payment to any creditor till further orders. The winding uppetition was admitted vide orders dated 29. 9. 1992. On the same day, the Officialliquidator attached to this Court was appointed as a Provisiona
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