A secured creditor must involve the Official Liquidator in the auction of assets during liquidation proceedings, as statutory compliance is essential to protect creditor interests and ensure transparency.

JUDGMENT :

K. Lakshman, J.

Heard Sri B.S Prasad, learned Senior Counsel representing M/s Pearl Law Associates, learned counsel for the appellant, Sri L. Venkateshwar Rao, learned counsel for the 1^st respondent, Sri. G. Kalyan Chakravarthy, learned counsel for respondent Nos.2 and 4 and Sri Duvva Pavan Kumar, learned counsel for 5^th respondent. None appears for 3^rd Respondent.

2. This OSA is filed challenging the order dated 28.03.2025 passed in C.A. No. 70 of 2025 in C.P.No.170 of 2012 and batch, whereby the learned Company Court Judge, held that the auction conducted by appellant bank was not in accordance with law. Learned Judge set aside the auction conducted by appellant bank.

3. The appellant is the Union Bank of India. 1^st respondent herein is the applicant, former Director of 2^nd respondent / company in liquidation. 2^nd respondent is represented by Official Liquidator (OL), 3^rd respondent is a company which offered an amount of Rs.32.39 Crores towards sale consideration in respect of the subject property to the appellant bank. 5^th Respondent is the auction purchaser.

4. The 1^st respondent / Applicant filed C.A.No.70 of 2025 under Section 446 (2) and 537 of Companies Act, 1956 ( hereinafter referred to as ‘Act, 1956’) read with Rule 9 of the Companies (Court) Rules, 1959 ( hereinafter called as ‘Rules 1959’) to declare the action of appellant bank in proceeding against the asset of 2^nd respondent without seeking leave of the Company Court, as illegal.

5. It contended that:

i. 2^nd respondent herein was incorporated on 25.07.2006 under the Act, 1956, engaged in manufacture of power distribution of transformers.

ii. 2^nd respondent became sick and on 31.10.2013 reference was made to the then Board for Industrial and Financial Reconstruction (BIFR) and it was registered. Upon filing of winding-up petitions, vide order dated 21.08.2018, the company was wound up. Company Court appointed OL to take over the assets and liabilities of 2^nd respondent, to sell the same and disburse the said amount to the creditors.

iii. The secured asset i.e. Plot No.40, Industrial Park, Pashamylaram village, Patancheru Mandal, Sangareddy District in Survey No. 315, 317, 318, 319 and 336 admeasuring 20,675 sq.m was taken over by the OL pursuant to the said winding up order. It is in the physical possession of the OL.

iv. As per Sections 446 (1) and Section 537(1) of the Act, 1956, no suit or legal proceeding shall be commenced against the company except by the leave of the court and any attachment, execution, without leave of the company Court is void.

v. 1^st respondent/Applicant was the Director of 2^nd respondent, he along with his spouse stood as guarantors for the loan availed by 2^nd respondent by mortgaging their personal properties. They have submitted onetime settlement (OTS) proposal to the appellant bank vide email dated 14.09.2023 offering Rs. 3.00 Crores towards full and final settlement to the extent of value of their personal assets. The said proposal was accepted by the appellant bank vide letter dated 29.09.2023. According to the appellant bank, it has cancelled the said OTS as the amount is not paid by him within due time.

vi. 1^st respondent/Applicant has identified a buyer i.e. 3^rd respondent herein, who is willing to pay an amount of Rs.32.29 Crores, and 3^rd respondent has also obtained a demand draft for Rs.10 Crores and offered to the appellant bank.

vii. Even then, appellant bank proceeded with auction of the aforesaid secured asset. Despite letter dated 07.01.2025 of the OL, the appellant bank failed to seek leave of the Company Cour