Partly allowed

Chinnam Anjaneya Swamy v. The Official Liquidator

Telangana HC2 Jul 2010COMPA/1529/2006

Case brief

AI extract

What is this about?

The Division Bench dismissed appeals by an ex-managing director challenging winding up, auction, and sale of company property. It held he lacked locus standi as the company voluntarily initiated proceedings. The court allowed an appeal by a highest bidder, directing the Official Liquidator to accept the balance amount.

What did the court decide?

Appeals O.S.A Nos. 30, 45 of 2006 and 3, 28 of 2007 dismissed; C.A. No. 1529 of 2006 allowed with direction to accept balance deposit.

Chinnam Anjaneya Swamy Vs The Official Liquidator — Company and Corporate | Telangana HC (2010)

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THE HON’BLE SRI JUSTICE B PRAKASH RAO

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AND

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THE HON’BLE SRI JUSTICE VILAS V.AFZULPURKAR

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O.S.A Nos. 30 OF 2006, 45 OF 2006, 3 OF 2007, 28 OF 2007 AND COMPANY APPLICATION NO. 1529 OF 2006

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COMMON JUDGMENT : (Per Justice B Prakash Rao)

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O.S.A No. 30 of 2006 is filed by Mr. M Ramabhushanam, Ex-Managing Director of company in liquidation, under Section 483 of Companies Act read with Clause 15 of the Letters Patent, interalia, aggrieved against the orders passed by the learned single Judge dated 13.4.2006 in C A No. 1416 of 2004 in C.P.No. 83 of 1997 permitting the Official Liquidator to effect the sale of the company in liquidation.

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O.S.A No. 45 of 2006 is filed by Mr. M Ramabhushanam, Ex-Managing Director of company in liquidation, under Section 483 of Companies Act read with Clause 15 of the Letters Patent, interalia, aggrieved against the orders passed by the learned single Judge dated 4.8.2006 in C A No. 1416 of 2004 in C.P.No. 83 of 1997 rejecting the application filed by him offering to deposit more amounts than offered by various bidders in the auction.

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O.S.A No. 3 of 2007 is again filed by Mr. M Ramabhushanam,

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Ex-Managing Director of company in liquidation, under Section 483 of Companies Act read with Clause 15 of the Letters Patent, interalia, aggrieved

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against the orders passed by the learned single Judge dated 1.11.2006 in C.P.No. 83 of 1997 directing winding up of the company.

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O S A No. 28 of 2007 is again filed by Mr.M Ramabhushanam, ExManaging Director of company in liquidation, under Section 483 of Companies Act read with Clause 15 of the Letters Patent, interalia, aggrieved against the orders passed by the learned single Judge dated 17.11.2006 in C A No. 1575 of 2006 in C.P.No. 83 of 1997 disposing of the application by the applicants therein viz., purchasers of property in lot Nos. 3 and 8 respectively seeking for delivery of possession and for taking other consequential steps.

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Whereas, C.A No. 1529 of 2006 is filed by highest bidder in respect of lot No.4 of the sale notification i.e., Ac.302.28 cents situate at Kakivaya village, Nellore district, seeking a direction to the Official Liquidator to accept balance amount and execute sale deed in his favour.

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Since all these matters are connected and arise out of the same proceedings, they are taken up together for disposal.

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Heard Mr B Adinarayana Rao and Mr D Krishna Murthy, learned counsel appearing for appellant, Mr.M.Anil Kumar, learned standing counsel for Official Liquidator, Mr P Pratap Reddy and Mr K Rathangapani Reddy for respondents.

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Briefly the facts giving raise to the present lis, which are not in dispute

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are that at the outset all the appeals are filed at the instance of Mr.M.Rama Bhushanam, Ex-Managing Director of the company in liquidation viz., M/s.Commercial Agro Products Private Limited, which was a company registered under the Companies Act, 1956. Due to mismanagement of the affairs of the company, it went into losses and it has become impossible to carry on the business, therefore in a duly constituted extraordinary meeting of

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the General Body held on 10.5.1997 , the following resolutions are passed; “Resolved that pursuant to Section 433 (a) read with Section 439 (1) (a) of the Companies Act, 1956, the Company be and is hereby wound up under the orders of the Hon’ble High Court” “Resolved further that Sri M Ramabhushanam, Managing Director of the company be and is hereby authorized to file the above resolution with the Registrar of Companies, A.P., Hyderabad and comply the necessary requirements of the Act.” “Further resolved that Sri M Ramabhushanam, Managing Director be and is hereby authorized to take necessary steps to implement the above special resolution by engaging a counsel and file a petition on the file of the Hon’ble High Court of A P., Hyderabad , under Section 433 read with Section 439 (1) (a) of the Companies Act, 1956 and incur expenses incidental thereto.”

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Accordingly, in terms of the said unanimous resolutions of the General Body dated 10.5.1997, the company had filed a Company Petition under Sections 433 read with section 439 (1) (a) of the Companies Act, 1956, which was numbered as Company Petition No. 83 of 1997 and the same was admitted by orders dated 24.7.1997 by the learned Single Judge and by

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orders of even date in Company Application No. 420 of 1997, the provisional liquidator was appointed and has taken over the assets of the company including the lands of the company. Thereafter the Official Liquidator filed C A No. 1416 of 2004 seeking permission to sell the lands of the company in liquidation situate at various places in Nellore district admeasuring Ac.1538.22 cents by inviting sealed tenders. In terms of the orders passed by the learned Single Judge, the Official Liquidator has issued a public notification in the local newspapers on 12.6.2006 calling for sealed tenders for sale of 10 items of properties belonging to the company in liquidation. Accordingly, an auction was conducted on 15.7.2006 and a report was submitted by the Official Liquidator on 17.7.2006. The bids submitted by the highest bidders were accepted by this Court as per orders dated 1.8.2006 and ultimately the sale was confirmed by orders dated 4.8.2006. In terms of the auction and confirmation of the sale, highest bidders have deposited the amounts and ultimately as per the orders dated 1.11.2006 this Court has allowed the main Company Petition No. 83 of 1997 ordering for winding up of the company.

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Thus, on the above backdrop and checkered events which have already been taken up, the present attempt by Mr M.Rama Bhushanam, ExManaging Director of the company is against the entire proceedings since inception, including conducting of auction and delivery of possession.

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Hence, the above appeals as against the orders passed at different stages by the learned Single Judge.

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It is relevant to note that the resolutions passed by the company in liquidation on 10.5.1997 are voluntary and remained un-assailed in any manner known to law. The appellant herein seeks to file the present proceedings in his individual capacity and as an Ex-Managing Director of the company in liquidation, which is not permissible on the face of it. Having regard to the decision taken at the company level and also the proceedings which are already taken place whereunder auction is almost complete, it is not open for the appellant herein to canvass against any such action nor can it be said that he has any locus to assail the entire proceedings. Further, the appellant is a party

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all along to the proceedings including from the stage of dissolution of the company and conducting of the auction through sealed tenders, which was done in his presence. He has been present all along at every stage of the proceedings and no whisper or objection has been raised by the appellant as against any such action or even in regard to the tenders or the terms contained therein. Since the very proceedings are at the instance of the company on its own and the company itself having filed a petition for winding up of the company having regard to difficulties in the business and steps have been taken without demur, nothing can be attributed against any such action, especially by the appellant nor there is any other aspect or allegation,

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much less attribution made against all these proceedings at different stages.

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Much water has flown under the bridge and apparently as observed in the earlier proceedings the attempt on the part of the appellant is only to stall and delay the proceedings. The auction was over, bidders have already paid the entire bid amount and it is too-late at this stage to fall back on to any preceding stage.

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In VALJI KHIMJI AND COMPANY Vs. OFFICIAL LIQUIDATOR OF

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HINDUSTAN NITRO PRODUCT (GUJARAT) LIMITED AND OTHERS^[1] the Apex Court while considering a situation arising almost in a similar set, held

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as under;

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“It may be noted that the auction sale was done after adequate publicity in well-known newspapers. Hence, if any one wanted to make a bid in the auction he should have participated in the said auction and made his bid. Moreover even after the auction the sale was confirmed by the High Court only on 30. 7. 2003, and any objection to the sale could have been filed prior to that date. However, in our opinion, entertaining objections after the sale is confirmed should not ordinarily be allowed, except on very limited grounds like fraud, otherwise no auction sale will ever be complete.

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If it is held that every confirmed sale can be set aside the result would be that no auction sale will ever be complete because always somebody can come after the auction or its confirmation offering a higher amount. It could have been a different matter if the auction had been held without adequate publicity in wellknown newspapers having wide circulation, but where the auction sale was done after wide publicity, then setting aside the sale after its confirmation will create huge problems. When an auction sale is advertised in well-known newspapers having

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wide circulation, all eligible persons can come and bid for the same, and they will be themselves be to blame if they do not come forward to bid at the time of the auction. They cannot ordinarily later on be allowed after the bidding (or confirmation) is over to offer a higher price. Of course, the situation may be different if an auction sale is finalized say for Rs. 1 crore, and subsequently somebody turns up offering Rs. 10 crores. In this situation it is possible to infer that there was some fraud because if somebody subsequently offers 10 crores, then an inference can be drawn that an attempt had been made to acquire that property/asset at a grossly inadequate price. This situation itself may indicate fraud or some collusion. However, if the price offered after the auction is over which is only a little over the auction price, that cannot by itself suggest that any fraud has been done.”

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No doubt as is held by the Apex Court in SHANKARLAL AGARWALA AND OTHERS Vs. SHANKARLAL PODDAR AND OTHERS^[2] , the order according sanction to sale is judicial one and no doubt it has to cater to all the elements as required under the law. However, in the present case, nothing has been pointed out nor spelt anything against its validity or correctness or otherwise. Nothing has been stated by the appellant as to how and to what extent he has any right or locus. In view of the same, prima facie, we are of the view that the appellant has totally failed to make out any case warranting interference of this Court at this juncture. Though, the main attack on the part of the appellant is that there are no reasons, especially when such action is judicial one, will not stand to any reason or decision, more so, when the entire proceedings are at the behest of the company in liquidation itself and it is only in pursuance of the reasons as pointed out by the Official Liquidator in

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his application, the entire action has been taken. No attribution is also being made much less an allegation of any worth as against the Official Liquidator or the actions taken against him either in any of the affidavits or petitions filed by the appellant at any stage. Therefore, it cannot be said that all the actions taken at the instance of the Official Liquidator is in any way affect the appellant. On verification of entire proceedings it is quite apparent that application as has been filed by the Official Liquidator was supported by due valuation reports and after following the due procedure of calling for the tenders and receiving the bids from the parties, the process was given finality and has become final. Except making a bald and sweeping offer by the appellant offering to deposit more amount than what has been bided against, no material has been produced to show as to how the bids do not reflect the correct status. It is apt to take into consideration the fact that even though the appellant herein is coming forward with all such pleas at this late hour, however, in spite of the fact that appellant is coming out with certain offers stated to be higher than the amounts received through tenders, yet, there is absolutely no attempt on the part of the appellant to make any deposits or state any such higher figures or amounts, therefore, it cannot be said that there are any bonafides on the part of the appellant, therefore no indulgence need be shown.

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The other argument advanced on behalf of the appellant to the effect

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that the entire action taken is much before the ultimate order of winding up is not sustainable and also cannot stand to any reason, since these proceedings are not at the instance of any other parties as such, but the company on its own and in pursuance of the very decisions taken at its level, to which the appellant is a party, has initiated such proceedings. Further after completion of the entire process, there is order of winding up in terms of such decision, therefore, it cannot be said that there is any illegality or irregularity in entire proceedings.

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Having regard to the aforesaid reasons, we do not find any merits in any of the contentions urged on behalf of the appellant in all these appeals nor we find any error in respect of the proceedings as taken up by the learned single Judge and even against the ultimate winding up order.

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In C.A.No. 1529 of 2006, the applicant Mr. Chinnam Anjaneya Swamy, is the highest bidder, who submitted sealed tender in respect of lot No.4 of the sale notification i.e., Ac.302.28 cents situate at Kakivaya village, Nellore district and he was declared highest bidder for Rs.83,00,000/- and the Official Liquidator vide letter dated 8.8.2006 informed him about confirmation of his bid by orders of this Court dated 4.8.2006 in C A No. 1416 of 2006 in C P No. 83 of 1997 and directed him to remit the balance amount. He filed an application in C.A.No. 1269 of 2006 in C P No. 83 of 1997 seeking time to deposit the balance amount and this Court by orders dated 8.9.2006 extended the time by eight weeks. In terms thereof the entire

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balance amount of Rs.39,86,800/- was deposited by the applicant therein through demand draft before the Official Liquidator. However, having regard to the orders of the Division Bench of this Court , he was informed that the said amount cannot be accepted and hence the same was returned. The sale ultimately was confirmed by the learned single Judge as per orders dated 4.8.2006 and there after there has been stay of sale confirmation granted on 13.9.2006. However, the said orders are much later to the final order. Now, since the sale is already confirmed on 4.8.2006 even much before any orders passed by this Court and in view of the final disposal of such application, it can be safely said that return of demand draft by the Official Liquidator is not correct. Accordingly, the application in C A No. 1529 of 2006 is allowed and the Official Liquidator is directed to accept the demand draft for the balance amount of Rs.39,86,800/- from the applicant.

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For the aforesaid reasons the Appeals in O.S.A Nos. 30 and 45 of 2006 and 3 and 28 of 2007 are hereby dismissed and consequently the application in C.A.No.1529 of 2006 is allowed. No costs.

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_______________ B PRAKASH RAO,J

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_____________________ VILAS V. AFZULPURKAR,J

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DATE: 27-06-2010 TVK

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THE HON’BLE SRI JUSTICE B PRAKASH RAO

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AND

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THE HON’BLE SRI JUSTICE VILAS V.AFZULPURKAR