# 9 S.C.R. 705 M/S. BAKEMANS INDUSTRIES PVT. LTD v. M/S. NEW CAWNPORE FLOUR MILLS AND OTHERS

- **Citation:** [2008] 9 S.C.R. 705
- **Court:** Supreme Court of India
- **Decided:** 2008-05-16
- **Case number:** Civil Appeal No. 3628 of 2008
- **Bench:** S.B. Sinha, V.S. Sirpurkar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/9-s-c-r-705-m-s-bakemans-industries-pvt-ltd-v-m-s-new-cawnpore-flour-mills-and-24888
- **Pages:** 47

## Headnote

Companies Act, 1956 - ss. 433, 529 A and 457 -Financier initiating action against defaulting company under State
Financial Corporation Act, 1951 - Court permitting the Finan- c
cier to hold sale of the proceeds of the defaulting company -
Simultaneous proceedings of winding of the Company by other
creditors before company court- Subsequently, Financier submiffing itself to the jurisdiction of company court - Sale held
under supervision of the company court in disregard to the D
provisions of Companies Act - Propriety of - HELD: Order of
·~
Company court is unsustainable - The order of Company
Court being in total disregard of the mandatory provisions of
the Companies Act, is without jurisdiction - Financier having
subjected itself to the jurisdiction of Company Judge, waived
E
its rights under 1951 Act and hence the proceedings before
Company court cannot be said to be under 1951 Act- Company court since exercising power u/s 433 of Companies Act
was under statutory obligation to consider the pari passu claim
of the workmen and other claimants along with the claim of
the Financier and thus was bound to follow the provisions of F
Companies Act! Companies Rules - Sale having been held
in violation of the provisions of the Companies Act, is not sustainable - Direction issued to company court to decide the
case afresh in accordance with the provisions of the Compa-
"
nies Act and hold fresh auction - State Financial Corporation G
Act, 1951 - s. 29.
~
Words and Phrases:
705
H
706
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A
'The Court' - Meaning of in the context of s. 2(11) of Companies Act, 1956.
A Financier (SICOM) advanced a loan to the appellant-company. On default, SICOM issued notices u/s 29 of
State Financial Corporations Act, 1951; and for taking
8 possession of the properties of the company and its sister concern. Writ Petition filed against the notices were
withdrawn by the appellant.
...
Respondent No. 1 and others filed applications for
c winding-up of the appellant-company. SICOM issued another notice u/s 29 of 1951 Act. Thereafter, took over possession of one of the factories of the appellant which was
a going concern.
Appellant, as per an agreement with an NRI Bank enD tered into an arbitration proceeding, wherein the Tribunal
opined that taking over the unit was illegal, and directed
to handover the unit to the appellant. Execution petition
was filed against the appellant-company and also its sister concern. During the pendency of the execution petiE tion, another arbitration proceeding was initiated, wherein
a prayer was made to appoint a receiver. A proceeding.
under Debt Recovery tribunal was also initiated by a
Bank. A Receiver was appointed there.
Appellant, in the meantime, on the basis of the award
F of Board of Conciliation took possession of the unit from
the SICOM. SICOM, thereafter filed application in the pending execution proceeding seeking possession of the unit.
Court granted status quo.
G
High court directed the appellant to deposit a particular amount, failing which SICOM was given liberty to
)>
proceed with the statutory remedies for sale of the prop··
,..
erty.
In the meantime SICOM filed valuation report in re ..
H spect of the unit which was prepared by a Public Sector
MIS. BAKEMANS INDUSTRIES PVT. LTD. v. MIS.
707
NEW CAWNPORE FLOUR MILLS
Organization. Finally SICOM was given liberty to proceed A
with the sale.
Thereafter respondent No. 4 filed application seeking permission to inspect the unit on the ground that they
had negotiated with the appellant-company for taking over
B
the entire unit. Appellant also questioned the jurisdiction
of the executing court to proceed with the matter of sale.
The Court negating the contention, proceeded with the
sale process. Respondent No. 4 offered its bid price.
In the company applications, Provisional Liquidator c
was appointed. However, on the application of SICOM,
Company Judge directed not to disturb its possession.
Executing Court transferred the petition

## Text

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[2008) 9 S.C.R. 705
M/S. BAKEMANS INDUSTRIES PVT. LTD.
A
v.
M/S. NEW CAWNPORE FLOUR MILLS AND OTHERS
(Civil Appeal No. 3628 of 2008)
MAY 16, 2008
B
[S.B. SINHA AND V.S. SIRPURKAR, JJ.]
Companies Act, 1956 - ss. 433, 529 A and 457 -Financier initiating action against defaulting company under State
Financial Corporation Act, 1951 - Court permitting the Finan- c
cier to hold sale of the proceeds of the defaulting company -
Simultaneous proceedings of winding of the Company by other
creditors before company court- Subsequently, Financier submiffing itself to the jurisdiction of company court - Sale held
under supervision of the company court in disregard to the D
provisions of Companies Act - Propriety of - HELD: Order of
·~
Company court is unsustainable - The order of Company
Court being in total disregard of the mandatory provisions of
the Companies Act, is without jurisdiction - Financier having
subjected itself to the jurisdiction of Company Judge, waived
E
its rights under 1951 Act and hence the proceedings before
Company court cannot be said to be under 1951 Act- Company court since exercising power u/s 433 of Companies Act
was under statutory obligation to consider the pari passu claim
of the workmen and other claimants along with the claim of
the Financier and thus was bound to follow the provisions of F
Companies Act! Companies Rules - Sale having been held
in violation of the provisions of the Companies Act, is not sustainable - Direction issued to company court to decide the
case afresh in accordance with the provisions of the Compa-
"
nies Act and hold fresh auction - State Financial Corporation G
Act, 1951 - s. 29.
~
Words and Phrases:
705
H
706
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A
'The Court' - Meaning of in the context of s. 2(11) of Companies Act, 1956.
A Financier (SICOM) advanced a loan to the appellant-company. On default, SICOM issued notices u/s 29 of
State Financial Corporations Act, 1951; and for taking
8 possession of the properties of the company and its sister concern. Writ Petition filed against the notices were
withdrawn by the appellant.
...
Respondent No. 1 and others filed applications for
c winding-up of the appellant-company. SICOM issued another notice u/s 29 of 1951 Act. Thereafter, took over possession of one of the factories of the appellant which was
a going concern.
Appellant, as per an agreement with an NRI Bank enD tered into an arbitration proceeding, wherein the Tribunal
opined that taking over the unit was illegal, and directed
to handover the unit to the appellant. Execution petition
was filed against the appellant-company and also its sister concern. During the pendency of the execution petiE tion, another arbitration proceeding was initiated, wherein
a prayer was made to appoint a receiver. A proceeding.
under Debt Recovery tribunal was also initiated by a
Bank. A Receiver was appointed there.
Appellant, in the meantime, on the basis of the award
F of Board of Conciliation took possession of the unit from
the SICOM. SICOM, thereafter filed application in the pending execution proceeding seeking possession of the unit.
Court granted status quo.
G
High court directed the appellant to deposit a particular amount, failing which SICOM was given liberty to
)>
proceed with the statutory remedies for sale of the prop··
,..
erty.
In the meantime SICOM filed valuation report in re ..
H spect of the unit which was prepared by a Public Sector
MIS. BAKEMANS INDUSTRIES PVT. LTD. v. MIS.
707
NEW CAWNPORE FLOUR MILLS
Organization. Finally SICOM was given liberty to proceed A
with the sale.
Thereafter respondent No. 4 filed application seeking permission to inspect the unit on the ground that they
had negotiated with the appellant-company for taking over
B
the entire unit. Appellant also questioned the jurisdiction
of the executing court to proceed with the matter of sale.
The Court negating the contention, proceeded with the
sale process. Respondent No. 4 offered its bid price.
In the company applications, Provisional Liquidator c
was appointed. However, on the application of SICOM,
Company Judge directed not to disturb its possession.
Executing Court transferred the petition pending
before it, to the Company Judge. Company Judge did not
find the offer of respondent No. 4 to be proper and gave D
the appellant-company an opportunity to bring a better
offer. Company Judge accepted the Valuation Report of
the Public Sector Organization, and rejected that of a
Chartered Accountant. Company Judge ultimately accepted the bid of respondent No. 4.
E
An intra-court appeal was dismissed and sale certificate was directed to be issued to respondent No. 4. Hence
the present appeals.
Partly allowing the appeals, the Court
F
HELD: 1.1 Though State Financial Corporation Act,
1951 being a special statute, the proceedings under Section 29 of the 1951 Act would prevail over a winding up
proceeding before a Company Judge. But in the instant
case, the sale in favour of respondent No. 4 having not G
taken place in terms of Section 29 of the 1951 Act, the said
,.
question cannot have any application whatsoever.[Paras
39 and 40) [731-E,F, 733-D,E]
International Coach Builders Ltd. v. Karnataka State FiH
708
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A nancial Corporation 2003 (10) SCC 482; Rajasthan State Financial Corporation and Anr. v. Official Liquidator and Anr. 2005
(8) SCC 190; !CIC/ Bank Ltd. v. SIDCO Leathers Ltd. and Ors.
2006 (5) SCALE 27 - referred to.
1.2 It is, however, a case where the Company Judge
B was not authorized to exercise its power under Section
29 of the 1951 Act. It purported to exercise its power only
under the Companies Act. SICOM submitted itself to its
jurisdiction. It allowed the Company Judge to conduct the
sale. The sale that was conducted was purported to be in
C terms of the Companies Act. When a provisional liquidator was appointed, the High Court instead of exercising
its writ jurisdiction referred the matter to the Company
Judge. It was the Company Judge, therefore, who proceeded in the matter. The Company Judge could exerD cise its jurisdiction only in terms of the Companies Act
and npt in terms of Section 29 of the 1951 Act. If it did not
have the power under the 1951 Act, any decision purported to have been taken by it would be a nullity. SICOM
indisputably has a statutory power but it e-0uld waive the
E same. It preferred the conduct of the auction at the hands
of the Company Judge instead and place of carrying on
the same by itself. It submitted itself to the jurisdiction of
the Company Judge. Not only it took part in the proceedings without any demur whatsoever, it actively particiF pated therein. It is only at its instance that the bid was
held. The other bidders were also brought in. It is, therefore, not a case where the Company Judge had no jurisdiction to exercise supervision of sale of the assets of
the appellant on behalf of SICOM in terms of the proviG sions of Section 29 of the 1951 Act or otherwise. Respondents even never insisted to get the question of jurisdiction determined as a preliminary issue, although raised
by it specifically. It, thus, for all intent and purport waived
its right. [Para 40] [733-E,F,G,H, 734-A,B,C]
H
1.3. The official liquidator brought to the court's no-
M/S. BAKEMANS INDUSTRIES PVT. LTD. v. MIS.
709
NEW CAWNPORE FLOUR MILLS
t
tice the claims of the other creditors. The Company Judge A
having been exercising its jurisdiction under Section 4~3
of the Companies Act was, thus, under a statutory obligation to consider the cases of all creditors of the Company
simultaneously. For the said purpose, the Company Judge
was bound to follow the provisions of the Companies Act s
and/ or the Company Court Rules. The jurisdiction of a
Company Court extends only to those matters which are
>
specified in the Companies Act and apart therefrom it had
no jurisdiction. It also has a duty to see that the claims of
all creditors be dealt with, pa·rticularly having regard to the c
provisions of Section 529A of the Companies Act. The workers had also filed their claims. Their claims could not have
been ignored. The claim of the workmen having regard to
the special provision as contained in Section 529A of the
Companies Act is pari passu to the secured creditors of the D
Company. High Court could not have disregarded the pari
_,
passu charge of the workmen upon the company's assets.
[Paras 42, 43 and 47] [734-D,E,F,G,H, 735-A, 737-G, 738-A]
Allahabad Bank v. Canara Bank 2000 (4) SCC 406;
Andhra Bank v. Official Liquidator and Anr. 2005 (5) SCC 75;
E
NGEF Ltd. v. Chandra Developers Pvt. Ltd. and Anr.2005 (8)
SCC 219; A.P State Financial Corporation v. Official Liquidator 2000 (7) sec 291 - relied on.
Companies Act by A. Ramaiya, 16th Edn. 2004 - referred to.
F
1.4 In the matter of control over the assets of a company in liquidation, the courts exercise a wide jurisdiction. It may not only take recourse to the sale of the assets of the company whether before or after it is wound G
up, but also would be entitled to, nay obligated to, if the
situation so warrants to attempt to rehabilitate the com-
...
pany itself. While doing so, it exercises its parens patriae
power. It safeguards not only the interest of the mortgagees, but also the interest of the mortgagor. It has a statuH
710
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A tory obligation to safeguard the interest of the workmen •
as also other non-secured creditors. [Para 45] [735-D,E,F]
1.5 It is one thing to say as to how the assets shall be
distributed bu.t it is another thing to say that while exercising the power to cause the sale of the assets of the
8 company, it would ignore the statutory provision. It must,
while exercising its power, take into consideration all relevant factors. The mode and manner as to how a sale
..
would be conducted is one thing but it is another thing
that before putting the assets of the company to sale, the
C court will undertake certain obligations which are inherent in exercise of its jurisdiction under the provisions of
the Companies Act. [Para 45] [735-F,G, 736-A]
1.6 Even if it is assumed that the court could appoint
0 SICOM as an agent but apart from the fact that it, in fact,
did not do so, it is held that the stand of the SICOM is
mutually destructive. On the one hand, it is stated that
r
SICOM was exercising its statutory power to cause sale
of the assets of the mortgagor through the agency of the
court, on the other hand it is also contended that the sale
E was affected by the court through SICOM. Such a contradictory or inconsis~ent stand, is impermissible in law. [Para
46] [736-A,B,C]
1.7 If the jurisdiction of a Company Judge is limited,
F any substantial deviation and departure therefrom would
..
result in unfairness. When an order is passed in total disregard of the mandatory provisions of law, the order itself
would be without jurisdiction. In this case, however, even
otherwise a fair procedure was not adopted. Conduct of
G a p.3rty plays an important role in the matter of grant of a
relief. However, only because the conduct of a party was
not fair, the same, by itself, cannot be a ground to adopt a
..
procedure which is unjust or unfair, particularly, when by
reason thereof, not only the Company itself but also other
creditors are seriously prejudiced. There.is no reason as
H
M/S. BAKEMANS INDUSTRIES PVT. LTD. v. M/S.
711
NEW CAWNPORE FLOUR MILLS
to why the hearing of the case was to be preponed. Why A
even a day's time could not have been granted when a
prayer for adjournment was made. The jurisdiction of the
Company Court is vast and wide. It can mould its reliefs.
It may exercise one jurisdiction or the other. It may grant
a variety of reliefs to the parties before it. The parties beB
fore the Company Judge are not only the Company or
;.
the creditors who had initiated the proceedings but also
others who have something to do therewith. Even in a
given case a larger public interest may have to be kept in
mind. The court may direct winding up. It may prepare a c
scheme for its restructuring. [Para 64] [749-8,C,D,E,F,G]
1.8 The Company Judge was not correct in its view
and passed the impugned judgments only having regard
to the wrongful conduct on the part of the appellant in
obtaining an award from the conciliation tribunal or failD
.,,
ure to bring a better offer from another bidder. In order to
give relief in such cases, the court has to take into consideration the fate of not only those workmen who are
working but also those who have a claim against the Company. Fate of the other creditors has also to be taken into E
consideration. [Paras 65 and 66] [749-G, 750-A,C]
Re. Dry Docks Corporation of London 1888 (39) Chancery Division 88 - referred to .
...
1.9 If the property which has been put to auction was
F
the prime property over which the fate of the creditors
depended, be they secured or non-secured ones, the
company court, in exercise of its equity jurisdiction could
not have obliterated it from its mind the cases of the others. If the assets belong to the creditors, that must mean G
the whole body of the creditors and not only one of the
secured creditors. The inconsistency is self-evident, as,
on the one hand, it is stated that the property of the company does not vest in the court or the. official liquidator,
. on the other hand, it is stated that it is vested in the body H
712
SUPREME COURT REPORTS
[2008) 9 S.C.R.
A of the creditors and not only in SICOM. [Para 62] [748F,G,H, 749-A]
Company Law by Farar, Third Edition - referred to.
2.1 It is true that the court had not permitted the pros visional liquidator to take over the assets. It protected the
possession of SICOM. But the same by itself would not
mean that the provisional liquidator was denied from performing its other functions. [Para 52] [739-F,G]
2.2 The High Court, could not have ignored the offiC cial liquidator only on the ground that a provisional official liquidator was appointed and not a regular official liquidator. The power and functions of the provisional official liquidator for all intent and purport would be the same
as that of the official liquidator and, therefore, it was not
D necessary for the Company Judge to wait till the Company was wound up. [Para 63] [749-A,B]
E
Re A.I. Levy (Holdings) Ltd. 1964 (1) Chancery Division
19; Official Receiver (Appellant) v. Wadge Rapps & Hunt (a firm)
and Anr. and two other actions 2003 UKHL 49 - referred to.
2.3 It is not correct to say that provisional liquidators
have no statutory powers in relation to affecting sale of a
moveable or immoveable property. Indisputably, it is subject to the direction of the court but, the Court while unF dergoing the process of winding up and, in any event,
resorting to sale of the assets of the company under winding up proceeding could not have a ignored the involvement of the provisional liquidator for any purpose whatsoever. [Para 58] [742-E,F]
G
2.4 Exercise of jurisdiction uls 457 by a provisional
liquidator, shall not be denied of his powers only because
it did not obtain possession of the properties. Power and
functions of a provisional liquidator subject to the limitations imposed by the court are the same as that of an ofH ficial liquidator. SICOM failed to keep itself outside the
MIS. BAKEMANS INDUSTRIES PVT. LTD. v. MIS.
713
NEW CAWNPORE FLOUR MILLS
"
winding up proceedings. It has become a party to it and, A.
thus, when a sale is held by a Company Judge, it should
not keep a provisional liquidator out of its purview. It may
be true that the provisional liquidator could not sell the
PIOPerty without the sanction of the court, but then feed
back of the provisional liquidator by the Company Court B
was necessary for the purpose of having a complete pieture before it. [Paras 52, 55 and 56) [740-A, 741-F,G, 742-A)
2.5 It is not the law nor has such a proposition been
canvassed that the properties vested in the provisional
liquidator. But then, however, the judges opined that the c
appointment and power of an official liquidator is controlled by the instrument which appoints him and that his
office is not in equation to that of an official liquidator, the
same, however, would not mean that even when there does
not exist such limitation, the services of provisional liquiD
dator shall not be resorted to. [Para 58) [743-F,G, 744-A]
2.6 The court must have before it all these facts and
figures so as to enable it to pass a final order one way or
the other. In so doing, the court must keep in mind that it is
E
not only determining an issue by and between the mortgagor
and one mortgagee only but could also be determining the
issue between a debtor and a vast number of creditors;
whether secured or non-secured. [Para 58) [743-A,B]
'
..
Sri Chamundi Theatre Mysore Talkies Ltd. v. S .
F
Chandrasekara Rao 1975 (45) Company cases 60 - distinguished.
3.1 Interest of justice would be subserved if while
allowing the appeal, the Company Judge is requested to
go into the question afresh in accordance with the proviG
sions of the Companies Act and hold a fresh auction.
While doing so, indisputably, offer of respondent No. 4
would be considered. The Company Judge may consider
the question of grant of some preference to respondent
No. 4 but while an auction is to be held, there should be a H
714
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A proper valuation of all the assets of the Company both
movable and immovable. The court, indisputably, may
consider the question of framing an appropriate scheme
if it is found that there is a possibility of revival of the Company . [Paras 67] [750-D,E,F,G]
B
3.2 Till, however, a final order is passed, respondent
No. 4 would continue to function not as an auction purchaser but as a Receiver of the Company Court. It shall
file all statement of accounts in regard to the amounts
which it had invested and all other requisite statements
C including the valuation of machinery it had taken out of
the country before the Court. The Court may appoint a
Chartered Accountant to verify the said statements. The
court, if it thinks fit and proper, may, apart from the provisional liquidator, appoint another person to supervise the
D works and functioning of respondent No. 4 as a receiver
of the Court. As respondent No. 4 is being appointed as a
receiver, it shall act strictly under the supervision of the
court and abide by the orders which may be passed by it
E
from time to time. [Para 68] [750-G,H, 751-A,B,C]
CIVILAPPELLATE JURISDICTION: Civil Appeal No. 3628
of 2008
From the Judgment and final Order dated 2/7/2007 of the
High Court of Delhi at New Delhi in Company Appeal No. 27/
F
2004
.,
WITH
C.A. No. 3629 of 2008
P.V. Kapur, P.H. Parekh, Vikas Pahwa, Abhinit Das, Nitin,
G Chetna, Maria, Prem Malhotra and Rishi Malhotra for the Appellant.
Rajiv Shakher, C.A. Sundaram, Chinmoy Pradip Sharma,
Dr, Kailash Chand, P.C. Sen, Rohini Musa. Pallav Kumar and
H R.C. Kaushik for the Respondents.
..
M/S. BAKEMANS INDUSTRIES PVT. LTD. v. M/S.
715
NEW CAWNPORE FLOUR MILLS [S.S. SINHA, J.]
The Judgment of the Court was delivered by
A
S.B. SINHA, J. 1. Leave granted in both the matters.
2. Whether power of a Company Court to sell the property
of a company vis-a-vis the power of the Financial Corporation
can be merged is the question involved in these appeals which
B
arise out of the judgments and orders dated 2nd July, 2007 and
6th July, 2007 passed in Company Appeal No. 27 of 2004 and
>
Company Appeal No.2 of 2007 respectively passed by the Division Benches of the Delhi High Court.
3. Certain basic facts are not in dispute which are as unC
der:
SICOM Ltd. (SICOM in short) advanced a loan of Rs.17
crores to the appellant (M/s. Bakemans Industries Pvt. Ltd.). It
became a defaulter. SICOM issued a notice under Section 29 D
of the State Financial Corporations Act (1951 Act in short) on
..,
22nd January, 2003. Another notice was issued for taking over
possession of the properties of the sister concern of the appellant, viz. Captain Hygiene Products Ltd. Appellant and its sister
concern filed two writ petitions in the Punjab and Haryana High
E
Court at Chandigarh. They were dismissed as withdrawn on
10th February, 2003.
4. 1st respondent and fourteen others filed fifteen applications before the Delhi High Court for winding up of the appel-
.,..
!ant-company. Notices were issued thereupon. SICOM issued
F
a second notice under Section 29 of the 1951 Act on 61h June,
2003.
5. Indisputably the factory of the appellant was an ongoing
concern. SICOM took over the possession of the appellant's
factory at Patiala on 18th July, 2003. It was at that time in operaG
tion. It had finished bakery products which were perishable in
"
nature. Allegedly the operations were shut down and the factory
was locked.
6. We may notice here that different proceedings were
H
716
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A
initiated either at the instance of the appellant or at the instance "
of some of the respondents.
7. Appellant evidently took recourse to a proceeding which
was unknown to law. A purported agreement was entered into
B
by and between the appellant and one NRI Lead Bank. We are
not aware as to what were the disputes about between them.
The said purported disputes were referred to Arbitral Justice
Tribunal of ADR Arbitration, a body said to have been recog-
~
nized by the Government of India in terms of Section 21 of the
Arbitration and Conciliation Act, 1996. A purported reference
c of disputes in terms of a purported arbitration agreement contained in a composite instrument dated 14th August, 2003 was
referred on 16th August, 2003. It was accepted by the Tribunal
on 18th August, 2003 and notices were issued. The majority of
the Tribunal opined that there was no genuine arbitration agreeD ment. The arbitration proceeding was closed on 23'd August,
2003.
..
8. A new set of Arbitrators was constituted by the Tribunal
who rendered an award on 16th August, 2003 upon holding a
E
day's sitting only opining that (i) taking over of the unit was illegal and (ii) a direction was issued to handover possession to
Bakemans.
9. A purported execution petition was filed by NRI Lead
Bank before the Delhi High Court seeking execution of a purF
ported written agreement/settlement dated 16th August, 2003
.,.
passed by the Board of Conciliation in the said proceedings.
1 O. The execution petition was filed not only against the
appellant and its sister concern, Captain Hygiene Products Pvt.
Ltd. but also against SICOM. Industrial Development Bank of
G India, Industrial Finance Corporation of India, HUDF Bank, State
Bank of Patiala, and Punjab State Industrial Development Corporation Ltd. were also impleaded as parties therein.
l'
11. We shall deal with the factual matrix thereabout a little
H later.
·'
M/S. BAKEMANS INDUSTRIES PVT. LTD. v. MIS.
717
NEW CAWNPORE FLOUR MILLS [S.B. SINHA, J.]
12. However, in the meantime, a_nother proceeding byway A
of an application under Section 9 of the Arbitration and Conciliation Act, 1996 was filed before the.Tis Hazari Courts, Delhi. It
was registered as Misc. Suit No. 139 of 2003. Inter alia, a prayer
was made therein to appoint a receiver. However, it appears
that another Bank initiated a proceeding before the Debt ReB
covery Tribunal for recovery of its dues. A Receiver was ap-
''I>
pointed by the said Tribunal in respect of the perishable goods
on .1st September, 2003.
/
13. Possession of the said perishable goods lying in the
factory was taken from SICOM. A spot report was prepared.
c
14. Appellant in the meantime relying on or on the basis of
the said purported Award of the Board of Conciliation took foreible possession of the factory premises on 14th September,
2003.
D
...
15. SICOM filed an application in the said purported execution proceeding seeking for the following directions :
i)
to withdraw the proceeding before the learned
Additional District Judge ;
E
ii)
to vacate and handover the premises ;
iii)
to grant prohibitory injunction ; and
iv)
to stay the operation of the Arbitration Award.
16. An order of status quo which had been passed earlier
F
was directed to be maintained by the parties by the High Court
on 151h September, 2003.
17. An application for modification of the order dated 15th
September, 2003 was filed by SICOM on 16th September, 2003. G
...
18. Appellant also filed an application for permission to
sell all perishable goods lying in the factory. Allegedly, the Receiver was asked to sell the perishable goods.
It also directed the appellant to pay some amount to show H
718
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A
its bona fide. Appellant furthermore filed an application for vacation of the order dated 15th/16th September, 2003. On 28th
November, 2003 an assurance was also given to the Court that
the appellant will come with a definite proposal for payment to
the creditors. By an order dated 18th December, 2003 the High
B Court directed the appellant to deposit a sum of Rupees two
crores failing which SICOM was given a liberty to proceed with
the statutory remedies available to it under the Act for sale of
the properties. An undertaking was given to the Court by the
Managing Director of the appellant in the following terms:-
c
D
E
F
G
H
" Mr.Rajiv Kumar Gupta, Managing Director of judgment
debtor No.1 and Director of judgment debtor No.2, who is
present in Court, undertakes to the Court that on or before
7.2.2004, a sum of Rs.2 crores would be deposited with
judgment debtor No.3, to be apportioned towards the
liability of judgment debtor Nos.3,4 and 5. Judgment debtor
Nos.1 and 2 shall also give a proposal for settlement,
setting out a firm payment schedule for consideration of
judgment debtor Nos.3, 4 and 5. In the event the payment
of Rs.2 crores is not made on the date stipulated, judgment
debtor No.3 would be at liberty to avail of statutory remedies
available at law for sale of the property.
Counsel for the parties also pray that the modalities of
restoration of possession be got done under the
supervision of officers of this Court, so as to avoid unseemly
controversies and a clear account of the equipments,
machinery and the assets, of which possession is taken
over at the factory premises is available. Considering the
quantum of work required, counsel for the parties pray
that at least three Local Commissioners be appointed.
Accordingly, I appoint Mr. D.K. Batra, Joint Registrar of
this Court, Mr. S.P.Tara, Deputy Registrar of this Court
and Mr. Anil Kumar Arora, Sr.Personal Assistant of this
Court, as the Local Commissioners to visit the Factory
Area, Village Rasulpur Saidan, Tehsil and District Patiala,
State of Punjab. The Local Commissioners shall make a
M/S. BAKEMANS INDUSTRIES PVT. LTD. v. M/S.
719
NEW CAWNPORE FLOUR MILLS [S.B. SINHA, J.]
..
complete inventory of the equipment, machinery, assets, A
raw materials, finished, semi finished products, if any. The
possession of factory and assets be handed over to the
representatives of respondent No.3. lnv~ntory be also got
signed by the parties. The Local Commissioners may in
their discretion also make any observation with regard to
B
the condition or state of equipment, assets'etc. The Local
....
Commissioners to execute the commission on 23.12.2003
at 11.00 a.m. The fee of the Local Commissioners,
Mr.D.K.Batra is fixed as Rs.22,000, Mr.S.P.Tara is fixed
as Rs.20,000/- and Mr.Anil Kumar Arora is fixed as c
Rs.18,000/- , exclusive of out of pocket, travel and lodging
expenses.
Learned counsel for judgment debtor Nos.1 and 2 submit
that upon payment of Rs.2 crores and a firm schedule
being given for repayment, as acceptable to the financial D
institutions, the Court should grant repossession to
judgment debtor No.2. This aspect would be considered
upon the payment of Rs.2 crores having been made and
firm schedule for repayment having been given and
accepted. Counsel for judgment debtor Nos.1 and 2 state
E
that, in the meanwhile, they would not proceed further with
the arbitration proceedings, initiated before the ADR,
Arbitral Tribunal No.3. Mr. Arun Bhardwaj, counsel for
judgment debtor No.1, further states that judgment debtor
,.
No.1 would not proceed with Suit No.139/2003, pending
F
in the Court of Sh. S.K.Sarvaria, A.D.J., Delhi."
19. In the meantime, SICOM obtained a valuation report
in respect of the factory form a Public Sector Organization known
as Northern India Technical Consultancy Organization Ltd.
(NITCOL). In the said proceeding, SICOM had also moved an G
application for direction to permit them to publish an advertise-
·~
ment for sale of the moveable properties of the appellant and to
invite bids for sale.
20. We may now deal with the process of sale of assets of H
•
720
SUPREME COURT REPORTS
(2008] 9 S.C.R. ·
A the company. The factory of the appellant was situated in viilage Rasulpur, District Patiala in the State of Punjab. The land
measured 30,544 sq. yards. The building comprised of three
floors having RCC construction. There were plants and machineries. There was also unpacked material which had been imB ported from abroad. Pursuant to the permission granted by the
Court to SICOM to make an advertisement, one was issued in
Economic Times(All Editions), Business Standard (All Editions),
~ ..
Tribune (Chandigarh Edition) and Dainik Bhaskar (Chandigarh
and Patiala Editions). As the appellant failed to deposit the said
c sum of Rupees two crores and never submitted the definite proposal in terms of the order dated 281h November, 2003, SICOM
was given the liberty to proceed with the sale.
21. On or about 15'h March, 2004, respondent No.4, Ceylon
Biscuits Pvt. Ltd. filed an application seeking direction that they
D be also permitted to inspect the factory on the premise that they
had held negotiations with the appellant for taking over the entire unit. Counsel who was representing the appellant also represented Ceylon Biscuits Pvt. Ltd.
E
22. A question was raised in regard to the jurisdiction of
the executing court to proceed with the matter of sale of the
properties. By reason of an order dated 161h March, 2004, the
Court noticed the bids submitted by the ITC Limited and Britannia Industries Ltd. not only on the entire plant but also on item
F
wise basis. The Court rejected the contention of the appellant
both in regard to its jurisdiction as also its valuation report inter
.,
alia opining that it had failed to deposit a sum of Rupees two
crores and submitted the repayment schedule in terms of its
earlier order as such there was no other option but to proceed
with the sale process.
G
In regard to the offer of M/s. Ceylon Biscuits Ltd. it was
directed :-
+'
"They shall file their bid positively before 23.3.2004. It is
also made clear that if there could be any other interested
H
bidder, he/it could submit a bid in accordance with the
MIS. BAKEMANS INDUSTRIES PVT. LTD. v. MIS.
721
NEW CAWNPORE FLOUR MILLS [S.S. SINHA, J.]
requirements, which shall be considered. It shall also be A
open to the judgment debtor Nos.1 and 2 to obtain other/
better offers from any other bidder. It is made clear that in
all the offers/bids which shall be submitted by any other
bidder, the bidders shall have to comply with the formalities
and the terms that have been advertised on 23.2.2004."
B
23. Ceylon Biscuits Pvt. Ld. on or about 24th March, 2004
•
offered the bid price at Rs.12.5 crores. It also deposited the
earnest money of Rs. 25 lakhs. There was another bidder Mis.
Longful Trading (India) Pvt. Ld. who had made a bid of Rs. 11.7
crores. It had also deposited the earnest money of Rs. 25 lakhs. c
In regard to the valuation of the properties both in respect of the
factory of the appellant as also its sister concern Captain Hygiene Products Pvt. ltd. the Court noticed :-
" It is, however, pointed out by the counsel appearing for D
Bakemans Industries Pvt. Ltd. and Captain Hygiene
Products Pvt. Ltd. that valuation of the said plant and
machineries, and land and building would be much higher
than what is shown in the valuation report. A valuation
report is placed on record wherein it is stated that the E
realisable value of the aforesaid assets is Rs.8,42,43,000/
-. Counsel appearing for Mis. Bakemans Industries Pvt.
Ltd., however, disputes the aforesaid valuation. In order to
ascertain the valuation of the aforesaid assets, it would
...
be appropriate to pass an order directing for re-evaluation
of the entire aforesaid assets of the said company. M/s.
F
SICOM Ltd. is directed to get the entire assets re-evaluated
by appointing an approved valuer. The said valuation report
shall be submitted before the next date. The approved
valuer shall visit the factory premises on March 29, 2004
at 11.00 A.M. when the representative of Mis. Bakemans G
Industries Pvt. Ltd. could also be present at the site for
the purpose of assisting and giving appropriate guidance
to the approved valuer in ascertaining real value of the
assets. The necessary papers of the plant and machineries
arid other connected records shall be produced by M/s.
H
722
A
B
SUPREME COURT REPORTS
[2008] 9 S.C.R.
Bakemans Industries Pvt. Ltd. before the approved valuer
in order to assist him in evaluating the aforesaid property.
It shall also be open for the approved valuer to collect
informations in respect of various assets from other
sources as well like custom authorities, Director General
Foreign Trade and such like authorities. He shall also give
a separate valuation report for un-installed plant and
machinery, if any, so as to enable this Court to ascertain
the break-up value of the various plants and machineries
and to facilitate the process of sale by this Court.
C
It shall be open to any other willing purchasers also to
submit their fresh bids, if so desired, on or before the next
date."
24. Allegedly, the appellant filed an application before the
0
Executing Court with a prayer to decide its jurisdiction at the
first instance. It is stated at the Bar that neither there is any record
in respect thereof in the High Court nor any order appears to
have been passed thereon.
25. We may now notice the proceeding before the learned
E Company Judge.
26. The Company Applications were admitted by an order dated 61h April, 2004. A Provisional Liquidator was appointed. It was directed to take charge of the properties and
books of accounts of the company. On an application made by
F
SICOM, however, the learned Company Judge by order dated
161h April, 2004 directed that its possession may not be disturbed.
27. As the Provisional Liquidator had been appointed, the
G Executing Court transferred the petition to the Company Judge
by an order dated 191h April, 2004.
28. Some correspondences appear to have passed between the Advocate of the appellant Official Liquidator and
SICOM as regards the effect of the provisions of the CompaH nies Act viz-a-viz Section 29 of 1951 Act.
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M/S. BAKEMANS INDUSTRIES PVT. LTD. v. M/S.
723
NEW CAWNPORE FLOUR MILLS [S.B. SINHA, J.]
29. Appellant, thereafter filed an application on 12th July,
A
2004 for restraining SICOM from taking any further action for
the sale/auction of the properties and also asked for an order
of status quo to be maintained by the parties. No order on the
said application was, however, passed. In its order dated 17th
July, 2004 the learned Company Judge observed that the offer
B
of Ceylon Biscuits did not appear to be improper. However,
appellant was given an opportunity to bring a better offer. Second report of NIT.CON as regards valuation was also accepted.
30. Before the learned Company Judge a valuation report
of a Chartered Accountant was submitted which was rejected C
stating that they were not the approved valuers and they had
only taken into account the book value and not the market value
of the assets.
31. The matter was posted for hearing on 22nct July, 2004.
D
On that date, proceedings before the learned Company Judge
were in two sessions- one before lunch and another after lunch.
Before recess, appellant was granted one more opportunity to
bring any other bid and the judge adjourned the matter to 4th
August, 2004. However, after recess on a purported request
made by the learned counsel for Mis. Ceylon Biscuits the case
E
was preponed to 28th July, 2004. Learned counsel for the appellant was not present, although it was mentioned that he had
been informed. On the next date, i.e. 28th July, 2004 the Court
recorded a statement that the respondent company was negotiating with some buyers. An affidavit of the prospective buyer
F
and its Managing Director was directed to be filed in this behalf
alongwith an undertaking to honour the bid quoted by the prospective buyer. The matter came up before the learned Company Judge on 30th July, 2004. A prayer for adjournment was
made. An affidavit of the Ex-Managing Director of the appellant G
was filed. However, adjournment was refused. The affidavit was
called from the registry and the matter was heard. The Court is
said to have waited for the learned counsel to appear till 4.00
O'clock and then took up the mater for hearing at 4.45 p.m. In
its order the learned Company Judge noticed the earlier proH
724
SUPREME COURT REPORTS
[2008] 9 S.C.R.
A
ceedings at some length. It was held :-
B
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D
E
F
" No affidavit is filed of any prospective buyer. Affidavit of
Managing Director of the respondent company is filed. It
does not offer any bid of any buyer. On the contrary, what
is stated is that the Managing Director has been able to
tie up finances with the various associates and the first
instalment would be received on or before 5th August,
2004 on which date a pay order of Rs. 50 lacs shall be
produced in the court. It is also stated that the management
and associates thereafter would be definitely for the welfare
of all the financial institutions and workers and would be
a far better than which is being offered by the bidder. This
affidavit, obviously, is not in compliance with the directions
contained in the earlier orders and Mr. Chhabra's own
statement to the effect that the respondent company had
negotiated with a buyer who was willing to offer more than
the amount offered by M/s. Ceylon Biscuits Ltd. such
attempt had been made earlier but failed. The arrangement
offered in the affidavit does not inspire confidence and it
is only a delaying tactic. He offer to deposit Rs. 50 lacs,
in the first instance when the total liability of secured
creditors itself is more than Rs. 50 crores, is a pittanc~.
The respondent company has also not stated as to in
what manner and within how much time it would be in a
position to discharge the entire liability. It is also not stated
as to from where it would generate the resources/finances
for this purpose. It is, thus, clear that in spite of giving
various opportunities to the respondent company and its
Managing Director the respondent company has not been
able to produce better bid.
G
Property in question, which is subject matter of sale, has
been valued at Rs. 10 crores. Bid of Rs.12.50 crores of
M/s. Ceylon Biscuits Ltd. is, therefore, reasonable more
particularly when other bidders whose bids were not only
lesser have already withdrawn from the bidding process,
H
this bid is hereby accepted.
M/S. BAKEMANS INDUSTRIES PVT. LTD. v. M/S.
725
NEW CAWNPORE FLOUR MILLS [S.8. SINHA, J.]
Let balance payment be made by the successful bidder A
strictly in terms with the bidding conditions and the amount
would be deposited in the court. The amount so deposited
should be kept in FDR initially for a period of six months."
32. An intra-court appeal was preferred against the orders
8
dated 17th July, 2004, 27th July, 2004 and 301h July, 2004. The
matter was listed on 26th August, 2004. Before the appellate
court also an offer was made by the appellant to bring a higher
offer of Rs. 15 crores. Pursuant to an order made in this regard,
a sum of Rs. 50 lakhs was directed to be deposited. The Division Bench also directed maintenance of status quo in the mean- c
time.
33.