Original Side Appeals Nos. 284 of 2004 and 126 of 2005 and C.M.P Nos. 20147 of 2004, 9777, 9778, 7031, 7032, 7695, 9475, 9501, 9502 of 2005 and Company Applications Nos. 2610 of 1997 and 856 of 2005

Decided on July 11, 2005

The Judgment of the Court was delivered by

P. Sathasivam, J.:— Since the above two appeals and connected miscellaneous petitions arose from the order dated November 24, 2004, in Company Application No. 1448 of 2000 in Company Petition No. 2 of 1989 of the learned company judge, the same are being disposed of by the following common judgment.

2. The matter relates to disposal of movable and immovable properties of M/s. Standard Motor Products of India Ltd. By order dated October 4, 1996, in Company Petition No. 2 of 1989, M/s. Standard Motor Products of India Ltd., was ordered to be wound up and the official liquidator attached to this court has become the liquidator of the said company, with a direction to take charge of all the assets and effects of the company. Pursuant to the above direction, the official liquidator filed necessary applications including permission to call global tenders for sale of the land, building, plant and machinery and other movables of Standard Motor Products of India Ltd., which is in liquidation by fixing the upset price for the entirety of the property at Rs. 63 crores after taking into consideration of the valuation made by the approved valuer. Notification was made calling for tenders and pursuant to the same, tenders were received. The official liquidator placed all the tenders before the company court. By order dated November 23, 2004, the company court directed the registrar (management) to conduct auction. The registrar (management) submitted his report dated November 23, 2004, wherein he has stated that 10 persons have given written offers and participated in the auction. The Registrar has also stated that one Thiru T.S.R Khannaiyann and M/s. Nuziveedu Seeds Ltd., who actively participated finally had bid for Rs. 134 crores and Rs. 135 crores respectively. Both of them were directed to be present before the company court and their respective counsel were directed to increase their bid amount. The impugned order further shows that counsel for M/s. Nuziveedu Seeds Ltd., has expressed his inability to contact his client. However, counsel appearing for Thiru T.S.R Khannaiyann raised the bid amount to Rs. 140 crores. The learned single judge finding that the said amount is exactly double the amount offered in the tender form submitted by the highest bidder and as well as upset price fixed as per the valuation report, the bid made by Thiru T.S.R Khannaiyann as the highest bid and confirmed in favour of Thiru T.S.R Khannaiyann, Chairman, Hindustan group of companies, 67, Avarampalayam Road, K.R Puram, Coimbatore-6. In the same order, the learned judge after recording that the highest bidder Thiru T.S.R Khannaiyann has submitted earnest money deposit of Rs. 6,30,00,000, directed him to pay the balance amount of Rs. 133.70 crores in the following manner. 10 per cent of the balance amount of Rs. 133.70 crores, i.e, a sum of Rs. 13.37 crores has to be paid on or before December 8, 2004, and the balance amount of Rs. 120.33 crores has to be paid in two equal instalments, the first of the instalment Rs. 60,16,50,000 has to be paid on or before January 7, 2005, and the last of the amount Rs. 60,16,50,000 has to be paid on or before February 10, 2005. In the same order, the company court directed the official liquidator to return all the demand drafts submitted towards earnest money deposit amount in respect of the other tenderers.

3. Questioning the above order, M/s. Nuziveedu Seeds Ltd., Hyderabad third party applicant, filed Original Side Appeal No. 284 of 2004. While admitting the appeal on December 23, 2004, a Division Bench of this court in C.M.P No. 20147 of 2004, granted interim stay of all further proceedings and ordered notice to the respondents. One C. Subramaniam, general secretary of the Standard Motor Products India Ltd. Employees' Union, a trade union registered under the Trade Union Act, 1926, filed W.V.M.P No. 7031 of 2005, for vacation of the stay granted on December 23, 2004. The very same general secretary of the employees' union has filed C.M.P No. 7032 of 2005, seeking direction to the official liquidator for disbursement of Rs. 6.3 crores to the workers equally subject to adjustment of the same towards final payment pending disposal of the Original Side Appeal No. 284 of 2004.

4. One R. Krishnamoorthi, a third party who also participated before the company court, filed C.M.P No. 7695 of 2005, for vacation of the very same stay order.

5. T.S.R Khannaiyann, sixth respondent in O.S.A No. 284 of 2004, filed C.M.P No. 9475 of 2005, seeking clarification of the order dated April 28, 2005, passed in C.M.P No. 20147 of 2004. The said R. Krishnamurthy has also filed C.M.P No. 9501 of 2005, seeking direction to cancel the auction in favour of T.S.R Khannaiyann, Chairman, Hindustan group of companies, Coimbatore. He also filed C.M.P No. 9502 of 2005, praying to confirm the auction in his favour permitting him to pay the amount as per the schedule of time to be granted by this court. Pending disposal of O.S.A No. 284 of 2004, the learned company judge, after finding that by oversight Company Application No. 2610 of 1997, was kept pending without orders, referred the same to be considered while taking up O.S.A No. 284 of 2004. One Major Inder M. Paul filed Company Application No. 856 of 2005, in Company Petition No. 2 of 1989 praying direction to the official liquidator to assess the value of the machinery of the applicant. On the orders of the hon'ble Chief Justice, the said application was also posted before this court for passing orders along with the main appeal.

6. When O.S.A No. 284 of 2004, was pending before the Division Bench of this court, R. Krishnamurthy, third party, who also participated in the auction before the company court, aggrieved by the very same order of the learned company judge dated November 24, 2004, made in Company Application No. 1448 of 2000 in Company Petition No. 2 of 1989, after obtaining leave, preferred O.S.A No. 126 of 2005. He also filed C.M.P No. 9777 of 2005, for dispensation of the production of the copy of the order dated November 24, 2004, made in Company Application No. 1448 of 2000, and C.M.P No. 9778 of 2005, praying to stay all further proceedings of the tender-cum-auction held on November 20, 2004, in Company Application No. 1448 of 2000, in Company Petition No. 2 of 1989 in respect of land, plant and machinery and properties of the Standard Motor Products of India Ltd., pending disposal of the said original side appeal. Considering the common issue raised, this court entertained the said appeal and posted it along with O.S.A No. 284 of 2004. By consent of all the parties, the main appeals and all the miscellaneous petitions were taken up for disposal.

7. Heard Mr. K. Doraisami, learned senior counsel for the appellant in O.S.A No. 284 of 2005; Mr. B. Rajendran, learned counsel for the appellant in O.S.A No. 126 of 2005, and the eighth respondent in O.S.A No. 284 of 2004; Mrs. K. Latha Parimalavaradha, assistant official liquidator for the first respondent in both the appeals; Mr. Srinivasan, learned counsel for the second respondent in both the appeals; P. Maghana Nair, learned counsel for the third respondent in both appeals; Mr. M.T Arunan, learned Additional Central Government standing counsel for the fifth respondent in both appeals; Mr. R. Krishnamurthy, learned senior counsel for the sixth respondent in O.S.A No. 284 of 2004; Mr. N.G.R Prasad, learned counsel for the seventh respondent in O.S.A No. 284 of 2004; Mr. A.L Somayaji, learned senior counsel for the applicant in Company Application No. 2610 of 1997; and Mr. R. Umashankar, learned counsel for the applicant in Company Application No. 856 of 2005.

8. The points for consideration in all these matters are:

(i) Whether the learned company judge is right in confirming the highest offer of Rs. 140 crores made by Thiru T.S.R Khannaiyann, the sixth respondent in O.S.A No. 284 of 2005?

(ii) Whether the company judge, before accepting the highest offer of Thiru T.S.R Khannaiyann (the sixth respondent in O.S.A No. 284 of 2005) has given adequate opportunity to all the other bidders? and

(iii) What are the directions to be issued to the official liquidator in respect of the claims of workers, lessees, creditors, etc.?

9. There is no dispute regarding the order of the company court in bringing the properties of the Standard Motor Products of India Ltd., the company in liquidation, for auction as well as the fixation of upset price. It is seen from the order of the learned judge that pursuant to the direction and advertisement made in the leading dailies, 10 tenders were received and that the official liquidator placed all the 10 tenders before the court. It is further seen that by order dated November 23, 2004, the company court directed the Registrar (management) to conduct auction. The report dated November 23, 2004, of the Registrar (management) shows that 10 persons were given written offers and participated in the auction. Out of the same, T.S.R Khannaiyann and M/s. Nuziveedu Seeds Ltd., Hyderabad, alone actively participated in the auction by making their bid for Rs. 134 crores and Rs. 135 crores respectively. It is the grievance of the appellant in O.S.A No. 284 of 2004, namely, Nuziveedu Seeds Ltd., that in spite of their counsel's expression that they could not contact them (appellant) for increasing their offer of Rs. 135 crores to a further sum. It is true that the learned judge, considering the volume of properties and the amount involved, ought to have granted a reasonable time to them (appellant in O.S.A No. 284 of 2004). It is also the grievance of R. Krishnamurthy, appellant in O.S.A No. 126 of 2005, that in the auction held in court, the Registrar (management) had fixed increasing the amount for each bid would be Rs. one crore throughout, which is very high, excessive and the same was not contemplated in the tender conditions; hence, according to him, the entire auction is invalid. It is also his grievance that the auction was confirmed on November 20, 2004, without giving opportunity for other auctioners/participants to bid in the auction and they were not informed about the raising of the bid amount on the next day, hence, according to him, the confirmation of sale made in the auction in the absence of other bidders is legally not sustainable. A perusal of the order of the company court would go to show that only two bidders, namely, Thiru T.S.R Khannaiyann and M/s. Nuziveedu Seeds Ltd., alone actively participated in the auction before the Registrar (management) and that there is no information whether all other participants were duly informed to offer their willingness or otherwise with reference to the increase of the bid beyond Rs. 135 crores. As observed earlier, considering the nature and extent of the property, namely, 57.84 acres and machinery, etc., it is desirable to afford adequate opportunity to all the intending bidders in order to secure a good price for the properties. Accordingly, we feel that the grievance expressed by the appellant in both the appeals is reasonable and acceptable.

10. Another important factor to be mentioned here is, that though the highest bidder—T.S.R Khannaiyann was directed to pay the balance amount of Rs. 133.70 crores (excluding the earnest money deposit of Rs. 6,30,00,000 made by him by way of 7 demand drafts) in three instalments, admittedly, the first instalment of 10 per cent of the balance amount, namely, Rs. 13.37 crore had not been paid before December 8, 2004, as stipulated by the company court. No doubt, it is his grievance that because of the pendency of O.S.A No. 284 of 2004, and the stay by this court, he was not in a position to deposit the first instalment. However, the record would show that this court entertained the appeal and granted stay of the order of the company court only on December 23, 2004, i.e, 23 days after the cut-off date for payment of the first instalment. In this regard, it is relevant to refer the report of the assistant official liquidator dated June 28, 2005, In para. 4 it is stated that the official liquidator has received a letter from T.S.R Khannaiyann dated December 7, 2004. On December 8, 2004, along with a cheque drawn on Canara Bank for Rs. 13,37,00,000 towards the first instalment of the sale consideration as per the directions of this court. It further shows that when the official liquidator deposited the said cheque on December 9, 2004, in the Punjab National Bank, Chennai-2, the same was returned with a memo dated December 11, 2004, stating “payment stopped by drawer”. It is also stated that because of the said action, the official liquidator was directed to remit a sum of Rs. 2,67,400 towards “cheque returned charges”.-Paragraph 5 of his report shows that the official liquidator issued a notice under section 138 of the Negotiable Instruments Act, 1881, on March 3, 2005, by registered post with acknowledgment due to T.S.R Khannaiyann, directing him to remit to him the sum of Rs. 2,67,400 within 7 days of that date towards “cheque returned charges” levied by the Punjab National Bank, Chennai-2, on account of dishonour of his cheque to the official liquidator, failing which, necessary action will be initiated. For the said notice, the official liquidator received a reply from counsel of T.S.R Khannaiyann stating that because of the stay of the auction of the sale by the Division Bench of this court, he had instructed his bank to stop the payment, apart from writing a letter requesting the official liquidator not to present the cheque. However, subsequently, a fresh cheque for Rs. 2,67,400 was handed over to the official liquidator on May 10, 2005, towards cheque returned charges. In para. 7 of his report, it is stated that when the said cheque was deposited by the official liquidator, the same was returned by the Canara Bank, Pondicherry, (drawer's bank) on the ground of “funds insufficient”. In para. 8, the official liquidator has stated that even though the Division Bench of this court by order dated April 28, 2005, has directed the highest bidder—T.S.R Khannaiyann to pay a sum of Rs. 60 crores within 30 days, he has not remitted the said amount before him till date. No doubt, as far as the failure to comply with the said direction, learned senior counsel for the sixth respondent—T.S.R Khannaiyann has stated that because of the pendency of the appeal as well as the stay by this court, his financing bank was reluctant to pay the said amount. Whatever may be, the subsequent direction by this court dated April 28, 2005, has not been complied with by the highest bidder namely T.S.R Khannaiyann.

11. It is also relevant to mention here, that during the course of hearing, learned senior counsel appearing for the appellant in O.S.A No. 284 of 2004—Nuziveedu Seeds Ltd., Hyderabad, by showing two pay order/banker's cheque for Rs. 72 crores and Rs. 68 crores (total Rs. 140 crores) would contend that even now the appellant is ready to purchase these properties for Rs. 140 crores. Likewise, the appellant in O.S.A No. 126 of 2005, has also stated that he is willing to bid the same for Rs. 141 crores— vide para. 9 of his affidavit dated June 13, 2005, filed in C.M.P No. 9502 of 2005.

12. The above discussion makes it clear that all the tenderers/bidders were not given adequate opportunity before the company court to increase their offer. Only the two persons, namely, M/s. Nuziveedu Seeds Ltd., Hyderabad and Thiru T.S.R Khannaiyann alone had the opportunity of participating in the proceedings that was held in the chamber of Registrar (management) as well as before the company court on November 23, 2004. As rightly stated, had all the tenderers/bidders known the fact that they can also improve their offer, they would have offered more than the present offers made by the appellant in both the appeals as well as the sixth respondent—T.S.R Khannaiyann. We have already observed that the successful bidder has not fulfilled the conditions stipulated by the company court. Considering the extent of the land, being 57.84 acres which includes standing trees, buildings, plant and machinery, etc., and the grievance expressed by the parties before us, we are of the view that by calling fresh tenders, by way of fresh publication in leading newspapers, there are possibilities of getting a higher price for the properties.

13. In that event, the creditors and the workers of the company in liquidation will be getting more benefit. Accordingly, we set aside the order of the company judge dated November 24, 2004, made in Application No. 1448 of 2000, in Company Petition No. 2 of 1989, and direct the official liquidator to call for fresh tenders by causing fresh publication in leading newspapers, as directed earlier by the company court. After getting fresh offers, the official liquidator is directed to place the same before the company court for further orders. The company court is free to provide further opportunity to all the intending tenderers to increase their bid and pass appropriate orders thereafter for confirmation of the sale in favour of the successful bidder. The earlier direction regarding publication and conduct of sale shall be followed by the official liquidator.

14. In view of the above order, the official liquidator is permitted to return the earnest money deposit paid by the sixth respondent—T.S.R Kannaiyann, after adjusting the amount of Rs. 2,67,400 payable to the bank towards “cheque returned charges”.

15. We further direct that on confirmation by the company court, the official liquidator will disburse the amount among the eligible workers, by treating their claim as a first claim, and settle their claim on priority basis, before settling the other creditors. The other creditors will make their applications and orders will be passed upon them subject to their eligibility.

16. In so far as the applicant in Company Application No. 856 of 2005, is concerned, in view of the report of the assistant official liquidator dated June 13, 2005, after realisation of the sale proceeds, and on the orders of the company court, the value of the said assets as per the valuation report will be paid to them. In the same way, the claim of the lessee in Company Application No. 2610 of 1997, will be settled by the company court. The original side appeals are allowed with the above directions. Company Applications Nos. 856 of 2005 and 2610 of 1997, are ordered accordingly. Stay petitions and vacate stay petitions, namely, C.M.P Nos. 20147 of 2004, 7032 of 2005, 9777 of 2005, 9778 of 2005, and V.C.M.P Nos. 7031 of 2005 and 7695 of 2005 are closed. C.M.P Nos. 9501 of 2005, 9502 of 2005 and 9475 of 2005 are also closed.