HIGH COURT OF
Mak Business
v.
O.L. of Ambica Mills Ltd.
M.S. SHAH AND K.A. PUJ, JJ.
O.J. APPEAL NO. 147 OF 2007
July 5, 2007
Section 457, read with sections
565 and 566, of the Companies Act, 1956
- Winding up - Powers of Official Liquidator - Office premises of a company,
under liquidation, were put for sale through newspaper advertisement - A firm
consisting of two partners with equal shares offered highest price and Company
Court confirmed sale in favour of that firm - Before full payment was made,
firm was reconstituted by admitting five new partners who were relatives of
existing two partners - Existing two partners were given 45 per cent share each
while new partners were given 2 per cent each - Meanwhile said firm was converted
into company (appellant) and their shareholding in company remained in same
proportion as their share was in firm - Appellant company preferred application
requesting for execution of sale deed in its favour which was rejected by
Company Court - Whether since five new partners inducted in firm were close
relatives of original partners and were given only nominal share for purpose of
reconstituting firm as having seven partners for purpose of converting firm
into a joint stock company under section 565/566, it could be concluded that to
all intent and proposes appellant company which had requested for execution of
sale deed in its favour was same entity whose highest offer had been accepted
by Company Court and, therefore, Official Liquidator was to be directed to
execute sale deed/conveyance deed in favour of appellant-company - Held, yes
The office premises of company ‘A’, under liquidation, were put for sale
through publics advertisement as per the directions of
On appeal:
There was considerable substance in the substance in the submission made
on behalf of the appellant Company that the two partners of partnership firm
‘M’ which had made the highest offer of Rs. 7.35 crores (which offer was
accepted by the Company Judge on 28-12-2006) subsequently also continued to
have substantial controlling interest of 90 per cent in the reconstituted
partnership firm with seven partners and continued to have the same
shareholding 90 per cent in the newly formed joint stock Company. The five
other partners inducted in the partnership firm were close relative of the
original partners and were given only nominal share of 2 per cent each for the
purpose of reconstituting the firm as having seven partners for the purpose of
converting the firm into a joint stock company under section 565/566 of the
companies Act. Hence, to all intent and purposes and in sum and substance the
appellant company which had requested for execution of the sale deed in its
favour was the same entity which had made the highest offer which was accepted
by the Company Judge. [
In view of the above the appeal was to be allowed and the impugned order
dated 9-5-2007 was to be set aside. The remarks made by the Company Judge in
the above order against advocate were also to be expunged. The Official
Liquidator was directed that in view of full payment of Rs. 7.35 crores by the
‘M’ appellant Company, the Official Liquidator would execute the sale
deed/conveyance deed in favour of the appellant company. [
PER COURT:
Having regard to the practical realities of the business world with which the Company Court has to deal with day in and day out, and that the Company Court has to deal with this aspect in all Court auction sales, it was viewed that there need not be absolute embargo on nomination facility. Nomination facility is being allowed by the High Court exercising jurisdiction under the Companies Act for the last many decades. The Court can take judicial notice of the fact that the ultimate purchasers of the property or the end-users generally do not themselves participate in such auction sales and in any case, never in large numbers. It may be on account of the delays in the Court proceedings or uncertainties in such proceedings or any other reason that the end-users may be shying away from Court auction sales, but the fact remains that a number of persons dealing in plant and machinery or real estate do participate in such auction sales. If the nomination facility were to be prohibited altogether, the number of parties participating in the Court auction sales would considerably go down. This would not be in the interest of ultimate beneficiaries i.e. secured creditors and workmen who are ordinarily the only persons getting share of the sale proceeds.
Assuming that nomination facility is likely to result into loss of stamp duty to the State, this aspect can be suitably taken care of by providing a disincentive to the auction purchaser who wants to avail of the nomination facility. This may be done by imposing a condition like ‘if the sale deed/conveyance deed is to be executed in favour of a nominee, the auction purchaser/nominee shall have to pay additional 10 per cent to the Official Liquidator as additional purchase consideration for buying the concerned property put up for sale.
Such a condition requiring the purchaser or nominee to pay additional purchase consideration can only be incorporated in the terms and conditions of sale being prepared at the time of inviting the bids, but not at a later stage after opening the bids or after inter se bidding.