Holding

The Company Judge lacked jurisdiction to conduct the sale under the State Financial Corporations Act and the sale was void for contravening the Companies Act, necessitating a fresh auction in accordance with the Companies Act.

Summary

Bakemans Industries Pvt. Ltd. (the appellant) defaulted on a loan from SICOM Ltd. under the State Financial Corporations Act, 1951. SICOM invoked Section 29 of that Act to take possession of the appellant's factory and sought sale of the assets, while the appellant and other creditors filed winding‑up applications before the Delhi High Court. The High Court transferred the matter to a Company Judge, who conducted the auction in favour of Ceylon Biscuits Pvt. Ltd. without adhering to mandatory provisions of the Companies Act, 1956, particularly the pari‑passu rights of workmen under Section 529A and the role of the official liquidator. The Supreme Court held that the Company Judge had no jurisdiction to exercise powers under the 1951 Act and that the sale was void for violating the Companies Act. It directed the Company Judge to redo the auction in compliance with the Companies Act and to consider all creditors' claims. The appeal was partly allowed.

Issues considered

The extent to which a Company Judge can exercise powers under Section 29 of the State Financial Corporations Act, 1951 in a winding‑up proceeding.
Whether the sale of the appellant's assets conducted by the Company Judge complied with the mandatory provisions of the Companies Act, 1956, including Section 529A and the involvement of the official liquidator.
The priority of claims of workmen and other unsecured creditors vis‑à‑vis the secured creditor SICOM.
The effect of the appellant's waiver of rights under the 1951 Act by submitting to the jurisdiction of the Company Court.
The propriety of the High Court's procedural orders, including the conduct of the auction and the handling of bids.

Legislation cited

Arbitration and Conciliation Act, 1996s. 9
Companies Act, 1956s. 433, s. 441, s. 442, s. 443, s. 446, s. 448, s. 450, s. 456, s. 457, s. 529A
Recovery of Debts Due to Banks and Financial Institutions Act, 1993
State Financial Corporations Act, 1951s. 29

Subjects

Companies ActWinding upState Financial Corporations ActSale of assetsProvisional liquidatorOfficial liquidatorPari passuJurisdictionAuctionCorporate insolvency

Judgment

[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 -Finan-
cier 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 sub-
miffing 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
its rights under 1951 Act and hence the proceedings before E
Company court cannot be said to be under 1951 Act- Com-
pany 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 sus-
tainable - 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 Com-
panies Act, 1956.
A Financier (SICOM) advanced a loan to the appel-
lant-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 sis-
ter 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 an-
other notice u/s 29 of 1951 Act. Thereafter, took over pos-
session of one of the factories of the appellant which was
a going concern.
Appellant, as per an agreement with an NRI Bank en-
D 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 sis-
ter concern. During the pendency of the execution peti-
E 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 pend-
ing execution proceeding seeking possession of the unit.
Court granted status quo.
G High court directed the appellant to deposit a par-
ticular 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 seek-
ing permission to inspect the unit on the ground that they
had negotiated with the appellant-company for taking over
the entire unit. Appellant also questioned the jurisdiction B
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 ac-
cepted the bid of respondent No. 4. E
An intra-court appeal was dismissed and sale certifi-
cate 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 Sec-
tion 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 Fi-
H
708 SUPREME COURT REPORTS [2008] 9 S.C.R.

A nancial Corporation 2003 (10) SCC 482; Rajasthan State Fi-
nancial 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 liquida-
tor 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 pro-
ceeded in the matter. The Company Judge could exer-
D 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 pur-
ported 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 proceed-
ings without any demur whatsoever, it actively partici-
F pated therein. It is only at its instance that the bid was
held. The other bidders were also brought in. It is, there-
fore, not a case where the Company Judge had no juris-
diction to exercise supervision of sale of the assets of
the appellant on behalf of SICOM in terms of the provi-
G sions of Section 29 of the 1951 Act or otherwise. Respon-
dents even never insisted to get the question of jurisdic-
tion 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 obliga-
tion 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 work-
ers 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 Liquida-
tor 2000 (7) sec 291 - relied on.
Companies Act by A. Ramaiya, 16th Edn. 2004 - re-
ferred to. F
1.4 In the matter of control over the assets of a com-
pany in liquidation, the courts exercise a wide jurisdic-
tion. It may not only take recourse to the sale of the as-
sets 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 mortgag-
ees, but also the interest of the mortgagor. It has a statu- H
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 exer-
cising 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 rel-
evant 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 inher-
ent 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
SICOM as an agent but apart from the fact that it, in fact,
0
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 contra-
dictory 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 dis-
regard 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 be- B
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 fail- D
.,, ure to bring a better offer from another bidder. In order to
give relief in such cases, the court has to take into con-
sideration the fate of not only those workmen who are
working but also those who have a claim against the Com-
pany. 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) Chan-
cery 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 oth-
ers. 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 com-
pany 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] [748-
F,G,H, 749-A]
Company Law by Farar, Third Edition - referred to.
2.1 It is true that the court had not permitted the pro-
s 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 per-
forming its other functions. [Para 52] [739-F,G]
2.2 The High Court, could not have ignored the offi-
C cial liquidator only on the ground that a provisional offi-
cial liquidator was appointed and not a regular official liq-
uidator. The power and functions of the provisional offi-
cial 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 Com-
pany was wound up. [Para 63] [749-A,B]
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.
E
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 sub-
ject to the direction of the court but, the Court while un-
F dergoing the process of winding up and, in any event,
resorting to sale of the assets of the company under wind-
ing up proceeding could not have a ignored the involve-
ment of the provisional liquidator for any purpose what-
soever. [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 limita-
tions imposed by the court are the same as that of an of-
H 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 pie-
ture 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 con-
trolled 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 liqui- D
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
not only determining an issue by and between the mortgagor E
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 - distin-
guished.
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 provi- G
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 Com-
pany . [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 pur-
chaser 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 provi-
sional 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
from time to time. [Para 68] [750-G,H, 751-A,B,C]
E 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 Ap-
pellant.
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 Di-
vision Benches of the Delhi High Court.

3. Certain basic facts are not in dispute which are as un- C
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 appel-
lant, 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 applica-
tions 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 opera- G
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
by and between the appellant and one NRI Lead Bank. We are
B 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 con-
tained 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 agree-
D 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
day's sitting only opining that (i) taking over of the unit was ille-
E gal 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 pur-
.,.
F ported written agreement/settlement dated 16th August, 2003
passed by the Board of Conciliation in the said proceedings.
1O. 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 Cor-
l'
poration Ltd. were also impleaded as parties therein.
11. We shall deal with the factual matrix thereabout a little
later.
H
·' 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 Concili-
ation 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 Re- B
covery Tribunal for recovery of its dues. A Receiver was ap-
pointed by the said Tribunal in respect of the perishable goods
''I>
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 fore-
ible possession of the factory premises on 14th September,
2003.
D
... 15. SICOM filed an application in the said purported ex-
ecution 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 Re-
ceiver 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 va-
cation 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 " 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
D 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
E 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
F 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.
G 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,
H 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 vii-
lage 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 machin-
eries. There was also unpacked material which had been im-
B 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 never1 submitted the definite pro-
posal in terms of the order dated 28 hNovember, 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 en-
tire unit. Counsel who was representing the appellant also rep-
resented Ceylon Biscuits Pvt. Ltd.
22. A question was raised in regard to the jurisdiction of
E 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 Britan-
nia Industries Ltd. not only on the entire plant but also on item
wise basis. The Court rejected the contention of the appellant
F 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 Hy-
giene 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
realisable value of the aforesaid assets is Rs.8,42,43,000/ E
-. 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
A
722 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
B 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
Executing Court with a prayer to decide its jurisdiction at the
0
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 or-
der dated 61h April, 2004. A Provisional Liquidator was ap-
pointed. 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 dis-
turbed.
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 be-
tween the Advocate of the appellant Official Liquidator and
SICOM as regards the effect of the provisions of the Compa-
H nies Act viz-a-viz Section 29 of 1951 Act.
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. Sec-
ond 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 ap-
pellant 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 nego-
tiating 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 pro-
spective buyer. The matter came up before the learned Com-
pany 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 pro- H
724 SUPREME COURT REPORTS [2008] 9 S.C.R.

A ceedings at some length. It was held :-

" 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
B 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
c 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
D 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,
E 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
F 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
dated 17th July, 2004, 27th July, 2004 and 301h July, 2004. The 8
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 Divi-
sion Bench also directed maintenance of status quo in the mean- c
time.
33. In the meantime, SICOM and Ceylon Biscuits both filed
applications for possession of the factory to be handed over.
Such permission was granted on 13th October, 2004.
D
34. Various ap11lications were filed before the Division
Bench and/or this Court. Except noticing that in the meantime
another valuation report was filed on 21s1 November, 2006 in
regard to the intangible assets of the company as being Rs.35.88
cores which had been sold by SICOM in favour of Ceylon Bis- E
cu its for a sum of Rs.10 crores, we need not take note of any
other fact. By reason of the impugned judgment dated 2nd July,
2007 the Letters Patent Appeal preferred by the appellant was
dismissed and by an order dated 6th July, 2007 the sale certifi-
,,. cate was directed to be issued to M/s. Ceylon Biscuits. F
It is these orders whic~ are in question before us.
35. Mr. Kapur, the learned senior counsel appearing on
behalf of the appellant inter alia would submit :-
i) The learned Company Judge while proceeding to G
direct sale committed a serious illegality in not
directing a fresh valuation of the assets of the
company and upon taking into consideration the
interest of other creditors as also that SICOM itself
before accepting the offer of M/s. Ceylon Biscuits. H
726 SUPREME COURT REPORTS [2008) 9 S.C.R.

~

A ii) When a Provisional Liquidator was appointed, his
involvement in the process of sale was imperative in
character.
iii) Provisions of Sections 441, 456, 450 and 457 read
with Rule 293 of the Companies Act show that the
B involvement of Official Liquidator was absolutely
mandatory and the Court could not, in the name of
supervision over the sale, substitute itself in the place ...
of the Official Liquidator.

c iv) The learned Company Judge completely disregarded
the law laid down by this Court in a series of decisions
in each and every respect concerning the sale of the
assets of a company, in so far as :-
a) it did not issue any fresh advertisement ;
D
b) the advertisement issued being in small print
and no guidelines having been issued, the
same was irrelevant;
c) the Company Court did not fix any reserve price;
E d) the Company Court did not make any attempt
to secure the best possible market price which
was its duty to do for the sake of the general
body of creditors including workmen and other
secured creditors.
F
v) The Company Court on the one hand appointed an
independent valuer for valuing appellant's intangible
assets; on the other it simply relied upon two valuation
reports made by NITCON without application of mind
about its correctness or otherwise.
G
vi) SICOM's action is mala fide as even it should not
have been averse to the process of sale of the factory
of the appellant at a higher price, particularly when a
memorandum of agreement entered into by and
H between the appellant and Ceylon Biscuits show that
M/S. BAKEMANS INDUSTRIES PVT. LTD. v. M/S. 727
NEW CAWNPORE FLOUR MILLS [S.B. SINHA, J.]

the actual value of the factory was very high as per A
the Ceylon Biscuits' own valuation report dated 9th
September, 2005.

vii) The learned Company Judge as also the Division
Bench of the High Court proceeded to determine the
entire dispute only on the conduct of the appellant B
both in respect of obtaining the Award of the Board
of Conciliators as also its failure to secure a better
'" price and not on the basis of the legal principles
involved in sale of assets of the company in
liquidation. c
vii) As the Company was an ongoing concern, the
Company Judge without involving the Official
Liquidator committed a serious error in directing sale
of the assets of the company at an early stage of the
D
winding up proceeding without applying its mind that
a Scheme for revival of the Company was possible
to be filed in terms of Section 391 of the Companies
Act.

36. Mr. Rajiv Shakdher, learned senior counsel appearing E
on behalf of SICON, on the other hand, urged:-
i) SICOM ·had never been averse to obtaining any
higher price as would appear from the proceedings
... before the High Court both in Execution Proceeding
as also the Winding-up Proceeding. F

ii) SICOM had all along exercised its right to sell the
mortgaged assets in exercise of its statutory powers
under Sectio~ 29 of the 1951 Act which being in
consonance with the principles and guidelines laid
G
by this Court, could not have been interfered with.
·~
iii) The appellant having questioned the action of SICOM
in invoking its statutory powers under Section 29 of
1951 Act by filing two writ applications and having
withdrawn the same, it was entitled to take H
728 SUPREME COURT REPORTS [2008) 9 S.C.R.

A possession of the properties which it did on 181h
..
July, 2003.
iv) The appellant with a view to get back the possession
of the factory forged a settlement agreement to
deceive SICOM in purported execution of the award
B of the Board of Arbitration.
v) It took recourse to adventurous litigations not only by
getting the aforementioned case filed but also filing
an application under Section 9 of the Arbitration and
c Conciliation Act, 1996 with a view to get a Receiver
appointed, although it did not succeed in that attempt.
vi) It is not correct to contend that a Receiver was
appointed by the Court in the Arbitration proceeding
but the Receiver was appointed by Debt Recovery
D Tribunal in respect of perishable articles only.
vii) The Executing Court at the initial stage and
subsequently the learned Company Judge, merely
supervised the sale with a view to bring about
transpa'rency in the entire process.
E
viii) That when a sale is held by a Financial Institution in
terms of Section 29 of the 1951 Act, opportunities
are granted to the debtors to purchase the property

F
at the price for which the sale had been held or to
bring a higher offer.
..
ix) With a view to satisfy the set norms, the High Court
not only permitted Ceylon Biscuits and another to
take part in the bidding process but also gave
opportunities after opportunities to the appellant to
G .bring a better offer which it failing and/or neglected
to comply with.
x) Appellant having undertaken to pay a sum of RL;pees
two crores and having failed to comply with the same,
it was not entitled to raise any objection in regard to
H
- ..
M/S. BAKEMANS INDUSTRIES PVT. LTD. v. MIS.
NEW CAWNPORE FLOUR MILLS [S.8. SINHA, J.]
729

the legality or otherwise of the sale, particularly when A
it was on their suggestions, other bidders were
permitted to bid and the said bids were opened in
the Court itself.
xi) The advertisement issued by SICOM was in
accordance with the usual practice and it is not correct B
to contend that no guideline was issued or bidders
,. . were not permitted to bid (in accordance with the
norms).
xii) NITCON is a Public Sector Organization with which c
SITCOM has no concern, thus it would not be correct
to contend that the second valuation report should
not have been obtained by it, particularly when the
said valuation was in relation to the uninstalled
machinery lying at the factory premises in respect
D
whereof the appellant moved the learned Company
... Judge .
37. Mr. Sundaram, learned counsel appearing on behalf
of respondent No.4 (Ceylon Biscuits), would submit:-
i) SICOM had all along exercised its powers under E
Section 29 of the 1951 Act and the Court merely
supervised exercise of such powers and in that view
of the matter the appellant has not been prejudiced
at all inasmuch as the same merely provided for
additional safeguard for fetching a proper price for F
the assets.
ii) In view of the decisioll of this Court in Rajasthan
Financnia/ Corporation Ltd. and another vs. The
Official Liquidator : (2005) 8 SCC 190 the
G
involvement of the Official Liquidator is necessary
only to sell the assets of the company in liquidation
and as no winding up order has been passed,
involvement of Official Liquidator was not necessary.
iii) The Company Court exercised its jurisdiction in terms H
730 SUPREME COURT REPORTS [2008] 9 S.C.R.

A of Rule 293 of the Company Court Rules which ~

permitted it to sell the assets itself or through an
agent.
iv) If the learned Company Judge tbought that SICOM
should act as an agent, no illegality can be set to
B have been committed by reason thereof.
v) Respondent No.4 being a bona fide purchaser,
pursuant to an offer, it would be highly prejudiced if ...
the auction sale is set aside at this stage.
c 38. The core issues which arise for our consideration in
view of the rival contentions of the leaned counsel are:-
1) Whether in the facts and circumstances of the case
the Executing Court and consequently the Company
Judge could have supervised the purported sale of
D
the assets of the appellant on behalf of SICOM having
regard to the provisions of Section 29 of the 1951
Act?
2) Whether in a case of this nature and particularly
E having regard to the fact that SICOM submitted itself
to the jurisdiction of the executing court and company
court, can now turn around and contend that in effect
and substance it had exercised its statutory powers
under Section 29 of the Act and allowed the same
F only to be supervised by the learned Company
Judge?
3) Whether the statutory powers of a Financial
Corporation as envisaged under Section 29 of the
1951 Act would prevail over the proceedings before
G a Company Judge in a winding up proceeding?.
4) Whether involvement of the Official Liquidator in the
facts and circumstances of the case and particularly
in view of the fact that Official Liquidator brought to
the court's notice claims of other creditors, the
H
M/S. BAKEMANS INDUSTRIES PVT. LTD. v. MIS. 731
NEW CAWNPORE FLOUR MILLS [S.B. SINHA, J.]

Company Judge ought to have dealt with the same A
in the manner laid down in the Companies Act and/
or the Rules framed thereunder and/or the decision
of this Court?

5) Whether the High Court while exercising its powers
under Section 433 of the Companies Act read with B
other provisions could ignore the claims of the other
,.. creditors, and in particular the workmen, having
regard to the provisions of Section 529A thereof.

6) Whether the High Court while. exercising its c
jurisdiction both in the execution proceeding as also
winding up proceeding can, in the fact situation
obtaining herein, be said to have adopted a fair
procedure.

7) Whether in any event the High Court could have D
ignored the legal requirements as regards the
conduct of sale of the assets of the appellant only on
the basis of: (1) wrongful conduct on the part of the
appellant in obtaining an award from the Conciliation
Tribunal; and (2) its failure to bring a better offer from E
another bidder.

39. The 1951 Act indisputably is a special statute. If a fi-
nancial corporation intends to exercise a statutory power under
.. Section 29 of the 1951 Act, the same will prevail over the gen-
eral powers of the Company Judge under the Companies Act. F

40. There cannot be any doubt whatsoever that the pro-
ceedings under Section 29 of the 1951 Act would prevail over a
winding up proceeding before a Company Judge in view of the
decision of this Court in International Coach Builders Ltd. v.
G
Karnataka State Financial Corporation ((2003) 10 SCC 482]
wherein it has been held:
1
"26. We do not really see a conflict between Section 29
of the SFC Act and the Companies Act at all, since the
rights under Section 29 were not intended to operate in H
732 SUPREME COURT REPORTS [2008] 9 S.C.R.

A the situation of winding up of a company. Even assuming •
to the contrary, if a conflict arises, then we respectfully
reiterate the view taken by the Division Bench of this Court
in A.P State Financial Corpn. case. This Court pointed
out therein that Section 29 of the SFC Act cannot override
B the provisions of Sections 529(1) and 529-A of the
Companies Act, 1956, inasmuch as SF Cs cannot exercise
the right under Section 29 ignoring a pari passu charge
of the workmen.~. ~

The view taken therein was reiterated by a three-Judge
c Bench of this Court in Rajasthan State Financial Corporation
and Anr v. Official Liquidator and Anr. ( 2005 ) 8 SCC 190
wherein it was stated:

"18. In the light of the discussion as above, we think it
proper to sum up the legal position thus:
D
(1) A Debts Recovery Tribunal acting under the Recovery
of Debts Due to Banks and Financial Institutions Act,
1993 would be entitled to order the sale and to sell
the properties of the debtor, even if a company-in-
E liquidation, through its Recovery Officer but only after
notice to the Official Liquidator or the Liquidator
appointed by the Company Court and after hearing
him.

F
(i1) A District Court entertaining an application under
Section 31 of the SFC Act will have the power to
..
order sale of the assets of a borrower company-in-
liquidation, but only after notice to the Official
Liquidator or the Liquidator appointed by the
Company Court and after hearing him.
G
(iii) If a financial corporation acting under Section 29 of
the SFC Act seeks to sell or otherwise transfer the
assets of a debtor company-in-liquidation, the said
power could be exercised by it only after obtaining
the appropriate permission from the Company Court
H
MIS. BAKEMANS INDUSTRIES PVT. LTD. v. MIS. 733
NEW CAWNPORE FLOUR MILLS [S.B. SINHA, J.]

and acting in terms of the directions issued by that A
court as regards associating the Official Liquidator
with the sale, the fixing of the upset price or the reserve
price, confirmation of the sale, holding of the sale
proceeds and the distribution thereof among the
creditors in terms of Section 529-A and Section 529 B•
of the Companies Act.

(iv) In a case where proceedings under the Recovery of
Debts Due to Banks and Financial Institutions Act,
1993 or the SFC Act are not set in motion, the creditor
concerned is to approach the Company Court for C
appropriate directions regarding the realisation of
its securities consistent with the relevant provisions
of the Companies Act regarding distribution of the
assets of the company-in-liquidation."
D
[See also !CIC/ Bank Ltd. v. SIDCO Leathers Ltd. and
Ors. 2006 (5) SCALE 27]

But, in this case, the sale in favour of Ceylon Biscuits Pvt.
Ltd. having not taken place in terms of Sectior:i 29 of the 1951
Act, the said question cannot have any application whatsoever. E

It is, however, a case where the learned Company Judge
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 al-
lowed the Company Judge to conduct the sale. The sale that F
was conducted was purported to be in terms of the Companies
Act. We have noticed hereinbefore that when a provisional liq-
uidator 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 mat- G
ter. The Company Judge could exercise its jurisdiction only in
terms of the Companies Act and not 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 could H
734 SUPREME COURT REPORTS [2008] 9 S.C.R.

A waive the same. It preferred the conduct of the auction at the
hands of the Company Judge in stead 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 with-
out any demur whatsoever, it actively participated therein. It is
B only at its instance that the bid was held. The other bidders were
also brought in.

It is, therefore, not a case where the learned Company ..
Judge had no jurisdiction to exercise supervision of sale of the
assets of the appellant on behalf of SICOM in terms of the pro-
C visions of Section 29 of the 1951 Act or otherwise. Respon-
dents even never insisted to get the question of jurisdiction de-
termined as a preliminary issue, although raised by it specifi-
cally. It, thus, for all intent and purport waived its right.
41. It is in the aforementioned situation, we must consider
0
the question as to whether in the facts and circumstances of
this case, the involvement of official liquidator was imperative.
42. The official liquidator brought to the court's notice the
claims of the other creditors. The Company Judge having been
E exercising its jurisdiction under Section 433 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 learned Company Judge was bound to follow the
provisions of the Companies Act and/ or the Company Court
F 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, particularly having regard
to the provisions of Section 529A of the Companies Act. We
G are informed that the workers had also filed their claims. Their
claims having regard to a series of decisions of this Court could
not have been ignored. [See Allahabad Bank v. Canara Bank ,.
(2000) 4 SCC 406 and Andhra Bank v. Official Liquidator and
Anr. (2005) 5 sec 75].
H 43. The claim of the workmen having regard to the specia
MIS. BAKEMANS INDUSTRIES PVT. LTD. v. MIS. 735
NEW CAWNPORE FLOUR MILLS [S.B. SINHA, J.]

provision as contained in Section 529A of the Companies Act A
is pari passu to the secured creditors of the Company.
Clause (11) of Section 2 of the Companies Act, 1956
provides for the definition of 'the court'. In A. Ramaiya, 16th Edn.
2004, the learned author opines that the jurisdiction of a com-
panies court extends only to those matters which are specified 8
in the Act and apart from those matters it has no jurisdiction.

, 44. The matter might have been otherwise if SICOM had
remained outside the winding up proceedings. If it attained, dis-
posal of the assets of the Company would be subject to pari c
passu claim of unpaid workmen in terms of Section 529A of the
Companies Act.

45. "'f:he sale has been effected by the court treating SICOM
as an agent. Factually the court did not do so. Even otherwise,
it is impermissible._ It exercised its own jurisdiction. It was bound D
to do so. There cannot be any doubt whatsoever that 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 up, but also would be entitled to, nay obligated to, if the E
situation so warrants to attempt to rehabilitate the company it-
self.

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 statutory obligation to safe- F
guard the interest of the .workmen as also other non-secured
creditors.
It is one thing to say as to how the assets shall be distrib-
uted but it is another thing to say that while exercising the power G
to cause the sale of the assets of the 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 an-
other thing that before putting the assets of the company to sale, H
736 SUPREME COURT REPORTS [2008] 9 S.C.R.

A the court will undertake certain obligations which are inherent in
exercise of its jurisdiction under the provisions of the Compa-
nies Act.

46. We will assume that the court could appoint SICOM
as an agent but apart from the fact that it, in fact, did not do so,
8 we are inclined to hold that the stand of the learned counsel is
mutually destructive. On the one hand, it is stated that SICOM
was exercising its statutory power to cause sale of the assets
of the mortgagor through the agency of the court but it is also
contended that the sale was affected by the court through
C SICOM. Such a contradictory or inconsistent stand, in our opin-
ion, is impermissible in law.

47. In NGEF Ltd. v Chandra Developers Pvt. Ltd. and
Anr., [(2005) 8 SCC 219], this Court opined:
D "The Company Judge moreover will have to bear in mind
the provisions contained in Section 529A of the
Companies Act in terms whereof the dues of the workman
and the debts due to the secured creditors to the extent
such debts rank in clause (c) of the proviso appended to
E Sub- section (1) of Section 529 pari passu therewith and
shall have a priority over all other debts."
In A.P State Financial Corporation v. Official Liquidator
[(2000) 7 SCC 291), this Court held :

F "Under the proviso to Sub-section (I) of Section 529, the
liquidator shall be entitled to represent the workmen and
force the above pari passu charge. Therefore, the
Company Court was fully justified in imposing above
conditions to enable the Official Liquidator to discharge
his function properly under supervision of the Company
G
Court as the new Section 529A of. the Companies Act
confers upon a Company Court a duty to ensure that the
workmen's dues are paid in priority to all other debts in
accordance with provisions of the above Section. The
Legislature has amended the Companies Act in 1985
H
MIS. BAKEMANS INDUSTRIES PVT. LTD. v. MIS. 737
NEW CAWNPORE FLOUR MILLS [S.B. SINHA, J.]

with a social purpose viz. to protect dues of the workmen. A
If conditions are not imposed to protect the right of the
workmen there is every possibility that secured creditor
may frustrate the above pari passu right of the workmen."
At this stage we may also notice a decision of Three- Judge
Bench of this Court in Andhra Bank (supra) wherein this Court B
had to consider the correctness of the decision in Allahabad
Bank (supra). The questions therein, inter alia, to be decided
were:

"Whether after a winding-up order is passed under Section c
446(1) of the Companies Act or a provisional liquidator is
appointed, whether the Company Court can stay
proceedings under the ROB Act, transfer them to itself
and also decide questions of liability, execution and priority
under Section 446(2) and (3) read with Sections 529,
...,. D
529-A and 530 etc. of the Companies Act or whether these
questions are all within the exclusive jurisdiction of the
Tribunal?"
This court after referring to the provisions of Section 529
and 529-A stated the law in the following terms : E
"In terms of the aforementioned provisions, the secured
creditors have two options (i) they may desire to go before
the Company Judge; or (ii) they may stand outside the
winding up proceedings. The secured creditors of the
second category, however, would come within the purview F
of Section 529-A(1 )(b) read with proviso (c) appended to
Section 529(1). The 'workmen's portion' as contained in
proviso (c) of sub-section (3) of Section 529 in relation to
the security of any secured creditor means the amount
which bears to the value of the security in the same G
proportion as the amount of the workmen's dues bears to
the aggregate of (a) workmen's due, and (b) the amount
of the debts due to all the creditors."
Thus, the High Court could not have disregarded the pari
H
738 SUPREME COURT REPORTS [2008] 9 S.C.R.

A passu charge of the workmen upon the company's assets.

48. The role of the official liquidator in a situation of this
nature assumes great importance.

49. Chapter II of the 1956 Act deals with winding up of a
B company by the court. Section 433 provides for winding up, in-
ter alia, by two modes. One, if the company has by special reso-
lution resolved that it should be wound up by the court; or (2) if
the company is unable to pay its debts.

An application for winding up is to be filed in terms of Sec-
C tion 431 of the Act. Section 441 provides that winding up of a
company by the court shall be deemed to commence at the
time of presentation of petition for winding up. The provision
has since been omitted by Companies (Amendment) Act, 2002.
Section 442 provides for the power of the court to stay or re-
D strain proceedings against the company, Section 443 envis-
ages power of the court on hearing petition. Section 446 pro-
vides for stay of all suits shall. Sub-section (3) of Section 446
reads as under :

"S. 446. Suits stayed on winding up order.-
E
(1)

(2)
(3) Any suit or proceeding by or against the company
F which is pending in any Court other than that in which
the winding up of the company is proceeding may,
nothwithstanding anything contained in any other law
for the time being in force, be transferred to and
disposed of by that court."
G 50. The Executive Court being a co-ordinate court (as the
Execution Petition was filed in the High Court itself) transferred
the same to the Company Judge having regard to the fact that a
provisional liquidator was appointed. Sub-section (4) of Sec-
tion 446, therefore, has no application as the proceedings be-
H fore the Executing Court was not a matter which came up in
M/S. BAKEMANS INDUSTRIES PVT. LTD. v. M/S. 739
NEW CAWNPORE FLOUR MILLS [S.B. SINHA, J.]

appeal from a judgment and order of another court. Section 44 7 A
provides for the effect of winding up order.
51. Section 448 provides for appointment of 'official liqui-
dator'. An official liquidator would be a liquidator on a winding
up order being made in respect of a company. Section 450
provides for appointment and powers of provisional liquidator; 8
sub-sections (1 }, (2) and (3) whereof read as under :

"Section 450-Appointment and powers of
provisional liquidator-(1) At any time after the
presentation of a winding up petition and before the c
making of a winding up order, the1[Tribunal] may appoint
the Official Liquidator to be liquidator provisionally.

(2) Before appointing a provisional Liquidator, the Tribunal
shall give notice to the company and give a reasonable
opportunity to it to make its representations, if any, unless, D
for special reasons to be recorded in writing, the Tribunal
thinks fit to dispense with such notice.
(3) Where a provisional liquidator is appointed by the
Tribunal, the Tribunal may limit and restrict his powers by E
the order appointing him or by a subsequent order, but
otherwise he shall have the same powers as a liquidator."
52. Section 456 envisages that when a winding up order
has been made or where a provisional liquidator has been ap-
pointed, the liquidator or the provisional liquidator, as the case F
may be, shall take into his custody nay his control of the prop-
erty, assets and actionable claims to which the company is or
appears to be entitled. It is true that the court had not permitted
the provisional liquidator to take over the assets. It protected
the possession of SICOM. But the same by itself would not mean G
that the provisional liquidator was denied from performing its
other functions.
' • Section 457 provides for the powers of liquidator. It is in
two parts, one which had to be exercised with the sanction of
the tribunal and the other which had to be exercised by itself. A H
740 SUPREME COURT REPORTS [2008] 9 S.C.R.

A liquidator, in terms of clauses (c) and (ca) is entitled to sell the ..
moveable and immoveable property. Exercise of such jurisdic-
tion by a provisional liquidator, therefore, shall not be denied of
his powers only because it did not obtain possession of the
properties. Section 529 of the Act which occurs in Chapter V
B provides for application of insolvency rules in winding up pro-
ceeding of the insolvent companies.
.
Section 529A expressly saves the rights of the workmen. •
It contains a non obstente clause. A statutory parri passu charge
is created in support of the dues of the workmen being equiva-
c lent to the dues of a secured creditor for the purpose enforcing
the insolvency rules as contained in clause (c) of sub-Section
(1) of Section 529.
Section 538 of the Companies Act provides for offences
by officers of companies in liquidation.
D
53. The rights, jurisdiction and powers of the provisional
liquidator may not be the same as that of an official liquidator.
But in a case of this nature, only because the financial in-
stitution stands outside the winding up proceedings, would it
E mean that the court shall, for all intent and purport, ignore its
officer and concentrate on the interest of the financial institution
alone? Can it be said that supervision of the court is necessary
only in a post winding scenario and not prior to it? The question
which should be addressed, in our opinion, by the Company ..-.
~
F Court is that the ultimate interest of both secured and non-se-
cured creditors must be kept in mind. Should Court have exer-
cised its jurisdiction for directing the ~ale of the prime property
and, in fact, the essence of the assets of the appellant at the
initial stage. The answer, in our opinion, should be rendered in
G the negative.

54. The Chancery Division in Re. Dry Docks Corporation
of London (1888 (39) Chancery Division 88], wherein Fry J.
..'
held
H "But then there are circumstances which, in my opinion,
M/S. BAKEMANS INDUSTRIES PVT. LTD. v. M/S. 741
NEW CAWNPORE FLOUR MILLS [S.B. SINHA, J.]

vary the rights of the parties. On the 81h of March a A
provisional liquidator had been appointed. Now the
provisional liquidator's appointment is not only provisional,
but contingent in this sense, that it operates to protect the
property for an equal distribution only in the event of an
order for compulsory winding-up being made; and if no B
... such order be made, then his appointment ought not to
#
interfere with the rights of third persons. He was in the
position of a receiver, whose appointment might interfere
with the rights of third persons. Now with regard to that,
the practice of the Court is perfectly plain, as was stated c
by Lord Truro, in the case of Russel v. East Angilan
Railway Company n(1 ), in very clear terms. He said : "I
apprehend then it may be taken as a rule that, though this
Court may have issued a process or have made.an order
which may interfere with the supposed rights and interests
D
of other parties not parties to the cause, it is always
competent for such parties to make an application to the
Court for relief; and it is not to be presumed or doubted,
but that justice will be duly administered to them on that
application."
E
'
55. The courts in India have to keep in mind different con-
siderations. The concept of right of property which was existing
in 191h Century in England would not stand the test of the act
and the interpretation it deserves keeping in view the object
.....
and purport of the 1956Act. ln-tndia, the Company Courts have F
a statutory duty to protect and rights of workmen keeping in view
the parri passu charge created in their favour in terms of Sec-
tion 529A of the Act. Power and functions of a provisional liqui-
dator subject to the limitations imposed by the court are the
same as that of an official liquidator.
G
56. It is furthermore not a case where the rights of third
\ persons were involved. We have held hereinbefore that SICOM
failed to keep itself outside the winding up proceedings. It has
become a party to it and, thus, when a sale is held by a Com-
pany Judge, it should not keep a provisional liquidator out of its H
742 SUPREME COURT REPORTS [2008] 9 S.C.R.

A purview. It may be true that the provisional liquidator could not
sell the property without the sanction of the court, but then feed
back of the provisional liquidator by the Company Court was
necessary for the purpose of having a complete picture before
it.
B The official liquidator has informed us that about 373 claims
have been filed. The amount of claim is about 100 crores; .
amongst the claimants, there are banks in whose favour also
deeds of mortgages have been executed. Provident Fund dues "
and other dues of statutoryclaims are also subject matter of the
c claim petition. They also have a priority. The claim of the provi-
dent fund is on behalf of the workmen. For scrutiny of the said
claims, a Committee has been constituted and we had been
informed that except the properties which have been sold in
liquidation, there is hardly any other asset upon which the credi-
D tors can back upon for the purpose of realization of their dues.
57. It is true that in a liquidation petition, secured creditors ...
ought to be differently treated. A third party who has an inde-
pendent right would not be affected by reason thereof. Ordi-
narily, even the statutory power of the said financial corporation
E would also not be affected.

58. We, however, are not in a position to agree with the
submissions of Mr. Sundaram that provisional liquidators have
no statutory powers in relation to affecting sale of a moveable
F or immoveable property. Indisputably, it is subject to the direc- .A'

lion of the court but, as indicated hereinbefore, the Court while
undergoing the process of winding up and, in any event, resort-
ing to sale of the assets of the company under winding up pro-
ceeding could not have a ignored the involvement of the provi-
sional liquidator for any purpose whatsoever.
G
At the cost of repetition, it is reiterated that the discretion
;
of the court for selecting the mode and manner of sale has noth- ~

ing to do with the process required to be gone into for the said
purpose.
H
MIS. BAKEMANS INDUSTRIES PVT. LTD. v. M/S. 743
NEW CAWNPORE FLOUR MILLS [S.B. SINHA, J.]

It must have before it all these facts and figures so as to A
enable it to pass a final order one way or the other. In so doing,
the court must keep in mind that it is 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. B
. The ratio of the decision of the Madras High Court in Sri
• Chamundi Theatre Mysore Talkies Ltd. v. S. Chandrasekara
Rao [1975 (45) Company cases 60] whereupon reliance has
been placed by Mr. Sundaram may be noticed. In that case, an
advocate was appointed as a provisional liquidator. The dis- c
tinction between appointment of an official liquidator as a pro-
visional liquidator and an advocate as a provisional liquidator
must be viewed differently. When an official liquidator is ap-
pointed as a provisional liquidator, the purpose is that he must
become aware of all the processes of winding up leading to D
exercise of his statutory power, if ultimately the courts find it just
and equitable to direct the winding up of a company. In that case,
the application for winding up was not pressed by the petitioner-
creditor.

Provisional liquidator, however, was directed to continue E
unless he hands over the charge to the Managing Director to
be elected in terms of the order passed by the learned Com-
pany Judge. The provisional liquidator, in view of the orders of
..... the court, ceased to be in judicial control or statutory control
over the properties of the company. Interpretation of Section F
450 as opined by the learned judges of the Madras High Court
must be viewed from the aforementioned factual matrix in mind.
It is not the law nor has such a proposition been canvassed
before us that the properties vested in the provisional liquida-
G
tor, as was the submission in that case. But then, however, the
\ learned judges opined that the 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
H
744 SUPREME COURT REPORTS [2008] 9 S.C.R.

A there does not exist such limitation, the services of provisional
liquidator shall not be resorted to.

59. Strong reliance has been placed on in Re A.I. Levy
(Holdings) Ltd. [1964 (1) Chancery Division 19].

B 60. We may at this stage notice the statutory provisions
as regards the provisional liquidator in the United Kingdom. The ~

Insolvency Act, 1986 governs the winding up proceedings in •
England & Wales.

Briefly stated the scheme of the said Act is as under :
c
The expression "office-holder" is defined in section 234(1 ).
It means the administrator, the administrative receiver, the liqui-
dator or the provisional liquidator, as the case may be. For the
purposes of section 236 the expression includes, in the case of
a company which is being wound up by the court in England
D
and Wales, the official receiver, whether or not he is the liquid a-
tor.

Under the heading "The liquidator's functions" section 143
of the Insolvency Act describes the general functions of the liq-
E uidator in a winding up by the court as follows:

"General functions in winding up by the court

(1) The functions of the liquidator of a company which is
being wound up by the court are to secure that the assets .;.'
F of the company are got in, realised and distributed to the
company's creditors a~d, if there is a surplus, to the
persons entitled to it.
(2) It is the duty of the liquidator of a company which is
being wound up by the court in England and Wales, if he
G is not the official receiver-
(a) to furnish the official receiver with such information,
(b) to produce to the official receiver, and permit
inspection by the official receiver of, such books,
H
MIS. BAKEMANS INDUSTRIES PVT. LTD. v. M/S. 745
NEW CAWNPORE FLOUR MILLS [S.B. SINHA, J.]

papers and other records, and A
(c) to give the official receiver such other assistance, as
the official receiver may reasonably require for the
purposes of carrying out his functions in relation to
the winding up."
B
In Official Receiver (Appellant) v Wadge Rapps & Hunt
(a firm) and another and two other actions [2003J UKHL 49,,the
question which was to be decided by the House of Lords was
whether the official receiver can have recourse to the powers
conferred by section 236 of the Insolvency Act 1986 ("the lnsol- c
vency Act") for the sole purpose of obtaining evidence for use in
disqualification proceedings against a former director.
Observing the functions of the liquidator vis-a-vis disquali-
fication proceedings envisaged under the Section 236 of the
Act, Lord Millett opined: D
''The first of these strands proceeds from the premise that
the powers conferred by section 236 are conferred on a
liquidator "for the better discharge of his functions in the
winding up". These words are not derived from the express
terms of the section but are evidently considered to be E
implicit in it. The unspoken assumption is that a liquidator's
"functions in the winding up" are limited to the collection
and distribution of the company's assets. I agree that the
bringing of disqualification proceedings is not a function
which is conferred on the official receiver "in the winding F
up"; if it were, the costs of the proceedings would be
payable out of the assets of the estate. It is not necessary
to consider whether the gathering of evidence for the
purpose of such proceedings is part of "his functions in
the winding up", for this formulation is unduly narrow. The G
liquidator's functions in relation to the company which is
being wound up are not and never have been limited to
the recovery and distribution of the company's assets. It
would be very oda if the liquidator of a company in voluntary
liquidation could apply to the court to direct a public H
746 SUPREME COURT REPORTS [2008] 9 S.C.R

A examination in the wider public interest but could not invoke
section 236 to order a private examination in the same
interest. In practice the liquidator would usually prefer to
invite the official receiver to make the application; and
even where the application was made by the liquidator
B the court would be disposed to invite the views of the
official receiver. But it is impossible to say that the liquidator
would be acting outside his proper role in the one case ...
and not in the other.
•
Section 236 contains no express limitation on the purpose
c for which it may be invoked. Of course it may be invoked
only for a legitimate purpose in relation to the company
which is being wound up, and the court, which has
discretion to make or refuse an order, should be astute to
see that the powers conferred by the section are not
D abused. It would plainly be an abuse to use those powers
for a purpose which is foreign to the functions of the
applicant in relation to the company which is being wound
up. But I reject the unspoken assumption that the functions
of liquidator are limited to the administration of the insolvent
E estate. This is only one aspect of an insolvency
proceeding; the investigation of the -;auses of the
company's failure and the conduct of those concerned in
its management are another. Furthermore such an
investigation is not undertaken as an end in itself, but in
F the wider public interest with a view to enabling the
authorities to take appropriate action against those who
are found to be guilty of misconduct in relation to the
"'" '
company. If the investigation yields information material to
the Secretary of State's decision to bring or continue
disqualification proceedings, it must be reported."
G
It was furthermore opined:
"In my opinion, the only limitation which is implicit in section .(
236 is that it may be invoked only for the purpose of
enabling the applicant to exercise his statutory functions
H
M/S. BAKEMANS INDUSTRIES PVT. LTD. v. M/S. 747
NEW CAWNPORE FLOUR MILLS [S.B. SINHA, J.]

,.. in relation to the company which is being wound up. A
Whether the applicant is the official receiver or the
liquidator or other office-holder these include the provision
of information to the Secretary of State or the official
receiver which is relevant to the bringing or continuing of
disqualification proceedings." B

+ 61. Interestingly, Mr. Rajiv Shakdher has made extensive
reference from Farar's Company Law, Third Edition to contend
that as the appellant had defaulted in payment of its dues to
various secured and non-secured creditors including SICOM, it
was admittedly heading towards insolvency and in that view of C
the matter, the assets of the company were really in a practical
sense their assets and not the assets of the creditors. We may
notice the observations made by the learned author :

"As we have seen, directors do not owe duties to
0
shareholders as such. Neither do they owe duties to the
company's creditors. The orthodox position being as stated
by Dillon LJ in Multinational Gas and Petrochemical Co.
v. Multinational Gas & Petrochemical Services Ltd. [1983
Ch. 258] directors owe fiduciary duties to the company
though not to the creditors, present or future, or individual E
shareholders.

Winkworth v Edward Baron Development Co. Ltd. [(1987)
1 All ER 114], a House of Lords decision, might suggest
'~ that there has been a change to that position with Lord F
Templeman stating :

' ... a company ownes a duty to its creditors, present
and future. The company owes a duty to its creditors
to keep its property inviolate and available for
repayment of its debts. The conscience of the G
company, as well as its management, is confided to
\ its directors. A duty is owed by the directors to the
company and to the creditors of the company to
ensure that the affairs of the company are properly
administered and that its property is not dissipated H
748 SUPREME COURT REPORTS [2008] 9 S.C.R.

A or exploited for the benefit of the directors themselves ..;..
to the prejudice of the creditors'."

The learned author furthermore observed :

"Support here for this approach can be found in West
B Mercia Safetywear Ltd. v. Dodd [(1986) 4 ACLC 215]
where Dillon LJ approved the following statement of the
,,
position by the New South Wales Court of Appeal in +
Kinsela v. Russell Kinse/a Pry Ltd. [(1989) AC 755] : •
'In a solvent company the proprietary interests of the r~

'
c shareholders entitle them as a general body to be
regarded as the company when questions of the duty ·~;~;

of directors arise. If as a general body, they authorize
or ratify a particular action uf the director, there can
be no challenge to the validity of what the directors
D have done. But where a company is insolvent, the
interests of the creditors intrude. They become
.,.. 'llo".'

prospectively entitled through the mechanism of
liquidation, to displace the power of the shareholders
and directors to deal with the company's assets. It is
E in a practical sense their assets and not the
shareholders' assets that through the medium of the
company are under the management of the directors
~.,
pending either liquidation, return to solvency, or the
imposition of some alternative administration'."
F 62. This is the meet of the matter. If the property which has ~'
been put to auction was the prime property over which the fate (::·
of the creditors depended, be they secured or non-secured
)ii
ones, the company court, in exercise of its equity jurisdiction
could not have obliterated it from its mind the cases of the oth-
•
G ers. If the assets belong to the creditors, that must mean the
whole body of the creditors and not only one of the secured
creditors. The inconsistency of 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
H that it is vested in the body of the creditors and not only in
M/S. BAKEMANS INDUSTRIES PVT. LTD. v. M/S. 749
NEW CAWNPORE FLOUR MILLS [S.S. SINHA, J.)

SICOM. A
63. The High Court, therefore, could not have ignored the
official 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 8
-+ liquidator and, therefore, it was not necessary for the Company
+ Judge to wait till the Company was wound up.

64. If the jurisdiction of a Company Judge is limited, any
substantial deviation and departure therefrom would result in c
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 proce-
dure was not adopted. We, however, very much appreciate the
anxiety on the part of the Court to see that otherwise just dues
D
of SICOM be realized. Conduct of a party 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, particu-
larly, when by reason thereof, not only the Company itself but
also other creditors are seriously prejudiced. We fail to see any E
reason as to why the hearing of the case was to be preponed.
Why even a day's time could not have been granted when a
prayer for adjournment was made. The jurisdiction of the Com-
pany Court is vast and wide. It can mould its reliefs. It may exer-
~
cise one jurisdiction or the other. It may grant a variety of reliefs F
to the parties before it The parties before the Company Judge
are not only the Company or the creditors who had initiated the
proceedings but also others who have something to do there-
with. Even in a given case a larger public interest may have to
be kept in mind. Th.e court may direct winding up. It may pre- G
pare a scheme for its restructuring.
65. We, therefore, are of the opinion that the Company
Judge was not correct in its view and passed the impugned
judgments only having regard to the wrongful conduct on the
H
750 SUPREME COURT REPORTS [2008] 9 S.C.R.

A part of the appellant in obtaining an award from the conciliation
tribunal or failure to bring a better offer from another bidder.
66. The question which is really an intricate one is what
relief can be granted. On the one hand, the Company has com-
mitted wrongs, on the other, its property has been sold in auc-
B tion. Even a part of the property has been permitted by us to be
taken out of the country. The factory, we are told, has started
operation. It has employed a large number of workmen. Would
..
that itself mean that we should refrain ourselves from granting
any relief? Direction issued by this Court in a case of this na-
c ture need not be a narrow one.
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. We must also take into consideration
the fate of the other creditors.
D
67. We, therefore, are of the opinion that interest of justice
would be subserved if while allowing the appeal, the learned
Company Judge is requested to go into the question afresh in
accordance with the provisions of the Companies Act and hold
E a fresh auction.
While doing so, indisputably, Ceylon Biscuits Pvt. Ltd.'s
offer would be considered. The Company Judge may consider
the question of grant of some preference to Ceylon Biscuits
Pvt. Ltd. b.ut while an auction is to be held, there should be a
F proper valuation of all the assets of the Company both movable ,;/
and immovable.
The court, indisputably, may consider the question of tram-
ing an appropriate scheme if it is found that there is a possibil-
G ity of revival of the Company. In other words, we leave all op-
tions open to the learned Company Judge as are available in
terms of the provisions of the Companies Act including adjust-
ment of equities amongst the parties.
Till, however, a final order is passed, Ceylon Biscuits Pvt.
H Ltd. would continue to function not as an auction purchaser but
M/S. BAKEMANS INDUSTRIES PVT. LTD. v. M/S. 751
NEW CAWNPORE FLOUR MILLS [S.B. SINHA, J.]

as a Receiver of the Company Court. Ceylon Biscuits Pvt. Ltd. A
shall file all statement of accounts in regard to the amounts which
it had invested and all other requisite statements 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, B
.-. apart from the provisional liquidator, appoint another person to
, supervise the works and functioning of Ceylon Biscuits Pvt. Ltd.
as a receiver of the Court. As Ceylon Biscuits Pvt. Ltd. is being
appointed as a receiver, it goes without saying that it shall act
strictly under the supervision of the court and abide by the or- C
ders which may be passed by it from time to time.

69. For the reasons aforementioned, the appeals are al-
lowed to the aforementioned extent. In the facts and circum-
stances of the case, however, there shall be no order as to costs.

K.K.T. Appeals partly allowed.