Bank Vs. Arc Holding Limited & Ors  INSC 494 (26 September 2000)
& Doraiswamy Raju Misra, J.
The appellant-Allahabad bank the decree-holder has raised a question, whether
after an order passed in execution proceedings for the sale of plant, machinery
and moveable lying at the factory, can the same court later pass an order for
sale of the factory of the company as a `going concern'. The submission is, by introducing
into the sale of the factory as a `going concern' has in fact, nullified the
execution itself. In order to appreciate the controversy we are hereunder
giving short essential facts.
appellant-Allahabad bank the decree-holder is a secured creditor of Rishra
Steels Limited respondent no.4 the judgment-debtor. On 19th December, 1990 the appellant-bank filed a suit
against the said company represented by the Official Liquidator in the High
Court for a decree for Rs.4,06,90,548/- together with interest. On 15th July, 1996 a decree was passed by the Calcutta
High Court for Rs.3,47,94,232.85 together with interest. The decree provided;
payment of decretal amount in 60 equal monthly installments on and from 12th September, 1996; in default the petitioner was
entitled to sale the suit properties by public auction or private contract. No
appeal was preferred from this order nor any installment was paid by the
judgment-debtor. On the
26th August, 1997 the
appellant-bank applied for execution of decree for the aforesaid amount along
with interest. It is relevant to refer that the aforesaid
judgment-debtor-company went into liquidation under the order of the winding up
dated 4th June, 1990.
On 12th December, 1997 the High Court appointed the
Official Liquidator in the said execution case, to take possession of the
assets of the company and directed it to take steps for the sale of the assets
of this company. The relevant portion of this order is quoted hereunder:
Official Liquidator is appointed Receiver for the purpose of making an
inventory of the assets of the Company liquidation (in liquidation) and have
the same valued by a qualified Valuer for the purpose of sale of the said
conditions for such sale shall be settled by him subject to confirmation by
this Court." On 19th
December, 1997 this
order was modified by directing that order for sale must be limited to the
security of Allahabad bank, which has been plant, machinery and other moveable
assets as mentioned in the schedule to the decree. The relevant portion of this
order is also quoted hereunder:
the order for the sale on the application of the secured creditor Allahabad
Bank, the same must be limited to its security and the order dated 12.12.97 is
modified to the above extent.....At the time of settling the above sale, the
question as to whether the suit of the company can be sold as a going concern
shall be considered." Thereafter the High Court through its order dated 23rd February, 1998 directed the Official Liquidator to
publish an advertisement inviting offers for sale of the assets of the company
in liquidation as a `going concern'. The relevant portion of this order is also
Official Liquidator is directed to appoint a Valuer in terms of the order dated
12th December, 1997 passed by this Court. Such
valuation is to be made within 16th March, 1998.
Upon such valuation being made, the Official Liquidator shall, thereafter,
publish advertisements within 13th April, 1998, inviting offers for sale of the
factory and assets of the Company in liquidation as a going concern......The
Official Liquidator shall mention in his sale notice that the intending bidders
should be prepared to re- employ the workmen stated to be 468 in number. In
their offers and bidders shall indicate as to whether they are prepared to pay
all the arrear dues of the workmen and if so the manner in which they proposed
to pay off the said dues.
should be mentioned in the said notice that the sale shall be subject to
confirmation by this Court." Another order dated 10th July, 1998 was passed by the High Court
directing the Official Liquidator to sale all the assets of the company in
liquidation as a `going concern'.
these facts, the submission, on behalf of the appellant-bank is that respondent
no.4 Rishra Steels Limited the judgment-debtor was not functional even before
the date of winding up i.e. it is not a running concern since last more than
ten years. The argument is, by order dated 19th December, 1997 the court directed for the sale of
plant, machinery and moveable which are security of the bank.
could be no difficulty in execution in terms of this order. This is natural
also to first get satisfaction from the securities which stood for the loan.
But subsequent order directs sale of the entire assets of the company as a
`going concern'. This means revive the company first to make it operational,
re-employ its employees, which would involve huge investment by the prospective
buyer, an Herculean task, making execution practically infructuous.
these facts the appellant-bank has filed these appeals against two orders dated
23rd February, 1998 and 10th July, 1998. Learned counsel submits, the Division Bench of the High
Court fell in error in not directing plant, machinery and securities to be sold
separately, by this, vast land and building of the factory would still be left,
which would fetch much higher price, which may cover the total balance
liabilities of the company in liquidation.
other hand, selling of the factory as a `going concern' with a rider to absorb
all the employees would not only bring low sale price but would negate the
execution of the decree.
other hand the submission on behalf the judgment-debtor and on behalf of the
workmen is such an order is just and proper as it brings back workers to earn
their livelihood and simultaneously it would satisfy the decree.
not in dispute that the appellant-bank is the only secured creditor as against
the said judgment-debtor company in liquidation. The total decree along with
interest till 31st
August, 1999 recorded
is Rs.8,29,48,725.72p. It is true, the court must find that method of sale of
the assets or of the company, which brings maximum price to satisfy its
creditors. This may, in a given case, include recovery through instalments out
of the production of the company.
would depend on the potentiality, viability and health of a company. Sometimes
when company is taken over under Section 29 of the Financial Corporation Act,
corporation may run or get the factory run to recover the loan. In another set
of cases, where company has become non- functional, sick, due to its heavy
debt, lack of production, mismanagement etc. then possibility of its revival is
examined through expert statutory body the BIFR. It is only after scrutiny a
decision is made to help in revival. It may order if no revival is possible. If
company agrees with conditions imposed under any scheme framed by BIFR, if
revival is possible such company may be brought back as running concern, with
hope of its revival. But, if a company has reached a skeleton stage, where its
revival is not possible, its assets are sold, to pay back the creditors. In the
present case, undisputedly an order of winding up was passed as far back as on 4th June, 1990.
is nothing on the record to show even any attempt was made by the
judgment-debtor respondent-company for its revival nor there is any thing on
the record, to show that there exist possibility of its revival. Submission for
the appellant-bank in support of sale being as `going concern' is made under
the garb and in the name of `workers' to resist the present execution.
counsel for the appellant-bank strongly relies on Union Bank of India vs. Official Liquidator H.C. of
Calcutta and Ors. 2000 (5) SCC 274. This was a case where a company was closed
for about 17 years. The relevant portion is quoted hereunder:
also appears that the Division Bench was persuaded by the so-called sympathy
for the workers, without verification of the fact that the Company was closed
before 17 years of sale. The Court has noted in the beginning while narrating
the submission of the learned counsel who appeared for the benefit of the
employees that more than 100 employees were starving to death and in the later para
stated that the Court was informed by the learned advocate appearing for the
employees' union that more than 100 employees have already died. Without there
being any application on record and without there being proper verification of
the facts from the parties concerned, it is not just and proper to make such
observations. It is not impossible that because of the lapse of 17 years, out
of 1200 workers who might have worked in the said factory 100 employees might
have died a natural death. But in any circumstances it was unjustified to make
a case over it and to accept oral submissions and to dispose of the valuable
properties of a Company by stating that the sale of the Company as a going
concern was for the benefit of the so-called employees who were not in
employment." Submission is, applying this decision and in the absence of
any credible material the direction to sale the company as a `going concern' is
counsel for the company in liquidation and for the employees union, representing
workers submits, for a compassionate consideration, in the interest of workers;
as a last resort, attempt be made, if possible, to get a buyer who may take
over the company as a `going concern' and be ready to pay the price to satisfy
the decree and pay the rest of the liability in a phased manner after the
indisputably the order of winding up made on 4.6.1990 had become final and
company has become non-functional for long, even BIFR could not come to its
rescue and the attempt of the workers union to resuscitate the company by
getting a committee constituted for management was repelled by a Division Bench
of the High Court and this Court when the SLP filed by the workers Union came
to be dismissed on 5.12.1997, it would no doubt be ironical and unjust to get
order for the sale of the assets of the company - as a going concern. But, at
the same time to give a last try to the fond hopes expressed on behalf of the
erstwhile workers, we consider giving one more chance to have it so done within
a strict frame of time limit.
considering submission of the learned counsel for the parties, we are granting
this indulgence, by permitting the sale of the company as a `going concern'
with certain conditions only.
Official Liquidator for this purpose shall advertise the sale of the company in
liquidation-judgment debtor as a `going concern' as ordered by the High Court.
Such publication shall indicate that the reserve price, shall be the amount
equal to the total decree including interest which has accrued upto 31st December, 1999 in favour of the appellant-bank,
and shall also has to pay the balance interest which accrues, till full payment
is made. The publication shall also indicate that purchaser has also to pay the
liabilities of other claimants in the proceeding for the liquidation of the
all the parties are represented before us, including the Official Liquidator,
we grant total period of ten weeks from today, for concluding sale, with the
aforesaid condition, including the period of advertisement, receiving offers
etc. In case, it is not concluded within this period, the order of the High
Court directing the sale of the company as a `going concern' shall stand set
Official Liquidator will then proceed to sell the assets of the company first
by selling the plant, machinery and other moveable assets and then the other
assets in such a manner to fetch the maximum price, keeping the interest of all
other creditors. Out of the aforesaid proceed, first the decree in favour of
the appellant-bank should be satisfied and then to proceed to distribute the
balance to other creditors in accordance with law. Accordingly the aforesaid
two orders of the High Court dated 23rd February, 1998 and 10th July, 1998
stand modified to the extent we have passed this order. In these terms these
appeals stand disposed of. Costs on the parties.