Holding

BIFR alone has exclusive jurisdiction to sell the assets of a sick industrial company under SICA Section 20(4); the High Court cannot sanction such sale or direct execution of a deed of sale without BIFR’s authority.

Summary

NGEF Ltd., a joint‑venture sick industrial company, was referred to the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). BIFR recommended winding up and observed that any sale of the company's assets should be sought from the High Court. The Karnataka High Court, acting as a Company Court, allowed an application by Chandra Developers Pvt. Ltd. directing NGEF to execute a deed of sale of 40.45 acres of land, treating the board resolution as a concluded contract. The appellants (NGEF, its Official Liquidator and State Bank of Mysore) contended that the High Court lacked jurisdiction because SICA, via Section 20(4) and its non‑obstante clause, vests exclusive power to sell assets in BIFR until a winding‑up order is passed. The Supreme Court held that BIFR alone could sanction the sale and the High Court could not exercise such power or direct specific performance. Consequently, the High Court’s order was set aside.

Issues considered

The Company Court’s jurisdiction to sanction the sale of assets of a sick industrial company under SICA versus the Companies Act.
Whether the High Court could direct execution of a deed of sale (specific performance) in the absence of a provisional liquidator.
If a concluded contract existed between NGEF Ltd. and Chandra Developers, requiring State Government approval.
Whether the price offered for the land was reasonable and in the interest of the creditors.
Whether the High Court’s order violated the non‑obstante clause of SICA and provisions of the Companies Act, particularly Section 536(2).

Legislation cited

Companies Act, 1956s. 433, s. 443, s. 446, s. 447, s. 529-A, s. 536(2)
Companies (Court) Rules, 1959s. Rule 6, s. Rule 7, s. Rule 9
Sick Industrial Companies (Special Provisions) Act, 1985s. 20(4), s. 22-A, s. 32

Subjects

SICABIFRwinding upsale of assetsjurisdictioncompany courtinherent powernon‑obstante clausecreditors' interestspecific performancejoint venturedisinvestment

Judgment

MIS. NGEF LTD. A
v.
MIS. CHANDRA DEVELOPERS PVT. LTD. AND ANR.

SEPTEMBER 29, 2005

(S.B. SINHA AND C.K. THAKKER, JJ.] B

Sick Industrial Companies (Special Provisions) Act, 1985 (SICA)-
Section 20(4)-Companies Act, 1956-Sections 443, 446, 447, 529-A, 536-
Recommendation by Board ofindustrial and Financial Reconstruction (BIFR) C
to High Court to wind up a sick industrial company.

Observation of BIFR that direction of sale of its assets should also be
sought from High Court-legality of-Held: BJFR and High Court do not
· have concurrent jurisdiction to sell the assets-BIFR alone controlled the
assets and had power to dispose them till winding up order was passed by D
High Court, and for this purpose leave of latter was not required-BIFR
being a statutory authority, in absence of any empowering statutory provision,
could not delegate its power to any other authority-The power to dispose
of the assets had to be exercised subject to provisions of SICA which was
special statute governing the field whose provisions prevail over those of
Companies Act.-This was despite the fact that procedures laid down in E
Companies Act were applicable therefor, but those were to be read with
. Section 20(4) of SICA.

Sale of assets-Sanction for-Held: High Court/BIFR sanctioning the
sale has to ensure that disposition of assets is in interest of creditors of the F
company and satisfj; itself that price offered is reasonable having regard to
market value ofproperty-It is especially so when company is not an applicant
before them, had resisted claim to dispose of its assets, order admitting
winding up petition was passed after much delay, and no provisional
liquidator was appointed
G
Sale of assets-Jurisdiction-Held: Company Judge of High Court, in
exercise of its inherent jurisdiction to pass interim order, cannot direct
execution of sale deed-However, disposition of assets during interregnum
may not be irretrievably void but the courts are required to exercise power
with circumspection and caution-An equitable order passed by a Company
747 II
748 SUPREME COURT REPORTS (2005) SUPP. 3 S.C.R.

A Judge in exercise of its inherent jurisdiction or otherwise must coriform to
requirements of relevant statutes-Companies (Court) Rules, I 959, Rules 7
and 9.

Procedure for winding up-Held: High Court would initiate proceeding
for winding up under Section 433 of the Companies Act without any formal
B application and same would be deemed to have commenced from date on
which it applied its mind relying on the recommendation.

Joint venture company (JVC) formed by State Government and another
company-Becoming sick-State Government's advertisement for selling of
C its share in the JVC-one of the bids accepted by resolution of Board of
Directors of JVC-State Government deciding to close down the JVC subject
to approval of BIFR-Winding up of JVC recommended by BlFR to High
Court and proceedings for same pending-Sale of assets of JVC-Held: State
Government decision did not suggest that ii had granted its approval for
sale, and in absence of that there was no concluded contract for sale of
D assets-ft was especially so as the bid was made in terms of advertisement
wherein State reserved for itself right to accept/reject any offer-Company
will not be acting as an appellate authority over the High Court if its
approval was sought.

Maxim- 'Delegatus non potest delegare '-ft means a delegate cannot
E sub-delegate its power unless expressly authorized
NGEF Ltd. was a joint venture company of a State Government and
GMBH. It became sick, whereupon a reference was made to the Board for
Industrial and Financial Reconstruction (BIFR) in terms of the Sick Industrial
F Companies (Special Provisions) Act, 1985 (SICA). All its assets had been
placed as collateral security to various financial institutions amongst which
SBM was the lead Bank. From time to time NGEF Ltd, with the permission of
BIFR and its secured creditors, had been selling it surplus lands for the
purpose of paying wages to its workers and refund of loans to financial
institutions. However, State Government decided to disinvest its shares in
G NGEF Ltd in furtherance whereof global tenders were invited in terms of an
advertisement CD Pvt Ltd, respondent, bid for purchase a part ofland of NGEF
Ltd, and same was allegedly accepted by a resolution of Board of Directors.
NGEF Ltd submitted an application to BIFR praying for direction to financial
institutions to release their charge over its assets so as to enable it to sell its
surplus lands. In the meanwhile, State Government decided to close down NGEF
H Ltd subject to approval of BIFR BIFR recommended its winding up and sent
NGEF LTD. v. CHANDRA DEVELOPERS PVT.LTD. 749

. the same to the High Court with observation that directions regarding sale of A
assets should be sought from there. The High Court registered the said
recommendation as a Company Petition. The respondent filed application before
Company Judge of High Court under Rules 6 and 9 of the Companies (Court)
Rules 1959 for direction to NGEF Ltd. to exercise a deed of sale in its favour
in respect of part of land for which it had bid alleging that the aforesaid B
resolution of Board of Directors constituted a concluded contract between the
parties. Objections to the said application were filed by appellants in the
present appeal viz. NGEF Ltd, represented by Official Liquidator, and SBM.
High Court allowed this application. Review as well as appeals of appellants
from the said order were dismissed by High Court. Hence the present appeal.

Appellant contended that judgment of the Company Judge of High Court
c
was wrong on following grounds (i) it had jurisdiction neither to sanction of
sale of assets of the company nor for directing the Company to execute a deed
of sale, which amounted to grant of a decree for specific performance of
contract BIFR retained control over assets ofth.e company in terms of Section
20(4) SICA and it alone could sanction sale of assets of the company. (ii) Its D
finding that that there was a concluded contract between respondent and the
Company was erroneous. (iii) It had a duty, in larger interest of creditors to
obtain the best price for the lands sold. Considering the total dues and
liabilities of the Company, consideration amount was insufficient. (iv) It had
not taken into consideration their objections, and assuming such objections E
had not been raised, it was the duty of that Court to take them into
consideration. (v) Having regard to Sections 443, 446, 447 read with 529-A
of the Companies Act, 1956, it did not have any inherent power to direct the
Company to execute a deed of sale, and more so when a Provisional Liquidator
had not been appointed; such a direction could only be issued to the Official
Liquidator. F
Respondent contended that (i) power of the Company Judge of High Court
as also BIFR being concurrent, the latter could ask the company to approach
the High Court for a direction as regard sale of its surplus lands. (ii) the
Company Court of High Court had inherent power to direct sale of assets of
a company during the pendency of winding up proceedings, in relation G
whereto Section 20(4) was not applicable (iii) In terms of Section 150(1) and
(3), 446(2), 456(1), 457 and 536(2) of the Companies Act, 1956 winding up
was envisaged in various stages, and the Company Judge of High Court had
jurisdiction to direct sale of land. (iv) Orders passed by BIFR and High Court
showed that apart form the argument that application for according sanction H
750 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A for sale of land could only have been filed before BIFR, no other contention
was raised by appellants (v) State Government had approved sale by mutual
agreement by asking the Company to approach the High Court for said
purpose. (vi) The Articles of Memorandum of Association of the Company
cannot render ineffective the exercise of statutory power under the Companies
B Act and in that view, as the High Court had approved sale in favour of
respondent, it was not open to the State Government to act as an Appellate
Authority over it. (vii) The sanctity of an auction sale should be maintained
and in the event auctions are set aside and reauctions ordered on less
satisfactory material, loss to exchequer would be far greater.

C Allowing the appeal, the Court

HELD: 1.1. BIFR has power to sell the assets of the Company but the
High Court until a winding up order is issued does not have the same.
Observation of BIFR to the effect that the Company may approach the High
Court in case it intended to dispose of its property by private negotiation but
D the same would not mean that BIFR could delegate its power in favour of the
High Court. BIFR being a statutory authority in absence of any provision
empowering it to delegate its power in favour of any other authority had no
jurisdiction to do so. 'Delegatus non palest de/egare' is a well known maxim
which means unless expressly authorized a delegate cannot sub-delegate its
power. Moreover, the said observations of BIFR would only mean that the
E Company Court could exercise its power in accordance with law not d'ehors
it. If the Company Court had no jurisdiction to pass the impugned order, it
could not derive any jurisdiction only because BIFR said so. (775-D, E, F]

1.2; BIFR had permitted only the Company to approach the High-Count
F in case any occasion arises· therefore. BIFR did not permit any other person
to do so. The company did not file such an application. It opposed the prayer
of the First Respondent. The Company had preferred an appeal before the
Division Bench of the High Court questioning the correctness of the order
passed by the Company Judge. [775-G-Hl

G 1.3. Assuming that the Company Court alone has the jurisdiction to
sanction sale of the assets of a sick company, it having regard to its duties
towards the debtors was required to apply its mind as regard the questioning
as to whether the disposition of the asset of the company is in the interest of
its creditors. In this case, the company was not the applicant. It did not join
the First Respondent in its application. It had all along resisted its claim. In
H the winding up proceeding no order admitting the petition was passed at the
NGEF LTD. v. CHANDRA DEVELOPERS PVT.LTD. 751

relevant time. Order admitting the petition was passed much later. Even no A
provisional liquidator was appointed. (771-C-D]

2.1. The Company Court has inherent power. Such inherent power of
the Company Court is saved in terms of Rules 7 and 9 of the Companies
(Court) Rules, 1959. The Company Court, therefore, may have the requisite
jurisdiction to approve sale of the assets ofa company but the question which B
arises for consideration is as to whether such inherent power can be exercised
despite existence of a provision contained in another statute. (769-B-C]

2.2. Section 32 of SICA contains a non-obstante clause stating that
provisions thereof shall prevail notwithstanding any rules or schemes made C
thereunder contained in any other law for the time being in force. In ordinary
course although the Company Judge may have jurisdiction to pass an interim
order in exercise of its inherent jurisdiction or otherwise directing execution
of a deed of sale in favour of an applicant by the Company sought to be wound-
up; but keeping in view the express provisions contained in sub-section (4) of
Section 20 of SICA such power in the Company Judge is not available. D
(769-D-E]

2.3. A disposition of assets during the interregnum may not be
irretreivably void but the courts "lire required to exercise power with
circumspection and caution. (771-B]
E
Pankaj Mehra and Anr. v. State of Maharashtra and Ors., (2002] 2 SCC
756, referred to.

Smt. Usha R. Shettyand Ors. v. Radeesh Rubber Pvt. ltd and Anr., (1995)
84 CC 602 and Kamini Metallic Oxides ltd v. Kamani Tubes ltd, (1984) 56
CC 19, overruled. F
Gray's Inn Construction Col. ltd. Re.. (1980] I All E.R. 814 (C.A.)
referred to.

Buckley on Companies Act, referred to.
G
2.4. An equitable order passed by a Company Court in exercise of its
inherent jurisdiction or otherwise must conform to the requirement of the
relevant statutes. (774-E]

Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal, AIR (1962)
SC 527, Vareed Jacob v. Sosamma Geevarghese and Ors., (2004] 6 SCC 378 H
752 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A and National Institute of Mental Health and Neuro Sciences v. C.
Parameshwara, [2005) 2 SCC 256, relied on.

A.I. Levy (Holdings) Ltd (1964) 1 Chancery Division 19, referred to.

3.1. The Company Court and BIFR do not exercise concurrent
B jurisdiction. If such a construction is upheld there shall be chaos and
confusion. A company declared to be sick in terms of the provisions of SICA
continues to be sick unless it is directed to be wound up. [767-B-C]

3.2. Winding up proceeding in relation to a matter arising out of the
recommendations ofBIFR do not necessarily commence only on passing of
C an order of winding up of the company. [769-E-F]

BPL ltd., Bangalore v. lntermodal Transport Technology Systems
(Karnataka) ltd., Bangalore and Ors., (2001) 3 Kar. L.J. 622 (DB),
disapproved.

D 3.3. It may be true that the High Court's jurisdiction is that of the
Appellate Authority but keeping in view the terminology contained in sub-
section (4) of Section 20 read with Section 32 of the act leaves no manner of
doubt that the provisions of SICA shall prevail over the provision of the
Companies Act. For the aforementioned purposes, it was not necessary for
E the Parliament to mention specifically the provisions of sub-section (4) of
Section 20 that the same shall prevail over Section 536 of the Companies
Act. The construction that the provision of sub-section (4) of Section 20 and
Section 536 should be read conjointly so as to enable an applicant to obtain
sanction of both BIFR and the Company Court, is not acceptable. (768-E-F]

F 3.4. SICA was enacted subsequent to the provisions of the Companies
Act. It is not, thus, possible to accept that the High Court exercises a
concurrent jurisdiction. (768-D]

3.5. It is inconceivable that in law not only the approval will have to be
taken from both the courts in case of any private sale, the Company will have
G to obtain the consent of both the Company Court or BIFR. While interpreting
the provisions of the two statutes, the court cannot remain oblivious of the
fact that in a given case, possibility of a conmct in the. orders passed by the
two court may arise, which must be avoided. 1768-G-H]

4.1. Till the company remains a sick company having regard to the
H provisions of sub-section (4) of Section 20, BIFR alone shall have jurisdiction
NGEF LTD. v. CHANDRADEVELOPERS PVT.LTD. 753
as regard sale of its assets till an order of winding up is passed by a Company A
Court. Further, for such selling of assets, leave of the Company Court is not
required.

BPL Ltd, Bangalore v. Intermodal Transport Technology Systems
(Karnataka) Ltd, Bangalore and Ors., (2001) 3 Kar. L.J. 622 (DB) approved.
B
4.2. Section 536(2) of the Companies Act ipso facto does not confer
any jurisdiction upon the company court to direct sale of the assets of the
sick company. It has to exercise its power thereunder subject to the provisions
of the special statute governing the field. Despite the fact that the procedures
laid down under the Companies Act would be applicable therefor but they must
be read with Section 20(4) of SICA which contains a non-obstante clause and C
in terms thereof, BIFRis authorised to sell the assets of the sick industrial
company in such a manner as it may deem fit. By reason of the said provision,
BIFR is also empowered to forward the sale proceeds to the High Court for
orders for distribution in accordance with Section 529-A and other provisions
of the Companies Act which in no uncertain terms would mean that the D
distribution of the sale provides would be for the purpose of meeting the claims
of the creditors in the manner laid down therein. The intention of the
Parliament in enacting the said provision becomes clear as in terns o: 3ection
22A of SICA, BIFR is empowered to issue any direction in interest of the
sick industrial company or its creditors or share holders and direct the sick
industrial company not to dispose of its assets except with its assent. Section E
32 contains a non-obstante clause. The scheme suggests that BIFR retains
control over the assets of the company and in terms of the aforementioned
provisions may either prevent any sale or permit any sale of the assets of the
sick industrial company. Such a power in BIFR remains till a winding up
order is passed by the High Court and a stage arrives at for the High Court p
for issuing orders for distribution of the sale proceeds. 1767-G; 768-A, B, C]

Sudarshan Chits (/) Ltd. v. 0. Sukumaran Pillai and Ors., 11984) 4 SCC
657, referred to.

Bengani Food Products Pvt. ltd v. Official Liquidator and Ors., (1998) G
94 CC 762, held inapplicable

4.3. It may be true that no formal application is required to be filed for
initiating a proceeding under Section 433 of the Companies Act as the
recommendations therefor are made by BIFR or AAIFR, as the case may be,
and thus, the date on which such recommendations are made the Company H
754 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A Judge applies his mind to initiate proceeding relying on or on the basis
thereof, the proceeding for winding up would be deemed to have been started;
but there cannot be any doubt whatsoever that having regard to the
phraseology used in Section 20 of SICA that BIFR is the authority proprio
vigore which continues to remain as custodian of the assets of the Company
B till a winding up order is passed by the High Court. [769-F-G-HJ

5. The order issued by the Government of Karnataka does not suggest
either expressly or by necessary implication that it had granted its approval
for the said sale. It is also not correct to contend that the company will be
acting as an appellate authority over the High Court, if its approval is sought
C for. The question should, in fact, be considered from a different angle. An
application before the Company Judge, if at all, was maintainable only upon
obtaining the approval of the Government of Karnataka and if such approval
is granted, then only it would constitute a concluded contract. In terms of its
advertisement, the State reserved unto itself the right to accept or reject the
said offer. If the bid had been made pursuant to the said advertisement
D indisputably the State's approval was necessary. In any event the records were
required to be placed before the State so as to enable it to apply its mind as to
whether offer should be accepted or not. Therefore, contention that in the event
if it be held that the company's approval was necessary, the same would be
contrary to the statutory power of the Company Court, is misconceived. The
E very fact that original advertisement was issued by the Government of
Karnataka and there existed such a clause in the Memorandum of Association
of the Company is suggestive of the fact that the Board of Directors of the
Company proceeded on the basis that such approval of the Government of
Karnataka was imperative. (765-D-H; 766-A-E)

F 6.1. There lies distinction between accord of sanction for private
negotiation of sale of assets of the Company vis-a-vis the auction held by the
Official Liquidator. It is not in dispute that no Provisional Liquidator was
appointee. The court may have an inherent power to approve a transaction of
sale entered into by and between the Company and the third party, but it is
beyond any cavil of doubt that while doing so the Company Court must bear in
G mind its duties towards the creditors. While exercising jurisdiction under
Section 433 of the Companies Act, the Company Court remains the custodian
of the interest of the Company and its creditors. It has, thus, a duty to satisfy
itself that having regard to the market value of the property, the price offered
is reasonable. It is further more required to be borne in mind that upon
H liquidation, the assets and properties of the Company vest in the Official
NGEF LTD. v. CHANDRA DEVELOPERS PVT. LTD. (SINHA, J.] 755
Liquidator for the benefit of the creditors. [772-G-H; 773-A-B) A
6.2. The satisfaction as regard adequacy of the price is one of the
relevant factors for proper and reasonable exercise of the judicial discretion
vested in it There cannot be any doubt or dispute that when an auction on the
ground that still higher price may be obtained may prove to be self-defeating
exercise, but having regard to the accepted position that the Company Judge B
in a case of this nature exercises a discretionary jurisdiction; it is bound to
act with great circumspection and caution. Such a jurisdiction should
ordinarily be exercised in exceptional cases and when necessary for seeing
the company as an on-going concern. [773-C-D-E)

Kayjay Industries (P) Ltd. v. Asnew Drums (P) Ltd. and Ors., (1974) 2 C
SCC 213 and State of Punjab v. Yoginder Sharma Onkar Rai & Co: and Ors.,
(1996[ 6 sec 173, relied on.

7. It may be true that before the Company Judge or before the High
Court the secured creditors did not raise objections which have been raised D
in before this Court, although specifically taken in their objections, but if
such considerations were relevant having regard to the statutory duties
imposed upon the court, the Company Judge must be held to have failed and
or neglected to exercise its discretionary jurisdiction in a fair and reasonable
manner. (773-E-FJ
E
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 5199-5201 of
2004.

From the Judgment and Order dated 5.1.2004 of the Karnataka High
Court in O.S.A. Nos. 67, 68 and 70 of2003.
F
WITH

C.A. Nos. 5202-5205 of2004.

R. Sundaravardan, T.R. Andhiyarujina, Delep Goswami, Abbay Kumar,
Subramonioum Prasad, Sandeep Kumar, P.R. Ramasesh (NP), R.N. Keshwani, G
Ram Lal Roy, C.G. Sivakumaran, K.T. Anantharaman, Ashish Chughy and
Vasudevan Raghavan for the Appellant.

K.K. Venugopal, Uday:i Holla, Dushyant Dave (NP), Shashikant Sharma,
Sanjay Kumar Dubey, A.S. Bhasme, Sanjay R. Hegde, Prashant Kumar and
Sumit Goel for the Respondents. H
756 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A The Judgment of the Court was delivered by

S.B. SINHA. J. These appeals are directed against a common judgment
and order dated 5.1.2004 passed by a Division Bench of the Karnataka High
Court in O.S.A. Nos. 67, 68 and 70 of 2003 whereby and whereunder a
judgment and order dated 8.10.2003 passed by a learned Company Judge in
B C.A. No. 771 of2003 was affirmed.

Background fact :

NGEF Ltd., (for short, 'the Company') herein, was a joint venture of the
Government of Karnataka, holding 90.18% shares and EHG Electro-holding
C GMBH holding 9.72% shares therein. The Company became sick, whereupon
a reference was made to the Board for Industrial and Financial Reconstruction
(for short; 'BIFR') in terms of the provisions of the Sick Industrial Companies
(Special Provisions) Act, 1985 (for short, 'SICA'). It is not in dispute that
virtually all its assets had been placed either under mortgage and/or offered
D as collateral security to various financial institutions amongst which the State
Bank of Mysore was the lead bank.

It is furthermore not in dispute that from time to time the Company with
the permission of BIFR and its secured creditors has been selling some of its
surplus lands, inter a/ia, for the purpose of paying wages to the workers and
E refund of loans to the financial institutions etc. It had sold 29.225 acres of
land to the Nuclear Power Corporation for a sum of Rs. 63.65 crores; 1.65 acres
of land to CDAC for about Rs. 4.29 cores and 0.625 acres of land to Indian
Oil Corporation for Rs. 1.63 crores. All the vendees were public sector
undertakings.

F It is also not In dispute that the State of Karnataka took a decision to
make disinvestment of its shares in the said Company pursuant whereto or
in furtherance whereof global tenders were invited by it in terms of an
advertisement dated 15.9.200 I. The First Respondent herein, Chandra
Developers Pvt. Ltd. (for short, 'Chandra Developers') submitted its bid for
G purchase of 40.45 acres of land offering the price of Rs. 125 per sq. ft. which
was later enhanced to Rs. 278 per sq. ft. Allegedly, valuation of lands had
been done by Tata Economic Consultancy Services and Ernst & Young Pvt.
Ltd. The offer of the First Respondent was said to have been accepted by
the Board of Directors in its meeting dated 25.2.2002. The Company, it appears,
has also submitted an application to BIFR as regard progress made by it in
H its attempt to privatize the Company, and praying for a direction to the
NGEF LTD. v. CHANDRA DEVELOPERS PVT. LTD. [SINHA, J.) 757

financial institutions to release their charge over the assets of the Company A
so as to enable it to sell its surplus lands. BIFR, however, upon considering
the matter in some details by its or_der dated 19.4.2002 opined that the Company
cannot be revived.

Before BIFR some of the parties pleaded that the Company should not
be wound up but BIFR decided to recommend winding up of the company B
and sent the same to the High Court. As regard request of the Company for
sale of its assets, an observation was made by BIFR in its order dated
24.08.2002 that the Company would have to seek an appropriate direction from
the concerned High Court.

Proceedings before the High Court :
c
Upon receipt of the said recommendations, the High Court of Karnataka
registered the same as Company Petition No. 154 of 2002. The Respondent
herein filed an application before the learned Company Judge of the High
Court purported to be under Rules 6 & 9 of the Companies (Court) Rules
D
praying for a direction upon the Company to execute a deed of sale in its
favour in respect of the said 40.45 acres of land relying on or on the basis
of the said purported resolution dated 25.02.2002, alleging that the same
constituted a concluded contract between the parties. Objections to the said ·-
application were filed by the Appellants herein.
E
By reason of an order dated 8.10.2003, the said application was allowed
on the premise that the agreement between the Chandra Developers and the
Company constituted a concluded contract in relation to sale of 40.45 acres
of land. A Review Application was filed by the Appellant herein which came
to be dismissed. Three appeals were preferred from the said order viz. by the
EHG, State Bank of Mysore and the Company before the DivisiOn Bench of F
the High Court which came to be dismissed by reason the impugned Judgment.

However, the learned Company Judge appears to have dismissed an
identical application filed by Mis Salapuria Housing (P) Ltd. being C.A. No.
G
1589 of 2003, which had been relied upon by the First Respondent herein in
.. its application, holding that the Company Court had no such jurisdiction.

Submissions :

Mr. T.R. Andhiyarujina, the learned Senior Counsel appearing on behalf
H
758 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.
A of the Appellants, in Civil Appeal Nos. 5199-520 I of 2004, would, inter alia,
contend that the learned Company Judge and the Division Bench of the High
Court misdirected themselves in passing the impugned judgment and order
insofar as they failed to take into consideration that BIFR retains the control
over the assets of the company in terms of sub-section (4) of Section 20 of
B SICA and, thus, it was BIFR alone which could issue a direction as regard
sanction of sale of assets of the company in respect whereof the learned
Company Judge had no jurisdiction. In any event, the learned Company
Judge had no jurisdiction to issue any direction to the Company to execute
a deed of sale which amounted to grant of a decree for specific performance
of contract. Jn any view of the matter, the finding of the Company Judge to
C the effect that there existed a concluded contract between the First Respondent
and the Company is wholly erroneous.

Mr. Sundara Varadan, the learned Senior Counsel appearing for the
State Bank of Mysore appearing in Civil Appeal Nos. 5203-05 of 2004,
supplemented the submissions of Mr. Andhyarujina, contending that the
D learned Company Judge had a duty, in larger interest of the creditors, to
obtain the best price for the lands sold. Our attention, in this connection, has
been drawn to the fact that the total dues of the secured creditor banks and
financial institutions as on 26.02.2003 was Rs. 5825.31 lakhs towards fund
based facilities and Rs. 522.93 lakhs towards non-fund based facilities and,
E thus, the consideration amount was not sufficient to meet the liabilities of the
Company. The contentions raised by the State Bank of Mysore, the learned
counsel would submit, as contained in various paragraphs of the objections
had not been taken into consideration either by the Company Judge or by
the Division Bench of the High Court. The learned counsel would urge that
assuming that such contentions had not been raised during argument as was
F observed by the Division Bench, it was the duty .of the Company Judge to
take into consideration those aspects of the matter. It was urged that the
considerations which arise before a Company Judge for confirmation of sale
are relevant factors for the purpose of directing execution of a deed of sale
even in a private transaction.
G The learned counsel would argue that had a suit for specific performance
of contract been filed by a vendee against the Company, the latter as also the '·
Government of Karnataka could have raised several contentions including
one that the court should not in the facts and circumstances of the case
exercise its discretionary jurisdiction in favour of the First Respondent herein.
H It was argued that having regard to the statutory scheme and in particular the
NGEF LTD. v. CHANDRA DEVELOPERS PVT. LTD. [SINHA, J.] 759

provisions contained in Sections 443, 446 and 44 7 read with Section 529-A A
of the Companies Act, 1956 the Company Judge cannot be held to have any
inherent power to direct the Company to execute a deed of sale; and more
so whence a Provisional Liquidator had not been appointed. Such a direction
could only be issued to the Official Liquidator.

The First Respondent herein was represented by Mr. Dushyant A. B
Dave, Mr. Udaya Holla and Mr. K.K. Venugopal. Mr. Dave would submit that
the power of the Company Judge as also BIFR being concurrent, the latter
could ask the company to approach the High Court for a direction as regard
sale of its surplus lands. The learned counsel would contend that in view of
the fact that global tenders had been invited and the same having been C
accepted by the learned Company Judge, this Court may not exercise its
jurisdiction under Article 136 of the Constitution of India.

Mr. Dave would argue that the statutory scheme envisages various
stages of winding up as would appear from Section 456(1), sub-sections (I)
and (3) of Section 150, Sections 457, 446(2) and Section 536(2) of the Companies D
Act, in terms whereof the learned Company Judge had the requisite jurisdiction
to direct sale of lands in a case of this nature. Relying on or on the basis of
a decision of this Court in Mis Kayjay Industries {P) Ltd. v. Mis Asnew Drums
(P) Ltd. and Ors., (1974] 2 SCC 213, the learned counsel would contend that
the discretion exercised by the learned Company Judge cannot be said to be
arbitrary meriting interference by this Court. E
Mr. Holla, has drawn our attention to a letter of the Government of
Karnataka dated 30.07.2002, and submitted on the basis thereof that the
Government of Karnataka had agreed to grant approval to such sale by
mutual agreement by asking the Company to approach the High Court for the F
said purpose. Our attention has specifically been drawn to the orders passed
by BIFR, the learned Company Judge as also the Division Bench of the High
Court to show that apart from advancing an argument that application for
according sanction for sale of land could only have been filed before BIFR,
no other contention had been raised by the Appellants herein.
G
Mr. Holla would submit that even Article I 00 of the Memorandum of
;
Association of the Company to which a reference has been made by this
Court while issuing notice on 8.3 .2004 is riot attracted as in terms thereof
approval of the Government was not necessary.

It has, however, been contended that a new Memorandum of Articles H
760 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A of Association has come into being; clause (6) of Article 100 whereof is as
under:

"(6) To let, mortgage, charge, sell or otherwise dispose of, subject to
the provisions of section 293 of the Act, any property of the Company
either absolutely or conditionally and in such manner and upon such
B terms and conditions in all respects as they think fit and to accept
payment or satisfaction for the same in cash or otherwise, as they
think fit."

Thus, in terms of the said provision, the approval of the Government
of Karnataka was not necessary.
c
It. was submitted that the court has inherent power to direct sale of
assets of a company during the pendency of winding up proceedings even
before the winding up order is passed in terms of section 536(2) of the
Companies Act.
D It is further submitted that sanctity of an auction sale should be
maintained and in the event auctions are set aside and re-auctions are ordered
on less satisfactory material, loss to exchequer would be far greater.

Mr. K.K. Venugopal, the learned Senior Counsel, would submit that
E having regard to sub-section (2) of Section 536 of the Companies Act, the
High Court has the jurisdiction to permit sale of assets of the company even
before passing of the winding up order, in relation whereto Section 20(4) of
SICA will have no application.

It was urged that the provisions of both the statutes must be read
F together and so read, it would be manifest that when a winding up proceeding
is initiated under the recommendations of BIFR in terms of Section 20(1 ), the
power,of the Company Court to order approval of a disposition, prior to
passing of winding up order, would not in any manner be affected by the
provisions of SICA, in view of the provisions contained in sub-section (2)
thereof whereby and whereunder the Company Court has been empowered to
G proceed with the winding up of the sick industrial company in accordance
with the provisions of the Companies Act, 1956. As regard application of sub-
section (4) of Section 20 of SICA, it was urged that thereby the right of BIFR
is also preserved for issuing any necessary direction as regard sale of the
assets of the company and by reason thereof the jurisdiction of the Company
H Court has not been taken away. The learned counsel would contend that the
NGEFLTD. v. CHANDRA DEVELOPERS PVT. LTD. [SINHA,J.) 761
provisions of SICA did not intend to denude the Company Court of its power A
under Section 536(2) read with Rule 9 of the rules; once the recommendations
for winding up by BIFR are made. On the other hand, Section 20(2) and
Section 22-A of SICA acknowledge the powers of the Company Court and in
that view of the matter there being no inconsistency between the Companies
Act and SICA, Section 32 thereof will have no application.
B
As regard the requirement of the approval of the Government of
Karnataka, it was urged that the Articles of Memorandum of Association of
the Company cannot control and render ineffective the exercise of statutory
power under the Companies Act and in that view of the matter as the High
Court has approved sale in favour of the First Respondent after examining the C
documents, it is not open to the Government of Karnataka to act as an
Appellate Authority thereover.

Relevant provisions of the Companies Act, 1956, Companies (Court) Rules,
1958 & SICA:
D
The provisions relating to winding up by the courts occur in Chapter
II of the Companies Act, 1956. Section 433 of the Act enumerates the
circumstances in which company may be wound up by the court including
inability on the part of the company to pay its debts. Section 441 of the Act
specifies as to when the proceeding for winding up of a company by the court
shall commence at the time of the presentation of the petition for the winding E
up. In a case, however, where winding up proceedings are initiated in terms
of recommendations made by BIFR or AAIFR, as the case may be, no such
petition is required to be presented. Section 443 lays down the power of a
court on hearing petition; clause ( d) of Sub-section (I) whereof provides for
a power to make an order for winding up of the company with or without F
costs or any other order that it thinks fit. Section 444 lays down the
consequences of winding up order. In terms of Section 446 of the Act, in the
event of passing of a winding up order or appointment of liquidator as
provisional liquidator, no suit or legal proceeding would commence or if
pending at the date of the winding up order, shall not be proceeded with
against the company except by leave of the court and subject to such terms G
as the court may impose. Sub-section (2) of Section 446 provides for a non-
obstante clause, in terms whereof the company court shall have jurisdiction
to entertain or dispose of any suit or proceedings specified therein. Section
451 lays down general provisions as to liquidators. Section 457 specifies the
power of the liquidator which is required to be exercised with the sanction H
of the court. Sub-section (2) of Section 536 reads as under:
762 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A "536. Avoidance of transfers, etc., after commencement of winding up.

xxx xxx

(2) In the case of a winding up by the Tribunal any deposition
of the property (including actionable claims) oft~e company, and any
B transfer of shares in the company or alteration in the status of its
members, made after the commencement of the winding up, shall
unless the Tribunal otherwise orders, be void."

Rules 6, 9 and 99 of Companies (Court) Rules, 1959 read as under :

c "6. Practice and procedure of the Court and provisions of the Code
to apply. - Save as provided by the Act or by these Rules, the practice
and procedure of the Court and the provisions of the code so far .as
applicable, shall apply to all proceedings under the Act and these
Rules. The Registrar may decline to accept any document which is
presented otherwise than in accordance with these Rules or the practice
D and procedure of the court."

"9. Inherent powers ofCourt.- Nothing in these Rules shall be deemed
to limit or otherwise affect the inherent powers of the Court to give
such directions or pass such orders as may be necessary for the ends
of justice or to prevent abuse of the process of the Court."
E
"99. Advertisement ofpetition.-Subject to any directions of the Court,
the petition shall be advertised within the time and in the manner
provided by Rule 24 of these Rules. The advertisement shall be in
Form No. 48."

F Sub-sections (I), (2) and (4) of Section 20, Section 22A and Section
32( I) of SICA read as under :

"(I) Where the Board, after making inquiry under section 16 and
after consideration of all. the relevant facts and circumstances and
after giving an opportunity of being heard to all concerned parties, is
G of opinion that the sick industrial company is not likely to make its
net worth exceed the accumulated losses within a reasonable time
while meeting all its financial obligations and that the company as a
result thereof is not likely to become viable in future and that it is just
and equitable that the company should be would up, it may record
H
and forward its opinion to the concerned High Court. ...
NGEF LTD. v. CHANDRA DEVELOPERS PVT. LTD. [SINHA, J.] 763

(2) The High Court shall, on the basis of the opinion of the Board, A
order winding up of the sick industrial company and may proceed and
cause to proceed with the winding up of the sick industrial company
in accordance with the provisions of the Companies Act, 1956.

(4) Notwithstanding anything contained in sub-section (2) or sub-
section (3 ), the Board may cause to be sold the assets of the sick B
industrial company in such manner as it may deem fit and forward the
sale proceeds to the High Court for orders for distribution in accordance
with the provisions of section 529A, and other provisions of the ·
Companies Act, 1956."

"22-A. Direction not to dispose of assets. - The Board may, if it is C
opinion that any direction is necessary in the interest of the sick
industrial company or creditors or shareholders or in the public interest,
by order in writing, direct the sick industrial company not to dispose
of, except with the consent of the Board, any of its assets

(a) during the period of preparation or consideration of the scheme D
under section 18; and

(b) during the period beginning with the recording of opinion by
the Board for winding up of the company under sub-section (I) of
section 20 and up to commencement of the proceedings relating to the
winding up before the concerned High Court." E
"32. Effect of the Act on other laws.- (I) The provisions of this
Act and of any rules or schemes made thereunder shall have effect
notwithstanding anything inconsistent therewith contained in any
other law except the provisions of the Foreign Exchange Regulation
Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976 for F
the time being in force or in the Memorandum or Articles of
Association of an industrial company or in any other instrument
having effect by virtue of any law other than this Act.

Approval of State :
G
The First Respondent herein admittedly filed an application for direction
to the Company to execute a deed of sale, inter alia, on the premise that a
concluded contract had been entered into by and between it and the Company
purporting to be relying upon or on the basis of the resolution dated 25.02.2002
of the Board of Directors of the Company. It is not in dispute that along with H
764 SUPREME COURT REPORTS [2005) SUPP. 3 S.C.R.

A the said application while annexing the copy of the resolution, the following
sentence had been omitted.

"MD stated that the Board decision for the above sale will be forwarded
to the Government of Karnataka and seek their formal approval."

B The First Respondent, as noticed hereinbefore, has relied upon a
Government Order issued by the Government of Karnataka dated 30.07 .2002,
which reads as follows :

"The company shall wind up the loan amount sanctioned to it by the
Government in full from the proceeds of sale of assets of NGEF Ltd;
C and

It is, however, not in dispute that although the said Government Order
was placed before BIFR, the same was not placed either before the Company
Judge or before the Division Bench of the High Court. The First Respondent
furthermore relies upon a letter filed in Civil Appeal Nos. 5203-05 of2004, to
D show that the Government of Karnataka granted implied approval as the
Company was asked to approach the High Court. It, however, stands admitted
that the First Respondent herein, offered its bid pursuant to or in furtherance
of an advertisement issued by the Government of Karnataka and not by the
Company.
E BIFR, indfsputably by an order dated 02.08.2002 stated :

"17. Shri M. Gowda, OS, GOK submitted that GOK had decided to
close the company subject to approval of BIFR and GO had been
issued in this connection on 30.07.2002. The company has cleared_ all
the dues of Fis under OTS. The working capital dues are secured by
F
Govt., guarantee both for fund based and non-fund based dues. Shri
Gowda requested that permission be accorded to the company to sell
the remaining assets in a transparent manner and discharge the
liabilities of the secured creditors, employees and other creditors
within a reasonable time. On a query from the Bench, Shri Gowda
G clarified that the funds for YRS would be provided by the State
Government.

18. Shri Gov ind Raj, MD of the company submitted that GOK had
decided to close down the unit. The company had been assured
adequate funds from the State Govt., for YRS. The company was
H having some problem in sorting out the outstanding issued with Fis,
NGEF LTD. v. CHANDRA DEVELOPERS PVT. LTD. [SINHA, J.] 765

so much so that IFCI was demanding a sum of Rs. 25,000 for issuing A
NOC even though their dues have been fully paid. The company was
not able to fulfill the condition of working capital bankers for converting
their second charge on the assets of the company into first charge
because of non-cooperation of Fis. Canara Bank Financial Services
were also not issuing NOC. The company had sought permission to B
sell all the assets to generate funds to pay the workers dues, VRS
dues, the dues of secured creditors and others. The Bench noted that
the company would have to seek further directions in the matter from
the concerned High Court".

BIFR evidently, thus, asked the Company to approach the High Court, C
if an occasion arises for obtaining sanction for disposing of its surplus lands.
The First Respondent herein was not a party before BIFR. Before the Company
Judge, however, it is the First Respondent herein, who filed the said application
and, as indicated hereinbefore, obtained an order from the Company Judge
by suppression of material fact that the Managing Director of the Company,
having regard to the aforementioned resolution dated 25.02.2002 stated that D
the approval of the Government of Karnataka would be sought for.

The Order issued by the Government of Karnataka on 30.07.2002 does
not suggest either expressly or by necessary implication that it had granted
its approval for the said sale. Whether such sanction was necessary is,
however, another question which we shall advert to a little later. E
We may at this juncture notice that arguments had been raised before
the Division Bench of .the High Court that the Government of Karnataka had
not approved the said transaction which is itself a pointer to the fact that the
Appellants herein never accepted that there had been a concluded contract. F
It is also not correct to contend that the State Government will be acting
as an appellate atithority over the High Court, if its approval is sought for.
The question should, in fact, be considered from a different angle. An
application before the Company Judge, if at all, was maintainable only upon
obtaining the approval of the Government of Karnataka and if such approval G
is granted, then only it would constitute a concluded contract.

It is accepted that the advertisement was issued by the State in the
following terms :

"While preference would be given for bids offering purchase of entire H
766 SUPREME COURT REPORTS (2005) SUPP. 3 S.C.R.

A unit. GOK reserves the right to accept/reject any of the offers. A party
can bid for one or more alternatives."

In terms of the said advertisement, thus, the State reserved unto itself
the right to accept or reject the said offer. If the bid had been made pursuant
to the said advertisement indisputably the State's approval was necessary. In
B any event the. records were required to be placed before the State so as to
enable it to apply its mind as to whether offer should be accepted or not.

The submission of Mr. Venugopal that in the event ifit be held that The
State Government approval was necessary, the same would be contrary to the
C statutory power of the Company Court is, thus, misconceivecY.

It is also not correct to contend that the question as regard the concluded
contract was not raised by the Appellants herein. In fact, the Company .filed
a Review Petition before the Company Judge on 30.10.2003 wherein it was
clearly averred that such a submission was not made in view of the
D observations of the learned Company Judge during the course of hearing that
the issue whether there existed concluded contract would not be determined
and as such there existed an error on the face of its order dated 8.10.2003.

The very fact that original advertisement was issued by the Government
of Karnataka and there existed such a clause in the Memorandum of Association
E of the Company is suggestive of the fact that the Board of Directors of the
Company proceeded on the basis that such approval of the Government of
Karnataka was imperative.

Jurisdiction of the Company Court :

F The provisions of SICA contain non-obstante clauses. It is a special
statute. It is a complete code in itself. The jurisdiction of the Company Court
in such matters would arise only when BIFR or AAIFR, as the case may be,
has exercised its jurisdiction under Section 20 of SICA recommending winding
up of the company upon arriving at a finding that there does not exist any
chance of revival of the company.
G
Mr. Venugopal has placed reliance upon a decision of a learned Single
Judge of the Karnataka High Court in Karnataka State Industrial Investment
and Development Corporation ltd v. Mis lntermodel Transport Technology
Systems and Ors., AIR (1998) (Karnataka) 195 for the proposition that despite
H the fact BIFR retains jurisdiction to get the assets of a sick company sold in
NGEF LTD. v. CHANDRA DEVELOPERS PVT. LTD. [SINHA, J.) 767

terms of sub-section (4) of Section 20 of SICA; still the leave of the Company A
Court, therefore would be required. The said decision, however has been
reversed by the Division Bench of the Karnataka High Court in BPL Limited,
Bangalore v. lntermodal Transport Technology Systems (Karanataka)
limited, Bangalore (In Liquidation) and Ors., (2001) 3 Kar.L.J. 622 (DB)],
holding that the company Court has no such jurisdiction. We generally accept -B
the views of the Division Bench.

It is difficult to accept the submission of the learned counsel appearing
on behalfof the Respondents that both the Company Court and BIFR exercise
concurrent jurisdiction. If such a construction is upheld, there shall be chaos
and confusion. A company declared to be sick "in terms of the provisions of C
SICA, continues to be sick unless it is directed to be wound up. Till the
company remains a sick company having regard to the provisions of sub-
section (4) of Section 20, BIFR alone shall have jurisdiction as regard sale of
its assets till an order of winding up is passed by a Company Court.

Apart from the fact that sub-section (4) of Section 20 contains a non- D
obstante clause and, thus, it shall prevail over the provisions contained in
sub-section (2). The said Act is also a latter statute.

The provisions of SICA would prevail over the provisions of the
Companies Act. Section 20 of SICA relates to winding up of the sick industrial
company. Before BIFR or AAIFR, as the case may be, makes a recommendation E
for winding up of the company, an enquiry is made in terms of Section 16
thereof wherefor all relevant facts and circumstances are required to be taken
into consideration. Before an opinion is arrived at in that behalf, the parties
are given an opportunity of hearing. The satisfaction arrived at by BIFR that
the company is not likely to become viable in future and it is just and F
equitable that the company should be wound up must be based on objective
criteria. The High Court indisputably on receipt of such recommendation of
BIFR would initiate a proceeding for winding up in terms of Section 433 of
the Companies Act. Sub-section (2) of Section 536 ipso facto does not confer
any jurisdiction upon the Company Court to direct sale of the assets of the
sick company. It has to exercise its power thereunder subject to the provisions G
of the special statute governing the field. Despite the fact that the procedures
laid down under the Companies Act would be applicable therefor but they
must be read with sub-section (4) of Section 20 of SICA which contains a
11011-obstante clause and in tenns thereof, BIFR is authorized to sell the assets
of the sick industrial company in such a manner as it may deem fit. By reason H
768 SUPREME COURT REPORTS (2005] SUPP. 3 S.C.R.

A of the said provision, BIFR is also empowered to forward the sale proceeds
to the High Court for orders for distribution in accordance with Section 529-
A and other provisions of the Companies Act which in no uncertain terms
would mean that the distribution of the sale proceeds would be for the
purpose of meeting the claims of the creditors in the manner laid down
B therein. The intention of the Parliament in enacting the said provision becomes
clear as in terms of Section 22-A of SICA, BIFR is empowered to issue any
direction in the interest of the sick industrial company or its creditors or
share-holders and direct the sick industrial company not to dispose of its
assets except with its assent. Section 32, as noticed hereinbefore, again
contains a non-obstante clause. The scheme suggests that BIFR retains
C control over the assets of the company and in terms of the aforementioned
provisions may either prevent any sale or permit any sale of the assets of the
sick industrial company. Such a power in BIFR remains till a winding up order
is passed by the High Court and a stage arrives at for the High Court for
issuing orders for distribution of the sale proceeds.

D SICA was furthermore enacted subsequent to the provisions of the
Companies Act. It is not, thus, possible to accept the submission that the
High Court exercises a concurrent jurisdiction.

It may be true that the High Court's jurisdiction is that of the Appellate
E Authority but keeping in view the terminology contained in sub-section (4)
of Section 20 read with Section 32 of the Act leaves no manner of doubt that
the provisions of SICA shall prevail over the provisions of the Companies
Act. For the aforementioned purpose, it was not necessary for the Parliament
to mention specifically the provisions of sub-section (4) of Section 20 that the
same shall prevail over Section 536 of the Companies Act, as was suggested
F by the learned counsel appearing for the First Respondent. The construction
of the provisions of both the Acts, as suggested by the Iearn.ed counsel, that
both the provisions of sub-section (4) of Section 20 and Section 536 should
be read conjointly so as to enable an applicant to obtain a sanction of both
BIFR and the Company Court, thus, do not appeal to us.

G It is inconceivable that in law not only the approval will have to be
taken from both the courts; in case of any private sale, the Company will have
to obtain the consent of both the Company Court or BIFR. While interpreting
the provisions of the two statutes, the court cannot remain oblivious of the
fact that in a given case, possibility of a conflict in the orders passed by the
H two courts may arise, which must be avoided.
NGEF LTD. v. CHANDRA DEVELOPERS PVT. LTD. [SINHA, J.] 769

It is interesting to note that a learned Single Judge of the said Court A
dismissed a similar application filed by Mis Salapuria Housing (P) Ltd. although
the First Respondent's application categorically mentions about the pendency
of the said application.

Inherent Power :
B
The Company Court has inherent power. Such inherent power of the
Company Court is saved in terms of Rules 7 and 9 of the Companies (Court)
Rules. The Company Court, therefore, may have the requisite jurisdiction to
approve sale of the assets of a company but the question which arises for
consideration is as to whether such inherent power can be exercised despite C
existence of a provision contained in another statute..

Section 32 of SICA contains a non-obstante clause stating that provisions
thereof shall prevail notwithstanding anything inconsistent with the provisions
of the said Act and of any rules or schemes made thereunder contained in
any other law for the time being in force. It would bear repetition to state that D
in ordinary course although the Company Judge may have the jurisdiction to
pass an interim order in exercise of its inherent jurisdiction or otherwise
directing execution of a deed of sale in favour of an applicant by the Company
sought to be wound up; but keeping in view the express provisions contain~d
in sub-section (4) of Section 20 of SICA such a power, in our opinion, in the
Company Judge is not available. [See BPL Limited, (supra)]. E
We may, however, observe that the opinion of the Division Bench in
BPL limited, (supra) to the effect that the winding up proceeding in relation
to a matter arising out of the recommendations of BIFR shall commence only
on passing of an order of winding up of the company may not be correct.
It may be true that no formal application is required to be filed for initiating F
a proceeding under Section 433 of the Companies Act as the recommendations
therefor are made by BIFR or AAIFR, as the case may be, and, thus, the date
on which such recommendations are made the Company Judge applies its
mind to initiate a proceeding relying on or on the basis thereof, the proceeding
for winding up would be deemed to have been started; but there cannot be G
any doubt whatsoever that having regard to the phraseology used in Section
20 of SICA that BIFR is the authority proprio vigore which continues to
remain as custodian of the assets of the Company till a winding up order is
passed by the High Court.

H
770 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A Some precedents on court's power:

The decisions of the Kamataka and Bombay High Courts reported in
Smt. Usha R. Shelly and Ors. v. Radeesh Rubber Pvt. Ltd. and Anr., (1995)
84 CC 602 and Kamani Metallic Oxides Limited v. Kamani Tubes Limited,
(1984) 56 CC 19, relied upon by Mr. Holla cannot be said to have any
B application in the instant case. The other decisions cited at the bar taking the
similar view also have no application.

In Buckley on the Companies Acts, the law is stated, thus :

"When the application should be made.- In an early case it was
C argued that the sanction of the court should be obtained before the
transaction is entered into and cannot be given afterwards, but Malins
VC, disagreed, 'for it would be almost impossible that directions could
from time to time be obtained; but when the matter is brought before
the court, it must have regard to all the surrounding circumstances'.
Vaisey J agreed that the object of the section is that, if a winding up
D
order is made, any transaction which has been entered into since the (
commencement of the winding up shall be subject to review by the
liquidator and held that he had no jurisdiction while the petition was
pending. Roxburgh J went to the other extreme and on an application
made after the winding up order refused to validate the transaction on
E the ground that the applicant ought to have applied before the
transaction was entered into. Buckly J held that he had jurisdiction to
sanction and did sanction while the petition was pending a proposed
transaction which on any possible view would be beneficial to the
creditors, one of the objects of the section being to protect the
interests of the creditors during the pending of the petitions. Since
F
this last decision such orders have regularly been made, normally in
one of two cases: the first being where the proposed transaction is
not in the ordinary course of business (as in the case last cited) and
the second where it is necessary to persuade the company's bankers
to unfreeze the account in order to enable the business to be carried
G on."

In Pankaj Mehra and Anr. v. State of Maharashtra and Ors., [2000] 2
SCC 756 whereupon the learned counsel appearing on behalf of the First
Respondent placed strong reliance, construction of sub-section (2) of Section
536 of the Companies Act came up for consideration and it was held that
H having regard to the phraseology used therein, the transaction shall be void
NGEF LTD. v. CHANDRA DEVELOPERS PVT. LTD. [SINHA, J.] 771
unless the court otherwise orders. It is interesting to note that in para 19 A
thereof, this Court noticed the principles laid down in Gray's Inn Construction
Col. Ltd., Re [1980] 1 All E.R. 814 (CA) emphasizing the point that the courts
would be very circumspect in the matter of validating the payments and the
interests of the creditors as well as the company would be kept uppermost
in consideration. Thus, a disposition of assets during the interregnum may B
not be irretrievably void but the courts are required to exercise power with
circumspection and caution.

Jurisdiction of the Company Court, if any, how should be exercised :

Assuming that the Company Court alone has the jurisdiction to sanction C
sale of the assets of a sick company, it having regard to its duties towards
the debtors was required to apply its mind as regard the question as to
whether the disposition of the asset of the company is in the interest of its
creditors. In this case, the company was not the applicant. It did not join the
First Respondent in its application. It had all along resisted its claim.
D
In the winding up proceeding no order admitting the petition was
passed at the relevant time. Order admitting the petition was passed milch
later. Even no provisional liquidator was appointed.

Reliance has been placed on a decision of the learned Single Judge of
the Aliahabad High Court in Bengani Food Products Private Ltd. v. Official E
Liquidator and Ors., (1998) 94 CC 762 wherein it was held that the court has
the jurisdiction to approve the disposition of the property provided it is found
that the scheme or proposal which has been put forward is a viable scheme
and would be in the interest of the creditors as well as beneficial for the
general public.
F
It may be true that therein the Allahabad High Court was considering
the case involving a sick industrial company but the questions which have
been raised herein were not raised there. The High Court considered the
prayer made in the application and was of the opinion thatthe proposal given
by the applicant was not a viable one for the benefit of the company or its
creditors. In the instant case, the said relevant factors were also not considered
G
by the High Court.

In Sudarsan Chits(/) Ltd. v. 0. Sukumaran Pillai and Ors., [1984] 4
SCC 657, this Court observed.
H
772 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A "10. The Appellate Bench declined to direct the Provisional Liquidator
to file claim petition at the instance of the Company under Section
446(2)(b) on the sole ground that such a petition at the instance of
the Liquidator would be maintainable in the course of winding up of
proceedings which means that the winding-up proceedings are
pending. Undoubtedly, Section 446(1) manifests the legislative intention
B that the procedure thereunder prescribed could be availed of when the
winding-up order has been made or where the Official Liquidator is
appointed as the Provisional Liquidator. Section 446(1) envisages two
situations in which the court will have jurisdiction to make the order
thereunder contemplated. These two situations are: where a winding-
c up order has been made or where the Official Liquidator has been
appointed as Provisional Liquidator. The first of the two situations
envisages an order for winding-up of the company having been made
and which is subsisting. The second situation is where without making
a winding-up order, the court has appointed Official Liquidator to be
the Provisional Liquidator. Section 450(1) of the Companies Act confers
D power on the Company Court to appoint Official Liquidator to be
Provisional Liquidator at any time after the presentation of the winding-
up petition and before making of the winding-up order. The. court
before which a winding-up petition is presented has power to appoint.
Official Liquidator as Provisional Liquidator of the company even
E before making the winding-up order. If ultimate winding-up order is
made, the Official Liquidator acts as such. And let it be remembered
that where a winding-up order is made, it relates back to the date
when petition for winding-up is presented. Referring to Section 446( I}
it becomes clear that the court will have jurisdiction to make the order
therein contemplated, where a winding-up order has been made or
F prior to the making up of the winding-up order, Official Liquidator has
been appointed as Provisional Liquidator as contemplated by Section
450(1)."

Once the Company Judge proceeds to direct disposition of assets of the
winding up Company whether during pendency of the proceedings or upon
G culmination thereof, ordinarily a provisional liquidator winding up is appointed.

There lies a distinction between accord of sanction for private negotiation
of sale of assets of the Company vis-a-vis the auction held by the Official
Liquidator. It is not in dispute that no Provisional Liquidator was appointed.
H The court may have an inherent power to approve a transaction of sale
NGEF LTD. v. CHANDRA DEVELOPERS PVT.LTD. [SINHA, J.] 773

entered into by and between the ~ompany and the third party; but it is A
beyond any cavil of doubt that while doing so the Company Court must bear
in mind its duties towards the creditors. While exercising jurisdiction under
Section 433 of the Companies Act, the Company Court remains the custodian
of the interest of the Company and its creditors. It has, thus, a duty to satisfy
itself that having regard to the market value of the property, the price offered B
is reasonable. [See Mis. Kayjay Industries (P) Ltd, (supra)]. It is further more
required to be borne in mind that upon liquidation, the assets and properties
of the Company vest in the O~ficial Liquidator for the benefit of its creditors.
[See Allahabad Bank and Ors. v. Bengal Paper Mills Co. Ltd. and Ors.,
[1999J 4 sec 383].

The satisfaction as regard adequacy of the price is one of the relevant
c
factors for proper and reasonable exercise of the judicial discretion vested in
it. There cannot be any doubt or dispute that when an auction is held upon
compliance of the statutory provisions, withholding of auction on the ground
that still higher price may be obtained may prove to be self-defeating exercise
as has been held in Mis Kayjay Industries (P) Ltd., (supra) and State of D
Punjab v. Yoginder Sharma Onkar Rai & Co. and Ors., [1996] 6 SCC 173 but
havii:Jg regard to the accepted po~ition that the Company Judge in a case of
this nature exercises a discretionary jurisdiction; it is bound to act with great
circumspection and caution. Such a jurisdiction should ordinarily be exercised
in exceptional cases and when necessary for seeing the company as an on- E
going concern.

It may, furthermore, be true that before the Company Judge or before
the High Court the secured creditors did not raise objections which have been
raised before us although specifically taken in their objections,· as would:
appear from paragraphs 7, 9, 11, 12 and 13 thereof, but if such considerations p
were relevant having regard to the statutory duties imposed upon the court,
the learned Company Judge must be held to have failed and/or neglected to
exercise its discretionary jurisdiction in a fair and reasonable manner.

In any event having regard to the importance of the questions involved
and in particular the question as to whether the impugned order is contrary G
to the statutory provisions contained in sub-section (4) of Section 20, we
have thought it proper to consider the same.

The Company Judge moreover will have to bear in mind the provisions
contained in Section 529-A of the Companies Act in terms whereof the dues
of the workman and the debts due to the secured creditors to the extent such H
774 SUPREME COURT REPORTS (2005] SUPP. 3 S.C.R.

A debts rank in clause (c) of the proviso appended to sub-section(!) of Section
529 pari passu therewith and shall have a priority over all other debts.

In Andhra Bank v. Official Liquidator and Anr., [2005] 5 SCC 75 , a
three-Judge Bench of this Court, observed :

B "Section 446 of the Companies Act indisputably confers a wide power
upon the Company Judge, but such a power can be exercised only
upon consideration of the respective contentions of the parties raised
in a suit or a proceeding or any claim made by or against the company.
A question of determining the priorities would also fall for
consideration if the parties claiming the same are before the court.
c Section 446 of the Companies Act ipso facto confers no power upon
the court to pass interlocutory orders. The question as to whether the
courts have inherent power to pass such orders, in our opinion, does
not arise for consideration in this proceeding. Assuming such a power
exists, it was imperative that the same should have been exercised on
D consideration of the factors laid down by this Court in Morgan
Stanley Mutual Fund etc. v. Kartick Das etc., [1994] 4 SCC 225. An
unreasoned order does not subserve the doctrine of fair play [See
Mis. Mangalore Ganesh Beedi. Works v. The Commissioner ofIncome
Tax, Mysore and Anr., JT (2005) 2 SC 442 ]".

E It was further observed that for judging the correctness of an equitable
...
order even the subsequent events· can be taken into consideration. In any
view of the matter an equitable order passed by a Company Court in exercise
of its inherent jurisdiction or otherwise must conform to the requirements of
the relevant statutes. [See Manohar Lal Chopra v. Rai Bahadur Rao Raja
F Seth Hiralal, AIR (1962) SC 527, Vareed Jacob v. Sosamma Geevarghese and
Ors., [2004] 6 SCC 378 and National Institute of Mental Health and Neuro
Sciences v. C. Parameshwara, [2005] 2 SCC 256]

In re A.I. levy (Holdings) ltd., [1964 (I) Chancery Division 19] Buckley
J. while considering the provisions of Section 227 of the English Companies
G Act which is pari materia with Section 536(2) of the Indian Companies Act,
opined that the object of the said section was to protect the interests of the
creditors from the possible unfortunate results which would ensue from the
presentation of a petition and to protect their interests as much during the
period while the petition was pending as after an order has been made on it.
The said decision, therefore, does not lay down a law that the provision of
H Section 536(2) of the Act is meant to benefit the vendee. In fact such a
NGEF LTD. v. CHANDRA DEVELOPERS PVT. LTD. [SINHA, J.] 775
provision enures to the benefit of the creditors. A Company Judge granting A
sanction in terms of tlie aforementioned provision, thus, has a duty to see
that the transaction is one which must benefit the creditors of the company.

In A.I. Levy (Holdings) Ltd, (supra) it was held :

"In these circumstances, this being a case in which it appears to me B
to be manifest that the transaction is one which must benefit the
unsecured creditors of the company if in due course a winding up
order is made, the reason which affected Vaisey J.' s mind, that is to
say, that the liquidator should be given an opportunity to investigate
the matter and bring it before the court representing the interests of
all the creditors, does not affect my mind, for I do not think the C
liquidator could make the position clearer to me than it is at the
present time on the facts."

CONCLUSION:

BIFR had admittedly power to sell the assets of the Company but the D
High Court until a winding up order is issued does not have the same. BIFR
in its order dated 02.08.2002 might have made an observation to the effect that
the Company may approach the High Court in case it intended to dispose of
its property by _private negotiation but the same would not mean that BIFR
could delegate its power in favour of the High Court. BIFR being a statutory E
authority in absence of any provision empowering it to delegate its power in
favour of any other authority had no jurisdiction to do so. 'Delegatus non
potest delegare' is a well-known maxim which means unless expressly
authorized a delegatee cannot sub-delegate its power. Moreover, the said
observations ofBIFR would only mean that the Company Court could exercise
its power in accordance with law and not de 'hors it. If the Company Court F
had no jurisdiction to pass the impugned order, it could not derive any
jurisdiction only because BIFR said so.

In any view of the matter, BIFR had permitted only the Company to
approach the High Court in case any occasion arises therefor. BIFR did not
permit any other person to do so. The Company did not file such an G
application. It opposed the prayer of the First Respondent The Company, as
noticed hereinbefore, had preferred an appeal before the Division Bench of
the High Court questioning the correctness of the order passed by the
learned Company Judge. The Company has since been directed to be wound
up and is now being represented by the Official Liquidator who also questions H
776 SUPREME COURT REPORTS [2005] SUPP. 3 S.C.R.

A the correctness of the order. Before us an application has been filed by the
Government of Kamataka for impleading it as a party being LA. Nos.2-4 of
2005 in Civil Appeal No. 5199-520 l of 2004 wherein also, the validity of the
impugned order is in question.

In this view of the matter, we are of the opinion that the impugned
B judgment of the High Court cannot be sustained. It is set aside accordingly.
For the reasons aforementioned, the Appeals are allowed. No costs.

vs Appeals allowed.