N.Guruswamy Vs. N.A.P.Alagiri Raja & Co. & Ors.
EmailAppeal: Special Leave Petition (C) Nos. 14368-69 of 1986.
(With SLP (C) Nos. 1719-21 of 1987)
(With SLP (C) Nos. 1719-21 of 1987)
Petitioner: N.Guruswamy
Respondent: N.A.P.Alagiri Raja & Co. & Ors.
Apeal: Special Leave Petition (C) Nos. 14368-69 of 1986.
(With SLP (C) Nos. 1719-21 of 1987)
(With SLP (C) Nos. 1719-21 of 1987)
Judges: RANGANATH MISRA & MURARI MOHON DUTT,JJ.
Date of Judgment: May 04, 1988
Head Note:
COMPANIES ACT, 1956:
Liquidation – Disposal of assets to the company – Public auction – It is the paramount duty of the court in liquidation proceedings to ensure disposal of assets on as good terms as possible – The public auction may not ultimately turn out in the interest of the company – Offer of the lessee accepted.
JUDGEMENT:
O R D E R
1. We have heard learned counsel for the parties yesterday as also today. At one stage we were of the view that there should be a public auction of the Company’s assets and keeping that in view we had directed valuation to be made. Valuation has been made of the machinery as also the lands and the buildings. According to the valuation figures have been worked out to Rs. 52,18,000/-. According to the lessee the proper valuation on the basis of the reports works out to Rs.49,78,000/-. We have kept these two valuations in view.
2. The Division Bench of the High Court had directed the Company’s assets to be transferred to the lessee on the basis of sale and pursuant to such direction as part payment of the total amount of Rs.30 lacs, Rs.15 lacs had been deposited by the lessee on 13th November, 1986 which under the orders of the Division Bench have been put into small term investments.
3. In terms of the High Court’s order payment of the annual rent has been suspended from 1st December, 1986. It is not disputed that monthly rent was Rs.21,300/- and calculated from 1st December, 1986 up to the end of April, 1988, rent is due for 17 months.
4. It is maintained that for some time there was a strike and the factory was closed. The question as to whether there would be rental liability for the period, i.e., 18th August, 1985 and 17th February, 1986 came to be adjudicated. According to the Company Judge the lessee was entitled to exemptions. At the instance of the official liquidator, the matter is pending in appeal before the High Court. We express no opinion about that liability and the direction which we are going to make will not effect the proceedings before the Division Bench. If there be any liability arising out of the appellate decision, the lessee would have to bear it.
5. We accepted at an earlier stage on principle that the lessee would be entitled to the cost of improvements. The High Court has found the same to be about Rs. 14 lacs. Taking the overall position of the matter and in the absence of an assurance from the side of the shareholders that in case the off-set price would not be forthcoming at the public auction, yet the same would be forthcoming from some source, we have changed our opinion that public auction may not be in the interest of the company particularly when the lessee is agreeable to raise the price for the assets to be acquired by him. It is the paramount duty of the court in liquidation proceedings to ensure disposal of assets on a good terms as possible. Placed in the situation as we have indicated there is no assurance that the proceeds of the public auction would be better than what the offer of the lessee as altered by us, we are of the view that public auction may not ultimately turns out in the interest of the company. We accordingly accept the offer of the lessee and work out the liabilities of the lessee in the following way.
6. After adjustments for the improvements are made, the lessee shall pay a net sum total of Rs.36 lacs for the total assets. Giving credit to a sum of Rs.15 lacs deposited on 13th November, 1986 the net outstanding comes to Rs.21 lacs. The lessee is directed to deposit this amount in cash with the official liquidator, on or before 30th September, 1988. This gives him about five months’ time. We make it clear that no request for extension would be entertained. In the event of his failing to pay this amount, appropriate order would be made wherein provision shall be made to recover compensation out of the deposit of Rs.15 lacs. In allowing him such a long time to pay, we have taken into consideration the request of his counsel that the lessee has to negotiate with banks and financial institutions to raise the money. Our order of today will authorise the lessee to negotiate with financial institutions including banks for raising the finance for the limited purpose of paying the amount into court to acquire title to the property.
7. We have already indicated that the lessee has to pay the rent for 17 months at the rate of Rs. 21,300/- per month. It works out to Rs. 3,62,000/-. It is not in dispute that over and above this amount per month the lessee was paying Rs.2,000/- as the annual rent for using the lands within the factory premises. On that account Rs.4,000/- is due. Thus the net amount due is Rs.3,66,000/-. While computing the liability of the lessee, we have to take note of the fact that the lessee has deposited Rs.15 lacs in the hands of the official liquidator which is lying in a bank.
8. Learned counsel appearing for the official liquidator has brought it to our notice that the learned Company Judge gave a direction to put the money in short term deposit. Earnings on the money has, therefore, been reduced. Counsel for the lessee suggests that the compensation should be paid at the rate of 15% which the earnings seem to be less than 10%. We calculate the interest for the purpose of adjustment at the rate of 10%. The total interest due for the period from the date of deposit put to now (for convenience we have calculated upto 13th May, 1988) works out to Rs.2,25,000/-. This sum of Rs.2,25,000/-is to be adjusted against the dues of Rs.3,66,000/-, leaving a sum of Rs.1,41,000/- to be paid. This sum of Rs.1,41,000/- is also to be paid by the lessee before 30th September, 1988. These monies should be deposited in the company’s account with the official liquidator in the High Court by the date stipulated herein. On non-payment of these amounts, as we have indicated, the lessee’s offer may be treated as cancelled.
9. The matters will be placed before this Court on 10th October, 1988, when the Official Liquidator will make a full report indicating up-to-date position.
1. We have heard learned counsel for the parties yesterday as also today. At one stage we were of the view that there should be a public auction of the Company’s assets and keeping that in view we had directed valuation to be made. Valuation has been made of the machinery as also the lands and the buildings. According to the valuation figures have been worked out to Rs. 52,18,000/-. According to the lessee the proper valuation on the basis of the reports works out to Rs.49,78,000/-. We have kept these two valuations in view.
2. The Division Bench of the High Court had directed the Company’s assets to be transferred to the lessee on the basis of sale and pursuant to such direction as part payment of the total amount of Rs.30 lacs, Rs.15 lacs had been deposited by the lessee on 13th November, 1986 which under the orders of the Division Bench have been put into small term investments.
3. In terms of the High Court’s order payment of the annual rent has been suspended from 1st December, 1986. It is not disputed that monthly rent was Rs.21,300/- and calculated from 1st December, 1986 up to the end of April, 1988, rent is due for 17 months.
4. It is maintained that for some time there was a strike and the factory was closed. The question as to whether there would be rental liability for the period, i.e., 18th August, 1985 and 17th February, 1986 came to be adjudicated. According to the Company Judge the lessee was entitled to exemptions. At the instance of the official liquidator, the matter is pending in appeal before the High Court. We express no opinion about that liability and the direction which we are going to make will not effect the proceedings before the Division Bench. If there be any liability arising out of the appellate decision, the lessee would have to bear it.
5. We accepted at an earlier stage on principle that the lessee would be entitled to the cost of improvements. The High Court has found the same to be about Rs. 14 lacs. Taking the overall position of the matter and in the absence of an assurance from the side of the shareholders that in case the off-set price would not be forthcoming at the public auction, yet the same would be forthcoming from some source, we have changed our opinion that public auction may not be in the interest of the company particularly when the lessee is agreeable to raise the price for the assets to be acquired by him. It is the paramount duty of the court in liquidation proceedings to ensure disposal of assets on a good terms as possible. Placed in the situation as we have indicated there is no assurance that the proceeds of the public auction would be better than what the offer of the lessee as altered by us, we are of the view that public auction may not ultimately turns out in the interest of the company. We accordingly accept the offer of the lessee and work out the liabilities of the lessee in the following way.
6. After adjustments for the improvements are made, the lessee shall pay a net sum total of Rs.36 lacs for the total assets. Giving credit to a sum of Rs.15 lacs deposited on 13th November, 1986 the net outstanding comes to Rs.21 lacs. The lessee is directed to deposit this amount in cash with the official liquidator, on or before 30th September, 1988. This gives him about five months’ time. We make it clear that no request for extension would be entertained. In the event of his failing to pay this amount, appropriate order would be made wherein provision shall be made to recover compensation out of the deposit of Rs.15 lacs. In allowing him such a long time to pay, we have taken into consideration the request of his counsel that the lessee has to negotiate with banks and financial institutions to raise the money. Our order of today will authorise the lessee to negotiate with financial institutions including banks for raising the finance for the limited purpose of paying the amount into court to acquire title to the property.
7. We have already indicated that the lessee has to pay the rent for 17 months at the rate of Rs. 21,300/- per month. It works out to Rs. 3,62,000/-. It is not in dispute that over and above this amount per month the lessee was paying Rs.2,000/- as the annual rent for using the lands within the factory premises. On that account Rs.4,000/- is due. Thus the net amount due is Rs.3,66,000/-. While computing the liability of the lessee, we have to take note of the fact that the lessee has deposited Rs.15 lacs in the hands of the official liquidator which is lying in a bank.
8. Learned counsel appearing for the official liquidator has brought it to our notice that the learned Company Judge gave a direction to put the money in short term deposit. Earnings on the money has, therefore, been reduced. Counsel for the lessee suggests that the compensation should be paid at the rate of 15% which the earnings seem to be less than 10%. We calculate the interest for the purpose of adjustment at the rate of 10%. The total interest due for the period from the date of deposit put to now (for convenience we have calculated upto 13th May, 1988) works out to Rs.2,25,000/-. This sum of Rs.2,25,000/-is to be adjusted against the dues of Rs.3,66,000/-, leaving a sum of Rs.1,41,000/- to be paid. This sum of Rs.1,41,000/- is also to be paid by the lessee before 30th September, 1988. These monies should be deposited in the company’s account with the official liquidator in the High Court by the date stipulated herein. On non-payment of these amounts, as we have indicated, the lessee’s offer may be treated as cancelled.
9. The matters will be placed before this Court on 10th October, 1988, when the Official Liquidator will make a full report indicating up-to-date position.
