M/S SHARUN WIRES PVT LTD v. M/S M & A ORIENT ACCESSORIES PVT LTD

543.38 square yards otherwise fetching about Rs. 2,20,32,000/whereas it was sold for Rs. 7,75,00,000/-. She has also placed on the record a sale deed dated 26.07.2013 which is in respect of another property bearing No. LGG-123, Garden Green, Gurgaon sold for a total consideration of Rs. 6,50,00,000/- as also copy of another sale 4 NPA deed dated 09.11.2012 in respect of another property bearing No. LGG-131, Garden Green, Gurgaon sold for Rs. 5,00,00,000/- so as to buttress the point that the property in question was not undervalued and rather sold at the most profitable market price.

11. Reply has also been filed by respondent No.3/Ms. Pranjali Khanna, opposing the reliefs sought by the Official Liquidator and inter alia it is pointed out that the sale in contention was a bonafide purchase of the property by her through her mother who is her natural guardian. It is stated that the sale consideration of Rs.7,75,00,000/that was paid through cheque/RTGS in the company account, out of which Rs. 6,50,00,000/- was paid to Andhra Bank and Rs. 1,25,00,000/- was paid to Vijaya Bank towards settlement of certain debts purportedly taken by the company (in liquidation).

12. Reply has also been filed by Andhra Bank wherein, while opposing the application moved by the Official Liquidator, it is pointed out that a packing credit limit of Rs. 6.95 crores had been sanctioned to the company (in liquidation) and that the Bank made all attempts to ensure that the company (in liquidation) remains financially viable. Further, it is stated that subsequent to the order of the CLB dated 03.12.2012, it merely agreed to the sale of the mortgaged property by way of a private treaty involving the Bank, the company (in liquidation) and the bonafide purchaser, and that there is no mandate in the law providing that in order to realise its debt the Bank must only and only proceed under the SARFAESI Act, or that auction course is the only way for the property to have been sold.

13. It is also stated that although the market value of the property was Rs. 7,60,85,000/-, its distress value was Rs. 6,46,72,250/-. While the evaluators assessed the value of the property at Rs. 9,01,00,000/as on 15.03.2010. However, due to recession in the market, it was eventually sold at the best available price of Rs. 7,75,00,000/-. CO.APPL. 1868/2013

14. This application has been moved on behalf of the applicant – Ms. Pranjali Khanna through her mother Smt. Vandana Khanna, who is stated to be the bonafide purchaser of the property in question.

15. It has been stated in the application that subsequent to the passing of the winding up order, the Official Liquidator visited the various properties of the company (in liquidation) as reflected in the Balance Sheet. As regards the factory premises of the company (in liquidation) situated at A-13, Sector 57, Noida, the same was sealed. However, the other factory premises of the company (in liquidation) which was situated A-137, Sector 63, Noida was not sealed by the Official Liquidator as the same was occupied by one Mr. Manohar Lal, who was able to provide sufficient documentation to show ownership of the said premises, and it was seen from the Balance Sheet that the company (in liquidation) was only a tenant of the same.

16. As regards the property in question, it is stated that the Official Liquidator visited the premises on 26.09.2013 and sealed the same. It is urged on behalf of the applicant herein that they paid Rs. 6.50 crores to Andhra Bank, subsequent to which the Bank released the property papers on 30.01.2013 and on the same date the Sale Deed was executed in favour of the applicant. The remaining amount of the sale consideration for the property in question i.e., Rs. 1.25 crores, was transferred by the applicant herein to an account in Vijaya Bank.

17. In view of said facts, it is the case of the applicant that the property in question is in her possession and that her family members are residing there, and on the date the property was sealed by the Official Liquidator, the same was done in the absence of the family members who were out on that particular day and had duly locked the property. It is further stated that when the Official Liquidator visited the property in question on 26.09.2013, members of the Residents Welfare Association had provided them a photocopy of the Sale Deed dated 30.01.2013, however, the Official Liquidator went ahead and sealed the property anyway, relying on Section 531A of the Companies Act, 1956, which provides for Fraudulent Transfers.

18. In this regard, it is stated on behalf of the applicants that the Official Liquidator exceeded its powers in sealing the property in question, as Section 531A does not empower the Official Liquidator to arrive at a determination that the sale was void, and that reasons have to be provided by the Official Liquidator in case such a decision is made and on reaching such a conclusion, and the bonafides of such a sale have to then be ascertained by the Court.

19. This contention has been buttressed by the applicant by stating that the Official Liquidator has exercised discretionary powers in sealing the property in question but had decided differently in the case of the factory premises situated at A-137, Sector 63, Noida, where it chose to not seal the property on the basis of being presented with relevant documents of ownership by Mr. Manohar Lal.

20. In view of the facts and contentions espoused, it has been prayed by the applicants that the property in question be de-sealed and that possession of the same be handed over to the applicant. CO.APPL. 1540/2016

21. Briefly stated, this application has been moved on behalf of the applicant – Mr. Prageet Sharma, who is an Ex-Director of the company (in liquidation). The applicant herein was appointed as an Additional Director of the company (in liquidation) on 07.04.2010, pursuant to allotment of shares worth Rs. 5 lacs, which was done in lieu of a debt owed by the company (in liquidation) to the applicant.

22. It is stated that apart from the property in question and other assets of the company (in liquidation), the applicant had mortgaged his personal property (certain agricultural village land in Gautam Buddha Nagar, Uttar Pradesh) to Andhra Bank as collateral security, and on 18.01.2010, the Bank increased the Packing Credit Limit of the respondent company from Rs. 7.[2] crores to Rs. 9.24 crores.

23. It is brought forth that a Notice dated 19.07.2013 was served upon the applicant by Andhra Bank, under Section 13(2) of the SARFAESI Act, calling upon him to repay a sum of Rs. 85,96,743/-, failing which the Bank would be constrained to undertake measures under the SARFAESI Act against the mortgaged asset of the applicant. Said liability was disputed by the applicant vide letter dated 07.09.2013, however no satisfactory response was received from the Bank explaining how an amount of Rs. 85 lacs was still due despite the Bank receiving a payment of Rs. 6.50 crores. Thereafter, the Bank took symbolic possession of the asset of the applicant and issued a Notice for sale/auction dated 20.12.2013. Said notice was assailed by the applicant before the DRT under Section 17 of the SARFAESI Act, and came to be quashed by the Lucknow Bench of the DRT vide order dated 22.01.2014.

24. It is stated that the applicant only became aware that the Sale Deed dated 30.01.2013 was executed by Ms. Manju Kanwar and not the Bank, on 03.12.2013, when he appeared before the Official Liquidator. With regards to the sale of the property in question, it has been urged on behalf of the applicant that the Resolution of the company dated 15.01.2013, authorising the sale of the property, is a fabricated document and that the signatures of the applicant therein have been forged.

25. In view of the above-mentioned contentions, the following prayers have been sought in the instant application:

(i) Direct Ms. Pranjali Khanna to produce the original of the alleged Board Resolution dated 15.01.2013 authorizing Ms. Manju Kawar to sell the Company's property.

(ii) Direct Andhra Bank to produce the original of the alleged

(iii) Affidavit No. 66A, 69X and 914 purportedly sent by applicant be summoned from the possession of Andhra Bank and lor official liquidator and be submitted for forensic examination of the signatures of the applicant on the said documents to examine genuineness and authenticity of the documents. CO. APPL. 641/2019

26. This application has also been instituted by Mr. Prageet Sharma, Ex-Director. It is stated therein that per the reply filed by Andhra Bank to the other application moved by him bearing CO.APPL. 1540/2016, it is brought to the fore that out of the sale consideration for the property in question i.e., Rs. 7.75 crores, curiously only a sum of Rs. 6.50 crores was received by Andhra Bank. It is further stated that the remaining amount of Rs. 1.25 crores was taken by Ms. Manju Kanwar, and the Bank was aware that out the said amount of Rs. 1.25 crores, a sum of Rs. 88 lacs was transferred by Ms. Manju Kanwar to M/s. VNS Accessories Pvt. Ltd. and VK International, while the remaining amount appears to have been retained by Ms. Manju Kanwar.

27. In this regard it is stated that since the sale of the property in question as also the transfer of Rs. 1.25 crores to third parties was done at the behest of Ms. Manju Kanwar during the pendency of the present winding up petition, it is but evident that the entire transaction was a preferential/fraudulent transaction. Further, that the amount has been taken out of the company and paid to certain third parties in preference over the creditors of the company (in liquidation).

28. In light of these facts being brought out, it is prayed on behalf of the applicant that the beneficiaries who have received the sum Rs.

1.25 crores, namely M/s. VNS Accessories Pvt. Ltd, M/s. VK International and Ms. Manju Kanwar, be directed to return the said amount and deposit the same along with due interest. CO.APPL. 706/2023

29. This too is an application moved on behalf of Mr. Prageet Sharma, Ex-Director, seeking to place on record the following additional documents:

(i) The Final order dt. 28.10.2022 in the Review Application bearing RA No. 03/2021 passed by the Sh. Rajesh Malhotra, Presiding Officer, Debt Recovery Tribunal-II, New Delhi by Prageet Sharma against the impugned Final Order dated 05.02.2021 passed by the Hon'ble DRT in OA 30712013 titled "Union Bank of India (erstwhile Andhra Bank) vs M/s. M&A Orient & Ors."

(ii) The Summoning Order dated 07.12.2022 passed by the Sh.

Yashdeep Chahal, Metropolitan Magistrate -01, New Delhi District, Patiala House Courts, New Delhi in the Complaint Case No. 674/1/2014 (New No. 52276/2016) titled "Prageet Sharma vs. Manju Kawar & Ors."

30. It is stated that the above-mentioned documents be placed on the record so as to ensure proper and fair adjudication of the case as placed by the applicant. CO.APPL. 1365/2018

31. This application has been moved on behalf of Andhra Bank under Section 325 of the Companies Act, 2013 stating that the Bank has opted to realise all the assets/properties mortgaged with it, instead of relinquishing the same to the Official Liquidator and accordingly proving its debt before the Official Liquidator. It has been stated that the respondent company had permitted the sale of the mortgaged property on a request to liquidate its loan liability as against the Bank, and it was agreed by the Bank to release the said property on payment of Rs. 6.50 crores. Further, it has been urged on behalf of the Bank that a reply dated 06.09.2016 has already been filed to the application moved by the agitating Director, Mr. Prageet Sharma, who‘s consent and knowledge of the sale has been duly annexed in the said reply.

32. In view of the above-stated, it is the contention of the applicant/Andhra Bank, that taking possession of the property in question and sealing of the same by the Official Liquidator is erroneous since even in the eventuality of cancellation of the Sale Deed dated 30.01.2013, the property will revert back to the mortgagee/Andhra Bank. In light of these averments, it is prayed on behalf of the applicant that it may be allowed to exercise the option to realise the mortgaged assets on its own and further that the Official Liquidator be directed to not take possession of the mortgaged/hypothecated assets that have been secured by the respondent company in favour of the applicant/Andhra Bank.

ANALYSIS & DECISION

33. I have given my thoughtful consideration to the elaborate submissions advanced by the learned counsels for the rival parties at the Bar. I have also perused the relevant record of the case including the documents placed on the record by the respective parties. No case law has been cited at the Bar as such.

34. First things first, the issues that have been racked up by the applicant Mr. Prageet Sharma are ex facie beyond the purview and scope of inquiry or proceedings before this Court. Quite apparently, the applicant Mr. Prageet Sharma is making an attempt to wriggle out of the financial mess created by the company (in liquidation) while he was one of the Ex-Directors. His main plea that the resolution by the Board of Directors dated 15.01.2013, authorizing Ms. Manju Kanwar to execute the sale deed in favour of the buyer was not consented by him and that his signatures were forged, is belied from the fact that consequent to the sale of the property in question, when notice dated 19.07.2013 was issued to him by the Andhra Bank for payment of Rs. 85,96,743/-, the applicant in his letter addressed to the Bank dated 07.09.2013 did not even raise a whisper of protest that the Board Resolution dated 15.01.2013 was forged in any manner. His only contention was that since Rs. 6.50 crores had already been paid towards full and final settlement of the dues of the company (in liquidation) through Ms. Manju Kanwar, Ex-Director, there was no occasion for Andhra Bank to demand any further amount and thereby resort attachment and sale of his property at village Noorpur, Chholas, Dadri, Gautam Budh Nagar, State of Uttar Pradesh. Needless to state that if the applicant Mr. Prageet Sharma has a grievance as regards oppression and mismanagement in running of the affairs of the company (in liquidation), the remedy lies elsewhere.

35. It is borne out from the record that initially, the packing credit limit of the company (in liquidation) was Rs. 7.[2] crores, and such limit was provided by the Bank for the purposes of effecting exports. The same was increased to Rs. 9.24 crores, however, due to continuous losses suffered by the company (in liquidation) as a result of not getting export orders, it was consequently reduced to Rs. 6.95 crores as per his consent as Director on 25.05.2012; and insofar as the demand for Rs. 85,96,743/- vide notice dated 19.07.2013 is concerned, the same already stands quashed by the Debt Recovery Tribunal, Lucknow vide order dated 22.01.2014 and although an appeal is pending before Debt Recovery Appellate Tribunal, Lucknow, there is no interim order in favour of the Bank. In any case, at the cost of repetition, the said issues are beyond the jurisdiction of this Court. It is also pertinent to mention that neither Ms. Manju Kanwar nor Mr. Prageet Sharma have cared to place on the record copies of resolutions of the Board of Directors from the period 25.05.2012 till June 2013.

36. Reverting back to the Company Application No. 340/2016, moved by the Official Liquidator is concerned, it would be appropriate to refer to the relevant provisions of the Companies Act, 1956 that come into consideration, which provide as under:- ―531-A. Avoidance of voluntary transfer.—Any transfer of property, movable or immovable, or any delivery of goods, made by a company, not being a transfer or delivery made in the ordinary course of its business or in favour of a purchaser or encumbrancer in good faith and for valuable consideration, if made within a period of one year before the presentation of a petition for winding up by [the Tribunal] or the passing of a resolution for voluntary winding up of the company, shall be void against the liquidator.‖

37. A careful perusal of the aforesaid provision would show that transfer of an immovable property made by a company, which is not made in the ordinary course of its business and not done in good faith and lacking an element of not being made for valuable consideration, within a period of one year before the presentation of a petition for winding up, may be held to be void against the Liquidator. As regards the disposition of any property/assets of the company in liquidation, after commencement of a winding up petition, the following provisions have to be considered: “Section 536. Avoidance of transfers, etc., after commencement of winding up (1) In the case of a voluntary winding up, any transfer of shares in the company, not being a transfer made to or with the sanction of the liquidator, and any alteration in the status of the members of the company, made after the commencement of the winding up, shall be void. (2) In the case of a winding up by 1 [the Tribunal], any disposition of the property (including actionable claims) of the company, and any 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 2 [Tribunal] otherwise orders, be void.

1. Substituted for "or subject to the supervision of the Court" by the Companies (Second Amendment) Act, 2002 (w.e.f. a date yet to be notified).

2. Substituted for "court" by the Companies (Second Amendment) Act, 2002 (w.e.f. a date yet to be notified). Section 537. Avoidance of certain attachments, executions, etc., in winding up by tribunal (1) Where any company is being wound up by the Tribunal – (a) any attachment, distress or execution put in force, without leave of the Tribunal against the estate or effects of the company, after the commencement of the winding up; or (b) any sale held, without leave of the Tribunal of any of the properties or effects of the company after such commencement; shall be void. (2) Nothing in this section applies to any proceedings for the recovery of any tax or impost or any dues payable to the Government.]

38. In the case decided by this Court in Reserve Bank of India v. J.V.G. M/s. Finance Limited[5], the Court dealt with a report filed by a one-man Committee appointed by the Court whereby the claim of the applicant with regard to an Agreement to Sell executed by the company (in liquidation) after commencement of the winding up proceedings was rejected. This Court referred with approval, the decision of the Calcutta High Court in the case of J. Sen Gupta Private Ltd. (In Liquidation)6, which dealt with Section 536(2) of the Act and observed as under:- ―12. It seems to me, therefore, upon considering various authorities on this subject that the following principles are doubtless applicable to sub-sec (2) of Sec. 536 of the Companies Act, 1956:

1. The Court has an absolute discretion to validate a transaction; and that

2. This discretion is controlled only by the general principles which apply to every kind of judicial discretion; and that.

3. The Court must have regard to all the surrounding circumstances and if from all the surrounding circumstances it comes to the 5 (20110 SCC OnLine Del 5135 6 AIR 1962 Cal. 405 conclusion that the transaction should not be void, it is within the power of the Court under Sec. 536(2) to say that the transaction is not void; and lastly that

4. If it be found that the transaction was for the benefit of and in the interests of the company or for keeping the company going or keeping things going generally, it ought to be confirmed.‖

39. In the above-noted judgment of this Court, reference was also invited to a decision by the Gujarat High Court in the matter of the Sidhpur Mills Company Limited, (1987) 1 Comp. L.J. 71 (Guj.) wherein it was held as under:- ―12. It is trite position in law that the commencement of winding-up proceedings relates back to the presentation of the petition (see: section 441 of Companies Act, 1956). It should be recalled that the winding-up petition in which the order was made was company petition No.9 of 1979 which was presented on 22.2.1979. The winding-up order was made by this Court on October 18, 1979. In the circumstances, therefore, any transfer of shares of Siddhpur Mills Co. Ltd. made after the presentation of the winding-up would be void unless as otherwise directed by the Court. The Court has an absolute discretion as to validating the transaction after presentation of the winding-up petition. The discretion is to be exercised on recognized principles which guide the exercise of judicial discretion generally with particular attention to the interest of the company. The Court can validate such impugned transaction in those bona fide cases which demand protection of equitable consideration. (See B.B. Khanna v. S.N. Ghose 1976 Tax L.R. 1740).‖

40. In view of the aforesaid proposition of law this Court held that: ―it has the discretion to validate any disposition of the property made after passing of the winding up order, but the said discretion is not an untrammelled one, as it has to be exercised on sound judicial principles. In the opinion of this Court, while validating any disposition of the property after the appointment of the Provisional Liquidator, the Company Court, has to keep in view all surrounding circumstances and if it finds that the transaction is a bona fide one for the benefit of the company, then alone the same would be validated‖.

41. Reference can also be invited to the decision by this Court in the case of Smt. Benu Berry v. JVG Finance Ltd.7, wherein the respondent company was ordered to be wound up vide order dated 05.06.1998 and after commencement of the winding up proceedings, a property belonging to the company (in liquidation) at Mumbai had been sold to one Smt. Anita Jain on the premise that the company owed certain monies to her for the promotion work done by her, vide Agreement to Sell dated 23.03.2001. It was found that the concerned Housing Society had recognized Smt. Anita Jain as the bonafide owner of the plot in question but she had also sold the said property to the appellant vide agreement to sell dated 13.12.2001. Finding that the aforesaid disposition or sale was not genuine and bonafide, it was held as under: ―9. Be that as it may, we have otherwise looked into the matter. Counsel for the appellant has argued that the learned company judge erred in not considering that the appellant was a bona fide purchaser for value and in proceeding on the premise that the transaction was void merely for the reason of having been effected after the order of winding up. It is contended that it was incumbent upon the company judge to record a finding whether Smt. Anita Jain was a bona fide creditor of the company or not and that the preference shown to Smt. Anita Jain as a creditor could have been held to be bad only if found to be fraudulent and of which there is no finding. It is contended that the subject transaction is in good faith and for valuable consideration within the meaning of sections 531A and 536(2) of the Companies Act, 1956 and is not a nullity. It is further argued that the appellant had paid the then prevalent market price for the flat. The appellant in this regard has also filed an additional affidavit along with documents being the sale deeds of the other flats and valuation reports with respect to the property.

10. The purported transfer of the flat aforesaid in the present case is admittedly after the order of winding up and appointment of 2012 SCC OnLine Del 6378 provisional liquidator. Upon such happening the ex-management of the company which is alleged to have transferred the flat, lost any right to act on behalf of the company or to transact any of the properties of the company. The transfer thus claimed by the appellant has not been affected by any person authorised to do so. Section 531A of the Companies Act deals with transfers within a period of one year before the presentation of a petition for winding up and has no application to the facts of the present case. Section 536(2) declares transfers of the property of the company after the commencement of winding up as ―void‖ unless otherwise ordered.

11. The question which thus arises is as to in what cases the court should order the transfer effected (of the property of the company), after the commencement of winding up as otherwise then void. The learned company judge in this regard has already referred to J. Sen Gupta (Private) Ltd., In re, [1962] 32 Comp Cas 876; AIR 1962 Cal 405 and Siddhpur Mills Co. Ltd., In re, [1987] 61 Comp Cas 756 (Guj); [1987] 1 Comp. LJ 71. We find that the Supreme Court in Pankaj Mehra v. State of Maharashtra, [2000] 100 Comp Cas 417; (2000) 2 SCC 756, to have laid down the ―test of whether the transfer was under compulsion of circumstance or other commercial compulsion to enable the company in liquidation to run its business‖. We further find a Division Bench of the Bombay High Court in Laxman Yeswant Prabhudesai v. NRC Ltd., [2010] 155 Comp Cas 88; [2010] 2 Comp. LJ 380, to have, after noticing a large volume of case law on the subject deduced that the transaction undertaken by company in liquidation can be validated if under section 536(2) under compulsion of circumstances, in order to save or protect the company, provided evidence is produced about such compulsion; it was further held that the assets of the company (in liquidation) cannot be disposed of at the mere pleasure of the company and only such disposal shall be validated which is found to be for the benefit and interest of the company; it is for enabling the company to continue as a going concern and to protect the interest of the shareholders and creditors, that power of validation under section 536(2) should be exercised. We also find a Division Bench of this court to have in H.L. Seth v. Wearwell Cycle Co. (India) Ltd., [1992] 46 DLT 599, observed the test to be applied for validating a transaction in exercise of the powers under section 536(2) is of ―good faith in the ordinary course of trade, for the benefit of the company‖. Similarly in Reserve Bank of India v. Crystal Credit Corporation Ltd., [2006] 132 Comp Cas 363 (Delhi); [2005] 121 DLT 375, the following principles for exercise of the powers under section 536(2) were laid down ( Comp Cas): ―(i) Transactions bona fide entered into and completed in the ordinary course of trade must be protected.

(ii) If the disposition is made for the purpose of preserving the business as a going concern, then also the discretion of the court must be exercised.

(iii) A disposition must not be validated merely because the party bona fide entered into the transaction.

(iv) Knowledge of the presentation of the winding up is immaterial.‖

42. In light of the aforesaid proposition of law, reverting back to the instant matter, the first and foremost issue that arises in the present matter is whether Andhra Bank, which had the first charge over the property in question and is evidently a secured creditor, could have effected a sale of the property in question by way of a private treaty. In consideration of the same, this Court has gone through the relevant provisions of the SARFAESI Act, 2002 as also the Companies Act of

1956. There is no gain saying that the company (in liquidation) was a borrower in terms of Section 2(f)8 of the SARFAESI Act and the debt was taken and in existence against the property in question, which was recoverable by the Bank. Further, the property in question was a financial asset of the Bank in terms of Section 2(l)9 and there also 8 (f) ―borrower‖ means 1 [any person who, or a pooled investment vehicle as defined in clause (da) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) which,] has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution 2 [and includes a person who, or a pooled investment vehicle which,] becomes borrower of a 3 [asset reconstruction company] consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance 4 [or who has raised funds through issue of debt securities]; 9 (l) ―financial asset‖ means debt or receivables and includes—

(i) a claim to any debt or receivables or part thereof, whether secured or unsecured; or

(ii) any debt or receivables secured by, mortgage of, or charge on, immovable property; or

(iii) a mortgage, charge, hypothecation or pledge of movable property; or arose a default in so far that there was apparently non-payment of the debt taken by the borrower in terms of Section 2(j)10 of the SARFAESI Act.

43. It is pertinent to appreciate that Andhra Bank being a secured creditor by virtue of Section 2(zd)11, had a security interest within the meaning of Section 2(zf)12. At this juncture, it would be relevant to

(iv) any right or interest in the security, whether full or part underlying such debt or receivables; or

(v) any beneficial interest in property, whether movable or immovable, or in such debt, receivables, whether such interest is existing, future, accruing, conditional or contingent; or [(va) any beneficial right, title or interest in any tangible asset given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of such asset or an obligation incurred or credit otherwise provided to enable the borrower to acquire such tangible asset; or (vb) any right, title or interest on any intangible asset or licence or assignment of such intangible asset, which secures the obligation to pay any unpaid portion of the purchase price of such intangible asset or an obligation incurred or credit otherwise extended to enable the borrower to acquire such intangible asset or obtain licence of the intangible asset; or]

(vi) any financial assistance;

[(j) ―default‖ means— (i) non-payment of any debt or any other amount payable by the borrower to any secured creditor consequent upon which the account of such borrower is classified as nonperforming asset in the books of account of the secured creditor; or (ii) non-payment of any debt or any other amount payable by the borrower with respect to debt securities after notice of ninety days demanding payment of dues served upon such borrower by the debenture trustee or any other authority in whose favour security interest is created for the benefit of holders of such debt securities;] 11 [(zd) ―secured creditor‖ means—

(i) any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (l);

(ii) debenture trustee appointed by any bank or financial institution; or

(iii) an asset reconstruction company whether acting as such or managing a trust set up by such asset reconstruction company for the securitisation or reconstruction, as the case may be; or

(iv) debenture trustee registered with 5 [the Board and appointed] for secured debt securities; or

(v) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created by any borrower for due repayment of any financial assistance.] [2(zf) ―security interest‖ means right, title or interest of any kind, other than those specified in section 31, upon property created in favour of any secured creditor and includes— (i) any mortgage, charge, hypothecation, assignment or any right, title or interest of any kind, on tangible asset, retained by the secured creditor as an owner of the property, given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset; or

(ii) such right, title or interest in any intangible asset or assignment or licence of such intangible asset which secures the obligation to pay any unpaid portion of the purchase price of the intangible asset or the obligation incurred or any credit provided to enable the borrower to acquire the intangible asset or licence of intangible asset;] refer to Section 13 of the SARFAESI Act, which provides as under:- “13. Enforcement of security interest.—(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of court or tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4). [Provided that—

(i) the requirement of classification of secured debt as nonperforming asset under this sub-section shall not apply to a borrower who has raised funds through issue of debt securities; and

(ii) in the event of default, the debenture trustee shall be entitled to enforce security interest in the same manner as provided under this section with such modifications as may be necessary and in accordance with the terms and conditions of security documents executed in favour of the debenture trustee.] (3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower. [(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate [within fifteen days] of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower: Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.] (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:— (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; [(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt;]

(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;

(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. (5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. [(5A) Where the sale of an immovable property, for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any officer of the secured creditor, if so authorised by the secured creditor in this behalf, to bid for the immovable property on behalf of the secured creditor at any subsequent sale. (5B) Where the secured creditor, referred to in sub-section (5A), is declared to be the purchaser of the immovable property at any subsequent sale, the amount of the purchase price shall be adjusted towards the amount of the claim of the secured creditor for which the auction of enforcement of security interest is taken by the secured creditor, under sub-section (4) of section 13. (5C) The provisions of section 9 of the Banking Regulation Act, 1949 (10 of 1949) shall, as far as may be, apply to the immovable property acquired by secured creditor under sub-section (5A).] (6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. (7) Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests. [(8) Where the amount of dues of the secured creditor together with all costs, charges and expenses incurred by him is tendered to the secured creditor at any time before the date of publication of notice for public auction or inviting quotations or tender from public or private treaty for transfer by way of lease, assignment or sale of the secured assets,—

(i) the secured assets shall not be transferred by way of lease assignment or sale by the secured creditor; and

(ii) in case, any step has been taken by the secured creditor for transfer by way of lease or assignment or sale of the assets before tendering of such amount under this sub-section, no further step shall be taken by such secured creditor for transfer by way of lease or assignment or sale of such secured assets.] (9) [Subject to the provisions of the Insolvency and Bankruptcy Code, 2016, in the case of] financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to subsection (4) unless exercise of such right is agreed upon by the secured creditors representing not less than [sixty per cent.] in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors: Provided that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956): Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realise his security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of section 529A of that Act: Provided also that liquidator referred to in the second proviso shall intimate the secured creditor the workmen's dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimate dues with the liquidator: Provided also that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator: Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any. Explanation.—For the purposes of this sub-section,— (a) ―record date‖ means the date agreed upon by the secured creditors representing not less than [sixty per cent.] in value of the amount outstanding on such date; (b) ―amount outstanding‖ shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor. (10) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower. (11) Without prejudice to the rights conferred on the secured creditor under or by this section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measured specifies in clauses (a) to

(d) of sub-section (4) in relation to the secured assets under this

Act. (12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorised in this behalf in such manner as may be prescribed. (13) No borrower shall, after receipt of notice referred to in subsection (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor.‖

44. A careful perusal of sub-Section (1) to Section 13 would show that it starts with a non-obstante clause and enables the secured creditor to enforce its security interest without intervention of the Court or Tribunal, in accordance with the provisions of the Act, and further that this provision has an overriding effect on Section 6913 and 69A14 of the Transfer of Property Act. It would also be pertinent to

69. Power of sale when valid.— (1) A mortgagee, or any person acting on his behalf, shall, subject to the provisions of this section have power to sell or concur in selling the mortgaged property or any part thereof, in default of payment of the mortgage-money, without the intervention of the court, in the following cases and in no others, namely:— (a) where the mortgage is an English mortgage, and neither the mortgagor nor the mortgagee is a Hindu, Muhammadan or Buddhist or a member of any other race, sect, tribe or class from time to time specified in this behalf by the State Government, in the Official Gazette; (b) where a power of sale without the intervention of the court is expressly conferred on the mortgagee by the mortgage-deed and the mortgagee is the Government;

(c) where a power of sale without the intervention of the court is expressly conferred on the mortgagee by the mortgage-deed and the mortgaged property or any part thereof was, on the date of the execution of the mortgage-deed, situate within the towns of Calcutta, Madras, Bombay, or in any other town11 or area which the State Government may, by notification in the Official Gazette, specify in this behalf. (2) No such power shall be exercised unless and until— (a) notice in writing requiring payment of the principal money has been served on the mortgagor, or on one of several mortgagors, and default has been made in payment of the principal money, or of part thereof, for three months after such service; or (b) some interest under the mortgage amounting at least to five hundred rupees is in arrear and unpaid for three months after becoming due. (3) When a sale has been made in professed exercise of such a power, the title of the purchaser shall not be impeachable on the ground that no case had arisen to authorise the sale, or that due notice was not given, or that the power was otherwise improperly or irregularly exercised; but any person damnified by an unauthorised or improper or irregular exercise or the power shall have his remedy in damages against the person exercising the power. (4) The money which is received by the mortgagee, arising from the sale, after discharge of prior encumbrances, if any, to which the sale is not made subject, or after payment into Court under section 57 of a sum to meet any prior encumbrance, shall, in the absence of a contract to the contrary, be held by him in trust to be applied by him, first, in payment of all costs, charges and expenses properly incurred by him as incident to the sale or any attempted sale; and, secondly, in discharge of the mortgage-money and costs and other money, if any, due under the mortgage; and the residue of the money so received shall be paid to the person entitled to the mortgaged property, or authorised to give receipts for the proceeds of the sale thereof. (5) Nothing in this section or in section 69A applies to powers conferred before the first day of July, 1882. 69A. Appointment of receiver.— (1) A mortgagee having the right to exercise a power of sale under section 69 shall, subject to the provisions of sub-section (2), be entitled to appoint, by writing signed by him or on his behalf, a receiver of the income of the mortgaged property or any part thereof. (2) Any person who has been named in the mortgage-deed and is willing and able to act as receiver may be appointed by the mortgagee.If no person has been so named, or if all persons named are unable or unwilling to act, or are dead, the mortgagee may appoint any person to whose appointment the mortgagor agrees; failing such agreement, the mortgagee shall be entitled to apply to the Court for the appointment of a receiver, and any person appointed by the Court shall be deemed to have been duly appointed by the mortgagee.A receiver may at any time be removed by writing signed by or on behalf of the mortgagee and the mortgagor, or by the court on application made by either party and on due cause shown.A vacancy in the office of receiver may be filled in accordance with the provisions of this sub-section. (3) A receiver appointed under the powers conferred by this section shall be deemed to be the agent of the mortgagor; and the mortgagor shall be solely responsible for the receiver‘s act or defaults, unless the mortgage-deed otherwise provides or unless such acts or defaults are due to the improper intervention of the mortgagee. (4) The receiver shall have power to demand and recover all the income of which he is appointed receiver, by suit, execution or otherwise, in the name either of the mortgagor or of the mortgagee to the full extent of the interest which the mortgagor could dispose of, and to give valid receipts accordingly for the same, and to exercise any powers which may have been delegated to him by the mortgagee, in accordance with the provisions of this section. (5) A person paying money to the receiver shall not be concerned to inquire if the appointment of the receiver was valid or not. (6) The receiver shall be entitled to retain out of any money received by him, for his remuneration, and in satisfaction of all costs, charges and expenses incurred by him as receiver, a commission at such rate not exceeding five per cent, on the gross amount of all money received as is specified in his appointment, and, if no rate is so specified, then at the rate of five per cent. on that gross amount, or at such other rate as the court thinks fit to allow, on application made by him for that purpose. (7) The receiver shall, if so directed in writing by the mortgagee, insure to the extent, if any, to which the mortgagee might have insured, and keep insured against loss or damage by fire, out of the money received by him, the mortgaged property or any part thereof being of an insurable nature. (8) Subject to the provisions of this Act as to the application of insurance money, the receiver shall apply all money received by him as follows, namely:—

(i) in discharge of all rents, taxes, land revenue, rates and outgoings whatever affecting the mortgaged property;

(ii) in keeping down all annual sums or other payments, and the interest on all principal sums, having priority to the mortgage in right whereof he is receiver;

(iii) in payment of his commission, and of the premiums on fire, life or other insurances, if any, properly payable under the mortgage-deed or under this Act, and the cost of executing necessary or proper repairs directed in writing by the mortgagee;

(iv) in payment of the interest falling due under the mortgage;

(v) in or towards discharge of the principal money, if so directed in writing by the mortgagee,and shall pay the residue, of any, of the money received by him to the person who, but for the possession of the receiver, would have been entitled to receive the income of which he is appointed receiver, or who is otherwise entitled to the mortgaged property. (9) The provisions of sub-section (1) apply only if and as far as a contrary intention is not expressed in the mortgage-deed; and the provisions of sub-sections (3) to (8) inclusive may be varied or extended by the mortgage-deed; and, as so varied or extended, shall, as far as may be, operate in like manner and with all the like incidents, effects and consequences, as if such variations or extensions were contained in the said sub-sections. (10) Application may be made, without the institution of a suit, to the court for its opinion, advice refer to Rule 8 of the SARFAESI Rules, which provides as under:- ―RULE (8) Sale by any methods other than public auction or public tender, shall be on such terms as may be settled [between the secured creditors and the proposed purchaser in writing] [Substituted 'between the parties in writing' by Notification No. G.S.R. 1046 (E), dated 3.11.2016 (w.e.f. 20.9.2002).]. Sale of immovable secured assets. (1) Where the secured asset is an immovable property, the authorized officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property. (2) The possession notice as referred to in sub-rule (1) shall also be published in two leading newspaper, one in vernacular language having sufficient circulation in that locality, by the authorized officer. (2A) [ All notices under these rules may also be served upon the borrower through electronic mode of service, in addition to the modes prescribed under sub-rule (1) and sub-rule (2) of rule 8.] [Inserted by Notification No. G.S.R. 1046 (E), dated 3.11.2016 (w.e.f. 20.9.2002).] (3) In the event of possession of immovable property is actually taken by the authorized officer, such property shall be kept in his own custody or in the custody of any person authorized or appointed by him, who shall take as much care of the property in his custody as a owner of ordinary prudence would, under the similar circumstances, take of such property. (4) The authorized officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of. (5) Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorized officer shall obtain valuation of the property from an approved valuer and in consultation with or direction on any present question respecting the management or administration of the mortgaged property, other than questions of difficulty or importance not proper in the opinion of the court for summary disposal. A copy of such application shall be served upon, and the hearing thereof may be attended by, such of the persons interested in the application as the Court may think fit. The costs of every application under this sub-section shall be in the discretion of the Court. (11) In this section, ―the Court‖ means the Court which would have jurisdiction in a suit to enforce the mortgage. the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:- (a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or (b) by inviting tenders from the public; (c) [ by holding public auction including through e-auction mode; or] [Substituted by Notification No. G.S.R. 1046 (E), dated 3.11.2016 (w.e.f. 20.9.2002).]

(d) by private treaty.

(6) the authorized officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5):[Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in the Form given in Appendix IV-A to be published in two leading newspapers including one in vernacular language having wide circulation in the locality.] [Substituted by Notification No. G.S.R. 1040(E), dated 17.10.2018 (w.e.f. 20.9.2002).] (7) [ every notice of sale shall be affixed on the conspicuous part of the immovable property and the authorised officer shall upload the detailed terms and conditions of the sale, on the web- site of the secured creditor, which shall include; (a) the description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor; (b) the secured debt for recovery of which the property is to be sold;

(c) reserve price of the immovable secured assets below which the property may not be sold;

(d) time and place of public auction or the time after which sale by any other mode shall be completed; (e) deposit of earnest money as may be stipulated by the secured creditor; (f) any other terms and conditions, which the authorized officer considers it necessary for a purchaser to know the nature and value of the property.] (8) Sale by any methods other than public auction or public tender, shall be on such terms as may be settled [between the secured creditors and the proposed purchaser in writing] [Substituted 'between the parties in writing' by Notification No. G.S.R. 1046 (E), dated 3.11.2016 (w.e.f. 20.9.2002).].

45. A bare perusal of the aforementioned provisions would show that where a secured asset is an immovable property, sale by any method other than public auction or public tender may be effected on such terms as may be settled between the secured creditor and the proposed purchaser in writing. Although, in terms of sub-Section (2) to Section 13 of the SARFAESI Act, there was no specific declaration as to the account of the company in liquidation having become a Non- Performing Asset, such recourse was definitely on the cards.

46. Therefore, this court finds substance in the plea advanced by the learned counsel for Andhra Bank, that by virtue of the order dated 03.12.2012 passed by the CLB, whereby liberty was granted to the Bank to take action against the mortgaged property as per law, the sale of the property in question by way of a private treaty with the borrower and the purchaser was squarely included and envisaged. In other words, it was not incumbent upon Andhra Bank to resort to the long run procedure of enforcing its ‗security interest‘ in the manner laid down under the SARFAESI Act, which involves the publication of a notice, carrying out an e-auction, inviting tenders and thereafter finalizing the deal by execution of a registered sale deed.

47. Having said that, the issue that begs a question - whether the sale of the property in question on 30.01.2013 should be validated by this Court? Indeed, the sale of the property, completed on 30.01.2013, was effected after the commencement and issuance of notice to Ms. Manju Kanwar for 15.01.2013. However, unhesitatingly from the trail of correspondence viz., the letters/emails dated 20.12.2012, 22.12.2012, 27.12.2012, 28.12.2021[2] that preceded between the principal borrower i.e. the company (in liquidation) through Ms. Manju Kanwar and Andhra Bank before the sale was effected, does go to show that all efforts were being made to set the company (in liquidation) on course to recovery and revive it, and further to ensure that its account with the Bank does not become an NPA. If the said letters dated 20.12.2012, 22.12.2012, 27.12.2012 and 28.12.2021[2], emanating from the company (in liquidation) are to be believed, the company was going through a poor commercial phase due to a worldwide recession which greatly impacted Europe and United Kingdom in particular.

48. Although, much has been argued about the property in question being undervalued, no substantive material has been placed on behalf of the Official Liquidator and/or for that matter on behalf of the applicant- Mr. Prageet Sharma, Ex-Director so as to suggest that any apparent collusion was resorted to in order to sell the property at a rate lower than the prevailing market rate. On the contrary, Ms. Manju Kanwar, Ex-Director has placed on the record copies of two registered sale deeds regarding properties in the same project, which indicate that different prices were fetched for similarly situated properties around the relevant time period and rather for a lower price than the consideration paid by the buyer - Ms. Pranjali Khanna through her mother Smt. Vandana Khanna, in the present sale in contention.

49. In view of the foregoing discussion, unhesitatingly, this Court finds that the reliefs claimed in Company Application No. 340/2016 moved on behalf of the Official Liquidator are not sustainable. There are no justifiable reasons to invalidate the sale deed, for the simple reason that the sale had been effected by Andhra Bank under its aegis through the principal borrower/debtor, under its overall supervision and control and the entire sale consideration was duly received and accounted for. There is not an iota of material placed on the record to suggest that any part of the sale consideration was siphoned off or misappropriated by anyone connected with the company (in liquidation).

50. Accordingly, the company application bearing CA NO. 340/2016 is hereby dismissed. The application bearing CA NO. 1868/2013 moved by applicant Ms. Pranjali Khanna through her mother Ms. Vandana Khanna is hereby allowed and the Official Liquidator is directed to de-seal the property bearing No. LGG-116, The Laburnum Condominium Complex, Block-A, Sushant Lok, Sector-28, Gurgaon within 15 days from today.

51. All other applications are also disposed of accordingly. CO.PET. 436/2012 & CRL.O.(CO) 2/2014

52. List on date already fixed i.e., 09.05.2024.

DHARMESH SHARMA, J. APRIL 03, 2024