1

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 20TH DAY OF AUGUST 2015

BEFORE

THE HON’BLE MR. JUSTICE A S BOPANNA

C.A.No.1129/2013 C/W C.A.No.584/2013, C.A.No.375/2012 AND C.A.No.1229/2014

IN CO.P. NO. 185/2002

C.A.No.1129/2013

BETWEEN: OFFICIAL LIQUIDATOR OF; M/S B.S. REFRIGERATORS LTD., (IN LIQN) ATTACHED TO HIGH COURT OF KARNATAKA, MINISTRY OF CORPORATE AFFAIRS, CORPORATE BHAVAN, 12TH FLOOR, RAHEJA TOWERS, M.G. ROAD, BENGALURU – 560 001. ... APPLICANT

(BY SRI.K.S.MAHADEVAN & SRI.V. JAYARAM, ADVs. FOR OL.)

AND:

1. M/S ASSET RECONSTRUCTION COMPANY (INDIA) LTD. THE RUBY, 10TH FLOOR, 29, SENAPATI MARG, DADAR (WEST), MUMBAI – 400 028.

2. M/S AAMBY VALLEY LIMITED,

C/O HOTEL SAHARA STAR, OPPOSITE DOMESTIC AIRPORT. VILE PARLE, EAST, MUMBAI – 400 099.

2

3. M/S AVL HOTELS AND RESORTS LIMITED, C/O HOTEL SAHARA STAR, OPPOSITE DOMESTIC AIRPORT. VILE PARLE, EAST, MUMBAI – 400 099.

4. M/S. KARNATAKA INDUSTRIAL AREAS

DEVELOPMENT BOARD, NO.14/3, 2ND FLOOR, R.P. BUILDING, NRUPATHUNGA ROAD, BANGALORE – 560 001 ... RESPONDENTS

(BY SRI. UDAYA HOLLA, Sr. COUNSEL FOR SRI.SHREYAS JAYASIMHA FOR M/S AARNA LAW FOR R1 SRI.K.G.RAGAVAN, Sr.COUNSEL FOR SRI. SURAJ GOVINDA RAJ, ADV. FOR M/S. ANUP.S.SHAH LAW FIRM FOR R2 & 3, SRI. ASHOK.N.NAYAK, ADV. FOR R4)

THIS APPLICATION IS FILED UNDER RULE 6 & 9 OF THE COMPANIES [COURT] RULES, 1959, PRAYING TO SET-ASIDE THE SALE CONDUCTED BY ARCIL MUMBAI; AND ETC.,

C.A.No.584/2013 BETWEEN: ASSET RECONSTRUCTION CO., (INDIA) LTD. A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANY ACT, 1956 HAVING ITS REGISTERED OFFICE AT: “THE RUBY”, 10TH FLOOR, 29, SENAPATI BAPAT MARG DADAR (WEST), MUMBAI – 400 028 … APPLICANT (BY SRI.UDAYA HOLLA, Sr. COUNSEL FOR SRI.SHREYAS JAYASIMHA) AND:

1. M/S. PRIME INDUSTRIES, A PARTNERSHIP FIRM HAVING ITS

3

REGISTERED OFFICE AT: NO.4925, 11TH FLOOR, HIGH POINT, PALACE ROAD, BENGALURU, REP. BY ITS PARTNER MR. MANISH AGARWAL

2. OFFICIAL LIQUIDATOR OF

M/S. B.S.REFRIGERATORS LIMITED, ATTACHED TO HIGH COURT OF KARNATAKA 4TH FLOOR. D & F WING, KENDRIYASADAN, KORAMANGALA, BENGALURU – 560 034 … RESPONDENTS

(BY SRI.K.S. MAHADEVAN & SRI.V.JAYARAM, ADVs. FOR OL FOR R-2. SRI.SRIRANGA ACCEPTS NOTICE FOR R-1)

THIS APPLICATION IS FILED UNDER RULE 6 & 9 OF THE COMPANY [COURT] RULES, 1959, R/W SECTION 449 OF THE COMPANIES ACT, 1956, PRAYING TO TAKE INTO CONSIDERATION THE COMPLETION OF SALE IN A TRANSPARENT MANNER BY PUBLIC AUCTION AND THE APPLICANT MAY BE PERMITTED TO APPROPRIATE THE SALE PROCEEDS TOWARDS THE AMOUNTS DUE FROM THE COMPANY IN LIQUIDATION.

C.A.No.375/2012 BETWEEN: M/S. PRIME INDUSTRIES, A PARTNERSHIP FIRM HAVING ITS REGISTERED OFFICE AT: NO.4925, 11TH FLOOR, HIGH POINT, PALACE ROAD, BENGALURU, REP. BY ITS PARTNER MR. MANISH AGARWAL … APPLICANT (BY SRI.S. SRIRANGA, ADV. FOR M/S JUST LAW)

4

AND :

1. OFFICIAL LIQUIDATOR OF M/S. B.S.REFRIGERATORS LIMITED, ATTACHED TO HIGH COURT OF KARNATAKA 4TH FLOOR. D & F WING, KENDRIYASADAN, KORAMANGALA, BENGALURU – 560 034

2. ASSET RECONSTRUCTION CO., (INDIA) LTD. A COMPANY INCORPORATED UNDER THE

PROVISION OF THE COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT:

SHREEPATI ARCADE, AUGUST KRANTI MARG NANA CHOWK, MUMBAI – 400 028

2. SAWAN STEEL TRADERS

A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956 HAVING ITS REGISTRED OFFICE AT SHOP.NO. 12, NOORANI MARKET, TADAPATRI ONI, HUBLI – 560 028

… RESPONDENTS (BY SRI.K.S. MAHADEVAN & SRI.V.JAYARAM, ADVs. FOR OL FOR R1 SRI. UDAYA HOLLA, Sr. COUNSEL FOR SRI. SHREYAS JAYASIMHA FOR R-2)

THIS APPLICATION IS FILED UNDER RULE 6 & 9 OF THE COMPANY [COURT] RULES, 1959, R/W SECTION 446 OF THE COMPANIES ACT, 1956, PRAYING THAT FOR THE REASONS STATED THERIN PLEASED TO SET ASIDE THE SALE CERTIFICATE DATED 15.03.2010 [ANNE – C] ISSUED BY THE R2 TO THE R3 AND ETC.,

C.A.No.1229/2014 BETWEEN: STATE OF KARNATAKA BY ITS PRINCIPAL SECRETARY TO GOVERNMENT FOREST, ENVIRONMENT AND ECOLOGY DEPARTMENT

5

M.S. BUILDING, BENGALURU – 560 001. … APPLICANT

(BY SRI. D.S.RAMACHANDRA REDDY, ADV.) AND:

1. OFFICIAL LIQUIDATOR OF: M/S. B.S.REFRIGERATORS LIMITED, ATTACHED TO HIGH COURT OF KARNATAKA, MINISTRY OF CORPORATE AFFAIRS, CORPORATE BHAVAN, 12TH FLOOR, RAHEJA TOWERS, M.G. ROAD, BENGALURU – 560 001.

2. M/S. ASSET RECONSTRUCTION

COMPANY (INDIA) LTD. THE RUBY, 10TH FLOOR, 29, SENAPATI MARG, DADAR(WEST), MUMBAI – 400 028.

3. M/S AAMBY VALLEY LTD., C/O HOTEL SAHARA STAR, OPPOSITE DOMESTIC AIRPORT, VILE PARLE, EAST, MUMBAI – 400 099.

4. M/S AVL HOTELS AND RESORTS LTD.,

C/O HOTEL SAHARA STAR, OPPOSITE DOMESTIC AIRPORT, VILE PARLE, EAST, MUMBAI 400 099.

5. M/S KARNATAKA INDUSTRIAL

AREAS DEVELOPMENT BOARD, NO. 14/3, 2ND FLOOR, R.P. BUILDING, NRUPATHUNGA ROAD, BENGALURU – 560 001. … RESPONDENTS

(BY SRI K S MAHADEVAN & SRI.V.JAYARAM, ADVs. FOR OL. SRI.UDAYA HOLLA, Sr.COUNSEL FOR SRI.SHREYAS JAYASIMHA FOR R2. SRI.K.G.RAGAVAN, Sr.COUNSEL FOR SRI.SURAJ GOVINDARAJ FOR R3 & R4. SRI.ASHOK.N.NAYAK FOR R5)

6

THIS APPLICATION IS FILED UNDER RULE 6 & 9 OF THE CO., [COURT] RULES, 1959, PRAYING TO ISSUE APPROPRIATE DIRECTIONS TO ALL THE RESPONDENTS HEREIN TO PRESERVE, PROTECT AND NOT TO ALIENATE ANY PORTION OF THE GOVERNMENT FOREST LAND IN SY NO.1 OF KADUGODI PLANTATION TILL THE DISPOSAL OF W.A. 4283/2012, W.A.NO. 4205/2012 AND UNTILL THE ABOVE SAID LITIGATION REACHES IT FINALITY.

THESE APPLICATIONS HAVING BEEN RESERVED FOR

ORDERS, COMING ON FOR PRONOUNCEMENT THIS DAY, THE COURT PRONOUNCED THE FOLLOWING:

O R D E R

This Court by the order dated 28.03.2012 passed in

C.A.No.914/2010 arising out of Co.P.No.185/2002 had

permitted Asset Reconstruction Company (India) Limited

('ARCIL' for short) the applicant in C.A.No.584/2013

herein, a secured creditor to sell the secured assets of the

company in liquidation subject to the directions issued in

the said order. One of the directions being to place details

before this Court before making appropriation, the

instant application is filed. The Official Liquidator and

the State of Karnataka, through the Forest Department

has filed the objections.

7

2. The Official Liquidator has also filed an

application in C.A.No.1129/2013, seeking that the sale

conducted by ARCIL be set aside and the confirmation

thereof in favour of M/s. AVL Hotels and Resorts Ltd.,

as also the demand made by Karnataka Industrial Area

Development Board ('KIADB' for short) be set aside.

ARCIL and AVL Hotels and Resorts Ltd have objected

to the same, while the State of Karnataka, through the

Forest Department has filed the application in

C.A.No.208/2014 seeking to implead themselves therein.

3. The State of Karnataka, Forest Department has

also filed an independent application in

C.A.No.1229/2014 seeking appropriate directions to all

the above noticed parties who are arrayed as respondents

to the application, to preserve, protect and not to alienate

any portion of the Government forest land in Sy.No.1 of

Kadugodi Plantation till the disposal of

8

W.A.No.4283/2012, W.A.No.4205/2012 and until the

same reaches its finality. Such application is made by

contending that the land belonging to the company in

liquidation is a notified forest. The application is opposed

by the respondents No.2 to 5 in the said application.

4. Heard the learned senior counsel representing the

respective parties, the learned counsel for the Official

Liquidator, the learned Special Government Advocate,

the learned counsel for KIADB extensively and perused

the application papers.

5. The parties would be referred to by their

respective names for the purpose of clarity since the

order of their array is different in each of the above noted

applications.

6. In the circumstance arising herein, it would be

appropriate to consider the contentions raised in the

9

application filed by the State of Karnataka, since the other

applications would arise for consideration depending on

the conclusion therein. If the contention therein is

accepted, the entire process relating to the sale of the

property would come to a nought and no further

consideration either with regard to the faulty procedure

alleged by the Official Liquidator or the issue relating to

appropriation claimed by ARCIL will arise.

Re: Issues raised by the State of Karnataka,

Forest Department.

7. The case on behalf of the State of Karnataka is

that the then Government of Mysore by notification

dated 29.10.1896 in exercise of the powers under the

Forest Rules, 1878 notified the entire Sy.No.1 of

Kadugodi Plantation measuring 711 acres as Government

Plantation, which was thereafter notified as ‘State Forest’

under the notification dated 07.01.1901. Though in

10

relation to one portion of the land there was lease in

favour of British Military Grass Farms Department and

the Kadugodi Joint Farming Co-Operative Society,

admittedly the area measuring an extent of 305 acres 23

guntas were acquired under the Karnataka Industrial

Areas Development Act, 1966, by issue of notification in

the year 1985 and 1987. The plot allotted to the Company

in liquidation, on lease, is in the layout formed by the

KIADB. The State of Karnataka, presently contends that

the formation of the industrial layout is in contravention

of the Forest (Conservation) Act,1980.

8. To support the contention that a notified Forest

land cannot be diverted for any other purpose, the

learned Special Government Advocate has relied on the

following decisions;

(i) The case of T.N.Godavarman Thirumulkpad

-Vs- Union Of India (AIR 1997 SC 1228) wherein the

11

guidelines have been laid by the Hon'ble Supreme Court

to check deforestation and ecological imbalance in the

light of the Forest (Conservation) Act. The onus has been

cast on the State Governments to protect the forests.

(ii) The case of T.N.Godavarman Thirumulkpad

-Vs- Union of India (AIR 1997 SC 1233) wherein

further general directions have been issued in respect of

conservation of forests.

(iii)The case of K.M.Chinnappa -Vs- Union of

India ( 2003 AIR SCW 23) wherein it is held that the

State is a trustee of all natural resources which are by

nature meant for public use and enjoyment and the State

as trustee is under a legal duty to protect the natural

resources against the same being converted into private

ownership. In that regard the compliance of the

provisions of the Forest (Conservation) Act is held

obligatory.

12

(iv) The case of State of Karnataka & Ors. -Vs-

I.S.Nirvane Gowda & Ors. (2007 (15) SCC 744)

wherein it is held, when the lands are included in reserve

forest, the entries in the revenue records were of no

consequence and the Revenue authorities were not

competent to deal with the property which was part of

the reserved forest.

(v) The case of Nature Lovers Movement -Vs-

State of Kerala & Ors. (2009 AIR SCW 3656) wherein

the scope of the Forest (Conservation) Act was adverted

to and it was held the provision therein is to be

interpreted to further the object of the legislation. It was

held that the State Governments were denuded of the

powers to deal with reserved forests and the use could be

permitted only with prior approval of the Central

Government.

13

(vi) The case of H.K.Subramanya & Ors. -Vs-

M.Shekar Shetty (2014 (4) AKR 601) wherein a

Hon'ble Division Bench of this Court has reiterated that

the issuance of a notification under Section 4 of the Act is

sufficient to constitute the land comprised in it as

"forest", in which any non forest activity would require

prior approval under Section 2 of the Forest

(Conservation) Act.

9. In that light the learned Special Government

advocate has also relied on the decisions in the case of

State of Karnataka & Anr. -Vs- All India

Manufacturers Organization & Ors.(AIR 2006 SC

1846) and in the case of Phatu Rochiram

Mulchandani -Vs- KIADB (2014 AIR SCW 4035) to

contend that the KIADB cannot adopt a different stand

from the one urged by the State and that in any event the

14

KIADB ought to have taken steps to recover possession

of the plot from the lessee though the company was in

liquidation. The learned Counsel has further relied on the

decision in the case of M/s. Aliji Monoji & Co., -Vs-

Lalji Mavji & Ors. (AIR 1997 SC 64) to contend that

the State of Karnataka is necessary to be impleaded in the

instant proceedings, since it has been held therein that,

necessary party is one, without whose presence no

effective and complete adjudication of the dispute could

be made.

10. The learned senior counsel for ARCIL by

placing reliance on the decisions of this Court in the case

of Smt. Kalavathi Rathnakar Sate -Vs-

Smt.Ambujamma (2001(2) Kar.L.J 262); in the case of

Bakthavatsalam -Vs- Anjapuli & Ors. (2001(1)MLJ

101) and in the case of Sri Vardhaman Stanakvisi Jain

15

Sravak Sangh -Vs- Chandrakumar & Anr. ( ILR

1984 Karn.889) has contended that a party against

whom no relief is sought, even if incidental question

arises is not a necessary party and cannot seek

impleadment.

11. The learned senior counsel also relied on the

following decisions;

(i) in re: Construction of Park at Noida Near

Okhla Bird Sanctuary (2011(1) SCC 744) wherein it

was observed that the order in Godavarman relating to

deemed forest cannot be applied mechanically and with

no regard to the other factors.

(ii) The decision in the case of Godrej and Boyce

Manufacturing Company Limited & Anr. -Vs- State

of Maharashtra & Ors. (2014(3) SCC 430) is relied,

wherein it is held that assuming the land was a private

16

forest, the State had remained completely inactive when

construction was going on over vast tracts of land and

when construction was permitted by approving plans and

providing infrastructure it is natural to assume that such

action is in accordance with law. Hence it was further

held that the appellant therein and individual citizens

cannot be faulted or punished for that. It was also held

that even if the State were to succeed on the legal issues,

there is no way the clock could be put back.

(iii) The case of M/s. Hindustan Sugar Mills -Vs-

State of Rajasthan & Ors. (1980(1) SCC 599) wherein

it is held that it must be remembered that we are living in

a democratic society governed by the rule of law and

every government which claims to be inspired by ethical

and moral values must do what is fair and just to the

citizen, regardless of legal technicalities.

17

(iv) The case of Union of India & Anr. -Vs- Raja

Mohammed Amir Mohammad Khan (2005 (8) SCC

696) wherein it is observed that unfortunately a

dangerous attitude resulting in doing institution damage is

developing, that justice is required to be done only by

courts. It is held that such attitude is betrayal of the

Constitution as well as the laws. Every and any authority

working under the statute has to discharge its duties in a

just manner.

12. In the above backdrop, in so far the rival

contention relating to the impleadment of the State of

Karnataka, the same would not be of much importance

since, in any event, an independent application in

C.A.No.1229/2014 raising issues with regard to the

nature of the land has been filed and the contention urged

therein is what is to be noticed to the extent the same

18

would arise for consideration in the nature of the present

proceedings.

13. In that regard, the relevant documents would

disclose that in one of the first instances, in respect of the

land allotted to the South Western Railway pursuant the

acquisition made for KIADB under the preliminary

notification dated 18.05.1981, the Forest Department of

the State of Karnataka initiated Forest Offence Case by

contending that the area is reserved forest. The same

resulted in a petition before this Court in

W.P.No.14649/2007(GM-FOR). A learned Judge of this

Court by the order dated 12.06.2009 allowed the petition

holding that the respondents therein, namely the State of

Karnataka, Forest Department has no jurisdiction over

the land which has been legitimately acquired under law

and handed over to the Railways. The appeal filed in

W.A.No.3805/2009 against that order was held as being

19

devoid of merit and disposed by the order dated

07.01.2010. The review petition in R.P.No.272/2010 was

dismissed by the order dated 23.09.2011. The Special

leave petition was also dismissed by the Hon'ble Supreme

Court, but the question of law was left open.

14. Subsequently, when certain other persons were

before this Court seeking intervention against the action

initiated by the Forest Department, this Court in

W.P.No.12322/2008(KLR) by order dated 13.04.2010

directed the KIADB to handover the land to the Forest

Department. However, on an appeal by the KIADB in

W.A.Nos.2650-58/2010(KLR), the Hon'ble Division

Bench by the order dated 18.11.2010 allowed the appeal

and set aside the direction issued to the KIADB. Liberty

was however reserved to initiate appropriate proceedings.

The Special Leave Petition filed against the said order to

the Hon'ble Supreme Court was dismissed.

20

15. In yet another petition in W.P.No.7200/2008

c/w W.P.No.29765-66/2009(GM-FOR), against the

Forest offence proceedings initiated, the petitioners

therein assailed the same in the petition, to which the

Company in liquidation was arrayed as respondent No.10.

This Court after detailed consideration has quashed the

orders made to the detriment of the petitioners. Against

the said order, the State of Karnataka is stated to have

filed the appeals in W.A.Nos.4283 and 4205/2012. It is in

that view the instant application in C.A.No.1229/2014 is

filed seeking that the result in the same be awaited before

the sale is permitted.

16. The very sequence of the earlier proceedings

would disclose that the State of Karnataka through its

Forest Department by relying on the notifications dated

29.08.1896 and 07.01.1901 had initiated the forest offence

cases alleging that the Forest land had been occupied.

21

But, except for the consolation that there is an

observation that the question of law is left open, as of

now, the position is that the order passed by the Forest

Department has been quashed. Further, though liberty is

reserved for initiating action, the direction issued to the

KIADB to recover and transfer the land to the Forest

Department has also been set aside.

17. If that be the position, even in the background

of the decisions of the Hon'ble Supreme Court relied on

supra and the notifications relied on by the learned

Special Government advocate, the State of Karnataka is

yet to meet with success in the properly constituted

proceedings in establishing that the land in issue is forest

land. When that is the position, this Court exercising the

limited jurisdiction in a winding up proceedings cannot

adjudicate or accept the contention that the plot leased to

the company in liquidation is a part of the forest land.

22

That too, such consideration is outside the scope when

the sale itself is not conducted in this proceedings, but the

sale having already taken place under the SARFAESI Act

and Security Interest (Enforcement) Rules, 2002 and the

procedure adopted and the appropriation of the amount

are the only aspects to be considered herein at this stage.

18. The fact that the plot in question was allotted

to the company in liquidation on lease by the KIADB is

not in dispute. The KIADB has not objected to the sale

of the lease hold rights. The successful bidder is

purchasing the same, being aware of all these aspects.

Hence, the question of this Court awaiting the

proceedings in the pending writ appeal without

concluding the present proceedings does not arise. If in

any appropriate proceedings, the land is held to be forest

land, the legal consequences would follow and would

bind the purchaser herein. Hence, I am of the considered

23

view that the sale proceedings cannot be brought to a

nought at the instance of the State of Karnataka since as

of now there is no declaration in an appropriate

proceedings by a competent Court that it is a forest land

as claimed by them.

Re: Issues raised by the Official Liquidator.

19. Having arrived at the above conclusion, the

main aspect which requires consideration is the objection

raised by the Official Liquidator. The application in

C.A.Nos.584/2013 and 1129/2013 are interdependent.

Hence the common consideration will answer both the

applications.

20. The learned counsel for the Official Liquidator

contends that the directions issued by this Court through

the order dated 28.03.2012 has not been adhered to by

ARCIL. In that regard the contentions are, the Official

Liquidator has not been intimated and has not been

24

involved in the sale committee; the nominee of the bidder

could not have been given the property; the valuation is

not proper and has not been done through an appropriate

local evaluator and the possession of the property should

not have been given. The learned senior counsel

appearing on behalf of ARCIL and the purchaser have

put forth their contention on each of the issue raised to

contend that there is no violation.

21. Before adverting to the contentions, it would

be appropriate to notice the order dated 28.03.2012 in

C.A.No.914/2010. The petitioning unsecured creditor at

whose instance the winding up order was made, was the

applicant therein. The operative portion of the order

reads as hereunder;

“ORDER

i) The second respondent/secured creditor/

ARCIL is entitled to sell the secured assets

belonging to the Company in liquidation by

25

exercising the right under Section 13 of

SARFAESI Act and as per procedure in Rules 8

and 9 of Enforcement Rules subject to the following:

a) They shall however adopt a transparent procedure

after notifying the Official Liquidator.

b) The proposal for sale and the details of the

valuation obtained for determining the modalities of

sale shall be made available to the Official

Liquidator.”

c) On completion of the sale, the secured Creditor shall

place before the company Court, the details of its

claim before making appropriation to itself.

22. The learned counsel for the Official Liquidator

by placing reliance on the decision in the case of Mahesh

Chandra -Vs- Regional Manager, U.P. Financial

Corporation & Ors. (1993(2) SCC 279) with specific

reference para-21 would contend that a fair procedure as

declared therein has not been followed. The decision in

the case of Bank of Maharashtra -Vs- Pandurang

Keshav Gorwardkar & Ors. (2013(7)SCC 754) to

26

contend that the sale is to be made in association with the

Official Liquidator is also relied.

23. Having perused the above decisions, I am of

the opinion that the same does not require detailed

discussion since it is after considering all those aspects,

the earlier order dated 28.03.2012 was passed. In that

direction, having extracted the operative portion

hereinabove, it indicates the extent to which the

consideration will be required. What is also to be kept in

view is that the application in C.A.No.914/2010 was not

at the instance of the Official Liquidator, but by an

unsecured petitioning creditor. After determining the

right of ARCIL, the same has been regulated only to the

extent indicated therein so as to protect preferential

payment as contemplated under Section 529-A of the

Companies Act. Hence, in my opinion, the examination

should be by keeping this aspect in perspective.

27

24. In that regard, a perusal of the papers in the

background of the submission of the learned counsel for

ARCIL and the purchaser will disclose the procedure that

was followed. The task of valuation was entrusted to

M/s. Parekh Shah & Lodha. Though they are based in

Mumbai, their profile produced at Annexure-R11 will

indicate that they are certainly not novice in the field of

valuation. They are undertaking valuation work for

several Banks and financial institutions all over the

country.

25. The valuation report relating to the company in

liquidation is at Annexure-R12. The contents at para-3

onwards indicates that all aspects relating to the

immovable property is taken into consideration

exhaustively and the valuation is made. No specific issues

relating to the procedure adopted for arriving at the value

or violation of the standard procedure has been brought

28

to the fore by the Official Liquidator. Therefore, such

report cannot be rejected merely because the evaluator

from Mumbai was chartered for the purpose on the

ground it would have been desirable to have entrusted to

an evaluator from Bengaluru as contended by the learned

counsel for the Official Liquidator.

26. The letter dated 16.01.2012 of KIADB along

with Annexure-R13 addressed to Official Liquidator

indicates the amount of Rs.49.37 crores being their claim.

The documents at Annexures-R17 and 18 indicates that

public notice for sale has been issued indicating all details

including dues to KIADB stated separately. The sale

notice has again been issued as at Annexure-R24. The

repeated publication of the sale notice will show that the

procedure adopted was transparent and all efforts were

made to secure the best price.

29

27. The communication dated 06.07.2012 at

Annexure-R13 addressed by ARCIL to the Official

Liquidator indicates that it is being sent in pursuance to

the order of this Court. The valuation report was

enclosed with that letter. The Official Liquidator did not

reply and raise objection either with regard to the

evaluator or the method of valuation. Thereafter the letter

dated 23.07.2012 is addressed as per Annexure-R18

wherein the public notice being issued was informed.

Again a letter dated 22.08.2012 at Annexure-R19 is

addressed. The Official Liquidator addressed a letter

dated 23.08.2012 seeking clarifications as at Annexure-

R20, which has been replied on 28.08.2012 as at

Annexure-R22. The bids not being received pursuant to

the sale notice was informed by the letter dated

26.09.2012 at Annexure-R23. The subsequent public

30

notice issued was also intimated through the letter dated

03.12.2012 at Annexure-R25.

28. At no point of time has the Official Liquidator

raised even a little finger. ARCIL have thereafter opened

the bid in the meeting held on 03.01.2013 as at Annexure-

R26. In the background of the process held and the sale

completed, even to raise an objection at this stage the

Official Liquidator has not brought on record that there

was any other bidder who was ready to offer higher price,

but has been excluded nor has any such willing purchaser

come before this Court. On the other hand, the sale is

being objected by the Official Liquidator on hyper-

technical contention without even showing that the value

of the property was more than the valuation made.

29. In that regard, it would be relevant to refer to

the decisions cited by the learned senior counsel for

ARCIL.

31

(i) The case of State of Punjab -Vs- Yoginder

Sharma Onkar Rai & Co. & Ors. ( 1996 (6) SCC 173)

wherein it is held that the finality of auctions must also be

recognised to be in the interest of the exchequer. If

auctions are set aside and re auctions are ordered on less

than satisfactory material, the loss would be more.

(ii) The case of M/s. Kayjay Industries (P) Ltd. -

Vs- M/s.Asnew Drums (P) Ltd., and others ( 1974 (2)

SCC 213) wherein it is held that Court sale is a forced

sale and notwithstanding the competitive element of a

public auction, the best price is not forthcoming. The

judge must make a margin for this factor. A valuer's

report, good as a basis, is not as good as an actual offer

and variations within limits between such an estimate,

however careful, and real bids by seasoned businessmen

before the auctioneer are quite on the cards. The

circumstances when the buyers are going to be limited is

32

also stated. It is held that if Court sales are too frequently

adjourned with a view to obtaining a still higher price it

may prove a self defeating exercise, for industrialists will

loose faith in actual sale taking place.

30. The next aspect that would arise for

consideration is the objection raised on behalf of the

Official Liquidator that the entity to which the sale has

been made is not the same as the one which took part in

the process of auction.

31. The learned senior counsel appearing on behalf

of M/s. Aamby Valley Ltd and M/s. AVL Hotels and

Resorts Ltd who are arrayed as respondents No.2 and 3

to CA No.1129/2013 would contend that M/s AVL

Hotels and Resorts Ltd is a wholly owned subsidiary of

M/s. Aamby Valley Ltd. It is pointed out that in that

regard 49994 shares are held and the address of both is

33

one and the same. Therefore, M/s AVL Hotels and

Resorts Ltd apart from being the nominee of M/s.

Aamby Valley Ltd, the successful bidder also being a

group company, there is no violation of the procedure in

the sale conducted and the sale certificate being issued in

the name of M/s AVL Hotels and Resorts Ltd., and it is

in accordance with law.

32. To drive home the point, the learned senior

counsel has relied on the following decisions :

i) i) The case of B Himantharaju Setty –vs-

Corporation of the City of Bangalore (AIR 1954 Mys.

145)(DB) wherein the right of a purchaser to seek

execution of the proper conveyance to the purchaser or

his nominee is considered as a valid transaction.

ii) The case of DHN Food Distributors Ltd., and

Others –vs- London Borough of Tower Hamlets

(1976(3) All Eng. Law Reports 462) wherein on taking

34

note of the transaction interse and the shares held by the

group companies has indicated that corporate veil could

be lifted and if they are found to be part of the same

group, the right cannot be denied.

iii) The case of New Horizons Limited And

Another –vs- Union of India and Others [(1995)1

SCC 478] wherein the principle of lifting the corporate

veil was referred to and on referring to the DHN Food

Distributors Ltd case referred supra, it has been held that

when the companies are of the same group, the right

claimed is to be taken into consideration.

33. In the light of the above, the share pattern in

the case on hand as noticed above and the manner in

which the two companies are being managed would

indicate that they are the group companies. That apart,

the communication dated 01.01.2013 addressed by M/s

Aamby Valley Ltd., to ARCIL and the terms and

35

conditions for invitation of sale enclosed thereto would

disclose that the offer is from M/s Aamby Valley Ltd., or

its Nominee for purchase. It is in that view, M/s Aamby

Valley Ltd., being the successful bidder through their

letter dated 28.02.2013 at Annexure-R34 had requested

ARCIL that they will be taking the sale in the name of

their subsidiary M/s AVL Hotels and Resorts Limited.

This position has been intimated by ARCIL to the

Official Liquidator through the communication dated

06.03.2013 at Annexure-R35. Pursuant thereto, the sale

certificate has been executed in favour of M/s AVL

Hotels and Resorts Ltd., since the money payable in

respect of the transaction had been deposited.

34. Though the learned counsel for the Official

Liquidator has sought to make much about the difference

in the details mentioned with regard to the payment as

indicated in the sale draft certificate and the registered

36

document, it is an obvious error and the correct amount

has been indicated in the sale certificate that was

registered. Further with regard to there being certain

alterations with regard to the mode of payment made

being contrary to the terms and conditions of sale, the

same would not vitiate the sale. The sale in any event was

not under the provisions of the Companies Act and Rules

on supervision by this Court. The order made by this

Court would indicate that the sale was permitted to be

made as per the Security Interest Rules and even if there

are minor variations, the same does not call for

interference in a proceedings of the present nature.

35. The contention that there is violation in view of

the sale being confirmed and possession being handed

over without leave of this Court also cannot be accepted

since no such condition had been imposed by this Court.

All that this Court had indicated in the earlier order was

37

to seek leave of this Court before appropriation is made

and the reason for such direction is only to protect the

interest of the amount payable as preferential payments

under Section 529A of the Companies Act. In that

regard, what is also to be noticed is that ARCIL has filed

an affidavit dated 18.03.2014 wherein they have indicated

that they undertake to return the appropriated sums if it is

so directed by this Court in future. Hence, the concern in

that regard would also stand addressed.

36. Further the reply statement filed on behalf of

the KIADB would indicate that they have no objection to

transfer the leasehold rights to the purchaser subject to

the payment of Rs.49,37,06,280/- due to them. In any

event, the said amount is in addition to the sale proceeds

realised by ARCIL. As on today, though there is no

factual quantification of the amount due to the workman,

it is calculated roughly at Rs.5,50,00,000/-. Hence, if the

38

said amount is presently protected and ARCIL is bound

over to deposit any additional preferential payments that

may be adjudicated in future, the further process of

liquidation would stand protected and the sale made and

the appropriation if permitted would not prejudice the

secured creditors of the company in liquidation.

37. In the result, the following:

ORDER

i) C.A.No.375/2012 with regard to sale of

movables is disposed of without specific

orders as it has become redundant.

ii) C.A.No.1129/2013 filed by the Official

Liquidator and CA No.1229/2014 filed by the

State of Karnataka are dismissed.

39

iii) C.A.No.584/2013 filed by ARCIL seeking

appropriation is allowed subject to the

following:

a) A sum of Rs.5,50,00,000/- (Rupees Five

Crores and Fifty Lakhs only) shall be

deposited with the Official Liquidator from

the amount realised by sale, towards the

provisional preferential payments.

b) ARCIL shall remain liable to deposit any

further amount, if directed by this Court in

future, if further preferential amount is

found to be due on adjudication by the

Official Liquidator.

iv) All parties to bear their own costs.

Sd/-

JUDGE Akc/bms