ALLAHABAD BANK ETC. ETC. versus BENGAL PAPER MILLS CO. LTD. AND ORS.

Citation: [1999] 2 S.C.R. 750 · Decided: 20-04-1999 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

A 
ALLAHABAD BANK ETC. ETC. 
v. 
BENGAL PAPER MILLS CO. LTD. AND ORS. 
APRIL 20, 1999 
B 
[S.P. BHARUCHA AND R.C. LAHOTI, JJ.] 
Companies Act, 1956/Companies (Court) Rules, 1959 : Section 4471 
Rule 273-Winding up ordered by a Company Judge-Official Liquidator 
ordered to auction assets and properties of the company after advertising in 
C newspapers-Assets and properties valued at Rs. 1.5 Crores and sold at the 
said value-75% of the price to be paid in instalments-Sale order challenged 
in appeal before Division Bench on the ground of irregularities in sale-
Contention that valuation report of the assets of the company was not 
disclosed to the appellants-Lease hold land in company's possession had 
. D not been considered-Advertisements for sale should have been given all 
-over India-Assets of the company had become the securities of the appellant 
banks-Company Judge had regard only to the prospect of re-_employment 
of 1700 ex-employees-No enquiry made as to haw the ex-employees of the 
company-would be re-employed-Appeal dismissed by the Division Bench-
However, it held that Single Judge passed the order in great haste without 
E proper consideration-On appeal, Held : Upon liquidation, the assets and 
properties of the company in liquidation vest in the Official Liquidator for 
the benefit of its creditors-Interests of creditors of the company are 
paramount-Obligation of the High Court to ensure that best possible price 
is realised-Division Bench of the High Court erred by turning blind eye to 
F the defects noted by it in the order of sale-Official Liquidator ordered to 
forthwith take possession of the assets and properties covered by the sale 
order--Said assets and properties to be resold after fresh valuation and due 
advertisements-Respondent No. 2 to be repaid the purchase price of Rs. 2 
Crores-Lease in favour of Respondent No. 2 also set aside. 
<f 
G 
Banking Practice--Securities-Banks not requiring sale proceeds to 
be kept apart to the credit of their suits-Whether amounts to giving up of 
securities-Held : This question cannot be answered in the absence of full 
record as it has arisen incidentally in appeals-Left to be answered by the 
High Court on appropriate applications by the banks. 
H 
A number of mortgage and hypothecation suits for recovery had been 
750 
__..,._ 
I I 
~ 
ALLAHABAD BANK v. BENGAL PAPER MILLS CO.LTD. 
751 
filed against the respondent company by different banks including the A 
petitioner bank in which even receivers had been appointed. In addition to the 
above suits, in a winding up petition, the company was ordered to be wound 
up by the High Court and the Official Liquidator was directed to take 
possession of the company's assets and properties. High Court appointed a 
valuer and passed an order granting the Official Liquidator leave to sell the 
assets and properties of R-1 "by public auction by inviting sealed tenders B 
upon advertisements once in 'The Statesman' once in 'Jugantore' and once 
in 'Biswamitra' as per usual terms and conditions of sale." 
In pursuance of the advertisement for sale, offer of R-2 was accepted. 
R-2 intended to purchase the entire assets of R-1 with a view to reviving it C 
as an ongoing paper mill. R-2 had entered into discussions with the labour 
unions and the State Government for re-opening of the paper mill. The offer 
was for a sum of Rs. 1.5 Crores and bank drafts for the aggregate amount 
of Rs. 15 lakhs had been enclosed. For the payment of balance 75%, R-2 
intended to pray to the High Court for payment in instalments. Consequently, 
a sale order in favour of R-2 was passed in which it was recorded that the D 
secured creditors raised no objection except a prayer for a direction to the 
Official Liquidator for disbursement of monies to secured creditors. The 
secured creditors protested against the said statement referring them and 
it was modified by the Court by removing the words 'raised no objection'. The 
said sale order alongwith the order making modification was challenged by E 
the appellant in appeal, before a Division Bench of the High Court, where 
they took the plea that valuation report was not disclosed to the banks and 
the assets of R-1 were securities of the bank which could not be sold without 
the written consent of the banks. The Division Bench dismissed the appeal 
in view of the facts that the banks had participated in the sale from the very 
beginning, no objection had been raised by the banks at any po

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