Telangana Court Raps UBI Over Asset Auction
The Company Court set aside the auction conducted by the bank. Challenging the order, UBI filed an appeal before the High Court.
Hyderabad: The Telangana High Court faulted the Union Bank of India (UBI) for initiating parallel recovery proceedings against a Hyderabad-based company, BRG Energy Ltd, even after winding-up proceedings had commenced and an official liquidator had been appointed to take charge of the company’s assets — a 20,675-sq. m land parcel at the Pashamylaram industrial park — and oversee their sale.
Moreover, when interested parties were willing to pay Rs.32.29 crore for the assets, UBI fixed the reserve price at Rs.21.18 crore for the auction conducted by it and did not involve the official liquidator in the valuation and valuation reports. The court also took into consideration that UBI did not take care of the Provident Fund dues of the workers.
A division bench comprising Justice K. Lakshman and Justice V. Ramakrishna Reddy dismissed an appeal filed by UBI against an order of the Company Court — a single judge bench — which had set aside the auction conducted by UBI. The bench underscored that once a company was ordered to be wound up, its assets came under the custody of the Company Court, and the official liquidator would become the lawful custodian entrusted with protecting the interests of all stakeholders, including secured creditors, unsecured creditors and workmen.
The case arose from the financial collapse of BRG Energy Ltd, engaged in the manufacture of power distribution transformers. Proceedings were initiated before the Board for Industrial and Financial Reconstruction (BIFR), followed by winding-up petitions. By an order in 2018, the company was ordered to be wound up, and the official liquidator (OL) was appointed to take custody of its assets and liabilities and to oversee their sale for the benefit of creditors.
The secured asset — Plot No. 40, Industrial Park, Pashamylaram, Patancheru mandal, in Survey No.s 315, 317, 318, 319 and 336 measuring 20,675 sq. m — was taken over by the official liquidator. Despite this, UBI conducted the independent auction and received 25 per cent of the advance money from the successful purchaser, without associating the official liquidator.
The bank contended that it had obtained a recovery certificate from Debt Recovery Tribunal-II Bench, Hyderabad, for `69.60 crore against the company and its directors. The company directors had failed to pay the one-time settlement (OTS) amount of `26.10 crore within the timelines. Hence the OTS sanction lapsed and the upfront amount paid by them was forfeited. It went to the auction of the property to recover the due amount, the bank stated.
The Company Court set aside the auction conducted by the bank. Challenging the order, UBI filed an appeal before the High Court. Upholding the Company Court’s orders, the division bench dismissed the bank’s appeal, reiterating that recovery powers under the Sarfaesi Act cannot be exercised in isolation once winding-up proceedings are underway.
