Calcutta High Court
Sharawan Kumar Agarwal vs Shrinenp Investment Ltd. And Ors. on 6 March, 1990
Equivalent citations: [1990]68COMPCAS52(CAL), 94CWN482
JUDGMENT P.D. Desai, J.
1. By an order passed on August 3, 1988, the Hanuman Cotton Mills Ltd. was wound up and the official liquidator was directed to take possession of the assets of the company. On September 2, 5, 1988, the official liquidator took possession of the assets which comprised, inter alia, the plant, machinery, land and building of the manufacturing unit situate at Fuleshwar, Howrah.
2. On October 6, 1988, the official liquidator sought a direction from the learned company judge (hereinafter referred to as "the court") for the appointment of a valuer to value the assets. By an order passed on December 22, 1988, a valuer was appointed. The valuer submitted his report on April 12, 1989, in which the assets were valued at a little above rupees one erore.
3. On April 21, 1989, the court issued directions for the sale of the assets of the company (in liquidation), including the factory premises, as per inventory, by public auction and by inviting sealed tenders upon advertisement, one each in an English newspaper (the Statesman) and in a Bengali and a Hindi newspaper (Jugantar and Viswamitra) as per usual terms and conditions of sale. The advertisement was directed to be published at least two weeks prior to June 2, 1989, which was fixed as the date of sale. The reserve price was fixed at rupees one crore. The official liquidator was directed to give notice to the secured creditors directing them to be present in the court on the date of sale at 2 p.m.
4. Advertisement inviting offers for purchase of the entire movable and immovable assets of the company (in liquidation) lying at the factory was published as directed in the Bengali and Hindi newspapers on May 10, 1989, and in the English newspaper on May 11, 1989. The reserve price fixed by the court was mentioned in the advertisement and the intending purchasers were directed to submit their offers along with a bank draft or pay order for a sum equivalent to 10% of their offer as earnest money. It was mentioned further that the intending purchasers would be allowed inspection of the assets on the dates and at the time specified in the advertisement and that the list of assets and the terms and conditions of sale would be available from the office of the official liquidator. It was also stated that the offers would be opened on June 2, 1989, at 2 p.m. in the court.
5. On June 2, 1989, sealed covers containing the offers were opened in the court. Out of the three offers received, two were found to be far below the reserve price and one offer, which was for a sum of Rs. 1,10,00,000 (rupees one crore ten lakhs), was found to have been made by a person not genuinely interested since none appeared on his behalf on that day. Under the circumstances, an order was passed fixing July 8, 1989, as the date for fresh sale and the directions for advertisement were decided to be given later.
6. On June 16, 1989, an order was passed raising the reserve price to Rs. 1,15,00,000 (rupees one crore fifteen lakhs) at the instance of the Indian Bank, one of the secured creditors. The official liquidator was directed to publish advertisements, one each in the Statesman (Calcutta Edition), the Times of India (Bombay Edition), the Hindustan Times (Delhi Edition), the Hindu (Madras Edition) and Viswamitra (Calcutta Edition), inviting sealed tenders for the purchase of the assets of the company (in liquidation) lying at the factory premises, on the usual terms and conditions, at least three weeks prior to September 15, 1989, which was fixed as the date of sale to take place at 2 p.m. in the court.
7. Between August 3 and 17, 1989, the advertisements were published which were in terms similar to those published earlier, save and except the difference in the dates and time regarding the submission of offers, inspection, sale, etc. In response to the advertisements, 21 parties collected copies of the terms and conditions of sale from the office of the official liquidator.
8. At this stage a reference may be made to the material terms and conditions of sale. They are as follows : (1) the sale would be as per inventory on "as is where is and whatever there is" basis and subject to confirmation by the court, (2) sealed offers would be opened and considered by the court in the presence of the offerers on the date and at the time specified in the advertisement, (3) the offerers would be given a chance to raise their offers and the person whose offer is accepted would be required to deposit a further sum which would, along with the 10% of earnest money, amount to 25% of the accepted bid, (4) any person other than the offerer would also be entitled to be present and give an offer higher than the highest bid submitted; in case of acceptance of such offer, he would be required to deposit 25% of the offered amount by bank draft or pay order.(5) the court would have the right to accept or reject any offer without assigning any reason and the decision of the High Court would be final, (6) the successful bidder would have to pay the balance of the purchase price within a week from the date of sale either by bank draft or pay order, if the sale price is less than Rs. 1,00,00,000, and if such price is more than the said amount, then within a fortnight, (7) in case of failure to pay the balance amount accordingly, the earnest money would stand forfeited and the assets might be sold at the risk and cost of the defaulting offerer without prejudice to any other rights, subject, however, to the power of the court to extend time even after the expiry of the date fixed, (8) the purchaser should take possession of the assets within fifteen days from the date of payment of the full purchase price or any other time fixed by the court and in default the sale would stand cancelled and the sums paid by the purchaser would stand forfeited, (9) the deed of conveyance should be executed within six months from the date of confirmation of sale, the costs thereof being borne by the purchaser, (10) the sale would be subject to such modification/alteration of the terms and conditions as the court may deem fit and proper and the decision of the High Court in that regard shall be final, and (11) the High Court might set aside the sale in favour of the purchaser (s) even after the sale is confirmed and the purchase consideration is paid on such terms and conditions as may be deemed fit and proper "for the interest and benefit of creditors, contributories and all concerned and/or for public interest."
9. On September 15, 1989, when the case was listed for considering the offers for sale, an offer in the sum of Rs. 51,00,000 (rupees fifty-one lakhs) was received. At the request of a secured creditor, however, the case was adjourned to September 22, 1989, in order to enable better offers being obtained.
10. On September 22, 1989, for the first time, the appellant and the first respondent heroin appeared on the scene. The appellant made an offer in the sum of Rs. 1,05,00,000 (rupees one crore five lakhs) whereas the first respondent made an offer in the sum of Rs. 80,00,000 (rupees eighty lakhs). Then was a lower offer of Rs. 75,00,000 (rupees seventy-five lakhs) also. Since all the offers were below the reserve price, the court adjourned the case to September 26, 1989.
11. It would be pertinent to mention at this stage that on or about June 7, 1989, the workmen of the company (in liquidation) had filed an application before the court offering to run the manufacturing unit by forming a workmen's co-operative society, under Sections 446, 448, 449, 429A of the Companies Act, 1956 (hereinafter referred to as "the Act"). Pending consideration of the said application, three different unions jointly representing the workmen and employees of the company (in liquidation) entered into an agreement with the appellant on May 31, 1989, with a view to securing the running of the manufacturing unit and getting the co-operation and assistance of the appellant in proposing a scheme for working the mill and for obtaining necessary orders/directions from the court in that behalf. The agreement provided, inter alia, that the mill would be reopened and the workmen (other than those superannuated and unfit) would be employed in a phased manner within six months of the restoration of electric supply and that they would be paid wages equivalent to the last drawn salary plus Rs. 100 per month on an ad hoc basis and also dearness allowance in accordance with law and that the past liability on account of provident fund dues, E. S. I. contributions, gratuity and other dues, if any, would be realised by them from the official liquidator in accordance with law. The appellant, however, agreed to pay a sum of Rs. 3,00,000 (rupees three lakhs) on instalment basis to the superannuated workmen in six half-yearly instalments. The agreement was to remain in force for three years. By a subsequent agreement executed by and between the parties on or about September 22, 1989, the aforesaid agreement was modified to some extent. It was provided therein, inter alia, that the original agreement would remain in force for two years and upon the expiry of the said period, the workmen would be entitled to salary and other benefits equivalent to those prevalent in other mills of similar nature The appellant also agreed to raise the amount payable to the superannuated workmen from Rs. 3,00,000 (rupees three lakhs) to Rs. 12,00,000 (rupees twelve lakhs).
12. On September 26, 1989, fresh offers were made by the interested parties, including the appellant, in the court. The appellant's offer was in the sum of Rs. 1,15,00,000 (rupees one crore fifteen lakhs). The next highest offer was of Rs. 1,00,00,000 (rupees one crore) of Reliable Sales (Pvt.) Ltd. It is not clear whether the first respondent made any offer on that day. The court accepted the offer of the appellant and confirmed the sale in his favour, subject to further orders. A pay order in the sum of Rs. 10,01,000 (rupees ten lakhs one thousand) was handed over to the official liquidator on behalf of the appellant and the court directed him to retain the same until further orders.
13. Be it stated that it would appear from the order passed by the court on the next day (i.e., September 27, 1989) that the express condition of sale in favour of the appellant was that the assets were to be taken as those of a going concern and that he would run the manufacturing unit at least for a period of three years with the existing employees. Note also was taken of the fact that the appellant had entered into an agreement with the unions to purchase the assets as a going concern, subject to the terms and conditions as embodied in the agreement. It also appears that at the time of sale, one of the secured creditors, viz., the Indian Bank, had objected to the sale of the assets as a going concern on the ground that the secured creditors stood outside the purview of the winding-up and that the best possible offer ought to be obtained in order to meet the liability of the secured creditors, even if it meant the sale of the manufacturing unit on scrap basis. In view of the fact, however, that the appellant had agreed to run the manufacturing unit with the existing employees numbering about 1,200 on certain terms and conditions, the court directed counsel for the Indian Bank to obtain definite instructions in the matter and the case was adjourned to the next day, i.e., September 27, 1989.
14. On September 27, 1989, the Chief Manager, Indian Bank, stated to the court that he had no authority to take any unilateral decision and that the final decision in the matter would have to be taken or confirmed by the corporate office at Madras. His counsel also raised an objection that there was no jurisdiction to sell the assets as a going concern. Having recorded these facts in the course of its order, the court proceeded to observe that it was not possible to settle any terms with the appellant as regards the payment of money or to direct him to reopen the mill in view of the stand of the Indian Bank. The order passed on the previous day confirming the sale in favour of the appellant subject to further orders was, therefore, kept in abeyance and the pay order in the sum of Rs. 10,01,000 received by way of earnest money was directed to be returned to the advocate on record of the appellant. The case was ordered to be listed on November 3, 1989.
15. The course of subsequent events would show that the order of confirmation of sale passed on the previous day in favour of the appellant subject to further orders, which was kept in abeyance by the order aforesaid, was ultimately treated by the court and all concerned including the appellant as having stood rescinded. Later on there were fresh offers and also fresh bidding in the court in which the appellant and the first respondent participated and that is the sale which was ultimately confirmed.
16. It would not be out of place to also mention that prior to September 27, 1989, the Indian Bank was all along present and was heard during the proceedings by the court. The direction with regard to advertisement in different newspapers all over India was, in fact, given at the instance of the said bank and it was directed to bear the costs of such advertisement. No objection against the taking of various steps in the proceedings, including the fixation of reserve price, publication of advertisement, fixation of dates of sale, etc., appears to have been taken by the said bank at any previous stage. On November 3, 1989, the court directed the official liquidator to send copies of all earlier orders to the Central Government advocate and he in turn was directed to obtain necessary instructions from the Central Government as to its stand in the matter. The case was adjourned to November 10, 1989. On November 10, 1989, a clarificatory order was passed directing that necessary instructions should be obtained from the Ministry of Finance, Government of India, and the case was directed to stand over till November 16, 1989, peremptorily. On November 16, 1989, the court passed an order directing the Secretary, Ministry of Finance, Government of India, to appear in the court on November 27, 1989, in view of the fact that no instructions had been sent by the Central Government to its advocate-on-record. The case was thereafter adjourned from time to time.
17. During the said period, when the case reached hearing on different occasions, fresh offers appear to have been received by the court from different parties for the purchase of the assets at prices ranging between Rs. 1,15,00,000 (one crore fifteen lakhs) and Rs. 1,40,00,000 (one crore forty lakhs). The secured creditors, including the Indian Bank, also appear to have submitted to the court that they would not stand in the way of sale of the assets of the company (in liquidation ) as a going concern.
18. On February 6, 1990, proceedings for fresh sale took place in the court. The appellant and the first respondent went on making their offers through their counsel and the highest offer of the first respondent for the purchase of the assets was in the sum of Rs. 1,85,00,000 (rupees one crore eighty-five lakhs). The appellant escalated his offer up to Rs. 1,80,00,000 (rupees one crore eighty lakhs) and was disinclined to go further. An order was passed accepting the first respondent's offer and the sale in its favour was confirmed. The first respondent handed over to the official liquidator in court five pay orders for a total sum of Rs. 16,25,000. The balance amount to make up ten per cent. of the purchase price (i.e., Rs. 2,25,000) was directed to be made over to the official liquidator by way of pay order in the course of the day. The official liquidator was directed to make over possession of the mill premises to the first respondent forthwith upon receipt of such balance amount. The case was ordered to stand over till the next day. This is one of the orders under challenge in the present appeal.
19. Pursuant to the impugned order aforesaid, the first respondent paid the balance amount of Rs. 2,25,000 to the official liquidator as directed and obtained possession of the mill premises from the official liquidator on February 6, 1990.
20. On the same day, the first respondent entered into an agreement with the three unions jointly representing the workmen employed by the company (in liquidation). The agreement provided, inter alia, for new employment being offered in a phased manner to those of the employees who had not reached 58 years of age and who were not unfit; the entire exercise was to be completed within a period of six months from the date of restoration of electric connection. The workmen would receive wages at the rate of their last drawn salary including dearness allowance plus a consolidated sum of Rs. 105 per month as ad hoc payment without any increase for a period of two years from the date of the starting of commercial production ; thereafter dearness allowance was agreed to be paid at the then prevailing rates and the granting of annual increment based upon performance and productivity of the unit was agreed to be considered. Further, the wage structure was to be decided mutually after the third year. The first respondent agreed to pay a sum of Rs. 7,00,000 (rupees seven lakhs) on instalment basis to the superannuated workmen in six half-yearly instalments, proportionately to each workman, independently of the arrear claims, if any, in respect of their past employment on account of provident fund, E.S.I. contribution, gratuity, etc., which were to be realised from the official liquidator. By an express recital the workmen through their unions agreed to treat the said agreement as final for restarting the mill and all other agreements including the two agreements previously entered into with the appellant were declared to have been superseded by the said agreement. These are some of the material terms of the agreement.
21. On February 7, 1990, the case was listed for the purposes of finalisation of the terms of sale confirmed on the previous day. The appellant, however, appeared and submitted through his counsel that he was prepared to increase his offer from Rs. 1,80,00,000 (rupees one crore eighty lakhs) to Rs. 2,10,00,000 (rupees two crores ten lakhs) and that in the interests of justice the revised offer should be accepted and that if necessary other parties may also be allowed to offer further bids. Counsel for the financial institutions supported the plea of the appellant and submitted that since the claim of the secured creditors exceeded Rs. 4,00,00,000 (rupees four crores), the offer given by the appellant should be accepted, On behalf of the first respondent the plea with regard to the reopening of the sale was stoutly opposed on the ground, inter alia, that he had altered his position in that he had parted with a substantial amount of money, possession of the unit was also delivered to him, and guards were employed and posted after delivery of possession and that if the sale was reopened after confirmation there would be loss of faith and confidence in the orders of the court.
22. After hearing the parties the court passed an order rejecting the prayer made on behalf of the appellant. In the course of its order the court observed that despite repeated opportunities given to the appellant, on the previous day he had shown his disinclination to give an offer in a sum higher than Rs. 1,80,00,000 (rupees one crore eighty lakhs) and that, therefore, the highest offer made by the first respondent for Rs. 1,85,00,000 (rupees one crore eighty-five lakhs) was accepted and confirmed. The delivery of possession and consequential steps stated to have been taken by the first respondent thereafter were relevant factors which were required to be taken note of. An undertaking had also been recorded from the employees to abide by the terms and conditions of the agreement entered into between them and the first respondent. There was, therefore, in the opinion of the court, no justification for reopening the matter by deconfirming the sale sanctioned on the previous day. The case was ordered to be listed on February 13, 1990, for further orders. This is the other order under challenge in the present appeal.
23. The appeal was presented in this court and admitted on February 9, 1990. An application praying for stay of the operation and implementation of the orders under appeal was also moved on the same day. Directions for filing of affidavits were issued and the application was directed to be listed for hearing on February 22, 1990. The appellant and the first respondent both agreed on that day to deposit a sum of Rs. 1,00,000 (rupees one lakh) each in the meanwhile with the official liquidator for payment of wages of the workmen stated to have been engaged by the first respondent after taking over possession of the manufacturing unit and out of the said sum the official liquidator was directed to make payment of wages to such workmen as per the terms of the agreement dated February 6, 1990, entered into between the three unions and the first respondent. A direction was issued to the first respondent not to carry on any work in the factory except the cleaning of the premises and making provision for supply of electricity for the purposes of lighting and water supply in the premises. All the said work was directed to be done under the general supervision and in accordance with the directions and instructions of the official liquidator. The security guards, if any, provided by the first respondent were directed to be withdrawn forthwith and the official liquidator was ordered to arrange to employ and station adequate number of security guards to protect the property and also to post a supervisor within the factory premises during working hours.
24. Pursuant to the directions with respect to the filing of affidavits, an affidavit-in-opposition affirmed on February 20, 1990, by Bimal Singh Rampuria, one of the directors and the principal officer of the first respondent, has been filed. An affidavit-in-opposition affirmed on February 21, 1990, by Prahlad Samanta, the secretary of one of the unions of workmen and employees, has also been filed. Under the orders of the court, the official liquidator has filed three separate affidavits affirmed on February 15, 23, and 28, 1990, placing on record all the facts culminating in the passing of the orders under appeal and annexing copies of various documents and orders passed by the court from time to time.
25. The matter was, thereafter, listed and heard on different dates, that is, February 22, 23 and 28, 1990. With the consent of the parties, the appeal and the application were both heard together. After the hearing concluded on February 28, 1990, the judgment was kept reserved and the case was ordered to be listed for pronouncement of judgment today, that is, March 6, 1990.
26. The parties have agreed that the filing of the paper book be dispensed with and the case be disposed of on the basis of the record of the trial court as well as of the materials placed on the record of the application for interim relief by means of the affidavits aforementioned. The undertaking given on behalf of the appellant with regard to the filing of the paper book is, therefore, discharged and the filing of the paper book is dispensed with.
27. The statutory law is that unless the court otherwise directs, no property belonging to a company which is being wound up by the court shall be sold by the official liquidator without the previous sanction of the court and that every sale shall be subject to confirmation by the court. Every such sale is to be held by the official liquidator or, if the judge so directs, by an agent or auctioneer approved by the court and subject to such terms and conditions, if any, as may be approved by the court. All such sales are required to be held by public auction or by inviting sealed tenders or in such manner as the judge may direct. [See Rules 272 and 273 of the Com-panics (Court) Rules, 1959]. The law thus vests the company court with the power to order sale of property belonging to a company (in liquidation) and the confirmation of such sale. Whether the sale should be held by the official liquidator or by an approved agent or auctioneer, what should be the terms and conditions subject to which the sale should be effected and the manner in which the sale should be held are all matters to be decided in the exercise of discretionary powers vested in the company court.
28. It is not disputed that the order under appeal dated February 6, 1990, accepting the offer and confirming the sale in favour of the first respondent is discretionary in nature. The appellate court would not be normally justified in interfering with the exercise of discretion under appeal solely on the ground that if it had considered the matter at the trial stage, it would have come to a different conclusion. If, however, the exercise of discretion by the trial court is in law wrongful and improper, that is, in exercising the discretion the trial court has acted unreasonably or capriciously or has ignored relevant facts and has adopted an unjudicial approach or proceeded on wrong principles, then it would be open to the appellate court --and in many cases it may be its duty--to interfere with such exercise of discretion (see Printers (Mysore) Pvt. Ltd. v. Pothan Joseph, ). The same considerations must weigh also in judging the order under appeal dated February 7, 1990. The said order is also of similar nature since the court in the exercise of its discretion rejected the prayer for de-confirming the sale made in favour of the first respondent and for ordering a fresh sale.
29. The case law on the subject also provides adequate guidance. The decision in Navalkha and Sons v. Ramanuja Das [1970] 40 Comp Cas 936 (SC) being directly in point may be first referred to. In that case, the official liquidator as well as a shareholder of the company (in liquidation) sought directions of the court for the sale of immovable and movable properties and actionable claims of the company. The court appointed joint commissioners for effecting the sale subject to certain terms and conditions. Accordingly, a sale proclamation was drawn up and issued by the commissioners inviting sealed tenders for the purchase of movable and immovable properties and actionable claims of the company (in liquidation) as a single unit. The proclamation was published in four leading English dailies only instead of five. Besides, the advertisement was made only in two out of those four newspapers twice ; in the remaining two, there was only one insertion. This was contrary to the conditions of sale approved by the court. Not even a single offer was received on or before September 8, 1964, which was the last date fixed for the purpose. The time for receipt of offers was extended by the court to the end of November, 1964. The appellant, Navalkha and Sons, were the sole offerers and they offered a sum of Rs. 7,91,001 in respect of immovable properties and machinery. No offer for the actionable claims was made by the firm. The offer was accepted by the Commissioners on December 2, 1964. On being called upon, the initial deposit was made immediately. On December 3, 1964, the Commissioners made an application to the court for confirmation of the sale.
30. On December 24, 1964, one Gopal Das made an offer for Rs. 8,50,000 stating that he could not make an offer in time because he had come to know of the sale only two days prior to that date and that was due to the fact that there was no adequate publicity. He submitted a bank draft for a sum of Rs. 1,00,015 to show his bona fides. The court was of the view that the property had not fetched its proper price and that there was possibility of higher bids. Instead of directing a fresh auction or calling for fresh offers, it was decided to arrange an open bid in the court itself on that very day as between the appellant and Gopal Das with the consent of the former. In the bid, the appellant became the highest bidder at Rs. 8,82,009. The said bid was accepted by the court as final and the same was concluded in favour of the appellant directing that the balance amount of the money together with the amount required for non-judicial stamp should be deposited on or before January 31, 1965, failing which the deposit already made would be forfeited. On January 30, 1965, the balance amount was paid by the appellant within time.
31. On the same day, one Padam Chand made an application offering Rs. 10,00,000 complaining at the same time that there was no adequate publicity of the sale and that he had come to know of the advertisement very late. He also expressed his willingness to participate in open bid if the court so decided with Rs. 10,00,000 as the initial bid. The court rejected his request and by an order dated February 19, 1965, confirmed the sale in favour of the appellant.
32. Padam Chand filed an appeal against the said order. One Ramanuja Das, a contributory, also preferred an appeal urging that the publicity given was inadequate and that the first offer given by the appellant was too low and that the auction between the appellant and Gopal Das in court should have been held only after due publicity and that since that was not done, the object of getting adequate price was defeated. The appeals were allowed by the Letters Patent Bench and the order dated February 19, 1965, confirming the sale read with the order dated December 24, 1964, by which an open bid was arranged between the appellant and Gopal Das was set aside. The company court was directed to take fresh, steps for the sale of the property either by calling for sealed tenders or by auction in accordance with law, with the reserve price fixed at Rs. 10,00,000.
33. The matter was thereupon carried to the Supreme Court by way of appeal and the submission of the appellant was that the company court had not erroneously exercised the discretion to accept the bid of the appellant in the auction held on December 24, 1964, and consequently there was no justification for the Letters Patent Bench to interfere with the order of the learned single judge. The submission was not found acceptable and the appeal was allowed. It was held that there was no adequate publicity since publication of advertisement was made, contrary to the conditions of sale, in four dailies only and in two out of them only one insertion was given. The fact that the property was of much higher value was found to have been established because one Babu Khan had applied on the day on which the sale came up for confirmation that the property was of much higher value and that fresh offers must be invited again with wider publicity. Gopal Das had also come before the court with a higher offer on that very day showing his bona fides and earnestness by depositing more than Rs. 1,00,000 and had complained about insufficient publicity and there was also an affidavit of the State Government dated August 29, 1963, in which the value of the property was shown as Rs. 13,40,000. Under the circumstances, the learned single judge was found to be right in expressing his reluctance to confirm the offer of the appellant. However, the stop thereafter taken, namely, to have an open bid as between the appellant and Gopal Das in the court itself on that very day, was not found justified in law. The reasons for reaching the conclusion were expressed in the following words (at page 943) :
"Rule 273 of the Companies (Court) Rules provides that all sales shall be made by public auction or by inviting sealed tenders or in such manner as the judge may direct. It appears that on April 17, 1964, at the instance of the official liquidator and at the instance of a contributory, the court had approved of the terms and conditions of sale which provide for calling of sealed tenders. On December 24, 1964, the learned judge realised the inefficacy of this course and decided to abandon the original procedure and put the properties to auction. But having made up his mind to resort to auction, the learned judge confined the auction to only two persons, namely, the previous tenderer and the fresh tenderer. The auction in question no doubt was conducted in a public place but it was not a public auction because it was not open to the general public but was confined to two named persons. Secondly, it was not held after due publicity. It was held immediately after it was decided upon. It is, therefore, obvious that the sale in question was not a public sale which implies sale after giving notice to the public wherein every member of the public is at liberty to participate. No doubt, the device resorted to considerably raised the previous bid yet it was not an adequate price having regard to the market value of the property to which reference has already been made. The denial of opportunity to purchase the property by persons who would have taken part in the auction bid but for want of notice is a serious matter. In our opinion, the learned judge having decided on December 24, 1964, that the property should be put to auction should have directed auction by public sale instead of confining it to two persons alone. Since there was want of publicity and there was lack of opportunity to the public to take part in the auction, the acceptance of the highest bid by the learned judge was not a sound exercise of discretion ... As already pointed out, the learned company judge having decided to put the property to auction, went wrong in not holding the auction as a public auction after due publicity and this has resulted in prejudice to the company and the creditors in that the auction did not fetch adequate price. The prejudice was inherent in the method adopted. The petition of Padam Chand Agrawal also suggests that want of publicity had resulted in prejudice. In these circumstances, the company judge ought not to have confirmed the bid of the appellant in the auction held on December 24, 1964."
34. In the course of the judgment, the principles which should govern confirmation of sales have been succinctly set out in the following words (at page 941) :
"Where the acceptance of the offer by the Commissioner is subject to confirmation by the court, the offeror does not by mere acceptance get any vested right in the property so that he may demand automatic confirmation of his offer. The condition of confirmation by the court operates as a safeguard against the property being sold at inadequate price whether or not it is a consequence of any irregularity or fraud in the conduct of the sale. In every case it is the duty of the court to satisfy itself that having regard to the market value of the property the price offered is reasonable. Unless the court is satisfied about the adequacy of the price, the act of confirmation of the sale would not be proper exercise of judicial discretion. . . where the property is authorised to be sold by private contract or otherwise, it is the duty of the court to satisfy itself that the price fixed is the best that could be expected to be offered. That is because the court is the custodian of the interests of the company and its creditors and the sanction of the court required under the Companies Act has to be exercised with judicial discretion regard being had to the interests of the company and its creditors as well . . . the condition of confirmation by the court being a safeguard against the property being sold at an inadequate price, it will be not only proper but necessary that the court, in exercising the discretion, which it undoubtedly has of accepting or refusing the highest bid at the auction held in pursuance of its orders, should see that the price fetched at the auction is an adequate price even though there is no suggestion of irregularity or fraud. It is well to bear in mind the other principle which is equally well settled, namely, that once the court comes to the conclusion that the price offered is adequate, no subsequent higher offer can constitute a valid ground for refusing confirmation of the sale or offer already received. (See the decision of the Madras High Court in Roshan and Co. 's case ."
35. The decision in Roshan and Co.'s case (S. Soundararajan v. Khaka Mahomed Ismail Saheb of Roshan and Co. to which reference is made in Navalkha and Sons' case [1970] 40 Comp Cas 936 (SC) is apposite in the context of the facts of this case. In a partition suit the estate properties were sold at a public auction on September 13, 1937. The defendant in the suit (a member of the family) offered a bid for the property but when the reserve price was reached, he refused to bid further. The sale was eventually knocked down in favour of the respondent at a higher price (Rs. 1,12,500). The sale came up for confirmation before the court on April 7, 1938. The appellant informed the court that he would like to have the property for himself since it had been in the family for long. The case stood adjourned to April 11, 1938, when the appellant informed that he would offer Rs. 1,15,000. The respondent objected to the matter being reopened on the ground that he was the highest bidder at the public auction and that he had complied with all the conditions of sale. The trial court accepted the respondent's contention and confirmed the sale. On appeal, the Division Bench held as follows (at page 43) :
"The fact that the sale is subject to the confirmation of the court does not mean that the court shall refuse to accept the highest bid because at a later stage someone on second thoughts says that he is willing to pay more, It is only right and proper that the sale would be subject to the confirmation of court The condition is a safeguard against irregularity or fraud in connection with the sale and against property being sold at an inadequate price No such consideration applies here. No complaint is made of any irregularity or fraud and it is not suggested that the respondent's final bid was inadequate. Having exceeded the reserve price agreed upon by the parties, it could not be said to be inadequate. The respondent having made an adequate bid and having complied with all the requirements of the court and there being no irregularity, he was entitled to have the sale confirmed."
36. The appeal was, therefore, dismissed.
37. Against the factual and legal background aforesaid, the question for decision herein is whether the confirmation of sale in favour of the first respondent and the subsequent rejection of the application of the appellant to reopen the sale on the basis of his higher offer was justified in law.
38. About 10 months before the sale was concluded and confirmed, the assets of the company (in liquidation) were valued by an approved valuer at a little above Rs. 1 crore. The valuation was on "as is where is and whatever there is" basis. The sale was ordered to take place as per inventory, by public auction and by inviting sealed tenders, upon advertisement. The advertisement was duly published and it was therein mentioned, inter alia, that the list of assets and terms and conditions of sale would be available from the official liquidator. The reserve price of Rs. 1 crore was also mentioned in the advertisement together with an intimation that the offer would be opened in the court on a specified date and time. The terms and conditions of sale provided, inter alia, that the sealed offers would be opened and considered by the court in the presence of the offerers on the date and at the time specified and that the offerers would be given a chance to raise their offers. Any person other than the offerer was also to have a chance to be present and give an offer higher than the highest bid submitted. The sale was to be subject to such modification/alteration of terms and conditions as the court may deem fit and proper. Any party interested in purchasing the assets was thus apprised of all the relevant and material facts through the advertisement and he had ample opportunity to collect further information by procuring a copy of the terms and conditions of sale.
39. There was virtually no purchaser on the first notified date of sale. A fresh sale was, therefore, ordered and all the formalities previously undergone in that regard were followed once again. In fact, wider publicity was given to the proposed sale on an all India basis and the reserve price was simultaneously raised to Rs. 1,15,00,000 (rupees one crore fifteen lakhs). The fact that the publicity was adequate can be judged not only from the circumstance of the advertisement having been inserted in four daily English newspapers and one Hindi newspaper published at different metropolitan cities but also from the fact that as many as 21 parties had collected copies of the terms and conditions of sale from the official liquidator. The record discloses that when the proceedings for sale took place on various occasions in the court, different parties had made offers and that these offers had escalated from time to time. True, somewhere midstream, the basis of the sale was changed from "as is where is and whatever there is" basis and the assets were decided to be sold as a going concern. However, there was no irregularity or illegality in adopting this procedure, since one of the terms and conditions of sale of which every interested person has notice, was that the sale was subject to such modification/alteration of the terms and conditions as the court may deem fit and proper. Besides, judicial notice can be taken of the fact that the sale of a sick industrial unit as a going concern could hardly be expected to fetch a higher price than what would be obtained by the sale of the movable and immovable properties on "as is where is and whatever there is" basis. Any person interested in purchasing the assets and keeping himself abreast of the court proceedings would have known even otherwise that the workmen were keen on the sale of the unit as a going concern because an application was made on their behalf as early as on June 7, 1989, after entering into an agreement with the appellant on May 31, 1989, offering to run the unit with his aid with a view to providing employment to a large number of workmen who had been thrown out of employment on account of the closure of the mill. No prejudice whatsoever can, therefore, be regarded as having been occasioned by this change in the mode of sale of assets and no fresh publicity in that regard was required to be given on the facts and in the circumstances of the case. In fact, it is not anyone's case before us that the publicity was not adequate.
40. The fact that the offer was to be made by way of sealed tenders which were to be opened in court where public auction would take place was duly advertised. The conditions of sale, which were available from the official liquidator, were clear and unambiguous and had provided that the auction would take place not only amongst the offerors but also outsiders. There was thus no change or modification in the manner of sale. Under such circumstances, it was not only an auction in a public place but also a public auction and in the presence of the presiding judge.
41. The price which the assets ultimately fetched upon sale as a going concern on February 6, 1990, was far in excess -- nearly double--of the reserve price. There is, therefore, no inherent evidence that the sale price was inadequate. The fact that none of the secured creditors who is keeping out of liquidation objected to the sale being knocked down at the price offered by the first respondent on the day in question and that none of them has come up in appeal nor has any creditor of other class complained or now complains about the inadequacy of price also leads to the view that the price offered by the first respondent was rightly found by the court to be adequate. There is also no other independent evidence to show that the price fetched was inadequate. It is significant to note further that on the day on which the sale was confirmed even the appellant himself was not prepared to go beyond his offer of Rs. 1,80,00,000 as against Rs. 1,85,00,000 offered by the first respondent.
42. The question then is whether the sale in favour of the first respondent should have been deconfirmed and the assets ought to have been offered for resale merely on the basis of a higher offer (Rs. 2,10,00,000) made by the appellant on the day next after he was outbidden by the first respondent. In answering this question due weight must be given to the fact, firstly, that no irregularity or fraud is alleged and, secondly, that in this case the question is not whether the sale should be confirmed after the acceptance of a bid by the auctioneer or agent but whether a fresh sale should be ordered by setting at naught the sale already confirmed by the court after taking into consideration all facts and circumstances merely because an offeror who was outbidden changes his mind and offers a higher price subsequently. The relevant principles enunciated in Navalkha and Sons' case [1970] 40 Comp Cas 936 (SC) and in Roshan and Co.'s case , would apply with still greater force in such a case. Besides, the scope of interference with the discretion exercised by the court has also not to be lost sight of. Unless it is shown that the discretion has been exercised unreasonably, capriciously, or by adoption of unjudicial approach or on wrong principles, there would be ho ground to interfere.
43. Now, it is true that the court must satisfy itself that having regard to the market value of the property, the price offered and accepted is adequate. The court being the custodian of the interests of the company and its creditors, the power to confirm a sale or to withdraw the confirmation has to be exercised with judicial discretion regard being had to the fact that the price fetched is the best that can be expected to be offered even though there may be no suggestion of irregularity or fraud. It is also true that in the present case there is a specific provision incorporated in the terms and conditions of sale that the sale in favour of a purchaser was liable to be set aside, even after the sale is confirmed and the purchase consideration is paid, in the interest and benefit of creditors, contributories and all concerned and/or for public interest. However, the investment of such power does not mean that the court should review and set aside an order confirming a sale which has already taken place merely because at a later stage on second thoughts someone, more particularly an offerer who was outbidden, says that he is willing to pay more. Once the court has come to the conclusion that the price offered is adequate and has confirmed the sale, the subsequent higher offer made under such circumstances, without anything more, cannot constitute a valid ground for interfering with the rights arising out of sale which has already been confirmed.
44. As earlier discussed, there is no reason to believe that in the present case the court erred either on principle or on facts in exercising its discretion to sanction and confirm the sale in favour of the first respondent on February 6, 1990. All possible care was exercised right from the inception to ensure that having regard to the market value of the property and other circumstances, the price fetched is adequate. The record is replete with materials showing that at all relevant stages requisite steps were taken in that direction. A valuation report was obtained, the reserve price was fixed and revised upwards, wide publicity to the intended sale was given to invite most competitive offers, the co-operation of workmen and secured creditors was secured so that the buyer may not have to face subsequent obstacles and the assets were sold as a going concern with the end in view of starting the manufacturing unit in the larger public interest and also in the interests of workmen, creditors and contributories. There is no suggestion of any irregularity or fraud. There is no independent evidence of the sale having taken place at an inadequate price. Between the two parties who were offering bids, the sale was ultimately confirmed in favour of the one who offered a better price. Ample opportunities were given to the appellant to outbid the first respondent but he did not avail of them on the date of sale. The price ultimately obtained was far in excess of the reserve price. No prejudice is thus apparent.
45. Against this background, merely because on second thoughts on the next day the appellant came forward with an offer to pay more, there would be no justification, without more, to deconfirm the sale already made in favour of the first respondent, who had meanwhile parted with ten per cent. of the purchase price, taken delivery of the assets and entered into an agreement with workmen. None complained when the sale was confirmed by the court. None other than the appellant is before us challenging the confirmation by way of appeal. True, the secured creditors appear to have extended their support to the appellant when he came forward with a fresh offer on the day next after the sale was confirmed and they have supported him in this appeal also. But this, too, apparently is a second thought The unions with whom the agreement has been entered into by the first respondent are supporting it in the present proceedings. About 100 workmen are stated to have been employed. Having regard to all the circumstances of the case, in our opinion, there is no justification for interference with the confirmation of sale made by the court in favour of the first respondent and its refusal to set aside the same. If a higher offer made subsequently on" second thoughts by someone who was outbidden when the sale was confirmed were to be regarded, without anything more, as the sole factor for withdrawing sanction already granted to a court sale, there is a real risk of such sales becoming a speculative exercise which may not inspire the confidence of persons who act on the faith and belief in the finality of actions of court. We see no reason, therefore, to set aside the orders under appeal passed by the court.
46. Before parting with the case, it should be mentioned that an application was sought to be moved on behalf of one D.C. Group Private Limited to intervene in the present proceeding and to make an offer for the purchase of the assets of the company (in liquidation). The said applicant was never in the picture at any prior stage and has now come up in view of the pendency of the present appeal. We have declined to entertain the application and in doing so the factors hereinabove mentioned in disallowing the appeal have weighed with us. It may also be mentioned that two days after the arguments concluded on February 28, 1990, an affidavit was sought to be tendered in court on March 2, 1990, on behalf of the appellant, when the court was about to rise for the day, and it was submitted that it was thereby intended to place on record materials with regard to the financial capability of the appellant to make good his offer and to run the manufacturing unit. We declined to take the affidavit on record for the obvious reason that there was no room for it at that late stage.
47. For the foregoing reasons, the appeal fails and it is dismissed. The appellant shall pay the costs of the appeal to the first respondent and to the workers' union(s) quantified at 100 Gms each and to the official liquidator quantified at 50 Gms.
48. Pursuant to the interim directions passed on February 9, 1990, the appellant deposited a sum of Rs. 1,00,000 with the official liquidator. The said amount will be returned to him forthwith. Similarly, the like amount deposited by the first respondent will also be returned to it by the official liquidator after deducting" therefrom payments, if any, made by him to the workmen under the orders of the court. Interim stay stands vacated.
49. In case the parties want a copy of this judgment, the Registrar, Original Side, will arrange to have such copies supplied to them at their own cost within 24 hours by utilising the services of the contractor who has installed a xerox machine in the court premises. Such copies will be taken out from the original judgment and supplied on the usual undertaking to apply for and obtain a certified copy.