Gujarat High Court
Official vs Central on 24 September, 2009
Author: Jayant Patel
Bench: Jayant Patel
OLR/143/2008 16/ 20 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD OFFICIAL LIQUDATOR REPORT No. 143 of 2008 In COMPANY PETITION No. 67 of 1993 In COMPANY APPLICATION No. 387 of 2007 ========================================================= OFFICIAL LIQUIDATOR OF TESTEELS LTD. (IN LIQN.) - Applicant(s) Versus CENTRAL BANK OF INDIA & 8 - Respondent(s) ========================================================= Appearance : OFFICIAL LIQUIDATOR for Applicant(s) : 1,MS AMEE YAJNIK for Applicant(s) : 1, MR MRUGESH JANI for Respondent(s) : 1 - 2. NOTICE SERVED for Respondent(s) : 3, MR MITUL K SHELAT for Respondent(s) : 4, 9, MR GM AMIN for Respondent(s) : 5, MR UTKARSH B JANI for Respondent(s) : 6, SINGHI & CO for Respondent(s) : 7, NOTICE UNSERVED for Respondent(s) : 8, ========================================================= CORAM : HONOURABLE MR.JUSTICE JAYANT PATEL Date : 24/09/2009 ORAL ORDER
The Official Liquidator has submitted the present report for sale confirmation of the offer of Rs.29 crore of respondent No.7 for purchase of the land of plot and shed No.10/1, G.I.D.C., Phase-I, Vatva.
Heard Ms.Yajnik, learned Counsel for the OL, Mr.Joshi, learned Counsel with Mr.Singhi, learned Counsel for respondent No.7 Offerer, Mr.Shelat, learned Counsel for respondents No.4 and 9, and Mr.Jani, learned Counsel for respondents No.1 and 2.
Before this Court further could consider the matter for finalization of the sale, two aspects deserve to be recorded; one is that before the Sale Committee there was, inter se, bidding and respondent No.8 had raised the offer up to Rs.28.75 crore, whereas respondent No.7 ultimately raised the offer up to Rs.29 crore. The Sale Committee retained both the offers and the present report has been submitted. As a result thereof, the EMDs, which were deposited by both the offerers were retained. Thereafter, respondent No.8 moved an application to this Court for refund of the EMD on the ground that the offer of respondent No.7 has been accepted by the Sale Committee and such was permitted vide order dated 23.6.2009 in Company Application No.234 of 2009 and such EMD was ordered to be refunded.
The second aspect is that the guarantor of the transaction of loan, granted to the company in liquidation through Mr.Sitaram Phulchand Parasrampuria has filed the affidavit, stating that guarantor Mr.Kamal M. Morarka is agreeable to pay Rs.29 crore against the transfer of the lease-hold land admeasuring 47,687 sq. mtr., in his favour provided that he is discharged from his liabilities by the secured creditors. In capacity as the Ex-Director, it has also stated in paragraph 15 as under:-
15. I submit that it is evident from the Balance Sheet of Testeels Limited for the year 1984-85 that the lease-hold land in question and building thereon were purchased by Testeels Limited for its Vatva Unit on hire purchase basis from Gujarat Industrial Development Corporation (GIDC) under an Agreement for Sale.
Before this Court could further consider the matter for confirmation of the sale, the respondent No.7 had addressed a letter dated 14.7.2009, copy whereof is produced on page 75 to the OLR, the relevant portion of the same reads as under:-
However, pending the confirmation of sale, the situation and circumstances have undergone a substantial change. There has been a global recession and the manufacturing activities of the company have not recorded the projected growth. The company has already made substantial investment in the in-situ expansion as stated above and in acquiring the adjacent land through the Debt Recovery Tribunal, which got resolved in March, 2009. The requirement and priorities for financial commitment have changed considerably and it would not be in the interest of the company or its large number of shareholders to continue its offer for the subject land since it would entail substantial investment for no useful purpose. In any case in the absence of any semblance of the title to the subject land the Company would not be in a position to justify the purchase before its shareholders and the same would invite inquiry from the regulatory authorities.
In light of what is stated above, you are kindly requested to do the needful and return the amount of earnest money deposited by the company at your earliest convenience.
Therefore, the offerer has shown unwillingness to abide by the offer and has shown desire to withdraw the same by the aforesaid declaration.
It may be recorded that this Court on 15.7.2009 after the advertisement was ordered as per the order dated 24.6.2009, had passed the following order:-
Pursuant to the advertisement as was ordered vide order dated 24.06.2009, OL has submitted the report and it has been and it has been submitted that the advertisement is issued, but no offerer has come forward.
Mr.Joshi for respondent No.7 has stated that the respondent No.7 who had submitted the highest offer of Rs.29 Crore before the Sale Committee in the inter se bidding, has withdrawn itself.
Under these circumstances, if the offerer is not interested to stand by the offer made before the Sale Committee, normally the EMD would be required to be forfeited. However, Mr.Joshi submitted that the respondent No.7 would like to show some material stating that under the peculiar circumstances, EMD may not be forfeited and even if to be forfeited, not to the fullest extent.
S.O. to 28.07.2009.
Thereafter, the matter was further considered and on 27.8.2009 following order was passed:-
1. The present report has been submitted by the Official Liquidator for confirmation of the offer of respondent No.7 for purchase of the property admeasuring 47687 Sq. Mtrs. situated at Plot No.10/1, Phase-I, Opp.Dorr Liver, Vatva Railway Station Crossing, GIDC, Vatva, for Rs.29 crores.
2. Upon hearing Mr. Yadav for Official Liquidator, Mr. Jani for respondent Nos. 1 and 2 and Mr. Joshi for respondent No.7, it appears that on 15.07.2009, following order was passed:
Pursuant to the advertisement as was ordered vide order dated 24.06.2009, OL has submitted the report and it has been and it has been submitted that the advertisement is issued, but no offerer has come forward.
Mr.Joshi for respondent No.7 has stated that the respondent No.7 who had submitted the highest offer of Rs.29 Crore before the Sale Committee in the inter se bidding, has withdrawn itself.
Under these circumstances, if the offerer is not interested to stand by the offer made before the Sale Committee, normally the EMD would be required to be forfeited. However, Mr.Joshi submitted that the respondent No.7 would like to show some material stating that under the peculiar circumstances, EMD may not be forfeited and even if to be forfeited, not to the fullest extent.
S.O. to 28.07.2009.
3. Thereafter, respondent No.7 has filed the affidavit dated 27.07.2009 based on the correspondence made by it to Official Liquidator vide letter dated 14.07.2009 in which it is shown that the respondent No.7 is not in a position to stand by the offer made before the sale committee. Two grounds have been stated in the letter; one is that there is no clarity about the leasehold rights and as communicated to respondent No.7 by GIDC the land is in possession of the company in liquidation based on agreement to purchase which Mr. Joshi further states that it is in respect to superstructure and not for the land and the second ground is that due to global recession and other commercial reasons, the company is financially not in a position to maintain the offer.
4. If second is the only ground of inability to pay due to recession or other commercial situation, the same would mean that the offerer due to financial situation is not in a position to stand by the offer.
Such a ground can hardly be said as valid for permitting the offerer to withdraw the offer. Therefore, the consequence would be forfeiture of the EMD as per the condition No.27 of the tender agreement which reads as under:
27. The offerer shall not be entitled to withdraw or cancel his offer once submitted. If the offerer withdraw or cancel his offer the Earnest Money Deposit shall be liable to be forfeited and he will also be liable to pay the Official Liquidator the loss, damage suffered consequent upon his backing out of their offer. The property / assets in question will then be re-sold at the risk and consequences of the offerer.
5. Even otherwise also the other condition Nos. 18, 19 & 20, which may be relevant, read as under:
18. The vendor has no documents or title deeds relating to the properties under sale with him. The purchaser is neither entitled to call for the production of or delivery of any of the documents not in his possession and shall not make any requisition or take any objection in respect of such non-delivery thereof.
19. The purchaser shall satisfy himself about the right and title of the properties after ascertaining from the concerned Registration Officers and other authorities and the vendor will not entertain any claim as regards to the right/title to the property after the Hon'ble High Court confirms the sale.
20. The purchaser shall be deemed to have purchased the properties after complete examination & inspection of it and shall not be entitled to make any requisition or raise any objection as to the title or consideration of the property or any part thereof.
6. The aforesaid conditions, as such, do not create any right in favour of the offerer to assert for the demand in respect to the title or interest in the property at least prior to the sale confirmation since the matter is at the stage of sale confirmation. Still, however, with a view to ensure that the offerer may be in a position to retain the property lawfully, the further assistance can be provided by the Official Liquidator directly or through the orders of this Court. But, such an exercise can be undertaken only if the offerer is to stand by the offer, otherwise not. If in spite of the aforesaid indulgence shown, though cannot be asserted by the offerer, the offerer is desirous to back out from the offer, the only consequence would be the forfeiture of the EMD as per condition No.27 of the tender agreement.
7. I would have further considered the matter, however, at this stage, Mr. Joshi, learned counsel for respondent No.7 offerer stated that he would like to get the instructions of his client as to whether he is ready to stand by the offer now in view of the aforesaid observations of this Court or not.
8. It may incidentally be recorded that one Sitaram Phulchand Parasrampuria, claiming as the Power of Attorney of Kamal M.Morarka, who is stated as Guarantor in the transaction of loan by the company with the secured creditor, has shown his willingness to pay Rs.29 crores against the transaction of the said leasehold rights of the land admeasuring 47687 Sq.Mtrs. if he is to be discharged from his liability by the secured creditors. Since he is interested to submit the offer, may be conditionally, he is permitted to be impleaded as the party in the proceedings.
9. S.O. to 3rd September 2009, for further orders.
On behalf of G.I.D.C., affidavit has been filed, wherein G.I.D.C., has confirmed the position that the Plot No.10/1, G.I.D.C., Phase-I, Vatva, admeasuring 43687 sq. mtrs., was allotted to the company in liquidation pursuant to the agreement dated 19.5.1976. However, no lease deed or sale deed has been executed by the Corporation in favour of the company. It has also been stated that upon the payment of the amount of Rs.60,14,502/- towards instalment and Rs.3,84,304/- towards water, total Rs.63,08,806/-, the Corporation would be in a position to execute the lease deed in respect of the premises in question plus transfer fee as per the prevailing rate.
It is undisputed position that the company in liquidation was allotted the area of the plot as per the aforesaid agreement dated 19.5.1976 and the pertinent aspect is that the said agreement is the agreement to sale and the price mentioned is of Rs.24,82,500/- inclusive of the price of the shed and for the land. It is also undisputed position that based on the said agreement, the company in liquidation was handed the possession and was holding the property and in turn, the same has been taken over by the Official Liquidator. The aforesaid goes to show that the property is held by the company in liquidation since 1976 and the very property was proposed to be sold by the advertisement for which respondent No.7 has submitted the offer.
If the aforesaid factual aspect is considered in light of the above referred order dated 27.8.2009, it appears that the company in liquidation is having interest in the property and also actual, physical possession of the property. The same is coupled with the circumstances that the owner namely; G.I.D.C., is ready to undergo all the formalities to transfer upon the payment as referred to hereinabove of Rs.63,98,806/- plus transfer fee. Not only that but as per the decision of this Court in Company Application No.33 of 2009 dated 3.8.2009 the rights of the company in liquidation in the land owned by G.I.D.C., may be in capacity as the lease-hold rights or under the leave and licence are held to be transferable. As a consequence thereof, the OL is in a position to transfer the interest of the company in liquidation over the property and at the most, the OL may be required to pay the amount of Rs.63,98,806/- to G.I.D.C., for effecting the transfer as per the above referred decision read with the affidavit filed by G.I.D.C., referred to hereinabove.
If the matter is considered qua the rights of the company in liquidation based on the agreement to sale executed by G.I.D.C., in favour of the company, it will have right as per the Transfer of Properties Act and more particularly protected by Section 53A of the Transfer of Properties Act. If the final lease deed is taken into consideration, then also in view of the aforesaid declaration of G.I.D.C., there is absolutely no impediment in getting the transfer of the property in favour of the purchaser for offered price. Under these circumstances, if the property is available for sale and in view of the above referred order passed by this Court, the formalities can also be undergone for ensuring the property is conveyed in favour of the offerer and in spite of the same, the offerer is desirous to back out, the only consequence would be the forfeiture of the amount as per the terms and conditions of the tendered agreement.
Since two grounds have been canvassed; one is of the recession in the market namely; commercial situation, the same can hardly be considered as a valid ground for allowing the offerer to withdraw; the second ground of the non-availability of the title as sought to be canvassed, can only be said as a mere eye-wash to shield the withdrawal of the offer and consequent forfeiture of the EMD.
Mr.Joshi, learned Counsel appearing for respondent No.7 offerer, contended that in the advertisement there was reference to the lease-hold right and the documents go to show that there is no lease-hold right of the company in liquidation and, therefore, it was a mistake of fact by both the sides and under such circumstances, the offerer should be at liberty to withdraw the offer. He submitted that in such event it would not attract forfeiture of EMD. He also alternatively submitted that even if the forfeiture is to take place, it would not be to an extreme stage inasmuch as a full forfeiture, but it should be reasonable amount for recovery of the cost, etc. In support of his submission, he has relied upon the decision of the Apex Court in the case of Tarsem Singh v. Sukhminder Singh, reported in (1998) 3 SCC, 471 for contending that when there is mistake of fact, the clause of forfeiture would not be attracted. He also relied upon another decision of the Apex Court in the case of Jagmohan Singh v. State of Punjab and Others, reported in (2008) 7 SCC, 38, for contending that the forfeiture shall be as a last resort and such action should meet with the test of Article 14 of the Constitution of India.
As observed earlier the company is in possession of the property since 1976 and the terms and conditions of the tender agreement is 'as is where is and whatever is there' basis. It is not a case where there is no lawful interest whatsoever of the company in the property, but is a case where the company is holding the property under the lawful occupation. Therefore, if such is considered in light of the express terms and conditions of the tendered agreement, which is on 'as is where is and whatever there is' basis read with Clause Nos.13, 17, 19, 27 and 28, it is not possible to accept the contention that such would fall in the category of mistake of fact. But it appears to the Court that the ground is sought to be canvassed to come out from the consequence of forfeiture. Mere one recital in the advertisement is not sufficient to conclude the mistake of fact either on the part of the OL or on the part of the offerer. Therefore, the decision upon which the reliance has been placed is no help to respondent No.7. In any case, when the OL is selling the property of the company in liquidation and when the offer is submitted by the offerer, they all fall in the commercial wisdom of the offerer. The contract expressly provides for forfeiture upon the withdrawal. The clause, as may be available under the Contract Act read with the express conditions provided in the tender agreement, can at the most be invoked. Article 14 of the Constitution of India cannot be pressed in service in such transactions. Further, in the said case before the Apex Court in the case of Jagmohan Singh v. State of Punjab and Others (supra), the offerer wanted to deposit the amount, but he was late and such amount was not accepted. Here in the present case, the observations were made earlier to help the offerer to acquire the property under the lawful occupation and the indulgence was also expressed, though such could not be entertained as of right and in spite of the same, the offerer has withdrawn the offer. The aforesaid clearly goes to show that the real ground is commercial inability and the ground of mistake of facts is just projected with a view to cover up the commercial inability and to avoid forfeiture.
The aforesaid is coupled with the circumstances that in view of the offer of respondent No.7, the offer of respondent No.8, which was for an amount of Rs.28.75 crore was not accepted and his EMD was also returned. Further, the guarantor has also shown willingness to purchase the property for Rs.29 crore, but with the condition that he should be discharged from the liabilities by the secured creditors. Therefore, it is not a matter where the property is just proposed to be sold by the advertisement and the process is undertaken by the Sale Committee for no interest whatsoever of the company in liquidation over the property, but is a matter where there is marketability of interest of the company in liquidation over the property and the offers may also be available. Under these circumstances, if one of the offerers, who has declined to stand by the offer and on account of such conduct, offer of the other person namely; respondent No.8 is also not accepted and an irreversible situation is created, it would not be a case for taking lenient view of forfeiture of lesser amount of EMD, but may also be a case where if ultimately found that on account of the conduct of respondent No.7, if any loss is caused to the corpus of the company, the same may also be required to be recovered in addition to the amount of EMD, if such contingency arises. Of course, at that stage, the Court may be required to consider all circumstances including the defence, if any, of the offerer.
Under these circumstances, as respondent no.7 has withdrawn the offer, the amount of EMD deposited by respondent No.7 is permitted to be forfeited by the OL.
The OL to undertake the exercise for sale of the property once again by issuing advertisement in Times of India, English daily as well as Gujarat Samachar, Gujarati daily, both Ahmedabad editions, and also on the Website, with the upset price of Rs.28.75 crore and the EMD shall be of Rs.2.85 crore. The matter shall be placed before the Sale Committee thereafter and the report shall be submitted.
The OL shall be at liberty to pay the expenses of advertisement of Rs.23,079/-.
The bill of the valuer shall be settled by the OL as per the fee structure approved, only upon receipt of the letter issued by the Valuer for acceptance to the approved fee structure and the cheque shall be issued thereafter.
The OLR is disposed of accordingly.
24.9.2009 (Jayant Patel, J.) vinod