Punjab-Haryana High Court
In Re: Oswal Agro Furance Limited, (In ... vs Unknown on 8 December, 2003
Equivalent citations: IV(2004)BC201, (2004)137PLR1, [2004]55SCL349(PUNJ&HAR)
Author: Hemant Gupta
Bench: Hemant Gupta
JUDGMENT Hemant Gupta, J.
1. The applicant M/s KRBL P. Ltd. has filed the present application under Rule 6 and 9 of the Companies (Court) Rules, 1959 (hereinafter referred to as the Rules) for submitting a higher bid of Rs. 11 lakhs (lateron increased to Rs. 1 Crore) over and above the bid of Rs. 14.80 crores accepted in favour of M/s Balaji Disposals.
2. Some facts relevant for the determination of the said application of the applicant are as under:
M/s Oswal Agro Furane Ltd. was ordered to be wound up vide order dated 4.122001 passed in CP No. 173 of 2000. The official liquidator attached to this court was appointed as its liquidation. In CP No. 269 of 2002, this Court permitted the official liquidator to dispose of the assets of the company and Justice A.L. Bahri, former Judge of this Court was requested to conduct and supervise the sale. However, on May 15, 2002 vide orders passed in CP No. 124 of 2003, the Official Liquidator was permitted to invite tenders for the sale of movable and immovable property of the company in liquidation as per valuation report and to conduct the sale under the supervision of Hon'ble Mr. Justice A.L, Bahri.
3. An advertisement for the sale of movable and immovable property was published in various newspapers. The date of opening of the sealed tenders was 24.7.2003. On the said date, the sale committee presided over by Hon'ble Mr. Justice A.L. Bahri opened the tenders. The maximum offer was that of M/s Guru Nanak Sugar Industries Ltd. New Delhi for the sum of Rs. 7.50 crores. However, the said price was found inadequate and inter se bidding between the parties was conducted under the supervision of Hon'ble Mr, Justice A.L. Bahri. After 45 rounds of bids M/s Balaji Disposal Ltd. was found to be highest bidder with Rs. 9.71 crores. The said bid was accepted by Justice Bahri.
4. On 21.8.2003, the official liquidator moved an application before this court for confirmation of sale in favour of M/s Balaji Disposal. During the pendency of such proceedings, M/s Guru Nanak Sugar Industries Ltd. objected to the conduct of sale by remitting a telegram as well as communication dated 24.7.2003. However, on 4.9.2003, M/s KRBL Ltd. applicant herein appeared before the court and offered to pay a sum of Rs. 10.25 crores for the assets which have been auctioned for Rs. 9.71 crores. The said applicant deposited draft for Rs. 2,56,25,000/-. The court was also informed that workers Union has also filed certain objections to the sale.
5. On the adjourned date i.e. 12.9.2003 M/s Surya Finvest Ltd, New Delhi offered to pay Rs. 10.30 crores as the assets which were auctioned for Rs. 9.71 crores and to show the bona fide a sum of Rs. 2.57 crores was deposited in court. The applicant herein as well as M/s Balaji Disposals Ltd sought adjournment to seek instructions as to whether they want to increase the price further. The counsel representing the Workers Union also sought time to bring a better buyer. The official liquidator was directed to allow the parties to inspect the factory premises to verify the factual position of the assets lying there. The official liquidator was also directed to verify as to whether the various items of movable property physically lying in the premises confirmed with the report prepared by the valuer or not.
6. On 22.9.2003 M/s Global Landcon Pvt. Ltd. New Delhi also deposited a sum of Rs. 50 lacs and sought permission to participate in the bid. On the said date, the various parties such as the applicant M/s KRBL Ltd., M/s Balaji Disposal, M/s Surya Finvest Ltd and M/s Global Landcon Pvt. Ltd. participated in the bids. Relevant part of the order dated 22.9.2002 read as under:
"All the above mentioned parties through their counsel have participated in the bids and ultimately, M/s K.R.B.L. Limited, New Delhi through their counsel has made a bid of Rs. 13.80 crores against the sale price of Rs. 9.71 crores in favour of auction purchaser. Accordingly, this bid is accepted in favour of M/s K.R.B.L. Limited, and it is directed to comply with the terms and conditions of the sale as advertised. The prescribed period as per advertisement shall commence from today. It is made clear that sale shall be deemed to have been confirmed on deposit of the entire sale consideration. In case of any default in payment, the advance amount deposited by this party shall be forfeited."
7. M/s KRBL Ltd. deposited the entire balance sale consideration of Rs. 11,23,75,000/- on 26.9.2003 with the official liquidator by way of demand draft and sought possession of the complete unit at the earliest.
8. On 25.9.2003, M/s Balaji Disposal filed CA No. 730 of 2003 before this court offering a sum of Rs. 10 lacs in excess of the bid of Rs. 13.80 crores offered by the M/s KRBL Ltd. Paras No. 6 to 8 of the said application read as under:
"6. That the Applicant, auction purchaser now wishes to enhance his bid and is willing to offer a sum of Rs. 10.00 lacs in exercise of the amount as bid by M/s KRBL Limited. In other words, the Applicant is willing to pay a sum of Rs. 13.90 crores for the property in question.
7. That admittedly the endeavour of Courts is to fetch the maximum price for property that is sold by way of Court auctions. In the present case, it may be recalled that the auction price of the property in question has already gone up from Rs. 9.71 crores to Rs. 13.80 crores. By virtue of the present application, the Applicant is willing to pay a further sum of Rs. 10.00 lacs. Needless to say that the said money would aid the Official Liquidator in discharging the payments that are required to be made under Section 529A of the Companies Act, 1956 and also in meeting other liabilities.
8. That in the interest of justice, the Applicant be permitted to pay the enhanced sum of Rs. 10.00 lacs over and above the bid of Rs. 13.80 crores and accordingly, the auction be conformed in favour of M/s Balaji Disposals, New Delhi."
9. The above said application of M/s Balaji Disposal came up for hearing before this court on 26.9.2003 when the notice of the application was issued to M/s KRBL Ltd. when it offered to pay a sum of Rs. 1 crore over and above the price offered by M/s KRBL Ltd. On the said application, the court passed the following order on October 9, 2003:
"Mr. Mohan Jain, learned counsel appearing for the auction purchaser states that the auction purchaser is prepared to pay rupees one crore more than the highest bid which was accepted and confirmed in favour of K.R.B.L. Limited. He relies on a judgment of this Court in Divya Manufacturing Company Private Limited, Tirupati Woollen Mills Sharmik Sangharsha Samity and Anr. v. Union Bank of India and Ors., 2000(6) S.C.C. 69 wherein it has been held that even after confirmation of sale, the matter can be reviewed by this Court before the delivery of possession and execution of the sale deed in favour of the highest bidder. Mr. Anand Chhibbar prays for a short adjournment to go through the said judgment and file reply, if any. It has been made clear to the learned counsel for the auction purchaser that in case he is not able to honour the commitment made today, the amount deposited by him as advance with the official Liquidator shall stand forfeited. Mr. Chhibbar states that his client shall not take possession till the decision of the present petition. Adjourned to 17.10.2003."
10. M/s Balaji Disposal subsequently, in terms of the order dated 22.10.2003 deposited the balance amount to make the total deposit as Rs. 13.80 crores i.e. the same amount as deposited by M/s KRBL Ltd.
11. This court on 3.11.2003 while considering the application of M/s Balaji Disposals held that the court is competent to set aside/review the order of confirmation of sale before the delivery of possession and execution of the sale deed, and thus adjourned the case to 5.12.2003 to consider the claim of compensation of M/s KRBL Ltd. for having deposited the entire sale consideration of Rs. 13.80 crores. The relevant extract from the order reads as under:
"In the light of the law laid down by the Supreme Court in Divya Manufacturing Company (P) Limited case (supra) it is clear that this Court is competent to set aside/review the order of confirmation of sale before the delivery of possession and execution of sale deed. Thus the prayer made by the applicant for setting aside/review of the earlier order of confirmation of sale dated 22nd September, 2003 can be allowed as it has offered an additional amount of Rs. 1 crore. In this view of the matter the contention raised on behalf of M/s KRBL Limited that the said order has become final, has no merit.
It is true that one of the considerations weighing with the Supreme Court in Divya Manufacturing Company (P) Limited case (supra) was that in view of the fresh offer received the earlier price was totally inadequate. In the present case, although in the application an increase of Rs. 10 lacs was offered, but on the very first date of hearing the same was enhanced to Rs. 1 crore with the permission of the Court. This amount indeed is a substantial amount and the Court cannot, as a custodian of the assets of the company in liquidation and also keeping in view the interest of the creditors and the share-holders, overlook the same. In this view of the matter, it is a fit case for meaningful intervention by this Court.
In the light of the law laid down by the Supreme Court in Divya Manufacturing Company (P) Limited v. Union of India and Ors., 2002(6) S.C.C. 69, the objections raised by Messers K.R.B.L. Limited cannot be accepted. However, its claim of compensation for having deposited the entire sale proceeds of Rs. 13.80 crores shall be considered on the next date of hearing after the applicant deposits the entire sale proceeds.
Mr. Anand Chhibbar, learned counsel for M/s KRBL Limited in whose favour sale had been confirmed vide order dated 22.9.2003, states that his client is not willing to pay more than Rs. 14.80 crores as has been offered by Messrs Balaji Disposals. In the absence of any other higher bid, the offer of M/s Balaji Disposals for purchasing the assets of the company in liquidation i.e. M/s Oswal Agro-Furance Limited is accepted XXX."
12. On 6.11.2003 M/s KRBL Ltd. filed CA No. 787 of 2003 offering to pay a sum of Rs. 1 lac over and above the amount offered by M/s Balaji Disposal. Notice of the said application was issued to M/s Balaji Disposal for 13.11.2003. The arguments were heard on 13.11.2003 and order was reserved. The said application was dismissed vide order dated 20.11.2003. The court has considered the oral offer of applicant M/s KRBL Ltd. to pay Rs. 5 lacs which was not found to be substantial increase after the confirmation of sale. However on 19.11.2003, the applicant M/s KRBL Ltd. filed CA No. 798 of 2003 wherein it intended to increase the bid to Rs. 14,91 crores i.e. Rs. 11 lacs higher than the offer made by M/s Balaji Disposal. It was maintained in the application that the order in CA No. 787 of 2003 has not been pronounced. The said application came up for hearing before this Court on 20.11.2003 when the applicant increased his offer by Rs. 2 crores i.e. a price of Rs. 15.80 crores. To show his bona fide it was stated that if the applicant is not in a position to honour the offer of Rs. 15.80 crores, the amount of Rs. 13.80 crores already deposited by the applicant may be forfeited. Notice of the application was issued to the counsel for M/s Balaji Disposal for 21.11.2003 and status quo regarding the possession was ordered to be maintained. The applicant deposited draft of Rs. 2 crores on 21.11.2003 to make the total deposit of Rs. 15.80 crores.
13. M/s Balaji Disposal have filed a detailed reply to the application now filed by the applicant for submitting higher bid, It has been stated in the reply that M/s Balaji Disposal has deposited the entire sale consideration on 19.11,2003 in terms of the order passed by this court on 3.11.2003 and therefore, M/s Balaji Disposal has become legally entitled for the delivery of possession. It was further stated that M/s Balaji Disposal after, making the full and final payment entered into contract/agreement to sell some of the machinery to the parties on 19.11.2003. By why of preliminary objections, it has been stated that by filing second application under Rules 6 and 9 of the Rules the applicant has sought the review of the order passed on 20.11.2003 whereby the first application under Rules 6 and 9 of the Rules was dismissed. The applicant is restrained by the principle of waiver and estopped against his own stand and statement recorded and reproduced by this Court in orders passed on 3.11.2003 and 20.11.2003 as the applicant made the statement and now he cannot turn around. There is no provision under the companies Act or the rules for the review of the order/judgment. Provisions of CPC are applicable and the condition precedent for review of the order in terms of the Order 47 Rule 1 are not satisfied. It was further mentioned that the application is barred by the principle of res judicata as the previous application has been dismissed. In reply stress was laid that the applicant M/s KRBL Ltd. has waived its right and also on the principle of waiver and estoppel cannot move the present application for a higher bid.
14. After hearing the arguments of the learned counsel for the parties at length, I am of the opinion that it is in the interest of the company, and the creditors that the maximum amount is received in the sale of the property of the company irrespective of the technicalities sought to be raised by the respondent and inspite of the plea of waiver, estoppel or res judicata. It is a classic case where both the parities i.e: M/s K.RBL Ltd and M/s Balaji Disposal have tried to out bid each other even after confirmation of sale.
15. Before adverting to the respective arguments, it is suffice to say that M/s KRBL Ltd. has not participated in the bid conducted on 24.7.2003, but was highest bidder in inter-se bid held in this court on 22.9.2003. Thereafter in an application dated 19.11.2003 offered increase of Rs. 11 lacs, which was further increased to one crore in court on 20.11.2003 i.e. Rs. 15.80 crores. The entire amount of Rs. 15.80 crores has been deposited before this court,
16. On the other hand M/s Balaji Disposal was found to be highest bidder in auction on 24.7.2003 with Rs. 9.71 crores. It participated in bid in court on 22.09.2003 when KRBL was found as the highest bidder. It offered to pay Rs. 14.80 crores on 9.10.2003 and completed the amount of Rs. 14.80 crores on 19.11,2003. At the time of hearing of the case Mr. Mohan Jain, learned counsel for Balaji Disposals, was repeatedly asked whether his clients are ready to increase the price than the price offered by the applicant. Mr. Mohan Jain said no question of increase now arises.
17. The question which arises is whether the court should accept the higher bid of Rs. 1 crore of M/s KRBL Ltd.
18. In Divya Manufacturing Co. (P) Ltd. and Anr. v. Union Bank of India and Ors., (2000-3)126 P.L.R. (S.C.) 369, the Hon'ble Supreme Court has laid down the principles of sale of the property of company in liquidation. In Divya Manufacturing's case, the court relied upon Nawalkha and Sons v. Sri Ramanya Das, (1969)3 S.C.C. 537 to hold that the court is custodian of the interest of the company and its creditor. It is the duty of the Court to see that the price fetched at the auction is adequate price even, though there is no suggestion of irregularity or fraud. The Court also quoted from (1996)85 Com. Cases 788 LICA (P) Ltd v. Official Liquidator, that the Court has to exercise jurisdiction wisely and with circumspection and keeping in view the facts and circumstances in each case. The court also found that though the sale is confirmed but as neither the possession of the property nor the sale deed executed, therefore, where such higher price is offered it would be in the interest of company and its creditors to set aside the sale. Such action may cause inconvenience and loss to the highest bidder but that cannot be helped in view of the fact that such sales are conducted in Court precincts and not by a business house well versed with the market forces and price. Paras No. 13 and 16 of the judgment read as under:
13. From the aforesaid observation, it is abundantly clear that the Court is the custodian of the interests of the company and its creditors. Hence it is the duty of the Court to see that the price fetched at the auction is an adequate price, even though there is no suggestion of irregularity or fraud. As stated above, in the present case, the sale proceedings have a chequered history. The appellant started its offer after having an agreement with the Employees Samity for Rs. 37 lacs. This was on the face of its under bidding for taking undue advantage of Court sale. At the intervention of the learned Single Judge, the bid was increased to Rs. 85 lakhs. Subsequently, before the Division Bench, the appellant increased it to Rs. 1.30 crores. At that stage, respondent No. 7, Sharma was not permitted to bid because it had not complied with the requirements of the advertisement. It is to be stated that on 26th June, 1998, the Division Bench has ordered that offers of Eastern Silk Industries Ltd. and Jay Prestressed Products Ltd. would only be considered on 2nd July, 1998 and confirmation of sale would be made on the basis of the offers made by the two parties. Further despite the fact that the appellant Divya had withdrawn its earlier offer, the Court permitted it to take part in making further offer as noted in the order dated 2nd July, 1998. In these set of circumstances, there was no need to confine the bid between three offerors only.
"16. Further there is a specific condition No. 11 in terms and conditions of sale as quoted above which empowers the court to set aside the sale even though it is confirmed for the interest of creditors, contributories and all concerned and/or public interest. In this view of the matter it cannot be said that the court became functus officio after the sale was confirmed. As stated above, neither the possession of the property nor the sale deed was executed in favour of the appellant. The offer of Rs. 1.30 crores is totally inadequate in comparison to the offer of Rs. 2 crores and in case where such higher price is offered, it would be in the interest of the company and its creditors to set aside the sale. This may cause some inconvenience or loss to the highest bidder but that cannot be helped in view of the fact that such sales are conducted in Court precincts and not by a business house well versed with the market forces and price. Confirmation of the sale by a Court at grossly inadequate price, whether or not it is a consequence of any irregularity or fraud in the conduct of sale, could be set aside on the ground that it was not just and proper exercise of judicial discretion. In such cases, a meaningful intervention by the Court may prevent, to some extent, under bidding at the time of auction through Court. In the present case, the Court has reviewed its exercise of judicial discretion within a shortest time."
19. Learned counsel for the respondent has vehemently argued that the previous application filed by the applicant offering the previous application filed by the applicant offering to pay Rs. 1 lac in an application and Rs. 5 lacs in court was dismissed on 20.11.2003. The additional price of Rs. 6 lacs i.e. total 11 lacs offered vide another Misc. application dated 19.11.2003 which was increased to Rs. 1 crore on 20.11.2003 in fact amounts to review of the order passed on 20.11.2003. Therefore, the second application is barred on the principles of res-judicata. Alternatively it was contended that though the application might have been styled as one for giving higher bid but substantially it is an application for review of the order dated 3.11.2003 when categorical stand was taken by the applicant to increase the offer. In view of the said statement, the applicant has waived its right to participate in the auction and offer a higher bid as it will amount to waiver of the rights, if any.
20. Learned counsel for the petitioner has relied upon a number pf judgments such as Ganpat Singh v. Kailash Shankar, A.I.R. 1987 S.C. 1443: J. Rangaswami v. Govt. of Andhra Pradesh, 1990(1) S.C.C. 288: Lilly Thomas v. U.O.I., 2006(6) S.C.C. 224: Dawsons Bank v. N.M.K.K. A.I.R. 1935 P.C. 79; Basheshwar Nath v. C.I.T. Delhi, A.I.R. 1959 S.C. 149: Madem Setty v. G. Yelloji Rao, A.I.R. 1965 S.C. 1405: Provash Chander v. Bishavnath, A.I.R. 1989 S.C. 1834: Jaswant Singh v. Ahmadabad Municipal Corporation., 1992 Suppl.(1) S.C.C. 5; B.L Shreedhar v. K.M. Munireddy, A.I.R. 2003 S.C. 578: Amma Khatun v. Zahir Hussain, A.I.R. 1981 Patna 1.
21. There is no dispute about the proposition of law laid down in the judgments referred to by the learned counsel for Balaji Disposals. However, it is required to be examined whether any of the said judgments is applicable to the facts of the present case. The argument that the second application dated 19.11.2003 is in fact review application of order dated 20.11.2003 passed in CA No. 787 of 2003 or that of order dated 3.11.2003 in CA No. 730 of 2003 is not correct. The application for higher bid was declined by the court on the ground that the increase of Rs. 5 lacs is not a substantial amount as against the total price offered by M/s Balaji Disposals of Rs. 14.80 crores. However, the said reasoning cannot be made applicable in respect of the higher bid of Rs. 1 crore now offered by the applicant. The Court would decline to interfere in respect of offer made by the applicant with the following observations:
"In view of the above, the sale price of Rs. 14.80 crores accepted from M/s Balajit Disposals cannot be said to be grossly inadequate even in the light of the offer of the applicant to pay Rs. 14.85 crores to warrant intervention by this Court."
22. Similarly, the argument that the second application cannot be entertained in view of the principles of res judicata is again devoid of merit. While dismissing the first application dated 6.11.2003 filed by the applicant, it was an offer of the applicant of Rs. 5 lacs which did not find favour with the court. Still further, the orders passed during the pendency of proceedings of misc. application does not disentitle the applicant to file fresh application with change of circumstances.
23. Similarly, in respect of plea of waiver it is suffice to say that it is in the interest of the company and its creditors to fetch the maximum price possible. In fact, the respondent has pleaded in its application dated 25.9.2003 that it is endeavour of courts to fetch maximum price of the property i.e. sale by way of court auctions. It is that endeavour which compels the court to accept the bid of Rs. 15.80 crores offered by the applicant. The argument which weighed with the court while upsetting the bid of the applicant of Rs. 13.80 crores at the instance of M/s Balaji Disposals are the same as are applicable in the case of the applicant at this stage. What was good for M/s Balaji Disposal on 25.9.2003 cannot be bad for applicant M/s KRBL Ltd. on 19.11.2003. M/s Balaji Disposal cannot approbate and reprobate in the same proceedings. Therefore, in the interest of the company, its creditors and the fact that the price offered by M/s KRBL Ltd. is higher by Rs. 1 crore, I deem it proper to confirm the sale in favour of M/s KRBL Ltd.
24. The amount of Rs. 14.80 crores deposited by M/s Balaji Disposal be returned to the said company forthwith. Since the amount of Rs. 15.80 crores has been deposited by the applicant, the possession of the property of the company in liquidation is deemed to be delivered to the applicant. However, the official liquidator shall cause actual physical possession to be delivered to the applicant forthwith.
25. Copy of the order be given dasti on payment of usual charges by tomorrow.