Karnataka High Court
M/S Godha Realtors (India) Pvt Ltd vs M/S Gangavathi Sugar Mills Ltd on 28 February, 2014
Author: Anand Byrareddy
Bench: Anand Byrareddy
1
IN THE HIGH COURT OF KARNATAKA AT
BANGALORE
DATED THIS THE 28TH DAY OF FEBRUARY 2014
BEFORE
THE HONOURABLE MR. JUSTICE ANAND BYRAREDDY
COMPANY APPLICATION No.14 OF 2014
IN
COMPANY PETITION No.66 OF 1997
BETWEEN:
M/s. Godha Realtors (India)
Private Limited,
"Sandeep Nilayam",
Ramaiah Reddy Colony,
Sector - C, Basavanagar,
Marathahalli Post,
Bangalore - 560 037.
Represented by its Director
Shri. Ramaiah Reddy.
...APPLICANT
(By Shri. T.P. Vivekananda, Advocate for
Shri. P.S. Manjunath, Advocate)
AND:
1. M/s. Gangavathi Sugar Mills Limited,
(in liquidation),
Represented by the Official Liquidator,
2
High Court of Karnataka,
"Corporate Bhavan",
Nos.26-27, Raheja Towers,
12th Floor, M.G.Road,
Bangalore - 560 001.
2. Karnataka Industrial Areas
Development Board,
No.14/3, II Floor,
R.P.Building, Nrupathunga Road,
Bangalore - 560 001,
Represented by its
Chief Executive Officer and
Executive Member.
...RESPONDENTS
(By Shri. K.S. Mahadevan, Advocate for Official Liquidator for
Respondent No.1
Shri. Vijay Shankar, Senior Advocate for Shri. P.V.
Chandrashekar, Advocate for Respondent No.2)
*****
This Company Application filed under Rules 6 and 9 of
the Companies [Court] Rules, 1959, praying to direct the first
and second respondents to execute the Deed of Conveyance in
favour of the applicant in respect of the schedule property.
This Company Application coming on for Hearing this
day, the court made the following:
3
ORDER
The present application is filed in the following circumstances:
M/s Gangavathi Sugar Mills Limited was ordered to be wound up by order dated 31.1.2005 in Company Petition No.66/1997 and the Official Liquidator had taken over the assets of the company in liquidation and by order dated
2.12.2011 in OLR No.361/2011, the official Liquidator was permitted to sell land, building, plant and machinery belonging to the company in liquidation.
2. The notice inviting sealed tenders for sale of land, building, plant and machinery, as aforesaid, was issued on 2.12.2011 in the English daily. The applicant was one of the bidders and had made an offer of Rs.45.90 crore. It was accepted by this court by order dated 8.2.2012 and the applicant was directed to deposit the sale consideration within 30 days from 8.2.2012. In compliance of which, the applicant had 4 deposited the entire bid amount of Rs.45.90 crore. It is at that juncture, Company Application No.152/2012 and Company Application No.431/2012 were filed by one K.R.Bhadraswamy Gupta and M/s India Sugars and Refineries Limited, respectively, seeking that the bid of the applicant be rejected, contending that the value of the assets of the company was worth more than Rs.100 crore and therefore, the bid of Rs.35.00 crore made by the applicant was inadequate corresponding to the value of the assets. The applications were heard and dismissed by order dated 2.4.2012. The application in OLR 106/2012 was granted and accordingly, the sale of land measuring 283 acres in favour of the applicant was confirmed and the Official Liquidator was directed to hand over the auctioned property.
In terms of the order, confirming the sale in favour of the applicant, possession of the land, building, plant and machinery had been delivered on 16.4.2012 under a possession certificate. The Official Liquidator has also delivered the original 5 documents which have been received from IFCI Limited, a secured creditor, to enable the applicant to get the absolute Deed of Conveyance from the Karnataka Industrial Area Development Board (KIADB). As the confirmation of auction was subject to payment of the dues, to the KIADB, the applicant had paid the outstanding dues of Rs.10,23,871/- to the KIADB on 30.5.2012.
The Official Liquidator had addressed a communication to the KIADB indicating that the applicant - purchaser had paid the entire sale consideration and the possession of the assets have been delivered to the applicant as also, the original documents are with the Official Liquidator and that he has no objection if the KIADB should transfer and register the land in the name of the applicant.
Thereafter, the applicant having requested the KIADB by a representation dated 24.9.2012, to execute the sale deed in respect of the land, there was no response. A further request was made on 2.11.2012. The KIADB had called upon the 6 applicant to pay a short fall of amount towards the interest in there being delayed payment in a sum of Rs.54,363/- which amount was paid. Even after the deposit, the KAIDB did not choose to come forward to execute the Deed of Conveyance and since more than a year had lapsed with regard to the request being made, the present application is filed, seeking direction to the KIADB to execute the Deed of Conveyance.
The application is resisted by the KIADB, which has now filed statement of objections to the following effect:
It is declared that the sale is held void and non-est in the eye of law for non-compliance of the order dated 2.12.2011 passed in OLR 361/2011. It is pointed out that the advertisement at Annexure-A to the application does not contain the terms and conditions mentioned in Paras 12 to 18 of the Statement of Objections filed by the respondent to OLR 361/2011 and that the applicant is not in a position feign ignorance of the terms and conditions. Paras 12 to 18 read thus:-7
"12. Thus in all a sum of Rs.10,23,871/- (Rupees Ten Lakhs Twenty Three Thousand Eight hundred and seventy one only) is payable by the successful bidder. The said amount is to be paid within thirty days of acceptance of the bid. On the payment of the said amount by demand draft/pay order lease hold rights would be transferred by the concerned Assistant Secretary after receipt of payment and letter to the Jurisdictional Sub Registrar would be issued to register the lease deed in favour of the successful bidder. Under section 88 of the Registration Act, 1908 the personal appearance of the Assistant Secretary of KIADB is exempted.
13. The successful bidder would also have to bear the stamp duty and registration charges payable as per Karnataka Stamp Act, 1957 and Table of Registration Fee. The Successful Bidder has to get the information regarding the stamp duty and registration payable by him from the jurisdictional Sub Registrar.
14. That as on the date of the winding up order, the company in liquidation was not entitled to the execution of the absolute sale dead without payment of the final price. even if by operation of law, the said plots came to the custody of the Official Liquidator or 8 the secured creditor or anyone claiming through or under them, step into the shoes of allottee and are bound by the terms and conditions contained in the agreement. Therefore, the position of the auction purchaser would be no better than the position of the allottee and is bound to answer satisfy the KIADB that all the terms and conditions stipulated in the agreement are complied with.
15. The company in liquidation is not entitled to the unearned increase in the price. Therefore the plots ought not to be sold in winding up because that would be adding premium to the default committed by the company in Liquidation. The KIADB has permitted the company in liquidation to mortgage its right title and interest under agreement with financial institutions with ANNEXURE R1. If they have advanced any money for the implementation of the project, they are entitled to get refund of the amount after providing for forfeiture.
16. That under the circumstances narrated supra, the KIADB craves leave of this Honourbale Court to incorporate in the terms of sale that the successful bidder would have to approach the KIADB with a project report and obtain transfer of lease hold interest of the Company in liquidation by paying the amount demanded as stated supra. Unless KIADB is 9 satisfied as to sufficient utilisation of the plot, the prospective auction purchaser cannot demand execution of sale deed. It is evident from enclosures to the Official Liquidator's Report the sale in favour of the successful bidder would be on "as is where is and what is there is" basis. As such the sale is not the sale of a free hold property in favour of the successful bidder. The sale is not an out and out sale but a sale of a leasehold property.
17. Incorporating the above conditions in the terms of sale is necessary for effectuating the object and purpose of the Karnataka Industrial Areas Development Act, 1966. The plots in the industrial areas developed by KIADB would have to be used only for the purposes and objects permissible under the Act.
18. It is to be made clear that the successful bidder purchases the right, title and interest of the company in liquidation that it obtained under Agreement. A public sale of the right of the property of the company in liquidation would confer only such rights which it had. In fact it is a trite proposition of law that the title of the purchaser at a public auction is merely the right, tile and interest of the person whose property is brought to sale. Under Section 8 of the Transfer of Property Act, 1882 a transfer passes to the 10 transferee the interest which the transferor is then capable of transferring and nothing more. This proposition of law is amply made clear in Rule 6 of the Second Schedule to Income Tax Act, 1961. Therefore, the successful bidder steps into the shoes of the company in liquidation. He/she/it would be bound by the covenants contained in the lease cum sale agreement. Under clauses 7 and 9 it is only upon the successful compliance of the terms and conditions and determination of the final price that the sale deed would be executed in favour of the lessee."
The advertisement itself indicated that the terms and conditions of sale are to be had from the office of the Official Liquidator. The applicant being a purchaser at a public auction, it was his responsibility to make enquiries and to ascertain his right over the property. It is pointed out that the plot was an industrial land and was to be used for industrial purpose only and it was to ensure that a vast extent of land, namely, 283 acres, was not to be put to any unauthorised use and traded for any speculative purpose, this court had found it appropriate to specifically incorporate the terms and conditions mentioned at 11 Paras 12 to 18 and since the advertisement was issued by the Official Liquidator without incorporating the said terms and conditions, which the applicant also had not chosen to ascertain and since the transaction had taken place without reference to those conditions, which were imperative and which were directed by this court to be incorporated in the advertisement, the transaction is rendered void. It is contended that the application also does not inspire confidence of the respondent.
The learned Counsel for the applicant would point out that the applicant was an auction purchaser and has gone by the advertisement issued and he is unaware of any terms and conditions that were said to have been imposed by an order of this court. The offer was for sale of the land. Though the land was subject matter of a lease cum sale agreement executed in the year 1975, the lessee had been put in possession much earlier in the year 1974 and for a term of 11 years and the term of the lease cum sale agreement having expired, the only obligation that remained was the execution of the sale deed in 12 favour of the lessee immediately after the expiry of the term by the lessor - KIADB.
In any event, the lease cum sale had not been terminated on account of any breach on the part of the lessee and the lease deed had remained current even after the expiry of the term and it is only after the winding up order that the property was brought to sale. The advertisement did not indicate any conditions said to have been imposed by this court and therefore the applicant was a bona fide purchaser for value and it could not be denied the benefit of the sale on the ground that the terms and conditions that were to be incorporated were overlooked, while issuing the advertisement by the Official Liquidator. This cannot be held against the applicant and that the same ought to be overruled and the respondent - KIADB be directed to execute the Deed of Conveyance.
On the other hand, learned Senior Advocate Shri Vijaya Shankar, appearing for the counsel for the respondent would vehemently contend that apparently, the land in question was 13 subject matter of lease cum sale agreement that had not fructified into a sale deed in favour of the company in liquidation. Therefore, what could be brought to sale was only what was available to the company in liquidation and nothing more. As admittedly, there was no sale deed executed in favour of the company in liquidation, what could possibly be transferred were only lease hold rights, which the company in liquidation possessed and it is in this regard that the several terms and conditions were imposed to prevent the land being put to any unauthorised use. This could not have been overlooked and the question of executing a sale deed in favour of the applicant will not arise as the ownership had never been transferred in favour of the company in liquidation and therefore, the Official Liquidator was not enabled to deal with the property as if it was the property belonging to the company in liquidation and the company in liquidation was only a lessee as on the date of the purported auction sale. The contract would be void on account of the mistake, as the transaction has 14 proceeded on the footing that the company in liquidation possessed the land in question and that the same could be brought to sale.
The learned Senior Advocate would place reliance on a decision of this court in M/s Power Control Equipments vs. Official Liquidator, Company Application No.808/2006 decided on 6.7.2007, wherein in identical circumstances, the subject matter of the application, which was the property that was held by the company in liquidation as a lessee, under a lease cum sale agreement, having brought to sale, the court rejected the application, holding that since the company in liquidation was only a lessee, the official liquidator could not present that the property as if it were an asset that belonged to the company, as it was only a lessee and the learned Senior Advocate would, therefore, submit that the ratio of the said decision would apply on all fours to the present case on hand.
Reliance is also sought to be placed on yet another judgment by a division bench of this court in Kirit Morzaria vs. 15 International Coach Builders limited in Original Side Appeal No.6/2007 dated 19.12.2008, wherein it was held that the property, which was the subject matter of the a lease cum sale agreement executed by the Karnataka State Industrial Investment and Development Corporation Limited in favour of the company in liquidation could not have been brought to sale by the Karnataka State Financial Corporation, to which the leasehold rights had been mortgaged.
A decision rendered by the Calcutta High Court in Sakow Industries Private Limited vs. Official Liquidator, 1987 Tax Law Review is also sought to be pressed into service by the learned Senior Advocate.
Therefore, it is contended that the application be rejected. Given the above facts and circumstances, it is seen from the sequence of events that the Official Liquidator having approached this court seeking permission to bring the land, building, plant and machinery to sale by OLR dated 2.12.2011, 16 it was held that the objection raised by the KIADB was that there was only lease cum sale agreement executed in favour of the company in liquidation and therefore, the KIADB would have no objection for the transfer of the lease hold rights to the prospective buyer on payment of a sum of Rs.10,23,871/- and that other secured creditors have no objection to the sale. Accordingly, permission was granted to the Official Liquidator to sell the leasehold rights on 'as is where is basis' by inviting sealed tenders and as per the terms and conditions mentioned in the OLR and also the conditions mentioned in the objection filed by the KIADB in Paragraphs - 12 to 18.
Though the order indicated that the conditions to be imposed in the advertisement, the advertisement, in effect, was not issued imposing any such conditions, except mentioning that the property was subject matter of a lease cum sale agreement. No clue was given that it was not an outright sale of the property, which may have been subject matter of lease 17 cum sale agreement. The advertisement therefore is reproduced for ready reference:
" GOVERNMENT OF INDIA MINISTRY OF CORPORATE AFFAIRS OFFICE OF THE OFFICIAL LIQUIDATOR HighCourt of Karnataka, "Corporate Bhavan", Nos.26-27, Raheja Towers, 12th Floor, M.G.Road, Bangalore - 560 001. Tel No:080-2559 8671/2/3 NOTICE OF INVITING SEALED TENDERS Sealed tenders are invited for sale of Land, Building and Plant and Machinery of M/s. GANGAVATHI SUGAR MILLS LIMITED, (IN LIQUIDATION), situated at Marali, Hobli Marali, Taluk Gangavathi, Koppal District, Karnataka. The details of assets is as follows:
I. LAND: situated at Sy.Nos.5/1A, 5/1B, 5/1C, 8/1, 8/2, 9/1H, 9/2H, 10, 11/1H, 11/2H, 11/3H, 12/H4, 12/H5, 12/H6, 12/H2, 13/H1, 13/H2, 13/H3, 13/H4, 14, 15 (part), 16,17,18/1, 18/2, 21/1,21/2A, 22, 23, 69/1, 154/1, 154/2, 12/H3 (Land admeasuring 283 acres) in the industrial Area within the village limts of Marali, Hobli Marali, Taluk Gangavathi, Koppal District. The land was allotted on lease cum sale basis vide lease agreement dated 12.03.1975 for a period of 11 years by KIADB.18
BOUNDRIES: NORTH : Village boundary of Hosakere Sub-Distributory No.25/6, SOUTH:
Ginigere - Raichur Road, S.No.20, 69 and Part S.No.21, EAST: Sub-Distributory Canal S.No.25/6, Part S:No.15, 23/B, 69/1 and Part S.No.66. WEST:
S.No.150/2, Marli Stream, S.No.7,5/3, 4, 5, S.No.19(Part).
II. BUILDINGS: Main factory building, go down building, guest house, office, canteen and staff quarters.
III. PLANT & MACHINERY: Cane Unloading, Feeding and Extraction Plant, Cane Preparatory Equipment, Juice Extraction Plant, Mill Drive, Imbibition System, Crane, Bagassee Handling Equipments, Calrification Plant, Juice Heaters, Juice Sulphitation Plant, Juice Satting and Mud Filtration Equipment, etc. The above assets will be sold as "one lot" through inviting sealed tenders. The Sealed Tenders in the prescribed tender form should reach the undersigned at the above given address on or before 20.01.2012. The sealed tenders are to be addressed to the Official Liquidator superscribing on the envelope "Tender for purchase of Assets of M/s.
Gangavathi Sugar Mills Limited, (In Liquidation), and should be accompanied by requisite EMD of `50,00,000/- by way of Demand Draft/Bankers Cheque of any Nationalized Bank drawn in favour of 'The Official Liquidator, High Court of Karnataka" payable at Bangalore. The EMD would be returned to the unsuccessful bidder by way of Cheque only, within one month and will not carry any interest. No. Nomination facility is provided. 19 Inspection of the properties can be held by the prospective bidders/tenders on 06.01.2012 between 11.00 a.m. and 4.00 p.m. The Sealed Tenders will be opened in the chamber of the Official Liquidator on 23.01.2012 at 11.30 a.m. In the presence of the secured creditors and tenderers, and tenderers will be given an opportunity to have interse-bidding among themselves to improve upon the offers.
The Hon'ble High Court / Official Liquidator reserve the right to cancel or reject the highest offer or cancel the tender without assigning any reasons. The sale is subject to the confirmation of the Hon'ble High Court of Karnataka.
Terms and conditions and further information can be had from the office of the undersigned on any working day or visit us at:
www.companyliquidator.gov.in / www.mca.gov.in. Tender Forms can be purchased from the office of the undersigned at the address given above on payment of `1,000/- by way of cash or Demand Draft on any working day between 11.00 a.m. and 5.00 p.m. Sd/-
(S. RAMAKANTHA) OFFICIAL LIQUIDATOR, HIGH COURT OF KARNATAKA."
20It is pursuant to this advertisement that the applicant had participated at the auction and was a successful bidder. The condition as to the payment of Rs.9,76,517/- as on 12.7.2010 was as follows:-
Sl. Particulars Amount
No.
1 Principal Rs. 70,089=00
2 Interest Rs. 1,47,399=00
3 Penal Interest Rs. 3,13,601=00
4 Enhanced Rs. 4,45,428=00
Compensation
Total Rs. 9,76,517=00
However, as on the date of deposit by the purchaser, the outstanding dues became Rs.10,23,871/- after adding the interest for the subsequent period.
The advertisement was misleading and the applicant having been mislead into believing that the transaction was an outright sale, had proceeded in that fashion. As already pointed out, the lease cum sale agreement executed in favour of the company in liquidation had long expired, which would indicate that it was for the KIADB either to call upon the lessee to complete the sale transaction by paying amounts due under the 21 agreement or to terminate the lease if there was default on the part of the lessee. There was also no clause found in the lease cum sale agreement which would determine the lease as would be the case provided for under Section 111 of the Transfer of Property Act,1882. In other words, when the company in liquidation was ordered to be wound up by operation of law, the lease would be determined in the event there was a clause in the lease deed, which indicated that the lease would stand determined in the event of the lessee being declared insolvent or going into liquidation. In the absence of any such clause and in the absence of further act on the part of the KIADB to terminate the lease, the lease transaction was in limbo. In that, the only obligation that was outstanding was in terms of clauses 7 and 8 of the lease deed, which required the lessee to execute the sale deed if all other obligations on the part of the lessee had been completed. Apparently, since there is no indication that there was any default in the payment of the lease rent by the lessee, the only obligation that was outstanding on 22 the part of the KIADB was the execution of the sale deed. And the lease hold rights, which were capable of being transferred as on the date of the order, was on a misrepresentation made by the KIADB and this court has overlooked the obvious that the lease deed was not current as on the date of the order and there were no lease hold rights that could be taken over, except the position that had continued with the company in liquidation as on the date of the order and further right to obtain a sale deed pursuant to the lease cum sale agreement. Therefore, the applicant having been considered as the successful bidder and the applicant having complied with such further directions as regards payment of monies, as already stated and this court having affirmed the sale, it is not open for the KIADB to resile and claim that the advertisement issued in respect of the lease cum sale was faulty and was incomplete and therefore, void. This would result in the KIADB to reprobate and approbate. It is also not tenable in law in the above circumstances. 23
Insofar as the reliance sought to be placed on a decision of this court in C.A.808/2006 is concerned, that was a situation where after the bid was accepted at an auction sale in respect of the property which was the subject matter of lease cum sale, this court had refused to confirm the sale since it was noticed that the company in liqudiation was not holding the property as the owner thereof as on the date of the proposed sale and the same having been denied was also a possible situation, which this court could have exercised at the appropriate time and permission was sought for sale of the property. Therefore, the said order would not be tenable in the present circumstances.
Insofar as the division bench judgement in Kirit Morzaria, supra, is concerned, there again, the property which had been given on lease cum sale to the company in liquidation, was sought to be brought to sale by another financial corporation, which this court has held was not permissible and incidentally held that the property was subject matter of the 24 lease cum sale and could not be brought to sale. Hence, the said decision also would not be applicable.
In so far as the decision in Sakow Industries Private Limited, supra, is concerned, on facts, it is found to be different from the case on hand and therefore, would not apply.
In the final analysis, insofar as the applicant is concerned, it is a bona fide purchaser for value, in that, the advertisement issued with the leave of this court indicated that the property was being auctioned on 'as is where is basis', though it was subject matter of lease cum sale agreement dated 12.3.1973, for a period of 11 years. It would give the impression that the company in liquidation had acquired rights over the property by the time the advertisement was issued. The applicant thereafter having participated and paid substantial amount towards the bid amount and having been lead to believe that it had purchased the property absolutely, being denied the same, on the footing that there was a lapse on the part of the Official Liquidator in not incorporating the 25 condition that the sale was only in respect of the lease hold rights, which in any event, were not available as on the date of the sale, since the lease had long expired, the objection raised by the KIADB to deny the sale transaction and to refuse the execution of the Deed of Conveyance in favour of the applicant is unjust and cannot be sustained.
Accordingly, the application is allowed. The respondent
-KIADB is directed to execute the Deed of Conveyance in favour of the applicant in respect of the subject property forthwith, in any event, within a period of four weeks from the date of receipt of a certified copy of this order.
Sd/-
JUDGE nv