Patna High Court
Sujata Devi vs The Official Liquidator Patna High ... on 11 May, 2016
Author: Anjana Mishra
Bench: Anjana Mishra
IN THE HIGH COURT OF JUDICATURE AT PATNA
Company Appeal (DB) No.16 of 2015
IN
COM PET 10 of 1999
===========================================================
SUJATA DEVI, WIFE OF SRI ANIL KUMAR, RESIDENT OF MOHALLA-
BANKIPORE GORAKH, POST OFFICE & POLICE STATION-FATUHA,
DISTRICT-PATNA
.... .... APPELLANT
VERSUS
1. THE OFFICIAL LIQUIDATOR PATNA HIGH COURT, 4TH FLOOR,
BLOCK -A, MAURYALOK COMPLEX, DAK BUNGALOW ROAD,
PATNA
2. M/S BIHAR LEATHER INDUSTRIES DEVELOPMENT CORPORATION
LIMITED (IN LIQUIDATION) THROUGH OFFICIAL LIQUIDATOR
PATNA HIGH COURT, 4TH FLOOR, BLOCK -A, MAURYALOK
COMPLEX, DAK BUNGALOW ROAD, PATNA
.... .... RESPONDENTS 1ST SET
3. JAI PRAKASH SINGH, SON OF LATE RAM NARAYAN PRASAD,
RESIDENT OF JAIMANGAL SINGH COMPLEX, MAHENDRU,
MOHALLA, ,PATNA-800006
4. DHANANJAY KUMAR, SON OF LATE SHASHI BHUSHAN GIRI,
DIRECTOS ZACOS INFRATEL PVT. LTD. RESIDENT OF 103,
SURYNANDA APARTMENT, BUDDHA COLONY, P.S.-BUDDHA
COLONY, DISTRICT-PATNA
.... .... RESPONDENTS 2ND SET (PRIVATE RESPONDENTS)
===========================================================
Appearance :
For the Appellant : Mr. N. K. Agrawal, Senior Advocate
Mr. Praveen Kumar, Advocate
For O.L. : Mr. Subhash Chandra Mishra, Advocate
For the Respondent No.3: Mr. Basant Kumar Choudhary, Senior Advocate
For the Respondent No. 4 : Mr. Braj Nandan Kumar Tiwary, Advocate
===========================================================
CORAM: HONOURABLE THE ACTING CHIEF JUSTICE
AND
HONOURABLE JUSTICE SMT. ANJANA MISHRA
JUDGMENT AND ORDER
(CAV)
(Per: HONOURABLE THE ACTING CHIEF JUSTICE)
Date: 11-05-2016
Pursuant to an order, dated 25.06.2015, passed, by
the learned Company Judge, in a winding proceeding covered
by Company Petition No. 10 of 1999, directing publication of
sale notice for sale of 21 properties of M/s Bihar State Leather
Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016
2/28
Industries Development Corporation Limited (in short,
BSLIDC), a company registered under the Companies Act,
1956, sale notice, dated 08.07.2015, was published in two
leading newspaper, on 09.07.2015, for auction sale of 21
moveable and immovable properties and, in this regard,
sealed tenders were invited from interested parties to be
accompanied by interest-free earnest money deposit, the
description of the property covered by the serial No. 3 of the
sale notice, its reserved price and the amount of earnest
money, being as follows:
"Description: Model Tennary,
Piunibag, Bettiah, Bihar, free hold land - 1.91
acres.
Reserve Price: Rs. 3,61,00,000/-
(Rupees Three crores sixty one lakhs only)
Earnest Money Deposit: Rs.
36,10,000/- (Rupees Thirty six lakhs ten
thousand only)"
2. The appellant, Sujata Devi, submitted her tender
documents and also made the Earnest Money Deposit, which
were accepted. On 04.08.2015, bids were opened in the office
of the Official Liquidator and inter se bidding was conducted
for the properties/assets on sale at serial No. 3 of the sale
notice. In the bid, so conducted, the appellant surfaced as the
successful bidder for the property at serial No. 3 offering
maximum bid price of Rs. 3,65,75,000/-.
3. On 26.08.2015, respondent No. 4 herein,
Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016
3/28
namely, Dhananjay Kumar, filed I. A. No. 7125 of 2015, in
Company Petition No. 10 of 1999, stating to the effect, inter
alia, that, on publication of the sale notice, he had purchased
the tender form and had also got prepared a Demand Draft of
Rs.40,00,000/-, for earnest money deposit, but due to sudden
demise of his father, on 22.07.2015, he could not participate
and submit his offer in the public auction, and that he is still
interested to purchase the property at Serial No.3, at a price
of Rs.3,70,00,000/-, upon orders, if passed. The offer of the
respondent No. 4 is approximately Rs. 4.25 lakhs more than
the appellant's offer.
4. On 10.09.2015, respondent No. 3 herein,
namely, Jai Prakash Singh, filed I. A. No. 7644 of 2015, in
Company Petition No. 10 of 1999, stating to the effect, inter
alia, that he had come to know about the sale notice, on
01.09.2015, and that he had written to the official liquidator, on 10.09.2015, offering his bid for Rs. 4,01,00,000/- along with the demand draft of Rs.40,00,000/-, being earnest money deposit, upon orders, if passed. The offer of the respondent No. 3 is approximately Rs. 40 lakhs more than the appellant's offer.
5. By order, dated 13.10.2015, learned Company Judge directed for a fresh inter se bidding to be conducted, on 24.11.2015, in the open Court, allowing respondent No. 3 herein, Jai Prakash Singh, and the respondent No.4 herein, Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 4/28 Dhananjay Kumar, to participate in the inter se bidding and the Official Liquidator was directed to issue notices to all the bidders and interested persons accordingly. This direction passed by the order, dated 13.10.2015, forms the subject- matter of challenge in the present appeal.
6. We have heard Mr. N. K. Agrawal, learned Senior Counsel, appearing for the appellant, and Mr. Subhash Chandra Mishra, learned Counsel, appearing for the Official Liquidator. We have also heard Mr. Basant Kumar Choudhary, learned Senior Counsel, appearing for respondent No. 3, and Mr. Braj Nandan Kumar Tiwary, learned Counsel, appearing for respondent No.4.
7. As the notice could not be served on respondent Nos. 3 and 4, because of the fact that the house, which was shown as the address of respondent No. 3 stood locked, a substituted notice was published in the newspaper, on 28.12.2015, fixing 08.01.2016, for hearing and it was pursuant to this order, when the appeal was being heard on 15.01.2016, that respondent Nos. 3 and 4 have appeared through their engaged counsel. The matter was accordingly fixed, with the consent of the parties, on 20.01.2016, 21.01.2016, 03.02.2016 and 08.02.2016, and has, eventually, been even admitted and heard for the purposes of disposal on merit.
8. Appearing on behalf of the appellant, Mr. N. K. Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 5/28 Agrawal, learned Senior Counsel, has submitted that it was falsely submitted, before the learned Company Judge, by respondent No.3, namely, Jai Prakash Singh, that he came to know about the sale notice on 01.09.2015 inasmuch as he had, in fact, participated in the inter se bidding process for another property listed at Serial No. 2 of the said sale notice.
9. With the false statement, so made, points out, Mr. N. K. Agrawal, learned Senior Counsel, coupled with a mere statement of respondent No. 3 that he was willing to offer bid amount, which was Rs. 40 lakhs higher than the offer of the appellant, the learned Company Judge ought not to have put the property, in question, on sale once again inasmuch as the sale, according to Mr. N. K. Agrawal, learned Senior Counsel, was subject to the condition precedent of submission of valid tender documents and making of earnest money deposit before the auction sale took place.
10. Rebutting the case of respondent No.4, Mr. N. K. Agrawal, learned Senior Counsel, for the appellant, at the very threshold, submits that the claim of the respondent No.4, pales into insignificance, his offer being lower than the offer made by the respondent No.3. Also submits Mr. N.K. Agarwal, learned Senior Counsel, for the appellant, that the contention of respondent No. 4, namely, Dhananjay Kumar, that he had got prepared the demand draft for earnest money deposit well within time but failed to submit his tender documents within Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 6/28 the stipulated period, i.e., 20.07.2015, due to sudden demise of his father, on 22.07.2015, is falsified by the fact that the demand draft for earnest money deposit, prepared by him, is dated, 18.08.2015, i.e., much after the bid was finalized.
11. Resisting the appeal, Mr. Basant Kumar Choudhary, learned Senior Counsel, appearing for the respondent No.3, has submitted that inasmuch as the respondent No.3 is willing to offer a sum of Rs. 40 lakhs more than the bid, which the appellant had offered, there was no impediment in law in directing re-auction, in question, so that the property, in question, could be sold at the maximum available price. In support of his submission, Mr. Basant Kumar Choudhary, learned Senior Counsel, heavily placed reliance on Divya Manufacturing Company (P) Limited, vs. Union Bank of India and Others, reported in (2000) 6 SCC 69.
12. Points out, in this regard, Mr. Basant Kumar Choudhary, learned Senior Counsel, that it is the duty of the Court to ensure, in public interest, that the property, in a situation as the present one, fetches maximum available price. Viewed from this angle, the order, which stands impugned in this appeal, is, according to Mr. Basant Kumar Choudhary, learned Senior Counsel, appearing for the respondent No. 3, wholly in accordance with law, and may, therefore, be maintained by dismissing the present appeal. Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 7/28
13. Defending the order, under appeal, dated 13.10.2015, passed by the learned Company Judge, Mr. Braj Nandan Kumar Tiwary, learned Counsel, appearing for respondent No.4, has submitted that in any view of the matter, the offer of the respondent No.4, being higher than the offer made by the appellant, respondent No.4 should get an opportunity to participate in the bid.
14. In the light of what have been discussed above, let us, now, consider the legal aspects of the present appeal.
15. In the case of Navalkha & Sons v. Ramanya Das, reported in (1969) 3 SCC 537, the facts were that there was a winding up proceeding and the properties of the company were directed to be sold in public auction. The Company Court appointed Commissioners for the purpose of selling immovable and movable properties and actionable claims of the aforesaid Company. A sale proclamation was, accordingly, issued inviting offers for the purchase of movable and immovable properties and actionable claims of the Company as a single unit. The sale notice made it clear that immediately upon acceptance of the offer by the Commissioners, the offerer shall, within 15 days from the date of acceptance, deposit 15 per cent of the offered amount as initial deposit and the balance amount, together with the amount required for non-judicial stamp paper within 15 days from the date of acceptance. The acceptance of the offer by Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 8/28 the Commissioners was subject to the condition of confirmation by the High Court and the offerer was entitled to take delivery of possession of the properties only after such confirmation. It was made abundantly clear in Clause 16 that in all matters, relating to the sale of the properties, the decision of the Commissioners shall be final and binding subject to the control of the High Court. One of the further conditions was that the proclamation of sale was to be advertised twice in each of the five leading dailies: The Statesman, The Times of India, The Hindu, the Indian Express and the Hindustan Times to ensure wide publicity and the Commissioners were also required to get the proclamation printed and distributed amongst the likely purchasers.
16. The appellant, Navalkha & Sons, happened to be the sole offerer. It had offered a sum of Rs 7,91,001, which was made of Rs 2,50,000 for the immovable property and Rs 5,41,001 for the machinery. It made no offer for the actionable claims. The appellant made deposit of Rs 50,000 in the shape of demand draft drawn on the State Bank of Hyderabad. The offer was accepted by the Commissioners on December 2, 1964. The appellant was called upon to deposit 15 per cent of the amount of the offer as initial deposit immediately and the balance together with the amount required for non-judicial stamp paper within 15 days from the date of acceptance. The appellant did make the initial deposit. Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 9/28 The Commissioners, then, made an application on December 3, 1964, to the High Court for confirmation of the sale.
17. However, on December 24, 1964, one Gopaladas Darak made an offer of Rs 8,50,000 saying that he could not make his offer in time, because he came to know of the sale only two days prior to that date and it was due to the fact that there was no adequate publicity. To show his bona fide, he gave a demand draft for a sum of Rs 1,00,015. The learned Judge decided that the property did not fetch its proper price and there was possibility of higher bids. Instead of directing a fresh auction or calling for fresh offers, the learned Judge thought it proper to arrange an open bid in the Court itself, on that very day, between the appellant and Gopaladas Darak. Before starting the bid, the learned Judge gave time to the appellant to think over and say whether it was willing to accept the course decided upon and to participate in the auction bids. The appellant consented and volunteered to take part in the bid and became the highest bidder at Rs 8,82,000. The learned Judge accepted the said bid as final bid and concluded the sale in favour of the appellant directing him to pay the balance of the money together with the amount required for non-judicial stamp on or January 31, 1965, making it clear that in case of default, the deposit already made would be forfeited. The appellant paid the balance of the amount on January 30, 1965. On the Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 10/28 same day, one Padam Chand Agarwal, made an application (CA 44 of 1965) offering Rs 10,00,000. He complained that publicity of the sale of the property was not adequately made and he came to know of the advertisement very late. He was prepared to enhance the offer to Rs 10,00,000 and was also willing to participate in open bid if the Court so decided with Rs 10,00,000 as initial bid. The learned Judge rejected his request and held that the sale should be confirmed in favour of the appellant. Aggrieved by this order, Padam Chand Agarwal filed an intra Court appeal. One Rammuja Das, a contributory, too, chose to prefer an appeal against the order of confirmation. According to him, the publicity given was inadequate and the first offer given by the appellant was too low and the Court has rightly refused to confirm the acceptance of the offer. His grievance was that the learned Judge should have held the auction only after due publicity, but has not done so and the course followed did not achieve the object of getting adequate price of the property.
18. Both the appeals were directed against the confirmation of the auction sale held in Court. These appeals were allowed by Letters Patent Bench and the order of the learned single Judge was set aside. It was decided that the learned Judge should take fresh steps for the sale of the property either by calling sealed tenders or by auction in accordance with law. The tenders would be called or the Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 11/28 auction would take place with the requisite condition of minimum offer or starting bid of Rs 10,00,000.
19. When the appellant carried the matter to the Supreme Court, it was observed that the auction had not been held after giving due publicity. It was also held that the auction, in question, was, no doubt, conducted in a public place; but it was not a public auction and it was not open to the general public; rather, it was confined to only two named persons. Secondly, the auction was not held after due publicity inasmuch as the auction was held immediately after it was decided upon. Hence, 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. The Supreme Court further held that 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.
20. One of the important observations made by the Supreme Court, in Navalkha & Sons (supra), was that where the acceptance of the offer by the Commissioners is subject to confirmation of the Court, the offerer 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, held the Supreme Court, operates as a safeguard against the property being sold at Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 12/28 inadequate price whether or not it is a consequence of any irregularity or fraud in the conduct of the sale.
21. In every case, points out the Supreme Court, in Navalkha & Sons (supra), it is the duty of the Court to satisfy itself that having regard to the market value of the property, the offered price is reasonable. Unless the Court is satisfied about the adequacy of the offered price, the act of confirmation of the sale would not be a proper exercise of judicial discretion. However, 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. The relevant observations are reproduced below;
"6. The principles which should govern confirmation of sales are well-established. Where the acceptance of the offer by the Commissioners is subject to confirmation of the Court the offerer 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 a Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 13/28 proper exercise of judicial discretion. In Gordhan Das Chuni Lal v. S. Sriman Kanthimathinatha Pillai (AIR 1921 Mad 286), it was observed that 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. This principle was followed in Rathnaswami Pillai v. Sadapathi Pillai [(1925) Mad 218] and S. Soundarajan v. Roshan & Co. (AIR 1940 Mad 42) In A. Subbaraya Mudaliar v. K. Sundarajan (AIR 1951 Mad 986) it was pointed out that the condition of confirmation by the Court being a safeguard against the property being said 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 & Co. Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 14/28 case)."
22. Thus, the principle consideration before a Company Court is adequacy of price. Once the Court is satisfied about the adequacy of price, then, it would not be proper to reject the offer even if the sale has not been confirmed. From the observations of Supreme Court, made in Navalkha's case (supra), two different circumstances have expressly envisaged. Following the adequacy of price, no subsequent higher offer can constitute a valid ground for refusing confirmation of the sale or the offer already received. Hence, if the offered price is adequate and even if the sale has not been confirmed, then, bearing in mind the adequacy of price offered, it would not be proper for the Court to accept a higher price.
23. In the case of Valji Khimji and Co. v. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd., reported in (2008) 9 SCC 299, the facts were that the assets of Hindustan Nitro Product (Gujarat) Ltd. were proposed to be auctioned and, hence, the Court asked the Official Liquidator to obtain a valuation report. After obtaining the valuation report, the Official Liquidator submitted the same to the Court. The valuation of these assets, according to the Official Liquidator, was Rs 2.55 crores. The property was, then, put up for auction on 25.03.2003 after advertising it in various well- known newspapers having wide circulation including The Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 15/28 Economic Times, which is a well-known newspaper having wide circulation in the business community. Several bids were received and were opened in the Court. The highest bid was that of the appellant, M/s Valji Khimji & Company, amounting to Rs 3.51 crores. The bid was accepted and the sale was confirmed. The Court directed the appellant to deposit 25 per cent of the purchase price, i.e., Rs 63,98,000, within 30 days from the said date and to deposit the balance amount within the next three months. The Court also directed that the amount may be deposited in instalments, but no instalment should be less than Rs 5 lakhs. These conditions were complied with by the appellant. Although the sale was confirmed in favour of the appellant on 30.07.2003, a letter, dated 22.10.2003, was sent to the Official Liquidator by one M/s Manibhadra Sales Corporation (Respondent No. 8) offering to buy the assets, in question, for Rs 3.75 crores (though this offer was, admittedly, withdrawn later on). Subsequently in August, 2004, M/s Castwell Alloys Ltd. (Respondent 9) made an offer of Rs 5 crores for the said assets. This offer was made more than one year after the confirmation of the sale in favour of the appellant.
24. Both, M/s Manibhadra Sales Corporation and M/s Castwell Alloys Ltd., filed applications praying for recall of the order, dated 30.07.2003, whereby the sale had been confirmed in favour of the appellant. On 10.09.2004, the Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 16/28 learned Company Judge took up both these applications and passed an order, dated 10.09.2004, recalling the order, dated 30.07.2003, whereby the sale had been confirmed. When an appeal was preferred before the Division Bench, the appeal was dismissed.
25. In the backdrop of the facts as narrated above, the Supreme Court, in Valji Khimji (supra), held that the auction sale had been done after adequate publicity in well- known newspapers and, hence, if anyone wanted to make a bid in the auction, he ought to have participated in the said auction and made his bid. The Supreme Court further went on to observe, in Navalkha & Sons (supra), that entertaining objections after the sale is confirmed should not, ordinarily, be allowed except on very limited grounds like fraud; or else, no auction sale will ever complete.
26. On the aspects of re-opening of auction after the confirmation of sale, the Supreme Court, in Valji Khimji (supra), observed that if it is held that every confirmed sale can be set aside, the result would be that no auction sale will ever be completed, because somebody can always come after the auction or its confirmation offering a higher amount. It could have been a different matter if the auction had been held without adequate publicity in well-known newspapers having wide circulation, but where the auction sale was done after wide publicity, then, setting aside the sale after its Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 17/28 confirmation will create huge problems. When an auction sale is advertised in well-known newspapers having wide circulation, all eligible persons can come and bid for the same and they are themselves to be blamed if they do not come forward to bid at the time of the auction and, ordinarily, they cannot, later on, be allowed after the bidding (or confirmation) is over to offer a higher price. Of course, the situation may be different if an auction sale is finalised, say for Rs 1 crore, and, subsequently, somebody turns up offering Rs 10 crores. In this situation, it is possible to infer that there was some fraud, because if somebody subsequently offers Rs 10 crores, then, an inference can be drawn that an attempt had been made to acquire that property/asset at a grossly inadequate price. This situation itself may indicate fraud or some collusion. However, if, after the auction is over, the price offered is only a little over the auction price, this cannot by itself suggest that any fraud has been played.
27. What follows from the case of Valji Khimji (supra) is that not only re-auctioning should not be ordered, ordinarily, but even entertaining higher price, after the bidding process is over, should not be allowed if the subsequent price offered, after the auction, is only little over the auction price.
28. The relevant observations, appearing in Navalkha & Sons (supra), in paragraph 28, read as follows;
"28. If it is held that every confirmed Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 18/28 sale can be set aside the result would be that no auction-sale will ever be complete because always somebody can come after the auction or its confirmation offering a higher amount. It could have been a different matter if the auction had been held without adequate publicity in well-known newspapers having wide circulation, but where the auction-sale was done after wide publicity, then setting aside the sale after its confirmation will create huge problems. When an auction-sale is advertised in well-known newspapers having wide circulation, all eligible persons can come and bid for the same, and they are themselves to be blamed if they do not come forward to bid at the time of the auction. They cannot ordinarily later on be allowed after the bidding (or confirmation) is over to offer a higher price. Of course, the situation may be different if an auction-sale is finalised, say for Rs 1 crore, and subsequently somebody turns up offering Rs 10 crores. In this situation it is possible to infer that there was some fraud because if somebody subsequently offers Rs 10 crores, then an inference can be drawn that an attempt had been made to acquire that property/asset at a grossly inadequate price. This situation itself may indicate fraud or some collusion. However, if the price offered after the auction is over which is only a little over the auction price, that cannot by itself suggest that any fraud has been done."
(Emphasis is supplied)
29. In the case of Divya Mfg. Co. (P) Ltd. v.
Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 19/28 Union Bank of India, reported in (2000) 6 SCC 69, relied upon by Mr. Choudhary, learned Senior Counsel, the case of Navalkha (supra) came up for consideration. In Divya (supra), the facts were that there was a winding up proceeding of one Tirupati Mills. In the meantime, the workmen of Tirupati Mills entered into an agreement with appellant, Divya, whereby Divya agreed to run Tirupati Mills and to provide re-employment to the workmen of the said Mill upon purchase of the assets and properties of the said Mill under liquidation. The appellant, Divya, offered Rs 35 lakhs as price for purchasing the assets of the Mill; but in the course of litigation, it raised its bid to Rs 1.3 crore. This offer was accepted and sale was confirmed in its favour on the conditions mentioned therein. On the same day, the Court also disposed of the appeals and applications accordingly.
30. Later on, an application was filed by another person before the Division Bench praying therein that the order accepting and confirming the sale, in favour of Divya, be recalled and set aside and it may be given an opportunity to submit its offer of Rs 1.40 crores for the assets of the Mill in liquidation. This apart, another person filed an application that it was prepared to pay Rs 2 crores for the purchase of the assets of the Mill. The Division Bench held that it cannot shut its eyes to the fact that initially, the property, proposed to be sold at the price of Rs 37 lakhs, fetched Rs 1.3 crore by the Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 20/28 same person. Considering all factors, the sale, confirmed in favour of the appellant for an amount of Rs 1.3 crores, was set aside with a direction for re-sale of the assets of the Mill.
31. The Supreme Court, relying upon the observations of Navalkha (supra), held that the appellant started its offer after having an agreement with the Employees' Samiti for Rs 37 lakhs. This was, on the face of it, under bidding for taking undue advantage of court sale. It was in these circumstances that the Supreme Court held that there was no need to confine the bid between three offerers only thereby holding that a meaningful intervention by the court may prevent, to some extent, underbidding at the time of auction through court.
32. The case of Divya (supra) came to be distinguished in the case of Vedica Procon v. Balleshwar Greens, reported in (2015) 10 SCC 94. In Vedica Procon (supra), the Supreme Court was adjudicating on an auction dispute. In this case, the facts were that M/s Omex Investors Ltd. was ordered to be wound up by the Company Judge of the Gujarat High Court by an order, dated 6-3-1990. By order, dated 26-3-2013, the Official Liquidator was directed to put the freehold land of the Company, measuring 13,895 sq meters, to auction for sale by inviting offers from the intending purchasers in sealed covers. By the said order, the High Court also fixed an upset price at Rs 55 crores and Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 21/28 earnest money deposit (EMD) at 10% thereof. Tender notice (containing the terms and conditions of sale) inviting offers from the prospective purchasers, in sealed covers, was widely published. Eleven prospective purchasers responded to the notice. The auction was held in open Court. After inter se bidding of 12 rounds, the appellant, Vedica Procon (P) Ltd., became the highest bidder with an offer of Rs 148 crores, whereas the first respondent, Balleshwar Greens (P) Ltd., the second highest bidder. The High Court accepted the bid of the appellant. By the same order, the High Court recorded that the earnest money deposit by the appellant and the first respondent be retained by the Official Liquidator and the earnest money deposits, made by the other unsuccessful bidders, be returned.
33. The appellant, thereafter, deposited 25% of the bid amount and, for the remaining amount, he prayed for extension of time, which was allowed, but even before the extended date, the appellant paid the balance money.
34. The first respondent, then, preferred an appeal against the order of the High Court granting extension of time to deposit the balance amount by the appellant. In the said appeal, the first respondent expressed its willingness to raise its offer to an amount of Rs 160 crores for the land in question and also offered to deposit the said amount within 72 hours.
35. In the course of various applications made by Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 22/28 the respondent, Balleswar Greens, and pursuant to a direction of the Division Bench, the learned Company Judge, on an application filed by the first respondent, recalled its order and set aside the sale made in favour of the appellant. When the said order was challenged by the appellant before the Division Bench of the High Court, the same was dismissed.
36. Appreciating the findings of Divya's case (supra), in the light of Navalkha's case (supra), the Supreme Court, in Vedica Procon (supra), held that the conclusions, in Divya's case, were based upon by placing reliance on paragraph 6 of Navalkha's case (supra), by placing emphasis more on the penultimate sentence of the paragraph 6, which provided that "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".
37. The Supreme Court, in Vedica Procon (supra), further pointed out that the last sentence of the paragraph 6, in Navalkha's case (supra), was not taken note of, which provided "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". Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 23/28
38. Elaborating further, the Supreme Court, in Vedica Procon (supra), held that no doubt, the penultimate statement of the paragraph recognises the discretion of the Company Court either for accepting or refusing the highest bid at the auction, it also emphasises the obligation of the Court to see that the price fixed at the auction is adequate price even though there is no irregularity or fraud in the conduct of the sale. However, the penultimate sentence restricts the scope of such discretion, which provided 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.
39. Thus, in Vedica Procon (supra), the interpretation of Navalkha's case (supra), as interpreted in Divya's case (supra), was distinguished by holding that in Navalkha case (supra), the Supreme Court had only recognised the existence of the discretion in the Company Court either to accept or reject the highest bid before an order of confirmation of the sale is made and it was further emphasized that that once the Company Court had recorded its conclusion that the price is adequate, subsequent higher offer cannot be a ground for refusing confirmation.
40. Having discussed the relevant authorities on the subject, the principles, which emerge, may be summarized as follows;
Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 24/28 It is the duty of the Court to satisfy itself that having regard to the market value of the property, the price offered is adequate;
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;
Where the acceptance of the offer is subject to confirmation of the Court, the offerer does not, by mere acceptance, get any vested right in the property so that he may demand automatic confirmation of the offer;
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;
When the auction-sale was done after adequate publicity in well-known newspapers, then, entertaining objections, after the sale is confirmed, should not, ordinarily, be allowed, except on very limited grounds like fraud.
Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 25/28 Re-auctioning, after the bidding process is over, or after the confirmation of sale, should not be ordered, ordinarily, if the subsequent price offered is only little over the auction price.
Once the Company Court had recorded its conclusion that the price is adequate, subsequent higher offer cannot be a ground for refusing confirmation.
41. In the light of the legal position stated above, when the circumstances of the present case are looked into, respondent No.3 was, admittedly, a bidder in respect of the property listed at serial No. 2 in the sale notice. He cannot, therefore, be allowed to plead that he had no knowledge as to what other properties had been put on sale. Having known about the auction of the properties, in question, and having not participated consciously, it would be highly improper to allow the re-opening of inter-se bidding as the case of the respondent no. 3 is not that any fraud was practiced upon the Court, while confirming the sale.
42. In view of the above one has to infer, and we do infer, that respondent No.3 was not interested in the purchase of the property listed at serial No.3 of the sale notice and he, therefore, chose not to submit his tender documents including making of earnest money deposit in respect of the Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 26/28 property listed at serial No.3 of the sale notice, before the date of the auction.
43. So far as respondent no. 4 is concerned, the admitted position is that the bid offered by him is marginally higher, Rs 4.25 lakhs to be precise, than the bid offered by the appellant. Admittedly, the demand draft for Rs 40,00,000 (Rs Forty lakhs) for the earnest money deposit was prepared only on 18.08.2015, whereas the bid was finalized on 04.08.2015. It may also be pointed out that sale notices were published on 8.7.2015 and 9.7.2015. It is not the case of respondent No. 4 that he was not aware of the sale notices; rather, his case is that due to sudden death of his father, on 22.7.2015, he could not participate during the bidding process on 04.08.2015. Had it been a bona fide plea, respondent No. 4 must have also explained, though not explained, why the demand draft for earnest money deposit was not prepared between 8.7.2015 and 22.7.2015. Situated thus, it is crystal clear that there exists no explanation to why the demand draft for earnest money deposit was prepared only on 18.8.2015, which was 14 days after the bidding process was finalized. If the plea, taken by respondent No. 4, is accepted, the bidding process would never come to an end and new plea of various nature could be entertained to unsettle the finalization of bid.
44. It may be pointed in these contexts that law is, in substance, nothing, but norms, which govern a society. Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 27/28 With the changes, which take place in the society, the norms also undergo change. With the opening of India's economy and recognition of global economy, it is required that the confidence of the investors be maintained by ensuring that frivolous litigations are not permitted to be blessings of the Court. If mere making of an offer of a few lakhs higher than a bid amount for a property is encouraged, particularly, at the instance of a person, who was a bidder in the bidding process of the set of properties, which was put on sale, it would not be in public interest to keep putting on auction sale the property again and again.
45. In the background of the facts, which we have indicated above, we are clearly of the view that if respondent No.3 and respondent No. 4 were allowed to disturb the sale, already made to the present appellant, it will shake the confidence of the bidders/investors in the ability of the Court to hold auction sales in such a manner that repeated auction sales are not required to take place.
46. Considered in this light, we have no hesitation in holding, and we do hold, that in the facts and the attending circumstances of the present case, the order, dated 13.10.2015, passed by the learned Company Judge, was not tenable in law and calls for, therefore, interference.
47. In the result and for the reasons discussed above, this appeal is allowed, and the order, under appeal, Patna High Court COMP. APP.(DB) No.16 of 2015 dt. 11-05-2016 28/28 dated 13.10.2015, is hereby set aside. Interlocutory Application Nos. 7125 of 2015 and 7644 of 2015 are accordingly dismissed.
(I. A. Ansari, ACJ.)
Anjana Mishra, J. : I agree.
(Anjana Mishra, J.)
NAFR
Pawan/-
U