Delhi High Court
Tata Iron & Steel Co.Ltd vs Jhalani Tools (India) Ltd. on 6 January, 2009
Author: Anil Kumar
Bench: Anil Kumar
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CA Nos.491/2007 & 710/2007 in C.P No.539/1998
% Date of Decision: 06.01.2009
Tata Iron & Steel Co.Ltd .... Petitioner
Through: Mr. V.K.Jhanji and Mr.Ravi Kant
Chadha, Sr. Advocates, with Mr.Deepak
Dhingra Advocate for the applicant in
CA No.491/2007
Ms.Monica Sharma, Advocate for
applicant in CA No.710/2007
Mr.Anil Nauriya, Advocate for Workmen
(Kundli Unit).
Mr.Jos Chiramel, Advocate for Dena
Bank, IOB, Canara Bank, Syndicate
Bank.
Mr.B.L.Wali, Advocate for Kotak
Mahindra Bank.
Mr.R.C.Chawla, Advocate for RPFC.
Mr.Harinder Singh, Advocate for IDBI.
Ms.Rajdipa Behura, Advocate for the
Official Liquidator along with
Mr.A.K.Chaturvedi, Official Liquidator.
Versus
Jhalani Tools (India) Ltd. .... Respondent
Through: Mr.Harish Sharma, Advocate for
Jhalani Tools Workers Union.
Mr.Ashutosh Dubey, Advocate for Ex-
Management of respondent company.
Mr.Arvind Nigam with Mr.Gaurav
Chauhan, Advocates for the Auction
Purchaser, M/s Morgan Venture Ltd.
CORAM:
HON'BLE MR. JUSTICE ANIL KUMAR
1. Whether reporters of Local papers may be YES
allowed to see the judgment?
2. To be referred to the reporter or not? YES
3. Whether the judgment should be reported in YES
the Digest?
CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 1 of 36
ANIL KUMAR, J.
* CA NO.710/2007 (BY SIDDHARTH CLUTCHES PVT. LTD.) & CA No.491/2007 (BY SH.RAJ KISHAN GOEL)
1. The applicants Sh.Raj Kishan Goel (CA No.491/2007) & M/s Siddharth Clutches Pvt. Ltd. (CA No.710/2007) seek quashing of entire process of bidding and sale whereby units Nos.2 to 6 of M/s Jhalani Tools (India) Ltd were sold in favour of M/s.Morgan Ventures Ltd nominee of M/s.R.N.Marwah & Co. and seek acceptance of their bids of Rs.80,25,00,000/- and Rs.70,00,00,000/-respectively.
2. The applicant/Raj Kishan Goel contended that units 2 to 6 have been sold to a Chartered Accountancy firm, M/s.R.N.Marwah & Company who acted and brokered the bid for its nominee M/s Morgan Ventures Ltd. It is contended that M/s.R.N.Marwah & Co. being a firm of chartered accountants were individual and could not be involved in any manufacturing activity.
3. According to the said applicant the entire process whereby the bid was processed and awarded, is vitiated by fraud which has been played on this Court by successful and unsuccessful bidders who had conspired. The applicant/Sh.Raj Kishan Goel has also sought an enquiry CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 2 of 36 into the process of bidding and has sought recalling of the orders by which the bids were held, valuations were accepted and the bid of M/s.Morgan Ventures Ltd was accepted by default and the lapse of the highest bidder, M/s Balaji Associates. According to the said applicant the other bidders were for namesake. It is asserted that the properties of the companies have been sold at a throwaway price, as the actual price of the property was much more than the one reserved. In order to substantiate coterie formed by various bidders, the applicant has contended that various applications were filed which were unconditionally withdrawn which reflect a handiwork of few brokers to circumvent the proper procedure. For cancellation of the sale it is contended that till now no amount has been disbursed to the workmen and even the sale deed(s) in respect of all the units which were sold have not been executed as the title deeds are lying with Dena Bank, the consortium banker in the matter. It is also contended that the sale has not been confirmed by the official liquidator or by the Court and the units are lying intact and have not been dismantled.
4. The applicant (Sh.Raj Kishan Goel) has asserted that on highest bidder Balaji Associates failing to deposit the amounts, rebidding should have been ordered. According to him the offer for the units sold started from Rs.43 crores and within few weeks went upto 59 crores, a huge difference of 16 crores and the minimum reserve price fixed was far below than the actual price which should have been reserved. According CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 3 of 36 to him the reserveh price was fixed at Rs.43 crores for the 5 units of the respondent company being units 2 to 6 which are detailed hereinafter:-
Unit No. Address Area Constructed
(Acres) Area (Sqr.Ft.)
II 4, New Industrial Area, 4.91 98,448
Faridabad
III 1 & 2, New Industrial Area, 8.70 1,57,317
Faridabad
IV Narela Road, Village Kundali, 8.29 1,19,200
Dist.Sonepat
V E-29 E-30, Chikalthana 11.1 97,579
Industrial Area, Aurangabad,
Maharashtra
Open E-18 E-19, Chikalthana 7.8
Land Industrial Area, Aurangabad,
Maharashtra
VI C-1, Additional Industrial Area, 18.16 97,338
Jalna, Maharashtra
5. It is stated that inter-se bid took place and in the bidding the highest bid was by M/s Balaji Associates of Rs.59.05 crores and the second highest bid was of M/s.R.N.Marwah & Co. for Rs.59 crores. It is contended that though the difference was only Rs.5 lakhs yet M/s R.N.Marwah & Co. meekly withdrew and that was on account of formation of a coterie between the bidders. M/s Balaji Associates, the highest bidder also chose not to deposit the balance amount of the bid CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 4 of 36 and, therefore, by order dated 20th October, 2005 the next highest bid of M/s R.N.Marwah & Co at Rs.59 crores was accepted. After the second highest bid of M/s R.N.Marwah & Co, chartered accountants was accepted, on an application filed by M/s Morgan Ventures Ltd by an ex- parte order dated 25th July, 2006, the official liquidator was directed to confirm the sale of the five units in favor of said company.
6. The applicant (Raj Kishan Goel) has offered Rs.70 crores in place of Rs.59 crores of M/s.R.N.Marwah & Co and has contended that the publication prior to finalizing the bid did not come to his notice. It is also asserted that if the accepted bid is not cancelled the consortium bankers as also the workers shall suffer severe prejudice as the amount of 59 crores is grossly disproportionate to the present valuation of the properties.
7. The application for setting aside the sale and offering Rs.70 crores was filed on 3rd May, 2007 after the second highest bid of M/s R.N.Marwah & Co was accepted on 11th August, 2005 after highest bidder M/s Balaji Associates failed to deposit the bid amount.
8. The applicant M/s Siddharth Clutches Pvt Ltd have also taken similar pleas, however, he has offered Rs. 70,25,00,000/-. According to the said applicant there is a difference of Rs.11,25,00,000/- from the bid CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 5 of 36 of M/s R.N.Marwah & Co which is substantial and, therefore, it will be in the interest of the secured creditors and others to set aside the sale in favour of M/s R.N.Marwah & Co and accept his bid for Rs.70.25 crores. The application was filed on 17th July, 2007 and it is contended that the applicant could not see the sale proclamation notice at the relevant time and has come to know recently about the same from the market.
9. Before considering the pleas of the applicants for setting aside the sale and for acceptance of their bids it will be appropriate to consider the summery of various relevant orders passed by this Court.
1998 A company petition under Section 434 was also filed by M/s.Tata Iron & Steel Company Ltd (CP 539/1998) was filed which was taken up on 16th December, 1998 and the company was restrained from transferring, alienating or creating third party interest of the property of the company except in due course of business.
The company was also declared sick by BIFR and the proposal for rehabilitation had failed and, therefore, the BIFR recommended winding up of company under Section 20(1) of SICA.
The reference by BIFR was registered as CP 18 of 2001 18.3.2003 In the winding up petition under Section 434 of the Companies Act filed by Tata Iron & Steel Company Ltd., it was held that the company is indebted to Tata Iron & Steel Company Ltd and is unable to pay its debts and, therefore, company was directed to be wound up and the Official Liquidator was CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 6 of 36 appointed as provisional liquidator of the company who was directed to take into possession all the assets and books of accounts and the citation was ordered to be published in Statesman (English) and Veer Arjun (Hindi).
2.2.2005 The company had six units and since the intention was shown for reviving only unit 1 at Faridabad, the Court ordered for issuance of sale proclamation by the Official Liquidator in respect of other units 2 to 6. In the said order it is recorded "it is agreed by all concerned that whether the said scheme is approved or not, in so far as following properties of the company are concerned, they may be put to sale..." The sale proclamation was ordered to be published in Times of India, Delhi as well as Financial Express for 24th March, 2005. Bids were invited in two categories. In the first category bids for units 2 to 6 were to be with a reserve price of Rs.43 crores. In the second category bids in respect of all the 5 units were invited.
24.3.2005 The sale proclamation could not be issued. It was also noted that the ex-management had been able to secure one time settlement with consortium banks led by Dena Bank and the consortium had agreed to accept Rs.21.38 crores on the condition that Rs.18 crores shall be paid by 31st March, 2005. One bid of M/s.
Balaji Associates was also received for Rs.43 crores in respect of 5 units and a sum of Rs.25 lakhs was also deposited. The bid of M/s Balaji Associates could not be considered as the sale advertisement had not been issued. Court ordered advertisement of proclamation of sale for 21st April, 2005.
21.4.2005 Pursuant to the advertisement for sale of five units of company, 5 bids were received for all the five units and three bids were received for unit No.II, III and IV respectively. However, on that date it transpired that the assets were not got valued and, therefore, three weeks time was given to the Official Liquidator to get the assets evaluated and M/s R.P.Gupta & CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 7 of 36 Associates and M/s.H.Rai Malik & Associates were appointed as valuers. The EMDs which were deposited by the bidders were, therefore, returned with a direction that they could bring the EMDs on the next date of hearing.
19.5.2005 Valuation report in respect of the units except at Jalna and Aurangabad was received for which the valuer wanted the purchase value and book value of machinery, equipment at the said two units.
7.7.2005 The valuation report was received. No fresh bids were received except those which had already been received. Some bidders who were present were given time to submit their bids.
14.7.2005 Two more bids of M/s.S.R.Buildcon Pvt Ltd for Rs.43 crores and Chaudhary & Sons (Forging) P.Ltd for Rs.44.05 crores were received. Since there were number of bidders it was decided to have inter-se bidding. M/s Balaji Associates raised its bid to Rs.45.11 crores and M/s.Chaudhary & Sons raised its bid to Rs.45 crores. M/s S.R.Buildcon Pvt Ltd wanted to raise its bids to 50 crores and he sought time which was granted.
21.7.2005 The workers union of Kundli unit filed an application challenging the valuation report submitted by M/s. R.P.Gupta & Associates. It was contended that the company had submitted a scheme to BIFR in 2001. It was valued at 1166 lakhs against the valuer valuing it at Rs.435 lakhs. The challenge to valuation by the workers union was, however, opposed by the consortium of the banks. The leading bank had contended that in the year 2000 the secured creditors were to recover a sum of Rs.58 crores from the company in liquidation and under the OTS it had agreed to accept much lesser amount of Rs.21.38 crores thereby waiving 36.62 crores which concession was given with the object to get the amount immediately after the sale of units and the realization of the money. The objections of the workers to the valuation report were rejected after consideration and it CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 8 of 36 was held that considering the substantial expenses for publication of sale proclamation and valuation of the properties the bidding process could not be stayed. Mr.U.N.Marwah of M/s R.N.Marwah & Co. had given a bid of Rs.46 crores at that time along with the EMD.
The matter on that date was adjourned for inter se bidding to 28th July, 2005.
28.7.2005 Three bidders M/s.Chaudhary & Sons (Forging) Pvt.Ltd, M/s.Balaji Associates and M/s.R.N.Marwah & Co. were present, however, inter se bidding did not take place and the matter was adjourned to 11th August, 2005.
11.8.2005 One more bid of M/s AGM Management Service for Rs.50 crores was received and the Court held inter se bidding in respect of 5 units. On that date the highest bid of Rs.59,05,00,000/- was of M/s Balaji & Associates who was directed to pay 25% of the bid amount within 7 days and remaining 75% amount within 60 days. The second highest bid was of M/s R.N.Marwah & Co. for Rs.59 crores.
1.9.2005 Another bid of M/s AGM Management Service for Rs.62.1 crores was received on that date.
The workers union of the company also sought clarification of order dated 18th March, 2003 passed in CP No.539/1998 winding up the company. It was contended that before passing the final winding up order citations were required to be published and objections if any of the company or any other persons had to be intimated. Since it was not done, therefore, it was sought that the line in the order dated 18th March, 2005 "accordingly the respondent company is directed to be wound up" be deleted and in its place "accordingly this petition is admitted to hearing" be inserted. The workers union was also impleaded pursuant to the order of the Division Bench dated 22nd April, 2005.
CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 9 of 36 12.9.2005 The bid of M/s.Balaji & Associates was accepted on 11th August, 2005 and he was directed to pay the bid amount within 7 days which was not done, rather it was stated on behalf of said bidder that the amount shall be deposited by 16th September, 2005 and balance amount within 60 days from 11th August, 2005. This offer was accepted modifying the order dated 11th August, 2005 directing M/s.Balaji & Associates to deposit 25% of the amount within one week and remaining amount by 16th September, 2005 and the bid of M/s R.N.Marwah was ordered to be returned.
22.9.2005 M/s.Balaji & Associates still failed to deposit even 25% of the bid amount by 16th of September, 2005. However, more time was given to deposit the amount by 26th of September, 2005.
26.9.2005 On behalf of M/s.Balaji & Associates its partner Sh.Sat Prakash sought time till 4th October, 2005 and also agreed to give an undertaking to that effect. The EMD of Balaji Associates for Rs.25 lakhs was given by a draft dated 8th November, 2004 which had already expired and so Balaji Associates also undertook to revalidate the same and deposit Rs.43 lakhs by 27th September, 2005.
27.9.2005 A sum of Rs.43 lakhs by three drafts was handed over by Sh.Sat Prakash, partner of Balaji Associates. Since the draft of Rs.25 lakhs as EMD was not revalidated the same was returned and the partner Sh.Sat Prakash also agreed to give an undertaking to make the payments in accordance with the schedule. He made a statement that 50% of the bid amount shall be deposited by 5th October, 2005 and the balance amount shall be paid by 11th October, 2005 the last date for making the payment.
20.10.2005 M/s.Balaji & Associates did not deposit the amount in terms of the undertaking given by its partner Sh.Sat Prakash. More time was sought which was, however, not allowed and CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 10 of 36 the acceptance of bid of M/s.Balaji & Associates was cancelled and amount of Rs.43 lakhs was forfeited. The counsel for the second highest bidder R.N.Marwah & Company was present though the bid was ordered to be returned earlier and, therefore, the second highest bid of M/s R.N.Marwah & Co. for Rs.59 crores was accepted. The counsel contended that the second highest bidder had redeposited the earnest money of Rs.43 lakhs and the draft was given in the name of Official Liquidator and a cheque of Rs.15 crores representing 25% of the balance amount was also given to the Official Liquidator and it was undertaken that the cheque shall be replaced by a demand draft by 24th October, 2005. M/s R.N.Marwah & Co. was also directed to make the balance payment within 30 days from 20th October, 2005.
28.10.2005 The demand draft in lieu of a cheque of Rs.15 crores was handed over in the Court and the cheque was returned and M/s R.N.Marwah & Co nominated M/s Morgan Ventures Ltd as its nominee which request was accepted and M/s Morgan Ventures Ltd were allowed to deploy the security guards at the auctioned properties. The delay in giving the amount was also condoned.
25.7.2006 The nominee of M/s R.N.Marwah & Co., M/s Morgan Ventures Ltd filed an application for confirmation of sale and Official Liquidator gave no objection for confirmation of sale in favor of M/s Morgan Ventures Ltd.
Consequently it was ordered that the Official Liquidator shall confirm the sale in favor of M/s Morgan Ventures Ltd or its nominee as expeditiously as possible. The official Liquidator's counsel also stated that it is not possible to execute the sale deed in favor of M/s Morgan Ventures Ltd as the original deeds were lying with Dena Bank and, therefore, notice was issued to Dena Bank.
22.11.2006 The Court ordered that the sale was confirmed in favor of M/s Morgan Ventures CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 11 of 36 Ltd on 25th July, 2006. Since the auction of the properties had not been in questioned, the leading bank, Dena Bank, wanted that the sale consideration of Rs. 59 crores be deposited in Dena Bank in place of Punjab National Bank. This question was not decided, however, it was held that since the sale has been confirmed, this request of Dena Bank can be decided without the presence of auction purchaser. Dena Bank was, however, directed to deposit the title deeds with the Official Liquidator.
29.1.2007 The Official Liquidator was directed to execute the sale deed(s) in favor of M/s Morgan Ventures Ltd before 22nd February, 2007.
3.5.2007 An application being CA No.491 dated 3rd May, 2007 taken up for hearing where the applicant stated that he is ready to offer Rs.70 crores. Applicant sought cancellation of sale and acceptance of his offer.
17.7.2007 An application for setting aside the sale filed on behalf of M/s.Siddharth Clutches Pvt Ltd.
Offering an amount of Rs.70,25,00,000. This offer was revised to Rs.75,25,00,000 on 29th August, 2007 and again revised to Rs.80,25,00,000 on 25th September, 2007
10. The learned counsel for the applicants have relied on Bakemans Industries Pvt Ltd Vs. New Cawnpore Flour Mills & Ors, Civil Appeal No.3628/2008 (SC); T.Vijenderdas & Anr Vs. M.Subramanium, (2007)8 SCC 751; M/s.Trilochan Rice & Alloys Mills Ltd Vs. State of U.P & Anr, Civil Misc.Writ Petition No.18085/2006; Elsor Cotton Mills Ltd (In Liquidation), 122 (2005) DLT 669; Divya Manufacturing Co. Pvt Ltd & Anr Vs. Union Bank of India & Anr, (2000)6 SCC 69; Allahabad Bank & CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 12 of 36 Anr Vs. Bengal Paper Mills Co.Ltd & Anr, (1999)4 SCC 383 and Lica Pvt Ltd Vs. Official Liquidator & Anr, 1996(85) Company Cases (SC) 788 to contend that even after confirmation of sale, in the interest of secured and unsecured creditors and workers, the sale can be set aside if the assets of the company can be sold at higher price. It is also contended that before passing the winding up order of the company, the assets of the company could not be sold and therefore the sale by the Court in favor of M/s Morgan Ventures Ltd. is liable to be set aside.
11. The applications are opposed by the purchaser, M/s.Morgan Ventures Ltd. The purchaser contended that the valuation report of the five units which were sold, cannot be challenged again by the applicants, as the same were challenged even by workers union of Kundli unit of the company by filing CA No.955/2005. The objections to the valuation were dismissed after consideration by order dated 20th October, 2005. It was asserted on behalf of purchaser that the application of Sh.Raj Kishan Goel is highly belated and barred by time as the bid of the purchaser was accepted on 20th October, 2005 and the purchaser has already created third party rights in various properties purchased by him. The purchaser also pleaded that no case is made out either under Rule 272 or 273 of the Companies Court Rules or under Order 21 Rules 90 & 92 of the Code of Civil Procedure for recalling/setting aside the sale in favor of purchaser. It was asserted that the allegations of fraud made by the applicants are bald without any particulars and are baseless. The CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 13 of 36 allegations made by the applicants have not been substantiated and on the basis of such bald allegations, the sale in favor of the purchaser cannot be set aside. It was also contended that the prices quoted by the applicants are speculative and on the basis of assumptions made by the applicants, the sale in favor of purchaser cannot be set aside. It was denied that the properties had been sold at throwaway price. The allegation regarding formation of coterie by the unsuccessful and successful bidders was stated to be baseless. It was contended that the fact that M/s R.N.Marwah & Company is a chartered accountants' firm cannot be the ground for setting aside the sale. The plea of the purchaser is that the minimum reserve price of Rs.43 crores is far below the price at which the five units were purchased for 59 crores. It was asserted that the sale was confirmed on 25th July, 2006 and this fact was re-asserted by the Court in its order dated 21st November, 2006. Non distribution of the sale proceeds cannot be a ground for setting aside the sale. The purchaser further asserted that the time given to M/s Balaji & Associates and non distribution of the sale proceeds will not negate the acceptance of second highest bid of the purchaser nor it can be a ground for setting aside the sale in favor of the purchaser. It was also contended that the order dated 25th July, 2006 was not an ex-parte order as the same was passed in the presence of Official Liquidator who was present. The purchaser also emphatically contended that despite the order passed by the Court directing the Official Liquidator to execute the sale deeds, non execution of the same will not negate the rights of the purchaser to get CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 14 of 36 the sale deeds executed. It was rather contended that the sale deeds in respect of some units have already been executed.
12. On behalf of the purchaser it was also contended that since the Court had conducted the sale, there was no requirement for confirmation. Regarding the offer of the applicant/Sh.Raj Kishan Goel it was contended that he got a draft for Rs.7 crores, however, he also got it cancelled within three days after it was purchased. It is asserted by the purchaser that the applicant/Sh.Raj Kishan Goel has misled the Court by not disclosing this fact and the averment by the purchaser regarding this fact has not been denied by the said applicant. Mr.Nigam, learned counsel also contended that the power of confirmation could not be delegated and consequently the order dated 25th July, 2006 is of the confirmation of the sale which fact was also re-asserted by the Court in its order dated 22nd November, 2006 specifically stipulating that the sale was confirmed in favor of purchaser on 25th July, 2006.
13. The learned counsel very emphatically contended that the valuation of the assets of the company was proper and auction was an open auction after wide publicity. It is contended that after the sale was confirmed in favor of the purchaser, the vague objections taken by the applicants should not be allowed. The price offered by the applicants is also marginal. The learned counsel also contended that even without the CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 15 of 36 order of winding up the assets of the company can be sold and relied on Altos India Ltd v. Bharti Telecom Ltd, (1994) 4 Company Law Journal
294.
14. The purchaser also asserted that the sale should not be set aside lightly as the Court is not exercising the power of review. The learned counsel for the Official Liquidator, Ms.Rajdipa Behura also contended that even the provisional liquidator could sell the properties and relying on Section 450 it was contended that the power of the liquidator is not restricted and since everything was pursuant to the orders of the Court, it cannot be said that the properties could not be sold. The learned counsel also relied on (2008)3 Company Law Journal (SC), Bakeman's Industries (P) Ltd v. New Kampore Flour Mills and Ors.
15. Mr. Nigam, the learned counsel appearing for the purchaser also contended that the workers were present on all hearings, therefore, no further consent from the workers was required after their formal impleadment on 1st September, 2005. It is also contended that the properties of the company could be sold even before winding up of the Company especially since it was agreed on 2nd February, 2005 by all concerned that despite the scheme for revival of the company, the properties of the company, unit 2 to 6 be put to sale. In support of his pleas and contentions the learned counsel relied on Saheb Khan Vs CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 16 of 36 Mohd . Yousufuddin & ors, (2006) 4 SCC 476; Valji Khimji & Company Vs Official Liquidator or Hindustan Nitro Product (Gujrat) Ltd. & ors., 2008 (11) SCALE 287; Yogesh Mehta Vs Custodian Appointed under the Special Court and ors., (2007) 2 SCC 624; Altos India Limited Vs Bharti Telecom Limited, (1994) 4Comp LJ 294 ( P & H) and Smt. Usha R.Shetty and ors. Vs Radeesh Rubber Pvt. Ltd., (1995) 84 Company Cases 602.
16. The learned counsel appearing for the workers union of the Kundli also contended that merely because the order of winding up was recalled, it cannot be contended by the applicants that the properties of the company could not be sold. The learned counsel Mr.Anil Nauriya has relied on (2005) 8 SCC 190, Rajasthan Financial Corporation v. Official Liquidator and (2008) 3 Com L.J 1 (SC), Bakeman's Industries Ltd Vs New Cawnpore Flour Mills & ors to contend that even before the winding up order, the assets of the company could be sold. The learned counsel also contended that the sale of five units of the company was on the basis of agreement recorded in order dated 2nd February, 2005 wherein it was specified that the sale will be de hors the scheme and it is for the purpose of early distribution of money to the workers and other creditors.
17. During the course of arguments, the learned counsel for the applicants had also contended that their clients want to raise their offer CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 17 of 36 to 100 crores. The learned counsel for the workers union regarding the alleged offer of Rs.100 crores has contended that there is no offer in writing of 100 crores and the price of about Rs.70 crores offered by the applicant (Shri Raj Kishan Goel) is only on account of interest factors. It was also contended that both the applicants have not given any EMD with their offers. Similar pleas have been raised in respect of the alleged offer of M/s Sidhartha Clutches Pvt. Ltd. The sale of the assets (5 units) of the company is also not challenged by the secured creditors.
18. I have heard the learned counsel for the parties in detail and have also perused the applications, their replies and various orders passed earlier by this Court. The learned counsel for the applicants have relied heavily on the Divya Manufcturing company (supra) for seeking setting aside of sale of five units of the company to M/s Morgan Venture Limited/purchaser on the ground that their offer is substantially higher and it will be in the interest of everyone to sell the assets at the higher price. In Divya Manufacturing Company Pvt Ltd (Supra) the Supreme Court had held that in case of fraud even after confirmation of the sale, it can be set aside because it is a well settled principle that fraud vitiates everything. On the facts of this case the Court was of the view that the confirmed sale deserved to be set aside. In this case it was held in the peculiar circumstances of the case that the bid ought not to have been confirmed of the said new bidders. In this case appellant D had offered Rs.37 lakhs to purchase the properties and at the intervention of the CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 18 of 36 Court, the price was increased from Rs.37 lakhs to Rs.1.3 crores. Though the offer made on 2nd July, 1998 was accepted and it was also ordered that the sale in his favour be confirmed but before the possession could be handed over and before the sale deed could be executed it was pointed out that the assets and the properties could be sold at Rs.2 crores and those persons who had offered Rs.2 crores to show their bonafides were directed to deposit Rs.40 lakhs each and also to pay Rs.70,000/- each as damages to the purchaser. The application for setting aside the sale was also filed within a few days of the order accepting the bid of the purchaser and in these circumstances, as the correct market value of assets was not properly known to the Court and the sale was confirmed on grossly inadequate price, it was held that it was open to the Court to set aside the sale in the interest of the company, its secured creditors and unsecured creditors and the employees. The case of the applicants is apparently distinguishable. In this case not only the possession has been given of some of the units, even the conveyance deeds in respect of some of the properties have also been executed. The applications for setting aside the sale has also not been filed within a short time after the confirmation of the sale but after considerable delay of more than a year.
19. The other judgment relied on by the applicants is also distinguishable. In Lica Pvt Ltd (Supra) the terms and conditions published before the sale included that the sale would be subject to such modification/alteration of the terms and conditions of the sale as may CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 19 of 36 deem fit and proper and the decision of the High Court was to be final and the High Court could set aside the sale in favor of the purchaser/purchasers even after the confirmation of the sale. The Company Judge in this case had rejected the offers made in the tenderers and in open auction, the price fetched was Rs.45 lakhs. The Supreme Court had directed the open auction of the same plot in an appeal. In the second open auction the appellant had become the highest offeror with an offer of Rs. 1.10 crores. In an appeal filed against the second auction, the division Bench directed the single judge to reconsider the matter and to conduct the auction sale again. In the appeal filed against the order of Division Bench directing reconsideration of the matter and for re-auctioning the assets, it was held that sale was subject to decision of the High Court, therefore, in the peculiar facts and circumstances, the order of the Division Bench directing reconsideration and re-auction of the assets was upheld.
20. The Supreme Court in Allahabad Bank (supra) had noticed that the valuation report had not disclosed that the land of the company was leasehold and consequently the creditors of the company could not raise objections that the sale price was low. In this case sale was advertised in three news papers out of which two were local news papers; no reserve price of the sale was fixed; offer of the highest bidder was not in accordance with terms and conditions of the of sale; no enquiries were made as to how many ex-employees who were out of employment for 7 to CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 20 of 36 8 years had secured other employment; the terms of payment were very liberal rather more liberal than were asked in the offer and considering these facts had set aside the sale. While setting aside the sale it was held by the Supreme Court that the Single Judge of the High Court passed the order in great haste without considering various matters. It was held that the best possible price having not been endeavored to be realized, in the interest of the creditors, interference by the Court was called for.
21. The ratio of these cases do not support the pleas of the applicants. The case of the applicants is distinguishable. The learned counsel for the applicants have referred to certain observation of the Supreme Court in the cases relied on, however, on the basis of same it cannot be held that they are in support of the pleas and contentions of the applicants. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in it. The ratio of any decision must be understood in the background of the facts of that case. It has been said long time ago that a case is only an authority for what it actually decides, and not what logically follows from it. It is well settled that a little difference in facts or additional facts may make a lot of difference in the precedential value of a decision. In P.S.Rao Vs State, JT 2002 (3) SC 1, the Supreme Court had held as under:
"There is always a peril in treating the words of judgment as though they are words in a legislative enactment and it is to be remembered that judicial utterances are made in setting CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 21 of 36 of the facts of a particular case. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusion in two cases.
In Rafiq Vs State, 1980 SCC (Crl) 946 it was observed as under:
"The ratio of one case cannot be mechanically applied to another case without having regard to the fact situation and circumstances obtaining in two cases."
22. The sale notice categorically stipulated that the five units of the company were to be sold. The bids were invited in two categories. In the first category consolidated bids in respect of all the five units were invited with the reserve price of Rs.43 crores and in the second category individual bids in respect of the five units were invited although no reserve prices for individual units were given. The sale notice also categorically stipulated that the tenderers had to satisfy themselves from appropriate authority about the duty and dues payable in respect of properties in question. The sale notice also stipulated inter se bidding amongst the tenderers in order to negotiate with all the tenderers to raise the offer. The Court also had reserved the right to receive tenders after the due date on such terms and conditions as were deemed fit and appropriate in the interest of the company.
CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 22 of 36
23. The sale proclamation was published in the Times of India daily as well as Financial Express. Though the sale notice was not published for 24th March, 2005, however, a bid from M/s.Balaji & Associates was received for Rs.43 crores and a sum of Rs.25 lakhs was deposited. The said bid was not considered initially as the sale proclamation was not published and fresh publication for 21st April, 2005 was ordered and on said proclamation being given wide publicity, five more bids were received for all five units and three bids were received for units 2, 3 & 4 respectively. Though before the bids were invited, the reserve price was fixed, however the assets to be sold, were not got valued. After the valuation was got done and objections to valuation were rejected, reserved price was not revised.
24. Before negotiation with bidders to raise their respective bids, two more bids of M/s S.R.Buildcon Pvt. Ltd. for Rs.43 crores and M/s Chaudhary & Sons (Forging) P. Ltd. for Rs.44.05 crores were received. From the perusal of the record, it also transpires that on 14th July, 2005 there was inter-se bidding between the bidders and one of the bidder namely M/s S.R.Buildcon Pvt. Ltd. wanted to raise his bid to Rs.50 crores and he had sought time which was granted. On 11th August, 2005 another bid of M/s AGM Management Service for Rs.50 crores was received and then inter-se bidding between the four bidders was done and highest bid of Rs.59,05,00,000/- was of M/s Balaji & Associates and second highest bid was of M/s R.N.Marwah for Rs.59 crores. On 11th CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 23 of 36 August, 2005 since the bid of M/s Balaji & Associates was the highest, they were directed to pay 25% of the bid amount within seven days and remaining 75% of the amount within 60 days. Though another bid of M/s AGM Management Service for Rs. 62.1 crores was received on 1st September, 2005, however, that was not pursued. On the same day the order dated 18th March, 2003 passed in CP No.539/1998 winding up the company was modified holding that the company was not wound up on 18th March, 2003 rather the petition has been admitted to hearing and the worker unions were also impleaded pursuant to the order of the Division Bench dated 22nd April, 2005.
25. This is no more res integra that accepted offer and the confirmed sale is not to be set aside lightly merely on account of higher offer received later on, as the same would result in no auction sale ever been completed because someone would be offering a higher amount after the auction. While considering whether the auction sale should be set aside or not, the higher offer offered should also be seen not to be marginal. The five units of the company have already been sold and in respect of some of them the conveyance deeds have already been executed. Though the sale deed stipulates that the conveyance is subject to the orders of this Court, however, this cannot be a ground for revoking the sale deeds already executed in favor of the purchaser, unless there is fraud or the sale price is extremely inadequate or it is not in the interest of secured creditors, workers and others to sell the properties of the company. For CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 24 of 36 this reliance can be placed on Valji Khimji & Co. (Supra) where the Supreme Court had set aside the order of the Single Judge and Division Bench setting aside the sale. In that case the valuation of the assets was done at Rs.2.55 crores and after wide publicity the bids were received and the highest bid was for Rs.3.51 crores which was accepted with the consent of the secured creditors. The purchaser had also complied with the directions to deposit the sale consideration. After the sale was confirmed the offers for Rs.3.75 crores and Rs.5 crores were received. The higher offers were, however, made more than one year after the sale was confirmed and the Apex Court relying on M/s.Kayjay Industries (P) Ltd v. M/s.Asnew Drums (P) Ltd, (1974) 10 SCC 213 had held that setting aside the sale after its confirmation will create huge problems. The Apex Court also held that 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 will themselves to be blamed if they do not come forward to bid at the time of auction. It was further held that such persons who come later on cannot ordinarily be allowed to offer a higher price on the plea that they could not take part in the auction earlier. The Supreme Court in M/s.Kajjay Industries (P) Ltd (Supra) in para 7 had held as under:-
" If court sales are too frequently adjourned with a view to obtaining a still higher price it may prove a self-defeating exercise, for industrialist will lose faith in the actual sale taking place and may not care to travel up to the place of CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 25 of 36 auction being uncertain that the sale would be at all go through."
26. In Kajjay Industries (P) Ltd (Supra) the assets of the company were sold in lots and while seeking setting aside of the sale, it was contended that all the assets were sold as scrap. Negating this plea it was held that whenever anyone goes to buy some property in an auction sale, the person proposing to bid always makes enquiries about the properties for which he is proposing to make the bid. It was held by the Apex Court that in all probabilities buyers inspect all the properties and assets before making bids and consequently it declined to set aside the sale. The case of the applicants is quite distinguishable.
27. The applicant (Shri Raj Kishan Goel) in the present case has also offered a marginal increase almost after one year. No plausible reason has been given as to why the applicants could not make the bid when they were invited for 21st April, 2005 after wide publicity of sale proclamation. The other applicant M/s Sidharth Clutches Pvt. Ltd. had revised his offer to 80.25 crores, however, no EMD was deposited nor any prayer was made to deposit the EMD. From the valuation of the properties which have been auctioned it cannot be inferred that the properties were sold at inadequate price. The offer of 80.25 crores almost after two years could also be on account of various factors. Yet another affidavit during the arguments was filed on 7th November, 2008 of Shri CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 26 of 36 Satyaprakash son of Shri Lakhu Singh alleging him to be an authorized signatory of the applicant company by an alleged resolution dated 30th October, 2008. However, neither any copy of the alleged resolution has been filed nor any other documents has been filed to show that the said applicant company has taken a decision to offer a price of Rs.100 crores and the alleged person is the authorized representative for the purpose. Mere filing of an affidavit without any EMD or prayer to deposit the amount of EMD cannot be construed to be a proper offer requiring consideration. The applicant Sh.Raj Kishan Goel has also not disclosed as to why he encashed the draft of Rs.7 crores within few days after getting the same from the bank. He did not deposit any EMD nor took any steps to take permission to deposit the EMD. If the bids of bidders for the inter se bidder auction could not be considered without the EMDs, the alleged bids after the sale of the assets and confirmation of sale, should not be considered without EMDs. In case the sale is to be set aside, the purchaser will be entitled to interest on the sale consideration which was deposit by him almost three years back. If one takes this factor and other relevant factors into consideration, the price offered by the applicants is not very high compared to the price at which the assets were sold. If the secured creditors and workers who have preferential charge on the assets of the company are not supporting the plea of the applicants, it will not be appropriate to set aside the sale and accept the offers of the applicants. The allegations made by the CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 27 of 36 applicants are bald and cannot be the basis for setting aside the sale in the facts and circumstances.
28. The Apex Court in the case of Saheb Khan (Supra) had held that merely establishing a material irregularity or fraud will not be sufficient for setting aside the sale. It was held that for seeking setting aside the sale, the applicant must go further and establish to the satisfaction of the Court that the material irregularity or fraud has resulted in substantial injury to the applicant. Relying on Dhirendra Nath Gorai v. Sudhir Chandra Ghosh, (1964) 6 SCR 1001; 1991 Suppl.(2) SCC 691, Jaswantlal Natwarlal Thakkar v. Sushilaben Manilal Dangarwala and (2000) 3 SCC 87, Kadiyala Rama Rao v. Gutala Kahna Rao it was held that even if the applicant seeking setting aside the sale has suffered substantial injury by reason of the sale, this could not be sufficient to set aside the sale, unless substantial injury has been occasioned by a material irregularity or fraud in publishing or conducting the sale. The Supreme Court in paras 13 and 14 on page 480 had held as under:_ "13. Therefore before the sale can be set aside merely establishing a material irregularity or fraud will not do. The applicant must go further and establish to the satisfaction of the court that the material irregularity or fraud has resulted in substantial injury to the applicant. Conversely even if the applicant has suffered substantial injury by reason of the sale, this would not be sufficient to set the sale aside unless substantial injury has been occasioned by a material irregularity or fraud in publishing or conducting the sale. (See Dhirendra Nath Gorai v. Sudhir Chandra Ghosh (1964) 6 SCR 1001; Jaswantlal Natvarlal Thakkar v. Sushilaben Manilal Dangarwala 1991 Supp (2) SCC 691 and Kadiyala Rama Rao v. Gutala Kahna Rao (2000) 3 SCC 87.) CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 28 of 36
14. A charge of fraud or material irregularity under Order 21 Rule 90 must be specifically made with sufficient particulars. Bald allegations would not do. The facts must be established which could reasonably sustain such a charge. In the case before us, no such particulars have been given by the respondent of the alleged collusion between the other respondents and the auction-purchaser. There is also no material irregularity in publishing or conducting the sale. There was sufficient compliance with Order 21 Rule 67(1) read with Order 21 Rule 54(2). No doubt, the trial court has said that the sale should be given wide publicity but that does not necessarily mean by publication in the newspapers. The provisions of Order 21 Rule 67 clearly provide if the sale is to be advertised in the local newspaper, there must be specific direction of the court to that effect.'
29. In the present case the applicants are unable to show any material irregularity or fraud in conducting the sale except making a wild allegation that successful and unsuccessful bidders had formed a coterie. The sale proclamation was given wide publicity pursuant to which five bids were received in respect of all the units and three bids were received for three individual units. Although there was no valuation of the properties on the date the sale notice was issued, however, the reserved price was fixed at Rs.43 crores. On noticing that there was no valuation of the assets got done, in order to ascertain whether the reserve price quoted in the sale proclamation was correct or not, the assets which were to be sold were got valued. The objections against the valuation by the workers unions were rejected after consideration. On the basis of the valuation got done it could not be said that the reserve price of Rs.43 crores did not commensurate with the value of the properties. Even after getting the valuation done, more bids were received and there was inter se bidding between the bidders. On inter se CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 29 of 36 bidding the bid of M/s Balaji & Associates was the highest and that of M/s R.N.Marwah & Co. was the second highest. The sale consideration as directed by the Court was not deposited by the highest bidder M/s Balaji & Associates despite time given and despite recording the undertaking of one of the partner. The highest bidder later on sought more time on 20th October, 2005 which was declined and the bid of M/s R.N.Marwah & Co for Rs.59 crores was accepted. When the bid was accepted the secured creditors and the workers union were present and they did not object. The workers union is still opposing the pleas of the applicants seeking setting aside of sale and acceptance of their bid. Though a reply dated 2nd November, 2007 was filed on behalf of Dena Bank stipulating that the sale in favor of M/s Morgan Ventures Ltd. Be set aside and the official liquidator be directed to take back the possession of the units sold to them, however, during the arguments on various dates the counsel for the Dena Bank has not supported the pleas of the applicants for setting aside the sale and acceptance of their bids. The purchaser had also taken a plea that he has entered into various agreements in respect of the properties purchased by him. In reply dated 12.11.2007 by the Dena Bank to an application being CA no. 1092 of 2007 of the applicants seeking restrain against the purchaser, it has been admitted in para 2 that the purchaser has entered in to various agreements in respect of various moveable properties of the units purchased by him.
CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 30 of 36
30. The applicants in order to get the sale set aside not only has to plead the material irregularity or fraud but also has to establish the same. The applicants also have to establish substantial injury to them on account of material irregularity and fraud. Except making the bald allegation that a coterie was formed between the unsuccessful and successful bidders, there are no material averments regarding material irregularity or fraud nor they have been established on record. The applicants have also failed to show any substantial injury caused to them. The workers unions have not supported the plea of the applicants. During the arguments, the learned counsel for the Bank has also not supported the plea of the applicants. Nothing has been argued in support of the pleas of the applicants on behalf of the company in liquidation. If there could be substantial injury it could be to the secured creditors and the worker unions and not to the applicants in the facts and circumstances. Rather pendency of the applications has resulted into non distribution of the sale consideration which may have caused some injury to the secured creditors and the worker unions. In the circumstances on the pleas and contentions of the applicants that they could not take part in the auction as they were not aware and they came to know about the sale of the assets of the company later, the sale in favor of the nominee of the second highest bidder namely M/s R.N.Marwah & Co. should not be set aside.
CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 31 of 36
31. In the present facts and circumstances, it also cannot be disputed that the sale of five units of the company was by the Court and not by the Official Liquidator as pursuant to sale proclamation, the bids were invited, opened and inter se bidding was also done in the Court and after giving reasonable opportunity to the highest bidder and on his failure to deposit the sale consideration in terms of sale proclamation, the second highest bid was accepted and the sale was confirmed at the request of second highest bidder in favor of his nominee and the amount was paid in compliance with the order passed by the Court. The order dated 25th July, 2006 although stipulated that Official Liquidator shall confirm the sale in favor of M/s.Morgan Ventures Ltd, however, what was meant was that the formalities for the sale be completed by the Official Liquidator which fact has been reiterated by the Court by its order dated 22nd November, 2006 categorically holding that the sale was confirmed in favor of M/s Morgan Ventures Ltd on 25th July, 2006 by the same Hon'ble Judge. The sale had not been objected to by anyone is also apparent from the order dated 22nd November, 2006, as it was held that the auction of the properties has not been questioned and, therefore, the leading bank, Dena Bank had requested for deposit of sale consideration in Dena Bank in place of Punjab National Bank. In the circumstances, the plea of the applicants that the Court had delegated its power to confirm the sale to the Official Liquidator is not borne out from the facts and circumstances of the case. The sale was done by the Court and, therefore, it was not to be confirmed by either Official Liquidator or CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 32 of 36 someone else. In Yogesh Mehta (Supra) the confirmation of the sale by a special Court was a provisional one subject to the orders of the Supreme Court. It was held that where the sanctioning authority is Court itself and the confirmation of sale was not subject to approval from some other authority, acceptance of the sale itself would amount to sanction thereof.
32. The applicants have also sought setting aside of the sale in favor of purchaser on the ground that on the date the assets of the company were sold, the company had not been wound up and, therefore, its assets (five units) could not be sold. In a case where a company is unable to pay its debt or liabilities, the Company Court can orders sale of assets of the company prior to winding up order. In Altos India Ltd. (supra), the Division Bench of Punjab & Haryana High Court had held that in order to protect the interest of its creditors, even prior to winding up, the assets of the company can be sold. The contention on behalf of respondent company in that case that it would be appropriate to sell the unit only after the company had been actually wound up was not accepted. The Division Bench had held that there is hardly any difference between the present status of the company when the provisional Liquidator of the Company has been appointed and the status of the company after it is actually wound up. In Bakemen Industries Pvt. Ltd. (supra), the Supreme Court had negated the plea that the Provisional Liquidator does not have statutory powers regarding effecting the sale of movable and immovable properties of the company. CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 33 of 36 It was held that subject to direction of the Court, while the company is undergoing the process of winding up, sale of the assets of the company can be ordered. The Supreme Court had held that the power and the function of the Provisional Liquidator for all intents and purport would be the same as that of the Official Liquidator and, therefore, it was not necessary for the Company Judge to wait till the company was wound up. The jurisdiction of the Company Court is vast and wide and it can mould its relief and it can exercise one jurisdiction or the other and can grant a variety of reliefs to the parties before it. The Supreme Court on page 35 in paragraph 63 had held as under:-
"63. The High Court, therefore, could not have ignored the official liquidator only on the ground that a provisional liquidator was appointed and not a regular official liquidator. The power and functions of the provisional official liquidator for all intent and purport would be the same as that of the official liquidator and, therefore, it was not necessary for the Company Judge to wait till the Company was wound up."
33. The decision to sell five units of the company was taken de hors the scheme and for the purpose of early distribution of the money to the workers and other creditors which was recorded by the Court in its order dated 2nd February, 2005. The matter regarding OTS was considered on 24th March, 2005 it was clarified again on 21st April, 2005 that the sale would proceed in accordance with the order dated 2nd February, 2005. Perusal of the Rule 272 of the Company (Courts) Rules and Section 457 of the Company Court also shows that there is no embargo against the provisional liquidator to sell the properties of the company pursuant to CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 34 of 36 the orders of the Court prior to actual winding up of the company. The winding up order has still not been passed and if the contention of the applicants is accepted, then even their offers cannot be accepted. In any case, the applicants are offering marginal higher price for the five units of the company taking into consider all the facts and circumstances. The secured creditors and worker union are also not supporting the plea of the applicants to set aside the sale and acceptance of their bids. For the foregoing reasons, therefore, it cannot be held that the Court was not competent to sell the five units of the company in the facts and circumstances of the present case. For the foregoing reasons it will be not in the interest of the company to set aside the sale in favor of the purchaser, M/s Morgan Venture Limited.
34. Therefore, considering all the facts and circumstances and for the foregoing reasons, the applications by Shri Raj Kishan Goel (CA No.491 of 2007) and M/s.Siddhartha Clutches Pvt. Ltd. (CA No.710 of 2007) seeking setting aside of sale and acceptance of their offer of Rs.70.00 crores and of Rs.80.25 crores are without merits and cannot be appected nor the sale in favor of purchaser who had deposit the sale consideration almost three year back and whose sale had been confirmed about two years back cannot be set aside. The applications of the applicants are therefore, liable to be dismissed.
CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 35 of 36
35. These applications are, therefore, dismissed. Considering the facts and circumstances, the applicants are also burdened with cost of Rs.20,000/- each.
JANUARY 06, 2008. ANIL KUMAR J.
'k' CA Nos.491/2007 & 710/2007 in CP 539/1998 Page 36 of 36