VEDICA PROCON PRIVATE LIMITED Vs BALLESHWAR GREENS PRIVATE LIMITED .
Bench: J. CHELAMESWAR,ABHAY MANOHAR SAPRE
Case number: C.A. No.-006165-006165 / 2015
Diary number: 2423 / 2015
Advocates: DIKSHA RAI Vs
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Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6165 OF 2015 (Arising out of Special Leave Petition (Civil) No.2198 of 2015)
Vedica Procon Private Limited ... Appellant
Versus
Balleshwar Greens Private Limited & Others … Respondents
WITH
CIVIL APPEAL NO. 6166-6167 OF 2015 (Arising out of Special Leave Petition (Civil) Nos.10148-10149 of 2015)
Vedica Procon Private Limited ... Appellant
Versus
Balleshwar Greens Private Limited & Others … Respondents
J U D G M E N T
Chelameswar, J.
1. Leave granted.
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2. 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. The Official Liquidator attached to the Gujarat High
Court was appointed as the Liquidator of the said company.
3. By order dated 26.3.2013, the official liquidator was directed
to put the freehold land of the company admeasuring 13895 sq.
mtr. 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 earnest money deposit
(EMD) at 10% thereof.
4. Tender Notice (containing the terms and conditions of sale)
inviting offers from the prospective purchasers in sealed covers was
widely published. 11 prospective purchasers responded to the
notice. On 17.12.2013, an auction was held in the open court.
After inter-se bidding of 12 rounds, the appellant in Civil Appeal
arising out of SLP (Civil) No.2198 of 2015 [“Vedica Procon Private
Limited”, hereinafter referred to as “the appellant”) became the
highest bidder with an offer of Rs.148 crores1 –whereas the first
1 In order of the High Court dated 17.12.2013, it is recorded as follows:
7. In view of the aforesaid, it transpires that M/s Vedia Procon Pvt. Ltd. being the highest bidder, has offered Rs.148 Crores (Rupees One Hundred Forty Eight Crores) for the land admeasuring 13895 Sq. Mtrs. Approx. situated at T.P. No.18 of F.P. No.32/P, bearing Survey No.25, 27/B/1, 31, 38, Moje Rajpur Hirpur, Outside Raipur Gate, behind New Cloth Market, Opp. Hirabhai Market, Diwan Ballubhai Road, Raipur, Ahmedabad.
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respondent (Balleshwar Greens Private Limited) in the
abovementioned SLP made the second highest bid. The High Court
accepted the bid of the appellant.
5. 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.
6. On 19.12.2013, the official liquidator addressed a letter to the
appellant referring to the order dated 17.12.2013 of the High Court
and informed the appellant as under:
“With reference to the subject cited above, I have to state that pursuant to order dated 17.12.2013 passed by the Hon’ble High Court of Gujarat in Official Liquidator Report No.43 of 2013, the sale of Freehold land of the company in Liquidator (sic liquidation) admeasuring 13895 sq. mtrs. approx. at T.P. No.18, F.P. No.32/P, bearing Survey No.25, 27-B/1, 31, 38, Moje Rajpur – Hirpur, Outside Raipur Gate, behind New Cloth Market, Opp. Hirabhai Market, Diwan Ballubhai Road, Raipur, Ahmedabad is confirmed in your favour for Rs.148 Crores. A copy of said order is enclosed herewith for your ready reference and perusal. In this connection, you are requested to deposit sale proceed 25% i.e. Rs.37.00 Crores on or before 16.02.2014 and balance remaining 75% i.e. Rs.106.50 Crores on or before 16.04.2014, after adjusting Rs.4.50 Crores behind EMD in final payment of sale proceed. You are, therefore, requested to kindly deposit the
8. Ms. Amee Yajnik, learned counsel for the Official Liquidator, Mr. D.S. Vasavada, learned counsel for respondent No.6 – Union, Mr. U.R. Bhatt, learned counsel for respondent No.1 – State Bank of India and Mr. Anip Gandhi, learned counsel for the ARCIL, have expressed that the bid of M/s. Vedica Procon Pvt. Ltd. may be accepted.
9. In view of the above discussion, the bid of M/s. Vedica Procon Pvt. Ltd. being the highest bidder, who has offered Rs.148 Crores for the land mentioned in the tender notice deserves to be accepted and is hereby accepted as per the tender conditions on as is where is basis and whatever there is basis.
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sale proceed with this office, within stipulated time given by the Hon’ble High Court of Gujarat in terms of order dated 17.12.2013 and Tender document.”
[emphasis supplied]
7. Pursuant to the said letter, the appellant deposited on
06.01.2014 an amount of Rs.37 crores being 25% of the purchase
price by Demand Draft drawn on ICICI Bank.
8. By letter dated 09.1.2014, the first respondent requested the
official liquidator to refund its earnest money deposit. The relevant
portion of the letter reads as follows:
“5. As per condition no.29 of Tender Document, the EMD of second highest bidder i.e. Baleshwar Greens Pvt. Ltd. was to be returned after 25% of the sale consideration is deposited by the successful bidder.
6. We have come to know that successful bidder M/s. Vedia Procon Pvt. Ltd. has deposited 25% of the sale consideration in the office of Official Liquidator.
7. Therefore we hereby request you to kindly refund our EMD of Rs.4.5 Cr and late fees of Rs.23.5 lakhs at the earliest.
[emphasis supplied]
9. Admittedly, the EMD of the first respondent was returned.
10. On 16.01.2014, the appellant informed the official liquidator
that they had deputed security persons to “protect the possession”
of the property in question for various reasons detailed in the said
letter. In response, the official liquidator by its letter dated
24.01.2014 informed the appellant inter alia as follows: 4
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“Besides this it is brought to your notice that the office of the Official Liquidator has already deployed security at the mills premises of the company in Liquidation. However, keeping in view the facts and apprehension stated by you in the aforesaid letters, if you so desire, you can post your security outside the premises purchased by you to protect your interest and avoid the possibility of any casualty under the control and supervision of the security posted by official liquidators office at your risk, cost and consequence in addition to existing security arrangement made by this office.”
11. On 25.03.2014, the appellant filed an application before the
High Court seeking extension of time to deposit the balance
consideration of Rs.106.5 crores. The said application was allowed
after hearing the secured creditors, by an order dated 31.03.2014,
extending the time for payment up to 31.07.2014. However, the
appellant deposited the entire balance amount of Rs.106.5 crores
on 16.04.2014 without availing the benefit of the extended time by
the order of the High Court (referred to supra). The said fact is
acknowledged by the official liquidator in his letter dated
16.04.2014 calling upon the appellant to take over the possession
of the said land on 17.04.2014 at 11.30 am in presence of the
representatives of the official liquidator. The relevant portion of the
letter reads as follows:
“Accordingly, you have deposited the entire full sale consideration i.e. Rs.148.00 Crores with this office. In this connection, you are requested to depute your authorized representative at freehold land admeasuring 13895 Sq. Mtrs. Approx. situated at T.P. No.18, F.P. No.32/p, bearing Survey
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No.25, 27-B/1, 31, 38 Moje Raipur-Hirapur, Outside Raipur Gate, behind New Cloth market, Opp. Hirabhai market, Diwan Ballubhai Road, Raipur, Ahmedabad for taking over possession of the said land on 17.04.2014 at 11.30 am,when the representatives of this office will remain present for handing over possession of the said land to you, in terms of order dated 17.12.2013 passed by the Hon’ble High Court of Gujarat in Official Liquidator Report No.43 of 2013.”
[emphasis supplied]
12. The first respondent preferred OJ Appeal No.9/2014 against
the order dated 31.03.2014 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 crore for the land in question and also
offered to deposit the said amount within 72 hours.
13. On 17.04.2014, a possession memo was drafted purporting to
handover the property in question. It appears from the copy of the
said possession memo that it was signed by two UDC officials of the
Official Liquidator by name S.R. Meena, STA and C.G. S. Karki and
one Ganesna Venkataramana on behalf of the appellant. The first
respondent disputes the fact that the possession of the property in
question was infact delivered to the appellant herein. However,
the Division Bench of the High Court by the impugned order found
no substance in the objection of the first respondent:
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“... Though it is disputed by the present application, the record reveals that on 17.4.2014 when O.J. Appeal No.9 of 2014 came to be heard and disposed of by the Division Bench of this Court, the Official Liquidator handed over the possession of the lands in question to opponent No.9. However, it is an admitted position that the sale deed is not executed. ...”
14. The first respondent’s appeal (OJ Appeal No.9/2014) was
disposed of by an order2 dated 17.04.2014 by issuing directions.
The substance is:
1. That the first respondent herein would move an application before the learned Company Judge showing his desire “to apply afresh for the bid”;
2. That the parties are directed to maintain status quo till such a period;
3. The respondent herein is directed to handover a DD of Rs.160 crores to the Deputy Official Liquidator;
4. That it would be open to the learned Single Judge to decide the application of the respondent herein (if made) on merits.
2 1. The appellant before us will move before the learned Company Judge within a period of one week with an appropriate application showing his desire to apply afresh for the bid, as according to Mr. Trivedi, the order dated 17.12.2013 is not finalized and it still requires confirmation of the learned Single Judge. Be that as it may, if the application is not made within one week, the benefit of this order will not ensure for the benefit of present appellant. The parties are directed to maintain status-quo till the appellant files an application before the learned Single Judge and the learned Company Judge shall decide the question of interim relief on merits.
2. The appellant shall handover the Demand Draft of Rs.160 crores to Mr. R.C. Mishra, Deputy Official Liquidator, who is present in the Court, today itself. The Deputy Official Liquidator has accepted it and shall pass the receipt of the same to the present appellant. The Official Liquidator shall see that the amount is kept in Fixed Deposit at least for one month so that there is no loss of interest.
3. It goes without saying that we have not entered into the merits of the matter and the deposit of Rs.160 crores with Official Liquidator is without prejudice to the rights and contentions of the parties and we have adopted this only because of the view expressed by the Apex Court in the case of Shradhha Aromatics Private Limited (supra).
4. It goes without saying that once the application is made, it will be open for the learned Single Judge to decide the same on merits. The status-quo thereafter will be subject to the order which may be passed by the learned Single Judge after hearing the parties.
5. The order dated 31.03.2014 passed in Misc. Civil Application No.53 of 2014 by the learned Company Judge is interfered with to the above extent only.
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15. In order to complete the narration of facts, it may be
mentioned herein that the appellant herein moved a review
application Misc. CA No.90 of 2014 O.J. Appeal No.9 of 2014 before
the Division Bench of the High Court which was partly allowed
making some minor modification in the order dated 17.04.2014, the
details of which may not be relevant for our purpose.
16. Pursuant to the order dated 17.04.2014, the first respondent
moved an application OJMCA 89 of 2014 seeking recall of the order
dated 17.12.2013 on various grounds. The said application was
allowed by an order dated 11.08.2014. By the said order, the
learned Single Judge had set-aside the sale made in favour of the
appellant herein on 17.12.2013 and ordered the return of the
amount already paid by the appellant. The learned Single Judge
also directed a fresh auction of the property in question. He also
directed the first respondent to pay an amount of Rs.25 lakhs to the
appellant herein.
17. Aggrieved by the order dated 11.08.2014, the appellant carried
the matter to the High Court in O.J. Appeal No.36 of 2014 which
was dismissed by the Division Bench vide order dated 04.12.2014.
The said order is the subject matter of SLP (Civil) No.2198 of 2015. 8
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The appellant also chose to prefer SLP (Civil) No.10148-10149 of
2015 against the order dated 17.04.2014 passed in O.J. Appeal
No.9 of 2014 as modified vide order dated 22.04.2014 passed in
Review Application (Misc. Civil Application No.90 of 2014).
18. The order dated 17.04.2014 of the Division Bench of the High
Court is passed in appeal (OJA No.9 of 2014) preferred by the first
respondent against the order dated 31.03.2014 with leave of the
Division Bench. The only ground on which the respondent
challenged the order of the learned Single Judge granting extension
of time in favour of the appellant herein for depositing the balance
sale consideration was that the first respondent had been deprived
of making a better offer. According to the first respondent, he
believed that the appellant herein would faithfully comply with the
tender conditions and the earlier order of the Court in terms of
which the appellant was bound to deposit the entire sale
consideration on or before 16.01.2014. If only the respondent had
known that the time schedule for the payment of sale consideration
is flexible even the respondent would have offered price higher than
what had been offered (Rs.148 crores) by the appellant.
19. The Division Bench without examining or recording any
finding in regard to the tenability of the submissions made by the 9
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respondent chose to dispose of the matter with certain directions
which are already extracted in the earlier part of this judgment.
The reason given by the Division Bench for such an order is that
the Division Bench has adopted such a course of action in view of
an earlier decision of this Court in Shradhha Aromatics Private
Limited v. Official Liquidator For Global Arya Industries
Limited & Others, (2011) 6 SCC 207.
20. The Division Bench recorded the submission made by the first
respondent that by order dated 17.12.2013, the Company Judge
accepted only the offer of Rs.148 crores made by the appellant
herein but no order of confirmation of sale was made. But the
Division Bench did not record any finding whether such a
submission was accepted or not. From the order, it appears that
the Division Bench was greatly influenced by the fact that the first
respondent was willing to enhance the bid to Rs.160 crores.
21. From direction No.3 contained in the order, it is clear that the
Division Bench did not adjudicate the rights of the respective
parties. At the cost of repetition, we reproduce direction No.3 as
under:
“3. It goes without saying that we have not entered into the merits of the matter and the deposit of Rs.160 crores with Official Liquidator is without prejudice to the rights and
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contentions of the parties and we have adopted this only because of the view expressed by the Apex Court in the case of Shradhha Aromatics Private Limited (supra).”
[emphasis supplied]
A procedure which is not very desirable. It is inconsistent with the
principle that the judicial process and adjudication demand
certainty and finality.
22. Pursuant to the abovementioned direction of the Division
Bench, the learned Company Judge, on an application filed by the
first respondent, by his order dated 11.08.2014, recalled the order
dated 17.12.2013 and set aside the sale made in favour of the
appellant. When the said order was challenged by the appellant
herein before the Division Bench of the High Court, the same was
dismissed by the impugned judgment.
23. It is interesting to notice that the respondent in its application
took various grounds (for setting aside the order dated 17.12.2013
of the Company Judge) other than the ground which the respondent
pleaded in its earlier appeal OJA No.9 of 2014. This time the
respondent pleaded:
1. That there was a change in the share-holding
pattern of the appellant company which amounted
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to the violation of condition no.31 of the tender
notice which provided that the nomination would
not be allowed by the successful bidder;
2. That by virtue of a subsequent event the value of
the land in question was likely to fetch a much
higher price than the price at which the property
was sold on 17.12.2013. The event being the
revision of certain regulations (the Gujarat Town
Planning and Urban Development Act, 1976)
whereby the Floor Space Index (FSI) for
construction applicable to the area in which the
property in question is located had been increased
from 1.0 to 1.8. In other words, in view of the
revised regulations, it would be open to construct a
much larger built up area on the property in
question than what was permissible as on
17.12.2013.
24. Two factors weighed heavily before the Company Judge for
recalling the earlier Order dated 17.12.2013 by his Order dated
11.8.2014. They are: (i) by a notification dated 04.03.2014 of the
Government of Gujarat, the FSI applicable to the area in which the 12
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land is located is increased from 1.0 to 1.8. As a consequence, the
value of the property in question increased considerably, (ii) that
during the pendency of the recall application, the first respondent
herein, who had already deposited an amount of Rs. 160 crores as a
condition precedent for filing the recall application, further
enhanced his offer by another Rs. 40 crores, pursuant to the order
of the Company Court dated 9.5.2014 and deposited the said
amount, and it appears that the respondent agreed to further
enhance the offer by another Rs.14 crores, making it a total of Rs.
214 crores.
25. In view of the above-mentioned two facts, the High Court
recorded the conclusion that the Company Judge’s order dated
17.12.2013 (accepting the bid of the appellant herein of Rs. 148
crores) is vitiated (i) by an irregularity inasmuch as the Company
Judge failed to take note of the potential value of the land and the
possibility of its fetching a higher price than Rs. 148 crores, (ii) the
bid of the appellant herein of Rs. 148 crores was an inadequate
price to the property in question, (iii) because of the failure of the
company court to discharge its obligation (as custodian of the
properties of a company in consideration) to secure the best price
possible, when the assets of the company in liquidation are sold, (iv)
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when the facts and circumstances indicate that the property in
question is in fact capable of securing a much higher price, the sale
of the property at a lesser price also resulted in an injury to the
interest of various stakeholders who are entitled for the distribution
of the proceeds of the sale of the assets of the company in
liquidation.
26. The learned counsel for the appellant submitted that the
impugned order is untenable for the following reasons:-
(i) That the offer of Rs. 148 crores made by the appellant and
accepted by the Company Court was the best price for the land
having regard to the facts and circumstances as they existed on
that date of the order i.e. 17.12.2013. The fact that some two and
a half months later (on 4.3.2014), the Government of Gujarat
decided to increase the FSI which resulted in increase in the value
of the land in question can legally never be a relevant consideration
for determining the regularity and the legality of the order dated
17.12.2013, (ii) the Division Bench chose to recall the order dated
17.12.2013 on erroneous logic and recorded an untenable
conclusion:
“….However, it is required to be noted that the averments in the application before the learned Company Court by respondent No. 1
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herein – original applicant that everybody was aware of change/increase in FSI, but it was not brought to the notice of the learned Company Court, considering the submissions made by the appellant before the learned Company Court recorded in the impugned order, it does not appear that the aforesaid was disputed by the appellant. As observed herein above and even at the cost of repetition it is to be noted that the learned Company Court has recalled its earlier order dated 17.12.2013 accepting the higher offer of the appellant of Rs. 148 crores and the relevant factors like potential development of the land were not considered which had a direct bearing on the determination of the market price….”
27. The learned counsel argued that the submission made by the
first respondent herein that everybody knew the fact which was not
in existence as on 17.12.2013 could not have been accepted by the
High Court on the ground that the appellant herein did not
specifically dispute the same. Such a logically absurd submission
was made and the first respondent made no effort to prove such an
assertion though in law the burden of proving such an assertion
lies on the maker of such assertion.
28. The learned counsel submitted that assuming for the sake of
argument that the conclusion recorded by the Division Bench is
legally tenable, such a conclusion is based on the plea of the
respondent herein that “everybody was aware of the
change/increase in FSI, but it was not brought to the notice of the
learned Company Court……” necessarily implies that even the first
respondent herein was aware of it and he also failed to bring that
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fact to the notice of the Company Court. Obviously, the only
inference that can be drawn from the conduct of such respondent is
that it would disentitle the respondent to seek any remedy from the
court.
29. It is further submitted that the conduct of the respondent in
writing to the official liquidator on 9.1.2014 claiming the refund of
his EMD without indicating even at that stage that the land in
question is more valuable than Rs. 148 crores and that the first
respondent was willing to make a higher offer would only go to show
that all the allegations made in the recall application are tailor
made to suit the convenience of the respondent in view of the
increase in the FSI and the consequential escalation of the price of
the property in question.
30. The learned counsel argued that no doubt the subsequent
events made the property in question more valuable, but such
subsequent events are wholly irrelevant in determining either the
adequacy of the bid made by the appellant on the relevant date or
the regularity and legality of the order dated 17.12.2013 of the
Company Judge in assessing the injury to the stakeholders.
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31. In the alternative, it is submitted on behalf of the appellant
that in the absence of any plea and proof that sale was vitiated by
fraud, the inadequacy of consideration especially when none of the
stakeholders in the company liquidation raised such an objection
on 17.12.2013 can never be a ground for recalling an order of
accepting the highest bid at the instance of an unsuccessful bidder
on a subsequent date on the ground that on a subsequent date
such unsuccessful bidder is willing to offer higher price. Approving
such course of action would denude the proceedings of a court of
law and the sales undertaken in the course of judicial proceedings,
of all element of certainty and finality. Such uncertainty would be a
disincentive for genuine prospective purchasers. It adversely affects
the possibility of attracting best offers in court sales and would be
detrimental to the public interest
32. On the other hand, it is argued by the learned counsel for the
first respondent that (i) the substantial hike in the offer made by
the first respondent (Rs.66 crores) is a relevant factor as the benefit
of such enhanced price would go to all the stakeholders in the
company in liquidation. Therefore, the High Court rightly recalled
the order dated 17.12.2013. (ii) by the impugned order, the first
respondent is not going to get the property in question, but it only
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throws open for everybody an opportunity to participate in the fresh
auction to be conducted; (iii) the property would still be sold to the
highest bidder, (iv) but in the process all the stakeholders would be
benefited. Therefore, the impugned order calls for no interference.
33. It is also submitted on behalf of the first respondent that there
is no confirmation of the sale in favour of the appellant herein
though the order dated 17.12.2013 recorded that the highest bid by
the appellant is accepted by the Court. Acceptance of the bid is
different from confirmation of the sale. Confirmation of sale
requires an active application of mind by the court to ensure that
there is no irregularity in the conduct of the sale and the price
fetched is the best price for the value of the property. It is also
argued on behalf of the respondent that the company court being
the custodian of the property of the company in liquidation, should
always make an endeavour to secure the best price for the property
put to sale in order to give maximum benefits to all the stake
holders who are entitled for the distribution of sale proceeds of the
assets of the company in liquidation.
34. In support of the submission that a concluded sale in an
auction by the court cannot be reopened except on the ground of
fraud, learned counsel for the appellant relied upon a judgment of 18
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this Court reported in Valji Khimji & Company v. Official
Liquidator of Hindustan Nitro Product (Gujarat) Limited &
Others, (2008) 9 SCC 299. It was a case where the properties of a
company in liquidation were put to sale in an auction. In the said
auction, the highest bid was Rs.3.51 crores which was accepted by
the court and the sale was confirmed. The court directed the
auction purchaser to pay the consideration in certain instalments.
Some two and a half months later, a third party sent a letter to the
official liquidator offering a higher amount of Rs.3.75 crores.
Almost a year later, another party offered an amount of Rs.5 crores.
Subsequently, both the parties approached the Company Judge
seeking a recall of the order of confirmation of the sale. Such
application was allowed by the Company Court. The auction
purchaser unsuccessfully carried the matter in an intra court
appeal and finally landed up in this Court. This Court allowed the
appeal upholding the order confirming the sale. This Court held:
“11. It may be noted that the auction-sale was done after adequate publicity in well-known newspapers. Hence, if anyone wanted to make a bid in the auction he should have participated in the said auction and made his bid. Moreover, even after the auction the sale was confirmed by the High Court only on 30.7.2003, and any objection to the sale could have been filed prior to that date. However, in our opinion, entertaining objections after the sale is confirmed should not ordinarily be allowed, except on very limited grounds like fraud, otherwise no auction-sale will ever be complete.”
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35. On the other hand, learned counsel for the first respondent
relied upon decisions of this Court in Navalkha & Sons v. Sri
Ramanya Das & Others, (1969) 3 SCC 537, Divya
Manufacturing Company (P) Ltd. v. Union Bank of India &
Others, (2000) 6 SCC 69, FCS Software Solutions Ltd. v. LA
Medical Devices Ltd. & Others, (2008) 10 SCC 440, Shradhha
Aromatics Pvt. Ltd v. Official Liquidator for Global Arya
Industries Limited & Others, (2011) 6 SCC 207 and Manoj I
Naik & Associates v. Official Liquidator, (2015) 3 SCC 112.
36. In Navalkha & Sons v. Sri Ramanya Das & Others, (1969)
3 SCC 537, certain moveable and immovable properties of a
company in liquidation were brought to sale. The Company Court
directed the sale to be conducted by three persons jointly appointed
as Commissioners for the conduct of sale. The sale was conducted.
The appellant before this Court was the only offeror. The offer was
accepted by the Commissioners. The Commissioners made an
application to the Company Court for the confirmation of sale. At
that stage, a third party made an application claiming that he was
willing to offer a higher price. The Company Court then decided to
put the property once again for auction but only between the
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original offeror and the objector. In such a process, the original
offeror once again became the highest bidder. That bid was
accepted by the Company Judge. At that stage, another third party
came forward objecting to the procedure adopted by the High Court
for confining the auction only between the two parties without any
fresh advertisement. Such an objection was rejected by the
Company Judge. Aggrieved by the same, the objector carried the
matter in an intra court appeal to the Division Bench successfully.
Hence the appeal before this Court by the original offeror. This
Court dismissed the appeal approving the view of the Division
Bench that the procedure adopted by the learned single Judge was
not legally sustainable. In the process, this Court indicated the
principles governing the confirmation of sales conducted by the
Company Courts by the official liquidators.
“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 offeror 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 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
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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, AIR 1925 Mad 318 and S. Soundajan v. M/s. Roshan & Co., AIR 1940 Mad 42. In A. Subbaraya Mudaliar v. K.Sundarajan, A.I.R. 1951 Mad 1986, it was pointed out that the condition of confirmation by the Court being a safeguard against the property being sold 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’s case).”
37. Divya Manufacturing Company (P) Ltd. v. Union Bank of
India & Others, (2000) 6 SCC 69 was a case where the assets of
the company in liquidation were sold in favour of the appellant
before this court and the sale was confirmed by the Company
Court. Within a week thereafter, an application came to be filed by
one of the participants in the auction proceedings praying that the
order of confirmation be recalled and the applicant was willing to
offer an amount higher than what was offered by the appellant
before this Court. Subsequently, more number of applications
came to be filed before the Court offering higher amounts.
Therefore, the Company Court recalled the order confirming the
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sale. Hence, the appeal before this Court. This Court, while
reiterating the principles laid down in Navalkha case (supra),
declined to interfere with the order of the court and held as follows:
“16. ….As stated above, neither the possession of the property nor the sale deed was executed in favour of the appellant. The offer of Rs.1.30 crore is totally inadequate in comparison to the offer of Rs.2 crores and in case where such higher price is offered, it would be in the interest of the Company and its creditors to set aside the sale. This may cause some inconvenience or loss to the highest bidder but that cannot be helped in view of the fact that such sales are conducted in Court precincts and not by a business house well versed with the market forces and price. Confirmation of the sale by a Court at a grossly inadequate price, whether or not it is a consequence of any irregularity or fraud in the conduct of sale, could be set aside on the ground that it was not just and proper exercise of judicial discretion. In such cases, a meaningful intervention by the Court may prevent, to some extent, underbidding at the time of auction through Court. In the present case, the Court has reviewed its exercise of judicial discretion within a shortest time.”
38. We cannot help pointing out that their Lordships came to such
a conclusion placing reliance on para 6 of Navalkha case (supra).
Their Lordships failed to take note of the last sentence of the
paragraph but placed reliance on the penultimate sentence of the
paragraph. 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 emphasizes 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
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conduct of the sale. However, the penultimate sentence restricts
the scope of such discretion in the following words:
“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’s case.”
39. In other words, in Navalkha case, this Court only recognized
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. This Court also emphasized that it is equally a
well-settled principle that once the Company Court recorded its
conclusion that the price is adequate, subsequent higher offer
cannot be a ground for refusing confirmation.
40. In FCS Software Solutions Ltd. v. LA Medical Devices Ltd.
& Others, (2008) 10 SCC 440, the property of a company in
liquidation was brought to sale and confirmed by the company
court. The Company Court directed the official liquidator to deliver
possession of the property after executing the sale deed in favour of
the successful bidder after receiving full and final payment. The
official liquidator instead of delivering the possession of the
property, filed an application before the Company Court saying that
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he had received two higher offers. Upon such application, the
Company Court stayed the delivery of the possession of the
property. The successful bidder moved the Company Court praying
that the liquidator be directed to execute the sale deed and deliver
the possession of the property. However, the Company Court
directed the official liquidator to issue fresh advertisements.
Pursuant to fresh advertisement, much higher offers were received.
The original purchaser unsuccessfully challenged in an intra court
appeal the decision of the Company Judge to reopen the concluded
proceedings and thereafter approached this Court. This Court
rejected the case of the original purchaser on the ground that in the
proceedings which culminated in the sale in favour of the appellant
before this Court, there were certain irregularities and that the
Company Judge failed to notice such irregularities until such
irregularities were brought to his notice by the third parties who
subsequently offered higher price.
“28. … From the facts stated above, it is clear that in November, 2004, the bid of the appellant was highest and was accepted by the Official Liquidator. But it is also clear that certain facts which were necessary to be brought to the notice of intending purchasers were not set out in the proclamation of sale nor were disclosed at the time of sale notice. They related to valuation of movable and immovable properties, fixation of reserve price, non-inventory of plant and machinery, etc. The attention of the Company Judge was invited by other bidders by filing Company Applications. The Company Judge considered the objections and having prima facie satisfied himself, ordered fresh auction. We find no illegality in the
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said approach. When fresh bids were received, it was found that the highest offer was of respondent No. 3-Society which was of Rs.3.5 crores. The Company Judge extended an opportunity to the appellant to raise its bid. It, however, appears that the appellant was adamant to get the property for Rs.1.47 crores on the ground that the said offer was highest and all the proceedings taken by the Official Liquidator and Company Judge thereafter were totally illegal and unlawful. In our opinion, the respondents are right that in such cases, the approach of the Company Judge should be to get highest price so as to satisfy maximum claims against the Company in liquidation. The procedure followed by the Company Judge, therefore, cannot be said to be illegal.”
41. In Shradhha Aromatics Pvt. Ltd v. Official Liquidator for
Global Arya Industries Ltd & Others, (2011) 6 SCC 207, the
Company Judge approved the highest bid of the 2nd respondent
before this Court for the purchase of the property of a company in
liquidation. Subsequently, an application came to be filed by a
third party offering a higher amount for the property which was
rejected by the Company Court. However, a second application was
filed by the same third party with a further enhancement of the
offer. This time, the Company Judge thought it fit to recall its
earlier order confirming the sale in favour of the above mentioned
2nd respondent by placing reliance on the judgment of this Court in
Divya Manufacturing Company (supra). Aggrieved, the original
purchaser carried the matter in an intra court appeal before the
Division Bench. Once again, the Division Bench permitted both the
parties to give further offers. However, after such a strange
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exercise, the Division Bench opined that learned Company Judge
could not have recalled the confirmed sale because subsequently a
higher price was offered by somebody else. Even before this Court,
an intervener made a better offer. It may be mentioned here that
there was a time gap of more than three years between the original
confirmation and such subsequent higher offer made in this Court.
However, this Court disposed of the appeal accepting the much
higher offer made by the intervener in this Court and directing the
execution of the sale deed in favour of such intervenor for the
following reasons:
“15. We have considered the respective submissions and carefully perused the record. Ordinarily, the Court is loathe to accept the offer made by any bidder or a third party after acceptance of the highest bid/offer given pursuant to an advertisement issued or an auction held by a public authority. However, in the peculiar facts of this case, we are inclined to make a departure from this rule. Admittedly, total area of the land advertised by the Committee is 12,500 square meters and the same is situated in an important district of Gujarat. It is also not in dispute that the area has been substantially developed in the last four years. The initial offer made by M/s Patel Agro Diesel Ltd. was of Rs. 83 lakhs and the highest revised offer given before the learned Company Judge was of Rs. 1.27 crores. After acceptance of the revised offer by the learned Company Judge, the appellant stepped in and made an offer to pay Rs. 1.41 crores. The first application filed by it was dismissed but the second application was allowed and the increased offer of Rs. 1.51 crores was accepted by the learned Company Judge vide order dated 27-11-2007. That order did not find favour with the Division Bench, which restored the first order passed by the learned Company Judge. If the order of the Division Bench is sustained, the creditors of the Company are
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bound to suffer because the amount available for repayment of the dues of the creditors would be a paltry sum of Rs. 1.27 crores. As against this, if the offer made by the intervenor-cum-promoter is accepted, the Official Liquidator will get an additional amount of more than Rs. 4.25 crores. The availability of such huge amount will certainly be in the interest of the creditors including GSIIC. Therefore, it is not possible to approve the order passed by the Division Bench of the High Court. In a somewhat similar case—FCS Software Solutions Ltd. v. La Medical Devices Ltd., (2008) 10 SCC 440, this Court approved the acceptance of revised bid of Rs. 3.5 crores given by the appellant with a direction to compensate the earlier highest bidder by payment of the specified amount.”
[emphasis supplied]
As indicated in the above extract, such a decision was rendered on
the PECULIAR FACTS of that case.
42. Manoj I Naik & Associates v. Official Liquidator, (2015) 3
SCC 112, once again was a case where certain properties of a
company in liquidation was brought to sale. The company Judge
declined to accept the highest offer received on the ground that the
value of the property would be much higher than what was offered.
Eventually, when the matter reached this Court at the instance of
the highest bidder, the highest bidder himself substantially raised
his offer whereas certain other respondents also offered much
higher amounts for the property. From the judgment, it appears
that there was virtually a scramble for the property, each of the
parties to the proceedings offering very high prices. While the 28
Page 29
original successful bidder’s offer was only Rs.1.3 crores, by the time
the matter was heard and disposed of by this Court, it reached an
amount of Rs.70 crores. Once again, it must be noticed that there
is a time gap of almost a decade. It is not possible to cull out from
the judgment the actual date of the auction by the official
liquidator.
43. But the fact remains that one of the secured creditors objected
to the sale in favour of the appellant before this Court on the
ground that the value of the property even on the date of the
original sale was worth around Rs.6.25 crores as against the
highest offer of Rs.1.3 crores of the appellant herein. Therefore, the
decision of the Company Judge to reject the highest offer is
perfectly justified.
44. A survey of the abovementioned judgments relied upon by the
first respondent does not indicate that this Court has ever laid
down a principle that whenever a higher offer is received in respect
of the sale of the property of a company in liquidation, the Court
would be justified in reopening the concluded proceedings. The
earliest judgment relied upon by the first respondent in Navalkha
& Sons (supra) laid down the legal position very clearly that a
subsequent higher offer is no valid ground for refusing confirmation 29
Page 30
of a sale or offer already made. Unfortunately, in Divya
Manufacturing Company (supra) this Court departed from the
principle laid down in Navalkha & Sons (supra). We have already
explained what exactly is the departure and how such a departure
was not justified.
45. Coming to the decision in FCS Software Solutions Ltd., we
have already noticed that this Court rightly reopened the finalized
sale on the ground that there was material irregularity in the
conduct of the sale.
46. Shradhha Aromatics (supra), as already noticed, is a
decision rendered on the peculiar facts of the case and, in our
opinion, does not lay down any principle applicable across the
board. Whereas in Manoj I Naik (supra) the Company Court itself
declined to accept the highest offer, therefore, it has no relevance in
the context of the case on hand.
47. In our opinion, in the case on hand, the High Court was not
justified in recalling the order dated 17.12.2013 for following
reasons:
48. The highest bid of the appellant herein was accepted by the
Company Court and all the stake-holders of the company in
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liquidation were heard before such an acceptance. Nobody ever
objected including the first respondent herein at that stage on any
ground whatsoever, such as, that there was any fraud or
irregularity in the sale nor was there any objection from any one of
them that the price offered by the appellant herein was inadequate.
No doubt, the property in question became more valuable in view of
the subsequent development. In our opinion, it is not a relevant
consideration in determining the legality of the order dated
17.12.2013. Imagine, if instead of increasing the floor space index
for construction from 1.0 to 1.8 the State of Gujarat had decided to
reduce it below 1.0 subsequent to 17.12.2013, could the appellant
be heard to argue that it would be legally justified in resiling from
its earlier offer which was accepted by the Court and not bound by
the contractual obligation flowing from such an offer and
acceptance?
49. Certain incidental questions raised by the first respondent are
required to be answered at this stage.
50. The first respondent submitted that the order dated
17.12.2013 only accepted the highest bid but it did not confirm the
sale and, therefore, the Court is at liberty to decline confirmation of
the sale in view of the subsequent developments. In our opinion, 31
Page 32
the said submission is to be rejected because there is no specific
format in which a sale conducted by the official liquidator is to be
confirmed by the Company Court. The mere absence of the
expression “that the sale is confirmed” in the order dated
17.12.2013 is not determinative of the question. The totality of the
circumstances, such as, the very tenor of the order (Footnote 1
supra) that none of the stake-holders of the Company in liquidation
ever objected to the offer of the appellant herein on the ground that
it is inadequate consideration for the property; the fact that the
official liquidator himself understood the order dated 17.12.2013 to
be an order not only accepting the highest bid of the appellant
herein but also as an order confirming the sale in favour of the
appellant, as evidenced by his letter dated 19.12.2013, (the relevant
portion of which is already extracted earlier) and the fact that the
first instalment of the payment of 25% of the sale consideration was
accepted both by the official liquidator and the Company Court
without raising any objection for the same and the fact that the first
respondent withdrew its earnest money deposit without raising any
objection regarding adequacy of the price offered by the appellant
herein, in our view, clearly indicate that the sale in favour of the
appellant was confirmed by the order dated 17.12.2013. Assuming
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for the sake of argument that there is no confirmation, in the
absence of any legally tenable ground for not confirming the sale, it
cannot be declined to the appellant as it was observed in Navalkha
case (supra) that “…no subsequent higher offer can constitute a
valid ground for refusing confirmation of the sale or offer already
made”.
51. The other submission made before the Division Bench of the
High Court and before us by the first respondent that there was a
change in the share-holding pattern of the appellant company
subsequent to the order dated 17.12.2013 and that such a change
would virtually amount to a nomination by the successful bidder in
favour a of third party contrary to the conditions of the tender
notice, in our opinion, does not deserve any consideration. This
was not the ground on which the first respondent initially sought
recall of the order dated 17.12.2013. Such a recall was sought only
on one ground, the details for which are already noted earlier in this
judgment. The first respondent kept on adding new grounds from
stage to stage for attacking the order dated 17.12.2013. The
conduct of the first respondent is understandable. The value of the
property in question must have escalated substantially in view of
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the developments subsequent to the order dated 17.12.2013 but
allowing such an attempt, in our opinion, would rob the sales
conducted by the Courts of all sanctity.
52. For all the abovementioned reasons, we allow the appeals of
the appellant Vedica Procon Private Limited, with costs.
….………………………….J. (J. Chelameswar)
…….……………………….J. (Abhay Manohar Sapre)
New Delhi; August 13, 2015
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