VEDICA PROCON PRIVATE LIMITED Vs. BALLESHWAR GREENS PRIVATE LIMITED AND ORS.
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 6165 WITH 6166-6167 of 2015, Judgment Date: Aug 13, 2015
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.
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 crores[1] –whereas the first 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 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:
“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
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:
“... 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 order[2] dated 17.04.2014 by issuing directions. The substance is:
That the first respondent herein would move an application before the
learned Company Judge showing his desire “to apply afresh for the bid”;
That the parties are directed to maintain status quo till such a period;
The respondent herein is directed to handover a DD of Rs.160 crores to the
Deputy Official Liquidator;
That it would be open to the learned Single Judge to decide the application
of the respondent herein (if made) on merits.
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. 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 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 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 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 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) 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 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
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.
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 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 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.”
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 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 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 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 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 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 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 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 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]
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.
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 crores[1] –whereas the first 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 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:
“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
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:
“... 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 order[2] dated 17.04.2014 by issuing directions. The substance is:
That the first respondent herein would move an application before the
learned Company Judge showing his desire “to apply afresh for the bid”;
That the parties are directed to maintain status quo till such a period;
The respondent herein is directed to handover a DD of Rs.160 crores to the
Deputy Official Liquidator;
That it would be open to the learned Single Judge to decide the application
of the respondent herein (if made) on merits.
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. 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 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 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 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 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) 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 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
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.
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 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 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.”
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 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 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 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 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 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 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 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 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 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 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 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, 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 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 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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[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.
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.
[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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