TMI Blog1974 (2) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... n July 9, 1970, Esso Standard Eastern Company assigned its debt to Indento Private Ltd., respond-dent No. 2 herein, and respondent No. 2 was substituted as petitioning creditor in the winding-up petition on July 15, 1970. On or about November 24, 1971, Central Bank of India, respondent No. 4 herein, filed a civil suit being Suit No. 96 of 1971 in the court at Jamnagar against the company for enforcing an equitable mortgage created by the company in its favour. It was stated in the plaint that a sum of over Rs. 26 lakhs was due by the company to respondent No. 4 as on September 30, 1971. Ultimately, by an order passed by Nathwani J. on January 12, 1972, the company was ordered to be wound up and the official liquidator was appointed liquidator without security with all powers under section 457 of the Companies Act, 1956 (hereinafter referred to as "the Act"), to be exercised by him under section 458 of the Act without sanction or intervention of the court save and except in case of sale of immovable property, if any, belonging to the company. After the order of winding up was passed several meetings were held before the official liquidator. On January 14, 1972, a meeting was held be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be appointed and entrusted with the said work ; Yes. Virani Co. ( b )Whether the official liquidator after the valuation of the property is completed should sell the said factory of the company by inviting sealed tenders by issuing advertisement or by public auction ; Yes ( c )If the answer to prayer ( b ) is in the affirmative this hon'ble court may be pleased to direct as to in which newspapers the official liquidator should advertise; Times ( i.e. , the Times of India), all editions of Bombay Samachar and Maharashtra Times. ( d )In the event of the directions to prayer ( a ) above being that the property be sold by public auction, which of the auctioneers should be appointed by the official liquidator on the terms settled by this hon'ble court; Bennet Co A further report was submitted by the official liquidator to Vimadalal J. on April 25,1973. On the said report directions were given by Vimadalal J. on June 16, 1973. The said directions are as under : Directions of the learned judge. ( a )Whether the official liquidator should sell the factory and other properties of the above c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold can be inspected by the intending purchaser at the aforesaid address from August 3, 1973, to August 8, 1973, during the hours specified therein. By this advertisement all offers as per the draft subjoined to the terms and conditions of sale were required to be despatched so as to reach the official liquidator in sealed covers on or before August 17, 1973, by 3 p.m. It was said that the offers would be opened and considered by the official liquidator in his office in the presence of intending offers on August 18, 1973, at 12 noon. It was made clear in this advertisement that the official liquidator is not bound to accept the highest offer and that any offer accepted would be subject to the sanction of the Hon'ble High Court at Bombay. Pursuant to this advertisement offers were received by the official liquidator from 13 parties and the same were opened by him on August 18, 1973, at 12 noon in the presence of the attorneys of the bank and other intending purchasers. The minimum offer was from one Umedhai Zaverbhai Patel in the sum of Rs. 14 lakhs. The highest offer was from respondent No. 3 in the sum of Rs. 37,57,755. It may incidentally be said that there were seven offers fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... btaining their signatures. In this report he also referred to the correspondence that was exchanged between the attorneys of Amba Tannin and Pharmaceuticals Ltd. after the opening of the tenders. By this report directions of the learned judge were sought on the following questions : ( a )Whether the official liquidator should accept the highest offer of Mr. Keshavlal Patel for Rs. 37,57,755 received by him by inviting sealed tenders and as per the terms and conditions of sale ; ( b ) If answer to prayer ( a ) above is in the affirmative whether the official liquidator should execute the conveyance of the properties in favour of the purchaser as per the terms and conditions of sale ; ( c ) If answer to prayer ( a ) above is in the negative and having regard to the revised offer of Shri D.H. Nanavati, Attorney for Amba Tannin Pharmaceuticals Ltd., of Rs. 38,13,000 whether the official liquidator should call a meeting of the offerers who had given offers and take further offers from them by requesting them to bid among themselves. This report was considered by Kania J on a number of days and the hearing went on before him on a number of occasions. The matter was heard by Kam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offerers who increased the offer from time to time during the course of the hearing. The other appeal is filed by All India General Insurance Co. Ltd. claiming to be a creditor of the company who appeared at some stages while the report was being heard by the learned judge. As the question involved in these two appeals is common, they are heard together and are disposed of by a common judgment and order. It may incidentally be mentioned that by an order made by this court on December 21, 1973, Amba Tannin Pharmaceuticals Ltd was amalgamated with Poison Ltd. and all the assets, liabilities, etc., of the former were transferred to the latter. During the course of the hearing of these appeals on February 11, 1974, Poison Ltd. were permitted to be substituted in place of Amba Tannin Pharmaceuticals Ltd. as appellants while in the other appeal, namely, Appeal No. 111 of 1973, United India Fire and General Insurance Co. Ltd. were permitted to be substituted for All India General Insurance Co. Ltd. It is urged by Mr. Sorabjee on behalf of Poison Ltd. and by Mr. Chagla on behalf of the United India Fire and General Insurance Co. Ltd. that the method prescribed for sanction of sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 460(4) of the Act; that rule 139 contemplates a hearing to be given : ( a ) to the official liquidator ; ( b ) to the petitioner on whose petition the winding up order was made ; ( c ) any other person to whom notice is given by court; and ( d ) any other person to whom no notice has been given but who becomes aware of the proceeding and appears before the court in support of the point of view to grant or not to grant sanction. Fourthly, they submitted that section 457(1) does not mean any exception to the requirement of sanction depending upon the quantum or value of the property; that section 458 of the Act is a provision for carrying out matters in respect of which sanction is required under section 457(1); that sanction referred to in section 457(1) of the Act read with rule 272 necessarily means previous sanctions ; that when the official liquidator asks for permission to sell and seeks directions about the mode, advertisement, etc., for the purpose, that is a step for effecting sale of property and the court at that stage is required to apply its mind and come to a judicial decision on the question whether there should or should not be a sale at all and, if so, what w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion whether the rule is mandatory or directory it is necessary for the court to consider the real intention of the legislature and the rule-making authority ; that the court should, inter alia , consider the nature and the design of the statute, and the consequences which would follow from construing it one way or the other, the impact of other provisions whereby the necessity of complying with the provisions in question is avoided, the circumstance that the statute provides for a contingency of the non-compliance with the provisions, the fact that the non-compliance with the provisions is or is not visited by some penalty, the serious or trivial consequences that flow therefrom, and above all, whether the object of the legislation will be defeated or furthered. It was said by him that the Act and the Rules provide for various safeguards so that a creditor or a contributory of a company in liquidation can keep himself informed about the affairs of the company in liquidation and the proceedings in connection therewith ; that there are several provisions in the Act and the Rules which retain overriding power of control with the court; that rule 139 does not determine the rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew different from that taken by the trial court. Mr. Bhabha who appeared on behalf of the official liquidator did not adopt any contentious attitude so far as the merits of sanctioning the sale in favour of one party or the other were concerned. He, however, submitted that rule 10 clothed the court with power to permit a procedure other than that prescribed by rule 139 in respect of matters referred to therein ; that such permission may be granted generally to any class of cases or to any special cases ; that in exercise of the power conferred by rule 10 it is open to the court to permit the official liquidator to adopt the practice and procedure followed by the court prior to the Rules coming into operation and that when such practice and procedure is permitted by the judge it is not obligatory upon the official liquidator to follow the procedure prescribed by rule 139. He adopted all the contentions of Mr. Shah as regards rule 139 being directory. He further submitted that by rule 9 inherent power of the court is expressly reserved and having regard to the ends of justice and the provisions of other rules it is always open to the court to permit an official liquidator to adopt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sanctioned or approved by the court as contemplated thereby; that there cannot be an expost facto approval to the terms and conditions subject to which offers for purchase of property of a company in liquidation are invited at the stage of confirmation of sale. In the further alternative their submission was that condition No. 12 of the terms and conditions subject to which the sale was held by the official liquidator had not been complied with, because, contrary to the provisions of the said conditions, the official liquidator erroneously accepted only one offer and all the other offers were rejected by him without being clothed with a power to do so and that he erroneously returned the earnest money deposited by the other offerors. That, upon a true construction of condition No. 12, it was obligatory upon the official liquidator to place all the offers before the court at the time of approaching the court for sanction or confirmation of the sale; that as the terms and conditions subject to which the sale was directed to be held were not approved before the offers were invited, the order sanctioning the sale in favour of the respondent No. 3 is illegal and void irrespective of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court, ( a )to institute or defend any suit, prosecution, or other legal proceeding, civil or criminal, in the name and on behalf of the company; ( b )to carry on the business of the company so far as may be necessary for the beneficial winding up of the company; ( c )to sell the immovable and movable property and actionable claims of the company by public auction or private contract, with power to transfer the whole thereof to any person or body corporate, or to sell the same in parcels; ( d )to raise on the security of the assets of the company any money requisite ; ( e )to do all such other things as may be necessary for winding up the affairs of the company and distributing its assets. (2) The liquidator in a winding up by the court shall have power ( i )to do all acts and to excute, in the name and on behalf of the company, all deeds, receipts, and other documents, and for that purpose to use, when necessary, the company's seal; ( ia )to inspect the records and returns of the company on the files of the Registrar without payment of any fees; ( ii )to prove, rank and claim in the insolvency of any contributory, for any balance against his estate, and to rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y any act or decision of the liquidator to apply to the court and the court may confirm, reverse or modify the act or decision complained of, and make such further order as it thinks just in the circumstances. Section 467 requires that as soon as may be after making a winding-up order, the court shall settle a list of contributories, with power to rectify the register of members in all cases where a rectification is required in pursuance of the Act, and shall cause the assets of the company to be collected and applied in discharge of its liabilities. Section 643 clothes the Supreme Court with power to make rules after consulting the High Courts. Sub-section (3) of section 643 provides that until rules are made by the Supreme Court, all rules made by any High Court on the matters referred to in the section and in force at the commencement of the Act, shall continue to be in force in so far as they are not inconsistent with the provisions of the Act in that High Court and in courts subordinate thereto. In exercise of the powers conferred by section 643 of the Act the Supreme Court after consulting the High Court has made the rules, i.e. , the Companies (Court) Rules, 1959. These R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ummons for directions to be taken out by official liquidator. (1) As soon as practicable after the winding up order is made and in any event not later than 7 days after the filing of his preliminary report under sub-section (1) of section 455, the official liquidator shall take out a summons for directions with regard to the settlement of the list of contributories and the list of creditors and the exercise by the official liquidator of all or any of the powers under section 457(1) and any other matters requiring directions of the court. Notice of the summons shall be given to the petitioner on whose petition the order for winding up was made. Upon the hearing of the summons, the court, after hearing the official liquidator and any other person appearing on notice or otherwise, may give such directions as it shall think fit in regard to the said matters, including the fixing of dates for the settlement of the list of contributories and for the filing of proofs by the creditors of the company in respect of their debts and their claims for priority if any under section 530. (2) Where the preliminary report of the official liquidator is not filed prior to the hearing of the summon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judge" cannot be exercised when there is a specific express rule like rule 139 pres-scribing the procedure to be followed in respect of the matters referred to therein including those for exercise of powers under section 457(1) of the Act. There is nothing in the language of rule 10 to warrant such a submission. The normal mode of making an application by a petition or a judge's summons is subject to two limitations: Whenever a special procedure other than a petition or a judge's summons is provided by a specific rule, that special procedure is to be followed. The other limitation is that whenever a procedure other than a petition or a judge's summons is permitted by the judge, then it is open to the party concerned including an official liquidator to adopt the procedure permitted by the juage. When a procedure permitted by the judge deals with a matter which is specifically dealt with by any special rule, then in such a case it will be open to the party concerned including the official liquidator to follow the other procedure specially prescribed by the' rule or the procedure permitted to be followed by the judge. In exercise of the powers conferred by rule 10, it will be als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided by these rules or permitted by the judge". The word "or" indicates that whenever there is a procedure permitted by the judge it will be open to a party to make an application in the manner specially prescribed by a rule or in a manner permitted by the judge. There is no limitation upon the power of the judge to permit a procedure simply because some other rule contains a special or express provision relating to a matter. Whenever a special procedure is prescribed by a rule and a different procedure is permitted by the judge, then either of the two procedures can be adopted by the party concerned. Reliance was placed by Mr. Sorabjee upon the decision of the Gujarat High Court in Colaba Land and Mills Co. Ltd. v. Vasant Investment Corporation Ltd. AIR 1964 Guj. 107. The question that arose for consideration in that case was whether an application for compensation under section 543 of the Act can be made as a part of a petition under section 397 or section 398. Miabhoy J. took the view that proceedings under section 543 should be by an independent and fresh application. In that case it was contended by one of the parties that even though, under the rules, an independen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned judge has permitted the official liquidator to seek directions in the manner adopted by him, i.e. , by submitting an official liquidator's report for directions. This being the position in law, having regard to the provisions of the Rules, specially rule 10 read with rules 6 and 139, even in respect of matters which are referred to in rule 139 it will be permissible to the official liquidator to approach the court for directions either in the manner prescribed by rule 139 or in any other manner if permitted by the judge taking company matters. As the material question involved in these two appeals relates to a question of sanctioning or confirming a sale by the official liquidator of the assets of the company in liquidation it will be necessary to determine the scope and effect of section 457 which deals with the powers of a liquidator. In respect of matters referred to in clauses ( a ) to ( e ) of sub-section (1) of that section the power therein referred to can only be exercised by the liquidator in winding up with the sanction of the court. The argument of Mr. Sorabjee is that upon a true interpretation of the provisions of section 457(1)( c ) which deals with the power o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, can only be taken after obtaining the sanction of the court, such a limitation ought to be specifically provided; otherwise, it will be within the power of the official liquidator to take all preliminary or ancillary steps before he institutes any proceeding either by way of a suit, prosecution or otherwise in any court, but such institution cannot be done by him unless he obtains the sanction of the court. It cannot be overlooked that there are several provisions in various statutes where even notice is required to be given in the prescribed form before a suit can be instituted against the Government or a public officer or a local or municipal body. Even before institution of a suit against a co-operative society notice to the Registrar of Co-operative Societies is necessary. If steps preliminary to or ancillary to the institution of a suit require sanction of the court, then it may very well be that even by the time the sanction is granted and actual steps are adopted for institution of the proceedings the remedy may get time-barred. The court should be slow to impose such a restriction unless the language of the section so warrants. In our opinion, it is only when the power i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idator and it is only at that stage that the sanction is required of the court as prescribed by sub-section (1) of section 457, but such sanction is not called for in regard to all other preliminary or ancillary steps. Reliance was placed by Mr. Sorabjee upon a decision of a single judge of this court in Mulraj Virji v. Nairmal Pratapchand [1941] 43 Bom. LR 890 (Bom.). The court had occasion to construe the expression "power of sale" used in section 69( c ) of the Transfer of Property Act, 1882, and it was held : "The expression 'power of sale' is a well-known expression in conveyancing. The words' power of sale', as used in section 69( c ) of the Transfer of Property Act, 1882, refer to a clause to be expressly included in a deed of mortgage. They must, therefore, be understood to mean what is ordinarily known and understood in conveyancing by that expression. A power of sale includes all steps which are necessary to be taken in that connection. In order to make the power bad, words must be pointed out in section 69 which render the whole power invalid according to law." At page 894 the learned judge points out: "The words ' power of sale ' are not defined anywhere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Sorabjee and Mr. Chagla on behalf of the appellants that each one of the three ingredients is essential and non-compliance with any one of them will render the final order null and void. So far as the ingredients Nos. (2) and (3) above referred to are concerned, it is unnecessary for the purpose of the present case having regard to the facts thereof to express any opinion, whether even when rule 139 is to be complied with, the requirements thereof is obligatory or not. Ingredient No. (2) above referred to provides for notice to the petitioner. It was sought to be suggested that the underlying idea of such an ingredient is to give notice to the petitioning-creditor as representing the class of creditors. If regard be had to the persons who are competent to make an application for winding up, such an argument cannot be accepted. Under section 439 of the Act not only a winding up petition can be presented by any creditor or creditors, or any contributory or contributories, but it can also be presented, inter alia, by the company or by the Registrar. Thus, the contention that the petitioner represents the body of creditors or even the body of contributories is not correct because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Privy Council in Durayappah v. Fernando [1967] 2 AC 337 (PC). A decision given in breach of audi alteram partem would, therefore, be void as against the party affected but it would be valid as against the rest of the world." (Underlining is ours). In view of the principle so laid down it is quite evident that neither any grievance can be made by the petitioner nor is any grievance made by any other person who could have appeared before the learned judge before an order sanctioning the sale was passed by him. In fact, all the parties who have ; appeared before us during the course of the hearing of these appeals were heard by the learned judge before the order was passed and the question of the validity of his order being affected on the ground of ingredient No. 2 and/or ingredient No. 3 not having been complied with, is purely academic. The question then arises whether the taking out of a summons for directions as contemplated by rule 139(1) is a sine qua non for exercise of jurisdiction in respect of the various matters referred to in the said rule. It was urged by Mr. Sorabjee and Mr. Chagla on behalf of the appellants that when the law of the rule prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court in Bhana Makan v. Emperor AIR 1936 Bom 256. That such a general rule prevails cannot be overlooked but care should be taken when applying this principle to the maxim expressio unius, exclusio alterius. Dealing with this maxim Lopes L.J. points out in Colquhoun v. Brooks [1888]21 QBD52,65(CA).: "It (the maxim) is often a valuable servant, but a dangerous master to follow in the construction of statutes or documents. The exclusio is often the result of inadvertence or accident, and the maxim ought not to be applied, when its application, having regard to the subject matter to which it is to be applied, leads to inconsistency or injustice." So far as we are concerned there is no question of choosing between a specific or general provision. Rule 10 prescribes two independent modes by way of overriding procedure, namely, one provided by rules and the other permitted by the judge. So far as these two procedures are concerned, it is impossible to say that one is a specific and the other is a general provision. Both are parallel provisions and it is open to a party concerned including a liquidator to adopt either of them as may be permitted by the language of rule 10. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the registers or books the various things enumerated in this rule are to be filled in. Rule 16 provides for inspection and copies of proceedings. It lays down : "Save as otherwise provided in these rules, the rules of the court for the time being in force relating to search and to the certification and grant of copies, including the fees and charges payable for the same, shall apply to proceedings under the Act and these rules, as they apply to other proceedings in the court." Thus not only power of inspection is conferred but even a power to take copies is conferred by this rule. Rule 136 permits inspection of statement of affairs and preliminary report. Rule 286 enumerates the registers and the books to be maintained by the official liquidator. Item 22 of sub-rule (1) thereof refers to a record book for each company in which shall be entered all minutes of proceedings and the resolutions passed at any meeting of the creditors or contributories or of the committee of inspection, the substance of all orders passed by the court in the liquidation proceedings and all such matters other than matters of account as may be necessary to furnish a correct view of the administra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervision by the court. It is unnecessary to enumerate all these provisions but it will suffice for the present purpose if reference be made to the provisions of sub-section (3) of section 457 and sub-section (6) of section 460. Similar powers are also conferred by some of the rules. It is not our intention to enumerate exhaustively all the factors which may be taken into account before a provision of a statute and a rule can be construed as mandatory or directory. By way of illustration reference may be made to the circumstances enumerated by Subba Rao J. in State of Uttar Pradesh v. Babu Ram Upadhya AIR 1961 SC 751, 765 . It is there stated that when a statute uses the word "shall", prima facie it is mandatory, but the court may ascertain the real intention of the legislature by carefully attending to the whole scope of the statute. For ascertaining the real intention of the legislature, the court may consider, inter alia , the nature and the design of the statute, and the consequences which would follow from construing it one way or the other, the impact of other provisions whereby the necessity of complying with the provisions in question is avoided, the circumstance tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y has appeared in the course of the hearing of these appeals urging that as there was no summons for directions he could not appear. In fact all the parties who are appearing before us during the course of the hearing of these appeals did appear before the learned judge and presented their points of view. Even the petitioner appeared before, the learned judge though his attitude before him was not uniform. When such is the procedure followed we fail to see that substantial injustice has been caused by seeking directions on the official liquidator's report rather than on a summons for directions. In fact, no specific injustice has been pointed out but some hypothetical grounds are suggested stating that if there was summons for directions somebody also could have appeared such as workers and/or Government representatives and could have presented their points of view. Such considerations, in our opinion, do not go automatically to vitiate the order unless the persons who are interested in raising these considerations appear before us and urge them before us. Thus, even the first ingredient of rule 139, even if it is not strictly complied with as required by that rule, will merely be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the use of the power to sell by the liquidator ; the power to sell has thus been given by the section itself; but its use has been made subject to the sanction of the court; whenever, therefore, the liquidator intends to use his power to sell and approaches the court for that purpose, it would mean that he approaches the court with regard to a matter for the exercise of his powers and it is in this context that we have to see whether rule 139 would be applicable at such a stage. That rule specifically refers to the taking out of a summons and the issuance of a notice and the words "taking out a summons and the issuance of a notice" and "upon the hearing" in the rule make it amply clear that such orders are intended to be passed after a hearing. The matters included within the scope of the rule are such that while passing orders in regard to them, rights or interests of persons concerned and other similar questions of importance might have to be considered and it would be in consonance with the principles of justice that persons whose interests are likely to be affected should be heard before any orders were passed on matters in which they are or are likely to be concerned. In cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale, whether an off-set price should be fixed before issuing the advertisement and how the machinery of the mills should be sold. It is at this time that it could have been suggested that instead of issuing an advertisement and inviting offers, a sale by public auction or by other method would be more beneficial and convenient or that the sale should or should not have been for selling the mill as a running concern or that the mills should be sold as a scrap. It would have also been appropriate for the persons concerned to object at this stage to the very proposal for sale and before a decision issuing the advertisement was reached, these and many other important facts could have been placed before the court in the context of the report made by the liquidator. Such facts require consideration before a step is taken towards the sale of property and such considerations supply the data for evolving an objective standard for deciding how the liquidator should be directed to initiate the proceedings of sale. The consideration of these factors by an objective standard would result in a judicial order and the mere fact that directions for the issuance of an advertisement were sought would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause ( c ); that the occasion to exercise the power of sale may arise at any point of time in winding-up proceedings and if rule 139 were construed to mean that, whenever the official liquidator wants to sell any property of the company he must come under rule 139, that would make nonsense of the provision in the opening part of the rule which says that a summons for directions shall be taken out by the official liquidator "as soon as practicable after the winding-up order is made and, in any event, not later than seven days after filing his preliminary report under sub-section (1) of section 455". How can this prescription of the opening part of the rule fit in where the official liquidator proposes to sell any property of the company, say three or four years after the winding-up order is made ?; that the summons for directions contemplated in rule 139 is a summons which is required to be taken out by the official liquidator without unreasonable delay in order that the court should have complete seizin of the winding-up proceeding and the programme of winding-up may be chalked out at the earliest so as to expedite the winding up proceedings and avoid unnecessary delay ; that rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on in the present case. In the present case the petitioner had appeared before the trial court when the matter was considered in extenso on the liquidator's report for sanctioning the sale of the company's assets. With respect, we are also unable to agree with the interpretation put by the Division Bench in Ananta Mills' case ( supra ) on the scope and ambit of section 457(1). This takes us to the other contention which has been urged by Mr. Sorabjee and Mr. Chagla on behalf of the appellants. The argument was that by the order dated June 16, 1973, Vimadalal J., inter alia , directed that the official liquidator should sell the factory and the other properties of the company in liquidation by inviting sealed tenders, by issuing advertisements subject to the terms and conditions to be approved by the court. In view of this order the argument was that it was obligatory upon the official liquidator to have the terms and conditions subject to which the tenders were invited, approved by the court before even public advertisement was issued. As such terms and conditions were not approved by the court before tenders were invited the whole of the sale is thereby vitiated. A referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approval of the terms and conditions at the stage of final sanction or confirmation by the court. The argument of Mr. Sorabjee and Mr. Chagla then was that condition No. 12 made it obligatory upon the official liquidator to place all the offers that were received by him for consideration of the court; that in the present case the official liquidator accepted the offer of respondent No. 3 subject to confirmation by the court and rejected the other offers and returned even the 10% earnest amounts that were deposited by them ; that such action on the part of the official liquidator vitiated the proceedings. We fail to see how any default or irregularity on the part of the official liquidator in carrying out his duties enjoined by the terms and conditions could affect the right of the highest offeror if otherwise he was justified in having the sale in his favour sanctioned by the court. It is undoubtedly true that term and condition No. 11, subject to which the offers were invited, specifically provided that the vendor, i.e. , the official liquidator, does not bind himself to accept the highest or any other offer. The term and condition No. 12 is as follows : "12. After receiving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case, there was clear material before the court that the price at which the assets of the company were proposed to be purchased by respondent No. 3 was inadequate and it was obligatory upon the learned judge to sanction the sale in favour of Amba Tannin Pharmaceuticals Ltd. There is no controversy that, pursuant to the public advertisement, 13 offers were received by the official liquidator and the same were opened by him in his office in the presence, inter alia , of the intending purchasers on August 18, 1973. The highest offer was that of respondent No. 3 in the sum of Rs. 37,57,755. The offer just below that of respondent No. 3 was of Vijaya Durga Cotton Trading Co. Private Ltd. in the sum of Rs. 37,50,000 while the offer of Amba Tannin Pharmaceuticals Ltd. was in the sum of Rs. 35,13,000. After the offers were opened by the official liquidator in the presence of the parties and in the presence of the attorneys of the bank, the attorney of Amba Tannin Pharmaceuticals Ltd. wrote a letter on August 18, 1973, i. e., the date on which the offers were opened, increasing their offer of Rs. 35,13,000 to the sum of Rs. 38,13,000. That letter was replied to by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors. But the liquidator is not a trustee, in the strict sense of being a trustee, for each creditor or contributory of the company." So also in Modern Company Law by Gower, 3rd edition, at page 654, it is stated that the liquidator has several statutory duties imposed on him and he is in a fiduciary relationship not only to the company but also to the creditors as a body though not to individual creditors. The principles which should govern the exercise of discretion by a court while sanctioning sale of property of a company in liquidation are well settled. In Shankarlal Aggarwala v. Shankarlal Poddar [1965] 35 Comp Cas 1, 8 (SC) , the question that arose for consideration before the Supreme Court was whether an order sanctioning sale of the property of a company in liquidation under the provisions of the Companies Act, 1913, was an administrative or a judicial order. While considering this question the Supreme Court points out: "An order according sanction to a sale undoubtedly involves a discretion and cannot be termed merely a ministerial order, for before confirming the sale the court has to be satisfied, particularly where the confirmation is opposed, that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 22,00,000 but even the said transaction was not finalised. In the statement of affairs which was filed after the order of winding up on October 21, 1972, the assets of the company were valued at Rs. 36 lakhs and odd. The assets pledged or mortgaged with the Central Bank of India were valued at Rs. 22,15,658. Keshavlal Patel in his affidavit has also stated that the company in liquidation received an offer for Rs. 24 lakhs from Kusum Products Ltd. but the said sale was not finalised. However, precise information about the time when this offer was received is not stated in the affidavit. The learned judge while considering the question of adequacy of price has not placed any reliance upon the valuation made in the balance-sheet for the period ending October 31, 1971, or the valuation made in the statement of affairs filed on October 21, 1972. The learned judge has taken the view that the figures therein mentioned are not a very reliable guide regarding the correct market value of the assets concerned but he has, however, observed that they do give some indication as to what would be the adequate price for the same. It appears that there was a valuation report obtained by the offici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal offer of Rs. 43,13,000 made by Amba Tannin Pharmaceuticals Ltd. is concerned, he stated that the question of consideration of the offer did not arise at all. It was urged by Mr. Shah on behalf of the respondent No. 3 that a question whether a particular price is adequate price or not is a question of exercise of judicial discretion and unless the trial court in exercising its judicial discretion has overlooked any well-settled principle of law the court of appeal ought to be slow to interfere with the exercise of such a discretion even though upon appreciation of facts and circumstances of the case it may take a different view. Undoubtedly, while sanctioning or confirming a sale under section 457(1) read with rule 272 and rule 273 exercise of discretion is vested in the court, but the question whether a price is adequate or not is always a question of fact and if the material on record is not a safe guide to come to a reliable conclusion that the highest offer received represents the adequate price the court is not bound to sanction the sale in favour of the person who made the highest offer. While considering the question of adequacy of price the mere fact that one of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that day the appellant No. 1 who was a member of the family informed the court that he would like to have the property for himself as it had been in his family for a long time. The learned judge having enquired whether he was prepared to offer more, the matter was adjourned to April 11 when the appellant informed the court that he was prepared to offer Rs. 1,15,000. The respondent whose offer was accepted by the Commissioner subject to the confirmation of the court naturally objected to the matter being reopened and he pointed out that he was the highest bidder at the public auction and that he had complied with all the conditions of sale, including the payment of a deposit of Rs. 28,000. It was contended on his behalf that it would not be proper in the circumstances of the case for the court to reopen the matter. The learned judge accepted the respondent's contention and confirmed the sale. The order of confirmation was affirmed by the court of appeal and the appeal against the order of confirmation at the instance of the member of the family was dismissed. The appeal court pointed out that the respondent having exceeded the reserve price agreed upon by the parties it could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling, if necessary, the order passed by the learned district judge. On January 31, 1939, one Parripati who claimed to be a shareholder of the company in liquidation made an application in the district court praying that the earlier order passed on January 23, 1939, sanctioning the sale was ex parte and might be set aside and fresh orders passed. The learned district judge allowed both these applications and decreed that the permission granted by the court on January 23, 1939, for the compromise of the two suits and for the sale of the mill properties be revoked and the official liquidator was directed to hold a fresh sale of the properties by public auction as early as possible after giving due notice in the public press. Against the orders in both the applications Rowthmall in whose favour the sale was sanctioned by the learned district judge preferred appeals and they came up for consideration before the Division Bench. On behalf of the appellant it was urged that as the order passed by the learned district judge was acted upon by compromising the two suits, it was not open to the district judge to revoke the permission earlier granted. This contention was accepted by the Divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s received by the officer conducting the sale, then it is indeed his duty to consider this offer and in the absence of cogent and reasonable ground he should not decline to consider this offer simply because it is made at a later stage. The first case that he referred to was that of Gordhan Das Chuni Lal Dakuwala v. Kantimathinatha Pillai AIR 1921 Mad 286 . In this case, during the course of the winding up proceedings the official liquidator wrote to the district judge intimating that he had received an offer of Rs. 5 lakhs for the mills as they stood and he recommended its acceptance. After a personal interview with the official liquidator the same day the district judge passed an order permitting the official liquidator to sell at the price offered conditionally on the offeror giving a valid cheque for Rs. 50,000 by the 21st. The purport of the order was communicated to the appellant verbally on the same day and later on formal communication in writing was made by the official liquidator. The cheque for Rs. 50,000 was handed over to the official liquidator on the 20th. A further cheque for Rs. 4,10,000 was given to him on the 24th and paid into court in discharge of the mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received at a later stage. In Ratnasami Pillai v. Sabapathy Pillai AIR 1925 Mad 318 the question of validity of a sale by a receiver came up for consideration. It is held that, where an auction is held without any reservation, ordinarily an implied condition will be understood that the highest bid will be accepted but that rule does not hold good in the case of a sale by a court officer under the directions of the court. When a court sale takes place, the sale in favour of a particular individual is not complete unless and until it receives the confirmation of the court. It is the acceptance of the court that constitutes the contract. When the person asserts that the court officer had power to bind the court by his acceptance of bid, he must prove his contention. The mere fact that in the published conditions of sale there is no statement to the effect that it is subject to the confirmation of the court cannot be treated as implying that the court had renounced its power of confirming the sale before it could take effect. In court sales, it is acceptance by the court that constitutes the contract. The person who asserts that the court officer had power to bind the court by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bid at the auction 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. A sale conducted by an officer of court would become a farce if the court is obliged to accept the highest bid at such a sale, though the court is convinced that the bid does not represent adequately the real price of the property. This was a question of sale of a property by the court receiver during the pendency of a suit. Directions were given by the trial court to obtain offers for purchase of the printing press as a going concern so that the court might be in a position to decide whether the press should be sold at a public sale or at a sale confined to the parties. As no satisfactory offers were obtained the trial court decided that the press should be sold as a going concern by the joint receiver at a public sale. The parties to the suit were given liberty to bid at the sale on the same terras as other bidders. The sale was to be effected after wide publicity. After giving such publicity the joint receiver conducted the sale on March 25, 1951. There were 12 bidders. In the course of the bidding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was dismissed by the Division Bench observing that a sale conducted by an officer of court would equally become a farce if the court is obliged to accept the highest bid at such a sale, though the court is convinced that the bid does not represent adequately the real price of the property. Reference is made by Mr. Sorabjee to an unreported decision of this court in First Appeal No. 152 of 1970, decided by a Division Bench on 7th and 8th February, 1972, to which I was a party. This case relates to a question of sale under the provisions of the Maharashtra State Financial Corporation Act, 1951, and this court set aside the sale that was confirmed by the district judge on the ground that he failed to discharge the elementary duty of the court to see that the property was sold for an adequate price and it was a material irregularity in the conduct of the sale. Reference is also made by Mr. Sorabjee to another unreported decision of this court in Special Civil Application No. 1184 of 1972, decided on August 25, 1972, to which I also was a party. This was a case of sanction of a sale by the Charity Commissioner of the property of a public trust. It is, inter alia , observed that the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions subject to which offers were invited, it was obligatory upon the official liquidator to place all the offers received by him before the learned company judge and he ought to have sought his directions thereon. His action in accepting the offer of respondent No. 3 subject to sanction by the court and in returning the earnest amounts paid by the other offerers was not justified having regard to the terms and conditions. Thus, when on August 21, 1973, the official liquidator made his report to the learned company judge and when it was first considered by the learned judge on August 23, 1973, having regard to the terms and conditions subject to which the offers were invited, the official liquidator was not even entitled to enter into any moral commitments, much less contractual or legal obligations, in favour of any offeror simply because the price offered by him appeared to be the highest price offered by offerors. The question as to adequacy of price was entirely for consideration of the learned judge. The learned judge was persuaded to take the view that the price offered by respondent No. 3 is adequate having regard to the various amounts offered by the various offerors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... offer to the sum of Rs. 42,13,000. Mr. Shah, on behalf of the respondent No. 3, has, in our opinion, rightly commented upon the conduct of Amba Tannin Pharmaceuticals Ltd. He pointed out that that company, when it submitted its tender pursuant to the public advertisement, made an offer for Rs. 35,13,000 and it is only after it found that that offer was not likely to be accepted, it, from time to time, went on increasing the offer. Even the attitude adopted by it before the trial court was that, as a larger offer was made by it, that offer should be accepted. Undoubtedly, the offer made by Amba Tannin Pharmaceuticals Ltd. and the subsequent increase from time to time in the amount of the offer really indicates that the initial attempt was to secure the property at a lesser price but, when it was found that that was not possible, higher offers were made from time to time at a later stage. Simply because there is a higher offer, this court will not be entitled to refuse to sanction or confirm a sale if the price offered as a result of following the procedure directed by the court is fair and adequate. We are not concerned in this case really with the conduct of Amba Tannin Pharm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y such request and, in fact, no attempt has been made by Mr. Sorabjee to induce us to adopt that course. On the material on record, in our opinion, the initial offer of Rs. 37,57,755 or even the increased amount of Rs. 39,57,755 does not represent adequate price of the assets of the company in liquidation. Rule 273 contemplates more modes than one for sale of the assets of a company in liquidation. Undoubtedly, the mode permitted by Vimadalal J. was one of the modes prescribed by that rule. However, if at the stage of sanctioning a sale the court feels that an adequate price is not realised for the assets of the company, notwithstanding due and adequate publicity, it is indeed the duty of the court to even direct adoption of another mode permitted by that rule by which the assets of the company in liquidation ought to be sold. The learned judge, in our opinion, should have considered whether, in view of the slight and negligible difference between the highest two offers, i.e. , the highest and the next best, and the increase in the offer made by Amba Tannin Pharmaceuticals Ltd., the adquate market value of the property of the company in liquidation can be realised by public auct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the assets of Vilas Udyog Ltd. (in liquidation) comprised in the terms and conditions exhibited to the official liquidator's report dated 21st August, 1973, free from mortgage or security claimed by Central Bank of India, Poison Ltd. undertake to make a minimum bid to purchase the said assets for a price of Rs. 43,13,000 ; (3)Poison Ltd. hereby undertakes to this hon'ble court that the amount of Rs. 4,21,300, deposited with the official liquidator by Amba Tannin Pharmaceuticals Ltd., which now belongs to Poison Ltd., will continue to remain deposited with the official liquidator and will be dealt with as provided in clause (4) and/or clause (6) below. The official liquidator shall invest the said amount of Rs. 4,21,300, in fixed deposit in a nation alised bank ; (4)Poison Ltd. further undertakes to this hon'ble court that in the event of Poison Ltd. not complying with the terms of either of the under takings mentioned in clauses (1) and (2) above, the said deposit of Rs. 4,21,300 together with interest accrued thereon will be forfeited by the official liquidator of Vilas Udyog Ltd. In the event of Poison Ltd. carrying out the terms and conditions of the undertakings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the preliminary contention urged by Mr. Shah against the maintainability of both the appeals. So far as Appeal No. 110 of 1973 is concerned, it is urged that that appeal is not maintainable on account of the following four grounds: (1)Amba Tannin Pharmaceuticals Ltd. is not a competent appellant to prefer an appeal against the order passed by Kania J. ; (2)Poison Ltd. has no right to continue the appeal which was insti tuted by Amba Tannin Pharmaceuticals Ltd.; (3)Under the scheme of amalgamation of Poison Ltd. and Amba Tannin Pharmaceuticals Ltd. sanctioned by this court by its order dated December 21, 1973, the "appointed day" was defined as October 1, 1972. That accordingly any offer made by Amba Tannin Pharmaceuticals Ltd. thereafter cannot be regarded as a valid offer either by the said company or on behalf of Poison Ltd.; and (4)No offer has been made by Poison Ltd. similar to the one made by Amba Tannin Pharmaceuticals Ltd. and Poison Ltd. during the course of hearing before Kania J. It was also urged that by reason of these very grounds the Appeal No. 111 of 1973 is also not maintainable. In our opinion, the grounds urged against the maintainabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "6. With effect from the appointed day, Amba Tannin Pharmaceuticals Ltd. shall be deemed to have been carrying on and to be carrying on all its business and activities for and on account of Poison Ltd. until the effective date as defined in clause 18 hereof." "18. In the event of the necessary orders specified in clause 16 hereof not being made before 30th September, 1973, or such extended date as may be agreed upon between Amba Tannin Pharmaceuticals Ltd. (by its directors) and Poison Ltd. (by its directors), this scheme shall become null and void." "19. This scheme, although operative from the appointed day, shall take effect finally upon and from the date on which the necessary orders specified in clause 16 hereof are made by the High Court of Bombay, and such date shall be the effective date for the purposes of this scheme." To this company petition both Poison Ltd. and Amba Tannin Pharmaceuticals Ltd. were party petitioners. The scheme was ultimately sanctioned by the court by its order dated December 21, 1973. The result of that order is that by operation of law an amalgamation is effected as contemplated by the terms and conditions of the scheme. It was urged by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eon, either pursuant to the offer or as a result of the sanction of his offer by the court. We further hereby direct that the official liquidator will hereafter sell the assets of Vilas Udyog Ltd. in liquidation, comprised in the terms and conditions, being exhibit A to the official liquidator's report dated August 21, 1973, free from mortgage or security claimed by the Central Bank of India by public auction through auctioneers, Messrs. Bennet Co. We further direct that the official liquidator will suitably modify the terms and conditions subject to which the sale of the assets should be held by public auction pursuant to this order and get the said terms and conditions duly approved of by the learned judge taking company matters within a period of three weeks from the date of our signing the jugdment. After the terms and conditions modified by the official liquidator are approved of by the learned judge taking company matters, advertisement shall be published in the same newspapers as were directed by Vimadalal J. by his order dated June 28, 1972, on the official liquidator's report. The public auction through the auctioneers, Messrs. Bennet and Co., will be held after the exir ..... X X X X Extracts X X X X X X X X Extracts X X X X
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