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TMI Blog2008 (11) TMI 404X X X X Extracts X X X X X X X X Extracts X X X X ..... having built up area of about 79,658.75 sq.ft situated at M.I.A Extension, Delhi-Alwar Road, Alwar (Rajasthan). Brief facts leading to the filing of these applications are as follows : 2. M/s. Saraf Paper Mills Ltd. was ordered to be wound up by this Court on 20-5-1994 in C.P. No. 201/1990 and the Official Liquidator attached to this Court was appointed as its liquidator. The effort, to sell the property of the company in liquidation consisting of the plant and machinery, and factory premises i.e., the land and building of the company in liquidation situated at MIA Extension, Delhi-Alwar Road, Alwar, Rajasthan started in June, 1997. As per the initial valuation report, the aforesaid properties were valued at about Rs. 2.97 crores by the valuer Lt. Col. R.K. Kohli vide report dated 1-2-1997. The effort to sell the property through a sale proclamation did not fructify. On 4-9-1998 the Court directed the sale of plant and machinery separately from the land and building. The plant and machinery was disposed of for Rs. 33.50 lakhs and the sale confirmed on 4-11-1999. On 13-12-2001 the Court fixed the reserve price of the land and building at Rs. 2.70 crores on the basis of valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Court. However, it appears that no sale proclamation was published in the Hindi 'Rajasthan Patrika' as directed by the Court. 3. Pursuant to the said sale proclamation, 6 bids were received including that of Gagan Educational Society (in short 'GES'). GES gave an offer of Rs. 90 lakhs. On 4-11-2004 inter se bidding was held between the 6 bidders and GES raised its offer to Rs. 1.30 crores. GES deposited the aforesaid amount of Rs. 1.30 crores. However, it appears that there was some difficulty faced in delivering possession of the land and building to GES by the O.L. on account of encroachment. While that aspect was being looked into by the Court, M/s. Synergy Steels Limited filed CA No. 1063/2005 by making an offer to purchase the said land and building for Rs. 1.35 crores. However, on 11-8-2005, the Court observed that 'the offer made is not substantially higher to consider fresh auction'. M/s. Synergy Steels Limited, therefore, withdrew the application with liberty to make a fresh offer of higher amount. 4. M/s. Synergy Steels Limited thereafter filed CA No. 1286/2005 enhancing their bid to Rs. 1.50 crores. On 15-9-2005 notice of this application was issued to the Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. filed C.A. No. 544/2007 for further enhancement of the bid price to Rs. 4.50 crores. Notice of this application was issued to GES as well as to M/s. Indocap Pvt. Ltd. Finally, IFCI Limited, one of the secured creditors, filed CA No. 698/2007 in the aforesaid chain of applications, wherein IFCI has sought the setting aside of the earlier auction sale and also demanded a fresh auction on the basis of the fresh valuation. Notice of this application was also issued to GES. IFCI Ltd. states that it has caused a fresh valuation of the said property to be carried out in order to ascertain its realizable value. The said valuation was carried out by Hardicon Limited on the basis of the prevailing cost of land in the area and the present condition of the building. As per the report, the realizable value of the said Land and Building is Rs. 10.50 crores. Even the Distress Sale Value is Rs. 8.925 crores. The said values are much above the highest bid received till date in respect of the said property. A copy of the valuation report of June, 2007, of Hardicon Limited has been produced with the said application. 8. The claim of IFCI Ltd. is that apart from the applicant, there are other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion directed by this Court. This Court after taking note of the offer of M/s. J.J. Realtors in C.A. No. 722/06 accepted the enhanced offer of GES of Rs 3.51 crores vide order dated 27-7-2006 and directed them to pay the balance amount. The balance amount was duly paid within the stipulated time and, thereafter, even the possession of the said land and building was formally handed over to them by the office of the Official Liquidator vide their possession memo dated 8-8-2006. 11. The application preferred by M/s. Indocaps Private Limited (C.A 1185/06) was filed only thereafter on 4-10-2006, and that too without the amount of EMD, commensurate with its offer for Rs. 4.10 crores. It is claimed that the ex-Directors of the Company under liquidation, in collusion with their friends and relations, have been getting Applications filed through one entity or the other with enhanced offers to buy the property every time the offer of the auction purchaser is accepted by this Court, and that too only after the auction purchaser deposits the enhanced bid amount. All earlier applications were filed by different entities/companies, each of such Applicant company falsely stating that they were no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id affidavit despite specific directions in this regard in the order dated 5-10-2006, with a view to conceal the fact that all the Directors and Shareholders of the two companies are the members of the same family. 14. So far as CA No. 554/2007, filed by Surya Finvest Pvt. Ltd. is concerned, GES has raised a preliminary objection to the maintainability of the said application, on the ground that it is not accompanied with the amount of EMD. GES also submits that this application is, even otherwise, not maintainable as the bid of GES already stands confirmed on 27-7-2006 and pursuant to this they have already deposited the whole of the bid amount and have taken over the possession of the property in question as per the orders of this Court. 15. GES in its reply to the application filed by M/s. IFCI Ltd. (CA No. 698/2007) has denied that the confirmation of bid/auction of the property in question was below the reserve price or below the then prevailing market price at the relevant point of time. It is argued that once the highest bid offered by them was confirmed, pursuant to which the entire bid/auction amount was paid within the time allowed and the possession of the Property auc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also on the board of Directors of M/s. Data Developers Ltd. It is also stated that the applicant is a separate legal entity and has no connection whatsoever with the Ex-Directors/their family members of M/s. Saraf Paper Mills Ltd. the company in liquidation. Contentions of the Official Liquidator 17. The Official Liquidator attached to this Court has also filed its reply to C.A 1185/2006 opposing the same as being highly belated, as the Sale Notice was published on 7-10-2004; the last date of submission of bids was 2-11-2004; and thereafter, the bid was finally confirmed in favour of Auction Purchaser on 27-7-2006. It further stated that the prices of the properties are increasing day by day and in case the application of the present nature are entertained and allowed, there would be no end to litigation and the process of liquidation will come to a halt. 18. The stand taken by Official Liquidator in response to the application filed by Surya Finevest Pvt. Ltd. is similar to its stand in response to CA 1185/2006. However, it is submitted that the Official Liquidator has no objection to the property being sold to Surya Finvest Pvt. Ltd. in case the auction purchaser i.e., GES als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed expenses in running the factory and entered into contracts with various parties. No appeal had been preferred against the order dated 15-9-1989 directing sale of the properties till 3-2-1990, and stay of the sale was not even asked for. The auction purchaser had been allowed to take possession after the sale. It was only after the purchaser had taken possession, employed people and placed orders that the bank had woken up to challenge the sale. The delay was found by the Division Bench to be fatal to the case of the Bank. The Division Bench, however, observed : "There is however, considerable force in the argument of Mr. Mitra that the sale was made with undue haste. The proposal for sale of a large paper mill should only have been effected after giving wide publicity all over India. Moreover, the successful bidder's offer should have been examined in depth before acceptance. Some enquiry should have been made to find out the number of workers actually employed by the company-in-liquidation at the time of the closure of its mills. .... The sale of the assets should not have been made in a way to deprive the right of all the creditors, including the banks, to proceed against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licity. Inadequate publicity necessarily suggests the possibility that a better price could have been obtained. ****** The observation of the Division Bench in the order under appeal that the sale was conducted with undue haste is very appropriate. So are the other critical observations that the Division Bench made, which we have quoted above. It could not but have been obvious to the Division Bench, therefore, that there was every possibility that the sale had not procured the best possible price. Even so, the Division Bench did not interfere with the order of sale, because, in its view, the second respondent had been allowed by the banks to take possession of the assets and properties and to incur expenditure. In our view, the Division Bench was in error. Upon liquidation, the assets and properties of the company in liquidation vest in the official liquidator for the benefit of its creditors. It is only from out of the sale proceeds of these assets and properties that the creditors of the company can hope to recoup their dues. To ensure that the best possible price is realised upon the sale of these assets and properties, the sale thereof by the liquidator is required to be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fraud. . . ." (p. 941) 25. The Court emphasised that the interest of the creditors of the company, particularly the unsecured creditors, ought to outweigh equities, if any, arising in favour of the auction purchaser on confirmation of sale and handing over of possession. The Supreme Court held that holding of auction in Court without giving opportunity to members of the general public to participate in the auction was not sound exercise of discretion. 26. In Divya Mfg. Co. (P.) Ltd. v. Union Bank of India [2000] 6 SCC 691 , the Supreme Court disapproved of the practice of submitting bids at the least possible price in court auctions by the bidders and subsequent attempts by them to raise the price to bare minimum possible price but the market price. In that case a submission was made before the Court that once 'the sale is confirmed, subsequent higher offer cannot constitute a valid ground for setting aside such confirmation'. It was also contended that the court could not review its earlier order having become functus officio. The Apex Court rejected these submissions and observed in paragraph 11 of the judgment as follows : "11. In our view, on facts it is apparent that the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not by a business house well versed in the market forces and prices. 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 the shortest time." (p. 79) 28. In LICA (P.) Ltd. (No. 2)'s case (supra) the Court had earlier set aside the open auction conducted and directed inter se bidding between the applicant and the auction purchaser in the court. However, subsequently when even this auction was challenged before it, it directed fresh open auction since it was of the opinion that the inter se bidding had failed to fetch the market price for the assets in question, and it was within the interest of the creditors that the assets of the company fetched adequate price. 29. Thus, the powers and obligations of the Court with respect to auction sale of properties of a compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hers tendered their bids, and the subsequent acts and omissions on his part. The erstwhile management is either not interested (on account of the fact that it does not see any hope of salvaging anything for themselves from the sale of the properties and assets of the company (as the claims of the secured creditors and employees etc. take priority over their claims as shareholders), and because it is generally insulated from any personal liability (as the company is a limited liability entity), or sometimes may itself be interested in ensuring that the sale of the property and assets of the company takes place at prices well below the prevailing market price, to make covert gains in the bargain. The interest of the secured creditors is also limited to ensure that their claim is satisfied. They are not particularly concerned with the satisfaction of the claims of the unsecured creditors or the contributories/shareholders. It is the obligation of the Court to watch the interest of the creditors, workmen and shareholders of the company in liquidation. However, in the case of a sale by auction in execution of a civil court's decree under Order XXI CPC, the Judgment Debtor would normally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a proper price in the course of the sale. Therefore, failure to apply its mind to this aspect of the conduct of the sale may amount to material irregularity. Here, substantial injury without material irregularity is not enough even as material irregularity not linked direct to inadequacy of the price is insufficient. And where a Court mechanically conducts the sale or routinely signs assent to the sale papers, not bothering to see if the offer is too low and a better price could have been obtained, and in fact the price is substantially inadequate, there is the presence of both the elements of irregularity and injury." (p. 214) 34. This was a case where there were 40-50 bidders present in the court including leading industrialists, on each occasion the auction took place, including the day on which the bid in question was made. That is certainly not the position before me in this case and this case also does not advance the auction purchaser's submissions. 35. Reliance has been placed upon Ashwin S. Mehta v. Custodian [2006] 65 SCL 261 (SC) to contend that ordinarily a sale can be set aside only under rules 89, 90 and 91 of Order XXI. However, I find that this was a case wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll two storeyed with three stairs. It has gantly rails over columns brackets on F.F. Area = 7132 sq. ft., Ht. GF 16, FF 10' up to truss tie. (iv)Continuous Hall of the storeyed like (iii) above, Area = 3140 sq. ft., Ht. GF 16', FF 10' up to truss tie. (v )Continuous Hall of the two storeyed like (iii ) and (iv) above, Area = 3140 sq. ft., Ht. GF 16', FF 10' up to truss tie. (vi)Continuous G.F. Hall of the two storeyed like (iii) to (v) above, Area = 4273 sq.ft. Ht. as above. (vii)Continuous Hall of three storeyed Area GF = 3937.5 sq. ft. Ht. 16? Area FF = 3937.5 sq. ft. Ht. 10? Area SF = 3937.5 sq. ft. Ht. 12? up to truss tie (viii)Side Hall Single storeyed for straw cutter Area = 1735 sq. ft. Ht. 14' (B) Administrative block office.-A single storey office building having 9 rooms, a toilet, a passage and an entrance hall. Area = 3666 sq. ft. (C) Canteen.-A single storeyed building having a Hall, three rooms, a bath, a W.C. a Passage an open platform in front. Area + 792 sq. ft. (D) Mandir.-A single storeyed building having a Hall Area 256.25. sq. ft. (E) Block of Single Storeyed 3 Rooms.-Area = 858.5 sq. ft. (F) Block of Single Storeyed.-Ten rooms. Diplated conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aser. The Court issued a fresh sale proclamation on 26-8-2004 fixing the reserve price at 60 per cent of the fresh valuation. Pertinently, amongst the six bids received in response to the sale proclamation the offer of GES was for Rs. 90 lakhs as against the reserve price of Rs. 71.77 lakhs. On 4-11-2004 GES raised its offer during inter se bidding between six bidders to Rs. 1.30 crores. This bid of GES was accepted. At this stage M/s. Synergy Steel Ltd. Moved CA No. 1063/2005 to make an offer of Rs. 1.35 crores. The Court found the offer only marginally higher than the bid of Rs. 1.30 crores given by GES and, therefore, rejected the same. Soon thereafter M/s. Synergy Steel Ltd. made an offer of Rs. 1.50 crores by moving CA No. 1286/2005. The Court while entertaining this application directed that possession of the property be not handed over to GES. Therefore, it appears that even at that stage, though the auction purchaser GES had paid the entire consideration of Rs. 1.3 crores, the Court was still open to accept a higher offer, provided the same was substantially higher. M/s. Data Developers Ltd. made a still higher offer of Rs. 1.70 crores by moving CA No. 474/2006. On 20-4-200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouple of months, to Rs. 1.30 crores i.e. over 40 per cent higher than its initial bid. Between 4-11-2004 and 27-4-2006, (i.e, about 18 months) once again on a limited bidding between only 3 bidders, GES raised its offer to Rs. 3.15 crores to beat the next highest bid of M/s. Data Developers Ltd. This shows that an increase in the offer made by GES by 142.30 per cent over a period of about less than 18 months. On 27-7-2006 GES again offered Rs. 3.51 crores. This shows a further enhancement of 11.43 per cent over a period of 3 months. The offer of Rs. 3.51 crores was made to defeat the offer of M/s. J.J. Realtors Pvt. Ltd., of Rs. 3.50 crores. 42. The aforesaid analysis clearly shows that GES never participated in spirit of purchasing the land and building in question on its true correct market value. Each of the successful offers made by GES was substantially higher than its earlier successful offer, within a short span of time. The endeavour was merely to secure the property in question at the minimum amount that was necessary to be offered to emerge as the successful bidder. The further offers made by M/s. Indocaps Pvt. Ltd., on 5-10-2006 for Rs. 4.10 crores and thereafter by M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase of Land and Building belonging to the abovesaid Company situated at Delhi Alwar Road, M.I.A. Extension, Alwar, Rajasthan. The tenders can be submitted for : (i )For Land and Building (2) The property in question of the abovesaid Company can be inspected on 19-10-2004 and 20-10-2004, between 12-30 p.m. and 4 p.m. (3) The tender should reach the office of Official Liquidator, A2, W2, Curzon Road Barracks, K.G. Marg, New Delhi - 110 001, on or before 2-11-2004, in sealed cover marked 'Offer for Purchase of Land and Building of' 'Saraf Paper Mills Limited (In Liqn.)', accompanied with Demand Draft or pay order drawn in favour of Official Liquidator, Delhi, payable at New Delhi, towards Earnest Money as under : Reserve Price Earnest Money. Land and Building Rs. 71,77,692 Rs. 7,17,769 (4) That before submitting their tenders the tenderers should satisfy themselves from the appropriate authorities about the right/title duty and dues payable to them in respect of the property in question including all other covenance running with the property, as later on no objection of any kind shall be entertained in this regard by the Hon'ble Court. (5) The tender will be opened on 4-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude at least the dimensions of the land and building that are proposed to be sold through public auction while issuing the sale proclamation. It is well known that the buyers for a large industrial plot with massive construction thereon are a different class when compared to buyers who may be interested in smaller plots. The purpose of issuing the sale proclamation is to catch the attention of that class of buyers who are interested in, and have the capacity to buy the property being put for sale by auction. In the present case, this objective has certainly not been achieved, thanks to the wholly misleading drafting of the sale proclamation. The only thing disclosed in the sale proclamation dated 4-10-2004 is the fact that industrial land with building situated at Delhi, Alwar Road in M.I.A. Extension, Alwar, Rajasthan is being offered for sale. The reserve price of Rs. 71.77 lakhs does not give any clue about the extent of the property. If anything, it is highly misleading of the extent of the property, as it is highly depreciated. To illustrate the point, I may take the instance of a sale proclamation in respect of a 'vehicle'. The 'vehicle' may be a bicycle, a two wheeler, a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , inter alia, the Official Liquidator. 48. IFCI is one of the secured creditors of the company in liquidation and is interested in realization of the highest value from the sale of the land and building to meet repayment of the dues of the secured creditors and the workmen which would rank pari pasu. IFCI has produced a valuation report of another valuer namely Hardicon Ltd., of June, 2007 which values the land and building at Rs. 10.50 crores and even the distress sale value is Rs. 8.925 crores. It, therefore, appears that the price of Rs. 3.51 crores finally offered by GES is very below the market price prevalent even as on 27-7-2006. 49. The land and building in question which is of substantial dimensions and magnitude was not adequately advertised so as to give sufficient notice to interested parties. Only a handful of bidders learnt of the same and GES has sought to exploit this situation. The phenomena that one has seen in this case i.e., of repeated applications being made to increase the bid price by one or the other entities soon after the bid made by GES had been accepted by the Court on each occasion, and on each occasion GES has marginally increased its bid to out do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary to go into the allegations made by GES against the ex-directors of the company in liquidation Mr. Gautam Saraf and promoters of Data Developers Ltd., and Indocaps Pvt. Ltd. However, there appears to be complicity between these entities. Consequently, I dismiss CA Nos. 1185/2006 preferred by M/s. Indocap (P.) Ltd., and CA No. 554/2007 preferred by M/s. Surya Finvest (P.) Ltd., with costs of Rs. 20,000 each, to be deposited in the Common Pool Fund within ten days. In case the costs are not deposited, the same shall be deducted from the deposits made by them in this Court. Both these applicants are also warned against making such non-serious bids in future, which lead to the wastage of the precious time and resources of the Court. 53. I must also observe that the valuer Lt. Col. R.K. Kohli who twice valued land and building, once in June, 1997 and again in August, 2004 does not appear to have acted with a sense of responsibility either, while acting as an independent valuer. The said valuer had valued the property in the year 1997 at Rs. 2.97 crores (which included the plant and machinery and which was disposed of Rs. 33.50 lakhs on 4-11-1999). It is not understood how the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the land and building ever since the day it was put in possession. On the other hand, the conduct of the GES in trying to purchase the property in question at a throw away price deserves strongest condemnation. A party who approaches the Court with designs of exploiting the process of a court auction of the properties of a company in liquidation, does not deserve any latitude or sympathy from the Court. No equities arise in favour of such a party. I, therefore, direct the official liquidator to release to GES the actual amount deposited by GES with the official liquidator without any interest accrued thereon, after deducting an amount of Rs. 20,000 towards costs, to be deposited in the Common Pool Fund. The amount shall be released within two weeks of the actual physical possession of the land and building of the company in liquidation in question being taken over by the Official Liquidator. 57. On account of the aforesaid conduct of the Official Liquidator, he is personally subjected to costs of Rs. 10,000 to be deducted from his salary and to be deposited in the Common Pool Fund. A copy of this order be sent to the Secretary, Ministry of Corporate Affairs, Shastri Bhawan, Go ..... X X X X Extracts X X X X X X X X Extracts X X X X
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