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TMI Blog2009 (9) TMI 582X X X X Extracts X X X X X X X X Extracts X X X X ..... reserve price already fixed by this Hon'ble Court as the present upset price for sale of the same ; (c)to permit the Official Liquidator to invite sealed tenders through advertisement in the newspapers specified in paragraph 9 of this report, and to pay the expenses of the advertisement from and out of the funds to the credit of the company-in-liquidation ; (d)to approve the draft sale notice, tender form and terms and conditions marked as "Annexure A" to this report ; (e)to direct that the expenses incurred for the sale will come out of the assets of the company-in-liquidation ; (f)to direct that the cost of this application do come out of the funds of the company-in-liquidation." 3. The appellant/applicant filed C.A. Nos. 1953 to 1956 of 2008 in C.A. No. 1983 of 2007 seeking the following reliefs : "(a)to direct the Official Liquidator to trace the balance original documents pertaining to the property and hand over the same to the purchaser; (b)to direct the Official Liquidator to engage the services of the concerned revenue officials to locate the lands, survey and to fix the boundaries and to lay revenue stones and deliver possession thereof; (c)to direct the Official L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conveyance. The IDBI handed over only 26 documents covering an extent of 20 acres and the other documents were not delivered. When the appellant/applicant made a request on 3-6-2008, the Official Liquidator handed over 26 documents. The date of handing over possession was fixed on 12-6-2008. When the applicant was present for taking possession of the property, it was found that it was a barren land and there were no boundary stones. The Official Liquidator had also prepared the minutes for handing over physical possession on the said date but he has not handed over physical possession of the properties with boundaries. However, the appellant/applicant has taken possession of the property in full faith. On a perusal of the documents, the appellant/applicant was not able to identify the correct location of the lands. He approached the Official Liquidator, requesting for handing over of documents and surveying of lands and also requested not to disburse the sale consideration to any secured creditors. Though the appellant/applicant has paid the full sale consideration, he was unable to take possession of the entire property and also the original documents were not available. Under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the properties and making representations as to the company-in-liquidation's interest therein, which was evident from the fact that the description of the property mentioned in the tender terms and conditions were erroneous and prepared without application of mind and without any basis and, hence, the offer made in furtherance of the same by the appellant and accepted by the Court was liable to be recalled and set aside; that the words "as is where is and whatever there is basis" cannot apply to the facts of the case or to a sale made by the Court in exercise of the powers conferred under the provisions of the Companies Act, more particularly to the immovable properties and sanctify the act of the Official Liquidator in mis-describing the property or including the survey numbers of lands which admittedly cannot or never belonged to the company under liquidation and thereby exposing the auction purchaser, i.e., the appellant, to loss ; that subsequent to the acceptance of the bid of the appellant and payment of the amount representing the earnest money deposit, the appellant had moved a memo seeking for verification of the title deeds, which was opposed by the Official Liqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after handing over symbolic possession, the boundaries were sought to be fixed by the purchaser, i.e., the appellant pursuant to the orders passed by the Court and that during the same, several misdiscrepancies, as set out in the memo and extracted in the order, were found rendering the sale void and those discrepancies were well within the knowledge of the Official Liquidator, who did not bring it to the notice earlier; that even prior to the completion of the sale and remittance of the amount, the appellant had sought for fixing of boundary stones as there was no demarcation of the property, which was opposed by the Official Liquidator on the ground that the relief sought for at that point of time was luxurious; that having opposed the memo filed for fixing boundary stones and furnishing title deeds, it was not open to the Official Liquidator to oppose the applications; that the duty is cast upon the Official Liquidator to disclose every aspect, more particularly when the said disclosure, if not done, would affect the judgment of the bidders; that any sale by the Court is one on good faith, trust and confidence and classified as contract of uberrimae fide and, therefore, when th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or could be applied; that it is not correct that section 55 of the Transfer of Property Act was not applicable to the sale made by the Official Liquidator; that it is also not correct that the provisions of Order 21, rules 90 to 92 of the CPC were not applicable to the sale made by the Official Liquidator in exercise of the powers of the Companies Act. 10. Added further learned senior counsel that it is also not correct to state that the rough sketch submitted along with the tender terms and conditions showing the property to be contiguous and having entrance from the main road, did not amount to any representation; that based on the same, believing the land to be contiguous and having access from the main road, an offer was made by the appellant and that when the same was not true, the appellant was entitled to rescind from the sale; that the appellant, at no point of time, wanted to walk out of the sale for any reason, more particularly the reasons set out by the learned Single Judge as to the global recession; that it is pertinent to point out that the reliefs sought for in C.A. Nos. 1953 to 1955 of 2008 seeking for curing of the defects were resisted by the Official Liquidator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to take into custody of the properties of the company; but the properties do not vest with the Official Liquidator and he could act only as per the records of the company under liquidation; that the Official Liquidator cannot hold any guarantee or warranty when he sells the properties of the company under liquidation; that in case of auction sale, there is no warranty of title and issuance of a notification by the Official Liquidator was only an invitation to treat and the offer is actually made by the bidder and the acceptance is by the auctioneer, namely, the Official Liquidator; that only on acceptance, the contract becomes complete ; that the auction purchaser is expected to investigate into the title before making such offer; that in the instant case, the notification was issued and publication was also made on 16-12-2007; that after long interval of such publication, the appellant has purchased the property and that during the interregnum period, the appellant should have made necessary enquiry in respect of the title and possession of the properties and if not done, it was his fault and he should not find fault with the Official Liquidator; that in the instant case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not covered by the doctrine of caveat emptor as what is contemplated in Order 21, rule 91 of the CPC is different; that even Order 21, rule 90 of the CPC cannot be applied to the present case since for application of the said provision, not only some material irregularity should be there, but also it should have caused substantial injury; that the law would require a specific plea and proof for the substantial injury; but, in the instant case, there was neither pleading nor proof therefor and that under such circumstances, even Order 21, rule 90 of the CPC cannot be pressed into service by the appellant. 15. Learned senior counsel would further submit that had the auction purchaser acted in a reasonable and prudent manner, these discrepancies could have been discovered earlier and there was an opportunity for him to drop out from the sale even before making the balance of sale consideration; that in the absence of pleadings that steps were taken by the appellant for verification of the title, inspection of site, etc., it would be quite clear that the appellant was only taking advantage of the fall in prices of the immovable properties and, thus, it was an attempt to back out f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the tender notice; that it is not correct to state that the properties are not contiguous or in different places and the field map would clearly indicate that the entire extent of 41.12 acres situate in two villages as one piece of land; that insofar as the complaint made by the appellant that the documents in respect of the entire landed property was not handed over is concerned, admittedly, 26 original documents were actually handed over; that in respect of the other documents, the First Leasing Company of India Ltd., has given the certified copies of all the documents of title pertaining to the entire property; that insofar as the original documents are concerned, excepting 26 documents which were actually handed over to the appellant, the remaining cases were in the custody of Apple Credits, one of the creditors of the company-in-liquidation; that it is also pertinent to point out that the said Apple Credit Company has filed an application before the company court showing the Official Liquidator as sole respondent for recovery of the dues and, hence, it remains to be stated that the company was under winding up proceedings and it is quite natural that all the documents of ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roperties in question, namely, 41.12 acres of land of the company-in-liquidation situated in Kilai and Ulundai villages. In paragraph 7 of the report of the Official Liquidator dated 20-6-2007, it was stated as follows : "7. It is submitted that the sale of another property a vacant land to an extent of 41.12 acres belonging to the company-in-liquidation, situated at in various survey numbers in Kilai and Ulundai village, Sriperumbudur, Thiruvallur District was confirmed for an amount of Rs. 14,00,000,000 in favour of Shri S. Yusuf Siddique, the highest bidder, who subsequently failed to remit the balance sale consideration and this Hon'ble Court by an order dated April 26, 2007, in C.A. No. 392 of 2007 forfeited the EMD of Rs. 2,00,000 received from Shri S. Yusuf Siddique and directed the Official Liquidator to obtain fresh valuation report from ITCOT for auctioning the said property. Accordingly, the Official Liquidator has got the property valued afresh through ITCOT on May 28, 2007 and received the valuation report in a sealed envelope, which is in the custody of the Official Liquidator and will be submitted before this Hon'ble Court, at the time of hearing of this application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cres were shown in different survey numbers in Kilai village. 23. From the very reading of the report of the ITCOT, it will be quite clear that the title deeds pertaining to the property were never handed over for valuation and the ITCOT had relied upon the documents available with the previous owners of the land to ascertain the extent and the same was used as the basis for the report. According to the report, there was a village road leading to Kilai village. But, it could be seen from the available materials, though there is a road, the starting point of the road is actually blocked by the property in the possession of the Government department. The rough sketch would indicate as if the entire land of 41.12 acres was contiguous and also in one piece. But the field map in the hands of the Court would clearly indicate that the properties are in two different villages. 24. Apart from that, with regard to the survey numbers, as found in page No. 8, S. No. 294/1G measuring an extent of 1.18 acres; item Nos. 12 to 21 relates to survey Nos. 330/6A1, 330/6A2, 330/6A3, 330/6B, 330/6B2, 330/ 6B3, 330/6C1, 330/6C2, 330/6D1 and 330/6E1. All these pieces of land, as could be seen from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id the balance earnest money deposit of Rs. 2 lakhs only and the Court made the following order : "2. Therefore, call this matter on March 24, 2008, for reporting compliance of the payment of first 50 per cent of the balance sale consideration. In the meantime, the Official Liquidator is directed to get copy of the documents which are said to be in the possession of Industrial Development Bank of India. 3. Learned Special Government Pleader (Civil Side) is also directed to get the field map of the two properties, namely, Ulundai village in Tiruvallur Taluk and Kilai village in Sriperumbudur Taluk and hand it over to the Official Liquidator. Since the successful purchaser desirous of scrutinising the field map, the Special Government Pleader is directed to get the same at the earliest, not later than March 6, 2008 and hand it over to the Official Liquidator. The Official Liquidator on getting the document from Industrial Development Bank of India and field map from the Special Government Pleader, may hand over the same to the successful bidder by the Official Liquidator. 4. Call on March 24, 2008." 26. Since the said direction of the Court was not complied with by the Official L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly indicate that though it was stated that possession of the property was taken, the properties could not be identified and possession was also taken on good faith. It was also stated in the very same letter that only 26 documents were given and that would be to an extent of approximately 20 acres and the documents pertaining to the balance of 21 acres and odd were not handed over to the appellant and the delay in handing over of the documents and the correct extent of the land fixing the boundaries was causing huge loss to the company day-by-day and even in that letter, the appellant has requested the Official Liquidator to hand over the correct extent of land with boundaries by engaging the services of the concerned revenue officials to locate the lands, fix the boundary and to survey the lands and also to hand over the original documents in respect of remaining 21 acres of land and not to disburse the sale consideration to the secured creditors, pending issues. Under such circumstances, the said applications, namely, Company Application Nos. 1953 to 1956 of 2008, were taken, seeking the above-mentioned reliefs, on 30-6-2008. 30. Pending applications, on 16-7-2008, the learned S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts might be available. The ex-directors have not co-operated with the Official Liquidator in that regard. Insofar as the execution of 0.68 acres in S. Nos. 375/9, 375/10, 375/11 and 353/9, the Court might determine the issue and give directions accordingly. (b) Insofar as the land at Kilai village is concerned : (i)The land to an extent of 2.33 acres of S. No. 330/7 as per the documents and 2.16 acres as per the revenue records is classified as 'Cherry Natham' and the purchaser has requested re-classification of the said land which was possible only by the State Government. Hence, the Court might consider issuing a direction to the Government of Tamil Nadu for re-classification of the land in accordance with law. Since the land is situate in the middle of the land purchased, the purchaser will be put to hardship, if not reclassified. (ii)It is also the fact that the entry/entrance to the site part of S. No. 330 is designated as Government land and does not belong to the company-in-liquidation. This is the only entrance available to the impugned lands. Hence, the Court might direct the Government of Tamil Nadu to consider giving the land on lease or sell the land to the purchaser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Official Liquidator has stated that while such discrepancies were noticed, it was not clear why ITCOT gave such a valuation report and how First Leasing Company of India Ltd., the secured creditor, has availed of loans on the strength of the impugned land. 34. It is contended by the respondents before the learned Single Judge and equally here also that the sale was not in furtherance of the sale notice and even assuming that the sale took place as such, there was a long interval available for the appellant purchaser to verify all information and particulars regarding the property in question, since it is a case where the doctrine of caveat emptor (purchaser beware) would apply and not the doctrine of uberrimae fide (in good faith). As could be seen from the available materials, originally on 4-1-2008, there was only one bidder and in view of the deficiency of offers, the same was adjourned to 1-2-2008, that was, on the representation on behalf of the prospective buyers on 24-1-2008 and, hence, it would be quite clear that the offer made by the appellant was in furtherance of the sale notice. 35. As rightly contended by learned senior counsel for the respondents, it is not a cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rds the movable and immovable assets, as to their title, encumbrances, area, boundary, description, quality, quantity, and volume, etc., and the purchaser will be deemed to offer with full knowledge as to the description, area, etc., of the properties and defects thereof, if any. The purchaser shall not be entitled to claim any compensation or deduction in price on any account whatsoever and shall be deemed to have purchased the property subject to all encumbrances, liens and claims including those under the existing legislation affecting labour, staff, etc. The Official Liquidator shall not entertain any complaint in this regard after the sale is over. Any mistake in the notice inviting tender shall not vitiate the sale.' [Emphasis supplied] 14. When the Official Liquidator sells the property and assets of a company-in-liquidation under the orders of the Court he cannot and does not hold out any guarantee or warranty in respect thereof. This is because he must proceed upon the basis of what the records of the company-in-liquidation show. It is for the intending purchaser to satisfy himself in all respects as to the title, encumbrances and so forth of the immovable property that h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets. It is true that the Official Liquidator did not hold out a warranty or guarantee when a sale of an immovable property was made by him. It was urged by the respondents' side that it is a fit case where the doctrine of caveat emptor (purchaser beware) would apply to the present facts of the case. The Court is of the considered opinion that this doctrine, which is ordinarily applicable, cannot be extended to a case, where the vendor did not have title to the property. As could be seen above, in respect of a piece of land in the middle of the land to an extent of 2.16 acres, it is described as "Cherry Natham" and the title of the property, during the relevant time was not with the company-in-liquidation. Apart from that, the piece of land situate in the front point of the road was actually Government poramboke in which also the company under liquidation did not have the title over the property. Further, in respect of some pieces of land, the title of the property vested with individual owners, who had nothing to do with the company under liquidation. Under such circumstances, the Court is of the considered opinion that the doctrine of caveat emptor cannot be extended to the pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to give a direction to the Government of Tamil Nadu to consider giving the land on lease or sell the land to the purchaser. The Court is afraid it cannot allow the Official Liquidator to get shelter under the clause that the property was sold "as is where is and whatever there is basis" or under the doctrine of caveat emptor. 40. Insofar as possession of the property is concerned, the Official Liquidator approached this Court for sale of the property with a report that he has taken possession of the immovable property of the company along with the materials available. Equally a letter dated 20-6-2008, was addressed by the appellant/purchaser to the Official Liquidator stating that pursuant to the order dated 30-4-2008, the possession of the property was handed over along with 26 original documents; but it was difficult to identify the correct location and the extent of the lands without the boundaries; but they have taken possession of the property on good faith. All the materials placed before the Court would clearly indicate that neither the Official Liquidator, as per the report, has taken possession nor the appellant/purchaser has taken actual possession of the property thoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is satisfied that the applicant has sustained substantial injury by reason of such irregularity or fraud. (3) No application to set aside a sale under this rule shall be entertained upon any ground which the applicant could have taken on or before the date on which the proclamation of sale was drawn up." 42. For the application of the above provision, the party, who is seeking to set aside the sale, must specifically plead and prove that there was not only the material irregularity but he has also suffered substantial injury. It was contended by the appellant's side that the provision under Order 21, rule 90 of the CPC has got application to the present facts of the case, since there was not only material irregularity but also there was substantial injury to the appellant. But the respondents contended contrary. In the instant case, it is noticed that in the description of the immovable property, there was a positive assertion by way of Annexure to the tender terms and conditions and, as narrated above, they were thoroughly erroneous, misguiding and misleading. The act of the Official Liquidator in mis-describing the property and including the survey numbers of land, which admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of survey number and ownership of the property. Had the Official Liquidator made a disclosure of all the material aspects after the payment of the earnest money deposit, the Court would not have ordered the sale and if there was disclosure, the appellant could not have ventured into make an offer. Even after the payment of earnest money deposit, he has filed a memo seeking reliefs and there were directions issued by the Court to the Official Liquidator to do, but the Official Liquidator, instead of following the orders of the Court, filed a detailed report accepting the discrepancies, along with making an admission that the land to an extent of two acres and odd was classified as "Cherry Natham", which is in the middle of the property, and the same has to be re-classified and that insofar as the entry point was concerned, the property belongs to the Government. The contention put forth by the appellant is that in respect of 2.16 acres classified as Cherry Natham, though it could be re-classified, there was a proposal for exchange made by the Government. But, at this juncture, it is pertinent to point out that the re-classification of Cherry Natham was possible if the private owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o come out of the contract but to stick to the sale, if he was given possession and documents pertaining to the property. On the contrary, the Official Liquidator vehemently opposed the first three reliefs. Under such circumstances, the appellant had no option but to press the fourth relief, namely, setting aside the sale and refund of the consideration amount and, hence, the said contention put forth, cannot be accepted. 45. In view of the material irregularities noticed, which would go to the root of the sale effected by the Official Liquidator and the appellant, who believed the sale tender notice and the report of the valuer, which were with mis-descriptions, suppression of necessary material particulars and suggestive of things, which were not available, made the offer to purchase and despite the memos and orders of Court neither the title deeds pertaining to the property were given nor he was put in actual possession and, thus, he has incurred substantial injury. Under such circumstances, the Court is of the considered opinion that it has to exercise its inherent powers conferred under rule 9 of the Companies (Court) Rules, 1959, which reads as follows : "9. Inherent powers ..... X X X X Extracts X X X X X X X X Extracts X X X X
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