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TMI Blog2012 (6) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... e terms and conditions that may be prescribed by the liquidator." 2. The official liquidator, thus, seeks that the sale of the property in question which was confirmed by the court at earlier stage, may be allowed to be terminated and the official liquidator also may be permitted to forfeit the amount deposited by respondent No. 1, i.e., the successful bidder during the auction sale. 3. So as to appreciate the purport and the scope of the present application, It is necessary to take into account certain earlier events and certain orders passed in the earlier application. The details relevant for the purpose of consideration and determination of the present application, are as mentioned below. 4. A company, named Mahendra Mills Ltd., was ordered to be wound up vide order dated January 24, 2001. In pursuance of the said order, the official liquidator was appointed who took the custody and possession of the property of the company in liquidation and started taking necessary steps towards the winding up of the said company. 5. As part of the said process, the official liquidator proposed to sell certain -parcels of land, more appropriately described in the advertisement for auction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hase consideration will have to be paid within three months thereafter by the purchaser or within such time as may be fixed by the hon'ble High Court. 16. The property shall be handed over to the purchaser on payment of full sale price to the official liquidator and/or subject to such direction as the hon'ble High Court may issue in the matter. 17. If the purchaser do not pay the balance amount or purchase consideration to the official liquidator as directed by the hon'ble High Court in time, the official liquidator shall terminate the sale and forfeit the deposit. This condition and other conditions in respect of the payment of purchase consideration are without prejudice to the right of the official liquidator. If the vendor terminates the contract as aforesaid he will be entitled to put the properties for re-sale with the permission of the hon'ble High Court. 24. If the purchaser fails to pay the purchase money/balance amount and all costs, charges and expenses payable by him to the vendor within time specified there-in-above and in all other respect perform these conditions or any of them, his entire amount deposited till then shall be forfeited and the vendor shall be at li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the above, as the offer of M/s. Devganga Traders of Rs. 10.20 crores is being the highest offer, the same deserves to be accepted and is accepted on the conditions as stated hereinafter in addition to the conditions incorporated in the terms of the tender." 10. The relevant conditions from amongst the further conditions prescribed vide aforesaid order dated February 22, 2006, are : "6. (2) The auction purchaser shall pay 25 per cent of the purchase consideration on or before March 10, 2006. The amount of earnest money deposit shall be adjusted in the last payment. The balance amount of the consideration shall be paid within three months thereafter. (3) It is made clear that the property is purchased with certain encroachment and subject to the litigation in respect to the portion of the property on 'as is where is and whatever there is basis'. Therefore, if encroachment are not removed, the purchaser will be handed over the possession with encroachment but the assistance shall be rendered by the official liquidator for removal of encroachment after seeking proper permission of this court. (4) The possession of the property shall be handed over to the auction purchas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a cheque for Rs. 1 crore dated August 17, 2006, drawn in favour of the Official Liquidator for Mahendra Mills Ltd., which is ordered to be kept with the official liquidator. He has also requested that time limit for making remaining payment may be extended up to September 15, 2006, in view of the flood-situation prevailing in the State. Time to make the remaining outstanding dues is extended up to September 15, 2006. S. O. to August 30, 2006." 16. From the record it appears after the said order dated August 18, 2006, the proceedings of Company Application No. 327 of 2006 were adjourned to August 30, 2006. Thereafter, the proceedings of Company Application No. 327 of 2006 were adjourned to September 15, 2006, when the court passed the following order : "7. In view of the pendency of O.J.C.A. No. 288 of 2006 in O.J. Appeal No. 43 of 2005 and O.J. C.A. No. 217 of 2005 in O.J. Appeal No. 43 of 2005 which is now adjourned to November 13, 2006, office is directed to notify this matter only after disposal of aforesaid O.J. Appeal No. 43 of 2005 and O. J. C. A. No. 217 of 2005 in O. J. Appeal No. 43 of 2005 and/or O. J. C. A. No. 288 of 2006 in O. J. Appeal No. 43 of 2005 and/or on fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 15, 2006 was not passed. 22. By the aforesaid order dated August 12, 2008, Company Application No. 327 of 2006 and the request for extension of time were formally rejected by the learned company court which was formal pronouncement of the fact situation existing after August 31, 2006 and in any case after September 15, 2006. The court vide aforesaid order dated August 12, 2008, observed that: "I. Request made by learned advocate for the applicant to permit the applicant to pay the remaining amount of Rs. 4.20 crores with some interest that may be ordered by the court, is not found acceptable and is rejected." 23. The applicant felt aggrieved by the said order dated August 12, 2008 and preferred O. J. Appeal No. 146 of 2008 on or around September 4, 2008. In the said appeal, on September 11, 2008, the Division Bench passed an order giving certain directions to the official liquidator. The relevant part of the said order dated September 11, 2008, passed by the Division Bench reads thus : "Heard the learned advocate for the appellant as well as learned advocate for the official liquidator. Admit. Notice for final disposal returnable on September 18, 2008. The learned advocate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and the time is not extended by the court, consequence in law was to follow and had fallen. 17. We find that in any event it will be for the official liquidator to submit report before the learned company judge and at that stage, the learned company judge may consider all the relevant aspects. Hence, we leave the said aspects open to be decided by the learned company judge, as and when the appropriate report is submitted by the official liquidator, for suitable directions in accordance with law. Considering the facts and circumstances, we find that as the matter is old and a stalemate was created on account of the pendency of the appeal, the official liquidator shall submit the appropriate report to the learned company judge, preferably within a period of two weeks, from today. We make it clear that at that stage the rights and contentions of all the concerned, as may be available in law, shall remain open. 18. In view of the aforesaid observations and discussions, O.J. Appeal No. 146 of 2008 is partly allowed. The direction No. (I) is not interfered with and the same is confirmed. However, direction Nos. (II) and (III) made therein in the impugned order are set aside. Rule is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of two weeks, from today. We make it clear that at that stage rights and contentions of all the concerned, as may be available in law, shall remain open." 29. Mr. Desai, the learned advocate also submitted that the original auction purchaser, i.e., present respondent No. 1 did not pay full sale consideration and that therefore the sale did not conclude and the official liquidator is, therefore, entitled to the relief/s prayed for in the present report. 30. Mr. Desai also submitted that the order and the tender document prescribed and specified, as condition, the consequence of non-compliance of breach of the "payment condition" in view of which the termination of sale and forfeiture of amounts paid would ensue and therefore also the application deserves to be allowed. 31. Mr. Shah, learned counsel appearing with Mr. Kothari, learned advocate for respondent No. 1 has submitted that : (a) The official liquidator has, by accepting payment after June 10, 2006, waived the right to terminate the agreement and/or to forfeit the amount. (b) The direction sought by the official liquidator and the application are time barred as such right could have been exercised within three year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the successful bidder, i.e., auction purchaser would be forfeited. Therefore the said condition being part of the agreement is equally binding on the parties and the applicant cannot wriggle out of the said provision. Countering the contention on the ground of alleged waiver, Mr. Desai submitted that the right was never waived and actually it was the respondent who continued the application and the appeal, because of which the application could not be filed. The learned advocates for other respondents have adopted the submission made by Mr. Desai, learned advocate for the official liquidator. 34. The learned advocate for respondent No. 1 supplemented the submissions by submitting that there was no stay granted by the court against the exercise of right, if any, by the official liquidator. 35. The above-noted facts give out that during the auction sale, the present applicant appeared as a successful bidder with the offer to the tune of Rs. 10.20 crores. The court accepted the said offer and directed the official liquidator to confirm the auction/sale in favour of the offer made by the present applicant for sum of Rs. 10.20 crores. The court passed an order dated February 22, 2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejected by order dated August 12, 2008, the said prayer was amended. 41. Thus, the fact remains that respondent No. 1 did not amend the prayer clause in Application No. 327 of 2006 and also did not make any payment after August 31, 2006. Hence, the agreement in question remained, so to say, only in the nature of and at the stage of "agreement-to-sell" and the conveyance (sale deed) was never made and has not been made and the title in the property, was not, and has not been transferred. 42. When Company Application No. 327 of 2006 was rejected vide order dated August 12, 2008 and the order was carried before the Division Bench in the final order dated June 20, 2011, passed by the Division Bench it is observed by the Division Bench that : "as per clause 4 of the sale confirmation order dated February 22, 2006, if there is failure to deposit the amount of the balance considering (in such a situation, where the time is not extended), mandate has been given to the official liquidator to terminate the sale and to forfeit the deposit, after obtaining permission of this court. Once the amount of remaining balance consideration is not paid and the time is not extended by the court, con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed over a cheque for Rs. 1 crore dated August 17, 2006 . . , which is ordered to be kept with the official liquidator . . . time to make remaining outstanding dues is extended up to September 15, 2006) read with the order passed on August 30, 2006 (when the Court directed that "the Deputy Official Liquidator is directed to hand over the cheque of Rs. 1 crore dated August 17, 2006, to the learned advocate appearing for the applicant and cheques dated August 30, 2006, offered today of Rs. 1 crore is also returned to Shri A. L. Shah, learned counsel to be replaced by demand draft of Rs. 2 crores"). Furthermore, the amount was paid by the auction purchaser and received by the official liquidator within the extended time, which was extended by the court's order. Thus, when payment of the amount on two occasions after June 10, 2006 and its acceptance by the official liquidator was under and as per the court's order, it cannot be construed as "waiver" of the right by conduct or otherwise. Hence, the said contention raised on the ground of alleged "waiver" is not acceptable in the facts of the case and the same is, therefore, rejected. 46. Now, so far as the contention on the ground of li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as observed by the Division Bench, are mere consequences of and therefore occurred simultaneously with, the breach on account non-payment of sale consideration. 52. It could, therefore, be claimed and contended that the agreement/sale stood (and stands) terminated on breach of condition, viz., condition to pay full consideration within fixed time frame, and that therefore there is no need for the official liquidator to terminate the agreement/sale. 53. The contention of respondent No. 1 can be considered from another perspective also. Even if it is assumed that on September 15, 2006, the agreement/sale did not, despite breach of condition for payment of sale consideration, i.e., on account of non-payment of consideration, stand terminated, then also when the request seeking extension of time for payment came to be rejected on August 12, 2008 (then) the agreement/sale stood terminated and that therefore it cannot be said that auction terminating the sale is time barred. 54. Besides this, if it is assumed that any further action even after the order dated August 12, 2008 and/or despite natural consequence of the breach, for terminating the sale was required to be taken by the off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h before September 14, 2009, the official liquidator was restrained by court's order passed in the proceedings taken out by respondent No. 1 from taking out any proceedings or continuing any proceedings. The said restraint order continued during the pendency of O. J. Appeal No. 146 of 2008. The said appeal was disposed only in June, 2011 (June 20, 2011). So, until then the official liquidator was restrained by the court's order and then the official liquidator immediately (on June 28, 2011), i.e., within 9 days after the appeal was disposed of, preferred the present application. Under the circumstances respondent No. 1, who took out the proceedings and requested the court to restrain the official liquidator from taking any action, cannot now raise objection on ground of limitation and cannot be heard to oppose the application on such ground. In any case, the order of court would not act prejudicial to anyone, more so when it is on account of the court's restraint order that the applicant could not take action and it is the court's order which has necessitated this application. 56. The final picture which emerges from the aforesaid facts is that the time for payment was extended un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d amount which condition was accepted by the respondent and that therefore the objection is misconceived and the official liquidator is entitled to forfeit the amount as per the provision and therefore the permission as prayed for be granted. 60. The terms of the tender including clause No. 17, inter alia, prescribe that in the event the auction purchaser does not pay the balance amount of sale consideration, the official liquidator shall terminate the sale and forfeit the deposit. There is no dispute between the parties that the term "deposit" in clause No. 17 and paragraph 6(4) of the order dated February 22, 2006, means earnest money deposit (EMD) paid by the bidders at the time of tendering the bids. 61. It is also necessary to refer to the provision contained under clause 24 of the terms of conditions, which inter alia, prescribe that if the purchaser fails to pay the purchase money/balance amount of cost charges and expenses payable by him to the vendor within the specified time or fails to perform the condition or any one of them, then the entire amount deposited till then would be forfeited and the vendor shall be at liberty to sell the property. Thus, while clause 17 pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to terminate the sale and to forfeit the amount then the forfeiture should not be of amount more than the loss suffered by the official liquidator on account of the breach. The forfeiture of any amount higher than that, according to learned counsel for respondent No. 1, would be in the nature of penalty. In support of the said submission Mr. Shah, learned counsel has heavily relied on the provision of section 74 of the Indian Contract Act, 1872. 67. On the other hand, learned counsel appearing for the official liquidator has submitted that the official liquidator is entitled to forfeit not only earnest money deposit as per clause 17 of the tender document but the official liquidator is entitled to forfeit, as per clause 24 of the tender document, the entire amount deposited by the auction purchaser until the date of default. 68. It would be appropriate to examine the contention in light of the observations made in the case between Oil & Natural Gas Corpn. Ltd. v. Saw Pipes Ltd. AIR 2003 SC 2629/ 44 SCL 89 wherein after considering the earlier decision by the court in the cases between Maula Bux v. Union of India AIR 1970 SC 1995 and Fateh Chand v. Balkrishan Das, AIR 1963 SC 140 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceive from the party who has broken the contract reasonable compensation not exceeding the amount so named. Section 74 emphasises that in case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not actual loss is proved to have been caused by such breach. Therefore, the emphasis is on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. But if the compensation named in the contract for such breach is genuine pre-estimate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him. Burden is on the other party to lead evidence for proving that no loss is likely to occur by such breach. Take for illustration ; if the parties have agreed to purchase cotton bales and the same were only to be kept as a stock-in-trade. Such bales are not delivered on the due date and thereafter the bales are delivered beyon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent application to seek permission of the court, as required by virtue of the direction contained in the order dated February 22, 2006. But for the condition in the order, the official liquidator could have and would have forfeited the amount without seeking permission. 72. While responding to the application, respondent No. 1 has raised the said contentions and resisted the application. It is true that as per the prayer clause, the scope of the application is only to grant or decline the permission and that actually these issues (i.e., as to whether the provision is in the nature of penalty or not and what could be the reasonable compensation in the facts of the case, etc.) are not the issues and aspects which would ordinarily be dealt with or decided at this stage, since the aforesaid issues would arise for consideration when the amount is actually forfeited and such forfeiture is challenged. However in the present case the court is called upon to decide these issues at the instance of respondent No. 1 who has opposed the application on the ground of the said contentions. Therefore, it is necessary to decide the said issues since they are the premise and base of the said respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment of dues to the workers and creditors but would also entail the entire process of sale and the resultant expenditure once over again. 76. Therefore, such cases are in slightly different league than usual sale of immovable property since its breach would entail whole expensive and time consuming exercise once over again, in addition to delay in payment to workers and creditors and that therefore the measure for determining as to whether the named amount is genuine pre-estimate of the loss damage which would occur due to breach and/or what could be reasonable compensation, would be different in such cases other than the usual transaction related to immovable property. The official liquidator being the partly inviting bids is entitled to make estimate of the loss damage and take into account relevant aspects to arrive at the proper estimated amount, and that is what the official liquidator did in the present case. 77. Having regard to the relevant aspects discussed hereinabove it appears that in cases such as present one along with the normal measures for assessing reasonable compensation for loss and damages, the monetary value (i.e., the value in terms of money) for delay whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent application is preferred by the official liquidator. 80. According to respondent No. 1 the applicant, the official liquidator cannot forfeit amount more than what section 74 mandates or allows. The said provision under section 74 is, as observed by the apex court, required to be read along with section 73 and that as observed in paragraph 69(2) of the said decision if the terms are clear and unambiguous stipulating the liquidated damages then the defaulting party has to pay such compensation unless it is held that estimate is unreasonable. 81. At this stage it is also relevant to note that the apex court, in the said decision in the case of Oil & Natural Gas Corpn. Ltd. (supra) also observed that (page 2653) : "Therefore, the emphasis is on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. But if the compensation named in the contract for such breach is genuine pre-estimate of loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the request for permission to auction sale the land and property in question can be considered only after the valuation of the land and property in question is made available before the court. The valuation made at the relevant time is too stale at this stage and cannot be taken into consideration and cannot be made base for auction sale of the property in question. Therefore, the said request cannot be considered at this stage and the official liquidator may, after completing all formalities necessary to auction the property in question, move appropriate application for the said purpose. With the aforesaid clarification and direction the OLR is partly accepted-allowed. Accordingly the OLR stands disposed of. 87. After the order is dictated, learned counsel for the applicant has requested that operation of the order may be stayed for a period of two weeks so as to enable respondent No. 1 to take out appropriate proceedings. 88. The request for time to prefer O. J. Appeal and pursue remedy against the present order would have been ordinarily entertained, however having regard to the fact that before the actual sale process takes place or before the process of issuing and recei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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