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TMI Blog2015 (8) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... 55 crores and earnest money deposit (EMD) at 10% thereof. 4. Tender Notice (containing the terms and conditions of sale) inviting offers from the prospective purchasers in sealed covers was widely published. 11 prospective purchasers responded to the notice. On 17.12.2013, an auction was held in the open court. After inter-se bidding of 12 rounds, the appellant in Civil Appeal arising out of SLP (Civil) No.2198 of 2015 ["Vedica Procon Private Limited", hereinafter referred to as "the appellant") became the highest bidder with an offer of Rs. 148 crores. In order of the High Court dated 17.12.2013, it is recorded as follows: - 7. In view of the aforesaid, it transpires that M/s Vedia Procon Pvt. Ltd. being the highest bidder, has offered Rs. 148 Crores (Rupees One Hundred Forty Eight Crores) for the land admeasuring 13895 Sq. Mtrs. Approx. situated at T.P. No.18 of F.P. No.32/P, bearing Survey No.25, 27/B/1, 31, 38, Moje Rajpur Hirpur, Outside Raipur Gate, behind New Cloth Market, Opp. Hirabhai Market, Diwan Ballubhai Road, Raipur, Ahmedabad. 8. Ms. Amee Yajnik, learned counsel for the Official Liquidator, Mr. D.S. Vasavada, learned counsel for respondent No.6 - Union, Mr. U.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14, the first respondent requested the official liquidator to refund its earnest money deposit. The relevant portion of the letter reads as follows: "5. As per condition no.29 of Tender Document, the EMD of second highest bidder i.e. Baleshwar Greens Pvt. Ltd. was to be returned after 25% of the sale consideration is deposited by the successful bidder. 6. We have come to know that successful bidder M/s. Vedia Procon Pvt. Ltd. has deposited 25% of the sale consideration in the office of Official Liquidator. 7. Therefore we hereby request you to kindly refund our EMD of Rs. 4.5 Cr and late fees of Rs. 23.5 lakhs at the earliest. [emphasis supplied] 9. Admittedly, the EMD of the first respondent was returned. 10. On 16.01.2014, the appellant informed the official liquidator that they had deputed security persons to "protect the possession" of the property in question for various reasons detailed in the said letter. In response, the official liquidator by its letter dated 24.01.2014 informed the appellant inter alia as follows: "Besides this it is brought to your notice that the office of the Official Liquidator has already deployed security at the mills premises of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said amount within 72 hours. 13. On 17.04.2014, a possession memo was drafted purporting to handover the property in question. It appears from the copy of the said possession memo that it was signed by two UDC officials of the Official Liquidator by name S.R. Meena, STA and C.G. S. Karki and one Ganesna Venkataramana on behalf of the appellant. The first respondent disputes the fact that the possession of the property in question was infact delivered to the appellant herein. However, the Division Bench of the High Court by the impugned order found no substance in the objection of the first respondent: "... Though it is disputed by the present application, the record reveals that on 17.4.2014 when O.J. Appeal No.9 of 2014 came to be heard and disposed of by the Division Bench of this Court, the Official Liquidator handed over the possession of the lands in question to opponent No.9. However, it is an admitted position that the sale deed is not executed. ..." 14. The first respondent's appeal (OJ Appeal No.9/2014) was disposed of by an order 1. The appellant before us will move before the learned Company Judge within a period of one week with an appropriate application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014 before the Division Bench of the High Court which was partly allowed making some minor modification in the order dated 17.04.2014, the details of which may not be relevant for our purpose. 16. Pursuant to the order dated 17.04.2014, the first respondent moved an application OJMCA 89 of 2014 seeking recall of the order dated 17.12.2013 on various grounds. The said application was allowed by an order dated 11.08.2014. By the said order, the learned Single Judge had set-aside the sale made in favour of the appellant herein on 17.12.2013 and ordered the return of the amount already paid by the appellant. The learned Single Judge also directed a fresh auction of the property in question. He also directed the first respondent to pay an amount of Rs. 25 lakhs to the appellant herein. 17. Aggrieved by the order dated 11.08.2014, the appellant carried the matter to the High Court in O.J. Appeal No.36 of 2014 which was dismissed by the Division Bench vide order dated 04.12.2014. The said order is the subject matter of SLP (Civil) No.2198 of 2015. The appellant also chose to prefer SLP (Civil) No.10148-10149 of 2015 against the order dated 17.04.2014 passed in O.J. Appeal No.9 of 2014 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merits of the matter and the deposit of Rs. 160 crores with Official Liquidator is without prejudice to the rights and contentions of the parties and we have adopted this only because of the view expressed by the Apex Court in the case of Shradhha Aromatics Private Limited (supra)." [emphasis supplied] A procedure which is not very desirable.It is inconsistent with the principle that the judicial process and adjudication demand certainty and finality. 22. Pursuant to the abovementioned direction of the Division Bench, the learned Company Judge, on an application filed by the first respondent, by his order dated 11.08.2014, recalled the order dated 17.12.2013 and set aside the sale made in favour of the appellant. When the said order was challenged by the appellant herein before the Division Bench of the High Court, the same was dismissed by the impugned judgment. 23. It is interesting to notice that the respondent in its application took various grounds (for setting aside the order dated 17.12.2013 of the Company Judge) other than the ground which the respondent pleaded in its earlier appeal OJA No.9 of 2014. This time the respondent pleaded: 1. That there was a change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in liquidation are sold, (iv) when the facts and circumstances indicate that the property in question is in fact capable of securing a much higher price, the sale of the property at a lesser price also resulted in an injury to the interest of various stakeholders who are entitled for the distribution of the proceeds of the sale of the assets of the company in liquidation. 26. The learned counsel for the appellant submitted that the impugned order is untenable for the following reasons:- (i) That the offer of Rs. 148 crores made by the appellant and accepted by the Company Court was the best price for the land having regard to the facts and circumstances as they existed on that date of the order i.e. 17.12.2013. The fact that some two and a half months later (on 4.3.2014), the Government of Gujarat decided to increase the FSI which resulted in increase in the value of the land in question can legally never be a relevant consideration for determining the regularity and the legality of the order dated 17.12.2013, (ii) the Division Bench chose to recall the order dated 17.12.2013 on erroneous logic and recorded an untenable conclusion: "....However, it is required to be noted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the FSI and the consequential escalation of the price of the property in question. 30. The learned counsel argued that no doubt the subsequent events made the property in question more valuable, but such subsequent events are wholly irrelevant in determining either the adequacy of the bid made by the appellant on the relevant date or the regularity and legality of the order dated 17.12.2013 of the Company Judge in assessing the injury to the stakeholders. 31. In the alternative, it is submitted on behalf of the appellant that in the absence of any plea and proof that sale was vitiated by fraud, the inadequacy of consideration especially when none of the stakeholders in the company liquidation raised such an objection on 17.12.2013 can never be a ground for recalling an order of accepting the highest bid at the instance of an unsuccessful bidder on a subsequent date on the ground that on a subsequent date such unsuccessful bidder is willing to offer higher price. Approving such course of action would denude the proceedings of a court of law and the sales undertaken in the course of judicial proceedings, of all element of certainty and finality. Such uncertainty would be a dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on purchaser to pay the consideration in certain instalments. Some two and a half months later, a third party sent a letter to the official liquidator offering a higher amount of Rs. 3.75 crores. Almost a year later, another party offered an amount of Rs. 5 crores. Subsequently, both the parties approached the Company Judge seeking a recall of the order of confirmation of the sale. Such application was allowed by the Company Court. The auction purchaser unsuccessfully carried the matter in an intra court appeal and finally landed up in this Court. This Court allowed the appeal upholding the order confirming the sale. This Court held: "11. It may be noted that the auction-sale was done after adequate publicity in well-known newspapers. Hence, if anyone wanted to make a bid in the auction he should have participated in the said auction and made his bid. Moreover, even after the auction the sale was confirmed by the High Court only on 30.7.2003, and any objection to the sale could have been filed prior to that date. However, in our opinion, entertaining objections after the sale is confirmed should not ordinarily be allowed, except on very limited grounds like fraud, otherwise no auc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he may demand automatic confirmation of his offer. The condition of confirmation by the Court operates as a safeguard against the property being sold at inadequate price whether or not it is a consequence of any irregularity or fraud in the conduct of the sale. In every case it is the duty of the Court to satisfy itself that having regard to the market value of the property the price offered is reasonable. Unless the Court is satisfied about the adequacy of the price the act of confirmation of the sale would not be a proper exercise of judicial discretion. In Gordhan Das Chuni Lal v. S. Sriman Kanthimathinatha Pillai, AIR 1921 Mad 286, it was observed that where the property is authorised to be sold by private contract or otherwise it is the duty of the Court to satisfy itself that the price fixed 'is the best that could be expected to be offered. That is because the Court is the custodian of the interests of the Company and its creditors and the sanction of the Court required under the Companies Act has to be exercised with judicial discretion regard being had to the interests of the Company and its creditors as well. This principle was followed in Rathnaswami Pillai v. Sadap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se well versed with the market forces and price. Confirmation of the sale by a Court at a grossly inadequate price, whether or not it is a consequence of any irregularity or fraud in the conduct of sale, could be set aside on the ground that it was not just and proper exercise of judicial discretion. In such cases, a meaningful intervention by the Court may prevent, to some extent, underbidding at the time of auction through Court. In the present case, the Court has reviewed its exercise of judicial discretion within a shortest time." 38. We cannot help pointing out that their Lordships came to such a conclusion placing reliance on para 6 of Navalkha case (supra). Their Lordships failed to take note of the last sentence of the paragraph but placed reliance on the penultimate sentence of the paragraph. No doubt, the penultimate statement of the paragraph recognises the discretion of the Company Court either for accepting or refusing the highest bid at the auction, it also emphasizes the obligation of the Court to see that the price fixed at the auction is adequate price even though there is no irregularity or fraud in the conduct of the sale. However, the penultimate sentence rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated above, it is clear that in November, 2004, the bid of the appellant was highest and was accepted by the Official Liquidator. But it is also clear that certain facts which were necessary to be brought to the notice of intending purchasers were not set out in the proclamation of sale nor were disclosed at the time of sale notice. They related to valuation of movable and immovable properties, fixation of reserve price, non-inventory of plant and machinery, etc. The attention of the Company Judge was invited by other bidders by filing Company Applications. The Company Judge considered the objections and having prima facie satisfied himself, ordered fresh auction. We find no illegality in the said approach. When fresh bids were received, it was found that the highest offer was of respondent No. 3-Society which was of Rs. 3.5 crores. The Company Judge extended an opportunity to the appellant to raise its bid. It, however, appears that the appellant was adamant to get the property for Rs. 1.47 crores on the ground that the said offer was highest and all the proceedings taken by the Official Liquidator and Company Judge thereafter were totally illegal and unlawful. In our opinion, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spute that the area has been substantially developed in the last four years. The initial offer made by M/s Patel Agro Diesel Ltd. was of Rs. 83 lakhs and the highest revised offer given before the learned Company Judge was of Rs. 1.27 crores. After acceptance of the revised offer by the learned Company Judge, the appellant stepped in and made an offer to pay Rs. 1.41 crores. The first application filed by it was dismissed but the second application was allowed and the increased offer of Rs. 1.51 crores was accepted by the learned Company Judge vide order dated 27-11-2007. That order did not find favour with the Division Bench, which restored the first order passed by the learned Company Judge. If the order of the Division Bench is sustained, the creditors of the Company are bound to suffer because the amount available for repayment of the dues of the creditors would be a paltry sum of Rs. 1.27 crores. As against this, if the offer made by the intervenor-cum-promoter is accepted, the Official Liquidator will get an additional amount of more than Rs. 4.25 crores. The availability of such huge amount will certainly be in the interest of the creditors including GSIIC. Therefore, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very clearly that a subsequent higher offer is no valid ground for refusing confirmation of a sale or offer already made. Unfortunately, in Divya Manufacturing Company (supra) this Court departed from the principle laid down in Navalkha & Sons (supra). We have already explained what exactly is the departure and how such a departure was not justified. 45. Coming to the decision in FCS Software Solutions Ltd., we have already noticed that this Court rightly reopened the finalized sale on the ground that there was material irregularity in the conduct of the sale. 46. Shradhha Aromatics (supra), as already noticed, is a decision rendered on the peculiar facts of the case and, in our opinion, does not lay down any principle applicable across the board. Whereas in Manoj I Naik (supra) the Company Court itself declined to accept the highest offer, therefore, it has no relevance in the context of the case on hand. 47. In our opinion, in the case on hand, the High Court was not justified in recalling the order dated 17.12.2013 for following reasons: 48. The highest bid of the appellant herein was accepted by the Company Court and all the stake-holders of the company in liquidation were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he first respondent withdrew its earnest money deposit without raising any objection regarding adequacy of the price offered by the appellant herein, in our view, clearly indicate that the sale in favour of the appellant was confirmed by the order dated 17.12.2013. Assuming for the sake of argument that there is no confirmation, in the absence of any legally tenable ground for not confirming the sale, it cannot be declined to the appellant as it was observed in Navalkha case (supra) that "...no subsequent higher offer can constitute a valid ground for refusing confirmation of the sale or offer already made". 51. The other submission made before the Division Bench of the High Court and before us by the first respondent that there was a change in the share-holding pattern of the appellant company subsequent to the order dated 17.12.2013 and that such a change would virtually amount to a nomination by the successful bidder in favour a of third party contrary to the conditions of the tender notice, in our opinion, does not deserve any consideration. This was not the ground on which the first respondent initially sought recall of the order dated 17.12.2013. Such a recall was sought onl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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