S.R. Buildcon Vs Sunfil Oils Ltd. and Another

M.M. Kumar, J.@mdashThis order shall dispose of C. A. No. 23 of 2005. This application has been filed by offering higher bid. The company was ordered to be wound up by order dated August 13, 1998, passed by this court in C. P. No. 164 of 1997. The official liquidator attached to this court was appointed as liquidator of the company who took over the assets of the company. Thereafter, the official liquidator was permitted to sell the assets of the company in liquidation vide order dated February 13, 2004, passed by this court in C. A. No. 15 of 2004 and C. A. No. 879 of 2003. In pursuance of the aforementioned orders, the official liquidator issued advertisement on August 18, 2004, for selling the assets of the company in two lots. In lot No. 1, the official liquidator had proposed to sell the land along with building constructed thereon measuring 19.46 acres. The earnest amount fixed for this lot was Rs. 10 lakhs. The second lot comprised plant and machinery with an earnest amount of Rs. 1 lakh. The bids were invited for both the lots by September 13, 2004. C. A. No. 661 of 2004 was filed by one Surinder Kumar asserting that he participated by submitting a tender for an amount of Rs. 55 lakhs for the land and Rs. 5 lakhs for the plant and machinery. It is further asserted that Rs. 10 lakhs and Rs. 1 one lakh by way of two demand drafts dated September 13, 2004, were prepared and deposited with the official liquidator. It is further asserted that one Gurdial Singh respondent No. 2 came forward with a toppling bid of Rs. 85 lakhs for both the lots which was accepted by the official liquidator subject to confirmation of the same by this court. In paragraph 6 of the application, Surinder Kumar has offered the toppling bid of Rs. 90 lakhs as the higher bid could not be offered on September 13, 2004. It is further asserted that he is further prepared to deposit the entire amount as per terms and conditions mentioned in the advertisement once his bid is accepted and the sale is finalised.

2. Notice of the application was issued to the official liquidator and two demand drafts amounting to Rs. 11 lakhs representing the earnest money were handed over to his learned counsel by Surinder Kumar, Director, Paras Chemicals. When the applications came up for consideration, Mr. Niranjan Gupta, representing M/s. S. R. Buildcon had filed C. A. No. 735 of 2004 and requested for inter se bidding. Accordingly, on December 10, 2004, inter se bidding was held in which Mr. Niranjan Gupta representing M/s. S. R. Buildcon, Mr. Surinder Kumar representing Paras Chemicals and Gulzar Singh representing respondent No. 2 participated. In the inter se bidding, Mr. Surinder Kumar emerged as the bidder for Rs. 1.05 crores and the sale was confirmed in his favour. The aforementioned order dated December 10, 2004, reads as under :

"In pursuance to the order dated November 18, 2004, Mr. Niranjan Gupta representing M/s. S. R. Buildcon (C. A. No. 735 of 2004) and Mr. Surinder Kumar, Director, Paras Chemical and Gulzar Singh representing respondent No. 2 are present in person to participate in inter se bidding. The auction purchaser respondent No. 2 had offered the highest bid for Rs. 85.25 lakhs for which prayer for confirmation was made by the official liquidator. However, in the inter se bid, Surinder Kumar representing Paras Chemicals has offered the highest bid toppling the offer made by Mr. Niranjan Gupta to the tune of Rs. 1 crore 5 lakhs.

Counsel for the official liquidator has placed on record the valuation report drawn by engineer V. P. Gupta in respect of the lands and civil work. According to the valuation report it is valued at Rs. 1,98,60,000 at the present value the reinstated value recorded as Rs. 19,50,000.

The distress and forced sale value assessed is Rs. 1,50,000 with a margin of minus (-) plus (+) 10 per cent. Similarly, for the civil work as per the inventory, the value assessed is Rs. 2,07,912. In respect of the plant and machinery, M/s. Enkay Tech Con Pvt. Ltd. has submitted the valuation report stating that it is valued at Rs. 6,22,000. Learned counsel for the official liquidator has requested for confirmation of sale in favour of Shri Surinder Kumar representing Paras Chemicals on as is where is, whatever is, basis.

Learned counsel for the ex-director of the company has made submission in C. A. Nos. 581 and 582 of 2004 that a public auction be held which would fetch a price more closer to the valuation report submitted by the valuer. According to learned counsel the difference between the highest bid and the value as per the valuation report is huge and therefore, it would be just and appropriate to order re-auction. Learned counsel has offered to bear expenses which may be incurred for undertaking the re-auction.

However, Mr. Anand Chibber, learned counsel for the auction purchaser has pointed out that when the payment has to be made in accordance with the auction notice within a period of 15 days, then offers which may be received are likely to go down considerably because the period for payment is very short. Therefore, it has been submitted that no process of re-auction be undertaken because it would not be in the interest of the company in liquidation.

After hearing learned counsel for the parties, I am of the considered view that the highest bid of Rs. 1,05,00,000 given by Shri Surinder Kumar representing M/s. Paras Chemicals deserves to be accepted. Accordingly, the sale of the property with the land asset and the machinery of the company in liquidation, more fully described in P-1 is confirmed on as is where is, and whatever is, basis in favour of Surinder Kumar representing Paras Chemicals. The auction purchaser shall deposit the balance amount within a period of 15 days from today with the official liquidator. However, the earnest money deposited by Gulzar Singh auction purchaser be returned to him immediately. The expenses incurred and the claims by the secured creditors shall be filed before the official liquidator who shall decide the same expeditiously. Application stands disposed of.

Needless to say that the official liquidator would take all necessary steps to complete other formalities including execution of sale deed etc. Copy of order be given dasti on payment of usual charges."

3. Before order dated December 10, 2004, could be executed, C. A. No. 7 of 2004 was filed by M/s. Mittal and Garg Enterprises by offering a higher bid of Rs. 1.13 crores as against Rs. 1.05 crores which was accepted being the highest bid of Surinder Kumar representing M/s. Paras Chemicals on December 10, 2004. Again inter se bidding was held and Surinder Kumar again emerged the highest bid for Rs. 1.31 crores. The aforementioned order dated January 6, 2005, passed by this court reads as under :

"This order shall be read in continuation of the order dated December 10, 2004, which should be deemed to be modified by this order.

This order shall dispose of the company application filed by Mittal and Garg Enterprises by giving the highest bid of Rs. 1.13 crores as against Rs. 1.05 crores which was accepted by this court vide order dated December 10, 2004. The aforementioned bid of Rs. 1.05 crores was made by Surinder Kumar-non-applicant-respondent No. 2. Notice of the application.

Mr. Kamal Sehgal, who is present in court accepts notice on behalf of the non-applicant-respondent No. 2.

In view of the fact that the highest bid of Rs. 1.13 crores (Rs. 1.15 crores?) has been made by the applicant and inter se bidding was held. M/s. S. R. Buildcon through its partner Shri Niranjan Gupta, had earlier participated in the bidding on December 10, 2004, and also took part in the inter se bidding. It is appropriate to notice that the valuer has assessed the value of the assets of the company to be Rs. 1,98,60,000. During the inter se bidding, Surinder Kumar non-applicant-respondent No. 2, continues to be the highest bidder for Rs. 1.31 crores. The official liquidator has already fixed the date for delivery of possession to be January 7, 2005. The possession of the property is to be delivered to the highest bidder according to the inter se bidding, to non-applicant-respondent No. 2 Surinder Kumar tomorrow, i.e., on January 7, 2005, provided the whole balance amount is deposited with the official liquidator by way of bank draft. Needless to mention here that a draft deposited by the applicant shall be returned expeditiously.

Present application shall stand disposed of accordingly.

A copy of this order be given dasti on payment of usual charges."

4. However, C. A. No. 23 of 2005 was filed by M/s. S. R. Buildcon through Mr. Niranjan Gupta further hiking the bid to Rs. 1.50 crores which is higher by Rs. 19 lakhs. When the aforementioned application came up for consideration on January 7, 2005, notice was issued to Surinder Kumar through his counsel Mr. Kamal Sehgal as well as to the official liquidator. Then the case was ordered to be listed for arguments on January 14, 2005, with interim order that no further steps be taken in pursuance to the order passed on January 6, 2005. It was further directed that M/s. S. R. Buildcon was to deposit by way of demand draft or any other mode an amount of Rs. 1.31 crores with the official liquidator by January 12, 2005, to establish its bona fide.

5. Mr. Anand Chhibbar, learned counsel for M/s. S. R. Buildcon has argued that the Supreme Court in the case of Divya Manufacturing Company (P) Ltd. Vs. Union Bank of India and Others, has reviewed the whole case law to conclude that even after confirmation, the sale can be set aside provided there is a substantial increase. According to learned counsel, the basic object of all the sales by the court is to obtain the maximum price as it would be for the benefit of the workmen of the company as well as unsecured/secured creditors. Learned counsel has also made a detailed reference to various judgments like Union Bank of India Vs. Official Liquidator H.C. of Calcutta and Others, , LICA (P.) Ltd. (No. 1) Vs. Official Liquidator and Another, and LICA (P.) Ltd. (No. 2) Vs. Official Liquidator and Another, and argued that the purpose of the court auction is the only one, i.e., to fetch most remunerated price. He has further submitted that the court is under an obligation to keep openness of the court auction so that the intending bidders are free to participate and offer higher bid. Another submission made by learned counsel is that no equitable right which might have arisen in favour of the auction purchaser would weigh with the court to offset the workmen, secured and unsecured creditors and has placed reliance on a judgment of the Supreme Court in the case of Allahabad Bank etc. etc. Vs. Bengal Paper Mills Co. Ltd. and Others, . Learned counsel has also pointed out that there is no necessity for involvement of the element of fraud and misrepresentation and the substantial higher bid itself would be sufficient to set aside the earlier lower bid. While concluding his argument learned counsel has placed reliance on a judgment of this court in the case of Oswal Agro Furnace Ltd., In re (In Liquidation) [2004] 2 PLR 1 and argued that by law no restriction has deliberately been imposed on the company court from setting aside any confirmed sale or even reversing a sale which has been partially executed because the basic rationale of all the judgments is that the court must ensure fetching of maximum price.

6. Mr. Kamal Sehgal, learned counsel for Surinder Kumar--respondent No. 2 has argued that M/s. S. R. Buildcon represented through Mr. Niranjan Gupta has no locus standi to come forward with a toppling bid as he had participated in the inter se bidding held by this court on December 10, 2004. After inter se bidding Surinder Kumar had emerged as the highest bidder for Rs. 1.05 crores. Mr. Sehgal has further pointed out that Surinder Kumar was further pushed to the walls when Mittal and Garg Enterprises came forward with a higher bid and Surinder Kumar still survived at Rs. 1.05 crores. It has been emphasised that if the auction sales undertaken by the courts are not finalised by the courts expeditiously and promptly in the hope to obtain a better buyer, then prospective bidders are likely to lose faith in the court auction and no one would come forward to participate in the court auctions. According to learned counsel, inadequacy of price alone should not be considered a basis for setting aside a confirmed sale and a line should be drawn that after confirmation, no confirmed sale is to be set aside. In support of his submission, learned counsel has made reference to various judgments of the Supreme Court, viz., Kayjay Industries (P) Ltd. Vs. Asnew Drums (P) Ltd. and Others, , Food Corporation of India Vs. M/s. Kamdhenu Cattle Feed Industries, , Navalkha and Sons Vs. Ramanuja Das and Others, and State of Punjab Vs. Yoginder Sharma Onkar Rai and Co. and Others, . Learned counsel has also emphasised that Surinder Kumar had already deposited the whole amount of Rs. 1.31 crores and was awaiting the possession to be delivered on January 7, 2005, when an application came up for consideration offering the higher bid of Rs. 1.50 crores. He has also placed reliance on the observations made by the Supreme Court in Divya Manufacturing Company (P) Ltd. Vs. Union Bank of India and Others, . Learned counsel has also referred to two judgments of the Allahabad High Court in the case of Triveni Metal Tubes Ltd. (In Liquidation) v. Official Liquidator [1999] 97 Comp Cas 943 Burakia Brothers v. Saraya Steel Ltd. [1998] 92 Comp Cas 192 and a judgment of the Calcutta High Court in the case of Kanchanjanga Commotrade Pvt. Ltd. v. Shivarpan Engineering Pvt. Ltd. [2004] 119 Comp Cas 712 to argue that in all these cases, after confirmation of sale, the company judge had rejected the application filed by third parties for reopening the sale merely because a higher price was offered.

7. Mr. V. M. Gupta, learned counsel for the official liquidator has argued that there is no bar on the powers of the court to set aside even a confirmed sale and exercise of such a power is not dependent on any misrepresentation, fraud or concealment. According to learned counsel, Rules 272 and 273 of the Companies (Court) Rules, 1959 (for brevity, "the Rules"), create a distinct situation inasmuch as any sale permitted to be held by the official liquidator after permission from the court in respect of assets of a company which has been wound up is subject to confirmation by the court. Learned counsel has referred to a judgment of this court in Oswal Agro Furnace Ltd.''s case [2004] 2 PLR 1 and argued that after considering various judgments, this court has held that even a confirmed sale can be set aside.

8. The question whether this court is empowered to set aside a confirmed sale on the ground of inadequacy of price or any other related factors had fallen for consideration in C. A. No. 650 of 2004 and C. A. No. 72 of 2005 in C. A. No. 775 of 2003 in C. P. No. 226 of 1999, titled as Punjab Wireless Systems Limited Vs. The Indian Overseas Bank and Others, decided on March 30, 2005. In that case after referring to Rules 272 and 273 of the Rules and Section 447 of the Companies Act, 1956 (for brevity, "the Act"), as well as various judgments of the Supreme Court in the cases of Navalkha and Sons Vs. Ramanuja Das and Others, , Union Bank of India [2000] 101 Comp Cas 317 and Kayjay Industries (P) Ltd. Vs. Asnew Drums (P) Ltd. and Others, has concluded that power of this court to set aside even a confirmed sale is unassailable. The following paragraphs from the judgment delivered by this court in Punjab Wireless Systems Ltd.''s case [2005] 126 Comp Cas 554 may be referred to and the same read as under (page 571) :

"It is thus obvious that the power of the court to set aside even a confirmed sale is unassailable. The judgment of the Supreme Court in Navalkha and Sons Vs. Ramanuja Das and Others, has not dealt with such a power. However, in Union Bank of India Vs. Official Liquidator H.C. of Calcutta and Others, the view taken in Navalkha and Sons Vs. Ramanuja Das and Others, has been considered. Emphasising that the object of sale is to apply the sale proceeds to meet the claims of the creditors of the company, the Supreme Court in the case of Allahabad Bank etc. etc. Vs. Bengal Paper Mills Co. Ltd. and Others, , has held that it is the duty of the courts to ensure that the best possible price is realised by sale of the assets and the properties of the company in liquidation as it is obliged to the creditors for undertaking such a course. It was noticed that the learned company judge had ordered possession to be delivered to the official liquidator hastily and concluded that the auction purchasers should have realised that the order of sale could be set aside when any expenditure incurred by the auction purchaser was at his own risk. It was also observed that the interest of the creditors of the company, particularly those of the unsecured creditors overweighed such equities."

9. The court has then gone on to observe that the view taken in Divya Manufacturing Company (P) Ltd. Vs. Union Bank of India and Others, has further clarified any doubt about setting aside a sale even after confirmation holding that a subsequent higher offer can constitute a valid ground and concluded as under 126 Comp Cas 572 :

"The aforementioned survey of case law clearly lays down that this court is clothed with the powers to set aside even a confirmed sale provided it comes to the conclusion that the price offered by the auction purchaser in fact was inadequate. Such powers is not dependent on any finding that there was material irregularity or commission of fraud in the process of sale, adopted by the official liquidator. It is also significant to notice that Dr. Singhvi appearing for the auction purchaser has also conceded such a power of the court. The question which arises is whether in the facts and circumstances of the case, the sale confirmed in favour of the auction purchaser should be set aside or the plea raised by the interveners should be rejected."

10. After detailed perusal of various judgments of the Supreme Court to which reference has been made by learned counsel for the parties, I have reached the conclusion that the Supreme Court has refused to lay down any rule of law to the effect that confirmed sale is not to be set aside. It has also been categorically held that fraud and misrepresentation are not required to be proved for setting aside a confirmed sale. There may be numerous reasons for the Supreme Court to have followed this approach. After all the courts are not well equipped to undertake an auction. When an inter se bidding is held between two or three parties, the court is always conscious about a cartel between the bidders. The foremost factor which persuades the courts to set aside even a confirmed sale is the interest of unsecured creditors along with the interest of secured creditors as well as workers dues. It was for this reason that in Punjab Wireless Systems Ltd.''s case [2005] 126 Comp Cas 554 this court even after the confirmation of sale and partial delivery of possession had set aside the sale in favour of an auction purchaser and had directed re-auction. The ratio of that judgment would apply to the instant case even with more force. In that case, the sale was confirmed at a price more than the reserved price despite the fact that certain third party rights were created by the auction purchaser in whose favour the higher bid was confirmed. The argument that equitable rights have arisen in favour of the auction purchaser was rejected on the ground that such rights have been offset by the interest of the company, its secured, unsecured creditors and the workmen. All the reasons given in the aforementioned judgment on the questions of law are adopted and applied to the present case.

11. For the reasons stated above and for the reasons stated in Punjab Wireless Systems Limited Vs. The Indian Overseas Bank and Others, this application succeeds and orders dated December 10, 2004 and January 6, 2005, are recalled. In the facts and circumstances of the case, I deem it appropriate to direct the official liquidator to undertake the exercise of re-auctioning the assets of the company in liquidation. The expenses of re-auction shall be borne by the secured creditors. Needless to observe that deposit of auction money/earnest money, etc., made by the parties, namely, Shri Surinder Kumar representing Paras Chemicals and Shri Niranjan Gupta representing M/s. S. R. Buildcon shall be refunded by the official liquidator expeditiously.