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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMPANY APPLICATION NO.338 OF 2009
IN
COMPANY PETITION NO.345 OF 2006
WITH
OFFICIAL LIQUIDATOR'S REPORT DATED 24TH MARCH, 2009
Wasan Realtors Pvt.Ltd. C/o Wasan )
Automobiles, Mumbai Agra Raod, )
Nasik, Maharashtra. ig ) ..Applicant.
V/s.
The Official Liquidator of M/s.Meltron )
Semconductors Ltd.(in Liquidation), having )
his office at Bank of India Building, 5th )
floor, Mahatma Gandhi Road, Mumbai. ) ..Respondent.
Mr.Riyaz I. Chagala with Mr.H.K.Sudhakara i/b. M/s. Khaitan & Co. for
the Applicant.
Mr.C.N.Mehta for security agency.
Mr.P.K.Samdani, Sr.Counsel a/w. Mr.P.Ramarao, O.L. & Mr.Vishwajeet
Sawant for Official Liquidator.
CORAM: A.M.KHANWILKAR,J
DATE : JULY 13, 2009.
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P.C.:
1. By this order I propose to dispose of the Application preferred
by the Auction Purchaser as well as the Official Liquidator’s Report
dated 24th March, 2009 together.
2. Briefly stated, pursuant to the direction issued by the
Company Judge, the movable and immovable assets of the Company in
liquidation were put up for auction. On the basis of inventory and
valuation report submitted by Yardi Prabhu Consultants Pvt.Ltd. dated 1st
March, 2008, reserved price of the assets put for sale was fixed at Rs.15
crores. The valuer had given break-up of fair market value of the
movable assets as Rs.24,85,000/-. He assessed realizable sale value of
the movable assets at Rs.22,36,000/- and distress sale value thereof as
Rs.19,88,000/-. Insofar as the immovable property is concerned, the
valuer assessed fair market value thereof at around Rs.14,69,00,000/-.
The movable assets included plant, machinery, furniture and fixtures,
whereas immovable assets consisted of land and building lying and
situated at Plot No.B-1, M.I.D.C. Ambad, Mumbai-Agra Road, Nasik,
admeasuring 27880 sq.mtrs. However, the Company Judge ordered sale
of movable and immovable properties of the Company in liquidation as
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one lot and fixed the Reserved Price thereof at Rs.15 Crores and EMD
amount at 25% being Rs.3,75,00,000/-.
3. Before we proceed further, it would be apposite to advert to
the description of the condition of the movable assets on the date of
inspection and valuation made by the valuers in their report before the
auction. It is stated that “all the machineries are out of order and in static
condition as on the date of the visit”. Against column “whether the
Machinery is to be scrapped. Major repairs and replacement value”, it is
stated that “all the machineries are in rusted and dusted condition and
many are to be scrapped”. It is further mentioned that “it is difficult to
ascertain the residual life of the machineries, as no invoices are produced
to know the date of purchase and performance warranty given by the
suppliers”. It is also mentioned that “the replacement cost of the
machines can not be ascertained in the present case, as the details of all
machines are not available. Perhaps keeping in mind the description or
the condition of machineries, the Company Judge thought it appropriate
to put up both the movable and immovable assets for sale as one lot.
Accordingly, publication of sale notice was ordered, pursuant to which
the Auction Purchaser participated in the bid. The sale notice clearly
mentioned that the terms and conditions of the sale of immovable and
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movable assets alongwith valuer’s inventory can be obtained from the
office of the Official Liquidator, High Court, Mumbai on any working
day during office hours on payment. The terms and conditions of sale
clearly provided that the stated assets were to be sold on “As is Where is
and Whatever there is basis”. Amongst other, clause-20 of the terms and
conditions of the sale clearly provides that the properties are being sold
on “As is Where is and Whatever there is basis” and the purchaser shall
not be entitled to raise any objection as to quality, quantity,
misdescription, area, boundary or title, as the same are believed to be and
shall be taken as correct and if any error or misstatement or omission if
discovered in the particulars of the assets, the same shall not annul the
sale nor shall be entitled to any compensation from the Official
Liquidator. Inspite of such condition, the Auction Purchaser participated
in the bid process and gave his composite offer with full knowledge
about the condition of the movable assets lying at the site. Valuation
given by the Auction Purchaser being the highest offer in the sum of Rs.
17.05 Crores and in excess of the Reserved Price (i.e.Rs.15 Crores), this
Court confirmed the sale in favour of the Applicant/Auction Purchaser on
October 3, 2008 on usual terms and conditions.
4. Thereafter, the Applicant/Auction Purchaser deposited the
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amount of Rs.4,26,25,000/- as earnest money. The Auction Purchaser
was required to pay the balance consideration of Rs.12,78,50,000/- within
30 days from the confirmation of sale i.e. on or before 2nd November,
2008. However, the Applicant/Auction Purchaser could not make the
payment, for which reason took out Company Application praying for
extension of time to pay the balance consideration. The reason cited in
the said application was a candid admission of the fact of inability to pay
the amount due to adverse market condition. The said request was
considered by this Court on 21st November, 2008. This Court showed
indulgence to the Applicant/Auction Purchaser and extended time to
deposit the balance consideration on condition that the Applicant/Auction
Purchaser shall pay interest at the rate of 14% per annum. The Court
further ordered that upon payment of principal amount alongwith interest
specified in the order within extended time(six weeks from 2nd November,
2009), the Official Liquidator shall execute conveyance in favour of the
Applicant in accordance with the terms and conditions of the sale.
However, in case of default, the Official Liquidator shall give effect to
the terms and conditions of the sale including forfeiting EMD amount
already deposited by the Applicant/Auction Purchaser and process the
matter for resale of the property. Pursuant to the order dated 21st
November, 2008, the Applicant/Auction Purchaser deposited amount of
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Rs.4,30,00,000/- on 12th December, 2008 being part of the balance
consideration. The Applicant/Auction Purchaser was obliged to pay the
balance consideration on or before 15th December, 2008. It is the case of
the Applicant that it had made arrangement for the balance consideration
to be deposited before 15th December, 2008. But on 15th December, 2008,
the Applicant/Auction Purchaser was shocked and surprised to learn from
the newspaper published in Nasik on that day which reported massive
theft in the factory premises of the Company(in liquidation). The news
report suggested that various parts of the machineries, cables etc. were
stolen. Further, the Police have registered theft case vide FIR No.660 of
2008 on 14th December, 2008 and arrested some persons in connection
with the said case. According to the Applicant/Auction Purchaser, it
transpired that on account of theft, the plant and machineries were badly
damaged and beyond repair. It is the stand of the Applicant/Auction
Purchaser that because of damage so caused to the plant and machineries,
the Applicant/Auction Purchaser apprehends that it would be difficult to
start the factory after getting possession in the changed circumstances.
Further, it would also cause unwarranted loss and hardship. It is the
case of the Applicant/Auction Purchaser that on account of supervening
circumstances arising after confirmation of sale and before delivery of
property in question, it may not be now possible to the Official Liquidator
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to deliver the property to the Applicant as per the expressed promise
given in the sale notice and the terms and conditions of sale on “As is
Where is and Whatever there is basis” on the date of confirmation of sale,
which was the foundation for negotiation. In other words, it will be no
longer possible to practically fulfill expressed terms and conditions of the
sale as the machineries and other movable properties have become
unusable. It is on this premiss, the Applicant/Auction Purchaser has
approached this Court by way of present Application on 16th March, 2009
praying for the following reliefs.
"(a) This Hon'ble Court be pleased to
cancel the confirmation of the sale in favour of the
Applicants vide order dated 3.1.2008;
(b) This Hon'ble be pleased to direct the
Official Liquidator, High Court, Bombay to
forthwith refund the Earnest Money Deposit of
Rs.4,26,25,000/- and further deposit of Rs.
4,30,00,000/- deposited by the Applicants and to
forgo any claim of interest;
(c) for ad-interim reliefs in terms of prayer
(a) to (b) above;
(d) for costs of this Application; and
(e) for such other and further directions as
this Hon'ble Court may deem fit necessary and
expedient."
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5. On the other hand, the Official Liquidator has submitted
report dated 24th March, 2009, which mentions that representation was
received from the Applicant/Auction Purchaser dated 15th December,
2008 sent by Shri Afroz A. Siddique, advocate, interalia stating that they
were to deposit balance amount of Rs.8,49,00,000/- on 15th December,
2008 but due to theft taken place in respect of property purchased by the
Auction Purchaser they have not deposited the balance consideration, as
they wanted to assess the loss of theft and hence requested for a joint
inspection. Initially, Official Liquidator informed the said Advocate by
letter dated 18th December, 2008 expressing inability to accept request so
made. However, a meeting was fixed in the office of the Official
Liquidator on 22nd December, 2008 when the Auction Purchaser,
concerned Security Agency and Secured Creditor pondered over the
further steps to be taken after the theft in the factory premises. In that
meeting, it was decided to take a joint inspection of the factory
premises at Ambad, Nasik on 29th December, 2008. Accordingly, joint
inspection was taken on the stated date and time. The joint inspection
report clearly reveals that on entering the building it was noticed that
several windows of the factory buildings with glass stand were broken
and entire factory was found ransacked and all machineries and other
valued items have been taken away. The report records that during
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inspection it was observed that theft has not taken place in a single day
but over a period of time as is evident from scattered material over the
floor, broken glasses etc. It appears to be an organised act and there was
total failure of the security guards deployed at the said site in
safeguarding the assets of the Company(in liquidation). To assess the
loss and damage on account of such theft, the valuer who had submitted
valuation report on the earlier occasion which was the basis for sale of
the assets was called upon to submit his valuation report. Accordingly,
the said valuer has submitted his report on 21st January, 2009. In his
assessment the realizable value of the machineries now located in the
factory premises as per the opinion and inspection furnished as on the
date of inspection i.e. 29th December, 2008 would be around Rs.
13,66,000/-. This valuation was based on selling price method. Whereas,
the distress sale value would be around Rs.10,93,000/-. Insofar as the
movable assets of the Company(in liquidation) which was in the custody
of police authority, the same have been valued at realizable value of Rs.
2,63,000/- and distress sale value at Rs.2,29,000/-. In other words,
realizable value of the assets lying at the factory as also in the custody of
police authority together would be around Rs.16,29,000/- and distress sale
value thereof would be around Rs.13,22,000/-. During the course of
hearing, a comparative chart was produced. The same is prepared on
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the basis of contents of the subsequent valuation report and compared
with the first valuation report. It is noticed that about seven items of the
aggregate value(as in the first valuation report) of Rs.1,16,500/- are
missing from the site. The chart also gives comparative status of the
original value as given in the first valuation report and the valuation now
done after joint inspection after theft. The difference in value after theft
is also highlighted in the said chart. The other comparative chart
submitted is regarding valuation of seized movable items lying at the
police station(12 items). In other words, the Official Liquidator concedes
the position that there was theft in the factory premises after confirmation
of sale in favour of the Applicant/Auction Purchaser and on account of
which seven movable items have been found missing and movable items
lying on the site and in the custody of the police station taken together are
found in damaged condition in contrast to the condition on the date of
confirmation of sale. In this backdrop, the Official Liquidator has invited
following directions from this Court in his report dated 24th March, 2009.
“(a) In view of paras 13 to 18 above,
whether this Hon’ble Court would be pleased to
determine the loss and damage caused due to the
theft after perusing the original valuation report
and also the aforesaid two valuation reports dated
27.01.09 & 26.02.09 and direct purchaser M/s.
Wasan Realtors Pvt.Ltd. to pay such balance
payment as may be determined with interest @
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14% w.e.f. 2.11.08 to 14.12.08 as per order dated
21.11.08 in Company Application (Lodg.) No.
1183/08.
(b) Whether this Hon’ble Court would be
pleased to direct the security agency i.e. M/s.
Reliable Industrial Services to pay the loss of the
assets due to the theft, as may be determined by
this Hon’ble Court, to the Official Liquidator
within such time as may be fixed since it appears
that the theft was taken place due to the sheer
negligence of security agency as recorded in the
minutes prepared at the time of joint inspection on
29.12.08 as per Exhibit “S”.
(c) Whether this Hon’ble Court would be
pleased to permit Official Liquidator to handover
possession of Lot No.I i.e. the movable &
immovable assets lying and situated at factory
premises Ambad, Nasik to the purchaser M/s.
Wasan Realtors Pvt.Ltd. after receiving the full
and final payment of sale consideration with
interest, as may be determined by this Hon’ble
Court.
(d) Whether this Hon’ble Court may direct
the Police authorities, Nasik to release the seized
goods/machineries lying in their custody, as per
the valuation report dated 26.02.09 to M/s. Wasan
Realtors Pvt.Ltd. as and when they are informed
by Official Liquidator to do so;
(e) Any other and further orders/directions
as may be deemed fit and proper."
6. According to the Counsel for the Applicant/Auction
Purchaser, the confirmation of sale of lot No.1 in terms of Order dated 3rd
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January, 2008 should be set aside in toto and the amount deposited by
the Applicant towards earnest money and further deposit should be
refunded to the Applicant. The thrust of the argument is that the
Applicant/Auction Purchaser had participated in the bid on the basis of
representation made in the sale notice and the terms and conditions of
sale as well as first valuation report. The Applicant gave their offer with
a hope that after the sale is confirmed in their favour, they would restart
the factory after taking possession thereof. However, on account of
changed situation, it may not be possible to do so. As a result,
Applicant/Auction Purchaser would suffer unwarranted loss and
hardship. Moreover, the Official Liquidator was not in a position to
fulfill his promise of delivery of movable and immovable assets on “As
is Where is and Whatever there is basis” as on the date of confirmation of
sale. In this background, the Applicant/Auction Purchaser cannot be
forced or compelled to complete the sale and take something which had
never been bid for. To buttress this submission, reliance is placed on the
decision of the Gujarat High Court in the case of O.L.of Mermaid
Chemicals Pvt.Ltd. V/s. Canara Bank and Anr.[2005 CLC 837]. Even in
that case after confirmation of sale, theft had taken place which resulted
in loss and damage to the assets of the Company(in liquidation). The
Court found that the theft was the result of collusive act. On that
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finding, the confirmation of sale was set aside and the assets in question
were ordered to be put up for resale. Counsel for the Applicant/Auction
Purchaser has also relied on the decision of the Apex Court in the case of
Valji Khimji and Co. v/s. Official Liquidator of Hindustan Nitro
Product(Gujarat) Ltd. & Ors. Reported in (2008) 9 Supreme Court Cases
299. In that decision, the Apex Court has observed that merely because
the assets were not in running condition does not mean that the same
were scrap. This decision has been pressed into service to counter the
argument of the Official Liquidator which is founded on the observation
of the valuer in the first report. That report describes the condition of the
machinery as out of order and in static condition. Besides, the said report
states that all the machineries are in rusted and dusted condition and
many are to be scrapped.
7. Be that as it may, the question is whether there is any express
provision empowering the Company Judge to cancel or to set aside
confirmation of sale. The power can be ascribed to Rule 9 of the
Companies(Court) Rules, 1959, which envisages that nothing in the Rules
shall be deemed to limit or otherwise affect the inherent powers of the
Court to give such directions or pass such orders as may be necessary for
the ends of justice or to prevent abuse of the process of the Court. While
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exercising inherent powers, this Court will have to bear in mind the
principles of Ex debito Justitiae to do complete justice to the parties.
While doing so, it may not be out of place to apply the analogy of
circumstances, in which, sale can be cancelled at the instance of the
Auction Purchaser as provided in Order 21 of the Code of Civil
Procedure. Indeed, the only situation carved out by the legislature can be
traced to Rule 89, 90 and 91, as is observed by the Apex Court in the case
of Ganpat Singh(dead) by L.Rs. V/s. Kailash Shankar and ors.[AIR 1987
SC 1443](See para-14). Besides the said provisions, it may be useful to
keep in mind the parameters provided in Rules 77, 78 and in particular,
Rule 90(2) of Order 21 of C.P.C. Rule 77(2) stipulates that on payment
of the purchase-money, the sale shall become absolute. In the present
case, the purchase money has not been fully paid. Thus, it is possible to
contend that the sale has still not become absolute notwithstanding the
order of the confirmation of sale. Nevertheless, so long as the
confirmation of sale operates, the Auction Purchaser would be bound by
the terms and conditions of sale. Rule 78 of Order 21 provides that
irregularity in publishing or conducting the sale of “movable property”
shall not vitiate the sale but the person sustaining any injury by reason of
such irregularity at the hand of any other person may institute a suit
against him for compensation or for the recovery of the specific property.
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We may also keep in mind the principle stated in sub-rule 2 of Rule 90 of
Order 21 which provides that no sale shall be set aside on the ground of
irregularity or fraud in publishing or conducting it unless, upon the facts
proved, the Court is satisfied that the applicant has sustained substantial
injury by reason of such irregularity or fraud. I am conscious of the fact
that Rule 90 deals with irregularity or fraud in publishing or conducting
sale. In the present case, the grievance is regarding supervening
circumstances after the confirmation of sale and not with regard to the
publishing or conducting of sale, as such. Nevertheless, the principle
underlying Rules 77, 78 as also Rule 90 referred hitherto can be borne in
mind while answering the claim of the rival parties. In other words, the
Court will have to consider whether on account of changed situation, the
Applicant/Auction Purchaser has sustained “substantial injury” or that the
loss is so substantial that it would vitiate the process of sale. Moreover,
is it a case where the loss or damage so caused cannot be compensated at
all. In the present case, no doubt the sale is a composite sale of
movable as well as immovable assets. However, it cannot be overlooked
that valuation of movable and immovable assets was done seperately; but
for the purpose of sale, the same were sold as one lot. Ordinarily, in case
of composite sale of movable and immovable assets it may be
impractical for the Court to sever the sale consideration, so as to
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apportion against the value of movable and immovable property. In the
present case, however, it may not be difficult to decipher the ratio of the
value of movable and immovable assets in the proportion of the original
value computed in the first valuer’s report. In any case, as aforesaid,
the issue will have to be addressed keeping in mind the fact that the sale
of “immovable property” was predominant, though a composite sale.
Inasmuch as, the fair market value of immovable property in the first
valuation report was assessed at Rs.14.69 Crores. Whereas, that of
movable assets was assessed only to the extent of Rs.24.84 Lakhs. If the
property to be sold was only movable property and after the confirmation
of sale was to be damaged, causing substantial injury and loss, even then
the question of setting aside the sale would not arise if the value of the
loss so caused could be computed and the party concerned compensated
in that behalf. Such mechanism is provided in Rule 78 of Order 21 of
CPC. In other words, it may not be necessary to straightaway set aside
the order of confirmation of sale on account of damage or loss caused to
the movable assets due to supervening circumstances of theft. Insofar
as the immovable property is concerned, it is nobody’s case that the same
has become unusable or completely damaged due to the supervening
circumstances of theft.
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8. To get over this position, Counsel for the Auction Purchaser
vehementally submitted that the Auction Purchaser had participated in the
bid with the hope that they would restart the factory. This, in my view,
is a tall claim. For, the Applicant/Auction Purchaser company is a
Reality company, obviously dealing in properties. There is nothing on
record to substantiate the position that running of factory or the
business which was conducted by the Company(in liquidation) is within
the permissible scope of activities provided in the Articles of Association
of the Applicant Company. I have no hesitation in taking the view that
the Applicant is using the supervening circumstances as the ploy to resile
from the transaction, as it is not in a position to honour its commitments
for reasons best known to it. The record substantiates the fact that the
Applicant Company was unable to pay the balance sale consideration
within the specified time due to financial problems and more particularly
because of unfavourable market condition for dealing with the property.
In any case, it is on account of the Applicant Company, the date of
delivery of possession stood extended as the balance consideration
remained unpaid. Indeed, the Applicant Company may not be directly
responsible for the supervening circumstances of theft, but the delay in
payment paved way to the said situation. For, on account of non-
payment of balance consideration, delivery of possession of the property
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was postponed. I am therefore, in no way impressed by the argument of
the Applicant/Auction Purchaser that they would suffer unwarranted loss
and hardship on account of damage caused to the movable assets of the
Company.
9. Be that as it may, the question of setting aside the
confirmation of sale in the fact situation of the present case does not
arise. The decision of the Gujarat High Court pressed into service will be
of no avail. No doubt even in that case, after the date of confirmation of
sale, theft took place. As a result of which the property was damaged.
However, in that case the lot sold was only of movable property. With
utmost respect to the view expressed by the Gujarat High Court, I am of
the opinion that cancellation of sale of movable assets due to
supervening circumstances is not the only option known to law. It would
depend on facts of each case. As aforesaid in the present case, the sale
was predominantly one of immovable assets. It is not the case of
Applicant that the value of the immovable assets is in any way depleted
due to theft. Indeed, there was theft of movable assets after the date of
confirmation of sale, keeping in mind the mechanism provided in Rule 78
of Order 21 of CPC, the Auction Purchaser can be compensated for the
loss or damage caused to the property. Counsel for the Official
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Liquidator justly pressed into service exposition of the Calcutta High
Court in the case of Allahabad Bank V/s. Assistant Collector of Customs
reported in 1994(71) E.L.T. 40(Cal). In that case, it was held that
delivery of 41 packets of varying weights of C.R. Coil weighing 169.180
Metric Tonnes in aggregate was to be made as per the advertisement in
the newspapers, but the special officer only offered to sell 177 M.T. of
C.R.Coils. The Court proceeded to give proportionate deduction from the
total sum in relation to the short delivery of items and adjusted the
equities between the parties but did not cancel the sale. Reliance is also
placed on another decision of Calcutta High Court reported in A.I.R.(39)
1952 CALCUTTA 291 in the case of Manmatha Nath Mukherjee v/s.
Jiaul Huq and Ors. In that case, the Court has observed that generally a
sale should be set aside or confirmed in its entirety but this proposition is
subject to certain qualifications, as for instance, the bar of limitation, res
judicata etc. It has adverted to earlier decision of the same High Court in
Amulya Krishna’s case reported in 41 C.W.N.224, which is directly on
the point. In that decision, the Court had dismissed the Application for
setting aside the entire sale and instead confirmed the sale as regards the
share and interest of the Judgment Debtors whose application for such
relief were rejected on the earlier occasion. In substance, it is held that
there was ample authority that it is permissible to set aside the sale in
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part. Reliance has also been placed on the decision of the Travancore-
Cochin High Court reported in A.I.R.(39) 1952 Travancore-Cochin 81 in
the case of Lakshmikutty Amma & Ors v/s. Cheruchikutty and anr. The
Court held that besides establishing irregularities it must also be
established to the satisfaction of the Court that the applicant has
sustained substantial injury by reason of the irregularity or fraud. Even
this Judgment takes the view that setting aside part of the sale, even if
the same was sold as one lot is possible. The fact that the party alleging
fraud and irregularity is obliged to prove factum of substantial injury
caused is also restated by the Apex Court in the case of Jaswantlal
Natvarlal Thakkar vs. Sushilaben Manilal Dangarwala reported in AIR
1991 S.C.770. What is substantial loss can be discerned from the
dictionary meaning given in Oxford Dictionary. It postulates-having
substance, actually existing, not illusory, of real importance or value, of
considerable amount; of solid material or structure, not flimsy, stout.
10. A priori, I have no hesitation in taking the view that the entire
sale need not be set aside even if the claim of the Applicant/Auction
Purchaser that due to theft serious damage has been caused to the
“movable assets” of the Company(in liquidation) were to be accepted as
it is. The next question is, is it possible to quantify the probable loss or
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damage caused to the movable assets. We have already adverted to the
first valuation report which gives graphic description of the condition of
the movable assets when the same were offered for sale. Even if the
Applicant may be justified in contending that the condition that the
machineries were rusted and dusted may not be equated with the scrap,
but it has clearly overlooked the observation in the first valuation report
that many machineries were required to be scrapped. Moreover, the
quantum of loss of movable property has already been evaluated in the
second valuer’s report. The Auction Purchaser cannot be permitted to
question the correctness of the first valuation report because he
participated in the auction process on that basis. On comparison with the
contents of the first report with the second valuation report, it is possible
to identify the missing items as well as the items which are damaged on
account of theft. As aforesaid, the comparative charts prepared on the
basis of two valuation reports handed in by the Counsel appearing for
the Official Liquidator clearly indicate the quantum of loss or damage
caused to the movable assets of the Company(in liquidation) after the
date of confirmation of sale. The Applicant/Auction Purchaser has not
contested the contents of the subsequent valuation report by filing any
affidavit before this Court. The argument of the Auction Purchaser was
however, very specific. He would contend that the confirmation of sale
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be set aside in toto and was not interested in continuing with the
transaction due to changed situation and he cannot be forced to take the
assets in damaged condition, even if the Court were to accept the Official
Liquidator’s suggestion of providing adjustment of the loss or damage
caused to the said property from the sale consideration.
11. For the reasons already mentioned it is not possible to accede
to the argument of the Applicant/Auction Purchaser. Instead, I may
proceed to consider the request of the Official Liquidator to determine the
loss and damage caused due to theft. Going by the second valuation
report in contrast to the first valuation report, it is noticed that about 7
items are found completely missing. The value thereof has been provided
in first valuation report as Rs.1,16,500/-. The movable items which are
lying on the factory premises but have been damaged, have already been
assessed by the valuer in the second report. The difference in value after
theft of the said items have been worked out to Rs.11,71,350/-. The
valuer has also valued the movable items in custody of police station and
has assessed realizable value thereof at Rs.2,63,000/- and distressed sale
value at Rs.2,29,000/-. In the first valuation report, the realizable sale
value of the movable assets at the relevant time was assessed at Rs.
22,36,000/- and distress sale value at Rs.19,88,000/-. As against this,
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valuation of the movable property after theft-realizable sale value thereof
has been assessed at aggregate Rs.16,29,000/-(at factory Rs.13,66,000 +
at Police station Rs.2,63,000/-); whereas distress sale value of the
movable assets after theft has been assessed at aggregate Rs.13,22,000/-
(at factory Rs.10,93,000/- + at police station Rs.2,29,000/-). In other
words, the estimated loss has been specified by the valuer at Rs.
6,66,000/-(Rs.19,88,000/- original distress sale value – Rs.13,22,000/-
distress sale value after theft).
12. There are two ways in which the Applicant/Auction Purchaser
can be compensated. The first proposal made by the Official Liquidator
is to allow adjustment from the sale consideration to the extent of amount
of loss computed by the valuer in the second valuation report as referred
to hereinabove. That can compensate the Applicant to the extent of
probable loss of movable assets due to theft. In that case, it may not be
necessary to cancel the confirmation of sale either in whole or in part.
However, this suggestion is not acceptable to the Applicant/Auction
Purchaser, who wants the confirmation of sale to be cancelled in toto.
The second option suggested by the Official Liquidator is to reduce the
value of the movable assets from the sale consideration of Rs.17.05
Crores. That is possible by keeping in mind the original fair market
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value assessed by the valuer at Rs.24,88,000/- and giving proportionate
increase on account of the bid amount of Rs. 17.05 Crores as against the
Reserved Price of Rs.15 Crores, which comes to 14.134%. In other
words, it would be assumed that the bid amount towards movable assets
was Rs.28,36,229.90 and deduct that amount from the sale consideration
of Rs.17.05 Crores and make Auction Purchaser to pay the balance
consideration. It is further suggested by the Official Liquidator that the
movable assets can then be resold and the loss suffered can be recovered
from the Security Agency. This proposal is made by the Official
Liquidator on the premiss that the Court has power to set aside the
confirmation of sale only in part in respect of the movable assets to adjust
equities between the parties. With regard to the suggestion of the Official
Liquidator to recover the loss to be suffered after resale from the Security
Agency, the Security Agency relies on its affidavit filed in this Court to
contest the charge of inaction or collusion and has disputed its
responsibility to make the good the loss suffered on account of the
theft. However, I will not burden this Judgment with the said aspect and
leave that question to be considered at the appropriate stage a little later
by giving liberty to the Official Liquidator to move further report seeking
necessary directions in that behalf after the issue qua the Auction
Purchaser is finally settled.
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13. As aforesaid, the Auction Purchaser is not inclined to accept
any offer given by the Official Liquidator. According to him, the sale
will have to be set aside as a whole. Ordinarily it would not be possible
to sever sale consideration. However, I find merit in the suggestion given
by the Official Liquidator that in the facts of the present case it may be
possible to apportion the quotient towards movable and immovable on the
assumption which is just and reasonable. If either offer was to be
accepted by the Auction Purchaser, the loss caused on account of the
theft can not only be computed but it is possible to compensate the
Auction Purchaser for such loss. Notably, the second option offered by
the Official Liquidator in no way would cause any prejudice to the
Auction Purchaser. However, it is for the Auction Purchaser to opt for
any of these mechanism within a reasonable time, failing which the
Official Liquidator will have to proceed on the assumption that the
Auction Purchaser is unwilling to fulfill its obligation of paying balance
consideration and taking delivery of the assets. In which case, will have
to proceed with resale of the entire property forthwith by invoking the
terms and conditions of the sale. In the event, the Auction Purchaser
exercises his option within a reasonable time, say, four weeks from today,
the Official Liquidator would compute the actual balance amount of
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consideration payable by the Auction Purchaser and submit further
report for appropriate direction. In that case, the Auction Purchaser
would be liable to pay interest on the outstanding amount in terms of
order dated 21st November, 2008.
14. While parting I may place on record that a disturbing trend is
setting in. In that, after the sale is confirmed by the Court and before the
Auction Purchaser proceeds to take over possession of the property after
making payment of sale consideration, in the intervening period the
movable assets are siphoned off or stolen extensively. Very recently,
similar situation had occurred in case of sale of property of Garware
Nylons Ltd.(in liquidation), but in that case the Auction Purchasers who
happen to be workers of that Company are claiming compensation for the
loss and damage caused. It is easy for the Official Liquidator and the
Security Agency on duty to blame each other. That however, cannot be
countenanced. The accountability has to be fixed and the perpetrators
proceeded against to logical end. Copy of this order be forwarded to the
Secretary, Ministry of Company Affairs, Union of India, New Delhi for
information and necessary action.
15. Accordingly, the Application preferred by the Auction
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Purchaser is rejected; whereas directions are issued in terms of prayer
clauses (a) and (c) of the report on the above terms. Insofar as directions
in terms of prayer clause (b) of the Official Liquidator’s report, the same
is left open with liberty to the Official Liquidator to submit further report
for the same direction. Insofar as, the relief in terms of prayer clause (d)
of the Official Liquidator’s report, the Official Liquidator is authorised to
move appropriate application before the criminal court for release of the
seized
goods, so that the same can be made over to the Auction
Purchaser or resold, as the case may be.
16. Ordered accordingly.
(A.M.KHANWILKAR,J)
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