JUDGMENT
1. These Appeals are preferred as against the orders made in C.A. No. 379/2003 in R.C.C. No. 6/93 and C.A. No. 364/2003 in R.C.C. No. 4/97 dated 2-5-2003, under Clause 15 of the Letters Patent r/w Section 483 of Companies Act, 1956, hereinafter referred to as “Act” in short.
2. These Original Suit Appeals are filed as against a Common Order. In view of the fact that the common questions are involved in these two Appeals and since they arise out of a common Order, they are being disposed of by a Common Judgment.
3. The appellant in O.S.A. No. 14/2003 filed C.A. No. 379/2003 in C.A. No. 273/2000 in R.C.C. No. 6/93 in the matter of M/s. Lakshmi Porcelains Limited (in liquidation) praying to recall and set aside the order dated 3-4-2003 made in C.A. No. 273/2000 in R.C.C. No. 6/93 and pass such other suitable orders. By an order dated 2-9-1998 in R.C.C. No. 6/93 the Company Court had directed the winding up of M/s. Lakshmi Porcelains Limited and appointed Official Liquidator as Liquidator under Section 459 of the Act. The 7th respondent offered Rs. 1,75,00,000 and an order was passed by the Court in C.A. No. 273/2000 accepting the offer of the 7th respondent and the appellant made an offer of Rs. 7 lakhs more than the offer made by the 7th respondent. The dismissal of C.A. No. 379/2003 is assailed in this Original Suit Appeal by the appellant.
4. In O.S.A. No. 15/2003, the appellant filed C.A. No. 364/2003 in R.C.C. No. 4/97 in the matter of M/s. Sri Ambuja Petrochemicals Limited (in liquidation) praying to recall and set aside the order dated 20-3-2003 passed by the Court in C.A. No. 44/2003 in R.C.C. No. 4/97 by confirming the sale in favour of the applicant and for other suitable orders. By an order dated 10-4-1998 in R.C.C. No. 4/97, the Company Court had directed winding up of M/s. Sri Ambuja Petrochemicals Limited and appointed Official Liquidator as Liquidator under Section 459 of the Act. Item No. 2 was auctioned in favour of 12th respondent for Rs. 1,76,00,000. Before the deposit was made, the appellant filed C.A. No. 364/2003 offering Rs. 17,00,000 more. The appellant, aggrieved by the dismissal of the said application, had preferred O.S.A. No. 15/2003.
5. The learned Additional Advocate General Sri Prakash Reddy, in a systematic way had taken us through the material available on record and had made the following submissions. The learned Counsel at the outset while commenting about the impugned Common Order had pointed out to certain factual errors which had been recorded by the Company Court. The learned Counsel also commented that in O.S.A. No. 14/2003, the sale was not by public auction and the appellant made a higher offer of Rs. 7,00,000 more before the confirmation and the said offer made by the appellant is a bona fide offer which should have been taking into consideration by the learned judge. The learned Counsel also contended that having recorded a finding that all sales should be by way of public auction, the learned Judge should have considered the grievance of the appellant that the sale sought to be confirmed in favour of the 7th respondent was made by way of publication, but the same was made even without setting aside the earlier order dated 20-7-2003 wherein resale was ordered. The learned Counsel also commented that the application to set aside sale was filed not only on the ground of offering higher price, but also on the ground of procedural irregularity in the conduct of sale. While further elaborating his submissions, the learned Counsel pointed out that in O.S.A. No. 15/2003, the offer made was Rs. 17,00,000 more and at any stretch of imagination, it cannot be said to be only a marginal offer and definitely it is a substantial increase. The learned Counsel also had taken us through the respective pleadings of the parties and also the reports made by the liquidator in this regard. It was further contended that the offer made by the appellant is 10 per cent more than the offer made by the 12th respondent and in fact to show the bona fides, the appellant was ready to deposit 20 per cent of the total bid amount immediately. Commenting about the huge expenditure that is involved, the learned Counsel also submitted that an undertaking was given by the appellant that in the event of fresh auction being ordered, he would start his offer with Rs. 1,93,50,000. It was further contended that at any rate, this offer was made before confirmation and before deposit and keeping in view the principle that in a company Court sale, every endeavour should be made to get the best price out of such sale, in the light of the bona fide offer made, the learned single Judge had totally erred in dismissing the applications instead of allowing them. The learned Counsel also had placed reliance on Navalkha & Sons v. Ramanya Das , Divya Mfg. Co. (P.) Ltd v. Union of India .
6. Sri S. Ravi, Counsel representing the contesting respondents in both these appeals had drawn our attention to the counter affidavits filed by respondents 7 and 12 in these Appeals respectively and had pointed out that absolutely there are no grounds since no regularities had been pointed out in the conduct of these sales. The learned Counsel also would maintain that the applications of this nature would definitely undermine the confidence of tender participants/auction purchases and having gone through the ordeal of submitting sealed tenders and thereafter bidding in the auction, if application is filed by a stranger making higher offer, the very object of conducting tender/auction in a transparent manner would be defeated. The learned Counsel also had pointed out relating to the relationship between the deponents who had sworn to the affidavits filed in support of the applications and had contended that M/s. Haryana Steels, Radha Steels, Neha Steels and one Sri Govind Kumar Agarwal and a few others have formed a cartel and they participate in the auction conducted by the office of Official Liquidator and their objective is to prevent an outsider from participating in the tender so that they can artificially keep the prices down. The learned Counsel also contended that in the interest of fairness of procedure, the applications of this nature should be definitely discourage. The learned Counsel not only had taken us through the relevant portions of the respective pleadings, but also had pointed out to the relevant portions of the reports of the Official Liquidator in both the matters. Elaborate arguments had been advanced about the value of price and the expenditure which may be incurred by the liquidator in conduct of sales and also the practical difficulties if the confirmed sales are interfered lightly by resorting to such applications which will defeat the said sales attaining finality at any point of time.
7. Sri Anil Kumar, Counsel representing the Official Liquidator had taken us through the reports filed by the Official Liquidator in both the matters and had explained about the difficulties in conducting the resales and had taken us through the respective reports and also explained the expenditure which may have to be incurred in the case of Company Court sales. The learned Counsel also had drawn our attention to the decisions in S. Soundrarajan v. Khaka Mahomed Ismail AIR 1940 Mad. 42 and also Dr. K.S. Thangal v. State of Kerala [1967] 2 Comp. LJ. 64.
8. Sri Surya Prakash Rao and Sri P.V. Markandeyulu, Counsels representing the secured creditors submitted that though getting higher price at a Company Court sale is a welcoming feature, if it does not attain finality by virtue of ordering repeated resales, there is a possibility of the diminishing value of the property involved and there is also the possibility of not securing the better price at any point of time by virtue of which the interest of the secured creditors will be definitely jeopardized.
9. Heard the counsel on record and perused the material available on record.
10. In O.S.A, No. 14/2003, the appellant M/s. Haryana and Steel Centre filed C.A. No. 379/2003 with a prayer to recall and set aside the order dated 3-4-2003 made in C.A. No. 273/2000 in R.C.C. No. 6/93 on the file of the Company Court and pass such other suitable orders. It is stated that the appellant is a partnership firm. The Official Liquidator filed a report and filed C.A. No. 273/2000 on the file of the Company Court praying for sale of the properties of the Company in liquidation M/s. Lakshmi Porcelains Limited which was ordered to be wound up by an order dated 2-9-1998. Pursuant to the order dated 7-2-2002, a public notice was issued by the Official Liquidator on 24-3-2002 in the newspaper for sale of properties of the Company in liquidation dividing the properties of the said Company into three lots and by fixing the upset price for each of those and by fixing up the date of sale to be 9-4-2002. But since there was poor response to the abovesaid publication and in view of the fact that the bids received are very low, the auction of the property was closed and the E.M.Ds. were returned to the respective parties. The Company Court by the order dated 7-2-2002 in C.A. No. 273/2000 was pleased to permit the Official Liquidator to sell the properties of the aforesaid Company in liquidation and pursuant to the same, the Official Liquidator issued a paper publication in local editions of Eenadu and Deccan Chronicle inviting sealed tenders for sale of property belonging to the Company in liquidation. In response to the said publication, the appellant submitted his offer and emerged as the highest bidder. Before the appellant could be declared as the prized bidder, one M/s. Soma Enterprises Limited filed C.A. No. 716/2002 in C.A. No. 273/2000 in R.C.C. No. 6/93 expressing their willingness to purchase the property of the Company in liquidation at a higher price than what is offered by the highest bidder, the appellant herein. The Official Liquidator conducted auction on 20-8-2002 in which very meager offers have been received. Subsequently, by the order dated 26-9-2002 the Company Court directed the Official Liquidator to conduct auction once again after issuing notices to the applicant in C.A. No. 716/2002 as well as the intending bidders and accordingly the Official Liquidator conducted auction and filed his report into the Court on 23-10-2002 informing the Court that one C.H. Laxma Reddy had emerged as the highest bidder and cheques had been issued for 20 per cent of the total sale consideration. On such report being filed, the Company Court by its order dated 21-11 -2002 was pleased to confirm the sale in favour of C.H. Laxma Reddy and others and a direction was given to the Official Liquidator to issue notice to the prized bidder demanding the entire balance of sale consideration to be paid within four weeks from the date of receipt of the order. However, the cheques issued by the said C.H. Laxma Reddy for the 20 per cent of the offer were not honoured. By an order dated 27-12-2002, the Company Court directed the Official Liquidator to have negotiations among the participants in the auction held on 10-10-2002 and further directed the Official Liquidator by its order dated 2-1-2003 to accept the offer of Shri K. Venkateswarlu and also from others, if any, given by new bidders. In compliance of the above directions, notices were issued to the participants asking them to be present in the chamber of the Official Liquidator on 6-1-2003 and in the said auction M/s. Soma Enterprises Limited had given a higher offer for Rs. 95,00,000 for lot No. 1 and for lot No. 2, M/s. Haryana and Steel i.e., the appellant herein, emerged as the highest bidder for Rs. 25,20,000 and for lot No. 3 M/s. K.K. Associates emerged as the highest bidder being Rs. 2,05,000. On a representation made by the counsel for M/s. Soma Enterprises, the Company Court by the order dated 20-3-2003 was pleased to sell the property afresh by following the procedure. The appellant herein submitted its offer to the Official Liquidator on 20-2-2003 for Rs. 1,10,00,000, Rs. 40,00,000 and Rs. 3,00,000 for the lots 1, 2 and 3 respectively. The Official Liquidator filed his report on 3-4-2003 stating that one M.S. Prasad Rao and others had given their highest offer, being Rs. 1,25,00,000, Rs. 45,00,000 and Rs. 5,00,000 for the lots 1, 2 and 3 respectively and placed his offer before the General Manager, Industrial Development Bank of India and subsequently the officials of I.D.B.I. vide their letter dated 31 -2-2003 intimated the Official Liquidator that a joint meeting was conducted on 28-3-2003 for the offers received by them and requested the Official Liquidator to place the offer of M.S. Prasad Rao and others before the Company Court for proper directions since the said offer is acceptable to all the secured creditors. On such report being filed, the Company Court by an order dated 3-4-2003 after considering the report of the Official Liquidator and submissions made by the counsel for the secured creditors and having considered the fact that already on four occasions efforts were made to dispose of the Company’s assets and on the four occasions the sale could not be materialized, the Company Court was pleased to direct M.S. Prasad Rao to deposit the sale consideration within two months from the date of order and further that the sale shall be confirmed on such payment. It is stated that the appellant herein though made his offer as early as in the month of February 2003 before the Official Liquidator, the same was not brought to the notice of the Company Court by the Official Liquidator even though the said offer is much higher than the offer which was made on the fourth occasion i.e., in the auction held on 6-1-2003, but surprisingly as soon as the offer is received from M.S. Prasad Rao, the same was placed before the Company Court even without attempting to bring the offer of the appellant herein to the notice of the Company Court. It is further stated that the 7th respondent, in whose favour now the sale is sought to be confirmed was well aware of the fact that already an offer was made by the appellant herein before the Official Liquidator and cleverly submitted his offer before the secured creditor and got it routed from the secured creditor to the Official Liquidator and the Official liquidator though has filed the offer of the appellant herein as an annexure to his report, he did not mention the same in the report filed by him and in fact the said offer was brought to the notice of the Company Court while passing the order dated 3-4-2003 in C.A. No. 273/2000 in R.C.C. No. 6/93.
It is further stated that had the offer of the appellant herein been brought to the notice of the Company Court by the Official Liquidator, the Company Court would have ordered the Official Liquidator to carry out negotiations between the appellant and M.S. Prasad Rao since the difference between the offers made by them is only around Rs. 17,00,000. It is further stated that M.S. Prasad Rao had the benefit of knowing the offer of the appellant herein and the same had facilitated him to quote higher offer than the appellant herein. Now that the offer made by M.S. Prasad Rao is being confirmed by the Company Court by the order dated 3-4-2003, the appellant herein is deprived of an opportunity to increase his offer than what had been offered by the prized bidder M.S. Prasad Rao. Thus, it was specifically stated that the appellant herein is ready and willing to make a higher offer for lots 1, 2 and 3, which would be Rs. 7,00,000 more than the offer made by the 7th respondent and it was specifically stated that the appellant herein is ready to increase the offer, if opportunity is offered to him to participate in the negotiations with M.S. Prasad Rao. Thus, a specific stand had been taken making a clear offer of Rs. 7,00,000 more by the appellant herein.
11. The Official Liquidator filed a report in detail explaining the circumstances under which the offer made by the 7th respondent has to be accepted. The Official Liquidator also had explained the difficulties in conducting the resales. The details are well narrated in paragraphs 6 to 9 of the report filed by the Official Liquidator in this regard. The Official Liquidator also had taken us through the respective reports and also explained the expenditure which may have to be incurred in the case of Company Court sales.
12. The 7th respondent had taken a specific stand that applications of this nature would undermine the confidence of tender participants/auction purchasers and having gone through the ordeal of submitting sealed tenders and then thereafter bidding in the auction, if the application is by a stranger, the whole process and the object of conducting tender/ auction in a transparent manner would be defeated. It was further specifically pleaded in the counter affidavit that M/s. Haryana Steels, Radha Steels, Neha Steels and one Sri Govind Kumar Agarwal and few others have formed a cartel and participated in the auction conducted by the office of the Official Liquidator and their objective is to prevent any outsider from participating in the tender so that they can artificially keep the prices down.
13. O.S.A. No. 15/2003 is preferred as against the order dated 2-5-2003 made in C.A. No. 364/2003 in C.A. No, 44/2003 in R.C.C. No. 4/97. The said application was filed with a prayer to recall and set aside the order dated 20-3-2003 made by the Company Court in C.A. No. 44/2003 in R.C.C. No. 4/97 by confirming the sale in favour of the appellant and pass such other suitable orders. As already referred to supra, the said application was dismissed by a Common Order.
14. It is stated by the appellant in the affidavit filed in support of the said application that on 9-4-2003, through friends, the appellant, a proprietary concern, came to know that plant and machinery belonging to Sri Ambuja Petrochemicals Limited was sold in the auction for an amount of Rs. 1,76,00,000 to the 12th respondent and on coming to know as to the items sold as part of lot No. 2 in the said sale, the appellant felt that the said plant and machinery was sold at least Rs. 10,00,000 to Rs. 12,00,000 lesser than the actual value. It is stated that the appellant is interested in purchasing the abovesaid plant and machinery at a higher price. It is stated that by an order dated 10-4-1998 in R.C.C. No. 4/97, the Company in liquidation M/s. Sri Ambuja Petrochemicals Limited was ordered to be wound up and subsequently by an order dated 31-1-2003, the Company Court was pleased to permit the Official Liquidator for sale of the Company’s assets. Consequent to the above orders passed by the Company Court, advertisements were published in the newspapers informing the date of sale as 26-2-2003. On 12-3-2003, the Official Liquidator filed a report stating that the 12th respondent herein gave the highest offer for lot No. 2 i.e. Rs. 1,76,00,000. The report of the Official liquidator was received by the Company Court and an order was passed on 20-3-2003 accepting the same with an observation that the sale would be confirmed after payment of the total amount and the total amount was directed to be paid within one month from the date of the order. It is further stated that the appellant is interested in purchasing the plant and machinery for a much higher amount i.e., Rs. 1,93,50,000, which would be Rs. 17,00,000 more than what had been offered by the 12th respondent and to show the bona fides, the appellant also had expressed his readiness and willingness and had undertaken to deposit 20 per cent of the total amount immediately within the time as may be pleased by the company Court. The appellant also had stated that he is ready for a fresh auction in the event of the same being ordered and had undertaken to start his offer with the offer which had been made above.
15. A report in detail was filed by the Official Liquidator explaining the facts and circumstances. The details are well narrated in paragraphs 3 to 9 of the said report.
16. The 12th respondent filed a counter affidavit taking the same stand as taken in O.S.A. No. 14/2003. It was pleaded that the applications of this nature cannot be encouraged, especially when such applications are filed by strangers to the whole process and it was further pleaded that M/s. Haryana Steels, Radha Steels, Neha Steels and one Govind Kumar Agarwal and a few others have formed a cartel and they participate in the auction conducted by the office of the Official Liquidator and their objective is to prevent any outsider from participating in the tender so that they can artificially keep the prices down. The said application C.A. No. 364/2003 was dismissed by a Common Order along with C.A. No. 379/2003 and questioning the same, the appellant preferred the present O.S.A. No. 15/2003.
17. It is no doubt true that certain factual errors had crept into the Common Order relating to the nature of sale and certain other particulars in relation to O.S.A. No. 14/2003. It is no doubt true that from the facts of the case it is clear that the subject-matter of the sale in O.S.A. No. 14/2003 is not by public auction. Section 457 of the Act deals with Powers of Liquidator. The Liquidator in the winding up by the Company Court requires prior sanction of the said Court(a) to institute or defend any suit, prosecution, or other legal proceeding, civil or criminal, in the name and on behalf of the company; (b) to carry on the business of the company so far as may be necessary for the beneficial winding up of the company; (c) to sell the immovable and movable property and actionable claims of the company by public auction or private contract, with power to transfer the whole thereof to any person or body corporate, or to sell the same in parcels; (d) to raise on the security of the assets of the company any money requisite; (e) to do all such other things as may be necessary for winding up the affairs of the company and distributing its assets. Section 457(1)(c) of the Act specifies that the Liquidator in a winding up by the Court shall have power, with the sanction of the Court to sell the immovable property and movable property and actionable claims of the Company by public auction or private contract with power to transfer the whole thereof to any person or body corporate or to sell the same in parcels. It is significant to note that the words employed in Section 457(1)(c) of the Act are “… by public auction or private contract…”. Conferring power to do something is something different from exercising the said power. It is no doubt true that sale by private contract also is permitted, but however, in view of the principle that in a Company Court sale endeavour should be made to get the best possible price, sale by public auction should be the normal rule and sale by private contract should be an exception, only under inevitable circumstances. It is no doubt true that the report of the Official Liquidator explains the details under what circumstances the sale was confirmed, but definitely, this sale was not by public auction and now an offer is made to a tune of Rs. 7,00,000 more. Likewise in O.S.A. No. 15/2003, a specific offer enhancing Rs. 17,00,000 was made. As can be seen from the record itself, offers were made even before confirmation and even before the deposit was made.
18. The formation of cartel and preventing outsiders from participating in the process of public auctions, definitely is an unhealthy trend. Tactics to monopolize the participation in the auctions so as to avoid outsiders from participating should be definitely deprecated since it will have an impact on securing the reasonable market value by sale of the assets of the Company in liquidation. The trend of monopolizing purchases at Company Court sales definitely may have to be deprecated to maintain healthy competition at auction sales or even at sales by private contract, as the case may be. Suffice for us to state that the power of sale by private contract is to be exercised sparingly. The decision to be taken in this regard should be based on sound discretion and reasons and definitely it cannot be a fanciful one. In the decision referred in Divya Mfg. Co. (P.) Ltd.’s case (supra), the Apex Court while dealing with setting aside of Company sale on offers received subsequent to confirmation of sale, when higher offer was received before possession was handed over or sale deed was executed, held that an application to set aside the sale can be permitted. The Apex Court, in fact had stated:
“The Court is the custodian of the interest of the Company and its creditors. Hence, it is the duty of the Court to see that the price fetched at the auction is an adequate price even though there is no suggestion of irregularity or fraud. Confirmation of the sale by a Court at 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.” (p. 2346)
In the decision referred in Navalkha & sons’ case (supra), the Apex Court held at para-6 as follows :
“6. The principles which should govern confirmation of sales arc well-established. Where the acceptance of the offer by the Commissioners is subject to confirmation of the Court the offeror does not by mere acceptance get any vested right in the property so 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 Chunni Lal v. Kanthimathinatha Pillai AIR 1921 Mad. 286, it was observed that where the property is authorized 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 Rathnasami Pillai v. Sabapathi Pillai AIR 1925 Mad. 318 and S. Soundararajan v. Mahomed Ismail, Roshan & Co. AIR 1940 Mad. 42, In A. Subbaraya Mudaliar v. K. Sundararajan , it was pointed out that the condition of confirmation by the Court being a safeguard against the property being sold at an inadequate price, it will be not only proper but necessary that the Court in exercising the discretion which it undoubtedly has of accepting or refusing the highest bid at the auction held in pursuance of its orders, should see that the price fetched at the auction is an adequate price even though there is no suggestion of irregularity or fraud. It is well to bear in mind the other principle which is equally well-settled namely that once the Court comes to the conclusion that the price offered is adequate, no subsequent higher offer can constitute a valid ground for refusing confirmation of the sale or offer already received. (See the decision of the Madras High Court in Roshan & Company’s case AIR 1940 Mad. 42).” (p. 2039)
In the decision referred in S. Soundararajan’s case (supra), the Madras High Court held :
“… The fact that the sale is subject to the confirmation of the Court does not mean that the Court shall refuse to accept the highest bid because at a later stage some one on second thought says that he is willing to pay more. It is only right and proper that the sale should be subject to the confirmation of the Court. The condition is a safeguard against irregularity or fraud in connection with the sale and against property being sold at an inadequate price. No such consideration applies here. No complaint is made of any irregularity or fraud, and it is not suggested that the respondent’s final bid was inadequate. Having exceeded the reserve price agreed upon by the parties, it could not be said to be inadequate. The respondent having made an adequate bid and having complied with all the requirements of the Court and there being no irregularity he was entitled to have the sale confirmed….” (p. 43)
In the decision referred in Dr. K.S. Thangal’s case (supra), the High Court of Kerala dealt with the aspect of sale of properties by Official Liquidator with the sanction of Court and subject to its control in the absence of allegations against the Liquidator and there being no irregularities in the conduct of sale alleged and also examined the aspect whether the subsequent offer of a higher bid is a ground for refusing confirmation. The facts in the said decision are as follows :
“The second respondent is the Official Liquidator appointed by the District Court, Quilon in Comp. Petition No. 1 of 1964 – a petition for winding up ‘Kundara Enamel Industries’. He was directed by the Court to sell among other properties a building for which the upset price was fixed at Rs. 50,000. The appellant had filed a petition on 14-11-1966 stating he was prepared to purchase the said building for a reasonable sum. There were no bidders at the sale and the sale was adjourned. The upset price was reduced by Court to Rs. 20,000. The building was sold for Rs. 20,600 on 10-2-1967, to the third respondent the highest bidder. One Ismail, it seems, had filed a petition after the said sale offering Rs. 25,000 and making certain allegations against the Liquidator.
On 14-2-1967, the appellant filed I.A. No. 164 of 1967 in the District Court stating that he was prepared to purchase the building for Rs. 30,000, that there would have been no occasion for the sale if his offer had been accepted and that the sale was vitiated by irregularities; no particulars of irregularities were set forth therein. The application was dismissed stating that the sale had already been confirmed.
In the appeal against the dismissal the appellant contended that the Court should have considered the allegations against the Liquidator made by one Ismail in his petition.” (p. 64)
On the above facts, the High Court of Kerala held :
“No allegation was made against the Official Liquidator in the petition I.A. No. 164 of 1967, filed by the appellant on 14-2-1967; further no irregularities have been set out therein. In the circumstances the Court was not bound to inquire into the conduct of the sale in the case.
There was no definite offer of a specified amount for the purchase of the property by the appellant made at any time before the sale on 10-2-1967.
Where property is sold by an Official Liquidator, subject to the confirmation of Court any subsequent offer of any higher amount would not be a ground for enquiry or for refusing confirmation of sale.” (p. 64)
In Amba Tannin & Pharmaceuticals v. Official Liquidator [1975] 45 Comp. Cas. 457 (Bom.), it was held that it is the right of the Court to satisfy itself that the price offered for sale of property is quite reasonable looking to the current market value of the said property and until the Court is satisfied about the adequacy of price offered for sale of the property, there would not be proper exercise of judicial discretion. In Wellworth Vanijya (P.) Ltd. v. Chowdhury Udyog (P.) Ltd. [2003] 2 Supreme 28, the Apex Court had an occasion to deal with a similar question and an order setting aside the confirmation of sale was affirmed on the ground of receiving higher offer. In the decision referred in Divya Mfg. Co, (P.) Ltd.’s case (supra) no doubt Clause 11 was referred to, but however, on that ground it cannot be said that the ratio laid down by the Apex Court in the said decision is not applicable to the present facts. In the present case, an offer of Rs. 7,00,000 and Rs. 17,00,000 respectively had been made. No doubt, several problems and the additional expenditure to be incurred in the case of resales had been explained in detail. In fact, the Official Liquidator filed statement of expenditure incurred by him in the case of sale of M/s. Sri Ambuja Petrochemicals Limited, in liquidation, and the said statement is as follows :
Sl. No.
Nature of Expenditure
Amount in Rs.
1.
Watch & Ward
9,01,419.00
2.
Advertisement
5,34,553.00
3.
Valuation fees
3,34,500.00
4.
Miscellaneous
19,569.00
Total
17,90,041.00
Advertisement cost break up
28-03-2001 For sale of car 9,300.00
17-06-2002 For claims 28,158.00
15-01-2003 For sale 1,60,960.00
14-05-2003 For sale 3,36,135.00
Valuation fees of Sambasiva Rao
Valuation fee payable as per court
Order 6,00,000.00
Less: already paid 3,00,000.00
___________
Balance of valuation fee payable 3,00,000.00
___________
19. It is no doubt true that ordering resales too often also may be detrimental to the interest of the general body of creditors and the secured creditors as well. But, at the same time, when higher offers are made, which are not just marginal or negligible, the Court is expected to bestow its thought in considering whether such sales are to be confirmed or resales are to be ordered depending upon the fact, and circumstances of the case, even in the absence of any allegation of irregularity or fraud in the conduct of sales. A few of the guidelines in the case of conduct of Company Court sales may be specified as hereunder:
(1) It is the duty of the Court in the conduct of sale to see that the price offered is reasonable when compared to the market value of the property.
(2) The object of open auction is to get the best possible price.
(3) Court has to see that by auction of property, adequate price is got and there is no irregularity or fraud in the conduct of sale.
(4) It is needless to say that in the case of irregularity or illegality or fraud, interference by Court is inevitable.
(5) A balance has to be maintained to secure the best price and the Court has to keep in mind the finality to be attained to such sale in the interest of creditors.
(6) Court has to be prima facie satisfied with the bona fides where strangers pray for setting aside the sale by making higher offers.
(7) The Official Liquidator always should make an endeavour to see that the best possible price is realized by way of sale in the interest of the general body of creditors, secured or otherwise.
(8) Formation of cartel to be avoided and care to be taken to have healthy competition to secure the best possible price at the auction.
(9) The highest offeror does not get any vested right for automatic confirmation.
(10) Collective and collusive secret deals are to be avoided so as to get the best possible price out of the sale.
(11) Care should be taken to see that competition is healthy and there is fairness in conduct of sale.
(12) Subsequent offer, if any, if it is only narrow, negligible or marginal, not having substantial impact on the additional gain in sale, may be ignored. If the subsequent offer is substantial, careful consideration should be given to such offer.
These guidelines are only illustrative and at any rate they are not exhaustive and each case depends upon its own facts.
20. It is no doubt true that while ordering resale, in several of the cases certain difficulties are to be faced and certain additional expenditure has to be incurred and the interest of the creditors in general and the secured creditors, in particular, also may have to be kept in mind. It is also true that by ordering resales too often, there may be a possibility of diminishing bidders and the subsequent sales being discouraged by repeated sales. However, the Company Court has to take into consideration the overall facts and circumstances and keeping in mind the principle that highest possible price is derived from out of the sale of the assets of the Company in liquidation, a just and equitable decision may have to be arrived at in this regard.
21. In the light of the principles enumerated above, we are satisfied that a bona fide offer of Rs. 7,00,000 in the case of sale not by public auction and yet a bona fide offer of Rs. 17,00,000 in the case of sale by public auction, at any stretch of imagination, cannot be said to be only marginal or narrow offers and these offers were made before the confirmation and especially a specific undertaking also was made to begin the bid from such an offer, in case the Court directs resales. In the light of the ratio laid down by the Apex Court in the decision referred in Divya Mfg. Co. (P.) Ltd.’s case (supra), and in the light of the facts and circumstances narrated in detail supra, we are satisfied that the impugned Common Order made by the Company Court cannot be sustained and accordingly the same is set aside. It is made clear that the appellant in O.S. A. No. 15/2003, in the application, prayed for confirmation of sale in his favour, which definitely cannot be granted and at the best, resale alone can be ordered since others also must be given an opportunity to participate in the auction.
22. For the reasons recorded above, the appellants in both these Original Suit Appeals are directed to deposit the expenses incurred by the Official Liquidator for sales in question and also shall deposit advertisement and incidental expenses as may be estimated by the Official Liquidator for resales within a period of two weeks and the Official Liquidator, on the appellants complying with the said conditions, is directed to advertise the resales keeping in view the higher offers already made by the appellants and proceed with the respective sales in accordance with law. It is also made clear that in view of the several details and the difficulties expressed in the reports filed by the Official Liquidator, if any further directions are required, the Official Liquidator is at liberty to move the Company Court for appropriate directions in this regard.
23. Accordingly, the appeals are allowed to the extent indicated above. No order as to costs.