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OLR/68/2005 23/ 23 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
OFFICIAL
LIQUDATOR REPORT No. 68 of 2005
In
COMPANY
PETITION No. 205 of 1996
For
Approval and Signature:
HONOURABLE
MR.JUSTICE K.A.PUJ
=====================================================
1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
2
To
be referred to the Reporter or not ?
3
Whether
their Lordships wish to see the fair copy of the judgment ?
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
5
Whether
it is to be circulated to the civil judge ?
=====================================================
O.L.OF
G.S.T.C.LTD., UNIT MONOGRAM MILL. - Applicant(s)
Versus
M.A.NARMAWALA,
DY. SECRETARY (TEXTILE) & 1 - Respondent(s)
=====================================================Appearance
:
OFFICIAL LIQUIDATOR for
Petitioner No(s).: 1.
None
for Respondent Nos. 1 & 2.
MR SN SOPARKAR, Senior
Advocate WITH MRS SWATI SOPARKAR for M/s. Mahakali Scrap
Traders.
=====================================================
CORAM
:
HONOURABLE
MR.JUSTICE K.A.PUJ
Date
: 23/08/2005
ORAL JUDGMENT
The
Official Liquidator has filed this report seeking certain directions
which inter alia, include confirmation or otherwise of the offer of
M/s. Mahakali Scrap Traders of Rs. 4.31 Crores being the highest
bidder for building structure except T.K. Office, Account Office,
Credit Society Office, Office Records, Compound Wall, Trees and land
on the terms and conditions of sale.
The
Official Liquidator has submitted in his report that he has informed
to the members and offerers present before the announcement of the
auction that the auction was for building / structure only except
T.K. Office, Account Office, Credit Society Office, Office Records,
Compound Wall, Trees and not for land as was inadvertently stated in
the top portion of the advertisement. The Sale Committee started
auction proceedings. The highest offer received as per Tender was
Rs. 2.97 Crores from M/s. Mahakali Scrap Traders. Thereafter, the
inter-se bidding was taken place amongst the bidders and at the
close of the auction, three highest offers were found by the
Official Liquidator which are as under :-
M/s.
Mahakali Scrap Traders Rs. 4,31,00,000/-
M/s.
V.L. Intex Rs. 4,26,00,000/- M/s. Khemaji & Jodhaji Bros. Rs. 4,21,00,000/- The
Official Liquidator has further stated that subsequently, one
offerer, namely, M/s. Virasat Reality Pvt. Ltd. has also requested
to retain its EMD and he sent letter on 31.03.2005 offering
Rs.4,31,00,000/-. However, vide his letter dated 09.05.2005, he has
requested the Official Liquidator to return the EMD of Rs. 15 Lacs.
Based
on the aforesaid report, this Court has issued notice on 17.06.2005
directing the Official Liquidator to intimate to all the bidders who
have participated in the auction before the Sale Committee and also
to the intending purchasers who want to participate in the inter-se
bidding before the Court on 06.07.2005. The Official Liquidator was
further directed to inform the intending purchasers that if they
want to participate in the inter-se bidding, they have to pay EMD to
the Official Liquidator along with late entry charges @ 18% p.a. and
it should be made clear that late entry charges are not refundable
in case they may not turn out to be the highest bidder. The Court
has also directed the office to place Company Application No. 133 of
2005 along with this report. The said Company Application was moved
by M/s. Mahakali Scrap Traders, the highest bidder for confirmation
of sale in its favour.
Pursuant
to the notice issued by this Court on 17.06.2005 and pursuant to the
intimation sent by the Official Liquidator, no bidders have remained
present on 06.07.2005 or even thereafter. The Court was, therefore,
inclined to confirm the sale in favour of the highest bidder,
namely, M/s. Mahakali Scrap Traders. On 06.07.2005, this Court has
passed an order permitting the highest bidder, namely, M/s. Mahakali
Scrap Traders to withdraw Company Application No. 133 of 2005 as the
applicant had no more interest in keeping its offer alive. The
Court has, however, clearly observed that the issue with regard to
return of EMD would be decided in O.L.R. No. 68 of 2005.
Mr.
S.N. Soparkar, learned Senior Counsel with Mrs. Swati Soparkar,
learned advocate appearing for M/s. Mahakali Scrap Traders has
submitted that since considerable time has elapsed and the highest
bidder has already invested its fund elsewhere, the highest bidder
is not interested in continuing its offer and it has already
withdrawn Company Application No. 133 of 2005. In this view of the
matter, the EMD which was paid should be refunded to him. He has
further submitted that there is no valid contract between the
highest bidder and the Official Liquidator to this effect and even
if this is considered to be a valid contract, the Official
Liquidator has no right to forfeit the amount of EMD as there is
settled position in law and also statutory provisions under Section
5 of the Contract Act that it is always open for the offerer to
withdraw its offer before it is accepted and once the offer is
withdrawn, the EMD paid by the offerer is required to be refunded.
He has submitted that Section 5 of the Contract Act deals with
revocation of proposals and acceptance. The offerer can withdraw
its offer before communication of the acceptance is complete against
it. The Official Liquidator by merely providing clause to the
contrary in the tender document cannot take away the legal rights of
the offerer. In support of his submissions, he has relied on the
decision of Madras High Court in the case of Somasundaram
Pillai V/s. Provincial Government of Madras, A.I.R. (34) 1947 MADRAS
366 wherein the Court has taken the view that to have an
enforceable contract there must be an offer and an unconditional
acceptance. A person who makes an offer has the right of
withdrawing it before acceptance, in the absence of a condition to
the contrary supported by consideration. The fact that there has
been a provisional acceptance makes no difference. A provisional
acceptance cannot in itself make a binding contract. There must be
a definite acceptance or the fulfillment of the condition on which a
provisional acceptance is based. The Court has further held that at
an auction-sale of liquor shop licenses held in accordance with the
conditions of sale prescribed by the Board of Revenue the
plaintiff’s bid was provisionally accepted by the selling officer.
The final acceptance rested with the Collector under the conditions
of sale. The conditions stipulated that no bid which had been
provisionally accepted should be withdrawn before it lapsed on a
higher bid being accepted or before orders were passed confirming or
refusing to confirm it. The Court has held that the conditions of
sale were not settled by the Board of Revenue under any particular
provision of the Madras Abkari Act and their publication did not
amount to a notification under S. 69 of that Act and had therefore
no statutory force. The Court has further held that the plaintiff
was entitled to withdraw the bid because the prohibition against
withdrawal had not the force of law and there was no consideration
to bind him down to the condition.
Mr.
Soparkar has further relied on the decision of Madras High Court in
the case of T. Linga Gowder V/s. The State of Madras, A.I.R.
1971 MADRAS 28 wherein it is held that when there is no
completed contract between the plaintiff and the Government, no
further question can arise. Section 66 of the Madras Forest Act
enables the Government to recover the money due to the Government as
if it were arrear of land revenue. The Court found in that case
that the money claimed by the Government did not fall under any of
the heads provided for under Section 66. To start with, there was
no enforceable contract for a breach to occur. Secondly, the
Court’s attention has not been drawn to any statutory rule under the
Act whereunder the money could be claimed by the Government, the
conditions of the auction sale having no statutory force. It was
not claimed that any statutory rules having the force of law have
been made in this regard. Under Section 52 of the Revenue Recovery
Act all sums due to the Government, including compensation for any
loss or damage sustained by them in consequence of a breach of
contract, may be recovered in the same manner as arrears of land
revenue under the provisions of the Act, unless recovery thereof has
otherwise been specially provided for.
Mr.
Soparkar has further relied on the decision of Madhya Pradesh High
Court in the case of Rajendra Kumar Verma V/s. State of Madhya
Pradesh and others, AIR 1972 MADHYA PRADESH 131 where, in
pursuance of tender notice for the sale of Tendu Patta (Leaves) the
petitioner had given his tender but had withdrawn it before it was
opened and accepted. It is held that when the tenders were opened
there was no offer from the petitioner and, therefore, there could
be no contract either express or implied between the parties. It is
further held that the Government by merely providing a clause in the
tender notice imposing condition on the exercise of the right to
withdraw the offer could not take away that legal right of the
petitioner.
Lastly,
Mr. Soparkar has relied on the decision of the Delhi High Court in
the case of M/s. Suraj Besan and Rice Mills V/s. Food
Corporation of India, AIR 1988 DELHI 224 wherein it is held
that a person can withdraw or modify his offer or tender before
communication of the acceptance is complete as against him, that is,
before its acceptance is intimated to him. The Government by merely
providing a clause to the contrary in the tender notice could not
take away the legal rights of a person.
Based
on the aforesaid decisions and the statutory provisions, Mr.
Soparkar has submitted that the EMD which is lying with the Official
Liquidator should be returned to the highest bidder forthwith.
As
against the aforesaid submissions, the Official Liquidator has
invited the Court’s attention to Condition No. 7 & 32 of the
Tender document. Condition No. 7 empowers the sale Committee to
accept the highest or any offer, subject to the sanction and
confirmation of this Court. This condition further empowers the
Sale Committee to reject any or all offers without assigning any
reasons thereof, subject to the permission of this Court. It
further stipulates that the decision of the High Court shall be
binding on the parties. Condition No. 32 makes it abundantly clear
that the offerer shall not be entitled to withdraw or cancel his
offer once submitted. It also talks about the consequences if the
offer is withdrawn or cancelled. In case
of withdrawal or cancellation of offer, not only the earnest money
deposit shall be liable to be forfeited, but the offerer will also
be liable to pay the Official Liquidator the loss or damage suffered
consequent upon his backing out of the offer. It further stipulates
that the said property / assets will then be re-sold at the risk and
consequences of the offerer. The Official Liquidator has,
therefore, submitted that on withdrawal of the offer by the highest
bidder and that too, after its acceptance by the Sale Committee, the
earnest money deposit paid by it is liable to be forfeited and it
shall also be held to be liable for any loss or damage that may be
caused to him on re-sale of the said property / asset. In support
of his submission, the Official Liquidator has relied on the
decision of this Court in the case of O.L. Of New Jhangir Textile
Mills (Unit of GSTC Ltd.) V/s. M.A. Narmawala & Ors., being
O.L.R. No. 25 of 2003 in Company Application No. 47 of 2003 decided
on 31.07.2003, wherein, on withdrawal of the offer by the successful
bidder before the Sale Committee, the Court held that the earnest
money deposit made by the offerer shall be liable to be forfeited.
After
having heard the learned Senior Counsel Mr. S.N. Soparkar appearing
for the applicant and the Official Liquidator and after having
perused their respective pleadings, relevant statutory provisions
and authorities cited before the Court, it is the considered opinion
of the Court that the highest bidder before the Sale Committee is
not entitled to claim refund of earnest money deposit. The Court
has examined the Conditions No. 7 & 32 of the Tender document.
The highest bidder has participated in the inter-se bidding before
the Sale Committee. Its bid was accepted subject to confirmation by
the Court. The said acceptance was communicated at the conclusion
of the Sale Committee meeting i.e. On 24.03.2005. The highest
bidder’s offer was of Rs. 4,31,00,000/- whereas the offers of other
two bidders, namely, M/s. V.L. Intex and
M/s. Khemaji & Jodhaji Bros. were to the tune of Rs.
4,26,00,000/- and Rs. 4,21,00,000/- respectively. As a result of
acceptance of the offer of the highest bidder, the earnest money
deposit of other bidders were returned. The sale was required to be
confirmed by the Court. The highest bidder has filed Company
Application No. 133 of 2005 before this Court for confirmation of
said sale in its favour. The Official Liquidator has also filed the
present report on 15.06.2005. The Court issued notice therein
making it returnable on 06.07.2005 and it was directed to be placed
along with Company Application No. 133 of 2005. On the returnable
date i.e. 06.07.2005, the highest bidder sought the permission to
withdraw the application as it did not want to keep its offer alive.
The period of 3 to 4 months cannot be said to have any attributes
of delay or latches. The Court is, therefore, not convinced with
the submission of Mr. Soparkar that there was unreasonable delay in
granting sanction or confirmation of sale in favour of the highest
bidder.
As
far as withdrawal of the offer by the highest bidder is concerned,
there is no much dispute about the offerer’s right to withdraw his
offer before its acceptance being communicated to him. However,
consequences flowing from such withdrawal or cancellation of offer
depend upon the facts of each case. Authorities cited by Mr.
Soparkar deal with the cases where conditions imposed in the Tender
document were held to be without statutory force or without any
consideration. In the present case, Condition No. 30 specifically
states that this Court has right to impose such other and further
terms and conditions as this Court may deem fit and proper in the
circumstances of the case may arise and the terms and conditions
already specified in the Tender document will be binding on all the
parties concerned. These conditions are having the statutory force.
Rules 272 to 274 of the Companies (Court) Rules, 1959 deal with
sales by the Official Liquidator. Rule 272 puts an embargo and
mandates that unless the Court otherwise
orders, no property belonging to Company which is being wound up by
the Court shall be sold by the Official Liquidator, without the
previous sanction of the Court, and every sale shall be subject to
confirmation by the Court. Rule 273 prescribes the procedure at
sale. It states that every sale shall be held by Official
Liquidator, subject to such terms and conditions as may be approved
by the Court. Thus, the condition regarding forfeiture of earnest
money deposit, on withdrawal of the offer by the highest bidder in
the present case, that too, at the stage when the matter is pending
before the Court for confirmation of sale, cannot be considered to
be without any statutory force.
The
condition regarding forfeiture of earnest money deposit in the
present case, cannot be treated as without any consideration. The
highest bidder has got an exclusive right of consideration of its
offer by the Court, in exclusion of other bidders who were before
the Sale Committee. Even if other bidders may intervene and may
take part in inter-se bidding before the Court, pursuant to the
notice issued by the Court, but in that case, they are liable to pay
late entry charges @ 18% p.a. for the period from the date of
inviting the offers by the Official Liquidator till they make the
offer before the Court and pay earnest money deposit. The highest
bidder whose earnest money deposit is retained by the Official
Liquidator is not supposed to pay these late entry charges. If any
other bidder raises his bid before the Court and ultimately, the
Court confirms the sale in favour of such other bidder, the
highest bidder before the Sale Committee will certainly get his
earnest money deposit back. But, when there is no other bidder or
no one makes any highest offer and Court is inclined to confirm the
sale in favour of the highest bidder, at this stage, if the offer is
withdrawn, the earnest money deposit of such highest bidder will
certainly be liable to be forfeited and in a given case, such person
shall also be exposed to other consequences as contemplated in the
terms of the Tender document. The view which this Court is taking
in the present case, finds support from the decision of Rajasthan
High Court in the case of Bhanwarlal V/s. The State of
Rajasthan and others, AIR 1976 RAJASTHAN 215. In this case,
tenders were invited for sale of country liquor group shops. The
offer was withdrawn prior to its acceptance. The Court found that
there is a statutory condition in the tender form that tenderer had
no right to withdraw. The Court held that earnest money deposit was
liable to be forfeited on withdrawal by tenderer.
In
view of the foregoing discussion, the Court hereby directs the
Official Liquidator to forfeit the entire amount of earnest money
deposit paid by the highest bidder i.e. M/s. Mahakali Scrap Traders.
In absence of any other bidder, the property is not sold and hence,
it is premature at this stage to say that any loss or damage is
suffered by the Official Liquidator by virtue of withdrawal of an
offer by the highest bidder. The Court, therefore, does not express
any opinion at this stage. It is, however, open for the Official
Liquidator to raise such issue when the property is sold and price
fetched is less than Rs. 4,31,00,000/-. It is also open for the
present highest bidder to raise all its objections if any claim is
made against it by way of damages.
Subject
to the aforesaid directions and observations, prayers made in clause
(a) and (b) of para 10 of the report are disposed off. As far as
prayer (c) is concerned, the action of the Official Liquidator of
making payment of Rs. 15,700/- to the advertising agency, namely,
M/s. Navnitlal & Co. is hereby ratified.
As
far as prayer (d) regarding sanction of professional bill of Rs.
21,000/- of Shri N.K. Shah, Govt. Approved Valuer is concerned, the
Valuer has raised his bill dated 07.02.2003. The same appears to
have been received in the office of the Official Liquidator on
09.05.2005. In the same letter-cum-bill dated 07.02.2003, it is
stated that as per the Official Liquidator letter dated 29.01.2003,
he has visited the site on 30.01.2003 and 03.02.2003 along with
Official Liquidator’s representative and submitted Inventory and its
Valuation report in duplicate. However, summary of the Valuation
Report produced at Annexure E to the present Report is of
02.08.1999. Even the complete Valuation Report produced by the
Official Liquidator, after it is called for by the Court, is of
02.08.1999. However, the same did not appear to have been received
by the Official Liquidator. There is one more covering
letter-cum-bill dated 07.02.2003 along with the said report. This
entire bunch of papers must have been received by the Official
Liquidator on 09.05.2003. It, therefore, appears to the Court that
on 12.03.2005, when the advertisement appeared in the Newspaper
fixing the upset price of buildings and construction, at Rs. 150
Lacs, the Valuation Report might not be available as the value of
construction and building is determined at Rs. 90 Lacs. Possibly
after disclosure of the Report, the highest bidder has withdrawn its
offer. Be that as it may, the Official Liquidator has not correctly
placed all the relevant facts before the Court. It is not certain
as to whether the Valuer has given any other Valuation Report in
February, 2003. In absence of proper details before the Court, the
Professional Bill of the Valuer is not sanctioned at present. The
Official Liquidator is, therefore, directed to clarify the following
issues in a separate Report, after calling for necessary explanation
from the Valuer :-
Whether
the Valuer has raised and forwarded any Bill along with his letter
dated 02.08.1999.
Why
the letter dated 02.08.1999 is not produced before the Court at the
time of filing O.L.R. No. 68 of 2005.
Whether
the Valuer has prepared any Inventory and Valuation Report pursuant
to his visit on 31.01.2003 and 03.02.2003. If it is so, the same
shall be produced before the Court.
Why
the letter dated 07.02.2003 is stated to have been received on
09.05.2005.
The
upset price of Rs. 150 Lacs for buildings is fixed on what basis,
especially when the Valuation Report has fixed the valuation of Rs.
90 Lacs.
Whether
plant and machineries, furniture and fixtures and stock have been
sold ? Necessary orders for confirmation of such sale be produced.
The Official Liquidator to explain as to why and by whom the
mistake has been committed to include the sale of land in the
advertisement ? Any offer has ever been invited for sale of land.
Whether
any letter is received from Virasat Reality Pvt. Ltd. requesting to
retain its Earnest Money Deposit and raising its bid to Rs.
4,31,00,000/-.
Whether
Virasat Reality Pvt. Ltd. has been paid back the Earnest Money
Deposit ? If yes, when ?
The
above compliance be made by the Official Liquidator within one week
from today. To be notified in the Ist Board on 30.08.2005 for
compliance only.
This
O.L. Report is accordingly disposed off.
[K.A.
PUJ, J.]
Savariya
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