Ifci Ltd. & Ors vs Vishnu Kant Gupta & Ors

passed by the Company Judge on February 12, 2

2007 in Miscellaneous Company Application No. 2

of 1993.

3. The facts giving rise to the present

appeal are that Champaran Sugar Company Limited

was in financial doldrums. Proceedings had

been initiated under the Sick Industrial

Companies (Special Provisions) Act, 1985 and

Board of Industrial and Financial

Reconstruction (BIFR), by its order dated June

28, 1993, held that there was no possibility of

rehabilitation of the Company and the Company

must be ordered to be wound up. Recommendation

was made to that effect by BIFR and it was

forwarded to the High Court of Allahabad.

Pursuant to the said recommendation, the High

Court passed an order for winding up of the

Company on September 5, 1994. An Official

Liquidator was appointed under the Companies

Act, 1956.

4. On January 4, 2000, the High Court

directed the Official Liquidator to take

appropriate proceedings for sale of Barachakia 3

and Chanpatia property of the Company in

liquidation. An advertisement was issued and

tenders were invited. On January 31, 2001, the

matter was taken up by the Company Judge. On

behalf of one Hanuman Industries (India), its

counsel Ms. Geeta Luthra stated that the

Hanuman Industries was prepared to pay Rs.3.51

crores. In support of the said bid, three bank

drafts totalling Rs.10 lakhs were deposited.

Vishnu Kant Gupta, respondent No. 1 herein had

also made offer of Rs.3.51 crores payable in

four equal quarterly instalments on condition

that the possession of the factory be given by

the Official Liquidator upon payment of first

instalment and on furnishing bank guarantee for

the remaining amount. The matter was

negotiated with both the parties. According to

IFCI, valuation given by respondent No. 1 was

`slightly lower' and correct valuation should

be Rs. 4,16,000/-. The parties were, therefore,

asked whether they were willing to increase the

offer. M/s Hanuman Industries offered Rs.3.91 4

crores and Vishnu Kant Gupta finally offered

Rs. 5 crores payable in two quarterly

instalments, i.e. in six months. The Company

Judge having regard to all the facts and

circumstances held that the offer of Vishnu

Kant Gupta was adequate and should be accepted.

Accordingly offer of Vishnu Kant Gupta was

accepted.

5. Before the period of three months

fixed for the payment of first instalment could

expire on April 30, 2001, two Writ Appeals were

filed against the order passed by the Company

Judge and by orders dated February 7, 2001 and

March 13, 2001, interim stay was granted by the

Division Bench and operation of the order by

the Company Judge was stayed. It further

appears that nothing was done thereafter either

by the parties or by the Division Bench of the

High Court and both the matters remained

pending. For about six years, the appeals

remained pending and stay operated. As late as

on December 5, 2006, both the matters appeared 5

on Board. Nobody appeared on behalf of the

appellants and both the appeals were dismissed

for default and stay granted by the Division

Bench came to be vacated.

6. After the dismissal of appeals and

vacation of stay, notice was issued to Vishnu

Kant Gupta on February 8, 2007 since he was the

highest bidder. He was served on February 14,

2007. But even before the service of notice,

he came to know about the dismissal of appeals

and vacation of stay order and he deposited an

amount of Rs. 1.50 crores on February 9, 2007.

On February 12, 2007, he offered Rs. 1.55

crores by a bank draft and also gave an

undertaking to pay Rs. 2 crores within three

days. Meanwhile, however, other persons also

gave offers. One JHV Sugar offered Rs. 5.21

crores. Similarly, Shiv Shakti Chini Mills

Pvt. Ltd. offered Rs. 6 crores. Likewise,

Sanjeev Kumar Chawdhary offered Rs. 6.50

crores. The Company Judge in the circumstances

felt that it would be in the interest of 6

Company to re-advertise and re-invite tenders.

Accordingly, he passed an order for re-

advertisement of tenders and re-invitation of

offers.

7. The respondent herein was very much

aggrieved by the order passed by the Company

Judge. He felt that his offer of February,

2001 was the highest and more than six years

had passed. Even according to Company Judge,

the offer made by the first respondent in 2001

was `reasonable' and hence it was accepted and

there was no ground to interfere with the said

action and the order passed by the Company

Judge was illegal. He, hence, preferred an

appeal against the order of the Company Judge.

The Division Bench of the High Court considered

the facts and circumstances of the case and

held that the grievance of the appellant was

well-founded and the Company Judge was not

justified in setting aside the highest offer

made by the respondent and accepted by the

Company Judge. The Court noted that the 7

respondent No. 1 had not paid the amount, but

it was because of stay granted by the Division

Bench in February, 2001. When appeals were

dismissed, respondent No. 1 had shown his

readiness and willingness to pay the amount and

within a period of about one week, he paid more

than Rs. 3 crores and also gave an undertaking

to pay balance amount of Rs. 2 crores within

three days. The Division Bench, therefore,

held that at the most the first respondent

should pay interest @ 10% from December 5, 2006

when the appeals were dismissed up to February

9, 2007 when the respondent No. 1 made first

payment of Rs. 1.50 crores. The said amount

came to about Rs. 10 lakhs.

8. Accordingly, respondent No. 1 paid Rs.

5 crores as per the bid accepted by the Company

Judge and Rs. 10,40,000/- towards interest as

ordered by the Division Bench of the High

Court. Appellants herein, namely, IFCI and IDBI

have challenged the order passed by the

Division Bench by filing the present appeal. 8

9. Notice was issued by this Court on

August 27, 2007. The respondents appeared and

waived service. Time was granted to file

affidavit in reply as well as rejoinder. By

way of ad interim relief, status quo as on that

day was also granted. Considering the nature

of litigation, the Registry was directed to

place the matter for final hearing and that is

how the matter has been placed before us.

10. We have heard the learned counsel for

the parties.

11. The learned counsel for the appellants

contended that the Division Bench of the High

Court was wholly wrong in setting aside the

order passed by the Company Judge. It was

submitted that the Company Judge was right in

setting aside the sale and in inviting fresh

offers. It was also submitted that the first

respondent had paid `paltry amount' of Rs. 10

lakhs before six years and the Division Bench

was not justified in directing the Official

Liquidator to hand over possession of the Unit 9

for the amount on which the auction was

undertaken in January, 2001 when no payment was

made by the first respondent for a pretty long

time. It was also submitted that for about six

years, the respondent had not done anything.

Apart from the fact that he had not made

payment to the Official Liquidator, he had also

not shown his readiness and willingness by

depositing the amount in the Company Court so

that it could be invested in any nationalized

bank and could earn interest. Resultantly,

almost the entire amount remained with the

purchaser and now he wants to take advantage

though much more attractive and higher offers

have already been received by the Official

Liquidator.

12. Relying on various decisions of this

Court, the counsel submitted that as per

settled law, acceptance of offer by the highest

bidder does not confer vested right in him to

get the property. It is not only the power, 1 0 but the duty of the Company Court to ensure

that proper, adequate and reasonable price is

fetched in respect of the property which is to

be sold in public auction. It is in the

interest of the Company, its shareholders,

creditors, workers as well as in larger public

interest. It was also submitted that this

Court has held that even if sale is confirmed

by a Court and it has been brought to the

notice of the Court that property has not

fetched proper, adequate and reasonable price,

even confirmed sale can be set aside. [Divya

Manufacturing Company v. Union of India & Ors.,

(2006) 6 SCC 69].

13. The appellants herein are secured

creditors. The said fact ought to have been

taken into consideration by the Division Bench.

As the impugned order is not in consonance with

well-established principles of law, the

appellants are constrained to approach this

Court. It was, therefore, submitted that the

appeal deserves to be allowed by setting aside 1 1 the order passed by the Division Bench of the

High Court by restoring the order of the

Company Judge directing him to expedite the

process of re-advertisement and sale of

property.

14. The learned counsel for the first

respondent, on the other hand, contended that

admittedly auction was held in January, 2001.

The highest bid of the first respondent was for

Rs. 5 crores which was accepted by the Company

Judge. The first respondent was prepared to

pay the entire amount as per the terms and

conditions of the bid by the Company Judge.

There was no default on his part.

Unfortunately, however, two appeals were

preferred and the Division Bench granted

interim relief in February, 2001. It was

because of the interim order passed by the

Division Bench of the High Court that the first

respondent could not pay the amount. For the

act of Court, the first respondent should not

suffer. When the appeals were dismissed for 1 2 default and interim relief was vacated,

immediately, he made part payment and also

stated that he would be paying the remaining

amount within a very short period. If after

six years, someone comes forward and says that

he is inclined to pay higher amount, sale

cannot be set aside on such ground. The

counsel submitted that the decisions on which

reliance has been placed by the appellants,

support the case of the first respondent that

though it is the duty of the Court to ensure

that the property fetches reasonable and

adequate price, it is equally well-settled that

once the Court finds that the price offered is

adequate, no subsequent higher offer can

constitute a valid ground for refusing

confirmation of sale.

15. In the instant case, the facts clearly

reveal that initial offer of the first-

respondent was for Rs.3.51 crores, but after

negotiations, it was the first respondent who

had taken it up to Rs. 5 crores which was 1 3 accepted. In the circumstances, the order

passed by the Division Bench is strictly in

accordance with law and no interference is

called for.

16. It was also submitted that the

Division Bench has considered the fact that

after dismissal of appeal, the first respondent

ought to have made payment immediately and

since there was a gap of about three months,

the Division Bench directed the first

respondent to pay interest @ 10% which came to

Rupees ten lakhs. The said amount has been

paid by the first respondent. But even if this

Court feels that the said amount is not

adequate, an appropriate direction may be

issued so that additional amount as this Court

deems fit can also be paid by the first

respondent.

17. Having heard the learned counsel for

the parties, in our opinion, the appeal

deserves to be partly allowed. So far as

principles relating to auction sale and 1 4 confirmation thereof are concerned, the law is

well-settled. Very recently, in FCS Software

Solutions Ltd. v. LA Medical Devices Ltd. &

Ors., JT (2008) 7 SC 499, we have elaborately

dealt with all these principles and it is not

necessary to burden this judgment by referring

to all the cases by reiterating the said

principles.

18. On the facts and in the

circumstances of the case, however, one very

eloquent fact cannot be lost sight of. Highest

bid of Rs. 5 crores by respondent No. 1 was

accepted by the Company Judge on January 31,

2001. But the record discloses that an amount

of Rs. 10 lakhs only had been paid by the

successful bidder-respondent No. 1.

Ordinarily, when the highest bid of intending

purchaser has been accepted, he is required to

pay 25% of purchase-price immediately. It had

not been done. The amount was substantial

inasmuch as the highest bid was of Rs.5 crores 1 5 and the first respondent was required to

deposit an amount of Rs.1.25 crores. Even

thereafter, nothing was done by him. Thus,

neither 25% amount (1.25 crores) nor 75% amount

(3.75 crores) was paid by him. True it is that

in February and March, 2001, stay was granted

by the Division Bench, but we cannot ignore the

fact that the price quoted by the first

respondent of Rs. 5 crores was in January,

2001. Had the amount been paid at the relevant

time by the first respondent or had it been

deposited in any natinalised Bank, it would

have earned a sizeable interest which has not

been done. After the stay was vacated in

December, 2006, payment was made by the first

respondent only in 2007, i.e. after more than

six years.

19. In the circumstances, though we agree

with the learned counsel for the first

respondent that higher offer of Rs. 6.5 crores

in 2007 cannot invalidate highest offer of

first respondent of Rs. 5 crores made in 1 6 January, 2001, but at the same time, we cannot

also be oblivious and unmindful of the fact

that out of Rs. 5 crores in January, 2001, the

first respondent had parted with a negligible

amount of of Rs. 10 lakhs only at that time.

Before the Division Bench it was argued on

behalf of the present appellants that even if

the Court is of the view that the sale in

favour of respondent No. 1 should not be set

aside, he should be ordered to pay 18% interest

from 2001 to 2007. The Division Bench observed

that such amount of interest would come to

about Rs. 10 crores. We appreciate that in

view of the above fact, the Division Bench was

justified in not accepting the prayer of the

appellants herein and not directing the first

respondent to pay additional amount of Rs. 10

crores. But we are also of the view that the

Division Bench was wrong and not at all

justified in ordering payment of interest only

from December, 2006 to February, 2007. The

admitted position is that the first respondent 1 7 had paid only Rs. 10 lakhs as against Rs. 5

crores which was also equally relevant and

important factor. In our considered opinion,

while exercising discretionary and equitable

jurisdiction under Article 136 of the

Constitution, we have to bear in mind the said

fact as well which is very important, relevant

and material.

20. On overall considerations and for the

reasons stated hereinabove, in our judgment,

ends of justice would be served if we direct

that sale in favour of first respondent be

confirmed with condition that the first

respondent will pay an additional amount of Rs.

three crores. It will be over and above the

payment which has been made by him. Such

payment will be made within a period of three

months. If the payment is not made as per this

order, the first respondent will not be

entitled to claim any right on the basis of the

bid made and accepted on January 31, 2001 and

fresh auction will be conducted as per the 1 8 order of the Company Judge. The appeal is

disposed of accordingly. In the facts and

circumstances of the case, there will be no

order as to costs.

........................................J. (C.K. Thakker)

........................................J. (D.K. Jain) New Delhi,

August 08, 2008.