M/S. Archean Granites Ltd vs M/S. Rps Benefit Fund Ltd. & Ors

M/S. ARCHEAN GRANITES LTD. .......APPELLANT

Vs.

M/S. RPS BENEFIT FUND LTD. & ORS. .....RESPONDENT(S)

O R D E R

Leave granted. Heard the counsel.

2. The first respondent Company (`Company' for short),

was the owner of an odd shaped (triangular) plot of land

bearing No.23, G.N. Chetty Road, T. Nagar, Chennai measuring

9315 sq. ft. The first respondent had mortgaged the said

property in favour of Bank of Madura Ltd. in the year 1998

for a loan of Rs.60 lakhs. The first respondent decided to

sell the said property to pay its depositors and the secured

creditor. It took out advertisements on 22.11.1998 and

21.3.1999 for sale of the property. After considering the

responses, on 22.4.1999, the Board of Directors of first

respondent passed a resolution to sell the said property to

the appellant for a consideration of Rs.1.65 crores and 2

entered into an agreement of sale with appellant on the same

day. In pursuance of it, the first respondent, under a Sale

Deed dated 13.8.l999, sold the said property to the appellant

herein for a consideration of Rs.1.65 crores. The sale deed

recited that out of the sale price, Rs.95,80,275/- was paid

to the vendor (first respondent); and as the property was

subject to a mortgage in favour of Bank of Madura Ltd,

Rs.69,19,725/- was retained for payment to the said Bank

towards full and final settlement of the dues of the vendor.

On 9.9.1999, the appellant paid Rs.10 lakhs towards the

Bank's dues. The appellant offered the balance amount due to

the Bank by a demand draft under cover of its letter dated

17.9.1999 with a request to the Bank to accept the same and

discharge the mortgage.

3. In the meanwhile in July, 1999, Company Petitions

No.233 to 238 of 1999 were filed against the first respondent

in the Madras High Court for winding up. By order dated

7.9.1999, the High Court appointed the Official Liquidator as

the Provisional Liquidator, to take over the assets of the

company into custody. In view of the pendency of the

liquidation proceedings, the Bank refused to accept the

balance amount and discharge the mortgage. The appellant

therefore made an application to the High Court and sought

confirmation and validation of the sale in its favour. It 3

also sought permission to pay the balance money due to the

secured creditor and receive the title deeds from the bank.

4. The learned company Judge by order dated 30.4.2002

dismissed the appellant's application. The learned company

Judge held that the transfer of the said property was made

during the pendency of the petition for winding up; that

there was no material to show that the entire sale proceeds

had been used to discharge the liabilities of the first

respondent company; that the payment of a deficit stamp duty

of Rs.23,60,956/- in regard to the sale deed by the appellant

without demur, demonstrated that the property was undervalued

in the sale deed; and that the transaction was not bona fide.

Consequently, the learned company Judge held that the sale

was void under section 531 A of the Companies Act, 1956

(`Act' for short). The appeal filed by the appellant was

dismissed by a Division Bench of the High Court on 7.10.2005.

The said judgment is challenged in this appeal by special

leave.

5. The appellant contended inter alia that it was a bona

fide purchaser for value; that the price paid by it was the

prevailing true market value having regard to the peculiar

shape and size; that when the property had earlier been put

up for sale with a minimum bidding price of Rs.2.25 crores, 4

it could not be sold due to want of response; that the sale

was made in pursuance of a Board Resolution dated 22.4.1999

and sale agreement dated 22.4.1999, for the benefit of the

company and in the interests of the depositors; and that the

High Court had misled itself by taking note of subsequent

increase in land prices, ignoring the market value on the

date of the sale.

6. This Court issued notice on the special leave petition

on 27.3.2006. During the pendency of the matter before this

Court, there were a series of meetings among the creditor

Bank (which by then was succeeded by ICICI Bank, the second

respondent herein), the official liquidator, and the

appellant to arrive at a mutually acceptable solution. On

20.1.2010, the appellant arrived at an understanding with the

secured creditor (second respondent Bank) under which the

Bank agreed to receive Rs.2.5 crores from the appellant in

full and final settlement of its dues against the total

outstanding of Rs.3.8 crores (as on 31.12.2009) provided the

entire amount was paid on or before 31.3.2010. At a meeting

held on 5.11.2009, the appellant also offered to pay a sum of

Rs. two crores to the Official Liquidator representing the

first respondent by way of settlement to validate the sale.

7. When the matter had come up for consideration earlier, 5

it would appear that the Official Liquidator was required to

ascertain the prevailing market value so that an equitable

solution could be found. The official Liquidator had

ascertained from the Sub-Registrar (vide Sub-Registrar's

letter dated 14.9.2009) that the guideline value for

properties situated at G.N. Chetty Road was Rs.7632/- per

sq.ft. As per the said guideline value, market value worked

out to be Rs.7.11 crores. The official Liquidator also made

further enquiries and assessed the current market value was

Rs.10.67 crores. The learned counsel for Official Liquidator

submitted that the property could be sold by public auction

to secure even a better price for the property. On the other

hand, the appellant submitted the relevant date for

ascertainment of market value was 13.8.1999. The appellant

pointed out that if the present value of amounts

invested/incurred by it on the property is calculated (by

adding interest at Bank rate to the amounts spent), it would

be around Rs.4 crores. He also submitted that the question of

auctioning the property does not arise, as the property was

already sold to appellant and the order of the High Court

refusing to approve the sale was under challenge. It is also

contended on behalf of the appellant that though it had a

good case on merits, it was willing to settle the matter by

paying a lump sum of Rs. two crores to the first respondent

to put an end to the litigation. He stated that the same 6

would be in addition to what the appellant has already paid

plus what it has to pay to the Bank (Rs.2.5 crores).

8. Having regard to the market value as disclosed by the

enquires by the official liquidator, we are of the view that

what has been offered may not be adequate. Keeping in view

the present value of the amount already spent/incurred by the

appellant (that is the consideration plus stamp duty paid

with the interest thereon), it would be fair and reasonable

if the appellant is required to pay Rs.2.5 crores to the

ICICI Bank in full and final settlement of the amount due to

the Bank and a sum of Rs.3.5 crores to the Official

Liquidator representing the first respondent, in all Rs.6

crores. Having regard to the fact that the issue is being

examined with reference to an application under section 531A

of the Act, and the facts and circumstances, payments as

aforesaid would result in a permanent solution doing complete

justice among the parties.

9. In view of the above, we allow this appeal in part and

set aside the impugned judgment dated 7.10.2005 of the

Division Bench of the High Court confirming the order dated

30.4.2002 of the learned Company Judge. The application by

appellant for approval and validation of the sale deed dated

13.8.1999 in its favour is allowed subject to the following: 7

(a) The appellant shall pay Rs.2.5 crores

(Rupees Two and half crores) to second respondent

(ICICI Bank) on or before 30th March 2010 in full and

final settlement of the mortgage loan of first

respondent;

(b) The appellant shall pay Rs.3.5 crores

(Rupees Three and half crores) to the official

Liquidator representing the first respondent company

on or before 30th March 2010, to enable the official

Liquidator to disburse the amount in accordance with

the direction of the Company Court.

(c) On payment of six crores as aforesaid,

the second respondent shall deliver the title deeds of

the property to the appellant and discharge the

equitable mortgage. On such payment, the official

Liquidator shall also deliver possession of the

property of the appellant.

(d) If the payments as aforesaid are not

made, this appeal shall stand dismissed and the

judgment of the High Court shall stand confirmed.

.......................J. 8

( R.V. RAVEENDRAN )

New Delhi; .....................J. March 09, 2010. ( R.M. LODHA )