Shradhha Aromatics P.Ltd vs Ol Of Global Arya Ind.Ltd.& Ors

(Arising out of Special Leave Petition No.23849 of 2008)

Shradhha Aromatics Private Limited ... Appellant

Versus

O.L. of Global Arya Industries Limited and others ... Respondents

J U D G M E N T

G.S. Singhvi, J.

1. Leave granted.

2. The appellant is aggrieved by judgment dated 12.9.2008 of the

Division Bench of the Gujarat High Court whereby the appeal preferred by

respondent No.2 - Bipin B. Lathia against order dated 12.11.2007 passed by

the learned Company Judge in Company Application No. 504 of 2007 was

allowed and the Official Liquidator was directed to complete the formalities

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for execution of the sale deeds in respect of the property belonging to M/s.

Global Arya Industries Limited (hereinafter referred to as, "the Company")

in his favour.

3. By an order dated 27.4.2006 passed in Company Petition No. 106 of

2002, the learned Company Judge ordered winding up of the Company and

appointed the Official Liquidator attached to the High Court as Liquidator of

the Company. The proposal submitted by the Liquidator in the form of

Report No.162 of 2006 for sale of the assets of the Company including land,

building, plant and machinery, furniture, fixtures and all other movables

(except records) at L.S. No.202/3P, SIDC Main Road, village Veraval,

District Rajkot was approved by the Company Judge and a committee was

appointed for conducting the sale. After due deliberations, the committee

decided to advertise sale of the assets of the Company. In furtherance of that

decision, advertisements were issued in vernacular and English newspapers

showing reserve price of the land etc. as Rs.64 lakhs. After considering the

bids and further offers made before the Court, the learned Company Judge

passed an order dated 30.8.2007 and approved the highest offer of Rs.127

lakhs given by respondent No.2. Soon thereafter, the appellant filed

Company Application No. 450 of 2007 for recall of order dated 30.8.2007

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by stating that it was interested in making an offer of Rs.141 lakhs. The

learned Company Judge dismissed the application by observing that the

revised offer made by the appellant was an afterthought and there was no

tangible reason to review the earlier order.

4. Undeterred by rejection of one application, the appellant filed another

application, which came to be registered as Company Application No.504 of

2007, for recall of order dated 30.8.2007. After considering the rival

submissions, learned Company Judge vide his order dated 27.11.2007

allowed the second application. The relevant portions of that order are

extracted below:

"13. If the above conduct of the applicant is to be viewed in

light of the latest judgment of the Hon'ble Supreme Court in the

case of Divya Manufacturing Company (P) Limited (Supra),

it is clear that though the sale was confirmed in favour of

respondent No.2, neither the possession of the movable

properties was handed over nor the sale deed was executed in

favour of respondent No.2. Unless and until these formalities

are over, it cannot be said that the transaction is complete and

before that, if higher offer is made, the Court would certainly

consider and at that point of time, it is to be seen as to whether

the earlier transaction is by virtue of fraud. The real criteria is

that the property of the Company in liquidation should fetch

maximum price and whether the properties can be adjudged on

the basis of the offers which are received. Here in the present

case, the applicant has offered Rs.1.51 Crores. If that is to be

considered as market value then in that case, certainly the offer

of Rs. 1.27 Crores made by respondent No.2 and accepted by

the Court earlier cannot be said to be an adequate price and

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hence, the Court is well within its power to reconsider the case.

The authorities cited by the learned advocate appearing for the

respondent No.2 are confining to the facts of those cases. Even

in the case of Divya Manufacturing Company (P) Limited, a

distinction was sought to be drawn by submitting that there was

condition laid down in the tender document empowering the

Court to set aside the sale. Irrespective of the fact whether any

such condition is there or not, the Court is well within its power

to reconsider its decision especially when higher amount is

offered and ultimately, it is in the advantage and benefit of the

Secured Creditors and workers.

14. Even the Division Bench of this Court has taken the view

in O.J. Appeal No. 80 of 2007 decided on 28.06.2007 where the

Learned Single Judge has rejected the application for de-

confirmation of sale and while considering the higher offer

made by that appellant, since the original successful bidder had

increased its offer to match with the offer made by the appellant

in the appeal, the matter was accordingly decided.

15. Considering the over all view of the matter and looking

to the facts and circumstances of the present case, the Court is

of the view that since the present applicant is offering Rs. 1.51

Crores and it is already deposited with the Official Liquidator,

there is no reason not to accept the said offer. Therefore, the

order dated 30.08.2007 passed by this Court in OLR No. 143 of

2007 is hereby recalled and the sale of Lot No. A of the

Company in liquidation confirmed in favour of respondent No.2

is hereby cancelled. The Court hereby confirms the sale of Lot

No. A of the Company in liquidation in favour of the present

applicant for Rs. 1.51 Crores. Since the entire sale

consideration has already been deposited by the applicant with

the Official Liquidator, the Official Liquidator is hereby

directed to hand over the possession of the movables within one

week from today and the sale deed be executed in favour of the

present applicant within one week from the date of receipt of

the draft of sale deed from the present applicant.

16. Since the respondent No.2 has already paid an amount of

Rs. 1.27 Crores, now the said amount is required to be refunded

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to the respondent No.2. The equity, however, demands that the

respondent No. 2 should be adequately compensated by way of

interest on the said amount. The present applicant is, therefore,

directed to pay interest @ 12% p.a. on the actual amount of the

respondent No.2 lying with the Official Liquidator. The

calculation be made accordingly and the applicant shall deposit

the said amount of interest with Official Liquidator and on

deposit of the said amount of interest, the possession of the

property would be handed over as well as the sale deed would

be executed in his favour. The amount of interest so deposited

by the applicant would be refunded to the respondent No.2

along with the amount of Rs. 1.27 Lacs."

5. Respondent No.2 challenged the aforesaid order in O.J. Appeal

No.248 of 2007. During the pendency of the appeal, the Division Bench of

the High Court gave opportunity to the parties to give higher offers. This is

evident from order sheets dated 28.2.2008, 3.3.2008 and 27.3.2008, which

read as under:

"DATE: 28.02.2008

It is stated that when the property was auctioned, offer of

Rs. 1.51 crore was given by respondent No.4, and option was

given to the appellant if he is prepared to pay Rs. 1.51 crores.

Counsel for the appellant prays for time to seek

instruction from his client, whether appellant is prepared to pay

Rs. 1.51 crores. List on 3.3.2008.

DATE: 03.03.2008

On 28.02.2008, when some other party offered Rs.1.50

Crores, we gave the option to the appellant to offer similar

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amount, as the Court felt that preference should be given to the

appellant, if similar amount is offered by the appellant.

Today, respondent No.1 Shradhha Aromatics Pvt. Ltd.

offered Rs.1.61 Crores. Counsel for the appellant prays time to

consult his client, whether he can offer the amount similar to

which is offered by the respondent No.1

.

List it on 05.03.2008.

DATE: 27.03.2008

On 05.03.2008, respondent no.1 was prepared to deposit

Rs.1.51 crores. The parties were directed to appear in person in

Court and submit their bids. However, today, the appellant has

backed out and submits that he does not want to participate in

the bidding.

Respondent no.1 Shradhha Aromatics Pvt. Ltd. has

already deposited an amount of Rs.1.51 crores. Respondent

No.1 is, therefore, directed to deposit a demand draft for the

balance amount of Rs.10 lakhs within three weeks and

thereafter the matter will be taken up for hearing.

However, it is made clear that as the appellant does not

want to pay higher amount as has been offered by respondent

no.1, he will not be permitted to submit any bid by offering a

higher amount hereafter. The appellant submits that he shall

only make his submissions on the next date.

List it on 22.04.2008."

6. After undertaking the aforesaid exercise, the Division Bench of the

High Court considered the question whether the learned Company Judge

was justified in reviewing/recalling order dated 30.8.2007 on the ground that

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the appellant herein had offered better price and answered the same in

negative. The Division Bench opined that the confirmed auction sale cannot

be set aside merely because subsequently a higher price is offered by one of

the bidders.

7. In the special leave petition filed by the appellant, this Court ordered

notice on 24.9.2008. After about two years, learned senior counsel

appearing for the appellant gave out that his client is ready to deposit an

additional amount of Rs.39 lakhs and that will make its bid as Rs.2 crores.

After taking note of his statement, the Court passed order dated 4.10.2010

and gave an opportunity to the contesting parties to give fresh bids in sealed

envelopes. On the next date of hearing i.e. 10.12.2010, learned counsel for

the parties produced sealed envelopes containing the revised bids of their

respective clients. The sealed envelopes were opened in the Court and the

offers made by the parties were perused. At that stage, Shri Pallav

Shishodia, learned senior counsel appearing for the intervenor-cum-

promoter - M/s. Chiripal Textile Mills Private Limited submitted that his

client is willing to give a better offer. Thereupon, the case was adjourned to

15.12.2010, on which date the following order was passed:

"At the commencement of hearing, Shri Pallav Shishodia,

learned senior counsel appearing for the promoter produced

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before the Court an envelope containing the offer of his client.

The envelope was opened in the Court. We have perused the

contents thereof. The two envelopes produced by the learned

senior counsel appearing for the petitioner and respondent

No.2, which were sealed on the last date of hearing were

opened in the Court.

After perusing the offers, we are prima facie of the view that

the property should be put to re-auction. However, before

recording any conclusion on the issue, we deem it proper to

give an opportunity to the learned counsel for the parties to

make their submissions.

As requested and agreed by all the learned counsel, the case is

adjourned to January 5, 2011.

The Court Masters shall reseal all the envelopes and keep the

same in safe custody."

On 5.1.2011, the case was adjourned because learned counsel for the

parties made a request that their clients may be given an opportunity to

submit fresh revised offers. While adjourning the case, the intervenor-cum-

promoter was directed to deposit a Demand Draft of Rs.2 crores with the

Registrar (Judicial). On 25.1.2011, learned counsel for respondent No.2

made a statement that his client is not willing to give a bid higher than what

was offered before the Division Bench of the High Court. Thereafter, the

appellant and the intervenor-cum-promoter gave their respective bids.

However, the matter could not be finalised because counsel for the

intervenor-cum-promoter sought time for two days to give a bid higher than

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the bid of Rs.7.5 crores given by the appellant. On 10.2.2011, learned

counsel for the intervenor-cum-promoter submitted a note suggesting that

his client is willing to offer Rs.7.55 crores. After considering the same, the

Court indicated the parties that an order may be passed for public auction of

the property. On 11.2.2011, learned counsel for the appellant and

intervenor-cum-promoter stated that if the property is to be auctioned afresh,

then their clients are not willing to deposit the amount in terms of their

revised offer.

8. On 18.2.2011, the Court, after hearing learned counsel for the parties,

intervenor-cum-promoter and Gujarat State Industrial Investment

Corporation (GSIIC), passed the following order:

"At the commencement of further hearing, Shri S. Ganesh,

learned senior counsel appearing for Gujarat Industrial

Investment Corporation, submitted that as on date a sum of

about Rs.12 crores are due to his client being a secured creditor

and it will be in public interest if the Court, instead of remitted

the matter to the High Court, may accept the offer made by the

intervenor on behalf of M/s. Chiripal Textile Mills Pvt. Ltd. in

case it agrees to pay Rs.7.58 crores.

Shri Pallav Shisodia, learned senior counsel appearing for the

intervenor-cum-promoter, submitted that his client is prepared

to offer Rs.7.58 crores but would require three months' time for

making payment.

In our view, it is not possible to give a long rope to the

intervenor-cum-promoter for producing evidence of its

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willingness to pay Rs.7.58 crores. Therefore, we deem it proper

to grant four weeks' time for the purpose.

List the case on 1.4.2011 after the category "Adjourned

Matters".

On the next date of hearing, the Court will decide the issue

relating to compensation, if any, which may be awarded to the

petitioner, who had deposited Rs.1.61 crores and respondent

no.1, who had deposited Rs.1.27 crores.

The Registry is directed to keep the amount deposited on behalf

of intervenor in a short term fixed deposit of six weeks in a

nationalized Bank."

On 9.5.2011, the Court noted that counsel appearing for the

intervenor-cum-promoter has produced two bank drafts for a sum of Rs.5.58

crores and Rs.2 lakhs respectively. The same were ordered to be deposited

with the Registrar (Judicial).

9. Shri Amar Dave, learned counsel for the appellant submitted that if

the Court is inclined to accept the offer made by intervenor-cum-promoter,

then the Official Liquidator may be directed to return the amount deposited

by his client with interest. Shri Dhruv Mehta, learned senior counsel

appearing for respondent No.2 also made a similar submission and relied

upon the judgments of this Court in Punjab Wirelsess Systems Employees'

Union v. Winsome Yarns Ltd. and others (2006) 7 SCC 233 and FCS

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Software Solutions Ltd. v. La Medical Devices Limited and others

(2008) 10 SCC 440. Shri S. Ganesh, learned senior counsel appearing for

GSIIC submitted that the Court may accept the offer made on behalf of

intervenor-cum-promoter but may not award interest on the amount

deposited by the appellant and respondent No.2 because both the parties had

given higher offers after receipt of the initial bids and so far as the appellant

is concerned, it had offered to pay higher amount only after finalisation of

the bid of respondent No.2. He submitted that GSIIC has first charge on the

assets of the Company and there is no reason why it should be deprived of

its legitimate dues by directing payment of interest on the amount deposited

by the bidders. Learned senior counsel emphasized that the offer given in

the first instance was extremely low and, therefore, the offer of Rs.7.60

crores made by the intervenor-cum-promoter should be accepted.

10. We have considered the respective submissions and carefully perused

the record. Ordinarily, the Court is loathe to accept the offer made by any

bidder or a third party after acceptance of the highest bid/offer given

pursuant to an advertisement issued or an auction held by a public authority.

However, in the peculiar facts of this case, we are inclined to make a

departure from this rule. Admittedly, total area of the land advertised by the

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committee is 12,500 square meters and the same is situated in an important

district of Gujarat. It is also not in dispute that the area has been

substantially developed in last four years. The initial offer made by M/s.

Patel Agro Diesel Ltd. was of Rs.83 lakhs and the highest revised offer

given before the learned Company Judge was of Rs.127 lakhs. After

acceptance of the revised offer by the learned Company Judge, the appellant

stepped in and made an offer to pay Rs.141 lakhs. The first application filed

by it was dismissed but the second application was allowed and the

increased offer of Rs.151 lakhs was accepted by the learned Company Judge

vide order dated 27.11.2007. That order did not find favour with the

Division Bench, which restored the first order passed by the learned

Company Judge. If the order of the Division Bench is sustained, the

creditors of the Company are bound to suffer because the amount available

for repayment of the dues of the creditors would be a paltry sum of Rs.127

lakhs. As against this, if the offer made by the intervenor-cum-promoter is

accepted, the Official Liquidator will get an additional amount of more than

Rs.4.25 crores. The availability of such huge amount will certainly be in the

interest of the creditors including GSIIC. Therefore, it is not possible to

approve the order passed by the Division Bench of the High Court. In a

somewhat similar case - FCS Software Solutions Ltd. v. La Medical

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Devices Limited and others (supra), this Court approved the acceptance of

revised bid of Rs.3.5 Crores given by the appellant with a direction to

compensate the earlier highest bidder by payment of the specified amount.

11. In the result, the appeal is disposed of in the following terms:

(i) The impugned order is set aside.

(ii) The offer of Rs.7.60 crores including additional amount of Rs.2 lakhs

made by the intervenor-cum-promoter-M/s. Chiripal Textile Mills

Private Limited is accepted.

(iii) The Registry is directed to encash the fixed deposits of Rs.7.60 crores

and get prepared a demand draft of the total amount including the

interest in the name of the Official Liquidator attached to the Gujarat

High Court. The latter shall depute an authorised officer to collect the

demand draft from the Registry of this Court.

(iv) Within four weeks from today, the intervenor-cum-promoter shall pay

Rs.6 lakhs to the appellant and Rs.5 lakhs to respondent No.2 by way

of compensation because on account of pending litigation, they were

prevented from utilising the amount deposited with the Official

Liquidator.

14 (v) Within four weeks from the date of receipt of demand draft by the

Official Liquidator attached to the Gujarat High Court and production

of receipt showing payment of money by the intervenor-cum-

promoter to the appellant and respondent No.2 in terms of sub-

paragraph (iv) above, GSIIC shall execute sale deed(s) in favour of

the nominee of the intervenor-cum-promoter, namely, M/s Chiripal

Energy Ltd. and handover possession of the land etc. to the purchaser.

(vi) The tax etc., if any, payable to the State Government and/or

agencies/instrumentalities of the State in respect of the assets of the

Company shall be paid by the purchaser.

The Registry is directed to send by fax a copy of this judgment to the

Official Liquidator attached to the Gujarat High Court, Ahmedabad.

.............................J.

[G.S. Singhvi]

..............................J.

[Asok Kumar Ganguly]

New Delhi

May 24, 2011.