2000 Supreme(SC) 1073

2000(5) Supreme 66
SUPREME COURT OF INDIA
(From Calcutta High Court)
M.B. Shah & R.P. Sethi, JJ.
1. Divya Manufacturing Co., (P) Ltd.
2. Tirupati Woollen Mills Shramik Shangharsha Samity & Anr. -Appellants
versus
1. Union Bank of India & Ors.
2. The Official Liquidator & Ors. -Respondents
Civil Appeal Nos. 4706 and 4707 of 1998
Decided on 11-7-2000
Counsel for the Parties :
For the Appearing Parties : Harish N. Salve, Ms. Indra Jaising, P.S. Mishra, Sr. Advocates, Rana Mukherjee, Ms. Sumita Mukherjee, Rajiv Talwar, D.P. Mukherjee, Ms. Nandini Mukherjee, Janendra Lal Ms. Yasmin Tarapore, L. Nageshwara Rao, Sanjoy Kumar Ghosh Avijit Bhattacherjee, S. Bhowmick, P. Ghosh, Ghansham Joshi, Aruneshwar Gupta, Advocates.

IMPORTANT POINT
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.

Headnote:Company-Winding up-Sale of assets-Cancellation of sale after confirmation-Auction bid at Rs. 85 lakhs-Sale confirmed-Appeal to Division Bench-Offer by third party at 1.25 crores-Appellant bidder offering Rs. 1.30 crores-Offer accepted and confirmed-Subsequent application for setting aside sale by two offerors with offer at 1.40 crores and 2 crores respectively-Court directing applicants to deposit Rs. 40 lakhs each to show bona fides- Sale set aside with direction that applicant should compensate appellant bidder Rs. 70 thousand each-Held : confirmation of sale by a Court at grossly inadequate price, whether or not it is a consequence of any irregularity or fraud in conduct of sale, could be set aside on ground it was not just and proper exercise of judicial discretion-Division Bench justified in cancelling confirmed sale and ordering fresh sale by tender auction.

       Held : On facts it is apparent that the Division Bench of the High Court has considered all the relevant facts including the fact that at the initial stage, the appellant Divya offered only Rs. 37 lakhs to purchase the properties. That means, the appellant wanted to purchase at a throw away price. Thereafter, at the intervention of the Court, the price was increased to Rs. 1.3 crores by the appellant. This indicates that appellant was keen to purchase the property, however by paying only the bare minimal amount and to take advantage of sale by the liquidator in the hope that if there are no other purchasers, it would purchase the Company at a price which is abnormally below the market price. It is also true that on 2nd July 1998, the offer made by the appellant was accepted and it was ordered that sale in its favour be confirmed, but at the same time, before possession of the property could be handed over, or before the sale deed could be executed in its favour, respondent Nos. 7 and 8 pointed out that the assets and properties could be sold at Rs. 2 crores. For showing their bona fides, they were directed to deposit Rs. 40 lakhs each and also to pay Rs. 70 thousand each as damages to the appellant. Further, the application for setting aside the sale was filed within a few days of the order accepting the bid of the appellant. In these set of circumstances, when correct market value of the assets was not properly known to the Court and the sale was confirmed at grossly inadequate price, it was open to the Court to set it at naught in the interest of the company, its secured and unsecured creditors and the employees. Appellant is also duly compensated by payment of Rs. 70 thousand each by respondent Nos. 7 and 8. (Para 11)

       From the aforesaid observation, it is abundantly clear that the Court is the custodian of the interests 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. As stated above, in the present case, the sale proceedings have a chequered history. The appellant started its offer after having an agreement with the Employees Samity for Rs. 37 lakhs. This was on the face of it under bidding for taking undue advantage of Court sale. At the intervention of the learned Single Judge, the bid was increased to Rs. 85 lakhs. Subsequently, before the Division Bench, the appellant increased it to Rs. 1.30 crores. At that stage, respondent No. 7, Sharma was not permitted to bid because it had not complied with the requirements of the advertisement. It is to be stated that on 26th June, 1998, the Division Bench has ordered that offers of Eastern Silk Industries Ltd. and Jay Prestressed Products Ltd. would only be considered on 2nd July, 1998 and confirmation of sale would be made on the basis of the offers made by the two parties. Further, despite the fact that the appellant Divya had withdrawn its earlier offer, the Court permitted it to take part in making further offer as noted in the order dated 2nd July, 1998. In these set of circumstances, there was no need to confine the bid between three offerors only. (Para 13)

       Further, there is a specific condition No. 11 in terms and conditions of sale as quoted above which empowers the Court to set aside the sale even though it is confirmed for the interests of creditors, contributories and all concerned and/or public interest. In this view of the matter, it cannot be said that the Court became functus officio after the sale was confirmed. As stated above, neither the possession of the property nor the sale deed was executed in favour of the appellant. The offer of Rs. 1.30 crore is totally inadequate in comparison to the offer of Rs. 2 crores and in case where such higher price is offered, it would be in the interest of the Company and its creditors to set aside the sale. This may cause some inconvenience or loss to the highest bidder but that cannot be helped in view of the fact that such sales are conducted in Court precincts and not by a business house well versed with the market forces and price. 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. In such cases, a meaningful intervention by the Court may prevent, to some extent, underbidding at the time of auction through Court. In the present case, the Court has reviewed its exercise of judicial discretion within a shortest time. (Para 15)

       Held, consequently, the Liquidator is directed to take appropriate steps at the earliest, by obtaining an order from the Court for sale of the property by calling sealed tenders or by auction in accordance with law after giving due publicity in the newspapers, particularly, the newspapers having circulation in Delhi and in the State of Haryana with a reserved price fixed at Rs. 2 crores (as offered). (Para 16)