1. Sale of assets of a sick industrial company under the Sick Industrial Companies (Special Provisions) Act, 1985 — dispute over acceptance of a solitary auction bid. (Para 1 , 2 , 3 , 22 , 27 )
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2023 Supreme(SC) 422
SUPREME COURT OF INDIA
Ajay Rastogi, Bela M. Trivedi, JJ.
Rajiv Kumar Jindal and Others – Appellants
Versus
BCI Staff Colony Residential Welfare Association and Others – Respondents
Civil Appeal No. 10128 of 2011
With
BCI Staff Colony Residential Welfare Association, Rajpura – Respondents
Versus
Appellate Authority For Industrial & Financial Reconstruction (AAIFR) And Others - Respondents
Civil Appeal No. 10127 of 2011
Decided On : 27-04-2023
Advocates appeared:
For the Appellant(s) : Mr. Sibo Sankar Mishra, AOR Mr. Umakant Misra, Adv. Mrs. Prabhati Nayak, Adv. Mr. Niranjan Sahu, Adv. Mr. Debabrata Dash, Adv. Ms. Apoorva Sharma, Adv. Mr. Ravi Prakash Mehrotra, Sr. Adv. Mr. Apoorv Srivastava, Adv. Mr. Jogy Scaria, AOR
For the Respondent(s): Mr. Gagan Gupta, AOR M/S. J S Wad And Co, AOR Mr. Rajesh Kumar Chaurasia, AOR Mr. Rajive R Raj, Adv. Mr. Sujeet Kumar, Adv. Ms. Soni, Adv. Mr. Onkar Prasad, Adv. Mr. Anurag Jain, Adv. Mrs. Manjulika Pal, Adv. Mr. Ranjeet Kumar, Adv. Mr. S.S. Ray, Adv. Ms. Rakhi Ray, AOR Mr. Vaibhav Gupta, Adv. Mr. Sibo Sankar Mishra, AOR Mr. Umakant Misra, Adv. Mrs. Prabhati Nayak, Adv. Mr. Niranjan Sahu, Adv. Mr. Debabrata Dash, Adv. Ms. Apoorva Sharma, Adv. Mr. Jogy Scaria, AOR Mr. P V Surendranath, Sr. Adv. Mr. Biju P Raman, AOR Mr. Sawan Kumar Shukla, Adv. Mrs. Lekha Sudhakar, Adv.
For the Appellant(s) : Mr. Sibo Sankar Mishra, AOR Mr. Umakant Misra, Adv. Mrs. Prabhati Nayak, Adv. Mr. Niranjan Sahu, Adv. Mr. Debabrata Dash, Adv. Ms. Apoorva Sharma, Adv. Mr. Ravi Prakash Mehrotra, Sr. Adv. Mr. Apoorv Srivastava, Adv. Mr. Jogy Scaria, AOR
For the Respondent(s): Mr. Gagan Gupta, AOR M/S. J S Wad And Co, AOR Mr. Rajesh Kumar Chaurasia, AOR Mr. Rajive R Raj, Adv. Mr. Sujeet Kumar, Adv. Ms. Soni, Adv. Mr. Onkar Prasad, Adv. Mr. Anurag Jain, Adv. Mrs. Manjulika Pal, Adv. Mr. Ranjeet Kumar, Adv. Mr. S.S. Ray, Adv. Ms. Rakhi Ray, AOR Mr. Vaibhav Gupta, Adv. Mr. Sibo Sankar Mishra, AOR Mr. Umakant Misra, Adv. Mrs. Prabhati Nayak, Adv. Mr. Niranjan Sahu, Adv. Mr. Debabrata Dash, Adv. Ms. Apoorva Sharma, Adv. Mr. Jogy Scaria, AOR Mr. P V Surendranath, Sr. Adv. Mr. Biju P Raman, AOR Mr. Sawan Kumar Shukla, Adv. Mrs. Lekha Sudhakar, Adv.
IMPORTANT POINT
Purpose of auction (open or close format) is to get the most remunerative price and giving opportunity to intending bidders to participate and fetch higher realizable value of property – If that path is cut down or closed, possibility of fraud or to secure inadequate price or underbidding would loom large.
Headnote:
Sick Industrial Companies (Special Provisions) Act, 1985 – Section 20(4) – Setting aside auction sale of assets of captioned unit – Object of auction is to secure optimum realizable value of property by giving opportunity to potential buyers facing competitive bids either in open or closed format – Purpose of auction (open or close format) is to get the most remunerative price and giving opportunity to intending bidders to participate and fetch higher realizable value of property – If that path is cut down or closed, possibility of fraud or to secure inadequate price or underbidding would loom large – In given circumstances, it is duty of Court to exercise its discretion wisely and with circumspection and keeping in view facts and circumstances in each case – Appellants (auction bidder) have neither paid sale consideration nor furnished bank guarantee within 15 days of acceptance of bid – Division Bench of High Court had revisited entire proceedings and taking into consideration fact that there was no competitive bidding which is a sine qua non for public auction and guidelines of ASC have not been complied with, accordingly set aside order of AAIFR with a further direction to initiate the process afresh in accordance with law – No error in view expressed by High Court which may call for interference. (Paras 24, 25, 29 and 32)
Result : Appeals dismissed.
Legal Category Hierarchy
- administrative law
- industrial and financial reconstruction
- constitutional law
Table of Contents
2. Bidder claims non-disclosure of guidelines and subsequent payment — non-bidders challenge the sale for lack of competitive bidding and failure to meet reserve price. (Para 12 , 13 , 14 , 15 , 16 , 17 , 18 , 19 )
3. The auction process was defective due to the absence of a valuation report and reserve price, coupled with the bidder's failure to comply with payment guidelines. (Para 23 , 24 , 25 , 26 , 29 , 30 , 31 , 32 , 35 )
4. Public auctions must ensure competitive bidding and strict adherence to prescribed guidelines to secure maximum realizable value and prevent arbitrariness or underbidding. (Para 24 , 25 , 26 , 32 )
5. Appeals dismissed; High Court judgment upheld; auction bid set aside; refund of deposited money ordered; direction to maximize asset value through legal process. (Para 37 , 38 )
6. Is the Operating Agency required to obtain a valuation report and notify a reserve price when selling assets of a sick industrial company?
Yes, under Section 21(c) of the Sick Industrial Companies (Special Provisions) Act, 1985, the Operating Agency is obligated to obtain a valuation report from an approved valuer to arrive at a reserve price for the sale of assets. (Para 22 , 23 )
7. What is the primary objective of a public auction and the role of competitive bidding?
The objective is to secure the maximum realizable value and avoid arbitrariness, bias, or underhand dealings. Competitive bidding is essential to ensure fairness and fetch the most remunerative price for the property. (Para 24 , 25 , 26 , 32 )
8. Does failure to furnish a bank guarantee or adhere to payment schedules invalidate an auction bid?
Yes, if the auction notice incorporates specific guidelines regarding bank guarantees and payment installments, failure to comply with these conditions renders the bid unsustainable and justifies its rejection. (Para 28 , 29 , 35 )
9. Can persons who did not participate in the bidding process challenge the confirmation of an auction bid?
Yes, if the challengers are aggrieved parties with a direct interest in the property, they may invoke the jurisdiction of the High Court under Article 226 of the Constitution to challenge a legally unsustainable sale process. (Para 33 , 34 )
JUDGMENT :
Rastogi, J.
1. The instant appeals are directed against the judgment and order dated 5th February, 2010 passed by the Division Bench of the High Court of Punjab and Haryana at Chandigarh, setting aside the auction held pursuant to auction notice dated 24th May, 2004 by Industrial Development Bank of India (hereinafter referred to as “IDBI” – Operating Agency).
2. The facts in brief culled out from the record are that M/s Bharat Commerce & Industries Limited (hereinafter referred to as “BCI”) was declared a sick company and for disposal of assets of BCI pursuant to directions of Board for Industrial and Financial Reconstruction (BIFR) under Section 20(4) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter being referred to as the “Act 1985”) through IDBI - the Operating Agency, initiated the process of inviting offers in sealed cover for sale of assets of the captioned unit.
3. Pursuant to public notice dated 24th May, 2004, offers were invited for various blocks, calling upon the interested parties to deposit earnest money of Rs.6 lakhs for Block IV and submit their tenders in sealed cover within a period of 30 days from the date of advertisement and for further information, the interested parties may contact the office of Mr. P.M. Nair, DGM, IDBI, Mumbai, the office of the Assets Sale Committee constituted by the BIFR and the agency reserved the right to accept or reject any offer without assigning any reason therefor. It is pertinent to note that the Operating Agency was under obligation to evaluate the realizable value of the property from the approved valuer and thereafter to notify the reserve price in the auction notice in terms of Section 21(c) of the Act, 1985, and that indeed was not indicated in the auction notice and the solitary bid submitted by the appellants in Civil Appeal No. 10128 of 2011 of Rs.2,84,00,000/- on 22nd June, 2004 was accepted by the authority.
4. On being examined by the ASC although nothing came forward as to why in the absence of a competitive bidding, the solitary bid of the present appellants was processed, be that as it may, the bid of the appellants in reference to Unit Block IV for the captioned assets was accepted as it reveals from the communication dated 12th August, 2004 with a rider that the same shall be confirmed as per the terms and conditions of ASC advised to all the bidders on 8th August, 2004 for which the bidder may be required to execute a tripartite Memorandum of Understanding (MOU) with IDBI.
5. The record indicates that the appellants were asked to furnish a bank guarantee for a bid value of Rs.2,84,00,000/- by 27th August, 2004 for a period of one year and required to deposit payment in instalments. The appellants from the day one were reluctant in furnishing the bank guarantee of Rs.2,84,00,000/, however, shown their alleged willingness to pay the value of the assets in terms of the bid within a period of six months. But the fact is that the appellants neither offered bank guarantee of Rs.2,84,00,000/- nor deposited a penny after acceptance of the bid on approval of the ASC by communication dated 12th August, 2004.
6. The BIFR, pursuant to its order dated 24th November, 2004 observed that since the sole bidder for Block IV (the appellants herein) is not willing to adhere to the ASC guidelines as such the Bench did not agree to the proposal to accept the bid and left the sale of the assets of the unit for Block IV be taken over and be sold by the Official Liquidator of the concerned High Court.
7. The decision of BIFR dated 24th November, 2004 was challenged by the present appellants before the Appellate Authority for Industrial & Financial Reconstruction (AAIFR). The AAIFR under its order dated 1st April, 2005, while setting aside the order of the BIFR dated 24th November, 2004 directed the BIFR to confirm the sale of Unit Block IV in favour of the appellant and modalities for payment shall be in accordance with terms and conditions as approve
