Bengal Potteries Ltd. v. . — 1995 DIGILAW 288 (CAL)

JUDGMENT Bhagabati Prasad Banerjee, J : An important issue has been raised before us as to whether the Court can hold a fresh auction on the basis of fresh bid after an auction sale was hold and the bid of the highest bidder Sri Ganga Construction Company Ltd. at Rs. 5.50 crore was accepted by us by the order dated 13th July, 1995, on the basis of some offers made by some parties on affidavit before the Court. This case has a chequered career. The company went into liquidation long back. 2. Previously in all the notices, which were issued for sale of the property, particulars of the land and the measurement thereof were not clearly disclosed and that was the reason why a fresh notice was published giving in details the particulars of the land and the situation of such land so that the intending purchasers might identify the land and might participate in the bid after ascertaining the real value of such properties. It may be mentioned that on an earlier occasion before the matter was assigned to this Bench on the basis of All India Publications in the newspapers the highest bid that was obtained was Rs. 3.20 crores, and all the parties agreed to a proposed order to be passed by the court accepting the said sum of Rs. 3.20 crores as the sale value of the Bengal Potteries (In Liquidation) including the land, buildings, plant and machinery etc. But ultimately that party backed out. 3. After issuance of a proper public notice the matter was put into auction in open Court. Ultimately on the day when the auction was held, only two bidders appeared and participated in the bid. Out of the two, the bid of M/s. Sree Ganga Construction Company Ltd. was accepted as highest bid. Sree Ganga Construction Company Ltd. rose upto Rs. 5.20 crores as against Rs. 5.17 crores by the other bidder. But as it was found that Rs. 5.20 crores was far below the valuation of the valuer in respect of the property, on the request made by the Court the party agreed to increase the bid amount to Rs. 5.20 crores. So, the bid of Sree Ganga Construction Company Ltd. was found to be the highest bid. On 11th June, 1995, the matter was adjourned till the next date. 5.20 crores. So, the bid of Sree Ganga Construction Company Ltd. was found to be the highest bid. On 11th June, 1995, the matter was adjourned till the next date. On 13th July, 1995 Sree Ganga Construction Company Ltd. paid the balance earnest money aggregating to 20% of the bid money and as such the said party was the highest bidder and the bid of that party was accepted. 4. On the next date viz., on 25.7.1995, when the matter came up for further order for fixing the date of payments of the entire money, at that time some of the parties mentioned the matter for making fresh auction and the matter was adjourned. On the adjourned date, several applications were filed by several other intending purchasers viz., Auckland International Ltd. in its application offered Rs. 7.50 crores and stated that they are willing to go higher up and Deepak Jyoti Investment Pvt. Ltd. filed an application and also stated that it is ready and willing to make a bid of Rs. 6.50 crores. Similarly, M.J. Scrap (P) Ltd. offered Rs. 6 crores. The West Bengal Small Industries Corporation Ltd. also filed an application and stated that it is ready and willing to pay Rs. 7.50 crores and also willing to increase the bid amount, if necessary, for the purpose of purchasing this property. 5. The matter was heard for two days. The question now before us is whether the Court can reopen the matter after accepting the highest bid when several parties have approached the Court before the sale was confirmed. In the instant case Clause 11 of the terms of the offer contained in the notice in this case was that when after confirmation, the sale is liable to be set aside by the Court. In the instant case the sale has not yet been confirmed. The earnest money which is 20% of the bid money of Rs. 5.50 crores, has been deposited by the highest bidder. No reserve price was fixed in this case but the valuation report, which is in the possession of the Court, shows that the property has been valued at about Rs. 6 crores 1 lac approximately. In the instant case the extent of land is about 1000 cottahs of land situated in three different parts of Calcutta. Out of which in one place more than 600 cottahs is there. 6 crores 1 lac approximately. In the instant case the extent of land is about 1000 cottahs of land situated in three different parts of Calcutta. Out of which in one place more than 600 cottahs is there. The valuation report that was obtained by this Court by an empanelled valuer was not of recent one and that the value of about 600 cottah of land was fixed at a lower rate on the ground that in order to have access to the said land one has to cross a canal and that there was no other point from which access can be had. This is geographically incorrect. The said land is directly linked with motorable road from other sides. So the said basis of the said report is faulty. It is a matter of common knowledge to which the Court can take judicial notice that the value of the land in the city of Calcutta and subarbans is increasing day by day. Under this background we have to consider whether it is a fit and proper case where we shall exercise our discretion to reopen the sale in terms of Rule 277 of the Companies (Court) Act, 1959, read with Rule 273. 6. The learned Counsel for the applicants, who applied for reopening of the sale and wanted to participate in the bid afresh, were represented by Mr. Goutam Chakraborty, Ld. Counsel, for M. J. Scrap Pvt. Ltd., Mr. Siddhartha Mitra, Ld. Counsel for Auckland International Ltd. and Mr. Prabir Roychowdhury, Ld. Counsel for West Bengal Small Industries Corporation Ltd., Mr. P. K. Das, Counsel, also appears for a party viz. Mamta Commercial P. Ltd. without filing an application but stated on instruction that his client was also ready and willing to participate in the bid, which would fetch much more money, than accepted by the Court. 7. We have heard Mr. Kapoor, learned Counsel appearing on behalf of Sree Ganga Construction Company Ltd., whose bid was accepted as highest bid by our earlier order. 8. Mr. Kapoor submitted that when the property sold by the Court in auction such sale must have some sanctity and that it is not liable to be reopened at the discretion of the Court unless a case of fraud or material irregularity in holding the auction sale has been made out. Mr. 8. Mr. Kapoor submitted that when the property sold by the Court in auction such sale must have some sanctity and that it is not liable to be reopened at the discretion of the Court unless a case of fraud or material irregularity in holding the auction sale has been made out. Mr. Kapoor further submitted that in none of the applications the applicants have disclosed any reason or ground for setting aside the order of this Court accepting the highest bid. It was further submitted that the property was sold in public auction after the public was given due notice through the newspapers that the property would be sold on a particular date and if a party does not choose to participate in the bid in that event after the bid was accepted that party cannot come forward and ask for setting aside the order on the ground that the party was ready and willing to offer more price. It was further submitted that this course of action, if followed, would never allow a matter to reach its finality. It was submitted that no prejudice was caused, no irregularity was committed by this Court while selling the property in auction. Inadequacy of price, it was submitted by Mr. Kapoor, is not a ground for which the concluded sale could be set aside and the property be placed for fresh auction. It was further submitted by Mr. Kapoor that unless a case of material irregularity or fraud in the conduct of sale has been made out the Court should not exercise its judicial discretion in setting aside the sale. Various case laws were cited by Mr. Kapoor, but the principles laid down in those cases were not applicable in the facts and in the circumstances of this case. The facts of the cases were, either the sale was confirmed, possession was made over after realising the full sale price. A case where sale has been confirmed is not the same in a case where the highest bid was accepted, but the sale was not confirmed. 9. The principle laid down in those cases are well settled that after the sale is concluded and the possession is made over merely on the ground of adequacy of price, the sale could not be reopened unless strong and exceptional case is made out for reopening of such sale. 10. Mr. Kapoor and Mr. 9. The principle laid down in those cases are well settled that after the sale is concluded and the possession is made over merely on the ground of adequacy of price, the sale could not be reopened unless strong and exceptional case is made out for reopening of such sale. 10. Mr. Kapoor and Mr. Jayanta Mitra, learned Counsels appearing on behalf of the highest bidder submitted that once the Court reopens the sale, in that event there is no end of reopening the sale once more and in that process, a sale would not reach its finality, which would be contrary to the judicial principles. It was further submitted that if the Court accepts the highest bid in order to maintain the judicial sanctity, the Court should not allow the things to be reopened at the instance of the parties, who had not chosen to come forward when such bid in open Court was made. There is a difference between the case where sale was confirmed and in a case where the highest bid was accepted but the sale was not confirmed. When sale is confirmed, it creates some right in favour of the purchaser. But when the sale was not confirmed, the Court retains discretion which is much more in a case where sale was confirmed. The Supreme Court in the case of Nevalkha & Sons vs. Sri Ramanya Das & Ors. reported in AIR 1970 SC 2037 wherein the Supreme Court has held as follows : "The principles which should govern confirmation of sales are well established. Where, the acceptance of the offer by the Commissioners in subject to confirmation of the Court the offer or does not by mere acceptance get any vested right in the property so that he may demand automatic confirmation of his offer. The condition of confirmation by the Court operates as a safeguard against the property being sold at inadequate price whether or not it is a consequence of any irregularity or fraud in the conduct of the sale. In every case it is the duty of the Court to satisfy itself that having regard to the market value of the property the price offered is reasonable. Unless the Court is satisfied about the adequacy of the price the act of confirmation of the sales would not be a proper exercise of judicial discretion." 11. In every case it is the duty of the Court to satisfy itself that having regard to the market value of the property the price offered is reasonable. Unless the Court is satisfied about the adequacy of the price the act of confirmation of the sales would not be a proper exercise of judicial discretion." 11. Reference was also made to an unreported judgment of the Supreme Court in the case of Lica (Pvt.) Ltd. vs. The Official Liquidetor & Anr. dated 4th January, 1993 passed in Civil Appeal No. 72 of 1993 arising out of S.L.P. (C) 12840 of 1992. In this unreported judgment the Supreme Court observed relying upon the earlier decisions, that the Court is the custodian of the interests of the company and its creditors and the sanction of the Court required under the Companies Act ha:; to be exercised with judicial discretion regard being had to the interests of the company and its creditors as well. It was further observed that where the acceptance of the offer by the Commissioner is subject to confirmation of the Court the offer or does not by mere acceptance, get any vested right in the property so that it may take automatic confirmation of its offer. 12. It is not a case where sale had been confirmed and the party had paid the entire bid money or possession had been delivered. If the sale was concluded, in that event, a concluded auction sale by the Court would not be interfered with lightly or unless fraud or collusion or other serious irregularities are found or brought to the notice of the Court, the Court could not in ordinary course set aside the sale and in that case inadequacy of the bid money is an irrelevant factor. A concluded sale must attach some finality and that when the party has purchased the property and possession has been delivered, the party was entitled to invest money on the land and the properties purchased and in that event on the basis of the well-settled principles the Court would be reluctant to reopen such matter unless a definite case of fraud, collusion or other serious irregularities in conducting the sale, which has prejudiced the matter, are brought to the notice of the Court. In our view, it is the duty of the Court to satisfy itself in each and every case having regard to the market value of the property the price afforded and accepted initially was reasonable or not and if an offer comes to the Court on affidavit, which is about Rs. 2 crores above the bid money accepted, the Court should not, in our view, try to attach finality to such sale. In the instant case, the dues of the creditors, it is stated to be more than Rs. 50 crores. Under such circumstances, the Court has to strike balance between the interest of the creditors and the interest of the successful bidder. 13. In the instant case no reserve price was fixed but the valuation of the Court, which is older and defective one, shows that the property was sold about 51 lacs less than the valuation report. 14. It is well-settled that the highest bidder has no right that his bid should be accepted as a matter of course. The meaning of the word 'confirmation of sale" according to Black's Law Dictionary is; "The confirmation of a judicial sale by the Court which ordered it is a signification in some way (usually by the entry of an order) or the Court's approval of the terms, price an the conditions of sale.' In this case excepting that the successful bidder was found to be the highest bidder, the terms and conditions of sale has not yet been approved. In other words, confirmation means a contract or written memorandum thereof, by which that which was infirm or imperfect, invalid is ratified, rendered valid and binding, made firm and unavoidable. It means to give formal approval. Ordinarily, no right accrues in favour of the highest bidder until and unless the sale is confirmed by the Court. 15. The Court, while dealing with the property and or selling the property under compulsion, must act in public interest. It cannot act arbitrarily. The object of holding auction is generally to raise the highest and the maximum price. 16. All attempts must be to obtain the best available price while in such auction sale made by the Court. 15. The Court, while dealing with the property and or selling the property under compulsion, must act in public interest. It cannot act arbitrarily. The object of holding auction is generally to raise the highest and the maximum price. 16. All attempts must be to obtain the best available price while in such auction sale made by the Court. When such a sale is being made for the benefit of the creditors, technicalities cannot be allowed to stand in the way when it is found that further auction or fresh auction is bound to fetch more price. The crediators have beneficial interest in such property and the sale thereof and the Court is under an obligation to secure the best market price available in a market economy so that more money comes into the hands of the Court for repaying the loan wholly or in part of the creditors for whose benefit the property is being sold. The disposal of the property by the Court partakes the character of a trust so the disposal in public interest must be by such method as would grant an opportunity to public at large to participate in it, as that is the way to best sub-serve the public good. Of course, this may result some hardship to the highest bidder whose bid was accepted with earnest money. But such hardship or inconvenience is inevitable in such cases of public auction by the Court when the Court is not an expert auction dealer and that the principles of bid by the auctioneer in the market that as soon as the hammer finally falls sale is closed, does not and cannot apply to a sale made by the Court. 17. Under such circumstances, in our view, it would not be proper on our part to close the chapter at the cost of the creditors' interest. In the instant case, the workers have already taken up their dues from the Government of India, who took over the factory for running the same, but ultimately the Government failed to do so. The workers' dues have been fully paid. This said dues were to the extent of several crores. In the instant case, the workers have already taken up their dues from the Government of India, who took over the factory for running the same, but ultimately the Government failed to do so. The workers' dues have been fully paid. This said dues were to the extent of several crores. It may also be placed on record that in this case a London based NRI came with a proposal, when the bid was going on for the purpose of purchasing the factory, so as to reopen the Bengal Potteries creating employment to the people of this State and in order to enable the party to inspect and to come forward with an initial proposal that they had offered at Rs. 6 crores, this Court stayed the sale. But ultimately that London based NRI backed out presumably because they found that it was not at all feasible to reopen the Bengal Potteries. Our attempts to reopen the Bengal Potteries failed and now in order to pay a fraction of the dues of the creditors, the property had to be sold and while selling the property it is our view that the Court must try to get maximum price in the interest of the creditors. It is true that reopening of the order of sale caused prejudice to the highest bidder whose bid has been accepted and who has paid 20% of the bid money. But in order to mitigate the hardship of the highest bidder, we are not inclined to cause tremendous hardship to the creditors whose dues are astronomical. This is not case where property has been sold in excess of the reserve price or in excess of the valuation made by the valuer. But this is a case where the property is a very valuable property and it has to be sold at a maximum price. Inadequacy of price is a very relevant factor and the same could be considered by the Court before the sale is confirmed. While disposing of the properties in a Court sale, the Court's position is the custodian of the properties and the properties are to be sold for the benefit of the creditors so that the creditors may get their dues by selling the properties. That is one of the paramount consideration which the Court should bear in mind when such forced sales of properties are made by the Court through auction. That is one of the paramount consideration which the Court should bear in mind when such forced sales of properties are made by the Court through auction. While dealing with the matter, the court's position is nothing but seller through judicial process. 18. Accordingly, we are of the view that the principles of setting aside a concluded sale is not applicable in the facts and circumstances of the case as the sale has not been confirmed and concluded. It is a case where the highest bid has been accepted and in view of the provisions of Clause 11 of the notice inviting the Court retains power to re-auction even after confirmation and the highest bidder Sree Ganga Construction Company Ltd. has-participated in the bid with the full knowledge of such a clause which is binding on all the parties. So, it is a clear case where the intending bidder participated in the bid knowing fully that even after confirmation of the sale, the Court retains its discretion to set aside the sale and re-auction the sale as the whole purpose of introducing Clause 11 was to find out the highest bid which fetches reasonable market price of the property. In the instant case, as against the highest bid already accepted at Rs. 5.50 crores, the offer on the table of this court, is Rs. 7.50 crores with an assurance that they would increase the bid in case open bid is held amongst the parties. 19. Under such circumstances, we are unable to attach finality to the acceptance of the bid and in the interest of the creditors and in order to get higher price the bid, which was already been accepted, is treated as provisional and a fresh bid is to be held by us in which Sree Ganga Construction Company Ltd. will be at liberty to participate along with the other parties and in case it is found that other bidders unable to bid higher, then the bid of Sree Ganga Construction Company Ltd. would be accepted as final and his bid will be confirmed . On the contrary, if the bid increases, it will be open to any of the parties to participate in the bid and the highest bid has to be accepted and confirmed in accordance with the notice inviting offers. 20. On the contrary, if the bid increases, it will be open to any of the parties to participate in the bid and the highest bid has to be accepted and confirmed in accordance with the notice inviting offers. 20. The earnest money received from Sree Ganga Construction Company Ltd. as highest bidder will be kept with the Official Liquidator until a fresh bid is held in terms of our order. Let the fresh auction on the same terms and conditions laid down in the notice on the basis of which the sale was already made, be made on 8th August 1995, at 10.30 A.M. when all the applicants and others, if any, come forward with the bid money. 21. These applications are disposed of accordingly. 22. All parties to act on a signed copy of the operative portion of this judgment and order on the usual undertaking: Application disposed of.