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2005 DIGILAW 38 (ORI)

Orissa Textile Mills Ltd. v. .

2005-01-14

A.K.PATNAIK

body2005
ORDER A. K. PATNAIK, J. — This order is regarding confirmation of sale of the factory complex of the Orissa Textile Mills Limited (for short, “the Company”) in liquidation. 2. After perusing the report of the Official Liquidator on the valuation of the assets of the Company by an expert Valuer, the Court passed orders on 7.5.2004 sanctioning sale of the assets of the Company and directing that the Official Liquidator will take steps for advertisement. On 9.7.2004, the draft for sale notice was approved by the Court and on 16.7.2004 the Court ordered that the sale notice be advertised in “The Indian Ex¬press.” “The Financial Express”, “The Economic Times”, “The Times of India”, Bhubaneswar and “The Samaja”, Cuttack. Therea¬fter, the sale notice was published in the said newspapers invit¬ing tenders for (i) sale of all the assets of the Company as one unit, (ii) sale of the factory complex of the Company, and (iii) sale of the residential complex of the Company. 3. In response to the said notice, not a single tender was received by the Official Liquidator either for purchase of all the assets of the Company as one unit or for purchase of the factory complex of the Company and only one tender was received for purchase of the part of the land of the residential complex of the Company. On 8.10.2004, the Court after considering the fact that the Company is a State Government Undertaking directed that a Committee comprising of the Official Liquidator, the Principal Secretary, Industries Department and a nominee of the Principal Secretary, Finance Department should negotiate the sale of the assets of the Company with all intending purchasers and submit a report to this Court as to the manner in which the assets of the Company should be sold. Pursuant to the said orders, the aforesaid committee in its meeting held on 13.10.2004 sug¬gested hat instead of the Official Liquidator, IDCOL, another Government of Orissa Undertkaing, having necessary expertise in handling similar sale transactions in the past be authorized to issue fresh advertisement inviting offers from interested parties for sale of the assets of the Company and IDCOL may also be authorized to engage one merchant banker who will do the market¬ing of the proposed sale of the assets of the Company at a fee of 0.25% of the value of the bid only on successful completion of the transactions and the advertisement expenses may be paid by the Official Liquidator and the IDCOL may be reimbursed actual expenses like telephone and other expenses. On 5.11.2004, the Court considered the said report and observed that although an attempt was made to sell the assets of the Company by inviting sealed tenders by a sale notice advertised in several local and national newspapers, only one party came forward with an offer to purchase part of the land of the residential complex of the Company and if a fresh sale notice is advertised, heavy expenses to the tune of lakhs of rupees will have to be incurred for publication of the sale notice in different newspapers and the response may not be any better. By the said order dated 5.11.2004, the Court directed that in these peculiar facts and circumstances of the case, the Official Liquidator will negotiate for sale of the factory complex and residential complex with intending purchasers and will submit a report within one month. In the said order dated 5.11.2004, the Court observed that an intending purchaser of the factory complex who intends to run the factory and employ the local people will be given preference. 4. On 10.12.2004, the Official Liquidator submitted a report to the Court stating therein that the sale notice was published in “The Samaja”, “The Economic Times.” “The Indian Express”, “The Financial Express” and “The Times of India” and pursuant to the said sale notice six parties submitted their offers who did not intend to run the factory and four parties submitted their offers who intended to run the factory. He also stated in the said report that he negotiated with the parties who did not intend to run the factory on 29.11.2004 and at the end of the 16th round of negotiation, the offer of S.R. Industries for the factory complex at Rs.15.40 crores was the highest. He also stated in the said report that on 7.12.2004 he negotiated with the parties who intended to run the factory and that only Shri R.C. Agrawalla and the representative of M/s. Nalini Construc¬tions Pvt. Ltd. appeared for the said negotiation on 7.12.2004 but the negotiation ended with no result. In the said report, the Official Liquidator also indicated that M/s. Rahul Ship Breaking Company (Kolkata) submitted an offer of Rs. 16.11 crores and deposited earnest money deposit of Rs.2.00 crores after the bids wre finalized and Shri Mahavir Ferro Alloys Pvt. Ltd. furnished earnest money less than 10% of the revised bid of Rs.16.11. crores though the sale notice required that earnest money depos¬it of 10% of the bid will be made by an intending purchaser. 5. After perusing the said report of the Official Liquida¬tor the Court observed in the order dated 10.12.2004 that before considering the confirmation of sale in favour of the higest bidder the valuation of the assets of the factory complex will have to be borne in mind and the Court will have to examine whether the price offered by the highest bidder is reasonable and adequate and the Court may also consider as to whether the in¬tending purchaser is prepared to run the factory and to employ local people. On 10.12.2004 an application for intervention was also filed by Shri Balaji Trading Company, Kolkata stating therein that it was willing to purchase the factory complex at a price of Rs. 16.51 crores and the Court directed that the Official Liquidator will allow inspection of the factory complex of the Company to Shri Balaji Trading Company, Kolkata and if the said company is still interested in making the offer, it will have to depsit with the Official Liquidator 10% of the offer by way of bank draft before 17.12.2004. On 10.12.2004, the counsel for Shri R.C. Agrawalla also stated that Shri Agrawalla makes an offer of Rs.18.00 crores to run the factory and that he will deposit the balance amount of the earnest money with the Official Liquidator by way of bank draft before 17.12.2004. 6. On 10.12.2004, the counsel for Shri R.C. Agrawalla also stated that Shri Agrawalla makes an offer of Rs.18.00 crores to run the factory and that he will deposit the balance amount of the earnest money with the Official Liquidator by way of bank draft before 17.12.2004. 6. On 17.12.2004, the Court heard the learned counsel for the parties regarding confirmation of sale of the factory complex of the Company. Mr. Udaya Gupta, learned counsel appearing for S.R. Industries whose offer of Rs.15.40 crores was the highest as per the report filed by the Official Liquidator on 10.12.2004 submitted that the Supreme Court in M/s. Navalkha and Sons v. Sri Ramanya Das and others 1969(3) S.C.C. 537 has held that once the Court comes to the conclusion that the price offered is adequate, no subsequent higher offer can constitute a valid ground for refusing confirmation of sale already received. Learned counsel for the other parties who intended to make their respective offers but had not participated in the negotiation for sale carried out by the Official Liquidator, on the other hand, cited the decision of the Sureme Court in Divya Manufacturing Co. (P) Ltd. v. Union of India and others, A.I.R. 2000 S.C. 2346 to the effect that the Court is the custodian of the interest of the company and its creditors and 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. In its order dated 17.12.2004, the Court observed that the aforesaid decisions of the Supreme Court will be kept in view while deciding the question of confirmatin and reserved the matter regarding confirmation of sale of the factory complex of the Company and further directed that S.R. Industries, M/s. Rahul Ship Breaking Company (Kolkata), Shri Balaji Trading Company, Kolkata and all other parties who appeared on 17.12.2004 or who did not appear on 17.12.2004 may file their affidavits containing their offers for purchase of the factory complex of the Company with earnest money deposit of 10% of the offer in the shape of bank draft in sealed envelop with the Official Liquidator on or before 24.12.2004 and no offer or revised offer will be accepted beyond 24.12.2004. 7. 7. After the said orders of the Court passed on 17.12.2004, the affidavits and letters filed with the Official Liquidator on or before 24.12.2004 are as follows :- (i) An affidavit has been filed by Shri Abdul Karim, Authorised signatory/Power of Attorney Holder of I.B. Enterprises, Bhavna¬gar, Gujarat making an offer of Rs.23.00 crores. In the said affidavit, he has stated that he may run the industry and appoint the local people as employees as far as practicable. Along with the affidavit, demand drafts of the value of Rs.2,30,00,000/- of IDBI Bank dated 6.12.2004 and 20.12.2004 have been furnished towards earnest money representing 10% of the bid of Rs.23.00 crores. (ii) An affidavit has been filed by Shri Pawan Kumar Jain, au¬thorized representative/nominee of M/s. Rahul Ship Breaking Company (Kolkata) making an offer Rs.17,11,00,786/-. M/s. Rahul Ship Breaking Company (Kolkata) has furnished earnest money deposit of Rs.2.00 crores as indicated in the earlier report of the Official Liquidator filed on 10.12.2004. (iii) A letter dated 24.12.2004 has been addressed to the Official Liquidator by Shri Kishan Kumar Budhia, Commercial Manager for Shri Balaji Trading Company, Kolkata stating therein that the final offer of Shri Balaji Trading Company, Kolkata to purchase the factory complex of the Company remains at Rs. 16.51 crores and that Shri Balaji Trading Company, Kolkata has already filed its affidavit in Court. In the said letter dated 24.12.2004 it is also stated that Shri Balaji Trading Company, Kolkata has depostied Rs.25.00 lakhs on 10.12.2004 with the Official Liquidator and pursuant to the orders passed by the Court on 10.12.2004 has deposited the balance of the 10% of the offer amount on 17.12.2004 in the shape of bank draft. (iv) A latter dated 24.12.2004 of Shri R. C. Agrawalla containing four alternative offers has also been filed. The said letter contains four alternative offers which are quoted herein below :- “Offer-1 I have already given offer of Rs.10.25 crores (Rupees ten crores and twenty five lakhs only) through affidavit for the entire factory complex. But to run the factory only 45 Acres of land is required so I am ready to take only 45 Acres of land along with the factory at a price of Rs. 10.25 Crores (Rupees ten crores and twenty five lakhs only). But to run the factory only 45 Acres of land is required so I am ready to take only 45 Acres of land along with the factory at a price of Rs. 10.25 Crores (Rupees ten crores and twenty five lakhs only). Offer-2 If the Hon’ble Court rejects my first offer then I am ready to acquire the entire factory complex for which I can give a price of Rs.16.51 Crores (Rupees sixteen crores and fifty one lakhs only). I will pay the Balance amount of the offer price after deducting the EMD that I have already deposited till now within 3 months. Offer-3 If the Hon’ble Court rejects my 2nd offer then I am ready to acquire the whole factory complex at the highest price which will be offered by other bidders (or Rs.24 crores whichever is lower) subject to the following conditions: The Court should allow me to make the payment in instalments in following schedules: Time of payment Amount to be paid At the beginning of the Rs.01.50 Crores first year (Including EMD) Before taking the possession of the factory & within 90 days from the date of confirmation of the sale order. At the end of 1st year Rs.02.50 Crores " 2nd Year Rs.03.50 Crores " 3rd Year Rs.04.50 Crores " 4th Year Rs.05.50 Crores " 5th Year Rs.06.50 Crores (or the balance amount whichever is lower). The Court should give the possession of the said factory after payment of Ist instalment (i.e. Rs.1.50 Crores) so that I can run the factory. The ownership of the property may be trans¬ferred to me proportionately from time to time based upon the amount of the instalments paid. If I found that some of the assets of the factory complex is not necessary to run the factory then I may be allowed to sell that assets under the guidelines fixed by the Hon’ble Court and the sale proceeds of such assets will be deposited with the Official Liquidator and that amount will be deducted from the immediate succeeding instalment. As my bankers are not ready to provide finance to this Textile Project if the cost of acquisition exceeds Rs.16.51 Crores so I cannot make the full payment within 3 months and I have to meet the schedule of payment from my own sources or through the profit of this project. As my bankers are not ready to provide finance to this Textile Project if the cost of acquisition exceeds Rs.16.51 Crores so I cannot make the full payment within 3 months and I have to meet the schedule of payment from my own sources or through the profit of this project. Offer-4 If the the Hon’ble High Court rejects my 3rd offer then this 4th offer may be considered. I will acquire the factory complex within a period of 5 years by paying at a time the highest price offered by the bidders during the current auction proces of the factory of OTM Ltd. (or Rs.24 crores whichever is lower). For the meantime the Hon’ble Court may give the factory complex to me on lease at a rent of Rs.4 lakhs (Rupees four lakhs only) per month to run the factory. The lease rent will be paid from the month in which the commercial production will be start¬ed. If I found that some of the assets of the factory complex is not necessary to run the factory then I may be allowed to sell that assets under the guidelines fixed by the Hon’ble Court and the sale proceeds of such assets will be deposited with the Official Liquidator and that amount will be deducted from the amount finalized for the sale of factory to me.” Along with the said letter a Misc. Case Petition has also been filed by Shri R. C. Agrawall praying that the unit be set¬tled in his favour. Shri Agrawalla has also furnished a bank draft of Rs.22,50,000/- dated 23.12.2004 on Punjab and Sind Bank. 8. It will be clear on a comparison of the offers made by all the parties from time to time till 24.12.2004 that the offer of Abdul Karim on behalf of I.B. Enterprises, Bhavnagar, Gujarat to purchase the factory complex at Rs.23.00 crores is the high¬est. Shri R. C. Agrawalla in his 3rd and 4th offers, however, has stated that he is willing to acquire the factory complex of the Company within a period of 5 years by paying in instalments or at a time the highest price offered by the bidder during the current auction process of the factory or Rs.24.00 crores which ever is lower. But the sale of the factory complex of the Company and the receipt of whole of the sale price cannot wait for 5 years as there are number of creditors of the Company who are waiting to be paid out of the sale proceeds of the assets of the Company. As stated in the affidavit of Shri Abdul Karim, I.B. Enterprises, Bhavnagar, Gujarat may also run the industry and employ the local people as far as practicable. 9. In the valuation report dated 21.3.2004 and the addi¬tional valuation report dated 11.5.2004 the expert Valuer has indicated the valuation of the different items of the factory complex of the Company as under : (i) Civil structure of the factory area ... Rs.4,24,17,818.00 (ii) Plant, machinery, furniture, fixture etc. ... Rs.7,86,25,870.00 (iii) 87 acres of land @ Rs.12.00 lakhs per acre (Market rate as suggested by the Valuer) ... Rs.10,44,00,000.00 Total : Rs.22,54,43,688.00 The offer of Shri Abdul Karim on behalf of I.B. Enterprises, Bhavnagar, Gujarat to buy the factory complex at Rs.23.00 crores is, therefore, reasonable and adequate. 10. In M/s. Navalkha and Sons v. Sri Ramanya Das and others (supra) cited by Mr. Udaya Gupta, learned counsel appearing for the S.R. Industries, the Supreme Court held : “The principles which should govern confirmation of sales are well-established. Where the acceptance of the offer by the Commissioners is subject to confirmation of the Court the offer 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 agaisnt the property being sold at inadquate 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 rpice offered is reasonable. Unless the Court is satisfied about the adequacy of the price the act of confirmation of the sale would not be a proper exercise of judicial discretion. In Gordhan Das Chuni Lal v. T. Sriman Kanthimalhinalha Pillai it was observed that where the property is authorized to be sold by private contract or otherwise it is the duty of the Court to satisfy itself that the price fixed is the best that could be expencted to be offered. In Gordhan Das Chuni Lal v. T. Sriman Kanthimalhinalha Pillai it was observed that where the property is authorized to be sold by private contract or otherwise it is the duty of the Court to satisfy itself that the price fixed is the best that could be expencted to be offered. That is because the Court is the custo¬dian of the interests of the Company and its creditors and the sanction of the Court required under the Companies Act has to be exercised with judicial discretion regard being had to the inter¬ests of the Company and its creditors as well. This principle was followed in Rathnaswami Pillai v. Sadapathi Pillai and S. Soun¬darajan v. M/s. Roshan & Co. In A. Subbaraya Mudaliar v. K. Sundarajan it was pointed out that the condition of confirmation by the Court being a safeguard against the property being sold at an inadequate price, it will be not only proper but necessary that the Court in exercising the discretion which it undoubtedly has of accepting or refusing the highest bid at the auction held in pursuance of its orders, should see that the price fetched at the auction is an adequate price even though there is no sugges¬tion of irregularity or fraud. It is well to bear in mind the other principle which is equally well-settled namely that once the Court comes to the conclusion that the price offered is adequate, no subsequent higher offer can constitute a valid ground for refusing confirmation of the sale or offer already received. (See the decision of the Madras High Court in Roshan & Co’s case (supra)”. Thus as per the aforesaid decision only after the Court comes to the conclusion that the price offered for a property of the Company is adequate, no subsequent offer can constitute a valid ground for refusing confirmation of sale or offer already received. The offer of S.R. Industries for purchase of the fac¬tory complex was Rs. 15.40 crores in the 16th round of negotia¬tion with the Official Liquidator on 29.11.2004. S.R. Industries has not chosen to file any affidavit before the Official Liquida¬tor on or before 24.12.2004 making any higher offer. The offer of S.R. Industries for purchase of the fac¬tory complex was Rs. 15.40 crores in the 16th round of negotia¬tion with the Official Liquidator on 29.11.2004. S.R. Industries has not chosen to file any affidavit before the Official Liquida¬tor on or before 24.12.2004 making any higher offer. The said offer of Rs.15.40 crores is not adequate considering the fact that the market value of the factory complex of the Company would be between Rs.22 to 23 crores as per valuation made by the expert Valuer as indicated above. For this reason, I am not inclined to confirm the sale in favour of S.R. Industries. 11. I therefore confirm the sale of the factory complex of the Company in favour of I.B. Enterprises, Bhavnagar, Gujarat at Rs.23.00 crores. Accordingly, the earnest money deposit of Rs.2,30,00,000/- made by the said I.B. Enterprises, Bhavnagar, Gujarat only be retained by the Official Liquidator and the earnest money deposits made by all other parties along with their offers for purchase of the factory complex of the Company be returned/refunded to the concerned parties. Ordered accordingly.