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2008 DIGILAW 599 (ORI)

S. B. OVERSEAS LTD. v. KONARK JUTE LIMITED

2008-07-28

B.N.MAHAPATRA, B.S.CHAUHAN

body2008
JUDGMENT : B.N. Mahapatra, J. - This Appeal is preferred against an Order Dated 02.02.2007 passed by the Company Judge in Company Act Case No. 36 of 2001 directing to hold fresh auction in open Court and consider the respective offers of the parties. 2. The case of the Appellant is that in the winding up proceeding Learned Company Judge directed Industrial Development Corporation of Orissa (for short 'IDCOL'), the holding Company of M/s Konark Jute Limited (for short 'KJL'), to publish advertisement by fixing appropriate up set price. It was further directed that the said offer so received in sealed cover should be placed before the Asset Disposal Committee (for short 'ADC') of IDCOL who shall open and consider the same and submit a report to the Company Judge with regard to acceptability of any of the offer so made. The final decision with regard to acceptance of such offer shall be taken up by the Court. In compliance of the said direction of the Company Judge, offers were invited with up set price of Rs. 5,60,28,000 and in response to said advertisement, the following bidders participated: (i) M/s Collin Traders Pvt. Ltd. (ii) M/s S.B. Overseas Ltd. (iii) M/s Piyush Suppliers Pvt. Ltd. The Appellant's bid was for Rs. 6.02 crores which was increased from time to time up to Rs. 9.40 crores with upfront payment of Rs. 92.0 lakhs and the balance amount in sixty equal monthly instalments along with interest and secured by letter of credit. On 15.12.2005 IDCOL filed an affidavit recommending the acceptance of Appellant's offer of Rs. 9.40 crores in Company Act Case No. 36 of 2002. According to the Appellant, the Company Judge vide Order Dated 13.01.2006, on consideration of the affidavit filed by IDCOL ultimately directed that the recommendation of ADC for taking over of KJL by M/s S.B. Overseas Ltd. (for short 'SBOL') on the terms and conditions mentioned in the affidavit filed by IDCOL dated 15.12.2005 should be accepted. The IDCOL was also directed to take necessary steps in this regard and after completion of the transaction should file report before the Company Judge for passing further orders. Further case of the Appellant is that the objection of one of the bidders, namely, M/s Collin Traders Pvt. Ltd. to the averments made by IDCOL in its affidavit dated 15.1.2005 was turned down. Further case of the Appellant is that the objection of one of the bidders, namely, M/s Collin Traders Pvt. Ltd. to the averments made by IDCOL in its affidavit dated 15.1.2005 was turned down. Similarly, offers of M/s Piyush Suppliers Pvt. Ltd., M/s Santan Cammercial Pvt. Ltd. and others were not accepted as viable as per the averments made by IDCOL in its affidavit dated 15.12.2005. Pursuant to Order Dated 13.01.2006 of Company Judge further progress of negotiation continued and ultimately IDCOL filed two affidavits dated 04.04.2006 and 16.04.2006 before the Company Judge. On 04.04.2006, IDCOL filed affidavit including correspondences with a prayer to the Company Judge to approve the recommendation in favour of SBOL. On 16.04.2006, IDCOL filed another affidavit stating that the Court may direct SBOL to provide letter of credit with terms and conditions to cover Rs. 11.52 crores in sixty-one instalments besides Rs. 1.20 crores towards gratuity and leave encashment of 252 employees under Voluntary Retirement Scheme. On 05.05.2006, the Company Judge directed the Appellant to comply with the terms of the sale negotiated with IDCOL. On 09.05.2006, SBOL filed an affidavit before the Company Judge giving reply to the aforesaid terms of IDCOL. On 22.06.2006, the Appellant improved upfront payment of Rs. 92.0 lakhs to Rs. 1.10 crores. On 12.07.2006, the Appellant submitted bank guarantee as suggested by JDCOL and subsequently approved by ADC. At this stage, new Chief Managing Director of IDCOL suggested for entire payment of upfront which was opposed by the Appellant as the same was inconsistent with the terms agreed between the Appellant and IDCOL and was accepted by the Company Judge. On 20.07.2006, SBOL requested IDCOL to allow for furnishing bank guarantee. On 28.07.2006, IDCOL wrote a letter to the Appellant for upfront payment. The Appellant on 04.08.2006 filed an affidavit before the Company Judge for a direction to IDCOL to accept payment in instalments as approved by the Company Judge. On 15.09.2006, various parties appeared before the Company Judge and the Company Judge directed the Appellant and other parties to take instruction as to whether the said purchasers were ready and willing to offer more than the amount offered before. On 15.09.2006, various parties appeared before the Company Judge and the Company Judge directed the Appellant and other parties to take instruction as to whether the said purchasers were ready and willing to offer more than the amount offered before. Vide impugned Order Dated 02.02.2007, the Company Judge held that no finality had been arrived at for sale and handing over of the unit to the Appellant and therefore, the Company Judge has decided to hold a fresh auction in open Court. 3. Learned Counsel appearing for the Appellant submits that the Company Judge should not have directed for holding of a fresh auction before considering the prayer and the contention made by Appellant-SBOL in their affidavit dated 04.08.2006. The Learned Counsel emphatically submitted that since SBOL never backed out the same process as per its offered terms and conditions, the impugned Order Dated 02.02.2007 was un-warranted and hence is liable to be set aside. In support of his contention, he relied upon a decision of this Court in the case of Varsha Fabrics Pvt. Ltd. Vs. State of Orissa and Others. According to him, in view of the affidavit dated 15.12.2006 filed before the Company Judge on 16.12.2006 containing minutes of meeting of the inter-departmental core group held on 05.10.2005 and Order Dated 13.01.2006 of the Company Judge, negotiations continued and reached almost at a complete stage the same should not have been made inoperative at the instance of unsuccessful bidders and strangers. 4. Mr. R.K. Rath, Learned senior Counsel appearing for IDCOL submits that the negotiation between the Appellant and IDCOL has not reached any finality. When other persons came forward with better offers, the Company Judge directed to hold a fresh auction in open Court vide impugned order. He further submitted that in Order Dated 15.09.2006, Learned Company Judge observed that the present Appellant has offered an amount of Rs. 9.40 crores with offer Of upfront payment of Rs. 1.10 crores and supporting bank guarantee for the balance amount with an undertaking to take all liabilities of the Company. Whereas, the Piyush Supplies Pvt. Ltd. offered an amount of Rs. 6.21 crores as upfront payment with an undertaking to take over all the liabilities of the Company in question. He also further submitted that the Company Judge in his Order Dated 10.11.2006 observed that the Counsel for M/s Collin Traders Pvt. Ltd. had filed a Misc. Whereas, the Piyush Supplies Pvt. Ltd. offered an amount of Rs. 6.21 crores as upfront payment with an undertaking to take over all the liabilities of the Company in question. He also further submitted that the Company Judge in his Order Dated 10.11.2006 observed that the Counsel for M/s Collin Traders Pvt. Ltd. had filed a Misc. Case making better offer than SBOL. Learned Counsel for SBOL wanted some further time to obtain instruction as to whether SBOL can increase the upfront payment and to what extent. Mr. Rath, Learned Senior Counsel for IDCOL contended that the orders of the Company Judge dated 15.09.2006 and 10.11.2006 clearly show that the sale was not confirmed with the Appellant and the negotiation was going on. He also submitted that the Appellant has purposefully not attached the copy of the above two orders even though he has attached the copy of other orders of the Company Judge. 5. In view of the rival contentions of the parties, the following question falls' for consideration by this Court: Whether on the facts and circumstances, Learned Company Judge is justified in directing for a fresh auction in open Court on the ground of inadequate consideration? 6. The facts of the case as narrated in chronological events filed by the Appellant on 03.03.2008 and development in the matter as took place on dated 15.09.2006, 10.11.2006 and the Order Dated 02.02.2007 clearly reveal that till passing of the impugned order no finality has been arrived between Appellant-SBOL and IDCOL in respect of sale of KJL in favour of Appellant. At this juncture other intending parties come forward with higher bid amount and higher upfront payment. Needless to say that in absence of concluded sale no right accrues in favour of a negotiating purchaser. Therefore, the Appellant cannot claim any exclusive right to purchase the Company under the process of winding up. 7. Another important aspect of the case is that KJL which is put to auction is under the process of winding up. Winding up of a Company arises when the concerned Company is not able to satisfy its creditors. Thus, in the event of winding up of a Company, it is always fair and desirable that all attempts should be made to get maximum price. In the present economy, upfront payment assumes great importance and is always preferable to deferred payments even with interest. Thus, in the event of winding up of a Company, it is always fair and desirable that all attempts should be made to get maximum price. In the present economy, upfront payment assumes great importance and is always preferable to deferred payments even with interest. More is the upfront payment better for the Company under winding up. During winding up process of a Company the Court is the custodian on behalf of the secured and unsecured creditors and the workmen. It is the duty of the Court to see that maximum price is fetched for the property and assets of the Company in the process of winding up. It will be proper and necessary for the Company Court to see that the price fetched at auction is the adequate price. In case the Court feels that the Company's assets are being sold at inadequate price it can set aside such auction sale. In that situation, the Court does not become functous officio. It is the settled position of law that even in the case of a confirmed sale, the Court is clothed with power to set aside the same if it comes to the conclusion that the price offered by the auction purchaser in fact was inadequate. It would be relevant to make a reference to Rules, 9, 272 and 273 of the Companies (Court) Rules, 1959 which are quoted below: 9. Inherent powers of Court-Nothing in these Rules shall be deemed to limit or otherwise affect the inherent powers of the Court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court. 272. Sale to be subject to sanction and to confirmation by Court - Unless the Court otherwise orders, no property belonging to a company which is being wound-up by the Court shall be sold by the Official Liquidator without the previous sanction of the Court, and every sale shall be subject to confirmation by the Court. 273. Procedure at sale - Every sale shall be held by the Official Liquidator, or, If the judge shall so direct, by an agent or an auctioneer approved by the Court, and subject to such terms and conditions, if any, as may be approved by the Court. 273. Procedure at sale - Every sale shall be held by the Official Liquidator, or, If the judge shall so direct, by an agent or an auctioneer approved by the Court, and subject to such terms and conditions, if any, as may be approved by the Court. All sales shall be made by public auction or by inviting sealed tenders or in such manner as the Judge may direct. Rule-9 makes it clear that the inherent powers of the Court are not limited by any of the Rules of Companies (Court) Rules, 1959. Rule 272 says that without previous sanction of the Court, the Official Liquidator cannot undertake sale of any Company in liquidation. It further clarifies that every sale shall be subject to confirmation by the Court. Rule 273 says that all sales by Official Liquidator or by an agent of auctioneer shall be held by inviting sealed tender or any other mode as may be directed by the Court. Thus, no property belonging to a company under winding up process can be sold without the previous sanction of the Court and every sale shall be subject to confirmation by Court. In that view of the matter, the Company Court is always clothed with power to set aside any sale for the betterment of the company under winding up, when the Court comes to the conclusion that price offered by the auction purchaser is inadequate. In the present context, it will be useful to refer to some of the decisions of the Hon'ble Supreme Court and High Courts. In the case of Union Bank of India v. Official Liquidator, High Court of Calcutta (2005) SCC 274 while setting aside a confirmed sale, the Hon'ble Supreme Court held as follows: At the outset, we would state that in proceedings for winding up of the company under liquidation, the Court acts as a custodian for the interest of the company and the creditors. Therefore, before sanctioning the sale of its assets, the Court is required to exercise judicial discretion to see that properties are sold at a reasonable price. For deciding what would be a reasonable price, the valuation report of an expert is a must. Not only that, it is the duty of the Court to disclose the said valuation report to the secured creditors and other interested persons including the offerors. For deciding what would be a reasonable price, the valuation report of an expert is a must. Not only that, it is the duty of the Court to disclose the said valuation report to the secured creditors and other interested persons including the offerors. Further, it is the duty of the Court to apply its mind to the valuation report for verifying whether the report indicates the reasonable market value of the property to be auctioned even if objections are not raised. The Hon'ble Supreme Court in the case of Navalkha and Sons Vs. Ramanuja Das and Others held as follows: 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 sale would not be a proper exercise of judicial discretion. In Gordhan Das Chuni Lal v. T. Sriman Kanthimathinatha Pillai AIR 1921 Mad 286, 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 expected to be offered. That is because the Court is the custodian of the interest 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 interests of the company and its creditors as well. This principle was followed in Ratnasami Pillai Vs. Sabapathy Pillai and Others, and S. Soundararajan and Others Vs. Khaka Mahomed Ismail Saheb of Messrs. Roshan and Co.. In A. Subbaraya Mudaliar Vs. K. Sundararajan, (Joint Receiver) and Others 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 suggestion 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. In Divya Manufacturing Company (P) Ltd. Vs. Union Bank of India and Others, Hon'ble Apex Court held that where a higher price is offered, the Court can set aside a confided sale in the interest of the company and its creditors. The Punjab and Haryana High Court in the case of Punjab Wireless Systems Limited Vs. The Indian Overseas Bank and Others, held as follows: It is thus obvious that the power of the Court to set aside even a confirmed sale is unassailable. The Judgment of the Supreme Court in Navalkha and Sons Vs. Ramanuja Das and Others, has not dealt with such a power. However, in Union Bank of India Vs. Official Liquidator H.C. of Calcutta and Others, the view taken in Navalkha and Sons Vs. Ramanuja Das and Others, has been considered. Emphasizing that the object of sale is to apply the sale proceeds to meet the claims of the creditors of the company, the Supreme Court in the case of Allahabad Bank etc. etc. Vs. Bengal Paper Mills Co. Ltd. and Others has held that it is he duty of the Courts to ensure that the best possible price is realized by sale of the assets and the properties of the company in liquidation as it is obliged to the creditors for undertaking such a course. It was noticed that the Company Judge had ordered possession to be delivered to the official liquidator hastily and concluded that the auction purchasers should have realized that the order of sale could be set aside when any expenditure incurred by the auction purchaser was at his own risk. It was also observed that the interest of the creditors of the company, particularly those of the unsecured creditors overweighed such equities.... The Punjab and Haryana High Court in the case of S.R. Buildcon v. Sunfil Oils Ltd. and Anr. (2005) 126 Comp Cas 576 held that there was no rule of law to the effect that a confirmed sale was not to be set aside. Fraud and misrepresentation were not required to be proved for setting aside a confirmed sale. The Punjab and Haryana High Court in the case of S.R. Buildcon v. Sunfil Oils Ltd. and Anr. (2005) 126 Comp Cas 576 held that there was no rule of law to the effect that a confirmed sale was not to be set aside. Fraud and misrepresentation were not required to be proved for setting aside a confirmed sale. The foremost factor which persuades the Court to set aside even a confirmed sale is the interest of the unsecured creditors along with the interest of the secured creditors as well as the workers' dues. Thus, it is obvious that the power of the Court to set aside even a confirmed sale is unassailable. 8. In Varsha Fabrics' case (supra), this Hon'ble Court held that imposition of short period of seven days for compliance of terms and conditions stipulated being unreasonable and arbitrary amounts to malice in law thereby necessitating interference by this Court in exercise of the jurisdiction under Article 226 of the Constitution of India. In that case, the prime dispute was short period of seven days allowed for compliance of terms and conditions stipulated in case of a completed contract and in the event of failure fresh auction would be held. In that situation, this Court held that any party cannot walk out of the said contract without abiding by terms of the same. The fad of that case is completely different from the facts of the case at hand. No such completed contract was made by the parties and therefore principle decided in that case has no application to the case of the present Appellant. 9. Thus, there is no infirmity or illegality in the impugned order passed by the Company Judge directing for a fresh auction in the open Court, particularly when various parties appeared before the Company Judge and expressed their willingness to offer better price with much more upfront payment. In that view of the matter, the present appeal is dismissed without cost. B.S. Chauhan, C.J. 10. I agree. Final Result : Dismissed