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2010 DIGILAW 107 (PAT)

Bahubali Cement Ltd. (In Liquidation) v. State

2010-01-29

RAMESH KUMAR DATTA

body2010
JUDGEMENT 1. I.A. No. 6132 of 2009: The interlocutory application has been filed by the Bihar Industrial Area Development Authority (in short BIADA) for retender of schedule-I property of the company in liquidation, namely, Bahubali Cements Limited with respect to which the highest offer of Rs. 50 lacs made on behalf of M/s Symbiosis Electronic Pvt. Ltd. was accepted by this Court on 21.8.2009. In the said application the BIADA has made an offer to purchase the aforesaid property at a price of Rs. 55 lacs and accordingly, it is prayed that the sale of schedule-l property of said Bahubali Cements Ltd. accepted on 21.8.2009 be cancelled and a fresh auction for getting the better value of the property in question be ordered. 2. The short facts relevant for consideration of the present matter is that a sale notice was published on 4.5.2009 for the sale of leasehold land measuring 2.50 acres alongwith Godown and certain constructions on as is where is and whatever there is basis with respect to schedule-l property of the company in liquidation. The only tenderer found on 2.7.2009 when the sealed tender was opened, was the BIADA which had made an offer of Rs. 10 lacs. However, in view of the fact that the property had been valued at Rs. 93,54,997/- by the official valuer, the BIADA was given time and ultimately an offer of Rs. 30,00,000/- was made on behalf of the BIADA. On 17.7.2009 an interlocutory application was filed on behalf of M/s Best Towers (Pvt.) Ltd. expressing its intention to participate in the sale as it had recently learnt about the same and on 24.7.2009 it made an offer of Rs. 35 lacs upon which learned counsel for the BIADA stated that he had instruction to make an offer not more than Rs. 35 lacs, whereafter learned counsel for M/s Best Towers (Pvt.) Ltd. increased the offer to 36 lacs. Keeping the offer pending, a fresh notification for sale was directed to be published by the Official Liquidator. When the tender was opened on 21.8.2009 on the basis of fresh sale notice, two other tenderers made their offers. 3. Both the offers were below the offer of Rs. Keeping the offer pending, a fresh notification for sale was directed to be published by the Official Liquidator. When the tender was opened on 21.8.2009 on the basis of fresh sale notice, two other tenderers made their offers. 3. Both the offers were below the offer of Rs. 36 lacs made by M/s Best Towers (Pvt.) Ltd. and learned counsel for the two new tenderers, namely, M/s Symbiosis Electronics Pvt. Ltd. and M/s Spicy Beverage Pvt. Ltd., sought permission to participate in the open bidding in Court which was allowed. Ultimately in the course of bidding the highest offer was made by M/s Symbiosis Electronics Pvt. Ltd. for Rs. 50 lacs which was accepted and it was directed to deposit the balance amount of Rs. 45 lacs within sixty days and the possession was also directed to be handed over by the O.L. on receipt of the balance amount of the sale consideration. Thereafter the present I.A. was filed by the BIADA which was taken up on 9.10.2009. Learned counsel for the BIADA was directed to serve copies of the application on learned counsel for the M/s Symbiosis Electronics Pvt. Ltd. The Court was also informed by the O.L. that the balance amount had not yet been deposited by the M/s Symbiosis Electronics Pvt. Ltd., and the Court therefore directed that even if the balance amount is deposited the possession shall not be handed over to M/s. Symbiosis Electronics Pvt. Ltd., 4. In the reply filed on behalf of M/s. Symbiosis Electronics Pvt. Ltd. the stand taken is that the petition filed by the BIADA should be rejected as no valid reason such as fraud or misrepresentation has been mentioned and thus as the process of bidding has already been concluded the same should not normally be set aside. It is submitted that once the confirmation of sale is made, it should not be set aside on the ground that higher offer was made by any other party. 5. The further stand is that within the time granted by the Court M/s Symbiosis Electronics Pvt. Ltd. has already deposited the balance amount of Rs. 45 lacs. 6. Mr. Lalit Kishore, learned Sr. 5. The further stand is that within the time granted by the Court M/s Symbiosis Electronics Pvt. Ltd. has already deposited the balance amount of Rs. 45 lacs. 6. Mr. Lalit Kishore, learned Sr. Counsel appearing for the BIADA submits that the Court is the custodian of the interest of the Company and its creditors and it is the duty of the Court to see that an adequate price is received at the auction even in the absence of any suggestion of fraud or irregularity. It is contended that since in the earlier auction the price obtained was Rs. 50 lacs only, against the written offer of BIADA of Rs. 55 lacs which he has now been instructed to raise to Rs. 65 lacs, which is much higher than the Rs. 50 lacs offered by M/s Symbiosis Electronics Pvt. Ltd., thus in the interest of the Company and its creditors the higher offer should be accepted. 7. Learned counsel further submits that even in the sale notice issued by the O.L. it was clearly mentioned that the High Court reserves the right to accept or reject any or all the offers at any stage of sale proceeding or confirmation of sale and/or withdraw any of the property subject to sale and negotiate with the purchasers for the public good as well as in the interest of secured creditors; it also provides that the High Court may retain EMD of two top bidders up to sixty days from the date of order accepting the offer/ prima facie confirmation of sale and further it will not carry any interest. It is urged by learned counsel that the order of this Court dated 21.8.2009 accepting the offer of Rs. 50 lacs of M/s Symbiosis Electronics Pvt. Ltd. was only a prima facie confirmation of sale and it was open to this Court in the interest of secured creditors and the Company to withdraw the same and accept a higher bid by another party. 8. In support of the aforesaid proposition learned counsel relies upon a decision of the Supreme Court in the case of Divya Manufacturing Company (P) Ltd. and Another V/s. Union Bank of India and Others: (2000)6 SCC 69 , paragraphs 13 to 16 of which are quoted below: "13. 8. In support of the aforesaid proposition learned counsel relies upon a decision of the Supreme Court in the case of Divya Manufacturing Company (P) Ltd. and Another V/s. Union Bank of India and Others: (2000)6 SCC 69 , paragraphs 13 to 16 of which are quoted below: "13. 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 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 26.6.1998 the Division Bench has ordered that offers of Eastern Silk Industries Ltd. and Jay Prestressed Products Ltd. would only be considered on 2.7.1998 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 2.7.1998. In this set of circumstances, there was no need to confine the bid between three offerors only. 14. In LICA(P) Ltd. (1) V/s. Official Liquidator this Court dealing with a similar question observed thus: "This purpose of an open auction is to get the most remunerative price and it is the duty of the court to keep openness of the auction so that the intending bidders would be free to participate and offer higher value. If that path is cut down or closed the possibility of fraud or to secure inadequate price or underbidding would loom large. If that path is cut down or closed the possibility of fraud or to secure inadequate price or underbidding would loom large. The court would, therefore, have to exercise its discretion wisely and with circumspection and keeping in view the facts and circumstances in each case." 15. The matter was again brought before this Court and in LICA(P) Ltd.(2) V/s. Official Liquidator the Court held: "Proper control of the proceedings and meaningful intervention by the court would prevent the formation of a syndicate, underbidding and the resultant sale of property for an inadequate pripe. The order passed by this Court yielded, the result that the property which would have been finalized at Rs. 45 lakhs, fetched Rs. 1.10 crores and in this Court a further offer of Rs. 1.25 crores is made. In other words, the property under sale is capable of fetching a higher market price. Under these circumstances, though there is some force in the contention of Shri Ramaswamy that the court auction may not normally be repeatedly disturbed, since this Court, on the earlier occasion, had limited the auction between the two bidders, the impediment will not stand in the way to direct sale afresh. Even today the parties are prepared to participate in the bid." 16. Further, there is a specific Condition 11 in the 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 crores 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 in the market forces and prices. 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 in the market forces and prices. Confirmation of the sale by a court at a 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 the shortest time." 9. Mr.Y.V. Giri, learned Sr. Counsel appearing for M/s Symbiosis Electronics Pvt. Ltd., on the other hand, submits that the BIADA is not a third party who had no knowledge of the present auction and as a matter of fact it had earlier also made a bidding up to Rs. 35 lakhs and thereafter it had withdrawn from the process and even withdrawn the earnest money. In the said circumstances, it should not be permitted to again enter into the fray after the offer of M/s Symbiosis Electronics Pvt. Ltd. has been accepted by this Court. 10. It is further submitted that the action of the BIADA amounts to waiver and acquiescence of its right and it is not open to it to re-agitate the question by getting the previous sale reopened and the earlier tender cancelled. Learned counsel also submits that no fraud and irregularity have been alleged in the process of earlier bidding and its acceptance by the Court and hence the same should not be set aside. 11. It is also the contention of learned counsel that the price offered by M/s Symbiosis Electronics Pvt. Ltd of Rs. 50 lakhs is certainly not an inadequate price and what has been offered by the BIADA is not abnormally high. It is thus submitted by learned counsel that the application filed by the BIADA should be rejected. 12. 11. It is also the contention of learned counsel that the price offered by M/s Symbiosis Electronics Pvt. Ltd of Rs. 50 lakhs is certainly not an inadequate price and what has been offered by the BIADA is not abnormally high. It is thus submitted by learned counsel that the application filed by the BIADA should be rejected. 12. In support of the aforesaid stand learned counsel relies upon a decision of the Supreme Court in the case of Valji Khimji and Company V/s. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited and Others: (2008)9 SCC 299 , paragraphs 28 to 30 of which are quoted below: "28. If it is held that every confirmed sale can be set aside the result would be that no auction-sale will ever be complete because always somebody can come after the auction or its confirmation offering a higher amount. It would have been a different matter if the auction had been held without adequate publicity in well-known newspapers having wide circulation, but where the auction-sale was done after wide publicity, then setting aside the sale after its confirmation will create huge problems. When an auction-sale is advertised in well-known newspapers having wide circulation, all eligible persons can come and bid for the same, and they are themselves to be blamed if they do not come forward to bid at the time of the auction. They cannot ordinarily later on be allowed after the bidding (or confirmation) is over to offer a higher price. Of course, the situation may be different if an auction-sale is finalized, say for Rs. 1 crore, and subsequently somebody turns up offering Rs.10 crores. In this situation it is possible to infer that there was some fraud because if somebody subsequently offers Rs. 10 crores, then an inference can be drawn that an attempt had been made to acquire that property/asset at a grossly inadequate price. This situation itself may indicate fraud or some collusion. However, if the price offered after the auction is over which is only a little over the auction price, that cannot by itself suggest that any fraud has been done. 29. In the present case we are satisfied that there is no fraud in the auction-sale. This situation itself may indicate fraud or some collusion. However, if the price offered after the auction is over which is only a little over the auction price, that cannot by itself suggest that any fraud has been done. 29. In the present case we are satisfied that there is no fraud in the auction-sale. It may be mentioned that auctions are of two types(1) where the auction is not subject to subsequent confirmation, and (2) where the auction is subject to subsequent confirmation by some authority after the auction is held. 30. In the first case mentioned above i.e. where the auction is not subject to confirmation by any authority, the auction is complete on the fall of the hammer, and certain rights accrue in favour of the auction-purchaser. However, where the auction is subject to subsequent confirmation by some authority (under a statute or terms of the auction) the auction is not complete and no rights accrue until the sale is confirmed by the said authority. Once, however, the sale is confirmed by that authority, certain rights accrue in favour of the auction-purchaser, and these rights cannot be extinguished except in exceptional cases such as fraud." 13. Learned counsel further submits that in the aforesaid case the decision of the Apex Court in the case of Divya Manufacturing Company (P) Ltd. (supra) was also considered and it was observed that the ratio in Divya Manufacturing case is that if there is fraud then even after the confirmation, the sale can be set aside, since it is well settled that fraud vitiates everything. It is urged by learned counsel that in the present matter there is no allegation of fraud nor a price differential of the extent so that the Court could come to such conclusion. 14. Learned O.L., on the other hand, submits that while he has no objection to consider the application of BIADA but according to him even if the application of BIADA is accepted the further bidding should not be confined to BIADA and M/s Symbiosis Electronics Pvt. Ltd. rather there should be a fresh advertisement as laid down by the Apex Court in the case of Navalkha and Sons V/s. Ramanuja Das: (1969)3 SCC 537 . 15. I have considered the rival submissions of the parties. 15. I have considered the rival submissions of the parties. It is true that BIADA had earlier participated in the bidding and its first offer was to the extent of only Rs.10 lakhs which evidently was an act of under bidding to take advantage of the situation where no buyer had come forward to offer for purchase of the said property despite advertisements having been made thrice earlier. Subsequently, however, it did make the higher offer of Rs. 30 lacs which resulted ultimately in the re-advertisement for sale of the property. It is also true that at that stage BIADA did not go any higher than the previous offer, and the offer of M/s Symbiosis Electronics Pvt. Ltd. of Rs. 50 lakhs was accepted by this Court. Immediately thereafter BIADA has filed the present application stating that it was prepared to make an offer of Rs. 55 lakhs which was enhanced to Rs. 65 lakhs on instructions received by learned Sr. Counsel for the BIADA. This Court is also conscious of the fact that the Official Valuer had valued the property of the Company at Rs. 93,54,997/- and it was only because of the situation that no buyers had turned up despite repeated advertisements that the offer made by M/s Symbiosis Electronics Pvt. Ltd. of Rs. 50 lakhs in the present round of tenders was accepted. In the aforesaid facts and circumstances now that BIADA has come with an offer of Rs. 65 lakhs, this Court is of the view that being the custodian of the interest of the Company and its creditors it would be just and fair that the higher price, which is still less than the valuation made, ought to be given due consideration and the earlier offer of Rs. 50 lakhs made by the M/s Symbiosis Electronics Pvt. Ltd. be withdrawn and cancelled. 16. In reaching to the aforesaid conclusion this Court is fortified by the decision of the Supreme Court in Divya Manufacturing Company (P) Ltd. case (supra) where the above proposition has been laid down and in paragraph-13 and paragraph-16 of which it has been clearly held that 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. Although in the subsequent decision in Valji Khimjis case (supra) the Apex Court observed that the ratio in Divya Manufacturing case was that if that is fraud even after confirmation of sale the same can be set aside, since it is well settled that fraud vitiates everything, but the specific statement to the contrary was made in the Divya Manufacturing case, paragraphs 13 to 16 of which as quoted above clearly go to show that irrespective of there being any suggestion of irregularity or fraud the Court may set aside the confirmation of sale if it is found that the earlier offer is inadequate. In the case of Divya Manufacturing (supra) an offer of Rs.1.30 crores was considered inadequate in comparison to the subsequent offer of Rs. 2 crores, i.e., a difference of about 50% from the earlier sale price whereas in the present matter the difference between the earlier offer of Rs. 50 lakhs and the present offer of Rs. 65 lakhs is to the extent of 30%. I, however, consider the previous offer as totally inadequate not only in terms of the present offer made but on consideration of the Official Valuers report valuing the property at Rs. 93 lakhs. 17. The aforesaid view is also supported by the observation made in Divya Manufacturing case (supra) that although such offers 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 in the market forces and prices. 18. In Divya Manufacturing case (supra) there is reference to Condition 11 in the. terms and conditions of sale which empowered the Court to set aside the sale even though it was confirmed for the interests of creditors, contributories and all concerned and/or public interest. In the present matter also it is evident from the conditions of the sale notice that the order of the Court accepting the offer is a prima facie confirmation of sale and it is open to the High Court to withdraw the same at any stage. In the present matter also it is evident from the conditions of the sale notice that the order of the Court accepting the offer is a prima facie confirmation of sale and it is open to the High Court to withdraw the same at any stage. Here the matter has come for consideration of withdrawal of the offer even before the entire amount was paid by M/s Symbiosis Electronics Pvt. Ltd. and neither the possession was handed over to it nor the sale deed executed in its favour, as was the position in Divyas case. 19. The submission of learned counsel for M/s Symbiosis Electronics Pvt. Ltd. that the action of the BIADA amounts to waiver of its right and it is not open to it to re-agitate the question by getting previous sale reopened and the earlier tender cancelled since the BIADA had full knowledge of the present auction, cannot be accepted as in similar circumstances Divya Manufacturing which had withdrawn the earlier offer was permitted to take part in further bidding to make higher offer. 20. Thus, in the light of the aforesaid discussions the previous acceptance of offer of Rs. 50 lakhs on behalf of M/s Symbiosis Electronics Pvt. Ltd. made on 21.10.2009 is withdrawn. 21. I, however, accept the suggestion made by the O.L. that in case the earlier offer is withdrawn then the matter should be re-advertised for sale as held by the Apex Court in Navalkha and Sons case. I find that similar directions were also issued in the case of Divya Manufacturing case (supra). The same would be necessary to ensure the widest possible participation in the tender process for the realization of the best price. 22. The O.L. is directed to re-advertise the property for sale by calling for sealed tenders for which necessary draff of the sale notification may be produced before the Court on 4th February, 2010. The offer of BIADA shall in the meantime remain pending, as consented by its counsel. 23. I.A. No. 6132 of 2009 is, accordingly, disposed of. 24. Put up on 4th February, 2010.