M/S Star Trading Company vs M/S Cosmos Tecbnologies
2014 Latest Caselaw 7721 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

Court No. 37
 

 
Special Appeal No.  916 of 2014
 

 
M/s Star Trading Company
 
Vs. 
 
M/s Cosmos Technologies
 

 
Hon'ble Vineet Saran, J.

Hon'ble Vivek Kumar Birla, J.

This is an appeal filed against the order dated 3.9.2014 of the learned Single Judge whereby the application no. 269403 of 2014 filed by respondent-M/s Cosmos Technologies praying for recalling the order dated 30.7.2014 (whereby the bid of the appellant had been accepted) and the further prayer for permitting M/s Cosmos Technologies to bid for sale of plant and machinery of the company, has been allowed.

The brief facts of this case are that the properties of the company in liquidation- M/s Alfa Springs Limited, Kanpur were to be sold by the official liquidator for which an advertisement for sale was made by him. The properties were placed in three Lots, namely, 'Lot-A', 'Lot-B' and 'Lot-C'. The dispute in the present appeal is with regard to plant and machinery (movable properties) placed in Lot-B, the reserve price of which was fixed at Rs. 70 lacs. Notices inviting tenders were published in the daily newspapers on 27th and 28th May, 2014. Inspection was allowed on 16th and 17th June, 2014. After inspection ten tenders were submitted, in which the tender of appellant-M/s Star Trading Company was the highest at Rs. 81 lacs. Thereafter, open bidding was held by the Company Judge between the tenderers, in which the aforesaid M/s Star Trading Company had raised its bid to Rs. 97 lacs, which was the highest for Lot-B i.e. plant and machinery. The official liquidator was directed to obtain comments of all the secured creditors with regard to the said highest bid of Lot-B. The three secured creditors, namely, PICUP, UPFC and Canara Bank did not object to the said offer price of the appellant.

Then by order dated 30.7.2014, the learned Single Judge, after noting that two secured creditors had given their no objection and one did not submit its reply, accepted the price of Rs. 97 lacs offered by M/s Star Trading Company with respect to Lot-B, which was subject to compliance of terms and conditions of the tender as mentioned on the back of the tender notice. Then on 14.8.2014, the respondent-M/s Cosmos Technologies filed an application for recalling the order dated 30.7.2014 and for permitting it to bid for sale of plant and machinery of the company in liquidation. They offered a price of Rs. 1,10,00,000/- for the plant and machinery (Lot-B), and to prove their bonafide they deposited an amount of Rs. 25 lacs by a demand draft dated 14.8.2014 drawn in favour of the official liquidator. They had also offered to pay balance amount of Rs. 85 lacs within three days from the acceptance of their offer.

After hearing the learned counsel for the parties concerned, the learned Single Judge, by a detailed order dated 3.9.2014, held that the sale in favour of the appellant had not been confirmed by order dated 30.7.2014 and as such, no rights accrued in favour of the appellant. The learned Single Judge also accepted further amount of Rs. 85 lacs from the respondent-M/s Cosmos Technologies and directed that the bank draft for the said amount be deposited by the official liquidator. By the said order dated 3.9.2014, the learned Single Judge recalled the order dated 30.7.2014 and directed the official liquidator to make a fresh advertisement inviting tenders for the sale of plant and machinery (Lot-B) of the company in liquidation fixing a reserve price of Rs. 1,10,00,000/-. The advertisement was to be published on 8th September, 2014, inspection was to be permitted on 20th and 21th September, 2014, the last date for submission of tender forms was fixed for 30th September, 2014 and the tender was to be opened in the chamber of the Company Judge on 8th October, 2014. The appellant-M/s Star Trading Company had prayed that the entire amount deposited i.e. Rs. 97 lacs be returned to them as they wanted to withdraw their bid, which prayer was accepted. It is informed by the learned counsel for the appellant that they have received the entire amount of Rs. 97 lacs deposited by them. It is admitted to the parties that fresh tenders have been submitted, but not opened by the Company Judge because of pendency of this appeal and now 29th October, 2014 is the date fixed.

We have heard Sri Anoop Trivedi, learned counsel appearing for the appellant as well as Sri J. Nagar, learned Senior Counsel along with Sri Prateek Nagar, learned counsel for the respondent-M/s Cosmos Technologies and Sri Shubham Agrawal, learned counsel appearing on behalf of the official liquidator. Sri Virendra Tiwari, learned counsel holding brief of Sri Ashish Mishra, learned counsel for the PICUP, Sri Manish Mehrotra, learned counsel for the Canara Bank and Sri Atiq Ahmad, learned counsel for the UPFC were also present during the hearing.

The submission of Sri Anoop Trivedi, learned counsel for the appellant is in two fold. Firstly, it is contended that the application of the respondent-M/s Cosmos Technologies was not maintainable as after the passing of the order dated 30.7.2014, and in compliance thereof the appellant having deposited the total amount of Rs. 97 lacs, the transaction was complete and hence the application (which was filed on 14.8.2014) offering higher price i.e. Rs. 1,10,00,000/- could not have been entertained. Secondly, it is contended that the sale was of movable properties and would be confirmed at the drop of the hammer, and the learned Company Judge had become functus officio after passing of the order dated 30.7.2014, by which the sale was confirmed subject to the appellant depositing the entire amount, and once the total amount had been paid, the sale automatically stood confirmed. In support of his submission, Sri Trivedi, learned counsel for the appellant has placed reliance on the provisions of Order XXI Rule 77 of the Civil Procedure Code (hereinafter referred to as the 'CPC') and it is contended that with regard to the sale of movable properties by auction, on payment of the purchase-money, the sale would become absolute. Reliance has also been placed on Section 457 of the Companies Act, 1956 (hereinafter referred to as the 'Act of 1956'), which relates to powers of liquidator as well as Rule 6 of the Companies (Court) Rules, 1959 (hereinafter referred to as the 'Rules of 1959'), which relates to practice and procedure of the court and provisions of the Code of Civil Procedure to apply.

Sri J. Nagar, learned Senior Counsel appearing for the respondent-M/s Cosmos Technologies has submitted that there is no automatic confirmation of sale, and there has to be a positive order passed in that regard, which has not been done in the case of the appellant. Reliance in this regard has been placed on Rule 272 of the Rules, 1959, which relates to sale being subject to sanction and confirmation by court. He has also relied on provisions of the Rule 9 of the Rules, 1959 relating to inherent powers of the court. He has thus submitted that although by order dated 30.7.2014 the offer made by the appellant for Rs. 97 lacs had been accepted but subject to the compliance of the terms and conditions of the tender, as such the same would not amount to automatic confirmation of sale.

Sri Shubham Agrawal, learned counsel appearing for the official liquidator has reiterated the submissions made by Sri J. Nagar, learned Senior Counsel and emphatically argued that the acceptance by the order dated 30.7.2014 will not amount to confirmation. He has further submitted that once the entire amount of Rs. 97 lacs has been withdrawn by the appellant in terms of the order dated 30.7.2014, the appeal filed by such party would not be maintainable. He has also placed reliance on Condition No. 3 of the terms and conditions of the tender notice, in which it is stated that even after confirmation of sale in favour of the appellant, the Court would have right to either accept the offer or set aside such sale.

The other counsel appearing for the secured creditors did not place any submission.

Learned counsel for the parties have relied on several decisions of the Apex Court as well as High Courts, which shall be dealt with at the stage of consideration of the submission of the parties.

For ready reference, the relevant provisions of the Companies Act, 1956, the Companies (Court) Rules, 1959 and Civil Procedure Code, 1908 are reproduced:-

"The Companies Act, 1956

Section 457. Powers of liquidator-(1) The liquidator in a winding up by the Court shall have power, with the sanction of the Court--

(a)...................

(b)...................

(c) to sell the immovable and movable property and actionable claims of the company by public auction or private contract, with power to transfer the whole thereof to any person or body corporate, or to sell the same in parcels;

(2A) The liquidator shall--

(a)..................

(b).................

(c) give an advertisement, inviting bids for sale of the assets of the company, within fifteen days from the date of receiving valuation report from the valuer, chartered surveyors or chartered accountants referred to in clause (b), as the case may be.

(3) The exercise by the liquidator in a winding up by the Court of the powers conferred by this section shall be subject to the control of the Court; and any creditor or contributory may apply to the Court with respect to the exercise or proposed exercise of any of the powers conferred by this section.

The Companies (Court) Rules, 1959

R. 6. Practice and procedure of the court and provisions of the Code to apply.- Save as provided by the Act or by these rules the practice and procedure of the court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these rules. The Registrar may decline to accept any document which is presented otherwise than in accordance with these rules or the practice and procedure of the court.

R. 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.

R. 272. Sale to be subject to sanction and to confirmation by court.- Unless the court otherwise orders, no property belonging to 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. (emphasis supplied)

The Code of Civil Procedure, 1908

Order XXI, Rule 77. Sale by public auction.- (1) Where movable property is sold by public auction the price of each lot shall be paid at the time of sale or as soon after as the officer or other person holding the sale directs, and in default of payment the property shall forthwith be re-sold.

(2) On payment of the purchase-money, the officer or other person holding the sale shall grant a receipt for the same, and the sale shall become absolute.

(3) Where the movable property to be sold is a share in goods belonging to the judgment-debtor and a co-owner, and two or more persons, of whom one is such co-owner, respectively bid the same sum for such property or for any lot, the bidding shall be deemed to be the bidding of the co-owner.

The two questions, which require determination by this Court, are:

(1) Whether the sale of the plant and machinery stood confirmed by order dated 30.7.2014 passed by the learned Single Judge, and on deposit of total amount of Rs. 97 lacs by the appellant and its effect?

(2) Whether the application of respondent-M/s Cosmos Technologies for recalling the order dated 30.7.2014 was maintainable, even when the said appellant had not filed any tender, and such application was filed much after the passing of the order dated 30.7.2014?

We shall first consider whether in the teeth of the provisions of Rule 272 and Rule 6 of the Rules, 1959, the provisions of Order XXI Rule 77 of the CPC would be applicable or not. Rule 272 specifically provides for the sanction to be granted by the court for sale of any property belonging to the company, and also for confirmation of every such sale by the court. Rule 6 does provide for applicability of provisions of the CPC (as far as it may be applicable) but the same would be so applicable only where the Companies Act (and the Rules made thereunder) are silent.

In the present case, the matter relates to sale of movable properties of the company, and it has been submitted by the learned counsel for the appellant that since there is no procedure prescribed for the confirmation of such sale of movable property, the provisions of Order XXI Rule 77 of the CPC would automatically come into play and, therefore, once the entire bid amount had been deposited by the appellant, the sale stood automatically confirmed. In support of his submissions, Sri Trivedi learned counsel for the appellant has relied upon several decisions of the various Courts including the Hon'ble Apex Court. While citing the judgment in the case of M/s Valji Khimji and Company Vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited and others 2008, (9) SCC 299, he placed reliance on paragraphs 18, 20, 29 and 30 of the aforesaid judgment. However, we have noticed that in paragraph 11 of the judgment, it has been clearly mentioned that auction sale in that case was confirmed by the High Court on 30.7.2003, which is not the case in hand. Further, we may refer to paragraphs 34 and 35 of the same judgment. Paragraph 35 of the said judgment (which has been relied upon by the learned Single Judge in the order impugned) provides that where the auction is subject to subsequent confirmation by some authority (under the statute or terms of the auction), the same would not be complete, and no rights would accrue, until the sale is confirmed by the said authority. We are in respectful agreement of the same. Hence, this decision is of no help to the appellant.

Sri Trivedi also relied upon a judgment of this Court in Pradeshiya Industrial and Investment Corporation of U.P. Limited Vs. Official Liquidator, 2011 (3) ADJ 244. Referring to paragraphs 19 and 20 of the judgment he submitted that the sale of movable property becomes absolute on the confirmation of the sale on the same day, when the highest bid is accepted. However, in paragraph 22 of the same judgment, it has been noticed that the provisions of C.P.C. or the principles given under it for auction sale are not applicable in so far as the sale of movable properties by the Company Court is concerned, as for which a procedure is provided under the Companies Act, 1956 and the Companies (Court) Rules, 1959.

Certain other decisions were also cited by Sri Trivedi. However, such cases relied upon are mainly on the interpretation of the provisions of C.P.C. or the Sale of Goods Act, 1930. In particular, he placed reliance on the decision of the Madras High Court in the case of Kasturi Commodities Pvt. Ltd. vs. K. Shajahan, (2013) 6 MLJ 456 wherein, after placing reliance on the provisions of Order XXI Rule 77 CPC, it was held that the sale stood confirmed on deposit of the entire bid amount. The said judgement does not consider the provisions of Rule 6 and Rule 272 of the Rules of 1959 and as such, the aforesaid decision would not help the appellant. The provisions for confirmation of sale by the court is clear in Rule 272.

In a catena of decisions, it has been held that the confirmation of sale is necessary for ensuring that a fair price has been obtained from the sale of the property of the company in liquidation. The Apex Court in the case of M/s Navalkha vs. Sri Ramanya Das, 1969 (3) SCC 537 has, in paragraph 6, held as under:-

"6. 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 offeror 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 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 authorised 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 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 interests of the Company and its creditors as well."

The same view was reiterated by the Apex Court in the case of Allahabad Bank vs. Bengal Paper Mills, (1999) 4 SCC 383 and Union Bank of India vs. Official Liquidator, (2000) 5 SCC 274.

The Supreme Court, in the case of Navin Chandra Mafatlal Vs. C.I.T. Bombay, 1955 (1) SCR 829, has opined that the golden rule of interpretation is that words shall be read in the ordinary, natural and grammatical meaning. We cannot, thus overlook the words consciously used in Rule 272 of the Rules which are that "unless the court otherwise orders------ every sale shall be subject to confirmation by the Court". Accordingly, it does not matter whether the property is immovable or movable property and whether it is by way of auction or otherwise, it shall always be subject to confirmation by the Court, unless the Court otherwise orders.

From the above discussion, it is very clear that the provision of Rule 272 of the Rules, 1959 with regard to passing definite order regarding confirmation of sale is mandatory and merely because the offer of Rs. 97 lacs had been accepted by the Company Judge vide its order dated 30.7.2014, the same would not amount to confirmation of sale. In the said order also, the Company Court had provided that the acceptance would be subject to compliance of the terms and conditions of the tender. The relevant extract of Condition No. 3 of the tender reads as under:-

"(3) The sale shall be confirmed subject to the orders of the Hon'ble Court of Judicature at Allahabad and the Hon'ble High Court shall have the right to accept the offers or set aside the sale even after confirmation in favour of the purchasers/bidders and even after purchase consideration was paid, on such terms and conditions as the Hon'ble Court may deem fit and proper in the interest and benefit of creditors/contributories, and all concerned and employees or in the public interest......."

(emphasis supplied)

It is also a settled law that when something is required to be done in a particular manner, the same has to be done in that manner alone. In other words, in case any provision provides for sale to be confirmed by the Court, then the Court is bound and obliged to follow such provision, strictly, in letter and spirit. Any deviation therefrom would vitiate their action. This principle was recognized as for back as in the year 1936 in Nazir Ahmad vs. King-Emperor, AIR 1936 PC 253. The same is being reiterated and followed consistently by the Apex Court in subsequent decisions. Few of them are being referred to as under:-

In Dhananjaya Reddy Vs. State of Karnataka 2001 (4) SCC 9 in para 23 of the judgment the Court held :

"It is a settled principle of law that where a power is given to do a certain thing in a certain manner, the thing must be done in that way or not at all."

In Commissioner of Income Tax, Mumbai Vs. Anjum M.H. Ghaswala 2002 (1) SCC 633, it was held :

"It is a normal rule of construction that when a statute vests certain power in an authority to be exercised in a particular manner then the said authority has to exercise it only in the manner provided in the statute itself."

The judgments in Anjum M.H. Ghaswala (supra) and Dhananjaya Reddy (supra) laying down the aforesaid principle have been followed in Captain Sube Singh & others Vs. Lt. Governor of Delhi & others 2004 (6) SCC 440. In Competent Authority Vs. Barangore Jute Factory & others 2005 (13) SCC 477, it was held :

"It is settled law that where a statute requires a particular act to be done in a particular manner, the act has to be done in that manner alone. Every word of the statute has to be given its due meaning."

In State of Jharkhand & others Vs. Ambay Cements & another 2005 (1) SCC 368 in para 26 of the judgment, the Court held :

"It is the cardinal rule of interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way."

As such, we are of the firm view that in the light of there being a specific provision (Rule 272) with regard to confirmation of the sale by the Court, which, according to us, should be by a positive order of the Court, the provisions of Order XXI Rule 77 CPC relating to the sale of movable property becoming absolute on the purchase-money being deposited, would not be applicable.

As regards the second question of maintainability of the application by M/s Cosmos Technologies, the learned Single Judge, while considering the question of recalling the order dated 30.7.2014, had considered the totality of the circumstances and keeping in view that the offer made by the respondent was more than 13% of the highest bid and also relying on the judgement of the learned Single Judge dated 6.9.2011 in the case of M/s Rajendra Steels Ltd. (Company Petition No. 44 of 1999), the Court had held that ordinarily, after the highest bid had been accepted, such offer should not be entertained, but the fact that the Court is also required to protect the interest of the stakeholders in the company in liquidation, all endeavour should be made to obtain the best price. In the said case of Rajendra Steels Ltd. (supra), after the highest bid had been accepted and then the offer (which was higher by about 13%) was made, the Court accepted the same and permitted bidding between highest bidder and appellant therein, who had offered 13% higher price.

In the present case, the learned Single Judge has rightly not permitted bidding between highest bidder and the respondent only (who had offered more than 13% higher price) but has rightly directed for fresh auction to be held so as to get the best price for Lot-B, for which advertisement has already been issued and tenders invited.

In view of the foregoing discussion, we are of the view that the Company Judge has rightly held that passing of the order dated 30.7.2014 does not mean that the auction sale in question has been confirmed in favour of the appellant, and in the facts of the present case, the application dated 14.8.2014 filed by the respondent-M/s Cosmos Technologies, was correctly entertained by the Company Judge.

Before parting with the case, we may also refer to the decision of the Apex Court in the case of Divya Manufacturing Company (P) Ltd. vs. Union Bank of India, (2000) 6 SCC 69 where it has been held that when a higher price is offered, the Court can, in the interest of the company and its creditors, set aside even a confirmed sale. In the case of LICA (P) Ltd. vs. Official Liquidator, (2000) 6 SCC79, the Supreme Court has, in paragraph 5, held as under:

"5. The 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. The court would, therefore, have to exercise its discretion wisely and with circumspection and keeping in view the facts and circumstances in each case. Once of the terms of the offer in this case is that even confirmation of the sale is liable to be set aside by the High Court as per clause 11 of the conditions of offer. The sale conducted was subject to confirmation. Therefore, mere acceptance of the offer of Mr. Shantilal Malik does not constitute any finality of the auction nor can be automatically confirmed. The appellant offered higher price even now at Rs. 45,00,000. Keeping in view the interest of the Company and the creditors and the workmen to whom the sale proceeds would be applied, the learned Company Judge was right in exercising her discretion to reopen the auction and directing Mr Shantilal Malik as well to make higher offer than what was offered by the appellant. In every case it is not necessary that there should be fraud in conducting the sale, though on its proof the sale gets vitiated and it is one of the grounds to set aside the auction-sale."

In Shradhha Aromatics Private Limited vs. Official Liquidator for Global Arya Industries Limited, (2011) 6 SCC 207; 1996 (8) Company Cases 792; 1996 (8) Company Cases 788, wherein in similar facts, where after accepting the highest bid, still higher price was offered, the Supreme Court held in paragraph 15 as under:-

"15. We have considered the respective submissions and carefully perused the record. Ordinarily, the Court is loathe to accept the offer made by any bidder or a third party after acceptance of the highest bid/offer given pursuant to an advertisement issued or an auction held by a public authority. However, in the peculiar facts of this case, we are inclined to make a departure from this rule. Admittedly, total area of the land advertised by the Committee is 12,500 sq m and the same is situated in an important district of Gujarat. It is also not in dispute that the area has been substantially developed in the last four years. The initial offer made by M/s Patel Agro Diesel Ltd. was of Rs. 83 lakhs and the highest revised offer given before the learned Company Judge was of Rs. 1.27 crores. After acceptance of the revised offer by the learned Company Judge, the appellant stepped in and made an offer to pay Rs. 1.41 crores. The first application filed by it was dismissed but the second application was allowed and the increased offer of Rs. 1.51 crores was accepted by the learned Company Judge vide order dated 27-11-2007. That order did not find favour with the Division Bench, which restored the first order passed by the learned Company Judge. If the order of the Division Bench is sustained, the creditors of the Company are bound to suffer because the amount available for repayment of the dues of the creditors would be a paltry sum of Rs. 1.27 crores. As against this, if the offer made by the intervenor -cum-promoter is accepted, the Official Liquidator will get an additional amount of more than Rs. 4.25 crores. The availability of such huge amount will certainly be in the interest of the creditors including GSIIC. Therefore, it is not possible to approve the order passed by the Division Bench of the High Court. In a somewhat similar case--FCS Software Solutions Ltd. v. Lal Medical Devices Ltd., (2008) 10 SCC 440, this Court approved the acceptance of revised bid of Rs. 3.5 crores given by the appellant with a direction to compensate the earlier highest bidder by payment of the specified amount."

In light of the aforesaid discussion, we are of the view that mere acceptance of the offer made by the appellant for a sum of Rs.97 lacs, would not amount to confirmation of sale, as no specific order with regard to confirmation of sale, had been passed by the Company Judge, and it was rightly held by the learned Single Judge that the sale did not stand confirmed by the said order dated 30.7.2014. We are also of the opinion that in the facts of the present case, the application of the respondent-M/s Cosmos Technologies, whereby an offer of more than 13% higher than the offer of highest bidder was made, was rightly entertained by the learned Single Judge.

We are thus of the view that the order dated 3.9.2014 passed by the learned Single Judge directing for fresh auction is perfectly justified in law and does not call for any interference.

The special appeal is accordingly dismissed. No order as to costs.

 
Dt/- 28.10.2014
 
abhiShek
 

 
(Vivek Kumar Birla, J.)           (Vineet Saran, J.)