Bombay High Court
Everest Fincap Pvt. Ltd vs Krishna Relaors And 15 Others on 28 August, 2017
Bench: B.R. Gavai
WP. 2509-08
VPH
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION No. 2509 OF 2008
Everest Fincap Pvt. Ltd., )
a company incorporated )
under the Companies Act, 1956, )
formerly having its office at )
Everest Square Junction of )
Shraddhanand & Nehru Road, )
Vile Parle(East), Mumbai-400 057 )
and now at Everest Developers, )
5th floor, Anand Nagar, Sai Vihar )
Complex, Ghodbunder Road, )
Kasar Vadavli, Thane (W), 400 601 ... Petitioner
Verses
1. Krishna Realtors, )
a sole proprietary concern of )
Mr. Dilip Hariyani, having its office
at 1, Homestead, 16, Dattatraya )
Road Santacruz (W), 400 054 )
2. Premanarian Harinaranji Lakhani )
of Nagpur, Indian Inhabitant, )
residing at Old Sewa Sadan )
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Building, Dhantoli, Nagpur )
3. United Commercial Bank, )
a body corporate constituted under )
the Banking Companies )
(Acquisition & Transfer of )
Undertakings) Act 1970 having its )
head office at 10, Brabourne Road, )
Calcutta and its main office at UCO
Bank Building, Dr. D. N. Road, )
Mumbai 400 023 )
4. Bank of India, )
a body corporate constituted under )
the Banking Companies (Acquisition
& Transfer of Undertakings) )
Act 1970 having its head office )
at M.G. Road, Mumbai 400 001 )
5. M. Ramnarian Private Ltd., )
a Private Limited Company )
incorporated and registered under )
the provisions of the Companies Act,
1956 and having its Registered )
Office at Eucharistic Congress )
Building, 5th Convent Street, P. B. )
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No.1800, Colaba, Mumbai-400 005)
5(i) Dr. (Mrs.) Nadini Atul Nathwani )
of Bombay Indian Inhabitant, )
residing at 8/A, Jeevan Nepeansea )
Road, Bombay 400 006. )
5(ii) Mrs. Uma Maharajsingh Mehta )
of Indian Inhabitant, residing at )
C/o. Dr. Maharajsingh Mehta, )
Senior Consultant (an employee) )
The International Hospital, P.O. Box
No.1084, Bahrain )
6. Shyam Madanmohan Ruia, )
of Bombay Indian Inhabitant, )
residing at 96, L. Jagmohandas )
Marg, Bombay- 400 006 )
7. Shyam Madanmohan Ruia, )
of Bombay Indian Inhabitant, )
residing at 96, L. Jagmohandas )
Marg, Bombay- 400 006 )
8. Dr. (Mrs.) Nandini Atul Nathwani )
of Bombay Indian Inhabitant, )
residing at 8/A. Jeevan Nepeansea )
Road, Bombay-400 006 )
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9. Mrs. Uma Maharajsingh Mehta )
of Indian Inhabitant, residing at )
C/o. Dr. Maharajsingh Mehta, )
Senior consultant (an employee) )
The International Hospital, P.O. Box
No. 1084, Bahrain. )
10. Kishnakumar Chatrabhujadas )
Karnani of Bombay Indian )
Inhabitant, residing at 19/13, )
Vithoba Lane, Vithalwadi, )
Bombay-400 002 )
11. Madhusudan Dayal Karnani, )
of Bombay an adult Indian )
inhabitant, residing at 19 / 23, )
Vithoba Lane, Vithalwadi, )
Bombay 400 002 )
12. Smt. Madhuri Madhusudan Karnani
of Bombay an Indian inhabitant, )
residing at 19/23, Vithoba Lane, )
Vithalwadi, Bombay 400 002 )
13. Navneet Madhusudan Karnani, )
of Bombay an Indian inhabitant, )
residing at 19/23, Vithoba Lane, )
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Vithalwadi, Bombay 400 002 )
14. Ms. Urvashi Madhusudan Karnani )
of Bombay an adult Indian )
inhabitant, residing at 19 / 23, )
Vithoba Lane, Vithalwadi, )
Bombay 400 002 )
15. Bombay Municipal Corporation )
of Greater Bombay, )
a body corporate constituted under )
the Municipal Corporation Act, )
1888 having its Head office at )
Mahapalika Marg, Fort, )
Bombay 400 001 )
16. The Official Liquidator, )
High Court, Bombay, )
being Liquidator of M/s. Bradbury )
Mills Limited (in liquidation having
his office at 5th floor SBI Building, )
M. G. Road, Fort, Mumbai 400 021... Respondents
***
Mr. P. Chidambaram, Sr. Counsel a/w Pravin Samdhani, Sr. Counsel,
a/w S. U. Kamdar, Sr. Counsel, Dhawal J. Mehta, Swapnil Khatri,
Chirag Kamdar, Krishna Moorthy, Abilash Pradhan, Amogh Singh i/b
M/s. Wadia Ghandy & Co. for the Petitioner.
Mr. S. S. Dube a/w Nagendra Dube, for the Respondent No. 1.
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Mr. J. P. Cama, Sr. Counsel a/w Gautam Mehta, Devanshu P. Desai,
for Respondent No. 2.
Mr. Prasad Dani, Sr. Counsel a/w Bidan Chandran, Ms. Sarojini Patil
i/b Ms. Poonam Utekar, for Respondent No. 3.
Ms. Pooja Batra i/b M/s. Bodhanwalla & Co. for Respondent No. 4.
Ms. Pooja Kshirsagar Wagle, for Respondent Nos. 5 to 9.
Mr. Girish Godbole, Sr. Counsel a/w Karl Shroff, Bimal Bhabhda, for
Respondent No. 10.
Mr. B. B. Parekar a/w Dr. Deepti Mukesh for Official Liquidator for
Respondent No. 16.
***
CORAM : B. R. GAVAI, &
RIYAZ I. CHAGLA , JJ.
RESERVED FOR JUDGMENT ON : AUGUST 4, 2017
JUDGMENT PRONOUNCED ON : AUGUST 28, 2017
JUDGMENT [PER : B. R. GAVAI, J.]
1 The Petitioners have approached this Court being
aggrieved by order dated 22nd August, 2008 passed by the Debt
Recovery Appellate Tribunal, Mumbai (for short "DRAT") in Misc.
Appeal No. 36 of 2006 and 52 of 2006, arising out of the order dated
29th November, 2005 passed by the Debt Recovery Tribunal (for short
"DRT").
2. The facts in brief of which the present petition arises are
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as under:
3. The immovable property, which is subject matter of the
present petition, is situated at 51, Maulana Azad Road, Gadge Maharaj
Chowk, Mumbai admeasuring 28,437.29 sq. mts. (hereinafter referred
to as the "said property") belonging to M/s. Bradbury Mills Ltd.
(hereinafter referred to as the "said Company). It appears from the
record that originally the management of the said Company was with
Ruia Group i.e. Respondent Nos. 5 to 9. The management of the said
Company somewhere in June, 1975 came to be transferred to Karnani
group i.e. Respondent Nos. 10 to 14. The said Company was
advanced a loan by Respondent No. 3 - United Commercial Bank (for
short "UCO Bank") and Respondent No. 4 Bank of India (for short
"BOI"). The Ruia group as well as Karnani group had executed
security documents to secure the amounts advanced by the
Respondent Banks. The Respondent Bank issued notices dated 28th
April, 1978 to deceased Ashok Karnani as well as Respondent Nos.
10, 11 and Premnarayan Lakhani (Respondent No. 2 herein),
demanding payment of the amounts mentioned in the said notices in
the capacity as guarantors. On non payment of the said amount, UCO
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WP. 2509-08
Bank filed suit No. 597 of 1978 on 3rd May 1978 (hereinafter referred
to as the "UCO suit") in this Court, praying for a decree for recovery
of Rs. 13.63 crores with further interest and for sale of mortgaged
property, etc. In the said suit, the said Company, Ruia group and
Karnani group, the BOI and the Municipal Corporation of Greater
Mumbai (for short the "MCGM") were added as defendants.
Respondent No. 2 Premnarayan Lakhani was defendant No. 7,
whereas Ashok Kumar Karnani was Defendant No. 9.
4. In the year 1984, BOI, which is another secured creditor
also filed a suit being Suit No. 2648 of 1994 (hereinafter referred to as
the "BOI suit") against the Company and the guarantors for a decree
for recovery of sum of Rs. 3.19 crores with interest @ 15% p.a. with
quarterly rests.
5. Vide order dated 9th May, 1978 Court Receiver came to
be appointed in the suit and he was directed to take possession in
respect of all assets of the said Company, including the said property.
6. In the year 1982 Company Petition No. 1 of 1982
(hereinafter referred as the "Company Petition")came to be filed
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before this Court for winding up of the the Company by one Pravin G.
Shah. Vide order dated 27th January, 1983 the Company was ordered
to be wound up and the Official Liquidator was appointed. As such, in
UCO suit and BOI suit in place of Defendant No. 1, Official
Liquidator came to be substituted.
7. On 17th August, 1983 Court Receiver took physical
possession of all assets of the Company including the said property.
8. On 20th September, 1984 the MCGM filed an application
in UCO Suit praying that the Court Receiver be directed to discharge
the statutory dues / arrears of taxes amounting to Rs. 30,98,129/-, or in
the alternative it has prayed for permission to attach and sell the said
property to recover the said dues. The said application came to be
allowed on 29th March, 1985. The Court Receiver announced the
auction of the said property, which was scheduled to take place on 21 st
of January, 1995. On 23rd December, 1994 the Court Receiver
addressed a letter to the Advocates of UCO Bank about the auction
sale on 21st January, 2005. On 16th December, 1994 deceased Ashok
Kumar Karnani alongwith one Mr. Govind Sarda and another filed
Notice of Motion No. 3066 of 1994 in UCO Suit (hereinafter referred
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to as the "Revival Application"), proposing - (a) scheme for revival of
the Company (in liquidation); (b) offer to deposit an amount of Rs.50
crores (Rs. 38 crores to UCO Bank and Rs.12 Crore to BOI); (c) for
injunction restraining the Court Receiver from auctioning the said
property.
9. In 1995 the Defendant No. 4 in the suit (Respondent No.
7 herein) filed an affidavit to oppose the revival application. On 12th
January, 1995 an order was passed by the Company Judge in the
Revival Application recording the undertaking of Ashok Kumar
Karnani that - (a) he shall deposit a sum of Rs. 50 crores on or before
31st of May, 1995; and (b) out of said amount he was prepared to pay
Rs. 2 crores in this Court prior to 19th of January, 1995. It was stated in
the undertaking that in the event he fails to pay the balance Rs. 48
crores on or before 31st of May, 1995, the amount of Rs. 2 crores may
be forfeited. Accordingly, Ashok Kumar Karnani deposited Rs. 2
crores on 18th January, 1995. On 19th January, 1995 the order was
passed in the UCO suit allowing the revival application by directing
Ashok Kumar Karnani to deposit balance amount of Rs. 48 crores on
or before 31st of May, 1995. As such, auction of the property came to
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be stayed and the Court Receiver was directed not to proceed with the
auction and return all the offers received by it. Since Ashok Kumar
Karnani failed to deposit amount of Rs. 48 crores, the learned
Company Judge of this Court dismissed the Revival Application on
12th January, 1996.
10. After the enactment of the Recovery of Debts Due to the
Banks and Financial Institutions Act, 1993, the UCO suit as well as
BOI suit came to be transferred to the learned DRT. UCO suit came to
be numbered as Original Application No. 124 of 2001 (for short "UCO
O.A.") and the BOI suit came to be numbered as Original Application
No. 745 of 2001 (for short "BOI O.A."). On 21 st March, 2001 since
the amounts were outstanding for more than 26 years, the UCO Bank
and BOI settled the matter with Ruia Group. Under the settlement
UCO Bank accepted the amount of Rs. 1,50,00,000/- and BOI
accepted an amount of Rs. 40,00,000/- and the Ruia Group was
discharged as guarantors.
11. On 11th of March, 2003 the learnedDRT passed an order
that proceeding of UCO O.A. shall proceed exparte against Prem
Lakhani (Respondent No. 2 herein).
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12. It is the contention of the Petitioner that Ashok Kumar
Karnani was spearheading the settlement / efforts so as to discharge
the guarantees of the Karnani Group which owed maximum amount
with guarantees to UCO Bank and BOI. In an attempt to discharge the
liability of the Karnani Group, Ashok Kumar Karnani approached
Everest Fincap Pvt. Ltd (Petitioner herein) and entered MOU with
the Petitioner. On 11th August, 2003 the learned DRT passed the order
directing the Court Receiver of this Court to hand over possession of
the property to DRT Receiver.
13. In the UCO O.A., UCO Bank filed the valuation report of
the said property wherein said property was valued at Rs. 76.46 crores
by valuer Mr. Shekhar Thite. It is further contention of the Petitioner
that on 27th July, 2004 Ashok Kumar Karnani again approached the
UCO Bank with an OTS proposal to settle all outstanding dues of
UCO Bank for Rs. 5.86 crores. On 25.10.2004 UCO Bank rejected the
said proposal. In the said proceeding on 8 th July, 2004 one M/s.
Siddhesh Construction submitted a proposal to the DRT Receiver
offering Rs. 70 crores for the said property subject to certain
conditions.
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14. On 28th August, 2004 the DRT Receiver took over
possession of the said property from the High Court Receiver. It
appears that to consider the proposal of the Karnani Group, the UCO
Bank was directed to submit a valuation report of DRT empanneled
valuer. Accordingly, the Petitioner obtained the valuation report from
M/s. M. B. Sabnis & Co., who valued the property at Rs. 39.95 crores.
On 24th January, 2005 Ashok Kumar Karnani submitted a revised offer
of Rs. 22 crores. On 23rd February, 2005 the Board of Directors of
UCO Bank agreed to accept Rs. 22 crores in full and final settlement if
the payment was made by 31st of March, 2005. Similarly, on 24th
March, 2005, BOI agreed to accept Rs. 5crores in full and final
settlement of its dues only if the payment was done by 31st of March,
2005. The proceedings of UCO O.A. was adjourned for settlement.
15. On 31st of March, 2005 UCO Bank filed an application
before the DRT in UCO O.A. being Exhibit 156 to bring on record the
composite settlement and the payments and sale of the said property to
Everest. Vide order dated 31st March, 2005, the Presiding Officer,
DRT Hemant T. Sampat of the DRT confirmed the sale of the said
Property to Everest. The order records that -
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(a) the Everest had paid sum of Rs. 22 crores to UCO
Bank and a sum of Rs. 5 crores to BOI being the only
two secured creditors ;
(b) the undertaking of the Everest to pay a sum of Rs. 14
crores to the Official Liquidator towards the statutory
dues and other liabilities of the Company;
(c) undertaking of the Everest to pay further monies to
the Official Liquidator if he makes the demand for
the same within six months from the date of the order.
The learned DRT directed the Receiver to hand over
possession of the said property to the Petitioner. It also directed the
DRT Registrar to execute the deed of conveyance in favour of the
Everest after it presents receipt from the Official Liquidator of
payment of Rs. 14 crores. Accordingly, an amount of Rs. 14 crores
was paid to the Official Liquidator on 11th of April, 2005. On 27th of
April, 2005 Everest paid Rs. 41 lakhs as poundage fees to the DRT
Receiver. On 27th April, 2005 Sale Certificate was issued by the DRT
Registrar to the Everest. On 28th of April, 2005 Registrar DRT-1,
Mumbai executed a deed of conveyance of the sad property in favour
of Everest.
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WP. 2509-08
16. It appears that on 28th April, 2005, Respondent No. 1 filed
Miscellaneous Application No. 88 of 2005 for its impleadment as
party to the proceeding and for setting aside the sale in favour of the
Petitioner. In the said application, it was stated that Respondent No. 1
was willing to purchase the said property for Rs. 45 crores.
17. Pursuant to the orders passed by the DRT dated 31st
March, 2005, the DRT Receiver handed over possession of the said
property to the Everest. The UCO bank also handed over the title
documents of the said Property and share certificates of the Company
to Everest on 3rd May, 2005. The Sub-Registrar of Assurances,
Mumbai registered the conveyance of the said property in favour of
Everest on 4th May, 2005. On 5th May, 2005 Ashok Kumar Karnani
expired leaving behind him, his legal heirs. It further appears that on
23rd June, 2005 a letter came to be addressed by one M/s. Siddhesh
Construction to the Official Liquidator offering Rs. 60 crores for the
said Property. It further appears that after death of Ashok Kumar
Karnani, a Memorandum of Understanding came to be executed
between Everest (Petitioner herein) on one hand and the Respondent
No. 10 Krishna Kumar Karnani and members of the Karnani family,
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on the other hand for performance of obligations, as contained in
MOU dated 2nd April, 2003.
18. On 1st of September, 2005 a Miscellaneous Application
came to be filed by Respondent No. 2 herein which was numbered as
Exhibit 183, praying for setting aside the order passed by the DRT
dated 31st March, 2005 and the consequential reliefs. It was contended
in the said application that Respondent No. 2 was in a position to bring
purchaser for an amount of Rs. 80-85 crores for the said property. It
was also contended that the Official Liquidator could not have given
consent for sale of the said property by private treaty without
obtaining permission from the High Court. It was contended that
fraud was perpetuated upon the learned Tribunal and on him by
rushing through the sale on the same day. It appears that in the
meantime, the Official Liquidator had made an application in
Company Petition for a direction to Everest to deposit Rs.54,67,014/-
to discharge the dues towards MCGM. Accordingly, an order came to
be passed on 15th September, 2005 by the Company Court. In
pursuance of the said order, on 22nd September, 2005 the Petitioner
made payment to the Official Liquidator of the aforesaid amounts.
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19. The Petitioner opposed the application filed by
Respondent No. 2. It further appears that in the meantime,
Respondent No. 1 had also filed an application for intervention, which
was exhibited as Exhibit 167. A common order came to be passed on
29th November, 2005, setting aside the order dated 31st of March,
2005. However, the DRT conditionally set aside the sale in favour of
Petitioner, on the condition of Respondent No. 1 or Respondent No. 2
depositing Rs. 45 crores + Rs. 50,000/- in the DRT within two
weeks from the date of the said order. It was further directed that on
such an amount being deposited, the Recovery Officer shall invest the
deposited amount in the fixed deposit receipt with the applicant Bank.
The learned DRT further directed to put the said property for public
auction after having the same valued from a panel valuer of the
Tribunal. Various other directions were also issued with regard to
disbursement of amount of Rs. 45 crores.
20. Being aggrieved by the order passed DRT, Respondent
No. 2 filed Miscellaneous Appeal No. 52 of 2006 before the DRAT,
challenging the condition of deposit of amount for setting aside the
sale. Respondent No. 1 also filed Miscellaneous Appeal No. 36 of
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2006. On 22nd August, 2008 impugned order came to be passed by the
learned DRAT in Miscellaneous Appeal No. 36 of 2006 as well as
Miscellaneous Appeal No. 52 of 2006. The learned DRAT set aside
the condition of deposit of Rs. 45 crores imposed on both the
appellants. However, insofar as appeal of Respondent No. 1 Krishna
is concerned, the said appeal was allowed on a condition of giving bid
in the sum of Rs. 76.50 crores at the public auction to be held, with a
further condition that he should furnish bank guarantee in the sum of
Rs. 7.65 crores within a period of one week from that date. The
learned DRAT further directed that in the event Respondent No. 1
does not furnish bank guarantee within a period of one week, he shall
be disqualified from giving bid at the public auction. Insofar as other
clauses viz. 4 to 8 and 11 in the impugned order are concerned, they
are retained by the learned DRAT.
21. Being aggrieved by the said order dated 22nd August,
2008, the Petitioner has approached this Court. On 15 th of October,
2008 this Court issued notices and also granted stay to the orders
passed in the appeals. Vide order 20 th July, 2010 this Court granted
rule in the petition, and the interim relief in terms of prayer clause (b).
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It further appears from the record that on 12 th February, 2014 the
Division Bench of this Court had commenced hearing of the said
petitions. However, it observed that in view of pendency of Special
Leave to Appeal (Civil) No. 16116 of 2006 in the Apex Court, it
would not be appropriate to proceed further with hearing of the
petitions. It appears that vide order dated 9 th May, 2014 Their
Lordships of the Apex Court clarified that the matter pending in the
Apex Court has no bearing on the issue, and therefore, required this
Court to dispose of the pending writ petitions as expeditiously as
possible.
22. It appears that in the meantime, the order passed by the
learned DRAT impugned herein was also challenged in this Court by
Respondent No. 1 in Writ Petition No. 2857 of 2008. The said petition
came to be dismissed on 4th of August, 2010. It appears that in the
meantime even during pendency of the proceeding before the DRAT
in the appeals filed by Respondent Nos. 1 and the Respondent No. 2,
the Present Petitioner had filed Misc. Application No. 70 of 2006 for
setting aside the order dated 29th November, 2005 passed by the DRT.
He filed an application for expunging various observations in the said
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order. The said application was allowed by the DRT vide order dated
29th January, 2010. Respondent No. 2 herein being aggrieved by the
said order filed Appeal No. 18 of 2010. Vide judgment and order
dated 12th May, 2010 the said appeal came to be allowed by the
learned DRAT. Being aggrieved thereby, the present petitioner has
preferred Writ Petition No. 1486 of 2010. However, when the present
petition on 3rd August, 2007 was being heard the learned counsel for
the Petitioner on instructions of the Petitioner sought leave to
withdraw the said petition. The said petition, as such, was disposed of
as withdrawn. It is further to be noted that the present Petitioner had
also preferred an appeal challenging the order dated 29 th of November,
2005 before the DRAT by filing Appeal No. 90 of 2010 on 22 nd March,
2010, alongwith an application for condonation of delay, being
Miscellaneous Application No. 353 of 2010. Vide order dated 28 th
April, 2010 learned DRAT dismissed the said application for
condonation of delay alongwith Appeal No. 90 of 2010. Being
aggrieved thereby, the Petitioner has filed a petition, being Writ
Petition No. 1487 of 2017. The Petitioner being aggrieved by the order
of same date passed in Miscellaneous Application No. 371 of 2010
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alongwith Appeal No. 96 of 2010 has also filed Writ Petition No. 1488
of 2010. The 4th petition i.e. Writ Petition No. 1444 of 2011 filed by
Respondent No. 2 challenging that part of the order passed by the
learned DRAT dated 29th of November, 2005, by which clauses 5, 6
and 7 of the said order have been confirmed and prayed for quashing
and setting aside the said clauses.
23. We have heard the matter at length on 2nd, 3rd and 4th of
August, 2017. Mr. P. Chidambaram, learned senior counsel has
advanced the arguments on behalf of the Petitioner. Mr. P.
Chidambaram has assailed the impugned order on several grounds.
He submitted that Section 17 of the said Act enables only the banks
and financial institutions to approach the DRT. The learned counsel
further submits that perusal of Section 22 of the said Act provides that
the tribunal and appellate tribunal shall not be bound by the procedure
laid down by the CPC but would be guided by the principles of natural
justice. The learned senior counsel further submitted that Order 23 of
the CPC allows DRT to record the compromise entered into between
the parties. He submits that the legislature by adding sub-section
(20A) to section 19 has made legislative intent clear that when claim
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WP. 2509-08
of the applicant has been adjusted by a lawful agreement or
compromise in writing and signed by parties, the Tribunal shall pass
orders recording such agreement, compromise for the satisfaction of
the claim. It is therefore, submitted that when a lawful compromise
was entered into between the parties viz. the lender Banks, Ashok
Kumar Karnani and the Petitioner, which was recorded in the order
dated 31st of March, 2005, there was no occasion for the DRT to
review the said order by passing order on 29 th of November, 2005.
Mr. P. Chidambaram also submitted that the learned Tribunal had also
passed an order of proceeding exparte against Respondent No. 2. He
submitted that unless Mr. Lakhani had applied for setting aside
exparte order, and such an application was allowed, the review
application could not have been entertained.
24. The learned senior counsel further submits under Rule 5A
of the Debts Recovery Tribunal (Procedure), Rules 1993 (hereinafter
referred to as the "said Rules"), a party could have applied for review
of the order only if the order was made by the Tribunal on account of
some mistake or error apparent on the face of the record, only when
the order made was against such a party. The learned counsel submits
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that there was no order against Respondent No. 2, but as a matter of
fact, the order was in favour of the Respondent No. 2, inasmuch as by
the order dated 31st March, 2005 the guarantee of the Respondent No.
2 stood discharged.
25. The learned senior counsel further submitted that
Respondent No. 2 having filed an application for condonation of delay
in filing the application for review, unless the said application was
decided and allowed, the learned DRAT could not have proceeded to
entertain application of Respondent No. 2. The learned senior counsel
relying on sub-rule (2) of Rule 5A of the said Rules submits that
unless the application for review is made within 60 days, the same
could not have been entertained. The learned senior counsel further
submits that in view of the judgment of this court in the case of -
Madhukar Govindrao Rao Vs. Central Bank of India1 this Court could
not have condoned the delay and as such the order passed by the
learned DRAT is without jurisdiction.
26. The learned senior counsel further submitted that even on
merits the orders passed by both, viz. DRT as well as DRAT are not
1 2012(1) Mh.L.J. 209
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sustainable. He submits that there is no finding of fraud. The only
ground while reviewing the order given by the DRT is that the sale
proceeds were rushed through the same day. The learned senior
counsel further submits that since the order of the learned DRT dated
29th of November, 2005 was a conditional order directing deposit of
Rs. 45 crores within a specified period, on account of Respondent No.
1 and Respondent No. 22 not complying the conditions, the said order
became ineffective and the earlier order dated 31st of March, 2005
stood restored.
27. The learned senior counsel further submits that the orders
passed by the learned tribunal are self contradictory. It is submitted
that though the DRT observes that Defendant No. 7 (Respondent No. 2
- Lakhani) is beneficiary, still application (Exhibit 183) is entertained
at his behest. The learned senior counsel further submitted that there
is no word of "fraud" used by the learned DRT. The learned senior
counsel further submits that insofar as the reasoning given by the
learned tribunal that the Petitioner had not filed appeal challenging the
order dated 29th of November, 2005 and therefore, it was not entitled
to challenge the part of the order against it is also totally erroneous.
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He further submits that since Respondent Nos. 1 and 2 had failed to
deposit an amount of Rs.45 crores within a period of two weeks from
the date of order dated 29th of November, 2005, the said order had
become ineffective, and therefore, there was no occasion for the
Petitioner to challenge the same. The learned senior counsel further
submitted that in any case, in view of provisions of Order 41, Rule 22
and 33 of C.P.C., the Petitioners were entitled to challenge in an
appeal filed by the other party that part of the order, which was against
him. The learned senior counsel submits that the findings given by the
learned DRAT that an offer of Rs. 50 crores was received earlier is
also incorrect inasmuch as the Court Receiver has on 23rd of March,
2009 vide communication has stated that no such offer was received.
The learned senior counsel further submits that the finding with regard
to the offer given by M/s. Siddhesh Construction is also totally
incorrect inasmuch as offer of Rs. 60 crores was conditional and he
has not complied condition of deposit.
28. The learned senior counsel further submitted that insofar
as the finding given with regard to contradictory report by Mr. Thite ,
the same is also incorrect. It is submitted that in any case the report
25 / 78
WP. 2509-08
given by Mr. Thite was obtained by the UCO Bank. In the second
report, he has given cogent reasons as to why he has reduced valuation
to Rs. 36.34 crores. The learned counsel further submitted that the
finding given by the DRAT with regard to concession of lawyer for the
Petitioner, is also incorrect. It is firstly stated that no such concession
was given, and secondly, no such concession given against the law is
binding on the party.
29. The learned senior counsel further submitted that the
guarantors and shareholders of a company cannot challenge the lawful
compromise arrived at by the company. The learned senior counsel
further submitted that the finding given that the Official Liquidator
had not obtained permission of the High Court is also incorrect. He
further submits that finding of fraud could not have been given only
on the ground of suspicion and inadequacy of consideration. The
learned senior counsel further submitted that official liquidator was
present when the compromise was arrived at, and as such, the finding
in that regard is also incorrect. The learned senior counsel has relied
on judgments in the cases of - (i) Bakul M. Kapadia Vs. Bank of
26 / 78
WP. 2509-08
India1; (ii) R. Dilip Kumar Vs. Karnataka State Finance Corporation
& Ors.2 (iii) Shyamlal Purohit & Anr. Vs. Jagannath Ray & Anr. 3 (iv)
N. G. George Vs. Shirly Varkey & Ors. 4 in support of his contention
that Respondent Nos. 1 and 2 have no locus to approach the learned
tribunal.
30. The learned senior counsel further submits hat
Respondent No. 2 having permitted lawful compromise to go ahead
and having taken advantage of the lawful compromise, now cannot be
permitted to approbate and reprobate. The learned senior counsel
relied on the judgments in the cases of - (i) Cauvery Coffee Traders
Vs. Hornor Resources Company5; (ii) Rajasthan State Industrial
Development and Investment Corporation Vs. Diamond & Gem
Development Corporation Ltd.6; (iii) State of Punjab Vs. Dhanjit
Singh Sandhu7 in support of his proposition.
31. The learned senior counsel relied upon the judgments of
the Apex Court in the case of - Elizabeth Jacob Vs. District Collector8
1 (1997) 88 Company Cases Volume 515
2 2009 (149) Company Cases 427
3 (1970) 40 CC 138 (Cal)
4 2009 (1) KLJ 899
5 2011 (10) SCC 420
6 2013 (5) SCC 470
7 2014 (15) SCC 144
8 2008 (15) SCC 166
27 / 78
WP. 2509-08
in support of proposition that the suspicion cannot take place of a
proof. He also relied on the judgment of the Apex Court in the case of
- Rajendra Singh Vs. Ramdhar Singh1 in support of the proposition
that inadequacy of price cannot be a ground to set aside the sale.
32. The learned senior counsel further relied on the judgment
of the Apex Court in the cases of - (i) Naresh Kumar Vs. Department
of Atomic Energy2; (ii) Ram Prakash Agrawal Vs. Gopi Krishnan3;
(iii) Shivanand Baswanti Vs. Laxmi Vishnu Textile Mills 4 in support of
the proposition that settled matters cannot be unsettled at the behest of
the strangers.
33. The learned senior counsel further relied on the
judgments of the Apex Court in the cases of - (i) Rajasthan State
Financial Corporation Vs. Official Liquidator5; (ii) Bank of
Maharashtra Vs. Pandurang6 in support of the proposition that
consent of official liquidator is not required. The learned senior
counsel relied on the judgment of the Apex Court in the case of
1 2001( 6) SCC 213
2 2010 (7) SCC 525
3 2013 (11) SCC 296
4 2008 (13) SCC 323
5 2005 (8) SCC 190
6 2013(7) SCC 754
28 / 78
WP. 2509-08
Rajendra Prasad Gupta Vs. Prakash Chandra Mishra 1 in support of
the proposition that DRT can record a lawful compromise.
34. The learned senior counsel further relied on the judgment
of the Division Bench of this Court in the case of - Madhao Sarode
Vs. Jotiba Dhyan Upasak Shikshan Sanstha, Dudhala 2 in support of
the proposition that without condonation of delay, substantive matter
does not exist and as such cannot be heard.
35. Mr. P. S. Dani, learned senior counsel appearing on behalf
of Bank of India submits that the said property was a custodia legatis
for more than 20 years. It is submitted that though certain offers were
made for purchase of the said property, none of the offers were found
to be bonafide. He submits that, finding that the offer was bonafide
and that the claims of everyone, including the employees and the other
creditors were being settled, the Bank took a decision to settle the
matter. He submits that the highest authority of the Bank i.e. the
Board of Directors had passed a resolution in that respect. It is
submitted that one of the major factors for accepting the compromise
was that Petitioner herein was willing to make a payment of a huge
1 2011 (2) SCC 705
2 2004 Vol. 106 (4) Bom. L.R. 407
29 / 78
WP. 2509-08
amount within a short period i.e. prior to 31 st March, 2005. He
submits that 31st March, 2005 is a significant date insofar as the Banks
are concerned, inasmuch as the said date is last date of the financial
year. It is therefore, submitted that the order passed by the DRT on
29th of November, 2005 as well as the order of the DRAT, impugned in
the present petition, are both not sustainable in law.
36. Mr. Cama, learned senior counsel appearing on behalf of
Respondent No. 2 submits that the very conduct of rushing through the
sale on the same day by the Petitioner alongwith the Bank and the
deceased Ashok Kumar Karnani, disentitle them to equitable relief
under Article 226 of the Constitution of India.
37. The learned senior counsel submits that the material
placed on record would clearly reveal that the price at which the
matter is settled is much less than the price at which the said property
was agreed to be purchased by the present Petitioner. He further
submits that few days earlier to the date on which the matter was
settled, the Respondent UCO Bank had rejected the proposal for
settlement. It is submitted that perusal of the order dated 31 st March,
2005 would show that in the compromise arrived at between the
30 / 78
WP. 2509-08
Petitioner, the banks and the said Ashok Kumar Karnani, there was
much more than what meets the eye. The learned senior counsel
submits that the value at which the property was sought to be sold vide
order dated 31st of March, 2005 was grossly inadequate, and as such,
the learned DRT had rightly passed the order dated 29 th of November,
2005 . Reliance is placed on the judgment of the Apex Court in the
case of - Divya Manufacturing Co. (P) Ltd. Tirupati Wollen Mills
Shramik Sangharsha Samity & Anr. Vs. Union Bank of India & Ors.1.
38. The learned senior counsel further submits that if the
learned DRT found that the order passed earlier, was due to
suppression, then there was no occasion for it to impose condition of
pre-deposit. He therefore, submits that the order of the learned DRAT
in setting aside the same warrants no interference.
39. The learned senior counsel further submits that notice to
the official liquidator is necessary to ensure that the properties of the
company are sold at the real market value, and not at an inadequate
value. In this respect, learned senior counsel placed reliance on the
judgments of the Apex Court in the cases of - (i) Rajasthan State
1 (2000) 6 Supreme Court Cases 69
31 / 78
WP. 2509-08
Financial Corporation & Anr. Vs. Official Liquidator & Anr. 1; and (ii)
Pravin Gada & Anr. Vs. Central Bank of ndia & Ors. 2 and the
judgment of the learned Single Judge of this Court in the case of -
Engineering Workers Union Vs. Official Liquidator & Ors.3.
40. The learned senior counsel further submits that conduct
of the Petitioner itself disentitles it for equitable jurisdiction of this
Court under Article 226 of the Constitution of India. The learned
senior counsel further submits that the Petitioner even when it was
contesting the appeal (filed by Respondent No. 2) had surreptitiously
filed an application for review of the order of DRT dated 29 th of
November, 2005 and not only that but the said review application was
allowed by the DRT on 29th January, 2010 after the appeals of
Respondent No. 1 and Respondent No. 2 were decided by the learned
DRAT on 22nd August, 2008. However, the learned DRAT rightly
reversed the said order. It is submitted that not only that, but the
Petitioner has subsequently filed an appeal challenging the order of
DRT dated 29th November, 2005 alongwith application for
condonation of delay. It is submitted that said application and appeal
1 (2005) 8 SCC 190
2 (2013) 2 SCC 101
3 [C. A. (L) No. 899/2004 in C. P. No. 613 of 1984, dated 20th January, 2005]
32 / 78
WP. 2509-08
is rightly rejected by the learned DRAT. It is further submitted that
Petitioner in collusion with deceased Ashok Kumar Karnani had
suppressed the real value of the said property and got it sold at much
lesser price so as to defeat rightful claim of nationalised banks. It is
submitted that if the property was sold at the real market value, apart
from the nationalised bank / public banks' getting their legitimate
claim, the surplus would have gone to the company, which could have
been distributed amongst shareholders. It is therefore submitted that
present petition at the behest of such petitioner deserves to be
dismissed. Reliance in this respect is placed on the judgment of the
Apex Court in the cases of - (i) MCD Vs. State of Delhi & Anr. 1; (ii)
K. D. Sharma Vs. Steel Authority of India & Ors. 2 (iii) Dalip Singh Vs.
State of Uttar Pradesh & Ors.3; (iv) Prestige Lights Ltd. V. SBI4 .
41. The learned senior counsel further submits that since part
of the order dated 29th November, 2005 which is adverse to the
Petitioner was not assailed by it before the DRAT, the contention that
in appeal filed by Respondent No. 2, it could have assailed that part of
1 (2005) 4 Supreme Court Cases 605
2 (2008) 12 Supreme Court Cases 481
3 (2010) 2 Supreme Court Cases 114
4 (2007) 8 SCC 449
33 / 78
WP. 2509-08
the decree, is also without substance. Reliance in this respect is placed
on the judgment of the Apex Court in the cases of - (i) Banarsi & Ors.
Vs. Ram Phal1; (ii) Harvinder Singh Vs. Paramjit Singh & Ors.2.
42. The learned senior counsel further submits that in the
event this Court allows the petition and sets aside the order of the DRT
and DRAT the effect would be restoring the order dated 31 st of March,
2005 which order is per se illegal. The learned senior counsel further
submits that in view of the judgment of the Apex Court in the case of
- Maharaja Chintamani Sarannath Shahdeo Vs. State of Bihar &
Ors.3, the same would not be permissible.
43. Mr. Girish Godbole, learned senior counsel appearing on
behalf of Respondent No. 10 submitted that order of 31 st March, 2005
is a nullity. He submitted that application made by Respondent No. 1
was governed by the provisions of sub-section (25) of Section 19 of
the said Act. It is therefore, submitted that it would be governed by
Article 137 of the schedule to the Limitation Act. The learned senior
counsel further submits that in view of provisions of Section 537 of
1 (2003) 9 SCC 606
2 (2013) 9 SCC 261
3 (1999) 8 SCC 16
34 / 78
WP. 2509-08
the Companies Act, notice to the liquidator was necessary. He further
submits that since leave of the Company Court was not taken before
the compromise was recorded vide order dated 31 st of March, 2005,
the said order would be nullity. He further submits that in view of
provisions of Section 25, the sale-deed will have to be executed by the
recovery officer, and as such the sale-deed executed by the Registrar
of the DRT would not be valid in law. He further submits that in view
Section 29 of the Act, provisions of Second and Third Schedules to the
Income -tax Act, 1961 will have to be followed., which is admittedly
not done in the present case.
44. With the assistance of the learned counsel appearing for
the respective parties, we have scrutinised the entire evidence.
45. Though elaborate submissions on various issues have
been advanced by the learned counsel for the parties, we are of the
considered view that petition deserves to be dismissed on short
grounds which are discussed by us hereinunder.
46. It would be relevant to refer to the order passed by the
learned Company Judge of this Court on 12th January, 1995 in revival
35 / 78
WP. 2509-08
application of the UCO Bank. Paragraph 2 and 3 of the said order
reads thus:
"2. Now the Defendant no. 9 has submitted a scheme. When
the matter came before me on 12-1-1995 it was stated on behalf of
the defendant No. 9 that he is prepared to deposit in this Court an
amount of Rs. 50 crores before 31-5-1995 which would satisfy the
claim of the Banks i.e. Plaintiff and defendant no. 10 - secured
creditors. The claim of the Plaintiff in Suit No. 597/78 upto date
would be about 3.8 crores and that of defendant no. 10 in two Suits,
Suit No. 1011 of 1979 and Suit No. 2648 of 1984, would be about
Rs. 12 crores. The statement was also made on behalf of the
defendant no. 9 that his client will deposit an amount of Rs. 2 crores
with the Prothonotary and Senior Master, High Court, Bombay in
cash or by Demand Draft on or before 19-1-1995. A further
statement was also made that defendant No. 9 would forgo the entire
amount of Rs. 2 Crores on his failure to deposit the balance amount
of Rs. 48 crores on or before 31-5-1995 and was ready to give an
Undertaking to this Court to that effect on or before 19-1-1995.
Some other statements such as reemployment of 1200 employees on
revival etc. were also made and were recorded.
3. The defendant no. 9 has accordingly deposited an amount
36 / 78
WP. 2509-08
of Rs. 2 Crores. He has also given an undertaking as contemplated
by order dated 12-1-1995. There is an affidavit filed by one of the
Directiors of the Company - Shri Shyam Madanmohan Rui,
defendant no. 4, inter-alia stating that M/s. Tata Economic
Consultancy Services submitted a report dated 25-7-1991 valuing
the property at Rs. 22 crores 18 Lacs and the same may now fetch at
least about Rs. 40 to 70 Crores in view of escalation in the prices of
immoveable property. It is further mentioned that M/s. Poonam
Investment Company Ltd. had offered Rs. 35 Crores and he has
learnt that some other person has offered Rs. 50 Crores. This at the
most would satisfy the claim of 2 Secured Creditors i.e. Plaintiff and
defendant no. 10. Further they shall be first required to obtain the
decrees in their suits to get the decreetal dues. On the contrary if the
scheme propounded by defendant no. 9 goes through, the banks
(Secured Creditors) are protected because of deposit as
contemplated by order dated 1-1-1995, as well as unsecured
creditors and workers shall also be benefited."
47. It could thus be seen that as early as 1995, even according
to the deceased Ashok Kumar Karnani, the value of the property was
Rs. 50 crores. It is further to be noted that in the affidavit filed by
Defendant No. 4 therein, who is Respondent No. 7 herein, the
37 / 78
WP. 2509-08
valuation of the property as was done by the Tata Economic
Consultancy Services in the year 1991 was Rs. 22,18,00,000, and
according to him, it could fetch Rs. 40 to 70 crores, in view of the
escalation of the price of the immovable properties. It could further be
seen that at the instance of the UCO Bank, Mr. Shekhar Thate was
approved valuer on the panel of valuer of High Court, who had valued
the property and as per his valuation report dated 9th of March, 2004,
the property was valued at Rs. 76,46,33,000/-. It is further to be noted
that the said valuation was done on the basis of the site visit.
48 It is further pertinent to note that that the Petitioner herein
has entered into MOU with Ashok Kumar Karnani on 2 nd April, 2003.
Perusal of the MOU would reveal that in the said MOU following
claims against the company are specifically recorded:
"(j) Following are the claims against the Company, along
with amount, shown against respective liabilities.
a) Sr. Name of the Liability To be settled Amount in
No. with Crores
1 PF. Labour liability, ESIC and
ESIC Creditors, filed before Liquidator
Official Liquidator 11.93
2 Mumbai Municipal Liquidator 1.4
Corporation
38 / 78
WP. 2509-08
3 Collector Liquidator 0.1
4 Government of Maharashtra Liquidator 0.01
Total (a) 13.44
b) 1 UCO Bank & Bank of India Direct 21.06
Total (b) 21.06
Grand Total (a + b) 34.5
49. It would be relevant to refer to the following portion from
the said MOU:
"2. As a result of negotiations between the parties hereto, Shri
Karnani has agreed to make all the arrangements, to procure
Development Rights of the above property, in favour of Developers,
which the Developers have agreed to acquire, at or for the total
purchase price of Rs.61,50,00,000/-(Rupees Sixty One Crores Fifty
Lacs Only) and upon further terms mentioned herein.
3. Out of the said total Purchase Price of Rs.61,50,00,000
(Rupees Sixty One Crores Fifty Lacs Only), the sum of Rs.
34,50,00,000/- (Rupees Thirty Four crores Fifty Lacs only), shall be
paid, to discharge the said Liabilities and subject to other terms
mentioned herein remaining sum of Rs.27,00,00,000 (Rupees Twenty
Seven Crores only) or any part thereof, upon terms mentioned herein,
shall be paid to Shri Karnani."
50. It could thus be clearly seen from the perusal of MOU
39 / 78
WP. 2509-08
that the purchase price of the said property was at Rs.61,50,00,000/-
and amount of Rs. 34,50,00,000/- out of the said price was to be paid
to discharge liabilities of the company and the remaining amount of
Rs. 27 crores was to be paid to Shri Karnani.
51. It would be further appropriate to refer to the affidavit
filed by Dinesh Gopalkrishna Kamath, who was working as Assistant
Manager of the Applicant Bank. The said affidavit is dated 11 th of
March, 2005 thereby opposing the request made by Ashok Kumar
Karnani for grant of benefit of one time settlement. It is stated in para
14 of the said affidavit as under:
"14. I say that by his letter dated 10.3.2003, the Defendant N. 9
inter alia offered to pay the alleged balance amount about of
Rs.5,86,83,628.52, which may allegedly remain due and payable
after deducting the amount received by the original Applicant after
filing of the suit. The Defendant No. 9 also sought transfer of said
securities held by Original Applicant, to himself. I say that Original
Applicant is holding immovable property situated at Jacob Circle,
Mahalaxmi, Mumbai and belonging to erstwhile Bradbury Mills
Ltd., a security (hereinafter referred to as the "suit property"). The
suit property is presently in possession of the Receiver appointed by
40 / 78
WP. 2509-08
this Hon'ble Tribunal. The suit property is admeasuring about
34,011 sq. yards and its market value is above Rs.70 crores as per
Valuer's Report dated 9.3.2004 prepared by Mr. Shekhar L. Thite.
The Applicant is therefore holding sufficient security against the
amount due and payable by Defendant No. 1. The Defendant has
on earlier occasions prevented sale of the said property by making
false and frivolous applications. It is therefore obvious that the
Defendant No. 9 has made the aforesaid offer of alleged settlement
with malafide intentions and ulterior motives of usurping suit
property, by paying a small percentage of its present market value
and thus depriving the creditors of the Defendant No. 1 including
workers, original applicant, Defendant No. 10, Official Liquidator
etc. of their rightful dues. I say that the alleged offer is a devious
scheme of profiteering at the costs of creditors who have waited for
years to realize their dues."
52. It could thus be seen that even according to the UCO
Bank, value of the said property as on 11th March, 2005 was Rs.70
crores, and as such, it had opposed the proposal for one time
settlement given by the Bank.
53. In this background, we will have to examine the facts of
the present case. Perusal of the application, which is filed before the
41 / 78
WP. 2509-08
learned DRT on 31st of March, 2005 would reveal that the valuation
report from M/s. Sabnis & Co., approved valuer, was obtained by the
present Petitioner, by which the said property was valued at
Rs. 39,95,07,000/-. It is stated in the said report that Defendant No. 9
to the Application No. 124 of 2001 Ashok Kumar Karnani had
approached Everest to make compromises with secured creditors and
liquidator and take the said property of Defendant No.1. It is stated
that present Petitioner had agreed to pay a sum of Rs. 41 crores for the
said property. It is stated that the offer of the Petitioner is in the
interest of everyone. Several prayers are made in the said application.
It would be relevant to refer to the order passed by the learned DRT on
the very same day of the application being filed i.e. 31 st March, 2005.
Paragraphs 3 to 7 of the said order reads thus:
"3. The Everest Fincap Pvt. Ltd. has already paid a sum of
Rs.22,00,00.000/- to the Applicant herein and Rs. 5,00,00,000/- to
Defendant No. 10 towards full and final settlement of their claims
against 1st Defendant. Over and above this amount, he has
undertaken to pay Rs. 14,00,00,000/- towards other statutory
liabilities with further undertaking to pay anything over and above
that pursuant to the order of Official Liquidator, if the Official
42 / 78
WP. 2509-08
Liquidator makes the demand within 6 months. Taking into account
the amounts paid and agreed to be paid by the Everest Fincap Pvt.
Ltd. total consideration of Rs. 41,00,00,000/- is being paid for the
property in question. As per the valuation report the property is
worth Rs.39,95,07,000/-. In view of the fact that the Banks have
already received the amount from M/s. Everest Fincap Pvt. Ltd. and
that the total consideration being paid by him is over and above the
valuation property in question. Moreover, the Defendant No. 1 is in
liquidation since 1983 and also Defendant Nos. 6 to 10 as well as
the Applicant have consented for the sale, the property described in
Annexure-A is directed to be sold to M/s. Everest Fincap Pvt. Ltd.
4. The DRT Receiver is directed to forthwith hand over the
quiet and peaceful possession of the property in question to M/s.
Everest Fincap Pvt. Ltd. The fees of DRT Receiver are quantified
at Rs.1,00,000/- payable by Everest Fincap Pvt. Ltd. The security
charges till today shall be borne by the Applicant and Defendant
No. 10 in proportion of their respective ratio 7:5. The DRT Receiver
shall stand discharged on handing over the possession and on
receiving his fees as stated hereinabove and without passing
accounts.
5. The Registrar of the Tribunal or an officer appointed by him
shall execute the Deed of Conveyance of the property described in
43 / 78
WP. 2509-08
Annexure-A in favour of M/s. Everest Fincap Pvt. Ltd. after
recovering the poundage fee and other statutory charges.
6. The Conveyance be executed after Everest Fincap presents
the Receipt from the Official Liquidator that he has received a sum
of Rs. 14,00,00,000/- (Rupees Fourteen crores only) towards other
statutory liability of Defendant No.1.
7. The Official Liquidator, Applicant, Defendant No. 10 and
Receiver shall hand over to M/s. Everest Fincap Pvt. Ltd. the
documents of title of the property described in Annexure-A and the
Applicant shall also hand over and transfer the Share Certificates of
the 1st Defendant (in liquidation) to M/s. Everest Fincap Pvt. Ltd."
54. It could thus be seen that the learned tribunal appears to
have been impressed that as per the valuation report property is worth
Rs.39,95,07,000/- and that total consideration to be paid by the present
Petitioner was over and above valuation of property in question. It
further goes on to record that Defendant Nos. 6 to 10 as well as
applicants have consented for the same. Vide order passed on the same
day, the UCO Bank O. A. is disposed of as the Bank have accepted a
sum of Rs. 22 crores in its full and final settlement of its claim.
Similarly, BOI O.A. is also disposed of since settlement is made and a
44 / 78
WP. 2509-08
sum of Rs. 5 crore is received from the present Petitioner towards full
and final settlement of the Applicants' claim.
55. The learned DRT in this background has considered the
application filed by Respondent No. 2 as well as intervention
application filed by Respondent No. 1. The learned DRT on 29 th of
November, 2005 finds that various important facts were not brought to
the notice of the tribunal when it had passed order on 31 st March,
2005. It further goes on to record that official liquidator had failed in
its duties in not seeking time to consider proposal of the purchaser and
also not pointed out to the tribunal that when the property was sought
to be put for auction in the proceeding before the High Court at that
time i.e. before 10 years back, it would have fetched price of Rs. 55
crores. The learned tribunal specifically observed that valuation of the
property which was done in March, 2004 was at Rs. 76 crores and thus
within a short period the value of the property could not have been
reduced substantially. The learned tribunal found that it was made to
believe by all the concerned that valuation report submitted by M/s.
M. B. Sabnis & Co. was proper. The learned tribunal therefore, finds
that it was misrepresented by the party.
45 / 78
WP. 2509-08
56. No doubt, there are certain observations made by the
learned DRT about the conduct of Defendant No. 7 i.e. Respondent
No. 2 herein. The learned DRT therefore, vide order dated 29 th of
November, 2005 set aside the order of confirming sale in favour of
Petitioner, on Respondent No. 2 depositing a sum of Rs. 45 crores.
There are other directions in the said order. The recovery officer was
directed to invest Rs. 45 crores for three months in fixed deposit with
the applicant Bank and put the property for public auction after getting
the same valued from the valuer. The amount of Rs. 50,000/- was
directed to be utilised for auction and valuation (clause 4 & 5). The
learned tribunal directed the recovery officer to issue notice of auction
to M/s. Siddhesh Construction (clause 5). Present Petitioner was
granted liberty to bid in the auction (clause 6). It is provided that if
the Petitioner is outbidded, the actual consideration paid by him, the
charges and costs incurred by him on the property for securing and
improving the same alongwith interest @ 6% be reimbursed from the
consideration received from the successful bidder. Clause 7 provides
that Petitioner shall provide necessary details of costs and expenses
incurred by it. Clause 8 provides that if Petitioner is out bidded, the
46 / 78
WP. 2509-08
amount deposited shall be repaid to him with accrued interest
excluding costs of Rs. 50,000/-. Clause 9 provides that if the amount is
deposited by the guarantor, it be returned to him from the
consideration received from the successful bidder alongwith interest
@ 5% p.a. The recovery officer was directed to complete the process
of auction within three months. If further directed that proceeding of
Original Application 124 of 2001 would not be reopened.
57. The aforesaid order is challenged by way of appeal before
the learned DRAT by both - Respondent Nos. 1 and the Respondent
No. 2. The learned tribunal finds that purpose of Respondent No. 2
was to ensure that the property must receive the price commensurate
with its market rate whereas purpose of Respondent No. 1 was to
purchase the property for his own purpose. The learned tribunal finds
that fact of suppression of material fact from the Presiding Officer,
was not challenged by any of the parties, i.e. neither Bank nor the
purchaser. The learned Tribunal therefore, holds that insofar as the
condition with regard to deposit of Rs. 45 crores by Respondent No. 1
is concerned, the same was liable to be set aside. In this background,
the learned DRAT has passed the order thereby setting aside the
47 / 78
WP. 2509-08
condition of deposit of Rs. 45 crores. However, insofar as intervenor's
appeal is concerned, his appeal is allowed on condition of his giving
bid in the sum of Rs. 76.50 at the public auction and also furnishing
bank guarantee in a sum of Rs.7.65 crores within a period of one week
from the said date.
58. It could thus be seen that when the order was passed by
the learned DRT on 31st of March, 2005, it was passed on the
application made on the same date. Though the representative of the
liquidator was present,it is clear that he was served with copy of the
application on the same day. In the application only valuation report
of M/s M. B. Sabnis & Co. was brought to the notice of the learned
Tribunal. The earlier valuation report of Mr. Shekhar Thite, the MOU
entered between Everest and Ashok Kumar Karnani dated 2nd April,
2003, the order of the learned Company Judge of this Court dated
were not brought to the notice of the learned DRT. In this background,
we will have to examine as to whether interference is warranted with
the impugned orders. It would be relevant to refer to the observations
of Their Lordships of the Apex Court in the case of Rajasthan State
Financial Corporation & Anr. (supra) in para 17 and 18, which read as
48 / 78
WP. 2509-08
under:
"17. Thus, on the authorities what emerges is that once a winding
up proceeding has commenced and the liquidator is put in charge of the
assets of the company being wound up, the distribution of the proceeds
of the sale of the assets held at the instance of the financial institutions
coming under the Recovery of Debts Act or of financial corporations
coming under the SFC Act, can only be with the association of the
Official Liquidator and under the supervision of the company court.
The right of a financial institution or of the Recovery Tribunal or that
of a financial corporation or the Court which has been approached
under Section 31 of the SFC Act to sell the assets may not be taken
away, but the same stands restricted by the requirement of the Official
Liquidator being associated with it, giving the company court the right
to ensure that the distribution of the assets in terms of Section 529A of
the Companies Act takes place. In the case on hand, admittedly, the
appellants have not set in motion, any proceeding under the SFC Act.
What we have is only a liquidation proceeding pending and the secured
creditors, the financial corporations approaching the company court for
permission to stand outside the winding up and to sell the properties of
the company-in-liquidation. The company court has rightly directed
that the sale be held in association with the Official Liquidator
representing the workmen and that the proceeds will be held by the
Official Liquidator until they are distributed in terms of Section 529A
of the Companies Act under its supervision. The directions thus, made,
clearly are consistent with the provisions of the relevant Acts and the
views expressed by this Court in the decisions referred to above. In this
situation, we find no reason to interfere with the decision of the High
Court. We clarify that there is no inconsistency between the decisions
49 / 78
WP. 2509-08
in Allahabad Bank v. Canara Bank and Anr .1 (supra) and in
International Coach Builders Limited v. Karnataka State Financial
Corporation2 (supra) in respect of the applicability of Sections 529 and
529A of the Companies Act in the matter of distribution among the
creditors. The right to sell under the SFC Act or under the Recovery of
Debts Act by a creditor coming within those Acts and standing outside
the winding up, is different from the distribution of the proceeds of the
sale of the security. The distribution in a case where the debtor is a
company in the process of being wound up, can only be in terms of
Section 529A read with Section 529 of the Companies Act. After all,
the liquidator represents the entire body of creditors and also holds a
right on behalf of the workers to have a distribution pair passu with the
secured creditors and the duty for further distribution of the proceeds
on the basis of the preferences contained in Section 530 of the
Companies Act under the directions of the company court. In other
words, the distribution of the sale proceeds under the direction of the
company court is his responsibility. To ensure the proper working out
of the scheme of distribution, it is necessary to associate the Official
Liquidator with the process of sale so that he can ensure, in the light of
the directions of the company court, that a proper price is fetched for
the assets of the company in liquidation. It was in that context that the
rights of the Official Liquidator were discussed in International
Coach Builders Limited (supra). The Debt Recovery Tribunal and the
District court entertaining an application under Section 31 of the SFC
Act should issue notice to the liquidator and hear him before ordering a
sale, as the representative of the creditors in general.
18. In the light of the discussion as above, we think it proper to
sum up the legal position thus:-
1 (2000) 4 SCC 406
2 (2003( 19 SCC 482
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(i) A Debt Recovery Tribunal acting under the Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 would be
entitled to order the sale and to sell the properties of the debtor, even if
a company-in- liquidation, through its Recovery Officer but only after
notice to the Official Liquidator or the liquidator appointed by the
Company Court and after hearing him.
(ii) A District Court entertaining an application under Section
31 of the SFC Act will have the power to order sale of the assets of a
borrower company-in- liquidation, but only after notice to the Official
Liquidator or the liquidator appointed by the Company Court and after
hearing him.
(iii) If a financial corporation acting under Section 29 of the
SFC Act seeks to sell or otherwise transfer the assets of a debtor
company-in-liquidation, the said power could be exercised by it only
after obtaining the appropriate permission from the company court and
acting in terms of the directions issued by that court as regards
associating the Official Liquidator with the sale, the fixing of the upset
price or the reserve price, confirmation of the sale, holding of the sale
proceeds and the distribution thereof among the creditors in terms of
Section 529A and Section 529 of the Companies Act.
(iv) In a case where proceedings under the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 or the SFC Act are
not set in motion, the creditor concerned is to approach the company
court for appropriate directions regarding the realization of its
securities consistent with the relevant provisions of the Companies Act
regarding distribution of the assets of the company-in-liquidation.
(emphasis supplied)
51 / 78
WP. 2509-08
59. It could thus clearly be seen that the Hon'ble Apex
Court upon considering its earlier judgments on the issue has held that
once a winding up proceeding has commenced and liquidator has been
put in charge of the assets of the company being wound up, the
distribution of the proceeds of the sale of the assets held at the
instance of the financial institutions coming under the Recovery of
Debts Act or of financial corporations coming under the SFC Act, can
only be done with the association of the Official Liquidator and under
the supervision of the Company Court. It has been held that though
rights of the financial institutions or of the Recovery Tribunal or that
of a financial Corporation or the court which has been approached
under section 31 of the SFC Act to sell the assets may not be taken
away, but the same stands restricted by the requirement of the Official
Liquidator being associated with it, giving the Company Court the
right to ensure that the distribution of the assets in terms of section
529-A of the Companies Act takes place. It has been held that the
Liquidator represents the entire body of creditors and also holds right
on behalf of the workers to have a distribution pari passu with the
secured creditors and the duty for further distribution of the proceeds
52 / 78
WP. 2509-08
on the basis of the preferences contained in section 530 of the
Companies Act under the directions of the Company Court. It has
been held that distribution of the sale-proceeds under the direction of
the Company Court is his responsibility. It has been held that to
ensure proper working out of the scheme of distribution, it is
necessary to associate Official Liquidator with the process of sale, so
that he can ensure, in the light of the directions of the Company Court,
that a proper price is fetched for the assets of the company-in-
liquidation. It has been held that the Debt Recovery Tribunal and the
District Court entertaining an application under Section 31 of the SFC
Act should issue notice to the Liquidator and hear him before ordering
a sale, as the representative of the creditors in general.
60. It could thus be seen that notice to the Official
Liquidator is not an empty formality. The Official Liquidator is
required to represent interest of all the creditors, including workmen
of the company and to ensure that the assets of the company receive
proper price.
61. We ask a question to ourselves as to whether giving a
copy of application to the representative of the Official Liquidator and
53 / 78
WP. 2509-08
DRT passing the order on the same day can be said to be compliance
with the said provisions? Undoubtedly, it was the duty of the
representative of the Official Liquidator to have sought time,
examined the proposal and thereafter addressed the learned Tribunal to
espouse interest of all the creditors and the workers and ensure that
assets pay of proper price. It would be relevant to refer to
observations of Their Lordship of the Apex Court in the case of
Pravin Gada (supra) in paragraph 11 and 12, which read as under:
"11. The said order dated 3-3-2011 came to be assailed by the
secured creditors and the workmen's union on the ground that the
confirmation suffered from material irregularities. The High Court
noticed that the DRAT had opined that the power of the official
liquidator was restricted to participate at the stage of disbursement
of the dues of the workmen but not in conducting of the sale. It did
not agree with the said finding on the basis of the proposition of law
laid down in Rajasthan Financial Corporation and Anr. v. Official
Liquidator and Anr. AIR 2006 SC 755. While noting that aspect, the
High Court proceeded to address the fundamental question whether
the procedure that was followed in the sale of the property was fair
and proper or whether there was any fraud and material irregularity.
It adverted to the facts in a chronological manner and came to hold
that the manner in which the sale proceedings had been conducted
was neither fair nor transparent as a consequence of which the
possible price that could be realized had become an unfortunate
causality. It took note of the offer made by Umrah Developers after
54 / 78
WP. 2509-08
a month of confirmation of sale and opined that the proper price had
not been realized. The finding of the DRT that the Central Bank of
India had remained absent could not be a justification to sustain the
manner in which the sale had been conducted as it was manifestly
contrary to the basic concept of fairness and transparency.
12. The High Court referred to number of authorities to
highlight the conception that in every case, the duty of the court is
to satisfy itself that the price offered is reasonable and the said
satisfaction is to be based on the bedrock of the prevalent market
value. Expressing the aforesaid view, the High Court allowed the
writ petition, set aside the order of the DRAT dated 3 rd March, 2011
and proceeded to direct as follows:
..."
(emphasis supplied)
The aforesaid observations have been approved by
Their Lordships in paragraph 18 of the said judgment. It could thus be
seen that their Lordships in clear terms held that duty of the Court is to
satisfy itself that the price offered is reasonable and the said price is
prevalent market value of the property.
62. We may also gainfully refer to a case decided by the
learned Single Judge of this Court in the case of Engineering Workers
Union (supra). In this case the argument was sought to be advanced
that the learned company court was bound to give consent to the
55 / 78
WP. 2509-08
compromise which was sought to be effected in the consent terms to
be filed in the proceeding pending before the DRT. The learned Single
Judge of this Court (Company Court) observed in para 18 as under:
18. ... I have considered the aforesaid submission and in my
opinion, if the consent of the Company Court is necessary for the
purpose of filing of the consent terms in the Debt Recovery Tribunal
proceedings then the Court must look into whether such a consent
terms should be entered into for and on behalf of the company or
not. ..."
After observing this, the learned Single Judge has observed in para 22
as under:
22. ... It is not in dispute that if higher amount is received then
the banks and financial institutions would get the higher inflow of the
sale proceeds as the secured creditors. I am perplexed with the
contention that even if the higher amount is likely to be received from
various auction purchasers still I must accept the depressed offer of the
respondent no. 9. If the depressed offer is accepted, there is likelihood
of a loss of around Rs. 4 and half crores. It could be to the banks and
financial institutions. I am unable to discard this aspect of the matter
and accept the one time settlement scheme. If the company would have
been benefited by accepting the depressed offer by virtue of
extinguishing all the liabilities then of course I would have taken into
consideration the said aspect of the matter. But as stated above, that
contention is totally misnomer and has no merit whatsoever. Apart
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WP. 2509-08
from the aforesaid reasoning of mine, I am also of the opinion that the
duty of the Company Court while accepting the bid is to see that the
highest offer is received by the company under liquidation and I am
fortified in my view by the judgment of the Apex Court in the case of
Divya Manufacturing Company (P) Ltd., Tirupati Woollen Mills
Shramik Sangharsha Samitee and Another vs. Union Bank of India and
others Official Liquidators and others, reported in (2000) 6 SCC 69 in
which the Apex Court has stated as under :-
"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."
Thus, even looking from this angle of the matter, I am duty bound to
see that the sale price for the said assets must be corresponding to the
market value of the said property but not artificial and/or depressed
market value arrived at by consensual method by and between the
secured creditors, the guarantors and the purchaser. I do not, therefore,
accept the contentions of the parties that the Court must give its
impremature on the one time settlement scheme by directing the
Official Liquidator to be a party to the said consent terms. ..."
63. Though the said judgment is of the learned Single
Judge of this Court, it may not be binding, still it has a persuasive
57 / 78
WP. 2509-08
value. We are in complete agreement with the view taken by the
learned Single Judge that the Court is bound to see that the sale price
for the assets must be corresponding to the market value of the
property of the company but not artificial and / or depressed market
value arrived at by consensual method by and between the secured
creditors, the guarantors and purchaser. We find that if we apply the
said principle in the present case, compromise which is accepted by
the learned DRT by the order of 31st of March, 2005 would not be at
all sustainable in law.
64. In the case of Divya Manufacturing Company (P.) Ltd.
(supra), highest bid accepted and confirmed by the High Court.
However, certain other parties offered much higher price. The High
Court directed them to deposit 20% of the amount of their offer and to
pay certain amount each to the party whose bid had been accepted,
and as such, the High Court set aside the confirmation of highest bid.
Their Lordships observed in para 12 to 15 as under:
"12. The law on this subject is well-settled. In the case of Navalkha
and Sons [1970] 3 SCR 1 (supra), after appellant's offer was accepted,
a fresh offer from one Gopaldas Darak for higher amount was received
by stating that he could not offer in time because he came to know of
58 / 78
WP. 2509-08
the sale only 2 days prior to the date of the application and there was
possibility of higher bids. Instead of directing a fresh auction or calling
for fresh offers, the learned Judge thought it proper to arrange an open
bid in the Court itself on that very day as between M/s. Navalkha and
higher offerer Gopaldas Darak, M/s. Navalkha thereafter offered higher
bid at Rs. 8,82,000 and its bid was accepted and the learned Judge
concluded the sale in its favour with a direction to pay the balance
amount. Thereafter an application was filed offering Rs. 10 lakhs. A
contention was raised that due publicity of the sale of the property was
not made, but that application was rejected by the Court. Hence, an
appeal was filed by the applicant who made an offer of Rs. 10 lakhs
and another by one contributory against the order of confirmation. Both
appeals were allowed by the Division Bench and the order passed by
the learned Judge was set aside with a direction to take fresh steps for
sale of the property either by calling sealed tenders or by auction in
accordance with law. That order was challenged before this Court by
M/ s. Navalkha. It was contended that there was no justification for the
Division Bench to interfere with the order of the learned single Judge.
In that context, after quoting Rule 273 of the Companies (Court) Rules,
1959, the Court observed (SCC pp. 540-41, para 6):
"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 offerer 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
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WP. 2509-08
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. This
principle was followed in Rathnaswami Pillai v. Sadapathy
Pillai AIR 1925 Mad 318 and S. Soundarajan v. Mahomed
Ismail, Roshan & Co. AIR 1940 Mad 42. In A. Subbaraya
Mudaliar v. K. Sundararajan AIR 1951 Mad 986 , 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.
(emphasis supplied)
13. From the aforesaid observation, it is abundantly clear that the
Court is the custodian of the interests of the Company and its creditors.
60 / 78
WP. 2509-08
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 No.
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 th
June, 1998, the Division Bench has ordered that offers of Eastern Silk
Industries Ltd. and Jay Prestressed Products Ltd. would only be
considered on 2nd July, 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 2nd July, 1998. In these set of circumstances, there was no need to
confine the bid between three offerers only.
14. In LICA (P) Ltd. (1) v. Official Liquidator (1996) 85 Comp
Cas 788, this Court dealing with a similar question observed thus:
"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
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WP. 2509-08
circumstances in each case."
15. The matter was again brought before this Court and in LICA (P)
Ltd. (2) v. Official Liquidator and the Court held:
"Proper control of the proceeding and meaningful
Intervention by the Court would prevent the formation of a
syndicate, underbidding and the resultant sale of property for
an inadequate price. The order passed by this Court yielded
the result that the property which would have been finalised
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 Sri 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."
After th above discussion, Their Lordships have held as under:
"16. ... 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." (emphasis supplied)
62 / 78
WP. 2509-08
65. It could therefore be seen that Their Lordships have
observed that if the sale is confirmed by the Court at an inadequate
price, whether or not it is a consequence of any irregularity or fraud in
the conduct of sale, it could be set aside on the ground that it was not
just and proper exercise of judicial discretion. We find that in the
present case what has been done by the learned DRT vide order dated
29th of November, 2005 is the same procedure which has been
approved by Their Lordships of the Apex Court in the case of Divya
Manufacturing Co. (P) Ltd. (supra) Their Lordships have held that
even if there is no irregularity, fraud in the conduct of sale, if it is
found that the confirmation of sale is at a grossly inadequate price, the
sale could be set aside on the ground that it was not just and proper
discretion. In the present case, as we have already discussed
hereinabove when the order was passed by the learned DRT on 31 st of
March, 2005 an unlawful procedure was adopted, viz. making an
application on the same day, though the representative of the official
liquidator was present, he failed in his duty to represent interest of the
creditors and shareholders of the company in not opposing the said
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WP. 2509-08
confirmation when the Karnani himself had offered to pay Rs. 50
crores for the same property 11 years earlier in 1994, the UCO Bank
which had hardly a month ago opposed the application on the ground
that value of the property was more than Rs. 70 crores, it had agreed
for the offered sale at much lesser price. We find that within a short
time by the order dated 29th of November, 2005, the unjust order dated
31st of March, 2005 is set aside, so as to ensure that the interest of the
creditors and shareholders in order to fetch a price by fair and
transparent manner. In our considered view therefore, no error could
be found with the same.
66. No doubt, Mr. P. Chidambaram has rightly pointed out
provisions of Section 17 and Rule 5 to contend that the review at the
instance of the applicant would not be tenable and then unless the
application for condonation of delay was allowed, the tribunal could
not have gone into merits of the matter.
67. However, we may refer to sub-section (25) of Section
19 of the Recovery of Debts & Bankruptcy Act, 1993, which reads as
under:
"19(25) The Tribunal may make such orders and give such
64 / 78
WP. 2509-08
directions as may be necessary or expedient to give effect to its
orders or to prevent abuse of its process or to secure the ends of
justice."
68. It could thus be seen that the statute itself has given
enormous powers to the tribunal, which are analogous to the powers of
a civil court under Section 151 of the Civil Procedure Code, to make
such orders and give such directions as may be necessary or expedient
to give effect to its orders or prevent abuse of its process or to secure
the ends of justice. We are of the considered view that by the order
dated 29th of November, 2005 the learned Presiding Officer of the
DRT has passed an order recalling his order dated 31 st of March, 2005
to prevent abuse of its process and to secure ends of justice. We have
no hesitation to hold that the jurisdiction exercised by it would fall
under the ample powers vested in it under sub-section (25) of Section
19 of the said Act.
69. It would also be relevant to refer to the judgment of the
Apex Court in the case of Ram Kishun & Ors. Vs. State of Uttar
Pradesh & Ors.1, more particularly observations in paragraph 15 to 17
thereof, which read as under:
1 (2012) 11 Supreme Court Cases 511
65 / 78
WP. 2509-08
"15. In case the property is disposed of by private treaty without
adopting any other mode provided under the statutory rules etc., there
may be a possibility of collusion/fraud and even when public auction
is held, the possibility of collusion among the bidders cannot be ruled
out. In The State of Orissa and Ors. v. Harinarayan Jaiswal and Ors.
AIR 1972 SC 1816, this Court held that a highest bidder in public
auction cannot have a right to get the property or any privilege, unless
the authority confirms the auction sale, being fully satisfied that the
property has fetched the appropriate price and there has been no
collusion between the bidders.
16. In Haryana Financial Corporation and Anr. v. Jagdamba Oil
Mills and Anr. AIR 2002 SC 834, this Court considered this aspect and
while placing reliance upon its earlier judgment in Chairman and
Managing Director, SIPCOT Madras and Ors. v. Contromix Pvt. Ltd.
by its Director (Finance) Seeetharaman, Madras and Anr. AIR 1995 SC
1632 held that in the matter of sale of public property, the dominant
consideration is to secure the best price for the property to be sold.
This can be achieved only when there is maximum public participation
in the process of sale and everybody has an opportunity of making an
offer.
17. Therefore, it becomes a legal obligation on the part of the
authority that property be sold in such a manner that it may fetch the
best price. Thus essential ingredients of such sale remain a correct
valuation report and fixing the reserve price. In case proper valuation
has not been made and the reserve price is fixed taking into
consideration the inaccurate valuation report, the intending buyers may
not come forward treating the property as not worth purchase by them,
as a moneyed person or a big businessman may not like to involve
himself in small sales / deals."
66 / 78
WP. 2509-08
(emphasis supplied)
70. It could thus be seen that Their Lordships have held
that if a property is disposed by private treaty without adopting any
other mode provided under the statutory rules, etc. the possibility of
collusion / fraud cannot be ruled out. It has been held that even while
accepting the bid of highest bidder, the authority is required to be fully
satisfied that the property has fetched the appropriate price and there
has been no collusion between the bidders. It has been held that it
becomes legal obligation on the part of the authority to ensure that the
property is sold in such a manner that it fetches the best price.
71. It is to be noted that insofar as Respondent No. 1 is
concerned, it was interested in purchasing the property for himself,
and therefore, his appeal was allowed with certain conditions.
However, insofar as Respondent No. 2 is concerned, it was found that
Respondent No. 2 was not interested in purchasing property for
himself, but his interest lies in getting the price as per the market value
of the said property, and as such, he was acting for the benefit of the
company, its creditors and shareholders. In this background, the
learned DRAT found that though certain conditions are required to be
67 / 78
WP. 2509-08
imposed while allowing the appeal of Respondent No. 1, who was
interested in getting the property for his own benefit, no conditions are
required to be imposed while allowing the appeal of Respondent No. 2
who was not acting for his benefit but for the benefit of the company,
its creditors and shareholders. In this view of the matter, the learned
DRAT found that the order passed by the DRT of depositing a huge
amount as a pre-condition for setting aside its earlier order was not
justified. We find that no error could be found with the approach of the
DRAT in passing the impugned order dated 22.8.2008.
72. In the present case it could be seen that the order which
was passed by the DRT on 31st of March, 2005 was only on the basis
of valuation report of M/s. M. B. Sabnis & CO., which was produced
by the UCO Bank. It is pertinent to note that said report was obtained
by the present Petitioner. It could thus be seen that though the reports
of the valuer Mr. Thite, which was obtained by UCO Bank was very
much available, the same was not placed before the learned DRT on
31st of March, 2005. If by the order dated 29 th of November, 2005 the
mistake committed by the learned DRT has been rectified and proper
procedure, as is required to be followed under the law is directed to be
68 / 78
WP. 2509-08
followed; in our view, the learned tribunal was totally justified in
doing so. It is further to be noted that both orders passed on 31 st of
March, 2005 as well as 29th of November, 2005 are passed by the same
learned Presiding Officer of the DRT Shri Hemant T. Sampat. It could
thus be seen that while passing subsequent order dated 29th of
November, 2005, the learned Presiding Officer could personally very
well appreciate the manner in which the order dated 31 st of March,
2005 was obtained from him.
73. There is another ground on which we find that present
Petitioner is not entitled to invoke equitable jurisdiction of this Court.
It is to be noted that the present Petitioner after settling the matter with
both banks, Ashok Kumar Karnani approached the learned tribunal on
31st of March, 2005. On the same day, the orders were obtained on the
basis of the valuation report of M/s. M. B. Sabnis & Co. The learned
DRT was given an impression that, it is the only valuation report
available. However, it is to be noted that the said valuation was done
by M/s. M. B. Sabnis & Co. at the behest of the present Petitioner.
The earlier valuation of Mr. Thite was not produced before the DRT.
Not only that, but MOU between the present Petitioner and Ashok
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WP. 2509-08
Karnani dated 2nd April, 2003 was also not produced. In the said
MOU itself, the price that was agreed was Rs. 61,50,00,000/-. It could
thus be seen that under the order of 31st of March, 2005, the property
was sought to be purchased and acquired by the present Petitioner at
almost 2/3rd price of the one, which was agreed between it and Ashok
Kumar Karnani in the year 2003. Not only this, but when appeal of
Respondent No. 2 was being heavily contested by the present
Petitioner, he had already filed review application before the learned
tribunal and he chose not to disclose about the same to the appellate
authority. The review was permitted to be kept pending till the
decision of the appeal. The review application was pressed into service
only after decision in the appeal, which was decided on 22.8.2008, the
said review application was allowed on 29.1.2010. No doubt, the order
passed in review has been rightly reversed by the learned DRAT.
74. It could thus be seen that conduct of the present
Petitioner, in collusion with representative of the bank and
representative of the official liquidator was not only of suppression of
important material from the learned DRT, but it is also of such a nature
which would amount to taking chances in the judicial proceedings.
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WP. 2509-08
We are therefore of the considered view that conduct of the Petitioner
also disentitles him to invoke the equitable jurisdiction of this Court.
75. It would be relevant to refer to the following
observations of the Apex Court in the case of MCD Vs. State of Delhi
& Anr.1:
"21. ... A litigant who approaches the Court is bound to
produce all documents which are relevant to the litigation. If he
withholds a vital document in order to gain advantage on the
other side then he would be guilty of playing fraud on the court
as well on the opposite party. The second respondent, in our
opinion, was not justified in suppressing the material fact that he
was convicted by the Magistrate on an earlier occasion. Since the
second respondent deliberately suppressed the crucial and
important fact, we disapprove strongly and particularly, the
conduct of the second respondent and by reason of such conduct,
the second respondent disentitled himself from getting any relief
or assistance from this Court. We, however, part with this case
with heavy heart expressing our strong disapproval of the
conduct and behavior but direct that the second respondent to pay
a sum of Rs. 10,000/- by way of cost to the appellant herein."
76. We may also gainfully refer to the following
observations of the Apex Court in the case of K. D. Sharma Vs. Steel
1 (2005) 4 Supreme Court Cases 605
71 / 78
WP. 2509-08
Authority of India Ltd. & Ors.1:
"38. The above principles have been accepted in our legal
system also. As per settled law, the party who invokes the
extraordinary jurisdiction of this Court under Article 32 or of a High
Court under Article 226 of the Constitution is supposed to be
truthful, frank and open. He must disclose all material facts without
any reservation even if they are against him. He cannot be allowed
to play "hide and seek" or to "pick and choose" the facts he likes to
disclose and to suppress (keep back) or not to disclose (conceal)
other facts. The very basis of the writ jurisdiction rests in disclosure
of true and complete (correct) facts. If material facts are suppressed
or distorted, the very functioning of Writ Courts and exercise would
become impossible. The petitioner must disclose all the facts having
a bearing on the relief sought without any qualification. This is
because, "the Court knows law but not facts".
39. If the primary object as highlighted in Kensington Income
Tax Commissioners, 86 LJKB 257 is kept in mind, an applicant who
does not come with candid facts and "clean breast" cannot hold a
writ of the Court with "soiled hands". Suppression or concealment
of material facts is not an advocacy. It is a jugglery, manipulation,
maneuvering or misrepresentation, which has no place in equitable
and prerogative jurisdiction. If the applicant does not disclose all the
material facts fairly and truly but states them in a distorted manner
and misleads the Court, the Court has inherent power in order to
protect itself and to prevent an abuse of its process to discharge the
rule nisi and refuse to proceed further with the examination of the
case on merits. If the Court does not reject the petition on that
1 (2008) 12 Supreme Court Cases 481
72 / 78
WP. 2509-08
ground, the Court would be failing in its duty. In fact, such an
applicant requires to be dealt with for contempt of Court for abusing
the process of the Court."
77. Similar view is taken by the Apex Court in the case of
Dalip Singh Vs. State of Uttar Pradesh & Ors. 1 and in the case of
Prestige Lights Ltd. Vs. SBI2
78. We find that there is another ground on which the
petition deserves to be dismissed. For a moment even if we accept the
arguments advanced by Mr. P. Chidambaram that the application for
review could not have been heard on merits without the delay being
condoned or that there was no provision for condonation of delay, and
therefore the order dated 29th of November, 2011 is not valid in law,
then the effect would be to restore the order dated 31 st of April, 2005.
If the said order is restored, the effect would be that the order which is
obtained by collusion of the purchaser, the banks, deceased Ashok
Kumar Karnani and the representative of official liquidator permitting
sale of the assets of the property at much lesser price than its market
value. In our considered view, it would amount to perpetuating the
1 (2010) 2 Supreme Court Cases 114.
2 (2007) 8 SCC 449
73 / 78
WP. 2509-08
illegality which is committed by the order dated 31st of March, 2005,
which was sought to be corrected by the order dated 29 th of November,
2005.
79. In any case, while passing the said order, the learned
DRT has also taken care to ensure that interest of present Petitioner is
also protected. It has directed that not only the amount deposited by
the present Petitioner, but the costs incurred by him including security,
etc. should be refunded to him alongwith interest. It is not as if that
the amount of investment made by the Petitioner is being forfeited.
80. It is also to be noted that the Official Liquidator after
realizing the irregularities committed by its representative when the
order was passed on 31st of March, 2005 has already filed an appeal
before the learned DRAT.
81. It would be relevant to refer to the following
observations of their Lordships of the Apex Court n the case of
Maharaja Chitamani Sarannath Shahdeo Vs. State of Bihar & Ors.1:
"10. The first point urged on behalf of the appellant was that the
Act did not empower the Member of Board of Revenue to exercise
any power and, therefore, the order of the Member of Board of
1 (1999) 8 SCC 16
74 / 78
WP. 2509-08
Revenue directing the subordinate authority to take action for
recovery of the additional compensation which was paid @ ten
times was illegal. The learned Counsel for the respondent urged that
under Bihar Practice and Procedural Manual, Member of Board of
Revenue had power of Superintendence, direction and control in
such matters.
11. But in the Act, authorities and their powers have been
specified and we do not find any provision which vests power on
the Board of Revenue, so we have to proceed on the assumption that
the Board of Revenue has no power.
12. Therefore, the question is whether the order of the Member
of Board of Revenue should be quashed on this ground. If the order
is set aside, result would be that the notice directing the appellant to
refund the additional amount of compensation assessed at ten times
of net income would have to be quashed. In other words, the earlier
re-assessment of compensation made by giving ten times of net
income would revive. If under the law the appellant is not entitled to
get compensation more than three times of the net income it would
amount to restoring an illegal order.
13. In Gadde Venkateswara Rao v. Government of Andhra
Pradesh and Ors. [1966] 2 SCR 172 this Court considered the action
of the State Government under Andhra Pradesh Panchayats Samithis
and Zilla Parishads Act, 1959 and came to the conclusion that the
Government had no power under Section 72 of the Act to review an
order made under Section 62 of the Act but refused to interfere with
the orders of the High Court on the ground that if High Court had
quashed the said order, it would have restored an illegal order and,
therefore, the High Court rightly refused to exercise its
extraordinary jurisdictional power.
75 / 78
WP. 2509-08
14. In Mohammad Swallen and Ors. v. IIIrd Addl. District
Judge, Meerut and Anr. [1988] 1 SCR 840, similar view was also
expressed by this Court. In that case the order passed by the
Prescribed Authority under U.P. (Temporary) Control of Rent and
Eviction Act, 1947 was set aside by the District Judge in appeal
though the appeal did not lie. The High Court came to the finding
that the order of the Prescribed Authority was invalid and improper
but the District Judge had no power to sit in appeal. The High Court
did not interfere with the Orders of the District Judge. The order of
the High Court was affirmed by this Court on the ground that
though technically the appellant had a point regarding the
jurisdiction of the District Judge but the order of the Prescribed
Authority itself being bad, refusal of the High Court to exercise
powers under Article 226 no exception can be taken.
15. Therefore, in view of the above ratio laid down by this
Court, we hold that even if the Member of Board of Revenue had no
power to issue direction for giving notice for refund of the excess
amount paid, no exception can be taken to the said order if it is
found that legally the appellant was paid excess compensation under
the Act.
16. Therefore, the question is whether under the provisions of
the Act the appellant is entitled to get compensation @ of three
times or ten times of the net income."
After considering the facts of the case and provisions of law, Their
Lordships have held thus:
"38. For what has been stated above we hold that the order of
the learned Member of Board of Revenue directing the action to be
taken for refund of the excess compensation was valid and proper
76 / 78
WP. 2509-08
though he had no jurisdiction to pass the order. In the event it is set
aside it would amount to reviving an invalid order of payment of
excess compensation to the appellant."
(emphasis supplied)
82 . We are of the considered view that the aforesaid
principle equally applies with equal force in the present case also. If
we set aside the order passed by the DRT dated 29.11.2005 and the
impugned order of the DRAT on hyper technical ground, it would
amount to restoring the illegal order dated 31st of March, 2005.
83. We are therefore, of the considered view that present
writ petition has no merits and is liable to be dismissed and is
accordingly dismissed with costs, which are quantified at
Rs. 1,00,000/-.
Rule is accordingly discharged.
84. At this stage, Mr. Samdani, learned Senior Counsel for
the Petitioner states that there is an ad-interim order operating since
15th October, 2008 and the same be continued for a period of 10
weeks. Mr. Mehta, learned Counsel for Respondent No.2 , submits
that the ad-interim order passed by this Court is modified by the Apex
Court by Order dated 28th March, 2011. He, therefore, submits that in
77 / 78
WP. 2509-08
the event this Court inclines to grant interim protection, the same be
granted in terms of the order passed by the Apex Court.
85. Taking into consideration the fact that ad-interim order as
granted by this Court and modified by the Apex Court is continued for
a long period, we are inclined to direct that the parties shall maintain
status quo as directed by the Hon'ble Lordships of the Supreme Court
vide order dated 28th March, 2011 for a period of eight weeks from
today.
[RIYAZ I. CHAGLA J.] [B. R. GAVAI, J.]
Vinayak Halemath
78 / 78
