Digital Devices Limited vs Unknown
2006 Latest Caselaw 984 Del

JUDGMENT

Sanjiv Khanna, J.

1. M/s Digital Devices Limited (the company under liquidation) is owner of the immovable property located at village Kohari, Tehsil Kandaghat, District Solan, Himachal Pradesh.

2. Attempts were made to sell this property with the consent of the secured creditors. Initially, a bid or Rs. 40.45 lacs was received from M/s Arora Udyog Limited. Later on they agreed to enhance the bid to Rs. 50 lacs. Subsequently, some other parties also showed interest in purchasing the property. One such bid was received from M/s PVR Housing Private Limited of Rs. 52 lacs.

3. In the order dated 27th October, 2005, this Court noticed that the bid received from M/s PVR Housing Private Limited was the highest bid. However, M/s Arora Udyog Limited expressed their willingness to match the said bid. The offer of M/s Arora Udyog Limited was accepted. They were directed to pay 25% of the bid amount within 7 days and the remaining 75% amount within 60 days. The order also records that M/s Arora Udyog Limited had agreed to pay 25% of the bid amount by two demand drafts on that day itself. It may be noted that M/s PVR Housing Private Limited had not deposited any earnest money and, therefore, preference was given to M/s Arora Udyog Limited. As per the appearance marked while passing order dated 27th October, 2005, no one was present on behalf of M/s PVR Housing Private Limited.

4. On 8th November, 2005 an application, C.A. No. 1645/2005 was filed by M/s PVR Housing Private Limited raising its bid to Rs. 55,00,000/-. Notice on this application was issued to the Official Liquidator and the auction purchaser vide order dated 24th November, 2005.

5. Subsequently, two more applications being CA Nos. 269-270/2006 were filed by M/s PVR Housing Private Limited. In these applications it was averred that the said company was not aware that the matter was listed before Court on 27th October, 2005 and the bid was enhanced to Rs. 65 lacs from Rs. 55 lacs, that was earlier offered.

6. The Official Liquidator has filed his reply to CA No. 1645/2005 and has submitted that he has no objection in case the bid given by M/s PVR Housing Limited was taken into consideration provided the auction purchaser does not object to the application and was ready and willing for inter se bidding between them.

7. Learned counsel appearing for the auction purchaser however relied upon judgments in the case of Rajender Singh v. Ramdhar Singh and Ors. , Gurbax Gingh s/o Chanda Singh v. Financial Commissioner and Anr. 1991 SUPP. (1) SCC 167 and Kayjay Industries (P) Limited v. Asnew Drums(P) Limited and Ors. , and had submitted that bids given by M/s PVR Housing Private limited should be ignored and inadequacy of bid cannot be a ground to set aside a confirmed bid. It was submitted that there should be finality and unless a case for fraud or material irregularity was made out, no bid once confirmed should be set aside. Lastly, it was submitted that the parties would lose faith unless there was some element of certainty and a bid once confirmed, should not be reopened/rejected.

8. Learned counsel appearing for M/s PVR Housing Private Limited, on the other hand, relied upon judgment of the Supreme Court in the case of Lica (P) Limited (No. 1) v. Official Liquidator and Anr. (1996) 85 Company Cases 788 and Motors and Investments Limited v. New Bank of India and Ors. and submitted that it was the duty of the court to ensure that best price and sale consideration was received.

9. The facts have been reproduced above. It may however be mentioned that the auction purchaser had deposited the entire bid amount of Rs. 52 lacs on 3rd November, 2005 and was given possession of the property on 10th November, 2005. He has now filed CA No. 90/2006 for confirmation of sale. It may also be stated that the auction purchaser has also agreed to enhance his bid to Rs. 65 lacs without prejudice to his rights and contentions. However, the auction purchaser is not ready and willing to have inter se bidding with M/s PVR Housing Private Limited.

10. M/s PVR Housing Private Limited vide their letter dated 25th October, 2005 had informed the Official Liquidator that they were offering Rs. 52 lacs for purchase of the property in question. The Official Liquidator was requested to consider their offer and inform them. The Official Liquidator did not respond to this letter. M/s PVR Housing Private Limited was not informed that the next date of hearing in the Court for the purpose of considering and examining the tenders/bids for purchase of the property was 27th October, 2005. The Official Liquidator also did not call upon M/s PVR Housing Private Limited to deposit any EMD.

11. On 27th October, 2005 itself M/s PVR Housing Private Limited wrote another letter revising their offer to Rs. 55 lacs. This offer was again reiterated by a letter written by their advocate on 28th October, 2005.

12. Application CA No. 1645/2005 was filed by M/s PVR Housing Private Limited on 8th November, 2005 i.e. before the possession of the property was given by the Official Liquidator to the auction purchaser. Copy was also duly received in the office of the Official Liquidator on 8th November, 2005. It may also be noted that as per the valuation report the market value of the property in question on the date of valuation was Rs. 1.14 crores. The reserve price fixed was 60% of the value mentioned in the valuation report. There is, therefore, substantial difference betweenthe bid received and the market price as per the valuation report. Supreme Court in the case of Divya Manufacturing Company (P) Limited and Anr. v. Union Bank of India and Ors. has held that it is the guiding principle and duty of the Company Court to ensure that most remunerative price is received. There should be openness in the auction and all intending bidders should be given a free hand to offer higher bids. It is also the duty of the Official Liquidator to ensure that maximum price is obtained so that the claims of the creditors and workers can be paid to the maximum extent possible. While laying down these guidelines, the Supreme Court in the case of Divya Manufacturing Private Limited (supra) departed and took a different line from the general principles applicable to confirmation and sale of properties under Order XXI of the Code of Civil Procedure, 1908, where courts normally interfere only when there is material irregularity or fraud in conduct of court sales. This principle laid down by the Supreme Court in the case of Divya Manufacturing Private Limited (supra) has been followed in the case of Lica (P) Limited (supra) and the relevant portions of the said judgment are reproduced below:-

14. In Lica (P) Ltd. (1) v. Official Liquidator this Court dealing with a similar question observed thus:

The purpose of an open auction is to get the most remunerative price ands it is the duty of the court to keep openness of the auction so that the intending bidders would be free to participate and offer higher value. If that path is cut down or closed the possibility of fraud or to secure inadequate price or underbidding would loom large. The court would, therefore, have to exercise its discretion wisely and with circumspection and keeping in view the facts and circumstances in each case.

15. The matter was again brought before this Court and in Lica(P) Ltd. (2) v. Official Liquidator the Court held:

Proper control of the proceedings and meaningful intervention by the court would prevent the formation of a syndicate, underbidding and the resultant sale of property for an inadequate 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 Shri Ramaswamy that the court auction may not normally be repeatedly disturbed, since this Court, on the earlier occasion, had limited the auction between the two bidders, the impediment will not stand in the way to direct sale afresh. Even today the parties are prepared to participate in the bid.

13. Following these two judgments, this Court in the matter of Elson Cotton Mills Limited (in liquidation) 122 (205) DLT 669 set aside a sale that had already been confirmed after one and half years. In the said case the High Court noticed that the case of Lica (P) Limited and Divya Manufacturing (supra) were clearly applicable as the possession had not been handed over to the auction purchaser and the sale deed had not been executed. Relevant extract from the judgment is as under:-

The cases cited by the learned Counsel were of cases related to general auction and not auction of property of a company in liquidation. Insofar as these later kinds of sales are concerned, these are specifically governed by the principles laid down by the Apex Court in Divya Manufacturing (supra), and LICA (P) Ltd. (supra), and that is the only way two sets of judgments can be harmonised. The Supreme Court set down different principle altogether while dealing with sale of certain properties of the company in liquidation and for good reasons. The guiding principles laid down by the Apex Court in such cases are that attempt should be made to get the most remunerative price and it is the duty of the Court to keep openness of the auction so that intending bidder feel free to offer the higher value. This principle has public purpose behind it. The assets are sold of a company which have gone into liquidation. It is the duty of the Liquidator to ensure that maximum price is obtained from the sale of these assets so that creditors and workers of the company (in liquidation) are paid to the maximum extent possible. It is for this reason that in such sales the Supreme Court departed from the general principle that after the confirmation of the sale it should be interfered only when there is a material irregularity or fraud. Obviously in these cases sale can be set aside even in those cases where the Official Liquidator is getting better price.

14. In the present case sale deed admittedly has not been executed in favor of the auction purchaser. The possession was handed over to the auction purchaser on 10th November, 2005 but before the said date on 8th November, 2005, M/s PVR Housing Private Limited had already filed CA No. 1645/2005 enhancing their bid to Rs. 55 lacs. It is impossible to believe that the auction purchaser was not aware about this offer made by M/s PVR Housing Private Limited. Further, M/s. PVR Housing Pvt. Ltd. had expressed its willingness to purchase/bid for the property vide letter dated 25th October, 2005, giving bid of Rs. 52 lakhs. The Official Liquidator did not respond to the said letter and inform M/s.P.V.R. Housing Pvt. Ltd about the next date of hearing on 27th October, 2005. On the said date, the bid of M/s.Arora Udyog Ltd was confirmed. This was done in the absence of M/s. P.V.R. Housing Pvt. Ltd. In these circumstances, I feel that the judgment of the Supreme Court in the case of Lica (P) Limited (supra) and Divya Manufacturing (supra) should be applied.

15. However, I make it clear that as held in Divya Manufacturing (supra), the auction purchaser will be entitled to participate in the inter se bidding with M/s PVR Housing Private Limited and will be adequately compensated by way of interest on the amount already paid. Accordingly, CA No. 90/2006 is dismissed and CA No. 269/2006 and CA No. 1645/2005 are partially allowed and it is directed that there shall be open inter se bidding between M/s PVR Housing Private Limited and M/s Arora Udyog Limited in open Court on 6th July, 2006. The Official Liquidator will also take out advertisement on the earlier terms and conditions in newspapers The Tribune (English), The Hindustan Times (English) and in a hindi newspaper having circulation in Punjab and Himachal Pradesh. Other bidders will also be entitled to participate in the inter se bidding.

16. The applications are accordingly disposed of.