M/S Saraf Paper Mills Ltd (In ... vs -
2008 Latest Caselaw 2074 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI
                            COMPANY JURISDICTION

                      Judgment reserved on : 24.01.2008
+                     Judgment delivered on : 25.11.2008

In the matter of:

M/s SARAF PAPER MILLS LTD (IN LIQUIDATION)
THROUGH OFFICIAL LIQUIDATOR

%               CA Nos.1185/06, 554/07, 698/07, 1449/06
                                      IN
                              C.P. No.201 of 1990


                             Through: Mr. Abhishek Kumar for IFCI, IDBI
                                      Ms. Indrani Mukherjee and Ms.
                                      Chandrani Mukherjee for SCB.
                                      Mr. K.K. Rai, Senior Advocate with
                                      Mr. Ajay Kumar Agarwal counsel
                                      for applicant in C. A. No.
                                      1185/2006
                                      Mr. S.K. Luthra for the O.L.
                                      Mr.A.K.Chaturvedi, Official
                                      Liquidator.
                                      Mr. Ravi Gupta, Ms. Reema Kalra,
                                      Mr. Ankit Jain for applicant in C. A.
                                      No. 554/2007

CORAM:
HON'BLE MR. JUSTICE VIPIN SANGHI

1. Whether the Reporters of local papers may
   be allowed to see the judgment?                            Yes

2. To be referred to Reporter or not?                         Yes

3. Whether the judgment should be reported
   in the Digest?                                             Yes


VIPIN SANGHI, J.

1. By this order I propose to dispose of CA No.1185/2006

(preferred by M/s Indocap Pvt. Ltd. for enhancement of the bid price to

Rs.4.10 crores for the land and building), CA No. 1449/2006 (preferred

by IDBI for disbursement of the amount lying with the Official

Liquidator), CA No.554/2007 (preferred by M/s Surya Finvest P. Ltd. for

enhancement of the bid price to Rs.4.50 crores for the land and

building) and C.A. No.698/2007 (preferred by Industrial Finance

Corporation of India Ltd. [IFCI Ltd.]) to set aside the auction dated

04.11.2004 in favour of Gagan Educational Society in respect of the

land & building of the company in liquidation admeasuring 35 acres

and having built up area of about 79,658.75 sq.ft situated at M.I.A

Extension, Delhi-Alwar Road, Alwar (Rajasthan). Brief facts leading to

the filing of these applications are as follows:

2. M/s Saraf Paper Mills Ltd. was ordered to be wound up by this

Court on 20.05.1994 in C.P. No.201/1990 and the official liquidator

attached to this Court was appointed as its liquidator. The effort to sell

the property of the company in liquidation consisting of the plant and

machinery, and factory premises i.e. the land and building of the

company in liquidation situated at MIA Extension, Delhi-Alwar Road,

Alwar, Rajasthan started in June, 1997. As per the initial valuation

report, the aforesaid properties were valued at about Rs.2.97 Crores by

the valuer Lt. Col. R.K. Kohli vide report dated 01.02.1997. The effort

to sell the property through a sale proclamation did not fructify. On

04.09.1998 the Court directed the sale of plant and machinery

separately from the land and building. The plant and machinery was

disposed of for Rs.33.50 Lacs and the sale confirmed on 04.11.1999.

On 13.12.2001 the Court fixed the reserve price of the land and

building at Rs.2.70 Crores on the basis of valuation of Rs.1.84 Crores

for the land, and Rs.88 Lacs for the building. Sale proclamation was

issued. However, it appears no offers were received. On 26.07.2002

the Court directed issuance of a fresh sale proclamation fixing the

value of the land and building at Rs.2.71 Crores and the reserve price

of the land and building at Rs.1.60 Crores. From the sale proclamation

stated to have been issued on 7.10.2002, filed on record by the Official

Liquidator, it appears that the said proclamation stated the extent of

land as 1,41,610 sq mts. "situated at Delhi, Alwar, Rajasthan". The

extent of the built up factory was however, not disclosed in this

proclamation. On 07.08.2003 the secured creditors, namely, IDBI, IFCI

and ICICI asked that a fresh sale proclamation be issued. The Court

directed the said secured creditors to take necessary steps to get the

publication effected in various newspapers. Pursuant to the sale

proclamation only two tenders were received which were way below

the reserve price. The tender was, accordingly, cancelled on

27.11.2003 and the Court directed initiation of fresh sale process by

issuance of a fresh sale proclamation. On 22.04.2004 the Court

directed that a fresh valuation to be made since the valuation was

quite old. Accordingly, a fresh valuation report dated 14.08.2004 was

received. This was prepared by the same valuer Lt. Col. R.K. Kohli.

Surprisingly, despite the passage of considerable length of time and

contrary to the general trend, where one sees appreciation in real

estate prices, the valuer valued the land at only Rs.87.50 lacs and the

building at Rs.32,12,820/- at the highest. The following "Note" was

appended by the valuer "Note : 1. If the buildings cannot be utilized

by the purchaser economically and for the purpose as desired, he has

to demolish these buildings and in that event the values of the

structure will be only 40% of the above i.e. Rs.32,12,812/-x40/100 =

Rs.12.84.960/- say Rs.12,85,000/-." On 26.08.2004, the Court directed

issuance of a fresh sale proclamation in "The Statesman" (English) and

"Rajasthan Patrika" (Hindi) by fixing the reserve price at 60% of the

aforesaid valuation and fixed the earnest money deposit at 10% of the

said valuation. The sale proclamation stated to have been issued by

the Official Liquidator on 4.10.2004 in the English Daily has been

placed on record upon the direction of the Court. However, it appears

that no sale proclamation was published in the Hindi "Rajasthan

Patrika" as directed by the Court.

3. Pursuant to the said sale proclamation, 6 bids were received

including that of Gagan Educational Society (in short 'GES'). GES gave

an offer of Rs.90 Lacs. On 04.11.2004 inter se bidding was held

between the 6 bidders and GES raised its offer to Rs.1.30 Crores. GES

deposited the aforesaid amount of Rs.1.30 Crores. However, it

appears that there was some difficulty faced in delivering possession

of the land and building to GES by the O.L. on account of

encroachment. While that aspect was being looked into by the Court,

M/s Synergy Steels Limited filed CA No.1063/2005 by making an offer

to purchase the said land and building for Rs.1.35 Crores. However, on

11.08.2005, the Court observed that "the offer made is not

substantially higher to consider fresh auction". M/s Synergy Steels

Limited, therefore, withdrew the application with liberty to make a

fresh offer of higher amount.

4. M/s Synergy Steels Limited thereafter filed CA No.1286/2005

enhancing their bid to Rs.1.50 Crores. On 15.09.2005 notice of this

application was issued to the Official Liquidator as well as to M/s GES.

The Court also directed that in the meantime the possession of the

property be not handed over to GES.

5. On 27.03.2006 one of the ex-Directors of the company in

liquidation Mr. Gautam Saraf pleaded that the reserve price earlier

fixed was Rs.1.60 Crores, and that the bids being received were much

lower. He sought one final opportunity in the matter. On 20.04.2006

M/s Data Developers Limited also sought to jump into the fray by

moving CA No.474/2006 wherein they made an offer to purchase the

said property for Rs.1.70 Crores. The Court in its order dated

20.04.2006 recorded that M/s Data Developers Limited would be

entitled to participate in the open bidding, which would take place on

27.04.2006.

6. On 27.04.2006 a limited auction was held in the Court

between GES, Synergy Steels Ltd. and Data Developers Ltd. GES raised

its offer to Rs.3.15 Crores. The Court accepted the bid of GES of

Rs.3.15 Crores and directed deposit of the said amount after deduction

of Rs.1.30 Crores within 60 days. Official Liquidator was also directed

to quantify the interest accrued on the deposit of Rs.1.30 Crores and

GES was to get credit for the same as well. On 31.05.2006 M/s J.J.

Realtors Pvt. Ltd. filed CA No.722/2006, whereby they made an offer of

Rs.3.50 Crores to purchase the aforesaid property and tendered Rs.35

Lacs as EMD. On 31.05.2006 the Court passed an order that, till the

next date, the Official Liquidator will not handover the possession of

the property to GES. On 27.07.2006 the applicant M/s J.J. Realtors Pvt.

Ltd. did not agree to participate in an auction in Court. GES again

raised its offer to Rs.3.51 Crores. The Court granted 45 days' time to

GES to deposit the balance amount. The interest on Rs.1.30 Crores

deposited by GES was directed to be computed only till 27.04.2006.

On 05.10.2006 M/s Indocap Pvt. Ltd. filed application being CA

No.1185/2006 for enhancement of bid price to Rs.4.10 Crores for the

aforesaid property. The applicant M/s Indocap Pvt. Ltd. was directed to

deposit 10% of the offer amount as EMD within 7 days. The Official

Liquidator informed the Court that physical possession of the property

had already been handed over to GES on 08.08.2006 whereupon the

Court directed that the Official Liquidator will not issue a sale

certificate in favour of GES.

7. On 23.05.2007 M/s Surya Finvest Pvt. Ltd. filed C.A.

No.544/2007 for further enhancement of the bid price to Rs.4.50

Crores. Notice of this application was issued to GES as well as to M/s

Indocap Pvt. Ltd. Finally, IFCI Limited, one of the secured creditors,

filed CA No.698/2007 in the aforesaid chain of applications, wherein

IFCI has sought the setting aside of the earlier auction sale and also

demanded a fresh auction on the basis of the fresh valuation. Notice

of this application was also issued to GES. IFCI Ltd. states that it has

caused a fresh valuation of the said property to be carried out in order

to ascertain its realizable value. The said valuation was carried out by

HARDICON Limited on the basis of the prevailing cost of land in the

area and the present condition of the building. As per the report, the

realizable value of the said Land & Building is Rs.10.50 Crores. Even

the Distress Sale Value is Rs.8.925 Crores. The said values are much

above the highest bid received till date in respect of the said property.

A copy of the valuation report of June, 2007, of HARDICON Limited has

been produced with the said application.

8. The claim of IFCI Ltd is that apart from the applicant, there

are other secured creditors of the Company in liquidation. It is in the

interest of all the creditors, the Company in liquidation and public that

the property fetches the highest realizable value on its sale.

Therefore, applicant IFCI Ltd has also sought that the earlier

confirmation of sale made in favour of M/s Gagan Educational Society

be set aside and fresh auction be carried out.

Contentions of the Auction Purchaser - GES

9. The Auction Purchaser, GES in its reply to CA 1185/2006 has

stated that this Court had accepted and confirmed their bid of 1.30

crores during inter se bidding held on 4.11.04 in presence of O.L. After

paying the entire bid amount of 1.30 crores within the stipulated time

of 60 days, it had sent various communications seeking possession of

land and building and requested to get the sale deed for the same

executed and registered. It is also stated that O.L. vide letter dated

9.02.05 asked them to take over possession of the property in

question, as the office of the O.L was having to bear the security

expenses. Thereafter office of O.L withdrew their security from the site

and they employed their own security guards, even though possession

of the said property had not been formally handed over by the O.L to

them on account of non-availability of actual measurement of the land,

as the documents of title of the said property were lying with financial

institutions. Even this Court had directed the O.L vide order dated

19.05.05 to hand over the property after demarcation and removal of

encroachments. It is submitted that actual physical possession of the

property in question was already with them from 21.02.05 and they

have been incurring huge expenses on security and maintenance of

the property. The stand of GES is that various applications as

aforesaid have been filed with the sole motive of defeating the Court

Auction. It is submitted that the auction purchaser alone is entitled to

appreciation in the prices of the land and building after 4.11.2004,

when its bid of Rs.1.30 Crores was accepted as it had already paid,

within the time allowed, the whole of the bid amount in terms of the

order dated 04.11.04.

10. The further stand of the Auction Purchaser is that they have

complied with the orders of this Court by participating in open

bid/Auction directed by this Court. This Court after taking note of the

offer of M/s J.J. Realtors in C.A No.722/06 accepted the enhanced offer

of GES of Rs 3.51 crores vide order dated 27.07.2006 and directed

them to pay the balance amount. The balance amount was duly paid

within the stipulated time and, thereafter, even the possession of the

said land and building was formally handed over to them by the office

of the O.L vide their possession memo dated 08.08.2006.

11. The application preferred by M/s. Indocaps Private Limited

(C.A 1185/06) was filed only thereafter on 04.10.2006, and that too

without the amount of EMD, commensurate with its offer for Rs.4.10

Crores. It is claimed that the ex-Directors of the Company under

liquidation, in collusion with their friends and relations, have been

getting Applications filed through one entity or the other with

enhanced offers to buy the property every time the offer of the auction

purchaser is accepted by this Court, and that too only after the auction

purchaser deposits the enhanced bid amount. All earlier applications

were filed by different entities/companies, each of such Applicant

company falsely stating that they were not aware of the sale

proclamation issued by the O.L. for the sale of the property. In fact, all

the applications filed in the name of the different Companies were filed

by the same Advocate Sh. Ajay Aggarwal at the instance of the ex-

directors of the company under liquidation, in collusion with their

relations and friends. It is argued that this Court vide order dated

05.10.06 directed the applicant, M/s Indocaps Pvt. Ltd., to file an

affidavit, inter alia, giving names and addresses of its promoter -

directors and shareholders, and the existing shareholders and

Directors and to disclose whether they are related to any of the bidders

who had earlier given bids for purchase of the property in question.

12. Shri Ashok Jasoria the authorised representative of M/s

Indocaps Pvt. Ltd. filed an affidavit admitting that Shri Babu Lal Data

and Shri Niranjan Lal Data - the Directors of the said company, are also

the Directors of M/s Data Developers Ltd., who too had earlier given a

bid for purchase of the property in question for Rs.1.70 crores by filing

CA No.474/2006 and who was permitted vide order dated 20.04.06 to

participate in the open bidding conducted on 27.04.2006. The highest

bid offered by M/s Data Developers was only Rs.3.10 Crores as against

the revised bid made by GES of Rs.3.15 Crores, implying thereby that

even according to the Directors of M/s Data Developers Ltd. the then

prevailing market value of the said property could not be more than

Rs.3.10 Crores. Yet the same very persons as Directors of the present

applicant, M/s Indocaps Pvt. Ltd., came forward to offer the amount of

Rs.4.10 Crores for the very same property. The difference in price

could only be attributable either to the value addition to the said

property by GES, or to the market appreciation after 27.04.2006, and

in either eventuality, the auction purchaser is alone entitled to the

benefit of the same.

13. It is further stated that even a perusal of the affidavit dated

26.10.06 filed on behalf of M/s Indocaps Private Ltd. makes it

abundantly clear that almost all the existing Directors/ Shareholders of

the said Applicant Company are related to each other, and to the

Directors of M/s Data Developers Ltd. Moreover, the names and

addresses of the Directors and Shareholders of the M/s Data Developer

Ltd. have deliberately not been mentioned / disclosed in the said

affidavit despite specific directions in this regard in the order dated

05.10.2006, with a view to conceal the fact that all the Directors and

Share holders of the two companies are the members of the same

family.

14. So far as CA No.554/2007, filed by Surya Finvest Pvt. Ltd. Is

concerned, GES has raised a preliminary objection to the

maintainability of the said application, on the ground that it is not

accompanied with the amount of EMD. GES also submits that this

application is, even otherwise, not maintainable as the bid of GES

already stands confirmed on 27.07.2006 and pursuant to this they

have already deposited the whole of the bid amount and have taken

over the possession of the property in question as per the orders of

this Court.

15. GES in its reply to the application filed by M/s IFCI ltd.( CA

NO.698/ 2007) has denied that the confirmation of bid/auction of the

property in question was below the reserve price or below the then

prevailing market price at the relevant point of time. It is argued that

once the highest bid offered by them was confirmed, pursuant to which

the entire bid/auction amount was paid within the time allowed and the

possession of the Property auctioned was delivered, the said sale

/auction could not be reopened, by taking undue advantage of the

administrative delay in execution and registration of the requisite

documents of sale/transfer in their favour without any lapse

attributable to them. If the plea that the value of the said properties

have gone up subsequently are admitted for setting aside completed

sale/auction, then no Court Auction can ever attain finality, particularly

in rising market economy and in view of inevitable administrative delay

in any Court sale. It is submitted that after the sale had been

confirmed in their favour, entire confirmed bid amounts paid and

possession taken over, the said property is no more available for

sale/auction. The Applicant IFCI is not entitled to carry out the

valuation of the said property, that too at this belated stage and

without permission or authorization of this Court. It is also argued that

the Valuation Report filed on record and relied upon by the IFCI is

based on the land rate supplied by the IFCI itself and not on the basis

of the market rate of any other similar land. It was further submitted

that even as per IFCI Valuation report the valuation of land and

building is done on estimated basis keeping in view the present

condition and as per details furnished by IFCI. Therefore it is argued

that the said valuation report is that of the IFCI and not of the Valuer in

question, and as such this report cannot be made the basis of

assessment of the prevailing market rate of the property in question.

Contentions of M/s Indocaps Pvt. Ltd. - applicant in C.A. No.1185/2006

16. M/s Indocaps Private Limited has denied that the applications

C.A. No.474/2006 and 1185/2006 were filed in the name of different

companies by the same Advocate at the instance of the ex Directors of

the Saraf Paper Mills Ltd., and in collusion with their friends and

relatives. It is argued that merely because the same Advocate was

representing M/s Data Developers earlier, who is now representing M/s

Indocaps Pvt. Ltd., it does not mean that the latter company was aware

of the proceedings held earlier. It is further stated that the Applicant

M/s Indocaps Pvt. Ltd. prior to the filing of the affidavit had vide their

Application CA No. 1261/2006 placed the true facts before the Court

that Shri Babulal Data & Shri Niranjan lal Data, directors of the

applicant company were also on the board of Directors of M/s Data

Developers Ltd. It is also stated that the applicant is a separate legal

entity and has no connection whatsoever with the Ex- Directors/ their

family members of M/s Saraf Paper Mills Ltd- the company in

liquidation.

Contentions of the Official Liquidator

17. The Official Liquidator attached to this Court has also filed its

reply to C.A 1185/2006 opposing the same as being highly belated, as

the Sale Notice was published on 07.10.2004; the last date of

submission of bids was 02.11.2004; and thereafter, the bid was finally

confirmed in favour of Auction Purchaser on 27.07.2006. It further

stated that the prices of the properties are increasing day by day and

in case the application of the present nature are entertained and

allowed, there would be no end to litigation and the process of

liquidation will come to a halt.

18. The stand taken by OL in response to the application filed by

Surya Finevest Pvt. Ltd. is similar to its stand in response to CA

1185/2006. However, it is submitted that the OL has no objection to

the property being sold to Surya Finvest Pvt. Ltd. in case the auction

purchaser i.e. GES also consents and concedes in favour of the

applicant Surya Finevest Pvt. Ltd., as there is substantial difference of

price.

19. The OL in its reply to the application filed by IFCI has stated

that his office is not aware of the market value of the land in question.

He states that in view of the fact that a responsible organization like

IFCI has moved the present application, and in public interest, his

office has no objection in case the fresh auction is conducted at the

cost and expense of IFCI.

Discussion on case laws cited by the parties

20. Various decisions have been cited by the applicants as well as

the auction purchaser - GES in support of their respective submissions.

The main thrust of the argument of the auction purchaser has been

that the possession has been handed over to it by the official liquidator

and, the sale having been confirmed, this Court has become functus

officio and does not have the jurisdiction to set aside the sale after

confirmation. The auction purchaser has also contended that the price

offered by it, which had been revised from time to time, was the price

on the date the offer was made by it, and the subsequent applications

offering higher price have been filed only because of the escalation of

prices with the passage of time. Since land prices normally keep

appreciating, if these kind of applications are entertained, there would

be uncertainty in Court auctions and people would not come forward to

participate in such auctions.

21. In Allahabad Bank vs. Bengal Paper Mills Company. Ltd.

& Anr. [1999] 96 Com.Cases 804 the Supreme Court was hearing an

appeal from a decision rendered by a Division Bench of the Calcutta

High Court wherein the Calcutta High Court had dismissed the

application of the secured creditor to set aside the sale of the property

of the company in liquidation on the ground that the banks/secured

creditors had participated in the sale from the very beginning. No

objection had been raised by the banks to the proposed sale of the

assets. The sale was concluded in the presence of the advocates

appearing on behalf of the banks. At no point of time the banks

objected to the sale of the assets or the price at which the assets were

sold. The Division Bench held that in such cases the banks should

have acted with promptitude. No allegation of fraud had been made

against the purchaser. The purchaser had incurred expenses in

running the factory and entered into contracts with various parties. No

appeal had been preferred against the order dated 15.09.1989

directing sale of the properties till February 3, 1990, and stay of the

sale was not even asked for. The auction purchaser had been allowed

to take possession after the sale. It was only after the purchaser had

taken possession, employed people and placed orders that the bank

had woken up to challenge the sale. The delay was found by the

Division Bench to be fatal to the case of the Bank. The Division Bench,

however, observed:

"There is however, considerable force in the argument of Mr. Mitra that the sale was made with undue haste. The proposal for sale of a large paper mill should only have been effected after giving wide publicity all over India. Moreover, the successful bidder's offer should have been examined in depth before acceptance. Some enquiry should have been made to find out the number of workers actually employed by the company in liquidation at the time of the closure of its mills........................................... The sale of the assets should not have been made in a way to deprive the right of all the creditors, including the banks, to proceed against the assets of the company to realise their dues."

22. The Division Bench then stated:

"However, the only parties that have come to this court for setting aside the sale are the banks who had participated fully at every stage of the sale. The banks were represented at the time when the decision was taken to sell the assets of the company. The banks were also present when the sale was finalized. The banks had also got the matter mentioned for effecting certain corrections in the sale order and a prayer was made for disposal of the sale proceeds. It does not appear that the banks were under any misapprehension that the secured assets were being sold.

The banks had participated in every proceedings which culminated in the sale of the assets and made a prayer for prompt payment out of the sale of the assets. They cannot after a lapse of five months turn around and pray for setting aside the sale on the ground that the bank's interests were not properly protected at the time of the sale........

In the facts and circumstances of the case and

having regard to the conduct of the bank, this application must be dismissed."

23. The Supreme Court, however, did not agree with the view of

the High Court. It observed:

"It is to be noted that no reserve price for the sale was fixed. Why this should have been so is not understood, particularly having regard to the fact that a valuer had been appointed of the assets and properties and a report obtained. The valuation report was not disclosed. The order of the learned single judge does not set out what the valuation of the property that was sold was. It does not even state that, in view of that valuation, the offer of Rs.2 crores made by the second respondent was a fair and adequate price. Further, the learned single judge did not notice what the Division Bench did, namely, "the company had 15.2.73 acres of leasehold land. This was not taken into consideration by the valuer on the ground that the lease period was only up to October 14, 1992. The valuer has not indicated whether he had examined the lease deed or whether there was any renewal clause in the lease agreement." The valuation was, therefore, itself suspect."

"The sale was advertised once only in three newspapers, two of which at least were local newspapers. For a sale of the magnitude of that with which we are concerned, this was surely inadequate publicity. Inadequate publicity necessarily suggests the possibility that a better price could have been obtained."

.................................................................

"The observation of the Division Bench in the order under appeal that the sale was conducted with undue haste is very appropriate. So are the other critical observations that the Division Bench made, which we have quoted above. It could not but have been obvious to the Division Bench, therefore, that there was every possibility that the sale had not procured the best possible price. Even so, the Division Bench did not interfere with the order of sale, because, in its view, the second respondent had been allowed by the banks to take possession of the assets and properties and to incur expenditure. In our view, the Division Bench was in error.

Upon liquidation, the assets and properties of the

company in liquidation vest in the official liquidator for the benefit of its creditors. It is only from out of the sale proceeds of these assets and properties that the creditors of the company can hope to recoup their dues. To ensure that the best possible price is realised upon the sale of these assets and properties, the sale thereof by the liquidator is required to be confirmed by the High Court. It is the obligation of the High Court to the creditors of the company in liquidation to make sure that the best possible price has been realised."(emphasis supplied).

24. The Court also cited the decision in Navalkha & Sons v.

Ramanuja Das [1970] 40 Comp. Cas. 936 and quoted with approval

the following passage:

"The principles which should govern confirmation of sales are well-established. Where the acceptance of the offer by the Commissioner is subject to confirmation of the court the offeror does not by mere acceptance get any vested right in the property so that he may demand automatic confirmation of his offer. The condition of confirmation by the court operates as a safeguard against the property being sold at inadequate price whether or not it is a consequence of any irregularity or fraud in the conduct of the sale. In every case it is the duty of the court to satisfy itself that having regard to the market value of the property the price offered is reasonable. Unless the court is satisfied about the adequacy of the price the act of confirmation of the sale would not be 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 Ratnaswami Pillai v. Sabapathi Pillai, AIR 1925 Mad 318, and S.Soundarajan v. Roshan and Company. AIR 1940 Mad 42. In A. Subbaraya Mudaliar v. K. Sundarajan, 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).

25. The Court emphasised that the interest of the creditors of the

company, particularly the unsecured creditors, ought to outweigh

equities, if any, arising in favour of the auction purchaser on

confirmation of sale and handing over of possession. The Supreme

Court held that holding of auction in Court without giving opportunity

to members of the general public to participate in the auction was not

sound exercise of discretion.

26. In Divya Manufacturing Company (P) Ltd. (2000) 6 SCC

69, the Supreme Court disapproved of the practice of submitting bids

at the least possible price in court auctions by the bidders and

subsequent attempts by them to raise the price to bare minimum

possible price but the market price. In that case a submission was

made before the Court that once "the sale is confirmed, subsequent

higher offer cannot constitute a valid ground for setting aside such

confirmation". It was also contended that the court could not review

its earlier order having become functus officio. The Apex Court rejected

these submissions and observed in paragraph 11 of the judgment as

follows:

"11. In our view, on facts it is apparent that the Division Bench of the High Court has considered all the relevant facts including the fact that at the initial stage, the appellant "Divya" offered only Rs.37 lakhs to purchase the

properties. That means, the appellant wanted to purchase at a throwaway price. Thereafter, at the intervention of the Court, the price was increased to Rs.1.3 crores by the appellant. This indicates that the appellant was keen to purchase the property, however, by paying only the bare minimal amount and to take advantage of sale by the Liquidator in the hope that if there are no other purchasers, it would purchase the Company at a price which is abnormally below the market price. It is also true that on 2-7-1998, the offer made by the appellant was accepted and it was ordered that sale in its favour be confirmed, but at the same time, before possession of the property could be handed over, or before the sale deed could be executed, in its favour, Respondents 7 & 8 pointed out that the assets and properties could be sold at Rs.2 crores. For showing their bonafides, they were directed to deposit Rs.40 lakhs each and also to pay Rs.70 thousand each as damages to the appellant. Further, the application for setting aside the sale was filed within a few days of the order accepting the bid of the appellant. In this set of circumstances, when correct market value of the assets was not properly known to the Court and the sale was confirmed at a grossly inadequate price it was open to the Court to set it naught in the interest of the Company, its secured and unsecured creditors and its employees. The appellant is also duly compensated by payment of Rs.70 thousand each by Respondents 7 and 8." (emphasis supplied).

27. The Court cited with approval the earlier decision in

Navalkha (supra) and LICA (P) LTD. (No.2) v. Official Liquidator

& Anr. [1996] 85 Comp.Cas. 792. The Supreme Court observed that

the court is empowered to set aside the sale even after it had been

confirmed for the interest of the creditors and in the larger public

interest. The Court having arrived at the conclusion that the offer

price was totally inadequate, it was the interest of the company and its

creditors to set aside the sale. The Court observed:

"................. This may cause some inconvenience or loss to the highest bidder but that cannot be helped in view of the fact that such sales are conducted in court precincts and not by a business house well versed in the

market forces and prices. Confirmation of the sale by a court at a grossly inadequate price, whether or not it is a consequence of any irregularity or fraud in the conduct of sale, could be set aside on the ground that it was not just and proper exercise of judicial discretion. In such cases, a meaningful intervention by the court may prevent, to some extent, underbidding at the time of auction through court. In the present case, the Court has reviewed its exercise of judicial discretion within the shortest time." (emphasis supplied)

28. In LICA (supra) the Court had earlier set aside the open

auction conducted and directed inter se bidding between the applicant

and the auction purchaser in the court. However, subsequently when

even this auction was challenged before it, it directed fresh open

auction since it was of the opinion that the inter se bidding had failed

to fetch the market price for the assets in question, and it was within

the interest of the creditors that the assets of the company fetched

adequate price.

29. Thus, the powers and obligations of the Court with respect to

auction sale of properties of a company under liquidation have been

dealt with exhaustively by the Supreme Court. The Supreme Court

has also laid down the considerations to be kept in mind while

exercising these powers while confirming or rejecting auction sales. In

view of these decisions it cannot be said that this Court has no power

to reopen an auction sale after it has been confirmed, or after the

possession has been handed over to the auction purchaser.

30. However, the auction purchaser has sought to contend

otherwise. He has relied upon various decisions to buttress his

contention, which I now proceed to deal with.

31. In Ram Maurya V. Kailash Nath & Others, 1999(9) SCC

276, the Supreme Court was dealing with a case pertaining to Order

XXI Rule 90 CPC. In the said case the judgment debtor was assailing

the auction sale on grounds of material irregularity and fraud in

conducting the auction sale. The objections were dismissed on the

ground that the objector had neither substantiated the allegation of

fraud nor material irregularity. In appeal, the Supreme Court upheld

the order of the executing Court on the ground that the objector had

not only failed to substantiate his allegations but had even otherwise

not pleaded that they were put to substantial injury on account of such

material irregularity. This decision turned on the facts of that case,

and the failure of the judgment debtor to substantiate the allegations

of fraud or material irregularity. The said decision is restricted to

applicability of Order XXI Rule 90 and is, therefore, on a completely

different issue and does not advance the case of the auction

purchaser.

32. In any event, in my view the scope of the courts enquiry into

the case of an auction sale of a property of the Judgment Debtor in

execution proceedings stands on a different footing, when compared to

the sale of the assets of a company that has gone into liquidation. In

the case of the sale of assets of a company that has gone into

liquidation, there is hardly anyone to watch out for the interest of the

secured and unsecured creditors, employees and shareholders. The

state of affairs is such, that the official liquidator invariably functions as

a passive and indifferent entity. This is the position in this case as well,

as would become clear a little later when I deal with the kind of

proclamation published by the Official Liquidator, in response to which

GES and five others tendered their bids, and the subsequent acts and

omissions on his part. The erstwhile management is either not

interested (on account of the fact that it does not see any hope of

salvaging anything for themselves from the sale of the properties and

assets of the company (as the claims of the secured creditors and

employees etc. take priority over their claims as shareholders), and

because it is generally insulated from any personal liability (as the

company is a limited liability entity), or sometimes may itself be

interested in ensuring that the sale of the property and assets of the

company takes place at prices well below the prevailing market price,

to make covert gains in the bargain. The interest of the secured

creditors is also limited to ensure that their claim is satisfied. They are

not particularly concerned with the satisfaction of the claims of the

unsecured creditors or the contributories/shareholders. It is the

obligation of the Court to watch the interest of the creditors, workmen

and shareholders of the company in liquidation. However, in the case

of a sale by auction in execution of a civil Court's decree under order

XXI CPC, the Judgment Debtor would normally, for his own sake,

ensure that the auction sale fetches the highest price, since he has

direct monetary stake in the sale price. Quiet often the liability under a

civil court's decree attaches not merely upon the property that may be

put to auction, but chases the Judgment Debtors and his/their assets

as well till the decree is satisfied. If the Judgment Debtor is an

incorporated company and it is facing the auction sale of its property in

execution proceedings, in all likelihood it would be a solvent company

which has not gone into liquidation (else the execution sale would not

proceed and the sale would be conducted by the Company Court), and

its interest would be watched by its management. Therefore, the

scope of enquiry by the Court of an auction sale conducted by the

executing court under Order XXI C.P.C cannot be compared to a sale

conducted by a Company court. The latter is bound to be much wider

in its scope.

33. Reliance has been placed upon M/s. KayJay Industries(P)

Ltd V. M/s Asnew Drums (P) Ltd and Others, (1974) 2 SCC 213 to

contend that in court auctions best prices are often not forthcoming

due to various uncertainties attached such auctions. It is also

submitted that the Supreme Court took judicial notice of the fact that

too many adjournments and postponements of auction sales when

market price was not forthcoming in bids may itself prove to be a self-

defeating exercise whereby businessmen and industrialists may loose

faith in the institution of Court directed auction. However, I find that

on facts the Court was largely influenced by repeated postponements

of the auction itself, and the presence of the Director of the judgment

debtor company at the auction when postponements were made and

bids received on numerous occasions who never voiced against the

conduct of the sale or asked for postponement. Moreover, this was

also an application under Order XXI Rule 90 of the C.P.C. In the said

judgment while dealing with the expression, "material irregularity", the

Supreme Court observed:

"............... The expression `material irregularity in the conduct of the sale' must be benignantly construed to cover the climax act of the Court accepting the highest

bid. Indeed, under the Civil Procedure Code, it is the Court which conducts the sale and its duty to apply its mind to the material factors bearing on the reasonableness of the price offered is part of the process of obtaining a proper price in the course of the sale. Therefore, failure to apply its mind to this aspect of the conduct of the sale may amount to material irregularity. Here, substantial injury without material irregularity is not enough even as material irregularity not linked directly to inadequacy of the price is insufficient. And where a Court mechanically conducts the sale or routinely signs assent to the sale papers, not bothering to see if the offer is too low and a better price could have been obtained, and in fact the price is substantially inadequate, there is the presence of both the elements of irregularity and injury."

34. This was a case where there were 40-50 bidders present in

the court including leading industrialists, on each occasion the auction

took place, including the day on which the bid in question was made.

That is certainly not the position before me in this case and this case

also does not advance the auction purchaser's submissions.

35. Reliance has been placed upon Ashwin S. Mehta V.

Custodian, (2006) 2 SCC 385 to contend that ordinarily a sale can be

set aside only under Rules 89, 90 and 91 of Order XXI. However, I find

that this was a case where the decree holder was himself the auction

purchaser and court was only distinguishing between cases where a

decree holder was the auction purchaser vis-a-vis a bona fide

purchaser without notice. The facts and the issues before the Court

were totally different and no universal proposition of law contrary to

that which has been laid down in Allahabad Bank (supra) case or

LICA(2) (supra) was ever laid down.

36. The decisions in Rajender Singh V. Ramdhar Singh &

Others (2001) 6 SCC 213 , Saheb Ram V. Mohd. Yousufuddin &

Others (2006) 4 SCC 476 Shri Radhey Shyam V. Shyam Behari

Singh (1970) 2 SCC 405 were relied upon to show that mere

inadequacy of the price is not a ground for setting aside Court's

auction sale. But even in these decisions it was observed that if the

inadequacy of the price was caused by reasons of the material

irregularity or fraud and has resulted in substantial injury, then the

ground for setting aside auction sale is made out. Even otherwise, the

aforesaid principles would have to be applied with caution when it

comes to an auction sale if the property of the company which has

gone into liquidation. Though reliance has also been placed on

Navalakha & Sons (supra) to contend that once the court comes to

the conclusion that the price offered is adequate, no subsequent

higher offer can constitute a valid ground for refusing confirmation of

sale of offer already received, I find that the ratio of this case as

discussed earlier is against the auction purchaser.

Examination of the facts of this case and the conclusion

37. I now proceed to examine the facts of this case in the light of

the aforesaid discussion of the case law cited before me. At the out set

I would like to state the extent of the land and building in respect of

which the auction sale in question has taken place. The details of the

land and building have been taken by me from the report of the valuer

Lt. Col. R.K. Kohli as contained in his report dated 18.8.2004. The

same reads as follows:

"DESCRIPTION OF PROPERTY

A) FACTORY BUILDING

It is a big hall consisting of single storey/double

storey/three storey in various width section of the hall.

i) Front Section Single Storeyed Hall Area = 9114 sq.ft. Ht.22 upto truss tie.

ii) Continuous Hall a portion double height Gantry rails over column brackets. Area 929.5 sq.ft. Ht.26' upto truss tie.

iii) Continuous Hall two storeyed with three stairs. It has gantly rails over colulmns brackets on F.F. Area = 7132 sq. ft., Ht. GF 16, FF 10' upto truss tie.

iv) Continuous Hall of the storeyed like (iii) above, Area = 3140 sq. ft., Ht. GF 16', FF 10' upto truss tie.

v) Continuous Hall of the two storeyed like (iii) & (iv) above, Area = 3140 sq. ft., Ht. GF 16', FF 10' upto truss tie.

vi) Continuous G.F. Hall of the two storeyed like (iii) to

(v) above, Area = 4273 sq.ft. Ht. as above.

           vii) Continuous Hall of three storeyed
           Area GF=       3937.5 sq. ft. Ht. 16'
           Area FF =      3937.5 sq. ft. Ht. 10'
           Area SF =      3937.5 sq. ft. Ht. 12' upto truss tie

viii) Side Hall Single storeyed for straw cutter Area = 1735 sq. ft. Ht. 14'

B) ADMINISTRATIVE BLOCK OFFICE.

A single storey office building having 9 rooms, a toilet, a passage and an entrance hall.

Area = 3666 sq. ft.

C) CANTEEN

A single storeyed building having a Hall, three rooms, a bath, a W.C. a Passage an open platform in front.

Area + 792 sq. ft.

D) MANDIR

A single storeyed building having a Hall Area 256.25. sq. ft.

E) BLOCK OF SINGLE STOREYED 3 ROOMS

Area = 858.5 sq. ft.

F) BLOCK OF SINGLE STOREYED -Ten rooms. Diplated condition Area + 1032 sq. ft.

G) TRANSFORMER & SWITCH ROOM single storey building having a hall, 4 rooms with partitions

Area = 5551 sq. ft.

H) BUILDING FOR CUTTER. Single storey having a hall.

Area = 1125.75 sq. ft.

I) OPEN WATER TANK WITH PUMP HOUSE Open Water Tank + Approx 7,15,000 ltrs.

J) WEIGH BRIDGE ROOM Area + 210 sq. ft.

K) GATE OFFICE - Single Storeyed Area 10'6' x 7'6" = 78.75 sq. ft.

L) COMPOUND WALL 4 ft. high about 1720 RFT with iron grill on top 3 ft. high on 400 RFT only.

M) ROAD & PAVINGS

Road = 4700 sq. ft.

Road = 7480 sq.ft.

Road = 3000 sq. ft."

38. The aforesaid land and building of the company in liquidation

is situated at Delhi Alwar Road in an industrial area. One of the initial

valuation of the aforesaid land and building and plant and machinery

was assessed at Rs.2.79 crores vide report dated 1.2.1997. The plant

and machinery was disposed of Rs.33.50 lakhs on 4.11.1999. On

13.12.2001 the Court fixed the reserve price for the aforesaid land

and building at Rs.2.70 crores. Pertinently, this reserve price of

Rs.2.70 crores was fixed nearly after 4 years and 10 months of the

valuation being made by Lt. Col. R.K Kohli on 1.2.1997. It appears that

sale proclamation was issued but surprisingly no offers were received.

After the passage of another about 8 months from 13.12.2001 (when

the reserve price of the land and building was fixed at Rs.2.70 cores)

the Court on 26.7.2002 reduced the reserve price of land and building

to Rs.1.60 crores presumably on account of the fact that the earlier

effort to invite offers for issuance of sale proclamation had proved to

be non responsive. Eventually on 22.4.2004 the Court directed a fresh

valuation to be made. Even though fresh valuation report was made

on 14.8.2004 i.e. nearly 7 years after the previous valuation made on

1.2.1997, surprisingly this valuation report valued the land at only

Rs.87.50 lakhs as opposed to the value of Rs.1.84 crores fixed by the

Court on the basis of the earlier valuation vide order dated 13.12.2001.

The value of the building was assessed by the valuer in his report

dated 14.8.2004 at about Rs.32 Lakhs as opposed to Rs.88 lakhs fixed

by the Court on the basis of the earlier valuation of the year 1997.

According to the valuer the value of the building could go down by

60% in case the existing building cannot be utilized by the purchaser.

The Court issued a fresh sale proclamation on 26.8.2004 fixing the

reserve price at 60% of the fresh valuation. Pertinently, amongst the

six bids received in response to the sale proclamation the offer of GES

was for Rs.90 lakhs as against the reserve price of Rs.71.77 lakhs. On

4.11.2004 GES raised its offer during inter-se bidding between six

bidders to Rs.1.30 crores. This bid of GES was accepted. At this stage

M/s Synergy Steel Ltd. Moved CA No.1063/2005 to make an offer of

Rs.1.35 crores. The Court found the offer only marginally higher than

the bid of Rs.1.30 cores given by GES and, therefore, rejected the

same. Soon thereafter M/s Synergy Steel Ltd. made an offer of Rs.1.50

crores by moving CA No.1286/2005. The Court while entertaining this

application directed that possession of the property be not handed

over to GES. Therefore, it appears that even at that stage, though the

auction purchaser GES had paid the entire consideration of Rs.1.3

Crores, the Court was still open to accept a higher offer, provided the

same was substantially higher. M/s Data Developers Ltd. made a still

higher offer of Rs.1.70 crores by moving CA No.474/2006. On

20.4.2006 the Court ordered that Data Developers Ltd. would be

entitled to participate in the open bidding which would take place on

27.4.2006. Therefore, once again, it appears that the Court considered

the issue of sale of the property to GES as open to reconsideration. On

27.4.2006 the limited auction was held between three bidders

including GES who raised its offer to Rs.3.15 crores.

39. Therefore, the Court reopened the process of bidding, though

in a limited way, and practically gave a go bye to the bid of GES of

Rs.1.30 crores which had been accepted on 04.11.2004, even though

the entire amount had been deposited GES. The bid of Rs.1.30 crores

of GES was still not considered as final, binding and conclusive and did

not vest GES with a right to purchase the aforesaid property for

Rs.1.30 Crores. Even GES did not consider its bid of Rs.1.30 Crores as

full and final. It did not oppose the fresh limited auction of the

property fixed for 27.04.2006. In fact, it participated in the inter se

bidding held on 27.04.2006 in Court along with Synergy Steels Ltd. and

Data Developers Ltd. and raised its offer to Rs.3.15 Crores.

40. M/s J.J. Realtors Pvt. Ltd. by filing CA No.722/2006 on

31.5.2006 made a still higher offer of Rs.3.50 crores. On 31.5.2006 the

Court again intervened and directed the Official Liquidator to not to

hand over the possession of the property to GES. This act of the Court

further demonstrates that even the offer of Rs.3.15 crores revised by

GES on 27.4.2006 was not considered to be final and binding upon the

official liquidator. Even GES did not oppose this intervention and

offered to purchase the land and building at Rs.3.51 crores on

27.7.2006. Thereafter two applications have been moved viz. CA

No.1185/2006 on 5.10.2006 by Indocap Pvt. Ltd. making an offer to

purchase the land and building at Rs.4.10 crores and M/s Surya Finvest

Pvt. Ltd. by moving CA No.544/2007 on 23.5.2007 making a still higher

offer of Rs.4.50 cores.

41. The aforesaid narration of facts shows that GES, from time to

time, raised its offer only to a bare minimum that was necessary to

emerge as the highest bidder amongst the handful of bidders who

were bidding for the land and building in question. Its initial offer was

only Rs.90 lakhs as opposed to reserve price of Rs.71.77 lakhs. During

the inter se bidding it raised its offer, within a space of a couple of

months, to Rs.1.30 crores i.e. over 40% higher than its initial bid.

Between 4.11.2004 and 27.4.2006, (i.e. about 18 months) once again

on a limited bidding between only 3 bidders, GES raised its offer to

Rs.3.15 crores to beat the next highest bid of M/s Data Developers Ltd.

This shows that an increase in the offer made by GES by 142.30% over

a period of about less than 18 months. On 27.7.2006 GES again

offered Rs.3.51 crores. This shows a further enhancement of 11.43%

over a period of 3 months. The offer of Rs.3.51 crores was made to

defeat the offer of M/s J.J. Realtors Pvt. Ltd. of Rs.3.50 crores.

42. The aforesaid analysis clearly shows that GES never

participated in spirit of purchasing the land and building in question on

its true correct market value. Each of the successful offers made by

GES was substantially higher than its earlier successful offer, within a

short span of time. The endeavour was merely to secure the property

in question at the minimum amount that was necessary to be offered

to emerge as the successful bidder. The further offers made by M/s

Indocaps Pvt. Ltd. on 05.10.2006 for Rs.4.10 crores and thereafter by

M/s Surya Finvest Pvt. Ltd. on 23.5.2007 for Rs.4.50 crores also show

that even the offer of Rs.3.51 crores finally made by GES was not the

correct market value of the property in question on the day it was

made i.e. 27.07.2006.

43. Even if one were to ignore the offer made by Surya Finvest

Pvt. Ltd. for Rs.4.50 crores, since it is claimed that the said applicant

has not deposited the earnest money of Rs.45 lakhs in this Court, there

still a substantial increase of nearly Rs.59 lakhs between the offer

made by GES on 27.7.2006 and the offer made by Indocap Pvt. Ltd.

of Rs.4.10 crores on 5.10.2006. This demonstrate an increase of

16.80% over and above the bid price offered by GES within a space of

three months.

44. Now I come to a serious procedural lapse noticed by me at the

time of examining the case, which completely vitiates the whole

process of auction sale in this case. The sale proclamation issued by

the Court vide order dated 26.8.2004, in response to which, only six

bidders including GES participated was directed to be published in The

Statesman (English) and Rajasthan Patrika (Hindi). Since the copies of

the sale proclamations were not found on record, the matter was listed

for directions on 15.10.2008 and the Official Liquidator was directed to

place on record all the sale proclamations issued in respect of the

property in question from time to time, particularly the sale

proclamation issued in pursuance of the Court order dated 26.08.2004.

In response to this direction, the O.L. has placed on record the sale

proclamations stated to have been published on 07.10.2002 and

04.10.2004. However, the proclamations directed to be published in

the Hindi newspapers have not been placed on record. Mr. S.K. Luthra,

counsel for the O.L was informed that only the proclamation in English

newspaper had been placed on record, but he has not placed the Hindi

version on record despite passage of considerable length of time.

Therefore, it appears the Hindi proclamation has not been published. It

is most shocking to note that the proclamation as published in English

does not even contain the extent of the property sought to be disposed

of. The proclamation as stated to have been published in "The

Statesman" merely reads:

"SALE NOTICE

1. Sealed tenders on "As is Where is and Whatever there is Basis" are invited for the purchase of Land & Building belonging to the abovesaid Company situated at Delhi-Alwar Road, M.I.A. Extension, Alwar, Rajasthan. The tenders can be submitted for:

(i) For Land & Building

2. The property in question of the abovesaid Company can be inspected on 19.10.2004 and 20.10.2004, between 12-30 p.m. and 4 p.m.

3. The tender should reach the office of Official Liquidator, A2, W2, Curzon Road Barracks, K.G. Marg, New Delhi-110001, on or before 02.11.2004, in sealed cover marked "Offer for Purchase of Land & Building of "Saraf Paper Mills Limited (In Liqn.)", accompanied with Demand Draft or pay order drawn in favour of Official Liquidator, Delhi, payable at New Delhi, towards Earnest Money as under:

                                          RESERVE       EARNEST
                                            PRICE        MONEY
             1.       Land & Building   Rs.71,77,692   Rs.7,17,769

4. That before submitting their tenders the tenderers should satisfy themselves from the appropriate authorities about the right/title duty & dues payable to them in respect of the property in question including all other covenance running with the property, as later on no objection of any kind shall be entertained in this regard by the Hon'ble Court.

5. The tender will be opened on 04-11-2004 at 12-30 p.m before the Hon'ble Company Judge in Chamber (Court No.11), Delhi High Court, New Delhi in the presence of such tenderers who may like to be present at that time.

6. The Hon'ble Court may direct inter se bidding amongst the tenderers & further reserves the right to negotiate with all the tenderers to raise their offers.

7. The tenderers whose tender/bid is accepted shall have to deposit with the Official Liquidator by Demand Draft or pay order a further sum of Rs.25% of the tender/bid amount within seven days and the balance of purchase money within sixty days from the date of acceptance of the bid or as may be directed by the Court.

The Copy of "TERMS AND CONDTIONS OF SALE" can be had from the office of the under mentioned on any working day between 10 a.m and 5.00 p.m.

8. That Hon'ble High Court reserves its rights to receive

tenders after the due date on such terms and conditions as deemed fit and proper in the facts and circumstances of the case in the interest of the Company (in liquidation).

9. The Hon'ble High Court reserves the right to reject any/tenders/bids at any time without assigning any reason whatsoever.

ALOK SAMANT RAI OFFICIAL LIQUIDATOR A2,W2, Curzon Road Barracks, K.G. Marg, New Delhi-110001."

45. As noticed hereinabove, the land and building in question

comprises of a very large parcel of land admeasuring 35 acres and

building having covered area of 79,658.75 sq. ft. The proclamation

merely indicates the reserve price without disclosing the area of the

land and building being offered for auction sale. The reserve price

itself is shown at Rs. 71,77,692/-. Therefore, by reading the sale

proclamation as published, the reader would not come to know the

extent of the property being offered for sale through auction.

Obviously, persons looking for such large tracts of land and building in

the authorized industrial area in question, with deeper pockets, who

may be interested in purchase of such large industrial properties would

not get interested and alerted by such a proclamation which can only

be described as wholly inadequate and misleading. I cannot help but

express my anguish and dismay on the complete lack of prudence

exhibited by the official liquidator while issuing the aforesaid sale

proclamation. Any right minded and prudent person, with an average

common sense and business sense, would include at least the

dimensions of the land and building that are proposed to be sold

through public auction while issuing the sale proclamation. It is well

known that the buyers for a large industrial plot with massive

construction thereon are a different class when compared to buyers

who may be interested in smaller plots. The purpose of issuing the

sale proclamation is to catch the attention of that class of buyers who

are interested in, and have the capacity to buy the property being put

for sale by auction. In the present case, this objective has certainly not

been achieved, thanks to the wholly misleading drafting of the sale

proclamation. The only thing disclosed in the sale proclamation dated

4.10.2004 is the fact that industrial land with building situated at Delhi-

Alwar Road in M.I.A. Extension, Alwar, Rajasthan is being offered for

sale. The reserve price of Rs.71.77 lakhs does not give any clue about

the extent of the property. If anything, it is highly misleading of the

extent of the property, as it is highly depreciated. To illustrate the

point, I may take the instance of a sale proclamation in respect of a

"vehicle". The "vehicle" may be a bicycle, a two wheeler, a small

motor car or a bus. Its price may range between a few hundred

rupees and may run into crores of rupees, depending on its brand,

condition, model etc. The mere disclosure of the reserve price, which

may be highly depreciated, would obviously not get the right kind of

buyers interested when they read the proclamation. Similarly, from

the proclamation in question it cannot be said whether a few hundred

sq.meters of land with a small structure, or a few acres of land, with

substantial construction was being put to sale.

46. The official liquidator holds the position of great responsibility

and of public trust. But I am sorry to say that he appears to have

acted with least interest or concern towards the rights of the creditors

and shareholders of the company in liquidation. It appears from his

conduct that he couldn't care less even if the valuable property of the

company in liquidation were to be sold for a song. Otherwise, it would

have been the official liquidator to first point out to the Court the vast

drop in the valuation of the property in question as reported by the

valuer, and the errors and omissions in the publication of the sale

proclamation of 7.10.2004. The aforesaid constitute grave dereliction

of his duty by the Official Liquidator, not only at the time of issuance of

the sale proclamation on 7.10.2004, but also in not bringing to the

notice of the Court the lapses and omissions in the issuance of the

proclamation, when the matter was listed before the Court on

4.11.2004 and the Court accepted the bid of GES of Rs.1.30 crores,

and at any stage thereafter till date.

47. I am, therefore, satisfied that the whole process of issuance

sale proclamation, the inviting of bids, the making of bids by only a

handful of persons including GES and the closed and limited inter se

bidding held thereafter by the Court is vitiated by gross material

irregularity, if not fraud, and price of Rs.3.51 crores finally offered by

GES is wholly inadequate consideration for the extent of land and

building involved in this case. The Court while exercising its

jurisdiction of accepting the bid of GES, on each of the aforesaid

occasions, could not properly apply its mind to the aforesaid lacune in

the sale proclamation, which obviously prevented the real and serious

players from participating in the auction process, as these facts were

kept hidden from the Court by, inter alia, the Official Liquidator.

48. IFCI is one of the secured creditors of the company in

liquidation and is interested in realization of the highest value from the

sale of the land and building to meet repayment of the dues of the

secured creditors and the workmen which would rank pari pasu. IFCI

has produced a valuation report of another valuer namely Hardicon

Ltd. of June, 2007 which values the land and building at Rs.10.50

crores and even the distress sale value is Rs.8.925 crores. It,

therefore, appears that the price of Rs.3.51 crores finally offered by

GES is very below the market price prevalent even as on 27.7.2006.

49. The land and building in question which is of substantial

dimensions and magnitude was not adequately advertised so as to

give sufficient notice to interested parties. Only a handful of bidders

learnt of the same and GES has sought to exploit this situation. The

phenomena that one has seen in this case i.e. of repeated applications

being made to increase the bid price by one or the other entities soon

after the bid made by GES had been accepted by the Court on each

occasion, and on each occasion GES has marginally increased its bid to

out do the other bidders, is nothing but a result of the bid price of GES

being much lower than the prevalent market price of the land and

building in question. It is not sufficient, in an auction sale pertaining to

the property of a company in liquidation, that the price offered by a

bidder is highest in competition with the others who are bidding before

the court. It is also essential that the highest bid price is

commensurate with the prevalent market price. Whenever the highest

bid price, which may have been accepted by the Court, is substantially

lower than the prevalent market price applications of the kind moved

by Synergy Steels Ltd., Data Developers Ltd. J.J. Realtors Ltd, Indocaps

Pvt. Ltd. and, finally, Surya Finvest Pvt. Ltd are bound to come.

50. I am, therefore, of the view that the sale of the Land and

Building in favour of GES is liable to be set aside and cancelled as the

same does not appear to have taken place at the prevalent market

price at any point of time.

51. For all the aforesaid reasons, I set aside the sale of the land

and building of the company in liquidation to GES and reject their bid

of Rs.3.51 crores. The official liquidator is directed to forthwith take

over the possession of the entire land and building of the company in

liquidation, if necessary by resort to police aid, within two weeks. The

official liquidator shall forthwith post its security guards in and around

the property in question to ensure that the fittings and fixtures on/in

the land and building are not removed by GES or by any other person

in the meantime. C.A. No.698/2007 filed by IFCI is accordingly allowed.

CA No. 1449/2006 filed by IDBI is, however, dismissed as the auction

sale in favour of GES has been set aside.

52. So far as the applications made by Indocap Pvt. Ltd. and

Surya Finvest Pvt. Ltd. are concerned, the same are also rejected since

the offers made by them also fall short by very great margins when

compared to the valuation made by Hardicon Ltd. It also appears that

both these applicants, like the auction purchaser GES are merely trying

to take undue advantage of the lack of genuine competition, for the

aforesaid reasons. They are non-serious bidders who lack bona fides

since they do not appear to be interested in purchasing the properties

in question on the real market price. Since I am rejecting these

applications I do not think it necessary to go into the allegations made

by GES against the ex directors of the company in liquidation Mr.

Gautam Saraf and promoters of Data Developers Ltd. and Indocaps

Pvt. Ltd. However, there appears to be complicity between these

entities. Consequently, I dismiss CA Nos. 1185/2006 preferred by M/s.

Indocap P.Ltd and CA No.554/2007 preferred by M/s. Surya Finvest

P.Ltd with costs of Rs.20,000/- each, to be deposited in the Common

Pool Fund within ten days. In case the costs are not deposited, the

same shall be deducted from the deposits made by them in this Court.

Both these applicants are also warned against making such non-

serious bids in future, which lead to the wastage of the precious time

and resources of the Court.

53. I must also observe that the valuer Lt. Col R.K. Kohli who twice

valued land and building, once in June, 1997 and again in August, 2004

does not appear to have acted with a sense of responsibility either,

while acting as an independent valuer. The said valuer had valued the

property in the year 1997 at Rs.2.97 crores (which included the plant

and machinery and which was disposed of Rs.33.50 lakhs on

4.11.1999). It is not understood how the same valuer, after a gap of

over 7 years could have devalued the land and building to Rs.1.19

crores i.e by over 48%. His valuation report of 14.8.2004 does not give

reasons or explanation for the remarkable fall in valuation of the land

and building over a period of 7 years, particularly, when it is well

known that prices of real estate over any period of 7 years have

registered substantial increase. This is also in sharp contrast to the

steep rise in the offers made by GES and other bidders after the

auction process in question. One cannot lose sight of the fact that

after liberlisation policies were initiated by the Government in early

nineties, the process of industrialization through out the country has

gained momentum. The property prices of all kinds of property

whether it is residential, commercial, industrial or agricultural have

shot up manifolds and the period from 1997 to the year 2004 was no

exception.

54. Keeping in view the aforesaid, notice is directed to be issued

to the valuer, Lt.Col.R.K.Kohli as to why he should not be required to

refund the fee charged for making the valuation report in question and

not be removed from the panel of approved valuers. Notice be made

returnable on 19.12.2008.

55. The issue that now remains to be decided is to what is to

happen to the amounts deposited by GES in pursuance of its bid.

Though the final bid of GES accepted by the Court was for Rs.3.51

crores, as a matter of fact GES has not paid Rs.3.51 crores. This is

because GES had earlier paid only Rs.1.30 crores in pursuance of the

inter se bidding between the six bidders on 4.11.2004 thereafter it

increased its bid to Rs.3.15 crores. At that stage GES was given credit

for the interest accrued on the amount of Rs.1.30 crores already

deposited and the amount of interest accrued on Rs.1.30 crores was

deducted from the total amount of Rs.3.15 crores. Similarly, when the

bid was raised by GES to Rs.3.51 crores, once again GES was given

credit for the amount of Rs.3.15 crores and the interest accured on the

amount earlier deposited.

56. Even according to GES it has remained in possession of the

land and building of the company in liquidation since 21.2.2005. GES

has been using and exploiting the said property which comprises, inter

alia, of covered area 79,658.75 sq. ft. since then. It has not had to

pay any rent for the use and occupation of the land and building ever

since the day it was put in possession. On the other hand, the conduct

of the GES in trying to purchase the property in question at a throw

away price deserves strongest condemnation. A party who approaches

the Court with designs of exploiting the process of a court auction of

the properties of a company in liquidation, does not deserve any

latitude or sympathy from the Court. No equities arise in favour of

such a party. I, therefore, direct the official liquidator to release to GES

the actual amount deposited by GES with the official liquidator without

any interest accrued thereon, after deducting an amount of Rs.20,000/-

towards costs, to be deposited in the Common Pool Fund. The amount

shall be released within two weeks of the actual physical possession of

the land and building of the company in liquidation in question being

taken over by the official liquidator.

57. On account of the aforesaid conduct of the Official Liquidator,

he is personally subjected to costs of Rs.10,000/- to be deducted from

his salary and to be deposited in the Common Pool Fund. A copy of

this order be sent to the Secretary, Ministry of Corporate Affairs,

Shastri Bhawan, Govt. of India. He is directed to order a vigilance

enquiry into the conduct of the Official Liquidator and his office and to

send a report to this Court within three months. List for directions on

27.2.2009 to consider the report.

58. These applications are disposed of in the aforesaid terms.

(VIPIN SANGHI) JUDGE

NOVEMBER 25, 2008 rsk/aj