B.B. Lathia vs Shradhha Aromatics P. Ltd. and Others

D.A. Mehta, J.—This appeal has been preferred against order dated November 27, 2007, Shraddha Aromatics P. Ltd. Vs. Official Liquidator of Global Arya Industries Ltd. and Others, made by the company court in Company Application No. 504 of 2007 whereby original respondent No. 4 in Official Liquidator''s Report No. 143 of 2007 was permitted to make a higher bid for the property of Global Arya Industries Ltd. (hereinafter to be referred to as "the company in liquidation"), whose properties had already been put to auction by the company court and sale confirmed in favour of the appellant herein.

The facts briefly stated : The properties of the company in liquidation were valued at a sum of Rs. 64,00,000 as per report of the valuer and the highest offer received by the sale committee was of Rs. 67,00,000. Thereafter, the appellant herein along with others was permitted to make a higher offer by paying late entry charges. It is an accepted position that respondent No. 1 herein was also a party to the auction proceedings which took place in the court on August 30, 2007, and the court recorded the respective highest bids made by four parties, who participated in the auction proceedings. The said details read as under:

------------------------------------------------------------ (Rs. in lakhs) ------------------------------------------------------------ 1. M/s. Patel Agro Diesels : 83 ------------------------------------------------------------ 2. M/s. Tristar Landmark P. Ltd. : 123 ------------------------------------------------------------ 3. Bipin B. Lathia : 127 ------------------------------------------------------------ 4. Shradhha Aromatics : 125 ------------------------------------------------------------

The court thereafter noted that the bid of the appellant at a figure of Rs. 127 lakhs was not only the highest offer but was more than double the sum offered before the sale committee and the secured creditor, Gujarat Industrial Investment Corporation, urged the court to accept the offer made by the appellant. Therefore, the company court accepted the offer holding that the same was the highest bid and thereafter directed the official liquidator to execute the sale deeds and also issued directions to return the earnest money deposit of the other participants.

After this order of August 30, 2007, respondent No. 1 herein approached the official liquidator by way of a communication dated September 19, 2007, whereunder it was stated thus:

However, due to the absence of our senior partner who is main decision maker, we had not then raised the offer further and hence decided now to further increase our offer to Rs. 141 lakhs.

Your good self is requested to kindly consider our revised offer for Rs. 141 lakhs for the auction price of the above properties related to account Global Arya Industries Ltd.

Further, in case of inter se bidding, please inform us to enable us to participate and revise further our offer thereof.

Pursuant thereto respondent No. 1 herein moved Company Application No. 450 of 2007 which came to be rejected by this Court on October 11, 2007, by recording as under:

Since the applicant herein who was one of the participant, raised the offer only up to Rs. 125 lakhs and the highest offer of one Bipin Lathia for Rs. 127 lakhs was accepted. It is only by way of an afterthought, the applicant has come out with the present application stating that the applicant is desirous to purchase the property by offering the amount of Rs. 141 lakhs.

In normal circumstances, once the sale is confirmed, unless, any extraordinary circumstances are brought to the notice of this Court either that of suppression or a huge difference in the price, court would not disturb the confirmation of the sale. Still however, with a view to test the bona fide on the part of the applicant, it was put to Mr. Mehta as to whether his client is ready to deposit Rs. 1.41 crores at a time. However, Mr. Mehta, upon the instruction of his client has shown inability of the applicant to deposit such amount.

Under these circumstances, the present application is lacking bona fide. Further, if the attempt to disturb or upset the sale are leniently viewed, the sanctity of the court''s order would be lost and the people or one of the offerer on extraneous circumstances, may move such matters though there may not be genuineness in the offer by depositing the amount.

Instead of preferring an appeal against either the order dated August 30, 2007 or October 11, 2007 respondent No. 1 herein moved one more company application on October 20, 2007. The said company application was registered as Company Application No. 504 of 2007 and came to be disposed of on November 27, 2007, Shraddha Aromatics P. Ltd. v. Official Liquidator of Global Arya Industries Ltd. [2009] 147 Comp Cas 322 (Guj), in favour of respondent No. 1 herein by accepting the offer at a sum of Rs. 1.51 crores. It is this order dated November 27, 2007, which is under challenge in the present appeal.

Heard the learned advocate for the appellant. He has reiterated the aforesaid facts and placed reliance on an unreported decision of this Court rendered in O. J. Appeal No. 112 of 2008 in the case of Sarvariya Exports Ltd. v. Official Liquidator of Urmi Oil Ltd. [2009] 147 Comp Cas 336, on August 11, 2008, to submit that this Court has considered the entire case law and come to the conclusion that a confirmed sale cannot be set aside unless and until the relevant tests permitting such an exercise are shown to be satisfied and merely an offer of higher price cannot constitute a valid ground for setting aside a confirmed sale.

As against that learned advocate appearing for respondent No. 1 has submitted that the background in which the second company application came to be moved by respondent No. 1 had been appreciated by the company court and on facts respondent No. 1 had made out a case in its favour. That respondent No. 1 had raised its offer from Rs. 125 lakhs to Rs. 141 lakhs initially and thereafter to Rs. 151 lakhs because, subsequently, respondent No. 1 had come in possession of the fact that the area of the land in question of the company in liquidation was substantially larger and hence, the offer had been revised upwards. That the company court had considered the said aspect of the matter and permitted respondent No. 1 to make a higher offer which had thereafter been accepted after hearing the parties. It was submitted that the principles enunciated by this Court could not be disputed and attention was also invited to the apex court decision in the case of Valji Khimji and Company Vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd. and Others, to submit that there was no controversy on the principles involved but it was the facts of the case which were material in the circumstances.

Reliance was placed on orders dated February 28, 2008, March 3, 2008 and March 27, 2008, made by a Division Bench of this Court to contend that a right in favour of respondent No. 1 had come into existence by virtue of the said orders and such a right should not be disturbed by entertaining the appeal. That as recorded in the three orders the conduct of the appellant now prevented the appellant from pursuing the remedy of appeal and on this count the appeal was required to be dismissed.

Taking up last contention first. For appreciating the said contention it is necessary to reproduce and refer to the three orders made by this Court during pendency of the appeal. The said orders read as under:

Date : February 28, 2008

It is stated that when the property was auctioned, offer of Rs. 1.51 crores was given by respondent No. 4, and option was given to the appellant if he is prepared to pay Rs. 1.51 crores.

Counsel for the appellant prays for time to seek instruction from his client, whether the appellant is prepared to pay Rs. 1.51 crores.

List it on March 3, 2008.

Date : March 3, 2008

On February 28, 2008, when some other party offered Rs. 1.50 crores, we gave the option to the appellant to offer similar amount, as the court felt that preference should be given to the appellant, if similar amount is offered by the appellant.

Today, respondent No. 1, Shradhha Aromatics P. Ltd., offered Rs. 1.61 crores. Counsel for the appellant prays time to consult his client, whether he can offer the amount similar to which is offered by respondent No. 1.

List it on March 5, 2008.

Date : March 27, 2008

On March 5, 2008, respondent No. 1 was prepared to deposit Rs. 1.51 crores. The parties were directed to appear in person in court and submit their bids. However, today, the appellant has backed out and submits that he does not want to participate in the bidding.

Respondent No. 1, Shradhha Aromatics P. Ltd., has already deposited an amount of Rs. 1.51 crores. Respondent No. 1 is, therefore, directed to deposit a demand draft for the balance amount of Rs. 10 lakhs within three weeks and thereafter the matter will be taken up for hearing.

However, it is made clear that as the appellant does not want to pay higher amount as has been offered by respondent No. 1, he will not be permitted to submit any bid by offering a higher amount hereafter. The appellant submits that he shall only make his submissions on the next date.

List it on April 22, 2008.

Merely because the court, to test the bona fides of respondent No. 1, called upon respondent No. 1 to deposit the entire amount, no right can be claimed by respondent No. 1. Firstly, the order has to be appreciated in context of the conduct of respondent No. 1, who had refused to deposit the entire offered amount when invited by the court as recorded in order dated October 11, 2007, in Company Application No. 450 of 2007. Secondly, no interim order is final and is always subject to the final order that may be made.

It is necessary to note that the appeal was admitted on December 27, 2007, but except for a direction to the official liquidator not to hand over the possession of the property in question to the buyer there was no other order made by this Court setting aside any of the earlier orders. In the circumstances, when the appellant had challenged the order dated November 27, 2007, Shraddha Aromatics P. Ltd. v. Official Liquidator of Global Arya Industries Ltd. [2009] 147 Comp Cas 322 (Guj), there was no question of the court, during pendency of the appeal, calling upon the parties to make inter se bids without first quashing and setting aside an existing order. That order was favouring respondent No. 1 and was operating to the prejudice to the appellant. Moreover, there cannot be inter se bidding between only the appellant and respondent No. 1. Therefore, the contention raised on behalf of respondent No. 1 that a right had come into existence in favour of respondent No. 1 by virtue of the aforesaid three orders does not merit acceptance.

On merits there is no dispute that the principles enunciated by this Court in judgment rendered on August 11, 2008, in O.J. Appeal No. 112 of 2008 (Sarvariya Exports Ltd. v. Official Liquidator of Urmi Oil Ltd. [2009] 147 Comp Cas 336 ), would be applicable and on August 12, 2008, the apex court in the aforesaid judgment in the case of Valji Khimji and Company Vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd. and Others, has reiterated the position by stating thus (page 42):

Thus, the ratio in Divya Manufacturing Company (P) Ltd. Vs. Union Bank of India and Others, was that if there is fraud then even after the confirmation the sale can be set aside because it is well-settled that fraud vitiates everything. On the facts of that case, the court was of the view that confirmed sale deserved to be set aside.

In our opinion the decision of this Court in Divya Manufacturing Company (P) Ltd. Vs. Union Bank of India and Others, cannot be treated as laying down any absolute rule that a confirmed sale can be set aside in all circumstances. As observed by one of us (hon''ble Katju J.) in his judgment in Civil Appeal No. 4908 of 2008 (Dr. Rajbir Singh Dalai v. Chaudhary Devi Lal University, Sirsa) pronounced on August 6, 2008, a decision of a court cannot be treated as Euclid''s formula and read and understood mechanically. A decision must be considered on the facts of that particular case.

If it is held that every confirmed sale can be set aside the result would be that no auction sale will ever be complete because always somebody can come after the auction or its confirmation offering a higher amount.

It could have been a different matter if the auction had been held without adequate publicity in well-known newspapers having wide circulation, but where the auction sale was done after wide publicity, then setting aside the sale after its confirmation will create huge problems. When an auction sale is advertised in well-known newspapers having wide circulation, all eligible persons can come and bid for the same, and they will be themselves be to blame if they do not come forward to bid at the time of the auction. They cannot ordinarily later on be allowed after the bidding (or confirmation) is over to offer a higher price.

Thus, the position in law is well-settled that merely because subsequently a higher price is offered that by itself, without anything more, cannot be a ground for setting aside a confirmed auction sale. The present is not a case where it can be stated that either a fraud was committed when the court was called upon to confirm the sale vide order dated August 30, 2007, or that there was no adequate publicity before the sale was conducted considering the fact that at least respondent No. 1 was a party to the bidding process along with two others and the appellant. Similarly, it is also not a case where one can say that in the facts and circumstances of the case the price realised was not adequate as explained by catena of decisions.

In the circumstances, the impugned order dated November 27, 2007, Shraddha Aromatics P. Ltd. v. Official Liquidator of Global Arya Industries Ltd. [2009] 147 Comp Cas 322 (Guj), cannot be permitted to operate and is quashed and set aside. The earlier order dated August 30, 2007, made in Official Liquidator''s Report No. 143 of 2007 stands revived and restored to file. The official liquidator is directed to complete the formalities for execution of sale within a period of 2 (two) weeks from today in favour of the appellant herein. The official liquidator is also directed to return the amount of respondent No. 1 within a period of 2 (two) weeks from today by an account payee cheque in favour of respondent No. 1.

The appeal is allowed accordingly. There shall be no order as to costs. At this stage learned advocate for respondent No. 1 prays for staying the operation of this order. Considering the facts of the case the request is rejected.