Devganga Traders vs O.L. of Mahendra Mills Ltd. and Others

Jayant Patel, J.—As all the matters are interconnected, they have been heard and dealt with together, by this common order.

The main matter i.e. O.J. Appeal No. 146 of 2008, arise against the order dated 12.08.2008, passed by the learned Company Judge in Company Application No. 327 of 2006, whereby he has not extended the time and has rejected the application and has further directed for the revaluation of the property, for carrying out reauctioning of the same. It is also directed that the amount deposited by the auction purchaser, be refunded with interest.

The relevant facts in the O.J. Appeal are that the offer for sale at Rs. 10.20/-crores of the property of the Company in liquidation namely, Mahendra Mills Ltd., was confirmed vide order dated 22.02.2006, passed by this Court and as per the various terms and conditions of the sale confirmation, the requisite amount of 25 per cent was to be paid on, or before, 10.03.2006 and the remaining balance was to be paid within three months, thereafter. It was also provided that if the auction purchaser does not pay the balance amount of the purchase consideration to the O.L., the O.L. Shall terminate the sale and forfeit the deposit, after obtaining permission of this Court. In the said clause it was also provided that aforesaid is without prejudice to the rights of the O.L. to take necessary actions, in accordance with law.

As per the Appellant-original applicant before the learned Company Judge, the amount thereunder, on account of serious sickness in the family and for the reasons beyond his control, being the total amount of Rs. 7.24/- crores could not be paid on or before, 11.06.2006, and therefore, the applicant moved for extension of time and as per the applicant some time was granted. However, ultimately, when the applicant moved Company Application No. 327 of 2006, a prayer was made in the application for Judges Summons, that the delay in making payment of the balance purchase amount be condoned and the period for making payment of the balance purchase consideration be extended up to 31.08.2006. Below the said application, initially, extension was not granted, but, a simple notice was issued. However, on 27.07.2006, the following order was passed.

Heard Shri A.L. Shah, learned Senior Counsel appearing with Shri Raju Kothari, learned advocate for the applicant and the Official Liquidator attached to this Court.

At the outset, Shri A.L. Shah, learned Counsel has drawn my attention to the letter dated 10th July, 2006 addressed by Deputy General Manager (Legal) to the Official Liquidator, attached to this Court, that being a lead bank, it had no objection for grant of time as sought by M/s. Devganga Traders, the applicant herein, subject to payment of interest not below prime lending rate i.e.11% at present. It is also reflected from the another letter dated 07th July, 2006 addressed by the Deputy General Manager to the I.D.B.I.

In view of the above, Shri A.L. Shah, learned Counsel for the applicant has submitted that out of Rs. 7.25 crores to be paid subject to the final adjustment to the EMD amount, the demand draft dtd.26.07.2006 of Rs. 1 Crore drawn in favour of Official Liquidator Mahindra Mills, is ready and to be paid accordingly and the balance amount will be paid on or before 31st August, 2006 with a request to fix the interest at 9%.

However, since the UCO bank, Respondent No. 6 herein is not served, Fresh Notice qua Respondent No. 6 only, returnable on 08.08.2006. Direct Service permitted. The draft of Rs. 1 crore is handed over to the Official Liquidator.

Thereafter, on 18.08.2006, following order was passed:

Mr. A.L. Shah, learned Counsel for the applicant, has handed over a cheque for Rs. 1 crore dated 17.8.2006 drawn in favour of the Official Liquidator for Mahendra Mills Limited, which is ordered to be kept with the Official Liquidator. He has also requested that time limit for making remaining payment may be extneded upto 15th September 2006 in view of the flood-situation prevailing in the State. Time to make the remaining outstanding dues is extended upto 15.9.2006. S.O. To 30.8.2006.

The matter was once again came up before the learned Company Judge on 30.08.2006 and the following order was passed:

Heard Shri A.L. Shah, learned Counsel appearing for the applicant.

By order dated 18th August 2006, banker''s cheque worth Rs. 1 Crore dated 17th August, 2006 drawn in favour of the Official Liquidator for Mahendra Mills Limited was handed over to the Official Liquidator. Today, Shri A.L. Shah, learned Counsel appearing for the applicant has presented a cheque dated 30th August 2006, as assured on earlier occasion.

However, the Deputy Official Liquidator attached to this Court states that the bank of Official Liquidator namely Punjab National Bank has refused to accept the same being outstation cheques not as per prevailing banking norms.

In view of the above, Shri A.L. Shah, learned Counsel for the applicant states that his client would deposit Demand Draft for Rs. 2 Crore and the cheque dated 17th August 2006 for the amount of Rs. 1 Crore and cheque dated 30th August 2006 for the amount of Rs. 1 Crore be returned to him.

In view of the above, the Deputy Official Liquidator is directed to hand over the cheque of Rs. 1 Crore dated 17th August 2006 to the learned advocate appearing for the applicant and cheque dated 30th August 2006 offered today of Rs. 1 Crore is also returned to Shri A.L. Shah, learned Counsel, to be replaced by Demand Draft of Rs. 2 Crore.

For further order, the matter is adjourned to 15th September 2006.

Again on 15.09.2006, the learned Company Judge passed the following order:

In view of the pendency of O.J.C.A. No. 288 of 2006 in O.J. Appeal No. 43 of 2005 and O.J.C.A. No. 217 of 2005 in O.J. Appeal No. 43 of 2005 which is now adjourned to 13th November 2006, office is directed to notify this matter only after disposal of aforesaid O.J. Appeal No. 43 of 2005 and O.J.C.A. No. 217 of 2005 in O.J. Appeal No. 43 of 2005 and/or O.J.C.A. No. 288 of 2006 in O.J. Appeal No. 43 of 2005 and/or on filing appropriate note by either party to the present proceedings.

Aforesaid order shows that no extension has been granted to deposit the amount after 15.09.2006. As per the applicant, thereafter, O.J. Appeal 43 of 2005 came to be decided and the Company Application No. 327 of 2006 was listed before the learned Company Judge on 12.08.2008 and the impugned order was passed, against which the present appeal before us.

It appears that pending present appeal, after the interim order were passed by this Court, one Civil Application No. 205 of 2009 was preferred by Anjana Construction, showing desire to purchase the property by offering higher amount. This Court, on 14.07.2009, below the said application observed that the interest of the applicant is too remote and the applicant is neither necessary nor appropriate party and rejected the application. It was further observed that the applicant is allowed to appear in O.J. Appeal as intervenor, as and when it is heard. The Appellant herein, being aggrieved by the said order, dated 14.07.2009 of this Court, carried the matter before the Supreme Court, by preferring SLP(Civil) No. 5415 of 2010. Initially, interim stay was granted in the said application, against the present proceedings, and thereafter, the Apex Court, vide order dated 28.04.2011 disposed of the same, but, permitted intervening by the applicant. The Apex Court, further, observed that if the appeal is heard and decided against the Petitioner, the Appellant herein, the matter shall then be remanded to the learned Company Judge for holding a fresh auction, within three months from the date of the receipt of the order of the appellate Court. Further, it also observed that the order of the Apex Court should not influence the out come of either the appeal or any subsequent proceedings taken there from and thereafter, the Hon''ble Apex Court, vacated the interim stay against the further proceedings of the present appeal. Hence, the present appeal is taken up for final hearing.

We have heard, Mr. A.L. Shah, learned Advocate with Mr. Kothari, learned Advocate for the Appellant, Mr. Roshan Desai, Official Liquidator for opponent No. 1, Mr. B.H. Bhagat, learned Advocate for opponent No. 2, Mr. Indravadan Parmar, learned Advocate for opponent No. 3, Mr. Vibhuti Nanavati, learned Sr. Advocate with Mr. K.M. Parikh, for opponent No. 4, Mr. M.D. Ranan, learned Advocate for opponent No. 5. Though, served none appears for opponent No. 6.

It is undisputed position that the original Company Application No. 327 of 2006 was for limited relief, namely to condone the delay in making payment of the balance consideration and to extend the period for making the payment of balance purchase consideration up to 31.08.2006. The aforesaid period, in any case, had expired, pending the final consideration of the application. However, by virtue of the aforesaid interim order, at one point of time, such period came to be extended up to 15.09.2006. But, thereafter, the said period was not extended. The aforesaid makes it clear that the subject matter of the application, was only for condonation of the delay in making the payment of the consideration and the extension of time to pay the balance purchase consideration. No other prayers were made in the said application.

The direction issued by the learned Company Judge, as per the impugned order, reads as under in the operative portion:

I) Request made by learned Advocate for the applicant to permit the applicant to pay the remaining amount of Rs. 4.20 Crores with some interest that may be ordered by the Court, is not found acceptable and is rejected.

II) It is hereby ordered that property of the company in liquidation be revalued and OL of the company shall see that the property is revalued. Thereafter advertisement for sale be published at the cost of secured creditors and fresh auction be held before the Sale Committee and report thereof to be submitted before the Court stating details as to the successful bidder and the amount offered by the highest bidder. For this purpose, the OL shall intimate all the bidders who had earlier participated in the auction of the very land irrespective of the public advertisement. The applicant-Devganga Traders may also participate in bid irrespective of amount of EMD already deposited by them because it appears that amount of Rs. 6 Crores paid by applicant are lying with the OL.

III) The applicant-Devganga Traders if ultimately is not able to get the property as successful bidder / auction purchaser then at that point of time considering the fact that huge amount of Rs. 6 Crores paid by applicant remained with OL for no fault on part of the applicant, in that case loss of interest can be taken care of by the OL while funding amount to Devganga Traders.

It is clarified that this order by itself would not debar the applicant-Devganga Traders to get the amount back at present lying with the OL, if applicant-company so desires to withdraw itself as one of the bidders of the property under sale.

The OL is permitted to complete the formality of revaluation of the property and publication of advertisement at the earliest preferably within 20 days from today and the report as to the auction that may take place to be placed before the court within 15 days thereafter. Thus, the total period will be of 35 days.

It is further clarified that after getting the report of revaluation of property, the upset price can be fixed by the OL keeping in mind the valuation report in consultation with the secured creditors.

If the directions issued by the learned Company Judge are considered in the light of the subject matter of the application, it can be said that the learned Company Judge was well within his discretion to extend the period or not to extend the period for payment of remaining amount of consideration, keeping in view the facts and circumstances. It further appears that the major ground which has weighed with the learned Company Judge is to protect the interest of the secured creditors and the efforts on the part of the Court to realize the maximum price, that can be fetched of the property. Under the circumstances, if on account of the said reasons, as is stated in the impugned order, if the learned Company Judge has exercised discretion of not extending the period and rejected the application, the same cannot be said as exercise of the discretion in a perverse manner, and therefore, the direction is given under Clause-(I), does not call for interference.

However, the same cannot be said for direction Nos. (II) and (III) and the clarification made thereon, since, the same is beyond the scope of the application itself. If, after the rejection of the application for extension of time, the learned Company Judge had directed the OL to submit the appropriate report for taking further action in this regard, the matter possibly as such could not be said as exceeding the jurisdiction. However, in absence of any report of the OL in this regard, the further direction issued by the learned Company Judge at direction Nos. (II) and (III) and the clarification made further could be said as beyond the scope of the application.

There is one additional reason that, as per Clause-4 of the sale confirmation order dated 22.02.2006, if there is failure to deposit the amount of the balance considering(in such a situation, where the time is not extended), mandate has been given to OL to terminate the sale and to forefeet the deposit, after obtaining permission of this Court. Once the amount of remaining balance consideration is not paid and the time is not extended by the Court, consequence in law was to follow and had fallen. If the impugned order is considered, and more particularly, qua the direction Nos. (II) and (iii), such could not be issued without consideration the application and the consequences provided under Clause-4 of the terms and conditions of the sale confirmation. We need not further express any view on the said aspects, more particularly, because considering the facts and circumstances, we find that direction Nos. (II) and (III) and the clarification made thereunder, were beyond the scope of the application for extension of time preferred by the original applicant-Appellant, herein.

The learned Counsel appearing for the OL as well as for the secured creditors, submitted that in view of the consequence that the time was not extended and the sale confirmation has operated, this Court may further examine the aspects about the further action on the part of the OL and at that stage, the offers made by the various persons, including the intervenors, applicants of O.J.C.A. No. 215/11, O.J.C.A. No. 273/11, O.J.C.A. No. 282/11, who are permitted to intervene for purchasing, by submitting their offers for Rs. 42/- crores, Rs. 45/- crores and Rs. 48/-crores, respectively, may be considered by this Court, whereas it was submitted by the learned Counsel for the Appellant that such aspects cannot be considered keeping in view the scope of the appeal.

We find that in any event it will be for the OL to submit report before the learned Company Judge and at that stage, the learned Company Judge may consider all the relevant aspects. Hence, we leave the said aspects open to be decided by the learned Company Judge, as and when the appropriate report is submitted by the OL, for suitable directions in accordance with law. Considering the facts and circumstances, we find that as the matter is old and a stalemate was created on account of the pendency of the appeal, OL shall submit the appropriate report to the learned Company Judge, preferably within a period of TWO WEEKS, from today. We make it clear that at that stage rights and contentions of the all concerned, as may be available in law, shall remain open.

In view of the aforesaid observations and discussions, O.J. Appeal No. 146 of 2008 is PARTLY ALLOWED. The direction No. (I) is NOT INTERFERED with and the same is CONFIRMED. However, direction Nos. (II) and (III) made therein in the impugned order are set aside. Rule is made absolute to the aforesaid extent.

In view of the order passed in the main matter, the rights of the parties concerned shall stand COVERED accordingly and consequently Civil Application No. 273 of 2011, Civil Application No. 282 of 2011, Company Application No. 215 of 2011, Misc. Civil Application No. 85 of 2010 and Civil Application No. 9 of 2011, stand DISPOSED OF, accordingly.