M/s Delhi Stock Exchange Assocn. Ltd. vs Ujala Leasing Ltd.

Manmohan, J.

CO. APPL. 2183/2011

Present application has been filed by a third party praying for setting aside the auction dated 5th October, 2011.

It is pertinent to mention that by virtue of order dated 5th October, 2011 this Court had confirmed the auction of respondent company''s flat situated at 111, Pratap Chamber, First Floor, Gurudwara Road, Karol Bagh, New Delhi, in favour of Auction Purchaser for a sum of Rs. 42,00,000/-.

The present applicant has offered to purchase the aforesaid property at Rs. 50,00,000/-. To test the bona fides of the applicant, this Court vide order dated 8th November, 2011, had directed the applicant to deposit with the Registry of this Court a sum of Rs. 50,00,000/-within a period of seven days - which the applicant has done.

Mr. Mayank Kumar, learned counsel for the applicant stated that the applicant could not participate in the auction conducted by this Court on 5th October, 2011 due to short notice and as the representative of the applicant was not in Delhi between the date of auction notice and the date when auction was conducted. He pointed out that the Valuer, M/s. Context Associates had valued the property in question at Rs. 63,83,200/-. Mr. Mayank Kumar also relied upon a judgment of Supreme Court in Shradhha Aromatics Private Limited Vs. O.L. of Global Arya Industries Limited and Others, wherein it has been held as under:-

We have considered the respective submissions and carefully perused the record. Ordinarily, the Court is loathe to accept the offer made by any bidder or a third party after acceptance of the highest bid/offer given pursuant to an advertisement issued or an auction held by a public authority. However, in the peculiar facts of this case, we are inclined to make a departure from this rule. Admittedly, total area of the land advertised by the committee is 12,500 square meters and the same is situated in an important district of Gujarat. It is also not in dispute that the area has been substantially developed in the last four years. The initial offer made by M/s. Patel Agro Diesel Ltd. was of Rs. 83 lakhs and the highest revised offer given before the learned Company Judge was of Rs. 127 lakhs. After acceptance of the revised offer by the learned Company Judge, the appellant stepped in and made an offer to pay Rs. 141 lakhs. The first application filed by it was dismissed but the second application was allowed and the increased offer of Rs. 151 lakhs was accepted by the learned Company Judge vide order dated November 27, 2007. That order did not find favour with the Division Bench, which restored the first order passed by the learned Company Judge. If the order of the Division Bench is sustained, the creditors of the Company are bound to suffer because the amount available for repayment of the dues of the creditors would be a paltry sum of Rs. 127 lakhs. As against this, if the offer made by the intervenor-cum-promoter is accepted, the Official Liquidator will get an additional amount of more than Rs. 4.25 crores. The availability of such huge amount will certainly be in the interest of the creditors including GSIIC. Therefore, it is not possible to approve the order passed by the Division Bench of the High Court. In a somewhat similar case -FCS Software Solutions Ltd. v. La Medical Devices Limited and others (supra), this Court approved the acceptance of revised bid of Rs. 3.5 Crores given by the appellant with a direction to compensate the earlier highest bidder by payment of the specified amount.

On the other hand, Mr. S.K. Bhattacharya, learned counsel for the Auction Purchaser submitted that the auction should not be disturbed as the same had been conducted after due publicity in well known newspapers. He further submitted that since no allegation of fraud had been made, a confirmed sale should not be set aside just because a third party is now willing to pay slightly higher price. In this connection, he referred to a judgment of the Supreme Court in Valji Khimji and Company Vs. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd. and Others, . The relevant paras of the said judgment are reproduced herein below:

It may be noted that the auction-sale was done after adequate publicity in well-known newspapers. Hence, if anyone wanted to make a bid in the auction he should have participated in the said auction and made his bid. Moreover, even after the auction the sale was confirmed by the High Court only on 30-7-2003, and any objection to the sale could have been filed prior to that date. However, in our opinion, entertaining objections after the sale is confirmed should not ordinarily be allowed, except on very limited grounds like fraud, otherwise no auction-sale will ever be complete.

It is not in dispute that the auction was an open auction after wide publicity in well-known newspapers. Hence, there was nothing to prevent M/s. Manibhadra Sales Corporation and M/s. Castwell Alloys Ltd. to have participated in the auction, but they did not do so. There is no allegation of fraud either in this case. Hence, in our opinion, there was no justification to set aside the confirmation of the sale.

Mr. Ashish Makhija, learned counsel for Official Liquidator supported the case of the applicant on the ground that as today a higher auction price is being offered, the Court must accept the same as it would be in the interest of the creditors and workers of the company in liquidation.

Having heard the parties, this Court is of the view that a Company Court is the custodian of the properties of the company in liquidation and the Court''s endeavour is always to sell the company''s properties at the highest price. In fact, in every auction, the company''s interest is supreme.

Ordinarily, Courts are reluctant to accept an offer made by any bidder or a third party after acceptance of the highest bid/offer given pursuant to an advertisement issued. However, keeping in view the fact that the reserve price in the present instance was fixed by the Valuer, M/s. Context Associates at Rs. 63,83,200/-and it was only because no bidder had come forward to purchase the property at the said price, this Court at the instance of the ex-Director of the company in liquidation had lowered the reserve price to Rs. 40,00,000/.

Further, in the present case, the bid of the Auction Purchaser had been accepted on 5th October, 2011 and the present application for setting aside the auction has been filed on 3rd November, 2011. In fact, till date the Auction Purchaser has only paid 35% of the auction price, i.e., Rs. 14,51,520/-. Till date, neither a sale deed has been executed nor possession has been handed over to Auction Purchaser.

This Court also takes judicial note of the allegations that in a Court conducted auction/sale, there is normally a cartel of brokers/ purchasers that operates. Consequently, if the Court gets a higher price, the Court must normally accept the same as by doing so, a fair price would be obtained and it would be in the best interest of the creditors, workmen and the company.

Accordingly, keeping in view the aforesaid as well as the fact that the present application for setting aside the auction/sale has been filed within a month of the order accepting the bid, the order dated 5th October, 2011 is recalled and the Official Liquidator is directed to prepare a fresh draft sale notice/advertisement and hand over the same to the applicant within one week. The advertisement would clearly stipulate that the reserve price would be Rs. 50,00,000/-and tender would be opened in Court on 26th March, 2012. It is made clear that the public at large including the applicant as well as Auction Purchaser would be entitled to participate in the said bid.

To meet the ends of justice, it is directed that the applicant shall pay costs of Rs. 25,000/-directly to the Auction Purchaser within one week and the new auction would be conducted at the expense of the applicant.

Accordingly, the applicant is directed to get the said sale notice/advertisement published at its own expense in the newspapers, ''Hindustan Times'' (English edition) and ''Nav Bharat Times'' (Hindi edition) within two weeks of receipt of the draft advertisement from the Official Liquidator.

Since the Auction Purchaser has already deposited a sum of Rs. 14,51,520/-with the Official Liquidator, this Court directs the Official Liquidator to forthwith refund the same. Accordingly, the Official Liquidator is directed to refund the said sum to the Auction Purchaser.

With the aforesaid direction, the present application stands disposed of.

CO. PET. 386/2000

List on 26th March, 2012.