Scanomax India Ltd. (In Liquidation) vs PSIDC and Others

Satish Kumar Mittal, J.—The official liquidator has filed this application for confirmation of the sale of the movable and immovable properties of M/s. Scanomax India Ltd., a company under liquidation, in favour of M/s. International Fresh Farm Products (India) Ltd., Mohali (respondent No. 4 herein) who is the highest bidder in the sale conducted by the sale committee constituted by this court.

Vide order dated February 21, 1997, passed by this court in C.P. No. 7 of 1996, M/s. Scanomax India Ltd., was ordered to be wound up and official liquidator attached to this court was appointed as its liquidator. Subsequently, the movable and immovable properties of the company under liquidation were sold by the official liquidator in a public auction for Rs. 2.50 crores, but the sale was not confirmed by this court vide order dated September 21, 2006, passed in C.A. No. 591 of 2006. While passing the said order, this court constituted a sale committee under the chairmanship of Shri I.P. Singh, advocate of this court with the representatives of the secured creditors and official liquidator as its members. The said sale committee in its meeting dated October 18, 2006, decided to get fresh valuation of the assets/properties of the company under liquidation. The said valuation was got conducted from M/s. NITCON, a Government enterprise through Punjab Financial Corporation, one of the secured creditors. After receiving the said valuation report by the chairman of the sale committee, the said valuation report was made available to all the members of the sale committee including all the secured creditors in the meeting dated March 12, 2007. According to the said report, the distress value of the assets of the company under liquidation, which was to be sold, was assessed at Rs. 402.14 lakhs. All the secured creditors were satisfied with said valuation report and no objection was raised to the same by any of the members of the sale committee, including representatives of the secured creditors. Thereafter, wide publicity was given by the sale committee regarding auction of the assets of the company under liquidation by publishing sale notice in the The Tribune (Chandigarh edition), Punjab Kesari, Jalandhar, The Economic Times (Delhi edition) and The Economic Times (Chandigarh edition) and the date of opening the tenders was fixed on April 24, 2007.

On April 24, 2007, all the tenders were opened in the presence of the members of the sale committee. For composite lot of the properties/assets of the company under liquidation, four tenders were received. The highest tender was of M/s. V.G. International, Gurgaon, who gave the bid for Rs. 3.55 crores, M/s. International Fresh Farm Products (I.) Ltd., (respondent No. 4 herein) gave a bid for Rs. 2.75 crores. The other two bidders gave the bid of Rs. 2.31 crores and 2.21 crores. Subsequently, on the same date in the same meeting, further inter se bidding between the bidders was conducted and in that process M/s. International Fresh Farm Products (I) Ltd., (respondent No. 4 herein) gave the highest bid of Rs. 4.21 crores. All the members of the sale committee present in the meeting showed their satisfaction to the auction proceedings as well as the amount offered in the bidding, which was more than the distress value fixed in the valuation report. However, it was agreed that the final decision with regard to the acceptance of the highest bid will be taken after the representatives of the secured creditors get approval from their competent authority. For that purpose, the representatives of the secured creditors were given 15 days time to get the necessary approval from the competent authority, and 15 days time was also given to the highest bidder after the receipt of such approval to deposit 25 per cent, of the bid money after adjusting the initial earnest money. The representatives of the secured creditors were requested to ensure that the decision regarding seeking approval from the competent authority should be taken by all the secured creditors within that 15 days period so that proceedings of the auction could be finalized.

Within 15 days, all the secured creditors, including PSIDC, intimated in writing to the official liquidator that the highest bid given by International Fresh Farm Products (I) Ltd., (respondent No. 4 herein) has been accepted by the competent authority. The letter given by PSIDC to the official liquidator is dated May 4, 2007, which has been annexed with this application as annexure A6. After receiving the intimation from all the secured creditors, the official liquidator accepted 25 per cent, of the bid amount paid by respondent No. 4 towards the sale consideration. When all the formalities were completed, the official liquidator filed the instant application for confirmation of the sale.

When this application came up for consideration on July 5, 2007, all the secured creditors except PSIDC were having no objection in confirmation to the highest bid given by respondent No. 4. However, Counsel for PSIDC/respondent No. 1 submitted that no objection letter dated May 4, 2007, given by the Deputy General Manager of the Corporation regarding approval of the highest bid was not got approved from the competent authority, which is the board of directors. Counsel, therefore submitted that as far as PSIDC is concerned, they are objecting to the confirmation of the sale in favour of respondent No. 4. Counsel for respondent No. 1 submitted that if the assets of the company under liquidation are re-auctioned, then it may fetch more price than the price offered by the highest bidder. Counsel also placed on record the letter dated July 4, 2007, addressed to the official liquidator by the General Manager of respondent No. 1-Corporation, in which for the first time they raised objections to the confirmation of sale in favour of respondent No. 4. On July 5, 2007, the case was adjourned for July 19, 2007 and an opportunity was given to the PSIDC to bring any person who can still give higher bid than the bid given by respondent No. 4. In spite of that Counsel for respondent No. 1 insisted that the properties of the company under liquidation be re-auctioned. However, Counsel for the other secured creditors and official liquidator submitted that there is no reason for re-auctioning the properties of the company. They further submitted that they were satisfied that the properties of the company under liquidation will not fetch more price if re-auctioned and it will unnecessarily add to the expenditure of conducting the sale proceedings, and they were not ready to bear the said expenditure. It was also pointed out that already the matter has been delayed and the secured creditors are already being burdened with the expenses of the security charges, and therefore they strongly opposed the prayer made by respondent No. 1 for re-auction of the properties. In these facts and circumstances on July 19, 2007, the following order was passed:

...After hearing Counsel for the parties, I am of the view that re-auction of the property can be ordered, if the PSIDC is ready to fulfil the following conditions:

(i) that the Corporation will bear the entire expenses of conducting the re-auction.

(ii) that the Corporation will bear the expenses of security charges for the time taken in the re-auction and for confirmation of the sale,

(iii) that the Corporation will also bear the loss in case the property is sold for less than Rs. 4.21 crores in the re-auction.

Counsel for respondent No. 1 PSIDC seeks three days time to seek instructions from the Corporation. If the Corporation is ready to accept the aforesaid conditions then the re-auction can be ordered. The matter of confirmation of sale will also be considered on the next date and in case the Corporation declines to accept the aforesaid conditions, the decision will also be taken about the loss caused because of the stand taken by the respondent-Corporation.

In pursuance of the abovesaid order, respondent No. 1 filed C.A. No. 460 of 2007 submitting its written submission. As per the application, respondent No. 1 has agreed with conditions Nos. 1 and 2. However, they have shown disagreement to condition No. 3.

On the other hand, Counsel for the official liquidator and other secured creditors opposed the prayer of respondent No. 1 for re-auctioning the properties of the company under liquidation, reiterating their earlier submissions.

I have heard the arguments of learned Counsel for the parties.

Counsel for respondent No. 1 submitted that the highest bid given by respondent No. 4 should not be accepted as the price offered by it is not the reasonable price of the assets of the company under liquidation, and if re-auction is conducted, this property may fetch more price. He further submitted that in this case the valuation report was not properly prepared. The assets of the company have been under valued and the distress value of the assets of the company has been wrongly assessed as Rs. 402.14 lakhs. He submitted that the valuer while fixing the distress value has wrongly deducted 10 per cent, of the reasonable value which should not have been done. While referring to the decision of the Supreme Court in Union Bank of India Vs. Official Liquidator H.C. of Calcutta and Others, , learned Counsel submitted that after winding up order the properties of the company are in custody of the court for the benefit of the secured creditors. He further submitted that it is the duty of the court to see that the assets of the company under liquidation are sold at a reasonable price and before selling the property, a correct valuation report be got prepared. Learned Counsel also submitted that without disclosing the valuation report to the secured creditors, the assets of the company cannot be sold in auction and such sale is not liable to be confirmed. Learned Counsel further submitted that it is not only the duty of the court to disclose the said valuation report to the secured creditors and other interested persons but also to apply its mind to the valuation report for verifying whether the report indicates reasonable market value of the property to be auctioned. However, Counsel for respondent No. 1 has not disputed the fact that wide publicity was given by the sale committee inviting the tenders from the general public. He has not pointed out any other irregularity in the conduct of sale except that the valuation report was wrongly got prepared by one of the secured creditors from M/s. Nitcon, which did not reflect the correct valuation.

On the other hand, Counsel for the official liquidator and the other secured creditors while referring to the minutes of the meeting of the sale committee dated October 18, 2006 and March 12, 2007, in which the representatives of respondent No. 1 also participated, submitted that all the secured creditors, including respondent No. 1 took the decision to get the valuation report prepared from M/s. Nitcon, a Government enterprise and the said responsibility was given to one of the secured creditors, i.e., PFC, which is again a Government enterprises. Counsel further submitted that it was decided in the meeting of the sale committee that the valuation report will be supplied by the aforesaid valuer in the sealed cover. When the said report was received in the sealed cover by the chairman, it was made available to all the members of the sale committee including the representative of all the secured creditors. The representatives of all the secured creditors were satisfied with the valuation report and nobody raised any objection to the same. Thereafter, the tenders were opened and inter se bidding between four bidders was conducted. M/s. International Fresh Farm Products (I) Ltd., gave the highest bid of Rs. 4.21 crores. All the members of the sale committee including the representatives of the secured creditors showed their satisfaction to the auction proceedings as well as amount offered by the highest bidder. Learned Counsel submitted that all the secured creditors were given 15 days time to get approval from the competent authority. Thereafter, all the secured creditors, including respondent No. 1 gave in writing to the official liquidator about the approval of the highest bid given by respondent No. 4. On their approval, the official liquidator asked the highest bidder to deposit 25 per cent, of the bid amount and consequently they deposited the same. Counsel contends that for two months, respondent No. 1 did not raise any objection. When the case came up for consideration on July 5, 2007, they raised the objections for the first time. Counsel for the official liquidator and the other secured creditors submit that the objection raised by respondent No. 1 is not bona fide and it is neither in the interest of the company in liquidation nor in the interest of all the secured creditors. Therefore, they submitted that the bid given by respondent No. 4 should be accepted and the sale of the assets of the company in liquidation be confirmed.

After hearing Counsel for the parties, I do not find any substance in the objections raised by respondent No. 1. From the facts of the case, it transpires that at one point of time, respondent No. 1 accepted/approved the highest bid given by respondent No. 4 and a written letter dated May 4, 2007, in this regard was also given to the official liquidator. After two months of the said letter, respondent No. 1 stated raising objections to the confirmation of the sale by giving only one reason that in their opinion if the property is re-auctioned, then it may fetch more price. They are not pointing out any irregularity in the conduct of sale or wide publicity given by the sale committee. They are even not in a position to bring a higher bidder in spite of the time given by the court. Counsel for respondent No. 1 has raised only one submission that in this case, the valuation report given by the valuer does not reflect the reasonable price. He submits that the distress value has been calculated by deducting 10 per cent, amount from the realizable value. It is not the case of respondent No. 1 that the valuation report was not made available to them. Undisputedly, the valuation report was made available to all the secured creditors including respondent No. 1 on March 12, 2007. None of the secured creditors, including respondent No. 1 raised any objection to the valuation report. Rather, all the secured creditors showed their satisfaction over the valuation report. The representatives of respondent No. 1 also showed their satisfaction to the valuation report and thereafter the tenders were opened and inter se bidding was conducted in which respondent No. 4 gave the highest bid. Thereafter, 15 days time was given to all the secured creditors to get approval of the highest bid from the competent authority. Respondent No. 1 gave its approval in writing to the official liquidator, a copy of which has been annexed as annexure A6 to the effect that they have no objection if the highest bid is accepted and a request was made to the official liquidator to move an application for confirmation of the sale in favour of respondent No. 4 at the earliest. Even thereafter for two months, they did not raise any objections. It appears that subsequently respondent No. 1 with some oblique motive raised objections to the confirmation of the sale in favour of the highest bidder, which in my opinion, is not justified at all. This court gave respondent No. 1 an offer and opportunity to bring any person, who is ready to give a higher bid than respondent No. 4. However, they failed to bring any such higher bidder. Thereafter, this court ordered that re-auction can be ordered if respondent No. 1 is ready to fulfil three conditions as mentioned in above part of the order, but respondent No. 1 has shown its inability to comply with those conditions.

In this case, earlier the property was sold for Rs. 2.50 crores and the said sale was not confirmed. Now in the instant auction the bid has been given for Rs. 4.21 crores. In spite of wide publicity, no other bidder came forward. Every secured creditor is satisfied except respondent No. 1. The assets of the company were taken into possession by the official liquidator on March 13, 1996, consequent upon the passing of the provisional winding up order and the sale proceedings are yet to be completed. The official liquidator is incurring expenditure for providing security to the assets of the company in liquidation. The secured creditors are losing everyday and it is a loss of public money.

The judgment of the apex court referred by Counsel for respondent No. 1 in Union Bank of India Vs. Official Liquidator H.C. of Calcutta and Others, is not applicable to the facts of the present case as in the said case the valuation report was not made available to the secured creditors. But, in the instant case, the valuation report was made available within time and no objection was raised and everybody was satisfied with the valuation report which was got prepared through a Government agency. Keeping in view all these factors that the highest bid offered by respondent No. 4 is the reasonable price for the assets of the company under liquidation. In my opinion, the valuation report prepared through the Government agency was reasonable one and the same was accepted and approved by all the secured creditors. Even at this stage, respondent No. 1 has not come forward with any contrary valuation report from any other Governmental agency.

In view of the aforesaid facts and circumstances, I allow this application and accept the bid given by respondent No. 4 and confirm the sale of the assets/properties of the company under liquidation in favour of respondent No. 4 in the sum of Rs. 4.21 crores and they are granted one month time to deposit the balance amount of the sale consideration with the official liquidator. On depositing the said balance amount, the possession of the assets/properties of the company under liquidation shall be deemed to be handed over to the purchaser. The official liquidator shall also execute the sale deed in favour of the purchaser expeditiously.