Siddhi Corporation vs Official Liquidator

Smt. Abhilasha Kumari, J.(Oral)—The present Judges Summons have been taken out praying for the following reliefs:

"(A) The Hon''ble Court may be pleased to extend the time to deposit 25% of the sale consideration i.e. Rs.17,75,00,000/- pursuant to the order dated 17.10.2016 passed in Official Liquidator Report No.81 of 2016 for a period of one year from today, as the applicant is not in a position to deposit the same due to the present demonetization crisis which has occurred in the entire country.

(B) Pending hearing and final disposal of this application, this Honourable Court may be pleased to stay the direction to deposit the 25% amount of the sale consideration and direct the Official Liquidator not to forfeit the Earnest Money Deposit paid by the applicant at the time of interse bidding.

(C) Pending hearing and final disposal of this application, the Honourable Court be pleased to stay the letter dated 15.11.2016 issued by the Official Liquidator to the applicant;

(D) Any other order as may be deemed fit in the circumstances of the case be passed.

(E) Costs of the Company Application be provided for."

The brief background in which the application has been preferred is as follows:

2.1 The Company named "The Commercial Ahmedabad Mills Ltd." was ordered to be wound-up by an order dated 11.10.1989, passed by this Court in Company Petition No.117 of 1989, and the Official Liquidator attached to this Court was appointed as the Liquidator of the Company in liquidation, who took over the possession of the assets of the Company.

2.2 For some reason or the other, the immovable property of the Company in liquidation, situated at Survey No.41, Town Planning Scheme No.14, Final Plot No.24, Dariyapur Kazipur, Ahmedabad, admeasuring 22,385 square yards, could not be put to auction since the year 1989. Eventually, the auction of the property was conducted and vide the order dated 17.10.2016, passed by this Court in Official Liquidator�s Report No.81 of 2016. The applicant having been found to be the highest bidder, the sale was confirmed in favour of the applicant, who was directed to pay 25% of the sale consideration, that is, Rs.17,75,00,000/- ( Rupees Seventeen Crores and Seventy Five Lakhs Only) within a period of 1 (one) month as provided in Condition No.9 of the terms and conditions. The balance amount, which comes to Rs.53,25,00,000/- ( Rupees Fifty Three Crores and Twenty Five Lakhs Only) was directed to be paid within 3 (three) months thereafter and the Earnest Money Deposit ("EMD") of Rs.4,40,00,000/- ( Rupees Four Crores and Forty Lakhs Only) was directed to be adjusted in the last instalment. The sale was confirmed in favour of the applicant on "As is where is and whatever there is" basis. It is further provided that until the aforesaid conditions are fulfilled by the applicant, the EMD deposited by the second highest bidder, namely, M/s. Bahubali Infra Space LLP (respondent No.8 herein) would be retained by the Official Liquidator.

The applicant has filed two affidavits, dated 16.11.2016 and 24.11.2016, in support of its prayer for extension of time in fulfilling the directions contained in the order dated 17.10.2016, passed by this Court.

It so transpired that after the filing of the present application, the applicant moved a proposed Draft Amendment dated 20.12.2016, seeking to add a prayer, directing the Official Liquidator to refund the EMD to it and renotify the sale of the subject property and proceed further, in accordance with law. The applicant, at that stage, filed a further affidavit dated 16.12.2016, in order to substantiate the prayer made in the Draft Amendment, of relieving it from the obligations under the order dated 17.10.2016.

By an order dated 21.12.2016, the proposed Draft Amendment was granted, and it was directed to be carried out on, or before the next date of hearing, that is, 23.12.2016. Parties were asked to respond to the said draft amendment, if required.

In view of the above, this Court also called upon respondent No.8 (the second highest bidder) to place its stand on record, as to whether the said respondent is willing to purchase the property. By an affidavit dated 10.12.2016, respondent No.8 stated that it does not desire to purchase the property in question.

Thereafter, on 23.12.2016, Mr. R.S. Sanjanwala, learned Senior Advocate with Mr. A.B. Munshi, learned advocate for the applicant, submitted that the applicant does not want to press the Draft Amendment and would continue to pray for the extension of time to meet the obligations under the order dated 17.10.2016, passed by this Court. It was further urged that considering the unfolding economic scenario, the Court may consider granting more time than prayed for, under the peculiar facts and circumstances of the case.

Learned Senior Counsel stated, upon instructions from the applicant, that the applicant would pay 20% of Rs.17,75,00,000/- ( Rupees Seventeen Crores and Seventy Five Lakhs Only) (being the 25% of the sale consideration) within a period of 1 (one) week from the date of the receipt of the order. Insofar as the balance amount of Rs.17,75,00,000/- ( Rupees Seventeen Crores and Seventy Five Lakhs Only) is concerned, the applicant may be granted time of one year. Thereafter, three months further time may be granted to pay the total bid amount of Rs.53,25,00,000/- ( Rupees Fifty Three Crores and Twenty Five Lakhs Only), after deducting the amount of Rs.4,40,00,000/- ( Rupees Four Crores and Forty Lakhs Only), being the EMD.

In support of the stand, learned Senior Counsel has made the following submissions on the lines of the affidavits filed by the applicant:

(A) The applicant is engaged in the business of developing land and properties. The applicant is a well-established group and has already undertaken about 14 to 16 projects mentioned in the affidavit as well as about six contracts from the Ahmedabad Municipal Corporation.

(B) After the passing of the order dated 17.10.2016 by this Court, the applicant approached Nirbhay Capital Services Private Limited ("NCSPL" for short) for undertaking financial advisory services in order to arrange credit facilities for the property that was purchased in the auction held before this Court. Learned Senior Counsel has referred to a letter dated 19.10.2016, of NCSPL regarding credit facilities from Banks and financial institutions and the terms and conditions on which NCSPL was willing to extend the facilities to the applicant.

(C) That, the negotiations with NCSPL were well underway and certain documents had also been submitted. However, at that point of time, the ensuing Diwali break began from 20.10.2016. As is the custom, the offices of the applicant and NCSPL were closed during the festive season of Diwali and work resumed only from 07.11.2016, being an auspicious day. On 08.11.2016, effective from midnight, the policy referred to as "demonetization" came into effect, which took the applicant completely by surprise. The applicant was, therefore, unable to arrange for credit facilities in spite of best efforts. It was declared that the currency notes of Rs.500/- and Rs.1000/- denomination would no longer be legal tender after the midnight of 08.11.2016.

(D) Learned Senior Counsel submits that demonetization has vitally affected all concerned, more particularly, the real estate business in which the applicant is engaged. As an effect of demonetization, it has become impossible for the applicant, or the prospective purchasers of the applicant, to avail of loans for the purposes of their projects. The projects being undertaken by the applicant and similarly situated persons are not fully self-financed projects, as loans are availed of from Banks and financial institutions in order to complete the said projects. It is submitted that, as a result of the current financial situation, there is a great amount of uncertainty about the future prospects of real estate projects. Further, the valuation of the assets held by the applicant and similarly situated persons who apply for loans from Banks and financial institutions may not be the same as it were before demonetization. Before granting any loan, the Banks and financial institutions would examine the viability of the projects, based upon the demand of properties and the value that can reasonably be attached to such properties. Due to the current market scenario, which is a direct consequence of the demonetization of currency notes, the value of the properties would fluctuate. It is contended that it is not possible to plan projects and/or evaluate projects and/or execute such projects. The Banks and financial institutions would also be unable to effectively evaluate the projects and/or sanction and disburse loans. It is contended that the problem is further compounded by the fact that a large number of Bank personnel are now deployed for managing the exchange/ deposit of the demonetized currency notes. As a consequence, after 09.11.2016, there has been a complete stalemate which has adversely affected the applicant.

(E) Learned Senior Counsel has further submitted that one of the factors for evaluating the viability and value of a project is the likely demand of real estate in the coming future and the price which a prospective buyer would be reasonably ready and willing to pay. The ability of the prospective buyer to offer a price would also depend on his ability to obtain loans for such project. That it is a matter of common knowledge that most of such projects are financed by Banks and financial institutions. The prospective buyers would also have to avail of loans from Banks and financial institutions. Because of the cash-crunch, the ongoing projects of the applicant are also affected. The ability of the prospective buyers, who have already entered into transactions with the applicant is also affected, resulting in a serious fall in the inflow of funds. As a consequence, the applicant has not been able to generate funds in order to make the requisite payments.

(F) It is forcefully submitted by learned Senior Counsel for the applicant that the current scenario is not due to any default on the part of the applicant but is solely on account of circumstances that are beyond the control of the applicant. That, it is indisputable that demonetization of currency was not in contemplation and such an exigency could not have been thought of, or planned for. The demonetization of currency has come like a bolt from the blue which has affected all industries, including the applicant. It is urged that in this view of the matter, the applicant may not be treated as having defaulted in its commitment and the reliefs prayed for in the application may be granted.

The Official Liquidator has filed a report dated 14.12.2016, submitting that this Court may direct the applicant and respondent No.8 to comply with the terms and conditions of the tender document as per the order dated 17.10.2016; or, in the alternative, this Court may grant extension of time in favour of the applicant who may be directed to pay the balance amount with interest at the rate of 12% for the delayed period.

Respondent No.7 - Textile Labour Association, in its affidavit dated 02.12.2016, has submitted that if a reasonable extension of time is granted, the said respondent would have no objection. However, the Court may not consider the grant of a long extension, as prayed for by the applicant.

The same stand is taken by respondents Nos.4 and 5.

This Court has heard learned counsel for the respective parties at great length, and has accorded thoughtful consideration to the submissions advanced at the Bar. This Court has also perused its earlier order dated 17.10.2016, as well as the terms and conditions of the auction, particularly, Conditions Nos.24, 28 and 29 thereof.

During the course of hearing, Mr. R.S. Sanjanwala, learned Senior Advocate has submitted that though in the original Judges� Summons, the applicant has prayed for an extension of time for six months, however, during the interregnum, as the matter has developed, and as the financial scenario has unfolded, which has not changed for the better, this Court may consider the prayer (D) as well and grant an extension for a longer period of time than prayed for by the applicant. A longer extension of time is being prayed for solely with a view to enabling the sale transaction to go through. It is submitted that the property could not be auctioned from 1989 onwards and it is with great difficulty that the auction has taken place. The applicant has not defaulted in making the required payment, for any fault of its own, therefore, keeping in mind the inherent powers of this Court and the residuary prayer (D), further time than what is specifically prayed for may be granted.

This Court has heard learned counsel for the respective parties at length and perused the record.

It is significant to note that on 17.10.2016, when this Court passed the order confirming the sale in favour of the applicant and directing it to pay 25% of the sale consideration within one month and the balance amount within three months thereafter, there was no inkling of the impending economic upheaval in the shape of demonetization or the effects and fallout of demonetization. The Terms and Conditions of the auction have been factored keeping in mind the ordinary situation. They do not cater to an extraordinary situation which could not have been contemplated, included or provided for. The facts and circumstances of the present case are not normal and ordinary ones. Rather, the case turns upon its own peculiar facts and circumstances, that have arisen due to certain unknown and unplanned for contingencies that were not contemplated when this Court passed the order dated 17.10.2016.

The applicant has averred in the affidavit that after the passing of the order dated 17.10.2016, it entered into negotiations with NCSPL in order to avail of financial assistance in order to fulfil its obligations under the said order. It is stated that the office of the applicant and NCSPL reopened after the Diwali holidays, on 07.11.2016. However, from the midnight of 08.11.2016, demonetization took effect.

It may be understood that in the present proceedings, this Court is not going into the policy of demonetization but is only considering its effect on the applicant and its ability to fulfil the obligations under the order dated 17.10.2016, which is the situation that has necessitated the filing of the present application. It is not disputed by any of the respondents that demonetization has had a serious impact on several areas of the economy and industry. Real estate, in which business the applicant is involved, is one of the worst-hit areas. It is not a small amount that the applicant would have to pay pursuant to the order dated 17.10.2016. Under normal circumstances, it may not have been difficult for the applicant to make the payment as per the schedule fixed by the Court in the said order. It appears from the material on record that the applicant is not a fly-by-the-night operator but is a reputed construction firm which has about sixteen project to its name, apart from several contracts with the Ahmedabad Municipal Corporation. It does not appear to be one of those firms that would vanish out of sight but appears to be well grounded in the construction business. Under normal circumstances, it may not have been difficult for the applicant to generate funds but the present circumstances cannot be termed as normal. The country is in the throes of an economic transformation after the announcement of demonetization. The economy of the country is undergoing a transition and transitional periods are always difficult. It could transpire that after a lapse of time, the real estate market would come back to normal. However, at present, the scenario described by the applicant in its affidavits, cannot be said to be either incorrect or imaginary. It is a reality of which even the common citizen is aware and this Court can take note of.

In view of the above facts and circumstances, this Court is of the view that the applicant has not committed any wilful, deliberate or intentional default but is a victim of the present circumstances arising out of demonetization. The applicant states that it is ready and willing to fulfil the conditions of the sale transactions but requires more time than six months, as originally prayed for.

Whether, or not, to grant time of more than six months is the issue to be decided by the Court. All the respondents, except respondents Nos.7 and 8, have objected to the prayer of the applicant to consider granting extension of one year for the payment of the 25% of the sale consideration and further three months for the payment of the balance amount.

Learned counsel for respondents Nos.4 and 5 have submitted that in the event that the Court is inclined to grant extension of time, then interest may be levied. The same stand is taken by the Official Liquidator.

On 23.12.2016, when the petition was heard for some time, learned Senior Counsel for the applicant had requested for one year plus three months� time for fulfilment of the entire obligation. The Official Liquidator had stated that he is an Officer of the Court and would accept any orders passed by the Court.

In normal circumstances, the Court would have granted an extension of six months� period of time. However, considering that the current financial scenario is not a normal one and there is no certainty when things will come back to normal, especially in the real estate sector in which the applicant is involved, the prayer for a longer extension of time can be considered.

Initially, no formal prayer for an extension of one year and an additional three months was made in the Judges� Summons. As the matter unfolded before the Court, the various difficulties faced by the applicant were highlighted. An oral request to this effect was made which, according to the Court, ought to be incorporated in the prayer. Learned Senior Counsel for the applicant submits that he may be permitted to make an amendment in the prayer in order to incorporate his request. Permission to do so is granted and the necessary amendment is permitted to be made forthwith, so that the record reflects the factual position.

The Court takes note of the fact that ever since the year 1989, the property could not be auctioned though three attempts were made. This position is not denied by any party. It is only in the year 2016, that the auction finally materialized. However, the sale has not yet fructified, due to the effect of demonetization. It cannot be said that the applicant is to blame for this situation, which is beyond its control. In this view of the matter, the Court does not consider the applicant to have defaulted in any manner and the inability of the applicant to pay the amount as per the schedule fixed by the Court in the order dated 17.10.2016, cannot be said to be either wilful or deliberate. The entire nation is experiencing the effects of demonetization (whether good or bad) in business and day-to-day life, and the applicant is not the sole affected party. There does not appear to be any certainty that in the eventuality of the sale falling through, it would be possible to find another buyer who would make a higher bid.

Mr. Pratik Y. Jasani, learned advocate for respondent No.8 (second highest bidder) submits that under normal circumstances, the EMD deposited by respondent No.8 would have been refunded within a period of one month, upon the payment of the 25% of the amount by the highest bidder (the applicant). As the Court is inclined to grant an extension of time to the applicant, the result would be that the EMD of respondent No.8 would be retained for over one year. Respondent No.8 is not responsible for the current state of affairs, therefore, the EMD of respondent No.8 may be directed to be refunded.

An unprecedented situation has arisen in the present case where the applicant, who is the highest bidder, is unable to make the payment as directed by the Court not because it does not want to, but because of the adverse impact of demonetization, over which it has no control. In the larger interest of all concerned and for abovestated reasons, this Court considers it just and proper to pass the following order:

(1) The applicant shall deposit with the Official Liquidator, 20% of Rs.17,75,00,000/- ( Rupees Seventeen Crores and Seventy Five Lakhs Only) (being 25% amount of the sale consideration) within a period of 1 (one) week from the date of the receipt of a copy of this order.

(2) The remaining amount of 25% of the sale consideration, shall be deposited by the applicant with the Official Liquidator on, or before 31.10.2017.

(3) The balance amount of the sale consideration being Rs.53,25,00,000/- ( Rupees Fifty Three Crores and Twenty Five Lakhs Only), shall be deposited by the applicant with the Official Liquidator on, or before 31.12.2017, after deducting Rs.4,40,00,000/- ( Rupees Four Crores and Forty Lakhs Only) already deposited as Earnest Money Deposit.

(4) In view of the fact that the situation in which the applicant finds himself is not of his own making and is beyond his control, there shall be no orders for the levy of interest, if the applicant deposits the amount as scheduled herein above.

(5) The applicant shall furnish an Undertaking before this Court that it will abide by the schedule of payment stated in this order, within fifteen days from the receipt of a copy of this order.

(6) Upon the payment of 20% of the 25% of the sale consideration amount by the applicant, as directed to be paid within a week from the date of the receipt of a copy of this order, the Official Liquidator shall refund the EMD of respondent No.8, as the said respondent cannot be made to suffer for no fault of his own.

It is made clear that if the applicant does not adhere to the above schedule, necessary legal consequences would follow.

It is hoped and expected that the applicant would abide by the above schedule as no further extension of time may be granted.

The Judges Summons are disposed of, in the above terms.