1996 (5) TMI 354 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the tender process.
2. Compliance with terms and conditions by the tenderers.
3. Adequacy of the sale consideration.
4. Role and discretion of the court in confirming the sale.
5. Requirement for transparency and fairness in the auction process.

Issue-wise Detailed Analysis:

1. Validity of the Tender Process:
The A.P. State Financial Corporation (S.F.C.) sought permission to finalize the tenders for the sale of Nagarjuna Paper Mills Limited's assets to Smt. P.A. Radha and J. Vijayalakshmi for Rs. 144 lakhs. The initial tenders from the advertisement on August 14, 1995, were canceled due to non-compliance with payment details. A subsequent advertisement on November 6, 1995, resulted in five tenders, with only Smt. Radha and Vijayalakshmi remaining after others withdrew. They enhanced their bid to Rs. 144 lakhs.

2. Compliance with Terms and Conditions by the Tenderers:
The court found several non-compliances:
- The bio-data and details of associated companies were not furnished as required by condition No. 4.
- There was no confirmation by the proposed buyers of their final offer.
- The 35% down payment was not fully made by the stipulated dates, showing discrepancies in the payment schedule.
- The previous tenderer, Jayakali Prasad Paper Mills Ltd., was rejected for similar non-compliance, raising questions about inconsistent application of rules.

3. Adequacy of the Sale Consideration:
The valuation report showed the assets valued at Rs. 80.30 lakhs, but the final offer was Rs. 144 lakhs. However, the court noted that the sale consideration exceeded the outstanding dues to the Corporation, which required the difference to be paid along with the down payment, as per condition No. 5. This was not adhered to.

4. Role and Discretion of the Court in Confirming the Sale:
The Supreme Court's decision in Industrial Finance Corporation v. Official Liquidator was cited, emphasizing the need for clear terms in the sale notice, including the number of instalments and interest. The court must ensure the interests of shareholders, workers, and creditors are protected. The court found that the facility of paying the balance 65% in instalments was not disclosed in the advertisement, potentially affecting the bids received.

5. Requirement for Transparency and Fairness in the Auction Process:
The court highlighted the importance of an open auction to secure the highest price, referencing Lica (P.) Ltd. (No. 1) v. Official Liquidator. The need for transparency and fairness was underscored, ensuring all potential bidders have equal opportunities. The court directed the S.F.C. to readvertise the sale by public auction with a minimum price of Rs. 144 lakhs and to notify leading paper mills, ensuring a broader and more competitive bidding process.

Conclusion:
The court dismissed the application due to non-compliance with the terms and conditions, lack of transparency, and the need to protect the interests of all stakeholders. The S.F.C. was directed to conduct a fresh public auction with clear terms to achieve the maximum possible price.