1998 (2) TMI 464 - SC - Companies Law

Refund of the earnest money rejected - Held that - Appeal partly allowed. The bank is a secured creditor and there is nothing to show that it had made the application for and on behalf of the general body of creditors. Their entitlement to damages and the extent of loss suffered by them, even if they are held entitled to claim damages on that count, is yet to be decided. In such circumstances, the court having not confirmed the sale and cancelled the bid of the appellant, ought not to have rejected the claim of the appellant except in respect of the earnest money deposit of Rs. 5 lakhs. The High Court was, therefore, not right in withholding the refund of the remaining amount of Rs. 9 lakhs along with the interest accrued thereon at the instance of the Syndicate Bank. If the bank is of the view that it has suffered any loss as a result of wrongful act of the appellant it will be open to it to adopt an appropriate remedy for claiming damages. Keeping that right of the bank open we allow this appeal partly. That part of the order of the High Court whereby the appellant s application for refund of Rs. 9 lakhs being the balance amount out of the total deposit of Rs. 59 lakhs was rejected is set aside and we allow Company Application to that extent.

Summary

Issues:
Challenge to High Court orders for refund of earnest money and bid amount/sale consideration, rejection of review petition for refund, claim for damages by Syndicate Bank, delay in confirmation of sale proceedings, rejection of appellant's claim for refund except earnest money deposit.

Analysis:
The appellant challenged the High Court's orders for refund of earnest money and bid amount/sale consideration. The High Court rejected the claim for refund of earnest money, stating it might affect the official liquidator's right to forfeit the amount if loss was suffered due to the appellant's conduct. The High Court also rejected the claim for damages by Syndicate Bank, linking it to the order on the refund application. However, there was no discussion on the damages claim by creditors due to the appellant's dilatory tactics in sale confirmation proceedings. The High Court's order did not address the damages issue, leaving it for later adjudication.

The appellant argued that the cancellation of the bid entitled him to a full refund, citing High Court's observations on the inchoate transaction status post-cancellation. The Division Bench wrongly assumed an interim order as final, limiting the refund amount. The Supreme Court clarified the interim nature of the order and the subsequent proceedings, criticizing the High Court's inconsistency in not justifying the rejection of the balance refund amount. Despite the appellant's delay tactics, it was premature to determine liability for damages to creditors. The Court found the rejection of the refund claim, except for earnest money, unjustified. The Bank could pursue damages separately if it believed the appellant caused losses. The Court partially allowed the appeal, setting aside the rejection of the balance refund amount, emphasizing the Bank's right to claim damages separately.

In conclusion, the Supreme Court allowed the appeal partially, setting aside the rejection of the balance refund amount while emphasizing the Bank's right to pursue damages separately. The Court criticized the High Court's inconsistency and premature rejection of the refund claim, highlighting the need for a separate determination of damages if applicable.