2000 (7) TMI 846 - SC - Companies Law

Whether or not it is a consequence of any irregularity or fraud in the conduct of sale? Held that - Confirmation of the sale by a Court at grossly inadequate price, whether or not it is a consequence of any irregularity or fraud in the conduct of sale, could be set aside on the ground that it was not just and proper exercise of judicial discretion. In such cases, a meaningful intervention by the Court may prevent, to some extent, underbidding at the time of auction through the Court. In the present case, the Court has reviewed its exercise of judicial discretion within a shortest time. In the result, Civil Appeal filed by Divya and Samity stand dismissed. Interim order stands vacated. Pending hearing and disposal of this appeal as the order passed by the Division Bench of the High Court was stayed, fresh directions are required to be obtained from the Court for finding the time table for conduct of the auction sale. Hence, the Liquidator is directed to take appropriate steps at the earliest, by obtaining an order from the Court for sale of the property by calling sealed tenders or by auction in accordance with law after giving due publicity in the newspapers, particularly, the newspapers having circulation in Delhi and in the State of Haryana with a reserved price fixed at Rs. 2 crores (as offered). The parties are directed to bear their respective costs.

Issues Involved:
1. Legality of setting aside the confirmed sale.
2. Adequacy of the sale price.
3. Authority of the Court to reopen the sale after confirmation.
4. Compensation to the highest bidder for setting aside the sale.
5. Proper exercise of judicial discretion in confirming the sale.

Detailed Analysis:

1. Legality of Setting Aside the Confirmed Sale:
The appeals were filed against the judgment of the High Court of Calcutta, which set aside the confirmed sale of Tirupati Woollen Mills Ltd. in favor of Divya Mfg. Co. The High Court's decision was based on subsequent higher offers from Sharma Chemical Works and Jay Prestressed Products Ltd. The Court invoked Clause 11 of the terms and conditions of sale, which allowed it to set aside the sale for the benefit of creditors and in public interest. The Supreme Court upheld this authority, emphasizing that the Court is the custodian of the interests of the company and its creditors.

2. Adequacy of the Sale Price:
Initially, Divya offered Rs. 37 lakhs, which was later increased to Rs. 85 lakhs and finally to Rs. 1.30 crores. However, subsequent offers from Sharma and Jay were significantly higher, at Rs. 2 crores. The Court noted that the initial offer by Divya was substantially below the market value, indicating an attempt to purchase the property at a throwaway price. The Supreme Court agreed that the sale price of Rs. 1.30 crores was grossly inadequate compared to the subsequent offers, justifying the High Court's decision to set aside the sale.

3. Authority of the Court to Reopen the Sale After Confirmation:
The Supreme Court referred to Clause 11, which explicitly empowered the Court to set aside the sale even after confirmation if it was in the interest of creditors, contributories, and public interest. The Court held that the High Court did not become functus officio after confirming the sale, as neither possession was handed over nor the sale deed executed. The Supreme Court cited precedents, including Navalkha & Sons v. Sri Ramanya Das and LICA (P.) Ltd. cases, to support the view that the Court has the discretion to ensure the property is sold at an adequate price.

4. Compensation to the Highest Bidder for Setting Aside the Sale:
The High Court directed Sharma and Jay to compensate Divya by paying Rs. 70,000 each for the loss suffered due to setting aside the sale. The Supreme Court found this compensation appropriate, considering the higher price offered and the interest of the company and its creditors.

5. Proper Exercise of Judicial Discretion in Confirming the Sale:
The Supreme Court emphasized that the Court must ensure the price fetched at auction is adequate, even in the absence of irregularity or fraud. The Court's intervention is necessary to prevent underbidding and ensure the property is sold at a fair market value. The Supreme Court upheld the High Court's decision, noting that the judicial discretion was exercised correctly to protect the interests of the company and its stakeholders.

Conclusion:
The Supreme Court dismissed the appeals filed by Divya and the Samity, upholding the High Court's decision to set aside the confirmed sale and directing the Liquidator to conduct a fresh sale with a reserved price of Rs. 2 crores. The Court reiterated the importance of obtaining the best possible price for the assets of a company in liquidation, in the interest of its creditors and overall public interest.

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