2008 (5) TMI 408 - SC - Companies Law

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 Court? Held that - Appeal allowed in part. As from the facts it is clear that the appellant s bid was accepted in November, 2004. Immediately, it had deposited 25 per cent amount. The appellant also deposited remaining amount of 75 per cent on 12/13-4-2005. It would, therefore, be appropriate if we direct respondent No. 3 to pay an amount of Rs. 30 lakhs to the appellant which in our opinion would serve the ends of justice. Payment of Rs. 30 lakhs will serve as a solatium to the purchaser for his trouble and disappointment for the loss of that which is perhaps a good bargain - the order passed by the Company Judge and confirmed by the Division Bench of the High Court are in consonance with law. But we may not be understood to have expressed any opinion on the allegations levelled by the appellant against the Official Liquidator. As and when the matter comes up for consideration before an appropriate Court/Authority, it will be decided on its own merits irrespective of the disposal of this appeal by us.

Issues Involved:
1. Legality of setting aside the auction sale in favor of the appellant.
2. Conduct and actions of the Official Liquidator.
3. Adequacy of the auction process and the necessity for re-auction.
4. Confirmation of sale and the impact of higher subsequent bids.
5. Equitable relief to the appellant.

Detailed Analysis:

1. Legality of Setting Aside the Auction Sale in Favor of the Appellant:
The appellant contended that the Company Judge and the Division Bench of the High Court were wrong in setting aside the auction sale in their favor. The appellant argued that their bid was the highest, accepted in accordance with the law, and the sale was confirmed. The appellant deposited the required amounts, and thus, the sale could not be set aside except on grounds of fraud or material irregularity, which were not alleged by the Official Liquidator. The Court, however, found that certain necessary facts, such as the valuation of properties and the reserve price, were not disclosed in the sale notice, leading to the Company Judge ordering a fresh auction. The Court upheld this decision, emphasizing the need to fetch the highest price to satisfy the Company's liabilities.

2. Conduct and Actions of the Official Liquidator:
The appellant alleged mala fide actions by the Official Liquidator, including refusing to hand over possession despite the confirmation of sale and receiving a higher bid subsequently. The appellant also accused the Official Liquidator of corruption, with proceedings instituted by the Central Bureau of Investigation (CBI). The current Official Liquidator denied these allegations, stating that the actions were in line with the Company Judge's orders. The Court did not express an opinion on these allegations, noting that they should be decided by the appropriate authority.

3. Adequacy of the Auction Process and the Necessity for Re-auction:
The Court noted that the initial auction process had several irregularities, such as the lack of valuation and reserve price, which justified the Company Judge's decision for a fresh auction. The fresh auction resulted in a significantly higher bid from respondent No. 3, which was accepted. The Court found no illegality in the Company Judge's approach to ensure the property fetched the highest price.

4. Confirmation of Sale and the Impact of Higher Subsequent Bids:
The appellant argued that once the sale was confirmed, it could not be set aside based on higher subsequent bids. The Court, however, referred to precedents where it was held that even confirmed sales could be set aside if the property could fetch a higher price. The Court emphasized that the primary concern is to ensure the property fetches an adequate price to benefit the Company's creditors and other stakeholders.

5. Equitable Relief to the Appellant:
Acknowledging that the appellant's bid was initially accepted and they had deposited the required amounts, the Court directed respondent No. 3 to pay Rs. 30 lakhs to the appellant as a solatium for their trouble and disappointment. This payment was deemed appropriate to serve the ends of justice.

Conclusion:
The appeal was partly allowed, directing respondent No. 3 to compensate the appellant with Rs. 30 lakhs. The Court upheld the orders of the Company Judge and the Division Bench, emphasizing the need for a transparent auction process that ensures the highest possible price for the property. The allegations against the Official Liquidator were left to be decided by the appropriate authority.

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