2008 (8) TMI 562 - SC - Companies Law

Auction sale - Held that - Appeal allowed. No fraud in the auction sale. It may be mentioned that auctions are of two types - (1) where the auction is not subject to subsequent confirmation and (2) where the auction is subject to subsequent confirmation by some authority after the auction is held. In the present case, the auction having been confirmed on 30-7-2003 by the Court it cannot be set aside unless some fraud or collusion has been proved. As satisfied that no fraud or collusion has been established by any one in this case.

Summary

Issues:
Challenge to the recall of the sale confirmation by the appellant based on subsequent higher offers, valuation of assets, consideration of potential of the company, and entitlement to incentives and benefits.

Analysis:
The appeal was filed against the order recalling the sale confirmation in favor of the appellant due to subsequent higher offers made by other parties. The Supreme Court noted that objections after the sale confirmation should not be entertained except on limited grounds like fraud to ensure the completion of auction sales. The Court emphasized that the auction was conducted openly with adequate publicity, and the bidders should have participated in the auction if interested. As there was no allegation of fraud and the assets were not described as scrap, setting aside the sale confirmation was unjustified.

Regarding the valuation of assets, the Court rejected the argument that the assets were wrongly considered as scrap. It was observed that the assets were not advertised or treated as scrap, and the bidders were expected to make thorough inquiries before participating in the auction. The Court clarified that assets not in running condition do not automatically qualify as scrap, as they can be repaired or reconditioned for use, unlike items sold as scrap which are irreparable.

The Court also addressed the consideration of the company's potential and entitlement to incentives and benefits in determining the asset value. It was held that such factors were irrelevant as the sale involved the company's assets, not shares. The Court emphasized that the valuation was not based on the assets being treated as scrap, and the potential of the company had no bearing on the auction sale process.

In conclusion, the Supreme Court allowed the appeal, setting aside the judgments recalling the sale confirmation. The Court upheld the auction sale confirmation in favor of the appellant, emphasizing that auction sales subject to confirmation should only be set aside in exceptional cases like fraud. No fraud or collusion was established in this case, warranting the retention of the sale confirmation in favor of the appellant.