2008 (9) TMI 560 - HC - Companies Law

Winding-up - Custody of company s properties - Held that - The position in law is well settled that merely because subsequently a higher price is offered that by itself without anything more cannot be a ground for setting aside a confirmed auction sale. The present is not a case where it can be stated that either a fraud was committed when the Court was called upon to confirm the sale vide order dated 30-8-2007 or that there was no adequate publicity before the sale was conducted considering the fact that at least respondent No. 1 was a party to the bidding process along with two others and the appellant. Similarly it is also not a case where one can say that in the facts and circumstances of the case the price realized was not adequate as explained by catena of decisions. In the circumstances the impugned order dated 27-11-2007 cannot be permitted to operate and is quashed and set aside. The earlier order dated 30-8-2007 made in Official Liquidator s Report No. 143 of 2007 stands revived and restored to file. The Official Liquidator is directed to complete the formalities for execution of sale within a period of 2 (two) weeks from today in favour of the appellant herein. The Official Liquidator is also directed to return the amount of respondent No. 1 within a period of 2 (two) weeks from today by an A/c. Payee Cheque in favour of respondent No. 1.

Summary

Issues Involved:
1. Legality of allowing a higher bid after the confirmation of the sale.
2. Adequacy of the price realized in the auction.
3. Conduct and bona fides of the parties involved in the bidding process.

Detailed Analysis:

1. Legality of allowing a higher bid after the confirmation of the sale:
The appeal was preferred against the order dated 27-11-2007, which allowed respondent No. 4 to make a higher bid for the property of the Company in liquidation after the sale had already been confirmed in favor of the appellant. The Court noted that the appellant's bid of Rs. 127 lakhs was the highest and more than double the sum offered before the Sale Committee. The Company Court accepted this highest bid and directed the Official Liquidator to execute the sale deeds and return the Earnest Money Deposit of other participants. Respondent No. 1 later attempted to increase their offer to Rs. 141 lakhs, which was initially rejected by the Court on 11-10-2007 for lacking bona fides. Despite this, respondent No. 1 moved another application on 20-10-2007, which was accepted on 27-11-2007, allowing a bid of Rs. 1.51 crores. The Court held that merely offering a higher price after the sale confirmation cannot constitute a valid ground for setting aside a confirmed sale, as reiterated in the case of Valji Khimji & Co. v. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd. [2008] 86 SCL 81.

2. Adequacy of the price realized in the auction:
The Court emphasized that the bid of Rs. 127 lakhs by the appellant was more than double the valuation of Rs. 64,00,000 and the highest offer received by the Sale Committee of Rs. 67,00,000. The Court found no evidence of fraud or inadequate publicity before the sale, as the auction was conducted with wide publicity, and all eligible bidders, including respondent No. 1, participated. The Court reiterated that a confirmed sale should not be set aside merely because a higher price is subsequently offered, as this would undermine the finality and sanctity of Court orders.

3. Conduct and bona fides of the parties involved in the bidding process:
The Court scrutinized the conduct of respondent No. 1, who initially refused to deposit the entire offered amount when invited by the Court, indicating a lack of bona fides. Additionally, the Court noted that respondent No. 1 did not appeal against the orders dated 30-8-2007 or 11-10-2007 but instead filed another application on 20-10-2007. The Court found that the interim orders during the pendency of the appeal, which tested the bona fides of the parties by calling for deposits, did not create any substantive rights for respondent No. 1. The Court concluded that the appeal should be allowed, restoring the order dated 30-8-2007 and directing the Official Liquidator to complete the sale formalities in favor of the appellant within two weeks.

Conclusion:
The Court quashed the impugned order dated 27-11-2007, reinstated the order dated 30-8-2007, and directed the Official Liquidator to execute the sale in favor of the appellant. The Court also ordered the return of the amount deposited by respondent No. 1 within two weeks. The appeal was allowed with no order as to costs, and the request for a stay of the operation of this order was rejected.