2008 (11) TMI 404 - HC - Companies Law

Winding up - Custody of company s properties - enhancement of the bid price - Held that - Sale of the Land and Building in favour of GES is liable to be set aside and cancelled as the same does not appear to have taken place at the prevalent market price at any point of time. Thus set aside the sale of the land and building of the company in liquidation to GES and reject their bid of ₹ 3.51 crores. The Official Liquidator is directed to forthwith take over the possession of the entire land and building of the company in liquidation, if necessary by resort to police aid, within two weeks. The Official Liquidator shall forthwith post its security guards in and around the property in question to ensure that the fittings and fixtures on/in the land and building are not removed by GES or by any other person in the meantime. C.A. No. 698/2007 filed by IFCI is accordingly allowed. CA No. 1449/2006 filed by IDBI is, however, dismissed as the auction sale in favour of GES has been set aside. So far as the applications made by Indocap Pvt. Ltd., and Surya Finvest Pvt. Ltd., are concerned, the same are also rejected since the offers made by them also fall short by very great margins when compared to the valuation made by Hardicon Ltd. It also appears that both these applicants, like the auction purchaser GES are merely trying to take undue advantage of the lack of genuine competition, for the aforesaid reasons. They are non-serious bidders who lack bona fides since they do not appear to be interested in purchasing the properties in question on the real market price. Also to observe that the valuer Lt. Col. R.K. Kohli who twice valued land and building, once in June, 1997 and again in August, 2004 does not appear to have acted with a sense of responsibility either, while acting as an independent valuer. Keeping in view the aforesaid, notice is directed to be issued to the valuer, Lt. Col. R.K. Kohli as to why he should not be required to refund the fee charged for making the valuation report in question and not be removed from the panel of approved valuers. Notice be made returnable on 19-12-2008. The issue that now remains to be decided is to what is to happen to the amounts deposited by GES in pursuance of its bid as the conduct of the GES in trying to purchase the property in question at a throw away price deserves strongest condemnation. A party who approaches the Court with designs of exploiting the process of a court auction of the properties of a company in liquidation, does not deserve any latitude or sympathy from the Court. No equities arise in favour of such a party. Therefore, direct the official liquidator to release to GES the actual amount deposited by GES with the official liquidator without any interest accrued thereon, after deducting an amount of ₹ 20,000 towards costs, to be deposited in the Common Pool Fund. The amount shall be released within two weeks of the actual physical possession of the land and building of the company in liquidation in question being taken over by the Official Liquidator. On account of the aforesaid conduct of the Official Liquidator, he is personally subjected to costs of ₹ 10,000 to be deducted from his salary and to be deposited in the Common Pool Fund.

Summary

Issues Involved:
1. Enhancement of bid price by M/s. Indocap Pvt. Ltd.
2. Disbursement of amount by IDBI.
3. Enhancement of bid price by M/s. Surya Finvest Pvt. Ltd.
4. Setting aside the auction dated 4-11-2004 by IFCI Ltd.

Issue-wise Detailed Analysis:

1. Enhancement of Bid Price by M/s. Indocap Pvt. Ltd.:
M/s. Indocap Pvt. Ltd. filed CA No. 1185/2006 to enhance the bid price to Rs. 4.10 crores for the land and building of the company in liquidation. The court noted that GES, the auction purchaser, had initially offered Rs. 90 lakhs, which was raised to Rs. 1.30 crores during inter se bidding. Later, GES increased its offer to Rs. 3.15 crores and then to Rs. 3.51 crores. The court observed that GES raised its offers only to the minimum necessary to outbid others and not to the true market value. The court found the offers by Indocap Pvt. Ltd. and Surya Finvest Pvt. Ltd. (Rs. 4.50 crores) indicative of higher market value. However, it rejected Indocap's application due to lack of earnest money deposit and the suspicion of collusion with ex-directors of the company in liquidation.

2. Disbursement of Amount by IDBI:
IDBI filed CA No. 1449/2006 for disbursement of the amount lying with the Official Liquidator. The court dismissed this application as the auction sale in favor of GES was set aside, and the disbursement was contingent on the finalization of the auction sale.

3. Enhancement of Bid Price by M/s. Surya Finvest Pvt. Ltd.:
M/s. Surya Finvest Pvt. Ltd. filed CA No. 554/2007 to enhance the bid price to Rs. 4.50 crores. The court noted that this application was not accompanied by the earnest money deposit, rendering it non-serious. The court also found that the offers made by both Indocap Pvt. Ltd. and Surya Finvest Pvt. Ltd. fell short of the valuation made by Hardicon Ltd., which assessed the property at Rs. 10.50 crores. Consequently, the application was rejected.

4. Setting Aside the Auction Dated 4-11-2004 by IFCI Ltd.:
IFCI Ltd. filed CA No. 698/2007 to set aside the auction dated 4-11-2004 in favor of GES, citing a fresh valuation indicating the property's realizable value at Rs. 10.50 crores. The court found that the sale proclamation issued on 4-10-2004 was inadequate and misleading, lacking crucial details about the property's extent. It also noted that the Official Liquidator failed to act prudently and did not bring these deficiencies to the court's attention. The court set aside the sale to GES, directed the Official Liquidator to take possession of the property, and ordered a fresh auction to ensure the property fetched its true market value.

Discussion on Case Laws:
The court discussed various case laws, emphasizing that the court has the obligation to ensure the best possible price for the property of a company in liquidation. It cited Supreme Court judgments, including Allahabad Bank v. Bengal Paper Mills Co. Ltd., which highlighted the need for adequate publicity and proper valuation to realize the highest price. The court rejected GES's contention that the sale could not be reopened after confirmation, stating that the interest of creditors and the market value must be prioritized.

Conclusion:
The court set aside the sale of the land and building to GES, rejected the applications by Indocap Pvt. Ltd. and Surya Finvest Pvt. Ltd., and directed a fresh auction. It also ordered a vigilance inquiry into the conduct of the Official Liquidator and issued notices to the valuer, Lt. Col. R.K. Kohli, for a significant drop in valuation. The court emphasized the need for transparency and prudence in auction sales to protect the interests of creditors and shareholders.