2014 (12) TMI 1302 - HC - Indian Laws

Auction - higher bid/offer made by the appellant herein of ₹ 148 Crores for the land/property of the Company in liquidation - Rule 9 of the Company (Court) Rules - interpretation of statute. Held that - it emerges that the learned Company Court has specifically observed and held that while accepting the higher bid of the appellant of ₹ 148 Crores on the date of auction i.e. on 17.12.2013, the relevant factor such as potential development of the land which can be said to be a relevant factor while determining the market price was not considered by him. That the learned Company Court has also specifically observed that the highest price offered by the appellant of ₹ 148 Crores which came to be accepted vide order dated 17.12.2013 was an inadequate price. That the factum of change in the FSI was in offing and the aforesaid relevant factor of change in the FSI which would have a direct bearing on the potential development of the land was not considered by the Court which has resulted into irregularity and injury. While observing as stated herein above, the learned Company Court has taken everything upon itself and has accepted that the relevant factors like potential development of the land even as on 17.12.2013 were not considered by him which has resulted into accepting the inadequate price and irregularity and injury and therefore, this is a fit case to exercise the inherent powers conferred under Rule 9 of the Companies (Court) Rules. Therefore, as such the learned Company Court has tried to correct the error committed by it and has recalled its earlier order dated 17.12.2013 accepting the higher offer of the appellant of ₹ 148 Crores market price of ₹ 148 Crores which is held to be grossly inadequate and substantially low and has passed the order to reauction the land by fixing the upset price at ₹ 214 Crores. In the present case the learned Company Court has in exercise of inherent powers under Rule 9 accepting and/or taking upon itself that certain relevant factors like potential development and the change in the FSI which had a direct bearing on the determination of the market price was not considered by him on 17.12.2013 when the offer of the appellant of ₹ 148 Crores was considered. Under the circumstances, the aforesaid aspect is not required to be considered and/or gone into detail. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Recall of the order accepting the highest bid.
2. Fresh auction of the company's land.
3. Adequacy of the sale price.
4. Exercise of inherent powers by the Company Court.
5. Inclusion of a party in the proceedings.

Detailed Analysis:

1. Recall of the Order Accepting the Highest Bid:
The appeal was filed against the judgment recalling the order dated 17.12.2013, which accepted the highest bid of Rs. 148 Crores for the company's land. The Company Court had initially accepted this bid but later recalled the order, citing the need to consider the potential development of the land and the change in Floor Space Index (FSI), which was not considered earlier.

2. Fresh Auction of the Company's Land:
The Company Court directed a fresh auction of the land, setting an upset price at Rs. 214 Crores. This decision was based on the inadequacy of the previous bid and the significant increase in the land's value due to changes in FSI. The new auction was ordered to ensure the land fetched the best possible price.

3. Adequacy of the Sale Price:
The Company Court found the earlier bid of Rs. 148 Crores inadequate, considering the potential increase in land value due to the FSI change. The court noted that the land's potential development was not considered in the initial auction, leading to an undervaluation. The substantial increase in the bid amount from Rs. 148 Crores to Rs. 214 Crores within a short period indicated the initial price was significantly lower than the market value.

4. Exercise of Inherent Powers by the Company Court:
The Company Court exercised its inherent powers under Rule 9 of the Companies (Court) Rules to recall the earlier order. It acknowledged that relevant factors affecting the land's market value were not considered during the initial auction. The court aimed to correct the mistake and ensure the land was sold at a fair market price, benefiting all stakeholders, including creditors and shareholders.

5. Inclusion of a Party in the Proceedings:
The appeal also involved the dismissal of an application by Narmada Fintrade Pvt. Ltd., which sought to be included as a party in the proceedings. The Company Court had dismissed this application based on a previous rejection of a similar request. However, the appellate court found that the earlier rejection was not on merits and remanded the matter to the Company Court to decide afresh whether Narmada Fintrade Pvt. Ltd. should be included as a necessary or proper party.

Conclusion:
The appellate court upheld the Company Court's decision to recall the earlier order and directed a fresh auction with an upset price of Rs. 214 Crores. It emphasized the need to consider all relevant factors affecting the land's market value to protect the interests of all stakeholders. The court also remanded the issue of including Narmada Fintrade Pvt. Ltd. as a party back to the Company Court for a fresh decision. The stay on the Company Court's order was extended to allow the appellant to seek further legal recourse.