2014 (10) TMI 958 - SC - Companies Law

Auction for sale - properties owned by a company under liquidation and there has been price fixation by the Company Court - Held that - There can be no speck of doubt that the properties of a company under liquidation when sold, there has to be a proper auction, a fair one. It must fetch the maximum price. It takes care of statutory dues, dues of the workmen and the creditors. It has its own public character. In any case, it cannot be allowed to be sold for a song. The estimated price given by Gitco is more than ₹ 66 crores for 113 plots, which are free. We direct M/s Star and Associates to deposit a sum of ₹ 20 crores by the end of November 2014 and another ₹ 40 crores by 15-3-2015 before the Registry of this Court - the rest of the plots in respect of which there is an order of status quo by this Court or which are sub judice before the appellate court on the company side before the High Court, needless to say, shall be dealt with at the subsequent date - SLP allowed in part.

Issues Involved:

1. Validity of the auction process conducted by the Official Liquidator.
2. Judicial discretion exercised by the learned Company Judge.
3. Valuation discrepancies and the role of the Sale Committee.
4. Compliance with judicial orders and the concept of judicial discipline.
5. Determination of the fair market value of the properties.
6. The process of fresh auction and the deposit of earnest money.
7. Handling of interlocutory applications and pending appeals.

Detailed Analysis:

1. Validity of the auction process conducted by the Official Liquidator:

The Supreme Court examined the auction process conducted under the provisions of the Companies Act, 1956. It was noted that properties were initially undervalued and sold for a lower price. The intervention of the Court resulted in a significant increase in the auction price, demonstrating the importance of judicial oversight in ensuring fair market value for the properties.

2. Judicial discretion exercised by the learned Company Judge:

The learned Company Judge declined to accept the report of the Official Liquidator, which recommended the acceptance of the highest offer made before the Sale Committee. The Division Bench of the High Court upheld this decision, noting that the valuation by Bank of Baroda was significantly higher than the highest offer received. The Supreme Court agreed that the exercise of judicial discretion by the Company Judge was proper and in the larger interest of the company's corpus.

3. Valuation discrepancies and the role of the Sale Committee:

The Supreme Court highlighted the discrepancies in the valuation of the properties. The initial offer of Rs. 1.03 crores was significantly lower than the valuation of Rs. 6.25 crores by Bank of Baroda. The Court emphasized the need for accurate and fair valuation to ensure that the properties fetch the maximum possible price.

4. Compliance with judicial orders and the concept of judicial discipline:

The Supreme Court criticized the actions of the Official Liquidator and the learned Company Judge for dealing with the matter while it was sub judice before the Supreme Court. The Court stressed the importance of judicial discipline and the need to adhere to the orders of higher courts.

5. Determination of the fair market value of the properties:

The Supreme Court referred to the valuation report by the Gujarat Industrial and Technical Consultancy Organisation Ltd. (Gitco), which estimated the price of the freehold land at Rs. 66.15 crores. The Court reiterated the principle that public property must be sold at the best possible price to serve the public interest.

6. The process of fresh auction and the deposit of earnest money:

The Supreme Court directed a fresh auction with an upset price of Rs. 10 crores. The Court mandated that bidders deposit Rs. 10 crores as earnest money to ensure their bona fides. The Court also outlined the procedure for conducting the auction and the conditions for depositing the auction amount.

7. Handling of interlocutory applications and pending appeals:

The Supreme Court allowed the filing of interlocutory applications before the High Court and directed that the orders passed by the High Court be submitted to the Supreme Court for appropriate consideration. The Court modified the stay on further proceedings to allow for the resolution of pending appeals and interlocutory applications.

In conclusion, the Supreme Court's judgment underscores the need for transparency, fairness, and adherence to judicial orders in the auction process of properties under liquidation. The Court's intervention ensured that the properties were sold at a fair market value, thereby protecting the interests of the company, its creditors, and the public.

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