2012 (12) TMI 771 - HC - Companies Law

Extension of bid payment period - Winner of bid did not pay sale consideration even during time for which he was seeking extension, sale was to be cancelled and earnest money seized - whether the appellant in whose favour a sale came to be confirmed by order dated 22.02.2006 on certain terms and conditions as provided in the tender having committed default - Held that - The applicant having failed to comply with the payment time-table then filed Company Application wherein it is clear from the prayer made in the Judges Summons and the affidavit filed in support of the Judges Summons that what was prayed was extension of time only up to 31.08.2006 and the reason set out for seeking such extension wherein it was stated that, on account of serious sickness in the family of one of its active partners and also on account of other reasons beyond its control . This Court has an additional reason to deny the prayer /relief to the appellant-applicant because the prayer for extension of time stood granted in favour of the applicant as extension was granted up to 15.09.2006. It will not be inappropriate to remind oneself that extension sought for was only up to 31.08.2006, whereas the Court granted extension up to 15.09.2006 and therefore, on that short ground, the appellant-appellant must fail in getting any relief from this Court. The submission made by applicant that he could not act within the period extended because there was OJ Appeal No.43 of 2005 pending and it was decided that Company Application No.327 of 2006 (praying for extension) will be considered after OJ Appeal No.43 of 2005 is decided, which came to be decided only on 01.08.2008, this makes the case of the appellant-applicant no better, because if the bonafides of the appellant-applicant are to be tested, it has not been placed on record that between 11.06.2006, which was the last date for payment as per the sale confirmation order and 15.09.2006, till which date the extension was granted, any substantial payment was made by the applicant, except making an application to permit him to make payment. No right is created in favour of the appellant-applicant after 20.06.2011. Whatever rights the applicant is having, are flowing from order dated 22.02.2006. The question which is required to be answered by this Court is whether in light of the clear terms and conditions prescribed in the tender and prescribed order dated 22.02.2006, any right of the applicant survived and the answer of this Court is, NO - no relief can be granted to the appellant-applicant, thus the appeal fails and dismissed. Directs the Official Liquidator to refund the amount deposited by the appellant-applicant towards sale consideration. The Court makes it further clear that the appellant-applicant will not be entitled to refund of Earnest Money Deposit. It is also made clear that this refund will be without any interest payable thereon. The amount shall be refunded only after the property is put to sale and the sale price is realized by the Official Liquidator.

Issues Involved:
1. Extension of time for payment of balance purchase consideration.
2. Termination of sale and forfeiture of deposit.
3. Valuation and auction of the property.
4. Rights of workers and secured creditors.
5. Judicial discretion and the role of the Company Court.

Detailed Analysis:

1. Extension of time for payment of balance purchase consideration:
The appellant, Devganga Traders, sought an extension of time to pay the balance purchase consideration for a property sold in a winding-up proceeding. The original order required payment of 25% of the purchase consideration by March 10, 2006, and the balance within three months. The appellant paid the initial 25% but failed to pay the remaining amount within the stipulated period, citing serious illness in the family and other uncontrollable reasons. The appellant requested an extension until August 31, 2006, and later until September 15, 2006, which was granted. However, the appellant still did not make the payment, leading to the rejection of further extensions.

2. Termination of sale and forfeiture of deposit:
The Official Liquidator (OL) sought permission to terminate the sale and forfeit the deposit due to the appellant's failure to comply with the payment schedule. The Company Court granted this permission, emphasizing that the terms of the tender and the order dated February 22, 2006, allowed for such action in case of non-payment. The appellant's subsequent appeals and requests for review were dismissed, reinforcing the termination of the sale and forfeiture of the deposit.

3. Valuation and auction of the property:
The property in question was valued at approximately Rs. 123.56 crores, significantly higher than the appellant's bid of Rs. 10.20 crores. Several interveners offered higher bids, ranging from Rs. 42 crores to Rs. 50 crores. The Company Court emphasized the need to maximize the value of the property for the benefit of the creditors and workers. The court directed the OL to obtain a fresh valuation and proceed with the auction to ensure the property fetched the highest possible price.

4. Rights of workers and secured creditors:
The court recognized the substantial claims of the workers and secured creditors, amounting to approximately Rs. 17.8 crores and Rs. 116 crores, respectively. The court highlighted its duty to protect the interests of these parties and ensure they received the maximum possible payment from the sale of the property. The court rejected the appellant's request to retain a portion of the property, as it would not serve the interests of the workers and creditors.

5. Judicial discretion and the role of the Company Court:
The court reiterated its role as the custodian of the company's property for the benefit of creditors and workers. It emphasized that judicial discretion must be exercised to ensure the property fetched the highest price. The court cited precedents, including Divya Manufacturing Co. (P) Ltd. v. Union Bank of India and Shradhha Aromatics (P.) Ltd. v. Official Liquidator of Global Arya Industries Ltd., to support its decision to terminate the sale and proceed with a fresh auction. The court also clarified that the recall of an earlier order did not automatically revive the appellant's rights, as no new rights were created after the initial order.

Conclusion:
The appeal was dismissed, and the court directed the OL to refund the amount deposited by the appellant towards the sale consideration, excluding the Earnest Money Deposit (EMD). The refund would be made without interest and only after the property was sold and the sale price realized. The court emphasized the need to prioritize the interests of the workers and secured creditors and ensure the property fetched the highest possible price through a fresh auction.

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