2011 (9) TMI 1181 - HC - Indian Laws

Summary

Issues Involved:
1. Challenge to the order of the Debts Recovery Appellate Tribunal (DRAT) confirming the sale of immovable property.
2. Fairness and transparency of the sale process.
3. Role and involvement of the Official Liquidator.
4. Adequacy of the price realized from the sale.
5. Compliance with legal norms and procedural fairness.

Detailed Analysis:

1. Challenge to the Order of the DRAT:
Three petitions were filed under Article 226 of the Constitution to challenge the DRAT's order dated 3 March 2011, which restored the confirmation of the sale of immovable property in favor of the First Respondent. The DRAT had set aside the order of the Debts Recovery Tribunal (DRT) and reinstated the sale confirmation.

2. Fairness and Transparency of the Sale Process:
The sale process was scrutinized for fairness and transparency. Initially, public notices were issued, but the immovable property did not receive any offers. Subsequent private bids were received, and the First and Second Respondents enhanced their bid to Rs. 2.50 crores. However, the Central Bank of India was not informed of the confirmation hearing's actual time, leading to its absence during the crucial meeting. The Recovery Officer set aside the sale on 5 December 2006, citing the need for higher price realization and the involvement of the Official Liquidator. A fresh auction was conducted on the same day without public notification, resulting in a bid of Rs. 6.45 crores from Umrah Developers, which was significantly higher than the earlier bid.

3. Role and Involvement of the Official Liquidator:
The Official Liquidator, appointed by the Company Court, argued that the sale should be set aside due to the lack of notice to him. The Supreme Court in Rajasthan State Corporation v. Official Liquidator emphasized that the Official Liquidator must be involved in the sale proceedings to ensure compliance with the Companies Act, 1956. The DRAT's view that the Liquidator's role was restricted to disbursement stages was incorrect.

4. Adequacy of the Price Realized from the Sale:
The initial valuation of the property was Rs. 1.10 crores, later reduced to Rs. 80 lakhs. The bid of Rs. 2.50 crores from the First and Second Respondents was considered fair at the time of confirmation. However, a subsequent bid of Rs. 6.45 crores from Umrah Developers indicated that the property could fetch a much higher price. The DRT found the valuation flawed and directed a public notice for fresh offers, which the DRAT later set aside.

5. Compliance with Legal Norms and Procedural Fairness:
The sale process lacked transparency and adherence to legal norms. The Recovery Officer's immediate fresh auction without public notice was improper. The DRT's directive for a public auction was based on valid reasons, aiming for a fair and transparent process. The DRAT's order was based on misconceptions about the Liquidator's role and the Central Bank's absence.

Conclusion:
The Court found significant irregularities in the sale process, including the lack of transparency and failure to involve the Official Liquidator properly. The price realized was not reflective of the property's fair market value. The petitions were allowed, setting aside the DRAT's order dated 3 March 2011. The Recovery Officer was directed to issue a public advertisement for fresh bids, ensuring transparency and adherence to legal norms. The sale process was to be expedited and completed within three months, with costs borne by the secured creditors.