2020 (2) TMI 1079 - HC - Companies Law

Auction - Recall of the confirmation of sale of the property - reopening of the sale - rights of the Appellant arising out of the acceptance of its bid for the purchase of the property - HELD THAT - The Company Court was not justified in passing the impugned order dated 25.07.2019, whereby the bid of ₹ 23 crores of prospective buyer (Respondent No.3) was accepted, thereby setting aside the earlier order dated 06.09.2018, accepting the bid of the Appellant. The Company Court failed to take into consideration that vide the aforesaid order dated 06.09.2018, the OL was directed to hand over the possession of the property once the entire bid amount was paid by the Appellant. On the date of passing of the impugned order dated 25.07.2019, the entire amount stood deposited and the transaction stood concluded. No doubt, the bid of Respondent No.3 would result in realizing an amount of ₹ 1.16 crores (approx.) more for the property in question and that would enure to the benefit of the creditors of the company. At the same time, one cannot lose sight of the fact that the appellant would be entitled to refund of the amount deposited with interest accrued thereon. Thus, the OL would lose the interest on the amount deposited by the Appellant upto 09.04.2019. Moreover, financial gain that may result, cannot be the sole criteria for deviating from the sale process. There are nothing improper in the conduct of the Appellant. Much has been said about the fact that after having been unsuccessful in the first round, the Appellant had by its conduct waived its objection to the re-bidding of the property. There are no waiver on the part of the Appellant. In the appeal proceedings, the Court found the action to be premature in as much, as, it was observed that the order impugned in the first appeal had only called upon Respondent No.3 to make a bid and therefore the matter had not attained finality. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Reopening of the confirmed sale.
2. Justification for entertaining the application by Respondent No. 1.
3. Rights of the Appellant arising out of the acceptance of its bid.
4. Impact of the additional sum offered by Respondent No. 3.
5. Legal precedents and principles governing the confirmation of sales.

Issue-wise Detailed Analysis:

1. Reopening of the Confirmed Sale:
The Appellant assailed the order dated 25.07.2019, which reopened the sale confirmed in his favor. The Court had earlier accepted the Appellant's bid of ?21.83 crores for the property, which was deposited fully by 09.04.2019. However, Respondent No. 1 later moved an application offering a higher bid of ?26 crores, which led to the reopening of the sale. The Court found that there was no justification for reopening a confirmed sale, especially when the entire amount had been deposited by the Appellant, and no fraud or illegality was alleged in the sale process.

2. Justification for Entertaining the Application by Respondent No. 1:
The application by Respondent No. 1 was entertained on the premise that a higher bid was available. However, this application did not disclose an identified bidder. The Court observed that the subsequent bid of ?23 crores by Respondent No. 3 was only marginally higher (about 5%) than the Appellant's bid and did not justify reopening the sale. The Court emphasized that reopening a concluded transaction for a marginally higher offer undermines the sanctity of the sale process and could have serious repercussions on public auctions and public interest.

3. Rights of the Appellant Arising Out of the Acceptance of Its Bid:
The Appellant's rights were crystallized upon the acceptance of its bid and the full deposit of the sale amount. Despite delays in payment, the Court had condoned these delays, and the Official Liquidator (OL) had accepted the entire amount. The Court held that the transaction was complete and attained finality upon the full deposit, and the Appellant was entitled to the vacant and peaceful possession of the property. The learned Single Judge's decision to invite fresh offers was deemed improper and contrary to settled legal principles.

4. Impact of the Additional Sum Offered by Respondent No. 3:
Respondent No. 3's offer of ?23 crores was only marginally higher than the Appellant's bid. The Court noted that the financial gain from this higher bid was not substantial enough to justify reopening the sale. Moreover, the Appellant would be entitled to a refund with interest, negating any significant financial benefit. The Court emphasized that financial gain alone cannot be the sole criterion for deviating from the established sale process.

5. Legal Precedents and Principles Governing the Confirmation of Sales:
The Court relied on Supreme Court judgments in Valji Khimji and Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited and Others and Vedica Procon Private Ltd. v. Balleshwar Greens Private Ltd. and Ors., which held that a confirmed sale should not be set aside merely for a marginally higher offer unless there is evidence of fraud or collusion. The Court also referred to Navalkha & Sons v. Ramanya Das, which established that the confirmation of sale should ensure the price is adequate and that subsequent higher offers cannot be a ground for refusing confirmation unless the price difference indicates fraud.

Conclusion:
The Court allowed the appeals, set aside the impugned orders, and directed the OL to hand over the property to the Appellant and execute the sale transaction within two weeks. The application by Respondent No. 3 for a refund of its deposited amount with interest was also allowed. This judgment reinforces the principles of finality and certainty in auction sales and underscores the importance of adhering to established legal procedures and safeguards.

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