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2023 (4) TMI 1189 - SC - Indian LawsAuction - company declared as a sick company - disposal of assets for recovery of dues - reserve price in the auction notice in terms of Section 21(c) of the Act, 1985 not indicated - absence of a competitive bidding - HELD THAT - The process was initiated by the Operating Agency (IDBI) to sell the subject assets of the sick industrial company (BCI) in terms of the order passed by the BIFR in exercise of its power under Section 20(4) of the Act, 1985. Pursuant thereto, the Operating Agency was under an obligation to obtain the valuation report of the subject property and after due assessment has to arrive at the reserve price for the sale of the property in terms of Section 21(c) of the Act, 1985 and thereafter has to proceed with a procedure known to law while adopting a method for sale of the assets by public auction or by inviting tenders or in any other manner specified and for the manner of publicity therefor in terms of Section 18(2)(k) of the Act, 1985. Indisputedly, in the instant case, it has not been placed on record if there was any valuation report assessed by the Operating Agency from the approved valuer of the subject property and, at the same time, the reserve price of the subject property was never disclosed/indicated in the first place when the public notice came to be notified on 24th May, 2004 inviting offers from the interested parties for Block IV. Thus, the very procedure adopted by the Operating Agency appears to be defective at its very inception - The purpose of auction (open or close format) is to get the most remunerative price and giving opportunity to the intending bidders to participate and fetch higher realizable value of the property. If that path is cut down or closed, the possibility of fraud or to secure inadequate price or underbidding would loom large. In the given circumstances, it is the duty of the Court to exercise its discretion wisely and with circumspection and keeping in view the facts and circumstances in each case. The question of locus was never raised by the appellants before the High Court and once the subject issue has been looked into by the High Court on merits and we too are persuaded that order of the AAIFR confirming the bid pursuant to its order impugned dated 1st April, 2005 is not legally sustainable, we do not find any justification at this stage to non-suit the claim of the appellants prayed for in Civil Appeal No.10127 of 2011. The money deposited by the appellants in Civil Appeal No. 10128 of 2011 shall be refunded in terms of the order of the High Court impugned dated 5th February, 2010. Appeal dismissed.
Issues Involved:
1. Legality of the auction process conducted by IDBI. 2. Compliance with the guidelines of the Asset Sale Committee (ASC). 3. Locus standi of the petitioners challenging the auction. 4. Validity of the High Court's decision to set aside the auction and order a fresh bidding process. Summary: Legality of the Auction Process: The Supreme Court reviewed the auction process initiated by IDBI for the sale of assets of M/s Bharat Commerce & Industries Limited (BCI), a sick company, under the directions of the Board for Industrial and Financial Reconstruction (BIFR). The auction notice dated 24th May 2004 did not disclose the reserve price or include a valuation report as required under Section 21(c) of the Sick Industrial Companies (Special Provisions) Act, 1985. This omission rendered the auction process defective from its inception. The sole bid received was for Rs.2,84,00,000/-, which was accepted without competitive bidding, thereby failing to secure the optimum realizable value of the property. Compliance with ASC Guidelines: The appellants did not comply with the ASC guidelines, which required the successful bidder to furnish a bank guarantee within 15 days and pay the balance in two installments. Despite being the sole bidder, the appellants neither provided the bank guarantee nor made any payment after the bid's acceptance. The BIFR rejected the bid due to non-compliance, but the Appellate Authority for Industrial & Financial Reconstruction (AAIFR) later directed BIFR to confirm the sale. The High Court, however, found that the appellants had not adhered to the ASC guidelines and set aside the AAIFR's order. Locus Standi of Petitioners: The High Court's decision was challenged by the BCI Staff Colony, Residential Welfare Association, and its members, who had not participated in the bidding process. The Supreme Court upheld their right to challenge the auction under Article 226 of the Constitution, given their direct interest in the property and the flawed auction process. Validity of High Court's Decision: The High Court revisited the entire bidding process, noting the lack of competitive bidding and non-compliance with ASC guidelines. It restored the BIFR's decision and directed the initiation of a fresh bidding process. The Supreme Court agreed with the High Court's findings and emphasized that the purpose of an auction is to secure the highest possible value through competitive bidding. The Court dismissed the appeals, affirming that the auction process was fundamentally flawed and the High Court's direction for a fresh auction was justified. Conclusion: The Supreme Court dismissed the appeals, upheld the High Court's decision to set aside the auction, and directed the refund of the deposited money to the appellants. The official liquidator was instructed to take reasonable steps to fetch the optimum value of the property through a fresh auction process.
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