1969 (10) TMI 41 - SC - Companies Law

Whether publicity was not as wide as originally proposed by the commissioners in their affidavit? Held that - The learned company judge having decided to put the property to auction went wrong in not holding the auction as a public auction after due publicity and this has resulted in prejudice to the company and the creditors in that the auction did not fetch adequate price. The prejudice was inherent in the method adopted. The petition of Padam Chand Agarwal also suggested that want of publicity had resulted in prejudice. In these circumstances the company judge ought not to have confirmed the bid of the appellant in the auction held on 24th December 1964. We are accordingly of opinion that the Division Bench was right in holding that the order of the company judge dated 19th February 1965 should be set aside and there should be fresh sale of the property either by calling sealed tenders or by auction in accordance with law. The tender will be called or the auction will take place with the minimum offer or with the starting bid of ten lakhs of rupees. For these reasons we hold that the judgment of the Division Bench of the Andhra Pradesh High Court dated 24th September 1965 is correct and these appeals must be dismissed with costs

Issues Involved:
1. Adequacy of publicity for the sale of company assets.
2. Confirmation of the auction sale by the High Court.
3. Judicial discretion in confirming the sale.
4. Compliance with Rule 273 of the Companies (Court) Rules, 1959.
5. Adequacy of the price fetched in the auction.

Issue-wise Detailed Analysis:

1. Adequacy of Publicity for the Sale of Company Assets:
The court examined whether the sale of the immovable and movable properties and actionable claims of Hyderabad Vegetable Products Company Ltd. was adequately publicized. The commissioners were required to advertise the sale twice in five leading dailies. However, the sale was advertised in only four newspapers, and not twice in all of them, which was contrary to the terms and conditions initially set. The court noted that the lack of adequate publicity resulted in only one offer being received by the initial deadline, highlighting a significant deviation from the intended wide publicity.

2. Confirmation of the Auction Sale by the High Court:
The confirmation of the auction sale by the High Court was challenged on the grounds that the property did not fetch its proper price and that there was a possibility of higher bids. The learned judge initially decided to arrange an open bid in the court between the appellant and a new offerer, Gopaldas Darak, who made a higher bid. The judge accepted the highest bid from the appellant after this open bid. However, another offer of Rs. 10,00,000 was made by Padam Chand Agarwal after the auction, which the judge rejected, leading to appeals challenging the confirmation of the sale.

3. Judicial Discretion in Confirming the Sale:
The court emphasized that the discretion of the company judge in confirming the sale should be exercised judiciously, ensuring that the property is sold at an adequate price. The court is the custodian of the interests of the company and its creditors, and the confirmation of the sale should be based on the adequacy of the price offered. The Division Bench found that the learned single judge did not exercise his discretion properly by confirming the sale without ensuring adequate publicity and participation from the public.

4. Compliance with Rule 273 of the Companies (Court) Rules, 1959:
Rule 273 mandates that sales be conducted by public auction or by inviting sealed tenders, or in such manner as directed by the judge. The court found that the auction held on 24th December 1964 was not a public auction as it was confined to only two named persons and was conducted without due publicity. The Division Bench held that the learned judge should have directed a public auction with adequate notice to the public to ensure a fair opportunity for all potential buyers to participate.

5. Adequacy of the Price Fetched in the Auction:
The court highlighted that the property should not be sold at an inadequate price, and the confirmation of the sale should ensure that the price fetched is reasonable and reflective of the market value. The Division Bench noted that the initial bid of Rs. 7,91,001 and the subsequent highest bid of Rs. 8,82,009 were not adequate, given the market value of the property. The lack of sufficient publicity and the confined auction process resulted in the property not fetching an adequate price, which prejudiced the interests of the company and its creditors.

Conclusion:
The Division Bench of the Andhra Pradesh High Court set aside the order of the learned single judge and directed a fresh sale of the property either by calling sealed tenders or by auction in accordance with law, with a minimum offer or starting bid of Rs. 10,00,000. The Supreme Court upheld this judgment, dismissing the appeals and emphasizing the importance of adequate publicity, judicial discretion, and compliance with Rule 273 to ensure the property fetches a reasonable price reflective of its market value.

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