9911796707
TMI Blog1974 (2) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... tition on July 15, 1970. On or about November 24, 1971, Central Bank of India, respondent No. 4 herein, filed a civil suit being Suit No. 96 of 1971 in the court at Jamnagar against the company for enforcing an equitable mortgage created by the company in its favour. It was stated in the plaint that a sum of over Rs. 26 lakhs was due by the company to respondent No. 4 as on September 30, 1971. Ultimately, by an order passed by Nathwani J. on January 12, 1972, the company was ordered to be wound up and the official liquidator was appointed liquidator without security with all powers under section 457 of the Companies Act, 1956 (hereinafter referred to as "the Act"), to be exercised by him under section 458 of the Act without sanction or intervention of the court save and except in case of sale of immovable property, if any, belonging to the company. After the order of winding up was passed several meetings were held before the official liquidator. On January 14, 1972, a meeting was held before the official liquidator when a director of the respondent No. 2 was present. Later on, on January 18, 1972, another meeting was held before the official liquidator. At this meeting, inter alia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssuing advertisement or by public auction ; Yes (c)If the answer to prayer (b) is in the affirmative this hon'ble court may be pleased to direct as to in which newspapers the official liquidator should advertise; Times (i.e., the Times of India), all editions of Bombay Samachar and Maharashtra Times. (d)In the event of the directions to prayer (a) above being that the property be sold by public auction, which of the auctioneers should be appointed by the official liquidator on the terms settled by this hon'ble court; Bennet & Co A further report was submitted by the official liquidator to Vimadalal J. on April 25,1973. On the said report directions were given by Vimadalal J. on June 16, 1973. The said directions are as under : Directions of the learned judge. (a)Whether the official liquidator should sell the factory and other properties of the above company by inviting sealed tenders by issuing advertisements as directed by this hon'ble court on his report dated the 28th June, 1972, or by public auction through Bennet & Co. as also directed by this hon'ble court on the said report, subject to the terms and conditions to be approved by this hon'ble court. By sealed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p.m. It was said that the offers would be opened and considered by the official liquidator in his office in the presence of intending offers on August 18, 1973, at 12 noon. It was made clear in this advertisement that the official liquidator is not bound to accept the highest offer and that any offer accepted would be subject to the sanction of the Hon'ble High Court at Bombay. Pursuant to this advertisement offers were received by the official liquidator from 13 parties and the same were opened by him on August 18, 1973, at 12 noon in the presence of the attorneys of the bank and other intending purchasers. The minimum offer was from one Umedhai Zaverbhai Patel in the sum of Rs. 14 lakhs. The highest offer was from respondent No. 3 in the sum of Rs. 37,57,755. It may incidentally be said that there were seven offers from different offerers wherein the price quoted exceeded Rs. 30 lakhs. The offer immediately below that of respondent No. 3 was of Vijaya Durga Cotton Trading Co. Private Ltd. in the sum of Rs. 37,50,000. The original appellant, Amba Tannin & Pharmaceuticals Ltd., had made an offer of Rs. 35,13,000. On the the same day, i.e., on August 18, 1973, Amba Tannin & Pharmace ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Rs. 37,57,755 received by him by inviting sealed tenders and as per the terms and conditions of sale ; (b) If answer to prayer (a) above is in the affirmative whether the official liquidator should execute the conveyance of the properties in favour of the purchaser as per the terms and conditions of sale ; (c) If answer to prayer (a) above is in the negative and having regard to the revised offer of Shri D.H. Nanavati, Attorney for Amba Tannin & Pharmaceuticals Ltd., of Rs. 38,13,000 whether the official liquidator should call a meeting of the offerers who had given offers and take further offers from them by requesting them to bid among themselves. This report was considered by Kania J on a number of days and the hearing went on before him on a number of occasions. The matter was heard by Kama J. for the whole day on August 23 and 30, 1973, and September 3, 1973. Thereafter, it came up for hearing on September 5, 1973. On September 5, 1973, several counsel appeared for the different parties before the learned judge and the matter was part-heard. On September 6, 1973, the affidavit proposed to be tendered on behalf of respondent No. 7 on September 5, 1973, was taken on reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment and order. It may incidentally be mentioned that by an order made by this court on December 21, 1973, Amba Tannin & Pharmaceuticals Ltd was amalgamated with Poison Ltd. and all the assets, liabilities, etc., of the former were transferred to the latter. During the course of the hearing of these appeals on February 11, 1974, Poison Ltd. were permitted to be substituted in place of Amba Tannin & Pharmaceuticals Ltd. as appellants while in the other appeal, namely, Appeal No. 111 of 1973, United India Fire and General Insurance Co. Ltd. were permitted to be substituted for All India General Insurance Co. Ltd. It is urged by Mr. Sorabjee on behalf of Poison Ltd. and by Mr. Chagla on behalf of the United India Fire and General Insurance Co. Ltd. that the method prescribed for sanction of sale of the property of a company in liquidation is by a summons for directions as required by rule 139 of the Companies (Court) Rules, 1959 (hearinafter referred to as "the Rules"); that rule 139 is mandatory; that it is a specific and express rule dealing with the matters referred to therein; that any other mode or method for seeking directions of the court in respect of matters referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew to grant or not to grant sanction. Fourthly, they submitted that section 457(1) does not mean any exception to the requirement of sanction depending upon the quantum or value of the property; that section 458 of the Act is a provision for carrying out matters in respect of which sanction is required under section 457(1); that sanction referred to in section 457(1) of the Act read with rule 272 necessarily means previous sanctions ; that when the official liquidator asks for permission to sell and seeks directions about the mode, advertisement, etc., for the purpose, that is a step for effecting sale of property and the court at that stage is required to apply its mind and come to a judicial decision on the question whether there should or should not be a sale at all and, if so, what will be the method and procedure to be adopted for such a sale. At such a stage the court is, inter alia, required to consider whether the property of the company in liquidation should be sold as a whole or in lots; that whether it should be sold as a running concern or not or whether subject to any reserve bid ; that whether valuation report should be obtained and whether the terms and conditions su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions in question is avoided, the circumstance that the statute provides for a contingency of the non-compliance with the provisions, the fact that the non-compliance with the provisions is or is not visited by some penalty, the serious or trivial consequences that flow therefrom, and above all, whether the object of the legislation will be defeated or furthered. It was said by him that the Act and the Rules provide for various safeguards so that a creditor or a contributory of a company in liquidation can keep himself informed about the affairs of the company in liquidation and the proceedings in connection therewith ; that there are several provisions in the Act and the Rules which retain overriding power of control with the court; that rule 139 does not determine the rights but merely provides the framework for further proceedings in the matter. His submission was that if regard be had to the language of rule 139 then only one summons for directions is contemplated thereby and that after the expiry of a period of 7 days from the date of the filing of the preliminary report, it is open to the official liquidator to approach the court for directions in respect of the matters pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; that such permission may be granted generally to any class of cases or to any special cases ; that in exercise of the power conferred by rule 10 it is open to the court to permit the official liquidator to adopt the practice and procedure followed by the court prior to the Rules coming into operation and that when such practice and procedure is permitted by the judge it is not obligatory upon the official liquidator to follow the procedure prescribed by rule 139. He adopted all the contentions of Mr. Shah as regards rule 139 being directory. He further submitted that by rule 9 inherent power of the court is expressly reserved and having regard to the ends of justice and the provisions of other rules it is always open to the court to permit an official liquidator to adopt a procedure other than the one stipulated by rule 139 in respect of the matters referred to therein. His submission was that the argument of Mr. Sorabjee and Mr. Chagla that a summons for directions as required by rule 139 is a condition precedent to the exercise of jurisdiction by the court is fallacious. At the most according to his submission non-compliance with the provisions of rule 139 is a mere irregularit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad not been complied with, because, contrary to the provisions of the said conditions, the official liquidator erroneously accepted only one offer and all the other offers were rejected by him without being clothed with a power to do so and that he erroneously returned the earnest money deposited by the other offerors. That, upon a true construction of condition No. 12, it was obligatory upon the official liquidator to place all the offers before the court at the time of approaching the court for sanction or confirmation of the sale; that as the terms and conditions subject to which the sale was directed to be held were not approved before the offers were invited, the order sanctioning the sale in favour of the respondent No. 3 is illegal and void irrespective of any question of prejudice ; (b)That in passing the impugned order sanctioning the sale in avour of respondent No. 3 the learned judge failed to apply his mind to the question of adequacy of price ; (c)That, notwithstanding a substantial higher offer from Amba Tannin and Pharmaceuticals Ltd., the learned judge fettered his power or discretion ; (d)That in any event when respondent No. 3 was permitted to increase his offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son or body corporate, or to sell the same in parcels; (d)to raise on the security of the assets of the company any money requisite ; (e)to do all such other things as may be necessary for winding up the affairs of the company and distributing its assets. (2) The liquidator in a winding up by the court shall have power- (i)to do all acts and to excute, in the name and on behalf of the company, all deeds, receipts, and other documents, and for that purpose to use, when necessary, the company's seal; (ia)to inspect the records and returns of the company on the files of the Registrar without payment of any fees; (ii)to prove, rank and claim in the insolvency of any contributory, for any balance against his estate, and to receive dividends in the insolvency, in respect of that balance, as a separate debt due from the insolvent, and rateably with the other separate creditors ; (iii)to draw, accept, make and endorse any bill of exchange, hundi or promissory note in the name and on behalf of the company, with the same effect with respect to the liability of the company as if the bill, hundi, or note had been drawn, accepted, made or endorsed by or on behalf of the company in the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the company to be collected and applied in discharge of its liabilities. Section 643 clothes the Supreme Court with power to make rules after consulting the High Courts. Sub-section (3) of section 643 provides that until rules are made by the Supreme Court, all rules made by any High Court on the matters referred to in the section and in force at the commencement of the Act, shall continue to be in force in so far as they are not inconsistent with the provisions of the Act in that High Court and in courts subordinate thereto. In exercise of the powers conferred by section 643 of the Act the Supreme Court after consulting the High Court has made the rules, i.e., the Companies (Court) Rules, 1959. These Rules came into force on October 1, 1959. The Rules are divided into various Parts. Part I deals with general rules. Part II deals with rules for proceedings in matters other than winding up. Part III deals with rules relating to winding up. Part IV and Part V deal with other matters with which we are not concerned. Amongst the general rules, the relevant rules for the present purpose are rule 6 dealing with practice and procedure of the court and provisions of the Code to apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther matters requiring directions of the court. Notice of the summons shall be given to the petitioner on whose petition the order for winding up was made. Upon the hearing of the summons, the court, after hearing the official liquidator and any other person appearing on notice or otherwise, may give such directions as it shall think fit in regard to the said matters, including the fixing of dates for the settlement of the list of contributories and for the filing of proofs by the creditors of the company in respect of their debts and their claims for priority if any under section 530. (2) Where the preliminary report of the official liquidator is not filed prior to the hearing of the summons and any of the matters in the summons cannot be properly or fully dealt with without a perusal of such report, the court may adjourn the hearing of any such matter or matters on the summons until after the submission of the preliminary report." Rule 272 and rule 273 deal with sales by the official liquidator and they are as under : "272. Sale to be subject to sanction and to confirmation by court.-Unless the court otherwise orders, no property belonging to a company which is being wound up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by a specific rule, that special procedure is to be followed. The other limitation is that whenever a procedure other than a petition or a judge's summons is permitted by the judge, then it is open to the party concerned including an official liquidator to adopt the procedure permitted by the juage. When a procedure permitted by the judge deals with a matter which is specifically dealt with by any special rule, then in such a case it will be open to the party concerned including the official liquidator to follow the other procedure specially prescribed by the' rule or the procedure permitted to be followed by the judge. In exercise of the powers conferred by rule 10, it will be also permissible to the judge to allow the practice and the procedure of the court which was followed prior to this rule being made. There is nothing sacrosanct in rule 139 to indicate that it takes away from the judge the power to permit the procedure consistent with the practice and procedure earlier followed by the court before the Rules come into force. The provisions of rule 10 have to be read with rule 6 and if so read it will be open to a judge to permit an application to be made in consonance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure is permitted by the judge, then either of the two procedures can be adopted by the party concerned. Reliance was placed by Mr. Sorabjee upon the decision of the Gujarat High Court in Colaba Land and Mills Co. Ltd. v. Vasant Investment Corporation Ltd. AIR 1964 Guj. 107. The question that arose for consideration in that case was whether an application for compensation under section 543 of the Act can be made as a part of a petition under section 397 or section 398. Miabhoy J. took the view that proceedings under section 543 should be by an independent and fresh application. In that case it was contended by one of the parties that even though, under the rules, an independent petition is required to be filed for a proceeding under section 543 the court must exercise the jurisdiction vested in it under rule 10 which confers a jurisdiction upon the court to permit a person to present an application by a judge's summons in lieu of an application by petition. While considering this question Miabhoy J. observed that it is quite clear that the discretion vested under rule 10 aforesaid must be exercised on sound judicial principles and, having regard to the scheme of the Act and the rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the judge taking company matters. As the material question involved in these two appeals relates to a question of sanctioning or confirming a sale by the official liquidator of the assets of the company in liquidation it will be necessary to determine the scope and effect of section 457 which deals with the powers of a liquidator. In respect of matters referred to in clauses (a) to (e) of sub-section (1) of that section the power therein referred to can only be exercised by the liquidator in winding up with the sanction of the court. The argument of Mr. Sorabjee is that upon a true interpretation of the provisions of section 457(1)(c) which deals with the power of sale of movable or immovable property of the company in liquidation the official liquidator must take directions of the court about various things like the mode of sale, advertisements, etc. He should also seek directions of the court whether there should or should not be a sale at all and if so, what should be the method adopted for such sale. Mr. Sorabjee went further and submitted that the directions of the learned judge are obligatory upon a true interpretation of that section even on a question like whether the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven in the prescribed form before a suit can be instituted against the Government or a public officer or a local or municipal body. Even before institution of a suit against a co-operative society notice to the Registrar of Co-operative Societies is necessary. If steps preliminary to or ancillary to the institution of a suit require sanction of the court, then it may very well be that even by the time the sanction is granted and actual steps are adopted for institution of the proceedings the remedy may get time-barred. The court should be slow to impose such a restriction unless the language of the section so warrants. In our opinion, it is only when the power is effectively exercised-a power of the type enumerated in clauses (a) to (e) of sub-section (1) of section 457-that the question of sanction of the court arises and the liquidator cannot do such a thing or exercise such a power unless he obtains the previous sanction of the court. In the present case we are concerned with the power to sell the immovable property of the company. When an order for winding up was passed by Nathwani J., the learned judge (in view of the provisions of section 458) has given directions for exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower of sale' is a well-known expression in conveyancing. The words' power of sale', as used in section 69(c) of the Transfer of Property Act, 1882, refer to a clause to be expressly included in a deed of mortgage. They must, therefore, be understood to mean what is ordinarily known and understood in conveyancing by that expression. A power of sale includes all steps which are necessary to be taken in that connection. In order to make the power bad, words must be pointed out in section 69 which render the whole power invalid according to law." At page 894 the learned judge points out: "The words ' power of sale ' are not defined anywhere in the Act. If it is a technical expression it would not be improper for the court to find out its meaning as judicially interpreted.............The words 'power of sale' used in sub-section (c) refer to a clause to be expressly included in the mortgage. They must be understood, therefore, to mean what is ordinarily known and understood in conveyancing by that expression..........A power of sale must include all steps which are necessary to be taken in that connection." The observations in this judgment are not of assistance to the court in int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht to be suggested that the underlying idea of such an ingredient is to give notice to the petitioning-creditor as representing the class of creditors. If regard be had to the persons who are competent to make an application for winding up, such an argument cannot be accepted. Under section 439 of the Act not only a winding up petition can be presented by any creditor or creditors, or any contributory or contributories, but it can also be presented, inter alia, by the company or by the Registrar. Thus, the contention that the petitioner represents the body of creditors or even the body of contributories is not correct because when a petition is presented by the company or by the Registrar, there is no question of any of them representing either the creditors or the contributories. But even in the present case it is unnecessary to consider this question in further detail. Whether notice was given or not to the petitioner on whose petition the order for winding up was made, is of academic consideration because the petitioner was present at the several meetings that were held before the official liquidator prior to the directions of the learned judge were sought in relation to matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before us during the course of the hearing of these appeals were heard by the learned judge before the order was passed and the question of the validity of his order being affected on the ground of ingredient No. 2 and/or ingredient No. 3 not having been complied with, is purely academic. The question then arises whether the taking out of a summons for directions as contemplated by rule 139(1) is a sine qua non for exercise of jurisdiction in respect of the various matters referred to in the said rule. It was urged by Mr. Sorabjee and Mr. Chagla on behalf of the appellants that when the law of the rule prescribes a particular method that is the only method and no other method can be adopted. Reliance was placed in support of this principle upon the decision in Taylor v. Taylor [1875] 1 Ch D426 (Ch D), where it is held that where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all. Other modes are necessarily forbidden. This principle was followed by the Privy Council in the case of Nazir Ahmad v. King Emperor AIR 1936 PC 253 in relation to a question arising with regard to the method of recording a confession by an accused. Oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applied, leads to inconsistency or injustice." So far as we are concerned there is no question of choosing between a specific or general provision. Rule 10 prescribes two independent modes by way of overriding procedure, namely, one provided by rules and the other permitted by the judge. So far as these two procedures are concerned, it is impossible to say that one is a specific and the other is a general provision. Both are parallel provisions and it is open to a party concerned including a liquidator to adopt either of them as may be permitted by the language of rule 10. Thus, the question of adopting a procedure sanctioned by a specific provision or general provision does not arise in the present case. The argument of Mr. Sorabjee and Mr. Chagla then was that as rule 139(1) contemplates taking out of a summons for directions by the official liquidator in respect of the matters therein referred to, adoption of such mode is obligatory. The form of a summons for directions is given in Form No. 4 of the Rules. That form shows that the title is the normal title with reference to the company petition, the name of the party and the number of the application and the material part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of statement of affairs and preliminary report. Rule 286 enumerates the registers and the books to be maintained by the official liquidator. Item 22 of sub-rule (1) thereof refers to a record book for each company in which shall be entered all minutes of proceedings and the resolutions passed at any meeting of the creditors or contributories or of the committee of inspection, the substance of all orders passed by the court in the liquidation proceedings and all such matters other than matters of account as may be necessary to furnish a correct view of the administration of the company's affairs. Rule 360 provides for inspection of file and under sub-rule (2) thereof : "Save as otherwise provided by these rules, every contributory and every creditor whose claim or proof has been admitted, shall be entitled, on payment of the prescribed charges, at all reasonable times to inspect the file of proceedings and to be furnished with copies and extracts from any document therein." Apart from these provisions for maintenance of books, registers, etc., and inspection thereof and taking copies therefrom, the rules also contain elaborate provisions which permit a creditor or a contributory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s there stated that when a statute uses the word "shall", prima facie it is mandatory, but the court may ascertain the real intention of the legislature by carefully attending to the whole scope of the statute. For ascertaining the real intention of the legislature, the court may consider, inter alia, the nature and the design of the statute, and the consequences which would follow from construing it one way or the other, the impact of other provisions whereby the necessity of complying with the provisions in question is avoided, the circumstance that the statute provides for a contingency of the non-compliance with the provisions, the fact that the non-compliance with the provisions is or is not visited by some penalty, the serious or trivial consequences that flow therefrom, and, above all, whether the object of the legislation will be defeated or furthered. The object of provisions for winding up, it cannot be gainsaid, is to collect all the assets of the company in liquidation, to distribute them rateably amongst its secured creditors ; thereafter, among those who are preferential creditors and, thereafter, among the unsecured creditors. If there is a surplus then they are to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed out but some hypothetical grounds are suggested stating that if there was summons for directions somebody also could have appeared such as workers and/or Government representatives and could have presented their points of view. Such considerations, in our opinion, do not go automatically to vitiate the order unless the persons who are interested in raising these considerations appear before us and urge them before us. Thus, even the first ingredient of rule 139, even if it is not strictly complied with as required by that rule, will merely be a formal defect which will not invalidate the final order passed, unless there is either substantial injustice caused or the injustice cannot be remedied by order of the court. These findings on the various facets of rule 139 are sufficient to dispose of the points of controversy in this appeal and it is unnecessary to express any opinion on the other contentions urged by either party qua the remaining features of rule 139. Strong reliance was placed by Mr. Sorabjee upon two decisions of the Gujarat High Court. The first case referred to is O.J. Appeal No. 3 of 1968 (Ananta Mills Ltd. (O.J. Appeal No. 3 of 1968-5-9-1968) decided by Bak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he hearing" in the rule make it amply clear that such orders are intended to be passed after a hearing. The matters included within the scope of the rule are such that while passing orders in regard to them, rights or interests of persons concerned and other similar questions of importance might have to be considered and it would be in consonance with the principles of justice that persons whose interests are likely to be affected should be heard before any orders were passed on matters in which they are or are likely to be concerned. In cases, for example, where it is proposed to grant permission to sell the property of the company, several questions might arise which the court might be required to consider whether the property should be sold wholly or in part, whether the property should be leased out or used or dealt with in any other manner, whether the sanction to sell should be general or restrictive. On all these and several other questions including the value and the price of the assets, it would be necessary for the court to apply its mind. The exercise of powers mentioned in sub-section (1) of section 457 by the liquidator would be such a matter and, in such cases, it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... many other important facts could have been placed before the court in the context of the report made by the liquidator. Such facts require consideration before a step is taken towards the sale of property and such considerations supply the data for evolving an objective standard for deciding how the liquidator should be directed to initiate the proceedings of sale. The consideration of these factors by an objective standard would result in a judicial order and the mere fact that directions for the issuance of an advertisement were sought would not by itself be sufficient to make it an order of an incidental or administrative nature; that simply because sanction or confirmation of the sale is necessary even after the offers were received, it could not be said that what the liquidator was doing could not be considered as a step towards the sale of property and that he was not seeking directions from the court in respect of a matter which involved a decision by the court to permit the liquidator to start proceedings for sale. In view of these findings the Division Bench took the view that when the liquidator filed his report on March 5, 1968, seeking directions from the court, the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the official liquidator proposes to sell any property of the company, say three or four years after the winding-up order is made ?; that the summons for directions contemplated in rule 139 is a summons which is required to be taken out by the official liquidator without unreasonable delay in order that the court should have complete seizin of the winding-up proceeding and the programme of winding-up may be chalked out at the earliest so as to expedite the winding up proceedings and avoid unnecessary delay ; that rule 139 does not contemplate summons for directions to be taken out from time to time in the course of winding up whenever the official liquidator wants to exercise any of his powers under section 457, sub-section (1), or requires directions of the court on any matter arising in the winding up. After enumerating these contentions the Division Bench pointed out that they might have required serious consideration, if the construction of the rule were res integra, but in view of the decision of the Division Bench in the earlier case, Ananta Mill's case (supra), none of these contentions were considered by the Division Bench. It should not be overlooked that the decision in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nviting sealed tenders, by issuing advertisements subject to the terms and conditions to be approved by the court. In view of this order the argument was that it was obligatory upon the official liquidator to have the terms and conditions subject to which the tenders were invited, approved by the court before even public advertisement was issued. As such terms and conditions were not approved by the court before tenders were invited the whole of the sale is thereby vitiated. A reference was also made to the provisions of rule 273 where it is, inter alia, provided that every sale shall be held by the official liquidator subject to such terms and conditions, if any, as may be approved by the court. In view of the order passed by Vimadalal J. and the provisions of rule 273, the argument was that there cannot be an expost facto approval of the terms and conditions subject to which the tenders were invited at a stage when the order sanctioning or confirming the sale is passed by the court. If regard be had to what happened before the learned judge passed the order confirming the sale in favour of the respondent No. 3 such a contention cannot be accepted. It is undoubtedly true that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut his duties enjoined by the terms and conditions could affect the right of the highest offeror if otherwise he was justified in having the sale in his favour sanctioned by the court. It is undoubtedly true that term and condition No. 11, subject to which the offers were invited, specifically provided that the vendor, i.e., the official liquidator, does not bind himself to accept the highest or any other offer. The term and condition No. 12 is as follows : "12. After receiving tenders duly filled in as hereinabove stated, the vendor will obtain directions of the company judge of this hon'ble court as to whose offer he should accept. On the vendor being authorised by the hon'ble the High Court of Judicature at Bombay to accept the offer of the purchaser, the vendor will give to the purchaser notice of such acceptance at the address given in his tender by a letter addressed to the purchaser and posted under certificate of posting obtained from any post office in Bombay and the same shall be conclusive proof of service upon such purchaser." Having regard to these terms and conditions it was not contemplated that the official liquidator should accept the offer of any tenderer. In fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of Rs. 37,50,000 while the offer of Amba Tannin & Pharmaceuticals Ltd. was in the sum of Rs. 35,13,000. After the offers were opened by the official liquidator in the presence of the parties and in the presence of the attorneys of the bank, the attorney of Amba Tannin & Pharmaceuticals Ltd. wrote a letter on August 18, 1973, i. e., the date on which the offers were opened, increasing their offer of Rs. 35,13,000 to the sum of Rs. 38,13,000. That letter was replied to by the official liquidator on August 20, 1973. He stated that the revised offer could not be considered by him; however, he would place the said offer before the court for appropriate directions when he approaches the court for sanction. When the report was submitted by the official liquidator for directions on August 23, 1973, he has specifically referred to this revised offer of Amba Tannin & Pharmaceuticals Ltd. and has, inter alia, sought directions of the court qua that offer. This matter was heard before Kania J. for a number of days and on the very first day of hearing, i.e., on August 23, 1973, the counsel for Amba Tannin & Pharmaceuticals Ltd. first increased his offer by a further amount of Rs. 50,000 and, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anctioning sale of the property of a company in liquidation under the provisions of the Companies Act, 1913, was an administrative or a judicial order. While considering this question the Supreme Court points out: "An order according sanction to a sale undoubtedly involves a discretion and cannot be termed merely a ministerial order, for before confirming the sale the court has to be satisfied, particularly where the confirmation is opposed, that the sale has been held in accordance with the conditions subject to which alone the liquidator has been permitted to effect it, and that even otherwise the sale has been fair and has not resulted in any loss to the parties who would ultimately have to share the realisation." The same principle was reiterated in a later decision of the Supreme Court in Navalkha v. Ramanuja Das [1970] 40 Comp Cas 936 , 941 (SC). It is pointed out : "The principles which should govern confirmation of sales are well-established. Where the acceptance of the offer by the Commissioner is subject to confirmation of the court the offerer does not by mere acceptance get any vested right in the property so that he may demand automatic confirmation of his offer. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ending October 31, 1971, or the valuation made in the statement of affairs filed on October 21, 1972. The learned judge has taken the view that the figures therein mentioned are not a very reliable guide regarding the correct market value of the assets concerned but he has, however, observed that they do give some indication as to what would be the adequate price for the same. It appears that there was a valuation report obtained by the official liquid ator before he submitted his report for sanctioning the sale of the assets of the company. The learned judge has not placed any reliance upon this valuation report on the ground that the amount at which the property is valued in the valuation report is very much lower than the offers received by the official liquidator. Thus, from these observations in the judgment, it is clear that the learned judge has neither placed any reliance upon the valuation made in the balance-sheet nor on the valuation made in the statement of affairs nor in the valuation report. The learned judge, however, was persuaded to take the view that the offers received by the company before it was ordered to be wound up and subsequently received by the company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcise of discretion is vested in the court, but the question whether a price is adequate or not is always a question of fact and if the material on record is not a safe guide to come to a reliable conclusion that the highest offer received represents the adequate price the court is not bound to sanction the sale in favour of the person who made the highest offer. While considering the question of adequacy of price the mere fact that one of the parties who earlier made an offer at a lower price is prepared to increase the price is not sufficient to come to the conclusion that the price originally regarded by the court as adequate should not be accepted and the sale should not be confirmed in favour of the party making such an offer. Under rule 273 a sale of the assets of a company can be made either by public auction or by inviting sealed tenders or in such manner as the judge may direct. In the present case the earlier directions given by the learned judge, Vimadalal J., by his order dated June 28, 1973, are not precise and, therefore, by his subsequent order dated June 16, 1973, he gave specific directions that the sale should be held by the official liquidator by inviting sealed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the circumstances of the case for the court to reopen the matter. The learned judge accepted the respondent's contention and confirmed the sale. The order of confirmation was affirmed by the court of appeal and the appeal against the order of confirmation at the instance of the member of the family was dismissed. The appeal court pointed out that the respondent having exceeded the reserve price agreed upon by the parties it could not be said to be inadequate and the respondent having made an adequate bid and having complied with all the requirements of the court and there being no irregularity he was entitled to have the sale confirmed. The other case in the same volume is that of Rowthmall Neopani v. Nagarmall Madan Gopal [1939] 9 Comp Cas 335 ; AIR 1940 Mad. 179. This was a case of a confirmation of a sale by the court of the property of a company in liquidation. The Division Bench has taken the view : "One of the principal functions of the liquidator is to discharge the debts of the company. For that purpose he may have to sell the company's property, and he can do this with the sanction of the court. It follows that any sales or contracts of sale effected by the liquidator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cations Rowthmall in whose favour the sale was sanctioned by the learned district judge preferred appeals and they came up for consideration before the Division Bench. On behalf of the appellant it was urged that as the order passed by the learned district judge was acted upon by compromising the two suits, it was not open to the district judge to revoke the permission earlier granted. This contention was accepted by the Division Bench. The Division Bench pointed out that the district judge could of course have revoked his sanction if he had done so before the official liquidator had acted upon it, but if once the official liquidator has acted upon it, has compromised the suits and has obtained decrees in terms of the compromises, they were entirely unable to see how the district judge could have power to revoke it. Even on merits the order of the district judge was treated by the appeal court as wrong. Stodart J., who delivered a separate judgment agreeing with the decision of Burn J., has pointed out in his judgment that in his opinion any sales or contracts of sales effected by the liquidator in pursuance of the court's sanction previously obtained are not mere conditional agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionally on the offeror giving a valid cheque for Rs. 50,000 by the 21st. The purport of the order was communicated to the appellant verbally on the same day and later on formal communication in writing was made by the official liquidator. The cheque for Rs. 50,000 was handed over to the official liquidator on the 20th. A further cheque for Rs. 4,10,000 was given to him on the 24th and paid into court in discharge of the mortgage decree. The balance was paid on or before the 28th. On March 2, 1920, the respondent No. 1, the former manager of the company, presented a petition in the district court objecting to the sale to the appellant as being for an inadequate price, putting forward an offer from one Ranchod Lal Amratlal for Rs. 7,01,000 and asking that the latter should be accepted, or the property sold by auction. The district judge was satisfied about the bona fides of the offer made by Ranchod Lal and ultimately on April 14, 1920, he passed an order cancelling the sale to the appellant and directing sale by auction. It was against this order that the appellant who had made an earlier offer of Rs. 5½ lakhs and who had paid the price as required, preferred the appeal. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention. The mere fact that in the published conditions of sale there is no statement to the effect that it is subject to the confirmation of the court cannot be treated as implying that the court had renounced its power of confirming the sale before it could take effect. In court sales, it is acceptance by the court that constitutes the contract. The person who asserts that the court officer had power to bind the court by his acceptance of a bid must prove it. The court had ample authority as no contract had been concluded and the trial court's order directing a resale was held to be within its powers. In Chidambaram Chettiar v. Official Receiver [1943] 13 Comp Cas 133 (Mad.), a question of sale of a company in winding up by the official receiver came up for consideration. In that case, in pursuance of an order in the winding-up proceedings to sell the business as a going concern the official receiver caused an advertisement to be published in the newspapers inviting tenders for the purchase of the business. The advertisement directed that the tenders should be sent to him by registered post so as to reach him on or before a certain date. It was not, however, stated that the high ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained the trial court decided that the press should be sold as a going concern by the joint receiver at a public sale. The parties to the suit were given liberty to bid at the sale on the same terras as other bidders. The sale was to be effected after wide publicity. After giving such publicity the joint receiver conducted the sale on March 25, 1951. There were 12 bidders. In the course of the bidding the 1st defendant gave some bid. The plaintiff who was present did not give any bid. One Subbaraya was the highest bidder, his bid being for Rs. 31,200. The joint receiver knocked down the sale in his favour and received Rs. 8,100, being the 25% of the bid in cash. It was one of the conditions of sale that it will be subject to the confirmation of the court. When the joint receiver submitted a report to the court for confirmation of the sale in favour of the highest bidder the plaintiff complained that the highest bid offered at the auction was inadequate and she herself offered Rs. 35,000. The purchaser protested against any attempt to reopen the bidding. The court, however, taking into account the offer of the plaintiff to purchase the press for Rs. 35,000 adjourned the matter to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n adequate price and it was a material irregularity in the conduct of the sale. Reference is also made by Mr. Sorabjee to another unreported decision of this court in Special Civil Application No. 1184 of 1972, decided on August 25, 1972, to which I also was a party. This was a case of sanction of a sale by the Charity Commissioner of the property of a public trust. It is, inter alia, observed that the trustees of a public trust while considering the question of sale of a property belonging to the public trust and the Charity Commissioner while recording his sanction for such sale are in duty bound to consider all the factors which are for the welfare of the trust. The welfare of the trust does not require that, if any moral commitment is made to any person, then one should back out of such a commitment, but if before any moral commitment is made in favour of any offeror fresh offer is received which shows that the person is prepared to pay a higher price, then it will indeed be the duty of the trustees and also of the Charity Commissioner to consider such an offer before deciding the question of sale of the property or granting sanction to such sale. If regard be had to the terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or legal obligations, in favour of any offeror simply because the price offered by him appeared to be the highest price offered by offerors. The question as to adequacy of price was entirely for consideration of the learned judge. The learned judge was persuaded to take the view that the price offered by respondent No. 3 is adequate having regard to the various amounts offered by the various offerors and the price offered at the earlier attempts at sale before the company was ordered to be wound up and thereafter. If the valuation report that was obtained by the official liquidator was discarded by the learned judge on the ground that it was not reliable, it is difficult to see how the various offers received by the company before it was wound up and, thereafter, by the official liquidator either pursuant to public advertisement or otherwise, themselves were sufficient to indicate that the highest price offered represented the adequate price. As appears from the affidavit of respondent No. 3, on October 3, 1969, one Ramniklal Kothari offered to purchase the assets of the company for Rs. 19,25,000. He has also referred to the offer made by one Valjibhai Patel for Rs. 22,00,000, thou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when it was found that that was not possible, higher offers were made from time to time at a later stage. Simply because there is a higher offer, this court will not be entitled to refuse to sanction or confirm a sale if the price offered as a result of following the procedure directed by the court is fair and adequate. We are not concerned in this case really with the conduct of Amba Tannin & Pharmaceuticals Ltd. We are primarily concerned in a matter of this nature with the interest of creditors and contributories who are vitally interested persons in the assets of the company in liquidation. If upon the material before the court it appears that the price offered by the respondent No. 3 is not adequate, then simply because the conduct adopted by Amba Tannin & Pharmaceuticals Ltd. was such as does not commend itself to this court, will not deter us from protecting the interest of the creditors and contributories of the company in liquidation. In our opinion, an offer made after public advertisement by itself cannot always be regarded as a reliable guide as indicating the adequate price. It is not unknown that even when a public auction is held after due and proper advertisement t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company in liquidation ought to be sold. The learned judge, in our opinion, should have considered whether, in view of the slight and negligible difference between the highest two offers, i.e., the highest and the next best, and the increase in the offer made by Amba Tannin & Pharmaceuticals Ltd., the adquate market value of the property of the company in liquidation can be realised by public auction. One of the objects of confirmation of a sale is to see that proper and adequate price for the assets of the company in liquidation is realised and if such price cannot be realised in one of the modes permitted by the rule, the court is under a duty to consider whether such price can be realised by adopting any other mode permitted by that rule. In our opinion, the learned judge ought not to have accepted the offer of the respondent No. 3 and sanctioned the sale in his favour as neither the sum of Rs. 37,57,755 nor Rs. 39,57,755 can be regarded as an adequate price of the assets of the company in liquidation having regard to the various circumstances pointed out above. Mr. Thakkar who appeared on behalf of the bank submitted that there will never be any guarantee that, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. further undertakes to this hon'ble court that in the event of Poison Ltd. not complying with the terms of either of the under takings mentioned in clauses (1) and (2) above, the said deposit of Rs. 4,21,300 together with interest accrued thereon will be forfeited by the official liquidator of Vilas Udyog Ltd. In the event of Poison Ltd. carrying out the terms and conditions of the undertakings mentioned in clauses (1) and (2) above, the said deposit of Rs. 4,21,300 together with interest accrued thereon will be returned to Poison Ltd., or will be appropriated towards the deposit and/or purchase price in the event of Poison Ltd. becoming purchaser of the assets of Vilas Udyog Ltd. at the subsequent auction; (5)Poison Ltd. further undertakes to this hon'ble court and agrees with the Central Bank of India that in the event of Poison Ltd. not complying with the provisions contained in the undertakings mentioned in clause (1) and/or clause (2) above or in the event of Poison Ltd. becoming purchaser of the aforesaid assets of Vilas Udyog Ltd. as a result of subsequent auction sale and failing to complete the sale Poison Ltd. under takes to pay to the Central Bank of India as and b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either by the said company or on behalf of Poison Ltd.; and (4)No offer has been made by Poison Ltd. similar to the one made by Amba Tannin & Pharmaceuticals Ltd. and Poison Ltd. during the course of hearing before Kania J. It was also urged that by reason of these very grounds the Appeal No. 111 of 1973 is also not maintainable. In our opinion, the grounds urged against the maintainability of these appeals are clearly unsustainable. Amba Tannin & Pharmaceuticals Ltd. was one of the parties which submitted an offer pursuant to a public advertisement. It appeared during the hearing of the report before Kania J. for confirmation of sale in favour of respondent No. 3 that both before and during the consideration of the said report it increased its offer from time to time. It, inter alia, contended that the price offered by respondent No. 3 was inadequate. In view of the well-settled position as a result of more than one decision of the Supreme Court it cannot be disputed that one of the essential things to which the mind would be applied at the stage of confirmation of a sale by the court in liquidation proceedings is that the question as to adequacy of price is always a relevant fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purposes of this scheme." To this company petition both Poison Ltd. and Amba Tannin & Pharmaceuticals Ltd. were party petitioners. The scheme was ultimately sanctioned by the court by its order dated December 21, 1973. The result of that order is that by operation of law an amalgamation is effected as contemplated by the terms and conditions of the scheme. It was urged by Mr. Shah that only property rights and interests are transferred. In our opinion, if regard be had to the wide and extensive words used in clause 5 of the scheme the expression "all other interests, rights or powers of whatsoever kind, nature, sort or description" are general words of very extensive amplitude and their meaning and effect is not possible to be curtailed even by invoking the principles of ejusdem generis. Undoubtedly, the appointed day in the scheme was defined as October 1, 1972, but clause 6 of the scheme provides that whatever has been done by Amba Tannin & Pharmaceuticals Ltd. for carrying on its business and activities with effect from the appointed day shall be deemed to have been done for and on account of Poison Ltd. until the effective date as defined in clause 18 of the scheme. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... After the terms and conditions modified by the official liquidator are approved of by the learned judge taking company matters, advertisement shall be published in the same newspapers as were directed by Vimadalal J. by his order dated June 28, 1972, on the official liquidator's report. The public auction through the auctioneers, Messrs. Bennet and Co., will be held after the exiry of the period of six weeks from the date of such public advertisement in the newspapers. The official liquidator shall be at liberty to apply from time to time to the learned judge taking company matters for all other directions which are required by him for carrying out these directions under these orders or for such further directions as may be given by the learned judge. The official liquidator is hereby directed that, if he approaches the court later on for sanction of a sale in favour of any party, then he will give notice to the respondent No. 2 on whose petition the company was ordered to be wound up before any directions are sought from the learned judge for sanctioning or confirming the sale. The official liquidator is hereby directed to invest the sum of Rs. 4,21,300 deemed to have been deposit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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