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TMI Blog1979 (9) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... the company, Company Petition No. 34 of 1966, and of a petition for sanctioning a scheme of compromise, between the company and its unsecured creditors, Company Petition No. 42-D of 1966, the company and the bank entered into a compromise by which the parties, inter alia , agreed that the bank may realise the agreed amount by the sale of the aforesaid property, if the company failed to make the payment within a stipulated period. The compromise between the company and the bank was approved by Shankar J., on May 10, 1968, in C.A. No. 86 of 1968 on the ground that the compromise appeared to be in the larger interest of the company and of the creditors. The scheme of compromise between the company and its unsecured creditors was eventually sanctioned by Andley J. on July 29, 1968. The company having made default in the payment of the amount in terms of the compromise with the bank, the bank moved this court by C.A. No. 151 of 1973 for the enforcement of the compromise, inter alia , by the sale by and under the direction of the court of the said property and payment of the sale proceeds to the bank in terms thereof. Certain other directions were also sought so as to compel Anand to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this order. During the pendency of this appeal, the company made an application, being C.A. No. 275/79, under O.34, rule 5 of the CPC, to get rid of the sale and sought leave to pay to the bank the amount claimed by it in terms of the compromise. This application was also grounded on the application that the sale price was inadequate and that the property could be sold for Rs. 9 lakhs. A plea was also made that on the existing sale the company would have to pay Rs. 3 lakhs by way of capital gains tax and that the relief prayed would be in the interests of the large body of the unsecured creditors of the company. The appeal was eventually withdrawn on May 17, 1979, "without prejudice to the appellants or auction-purchasers or bank or parties' right to contend whatever is available to them in law in the applications stated to have been made by the appellant under O.34, rule 5, Civil Procedure Code" The bank has since been paid the amount claimed by it in terms of the compromise by the company but "without prejudice to the rights and interests of the various parties including the auction-purchasers". The auction-purchaser seeks confirmation of the sale, the certificate in respect of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e default of the debtor to pay is not intended to punish the debtor for his failure or inability to pay but is intended to realise the amount for payment to the creditor and, if that be so, why must the matter proceed further if the debtor is in a position to pay and makes the deposit or the tender, as the case may be. The auction sale is subject to the directions of the court and if the creditor has been paid the amount, the non-payment of which led to the sale, the auction-purchaser has no vested right except an obvious right to be compensated, a right which is recognised in rule 5 of O. 34 and rule 89 of O. 21. Sub-rule (2) of rule 5 provides that an order under rule 5 would not be made "unless the defendant, in addition to the amount mentioned in sub-rule (1), deposits in court for payment to the purchaser a sum equal to 5% of the amount of the purchase money paid into court by the purchaser". There is a similar provision in rule 89(1)( a ). In exercising its discretion under section 391/392 of the Act by virtue of its sanction to the compromise, this court was, therefore, certainly entitled to invoke this wholesome principle embodied in these two provisions, particularly if su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be useful to bear in mind that, although rule 89 of O. 21 was in the mind of the parties, as indeed of. the learned judge, rule 5 of O. 34 was not. But that would not make any difference because both the provisions are in parimateria so far as the principle is concerned, the differences only being in the limitation for a motion under these two sets of rules and the nature of proceedings in which these proceedings could be invoked. The learned judge then proceeded to consider the reasons for which the exercise of discretion under section 391/392 of the Act was sought to be justified and repelled the contentions now urged before me with regard to the inadequacy of the consideration as also of its economic implications for the company by way of capital gains tax as also for the unsecured creditors in the availability of a distributable surplus and observed : "in these circumstances having turned over in my mind all the aspects of the matter, I am of the opinion that there is no justification for exercising any discretionary powers under section 391 or 392 for setting aside the sale which has now been effected ". The questions that, however, still survive for consideration are: Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rate of 5% of the sale price besides the expense of a fresh auction. The company claims to be able to sell the property for 9 lakhs. It may fetch even more. There is, however, no explanation why the company did not make the payment to the bank earlier and prevent an auction. Having regard to all the circumstances, it would be reasonable and proper that the sale is confirmed subject, however, to the payment by the auction-purchaser of 10% of the sale price and I would direct accordingly. The additional amount would be deposited by the auction-purchaser within two weeks. On the aforesaid amount being deposited, the auction-purchaser would be entitled to the sale certificate, as indeed vacant possession of the property. The auction-purchaser would, however, be entitled to opt out of the transaction in which case the sale would be treated as null and void and the auction-purchaser would be entitled to the refund of the amount deposited by him along with 5% of the amount by way of solatium. In the event of a fresh auction the auction-purchaser would be entitled to make a bid subject to the condition that in case he was declared to be the highest bidder, the amount of solatium would b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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