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TMI Blog2007 (5) TMI 341X X X X Extracts X X X X X X X X Extracts X X X X ..... 01, the Company Judge accepted the highest offer of the present appellant V. K. Gupta (hereinafter referred to as the appellant for short) for Rs. 2.01 crore for the Chanpatia Unit. But that sale is the subject-matter of another appeal. This appeal is not concerned with the Chanpatia Unit. It is concerned only with the Barachakia Unit. 3. The order dated 31-1-2001, accepting the highest bid of the appellant, reads as follows : "When this matter was taken up today, a letter of offer was given on behalf of Hanuman Industries (India) (P.) Ltd. through their counsel Ms. Geeta Luthra, which was supported by three bank-drafts totalling Rs. 10 lakhs. Sri Sanjeev Sahai had already placed photocopies of these bank drafts on record, on the last date. In the letter of offer the sale consideration offered was Rs. 3,51,00,000 and it was proposed that 25 per cent of the amount would be paid within three months and the balance would be paid within such further extended time which the Court may grant. Although in the first paragraph of the said letter it has been stated that purchase was on "as is where is basis" but in the subsequent, paragraph of the letter of offer certain conditions ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally better offer. Thereafter the order dated 17-1-2001 states as follows : It has been made clear to both the parties ( i.e. Vishnu Kant Gupta Hanuman Industries) that if offers are received from both the parties, negotiation may take place on 31-1-2001 for finalising the auction/tender sale in favour of one of the parties. Both the parties are, therefore, advised to be present in person along with their counsel so that the counsel may be instructed regarding raising of offer, if negotiation takes place, as stated above. Having regard to the above, and other over all circumstances and the period which has expired and the margin which was granted to M/s. Hanuman Industries I am unable to accept, this suggestion of granting further time, that too without any assurance that the amount would actually be increased. In the circumstances, the offer of Sri Vishnu Kant Gupta is accepted as stated above. Sri Gupta will be entitled to possession of the factory upon payment of first instalment coupled with the furnishing of the bank guarantee for the remaining amount to the satisfaction of the Official Liquidator. The bank guarantee will be made out in favour of the Official Liquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Liquidator submit a report with regard to the defaults and give a show cause notice to the highest bidder as to why his bid may not be cancelled. The notice be given within a week. List on 12-2-2007." 8. Pursuant to the above order, the Official Liquidator issued the show-cause notice to the appellant by registered post on 8-2-2007, which was served upon the appellant on 14-2-2007. 9. Before the receipt of that notice for showing cause against cancellation of the accepted bid, the appellant on coming to know about the dismissal of special appeals, voluntarily paid Rs. 1.5 crore to the Official Liquidator as part sale consideration on 9-2-2007. 10. On 12-2-2007, also before the date on which the notice of the Official Liquidator dated 8-2-2007 was served, the appellant moved an application before the Company Judge offering to pay a further amount Rs. 1.55 crore forthwith by bank-drafts, which were ready with him in the Court, and also gave an undertaking to pay the entire remaining amount of sale consideration amounting to about Rs. 2 crore within the next three days. On that very date i.e. 12-2-2007 one M/s. J.H.V. Sugar gave an offer before the Company Judge to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultimately only one bid can be accepted. But at present, in this appeal, we need not directly concern ourselves further with this aspect of the matter. The appellant s challenge : 15. Opposing the re-advertisement, the submission from the side of the appellant is that no re-advertisement could have taken place without first cancelling the bid of the appellant which had been accepted by the Company Judge by the order dated 31-1-2001. Admittedly no such cancel- lation has taken place. The appellant submits that cancellation was not permissible due to the following reasons : 1. The show-cause notice against the proposed cancellation had not even been served till the date of the impugned order; 2. There was no fault or default of the appellant, and if there was any, it was not sufficient in magnitude to sustain the cancellation of the bid; 3. Mere rise in prices during litigation is not a ground for denying relief as held by the Supreme Court in S.V.R. Mudaliar v. Mrs. Rajabu F. Buhari ( infra ), therefore the appellant s bid could not be cancelled on that ground. Regarding default: 16. The appellant submitted that he cannot be held to be a defaulter. He reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing if the appellant had deposited the entire amount of sale consideration on 5-12-2006 that is the date of dismissal of the two special appeals, he would obviously not be a defaulter. 19. Before considering whether the time taken in payment, after 5-12-2006, would make the appellant a defaulter, we may examine a suggestion made during arguments by the learned counsel for some of the secured creditors. He suggested that even if due to the stay order the appellant was not required to make the payment during pendency of the appeals, yet after dismissal of the appeals he should be directed to pay the commercial rate of 18 per cent interest from the date originally contemplated for payment till the actual payment i.e. roughly for a period of 6 years. We find this suggestion, especially when it comes from financial institutions, to say the least, a little unconscionable. If the submission is accepted the appellant would be required to pay almost double of the original offer of Rs. 5 crore. This is difficult to justify because even today the best offer available does not exceed Rs. 6.5 crore and it nobody s case that the property is worth Rs. 10 crore. 20. Reverting back to def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discretion by a Court in a case of the present nature." (p. 1612) 22. No arguments were addressed before us as to how in the present case a view different from the above can be taken. The respondents main defence : 23. Mainly, the respondents attempted to justify the impugned order by relying upon the decision of the Supreme Court in the case of Divya Mfrs. Co. (P.) Ltd. v. Union Bank of India [2000] 26 SCL 280 . This decision is not mentioned in the impugned order of the learned Company Judge. But it has been submitted by the secured creditors that it can sustain the impugned order. 24. The reply of the appellant is that the said decision of the Supreme Court is clearly distinguishable on the following grounds. First, that in the case before the Supreme Court, there was a right reserved of the High Court under clause 11 of the terms and conditions of sale , which read as follows: "11. The Hon ble High Court may set aside the sale in favour of purchaser/purchasers even after the sale is confirmed and/or purchase consideration is laid on such terms and conditions as the Court may deem fit and proper for the interest and benefit of creditors, contributories an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bids. It has also been submitted that if this view of the law is carried to its logical conclusion, there would never be any end to the proceedings because after the conclusion of the second round, again some third party may come up to make a slightly higher offer thereby again reopening the whole proceedings. 29. It has, therefore, been suggested from the side of the appellant that the case of Divya Manufacturing Co. (P.) Ltd. ( supra ), which has been decided on its own facts, should be restricted to a particular class of cases, the facts of which match the facts of that decision and consequently require such a view to be taken. 30. There is no finding in the impugned order and no arguments have been addressed before us by any of the respondents in this appeal, either that ( i ) the proceedings resulting in acceptance of the appellant s bid are vitiated by any fraud, or any error akin to fraud like formation of a cartel by bidders; or that ( ii ) at the time when the appellant s bid of Rs. 5 crore was accepted, the property was worth substantially more. In view of the above there can be little doubt that the decision of Divya Manufacturing Co. (P.) Ltd. s case ( supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate. Legally no sale to a third party, and morally no negotiation with a third party, can be made by the vendor during the subsistence of his obligation to the original promisee under the agreement for sale. A suggestion : 35. We think that if some rival businessmen had made higher offers, the better course would have been to get the genuineness of those offers authenticated by requiring each of the higher bidders to deposit a substantial amount sufficient to deter non-serious or mischievous offers, before putting the entire sale proceedings in jeopardy by ordering a fresh advertisement. Such offers, unless backed by solid security, could only be treated as frivolous offers, because it has not been explained as to how these new competitors came to know the date in the Company Court on which all of them appeared together to make their offers. In fact this conclusion about the nature of those offers is corroborated by the fact that none of those persons deposited the bank draft of Rs. 5 crore each by 12-3-2007 as directed by the impugned order. If the deposit was not made because these new competitors had come to know about this special appeal and the interim order passed her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the appellant. 37. Thus the interest would be payable at the rate of 10 per cent on the amount of Rs. 1.5 crore from 5-12-2006 up to 9-2-2007 i.e., the date on which that amount was deposited with the Liquidator. Interest at the same rate would also be payable on the remaining sale consideration of Rs. 3 crore 40 lakhs [ i.e., Rs. 5 crores as reduced by ( i ) the earnest money of Rs. 10 lakhs and ( ii ) the deposited amount of Rs. 1.5 crore] from 5-12-2006 up to 12-2-2007, i.e., the date of the impugned order, and thereafter again from the date of the next order of the Company Judge permitting such deposit of the balance up to the date of its actual deposit. 38. We are not fixing the payment time schedule here because summer vacations are very close, the availability of the learned Company Judge during vacations is not known, and we were informed that the case is tied up with the Hon ble Judge who passed the impugned order. We do not think it would be just to compel the appellant to make the entire deposit and then to make him wait unduly long even for possession of the property for which he has made full payment. Further, we are of the opinion that finalising the ..... 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