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TMI Blog2012 (6) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... ari, Indravadan Parmar, B.H. Bhagat, Vibhuti Nanavati, M.D. Rana, Navin K. Pahwa, D.S. Vasavada, Dr. Sonia Hurra, Hemang M. Shah and Satish R. Patel for the Respondent. JUDGMENT 1. The official liquidator has taken out the present report dated June 28, 2011 and prayed for belowmentioned directions : "1. Permission be granted by the hon'ble court to the liquidator to terminate the sale confirmed by the hon'ble court and forfeit the amount deposited by respondent No. 1 - Devganga Traders Golden Transport. 2. On leave and permission being granted by the hon'ble court to terminate the same and forfeit the amount deposited by Devganga Traders Golden Transport, respondent No. 1 the liquidator may be permitted to auction the land and property in question on the terms and conditions that may be prescribed by the liquidator." 2. The official liquidator, thus, seeks that the sale of the property in question which was confirmed by the court at earlier stage, may be allowed to be terminated and the official liquidator also may be permitted to forfeit the amount deposited by respondent No. 1, i.e. , the successful bidder during the auction sale. 3. So as to appreciate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions, interest free earnest money deposit drawn on any nationalised bank payable at Ahmedabad in favour of the Official Liquidator of M/s. Mahendra Mills Ltd. (in liquidation). The demand draft/pay order drawn on by co-operative bank will not be accepted. They will also submit the shortfall of earnest money deposit calculated @ the sale committee reserves the right to % of days of the confirmation of the auction if they turnout to be the highest bidder. 9. The final offer after inter se bidding so received will be placed before the hon'ble High Court for sanction The offeror shall pay 25 per cent of the purchase consideration within one month or such time as the hon'ble High Court may stipulate from the date of final acceptance of the particular offer. The balance amount of purchase consideration will have to be paid within three months thereafter by the purchaser or within such time as may be fixed by the hon'ble High Court. 16. The property shall be handed over to the purchaser on payment of full sale price to the official liquidator and/or subject to such direction as the hon'ble High Court may issue in the matter. 17. If the purchaser do not pay the balance am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvited and thereafter inter se bidding was also permitted wherein respondent No. 1 emerged as the successful bidder with its offer of Rs. 10.20 crores for the properties in question. Then, subject to the terms and conditions contained in the tender documents as well as in the order dated February 22, 2006, its offer was accepted. In the said order dated February 22, 2006, it was also stated that the terms and conditions mentioned in the order are in addition to the conditions incorporated in the terms of tender. 9. The conditions which came to be prescribed, in addition to the conditions mentioned in clause Nos. 1 to 34 of the tender are to be found in clause Nos. 1 to 21 of paragraph 6 of the order dated February 22, 2006. The court while accepting the offer of respondent No. 1 provided that : "6. In view of the above, as the offer of M/s. Devganga Traders of Rs. 10.20 crores is being the highest offer, the same deserves to be accepted and is accepted on the conditions as stated hereinafter in addition to the conditions incorporated in the terms of the tender." 10. The relevant conditions from amongst the further conditions prescribed vide aforesaid order dated Febru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration within prescribed time of 3 months, i.e. , on or before June 10, 2006. 14. The terms mentioned in the tender document and in the aforesaid order dated February 22, 2006, inter alia , provide that in the event of default by respondent No. 1 in payment of balance amount of sale consideration, the consequences contemplated and provided for by virtue of the terms of tender and the terms in the aforesaid order, would ensue. 15. It appears that being conscious about the default caused by it, respondent No. 1 (successful bidder) preferred an application seeking extension of time, which was registered as Company Application No. 327 of 2006. After hearing the parties, the court passed the following order dated August 18, 2006, in Company Application No. 327 of 2006 : "Mr. A. L. Shah, learned counsel for the applicant, has handed over a cheque for Rs. 1 crore dated August 17, 2006, drawn in favour of the Official Liquidator for Mahendra Mills Ltd., which is ordered to be kept with the official liquidator. He has also requested that time limit for making remaining payment may be extended up to September 15, 2006, in view of the flood-situation prevailing in the State. Time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Application No. 327 of 2006 was heard and after considering the submission and request of the applicant the order dated August 12, 2008, came to be passed whereby the learned company court, by specific direction, rejected the auction purchaser's request for extension of time. 21. Thus, any other order after the order dated August 18, 2006, extending time to pay balance amount of sale consideration beyond September 15, 2006, was not passed in the said Company Application No. 327 of 2006. Furthermore, what emerges from the record is the fact that though by order dated August 18, 2006, time to make payment of remaining amount of sale consideration was extended up to September 15, 2006, the applicant did not pay balance amount on or before September 15, 2006 and that after the order dated August 18, 2006, any order extending time for payment beyond September 15, 2006 was not passed. 22. By the aforesaid order dated August 12, 2008, Company Application No. 327 of 2006 and the request for extension of time were formally rejected by the learned company court which was formal pronouncement of the fact situation existing after August 31, 2006 and in any case after September ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 5 filed by the workmen is disposed of as infructuous, but this will not prevent the workmen from appearing before the appellate court, if so advised." 25. Thereafter, the aforesaid appeal being O. J. Appeal No. 146 of 2008 was taken up for hearing and the court, after hearing the concerned parties passed an order dated June 20, 2011 and disposed of the appeal. While disposing of the appeal, the Division Bench, inter alia, observed as follows : "15. There is one additional reason that, as per clause 4 of the sale confirmation order dated February 22, 2006, if there is failure to deposit the amount of the balance consideration (in such a situation, where the time is not extended), mandate has been given to the official liquidator to terminate the sale and to forfeit the deposit, after obtaining permission of this court. Once the amount of remaining balance consideration is not paid and the time is not extended by the court, consequence in law was to follow and had fallen. 17. We find that in any event it will be for the official liquidator to submit report before the learned company judge and at that stage, the learned company judge may consider all the relevant aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation are concerned they have supported the request made by the official liquidator. 28. Mr. Desai, learned advocate for the official liquidator has submitted that the office of the official liquidator has taken out present report in view of the direction in the order dated February 22, 2006 and in view of the observations by the Division Bench in O. J. Appeal No. 146 of 2008. The direction by the court in paragraph 6(4) of the order dated February 22, 2006, which is emphasised by the learned advocate for the official liquidator, required and obliged the official liquidator to : "... terminate the sale and forfeit the deposit after obtaining permission of this court" while the observation made by the Division Bench in paragraph 17 of the order dated June 20, 2011, required and obliged the official liquidator to : "...submit the appropriate report to the learned company judge, preferably within a period of two weeks, from today. We make it clear that at that stage rights and contentions of all the concerned, as may be available in law, shall remain open." 29. Mr. Desai, the learned advocate also submitted that the original auction purchaser, i.e. , present respondent No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termined as on the date on alleged breach but he cannot forfeit the entire amount paid by the applicant. 33. Mr. Desai, learned advocate for the official liquidator in his rejoinder vehemently opposed the contentions raised by the learned advocate for the applicant. In his rejoinder Mr. Desai, learned advocate for the official liquidator further submitted that during the pendency of Company Application No. 327 of 2006 and subsequently during pendency of O.J. Appeal No. 146 of 2008 stay order granted by the court was operating and that therefore the contention raised on the ground of limitation is misconceived. He further submitted that it is only in aid of the subsequent steps that the request for the permission is made. Countering the contention on the ground of damages and penalty, the learned advocate for the official liquidator submitted that the terms of the tender and the order clearly postulate that the amount paid by the successful bidder, i.e. , auction purchaser would be forfeited. Therefore the said condition being part of the agreement is equally binding on the parties and the applicant cannot wriggle out of the said provision. Countering the contention on the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from September 15, 2006. 38 . There is no dispute about the fact that any order extending time for payment beyond September 15, 2006, was never passed. It is also undisputed fact that any payment after August 31, 2006, more particularly after September 15, 2006 was not and has not been made. 39 . It is necessary to note at this stage that the order dated August 12, 2008, passed by the court in Application No. 327 of 2006 which was preferred by the present respondent No. 1 wherein it had prayed that : the delay in making payment of balance purchase consideration amount be condoned and the period for making payment of balance purchase consideration amount be extended up to August 31, 2006. 40 . Another important aspect to be noted is that respondent No. 1 had prayed for extension of time only until August 31, 2006 and that there is nothing on record to demonstrate or suggest that during the pendency of the said application and until it came to be rejected by order dated August 12, 2008, the said prayer was amended. 41 . Thus, the fact remains that respondent No. 1 did not amend the prayer clause in Application No. 327 of 2006 and also did not make any payment after Augu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or authority to extend the time for payment and consequently did not have discretion or authority to accept payment after the expiry of time/last date for payment. Thus, the official liquidator had not, of his own discretion or volition, extended the time limit for payment and had not, of his own discretion and volition accented the amount. The time was extended by and under the court's order and the order of the court allowed respondent No. 1 to pay further amounts after June 10, 2006 and on or before September 15, 2006. The time was extended until September 15, 2006, by the court's order. Respondent No. 1 paid the amounts on August 17, 2006 and August 31, 2006. Any amount was not paid after September 15, 2006 and was not accepted by the official liquidator after September 15, 2006, i.e. , after the period of extension granted by the court. The order passed by the court on August 18, 2006 (when the court directed that Mr. A. L. Shah, learned counsel for the applicant has handed over a cheque for Rs. 1 crore dated August 17, 2006 . . , which is ordered to be kept with the official liquidator . . . time to make remaining outstanding dues is extended up to September 15, 2006) re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d time limit and till the last date, i.e., June 10, 2006, neither the full payment of the entire sale consideration was made nor any request for extension of time was made by respondent No. 1 and nor such request was granted by the court (and the official liquidator could not have granted such extension in absence of any provision). Thus between the auction purchaser and the vendor (the official liquidator) the agreement stood breached on non-compliance of condition for payment on the specified date and that therefore, on commission of such breach the specified consequence followed. 50 . This aspect, stands clarified and decided by the order dated June 20, 2011, passed by the Division Bench in O. J. Appeal No. 146 of 2008 wherein the court observed in paragraph 15 that : ". . . Once the amount of remaining balance consideration is not paid and the time is not extended by the court, consequence in law was to follow and had fallen ..." 51. The termination of agreement or forfeiture of deposit, as observed by the Division Bench, are mere consequences of and therefore occurred simultaneously with, the breach on account non-payment of sale consideration. 52 . It could, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty cannot be put to suffer disadvantage on account of court's order which restrained the said party from taking any action or required such party to take some action. In the present case according to the order dated February 22, 2006 and the tender document the time limit for payment of sale consideration was June 10, 2006. It was then extended by the court to September 15, 2006, by order dated August 18, 2006 and after September 15, 2006, any extension was not granted. Thus, proceeding on the premise that the said provisions of the Limitation Act, 1963 would be applicable to the present application, then also the official liquidator had time available until September 14, 2009. However much before the said date the Division Bench passed the order dated September 11, 2008, in C. A. No, 254 of 2008 in O. J. Appeal No. 146 of 2008 and directed the official liquidator to ". . . ensure that no further proceedings are continued or taken pursuant to impugned order dated August 12, 2008". Hence, from September 11, 2008, i.e., much before September 14, 2009, the official liquidator was restrained by court's order passed in the proceedings taken out by respondent No. 1 from taking out any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof, make it clear that the official liquidator is entitled to treat the sale as terminated and/or to terminate the sale and to treat the deposit forfeited and/or to forfeit the deposit. The said rights of the official liquidator are, intact and are not extinguished in any manner whatsoever, much less on account of bar of "limitation" or alleged "waiver". 58 . Now, coming to the contention of respondent No. 1, that the official liquidator is not entitled to forfeit any amount and/or is not entitled to claim and receive more than reasonable compensation for the loss suffered on account of breach of condition and for the purpose of assessing the reasonable loss, the relevant period would be the date on which the breach occurred. It is contended that the applicant cannot claim or recover any amount which would be in the nature of penalty. 59 . Mr. Desai, the learned advocate has submitted that the provisions of the tender document and the order dated October 22, 2006, are clear and allow the official liquidator to forfeit the deposited amount which condition was accepted by the respondent and that therefore the objection is misconceived and the official liquidator is entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd necessary to note that the bidders including the auction purchase were intimated, at the outset ( i.e ., at the stage when the tender documents were supplied) about the said conditions. Thus, respondent No. 1, was aware about the above referred condition even before he tendered his bid/offer. 65 . In view of the fact that the said condition formed part of the terms of tender document, the moment respondent No. 1 submitted the filled-up tender and participated in the tender process, respondent No. 1 bound itself by all the terms of the tender document including the term pertaining to forfeiture and when it paid 25 per cent of the sale consideration and thereafter the further amounts, respondent No. 1 acted in furtherance and in compliance of the said accepted and binding condition regarding forfeiture. Respondent No. 1 cannot escape the binding conditions and its effect which it accepted at the outset, while tendering its bid. 66 .However, as noted earlier, learned counsel for respondent No. 1 has submitted that assuming that the official liquidator has a right to terminate the sale and to forfeit the amount then the forfeiture should not be of amount more than the loss suf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable compensation, to prove the same . . . 65. It is apparent from the aforesaid reasoning recorded by the arbitral tribunal that it failed to consider sections 73 and 74 of the Indian Contract Act and the ratio laid down in Fateh Chand's case AIR 1963 SC 1405, wherein it is specifically held that jurisdiction of the court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated ; and compensation has to be reasonable. Under section 73, when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss caused to him which the parties knew when they made the contract to be likely to result from the breach of it. This section is to be read with section 74, which deals with penalty stipulated in the contract, inter alia (relevant for the present case) provides that when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach the party complaining of breach is entitled, whether or not actual loss is proved to have been caused, thereby to receive from the party who has broken the contract reasonable compensation not exceeding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequences of the breach of a contract. (4) Is some contracts, it would be impossible for the court to assess the compensation arising from breach and if the compensation contemplated is not by way of penalty or unreasonable, court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation." 70 . In the present case the right of the official liquidator to forfeit the amount, emerges from the terms of the tender and also from paragraph 6(4) of the court's order dated February 22, 2006. 71 . In this context it is pertinent to note that the above referred clause 17 of the tender document, or even clause 24 thereof, did not require or contemplate the requirement to seek permission of the court for forfeiting the amount and/or terminating the sale or treating the sale as terminated, but it was by virtue of the order that the court directed the official liquidator to take permission of the court. The applicant has therefore, preferred the present application to seek permission of the court, as required by virtue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dator can forfeit as per and in view of the terms of agreement. 74 . So far as the loss suffered by the official liquidator is concerned, it is necessary to take into account that the official liquidator has to pay-off the claims of the workmen and the secured creditors from the sale proceeds of the assets of the company. Ordinarily upon such auction-sale being finalised-confirmed and upon payment of full sale consideration, the same can be disbursed amongst the workers and the secured creditors, however when it fails half-way i.e. upon breach of any condition and/or on account of non-payment of full amount of sale-consideration then such payments to Workers and creditors cannot be made, as it happened in the present case, because of the breach by respondent No. 1 and the subsequent proceedings taken out and pursued by it. These are also the relevant aspects which go-into consideration when the provision for compensation on account of breach is made and provided for the tender. 75 . In this context it is also necessary and relevant to take into account that in such cases the breach would not only result into delay in payment of dues to the workers and creditors but would al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent No. 1 has committed breach of the condition regarding payment of sale consideration. The court had even extended the time for payment till September 15, 2006, with the fond hope that the auction sale may go-through and it may not fail merely on account of inflexible insistence for compliance of the term regarding time frame for payment. However, even though extension of 15 days more than what was asked for (by respondent No. 1) was granted by the court, respondent No. 1 did not pay the balance amount. The agreement (to sell) thus failed. Ultimately the court had to reject the request for extension of time, vide order dated August 12, 2008. 79 . In view of the above discussed provisions of the tender document and the condition prescribed by the court vide order dated February 22, 2006, the breach by respondent No. 1 entails, and the said facts also justify, the specified consequence, viz., termination of sale and forfeiture of the amount in accordance with the terms of the tender read with the conditions in the order. However, since the order dated February 22, 2006, mandate that the official liquidator should seek permission, the present application is preferred b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ( b ) when the court is satisfied that the right of the official liquidator to forfeit the amount is intact and is not extinguished or hit by law of limitation or principle of waiver and the official liquidator is entitled to exercise such right and ( c ) when for the reasons recorded hereinabove, the amount named in clause 17 is not found to be "penalty" and ( d ) when it is the requirement under court's order that permission of the court must be obtained and the application is preferred in compliance of such mandate, the court would have no justification to deny the permission for forfeiture. The court cannot relieve a party who is in breach. 85 . In view of and as consequence of the breach on account of non-payment of balance amount of sale consideration ; the official liquidator, as per the terms of tender and paragraph 6(4) of the order dated February 22, 2006, is entitled to take action as per and in accordance with clause 17 and paragraph 6(4) of the order dated February 22, 2006 and the permission as contemplated by the said order therefore deserves to be granted and is hereby granted. 86 . So far as the relief prayed for in paragraph 24(2) is concerned it is clar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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