Case: The Sangli Bank Limited Vs. Official Liquidator High Court & Others

Oral Judgment: H.L. Gokhale, J.This appeal by a scheduled bank seeks to challenge the order passed by a Single Judge (Radhakrishnan J.) on 12th February 2004 on a Company Application moved by the appellant herein in a winding up petition bearing Company Petition No.412 of 1985, which has already been disposed of. This company Application No.386 of 2003 moved by the appellant herein sought a review of the order dated 22nd August, 2003 passed by the learned Judge on the Liquidators report confirming the sale of three lots of immovable properties. The application came to be rejected by the impugned order and hence this appeal.2. The short facts leading to this appeal are as follows:-One Madhavnagar Cotton Mills Ltd., of Sangli is in liquidation and with respect to which winding up order has been passed in the above referred Company Petition No.412 of 1985 in January 1977. The assets of the company are in possession of the Official Liquidator since March 1997. Thereafter on the Liquidator making a report dated 19th February 2002, the learned Company Judge at that time (Deshmukh J.) by his order dated 14th March 2003 directed the Official Liquidator to call for the prevailing rates of the property from the Sub-Registrar, Sangli. This was for the purpose of effecting sale of the properties of the said mill company, which were situated within the jurisdiction of the Sub-Registrar, Sangli.3. Thereafter, on the liquidator making another report dated 22.7.2003, the then Company Judge (Radhakrishnan J.) held the auction concerning the properties of the company in Court on 22-8-2003. The bids of respondent no.2 came to be accepted with respect to two parcels of property i.e (a) Lot No. IV, (Sub-lot No.3) comprising of land bearing Survey No.203/4 consisting of 65340 sq. feet and (b) Lot No. IV (Sub Lot No.5) comprising of land bearing R.S.No.197 to 202(1) consisting of 937629 sq. feet. The bid of Respondent No.3 came to be accepted with respect to Lot No. III, which comprises of the Managers Bungalow situated at Guruwar Peth, Madhavnagar having an area of 4000 sq. feet. These respondents were the highest bidders and the prices at which these three bids were accepted were as follows:-4. The Appellant herein sought review of that order by filing Company Application No.386 of 2003, which was filed on 30th August 2003. In the review application it was contended that the auction had come to be finalized on the basis of the valuation which was obtained by the Liquidator on his own and that the valuation reports of the immoveable properties were not according to the value mentioned in the ready reckoner of the Government of Maharashtra which is available with the Sub-Registrar of Assurances, Sangli. It was submitted that those valuation reports obtained by the Official Liquidator were not realistic and were on much lower side. It was pointed out that the Appellant Bank was a secured creditor and had an outstanding claim of over Rs.9.40 crores as on 16.12.1966. The bank was therefore, interested in getting a correct and proper price for the properties which were sought to be auctioned and for which lower bids were accepted by the learned Judge earlier by his order dated 22.8.2003, without obtaining the prevailing rates of the property (and contrary to the order passed by the earlier Company Judge). It was submitted that whereas the bids accepted for the three properties were for about Rs.2.69 Crores, the value of these properties as per the Government reckoner would be more than double this amount at Rs.5,66,05,940/- (i.e. over Rs.5.66 Crores). If the three properties were to be sold at about 2.69 Crores, the bank was ready to give better offer at Rs.2,93,30,000/- (i.e. over Rs.2.93 Crores). It was therefore submitted that the reauction was desirable in the interest of the secured Creditor and workers.5. During the course of hearing of this review application, the learned Judge (Radhakrishnan J.) by his order-dated 17.9.2003 directed the Sub-Registrar Kunwad, District Sangli to submit a report. The learned Judge took that report on record. It was then noticed that as per that report as far as Lot No. III (Managers Bungalow) is concerned, the valuation was shown at Rs.8,64,000/- Lot No. IV (Sub-lot 3) was valued at Rs.29,96,000/- and for Lot No. IV (Sub-lot 5) it was valued at Rs.2,35,27,000/-. The learned Judge thereupon noted that the bids offered by the successful bidders and which were accepted by him earlier were somewhat comparable. Thus, for the Managers Bungalow as against Rs.8,64,000/- the bid accepted was Rs.7,55,000/-, for Lot No. IV (Sub lot no.3), instead of Rs.29,96,000/- it was accepted at Rs.31,00,000/- and for Lot No. IV (Sub lot No.5) instead of Rs.2,35,27,000/- the bid was accepted at Rs.2.31 crores. The learned Judge noted that the Appellant Bank offered to pay better amounts as recorded by the learned Judge in his order. He, however, held that the price at which the bids had been confirmed could not be said to be grossly inadequate as according to him there was a difference of only 5% to 10% more than that of the highest offers accepted by him. In paragraph 12 of the order the learned Judge accepted that the Court could review its order, however in the absence of irregularity of fraud, the same could not be done. That apart, the learned Judge was of the view that there had be to be certainty in these matters. He held that the application made by the Bank could not be said to be bonafide. He, therefore, dismissed the application by the impugned order. The property concerned had not changed hands in the meanwhile. The Appellant Bank prayed for stay of the order and the learned Judge stayed his order for the period of four weeks and directed the Liquidator not to hand over possession of the respective properties. It is this order which is under challenge in this appeal.6. Mr. Tulzapurkar, the learned Counsel appearing for the Appellant submitted that what the learned Judge has done is to compare the price of the properties at which he had finalized the bids earlier with the figures, which were subsequently received from the Sub-Registrar as per his directions given on 17.9.2003. The learned Judge had first finalized the bids on the basis of the valuation submitted by the liquidator and then sought to regularize them by holding them to be comparable with the Government Valuation which he subsequently obtained after the Company Application for review was filed. He submitted that by an order passed much earlier on 14.3.2003 by Deshmukh J. the Official Liquidator was already directed to obtain the prevailing rates of the property from the Sub-Registrar, Sangli. This should have been done first and then the bids ought to have been obtained and thereafter a decision ought to have been taken on the touchstone of that valuation. He drew out attention to the fact that there was a substantial variance between the valuation which was given by the valuers appointed by the Official Liquidator and the valuation which is now received after the direction was issued by Radhakrishnan J. It is seen that as far as Lot No. III, and Lot No. IV (sub lot No.3) are concerned, the valuation done by the valuer appointed by the Official Liquidator is less than 50% as against the valuation of the property done by the Sub-Registrar after the learned Single Judge passed his order directing him to forward the figures. Thus there is a great variance between the valuation report obtained from private valuer by the Official Liquidator and report obtained from Sub-Registrar of Assurances. Similarly, whereas the valuation done by the valuer appointed by the Official Liquidator of Lot No. IV (Sub plot No.5) was Rs.1,96,05,000/-, the one now obtained was Rs.2,35,27,000/-. He submitted that if these figures were available earlier, the bids would have been tested on these figures and the property would have got much better price. In any case the respondents offer for lot No. III and lot No. IV (sub lot No.5) would not have been accepted. He further submitted that the auction ought to have been held at the side rather than holding it in the Court. He further drew out attention to the fact that as far as item no.2 is concerned, another party had offered an amount of Rs.37,00,000/- though it withdrew that offer subsequently.7. To understand the factual position with respect to the property involved and the amount at which it was expected to be sold and the price offered, it would be better to take on record the following figures in the form of a chart.8. Mr. Tulzapurkar then drew out attention to the judgment of the Supreme Court in the case of Divya Manufacturing Company (P) Ltd., vs. Union of Bank of India and others, reported in (2000) 6 SCC 69 and particularly paragraph 11 thereof wherein it is observed ‘when the correct market value of the assets was not properly known to the Court and the sale was confirmed at a grossly inadequate price, it was open to the Court to set it at naught in the interest of the company, its secured and unsecured creditors and its employees. In paragraph 13 of the judgment the Supreme court noted that the Court was the custodian of the interest of the company and its creditors. In paragraph 13 of the judgment, the Apex court further observed that it is the duty of the Court to see that the price fetched at the auction is an adequate price even though there is no suggestion of irregularity of fraud. Mr. Tulzapurkar submitted that in the instant case the appellants were not alleging fraud but undoubtedly there was a material irregularity in proceeding to sell the property without first obtaining the prevailing rates of the property from the government official, namely, Sub-Registrar, Sangli. That order had already been passed by the predecessor Judge on 14.3.2002. The liquidator was expected to act accordingly. Instead he obtained the report from other valuers and they were placed before the learned Single Judge who sold the concerned property on the basis of such reports and when this was brought to the notice of the learned Single judge he has declined to review the order by holding that the variation in the price is not much. Mr. Tulzapurkar, therefore, submitted that this was a fit case where this Court ought to interfere in appeal and set aside the sale and direct the auction to be held by the liquidator.9. Mr. Anney, the learned Senior counsel appearing for Respondent No.2 submitted that there was no error of law in the impugned order and when the learned Judge took the view that the properties were sold not at any grossly inadequate value there was nothing wrong in confirming the sale which he has done by the impugned order. He submitted that there has to be some certainty in the matter of sale through Court and the appellant having deposited good amount in pursuance to the confirmations of the sale, could not now be told that the sale is to be interfered. He submitted that the application made by the appellant company was not a bona fide one. The Petitioner ought to have moved much earlier. It knew that the proceedings for the sale of the property concerned were pending in the Court and at the last moment they are now interfering in the matter which should not be permitted.10. Since the bona fides of the appellant were challenged, Mr. Tulzapukar, the learned counsel for the appellants made a statement that with respect to the three properties concerned, the appellant was prepared to deposit with the Liquidator appropriate amounts. Thus, as far as Lot No. III i.e., Managers Bungalow is concerned, the valuation made by the Sub-Registrar now is at 8,64,000/- where as the Bank had offered earlier Rs.8,30,000/- Mr. Tulzapurkar has taken instructions and submits that the Bank was ready to deposit Rs.8,64,000/- with the Liquidator. Similarly, with respect to Lot No. IV (sub lot No.3) and Lot No. IV (sub lot no.5), though the offer made by the Bank was on a higher side, Mr. Tulzapurkar made a statement that the bank was maintaining it and that for the aforesaid item No.2 it will deposit Rs.34,00,000/- and for item No.3., it will deposit Rs.2.51 Crores. On a query from the Court as to what would happen if there are no bidders at this price, Mr. Tulzapurkar took instructions and made a statement that if such a situation arises, the Bank was already to purchase these three lots at these three prices. Mr. Anney, the learned counsel for Respondent No.2 submitted that if this Court was of the view at such higher price was desirable, the respondent No.2 was ready to match the offer for the two lots for which it was successful and was ready to put in Rs.25,00,000/-more with the Liquidator than the offer now made by the Bank for these two lots. He however submitted that this Court should not interfere with the order passed by the learned single Judge and at the highest the bids accepted by the learned single Judge be affirmed by taking Rs.25,00,000/- more from Respondent No.2 for these two lots.11. We have considered the submissions made by both the counsel. What we find in this matter is that one learned Single Judge (Deshmukh J.) had passed an order earlier directing that the prevailing rates of the property be called for from the Sub-Registrar of the particular area, the learned Single Judge subsequently taking the same work (Radhakrishnan, J) proceeded to sell the property without this information becoming available from the Sub-Registrar, and only on the basis of the valuation which was obtained by the Liquidator. When this was pointed out to the learned Judge in review, he did call for the information from the Sub-Registrar, but at that stage he reconfirmed the sale which he had effected earlier by observing that there was no much variation between the figures now received from the Sub-Registrar and the offers which he had accepted. There is a clear fallacy in this approach. Firstly, there was no reason to depart from the normal and the correct procedure to get the correct market price from the government official concerned. That apart, when these figures became available to the learned Judge he ought to have noted as can be seen from the Chart which we have reproduced above that the as far as properties at item Nos.1 and 2 is concerned, the valuation given by the valuer of the Official Liquidator was less than 50% as against the valuation given by the Sub-Registrar. He also ought to have noted that with respect to the third lot as against the valuation of Rs.1,96,25,000/- made by the valuer of the Official Liquidator, there was a rise of nearly forty lakhs in the valuation submitted by the Sub-Registrar and the figure now stood at Rs.2,35,27,000/- In this scenario, the learned Judge ought to have noted that if the bids were called in the light of the valuation which was sought by Deshmukh J., much better price could have been obtained. When the bids were assessed earlier on 22.8.2003, they were decided on the touch-stone of much lower valuations. It is another matter that later on the learned Judge found that there is not much variation when the valuation figures are obtained from the Sub-Registrar. As stated above, if these figures were available earlier, obviously the parties would have been asked to give much better bids. In fact what we are noticing in this appeal also is that when the Appellant bank has given a better offer, the respondent No.2 is ready to meet the challenge by offering Rs.25,00,000/- more. As per the accepted bids the three properties were being sold for Rs.2,69,55,000/-. The bank initially offered Rs.29,33,000 which is higher by Rs.23,75,000 and it further raised its offer by Rs.34,000 with respet to item No.1 (Managers bungalow). The respondent No.2 showed willingness to deposit Rs.25 lakhs more. Thus as against the original offer of over Rs.2.69 Crores, the price is going up (only on two properties) by nearly Rs.50 lakhs which is almost 20%. We thus find that the finding given by the learned Single judge in paragraph 12 of the judgment that there is enhancement of offer slightly by 5% to 10% is incorrect. This itself would support the submission of Mr. Tulzapurkar that this is a case where figures at which the auction was finalized were grossly inadequate. Again as rightly emphasizes by him, this may not be a case of fraud but it is certainly a case of material irregularity. The normal procedure of obtaining valuation from the Government valuers has to be followed and particularly when there was a direction given by one single Judge there was no reason for another judge to depart there from. On both these counts, namely, on the ground of material irregularity as well as inadequacy of the price, the order passed by the learned single Judge on 12.2.2004 declining to review his earlier order passed on 22.8.2003 suffers from errors of law and will have to interfered.12. The prayer for reauction cannot be declined only on the claim of certainty if it is going to work against the interest of the Company, its creditors and its employees. Besides those who have put in their money do not stand to suffer since they will get it back with interest. The allegation of malafides is also adequately answered by Mr. Tulzapurkar by pointing out that at the first instance it was not possible for the bank to take immediate decision of participating in the bidding in open Court. The bank has averred so in the review applications. It has also pointed out that only when it received the copy of order dated 22.8.2003 that it learnt as to what was the valuation done by the liquidator. When it was found to be too much low that the bank decided to move for review. The bank was a secured creditor and its monies were at stake. To show its bona fides it has offered to deposit the requisite amount. The learned Single judge was clearly in error in holding that the application moved by the bank was not bona fide. In our view in the facts of the present case, the appellant bank was fully justified in moving for review. Mr. Tulzapurkar pointed out that larger public amounts were at stake and the claim of Bank of Maharashtra against the company was over Rs.17 crores. It is held by the Apex Court that the Court is the custodian of the interest of the company and its employees, and the Court has a duty to follow the proper procedure to arrive at the correct market price of the property. That aspect is equally important.

Decision:
1[ds]11. We have considered the submissions made by both the counsel. What we find in this matter is that one learned Single Judge (Deshmukh J.) had passed an order earlier directing that the prevailing rates of the property be called for from theof the particular area, the learned Single Judge subsequently taking the same work (Radhakrishnan, J) proceeded to sell the property without this information becoming available from theand only on the basis of the valuation which was obtained by the Liquidator. When this was pointed out to the learned Judge in review, he did call for the information from thebut at that stage he reconfirmed the sale which he had effected earlier by observing that there was no much variation between the figures now received from theand the offers which he had accepted. There is a clear fallacy in this approach. Firstly, there was no reason to depart from the normal and the correct procedure to get the correct market price from the government official concerned. That apart, when these figures became available to the learned Judge he ought to have noted as can be seen from the Chart which we have reproduced above that the as far as properties at item Nos.1 and 2 is concerned, the valuation given by the valuer of the Official Liquidator was less than 50% as against the valuation given by theHe also ought to have noted that with respect to the third lot as against the valuation of Rs.1,96,25,000/made by the valuer of the Official Liquidator, there was a rise of nearly forty lakhs in the valuation submitted by theand the figure now stood at Rs.2,35,27,000/In this scenario, the learned Judge ought to have noted that if the bids were called in the light of the valuation which was sought by Deshmukh J., much better price could have been obtained. When the bids were assessed earlier on 22.8.2003, they were decided on theof much lower valuations. It is another matter that later on the learned Judge found that there is not much variation when the valuation figures are obtained from theAs stated above, if these figures were available earlier, obviously the parties would have been asked to give much better bids. In fact what we are noticing in this appeal also is that when the Appellant bank has given a better offer, the respondent No.2 is ready to meet the challenge by offering Rs.25,00,000/more. As per the accepted bids the three properties were being sold for Rs.The bank initially offered Rs.29,33,000 which is higher by Rs.23,75,000 and it further raised its offer by Rs.34,000 with respet to item No.1 (Managers bungalow). The respondent No.2 showed willingness to deposit Rs.25 lakhs more. Thus as against the original offer of over Rs.2.69 Crores, the price is going up (only on two properties) by nearly Rs.50 lakhs which is almost 20%. We thus find that the finding given by the learned Single judge in paragraph 12 of the judgment that there is enhancement of offer slightly by 5% to 10% is incorrect. This itself would support the submission of Mr. Tulzapurkar that this is a case where figures at which the auction was finalized were grossly inadequate. Again as rightly emphasizes by him, this may not be a case of fraud but it is certainly a case of material irregularity. The normal procedure of obtaining valuation from the Government valuers has to be followed and particularly when there was a direction given by one single Judge there was no reason for another judge to depart there from. On both these counts, namely, on the ground of material irregularity as well as inadequacy of the price, the order passed by the learned single Judge on 12.2.2004 declining to review his earlier order passed on 22.8.2003 suffers from errors of law and will have to interfered.12. The prayer for reauction cannot be declined only on the claim of certainty if it is going to work against the interest of the Company, its creditors and its employees. Besides those who have put in their money do not stand to suffer since they will get it back with interest. The allegation of malafides is also adequately answered by Mr. Tulzapurkar by pointing out that at the first instance it was not possible for the bank to take immediate decision of participating in the bidding in open Court. The bank has averred so in the review applications. It has also pointed out that only when it received the copy of order dated 22.8.2003 that it learnt as to what was the valuation done by the liquidator. When it was found to be too much low that the bank decided to move for review. The bank was a secured creditor and its monies were at stake. To show its bona fides it has offered to deposit the requisite amount. The learned Single judge was clearly in error in holding that the application moved by the bank was not bona fide. In our view in the facts of the present case, the appellant bank was fully justified in moving for review. Mr. Tulzapurkar pointed out that larger public amounts were at stake and the claim of Bank of Maharashtra against the company was over Rs.17 crores. It is held by the Apex Court that the Court is the custodian of the interest of the company and its employees, and the Court has a duty to follow the proper procedure to arrive at the correct market price of the property. That aspect is equally important.