* IN THE HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) 4979/2007 Date of Decision: 11 th APRIL, 2008 KOHINOOR FOODS LTD. ..... Petitioner Through : Mr. G.L. Rawal, Sr. Adv. with Mr. Rajes Rawal, Mr.Arvind Kumar Jha, Advs. versus J.K.SYNTHETICS LTD. & ORS. ..... Respondents Through : Ms. Manisha Dhir, Adv. with Mr.R.S. Paliwal, Adv. for R-1 Mr. Manmohan, Sr. Adv. with Ms. Geeta Sharma, Adv.for R-2 + W.P.(C) 5105/2007 UMA NAIDU ..... Petitioner Through : Mr. Ravi Gupta, Adv. versus ASSETS SALE COMMITTEE J.K.SYNTHETICS LTD. & ANR. ....Respondents Through : Ms. Manisha Dhir, Adv. with Mr.R.S. Paliwal, Adv. for R-1 Mr. Manmohan, Sr. Adv. with Ms. Geeta Sharma, Adv.for R-2 + W.P.(C) 5106/2007 S.K.GARG ..... Petitioner Through : Mr. Ravi Gupta, Adv. versus ASSETS SALE COMMITTEE, J.K.SYNTHETICS LTD. & ANR. .... Respondents Through : Ms. Manisha Dhir, Adv. with Mr.R.S. Paliwal, Adv. for R-1 Mr. Manmohan, Sr. Adv. with Ms. Geeta Sharma, Adv.for R-2 + W.P.(C) 5107/2007 W.Ps.(C)4979, 5105-5107 of 2007 Page 1 of 10 P.S.KARTHIKEYAN ..... Petitioner Through : Mr. Ravi Gupta, Adv. versus ASSETS SALE COMMITTEE, J.K.SYNTHETICS LTD. & ANR. .... Respondents Through : Ms. Manisha Dhir, Adv. with Mr.R.S. Paliwal, Adv. for R-1 Mr. Manmohan, Sr. Adv. with Ms. Geeta Sharma, Adv.for R-2 CORAM: HON'BLE MR. JUSTICE T.S. THAKUR HON'BLE MS. JUSTICE ARUNA SURESH 1. Whether reporters of local papers may be allowed to see the judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes T.S. Thakur, J M/s J. K. Synthetics Ltd. is a sick company within the meaning of Sick Industrial Companies (Special Provisions) Act, 1985, hereinafter called 'SICA' for short. A scheme for its rehabilitation appears to have been approved under the provisions of the Act by the Appellate Authority for Industrial and Financial Reconstruction. By an order dated 21st January, 2003 passed in Appeal No. 301/2000 arising out of BIFR Case No. 22/98, the AAIFR constituted what is described as an Assets Sales Committee for the sale of surplus assets of the sick company by inviting offers through advertisements. The Committee comprised a representative of the IDBI, the operating agency, the Managing Director or Executive Director of a sick company and a representative of the State Bank of India which happens to be the lead bank. The AAIFR also authorized the Assets Sales Committee to formulate the procedure for disposal of the surplus assets and to submit a report on the same to the BIFR who was then to take a decision in the matter in accordance with law. The relevant portion of W.Ps.(C)4979, 5105-5107 of 2007 Page 2 of 10 the order passed by the AAIFR reads: “As regards Jhalawar unit, it was admitted by the learned counsel for the appellant with instructions from two Senior Vice-Presidents of the company and was not disputed by others that none of the units comprising Jhalawar unit are vi8abl, are lying closed since long and cannot be revived and that these should be disposed of and their sale proceeds realised and distributed among other creditors and towards other liabilities of company. We are satisfied that the Jhalawar units are unviable and cannot be revived. These units along with some other surplus assets i.e. four flats and guest house situated at Mumbai and flats in Delhi and Amjher Palace at Kota be disposed off. We accordingly constituted an Assets Sale Committee comprising of the representatives of IDBI – OA, Managing Director or Executive Director of the appellant company and a representative of State Bank of India, the lead bank. The Assets Sale Committee shall formulate the procedure for disposal of these assets by inviting offers through advertisement and submit its report thereon to the BIFR who will take a decision in the matter in accordance with law.”(para 50) 2. The Assets Sale Committee accordingly issued advertisements and invited bids from intending purchasers of the surplus assets that comprised four flats and a guest house situated in Mumbai, Flats in Delhi and Ajmer Palace at Kota. In response to the said advertisements, the petitioner in W.P.(C)4979/2007 offered a bid of Rs.1,82,84,000/- for a flat in the Masjid Moth area of Greater Kailash -II, New Delhi. Negotiations held before the Committee on 10th December, 2005, however, resulted in the enhancement of the amount offered by the petitioner in the said petition to Rs.2.70 Crores. The Assets Sale Committee found the said amount to be reasonable and accordingly recommended its acceptance to the AAIFR. The AAIFR heard the matter on 31st August, 2006 but declined to approve the bid offered by the petitioner in terms of its order dated 31st May, 2007 impugned in this petition. The AAIFR was of the opinion that since W.Ps.(C)4979, 5105-5107 of 2007 Page 3 of 10 the value of the properties would have substantially increased between the date the bid was made and the date of the order, it would not be appropriate to confirm the sale in favour of any of the bidders. It was also of the view that before proceeding with the sale of the assets, a fresh evaluation should be done in order to ensure that the optimum price is realized for the asset. The Committee was accordingly directed to get the surplus asset of the sick company revalued and fix a reserve price. It was also authorized to accept any bid which was higher than the reserve price but if the bid was lower than the reserve price, it was directed to submit a report to the BIFR for further directions. In para 7 of the said order is under challenge which reads: “7. As regards the applications preferred by the Asset Sales Committee constituted by this Authority for the sale of surplus assets of the JKSL to the identified parties, we find that the Asset Sales Committee had identified the parties interested in acquiring the surplus assets of JKSL in the year 2005. We are of the view that, at this stage, it would not be appropriate to confirm the sale in favour of the said parties since the asset value would have substantially increased. Before proceeding with the sale of the said assets a fresh valuation should be done in order to ensure the maximum realization. Accordingly, we issue a direction to the Assets Sale Committee (ASC) to get the surplus assets of JKSL revalued and, thereafter fix a reserve price. If the highest bid is higher than the reserve price the ASC shall confirm the sale of assets. However, if the bid is lower than the reserve price the ASC shall submit a report to BIFR for further directions.” 3. A valuation report was pursuant to the above direction prepared by the Asset Sale Committee in respect of each one of the assets being offered for sale. Insofar as the value of the property for which petitioner, Kohinoor Foods Ltd. had offered a bid, the Assets Sale Committee fixed a reserve price of Rs.4.25 crores. On the basis of the W.Ps.(C)4979, 5105-5107 of 2007 Page 4 of 10 said valuation, fresh bids were called by the Committee in response to which it received two bids one of which was offered by the petitioner. These bids were forwarded to this Court in terms of an order dated 12th July, 2007. Petitioner, Kohinoor Foods Ltd. has filed W.P.(C)4979/2007 to assail the validity of the order passed by AAIFR directing fresh evaluation and invitation of bids. Since however the petitioners had approached the Supreme Court by way of a Special Leave Petition against the order of this Court dated 12th July, 2007 and obtained an order directing maintenance of status quo, the bids received by this Court have not been opened so far. 4. As regards petitioner in W.P.(C)5105/2007, the initial bid offered was Rs.10,05,000/- which was later revised in the course of negotiations with the Assets Sale Committee to Rs.13,85,000/-. The Assets Sale Committee had, however, fixed a reserve price of Rs.14,00,000/- for the property in question. In response to the fresh notice issued by the Committee inviting bids, the committee received an offer of a sum of Rs.17.9 lacs for the said property which was accepted by the Committee in exercise of the powers delegated to it by the AAIFR. Possession of the property in question has not, however, been delivered to the purchaser in view of the interim order passed by their lordships of the Supreme Court. 5. Petitioner in W.P.(C)5106/2007 had offered a revised bid of Rs.13.30 lacs for the property relevant to that case. Upon revaluation of the property, the Committee had, however, fixed the reserve price of the property at Rs.14,00,000/- as against which the highest bid received by the committee was Rs.18.20 lacs which the Committee has already accepted. 6. That leaves us with W.P.(C)5107/2007 in which the revised price offered by the petitioner after negotiations with the Assets Sale W.Ps.(C)4979, 5105-5107 of 2007 Page 5 of 10 Committee was Rs.11.60 lacs. The reserve price was, however, fixed at Rs.13 lacs on the basis of valuation of the property. The Committee has against that price accepted the highest bid of Rs.15 lacs offered for the property relevant to that petition. 7. We have heard learned counsel for the parties and perused the record. A two fold submission was urged on behalf of the petitioners by the learned counsel appearing for them. Firstly it was contended that in terms of the order of the AAIFR dated 30th May, 2007 the bids received by the Assets Sale Committee had to be submitted to the BIFR for acceptance. It was contended that inasmuch as AAIFR had ignored the said order and itself taken a decision on the acceptance or rejection of the said bids, it had committed an error of jurisdiction. Secondly, it was contended that the AAIFR had heard the arguments on the recommendations made by the Assets Sale Committee on 31st August, 2006 but final orders in the matter were pronounced only on 30th May, 2007 by which time the value of the assets had, in the opinion of the AAIFR, gone up. The petitioners could not, however, be punished for an act of omission on the part of AAIFR or its failure to expeditiously dispose of the matter. If the value of the assets had gone up in the intervening period the same did not mean that as on the date the bids were offered the amount offered by the petitioners was inadequate having regard to the market value of the properties offered for sale. 8. On behalf of the respondent, it was on the other hand contended by Mr. Manmohan that the submission of the bids by the prospective purchasers did not by itself create any leagally enforceable right in the bidder and that the AAIFR was justified in taking a prudent decision in the matter by directing fixation of a reserve price for the assets only with a view to ensuring that the assets were sold for the W.Ps.(C)4979, 5105-5107 of 2007 Page 6 of 10 highest price offered in terms of their market value. Reliance in support of that submission was placed by Mr. Manmohan upon the decisions of the Supreme Court in Divya Manufacturing Company (P) Ltd. Tripuati Woolen Mills Shramik Sangarsha Samity and Anr. Vs. Union Bank of India and Ors. 2000 (6) SCC 69, Union Bank of India Vs. Official Liquidator H.C. Of Calcutta and Ors. 2000 (5) SCC 274, Allahabad Bank And Ors. Vs. Bengal Paper Mills Cos. Ltd. 1999 (4) SCC 383, Jainsons Export India Vs. Binatone Electronics Ltd. And Anr. 1996 (85) CC 802, M/s. Navalkha And Sons Vs. Sri Ramayana Das And Others. 1969 (3) SCC 537. 9. There is, in our opinion, no merit in either one of the submissions urged on behalf of the petitioners. The intending purchasers of the property owned by the sick company or for that matter any other property does not acquire any indefeasible or enforceable legal right only because of the fact that he has, in response to a notice inviting offers submitted one such offer. The authority inviting the offers like the Assets Sale Committee, in the instant case, could decline offers received by it just as the AAIFR under the authority of whose order the bids were invited could do. The legal position on the subject is, in our view, settled by the decisions of the Supreme Court in M/s. Navalkha And Sons Vs. Sri Ramayana Das And Others. 1969 (3) SCC 537 . The Court in that case observed: “6. The principles which should govern confirmation of sales are well-established. Where the acceptance of the offer by the Commissioners is subject to confirmation of the Court the offeror does not by mere acceptance get any vested right in the property so that he may demand automatic confirmation of his offer. The condition of confirmation by the Court operates as a safeguard against the property being sold at inadequate price whether or not it is a consequence of any irregularity or fraud in the conduct of the sale. In every case it is the duty of the Court to satisfy W.Ps.(C)4979, 5105-5107 of 2007 Page 7 of 10 itself that having regard to the market value of the property the price offered is reasonable. Unless the Court is satisfied about the adequacy of the price the act of confirmation of the sale would not be a proper exercise of judicial discretion. In Gordhan Das Chuni Lai v. T. Sriman Kanthimathinatha Pillai A.I.R. 1971 Mad. 286.) it was observed that where the property is authorised to be sold by private contract or otherwise it is the duty of the Court to satisfy itself that the price fixed is the best that could be expected to be offered. That is because the Court is the custodian of the interests of the Company and its creditors and the sanction of the Court required under the Companies Act has to be exercised with judicial discretion regard being had to the interests of the Company and its creditors as well. This principle was followed in Rathnaswami Pillai v. Sadapathi Pillai A.I.R. 1925 Mad, 318. and S. Souridarajan v. M/s. Roshan & Co. A.I.R. 1940 Mad. 42. In A. Subbaraya Mudaliar v. K. Sundarajan it was pointed out that the condition of confirmation by the Court being a safeguard against the property being sold at an inadequate price, it will be not only proper but necessary that the Court in exercising the discretion which it undoubtedly has of accepting or refusing the highest bid at the auction held in pursuance of its orders, should see that the price fetched at the auction is an adequate price even though there is no suggestion of irregularity or fraud.” 10. In the light of the above, we have no hesitation in holding that the petitioners do not have any legally enforceable right to insist that the offers made by them should have been necessarily accepted especially when the AAIFR had given a valid reason for directing fresh offers to be called by the Assets Sale Committee after getting the properties valued and after fixing the reserved price for the same. The AAIFR was, in our opinion, justified in stating that the value of the properties to be sold had gone up since the date the offers were received from the petitioners. The mere fact that the petitioners were not responsible for the delay in the acceptance of their bids and that the delay might have been entirely on account of the time taken by the AAIFR in deciding the matter would also make little difference. Apart from the fact that the delay which had resulted in appreciation in the value of the properties was on account of multiple rounds of W.Ps.(C)4979, 5105-5107 of 2007 Page 8 of 10 litigation in this Court, the fact that there was bound to be some appreciation in the value of the property on account of the time lag between the date on which the bids were received and the date of the pronouncement of the order could not be disputed. In fairness to counsel for the petitioner, we must say that even they did not dispute the fact that during the period the matter remained pending with the AAIFR, there was appreciation in the value of the property. That is also revealed by the evaluation undertaken by the Assets Sale Committee with the help of qualified valuers and the offers which were received in response to the fresh bids invited by it. What was contended was that since the delay was on account of the time taken by the AAIFR, it should not have been allowed to prejudice the interest of the bidders. We find no substance in that contention. There was no question of the bidders being prejudiced on account of non-acceptance of the bids offered by them especially when the non- acceptance was for a valid reason as was the position in the instant case. We have, therefore, no hesitation in rejecting the contention urged by the petitioners that the AAIFR committed any illegality in rejecting the bids offered by them and directing fresh bids after evaluation of the properties and fixing of reserved price for the same. 11. That brings us to the question whether the order passed by the AAIFR suffered from any error of jurisdiction. The argument was that AAIFR having authorized BIFR to accept the bids it could not, in derogation of that order, examine the validity of the bids or issue directions for evaluation of the property. That submission is also, in our view, untenable in the light of the order passed by AAIFR on 7th January, 2005 modifying the earlier order. In para 12 of the said order, AAIFR had while reviewing the implementation of the scheme issued a clear direction that the Assets Sale Committee shall submit W.Ps.(C)4979, 5105-5107 of 2007 Page 9 of 10 the proposal regarding sale of the properties to AAIFR and not to BIFR as directed earlier. Para 12 of the order passed by the AAIFR on 7th January, 2005 reads as under: “12. In paragraph 50 of the same order dated 23.1.2003 of this Authority also states the ASC shall formulate the proposal for disposal of Jhalawar assets and hereafter submits its report to BIFR to take a further decision in the matter. Since this Authority is now reviewing the implementation of the S.S. It is further ordered that the proposal shall be now submitted to the AAIFR.” 12. In the light of the above, we see no illegality or jurisdictional infirmity in the order passed by AAIFR on the proposals which the Assets Sale Committee had put up to AAIFR in obedience to the above directions. The Assets Sale Committee had been constituted by AAIFR and since the entire exercise was being monitored by it, it was within the jurisdiction of the AAIFR to modify the earlier directions and take up the proposals submitted by the Assets Sale Committee itself rather than directing a consideration by the BIFR. At any rate, the question whether the sale of assets was approved by the BIFR or the Appellate Authority would make little difference in the facts and circumstances of the present case. 13. In the result, these writ petitions fail and are hereby dismissed with costs assessed at Rs.10,000/- in each case. Costs shall be deposited in the Delhi High Court Advocates Welfare Fund within two months. T.S. THAKUR,J ARUNA SURESH, J APRIL 11, 2008 anb W.Ps.(C)4979, 5105-5107 of 2007 Page 10 of 10