VBC 1 wp2689.11-20.9 IN THE HIGH COURT OF JUDICATURE AT BOMBAY APPELLATE SIDE WRIT PETITION NO.2689 OF 2011 WITH WRIT PETITION NOS.7488 & 7489 OF 2011 W.P. 2689/11 : Jay Electric Wire Corporation Employees Union. ...Petitioner. Vs. Pravin Gada & Ors. ...Respondents. .... W.P. 7488/11 : Central Bank of India. ...Petitioner. Vs. Pravin Gada & Ors. ...Respondents. .... W.P. 7489/11 : Standard Chartered Bank. ...Petitioner. Vs. Pravin Gada & Ors. ...Respondents. ...... Ms.Jane Cox with Mr.Ranvir S.Shekhawat for the Petitioner in WP 2689 of 2011 for Respondent No.4 in WP 7488/11 and for Respondent No.5 in WP 7489/11. Mr.Ashutosh Kumbhakoni with Mr.Yogesh Singh i/b. Global Law Officer for Respondent No.1 in all three Petitions. Mr.Durgesh Chaurasiya with Ms.Krupa Mehta i/b. Manilal Kher Ambalal & Co. for the Petitioner in WP 7489/11 and for Respondent No.3 in WP 2689 and 7488 of 2011. Mr.V.K.Nair for the Petitioner in WP 7488/11 for Respondent No.4 in WP 2689/11 and for Respondent No.3 in WP 7489/11. Mr.L.A.Sathelkar for Respondent No.5 in WP 2689/11 and WP 7488/11 and for Respondent No.4 in WP 7489/11 ..... VBC 2 wp2689.11-20.9 CORAM : DR.D.Y.CHANDRACHUD & A. A. SAYED, JJ. September 20, 2011. ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) : Three Petitions have been instituted before this Court under Article 226 of the Constitution in order to challenge an order of the Debts Recovery Appellate Tribunal (DRAT) at Mumbai dated 3 March 2011. The DRAT has, while setting aside an order of the Debts Recovery Tribunal (DRT), restored the confirmation of sale of immovable property in favour of the First Respondent. 2. A Company by the name of Jay Electric Wire Corporation Ltd., which is now in liquidation, had its factory at Mysore on land admeasuring about 4.4 acres, comprised in Plots 44 and 47 in Serial Nos.55 and 69 in the Industrial area of village Habal and Sr.No.22 of Metagally, Hobla Kasba. The Company employed about 149 workers. The factory closed down in February 1995 and the workers claimed that their services were illegally terminated. VBC 3 wp2689.11-20.9 On 5 January 2001, an award was passed by the Industrial Tribunal at Mysore in a reference under Section 10 of the Industrial Disputes Act, 1947, directing the employer to pay backwages to the workmen with effect from 6 February 1995 and to continue payment during the subsistence of the relationship of employer and employee between the parties. On 18 December 2006, a recovery certificate was issued by the Deputy Labour Commissioner at Bangalore in the amount of Rs.4.44 crores towards the dues of the workmen under the award of the Industrial Tribunal. These dues, according to the Union, have been computed until 1999. Proceedings for the winding up of the Company were initiated before the Company Judge of this Court in 1996 (Company Petition 336 of 1996). Subsequently, on a reference made by the BIFR under Section 20(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, the Company Court held that it was just and equitable for the Company to be wound up. The Official Liquidator was appointed as provisional Liquidator by an order dated 6 October 2005 of the Company Judge to take charge of the books, assets and business of the Company and to exercise all necessary powers under the Companies’ Act, 1956. By an order VBC 4 wp2689.11-20.9 dated 15 October 2008, the Company Judge made the Petition absolute by directing that the Company be wound up. The Official Liquidator was accordingly directed to proceed in the matter, in accordance with law, in relation to the assets of the Company in liquidation. 3. In the year 1999, ICICI Bank had instituted a suit before this Court, on its Original Side, for the recovery of its dues against the Company, Jay Electric Wire Corporation Ltd. By an order of a Learned Single Judge dated 8 July 1999, the Court Receiver was appointed as Receiver inter alia of the assets of the Company with liberty to sell the assets by a public auction or by private treaty and to apply the net sale proceeds as between the ICICI Bank and the Central Bank of India (impleaded as the Second Defendant to the suit) in satisfaction of their respective charges on the immovable property. The suit was transferred to the DRT upon the enactment of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The DRT by its order dated 26 August 2003, allowed the application filed by ICICI Bank Ltd. in the amount of Rs.1.12 crores together with future interest at 12% per annum. The VBC 5 wp2689.11-20.9 Tribunal directed that upon the failure of the borrower to repay the amount within six months, the immovable property would be sold and the net sale proceeds would be paid to the applicant Bank and to the Central Bank of India in proportion to their respective charges. The Receiver appointed by the Tribunal was, by an order dated 19 April 2004, continued in the recovery proceedings. 4. In June 2004, a public notice was issued for the sale of the moveable and immovable properties of the borrower. A notice of the proposed sale was published in the newspapers. Though moveables of the borrower came to be sold, no offer was received for the sale of its immovable property. On 24 July 2006, a meeting took place before the private receiver, who had been appointed by the DRT as receiver. The Receiver recorded that two offers were received, one in the amount of Rs.1.10 crores, while another of the First and Second Respondents in the amount of Rs.80 lakhs. The Central Bank of India stated that the offers were not acceptable to it. At that stage, the Standard Chartered Bank appeared before the Receiver stating that ICICI Bank Ltd. had assigned its debts to it. The meeting was adjourned to 9 August 2006. Before the Receiver, VBC 6 wp2689.11-20.9 proceedings were adjourned on 9 August 2006 to 21 August 2006. On 21 August 2006 bidding took place inter se between the two bidders, who submitted private offers, when the First and Second Respondents enhanced their bid to Rs.2.50 crores. The meeting was adjourned to 5 September 2006 and the successful bidder was directed to make up an amount representing 25% of the offer by 28 August 2006. The Central Bank was not present. 5. A letter was addressed by the Receiver on 29 September 2006 to the Advocates for the two Banks enclosing a report seeking the confirmation of sale in favour of the First and Second Respondents in terms of their offer of Rs.2.50 crores. The Banks were informed that the matter stood adjourned to 27 October 2006 when the sale may be confirmed. The sale in favour of the First and Second Respondents was confirmed on 27 October 2006. 6. On 30 October 2006, an application was filed by Central Bank of India for setting aside the sale. The Central Bank in its application complained that though the usual procedure which was followed by the Receiver was to intimate its Advocate of the next VBC 7 wp2689.11-20.9 date of hearing, and though on 24 July 2006 the Bank had opposed the acceptance of the offers which had been submitted, it had no intimation of the proceedings until it received a letter dated 29 September 2006 of the Receiver stating that the property had been sold to the First and Second Respondents for Rs.2.50 crores and that the sale was to be confirmed on 27 October 2006. The Central Bank claimed that in the absence of intimation, it had been unable to remain present when the bidding took place on 21 August 2006 before the Receiver. The Central Bank in its application further stated that it had made efforts and obtained an expression of interest in the property from two parties who had indicated offers in the amount of Rs.2.55 crores and Rs.3 crores for the purchase of the property at Mysore. According to the Central Bank, upon receipt of the letter of the Receiver dated 29 September 2006, their Chief Manager had personally visited the office of the Receiver on 17 October 2006 and had informed him of the expression of interest by at least two other bidders who were willing to pay a higher price. According to the Bank, the Receiver had called upon its Chief Manager to remain present at 4 p.m. on 27 October 2006 and the Bank was, therefore, led to believe that the confirmation VBC 8 wp2689.11-20.9 would take place at that time. However, a meeting was held by the Receiver at 11 a.m. on 27 October 2006. The Bank was unable to contact its Advocate due to a strike of public sector Banks on that date. But on 27 October 2006 when both the interested bidders arrived at the office of the Receiver, they were informed that the sale had been confirmed in the morning. A protest was registered by a letter dated 27 October 2006. By its application, the Bank sought the setting aside of the order confirming the sale dated 27 October 2006 and a direction to the Receiver to conduct a fresh auction and to consider the offers submitted by the two bidders who had expressed interest in the purchase of the property. 7. At this stage, it would also be necessary to note that the Official Liquidator had filed a report dated 1 December 2006 before the DRT stating that an application has been received from the workers contending that the sale which had been conducted in favour of the First and Second Respondents was at a price which was not fair and reasonable. The Official Liquidator further submitted that the sale which was conducted by the Receiver in favour of the First and Second Respondents be set aside since no VBC 9 wp2689.11-20.9 notice had been furnished to the Liquidator though the Registrar had directed that the Liquidator be brought on the record. 8. By an order dated 5 December 2006, the Recovery Officer set aside the confirmation of sale holding that it was obligatory to ensure that a higher price is fetched for the property and assets of a Company in liquidation, if the sale price offered by an auction purchaser is inadequate. The Recovery Officer held that he was entitled to set aside the confirmation in view of the higher offer which was received within a few days and before the sale deed was executed. Moreover, the Official Liquidator who had submitted a report dated 29 March 2005 was also required to be associated with the sale proceedings. Accordingly, the Recovery Officer directed, while setting aside the sale, that a fresh auction be conducted in the presence of all secured creditors, the Receiver and the Official Liquidator after notice. 9. Immediately after the sale was set aside on 5 December 2006, the Recovery Officer conducted a sale on the very same day. No fresh notification of sale was published. Bids were not invited VBC 10 wp2689.11-20.9 from the parties. In his roznama dated 5 December 2006, the Recovery Officer noted that the original auction purchasers did not participate in the fresh bidding process. Two bids appear to have been privately received by the Recovery Officer. The highest bid in the amount of Rs.6.45 crores was of Umrah developers. The Recovery Officer directed that the bid of Umrah developers in the amount of Rs.6.45 crores be accepted and the successful bidder was directed to pay the purchase consideration. 10. Umrah developers deposited the full consideration of Rs. 6.45 crores on 10 November 2006 and 11 December 2006. After the sale in favour of the First and Second Respondents was set aside, and the Recovery Officer declared Umrah developers as the successful bidder, the First and Second Respondents filed an appeal before the Debts Recovery Tribunal. The Tribunal by its order dated 6 February 2007 noted that on 5 December 2006, the Recovery Officer while setting aside the sale had immediately conducted an auction amongst the bidders who were present in which the highest offer was Rs.6.45 crores. The property had been valued between 2004 and 2005 at Rs.80 lakhs for which the last VBC 11 wp2689.11-20.9 offer now received was Rs.6.45 crores. In the circumstances, the Tribunal held that “there was something wrong” on the part of the valuer. The fact that an offer of Rs.6.45 crores was received when bids were conducted only amongst a few persons and not in the public realm was indicative of the fact that the property could fetch a higher value. The Tribunal was of the view that instead of selling the property by private negotiation, the Recovery Officer should have issued a public notice and ought to have invited fresh offers. The Tribunal found fault with the Recovery Officer proceeding in a sale of the property immediately after he had set aside the earlier sale. Consequently, there was a finding that the sale, right from the inception, had not been conducted properly. Accordingly, the Tribunal directed that while retaining the offers which were received until 5 December 2006, the Recovery Officer should publish a public notice to determine as to whether offers higher than the bid of Rs.6.45 crores of Umrah Developers were realised. If no further offers were received, the Recovery Officer was directed to accept the highest bid after inter se bidding between the earlier bidders. VBC 12 wp2689.11-20.9 11. The order of the Tribunal was challenged in appeal by the First Respondent. The DRAT granted a stay on 26 February 2007 as a result of which the entire process of holding a fresh auction came to a stand still. Thereupon, an application was filed by Umrah Developers before the DRT to permit it to withdraw the amount which it had deposited. The application was rejected by the Tribunal. Thereafter, Umrah Developers took out an application before the DRAT for permission to withdraw the amount which was deposited. The DRAT by an order dated 20 March 2007 allowed Umrah Developers to withdraw 90% of its bid amount of Rs.6.45 crores, leaving in balance Rs.64.5 lakhs in deposit before the Recovery Officer. In support of the order, the DRAT furnished the following reasons: “When the order was passed directing holding of a fresh auction in respect of the property, the party, whose bid has not been accepted as the highest bid or sale in his favour has been set aside cannot be in law as well as in equity prevented from withdrawing his deposit, specially when the entire purchase price was deposited by that party and the offer given by him cannot be said to be not genuine.” These observations of the DRAT indicate that it proceeded on the basis that the offer by Umrah Developers was a genuine offer. VBC 13 wp2689.11-20.9 However, as a result of the pendency of the proceedings before the DRAT, the sale process was stalled. The DRAT consequently directed a refund of 90% of the bid amount to Umrah Developers. Subsequently, Umrah Developers moved the Tribunal for withdrawal of the balance representing 10% of the total bid amount on 23 June 2009, inter alia on the ground that though more than two and a half years had elapsed, the property had not been put up for auction. 12. By an order dated 2 July 2008, the DRAT dismissed the appeal filed by the First Respondent, principally on the ground that the offer of Rs.6.45 crores was higher than the offer of Rs.2.50 crores furnished by the First and Second Respondents. The First and Second Respondents challenged the order of the DRAT in writ proceedings before this Court. During the pendency of the writ proceedings, an application filed by Umrah Developers for refund of the balance representing 10% of the bid amount was allowed and the remaining amount was released on 15 September 2009. The Writ Petition filed by the First and Second Respondents challenging the order of the DRAT was disposed of by consent by a VBC 14 wp2689.11-20.9 Division Bench of this Court by an order dated 11 August 2010 in terms of agreed Minutes. The agreed order records that one of the principal factors which weighed with the DRAT was that at the relevant time, an offer for the purchase of the property at Rs.6.45 crores had been made. However, since that offer had been withdrawn and the bid consideration also had been refunded, this Court remanded the proceedings back to the DRAT for a fresh decision. On remand, the DRAT by its order dated 15 October 2010, allowed the appeal filed by the First and Second Respondents and directed the Recovery Officer and the Tribunal to restore the confirmation of sale in favour of the First and Second Respondents on 27 October 2006. This order of the DRAT was questioned by the Union representing the workers in a writ proceeding before this Court. By an order dated 20 December 2010, this Court set aside the order of the DRAT and remitted the proceedings back for fresh consideration. Following the order of remand, the DRAT has passed its impugned order dated 3 March 2011 allowing the appeal filed the First and Second Respondents and restoring the confirmation of sale made in favour of the First and Second Respondents on 27 October 2006. VBC 15 wp2689.11-20.9 13. Both the Banks who are secured creditors before the Court have filed Petitions under Article 226 of the Constitution for questioning the order passed by the DRAT. As a matter of fact, the first Petition chronologically was instituted by the workers’ Union to challenge the order of the DRAT. During the course of the hearing of these proceedings, the Court has been informed that an effort has been made by the First and Second Respondents to settle the outstanding dues of the workers through an out of Court settlement. Counsel appearing on behalf of the workmen submitted that the workmen would abide by the result of the Petitions which have been filed by the secured creditors and it is only in the event that the Petitions filed by the Banks are dismissed that the workers would be inclined to enter into an out of Court settlement with the First and Second Respondents. Counsel for the First and Second Respondents stated that his clients would be able to resolve the dispute with the workmen only if the Petitions filed by the secured creditors challenging the sale in favour of his clients fail. Counsel appearing on behalf of the First and Second Respondents submitted that while the First and Second VBC 16 wp2689.11-20.9 Respondents are ready and willing to negotiate with the workmen, they are not in a position to do so until the litigation which has been instituted by the secured creditors attains finality. The Central Bank of India and the Standard Chartered Bank who are two secured creditors have pressed their challenge to the order of the DRAT, submitting that there is a material irregularity and the sale has been conducted in a manner lacking in transparency and fairness. 14. On behalf of the two Petitioning Banks it has been urged that the sale in the present case, in favour of the First and Second Respondents has been conducted in a manner which is totally lacking in transparency. Counsel appearing on behalf of the Central Bank of India while drawing support from the application that was made for setting aside the confirmation of sale urged that the Central Bank of India had, as a matter of fact, appeared before the the Receiver in the first instance on 24 July 2006 and had opposed the acceptance of the bids inter alia of the First and Second Respondents. Counsel submitted that thereafter, on 21 August 2006, bidding took place inter se between the existing bidders who had furnished individual bids when the First VBC 17 wp2689.11-20.9 Respondent increased the bid to Rs.2.50 crores which was accepted. Counsel submitted that it was only on 29 September 2006 when the Receiver intimated the Bank of the acceptance of the bid and of the process of sale confirmation to take place on 27 October 2006 that the Bank obtained knowledge of the circumstances that had transpired. On 27 October 2006, the sale was confirmed behind the back of the Bank at 11 a.m. and when the representative of the Bank moved the Receiver, he was informed that the sale had already been confirmed. Accordingly the Bank filed an application on 30 October 2006 which was allowed by the Recovery Officer on 5 December 2006. The Recovery Officer, however, embarked upon a wholly improper course of action by holding a fresh bidding process amongst a few bidders, who remained present before him, without a public notice, on the very same day. In the circumstances, it was urged that the Tribunal had, for valid reasons, come to the conclusion that a public notice should be issued inviting fresh offers and an effort should be made to realise the best price. The valuation of the property was obviously flawed and even without a public notice, a bid with full payment of price in the amount of Rs.6.45 VBC 18 wp2689.11-20.9 crores was realized as against Rs.2.50 crores offered by the First and Second Respondents. The submissions which were urged on behalf of Central Bank were supported by Counsel appearing on behalf of Standard Chartered Bank. The Standard Chartered Bank had, during the pendency of the proceedings, communicated by its letter dated 27 October 2006 that it was consenting to the confirmation of sale at a price of Rs.2.50 crores. Counsel submitted that this letter was addressed by the Bank before a higher bid in the amount of Rs.6.45 crores emerged on 5 December 2006 and consequently, the Bank should not be held down to the consent which it had offered at an earlier stage. 15. Ms.Cox appearing for the Union representing the Workers urged that it is the workers who have actively opposed the conduct of the sale proceedings as being unfair and unlawful. Counsel urged that even before the DRAT when the impugned order was passed, the workers informed the Chairperson that they had an offer in the amount of Rs.6.45 crores for the property. Hence, the price realised from the First and Second Respondents was not the fair market value. The workers, it is urged, are weary VBC 19 wp2689.11-20.9 of litigation: several have died while others are critically sick. The reason why the workers were ready to settle with the First and Second Respondents is because of this predicament, though they have maintained that the sale stood vitiated. Hence, if a fresh public auction is ordered, that should be held in an expeditious time frame so that the workmen are disbursed their dues. Counsel has fairly taken the Court through the record of the case. 16. On the other hand, it has been urged on behalf of the First and Second Respondents that the test which must be applied by the Court must be based on the situation on the date when the sale was confirmed, namely, on 27 October 2006. Counsel submitted that on 27 October 2006, the price which was realized through the bid of the First and Second Respondents of Rs.2.50 crores was fair and reasonable having regard to the fact that initially the property had been valued at Rs.1.10 crores which valuation was subsequently reduced to Rs.80 lakhs. Counsel submitted that on 28 March 2009, the property was valued at Rs. 2.28 crores. In the present case, it was urged that there was no fraud or irregularity in the conduct of the auction. Further it was VBC 20 wp2689.11-20.9 urged that none of the parties, as a matter of fact, pressed for the conduct of a public auction for the sale of the property. In so far as the First and Second Respondents are concerned, it has been stated that the Recovery Officer handed over possession on 31 October 2006 though a sale