Case: Jay Electric Wire Corporation Employees Union &amp; Another Vs. Pravin Gada &amp; Others

a matter of some significance that within a period of a little over a month thereafter, an offer was made to the Recovery Officer for the same property for Rs.6.45 crores. Even that offer, it must be noted, was without a public advertisement being issued and an opportunity being granted to the public at large to bid for the property. The amount of Rs.6.45 crores was deposited by the bidder, who had submitted a bid on 5 December 2006. That bid was, however, withdrawn as a result of the fact that the process of conducting a fresh auction came to be stalled as a result of the order of stay passed by the DRAT. The bid amount was permitted to be withdrawn under orders of the Court, specifically in view of the fact that as a result of the delay that had taken place in the conduct of the fresh auction, the process had been brought to a stand still. Significantly, the Recovery Officer after confirming the sale on 27 October 2006, proceeded to hand over possession of the property on 31 October 2006. On 30 October 2006, the previous day, Central Bank had moved an application for setting aside the confirmation of sale. There has been a material irregularity in the sale which vitiates the sale.22. Counsel appearing on behalf of the First and Second Respondents submitted that the Court ought not to interfere in exercise of its writ jurisdiction under Article 226 of the Constitution because otherwise, the sanctity of the sale process would be lost. The sanctity of a properly conducted sale has to be preserved, and a sale would not be set aside merely because, as a result of a lapse of time, a higher price is being realized. The Supreme Court in NGEF Ltd. v. Chandra Developers Pvt. Ltd. (2005) 8 SCC 219 at 50held as much saying:The satisfaction as regard adequacy of the price is one of the relevant factors for proper and reasonable exercise of the judicial discretion vested in it. There cannot be any doubt or dispute that when an auction is held upon compliance of the statutory provisions, withholding of auction on the ground that still higher price may be obtained may prove to be self-defeating exercise as has been held in KayjayIndustries Pvt. Ltd. v. Asnew Drums Pvt. Ltd. AIR 1974 SC 1331 and State of Punjab v. Yoginder Sharma Onkar Rai & Co. and Ors. (1996)6SCC173Equities which are created in favour of a bidder who submits a bona fide bid which is found at the end of a transparent sale process to be the highest bid have to be preserved. At the same time, it is necessary that the sale process must be conducted with transparency and in accordance with law. In the present case, we find that the element of transparency was completely lacking. The grounds which weighed with the DRAT in setting aside the order of the Tribunal are misconceived. The DRAT, as we have noted earlier, was of the view that the powers of the Liquidator were restricted by the Company Court to participate at the stage of disbursement of the dues. This exfacie is an incorrect reading of the orders passed by the Company Court. The DRAT has found fault with the Central Bank for having remained absent before the Recovery Officer on 9 August 2006 and 21 August 2006. This absence of the Central Bank at two hearings which took place before the Receiver can furnish no justification whatsoever for the conduct of the sale in a manner which is not consistent with fair dealing. Further, in Union Bank of India v. Official Liquidator AIR 2000 SC 3642 , the Supreme Court has taken cognisance of the fact that a judge must attempt to verify the reliability of a valuation report. The court had stated that it appears that learned Judge has not applied his mind to the valuation report itself. He has only considered the last figures given in the valuation report which says that total valuation of the property was Rs. 66,19,032/. Had the Court considered the report it would have immediately noticed that valuation report was not at all reliable.Id. at 14In Allahabad Bank v. Bengal Paper Mills Co. Ltd., AIR 1999 SC 1715 the Supreme Court had observed that:Upon liquidation, the assets and properties of the company in liquidation vest in the Official Liquidator for the benefit of its creditors. It is only from out of the sale proceeds of these assets and properties that the creditors of the company can hope to recoup their dues. To ensure that the best possible price is realised upon the sale of these assets and properties, the sale thereof by the liquidator is required to be confirmed by the High Court. It is the obligation of the High Court to the creditors of the company in liquidation to make sure that the best possible price has been realised.Thereafter, the court quoted the judgment of Navalkha& Sons v. Sri Ramanya Das (1970) 3 SCR 1 :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 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 proper exercise of judicial discretion.In the present case, the authenticity of the valuation report is another factor that ought to have been weighed by the DRAT, especially in light of the fact that higher offers were received days after the sale. In light of all the above, the conclusion of the DRAT that there was no material irregularity is specious. A case for interference under the jurisdiction of this Court is made out.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]19. The record of the case reveals that the principal borrower, which is a Company incorporated under the Companies Act, 1956, has been ordered to be wound up. A provisional Liquidator was initially appointed by an order of the Company Judge dated 6 October 2005. While passing an order of winding up on 15 October 2008, the Company Judge directed that the Liquidator shall act in accordance with law in relation to the assets of the Company in liquidation. The Official Liquidator placed his report dated 1 December 2006 on the file of the DRT contending that the sale which has been effected in favour of the First and Second Respondents ought to be set aside for the reason that no notice had been furnished to him. The DRAT in the course of its impugned order observed that the Liquidator who was appointed under the orders passed by the Company Court only had restricted powers to participate at the stage of the disbursement of the dues of the workmen. This exfacie is not a correct reading either of the order of the Company Judge dated 6 October 2005 by which a provisional Liquidator came to be appointed or of the final order dated 15 October 2008 when a Liquidator was appointed upon an order of winding up being passed. As a matter of fact, the record before the Court would indicate that initially it was on 26 February 2004 that the Official Liquidator was appointed as provisional Liquidator in Company Petition 336 of 2006. The powers of the Liquidator were not restricted by the orders of the Companywithout a public notice inviting offers, the price for the property had more than doubled. The process adopted by the Recovery Officer was, however, faulty for the reason that when the earlier sale was set aside on 5 December 2006, no fresh notice was issued to enable participation amongst bidders drawn from the public at large. This was noticed in the order of the DRT dated 6 February 2007. The DRT directed that a fresh process of bidding be concluded after the issuance of a public notice. The reasons which weighed with the DRT were eminently proper. The Tribunal found that the valuation was flawed, and that instead of a private negotiation, a fair public auction should be held. It is this order of the DRT which was carried in appeal to the DRAT and which was setare of the view that the manner in which the sale process was conducted is anything but fair. The Receivers have cast aside every norm of prudence. They failed to act in a transparent manner and elevated a private preference to an overriding priority. As a result, the necessity of selling property at a public auction at which the best possible price could be realised has been an unfortunate casualty. The sale has been conducted evidently without following any principles of transparency or fair dealing. Admittedly no public notice has been issued before the sale which culminated in favour of the First and Second Respondents was held. The price which was offered by the First and Second Respondents was Rs.2.50 crores. The sale was confirmed on 27 October 2006 and it is a matter of some significance that within a period of a little over a month thereafter, an offer was made to the Recovery Officer for the same property for Rs.6.45 crores. Even that offer, it must be noted, was without a public advertisement being issued and an opportunity being granted to the public at large to bid for the property. The amount of Rs.6.45 crores was deposited by the bidder, who had submitted a bid on 5 December 2006. That bid was, however, withdrawn as a result of the fact that the process of conducting a fresh auction came to be stalled as a result of the order of stay passed by the DRAT. The bid amount was permitted to be withdrawn under orders of the Court, specifically in view of the fact that as a result of the delay that had taken place in the conduct of the fresh auction, the process had been brought to a stand still. Significantly, the Recovery Officer after confirming the sale on 27 October 2006, proceeded to hand over possession of the property on 31 October 2006. On 30 October 2006, the previous day, Central Bank had moved an application for setting aside the confirmation of sale. There has been a material irregularity in the sale which vitiates thethe present case, the authenticity of the valuation report is another factor that ought to have been weighed by the DRAT, especially in light of the fact that higher offers were received days after the sale. In light of all the above, the conclusion of the DRAT that there was no material irregularity is specious. A case for interference under the jurisdiction of this Court is made out.