Case: Fcs Software Solutions Ltd Vs. La Medical Devices Ltd.

Bank of India v. Official Liquidator, High Court of Calcutta & Ors., (2000) 5 SCC 274 , this Court observed that in auction sale of the property of the Company which is ordered to be wound up, the Company Court acts as a custodian for the interest of the Company and its creditors. It is the duty of the Company Court to satisfy itself as to reasonableness of price by disclosing valuation report to secured creditors of the Company and other interested persons. It was further held that the Court should exercise judicial discretion to ensure that sale of property should fetch adequate price. For deciding what would be reasonable price, valuation report of an expert is essential. The Company Judge himself must apply his mind to the valuation report. The Court observed that the High Court did not interfere with the auction sale on the ground of sympathy for the workers which was not proper. The auction sale was, therefore, set aside by this Court and Official Liquidator was directed to re-sell the property after obtaining fresh valuation report and after furnishing copy of such report to secured creditors. 28. In Divya Manufacturing Company (P) Ltd. v. Union Bank of India & Ors., (2000) 6 SCC 69 , this Court held that even confirmed sale can be set aside. In that case, highest bid by a party was accepted by the Court and the sale was confirmed, but before possession was delivered to the auction purchaser and execution of sale deed, other parties offered much higher price. The High Court required the subsequent bidders to deposit an amount of 25% which was done. Considering the facts in their entirety, the High Court set aside the confirmation of past highest bid. The said action was challenged in this Court. 29. This Court held that in an appropriate case, even confirmed sale can be set aside. The Court in this connection, relied upon earlier two decisions in LICA (P) Ltd. (1) v. Official Liquidator, (1996) 85 Comp Cas 788 (SC) and LICA (P) Ltd. (2) v. Official Liquidator, (1996) 85 Comp Cas 792 (SC). 30. The learned counsel for the appellant is no doubt right in submitting that in Divya, there was a specific condition (Clause 11) which empowered the Court to set aside confirmed sale "in the interest of creditors, contributors and all concerned and/or public interests". 31. But the Court put the matter on principle and stated; "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 or fraud". (emphasis supplied) 32. It proceeded to observe; "Confirmation of the sale by a Court at grossly inadequate price, whether or not it is a consequence of any irregularity or fraud in the conduct of sale, could be set aside on the ground that it was not just and proper exercise of judicial discretion. In such cases, a meaningful intervention by the Court may prevent, to some extent, underbidding at the time of auction through Court". (emphasis supplied) 33. In Gajraj Jain v. State of Bihar & Ors., (2004) 7 SCC 151 , this Court reiterated that in absence of valuation report and reserve price, the auction sale becomes only a pretence. If there is no proper mechanism and if the intending purchasers are not able to know details of the assets or itomised valuation, auction sale cannot be said to be in accordance with law. If publicity and maximum participation is to be attained, all bidders must know the details of the assets and the valuation thereof. 34. In the present case, it was alleged that there were several irregularities in the first auction. The tender notice did not state valuation of movable and immovable property; reserve price was not fixed, inventory of plant and machinery was not made available, etc. If on consideration of these facts, the Company Judge ordered fresh auction, in our considered opinion, no complaint can be made against such action. 35. In our opinion, the submission of the learned counsel for respondent NO. 3 is also well-founded that when its highest bid of Rs.3.5 crores was accepted, opportunity was afforded to the appellant. It, however, did not avail such opportunity. The counsel is also right in referring to subsequent events that after the fresh auction, sale deed was executed, possession was handed over to respondent No.3, it had incurred expenses. If at this stage, the sale is set aside, serious prejudice will be caused to respondent No. 3-Society. 36. At the same time, however, from the facts it is clear that the appellants bid was accepted in November, 2004. Immediately, it had deposited 25% amount. The appellant also deposited remaining amount of 75% on April 12/13, 2005. It would, therefore, be appropriate if we direct respondent No. 3 to pay an amount of Rs.30 lacs to the appellant which in our opinion would serve the ends of justice. Payment of Rs.30 lacs will serve as a "solatium to the purchaser for his trouble and disappointment for the loss of that which is perhaps a good bargain". [Vide Chundi Charan v. Bankey Behary, (1899) ILR 26 Cal 449 (FB)]. 37. Before parting, we may clarify that serious allegations have been levelled by the appellant against the then Official Liquidator. It was also stated that Central Bureau of Investigation (CBI) has instituted criminal proceedings alleging corruption against the Official Liquidator and he was arrested. We are disposing of the present appeal as in our opinion, the order passed by the Company Jude and confirmed by the Division Bench of the High Court are in consonance with law. But we may not be understood to have expressed any opinion on the allegations levelled by the appellant against the Official Liquidator. As and when the matter comes up for consideration before an appropriate Court/Authority, it will be decided on its own merits irrespective of the disposal of this appeal by us.

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

Explanation:
1[ds]21. Having heard the learned counsel for the parties, in our opinion, no case has been made out by the appellant against the order passed by the High Court. From the facts stated above, it is clear that in November, 2004, the bid of the appellant was highest and was accepted by the Official Liquidator. But it is also clear that certain facts which were necessary to be brought to the notice of intending purchasers were not set out in the proclamation of sale nor were disclosed at the time of sale notice. They related to valuation of movable and immovable properties, fixation of reserve price, non-inventory of plant and machinery, etc. The attention of the Company Judge was invited by other bidders by filing Company Applications. The Company Judge considered the objections and having prima facie satisfied, ordered fresh auction. We find no illegality in the said approach. When fresh bids were received, it was found that the highest offer was of respondent No. 3-Society which was of Rs.3.5 crores. The Company Judge extended an opportunity to the appellant to raise its bid. It, however, appears that the appellant was adamant to get the property for Rs.1.47 crores on the ground that the said offer was highest and all the proceedings taken by the Official Liquidator and Company Judge thereafter were totally illegal and unlawful. In our opinion, the respondents are right that in such cases, the approach of the Company Judge should be to get highest price so as to satisfy maximum claims against the Company in liquidation. The procedure followed by the Company Judge, therefore, cannot be said to be illegal.Before parting, we may clarify that serious allegations have been levelled by the appellant against the then Official Liquidator. It was also stated that Central Bureau of Investigation (CBI) has instituted criminal proceedings alleging corruption against the Official Liquidator and he was arrested. We are disposing of the present appeal as in our opinion, the order passed by the Company Jude and confirmed by the Division Bench of the High Court are in consonance with law. But we may not be understood to have expressed any opinion on the allegations levelled by the appellant against the Official Liquidator. As and when the matter comes up for consideration before an appropriate Court/Authority, it will be decided on its own merits irrespective of the disposal of this appeal by us.