Case: Valji Khimji and Company Vs. Official Liquidator of Hindustan Nitro Product Ltd. and Ors

assets were fully described in the sale notice. 23. The learned Single Judge in our opinion also wrongly observed that while doing the valuation the potential of the company was overlooked. Such potential has really no relevance in our opinion. 24. The learned Single Judge has observed that the valuation was made as if the assets of the company to be sold were scrap, and instead the valuation should have been done as if it was a going concern. We have already observed above that this observation is really based on no material as there is nothing to show that the valuation of the assets was done as if they were scrap. 25. The learned Division Bench in its impugned judgment has broadly adopted the reasoning of the learned Single Judge. Hence for the same reason given above the judgment of the learned Division Bench also cannot be sustained. 26. Learned counsel for the appellant Mr. Sundaram has relied upon the decision of this Court in M/s Kayjay Industries (P) Ltd. vs. M/s. Asnew Drums (P) Ltd & Ors. (1974) SCC 213 in which it was observed that mere inadequacy of price cannot demolish every court sale. The Court also observed in para 7, as under: "If Court sales are too frequently adjourned with a view to obtaining a still higher price it may prove a self-defeating exercise, for industrialists will lose faith in the actual sale taking place and may not care to travel up to the place of auction being uncertain that the sale would at all go through". 27. On the other hand, learned counsel for the respondents relied upon a decision of this Court in Divya Manufacturing Company (P) Ltd. etc. vs. Union Bank of India & Ors. etc. (2000) 6 SCC 69. We have carefully perused the above decision and we find that it is clearly distinguishable. 28. The facts of the case were that at the initial stage the appellant offered 37 lakhs for purchasing the property in question. At the intervention of the court the price was raised to 1.3 crores, and ultimately it was found that the property could be sold for Rs.2 crores. It was on these facts that this Court held that even after confirmation of the sale the same could be set aside. 29. Thus, the ratio in Divya Manufacturing Company (P) Ltd. (supra) was that if there is fraud then even after the confirmation the sale can be set aside because it is well-settled that fraud vitiates everything. On the facts of that case, the Court was of the view that that confirmed sale deserved to be set aside. 30. In our opinion the decision of this Court in Divya Manufacturing Company (P) Ltd. (supra) cannot be treated as laying down any absolute rule that a confirmed sale can be set aside in all circumstances. As observed by one of us (Hon. Katju, J.) in his judgment in Civil Appeal No. 4908/2008 (Dr. Rajbir Singh Dalal vs. Chaudhary Devi Lal University, Sirsa & Anr. pronounced on 6.8.2008), a decision of a Court cannot be treated as Euclids formula and read and understood mechanically. A decision must be considered on the facts of that particular case. 31. If it is held that every confirmed sale can be set aside the result would be that no auction sale will ever be complete because always somebody can come after the auction or its confirmation offering a higher amount. 32. It could have been a different matter if the auction had been held without adequate publicity in well-known newspapers having wide circulation, but where the auction sale was done after wide publicity, then setting aside the sale after its confirmation will create huge problems. When an auction sale is advertised in well-known newspapers having wide circulation, all eligible persons can come and bid for the same, and they will be themselves be to blame if they do not come forward to bid at the time of the auction. They cannot ordinarily later on be allowed after the bidding (or confirmation) is over to offer a higher price. 33. Of course, the situation may be different if an auction sale is finalized say for Rs.1 crore, and subsequently somebody turns up offering Rs. 10 crores. In this situation it is possible to infer that there was some fraud because if somebody subsequently offers 10 crores, then an inference can be drawn that an attempt had been made to acquire that property/asset at a grossly inadequate price. This situation itself may indicate fraud or some collusion. However, if the price offered after the auction is over which is only a little over the auction price, that cannot by itself suggest that any fraud has been done. 34. In the present case we are satisfied that there is no fraud in the auction sale. It may be mentioned that auctions are of two types - (1) where the auction is not subject to subsequent confirmation and (2) where the auction is subject to subsequent confirmation by some authority after the auction is held. 35. In the first case mentioned above, i.e. where the auction is not subject to confirmation by any authority, the auction is complete on the fall of the hammer, and certain rights accrue in favour of the auction purchaser. However, where the auction is subject to subsequent confirmation by some authority (under a statute or terms of the auction) the auction is not complete and no rights accrue until the sale is confirmed by the said authority. Once, however, the sale is confirmed by that authority, certain rights accrue in favour of the auction purchaser, and these rights cannot be extinguished except in exceptional cases such as fraud.36. In the present case, the auction having been confirmed on 30.7.2003 by the Court it cannot be set aside unless some fraud or collusion has been proved. We are satisfied that no fraud or collusion has been established by any one in this case.

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

Explanation:
1[ds]11. It may be noted that the auction sale was done after adequate publicity in well-known newspapers. Hence, if any one wanted to make a bid in the auction he should have participated in the said auction and made his bid. Moreover even after the auction the sale was confirmed by the High Court only on 30.7.2003, and any objection to the sale could have been filed prior to that date. However, in our opinion, entertaining objections after the sale is confirmed should not ordinarily be allowed, except on very limited grounds like fraud, otherwise no auction sale will ever be complete.12. It is not in dispute that the auction was an open auction after wide publicity in well-known newspapers. Hence, there was nothing to prevent M/s. Manibhadra Sales Corporation and M/s. Castwell Alloys Limited to have participated in the auction, but they did not do so. There is no allegation of fraud either in this case. Hence, in our opinion, there was no justification to set aside the confirmation of the sale.13. It appears that the reasoning of the learned Single Judge, as also of the Division Bench, was that the valuation of the assets of the company was made as if these assets were scrap. The reasoning of the learned Single Judge of the High Court thus seems to be that the assets in question was wrongly given out to be scrap and thus a proper bid was not obtained.14. In our opinion, there is nothing to show that the assets in question which were auctioned-sold were ever given out to be scrap. They are not mentioned as scrap in the advertisement or sale notice, nor is there any material to show that the valuer valued them treating them to be scrap.15. We have carefully perused the sale notice and we find that it is nowhere mentioned therein that the assets in question are scrap.16. No doubt, the assets of M/s. Hindustan Nitro Product (Gujarat) Limited offered to be sold in the auction sale were offered in lots (as mentioned in the sale notice). The first lot was plant machineries and all other movables excluding building structure, records and compound wall, the second lot was the building structure except T.K. Office, records & compound wall, the third lot was a composite offer (I & II) above, the fourth lot was land except records, and the fifth lot was a composite offer (i.e. III & IV above). In our opinion, this cannot be described as scrap.It could have been a different matter if the auction had been held without adequate publicity in well-known newspapers having wide circulation, but where the auction sale was done after wide publicity, then setting aside the sale after its confirmation will create huge problems. When an auction sale is advertised in well-known newspapers having wide circulation, all eligible persons can come and bid for the same, and they will be themselves be to blame if they do not come forward to bid at the time of the auction. They cannot ordinarily later on be allowed after the bidding (or confirmation) is over to offer a higher price.In the first case mentioned above, i.e. where the auction is not subject to confirmation by any authority, the auction is complete on the fall of the hammer, and certain rights accrue in favour of the auction purchaser. However, where the auction is subject to subsequent confirmation by some authority (under a statute or terms of the auction) the auction is not complete and no rights accrue until the sale is confirmed by the said authority. Once, however, the sale is confirmed by that authority, certain rights accrue in favour of the auction purchaser, and these rights cannot be extinguished except in exceptional cases such as fraud.36. In the present case, the auction having been confirmed on 30.7.2003 by the Court it cannot be set aside unless some fraud or collusion has been proved. We are satisfied that no fraud or collusion has been established by any one in this