Case: The Sangli Bank Limited Vs. Official Liquidator High Court &amp; Others

Rs.25,00,000/-more with the Liquidator than the offer now made by the Bank for these two lots. He however submitted that this Court should not interfere with the order passed by the learned single Judge and at the highest the bids accepted by the learned single Judge be affirmed by taking Rs.25,00,000/- more from Respondent No.2 for these two lots.11. We have considered the submissions made by both the counsel. What we find in this matter is that one learned Single Judge (Deshmukh J.) had passed an order earlier directing that the prevailing rates of the property be called for from the Sub-Registrar of the particular area, the learned Single Judge subsequently taking the same work (Radhakrishnan, J) proceeded to sell the property without this information becoming available from the Sub-Registrar, and only on the basis of the valuation which was obtained by the Liquidator. When this was pointed out to the learned Judge in review, he did call for the information from the Sub-Registrar, but at that stage he reconfirmed the sale which he had effected earlier by observing that there was no much variation between the figures now received from the Sub-Registrar and the offers which he had accepted. There is a clear fallacy in this approach. Firstly, there was no reason to depart from the normal and the correct procedure to get the correct market price from the government official concerned. That apart, when these figures became available to the learned Judge he ought to have noted as can be seen from the Chart which we have reproduced above that the as far as properties at item Nos.1 and 2 is concerned, the valuation given by the valuer of the Official Liquidator was less than 50% as against the valuation given by the Sub-Registrar. He also ought to have noted that with respect to the third lot as against the valuation of Rs.1,96,25,000/- made by the valuer of the Official Liquidator, there was a rise of nearly forty lakhs in the valuation submitted by the Sub-Registrar and the figure now stood at Rs.2,35,27,000/- In this scenario, the learned Judge ought to have noted that if the bids were called in the light of the valuation which was sought by Deshmukh J., much better price could have been obtained. When the bids were assessed earlier on 22.8.2003, they were decided on the touch-stone of much lower valuations. It is another matter that later on the learned Judge found that there is not much variation when the valuation figures are obtained from the Sub-Registrar. As stated above, if these figures were available earlier, obviously the parties would have been asked to give much better bids. In fact what we are noticing in this appeal also is that when the Appellant bank has given a better offer, the respondent No.2 is ready to meet the challenge by offering Rs.25,00,000/- more. As per the accepted bids the three properties were being sold for Rs.2,69,55,000/-. The bank initially offered Rs.29,33,000 which is higher by Rs.23,75,000 and it further raised its offer by Rs.34,000 with respet to item No.1 (Managers bungalow). The respondent No.2 showed willingness to deposit Rs.25 lakhs more. Thus as against the original offer of over Rs.2.69 Crores, the price is going up (only on two properties) by nearly Rs.50 lakhs which is almost 20%. We thus find that the finding given by the learned Single judge in paragraph 12 of the judgment that there is enhancement of offer slightly by 5% to 10% is incorrect. This itself would support the submission of Mr. Tulzapurkar that this is a case where figures at which the auction was finalized were grossly inadequate. Again as rightly emphasizes by him, this may not be a case of fraud but it is certainly a case of material irregularity. The normal procedure of obtaining valuation from the Government valuers has to be followed and particularly when there was a direction given by one single Judge there was no reason for another judge to depart there from. On both these counts, namely, on the ground of material irregularity as well as inadequacy of the price, the order passed by the learned single Judge on 12.2.2004 declining to review his earlier order passed on 22.8.2003 suffers from errors of law and will have to interfered.12. The prayer for reauction cannot be declined only on the claim of certainty if it is going to work against the interest of the Company, its creditors and its employees. Besides those who have put in their money do not stand to suffer since they will get it back with interest. The allegation of malafides is also adequately answered by Mr. Tulzapurkar by pointing out that at the first instance it was not possible for the bank to take immediate decision of participating in the bidding in open Court. The bank has averred so in the review applications. It has also pointed out that only when it received the copy of order dated 22.8.2003 that it learnt as to what was the valuation done by the liquidator. When it was found to be too much low that the bank decided to move for review. The bank was a secured creditor and its monies were at stake. To show its bona fides it has offered to deposit the requisite amount. The learned Single judge was clearly in error in holding that the application moved by the bank was not bona fide. In our view in the facts of the present case, the appellant bank was fully justified in moving for review. Mr. Tulzapurkar pointed out that larger public amounts were at stake and the claim of Bank of Maharashtra against the company was over Rs.17 crores. It is held by the Apex Court that the Court is the custodian of the interest of the company and its employees, and the Court has a duty to follow the proper procedure to arrive at the correct market price of the property. That aspect is equally important.

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

Explanation:
1[ds]11. We have considered the submissions made by both the counsel. What we find in this matter is that one learned Single Judge (Deshmukh J.) had passed an order earlier directing that the prevailing rates of the property be called for from theof the particular area, the learned Single Judge subsequently taking the same work (Radhakrishnan, J) proceeded to sell the property without this information becoming available from theand only on the basis of the valuation which was obtained by the Liquidator. When this was pointed out to the learned Judge in review, he did call for the information from thebut at that stage he reconfirmed the sale which he had effected earlier by observing that there was no much variation between the figures now received from theand the offers which he had accepted. There is a clear fallacy in this approach. Firstly, there was no reason to depart from the normal and the correct procedure to get the correct market price from the government official concerned. That apart, when these figures became available to the learned Judge he ought to have noted as can be seen from the Chart which we have reproduced above that the as far as properties at item Nos.1 and 2 is concerned, the valuation given by the valuer of the Official Liquidator was less than 50% as against the valuation given by theHe also ought to have noted that with respect to the third lot as against the valuation of Rs.1,96,25,000/made by the valuer of the Official Liquidator, there was a rise of nearly forty lakhs in the valuation submitted by theand the figure now stood at Rs.2,35,27,000/In this scenario, the learned Judge ought to have noted that if the bids were called in the light of the valuation which was sought by Deshmukh J., much better price could have been obtained. When the bids were assessed earlier on 22.8.2003, they were decided on theof much lower valuations. It is another matter that later on the learned Judge found that there is not much variation when the valuation figures are obtained from theAs stated above, if these figures were available earlier, obviously the parties would have been asked to give much better bids. In fact what we are noticing in this appeal also is that when the Appellant bank has given a better offer, the respondent No.2 is ready to meet the challenge by offering Rs.25,00,000/more. As per the accepted bids the three properties were being sold for Rs.The bank initially offered Rs.29,33,000 which is higher by Rs.23,75,000 and it further raised its offer by Rs.34,000 with respet to item No.1 (Managers bungalow). The respondent No.2 showed willingness to deposit Rs.25 lakhs more. Thus as against the original offer of over Rs.2.69 Crores, the price is going up (only on two properties) by nearly Rs.50 lakhs which is almost 20%. We thus find that the finding given by the learned Single judge in paragraph 12 of the judgment that there is enhancement of offer slightly by 5% to 10% is incorrect. This itself would support the submission of Mr. Tulzapurkar that this is a case where figures at which the auction was finalized were grossly inadequate. Again as rightly emphasizes by him, this may not be a case of fraud but it is certainly a case of material irregularity. The normal procedure of obtaining valuation from the Government valuers has to be followed and particularly when there was a direction given by one single Judge there was no reason for another judge to depart there from. On both these counts, namely, on the ground of material irregularity as well as inadequacy of the price, the order passed by the learned single Judge on 12.2.2004 declining to review his earlier order passed on 22.8.2003 suffers from errors of law and will have to interfered.12. The prayer for reauction cannot be declined only on the claim of certainty if it is going to work against the interest of the Company, its creditors and its employees. Besides those who have put in their money do not stand to suffer since they will get it back with interest. The allegation of malafides is also adequately answered by Mr. Tulzapurkar by pointing out that at the first instance it was not possible for the bank to take immediate decision of participating in the bidding in open Court. The bank has averred so in the review applications. It has also pointed out that only when it received the copy of order dated 22.8.2003 that it learnt as to what was the valuation done by the liquidator. When it was found to be too much low that the bank decided to move for review. The bank was a secured creditor and its monies were at stake. To show its bona fides it has offered to deposit the requisite amount. The learned Single judge was clearly in error in holding that the application moved by the bank was not bona fide. In our view in the facts of the present case, the appellant bank was fully justified in moving for review. Mr. Tulzapurkar pointed out that larger public amounts were at stake and the claim of Bank of Maharashtra against the company was over Rs.17 crores. It is held by the Apex Court that the Court is the custodian of the interest of the company and its employees, and the Court has a duty to follow the proper procedure to arrive at the correct market price of the property. That aspect is equally important.