Case: United Bank Of India Vs. Off. Liquidator,H.C.Of Calcutta

of judicial discretion. This aspect is reiterated by the Court by holding that the aforesaid principles must govern every court sale. The Court has also observed that failure to apply its mind to the material factors bearing on the reasonableness of the price offered may amount to material irregularity in conduct of sale Thereafter the Court pertinently observed : (SCC p. 219, para 9) "And where a court mechanically conducts the sale or routinely signs assent to the sale papers, not bothering to see if the offer is too low and a better price could have been obtained, and in fact the price is substantially inadequate, there is the presence of both the elements of irregularity and injury."It is further observed : (SCC p. 220, para 9) " What is expected of the Judge is not to be prophet but a pragmatist and merely to make a realistic appraisal of the factors, and, if satisfied that, in the given circumstances, the bid is acceptable, conclude the sale" * 14. As discussed above, in the present case, there is total non-application of mind to the material which is required to be considered for auction-sale of the assets of the Company 15. Learned counsel for Respondent 2 referred to the decision of this Court in Ram Maurya v. Kailash Nath (1999 SC 1359) and submitted that as secured creditors have not brought appropriate pleading before the learned Company Judge, this Court should not interfere in such sale. In our view, the said decision has no bearing on the facts of the present case as the case was decided on the basis of auction-sale under Order 21 Rule 90 of CPC and the Court has observed that the judgment-debtor did not furnish adequate materials to substantiate the allegation of fraud and material irregularity 16. Further, learned counsel relied on the decision in Motors and Investments Ltd. v. New Bank of India (1996 SC 1413) and contended that the court in the alternative may direct refund of the amount deposited and invested by the bona fide auction-purchaser with 18% interest. In that case, the Court has set aside the sale of 44 acres of land by holding that it was sold at too inadequate price. In the said case also the Court has observed : (SCC p. 273, para 5) "Equally, though court sale is compulsive sale, equal endeavour should be made to fetch adequate price for the property sold so that the decree debt would get satisfied and surplus, if any, could be paid over to the judgment-debtor." * 17. The Court further ordered that in case the official assignee has kept the sale amount in any interest-earning security, the principal amount together with interest is directed to be refunded to the appellant. And, in case the amount was not kept in any deposit and was used to discharge outstanding debt due by Respondents 2 and 3, the auction-purchaser was entitled to get interest at 18% per annum on the amount deposited by himIn the present case, the said judgment has no bearing mainly because as soon as the amount was deposited by Respondent 2, possession of the property was handed over to him. Not only that, in our view, similar contention was dealt with in Allahabad Bank v. Bengal Paper Mills case (1999 SC 1099) and is rejected by assigning the following reasons : (SCC p. 394, para 24) "It could not have turned a blind eye to the many defects that it itself noted in the order of sale merely because the Banks had moved the appeals after five months; nor was there any justification for taking into consideration the expenditure that had been incurred by the second respondent subsequent to its possession of the assets and properties. In the first place, the Division Bench should have noted that the learned Single Judge had with unseemly haste ordered possession thereof to be handed over to the second respondent on the very next day. In the second place, the appeals had been filed within the period of limitation. Expenditure incurred during this period could not render the appeals, in effect, infructuous. The same would apply to expenditure incurred subsequent to the filing of the appeals and until the time that they were heard. The second respondent knew that the appeals were pending and that they could end in the order of sale being set aside. Such expenditure as it incurred with this knowledge was at its risk. In the third place, and most important, the interests of the creditors of the Company, particularly the unsecured creditors, overweighed such equities, if any, as might have been considered to be in favour of the second respondent. It was, in our view, the obligation of the Division Bench to have struck down the order of sale, having regard to what it found wrong with it." * 18. Thereafter the Court has directed refund of the amount without any interest and has permitted the auction-purchaser to apply to the High Court and specify it firstly that expenditure was incurred and secondly that in law it was entitled to recover it 19. For the reasons stated, same would be the position in the present case. Further, in this case, there is a specific condition of the auction-sale which reads thus "The High Court may set aside the sale in favour of purchaser/purchasers even after the sale is confirmed and/or purchase consideration is paid on such terms and conditions as the Court may deem fit and proper for the interest and benefits of creditors, contributories and all concerned and/or for public interest." * 20. Hence, if the sale is set aside in appeal, it cannot be stated that the purchaser is entitled to have refund of the amount with interest 21. We also make it clear that we have not dealt with the contention of the learned counsel for the Bank that what was sold in auction was equity of redemption and not the rights of the mortgagee

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

Explanation:
1[ds]8. At the outset, we would state that in proceedings for winding up of the company under liquidation, the court acts as a custodian for the interest of the company and the creditors. Therefore, before sanctioning the sale of its assets, the court is required to exercise judicial discretion to see that properties are sold at a reasonable price. For deciding what would be a reasonable price, valuation report of an expert is must. Not only that, it is the duty of the court to disclose the said valuation report to the secured creditors and other interested persons including the offerors. Further, it is the duty of the court to apply its mind to the valuation report for verifying whether the report indicates reasonable market value of the property to be auctioned, even if objections are not raisedFrom the facts narrated above, it is apparent that the attention of learned Company Judge was not focussed to the fact that since 1980 the Company was closed and that there was no question of selling the Companys assets as a going concern. Not only that it was the duty of the Court to verify the statement made by some applicant that sale of the Company ons basis" will affect 1200 workers and for that proper notice was required to be issued to the secured creditors for whose benefit the property was to be auctioned. To straight away rely upon such statement was, to say the least, not judicious. The Company Judge ought to have also considered the fact that an attempt made by BIFR and AAIFR which are expert bodies under SICA to revive the sick unit had failed. In any set of circumstances, there was no material on record before the learned Judge for holding that the Company could be revived and the employees would be reinstated in service by giving them. Without indulging in any such exercise straight away to state that property would be sold as a going concern was totally without any basis and, therefore, unjustified. At the time of hearing of this matter it is admitted that after purchase of the Company, it was restarted only for one day i.e. on the day of inauguration9. It also appears that the Division Bench was persuaded by thed sympathy for the workers, without verification of the fact that the Company was closed before 17 years of sale. The Court has noted in the beginning while narrating the submission of the learned counsel who appeared for the benefit of the employees that more than 100 employees were starving to death and in the later para stated that the Court was informed by the learned advocate appearing for the employees union that more than 100 employees have already died. Without there being any application on record and without there being proper verification of the facts from the parties concerned, it is not just and proper to make such observations. It is not impossible that because of the lapse of 17 years, out of 1200 workers who might have worked in the said factory 100 employees might have died a natural death. But in any circumstances it was unjustified to make a case over it and to accept oral submissions and to dispose of the valuable properties of a Company by stating that the sale of the Company as a going concern was for the benefit of thed employees who were not in employmentFurther, in the present case, it is admitted that valuation report was called for by order dated; once the report was called for, it was the duty of the Court to see that copy of the said report is given to the secured creditors and other affected persons. It was known to the Court that the appellant secured creditor was claiming more than Rs. 4 crores from the Company. It appears that valuation report was kept as a secret, confidential document. Afterp order, the properties of the Company are in the custody of the Court for the benefit of the secured creditors and if anything remains, thereafter for other creditors and its shareholders. In the present case, without disclosing the valuation report to the creditors and without fixing its reserve price, the properties were auctioned and the sale was confirmed. This approach is unjustifiable by any judicial standard and is against the normal procedure for auctioning the immovable property of the Company which is to be wound up10. Further, 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 the valuation report was not at all reliable11. In our view the valuer stating that for the purpose of valuation of the land he has enquired from local people and that he understood that the land price in this particular area varies between Rs. 2 lakhs to 2.5 lakhs per katta cannot be said to be an opinion of an expert valuer. He has not relied upon any sale instance for arriving at the conclusion that the valuation varies from Rs. 2 to 2.5 lakhs per katta. He has also not stated from whom he has verified the value of the land. Further, he has stated that after considering all aspects, he felt that fair and reasonable value would be Rs. 2 lakhs per katta. Presuming that valuation of land is Rs. 2 lakhs per katta then also the value of the land, admeasuring 67 kattas and 8 chattak, would be more than Rs. 1.35 crore. Thereafter, he stated the land is a leasehold land, so the value of the land would be on the basis of its rental income and he arrived at the conclusion that its value would be only Rs. 4, 09, 860. It appears that the valuer has also not considered the material fact that lease period was for 99 years with the condition for its renewal. It is apparent that learned Company Judge has simply noted the final figures mentioned in valuation report and accepted the same without applying his mind to the aforesaid factsIn our view, this submission requires to be rejected on the ground that in the said case, the Court has reproduced the paragraph which we have quoted above from the decision in Navalkha and Sons (1969 SC 379) wherein the Court has specifically held that 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; the court is required 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 sale would not be a proper exercise of judicial discretion. This aspect is reiterated by the Court by holding that the aforesaid principles must govern every court sale. The Court has also observed that failure to apply its mind to the material factors bearing on the reasonableness of the price offered may amount to material irregularity in conduct of sale14. As discussed above, in the present case, there is totaln of mind to the material which is required to be considered fore of the assets of the Company17. The Court further ordered that in case the official assignee has kept the sale amount in anyg security, the principal amount together with interest is directed to be refunded to the appellant. And, in case the amount was not kept in any deposit and was used to discharge outstanding debt due by Respondents 2 and 3, ther was entitled to get interest at 18% per annum on the amount deposited by himIn the present case, the said judgment has no bearing mainly because as soon as the amount was deposited by Respondent 2, possession of the property was handed over to him. Not only that, in our view, similar contention was dealt with in Allahabad Bank v. Bengal Paper Mills case (1999 SC 1099)18. Thereafter the Court has directed refund of the amount without any interest and has permitted ther to apply to the High Court and specify it firstly that expenditure was incurred and secondly that in law it was entitled to recover it19. For the reasons stated, same would be the position in the present case. Further, in this case, there is a specific condition of thee which reads thus"The High Court may set aside the sale in favour of purchaser/purchasers even after the sale is confirmed and/or purchase consideration is paid on such terms and conditions as the Court may deem fit and proper for the interest and benefits of creditors, contributories and all concerned and/or for public interest." *20. Hence, if the sale is set aside in appeal, it cannot be stated that the purchaser is entitled to have refund of the amount with interest21. We also make it clear that we have not dealt with the contention of the learned counsel for the Bank that what was sold in auction was equity of redemption and not the rights of the mortgagee