Case: Vedica Procon Private Limited Vs. Balleshwar Greens Private Limited

2. M/s Omex Investors Ltd. was ordered to be wound up by the Company Judge of the Gujarat High Court by an order dated 6.3.1990. The Official Liquidator attached to the Gujarat High Court was appointed as the Liquidator of the said company.3. By order dated 26.3.2013, the official liquidator was directed to put the freehold land of the company admeasuring 13895 sq. mtr. to auction for sale by inviting offers from the intending purchasers in sealed covers. By the said order, the High Court also fixed an upset price at Rs.55 crores and earnest money deposit (EMD) at 10% thereof.4. Tender Notice (containing the terms and conditions of sale) inviting offers from the prospective purchasers in sealed covers was widely published. 11 prospective purchasers responded to the notice. On 17.12.2013, an auction was held in the open court. After inter-se bidding of 12 rounds, the appellant in Civil Appeal arising out of SLP (Civil) No.2198 of 2015hereinafter referred to as) became the highest bidder with an offer of Rs.148 crores (In order of the High Court dated 17.12.2013, it is recorded asIn view of the aforesaid, it transpires that M/s Vedia Procon Pvt. Ltd. being the highest bidder, has offered Rs.148 Crores (Rupees One Hundred Forty Eight Crores) for the land admeasuring 13895 Sq. Mtrs. Approx. situated at T.P. No.18 of F.P. No.32/P, bearing Survey No.25, 27/B/1, 31, 38, Moje Rajpur Hirpur, Outside Raipur Gate, behind New Cloth Market, Opp. Hirabhai Market, Diwan Ballubhai Road, Raipur, Ahmedabad.8. Ms. Amee Yajnik, learned counsel for the Official Liquidator, Mr. D.S. Vasavada, learned counsel for respondent No.6 – Union, Mr. U.R. Bhatt, learned counsel for respondent No.1 – State Bank of India and Mr. Anip Gandhi, learned counsel for the ARCIL, have expressed that the bid of M/s. Vedica Procon Pvt. Ltd. may be accepted.9. In view of the above discussion, the bid of M/s. Vedica Procon Pvt. Ltd. being the highest bidder, who has offered Rs.148 Crores for the land mentioned in the tender notice deserves to be accepted and is hereby accepted as per the tender conditions on as is where is basis and whatever there is basis.) - whereas the first respondent (Balleshwar Greens Private Limited) in the abovementioned SLP made the second highest bid. The High Court accepted the bid of the appellant.By the same order the High Court recorded that the earnest money deposit by the appellant and the first respondent be retained by the official liquidator and the earnest money deposits made by the other unsuccessful bidders be returned.6. On 19.12.2013, the official liquidator addressed a letter to the appellant referring to the order dated 17.12.2013 of the High Court and informed the appellant asreference to the subject cited above, I have to state that pursuant to order dated 17.12.2013 passed by theHigh Court of Gujarat in Official Liquidator Report No.43 of 2013, the sale of Freehold land of the company in Liquidator (sic liquidation) admeasuring 13895 sq. mtrs. approx. at T.P. No.18, F.P. No.32/P, bearing Survey No.25, 27-B/1, 31, 38, Moje Rajpur – Hirpur, Outside Raipur Gate, behind New Cloth Market, Opp. Hirabhai Market, Diwan Ballubhai Road, Raipur, Ahmedabad is confirmed in your favour for Rs.148 Crores. A copy of said order is enclosed herewith for your ready reference and perusal.In this connection, you are requested to deposit sale proceed 25% i.e. Rs.37.00 Crores on or before 16.02.2014 and balance remaining 75% i.e. Rs.106.50 Crores on or before 16.04.2014, after adjusting Rs.4.50 Crores behind EMD in final payment of sale proceed. You are, therefore, requested to kindly deposit the sale proceed with this office, within stipulated time given by theHigh Court of Gujarat in terms of order dated 17.12.2013 and Tendersupplied]7. Pursuant to the said letter, the appellant deposited on 06.01.2014 an amount of Rs.37 crores being 25% of the purchase price by Demand Draft drawn on ICICI Bank.8. By letter dated 09.1.2014, the first respondent requested the official liquidator to refund its earnest money deposit. The relevant portion of the letter reads asAs per condition no.29 of Tender Document, the EMD of second highest bidder i.e. Baleshwar Greens Pvt. Ltd. was to be returned after 25% of the sale consideration is deposited by the successful bidder.6. We have come to know that successful bidder M/s. Vedia Procon Pvt. Ltd. has deposited 25% of the sale consideration in the office of Official Liquidator.7. Therefore we hereby request you to kindly refund our EMD of Rs.4.5 Cr and late fees of Rs.23.5 lakhs at thesupplied]9. Admittedly, the EMD of the first respondent was returned.10. On 16.01.2014, the appellant informed the official liquidator that they had deputed security persons toof the property in question for various reasons detailed in the said letter. In response, the official liquidator by its letter dated 24.01.2014 informed the appellant inter alia asthis it is brought to your notice that the office of the Official Liquidator has already deployed security at the mills premises of the company in Liquidation. However, keeping in view the facts and apprehension stated by you in the aforesaid letters, if you so desire, you can post your security outside the premises purchased by you to protect your interest and avoid the possibility of any casualty under the control and supervision of the security posted by official liquidators office at your risk, cost and consequence in addition to existing security arrangement made by this office.On 25.03.2014, the appellant filed an application before the High Court seeking extension of time to deposit the balance consideration of Rs.106.5 crores. The said application was allowed after hearing the secured creditors, by an order dated 31.03.2014, extending the time for payment up to 31.07.2014. However, the appellant deposited the entire balance amount of Rs.106.5 crores on 16.04.2014 without availing the benefit of the extended time by the order of the High Court (referred to supra). The said fact is acknowledged by the official liquidator in his letter dated 16.04.2014 calling upon the appellant to take over the possession of the said land on 17.04.2014 at 11.30 am in presence of the representatives of the official liquidator. The relevant portion of the letter reads asyou have deposited the entire full sale consideration i.e. Rs.148.00 Crores with this office. In this connection, you are requested to depute your authorized representative at freehold land admeasuring 13895 Sq. Mtrs. Approx. situated at T.P. No.18, F.P. No.32/p, bearing Survey No.25, 27-B/1, 31, 38 Moje Raipur-Hirapur, Outside Raipur Gate, behind New Cloth market, Opp. Hirabhai market, Diwan Ballubhai Road, Raipur, Ahmedabad for taking over possession of the said land on 17.04.2014 at 11.30 am,when the representatives of this office will remain present for handing over possession of the said land to you, in terms of order dated 17.12.2013 passed by theHigh Court of Gujarat in Official Liquidator Report No.43 ofsupplied]12. The first respondent preferred OJ Appeal No.9/2014 against the order dated 31.03.2014 of the High Court granting extension of time to deposit the balance amount by the appellant. In the said appeal, the first respondent expressed its willingness to raise its offer to an amount of Rs.160 crore for the land in question and also offered to deposit the said amount within 72 hours.13. On 17.04.2014, a possession memo was drafted purporting to handover the property in question. It appears from the copy of the said possession memo that it was signed by two UDC officials of the Official Liquidator by name S.R. Meena, STA and C.G. S. Karki and one Ganesna Venkataramana on behalf of the appellant. The first respondent disputes the fact that the possession of the property in question was infact delivered to the appellant herein. However, the Division Bench of the High Court by the impugned order found no substance in the objection of the firstThough it is disputed by the present application, the record reveals that on 17.4.2014 when O.J. Appeal No.9 of 2014 came to be heard and disposed of by the Division Bench of this Court, the Official Liquidator handed over the possession of the lands in question to opponent No.9. However, it is an admitted position that the sale deed is not executed. ...appeal (OJ Appeal No.9/2014) was disposed of by an orderThe appellant before us will move before the learned Company Judge within a period of one week with an appropriate application showing his desire to apply afresh for the bid, as according to Mr. Trivedi, the order dated 17.12.2013 is not finalized and it still requires confirmation of the learned Single Judge. Be that as it may, if the application is not made within one week, the benefit of this order will not ensure for the benefit of present appellant. The parties are directed to maintain status-quo till the appellant files an application before the learned Single Judge and the learned Company Judge shall decide the question of interim relief on merits.2. The appellant shall handover the Demand Draft of Rs.160 crores to Mr. R.C. Mishra, Deputy Official Liquidator, who is present in the Court, today itself. The Deputy Official Liquidator has accepted it and shall pass the receipt of the same to the present appellant. The Official Liquidator shall see that the amount is kept in Fixed Deposit at least for one month so that there is no loss of interest.3. It goes without saying that we have not entered into the merits of the matter and the deposit of Rs.160 crores with Official Liquidator is without prejudice to the rights and contentions of the parties and we have adopted this only because of the view expressed by the Apex Court in the case of Shradhha Aromatics Private Limited (supra).4. It goes without saying that once the application is made, it will be open for the learned Single Judge to decide the same on merits. The status-quo thereafter will be subject to the order which may be passed by the learned Single Judge after hearing the parties.5. The order dated 31.03.2014 passed in Misc. Civil Application No.53 of 2014 by the learned Company Judge is interfered with to the above extent only.) dated 17.04.2014 by issuing directions.The substance is:1. That the first respondent herein would move an application before the learned Company Judge showing his desireapply afresh for theThat the parties are directed to maintain status quo till such a period;3. The respondent herein is directed to handover a DD of Rs.160 crores to the Deputy Official Liquidator;4. That it would be open to the learned Single Judge to decide the application of the respondent herein (if made) on merits.In order to complete the narration of facts, it may be mentioned herein that the appellant herein moved a review application Misc. CA No.90 of 2014 O.J. Appeal No.9 of 2014 before the Division Bench of the High Court which was partly allowed making some minor modification in the order dated 17.04.2014, the details of which may not be relevant for our purpose.16. Pursuant to the order dated 17.04.2014, the first respondent moved an application OJMCA 89 of 2014 seeking recall of the order dated 17.12.2013 on various grounds. The said application was allowed by an order dated 11.08.2014. By the said order, the learned Single Judge had set-aside the sale made in favour of the appellant herein on 17.12.2013 and ordered the return of the amount already paid by the appellant. The learned Single Judge also directed a fresh auction of the property in question. He also directed the first respondent to pay an amount of Rs.25 lakhs to the appellant herein.17. Aggrieved by the order dated 11.08.2014, the appellant carried the matter to the High Court in O.J. Appeal No.36 of 2014 which was dismissed by the Division Bench vide order dated 04.12.2014. The said order is the subject matter of SLP (Civil) No.2198 of 2015. The appellant also chose to prefer SLP (Civil) No.10148-10149 of 2015 against the order dated 17.04.2014 passed in O.J. Appeal No.9 of 2014 as modified vide order dated 22.04.2014 passed in Review Application (Misc. Civil Application No.90 of 2014).18. The order dated 17.04.2014 of the Division Bench of the High Court is passed in appeal (OJA No.9 of 2014) preferred by the first respondent against the order dated 31.03.2014 with leave of the Division Bench. The only ground on which the respondent challenged the order of the learned Single Judge granting extension of time in favour of the appellant herein for depositing the balance sale consideration was that the first respondent had been deprived of making a better offer. According to the first respondent, he believed that the appellant herein would faithfully comply with the tender conditions and the earlier order of the Court in terms of which the appellant was bound to deposit the entire sale consideration on or before 16.01.2014. If only the respondent had known that the time schedule for the payment of sale consideration is flexible even the respondent would have offered price higher than what had been offered (Rs.148 crores) by the appellant.19. The Division Bench without examining or recording any finding in regard to the tenability of the submissions made by the respondent chose to dispose of the matter with certain directions which are already extracted in the earlier part of this judgment. The reason given by the Division Bench for such an order is that the Division Bench has adopted such a course of action in view of an earlier decision of this Court in Shradhha Aromatics Private Limited v. Official Liquidator For Global Arya Industries Limited & Others, (2011) 6 SCC 207. 20. The Division Bench recorded the submission made by the first respondent that by order dated 17.12.2013, the Company Judge accepted only the offer of Rs.148 crores made by the appellant herein but no order of confirmation of sale was made. But the Division Bench did not record any finding whether such a submission was accepted or not. From the order, it appears that the Division Bench was greatly influenced by the fact that the first respondent was willing to enhance the bid to Rs.160 crores.21. From direction No.3 contained in the order, it is clear that the Division Bench did not adjudicate the rights of the respective parties. At the cost of repetition, we reproduce direction No.3 asIt goes without saying that we have not entered into the merits of the matter and the deposit of Rs.160 crores with Official Liquidator is without prejudice to the rights and contentions of the parties and we have adopted this only because of the view expressed by the Apex Court in the case of Shradhha Aromatics Private Limitedsupplied]A procedure which is not very desirable. It is inconsistent with the principle that the judicial process and adjudication demand certainty and finality.22. Pursuant to the abovementioned direction of the Division Bench, the learned Company Judge, on an application filed by the first respondent, by his order dated 11.08.2014, recalled the order dated 17.12.2013 and set aside the sale made in favour of the appellant. When the said order was challenged by the appellant herein before the Division Bench of the High Court, the same was dismissed by the impugned judgment.23. It is interesting to notice that the respondent in its application took various grounds (for setting aside the order dated 17.12.2013 of the Company Judge) other than the ground which the respondent pleaded in its earlier appeal OJA No.9 of 2014. This time the respondentThat there was a change in the share-holding pattern of the appellant company which amounted to the violation of condition no.31 of the tender notice which provided that the nomination would not be allowed by the successful bidder;2. That by virtue of a subsequent event the value of the land in question was likely to fetch a much higher price than the price at which the property was sold on 17.12.2013. The event being the revision of certain regulations (the Gujarat Town Planning and Urban Development Act, 1976) whereby the Floor Space Index (FSI) for construction applicable to the area in which the property in question is located had been increased from 1.0 to 1.8. In other words, in view of the revised regulations, it would be open to construct a much larger built up area on the property in question than what was permissible as on 17.12.2013.Two factors weighed heavily before the Company Judge for recalling the earlier Order dated 17.12.2013 by his Order dated 11.8.2014. They are: (i) by a notification dated 04.03.2014 of the Government of Gujarat, the FSI applicable to the area in which the land is located is increased from 1.0 to 1.8. As a consequence, the value of the property in question increased considerably, (ii) that during the pendency of the recall application, the first respondent herein, who had already deposited an amount of Rs. 160 crores as a condition precedent for filing the recall application, further enhanced his offer by another Rs. 40 crores, pursuant to the order of the Company Court dated 9.5.2014 and deposited the said amount, and it appears that the respondent agreed to further enhance the offer by another Rs.14 crores, making it a total of Rs. 214 crores.25. In view of the above-mentioned two facts, the High Court recorded the conclusion that the Companyorder dated 17.12.2013 (accepting the bid of the appellant herein of Rs. 148 crores) is vitiated (i) by an irregularity inasmuch as the Company Judge failed to take note of the potential value of the land and the possibility of its fetching a higher price than Rs. 148 crores, (ii) the bid of the appellant herein of Rs. 148 crores was an inadequate price to the property in question, (iii) because of the failure of the company court to discharge its obligation (as custodian of the properties of a company in consideration) to secure the best price possible, when the assets of the company in liquidation are sold, (iv) when the facts and circumstances indicate that the property in question is in fact capable of securing a much higher price, the sale of the property at a lesser price also resulted in an injury to the interest of various stakeholders who are entitled for the distribution of the proceeds of the sale of the assets of the company in liquidation.

Reasoning:
No doubt, the penultimate statement of the paragraph recognises the discretion of the Company Court either for accepting or refusing the highest bid at the auction, it also emphasizes the obligation of the Court to see that the price fixed at the auction is adequate price even though there is no irregularity or fraud in the conduct of the sale.But the fact remains that one of the secured creditors objected to the sale in favour of the appellant before this Court on the ground that the value of the property even on the date of the original sale was worth around Rs.6.25 crores as against the highest offer of Rs.1.3 crores of the appellant herein. Therefore, the decision of the Company Judge to reject the highest offer is perfectly justified.In our opinion, in the case on hand, the High Court was not justified in recalling the order dated 17.12.The highest bid of the appellant herein was accepted by the Company Court and all theof the company in liquidation were heard before such an acceptance. Nobody ever objected including the first respondent herein at that stage on any ground whatsoever, such as, that there was any fraud or irregularity in the sale nor was there any objection from any one of them that the price offered by the appellant herein was inadequate. No doubt, the property in question became more valuable in view of the subsequent development. In our opinion, it is not a relevant consideration in determining the legality of the order dated 17.12.2013. Imagine, if instead of increasing the floor space index for construction from 1.0 to 1.8 the State of Gujarat had decided to reduce it below 1.0 subsequent to 17.12.2013, could the appellant be heard to argue that it would be legally justified in resiling from its earlier offer which was accepted by the Court and not bound by the contractual obligation flowing from such an offer andour opinion, the said submission is to be rejected because there is no specific format in which a sale conducted by the official liquidator is to be confirmed by the Company Court. The mere absence of the expressionthe sale isin the order dated 17.12.2013 is not determinative of theThe other submission made before the Division Bench of the High Court and before us by the first respondent that there was a change in thepattern of the appellant company subsequent to the order dated 17.12.2013 and that such a change would virtually amount to a nomination by the successful bidder in favour a of third party contrary to the conditions of the tender notice, in our opinion, does not deserve any consideration. This was not the ground on which the first respondent initially sought recall of the order dated 17.12.2013. Such a recall was sought only on one ground, the details for which are already noted earlier in this judgment. The first respondent kept on adding new grounds from stage to stage for attacking the order dated 17.12.2013. The conduct of the first respondent is understandable. The value of the property in question must have escalated substantially in view of the developments subsequent to the order dated 17.12.2013 but allowing such an attempt, in our opinion, would rob the sales conducted by the Courts of all sanctity.