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

2. The short facts leading to this appeal are asMadhavnagar Cotton Mills Ltd., of Sangli is in liquidation and with respect to which winding up order has been passed in the above referred Company Petition No.412 of 1985 in January 1977. The assets of the company are in possession of the Official Liquidator since March 1997. Thereafter on the Liquidator making a report dated 19th February 2002, the learned Company Judge at that time (Deshmukh J.) by his order dated 14th March 2003 directed the Official Liquidator to call for the prevailing rates of the property from theSangli. This was for the purpose of effecting sale of the properties of the said mill company, which were situated within the jurisdiction of theSangli.3. Thereafter, on the liquidator making another report dated 22.7.2003, the then Company Judge (Radhakrishnan J.) held the auction concerning the properties of the company in Court onThe bids of respondent no.2 came to be accepted with respect to two parcels of property i.e (a) Lot No. IV,No.3) comprising of land bearing Survey No.203/4 consisting of 65340 sq. feet and (b) Lot No. IV (Sub Lot No.5) comprising of land bearing R.S.No.197 to 202(1) consisting of 937629 sq. feet. The bid of Respondent No.3 came to be accepted with respect to Lot No. III, which comprises of the Managers Bungalow situated at Guruwar Peth, Madhavnagar having an area of 4000 sq. feet. These respondents were the highest bidders and the prices at which these three bids were accepted were asThe Appellant herein sought review of that order by filing Company Application No.386 of 2003, which was filed on 30th August 2003. In the review application it was contended that the auction had come to be finalized on the basis of the valuation which was obtained by the Liquidator on his own and that the valuation reports of the immoveable properties were not according to the value mentioned in the ready reckoner of the Government of Maharashtra which is available with the(i.e. over Rs.2.93 Crores). It was therefore submitted that the reauction was desirable in the interest of the secured Creditor and workers.5. During the course of hearing of this review application, the learned Judge (Radhakrishnan J.) by his17.9.2003 directed theKunwad, District Sangli to submit a report. The learned Judge took that report on record. It was then noticed that as per that report as far as Lot No. III (Managers Bungalow) is concerned, the valuation was shown at Rs.8,64,000/Lot No. IV3) was valued at Rs.29,96,000/ot No. IV5) it was valued at Rs.The learned Judge thereupon noted that the bids offered by the successful bidders and which were accepted by him earlier were somewhat comparable. Thus, for the Managers Bungalow as against Rs.8,64,000/the bid accepted wasot No. IV(Sub lot no.3), instead of Rs.29,96,000/it was accepted at Rs.31,00,000/ot No. IV(Sub lot No.5) instead of Rs.2,35,27,000/the bid was accepted at Rs.2.31 crores. The learned Judge noted that the Appellant Bank offered to pay better amounts as recorded by the learned Judge in his order. He, however, held that the price at which the bids had been confirmed could not be said to be grossly inadequate as according to him there was a difference of only 5% to 10% more than that of the highest offers accepted by him. In paragraph 12 of the order the learned Judge accepted that the Court could review its order, however in the absence of irregularity of fraud, the same could not be done. That apart, the learned Judge was of the view that there had be to be certainty in these matters. He held that the application made by the Bank could not be said to be bonafide. He, therefore, dismissed the application by the impugned order. The property concerned had not changed hands in the meanwhile. The Appellant Bank prayed for stay of the order and the learned Judge stayed his order for the period of four weeks and directed the Liquidator not to hand over possession of the respective properties. It is this order which is under challenge in this appeal.

Reasoning: 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.