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

4. The facts of the case are that Hindustan Nitro Product (Gujarat) Ltd. was put under liquidation, and an official liquidator was appointed for it. The assets of the company were proposed to be auctioned, and hence the Court asked the official liquidator to obtain a valuation report. The official liquidator after obtaining the valuation report submitted it to the Court. The valuation of these assets, according to the official liquidator, was Rs.2.55 crores. The property was then put up for auction on 25.3.2003 after advertising it in various well-known newspapers having wide circulation, including `The Economic Times which is a well known newspaper having wide circulation in the business community.5. Several bids were received and were opened in the Court. The highest bid was that of the appellant M/s. Valji Khimji & Company amounting to Rs. 3.51 crores. With the consent of the learned advocates representing the secured creditors, the said bid was accepted and the sale was confirmed on 30.7.2003. The Court directed the appellant to deposit 25% of the purchase price i.e. Rs.63,98,000/- within 30 days from the said day and to deposit the balance amount within the next three months. The Court also directed that the amount may be deposited in installments, but no installment should be less than Rs.5 lakhs. These conditions were complied with by the appellant.6. Although the sale was confirmed in favour of the appellant on 30.7.2003, a letter dated 22.10.2003 was sent to the official liquidator by one M/s. Manibhadra Sales Corporation (respondent No. 8 herein) offering to buy the assets in question for Rs.3.75 crores (though this offer was admittedly withdrawn later on).7. Subsequently in August 2004, M/s. Castwell Alloys Limited (respondent No. 9 herein) made an offer of Rs.5 crores for the said assets. This offer was made more than one year after the confirmation of the sale in favour of the appellant.8. Both M/s. Manibhadra Sales Corporation and M/s. Castwell Alloys Limited filed applications praying for recall of the order dated 30.7.2003 by which the sale was confirmed in favour of the appellant. On 10.9.2004, the learned Company Judge took up both these applications and passed an order dated 10.9.2004 recalling the order dated 30.7.2003 by which the sale was confirmed.9. Aggrieved against the said order dated 10.9.2004 the appellant filed an appeal before the Division Bench of the High Court which was dismissed by the impugned judgment dated 25.8.2005 and 26.8.2005. Aggrieved, this appeal has been filed before us by way of Special Leave.

Reasoning: 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