Valji Khimji & Co vs O.L. Of Hindustan Nitroproduct Ltd.& ...

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 3 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 4 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.

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.

19. Hence, we cannot agree with the views of the Courts below that any fraud took place in the auction sale.

31. If it is held that every confirmed sale can be set aside the result would be that no auction sale will ever 17 be complete because always somebody can come after the auction or its confirmation offering a higher amount.

34. In the present case we are satisfied that there is no fraud in the auction sale. It may be mentioned that auctions are of two types - (1) where the auction is not 19 subject to subsequent confirmation and (2) where the auction is subject to subsequent confirmation by some authority after the auction is held.

35. 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.

37. In view of the above, we allow this appeal and set aside the impugned judgments and orders of the learned Single Judge as well as the Division Bench dated 25.8.2005 and 26.8.2005. The confirmation of the auction sale dated 30.7.2003 in favour of the appellant stands upheld. There shall be no order as to costs.

12th August, 2008