Case: Kayjay Industries (P) Ltd Vs. Asnew Drums (P) Ltd. &amp; Ors

2. The Maharashtra State Finance Corporation (for short "the Corporation") plays the role of decree-holder in the present case. It had lent a sum of Rs. 10 lakhs to the first respondent, which is a drum manufacturing private limited company, in May 1961 on the security by way of mortgage of its land, factory buildings plant and machinery situate at Kalwa, District Thana. Respondents 2 and 3 had guaranteed the repayment of the said loan. It is also seen from the facts that in or about 1964 the Dena Bank, now a nationalised institution but not a party to these proceedings, had also advanced to the first respondent a sum of Rs. 20 lakhs presumably on the security of its plant and machinery and raw material stocks, although this aspect is not quite clear from the record and is not perhaps very relevant for the, disposal of this appeal. We would only like to make it clear that the rights and remedies of the said Bank, whatever they are against the appellant or the other respondents, are not dealt with in this appeal.3. The first respondent which had taken the loan for an industrial purpose defaulted in making repayment and so a notice was issued to it by the fourth respondent, the Corporation, under Section 30 of the State Financial Corporation Act, 1951 (hereinafter referred to as the Act) demanding prompt discharge of the liability under the mortgage and indicating that in default of payment legal proceedings under Section 31 of the Act to realise the dues would be undertaken. No fruitful response was forthcoming and the Corporation, therefore, made an application, Miscellaneous Application No. 75 of 1965, in the District Court against respondents 1, 2 and 3 under Section 31 of the Act, seeking to levy by attachment and sale of the properties covered by the mortgage, the amounts due to it. The total amount recoverable was stated to be a little over Rs. 16 lakhs, but we are not concerned with the figure as it is not in dispute before us.4. In June 1966 the Corporation moved the Court for the appointment of a receiver to take charge of the properties which had been by then attached and to sell them by Court auction. A receiver was duly appointed, who entered on his duties and took steps for conducting the sale. A proclamation of sale was settled after notice to the parties, on December 5, 1967, and the sale was fixed to take place on January 8, 1968. However, the sale did not take place that day and the happenings thereafter culminating in the sale on September 3, 1969 wherein the present appellant was the highest bidder, and consequent purchases, are the subject-matter of the present appeal.

Court's reasoning:
Indeed, in the present case, the executing Court had admittedly declined to affirm the highest bids made on 16-5-1969, June 5, 1969 and August 28, 1969, its anxiety to secure a better price being the main reason. If Court sales are too frequently adjourned with a view to obtaining a still higher price it may prove a self-defeating exercise, for industrialists will lose faith in the actual sale taking place and may not care to travel up to the place of auction being uncertain that the sale would at all go through. The judgment-debtors plea for postponement in the expectation of a higher price in the future may strain the credibility of the Court sale itself and may yield diminishing returns as was proved in this very case.8. A material circumstance which weakens the first respondents case is that on both the dates-August 28 and September 3-Shri B. Paul, director of the judgment-debtor company was present at the auction and never voiced any grievance about the conduct of the sale or asked for its postponement on the ground that better price may be obtained on a later date. Equally significant is the fact sworn to by the authorised officer of the Corporation that the valuation of the total assets was around Rs. 15 lakhs when the application was made by the petitioner Corporation for sale of the assets under Section 31 of the State Financial Corporation Act and that the said estimate was given on the basis of the information supplied by the applicants at the time of the disbursal of the loan. The Dena Bank, the second charge holder with considerable stakes in the sale, was present on the August and September auctions through a senior representative and did not think it necessary to raise any objection regarding the conduct of the sale or the price tendered. Nor do the proceedings disclose an unfair undervalue on account of the absence of effective bidders or inertness of the Judge. On both occasions there were about 30 or 40 bidders. The judgment-debtor, the second charge-holder, the Indian Oil Corporation, and other leading industrial concerns interested in the drum industry were represented. All the bidders on the 28th August were told of the next auction date and most of them participated passively or actively in the September sale. On both the sale dates the judges (they were different on the two days) were keen on maximising the price. A total of Rupees 11,10,000/- was the highest bid in late August and in early September the best offer for lot No. 2 sagged from Rupees 5,40,000/- to Rs. 5,00,000/-.This downward trend could have persisted if further postponements of sale had taken place and the judge did his best to boost the total price to Rs. 11.5 lakhs and finalised it, taking no chances by adjourning the auction. The trend of to-day may be the silhouette of tomorrow and the reduced offer for lot No. 2 this time may well infect lot No. 1 next time. The Court did a good job taking a conspectus of the circumstances and avoiding the ominous maybes of future auctions. Such are the broad facts to which the law must be applied. Section 32 (8) of the Act attracts the Code of Civil Procedure, as far as practicable, in the realisation of the dues of the Corporation, and so it may be right to apply the provisions of O. XXI, Ruleit by a receiver, commissioner, liquidator or Court this principle must govern. This proposition has been propounded in many rulings cited before us and summed up by the High Courts. The expressions material irregularity in the conduct of the sale must be benignantly construed to cover the climax act of the Court accepting the highest bid. Indeed, under the Civil Procedure Code, it is the Court which conducts the sale its duty to apply its mind to the material actors bearing its mind to the material factors bearing on the reasonableness of the price offered is part of the process of obtaining a proper price in the course of the sale. Therefore, failure to apply its mind to this aspect of the conduct of the sale may amount to material irregularity Mere, substantial injury without material irregularity is not enough even as material irregularity not linked directly to inadequacy of the price is insufficient. 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. But it is not as if the Court should go on adjourning the sale till a good price is got, it being a notorious fact that Court sales and market prices are distant neighbours. Otherwise, decree-holders can never get the property of the debtor sold. Nor is it right to judge the unfairness of the price by hindsight wisdom. May be, subsequent events, not within the ken of the executing Court when holding the sale, may prove that had the sale been adjourned a better price could have been had. What is expected of the Judge is not to be a 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. The Court may consider the fair value of the property, the general economic trends, the large sum required to be produced by the bidder, the formation of a syndicate, the futility of postponements and the possibility of litigation, and several other factors dependent on the facts of each case. Once that is done, the matter ends there. No speaking order is called for and no meticulous post mortem is proper. If the Court has fairly, even if silently, applied its mind to the relevant considerations before it while accepting the final bid, no probe in retrospect is permissible. Otherwise, a new threat to certainty of Court sales will be introduced.10. So viewed we are satisfied that the district Court had exercised a conscientious and lively discretion in concluding the sale at Rs. 11.5 lakhs. If the market value was over 17 lakhs, it is unfortunate that a lesser price was fetched. Mere inadequacy of price cannot demolish every Court sale. Here, the Court tried its best, time after time, to raise the price. Well-known industrialists in the public and private sectors knew about it and turned up. Offers reached a stationary off indefinitely in recovering its dues on baseless expectations and distant, prospects. The judgment-debtor himself, by his litigious exercises, would have contributed to the possible buyers being afraid of hurdles ahead. After all, producing around Rs. 11.4 lakhs openly to buy an industry is not easy even for apparently affluent businessmen. The sale proceedings had been pending too long and the first respondent could not, even when given the opportunity, produce buyers by private negotiation. Not even a valuers report was produced by him. We are satisfied that the District Judge had committed no material irregularity in the conduct of the sale in accepting the highest offer of the appellant on September 3, 1969.11. Shri Parekh has levelled a number of criticisms of the Court sale which we regret are more captious than substantial, more factitious than genuine. Complaining about the rains in Bombay that day i.e. September 3, dissecting the Corona Electricals valuation for minor omission and errors, holding up the exaggerated figure of about Rs. 38 lakhs as the market value of the property and other like circumstances can hardly convince anyone that the hoped-for happy day would arrive when a handsome price would be forthcoming if the auction were adjourned ad labitum at the instance of the judgment debtor. Prima facia it may look a little odd that a financial organisation in the public sector, which a special responsibility to the people not to play with public funds or advance for shady enterprises or persons should have readily lent a huge amount of Rs. 10 lakhs on a valuation obviously bloated as is established by the sequel, and struggled for long years to recoup the money. This aspect of the matter, we hope, will receive the anxious attention of the concerned authorities so that public money may be handled by pubic servants with public responsibility and concern for public benefit. However, we do not wish to express any opinion because we have no material before us as to what were the circumstances in which Den Bank advanced the loan, what were the other securities given by the Company, and what was the then worth of the guarantors.12. Several other unsuccessful grounds were urged before the High Court by theand we need not go over those grounds again as they possess little merit. Nor need we consider the ambit of appellate power to review discretion exercised by the trial Court (vide Wardv. James), (1966) 1 QB 273 at p.293 since here we are concerned with no appeal against the approval of the sale by the executing Court but with an order refusing to set aside the sale under Order XXI, Rule 90, and an appeal therefrom.