Case: M/s. Navalkha and Sons Vs. Ramanuja Das &amp; Others

2. In the winding up proceedings of Hyderabad Vegetable Products Company, Limited (in liquidation) the 5th respondent (Official Liquidator) sought permission of the Court, for the sale of immovable and movable properties and actionable claims of the company. This application was Company Application No. 67 of 1963. A shareholder of the Company one Sirajuddin Babu Khan also made an application Company Application No. 93 of 1964 to a similar effect. On these applications an order was passed by Jaganmohan Reddi, J., on 17th April, 1964, appointing respondents 2, 3 and 4 as Joint Commissioners for the purpose of selling immovable and movable properties and actionable claims of the aforesaid company in accordance with the terms and conditions mentioned in the order. Accordingly a sale proclamation was drawn and issued on 1st August, 1964 by the respondents 2 to 4 inviting offers for the purchase of movable and immovable properties and actionable claims of the company as a single unit. According to the terms and conditions of sale the Commissioners were not bound to accept the highest offer and were at liberty to reject any offer without assigning any reason. Immediately after the offer was accepted by the Commissioners the offerer had to deposit 15 per cent. of the offer amount as initial deposit and the balance of the amount together with the amount required forstamp paper within 15 days from the date of acceptance. Acceptance of the offer by the Commissioners was subject to the condition of confirmation by the High Court and the offerer was entitled to take delivery of possession of the properties only after such confirmation. It was made abundantly clear in clause 16 that in all matters relating to the sale of the properties the decision of the Commissioners shall be final and shall be binding subject to the Control of the High Court. One of the conditions also was that the proclamation of sale was to be advertised twice in each of the five leading dailies, The Statesman, The Times of India, The Hindu, Indian Express and the Hindustan Times to ensure wide publicity and the Commissioners were also required to get the proclamation printed and distributed among the likely purchasers. The Commissioners got published the proclamation in four leading dailies only The Hindu, Indian Express, The Statesman and The Hindustan Times. No publication was made in The Times of India nor was the advertisement made twice in all of the said newspapers. In two of them there were two insertions but in the remaining papers there was only one insertion. In addition to the advertisement the Commissioners got printed 300 copies and posted them to various industrial concerns. The last date fixed for the receipt of the offers was 8th September, 1964. Not even a single offer was received by that time. The time for receipt of offers was extended by the Court to the end of November, 1964 at the instance of the Commissioners. The appellant Navalkha and Sons happened to be the sole offerer. It has offered a sum of Rs. 7,91,001 which was made of Rs. 2,50,000 for the immovable property and Rs. 5,41,001 for the machinery. It made no offer for the actionable claims. The appellant made deposit of Rs. 50,000 in the shape of demand draft drawn on the State Bank of Hyderabad. The offer was accepted by the Commissioners on 2nd December, 1964. The appellant was called upon to deposit 15 per cent. of the amount of the offer as initial deposit immediately and the balance together with the amount required forstamp paper within 15 days from the date of acceptance. The appellant did make the initial deposit. The Commissioners then made an application on 3rd December, 1964, to the High Court for confirmation of the sale. On 11th December, 1964, the High Court extended time for payment of the balance amount for two weeks. On 24th December, 1964, one Gopaldas Darak made an offer of Rs. 8,50,000 saying that he could not offer in time because he came to know of the sale only two days prior to that date and it was due to the fact that there was no adequate publicity. To show his bona fides he gave a demand draft for a sum of Rs. 1,00,015. The learned Judge decided that the property did not fetch its proper price and there was possibility of higher bids. Instead of directing a fresh auction or calling for fresh offers the learned Judge thought it proper to arrange an open bid in the Court itself on that very day, as between the appellant and Gopaldas Darak. Before starting the bid the learned Judge gave time to the appellant to think over and say whether it was willing to accept the course decided upon and to participate in the auction bids. The appellant consented and volunteered to take part in the bid and became the highest bidder at Rs. 8,82,009. The learned Judge accepted the said bid as final bid and concluded the sale in favour of the appellant directing it to pay the balance of the money together with the amount required forstamp on or before 31st January, 1965 making it clear that in case of default the deposit already made would be forfeited. The appellant paid the balance of the amount on 30th January, 1965. On the same day one Padam Chand Agarwal made an application (Company Application No. 44 of 1965) offering Rs. 10,00,000. He complained that publicity of the sale of the property was not adequately made and he came to know of the advertisement very late. He was prepared to enhance the offer to Rs. 10,00,000 and was also willing to participate in open bid if the Court so decided with Rs. 10,00,000 as initial bid. The learned Judge rejected his request and by his order, dated 19th February, 1965, held that the sale should be confirmed in favour of the appellant. Aggrieved by this Order Padam Chand Agarwal filed Appeal No. 4 of 1965. One Ramanuja Das, a contributory also chose to prefer an appeal (Appeal No. 3 of 1965) against the order of confirmation. According to him, the publicity given was inadequate and the first offer given by the appellant was too low and the Court has rightly refused to confirm the acceptance of the offer. His grievance was that the learned Judge should have held the auction only after due publicity but has not done so and the course followed did not achieve the object of getting adequate price of the property.Both appeals 3 and 4 are, therefore, directed against the confirmation of the auction sale held in Court on 24th December, 1964. These appeals were allowed by Letters Patent Bench consisting of the Chief Justice and Kumarayya, J., and the order of the learned single Judge, dated 19th February, 1965 read with his previous order, dated 24th December, 1965 was set aside. It was directed that the learned Judge should take fresh steps for the sale of the property either by calling sealed tenders or by auction in accordance with law. The tenders would be called or the auction would take place with the requisite condition of minimum offer or starting bid of Rs. 10,00,000.

Court's reasoning:
We are unable to accept this argument as correct.In the present case the Division Bench has come to the conclusion that publicity was not as wide as originally proposed by the Commissioners in their affidavit. The publication was made in four dailies namely The Hindu, Indian Express, Hindustan Thus and The Statesman. There was no publication in the Times of India. Further out of the four newspapers in which publication was made only in. two there were two insertions and in the remaining two there was only one insertion. This was contrary to what the Commissioners have promised in their affidavit, dated. 8th July, 1964. No doubt, other efforts were made for giving publicity but these efforts were not sufficient to attract more than one offer. When the case came for confirmation on 24th December, 1964, there was an application by Babu Khan that the property was of much higher value and that fresh offers must be invited again with wider publicity. There is also the affidavit of the State Government, dated. 29th August, 1963. in which the value of the property was shown as Rs. 13,40,000. Besides, on that very day, one Gopaldas Darak had come before the Court with a higher offer showing his bona fides and earnestness by depositing more than one lakh of rupees. He came with the complaint that there was not sufficient publicity as to attract people from the north and that as soon as he came to know he gave his offer. In these circumstances the learned single Judge was right in expressing his reluctance to confirm the offer of Navalkha & Sons. He therefore decided to have an open bid as between the appellant and Darak in the Court itself on that very day. The complaint of Padam Chand Agarwal is that the second step taken by the Single Judge of holding an auction without giving wide publicity was not justified in law. Rule 273 of the Companies (Court) Rules provides that all sales shall be made by public auction or by inviting sealed tenders or in such manner as the Judge may direct. It appears that on 17th April, 1964, at the instance of the Official Liquidator and at the instance of a contributory the Court had approved of the terms and conditions of sale which provided for calling of sealed tenders. On 24th December, 1964. the learned Judge realised the inefficacy of this course and decided to abandon the original procedure and put the properties to auction. But having made up his mind to resort to auction the learned Judge confined the auction to only two persons namely the previous tenderer and the fresh tenderer. The auction in question no doubt was conducted in a public place but it was not a public auction because it was not open to the general public but was confined to two named persons. Secondly it was not not held after due publicity. It was held immediately after it was decided upon. It is, therefore, obvious that the sale in question was not a public sale which implies sale after giving notice to the public wherein every member of the public is at liberty to participate. No doubt, the device resorted to considerably raised the previous bid yet it was not an adequate price having regard to the market value of the property to which reference has already been made. The denial of opportunity to purchase the property by persons who would have taken part in the auction bid but for want of notice is a serious matter. In our opinion the learned Judge having decided on 24th December, 1964, that the property should be put to auction should have directed auction by public sale instead of confining it to two persons alone. Since there was want of publicity and there was lack of opportunity to the public to take part in the auction the acceptance of the highest bid by the learned Judge was not a sound exercise of discretion. It is contended on behalf of the appellant that confirmation was discretionary with the Court and the Division Bench ought not to have interfered with the discretion exercised by the Company Judge. It is true that the discretion exercised by the Judge ought not to be interefered with unless the Judge has gone wrong on principle. As already pointed out the learned Company Judge having decided to put the property to auction went wrong in not holding the action as a public auction after due publicity and this has resulted in prejudice to the company and the creditors in that the auction did not fetch adequate price. The prejudice was inherent in the method adopted. The petition of Padam Chand Agarwal also suggested that want of publicity had resulted in prejudice. It these circumstances the Company Judge ought not to have confirmed the bid of the appellant in the auction held on 24th December, 1964. We are accordingly of opinion that the Division Bench was right in holding that the order of the Company Judge, dated 19th February, 1965, should be set aside and there should be fresh sale of the property either by calling sealed tenders or by auction in accordance with law. The tender will be called or the auction will take place with the minimum offer or with the starting bid of ten lakh rupees.