http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 3  

PETITIONER: SHRI NARENDRAKUMAR NAKHAT

       Vs.

RESPONDENT: M/S NANDI HASBI TEXTILE MILLS & ORS.

DATE OF JUDGMENT:       27/02/1998

BENCH: G.T. NANAVATI, SYED SHAH MOHAMMED QUADRI

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T NANAVATI, J.      Leave granted.  Heard  learned  counsel  for  both  the parties.      The appellant is challenging in these appeals the order dated  8.10.96   passed  by  the    High  Court  in  Company Application No,  542/96 made  in Company  Petition No, 25/85 and  also   the  order   dated  21.2.97  passed  in  Company Application No.826/96.  The appellant in Company Application No.542/96 had  prayed for  refund of  Rs.5 lakhs  (being the earnest money deposit) and Rs.59 lakhs (being 25% of the bid amount/ sale  consideration) along  with accrued interest on the ground  that his  bid having  been cancelled by the High Court, he  was entitled  to get back those amounts. The High court directed the official Liquidator to refund Rs.50 lakhs and with  respect to  the  remaining  amount  rejected  that application on 8.10.96. The Syndicate Bank had filed Company Application No,  743/96 with  a prayer to award compensation to it  and not  to refund the said amounts till then. It was also rejected  on the  same day. The bank has not challenged that order probably because the whole amount was not ordered to be  refunded. The  appellant then filed a review petition (Company Application  No.826/96)  but  it  was  rejected  on 21.2.97.      The High  Court   rejected the  claim for refund of the earnest money  on the  ground that  at that stage it was not proper to  grant it was not proper to grant it as that might affect the  right of the official Liquidator to forfeit that amount in  case it is held that he has suffered some loss as a result  of the  conduct of  the appellant.  As regards the claim of  the Syndicate  Bank for  damages  the  High  Court merely stated  that "in  view of  the order  made in Company Application No.  542  of  1996,  this  application  stand  r ejected." In  the order passed on Company Application No.542 of 1996  there is  no discussion  regarding the Bank’s claim for damages or regarding the claim of damages by the General Body of  Liquidators on  account  of  the  dilatory  tactics adopted by the appellant in the proceedings for confirmation of sale.  The only  observation made  in that  order is "the question whether  the amounts due by the applicant by reason

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 3  

of non-performance of his part of the contract in any manner arises and the damages payable by him could be appropriately adjudicated at a later stage."      Mr. R.F.Nariman,  learned senior  counsel appearing for the appellant submitted that the bid of the appellant having been cancelled,  he became  entitled to  refund of the whole amount and  the High  Court committed  a grave  error in not passing an  order  for  refunding  the  same.  He  drew  our attention to  the following  observations made  by the  High Court itself in this behalf :      "As  long  as  the  transaction  is      inchoate  or   incomplete  for  any      reason and  the acceptance  of  the      bid is  cancelled, the  parties are      relegated tot  he original position      even though the cancellation of the      acceptance of  the bid  may  be  on      account  of   the  conduct  of  the      bidder himself.  By virtue  of  the      cancellation of  the acceptance  of      the bid,  the  offer  made  by  the      bidder is  not accepted. It is only      on acceptance  of the offer made by      the  bidder,  other  clauses  would      stand attracted.  This is a case wh      ere  the   sale  proceedings   were      cancelled on account of the conduct      of the  parties in not doing one or      the other  acts provided  under the      terms of  sale. The  act attributed      to the  applicant is  that  he  had      adopted the  stance of  filibusters      by indulging in dilatory tactics in      postponing  the   proceedings   for      confirmation of  sale. If the Court      had confirmed the sale, other terms      and conditions in the offer of sale      would   have arisen. In the absence      of such an event of confirmation of      the sale,  the only  conclusion  we      have to  draw is that the applicant      is entitled to the entire refund of      the money."      He also  submitted that  the Division Bench of the High Court while disposing of the said application proceeded on a wrong assumption  that the order dated 12.4.96 passed by the learned Single  Judge of that High Court was the final order as can be seen from the following observations made by it:      "The learned  Company Judge made an      order on  12.4.1996 and  that order      has  not   been  challenged  in  an      appeal.  Therefore,  the  applicant      cannot now  seek for  refund of the      entire  amount,  but  only  to  the      extent  indicated  by  the  learned      Company Judge."      Having gone  through the  order dated  12.4.96 we  find that it was an interim order and the application was ordered to be  listed again  on 15.4.96.  On that  day  the  learned Single Judge  had passed  an order for keeping that order in abeyance and  directing the  secured creditors to file their objections.  Thereafter   for  certain   reasons  the   same application was placed before a Division Bench for passing a final order thereon. Therefore, there was no question of the appellant challenging  that order  by way  of an appeal. The

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 3  

High Court was, therefore, obviously wrong in observing that the appellant  "cannot now  seek for  refund of  the  entire amount but  only to  the extent  indicated  by  the  learned Company Judge."  We also find that the final order passed by the  High  Court  is  not  quite  consistent  with  its  own observations quoted  above. As  observed by  us earlier  the High Court  has not  stated why the balance amount minus the earnest  money   deposit  should  not  be  refunded  to  the appellant. The  bank’s application for awarding compensation was rejected.  Probably it was premature in view of the fact that the  appellant’s application  for refund of the balance amount was already rejected. Even if we proceed on the basis that the  appellant had  indulged in dilatory tactics during the proceedings  for confirmation  of sale  and had  thereby wasted almost  one year  it cannot be said with certainly at this stage  that he  will be  liable to pay compensation for the alleged  loss caused  to the  General Body of Creditors. The bank  is a secured creditor and there is nothing to show that it  had made  the application  for and on behalf of the General Body  of Creditors. Their entitlement to damages and the extent  of loss  suffered by them, even if they are held entitled to  claim damages  on that  count,  is  yet  to  be decided.  In   such  circumstances,  the  court  having  not confirmed the  sale and  cancelled the bid of the appellant, ought not to have rejected the claim of the appellant except in respect  of the  earnest money deposit of Rs.5 lakhs. The High Court  was, therefore,  not right in holding the refund of the  remaining  amount  of  Rs.9  lakhs  along  with  the interest accrued  thereon at  the instance  of the Syndicate Bank. If  the bank  is of  the view that it has suffered any loss as a result of wrongful act of the appellant it will be open to  it to  adopt an  appropriate  remedy  for  claiming damages. Keeping  that right  of the bank open we allow this appeal partly.  That part  of the  order of  the High  Court whereby the appellant’s application for refund of Rs.9 lakhs being the  balance amount  out of  the total deposit of Rs.9 lakhs was  rejected  is  set  aside  and  we  allow  Company Application No.542 of 1996 to that extent. There shall be no order as to costs.