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PETITIONER: NAVALKHA & SONS

       Vs.

RESPONDENT: SRI RAMANYA DAS & ORS.

DATE OF JUDGMENT: 27/10/1969

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. DUA, I.D.

CITATION:  1970 AIR 2037            1970 SCR  (3)   1  1969 SCC  (3) 537  CITATOR INFO :  F          1974 SC1331  (9)  R          1984 SC1471  (42)

ACT: Companies (Court) Rules, 1959, r. 273-Sale of properties  of company  in liquidation-Principles to be followed  by  Judge exercising discretion.

HEADNOTE: In  the winding up proceedings of a company in  liquidation, the official liquidator and a share-holder sought permission of  the  High Court for the sale of  immovable  and  movable properties  and  actionable  claims  of  the  company.   The company  Judge  appointed  commissioners  for  the  sale  in accordance  with the terms and conditions mentioned  in  his order.   One of the conditions was that the proclamation  of sale  was to be advertised twice in each of 5 leading  daily newspapers.    The   commissioners  had   the   proclamation published  in only 4 dailies and it was only in two of  them that  there  were  two insertions.   No  offer  having  been received,  the  time fixed was extended when  the  appellant made  his  offer  as the sole  offeror.   The  commissioners applied  to the Judge for confirmation of sale,  but  before the  sale in favour of the appellant was  confirmed  another person made an offer of a larger amount complaining that  he could  not make the offer earlier as there was  no  adequate publicity.  The Judge thereupon arranged an open bid in  the Court itself on that very day, as between the appellant  and the  now offeror.  The appellant became the  highest  bidder and the appellant was directed to pay the balance of  amount by  a  particular date, but again, before the  sale  in  his favour   could  be  confirmed,  a  third  person   made   an application  offering a still large amount,  complaining  of the  want  of adequate publicity and  advertisement  of  the sale.  The.Judge rejected the application and confirmed  the sale  in  favour of the appellant.  In appeal,  the  Letters Patent  Bench  set aside the order of the single  Judge  and directed  that  he should take fresh steps for sale  of  the property either by calling for sealed tenders or by  auction in accordance with law. In appeal to this Court,

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HELD  : When the acceptance of an offer by the  commissioner is  subject to confirmation by the court,  the,offeror  does not by mere acceptance get any vested right in the  property and  be cannot demand automatic confirmation of  his  offer. It  is the duty of the court to satisfy itself  that  having regard to the market value of the property the price offered is  reasonable,  even  though  there  is  no  suggestion  of irregularity  or fraud.  Otherwise, the act of  confirmation of  the  sale  would not be a proper  exercise  of  judicial discretion.  But once the court comes to the conclusion that the  price offered is adequate, no subsequent  higher  offer can  constitute a valid around for refusing confirmation  of the sale or offer already received. [5 b-F; 6 A-B] In  the  present  case, the publicity was  not  as  wide  as originally  proposed. Therefore, the single Judge was  right in refusing to confirm the first offer of the appellant, and holding  an auction.         But he erred in  confining  the auction  to  two  persons only.  The auction  was  no  doubt conducted  in  a  public place but it was not  open  to  the general public, 2 nor  was it held after due publicity.  Therefore,  the  sale was  not a public sale, which implies, a sale  after  giving notice  to  the  public  with  liberty  to  the  public   to participate.  Rule 273 of the Companies (Court) Rules,  pro- vides that all sales shall be made by public auction, or  by inviting sealed tenders, or in such manner as the Judge  may direct.   Since  there was want of publicity and  there  was lack  of  opportunity  to the public to  take  part  in  the auction,  and  there was inherent prejudice  in  the  method adopted by the Judge, the acceptance of the appellant’s  bid by the Judge was not a sound exercise of discretion and  the Division Bench was right in directing a fresh sale. [6  B-C; 7 A-B, C-D, F] Gordhan Das Chuni Lal v. T. Sriman Kanthimathinatha  Pillai, A.I.R.  1921  Mad.  286,  Rathnaswami  Pillai  v.  Sadapathi Pillai, A.I.R. 1925 Mad. 318, S. Soundarajan v. M/s.  Roshan JUDGMENT: Sundararajan, A.I.R. 1951 Mad. 986, referred to.

& CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos  1085  and 1086 of 1967. Appeals  from  the judgment and decree dated  September  24, 1965 of the Andhra Pradesh High Court in O.S.A. Nos. 3,  and 4 of 1965. V.S.  Desai and P. C. Bhartari, for the appellants (in  both the appeals). P.Ram Reddy and A. V. V. Nair, for respondent No.5 (in  C.A. No. 1085 of 1967) and respondent No. 5 (in C.A. No. 1086  of 1967). R.   V.  Pillai, for respondent No. 6 (in C.A. No.  1085  of 1967) and respondent No. 5 (in C.A. No. 1086 of 1967). The Judgment of the Court was delivered by Ramaswami, J. These appeals are brought by certificate  from the  judgment  of  the  Andhra  Pradesh  High  Court   dated September 24, 1965 in O.S.A. Nos. 3 and 4 of 1965. In  the winding up proceedings of Hyderabad  Vegetable  Pro- ducts   Co.,  Ltd.  (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

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one  Sirajuddin Babu Khan also made an application C.A.  No. 93  of 1964 to a similar effect.  On these  applications  an order was passed by Jagan Mohan Reddy J., on April 17,  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 August 1. 1964 was drawn and issued  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 3 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 offeror  had to deposit 15% of the offer amount  as  initial deposit  and  the balance of the amount  together  with  the amount  required on non-judicial stamp 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 offeror was  entitled  to  take delivery  of  possession of the properties only  after  such confirmation.   It was made abundantly clear in cl. 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 any 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 September 8, 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 & Sons  happened to  be  the  sole  offeror.  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 December 2, 1964.  The appellant was called upon  to deposit 15 % of the amount of the offer as  initial deposit  immediately  and  the ’balance  together  with  the amount required for non-judicial stamp paper within 15  days from  the  date of acceptance.  The appellant did  make  the initial deposit.  The Commissioners then made an application on  December 3, 1964 to the High Court for  confirmation  of the sale.  On December 11, 1964 the High Court extended time for  payment  of  the  balance amount  for  two  weeks.   On December  24, 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 4

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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  for  non-judicial stamp  on January 31, 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  January  30, 1965.   On  the same day one Padam Chand  Agarwal  ,made  an application  (C.A. 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  February  19,  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 Ramnuia  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 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  December 24,  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  February  19, 1965  read with his previous order dated December  24,  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. 5 It was argued by Mr. V. S. Desai on behalf of the appellants that  the  discretion of the learned Company Judge  was  not erroneously  exercised  when  he accepted  the  bid  of  the appellant  in  the, auction held on December  24,  1964  and consequently  there  was no justification for  the  Division Bench  to  interfere with the order of  the  learned  Single Judge.  We are unable to accept,this argument as correct. Rule 273 of Companies (Court) Rules, 1959 is to the  follow- ing effect               "Procedure  at sale.-Every sale shall be  held               by  the Official Liquidator, or, if the  Judge               shall so direct, by an agent or an  auctioneer

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             approved  by  the Court, and subject  to  such               terms  and  conditions,  if  any,  as  may  be               approved  by  the Court.  All sales  shall  be               made  by public auction or by inviting  sealed               tenders  or  in such manner as the  Judge  may               direct." The principles which should govern confirmation of sales are well-established.  Where the acceptance of the offer by  the Commissioners  is subject to confirmation of the  Court  the offeror does not by mere acceptance get any vested right  in the  property so that he may demand  automatic  confirmation of.  his offer.  The condition of confirmation by the  Court operates  as a safeguard against the property being sold  at inadequate  price whether or not it is a consequence of  any irregularity or fraud in the conduct of the sale.  In  every case  it  is the duty of the Court to  satisfy  itself  that having regard to the market value of the property the  price offered is reasonable.  Unless the Court is satisfied  about the  adequacy  of the price the act of confirmation  of  the sale would not be a proper exercise of judicial  discretion. In  Gordhan  Das  Chuni Lal v.  T.  Sriman  Kanthimathinatha Pillai(1)  it  was  observed  that  where  the  property  is authorised to be sold by private contract or otherwise it is the duty of the Court to satisfy itself that the price fixed ’is the best that could be expected to be offered.  That  is because  the Court is the custodian of the interests of  the Company  and  its creditors and the sanction  of  the  Court required  under the Companies Act has to be  exercised  with judicial discretion regard being had to the interests of the Company  and  its  creditors as well.   This  principle  was followed  in Rathnaswami Pillai v. Sadapathi Pillai(2)  ’and S.  Soundajan  v.  M/s.  Roshan & Ca.(1).  In  A.  Subbaraya Mudaliar  v.  K.Sundarajan(4) it was pointed  out  that  the condition  of  confirmation by the Court being  a  safeguard against  the property being sold at an inadequate price,  it will  be  not only proper but necessary that  the  Court  in exercising  the  discretion  which  it  undoubtedly  has  of accepting or refusing the highest bid at the auc- (1)A.T.R. 1921 mad. 286. (3)  A.T.R. 1940 mad. 42. (2)  A.I.R. 1925 Mar. 318. (4)  A.I.R. 1951 Mar. 1986. 6 tion  held in pursuance of its orders, should see  that  the price  fetched  at the auction, is an  adequate  price  even though there is no suggestion of irregularity or fraud.   It is well to bear in mind the other principle which is equally well-settled  namely  that  once  the  court  comes  to  the conclusion that the price offered is adequate, no subsequent higher  offer  can constitute a valid  ground  for  refusing confirmation of the sale or offer already received. (See the decision of the Madras High Court in Roshan & Co’s case(1) In the present case the Division Bench has come to the  con- clusion  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 Times 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 July 8, 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

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December 24, 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 August 29, 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  ex- pressing  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  April 17, 1964 it  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  December 24,  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 (1)  A.I.R. 1940 Mad. 42. 7 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 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 December 24, 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 inter fired 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 auction 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

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inherent in the method adopted.  The petition of Padam Chand Agarwal also suggest that want of publicity had resulted  in prejudice.   In these circumstances the Company Judge  ought not  to  have  confirmed the bid of  the  appellant  in  the auction  held on December 24, 1964.  We are  accordingly  of opinion  that the Division Bench was right in  holding  that the  order  of  the Company Judge dated  February  19,  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. For these reasons we hold that the judgment of the  Division Bench  of the Andhra Pradesh High Court dated September  24. 1965  is  correct and these appeals must be  dismissed  with costs.  One set of bearing fee. V.P.S.                                   Appalls dismissed. 8