07 October 2004
Supreme Court
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ALLAHABAD BANK Vs BENGAL PAPER MILLS CO. LTD.

Bench: C.J.I. R.C. LAHOTI,G.P. MATHUR,P.K. BALASUBRAMANYAN
Case number: C.A. No.-004191-004191 / 1991
Diary number: 76909 / 1991
Advocates: Vs R. P. GUPTA


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CASE NO.: Appeal (civil)  4191-4193 of 1991

PETITIONER: ALLAHABAD BANK ETC. ETC.

RESPONDENT: BENGAL PAPER MILLS CO. LTD. AND ORS. ETC.

DATE OF JUDGMENT: 07/10/2004

BENCH: C.J.I. R.C. LAHOTI, G.P. MATHUR & P.K. BALASUBRAMANYAN

JUDGMENT: J U D G M E N T  

IA Nos. 9-11 IN CIVIL APPEAL NOS.4191-4193 OF 1991 WITH I.A. NOs.13, 14 AND 15  IN  CIVIL APPEAL NO.4191 OF 1991

P.K. BALASUBRAMANYAN, J.

I.A. NOs.9-11 in CIVIL APPEAL NOs.4191-4193 OF 1991

               These are applications by Respondent No.2 in the above  mentioned appeals, C.A. Nos.4191-4193 of 1991.   The prayer therein  is for a clarification of the Judgment in the appeals rendered by this  Court on 20.4.1999 by providing that the applicant was also entitled to  the amount of Rs.1,56,21,839.25 being the interest that has accrued on  the purchase price of Rs.2 crores paid by it for the assets of the Bengal  Paper Mills Co. Ltd., a company in liquidation.    The applications are  opposed by the creditors, some of whom were the appellants in the  appeals.                 The Bengal Paper Mills Co. Ltd. was ordered to be wound  up in a winding up petition filed by its creditors.   The order was passed  on 24.4.1987.   Even before the order for winding up, the assets were  put in possession of two joint receivers appointed in a suit by one of the  creditors.   On the Official Liquidator being appointed in liquidation,  the joint receivers were directed to put the Official Liquidator in  possession of the assets of the debtor company.   They put him in  possession.  The possession was thus obtained by the Official  Liquidator.   After getting the assets valued, the Company Court on  29.6.1989 granted leave to the Official Liquidator to sell the assets and  properties of the company in liquidation.    Pursuant thereto, the  Official Liquidator issued a sale notice on 14.9.1989.    Respondent  No.2 in the appeal, the applicant, made an offer on 14.9.1989.    The  offer was accepted and the sale was ordered on 15.9.1989.   It is seen  that the sale was confirmed the same day and possession was given to  the purchaser, the applicant on 16.9.1989.  But, it may be noticed that  the purchase price of Rs.2 crores was not collected at once and the  purchaser was permitted to pay the price in four quarterly instalments.    The sale was confirmed on the terms quoted in the Judgment of this  Court.   The sale and its confirmation by the Company Judge was  challenged in appeals before the Division Bench of the Calcutta High  Court.   The Division Bench of the High Court in spite of noticing  various irregularities and infirmities in the sale and the inadequacy of  the price in the light of the valuation of the assets, proceeded to dismiss

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the appeals. The creditors challenged that decision in the above appeals  before this Court.   This Court by its Judgment dated 20.04.1999,  allowed the appeals and set aside the sale on the grounds set out  therein.    It is seen that the applicant herein prayed before this Court  that the amount of Rs.2 crores paid by it in instalments by way of  purchase price, may be refunded to it and that it may also be repaid the  sums which it had allegedly expended for the revival of the company.     This Court, in the Judgment, dealt with the claim of the applicant as  follows:

       "Learned counsel for the second respondent submitted that  the second respondent would be entitled to recover the sale price  as also all expenditure that it had incurred consequent upon the  order of sale.   We are in no doubt that the Official Liquidator  must refund to the second respondent the sum of Rs.2 crores.    As to any other expenditure, the second respondent must apply to  the High Court and satisfy it, first, that it was incurred and,  secondly, that in law, the second respondent is entitled to recover  it.

       The appeals are allowed.    The judgment and order under  appeal is set aside as also the order of sale dated 15th September,  1989 in favour of the second respondent.   The Official  Liquidator shall forthwith recover possession, from whoever is in  possession, of the assets and properties covered by the said order  of sale.   The same shall be resold after a fresh valuation report  thereof has been obtained, a reserve bid fixed and due  advertisements published.   The second respondent shall be  repaid the purchase price of Rs.2 crores by the Official  Liquidator subsequent to recovery of possession as aforesaid."

               On 4.6.1999, the applicant requested the Official  Liquidator to refund the amount of Rs.2 crores deposited by it towards  the purchase price as directed in the Judgment.    The Official  Liquidator promptly refunded a sum of Rs.2 crores to the applicant on  6.7.1999.   It is the case of the applicant that it had claimed that it was  also entitled to the interest earned by the Official Liquidator on  investment of the sum of Rs.2 crores, but that the Official Liquidator  refused to pay any interest.   It is in that context that the present  applications have been filed by the applicant seeking what it calls a  clarification of the Judgment rendered by this Court.                 According to the applicant, its claim for interest was for  the period from15.9.1989 to 20.4.1999 on the sum of Rs.2 crores.   This  Court had passed an order on 20.1.2000 calling upon the Official  Liquidator to furnish information on the investment of the sum of Rs.2  crores and the interest that had been earned and the Official Liquidator  had filed a statement which indicated that the interest that was earned  for the period in question was Rs.1,56,21,839.25.                 It is also seen that pursuant to the liberty given by this  Court the applicant has filed an application before the Company Court  claiming payment out of a sum of Rs.21 crores as the amount expended  by it for the revival of the company.   It is said that the said application  was allowed in spite of being opposed but that an appeal has been filed  against it and the recovery thereunder stood stayed and the appeal was  still pending.                 The application does not disclose under what provision the  same was being filed.   Nor does it set out any legal basis for claiming  interest on the purchase price deposited by the applicant.    The two  aspects put forward are that during the 10 years the applicant was in  possession of the assets pursuant to the sale, the company had made  losses except for two years and that the Official Liquidator had invested  the purchase price and had earned interest and the interest earned was  an accretion to the purchase price which would belong the applicant  since the sale in its favour had been set aside.                 The applications are opposed.   It is submitted that the

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applications were not maintainable as what the applications really  sought was not a clarification of the Judgment but an additional relief  or a relief which was not granted by this Court and which, in fact, has  been denied or which should be deemed to have been denied.   It is  pointed out that the shockingly low purchase price was not even paid in  a lump on 15.9.1989 from which date the interest was being claimed,  but the same was paid only in four quarterly instalments and the claim  for interest was untenable.  It was further submitted that the applicant  had the enjoyment of the assets valued at more than Rs.16 crores for a  period of 10 years and the applicant had not accounted for the profits  for that period.   It was pointed out that the claim that the company had  made losses during the said 10 years other than for two years, was  being seriously disputed.   As a matter of fact, the applicant was liable  to account for the profits earned from the properties during the period  of 10 years it had been in possession.   The applications were  misconceived and were liable to be dismissed.                 Learned senior counsel appearing for the applicant  submitted that the amount of Rs.2 crores paid into the hands of the  Official Liquidator by the company had earned interest amounting to  Rs.1,56,21,839.25 and that the said interest was really an accretion to  the purchase price paid by the applicant and once the purchase price  was directed to be refunded to the applicant by setting aside the sale,  the applicant was also entitled to the interest accrued, as an accretion to  the asset.   He, therefore, submitted that the Judgment of this Court  required a clarification in that regard and really no review of the  Judgment was necessary and relief could be granted to the applicant on  these applications.   Counsel appearing for the creditors, on the other  hand, submitted that the relief now being claimed must be deemed to  have been refused by this Court while it ordered the refund of the  purchase price of Rs.2 crores and also allowed the applicant to make an  application before the Company Court claiming payment out of the  amounts allegedly expended by it for the revival of the company.      The prayer made was beyond the scope of a petition for clarification of  the Judgment and it was really a claim for further relief and such a  relief cannot be granted on these applications.   The applicant had  enjoyment of the properties and its profits for a period of 10 years and  really it was a case where the applicant had to account for those profits  and, there could be no unilateral direction for making over the interest  to the applicant without imposing a corresponding obligation on the  applicant to account for the profits of the properties.  The ordering of  such a mutual accounting was beyond the scope of the present  applications.                 Certain salient facts may be noticed.    This Court has  found that the purchase price paid by the applicant was a shockingly  low considering the value of the assets that were sold by the Official  Liquidator.   Even this low price of Rs.2 crores, as can be seen from the  affidavit of the official liquidator dated 29.3.2000, was paid not in a  lump by the applicant-the purchaser and the amount was allowed to be  paid in four quarterly installments but even before payment of the  entire purchase price, the properties were put in the possession of the  applicant on 16.9.1989, the day next to the sale.   The possession was  returned only on 5.5.1999 about ten years after the applicant was put in  possession.  Until then, the applicant had the enjoyment of the  properties.                 The Official Liquidator, in winding up proceedings by  court, has the power to sell the immovable properties of the company  wound up, under Section 457(1)[c] of the Companies Act, 1956.   Rule  272 of the Companies (Court) Rules, 1959 provides that an Official  Liquidator can sell the property belonging to the company only with the  previous sanction of the court and that every sale shall be subject to  confirmation by the court.   Rule 273 lays down the procedure for sale  and Rule 274 deals with the meeting of the expenses of the sale.     Order XXI Rule 93 of the Code of Civil Procedure (for short ’the  Code’) provides that where a sale of immovable property is set aside  under Rule 92 of Order XXI, the purchaser shall be entitled to an order

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for repayment of his purchase money with or without interest as the  court may direct, against any person to whom it has been paid.  It has  been held that even though Order XXI Rule 93 of the Code may not  ipso facto apply to a sale otherwise other than under the Code, the  principle embodied therein can be applied to other sales to order refund  of the purchase price with interest while setting aside a sale.   But it has  to be seen that Rule 93 of Order XXI of the Code gives a discretion to  the court setting aside a sale, either to award interest or not to award  interest.  Considered in the context of that discretion, it is clear from the  Judgment rendered by this Court that this Court refused to direct the  payment of interest to the applicant even while directing the refund of  the purchase price paid by the applicant to the Official Liquidator.   In  such a situation it is not possible to accede to the prayer of the applicant  to order the payment of interest on the purchase price paid by it, based  on the principle embodied in Order XXI Rule 93 of the Code on this  application for a clarification of the Judgment.  In the circumstances of  the present applications, we have to proceed on the basis that this Court  has exercised its discretion not to award interest on the purchase price  in the light of the directions issued by it in that behalf.                 Learned counsel for the applicant relied on the decision in  Motors & Investment Ltd. vs. New Bank of India and others  (1997  (11) SCC 271 ) and submitted that in that case the Court ordered  payment of interest to the purchaser on the sale being set aside.   On an  examination of paragraph 6 of the said decision, it is seen that the  question was not discussed as such.   But the Court did order the  interest earned by the purchase price to be refunded to the purchaser or  in the alternative to pay interest on the amount at 18 per cent per  annum.    In the case of  Central Bank of India vs. Ravindra and others  (2002 (1) SCC 367 ) this Court discussed the concept of interest to  point out that it was the payment fixed by agreement or allowed by law  for use or detention of money.    In other words, what was indicated  was that interest was really compensation for the use of the money  which the purchaser was deprived of.   Going by the principle of  compensation indicated in the said Judgment, the question would arise  whether the applicant, in the circumstances of this case, when it had  enjoyed the assets for about ten years on deposit of the purchase price,  would be entitled to any compensation at all, or to compensation with  an obligation to account for the profits, an issue, that has to be  adjudicated in an appropriate manner and not certainly while  considering an application for clarification.    We find that the obtaining  of possession  by the purchaser on deposit of the purchase price has  considerable relevance, in deciding whether the purchaser would be  entitled to interest on the purchase price as indicated by the decision of  this Court in Union of India vs. Official Liquidator H.C. of Calcutta  and others  (2000 (5) SCC 274 ).   Therein, after referring to the  decision in Motors & Investment Ltd. vs. New Bank of India and others  ( supra) relied on by counsel for the applicant and the direction for  payment of interest made therein, this Court declined the award of  interest on the distinction that, in that case, possession had passed to the  purchaser.   The Court stated that the Judgment in Motors & Investment  Ltd. vs. New Bank of India and others (supra) had no bearing mainly  because as soon as the amount was deposited by the purchaser,  possession of the property was handed over to him.   No doubt the  learned Judges thereafter, also referred to the decision in the present  case and the non award of interest therein.    But, in our view, that  makes no difference, since the distinguishing feature relied on by the  said decision, was the non-passing of possession to the purchaser.    In  this case, as we have noticed, the applicant, the purchaser, obtained  possession even before he had paid the entire purchase price and had  paid only 25 per cent or so of the purchase price and kept that  possession for 10 years.                         Even on the principle of restitution, the claim of the  applicant may not succeed.   This  is not a case where the applicant was  deprived of both his money and the property purchased by him.   There  was, therefore, no failure of consideration.   By the subsequent order of

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Court, the sale was set aside; but during the interregnum, the applicant  had the benefit of the assets he had purchased.   The other contracting  party, the company in liquidation was deprived of the use of its assets.    The creditors who held the properties as security were deprived of their  right to deal with the security or to enjoy the benefits of the security  during the interregnum.   In fact, the securities available to the creditors  were utilized by the auction purchaser-the applicant.   In that situation,  the applicant might have the obligation to account for the profits.    Certainly, while rendering the main Judgment, this Court was  conscious of all these aspects while ordering refund only of the  purchase price deposited without providing for payment of interest to  the purchaser but at the same time leaving it open to the purchaser to  work out its claim for the expenses incurred by it before the Company  Court.                  As stated in Goff and Jones The Law of Restitution (sixth  edition)  the law of restitution is the law relating to all claims quasi  contractual or otherwise, which are founded upon the principle of  unjust enrichment.   It will, therefore, be necessary to investigate that  aspect even if we invoke Sections 70 and 72 of the Indian  Contract  Act.    Even if we invoke Section 65 of the Contract Act, the  advantages derived by each of the parties will have to be determined  and quantified in terms of money and any order in favour of the  applicant can be made only after undertaking that exercise.  This result  cannot be achieved by seeking a clarification of the Judgment as now  done.                 It also appears to us that there was a change of position of  the parties including the creditors, pursuant to the sale and the applicant  being put in possession.   In that context, the adequacy of consideration  paid by the applicant will be a relevant consideration.   As observed in  Goff and Jones in paragraph 42-004, "neither common law nor equity  normally inquires into the adequacy of the consideration which the  purchaser provides.   But such an enquiry would be central to any  defence solely based on a defence of change of possession, for, it is a  defence which operates to discharge, wholly or in part, a defendant’s   duty to make restitution".      Be it noted that the sale in favour of the  applicant was set aside by this Court mainly on the ground that the  consideration paid was grossly inadequate.

               The upshot of the above discussion is that the prayer for  clarification as made cannot be granted.   The applications are liable to  be dismissed.   Hence, they are dismissed.

I.A. Nos.13, 14 and 15 in C.A. No.4191 of 1991         I.A. No.13/2004   is an application filed by the Bengal Paper  Mill Mazdoor Union, the Labour  Union of the wound up industry, for  a clarification of the Judgment dated 20.4.1999 by directing that the  company in liquidation may be sold as a going concern.    I.A. No.14 of  2004 is by the same Union seeking permission to file a supplementary  affidavit in support of its above prayer.   I.A. No.15 of 2004  is by the  company which had made an offer for purchase of the assets of the  company in liquidation "as is where is" praying for permission to  intervene in I.A. No.13 of 2004 filed by the said Union.    According to  the Union, before the company court an offer had been made by M/s  Madhuri Traders Ltd. for purchase of the assets of the company in  liquidation as a going concern for a price of Rs.10 crores.   But a  counter offer was received from M/s Zoom Traders and Reality Ltd.,  the applicant in I.A. No.15 of 2004, for Rs.17.75 crores for the entire  assets of the company in liquidation on "as is where is" basis.   In this  situation, the company court has directed the parties to get a  clarification from this Court as to the mode in which the assets should  be sold, whether as a going concern or as property "as is where is",  meaning thereby that the purchaser will be  free to dispose of the land,  machinery and other equipments as he pleased.   It is the submission of  the Union that the workers of the Union will be benefited  if the

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property is sold as a unit and a going concern and it is in that context  that they have filed I.A. No.13 of 2004 for clarification.   It is in that  application that M/s Zoom Traders & Realty Ltd. wants to intervene, to  press its claim for purchase of the assets "as is where is" but not with a  view to run the industry or revive the industry.                    We find that these applications are misconceived.   The  learned company judge was also in error in directing the parties to seek  a clarification from this Court.   In liquidation, the assets had been sold  by the liquidator and the sale was confirmed by the company court.    But the same was set aside by this Court.   This Court while setting  aside the sale and issuing certain other directions, has very clearly  directed that "the same shall be resold after a fresh valuation report  thereof has been obtained, the reserved bid fixed and due advertisement  published".    Obviously, this Court intended that a proper price should  be fetched for the assets of the company in liquidation.   It has  left the  question to the company court.   It is for the  company court to take a  decision on the fresh sale to be conducted by it.   There is no question  of any clarification of the directions of this Court.   No need for such a  clarification arises.   The decision, at least in the first instance, has  necessarily to be that of the company court as to the mode and manner  of sale and the price at which it is to be sold.   In this situation, we are  satisfied that these applications filed in this Court are misconceived and  they are liable to be dismissed.                 We, therefore, dismiss these applications leaving it to the  company court to take a proper decision on the matters forming subject  matter of these applications.