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PETITIONER: ALLAHABAD BANK ETC.  ETC.

       Vs.

RESPONDENT: BENGAL PAPER MILLS CO.  LTD.  AND OTHERS

DATE OF JUDGMENT:       13/04/1999

BENCH: S P Bharucha, R C Lahoti,

JUDGMENT:

Bharucha, J.

     The  relevant  facts need to be set out to  appreciate what  is  involved  in these appeals from the  judgment  and order of a Division Bench of the High Court at Calcutta.

     In June, 1985 a winding petition was filed against the first  respondent  company,  now in liquidation  (the  said company).   On 30th September, 1986 a mortgage suit  (Title Suit  No.143 of 1986) was filed by the Punjab National  Bank and the Bank of Baroda against the said company for recovery of  the  sum  of Rs.1,94,24,886.37  before  the  Subordinate Judge,  Burdwan.  On the same day a hypothecation suit (Suit No.736  of 1986) was filed by the United Bank of India,  the Punjab  National Bank and American Express against the  said company  for  recovery  of the sums of  Rs.20,46,010.31  and 17,87,796.49 in the Calcutta High Court.  On the same day, a hypothecation  suit  (Suit No.737 of 1986) was filed by  the Allahabad  Bank against the said company for recovery of the sums  of  Rs.29,18,360.65 and 11,64,370.00 in  the  Calcutta High Court.  Again on the same day, the Punjab National Bank and American Express filed a hypothecation suit (Suit No.738 of  1986)  against the said company for the recovery of  the sums of Rs.5,30,38,922.28 and Rs.2,14,548.00 in the Calcutta High  Court.  On 3rd December, 1986 the Calcutta High  Court passed  an  interim order in Suit No.738 of 1986  appointing joint  receivers.   From time to time, further  orders  were passed  in  the  same  suit for inventory and  sale  of  the hypothecated goods.

     On  24th  April,  1987,  in the  winding  up  petition aforementioned,  the said company was ordered to be wound up and  the Official Liquidator was directed to take possession of  the said companys assets and properties.  On 15th  May, 1987  an  application  was moved under Section  446  of  the Companies  Act  by  the Punjab National  Bank  and  American Express  for  leave to carry on with their suits;  also  for transfer  of the mortgage suit filed in the Burdwan court to the  Calcutta High Court.  On 15th May, 1987 the application was  allowed and the suit transferred from the Burdwan court to  the Calcutta High Court was numbered (T.C.  Suit No.5 of 1987).  In June, 1987 the Allahabad Bank made an application under Section 446 of the Companies Act for leave to carry on with its suit and on 26th June, 1987 such leave was granted. On 25th November, 1987, the Official Liquidator wrote to the

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joint  receivers in respect of the possession of the  assets and  records  of  the said company held by  them.   On  30th November,  1987 the joint receivers replied to the  Official Liquidator;  therein they stated that the hypothecated goods could not be sold due to lack of offers.

     On 11/12th January, 1988 the Punjab National Bank made an application to the Calcutta High Court in the transferred suit   praying  that  the   Official  Liquidator  should  be appointed receiver in place and stead of the joint receivers in  Suit No.738 of 1986 with directions to take  possession, make  inventory  and  sell  the   securities  both  in   the transferred  suit as well as in Suit No.  738 of 1986.   The application  was  allowed  on 12th January, 1988.   On  28th April,  1988  the  joint  receivers wrote  to  the  Official Liquidator  confirming that they had handed over  possession of the securities they held to him.

     On  25th  November,  1988 the High Court  appointed  a valuer of the said companys assets and properties.  On 29th June,  1989  an order was passed in the winding up  petition giving  to the Official Liquidator leave to sell the  assets and  properties  of the said company by public  auction  by inviting sealed tenders upon advertisements once in the The Statesman  once in Jugantore and once in Biswamitra  as per usual terms and conditions of sale.  The sale was to be held  on  15th  September, 1989 at 2.00 pm  in  Court.   The Official Liquidator was directed to issue the advertisements at least three weeks prior to the sale and to give notice to the valuer asking him to be present on the date of the sale. The  Official  Liquidator,  the secured  creditors  and  the valuer  were required to act on a signed copy of the minutes of the order.

     On  14th August, 1989 the sale notice was issued.   It stated  that  the  sale  was  of  the  entire  moveable  and immovable  assets  of the said company lying in its  factory premises  at  Ballavpur, Ranigunge, District  Burdhaman  and moveable  assets lying in its registered office at Calcutta. The sale was to be on as is where is and whatever there is basis.   The terms and conditions of sale were stated to  be available at the office of the Official Liquidator.

     Clause  (1) of the terms and conditions of sale stated that  the sale would be as per inventory on as is where  is and whatever there is basis and subject to the confirmation by  the  Court.   Clause (3) stated that the offer  made  by intending  purchasers should be contained in a sealed  cover enclosing a bank draft or pay order equivalent to 10% of the offer.   Clause  (5) stated that the  successful  purchaser will  have to pay the balance purchase price to the Official Liquidator  within a week from the date of sale by the Court either  by  bank draft or pay order.  It is made clear  that this  would not prevent the Court from fixing any other date for  such  deposit or extending such time even if such  time has  expired  on such terms and conditions as the court  may deem  fit.   Clause  (9)  stated that the  sale  would  be subject  to  such  modifications/alterations  of  terms  and conditions of sale as the Honble Court deems fit and proper and the decision of the High Court shall be final.

     In  pursuance of the advertisement for sale the second respondent  made  an offer on 14th September, 1989.   It  is this  offer which was accepted and, therefore, its terms are relevant.    It  stated  that   the  second  respondent  was

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interested  in  the  purchase  of the  entire  moveable  and immovable assets of the said company with a view to reviving it  as  an on going paper mill.  The second  respondent  had entered into discussions with existing labour unions and the State  Government  and  had  entered into  a  memorandum  of understanding with the labour unions for reopening the paper mill to run it, taking workmen from existing employees.  The offer  was  for the sum of Rs.1,50,00,000/- and bank  drafts for  the aggregate amount of Rs.15 lakhs were enclosed.  The offer  stated,  If our bid is successful we shall  complete the  payment of the 25% of the sale value within a fortnight and  take the possession.  For the balance we shall pray  to the Honble High Court, Calcutta to allow us the instalments facility  to  pay  off (balance) amount for which  we  shall however  arrange  a bank guarantee to cover the entire  sum. We  would,  therefore,  request  for a clear  order  of  the Honble  High  Court  transferring the assets  of  the  said company in the usual manner ..........

     On  15th  September, 1989, the judgment and  order  of sale  which  was  challenged before the Division  Bench  was passed.  The learned Single Judge recorded that the Official Liquidator  had  received, pursuant to  the  advertisements, three  offers, one of which was by the second respondent for Rs.1,50,00,000/-, the other was only with regard to the sale of  furniture and the third was for Rs.1,10,00,000/- for the sale  of the assets.  The sale of assets had taken place  in the  open court though there were no further bidders at  the auction.    The   offer  of    Rs.1,50,00,000/-   had   been subsequently raised to Rs.2 crores by the second respondent. The Advocate General for the State of West Bengal, appearing for  the second respondent, had submitted that the concerned unit would not be disposed off as scrap but would be used as a going concern.  An agreement had already been reached with the  union affiliated to the CITU containing detailed  terms and  conditions as to the working of the mill.  The Advocate General  had  produced a letter from the Bengal  Paper  Mill Mazdoor  Congress affiliated to INTUC wherein an unequivocal acceptance  of  the terms had been recorded.   The  Advocate General  had  assured  the Court that 1700 people  would  be re-employed  within  a  span of two weeks and to  those  who could  not be taken in necessary compensation would be paid, which  might  exceed Rs.50 lakhs.  The learned Single  Judge recorded  that  the  learned  advocate  appearing  for  the secured  creditors has raised no objection excepting however that the prayer for direction on the Official Liquidator for disbursement  of  some money to the secured creditors  as  a long  period of time has already elapsed in the  meanwhile. The learned Single Judge then passed the following order:

     Considering  the above and considering the factum  of re-employment  of  1700  people of the Mill which  has  been under  closure for the last 7-8 years, the sale in favour of M/s.   Eastern  Minerals & Trading Agency  (Paper  Division) ought  to be confirmed at Rs.2 crores,.  It is ordered  thus accordingly.  consequently directions follow.

     It  is  recorded that a total sum of Rs.20  lakhs  has been made over to the Official Liquidator in court today and the Official Liquidator is, therefore, thus directed to make over  possession  of the Mill premises to the  purchaser  by tomorrow.

     The  purchaser  is  directed to furnish  further  bank guarantee  for a further sum of Rs.30 lakhs by 26th Septemer

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1989,  which  will  be  kept in deposit  with  the  Official Liquidator.   In the event, however, the purchaser fails  to furnish  such  bank  guarantee within  the  time  stipulated above,  the  Official Liquidator is directed to bring it  to the notice of this Court on 27th September, 1989 for further orders.

     The  purchaser  is  further directed to pay a  sum  of Rs.30  lakhs  to  the  Official Liquidator  as  against  the purchase  price within four weeks from date.  Balance 75% of the  purchase price, that is, Rs.1.50 crores will be paid by the  purchaser by quarterly instalments of Rs.15 lakhs each. The  first  quarter, however, commencing from  1st  January, 1990.   In default of payment of a sum of Rs.30 lakhs or any one  of  the  quarterly instalments as above,  the  Official Liquidator  is also directed to apply before this Court  for necessary directions.

     The  secured creditors protested against the statement in  the  judgment  and order that referred to them  and  the learned Single Judge, on 27th September, 1989, directed that the  order  dated  15th September 1989 is modified  to  the extent  that  the 9th line of the 6th paragraph of the  said order, after the words all the secured creditors should be read  as has made a prayer.  As so modified, the  relevant part of the sentence reads:  the learned advocate appearing for  all  the  secured  creditors  has  made  a  prayer  for direction  on  the Official Liquidator for  disbursement  of some monies to the secured creditors ........

     Appeals  were  filed by the banks against  the  orders dated  15th  September, 1989 and 27th September, 1989.   The appeals  were  disposed  off  by the  order  that  is  under challenge.

     The Division Bench noted that the valuation report was not  disclosed  to any of the banks, but it stated  that  it appeared  from the valuation report produced before it  that the  total  value  of  the assets of the  said  company  was estimated  by  the valuer to be Rs.6,22,16,875/-  Since  the valuation  report was not disclosed to the banks, the  banks had  had  no  opportunity to object to the  valuation  made. According  to the advocate appearing on behalf of the banks, the  proper  valuation of the assets should have  been  much higher;   the loans granted by the banks were fully  secured and  should have been fully recovered if the assets had been sold  at a proper price.  Since the valuation report was not shown  to  the  banks, the banks had had no  opportunity  to point  out  the defects in the valuation report.   The  said company  had 15.2.73 acres of lease-hold land.  This was not taken  into  consideration by the valuer on the ground  that the  lease was only upto 14th October, 1992.  The valuer had not  indicated  whether  he had examined the  lease-deed  or whether  there  was  any renewal clause in it.   Counsel  on behalf  of the banks had submitted that no proper effort was made  to  obtain a fair market price for the property  sold. Advertisements  should  have  been  given  all  over  India, particularly  in  Bombay, Delhi, Madras and other  important commercial centres, to obtain the best possible price.  This had  not  been done.  Because of the non-disclosure  of  the valuation report, the secured creditors were unable to raise any objection and were not in a position to know whether the assets  had  been sold at a low price.  The assets were  the securities  of the banks.  The banks had filed several suits

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and receivers had been appointed.  The assets could not have been  sold without the written consent of the banks and  the banks  had not agreed to the sale of their securities.   The Division  Bench  found  itself unable to uphold  the  latter contention  advanced on behalf of the bank for the banks had participated  in  the  sale  from the  very  beginning.   No objection  had been raised by the banks to the proposed sale of  the  assets.  The sale was concluded in the presence  of the advocates appearing on behalf of the banks.  A variation of the learned Single Judges order was made at the instance of  the banks.  At no point of time did the banks object  to the sale of the assets or the price at which the assets were sold.  Learned counsel for the banks contended that what was actually  sold  was the equity of redemption in the  secured assets.   The  Division Bench found that this stand had  not been  taken by the banks before or at the time when the sale took  place.  Counsel had contended that the mortgages could be  given  up only in writing and not otherwise and  he  had pointed  out that the mortgage suits filed by the banks were still pending.  The Division Bench was unable to uphold this contention  to  set aside the sale because in a  case  like this  some sort of promptitude was expected from the banks. No allegations of fraud had been made against the purchaser. The  purchaser had purchased the properties in a court  sale and  had promised to give employment to 1700 workmen of  the said  company.   The purchaser had incurred expenditure  for running  the  factory and for that purpose had entered  into contracts with various parties.  Another important aspect of the  case was that no appeal had been preferred against  the order  of  sale  till 3rd February 1990 and no stay  of  its operation  had  been asked for.  Counsel for the  banks  had contended  that the appeals were filed within the period  of limitation.  The Division Bench countered that that might be so,  but  the purchaser had been allowed to take  possession after  the sale.  He had employed persons and placed  orders without  objection from the banks.  It was only after  these things had happened that the banks woke up.  The delay was found  fatal  to the case of the banks.  But,  the  Division Bench added :

     There is, however, considerable force in the argument of  Mr.  Mitra that the sale was made with undue haste.  The proposal  for  sale of a large paper mill should  only  have been  effected  after giving wide publicity all over  India. Moreover,  the  successful bidders offer should  have  been examined  in  depth before acceptance.  Some enquiry  should have  been  made to find out the number of workers  actually employed  by  the company in liquidation at the time of  the closure  of its mills.  No attempt was made out to find  out how  many of those workers were still unemployed and whether the Trade Union with which the purchaser had entered into an agreement  represented  all  the unemployed workman  of  the company in liquidation.  It appears that 1700 of the workmen of  the  company have not been re-employed.  No attempt  was made  to  find  out  whether   there  was  any   outstanding liabilities  of  the  company, statutory  or  otherwise,  in respect  of  its  workers.   The company  might  have  other liabilities.  The nature and extent of such liabilities were not found out.  The sale of the asse5ts should not have been made  in  a way to deprive the right of all  the  creditors, including  the  banks, to proceed against the assets of  the company to realise their dues.

     The Division Bench then stated :

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     However the only parties that have come to this Court for   setting  aside  the  sale   are  the  banks  who   had participated  fully  at every stage of the sale.  The  banks were  represented at the time when the decision was taken to sell the assets of the company.  The banks were also present when  the  sale was finalised.  The banks had also  got  the matter  mentioned  for effecting certain corrections in  the sale  order  and a prayer was made for disposal of the  sale proceeds.   It does not appear that the banks were under any misapprehension that the secured assets were being sold.

     The  banks had participated in every proceedings which culminated  in the sale of the assets and made a prayer  for prompt  payment out of the sale of the assets.  They  cannot after  a  lapse  of  five months turn around  and  pray  for setting  aside  the  sale  on the  ground  that  the  banks interests  were  not properly protected at the time  of  the sale.  ..........

     In  the facts and circumstances of the case and having regard  to the conduct of the bank, this application must be dismissed.

     It  is to be noted that no reserve price for the  sale was  fixed.  Why this should have been so is not understood, particularly  having  regard to the fact that a  valuer  had been  appointed  of the assets and properties and  a  report obtained.   The  valuation  report was not  disclosed.   The order  of the learned Single Judge does not set out what the valuation  of  the property that was sold was.  It does  not even  state  that, in view of that valuation, the  offer  of Rs.2  crores  made by the second respondent was a  fair  and adequate  price.  Further, the learned Single Judge did  not notice what the Division Bench did, namely, The Company had 15.2.73  acres  of leasehold land.  This was not taken  into consideration  by  the valuer on the ground that  the  lease period was only upto 14th October, 1992.  The valuer has not indicated  whether he had examined the lease deed or whether there  was any renewal clause in the lease agreement.   The valuation was, therefore, itself suspect.

     The sale was advertised once only in three newspapers, two  of which at least were local newspapers.  For a sale of the  magnitude of that with which we are concerned, this was surely   inadequate    publicity.     Inadequate   publicity necessarily  suggests  the possibility that a  better  price could have been obtained.

     The  learned  Single Judge would appear to  have  been carried  away  by  the prospect that 1700  people  would  be re-employed.   He did not appreciate that the said companys ex-employees  were only some of its creditors and that  they stood  on  no  better  footing   than  its  other  unsecured creditors.   No order could have been passed that, while  it favoured them, took no account of other unsecured creditors. The  employees of the said company had been, as the order of the learned Single Judge itself shows, out of employment for 7  to  8 years but the learned Single Judge did not  inquire how  many  of  them  had secured  other  employment  in  the intervening years.

     The learned Single Judge did not ascertain and set out

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what  the total amount of the claims, secured and unsecured, against  the said company was and whether the assets and the property  of  the said company, other than those sold,  were adequate to pay off these claims, even in part.  The learned Single  Judge  did  not even ascertain and  state  how  many unsecured creditors there were, what the aggregate amount of their  claims was and what part thereof could be ascribed to the  erstwhile  employees of the said company.  The  learned Single  Judge  did  not,  it appears,  appreciate  that  his principal  obligation in conducting and confirming the  sale was  to  the body of creditors of the said company and  that the  obligation  was to ensure that the best possible  price had  been procured from whereout they could recover at least some part of their dues.

     The  learned  Single  Judge appears not even  to  have noticed  that the offer of the second respondent was not  in accordance with the terms and conditions of sale inasmuch as it contemplated a payment schedule that was at variance with the terms and conditions of sale.  There is no discussion in the  order  of  the learned Single Judge about  why  it  was thought fit to entertain such an offer.

     There  was  another  offer before the  learned  Single Judge  to  purchase  the assets and properties of  the  said company  for  the sum of Rs.1.10 crores.  No details of  the offer  are  set  out  in the order of sale.  If  it  was  in accordance  with the terms and conditions of sale, it should have been considered and compared to the second respondents offer.   This offerer did not, apparently, raise his  offer, but he might have done so if he have been told that he could have  the same liberal payment terms that the learned Single Judge  gave to the second respondent after it had raised its offer.   No reason was given by the learned Single Judge  in the  order  of  sale as to why he thought  it  necessary  or proper  to give to the second respondent these very  liberal terms.   It  is to be noted that these terms are  even  more liberal than those asked for in the offer.

     Though  only  10% of the price had been  received  and there  was a direction to furnish a bank guarantee for Rs.30 lakhs 10 days thereafter, and the balance purchase price was to  be  received only after a very long period of  time  the learned  Single  Judge directed the Official  Liquidator  to hand  over  to the second respondent the possession  of  the assets and properties by tomorrow.

     The  observation  of the Division Bench in  the  order under appeal that the sale was conducted with undue haste is very  appropriate.   So are the other critical  observations that  the  Division Bench made, which we have quoted  above. It  could  not but have been obvious to the Division  Bench, therefore,  that  there was every possibility that the  sale had  not  procured  the best possible price.  Even  so,  the Division  Bench  did not interfere with the order  of  sale, because, in its view, the second respondent had been allowed by the banks to take possession of the assets and properties and  to incur expenditure.  In our view, the Division  Bench was in error.

     Upon  liquidation,  the assets and properties  of  the company  in liquidation vest in the Official Liquidator  for the  benefit  of its creditors.  It is only from out of  the sale  proceeds  of  these  assets and  properties  that  the creditors  of the company can hope to recoup their dues.  To

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ensure  that  the best possible price is realised  upon  the sale of these assets and properties, the sale thereof by the liquidator  is  required to be confirmed by the High  Court. It  is the obligation of the High Court to the creditors  of the  company  in  liquidation  to make sure  that  the  best possible price has been realised.

     In  Navalkha  &  Sons  vs.  Sri Ramanya  Das  &  Ors., 1970(3)  SCR  1,  this Court quoted Rule  273  of  Companies (Court)  Rules,  1959, thus :  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 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.

     It then said :

     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   proper  exercise  of   judicial discretion.   In  Gordhan  Das  Chuni  Lal  v.   T.   Sriman Kanthimathinatha  Pillai,  A.I.R.   1921 Mad.  286,  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,  A.I.R.   1925  Mad.   318,  and  S. Soundarajan v.  M/s Roshan & Co., A.I.R.  1940 Mad.  42.  In A.  Subbaraya Mudaliar v.  K.  Sundarajan, A.I.R.  1951 Mad. 986,  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 auction 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 also well to remember that, for the most  part, the  creditors  of a company in liquidation are small  trade creditors  whose  dues  are not so large as  would  make  it economical  for them to resort to proceedings in court.   It is  these small creditors that the High Court is expected to protect when confirming a sale by the liquidator.

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     We think that the Division Bench lost sight of what is stated  above.  It could not have realistically expected the ordinary  unsecured  creditors of the said company  to  have filed appeals on the ground of inadequacy of the sale price. It  could  not have turned a blind eye to the  many  defects that it itself noted in the order of sale merely because the banks  had  moved  the appeals after five months;   nor  was there  any  justification for taking into consideration  the expenditure  that had been incurred by the second respondent subsequent  to its possession of the assets and  properties. In  the  first place, the Division Bench should  have  noted that  the  learned  Single  Judge had  with  unseemly  haste ordered  possession thereof to be handed over to the  second respondent  on the very next day.  In the second place,  the appeals  had  been  filed within the period  of  limitation. Expenditure incurred during this period could not render the appeals,  in  effect, infructuous.  The same would apply  to expenditure incurred subsequent to the filing of the appeals and  until  the  time  that they  were  heard.   The  second respondent  knew that the appeals were pending and that they could  end  in  the  order of sale being  set  aside.   Such expenditure  as  it incurred with this knowledge was at  its risk.  In the third place, and most important, the interests of  the creditors of the company, particularly the unsecured creditors,  overweighed such equities, if any, as might have been  considered  to be in favour of the second  respondent. It was, in our view, the obligation of the Division Bench to have struck down the order of sale, having regard to what it found wrong with it.

     It  was contended on behalf of the second  respondent, the State of West Bengal and the employees that, whatever we might  think of the order of sale, we should not  interfere. For  the reasons that we have stated, we cannot agree.   The interests  of  the  creditors  of   the  said  company   are paramount,  as is the obligation of the Court to them.  That the   second  respondent  has   incurred   expenditure   and obligations,  which were detailed, subsequent to the passing of  the  order  of  sale  and   upto  date  cannot,  in  the circumstances,  deter  us  from setting aside the  order  of sale.   The  second  respondent knew that the  appeals  were pending.   It should have appreciated that the order of sale was  very  vulnerable, given what the Division Bench of  the High  Court  had to say about it.  It consciously  took  the risk  of  incurring the expenditure and obligations  and  it cannot take shelter behind them.

     It  was  submitted by learned counsel for  the  second respondent  that  we  should vary the terms upon  which  the offer  of the second respondent was accepted to overcome the prejudice  to  the  said companys creditors.   We  have  no materials  upon which we can do so, apart from the fact that to  do  so would be wrong in principle.  We do not know  and have  no  means of knowing what the fair value of  the  said assets  and properties that were sold was;  that could  only have  found after a properly advertised sale had been  held. We do not know, and counsel were unable to tell us, what the totality of the claims against the said company are.

     Learned counsel for the banks had contended before the Division  Bench  of the High Court that the mortgages  could only have given up by the banks in writing and not otherwise and  he had pointed out that the mortgage suits by the banks were  still  pending.  He had also contended that  what  was

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sold  to  the second respondent, in any event, was only  the equity  of  redemption  in the  mortgaged  property.   These contentions  were  repeated  before us.  On  behalf  of  the second  respondent it was contended, on the other hand, that the banks had given up their securities and become unsecured creditors.

     It is to be noted that on 11th-12th January, 1988, the Punjab  National  Bank had made an application to  the  High Court  in the transferred suit and prayed that the  Official Liquidator  should be appointed receiver in place and  stead of  the  joint  receivers  in   Suit  No.738  of  1986  with directions  to take possession, make inventory and sell  the securities  both in the transferred suit as well as in  Suit No.738  of  1986,  which  application was  allowed  on  12th January,  1988.   It  is  not  clear  from  the  submissions whether,  as a result, the Official Liquidator was appointed receiver  of  the  mortgaged properties in  the  transferred suit.   It is also not clear whether any similar application had  been  made  by the other banks in their suits.   It  is pertinent  to  note that in the subsequent order dated  29th June,  1989 passed in the winding up petition, giving to the Official  Liquidator leave to sell the assets and properties of  the  said  company, reference was made to  the  secured creditors.   Similar  reference  was made to  the  secured creditors  in  the  order  of sale.   There  is  also  some substance  in  the  contention based on the  fact  that  the mortgage  suits were pending when the order of sale was made and  that the mortgage securities could not ordinarily  have been  held to have been given up without express writing  to this  effect.  On the other hand, it needs to be pointed out that  it appears that the banks did not at any time prior to the order of sale require that the sale proceeds, insofar as they  related to properties secured in their favour,  should be  kept  apart  to  the  credit of  their  suits.   It  is, therefore, a moot question as to whether the banks had given up  their securities before the order of sale, but we cannot resolve  the question in the absence of the full record  for this  was a question that arose incidentally in the  appeals from  the  order of sale.  We think that this is a  question that  has now to be left to be answered by the High Court on appropriate applications by the banks.

     At  the same time, it is perfectly clear to us that it was  not  the  equity  of redemption alone  in  the  secured properties that was sold for, had that been so, there should have  been  express mention to that effect in the terms  and conditions of sale.

     In  an  additional  affidavit filed on behalf  of  the second  respondent  before this Court it is stated that  the said  company had shown no interest in renewing the lease of the  property  which was the subject matter of the sale  and that  in order to continue to lawfully remain in possession to  run  the paper mill, the Bengal Paper Mills (1989)  Co. Ltd.,  floated by the second respondent and its  associates, had obtained the lease in its favour from the State of West Bengal.  The  order  of  sale  in  favour  of  the   second respondent   being  liable  to  be  set  aside,   everything consequential  thereon  must necessarily also be set  aside. The  lease,  patently, was obtained as a consequence of  the order of sale.  For doing complete justice, therefore, it is necessary to set aside the lease.

     Learned  counsel  for the second respondent  submitted

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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 aforestated.

     The  lease  of  the property, which  was  the  subject matter  of  the  sale, in favour of the Bengal  Paper  Mills (1989) Co.  Ltd., is set aside.

     The  second  respondent  shall  pay  to  the  Official Liquidator  the  costs  of the appeals before  the  Division Bench  of the High Court and of these appeals, quantified in the sum of Rs.25000/-.