REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4271        OF 2008 ARISING OUT OF

SPECIAL LEAVE PETITION (CIVIL) NO. 21123/2007

FCS SOFTWARE SOLUTIONS LTD. … APPELLANT

VERSUS

LA MEDICAL DEVICES LTD. & ORS. …RESPONDENTS

J U D G M E N T C.K. THAKKER, J. 1. Leave granted.

2. The  present  appeal  is  filed  by  the appellant  against  an  order  passed  by  the

Division Bench of the High Court of Punjab &

Haryana on October 15, 2007 in Company Appeal

No. 10 of 2006. By the said order, the Division

Bench of the High Court dismissed the appeal

filed by the appellant-herein and confirmed the

order passed by the Company Judge on February

16, 2006 in Company Application No. 178 of 2005

in Company Petition No. 42 of 1999. 3. Few  facts  of  the  case  are  that  La Medical Devices Ltd.-respondent NO. 1 went into

liquidation. Official Liquidator was appointed

by the Court who is joined as Respondent No. 1

in  the  present  proceedings.  In  view  of  the

liquidation of the Company and dues to be paid

by it, proceedings were initiated for sale of

property of the Company. Sale notice was issued

by the Company Court on October 19, 2004 which

was  published in  various newspapers  inviting

sealed tenders for the sale of property of the

Company situated at NOIDA (U.P.).  Twelve bids

were received which were opened on November 16,

2004.  The  bid  of  the  appellant  for  Rs.1.47

crores  for  immovable  as  well  as  movable

property was the highest. One of the creditors,

namely,  Pradeshiya  Industrial  and  Investment

Corporation of U.P. Ltd. (PICUP) granted ‘no

objection’  to  the  sale-price.  Since  the

appellant was the highest bidder, it wrote a

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letter to the Official Liquidator on December

19, 2004 followed by a reminder dated January

20, 2005 requesting him to expedite the process

and issue letter of acceptance of the offer of

the appellant so that possession of the Unit

can be given to the appellant and the property

could  be  made  ready  for  commencement  of

production. It is the case of the appellant

that  there  was  no  reply  by  the  Official

Liquidator  to  the  appellant.  The  appellant,

therefore, wrote a letter to the Company Judge

on January 27, 2005, complaining that though it

was  the  duty  of  the  Official  Liquidator  to

accept  the  highest  offer  submitted  by  the

appellant,  no  action  had  been  taken  by  the

Official Liquidator and there was delay in the

process of finalization of acceptance of bid.

The appellant also complained about the threat

administered  by  the  Official  Liquidator.

According  to  the  appellant,  thereafter  on

February  15,  2005,  the  Official  Liquidator

accepted the bid of the appellant for Rs. 1.47

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crores for immovable property. The appellant on

its  own  had  forgone  its  claim  of  leased

machinery.   The  Official  Liquidator  also

instructed the appellant to deposit 25% of the

bid  amount  for  immovable  property  within

fifteen days. The appellant, however, deposited

the said amount on the same day, i.e. February

15,  2005.   According  to  the  appellant,  the

Company  Judge  having  found  the  auction  in

accordance with law and for adequate price and

there being no other objection, confirmed the

auction sale in favour of the appellant-Company

on  March  24,  2005.  The  Company  Judge  also

directed the Official Liquidator to hand over

possession of the Unit by executing sale deed

in favour of the appellant after receiving full

and  final  payment  within  one  month.  The

Official  Liquidator  conveyed  the  appellant

vide  his letter dated April 4, 2005 that an

order was passed by the Company Judge in favour

of the appellant. The appellant was also asked

to deposit the rest of the amount immediately.

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On receiving the letter dated April 4, 2005

from  the  Official  Liquidator,  the  appellant

deposited  the  remaining  amount  on  April  12,

2005.  The appellant thereby became entitled to

receive possession and execution of sale deed

in  respect  of  immovable  property  of  the

Company.  By  a  communication  dated  April  21,

2005,  the  Official  Liquidator  informed  the

appellant that possession of the property would

be handed over to the appellant on May 6, 2005

at 11.30 a.m. 4. According to the appellant, thereafter

the Official Liquidator did not act legally and

in accordance with law.  On May 6, 2005, though

the officers of the appellant waited at the

site for getting possession of the property,

neither  the  Official  Liquidator  nor  his

representative  turned  up  to  hand  over

possession of the property to the appellant.

The  appellant-Company,  hence,  sent  a

telegraphic notice to the Official Liquidator

and requested him to immediately comply with

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the order of the Company Judge confirming sale

and handing over possession to the appellant.

Instead  of  complying  with  the  order  of  the

Court  and  handing  over  possession  of  the

property, the Official Liquidator sent a letter

purported to have been written on May 5, 2005,

stating therein that possession would not be

given  to  the  appellant  on  May  06,  2005  as

higher bid of Rs.1.55 crores had been received

and order for handing over possession to the

appellant had been stayed by the Hon’ble Court.

The appellant made enquiries and it was found

that it was at the instance of the Official

Liquidator himself that Company Application No.

178 of 2005 before the Company Judge was moved

and  he  created  obstruction  in  delivery  of

possession of property to the appellant on the

alleged  ground  that  he  had  received  higher

offer.  The  appellant  stated  that  other  two

persons  also  offered  more  amount.  The

appellant, in the circumstances, filed Company

Application NO. 407 of 2005 under Rule 9 of the

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Company Court Rules, 1959 read with Section 151

of the Code of Civil Procedure, 1908 stating

therein that it had paid full amount, sale was

confirmed  and  in  spite  of  the  order  by  the

Company Judge, possession had not been handed

over to the appellant. A prayer was made to

direct  Official  Liquidator  to  hand  over

possession  of  property  to  the  appellant.

Meanwhile other offers were also received by

Official  Liquidator.  One  Satish  Choudhary

offered an amount of Rs.2.10 crores. Keeping in

view all the facts, the learned Company Judge,

vide his order dated February 16, 2006 directed

re-sale  of  property  by  issuing  fresh

advertisement  in the  newspapers mentioned  in

the  order.  It  was  also  observed  that  the

reserve price would be fixed at Rs.2.10 crores.

Tenders should reach in the office of Official

Liquidator latest on March 22, 2006, and would

be opened in Court at 1.45 p.m. on March 23,

2006 and inter-se bidding would be permitted at

that time.

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5. In pursuance of the above direction,

advertisement was issued. Official Liquidator

received offers. The highest offer was by Nice

Society-respondent  No.  3  herein  for  Rs.3.5

crores  and  in  the  circumstances,  bid  of

respondent No. 3 was accepted. The appellant in

the  meanwhile  challenged  the  order  of  the

Company  Judge  and,  as  observed  earlier,  the

appeal was dismissed by the Division Bench.  It

is  this  order  which  is  challenged  in  the

present appeal.

6. Notice  was  issued  by  this  Court  on

February  23,  2007.   Affidavits  and  further

affidavits were filed thereafter.  Considering

the  nature  of  litigation,  the  Office  was

directed to place the matter for final hearing

on a non-miscellaneous day and that is how the

matter has been placed before us.

7. We have heard the learned counsel for

the parties.

8. The learned counsel for the appellant

contended that the Company Judge as well as the

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Division Bench of the High Court were wholly

wrong  in  setting  aside  the  auction  sale  in

favour of the appellant.  It was submitted that

pursuant to sale notice, tenders were invited,

twelve persons offered their bids. The bid of

the appellant was highest.  In consonance with

law, therefore, the said bid was accepted and

the  appellant  deposited  amount  of  25%  as

required by law.  It also paid the remaining

amount of 75%.  Sale was confirmed in favour of

the appellant and direction was issued by the

Company  Judge  to  the  Official  Liquidator  to

hand over possession of the property to the

appellant.  The Official Liquidator, however,

with mala fide intention and oblique motive,

refused to do so.

9. According to the counsel, once the bid

was accepted and sale was confirmed, it could

not  be  set  aside  except  on  the  grounds  of

fraud, material irregularity, etc.  It is not

even  the  case  of  the  Official  Liquidator,

submitted the counsel, that there was fraud or

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material irregularity in sale and hence, sale

could not have been set aside. It was urged

that  the  only  ground  put  forward  by  the

Official Liquidator was that he had received a

higher  offer  of  Rs.1.55  crores  from  another

person. The said offer was received after about

seven  months.   The  difference  in  price  was

5.44%.

10. According  to  the  counsel,  judicial

notice can be taken that price of real estate

increases day by day and increase of 5% after

seven months could not justify the Court in

setting aside auction sale which was conducted

in consonance with law.  On that ground alone,

therefore, both the orders are liable to be set

aside by ordering handing over possession of

property to the appellant.

11. It was also submitted that mala fide

action on the part of the Official Liquidator

was  apparent  and  from  the  records  and

proceedings, it was clearly established. On May

6, 2005, the officers of the appellant remained

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present at the site to accept possession, but

the Official Liquidator did not come. A letter,

said to have been written on May 5, 2005 was

received by the appellant belatedly wherein the

only ground given by the Official Liquidator

was that he had received a higher bid of Rs.

1.55 crores and the Company Judge had issued

stay order.  The so-called order passed by the

Company Judge was also not sent along with the

letter.

12. It  was  alleged  that  the  Official

Liquidator did not hand over possession since

the appellant did not oblige him by succumbing

to his demands.  It was asserted that against

the  said  Official  Liquidator,  the  Central

Bureau  of Investigation  (CBI) had  instituted

proceedings alleging corruption and he was also

arrested in that connection.

13. Regarding  bid  of  respondent  No.3-

Society  for  Rs.3.5  crores,  it  was  submitted

that  it  is  well  settled  that  auction  sales

cannot be set aside on the ground that higher

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offers are received from other bidders after

confirmation of sale. If this is allowed and

sales are set aside, there is no end to it.  In

absence  of  illegalities  or  material

irregularities,  credibility  of  court  sales

cannot be doubted nor such sales be set aside.

If price is the only consideration, today the

property is worth Rs.5.5 crores. In that case,

sale in favour of respondent No.3 should also

be set aside and fresh auction must be ordered.

14. It was stated that the appellant was a

bona  fide  purchaser.   It  was  not  even  the

allegation of the Official Liquidator or any

other bidder that highest bid of the appellant

for Rs.1.47 crores was in any way improper,

insufficient  or  inadequate.  The  appellant,

hence,  cannot  be  deprived  of  the  fruits  to

which it was otherwise entitled to.  On all

these grounds it was submitted that the order

passed by the courts below deserve to be set

aside.

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15. On behalf of the Official Liquidator,

an affidavit is filed.  It may, however, be

stated that the present incumbent is different

than the one who was in of the office at the

relevant  time.   The  deponent  denied  the

allegations  levelled  by  the  appellant  but

stated  that  in  view  of  the  higher  offer

received by the then Official Liquidator and

stay granted by the Company Judge, possession

was not handed over to the appellant and the

said action could not be said to be illegal or

contrary to law. It was stated that as per the

order of the Company Judge, fresh tenders were

invited and in the said process, respondent No.

3-Society  offered  Rs.3.5  cores  which  was

accepted and no interference is called for.

16. A counter affidavit is also filed by

respondent No. 3 stating that the appellant had

not approached the Court with true and full

facts.  Sale notice which was issued on October

19, 2004 was incomplete and invalid. It did not

state  valuation  of  movable  and  immovable

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properties. Reserve price was also not fixed.

No inventory of plant and machinery was made.

There  was  no  full  description  of  movable

properties.  Necessary  material  was  not  made

available at the site nor in the office of the

Official  Liquidator.  In  view  of  those

irregularities,  the property  could not  fetch

fair price.  When all the above defects were

brought to the notice of the Company Judge, the

Company Judge was satisfied that the process

undertaken was not proper and hence fresh bids

were invited.

17. It was also submitted that no formal

order  of  confirmation  in  favour  of  the

appellant was at any time made by the Court.

But  even  if  it  is  assumed  for  the  sake  of

argument that the order of the Company Judge

issuing direction to the Official Liquidator to

hand over possession to the appellant can be

said to be an order of confirmation, it would

not take away the power of the Company Judge to

invite fresh tenders if sale was not held in

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accordance with law. Moreover, if auction sale

was confirmed by the Court on March 24, 2005,

the appellant was bound to pay the remaining

amount of 75% before 15th day of confirmation.

Admittedly,  the  appellant  failed  to  pay  the

remaining amount within the stipulated period.

It, therefore, cannot claim any benefit on the

basis of such auction sale.

18. The counsel urged that even otherwise

this Court has held in several cases that the

Court has power to set aside even confirmed

sale if it is satisfied that the property would

have fetched higher price.  The approach of the

Court in such matters is to ensure that the

property must fetch maximum price which would

benefit the Company in clearing its dues and

liabilities towards its creditors, contributors

and workers. In the final analysis, the auction

sale  in  favour  of  respondent  No.  3  for  an

amount of Rs.3.5 crores which was substantially

higher  than  the  bid  of  the  appellant  for

Rs.1.47 crores may not be interfered with.

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19. It  was  further  stated  that  when

respondent No. 3 made an offer of Rs.3.5 cores,

the Court, in fairness, extended opportunity to

the appellant if it wanted to participate in

the  proceedings  and  willing  to  offer  higher

price.  The appellant, however, refused to take

part as also refused to pay anything more than

what was offered earlier. It is, therefore, not

open to the appellant to complain and insist to

get ownership rights and possession of property

for Rs.1.47 cores.

20. It  was stated that respondent No. 3

has paid full amount, got sale deed executed in

its  favour  and  had  spent  substantial  amount

thereafter and on that ground also, the Court

may  not exercise  discretionary and  equitable

jurisdiction  under  Article  136  of  the

Constitution.

21. Having heard the learned counsel for

the parties, in our opinion, no case has been

made out by the appellant against the order

passed by the High Court. From the facts stated

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above, it is clear that in November, 2004, the

bid  of  the  appellant  was  highest  and  was

accepted by the Official Liquidator.  But it is

also  clear  that  certain  facts  which  were

necessary  to  be  brought  to  the  notice  of

intending purchasers were not set out in the

proclamation of sale nor were disclosed at the

time of sale notice.  They related to valuation

of movable and immovable properties, fixation

of reserve price, non-inventory of plant and

machinery, etc. The attention of the Company

Judge was invited by other bidders by filing

Company  Applications.   The  Company  Judge

considered  the  objections  and  having  prima

facie satisfied, ordered fresh auction. We find

no illegality in the said approach. When fresh

bids  were  received,  it  was  found  that  the

highest offer was of respondent No. 3-Society

which was of Rs.3.5 crores.  The Company Judge

extended  an  opportunity  to  the  appellant  to

raise its bid. It, however, appears that the

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appellant was adamant to get the property for

Rs.1.47  crores  on  the  ground  that  the  said

offer was highest and all the proceedings taken

by the Official Liquidator and Company Judge

thereafter were totally illegal and unlawful.

In our opinion, the respondents are right that

in  such  cases,  the  approach  of  the  Company

Judge should be to get highest price so as to

satisfy maximum claims against the Company in

liquidation.  The  procedure  followed  by  the

Company Judge, therefore, cannot be said to be

illegal.

22. It may be observed at this stage that

even  before  the  Division  Bench,  such

opportunity was afforded to the appellant to

raise its bid but it was not availed of by the

appellant.

23. The  Division  Bench,  in  the  impugned

order, noted;

“Even during the course of proceedings in  this  appeal,  we  had  specifically asked  the  learned  counsel  for  the appellant as to whether the appellant

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was willing to go for inter-se bidding to which he flatly declined”.

24. In  this connection, we may refer to

some of the decisions of this Court to which

our attention has been invited.

25. In M/s Navalkha & Sons v. Sri Ramanya

Das & Ors.,  1969 (3) SCC 337, it was held by

this  Court  that  the  principles  which  should

govern confirmation of sale are well-settled.

Where  the  acceptance  of  the  offer  by  the

Commission is subject to confirmation of the

Court,  mere  acceptance  of  offer  by  the

Commission would not confer vested right to the

property in favour of the bidder.  Condition of

confirmation by Court operates as a safeguard

against  the  property  being  sold  at  an

inadequate  price,  whether  or  not  it  is  a

consequence of any irregularity or fraud in the

conduct of the sale.  It is the duty of the

Court  to  satisfy  itself  about  the  proper

valuation.  But once the Court  comes to the

conclusion that the price offered is adequate,

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no  subsequent  higher  offer  can  constitute  a

valid ground for refusing confirmation of the

sale or offer already received. 26. In  Kayjay Industries (P) Ltd. v. M/s

Asnew Drums (P) Ltd. & Ors., (1974) 2 SCC 213,

this Court held that it is the duty of the

Court to accept the highest bid and the Court

is not bound to go on adjourning the sale on

the basis of valuation report. Referring to and

relying on Navalkha,  the Court stated that in

public  sales,  the  authority  must  protect

interest of the parties keeping in view the

fact that a Court sale is a forced sale and,

notwithstanding  the  competitive  element  of

public auction, the best price is not often

forthcoming. 27. In  Union  Bank  of  India  v.  Official

Liquidator,  High  Court  of  Calcutta  &  Ors.,

(2000) 5 SCC 274, this Court observed that in

auction sale of the property of the Company

which is ordered to be wound up, the Company

Court acts as a custodian for the interest of

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the Company and its creditors. It is the duty

of the Company Court to satisfy itself as to

reasonableness of price by disclosing valuation

report to secured creditors of the Company and

other interested persons. It was further held

that  the  Court  should  exercise  judicial

discretion  to  ensure  that  sale  of  property

should fetch adequate price.  For deciding what

would be reasonable price, valuation report of

an  expert  is  essential.   The  Company  Judge

himself must apply his mind to the valuation

report. The Court observed that the High Court

did not interfere with the auction sale on the

ground of sympathy for the workers which was

not proper. The auction sale was, therefore,

set aside by this Court and Official Liquidator

was  directed  to  re-sell  the  property  after

obtaining  fresh  valuation  report  and  after

furnishing  copy  of  such  report  to  secured

creditors. 28. In  Divya  Manufacturing  Company  (P)

Ltd. v. Union Bank of India & Ors.,  (2000) 6

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SCC 69, this Court held that even confirmed

sale can be set aside.  In that case, highest

bid by a party was accepted by the Court and

the sale was confirmed, but before possession

was  delivered  to  the  auction  purchaser  and

execution of sale deed, other parties offered

much higher price.  The High Court required the

subsequent bidders to deposit an amount of 25%

which was done.  Considering the facts in their

entirety,  the  High  Court  set  aside  the

confirmation  of  past  highest  bid.  The  said

action was challenged in this Court. 29. This Court held that in an appropriate

case, even confirmed sale can be set aside.

The  Court  in  this  connection,  relied  upon

earlier two decisions in LICA (P) Ltd. (1) v.

Official  Liquidator,  (1996)  85  Comp  Cas  788

(SC)  and  LICA  (P)  Ltd.  (2)  v.  Official

Liquidator, (1996) 85 Comp Cas 792 (SC). 30. The learned counsel for the appellant

is no doubt right in submitting that in Divya,

there  was  a  specific  condition  (Clause  11)

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which  empowered  the  Court  to  set  aside

confirmed sale “in the interest of creditors,

contributors  and all  concerned and/or  public

interests”.

31. But  the  Court  put  the  matter  on

principle and stated;

“It is the duty of the Court to see that the price fetched at the auction is  an  adequate  price  even  though there  is  no  suggestion  of irregularity or fraud”.

 (emphasis supplied)

32. It proceeded to observe;

“Confirmation of the sale by a Court at grossly inadequate price, whether or  not  it  is  a  consequence  of  any irregularity or fraud in the conduct of sale, could be set aside on the ground  that  it  was  not  just  and proper  exercise  of  judicial discretion.  In  such  cases,  a meaningful intervention by the Court may  prevent,  to  some  extent, underbidding at the time of auction through Court”.   (emphasis supplied)

   33. In  Gajraj  Jain  v.  State  of  Bihar  &

Ors.,  (2004) 7 SCC 151, this Court reiterated

that in absence of valuation report and reserve

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price,  the  auction  sale  becomes  only  a

pretence.  If there is no proper mechanism and

if the intending purchasers are not able to

know  details  of  the  assets  or  itomised

valuation, auction sale cannot be said to be in

accordance with law.  If publicity and maximum

participation is to be attained, all bidders

must know the details of the assets and the

valuation thereof.

34. In  the present case, it was alleged

that there were several irregularities in the

first auction. The tender notice did not state

valuation  of movable  and immovable  property;

reserve price was not fixed, inventory of plant

and machinery was not made available, etc. If

on consideration of these facts, the Company

Judge ordered fresh auction, in our considered

opinion, no complaint can be made against such

action.

35. In our opinion, the submission of the

learned counsel for respondent NO. 3 is also

well-founded  that  when  its  highest  bid  of

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Rs.3.5  crores  was  accepted,  opportunity  was

afforded to the appellant. It, however, did not

avail such opportunity.  The counsel is also

right in referring to subsequent events that

after  the  fresh  auction,  sale  deed  was

executed,  possession  was  handed  over  to

respondent No.3, it had incurred expenses. If

at this stage, the sale is set aside, serious

prejudice will be caused to respondent No. 3-

Society.

36. At  the same time, however, from the

facts it is clear that the appellant’s bid was

accepted in November, 2004. Immediately, it had

deposited  25%  amount.  The  appellant  also

deposited  remaining  amount  of  75%  on  April

12/13,  2005.   It  would,  therefore,  be

appropriate if we direct respondent No. 3 to

pay an amount of Rs.30 lacs to the appellant

which  in  our  opinion  would  serve  the  ends

of justice.  Payment of Rs.30 lacs will serve

as  a  “solatium  to  the  purchaser  for  his

trouble and disappointment for the loss of that

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which is perhaps a good bargain”. [Vide Chundi

Charan v. Bankey Behary, (1899) ILR 26 Cal 449

(FB)].

37. Before  parting,  we  may  clarify  that

serious allegations have been levelled by the

appellant against the then Official Liquidator.

It  was  also  stated  that  Central  Bureau  of

Investigation  (CBI)  has  instituted  criminal

proceedings  alleging  corruption  against  the

Official Liquidator and he was arrested. We are

disposing  of  the  present  appeal  as  in  our

opinion, the order passed by the Company Jude

and confirmed by the Division Bench of the High

Court are in consonance with law. But we may

not be understood to have expressed any opinion

on the allegations levelled by the appellant

against the Official Liquidator. As and when

the matter comes up for consideration before an

appropriate Court/Authority, it will be decided

on its own merits irrespective of the disposal

of this appeal by us.

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38. For the foregoing reason, the appeal

is  partly  allowed  to  the  extent  indicated

above.   

………………………………………J. (C.K. THAKKER)

New Delhi, ………………………………………J. July 9, 2008. (D.K. JAIN)

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