REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4944 OF 2008 ARISING OUT OF

SPECIAL LEAVE PETITION (CIVIL) NO.13843 OF 2007

IFCI LTD. & ANR. … APPELLANTS

VERSUS

VISHNU KANT GUPTA    … RESPONDENT

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

1. Leave granted.

2. The present appeal is directed against

the order passed by the Division Bench of the

High Court of Judicature at Allahabad on May

21, 2007 in Special Appeal No. 232 of 2007.  By

the said order, the Division Bench allowed the

appeal  filed  by  Vishnu  Kant  Gupta-first

respondent  herein  and  set  aside  the  order

passed by the Company Judge on February 12,

2007 in Miscellaneous Company Application No. 2

of 1993.

3. The facts giving rise to the present

appeal are that Champaran Sugar Company Limited

was  in  financial  doldrums.   Proceedings  had

been  initiated  under  the  Sick  Industrial

Companies  (Special Provisions)  Act, 1985  and

Board  of  Industrial  and  Financial

Reconstruction (BIFR), by its order dated June

28, 1993, held that there was no possibility of

rehabilitation of the Company and the Company

must be ordered to be wound up.  Recommendation

was made to that effect by BIFR and it was

forwarded  to  the  High  Court  of  Allahabad.

Pursuant to the said recommendation, the High

Court passed an order for winding up of the

Company  on  September  5,  1994.   An  Official

Liquidator  was appointed  under the  Companies

Act, 1956.

4. On  January  4,  2000,  the  High  Court

directed  the  Official  Liquidator  to  take

appropriate proceedings for sale of Barachakia

2

and  Chanpatia  property  of  the  Company  in

liquidation.  An advertisement  was issued  and

tenders were invited.  On January 31, 2001, the

matter was taken up by the Company Judge. On

behalf of one Hanuman Industries (India), its

counsel  Ms.  Geeta  Luthra  stated  that  the

Hanuman Industries was prepared to pay Rs.3.51

crores.  In support of the said bid, three bank

drafts  totalling Rs.10  lakhs were  deposited.

Vishnu Kant Gupta, respondent No. 1 herein had

also made offer of Rs.3.51 crores payable in

four equal quarterly instalments on condition

that the possession of the factory be given by

the Official Liquidator upon payment of first

instalment and on furnishing bank guarantee for

the  remaining  amount.   The  matter  was

negotiated with both the parties.  According to

IFCI, valuation given by respondent No. 1 was

‘slightly lower’ and correct valuation should

be Rs. 4,16,000/-. The parties were, therefore,

asked whether they were willing to increase the

offer.  M/s Hanuman Industries offered Rs.3.91

3

crores and Vishnu Kant Gupta finally offered

Rs.  5  crores  payable  in  two  quarterly

instalments, i.e. in six months.  The Company

Judge  having  regard  to  all  the  facts  and

circumstances  held  that  the  offer  of  Vishnu

Kant Gupta was adequate and should be accepted.

Accordingly  offer  of  Vishnu  Kant  Gupta  was

accepted.  

5. Before  the  period  of  three  months

fixed for the payment of first instalment could

expire on April 30, 2001, two Writ Appeals were

filed against the order passed by the Company

Judge and by orders dated February 7, 2001 and

March 13, 2001, interim stay was granted by the

Division Bench and operation of the order by

the  Company  Judge  was  stayed.   It  further

appears that nothing was done thereafter either

by the parties or by the Division Bench of the

High  Court  and  both  the  matters  remained

pending.   For  about  six  years,  the  appeals

remained pending and stay operated.  As late as

on December 5, 2006, both the matters appeared

4

on  Board.  Nobody  appeared  on  behalf  of  the

appellants and both the appeals were dismissed

for default and stay granted by the Division

Bench came to be vacated.   

6. After  the  dismissal  of  appeals  and

vacation of stay, notice was issued to Vishnu

Kant Gupta on February 8, 2007 since he was the

highest bidder.  He was served on February 14,

2007.  But even before the service of notice,

he came to know about the dismissal of appeals

and vacation of stay order and he deposited an

amount of Rs. 1.50 crores on February 9, 2007.

On  February  12,  2007,  he  offered  Rs.  1.55

crores  by  a  bank  draft  and  also  gave  an

undertaking to pay Rs. 2 crores within three

days.  Meanwhile, however, other persons also

gave offers.  One JHV Sugar offered Rs. 5.21

crores.   Similarly,  Shiv  Shakti  Chini  Mills

Pvt.  Ltd.  offered  Rs.  6  crores.  Likewise,

Sanjeev  Kumar  Chawdhary  offered  Rs.  6.50

crores.  The Company Judge in the circumstances

felt  that  it  would  be  in  the  interest  of

5

Company to re-advertise and re-invite tenders.

Accordingly,  he  passed  an  order  for  re-

advertisement of tenders and re-invitation of

offers.

7. The  respondent  herein  was  very  much

aggrieved by the order passed by the Company

Judge.  He felt that his offer of February,

2001 was the highest and more than six years

had passed.  Even according to Company Judge,

the offer made by the first respondent in 2001

was ‘reasonable’ and hence it was accepted and

there was no ground to interfere with the said

action  and  the  order  passed  by  the  Company

Judge was illegal.  He, hence, preferred an

appeal against the order of the Company Judge.

The Division Bench of the High Court considered

the facts and circumstances of the case and

held that the grievance of the appellant was

well-founded  and  the  Company  Judge  was  not

justified in setting aside the highest offer

made  by  the  respondent  and  accepted  by  the

Company  Judge.   The  Court  noted  that  the

6

respondent No. 1 had not paid the amount, but

it was because of stay granted by the Division

Bench  in  February,  2001.  When  appeals  were

dismissed,  respondent  No.  1  had  shown  his

readiness and willingness to pay the amount and

within a period of about one week, he paid more

than Rs. 3 crores and also gave an undertaking

to pay balance amount of Rs. 2 crores within

three  days.   The  Division  Bench,  therefore,

held  that  at  the  most  the  first  respondent

should pay interest @ 10% from December 5, 2006

when the appeals were dismissed up to February

9, 2007 when the respondent No. 1 made first

payment of Rs. 1.50 crores.  The said amount

came to about Rs. 10 lakhs.

8. Accordingly, respondent No. 1 paid Rs.

5 crores as per the bid accepted by the Company

Judge and Rs. 10,40,000/- towards interest as

ordered  by  the  Division  Bench  of  the  High

Court. Appellants herein, namely, IFCI and IDBI

have  challenged  the  order  passed  by  the

Division Bench by filing the present appeal.

7

9.  Notice was issued by this Court on

August 27, 2007. The respondents appeared and

waived  service.   Time  was  granted  to  file

affidavit in reply as well as rejoinder.  By

way of ad interim relief, status quo as on that

day was also granted.  Considering the nature

of  litigation,  the  Registry  was  directed  to

place the matter for final hearing and that is

how the matter has been placed before us.

10. We have heard the learned counsel for

the parties.

11. The learned counsel for the appellants

contended that the Division Bench of the High

Court was wholly wrong in setting aside the

order  passed  by  the  Company  Judge.   It  was

submitted that the Company Judge was right in

setting aside the sale and in inviting fresh

offers.  It was also submitted that the first

respondent had paid ‘paltry amount’ of Rs. 10

lakhs before six years and the Division Bench

was  not  justified  in  directing  the  Official

Liquidator to hand over possession of the Unit

8

for  the  amount  on  which  the  auction  was

undertaken in January, 2001 when no payment was

made by the first respondent for a pretty long

time.  It was also submitted that for about six

years, the respondent had not done anything.

Apart  from  the  fact  that  he  had  not  made

payment to the Official Liquidator, he had also

not  shown  his  readiness  and  willingness  by

depositing the amount in the Company Court so

that it could be invested in any nationalized

bank  and  could  earn  interest.   Resultantly,

almost  the  entire  amount  remained  with  the

purchaser and now he wants to take advantage

though much more attractive and higher offers

have  already  been  received  by  the  Official

Liquidator.   

12. Relying on various decisions of this

Court,  the  counsel  submitted  that  as  per

settled law, acceptance of offer by the highest

bidder does not confer vested right in him to

get the property.  It is not only the  power,

9

but the  duty of the Company Court to ensure

that proper, adequate and reasonable price is

fetched in respect of the property which is to

be  sold  in  public  auction.   It  is  in  the

interest  of  the  Company,  its  shareholders,

creditors, workers as well as in larger public

interest.   It  was  also  submitted  that  this

Court has held that even if sale is confirmed

by  a  Court  and  it  has  been  brought  to  the

notice  of  the  Court  that  property  has  not

fetched proper, adequate and reasonable price,

even confirmed sale can be set aside.  [Divya

Manufacturing Company v. Union of India & Ors.,

(2006) 6 SCC 69].

13. The  appellants  herein  are  secured

creditors.  The said fact ought to have been

taken into consideration by the Division Bench.

As the impugned order is not in consonance with

well-established  principles  of  law,  the

appellants  are  constrained  to  approach  this

Court.  It was, therefore, submitted that the

appeal deserves to be allowed by setting aside

1 0

the order passed by the Division Bench of the

High  Court  by  restoring  the  order  of  the

Company  Judge  directing  him  to  expedite  the

process  of  re-advertisement  and  sale  of

property.

14.  The  learned  counsel  for  the  first

respondent, on the other hand, contended that

admittedly auction was held in January, 2001.

The highest bid of the first respondent was for

Rs. 5 crores which was accepted by the Company

Judge.  The first respondent was prepared to

pay  the  entire  amount  as  per  the  terms  and

conditions of the bid by the Company Judge.

There  was  no  default  on  his  part.

Unfortunately,  however,  two  appeals  were

preferred  and  the  Division  Bench  granted

interim  relief  in  February,  2001.   It  was

because  of  the  interim  order  passed  by  the

Division Bench of the High Court that the first

respondent could not pay the amount. For the

act of Court, the first respondent should not

suffer.  When the appeals were dismissed for

1 1

default  and  interim  relief  was  vacated,

immediately,  he  made  part  payment  and  also

stated that he would be paying the remaining

amount within a very short period.  If after

six years, someone comes forward and says that

he  is  inclined  to  pay  higher  amount,  sale

cannot  be  set  aside  on  such  ground.   The

counsel submitted that the decisions on which

reliance  has  been  placed  by  the  appellants,

support the case of the first respondent that

though it is the duty of the Court to ensure

that  the  property  fetches  reasonable  and

adequate price, it is equally well-settled that

once the Court finds that the price offered is

adequate,  no  subsequent  higher  offer  can

constitute  a  valid  ground  for  refusing

confirmation of sale.

15. In the instant case, the facts clearly

reveal  that  initial  offer  of  the  first-

respondent was for Rs.3.51 crores, but after

negotiations, it was the first respondent who

had  taken  it  up  to  Rs.  5  crores  which  was

1 2

accepted.   In  the  circumstances,  the  order

passed by the Division Bench is strictly in

accordance  with  law  and  no  interference  is

called for.   

16. It  was  also  submitted  that  the

Division  Bench  has  considered  the  fact  that

after dismissal of appeal, the first respondent

ought  to  have  made  payment  immediately  and

since there was a gap of about three months,

the  Division  Bench  directed  the  first

respondent to pay interest @ 10% which came to

Rupees ten lakhs.  The said amount has been

paid by the first respondent.  But even if this

Court  feels  that  the  said  amount  is  not

adequate,  an  appropriate  direction  may  be

issued so that additional amount as this Court

deems  fit  can  also  be  paid  by  the  first

respondent.

17. Having heard the learned counsel for

the  parties,  in  our  opinion,  the  appeal

deserves  to  be  partly  allowed.   So  far  as

principles  relating  to  auction  sale  and

1 3

confirmation thereof are concerned, the law is

well-settled.  Very recently, in  FCS Software

Solutions Ltd. v. LA Medical Devices Ltd. &

Ors., JT (2008) 7 SC 499, we have elaborately

dealt with all these principles and it is not

necessary to burden this judgment by referring

to  all  the  cases  by  reiterating  the  said

principles. 18.   On  the  facts  and  in  the

circumstances of the case, however, one very

eloquent fact cannot be lost sight of.  Highest

bid of Rs. 5 crores by respondent No. 1 was

accepted by the Company Judge on January 31,

2001.  But the record discloses that an amount

of  Rs.  10  lakhs  only  had  been  paid  by  the

successful  bidder-respondent  No.  1.

Ordinarily, when the highest bid of intending

purchaser has been accepted, he is required to

pay 25% of purchase-price immediately.  It had

not  been  done.   The  amount  was  substantial

inasmuch as the highest bid was of Rs.5 crores

1 4

and  the  first  respondent  was  required  to

deposit  an  amount  of  Rs.1.25  crores.   Even

thereafter, nothing was done by him.  Thus,

neither 25% amount (1.25 crores) nor 75% amount

(3.75 crores) was paid by him. True it is that

in February and March, 2001, stay was granted

by the Division Bench, but we cannot ignore the

fact  that  the  price  quoted  by  the  first

respondent  of  Rs.  5  crores  was  in  January,

2001.  Had the amount been paid at the relevant

time by the first respondent or had it been

deposited  in  any  natinalised  Bank,  it  would

have earned a sizeable interest which has not

been  done.   After  the  stay  was  vacated  in

December, 2006, payment was made by the first

respondent only in 2007, i.e. after more than

six years.   

19. In the circumstances, though we agree

with  the  learned  counsel  for  the  first

respondent that higher offer of Rs. 6.5 crores

in  2007  cannot  invalidate  highest  offer  of

first  respondent  of  Rs.  5  crores  made  in

1 5

January, 2001, but at the same time, we cannot

also be oblivious and unmindful of the fact

that out of Rs. 5 crores in January, 2001, the

first respondent had parted with a negligible

amount of of Rs. 10 lakhs only at that time.

Before  the  Division  Bench  it  was  argued  on

behalf of the present appellants that even if

the  Court  is  of  the  view  that  the  sale  in

favour of respondent No. 1 should not be set

aside, he should be ordered to pay 18% interest

from 2001 to 2007. The Division Bench observed

that  such  amount  of  interest  would  come  to

about Rs. 10 crores.  We appreciate that in

view of the above fact, the Division Bench was

justified in not accepting the prayer of the

appellants herein and not directing the first

respondent to pay additional amount of Rs. 10

crores.  But we are also of the view that the

Division  Bench  was  wrong  and  not  at  all

justified in ordering payment of interest only

from December, 2006 to February, 2007.  The

admitted position is that the first respondent

1 6

had paid only Rs. 10 lakhs as against Rs. 5

crores  which  was  also  equally  relevant  and

important  factor. In  our considered  opinion,

while  exercising  discretionary  and  equitable

jurisdiction  under  Article  136  of  the

Constitution, we have to bear in mind the said

fact as well which is very important, relevant

and material.

20. On overall considerations and for the

reasons  stated hereinabove,  in our  judgment,

ends of justice would be served if we direct

that  sale  in  favour  of  first  respondent  be

confirmed  with  condition  that  the  first

respondent will pay an additional amount of Rs.

three crores.  It will be over and above the

payment  which  has  been  made  by  him.   Such

payment will be made within a period of three

months. If the payment is not made as per this

order,  the  first  respondent  will  not  be

entitled to claim any right on the basis of the

bid made and accepted on January 31, 2001 and

fresh  auction  will  be  conducted  as  per  the

1 7

order  of  the  Company  Judge.   The  appeal  is

disposed  of  accordingly.   In  the  facts  and

circumstances of the case, there will be no

order as to costs.

………………………………….J. (C.K. Thakker)

………………………………….J. (D.K. Jain)

New Delhi,

August 08, 2008.

1 8