REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  3201       OF 2008 ARISING OUT OF

SPECIAL LEAVE PETITION (CIVIL) NO. 2189 OF 2007

M.V. JANARDHAN REDDY … APPELLANT

VERSUS

VIJAYA BANK & OTHERS  … 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 herein against the judgment and order

dated October 18, 2006 passed by the High Court

of Andhra Pradesh in Original Side Appeal No.

44 of 2006. By the said order, the Division

Bench of the High Court dismissed the appeal

and  confirmed  the  order,  dated  September  8,

2006 passed by the Single Judge of that Court

in Company Application No. 73 of 2006.

3. To  appreciate  the  controversy  raised

in the present appeal, few relevant facts may

be stated;

4. Vijaya  Bank-Respondent  No.1  herein

(‘Bank’ for short) filed Original Suit No. 57

of  1989  in  the  Court  of  Subordinate  Judge,

Bhongir against Messrs Kran Organics Chemicals

(P) Ltd (in liquidation) (‘Company’ for short)

for recovery of Rs.94,50,524/- as also another

Suit being Original Suit No. 61 of 1989 in the

same Court for recovery of Rs.6,43,962/-. Both

the suits were decreed by a common judgment

dated July 24, 1993. The Bank filed execution

applications  which were  transferred to  Debts

Recovery  Tribunal  on  establishment  of  the

Tribunal under Recovery of Debts due to Banks

and Financial Institutions Act, 1993. Recovery

certificates were issued in favour of the Bank

and the Bank was allowed to execute the decree.

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5. Since  the matter was pending in the

Company  Court  and  Official  Liquidator  was

appointed, the Bank made an application, being

Company Application No. 219 of 1996 in Company

Petition No. 18 of 1990 in accordance with the

provisions of Section 446 of the Companies Act,

1956  (hereinafter  referred  to  as  ‘the  Act’)

read with Rule 117 of the Companies (Court)

Rules, 1959 (hereinafter referred to as ‘the

Rules’) for granting leave to proceed with the

sale of the property of the Company.

6. The  Company  Court,  vide  its  order,

dated August 13, 1999 granted the permission.

7. The Bank then took steps for sale of

land  and  building  of  the  Company.  It  got

valuation report from approved valuer, assessed

market  value and  realizable value,  submitted

copies  of judgment,  recovery certificate  and

valuation  report,  etc.  to  the  Official

Liquidator.   It  made  an  application  being

Company  Application  No.  187  of  2005  to  the

Company Court under Sections  446 and 457 of

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the Act read with Rule 9 of the Rules praying

for  acceptance  of  the  Valuation  Report  and

permit  the  Bank  to  sell  the  property  by

conducting  auction  through  Recovery  Officer,

Debt Recovery Tribunal, Hyderabad.

8. On  February  2,  2005,  the  Bank

published a notice fixing date of sale as March

13,  2005.  A  public  notice  was  issued  in

‘Vaartha’ on February 9, 2005. Reserve price

was fixed at Rs.45 lakhs. No bidder, however,

came forward and auction could not be effected.

Same  thing  was  repeated  in  auction  sales

scheduled to be held on May 29, 2005, July 8,

2005 and September 14, 2005. In an auction held

on December 19, 2005, the appellant had offered

Rs. 67.50 lakhs which was the highest bid and

it was accepted. The Bank made an application

in January, 2006, being Company Application NO.

73  of  2006  requesting  the  Company  Court  to

allow the Recovery Officer of the Tribunal to

confirm the sale in favour of the appellant and

to permit him to issue sale certificate. On

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February 13, 2006, Recovery Officer confirmed

the sale. It was stated in the said order that

the purchasers had purchased the property for a

sum of Rs.67,50,000/- at a public auction held

on December 19, 2005. Full amount of the sale

consideration was paid on January 3, 2006.  

9. It was then stated;

“Accordingly,  the  said  sale  is hereby confirmed”.

10. According  to  the  appellant,  on

February  23,  2006,  the  Official  Liquidator

submitted a report to the Hon’ble Court wherein

he also stated that there was no impediment in

confirming  the  sale.  Sale  certificate  was

issued in favour of the appellant on March 2,

2006.  The  sale  was  registered  on  March  16,

2006. On March 17, 2006, however, the Company

Judge set aside the sale without issuing notice

and without affording an opportunity of hearing

to the appellant observing that the sale was

not  properly  conducted  and  was  confirmed

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without an order from the Court.  The sale was,

therefore, set aside.

11. It  appears  that  an  application  was

made by the appellant to recall the said order.

Meanwhile, the Company Judge issued direction

to  the  Official  Liquidator  to  sell  the

property.  Notice  was  issued  by  the  Official

Liquidator for sale of property. The appellant,

however, approached the Division Bench of the

High Court by filing Original Side Appeal No.

28 of 2006 complaining that an order passed by

the Company Judge setting aside the sale, was

illegal, unlawful, violative of principles of

natural justice and fair play inasmuch as no

notice was issued and no opportunity of hearing

was  afforded  before  passing  the  said  order,

which  adversely  affected  the  appellant.  The

Division  Bench  upheld  the  contention  of  the

appellant, allowed the appeal filed by him and

set  aside  the  order  passed  by  the  Company

Judge.  The  matter  was  again  ordered  to  be

placed  before  the  learned  Company  Judge  for

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passing an appropriate order in accordance with

law.

12. The learned Company Judge, thereafter,

heard  the  parties  and  by  an  order  dated

September 8, 2006, set aside the sale which was

in favour of the appellant and ordered that the

amount deposited by the appellant be refunded

to him. The appellant approached the Division

Bench of the High Court but the Division Bench

also dismissed the appeal. The said order is

challenged in the present appeal.

13. On  February  12,  2007,  notice  was

issued  by  this  Court.  The  matter  thereafter

appeared  on  the  board  from  time  to  time.

Status  quo was  also  granted.   Parties  were

permitted to file replies and a direction was

issued to the Registry to place the matter for

final hearing on a non-miscellaneous day and

that is how the matter has been placed before

us.

14. We have heard learned counsel for the

parties.

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15. The learned counsel for the appellant

contended  that  the  auction  was  held  in

accordance  with  law  by  the  authorities  and

upset  price  was  fixed  as  Rs.45  lakhs.  The

appellant was the highest bidder on December

19, 2005 and his bid was for Rs.67.50 lakhs.

The said bid was accepted and the entire amount

was paid by him and the sale was confirmed.

The  sale,  therefore,  could  not  have  been

interfered with and set aside by the Court. It

was also submitted that after confirmation of

sale, no order setting aside the sale could

have  been  passed  by  the  Court.  The  learned

counsel  submitted  that  once  the  sale  was

confirmed,  it  could  be  set  aside  only  on

certain grounds such as fraud or irregularity

in conducting sale, etc. Since no such ground

was there, the order setting aside sale was

illegal  and  was  of  no  effect.  It  was  also

submitted  that  remarks  of  the  Official

Liquidator were called and Official Liquidator

vide his report dated February 23, 2006 stated

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that as against the upset price of Rs.45 lakhs,

the highest bid was of Rs.67.50 lakhs by the

appellant  and  there  was  no  impediment  in

confirming  the  sale.  Hence,  even  on  that

ground, the Company Judge was not justified in

setting aside the sale. The counsel stated that

at  an  earlier  occasion  also,  an  order  was

passed by the Company Judge setting aside the

sale  without  issuing  notice  and  giving

opportunity  of  hearing  to  the  appellant.

Fortunately, however, the said order was set

aside by the Division Bench.  But again the

Company  Judge  set  aside  the  sale  and  the

Division Bench confirmed the said order. The

counsel  submitted that  after confirmation  of

sale, sale certificate was issued in favour of

the appellant on March 2, 2006, sale deed was

registered on March 16, 2006 and the appellant

had paid an amount of Rs.4 lakhs towards stamp

duty.  All these had caused serious prejudice

to the appellant. The entire amount of Rs.67.50

lakhs was paid in the beginning of 2006 and if

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at this stage, the order of the High Court is

not  interfered  with,  irreparable  injury  and

loss  would  be  caused  to  the  appellant.  He,

therefore, submitted that the order passed by

the  High  Court  deserves  to  be  set  aside  by

restoring confirmation of sale in favour of the

appellant and by directing the respondents to

take consequential action.

16. The  learned  counsel  for  respondent

Nos. 1 and 2, on the other hand, supported the

order passed by the learned Company Judge and

confirmed  by  the  Division  Bench.  It  was

submitted  that  the  Recovery  Officer  had  no

power,  authority  or  jurisdiction  to  confirm

sale and an order of confirming sale passed by

him  on  February  13,  2006  was,  therefore,

without power or authority. Moreover, Company

proceedings  were  pending  before  the  learned

Company Judge. The Company was ordered to be

wound up. Official Liquidator was appointed who

was in charge of the assets of the Company. He

was  not  taken  in  confidence,  nor  was  he

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associated  with  the  auction  of  assets  and

properties of the Company in liquidation and an

action had been taken by the Recovery Officer

which  was  contrary  to  law.  Even  the  report

submitted by the Official Liquidator expressly

stated;

“Since  Official  Liquidator  was not associated with the proceedings of sale, he has no comments to offer”.  

17. So  far  as  the  order  passed  by  the

learned  Company  Judge  is  concerned,  it

specifically  and  unequivocally  stated  that

permission  of  the  court  should  be  obtained

before sale is confirmed or finalized.  That

order  was  passed  as  early  as  on  August  13,

1999.  In an order, dated March 25, 2005 also,

it was expressly mentioned that the sale was

subject to confirmation of the Court. It was an

express condition imposed by the Company Court

and as such it was not open to the Recovery

Officer to confirm the sale and such order,

which  was  having  no  authority  of  law,  was

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rightly set aside by the Company Judge and no

grievance  could  be  made.  Finally,  it  was

submitted that the Court was wholly justified

in  observing  that  the  property  would  have

fetched much more than Rs. 67.50 lakhs.  In

fact, in a subsequent auction, the highest bid

was of Rs.1,80,00,000  i.e. almost three times

than the highest bid of the appellant. In the

circumstances, it could not be said that any

illegality had been committed by the Court in

setting aside the sale or there was miscarriage

of justice. It was, therefore, submitted that

the appeal deserves to be dismissed.

18. On  behalf  of  respondent  No.  3,  an

affidavit in reply is filed and it is stated

that  after  the  bid  of  respondent  No.  3  was

accepted for Rs. 1.80 crores, it had paid the

said amount in November, 2006.  The sale was

confirmed by the Company Court in its favour,

sale deed was executed and even physical and

actual possession of the property was given to

respondent No. 3.  The third respondent also

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obtained necessary permission and certificates

from  the  Authorities  so  as  to  enable  it  to

start  unit.   It  had  incurred  substantial

expenditure of about Rs. 1.50 crores and also

taken steps for recruitment of staff.  If at

this stage, the order passed by the High Court

is set aside, great prejudice would be caused

to the said respondent.

19. Having heard the learned counsel for

the  parties  and  having  given  anxious

consideration to the facts and circumstances in

their entirety, in our opinion, it cannot be

said that by setting aside sale, either the

learned Company Judge or the Division Bench has

committed  any  illegality  which  deserves

interference in exercise of discretionary power

under Article 136 of the Constitution.

20. Our attention has been invited by the

learned counsel to the relevant orders passed

by the Company Court from time to time. So far

as  the  order  dated  August  13,  1999  is

concerned, permission to sell the property was

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granted on certain terms and conditions. They

read as under;

A) The Official Liquidator shall be allowed to have inspection of the properties  and  assets  of  the company in liquidation and to take inventory as and when required.

B) Certified copy of the Judgment and decree passed by the Subordinate Judge,  Bhongir  in  O.S.  No.57/89 dt.  24.7.1993  shall  be  made available  to  the  official Liquidator without delay.

C) The  certified  copy  of  the  order that would be passed by the Debt Recovery Tribunal, Bangalore shall be made available to the official Liquidator  without  avoidable delay.

D) The petitioner-Bank shall file the valuer’s  report  in  the  court before  the  properties  covered under the mortgage deed are put to sale.

E) Permission of this court shall be obtained  before the  sale of  the properties  movable  or  immovable, is confirmed or finalized.

F) The  petitioner-Bank  shall undertake  to  deposit  and  shall deposit the workmen dues with the official  Liquidator  as  and  when quantified  by  him  as  per  the provisions  of  Section  529(A)  of the Indian Companies Act.

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G) Whatever surplus remains after the sale and realization of the dues of the secured creditors and the workmen, as per law, the balance sale  proceeds  shall  be  made available  to  the  official Liquidator for being dealt with in accordance with the provisions of the companies Act and the Rules.

  (emphasis supplied)

21. An  order,  dated  March  28,  2005  in

Company Application No. 187 of 2005 was equally

clear.  It read as under;

“This is an application filed by the Nationalized  Bank  seeking  permission of this Court to receive the valuation report and also to permit the bank to effect sale of the properties of the Company under liquidation through the Recovery Officer of the Debts Recovery Tribunal, in terms of the conditions of auction sale notice dated 2.2.2005.

It  is  also  stated  that  though  sale notice  was  ordered,  no  sale  was conducted  as  no  permission  was obtained from this Court. The Official Liquidator  also  filed  a  report reporting that there is no objection as  to the proposed auction and also the valuation report as filed by the applicant Company.

Under  the  above  circumstances,  the applicant company is permitted to go ahead  with the proposed sale of the assets  of  the  Company  under

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Liquidation  through  public  auction. But,  however, the said sale, if any effected,  shall  be  subject  to  the confirmation  of  this  Court.  The applicant  is  accordingly  granted permission to effect the sale, but the sale shall be required to be confirmed by this Court.

The  application  is  accordingly disposed of.” (emphasis supplied)

22. The  above  orders  leave  no  room  of

doubt that the Bank was permitted to go ahead

with the proposed sale of the assets of the

Company under liquidation by way of auction but

such sale was subject to confirmation by the

Company Court. It is, therefore, clear that all

parties were aware about the condition as to

confirmation of sale by the Company Court. It

was, therefore, not open to Recovery Officer to

confirm sale. The order passed and action taken

by the Recovery Officer was in clear violation

of and inconsistent with the specific condition

imposed  by  the  Company  Court.   In  our

considered  opinion,  therefore,  the  appellant

cannot take any advantage of confirmation of

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sale  by  the  Recovery  Officer  who  did  not

possess the power to confirm sale.

23. So  far  as  confirmation  of  sale  is

concerned, the principles are well-settled.  It

is,  therefore,  not  necessary  to  consider

various  decisions  on  that  point.   We  may,

however, refer to M/s Navalakha & Sons v. Sri

Ramanya Das & Ors., (1970) 2 SCR 77 : (1969) 3

SCC 537.  

24. In that case, speaking for the Court,

Ramaswami, J. stated;

“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 offerer 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

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reasonable.  Unless  the  Court  is satisfied about the adequacy of the price the act of confirmation of the sale would not be a proper exercise of judicial discretion. In  Gordhan Das  Chuni  Lal v.  S.  Sriman Kanthimathinatha  Pillai, 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 and S. Soundarajan v. Roshan & Co. In A. Subbaraya Mudaliar v. K. Sundarajan, it was pointed out that the condition of confirmation by the Court being a safeguard against the property being said 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 well to bear in mind the other principle which is equally well-settled  namely  that  once  the Court comes to the conclusion that

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the  price  offered  is  adequate,  no subsequent  higher  offer  can constitute  a  valid  ground  for refusing confirmation of the sale or offer  already  received”.  [See  the decision of the Madras High Court in Roshan & Co’s case (supra)].

25. It is true that the Recovery Officer

confirmed the sale in favour of the appellant.

But  as  we  have  already  noted,  in  view  of

condition  imposed  by  the  Company  Court,

Recovery  Officer  did  not  have  the  power  to

confirm sale.  An order passed by an officer

having no authority of law has no effect.  It

neither creates any right in favour of a party

for whom such order is made nor imposes any

obligation on the opposite party against whom

it was passed.

26. In  Sikander  Khan  v.  Radha  Kishan,

(2002) 9 SCC 405 : JT 2001 (10) SC 29, auction

–sale of agricultural land was confirmed by the

Collector.   The  judgment-debtor  filed  an

application under Order 21, Rule 90 of the Code

of Civil Procedure, 1908 contending that the

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Collector had no jurisdiction to confirm the

sale and his action, therefore, was null and

void.

27. Upholding  the  contention  and  setting

aside the sale, this Court said;

“Learned counsel appearing for the appellants urged that the view taken by the High Court that the Collector had  jurisdiction  to  confirm  the auction-sale was patently erroneous. In  other  words,  what  the  learned counsel  contends  is  that  under Section  71  of  the  Code  read  with Order 21 Rule 92 CPC, the Collector is  only  authorised  to  hold  and conduct the auction-sale but he has no  power  to  confirm  the  sale. According to him, the confirmation of auction-sale can only be done by the civil  court  after  deciding  the objections,  if  filed.  We  find substance in the argument. Order 21 Rule  92  of  the  Code  of  Civil Procedure  provides  that  the  civil court  shall  have  power  to  make  an order  confirming  the  sale  and thereupon  the  sale  shall  become absolute. What Section 71 of the Code provides is that where the execution of  the  decree  is  passed  by  the competent  civil court,  which cannot be satisfied and requires sale of the agricultural  holding  of  a  pakka tenant, the auction-sale of such land shall be conducted by the Collector on fulfilment of certain conditions. It is, therefore, crystal clear that

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only  the  auction-sale  of  an agricultural land is to be held and conducted  by  the  orders  of  the Collector and not the confirmation of such sale. In view of the fact that in the present case the auction-sale of  the  appellants’  land  was  not confirmed  by  the  civil  court,  the auction-sale  was  a  nullity  and  the executing court was right when it set aside the impugned auction-sale”.  

28. It is true that when the Company Judge

set aside the sale on March 17, 2006, the order

was reversed by the Division Bench of the High

Court  since  it  was  in  breach  of  natural

justice. That does not, however, mean that the

Company Court could not pass fresh order after

affording  opportunity  of  hearing  to  the

parties. In our opinion, the Company Court was

right in passing fresh order after hearing the

parties. If the Recovery Officer could not have

confirmed the sale, obviously all actions taken

in pursuance of confirmation of sale, such as,

issuance of sale certificate, registration of

documents, etc., would be of no consequence.

Since  the  Company  was  in  liquidation  and

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Official Liquidator was in charge of the assets

of  the  Company,  he  ought  to  have  been

associated with the auction proceedings, which

was  not  done.  This  is  also  clear  from  the

report submitted by the Official Liquidator and

on  that  ground  also,  the  auction  sale  was

liable to be set aside.

29. Thus,  taking  into  account  overall

circumstances,  it  cannot  be  said  that  by

setting aside the sale, any illegality had been

committed by the Court or the appellant had

suffered.  The  grievance  voiced  by  the

appellant, therefore, is not well founded and

cannot be upheld.

30. One thing, however, may be noted. In

the  auction  held  on  December  19,  2005,  the

appellant was the highest bidder. His bid of

Rs.67.50 lakhs was accepted and he paid the

earnest  money.  Sale  was  confirmed  albeit

illegally, by the Recovery Officer on February

13, 2006 and he paid the remaining amount.  The

appellant  thus  paid  the  entire  amount  of

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Rs.67.50 lakhs. The sale was confirmed, sale

certificate  was  issued  and  sale  deed  was

registered in his favour.  It is the case of

the appellant that he had paid stamp duty of

Rs.4 lakhs. Taking into consideration all these

factors, in our opinion, ends of justice would

be met if respondent No.3—M/s MSN Organics (P)

Ltd.,  who  has  purchased  the  property  for

Rs.1.80 crores is directed to pay an amount of

Rs.20,00,000/-  (twenty  lakhs  only)  to  the

appellant herein.  In our judgment, payment of

this  amount  to  the  appellant  (auction-

purchaser) would work as ‘some solatium for his

trouble and disappointment for the loss of that

which  is,  perhaps,  a  good  bargain’  [Chundi

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

(FB)].

31. For the foregoing reasons, the appeal

deserves  to  be  partly  allowed  and  is

accordingly  allowed  to  the  extent  indicated

above.

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…………………………………………………J. (C.K. THAKKER)

NEW DELHI, …………………………………………………J. May 02, 2008. (D.K. JAIN)

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