REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.4992_OF 2008 [Arising out of SLP(Civil) No. 12820/2006]

Valji Khimji & Company .. Appellant

-versus-

Official Liquidator of Hindustan  Nitro Product (Gujarat) Ltd & Ors. .. Respondents

J U D G M E N T

Markandey Katju, J.

1. Leave granted.

2. This appeal has been filed against the impugned

final judgment & order  dated 25.8.2005 & 26.8.2005

passed by the High Court of Gujarat at Ahmedabad in

O.J. Appeal No. 69 and 70 of 2004 in O.J. Misc. Civil

Application No. 175 of 2003 and CA No. 311 of 2004

respectively  in  Official  Liquidator  Report  No.  49  of

2003.

3. Heard learned counsel for the parties and perused

the record.

4. The  facts  of  the  case  are  that  Hindustan  Nitro

Product (Gujarat) Ltd. was put under liquidation, and

an official liquidator was appointed for it.  The assets

of the  company were  proposed to be auctioned, and

hence the Court asked the official liquidator to obtain

a  valuation  report.   The  official  liquidator  after

obtaining  the  valuation  report  submitted  it  to  the

Court.  The valuation of these assets, according to the

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official  liquidator,  was Rs.2.55 crores.   The property

was  then  put  up  for  auction  on  25.3.2003  after

advertising  it  in  various  well-known  newspapers

having  wide  circulation,  including  `The  Economic

Times’ which is a well known newspaper having wide

circulation in the business community.

5. Several bids were received and were opened in the

Court. The highest bid was that of the appellant M/s.

Valji Khimji & Company amounting to Rs. 3.51 crores.

With  the  consent  of  the  learned  advocates

representing the secured creditors,  the  said bid was

accepted  and the  sale  was confirmed on 30.7.2003.

The Court directed the appellant to deposit 25% of the

purchase  price  i.e.  Rs.63,98,000/-  within  30  days

from the said day and to deposit the balance amount

within the next three months.  The Court also directed

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that the amount may be deposited in installments, but

no installment should be less than Rs.5 lakhs.   These

conditions were complied with by the appellant.       

6. Although the sale was confirmed in favour of the

appellant on 30.7.2003, a letter dated 22.10.2003 was

sent to the official liquidator by one M/s. Manibhadra

Sales Corporation (respondent No. 8 herein) offering to

buy the assets in question for Rs.3.75 crores (though

this offer was admittedly withdrawn later on).  

7. Subsequently  in  August  2004,  M/s.  Castwell

Alloys Limited (respondent No. 9 herein) made an offer

of  Rs.5  crores   for  the  said  assets.   This  offer  was

made more than one year after the confirmation of the

sale in favour of the appellant.

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8. Both  M/s.  Manibhadra  Sales  Corporation  and

M/s. Castwell Alloys Limited filed applications praying

for recall  of the order dated 30.7.2003 by which the

sale  was  confirmed  in  favour  of  the  appellant.   On

10.9.2004, the learned Company Judge took up both

these  applications  and  passed  an  order  dated

10.9.2004  recalling  the  order  dated  30.7.2003  by

which the sale was confirmed.

9. Aggrieved against the said order dated 10.9.2004

the appellant filed an appeal before the Division Bench

of  the  High  Court  which  was  dismissed  by  the

impugned judgment dated 25.8.2005 and 26.8.2005.

Aggrieved, this appeal has been filed before us by way

of Special Leave.  

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10. We  have  carefully  perused  the  impugned

judgment  & order  of  the  learned  Division Bench as

well as the order dated 10.9.2004 of the learned Single

Judge and are of the opinion that the same cannot be

sustained.

11. It may be noted that the auction sale was done

after  adequate  publicity  in  well-known  newspapers.

Hence, if any one wanted to make a bid in the auction

he should have participated in the said auction and

made his bid.  Moreover even after the auction the sale

was confirmed by the High Court only on 30.7.2003,

and any objection to  the  sale  could have  been filed

prior  to  that  date.   However,  in  our  opinion,

entertaining  objections  after  the  sale  is  confirmed

should  not  ordinarily  be  allowed,  except  on  very

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limited grounds like fraud, otherwise no auction sale

will ever be complete.

12. It is not in dispute that the auction was an open

auction after wide publicity in well-known newspapers.

Hence, there was nothing to prevent M/s. Manibhadra

Sales Corporation and M/s. Castwell Alloys Limited  to

have participated in the auction, but they did not do

so.  There is no allegation of fraud either in this case.

Hence, in our opinion, there was no justification to set

aside the confirmation of the sale.

13. It appears that the reasoning of the learned Single

Judge,  as  also  of  the  Division  Bench,  was  that  the

valuation of the assets of the company was made as if

these assets were scrap.  The reasoning of the learned

Single Judge of the High Court thus seems to be that

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the  assets  in  question was wrongly  given  out  to  be

scrap and thus a proper bid was not obtained.

14. In our opinion, there is nothing to show that the

assets  in  question  which  were  auctioned-sold  were

ever given out to be scrap.  They are not mentioned as

scrap in the advertisement or sale notice, nor is there

any  material  to  show  that  the  valuer  valued  them

treating them to be scrap.   

15. We have carefully perused the sale notice and we

find  that  it  is  nowhere  mentioned  therein  that  the

assets in question are scrap.

16. No doubt  ,  the  assets  of  M/s.  Hindustan  Nitro

Product  (Gujarat)  Limited   offered  to  be  sold in  the

auction sale were offered in lots (as mentioned in the

sale notice).  The first lot was plant machineries and

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all  other  movables  excluding  building  structure,

records and compound wall,  the second lot  was the

building  structure  except  T.K.  Office,  records  &

compound wall, the third lot was a composite offer (I &

II) above, the fourth lot was land except records, and

the fifth lot was a composite offer (i.e. III & IV above).

In our opinion, this cannot be described as scrap.    

17. The word ‘scrap’ would ordinarily mean something

which cannot be used for the same purpose for which

it  was  being  earlier  used  even  after  repairing  or

renovating the same.  There is nothing to show that

the items proposed to be auctioned sold was scrap, i.e.

they could not be used for the same purpose for which

they were earlier used after repairing or reconditioning

the same.

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18. Learned  counsel  for  the  respondents  submitted

that the assets proposed to be auctioned sold were not

in a running condition and hence  were  ‘scrap’.   We

cannot  agree.   In  our  opinion  merely  because  the

assets  were  not  in  a  running  condition  it  does  not

mean that they were scrap.  For instance, if the engine

of a motor car is not functioning due to some defect,

that  does not  mean that  the  motor car has become

scrap.  The motor car can be towed to a garage where

a motor mechanic can repair it and then it can again

become  in  running  condition.   The  motor  car  will

become  scrap  only  if  it  is  in  such  a  dilapidated

condition  that  it  can  never  be  made  in  running

condition  again  despite  repairs  and  renovation,  and

hence it will have to be sold as a piece of metal.

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19. Hence,  we  cannot  agree  with  the  views  of  the

Courts below that any fraud took place in the auction

sale.  

20. Moreover,  whenever  anyone  goes  to  buy  some

property in an auction sale, the person proposing to

bid always makes enquiries about the properties for

which he is proposing to make the bid.  In fact, he will

in all probability inspect the said property/assets, and

he  will  not  make  any  bid  without  making thorough

enquiries about the said properties/assets.  Hence, we

are of the opinion that all the bidders in the auction

knew what they were bidding for.  Respondent No. 9

never  participated  in  the  auction  and  we  fail  to

understand how he could start objecting to the auction

more than one year after the same was confirmed.

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21. The other reasoning of the learned Single Judge

by which he set aside the confirmation of the sale is

that  the  company  was  entitled  to  incentives  and

benefits  like  sales  tax  exemption  and modvat.   The

learned Single Judge has observed that the company

M/s.  Hindustan Nitro Product (Gujarat)  Limited had

made huge investments in development of an effluent

treatment plant, and received permission for supply of

gas for fuel from GAIL. The learned Single Judge was

of the view that the intangible assets were required to

be considered while fixing the value of the property.

22. We fail to understand how all this is relevant at

all.  After all, what was being sold was the assets of

the company, and not the shares of the company, and

these assets were fully described in the sale notice.

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23. The  learned  Single  Judge  in  our  opinion  also

wrongly observed that  while  doing the  valuation the

potential  of  the  company  was  overlooked.   Such

potential has really no relevance in our opinion.

24. The learned Single Judge has observed that the

valuation was made as if the assets of the company to

be sold were scrap, and instead the valuation should

have been done as if it was a going concern.  We have

already observed above that this observation is really

based on no material as there is nothing to show that

the valuation of the assets was done as if they were

scrap.

25. The  learned  Division  Bench  in  its  impugned

judgment  has  broadly  adopted  the  reasoning  of  the

learned  Single  Judge.   Hence  for  the  same  reason

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given  above  the  judgment  of  the  learned  Division

Bench also cannot be sustained.

26. Learned counsel for the appellant Mr. Sundaram

has  relied  upon  the  decision  of  this  Court  in  M/s

Kayjay Industries (P) Ltd. vs. M/s. Asnew Drums (P)

Ltd & Ors. (1974) SCC 213 in which it was observed

that mere inadequacy  of price cannot demolish every

court  sale.   The  Court  also  observed  in  para  7,  as

under:

“If Court sales are too frequently adjourned with a view to obtaining a still higher price it may prove a self-defeating  exercise,  for  industrialists  will  lose faith in the actual  sale  taking place and may not care  to  travel  up  to  the  place  of  auction  being uncertain that the sale would at all go through”     

27. On  the  other  hand,  learned  counsel  for  the

respondents  relied  upon a decision of  this  Court  in

Divya  Manufacturing  Company  (P)  Ltd.  etc.   vs.

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Union Bank of India & Ors. etc. (2000) 6 SCC 69.

We have carefully perused the above decision and we

find that it is clearly distinguishable.  

28. The facts of the case were that at the initial stage

the  appellant  offered  37  lakhs  for  purchasing  the

property in question.  At the intervention of the court

the price was raised to 1.3 crores,  and ultimately  it

was found that  the  property  could  be  sold for  Rs.2

crores.  It was on these facts that this Court held that

even after confirmation of the sale the same could be

set aside.

29. Thus,  the  ratio  in  Divya  Manufacturing

Company (P) Ltd. (supra) was that if  there  is fraud

then even after  the confirmation the sale can be set

aside  because  it  is  well-settled  that  fraud  vitiates

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everything.   On the facts of that case, the Court was

of the view that that confirmed sale deserved to be set

aside.

30. In our opinion the decision of this Court in Divya

Manufacturing Company (P) Ltd. (supra) cannot be

treated  as  laying  down  any  absolute  rule  that  a

confirmed sale can be set aside in all circumstances.

As  observed  by  one  of  us  (Hon.  Katju,  J.)  in  his

judgment  in Civil  Appeal No. 4908/2008 (Dr. Rajbir

Singh Dalal vs. Chaudhary   Devi   Lal University, Sirsa   

& Anr pronounced on 6.8.2008),  a decision of a Court

cannot be treated as Euclid’s formula and read and

understood  mechanically.   A  decision  must  be

considered on the facts of that particular case.

31. If it is held that every confirmed sale can be set

aside the result would be that no auction sale will ever

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be complete because always somebody can come after

the  auction  or  its  confirmation  offering  a  higher

amount.

32. It could have been a different matter if the auction

had  been  held  without  adequate  publicity  in  well-

known newspapers having wide circulation, but where

the auction sale was done after  wide publicity,  then

setting aside the sale after its confirmation will create

huge problems.   When an auction sale is advertised in

well-known  newspapers  having  wide  circulation,  all

eligible persons can come and bid for the same, and

they  will  be  themselves  be  to  blame  if  they  do  not

come forward to bid at the time of the auction. They

cannot ordinarily later on be allowed after the bidding

(or confirmation) is over to offer a higher price.   

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33. Of  course,  the  situation  may  be  different  if  an

auction  sale  is  finalized  say  for  Rs.1  crore,  and

subsequently  somebody  turns  up  offering  Rs.  10

crores.   In  this  situation it  is  possible  to  infer  that

there  was  some  fraud  because  if  somebody

subsequently offers 10 crores, then an inference can

be drawn that an attempt had been made to acquire

that  property/asset  at  a  grossly  inadequate  price.

This  situation  itself  may  indicate  fraud  or  some

collusion.  However,  if  the  price  offered  after  the

auction is over which is only a little over the auction

price, that cannot by itself suggest that any fraud has

been done.   

34. In the present case we are satisfied that there is

no fraud in the auction sale.  It may be mentioned that

auctions are of two types – (1) where the auction is not

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subject to subsequent confirmation and (2) where the

auction is subject to subsequent confirmation by some

authority after the auction is held.

35. In the first case mentioned above, i.e. where the

auction  is  not  subject  to  confirmation  by  any

authority,  the  auction is  complete  on the  fall  of  the

hammer,  and certain  rights  accrue  in  favour  of  the

auction  purchaser.   However,  where  the  auction  is

subject to subsequent confirmation by some authority

(under a statute or terms of the auction) the auction is

not  complete  and no  rights  accrue  until  the  sale  is

confirmed by the said authority.  Once, however, the

sale  is  confirmed  by  that  authority,  certain  rights

accrue in favour of the auction purchaser, and these

rights  cannot  be  extinguished  except  in  exceptional

cases such as fraud.  

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36. In  the  present  case,  the  auction  having  been

confirmed on 30.7.2003 by the Court it cannot be set

aside unless some fraud or collusion has been proved.

We are satisfied that no fraud or collusion has been

established by any one in this case.

37. In view of the above, we allow this appeal and set

aside  the  impugned  judgments  and  orders  of  the

learned  Single  Judge  as  well  as  the  Division Bench

dated 25.8.2005 and 26.8.2005.  The confirmation of

the  auction  sale  dated  30.7.2003  in  favour  of  the

appellant stands upheld.   There shall be no order as

to costs.

…………………………J. (Altamas Kabir)

…………………………J. (Markandey Katju)

New Delhi;

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12th August, 2008  

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