Navalkha & Sons Vs. Sri Ramanya
Das & Ors  INSC 307 (27 October 1969)
27/10/1969 RAMASWAMI, V.
CITATION: 1970 AIR 2037 1970 SCR (3) 1 1969
SCC (3) 537
CITATOR INFO :
F 1974 SC1331 (9) R 1984 SC1471 (42)
Companies (Court) Rules, 1959, r. 273-Sale of
properties of company in liquidation-Principles to be followed by Judge
In the winding up proceedings of a company in
liquidation, the official liquidator and a share-holder sought permission of
the High Court for the sale of immovable and movable properties and actionable
claims of the company. The company Judge appointed commissioners for the sale
in accordance with the terms and conditions mentioned in his order. One of the
conditions was that the proclamation of sale was to be advertised twice in each
of 5 leading daily newspapers. The commissioners had the proclamation published
in only 4 dailies and it was only in two of them that there were two
insertions. No offer having been received, the time fixed was extended when the
appellant made his offer as the sole offer or The commissioners applied to the
Judge for confirmation of sale, but before the sale in favour of the appellant
was confirmed another person made an offer of a larger amount complaining that
he could not make the offer earlier as there was no adequate publicity. The
Judge thereupon arranged an open bid in the Court itself on that very day, as
between the appellant and the now offer or. The appellant became the highest
bidder and the appellant was directed to pay the balance of amount by a
particular date, but again, before the sale in his favour could be confirmed, a
third person made an application offering a still large amount, complaining of
the want of adequate publicity and advertisement of the sale. The Judge
rejected the application and confirmed the sale in favour of the appellant. In
appeal, the Letters Patent Bench set aside the order of the single Judge and
directed that he should take fresh steps for sale of the property either by
calling for sealed tenders or by auction in accordance with law.
In appeal to this Court,
HELD : When the acceptance of an offer by the
commissioner is subject to confirmation by the court, the offeror does not by
mere acceptance get any vested right in the property and be cannot demand
automatic confirmation of his offer.
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, even though there is no suggestion of irregularity or fraud.
Otherwise, the act of confirmation of the sale would not be a proper exercise
of judicial discretion. But once the court comes to the conclusion that the
price offered is adequate, no subsequent higher offer can constitute a valid
around for refusing confirmation of the sale or offer already received. [5 b-F;
6 A-B] In the present case, the publicity was not as wide as originally
proposed. Therefore, the single Judge was right in refusing to confirm the
first offer of the appellant, and holding an auction. But he erred in confining
the auction to two persons only. The auction was no doubt conducted in a public
place but it was not open to the general public, 2 nor was it held after due
publicity. Therefore, the sale was not a public sale, which implies, a sale
after giving notice to the public with liberty to the public to participate.
Rule 273 of the Companies (Court) Rules, provides that all sales shall be made
by public auction, or by inviting sealed tenders, or in such manner as the
Judge may direct. Since there was want of publicity and there was lack of
opportunity to the public to take part in the auction, and there was inherent
prejudice in the method adopted by the Judge, the acceptance of the appellant's
bid by the Judge was not a sound exercise of discretion and the Division Bench
was right in directing a fresh sale. [6 B-C; 7 A-B, C-D, F] Gordhan Das Chuni
Lal v. T. Sriman Kanthimathinatha Pillai, A.I.R. 1921 Mad. 286, Rathnaswami
Pillai v. Sadapathi Pillai, A.I.R. 1925 Mad. 318, S. Soundarajan v. M/s. Roshan
Sundararajan, A.I.R. 1951 Mad. 986, referred
& CIVIL APPELLATE JURISDICTION: Civil
Appeals Nos 1085 and 1086 of 1967.
Appeals from the judgment and decree dated
September 24, 1965 of the Andhra Pradesh High Court in O.S.A. Nos. 3, and 4 of
V.S. Desai and P. C. Bhartari, for the
appellants (in both the appeals).
P.Ram Reddy and A. V. V. Nair, for respondent
No.5 (in C.A. No. 1085 of 1967) and respondent No. 5 (in C.A. No. 1086 of
R. V. Pillai, for respondent No. 6 (in C.A.
No. 1085 of 1967) and respondent No. 5 (in C.A. No. 1086 of 1967).
The Judgment of the Court was delivered by
Ramaswami, J. These appeals are brought by certificate from the judgment of the
Andhra Pradesh High Court dated September 24, 1965 in O.S.A. Nos. 3 and 4 of
In the winding up proceedings of Hyderabad
Vegetable Products Co., Ltd. (in liquidation) the 5th respondent (Official
Liquidator) sought permission of the Court for the sale of immovable and
movable properties and actionable claims of the Company. This application was
Company Application no. 67 of 1963. A shareholder of the Company one Sirajuddin
Babu Khan also made an application C.A. No. 93 of 1964 to a similar effect. On
these applications an order was passed by Jagan Mohan Reddy J., on April 17,
1964 appointing respondents 2, 3 and 4 as Joint Commissioners for the purpose
of selling immovable and movable properties and actionable claims of the
aforesaid Company in accordance with the terms and conditions mentioned in the
Accordingly a sale proclamation August 1.
1964 was drawn and issued by the respondents 2 to 4 'inviting offers for the
purchase of movable and immovable properties and actionable claims of the
Company as a single unit. According 3 to the terms and conditions of sale the
Commissioners were not bound to accept the highest offer and were at liberty to
reject any offer without assigning any reason. Immediately after the offer was
accepted by the Commissioners the offeror had to deposit 15% of the offer
amount as initial deposit and the balance of the amount together with the
amount required on non-judicial stamp paper within 15 days from the date of
acceptance. Acceptance of the offer by the Commissioners was subject to the
condition of confirmation by the High Court and the offeror was entitled to
take delivery of possession of the properties only after such confirmation. It
was made abundantly clear in cl. 16 that in all matters relating to the sale of
the properties the decision of the Commissioners shall be final and shall be
binding subject to the control of the High Court. One of the conditions also
was that the proclamation of sale was to be advertised twice in each of the
five leading dailies The Statesman, The Times of India, The Hindu, Indian
Express and the Hindustan Times to ensure wide publicity and the Commissioners
were _,also required to get the proclamation printed and distributed among the
likely purchasers. The Commissioners got published the proclamation in four leading
dailies only : the Hindu, Indian Express, The Statesman and ,the Hindustan
Times. No publication was made in the Times of India nor was the advertisement
made twice in any of the said newspapers. In two of them there were two
insertions but in the remaining papers there was only one insertion.
In addition to the advertisement the
Commissioners got printed 300 copiesand posted them to various industrial
concerns. The last date fixed for the receipt of the offers was September 8,
1964. Not even a single offer was received by that time. The time for receipt
of offers was extended by the Court to the end of November, 1964 at the
instance of the Commissioners. The appellant Navalkha & Sons happened to be
the sole offeror. It has offered a sum of Rs. 7,91,001 which was made of Rs.
2,50,000 for the immovable property and Rs. 5,41,001 for the machinery. It made
no offer for the actionable claims. The appellant made deposit of Rs. 50,000 in
the shape of demand draft drawn on the State Bank of Hyderabad. The offer was
accepted by the Commissioners on December 2, 1964. The appellant was called
upon to deposit 15 % of the amount of the offer as initial deposit immediately
and the 'balance together with the amount required for non-judicial stamp paper
within 15 days from the date of acceptance. The appellant did make the initial
deposit. The Commissioners then made an application on December 3, 1964 to the
High Court for confirmation of the sale. On December 11, 1964 the High Court
extended time for payment of the balance amount for two weeks. On December 24,
1964 one Gopaldas Darak made an offer of Rs.
8,50,000 saying that he could not offer in
time because he came to know of the sale only two days 4 prior to that date and
it was due to the fact that there was no adequate publicity. To show his bona
fides he gave a demand -draft for a sum of Rs. 1,00,015. The learned Judge
decided that the property did not fetch its proper price and there was
possibility ,of higher bids. Instead of directing a fresh auction or calling
for fresh offers the learned Judge thought it proper to arrange an. open bid in
the Court itself on that very day, as between the appellant and Gopaldas Darak.
Before starting the bid the learned Judge gave time to the appellant to think
over and say whether it was willing to accept the course decided upon and to
-participate in the auction bids. The appellant consented and volunteered to
take part in the bid and became the highest bidder-at Rs. 8,82,009. The learned
Judge accepted the said bid as final bid and concluded the sale in favour of
the appellant directing it to pay the balance of the money together with the
amount required for non-judicial stamp on January 31, 1965 making it clear that
in case of default the deposit already made would be forfeited. The appellant
paid the balance of the amount on January 30, 1965. On the same day one Padam
Chand Agarwal ,made an application (C.A. 44 of 1965) offering Rs. 10,00,000. He
complained that publicity of the sale of the property was not adequately made
and he came to know of the advertisement very late. He was prepared to enhance
the offer to Rs.
10,00,000 and was also willing to participate
in open bid if the Court so -decided with Rs. 10,00,000 as initial bid.
The learned Judge rejected his request and by
his order dated February 19, 1965 'held that the sale should be confirmed in
favour of the appellant. Aggrieved by this Order Padam Chand Agarwal filed
appeal no. 4 -of 1965. One Ramnuia Das, a contributory also chose to prefer an
appeal (appeal no. 3 of 1965) against the order of confirmation.
According to him, the publicity given was
inadequate and -the first offer given by the appellant was too low and the
Court 'has rightly refused to confirm the acceptance of the offer. His
grievance was that the learned Judge should have held the auction ,only after
due publicity but has not done so and the course 'followed not achieve the
object of getting adequate price of the property.
Both appeals 3 and 4 are, therefore, directed
against the confirmation of the auction sale held in Court on December 24,
1964., These appeals were allowed by Letters Patent Bench consisting of the
Chief Justice and Kumarayya J.. and the order of the :learned single Judge
dated February 19, 1965 read with his previous order dated December 24, 1965
was set aside. It was directed that the learned Judge should take fresh steps
for the sale of the property either by calling sealed tenders or by auction in
accordance with law. The tenders would be called or the auction would take place
with the requisite condition of minimum -offer or starting bid of Rs.;
5 It was argued by Mr. V. S. Desai on behalf
of the appellants that the discretion of the learned Company Judge was not
erroneously exercised when he accepted the bid of the appellant in the, auction
held on December 24, 1964 and consequently there was no justification for the
Division Bench to interfere with the order of the learned Single Judge. We are
unable to accept,this argument as correct.
Rule 273 of Companies (Court) Rules, 1959 is
to the following effect "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."
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 a proper exercise of judicial discretion.
In Gordhan Das Chuni Lal v. T. Sriman
Kanthimathinatha Pillai(1) 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(2) 'and S.
Soundajan v. M/s. Roshan & Ca.(1). In A. Subbaraya Mudaliar v.
K.Sundarajan(4) 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 (1)A.T.R. 1921 mad. 286.
(3) A.T.R. 1940 mad. 42.
(2) A.I.R. 1925 Mar. 318.
(4) A.I.R. 1951 Mar. 1986.
6 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 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(1) In the present case the Division Bench has come to the conclusion
that publicity was not as wide as originally proposed by the Commissioners in
their affidavit. The publication was made in four dailies namely The Hindu,
Indian Express, Hindustan Times and The Statesman. There was no publication in
the Times of India. Further out of the four newspapers in which publication was
made only in two there were two insertions and in the remaining two there was
only one insertion. This was contrary to what the Commissioners have promised
in their affidavit dated July 8, 1964. No doubt, other efforts were made for
giving publicity but these efforts were not sufficient to attract more than one
offer. When the case came for confirmation on December 24, 1964 there was an
application by Babu Khan that the property was of much higher value and that
fresh offers must be invited again with wider publicity. There is also the
affidavit of the -State Government dated August 29, 1963 in which the value of
the property was shown as Rs. 13,40,000. Besides, on that very day, one
Gopaldas Darak had come before the Court with a higher offer showing his bona
fides and earnestness by depositing more than one lakh of rupees. He came with
the complaint that there was not sufficient publicity as to attract people from
the north and that as soon as he came to know he gave his offer. In these
circumstances the learned single Judge was right in expressing his reluctance
to confirm the offer of Navalkha & Sons. He therefore decided to have an
open bid as between the appellant and Darak in the court itself on that very
day. The complaint of Padam Chand Agarwal is that the second step taken by the
Single Judge of holding an auction without giving wide publicity was not
justified in law.
Rule 273 of the Companies (Court) Rules
provides that all sales shall be made by public auction or by inviting sealed
tenders or in such manner as the Judge may direct. It appears that on April 17,
1964 it the instance of the Official Liquidator and at the instance of a
contributory the Court had approved of the terms and conditions of sale which
provided for calling of sealed tenders. On December 24, 1964 the learned Judge
realised the inefficacy of this course and decided to abandon the original
procedure and put the properties to auction. But having made up his mind to
resort to auction the (1) A.I.R. 1940 Mad. 42.
7 learned Judge confined the auction to only
two persons namely ,the previous tenderer and the fresh tenderer. The auction
in question no doubt was conducted in a public place but it was not a public
auction because it was not open to the general public but was confined to two
Secondly it was not held after due publicity.
It was held immediately after it was decided upon. It is, therefore., obvious
that the sale in question was not a public sale which implies sale after giving
notice to the public wherein every member of the public is at liberty to
participate. No doubt, the device resorted to considerably raised the previous
bid yet it was not an adequate price having regard to the market value of the
property to which reference has already been made. The denial of opportunity to
purchase the property by persons who would have taken part in the auction bid
but for want of notice is a serious matter. In our opinion the learned Judge
having decided on December 24, 1964 that the property should be put to auction
should have directed auction by public sale instead of confining it to two
persons alone. Since there was want of publicity and there was lack of
opportunity to the public to take part in the auction the acceptance of the
highest bid by the learned Judge was not a sound exercise of discretion. It is
contended on behalf of the appellant that confirmation was discretionary with
the court and the Division Bench ought not to have interfered with the
discretion exercised by the Company Judge. It is true that the discretion
exercised by the Judge ought not to be inter fired with unless the Judge has
gone wrong on principle. As already pointed out the learned Company Judge
having decided to put the property to auction went wrong in not holding the
auction as a public auction after due publicity and this has resulted in prejudice
to the Company and the creditors in that the auction did not fetch adequate
price. The prejudice was inherent in the method adopted. The petition of Padam
Chand Agarwal also suggest that want of publicity had resulted in prejudice. In
these circumstances the Company Judge ought not to have confirmed the bid of
the appellant in the auction held on December 24, 1964. We are accordingly of
opinion that the Division Bench was right in holding that the order of the
Company Judge dated February 19, 1965 should be set aside and there should be
fresh sale of the property either by calling sealed tenders or by auction in
accordance with law. The tender will be called or the auction will take place
with the minimum offer or with the starting bid often lakh rupees.
For these reasons we hold that the judgment
of the Division Bench of the Andhra Pradesh High Court dated September 24.
1965 is correct and these appeals must be
dismissed with costs. One set of bearing fee.