Allahabad Bank Vs. Bengal
Paper Mills Co. Ltd. & Ors  Insc 624 (7 October 2004)
C.J.I. R.C. Lahoti, G.P.
Mathur & P.K. Balasubramanyan Ia Nos. 9-11 In Civil Appeal Nos.4191-4193 Of 1991
With I.A. Nos.13, 14 And 15 In Civil Appeal No.4191 Of 1991 P.K. Balasubramanyan,
I.A. NOs.9-11 in CIVIL APPEAL NOs.4191-4193 OF 1991 These are applications
by Respondent No.2 in the above mentioned appeals, C.A. Nos.4191-4193 of 1991.
The prayer therein is for a clarification of the Judgment in the appeals rendered
by this Court on 20.4.1999 by providing that the applicant was also entitled to
the amount of Rs.1,56,21,839.25 being the interest that has accrued on the
purchase price of Rs.2 crores paid by it for the assets of the Bengal Paper
Mills Co. Ltd., a company in liquidation. The applications are opposed by the
creditors, some of whom were the appellants in the appeals.
The Bengal Paper Mills Co. Ltd. was ordered to be wound up in a winding up
petition filed by its creditors. The order was passed on 24.4.1987. Even before
the order for winding up, the assets were put in possession of two joint
receivers appointed in a suit by one of the creditors. On the Official
Liquidator being appointed in liquidation, the joint receivers were directed to
put the Official Liquidator in possession of the assets of the debtor company.
They put him in possession. The possession was thus obtained by the Official
Liquidator. After getting the assets valued, the Company Court on 29.6.1989
granted leave to the Official Liquidator to sell the assets and properties of
the company in liquidation. Pursuant thereto, the Official Liquidator issued a
sale notice on 14.9.1989. Respondent No.2 in the appeal, the applicant, made an
offer on 14.9.1989. The offer was accepted and the sale was ordered on
15.9.1989. It is seen that the sale was confirmed the same day and possession
was given to the purchaser, the applicant on 16.9.1989. But, it may be noticed
that the purchase price of Rs.2 crores was not collected at once and the
purchaser was permitted to pay the price in four quarterly instalments.
The sale was confirmed on the terms quoted in the Judgment of this Court.
The sale and its confirmation by the Company Judge was challenged in appeals
before the Division Bench of the Calcutta High Court. The Division Bench of the
High Court in spite of noticing various irregularities and infirmities in the
sale and the inadequacy of the price in the light of the valuation of the
assets, proceeded to dismiss the appeals. The creditors challenged that
decision in the above appeals before this Court. This Court by its Judgment
dated 20.04.1999, allowed the appeals and set aside the sale on the grounds set
out therein. It is seen that the applicant herein prayed before this Court that
the amount of Rs.2 crores paid by it in instalments by way of purchase price,
may be refunded to it and that it may also be repaid the sums which it had
allegedly expended for the revival of the company.
This Court, in the Judgment, dealt with the claim of the applicant as
"Learned counsel for the second respondent submitted that the second
respondent would be entitled to recover the sale price as also all expenditure
that it had incurred consequent upon the order of sale. We are in no doubt that
the Official Liquidator must refund to the second respondent the sum of Rs.2
As to any other expenditure, the second respondent must apply to the High
Court and satisfy it, first, that it was incurred and, secondly, that in law,
the second respondent is entitled to recover it.
The appeals are allowed. The judgment and order under appeal is set aside as
also the order of sale dated 15th September, 1989 in favour of the second
respondent. The Official Liquidator shall forthwith recover possession, from
whoever is in possession, of the assets and properties covered by the said
order of sale. The same shall be resold after a fresh valuation report thereof
has been obtained, a reserve bid fixed and due advertisements published. The
second respondent shall be repaid the purchase price of Rs.2 crores by the
Official Liquidator subsequent to recovery of possession as aforesaid." On
4.6.1999, the applicant requested the Official Liquidator to refund the amount
of Rs.2 crores deposited by it towards the purchase price as directed in the
Judgment. The Official Liquidator promptly refunded a sum of Rs.2 crores to the
applicant on 6.7.1999. It is the case of the applicant that it had claimed that
it was also entitled to the interest earned by the Official Liquidator on
investment of the sum of Rs.2 crores, but that the Official Liquidator refused
to pay any interest. It is in that context that the present applications have
been filed by the applicant seeking what it calls a clarification of the
Judgment rendered by this Court.
According to the applicant, its claim for interest was for the period
from15.9.1989 to 20.4.1999 on the sum of Rs.2 crores. This Court had passed an
order on 20.1.2000 calling upon the Official Liquidator to furnish information
on the investment of the sum of Rs.2 crores and the interest that had been
earned and the Official Liquidator had filed a statement which indicated that
the interest that was earned for the period in question was Rs.1,56,21,839.25.
It is also seen that pursuant to the liberty given by this Court the
applicant has filed an application before the Company Court claiming payment
out of a sum of Rs.21 crores as the amount expended by it for the revival of
the company. It is said that the said application was allowed in spite of being
opposed but that an appeal has been filed against it and the recovery
thereunder stood stayed and the appeal was still pending.
The application does not disclose under what provision the same was being
filed. Nor does it set out any legal basis for claiming interest on the
purchase price deposited by the applicant. The two aspects put forward are that
during the 10 years the applicant was in possession of the assets pursuant to
the sale, the company had made losses except for two years and that the
Official Liquidator had invested the purchase price and had earned interest and
the interest earned was an accretion to the purchase price which would belong
the applicant since the sale in its favour had been set aside.
The applications are opposed. It is submitted that the applications were not
maintainable as what the applications really sought was not a clarification of
the Judgment but an additional relief or a relief which was not granted by this
Court and which, in fact, has been denied or which should be deemed to have
been denied. It is pointed out that the shockingly low purchase price was not
even paid in a lump on 15.9.1989 from which date the interest was being
claimed, but the same was paid only in four quarterly instalments and the claim
for interest was untenable. It was further submitted that the applicant had the
enjoyment of the assets valued at more than Rs.16 crores for a period of 10
years and the applicant had not accounted for the profits for that period. It
was pointed out that the claim that the company had made losses during the said
10 years other than for two years, was being seriously disputed. As a matter of
fact, the applicant was liable to account for the profits earned from the
properties during the period of 10 years it had been in possession. The
applications were misconceived and were liable to be dismissed.
Learned senior counsel appearing for the applicant submitted that the amount
of Rs.2 crores paid into the hands of the Official Liquidator by the company
had earned interest amounting to Rs.1,56,21,839.25 and that the said interest
was really an accretion to the purchase price paid by the applicant and once
the purchase price was directed to be refunded to the applicant by setting
aside the sale, the applicant was also entitled to the interest accrued, as an
accretion to the asset. He, therefore, submitted that the Judgment of this
Court required a clarification in that regard and really no review of the
Judgment was necessary and relief could be granted to the applicant on these applications.
Counsel appearing for the creditors, on the other hand, submitted that the
relief now being claimed must be deemed to have been refused by this Court
while it ordered the refund of the purchase price of Rs.2 crores and also
allowed the applicant to make an application before the Company Court claiming
payment out of the amounts allegedly expended by it for the revival of the
The prayer made was beyond the scope of a petition for clarification of the
Judgment and it was really a claim for further relief and such a relief cannot
be granted on these applications. The applicant had enjoyment of the properties
and its profits for a period of 10 years and really it was a case where the
applicant had to account for those profits and, there could be no unilateral
direction for making over the interest to the applicant without imposing a
corresponding obligation on the applicant to account for the profits of the
properties. The ordering of such a mutual accounting was beyond the scope of
the present applications.
Certain salient facts may be noticed. This Court has found that the purchase
price paid by the applicant was a shockingly low considering the value of the
assets that were sold by the Official Liquidator. Even this low price of Rs.2
crores, as can be seen from the affidavit of the official liquidator dated
29.3.2000, was paid not in a lump by the applicant-the purchaser and the amount
was allowed to be paid in four quarterly installments but even before payment
of the entire purchase price, the properties were put in the possession of the
applicant on 16.9.1989, the day next to the sale. The possession was returned
only on 5.5.1999 about ten years after the applicant was put in possession.
Until then, the applicant had the enjoyment of the properties.
The Official Liquidator, in winding up proceedings by court, has the power
to sell the immovable properties of the company wound up, under Section
457(1)[c] of the Companies
Act, 1956. Rule 272 of the Companies (Court) Rules, 1959 provides that an
Official Liquidator can sell the property belonging to the company only with
the previous sanction of the court and that every sale shall be subject to
confirmation by the court. Rule 273 lays down the procedure for sale and Rule
274 deals with the meeting of the expenses of the sale.
Order XXI Rule 93 of the Code of Civil Procedure (for short 'the Code')
provides that where a sale of immovable property is set aside under Rule 92 of Order
XXI, the purchaser shall be entitled to an order for repayment of his purchase
money with or without interest as the court may direct, against any person to
whom it has been paid. It has been held that even though Order XXI Rule 93 of
the Code may not ipso facto apply to a sale otherwise other than under the
Code, the principle embodied therein can be applied to other sales to order
refund of the purchase price with interest while setting aside a sale. But it
has to be seen that Rule 93 of Order XXI of the Code gives a discretion to the
court setting aside a sale, either to award interest or not to award interest.
Considered in the context of that discretion, it is clear from the Judgment
rendered by this Court that this Court refused to direct the payment of
interest to the applicant even while directing the refund of the purchase price
paid by the applicant to the Official Liquidator. In such a situation it is not
possible to accede to the prayer of the applicant to order the payment of
interest on the purchase price paid by it, based on the principle embodied in
Order XXI Rule 93 of the Code on this application for a clarification of the
Judgment. In the circumstances of the present applications, we have to proceed
on the basis that this Court has exercised its discretion not to award interest
on the purchase price in the light of the directions issued by it in that
Learned counsel for the applicant relied on the decision in Motors &
Investment Ltd. vs. New Bank of India and others (1997 (11) SCC 271 ) and
submitted that in that case the Court ordered payment of interest to the
purchaser on the sale being set aside. On an examination of paragraph 6 of the
said decision, it is seen that the question was not discussed as such. But the
Court did order the interest earned by the purchase price to be refunded to the
purchaser or in the alternative to pay interest on the amount at 18 per cent
per annum. In the case of Central Bank of India vs. Ravindra and others (2002
(1) SCC 367 ) this Court discussed the concept of interest to point out that it
was the payment fixed by agreement or allowed by law for use or detention of
money. In other words, what was indicated was that interest was really
compensation for the use of the money which the purchaser was deprived of.
Going by the principle of compensation indicated in the said Judgment, the
question would arise whether the applicant, in the circumstances of this case,
when it had enjoyed the assets for about ten years on deposit of the purchase
price, would be entitled to any compensation at all, or to compensation with an
obligation to account for the profits, an issue, that has to be adjudicated in
an appropriate manner and not certainly while considering an application for
clarification. We find that the obtaining of possession by the purchaser on
deposit of the purchase price has considerable relevance, in deciding whether
the purchaser would be entitled to interest on the purchase price as indicated
by the decision of this Court in Union of India vs. Official Liquidator H.C. of
Calcutta and others (2000 (5) SCC 274 ). Therein, after referring to the
decision in Motors & Investment Ltd. vs. New Bank of India and others (
supra) relied on by counsel for the applicant and the direction for payment of
interest made therein, this Court declined the award of interest on the
distinction that, in that case, possession had passed to the purchaser. The
Court stated that the Judgment in Motors & Investment Ltd. vs. New Bank of India
and others (supra) had no bearing mainly because as soon as the amount was
deposited by the purchaser, possession of the property was handed over to him.
No doubt the learned Judges thereafter, also referred to the decision in the
present case and the non award of interest therein. But, in our view, that
makes no difference, since the distinguishing feature relied on by the said
decision, was the non-passing of possession to the purchaser. In this case, as
we have noticed, the applicant, the purchaser, obtained possession even before
he had paid the entire purchase price and had paid only 25 per cent or so of
the purchase price and kept that possession for 10 years.
Even on the principle of restitution, the claim of the applicant may not
succeed. This is not a case where the applicant was deprived of both his money
and the property purchased by him. There was, therefore, no failure of
consideration. By the subsequent order of Court, the sale was set aside; but
during the interregnum, the applicant had the benefit of the assets he had purchased.
The other contracting party, the company in liquidation was deprived of the use
of its assets.
The creditors who held the properties as security were deprived of their
right to deal with the security or to enjoy the benefits of the security during
the interregnum. In fact, the securities available to the creditors were
utilized by the auction purchaser-the applicant. In that situation, the
applicant might have the obligation to account for the profits.
Certainly, while rendering the main Judgment, this Court was conscious of
all these aspects while ordering refund only of the purchase price deposited
without providing for payment of interest to the purchaser but at the same time
leaving it open to the purchaser to work out its claim for the expenses
incurred by it before the Company Court.
As stated in Goff and Jones The Law of Restitution (sixth edition) the law
of restitution is the law relating to all claims quasi contractual or
otherwise, which are founded upon the principle of unjust enrichment. It will,
therefore, be necessary to investigate that aspect even if we invoke Sections
70 and 72 of the Indian Contract Act. Even if we invoke Section 65 of the
Contract Act, the advantages derived by each of the parties will have to be
determined and quantified in terms of money and any order in favour of the
applicant can be made only after undertaking that exercise. This result cannot
be achieved by seeking a clarification of the Judgment as now done.
It also appears to us that there was a change of position of the parties
including the creditors, pursuant to the sale and the applicant being put in
possession. In that context, the adequacy of consideration paid by the
applicant will be a relevant consideration. As observed in Goff and Jones in
paragraph 42-004, "neither common law nor equity normally inquires into
the adequacy of the consideration which the purchaser provides. But such an
enquiry would be central to any defence solely based on a defence of change of
possession, for, it is a defence which operates to discharge, wholly or in
part, a defendant's duty to make restitution". Be it noted that the sale
in favour of the applicant was set aside by this Court mainly on the ground
that the consideration paid was grossly inadequate.
The upshot of the above discussion is that the prayer for clarification as
made cannot be granted. The applications are liable to be dismissed. Hence,
they are dismissed.
I.A. Nos.13, 14 and 15 in C.A. No.4191 of 1991 I.A. No.13/2004 is an
application filed by the Bengal Paper Mill Mazdoor Union, the Labour Union of
the wound up industry, for a clarification of the Judgment dated 20.4.1999 by
directing that the company in liquidation may be sold as a going concern. I.A.
No.14 of 2004 is by the same Union seeking permission to file a supplementary
affidavit in support of its above prayer. I.A. No.15 of 2004 is by the company
which had made an offer for purchase of the assets of the company in
liquidation "as is where is" praying for permission to intervene in
I.A. No.13 of 2004 filed by the said Union. According to the Union, before the
company court an offer had been made by M/s Madhuri Traders Ltd. for purchase
of the assets of the company in liquidation as a going concern for a price of
Rs.10 crores. But a counter offer was received from M/s Zoom Traders and
Reality Ltd., the applicant in I.A. No.15 of 2004, for Rs.17.75 crores for the
entire assets of the company in liquidation on "as is where is"
basis. In this situation, the company court has directed the parties to get a
clarification from this Court as to the mode in which the assets should be
sold, whether as a going concern or as property "as is where is",
meaning thereby that the purchaser will be free to dispose of the land,
machinery and other equipments as he pleased. It is the submission of the Union
that the workers of the Union will be benefited if the property is sold as a
unit and a going concern and it is in that context that they have filed I.A.
No.13 of 2004 for clarification. It is in that application that M/s Zoom
Traders & Realty Ltd. wants to intervene, to press its claim for purchase
of the assets "as is where is" but not with a view to run the
industry or revive the industry.
We find that these applications are misconceived. The learned company judge
was also in error in directing the parties to seek a clarification from this
Court. In liquidation, the assets had been sold by the liquidator and the sale
was confirmed by the company court.
But the same was set aside by this Court. This Court while setting aside the
sale and issuing certain other directions, has very clearly directed that
"the same shall be resold after a fresh valuation report thereof has been
obtained, the reserved bid fixed and due advertisement published".
Obviously, this Court intended that a proper price should be fetched for the
assets of the company in liquidation. It has left the question to the company
court. It is for the company court to take a decision on the fresh sale to be
conducted by it. There is no question of any clarification of the directions of
this Court. No need for such a clarification arises. The decision, at least in
the first instance, has necessarily to be that of the company court as to the
mode and manner of sale and the price at which it is to be sold. In this
situation, we are satisfied that these applications filed in this Court are
misconceived and they are liable to be dismissed.
We, therefore, dismiss these applications leaving it to the company court to
take a proper decision on the matters forming subject matter of these