Valji Khimji &
Co. Vs. O.L. of Hindustan Nitroproduct Ltd.& Ors  INSC 1353 (12
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. ..
Markandey Katju, J.
appeal has been filed against the impugned final judgment & order dated
25.8.2005 & 26.8.2005 2 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
learned counsel for the parties and perused the record.
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 3 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
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 4 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.
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for Rs.3.75 crores (though this offer was admittedly withdrawn later on).
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.
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.
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.
appeal has been filed before us by way of Special Leave.
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.
may be noted that the auction sale was done after adequate publicity in
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 7 limited grounds like fraud, otherwise no auction sale will ever be
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
Hence, in our
opinion, there was no justification to set aside the confirmation of the sale.
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 8 the assets in question was wrongly given out to be
scrap and thus a proper bid was not obtained.
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.
have carefully perused the sale notice and we find that it is nowhere mentioned
therein that the assets in question are scrap.
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 9 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.
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.
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.
we cannot agree with the views of the Courts below that any fraud took place in
the auction sale.
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.
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.
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.
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.
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.
learned Division Bench in its impugned judgment has broadly adopted the
reasoning of the learned Single Judge. Hence for the same reason 14 given
above the judgment of the learned Division Bench also cannot be sustained.
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"
the other hand, learned counsel for the respondents relied upon a decision of
this Court in Divya Manufacturing Company (P) Ltd. etc. vs. 15 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.
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.
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 16 everything. On the facts of that case, the
Court was of the view that that confirmed sale deserved to be set aside.
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
it is held that every confirmed sale can be set aside the result would be that
no auction sale will ever 17 be complete because always somebody can come
after the auction or its confirmation offering a higher amount.
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.
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.
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 19 subject to subsequent confirmation and (2) where the auction is subject
to subsequent confirmation by some authority after the auction is held.
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.
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.
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.