2004 (10) TMI 326 - SC - Companies Law

Supreme Court rules on interest in liquidation asset purchase, emphasizes discretion and restitution principles

The Supreme Court clarified that the applicant was not entitled to the interest accrued on the purchase price of assets acquired from a company in ... 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? Held that:- Appeal dismissed. 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. Issues Involved:1. Clarification of judgment regarding entitlement to interest accrued on the purchase price.2. Mode of sale of assets of the company in liquidation (as a going concern or 'as is where is').Issue-wise Analysis:1. Clarification of Judgment Regarding Entitlement to Interest Accrued on the Purchase Price:The applicant sought clarification on whether it was entitled to the interest accrued on the purchase price of Rs. 2 crores, which was paid for the assets of Bengal Paper Mills Co. Ltd., a company in liquidation. The Supreme Court had previously set aside the sale and ordered the refund of the purchase price but did not address the interest accrued.The applicant argued that the interest earned on the purchase price during the period from 15-9-1989 to 20-4-1999 should be considered an accretion to the purchase price and thus be refunded along with the principal amount. The Official Liquidator had invested the sum, earning an interest of Rs. 1,56,21,839.25.The creditors opposed this application, arguing that the applicant had already enjoyed the assets for ten years and had not accounted for the profits during this period. They contended that the claim for interest was untenable and that the applications sought an additional relief not granted by the Court.The Court noted that the purchase price paid by the applicant was shockingly low and that the applicant had obtained possession of the assets even before paying the entire purchase price. The Court highlighted that under Order XXI Rule 93 of the Code of Civil Procedure, the discretion to award interest lies with the Court, and in this case, the Court had exercised its discretion not to award interest.The Court also referred to the principle of restitution, emphasizing that the applicant had enjoyed the assets for ten years, and thus, there was no failure of consideration. The applicant might have an obligation to account for the profits earned during this period. Consequently, the Court concluded that the prayer for clarification could not be granted and dismissed the applications.2. Mode of Sale of Assets of the Company in Liquidation:The Bengal Paper Mill Mazdoor Union filed an application seeking clarification on whether the assets of the company in liquidation should be sold as a going concern or on an 'as is where is' basis. The Union argued that selling the company as a going concern would benefit the workers. Another company, M/s. Zoom Traders & Realty Ltd., sought to intervene, proposing to purchase the assets on an 'as is where is' basis.The Court found these applications to be misconceived. It emphasized that the decision regarding the mode and manner of sale should be taken by the company court. The Supreme Court had already directed that the assets be resold after obtaining a fresh valuation report, fixing a reserve bid, and publishing due advertisements. The Court left it to the company court to decide on the appropriate mode of sale to fetch a proper price for the assets.The Court dismissed these applications, reiterating that the company court should take a proper decision on the matters forming the subject matter of these applications.