2007 (5) TMI 341 - HC - Companies Law

Court overturns cancellation of bid for Barachakia Unit, appellant not a defaulter, re-advertisement unjustified.

The court set aside the impugned order canceling the appellant's accepted bid for the Barachakia Unit. The appellant was not considered a defaulter for ... Winding up - Power of liquidator Issues Involved:1. Acceptance and cancellation of the highest bid for Barachakia Unit.2. Impact of stay orders on the payment obligations.3. Legality of re-advertisement and revaluation of the property.4. Requirement and fairness of earnest money deposit.5. Effect of price rise during litigation on the accepted bid.6. Applicability of the Supreme Court's decision in Divya Manufacturing Co. (P.) Ltd. v. Union Bank of India.Detailed Analysis:Acceptance and Cancellation of the Highest Bid:The appellant's highest bid of Rs. 5 crore for the Barachakia Unit was accepted by the Company Judge on 31-1-2001. The acceptance order stipulated that the appellant would be entitled to possession of the factory upon payment of the first installment and furnishing a bank guarantee for the remaining amount. However, due to stay orders in special appeals, the appellant did not adhere to the original payment schedule. The Company Judge later ordered revaluation and re-advertisement of the property, citing higher bids received subsequently.Impact of Stay Orders on Payment Obligations:The appellant argued that the stay orders nullified the obligations under the acceptance order, suspending the requirement to make payments. The court agreed, stating that it would be unreasonable to expect the appellant to deposit the entire sale consideration when the court could not convey either title or possession due to the stay orders. The court held that the appellant could not be considered a defaulter for not adhering to the original payment schedule.Legality of Re-advertisement and Revaluation:The Company Judge ordered revaluation and re-advertisement of the property based on higher bids received. The appellant contended that no re-advertisement could take place without first canceling the accepted bid. The court agreed, stating that the acceptance of a bid is equivalent to an agreement for sale, and re-advertisement without canceling the bid was unjustified.Requirement and Fairness of Earnest Money Deposit:The impugned order required each bidder to deposit Rs. 5 crore as earnest money, which was almost equal to the entire sale consideration. The court found this requirement unusual and lacking exceptional reasons. It noted that such a high deposit could deter serious bidders and impose undue financial burdens due to interest liabilities.Effect of Price Rise During Litigation:The court referenced the Supreme Court's decision in S.V.R. Mudaliar v. Mrs. Rajabu F. Buhari, which held that a mere rise in property prices during litigation is not a ground to deny relief if otherwise due. The court found no reason to deviate from this principle and ruled that the rise in property value did not justify canceling the appellant's accepted bid.Applicability of Supreme Court's Decision in Divya Manufacturing Co. (P.) Ltd. v. Union Bank of India:The respondents relied on this decision to justify the impugned order. However, the court distinguished the present case on several grounds:1. The High Court had not reserved the right to set aside the sale in the terms and conditions.2. The higher offers in Divya Manufacturing were received within nine days of the sale, whereas in the present case, they came after six years.3. There was no finding of fraud or grossly inadequate price at the time of the appellant's bid acceptance.Conclusion:The court concluded that the impugned order dated 12-2-2007 could not be sustained. There was no valid ground for canceling the appellant's accepted bid. The court set aside the impugned order and directed the matter to be placed before the Company Judge for appropriate orders. The appellant was ordered to pay interest at 10% per annum on the delayed payments from the date of dismissal of the special appeals until the date of the next order permitting the deposit of the balance.Order:The appeal was allowed, and the impugned order dated 12-2-2007 was set aside. The matter was directed to be placed before the Company Judge on 23-5-2007 or the next available date for further orders.