2008 (11) TMI 404 - HC - Companies Law

Court orders fresh auction, sets aside sale, orders vigilance inquiry, emphasizes transparency in auction sales.

Saraf Paper Mills Ltd. (In Liquidation), In re

Saraf Paper Mills Ltd. (In Liquidation), In re - [2009] 92 SCL 232 (DELHI) Issues Involved:1. Enhancement of bid price by M/s. Indocap Pvt. Ltd.2. Disbursement of amount by IDBI.3. Enhancement of bid price by M/s. Surya Finvest Pvt. Ltd.4. Setting aside the auction dated 4-11-2004 by IFCI Ltd.Issue-wise Detailed Analysis:1. Enhancement of Bid Price by M/s. Indocap Pvt. Ltd.:M/s. Indocap Pvt. Ltd. filed CA No. 1185/2006 to enhance the bid price to Rs. 4.10 crores for the land and building of the company in liquidation. The court noted that GES, the auction purchaser, had initially offered Rs. 90 lakhs, which was raised to Rs. 1.30 crores during inter se bidding. Later, GES increased its offer to Rs. 3.15 crores and then to Rs. 3.51 crores. The court observed that GES raised its offers only to the minimum necessary to outbid others and not to the true market value. The court found the offers by Indocap Pvt. Ltd. and Surya Finvest Pvt. Ltd. (Rs. 4.50 crores) indicative of higher market value. However, it rejected Indocap's application due to lack of earnest money deposit and the suspicion of collusion with ex-directors of the company in liquidation.2. Disbursement of Amount by IDBI:IDBI filed CA No. 1449/2006 for disbursement of the amount lying with the Official Liquidator. The court dismissed this application as the auction sale in favor of GES was set aside, and the disbursement was contingent on the finalization of the auction sale.3. Enhancement of Bid Price by M/s. Surya Finvest Pvt. Ltd.:M/s. Surya Finvest Pvt. Ltd. filed CA No. 554/2007 to enhance the bid price to Rs. 4.50 crores. The court noted that this application was not accompanied by the earnest money deposit, rendering it non-serious. The court also found that the offers made by both Indocap Pvt. Ltd. and Surya Finvest Pvt. Ltd. fell short of the valuation made by Hardicon Ltd., which assessed the property at Rs. 10.50 crores. Consequently, the application was rejected.4. Setting Aside the Auction Dated 4-11-2004 by IFCI Ltd.:IFCI Ltd. filed CA No. 698/2007 to set aside the auction dated 4-11-2004 in favor of GES, citing a fresh valuation indicating the property's realizable value at Rs. 10.50 crores. The court found that the sale proclamation issued on 4-10-2004 was inadequate and misleading, lacking crucial details about the property's extent. It also noted that the Official Liquidator failed to act prudently and did not bring these deficiencies to the court's attention. The court set aside the sale to GES, directed the Official Liquidator to take possession of the property, and ordered a fresh auction to ensure the property fetched its true market value.Discussion on Case Laws:The court discussed various case laws, emphasizing that the court has the obligation to ensure the best possible price for the property of a company in liquidation. It cited Supreme Court judgments, including Allahabad Bank v. Bengal Paper Mills Co. Ltd., which highlighted the need for adequate publicity and proper valuation to realize the highest price. The court rejected GES's contention that the sale could not be reopened after confirmation, stating that the interest of creditors and the market value must be prioritized.Conclusion:The court set aside the sale of the land and building to GES, rejected the applications by Indocap Pvt. Ltd. and Surya Finvest Pvt. Ltd., and directed a fresh auction. It also ordered a vigilance inquiry into the conduct of the Official Liquidator and issued notices to the valuer, Lt. Col. R.K. Kohli, for a significant drop in valuation. The court emphasized the need for transparency and prudence in auction sales to protect the interests of creditors and shareholders.