2012 (12) TMI 771 - HC - Companies Law

Dismissed appeal: Official Liquidator to refund sale amount, excluding EMD. Prioritize workers, secured creditors, maximize auction price.

The appeal was dismissed, and the court directed the Official Liquidator to refund the amount deposited by the appellant towards the sale consideration, ... Extension of bid payment period - Winner of bid did not pay sale consideration even during time for which he was seeking extension, sale was to be cancelled and earnest money seized - whether the appellant in whose favour a sale came to be confirmed by order dated 22.02.2006 on certain terms and conditions as provided in the tender having committed default - Held that:- The applicant having failed to comply with the payment time-table then filed Company Application wherein it is clear from the prayer made in the Judges' Summons and the affidavit filed in support of the Judges' Summons that what was prayed was extension of time only up to 31.08.2006 and the reason set out for seeking such extension wherein it was stated that, 'on account of serious sickness in the family of one of its active partners and also on account of other reasons beyond its control'. This Court has an additional reason to deny the prayer /relief to the appellant-applicant because the prayer for extension of time stood granted in favour of the applicant as extension was granted up to 15.09.2006. It will not be inappropriate to remind oneself that extension sought for was only up to 31.08.2006, whereas the Court granted extension up to 15.09.2006 and therefore, on that short ground, the appellant-appellant must fail in getting any relief from this Court. The submission made by applicant that he could not act within the period extended because there was OJ Appeal No.43 of 2005 pending and it was decided that Company Application No.327 of 2006 (praying for extension) will be considered after OJ Appeal No.43 of 2005 is decided, which came to be decided only on 01.08.2008, this makes the case of the appellant-applicant no better, because if the bonafides of the appellant-applicant are to be tested, it has not been placed on record that between 11.06.2006, which was the last date for payment as per the sale confirmation order and 15.09.2006, till which date the extension was granted, any substantial payment was made by the applicant, except making an application to permit him to make payment. No right is created in favour of the appellant-applicant after 20.06.2011. Whatever rights the applicant is having, are flowing from order dated 22.02.2006. The question which is required to be answered by this Court is whether in light of the clear terms and conditions prescribed in the tender and prescribed order dated 22.02.2006, any right of the applicant survived and the answer of this Court is, 'NO' - no relief can be granted to the appellant-applicant, thus the appeal fails and dismissed. Directs the Official Liquidator to refund the amount deposited by the appellant-applicant towards sale consideration. The Court makes it further clear that the appellant-applicant will not be entitled to refund of Earnest Money Deposit. It is also made clear that this refund will be without any interest payable thereon. The amount shall be refunded only after the property is put to sale and the sale price is realized by the Official Liquidator. ISSUES PRESENTED AND CONSIDERED 1. Whether a purchaser, in whose favour a court-confirmed sale in a company liquidation proceeding has been made but who defaults in payment of the balance purchase consideration, can insist on extension of time for payment or demand specific performance on fresh terms after failure to comply with the clear timetable and consequential forfeiture provisions. 2. Whether the recalling/reviewing of an appellate order (which preserved rights created post-impugned order) revives any prior rights of a defaulting purchaser under an earlier sale confirmation order where no new rights were in fact created in the interregnum. 3. Whether the Company Court, as custodian of assets for creditors and workmen, may set aside a confirmed sale or permit reconsideration when a substantially higher offer emerges after confirmation, and relatedly what consequences flow on forfeiture/refund of amounts paid by the original purchaser. ISSUE-WISE DETAILED ANALYSIS Issue 1: Relief to defaulting purchaser - extension of time or retention of property after failure to pay balance consideration Legal framework: Sale confirmation in winding-up proceedings is governed by the terms of the tender and the Court's confirming order, which prescribe payment timetable and consequences (including termination of sale and forfeiture) for non-payment. Precedent treatment: The Court relied on established principles that the Company Court must exercise judicial discretion to protect interests of the company, creditors and workmen and may revisit confirmed sales where higher bids emerge; but those principles do not confer rights on a defaulting purchaser to disregard explicit payment conditions. Interpretation and reasoning: The confirmed sale order unequivocally required 25% by a fixed date and the balance within three months, with para providing for termination and forfeiture on failure to pay. The applicant expressly sought only a limited extension (to 31.08.2006) in its Judges' Summons and affidavits, yet the Court had already granted extension up to 15.09.2006. Applicant paid no substantial amount beyond the admitted 25% and did not show bona fide efforts to perform within the extended period. The applicant's asserted reason (pendency of an appeal) was not shown to justify non-payment during the extension period. Given the Court's role as custodian for creditors and workmen and the need to maximise realization, allowing extended indulgence to a defaulter at a grossly inadequate price (Rs.10.20 crores) would prejudice creditors and workers whose dues remained largely unpaid. Ratio vs. Obiter: Ratio - a purchaser who defaults under clear, court-ordered payment terms and seeks relief beyond what was prayed for/allowed cannot claim entitlement; the Company Court will protect creditors' and workmen's interests by refusing further indulgence where non-performance is unjustified. Obiter - observations on the applicant's specific excuses and the moral observations regarding workers' suffering. Conclusion: The Court correctly refused further extension or relief to the defaulting purchaser and dismissed the appeal on this ground. Issue 2: Effect of recall/review of appellate order on the defaulting purchaser's rights Legal framework: A reviewing/recalled appellate order may protect rights created after the impugned order; it does not retroactively resurrect rights that existed prior to or independent of the actions it specifically protects. The right preserved by a recall is limited to rights actually created in the interval and expressly intended to be saved. Precedent treatment: The Division Bench's recall expressly stated it would not automatically terminate rights created pursuant to the earlier appellate order and left open contentions regarding actions taken after that order. The Court applied that textually to the factual record. Interpretation and reasoning: The applicant argued the recall preserved its right to acquire the property on payment of the balance on terms to be fixed at final hearing. The Court held that the recall was intended to protect rights created after 20.06.2011 and before the recall; since no such new right in favour of the applicant arose in that period, the recall did not revive or expand the purchaser's pre-existing rights flowing from the 22.02.2006 sale order. Therefore the applicant could not rely on the recall to claim entitlement to the property despite default. Ratio vs. Obiter: Ratio - recall/review will only protect or restore rights actually created in the intervening period; it does not operate as a substantive remedy to revive contractual or court-ordered rights extinguished by default where no new right arose. Obiter - the interpretation of the recalled order's language in context. Conclusion: The recall of the appellate order did not revive or create a right in favour of the defaulting purchaser to insist on payment on altered terms; the purchaser's rights remained governed by the 2006 confirmation and its default consequences. Issue 3: Power of the Company Court to set aside confirmed sale in favour of maximising realisation; forfeiture and refund consequences Legal framework: The Company Court acts as custodian to secure maximum realisation for creditors and workmen; it has discretion to set aside or revisit a confirmed sale where a substantially higher offer is shown and public/creditor interest so requires. Tender conditions often empower the Court to terminate sale and forfeit deposits on default. Precedent treatment: The Court cited authorities recognising the Court's power to set aside a confirmed sale in the interest of creditors and to prevent manifest underbidding; precedent emphasises maximisation of sale proceeds for creditors/workmen. Interpretation and reasoning: After the purchaser's default, the Official Liquidator sought termination of sale, forfeiture of deposit and fresh auction; subsequent valuations and interveners offered substantially higher sums (ranging from mid-40s to suggested upset price ~Rs.50 crores, valuation ~Rs.123 crores). Given the magnitude of creditors' claims and workers' dues, the Court affirmed the Company Judge's action to terminate and to proceed towards fresh valuation/auction. Concerning amounts paid by the original purchaser, clause and order language construed that 'deposit' in forfeiture provision referred to Earnest Money Deposit (EMD); while forfeiting EMD was justified, the balance amount paid towards sale consideration (beyond EMD) should be refunded without interest, but only after the property is resold and sale price realized. Ratio vs. Obiter: Ratio - the Company Court may set aside/terminate confirmed sale on default and in the public/creditors' interest where higher offers exist; forfeiture under tender clause applies to EMD, but amounts paid beyond EMD are refundable (subject to set-off/realization), and interest need not be paid. Obiter - procedural directions to Official Liquidator to obtain fresh valuation and to prioritise expedition per higher court's directions. Conclusion: The Court validated termination of the sale and forfeiture of EMD; directed refund of other sums paid by the defaulting purchaser without interest and only after realization from a fresh sale; and authorised fresh valuation and auction to maximise recovery for creditors and workmen.