2020 (2) TMI 1079 - HC - Companies Law

Court upholds sale, rejects higher bids, emphasizes finality, directs possession & sale execution.

The Court set aside the order reopening the confirmed sale in favor of the Appellant, emphasizing that the full deposit and absence of fraud justified ... Auction - Recall of the confirmation of sale of the property - reopening of the sale - rights of the Appellant arising out of the acceptance of its bid for the purchase of the property - HELD THAT:- The Company Court was not justified in passing the impugned order dated 25.07.2019, whereby the bid of ₹ 23 crores of prospective buyer (Respondent No.3) was accepted, thereby setting aside the earlier order dated 06.09.2018, accepting the bid of the Appellant. The Company Court failed to take into consideration that vide the aforesaid order dated 06.09.2018, the OL was directed to hand over the possession of the property once the entire bid amount was paid by the Appellant. On the date of passing of the impugned order dated 25.07.2019, the entire amount stood deposited and the transaction stood concluded. No doubt, the bid of Respondent No.3 would result in realizing an amount of ₹ 1.16 crores (approx.) more for the property in question and that would enure to the benefit of the creditors of the company. At the same time, one cannot lose sight of the fact that the appellant would be entitled to refund of the amount deposited with interest accrued thereon. Thus, the OL would lose the interest on the amount deposited by the Appellant upto 09.04.2019. Moreover, financial gain that may result, cannot be the sole criteria for deviating from the sale process. There are nothing improper in the conduct of the Appellant. Much has been said about the fact that after having been unsuccessful in the first round, the Appellant had by its conduct waived its objection to the re-bidding of the property. There are no waiver on the part of the Appellant. In the appeal proceedings, the Court found the action to be premature in as much, as, it was observed that the order impugned in the first appeal had only called upon Respondent No.3 to make a bid and therefore the matter had not attained finality. Appeal allowed - decided in favor of appellant. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether a court-confirmed sale in a company liquidaton proceeding, after full deposit of the sale consideration in terms of the court's order, can be reopened to invite fresh bids in the absence of fraud, illegality or a substantially higher genuine offer. 2. Whether marginal additional realization for creditors (a small percentage increase in sale price) justifies setting aside a completed sale confirmed by the court. 3. Whether conduct of a successful bidder in seeking and obtaining time/extensions to pay balance consideration, and later not participating in re-bidding, amounts to waiver of the right to challenge reopening of the sale. 4. Reliefs and consequences where a later-bidder's payment has been accepted and possession not yet handed over: entitlement to refund with interest and directions for handing over possession to the originally successful bidder. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Power to reopen a court-confirmed sale after full deposit absent fraud/illegality or substantially higher offer Legal framework: The Company Court (acting as custodian of company and creditors' interests) has the jurisdiction to accept or refuse confirmation of sale, and to ensure adequacy of price; a confirmed sale ordinarily attains finality once conditions (including deposit) are complied with. Precedent treatment: The Court relied on established higher court authority holding that allowing reopening of a confirmed sale every time a later higher bid surfaces would render auction sales uncertain and undermine publicity/market mechanisms; an exception is recognized where a subsequent offer is so substantially higher that fraud or collusion in the original sale can be inferred. Other authorities state that the confirmation condition is a safeguard to ensure adequacy of price, but once satisfied, subsequent marginally higher offers do not vitiate the confirmation. Interpretation and reasoning: Where there is no allegation of fraud or irregularity in the original sale and the successful bidder has deposited the full consideration in terms of court orders, the sale transaction is complete and has acquired finality. Reopening the sale merely because a later offer is marginally higher is improper as it undermines certainty and the integrity of court-directed auctions. The decisional exception permitting reopening only where a subsequent offer is substantially higher (to infer fraud/collusion) was applied: a modest increase (approximately 5% in the present facts) does not meet that threshold. Ratio vs. Obiter: Ratio - A court-confirmed sale, completed by full deposit in compliance with court directions, cannot be reopened solely because a marginally higher offer is later presented; reopening is permissible only where there is fraud, illegality, or a substantially higher genuine offer indicative of possible collusion. Conclusion: The Company Court erred in inviting and accepting a later bid when the earlier bidder had complied with the order by depositing the full consideration and there was no suggestion of fraud or substantially higher offer; the reopening was unlawful and set-aside was justified. Issue 2 - Whether marginal additional realization justifies upsetting a concluded sale Legal framework: The court must balance maximization of realisation for creditors against finality and certainty of auction process; adequacy of price at confirmation is a judicial determination informed by valuations and market opportunity at the time of auction. Precedent treatment: Authorities caution against upsetting confirmed sales merely for marginal financial gains because that would create instability; the exception for substantially higher offers exists to detect possible undervaluation or fraud. Interpretation and reasoning: The additional realization obtainable from the later sale (approx. 1.16 crores, about 5%) was not substantial in the context of the sale price and the interest accrued on deposits; financial gain alone, when marginal, cannot be the sole ground to deviate from a completed sale. The auction reserve price had been fixed following valuation; the earlier accepted bid conformed to that benchmark. Ratio vs. Obiter: Ratio - Marginal increases in sale consideration do not amount to a valid ground to reopen a properly conducted and court-confirmed sale; only substantial differences bearing on adequacy/fraud justify reopening. Conclusion: The marginal higher bid did not justify setting aside the earlier confirmed sale; the court's acceptance of the later offer in these circumstances was improper. Issue 3 - Whether the successful bidder's prior conduct (seeking extensions and not participating in re-bid) constituted waiver of challenge to reopening Legal framework: Waiver requires clear conduct demonstrating abandonment of a right. An appellate court's prior observation that an order was premature and preservation of rights can affect assessment of waiver. Precedent treatment: The Court recognized that interlocutory actions and conditional orders do not automatically amount to waiver; factual matrix and express reservations in prior orders inform whether rights were preserved. Interpretation and reasoning: The successful bidder had obtained court-sanctioned time/extensions and ultimately deposited full consideration within the terms approved; the appellate court had dismissed an interim appeal without adjudicating the merits and explicitly left rights to be raised before the Single Judge. The bidder refused to join re-bidding and consistently maintained that the sale stood confirmed. These actions do not constitute waiver; the bidder did not acquiesce to reopening and preserved the challenge. Ratio vs. Obiter: Ratio - Where a bidder complies with court orders, deposits full consideration, and preserves rights in timely proceedings (including opposing reopening), such conduct does not constitute waiver of the right to challenge unlawful reopening. Conclusion: No waiver was shown; the appellant was entitled to challenge the reopening despite earlier extensions and non-participation in re-bidding. Issue 4 - Remedies and consequential directions when reopening is set aside but a later bidder's payment was accepted Legal framework: On setting aside an unlawful re-opening and restoring the original confirmed sale, courts may direct handover of possession and completion of sale formalities in favor of the original successful bidder; alternatively, courts must ensure restitution (refund with interest) to any later bidder whose payment was accepted. Precedent treatment: Established practice requires restitution of amounts paid by a displaced later bidder with appropriate interest where their purchase is set aside; original purchaser's right to possession and sale deed execution is to be protected once the court restores the confirmed sale. Interpretation and reasoning: The Court directed the official custodian to execute sale formalities and hand over possession to the original confirmed purchaser within a limited period, and ordered refund of amounts paid by the later bidder with interest for the period funds were held. The interest rate specified on refund was set (6% from specific fixed deposit return) to compensate the displaced bidder. Ratio vs. Obiter: Ratio - When a later bid accepted in breach of the rule against reopening is set aside, the original confirmed buyer is entitled to completion and possession; the later bidder must be refunded with appropriate interest for the period their funds were held. Conclusion: The appropriate reliefs are (a) set aside of the order accepting the later bid, (b) directions to complete sale and hand over possession to the original buyer within fixed timelines, and (c) refund of amounts paid by the later bidder with specified interest within a fixed period.