2020 (6) TMI 18 - HC - Companies Law

Court orders fresh e-auction for company assets, considering appellant's offer. Transparency and fairness key.

The court set aside the previous orders and directed a fresh e-auction to obtain the best price for the company's assets. The appellant's offer of Rs. ... Fresh re-auction order - reserve price reduced in fresh auction - Company under liquidation - there was no participant in the first round - No cogent reason is reflected from the orders passed by the learned Company Judge in respect of grant of permission relating to reduction in the reserve price and re-auction was held - HELD THAT:- If the Court feels that the price offered in the auction is not the adequate price, the Court can certainly order for re-auction and in the present case, a person i.e. present appellant has offered ₹ 2,80,00,000/- more in the matter, and therefore, fresh auction is inevitable. Another important aspect of the case is that the sale was confirmed on 02.03.2020 in presence of advocate of respondent No.2 with a direction to deposit entire sale consideration within a period of 60 days from the date of the order i.e. by 01.05.2020, however, respondent did not deposit any amount by 03.05.2020 and taking shelter of pandemic COVID – 19, a prayer was made for extension of time. This Court, as the amount offered by respondent No.2, which is less than the initial reserve price of ₹ 31,00,00,000/- and which is again less than the amount offered by the appellants, cannot be accepted as the difference is about ₹ 2,79,00,000/-. The Official Liquidator is receiving almost 2.80 crore extra amount and on technicalities, such an offer cannot be thrown in a dustbin. It is certainly true that the present appellant has not participated in the process of tender but at the same time, assets of the Company, as the initial price was fixed at ₹ 31,00,00,000/-, cannot be given to a person, who has offered ₹ 28,15,00,000/- only - the prayer made in the OLR for fresh e-auction should have been allowed and not further extension could have been granted keeping in view the peculiar facts and circumstances of the case to respondent No.2 to deposit the amount. The orders dated 02.03.2020 and 04.05.2020 are hereby set aside and the prayer made by the Official Liquidator in OLR No.31/2019 for holding fresh e-auction is allowed. Issues Involved:1. Validity of the auction process and confirmation of sale.2. Adequacy of the price offered in the auction.3. Entitlement of non-participants to submit higher offers post-auction.4. Extension of time for depositing the balance consideration by the highest bidder.Detailed Analysis:1. Validity of the Auction Process and Confirmation of Sale:The Company Appeal arose from orders dated 02.03.2020 and 04.05.2020 by the Company Judge in Company Petition No.08/2014. The winding-up petition for Lakhani Footcare Private Limited led to the appointment of an Official Liquidator. The Company Judge initially set a reserve price of Rs. 31,00,00,000 for Lot No.1, which included land, buildings, and machinery. Due to no buyers, the reserve price was reduced to Rs. 27,90,00,000. The e-auction resulted in the highest bid of Rs. 28,15,00,000 by Seabright Landmark Projects LLP. The appellant, Om Gurudev Enterprises, later offered Rs. 30,69,00,000 but was not a participant in the auction. The Company Judge confirmed the sale to Seabright Landmark Projects LLP, rejecting the appellant's higher offer.2. Adequacy of the Price Offered in the Auction:The appellant argued that the reduced reserve price was not re-evaluated, and their higher offer should have been accepted. The Official Liquidator's report highlighted the highest bid of Rs. 28,15,00,000 was less than the initial reserve price of Rs. 31,00,00,000. The appellant's offer was significantly higher, indicating the auction price was inadequate. The court referenced the Supreme Court's judgment in Navlkha & Sons, emphasizing the need for the court to ensure the price fetched at an auction is adequate to protect the interests of the company and its creditors.3. Entitlement of Non-Participants to Submit Higher Offers Post-Auction:The appellant's non-participation in the auction was due to preoccupation, but they later submitted a higher offer. The court noted the principle that subsequent higher offers should not automatically invalidate the highest bid unless the initial auction price was inadequate. The Supreme Court's ruling in Divya Manufacturing Co. supported the notion that a higher subsequent offer could justify setting aside a confirmed sale if it benefits the company's creditors.4. Extension of Time for Depositing the Balance Consideration by the Highest Bidder:Respondent No.2 sought an extension to deposit the balance consideration due to COVID-19 lockdown restrictions. The Company Judge granted an extension up to 30.06.2020, with a condition to deposit 20% of the balance by 31.05.2020. The court found this extension reasonable given the pandemic circumstances but noted that the price offered by respondent No.2 was still less than the appellant's offer.Conclusion:The court set aside the orders dated 02.03.2020 and 04.05.2020, directing a fresh e-auction to ensure the best possible price for the company's assets. The appellant's offer of Rs. 30,69,00,000 should be considered, and the appellant must bear the cost of the fresh auction. The exercise should be concluded within 60 days, ensuring transparency and fairness in the auction process. The decision underscored the court's duty to secure the highest possible price for the benefit of the company's creditors and stakeholders.