Invalid auction sale of sick company asset where valuation, reserve price disclosure, and auction conditions were not properly followed

Sale of a sick industrial company's asset could not be sustained where the disposal process lacked valuation, the reserve price was not disclosed, and the prescribed auction conditions were breached. The successful bidder failed to provide the required bank guarantee and did not pay the consideration within time, so the confirmation of sale was invalid despite the purported auction. A later higher offer did not by itself displace a completed auction, but it supported the need for a fresh lawful process because the original sale was not conducted on a proper statutory footing. The restored rejection of the bid was upheld.

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Issues: (i) Whether the auction and confirmation of sale of the sick industrial company's asset were valid despite absence of a valuation report, non-disclosure of reserve price, and non-compliance with the Asset Sale Committee conditions. (ii) Whether a later higher offer by persons not participating in the auction could displace the confirmed bid or justify interference with the sale process.

Issue (i): Whether the auction and confirmation of sale of the sick industrial company's asset were valid despite absence of a valuation report, non-disclosure of reserve price, and non-compliance with the Asset Sale Committee conditions.

Analysis: The sale process had to conform to the statutory scheme governing disposal of assets of a sick company. The operating agency was required to obtain valuation, fix the reserve price, and proceed in accordance with the prescribed method of sale and publicity. The record did not show a valuation report or disclosure of reserve price in the auction notice. The successful bidder also failed to furnish the stipulated bank guarantee and did not pay the consideration within the prescribed time. In the absence of competitive bidding and in view of the breached conditions, the confirmation of sale could not be sustained.

Conclusion: The auction confirmation was invalid and the High Court's decision restoring the rejection of the bid was upheld.

Issue (ii): Whether a later higher offer by persons not participating in the auction could displace the confirmed bid or justify interference with the sale process.

Analysis: A later offer cannot ordinarily undo a completed auction process, but that principle did not assist the appellants because the auction process itself was defective and the bid had not been lawfully confirmed on a proper statutory footing. The persons residing in the property were not strangers to the proceedings and their challenge could not be rejected merely on locus grounds. Their later offer, though not decisive by itself, reinforced the need for a fresh process to secure the best possible value in accordance with law.

Conclusion: The later offer did not validate the flawed sale process, and interference with the confirmed bid was justified.

Final Conclusion: The sale process was found inconsistent with the governing statutory requirements and the bidder's non-compliance with the auction conditions, so the impugned confirmation of sale was not allowed to stand and the matter remained open to a fresh lawful process to secure optimum value.

Ratio Decidendi: Where disposal of assets of a sick industrial company is undertaken without valuation, without disclosure of reserve price, and in breach of the auction conditions essential to securing competitive bidding and timely payment, confirmation of the sale cannot be sustained.

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