Court denies company's plea to set aside auction sale, imposes conditions on purchaser for additional payment

The court denied the company's plea to set aside the auction sale by discharging its debt to the bank, citing inapplicability of relevant provisions. However, the court recognized the principle that auction sales aim to realize payment for creditors, allowing for potential intervention under specific circumstances. Regarding the confirmation of the auction sale, the court imposed conditions on the purchaser to pay an additional amount, reflecting the property's market value discrepancies. The court directed the purchaser to deposit the extra sum within a specified period, with consequences outlined for compliance or withdrawal. The court concluded the matter, leaving parties to bear their costs.

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Issues Involved:
1. Entitlement of the company to get rid of the auction sale by discharging its liability to the bank.
2. Confirmation of the auction sale and the terms thereof.

Issue-wise Detailed Analysis:

1. Entitlement of the company to get rid of the auction sale by discharging its liability to the bank:

The company sought to set aside the auction sale of its property by paying off its debt to the bank, invoking O.34, rule 5 of the CPC. However, the court determined that the provisions of O.34, rule 5 were inapplicable to the present case. Order 34 regulates suits relating to the mortgage of immovable property and envisages payment into court of amounts due from the defendant during the proceedings of the suit. The court was neither seized of a suit nor executing any decree or executable order. The compromise between the company and the bank required the court's sanction under sections 391/392 of the Companies Act, and the court assumed jurisdiction to supervise the carrying out of the compromise terms. Therefore, no decree or order with the effect of a decree was made by the court, and the provisions of O.34 or O.21 were not available to the company to get rid of the auction sale.

Despite this, the court acknowledged that the principles embodied in O.34, rule 5, or O.21, rule 89, could be invoked to get rid of the auction sale by payment to the bank. These provisions embody the principle that the sale of immovable property on the debtor's default is not intended to punish but to realize the amount for payment to the creditor. If the debtor can pay and makes the deposit, the auction sale should not proceed further. The court, exercising its discretion under sections 391/392 of the Act, could invoke this principle, particularly if it was in the interest of the company and its unsecured creditors.

However, the court noted that the company's application to set aside the sale was previously dismissed by Ranganathan J., who considered all the contentions regarding the inadequacy of the sale price, capital gains tax implications, and the offer to pay the bank. Ranganathan J. concluded that there was no justification for exercising discretionary powers under sections 391/392 to set aside the sale. Therefore, the company's plea to get rid of the auction sale was turned down.

2. Confirmation of the auction sale and the terms thereof:

The court considered whether it had the power to confirm the sale subject to any conditions. Under O.21, rule 92 of the CPC, if no application is made for setting aside a sale or such application is turned down, the court shall confirm the sale, leaving no discretion to impose conditions. However, the supervisory jurisdiction under sections 391/392 of the Companies Act is not subject to this limitation. The court has an obligation to protect the interests of the creditors of a sick joint stock company and can impose conditions requiring the purchaser to pay a higher sale price if reasonable, with an option for the purchaser to opt out if unwilling or unable to comply.

The court noted that the sale price did not reflect the market value of the property, a common characteristic of court sales due to various uncertainties. The auction purchaser was aware that the property could fetch a higher amount. Considering the company's claim that the property could be sold for Rs. 9 lakhs and the need to pay the auction purchaser a solatium if the sale was set aside, the court found it reasonable to confirm the sale subject to the auction purchaser paying an additional 10% of the sale price.

The court directed the auction purchaser to deposit the additional amount within two weeks. Upon deposit, the purchaser would be entitled to the sale certificate and vacant possession of the property. If the purchaser opted out, the sale would be null and void, and the purchaser would be refunded the deposited amount plus 5% solatium. In a fresh auction, the purchaser could bid, with the solatium refunded if declared the highest bidder.

Conclusion:

The court disposed of C.A. No. 275/79 and C.A. No. 284/79 on these terms, leaving the parties to bear their respective costs.

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