TaxTMI 
TaxTMI 
TaxTMI 
2009 (7) TMI 764
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.... 19,88,000. Insofar as the immovable property is concerned, the valuer assessed fair market value thereof at around Rs. 14,69,00,000. The movable assets included plant, machinery, furniture and fixtures, whereas immovable assets consisted of land and building lying and situated at Plot No. B-1, M.I.D.C. Ambad, Mumbai-Agra Road, Nasik, admeasuring 27880 sq.mtrs. However, the Company Judge ordered sale of movable and immovable properties of the Company in liquidation as one lot and fixed the Reserved Price thereof at Rs. 15 crores and EMD amount at 25 per cent being Rs. 3,75,00,000. 3. Before we proceed further, it would be apposite to advert to the description of the condition of the movable assets on the date of inspection and valuation made by the valuers in their report before the auction. It is stated that "all the machineries are out of order and in static condition as on the date of the visit". Against column "whether the Machinery is to be scrapped. Major repairs and replacement value", it is stated that "all the machineries are in rusted and dusted condition and many are to be scrapped". It is further mentioned that "it is difficult to ascertain the residual life of the mac....
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....aying for extension of time to pay the balance consideration. The reason cited in the said application was a candid admission of the fact of inability to pay the amount due to adverse market condition. The said request was considered by this Court on 21-11-2008. This Court showed indulgence to the Applicant/Auction Purchaser and extended time to deposit the balance consideration on condition that the Applicant/ Auction Purchaser shall pay interest at the rate of 14 per cent per annum. The Court further ordered that upon payment of principal amount along with interest specified in the order within extended time (six weeks from 2-11-2009), the Official Liquidator shall execute conveyance in favour of the Applicant in accordance with the terms and conditions of the sale. However, in case of default, the Official Liquidator shall give effect to the terms and conditions of the sale including forfeiting EMD amount already deposited by the Applicant/ Auction Purchaser and process the matter for resale of the property. Pursuant to the order dated 21-11-2008, the Applicant/Auction Purchaser deposited amount of Rs. 4,30,00,000 on 12-12-2008 being part of the balance consideration. The Applic....
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....yer (a) to (b) above; (d )for costs of this Application; and (e )for such other and further directions as this Hon'ble Court may deem fit necessary and expedient." 5. On the other hand, the Official Liquidator has submitted report dated 24-3-2009, which mentions that representation was received from the Applicant/Auction Purchaser dated 15-12-2008 sent by Shri Afroz A. Siddique, advocate, inter alia stating that they were to deposit balance amount of Rs. 8,49,00,000 on 15-12-2008 but due to theft taken place in respect of property purchased by the Auction Purchaser they have not deposited the balance consideration, as they wanted to assess the loss of theft and hence requested for a joint inspection. Initially, Official Liquidator informed the said Advocate by letter dated 18-12-2008 expressing inability to accept request so made. However, a meeting was fixed in the office of the Official Liquidator on 22-12-2008 when the Auction Purchaser, concerned Security Agency and Secured Creditor pondered over the further steps to be taken after the theft in the factory premises. In that meeting, it was decided to take a joint inspection of the factory premises at Ambad, Nasik on 29-12-20....
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....e items lying at the police station (12 items). In other words, the Official Liquidator concedes the position that there was theft in the factory premises after confirmation of sale in favour of the Applicant/ Auction Purchaser and on account of which seven movable items have been found missing and movable items lying on the site and in the custody of the police station taken together are found in damaged condition in contrast to the condition on the date of confirmation of sale. In this backdrop, the Official Liquidator has invited following directions from this Court in his report dated 24-3-2009. "(a )In view of paras 13 to 18 above, whether this Hon'ble Court would be pleased to determine the loss and damage caused due to the theft after perusing the original valuation report and also the aforesaid two valuation reports dated 27-1-2009 and 26-2-2009 and direct purchaser M/s. Wasan Realtors Pvt. Ltd. to pay such balance payment as may be determined with interest at the rate of 14 per cent with effect from 2-1-2008 to 14-12-2008 as per order dated 21-11-2008 in Company Application (Lodg.) No. 1183/08. (b )Whether this Hon'ble Court would be pleased to direct the security agency....
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....in the case of O.L. of Mermaid Chemicals (P.) Ltd. v. Canara Bank[2005] 64 SCL 252 . Even in that case after confirmation of sale, theft had taken place which resulted in loss and damage to the assets of the Company (in liquidation). The Court found that the theft was the result of collusive act. On that finding, the confirmation of sale was set aside and the assets in question were ordered to be put up for resale. Counsel for the Applicant/Auction Purchaser has also relied on the decision of the Apex Court in the case of Valji Khimji & Co. v. Official Liquidator of Hindustan Nitro Product (Gujarat) Ltd. [2008] 86 SCL 81. In that decision, the Apex Court has observed that merely because the assets were not in running condition does not mean that the same were scrap. This decision has been pressed into service to counter the argument of the Official Liquidator which is founded on the observation of the valuer in the first report. That report describes the condition of the machinery as out of order and in static condition. Besides, the said report states that all the machineries are in rusted and dusted condition and many are to be scrapped. 7. Be that as it may, the question is whe....
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....ance is regarding supervening circumstances after the confirmation of sale and not with regard to the publishing or conducting of sale, as such. Nevertheless, the principle underlying Rules 77, 78 as also Rule 90 referred hitherto can be borne in mind while answering the claim of the rival parties. In other words, the Court will have to consider whether on account of changed situation, the Applicant/Auction Purchaser has sustained "substantial injury" or that the loss is so substantial that it would vitiate the process of sale. Moreover, is it a case where the loss or damage so caused cannot be compensated at all. In the present case, no doubt the sale is a composite sale of movable as well as immovable assets. However, it cannot be overlooked that valuation of movable and immovable assets was done separately; but for the purpose of sale, the same were sold as one lot. Ordinarily, in case of composite sale of movable and immovable assets it may be impractical for the Court to sever the sale consideration, so as to apportion against the value of movable and immovable property. In the present case, however, it may not be difficult to decipher the ratio of the value of movable and imm....
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....onsideration remained unpaid. Indeed, the Applicant Company may not be directly responsible for the supervening circumstances of theft, but the delay in payment paved way to the said situation. For, on account of non-payment of balance consideration, delivery of possession of the property was postponed. I am therefore, in no way impressed by the argument of the Applicant/Auction Purchaser that they would suffer unwarranted loss and hardship on account of damage caused to the movable assets of the Company. 9. Be that as it may, the question of setting aside the confirmation of sale in the fact situation of the present case does not arise. The decision of the Gujarat High Court pressed into service will be of no avail. No doubt even in that case, after the date of confirmation of sale, theft took place. As a result of which the property was damaged. However, in that case the lot sold was only of movable property. With utmost respect to the view expressed by the Gujarat High Court, I am of the opinion that cancellation of sale of movable assets due to supervening circumstances is not the only option known to law. It would depend on facts of each case. As aforesaid in the present case....
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....hat the party alleging fraud and irregularity is obliged to prove factum of substantial injury caused is also restated by the Apex Court in the case of Jaswantlal Natvarlal Thakkar v. Sushilaben Manilal Dangarwala AIR 1991 SC 770. What is substantial loss can be discerned from the dictionary meaning given in Oxford Dictionary. It postulates having substance, actually existing, not illusory, of real importance or value, of considerable amount; of solid material or structure, not flimsy, stout. 10. A priori, I have no hesitation in taking the view that the entire sale need not be set aside even if the claim of the Applicant/Auction Purchaser that due to theft serious damage has been caused to the "movable assets" of the Company (in liquidation) were to be accepted as it is. The next question is, is it possible to quantify the probable loss or damage caused to the movable assets. We have already adverted to the first valuation report which gives graphic description of the condition of the movable assets when the same were offered for sale. Even if the Applicant may be justified in contending that the condition that the machineries were rusted and dusted may not be equated with the sc....
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.... realizable sale value of the movable assets at the relevant time was assessed at Rs. 22,36,000 and distress sale value at Rs. 19,88,000. As against this, valuation of the movable property after theft-realizable sale value thereof has been assessed at aggregate Rs. l6,29,000 (at factory Rs. 13,66,000 + at police station Rs. 2,63,000); whereas distress sale value of the movable assets after theft has been assessed at aggregate Rs. 13,22,000 (at factory Rs. 10,93,000 + at police station Rs. 2,29,000). In other words, the estimated loss has been specified by the valuer at Rs. 6,66,000 (Rs. 19,88,000 original distress sale value - Rs. 13,22,000 distress sale value after theft). 12. There are two ways in which the Applicant/Auction Purchaser can be compensated. The first proposal made by the Official Liquidator is to allow adjustment from the sale consideration to the extent of amount of loss computed by the valuer in the second valuation report as referred to hereinabove. That can compensate the Applicant to the extent of probable loss of movable assets due to theft. In that case, it may not be necessary to cancel the confirmation of sale either in whole or in part. However, this sugg....
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....but it is possible to compensate the Auction Purchaser for such loss. Notably, the second option offered by the Official Liquidator in no way would cause any prejudice to the Auction Purchaser. However, it is for the Auction Purchaser to opt for any of these mechanism within a reasonable time, failing which the Official Liquidator will have to proceed on the assumption that the Auction Purchaser is unwilling to fulfil its obligation of paying balance consideration and taking delivery of the assets. In which case, will have to proceed with resale of the entire property forthwith by invoking the terms and conditions of the sale. In the event, the Auction Purchaser exercises his option within a reasonable time, say, four weeks from today, the Official Liquidator would compute the actual balance amount of consideration payable by the Auction Purchaser and submit further report for appropriate direction. In that case, the Auction Purchaser would be liable to pay interest on the outstanding amount in terms of order dated 21-11-2008. 14. While parting I may place on record that a disturbing trend is setting in. In that, after the sale is confirmed by the Court and before the Auction Purc....