TaxTMI 
TaxTMI 
2009 (1) TMI 473
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. Morgan Ventures Ltd. It is contended that M/s. R.N. Marwah and Co. being a firm of chartered accountants were individual and could not be involved in any manufacturing activity. 3. According to the said applicant the entire process whereby the bid was processed and awarded, is vitiated by fraud which has been played on this Court by successful and unsuccessful bidders who had conspired. The applicant/Sh. Raj Kishan Goel has also sought an enquiry into the process of bidding and has sought recalling of the orders by which the bids were held, valuations were accepted and the bid of M/s. Morgan Ventures Ltd. was accepted by default and the lapse of the highest bidder, M/s. Balaji Associates. According to the said applicant the other bidders were for namesake. It is asserted that the properties of the companies have been sold at a throwaway price, as the actual price of the property was much more than the one reserved. In order to substantiate coterie formed by various bidders, the applicant has contended that various applications were filed which were unconditionally withdrawn which reflect a handiwork of few brokers to circumvent the proper procedure. For cancellation of the sale....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as offered Rs. 70 crores in place of Rs. 59 crores of M/s. R.N. Marwah and Co and has contended that the publication prior to finalizing the bid did not come to his notice. It is also asserted that if the accepted bid is not cancelled the consortium bankers as also the workers shall suffer severe prejudice as the amount of Rs. 59 crores is grossly disproportionate to the present valuation of the properties. 7. The application for setting aside the sale and offering Rs. 70 crores was filed on 3-5-2007 after the second highest bid of M/s. R.N. Marwah and Co was accepted on 11th August, 2005 after highest bidder M/s. Balaji Associates failed to deposit the bid amount. 8. The applicant M/s. Siddharth Clutches Pvt. Ltd. have also taken similar pleas, however, he has offered Rs. 70,25,00,000. According to the said applicant there is a difference of Rs. 11,25,00,000 from the bid of M/s. R.N. Marwah and Co. which is substantial and, therefore, it will be in the interest of the secured creditors and others to set aside the sale in favour of M/s. R.N. Marwah and Co. and accept his bid for Rs. 70.25 crores. The application was filed on 17-7-2007 and it is contended that the applicant could ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ondition that Rs. 18 crores shall be paid by 31-3-2005. One bid of M/s. Balaji Associates was also received for Rs. 43 crores in respect of 5 units and a sum of Rs. 25 lakhs was also deposited. The bid of M/s. Balaji Associates could not be considered as the sale advertisement had not been issued. Court ordered advertisement of proclamation of sale for 21-4-2005. 21-4-2005 Pursuant to the advertisement for sale of five units of company, 5 bids were received for all the five units and three bids were received for unit Nos. II, III and IV respectively. However, on that date it transpired that the assets were not got valued and, therefore, three weeks time was given to the Official Liquidator to get the assets evaluated and M/s. R.P. Gupta and Associates and M/s. H. Rai Malik and Associates were appointed as valuers. The EMDs which were deposited by the bidders were, therefore, returned with a direction that they could bring the EMDs on the next date of hearing. 19-5-2005 Valuation report in respect of the units except at Jalna and Aurangabad was received for which the valuer wanted the purchase value and book value of machinery, equipment at the said two units. 7-7-2005 The val....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... cent amount within 60 days. The second highest bid was of M/s. R.N. Marwah and Co. for Rs. 59 crores. 1-9-2005 Another bid of M/s. AGM Management Service for Rs. 62.1 crores was received on that date. The workers union of the company also sought clarification of order dated 18-3-2003 passed in CP No. 539/1998 winding up the company. It was contended that before passing the final winding up order citations were required to be published and objections if any of the company or any other persons had to be intimated. Since it was not done, therefore, it was sought that the line in the order dated 18-3-2005, accordingly, the respondent company is directed to be wound up, be deleted and in its place, accordingly this petition is admitted to hearing, be inserted. The workers union was also impleaded pursuant to the order of the Division Bench dated 22-4-2005. 12-9-2005 The bid of M/s. Balaji and Associates was accepted on 11-8-2005 and he was directed to pay the bid amount within 7 days which was not done, rather it was stated on behalf of said bidder that the amount shall be deposited by 16-9-2005 and balance amount within 60 days from 11-8-2005. This offer was accepted modifying the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and M/s. R.N. Marwah and Co. nominated M/s. Morgan Ventures Ltd. as its nominee which request was accepted and M/s. Morgan Ventures Ltd. were allowed to deploy the security guards at the auctioned properties. The delay in giving the amount was also condoned. 25-7-2006 The nominee of M/s. R.N. Marwah and Co., M/s. Morgan Ventures Ltd. filed an application for confirmation of sale and Official Liquidator gave no objection for confirmation of sale in favour of M/s. Morgan Ventures Ltd. Consequently it was ordered that the Official Liquidator shall confirm the sale in favour of M/s. Morgan Ventures Ltd. or its nominee as expeditiously as possible. The Official Liquidator's counsel also stated that it is not possible to execute the sale deed in favour of M/s. Morgan Venturas Ltd. as the original deeds were lying with Dena Bank and, therefore, notice was issued to Dena Bank. 22-11-2006 The Court ordered that the sale was confirmed in favour of M/s. Morgan Ventures Ltd. on 25-7-2006. Since the auction of the properties had not been in questioned, the leading bank, Dena Bank, wanted that the sale consideration of Rs. 59 crores be deposited in Dena Bank in place of Punjab National Bank.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the purchaser was accepted on 20-10-2005 and the purchaser has already created third party rights in various properties purchased by him. The purchaser also pleaded that no case is made out either under rule 272 or 273 of the Companies Court Rules or under Order 21 rules 90 and 92 of the Code of Civil Procedure for recalling/setting aside the sale in favour of purchaser. It was asserted that the allegations of fraud made by the applicants are bald without any particulars and are baseless. The allegations made by the applicants have not been substantiated and on the basis of such bald allegations, the sale in favour of the purchaser cannot be set aside. It was also contended that the prices quoted by the applicants are speculative and on the basis of assumptions made by the applicants, the sale in favour of purchaser cannot be set aside. It was denied that the properties had been sold at throwaway price. The allegation regarding formation of coterie by the unsuccessful and successful bidders was stated to be baseless. It was contended that the fact that M/s. R.N. Marwah and Company is a chartered accountants' firm cannot be the ground for setting aside the sale. The plea of the purc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... also contended that even without the order of winding up the assets of the company can be sold and relied on Altos India Ltd. v. Bharti Telecom Ltd. [1994] 4 Comp. L.J. 294 (Punj. & Har.). 14. The purchaser also asserted that the sale should not be set aside lightly as the Court is not exercising the power of review. The learned counsel for the Official Liquidator, Ms. Rajdipa Behura also contended that even the provisional liquidator could sell the properties and relying on section 450 it was contended that the power of the liquidator is not restricted and since everything was pursuant to the orders of the Court, it cannot be said that the properties could not be sold. The learned counsel also relied on Bakemans Industries (P.) Ltd.'s case (supra). 15. Mr. Nigam, the learned counsel appearing for the purchaser also contended that the workers were present on all hearings, therefore, no further consent from the workers was required after their formal impleadment on 1-9-2005. It is also contended that the properties of the company could be sold even before winding up of the Company especially since it was agreed on 2-2-2005 by all concerned that despite the scheme for revival of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on the ground that their offer is substantially higher and it will be in the interest of everyone to sell the assets at the higher price. In Divya Mfg. Co. (P.) Ltd.'s case (supra) the Supreme Court had held that in case of fraud even after confirmation of the sale, it can be set aside because it is a well-settled principle that fraud vitiates everything. On the facts of this case the Court was of the view that the confirmed sale deserved to be set aside. In this case it was held in the peculiar circumstances of the case that the bid ought not to have been confirmed of the said new bidders. In this case appellant D had offered Rs. 37 lakhs to purchase the properties and at the intervention of the Court, the price was increased from Rs. 37 lakhs to Rs. 1.3 crores. Though the offer made on 2-7-1998 was accepted and it was also ordered that the sale in his favour be confirmed but before the possession could be handed over and before the sale deed could be executed it was pointed out that the assets and the properties could be sold at Rs. 2 crores and those persons who had offered Rs. 2 crores to show their bona fides were directed to deposit Rs. 40 lakhs each and also to pay Rs. 70,00....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the sale price was low. In this case sale was advertised in three news papers out of which two were local news papers; no reserve price of the sale was fixed; offer of the highest bidder was not in accordance with terms and conditions the of sale; no enquiries were made as to how many ex-employees who were out of employment for 7 to 8 years had secured other employment; the terms of payment were very liberal rather more liberal than were asked in the offer and considering these facts had set aside the sale. While setting aside the sale it was held by the Supreme Court that the Single Judge of the High Court passed the order in great haste without considering various matters. It was held that the best possible price having not been endeavoured to be realized, in the interest of the creditors, interference by the Court was called for. 21. The ratio of these cases do not support the pleas of the applicants. The case of the applicants is distinguishable. The learned counsel for the applicants have referred to certain observation of the Supreme Court in the cases relied on, however, on the basis of same it cannot be held that they are in support of the pleas and contentions of the appl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hs was deposited. The said bid was not considered initially as the sale proclamation was not published and fresh publication for 21-4-2005 was ordered and on said proclamation being given wide publicity, five more bids were received for all five units and three bids were received for units 2, 3 and 4 respectively. Though before the bids were invited, the reserve price was fixed, however the assets to be sold, were not got valued. After the valuation was got done and objections to valuation were rejected, reserved price was not revised. 24. Before negotiation with bidders to raise their respective bids, two more bids of M/s. S.R. Buildcon Pvt. Ltd. for Rs. 43 crores and M/s. Chaudhary and Sons (Forging) (P.) Ltd. for Rs. 44.05 crores were received. From the perusal of the record, it also transpires that on 14-7-2005 there was inter se bidding between the bidders and one of the bidder namely M/s. S.R. Buildcon (P.) Ltd. wanted to raise his bid to Rs. 50 crores and he had sought time which was granted. On 11-8-2005 another bid of M/s. AGM Management Service for Rs. 50 crores was received and then inter se bidding between the four bidders was done and highest bid of Rs. 59,05,00,000 w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....v. Asnew Drums (P.) Ltd. [1974] 2 SCC 213 had held that setting aside the sale after its confirmation will create huge problems. The Apex Court also held that when an auction sale is advertised in well known newspapers having wide circulation, all eligible persons can come and bid for the same and they will themselves to be blamed if they do not come forward to bid at the time of auction. It was further held that such persons who come later on cannot ordinarily be allowed to offer a higher price on the plea that they could not take part in the auction earlier. The Supreme Court in Kayjay Industries (P.) Ltd.'s case (supra) in para 7 had held as under :- "If court sales are too frequently adjourned with a view to obtaining a still higher price it may prove a self-defeating exercise, for industrialist will lose faith in the actual sale taking place and may not care to travel up to the place of auction being uncertain that the sale would be at all go through." 26. In Kayjay Industries (P.) Ltd.'s case (supra) the assets of the company were sold in lots and while seeking setting aside of the sale, it was contended that all the assets were sold as scrap. Negating this plea it was held....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s into consideration, the price offered by the applicants is not very high compared to the price at which the assets were sold. If the secured creditors and workers who have preferential charge on the assets of the company are not supporting the plea of the applicants, it will not be appropriate to set aside the sale and accept the offers of the applicants. The allegations made by the applicants are bald and cannot be the basis for setting aside the sale in the facts and circumstances. 28. The Apex Court in the case of Saheb Khan (supra ) had held that merely establishing a material irregularity or fraud will not be sufficient for setting aside the sale. It was held that for seeking setting aside the sale, the applicant must go further and establish to the satisfaction of the Court that the material irregularity or fraud has resulted in substantial injury to the applicant. Relying on Dhirendra Nath Gorai v. Sudhir Chandra Ghosh AIR 1964 SC 1300, Jaswantlal Natwarlal Thakkar v. Sushilaben Manilal Dangarwala 1991 Suppl. (2) SCC 691 and Kadiyala Rama Rao v. Gutala Kahna Rao [2000] 3 SCC 87 it was held that even if the applicant seeking setting aside the sale has suffered substantial ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rice was fixed at Rs. 43 crores. On noticing that there was no valuation of the assets got done, in order to ascertain whether the reserve price quoted in the sale proclamation was correct or not, the assets which were to be sold were got valued. The objections against the valuation by the workers unions were rejected after consideration. On the basis of the valuation got done it could not be said that the reserve price of Rs. 43 crores did not commensurate with the value of the properties. Even after getting the valuation done, more bids were received and there was inter se bidding between the bidders. On inter se bidding the bid of M/s. Balaji and Associates was the highest and that of M/s. R.N. Marwah and Co. was the second highest. The sale consideration as directed by the Court was not deposited by the highest bidder M/s. Balaji and Associates despite time given and despite recording the undertaking of one of the partner. The highest bidder later on sought more time on 20-10-2005 which was declined and the bid of M/s. R.N. Marwah and Co. for Rs. 59 crores was accepted. When the bid was accepted the secured creditors and the workers union were present and they did not object. T....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d highest bidder namely M/s. R.N. Marwah and Co. should not be set aside. 31. In the present facts and circumstances, it also cannot be disputed that the sale of five units of the company was by the Court and not by the Official Liquidator as pursuant to sale proclamation, the bids were invited, opened and inter se bidding was also done in the Court and after giving reasonable opportunity to the highest bidder and on his failure to deposit the sale consideration in terms of sale proclamation, the second highest bid was accepted and the sale was confirmed at the request of second highest bidder in favour of his nominee and the amount was paid in compliance with the order passed by the Court. The order dated 25-7-2006 although stipulated that Official Liquidator shall confirm the sale in favour of M/s. Morgan Ventures Ltd. however, what was meant was that the formalities for the sale be completed by the Official Liquidator which fact has been reiterated by the Court by its order dated 22-11-2006 categorically holding that the sale was confirmed in favour of M/s. Morgan Ventures Ltd. on 25-7-2006 by the same Hon'ble Judge. The sale had not been objected to by anyone is also apparent ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of the Provisional Liquidator for all intents and purport would be the same as that of the Official Liquidator and, therefore, it was not necessary for the Company Judge to wait till the company was wound up. The jurisdiction of the Company Court is vast and wide and it can mould its relief and it can exercise one jurisdiction or the other and can grant a variety of reliefs to the parties before it. The Supreme Court had held as under :- "63. The High Court, therefore, could not have ignored the official liquidator only on the ground that a provisional Official liquidator was appointed and not a regular official liquidator. The power and functions of the provisional official liquidator for all intent and purport would be the same as that of the official liquidator and, therefore, it was not necessary for the Company Judge to wait till the company was wound up." (p. 517) 33. The decision to sell five units of the company was taken de hors the scheme and for the purpose of early distribution of the money to the workers and other creditors which was recorded by the Court in its order dated 2-2-2005. The matter regarding OTS was considered on 24-3-2005 it was clarified again on 21-4....