you're reading...
legal issues











The factual exposition that is capable of being encapsulated in
a real small compass, has, with some passage of time and turn of events,
grown into a colossal structure having the effect potentiality to amaze and
perplex any prudent man. The chronology of events pyramids a gradual
financial structure, making it limpid how on certain occasions properties
are sold for a song in so called sales made in the proceedings under the
provisions of the Companies Act, 1956 (for brevity ‘the Act’) and how with
some intervention the said competitors metamorphose themselves into
different incarnations, and the roses on the table turn into pearls and
diamonds in the private closets. To put it succinctly, the price fixed at
Rs.6.25 crores for 291 plots has fetched, by the intervention of this
Court, Rs.70 crores for 113 plots. It is not change of heart, but the
price reality that gets manifest. Not for nothing it has been said, “money
can solve the problems concerned with money”. The large amount of money,
we are inclined to think, would solve the problems of the company in

2. The short narration. A company, namely, M/s Vitta Mazda Ltd.
went into liquidation and on 21.02.2002, the High Court of Gujarat directed
the Official Liquidator to put up the properties of the company in
liquidation (except those for which applications are pending before the
said Court for regularisation of transactions) to auction for sale.
Thereafter many an order was passed. On 18.12.2004, the learned Company
Judge, by taking into consideration many aspects, declined to accept the
report of the Official Liquidator for acceptance of the offer made before
the sale Committee. An appeal was preferred being O.J. Appeal No. 81 of
2004, wherein the Division Bench of the High Court on 30.08.2011 passed the
following order:

“1. The present appeal arises against the order dated 18.12.2004 passed by
the learned Company Judge in OLR No. 100 of 2003, whereby the learned
Company Judge has not accepted the report of the OL for acceptance of the
offer made before the Sale Committee.

3. It is an admitted position that the appellant was one of the
offerers, who submitted the highest offer before the Sale Committee and
when the report was made by the OL for approving the offer accepted by the
Sale Committee subject to approval of the company Court, the learned
Company Judge found that it would not be a case for acceptance of the offer
and, therefore, rejected the report submitted by the OL.

5. Apart from the above, even if the matter is to be considered for the
test of exercise of the judicial discretion exercised by the learned
Company Judge, it appears that the learned Company Judge, at paragraph 5,
recorded that the valuation made by the Bank of Baroda of the property is
much more than the offer submitted by the appellant. If the said aspect is
further considered, it appears that the offer of the appellant was Rs. 1.03
crore, whereas it is a part of the record of the Sale Committee’s
proceedings that as per Bank of Baroda, the valuation of the property was
Rs. 6.25 crore. It has been stated that there was also another report,
which was shown to the Court.

6. Be that as it may, even if it is considered that the offer of the
bank of Baroda was of Rs. 6.25 crore as per the valuation report available
and the highest offer was of Rs. 1.03 crore coming on record and under
these circumstances, if the learned Company Judge found it proper not to
accept the offer by confirming the sale, such an exercise cannot be said to
be erroneous. On the contrary, the exercise would be in the larger
interest of the corpus of the company.

7. Additionally the learned Company Judge, in the impugned order, has
also recorded the fact that the total chunk of property comprises of
various plots of different characteristics namely; that on some plots,
there were encroachments, for some plots, there were litigations and some
plots were clear. Therefore, the learned Company Judge found that if the
properties are sold as it is, comprising of all the plots simultaneously,
it may create complications and, therefore, the learned Company Judge
directed the OL to prepare a list of the plots, which were not occupied by
anyone and in respect of which, there was no dispute or litigation and
thereafter to undertake the process to sell and dispose of the plots at a
later stage. In view of the above, if the property is segregated into
various compartments of clear property, property with clog and/or property
with encroachment, while disposing of the immovable properties, it would be
rather in the interest of the company, since the clear property is bound to
fetch higher price in comparison to the other two properties namely; with
clog in the title and/or with encroachment or otherwise.”

3. When the matter was listed on various dates, it was thought it
appropriate that there should be a proper auction and, accordingly, the
following order came to be passed on 02.07.2014:-

“This Court, while issuing notice on 02.11.2012 had passed the following

“Learned senior counsel appearing for the petitioner submits
that the petitioner is willing to match the offer of Rs.6.25 crores
made by the Bank of Baroda. Submission recorded.”

Thereafter, the matter has been adjourned and certain applications
have been filed for impleadment, which are allowed.

Mr. Ahmadi, learned senior counsel appearing for the applicant
M/s. SNDT Enterprises in IA 6-7/2013 has submitted that
the applicant therein is prepared to pay Rs.25 crores for the
property that was sought to be auctioned.

Not intending to lag behind, Mrs. Meenakshi Arora, learned senior
counsel appearing for M/s. Star and Associates in IA No. 10-11/2013
submitted that the applicant herein is prepared to pay Rs.30 crores.

Mr. Pradhuman Gohil, learned counsel appearing for Mr. Ranjitsinhji
N. Parmar in IA 8-9/2013 equalises the offer given by Mr. Ahmadi, i.e. Rs.
25 crores.

Mr. Sharan, learned senior counsel appearing for the petitioner has
expressed the skepticism to the offers made by the applicants. It is his
submission that if they intend to show their bona fides, they should
deposit at least Rs.10 crores before this Court as the petitioner is also
inclined to deposit Rs.10 crores.

In view of the aforesaid submission, we direct that the applicants,
whose names have been mentioned hereinabove as well as the petitioner
shall deposit a sum of Rs. 10 crores each by way of bank draft drawn in
favour of the Secretary General of this Court within three weeks from
today. Needless to say that this amount may be treated as off-set price
and thereafter this Court may think of going through the bidding process,
if required. Let it be stated the offer is made keeping in view the auction
notice. Nothing more, nothing less. After the deposit of the amount, the
same shall be kept in a nationalised bank in a short-term
interest bearing account.

List on 11.08.2014.”

4. After the said order was passed, certain deposits were made by
3 firms/companies. Regard being had to the said situation, on 19.08.2014,
after referring to the earlier orders, the following order came to be
passed :-

“We have been apprised by the Registry that deposits which were
directed by this Court have already been made and, therefore, all the
parties have complied with the order. In view of the aforesaid position,
we direct the Official Liquidator to proceed with the fresh auction. The
factum of auction shall be advertised in local Newspapers one in English
and another in vernacular language. That apart there should be an
advertisement in any daily National Newspaper having adequate circulation
in the country, regard being had to the issue involved in such a matter.
The upset price shall be fixed at Rs. 10 crores. The advertisement shall
be issued within a period of two weeks from today. The bidding process
shall be completed within four weeks therefrom. As far as M/s Star and
Associates is concerned, if they offer a bid less than Rs.30 cores that bid
shall not be accepted but their claim of amount shall be considered subject
to further orders of this Court. Similarly, as far as Mr. Ranjitsinh
Parmar is concerned, his bid for less than Rs.25 crores shall not be
considered but he would be entitled to claim refund of the amount subject
to further orders of cost.

The Managing Director of M/s. SNDT Enterprises on whom cost of
Rs.5 lakhs was imposed shall remain personally present on the next
date of hearing if the cost, as directed, is not deposited before the
Registry of this Court. In case the deposit is made, an affidavit shall be
filed and he need not appear in person. Needless to emphasise that in
the event of non-deposition, he shall personally appear and this Court may
consider passing appropriate orders in that regard.

We may add that anyone who intends to bid, he has to deposit a sum of
Rs.10 crores as earnest money so that he can claim parity with the three
contenders who are before this Court. Barring what we have stated, the
other conditions in the initial notice for auction shall remain the same.
As the three bidders have deposited Rs.10 crores, they need not to deposit
earnest money, as the deposition of that amount before
this Court tantamounts to deposition of earnest money.

The place of auction will be at Ahmedabad. There will be stay of
further proceedings before any Court relating to the property
involved in this case.

The Registry shall keep the deposited amount in F.D.Rs. in a
nationalised bank in a short-term interest bearing account.”

5. In the meantime, certain unwarranted, unhappy and uncalled for
situation took place. The Official Liquidator filed a report before the
learned Company Judge seeking permission to exclude certain plots from the
original list and, accordingly, the learned Company Judge granted the
extension of time. In our considered opinion, when the mater was subjudice
before this Court, the learned Company Judge should not have dealt with the
same regard being had to the fundamental concept of judicial discipline.
Be that as it may, the Official Liquidator issued an advertisement in
respect of 291 plots wherein it was clearly mentioned that the sale had
been confirmed by the learned Company Judge in respect of 87 plots and the
said confirmations were the subject matter of appeals before the Division
Bench which were subjudice. Similarly, it was also mentioned that the order
of status quo was operational in respect of 10 plots and the said order of
status quo had been passed by a coordinate Bench of this Court. It was also
postulated therein that certain plots had been encroached upon and certain
plots were subject matter of registered sale deeds, though no application
had been filed before the Court for validation. In course of hearing of
these petitions, we have been apprised that applications for validation are
pending before the learned Company Judge.

6. On a perusal of the advertisement, it is clear as crystal that
113 plots admeasuring 91,960.70 sq. mtrs. forming a part of Annexure- A/I
of the Corrigendum was absolutely free and available for auction.

7. At this juncture, it is pertinent to mention that the bids
which were offered in respect of the plots that were put to auction were
opened before us. M/s Manoj I Naik & Associates, the appellant herein, has
offered Rs. ten crores eleven thousand; Mr. Laxmi Narayan Garg
has made an offer of Rs. 10 crores; M/s Star & Associates has offered Rs.
31 crores. It is submitted by Mr. A. Saran, learned senior counsel for the
appellant, that the Official Liquidator had no authority to issue a
Corrigendum or to place a clarificatory note in respect of the plots. That
apart, submits Mr. Saran, the Official Liquidator has committed grave
illegality and, in a way, contempt of the Court by approaching the High
Court and stating that this Court had made certain oral observations which
was really not correct, for everything was unequivocally stated in the
order. Ordinarily, we would have proceeded to address the submissions made
with emphasis by Mr. A. Saran, but as advised at present, we are refraining
from doing so, for what has happened in the course of hearing.

8. Here the sad sad story begins. Mr. Tushar Mehta, learned
Additional Solicitor General, while defending the stand of the Official
Liquidator, though made certain efforts to justify his action, yet
ultimately realised that it was a sisyphean endeavour because the action
may be genuine but should not have been undertaken. Mr. Tushar Mehta
learned Additional Solicitor General, and Mr. Gaurav Agrawal, learned
counsel, appearing for the Official Liquidator, while expressing regret
about the steps taken by the Official Liquidator who has also rendered
unconditional apology, submitted that the prices of the land have gone up
and there is a valuation report by the Gujarat Industrial and Technical
Consultancy Organisation Ltd (GITCO) which has estimated the price at Rs.
66,15,22,000/- in respect of total freehold land available for sale, that
is, 113 plots.

9. The said valuation report compelled us to think in a different
way and impelled us to recapitulate certain authorities of this Court. In
Ram and Shyam Company Vs. State of Haryana[1], the Court observed thus:

“12. …Owner of private property may deal with it in any manner he likes
without causing injury to any one else. But the socialist or if that word
is jarring to some, the community or further the public property has to be
dealt with for public purpose and in public interest. The marked
difference lies in this that while the owner of private property may have a
number of considerations which may permit him to dispose of his property
for a song. On the other hand, disposal of public property partakes the
character of a trust in that in its disposal there should be nothing hanky
panky and that it must be done at the best price so that larger revenue
coming into the coffers of the State administration would serve public
purpose viz. the availability of larger funds. This is subject to one
important limitation that socialist property may be disposed at a price
lower than the market price or even for a token price to achieve some
defined constitutionally recognized public purpose, one such being to
achieve the goals set out in Part IV of the Constitution. But where
disposal is for augmentation of revenue and nothing else, the State is
under an obligation to secure the best market price available in a market
economy. An owner of private property need not auction it nor is he bound
to dispose it of at a current market price. Factors such as personal
attachment, or affinity, kinship, empathy, religious sentiment or limiting
the choice to whom he may be willing to sell, may permit him to sell the
property at a song and without demur. A welfare State as the owner of the
public property has no such freedom while disposing of the public property.
A welfare State exists for the largest good of the largest number more so
when it proclaims to be a socialist State dedicated to eradication of
poverty. All its attempt must be to obtain the best available price while
disposing of its property because the greater the revenue, the welfare
activities will get a fillip and shot in the arm. Financial constraint may
weaken the tempo of activities. Such an approach serves the larger public
purpose of expanding welfare activities primarily for which the
Constitution envisages the setting up of a welfare State.”

10. In the aforesaid case, the Court held auction in Court in
respect of some quarries relating to minor minerals. The appellant therein
who initially had given an offer of Rs.5.5 lakhs, eventually offered Rs.25
lakhs. Taking note of the state of affairs, the Court observed:

“6. Shock and surprise was visible on the face of each one in the Court.
Shock was induced by the fact that public property was squandered away for
a song by persons in power who hold the position of trust. Surprise was
that how judicial intervention can serve larger public interest. One would
require multi-layered blind-fold to reject the appeal of the appellant on
any tenuous ground so that the respondent may enjoy and aggrandize his
unjust enrichment. On this point we say no more.”

11. In Committee of Management of Pachaiyappa’s Trust Vs. Official
Trustee of Madras and Another[2], the Court placing reliance on paragraph
12 in Ram & Shyam Company (supra) and Para 27 in Chenchu Rami Reddy V.
Govt. of A.P.[3], opined thus:

“28. The aforesaid observations in the context of public property and
property belonging to religious and charitable endowments and institutions
would equally apply to trust property as in the present case.”

12. In Meerut Development Authority V. Association of Management
Studies and Another[4], after referring to number of decisions including
Ram and Shyam Co. (supra), the Court reproduced a passage from Wayde’s
treatise on Administrative Law[5], which is as follows:

“The powers of public authorities are therefore essentially different from
those of private persons. A man making his will may, subject to any rights
of his dependants, dispose of his property just as he may wish. He may act
out of malice or a spirit of revenge, but in law this does not affect his
exercise of his power. In the same way a private person has an absolute
power to allow whom he likes to use his land, to release a debtor, or,
where the law permits, to evict a tenant, regardless of his motives. This
is unfettered discretion. But a public authority may do none of these
things unless it acts reasonably and in good faith and upon lawful and
relevant grounds of public interest. So a city council acted unlawfully
when it refused unreasonably to get a locally rugby football club use the
city’s sports ground, though a private owner could of course have refused
with impunity. Nor may a local authority arbitrarily release debtors, and
if it evicts tenants, even though in accordance with a contract, it must
act reasonably and ‘within the limits of fair dealing’. The whole
conception of unfettered discretion is inappropriate to a public authority,
which possesses powers solely in order that it may use them for the public

13. At this juncture, we are obliged to state that in the case at
hand, we are dealing with properties owned by a Company under liquidation
and there has been price fixation by the Company Court. GITCO has
estimated the valuation in praesenti. It is not in dispute, as per the
orders passed by the Company Court as well as the Division Bench in Company
Appeal and as understood by this Court, 291 plots were to be put to auction
and for the total number of plots the prices were offered by the bidders
who had shown interest before this Court to bid and this Court had fixed
the reserve price at Rs.10 crores. Counsel for the parties on 02.07.2014
had gone to the extent of saying that they were prepared to offer Rs.25-30
crores in the auction and we have already mentioned offers have come in the
sealed cover.

14. Ordinarily, what we would have done is absolutely another
matter. There can be no speck of doubt that the properties of a company
under liquidation when sold, there has to be a proper auction, a fair one.
It must fetch the maximum price. It takes care of statutory dues, dues of
the workmen and the creditors. It has its own public character. In any
case, it cannot be allowed to be sold for a song. The estimated price
given by GITCO is more than Rs.66 crores for 113 plots, which are free.
Therefore, we thought it seemly to ask the learned counsel appearing for
the parties, if they are agreeable for open auction by giving their offers
before this Court.

15. Mr. A. Saran, learned senior counsel, Mr. Braj Kishore Mishra,
learned counsel, Mr. Vivek Singh, learned counsel and Mr. Amar Dave,
learned counsel, conceded to the said suggestion. In the High Court
initially Rs.6.25 crores had been offered, and we had fixed the reserve
price at Rs. 10 crores and, to test the bona fide of the bidders, we had
directed them to deposit Rs. 10 crores each before the Registry of this
Court which has been done. Now the initial thought, graduated to a shock.
When auction commenced, Mr. Braj Kishore Mishra, learned counsel, along
with Mr. Vivek Trivedi, learned counsel, after obtaining instructions from
Mr. S.D. Verma, a partner of M/s Star & Associates, informed the Court
that they are willing to offer Rs. 31 crores for 113 plots which are free.
Determined not to lag behind, Mr. A. Saran, being instructed by Mr. Amit
Kumar, learned counsel, on behalf of the petitioner, ultimately raised the
figure upto Rs.65 crores. Be it stated, we had requested the bidders to
hike their price by Rs.5 crores so that the auction becomes real and not
unnecessarily time-consuming. Mr. A. Saran, learned senior counsel, Mr.
Braj Kishore Mishra, learned counsel, Mr. Vivek Singh, learned counsel and
Mr. Amar Dave, learned counsel, co-operated. Eventually, Mr. Braj Kishore
Mishra, learned counsel, appearing for M/s Star & Associates enhanced the
price to Rs. 70 crores. Mr. A. Saran, Mr. Vivek Singh and Mr. Amar Dave
did not think, as instructed by their respective clients, to bid further.
Thus, we find that the report submitted by GITCO appears to be correct.
That is a redeeming feature to pardon the Official Liquidator and we do so.

16. In view of the aforesaid, we direct M/s. Star and Associates to
deposit a sum of Rs.20 crores by the end of November, 2014 and another
Rs.40 crores by March 15, 2015 before the Registry of this Court. The
amount shall be deposited in an interest bearing fixed deposit in a UCO
Bank, Supreme Court Compound, New Delhi. After Rs.60 crores are deposited,
Rs. 10 crores that have been deposited by the company before the Registry
shall be added and handed over by way of a banker’s cheque to the Official
Liquidator along with interest. Needless to emphasise, if any of the
directions is not complied with or for any reason, extension is sought, Rs.
10 crores that has been deposited before this Court along with interest
shall stand forfeited and go to the account of the company. This aspect is
also conceded to by Mr. Braj Kishore Mishra and Mr. Vivek Trivedi.

17. As far as deposits made by the petitioner and Mr. Ranjitsinh
Parmar before this Court are concerned, the deposits shall be refunded
along with interest within two weeks hence. The amount deposited by Mr.
Laxmi Narayan Garg with the Official Liquidator shall also be refunded
within a week from today. Any earnest money that has been deposited with
the Official Liquidator shall also be refunded to the concerned

18. At this juncture, it is appropriate to mention that the rest of
the plots in respect of which there is an order of status quo by this Court
or which are subjudice before the appellate court on the company side
before the High Court, needless to say, shall be dealt with at the
subsequent date.

19. At this juncture, we are obligated to clarify that
interlocutory applications which have been filed before this Court can be
filed before the High Court and the orders passed by the High Court shall
be filed before this Court in these special leave petitions so that they
can be appositely dealt with. The order of stay granted earlier, that is,
directing stay of further proceedings before any Court relating to the
property involved in this case, is modified to the extent indicated above.

20. Let the matter be listed for further hearing on March 24, 2015.

OCTOBER 28, 2014
[1] (1985) 3 SCC 267
[2] (1994) 1 SCC 475
[3] (1986) 3 SCC 391
[4] (2009) 6 SCC 171
[5] Administrative Law, 9th Edn., H.W.R. Wade & C.F. Forsyth


About advocatemmmohan



Comments are closed.

Blog Stats

  • 1,658,153 hits



Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 1,846 other followers

Follow advocatemmmohan on WordPress.com