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Wednesday, January 7, 2015

SPECIAL LEAVE PETITION NOS. 34782-34783 OF 2012 MANOJ I NAIK & ASSOCIATES Petitioner(s) VERSUS OFFICIAL LIQUIDATOR Respondent(s)

                                                                  REPORTABLE



                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

               SPECIAL LEAVE PETITION NOS. 34782-34783 OF 2012



MANOJ I NAIK & ASSOCIATES              Petitioner(s)

                        VERSUS

OFFICIAL LIQUIDATOR                          Respondent(s)



                           J  U  D  G  M  E  N  T



DIPAK MISRA, J.



            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
question.

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
order:

     "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
good.”



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
company/person.

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.



                                                  ........................J.
                                                               (DIPAK MISRA)


                                  ........................................J.
                                                     (ROHINTON FALI NARIMAN)


                                          ................................J.
                                                          (UDAY UMESH LALIT)
NEW DELHI;
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

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