Holding

The court must apply its mind, obtain a proper expert valuation, disclose it to secured creditors, and verify facts before confirming a sale of a liquidated company's assets; failure to do so invalidates the sale.

Summary

The Supreme Court examined the sale of assets of Kolay Biscuits Co. Ltd., a company under liquidation, where the Company Judge ordered an auction as a going concern based largely on oral statements about 1,200 workers and a valuation report that was not disclosed to the secured creditor, Union Bank of India. The Court held that in winding‑up proceedings the court acts as custodian of the company's and creditors' interests and must exercise judicial discretion to ensure a reasonable price, which requires a proper expert valuation and disclosure of that report to interested parties. Reliance on unverified oral submissions and failure to verify the valuation methodology rendered the sale order unjustified. Consequently, the Supreme Court set aside the confirmed sale, directed the official liquidator to recover possession, refund the purchase price, obtain a fresh reliable valuation, and conduct a new auction. The appeal was allowed and the impugned order quashed.

Issues considered

The court's duty, as custodian in winding‑up proceedings, to ensure assets are sold at a reasonable price.
Whether a court must obtain and disclose an expert valuation report before confirming a sale under Section 529 of the Companies Act, 1956.
Whether reliance on oral statements about workers without verification justifies ordering a sale as a going concern.
Whether failure to disclose the valuation report and reserve price invalidates confirmation of the sale.
Whether inadequacy of price alone can be a ground to set aside a court‑sanctioned sale.
Whether a purchaser is entitled to a refund with interest if the sale is set aside.

Legislation cited

Companies Act, 1956s. 529
Indian Evidence Act, 1872s. 45

Subjects

Company liquidationCourt saleValuation reportSecured creditorJudicial discretionGoing concernExpert opinionBIFRAIFRAuction confirmation

Judgment

UNION BANK OF INDIA A
v.
OFFICIAL LIQUIDATOR
. ..... H.C. OF CALCUTTA AND ORS .

APRIL 26, 2000

[M.B. SHAH AND R.P. SETHI, JJ.] B

COMPANIES ACT, 1956:

Winding up proceedings-Company under liquidation-Role of the
Court-Held, tlze Court acts as a custodian for the interest of the company and C
tlze creditors :

Section 529 :

Sale ofassets ofcompany under liquidation-Sanction of-Role of Court-
Before sanctioning the sale of its assets, the Court is required to exercise D
judicial discretion to see that properties are sold at a reasonable price-It is the
duty ofthe Court to apply its mind to the valuation repo1tforverifying whether
tlze n;port indicates reasonable market value of the property to be auctioned
even if objections are not raised-Unless the court is satisfied about the
adequacy of the price the act of confirmation of sale would not be a proper
E
exercise ofjudicial discretion.

Sale ofassets/factory of Company as a going concern-Company closed
17 years ago-Attempt made by BIFR and A/FR, which are expert bodies under
the Sick Industrial Companies Act to revive the sick unit failed-Order by
Company court to sell tlze property as a going concern, relying on oral F
submission of workmen and without verification of the facts-Held, not justi-
fied-Sick Industrial Companies Act.

Auction sale of assets of company under liquidation-And confilmation
of the sale-Without disclosing the valuation report to the creditors and without
G
fixing its reserve price-Justification of-Held, not justified-Since it is against
normal procedure-After winding up order; the properties of the Company are
in the custody ofthe Cou1t for the benefit ofthe secured creditors and thereafter
. (f any thing remains, for other creditors and its share holders.

Indian Evidence Act, 1872-Section 45-Expert opinion-Valuation H
691
692 SUPREME COURT REPORTS [2000) 3 S.C.R.
A Rep01t-Of land-Based on enqui1y from local people-Held, cannot be said -4. -
be an opinion of an expert valuer.
\
In the Company Petition filed by the appellant-Bank, Company
Judge issued direction for winding up of the Company and appointed
official liquidator to take over the assets. A valuer was also appointed and
B
directed to submit the valuation report. Thereafter order fixing the date of
sale of the assets of the Company was passed and advertisement to that
effect was also directed.
...
An application was filed with the plea that 1200 workmen would be
c affected if the sale or the factory of the company does not take place as a
going concern and workmen are not re-employed. Government submitted
that the corporation was ready to purchase the entire company and re-
employ the workmen. Court made fresh order ready to of sale of the
~
company as a going concern by auction. Court while narrating the submis-
D sion of the employees noted that more than 100 employees were starving to
death and more than 100 employees had already died.

Subsequently, Government withdrew its offer. In the valuation re-
port the assets of the company were valued at around Rs. 67 lakhs. Re-
spondent No. 2 offered Rs. 67 lakhs and agreed to take the company as a ~
E going concern and further agreed to employ the eligible workmen. Court
accepted the offer of respondent No. 1. The appellant-Bank prayed for t
stay of the order but the same was rejected.
,___
'S' then made an offer of Rs. 70 lakhs on the same terms. Court
F directed 'S' to deposit 20% of the amount with the official liquidator
within a specific date, and ordered that on failure to do so, bid of respond- .,.
ent No • 2 would be accepted. 'S' failed to deposit the amount as directed
by the Court. Therefore bid of respondent No. 2 was accepted with a
direction to deposit the balance amount within a specific period.

G Appellant-Bank filed a writ petition before Division Bench praying
for the stay of the operation of the order of the Company Judge, contend-
ing that the price was inadequate. The writ petition was dismissed with the
observation that in the meantime the whole amount was paid by respond-
ent No. 1 and that price was not inadequate as it was matching with the
H valuation.
UNION BANK OF INDIA v. OFFICIAL LIQUIDATOR H.C. OF CALCUITA 693
In appeal to this Court, appellant contended that in sale of Compa- A
ny's property, it is the duty of the Court to see that the properties are sold
at a reasonable price; that without there being anything on record, merely

- relying upon the oral statement by some person that he represents some
workers, the orders were wrongly passed by the Company Judge, as the
Company was closed since 1980, there was no question of 1200 employees
working in the said Company; that BIFR & AIFR, both statutory expert
bodies failed to restart the Company and thereafter the Company Judge
B

without verifying any of these facts and the valuation report and without
giving the copy of valuation report to the secured creditors for whose
benefit properties were sold, directed the property to be sold and con-
firmed the sale. c
Respondents contended that as the bank had not raised any objec-
tion before the Company Judge with regard to the inadequacy of the price
or non-supply of the valuation report and for any other alleged irregular-
ity in the conduct of the auction sale, the Court should not interfere in this
appeal. In the alternative, it was contended that Respondent No. 2 be
D
refunded the amount with 18 % interest with additional amount invested,

Allowing the appeal, the Court

HELD : 1. In proceedings for winding up of the Company under
liquidation, the Court acts as a custodian for the interest of the company
E
and the creditors. Therefore, before sanctioning the sale of its assets, the
Court is required to exercise judicial discretion to see that properties are
sold at a reasonable price. For deciding what would be reasonable price,
valuation report of an expert is must. Not only that, it is the duty of the
Court to disclose the said valuation report to the secured creditors and F
other interested persons including the offerors. Further, it is the duty of the
Court to apply its mind to the valuation report for verifying whether the
report indicates reasonable market value of the property to be auctioned
even if objections are not raised. [699-H; 700-A-B]

2. It was the duty of the Court to verify that the statement made by G
some applicant that sale of Company on "as is where is basis'' will affect
1200 workers and for that proper notice was required to be issued to the
secured creditors for whose benefit the property was to be auctioned. To
straightaway rely upon such statement was not judicious. The Company
Judge ought to have also considered the fact that an attempt made by the H
694 SUPREME COURT REPORTS (2000] 3 S.C.R.

A BIFR and' AIFR, which are expert bodies u~der the SICA to revive the sick
unit hall failed. In any set of circumstances, there was no material on
record before the Company Judge for holding that Company could be
re\ived and the employees would be reinstated in service by giving them
re-employment. Without indulging in any such exercise straightaway to
state that property would be sold as a going concern was totally without
...
B
any basis and therefore, unjustified. (700-C-E]

3. The Division Bench was persuaded by the so-called sympathy for
workers, lvithout verification of the fact that Company was closed 17 years
before the sale. Without there being any application on record and lvithout
c there being proper verification of the facts that 100 workmen have died,
from the concerned parties, it is not just and proper to make observations
to that effect. It is not impossible that because of the lapse of 17 years, out
of 1200 workers who might have worked in the said factory 100 employees
might have died of natural death. It was unjustified to make a case over it
and to accept oral submissions and to dispose of the valuable properties of'
D a Company by stating that the sale _9fthe Company as a going concern was
for the benefit of the so called employees who were not in employment.
[700-F-H; 701-A-B]

4. Once a report was called for, it was the duty of the Court to see
E that copy of the said report is given to the secured creditors and other
affected persons. It was known to the Court that the appellant-secured
credttor was claiming more than Rs. 4 crores. After winding up order, the
properties of the Company are in ihe custody of the Court for the benefit
of the secured creditors and if any thing remains thereafter, for other
creditors and its share holders. In the present case, lvithout disclosing the
F valuation report to the creditors and without fixing its reserve price, the
properties were auctioned and the sale was confirmed. This approach is
unjustifiable by any judicial standard and is against the normal procedure
for auctioning the immovable pr~perty of the Company which is to be
wound up. (701-B-D)
G
5. The valuer stating that for the purpose of vahtation of the land he
has enquired from local people and that he understood that the land price
in this particular area varies between Rs. 2 lakhs to 2.5 Iakhs per katta
cannot be said to be an _opinion of an expert valuer. Company Judge has
simply noted the final figures mentioned in valuation report and accepted
H the same without applying his mind to the aforesaid facts. (702-B-C; E)
UNION BANK OF INDIA v. OFFICIAL LIQUIDATOR H.C. OF CALCUTTA 695
Allahabad Bank & Ors. v. Bangal Paper Mills Co. Ltd. & Ors., [1999) 4 A
· ,.... SCC 383 and Mis. Navlaklza & Sons v. Sri Ramayana Das & Ors., [1969) 3
sec 537' referred to.

6. The contention that mere inadequacy of price cannot demolish
every court sale is required to be rejected on the ground that the condition
of confirmation by the court operates as a safeguard against the property B
being sold at inadequate price whether or not is a consequence of any
irregularity or fraud in the conduct of the sale; court is required to satisfy
itself that having regard to the market value of the property the price
offered is reasonable; unless the court is satisfied about the adequacy of
the price the act of confirmation of sale would not be a proper exercise of C
judicial discretion. The court has also observed that failure to apply its
mind to the material factors bearing on the reasonableness of the price
offered may amount to .material irregularity in conduct of the sale.
(703-G-H; 704-A-B]

Mis. Kayjay Industries (P) Ltd. v. Mis. Asnew Drums (P) /Jd. and Other, D
[1974] 2 sec 213, di~inguished.

Mis. Navlakha & Sons v. Sri Ramayana Das & Ors., [1969) 3 SCC 537,
relied on.

7. Ha sale is set aside in appeal, it can not be stated that purchaser is E
entitled to have refund of the amount with interest.

(The Court directed the Official Liquidator to recover possession of
the property sold as per the inventory and thereafter refund the amount
deposited by respondent No. 2 • auction purchaser; and to resell the
property after obtaining fresh valuation report from other reliable expert F
and after giving a copy of the said valuation report to secured creditors.)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3109 of 1998.

From the Judgment and Order dated 24.12.96 of the Calcutta High
Cowt in G.A. No. 708/96 in C.P. No. 316 of 1981. G
V.R. Reddy, G.L. Sanghi, A.K. Ganguli, Ravindra Bhat, Dhruv Mehta,
Ms. Shobha, S.K. Mehta, Ms Shipra Ghose, Pranab Kumar Mullick, Sanjay
Kumar Ghose, A. Bhattacharya and Rajiv Talwar for the appearing parties.

The Judgment of the Court was delivered by H
696 SUPREME COURT REPORTS · [2000] 3 S.C.R.
A SHAH, J. This appeal is filed against the judgment and order dated
24.12.1996 passed by the Division Bench of the Calcutta High Court dismiss- _..
ing the Appeal No. GA 708 of 1996 arising out of Company Petition No.
316 of 1981 whereby the learned Single judge had confirmed the .auction sale
of the. property of Messrs. Kolay Biscuits Company Private Limited -
B Company under liquidation.

In the present case, it is admitted fact that on 9th July 1965 Messrs.
Kolay Biscuits Company Private Limited created a mortgage of its land and
building in favour of Union Bank of India for the loan granted in its favour.
The factory of the company was closed down in 1980. On 20th March 1991
c under the provisions of the Sick Industrial Companies Act (SICA), the
company was declared as sick unit by the Board of Industrial and Financial
Reconstruction (for short "B.I.F.R.") and thereafter application under the said
Act was rejected by the Board. Appeal filed before the A.l.F.R. was also
dismissed. It is the contention of the Bank that on 30th March, 1981, the
D borrowings by the Company increased to about Rs. 3 Crores and Compauy
executed four balance confirmations in respect of the dues in various ac-
counts. The ballk also filed a title mortgage suit No. 103/1992 before the
Assistant District Judge, Sealdah against the Company and five ~uarantors for
recovering Rs. 4,11,21,411 along with interest after obtaining leave by the
Company Judg:e under Section 446 of the Companies Act. By order dated
E 19th August, 1991 the Company Judge issued directions for winding up of
the Company and ·appointing official liquidator to take over ass~ts. On 16th
February, 1996, the Company Judge appointed Mr. Pranoj R0y ·Chowdhary
of Mis C4owdhary Associates as a valuer with a direction to submit a report
within six weeks from the date. Official Liquidator has stated that he informed
F the appellant Bank about the said order by letter dated 29th February, 1998.
Thereafter the matter was placed before the Company Judge on 21st June,
1996 and on the same date Company Judge passed an order fixing date of
sale of Company's assets as 2nd August 1996 and directed tht'. official
liquidator to make advertisement for notice of sale of assets of the Company
in newspapers, namely, the Statesman, Dainik Bishwamitra and Anand Bazaar
G
Patrika inviting applications for purchase of the property on "as is where is
basis" with a direction that purchaser will be bound to deposit 20 per cent
of the tender amount along with the tender by Bank draft or bankers cheque
or pay order.

H On 2nd August, 1996, one Advocate Mr. Dutta moved an application
UNION BANK OF INDIA v. OFFICIAL LIQUIDATOR H.C. OF CALCUITA [SHAH, J.) 697
stating that nearly 1200 workmen would be affected if the sale does not take A
place as a going concern and the workmen are not re-employed. The
Company Judge observed:

, "the fate of so many workmen nearly 1200 in number with their
families depending upon them cannot be ignored by the Court."
B
On that day on behalf of the State of West Bengal it was submitted that
its Corporation (R. No.4) was interested to purchase the land and the entire
Company and they were also interested in re-employment of workers so the
Company be sold out as a going concern. Thereafter, the Court straightaway
directed that the sale fixed on that day would not be held and Official C
Liquidator was directed to issue fresh advertisement in the same newspapers
on 22nd August 1996 fixing the date for auction sale on 13th September, 1996
for 1;he assets of the Company 'as a going concern'.

On 20th September 1996, the matter was placed before the Court and
it was stated on behalf of the State Government Corporation that it was not D
agreeable to purchase with the condition of re-employing workmen. There-
fore, they withdrew their offer to purchase the Company as a going concern.
The Court also considered the Valuation Report which was placed before it
wherein the assets of the Company were valued at Rs.66,90,032. On the basis
of the said valuation Mis Indrani Soft Drinks - respondent No. l whose offer E
was Rs. 40 lakhs raised the same to Rs. 67 lakhs and agreed that they would
take the Company as a going concern and all eligible employees would be
re-employed. Hence, the Court accepted the said offer. The learned advocate
appearing on behalf of the secured creditor - Union Bank of India prayed for
stay of the operation of the order but the same was rejected on the ground
that no useful purpose would be served if the stay of the operation of the F
order was granted. Thereafter, it appears that on behalf of Syndicate and
Promising Exports Limited, one advocate appeared and submitted that it was
ready and willing to purchase the Company as a going concern by paying
Rs. 70 lakhs on the same terms and conditions as stated above. His offer was
considered by the Court by giving a direction that offeror would deposit 20 G
per cent of the amount either by Bank draft or pay order, with the official
liquidator on or before 23rd September 1996. The Court further directed that
in the event of failure to deposit the said sum, the offer of Mis Indrani Soft
Drinks will stand accepted without there being any _further bid. The matter
was kept for further orders on 27th September, 1996. On that date it was
H
698 SUPREME COURT REPORTS [2000] 3 S.C.R.
A found that Promising Exports had neither sent any offer to the official
liquidator nor had deposited any amount. The Court observed that the sale
in favour of auction purchaser - Mis lndrani Soft Drinks remains accepted
and directed them to pay the balance amount within 60 days. It also directed
- "Official Liquidator will supply a copy of the valuation report to the secured
B creditor at their cost". The Ofticial Liquidator was directed not to part with
possession of the Company till the entire purchase price was paid.

Against that order appellant preferred an appeal before the Division
Bench. Before the Division Bench a contention was raised with regard to the
inadequacy of the prlce and the Court observed that the Court would be rather
C loath to intetfere and intervene in a Court sale where a question of inadequacy
of the price is to be considered by observing that:

"Court sale has taken place for the benefit of the employees concerned
and more than 100 employees were starving to death and the official
liquidator was trying to sell the assets as a going concern so that the
D
employment opportunities can be maintained in these hard days."

The Court also considered the fact that in the meantime after confir-
mation of the sale the entire purchase price has been paid by Mis lndrani Soft
Drinks and the Official Liquidator has intimated to the purchaser that
E possession will be made over in the course of the day and at that stage Union
Bank of India thought it fit to move this Court for staying the operation of
the order which cannot be granted. The Court also observed that the offer
obtained in Court matches with the valuation report and the grievance of
inadequacy of price cannot be accepted and sale when taking place in a Court
F of law ought to be given a final shape, as quickly as possible, so that
rehabilitation of the employees can be effected without any loss of time
because Court was informed that "more than 100 employees have already
died". Against that order this appeal is file.cl.

Mr. G.L. Sanghi, learned senior counsel for the appellant-Bank submit-
G ted that the order passed by the Company Judge which is confirmed by the
Division Bench is, on the face of it, erroneous and is based on total non-
application of mind. He submitted that in sale of Company's property it is
the duty of the Court to see that the properties are sold at a reasonable price
and not at a throw away price. He pointed out that without there being
H anything on record merely relying upon the.oral statement by some person
UNION BANK OF INDIA v. OFFICIAL LIQUIDATOR H.C. OF CALCUTTA [SHAH, J.] 699
stating that he represents some workers the orders are passed by the Company A
•• ~
Judge and confirmed in appeal by the Division Bench. It has been pointed
out that Company was closed since 1980 and, therefore, there was no question

-r
of 1200 employees working in the said Company. He further pointed out that
apart from the Company being closed since years the BIFR & AIFR, both
statutory expert bodies failed to restart the Company and thereafter the
learned Judge without verifying any of these facts and the valuation report
B
and without giving the copy of valuation report to the secured creditors for
whose benefit properties were sold, directed the property to be sold and
confirmed the sale. It is also submitted that in the notice for sale issued by
the liquidator the upset price is not stated and that at initial stage offer of
respondent No.2 Messrs lndrani Soft Drinks Limited was only Rs.40 lakhs c
but in the Court after seeing the so called valuation report it was raised to
Rs.67 lakhs which clearly indicates that there was something wrong with the
offers. He also relied on the decision of this Court in Allahabad Bank & Ors.
v. Bengal Paper Mills Co. Ltd. & Ors., (1999] 4 SCC 383 and submitted that
facts of the said case are similar and the law laid down in the said case would D
be applicable in the present case.

As against this, the learned senior counsel Mr. A.K. Ganguli for the
respondents vehemently submitted that the Bank has not raised any objection
before the Company Judge with regard to the inadequacy of the price or non-
-,t.
supply of the valuation report and for any other alleged irregularity in the E
conduct of the auction sale. Therefore, the Court should not interfere in this
appeal. In any case in adequacy of price is no ground for interference in
appeal. He pointed out that auction sale took place in the presence of the
learned advocate for the Bank and at the time of the hearing of the matter
he never represented to the Court that the oral statement made, at the time F
of hearing of the application, that 100 workers have died is incorrect or that
said facts be verified, and therefore, said statement was rightly accepted by
the Court. In the alternative, it is his contention that if the sale is set aside
a bona fide purchaser should not suffer as he has invested large amount after
the purchase of the property in the auction sale and, therefore, the liquidator
G
should be directed to refund the amount with 18% interest with additional
amount invested by Respondent no.2 and the expenses incurred by it.
}
At the outset, we would state that in proceedings for winding up of the
Company under liquidation, the Court acts as a custodian for the interest of
the company and the creditors. Therefore, before sanctioning the sale of its H
700 SUPREME COURT REPORTS [2000] 3 S.C.R.
A assets, the Court is required to exercise judicial discretion to see that
properties are sold at a reasonable price. For deciding what would be
reasonable price, valuation report of an expert is must. Not only that, it is
the duty of the Court to disclose the said valuation report to the secured
creditors and other interested persons including the offerors. Further, it is the
B duty of the Court to apply its mind to the valuation report for verifying
whether the report indicates reasonable market value of the property to be
auctioned, even if objections are not raised.

From the facts narrated above, it is apparent that the attention of learned
Company Judge was not focussed to the fact that since 1980 Company was
C closed and that there was no question of selling the Company's assets as a
going concern. Not only that it was the duty of the C"urt to verify the
statement made by some applicant that sale of the Company on "as is where
is basis" will affect 1200 workers and for that proper notice was required to
be issued to the secured creditors for whose benefit the property was to be
D auctioned. To straightway rely upon such statement was, to say the least, not
judicious. The Company Judge ought to have also considered the fact that
an attempt made by the BIFR and AIFR which are expert bodies under the
SICA to revive the sick unit had failed. In any set of circumstances, there
was no material on record before the Ld. Judge for holding that Company
could be revived and the employees would be reinstated in service by giving
E them re-employment. Without indulging in any such exercise straightaway to
state that property would be sold as a going concern was totally without any
basis and, therefore, unjustified. At the time of hearing of this matter it is
admitted that after purchase of the Company, it was restarted only for one
day i.e. on the day of inauguration.
F
It also appears that the Division Bench was persuaded by the so-called
~"'I sympathy for the workers, without verification of the fact that Company wa~
closed before 17 years of sale. Court has noted in the beginning while
narrating the submission of the Id. Counsel who appeared for the benefit of
the employees that more than 100 employees were starving to death and in
G the later para stated that Court was informed by the learned advocate
appearing for the employees' union that more than 100 employees have
already died. Without there being any application on record aud without there
being proper verification of the facts from the concerned parties, it is not just
and proper to make such observations. It is not impossible that because of
H the lapse of 17 years, out of 1200 workers who might have worked in the
1
UNION BANK OF INDIA v. OFFICIAL LIQUIDATOR H.C. OF CALCUTTA [SHAH, J.) 701
said factory 100 employees might have died of natural death. But in any A
circumstances it was unjustified to make a case over it and to accept oral

-
submissions and to dispose of the valuable properties of a Company by stating
/ that the sale of the Company as a going concern was for the benefit of the
so called employees who were not in employment.

Further, in the present case, it is admitted that valuation report was B
called for by order dated 16th February, 1996; once the report was called for,
• it was the duty of the Court to see that copy of the said report is given to
the secured creditors and other affected persons. It was known to the Court
that the appellant secured creditor was claiming more than Rs.4 crores from
the Company. It appears that valuation report was kept as a secret, confiden- C
tial document. After winding up order, the properties of the Company are in
the custody of the Court for the benefit of the secured creditors and if
anything remains, thereafter for other creditors and its shareholders. In the
present case, without disclosing the valuation report to the creditors and
without fixing its reserve price, the properties were auctioned and the sale D
was confirmed. This approach is unjustifiable by any judicial standard and
is against the normal procedure for auctioning the immovable property of the
Company which is to be wound up.

Further, it appears that learned Judge has not applied his mind to the
valuation report itself. He has only considered the last figures given in the E
valuation report which says that total valuation of the property was
Rs.66,19,032. Had the Court considered the report, it would have immediately
noticed that valuation report was not at all reliable. This would be clear from
the following facts naITated in the valuation report: -

"Valuation:
F

On enquiry from the local people, it is understood the land price
in this particular varies between Rs.2 lakhs to 2.5 lakhs per Katta
depending on size, position, Road Frontage, low and/or high land etc.
However, after considerating all aspects, it is felt fair and reasonable G
value at Rs.2 lakhs per katta is found reasonable but as a matter of
fact the land is lease hold. So the value of land will be lease because
of lease hold land.

As per lease beginning of the year of 1963 for the term of 99
years @ Rs.300 per month. H
702 SUPREME COURT REPORTS (2000] 3 S.C.R.
A So, the rent for 99 years @ Rs.300 = Rs.3,56,400. 15% Munici-
pal Tax & Repairing of stiucture etc.= Rs.53,460. Total rent, tax
etc. for 99 years= Rs.4,09,860 So, the value of land for 99 years
= Rs.4,09,860 ~

(Rupees four lakhs nine thousand eight hundred and sixty only)"
B
In our view valuer stating that for the purpose of valuation of the land
he has enquired from local people and that he understood that the land price
in this particular area varies between Rs.2 lakhs to 2.5 lakhs per katta cannot
be said to be an opinion of an expert valuer. He has not relied upon any sale
instance for ai1"iving at the conclusion that the valuation varies from Rs.2 to
c 2.5 lakhs per katta. He has also not stated from whom he has verified the
value of the land. Further, he has "stated that after considering all aspects, he
felt that fair and reasonable value would be Rs.2 lakhs per katta. Presuming
that valuation of land is Rs.2 lakhs per katta then also the value of the land,
admeasuring 67 katta and 8 chattak, would be more than Rs.1.35 crore.
D Thereafter, he stated the land is a lease hold land, so the value of the land
would be on the basis of its rental income and he airived at the conclusion
that its value would be only Rs.4,09,860. It appears that the valuer h.as also
· not considered the material fact that lease period was for 99 years with the
condition for its renewal. It is apparent that learned Company Judge has
E simply noted the final figures mentioned in valuation report and accepted the
same without applying his mind to the aforesaid facts.

In Allahabad Bank v. Bengal paper Mills' case (supra), dealing with
a similar auction sale of the company in liquidation, the Court observed that
instead of sale by the liquidator in Company matters sale is required to be
F continued by the High Court so as to ensure that best possible price is realised
. upon the sale of the assets and properties of the Company so that creditors
of the Company can hope to recoup their dues. The Court relied upon the
decision in Mis Navlakha & Sons v. Sri Ramayana Das & Ors., (1969] 3 SCC
537 wherein (para 6) the Court has observed thus:
G
"The principles which should govem confirmation of sales are well
established. Where the acceptance of the offer by the Commissioners
is subject to confirmation of the court the offeror does not by mere
acceptance get any vested right in the prope1ty so that he may demand
automatic confirmation of his offer. 17ze condition of confirmation by
H the <;ourt operates as a safeguard against the property being sold at
UNION B~K OF INDIA v. OFFICIAL LIQUIDATOR H.C. OF CALCUTTA [SHAH, J.] 703
inadequate price \i•hether or not it is a consequence of any irregu- A
larity or fraud in the conduct of the sale. In every case it is the duty
of the court to satisfy itself that having regard to the market value of
the pmpe1ty the price offered is reasonable. Unless the court is
satisfied about the adequacy of the price the act of confinnation of
the sale would not be a proper exercise of judicial discretion. In
B
Gordlzan Das Chuni Lal v. T. Sriman Kanthimathinatha Pillai, AIR
(1921) Mad. 286, it was observed that where the property is aud1or-
• ised to be sold by private contract or otherwise it is the duty of the
court to satisfy itself that the price fixed is the best that could be
expected to be offered. That is because the court is the custodian of
the interests of the company and its creditors and the sanction of the c
Court required under the Companies Act has to be exercised with
judicial discretion regard being had to the interests of the company
and its creditors as well. This principle was followed in Rathnaswami
Pillai v. Sadapathy Pillai, AIR (1925) Mad. 318 and S. Soundararajan
v. Roslzan & Co., AIR (1940) Mad. 42. In A. Subbaraya Mudaliar v.
D
K. Sundararajan, AIR (1951) Mad. 986 it was pointed out that the
condition of confirmation by the court being a safeguard against the
property being sold at an inadequate price, it will be not only proper
but necessary that the Court in exercising the discretion which it
undoubtedly has of accepting or refusing the highest bid at the auction
held in pursuance of its orders, should see that the price fetched at E
the auction is an adequate price even though there is no suggestion
of irregularity or fraud."

The learned senior counsel Mr. Ganguli relied upon the decision of this
Court in Mis Kayjay Industries (P) lJd. v. Mis Asnew Drums (P) lJd. and·
F
Others, (1974] 2 SCC 213 and contended that Court should not go on
adjourning the sale till a good price is received, as it being a notorious fact
that court sales and market prices are distant neighbours; If auction sales are
adjourned repeatedly, decree holders can never get the property of the debtor
sold. He emphasised the observation "mere inadequacy of price cannot
demolish every court sale". In our view, this submission requires to be G
rejected <?n the ground that in the said case, the Court has reproduced
paragraph which we have quoted above from the decision in Navlakha and
Sons (Supra), wherein the court has specifically held that the condition of
confirmation by the court operates as a safeguard against the property being
sold at inadequate price whether or not it is a consequence of any irregularity H
704 SUPREME COURT REPORTS (2000] 3 S.C.R.
A or fraud in the conduct of the sale; the court is required to satisfy itself that
having regard to the market value of the property the price offered is
reasonable; unless the court is satisfied about the adequacy of the price the
act of confirmation of sale would not be a proper exercise of judicial
discretion. This aspect is reiterated by the court by holding that the aforesaid
B principles must govern every court sale. The Comt has also observed that
failure to apply its mind to the material factors bearing on the reasonableness
of the price offered may amount to material irregularity in conduct of sale.

Thereafter the Comt pertinently observed:

c "And where a court mechanically conducts the sale or routinely
signs assent to the sale papers, not botl1ering to see if the offer is too
low and a better p1ice could have been obtained, and in fact the price
is substantially inadequate, there is the presence of both the elements
of irregularity and injury."

D It is further observed -

"what is expected of the Judge is not to be prophet but a ,
pragmatist and merely to make a realistic appraisal of the factors, and
· if satisfied that in the given circumstances the bid is acceptable,
conclude the sale."
E
As discussed above, in the present case, t11ere is total non-application
of mind to the material which is required to be considered for auction sale
of the assets of the Company.

F Learned counsel for respondent No. 2 referred to the decision of this
Court in Ram Mawya v. Kailash Nath & Ors., (1999] 9 SCC 276 and·
submitted that as secured creditors have not brought appropriate pleading
before the learned Company Judge, this Court should not interfere in such
sale. In our view, the said decision has no bearing on the facts of the present
case as the case was decided on the basis of auction sale under Order 21 Rule
G 90 of the CPC and the Court has observed that judgment debtor did not
furnish adequate materials to substantiate the allegation of fraud and ma~erial
irregularity.

Further, learned counsel relied on the decision in Motors and Invests
H Ltd. v. Union Bank of India & Ors., (1997] II SCC 271 and contended that
UNION BANK OF INDIA v. OFFICI~ LIQUIDATOR H.C. OF CALCUTTA [SHAH, J.] 705
the Court in the alternative may direct refund of the amount deposited A
and invested by the bona fide auction purchaser with 18% interest. In
that case, the Court has set .aside the sale of 44 acres of land by holding that
it was sold at too inadequate price. In the said case also the Court has
observed: -

B
"Equally, though court sale is compulsive sale, equa' endeavour
should be made to fetch adequate price for the property sold so that
the decree debt would get satisfied and surplus, if any, could be paid
over to the judgment-debtor."

The Court further ordered that in case the official assignee has kept the c
sale amount in any interest-earning security, the principal amount together
with interest is directed to be refunded to the appellant. And, in case the
amount was not kept in any deposit and was used to. discharge outstanding
debt due by respondents 2 and 3, the auction purchaser was entitled to get
interest at 18% p~r annum on tl1e amount deposited by him. D
In the present case, the said judgment has no bearing mainly because
as soon as the amount was deposited by respondent No. 2, possession of the
property was handed over to him. Not only that, in our view, similar
contention was dealt with in Allahabad Bank v. Bengal Paper Mills' case
(supra) and is rejected by assigning following reasons:- E

"It could not have turned a blind eye to the many defects that it
itself noted in the order of sale merely because the Banks had moved
the appeals after five months; nor was there any justification for
taking into consideration the expenditure that had been incurred by F
the second respondent subsequent to its possession of the assets and
properties. In the first place, the Division Bench should have noted
that the learned Single Judge had with unseemly haste ordered
possession thereof to be handed over to the second respondent on the
very next day. In the second place, the appeals had been filed within
the period of linlitation. Expenditure incurred during this period could
G
not render the appeals, in effect, infructuous. The same should apply
to expenditure incurred subsequent to the filing of the appeals and
until the time that they were heard. The second respondent knew that
the appeals were pending and that they could end in the order of sale
being set aside. Such expenditure as it incurred with this knowledge H
706 SUPREME COURT REPORTS [2000] 3 S.C.R.
A was at its risk. In the third place, and most important, the interests of
the creditors of the Company, particularly the unsecured creditors,
overweighed such equities, if any, as might have been considered to
be in favour of the second respondent. It was, in our view, the
obligation of the Division Bench to have struck down the order of
sale, having regard to what it found wrong with it."
B
Thereafter the Court has directed refund of the amount without any
interest and has permitted the auction purchaser to apply to the High Court
and specify it firstly that expenditure was incurred and secondly that in law
it was entitled to recover it.
c
For the reasons stated, same would be the position in the present case.
Further, in this case, there is a specific condition of the auction sale which
reads thus:

"The High Court may set aside the sale in favour of Purchaser/
D Purchasers even after the sale is confirmed and/or purchase consid-
eration is paid on such terms and conditions as the Court may deem
fit and proper for the interest and benefits of creditors, contributories
and all concerned and/or for public interest."

E Hence, if the sale is set aside in appeal, it can not be stated that
purchaser is entitled to have refund of the amount with interest.

We also make it clear that we have not dealt with the contention of
the learned counsel for the Bank that what was sold in auction was equity
of redemption and not the rights of the mortgagee.
F
In the result, the appeal is allowed. The impugned order passed by the
Company Judge in Company Petition No.316/1981 confirmed in appeal GA
No.708/96 is quashed and set aside with costs. Official Liquidator is directed
to recover the possession of the property sold as per the inventory and
G thereafter to refund the amount deposited by the•respondent No.2 - auction
purchaser. It would be open to respondent No.2 to file proper application for
recovering any other expenditure incurred by it after purchase of the said -i:
property if it is entitled to recover the same.

The OfficialLiquidator is directed to resell the property after obtaining
H fresh valuation report from other reliable expert and after giving a copy of
UNION BANK OF INDIA v. OFFICIAL LIQUIDATOR H.C. OF CALCUTI'A [SHAH, J.) 707
the said valuation report to secured creditors. In the notice for sale reserved A
price be fixed and due advertisement be published in newspapers having
circulation in commercial cities including Delhi, Mumbai and Chennai on the
basis of tlie directions which may be issued by the High Court.

The appeal stands disposed of accordingly. No costs.
B
K.K.T. Appeal disposed of.