JUDGMENT A.K. Banerji, J.
1. Company Application No. A-31 has been filed by Jalan Iron and Steel Co. (hereinafter referred to as the "applicant-objector"), praying for setting aside the offer of Chauri Chaura Steels Ltd. and to accept the offer of the applicant. Application No. A-33 has been filed by Chauri Chaura Steels Ltd, (hereinafter referred to as the "proposed purchaser") praying that necessary directions be given to the official liquidator to hand over possession of the properties of Saraya Steel Ltd. (in liquidation) after accepting the payment of the balance, amount of the sale consideration due for payment on June 21, 1997.
2. The relevant facts in brief are that Saraya Steel Ltd. (company in liquidation) was ordered to be wound up on a petition filed by four petitioning creditors vide order dated November 11, 1994. On a report by the official liquidator, this court vide order dated January 10, 1997, directed the movable and immovable assets of the company (in liquidation) to be sold jointly along with the State Bank of India, which was one of the secured creditors of the company, by inviting sealed tenders on the terms and conditions to be settled by the official liquidator, after giving due publicity in the following newspapers :
1. Economic Times published from New Delhi ;
2. Times of India published from New Delhi ;
3. Dainik Jagran published in Hindi from Gorakhpur ;
4. Nav Bharat Times published in Hindi from New Delhi ;
5. Auction Journal published from New Delhi.
3. The notices were duly published in the aforesaid newspapers and the journal. In pursuance thereof, inspection of the assets were made by 15 prospective buyers on March 14 and 15, 1997. However, only three tenders were received of which the offer of Chauri Chaura Steels Ltd. of Rs. 94 lakhs for the entire lots Nos. 1 to 10 was the highest. As in the said offer the party had also indicated that they were prepared to negotiate and increase their offer, when asked to do so and they increased their offer to Rs. 1 crore 5 lakhs. The court accepted the said offer and permitted the said party on their request to deposit the balance amount in three equal monthly instalments after adjusting the amount paid as earnest money. It further directed that on the deposit of the entire amount further orders regarding the confirmation of sale shall be passed, Before the instalments could be deposited, the present Application No. A-31 was filed on behalf of the applicant Jalan Iron and Steel Co. for setting aside the said offer and accepting the offer of Rs. 1 crore 10 lakhs, which was now being made by the applicant. The said application has been opposed on behalf of the proposed purchaser Chauri Chaura Steels Ltd. and the official liquidator.
4. I have heard Sri M.K. Gupta, learned counsel for the applicant-objector, and Sri R.P. Agrawal, learned counsel appearing for the proposed purchaser, and the official liquidator.
5. Learned counsel for the objector has firstly contended that neither in the advertisement nor under the conditions of sale there was any clause that after the opening of the tender, the parties will be given an opportunity to raise their bids and the properties would be re-auctioned. Consequently, the applicant did not get an opportunity to participate in the negotiation for increasing the bid and is prepared to increase the same now and was offering a sum of Rs. 1 crore 10 lakhs for the same. To show its bona fides, the applicant is prepared to deposit 10 per cent, of the said amount by means of a bank draft immediately before the court. Secondly, it has been contended that the terms and conditions of the sale have not been strictly complied with inasmuch as the proposed purchaser had given a cheque for the amount of earnest money instead of a bank draft as required and has also not deposited the first instalment which fell due on April 21, 1997, within the specified time. For that reason, the offer made by the said party should be rejected and the earnest money forfeited. Thirdly, it has been contended that the amount for which the property was sold does not appear to be adequate as earlier for the same property, the applicant-objector had made an offer of Rs. 91 lakhs. At that time, the area of the land in lot No. 1 was shown as 2.90 acres whereas, subsequently on a perusal of the necessary records, the area of the land has now been increased in the last tender. For that reason to accept the offer of Rs. 94 lakhs as adequate specially when the area of the land has now been shown as at least three acres more. Learned counsel has, therefore, contended that taking into consideration the facts and the circumstances, the offer made by the proposed purchaser is not liable to be confirmed as otherwise it would go against the interest of the company and the creditors.
6. I have carefully considered the submissions made by learned counsel for the applicant. Rule 273 of the Companies (Court) Rules, 1959, relates to the procedure of sale. It lays down that all sales shall be made by public auction or by inviting sealed tenders or in such manner as the judge may direct, subject to such terms and conditions, if any, as may be approved by the court. On a report made by the official liquidator, the movable and the immovable assets of the company (in liquidation) were ordered to be sold by calling for tenders after giving wide publicity in the four newspapers and the auction journal as already indicated above. On the first occasion when the advertisements were published, only four tenders were received out of which the tender of Jalan Iron and Steel Co. (applicant) for Rs. 91 lakhs for the entire lots Nos. 1 to 10 was the highest. However, the said offer was not accepted by the court because there appeared to be some confusion with regard to the area of the land and also taking into consideration the valuation of the properties assessed by the valuer. The official liquidator was asked to re-advertise the sale of the assets again after giving due publicity in the aforesaid newspapers and the auction journal. This time only two tenders were received, one from Tripathi Cilli Clay Industries, Gorakhpur, and one from Shree Gopal Industries, Kanpur, and the highest amount was much less than what were offered in response to the first advertisement. Therefore, the said offers were again rejected and the official liquidator was asked to re-advertise the sale of the assets again after giving due publicity. This time as already mentioned above though 15 parties inspected the property in question on the date fixed only the following three offers were received.
1. From Jalan Iron and Steel Co., Gorakhpur, (applicant) for lots Nos. 2 to 10 for Rs. 64,91,000 ;
2. From Chauri Chaura Steels Ltd., Gorakhpur (proposed purchaser) for Rs. 94 lakhs for the entire unit--lots Nos, 1 to 10 ;
3. From Sugar Mills Machinery Supply, for Rs. 38 lakhs for lots Nos. 2 to 10.
7. It is apparent therefore, that not only the highest offer was from Chauri Chaura Steels Ltd. but it was the only party which had offered to purchase the entire unit, i.e., to say land, building, plant and machinery, whereas, the other two parties only wanted to purchase the machineries, i.e., lots Nos. 2 to 10. That apart, Chauri Chaura Steels Ltd. had indicated in their offer that they were prepared to negotiate and increase their offer whereas, there was no such condition in the offers made by the other two parties. In view of the same, this court after the tenders were opened, indicated to the said party that as it was prepared to increase its offer, it may do so. The party on its own increased the offer to Rs. 1 crore 5 lakhs. This is evident from the minutes recorded by the court in chambers on March 21, 1997, on the date when the tenders were opened and also from the order of the said date passed separately on the official liquidator's report No. 21 of 1997. The court also permitted the said purchaser to deposit the balance amount after adjusting the earnest money in three equal monthly instalments. The court also accepted the cheque for Rs. 9,41,000 which was submitted along with the tender as earnest money. It would be evident, therefore, that there was no re-auction or fresh negotiations of the assets as submitted by the objector-applicant but as the said party had given an indication of increasing its offer, the court even though the offer of the said party was the highest indicated that it could increase its offer in the light of the valuer's report and it did so by increasing it to Rs. 1 crore 5 lakhs. There was no question of any prejudice being caused to the applicant who had offered only Rs. 64,91,000 for lots Nos. 2 to 10, That apart, it is noteworthy that the offer made by the proposed purchaser is for the entire unit and it had been stated on their behalf in application No. A-33 that they proposed to run the said factory again after carrying out the necessary renovations therein. This would also give employment to about 500 workmen apart from contributing towards the Government revenue when the factory started functioning. On the other hand, the fact that the applicant-objector had offered only to purchase lots Nos. 2 to 10, the machineries, without the land and building was indicative of the fact that it wanted to dismantle the machinery and take it away, as the factory could not be run unless tbe land and building were also purchased by the said party. It was also not in the interest of the company (in liquidation), its creditors and contributories, if the factory was dismantled and sold piece-meal. I, therefore, do not find any substance in the first submission made by learned counsel.
8. So far as the second submission is concerned, it is true that the earnest money was paid by the proposed purchaser by means of a cheque whereas, the terms, indicated the payment by means of a draft. It is also true that the first instalment fell due to be paid on April 21, 1997, whereas, the same was deposited a few days later on May 1, 1997. It is now settled that this court has inherent powers to modify the terms, if necessary, even at a subsequent stage, if it is in the interest of the company, its creditors and contributories. In the case of T. Velusamy v. Official Liquidator [1992] 73 Comp Cas 24 (Mad), it was held that the court could vary the terms and conditions of the sale, if the interest of justice so demanded. In the said case, though the terms and conditions were accepted by the court and the sale confirmed in favour of the applicant, on the basis thereof, it was held that the court was well empowered to modify or alter the terms and conditions depending upon the exigencies of the circumstances. In the present case at hand, the company including its factory is not functioning since the year 1991. As it was unable to pay its debts, it was ordered to be wound up by this court on a creditor's winding up petition. As noticed above, thrice the assets of the company were advertised for sale. Despite wide publicity given at huge expenses, the highest offer that this court got was of Rs. 1 crore 5 lakhs. Taking all that into consideration, this court accepted the cheque for Rs. 9,41,000, submitted along with the tender as earnest money and did not insist on a bank draft. The court has been informed by the official liquidator that the cheque has been encashed and the transfer charges payable to the bank for outstation cheques have also been paid by the proposed purchaser. So far as a little delay in deposit of the first instalment is concerned, it has been stated in the counter-affidavit filed by the official liquidator that the said instalment was paid on May 1, 1997, instead of April 21, 1997, but the purchaser has deposited Rs. 5 lakhs more than what was required to be deposited in the first instalment. In my view, this little delay in deposit of the first instalment will not prejudice the company in any manner if the said party is required to pay interest at 15 per cent, for the delay in depositing the said amount. Consequently, I am of the view that for these minor defaults committed by the purchaser it would not be in the interest of the company, its creditors and contributories to cancel the sale. I, therefore, do not find any substance in the second submission made by learned counsel either.
9. So far as the third submission is concerned, learned counsel has strongly contended that the price offered by Chauri Chaura Steels Ltd. is not adequate and the applicant is prepared to pay Rs. 5 lakhs more than what has been offered by the said party. He has also contended that as the sale has not yet been confirmed, this court can always accept the higher bid in the interest of the company and its creditors and the applicant could have given its offer on the date when the tenders were opened, in case it was known that the court would permit the parties to raise their bid.
10. So far as the raising of the bid is concerned, it has already been noticed that the first time when the sale was advertised, there were only three tenders received and the applicant's offer of Rs. 91 lakhs though the highest at that time was not accepted as it was felt that there was some confusion with regard to the area of the land and the value given by the valuer being much higher probably the said properties could fetch better price. When it was advertised again, only two tenders were received. The applicant did not give any offer and the highest offer was even-much less than Rs. 91 lakhs. Consequently, the court again ordered the sale to be re-advertised. This time the highest offer was of Rs. 94 lakhs whereas, the applicant only offered Rs. 64 lakhs odd for lots Nos. 2 to 10. He did not give any offer for the land and building neither was there any mention in the offer that the said party was prepared to negotiate or increase its offer whereas, the proposed purchaser had mentioned the said fact in its offer and from the query from the court if the party was prepared to increase its offer, it increased the same to Rs. 1 crore 5 lakhs which was accepted by the court. Even at that stage no effort was made from the side of the applicant to increase its offer to more than Rs. 1 crore 5 lakhs. The submission, therefore, that the applicant could have increased its offer, if called upon to do so, is only an afterthought.
11. This brings me to the question whether the highest offer accepted by the court can be subsequently set aside merely because one of the parties which had made lesser offer in the tender can get the sale set aside by offering something more before the sale is confirmed. Such question has arisen before this court and other courts as well on earlier occasions. In the case of Brindaban Agarwala v. Official Liquidator of Saraswati. Soap and Oil Mills Ltd. [1952] 22 Comp Cas 75 ; AIR 1952 All 113, where a similar argument was raised a Bench of this court observed as follows :
"We think it is desirable to say that in our opinion, when property is sold by the official liquidator subject to confirmation by the court, the subsequent offer of a higher bid should not be a ground for refusing confirmation of the sale provided the price is adequate."
12. In the case of S. Soundararajan v. Khakha Mohd, Ismail Saheb, AIR 1940 Mad 42, it has been held that the sale is subject to confirmation of the court. It is not meant that the court shall accept (he higher bid because at a later stage someone else is willing to pay more. The condition is only a safeguard against the irregularity or fraud in connection with the sale and against the property being sold at an inadequate price. Iri case the bid made by the auction purchaser is adequate and there being no irregularity or fraud, the sale should be confirmed even though at a later stage some other person is witling to pay more. The decision of our court in the case of Brindaban Agarwala v. Official Liquidator of Saraswati Soap and Oil Mitts Ltd. [1952] 22 Comp Cas 75 ; AIR 1952 All 113, has been followed by the Andhra Pradesh High Court in the case of Taj Clay Works Ltd. v. Official Liquidator, AIR 1960 AP 429 and a Division Bench of the Mysore High Court in the case of Premier Insurance Company Ltd. v. Bharat Commerce and Industries ltd, AIR 1962 Mys 185. A Division Bench of our court in the case of Saudhayan Singh v. State of U. P. [1983] ALJ 931, where an auction sale had been set aside on the ground that the party had subsequently offered a higher bid, R.M. Sahai J. (as he then was), speaking for the Division Bench observed as follows :
"Revenue of the State is being put up as a shield for cancellation of auctions held otherwise in accordance with law. What is not appreciated is the stage when it can be taken into consideration. Obviously not at the instance of some one who never participated in the auction and was willing to pay more. Willingness should be expressed at the time of auction openly affording other participants to compete. Accepting it subsequently behind the back of others or cancelling the auction on such assurances amounts to extraneous consideration in law."
13. More recently a Division Bench of our court in the matter of Radha Govind Industries Ltd. (Special Appeal No. 1 of 1988, decided on December 8, 1989), observed as follows :
"Where property is sold by auction mere inadequacy of price offered by purchaser can by itself be no ground for rejecting the same."
14. These decisions have been followed by this court in the matter of Triveni Metal Works (Company Application No. 1 of 1993, decided on February 22, 1995), where a similar question was involved.
15. Sri R.P. Agrawal, learned counsel appearing for the opposite party, has invited the attention of the court to the decision of the Supreme Court in the case of Navalkha and Sons v. Ramanuja Das [1970] 40 Comp Cas 936 ; AIR 1970 SC 2037, and another decision of the Supreme Court in the case of Kayjay Industries (P.) Ltd. v. Asnew Drums (P.) Ltd., AIR 1974 SC 1331. In the former case of Navalkha and Sons v. Ramanuja Das [1970] 40 Comp Cas 936 ; AIR 1970 SC 2037, the following principles which should govern confirmation of sale were laid down :
"(1) The court should satisfy itself that having regard to the market value of the property, the price offered is reasonable.
(2) Once the court comes to the conclusion that the price offered is adequate no subsequent higher offer can constitute a valid ground for refusing confirmation of sale or offer already received."
16. In the case of Kayjoy Industries (P.) Ltd. v. Asnew Drums (P.) Ltd., AIR 1974 SC 1331, 1333, it was held as follows :
"A court sale is a forced sale and, notwithstanding the competitive element of a public auction, the best price is not often forthcoming. The judge must make a certain margin for this factor. A valuer's report, good as a basis, is not as good as an actual offer and variations within limits between such an estimate, however careful, and reai bids by seasoned business men before the auctioneer are quite on the cards. More so when the subject-matter is a specialised industrial plant, which has been out of commission for a few years, as in this case and buyers for cash are bound to be limited . . . Businessmen make uncanny calculations before striking a bargain and that circumstance must enter the judicial verdict before deciding whether a better price could be had by a postponement of the sale."
17. Learned counsel has also invited the court's attention to the following observations made by the Calcutta High Court in Elvoc (P.) Ltd., In re [1982] 52 Comp Cas 308 (headnote) :
"In deciding a question of considerable public importance relating to the principle and procedure for the sale of the assets of a company in liquidation as to whether the only object of such sale is to fetch a maximum price or whether the court, in its discretion, having regard to the prevailing socio-economic questions, which are involved in a welfare State should apply the law in a pragmatic manner having regard to the realities and interest of the public, Rules 272 and 273 of the Companies (Court) Rules, 1959, and settled law clearly lay down that the court is to see that a reasonable price is obtained and the rule is not so rigid that in every case it must be sold by public auction and fetch the highest price. The industry, commerce, commercial morality and public interest should also be taken into account before making any order. The court cannot by its order destroy an industry which has been built up by the industry, labour, application and mobilisation of resources by the applicant and it can direct a sale to it by private treaty of the assets of the company in liquidation."
18. Learned counsel has also invited the attention of the court to another Division Bench decision of the Calcutta High Court in the case of Sharawan Kumar Agarwal v. Shrinenp Investment Ltd. [1990] 68 Comp Cas 52, in which it has been held as follows (headnote) :
"While confirming a sale by court auction of the assets of a company in liquidation, the court must satisfy itself that, having regard to the market value of the property, the price offered and accepted is adequate. The court being the custodian of the interests of the company and its creditors, the power to confirm a sale or to withdraw the confirmation has to be exercised with judicial discretion, regard being had to the fact that the price fetched is the best that can be expected to be offered even though there may be no suggestion of irregularity or fraud. The terms and conditions of a particular sale may provide that the sale in favour of a purchaser is liable to be set aside even after the sale is confirmed and the purchase consideration is paid, in the interest and benefit of creditors, contributories and all concerned and/or for public interest. However, the investment of such power does not mean that the court should review and set aside an order confirming a sate which has already taken place merely because, at a later stage, on second thoughts, someone says that he is willing to pay more. Once the court has come to the conclusion that the price offered is adequate and has confirmed the sale, any subsequent higher offer made under such circumstances, without anything more, cannot constitute a valid ground for interfering with the rights arising out of the sale which has been confirmed.
A fresh sale cannot be ordered by-setting at naught the sale already confirmed by the court after taking into consideration all the facts and circumstances merely because an offerer who was outbidden changes his mind and offers a higher price subsequently. Unless it is shown that the discretion of the court in the matter has been exercised unreasonably, capriciously or by adoption of an unjudicial approach or on wrong principles, there would be no ground to interfere."
19. On the other hand, Shri M.K. Gupta, learned counsel for the applicant, has placed strong reliance upon two decisions of the Supreme Court in the case of Lica (P.) Ltd. (No. 1) v. Official Liquidator [1996] 85 Comp Cas 788 and the subsequent decision in this very case Lica (P.) Ltd. (No. 2) v. Official Liquidator [1996] 85 Comp Cas 792. It was beld in the first case while allowing the appeal that the purpose of open auction is to get the most remunerative price. It is the duty of the court to keep the auction open so that intending bidders would be free to participate and offer higher prices. If that part were closed, the possibility of fraud or hand-bidding would loom large. The court, therefore, has to exercise its discretion wisely and with circumspection and keeping in view the facts and the circumstances of each case. The observations made were in the peculiar facts of the said case, where tenders were invited and one of the terms of the offer was that even confirmation of the sale was liable to be set aside by the High Court. The highest bidder had offered Rs. 37 lakhs. When the tenders were opened another party offered Rs. 38 lakhs. An auction took place and the party which had given the offer of Rs. 37 lakhs was also given an opportunity to increase its offer. Against this order, an appeal was filed before the Division Bench, which directed that the sale be confirmed at Rs. 37 lakhs. On appeal to the Supreme Court the party which had offered Rs. 38 lakhs increased its offer to Rs.45 lakhs. Consequently, the Supreme Court directed the High Court to conduct auction in the open court by fixing a reserve price of Rs. 45 lakhs. The concerned party increased its offer from Rs. 45 lakhs to Rs. 1.10 crores. The other party filed an appeal before the Supreme Court and offered to pay Rs. 1.25 crores. The Supreme Court, therefore, in the second case directed that a fresh auction may take place which shall not be restricted to only two parties and fixed the upset price at Rs. 1.50 crores. In the present case, the facts are not similar, neither are the terms and conditions of the sale are same. That apart, the observations were made by the Supreme Court on account of the variance in the first offer and the subsequent offer of Rs. 1.25 crores made before the Supreme Court. In the facts of the present case at hand, it will be noticed that all possible care was exercised from the beginning for the purpose of ensuring that the properties be soid for an adequate price. With this end in view, wide publicity at huge cost and expenses was given. Twice the offers were cancelled on the expectation that better offers could be received. Despite wide publicity, no party seemed to be very much interested in purchasing the said properties. As noticed above, only three offers were received. Though the valuer had fixed the value at a higher figure but despite tenders being invited thrice, no better offer was received than what was given by Chauri Chara Steels Ltd. at the time when the tenders were opened after the third advertisement. The tenders were opened in the presence of learned counsel for the petitioning creditor and the other parties who had given the offers. The factory of the company (in liquidation) is lying closed since the year 1991. It is situated in a remote area and not in the town of Gorakhpur. There is no suggestion of any irregularity or fraud in inviting offers. Except the valuer's report there is no independent evidence that the price is inadequate. The applicant himself offered Rs. 64 lakhs which was Rs. 60 lakhs less than what was offered by the proposed purchaser. Taking into consideration the facts and the circumstances of the case, the court was satisfied while accepting the highest offer of Rs. 1.05 crores that the same was adequate, and taking into consideration the tests laid down in the cases noted above, this court is of the view that the subsequent offer of Rs. 1.10 crores given by the applicant at this stage cannot be taken into consideration or the highest offer of the proposed purchaser be set aside.
20. For the foregoing reasons, Application No. A-31 filed by Jalan Iron and Steel Company is hereby rejected.
21. The proposed purchaser, Chauri Chaura Steels Ltd., have in their Application No. A-33 prayed that possession be handed over to them. The official liquidator has submitted his report No. 48 of 1997, wherein, it has been stated that the entire sale consideration has been deposited by the said purchaser within time and, therefore, the sale be confirmed in their favour under Rule 212 of the Companies (Court) Rules, 1959. Having regard to the reasons given above and in view of the fact that the entire sale consideration of Rs. 1.5 crores has been deposited with the official liquidator, the sale in favour of Chauri Chaura Steels Ltd. can be confirmed under Rule 272 of the Companies (Court) Rules. However, as this court is of the view that the said party should be directed to pay interest at 15 per cent, (simple) on the over-due amount of the first instalment, the report of the official liquidator shall be put up for orders for confirmation of sale when the said amount of interest is deposited, The orders for handing over possession shall also be passed after the orders for confirmation of sale are passed by this court.
22. As a result, Application No. A-31 is rejected and the Application No. A-33 is disposed of with the observations made above.