Hon'ble Kashi Nath Pandey, J.
1. Pardeshiya Industrial & Investment Corporation of U.P. Ltd (PICUP), a secured creditor of Rainbow Steels Limited (in liquidation), wound up by order of the Court dated 09.3.1995, has filed this Special Appeal under Section 483 of the Companies Act, 1956, against the order of learned Single Judge dated 24.2.2009, in Misc. Applications (A-50 & A-52), filed by the auction purchasers of the 'plant, machinery and scrap,' awarding half the interest accrued on the amount deposited by it, on the date when the sale was held on 16.10.1995, till 14.7.1999, when the possession of the goods/assets were delivered. Learned Single Judge has found that the principles of Order XXI Rule 3 of Code of Civil Procedure, are attracted and has awarded half of the accrued interest on the amount, in deposit, with the Official Liquidator, to the applicants and adjustment of the rest of the half of the accrued interest towards liabilities to be discharged by the Official Liquidator in accordance with Section 529 and 529A of the Companies Act, 1956.
2. We have heard Shri Anurag Khanna appearing for the PICUP; Shri Om Prakash Mishra appearing for IFCI. Shri Ashok Mehta appears for the Official Liquidator. Shri R.P. Agarwal has appeared for the firm Kunal Enterprises, and firm Devi Dayal Harikishan respondent nos.2 and 3,-auction purchasers.
3. Brief facts giving rise to this appeal are that M/s Rainbow Steels Limited was ordered to be wound up by the Court on 09.3.1995, under Section 433 (1) (a) of the Companies Act, 1956 on a petition presented by M/s Essar Gujarat Ltd. on the ground that the company was unable to pay its debts. The application to recall the order was rejected on 26.4.1995. A Special Appeal No. 382/1995 against the winding up order was dismissed on 18.7.1995. The Special Appeal Nos. 796/1995 and 822 of 1995 filed by the Ex-Managing Director were also dismissed on 9.3.1995 and 9.8.1995, respectively.
4. The Official Liquidator was allowed leave of the Court on 25.9.1995 to sell the assets by auction through M/s Jay & Sons, the auctioneer of Kanpur. The Court also ordered that the possession of the assets to be handed over to the highest bidder, if 100% value was received. On 16.10.1995 before the auction could be held, an application was filed by the State Bank of India (A-15), to restrain the Official Liquidator from transferring or alienating the properties. On this application the Court passed an interim order directing that the auction of the assets of the company fixed on that very day may go on but the sale shall not be confirmed, till further orders of the Court. The auction was held. The bid for plant and machinery in Lot Nos.2 to 9 of respondent nos. 2 and 3, was found to be the highest, and higher than the reserved price. The auction purchaser deposited the full sale consideration aggregating to Rs. 62, 96, 850/-. The Official Liquidator submitted his report No. 123/1995 on 26.10.1995 for confirmation of sale.
5. One Shri P.K. Batra filed an application (A-18) on 27.10.1995, that the Official Liquidator be restrained from transferring the properties. The applications were also filed by Ex-Managing Directors that the special appeal against the winding up order is still pending and one M/s Rana Industries on 15.11.1995 alleging that the auction was not given wide publicity. M/s Rama Industries prepared to pay Rs.101 lac for the same assets. All the three applications were rejected on 22.11.1995 and the sale was confirmed.
6. The Ex-Managing Director filed Special Appeal No. 916/1995 against confirmation of sale. On 26.11.1995 the Division Bench passed an interim order to maintain status quo till 15.12.1995. The order was subsequently extended. On 3.1.1996 the operation of the order dated 22.11.1995 (confirmation of sale), was stayed by the Division Bench.
7. The auction purchasers filed applications on 8.7.1996; 1.8.1996; 10.9.1996; 23.9.1996 and thereafter on 20.3.1997 for refund of the sale price. The applications were pending and could not be decided.
8. The Special Appeal was heard by the Division Bench on 27/28th August, 1997 and the judgment was reserved. The Division Bench dismissed all the three Special Appeals on 27.11.1998. The Official Liquidator, however, did not deliver possession as he was given a notice by a Supreme Court advocate on 3.12.1998 that a Special Leave Petition has been filed against the judgment. The SLP was dismissed on 01.12.1999, after which the Official Liquidator was directed by the Court to give possession. The applications (A-50) and (A-52) giving rise to this Special Appeal, were filed for the interest on the amount deposited with the Official Liquidator. The application was tagged with the applications for handing over possession filed on 4.2.1999. The matter was finally heard and under the directions of the Court the possession of the asset was given by the Official Liquidator to the auction purchaser on 14.7.1999.
9. Learned Single Judge in allowing application on 24.2.2009, for half of the interest accrued found that Section 65 of the Code of Civil Procedure, 1908, providing for the property to be deemed to have vested in the purchaser from the time when the property was sold, and not from the time sale become absolute, is not applicable, as the property is not immovable property and thus Section 65 is not relevant for the purpose of deciding the question of payment of interest. He found that the Order XXI Rule 93 is also not applicable as it relates to the sale of immovable property which if set aside under Rule 92 and provides:- "where a sale of immovable property is set aside under Rule 92, the purchaser shall be entitled to an order for repayment of his purchase money with or without interest, as the Court may direct against any person to whom it has paid." Learned Judge found that provisions of sale of movable property under CPC are also not applicable, ipso facto, to the sale by the Official Liquidator/Company Judge under the Companies Act, 1956 and further that the principles of bailment are also not applicable, in case of deposit of money as sale consideration by the highest bidder in the auction sale. Thereafter relying upon the principles of Order XXI Rule 93 CPC, which gives option to the Court to award interest along with return of purchase money where sale of immovable property is set aside, he allowed the payment of half of the accrued interest to the application.
10. Shri Anurag Khanna, learned counsel appearing for PICUP as secured creditor submits that the interest belongs to the secured creditors. He would submit relying upon Rampur Fertiliser Ltd vs. Vigyan Chemical Industries (2009) 12 SCC 324 that interest can be awarded in terms of an agreement, or statutory provisions. It can also be awarded by reason of usage or trade having the force of law or on equitable considerations, but the same cannot be awarded by way of damages except in cases where money due is wrongfully withheld and there are equitable grounds therefor, for which a written demand is mandatory. In the absence of any of these the interest payable can be only at the market rate and such interest is payable upon establishment of totality of circumstances justifying exercise of such equitable jurisdiction. Paras 18, 19 & 20 of this judgment are quoted as follows:-
"18. In Clariant International Ltd. v. SEBI2 it was held by this Court that the interest can be awarded in terms of an agreement or statutory provisions and it can also be awarded by reason of usage or trade having the force of law or on equitable considerations but the same cannot be awarded by way of damages except in cases where money due is wrongfully withheld and there are equitable grounds therefor, for which a written demand is mandatory.
19. It was further held in Clariant International case2 that in the absence of any agreement or statutory provision or a mercantile usage, interest payable can be only at the market rate and such interest is payable upon establishment of totality of circumstances justifying exercise of such equitable jurisdiction. It was also held that in ascertaining the rate of interest the courts of law can take judicial notice of both inflation as also fall in bank rate of interest. The bank rate of interest both for commercial purposes and other purposes has been the subject-matter of statutory provisions as also the judge-made laws. In the said case reference was made to the decisions in Kaushnuma Begum v. New India Assurance Co. Ltd.3, H.S. Ahammed Hussain v. Irfan Ahammed4 and United India Insurance Co. Ltd v. Patricia Jean Mahajan5 and it was observed that: (Clariant International case, SCC p. 541, para 36)
36....Even in cases of victims of motor vehicle accidents, the courts have upon taking note of the fall in the rate of interest held 9% interest to be reasonable.
20. In Assam Small Scale Industrial Development Corporation Ltd 1 also in terms of Section 34 of the Code, in relation to the transactions made prior to the coming into force of the Act. Simple interest at the rate of 9% per annum was granted taking the same to be bank rate at the relevant time."
11. Shri Om Prakash Mishra, appearing for IFCI Limited and other secured creditors, submits that the purchaser's title becomes absolute on the purchased items (movable property) on the date of its sale. He submits that under Section 65 of the Code of Civil Procedure 1908, the purchaser becomes absolute owner of the purchased items on the date of their sale. The purchase money deposited in the Court constitutes the sale consideration of the property, on which the purchaser looses its right. He is not entitled in law to claim interest accrued on purchase money. He has also relied upon Section 272 of the Companies (Court) Rules, 1959, which provides:-
"272. Unless the Court otherwise orders, no property belonging to Company, which is being wound-up by the Court shall be sold by the Official Liquidator without the previous sanction of the Court, and every sale shall be subject to confirmation by the Court."
12. Shri Om Prakash Mishra submits that in the present case Order XXI Rule 77 of CPC or other Rules namely Order XXI Rule 92, 93 are not applicable, as the property sold is the movable property. He relies upon S.T.M. Vyravan Chettiar vs. R.M. Rayalu Ayyar Nagaswami Ayyar & Co. AIR 1951 Madras 844; Union of India vs. West Punjab Factories AIR 1966 SC 395 ; Janak Raj vs. Gurdial Singh AIR 1967 SC 608; Mirza Javed Murtaza vs. U.P. Financial Corporation AIR 1983 All 234 (242) (DB) and C.S. Palani Swami vs. Vyasa Bank Ltd and another 1999 (97) Company Cases 557 (Kar).
13. In C.S. Palani Swamy (supra) the Karnataka High Court relied upon Section 65 of CPC in respect of immovable property to deny interest on the ground that the purchase money deposited with the executing court constituted the sale consideration for the property on which the auction purchaser lost their rights, to claim interest. In S.T.M. Vyravan Chettiar's case (supra) Section 65 CPC was relied upon by the Madras High Court to deny that the fact, that the purchaser did not take possession, could not confer on him higher right than that which flows from the provisions of Section 65 as the auction purchaser became owner of the properties on the date of sale. It may be open to him to take appropriate proceedings, for the mesne profits from the date of sale itself. He was not entitled to any interest on the amount deposited by him as sale consideration. In Janak Raj (supra) the Supreme Court held that the purchaser's title relates back to the date of sale and not the confirmation of sale. In this case the decree was set aside after the sale. The Supreme Court held that it is certainly hard on the defendant-judgment debtor to have to loose his property on the basis of a sale held in execution of a decree, which is not ultimately upheld. Once, however, it is held that, he cannot complain after confirmation of sale. There seems to be no reason why he should be allowed to do so because the decree was reversed before such confirmation. Ordinarily, if no application for setting aside the sale is made under Rules 89 to 91 of Order XXI, or when the application is disallowed, the Court has no choice in the matter of confirmation of sale and the sale must be made absolute.
14. In Union of India vs West Punjab Factories (supra) a Constitution Bench of the Supreme Court in the matter of claim against the Railways held that in the absence of any use or contract expressed or implied, or of any provisions of law to justify the award of interest, interest by way of damages cannot be awarded.
15. In Mirza Javed Murtaza (supra) this Court held that in the absence of any usage or contract, express or implied, or of any provision of law to justify the award of interest the Court cannot award interest by way of damages caused on account of wrongful detention of money.
16. Shri R.P. Agarwal, learned counsel appearing for auction purchaser-respondent nos. 2 and 3 has relied upon judgments of Supreme Court in Sovintorg (India) Ltd vs. State Bank of India, New Delhi AIR 1999 SC 2963 holding that the grant of interest under Section 34 of the CPC is based upon justice, equity and good conscience and authorises Consumer Redressal Forums and Commissions to grant interest appropriately under the circumstances of each case. In Ghaziabad Development Authority vs. Union of India and another AIR 2000 SC 2003 the Supreme Court held that in appropriate cases on equitable ground the court can award interest. Where the parties have not tendered any evidence enabling formation of opinion and the rate of interest, which can be considered to be idle, awarding interest @ 12% is just and proper. In M/s Dil Pasand Biri Company, Farrukhabad and others vs. State of UP and others 2003 (99) FLR 19 Hon'ble M. Katju, J (as he then was) in a matter in which the employer was made to pay interest on the arrears of difference of wages payable to Bidi Rollers awarded 10% interest per annum from the date till the payment and thereafter observed that the interest is not a penalty or punishment, but is the normal accretion on capital.
17. In Hind Pracharak Prakashan and another vs. M/s G.K. Brothers and others AIR 1990 SC 2221 the Supreme Court, where the sale was set aside on satisfaction of decree and the auction amount was lying in Court for about ten years, held that the auction purchaser is entitled to interest along with compensation on that amount from the judgment debtor at 12% per annum.
18. From these opinions, we find that the Courts have consistently followed the principle that the interest can be awarded in terms of an agreement or statutory provisions. It can also be awarded by reason of usage or trade having the force of law or on equitable considerations but the same cannot be awarded by way of damages except in cases where money due is wrongfully withheld or where there are equitable grounds available thereof, and for which a written demand is mandatory.
19. In the present case, there was no agreement nor any terms were put by the Court or the Official Liquidator for payment of interest on the amount deposited until the sale was confirmed or the possession was to be delivered. The sale was made by the Official Liquidator under the orders of the Court under Rule 272 of Companies (Court) Rules, 1959, which provides that the sale shall be subject to sanction and confirmation by the Court. The provisions of Sections 34, 65 and the Rules under Order XXI of the Code of Civil Procedure, 1908 are not applicable both on the grounds that the sale is governed by the provisions of the Companies (Court) Rules, 1959, and that the property was movable property in respect of which the sale ordinarily becomes absolute on the confirmation of the sale mostly on the same date, when the highest bid is accepted.
20. The auction was held on 16.10.1995. Before the auction was held, the Court, on the application of the State Bank of India (A-15), passed an interim order directing that the auction of the assets of the company fixed for that date, may go on, but the same shall not be confirmed till further orders of the Court. The auction purchaser was fully aware of the fact that the sale will not be confirmed on the same day and will require order of the Court. They still deposited the full sale consideration. On the application given by the Official Liquidator on 26.10.1995 for confirmation of sale, another application was filed on 27.10.1995 by Shri P.K. Batra (A-18) restraining transfer of properties sold, and for confirmation of sale. The applications were also filed by the Ex-Managing Director (A-21) that the sale be not confirmed as the Special Appeal against the winding up order is pending, and also by M/s Rana Industries (A-26), one of the intending purchasers to set aside the sale as it was not given wide publicity and offering a highest amount. In the pending Special Appeal No. 916/1995 filed by Ex-Managing Director, the Division Bench had passed an order on 26.11.1995 maintaining status quo till 15.12.1995. The order was extended. In these circumstances, the auction purchaser made various applications from July, 1996 to March, 1997 to refund the sale price. These applications remained pending. We can presume, from these facts that the auction purchasers were fully aware and were contesting for confirmation of sale. The Special Appeals were dismissed by the Division Bench on 27.11.1998 and Special Leave Petition was dismissed by the Supreme Court on 1.12.1999, and thereafter the auction purchaser made an application on 9.2.1999 to hand over possession. The application was allowed and the possession was ultimately handed over to them on 14.7.1999.
21. The sequence of events would show that the sale was subject matter of objections, and orders to be passed in Special Appeal and further in Special Leave Petition. The auction purchaser wanted the refund but the Court did not allow the applications. When all the applications objecting to sale, the Special Appeals and Special Leave Petition was dismissed, the auction purchaser requested for handing over possession, and applied for the first time on 17.2.1999 for payment of interest.
22. In the absence of any agreement or statutory provisions, in the matter of sale of movable properties by Company Court, for which a procedure is provided under the Companies Act, 1956, and Companies (Court) Rules, 1959, the Code of Civil Procedure or the principles given under it for auction sale are not applicable. The Company Court, however, has equitable jurisdiction to award interest provided the circumstances justify for such award. In the present case, we do not find that the circumstances, in which the confirmation of sale of 'plant, machinery and scrap' of the Company (in liquidation) was delayed and the possession could not be delivered, was not on account of any negligence of the Official Liquidator.
23. The proposition, that interest is not a penalty or punishment but is the normal accretion on capital, is applicable where there is a contract or statutory provision for award of interest. It is not a rule of universal application. The payment of interest by the Courts, unless it is provided by the statutes, is based on totality of circumstances justifying exercise of such equitable jurisdiction. The Court will not be justified in awarding interest by way of damages or penalty, except in cases where money is wrongfully withheld, and there are equitable grounds thereof, for which a written demand and proof of any loss is necessary.
24. In the present case, learned Single Judge was not justified in awarding interest. He committed a legal error in allowing half the interest accrued to the applicant and the adjustment of the rest towards the liabilities to be discharged by the Official Liquidator. Rules 296 of the Companies (Court) Rules, 1959, allows interest in the account of the Company (in liquidation), to be the property of such company to be distributed to the secured creditors, workman, public dues and unsecured creditors, in that order in accordance with the schemes of the Companies Act, 1956, under Sections 529, 529-A and 530.
25. The auction purchaser was aware of the legal hurdles, which were to come in his way, in confirmation of the sale on the same day when the sale was held, and thereafter participated in the proceedings in which interim orders were passed not to confirm the sale. He permitted the money to remain in the account of the company with the Official Liquidator and was, therefore, not entitled to claim interest on it.
26. The Special Appeal is allowed. The judgment of learned Single Judge dated 24.2.2004 awarding, half rate of interest accrued on the amount to the respondent nos. 2 and 3, is set aside.
Dt.27.10.2010 RKP/