Once court confirms the sale in favour of the highest bidder in pursuance of the action, the same cannot be set aside unless some fraud is played collusion. Subsequent higher offer will not be taken into consideration
delivered on 12-08-2008 not yet reported
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.4992_OF 2008
[Arising out of SLP(Civil) No. 12820/2006]
Valji Khimji & Company .. Appellant
Official Liquidator of Hindustan
Nitro Product (Gujarat) Ltd & Ors. .. Respondents
Markandey Katju, J.
1. Leave granted.
2. This appeal has been filed against the impugned
final judgment & order dated 25.8.2005 & 26.8.2005
passed by the High Court of Gujarat at Ahmedabad in
O.J. Appeal No. 69 and 70 of 2004 in O.J. Misc. Civil
Application No. 175 of 2003 and CA No. 311 of 2004
respectively in Official Liquidator Report No. 49 of
3. Heard learned counsel for the parties and perused
4. The facts of the case are that Hindustan Nitro
Product (Gujarat) Ltd. was put under liquidation, and
an official liquidator was appointed for it. The assets
of the company were proposed to be auctioned, and
hence the Court asked the official liquidator to obtain
a valuation report. The official liquidator after
obtaining the valuation report submitted it to the
Court. The valuation of these assets, according to the
official liquidator, was Rs.2.55 crores. The property
was then put up for auction on 25.3.2003 after
advertising it in various well-known newspapers
having wide circulation, including `The Economic
Times' which is a well known newspaper having wide
circulation in the business community.
5. Several bids were received and were opened in the
Court. The highest bid was that of the appellant M/s.
Valji Khimji & Company amounting to Rs. 3.51 crores.
With the consent of the learned advocates
representing the secured creditors, the said bid was
accepted and the sale was confirmed on 30.7.2003.
The Court directed the appellant to deposit 25% of the
purchase price i.e. Rs.63,98,000/- within 30 days
from the said day and to deposit the balance amount
within the next three months. The Court also directed
that the amount may be deposited in installments, but
no installment should be less than Rs.5 lakhs. These
conditions were complied with by the appellant.
6. Although the sale was confirmed in favour of the
appellant on 30.7.2003, a letter dated 22.10.2003 was
sent to the official liquidator by one M/s. Manibhadra
Sales Corporation (respondent No. 8 herein) offering to
buy the assets in question for Rs.3.75 crores (though
this offer was admittedly withdrawn later on).
7. Subsequently in August 2004, M/s. Castwell
Alloys Limited (respondent No. 9 herein) made an offer
of Rs.5 crores for the said assets. This offer was
made more than one year after the confirmation of the
sale in favour of the appellant.
8. Both M/s. Manibhadra Sales Corporation and
M/s. Castwell Alloys Limited filed applications praying
for recall of the order dated 30.7.2003 by which the
sale was confirmed in favour of the appellant. On
10.9.2004, the learned Company Judge took up both
these applications and passed an order dated
10.9.2004 recalling the order dated 30.7.2003 by
which the sale was confirmed.
9. Aggrieved against the said order dated 10.9.2004
the appellant filed an appeal before the Division Bench
of the High Court which was dismissed by the
impugned judgment dated 25.8.2005 and 26.8.2005.
Aggrieved, this appeal has been filed before us by way
of Special Leave.
10. We have carefully perused the impugned
judgment & order of the learned Division Bench as
well as the order dated 10.9.2004 of the learned Single
Judge and are of the opinion that the same cannot be
11. It may be noted that the auction sale was done
after adequate publicity in well-known newspapers.
Hence, if any one wanted to make a bid in the auction
he should have participated in the said auction and
made his bid. Moreover even after the auction the sale
was confirmed by the High Court only on 30.7.2003,
and any objection to the sale could have been filed
prior to that date. However, in our opinion,
entertaining objections after the sale is confirmed
should not ordinarily be allowed, except on very
limited grounds like fraud, otherwise no auction sale
will ever be complete.
12. It is not in dispute that the auction was an open
auction after wide publicity in well-known newspapers.
Hence, there was nothing to prevent M/s. Manibhadra
Sales Corporation and M/s. Castwell Alloys Limited to
have participated in the auction, but they did not do
so. There is no allegation of fraud either in this case.
Hence, in our opinion, there was no justification to set
aside the confirmation of the sale.
13. It appears that the reasoning of the learned Single
Judge, as also of the Division Bench, was that the
valuation of the assets of the company was made as if
these assets were scrap. The reasoning of the learned
Single Judge of the High Court thus seems to be that
the assets in question was wrongly given out to be
scrap and thus a proper bid was not obtained.
14. In our opinion, there is nothing to show that the
assets in question which were auctioned-sold were
ever given out to be scrap. They are not mentioned as
scrap in the advertisement or sale notice, nor is there
any material to show that the valuer valued them
treating them to be scrap.
15. We have carefully perused the sale notice and we
find that it is nowhere mentioned therein that the
assets in question are scrap.
16. No doubt , the assets of M/s. Hindustan Nitro
Product (Gujarat) Limited offered to be sold in the
auction sale were offered in lots (as mentioned in the
sale notice). The first lot was plant machineries and
all other movables excluding building structure,
records and compound wall, the second lot was the
building structure except T.K. Office, records &
compound wall, the third lot was a composite offer (I &
II) above, the fourth lot was land except records, and
the fifth lot was a composite offer (i.e. III & IV above).
In our opinion, this cannot be described as scrap.
17. The word `scrap' would ordinarily mean something
which cannot be used for the same purpose for which
it was being earlier used even after repairing or
renovating the same. There is nothing to show that
the items proposed to be auctioned sold was scrap, i.e.
they could not be used for the same purpose for which
they were earlier used after repairing or reconditioning
18. Learned counsel for the respondents submitted
that the assets proposed to be auctioned sold were not
in a running condition and hence were `scrap'. We
cannot agree. In our opinion merely because the
assets were not in a running condition it does not
mean that they were scrap. For instance, if the engine
of a motor car is not functioning due to some defect,
that does not mean that the motor car has become
scrap. The motor car can be towed to a garage where
a motor mechanic can repair it and then it can again
become in running condition. The motor car will
become scrap only if it is in such a dilapidated
condition that it can never be made in running
condition again despite repairs and renovation, and
hence it will have to be sold as a piece of metal.
19. Hence, we cannot agree with the views of the
Courts below that any fraud took place in the auction
20. Moreover, whenever anyone goes to buy some
property in an auction sale, the person proposing to
bid always makes enquiries about the properties for
which he is proposing to make the bid. In fact, he will
in all probability inspect the said property/assets, and
he will not make any bid without making thorough
enquiries about the said properties/assets. Hence, we
are of the opinion that all the bidders in the auction
knew what they were bidding for. Respondent No. 9
never participated in the auction and we fail to
understand how he could start objecting to the auction
more than one year after the same was confirmed.
21. The other reasoning of the learned Single Judge
by which he set aside the confirmation of the sale is
that the company was entitled to incentives and
benefits like sales tax exemption and modvat. The
learned Single Judge has observed that the company
M/s. Hindustan Nitro Product (Gujarat) Limited had
made huge investments in development of an effluent
treatment plant, and received permission for supply of
gas for fuel from GAIL. The learned Single Judge was
of the view that the intangible assets were required to
be considered while fixing the value of the property.
22. We fail to understand how all this is relevant at
all. After all, what was being sold was the assets of
the company, and not the shares of the company, and
these assets were fully described in the sale notice.
23. The learned Single Judge in our opinion also
wrongly observed that while doing the valuation the
potential of the company was overlooked. Such
potential has really no relevance in our opinion.
24. The learned Single Judge has observed that the
valuation was made as if the assets of the company to
be sold were scrap, and instead the valuation should
have been done as if it was a going concern. We have
already observed above that this observation is really
based on no material as there is nothing to show that
the valuation of the assets was done as if they were
25. The learned Division Bench in its impugned
judgment has broadly adopted the reasoning of the
learned Single Judge. Hence for the same reason
given above the judgment of the learned Division
Bench also cannot be sustained.
26. Learned counsel for the appellant Mr. Sundaram
has relied upon the decision of this Court in M/s
Kayjay Industries (P) Ltd. vs. M/s. Asnew Drums (P)
Ltd & Ors. (1974) SCC 213 in which it was observed
that mere inadequacy of price cannot demolish every
court sale. The Court also observed in para 7, as
"If Court sales are too frequently adjourned with a
view to obtaining a still higher price it may prove a
self-defeating exercise, for industrialists will lose
faith in the actual sale taking place and may not
care to travel up to the place of auction being
uncertain that the sale would at all go through"
27. On the other hand, learned counsel for the
respondents relied upon a decision of this Court in
Divya Manufacturing Company (P) Ltd. etc. vs.
Union Bank of India & Ors. etc. (2000) 6 SCC 69.
We have carefully perused the above decision and we
find that it is clearly distinguishable.
28. The facts of the case were that at the initial stage
the appellant offered 37 lakhs for purchasing the
property in question. At the intervention of the court
the price was raised to 1.3 crores, and ultimately it
was found that the property could be sold for Rs.2
crores. It was on these facts that this Court held that
even after confirmation of the sale the same could be
29. Thus, the ratio in Divya Manufacturing
Company (P) Ltd. (supra) was that if there is fraud
then even after the confirmation the sale can be set
aside because it is well-settled that fraud vitiates
everything. On the facts of that case, the Court was
of the view that that confirmed sale deserved to be set
30. In our opinion the decision of this Court in Divya
Manufacturing Company (P) Ltd. (supra) cannot be
treated as laying down any absolute rule that a
confirmed sale can be set aside in all circumstances.
As observed by one of us (Hon. Katju, J.) in his
judgment in Civil Appeal No. 4908/2008 (Dr. Rajbir
Singh Dalal vs. Chaudhary Devi Lal University, Sirsa
& Anr pronounced on 6.8.2008), a decision of a Court
cannot be treated as Euclid's formula and read and
understood mechanically. A decision must be
considered on the facts of that particular case.
31. If it is held that every confirmed sale can be set
aside the result would be that no auction sale will ever
be complete because always somebody can come after
the auction or its confirmation offering a higher
32. It could have been a different matter if the auction
had been held without adequate publicity in well-
known newspapers having wide circulation, but where
the auction sale was done after wide publicity, then
setting aside the sale after its confirmation will create
huge problems. When an auction sale is advertised in
well-known newspapers having wide circulation, all
eligible persons can come and bid for the same, and
they will be themselves be to blame if they do not
come forward to bid at the time of the auction. They
cannot ordinarily later on be allowed after the bidding
(or confirmation) is over to offer a higher price.
33. Of course, the situation may be different if an
auction sale is finalized say for Rs.1 crore, and
subsequently somebody turns up offering Rs. 10
crores. In this situation it is possible to infer that
there was some fraud because if somebody
subsequently offers 10 crores, then an inference can
be drawn that an attempt had been made to acquire
that property/asset at a grossly inadequate price.
This situation itself may indicate fraud or some
collusion. However, if the price offered after the
auction is over which is only a little over the auction
price, that cannot by itself suggest that any fraud has
34. In the present case we are satisfied that there is
no fraud in the auction sale. It may be mentioned that
auctions are of two types - (1) where the auction is not
subject to subsequent confirmation and (2) where the
auction is subject to subsequent confirmation by some
authority after the auction is held.
35. In the first case mentioned above, i.e. where the
auction is not subject to confirmation by any
authority, the auction is complete on the fall of the
hammer, and certain rights accrue in favour of the
auction purchaser. However, where the auction is
subject to subsequent confirmation by some authority
(under a statute or terms of the auction) the auction is
not complete and no rights accrue until the sale is
confirmed by the said authority. Once, however, the
sale is confirmed by that authority, certain rights
accrue in favour of the auction purchaser, and these
rights cannot be extinguished except in exceptional
cases such as fraud.
36. In the present case, the auction having been
confirmed on 30.7.2003 by the Court it cannot be set
aside unless some fraud or collusion has been proved.
We are satisfied that no fraud or collusion has been
established by any one in this case.
37. In view of the above, we allow this appeal and set
aside the impugned judgments and orders of the
learned Single Judge as well as the Division Bench
dated 25.8.2005 and 26.8.2005. The confirmation of
the auction sale dated 30.7.2003 in favour of the
appellant stands upheld. There shall be no order as
12th August, 2008