Sick Industrial Companies (Special Provisions) Act, 1985 : ss. 20(4), 21(c) – Winding up of sick industrial company – Operating agency to prepare complete inventory – On facts, Operating AgencyIDBI initiated process to sell the subject assets of the sick industrial company-BCI in terms of the order passed by the BIFR – Submission of solitary bid by the appellant – Operating authority accepted the same – However, the appellant did not adhere to the terms and conditions of Asset Sale Committee (ASC) – In view thereof, BIFR did not agree to the proposal to accept the bid – However, the Appellate Authority-AAIFR set aside the order of BIFR and issued directions to confirm the sale in favour of the appellant – However, Division Bench holding that the appellants have not made payment in terms of the guidelines of the ASC, they failed to furnish the bank guarantee and to deposit the purchase consideration, restored the order of the BIFR – On appeal, held : Operating Agency was under an obligation to obtain the valuation report of the subject property and after due assessment has to arrive at the reserve price – Procedure adopted by the Operating Agency was defective – Appellants-auction bidder neither paid the sale consideration nor furnished the bank guarantee within 15 days of the acceptance of the bid in terms of the guidelines – Moreover, the Division Bench of the High Court holding that there was no competitive bidding which is a sine qua non for public auction and the guidelines of the ASC have not been complied with, set aside the order of the AAIFR with the direction to initiate the process afresh – No error in the view of the High Court – Appellant was under an obligation to comply with the requirement and despite opportunity the appellant failed to comply with the twin conditions – Thus, the High Court rightly set aside the order of AAIFR.
Auction: Object and purpose of – Process of auction/bidding – Explained.
Dismissing the appeals, the Court
HELD: 1.1 The Operating Agency was under an obligation to obtain the valuation report of the subject property and after due assessment has to arrive at the reserve price for the sale of the property in terms of Section 21(c) of the Sick Industrial Companies (Special Provisions) Act, 1985 and thereafter has to proceed with a procedure known to law while adopting a method for sale of the assets by public auction or by inviting tenders or in any other manner specified and for the manner of publicity therefor in terms of Section 18(2)(k) of the Act, 1985. [Para 22][89-D-E]
1.2 In the instant case, it has not been placed on record if there was any valuation report assessed by the Operating Agency from the approved valuer of the subject property and, at the same time, the reserve price of the subject property was never disclosed/indicated in the first place when the public notice came to be notified inviting offers from the interested parties. Thus, the very procedure adopted by the Operating Agency appears to be defective at its very inception. [Para 23][90-C-D]
1.3 The object of the auction is to secure optimum realizable value of the property by giving opportunity to the potential buyers facing competitive bids either in open or closed format. The terms ‘auction’ or ‘bid’ are inter–related as both give the idea of selling the product to the public. Bidding involves the process where a person offers a price which is known as a bid. The process of bidding takes place in a situation where large number of people show their willingness to buy a particular product or a service and bidding in a sealed envelope is often used by various companies, industries and small businesses for assessing the needs of the public at large. On the other hand, auction is the process that involves buying and selling goods and services by offering them for bids, taking bids and selling the item to the highest bidder and that is possible if there is a competitive bidding between the bidders. The purpose of auction (open or close format) is to get the most remunerative price and giving opportunity to the intending bidders to participate and fetch higher realizable value of the property. If that path is cut down or closed, the possibility of fraud or to secure inadequate price or underbidding would loom large. In the given circumstances, it is the duty of the Court to exercise its discretion wisely and with circumspection and keeping in view the facts and circumstances in each case. [Paras 24, 25][90-E-H]
1.4 The appellants (auction bidder) have neither paid the sale consideration in terms of clause (h) of the guidelines nor furnished the bank guarantee within 15 days of the acceptance of the bid in terms of clause (i) of the guidelines. [Para 29][92-F-G]
1.5 When the matter was placed before the BIFR, the Bench took note of the fact that the appellants were the sole bidder for Block IV and have not complied with the ASC guidelines. Taking both the factors into consideration, the bid of the appellants was not confirmed but on appeal being preferred by the appellants, the AAIFR did not take into consideration that the guidelines of the ASC have not been followed and the appellant was the sole bidder, as there was no competitive bidding which is always to be taken care of to secure the optimized value of the property. [Para 30][92-G-H; 93-A]
1.6 The appellants have shown their willingness to deposit the bid amount in two instalments but the fact is that even before the order came to be passed by the BIFR, neither the bank guarantee was furnished nor a single instalment was deposited by the appellants and the AAIFR erred in setting aside the Order of BIFR. [Para 31][93-B-C]
1.7 The Division Bench of the High Court had revisited the entire proceedings and taking into consideration the fact that there was no competitive bidding which is a sine qua non for public auction and guidelines of the ASC have not been complied with, accordingly set aside the order of the AAIFR with a further direction to initiate the process afresh in accordance with law. There is no error in the view expressed by the High Court which may call for interference. [Para 32][93-C-D]
1.8 The submission that the appellants in Civil Appeal No. 10127 of 2011 have not participated in the bidding process and made an offer at the later stage, have no locus standi to challenge the order of the AAIFR confirming the bid of the appellants. In the facts and circumstances of the case, it may not be of any assistance for the reason that the appellants in Civil Appeal No. 10127 of 2011 indeed were not the bidders and have not tendered any sealed bid, but at the same time, they have made an offer at a later stage and directly interested in the subject property in question as they are residing there for sufficiently long time, and not the strangers to the proceedings, being the person aggrieved their right to question invoking the jurisdiction of High Court under Article 226 of the Constitution cannot be ruled out. The order of the AAIFR confirming the bid pursuant to its order impugned dated 1st April, 2005 is not legally sustainable, there is no justification at this stage to non-suit the claim of the appellants prayed for in Civil Appeal No. 10127 of 2011. [Paras 33, 34][93-E-H]
1.9 The submissions that the conditions of the ASC were scrupulously adhered to and the entire bid amount was deposited after the order came to be passed by the AAIFR confirming the bid on 3rd June, 2005 and 7th June, 2005 and Tripartite MOU was executed is of no substance for the reason that the very procedure in the first instance initiated by the Operating Agency was defective at its very inception and before initiation of the auction proceedings, neither the value of the property was assessed through the approved valuer nor the reserve price was notified in the auction notice and the solitary bid of the appellant was accepted and confirmed by the AAIFR without taking note of the fact that the appellant has failed to comply with the guidelines laid down by the ASC indicating that successful purchaser has to furnish a bank guarantee valid for a period of one year within 15 days of intimation regarding acceptance of the bid and the balance of the purchase consideration has to be paid in two instalments in terms of clause (h) and (i) of the procedure and guidelines laid down by the ASC and that being a part of the auction notice, the appellant was under obligation to comply with and despite opportunity the appellant failed to comply with both the twin conditions and, thus the Division Bench of the High Court rightly set aside the order of AAIFR. [Para 35][94-A-E]
1.10 The submission of the appellants in CA No. 10127 of 2011 that the offer made by the appellants was higher than the sealed bid is concerned, has no substance for the reason that the appellants did not participate in the bidding process and it is not the case of the appellants that the auction notice published was not in their knowledge. Later offer in the facts and circumstances of the case tendered by the appellants was of no legal significance and rightly not acknowledged by the authority. [Para 36][94-F-G]
1.11 The money deposited by the appellants in Civil Appeal No. 10128 of 2011 would be refunded in terms of the order of the High Court impugned. At the same time, the official liquidator may take all reasonable steps to fetch the optimum value of the property in order to achieve the object of public auction. [Para 37][94-H; 95-A]
Valji Khimji and Company v. Official Liquidator of Hindustan Nitro Product (Gujarat) Limited and Others (2008) 9 SCC 299 : [2008] 12 SCR 1; National
Highways Authority of India v. Gwalior–Jhansi
Expressway Limited Through Director (2018) 8 SCC
243 : [2018] 9 SCR 1024; Navalkha and Sons v. Sri Ramanya Das and Others (1969) 3 SCC 537 : [1970] 3 SCR 1; Divya Manufacturing Company (P) Ltd. Tirupati Woollen Mills Shramik Sangharsha Samity and Another v. Union Bank of India and Others Official Liquidator and Others (2000) 6 SCC 69 : [2000] 1 Suppl. SCR 474; Lakshmanasami Gounder v. C.I.T., Selvamani and Others (1992) 1 SCC 91 : [1991] 2 Suppl. SCR 181 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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