Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3201 OF 2008
ARISING OUT OF
SPECIAL LEAVE PETITION (CIVIL) NO. 2189 OF 2007
M.V. JANARDHAN REDDY … APPELLANT
VERSUS
VIJAYA BANK & OTHERS … RESPONDENTS
J U D G M E N T
C.K. THAKKER, J.
1. Leave granted.
2. The present appeal is filed by the
appellant herein against the judgment and order
dated October 18, 2006 passed by the High Court
of Andhra Pradesh in Original Side Appeal No.
44 of 2006. By the said order, the Division
Bench of the High Court dismissed the appeal
and confirmed the order, dated September 8,
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2006 passed by the Single Judge of that Court
in Company Application No. 73 of 2006.
3. To appreciate the controversy raised
in the present appeal, few relevant facts may
be stated;
4. Vijaya Bank-Respondent No.1 herein
(‘Bank’ for short) filed Original Suit No. 57
of 1989 in the Court of Subordinate Judge,
Bhongir against Messrs Kran Organics Chemicals
(P) Ltd (in liquidation) (‘Company’ for short)
for recovery of Rs.94,50,524/- as also another
Suit being Original Suit No. 61 of 1989 in the
same Court for recovery of Rs.6,43,962/-. Both
the suits were decreed by a common judgment
dated July 24, 1993. The Bank filed execution
applications which were transferred to Debts
Recovery Tribunal on establishment of the
Tribunal under Recovery of Debts due to Banks
and Financial Institutions Act, 1993. Recovery
certificates were issued in favour of the Bank
and the Bank was allowed to execute the decree.
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5. Since the matter was pending in the
Company Court and Official Liquidator was
appointed, the Bank made an application, being
Company Application No. 219 of 1996 in Company
Petition No. 18 of 1990 in accordance with the
provisions of Section 446 of the Companies Act,
1956 (hereinafter referred to as ‘the Act’)
read with Rule 117 of the Companies (Court)
Rules, 1959 (hereinafter referred to as ‘the
Rules’) for granting leave to proceed with the
sale of the property of the Company.
6. The Company Court, vide its order,
dated August 13, 1999 granted the permission.
7. The Bank then took steps for sale of
land and building of the Company. It got
valuation report from approved valuer, assessed
market value and realizable value, submitted
copies of judgment, recovery certificate and
valuation report, etc. to the Official
Liquidator. It made an application being
Company Application No. 187 of 2005 to the
Company Court under Sections 446 and 457 of
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the Act read with Rule 9 of the Rules praying
for acceptance of the Valuation Report and
permit the Bank to sell the property by
conducting auction through Recovery Officer,
Debt Recovery Tribunal, Hyderabad.
8. On February 2, 2005, the Bank
published a notice fixing date of sale as March
13, 2005. A public notice was issued in
‘ Vaartha ’ on February 9, 2005. Reserve price
was fixed at Rs.45 lakhs. No bidder, however,
came forward and auction could not be effected.
Same thing was repeated in auction sales
scheduled to be held on May 29, 2005, July 8,
2005 and September 14, 2005. In an auction held
on December 19, 2005, the appellant had offered
Rs. 67.50 lakhs which was the highest bid and
it was accepted. The Bank made an application
in January, 2006, being Company Application NO.
73 of 2006 requesting the Company Court to
allow the Recovery Officer of the Tribunal to
confirm the sale in favour of the appellant and
to permit him to issue sale certificate. On
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February 13, 2006, Recovery Officer confirmed
the sale. It was stated in the said order that
the purchasers had purchased the property for a
sum of Rs.67,50,000/- at a public auction held
on December 19, 2005. Full amount of the sale
consideration was paid on January 3, 2006.
9. It was then stated;
“Accordingly, the said sale is
hereby confirmed”.
10. According to the appellant, on
February 23, 2006, the Official Liquidator
submitted a report to the Hon’ble Court wherein
he also stated that there was no impediment in
confirming the sale. Sale certificate was
issued in favour of the appellant on March 2,
2006. The sale was registered on March 16,
2006. On March 17, 2006, however, the Company
Judge set aside the sale without issuing notice
and without affording an opportunity of hearing
to the appellant observing that the sale was
not properly conducted and was confirmed
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without an order from the Court. The sale was,
therefore, set aside.
11. It appears that an application was
made by the appellant to recall the said order.
Meanwhile, the Company Judge issued direction
to the Official Liquidator to sell the
property. Notice was issued by the Official
Liquidator for sale of property. The appellant,
however, approached the Division Bench of the
High Court by filing Original Side Appeal No.
28 of 2006 complaining that an order passed by
the Company Judge setting aside the sale, was
illegal, unlawful, violative of principles of
natural justice and fair play inasmuch as no
notice was issued and no opportunity of hearing
was afforded before passing the said order,
which adversely affected the appellant. The
Division Bench upheld the contention of the
appellant, allowed the appeal filed by him and
set aside the order passed by the Company
Judge. The matter was again ordered to be
placed before the learned Company Judge for
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passing an appropriate order in accordance with
law.
12. The learned Company Judge, thereafter,
heard the parties and by an order dated
September 8, 2006, set aside the sale which was
in favour of the appellant and ordered that the
amount deposited by the appellant be refunded
to him. The appellant approached the Division
Bench of the High Court but the Division Bench
also dismissed the appeal. The said order is
challenged in the present appeal.
13. On February 12, 2007, notice was
issued by this Court. The matter thereafter
appeared on the board from time to time.
Status quo was also granted. Parties were
permitted to file replies and a direction was
issued to the Registry to place the matter for
final hearing on a non-miscellaneous day and
that is how the matter has been placed before
us.
14. We have heard learned counsel for the
parties.
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15. The learned counsel for the appellant
contended that the auction was held in
accordance with law by the authorities and
upset price was fixed as Rs.45 lakhs. The
appellant was the highest bidder on December
19, 2005 and his bid was for Rs.67.50 lakhs.
The said bid was accepted and the entire amount
was paid by him and the sale was confirmed.
The sale, therefore, could not have been
interfered with and set aside by the Court. It
was also submitted that after confirmation of
sale, no order setting aside the sale could
have been passed by the Court. The learned
counsel submitted that once the sale was
confirmed, it could be set aside only on
certain grounds such as fraud or irregularity
in conducting sale, etc. Since no such ground
was there, the order setting aside sale was
illegal and was of no effect. It was also
submitted that remarks of the Official
Liquidator were called and Official Liquidator
vide his report dated February 23, 2006 stated
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that as against the upset price of Rs.45 lakhs,
the highest bid was of Rs.67.50 lakhs by the
appellant and there was no impediment in
confirming the sale. Hence, even on that
ground, the Company Judge was not justified in
setting aside the sale. The counsel stated that
at an earlier occasion also, an order was
passed by the Company Judge setting aside the
sale without issuing notice and giving
opportunity of hearing to the appellant.
Fortunately, however, the said order was set
aside by the Division Bench. But again the
Company Judge set aside the sale and the
Division Bench confirmed the said order. The
counsel submitted that after confirmation of
sale, sale certificate was issued in favour of
the appellant on March 2, 2006, sale deed was
registered on March 16, 2006 and the appellant
had paid an amount of Rs.4 lakhs towards stamp
duty. All these had caused serious prejudice
to the appellant. The entire amount of Rs.67.50
lakhs was paid in the beginning of 2006 and if
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at this stage, the order of the High Court is
not interfered with, irreparable injury and
loss would be caused to the appellant. He,
therefore, submitted that the order passed by
the High Court deserves to be set aside by
restoring confirmation of sale in favour of the
appellant and by directing the respondents to
take consequential action.
16. The learned counsel for respondent
Nos. 1 and 2, on the other hand, supported the
order passed by the learned Company Judge and
confirmed by the Division Bench. It was
submitted that the Recovery Officer had no
power, authority or jurisdiction to confirm
sale and an order of confirming sale passed by
him on February 13, 2006 was, therefore,
without power or authority. Moreover, Company
proceedings were pending before the learned
Company Judge. The Company was ordered to be
wound up. Official Liquidator was appointed who
was in charge of the assets of the Company. He
was not taken in confidence, nor was he
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associated with the auction of assets and
properties of the Company in liquidation and an
action had been taken by the Recovery Officer
which was contrary to law. Even the report
submitted by the Official Liquidator expressly
stated;
“Since Official Liquidator was
not associated with the proceedings of
sale, he has no comments to offer”.
17. So far as the order passed by the
learned Company Judge is concerned, it
specifically and unequivocally stated that
permission of the court should be obtained
before sale is confirmed or finalized. That
order was passed as early as on August 13,
1999. In an order, dated March 25, 2005 also,
it was expressly mentioned that the sale was
subject to confirmation of the Court. It was an
express condition imposed by the Company Court
and as such it was not open to the Recovery
Officer to confirm the sale and such order,
which was having no authority of law, was
1
rightly set aside by the Company Judge and no
grievance could be made. Finally, it was
submitted that the Court was wholly justified
in observing that the property would have
fetched much more than Rs. 67.50 lakhs. In
fact, in a subsequent auction, the highest bid
was of Rs.1,80,00,000 i.e. almost three times
than the highest bid of the appellant. In the
circumstances, it could not be said that any
illegality had been committed by the Court in
setting aside the sale or there was miscarriage
of justice. It was, therefore, submitted that
the appeal deserves to be dismissed.
18. On behalf of respondent No. 3, an
affidavit in reply is filed and it is stated
that after the bid of respondent No. 3 was
accepted for Rs. 1.80 crores, it had paid the
said amount in November, 2006. The sale was
confirmed by the Company Court in its favour,
sale deed was executed and even physical and
actual possession of the property was given to
respondent No. 3. The third respondent also
1
obtained necessary permission and certificates
from the Authorities so as to enable it to
start unit. It had incurred substantial
expenditure of about Rs. 1.50 crores and also
taken steps for recruitment of staff. If at
this stage, the order passed by the High Court
is set aside, great prejudice would be caused
to the said respondent.
19. Having heard the learned counsel for
the parties and having given anxious
consideration to the facts and circumstances in
their entirety, in our opinion, it cannot be
said that by setting aside sale, either the
learned Company Judge or the Division Bench has
committed any illegality which deserves
interference in exercise of discretionary power
under Article 136 of the Constitution.
20. Our attention has been invited by the
learned counsel to the relevant orders passed
by the Company Court from time to time. So far
as the order dated August 13, 1999 is
concerned, permission to sell the property was
1
granted on certain terms and conditions. They
read as under;
A) The Official Liquidator shall be
allowed to have inspection of the
properties and assets of the
company in liquidation and to take
inventory as and when required.
B) Certified copy of the Judgment and
decree passed by the Subordinate
Judge, Bhongir in O.S. No.57/89
dt. 24.7.1993 shall be made
available to the official
Liquidator without delay.
C) The certified copy of the order
that would be passed by the Debt
Recovery Tribunal, Bangalore shall
be made available to the official
Liquidator without avoidable
delay.
D) The petitioner-Bank shall file the
valuer’s report in the court
before the properties covered
under the mortgage deed are put to
sale.
E)
Permission of this court shall be
obtained before the sale of the
properties movable or immovable,
is confirmed or finalized .
F) The petitioner-Bank shall
undertake to deposit and shall
deposit the workmen dues with the
official Liquidator as and when
quantified by him as per the
provisions of Section 529(A) of
the Indian Companies Act.
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G) Whatever surplus remains after the
sale and realization of the dues
of the secured creditors and the
workmen, as per law, the balance
sale proceeds shall be made
available to the official
Liquidator for being dealt with in
accordance with the provisions of
the companies Act and the Rules.
(emphasis supplied)
21. An order, dated March 28, 2005 in
Company Application No. 187 of 2005 was equally
clear. It read as under;
“This is an application filed by the
Nationalized Bank seeking permission
of this Court to receive the valuation
report and also to permit the bank to
effect sale of the properties of the
Company under liquidation through the
Recovery Officer of the Debts Recovery
Tribunal, in terms of the conditions
of auction sale notice dated 2.2.2005.
It is also stated that though sale
notice was ordered, no sale was
conducted as no permission was
obtained from this Court. The Official
Liquidator also filed a report
reporting that there is no objection
as to the proposed auction and also
the valuation report as filed by the
applicant Company.
Under the above circumstances, the
applicant company is permitted to go
ahead with the proposed sale of the
assets of the Company under
1
Liquidation through public auction.
But, however, the said sale, if any
effected, shall be subject to the
confirmation of this Court. The
applicant is accordingly granted
permission to effect the sale, but the
sale shall be required to be confirmed
by this Court .
The application is accordingly
disposed of.” (emphasis supplied)
22. The above orders leave no room of
doubt that the Bank was permitted to go ahead
with the proposed sale of the assets of the
Company under liquidation by way of auction but
such sale was subject to confirmation by the
Company Court. It is, therefore, clear that all
parties were aware about the condition as to
confirmation of sale by the Company Court. It
was, therefore, not open to Recovery Officer to
confirm sale. The order passed and action taken
by the Recovery Officer was in clear violation
of and inconsistent with the specific condition
imposed by the Company Court. In our
considered opinion, therefore, the appellant
cannot take any advantage of confirmation of
1
sale by the Recovery Officer who did not
possess the power to confirm sale.
23. So far as confirmation of sale is
concerned, the principles are well-settled. It
is, therefore, not necessary to consider
various decisions on that point. We may,
however, refer to M/s Navalakha & Sons v. Sri
Ramanya Das & Ors., (1970) 2 SCR 77 : (1969) 3
SCC 537 .
24. In that case, speaking for the Court,
Ramaswami, J. stated;
“The principles which should
govern confirmation of sales are
well-established. Where the
acceptance of the offer by the
Commissioners is subject to
confirmation of the Court the
offerer does not by mere acceptance
get any vested right in the property
so that he may demand automatic
confirmation of his offer . 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
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
property the price offered is
1
reasonable. Unless the Court is
satisfied about the adequacy of the
price the act of confirmation of the
sale would not be a proper exercise
of judicial discretion. In Gordhan
Das Chuni Lal v. S. Sriman
Kanthimathinatha Pillai, it was
observed that where the property is
authorised 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 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. Sadapathi
Pillai and S. Soundarajan v. Roshan
& Co. In A. Subbaraya Mudaliar v. K.
Sundarajan, it was pointed out that
the condition of confirmation by the
Court being a safeguard against the
property being said 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 the auction is an
adequate price even though there is
no suggestion of irregularity or
fraud. It is well to bear in mind
the other principle which is equally
well-settled namely that once the
Court comes to the conclusion that
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the price offered is adequate, no
subsequent higher offer can
constitute a valid ground for
refusing confirmation of the sale or
offer already received”. [See the
decision of the Madras High Court in
Roshan & Co’s case (supra)].
25. It is true that the Recovery Officer
confirmed the sale in favour of the appellant.
But as we have already noted, in view of
condition imposed by the Company Court,
Recovery Officer did not have the power to
confirm sale. An order passed by an officer
having no authority of law has no effect. It
neither creates any right in favour of a party
for whom such order is made nor imposes any
obligation on the opposite party against whom
it was passed.
26. In Sikander Khan v. Radha Kishan,
(2002) 9 SCC 405 : JT 2001 (10) SC 29, auction
–sale of agricultural land was confirmed by the
Collector. The judgment-debtor filed an
application under Order 21, Rule 90 of the Code
of Civil Procedure, 1908 contending that the
2
Collector had no jurisdiction to confirm the
sale and his action, therefore, was null and
void.
27. Upholding the contention and setting
aside the sale, this Court said;
“Learned counsel appearing for the
appellants urged that the view taken
by the High Court that the Collector
had jurisdiction to confirm the
auction-sale was patently erroneous.
In other words, what the learned
counsel contends is that under
Section 71 of the Code read with
Order 21 Rule 92 CPC, the Collector
is only authorised to hold and
conduct the auction-sale but he has
no power to confirm the sale.
According to him, the confirmation of
auction-sale can only be done by the
civil court after deciding the
objections, if filed. We find
substance in the argument. Order 21
Rule 92 of the Code of Civil
Procedure provides that the civil
court shall have power to make an
order confirming the sale and
thereupon the sale shall become
absolute. What Section 71 of the Code
provides is that where the execution
of the decree is passed by the
competent civil court, which cannot
be satisfied and requires sale of the
agricultural holding of a pakka
tenant, the auction-sale of such land
shall be conducted by the Collector
on fulfilment of certain conditions.
It is, therefore, crystal clear that
2
only the auction-sale of an
agricultural land is to be held and
conducted by the orders of the
Collector and not the confirmation of
such sale. In view of the fact that
in the present case the auction-sale
of the appellants’ land was not
confirmed by the civil court, the
auction-sale was a nullity and the
executing court was right when it set
aside the impugned auction-sale”.
28. It is true that when the Company Judge
set aside the sale on March 17, 2006, the order
was reversed by the Division Bench of the High
Court since it was in breach of natural
justice. That does not, however, mean that the
Company Court could not pass fresh order after
affording opportunity of hearing to the
parties. In our opinion, the Company Court was
right in passing fresh order after hearing the
parties. If the Recovery Officer could not have
confirmed the sale, obviously all actions taken
in pursuance of confirmation of sale, such as,
issuance of sale certificate, registration of
documents, etc., would be of no consequence.
Since the Company was in liquidation and
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Official Liquidator was in charge of the assets
of the Company, he ought to have been
associated with the auction proceedings, which
was not done. This is also clear from the
report submitted by the Official Liquidator and
on that ground also, the auction sale was
liable to be set aside.
29. Thus, taking into account overall
circumstances, it cannot be said that by
setting aside the sale, any illegality had been
committed by the Court or the appellant had
suffered. The grievance voiced by the
appellant, therefore, is not well founded and
cannot be upheld.
30. One thing, however, may be noted. In
the auction held on December 19, 2005, the
appellant was the highest bidder. His bid of
Rs.67.50 lakhs was accepted and he paid the
earnest money. Sale was confirmed albeit
illegally, by the Recovery Officer on February
13, 2006 and he paid the remaining amount. The
appellant thus paid the entire amount of
2
Rs.67.50 lakhs. The sale was confirmed, sale
certificate was issued and sale deed was
registered in his favour. It is the case of
the appellant that he had paid stamp duty of
Rs.4 lakhs. Taking into consideration all these
factors, in our opinion, ends of justice would
be met if respondent No.3—M/s MSN Organics (P)
Ltd., who has purchased the property for
Rs.1.80 crores is directed to pay an amount of
Rs.20,00,000/- (twenty lakhs only) to the
appellant herein. In our judgment, payment of
this amount to the appellant (auction-
purchaser) would work as ‘some solatium for his
trouble and disappointment for the loss of that
which is, perhaps, a good bargain’ [ Chundi
Charan v. Bankey Behary, (1899) 26 Cal 449
(FB)].
31. For the foregoing reasons, the appeal
deserves to be partly allowed and is
accordingly allowed to the extent indicated
above.
2
…………………………………………………J.
(C.K. THAKKER)
NEW DELHI, …………………………………………………J.
May 02, 2008. (D.K. JAIN)