Companies Act Case Law Allahabad Bank Etc. Etc. Vs Bengal Paper Mills Co. Ltd. And Others

PETITIONER:
ALLAHABAD BANK ETC. ETC.

Vs.

RESPONDENT:
BENGAL PAPER MILLS CO. LTD. AND OTHERS

DATE OF JUDGMENT: 13/04/1999

BENCH:
S P Bharucha, R C Lahoti,

 
JUDGMENT:
Bharucha, J.
The relevant facts need to be set out to appreciate
what is involved in these appeals from the judgment and
order of a Division Bench of the High Court at Calcutta.

In June, 1985 a winding petition was filed against the
first respondent company, now in liquidation (the said
company). On 30th September, 1986 a mortgage suit (Title
Suit No.143 of 1986) was filed by the Punjab National Bank
and the Bank of Baroda against the said company for recovery
of the sum of Rs.1,94,24,886.37 before the Subordinate
Judge, Burdwan. On the same day a hypothecation suit (Suit
No.736 of 1986) was filed by the United Bank of India, the
Punjab National Bank and American Express against the said
company for recovery of the sums of Rs.20,46,010.31 and
17,87,796.49 in the Calcutta High Court. On the same day, a
hypothecation suit (Suit No.737 of 1986) was filed by the
Allahabad Bank against the said company for recovery of the
sums of Rs.29,18,360.65 and 11,64,370.00 in the Calcutta
High Court. Again on the same day, the Punjab National Bank
and American Express filed a hypothecation suit (Suit No.738
of 1986) against the said company for the recovery of the
sums of Rs.5,30,38,922.28 and Rs.2,14,548.00 in the Calcutta
High Court. On 3rd December, 1986 the Calcutta High Court
passed an interim order in Suit No.738 of 1986 appointing
joint receivers. From time to time, further orders were
passed in the same suit for inventory and sale of the
hypothecated goods.

On 24th April, 1987, in the winding up petition
aforementioned, the said company was ordered to be wound up
and the Official Liquidator was directed to take possession
of the said companys assets and properties. On 15th May,
1987 an application was moved under Section 446 of the
Companies Act by the Punjab National Bank and American
Express for leave to carry on with their suits; also for
transfer of the mortgage suit filed in the Burdwan court to
the Calcutta High Court. On 15th May, 1987 the application
was allowed and the suit transferred from the Burdwan court
to the Calcutta High Court was numbered (T.C. Suit No.5 of
1987). In June, 1987 the Allahabad Bank made an application
under Section 446 of the Companies Act for leave to carry on
with its suit and on 26th June, 1987 such leave was granted.
On 25th November, 1987, the Official Liquidator wrote to the
joint receivers in respect of the possession of the assets
and records of the said company held by them. On 30th
November, 1987 the joint receivers replied to the Official
Liquidator; therein they stated that the hypothecated goods
could not be sold due to lack of offers.

On 11/12th January, 1988 the Punjab National Bank made
an application to the Calcutta High Court in the transferred
suit praying that the Official Liquidator should be
appointed receiver in place and stead of the joint receivers
in Suit No.738 of 1986 with directions to take possession,
make inventory and sell the securities both in the
transferred suit as well as in Suit No. 738 of 1986. The
application was allowed on 12th January, 1988. On 28th
April, 1988 the joint receivers wrote to the Official
Liquidator confirming that they had handed over possession
of the securities they held to him.

On 25th November, 1988 the High Court appointed a
valuer of the said companys assets and properties. On 29th
June, 1989 an order was passed in the winding up petition
giving to the Official Liquidator leave to sell the assets
and properties of the said company by public auction by
inviting sealed tenders upon advertisements once in the The
Statesman once in Jugantore and once in Biswamitra as
per usual terms and conditions of sale. The sale was to be
held on 15th September, 1989 at 2.00 pm in Court. The
Official Liquidator was directed to issue the advertisements
at least three weeks prior to the sale and to give notice to
the valuer asking him to be present on the date of the sale.
The Official Liquidator, the secured creditors and the
valuer were required to act on a signed copy of the minutes
of the order.

On 14th August, 1989 the sale notice was issued. It
stated that the sale was of the entire moveable and
immovable assets of the said company lying in its factory
premises at Ballavpur, Ranigunge, District Burdhaman and
moveable assets lying in its registered office at Calcutta.
The sale was to be on as is where is and whatever there is
basis. The terms and conditions of sale were stated to be
available at the office of the Official Liquidator.

Clause (1) of the terms and conditions of sale stated
that the sale would be as per inventory on as is where is
and whatever there is basis and subject to the confirmation
by the Court. Clause (3) stated that the offer made by
intending purchasers should be contained in a sealed cover
enclosing a bank draft or pay order equivalent to 10% of the
offer. Clause (5) stated that the successful purchaser
will have to pay the balance purchase price to the Official
Liquidator within a week from the date of sale by the Court
either by bank draft or pay order. It is made clear that
this would not prevent the Court from fixing any other date
for such deposit or extending such time even if such time
has expired on such terms and conditions as the court may
deem fit. Clause (9) stated that the sale would be
subject to such modifications/alterations of terms and
conditions of sale as the Honble Court deems fit and proper
and the decision of the High Court shall be final.

In pursuance of the advertisement for sale the second
respondent made an offer on 14th September, 1989. It is
this offer which was accepted and, therefore, its terms are
relevant. It stated that the second respondent was
interested in the purchase of the entire moveable and
immovable assets of the said company with a view to reviving
it as an on going paper mill. The second respondent had
entered into discussions with existing labour unions and the
State Government and had entered into a memorandum of
understanding with the labour unions for reopening the paper
mill to run it, taking workmen from existing employees. The
offer was for the sum of Rs.1,50,00,000/- and bank drafts
for the aggregate amount of Rs.15 lakhs were enclosed. The
offer stated, If our bid is successful we shall complete
the payment of the 25% of the sale value within a fortnight
and take the possession. For the balance we shall pray to
the Honble High Court, Calcutta to allow us the instalments
facility to pay off (balance) amount for which we shall
however arrange a bank guarantee to cover the entire sum.
We would, therefore, request for a clear order of the
Honble High Court transferring the assets of the said
company in the usual manner ……….

On 15th September, 1989, the judgment and order of
sale which was challenged before the Division Bench was
passed. The learned Single Judge recorded that the Official
Liquidator had received, pursuant to the advertisements,
three offers, one of which was by the second respondent for
Rs.1,50,00,000/-, the other was only with regard to the sale
of furniture and the third was for Rs.1,10,00,000/- for the
sale of the assets. The sale of assets had taken place in
the open court though there were no further bidders at the
auction. The offer of Rs.1,50,00,000/- had been
subsequently raised to Rs.2 crores by the second respondent.
The Advocate General for the State of West Bengal, appearing
for the second respondent, had submitted that the concerned
unit would not be disposed off as scrap but would be used as
a going concern. An agreement had already been reached with
the union affiliated to the CITU containing detailed terms
and conditions as to the working of the mill. The Advocate
General had produced a letter from the Bengal Paper Mill
Mazdoor Congress affiliated to INTUC wherein an unequivocal
acceptance of the terms had been recorded. The Advocate
General had assured the Court that 1700 people would be
re-employed within a span of two weeks and to those who
could not be taken in necessary compensation would be paid,
which might exceed Rs.50 lakhs. The learned Single Judge
recorded that the learned advocate appearing for the
secured creditors has raised no objection excepting however
that the prayer for direction on the Official Liquidator for
disbursement of some money to the secured creditors as a
long period of time has already elapsed in the meanwhile.
The learned Single Judge then passed the following order:

Considering the above and considering the factum of
re-employment of 1700 people of the Mill which has been
under closure for the last 7-8 years, the sale in favour of
M/s. Eastern Minerals & Trading Agency (Paper Division)
ought to be confirmed at Rs.2 crores,. It is ordered thus
accordingly. consequently directions follow.

It is recorded that a total sum of Rs.20 lakhs has
been made over to the Official Liquidator in court today and
the Official Liquidator is, therefore, thus directed to make
over possession of the Mill premises to the purchaser by
tomorrow.

The purchaser is directed to furnish further bank
guarantee for a further sum of Rs.30 lakhs by 26th Septemer
1989, which will be kept in deposit with the Official
Liquidator. In the event, however, the purchaser fails to
furnish such bank guarantee within the time stipulated
above, the Official Liquidator is directed to bring it to
the notice of this Court on 27th September, 1989 for further
orders.

The purchaser is further directed to pay a sum of
Rs.30 lakhs to the Official Liquidator as against the
purchase price within four weeks from date. Balance 75% of
the purchase price, that is, Rs.1.50 crores will be paid by
the purchaser by quarterly instalments of Rs.15 lakhs each.
The first quarter, however, commencing from 1st January,
1990. In default of payment of a sum of Rs.30 lakhs or any
one of the quarterly instalments as above, the Official
Liquidator is also directed to apply before this Court for
necessary directions.
The secured creditors protested against the statement
in the judgment and order that referred to them and the
learned Single Judge, on 27th September, 1989, directed that
the order dated 15th September 1989 is modified to the
extent that the 9th line of the 6th paragraph of the said
order, after the words all the secured creditors should be
read as has made a prayer. As so modified, the relevant
part of the sentence reads: the learned advocate appearing
for all the secured creditors has made a prayer for
direction on the Official Liquidator for disbursement of
some monies to the secured creditors ……..

Appeals were filed by the banks against the orders
dated 15th September, 1989 and 27th September, 1989. The
appeals were disposed off by the order that is under
challenge.

The Division Bench noted that the valuation report was
not disclosed to any of the banks, but it stated that it
appeared from the valuation report produced before it that
the total value of the assets of the said company was
estimated by the valuer to be Rs.6,22,16,875/- Since the
valuation report was not disclosed to the banks, the banks
had had no opportunity to object to the valuation made.
According to the advocate appearing on behalf of the banks,
the proper valuation of the assets should have been much
higher; the loans granted by the banks were fully secured
and should have been fully recovered if the assets had been
sold at a proper price. Since the valuation report was not
shown to the banks, the banks had had no opportunity to
point out the defects in the valuation report. The said
company had 15.2.73 acres of lease-hold land. This was not
taken into consideration by the valuer on the ground that
the lease was only upto 14th October, 1992. The valuer had
not indicated whether he had examined the lease-deed or
whether there was any renewal clause in it. Counsel on
behalf of the banks had submitted that no proper effort was
made to obtain a fair market price for the property sold.
Advertisements should have been given all over India,
particularly in Bombay, Delhi, Madras and other important
commercial centres, to obtain the best possible price. This
had not been done. Because of the non-disclosure of the
valuation report, the secured creditors were unable to raise
any objection and were not in a position to know whether the
assets had been sold at a low price. The assets were the
securities of the banks. The banks had filed several suits
and receivers had been appointed. The assets could not have
been sold without the written consent of the banks and the
banks had not agreed to the sale of their securities. The
Division Bench found itself unable to uphold the latter
contention advanced on behalf of the bank for the banks had
participated in the sale from the very beginning. No
objection had been raised by the banks to the proposed sale
of the assets. The sale was concluded in the presence of
the advocates appearing on behalf of the banks. A variation
of the learned Single Judges order was made at the instance
of the banks. At no point of time did the banks object to
the sale of the assets or the price at which the assets were
sold. Learned counsel for the banks contended that what was
actually sold was the equity of redemption in the secured
assets. The Division Bench found that this stand had not
been taken by the banks before or at the time when the sale
took place. Counsel had contended that the mortgages could
be given up only in writing and not otherwise and he had
pointed out that the mortgage suits filed by the banks were
still pending. The Division Bench was unable to uphold this
contention to set aside the sale because in a case like
this some sort of promptitude was expected from the banks.
No allegations of fraud had been made against the purchaser.
The purchaser had purchased the properties in a court sale
and had promised to give employment to 1700 workmen of the
said company. The purchaser had incurred expenditure for
running the factory and for that purpose had entered into
contracts with various parties. Another important aspect of
the case was that no appeal had been preferred against the
order of sale till 3rd February 1990 and no stay of its
operation had been asked for. Counsel for the banks had
contended that the appeals were filed within the period of
limitation. The Division Bench countered that that might be
so, but the purchaser had been allowed to take possession
after the sale. He had employed persons and placed orders
without objection from the banks. It was only after these
things had happened that the banks woke up. The delay was
found fatal to the case of the banks. But, the Division
Bench added :

There is, however, considerable force in the argument
of Mr. Mitra that the sale was made with undue haste. The
proposal for sale of a large paper mill should only have
been effected after giving wide publicity all over India.
Moreover, the successful bidders offer should have been
examined in depth before acceptance. Some enquiry should
have been made to find out the number of workers actually
employed by the company in liquidation at the time of the
closure of its mills. No attempt was made out to find out
how many of those workers were still unemployed and whether
the Trade Union with which the purchaser had entered into an
agreement represented all the unemployed workman of the
company in liquidation. It appears that 1700 of the workmen
of the company have not been re-employed. No attempt was
made to find out whether there was any outstanding
liabilities of the company, statutory or otherwise, in
respect of its workers. The company might have other
liabilities. The nature and extent of such liabilities were
not found out. The sale of the asse5ts should not have been
made in a way to deprive the right of all the creditors,
including the banks, to proceed against the assets of the
company to realise their dues.
The Division Bench then stated :
However the only parties that have come to this Court
for setting aside the sale are the banks who had
participated fully at every stage of the sale. The banks
were represented at the time when the decision was taken to
sell the assets of the company. The banks were also present
when the sale was finalised. The banks had also got the
matter mentioned for effecting certain corrections in the
sale order and a prayer was made for disposal of the sale
proceeds. It does not appear that the banks were under any
misapprehension that the secured assets were being sold.

The banks had participated in every proceedings which
culminated in the sale of the assets and made a prayer for
prompt payment out of the sale of the assets. They cannot
after a lapse of five months turn around and pray for
setting aside the sale on the ground that the banks
interests were not properly protected at the time of the
sale. ……….

In the facts and circumstances of the case and having
regard to the conduct of the bank, this application must be
dismissed.
It is to be noted that no reserve price for the sale
was fixed. Why this should have been so is not understood,
particularly having regard to the fact that a valuer had
been appointed of the assets and properties and a report
obtained. The valuation report was not disclosed. The
order of the learned Single Judge does not set out what the
valuation of the property that was sold was. It does not
even state that, in view of that valuation, the offer of
Rs.2 crores made by the second respondent was a fair and
adequate price. Further, the learned Single Judge did not
notice what the Division Bench did, namely, The Company had
15.2.73 acres of leasehold land. This was not taken into
consideration by the valuer on the ground that the lease
period was only upto 14th October, 1992. The valuer has not
indicated whether he had examined the lease deed or whether
there was any renewal clause in the lease agreement. The
valuation was, therefore, itself suspect.

The sale was advertised once only in three newspapers,
two of which at least were local newspapers. For a sale of
the magnitude of that with which we are concerned, this was
surely inadequate publicity. Inadequate publicity
necessarily suggests the possibility that a better price
could have been obtained.

The learned Single Judge would appear to have been
carried away by the prospect that 1700 people would be
re-employed. He did not appreciate that the said companys
ex-employees were only some of its creditors and that they
stood on no better footing than its other unsecured
creditors. No order could have been passed that, while it
favoured them, took no account of other unsecured creditors.
The employees of the said company had been, as the order of
the learned Single Judge itself shows, out of employment for
7 to 8 years but the learned Single Judge did not inquire
how many of them had secured other employment in the
intervening years.

The learned Single Judge did not ascertain and set out
what the total amount of the claims, secured and unsecured,
against the said company was and whether the assets and the
property of the said company, other than those sold, were
adequate to pay off these claims, even in part. The learned
Single Judge did not even ascertain and state how many
unsecured creditors there were, what the aggregate amount of
their claims was and what part thereof could be ascribed to
the erstwhile employees of the said company. The learned
Single Judge did not, it appears, appreciate that his
principal obligation in conducting and confirming the sale
was to the body of creditors of the said company and that
the obligation was to ensure that the best possible price
had been procured from whereout they could recover at least
some part of their dues.

The learned Single Judge appears not even to have
noticed that the offer of the second respondent was not in
accordance with the terms and conditions of sale inasmuch as
it contemplated a payment schedule that was at variance with
the terms and conditions of sale. There is no discussion in
the order of the learned Single Judge about why it was
thought fit to entertain such an offer.

There was another offer before the learned Single
Judge to purchase the assets and properties of the said
company for the sum of Rs.1.10 crores. No details of the
offer are set out in the order of sale. If it was in
accordance with the terms and conditions of sale, it should
have been considered and compared to the second respondents
offer. This offerer did not, apparently, raise his offer,
but he might have done so if he have been told that he could
have the same liberal payment terms that the learned Single
Judge gave to the second respondent after it had raised its
offer. No reason was given by the learned Single Judge in
the order of sale as to why he thought it necessary or
proper to give to the second respondent these very liberal
terms. It is to be noted that these terms are even more
liberal than those asked for in the offer.

Though only 10% of the price had been received and
there was a direction to furnish a bank guarantee for Rs.30
lakhs 10 days thereafter, and the balance purchase price was
to be received only after a very long period of time the
learned Single Judge directed the Official Liquidator to
hand over to the second respondent the possession of the
assets and properties by tomorrow.

The observation of the Division Bench in the order
under appeal that the sale was conducted with undue haste is
very appropriate. So are the other critical observations
that the Division Bench made, which we have quoted above.
It could not but have been obvious to the Division Bench,
therefore, that there was every possibility that the sale
had not procured the best possible price. Even so, the
Division Bench did not interfere with the order of sale,
because, in its view, the second respondent had been allowed
by the banks to take possession of the assets and properties
and to incur expenditure. In our view, the Division Bench
was in error.

Upon liquidation, the assets and properties of the
company in liquidation vest in the Official Liquidator for
the benefit of its creditors. It is only from out of the
sale proceeds of these assets and properties that the
creditors of the company can hope to recoup their dues. To
ensure that the best possible price is realised upon the
sale of these assets and properties, the sale thereof by the
liquidator is required to be confirmed by the High Court.
It is the obligation of the High Court to the creditors of
the company in liquidation to make sure that the best
possible price has been realised.

In Navalkha & Sons vs. Sri Ramanya Das & Ors.,
1970(3) SCR 1, this Court quoted Rule 273 of Companies
(Court) Rules, 1959, thus : Procedure at sale. – Every
sale shall be held by the Official Liquidator, or, if the
Judge shall so direct, by an agent or an auctioneer approved
by the Court, and subject to such terms and conditions, if
any, as may be approved by the Court. All sales shall be
made by public auction or by inviting sealed tenders or in
such manner as the Judge may direct.
It then said :

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 offeror 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 reasonable. Unless the Court is satisfied
about the adequacy of the price the act of confirmation of
the sale would not be proper exercise of judicial
discretion. In Gordhan Das Chuni Lal v. T. Sriman
Kanthimathinatha Pillai, A.I.R. 1921 Mad. 286, 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, A.I.R. 1925 Mad. 318, and S.
Soundarajan v. M/s Roshan & Co., A.I.R. 1940 Mad. 42. In
A. Subbaraya Mudaliar v. K. Sundarajan, A.I.R. 1951 Mad.
986, it was pointed out that the condition of confirmation
by the Court being a safeguard against the property being
sold 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 also well to remember that, for the most part,
the creditors of a company in liquidation are small trade
creditors whose dues are not so large as would make it
economical for them to resort to proceedings in court. It
is these small creditors that the High Court is expected to
protect when confirming a sale by the liquidator.

We think that the Division Bench lost sight of what is
stated above. It could not have realistically expected the
ordinary unsecured creditors of the said company to have
filed appeals on the ground of inadequacy of the sale price.
It could not have turned a blind eye to the many defects
that it itself noted in the order of sale merely because the
banks had moved the appeals after five months; nor was
there any justification for taking into consideration the
expenditure that had been incurred by the second respondent
subsequent to its possession of the assets and properties.
In the first place, the Division Bench should have noted
that the learned Single Judge had with unseemly haste
ordered possession thereof to be handed over to the second
respondent on the very next day. In the second place, the
appeals had been filed within the period of limitation.
Expenditure incurred during this period could not render the
appeals, in effect, infructuous. The same would apply to
expenditure incurred subsequent to the filing of the appeals
and until the time that they were heard. The second
respondent knew that the appeals were pending and that they
could end in the order of sale being set aside. Such
expenditure as it incurred with this knowledge was at its
risk. In the third place, and most important, the interests
of the creditors of the company, particularly the unsecured
creditors, overweighed such equities, if any, as might have
been considered to be in favour of the second respondent.
It was, in our view, the obligation of the Division Bench to
have struck down the order of sale, having regard to what it
found wrong with it.

It was contended on behalf of the second respondent,
the State of West Bengal and the employees that, whatever we
might think of the order of sale, we should not interfere.
For the reasons that we have stated, we cannot agree. The
interests of the creditors of the said company are
paramount, as is the obligation of the Court to them. That
the second respondent has incurred expenditure and
obligations, which were detailed, subsequent to the passing
of the order of sale and upto date cannot, in the
circumstances, deter us from setting aside the order of
sale. The second respondent knew that the appeals were
pending. It should have appreciated that the order of sale
was very vulnerable, given what the Division Bench of the
High Court had to say about it. It consciously took the
risk of incurring the expenditure and obligations and it
cannot take shelter behind them.

It was submitted by learned counsel for the second
respondent that we should vary the terms upon which the
offer of the second respondent was accepted to overcome the
prejudice to the said companys creditors. We have no
materials upon which we can do so, apart from the fact that
to do so would be wrong in principle. We do not know and
have no means of knowing what the fair value of the said
assets and properties that were sold was; that could only
have found after a properly advertised sale had been held.
We do not know, and counsel were unable to tell us, what the
totality of the claims against the said company are.

Learned counsel for the banks had contended before the
Division Bench of the High Court that the mortgages could
only have given up by the banks in writing and not otherwise
and he had pointed out that the mortgage suits by the banks
were still pending. He had also contended that what was
sold to the second respondent, in any event, was only the
equity of redemption in the mortgaged property. These
contentions were repeated before us. On behalf of the
second respondent it was contended, on the other hand, that
the banks had given up their securities and become unsecured
creditors.

It is to be noted that on 11th-12th January, 1988, the
Punjab National Bank had made an application to the High
Court in the transferred suit and prayed that the Official
Liquidator should be appointed receiver in place and stead
of the joint receivers in Suit No.738 of 1986 with
directions to take possession, make inventory and sell the
securities both in the transferred suit as well as in Suit
No.738 of 1986, which application was allowed on 12th
January, 1988. It is not clear from the submissions
whether, as a result, the Official Liquidator was appointed
receiver of the mortgaged properties in the transferred
suit. It is also not clear whether any similar application
had been made by the other banks in their suits. It is
pertinent to note that in the subsequent order dated 29th
June, 1989 passed in the winding up petition, giving to the
Official Liquidator leave to sell the assets and properties
of the said company, reference was made to the secured
creditors. Similar reference was made to the secured
creditors in the order of sale. There is also some
substance in the contention based on the fact that the
mortgage suits were pending when the order of sale was made
and that the mortgage securities could not ordinarily have
been held to have been given up without express writing to
this effect. On the other hand, it needs to be pointed out
that it appears that the banks did not at any time prior to
the order of sale require that the sale proceeds, insofar as
they related to properties secured in their favour, should
be kept apart to the credit of their suits. It is,
therefore, a moot question as to whether the banks had given
up their securities before the order of sale, but we cannot
resolve the question in the absence of the full record for
this was a question that arose incidentally in the appeals
from the order of sale. We think that this is a question
that has now to be left to be answered by the High Court on
appropriate applications by the banks.

At the same time, it is perfectly clear to us that it
was not the equity of redemption alone in the secured
properties that was sold for, had that been so, there should
have been express mention to that effect in the terms and
conditions of sale.

In an additional affidavit filed on behalf of the
second respondent before this Court it is stated that the
said company had shown no interest in renewing the lease of
the property which was the subject matter of the sale and
that in order to continue to lawfully remain in possession
to run the paper mill, the Bengal Paper Mills (1989) Co.
Ltd., floated by the second respondent and its associates,
had obtained the lease in its favour from the State of West
Bengal. The order of sale in favour of the second
respondent being liable to be set aside, everything
consequential thereon must necessarily also be set aside.
The lease, patently, was obtained as a consequence of the
order of sale. For doing complete justice, therefore, it is
necessary to set aside the lease.

Learned counsel for the second respondent submitted
that the second respondent would be entitled to recover the
sale price as also all expenditure that it had incurred
consequent upon the order of sale. We are in no doubt that
the Official Liquidator must refund to the second respondent
the sum of Rs.2 crores. As to any other expenditure, the
second respondent must apply to the High Court and satisfy
it, first, that it was incurred and, secondly, that, in law,
the second respondent is entitled to recover it.

The appeals are allowed. The judgment and order under
appeal is set aside as also the order of sale dated 15th
September, 1989 in favour of the second respondent. The
Official Liquidator shall forthwith recover possession, from
whoever is in possession, of the assets and properties
covered by the said order of sale. The same shall be resold
after a fresh valuation report thereof has been obtained, a
reserve bid fixed and due advertisements published. The
second respondent shall be repaid the purchase price of Rs.2
crores by the Official Liquidator subsequent to recovery of
possession as aforestated.

The lease of the property, which was the subject
matter of the sale, in favour of the Bengal Paper Mills
(1989) Co. Ltd., is set aside.

The second respondent shall pay to the Official
Liquidator the costs of the appeals before the Division
Bench of the High Court and of these appeals, quantified in
the sum of Rs.25000/-.

 

 

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