Companies Act Case Law M.V. Janardhan Reddy Vs Vijaya Bank

Companies Act Case Law M.V. Janardhan Reddy Vs Vijaya Bank

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,
2

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.
3

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
4

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
9

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
1

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
1

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.
1
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
1

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
2

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)

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