10127 OF 2011 BCI STAFF COLONY, RESIDENTIAL WELFARE ASSOCIATION, RAJPURA….APPELLANT(S) VERSUS APPELLATE AUTHORITY FOR INDUSTRIAL & FINANCIAL RECONSTRUCTION (AAIFR) AND OTHERS….RESPONDENT(S)
J U D G M E N T 2 Rastogi, J. It is pertinent to note that the Operating Agency was under obligation to evaluate the realizable value of the property from the approved valuer and thereafter to notify the reserve price in the auction notice in terms of Section 21(c) of the Act, 1985, and that indeed was not indicated in the auction notice and the solitary bid submitted by the appellants in Civil Appeal No 10128 of 2011 of Rs.2,84,00,000/- on 22 June, 2004 was accepted by the authority.
The record indicates that the appellants were asked to furnish a bank guarantee for a bid value of Rs.2,84,00,000/- by 27 August, 2004 for a period of one year and required to deposit payment in instalments. The AAIFR under its 5 order dated 1 April, 2005, while setting aside the order of the BIFR dated 24 November, 2004 directed the BIFR to confirm the sale of Unit Block IV in favour of the appellant and modalities for payment shall be in accordance with terms and conditions as approved by the ASC and thereafter the appellants deposited the bid value in instalments. The Division Bench also took note of the fact that solitary bid was received by the ASC for the subject property and it was less than the circle rate fixed by the Collector of the property in question and while setting aside the order of the AAIFR dated 1 6 April, 2005, restored the order of the BIFR dated 24 November, 2004 with a further direction that the money which was deposited by the appellant, be returned with interest @ 8% (simple) from the date of its deposit till the amount is refunded with liberty to sell the property, if need be, as per the provisions of law under its judgment dated 5 February, 2010.
Jaideep Gupta, learned senior counsel appearing for the appellants, submits that while the advertisement came to be published by the IDBI (Operating Agency), the guidelines of ASC were not appended thereto and it was not made known to the parties that they are required to furnish a bank guarantee as a security to the bid amount and calling upon the appellants at the stage of acceptance of 7 the bid to act upon the guidelines and to furnish a bank guarantee was not justified and this was considered by the AAIFR under its order dated 1 April, 2005 and which has not been appreciated by the High Court in the right earnest. Learned counsel further submits that the High Court has committed a manifest error and has failed to take into consideration that once the auction sale is confirmed, the objections to the said auction can only be entertained if there are material irregularities and fraud. To buttress further, learned counsel submits that once the auction sale stands approved, at least the employees who were residing in the property in question and who had never participated in the bidding process, have no locus to question the order passed by the AAIFR confirming the auction bid under its order dated 1 April, 2005 and the offer made by the respondent/original petitioner (BCI Staff Colony) was of no substance and if such practice is being 9 permitted, then such of the applicants who have not participated in the bidding process would make an offer at a later stage, no auction bid at any given point of time could be finalized and it will never fetch the value of the asset and the transaction can never attain finality.
Learned counsel submits that since the appellants have made an offer of Rs.3 crores which was higher than the bid furnished by the appellants in Civil Appeal No.10128 of 2011 and they being residing for sufficiently long time over the property in question put to auction, at least they seek an indulgence of this Court that their offer 10 may be accepted and the authorities may be directed to execute the sale certificate in their favour.
Per contra, learned counsel for the intervenors, while supporting the finding of the High Court, submits that the employees of the company in liquidation have not participated in the proceedings but their dues are still outstanding and which could not have been made over in absence of the funds available with the Official Liquidator and they being the sufferers for a long time, at least while upholding the judgment of the Division Bench of the High Court, the BIFR or the Official Liquidator may be called upon to initiate a fresh bidding process to fetch the maximized value of the property which may at least bring some solace to the employees 11 whose dues are outstanding for a long time and they have a superior claim over the financial creditors of the company in liquidation.
At the same time, the appellants in Civil Appeal No 10127 of 2011 have given their offer of Rs.14 crores since in the absence of valuation of the subject property from the approved valuer, it may not have been possible to assess the fair value of the property. – (1) xxx xxx xxx (2) The scheme referred to in sub-section (1) may provide for any one or more of the following, namely:- (a) to (j) xxx xxx xxx (k) method of sale of the assets of the industrial undertaking of the sick industrial company such as by public auction or by inviting tenders or in any other manner as may be specified and for the manner of publicity therefor;” “ 21. – Where for the proper discharge of the functions of the Board under this Act the circumstances so require, the Board may, through any operating agency, cause to be prepared- (a) to (b) xxx xxx xxx
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c) a valuation report in respect of the shares and assets in order to arrive at the reserve price for the sale of a part or whole of the industrial undertaking of the company or for fixation of the lease rent or share exchange ratio;” 23. 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. C.I.T., Selvamani and Others as under:- “…….The object of the sale is to secure the maximum price and to avoid arbitrariness in the procedure adopted before sale and to prevent underhand dealings in effecting sale and purchase of the debtor’s property. However, it later became sick and by an order dated 22 January, 2004 passed by the BIFR in case HP/2000, IDBI was directed to become the Operating Agency to take up sale of assets of BCI under Section 20(4) of SICA in terms of ASC guidelines.
The extract of the acceptance of the bid by the Appellants is reproduced hereunder: “The above sale is on the terms and conditions of Asset Sale Committee (ASC) advised to all the bidders by the ASC on August 08, 2004 for which you may be required to execute a tripartite Memorandum of Understanding (MOU) with IDBI, Selling Agency & BCIL, the draft of which would be sent to you shortly.” It will be apposite at this stage to refer to the relevant terms and conditions of the ASC which the bidder was supposed to comply and the same are referred hereunder: “Procedure and Guidelines to be followed by Asset Sale Committee (ASC) appointed by BIFR for sale of assets of sick companies – (a) to (g) xxx xxx xxx (h) Where a bid has been finally accepted the purchaser shall be required to pay the balance of the purchase consideration in two installments of 50% and 48% of the total selling price, payable respectively, before the end of 45 days and 90 days from the date on which intimation regarding the final acceptance of t.he bid is dispatched to him by registered Post (A.D.)/Special Post at his notified address. Taking both the factors into consideration; (i) the appellant being the sole bidder; and (ii) guidelines of ASC have not been complied with, the bid of the appellants was not confirmed but on appeal being preferred by the appellants, the AAIFR has not taken 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. The appellants have shown their willingness to deposit the bid amount in two instalments on 20 September, 2004 and 10 November, 2004 but the fact is that even before the order came to be passed by the BIFR, neither the bank guarantee was furnished nor a 18 single instalment was deposited by the appellants and here, in our view, the AAIFR has went wrong in setting aside the Order of BIFR. That apart, the question of locus was never raised by the appellants before the High Court and once the subject issue has been looked into by the High Court on merits and we too are persuaded that order of the AAIFR confirming the bid pursuant to its order impugned dated 1 April, 2005 is not legally sustainable, we do not find any justification at this stage to non-suit the claim of the appellants prayed for in Civil Appeal No.10127 of 2011.
Further submissions made by the learned counsel 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 3 June, 2005 and 7 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 20 auction proceedings, neither the value of the property was assessed through the approved valuer nor the reserve price was notified in the auction notice dated 24 May, 2004 and the solitary bid of the appellant for Rs.2,84,00,000/- 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 of 50% and 48% of the total selling price payable respectively before the end of 45 days and 90 days from the date of intimation of final acceptance of the bid is dispatched at his notified address which So far as the submission made by learned counsel for the appellants in Civil Appeal No 10127 of 2011 that the offer made by the appellants was higher than the sealed bid is concerned, it has no substance for the reason that the appellants have not participated in the bidding process and it is not the case of the appellants that the auction notice published on 24 May, 2004 was not in their knowledge. (AJAY RASTOGI)
Case Title: RAJIV KUMAR Vs. BCI STAFF COLONY RESIDENTIAL WELFARE ASSOCIATION (2023 INSC 439)
Case Number: C.A. No.-010128-010128 / 2011
