Proposition: Even After bidding is completed- court can allow inter-se bidding in the interest

of the auctioneer.

Briefs of Cases:

Vedica Procon (P) Ltd. v. Balleshwar Greens (P) Ltd., (2015) 10 SCC 94 (Div Bench SC)

Subsequent developments, which are neither vitiated by any fraud or irregularity in the sale
nor was there any objection on the adequacy of price, in that case the courts ought not allow
the confirmed sale through auction to be subsided.

Pegasus Assets Reconstruction (P) Ltd. v. Haryana Concast Ltd., (2016) 4 SCC 47 (Div
Bench SC)

Subsequent increase in value of the property, the sale of which has been confirmed, does not
need any interference of the court, especially when no illegality or irregularity could be
proved against the conduct of the auction, which was conducted in a fair and competitive
manner. Furthermore, the decision re-affirmed the Navalkha and Sons v. Ramanya
Das judgment, which stated that the Company Court has a discretion either to accept or reject
the highest bid before an order of confirmation of sale is made. However, once the Company
Court is satisfied that the price is adequate, the subsequent higher offer cannot be a ground
for refusing confirmation.

Saraf Paper Mills Ltd., In re, 2008 SCC OnLine Del 1262 (DHC Single Bench)

The Court being the custodian of the interests of the company and its creditors has to ensure
that the property is not being sold at an inadequate price, and is reasonable considering the
market standards. If the price is inadequate, then even in the absence of irregularity and fraud
the court can allow inter se bidding to reach a reasonably adequate, fair, and competitive
prices.
Vedica Procon (P) Ltd. v. Balleshwar Greens (P) Ltd., (2015) 10 SCC 94 : (2016) 1 SCC
(Civ) 19 : 2015 SCC OnLine SC 724 at page 115
Division Bench: Justice Chelameswar and Justice Sapre.
Held no subsequent higher offer can make a ground for re-opening;
Facts- the price of land increased, therefore, a subsequent development.
51. The highest bid of the appellant herein was accepted by the Company Court and all
the stakeholders of the company in liquidation were heard before such an acceptance.
Nobody ever objected including the first respondent herein at that stage on any ground
whatsoever, such as, that there was any fraud or irregularity in the sale nor was there any
objection from any one of them that the price offered by the appellant herein was inadequate.
No doubt, the property in question became more valuable in view of the subsequent
development. In our opinion, it is not a relevant consideration in determining the legality of
the order dated 17-12-2013 [Official Liquidator v. SBI, 2013 SCC OnLine Guj 7770] .
Imagine, if instead of increasing the floor space index for construction from 1.0 to 1.8 the
State of Gujarat had decided to reduce it below 1.0 subsequent to 17-12-2013 [Official
Liquidator v. SBI, 2013 SCC OnLine Guj 7770] , could the appellant be heard to argue that it
would be legally justified in resiling from its earlier offer which was accepted by the Court
and not bound by the contractual obligation flowing from such an offer and acceptance?
Saraf Paper Mills Ltd., In re, 2008 SCC OnLine Del 1262 {Paras 24-29; analysis: 38-43}

Delhi HC (Justice Vipin Sanghi)

Facts: para 38, GES finalized the bid at Rs. 1.30 Crores. Subsequently, M/s Synergy Steel
Ltd. raised the offer to Rs. 1.35 crores, which because of it being marginally higher than the
bid of Rs. 1.30 cores given by GES, the subsequent bid was rejected. Soon thereafter M/s
Synergy Steel Ltd. made an offer of Rs. 1.50 crores. Entertaining which the court directed
that possession of the property be not handed over to GES. Therefore, it appears that even at
that stage, though the auction purchaser GES had paid the entire consideration of Rs. 1.3
Crores, the Court was still open to accept a higher offer, provided the same was substantially
higher. M/s Data Developers Ltd. made a still higher offer of Rs. 1.70 crores. On 20.4.2006
the Court ordered that Data Developers Ltd. would be entitled to participate in the open
bidding which would take place on 27.4.2006. Therefore, once again, it appears that the
Court considered the issue of sale of the property to GES as open to reconsideration. On
27.4.2006 the limited auction was held between three bidders including GES who raised its
offer to Rs. 3.15 crores.

Finally, M/s Surya Finvest Pvt. Ltd. on 23.5.2007 making a still higher offer of Rs. 4.50
cores, which was the highest bid.

Held: Considering the conduct of GES of just marginally increasing the price of the bid, just
to become the highest bidder, which finally ended at Rs. 4.50 Crores, it is apparent that the
market value of the property is more than the initially finalised price of Rs. 1.30 Crore, and
therefore, it is proper to allow subsequent bidding in order to reach an adequate and fair
price of the property.

24. The Court also cited the decision in Navalkha & Sons v. Ramanuja Das, [1970] 40
Comp. Cas. 936 and quoted with approval the following passage:

“The principles which should govern confirmation of sales are well-established. Where
the acceptance of the offer by the Commissioner 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,
AIR 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 Ratnaswami Pillai v. Sabapathi Pillai, AIR 1925 Mad 318, and S.
Soundarajan v. Roshan and Company. AIR 1940 Mad 42. In A. Subbaraya
Mudaliar v. K. Sundarajan, AIR 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.”(emphasis
supplied).

27. The Court cited with approval the earlier decision in Navalkha (supra) and LICA (P)
LTD. (No. 2) v. Official Liquidator & Anr. [1996] 85 Comp. Cas. 792. The Supreme Court
observed that the court is empowered to set aside the sale even after it had been confirmed for
the interest of the creditors and in the larger public interest. The Court having arrived at the
conclusion that the offer price was totally inadequate, it was the interest of the company and
its creditors to set aside the sale. The Court observed:

“…….This may cause some inconvenience or loss to the highest bidder but that cannot
be helped in view of the fact that such sales are conducted in court precincts and not by
a business house well versed in the market forces and prices. Confirmation of the sale
by a court at a grossly inadequate price, whether or not it is a consequence of any
irregularity or fraud in the conduct of sale, could be set aside on the ground that it was
not just and proper exercise of judicial discretion. In such cases, a
meaningful intervention by the court may prevent, to some extent, underbidding at the
time of auction through court. In the present case, the Court has reviewed its exercise of
judicial discretion within the shortest time.” (emphasis supplied)
28. In LICA (P) LTD. (No. 2) v. Official Liquidator & Anr., the Court had earlier set aside the
open auction conducted and directed inter se bidding between the applicant and the auction
purchaser in the court. However, subsequently when even this auction was challenged before
it, it directed fresh open auction since it was of the opinion that the inter se bidding had failed
to fetch the market price for the assets in question, and it was within the interest of the
creditors that the assets of the company fetched adequate price.
Divya Mfg. Co. (P) Ltd. v. Union Bank of India, (2000) 6 SCC 69 : 2000 SCC OnLine SC
983 at page 79
16. Further, there is a specific Condition 11 in the terms and conditions of sale as quoted
above which empowers the Court to set aside the sale even though it is confirmed for the
interests of creditors, contributories and all concerned and/or public interest. In this view of
the matter, it cannot be said that the Court became functus officio after the sale was
confirmed. As stated above, neither the possession of the property nor the sale deed was
executed in favour of the appellant. The offer of Rs 1.30 crores is totally inadequate in
comparison to the offer of Rs 2 crores and in case where such higher price is offered, it would
be in the interest of the Company and its creditors to set aside the sale. This may cause some
inconvenience or loss to the highest bidder but that cannot be helped in view of the fact that
such sales are conducted in court precincts and not by a business house well versed in the
market forces and prices. Confirmation of the sale by a court at a grossly inadequate price,
whether or not it is a consequence of any irregularity or fraud in the conduct of sale, could be
set aside on the ground that it was not just and proper exercise of judicial discretion. In such
cases, a meaningful intervention by the court may prevent, to some extent, underbidding at
the time of auction through court. In the present case, the Court has reviewed its exercise of
judicial discretion within the shortest time.
Pegasus Assets Reconstruction (P) Ltd. v. Haryana Concast Ltd., (2016) 4 SCC 47 : (2016)
2 SCC (Civ) 524 : 2015 SCC OnLine SC 1387 at page 66
Division Bench SC
38. On considering the submissions of parties, we find that the sale confirmed in favour
of M/s Venus Realcon for Rs 32 crores does not require any interference, particularly at the
instance of the petitioner Vinod Rajaliwala. There was no illegality or irregularity established
against the conduct of auction and once it is found that the offer of Rs 32 crores was a fair
offer in a competitive bid conducted fairly and the offer has been accepted and the sale
confirmed, it would not be proper for this Court to undermine the value of such auction-sale
conducted not only by the secured creditor but also by the Official Liquidator who was
permitted to be associated with the whole process of finding out of valuation as well as the
conduct of sale. M/s Venus Realcon has rightly placed reliance upon the judgments of this
Court in Valji Khimji & Co. v. Official Liquidator [Valji Khimji & Co. v. Official Liquidator,
(2008) 9 SCC 299] and Vedica Procon (P) Ltd. v. Balleshwar Greens (P) Ltd. [Vedica
Procon (P) Ltd. v. Balleshwar Greens (P) Ltd., (2015) 10 SCC 94 : (2016) 1 SCC (Civ) 19]
This extract is taken from Pegasus Assets Reconstruction (P) Ltd. v. Haryana Concast
Ltd., (2016) 4 SCC 47 : (2016) 2 SCC (Civ) 524 : 2015 SCC OnLine SC 1387 at page 66
40. In Vedica Procon case [Vedica Procon (P) Ltd. v. Balleshwar Greens (P) Ltd., (2015)
10 SCC 94 : (2016) 1 SCC (Civ) 19] the aforesaid view was noticed and after considering
many judgments, in paras 39 and 40, the Court approved the view taken in Navalkha and
Sons v. Ramanya Das [Navalkha and Sons v. Ramanya Das, (1969) 3 SCC 537] that there is
a discretion in the Company Court either to accept or reject the highest bid before an order of
confirmation of sale is made. However, once the Company Court is satisfied that the price is
adequate, the subsequent higher offer cannot be a ground for refusing confirmation. The price
of immovable property keeps on varying depending upon the market conditions and
availability of a buyer. Such fluctuations may attract fresh higher offers but normally such
offers cannot be made the basis for reopening the confirmed sale which was otherwise valid.
In the present case, we are satisfied that the sale made in favour of M/s Venus Realcon does
not require any interference. There is no good reason why the full price paid by Venus
Realcon should be ordered to be refunded with interest, etc. and possession which was
delivered to Venus Realcon at the time of sale should be disturbed after passage of so much
time.