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Judicial Miscellaneous No.2 of 1986, decided on 15th June, 1987.

‑‑‑Ss. 305 (e), 333(1)(f) & 333(3)‑‑Civil Procedure Code (V of 1908), O.XXI, Rr.64, 78 & 89‑‑Sind Chief Court (O.S.) Rules, R.844‑ Company under liquidation‑‑Sale of assets of Company‑‑Question: whether sale of assets of company under liquidation by Official Liquidator was governed in same manner as "auction sale" under provisions of C.P.C.‑‑Official Liquidator issuing sale notice containing condition "All offers are subject to confirmation by the High Court and the Court may reject any or all offers without assigning any reasons"‑‑High Court looking to the nature of the properties and debt position of company declined the offer‑‑Contention that provisions contained in O.XXI, R.89, C.P.C. were fully applicable and Court cannot refuse to confirm highest bid on ground of inadequacy of consideration‑‑Held: High Court was not bound to accept the highest bid in the circumstances of the case and was fully competent to invite fresh offers for sale of assets of the company on ground of inadequacy of consideration; the invitation to. offer by Official Liquidator for sale of assets of the Company has no similarity to auction sale under provisions of Rr.64 to 73 of O.XXI, C.P.C.; the notice issued by Official Liquidator clearly mentioned that offers received by Official Liquidator were to be accepted by Court and Court could reject any offer without assigning any reason; the sale notice by Official Liquidator was governed by its own terms and conditions and provisions of Rr.64 to 73 & 89 to 92 of 0. XXI, C . P. C . had no application.

Ganapathia Pillani v. Malaiperumal Chettiar A I R 1925 Mad. 202; Alliance Bank of Simla Ltd. v. Miss I. Lowrie A I R 1926 Lah. 588; Nurdin v. Balaqi Mal A I R 1931 Lah. 78; Nanhalal v. Umrao Singh A I R 1931 P C 32; Navinchandra v. Ram Devi A I R 1933 All. 161; Hoshnak Ram v. Punjab National Bank A I R 1936 Lah. 555; Sardarni Kishan Khan v. Chanm Mal A I R 1938 Lah. 508; Chandra Sekhar v. Bhagwandas A I R 1941 Pat. 440; Soundara Rajan v. Mohammad Ismail A I R 1940 Mad. 42; Mandi Mia v. Sekendar Mea A I R 1941 Pat. 440; Sham Singh v. Vir Bhan A I R 1942 Lah. 102; Kayjay Industries v . Asnew Drums A I R 1974 S C 1331 and Navalkha and Son v. Ramanya Das A I R 1970 S C 2037 ref.

Bashir Ahmed Memon, Official Liquidator in person.

I . H . Zaidi for Consortium of Banks lead by I . C . P.

Muhammad Asghar Ansari for I.D.B.P.

Ismail Merchant for Habib Bank Ltd.

Salim Karimally for U . B . L.

Habibur Rehman for Bank of Oman.

Salim Iqbal for Habib Bank.

Junaid Farooqui for Workers.

A.A.Fazeel with Abdul Shakoor A. Latif for Qasim Brothers

Sattar Memon for Tawakkal Limited.

A.S. Vaswani for the Company in Liquidation.

Khuda Bux for Rashid Enterprises.

The Official Liquidator (O.L.) has made the above reference for consideration and approval of the offers received by him from various prospective purchasers in respect of movable and immovable assets of M/s. Firdous Textile Mills Ltd. (I will hereinafter refer it as the "Company" only for the sake of convenience) advertised by him for sale. The O.L. was first appointed as the provisional liquidator on 25‑5‑1986 in the above winding up proceedings. Subsequently on 18‑11‑1986, the Company was ordered to be wound up and O.L. was appointed to wind up the affairs of the Company. On 16‑2‑1987, the O.L. was permitted to sell the moveable and immovable assets of the Company. Accordingly on 7‑3‑1987 the O.L. invited offers for sale of (i) Leasehold rights in plot No. HT/3 situated in Industrial Area, Landhi, Karachi, measuring 61,280 sq.yds. with construction thereon, with plant, machinery, stores, furniture and fittings; (ii) cloth, yarn, raw cotton, lying on machines and on ground in the factory/ godowns; and (iii) cotton polyster, viscos, cotton yarn and cloth lying in Godowns No.1, 2, 3, 4 and 5 and even bales of cotton lying in open space near waste Godown pledged with Habib Bank Ltd*. belonging to the Company. Separate offers were received by the O.L. in response to the advertisement for sale of the above items which are now placed before the Court for consideration. The details of the offers received by O.L. in respect of the above items are as follows:‑

S. No. Name of Bidder. Amount of Bid Bid for item.

(1) M/s. Rashid Rs.45,00,000 For item No.(iii)

Enterprises, B, Block, with Pay Order i.e. Cloth lying

Shershah, Near Haji for Rs.4,,40,000 in Godown Nos.

Jamaluddin Godown, 1,2,3,4 & 5 and

Karachi. 11 Bales ‑ of

Cotton.

(2) M/s. Mandavia Impex, Rs.41,50,000 For item No. (iii)

23, Stock Exchange with Pay Order i.e. Cloth lying

Building, Karachi. for Rs.4,15,000 in Godown No. 1,

2, 3, 4 & 5 and

11 bales of

Cotton.

(3) M/s. Aziz Brothers Rs.4,00,000 For item No.(i)

Textile (Pvt.) Ltd. without Pay Order i.e. Land, build

12‑13, Timber Pond ing, Machinery

Keamari, Karachi. Stores.

(4) M/s. Tawakal Ltd. Rs.4,00,00,000

705/711, Mohammadi Pay Order for ‑‑‑do‑‑‑

House, Karachi. Rs.4,00,000

(5) M/s.Kassam Brothers (A) FIRST OFFER.

31, Cochinwala Market, Rs.5,05,00,000 For item No.

Karachi. with two pay orders i.e. Land, Build

for Rs. 40,50, 000 ing Machinery

& for Rs.20,00,000 Store.

(B) SECOND OFFER

Rs.6.05,00,000

to be paid in Ten .‑do‑‑

(6) Mls Kassam Brothers Rs.1,00,000 For item No.(ii)

31. Cochinwala with Pay Order i.e. Cloth, yarn

Market, Karachi. for Rs.10,000 & raw cotton

lying on machine

and on ground in

the

factory/

godowns.

2. It may be mentioned here that the above reference of O.L. first came up for hearing before me on 10‑5‑1987 when all the secured creditors of the company namely Consortium of Bank led by I.C.P., I.D.B.P. H.B.L. U.B.L.& Bank of Omam jointly opposed acceptance of any of the offer on the ground that they were for below the market value of the property and prayed for a second advertisement for sale for these assets. It may also be mentioned here that on 10‑5‑1987 when the reference came up for consideration the O.L. informed me in Court that he has received another offer for item (i) from M/s. Suleman Dawood and Ali Mohammad Dawood for Rs.7,80,00,000 accompanied by a pay order of seventy eight lacs. Mr. Sattar Memon, Advocate also made a statement in Court on 10‑5‑1987 that his clients M/s. Tawakal Ltd. who had given an offer of Rs.4 crores are now prepared to increase their offer to Rs.7 crores and they are willing to deposit the difference of earnest money. In these circumstances and looking to the nature of the properties and the present debts position of the Company I was not inclined to accept any of the above offers. However, Mr. Ali Ahmad Fazeel, the learned counsel for M/s. Kassim Brothers, who had given the highest' offer for item No.(i), urged that the Court cannot reject the offer of his client on the ground of inadequacy of consideration. I heard Mr. A.A. Fazeel, on the above point at some length on 10‑5‑1987 and adjourned the hearing to 19‑5‑1987 at his request to enable him to place case law in support of his above contention. After hearing Mr. Fazeel and the learned counsel for the secured creditors I am of the view that the Court is not bound to accept the offer of M/s. Kassim Brothers in the circumstances of the case, and is fully competent to invite fresh offers for sale of the assets of the Company on the ground of inadequacy of consideration.

3. In support of his contention Mr. A.A. Fazeel has referred to Section 333(f) of the Companies Act. Rule 844 of the Sind Chief Court (Original Side) Rules. Rules 64, 78 and 89 of Order XXI, C.P.C. In addition to the above provision of law the learned counsel also referred to large number of decided cases mostly from Indian jurisdiction which I will consider in the later part of this order. The sum and substance of the argument of Mr. Fazeel in short is that the sale of the assets of the Company under liquidation by the O.L. is governed in the same manner as an auction sale under the provision of C.P.C. and as such the provision contained in Order XXI, Rule 89 were fully applicable and sale could be set aside only on the grounds mentioned in the above rule. It is accordingly urged by Mr. Fazeel that as soon as the hammer falls and auctioning officer accepts the highest bid of a bidder who is willing to perform other terms and conditions of auction, the Court cannot refuse to confirm his highest bid on the ground of inadequacy of consideration. According to learned counsel the act of O.L. in inviting the offers for sale of the assets of the Company was equivalent to the act of an officer who was conducting an auction sale under the orders of the Court and who after accepting the highest bid has forwarded the same to the Court for confirmation and as such the Court could only set aside the sale on the ground mentioned in Rule 89 of Order XXI, CPC. The contention of learned counsel has not impressed me at all. Firstly, the invitation of offer by the O.L. for sale of the assets of the Company has no similarity to the auction sale of an immovable B property held in accordance with the provision of Order XXI, Rules 64 to 73, CPC. It is not disputed by Mr. Fazeel that in every auction sale it is necessary to mention the reserve price of the property offered for sale and also the amount for the recovery of which the sale is ordered. It is also not disputed by the learned counsel that in an auction sale a bid below the reserve price can be rejected outright by the Court. The sale notice issued by the O.L. contained the following conditions:‑

(1) All offers are subject to confirmation by the High Court of Sind, Karachi and the Court may reject any or all offers without assigning any reasons.

(2) The balance of the purchase price will be paid by the purchaser to the Official Assignee/ Official Liquidator within 15 days of the acceptance of the offer by the High Court, failing which the deposit amount shall stand forfeited.

(3) All expenses on account of any document, conveyance, stamps and Registration etc. shall be borne by the purchaser.

(4) The factory can be inspected on 16th, 17th and 18th March, 1987 from 10.00 A.M. to 1.00 P.M."

4. It is an admitted position that in the sale notice issued by O.L. neither the reserve price of the property was mentioned nor the amount for which sale is ordered is indicated. In addition to it by a bare reading of the terms of sale it is abundantly clear that the offers received by the O.L. were to be accepted by the Court which reserved the right to reject any or all offers without assigning any reason. In view of the above terms and conditions of sale there is hardly any room for argument that the O.L. while making reference to the Court with regard to various offers received by him in response to his sale notice was only seeking confirmation of the highest offer which he had accepted. There is neither anything in the sale notice issued in the case by the O.L. nor in the reference of the O. L. to suggest that the O.L. was competent to accept the highest offer of any party or that in fact he accepted such an offer. I am therefore, quite clear in my mind that the sale notice issued in the case by the O.L. was governed by its own terms and conditions and provision contained in rules 64 to 73 and 89 to 92 of Order XXI, CPC had no application in the present case. The provision of Order XXI, Rule 89 CPC and principles contained therein is otherwise not apply in the present case as. these provisions are applicable only where sale has taken place, namely the bid has been accepted and the entire purchase money has been deposited in Court by the auction‑purchaser. In the case before me no such stage is reached as yet as none of the bids mentioned in the reference of O.L. has been accepted by the Court. Mr. Ali Ahmad Fazeel, the learned counsel for Kassim Brothers has referred to the following cases in support of his contention that the Court cannot refuse confirmation of sale on the ground of inadequacy of consideration:‑

(i) Ganapathia Pillani v. Malaiperumal Chettiar (AIR 1925 Mad. 202),

(ii) Alliance Bank of Simla Ltd. v Miss I. Lowrie (AIR 1926 Lah. 588),

(iii) Nurdin v.Balaqi Mal (AIR 1931 Lah. 78),

(iv) Nanhalal v. Umrao Singh (AIR 1931 P.C.32),

(v) Navinchandra v. Ram Devi (AIR 1933 All. 161)

(vi) Hoshnak Ram v. Punjab National Bank (AIR 1936 Lah. 555),

(vii) Sardarni Kishan Khan v. Chanm Mal (AIR 1938 Lah. 508),

(viii) Chandra Sekhar v. Bhagwandas (AIR 1941 Patna440),

(ix) Soundara Rajan v. Mohammad Ismail (AIR 1940 Mad. 42).

(x) Mandi Mia v. Sekendar Mea (AIR 1941 Patna 440),

(xi) Sham Singh v. Vir Bhan (AIR 1942 Lah. 102) and

(xii) Kayjay Industries v. Asnew Drums (AIR 1974 SC 1331).

5. In almost all the above‑cited cases it is held that the sale become complete when the bid is accepted by the officer conducting the sale and thereafter the sale could only be set aside on the grounds mentioned in Rules 89, 90 and 91 of Order XXI, CPC. It is in this context that in most of these cases it was held by the Courts that after the sale takes place it cannot be set aside on the ground of inadequacy of consideration. In the case before me firstly it was not a case of auction sale and secondly, the offers were to be accepted by the Court in accordance with the terms of sale notice. In these circumstances, there was no question of any sale in favour of any of the bidder unless the offer was accepted by the Court. In the case of Navalkha and Son v. Ramanya Das (AIR 1970 SC 2037) the following observations were made by the Court regarding confirmation of sales by the Court: ‑

"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 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 unreasonable. 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."

6. The above observation of Supreme Court of India were quoted with approval in the case of Kayjay Industries v. Asnew Drum relied by Mr. Fazeel. A Division Bench of this Court in the case of Industrial Development Bank Ltd. v M/s. Larkana Textjle Mills Ltd. (P L D 1982 Kar.1) also set aside a sale by the Company Judge in liquidation proceedings on the ground of inadequacy of consideration. I am therefore, of the view that in the circumstances of the case the secured creditors of the Company have rightly opposed acceptance of the offer of Kassim Brothers on the ground of inadequacy of consideration. I, therefore, decline to accept the highest offer of M/s. Kassim Brothers and direct the O.L. to cause a fr‑6sh sale notice issued inviting fresh offers for sale of all the 3 items mentioned in his reference. It is, however, desirable that in the next sale notice the O.L. should indicate the reserve price of each of the item which may be fixed after notice and consultation of the secured creditors of the Company. The money deposit by the prospective purchasers with the O.L. in the shape of pay orders alongwith the offer may be returned to the parties.

K.B.A./S‑79/K Order accordingly.

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